Site Group International Limited
Annual Report 2019

Plain-text annual report

ASX RELEASE 30 August 2019 Appendix 4E and Annual Report The Directors of Site Group International Limited (“Site”) are pleased to announce the release of: • Appendix 4E – Preliminary Final Report for the year ended 30 June 2019: and • 2019 Annual Report The attached annual report contains details of the achievements of the group over the last financial year. --- END --- Media and Investors Vernon Wills Managing Director and CEO +61 (7) 3114 5188 vern.wills@site.edu.au Craig Dawson CFO +61 (7) 3114 5188 craig.dawson@site.edu.au Principal & Registered Office: Level 4, 488 Queen St, Brisbane QLD 4000 t. +61 7 3114 5188 ABN: 73 003 201 910 (ASX: SIT) www.site.edu.au Appendix 4E Preliminary Final report ________________________________________________________________________ Appendix 4E Preliminary Final Report to the Australian Stock Exchange Name of Entity ABN Financial Year Ended Previous Corresponding Reporting Period Site Group International Limited 73 003 201 910 30 June 2019 30 June 2018 Results for Announcement to the Market $’000 Percentage increase /(decrease) over previous corresponding period Revenue Profit / (loss) after tax attributable to members 30,913 4% increase (4,742) 22% Decrease of loss Net profit / (loss) for the period attributable to members (4,742) 22% Decrease of Dividends (distributions) Final Dividend Interim Dividend Record date for determining entitlements to the dividends (if any) Amount per security 0.0 cents 0.0 cents loss Franked amount per security 0.0 cents 0.0 cents Not applicable ________________________________________________________________________ Appendix 4E 1 Dividends Date the dividend is payable Record date to determine entitlement to the dividend Amount per security Total dividend Amount per security of foreign sourced dividend or distribution Details of any dividend reinvestment plans in operation The last date for receipt of an election notice for participation in any dividend reinvestment plans NTA Backing Net tangible asset backing per ordinary security Not applicable Current Period Previous corresponding period (0.62) cents (0.001) cents Other Significant Information Needed by an Investor to Make an Informed Assessment of the Entity’s Financial Performance and Financial Position Refer attached annual report ________________________________________________________________________ Appendix 4E 2 Appendix 4E Preliminary Final report ________________________________________________________________________ Commentary on the Results for the Period The earnings per security: The current year result is a loss per share of (0.69) cents as compared to the prior year loss per share of (0.92) cents. Results for Site Group International Limited show a revenue line of $30.9M with an EBITDA loss of the continuing operation of $3.2M. The results continue to be negatively impacted by the distraction of the regulatory action and legal cases currently underway both in terms of professional fees incurred and also the substantial commitment of management time and resources. Despite this and in line with the strategic direction, Site has made progress in its studies as to decoupling the International and Domestic training businesses as well as progress in determining potential optimisation of its Clark leasehold property. For further review of results please refer to the Directors report on page 8 of the attached annual report. Returns to shareholders including distributions and buy backs: Not applicable Significant features of operating performance: Refer to the Directors’ Report The results of segments that are significant to an understanding of the business as a whole: Refer to Note 2 to the Accounts (Operating Segments) Discussion of trends in performance: Refer to the Directors’ Report Any other factor which has affected the results in the period or which are likely to affect results in the future, including those where the effect could not be quantified: Refer to the Directors’ Report ________________________________________________________________________ Appendix 4E 3 Appendix 4E Preliminary Final report ________________________________________________________________________ Audit/Review Status This report is based on accounts to which one of the following applies: (Tick one) The accounts have been audited  The accounts are in the process of being audited or subject to review If the accounts have not yet been audited or subject to review and are likely to be subject to dispute or qualification, a description of the likely dispute or qualification: The accounts have been subject to review The accounts have not yet been audited or reviewed Not Applicable If the accounts have been audited or subject to review and are subject to dispute or qualification, a description of the dispute or qualification: Not Applicable Attachments Forming Part of Appendix 4E Attachment # Details 1 Audited financial statements 30 June 2019 Signed By (Director/Company Secretary) Print Name Date Vernon Wills 30 August 2019 ________________________________________________________________________ Appendix 4E 4 Site Group International Limited and Controlled Entities ABN 73 003 201 910 Annual report – 30 June 2019 Table of Contents Annual General Meeting ....................................................................................................................... 3 Managing Director and CEO Letter ..................................................................................................... 3 Corporate Directory .............................................................................................................................. 5 Directors’ Report ................................................................................................................................... 8 Principal Activity ................................................................................................................................... 9 Operating and Financial Review ........................................................................................................ 10 Corporate Governance Statement ..................................................................................................... 27 Auditor’s Independence Declaration ................................................................................................ 34 Statement of Comprehensive Income ............................................................................................... 35 Statement of Financial Position ........................................................................................................ 36 Statement of Changes in Equity ........................................................................................................ 37 Statement of Cash Flows ................................................................................................................... 38 Notes to the Financial Statements for the Year Ended 30 June 2019 ........................................... 39 Directors' Declaration ......................................................................................................................... 84 Independent Auditor’s Report ........................................................................................................... 85 Shareholder Information .................................................................................................................... 89 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 2 of 92 Annual General Meeting The Annual General Meeting of the Company will be held at Time: 11:00am Date: Thursday, 28 November 2019 Location: 488 Queen Street, Brisbane QLD 4000. Managing Director and CEO Letter Results for Site Group International Limited as released in July show a revenue line of $30.9M with an EBITDA loss of the continuing operation of $3.2M. The results continue to be negatively impacted by the distraction of the regulatory action and legal cases currently underway both in terms of professional fees incurred and also the substantial commitment of management time and resources. Despite this and inline with the strategic direction, Site has made progress in its studies as to decoupling the International and Domestic training businesses as well as progress in determining potential optimisation of its Clark leasehold property. Site recently announced the appointment of Ms Nina Cordero as President and CEO of Site Group Holdings, the Site subsidiary that holds the Clark lease. Ms Cordero is working closely with Directors Nick Alcantara and Vern Wills on the completion of feasibility studies with Urban renewal specialist Palafox as well as the development of a a business model, financial model and identification of strategic partners for any future optimisation plan for Sites 30 Hectare leasehold property in Clark, Philippines. The Group continues to build internationally, with new opportunities evolving in competency focussed programs predominantly with existing customers targeted at workforce needs in a number of countries, both existing and new markets such as Singapore, Indonesia and Bahrain. Site’s nationalisation of workforce programs continue to have great effect in countries such as PNG, Myanmar, Philippines and Saudi Arabia. Site expects to establish new markets, particularly around its competency framework capability and Chemical and Energy Industries, over the next 12 months. In Australia, Site continues to investigate options for the optimisation of it services. Site Skills Group (SSG) received over 27,000 enrolments across 48,000 units of competency, with the majority of those programs being delivered under pre-qualified arrangements with some of Australia`s largest and most significant projects and corporations. SSG is pleased to have the continued confidence of these companies, many of whom conduct independent audit and analysis activities before pre-qualifying SSG. SSG student completion rates remain well above sector average at approximately 90%, with overall student satisfaction rate remaining at approximately 90%. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 3 of 92 Regulatory Actions There is a prevailing view amongst the Vocational Education and Training sector that its regulator, the Australian Skills Quality Authority (ASQA), is continuing with a sledgehammer approach to private sector RTOs. Since January 2018, ASQA has cancelled over 400 private Registered Training Organisations with many feeling that they have had inconsistent treatment by the regulatory authority, particularly in comparison to the regulators treatment of non-private RTOs, who seem to be given extra opportunity to rectify any non-compliances. As disclosed in the market update of 31 July 2019, Site remains in dispute with the (ASQA) in the Administrative Appeals Tribunal (AAT) and Federal Court, and in the Federal Court with the pending ACCC litigation. This action appears likely to continue for some time, potentially into the second half of 2020. In July 2019, at the initial AAT hearing for Site Skills Group (SSG), the ongoing unconditional stay of SSG operations was confirmed. The substantive issue of SSG operations remains before the AAT. Trial dates have now been established for the commencement of Productivity Partners proceedings brought by the ACCC set down for June 2020. Site remains confident in its position. I would like to thank our ongoing directors Peter Jones (Chairman of Site Group International Limited) and Nicasio Alcantara (Chairman of Site’s International Operations), CFO and Company Secretary Craig Dawson, all management and staff and equally all shareholders for their ongoing support. Vernon Wills Managing Director and CEO Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 4 of 92 Corporate Directory Directors Company Secretary Chief Executive Officer Principal registered office in Australia Principal place of business Share registry Auditor Solicitors Bankers Peter Jones (Chairman) Vernon Wills Nicasio Alcantara Craig Dawson Vernon Wills Site Group International Limited Level 4, 488 Queen Street Brisbane Qld 4000 Telephone: +61 7 3114 5188 Site Group International Limited Level 4, 488 Queen Street Brisbane Qld 4000 Telephone: +61 7 3114 5188 Computershare Investor Services Pty Limited Level 1, 200 Mary Street Brisbane QLD 4000, Australia Telephone: +61 7 3237 2100 Pitcher Partners Level 38, 345 Queen Street Brisbane QLD 4000, Australia Telephone: +61 7 3222 8444 Hopgood Ganim Level 8, 1 Eagle Street Brisbane Qld 4000 Telephone: +61 7 3024 0000 National Australia Bank Cnr. Adelaide and Creek Streets Brisbane QLD 4000 Westpac Banking Corporation 45 Adelaide Street Fremantle WA 6160 Stock exchange listing Site Group International Limited shares are listed on the Australian Securities Exchange (code: SIT) Web site address www.site.edu.au Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 5 of 92 [This page intentionally blank] Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 6 of 92 SITE GROUP INTERNATIONAL LIMITED AND CONTROLLED ENTITIES ABN: 73 003 201 910 Financial Report for the Year Ended 30 June 2019 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 7 of 92 Directors’ Report Your Directors submit herewith the financial report of Site Group International Limited (the Company) and its controlled entities (the Group) for the year ended 30 June 2019. Directors The directors in office at any time during or since the end of the financial year, together with their qualifications and experience are: Vernon Wills – Managing Director and CEO Vern established Site to provide skills training and workforce planning solutions by initially developing a 300,000m2 Philippines facility at the Expo Filipino site at Clark Freeport, after he identified a market gap in Australian training providers delivering international training for industry and major projects. Prior to Site, Vern has had an extensive career in investment and finance as well as building start up and early stage companies such as Go Talk Ltd and Dark Blue Sea Ltd. Additionally he serves as a Director of Eumundi Group Ltd (since September 2004) and was previously a director of the Greg Norman Golf Foundation, CITEC, and Deputy Chair of the Queensland Government’s Major Sports Facilities. Nicasio Alcantara BA, MBA – Non-Executive Director Mr Alcantara was appointed Director of the company on 12 October 2010 and has been a director of Site Group Holdings Pty Ltd since June 2009. Mr Alcantara is an experienced director with over 40 years’ experience in both public and private companies and his diverse industry experience includes manufacturing, banking & finance, property, information technology, agriculture and power & energy. Mr Alcantara is currently a director of Alsons Corporation, Alsons Development & Investment Corporation, C. Alcantara & Sons Inc., Lima Land Inc., Sarangani Agricultural Co. Inc, Seafront Resources Corporation (appointed 1995), the Philodrill Corporation (appointed 1991), Indophil Resources NL (appointed 29 December 2011) and BDO Private Bank Inc. Mr Alcantara has also previously been Chairman and President of Alsons Consolidated Resources Inc., Iligan Cement Corporation, Alsons Cement Corporation, Northern Mindanao Power Corporation and Refractories Corporation of the Philippines. He was also previously Chairman and Chief Executive Officer of Petron Corporation and a director of Bank One Savings and Bancasia Capital Corporation. Peter Jones ACA – Chairman and Non-Executive Director - Appointed director 29 May 2017 and appointed Chairman 30 June 2019 Mr. Jones is a Chartered Accountant and was formerly a founding director of Investor Group Limited (now Crowe Horwath), a listed financial services company. Mr Jones has a strong track record as a successful investor in public and private companies. He is currently also a director of ASX listed Biotech Capital Limited (appointed 4 August 2015). Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 8 of 92 Directors’ Report continued Company Secretary Craig Dawson BCom, ACA Mr Dawson is the Chief Financial Officer of the Group. He brings extensive financial management experience gained in ASX listed entities with both local and international operations in a variety of industries including media, financial services, gaming and wagering and most recently in the rapidly growing online sector. Most notably, Mr Dawson was CFO of Wotif.com for over 4 years as the group experienced rapid earnings growth, greatly extended its geographical reach and expanded its brands and products through both organic and acquisition growth. Prior to that, Mr Dawson was Queensland General Manager – Corporate Services at Tatts Group Limited heading up the finance and administration divisions of Tatts Queensland operations. Mr Dawson holds a Bachelor of Commerce and is a Chartered Accountant. Committee membership As at the date of this report, the company had an Audit and Risk committee and a Nomination and Remuneration committee of the board of directors. Members acting on the committees of the board during the year and up to the date of this report were: Audit and Risk Committee (AC) • Peter Jones (c) • Nicasio Alcantara Mr Jones is a Chartered Accountants and Mr Alcantara has extensive corporate experience and is qualified to serve on this Committee. Nomination and Remuneration Committee (NRC) • Peter Jones (c) • Nicasio Alcantara (c) Designates the chairman of the committee. Meetings of Committees Vernon Wills Board No. 5 Attended No. 5 Nicasio Alcantara 5 5 AC No. 2 2 Attended No. 2* 2 NRC No. 1 1 Attended No. 1** 1 Peter Jones * ex officio attendance ** The CEO attended part of the Nomination and Remuneration Committee meeting before excluding himself from the meeting. 2 5 5 1 1 2 All directors were eligible to attend all meetings held. Principal activity The principal activity of the company during the period was the provision of training and education services in Australia and Internationally. The company is delivering workforce solutions across a variety of industries to both retail and corporate clients. There has been no significant change in the principal activities of the consolidated entity during the period. The company has adopted expansion plans via both organic growth and through prudent acquisition activity with a view to diversifying funding sources and diversifying course and program offerings. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 9 of 92 Directors’ Report continued Operating and financial review Group Site business growth in revenue is demonstrated in the below graph. Total revenue from operations for the year ended 30 June 2019 was up 2% to $30,913,290 (2018: $30,306,134). Yearly Revenue s n o i l l i M 35 30 25 20 15 10 5 - Jun 11 Jun 12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Following the initial announcement in June 2018 to separate the responsibility for the Domestic and International business, the group continues to investigate growth and utilisation options of its leasehold in Clark Freeport Zone (“Clark”) Philippines. The Clark precinct is experiencing a significant growth phase with the construction of a new airport terminal as well as the long anticipated Clark to Manila rail due for completion in 2023. In line with the appointment of Mr Nicasio Alcantara as Chairman of the international subsidiaries, interests associated with Mr Alcantara have provided a financing facility of $US4m to enable the continuation of the international growth strategy and provide working capital. Repayment of funds drawn under the facility will be via cash or equity to be issued at the last issue price of 4 cents per share subject to approval of shareholders. A total of US$2.9 million has been drawn to 30 June 2019. Projected increases in revenues are expected to continue internationally from the Philippines, the Kingdom of Saudi Arabia, Papua New Guinea and Myanmar as well as new project opportunities in the Middle East which are expected to positively impact on 2020. Revenue contribution and activity by each segment is illustrated in the two charts below. This highlights the growing revenue from the international business. Tertiary Education, $2,614,754 , 8% 30 June 2019 Tertiary Education, $1,423,013 , 5% 30 June 2018 Site Skills Training - Int'l, $12,658,371 , 40% Energy Services, $3,639,017 , 11% Site Skiils Training - Domestic, $12,866,083 , 41% Site Skills Training - Int'l, $10,789,008 , 36% Energy Services, $3,781,713 , 12% Site Skiils Training - Domestic, $14,284,041 , 47% Gross Revenue by Segment June 2019 versus June 2018 (excludes eliminations) Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 10 of 92 Directors’ Report continued Operating and financial review continued Site remains in dispute with the Australian Skills Quality Authority (ASQA) in the Administrative Appeals Tribunal (AAT) and Federal Court, and in the Federal Court with the pending Australian Competition and Consumer Commission (ACCC) litigation. These actions appear likely to continue for some time, potentially into the second half of 2020. In July 2019, at the initial stage of the AAT hearing for Site Skills Group (SSG), the ongoing unconditional stay of the ASQA renewal of registration rejection decision was confirmed and has remained in place since 21 May 2018. The substantive issue of SSG operations remains before the AAT. Trial dates have not yet been established for the commencement of Productivity Partners proceedings brought by the ACCC. The ACCC has commenced civil proceedings against Site, Productivity Partners and two former executives in relation to enrolment practices of the college in 2015. Site continues to expend significant operational resources ensuring that SSG remains compliant to achieve the favourable outcome in the AAT and focus on ensuring the best interests of clients and students. SSG continues to be impacted with customers postponing training until the appeal process is finalised. Consistent with the 30 June 2018 annual report, the closure of the Productivity Partners (PP) business and closure of the VET FEE-HELP related campuses has meant that this business has been reported as a discontinued operation in the result to 30 June 2019 and comparative period. Following review of the historical taxation treatment for the revenue derived by the PP business, management lodged amended income tax returns for the 2015, 2016 and 2017 income tax years resulting in income tax refund for $1,688,960 being received in January 2019. For the year ended 30 June 2019, Site Group International Limited reported a loss after tax from continuing operations of $5,082,800 compared to an after tax loss of $9,547,913 in the previous corresponding period. For comparability with the trading result in the prior period, the below table shows the result for the Group including the discontinued operations over the last 4 years. Revenue Net profit / (loss) add back Depreciation and amortisation Interest paid Income tax (benefit) / expense deduct Interest income EBITDA* Non recurring items** 2019 $ 30,913,290 30-Jun 2018 $ Change 19-18 % 30-Jun 2017 $ Change 18-17 % 30-Jun 2016 $ Change 17-16 % 30,306,134 2% 29,213,400 4% 25,406,177 ( 4,742,968) ( 6,042,212) ( 22%) ( 50,466,491) ( 88%) 9,404,816 1,413,716 415,460 ( 1,514,919) 2,033,252 55,744 247,641 ( 30%) 645% - 2,355,412 307,304 ( 1,025,209) ( 14%) ( 82%) ( 124%) 2,855,346 263,047 782,430 15% - ( 18%) 17% ( 231%) 66,183 16,197 309% 16,930 ( 4%) 23,227 ( 27%) ( 4,494,894) ( 3,721,772) 21% ( 48,845,914) ( 92%) 13,282,412 - Impairment of intangibles Write down / (reversal of write down) of DET debtor Write back of contingent consideration - - - 3,797,413 ( 4,990,113) - 23,570,460 33,944,396 - EBITDA before non recurring items ( 4,494,894) ( 4,914,472) ( 9%) 8,668,942 Operating cash inflow /(outflow) ( 2,680,639) ( 727,824) - ( 93,722) 3,177,175 - ( 3,375,136) 13,084,451 ( 4,835,274) - - ( 34%) - * Earnings before interest, tax, depreciation and amortisation (EBITDA) is a non-IFRS measure which is readily calculated and has broad acceptance and is used by regular users of published financial statements as a proxy for overall operating performance. EBITDA is not an audited number. **This a non-IFRS measure and is not an audited number. Table 1 Financial Summary The earnings before interest, taxes, depreciation and amortisation (EBITDA) was a loss of $4,494,894 compared to a loss of $4,914,472 in the prior corresponding period. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 11 of 92 Directors’ Report continued Operating and financial review continued Site Skills Training - Domestic Site Skills Training (SST) is an Australian Registered Training Organisation with six large training facilities across Australia, in Western Australia, Northern Territory and Queensland. These Australian facilities with a combined footprint of approximately 33,500sqm have become hubs for some of Australia’s largest projects in Mining, Construction and Oil and Gas including; Curtis Island Coal Seam Gas (CSG) to Liquefied Natural Gas (LNG) projects; Western Australia Northwest Shelf LNG projects; and Darwin Onshore and Offshore LNG projects; and effectively most major mine project sites across Western Australia, Northern Territory and Queensland. The Australian operations have been hindered primarily by ongoing regulatory uncertainty between SSG and the ASQA. While SSG revenue has been negatively impacted, with a year-on-year reduction of 10% to $12,866,083 from $14,284,041 in the previous period, primarily as a result of contracts suspended or missed due to the regulatory uncertainty, SSG continues to receive exceptional customer engagement, satisfaction and completion rates amongst individual and corporate clients which all outperform industry targets. SST has invested substantially in compliance resources and systems over the past 36 months and Site has full confidence in the independent executive and management team to continue to deliver above and beyond the expectations of its tens of thousands of students and hundreds of corporate clients across high risk and nationally critical industries. EBITDA was a loss of $1,728,678 compared to an EBITDA loss of $189,964 in the previous year reflecting the lower revenue but also the additional compliance and legal costs incurred within this division. In addition to its corporate customers, SST delivers training to individuals using Western Australia, Queensland and Northern Territory subsidised training regimes. In Queensland, Vocational Education and Training (VET) in Schools students has expanded and will provide further growth in the next financial year. SST continues to invest in its systems and delivery platforms including launching a new transactional website in July 2019. Site Skills Training – International Site Skills Training – International division provides training and competency assurance services to organisations and governments in countries where local workforces require additional skills to meet global standards. The segment, based at Site's major training facility in Clark Freeport Zone near Manila in the Philippines, delivered a 17% increase in revenue to $12,658,371 in the 12 months to June 2019, compared with $10,789,008 in the prior year. EBITDA was $682,394 compared with an EBITDA of $698,936 in the prior year. To date SST International has provided education and training services to countries including the Philippines, PNG, Myanmar, Saudi Arabia, United Kingdom, China, Singapore, Malaysia and has delivered services to governments and companies in locations including Timor-Leste, UAE, Azerbaijan, Africa and others. The Clark operations continue to provide the platform for our International expansion with existing customers OceanaGold, FieldCore (a GE Company), Orica, Clough and Shell Brunei receiving regular services. Additionally, Site WorkReady is increasing the provision of skilled trades people for markets in Australia, New Zealand and the Africa`s. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 12 of 92 Directors’ Report continued Operating and financial review continued The National Construction Training Center (NCTC) in Nairiyah has been operating since September 2017 servicing the training needs of construction companies across the Kingdom of Saudi Arabia. The College is currently operating at capacity of 600 students and well in front of trainee projections to meet the 1,800 trainees contracted with another one year to run on the contract. Therefore, revenue from this contract will be higher than anticipated and reported previously. With over 1,000 graduates entering employment, NCTC output aligns well with the Kingdom’s Vision 2030. Feedback from employers is very positive and with new mega projects announced in the Eastern Province where NCTC is located, the future demand for skilled graduates in the trades serviced by NCTC is very high. Site and Saudi partner AbdulAli Al Ajmi Company recently developed five Training Unit Improvement Plans for five Saudi Arabian operated Vocational Schools and Colleges across the Kingdom. These plans form the basis of an upcoming tender for the 3 Year Phase 2 projects implementing the plans. Energy Services The Energy services segment incorporating the Wild Geese International business in Perth and the internationally based Site Group International Energy division (“SGI”) provides specialist training services to the oil and gas industry including workforce design and identification, skills training and competency assessment and assurance. Revenue for the 12 months for the business fell slightly to $3,639,017 (2018: $3,781,713) with an EBITDA of $211,651 (2018: EBITDA loss of $4,600,696). Wild Geese International’s involvement with the Queensland Natural Gas Exploration and Production Industry forum for the delivery of Queensland wide Industry Safety Inductions has provided services to growing numbers of contractor and operator companies in Queensland. The Site Group International Energy division’s Singapore and Malaysian operation continue to develop their relationship and delivery of services in both Myanmar and PNG. In Myanmar, ongoing delivery with in-country partners, Uniteam will see 31 PTTEP (the Thai national petroleum exploration and production company) trainee technicians complete their training end of August 19. This is the fifth group to be trained at the centre, a total of 200 successfully trained technicians over the last 5 years. A further proposal has been submitted to global energy leader, Total, for the training and development of their next batch of technicians through the Myanmar facility. In PNG the commissioning of the Safe Live Process Plant (SLPP) is complete with final payment being received for the SLPP from Kumul Petroleum. The training facility in Port Moresby is now expected to benefit with an inflow of additional candidates to be trained in the 12-month Competence Based Junior Technician program for the major Oil and Gas players as part of their National Workforce Development commitment in PNG over the next 5 years. There has already been a significant increase in enrolments by Industry training PNG nationals as technicians for the future with potentially over 100 new enrolments in the program in 2020. Site continues to investigate expansion of its SLPP and technician development plan in Singapore, Bahrain and KSA as new opportunities arise. This is largely fuelled by a rapidly ageing workforce in the industry, a significant investment into new projects around the world and a push by many countries for a workforce nationalisation training agenda. In addition a new contract was completed during the year with FieldCore, a GE Company, for the development of their Global Competence Framework, comprising job competence profiles, job task profiles, performance and assessment criteria, covering their global technical workforce including the Africa, Asia/ Australia, Europe, North and South America continents. FieldCore is the field technical services company for GE Power globally. The project covers a target workforce of over 10,000 technical personnel including technicians, supervisors and management levels working in Power Services, Aero, Oil and Gas, Renewables sectors. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 13 of 92 Directors’ Report continued Operating and financial review continued Tertiary Education This segment provides tertiary education for international students seeking to develop careers in a range of different disciplines. Students can choose from a range of diploma and certificate level courses in Australia. This division reported an increase in revenue of 84% to $2,614,754 in 2019, up from $1,423,013 in 2018. EBITDA improved to a positive $110,138 compared to an EBITDA loss of $243,958 in 2018, as the scale of the business improves on the back of increased student number and enrolments International student numbers studying in Australia continue to grow with over 280 current enrolments in CRICOS registered courses. Future revenues are expected to continue to grow during the 2020 financial year as international students take the opportunity to study engineering and manufacturing technology courses with Site Institute. Export market networks have been established for receiving inbound students from countries across Asia, Americas and Europe, with the CRICOS division now training students from countries including Argentina, Brazil, Chile, Colombia, Mexico, Peru and South Korea. In addition, TESOL Asia is a training and industry focussed organisation for Teachers in the English as a Second Language (ESL) sector. It provides access to training, consulting, industry conferences and academic journals around the world. Teaching English to Speakers of Other Languages (TESOL) focusses on bringing English language acquisition academics together with professional teachers to support and develop the industry globally. The investment in a range of TESOL courses and conferences, and a number of strategic alliances are expected to further grow revenues with China a key market. Cash position At 30 June 2019, the Company had net current asset deficiency of $1,767,400. As a consequence of the impairment taken in the previous financial year, no amount has been reflected in the balance sheet for the receivable ($20,977,645) due from the Commonwealth Government Department of Education and Training (DET), even though the group maintains the position that it is entitled to the funds. The Company has also entered into a financing facility with Punta Properties for $US4,000,000 to support the ongoing cash requirements of the business, of which $US2,9,000,000 has been drawn down during the year to fund the remaining shortfall in net current assets described above. The loan terms, as set out in note 17, will not result in a cash outflow from the Group in settlement of the loan unless there is a significant cash inflow to fund such settlement. At 30 June 2019, the Company had cash reserves of $606,148 and had reduced the current interest bearing debt to $142,519. Risks Risk management is overseen by the Audit and Risk Committee for the Group via the maintenance and review of a risk register. The following sets out a summary of some of the key risks relevant to the Company and its operations: Risk Details Regulatory risk The Group operates in a highly regulated market and the Group is regulated by the Australian Federal and State Governments and the Philippine Government. Failure to meet regulatory requirements may impact materially on the business. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 14 of 92 Risk Details Financing Sovereign risk The ability to implement its business strategy may be dependent upon the Group’s capacity to raise additional capital. There is a risk that the Group may not be able to secure such funding on satisfactory terms or at all. The Group has significant operations in the Philippines. Those operations are potentially subject to a degree of political risk and civil disobedience, although the location of Clark Education City within the Clark Freeport Zone helps mitigate such risks. Cultural unrest Any cultural unrest or perceived cultural unrest in the location of the campuses may result in decreased client interest. Competition The market for education services in Australia and worldwide is highly competitive and the group is likely to encounter strong competition from other entities as well as other countries for training and education. Industry downturn The industries to which the Group provides services may be affected by factors outside the Group’s control. Limited operating history Site’s business model is relatively new, and Site is yet to generate recurring profits from its group activities. The Group will be subject to all of the business risks and uncertainties associated with any developing business enterprise. Material contracts The Group has entered into various contracts which are important to the future of the Group. Any failure by counterparties to perform their job, or obligations could have an adverse effect on the Group. CDC lease The Group has entered a long term lease with Clark Development Corporation (CDC). There are a number of circumstances in which the CDC lease may be terminated (subject to compliance with provisions enabling certain breaches to be remedied) by CDC in which case Site does not have any rights to compensation or reimbursement for funds expended on the leased land, improvements and moveables on the leased property pass to CDC on termination. Such termination may occur where Site has breached a provision of the CDC lease or where there is an insolvency event. The CDC lease may also be terminated in the event of any governmental expropriation of the leased property. In the event that the CDC lease was terminated, Site would no longer be in a position to operate its Philippines facility which would have significant impact on the Group and the Group’s ongoing operations. Currency Some of Site’s revenue streams and expenses are denominated in currencies other than the Australian Dollar. It is possible that foreign exchange rates could move in a manner which would be unfavourable to the Company. Large holdings by some shareholders The two most significant existing shareholders (and their associates) have combined holdings of approximately 30% of the shares which may impact on liquidity in the public market for the sale of shares which may adversely affect the market price. Key employees A small number of key employees are responsible for the day to day and strategic management of the Group. The Company has sought to mitigate the risk associated with this structure through entering service and employment agreements. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 15 of 92 Risk Details Natural catastrophe Foreign judgements Material arrangements Geographic concentration 2020 Outlook The Philippines has experienced a number of major natural catastrophes over the years, including typhoons, drought, volcanic eruption and earthquakes. There can be no assurance that the occurrence of such natural catastrophes will not materially disrupt the Group’s operations. Whilst there are procedures for recognising foreign laws and judgements in the Philippines, the Philippine courts may reject the applicability of foreign law or judgment when the foreign law, judgment or contract is contrary to a sound and established public policy of the forum. Additionally, Philippine prohibitive laws concerning persons, their acts or property, and those which have for their object public order, public policy and good customs shall not be rendered ineffective by laws or judgments promulgated, or by determinations or conventions agreed upon in a foreign country. Accordingly, the enforcement of rights of the Group within the Philippines with respect to foreign judgments and laws may be adversely affected by observance of Philippine procedural laws. The Group has and expects to continue to enter into arrangements which are important to the future of the Group. It may be the case that these arrangements are non-binding and therefore unenforceable. The Group is also reliant upon third parties maintaining appropriate qualifications and accreditations and to the extent that these are not maintained, there may be an adverse impact on the Group. The Group’s expansion plans include the Philippines, Western Australia, Northern Territory and Queensland as well as potentially other national and international jurisdictions. If there are circumstances which impact negatively on these jurisdictions, this may adversely affect the Group’s continuing operations. While Site continues to investigate options for the optimisation of its Australian services, as the company looks at its strategic direction, it is clear the Board believe the substantial future and growth for Site is in its international segments. The recent contract wins demonstrate the growth opportunities for Site in its international segments. These are expected to continue into FY20, as the group focuses on the expansion and optimisation opportunities across its international business and assets. In several announcements over the last 12 months, Site has identified the 30-hectare leasehold at Clark having potential for increased utilisation and optimisation. There has been a new master plan of Clark prepared by world-renowned architect, master planner and urban renewal specialists, Palafox for the Philippine government agency Clark Development Corporation which envisages a major urban renewal plan for the Clark precinct including Site’s facility. The leasehold land held by Site’s wholly owned subsidiary Site Group Holdings (SGH) is currently approved as a mixed-use educational campus and related training facilities with the ability to sublease for mixed use purposes. SGH recently appointed Palafox to develop a full concept plan for the facility. This development work is ongoing. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 16 of 92 Directors’ Report continued Directors’ shareholdings as of the date of this report Director Vernon Wills Peter Jones Nicasio Alcantara Shares 124,395,630 56,819,466 9,371,325 Significant changes in state of affairs During the year the group was involved in the following significant transactions: Capital Management • • In March 2019 the company conducted an issue of new shares under the employee share loan plan issuing 7,700,000 to existing staff members. These shares are escrowed and have a loan of 4 cents per share payable before they are released from escrow. Further information on this arrangement is provided under the share options heading below. In March 2019 the company completed a buyback of shares issued under the employee share plan with 4,795,000 shares bought back for nominal consideration of $18. After balance date events Capital Management • In August 2019 the company successfully completed the issue of 93,750,000 shares under a private placement at 4 cents per share to raise $3,750,000. Other than as noted elsewhere in this report there has been no other significant events post balance date. Dividends paid There have been no dividends paid. Environmental issues The Group’s operations are not regulated by any significant environment regulation under a law of the Commonwealth or of a State or Territory. Share options As at the date of this report there were no unissued shares under options. In November 2011 the Shareholders approved the establishment of an Employee Share Plan that would enable employees, directors and eligible associates to subscribe for shares in the Company. Under the terms of the plan an eligible person is offered shares in the Company at a price determined by the board with a corresponding interest free loan to assist the person to subscribe for the shares. The shares are escrowed in two tranches with 50% being escrowed for 12 months and 50% being escrowed for 24 months. Subsequent to these minimum restriction periods, the shares are available for release from escrow on the repayment of the loan, and subject to continuation of employment (or acting as an associate or director) at the time of repayment. During the year the company issued 7,700,000 shares under the employee share plan with a loan amount payable (option exercise price) of 4 cents per share. Details of these shares are outlined in note 16 to the financial report. As at 20 August 2019, there are 12,700,000 ordinary shares subject to escrow restrictions. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 17 of 92 Directors’ Report continued Indemnification and insurance of directors and officers During the financial year, the Company paid premiums for directors’ and officers’ liability insurance in respect of Directors and officers, including executive officers of the Company and Directors, executive officers and secretaries of its controlled entities as permitted by the Corporations Act 2001. The terms of the policy prohibit disclosure of details of the insurance cover and premiums. Indemnification of auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, Pitcher Partners, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Pitcher Partners during or since the financial year. Non-audit services Non-audit services were provided by the company’s auditor, Pitcher Partners, in the current financial year and by the company’s previous auditor, Ernst & Young, in the comparative financial year. The Directors are satisfied that the provision of non-audit services is compatible with the general standards of independence for the auditor imposed by the Corporations Act 2001. Refer to note 24 Auditor’s Remuneration in the financial reports for details and amounts for the provision of non-audit services. Vernon Wills Director 30 August 2019 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 18 of 92 Directors’ Report continued Remuneration Report (audited) This remuneration report for the year ended 30 June 2019 outlines the remuneration arrangements of Site Group International Limited (the Company) and its controlled entities (the Group) in accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations. This information has been audited as required by section 308(3C) of the Act. The remuneration report details the remuneration arrangements for key management personnel (KMP) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company. For the purposes of this report, the term “executive” includes the Chief Executive Officer (CEO), executive directors and other senior executives of the Group. Nomination and Remuneration Committee The directors established a Nomination and Remuneration Committee in 2012 and have agreed a charter and process. The committee convened once during the 2019 financial year with final discussions about remuneration or appointments being approved by the full board. The Nomination and Remuneration committee comprises two independent Non-Executive Directors (NEDs). The Nomination and Remuneration Committee has delegated decision making authority for some matters related to the remuneration arrangements for NEDs and executives and is required to make recommendations to the board on other matters. Specifically, the board approves the remuneration arrangements of the CEO and other executives. The board also sets the aggregate remuneration of NEDs, which is then subject to shareholder approval, and NED fee levels. The board did not seek advice from external remuneration consultants during the year. The remuneration of the Executive Directors and Non-Executive Directors is set by the Chairman of Directors and ratified by the Board of Directors. Directors The following persons were directors of the Company during the financial year: • Vernon Wills – Managing Director and Chief Executive Officer • Nicasio Alcantara – Non-Executive Director • Peter Jones – Non- Executive Director Executives (other than directors) with the greatest authority for strategic direction and management The following person was the executive with the greatest authority for the strategic direction and management of the Group (“specified executives”) during the financial year; • Craig Dawson – Chief Financial Officer This executive was also considered part of the Key Management Personnel of the Group. In the prior year Blake Wills (Chief Operating Officer) was also considered a KMP and left the organisation in November 2017. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 19 of 92 Directors’ Report continued Remuneration Report (audited) continued Remuneration of directors and executives Principles used to determine the nature and amount of remuneration The objective of the Company’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. Relationship between remuneration and financial performance The Group is still in the build phase and has incurred additional costs during the build out. Therefore, there is no direct relationship between the Group’s financial performance and either the remuneration of directors and executives or the issue of shares and options to the directors and executives. Remuneration is set at levels to reflect market conditions and encourage the continued services of directors and executives. Executive and non-executive directors Fees and payments to executives and non-executive directors reflect the demands which are made on, and the responsibilities of the directors. Executive and non-executive directors’ fees and payments are reviewed annually by the Board. Directors’ fees There were Directors’ fees paid during the year to the NEDs with the executive director receiving a fixed salary of a full-time employee. Executive pay The executive pay and reward framework has the following components: • Base pay benefits • Other remuneration such as fringe benefits and superannuation • STI payable based on predetermined KPI’s • Eligibility to participate in the Employee Share Plan The combination of these comprises the executive’s total remuneration. Base pay Base pay is structured as a total employment cost package which is delivered in cash. Executives are offered a competitive base pay that comprises the fixed component of pay. Base pay for senior executives is reviewed annually. An executive’s pay is also reviewed on promotion. There are no guaranteed base pay increases fixed in any senior executives’ contracts. Retirement benefits Retirement benefits are delivered under a range of different superannuation funds. These funds provide accumulated benefits. Where applicable, statutory amounts are contributed to super funds for all Australian based Directors and Executives. Executive contractual arrangements As Non-Executive Directors are not employees of the company, there are no contractual agreements with these parties. Vernon Wills is employed as the Chief Executive Officer through a services contract with Wayburn Holdings Pty Limited on consistent terms with other executives. No sign on shares were granted. Escrowed shares are issued at the discretion of the Remuneration Committee from time to time. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 20 of 92 Directors’ Report continued Remuneration Report (audited) continued Remuneration arrangements for other executives are formalised in employment agreements. Details of these contracts are provided below. All other executives have contracts with unspecified ending dates. The contracts are continuing unless terminated by either party. Details of remuneration Details of the remuneration of each director of the Company and each of the two specified executives of the Group, including their personally related entities, are set out in the following tables. Directors The board seeks to set NED fees at a level which provides the Group with an ability to attract and retain NEDs with the highest calibre, whilst incurring a cost which is acceptable to shareholders. The Group’s constitution and ASX listing rules specifies the NED maximum aggregate fee pool shall be determined from time to time at a general meeting. The latest determination was at the 2010 AGM held on 22 November 2010 when shareholders approved an aggregate fee pool of $350,000 per year. NED fees consist of base fees and committee fees recognising the additional time commitment required by NEDs who serve on Board committees. The NEDs may be reimbursed for expenses reasonably incurred for attending to the Group’s affairs. NEDs do not receive retirement benefits beyond applicable superannuation contributions. 2019 Name Short Term Benefits Post- employment Long Term Benefits Share-based Payments Cash Salary Directors Fees Non- monetary benefits Super- annuation Long Service Leave Options Shares Total Vernon Wills Nicasio Alcantara Peter Jones Total $ 400,000 - $ $ $ $ $ $ $ - 83,501 44,189 - - - - - - - - - 444,189 83,501 - 65,700 - - - - - 65,700 400,000 149,201 44,189 - - - - 593,390 2018 Short Term Benefits Name Cash Salary Directors Fees $ 400,000 - - - - $ - 77,914 60,000 60,000 65,700 Vernon Wills Nicasio Alcantara Darryl Somerville1 Joseph Ganim2 Peter Jones Total 1Resigned June 2018 2Resigned June 2018 Post- employment Super- annuation $ Long Term Benefits Long Service Leave $ Share-based Payments Options Shares $ $ Non- monetary benefits $ 40,270 - - - - - - - - - - - - 5,700 - - - 5,700 - - - - - - - Total $ 440,270 77,914 65,700 65,700 65,700 400,000 263,614 40,270 11,400 - - - 715,284 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 21 of 92 Directors’ Report continued Remuneration Report (audited) continued Specified executives of the consolidated entity 2019 Short Term Benefits Name Craig Dawson Total Cash Salary Non- monetary $ 274,952 $ Post- employment Super- annuation $ Long Term Benefits Long Service Leave $ Termination Benefits Share-based Payments Options Shares $ $ $ Total $ 24,588 26,027 5,247 - 4,781 - 335,595 274,952 24,588 26,027 5,247 - 4,781 - 335,595 2018 Short Term Benefits Post- employment Long Term Benefits Termination Benefits Share-based Payments Name Cash Salary Non- monetary $ $ Super- annuation $ Long Service Leave $ Blake Wills1 Craig Dawson Total 1Resigned November 2017 63,942 297,973 361,915 2,846 7,891 10,737 6,074 26,027 32,101 1,006 5,247 6,253 $ 33,654 - 33,654 Options Shares $ $ Total $ - - - - - - 107,522 337,138 444,660 Short term incentive (STI) Under the STI plan, executives have the opportunity to earn an annual incentive award which is delivered in cash or shares at the discretion of the Remuneration Committee. The STI recognises and rewards short term performance. The STI award is determined after the end of the financial year following a review of performance over the year against the STI performance measures. Group EBITDA and business unit EBITDA are the measures against which management and the remuneration committee assess the short term financial performance of the Group. Both V. Wills and C. Dawson had a maximum STI opportunity of 30% of their fixed remuneration. For FY19 0% was earned and 100% forfeited because the service criteria was not met. Director and key management personnel options and rights holdings There were no options over ordinary shares held during the financial year by each KMP of the Group, other than in respect of the employee share plan below. Director and key management personnel participation in the employee share plan In November 2011 the Shareholders approved the establishment of an Employee Share Plan that would enable employees, directors and eligible associates to subscribe for shares in the Company. Under the terms of the plan an eligible person is offered shares in the Company at a price determined by the board with a corresponding interest free loan to assist the person to subscribe for the shares. The shares are escrowed in two tranches with 50% being escrowed for a minimum of 12 months and 50% being escrowed for a minimum of 24 months. Subsequent to these minimum restriction periods, the shares are available for release from escrow (i.e. vested and exercisable option) on the repayment of the loan, and subject to continuation of employment (including acting as an associate or director) at the time of repayment. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 22 of 92 Directors’ Report continued Remuneration Report (audited) continued For accounting purposes these shares are treated as if these were share options, as whilst the shares have been issued to the employee their rights to access the shares are subject to both a time based requirement (continued employment to escrow dates) and valuation uncertainty (share price exceeds issue price at date of escrow release). Accordingly, shares issued under the plan are valued using a Black Scholes Option Valuation model with the expense being recognised over the escrow period as a share based payment. Mr Dawson was awarded a further 1,000,000 shares under the plan during the year, with a grant date of 8 March 2019 and a loan price (option exercise price) of 4 cents per share with 500,000 escrowed to 29 March 2019 and 500,000 escrowed to 29 March 2020. No amount has been paid by Mr Dawson in respect of these shares. The related options have a grant date fair value of 0.64 cents per share and 0.97c per share respectively for each tranche. There are no performance conditions attached to the shares other than the employee remaining with the group during the escrow period. The shares have an expiry date (last option exercise date) of 29 March 2022. The number of ordinary shares held by each KMP of the group under the plan is as follows: Name Vern Wills Balance 1 July 2018 2,000,000 Granted as remuneration - Nicasio Alcantara 1,000,000 - Craig Dawson 1,000,000 1,000,000 Total 4,000,000 1,000,000 Shares sold Forfeited Balance 30 June 2019 Tradable Escrowed Vested and Exercisable - - - - - - 2,000,000 1,000,000 (1,000,000) 1,000,000 (1,000,000) 4,000,000 - - - - 2,000,000 2,000,000 1,000,000 1,000,000 1,000,000 500,000 4,000,000 3,500,000 The minimum escrow periods for all shares held by Mr Wills and Mr Alcantara in the table above expired prior to the start of the comparative period, and the shares therefore represented vested and exercisable options at both 30 June 2019 and 30 June 2018. Likewise shares held by Mr Dawson at 1 July 2018 represented vested and exercisable options as at that date. Director and key management personnel share holdings The number of ordinary shares held by each KMP, other than shares under the Employee Share plan, is as follows: Name Balance 1 July 2018 Granted as remuneration - Vern Wills 122,395,630 Nicasio Alcantara 8,371,325 Peter Jones 56,819,466 Craig Dawson 1,000,000 Shares sold Capital Raising# Balance 30 June 2019 - - - - - - - - 122,395,630 8,371,325 56,819,466 1,000,000 - - - Total 188,586,421 - - - 206,979,295 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 23 of 92 Directors’ Report continued Remuneration Report (audited) continued Executive remuneration outcomes for 2019 As noted earlier the company is actively developing its core business in Asia and Australia. Executive Remuneration is targeted at attracting and retaining quality people to lead the Company through this phase and on to profitability. The Company incurred losses since listing until 2015 however there are a number of metrics that may be used to judge the effectiveness of the leadership team during this period. Share price performance The graph above illustrates the relative performance of the Company share price over the past 12 months. The blue line is the performance of the small ordinaries index – in comparative terms the Company’s share price has been significantly negatively impacted due to the delays in settlement of the Department of Education debtor and the regulatory actions currently in progress. Revenue growth The following table details reported revenue of the core business for the past seven years: 2019 2018 2017 2016 2015 2014 2013 Total revenue ($) Growth % 30,913,290 30,306,134 29,213,400 25,406,177 19,467,233 17,314,375 12,960,549 31% 242% 12% 15% 34% 4% 2% These results are consistent with the company’s strategy of growing revenue in the vocational training and assessment field. Net profit/ (loss) and earnings/ (loss) per share The following table details the net profit/ (loss) and earnings/(loss) per share including the discontinued operation for the past seven years: Total profit/(loss) Change % Earnings/(loss) per Share (cents) Share price at year end 2019 (4,742,968) 24% 2018 (6,042,212) 88% 2017 2016 2015 (50,466,491) 9,404,816 1,946,454 (637%) 383% 130% 2014 (6,487,117) (11%) 2013 (5,821,405) 25% (0.69) $0.027 (0.92) $0.025 (9.50) $0.04 1.84 0.40 $0.19 $0.35 (1.81) $0.15 (1.92) $0.119 The year on year improvement of gain/(loss) per share until 2016 and the earnings per share achieved reflects improved revenue from the expansion of facilities and also incorporates significant integration of acquired businesses. The impact of the impairments reported in 2018 and 2017, closure of the PP business and action currently taken by the regulator has significantly impacted the share price and earnings per share. The leadership team are focused on continuing to grow the core business revenue, controlling costs and growing earnings. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 24 of 92 Directors’ Report continued Remuneration Report (audited) continued Approval of the FY18 Remuneration Report At the Annual General Meeting of the Company on 22 November 2018, the FY18 remuneration report was adopted by the shareholders with a vote of 98.1% in favour. Loan from Director related entity – Wayburn Holdings Pty Ltd During the current and comparative periods, the group made use of an unsecured loan facility with Wayburn Holdings Pty Ltd, a company associated with Managing Director and CEO Mr Vernon Wills. The loan facility limit was $2.35m to 31 December 2016, and $1.32m from that point repayable on the collection of the receivable from the Commonwealth Department of Education and Training. To date, the revised terms have not been agreed for the facility and the outstanding balance as disclosed below is repayable at call. Interest is charged on the loan at a fixed rate of 7% per annum. Movements in the loan balance during the year are as follows: Opening Balance Drawdowns Interest accrued during the year Principal repayment through issuance of shares* Principal repayments (cash) Interest repayments (cash) Closing balance 2019 $ 266,922 - 14,102 - (233,189) (8,928) 38,907 2018 $ 580,842 - 25,900 (246,000) (93,820) - 266,922 *Details of shares issued in settlement of outstanding loan amounts are as follows: Date 24/09/2017 Share Number of Shares Price 6,150,000 $0.04 Amount $ 246,000 The issuance of shares on 24 September 2017 includes subscription of shares under the share purchase plan described above by related entities of Vernon Wills and third parties where the subscription price was funded by Wayburn Holdings Pty Ltd. The share price at which the shares were issued represents the fair value of the shares at the date of issue and reflective of the external raising to other shareholders. Loan from Director related entity – Punta Properties Inc On 21 June 2018, the Group announced a financing facility of US$4million with Punta Properties, a company associated with Non-Executive Director Nicasio Alcantara. Repayment of funds drawn under the facility will be via cash or equity to be issued at the last issue price of 4 cents per share subject to approval of shareholders. Interest charged on the loan will be at a fixed rate of 10% per annum. Movements in the loan balance during the year are as follows: Opening Balance Drawdowns Interest accrued during the year Recognition of embedded derivative Foreign currency movement Closing balance Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 2019 $ - 4,006,980 368,090 (335,128) 127,333 4,167,276 2018 $ - - - - - - Page 25 of 92 Directors’ Report continued Remuneration Report (audited) continued Loans from Non-Executive Directors During the comparative periods, the group made use of unsecured loan facilities with Non-Executive Directors. Interest charged on the loans was at a fixed rate of 10% per annum. Movements in the loan balances during the year are as follows: Opening Balance Drawdowns Interest accrued during the year Principal Repayments (cash) Interest repayments (cash) Closing balance 2019 $ - - - - - - 2018 $ 57,539 45,000 1,229 (45,000) (58,768) - Other transaction with Directors and Key Management Personnel In addition to the financing facility discussed above, the Group and Punta Properties agreed to a performance based incentive to develop and execute an optimisation plan for the Group’s Philippines assets, associated businesses and international expansion. This incentive is payable on the total project value achieved from the optimisation plan at 5% of the total project value achieved. Should the plan reach a total project value of US$30m a further 5% fee of the gross value is payable to Mr Alcantara. There is no retainer applicable or payable to this agreement. The agreement was approved by shareholder at the annual general meeting of shareholders on 22 November 2018. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 26 of 92 Corporate Governance Statement The Australian Securities Exchange Limited (ASX) listing rules require a listed Company to provide in its annual report a statement of the main corporate governance practices that it had in place during the reporting period. The ASX listing rules also require a listed Company to report any instances where it has failed to follow the recommendations issued by the ASX Corporate Governance Council (“the Principles of Good Corporate Governance and Best Practice Recommendations, 3rd Edition”) and the reasons for not following them. The best practice recommendations of the ASX Corporate Governance Council are differentiated between eight core principles that the council believes underlie good corporate governance. The board’s statements to each core area are noted below: Principle 1: Lay solid foundations for management and oversight The ASX Corporate Governance Council guidelines recommend that the board recognise and publish the respective roles and responsibilities of the board and management and how their performance is monitored and evaluated. The framework of responsibilities should be designed to: • • • • • • • • enable the board to provide strategic guidance for the Company and effective oversight of management; clarify the respective roles and responsibilities of board members and senior executives in order to facilitate board and management accountability; undertake appropriate background checks on proposed new directors and ensure sufficient material information about a director being re-elected is provided to security holders; ensure a balance of authority so that no single individual has unfettered powers; ensure the Company enter in to written agreements with each director and senior executive setting out the terms of their appointment; ensure the company secretary be accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board; establish a policy concerning diversity, that should include a requirement for the board to: o establish measurable objectives for gender diversity; o assess annually the objectives set for achieving gender diversity; and o assess annually the progress made towards achieving the objectives set; and evaluate the performance of senior executives, the board, committees and individual directors. The board of Site Group International Limited are responsible for: • • • • • establishment of long term goals and strategic plans to achieve those goals; the review and adoption of the annual business plan and budgets for the financial performance of the Company and monitoring the results on a monthly basis; appointment and removal of the chief executive officer; ensuring that the Company has implemented adequate systems of internal controls together with appropriate monitoring of compliance activities; and the approval of the annual and half yearly financial statements and reports. These and other responsibilities are detailed in the approved Board Charter approved in February 2012. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 27 of 92 Corporate Governance Statement continued The board meets on a regular basis to review the performance of the Company against its goals both financial and non-financial. In normal circumstances, prior to the scheduled board meetings, each board member is provided with a formal board package containing appropriate management and financial reports. Written agreements are entered in to with each director clearly setting out their roles and responsibilities. The responsibilities of the management including the chief executive officer and chief financial officer are contained in letters of appointment and job descriptions given to each executive on appointment and updated from time to time, usually annually. The board has not established formal evaluation criteria for the review of itself or its committees and has not undertaken a specific performance evaluation. The Site Group International Limited board uses a personal evaluation review to review the performance of Directors. Individual Directors are asked to communicate to the Chairman on a confidential basis to comment on their own performance, and the performance of the board and its committee. Key executives are reviewed periodically against the business objectives and their own contractual obligations, including their personal KPIs. Appropriate background checks are conducted on proposed new Directors and material information about a director being re-elected is provided to security holders. The company secretary work directly with the chair on the functioning of all board and committee procedures. The board approved and issued a Diversity Policy in January 2012. The nature of the Site Skills Training part of the business providing high risk licencing and trades training results in a high proportion of the trainers being male however the company actively encourages the recruitment of female staff/contractors where available. No specific measurable objectives have been established at this stage. As noted above, as the nature of the company’s business is quite specific, setting measurable objectives may restrict the company’s development at this stage. Notwithstanding this, the company actively encourages the recruitment of female staff/contractors where available and will continue to recruit and promote regardless of gender, age, ethnicity or cultural background. The following table indicates the current gender mix of employees: - Male Female Male Female Total Board 3 Executive and Senior Managers 10 All Other Total 194 207 - 2 90 92 100% - 3 83% 17% 12 68% 32% 284 69% 31% 299 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 28 of 92 Corporate Governance Statement continued Principle 2: Structure the board to add value The ASX Corporate Governance Council guidelines recommend that the board be structured in such a way that it: • is of an effective composition, size and commitment to adequately discharge its responsibilities; • has a proper understanding of, and competence to deal with, the current and emerging issues of the business; and • has an appropriate number of independent non-executive directors who can challenge management and represent the best interests of security holders as a whole. To achieve best practice the Council recommends that: • the board should establish a nomination committee; • listed entities should disclose a board skills matrix; • a majority of the board be “independent‟ Directors; • the chairperson be an “independent” Director and should not be the same person as the CEO; and listed entities have a program for inducting new directors and provide appropriate professional development opportunities. • The Company has a Nomination and Remuneration Committee (the Committee) and the board has approved the charter for the Nomination and Remuneration Committee. The Committee charter is set out on the Company’s website. The number of meetings of the Committee held during 2019 is set out in the Directors’ Report. In 2019 the Committee comprised Mr Peter Jones and Mr Nicasio Alcantara. The Council recommends that remuneration committees be comprised of at least three independent directors. Despite both directors being non-executive directors, Mr Jones is not considered independent due to being a substantial shareholder. Due to Messrs Jones and Alcantara extensive corporate history and experience, the company believes that given the size and nature of its operations, non- compliance has not been detrimental. The Company is developing an appropriate board skills matrix. Comprehensive details about each director’s experience and skills are set out in the Directors’ Report. Site Group International Limited’s current board consists of two non-executive Directors and one executive Director. The Chairman of the Board Mr Peter Jones is not considered to be independent due to being a substantial security holder. In accordance with the Council’s definition of independence, Mr Vernon Wills is not considered independent as he is employed in an executive capacity and is a substantial security holder of the Company. Directors have the right to seek independent professional advice and are encouraged to undertake appropriate professional development opportunities in the furtherance of their duties as Directors at the Group’s expense. Informal induction is provided to any new Directors. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 29 of 92 Corporate Governance Statement continued Principle 3: Act ethically and responsibly The ASX Corporate Governance Council guidelines recommend that the Company should: • • clarify the standards of ethical behaviour of Directors and executives by establishing a code of conduct and encourage the observance of those standards; and the policy or a summary of that policy is to be disclosed. Site Group International Limited has a published code of conduct to guide executives, management and employees in carrying out their duties and responsibilities. The code of conduct covers such matters as: • • • • ethical responsibilities; • employment practices; and • responsibilities to shareholders; compliance with laws and regulations; relations with customers and suppliers; responsibilities to the environment and the community. Principle 4: Safeguard integrity in corporate reporting The ASX Corporate Governance Council guidelines recommend that the Company have formal and rigorous processes that independently verify and safeguard the integrity of the company’s corporate reporting. To achieve best practice the Council recommends that: the board should establish an audit committee; • • CEO and CFO sign declarations attesting to the accuracy of the Company’s accounts and that appropriate internal controls are in place; and the Company ensure the external auditor attends the AGM. • The Company has an Audit Committee and the number of meetings of the committee held during the 2019 year is set out in the Directors’ Report. In 2019 the committee comprised Mr Peter Jones and Mr Nicasio Alcantara with the CEO attending on an ex officio basis. The Council recommends that audit committees be comprised of at least three independent directors. Despite the two directors being non-executive directors, Mr Jones is not considered to be independent due to being a substantial security holder of the Company. Due to Messrs Jones and Alcantara extensive corporate history and experience in financial matters, the company believes that given the size and nature of its operations, non-compliance has not been detrimental. Audit committee meetings are attended, by invitation, by the engagement partner (or their nominee) from the Company’s external auditor and such other senior staff or professional people as may be appropriate from time to time. Each year the Chief Executive Officer and Chief Financial Officer sign declarations in accordance with section 295A of the Corporations Act, to confirm that the accounts are correct and in accordance with relevant legislation and that appropriate financial controls are in place. The external auditors are required to attend the annual general meeting and are available to answer any questions from security holders relevant to the audit. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 30 of 92 Corporate Governance Statement continued Principle 5: Make timely and balanced disclosure The ASX Corporate Governance Council guidelines recommend that a Company make timely and balanced disclosure of all matters concerning it that a reasonable person would expect to have a material effect on the price or value of the Company’s securities. It recommends that it put in place mechanisms designed to ensure all investors have equal and timely access to material information concerning the Company (including its financial position, performance, ownership and governance), and that a Company’s announcements are factual and presented in a clear and balanced way. The board and senior management team at Site Group International Limited are conscious of the ASX Listing Rule continuous disclosure requirements and have processes in place to ensure compliance. Company policy requires: • all announcements be reviewed by the Chairman and all directors; and • all media comment is by the Chairman, Managing Director and Chief Financial Officer. Principle 6: Respect the rights of security holders The ASX Corporate Governance Council guidelines recommend that a Company respects the rights of security holders by providing them with appropriate information and facilitates to allow them to exercise those rights effectively. To achieve best practice, the Council recommends that Companies: • Provide information about themselves and their governance on their website; • Design and implement a suitable investor relations program to facilitate effective two-way communication with investors; • Disclose policies and processes to encourage participation at meetings of security holders; and • Provide security holders with the option to receive communications electronically. Site Group International Limited promotes effective communication with shareholders and encourages effective participation at general meetings by providing information to shareholders: • Through the release of information to the market via the ASX; • Through the distribution of the Annual Report and notices of annual general meeting; • Through shareholder meetings and investor presentations; and • By posting relevant information on Site Group International’s website: www.site.edu.au The company’s website has a dedicated investor relations section for the purpose of publishing all important company information and relevant announcements made to the market. The external auditors are required to attend the annual general meeting and are available to answer any shareholder questions about the conduct of the audit and preparation of the audit report. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 31 of 92 Corporate Governance Statement continued Principle 7: Recognise and manage risk The ASX Corporate Governance Council guidelines recommend that the Company establish a sound risk management framework to identify and manage risk on an ongoing basis. It recommends that the system be designed to identify, assess, monitor and manage risk; and inform investors of material changes to the Company’s risk profile. It suggests that to achieve “best practice”, the board or an appropriate board committee should establish policies on risk oversight and that the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects. The Audit and Risk Committee has in its Charter the requirement to consider risks that the Company has to manage. The Company has established a Risk Register that is reviewed by the Audit and Risk Committee annually. Risks are assessed and ranked in accordance with generally accepted risk management practices with appropriate mitigation strategies adopted where possible. The Company does not have a separate internal audit function. The board considers that the Company is not currently of the size or complexity to justify a separate internal audit function, and that appropriate internal financial controls are in place. Such controls are monitored by senior financial management and the Audit and Risk Committee. In addition, the board does consider the recommendations of the external auditors and other external advisers and where considered necessary, appropriate action is taken to ensure that an environment is in place that key risks, as identified, are managed. The Director’s Report sets out some of the key risks relevant to the Company and its operations. Although not specifically defined as such, the risks include economic, environmental and social sustainability risks. As noted above, the Company regularly reviews risks facing the Company and adopts appropriate mitigation strategies where possible. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 32 of 92 Corporate Governance Statement continued Principle 8: Remunerate fairly and responsibly The ASX Corporate Governance Council guidelines recommend that the Company ensures that the level and composition of remuneration is sufficient and reasonable and that its relationship to corporate and individual performance is defined. In this regard it recommends that companies adopt remuneration policies that: • attract and retain high quality Directors; • attract, retain and motivate high quality senior executives; and • to align their interests with the creation of value for security holders. The Company has a Nomination and Remuneration Committee and the board has approved the charter for the Nomination and Remuneration Committee. The Committee charter is set out on the Company’s website. The number of meetings of the committee held during the 2019 year is set out in the Directors’ Report. In 2019 the Committee comprised Mr Peter Jones and Mr Nicasio Alcantara. The Council recommends that remuneration committees be comprised of at least three independent directors. Despite the two directors being non-executive directors, Mr Jones is not considered to be independent due to being a substantial security holder in the Company. Due to Messrs Jones and Alcantara extensive corporate history and experience, the company believes that given the size and nature of its operations, non-compliance has not been detrimental. All matters of remuneration and executive appointments were also considered by the full board. At this stage it is reasonable that the board be accountable for setting their own remuneration and that of senior executives. The remuneration of the board’s non-executive and executive directors is set out in the relevant section of the Annual Report. Details of the nature and amount of each element of the remuneration of each director of the Company and the key management personnel of the Company are disclosed in the relevant section of the Annual Report. There is no retirement benefit scheme for directors other than payment of statutory superannuation. The Company has adopted a Trading Policy that includes a prohibition on hedging, aimed at ensuring participants do not enter into arrangements which would have the effect of limiting their exposure to risk relating to an element of their remuneration. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 33 of 92 The Directors Site Group International Limited Level 4, 488 Queen St BRISBANE QLD 4000 Auditor’s Independence Declaration In relation to the independent audit for the year ended 30 June 2019, to the best of my knowledge and belief there have been: (i) (ii) No contraventions of the auditor independence requirements of the Corporations Act 2001; and No contraventions of APES 110 Code of Ethics for Professional Accountants. This declaration is in respect of Site Group International Limited and the entities it controlled during the year. PITCHER PARTNERS NIGEL BATTERS Partner Brisbane, Queensland 30 August 2019 SITE GROUP INTERNATIONAL LIMITED ABN: 73 003 201 910 AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2019 Statement of Comprehensive Income Continuing operations Revenue from contracts with customers Other income Interest income Total income Contractor and other service providers Other direct fees and costs Employee benefits expense Depreciation and amortisation expense Finance costs Other expenses Occupancy expenses Foreign currency loss Loss before tax from continuing operations Income tax (expense) / benefit Loss for the year from continuing operations Discontinued Operations Consolidated Group Note 2019 $ 2018 $ 4 4 5 5 5 6 30,913,290 116,498 66,183 31,095,971 (5,099,795) (6,907,397) (12,755,067) (1,408,074) (414,741) (5,580,484) (3,812,470) (114,432) (4,996,489) (86,311) (5,082,800) 30,306,134 - 16,197 30,322,331 (4,010,877) (6,910,359) (14,029,659) (2,000,124) (54,376) (9,005,747) (3,531,255) (163,251) (9,383,317) (164,596) (9,547,913) Profit / (loss) for the year from discontinued operations 20 339,832 3,505,701 Loss for the year (4,742,968) (6,042,212) Other comprehensive income Items that may b e reclassified to profit or loss in sub sequent years (net of tax): Translation of foreign operations Items not to b e reclassified to profit or loss in sub sequent years (net of tax): Remeasurement gain/(loss) on defined benefit plan Total other comprehensive income (loss) Total comprehensive loss Earnings per share Earnings per share for (loss) / profit attributable to the Basic and diluted (cents per share) Earnings per share for continuing operations Earnings per share for loss from continuing operations attributable to the ordinary equity holders of the parent Basic and diluted (cents per share) 3 3 563,905 12,994 (58,171) 505,734 54,492 67,486 (4,237,234) (5,974,726) (0.69) (0.92) (0.74) (1.46) The above statement of comprehensive income should be read in conjunction with the accompanying notes. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 35 of 92 SITE GROUP INTERNATIONAL LIMITED ABN: 73 003 201 910 AND CONTROLLED ENTITIES AS AT 30 JUNE 2019 Statement of Financial Position ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Prepayments Current tax asset TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Intangible assets Security deposits Other non-current financial assets Deferred income tax asset TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Contract liabilites Interest bearing debt Current tax liabilities Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Trade and other payables Provisions Interest bearing debt Other financial liabilities TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Retained losses TOTAL EQUITY Note Consolidated Group 2019 2018 $ $ 7 8 9 6 10 11 12 13 10 13 12 17 14 15 15 606,148 4,378,367 32,002 481,137 37,249 5,534,903 8,700,694 1,509,216 775,703 105,748 875,929 11,967,290 1,533,437 3,334,449 32,612 359,255 - 5,259,753 7,722,575 1,459,065 630,112 147,237 959,251 10,918,240 17,502,193 16,177,993 6,080,122 390,458 142,519 96,878 592,326 7,302,303 5,595,083 2,921,005 4,238,419 218,630 12,973,137 20,275,440 (2,773,247) 4,659,104 623,824 359,078 49,254 706,396 6,397,656 5,595,083 2,563,987 166,508 - 8,325,578 14,723,234 1,454,759 78,085,284 2,655,191 (83,513,722) (2,773,247) 78,085,284 2,082,058 (78,712,583) 1,454,759 The above statement of financial position should be read in conjunction with the accompanying notes. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 36 of 92 SITE GROUP INTERNATIONAL LIMITED ABN: 73 003 201 910 AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2019 Statement of Changes in Equity Consolidated Group Balance at 30 June 2017 Com prehensive incom e Loss for the year Other comprehensive income for the year Total com prehensive incom e / (loss) for the year Transactions w ith ow ners, in their capacity as ow ners, and other transfers Shares issued during the year Shares to be issued Transaction costs Share-based payments Total transactions w ith ow ners and other transfers Share Capital (note 17) $ Retained earnings / (losses) (note 26) $ Foreign currency translation reserve (note 26) $ Share based payments reserve (note 26) $ Total $ 75,742,840 (72,724,863) 557,389 1,451,675 5,027,041 - - - (6,042,212) 54,492 (5,987,720) - 12,994 12,994 2,500,000 (157,556) - 2,342,444 - - - - - - - - - - - - - 60,000 60,000 (6,042,212) 67,486 (5,974,726) 2,500,000 (157,556) 60,000 2,402,444 Balance at 30 June 2018 78,085,284 (78,712,583) 570,383 1,511,675 1,454,759 Com prehensive incom e Loss for the year Other comprehensive income for the year Total com prehensive incom e /(loss) for the year Transactions w ith ow ners, in their capacity as ow ners, and other transfers Shares issued during the year Transaction costs Share-based payments Total transactions w ith ow ners and other transfers - - - - - - - (4,742,968) (58,171) (4,801,139) - 563,905 563,905 - - - - - - - - - - - - - 9,228 9,228 (4,742,968) 505,734 (4,237,234) - - 9,228 9,228 Balance at 30 June 2019 78,085,284 (83,513,722) 1,134,288 1,520,903 (2,773,247) Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 37 of 92 SITE GROUP INTERNATIONAL LIMITED ABN: 73 003 201 910 AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2019 Statement of Cash Flows CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Finance payments Income tax refund received Income tax paid Consolidated Group Note 2019 $ 2018 $ 30,222,732 34,355,795 (34,544,077) (34,458,894) 63,641 (24,906) 1,688,960 16,164 (82,469) - (86,989) (558,420) Net cash (used in) operating activities 21 (2,680,639) (727,824) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Payments for Investments Proceeds from disposals Purchase of intangible assets Cash backed performance bonds Net cash (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Proceeds from borrowings Repayment of borrowings Principal repayments - finance leases Transaction costs on shares Net cash provided by financing activities Net (decrease) / increase in cash held Effect of exchange rates on cash holdings in foreign currencies Cash and cash equivalents at beginning of financial year (1,323,382) (727,073) - 8,157 (59,051) 60,791 (503,658) (469,761) (132,512) (798) (1,951,395) (1,195,892) - 2,254,000 4,006,980 45,000 (242,117) (138,820) (83,909) (83,655) - (157,556) 3,680,954 1,918,969 (951,080) (4,747) 23,791 9,642 1,533,437 1,528,542 17d 17d 12 Cash and cash equivalents at end of financial year 8 606,148 1,533,437 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 38 of 92 SITE GROUP INTERNATIONAL LIMITED ABN: 73 003 201 910 AND CONTROLLED ENTITIES Notes to the Financial Statements for the Year Ended 30 June 2019 Note 1 Corporate Information The consolidated financial report of Site Group International Limited (the Company) and its controlled entities (the Group) for the year ended 30 June 2019 was authorised for issue in accordance with a resolution of the directors on 30 August 2019. Site Group International Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange (ASX Code: SIT). The Group is a for-profit entity for the purposes of preparation of this financial report. The nature of the operations and principal activities of the Group are described in the directors' report. Note 1a Summary of significant accounting policies The principal accounting policies adopted in the preparation of this financial report are set out below. These policies have been consistently applied to the years presented unless otherwise stated. Basis of Preparation The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB). The financial report has been prepared on an accruals basis and is based on historical costs unless otherwise stated. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions. Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated. The financial report is presented in Australian dollars. (a) Compliance with IFRS The financial report complies with Australian Accounting Standards and International Financial Reporting Standards as issued by the International Accounting Standards Board. (b) Going concern The financial report has been prepared on the basis that the Group will continue to meet its financial obligations as and when they fall due and can therefore continue normal activities, including the settlement of liabilities and the realisation of assets in the ordinary course of business. In the financial year ended 30 June 2019 the Group made a net loss of $4,742,968 (2018: loss of $6,042,212) and the cash outflow from operating activities for the year was $2,680,639 (2018: $727,824). These results were significantly impacted by legal costs incurred and reputational harm arising from ongoing regulatory action. At 30 June 2019, the Group had deficiencies in net assets and net current assets of $2,773,247 and $1,767,400 respectively. Site remains in dispute with the Australian Skills Quality Authority (ASQA) in the Administrative Appeals Tribunal (AAT) and Federal Court, and in the Federal Court with the pending Australian Competition and Consumer Commission (ACCC) litigation. These actions appear likely to continue for some time, potentially into the second half of 2020. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 39 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 1a Summary of significant accounting policies continued In July 2019, at the initial stage of the AAT hearing for Site Skills Group (SSG), the ongoing unconditional stay of the ASQA renewal of registration rejection decision was confirmed and has remained since 21 May 2018. The substantive issue of SSG operations remains before the AAT. A trial date has been set (June 2020) for the Productivity Partners proceedings brought by the ACCC. The ACCC has commenced civil proceedings against Site, Productivity Partners and two former executives in relation to enrolment practices of the college in 2015. As a consequence of the impairment taken in the previous financial year, no amount has been reflected in the balance sheet for the receivable ($20,977,645 – refer note 7) due from the Commonwealth Government Department of Education and Training (DET), even though the Group maintains the position that it is entitled to the funds. Non-current trade and other payables ($5,595,083 – refer note 10) will not result in an outflow of funds from the Group unless the DET receivable is collected. The Group had access to a further $US1,100,000 ($AUD1,658,000) in undrawn facilities at balance date under the loan arrangement with Punta Properties described in note 17. The loan terms will not result in a cash outflow from the Group in settlement of the loan unless there is a significant cash inflow to fund such settlement. Subsequent to balance date, the Group has successfully raised $3,750,000 capital through placement of 93,750,000 shares. Although the directors expect results and operating cash flows to continue to be negatively impacted by the ongoing regulatory actions described above, current forecasts of operational performance and capital expenditure requirements indicate that the Group will be cash flow positive in the 2020 financial year having regard to undrawn financing facilities and the post-balance date capital raising described above. The directors are of the opinion that at the date of the signing of the financial statements there are reasonable grounds to believe that, having regard to the matters set out above, the Group will continue to operate as a going concern in the foreseeable future. (c) New Accounting Standards and Interpretations (i) Changes in accounting policy and disclosures. AASB 15 Revenue from Contracts with Customers, and AASB 9 Financial Instruments, are applicable to the Group for the first time in the current financial year. Neither of the standards has had a material impact on the amounts recorded within the Group’s financial statements, consistent with the assessment of likely impact disclosed in the Group’s 30 June 2018 financial statements. The group has made changes necessary to comply with the requirements of the new standards, specifically: • Required disaggregation disclosures under AASB 15 are made within note 2. Revenues are disaggregated into the categories described in note 1a(o) and by geographical location. • Accounting policies for revenue recognition (note 1a(o)) have been updated to align with the requirements of AASB 15. The timing of revenue recognition under the revised revenue recognition policies does not differ from the timing which prevailed in previous years. • Contract liabilities (formerly revenue received in advance) have been separately classified and required disclosures pertaining to these liabilities have been made in note 11. Comparative balances have been reclassified for consistency with current period disclosures, resulting in unearned income of $623,824 recognised within trade and other payables in the 30 June 2018 financial statements being reclassified as contract liabilities. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 40 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 1a Summary of significant accounting policies continued • The Group has adopted the simplified approach to determining an allowance for expected credit losses on trade receivables, as prescribed under AASB 9. The balance of the allowance for credit losses as determined at 30 June 2018 was $21,199,556, which is $471,897 lower than the balance of the provision for impairment of receivables recognised in the financial statements at 30 June 2018. This change has been recognised in current period profit and loss, rather than as an adjustment to opening retained earnings or restatement of comparative balances as required under the transition provisions of AASB 9, as it is not considered to be material. The change is reflected in the rollforward of the loss allowance provided in note 7. (ii) Accounting Standards and Interpretations issued but not yet effective. Relevant accounting standards and interpretations that have been issued or amended but are not yet effective and have not been adopted for the year are as follows, incorporating the group’s assessment of the likely impact of the standards on the amounts and disclosures within the financial statements in the period of initial application. The Group does not anticipate early adoption of any of these reporting requirements and unless mentioned below, does not expect them to have any material effect on the company’s financial statement AASB 16 Leases – The new standard replaces AASB 117 and requires that: - All leases are ‘capitalised’ by recognising the present value of the lease payments and showing them either as lease assets (right-of-use assets) or together with property, plant and equipment. - A financial liability is recognised representing obligations to make future lease payments. The standard permits either a full retrospective or a modified retrospective approach for the adoption. The financial impact of the new standard in the 2020 financial year will be dependent on the Group’s lease arrangements in place when the new standard is effective, and the accounting approach adopted. However on implementation of the new standard the Group is currently estimating an increase in assets and liabilities of $7.497m at 1 July 2019, increase in earnings before interest, tax, depreciation and amortisation (EBITDA) of $1.686m, and a reduction in reported profit after tax of $0.293m for the year ended 30 June 2020. (d) Basis of consolidation The consolidated financial statements comprise the financial statements of the Group as at, and for the period ended, 30 June each year. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); • Exposure, or rights, to variable returns from its involvement with the investee; and • The ability to use its power over the investee to affect its returns. When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: • The contractual arrangement with the other vote holders of the investee; • The rights arising from other contractual arrangements; and • The Group’s voting rights and potential voting rights. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 41 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 1a Summary of significant accounting policies continued The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. 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 intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. (e) Foreign currency translation Both the functional and presentation currency of Site Group International Limited and its Australian subsidiaries are Australian dollars ($). The Philippines branch’s functional currency is the Philippine Peso (PHP), Site Group International Pte Ltd’s functional currency is Singapore Dollars (SGD) and Competent Project Management Sdn Bhd’s functional currency is Malaysian Ringgit (MYR). Each of these is translated to the presentation currency. On consolidation, the assets and liabilities of the Asian operations are translated into Australian Dollars at the rate of exchange prevailing at the reporting date and the statement of comprehensive income is translated at the exchange rate prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. (f) Cash and cash equivalents Cash and cash equivalents in the statement of financial position and in the statement of cash flows comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (g) Financial instruments – initial recognition and subsequent measurement Financial assets Initial recognition and measurement Financial assets within the scope of AASB 9 Financial Instruments are classified as at amortised cost, at fair value through profit and loss, or at fair value through other comprehensive income. The group determines the classification of its financial assets at initial recognition. All financial assets are recognised initially at fair value plus transaction costs, except financial assets recorded at fair value through profit or loss, on the basis of both the group’s business model for managing the financial assets, and the contractual cash flow characteristics of the financial asset. The Group’s financial assets include cash and short-term deposits (amortised cost), receivables from contracts with customers (amortised cost), other receivables (amortised costs), and quoted and unquoted financial instruments (fair value through profit and loss). Receivables from contracts with customers are recognised when the group has an unconditional right to consideration arising from the transfer of goods or services to the customer (i.e. only the passage of time is required before payment of the consideration is due). Where this is not the case, the resultant asset is a contract asset (refer note 1a(p)). Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 42 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 1a Summary of significant accounting policies continued Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the group commits to purchase or sell the asset. Other financial assets are recognised if the entity becomes party to contract provisions of the asset. Subsequent measurement The subsequent measurement of financial assets depends on their classification as described below. Financial assets at amortised cost Subsequent to initial measurement, these assets are measured at amortised cost using the Effective Interest Rate (EIR) method, less allowances for credit losses. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in interest revenue in the statement of comprehensive income. Financial assets at fair value through profit and loss Subsequent to initial measurement, these assets are measured at fair value with changes in fair value being recognised in profit or loss as they arise. Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: • The rights to receive cash flows from the asset have expired; or • The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Impairment of financial assets at amortised cost The group applies the simplified expected credit loss model prescribed in AASB 9 to determine an allowance for expected credit losses on receivables from contracts with customers and its other receivables measured at amortised cost. Under this approach, the lifetime expected credit losses are estimated using a provision matrix based on historical losses observed on similar assets, adjusted for the group’s forecasts of future economic conditions. The measurement of expected credit losses reflects the group’s ‘expected rate of loss’, which is a product of the probability of default and the loss given default, and its ‘exposure at default’, which is typically the carrying amount of the relevant asset. The group has identified contractual payments more than 90 days past due as default events for the purpose of measuring expected credit losses. These default events have been selected based on the group’s historical experience. Previous accounting policy for impairment of trade receivables In the prior year, the impairment of trade receivables was assessed based on the incurred loss model as required under AASB 139 Financial Instruments: Recognition and Measurement. The group assessed, whether there was any objective evidence of impairment as a result of one or more events that had occurred after the initial recognition of the asset (incurred “loss event”) and that loss event had an impact on estimated future cash flows of the financial asset or the group of financial assets that could be reliably estimated. Evidence of impairment may have included indications the debtor or group of debtors was experiencing significant financial difficulty, default or delinquency in interest or principal payments, probability of the debtor entering bankruptcy or other financial reorganisation, and when observable data indicated there was a measurable decrease in estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 43 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 1a Summary of significant accounting policies continued Financial liabilities Initial recognition and measurement Financial liabilities within the scope of AASB 9 Financial Instruments are classified as at amortised cost, at fair value through profit and loss, or as derivatives designated as hedging instruments as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value plus, in the case of loans and borrowings, directly attributable transaction costs. The Group’s financial liabilities include trade and other payables (amortised costs), loans and borrowings (amortised cost) and derivative financial instruments (fair value through profit and loss). Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in the statement of comprehensive income when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the statement of comprehensive income. Derivative financial instruments Derivative financial instruments held by the group represent embedded conversion options on borrowing facilities. The embedded derivative component of the debt is required to be separated and accounted for as at fair value through profit and loss, with fair value gains and losses on remeasurement recognised in profit and loss. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Offsetting of financial instruments Financial assets and financial liabilities are offset, and the net amount reported in the consolidated statement of financial position if, and only if: • There is a currently enforceable legal right to offset the recognised amounts • There is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously (i) Property, plant, and equipment Each class of property, plant and equipment is carried at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses. Leasehold Improvements Leasehold improvements are initially shown at their cost, less subsequent depreciation. Plant and Equipment Plant and equipment are measured on the cost basis, less depreciation and impairment losses. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit and loss during the financial period when they are incurred. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 44 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 1a Summary of significant accounting policies continued Depreciation The depreciable amount of all fixed assets, excluding freehold land, is depreciated on a straight-line basis over the asset's useful life to the company commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful life of the improvement. The estimated lives used for each class of depreciable assets are: Class of fixed asset Building and Leasehold improvements 2 – 25 years 2 – 20 years Furniture and fittings 3 – 5 years Computer equipment 3 – 5 years Vehicles Estimated Life The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or losses are included in profit or loss. (j) Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Group as a lessee Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term. Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability. (k) Intangible assets Goodwill Goodwill is initially recorded at the amount by which the purchase price for a business combination exceeds the fair value attributed to the interest in the net fair value of identifiable assets, and liabilities. After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or whenever there is an indication of impairment. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 45 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 1a Summary of significant accounting policies continued Training Licences and Course Material Site Group acquires licenced course material with significant scope (approved courses) in high risk training. The economic potential of these licences and courses was assessed as part of the acquisition price and recorded as an intangible asset which is being amortised on a straight line basis over five years. Licences Site Group acquires licences to offer scope of training and access to government funding options. The economic potential of these licences was assessed as part of the acquisition price and recorded as an intangible asset and amortised on a straight line basis over 20 years. Customer Contracts Site group acquires customer contracts with significant value to be realised through the profit and loss in future periods. The economic potential of these contracts is measured as a risk adjusted discounted cash flow to be generated from these contracts and recorded as an intangible asset which is amortised on a straight line basis over the relevant contract period. Brand Site group acquires brands that are recognised by customers in relevant markets and generate future activity for the company. The economic potential of these brands in the form of future revenue generating potential is assessed as a discounted cash flow and recorded as an indefinite useful life intangible and tested for impairment annually. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. (l) Impairment of non-financial assets At each reporting date, the company reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of comprehensive income. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. Where an individual asset does not independently generate cash flows, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs. (m) Provisions and employee benefits Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of cash or non-cash resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 46 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 1a Summary of significant accounting policies continued value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs. Employee leave benefits (i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be wholly settled within 12 months of the reporting date are recognised in respect of employees' services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Based on historical evidence no discounting of annual leave has been applied. Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. Liabilities for wages, salaries and annual leave are recognised as current liabilities and the group does not have an unconditional right to defer settlement beyond 12 months. (ii) Long service leave The liability for long service leave is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees once an employee reaches five years of service. Expected future payments are discounted using market yields at the reporting date on the applicable corporate bonds with terms to maturity and currencies that match, the estimated future cash outflows. Where the group has an unconditional right to defer settlement of the liability beyond 12 months of the balance date, the provision is classified as non-current. Otherwise, the provision is classified as a current liability. (n) Taxes Income tax Current Tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. Deferred Tax Deferred tax is provided using the balance sheet liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: • When the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. • When the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except: Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 47 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 1a Summary of significant accounting policies continued • When the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss • When the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred tax assets are reassessed each reporting date and are recognised to the extent it has become probable that future taxable profit will allow recovery of the deferred tax asset. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same tax authority. Tax consolidation legislation Site Group International Limited and its wholly owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Site Group International Limited and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, Site Group International Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Any differences between the amounts assumed and the amounts receivable or payable under the tax funding agreement are recognised as contributions to (or distribution from) wholly owned tax consolidated entities. Goods and services tax (GST) Revenues, expenses, assets and liabilities are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Tax Office. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST. GST receivable and payable has been offset against one another. Commitments are shown net of GST. In the statement of cash flows, receipts from customers are shown inclusive of GST and payments to suppliers and employees are shown inclusive of GST and GST recovered from the tax office is shown in receipts from customers. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 48 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 1a Summary of significant accounting policies continued (o) Revenue recognition Revenue from contracts with customers is recognised either at a point in time or over time depending on the nature of the contract, including the timing of satisfaction of performance obligations and the transfer of control to the customer. The group’s contracts with customers fall into the following categories: Revenue Stream Nature of Goods or Services Promised Typical Performance Obligations When Performance Obligation is Typically Satisfied Course fees and Government subsidies Training Service Delivery of training course Over time, being throughout the period of the course. For short-term (i.e. one day) courses the performance obligation may be satisfied at a point in time, being the date of course delivery. Specific projects with performance milestones & project delivery indicators Construction of Safe Life Processing Plant (SLPP) Specific project milestones as specified in each individual contract. Performance obligation: Specific project milestones as specified in contract, with a transaction price allocated to each milestone. Project delivery in most instances will not extend over more than one financial period. Project income Ongoing project service income Facility Management of Safe Life Processing Plant (SLPP) Delivery of a service over the length of the contract period. Over time, being as the services are delivered over the duration of the contract. Placement services Recruitment and labour hire services 1. Placement of personnel at inception 2. Provision of employee for a fixed period of time Placement: At a point in time, being when the employee has been successfully placed (i.e. acceptance of placement by customer). Provision of employee: Over time, being the period of time that staff are employed. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Method Used to Determine Progress Towards Complete Satisfaction of Performance Obligation An output method is used being contact days elapsed as a percentage of total contact days. This is considered the most appropriate basis for recognition of revenue as it is readily observable and sufficiently linked to the performance obligations specified in the contract. An input method is used, based on the amount of contract costs incurred as a percentage of budgeted contract costs An output method is applied based on either time elapsed, units delivered, or milestones reached dependent on the terms of the individual contracts. Control is considered to pass in a manner consistent with measurement provided by this method. An output method (time elapsed on percentage of total time) is used. This reflects the expectation of consistency in transfer of services over the contract period for labour services. Page 49 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 1a Summary of significant accounting policies continued Contracts with customers do not typically involve a significant financing component. Course fee contracts may specify an entitlement to receive a portion of the contract value in advance of services being provided, however the period of time between payment being received and course delivery is generally not greater than 12 months. Amounts received in advance of services being provided are recognised as contract liabilities (refer note 1a(p)). No disclosure has been made within the financial statements of the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period, as these performance obligations relate to contracts that have an original expected duration of one year or less. There are no elements of consideration under any of the above revenue streams that are variable in nature. (p) Contract assets and contract liabilities Contract assets represent the group’s right to consideration (not being an unconditional right recognised as a receivable) in exchange for goods or services transferred to the customer. Contract assets are measured at the amount of consideration that the group expects to be entitled in exchange for goods or services transferred to the customer. Contract liabilities represent the group’s obligation to transfer goods or services to the customer for which the group has received consideration (or an amount of consideration is due) from the customer. Amounts recorded as contract liabilities are subsequently recognised as revenue when the group transfers the contracted goods or services to the customer. (q) Comparative figures Where necessary, comparative figures have been adjusted to conform to changes in presentation for the current financial year where required by accounting standards or as a result of changes in accounting policy. Disclosure of the amounts and basis for such changes is made, where material, in note 1a(c)(i) and note 11. (r) Share-based payment transactions The Group provides benefits to its employees (including key management personnel) in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity settled transactions). Site Group currently has an Employee Share Plan (ESP), which provides benefits to directors and all eligible employees. The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using a binomial model, further details of which are given in note 16. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). At each subsequent reporting date until vesting, the cumulative charge to profit or loss is the product of: • The grant date fair value of the award; Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 50 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 1a Summary of significant accounting policies continued • The current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of non- market performance conditions being met; and • The expired portion of the vesting period. The charge to profit or loss for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding entry to equity. The expense associated with equity-settled awards granted by Site Group to employees of subsidiaries are recorded as an expense in the subsidiary and funded by advances from the parent which eliminate on consolidation. The expense recognised by the Group is the total expense associated with all awards. Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to a market condition or non- vesting condition is considered to vest irrespective of whether or not that market condition or non- vesting is fulfilled, provided that all other conditions are satisfied. (s) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax as applicable, from the proceeds. (t) Fair value measurement All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: • Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities • Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable • Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable The Group measures derivative financial liabilities at fair value through profit and loss (refer note 1a(h)) on a recurring basis. The valuation of these derivatives involves the use of unobservable inputs (level 3), which are detailed together with a reconciliation of changes in the fair value of these liabilities throughout the period in note 17. The carrying values of other financial assets and financial liabilities as disclosed in note 23 approximate their fair values. Note 1b Significant accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result which form the basis of the carrying values of assets and liabilities that aren’t readily apparent from other sources. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 51 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 1b continued Significant accounting judgements, estimates and assumptions Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. Further details may be found in the relevant notes to the financial statements (a) Significant accounting judgements Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only when management considers that it is probable that future taxable profits will be available to utilise those temporary differences. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. Impairment of non-financial assets other than goodwill and indefinite life intangibles The Group assesses impairment of assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. These include technology, economic and political environments and future product expectations. If an impairment trigger exists, the recoverable amount of the asset is determined. Given the current uncertain economic environment management considered that the indicators of impairment were significant enough and as such these assets have been tested for impairment in this financial period, refer below. (b) Significant accounting estimates and assumptions Impairment of non-current assets The Group determines whether goodwill and intangibles with indefinite useful lives are impaired at least on an annual basis. Further, the Group considers whether other non-current assets are impaired whenever there is an indication that impairment may exist. This requires an estimation of the recoverable amount of the cash generating units, using a value in use discounted cash flow methodology, to which the goodwill and intangibles with indefinite useful lives are allocated. An impairment loss of $Nil was recognised in the current year in respect of goodwill and brand (2018: $3,797,413). The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill and intangibles with indefinite useful lives are discussed in note 9. Revenue recognition – Course fees The Group recognises the revenue earned from delivery of a course over the period of the course that the service is provided. Where the duration of the course is extended this is recorded as contract revenue on the statement of financial position. In calculating the amount of contract revenue, consideration is also given to the probability of reversals and student refunds and the impact on the level of income recorded. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 52 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 2 Operating Segments An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. The Group has organised its business into four separate units based on the products and services offered – the Chief Operating Decision Makers (“CODM”), being the directors and executive management of the Group, review the results on this basis. The four reportable business segments of the Group are: - Site Skills Training - Domestic which delivers vocational training and assessment services through five training facilities located at Perth, Gladstone, Darwin, Landsborough and Logan. At these locations our experienced team assesses, up-skills and trains industry experienced candidates in the mining and processing, oil and gas, construction, camp services, hospitality and logistic sectors. - Site Skills Training - International operates a 300,000m2 facility at Clark Freeport Zone in the Philippines allowing the company to deliver Australian standard training in a low cost and controlled environment. This facility has the capacity to complete large scale residential training programs customised to meet client specific requirements. This division also incorporates Site WorkReady being the recruitment and assessment division for international clients. - Energy Services refers to the establishment of specialised energy training and services delivered to the Oil and Gas industry. - Tertiary Education delivers Diploma and certificate level courses at Site’s campuses in Australia through the Site Institute brand and also English language courses and conferences internationally through the TESOL Asia business. The CODM monitors the operating results of its business units separately for the purposes of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit/loss consistent with the operating profit/loss in the consolidated financial statements. Group financing and corporate overheads are managed on a group basis and not allocated to operating segments. Transfer prices between the operating segments are on an arm’s length basis in a manner similar to transactions with third parties. The following is an analysis of the revenue and results for the period, analysed by reportable operating unit: Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 53 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 2 Operating Segments continued Year ended 30 June 2019 Revenue from contracts with customers Site Skills Training (Domestic) $ Site Skills Training (International) Energy Services $ $ Tertiary Education $ Total Segments $ Corporate and Eliminations $ Total $ Revenue from contracts with customers - external customer 12,866,083 12,137,035 3,235,102 2,614,754 30,852,974 60,316 30,913,290 Revenue from contracts with customers - inter-segment - 521,336 403,915 - 925,251 (925,251) - Total segment revenue 12,866,083 12,658,371 3,639,017 2,614,754 31,778,225 (864,935) 30,913,290 Segment net operating (loss) before tax (2,326,460) 134,956 37,966 75,658 (2,077,880) (2,918,609) (4,996,489) Interest revenue Interest expense Depreciation and amortisation EBITDA - (5,506) (592,276) (1,728,678) 11,784 (9,762) (549,460) 682,394 82 (561) (173,206) 211,651 - (348) 11,866 (16,177) 54,317 (398,564) 66,183 (414,741) (34,132) (1,349,074) (59,000) (1,408,074) 110,138 (724,495) (2,515,362) (3,239,857) Segment assets as at 30 June 2019 4,122,861 10,069,113 1,732,117 1,111,430 17,035,521 240,721 17,276,242 Segment liabilities as at 30 June 2019 2,803,973 4,823,425 313,137 713,977 8,654,512 5,239,607 13,894,119 Capital expenditure as at 30 June 2019 591,517 1,119,065 6,877 107,743 1,825,202 79,503 1,904,705 . Year ended 30 June 2018 Revenue Sales revenue - external customer Sales revenue - inter-segment Total segment revenue Segment net operating (loss) before tax Interest revenue Interest expense Depreciation and amortisation EBITDA Site Skills Training (Domestic) $ Site Skills Training (International) $ Energy Services Tertiary Education Total Segments Corporate and Eliminations $ $ $ $ Total $ 14,284,041 10,748,704 3,781,713 1,423,013 30,237,471 68,663 30,306,134 - 40,304 - - 40,304 (40,304) - 14,284,041 10,789,008 3,781,713 1,423,013 30,277,775 28,359 30,306,134 (943,529) - (9,201) (744,364) (189,964) 173,134 6,792 (7,813) (524,781) 698,936 (5,245,824) 1,059 (25) (646,162) (4,600,696) (260,403) - (44) (16,401) (243,958) (6,276,622) 7,851 (17,083) (1,931,708) (4,335,682) (3,106,695) 8,346 (37,293) (68,416) (3,009,332) (9,383,317) 16,197 (54,376) (2,000,124) (7,345,014) Segment assets as at 30 June 2018 4,178,592 8,761,877 748,775 1,116,961 14,806,205 995,107 15,801,312 Segment liabilities as at 30 June 2018 2,408,416 3,511,333 249,556 531,507 6,700,812 2,151,393 8,852,205 Capital expenditure as at 30 June 2018 712,650 536,341 9,936 27,545 1,286,472 71,762 1,358,234 The segment disclosures above do not include the discontinued operation. Refer to note 20 for more information. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 54 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 2 Operating Segments continued Reconciliation of loss Segment loss Inter-company management fees Head office occupancy costs Corporate employee benefits including Directors costs Legal accounting and other professional fees Travel costs Other corporate costs Corporate income Group loss before tax from continuing operations Reconciliation of assets Segment operating assets Corporate assets Cash at bank Security deposits Intangibles Other assets Inter-segment receivables Group operating assets Assets of discontinued operations (note 20) Total assets per statement of financial position Reconciliation of liabilities Segment operating liabilities Corporate liab ilities Corporate trade payables Interest bearing debt Other current financial liabilites Other liabilities Group operating liabilities Liabilities of discontinued operations (note 20) Total liabilities per statement of financial position Disaggregation of Revenues Consolidated Group 2019 $ 2018 $ (2,077,880) 1,140,000 (76,482) (2,432,113) (142,271) (128,883) (896,105) (382,755) (4,996,489) (6,276,622) 1,140,000 (160,348) (2,804,049) (340,361) (199,611) (779,031) 36,705 (9,383,317) 17,035,521 14,806,205 15,171 467,254 197,498 536,179 (975,381) 17,276,242 225,951 17,502,193 25,776 345,981 197,763 425,587 - 15,801,312 376,681 16,177,993 8,654,512 6,700,812 432,623 4,242,575 218,630 345,779 13,894,119 6,381,321 20,275,440 1,639,850 313,006 - 198,537 8,852,205 5,871,029 14,723,234 As disclosed in note 1a(o), the group derives its revenue from the transfer of services over time and at a point in time. The following table provided a disaggregation of revenue by major revenue class and by geographical location. Year ended 30 June 2019 Revenue from contracts with customers - external Course fees Placement services Government subsidies received Project income Other revenue Total revenue from contracts with customers - external Revenue from contracts with customers - inter segment Total revenue from contracts with customers Timing of revenue recognition Goods transferred at a point in time Services transferred over time Total revenue from contracts with customers Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Australia $ Asia $ Corporate and Eliminations $ Total $ 14,077,635 - 1,867,431 19,648 89,040 16,053,754 1,300 16,055,054 9,360,865 2,727,917 - 2,425,842 284,596 14,799,220 923,951 15,723,171 - - - - 60,316 60,316 (925,251) (864,935) 23,438,500 2,727,917 1,867,431 2,445,490 433,952 30,913,290 - 30,913,290 - 16,055,054 16,055,054 15,782 15,707,389 15,723,171 14,251 (879,186) (864,935) 30,033 30,883,257 30,913,290 Page 55 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 2 Operating Segments continued Year ended 30 June 2018 Revenue from contracts with customers - external Course fees Placement services Government subsidies received Project income Other revenue Total revenue from contracts with customers - external Revenue from contracts with customers - inter segment Total revenue from contracts with customers Timing of revenue recognition Goods transferred at a point in time Services transferred over time Total revenue from contracts with customers Note 3 Earnings per Share Australia $ Asia $ Corporate and Eliminations $ Total $ 13,522,113 - 2,418,969 1,742,606 130,301 17,813,989 - 17,813,989 6,756,056 3,674,305 - 1,751,555 241,566 12,423,482 40,304 12,463,786 - - - - 68,663 68,663 (40,304) 28,359 20,278,169 3,674,305 2,418,969 3,494,161 440,530 30,306,134 - 30,306,134 - 17,813,989 14,799 12,448,987 17,813,989 12,463,786 15,190 13,169 28,359 29,989 30,276,145 30,306,134 Consolidated Group 2019 2018 $ $ a) Earnings used in calculating earnings per share For b asic and diluted earnings per share: Net loss from continuing operations attributable to ordinary equity holders of the parent Net loss attributable to ordinary equity holders of the parent (5,082,800) (4,742,968) (9,547,913) (6,042,212) b) Weighted average number of shares Weighted average number of ordinary shares for basic and diluted earnings per share No. 686,183,949 No. 656,150,613 c) (Loss) / earnings per share (cents) Loss per share from continuing operations attributable to the ordinary equity holders of the parent Loss per share attributable to the ordinary equity holders of the parent (0.74) (0.69) (1.46) (0.92) There are no options outstanding at 30 June 2019 (Nil at 30 June 2018). To calculate the EPS for discontinued operations the weighted average number of ordinary shares is as per above. The following table provides the profit / (loss) amounts used. Net profit /(loss) from discontinued operations attributable to ordinary equity holders of the parent 339,832 3,505,701 Consolidated Group 2019 2018 $ $ Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 56 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 4 Revenue from Contracts with Customers from Continuing Operations Revenue from continuing operations Revenue Course fees Placement services Government subsidies received Project income Other revenue Other Income Fair value gain on embedded derivative Note 5 Expenses from Continuing Operations Employee benefits expense Wages and salaries Superannuation expense Payroll tax and workers compensation Changes in provisions for annual and long-service leave Other employment expenses Share-based payment expense Other expenses Legal, accounting and other professional fees Travel & accommodation Sales and marketing expense Consultants cost Impairment of intangibles Impairment of receivables Changes in the allowance for expected credit losses Other Finance costs Interest expense - third parties Interest expense - related parties Facilities fee Consolidated Group 2019 2018 $ $ 23,438,500 2,727,917 1,867,431 2,445,490 433,952 30,913,290 20,278,169 3,674,305 2,418,969 3,494,161 440,530 30,306,134 116,498 - Consolidated Group 2019 $ 10,906,472 930,653 600,033 (10,268) 318,949 9,228 12,755,067 2018 $ 11,881,800 1,014,779 704,746 112,126 256,208 60,000 14,029,659 1,073,304 1,029,442 1,757,962 841,168 - - (388,588) 1,267,196 5,580,484 624,546 1,027,316 1,169,603 779,257 3,797,413 495,573 - 1,112,039 9,005,747 24,451 382,191 8,099 414,741 23,061 26,515 4,800 54,376 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 57 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 6 Taxation a) Income tax expense The major components of income tax expense are: Statement of comprehensive income Current income tax Current income tax charge Adjustments in respect of current income tax of previous years Deferred income tax Relating to origination and reversal of timing differences Income tax expense / (benefit) reported in the statement of comprehensive income b) Numerical reconciliation between aggregate tax expense A reconciliation between tax expense and the product of accounting Total before income tax Accounting profit/(loss) before tax from continuing operations Accounting profit/(loss) before tax from discontinued operations Total before income tax At the parent entity's statutory income tax rate of 30% (2018 - 30%) Differential in overseas tax rate to Australian tax rate Non-assessable income Non-deductible expenses Utilisation of previously unrecognised tax losses Adjustments in respect of current income tax of previous years Adjustments in respect of deferred tax in prior year Impairment of intangible assets Write back of Impairment of intangible assets Derecognition of carried forward tax losses Deferred tax asset not recognised Aggregate income tax credit attributed to: Continuing operations Aggregate income tax expense attributed to: Discontinued operations Consolidated Group 2019 $ 2018 $ 92,984 - (6,673) 86,311 88,851 73,579 2,166 164,596 (4,996,489) (1,261,398) (6,257,887) (1,877,366) (121,490) - 123,778 (162,626) (1,688,960) - - - - 2,211,745 (1,514,919) 86,311 (1,601,230) (1,514,919) (9,383,317) 3,588,746 (5,794,571) (1,738,371) 147,363 - 116,279 - 73,579 (45,708) 1,139,224 (1,497,034) 132,082 1,920,227 247,641 164,596 83,045 247,641 A deferred tax asset has not been recognised for unused tax losses amounting to $7,372,483 (tax effected: $2,211,745). Following review of the historical taxation treatment for the revenue derived by the PP business, management lodged amended income tax returns for the 2015, 2016 and 2017 income tax years resulting in income tax refund for $1,688,960 being received in January 2019. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 58 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 6 Taxation continued c) Deferred tax Consolidated statement of financial position Consolidated statement of profit or loss 2019 $ 2018 $ 2019 $ 2018 $ Accrued expenses Superannuation payable Provision for leave balance Provision for impairment of receivables Provision for re-credits Customer contracts Losses available for offsetting against future taxable income Other foreign entity deferrals Deferred tax benefit Net deferred tax assets 626,572 18,527 206,719 12,000 23,717 - - (11,606) 688,532 21,653 213,629 29,252 23,717 - - (17,532) 875,929 959,251 61,960 3,126 6,910 17,252 - - - (8,191) 81,057 (171,813) 23,749 (29,017) 1,539 217,677 (106,538) 132,082 17,532 85,211 2019 $ 959,251 (2,265) 6,673 (87,730) 875,929 2018 $ 1,044,462 - (2,166) (83,045) 959,251 Note 7(a) Consolidated Group 2019 $ 2018 $ 25,347,821 (21,304,563) 4,043,258 335,109 4,378,367 24,450,323 (21,671,453) 2,778,870 555,579 3,334,449 Reconciliation of net deferred tax asset /(liabilities) As of 1 July Opening balance adjustment Tax income during the period recognised in profit or loss Discontinued operations As at 30 June Note 7 Trade and Other Receivables CURRENT Receivables from contracts with customers Allowances for expected credit losses Other receivables Total current trade and other receivables Trade receivables includes an amount of $20,977,645, representing a portion of a total reconciliation payment of $28,969,145 receivable from the Commonwealth Government Department of Education and Training (DET) for services performed prior to 30 June 2017. The difference of $7,991,500 was impaired in an earlier period, which should not be taken as an assertion by the Group that the Group is not entitled to this amount. In light of the uncertain circumstances with regard to the reconciliation payment, Management took the decision to write down the full debtor value in the accounts at 30 June 2017, while maintaining the position that the group was entitled to the full reconciliation amount. In December 2017, the Group received $4,869,133 of the amount outstanding and was then advised by DET it would accept further submissions from the Group for the balance. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 59 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 7 Trade and Other Receivables continued Following the provision of these submissions, the Group was advised that DET had decided against making the payment, without providing any legislative justification. The Group will pursue all remedies available to it through the court process to compel the DET to pay the outstanding amount. During the comparative year ended 30 June 2018 the provision was written back by $4,990,133 following tuition re-credits and the DET payment received as noted above. The expected loss rate for this balance (refer below) has been set at 100% in light of the uncertain circumstances with regard to the reconciliation payment. The loss allowance will be re-assessed as the matter progresses and does not in any way alter the belief of the Board and Management that the Group is entitled to the full reconciliation amount of $28,969,145 in full and that the monies are legitimately due and payable under the relevant legislation as it then applied. a) Allowance for expected credit losses As described in note 1a(h), the group applies the simplified expected credit loss model prescribed in AASB 9 to determine an allowance for expected credit losses on its receivables from contracts with customers (trade receivables) and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets have substantially the same risk characteristics as the trade receivables for the same types of contracts. The group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets. The expected loss rates are based on the payment profiles for sales over a period of 3 years before 30 June 2019 and 1 July 2018 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward looking macroeconomic factors affecting the ability of the customers to settle the receivables. The group has identified forecasts GDP growth conditions to be the most relevant factor, and accordingly adjusts the historical loss rates based on expected change in this factor. The tables below show the calculation of the expected credit loss provision at both 30 June 2019 and 1 July 2018. Consolidated Group Total Trade receivables - Days past due 31-60 days 61-90 days 0-30 days +91 days Discontinued Operation 30 June 2019 Expected credit loss rate Estimated total gross carrying amount at default Expected credit loss 1 July 2018 Expected credit loss rate Estimated total gross carrying amount at default Expected credit loss 0.7% 5.0% 10.0% 16.7% 25,347,821 21,304,563 1,564,176 10,793 1,073,953 53,698 402,556 40,256 1,329,491 222,171 20,977,645 20,977,645 0.7% 5.0% 10.0% 17.2% 24,450,323 21,199,556 1,907,852 13,133 402,448 20,122 159,307 15,931 1,003,071 172,724 20,977,645 20,977,645 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 60 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 7 Trade and Other Receivables continued The closing loss allowances for receivables from contracts with customers and contract assets as at 30 June 2019 reconcile to the opening loss allowances as follows: Opening Balance - calculated under AASB 139 Adjustment on initial application of AASB 9 Opening balance – calculated under AASB 9 Increase/(reversal) of loss allowance recognised in profit or loss Amounts written off Closing Balance Consolidated Group 2019 $ 2018 $ 21,671,453 (471,897) 21,199,556 105,007 - 21,304,563 26,145,867 - 26,145,867 (4,420,769) (53,645) 21,671,453 Other receivables are excluded from the above analysis as these represent balances due from taxation authorities for which the expected loss rate is 0%. b) Related party receivables For terms and conditions of related party receivables refer to note 17. c) Fair value and credit risk Due to the short-term nature of these receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security, nor is it the Group’s policy to transfer (on-sell) receivables to special purpose entities. At 30 June 2019, Group receivables, before allowance for expected credit losses, included one customer that owed $20,977,645 (as noted above). d) Foreign exchange and interest rate risk Detail regarding foreign exchange and interest rate risk exposure is disclosed in note 23. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 61 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 8 Property, Plant and Equipment Plant and equipment Leasehold improvements At cost Accumulated depreciation Net carrying amount - leasehold improvements Capital works in progress At cost Computer equipment At cost Accumulated depreciation Net carrying amount - computers Furniture and fittings At cost Accumulated depreciation Net carrying amount - furniture and fittings Vehicles At cost Accumulated depreciation Net carrying amount - vehicles Total property, plant and equipment Consolidated Group 2019 2018 $ $ 9,123,658 (2,821,405) 6,302,253 8,343,301 (2,219,622) 6,123,679 1,555,369 444,813 1,321,729 (1,194,898) 126,831 1,226,899 (1,093,995) 132,904 4,504,353 (3,982,620) 521,733 4,203,950 (3,458,329) 745,621 778,509 (584,001) 194,508 747,014 (471,456) 275,558 8,700,694 7,722,575 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 62 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 8 Property, Plant and Equipment continued (a) Movements in Carrying Amounts Movements in carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year: Leasehold Capital Works Improvements $ in Progress $ Computers $ Furniture & Fittings $ Vehicles $ Total $ 6,548,983 41,172 8,476 (7,305) (381,948) (85,699) 6,123,679 20,492 42,139 - (386,906) 502,849 6,302,253 158,952 666,751 (382,914) - - 2,024 444,813 1,152,581 (84,751) - - 42,726 1,555,369 218,512 84,307 1,045 (7,058) (164,101) 199 132,904 78,480 14,918 - (99,494) 23 126,831 892,534 105,834 161,560 (16,238) (393,969) (4,100) 745,621 174,217 3,125 (43,300) (371,832) 13,902 521,733 184,163 54,599 147,574 (11,980) (97,326) (1,472) 275,558 - - - (94,652) 13,602 194,508 8,003,144 952,663 (64,259) (42,581) (1,037,344) (89,048) 7,722,575 1,425,770 (24,569) (43,300) (952,884) 573,102 8,700,694 Consolidated Group: Balance at 30 June 2017 Additions Transfers - in (out) Disposals Depreciation expense Exchange rate differences Balance at 30 June 2018 Additions Transfers - in (out) Disposals Depreciation expense Exchange rate differences Balance at 30 June 2019 (b) Finance Leases The carrying value of vehicles held under finance leases and hire purchase contracts at 30 June 2019 was $173,397 (2018: $233,962). No additions of vehicles under hire purchase contracts were made during the year (2018: $162,599) Leased assets and assets under hire purchase contracts are pledged as security for the related finance lease and hire purchase liability. (c) Impairment Testing Impairment testing was completed on the Site Skills Training – International cash-generating unit (CGU) at 30 June 2019, to which $7,299,871 of the property, plant and equipment balance above is allocated. The recoverable amount of the CGU was determined based on value-in-use calculations. Value-in-use is calculated based on the present value of future cash flow projections over a five-year period including a terminal value calculation. The projected cash flows used to determine value-in-use reflected the latest budgets. Key inputs into the impairment model included a pre-tax discount rate of 17%, annual revenue growth rate over the 5 year forecast period of 10%, annual EBITDA margin of 15%, and a terminal growth rate of 0%. As a result of this analysis, management did not recognise an impairment charge. The calculation of value in use for the CGU’s is most sensitive to changes in forecast revenue growth and the discount rate. Removal of any average annual revenue growth rate or a decrease in the annual EBITDA margin percentage to 10% would result in an impairment charge being recognised. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 63 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 9 Intangible Assets Non-Current Goodwill Net carrying value Training licences and course material Cost Accumulated amortisation Net carrying value Customer contracts Cost Accumulated amortisation Net carrying value Software development Cost Accumulated amortisation Net carrying value Total intangible assets Consolidated Group 2019 2018 $ $ 638,050 638,050 3,242,515 (2,598,845) 643,670 2,871,181 (2,267,606) 603,575 1,615,542 (1,615,542) 1,615,542 (1,615,542) - - 1,359,511 (1,132,015) 227,496 1,191,112 (973,672) 217,440 1,509,216 1,459,065 (a) Reconciliation of carrying amounts at the beginning and end of the period Movements in carrying amounts for each class of intangible between the beginning and the end of the current financial year: Goodwill $ 4,375,463 - - (3,737,413) - - - 638,050 - - - - Training Licences Courses $ 684,871 258,787 24,921 - (635) (372,436) 8,067 603,575 335,105 - (302,489) 7,479 Consolidated Group: Balance at 30 June 2017 Additions Transfers in Impairments Disposals Amortisation expense Exchange rate differences Balance at 30 June 2018 Additions Transfers in Amortisation expense Exchange rate differences Balance at 30 June 2019 638,050 643,670 Customer Contracts $ 352,943 - - - - (352,943) - - - - - - - Brand $ Software Development $ Total $ 60,000 - - (60,000) - - - - - - - - - 303,847 146,784 39,338 - (2,000) (270,529) - 217,440 143,830 24,569 (158,343) - 5,777,124 405,571 64,259 (3,797,413) (2,635) (995,908) 8,067 1,459,065 478,935 24,569 (460,832) 7,479 227,496 1,509,216 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 64 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 9 Intangible Assets continued b) Impairment An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs to sell and value in use. The recoverable amount of goodwill and brand name is determined based on value-in-use calculations. Value-in-use is calculated based on the present value of future cash flow projections over a five-year period including a terminal value calculation. The cash-generating unit with a significant amount of goodwill is the Tertiary Education unit, as shown in the table below: CGU Carrying amount of goodwill Tertiary Site Skills Training (Domestic) 2019 $ 2018 $ 2019 $ 2018 $ 441,015 441,015 197,035 197,035 Tertiary Education cash-generating unit The Group used the cash-generating unit’s value-in-use to determine the recoverable amount. The projected cash flows were updated to reflect the latest budgets and a pre-tax discount rate of 17% (30 June 2018: 16.6%) was applied. The terminal growth rate applied is 0% (30 June 2018: 0%). As a result of this analysis, management did not recognise an impairment charge. The calculation of value in use for the Tertiary Education CGU is most sensitive to the changes in forecast gross margins and the discount rate. No reasonably possible change in forecast gross margins or the discount rate applied would have resulted in an impairment of the CGU carrying value at 30 June 2019. Energy Services cash-generating unit In the period to 30 June 2018, the business for Wild Geese International Pty Ltd changed such that the Group sought to reassess impairment for the non-current assets (primarily goodwill) in the Energy Services cash-generating unit. The Group used the cash-generating unit’s value-in-use to determine the recoverable amount, which exceeded the carrying amount. The projected cash flows were updated to reflect the latest budgets and a pre-tax discount rate of 17% was applied. The terminal growth rate applied was 0% As a result of the analysis, management recognised an impairment charge of $3,797,413 against goodwill and brand in the year ended 30 June 2018. The impairment charge is recorded in other expenses in the Statement of Comprehensive Income. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 65 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 10 Trade and Other Payables Current Unsecured liabilities Trade payables Employee related payables Accruals Other payables Total trade and other payables Non-current Unsecured liabilities Trade payables Accruals Total trade and other payables Consolidated Group 2019 2018 $ $ 3,509,922 776,783 1,715,062 78,355 6,080,122 2,573,229 437,178 1,640,375 8,322 4,659,104 Consolidated Group 2019 2018 $ $ 4,581,310 1,013,773 5,595,083 4,581,310 1,013,773 5,595,083 Non-current trade payables and accruals balances include commission payable to agents on receipt of the reconciliation payment receivable from the DET (see note 7). The non-current accruals account also includes $475,352 representing executive STI bonuses payable on receipt of the reconciliation payment receivable from the DET. Amounts have been classified as non-current as the Group has no contractual obligation to settle the liabilities unless payment of the outstanding receivable due from the Commonwealth Government as per note 7 is received. Although the Group intends to pursue recovery of the outstanding receivable in full, as such recovery action is at the discretion of the Group, the directors are satisfied that an unconditional right of deferral exists for the liabilities until such time as the debtor is received. (a) Fair value Due to the short-term nature of these payables, their carrying value is assumed to approximate their fair value. (b) Related party payables For terms and conditions relating to related party payables refer to note 17. (c) Interest rate, foreign exchange and liquidity risk Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 23. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 66 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 11 Contract Liabilities Consolidated Group 2019 $ 2018 $ Contract liabilities 390,458 623,824 The amount of the contract liability recognised at the beginning of the period was recognised as revenue during the 2019 year. All contract liabilities outstanding at 30 June 2019 are expected to be recognised as revenue within the next twelve months. As disclosed in note 1a(c)(i), comparative balances have been reclassified for consistency with current period disclosures, resulting in unearned income of $623,824 recognised within trade and other payables in the 30 June 2018 financial statements being reclassified as contract liabilities. Note 12 Interest Bearing Debt Current financial liabilities Refer to note 15(d) for details of the unsecured related party debt facility. Finance lease liability due within 12 months Unsecured related party loans due within 12 months Non-current financial liabilities Finance lease liability Unsecured related party loans Consolidated Group 2019 $ 103,612 38,907 142,519 2018 $ 92,156 266,922 359,078 Consolidated Group 2019 $ 2018 $ 71,143 166,508 4,167,276 4,238,419 - 166,508 Movements in finance lease borrowings during the year are as follows: Opening Balance Assets acquired via finance lease Repayments Closing balance 2019 $ 258,664 - (83,909) 174,755 2018 $ 179,720 162,599 (83,655) 258,664 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 67 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 13 Provisions Current Employee - annual leave Other Non-current Provision for pension liability Provision for long service leave Provision for lease rental incentive Movement in provisions Movements in provisions are set out below: At 30 June 2017 Arising during the year Utilised/provision released At 30 June 2018 Arising during the year Utilised/provision released At 30 June 2019 Consolidated Group 2019 2018 $ $ 465,898 126,428 592,326 580,376 126,020 706,396 Consolidated Group 2018 2019 $ $ 199,923 267,254 2,453,828 2,921,005 94,742 163,044 2,306,201 2,563,987 Lease Rental $ 2,157,076 152,553 (3,429) 2,306,200 154,927 (7,300) 2,453,827 Pension Liability * $ 109,282 - (14,540) 94,742 - 105,181 199,923 Long Service Leave $ 104,068 58,976 - 163,044 104,211 - 267,255 Total $ 2,370,426 211,529 (17,969) 2,563,986 259,138 97,881 2,921,005 * The Group has an obligation in the Philippines to provide for the retirement obligations of staff after 5 years of service should that person reach retirement age. (c) Lease Rental Incentive The lease of the Clark facility included a three year rent free period which concluded in October 2012. The lease agreement is for a period of 25 years with an option to renew for another 25 years. The agreement includes an escalation in lease payments of ten per cent, compounded on every increase, starting on the fourth year and every three years thereafter. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 68 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 14 Issued Capital 691,457,154 fully paid ordinary shares; 1,116,000 partly paid ordinary shares (2018: 688,552,154 fully paid) Cost of capital raising (a) Ordinary Shares 30 June 2017 share capital Share issue - 18 September 2017 Share issue - 21 September 2017 Share issue - 11 October 2017 Share buy back - 8 December 2017 Share issue - 14 December 2017 Share buy back - 25 January 2018 Transaction costs relating to capital raising 30 June 2018 share capital Share issue - 8 March 2019 share buy back - 27 March 2019 30 June 2019 share capital Consolidated Group 2019 $ 2018 $ 80,519,621 80,519,621 (2,434,337) 78,085,284 (2,434,337) 78,085,284 No. Shares $ 597,017,765 41,586,531 15,165,000 10,375,000 (10,857,142) 36,960,000 (1,695,000) - 688,552,154 7,700,000 (4,795,000) 691,457,154 75,742,840 - 606,600 415,000 - 1,478,400 - (157,556) 78,085,284 - 78,085,284 • On 18 September 2017, the Company completed the issue of 41,586,531 shares at $0.04 per share in settlement of outstanding loans payable to Directors. Agreements for conversion of debt to equity were signed prior to 30 June 2017, subject to the necessary shareholder approval which was granted at an extraordinary general meeting of the Company on 15 September 2017. The financial effects of this transaction, being a reduction to liabilities and an increase in share capital of $1,663,462, were accounted for as at 30 June 2017 as the subsequent shareholder approval was considered to be merely a governance exercise. • On 21 September 2017 – the Company issued 15,165,000 shares under the Share Purchase Plan at the issue price of $0.04 per share. • On 11 October 2017 - the Company issued 10,375,000 shares under the Share Purchase Plan at the issue price of $0.04 per share. • On 8 December 2017 – the Company completed a buy-back of 10,857,142 shares issued under the Employee Share Plan and sign on of shares forfeited by employees when they resigned from the Group. • On 14 December 2017 - the Company issued 36,960,000 shares under the Share Purchase Plan at the issue price of $0.04 per share. • On 21 January 2018 – the Company completed a buy-back of 1,695,000 shares issued under the Employee Share Plan and sign on of shares forfeited by employees when they resigned from the Group. • On 8 March 2019 – the Company issued 7,700,000 employee loan shares, pursuant to the Company’s employee share plan. Refer note 16 for further details on this share-based payment arrangement. • On 27 March 2019 – the Company completed a buy-back of 4,795,000 shares under the Employee Share Plan and sign on shares forfeited by employees when they resigned from the Group. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 69 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 14 Issued Capital continued b) Options i. ii. For information relating to the Site Group International Limited employee option plan, including details of options issued, exercised and lapsed during the financial year and the options outstanding at year-end. Refer to Note 16: Share-based Payments. No options were issued to key management personnel during the financial year. c) Capital Management Management control the capital of the Group in order to ensure that the Group can fund its operations and continue as a going concern. There are no externally imposed capital requirements. Management effectively manages the Group’s capital by assessing the Group's financial risks and adjusting its capital structure in response to changes in these risks and in the market. During 2019, the Group has not paid any dividends. Note 15 Retained Earnings/ (Losses) and Reserves (a) Movement in retained earnings/ (losses) and reserves Balance 1 July Net (loss) / profit for the period Other comprehensive income / (loss) Balance 30 June (b) Other reserves At 30 June 2017 Foreign currency translation Share based payment At 30 June 2018 Foreign currency translation Share based payment At 30 June 2019 (c) Nature and purpose of reserves Share based payments $ 1,451,675 - 60,000 1,511,675 - 9,228 1,520,903 Consolidated Group 2019 2018 $ $ (78,712,583) (4,742,968) (58,171) (83,513,722) (72,724,863) (6,042,212) 54,492 (78,712,583) Total $ Foreign currency translation $ 557,389 2,009,064 12,994 60,000 2,082,058 563,905 9,228 2,655,191 12,994 - 1,134,288 570,383 563,905 - Foreign currency translation reserve The foreign currency translation reserve records exchange differences arising on translation of a foreign controlled subsidiary. Share based payments reserve The share based payments reserve is used to record the value of share based payments provided to employees, including KMP, as part of their remuneration. Refer to note 16 for further details. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 70 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 16 Share Based Payments The expense recognised for services received during the year is shown in the table below: Share options expense Expense/(write back) arising from equity-settled share-based payments Employee services Expense arising from the amortisation of employee sign on and bonus shares Expense arising from the amortisation of the employee share plan Total expense arising from share based payment transactions Consolidated Group 2019 2018 $ $ - - - 9,228 9,228 - 60,000 60,000 (a) Employee share plan In November 2011 the Shareholders approved the establishment of an Employee Share Plan that would enable employees, directors and eligible associates to subscribe for shares in the Company. Under the terms of the plan an eligible person is offered shares in the Company at a price determined by the board with a corresponding interest free loan to assist the person to subscribe for the shares. The shares are escrowed in two tranches with 50% being escrowed for a minimum of 12 months and 50% being escrowed for a minimum of 24 months. Subsequent to these minimum restriction periods, the shares are available for release from escrow (i.e. a vested and exercisable option) on the repayment of the loan, and subject to continuation of employment (including acting as an associate or director) at the time of repayment. For accounting purposes these shares are treated as if these were share options, as whilst the shares have been issued to the employee their rights to access the shares are subject to both a time based requirement (continued employment to escrow dates) and valuation uncertainty (share price exceeds issue price at date of escrow release). Accordingly, shares issued under the plan are valued using a Black Scholes Option Valuation model with the expense being recognised over the escrow period as a share based payment. A summary of shares issued under the plan are below: Outstanding at the beginning of the period Granted during the period Forfeited during the period Expired during the period Outstanding at the end of the period Exercisable (vested)at the end of the period 2019 No. of shares 9,795,000 7,700,000 - 4,795,000 12,700,000 8,850,000 2019 Weighted average exercise price $0.20 $0.04 2018 No. of shares 11,490,000 - 2018 Weighted average exercise price $0.20 - 1,695,000 $0.20 $0.20 $0.10 $0.13 - 9,795,000 9,795,000 $0.20 $0.20 - - All shares issued prior to the current year are exercisable at 20 cents per share (5,000,000 shares),and have no remaining contractual life as their expiry date has passed prior to the start of the comparative period. As these shares are to former and current directors, the board has elected to leave these shares as currently exercisable until they are cancelled and bought back following approval of shareholder at the next general meeting. A new issue of shares under the plan was completed on 8 March 2019 on the following terms: Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 71 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 16 Share Based Payments continued Employee Share Plan Number of shares issued Fair value Price paid per share Market price of shares at grant date Expected volatility Risk free interest rate Dividend yield Escrow period of shares Agreement date 29 March 2018 Issued 8 March 2019 Tranche 1 escrowed for 12 months to 29 March 2019 Tranche 2 escrowed for 24 months to 29 March 2020 3,850,000 3,850,000 $24,357 $0.040 $0.036 52.25% 2.60% 0% $37,378 $0.040 $0.036 52.25% 2.60% 0% 12 months 24 months The 7,700,000 shares issued on 8 March 2019 have a remaining contractual life of 2.75 years (expiry date of 29 March 2022). (b) Employee sign-on and bonus shares From time to time the Group issues shares to employees as an incentive for accepting employment with the group. Shares are issued at the volume weighted average price (VWAP) of the Group’s stock trading for the period prior to issuance. Shares are subject to escrow periods which vary depending on the contracts with the employee, and the value of the shares is recognised as an expense over the escrow period subject to continuing employment with the Group. No such shares have been issued in either the current or comparative financial years. (c) Share-based payments to service providers No share-based payment arrangements were entered into with service providers in the current period or prior period. Note 17 Related Party Transactions (a) The Group's main related parties are as follows: i. ii. Entities exercising control over the Group: The ultimate parent entity, which exercises control over the group, is Site Group International Limited which is incorporated in Australia. Key Management Personnel: Any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity are considered key management personnel. For details of disclosures relating to remuneration of key management personnel, refer to Note 19. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 72 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 17 Related Party Transactions continued (b) Transactions with related parties: Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. (c) Amounts outstanding from related parties As disclosed in the remuneration report, Directors and key management personnel participate in the employee share plan whereby they are offered shares in the Company with a corresponding interest free loan. The loan from the Company must be repaid prior to the shares being sold or transferred by the employee. The below table details the Director and key management personnel participation: Name Shares Issued Share Issue Price Total Value Loan from Company Vern Wills Nicasio Alcantara Craig Dawson 2,000,000 1,000,000 1,000,000 $0.20 $0.20 $0.04 400,000 200,000 40,000 400,000 200,000 40,000 (d) Other transactions with related parties During the current and comparative periods, the group made use of an unsecured loan facility with Wayburn Holdings Pty Ltd, a company associated with Managing Director and CEO Mr Vernon Wills. The loan facility limit was $2.35m to 31 December 2016, and $1.32m from that point, repayable on the earlier of collection of the receivable from the Commonwealth Department of Education and Training (refer note 7) or February 2018. To date, revised terms have not been agreed for the facility and the outstanding balance as disclosed below is repayable at call. Interest is charged on the loan at a fixed rate of 7% per annum. Movements in the loan balance during the year are as follows: Opening Balance Drawdowns Interest accrued during the year Principal repayment through issuance of shares* Principal repayments (cash) Interest repayments (cash) Closing Balance 30-Jun-19 $ 266,922 - 14,102 - (233,189) (8,928) 38,907 30-Jun-18 $ 580,842 - 25,900 (246,000) - (93,820) 266,922 *Details of shares issued in settlement of outstanding loan amounts are as follows: Date 24/09/2017 Share Number of Shares Price 6,150,000 $0.04 Amount $ 246,000 The share price at which the shares were issued represents the fair value of the shares at the date of issue and reflective of the external raising to other shareholders. During the current and comparative periods, the group made use of unsecured loan facilities with Non-Executive Directors and their related parties as follows. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 73 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 17 Related Party Transactions continued Stuart Andrew Pty Limited Amounts were borrowed under facilities with Stuart Andrew Pty Ltd, a company associated with Peter Jones. The loans were repayable at call and interest charged on the loans was at a fixed rate of 10% per annum. Movements in the loan balances during the period were as follows: Opening Balance Drawdowns Interest accrued during the year Principal repayments (cash) Interest repayments (cash) Closing Balance Punta Properties Inc. 30-Jun-19 $ - - - - - - 30-Jun-18 $ 57,539 45,000 1,229 (45,000) (58,768) - On 21 June 2018, the Company announced a financing facility of US$4million with Punta Properties, a company associated with Non-Executive Director Nicasio Alcantara. Repayment of funds drawn under the facility will be via cash or equity to be issued at the last issue price of 4 cents per share subject to approval of shareholders. The potential settlement of the loan balance (which is variable, based on the loan being denominated in a currency other than the group’s functional currency of Australian dollars) through issuance of shares represents an embedded derivative liability. Interest charged on the loan will be at a fixed rate of 10% per annum. On initial drawdown of the loan during the period, the group recognised the following derivative financial liabilities: Date of drawdown Drawdown amount (USD) Drawdown amount (AUD) Value of conversion option No of securities Exercise Price Share price @ drawdown Risk Free rate Total Value Stock volatility Expected maturity $ $ 9/07/2018 1,000,000 1,346,149 30/09/2018 31/10/2018 23/11/2018 28/03/2019 11/04/2019 22/05/2019 24/06/2019 500,000 200,000 200,000 200,000 200,000 400,000 200,000 692,770 275,562 274,010 279,003 276,855 577,284 285,347 $ 0.0020 0.0037 0.0069 0.0067 0.0034 0.0045 0.0026 0.0024 33,653,725 17,319,250 6,889,045 6,850,254 6,975,072 6,921,373 14,432,097 7,133,685 $ $ $ 67,397 64,832 47,332 45,814 23,587 31,460 37,745 16,961 335,128 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.020 0.026 0.028 0.033 0.028 0.031 0.027 0.027 2% 2% 2% 2% 2% 2% 2% 2% 52.25% 1/07/2020 52.25% 1/07/2020 52.25% 1/07/2020 52.25% 1/07/2020 52.25% 1/07/2020 52.25% 1/07/2020 52.25% 1/07/2020 52.25% 1/07/2020 The conversion options were valued at inception using a Black Scholes model, with inputs as documented in the table above. Derivatives are carried at fair value through profit or loss, and fall within level 2 of the fair value hierarchy. The fair value of the above options at 30 June 2019 was $218,630. The following inputs were applied in deriving the fair value of these options: Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 74 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 17 Related Party Transactions continued Date of valuation Drawdown amount (USD) Drawdown amount (AUD) Value of conversion option No of securities Total Value Exercise Price Share price @ valaution Risk Free rate Stock volatility Expected maturity 30/06/2019 $ 2,900,000 $ $ 4,131,201 $ 0.0021169 103,280,020 $ 218,630 $ 0.04 $ 0.027 2% 52.25% 1/07/2020 A gain of $116,498 has been recognised (refer note 4) on revaluation of the embedded derivative at 30 June 2019. Movements in the financing facility during the period were as follows: Opening Balance Drawdowns (cash) Interest accrued during the year Recognition of embedded derivative Foreign currency movement Closing balance 2019 $ - 4,006,980 368,090 (335,128) 127,332 4,167,276 2018 $ - - - - - In addition, the Company and Punta Properties agreed to a performance based incentive to develop and execute an optimisation plan for the Group’s Philippines assets, associated businesses and international expansion. This incentive is payable on the total project value achieved from the optimisation plan at 5% of the total project value achieved. Should the plan reach a total project value of US$30m a further 5% fee of the gross value is payable to Mr Alcantara. There is no retainer applicable or payable to this agreement. The agreement will be subject to shareholder approval at the next general meeting of shareholders. The incentive represents a contingent liability to the group, and the group’s obligation in respect of the incentive will only be confirmed by the occurrence or non-occurrence of a future obligating event, being the execution of an optimisation plan. It is not considered possible to reliably estimate the amount of the possible obligation at this point in time, having regard to the degree of uncertainty in such estimation. Uncertainties relate to the amount of timing of any outflow include the type of optimisation transaction, time for such transaction occurring, and estimated total project value. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 75 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 18 Controlled Entities Subsidiaries of Site Group International Limited: Site Group Holdings Pty Ltd Site Education Australia Pty Ltd Site WorkReady Pty Ltd Study Corp Australia Pty Ltd (Formerly Site Lab ourhire Pty Ltd ) Site Skills Group Pty Ltd Site Skills Academy Pty Ltd Site WorkReady (Philippines) Pty Ltd Axis Training Group Pty Ltd Romea Consulting Pty Ltd Site Group international Pte Ltd Competent Project Management Sdn Bhd Productivity Partners Pty Ltd Wild Geese International Pty Ltd Site Institute Pty Ltd (Formerly Innovium Pty Ltd) * Percentage of voting power is in proportion to ownership Principle activities Country of Incorporation Percentage Owned (%)* 2019 2018 Holding company Holding company Labour services Holding company Education and training Education and training Holding company Education and training Education and training Competency development Competency development Education and training Oil & Gas consultancy Education and training Australia Australia Australia Australia Australia Australia Australia Australia Australia Singapore Malaysia Australia Australia Australia 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Note 19 Interests of Key Management Personnel (KMP) Refer to the Remuneration Report contained in the Directors’ Report for details of the remuneration paid or payable to each member of the Group’s key management personnel for the year ended 30 June 2019. The totals of remuneration paid to KMP of the Group during the year are as follows: Short-term employee benefits Post-employment benefits Other long term benefits Share-based payments Termination benefits Consolidated Group 2019 2018 $ $ 1,076,536 892,930 43,501 26,027 6,253 5,247 4,781 - 33,654 1,159,944 - 928,985 Note 20 Discontinued Operations In December 2016, the Group publicly announced the closure of Productivity Partners Pty Ltd’s business, and the closure of VET FEE-HELP related campuses. The closure was a direct result of the Commonwealth Government passed legislative changes. With Productivity Partners Pty Ltd being classified as a discontinued operation, the company is no longer included in the ‘tertiary education’ segment of the segment note. The results of Productivity Partners Pty Ltd for the year are presented below. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 76 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 20 Discontinued Operations continued Revenue Expenses Operating income Impairment of intangible assets Write back of provision for impairment of debtors Profit / (loss) before tax from discontinued operations Tax benefit / (expense) Profit / (loss) after tax from discontinued operations 2019 $ - 2018 $ - (1,261,398) (1,261,398) (1,401,367) (1,401,367) - - (1,261,398) 1,601,230 339,832 - 4,990,113 3,588,746 (83,045) 3,505,701 The major classes of assets and liabilities of Productivity Partners Pty Ltd as at 30 June 2019 are as follows: Assets Property, plant and equipment Debtors Cash & short term deposits Deferred tax asset Other assets Liab ilities Creditors Interest bearing debt Provisions Current tax liabilities The net cash flows incurred by Productivity Partners Pty Ltd are as follows: Operating Investing Net cash outflow Earnings per share Basic and diluted (loss) / profit for the year from discontinued operations (cents per share) Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 2019 $ - 35,650 (1,894) 158,733 33,462 225,951 2018 $ 5,643 34,393 (1,896) 246,463 92,078 376,681 (6,297,448) (4,818) (79,055) - (6,381,321) (5,782,041) (9,933) (79,055) - (5,871,029) 2019 $ 2018 $ (682,991) 682,993 2 3,716,941 (3,728,499) (11,558) 2019 2018 0.05 0.53 Page 77 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 21 Cash Flow Information Reconciliation of net (loss) / profit after tax to net cash flows from operations Loss after income tax expense Non cash items Depreciation and amortisation Foreign exchange loss Share based payments expense Impairment for non current assets Fair value gain on embedded derivative Net Interest accrued / (paid) on loans Net profit / (loss) on sale of plant & equipment Change in assets and liabilities Decrease / (Increase) in receivables Decrease / (Increase) in inventory Decrease / (Increase) in prepayments (Decrease) / Increase in payables and accruals Increase / (Decrease) in contract liabilities Increase / (Decrease) in provisions Decrease / (Increase) in deferred tax assets Increase / (Decrease) in current tax liabilities Net cash used in operating activities Note 22 Commitments and Contingencies (a) Operating Lease Commitments Non-cancellable operating leases contracted for but not capitalised Payable — minimum lease payments not later than 12 months between 12 months and 5 years greater than 5 years Consolidated Group 2019 2018 $ $ (4,742,968) (6,042,212) 1,413,716 2,033,252 114,432 9,228 - 60,000 - 3,797,413 (116,498) 340,915 4,890 - (32,326) (15,575) (2,976,285) (199,448) (846,660) 4,370 113,732 1,164,188 (233,366) 4,061 83,322 5,999 (2,680,639) 403,341 4,745 127,044 534,110 (607,591) (395,539) 85,141 (679,627) (727,824) Consolidated Group 2019 2018 $ $ 1,884,134 5,049,071 6,884,947 13,818,152 1,601,689 3,488,644 7,156,935 12,247,268 The Group has an operation through a subsidiary located in the Philippines. On 30 October 2009 the subsidiary entered into a lease agreement covering a parcel of land where its office and education facilities are located. The lease agreement is for a period of 25 years with an option to renew for another 25 years. The agreement includes an escalation in lease payments of ten per cent, compounded on every increase, starting on the fourth year and every three years thereafter. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 78 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 22 Commitments and Contingencies continued In 2016 the Group entered into a four-year commercial lease for the head office location. This lease has a life of four years with a renewal option included in the contract, there are no restrictions imposed by entering into these leases. In addition, the Group has entered into leases for training facilities at Belmont (Perth), Gladstone, Landsborough and Darwin. Competent Project Management has a two-year lease at Johor in Malaysia. All of the leases grant options for renewal at expiration of the current lease. (b) Finance lease The Group entered into finance leases for the acquisition of motor vehicles during the year. These leases have renewal terms but no purchase options or escalation clauses. Future minimum lease payments under the finance lease together with the present value of the net minimum lease payments are as follows: Payable — lease payments not later than 12 months between 12 months and 5 years (c) Legal claim contingency 2019 2018 Minimum Payments Present Value of payments Minimum Payments Present Value of payments $ $ $ $ 101,598 82,624 184,223 103,612 71,143 174,754 106,466 177,757 284,223 92,156 166,508 258,663 As noted in the Directors report, the ACCC has commenced civil proceedings against Site, Productivity Partners and two former executives in relation to enrolment practices of Productivity Partners. An estimate of the financial effect of the matter has not been disclosed as it is not yet practicable to determine such an estimate, having regard to the timing of proceedings (the case is not to be heard until the end of the next financial year), and the prevailing uncertainty surrounding the outcome of these proceedings. Note 23 Financial Risk Management The group’s financial instruments consist mainly of deposits with banks, receivables from contracts with customers, trade payables, leases and borrowing facilities. The totals for each category of financial instruments, measured in accordance with AASB 9 as detailed in the accounting policies to these financial statements, are as follows: Financial assets Financial assets at amortised cost Cash and cash equivalents Loans and receivables Other non-current financial assets Total financial assets Financial liabilities Financial liabilities at amortised cost Current — Trade and other payables — Borrowings Non-current — Trade and other payables — Interest bearing debt Financial liabilities at fair value through profit & loss — Other financial liabilities Total financial liabilities Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Note Consolidated Group 2019 2018 $ $ 7 10 12 10 12 606,148 4,378,367 105,748 5,090,263 1,533,437 3,334,449 147,237 5,015,123 6,080,122 142,519 4,659,104 359,078 5,595,083 4,238,419 5,595,083 166,508 218,630 16,274,773 - 10,779,773 Page 79 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 23 Financial Risk Management continued (a) Liquidity Risk The tables below reflect an undiscounted contractual maturity analysis for financial liabilities. Cash flows realised from financial assets reflect management’s expectation as to the timing of realisation. Actual timing may therefore differ from that disclosed. The timing of cash flows presented in the table to settle financial liabilities, reflect the earliest contractual settlement dates and do not reflect management’s expectations that banking facilities will be rolled forward. Within 1 Year 1 to 5 Years Over 5 Years Total 2019 $ 2018 $ 2019 $ 2018 $ 2019 $ 2018 $ 2019 $ 2018 $ Financial liabilities due for payment Trade and other payables Borrowings - Principal - Interest Other non-current financial liabilities - Principal - Interest Other financial liabilities Total expected outflows 6,080,122 92,922 47,583 - - - 6,220,627 4,659,104 324,315 49,073 - - - 5,032,492 5,595,083 5,595,083 - - - - 4,212,082 372,945 218,630 10,398,740 166,508 11,249 - 5,772,840 Financial assets - cash flows realisable Cash and cash equivalents Loans and receivables Other non-current financial assets Net (outflow) / inflow 606,148 4,378,367 1,533,437 3,334,449 - - 4,984,515 (1,236,112) 4,867,886 (164,606) - - - - 105,748 105,748 (10,292,992) 147,237 147,237 (5,625,603) - - - - - - - - - - - - - - - - - - - - - - - - 11,675,205 92,922 47,583 4,212,082 372,945 218,630 16,619,367 10,254,187 324,315 49,073 166,508 11,249 - 10,805,332 606,148 4,378,367 105,748 5,090,263 (11,529,104) 1,533,437 3,334,449 147,237 5,015,123 (5,790,209) The outflow indicated above within 1 year will be funded via the capital raising of 3,750,000 completed subsequent to year end disclosed in note 25 and drawdowns on the $US4million loan facility available and unused at 30 June 2019, the terms of which are disclosed in note 17. The outflow in subsequent years is attributable to financial liabilities which will only require settlement where a corresponding inflow of economic benefits is received in settlement of fully impaired receivables, as disclosed in note 7. (b) Interest rate risk The Group's exposure to market interest rates relates primarily to the Group's holding of cash as borrowings are under fixed interest agreements. The following table depicts the sensitivity of the Group’s results to reasonably possible changes in interest rates. Financial assets Cash and cash equivalents Consolidated Group 2019 2018 $ $ 606,148 1,533,437 Post Tax Profit higher / (lower) Other Comprehensive Income higher / (lower) 2019 $ 4,243 (2,122) 2018 $ 10,734 (5,367) 2019 $ - - 2018 $ - - Consolidated + 1% (100 basis points) - .5% (50 basis points) Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 80 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 23 Financial Risk Management continued (c) Foreign currency risk Foreign currency risk is the risk that the fair value of the future cash flows of a financial instrument will fluctuate because of change in foreign exchange rate. The Group is exposed to foreign currency risk on cash balances held in US Dollars (USD). At 30 June 2019 the Group had total cash and cash equivalents denominated in USD of USD 117,693 (2018: USD 547,263). The following table shows the foreign currency risk on the financial assets and liabilities of the Group’s operations denominated in currencies other than the functional currency of the operations. Post Tax Profit higher / (lower) 2019 $ 2018 $ Other Comprehensive Income higher / (lower) 2019 $ 2018 $ Consolidated USD Rate+15% USD Rate-15% 20,715 (15,311) 95,880 (70,868) - - - - (d) Price risk The group is not materially exposed to price risk. (e) Credit risk Credit risk arises from the financial assets of the Group, which comprise cash and short-term deposits, receivables from contracts with customers, other receivables, and quoted and unquoted financial instruments. The Group’s 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 outlined in each applicable note). The Group does not hold any credit derivatives to offset its credit exposure. The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group’s policy to securitise its receivables from contracts with customers and other receivables. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s experience of bad debts has not been significant. The group determines an allowance for expected credit losses at each reporting date. Details of this allowance and the basis on which it has been determined are outlined in note 7. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 81 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 24 Auditors’ Remuneration On May 30, 2018, Pitcher Partners were appointed as auditors for the Group. This appointment follows the resignation of Ernst & Young, and ASIC’s consent to the resignation in accordance with s329(5) of the Corporations Act 2001. Remuneration of Pitcher Partners as current auditor of the parent entity for: — auditing or reviewing the financial report — taxation services Rumuneration of EY as former auditor of the parent entity for: — auditing or reviewing the financial report — taxation services Remuneration of entities affiliated with Pitcher Partners for: — auditing or reviewing the financial statements of subsidiaries Remuneration of other EY as former auditors of subsidiaries for: — auditing or reviewing the financial statements of subsidiaries Remuneration of other auditors of subsidiaries for: — auditing or reviewing the financial statements of subsidiaries — taxation services Consolidated Group 2019 2018 $ $ 100,000 32,450 75,000 - - - - 79,310 32,180 111,490 16,681 - - 25,327 10,382 11,975 22,357 10,147 12,261 22,408 Note 25 Events after the Reporting Period In August 2019 the company successfully completed the issue of 93,750,000 shares under a private placement at 4 cents per share to raise $3,750,000. Other than as disclosed elsewhere in this report, there have been no significant events after balance date. Note 26 Parent Company Information The following information has been extracted from the books and records of the parent, Site Group International Limited, and has been prepared in accordance with the Accounting Standards. Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 82 of 92 Notes to the Financial Statements for the Year Ended 30 June 2019 continued Note 26 Parent Company Information continued Statement of Financial Position Assets Current assets Non-current assets Total Assets Liabilities Current liabilities Non-current liabilities Total liabilities Net Assets Equity Issued capital Accumulated losses Share based payments reserve Total Equity Statement of Comprehensive Income Total loss of the parent entity Total comprehensive loss of the parent 2019 $ 2018 $ 20,307,215 11,172,699 31,479,914 18,258,860 11,676,784 29,935,644 1,689,605 4,525,900 6,215,505 2,051,569 101,704 2,153,273 25,264,409 27,782,371 67,612,562 (43,729,621) 1,381,468 25,264,409 67,612,562 (41,291,325) 1,461,134 27,782,371 (26,398,041) (26,398,041) (27,154,604) (27,154,604) The Parent entity has no commitments to purchase property, plant and equipment and has no contingent liabilities. Note 27 Company Details The registered office of the company is: Site Group International Limited Level 4, 488 Queen Street, Brisbane Qld 4000 The principal places of business are: Site Skills Training: • 219 Forestry Road, Landsborough, Qld. 4550 • 17-19 South Tree Drive, Gladstone, Qld. 4680 • 72-80 Belgravia Street, Belmont, WA. 6104 • 1 Campion Road, East Arm NT 0822 • 1-5 Nestor Drive, Meadowbrook, QLD 4131 • Centennial Road, Clark Freeport Zone, Pampanga, Philippines 2023 Competent Project Management • 112, Robinson Road #8-01, Singapore 068909 • 17G, Jalan Hijauan 3, Horizon Hills, 79100 Nusajaya, Johor Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 83 of 92 Directors' Declaration In accordance with a resolution of the directors of Site Group International Limited, I state that: 1. In the opinion of directors: a) the financial statements and notes of Site Group International Limited for the financial year ended 30 June 2019 are in accordance with the Corporations Act 2001, including: i. ii. giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance for the year ended on that date; and comply with Accounting Standards and the Corporations Regulations 2001; and b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1a (a); and c) subject to the matters discussed in Note 1a (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the directors by the chief executive officer and chief financial officer in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2019. On behalf of the Board Vernon Wills Director Brisbane, 30 August 2019 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 84 of 92 Independent Auditor’s Report to the Members of Site Group International Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Site Group International Limited (“the Company”) and its controlled entities (“the Group”), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes to the financial statements including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (a) (b) giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial performance for the year then ended; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants “the Code” that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of 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 Application of the going concern assumption Refer to note 1a(b) going concern The Directors have concluded that in their opinion there are reasonable grounds to believe that the Group has the ability to pay its debts as and when they fall due and realise the value of the assets in the ordinary course of business.  Accordingly they have prepared the financial statements on a going concern basis as disclosed in note 1a(b). to of basis the the The going concern assumption is of fundamental preparation financial statements. Assertions made by the Directors in forming their conclusion, including forecast cash flows and unused borrowing facilities, are key elements of this assessment and considerable audit attention was directed to verifying these. Accordingly, our consideration of this matter and the related disclosures is considered to be a key audit matter. Australian Key Audit Matter Impairment testing for non-current assets Refer to note 1b, note 8(c), and note 9(b) Impairment testing for goodwill is required to be completed annually under Accounting Standard AASB 136 Impairment of Assets. This standard also requires impairment testing to be conducted for other non-current assets where there is an indicator that those assets may be impaired. Impairment testing was completed over non-current assets with a combined value of $7.884m.  the Group’s Impairment testing for non-current assets is a key audit matter due to the percentage of total assets subject to impairment testing (45%), and the degree of estimation and assumptions (as disclosed in note 8(c) and note 9(b)) required to be made by the Group, specifically concerning discounted cash flows.    How our audit addressed the key audit matter Our procedures included, amongst others:  Obtaining an understanding of the entity level controls in place directed at ensuring the Group continues to operate as a going concern, and evaluating the design and implementation of those controls; Evaluating whether the Directors’ conclusions regarding the going concern assumption were supported by management’s going concern assessment, including cash flow forecasts; Agreeing the cash flow forecast used in the going concern assessment to the FY20 budget; Assessing key inputs into the cash flow forecast by comparing them to historical actual results, assumptions and estimates used elsewhere in the preparation of the financial statements, and customer commitments, contracts, or other available information supporting forecast cash flows;    Confirming the amount of commitments for subscription of capital received by the group subsequent to balance date;  Considering the historical reliability of the Group’s cash flow forecasting process;  Considering the range of cash flow sensitivities to the   conclusion reached by the directors; Assessing the possible mitigating actions identified by management in the event that actual cash flows are below forecast, including verification of unused financing facilities to loan agreements; and Assessing the adequacy of the disclosures made by the Directors regarding the going concern assumption and available financing. How our audit addressed the key audit matter Our procedures included, amongst others:  Obtaining an understanding of the controls over the valuation of non-current assets, and evaluating the design and implementation of those controls;  Checking the Board the mathematical accuracy of approved FY20 cash flow forecasts and methodology of the impairment model;  Confirming consistency of the impairment testing calculations and inputs applied by the group with the requirements of AASB 136; Assessing the key assumptions within the impairment testing calculations including forecast cash flows, growth rates, discount rates and terminal values; Applying our knowledge of the business and corroborated our work with external information where possible; Performing sensitivity analysis in respect of the key assumptions and assessing the potential impact of reasonably possible change to those assumptions; and Assessing the adequacy of disclosures. Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do 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 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, 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. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the [Group] or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.  Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. 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 audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included on pages 19 to 26 of the directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of Site Group International Limited for the year ended 30 June 2019 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. PITCHER PARTNERS NIGEL BATTERS Partner Brisbane, Queensland 30 August 2019 Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Shareholder Information 1 Twenty Largest Shareholders (i) Ordinary Shares Inclusive of Escrowed Ordinary Shares As at 20 August 2019, there are 771,391,154 ordinary shares and an additional 12,700,000 ordinary shares subject to escrow restrictions. The names of the twenty largest holders of ordinary shares including the ordinary shares in escrow are listed below: Name NATIONAL NOMINEES LIMITED ARMADA TRADING PTY LIMITED MR VERNON ALAN WILLS + MS JILLAINE PATRICE WILLS WAYBURN HOLDINGS PTY LTD CAMERON RICHARD PTY LTD MR VERNON ALAN WILLS + MS JILLAINE PATRICE WILLS LINWIERIK SUPER PTY LTD SMITHLEY SUPER PTY LTD CITICORP NOMINEES PTY LIMITED JGC ASSETS PTY LTD DBS VICKERS SECURITIES (SINGAPORE) PTE LTD STUART ANDREW PTY LTD JGC ASSETS PTY LTD MYALL RESOURCES PTY LTD MR GARY LINTON + MRS CHERYL LINTON NICASIO ALCANTARA THE SUMMIT HOTEL BONDI BEACH PTY LTD MR GRANT HARRY O'KEEFE + MRS CATHERINE MARIA O'KEEFE DCEC PTY LTD JETAN PTY LTD (ii) Ordinary Shares No. of Ordinary Shares Held % of Issued Capital 147,529,561 18.82% 50,000,000 44,140,703 41,108,142 37,797,730 29,414,188 21,000,000 19,990,000 18,443,683 16,746,700 16,676,766 14,682,068 12,581,201 11,449,056 10,200,000 9,371,325 7,637,368 6,452,745 6,390,176 6,250,000 6.38% 5.63% 5.24% 4.82% 3.75% 2.68% 2.55% 2.35% 2.14% 2.13% 1.87% 1.60% 1.46% 1.30% 1.20% 0.97% 0.82% 0.81% 0.80% The names of the twenty largest holders of fully paid ordinary shares are listed below: Name NATIONAL NOMINEES LIMITED ARMADA TRADING PTY LIMITED MR VERNON ALAN WILLS + MS JILLAINE PATRICE WILLS WAYBURN HOLDINGS PTY LTD CAMERON RICHARD PTY LTD MR VERNON ALAN WILLS + MS JILLAINE PATRICE WILLS No. of Ordinary Shares Held % of fully paid shares 147,529,561 19.13% 50,000,000 44,140,703 41,108,142 37,797,730 29,414,188 6.48% 5.72% 5.33% 4.90% 3.81% Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 89 of 92 Shareholder Information continued Name No. of Ordinary Shares Held % of fully paid shares LINWIERIK SUPER PTY LTD SMITHLEY SUPER PTY LTD CITICORP NOMINEES PTY LIMITED JGC ASSETS PTY LTD DBS VICKERS SECURITIES (SINGAPORE) PTE LTD STUART ANDREW PTY LTD JGC ASSETS PTY LTD MYALL RESOURCES PTY LTD MR GARY LINTON + MRS CHERYL LINTON NICASIO ALCANTARA THE SUMMIT HOTEL BONDI BEACH PTY LTD MR GRANT HARRY O'KEEFE + MRS CATHERINE MARIA O'KEEFE DCEC PTY LTD JETAN PTY LTD (iii) Escrowed Shares 21,000,000 19,990,000 18,443,683 16,746,700 16,676,766 14,682,068 12,581,201 11,449,056 10,200,000 8,371,325 7,637,368 6,452,745 6,390,176 6,250,000 2.72% 2.59% 2.39% 2.17% 2.16% 1.90% 1.63% 1.48% 1.32% 1.09% 0.99% 0.84% 0.83% 0.81% The names of the top twenty holders of the escrowed shares are listed below: Name No. of Escrowed Shares Held % of escrowed shares MR VERNON ALAN WILLS NICASIO ALCANTARA CRAIG ANTHONY DAWSON SHAUN SCOTT DARRYL SOMERVILLE BRETT MCPHEE ISMAIL TAHIR JASON ANFIELD NOEL CHENEY MICHAEL WALLACE MIKE COSTELLOE NEIL COSTELLOE SUDHHER GOVINDPILLAI SHAAGUL HAMEETH MR JARROD PETER BELCHER MS KATIE HURSE MR JAMIE VERNON WILLS SITI SUZANA BT BASRI JAYSHEN RAMANAH MR BERESFORD PAUL ROBERTSON 2,000,000 1,000,000 1,000,000 1,000,000 1,000,000 750,000 600,000 500,000 500,000 500,000 400,000 400,000 400,000 400,000 300,000 300,000 300,000 250,000 250,000 250,000 15.75% 7.87% 7.87% 7.87% 7.87% 5.91% 4.72% 3.94% 3.94% 3.94% 3.15% 3.15% 3.15% 3.15% 2.36% 2.36% 2.36% 1.97% 1.97% 1.97% Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 90 of 92 Shareholder Information continued (iii) Partly Paid Shares There are 1,116,000 partly paid shares, paid to $0.01, held by eight individual shareholders. $0.24 per share may be called up in the event of winding up the company. The names of the holders are listed below: Name BARON INVESTMENTS PTY LIMITED BARON NOMINEES PTY LTD QUEVY HOLDINGS PTY LTD M B HUNNIFORD ESTATE LATE PETER GAME ESTATE LATE PETER AYLWARD GAME P C TOOMEY R TOOMEY Total of partly paid shares issued 2 Distribution of Equity Securities Analysis of numbers of holders by size of holding: No of partly paid shares held % of Partly Paid Shares 488,376 400,000 195,624 24,000 2,000 2,000 2,000 2,000 1,116,000 43.76% 35.84% 17.53% 2.15% 0.18% 0.18% 0.18% 0.18% 100% (i) Fully paid ordinary shares Distribution Number of Holders Number of Shares 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 Greater than 100,000 Totals 83 55 74 176 43,258 159,784 663,992 8,183,492 257 775,040,628 645 784,091,154 (ii) Partly paid shares, paid to $0.01 Distribution 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 Greater than 100,000 Totals Number of Holders Number of Shares - 4 - 1 3 8 - 8,000 - 24,000 1,084,000 1,116,000 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 91 of 92 Shareholder Information continued (iii) Escrowed ordinary shares Distribution Number of Holders Number of Shares 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 Greater than 100,000 Totals (iv) Unmarketable parcels - - - - 15 20 - - 600,000 12,100,000 35 12,700,000 Minimum parcel size Holders Shares Minimum $500 parcel at $0.045 per share 11,112 216 910,388 3 Voting Rights The voting rights attaching to each class of equity securities are set out below: Ordinary shares: Subject to any rights or restrictions for the time being attached to any class of shares, at a meeting of shareholders each shareholder entitled to vote may vote in person or by proxy or attorney or, being a corporation, by representative duly authorised under the Corporations Law, and has one vote on a show of hands and one vote per fully paid share on a poll. 4 Substantial Shareholders Substantial shareholder notices lodged with the Company: Substantial Shareholder Number of Shares Mr Vernon Alan Wills, Ms Jillaine Patrice Wills and Wayburn Holdings Pty Ltd EGP Capital Pty Ltd Peter Jones, Helen Jones, Cameron Richard Pty Ltd and Stuart Andrew Pty Ltd Armada Trading Pty Ltd Milford Asset Management Limited 124,395,630 107,700,000 56,819,466 50,000,000 39,829,561 Site Group International Limited and Controlled Entities Financial Year Ended 30 June 2019 Page 92 of 92 

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