ANNUAL REPORT 2020 A building family, building for families for 70 years 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 2 0 Contents A heritage of leadership Chairman’s letter CEOs’ letter Building a strong, diverse business over 70 years Our products 3 4 6 10 12 Builders Academy Australia How we support our people Our commitment to community Financial report Shareholder information Corporate directory 14 16 18 20 99 IBC OUR FOUNDING PRINCIPLES STRATEGY Leading by innovation, winning through diversification INNOVATION Listening to the market drives our ability to create and innovate WELLNESS Health and wellness for employees and contractors at work and at home SUSTAINABILITY Sustainable sourcing and materials without compromising quality COMMUNITY Community is the glue of our society WHS A safety culture embedded into the business HISTORY A 70 year legacy as the backbone of an enduring brand FAMILY In the Simonds name, across the Simonds staff and to the wider family of home owners LOCAL Employing and engaging locals as staff and suppliers as a priority 1 Simonds Group Annual Report 2020 Started as a family business Today we are a building family RHETT “Today, we have not only reshaped our business but are at the forefront of reshaping the industry, through diversification, technology and our people focus.” GARY “The team responded effectively and efficiently by rapidly implementing onsite safety programs, changing the sales mix to be more online orientated, and accelerating Builders Academy Australia (BAA) to online, self‑paced learning.” MARK “COVID‑19 has prioritised health, family and security for everyone. The homes we build are now where people live and work. FY20 saw range and processes fine‑tuning, without compromising quality or our lifetime structural guarantee.” 2 Focused on getting families into homes Family remains core to our brand A HERITAGE OF LEADERSHIP Over the past 12 months the Simonds Group have progressed our strategic plan to reshape the business. We redefined our core purpose, reset our strategy and ensured the right structures were in place to achieve these goals. Diversification has been a key strategy. Our focus has always been on putting families into homes. In the last 12 months we have expanded what this means. We launched Start Point, we added to the Simonds Homes range and we started affordable housing projects with governments in South Australia and Victoria. In FY20, we recorded 2,395 housing starts and anticipate growth into FY21. Due to our continuous focus on innovation and diversification, more people than ever will live in a Simonds home. From the more than 50,000 Australians that live in their dream Simonds home; the 6,000+ contractors that build these homes every year; the suppliers that have supported us for decades; our shareholders that have invested their funds believing in our brand; and the 800+ staff that call the Simonds Group home, the Simonds family goes far beyond those carrying the family name. In FY20, this growing Group also includes the expanding number of tradies educated through our building and construction courses, and for the first‑time government and affordable housing residents that are experiencing the design and build of a Simonds home. This year Rhett Simonds joined the business as Joint CEO in February 2020 seeing a return of the founding family to the operations. Together with Kelvin Ryan, this leadership team is always focused on helping people get into a new home. Home ownership has been and always will be, at the heart of the Simonds Group business. When Gary Simonds built his first house 70 years ago, a home for his mum, family was the first thought in his mind. Since then the Simonds name from Gary through to his son, Mark and now his grandson Rhett, have made putting families into homes a priority. First as a private family‑owned company, and then in 2014 with Simonds Group becoming a public company, our family has expanded exponentially. 3 KELVIN “We are a resilient organisation with great pride in what we do. We are uniquely placed to provide homes and education that can have a profound impact on the lives of so many Australians.” Simonds Group Annual Report 2020 CHAIRMAN’S LETTER Dear Shareholders, On behalf of the Board we have pleasure in presenting the 2020 Annual Report to you, a year in which there were two very distinct halves. Half one in which the Group performed solidly and in line with expectations, and half two in which we had to respond rapidly to the burgeoning impact of the COVID‑19 pandemic. The financial results for the year, which are laid out in detail in this report, show that EBITDA was $31.5 million (FY19: $23.2 million) and NPAT from continuing operations was $7.1 million, down $4.6m on FY19 due to the impact of the lower sites starts and the investment made in developing and marketing new business channels. balance sheet, the uncertainty created by the COVID‑19 pandemic is such that no dividend will be paid in respect of the 2020 financial year. In the first half the company generated $22.7 million in cash from operations strengthening the Group’s balance sheet include repayment of debt. We continued to focus on improving operating performance by taking out costs and committed to investing in developing new sales channels to market. All this momentum changed in February and March as the severity of the impact of the COVID‑19 pandemic became increasingly apparent. Few of us, if any, could have imagined this event. The Joint CEO’s report which follows, goes into some detail as to how the company has handled the multiple, complex challenges. At all times the health and wellbeing of our staff was and remains our priority focus. Your directors have determined, notwithstanding the strong operational cash flow and strengthening of the However, against this difficult and testing environment, it was heartening to see strong interest re‑emerging from customers towards the year end. The Federal Government stimulus package generated significant interest and we have been working hard to secure customers to ensure Simonds is their first choice to build a new home. We obviously can’t predict what next year will bring, when the world will get back to normal nor what a “new normal” will look like. Indeed as this report is being penned, Victoria is back in a Stage 4 lockdown until 13 September. However, we are quietly confident that the Simonds brand will be in strong demand when we come out of this episode. The directors also remain committed to the Group’s strategies to deliver shareholder value through innovation, alternative sales channels and wellness. We also have a commitment to investment in people and maintaining the highest standards of safety. The Simonds team have shown exemplary commitment and have worked way and beyond normal expectations during trying and 4 difficult times. Thank you and we look forward to your continuing efforts as, together, we all work our way through this extraordinary period. Simonds Homes survived the 1990 recession, the Global Financial Crisis in 2008 and various other challenges in the 70 years of its existence and has set the standard for building homes. COVID‑19 is likely to be the greatest challenge in our lifetime. We will come out of this episode with a new sense of perspective, new ways of working and lessons learned which will benefit our business for the future. Finally thank you to all our shareholders. Please keep safe and stay healthy. Iain Kirkwood Chairman The strength of the Simonds brand is that 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. HR image needed 5 Simonds Group Annual Report 2020 CEOs’ LETTER > The decision to partner with children’s cancer charity My Room, and as first home partner for the rebadged “Home for a Cure” annual initiative. > Prior to the pandemic, BAA launched live online and self‑paced learning and so were amongst the few able to ensure no disruption to learning programs. Financial performance This has all been achieved during a year where we have generated positive cash flows and further strengthened the balance sheet. Overall, the Group’s revenue of $664.8 million, was down $22.9 million or 3.3% on FY19, and EBITDA of $31.5 million was up $8.3 million or 35.8% on FY19 due to the introduction of the new lease Accounting Standard offsetting the lower site starts. Our future pipeline of sales accepted and contracted will provide continued momentum moving into FY21 and beyond. Our balance sheet health has significantly improved over the past three financial years, on the back of the results achieved, with net assets increased to $17.3 million as at 30 June 2020 from $11.4 million in the previous corresponding period. The Group continues to focus on improving and delivering sustainable operating performance through cost efficiency, increasing sales through displays and investment in developing new channels to market. Our strategy The Simonds difference is our ability to influence two critical enablers that are our two core business units: > Simonds Homes: Providing access to affordable home ownership; and > Education: Our registered training organisation, Builders Academy Australia (BAA) assists people seeking qualifications to enter the building and construction workforce or advance their careers. These two complementary businesses ensure excellence in service and product that has been synonymous with the Simonds Group for three generations. Building on the foundations established in the previous two financial years through the ‘Back to Basics’ approach initiated in 2018, the Group has a strong, stable industry‑experienced leadership team and is well structured to drive the business forward. Our core purpose continues to focus on maximising the strength of the Simonds brand to become a leader in Australian home building and be recognised for the high‑quality craftmanship and the good‑value homes we build. EBITDA 35 30 25 20 15 10 5 0 m $ 10.1 13.7 4.4 23.2 31.5 14.1 17.4 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY20 EBITDA now does not include lease expenses which totalled $14.1 million. AASB16 now requires leases to be capitalised as an asset meaning the $14.1m expense which would have previously reduced EBITDA is now reported within Depreciation & Amortisation (D&A) and Interest expense thus resulting in a higher EBITDA figure. Dear Shareholders, In our first year as Joint CEOs, we are pleased to be able to share insights into the performance of the business through a challenging period for the industry. The significant downturn in the market, which started in early 2019, was further exacerbated by more restrictive lending conditions and flowed through to impact our FY20 starts. This was followed by the unprecedented effect of the COVID‑19 pandemic which is predicted to see 600,000+ job losses nationally1 and housing construction to fall by 25% in 20202. Pleasingly, the alignment of the executive team, and agile response to these challenges, has enabled the Group to finish the year in a positive position as we have continued to deliver a number of firsts: > Winning our first contracts to build government housing in South Australia and Victoria. > After becoming the first volume‑home builder to be fully certified in Quality, Safety and Environment, achieving accreditation under AS 4801 Safety, ISO 9001 Quality and ISO 14001 Environment in 2019, we have maintained that status. > BAA launched a number of new training products that supported learners with business to business arrangements and also began delivery to international students. MBA April 2020 Industry Forecasts. CBA June 2020 Building Approvals Report. 1 2 6 We do this by working in partnership with key land developers, leveraging our supply chain to meet the market in terms of product mix and innovation in the key growth corridors of major Australian cities across the east coast and southern Australia. The key elements of the Group’s strategy for the year ahead and beyond are: > continue to ensure the safety of our staff and sub‑contractors working on site is paramount; > organically grow our existing business whilst pursuing new business growth opportunities to deliver increased site starts, revenues and bottom‑line results; > improve operating margins; > maintain focus on cost control and debt levels; and > broaden our product offering by developing new and innovative product across the range. Safety first We have continued to strengthen our safety, environmental and quality management systems. The primary objective of our safety program is to recognise safety as a core value across all areas of the business, and it results in a positive safety culture and a healthy, engaged workforce. Our safety management systems remain highly visible across the Group and we continue to strive for improvements in safe work practises. We remain committed to safety in the home building sector. Importantly, we have a voice in industry through our involvement in the Volume Builders Safety Alliances in each state and through our active participation in industry programs around the country with the regulators. Young people coming into the residential building industry are able to come through BAA to upskill and become better tradespeople. 7 It is also important to us that we have seen an increase in participation from women and from minority groups. Construction is not an exclusive club, and BAA creates new work and learning opportunities for Australians and international students. Digital transformation The COVID‑19 pandemic has fast‑tracked the digital transformation of our business. Simonds Group pivoted from an operational perspective with more than 800 staff working from home. This period has opened our eyes to other ways to sell beyond the traditional display house and sales consultant. We pushed transformation of our sales approach, as we identified online and virtual avenues for homes to be sold. Online engagement with buyers looking to build their home, and with people seeking qualifications to enter the building and construction workforce has shown the potential of the future of our Company. Simonds Group Annual Report 2020 CEOs’ LETTER (CONT’D) Delivering for our customers Delivering the best education Young people coming into the residential building industry are able to come through BAA to upskill and become better tradespeople. The academy provides high‑quality, nationally accredited Building and Construction qualifications in skilled needs areas. As a regulated sector, BAA continues to ensure strong governance, quality management systems and processes are in place across its operations whilst aligning all activities with the needs of the Building and Construction industries. All courses are delivered with the promise of ‘builders training builders’. With BAA moving to online, self‑paced learning, this has enabled us to grow our footprint to other states. Without question FY20 has been the best year BAA has experienced. Student enrolments were up 35.5%, revenue increased by 16.7% and EBITDA up 71% on FY19. Students studying under apprenticeship and traineeships doubling during the period. BAA has broadened the range of qualifications it offers and it is expected to generate additional revenue in FY21. We recognise that many customers are entrusting their life savings with us. So it’s important for us to see first home buyers who have worked hard to put their finances together, are able to get onto the property ladder with Simonds Homes. Simonds Homes is one of the largest and most successful volume housing building construction companies in Victoria. It is important to note our ongoing expansion into South Australia, New South Wales and Queensland. This diversifies risk and increases opportunity across the country. We continue to innovate and develop market‑leading product. As well as our industry‑leading home designs and house and land packages, our innovative Start Point product launched this year in Victoria, South Australia and Queensland gets first home buyers into a home they never thought they could afford. We have also connected with more buyer markets as we expanded the Simonds Homes range with 10 new designs, refreshed the Precinct range with 15 new designs, updated the SimVesta offer and commenced affordable housing projects with governments in South Australia and Victoria. The Group was able to pivot in response to the sudden changes impacting our market. In FY20, we recorded 2,395 housing starts, which was a 7% decline on FY19, compared to industry1 forecasts of a decline of 10 to 13% in FY20. Our ongoing innovation and diversification has enabled us to broaden our capacity to deliver homes to more buyer segments. Forecast decline in new, detached home approvals across the states Simonds operates in (Victoria, NSW, Queensland and South Australia) by HIA and BIS‑Shrapnel. 1 8 Future outlook Varied conditions across the residential property market experienced over the past 12‑18 months are likely to continue through the remainder of calendar 2020 and into 2021. With the unprecedented situation presented by COVID‑19 we expect this period to continue to present some significant challenges and opportunities for the Group. We will continue to look for ways to expand and diversify our sales through our existing and new sales channels and opening new ways to market as well as improving our operating margins. The business continues to improve its market penetration, sales and ultimately, its site starts by strengthening its relationships with land developers, locating display homes in major growth zones, consolidating our product range and continuing to innovate and release new product to the market. The outlook for the Group is generally supported by market fundamentals with the currently low interest rates forecast to remain in place for the short to medium term, combined with strong population growth and modest economic growth. Acknowledgements and thanks We take this opportunity to thank again our customers, loyal and talented staff and trades, suppliers, trainers, industry partners and the Board and shareholders of Simonds Group for their valuable input and support during the year. Rhett Simonds Joint CEO and Managing Director, Simonds Group Limited Kelvin Ryan Joint CEO and Managing Director, Simonds Group Limited 9 Simonds Group Annual Report 2020 1949 Gary Simonds starts his apprenticeship. 1951 – 1953 Gary builds his first house; a home for his mum. And from here Gary’s life long dedication to building homes for Australian families began. 1995 Simonds wins first award – “Best Display Home under $100k”. 1999 Building 1,000 homes per year makes Simonds a household name. 2005 BAA established to provide trade training. 1968 Simonds Homes opened the first Display Centre in Werribee. 1970 In just two years, Simonds build an average of 3 homes per year. 1973 Gary’s son, Mark Simonds, starts his apprenticeship. 1976 Mark Simonds joins the business. 1979 Simonds build an average of 12 homes per year. 2002 – 2006 Gary’s grandson, Rhett Simonds joins the business. HIA Award – “Best Custom‑Built home over $1,000,000”. 2009 Expansion to Queensland (Qld). Simonds Homes grows to building 2,000 homes per year. 2011 Geelong Football Club grounds named Simonds Stadium. 2012 Expansion to South Australia (SA). 2014 Simonds Group Limited listed on stock exchange. 1980 By the 80’s Simonds were building 100 homes per year. 2015 Simonds expands into New South Wales (NSW). 10 2018 FEBRUARY Kelvin Ryan starts as CEO AUGUST Lifetime Structural Guarantee & Wellness campaign launched SEPTEMBER A wellness focus for the company is launched nationally BUILDING A STRONG, DIVERSE BUSINESS OVER 70 YEARS 2019 MARCH SimVesta refresh JULY Masterpiece Dual Occ. refresh APRIL Xpress launch in Victoria Simonds awarded AS4801, ISO 9001 and ISO 14001 accreditation JUNE Precinct refresh NOVEMBER Simonds appointed to first SA Government affordability projects DECEMBER Xpress launch in NSW Start Point launch in Victoria 2020 FEBRUARY Rhett Simonds starts as Joint CEO alongside Kelvin Ryan Start Point launch in Qld Limited Edition launched nationally MARCH Simonds responds quickly to COVID‑19, minimising the impact on customers and staff MAY SA Government affordable homes build commences JUNE The My Room ‘Home for a Cure’ 2019 auction buyer moves in 11 Simonds Group Annual Report 2020 OUR PRODUCTS 12 ‘Over the past 3 years we have continued to lead, innovate, diversify our product and respond to changes across our markets.’ Design Construction Simonds Homes has innovated and responded to the changing needs of the market. We have grown significantly by increasing the design portfolio to deliver more options to prospective homeowners. This includes 48 new designs for Simonds Homes in two ranges – Simonds Home Range (25) and Simonds Metro Range (23); 9 designs to launch the Precinct Terrace Range of a medium density product suitable for city fringes. The Simonds Homes range also had a Specification restructure to be in line with market needs. The ranges now offered by the Simonds Group include Simonds Homes, Metro, Start Point, Precinct, SimVesta, Masterpiece, Limited Edition and Xpress. This year also saw us progressively release Start Point and Xpress ranges in NSW, Qld, SA in addition to Victoria, so more people can access Simonds’ design quality. Partnering with governments in South Australia and Victoria has led to us delivering spaces that encourage positive and healthy living that the Simonds brand is known for, applied to DHHS housing and the NDIS. We are now on the Preferred Builder Panel for future DHHS work. Over the past 3 years we have continued to lead, innovate, diversify and respond to the market. Across each range, high design standards and liveability makes each product desirable to prospective owners. Efficient construction is driven by two key drivers – the people that enable the construction, and the structure that enables them to operate efficiently. In the 2020 financial year, we have focused on getting the right people into the right positions. We provide on the job training for all new starters to ensure they succeed in their roles. This is exemplified by the many staff that have been with us for over a decade. This continual attention to professional development is a benchmark that we strive for. In terms of structure, we have now completed the alignment of the team structure for both Construction and Maintenance where they now align with Sales and Operations. This has allowed us to consolidate teams across all regions and realise teamwork synergies to improve delivery, quality and customer service. The right people, empowered in the right way, delivers benefits to the entire organisation but importantly ensures our customers receive the best products and service every time. Operations Over the past 12 months we have been undertaking several transformation programs that will deliver operational improvements. The initial stages of system and business improvement initiatives will carry on into FY21. We will continue to realise benefits from these activities long term. We have been more customer focused as a priority. Customer‑ directed activities in terms of sales, marketing and operations leads to more consistent starts which are a key benchmark for the Group. System and business improvements together with customer focus has meant we have been proactive in protecting our margin. Our investment into people including training and development of personnel has led to improved quality management, service delivery and superior customer service. When a Simonds home is built that is only the beginning of the customer journey. We treat every Simonds homeowner as a customer for life. Suppliers Many of the suppliers to Simonds have been our partners for decades. These supply relationships range from small local businesses to large multi‑nationals. Our procurement process has delivered on cost reductions throughout FY20 through improved supplier arrangements and a willingness to work together on more efficient processes that deliver mutual benefit. We have sought to improve processes through streamlining products and services, with an increased focus on standardisation of our practices nationally. Because of this we are seeing improvements in construction outcomes that ensures consistency and margin stability. 13 Simonds Group Annual Report 2020 BUILDERS ACADEMY AUSTRALIA Simonds is uniquely placed as the only National volume builder with its own Registered Training Organisation (RTO) that offers qualifications to the broader building sector. Builders Academy Australia (BAA) continues to deliver high quality, nationally accredited Building and Construction qualifications developing skilled workers for high demand areas in the Building and Construction industries. Before the COVID‑19 physical distancing requirements came into effect, BAA had already introduced varied online delivery options including a live and interactive Virtual Classroom model, as well as a self‑paced online delivery model. These introductions had supported growth across different student cohorts and geographical locations. As COVID‑19 related restrictions came into place, BAA was able to scale the offerings of these online models, resulting in minimal disruption to learners and continuity of training delivery. With BAA and CWBTS’s ability to respond quickly to the changing landscape, and their established strong brand as a leader in the trades training and adult education space, BAA’s strong results included outcomes such as: The team at Simonds Group believes that employment is empowering and becoming qualified for a trade can increase social mobility, student confidence and morale. BAA have led many social initiatives and promoted diversity. > Experienced 300% growth > Establishing formal partnerships in apprenticeships and doubled EBITDA year on year. > More students graduated during the year as compared to previous years including an increasing number from NSW and Qld (approximately 20% of total students). > More in‑demand building courses have been onboarded in civil construction, OHS and safety, leadership and management. This increases BAA’s footprint in the training industry. > Launched into the international students market with traction anticipated in FY21 and beyond. with Top 100 Women and Tradeswomen Australia to help increase female participation in trades. > Establishing relationships with businesses representing a range of multi‑cultural groups and launching training and employment initiatives supporting these learners. > Being the first Private RTO to have their apprentices invited to take part in the regional WorldSkills Carpentry competition that celebrates the best in industry. > Being announced as a finalist at the 2020 Victorian Training Awards for the category of Small Training Provider of the Year. This is the same category against which BAA was a finalist in 2017 and winner of in 2018. 14 BAA continues to ensure strong governance, quality management systems and processes are in place across its operations. BAA leadership team is stable with most having been in the team for 5 years. This provides BAA with a pool of growing leaders to turn to as the business needs of the future are being identified. Staff training and development During COVID‑19, staff were also offered training opportunities and over 150 Simonds staff have signed on for leadership training for 12 months providing them with a Diploma of Leadership and Management. This training and skill development will continue to aid in the improvement in technical quality and leadership ability of the Simonds team and support the Group’s growth over its next stage of business operations. Case study KIRSTY O’CONNOR “I’m studying my Certificate IV in Building and Construction via the virtual classroom. I’ve got a family and two young boys, so to be able to have the kids at home at 6 o’clock, go into the office and do what I need to do, and finish by 9 o’clock is great. The Certificate IV is perfect because it gives you the ground knowledge. If you have got the background knowledge you can move forward.” 15 Simonds Group Annual Report 2020 HOW WE SUPPORT OUR PEOPLE Continuity during COVID‑19 Keeping everyone safe and healthy is our priority. Simonds are committed to maintaining our onsite operations and will continue to do everything we can to ensure that homes are completed. We have engaged with all suppliers to minimise any potential disruptions to the delivery of materials required for the completion of new homes. At this stage, this proactive measure has delivered favourable outcomes and we do not foresee any significant delays or shortages. We have developed systems and processes in line with government health advice to ensure that all urgent maintenance and warranty support can continue with minimal disruption. Sustainability By working continuously with our suppliers, we are able to ensure our building materials are sustainably sourced, with our key material suppliers obtaining the relevant accreditations for their respective industries. All timber sourced is AFS or FSC accredited and materials such as steel and concrete contain significant recycled content. Recycling is also a key focus at Simonds with many recyclable products being separated from general waste. Examples of this are brick, roof tiles and plasterboard. Quality always counts and we value our suppliers’ initiatives in respect to sustainability, safety, materials sourcing and people management within their businesses. Safety Simonds continues to improve its safety performance. ISO 9001, ISO 14001 and AS4801 certification in the areas of Quality, Environment and Safety were all retained. Simonds remains the first and only national residential volume builder to hold all three standards. Simonds has maintained a strong commitment to its safety values along with the health and wellbeing of its employees and contractors. We see safety as the backbone of our business and we address safety as the first agenda item in our management meetings. We promote a positive safety culture along with wellness to any stakeholder engaged. This has been extended through COVID‑19 with the establishment of engagement protocols and business continuity programs. Simonds is recognised as a leader in safety in the building sector, and has a strong presence in the Volume Building Safety Alliances in the states that it operates in. We are committed to continuous improvement and “best safety practice” in our systems. We work with our contractors, and through our contractor management tool, Linksafe, we monitor and report on their compliance to regulations and to our safety standards. Simonds actively organised and participated in The Residential Builders UV campaign. With our industry partners we prompted a sun smart approach when working on site. We had 500 contractors participate in breakfast toolbox meetings around Victoria along with our industry partners. Simonds have maintained better than average workers compensation industry rates by preforming 78 % better than our industry sector in Victoria. 16 We have also taken time to recognise each other more regularly. Large scale awards have always been the norm and today colleagues are ‘shouting out’ for their team mates who are doing incredible things both at work and in their community. And we’ve not forgotten showing appreciation to the so very many staff who have been with us for long periods of time – quite a few for over 20 years. As a family, we are listening better, acting with greater consideration and being grateful. All have been a part of how the Simonds Group have always operated. This last year has been a great reminder of why we continue and re‑emphasize why it’s so different and meaningful to be part of this unique organisation. People and culture The extended Simonds family that includes employees and contractors of Simonds Group are one of our most important considerations. Staff initiatives throughout the year included ongoing workplace wellbeing, increased training and development, rigorous occupational health and safety, enhanced internal communications, celebrations of success and commitment and more. Wellbeing became a recognised initiative in 2019 and 2020 saw this increase particularly as the company has supported staff through the impacts of COVID‑19. All staff have been provided with access to the Employee Assistance Program with Assure, which was well established prior to the pandemic. New guidelines were provided to staff on how to be safe and well during work from home periods and liaison between all levels of staff has been a priority. “Checking in” is now very much part of our leadership culture. The changing environment also gave us the opportunity to encourage staff to undertake leadership and building skills training. Both have been very popular and 2021 will see a workforce of improved capability. The changes heightened all of our safety considerations and staff have been delivered detailed information, advice and encouragement to adopt this with daily communication. ‘Quality always counts and we value our suppliers’ initiatives in respect to sustainability, safety, materials sourcing and people management within their businesses.’ 17 Simonds Group Annual Report 2020 OUR COMMITMENT TO COMMUNITY Simonds Group is committed to a broad range of community initiatives, from sponsorship and donations, to local employment and training. While the business operates across four states, each team member understands the importance of the local community and its value for families building their new homes. It is part of the culture of Simonds, to support, nurture and participate in developing healthy communities. Community outreach and sponsorship At a national level, Simonds returned to reviewing the implementation of the strategy for state and local level partnering to ensure each activity is making a difference and building goodwill towards the brand. This review process was worthwhile as we were able to consider new opportunities where there was a gap and maintain support throughout the challenging pandemic period. At a state level, Simonds supports a number of health sector organisations striving to help Australians live better. The Victorian charity My Rooms’ “2019 Home for a Cure” program helped raise $550,000 in vital funds for medical projects and equipment and aid for families dealing with childhood cancer. The campaign helped grow awareness about My Room with over 100,000 people online. The 2020 home has been committed to and built, to see more funds raised to ensure My Room can continue their exceptional work. 18 The relationship with the Salvation Army continued and Simonds facilitated a refresh of the Magpie Nest Café in Melbourne, which provides food and shelter for the homeless and disadvantaged. Support for the Flinders Foundation in Adelaide continued with planning for a charity home to raise significant funds for the prevention, cure and care programs delivered by Flinders Medical Centre. Twenty sports groups were also well supported by Simonds, including the Geelong Football Club and their grassroots programs as well as local sports groups across Victoria, South Australia and New South Wales. AFL, netball, soccer and cricket are all the codes supported by Simonds with these clubs playing vital roles in their community’s wellness and connectedness. Staff initiatives continue to be supported and 2020 saw even more staff undertake their own fundraising projects and profiling of their efforts with colleagues. The St Vinnie’s CEO Sleep Out, Mission Australia, AHHA, Movember, R U OK Day, Polished Man, Cancer Council, Team Kill Cancer and Multiple Sclerosis Research Foundation to name a few, were supported by Simonds staff and the company and colleagues. Throughout the year, Simonds briefed our supplier networks on our major partnering initiatives and invited them to participate. We have been thrilled that over 50 suppliers across all areas of our supply chain, have been involved in some way with either free labour, materials or equipment. We are incredibly appreciative and thankful for their contributions. Their efforts have ensured major fund raising results, by creating homes and prize packages that are sustaining charity outcomes. 19 Local engagement FY20 also saw the Simonds Group committing to Victorian and South Australian local employment programs engaging local businesses and employing people with disabilities under the Public Tenant Employment Program (PTEP) in Victoria and a disability apprentice program with the South Australia Housing Authority. We are proud of the social impact of these initiatives. The monthly Coffee Karma program, where funds raised by donations in the Head Office Level 1 café are donated monthly, saw a new local project beneficiary in Daniher’s Drive, for MND. Simonds Group Annual Report 2020 FINANCIAL REPORT Contents Directors’ report Remuneration report Auditor’s independence declaration Independent auditor’s report Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to financial statements Shareholder information 21 29 47 48 53 54 55 56 57 99 Corporate directory IBC 20 DIRECTORS’ REPORT 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 2020. 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: Current Directors Name Date appointed Current position Iain Kirkwood Neil Kearney Delphine Cassidy Kelvin Ryan1 Rhett Simonds2 Mark Simonds Piers O’Brien 20 September 2017 20 September 2017 20 September 2017 5 March 2018 20 April 2016 20 September 2017 20 September 2017 Independent Non‑Executive Director and Chairman Independent Non‑Executive Director Independent Non‑Executive Director Joint Chief Executive Officer (CEO) and Managing Director Joint Chief Executive Officer (CEO) and Managing Director Executive Director Non‑Executive Director 1 From 1 February 2020, Kelvin Ryan has become a Joint Chief Executive Officer & Managing Director 2 On 29 January 2020 Simonds announced that it was implementing a Joint CEO structure with Rhett Simonds joining Kelvin Ryan as Joint CEO and Managing Director from 1 February 2020. Prior to this date, Rhett Simonds was a non‑executive director and appointed to the Board on 20 April 2016. Former Directors Name Date appointed Date resigned Position Scott Mahony 20 September 2017 25 May 2020 Non‑Executive Director 21 Simonds Group Annual Report 2020 DIRECTORS’ REPORT (CONT’D) 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). Neil Kearney > Iain is a member of the Company’s Audit & Risk and Nomination & Remuneration Committees. > 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 Bluechip 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. > 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 Craig Mostyn Group. > 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 chairs the Company’s Nomination & Remuneration Committee and is a member of the Company’s Audit & Risk Committee. > Delphine has become an investor relations expert, working as a senior executive in this field for several ASX 200 Companies. > Delphine has been a member of the Australasian Investor Relations Association (AIRA) Issues Committee and the ASX Issuer Services Working Group. Kelvin Ryan > Delphine is currently Chief Communications Officer at Orica Limited. > 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 and construction industries. > Kelvin also has significant experience as a senior executive in mining and manufacturing industries both in Australia and internationally. 22 Name Rhett Simonds Experience and Directorships > 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 the property and construction sector, where he sits on a number of private company boards. > In addition to his experience in the property and construction sector, Rhett is a director of and investor in a number of technology and finance related businesses. Mark Simonds > Mark holds a registered builder’s licence in Victoria, NSW, Queensland and South Australia. Mark has spent over 40 years immersed in the volume home building industry. Piers O’Brien Scott Mahony > Prior to Simonds Group Limited listing in 2014, Mark was fully engaged in the day‑to‑day executive management of Simonds Homes. From 1973 until its listing, Mark worked alongside his father Gary Simonds, and understands what is required for a successful volume building business. > Mark is the Deputy Chairman of Simonds Consolidated, which is primarily focussed on venture capital, private equity, building and construction and the broader real estate sector. > Piers is a qualified lawyer with over 20 years’ professional experience. > Piers is a member of the Company’s Nomination & Remuneration Committee. > Piers is the Chief Operating Officer of the Simonds Family Office before which he spent the previous 12 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. > 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 is a Chartered Accountant. > Scott was a member of the Company’s Audit & Risk Committee up until the time of his resignation from the Board effective 25 May 2020. > Scott joined Simonds Homes (then a private company) in 1999 and was Chief Financial Officer from 2008 to 2014. 23 Simonds Group Annual Report 2020 DIRECTORS’ REPORT (CONT’D) Directors’ shareholding The following table sets out each of the directors’ relevant interest in shares and rights or options on shares of the Company or related body corporate as at the date of this report: Directors Iain Kirkwood Neil Kearney Delphine Cassidy Kelvin Ryan Rhett Simonds Mark Simonds Fully paid ordinary shares (Number) Share options (Number) 75,000 90,000 30,000 61,623 14,044 56,741 – – – 2,831,861 183,824 – 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 Paul Taylor was appointed Company Secretary of Simonds Group Limited on 16 April 2019. Paul is a member of the Executive Leadership Team and the Group’s Company Secretary and General Counsel. Prior to joining Simonds Group, Paul held numerous roles at Cover‑More Group Limited, including General Counsel and Head of Risk and Compliance. Paul holds a Master of Laws (Commercial) and Bachelor of Commerce (Hons) from the University of Melbourne. Operating and financial review Principal activities The Group’s principal activities during the financial year were the design, sales and construction of residential dwellings and providing registered training courses. Business overview Building homes since 1949, Simonds Homes is one of Australia’s largest volume home builders, 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 (BAA) 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. 24 Operations Group revenue from continuing operations for the period was $664.8m compared to the previous corresponding period of $687.7m. Simonds Homes recorded 2,395 site starts for the period, a reduction of 185 or 7.2% on the previous corresponding period. The reduction in Group revenue is predominantly due to the impact of the lower site starts and changes in product mix. Earnings per share The calculation of EPS is presented in Note 11. 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 year ended 30 June 2020 of 143,841,655 (2019: 143,841,655). EPS from continuing operations Basic Balance sheet Note 30 June 2020 Cents per share 30 June 2019 Cents per share 11 4.95 8.16 The Group delivered a strong performance in subdued market conditions in 2020 associated with a restricted lending environment and the challenges presented by the COVID‑19 pandemic. The Group’s operating results were impacted by both these factors, as well as the investment made in marketing and developing new sales channels. With three consecutive years of positive results, the business has now stabilised and is in a much stronger position. During the year, the Group fully repaid the Simonds Homes Display Fund of $5.000m at maturity in September 2019 and continued to operate well within its banking covenants. Due to a change in accounting standards, certain operating leases are now represented on the balance sheet as ‘Right‑of‑use assets’ of $22.700m and a ‘Lease liability’ of $22.621m. Refer to the Notes to the Financial Report for more information on the impact of the implementation of the new accounting standard that has required this change in accounting treatment. Improved operating results and cash flow management have enabled the Group to significantly improve its net cash position (measured by cash and cash equivalents less borrowings) to net surplus of $25.910m at 30 June 2020 compared with $1.200m indebtedness at 30 June 2019. The net assets of the Group have improved from $11.408m at 30 June 2019 to a net asset position of $17.247m at 30 June 2020. Operating cash flows The Group generated $48.923m in operating cash flows during the financial year ended 30 June 2020, an increase of $42.868m in comparison with the prior corresponding period, impacted by the reclassification of payments for leases that were previously accounted for as operating leases from operating to financing activities. Improved operating cash flows were also derived from customer collections as well as the continued focus on cost efficiency. The Group generated net cash flows of $18.580m, a significant improvement on the net cash flows of $2.692m in the financial year ended 30 June 2019. 25 Simonds Group Annual Report 2020 DIRECTORS’ REPORT (CONT’D) Impacts of COVID‑19 During the second half of the financial year the global economy was impacted from the COVID‑19 pandemic. Due to the Group’s balance sheet position and high lead times associated with building homes the impact was not significantly felt by the business immediately. In order to mitigate any future impacts on the business a review has been completed to ensure the Group is well prepared for any long‑term adverse impact on the Australian economy. In addition, these potential impacts may be further mitigated as the Group has been able to broaden and diversify its sales channels to include government housing and digital sales. Future developments Challenges remain in some areas with continued delays in registration of land by developers as well as customer financing, however changes made by APRA to relax constraints on customer borrowings combined with reduction in cash rates and the Federal Government’s HomeBuilder Stimulus Package should enable greater access to finance by our customers. In addition, SHA continues to leverage its strategic relationships with land developers to enable its customers to procure land in key growth zones. Builders Academy Australia 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. The economic uncertainty in the wake of the COVID‑19 pandemic and the inherent difficulty in predicting the speed and timing of any recovery make any forward‑looking statement impossible. Notwithstanding this uncertainty, our industry and the Simonds brand has shown great resilience through previous challenging and unprecedented times. We remain vigilant and are prepared to respond to the recovery when it happens. Summary of key business risks The Board remains optimistic about the Group’s future trading performance but acknowledges there are certain factors that may pose a risk to the achievement of the Group’s business strategies and future performance, particularly the potential ongoing impact of the COVID‑19 pandemic may adversely affect the performance of the business. There are some risks, specific to the Group’s home building business and the delivery of training courses, as well as external risks, such as the economic environment, over which the Group has no control. 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 impacts on the financial results. Risks are assessed across the business and reported to the Audit & Risk Committee and to the Board where required under the Group’s Risk Management Framework. 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. As the COVID‑19 pandemic’s adverse impact on economic conditions could cause a decline in demand for new housing within Australia, management continue to monitor the situation and ensure the Group has plans in place to respond appropriately. 26 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 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. Subsequent events On 3 August 2020, the Premier of Victoria announced Stage 4 restrictions for metropolitan Melbourne to apply until at least 13 September 2020, the Stage 4 restrictions increase the construction time to build homes and reduce visits to display homes. Management have taken a range of mitigating actions to reduce the impact of the restrictions. There have been no other events that occurred subsequent to the reporting date that may significantly affect the Group’s operations, results or state of affairs in future periods. Dividends The directors have determined, notwithstanding the strong operational cash flow and strengthening of the balance sheet, the uncertainty created by the COVID‑19 pandemic is such that no dividend will be declared in relation to the 2020 financial year (2019: nil). 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. 27 Simonds Group Annual Report 2020 DIRECTORS’ REPORT (CONT’D) 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, 12 Board meetings, 8 Nomination & Remuneration Committee meetings and 6 Audit & Risk Committee meetings were held. Directors Iain Kirkwood Kelvin Ryan Neil Kearney Delphine Cassidy Rhett Simonds Mark Simonds Piers O’Brien Scott Mahony** Board of Directors Nomination & Remuneration Committee Audit & Risk Management Committee Held* Attended Held* Attended Held* Attended 12 12 12 12 12 12 12 11 12 11 12 11 12 10 12 10 8 8 8 8 8 8 8 8 8 5^ – 8 2^ – 8 – 6 6 6 6 6 6 6 5 6 5^ 6 1^ 2^ – 1^ 5 * 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. ** As announced on 26 May 2020 Scott Mahony resigned his position on the Board of Simonds Group Limited effective 25 May 2020. ^ Attended as a Director not as a Committee member. 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 32 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 32 to the financial statements do not compromise the external auditor’s independence, based on advice received from the Audit & Risk 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. 28 DIRECTOR’S REPORT: REMUNERATION REPORT Dear Shareholder, We are pleased to present our Remuneration report for the financial year ended 30 June 2020. At Simonds Group, the health, safety and wellbeing of our employees is of paramount importance and never has this been more prevalent than with the challenges presented by the COVID‑19 pandemic. Remuneration decisions made by the Board have been prudent with a lens on mitigating business risk and supporting business continuity planning. We feel these decisions have been measured and balanced given fluctuating market conditions and the potential impact on shareholders, our employees, suppliers and customers. FY20 remuneration The short‑term incentive plan is structured in three components – an EBITDA target, three individual KPI’s with defined metrics and a CEO discretionary percentage. With the Group achieving the threshold target for EBITDA, the Board has approved for the short‑term incentive plan payment to crystalize, however the timing of payment will be at the Board’s discretion. We have simplified the FY20 long‑term incentive plan by having only one clear EPS hurdle, compared to the EPS and TSR hurdles included in previous years plans. Given the prolonged impact of COVID‑19, the Board agreed to take a 25% reduction in Directors fees. Forward looking remuneration arrangements for FY21 and beyond Due to the uncertainty in the market, the Nomination & Remuneration Committee (NRC) resolved the FY21 Executive Leadership Team short‑term incentives will be at the absolute discretion of the Board. To all our employees who had to adapt quickly to very different working conditions, work diligently to meet these challenges, exceed productivity measures and continue to maintain the high quality service to our customers – we thank you. There is great pride in being part of the Simonds Group and our resilience as an organisation, we believe, will help us to continue to adapt and respond. We welcome shareholder feedback on this remuneration report. Delphine Cassidy Chair, Nomination & Remuneration Committee 29 Simonds Group Annual Report 2020 DIRECTOR’S REPORT: REMUNERATION REPORT (CONT’D) 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 2020. The KMP disclosed in this report are listed in the table below: Non‑Executive Directors (NED) Name Position Iain Kirkwood Neil Kearney Delphine Cassidy Piers O’Brien Independent Non‑Executive Director and Chairman Independent Non‑Executive Director Independent Non‑Executive Director Non‑Executive Director Appointment date 20 September 2017 20 September 2017 20 September 2017 20 September 2017 Former Non‑Executive Directors (NED) Name Non‑Executive Director Appointment date Resignation date Scott Mahony Non‑Executive Director 20 September 2017 25 May 2020 Executive Directors (ED) Name Kelvin Ryan1 Rhett Simonds2 Mark Simonds Position Joint Chief Executive Officer (CEO) & Managing Director Joint Chief Executive Officer (CEO) & Managing Director Executive Director Appointment date 5 March 2018 1 February 2020 20 September 2017 1 From 1 February 2020, Kelvin Ryan has become a Joint Chief Executive Officer & Managing Director. 2 On 29 January 2020 Simonds announced that it was implementing a Joint CEO structure with Rhett Simonds joining Kelvin Ryan as Joint CEO and Managing Director from 1 February 2020. Prior to this date, Rhett Simonds was a non‑executive director. Current senior executives Name Mick Myers Position Chief Financial Officer (CFO) Remuneration policy summary Appointment date 30 May 2016 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. 30 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 account 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 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 & Remuneration Committee (the Committee) and executives in determining the appropriate remuneration strategy. The Boards’ role in remuneration The Board approved the Nomination & 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. The Nomination & 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 eight times during the year. The CEO and any other 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 2020, the Committee was at all times comprised of at least 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. 31 Simonds Group Annual Report 2020 DIRECTOR’S REPORT: REMUNERATION REPORT (CONT’D) 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 2020, fees paid to non‑executive directors totalled $528,951 (exclusive of superannuation and cash salary and fees). Given the prolonged impact of COVID‑19, the Board agreed to take a 25% reduction in Directors fees commencing 1 May 2020. Shareholdings of Non‑Executive Directors are set out on page 44 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 2020 are set out commencing on page 36 of this remuneration report. KMP remuneration framework The KMP remuneration framework comprises three principal elements: > a total fixed remuneration (TFR) 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 TFR overview TFR 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. 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 the Group’s budgeted Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) is an initial gateway to realise a STI amount. All STI’s are subject to the achievement of clear performance measures – the weighting of KPI’s is as follows: KPI’s Group EBITDA KPIs for each individual (Including standard 10% allocation of Safety) CEO Discretion (except in the case of the Joint CEOs, STI, Board Discretion) Gateway Nominated EBITDA (adjusted for lease accounting) EBITDA (adjusted for lease accounting) Weighting 60% 30% 10% Gateway target 50% 100% 32 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 FY2020 Cash Rights The Cash Rights will be granted for nil consideration. Consideration for the Performance Rights Vesting Period Performance Measure Vesting of Performance Rights is dependent on one discrete performance Each right has a vesting period of approximately three years. measure (hurdle): Grant date CAGR EPS 9 March 2020 The Measurement Period for the Compound Annual Growth Rate (CAGR) EPS Hurdle is across the three financial years across the period 1 July 2019 to 30 June 2022. CAGR EPS Vesting Schedule CAGR in EPS Less than 7.5% per annum Between 7.5% and 10% per annum At or above 10.0% per annum Percentage of Performance Rights to vest: None Straight line interpolation applies 100% Service Vesting Condition Other conditions The Service Vesting Condition is continuous employment with the Company from Grant date to vesting date. These rights may be settled in either shares in the Company or the equivalent value in cash, at the discretion of the Board. Award structure FY2019 Performance Rights Consideration for the Performance Rights Vesting Period The Performance Rights will be granted for nil consideration. Each tranche has a vesting period of approximately three years. 33 Simonds Group Annual Report 2020 DIRECTOR’S REPORT: REMUNERATION REPORT (CONT’D) Award structure FY2019 Performance Rights Performance Measure Vesting of Performance 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 1 March 2019 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 2018 to 30 June 2021. TSR Vesting Schedule (Tranche 1) CAGR EPS Vesting Schedule (Tranche 2) Simonds Group Limited percentile ranking Percentage of Performance Rights to vest Less than the 50th percentile Between the 50th and 75th percentile At or above the 75th percentile None 50% (straight‑line interpolation between the 50th and 75th percentile) 100% CAGR in EPS Percentage of Performance Rights to vest: Less than 7.5% per annum Between 7.5% and 10% per annum At or above 10.0% per annum None Straight line interpolation applies 100% Service Vesting Condition The Service Vesting Condition is continuous employment with the Company from Grant date to vesting date. 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 Per 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. 34 Award structure FY2018 Cash Rights TSR Vesting Schedule (Tranche 1) CAGR EPS Vesting Schedule (Tranche 2) Simonds Group Limited percentile ranking Percentage of Cash Rights to vest Less than the 50th percentile Between the 50th and 75th percentile 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 None 50% (straight‑line interpolation between the 50th and 75th percentile) 100% Percentage of Cash Rights to vest: None Straight line interpolation applies 100% Service Vesting Condition The Service Vesting Condition is continuous employment with the Company from Grant date to vesting date. Remuneration structure and performance/shareholder wealth creation The Group’s annual financial performance and indicators of shareholder wealth are summarised below. FY2020 Statutory actual2 FY2019 Statutory actual2 FY2018 Statutory actual2 FY2017 Statutory actual2 FY2016 Statutory actual2 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)3 $m 664.8 31.51 5.5 0.33 0.35 – 4.95 $m 687.7 23.2 11.7 0.36 0.33 – 8.16 $m 605.2 13.7 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) 1 Statutory EBITDA is net profit after tax from continuing operations $7.114m before financing items $1.502m, tax expenses $3.784m, and depreciation and amortisation $19.073m. 2 The Madisson business was discontinued on 21 January 2016 and is classified as a discontinued operation after this date. As the Madisson business is a discontinued operation it is not reflected in the results presented above for FY2016‑2020. 3 EPS is based on Earnings for continuing operations only. 35 Simonds Group Annual Report 2020 DIRECTOR’S REPORT: REMUNERATION REPORT (CONT’D) 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. FY2020 Current Non‑Executive Directors I Kirkwood N Kearney D Cassidy P O’Brien Former Non‑Executive Directors S Mahony1 Total Current Executive Directors K Ryan R Simonds2 M Simonds Total Current Senior Executives M Myers Total TOTAL KMP Short term employee benefits Directors fees $ Cash salary and fees $ Short term incentive $ Non‑monetary benefits $ Annual leave $ 150,685 106,545 108,859 84,475 78,387 528,951 – 50,609 82,075 132,684 – – 661,635 – – – – – – – – – – – – 685,456 178,749 – 864,205 475,000 125,000 – 600,000 343,105 343,105 1,207,310 125,000 125,000 725,000 – – – – – – – 1,494 – 1,494 11,055 11,055 12,549 – – – – – – 37,789 31,841 10,537 80,167 30,033 30,033 110,200 1 As announced on 26 May 2020 Scott Mahony resigned from his position on the Board of Simonds Group Limited effective 25 May 2020. 2 On 29 January 2020, Simonds announced it would be implementing a Joint CEO structure with Rhett Simonds joining Kelvin Ryan as Joint CEO and Managing Director from 1 February 2020. Prior to this date, Rhett Simonds was a non‑executive director. Rhett Simonds remuneration received while in his capacity as a Non‑Executive Director, are included in his Executive Director remuneration disclosures for the 2020 financial year. In both roles Rhett Simonds is considered a KMP. 36 Post‑ Termination employment benefits benefits Long‑term benefits Share‑based payments Termination payments Super $ Long service leave $ Performance rights/options Percentage of remuneration fixed and at risk Total $ Fixed % At risk % $ – – – – – – – – – – – – – 14,315 10,122 7,808 8,025 7,447 47,717 21,003 14,622 8,531 44,156 21,003 21,003 112,876 – – – – – – 4,610 4,180 1,017 9,807 12,085 12,085 21,892 $ – – – – – – – 165,000 116,667 116,667 92,500 85,834 576,668 313,239 21,446 1,537,097 427,941 102,160 334,685 2,067,198 117,740 117,740 660,021 660,021 452,425 3,303,887 100% 100% 100% 100% 100% 49% 66% 100% 0% 0% 0% 0% 0% 51% 34% 0% 63% 37% 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. Non‑Executive Directors Non‑Executive Directors Executive Directors FY2020 Current I Kirkwood N Kearney D Cassidy P O’Brien Former S Mahony1 Total Current K Ryan R Simonds2 M Simonds Total Current Senior Executives M Myers Total TOTAL KMP Directors fees $ 150,685 106,545 108,859 84,475 78,387 528,951 – 50,609 82,075 132,684 – – 661,635 Short term employee benefits Cash salary and fees Short term incentive Non‑monetary benefits Annual leave $ – – – – – – – $ – – – – – – – $ – – – – – – – – 1,494 1,494 11,055 11,055 12,549 $ – – – – – – 37,789 31,841 10,537 80,167 30,033 30,033 110,200 685,456 178,749 475,000 125,000 864,205 600,000 343,105 343,105 1,207,310 125,000 125,000 725,000 1 As announced on 26 May 2020 Scott Mahony resigned from his position on the Board of Simonds Group Limited effective 25 May 2020. 2 On 29 January 2020, Simonds announced it would be implementing a Joint CEO structure with Rhett Simonds joining Kelvin Ryan as Joint CEO and Managing Director from 1 February 2020. Prior to this date, Rhett Simonds was a non‑executive director. Rhett Simonds remuneration received while in his capacity as a Non‑Executive Director, are included in his Executive Director remuneration disclosures for the 2020 financial year. In both roles Rhett Simonds is considered a KMP. Termination benefits Termination payments $ – – – – – – – – – – – – – Post‑ employment benefits Super $ 14,315 10,122 7,808 8,025 7,447 47,717 21,003 14,622 8,531 44,156 21,003 21,003 112,876 Long‑term benefits Share‑based payments Long service leave $ Performance rights/options $ Percentage of remuneration fixed and at risk Total $ Fixed % At risk % – – – – – – 4,610 4,180 1,017 9,807 12,085 12,085 21,892 – – – – – – 165,000 116,667 116,667 92,500 85,834 576,668 313,239 21,446 – 334,685 1,537,097 427,941 102,160 2,067,198 117,740 117,740 452,425 660,021 660,021 3,303,887 100% 100% 100% 100% 100% 49% 66% 100% 0% 0% 0% 0% 0% 51% 34% 0% 63% 37% 37 Simonds Group Annual Report 2020 DIRECTOR’S REPORT: REMUNERATION REPORT (CONT’D) Short term employee benefits Directors fees $ Cash salary and fees $ Short term incentive $ Non‑monetary benefits $ Annual leave $ 155,251 109,589 109,589 86,758 86,758 86,758 634,703 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 584,646 91,324 675,970 600,000 – 600,000 10,272 – 10,272 44,562 – 44,562 277,043 125,000 10,272 23,077 20,531 5,314 103,905 565,142 59% 41% – – 634,703 76,533 353,576 1,029,546 – 125,000 725,000 1,078 11,350 21,622 – 23,077 67,639 24,778 24,778 24,778 5,133 25,664 120,297 – 5,314 6,395 – 103,905 318,865 107,522 672,664 2,948,845 100% – Post‑ Termination employment benefits benefits Long‑term benefits Share‑based payments Termination payments Super $ Long service leave $ Performance rights/options Percentage of remuneration fixed and at risk Total $ Fixed % At risk % $ – – – – – – – – 170,000 120,000 120,000 95,000 95,000 95,000 695,000 100% 100% 100% 100% 100% 100% 45% 100% 0% 0% 0% 0% 0% 0% 55% 0% 1,081 – 1,081 214,960 1,476,052 214,960 105,129 1,581,181 – – – – – – – 14,749 10,411 10,411 8,242 8,242 8,242 60,297 20,531 13,805 34,336 $ – – – – – – – – – – – FY2019 Current Non‑Executive Directors I Kirkwood N Kearney D Cassidy R Simonds P O’Brien S Mahony Total Current Executive Directors K Ryan M Simonds Total Current Senior Executives M Myers Former Senior Executives J Thorburn1 Total TOTAL KMP 1 John Thorburn ceased to be KMP on 5 September 2018. 38 Short term employee benefits Cash salary and fees Short term incentive Non‑monetary benefits Annual leave $ – – – – – – – $ – – – – – – – – $ – – – – – – – – $ – – – – – – – – 584,646 600,000 10,272 44,562 91,324 675,970 600,000 10,272 44,562 277,043 125,000 10,272 23,077 Non‑Executive Directors FY2019 Current I Kirkwood N Kearney D Cassidy R Simonds P O’Brien S Mahony Total Current K Ryan M Simonds Total Current M Myers Former Senior Executives Senior Executives J Thorburn1 Total TOTAL KMP Executive Directors Directors fees $ 155,251 109,589 109,589 86,758 86,758 86,758 634,703 – – – – – – 1 John Thorburn ceased to be KMP on 5 September 2018. Termination benefits Termination payments $ – – – – – – – – – – – Post‑ employment benefits Super $ 14,749 10,411 10,411 8,242 8,242 8,242 60,297 20,531 13,805 34,336 Long‑term benefits Share‑based payments Long service leave $ Performance rights/options $ Percentage of remuneration fixed and at risk Total $ Fixed % At risk % – – – – – – – – – – – – – – 170,000 120,000 120,000 95,000 95,000 95,000 695,000 1,081 – 1,081 214,960 – 214,960 1,476,052 105,129 1,581,181 100% 100% 100% 100% 100% 100% 45% 100% 0% 0% 0% 0% 0% 0% 55% 0% 20,531 5,314 103,905 565,142 59% 41% 76,533 353,576 – 125,000 725,000 1,078 11,350 21,622 – 23,077 67,639 634,703 1,029,546 24,778 24,778 24,778 5,133 25,664 120,297 – 5,314 6,395 – 103,905 318,865 107,522 672,664 2,948,845 100% – 39 Simonds Group Annual Report 2020 DIRECTOR’S REPORT: REMUNERATION REPORT (CONT’D) 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 Joint Group Chief Executive Officer (CEO) & Managing Director are as follows: Term: Total Fixed Remuneration (TFR): No fixed term. Ongoing until terminated by either party in accordance with the Agreement. $725,000 (including superannuation) for the period from 1 July 2019 to 31 January 2020. Short Term Incentive (STI) for FY20: $362,500 per annum (including superannuation) from 1 February 2020 onwards. STI eligibility up to $600,000 per annum, subject to performance, up to 31 January 2020. Long Term Incentive (LTI) for FY20: STI eligibility up to $300,000 per annum, subject to performance, from 1 February 2020 onwards. LTI eligibility up to the value of $300,000 per annum will be offered pursuant to the Simonds Group Employee Share Plan up to 31 January 2020. LTI eligibility up to the value of $150,000 per annum will be offered pursuant to the Simonds Group Employee Share Plan from 1 February 2020. Other benefits: LTI participation and terms are at the discretion of the Board. An allowance of $175,000, payable from 1 April 2019 to 31 January 2020. Notice period/termination entitlements: An allowance of $87,500 payable from 1 February 2020. The notice period of Mr Ryan’s employment agreement has been increased from 6 months to 12 months. Employment may be ended immediately by the Company in certain circumstances including misconduct, incapacity, and mutual agreement or in the event of a fundamental change in the Joint CEO’s role or responsibilities. The Company may elect to make a payment in lieu of any unserved notice period. Post‑employment restraint: A 12‑month post‑employment restraint provision applies. 40 The material terms of the Executive Services Agreement between Rhett Simonds and the Company for the role of Joint Group Chief Executive Officer (CEO) & Managing Director are as follows: Term: Total Fixed Remuneration (TFR): Short Term Incentive (STI) for FY20: Long Term Incentive (LTI) for FY20: Other benefits: Notice period/termination entitlements: No fixed term. Ongoing until terminated by either party in accordance with the Agreement. $362,500 per annum (including superannuation) from 1 February 2020 onwards. STI eligibility up to $300,000 per annum, subject to performance. LTI eligibility up to the value of $150,000 per annum will be offered pursuant to the Simonds Group Employee Share Plan. LTI participation and terms are at the discretion of the Board. An allowance of $87,500 per annum. The notice period of Mr Simonds’ employment agreement for Mr Simonds and the Company is 12 months. Employment may be ended immediately by the Company in certain circumstances including misconduct, incapacity, and mutual agreement or in the event of a fundamental change in the Joint CEO’s role or responsibilities. The Company may elect to make a payment in lieu of any unserved notice period. Post‑employment restraint: A 12‑month post‑employment restraint provision applies. Executive Service Agreements other key terms Name K Ryan R Simonds M Myers STI Payments to KMP Minimum notice period Contract length Termination by Executive Termination by Company No fixed term No fixed term No fixed term 12 months 12 months 6 months 12 months 12 months 6 months All STI’s are subject to the achievement of clear performance measures – the weighting of the KPI’s for KMP is as follows: KPI’s Group EBITDA KPIs for each individual (Including standard 10% allocation of Safety) CEO Discretion (except in the case of the Joint CEOs, STI, Board Discretion) Gateway Nominated EBITDA (adjusted for lease accounting) EBITDA (adjusted for lease accounting) In the current financial year all above targets were met for relevant KMPs. Weighting 60% 30% 10% Gateway target 50% 100% 41 Simonds Group Annual Report 2020 DIRECTOR’S REPORT: REMUNERATION REPORT (CONT’D) KMP LTI The following tables provide the details of performance rights allocated to the KMP pursuant to the LTI Plan. Number of cash settled performance rights granted, vested and expired/forfeited Performance Rights granted Performance Rights vested FY2020 Performance Rights expired/ forfeited Balance 30 June 2020 Name K Ryan R Simonds M Myers TOTAL Name M Myers J Thorburn TOTAL Performance Rights 1 July 2019 – – 403,226 403,226 Performance Rights 1 July 2018 403,226 403,226 806,452 698,529 183,824 367,647 1,250,000 – – – – – – – – Performance Rights granted Performance Rights vested – – – – – – Performance Rights expired/ forfeited – (403,226) (403,226) Number of equity settled performance rights granted, vested and expired/forfeited Name K Ryan M Myers TOTAL Performance Rights 1 July 2019 2,133,332 648,193 2,781,525 Performance Rights granted Performance Rights vested – – – – (157,430)1 (157,430) 1 These vested performance rights were settled in cash. Name K Ryan M Myers J Thorburn1 TOTAL Performance Rights 1 July 2018 – 314,861 314,861 629,722 Performance Rights granted 2,133,332 333,332 – 2,466,664 Performance Rights vested – – – – Performance Rights expired/ forfeited – (157,431) (157,431) Performance Rights expired/ forfeited – – (314,861) (314,861) 1 John Thorburn ceased employment on 5 September 2018, as of this date, his performance rights were forfeited. 42 698,529 183,824 770,873 1,653,226 FY2019 Balance 30 June 2019 403,226 – 403,226 FY2020 Balance 30 June 2020 2,133,332 333,332 2,466,664 FY2019 Balance 30 June 2019 2,133,332 648,193 – 2,781,525 Value of cash settled performance rights granted, exercised and expired/forfeited Fair value at grant date $ per right Fair value at 30 June $ per right No. of Perfor‑ mance Rights Accounting Fair Value at grant date $ Exercised/ vested $ Expired/ forfeited $ Accrued Fair Value at 30 June $ Rights issue Tranche FY2020 K Ryan R Simonds M Myers M Myers FY2019 M Myers FY2020 FY2020 FY2020 FY2018 FY2018 J Thorburn1 FY2018 EPS EPS EPS TSR EPS TSR EPS TSR EPS 0.34 0.34 0.34 0.19 0.30 0.19 0.30 0.19 0.30 0.35 698,529 237,500 62,500 0.35 125,000 0.35 38,306 0.11 60,484 0.35 183,824 367,647 201,613 201,613 – – – – – – – – – – 81,495 21,446 42,892 20,903 70,565 0.14 0.33 0.14 0.33 201,613 201,613 201,613 201,613 38,306 60,484 38,306 60,484 – – – – – (38,306) – (60,484) 17,177 44,294 – – 1 John Thorburn ceased employment on 5 September 2018, as of this date, his performance rights were forfeited. Value of equity settled performance rights granted, exercised and expired/forfeited Rights issue Tranche Fair value at grant date $ per right No. of Performance Rights Accounting Fair Value at grant date $ Exercised/ vested $ Expired/ forfeited $ Accrued Fair Value at 30 June $ FY2020 K Ryan FY2019 M Myers FY2019 M Myers FY2017 FY2019 K Ryan FY2019 M Myers FY2019 M Myers FY2017 J Thorburn2 FY2017 TSR EPS TSR EPS TSR EPS TSR EPS TSR EPS TSR EPS TSR EPS 0.27 1,066,666 0.38 1,066,666 166,666 0.27 166,666 0.38 157,431 0.23 157,430 0.35 0.27 1,066,666 0.38 1,066,666 166,666 0.27 166,666 0.38 157,431 0.23 157,430 0.35 157,431 0.23 157,430 0.35 288,000 405,333 45,000 63,333 36,209 55,100 288,000 405,333 45,000 63,333 36,209 55,100 36,209 55,100 – – – – – (55,100)1 – – – – – – – – – – – – (36,209) – – – – – – – (36,209) (55,100) 176,482 270,222 27,575 42,222 – – 80,219 134,741 12,534 21,053 32,782 49,885 – – 1 Rights were elected to be settled in cash at a value of $0.41 per right equating to a total cash settlement of $64,546. 2 John Thorburn ceased employment on 5 September 2018, as of this date, his performance rights were forfeited. 43 Simonds Group Annual Report 2020 DIRECTOR’S REPORT: REMUNERATION REPORT (CONT’D) KMP Shareholdings Shareholdings of KMP are set out below: FY2020 Name Non‑Executive Directors I Kirkwood N Kearney D Cassidy Total Non‑Executive Directors Executive Directors K Ryan R Simonds1 M Simonds Total Executive Directors Senior Executives M Myers Total Senior Executive TOTAL KMP Opening balance 75,000 90,000 30,000 195,000 61,623 14,044 56,741 132,408 20,000 20,000 347,408 Number of shares Acquired Other – – – – – – – – – – – – – – – – – – – – – – 1 Mr R Simonds became Joint Group Chief Executive Officer and Managing Director on 1 February 2020. Opening balance 75,000 – – 14,044 89,044 – 56,741 56,741 – – 145,785 Number of shares Acquired Other – 90,000 30,000 – 120,000 61,623 – 61,623 20,000 20,000 201,623 – – – – – – – – – – – FY2019 Name Non‑Executive Directors I Kirkwood N Kearney D Cassidy R Simonds Total Non‑Executive Directors Executive Directors K Ryan M Simonds Total Executive Directors Senior Executives M Myers Total Senior Executive TOTAL KMP 44 Closing balance 75,000 90,000 30,000 195,000 61,623 14,044 56,741 132,408 20,000 20,000 347,408 Closing balance 75,000 90,000 30,000 14,044 209,044 61,623 56,741 118,364 20,000 20,000 347,408 Loans to director The Group has not provided any loans to directors or their related parties during the year ended 30 June 2020 (2019: Nil). Other KMP transactions During the year group entities entered into the following transactions with related parties which are not members of the Group. 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: Cost of goods Leases and services rendered Non‑cash remuneration 30 June 2020 30 June 2019 30 June 2020 30 June 2019 30 June 2020 30 June 2019 $ – – – – – – $ – – – – – – $ $ $ $ 296,422 97,717 – 59,934 – 454,073 266,982 57,154 42,846 61,018 – 428,000 – – – – 22,111 22,111 – – – – 20,543 20,543 2,332,853 191,972 – – – – – – – – 100,000 28,183 128,183 87,320 – 87,320 – – – – – – – 2,332,853 – 191,972 – 582,256 43,500 558,820 – 22,111 – 20,543 Vallence Gary Simonds and related entities: Properties leased on an arms‑length basis Advisory fee paid during the year Payment for use of building licence Remuneration for employee services Car Park provided Simonds Family Office Pty Ltd1 Supply payment to Delos Welltek Australia Pty Ltd2 Mark Simonds and related entities3: Payment for use of building licence Remuneration for employee services John Thorburn4 and related entities: Lease of display home on an arms – length basis Total 1 Mark Simonds and Rhett Simonds are directors of Simonds Family Office Pty Ltd. 2 There is a Supply Agreement between Delos Welltek Australia Pty Ltd and the Simonds Group for the inclusion of the “DARWIN Essentials Package” into all of its homes in Victoria. Simonds Family Office Pty Ltd (of which Mark Simonds and Rhett Simonds are directors) hold 25% interest in Delos Welltek Australia Pty Ltd. 3 Two family members of Mark Simonds are employed by the Group on a casual basis and their remuneration is based on an ‘arm’s length’ basis. 4 John Thorburn ceased employment on 5 September 2018, as of this date he ceased to be included as Key Management Personnel. 45 Simonds Group Annual Report 2020 DIRECTOR’S REPORT (CONT’D) Auditor’s independence declaration The auditor’s independence declaration is included after this report on page 47. 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 Melbourne, 26 August 2020 Kelvin Ryan Joint Chief Executive Officer and Managing Director Rhett Simonds Joint Chief Executive Officer and Managing Director 46 AUDITOR’S INDEPENDENCE DECLARATION Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 477 Collins Street Melbourne VIC 3000 Tel: +61 3 9671 7000 www.deloitte.com.au The Board of Directors Simonds Group Limited Level 4, 570 St Kilda Road Melbourne VIC 3000 26 August 2020 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 2020, 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 sincerely, DELOITTE TOUCHE TOHMATSU Genevra Cavallo Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Asia Pacific Limited and the Deloitte organisation 47 47 Simonds Group Annual Report 2020 INDEPENDENT AUDITOR’S REPORT Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 477 Collins Street Melbourne VIC 3000 Tel: +61 3 9671 7000 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 2020, 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 2020 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 & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We 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. Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Asia Pacific Limited and the Deloitte organisation 48 48 Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How the scope of our audit responded to the Key Audit Matter Recognition of construction revenue and related contract assets For the year ended 30 June 2020, the Group’s revenue from construction contracts totalled $652.564 million, as disclosed in Note 5. Revenue from construction contracts is time as performance recognised over obligations fulfilled. Construction are revenue 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. As disclosed management estimation assessing the following: - in Note 4, significant in is required 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 contract assets; Testing relevant 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 management’s model used to establish the 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 customer source contracts, approved variations and job costs. documentation, including We also assessed the appropriateness of the disclosures in Notes 3, 4 and 5 to the financial statements. Other Information The directors are responsible for the other information. The other information comprises the Directors’ Report, ASX announcements 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. 49 49 Simonds Group Annual Report 2020 INDEPENDENT AUDITOR’S REPORT (CONT’D) 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. 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 intentional omissions, involve collusion, fraud may misrepresentations, or the override of internal control. forgery, • 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. 50 50 We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 29 to 45 of the Directors’ Report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Simonds Group Limited, for the year ended 30 June 2020, 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, 26 August 2020 51 51 Simonds Group Annual Report 2020 DIRECTORS’ DECLARATION The directors declare that: a) b) c) in the directors’ opinion, there are reasonable grounds to believe that the Group 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 to the financial statements; in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Group; and 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 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 Melbourne, 26 August 2020 Kelvin Ryan Joint Chief Executive Officer and Managing Director Rhett Simonds Joint Chief Executive Officer and Managing Director 52 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 Notes 30 June 2020 $’000 30 June 2019 $’000 Continuing operations Revenue Cost of sales Gross profit Expenses Profit before financing items, depreciation and amortisation Depreciation and amortisation charges Profit before financing items and tax 5 10 16,17, 36 Financing items 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 Reclassification adjustment relating to available for sale financial assets 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. 7 8 9 11 11 11 11 664,823 (510,993) 153,830 (122,357) 31,473 (19,073) 12,400 (1,502) (1,502) 10,898 (3,784) 7,114 (1,615) 5,499 687,725 (533,741) 153,984 (130,797) 23,187 (4,732) 18,455 (1,309) (1,309) 17,146 (5,410) 11,736 (1,428) 10,308 – 5,499 (236) 10,072 4.95 4.87 3.82 3.77 8.16 8.09 7.17 7.11 53 Simonds Group Annual Report 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 Assets Current Assets Cash and cash equivalents Trade and other receivables Tax receivable Accrued revenue Inventories Other assets Total current assets Non‑Current Assets Property, plant and equipment Intangible assets Right‑of‑use assets Deferred tax assets Total non‑current assets Total assets Liabilities Current Liabilities Trade and other payables Deferred revenue Customer deposits Tax payable Borrowings Lease liability Provisions Total current liabilities Non‑Current Liabilities Borrowings Lease liability Provisions Deferred tax liabilities Total non‑current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity The accompanying notes form part of these financial statements. 54 Notes 30 June 2020 $’000 30 June 2019 $’000 33 12 8 13 14 18 16 17 36 8 19 22 8 20 36 21 20 36 21 8 23 24 25 28,282 29,285 – 34,391 34,248 1,784 127,990 6,194 8,798 22,700 556 38,248 166,238 80,593 1,624 11,988 6,716 288 9,704 14,871 125,784 – 12,917 10,290 – 23,207 148,991 17,247 9,702 27,430 1,120 53,711 35,459 2,820 130,242 8,021 6,388 – – 14,409 144,651 78,148 782 15,300 – 9,036 – 13,416 116,682 1,884 – 8,576 6,101 16,561 133,243 11,408 12,911 22,521 (18,185) 17,247 12,911 22,318 (23,821) 11,408 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Consolidated Notes Issued capital $’000 12,904 – Share based payments reserve $’000 Share buy‑back reserve $’000 Investment revaluation reserve $’000 30,391 – (7,204) – 236 – Accumu‑ lated losses $’000 (35,301) 10,308 Total $’000 1,026 10,308 Balance at 1 July 2018 Profit after tax for the year Reclassification adjustment relating to available for sale financial asset Total comprehensive income for the year Movement in treasury shares Employee share plan expense Performance and service rights vested/forfeited Transfer to accumulated losses Balance at 30 June 2019 Balance at 1 July 2019 Profit after tax for the year Employee share plan expense Performance and service rights vested/forfeited Transfer to accumulated losses Balance at 30 June 2020 23 30 30 – – 7 – – – 12,911 12,911 – – – – – – 519 (216) (1,172) 29,522 29,522 – 570 (221) – – – – – – (7,204) (7,204) – – – – 12,911 (146) 29,725 – (7,204) (236) – (236) (236) 10,308 10,072 – – – – – – – – – – – – – – 1,172 (23,821) (23,821) 5,499 – (9) 7 519 (216) – 11,408 11,408 5,499 570 (230) 146 (18,185) – 17,247 The accompanying notes form part of these financial statements. 55 Simonds Group Annual Report 2020 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2020 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Cash generated from operations Finance costs Income taxes (paid)/refunded Net cash generated from operating activities Cash flows from investing activities Proceeds from disposal of property, plant and equipment Payments for property, plant and equipment Payments for intangibles assets Net cash (used in) investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Payment for finance leases Repayment of lease liability Net cash generated from/(used in) financing activities Net increase/(decrease) 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 The accompanying notes form part of these financial statements. Notes 30 June 2020 $’000 30 June 2019 $’000 726,521 (674,183) 52,338 (1,502) (1,913) 48,923 74 (3,650) (4,991) (8,567) 612 (8,199) – (14,189) (21,776) 18,580 9,702 28,282 745,445 (733,682) 11,763 (1,309) (4,399) 6,055 1,289 (2,652) (2,170) (3,533) 5,479 (3,258) (2,051) – 170 2,692 7,010 9,702 7 33 36 33 33 56 NOTES TO FINANCIAL STATEMENTS 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 1, 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 15 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 Amendments to AASBs and the new interpretation that are mandatorily effective for the current year New and amended accounting standards relevant to the Group that are effective for the period are as follows: Interpretation 23 Uncertainty over Income Tax Treatments and AASB 2017‑4 Amendments to Australian Accounting Standards – Uncertainty over Income Tax Treatments This interpretation is effective for the Group from 1 July 2019 and is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates (‘tax amounts’), when there is uncertainty over income tax treatments under AASB 112 Income Taxes. In this respect a company must: > Use judgement to determine whether each tax treatment should be considered independently or whether some tax treatments should be considered together; > Assume that a taxation authority with the right to examine any amounts reported to it will examine those amounts and will have full knowledge of all relevant information when doing so; > Determine tax amounts on a basis that is consistent with the tax treatment included in its income tax filings if an entity concludes that it is probable that a particular tax treatment will be accepted by the taxation authorities; and > Determine tax amounts using the most likely amount or expected value of the tax treatment (whichever provides better predictions of the resolution of the uncertainty) If an entity concludes that it is not probable that a particular tax treatment will be accepted by the taxation authorities. There is no material impact on the Group as a result of the implementation of this Interpretation. AASB 16 Leases This standard supersedes the previous lease accounting standards, including AASB 117, 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 the statement of financial position. The Group has applied AASB 16 Leases with effect from 1 July 2019 using the cumulative catch‑up approach, under which comparative amounts are not restated, and the liability is calculated as the present value of outstanding payments using the incremental borrowing rate at the date of transition. 57 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) The Group as lessee New definition of a lease The Group assesses whether a contract is or contains a lease based on the definition of a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in AASB 16. At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand alone prices. Impact on lessee accounting Leases formerly classified as operating lease under AASB 117 Previously, the Group classified property leases as operating leases under AASB 117. On transition, for these leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate as at 1 July 2019. Right‑of‑use assets are initially measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments. In accordance with AASB 16, right‑of‑use assets are tested for impairment in accordance with AASB 136. The Group has tested its right‑of‑use assets for impairment on the date of transition and has concluded that there is no indication that the right‑of‑use assets are impaired. This replaces the previous requirement to recognise a provision/onerous lease contract. The Group used a number of practical expedients when applying AASB 16 to leases previously classified as operating leases under AASB 117. In particular, the Group: > did not recognise right‑of‑use assets and liabilities for leases for which the lease term ends within 12 months of the date of initial application. These leases are recorded directly in the profit and loss as a lease expense as the lease is utilised; > did not recognise right‑of‑use assets and liabilities for leases of low value assets (e.g. some low value IT equipment); > excluded initial direct costs from the measurement of the right‑of‑use asset at the date of initial application; > used hindsight when determining the lease term when the contract contains options to extend or terminate the lease; and > applied a single discount rate to a portfolio of leases with reasonably similar characteristics. In addition, lease incentives are recognised as part of the measurement of the right‑of‑use assets and lease liabilities under AASB 16, whereas under AASB 117 they resulted in the recognition of a lease incentive that was amortised as a reduction of rent expenses, generally on a straight‑line basis. Leases classified as finance leases under AASB 117 The Group leases a number of motor vehicles that prior to 1 July 2019 included both vehicles subject to agreement for property leases classified as operating leases under AASB 117 and vehicles subject to finance lease agreements. Vehicles operating under finance leases were classified as finance leases under AASB 117. For these finance leases, the carrying amount of the right‑of‑use asset and the lease liability at 1 July 2019 were determined at the carrying amount of the lease asset and lease liability under AASB 117 immediately before that date. 58 Financial impact of the initial application of AASB 16 The tables below show the amount of adjustment for each financial statement line item affected by the application of AASB 16 for the current and prior years. Impact on profit or loss Increase in depreciation of right‑of‑use assets Increase in finance costs Decrease in other expenses (Increase) in profit for the period 30 June 2020 $’000 30 June 2019 $’000 13,171 779 (14,075) (125) – – – – The Group recognised $22.304m right‑of‑use assets and corresponding lease liability at transition date, as a result of adoption of AASB 16. As at 30 June 2020, the Group has a right‑of‑use asset of $20.592m and a corresponding lease liability of $20.537m in respect of these leases. The impact on profit or loss is a decrease in expenses of $14.075m and an increase depreciation by $13.171m along with an increase interest expense of $0.779m. The weighted average leases incremental borrowing rate applied to lease liabilities recognised in the statement of financial position on 1 July 2019 is 3%. The following table shows the operating lease commitments disclosed applying AASB 117 at 30 June 2019, discounted using the incremental borrowing rate at the date of initial application and the lease liabilities recognised in the statement of financial position at the date of initial application. Impact on profit or loss Operating lease commitment at 30 June 2019 Short‑term leases and leases of low‑value assets Software licensing agreement not applicable under AASB 16 Effect of discounting the above amounts Operating leases not included in commitments at 30 June 20191 Lease liabilities recognised at transition date of AASB 16 Finance lease liabilities recognised under AASB 117 Lease liabilities recognised at 1 July 2019 30 June 2020 $’000 25,648 (48) (6,414) (811) 3,929 22,304 3,024 25,328 1 Present value of the lease payments due in periods covered by extension option that are not previously included in operating lease commitments. Short‑term leases and leases of low‑value assets The Group has elected not to recognise right of use assets and lease liabilities for leases of low value assets and short term leases, including certain IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight line basis over the lease term, as permitted by AASB 16. The expense of $0.476m for these low value and short‑term leases is recorded in the Statement of Profit or Loss as Expenses. 59 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) Impact on the consolidated statement of cash flows of the Group The application of AASB 16 has had an impact on the consolidated statement of cash flows of the Group. Under AASB 16, leases must be presented as: > Cash payments for the principal portion for a lease liability, as part of financing activities; > Cash paid for the interest portion of a lease liability as either operating activities or financing activities, as permitted by AASB 107 ‘Statement of Cash Flows’ (“AASB 107”) (the Group has opted to include interest paid as part of operating activities). The Group has elected to show as financing activities; and > Short‑term lease payments, payments for leases of low‑value assets and variable lease payments not included in the measurement of the lease liability are as part of operating activities. Under AASB 117, all lease payments on operating leases were presented within cash payments to suppliers and employees, with the Group’s cash flows from operating activities. Consequently, the net cash generated by operating activities has increased by $14.189m, being the lease payments and net cash used in financing activities has increased by the same amount. Standards and interpretations in issue not yet adopted At the date of signing these financial statements, the Directors have reviewed all Standards and Interpretations on issue but not yet effective and do not expect these Standards and Interpretations to have a material effect on the financial statements of the Group. 3. Significant accounting policies 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 26 August 2020. 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 16, 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. Comparatives have been reclassified where appropriate to ensure consistency and comparability with the current period. 60 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. Going concern and the impact of COVID‑19 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. The ongoing COVID‑19 pandemic has increased estimation uncertainty in the preparation of these financial statements. While pervasive across the financial statements, estimation uncertainty is predominantly related to fair value measurement and recoverable amount assessments of assets. The financial statements have been prepared on a going concern basis. The Directors have considered the impact of COVID‑19 on the economy and government restrictions in the regions the Group operates. The Group has sufficient liquidity, undrawn borrowing facilities and an active and ongoing capital management strategy which enables it to meet its obligations and pay its debts as and when they fall due. Cash reserves remain strong and the Group has a net asset position of $17.247m as at 30 June 2020. 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 34). 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. 61 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 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. 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. Revenue recognition Construction contracts Contracts entered into are for the construction of residential homes, speculative home building and display home inventory. The construction of each dwelling is taken to be one performance obligation. The transaction price is normally fixed at the start of the contracts. When a variation for the building works is required and agreed upon per the contract the variation will be included in the transaction price and accounted for accordingly. As a result, the one performance obligation recognised and fulfilled over time and as such revenue is recognised over time. Revenue earned is referenced to the stage of completion of the contract activity, based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs. Our customers are invoiced on achievement of each key milestone in the build program. Invoices are paid on normal commercial terms. Deposit payments received prior to work being performed are recognised as deferred revenue on the balance sheet. Registered training courses The Group derives revenue by providing training courses to students. The performance obligation is fulfilled over the duration of the course. The transaction price is determined and agreed at the beginning of the course and is not variable unless the student stops part way through the course. Revenue is recognised in the accounting period in which the courses are delivered and when the Group is entitled to claim course funding from the relevant federal or state government body. This funding is not considered a state government grant. Funding received in respect of courses is in relation to specific students completing a period of study for a specific course. Payment is received following invoice on normal commercial terms. Development The Group generates revenue from the sale of land developments for residential homes. Revenue in respect of the sale of land developments is recognised when control passes to a third party along with fulfillment of all performance obligations on a contract. Revenue is measured at the transaction price agreed under the contract. Payment is received on actual settlement of individual parcels of land when control is transferred to the customer. Costs in relation to individual settlements are recognised in proportion to the total costs for the project and based on the percentage of revenue recognised for each settled unit. 62 Variable consideration Where consideration in respect of a contract is variable, the expected value of revenue is only recognised when the uncertainty associated with the variable consideration is subsequently resolved (as this is the point in time when there can be reasonable assurance that there will be significant reversal) known as “constraint” requirements. The Group assesses the constraint requirements on a periodic basis when estimating the variable consideration to be included in the transaction price. The estimate is based on all available information including historic performance. Where variations in design or requirements are entered into, the transaction price is updated to reflect these when the variation has been agreed. Contract assets and liabilities The Group has adopted the terms accrued revenue for ‘contract assets’ and deferred revenue for ‘contract liabilities’ as defined within AASB 15 ‘Revenue from Contracts with Customers’ (AASB 15). A contract asset is the Group’s right to payment for goods and services transferred to a customer if that right to payment is conditional on something other than passage of time. A contract liability is the Group’s obligation to transfer goods or services to a customer at the earlier of (a) when the customer pays consideration or (b) the time that the customer’s consideration is due for goods and services the Group will yet provide. Contract fulfilment costs Costs incurred prior to the commencement of a contract may arise due to feasibility studies, environmental impact studies and preliminary design activities as these are costs incurred to fulfil a contract. Where these costs are expected to be recovered, they are capitalised and amortised over the course of the contract consistent with the transfer of service to the customer. Where the costs, or a portion of these costs, are reimbursed by the customer, the amount received is recognised as deferred revenue and allocated to the performance obligations within the contract and recognised as revenue over the course of the contract. Incremental costs Commissions payable to sales consultants in respect of contracts to build are recognised as an asset when expected to be recovered and released over the period of the build. Financing components The Group does not have any contracts where the period between the transfer of the promised goods or services to the customer represents a financing component. As a consequence, the Group does not adjust any of the transaction prices for the time value of money. Other revenue Interest revenue is recognised on an accruals basis. Dividend income is recognised when the dividend is declared. Revenue received in respect of the Group arranging a purchaser to acquire land from a land developer is recognised once all benefits of owning the land are transferred to the new owner. 63 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) Financial instruments Non‑derivative financial instruments Classification From 1 July 2018, the Group has classified its financial assets in the following measurement categories: > Those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and > Those to be measured at amortised cost. The classification depends on the Group’s business model for managing financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. Measurement of cash and cash equivalents, trade receivables, loan and other receivables remain at amortised cost consistent with the comparative period. Impairment For trade receivables, loan and other receivables, the Group applies the simplified approach permitted by AASB 9, which requires expected lifetime loss to be recognised from initial recognition of the receivables. For all other financial instruments, the Group assesses expected credit loss on a forward‑looking basis and the impairment methodology applied will depend on whether there has been a significant increase in credit risk. Non‑derivative financial liabilities Interest bearing liabilities All loans and borrowings are initially recognised at fair value, being the amount received less attributable transaction costs. After initial recognition, interest bearing liabilities are stated at amortised cost with any difference between cost and redemption value being recognised in the statement of profit or loss over the period of the borrowings on an effective interest basis. Trade and other payables Liabilities are recognised for amounts to be paid for goods or services received. Trade payables are settled on terms aligned with the normal commercial terms in the Group’s countries of operation. Leases Accounting policy applied after 1 July 2019 The Group as lessee New definition of a lease The Group assesses whether a contract is or contains a lease based on the definition of a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in AASB 16. At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand alone prices. 64 Lease contracts entered after 1 July 2019 The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right of use asset and a lease liability at the lease commencement date. The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right of use asset is subsequently depreciated using the straight line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right of use asset reflects that the Group will exercise a purchase option. In that case the right of use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right of use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The Group applies AASB 136 to determine whether a right‑of‑use assets is impaired. The lease liability is initially measured at the present value of the lease payments that are not paid at the initial application date or commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased. Lease payments included in the measurement of the lease liability comprise the following: > fixed payments (including in substance fixed payments), less any lease incentives receivable; > variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; > amounts expected to be payable under a residual value guarantee; and > the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right of use asset, or is recorded in profit or loss if the carrying amount of the right of use asset has been reduced to zero. For leases of low value and short‑term leases the Group recognise the lease payments as an operating expense on a straight‑line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the lease assets are consumed. Policies applicable prior to 1 July 2019 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. 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 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. 65 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 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. Payment 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. Employee benefits 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. Superannuation contributions Contributions to defined contribution superannuation plans are expensed when employees have rendered services entitling them to the contributions. 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. 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. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently a 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. 66 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. 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. 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. 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. 67 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 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 Intangible assets Intangible assets acquired separately Useful life 5 years or the period of the lease 3 years 5 years 5 years 5 years 5 years 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 Right of use lease asset Useful life 3 years 2–3 years Over the life of the licence 3 years Over the life of the lease Source External External/Internal External External/Internal External 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; 68 > 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. 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. 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. Land at cost Cost includes the costs of acquisition, development, borrowings and all other costs directly related to specific projects. Speculative homes and displays Cost includes the costs of building the speculative and display homes. 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. 69 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 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. 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. 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. 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. Percentage of completion on the construction contracts Percentage complete is based on the estimated cost to construct a building incurred to date, compared against the total estimated cost of completing that building. The total cost of that build is based on a historical average of similar builds. The amount of revenue recognised during the build is based on this percentage complete calculation. This historical average is reviewed annually to ensure that it is a materially accurate reflection of current build costs. Estimate of construction contracts on a percentage of completion basis, in particular with regard to accounting for variations of cost, 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. 70 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 2020. 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 2020, the directors assessed the net realisable value of the land stock inventory, referencing contracts, other documentary evidence and comparative sales data to determine valuations of certain land titles. Impairment of goodwill At 30 June 2020 goodwill of $2.603m is allocated to the registered training segment (2019: $2.603m). 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 2.2% (2019: 1.3%) per annum. The cash flows beyond the five‑year projection period have been extrapolated using a steady growth rate of 2.2% (2019: 2.3%). 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 a post‑tax discount rate to discount the forecast future attributable post‑tax cash flows. The equivalent pre‑tax discount rate applied is 17.0% (2019: 17.0%). The Group has assessed that any reasonably probable change in the key assumptions would not cause the carrying amount of the cash‑generating unit to exceed its recoverable amount. 71 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 5. Revenue The following is an analysis of the Group’s revenue for the year. Continuing operations Revenue from residential construction contracts Revenue from rendering of registered training services Revenue from developments Discontinued operations 6. Segment information 30 June 2020 $’000 30 June 2019 $’000 652,564 11,931 328 664,823 – 664,823 676,901 10,229 595 687,725 – 687,725 Products and services from which reportable segments derive their revenue Information on segment performance focuses 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 (refer Note 9 for more information). Segment revenues and results The following is an analysis of the Group’s revenue and results by reportable segment. Continuing operations Residential construction Registered training Land development Discontinued operations Consolidated segment revenue and profit/(loss) before tax for the period Segment revenue Segment profit before tax 30 June 2020 $’000 30 June 2019 $’000 30 June 2020 $’000 30 June 2019 $’000 652,564 11,931 328 664,823 – 676,901 10,229 595 687,725 – 8,803 1,767 317 10,897 (2,307) 15,919 1,100 127 17,146 (2,040) 664,823 687,725 8,590 15,106 72 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 2020 $’000 30 June 2019 $’000 157,033 4,710 2,366 164,109 2,129 166,238 166,238 143,009 3,416 248 146,673 2,318 148,991 148,991 136,822 3,549 3,497 143,868 783 144,651 144,651 129,484 1,075 333 130,892 2,351 133,243 133,243 For the purposes of monitoring segment performance and allocating resources between segments, all assets and liabilities are allocated to reportable segments. Other segment information Residential construction Registered training Land development Total Residential construction Registered training Land development Interest expense Depreciation and amortisation 30 June 2020 $’000 30 June 2019 $’000 30 June 2020 $’000 30 June 2019 $’000 1,495 7 – 1,502 1,309 – – 1,309 18,485 588 – 19,073 4,600 132 – 4,732 Additions to non‑current assets 30 June 2020 $’000 30 June 2019 $’000 13,522 937 – 14,459 7,474 – – 7,474 Revenue by geographical region The Group operates in one geographical area – Australia. The Group’s revenue and profits are all generated from this region. Information about major customers No single customer contributed 10% or more to the Group’s revenue for the year ended 30 June 2020 and the year ended 30 June 2019. 73 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 7. Finance costs Interest on bank overdrafts, finance leases and loans 8. Income taxes 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% (2019: 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 2020 $’000 1,502 1,502 30 June 2019 $’000 1,309 1,309 30 June 2020 $’000 30 June 2019 $’000 9,749 – 9,749 (6,701) 44 (6,657) 3,092 3,784 (692) 3,092 – (155) (155) 4,826 127 4,953 4,798 5,410 (612) 4,798 30 June 2020 $’000 10,898 (2,307) 8,591 2,577 324 147 3,048 30 June 2019 $’000 17,146 (2,040) 15,106 4,532 77 215 4,824 44 3,092 3,784 (692) 3,092 (26) 4,798 5,410 (612) 4,798 The tax rate used for the 2020 and 2019 reconciliations above is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. 74 Current tax assets and liabilities Income tax (payable)/refundable 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 2020 Construction contracts income Capitalised courses and product design Property, plant, equipment & intangibles Provision for warranty and contract maintenance Employee entitlements DTA on losses Other 2019 Construction contracts income Capitalised courses and product design Property, plant, equipment & intangibles Provision for warranty and contract maintenance Employee entitlements DTA on losses Other 30 June 2020 $’000 30 June 2019 $’000 (6,716) (6,716) 1,120 1,120 30 June 2020 $’000 30 June 2019 $’000 11,724 (11,168) 556 – 556 Recognised in profit or loss $’000 Recognised in other comprehen‑ sive income $’000 Under/over $’000 (21) – 21 – 15 (27) (32) (44) 4,971 44 327 14 1,706 (890) 529 6,701 – – – – – – – – Recognised in profit or loss $’000 (5,948) (155) 214 Recognised in other comprehen‑ sive income $’000 – – – Under/over $’000 – – – – 29 – (156) (127) 36 380 917 (268) (4,824) – – – 101 101 Opening balance $’000 (10,416) (793) 1,232 1,067 1,476 917 416 (6,101) Opening balance $’000 (4,469) (638) 1,018 1,031 1,068 – 739 (1,251) 5,008 (11,210) (6,202) 101 (6,101) Closing balance $’000 (5,466) (749) 1,580 1,081 3,197 – 913 556 Closing balance $’000 (10,417) (793) 1,232 1,067 1,477 917 416 (6,101) 75 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 9. 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. 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 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 10. Expenses for the year Profit/ loss on disposal of property, plant and equipment and intangible assets Marketing and selling expenses Corporate and administrative expenses Employee benefits expense 11. 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 76 30 June 2020 $’000 30 June 2019 $’000 – (2,307) (2,307) 692 (1,615) 1 – – 1 2 3 – (2,040) (2,040) 612 (1,428) (11) – – (11) 13 2 30 June 2020 $’000 30 June 2019 $’000 30 (21,898) (19,172) (81,317) (122,357) 340 (21,513) (31,035) (78,589) (130,797) 30 June 2020 Cents per share 30 June 2019 Cents per share 4.95 4.87 3.82 3.77 8.16 8.09 7.17 7.11 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 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 2020 $’000 30 June 2019 $’000 7,114 11,736 5,499 10,308 30 June 2020 Shares 30 June 2019 Shares 143,841,655 143,841,655 30 June 2020 $’000 30 June 2019 $’000 7,114 11,736 5,499 10,308 30 June 2020 Shares 30 June 2019 Shares 143,841,655 143,841,655 2,165,245 1,218,917 146,006,900 145,060,572 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 30 June 2020 Shares – 2,095,674 30 June 2019 Shares – 2,537,111 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. 77 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 12. Trade and other receivables Current Trade receivables(i) Other receivables 30 June 2020 $’000 30 June 2019 $’000 28,785 500 29,285 26,965 465 27,430 (i) The amounts pertaining to related party receivables are disclosed within Note 29. Trade receivables The average settlement terms for progress invoices in relation to residential contracts are between 7 and 45 days. The Group has 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 trade receivables, 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. 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 2020 $’000 30 June 2019 $’000 527 683 553 1,422 3,185 117 858 718 489 1,293 3,358 110 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. The Group has included in its considerations for any expected credit loss of these receivables, impacts of the current pandemic with no current indication requiring a provision as at 30 June 2020. 13. Accrued revenue Work in progress on residential construction contracts 30 June 2020 $’000 30 June 2019 $’000 34,391 53,711 78 14. Inventories Display homes, land stock Provision for impairment of inventories 30 June 2020 $’000 30 June 2019 $’000 36,335 (2,087) 34,248 37,216 (1,757) 35,459 The impairment provision of display homes above is based on recent market values. This assessment includes current independent valuations, current offers to purchase the display homes, and current asking prices to sell these display homes. For the assessment at 30 June 2020, current market conditions (including the current pandemic) have been taken into account and an adjustment to impairment made as appropriate. 15. Subsidiaries Details of the Group’s subsidiaries at the end of the reporting period are as follows: Name Principle activity Residential – Victoria Residential – NSW Simonds Homes Victoria Pty Ltd Simonds Homes NSW Pty Ltd Simonds Queensland Constructions Pty Ltd Residential – Queensland 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 City‑Wide Building and Training Services Pty Ltd Jackass Flat Developments Pty Ltd Simonds Land Development Pty Ltd Bridgeman Downs Land Project Pty Ltd Discover Developments Pty Ltd Discover Gisborne Pty Ltd Residential – South Australia Residential – Western Australia Residential – Victoria Payroll service entity Asset service entity Intellectual property service entity Asset service entity Registered training organisation Registered training organisation Land development and sales Land development and sales Land development and sales Land development and sales Land development and sales Place of incorporation and operation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Proportion of ownership interest and voting power held by the Group 2020 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2019 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 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 2020. > 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 Statement of Financial Position as at 30 June 2020 are the same as the Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year and the Consolidated Statement of Financial Position as at 30 June 2020 disclosed on pages 53–54. 79 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 16. Property, plant and equipment Motor vehicles $’000 Plant and equipment $’000 Leasehold improve‑ ments $’000 Computer equipment $’000 Office furniture & fittings $’000 4,947 874 (32) 5,789 5,789 430 – – 6,219 (2,537) (942) 32 (3,447) (3,447) (909) – – (4,356) 2,506 985 (225) 3,266 3,266 1,030 (1) – 4,295 (1,769) (565) 191 (2,143) (2,143) (643) – – (2,786) 1,783 97 (10) 1,870 1,870 1,350 – – 3,220 (1,074) (327) 10 (1,391) (1,391) (382) – – (1,773) Display home furniture, fixtures & fittings $’000 1,025 574 (21) 1,578 1,578 840 – – 2,418 (893) (136) 2 (1,027) (1,027) (429) – – (1,456) 6,294 2,774 (3,830) 5,238 5,238 – (4) (4,264) 970 (3,427) (1,443) 2,912 (1,958) (1,958) (130) 4 1,353 (731) 2,342 1,863 1,123 1,509 479 1,447 551 962 3,280 239 Total $’000 16,919 5,304 (4,122) 18,101 18,101 3,650 (5) (4,264) 17,482 (9,742) (3,486) 3,148 (10,080) (10,080) (2,565) 4 1,353 (11,288) 8,021 6,194 364 – (4) 360 360 – – – 360 (42) (73) 1 (114) (114) (72) – – (186) 246 174 Cost Balance at 1 July 2018 Additions Disposals Balance at 30 June 2019 Cost Balance at 1 July 2019 Additions Disposals Reclass to lease liability Balance at 30 June 2020 Accumulated depreciation Balance at 1 July 2018 Depreciation expense Disposals Balance at 30 June 2019 Accumulated depreciation Balance at 1 July 2019 Depreciation expense Disposals Reclass to lease liability Balance at 30 June 2020 Net book value As at 30 June 2019 As at 30 June 2020 80 17. Intangible assets Cost Balance at 1 July 2018 Additions Disposals Balance at 30 June 2019 Cost Balance at 1 July 2019 Additions Disposals Balance at 30 June 2020 Accumulated amortisation Balance at 1 July 2018 Amortisation Expense Disposal/transfers Balance 30 June 2019 Accumulated amortisation Balance at 1 July 2019 Amortisation expense Disposals Balance 30 June 2020 Net Book Value As at 30 June 2019 As at 30 June 2020 2,682 714 (1,577) 1,819 1,819 3,615 – 5,434 (1,741) (506) 1,572 (675) (675) (1,059) – (1,734) 1,144 3,700 Computer software $’000 Capitalised courses $’000 Goodwill from acquisitions $’000 RTO Licence $’000 Capitalised product designs $’000 2,376 385 (11) 2,750 2,750 540 (884) 2,406 (2,312) (94) 11 (2,395) (2,395) (383) 884 (1,894) 2,603 – – 2,603 2,603 – – 2,603 – – – – – – – – 1,245 – – 1,245 1,245 – – 1,245 (1,245) – – (1,245) (1,245) – – (1,245) 2,346 1,071 (200) 3,217 3,217 836 – 4,053 (287) (646) 2 (931) (931) (1,139) – (2,070) Total $’000 11,252 2,170 (1,788) 11,634 11,634 4,991 (884) 15,741 (5,585) (1,246) 1,585 (5,246) (5,246) (2,581) 884 (6,943) 355 512 2,603 2,603 – – 2,286 1,983 6,388 8,798 81 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 18. Other assets Prepayments Loan to sales consultants Other assets 19. Trade and other payables Trade payables Construction accruals Goods and services tax payable Other payables and accruals 20. Borrowings Current Other borrowings Finance lease liability Display fund facility Market rate loan Non‑current Finance lease liability 30 June 2020 $’000 30 June 2019 $’000 1,528 111 145 1,784 2,386 244 190 2,820 30 June 2020 $’000 30 June 2019 $’000 56,741 12,809 1,991 9,052 80,593 58,425 11,159 826 7,738 78,148 30 June 2020 $’000 30 June 2019 $’000 311 – – (23)1 288 – – 717 1,140 5,000 2,179 9,036 1,884 1,884 1 The market rate loan has been fully repaid as at 30 June 2020 and what remains are capitalised borrowing costs incurred at the establishment of the borrowing facilities and amortised over the life of the borrowing facility. The borrowing facility expires on 30 September 2021. 82 Summary of borrowing arrangements Details of the Group’s borrowing facility as at 30 June 2020 are as follows: Facility Utilised $’000 Unutilised $’000 Interest charge Description Maturity date Bank Guarantees Multi Option Facility 1,286 Nil 714 Fixed Market Rate 22,500 Variable Market Rate Business Corporate Credit Card Facility Finance Lease 1,000 – Option Index Rate 2,0841 3,916 Fixed Market Rate The Group’s facilities are secured by all Simonds Group Limited corporate entities. Simonds have extended the existing corporate finance facility arrangements in place with Commonwealth Bank Australia. Charged Card facility made available to Simonds Group. Asset under finance leases are secured by the assets leased with repayment periods not exceeding 5 years. 30 September 2021 2 August 2021 Repayment periods are not exceeding 5 years Total 4,370 27,130 1 Finance lease with CBA were classified as finance leases under AASB 117, these are now shown under the more generic term of lease liabilities under AASB 16. In addition to the debt facility outlined above, the Group has additional facilities as below: Facility Microsoft Financing Utilised $’000 311 Unutilised $’000 Interest charge Description – Fixed Interest Rate The Group entered into a Master Instalment Payment Agreement with De Lage Landen Pty Ltd, which covers license subscription for Microsoft products for the period from Jan 20 to Dec 20. Maturity date 31 December 2022 Total 311 – 83 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 21. Provisions Provision for employee benefits(i) Cash settled share based payment Provision for warranty and contract maintenance(ii) Provision for make good(iii) Current Non‑current 30 June 2020 $’000 30 June 2019 $’000 9,153 730 13,994 1,284 25,161 14,871 10,290 25,161 7,266 197 13,316 1,213 21,992 13,416 8,576 21,992 (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 1,407 899 (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. The movement in provision during the financial year is as below: Total $’000 21,992 10,957 (7,788) 25,161 Employee benefits $’000 7,266 Cash settled share‑based payment $’000 197 Warranty and contract maintenance $’000 13,316 Make good $’000 1,213 4,169 (2,282) 9,153 Employee benefits $’000 6,569 1,215 (518) 7,266 533 – 730 5,677 (4,999) 13,994 578 (507) 1,284 Cash settled share‑based payment $’000 Warranty and contract maintenance $’000 Make good $’000 Total $’000 127 70 – 197 12,433 1,573 20,702 5,502 (4,619) 13,316 346 (706) 1,213 7,133 (5,843) 21,992 2020 At 30 June 2019 Additional provision recognised during the year Credited to profit or loss At 30 June 2020 2019 At 30 June 2018 Additional provision recognised during the year Credited to profit or loss At 30 June 2019 84 22. Customer deposits Arising from construction contracts 23. Issued capital 143,841,655 fully paid ordinary shares 30 June 2020 $’000 30 June 2019 $’000 11,988 15,300 30 June 2020 $’000 30 June 2019 $’000 12,911 12,911 12,911 12,911 Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore, the Company does not have a limited amount of authorised capital and issued shares do not have a par value. Balance at beginning of the period Movement in treasury shares Balance at end of the period 24. Reserves Share buy‑back reserve Share based payment reserve Share Buy‑back Reserve Number of shares Share capital ($’000) 30 June 2020 30 June 2019 30 June 2020 30 June 2019 143,841,655 – 143,841,655 143,816,926 24,729 143,841,655 12,911 – 12,911 12,904 7 12,911 30 June 2020 $’000 30 June 2019 $’000 (7,204) 29,725 22,521 (7,204) 29,522 22,318 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. 85 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 25. Accumulated losses Balance at the beginning of the year Profits attributable to owners of the Group (net of tax) Performance and service rights vested/forfeited Transfers between reserves Balance at the end of the year 30 June 2020 $’000 30 June 2019 $’000 (23,821) 5,499 (9) 146 (18,185) (35,301) 10,308 – 1,172 (23,821) 26. Dividends paid or payable During the year, Simonds Group Limited made the following dividend payments: Final dividend Year ended 30 June 2020 Year ended 30 June 2019 Cents per share – Total $’000 – Cents per share – Total $’000 – The Company’s adjusted franking account balance as at 30 June 2020 is $12.840m (2019: $10.921m). 27. Financial instruments 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 20, cash, and equity attributable to equity holders of the parent, comprising issued capital, accumulated losses and dividends, as disclosed in Notes 24, 25 and 26. 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 Financial liabilities Trade and other payables Lease liabilities1 Borrowings 30 June 2020 $’000 30 June 2019 $’000 28,282 29,285 57,567 80,593 22,621 311 103,525 9,702 27,430 37,132 78,148 3,024 7,937 89,109 1 Lease liabilities previously included only finance leases however with the introduction of AASB16 lease liabilities now include finance as well as operating leases. 86 Market risk (i) Interest rate risk management As at 30 June 2020, the Group had $4.681m 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 20 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 2020 would decrease/increase by $0.002m (2019: $0.016m). 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. 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 Training Victoria (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. 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: Expiring within 1 year Expiring beyond 1 year Utilised Unutilised Total 2020 $’000 2,152 2,529 4,681 2019 $’000 10,077 2,803 12,880 2020 $’000 – 27,130 27,130 2019 $’000 – 25,557 25,557 2020 $’000 2,152 29,659 31,811 2019 $’000 10,077 28,360 38,437 87 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) (ii) Maturities of financial liabilities The table below analyse 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 2020 Financial liabilities Trade and other payables Lease liabilities Microsoft financing Year ended 30 June 2019 Financial liabilities Trade and other payables Finance lease liability Market rate loan Simonds Homes Display Fund Insurance premium funding < 6 months $’000 6 –12 months $’000 >1 –5 years $’000 Total $’000 80,593 4,852 311 85,756 – 4,852 – 4,852 – 12,917 – 12,917 < 6 months $’000 6 –12 months $’000 >1 –5 years $’000 78,148 516 1,100 5,000 717 85,481 – 624 1,120 – – 1,744 – 1,884 – – – 1,884 80,593 22,621 311 103,525 Total $’000 78,148 3,024 2,220 5,000 717 89,109 28. 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: 30 June 2020 $ 30 June 2019 $ 2,724,442 112,875 21,893 – 361,115 3,220,325 2,478,510 120,297 6,395 24,778 318,865 2,948,845 Short‑term employee benefits Post‑employment benefits Other long‑term benefits Termination benefits Share‑based payments 88 29. Related party transactions Trading transactions During the year group entities entered into the following transactions with related parties which are not members of the Group. Cost of goods Leases and services rendered Non‑cash remuneration 30 June 2020 $ 30 June 2019 $ 30 June 2020 $ 30 June 2019 $ 30 June 2020 $ 30 June 2019 $ – – – – – – – – – – – – 296,422 97,717 – 59,934 – 454,073 266,982 57,154 42,846 61,018 – 428,000 – – – – 22,111 22,111 – – – – 20,543 20,543 2,332,853 191,972 – – – – – – – – 100,000 28,183 128,183 87,320 – 87,320 – – – – – – – 2,332,853 – 191,972 – 582,256 43,500 558,820 – 22,111 – 20,543 Vallence Gary Simonds and related entities: Properties leased on an arms‑length basis Advisory fee paid during the year Payment for use of building licence Remuneration for employee services Car Park provided Simonds Family Office Pty Ltd1 Supply payment to Delos Welltek Australia Pty Ltd2 Mark Simonds and related entities3: Payment for use of building licence Remuneration for employee services John Thorburn4 and related entities: Lease of display home on an arms – length basis Total Mark Simonds and Rhett Simonds are directors of Simonds Family Office Pty Ltd. 1 2 There is a Supply Agreement between Delos Welltek Australia Pty Ltd and the Simonds Group for the inclusion of the “DARWIN Essentials Package” into all of its homes in Victoria. Simonds Family Office Pty Ltd (of which Mark Simonds and Rhett Simonds are directors) hold 25% interest in Delos Welltek Australia Pty Ltd. 3 Two family members of Mark Simonds are employed by the Group on a casual basis and they are remunerated on an ‘arm’s length’ basis. John Thorburn ceased employment on 5 September 2018, as of this date he ceased to be included as Key Management Personnel. 4 At 30 June 2020 there were no balances outstanding from related parties (2019: nil). Loans to related parties During the year ended 30 June 2020 there were no loans to related parties outside the Group (2019: Nil). Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated upon consolidation and disclosed in this Note. 89 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 30. 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. During the current financial year: > Share based payments made to key management personal and other employees amounted to $0.737m (2019: $0.342m), > 3,750,001 performance rights (2019: 4,191,348) were granted to 10 senior executives (2019: 8) as at 30 June 2020, 3,750,001 performance rights remain, > As at 30 June 2020, performance rights/performance options remaining on issue are: – FY2017 Plan: 2,275,720 (performance options) – FY2018 Plan: 1,290,322 (performance rights) – FY2019 Plan: 4,191,348 (performance rights) – FY2020 Plan: 3,750,001 (performance rights) > No options were granted (2019: Nil) during the period. Incentives Financial year Cash settled FY20 FY18 FY18 FY19 FY19 Performance rights Options FY17 Tranche Grant date Fair value at grant date Vesting date Expiry date Other vesting condition Notes 1 1 2 1 2 3 9 Mar’ 2020 $0.34 30 Sep’ 2022 30 Sep’ 2022 Non‑ (2), (4) 4 Dec’ 2017 4 Dec’ 2017 $0.19 $0.30 market 30 Sep’ 2020 30 Sep’ 2020 Market 30 Sep’ 2020 30 Sep’ 2020 Non‑ 1 Mar’ 2019 1 Mar’ 2019 $0.27 $0.38 28 Aug’ 2021 30 Jun’ 2021 market 28 Aug’ 2021 Market 28 Aug’ 2021 Non‑ market (1), (3) (1), (4) (3), (5) (4), (5) 31 Jan’ 2017 $0.11 30 Sep’ 2019 30 Sep’ 2022 Non‑ (4) market 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 FY20 Performance Rights may not vest unless the individual remains employed up to and including 30 September 2022. These Performance Rights are settled either as shares in the Company or as cash at the discretion of the Board. 3 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. 4 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. 5 Gateway Hurdle Condition exists whereby FY19 Performance Rights may not vest unless the individual remains employed up to and including 28 August 2021. 90 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 2020: Employee share plan Share based expense (excluding forfeitures) 30 June 2020 $’000 30 June 2019 $’000 570 570 519 519 Fair value of performance rights, service rights and options granted in the year Cash rights subject to market based vesting conditions and FY19 performance rights (Tranche 1) are valued using a Monte Carlo based simulation model (applying a Black‑Scholes framework). For performance rights subject to non‑market vesting conditions, the FY19 performance rights (Tranche 2) value at grant date is equivalent to that of the underlying share; FY17 and FY16 performance rights (Tranche 2) the Black Scholes Pricing Model was used to value the rights at grant date. Expected volatility is estimated using the daily rolling three‑year standard deviation of a relevant Peer Group. The risk free rates used for FY19 performance rights valuation are the yield to maturity on Australian Government Bonds with maturities equivalent to the expected lift of the rights. FY17 and FY16 performance rights risk free rates are 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. Fair value model inputs and assumptions Fair value at grant date Exercise price Expected life of instruments (days) Expected volatility Expected dividend yield Risk‑free rate FY20 Cash rights: Tranche11 FY19 Performance rights: Tranche 1 Tranche 2 FY18 Cash rights: Tranche 12 Tranche 23 CEO Options: EPS 1 The fair value at 30 June 2020 is $0.35. 2 The fair value at 30 June 2020 is $0.11. 3 The fair value at 30 June 2020 is $0.35. $0.34 $0.00 $0.27 $0.38 $0.19 $0.30 $0.00 $0.00 $0.00 $0.00 n/a 912 853 1,097 1,096 n/a 67% 67% 74% 74% n/a n/a 0.0% 0.0% 0.0% 0.0% 1.70% 1.70% 2.03% 2.01% $0.11 $0.40 972 50% 5.5% 2.06% 91 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 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: Opening balance Granted during the year Vested during the year Forfeited during the year Financial year issued 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 2020 Cash Rights Tranche 1 Tranche 1 Tranche 2 FY2020 FY2018 FY2018 – 3,750,001 – – 645,162 645,160 Performance Rights Tranche 1 Tranche 2 Tranche 1 Tranche 2 FY2019 2,033,332 FY2019 2,033,332 632,756 FY2017 632,753 FY2017 62,342 62,342 – – 0.34 – – 0.27 0.38 – – – – – – – – – – – – 3,750,001 645,162 – 645,160 – – – – 632,753 – – – 0.35 – – 632,756 – – 2,095,674 – 2,095,674 – – 0.23 – FY2017 2,275,720 – 8,898,215 3,874,685 – 0.34 – 632,753 – 0.35 – 632,756 – 2,275,720 0.23 11,507,391 Opening balance Granted during the year Vested during the year Forfeited during the year Financial year issued 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 – – 0.27 0.38 – – – – – 0.33 – – – – 362,904 362,903 0.19 0.33 645,162 645,160 – – – – – 70,761 – 70,761 – – – – – 0.75 – 0.75 – – 86,295 86,295 70,762 – – 2,033,332 – 2,033,332 632,756 632,753 – – 0.23 0.35 0.31 – – 969,159 – 2,275,720 0.20 8,898,215 CEO Options EPS TOTAL 2019 Cash rights Tranche 1 Tranche 2 FY2018 1,008,066 FY2018 1,008,063 – – Performance rights Tranche 1 Tranche 2 Tranche 1 Tranche 2 Tranche 1 Tranche 2 FY2019 FY2019 FY2017 FY2017 FY2016 FY2016 – 2,033,332 – 2,033,332 – – – – 719,051 719,048 70,762 70,761 CEO options EPS TOTAL FY2017 – 2,275,720 5,871,471 4,066,664 92 Cash rights outstanding at the end of the current financial year had an exercise price of $nil (2019: nil). Performance rights outstanding at the end of the current financial year had an exercise price of $nil (2019: $nil). CEO Options outstanding at the end of the current financial year had an exercise price of $0.40 (2019: $0.40) per option. The weighted average contractual life of cash rights was 977 days (2019: 1,097). The weighted average contractual life of performance rights was 883 days (2019: 900 days). Performance and service rights vested during the year 632,753 (2019: 70,761) performance rights vested during the year ended 30 June 2020, 503,777 were settled in cash, while 128,976 were settled with shares. Performance and service rights forfeited during the year There were nil (2019: 725,807) cash rights and 632,753 (2019: 501,306) performance rights forfeited during the year. Share based payments reserve Balance at the beginning of the year Amounts expensed Performance rights vested Performance rights forfeited Performance options forfeited Transfer to accumulated losses Balance at the end of the year 30 June 2020 $’000 30 June 2019 $’000 29,522 570 (221) – – (146) 29,725 30,391 519 (22) (82) (112) (1,172) 29,522 93 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) 31. 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 2020 $’000 30 June 2019 $’000 – – – 10,225 15,423 25,648 The Group has no capital expenditure commitments. FY19 Lease commitments relate primarily to office leases, display home leases and information technology leases, which are reclassified into lease liability under AASB 16, refer details to Note 36. FY20 Lease commitments relate to information technology leases. 32. Auditor’s remuneration Deloitte and related network firms* Audit or review of financial statements – Group – Subsidiaries‑House of Learning Pty Ltd Other services – Tax services * The Group’s auditor is Deloitte Touche Tohmatsu. 30 June 2020 $ 30 June 2019 $ 287,000 23,000 310,000 153,964 463,964 268,500 16,000 284,500 123,250 407,750 94 33. Cash and cash equivalents 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 cash equivalents 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 Revaluation reserve 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 (Increase)/decrease in other assets Increase in trade and other payables Increase/(decrease) in provisions Increase/(decrease) in other liabilities Cash generated by operating activities Net interest paid Income taxes refunded 30 June 2020 $’000 30 June 2019 $’000 28,282 9,702 5,499 10,308 3,092 1,502 – – 340 19,073 29,506 (1,883) 1,211 20,357 2,445 3,169 (2,467) 52,338 (1,502) (1,913) 4,798 1,309 – 236 (303) 4,732 21,080 7,517 (5,915) (14,607) 5,418 1,267 (2,997) 11,763 (1,309) (4,399) Net cash generated from operating activities 48,923 6,055 Non‑cash transactions The Group acquired $5.818m of right‑of‑use assets during the financial ended 30 June 2020. The additions are non‑cash and not included within investing activities in the consolidated statement of cash flows. 95 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) Changes in liabilities arising from financing activities The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non‑cash changes. Liabilities arising from financing actives are those for which cash flows were, or future cash flows will be, classified in the Group’s consolidated cash flow statement as cash flows from financing activities. Notes 20 20 20 20 30 June 2019 $’000 717 2,179 3,024 5,000 10,920 Non‑cash changes New finance leases $’000 – – 33,788 – 33,788 Financing cash flows $’000 (406) (2,179) (14,191) (5,000) (21,776) 30 June 2020 $’000 311 – 22,621 – 22,932 Other borrowings Commercial bills Finance lease liabilities Display fund facility Total liabilities from financing activities 34. 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. 30 June 2020 $’000 30 June 2019 $’000 Statement of financial position Cash at bank Other financial assets Intercompany loan receivable Deferred tax asset Income tax receivables Total assets Intercompany loan payable Tax payable Trade and other payables Deferred tax liability Total liabilities Net assets Issued capital Reserves Accumulated profit/ losses Total equity Income statement Dividends from subsidiaries Operating expense Tax expense Profit/(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: Total comprehensive income/(loss) for the year 96 – 2,294 3,294 – – 5,588 – 2,244 1,917 162 4,323 1,265 12,911 (34,171) 22,525 1,265 – (1,134) 16 (1,118) – – (1,118) – 2,294 5,359 847 – 8,500 – 4,801 1,383 – 6,184 2,316 12,911 (34,238) 23,643 2,316 30,186 (395) – 29,791 – – 29,791 35. Contingent liabilities and contingent assets Contingent Liabilities Other guarantees(i) 30 June 2020 $’000 30 June 2019 $’000 1,286 919 (i) Represents guarantees for property rentals, project contracts, crossing deposits and merchant facility. 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 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 $2.611m. (2019: nil). 36. Leases The Group leases commercial offices, display homes, display home furniture, IT equipment and motor vehicles. The leases are typically with an option to renew and lease payments are reviewed when approaching the lease expiry date to reflect market rentals. The Group also leases equipment with contract terms of one to three years. These leases are short‑term and/or leases of low‑value items. The Group has elected not to recognise right‑of‑use assets and lease liabilities for these leases. Information about leases for which the Group is a lessee is presented below. Right of use assets Cost Balance at 1 July 2019 Additions Changes in value from lease modification and cancellation Disposal of assets Balance at 30 June 2020 Accumulated amortisation Balance at 1 July 2019 Charge for the year Changes in value from lease modification and cancellation Disposal of assets Balance 30 June 2020 Carrying amount As at 30 June 2020 Commercial offices $’000 13,546 204 2,317 – 16,067 – (4,032) 1,161 – (2,871) Display homes $’000 4,829 1468 (657) – 5,640 – (4,954) 1,983 – (2,971) Display home furniture $’000 2,894 2468 (271) – 5,091 – (3,006) 968 – (2,038) IT equipment $’000 Motor vehicles $’000 Total $’000 26,568 5,818 1,333 (381) 33,338 5,299 199 (56) (381) 5,061 (1,353) (1,261) (1,353) (13,927) 195 335 (2,084) 4,307 335 (10,638) – 1,479 – – 1,479 – (674) – – (674) 13,197 2,669 3,053 805 2,977 22,700 97 Simonds Group Annual Report 2020 NOTES TO FINANCIAL STATEMENTS (CONT’D) Amount recognised in profit or loss Lease under AASB 16 Interest on lease liabilities Depreciation expense on right‑of‑use assets Expenses relating to short‑term leases Expenses relating to low value assets Loss on lease modification and cancellation Operating lease expense under AASB 17 Operating lease expense Depreciation expense on finance leases Interest expense on finance leases 30 June 2020 $’000 30 June 2019 $’000 (887) (13,927) (159) (317) (62) – – – (15,352) – – – – – (8,655) (1,250) (144) (10,049) Commitment for short‑term leases and low value assets Relating to leases classified as short‑term and/or low value leases, the Group is committed to payments of $0.317m for leases under 1 year in duration and $0.317m for leases between 1 year and 5 years. The total cash outflow for leases amounts to $14.189m. Lease liabilities Current Non‑current Leases expiring less than one year Leases expiring between one and five years Leases expiring more than five years 37. Subsequent events 30 June 2020 $’000 9,704 12,917 22,621 9,704 11,581 1,336 On 3 August 2020, the Premier of Victoria announced Stage 4 Restrictions for metropolitan Melbourne to apply until at least 13 September 2020. The Stage 4 Restrictions increase the construction time to build homes and reduce visits to display homes. Management have taken a range of mitigating actions to reduce the impact of the restrictions. There have been no other events that occurred subsequent to the reporting date that may significantly affect the Group’s operations, results or state of affairs in future periods. 98 SHAREHOLDER INFORMATION 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 2 September 2020 (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 ASX at the same time that this Annual Report is lodged with 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 526 98 64 184 56 928 No. of shares 209,759 288,732 492,822 7,106,816 135,743,526 143,841,655 No. of performance rights – – – – 7,941,349 7,941,349 Holders – – – – 10 10 No. of performance options – – – – 2,275,720 2,275,720 Holders – – – – 1 1 Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total There were 525 holders of less than a marketable parcel of ordinary shares ($500). 99 Simonds Group Annual Report 2020 SHAREHOLDER INFORMATION (CONT’D) 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: Name McDonald Jones Homes Simonds Custodians Pty Ltd Simonds Constructions Pty Ltd FJP Pty Ltd Simonds Corporation Pty Ltd Moat Investments Pty Ltd Madisson Constructions Pty Ltd Poal Pty Ltd Mr Robert Geoffrey Stubbs Mast Financial Pty Ltd National Nominees Limited Jet Invest Pty Ltd Gliocas Investments Pty Ltd Pw SMSF Pty Ltd Mr Hoang Huy Huynh Mr Matthew Robert Stubbs Sutton Gardner Pty Ltd Dr Howard Vincent Bertram Mr Kim Bee Tan Baymanta Pty Limited Other shareholders Total shareholders Substantial shareholders Number held 36,723,647 32,800,020 25,747,701 20,370,660 2,744,962 2,089,560 1,572,678 1,000,000 756,384 742,214 738,198 730,000 682,321 610,000 600,000 551,500 400,000 387,145 365,000 330,000 129,941,990 13,899,652 143,841,642 Percentage of issued shares 25.53% 22.80% 17.90% 14.16% 1.91% 1.45% 1.09% 0.70% 0.53% 0.52% 0.51% 0.51% 0.47% 0.42% 0.42% 0.38% 0.28% 0.27% 0.25% 0.23% 90.33% 9.67% 100.00% 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: Number held 62,865,641 36,723,647 20,370,660 119,959,948 Percentage of issued shares 43.70% 25.63% 14.16% 83.40% Name Vallence Gary Simonds McDonald Jones Homes Pty Ltd F.J.P. Pty Ltd Total 100 Voting rights 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. Performance options Performance options do not carry any voting rights. Unquoted equity securities 5,074,220 unlisted performance rights have been granted to 7 people and 2,275,720 unlisted performance options have been granted to 1 person. There are no people who hold 20% or more performance rights or performance options 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. 101 Simonds Group Annual Report 2020 This page has been left intentionally blank. 102 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 CORPORATE DIRECTORY Directors Iain Kirkwood (Independent, Non‑Executive Director and Chairman) Kelvin Ryan (Joint Chief Executive Officer and Managing Director) Rhett Simonds (Joint 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 & Remuneration Committee) Piers O’Brien (Non‑Executive Director) Mark Simonds (Executive Director) Company Secretary Paul Taylor Notice of annual general meeting The details of the annual general meeting of Simonds Group Limited are: Date: Time: Venue: Online virtual meeting 28 October 2020 11:00am (Melbourne time) Registered office Level 1, 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 www.colliercreative.com.au #SGL0009 simondsgroup.com.au