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Soltec PowerAnnual Report 2019
Washington H. Soul Pattinson
and Company Limited
ABN 49 000 002 728
ASX Code: SOL
Profile
Calendar
Corporate Directory
Contents
Washington H. Soul Pattinson and Company
Limited (WHSP) was incorporated on
21 January 1903 having previously traded
as two separate companies, Pattinson and
Co. and Washington H. Soul and Co.
Following a public offering of shares, WHSP was listed
on the Sydney Stock Exchange (now the Australian
Securities Exchange) on 21 January 1903.
Over 100 years as a listed
public company
When Caleb Soul and his son Washington opened
their first store at 177 Pitt Street, Sydney, in 1872
neither of them could have envisaged that 147 years
later their single pharmacy would have evolved into
a company as prominent and diversified as WHSP.
WHSP is now a significant investment house with a
portfolio encompassing many industries including
its traditional field of pharmaceuticals, as well as
mining, building materials, property investment,
telecommunications, financial services and other
equity investments.
DIVERSIFIED AND
UNCORRELATED PORTFOLIO
LONG-TERM INVESTOR
WITH BROAD MANDATE
VALUE FOCUSED AND
TRUSTED PARTNER
Final Dividend
Record date
Payment date
18 November 2019
9 December 2019
Annual General Meeting
AGM date
AGM venue
6 December 2019
The Wesley Theatre
Wesley Conference Centre
220 Pitt Street, Sydney
Chairman and Non-Executive Director
Chairman’s Review
Key Highlights
Directors
Robert D Millner
Todd J Barlow
Tiffany L Fuller
Managing Director and Chief Executive Officer
Non-Executive Director
Michael J Hawker
Lead Independent Director and Non-Executive Director
Thomas C D Millner
Warwick M Negus
Robert G Westphal
Company Secretary
Non-Executive Director
Non-Executive Director
Non-Executive Director
Group Company displays open
10.45am
Ian D Bloodworth
AGM commences
12.00 noon
Auditors
Pitcher Partners Sydney
For more information visit our website
www.whsp.com.au
Review of Group Entities
TPG Telecom Limited
Brickworks Limited
New Hope Corporation Limited
Financial Services Portfolio
Pharmaceutical Portfolio
Round Oak Minerals Pty Limited
Property
Other Investments
Sustainability report
Directors’ report
Remuneration report
Auditor’s independence declaration
Financial report
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Consolidated statement of
changes in equity
Consolidated statement of
cash flows
Notes to the consolidated
financial statements
Directors’ declaration
Independent auditor’s report
ASX additional information
2
3
9
10
12
14
17
18
20
22
22
23
28
36
55
57
59
61
62
64
65
161
162
167
1
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019
Key Highlights
Chairman’s Review
Group
Regular NPAT1
$307 m
Group
Net Profit After Tax
$248 m
7.2% 5
7.1% 5
Pre-tax value
of portfolio2
$5,469 m
0.6% 1
Regular cash flow
from operations3
$170 m
18.1% 1
15 Year TSR
20,502
Shareholders
11.6 % pa
2.6% outperformance4
18.9 %
Admitted to ASX100
Dear Shareholders,
I am pleased to present the 2019 Annual Report for Washington H. Soul Pattinson and Company Limited
(WHSP, Company) on behalf of the Board of Directors of the Company.
FY19 Key Highlights
Group Regular profit after tax1
Group Profit after tax
WHSP’s net asset value (pre-tax)2
(tax payable if disposed of on 31 July 2019 $1,049 million)
Net regular cash from operations3
Total Dividends (fully franked)
$307.3 million
$247.9 million
$5.5 billion
$169.6 million
58 cents
– 7.2%
– 7.1%
+ 0.6%
+ 18.1%
+ 3.6%
Regular Cash
Flow from
Operations
Increased by
18.1%
WHSP holds a diversified portfolio of uncorrelated investments across listed equities, private equity,
property and loans. Its flexible mandate is a key advantage to generating returns by allowing WHSP to make
long-term investment decisions and adjust the portfolio by changing the mix of investment classes over
time.
Our objective is to deliver superior returns to our shareholders by creating capital growth along with
steadily increasing dividends. Dividends are paid out of the cash generated from our investments, and
pleasingly, the Company increased its net regular cash from operations by 18.1% in FY19.
WHSP has a strong track record of delivering outperformance over the long-term4 along with increased
dividends. We continue to attract new shareholders and by the end of FY19 the number of shareholders
had grown to 20,502 (up 8.9%). During the year, the Company was also admitted to the ASX100 index which
reflects the growing size of the Company and increased liquidity of the stock.
We have experienced some volatility amongst the major investments in the portfolio, which can be expected
from time to time. However, we believe that over the long-term the portfolio is well positioned for growth
and continued performance.
1. Regular profit after tax is a non-statutory profit measure and represents profit from continuing operations before non-regular items.
A reconciliation to statutory profit is included in the Consolidated Financial Statements – Note 4, Segment information.
1. Regular profit after tax is a non-statutory profit measure and represents profit from continuing operations before non-regular items.
A reconciliation to statutory profit is included in the Consolidated Financial Statements – Note 4, Segment information.
2. Refer to page 8 for details of the portfolio valuation.
3. Refer to page 6 for details of net regular cash flow from operations.
4. Performance compared to the All Ordinaries Accumulation Index.
2. Refer to page 8 for details of the portfolio valuation.
3. Refer to page 6 for details of net regular cash flow from operations.
4. Performance compared to the All Ordinaries Accumulation Index.
2
2
3
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Chairman’s Review
15 Year
Total
Shareholder
Return
11.6%
per annum
Total Shareholder Returns to 31 July 2019
Annual Return
WHSP
1
Year
2
Years
p.a.
3
Years
p.a.
5
Years
p.a.
10
Years
p.a.
15
Years
p.a.
6.5%
16.5%
12.4%
11.8%
11.1%
11.6%
All Ordinaries Accumulation Index
12.9%
13.9%
11.4%
8.7%
9.5%
9.0%
Performance
(6.4%)
2.6%
1.0%
3.1%
1.6%
2.6%
Includes the re-investment of dividends
WHSP is focused on delivering outperformance over the long-term and over the last 15 years has outperformed
the All Ordinaries Accumulation Index by 2.6% per annum. This outperformance over the last 15 years means that
an investment in WHSP has grown by 419% while the Index has increased 267%.
This performance has been maintained for a long period of time. If a shareholder had invested $1,000
in 1979 and reinvested all dividends, the shareholding would have appreciated to over $395,000 as at
31 July 2019. This equates to a compound annual growth rate of 16.1% year on year for 40 years.
This growth does not include the value of the franking credits which have been passed on to
shareholders by WHSP.
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$1,000 invested on 31 July 1979
worth $395,788 at 31 July 2019
Compound annual return of
16.1% for 40 years
500%
400%
300%
200%
100%
WHSP
All Ordinaries Accumulation Index
+419%
+267%
9
7
9
1
4
8
9
1
9
8
9
1
4
9
9
1
9
9
9
1
4
0
0
2
9
0
0
2
4
1
0
2
9
1
0
2
Includes the re-investment of dividends
All Ordinaries
Accumulation Index
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
Includes the re-investment of dividends
4
5
New Hope
Brickworks Limited
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Chairman’s Review
Dividends
20 Year
Dividend
Growth
10.8%
per annum
WHSP has an exceptional history of paying dividends to shareholders. Since 2000, the Company has increased
its ordinary dividend every year, one of only two companies in the All Ordinaries Index to do so. The compound
annual growth rate of the Company’s ordinary dividends over the last 20 years is 10.8%.
WHSP’s diversified portfolio continues to deliver reliable cash returns enabling it to provide increasing fully franked
dividends to its shareholders.
The Company receives dividends and distributions from its investments, interest income and gains on property
assets. The Directors declare interim and final dividends based on the Company’s regular cash inflows less regular
operating costs.
Net regular cash from operations for the year was $169.6 million, up 18.1% compared to 2018. This increase was
mainly due to higher dividend and interest income.
20 Year Dividend History
Cents per Share
Total Ordinary Dividends
Special Dividends
25
12.5
15
15
5
5
20
17
27
28.5
30
25
32
34
58
56
54
50
52
48
46
44
40
3
0
0
2
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
4
3.5
10
11
0
0
0
2
1
0
0
2
5
14
2
0
0
2
Final Dividend
The Directors have declared a fully franked final dividend of 34 cents per share in respect of the year ended 31 July
2019 (2018: 33 cents fully franked). This brings total dividends for the year to 58 cents fully franked (2018: 56 cents
fully franked).
The record date for the final dividend will be 18 November 2019 with payment due on 9 December 2019. The last
day to purchase shares and be eligible for the final dividend is 14 November 2019.
This year WHSP will pay out, as dividends, 81.9% of its net regular cash from operations (2018: 93.4%).
Total
Dividend
for the year
58¢
6
Consolidated Financial Performance
Regular profit after tax
The regular profit after tax1 for the year ended 31 July 2019 was $307.3 million, 7.2% lower than last year.
The result was driven by positive contributions from:
1 Brickworks, up by 22.9% due to another strong result from property activities;
1 Income from investments (loans and equity portfolios), up by 63.3% due to stronger dividend and interest
income;
1 the Property Portfolio, up by 157.1% following the completion and sale of projects; and
1 the Financial Services Portfolio, up 28.2% primarily due to increased dividend income.
These gains were offset by a disappointing result from Round Oak Minerals which contributed a regular after tax
loss of $54.1 million to the Group’s result for the year (2018: $9.7 million). In the current year, the increased regular
loss after tax arose principally from:
1 start-up expenses for new projects and increased corporate overhead, exacerbated by delays caused by
extreme weather events causing flooding; and
1 a reduction in production volumes and increased operating costs at Jaguar to realign the mining sequence.
This realignment is expected to benefit future production.
The contribution from TPG Telecom was down 12.8% due to continuing margin impact from the NBN rollout.
Net profit after tax (including non-regular items)
The profit after tax attributable to shareholders (including non-regular items) for the year ended 31 July 2019 was
$247.9 million, 7.1% lower than last year. Profit after tax was impacted by impairments in TPG Telecom and Round
Oak Minerals and other non-regular expenses which were partly offset by the Parent Company’s gain on the sale
of the head office building at 160 Pitt Street.
Comparisons with the prior year are as follows:
Regular profit after tax1 attributable to shareholders
Statutory Profit after tax attributable to shareholders
Interim Dividend (paid in May each year)
Final Dividend (payable 9 December 2019)
2019
$’000
307,262
247,943
24 cents
34 cents
2018
$’000
331,143
266,846
23 cents
33 cents
Total Dividends
58 cents
56 cents
1. Regular profit after tax is a non-statutory profit measure and represents profit from continuing operations before non-regular items.
A reconciliation to statutory profit is included in the Consolidated Financial Statements – Note 4, Segment information.
%
Change
– 7.2%
– 7.1%
+ 4.3%
+ 3.0%
+ 3.6%
7
7
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019
Chairman’s Review
Net Assets of the Parent Company – WHSP
As at 31 July 2019
TPG Telecom1
Brickworks1
New Hope Corporation1
Financial Services Portfolio1 & 2
Pharmaceutical Portfolio1
Round Oak Minerals2
Property Portfolio2
Other Listed Investments Portfolio1
Other Unlisted Investments Portfolio2
Cash and other net assets (net of liabilities)
Net asset value (pre-tax)3 & 4
WHSP’s
Holding
%
25.3%
43.8%
50.0%
–
–
100%
Value of
WHSP’s
Holding
$m
1,636
1,100
1,043
353
265
188
89
564
135
96
5,469
12 month Movement
%
$m
286
77
(283)
(61)
–
34
(93)
48
43
(20)
31
21.2%
7.5%
(21.3%)
(14.7%)
–
21.9%
(51.1%)
9.3%
46.0%
(17.3%)
0.6%
1 At market value.
2 At cost or Directors’ valuations.
3
4 Net asset value (pre-tax) is the value of all of WHSP’s assets less all of its liabilities (other than the tax payable upon the sale of its assets).
The tax payable if all of these assets had been disposed of on 31 July 2019 would have been approximately $1,049 million.
Assets are valued at market value, cost or Directors’ valuation as shown.
The assets of WHSP are summarised in this table. The pre-tax value as at 31 July 2019 was $5.5 billion, up
$31 million compared to 31 July 2018.
This net increase was mainly attributable to:
1 Strong share price performances by TPG Telecom and Brickworks which were largely offset by New Hope
Corporation which lost some of its substantial increase from last year.
1 The Financial Services Portfolio investment in Ironbark Asset Management was increased to 25.6% and
part of the holding in Milton Corporation was realised during the year.
1 Further investment was injected into Round Oak Minerals to facilitate the development of its various
projects, partly offset by the write down of some development assets.
1 The carrying value of the Property Portfolio (net of borrowings) reduced by $93 million during the year.
The head office building at 160 Pitt Street, the subdivided Kingsgrove property and the warehouse at
Prestons were sold. These sales were partly offset by the repayment of bank debt on the office building
at Pennant Hills.
R D Millner
Chairman
8
Review of Group Entities
as at 31 July 2019
TPG Telecom Limited
ASX:TPM
10
Brickworks Limited
ASX:BKW
12
New Hope Corporation Limited
ASX:NHC
14
Financial Services Portfolio
Pharmaceuticals Portfolio
Round Oak Minerals Pty Limited
Property
Other Investments
17
18
20
22
22
9
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019
Review of Group Entities
TPG Telecom Limited
Associated entity: 25.3% held
Dividends paid to WHSP: $9.4 million
Total Market Capitalisation: $6.48 billion
Value of WHSP’s Holding: $1.64 billion
ASX code: TPM
TPG reported the following results for the year ended 31 July 2019 (FY19):
1 Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) before impairment of $809.4 million;
1 Business as usual EBITDA of $823.8 million;
1 Net profit after tax attributable to shareholders of $173.8 million; and
1 Earnings per share of 18.7 cents.
Underlying Results
The FY19 results were heavily impacted by TPG’s decision to cease the rollout of its Australian mobile network in
January 2019. This gave rise to an impairment expense of $236.8 million and a significant increase in amortisation
and interest expense relating to its Australian spectrum licences.
The FY19 results also include $9.0 million of one-off transaction costs relating to TPG’s planned merger with
Vodafone Hutchison Australia. Excluding the impairment and merger transaction costs, the underlying EBITDA for
the year was $818.4 million, a 1% decrease on FY18.
As shown in the chart below, business as usual EBITDA continued to be adversely impacted by the loss of margin
as DSL and home phone customers migrate to low margin NBN services.
Bridge between FY18 and FY19 business as usual EBITDA
$828m
($47m)
($14m)
$57m
$824m
FY18
BAU
EBITDA
DSL to NBN
GP margin
reduction
iiNet
home phone
GP decrease
Other
growth
FY19
BAU
EBITDA
The $57 million of other EBITDA growth was driven by the Corporate Division.
Segment Results
The Consumer Segment’s EBITDA for FY19 was $457.3 million compared to $499.1 million for FY18.
The Corporate Segment achieved EBITDA of $367.1 million for FY19 compared to $329.7 million for FY18.
10
Cash Flow, Capital Expenditure and Gearing
Dividends
paid to WHSP
$ 9.4
million
TPG’s net operating cash flows before tax were again strong, exceeding EBITDA at $836.3 million.
Total capital expenditure for the year of $717.3 million included: a $352.4 million instalment for the 2x10MHz
of 700MHz spectrum acquired at auction in 2017; $86.1 million invested in the (now ceased) Australian mobile
network build; and $80.1 million in the Singapore mobile network build. The remaining ‘business as usual’ capital
expenditure of $198.7 million was $59.3 million lower than FY18 and within the guidance range of $180 to
$220 million provided at the start of FY19.
At the end of FY19 TPG had net debt (including remaining spectrum liabilities payable in early 2020) of
$1.94 billion which represents a leverage ratio of approximately 2.4 times underlying FY19 EBITDA.
Singapore Update
TPG continues to densify its mobile network in Singapore with additional sites to increase capacity and deepen
indoor coverage. Outdoor service coverage was measured at 99.69% in July 2019. TPG is on track to meet and
exceed the indoor service coverage milestone and metro and road tunnel coverage is progressing.
Update on Planned Merger with Vodafone Hutchison Australia
On 30 August 2018, TPG and Vodafone Hutchison Australia (VHA) entered into a Scheme Implementation Deed
under which the companies agreed a proposed merger of equals to establish a fully integrated telecommunica-
tions operator in Australia.
If the merger proceeds:
1 It will be implemented via a TPG Scheme of Arrangement, with the new merged group listed on the
Australian Securities Exchange and renamed TPG Telecom Limited in conjunction with implementation of the
scheme; and
1 TPG shareholders will own 49.9% of the equity of the merged group, with VHA shareholders owning the
remaining 50.1%.
The merger is subject to a number of conditions including shareholder and regulatory approvals.
1 On 8 May 2019, the ACCC announced it had decided to oppose the proposed merger.
1 On 24 May 2019 proceedings were lodged with the Federal Court of Australia by the merger parties seeking
orders that the proposed merger will not have the effect, or likely have the effect, of substantially lessening
competition.
1 The Federal Court hearing concluded on 1 October 2019. The judgement is expected by February 2020.
Dividend
TPG has declared a final dividend of 2 cents per share fully franked, unchanged from 2018. This brings total
dividends for the year to 4 cents per share also unchanged from 2018.
Contribution to WHSP
TPG contributed $95.0 million to the Group’s regular profit after tax for the year (2018: $109.0 million).
Outlook
TPG expects FY20 to be the year in which it experiences the greatest financial impact from customer migration
to the NBN. The combined headwinds from residential DSL and home phone customers moving to the NBN is
expected to be around $85 million. In addition, the annualised impact on profitability of existing NBN customers is
forecast to create a further NBN headwind for FY20 of approximately $25 million. By the end of FY20 TPG expects
to have less than 15% of its residential broadband customer base remaining on ADSL.
TPG expects operating cost efficiency programs to continue to deliver savings and another year of growth is
forecast for the Corporate Division. However, given the peak NBN headwinds expected, organic growth for FY20 is
not expected to be sufficient to offset the headwinds. TPG expects Business As Usual EBITDA to be in the range of
$735 million to $750 million.
11
11
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Review of Group Entities
Brickworks Limited
Associated entity: 43.8% held
Dividends paid to WHSP: $36.1 million
Total Market Capitalisation: $2.51 billion
Value of WHSP’s Holding: $1.10 billion
ASX code: BKW
Brickworks posted a record underlying Net Profit After Tax (NPAT) from continuing operations of $234 million,
up 4% on the prior year.
After including discontinued operations and the impact of significant items, statutory NPAT was down 12% to
$155 million. This includes $19 million in costs related to WHSP significant items in the second half.
Brickworks has declared a fully franked final dividend of 38 cents per share for the year ended 31 July 2019, up 6%
from 36 cents. Together with the interim dividend of 19 cents per share, this brings the total dividends for the year
to 57 cents per share, up 3 cents or 6% on the prior year.
Building Products Australia
Dividends
paid to WHSP
$ 36.1
million
Building Products Australia’s Earnings Before Interest and Tax (EBIT) was $57 million, down 27% on the
previous corresponding period. Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) was
$88 million, down 18%. The decline in earnings was primarily due to the impact of increasing energy
prices and a downturn in construction activity across the country.
Austral Bricks earnings declined 17% for the year, with sales revenue down 4% to $428 million.
Austral Masonry earnings were lower, despite a slight increase in sales revenue to $119 million for the year.
Bristile Roofing earnings, including the Fyshwick roof batten mill, were marginally lower for the year, with a
10% decrease in sales revenue to $131 million.
Austral Precast earnings were higher, supported by a 6% increase in revenue to $77 million for the year.
Building Products North America
Building Products North America contributed an EBIT of $6 million and an EBITDA of $12 million for the
period since the acquisition of Glen-Gery on 23 November 2018. Business performance has exceeded
expectations.
Property
Property delivered an EBIT before significant items of $158 million for the year ended 31 July 2019, a
record contribution, and up 68% from the prior year. The improved result was due to higher earnings from
the Property Trust.
The record result was also supported by a $35 million profit from land sales, primarily due to the sale of
the Punchbowl site in the first half.
The total value of assets held within the Property Trust at 31 July 2019 was $1.756 billion. This includes a
21% increase in the value of leased assets, to $1.411 billion. The Property Trust also holds a further $345
million in land to be developed.
Borrowings of $490 million are held within the Property Trust, giving a total net asset value of $1.266
billion. Brickworks’ 50% share of net asset value was $633 million, up $95 million from $538 million at 31
July 2018.
Contribution to WHSP
Brickworks contributed $54.7 million to the Group’s regular profit after tax for the year (2018: $44.6 million).
This contribution excludes the WHSP profit taken up by Brickworks under the equity accounting method.
Outlook
Building Products Australia – whilst the order book remains strong, particularly in Austral Bricks and
Austral Precast, Brickworks anticipates a soft first half for FY20. In the second half, Brickworks expects the
market to stabilise, based on the current level of home builder sales. In addition, Brickworks’ transition to
the wholesale gas market on 1 January 2020 will reduce costs and finally provide some relief from rising
energy costs.
Building Products North America – Brickworks believes the growth prospects for Building Products
North America are strong. The recent acquisition of Sioux City Brick strengthens Brickworks’ leadership
position in the architecturally focussed Midwest and Northeast regions of the United States and will
provide significant cost synergies once fully integrated.
Property – activity within the Property Trust remains strong with developments at Oakdale South
expected to drive growth in rent and asset value over the next few years.
12
Washington H. Soul Pattinson and Company Limited
Annual Report 2019
Brickworks Limited
13
13
Review of Group Entities
New Hope Corporation Limited
Controlled entity: 50.0% held
Dividends paid to WHSP: $66.5 million
Total Market Capitalisation: $2.09 billion
Value of WHSP’s Holding: $1.04 billion
ASX code: NHC
New Hope reported net profit before tax and non-regular items of $384.3 million for the year ended 31 July 2019,
3% higher than the 2018 result of $373.2 million.
The net profit after tax, including non-regular items, was $210.7 million for the year, 41% higher than the 2018
result of $149.5 million.
Before non-regular items, basic earnings for 2019 were 32.3 cents per share, compared to 31.5 cents in 2018. After
non-regular items, basic earnings were 25.3 cents per share for 2019 against 18.0 cents in 2018.
Compared to last year, the 2019 full year result benefited from:
1 Increased production and sales driven by the acquisition of an additional interest in the Bengalla Joint
Venture; and
1 A lower AUD:USD exchange rate.
Partially offset by:
1 Increased cost of sales as the Acland Mine nears the end of the Stage 2 life;
1 Increased cost of sales at Bengalla with increased stripping activities combined with timing of major repairs;
1 Reduction in interest revenue and increase in interest expenses resulting from borrowings required for the
Bengalla acquisitions; and
1 Non-regular items including acquisition costs relating to the Bengalla acquisition.
During the year, New Hope generated a strong operating cash surplus of $509.8 million (before acquisition costs,
interest and tax) which is an increase of 18% on the 2018 result of $433.9 million.
New Hope has declared a fully franked final dividend of 9 cents per share, up 12.5% from 8 cents last year. This
brings the total dividends for the year to 17 cents per share, up 21.4% on 2018.
Dividends
paid to WHSP
$ 66.5
million
Coal Operations
The New Hope Group produced 10.9 million tonnes of saleable coal in 2019 which was a 21% increase on 2018.
New Hope’s two operating mines in South East Queensland (New Acland and Jeebropilly) combined to produce
4.8 million tonnes of saleable coal during the year ended 31 July 2019. New Hope’s share of the Bengalla mine
(which increased from 40% to 80% during the year) produced 6.0 million tonnes. The total quantity of coal sold in
2019 was 10.9 million tonnes.
New Acland Coal Mine
New Acland produced 4.1 million tonnes of clean coal for the year, down 8% year on year due to operating
constraints and the quality of raw coal as operations extract the final coal from the Stage 2 resource area.
The Department of Natural Resources and Mines has certified 349 hectares of progressively rehabilitated land at
New Acland. This is the largest single area of certified rehabilitation for at an open cut mine in Queensland.
New Hope remains committed to delivering the New Acland Mine Stage 3 project and will continue to work with
the relevant government departments to ensure all necessary approvals are received for the project. Obtaining
final approval in a timely manner is critical to ensuring the continuity of operations and therefore employment for
approximately 300 employees and 500 contractors currently engaged at the New Acland mine.
Bengalla Joint Venture (New Hope share 80%)
New Hope completed its acquisition of an additional 30% interest in the Bengalla Joint Venture from Wesfarmers
on 3 December 2018 and its acquisition of 10% from Mitsui on 25 March 2019 (both with effect from 1 December
2018), bringing New Hope’s ownership to 80%.
The Bengalla Mine (100% basis) produced 9.3 million tonnes of coal in 2019 which is in line with the prior year. In
the last quarter of the year Bengalla operations achieved an annualised production rate of 10 million tonnes per
annum, a level that New Hope believes can be sustained into the future.
Queensland Bulk Handling (QBH)
QBH, New Hope’s 100% owned coal terminal at the Port of Brisbane, exported 6.7 million tonnes of coal on
85 vessels in 2019, which was 7% lower than 2018. QBH remains essentially a demurrage free port.
Pastoral Operations
Acland Pastoral has continued its pasture management and supplement feeding strategy on previously mined
land. Its success demonstrates that carefully rehabilitated mining land can support productive pastoral operations.
Acland Pastoral successfully managed its breeder herd through a severe drought period with minimal losses and
the breeders producing in excess of a 90% calving rate in very trying conditions.
The Acland Pastoral irrigation footprint, utilising water from the Wetalla pipeline, was substantially increased from
26 to 112 hectares, which presents attractive opportunities for future cropping in the area.
Following the increase in ownership of the Bengalla Joint Venture, New Hope’s land management experience is
being applied to the active management of agricultural land surrounding the Bengalla operations.
Bridgeport Energy Limited
Oil production was 381,474 barrels in 2019, a 2% increase on 2018. Bridgeport’s operations have now been lost
time injury free for 5 years.
Revenue for the year was $33.9 million against $29.1 million for the prior year, an improvement of 16%. Realised oil
sales prices averaged $98 per barrel against the previous year of $88 per barrel.
14
New Hope
continued >>>
15
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Review of Group Entities
New Hope Corporation Limited (continued)
Contribution to WHSP
New Hope contributed $134.3 million to the Group’s regular profit after tax for the year, being WHSP’s 50.0%
share (2018: $133.0 million, 52.7% share).
Outlook
The acquisition of the additional 40% stake in Bengalla during the 2019 financial year combined with the
increase in Bengalla’s production rate to 10 million tonnes per annum provides a profitable and sustainable asset
base for New Hope. New Hope will continue to focus on creating synergies and integration efficiencies across
all sites by leveraging off the individual strengths of each operation and where possible, applying those across
other sites.
Queensland operations are set to record lower production volumes in the year ahead. Acland production will
be constrained to mining remnant coal from Stage 2 operations in the absence of receiving Stage 3 approvals.
The Jeebropilly mine will cease mining operations in December 2019 once all economically viable reserves have
been extracted.
Work will continue on New Hope’s development assets at Burton, Lenton and the North Surat, with the Burton
coking coal project being the most prospective short-term development opportunity. Final approvals will be
sought for the Lenton project, with exploration and feasibility planning ongoing for the North Surat Group of
projects.
Coal markets have been, and are likely to remain, volatile in the near term, however, demand for high quality
thermal coal remains strong across Asia. For most Asian countries, thermal coal will continue to be a significant
component of their energy mix for many years to come, underpinned by continued investment in new coal fired
power stations.
Financial Services Portfolio
Dividends paid to WHSP: $19.1 million
Value of WHSP’s Holding: $353 million*
Listed and unlisted entities
* Market values, costs or Directors’ valuations
Dividends
paid to WHSP
$ 19.1
million
The assets in the Financial Services Portfolio include investments in funds management, corporate advisory and
Listed Investment Companies (LICs). This portfolio provides WHSP with exposure to both Australian and interna-
tional equities.
The market valuations of some of the assets in this portfolio reduced during the year ended 31 July 2019, leading
to a reduction for the portfolio as a whole. Despite this, the total value of the portfolio at the end of the year was
$353.1 million, significantly higher than its cost base of just over $260 million.
WHSP increased the portfolio’s investment in Ironbark Asset Management during the period from 13.9% to 25.6%.
Ironbark provides asset management solutions for investors and financial advisers by partnering with best in class
investment managers across a range of asset classes.
WHSP realised part of its investment in Milton Corporation during the year producing proceeds of $13.4 million
and a gain of $5.3 million.
Pengana Capital Group, in which the portfolio has a 38.6% shareholding, successfully launched its Pengana
Private Equity Trust (ASX code: PE1) during the year. PE1 listed on the ASX in April 2019 having raised in excess of
$205 million. It provides an opportunity for Australian investors to gain access to a diversified portfolio of global
private equity fund investments, with daily liquidity, through a single ASX trade.
As at 31 July 2019
BKI Investment Company Limited (ASX: BKI)
Contact Asset Management Pty Limited
Ironbark Asset Management
Milton Corporation Limited (ASX: MLT)
Pengana Capital Group Limited (ASX: PCG)
Pengana International Equities Limited (ASX: PIA)
Pitt Capital Partners Limited
URB Investments Limited (ASX: URB)
WHSP’s
Holding
%
8.5%
20.0%
25.6%
3.3%
38.6%
9.6%
100.0%
12.4%
Contribution to WHSP
WHSP received dividends of $19.1 million from the Financial Services Portfolio during the year, up 24.1%
from $15.4 million in 2018.
The Financial Services Portfolio contributed $23.5 million to the Group’s regular profit after tax for the year
(2018: $18.3 million).
16
Washington H. Soul Pattinson and Company Limited
Annual Report 2019
17
New Hope
Review of Group Entities
Pharmaceutical Portfolio
Dividends paid to WHSP: $9.0 million
Total Market Capitalisation: $1.17 billion
Value of WHSP’s Holding: $265 million
Listed entities
Dividends
paid to WHSP
$ 9.0
million
The Pharmaceutical Portfolio is made up of Australian Pharmaceutical Industries Limited (API), Palla Pharma
Limited (formerly TPI Enterprises Limited) and Apex Healthcare Berhad. API and Palla are listed on the ASX and
Apex is listed on the Main Board of Bursa Malaysia.
As at 31 July 2019
Australian Pharmaceutical Industries Limited (ASX: API)
Apex Healthcare Berhad (Bursa Malaysia code: APEX MK)
Palla Pharma Limited (ASX: PAL)
(formerly TPI Enterprises Limited)
WHSP’s
Holding
%
19.3%
30.1%
19.9%
API
API’s financial year ended on 31 August 2019. The results for the full year are not expected to be released to the
market until late October 2019.
For the six months ended 28 February 2019, API reported the following results which are compared to those of
the first half last year:
1 Total revenue was up 6.6% to $1.98 billion, excluding the impact of Hepatitis C medicine sales and PBS
Reforms.
1 Earnings before interest and tax of $44.4 million, up 5.8%.
1 Net profit after tax (NPAT) of $25.0 million, up 0.2%, including the impact of financing costs associated with
the purchase of shares in Sigma Healthcare and the acquisition of Clear Skincare.
1 Underlying NPAT of $26.8 million, in line with 2018.
API commented that its performance for the period was solid, with Priceline Pharmacy returning to positive
like-for-like sales growth, its Consumer Brands business expanding once again, and the effective bedding in its
Clear Skincare acquisition.
API has completed the first stage of its acquisition of Clear Skincare Clinics a leading provider of non-invasive
aesthetic services such as laser hair removal, skin treatments and cosmetic injectables. Clear Skincare has
continued its strong growth trajectory with revenue increasing by 21% over the first half of 2018. Three new clinics
were opened during the half, taking the total to 47.
In May 2019, API paid a fully franked interim dividend of 3.75 cents per share, up 7.1% on 2018. This represents a
payout ratio of 77.0% for the half and reflects the confidence of the API Board in the future performance of the
Company.
Apex Healthcare
Apex develops, manufactures, markets and distributes: pharmaceuticals; diagnostic products and equipment;
consumer healthcare products; and orthopaedic devices. It has operations in Malaysia, Singapore, Vietnam and
Myanmar and is publicly listed on the Main Board of Bursa Malaysia.
While Apex’s results are converted to Australian dollars (AUD) in WHSP’s results, the percentage movements
shown below are based on Malaysian Ringgit (MYR) movements to aid comparison.
For the six months ended 30 June 2019 Apex generated revenue of $116.5 million, an increase of 4.1% in MYR
over the previous corresponding six month period. The net profit after tax attributable to shareholders was
$8.5 million, a reduction of 8.4% in MYR compared to the first half of 2018. The result was impacted by higher
operating and finance costs associated with the start-up of Apex’s new manufacturing facility, SPP Novo.
The SPP Novo manufacturing facility in Malacca Malaysia added 19,400 square metres to Apex’s manufacturing
campus at Cheng Industrial Estate, more than doubling its production floor space. Apex is in the process of
transferring its high volume oral dosage products to SPP Novo.
Apex’s share price has continued to perform well, increasing by 18.9% in MYR and 27.1% in AUD for the 12 months
to 31 July 2019.
Apex has declared an interim dividend of 0.54 cents per share for the six months ended 30 June 2019. After
adjusting for the bonus issue in June, this represents an increase of 4.6% over last year in MYR and 7.5% in AUD.
Palla Pharma (formerly TPI Enterprises)
Palla is an internationally licenced narcotic producer supplying pain relief products. It has fully integrated
operations taking product from the farm gate to tablet production and has operations in Victoria and Norway.
Palla has developed an innovative, efficient and environmentally sustainable water-based method for extracting
narcotic raw material from opium poppies. Its manufacturing cost advantage is central to its strategy to achieve
significant market share growth.
For the six months ended 30 June 2019, Palla reported the following results which are compared to those of the
first half last year:
1 Record revenue of $27.3 million, up 20.3%.
1 Gross profit margin of 34.6%, up 126 bps.
1 Operating earnings before interest and tax up $2.1 million, to $0.3 million.
1 Underlying net loss of $2.3 million (2018 $3.9 million loss).
Increases in Narcotic Raw Material extraction rates and Active Pharmaceutical Ingredient production led to a
substantial improvement in operational efficiencies and an enhanced gross profit margin. Palla plans to increase
its Active Pharmaceutical Ingredient production by a further 50% by the end of its 2019 financial year.
Contribution to WHSP
WHSP received dividends of $9.0 million from the Pharmaceutical Portfolio during the year, up 12.2% from
$8.0 million in 2018.
WHSP has equity accounted Apex’s and Palla’s results for the 12 months to 30 June 2019 and API’s result for the
12 months to 28 February 2019.
The Pharmaceutical Portfolio contributed $15.0 million to the Group’s regular profit after tax for the year (2018:
$13.3 million).
18
Washington H. Soul Pattinson and Company Limited
Annual Report 2019
api
19
Review of Group Entities
Round Oak Minerals Pty Limited
Controlled entities: 100% held
Value of WHSP’s Holding: $188 million*
Unlisted entity
* Directors’ valuation
Round Oak is a mining and exploration company focused primarily on the production of copper, zinc and gold.
Round Oak has several assets throughout Australia which are currently in production or under development.
Queensland assets
Commissioning of the gold processing facilities at Cloncurry was completed in the second half of 2018 with first
gold production in December. This facility processes ore from Round Oak’s portfolio of satellite open pit gold
mines which will feed the plant over an initial two year period.
The Mt Colin underground copper mine commenced mining activities in July 2018 with underground mine
development on schedule. The first ore was produced in May 2019, having been delayed by activities at the mine
being slowed in January and February 2019 by the impacts of an extreme weather event which caused wide
scale flooding in north-west Queensland. Copper ore from Mt Colin will be toll treated at Glencore’s Ernest Henry
operation commencing in October 2019.
Development of the Barbara open pit copper mine commenced in February 2019, with first ore produced in June
2019. As with Mt Colin, production was delayed by the extreme weather event in January and February. Copper
ore from Barbara will be toll treated at Glencore’s Mt Isa operation commencing in October 2019.
Western Australian assets (Jaguar)
Ore production from the Bentley underground mine at Jaguar reduced in the latter part of 2018 as the focus
shifted to completing mine development to open up additional mining fronts, including the new high grade
Bentayga ore lens, to enable higher production rates in FY20. A new lens (Pegasus) was discovered in 2019 and
will significantly add to the Bentley mineral inventory.
Work on the Definition Phase Study (DPS) for the development of the Triumph resource at Jaguar commenced
in 2019 with this project having the potential to both increase production capacity and extend the life of
Jaguar beyond its current four year mine life. The DPS is expected to be completed in the second half of 2019.
Victorian assets (Stockman)
The Stockman copper-zinc project in north-east Victoria, acquired in 2017, continued through its approval and
permitting phase with the final primary approval (the Mine Work Plan) granted in April 2019. A Selection Phase
Study was completed in 2019.
Exploration
Exploration activities are continuing in north-west Queensland on a number of prospective targets for the
purpose of identifying additional copper and gold resources for future mining activities within the operating
radius of the Cloncurry processing facilities.
An exploration programme aimed at increasing the mineral resource base at Stockman continued with the
testing of both new and existing targets. This has resulted in two additional mineral resources (Eureka and Big
Foot) being added to the mineral inventory in early 2019.
Exploration activities continued on two fronts at Jaguar: Brownfields exploration aimed at identifying
additional near-mine base metals resources; and Greenfields exploration testing base metals and gold targets
further from the current mining operations. Early results have been encouraging and these programmes will
continue into FY20.
Contribution to WHSP
Round Oak contributed a regular after tax loss of $54.1 million to the Group’s result for the year (2018:
$9.7 million). In the current year, the increased regular loss after tax arose principally from:
1 Start-up expenses for new projects and increased corporate overhead, exacerbated by delays caused
by extreme weather events causing flooding; and
1 A reduction in production volumes and increased operating costs at Jaguar to realign the mining
sequence. This realignment is expected to benefit future production.
The statutory loss after tax of $73.5 million includes a non-regular impairment charge of $18.0 million following
a reassessment of the carrying values of development and exploration assets.
20
Washington H. Soul Pattinson and Company Limited
Annual Report 2019
21
Round Oak Minerals
Review of Group Entities
Property
In August 2018 WHSP completed the sale of its head office building at 160 Pitt Street Sydney for $95.0 million.
The non-regular gain on sale of $69.0 million after tax was taken up during the year.
The redevelopment and subdivision of the Kingsgrove property was completed during the year. All of the
subdivided lots have been sold and the project finalised.
Construction of the warehouse and distribution centre at Prestons was completed during the year and the
tenanted property sold.
WHSP has maintained its ownership of: the office building at Pennant Hills; the industrial property at Castle Hill;
and its 50.1% interest in Penrith shopping centre and hotel.
The carrying value of the Property Portfolio (net of borrowings) reduced by $93 million during the year. The
reduction due to the sales discussed above was partly offset by the repayment of bank debt. No property values
were written down during the year.
Pitt Street Real Estate Partners continues to investigate opportunities to add to WHSP’s property portfolio, whilst
also considering the sale of mature assets.
Contribution to WHSP
Property contributed $11.0 million to the Group’s regular profit after tax for the year (2018: $4.3 million).
Other Investments
As at 31 July 2019
Listed
Bailador Technology Investments Limited
Clover Corporation Limited
Heritage Brands Limited
Lindsay Australia Limited
Novonix Limited
Unlisted
Ampcontrol Pty Limited
Aquatic Achievers
Dimeo Cleaning Services
Seven Miles Coffee Roasters Pty Limited
Specialist Oncology Property Pty Limited
Verdant Minerals Limited
WHSP’s
Holding
%
19.1%
21.7%
25.1%
18.7%
12.5%
42.9%
100%
16.1%
40.0%
17.6%
33.4%
Sustainability Report
Sustainable Investment
WHSP has a proud history of focussing on our investors and delivering strong net returns over the long-term and
thinking, behaving and investing responsibly underpins this approach. Our single overarching purpose is to hold
a diversified portfolio of assets, which generate a growing income stream for distribution to shareholders in the
form of fully franked dividends and to provide capital growth in the value of shareholders’ investments.
We recognise the evolving expectations of our key stakeholders in considering relevant environmental, social
and governance-related (ESG) factors in our investment philosophy. While consideration of ESG factors has been
a cornerstone of our investment approach and we pride ourselves on the sustainable nature of our investment
operations, we understand the need to increase our transparency on the ways in which we consider these factors
across the lifecycle of our investment portfolio.
In line with this, in FY19 we undertook a strategic review of our current approach to sustainable investment,
consideration of climate-related risks and opportunities, and human rights issues across our own operations and
investment footprint. The exercise resulted in the development of WHSP’s inaugural Sustainable Investment,
Climate Change and Human Rights Policies. These policies, which have been approved by the Board, are informed
by leading frameworks and guidelines, with the objective of ensuring WHSP is aligned with industry peers in our
approach to managing these issues.
Case
Study
#1
Insights from stakeholder perception survey
To keep abreast with stakeholders’ expectations with regards to ESG factors, WHSP engaged an external
consultant in FY19 to review the current perceptions of WHSP in the market. Key insights from this exercise
include:
1 Investors appreciate WHSP’s key strengths, including the consistency of dividends and a strong,
high-calibre management team; and,
1 Investors are expecting an increased level of disclosure and engagement with the market around ESG
issues and climate change in particular.
These results support the need to increase WHSP’s disclosures in relation to the way sustainable investing and
climate change issues are considered across the breadth of our portfolio, and across the investment lifecycle.
Our approach to Sustainable Investment
Approved by the Board in September 2019, the Sustainable Investment Policy articulates how our investment
approach is informed by the proactive consideration of ESG factors and their impacts on our investment portfolio
in order to achieve enhanced investment outcomes over the long-term.
Our values are central to our culture and to the long-term investment success of the company. At the core of our
approach are three values:
1 We are custodians of shareholders’ wealth – we aim to deliver superior returns to our shareholders in
a cost efficient manner. We also aim to influence and encourage our investees, where possible, to be cost
effective in what they do.
1 We are long-term and disciplined investors – we believe that shareholders’ wealth is enhanced by
investing with a long-term outlook, which requires making disciplined investment decisions which will
deliver strong returns over the long-term. This may require investment decisions which are contrarian and/or
counter cyclical in nature.
1 We value our reputation – trust and reputation are at the heart of our brand. Our reputation as an ethical,
trusted and respected company underpins our long-term success. We seek to be an investor of choice to
create sustainable investments which make a positive contribution to their stakeholders.
22
23
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Sustainability Report
Investment principles
Our purpose is defined by five core principles which we believe are fundamental to achieving long-term
sustainable returns. These are:
1 Make sensible decisions: we bring an in-depth understanding of the sector in which capital is being
deployed, including ESG factors, demand and supply dynamics, competitive environment and regulation;
we evaluate opportunities based on facts and information; we focus on downside risks to any investment,
but also look at avenues for mitigating these risks; we are active owners.
1 Think outside the box: while WHSP has historically been an equity investor, our unconstrained mandate
means that we can invest in anything; we look for value in sectors and/or asset classes which are not on the
radar of other investors.
1 Have the courage to act: we have confidence in WHSP’s ability to make the right investments at the right
time; we do not conform to the market’s opinions.
1 Think long-term and have patience for the right opportunity: WHSP can afford to take a long-term
view as we do not need to deploy capital within a specified timeframe and we have a strong track record as a
long-term investor.
1 Be different: we leverage WHSP’s reputation as an investor of choice and flexible source of capital to
differentiate ourselves from other investors; we look for opportunities where these characteristics add value
in any transaction.
ESG investment approach
Our ESG investment approach is in turn guided by three core beliefs:
1 Attention to ESG performance can improve the quality and consistency of long-term value creation.
1 As an active owner, we are well positioned to provide counsel and independent challenge to our investees
in relation to their approaches for managing ESG risks, and taking advantage of ESG opportunities, therefore
enhancing returns.
1 Our actions and decisions can affect practices in the entities in which we invest. We have both a duty and
an interest in managing this influence to maximise long-term value for our investee companies and our
investors.
ESG governance and oversight
The Board is responsible for making investment decisions and considers ESG issues in relation to new and existing
investments on an ongoing basis.
The management team are tasked with reporting to the Board on issues affecting the sustainability of its
investments and it is a requirement of every new investment proposal to specifically address ESG risks and
opportunities.
Case
Study
#2
Our sustainable investment approach in action
Brickworks
Year invested: 1969
Brickworks is one of Australia’s leading providers of building products and has a sustainable vision for the
future of the built environment. Over recent years, Brickworks has committed to increasing its level of
disclosures in relation to ESG. In FY19 Brickworks developed a Sustainability Framework to link their sustaina-
bility commitments with their business strategy and purpose of creating beautiful products that last forever.
Delivering on this strategy is underpinned by the following key topics: People, Community, Environment and
Responsible Business.
During FY20 Brickworks will be formally incorporating ESG issues into the charter of the Audit and Risk
Committee as well as into their five-year Sustainability Strategy.
24
Case
Study
#3
Our sustainable investment approach in action
Kangaroo Island Plantation Timbers
Year invested: 2017
KIPT is Australia’s only listed timberland company with a market capitalisation of $110m+. The company
owns and manages 25,000 hectares of land on Kangaroo Island, South Australia, with 14,200 hectares planted
with hardwood and softwood. The remaining 7,300 hectares is remnant native vegetation that is home
unique to endangered wildlife. KIPT also owns Kangaroo Island’s sawmill and a potential seaport site which
is going through final approvals prior to the commencement of construction in order to export the mature
plantation timber.
Having originally invested in KIPT in May 2017, WHSP is the third largest shareholder and views this invest-
ment as not only an opportunity for portfolio diversification, but an investment that offers sustainable returns
in the longer term. Timber as an asset class is viewed as having significant growth potential with stable,
predictable returns.
KIPT is committed to being a responsible and prominent part of the local Kangaroo Island community
and to maintaining the highest standards of environmental stewardship. Apart from providing stable jobs
and sustainable industry, KIPT supports Kangaroo Island through a range of sponsorships and community
engagement. Construction of the Seaport will create employment opportunities and is expected to generate
10% extra island residences. The company has conducted numerous environmental studies and is committed
to the conservation and protection of the natural environment and its wildlife.
Refer to our Sustainable Investment Policy. (see www.whsp.com.au/corporate-governance/)
Climate Change in the context of our business
Climate change is an important issue for our environment, economy and society, which is affecting regulation
and driving changes in demand for products and services. We acknowledge that climate change may affect the
performance of our investment portfolio to varying degrees across our investee companies, sectors and through
time, as a consequence of regulatory changes and the physical and social and transition impacts of climate change.
We recognise that from an investment perspective, climate change will lead to both risks and opportunities.
WHSP’s portfolio as at 31 July 2019 based on Net Asset Value has an estimated exposure to climate-related risks
in the following areas:
1 19% of our portfolio is invested in energy producers; and
1 At a minimum, 38% of our portfolio is invested in large energy users.
Our climate change commitments
We are committed to assessing the resilience of our investment portfolio against climate-related risks and
opportunities, identifying any associated financial impacts and providing relevant disclosures to our stakeholders.
This will increasingly include reference to climate-risk disclosures published by our current and potential investees
prepared in accordance with the Taskforce on Climate-related Financial Disclosures (TCFD) Recommendations.
Building on our approach to date, our future climate change commitments will focus on the following four themes:
1 We will consider climate-related impacts in our investment decision-making and ongoing engagement,
including at the Board and Senior Executive levels, as they relate to WHSP’s portfolio.
1 We will work to understand and assess how climate-related impacts (both risks and opportunities) on our
investment portfolio will develop over time and take this into account when making strategic decisions on
behalf of our investors.
1 We will continue integrating ESG risk considerations, including climate change risks, into our investment
decisions and ensuring our active ownership engagement and pivoting activities consider climate-related
impacts material to the companies in which we invest.
1 We will progressively engage with our investee companies to provide disclosures on their respective green-
house gas emissions footprint and other key climate-related metrics and leverage these disclosures to inform
our assessment of the carbon intensity associated with our investment portfolio to understand the risks may
lie across our portfolio and to provide our investors and other stakeholders with climate-related information.
Refer to our Climate Change Policy. (see www.whsp.com.au/corporate-governance/)
25
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Sustainability Report
Case
Study
#4
Case
Study
#5
New Hope and the future of coal
New Hope Corporation Limited
Year invested: 1970
We recognise that a transition to a low carbon global economy is under way, which will impact demand for
traditional energy sources. Consequently, there is growing interest from capital markets, including investors
and regulators, on climate-related risks and opportunities relevant to fossil fuel based businesses that may
have longer term financial impacts.
Given the nature of New Hope’s business, we have engaged with New Hope’s board and management over
the past year to understand how they are identifying and managing climate-related impacts.
Alongside this, we also continue to assess reputable external sources to inform our understanding of broader
macro trends over the short, medium and long-term. In relation to coal in particular, while global demand is
expected to decline over the long-term as the global economy transitions away from traditional, fossil-fuel
intensive energy sources, demand for higher-quality coal, particularly among key Asian markets, is expected
to either grow or remain stable based on the International Energy Agency’s (IEA) 2018 World Energy Outlook.1
IEA Scenario Analysis2
WHSP has analysed the outlook for coal based on the IEA’s three most commonly referenced scenarios. In
the New Policies Scenario, the proportion of coal in the primary energy mix declines from 27% to approxi-
mately 22%, however the gross demand for coal will remain relatively static. The New Policies Scenario sees
Australian coal demand increase by 0.6% per annum (CAAGR3) to 2040 and in the Sustainable Development
Scenario, coal consumption decreases steeply to account for only a less than 12% share of global primary
energy (a reduction of 3.6% CAAGR to 2040). Under any scenario, WHSP believes that:
1 new supply will be constrained by regulatory risk and capital availability;
1 many existing mines will come to an end as coal is fully depleted or high cost mines are no longer
economic; and,
1 the market will demand higher quality coal to reduce carbon emissions.
As the global economy transitions towards a lower carbon future, demand for coal will continue to play a role
in providing reliable and affordable energy. New Hope, with its supply of low-cost and high-quality coal, is
well positioned to meet this demand.
New Hope environment and community engagement
New Hope is a leader in the best practice rehabilitation of open-cut coal mines and is committed to the
progressive rehabilitation of disturbed land across its operations. New Hope have an extensive rehabilitation
program and strive to return mined land to productive use post-mining. New Hope uses industry leading
progressive rehabilitation techniques and have achieved considerable success in returning rehabilitated land to
cattle grazing. In FY2019 the Queensland State Government certified 349 hectares of rehabilitated land at New
Acland Mine. This is the largest single area of certified rehabilitation for an open cut coal mine in the State.
New Hope aims to be an integral and accepted part of the communities in which it operates. To achieve this,
New Hope engages directly and actively with stakeholders and invests local communities, giving time, skills
and financial support. Examples include:
1 The New Acland Community Investment Fund assists not-for-profit community groups and organisa-
tions through providing grants to support community based initiatives and projects which develop
long-term positive outcomes for the communities around the New Acland mine.
1 The Bengalla mine works closely with the Upper Hunter community through support for local schools
and students providing opportunities for work experience, apprenticeships and scholarships; partici-
pating in school careers days and STEM activities and, hosting school tours of the mine. The mine also
supports academic enrichment for Aboriginal students, providing financial and in-kind assistance to
community organisations, groups and clubs and, has implemented voluntary Planning Agreement with
the Muswellbrook Shire Council.
International Energy Agency 2018, World Energy Outlook 2018. Available at: https://www.iea.org/weo2018/
1
2
Source: IEA, World Energy Outlook 2018, chapter 5
3 CAAGR = compound annual average growth rate
26
Washington H. Soul Pattinson and Company Limited
Annual Report 2019
New Hope
sponsorship of
CareFlight
Our approach to Human Rights and Modern Slavery preparedness
We support the fundamental principles of human rights across our business and our investment portfolio. Our
respect for the protection and preservation of human rights is guided by the principles outlined in recognised
international standards and frameworks.
We recognise that as an investment company, our responsibility in respecting human rights spans the following
three domains:
1 Our role as an employer: we are committed to respecting the human rights of our employees through
our internal employment policies and practices, such as our Diversity Policy and Remuneration Committee
Charter. The promotion of fair work, equity, diversity and inclusivity are key components of our corporate
culture, and we aim to ensure all our employees work in a safe and professional work environment.
1 Our role as a buyer: we expect our suppliers to respect human rights in their own operations and related
supply chains. We encourage our suppliers to undertake human rights due diligence and adopt similar
principles with their own key suppliers.
1 Our role as an investor: we integrate the consideration of ESG factors, including human rights, in our
investment decision making and ongoing portfolio management processes. As active owners, this includes
engagement with our investee companies where we seek to incorporate respect for human rights and
demonstrate a commitment to fundamental principles of human rights through our various engagement
avenues.
Modern Slavery Legislation
Following the introduction of the Australian Modern Slavery Act (2018), we will be required to publish our
inaugural Modern Slavery Statement outlining our actions to identify, assess and manage modern slavery risks in
our direct operations, investments and supply chain.
Refer to our Human Rights Policy. (see www.whsp.com.au/corporate-governance/)
Our future focus
Building on our activities in FY19, we are committed to evolving our approaches across these areas and providing
further transparency on our progress, challenges encountered and future commitments.
In FY20, WHSP will:
1 Actively implement our Sustainable Investment, Climate Change and Human Rights Policies on our own
operations and through active engagement with our investee companies.
1 In preparation for issuing our inaugural Modern Slavery Statement following the completion of FY19 reporting,
we will complete a risk assessment across our direct operations, investments and direct suppliers to inform
future actions. This will enable us to disclose a preliminary perspective on our key modern slavery risks.
1 We will build on our existing analysis of our climate-related risks and opportunities to further quantify these
factors in relation to current portfolio and potential investments. We will use the output of this exercise in
conjunction with feedback from our investors and our active engagement with our investees, to encourage
our investees where possible, to adopt climate risk disclosures prepared in accordance with the TCFD
Recommendations.
27
Directors’ Report
The Directors of Washington H. Soul Pattinson and Company Limited (WHSP, Parent Company) present their
report and the financial statements of the Consolidated Entity, being the Parent Company and its subsidiaries (the
Group), for the financial year ended 31 July 2019.
Directors
Chairman
Managing Director
The following persons were Directors of WHSP for the whole of the financial year and up to the date of this report:
1 Mr R D Millner
1 Mr T J Barlow
1 Mrs T L Fuller
1 Mr M J Hawker
1 Mr T C D Millner
1 Mr W M Negus
1 Mr R G Westphal
Lead Independent Director
Principal Activities
WHSP is an investment company with a diversified portfolio of assets across a range of industries. The principal
activities of the entities in the Consolidated Entity during the course of the financial year were: equity investment;
mining; and property investment. There were no significant changes in the nature of the Consolidated Entity’s
principal activities during the year.
Dividends
Dividends paid or declared by the Parent Company since the end of the previous financial year were:
Cents
Per Share
cents
Total
Amount
$’000
Franking
%
Date of
Payment
Declared and paid during the year
Final ordinary dividend 2018
Interim ordinary dividend 2019
Dealt with in the financial report as dividends
Declared after the end of the year
Final ordinary dividend 2019
33
24
57
34
79,000
57,455
136,455
100%
100%
10 December 2018
9 May 2019
81,394
100%
9 December 2019
Review of Operations
The profit after tax attributable to shareholders for the year ended 31 July 2019 was $247.9 million, 7.1% lower
than last year.
The result was driven by increased dividend and interest income and increased contributions from Brickworks,
New Hope, the Property Portfolio and the Financial Services Portfolio.
These gains were offset by a disappointing result from Round Oak Minerals principally due to:
1 start-up expenses for new projects and increased corporate overhead, exacerbated by delays caused by
extreme weather events causing flooding; and
1 a reduction in production volumes and increased operating costs at Jaguar to realign the mining sequence.
This realignment is expected to benefit future production.
The contribution from TPG Telecom decreased due to the continuing margin impact from the NBN rollout and
impairments.
Comparison with the prior year is as follows:
Revenue from continuing operations
Profit after tax attributable to shareholders
Interim Dividend (paid in May each year)
Final Dividend (payable 9 December 2019)
Total Dividends
2019
$000
1,615,888
247,943
24 cents
34 cents
58 cents
2018
$000
1,174,7481
266,846
23 cents
33 cents
56 cents
Change
%
+ 37.6%
– 7.1%
+ 4.3%
+ 3.0%
+ 3.6%
1. Comparative figure has been restated to present the impact of the discontinued operations as outlined in note 8 of the
Consolidated Financial Statements.
For further information regarding the operations of the Group refer to the Chairman’s Review and the Review of
Group Entities on pages 3 to 22 of this annual report.
State of Affairs
In the opinion of the Directors there were no significant changes in the state of affairs of the Consolidated Entity
that occurred during the financial year under review not otherwise disclosed in this report or the Consolidated
Entity’s financial statements.
Financial Position, Financial Instruments and Going Concern
The Directors believe the Group is in a strong and stable position to grow its current operations.
Details of financial risk management objectives and policies are set out in note 23 of the consolidated financial
statements.
The Directors, having made appropriate enquiries, consider that the Group has adequate resources to continue
in its operational businesses for the foreseeable future and have therefore continued to adopt the going concern
basis in preparing the financial statements.
Events Subsequent to the Reporting Date
The Directors are not aware of any other event or circumstance since the end of the financial year not otherwise
dealt with in this report or the consolidated financial statements that has or may significantly affect the operations
of the Consolidated Entity, the results of those operations, or the state of affairs of the Consolidated Entity in
subsequent years. Refer to note 9 of the consolidated financial statements.
28
29
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Directors' Report
Likely Developments, Business Strategy and Prospects
Round Oak Minerals Pty Limited (Round Oak)
Other than as discussed in the Review of Group Entities, information about likely developments, business strategy
and prospects and the expected results in subsequent financial years have not been disclosed because the
Directors believe, on reasonable grounds, that to include such information would be likely to result in unreason-
able prejudice to the Consolidated Entity.
Corporate Governance Statement
The Parent Company’s Corporate Governance Statement may be viewed in the Corporate Governance section
of the Company’s web site at http://www.whsp.com.au/whsp/wp-content/uploads/2019/10/WHSP-Corporate-
Governance-Statement.pdf
Workplace Gender Equality
In accordance with the requirements of the Workplace Gender Equality Act 2012, WHSP lodged its annual public
report for the year ended 31 March 2019 with the Workplace Gender Equality Agency on 27 May 2019.
The report may be viewed in the Employment section of the Company’s web site at www.whsp.com.au.
Environmental Compliance
The Group was subject to the reporting requirements of the National Greenhouse and Energy Reporting Act
2007 during the year. This Act requires the Group to report its annual greenhouse gas emissions and energy use.
The Group has implemented systems and processes for the collection and calculation of the data required and
submitted its 2017/18 report to the Greenhouse and Energy Data Officer on 29 October 2018. The report was
resubmitted on 31 July 2019 with minor amendments.
New Hope Group (NHG)
NHG was not prosecuted for any breach of environmental laws during the 2019 financial year.
A Penalty Infringement Notice was received during 2019 for an environmental compliance matter regarding noise
at its New Acland operations. No environmental harm was caused by the environmental compliance matter,
however NHG has taken corrective actions to minimise the likelihood of reoccurrence.
Environmental performance
NHG’s businesses include coal mining operations and exploration activities in Queensland and New South Wales
(NSW), the Queensland Bulk Handling coal export port facility and oil and gas operations and exploration activities
in Queensland.
The key pieces of Queensland environmental legislation are the Environmental Protection Act 1994, the Water Act
2000, and the Nature Conservation Act 1992. The principle environmental legislation in NSW is: Environmental Planning
and Assessment Act 1979; Protection of the Environment Operations Act 1997; and Water Management Act 2000.
The main Commonwealth environmental legislation is the Environment Protection and Biodiversity Conservation Act
1999, which operates across Australian states and territories in the interests of the protection of matters of national
environmental significance.
NHG’s operations continue to undertake proactive initiatives to improve their environmental performance. During
2019 NHG received official certification for 349 hectares of progressive rehabilitation at its New Acland operations.
Environmental systems
During the year NHG adhered to its Environmental policy which is aligned with the requirements of the ISO 14001
standard and its operations have continued improvement of the Environmental Management System (EMS). The
EMS enables NHG’s operations to effectively manage their environmental performance by increasing environmental
awareness, optimising operational control, monitoring compliance and facilitating continuous improvement.
Environmental reporting
NHG’s operational sites have submitted reports under the National Pollutant Inventory program.
Round Oak Minerals Pty Limited operates in four state government jurisdictions, regulated under each state’s
environmental legislation and polices.
Round Oak’s Queensland Operations consist of 22 Exploration Tenements (EPMs) and 11 Mining Leases (MLs),
with one ML in application at year end. The mining operations and exploration tenements are environmentally
regulated by the Department of Environment and Science (DES) under Queensland’s Environmental Protection Act
(1994). Mining operations and exploration tenements each function under an Environmental Authority that permit
and condition site activities. All activities on EPMs have been reported as compliant in the past year.
A third Queensland site, the Barbara open pit copper mine, transitioned to operation during 2019, joining the Great
Australia Operations (including the Wallace South gold mine and Cloncurry processing facilities); and the Mt Colin
underground copper mine.
DES has concerns with respect to the Great Australia Operations’ legacy groundwater quality. Round Oak continues
to manage and consult with DES regarding these concerns. Four Penalty Infringement Notices were issued for
Round Oak’s Queensland operations, two of which related to groundwater monitoring at the Great Australia
Operation, one relating to water storage capacity at Mt Colin, and one related to the late submission of a post land
use plan for Wallace South, all of which were rectified during the reporting period. Water remains a key manage-
ment and compliance aspect for the Queensland operations.
Round Oak’s White Dam Gold Mine, in South Australia, is regulated by the Department of Premier and Cabinet and
the Environmental Protection Authority S.A. under state legislation. Only processing and rehabilitation activities
were undertaken in 2019. Round Oak received approval of its updated Program of Environmental Protection and
Rehabilitation (PEPR) which details closure and rehabilitation activities. The updated PEPR included the proposed
installation and operation of the SART (Sulphurisation, Acidification, Recycling and Thickening) processing option,
which may also assist with mine closure activities. Regulatory approvals necessary to undertake SART processing
have now been obtained with no changes to the existing EPA licence (25543) required. Round Oak conducts envi-
ronmental monitoring and annual compliance reporting in accordance with its MLs and PEPR, and the operation
has complied with all conditions of approval, applicable compliance standards and required outcomes in 2019.
The Jaguar base metals operation in Western Australia, acquired by Round Oak in June 2018, is regulated by the
Department of Mines, Industry Regulation and Safety and the Department of Water and Environment Regulation
under state legislation. The operation is required to submit a revised Mine Closure Plan (MCP) by September 2020
reflecting an extension to the current mine life.
The Stockman base metals project in north-east Victoria, acquired by Round Oak in December 2017, is regulated
by the Earth Resources Regulation branch of the Department of Economic Development, Transport and Resources,
the Environmental Protection Authority Victoria and the Department of Environment, Land, Water and Planning.
Following Round Oak being granted an Infrastructure Mining Licence over the historic tailings facility in July 2018,
the Stockman Project had its Work Plan approved in 2019.
30
31
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Directors' Report
Directors
Information regarding the Directors of the Parent Company.
Robert Dobson Millner FAICD
Chairman
Non-executive Director since 1984, appointed Chairman 1998.
Member of the Nomination, Remuneration and Risk Committees
Mr Millner has extensive experience in the investment industry.
Other current listed company directorships:
1 Apex Healthcare Berhad – Appointed 2000
1 Australian Pharmaceutical Industries Limited – Appointed 2000
1 Brickworks Limited – Appointed 1997 Chairman since 1999
1 BKI Investment Company Limited – Appointed Chairman 2003
1 Milton Corporation Limited – Appointed 1998 Chairman since 2002
1 New Hope Corporation Limited – Appointed 1995 Chairman since 1998
1 TPG Telecom Limited – Appointed 2000
Former listed company directorships in the past three years:
1 Hunter Hall Global Value Limited – Appointed as an interim Director April 2017. Resigned June 2017
Todd James Barlow B.Bus, LLB(Hons)(UTS)
Managing Director since 2015
Member of the Risk Committee
Mr Barlow was appointed Chief Executive Officer of the Company in April 2014 having previously been the
Managing Director of Pitt Capital Partners Limited for five years.
Mr Barlow has extensive experience in mergers and acquisitions, equity capital markets and investing and has
been responsible for a number of WHSP’s investments since joining the WHSP Group in 2004. His career has
spanned positions in law and investment banking in Sydney and Hong Kong.
Mr Barlow has a Bachelor of Business and Bachelor of Laws (Honours) from the University of Technology, Sydney.
Other current listed company directorships:
1 New Hope Corporation Limited – Appointed 2015
1 Palla Pharma Limited – Appointed 2015
Former listed company directorships in the past three years:
1 PM Capital Asian Opportunities Fund Limited – Appointed 2015. Resigned 2017
Tiffany Lee Fuller B.Com(UniMelb), CA, GAICD
Non-executive Director since 2017
Member of the Audit, Nomination, Remuneration and Risk Committees.
Mrs Fuller is an experienced public company director with a background in Chartered Accounting, Private Equity
and Investment Banking. Her experience includes: financial advisory, corporate finance, investment management,
mergers and acquisitions and management consulting.
Mrs Fuller holds a Bachelor of Commerce Degree from the University of Melbourne and is a member of Chartered
Accountants Australia and New Zealand and a graduate of the Australian Institute of Company Directors.
Other current listed company directorships:
1 Computershare Limited – Appointed 2014
1 Smart Parking Limited – Appointed 2011
Former listed company directorships in the past three years:
1 Costa Group Holdings Limited – Appointed 2015. Resigned September 2018
Michael John Hawker AM B.Sc(Sydney), FAICD, SFFin
Lead Independent Director
Non-executive Director since 2012
Chairman of the Nomination and Risk Committees, member of the Audit and Remuneration Committees
Mr Hawker is a professional company director with over 30 years experience in financial markets and investment.
He was Chief Executive Officer and Managing Director of Insurance Australia Group from 2001 to 2008. From 1995
to 2001, Mr Hawker held a range of positions at Westpac, including Group Executive of Business and Consumer
Banking and General Manager of Financial Markets. Prior to this, he held a number of positions at Citibank,
including Deputy Managing Director for Australia and subsequently Executive Director, Head of Derivatives, Europe.
Mr Hawker has been: Chairman of the Insurance Council of Australia; Chairman of the Australian Financial Markets
Association; a member of the Australian Governments Financial Sector Advisory Committee; and a member of the
Business Council of Australia.
Other current listed company directorships:
1 Macquarie Group Limited – Appointed 2010
Former listed company directorships in the past three years:
1 Aviva PLC – Appointed 2010, Resigned 2019
Thomas Charles Dobson Millner B.Des(Industrial), GDipAppFin(Finsia), FFin, GAICD
Non-executive Director since 2011
Member of the Nomination, Remuneration and Risk Committees
Mr Millner is a Director and Co-Portfolio Manager of Contact Asset Management Pty. Limited which is the
manager of Listed Investment Companies BKI Investment Company Limited (ASX: BKI) and URB Investments
Limited (ASX: URB).
Mr Millner’s experience includes: 17 years within the financial services industry, including 15 years in active
portfolio management of Australian equities; 9 years as a CEO of an Australian listed company, BKI; and 8 years as a
Director of Australian listed companies.
Mr Millner has a Bachelor of Industrial Design degree and a Graduate Diploma in Applied Finance. He is a Fellow of
the Financial Services Institute of Australasia and a Graduate of the Australian Institute of Company Directors.
Other current listed company directorships:
1 New Hope Corporation Limited – Appointed 2015
Former listed company directorships in the past three years:
1 PM Capital Global Opportunities Fund Limited – Appointed 2013, Resigned 2017
Warwick Martin Negus B.Bus(UTS), M.Com(UNSW), SFFin
Non-executive Director since 2014
Chairman of the Remuneration Committee, member of the Audit, Nomination and Risk Committees
Mr Negus has over 30 years experience in the banking and finance sectors including both senior management
and director roles. He has extensive experience in managing equity and property portfolios.
He has a Bachelor of Business Degree from the University of Technology Sydney and a Master of Commerce from
the University of New South Wales. He is a Senior Fellow of the Financial Services Institute of Australasia (FINSIA).
Mr Negus is a Director of Terrace Tower Group Pty. Limited and a Member of the Council of UNSW.
Other current listed company directorships:
1 Bank of Queensland Limited – Appointed 2016
1 Pengana Capital Group Limited – Chairman Appointed 2017
1 URB Investments Limited – Chairman Appointed 2016
1 Virgin Australia Holdings Limited – Appointed 2017
32
33
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Directors' Report
Robert Gordon Westphal B.Com(UNSW), FCA, FFin, MAICD
Non-executive Director since 2006
Chairman of the Audit Committee and member of the Nomination, Remuneration and Risk Committees
Mr Westphal is a Chartered Accountant and was a partner of Ernst & Young for 25 years. He has many years of
experience in corporate transactions with particular emphasis on mergers and acquisitions, due diligence and
valuation across a variety of industry sectors. Mr Westphal was formerly the Chairman of the Board of Governors
of Queenwood School for Girls Limited for 10 years.
Company Secretary
Ian David Bloodworth
Mr Bloodworth is a Chartered Accountant with more than 30 years accounting and company secretarial expe-
rience and was appointed Company Secretary of WHSP in 2007. He was also the Company Secretary of Clover
Corporation Limited from 2007 to 2012. Prior to joining the Company, Mr Bloodworth was Company Secretary
of the Garratts Limited Group of Companies for 2 years and Chief Financial Officer of the Group for 6 years.
Directors’ Meetings
The number of Board meetings and meetings of committees of Directors and the number of meetings attended
by each of the Directors of the Company during the financial year were:
e
e
t
t
i
m
m
o
C
r
e
b
m
e
M
I,N,Re,Ri
I,Ri
A,N,Re,Ri
A,N,Re,Ri
I,N,Re,Ri
A,I,N,Re,Ri
A,N,Re,Ri
Mr R D Millner
Mr T J Barlow
Mrs T L Fuller
Mr M J Hawker
Mr T C D Millner
Mr W M Negus
Mr R G Westphal
Board
r
e
b
m
u
N
d
e
d
n
e
t
t
a
d
n
e
t
t
a
o
t
e
b
g
l
i
i
l
E
Audit
Committee
Investment
Committee
Nomination
Committee
Remuneration
Committee
Risk
Committee
o
t
e
b
g
l
i
i
l
E
r
e
b
m
u
N
d
e
d
n
e
t
t
a
d
n
e
t
t
a
o
t
e
b
g
l
i
i
l
E
r
e
b
m
u
N
d
e
d
n
e
t
t
a
d
n
e
t
t
a
o
t
e
b
g
l
i
i
l
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r
e
b
m
u
N
d
e
d
n
e
t
t
a
d
n
e
t
t
a
o
t
e
b
g
l
i
i
l
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r
e
b
m
u
N
d
e
d
n
e
t
t
a
d
n
e
t
t
a
o
t
e
b
g
l
i
i
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E
r
e
b
m
u
N
d
e
d
n
e
t
t
a
d
n
e
t
t
a
13
13
13
13
13
13
13
13
13
13
13
13
13
13
–
–
7
7
–
7
7
–
–
7
7
–
7
7
2
2
–
–
2
2
–
2
2
–
–
2
2
–
1
–
1
1
1
1
1
1
–
1
1
1
1
1
2
–
2
2
2
2
2
2
–
2
2
2
2
2
8
8
8
8
8
8
8
8
8
8
8
8
8
8
A Member of the Audit Committee of Directors during the year.
I Member of the Investment Committee of Directors during the year. This Committee
ceased as a committee of the Board in October 2018 following the appointment of
portfolio managers.
N Member of the Nomination Committee of Directors during the year.
Re Member of the Remuneration Committee of Directors during the year.
Ri Member of the Risk Committee of Directors during the year.
Directors’ Interests
Ordinary Shares
The relevant interest of each Director in the share capital of the Company, as notified to the Australian Securities
Exchange in accordance with section 205G of the Corporations Act 2001, at the date of this report is as follows:
Mr R D Millner
Mr T J Barlow
Mrs T L Fuller
Mr M J Hawker
Mr T C D Millner
Mr W M Negus
Mr R G Westphal
Rights to Deferred Shares
Mr T J Barlow
Ordinary Shares
19,575,093
20,523
1,800
35,300
18,872,977
47,000
23,739
Rights to
Deferred Shares
244,903
Refer to the following Remuneration Report for further information.
Interests in Contracts
Co-investment agreement with URB Investments Limited (URB)
WHSP has entered into a co-investment agreement with URB (ASX: URB), Contact Asset Management Pty Limited
(Contact) (in its capacity as investment manager of URB) and Pitt Street Real Estate Partners Pty Limited (PSRE).
Mr W M Negus is a director of both WHSP and URB.
Mr R D Millner is a director of both WHSP and Contact.
Mr T C D Millner is a director of both WHSP and Contact and is a 40% shareholder of Contact.
WHSP is a 20% shareholder of Contact.
Investment Management Agreement with Contact
In November 2018 WHSP entered into an Investment Management Agreement with Contact. Under this contract
Contact is responsible for managing WHSP’s Large Caps investment portfolio and providing reports on the
performance of that portfolio to WHSP.
Fixed monthly fees totalling $247,500 were paid to Contact under the contact in respect of the year ended
31 July 2019. No performance fees are payable to Contact under the contract.
The Directors, excluding Mr T C D Millner, reviewed the terms of the contact and concluded that it was more
favourable to WHSP than an arm’s length agreement for similar services.
Mr R D Millner is a director of both WHSP and Contact.
Mr T C D Millner is a director of both WHSP and Contact and is a 40% shareholder of Contact.
WHSP is a 20% shareholder of Contact.
For further information regarding the above contracts refer to note 36 of the consolidated financial statements.
34
35
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019
Directors’ Report – Remuneration Report
Remuneration Report
Letter from the Chair of the Remuneration Committee
In making remuneration decisions the Board of WHSP considers a wide range of measures such as ethical behav-
iours, operating within the law and meeting community expectations on environmental, social and governance
standards. Whilst our remuneration is set using financial measures, the Board of WHSP is able to exercise its right
to make changes to remuneration should outcomes fall short of expectations in these areas. In confirming the
remuneration for this year, the Board is also explicitly confirming that management has met those standards.
Dear Shareholders,
Yours sincerely,
On behalf of the Board I am pleased to present to you WHSP’s Remuneration Report for the financial year ended
31 July 2019. The Company’s remuneration policy is designed with a number of things in mind:
1. Align management incentives with the outcomes desired by our shareholders
2. Attract and retain our key executives over the long-term
3. Establish goals that can be easily and independently measured
4. Reinforce a standard of ethical behaviour, compliance with laws and risk culture that are in line with
community expectations
The financial results for WHSP in 2019 continued the positive trend that has characterised this Company over
many years. Ordinary dividends were increased for the 19th consecutive year on the back of strong generation
of profits and cashflow. Our post-tax Net Asset Value (NAV), after adding back dividends paid to Shareholders,
increased by 4.6% and our total shareholder return (TSR) over the three years ending 31 July was an impressive
12.4% per annum.
In addition to the financial results there were a number of other milestones achieved worthy of mention. WHSP
was admitted into the ASX100. The number of shareholders in WHSP increased to over 20,500 (vs less than 19,000
last year). Finally, after more than a century in the same building, the Company moved its head office which, apart
from historical significance, also provided an opportunity to undertake a broad upgrade of systems.
Last year, the feedback from shareholders and their representatives about the remuneration structure and policies
at WHSP was largely positive. As a result, we did not see a need for change. It continues to challenge management
and incentivise outcomes that are strongly aligned with our shareholders.
STI objectives focus management on cash flow growth and the growth of our NAV relative to the market (ASX200
Accumulation Index). Cash flow growth is used to fund an increasing dividend. WHSP has consistently grown its
dividends over many years and we reinforce the importance of this in our STI. Equally, we would like to see the
growth in the value of WHSP keeping pace with the market. We especially reward management when our NAV
grows ahead of the market.
In 2019, the Company delivered a strong result against cash flow but did not achieve a growth in NAV (after tax)
that kept pace with the ASX200 Accumulation Index. Consequently, the STI awards for 2019 were less than 2018.
At the 2017 Annual General Meeting Shareholders endorsed a change to our LTI plan which became operational
in the 2018 financial year. LTI now rewards achievement in two areas: TSR and long term absolute growth in our
NAV. Over the long-term our Shareholders want their TSR to be no worse than the performance of the market. The
LTI requires this to be achieved over the measurement period (3 years). We have also set management a hurdle of
growing the overall value of the Company at a rate that is consistent with the risk taken. The LTI rewards growth
over the measurement period of 3% or more. The first vesting, if these hurdles are met, will be shortly after the end
of the 2020 financial year. If vesting occurs then the shareholder outcomes will have been positive.
The Company has used the All Ordinaries Accumulation Index as the relevant hurdle for assessing LTI performance.
We have selected this benchmark because it is a proxy for the whole of the market and given WHSP’s diverse invest-
ment across a range of industries, our aim is to beat the whole of the market. Additionally, we have not identified a
narrower set of companies that would provide an adequate comparison for assessing WHSP’s TSR performance.
The LTI plan does allow for re-testing. However, this is only permissible if none of the Performance Rights vest
in the initial three year testing period. In this instance, the testing period is extended for another year and the
necessary hurdles are also extended for that extra year. The rationale for this approach is to avoid short-term
market factors eliminating vesting of Performance Rights issued under the LTI plan.
The Board of WHSP will continue to periodically review the Company’s remuneration structure. We constantly
seek input from our Shareholders, from our advisors and from management themselves. We are conscious of the
findings of the Financial Services Royal Commission in relation to both remuneration and how non-financial risks
and outcomes affect compensation.
36
W M Negus
Non-Executive Director
Chair of the Remuneration Committee
Scope of Report
WHSP is an investment company with a diversified portfolio of assets across a range of industries. WHSP manages
all of these assets as investments irrespective of its level of ownership. It does not manage the operations of its
investee companies and there are no operational reporting lines from the management of investee companies to
WHSP management.
WHSP has reassessed the KMP of the WHSP Group for FY19 and concluded that the KMP of WHSP’s investee
companies are not KMP of the WHSP Group as the KMP of WHSP’s investee companies do not have authority or
responsibility for the planning, directing or controlling the investing activities of WHSP. As a result, the KMP of New
Hope, who were previously included in this Remuneration Report, have been excluded for FY19. The comparative
financial information for FY18 has been retained.
WHSP does not determine the remuneration of New Hope’s KMP. New Hope is publicly listed, it has its own
Remuneration Committee and produces its own Remuneration Report in accordance with the Corporations Act
2001. That report is voted upon by New Hope’s shareholders and can be found within New Hope’s Annual Report.
Abbreviations used in this report
Australian Securities Exchange
New Hope
New Hope Corporation Limited
Compound annual growth rate
NHRC
New Hope Remuneration
Committee
ASX
CAGR
EPS
KMP
KPI
LTI
Earnings per share
Key management personnel
Key performance indicator
Long-term incentive
NAPSG
Net assets per share growth
Structure of Report
This report is structured as follows:
1. KMP included in this report
2. Remuneration policy and framework
3. Elements of remuneration
4. Performance indicators
5.
Remuneration expenses for KMP
(statutory remuneration)
STI
TSR
Short-term incentive
Total shareholder return
VWAP
Volume weighted average price
WHSPRP
Washington H. Soul Pattinson and
Company Limited Rights Plan
6.
Remuneration received by KMP of WHSP
(non-statutory information)
7. Contractual arrangements for executive KMP
8. Share-based compensation
9. Other statutory information
37
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019
Directors’ Report – Remuneration Report
1. KMP included in this report
Non-executive Directors
Mr Robert D Millner
Chairman
Mrs Tiffany L Fuller
Appointed 1 December 2017
Mr Michael J Hawker
Lead Independent Director
Mr Warwick M Negus
Mr Thomas C D Millner
Mr Robert G Westphal
The Remuneration Committee is responsible for assessing performance against KPIs and determining the extent
to which the STI and LTI is to be paid. The STI and LTI have been designed to be payable when value has been
created for shareholders. To assist in this assessment, the Committee receives detailed reports on performance
from management which are based on independently verifiable data.
In the event of serious misconduct or a material misstatement in the Company’s financial statements, the Board
may cancel LTI based remuneration and recover LTI remuneration paid in previous financial years.
Target remuneration mix (based on entitlement to 100% of the target STIs and LTIs which are at risk and subject to
performance hurdles) for the year ended 31 July 2019 was:
Mr David E Wills
Retired 31 October 2017
Target Remuneration Mix
Executive Directors
Mr Todd J Barlow
Managing Director and Chief Executive Officer
Ms Melinda R Roderick
Finance Director and Chief Financial Officer (ceased 12 April 2018)
Other key management personnel of the Parent Company and Consolidated Entity
Mr Ian D Bloodworth
Company Secretary
Mr David R Grbin
Chief Financial Officer (appointed 16 April 2018)
Employees of New Hope included in KMP up to 31 July 2018
Mr Shane O Stephan
Managing Director, New Hope
Mr Andrew L Boyd
Chief Operating Officer, New Hope
Mr Matthew J Busch
Chief Financial Officer, New Hope
The New Hope KMP are not included in this Remuneration Report for FY19, refer to ‘Scope of Report’ above. The
comparative financial information for FY18 has been retained. Details of remuneration paid by New Hope can be
found in New Hope’s Remuneration Report within its Annual Report.
2. Remuneration policy and framework
Remuneration Governance
The Remuneration Committee of the Board of WHSP consists of Non-executive Directors. The Committee’s role
is to make recommendations to the full Board on remuneration matters and other terms of employment for the
Executive Director, senior executives and Non-executive Directors.
The Remuneration Committee ensures that remuneration levels for Directors and senior executives are competi-
tively set to attract and retain qualified and experienced personnel.
The Remuneration Committee is authorised by the Board to obtain independent professional advice on the appropri-
ateness of remuneration packages if deemed necessary. No remuneration advice was received during the year.
Non-executive Directors
Board policy is to remunerate Non-executive Directors at comparable market rates. Remuneration levels are
reviewed annually by the Remuneration Committee and are not subject to performance based incentives.
Executive Directors and Senior Executives
Remuneration levels are reviewed annually by the Remuneration Committee to reflect individual performance,
the overall performance of WHSP and prevailing employment market conditions.
The Executive KMP are remunerated by way of fixed remuneration, STIs and LTIs. Annual STIs are set in order to
drive performance without encouraging undue risk taking. LTIs are assessed over a three and/or four year period
and are designed to promote long-term stability in shareholder returns.
The Remuneration Committee attempts to benchmark remuneration against the 50th percentile for ASX listed
companies with a market capitalisation between $3.5 billion and $7.5 billion. To the extent that an executive’s
remuneration is materially below the benchmark data, the Remuneration Committee will consider increases
based on increasing levels of performance, responsibilities and experience.
Managing Director
45%
22%
33%
Chief Financial Officer
56%
22%
22%
Company Secretary
72%
14%
14%
0%
20%
40%
60%
80%
100%
Fixed Remuneration
STI
LTI
3. Elements of remuneration
Non-executive Directors
Non-executive Directors receive fixed remuneration based on their position on the Board and the Committees on
which they sit or chair, at comparable market rates. Remuneration levels are reviewed annually by the Remuneration
Committee and are not subject to performance based incentives.
The Remuneration Committee reviews market data annually to assist in setting Non-executive Director remuner-
ation. Based on this data the remuneration received by Non-executive Directors for the year ended 31 July 2019
was in line with the 50th percentile for ASX listed Companies with a market capitalisation between $3.5 billion and
$7.5 billion.
The aggregate amount of fees which may be paid to Non-executive Directors by the Parent Company is subject to
the approval of Shareholders in a general meeting and is currently set at $2,000,000 per annum. Approval for this
aggregate amount was given at the 2016 Annual General Meeting.
During the year ended 31 July 2019 remuneration of the Non-executive Directors by the Parent Company and
unlisted controlled entities amounted to $1,381,553.
With effect from 31 July 2004 the retiring allowance for Non-executive Directors was frozen at three times the
average annual fees for the three years prior to that date. Non-executive Directors appointed after 31 July 2004 do
not qualify for a retiring allowance. Mr Robert Millner is the only Director entitled to a retiring allowance.
Executive Directors and Senior Executives
Fixed Remuneration
Fixed remuneration for senior executives is set annually (or on promotion if applicable) by the Remuneration
Committee. It is benchmarked against market data for comparable roles in companies with similar characteristics
and market capitalisation. Fixed remuneration comprises a cash salary, superannuation and other non-cash
benefits where taken.
38
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Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Directors’ Report – Remuneration Report
STIs
Structure of STIs for the KMP
Feature
STI pool
Description
Based on target
performance
50% of Managing Director’s fixed remuneration
40% of Chief Financial Officer’s fixed remuneration
20% of Company Secretary’s fixed remuneration
10% of the fixed remuneration of other participants in the plan
The size of the pool is determined by the performance metrics below, in the event that the targets are
exceeded (performance metrics exceed 100%) the pool will be increased as set out below.
Determin-
ation of STI
pool
The pool determination metrics align with WHSP’s strategic goals to maximise shareholders’ returns.
Objective
Weighting
Threshold (80%)
Target (100%)
Outperformance
50%
Regular cash to the
parent company
net of regular
expenses
> 0% and
< 4% higher
than previous
year
4% to < 5%
higher than
previous year
5% to < 6% = 110%
6% to < 7% = 120%
7% to < 8% = 130%
8% to < 9% = 140%
9% and higher = 150%
As dividends are paid out of parent company cash, increasing net cash inflows enable the payment of
increasing dividends.
Adjusted net asset
value (post tax) per
share
(adjusted by adding
back dividends
paid by the parent
company)
50%
> 0% and
< 2% higher
than ASX200
Accumulation
Index
2% to < 3%
higher than
ASX200
Accumulation
Index
3% to <4% = 110%
4% to < 5% = 120%
5% to < 6% = 130%
6% to < 7% = 140%
7% and higher = 150%
Increases in net asset value per share drive increases in the WHSP share price.
Entitlement
to the STI
pool
Once the STI Pool is established by the financial measures described above, the Remuneration
Committee determines each participating Executive’s entitlement to an STI based on individual
performance.
Individual Executive STIs are determined having regard to achievements throughout the year against a
number of Key Performance Indicators (KPIs). The KPIs encompass a range of financial and non-financial
objectives relevant to each Executive’s role.
The total of all STIs determined by the Remuneration Committee cannot exceed the STI pool.
100% of the STI awarded is paid in cash following release of the year end results.
The Board retains discretion to increase or decrease, including to nil, the STI pool, if it forms the view
that not doing so would present a risk of a “strike” against the Company’s Remuneration Report issued
pursuant to Section 300A of the Corporations Act. In exercising this discretion the Board shall take into
account, amongst other factors it considers relevant, Company performance from the perspective of
Shareholders over the relevant year.
Delivery
of STI
Board
Discretion
The STI plan is designed to motivate and reward senior executives to generate increasing net cash flow (to
facilitate increasing dividends) and to grow the value of the investment portfolio (measured by net asset value) for
the benefit of shareholders.
LTIs
WHSPRP (current plan) – in place for the years ended 31 July 2018 and 31 July 2019
Executive KMP participate, at the Board’s discretion, in the LTI plan comprising annual grants of performance
rights as follows.
Structure of LTIs for the KMP
Feature
Description
Opportunity/
Allocation
75% of Managing Director’s fixed remuneration
40% of Chief Financial Officer’s fixed remuneration
20% of Company Secretary’s fixed remuneration
Number of
Performance
Rights
Number of Rights = Stretch LTI Value ÷ Right Value
Where:
Stretch LTI Value = Fixed Remuneration x Target LTI % ÷ Target Vesting %
Target vesting
= 50%
Right Value
Share Price
= Share Price – (Annual Dividend x Measurement Period in Years)
=
The volume weighted average share price over the 14 days prior to the fifteenth
day following the announcement of the previous financial year results of the
Company.
As 100% of Rights to be granted will only vest when stretch performance goals are achieved, it is
expected that a lesser percentage will actually vest unless exceptional performance is achieved.
TSR rights
50% of rights issued are subject a TSR performance condition – tranche 1
NAPSG rights
50% of rights issued are subject a NAPSG performance condition – tranche 2
TSR
performance
hurdle
The TSR incentive is designed to focus executives on delivering sustainable long-term Shareholder returns.
The vesting of TSR Performance Rights will be determined by comparing the Company’s TSR over
the Measurement Period with the movement in the All Ordinaries Accumulation Index over the
Measurement Period.
If the Company’s TSR is negative then nil vesting will apply to this Tranche.
Otherwise the following vesting scale will be applied, subject to an overriding discretion held by the Board:
Company’s TSR Compared to the
All Ordinaries Accumulation Index
Vesting %
of Tranche
Performance Level
Below Threshold
Target & Threshold
<100% of Index
100% of Index
Between Target and Stretch
>100% & < 100% of Index Plus 3% CAGR
Stretch
≥100% of Index Plus 3% CAGR
TSR is the sum of Share price appreciation and dividends (assumed to be reinvested in Shares) during
the Measurement Period expressed as a growth percentage.
0%
50%
Pro-rata
100%
40
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Washington H. Soul Pattinson and Company LimitedAnnual Report 2019
Directors’ Report – Remuneration Report
NAPSG
performance
hurdle
This incentive is designed to focus executives on growing the value of the Company’s assets which
increases Shareholder wealth.
The vesting of Tranche 2 NAPSG Performance Rights will be determined by reference to the following
scale:
Performance Level
Below Threshold
Threshold
Between Threshold and Target
Target
Between Target and Stretch
Stretch
CAGR in Net Assets Per Share during
the Measurement Period
Vesting %
of Tranche
<3%
3%
>3% & <5%
5%
>5% & <10%
≥10%
0%
25%
Pro-rata
50%
Pro-rata
100%
CAGR is compound annual growth rate.
Net Assets Per Share at the end of the Measurement Period will be calculated by adding all dividends paid
during the Measurement Period to the closing Net Assets of the Company at the end of the Measurement
Period and then dividing by the number of issued shares at the end of the Measurement Period.
Payable by
participants
Nil
No amounts are payable by the participants upon the granting or the exercising of the
Rights.
Vesting of
Performance
Rights
Measurement
Periods
Cessation of
Employment
Terms and
Conditions
Lapse and
Forfeiture of
Performance
Rights
Board
Discretion
and
Clawback
Upon the satisfaction of the Vesting Conditions, the value of Rights that vest will be evaluated and will
be paid in Shares, cash or a combination of cash and Shares based on the then Share price.
The Measurement Period will be the three financial years from 1 August 2018 to 31 July 2021. Retesting
will only apply if nil vesting occurs for the tranche at the end of the initial Measurement Period. The
Extended Measurement Period, if applicable, will only occur once, from 1 August 2018 to 31 July 2022.
On termination of employment a portion of Performance Rights granted in the financial year in which
the termination occurs will be forfeited. The proportion is that which the remainder of the financial year
following the termination represents of the full financial year. This provision recognises that grants of
Performance Rights are part of the remuneration for the year of grant and that if part of the year is not
served then some of the Performance Rights will not have been earned.
The Board of the Company has the discretion to set the terms and conditions on which it will grant Rights
under the WHSPRP, including the Vesting Conditions and modification of the terms and conditions as
appropriate to ensuring the plan operates as intended. All Performance Rights granted are subject to
Vesting Conditions which are intended to be challenging and linked to growth in shareholder value.
The terms and conditions of the WHSPRP include those aspects legally required as well as a method for
calculating the appropriate number to vest in the circumstances of a change of control, a major return of
capital to shareholders and the treatment of Rights in the circumstances of various forms of termination.
Performance Rights will lapse if the prescribed Vesting Conditions are not satisfied within the
prescribed Measurement Period, subject to retesting.
The Board retains discretion to increase or decrease, including to nil, the vesting percentage
in relation to each Tranche of Performance Rights, if it forms the view that not doing so
would present a risk of a “strike” against the Company’s Remuneration Report issued pursuant
to Section 300A of the Corporations Act. In exercising this discretion the Board shall take
into account, amongst other factors it considers relevant, Company performance from the
perspective of Shareholders over the relevant Measurement Period.
The Board also has discretion to clawback any incentive remuneration (including unvested or
vested Rights and Restricted Shares) in the event of any error in accounting resulting in a miscal-
culation of incentives or acts of serious negligence or bad faith on the part of an LTI participant.
The LTI plan was designed to reward senior executives for above market performance as reflected by the hurdles
set above.
Former Plan – in place for the years ended 31 July 2016 and 31 July 2017.
Some of the rights issued under this plan are still held by participants and may vest in the future.
Executive KMP participated, at the Board’s discretion, in the LTI plan comprising annual grants of performance
rights as follows.
Structure of LTIs for the KMP of the Parent Company
Feature
Description
Opportunity/
Allocation
50% of Managing Director’s fixed remuneration
40% of Chief Financial Officer’s fixed remuneration
20% of Company Secretary’s fixed remuneration
The above amounts are divided by the VWAP of WHSP shares for the 30 trading days prior to 1 August
each year to determine to number of rights issued.
TSR rights
50% of rights issued are subject a TSR performance condition
EPS rights
50% of rights issued are subject an EPS performance condition
TSR
performance
hurdle
TSR is initially assessed over a 3 year period and compared to the ASX All Ordinaries Accumulation
Index (Index). Vesting will occur based on the company’s positioning relative to the Index. If less than
100% of the rights vest, performance is reassessed over a 4 year period.
This incentive is designed to focus executives on delivering sustainable long-term shareholder returns.
TSR performance per annum
Rights to vest
TSR% < Index
TSR% = Index
Nil
50%
Index < TSR% < (Index + 3% per annum)
Progressive pro-rata from 50% to 100%
TSR% = (Index + 3% per annum) or higher
100%
EPS
performance
hurdle
EPS movement is initially assessed over a 3 year period and compared to the target set out below.
Vesting will occur based on the company’s achievement of that target. If less than 100% of the rights
vest, performance is reassessed over a 4 year period.
This incentive was designed to align the interests of executives with shareholders.
Regular EPS
Regular EPS is the regular profit after tax of the consolidated WHSP Group,
divided by the weighted average number of WHSP shares on issue across the
measurement period.
Regular profit after tax is a non-statutory profit measure and represents profit
from continuing operations before non-regular items. A reconciliation to statutory
profit is included in the Consolidated Financial Statements – Note 3, Segment
information.
Regular EPS CAGR over measurement period
Rights to vest
Regular EPS CAGR < 5%
Regular EPS CAGR = 5%
Nil
50%
5% < Regular EPS CAGR < 10%
Progressive pro-rata from 50% to 100%
Regular EPS CAGR = 10% or higher
100%
Payable by
participants
Nil
No amounts are payable by the participants upon the granting or the exercising
of the rights.
42
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Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Directors’ Report – Remuneration Report
Delivery of
LTI
Service
Condition
Board
Discretion
Rights vest over the 3 years following the 3 year performance period unless retesting applies.
The participant is to have been in the continuous employment of WHSP from the beginning of the
financial year in which the rights are granted to the relevant vesting date.
In the event of serious misconduct or a material misstatement in the financial statements, the Board
may cancel LTI based remuneration and recover LTI remuneration paid in previous financial years.
The Board may waive vesting conditions in the event of a participant leaving employment.
Expiry
The performance rights issued during the 2017 year expire on 30 November 2021.
The LTI plan was designed to reward senior executives for above market performance as reflected by the hurdles
set above.
Total Remuneration Package
The total value of each remuneration package is approved by the Remuneration Committee and reflects the
executives’ role, responsibilities and market data. Based on this data the remuneration packages of Executive KMP
for the year ended 31 July 2019 were below or in line with the 50th percentile for ASX listed Companies with a
market capitalisation between $3.5 billion and $7.5 billion.
4. Performance indicators
Performance against key measures:
Metric
Target
Performance
Impact on incentive
award
STI
Regular cash to the parent
company net of regular
expenses
Adjusted net asset value
(post tax) per share
2% higher than ASX200
Accumulation Index
4% higher than previous
year
Higher than last year by
more than 9%
150% of target STI pool
awarded
Out performance
Below the ASX200
Accumulation Index
Below threshold
No amount added to the
STI pool
Entitlement to the STI pool
The Remuneration Committee determines each participating Executive’s entitlement to an
STI based on individual performance.
Individual Executive STIs are determined having regard to achievements throughout the
year against a number of Key Performance Indicators (KPIs). The KPIs encompass a range of
financial and non-financial objectives relevant to each Executive’s role.
The total of all STIs determined by the Remuneration Committee cannot exceed the STI pool.
LTI
First vesting of December 2015 rights in September 2018. 50% of rights were eligible to vest.
TSR performance hurdle
3% higher than ASX All
Ordinaries Accumulation
Index
Higher than ASX All
Ordinaries Accumulation
Index
Vesting of 50% of
TSR rights.
EPS performance hurdle
Regular EPS CAGR higher
than 5%
Out performance
Higher than 10%
Out performance
Vesting of 50% of
EPS rights.
In its review of remuneration policies of KMP, the Remuneration Committee has regard to the performance of
WHSP for the current and previous four financial years, taking into account the following measures:
Consolidated Entity
Regular profit after tax
Parent Company
Net regular cash from operations
Share price at year end
Ordinary dividends paid/declared
2015
$’000
2016
$’000
2017
$’000
2018
$’000
2019
$’000
162,405
177,222
282,019
331,143
307,262
136,204
$13.70
50 cents
137,435
$17.43
52 cents
143,511
$17.64
54 cents
143,596
$21.82
56 cents
169,583
$22.71
58 cents
5. Remuneration expenses for KMP (statutory remuneration)
(i) Remuneration of the KMP of the Consolidated Entity:
Table is shown on the pages 46 – 47.
(ii) Relative proportions of remuneration that are fixed and that are linked to performance
Fixed Remuneration
At Risk – STI
At Risk – LTI
2019
2018
2019
2018
2019
2018
37%
–
52%
67%
–
–
–
40%
57%
55%
67%
72%
79%
78%
14%
–
16%
9%
–
–
–
24%
0%
24%
15%
17%
15%
12%
49%
–
32%
24%
–
–
–
36%
43%
21%
18%
11%
6%
10%
Parent Company
T J Barlow
M R Roderick
D R Grbin
I D Bloodworth
New Hope
Corporation Limited
S O Stephan
A L Boyd
M J Busch
As the LTIs are provided exclusively by way of rights, the percentages disclosed reflect the value of remuneration
consisting of rights, based on the value of rights expensed during the year.
(iii) STIs granted and forfeited for the year ended 31 July 2019
2019
Parent Company
T J Barlow
D R Grbin
I D Bloodworth
Target STI
$
Awarded
%
Forfeited
%
600,000
191,667
72,000
75%
78%
69%
25%
22%
31%
44
45
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019
WHSP and unlisted controlled entity1
Listed controlled entity2
New Hope Corporation Limited
Short-term Benefits
Post-
Employment
Benefits
Long-term
Benefits
Share-based
Payments
Short-term Benefits
Post-
Employment
Benefits
Long-term
Benefits
Share-based
Payments
Consolidated
Entity
STI
$
Non-
monetary3
Super-
annuation
Long Service
Leave
Termination
Benefits
$
$
$
$
LTI Rights4
$
Total
$
STI
$
Super-
annuation
Long Service
Leave
LTI Rights4
$
$
$
Total
$
Total
$
Directors’ Report – Remuneration Report
5.
(i)
Remuneration
expenses for KMP
(statutory remuneration)
Remuneration of the KMP
of the Consolidated Entity:
Non-executive Directors – 2019
R D Millner
T L Fuller
M J Hawker
T C D Millner
W M Negus
R G Westphal
Executive Directors – 2019
T J Barlow
Other KMP – 2019
D R Grbin
I D Bloodworth
Non-executive Directors – 2018
R D Millner
T L Fuller – appointed 1 Dec 2017
M J Hawker
T C D Millner
W M Negus
R G Westphal
D E Wills – retired 31 Oct 2017
Executive Directors – 2018
T J Barlow
M R Roderick – ceased 12 April 2018
Other KMP – 2018
D R Grbin – commenced 16 Apr 2018
I D Bloodworth
S O Stephan – New Hope
A L Boyd – New Hope
M J Busch – New Hope
Salary
& Fees
$
352,920
175,654
184,787
159,672
185,700
187,069
–
–
–
–
–
–
25,606
–
–
–
–
–
25,321
16,687
17,555
15,169
17,641
17,772
–
–
–
–
–
–
1,229,429
448,076
4,637
25,321
19,580
458,595
329,872
150,292
49,468
2,254
14,962
20,571
24,960
–
10,258
344,628
115,197
181,103
151,266
182,016
183,386
42,889
–
–
–
–
–
–
–
25,406
–
–
5,023
–
–
–
24,842
10,944
17,205
14,520
17,292
17,422
4,074
–
–
–
–
–
–
–
1,229,947
468,085
697,522
–
(53,902)
–
24,842
18,720
19,678
–
–
355,243
125,637
322,247
–
–
–
59,098
76,792
–
–
–
3,195
(5,226)
–
–
–
5,901
24,960
–
–
–
–
5,106
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
3,263,698
647,836
47,459
180,997
29,838
Salary, Fees
& non-
monetary3
$
304,704
–
–
140,392
–
–
–
–
–
–
–
–
403,847
192,341
202,342
174,841
203,341
204,841
1,381,553
1,611,878
3,338,921
140,392
295,996
138,204
927,708
567,724
–
–
2,046,078
6,215,906
585,488
297,272
–
–
136,968
–
–
–
136,968
–
–
–
–
–
–
–
–
1,033,180
363,413
50,721
94,788
–
–
–
394,876
126,141
198,308
170,809
199,308
200,808
46,963
1,337,213
2,951,267
1,205,461
244,552
518,667
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20,590
–
–
13,337
–
–
13,337
–
–
47,264
20,106
–
–
13,012
–
–
13,012
–
–
–
20,169
20,468
20,325
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
325,294
–
–
153,729
–
–
729,141
192,341
202,342
328,570
203,341
204,841
1,860,576
153,729
3,492,650
–
–
927,708
567,724
632,752
6,848,658
317,378
–
–
149,980
–
–
–
149,980
–
712,254
126,141
198,308
320,789
199,308
200,808
46,963
1,804,571
3,101,247
1,205,461
244,552
518,667
1,903,719
959,750
829,082
–
–
1,319,244
713,393
605,395
–
–
320,000
140,000
100,900
–
–
32,632
20,504
23,084
–
–
211,674
65,385
79,378
–
–
1,903,719
959,750
829,082
Total
3,346,401
833,412
(25,504)
180,722
24,784
355,243
1,542,102
6,257,160
3,209,240
560,900
107,092
76,220
356,437
4,309,889
10,567,049
1. Unlisted controlled entity, Pitt Capital Partners Limited is a wholly owned subsidiary of WHSP.
2. Listed controlled entity, WHSP’s holding in New Hope Corporation Limited as at 31 July 2018 and 31 July 2019 was 50.0%.
3. Non-monetary remuneration includes fringe benefits provided and movements in annual leave provisions.
When annual leave provided for in prior years is utilised, a negative non-monetary amount will result.
4. The LTI remuneration is determined by expensing the fair value of the rights as set out in item 8 Share-based Compensation
on page 50 of this report.
46
47
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019
Directors’ Report – Remuneration Report
6. Remuneration received by KMP of WHSP (non-statutory information)
The tables below provide summaries of the remuneration received by KMP of WHSP during the 2019 and
2018 financial years. This information differs from the statutory tables in item 5 above which present
remuneration in accordance with accounting standards.
Total Fixed Remuneration
Salary, directors’ fees, superannuation and non-monetary benefits paid or provided to KMP during the year.
STI Paid
LTI Vested
STI paid during the year. These payments were in respect of performance in the previous year.
The value of shares received upon vesting of performance rights during the year.
Non-executive Directors – 2019
R D Millner
T L Fuller
M J Hawker
T C D Millner
W M Negus
R G Westphal
Executive Directors – 2019
T J Barlow
Other KMP – 2019
D R Grbin
I D Bloodworth
Total
Non-executive Directors – 2018
R D Millner
T L Fuller – appointed 1 Dec 2017
M J Hawker
T C D Millner
W M Negus
R G Westphal
D E Wills – retired 31 Oct 2017
Executive Directors – 2018
T J Barlow
M R Roderick – ceased 12 April 2018
Other KMP – 2018
D R Grbin – commenced 16 Apr 2018
I D Bloodworth
Total
WHSP and
unlisted controlled entity1
Total Fixed
Remuneration
$
STI Paid
$
403,847
192,341
202,342
174,841
203,341
204,841
–
–
–
–
–
–
1,254,750
697,522
479,166
365,515
59,098
76,792
3,480,984
833,412
394,876
126,141
198,308
170,809
199,308
200,808
46,963
1,254,750
486,805
131,538
360,000
–
–
–
–
–
–
–
343,570
138,195
–
40,078
3,570,306
521,843
LTI Vested
$
–
–
–
–
–
–
465,512
–
74,492
540,004
–
–
–
–
–
–
–
–
–
–
–
–
WHSP and
unlisted controlled entity1
Listed controlled entity2
New Hope Corporation Limited
Consolidated
Entity
Termination
Payments
Total
Remuneration
Total Fixed
Remuneration
Other
Remuneration
Total
Remuneration
Total
Remuneration
$
$
$
$
$
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
355,243
403,847
192,341
202,342
174,841
203,341
204,841
325,294
–
–
153,729
–
–
2,417,784
153,729
538,264
516,799
–
–
4,854,400
632,752
394,876
126,141
198,308
170,809
199,308
200,808
46,963
1,598,320
980,243
317,378
–
–
149,980
–
–
–
149,980
–
–
–
–
–
131,538
400,078
355,243
4,447,392
617,338
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
325,294
–
–
153,729
–
–
729,141
192,341
202,342
328,570
203,341
204,841
153,729
2,571,513
–
–
538,264
516,799
632,752
5,487,152
317,378
–
–
149,980
–
–
–
149,980
–
–
–
712,254
126,141
198,308
320,789
199,308
200,808
46,963
1,748,300
980,243
131,538
400,078
617,338
5,064,730
1. Unlisted controlled entity, Pitt Capital Partners Limited is a wholly owned subsidiary of WHSP.
2. Listed controlled entity, WHSP’s holding in New Hope Corporation Limited as at 31 July 2018 and 31 July 2019 was 50.0%.
48
49
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019
Directors' Report – Remuneration Report
7. Contractual arrangements for Executive KMP
Rights outstanding at balance date affecting the remuneration of KMP in the current or future periods:
T J Barlow
D R Grbin
I D Bloodworth
Term of agreement
and notice period1
No fixed term
6 months notice period
No fixed term
3 months notice period
No fixed term
3 months notice period
Base remuneration
including
Superannuation2
Termination
Payments3
$1,200,000
$500,000
$370,000
nil
nil
nil
1. This notice applies equally to either party. The employer may make a payment in lieu of notice.
2. Base remuneration including Superannuation as at 31 July 2019.
3. Base salary payable if the company terminates employees with notice, and without cause (e.g. for reasons other than unsatisfactory performance).
8. Share-based compensation
Rights to deferred shares are granted under the WHSP Long Term Incentive Plan. Rights are granted for nil
consideration. Rights are granted in accordance with the plan at the sole discretion of the WHSP Board. They vest
and automatically convert to ordinary shares in WHSP following the satisfaction of the relevant performance and
service conditions. Performance and service conditions applicable to each issue of Rights are determined by the
Board at the time of grant. Rights granted under the plan carry no dividend or voting rights.
The assessed fair values of the WHSPRP (current plan) Rights are expensed in the year in which the rights are
granted. The assessed fair values of Rights granted in December 2015 and December 2016 are expensed over
the period from the commencement of the measurement period to vesting date. The amounts expensed are
included in the remuneration of the relevant executive under the statutory approach. The fair value of the rights
issued during the year was independently determined by valuation specialists Lonergan Edwards & Associates
Limited based on the market price of WHSP’s shares at the grant date, with an adjustment made to take into
account the vesting period, expected dividends during that period that will not be received by the participants
and the probability that the market performance conditions will be met.
At each reporting date, the Company revises its estimate of the number of EPS rights that are expected to be
exercised. The total value of the rights on issue is adjusted accordingly and the employee benefits expense for the
period is based on this revised value.
WHSP
Grant Date
TSR Rights
December 2015
EPS Rights
December 2015
TSR Rights
December 2016
EPS Rights
December 2016
TSR Rights
December 2017
NAPSG Rights
December 2017
TSR Rights
December 2018
NAPSG Rights
December 2018
WHSP
T J Barlow
Vesting Date
If met over 3 years
If re-tested over 4 years
Grant Date Value
$
30% August 2019
20% August 2020
30% August 2019
20% August 2020
50% September 2019
30% August 2020
20% August 2021
50% September 2019
30% August 2020
20% August 2021
30% September 2019
20% August 2020
30% September 2019
20% August 2020
50% September 2020
30% September 2020
20% August 2021
50% September 2020
30% September 2020
20% August 2021
100% September 2020
100% September 2021
100% September 2020
100% September 2021
100% September 2021
100% September 2022
100% September 2021
100% September 2022
11.08
10.87
13.86
13.86
5.22
3.25
2.56
13.10
13.10
13.10
6.16
7.70
22.11
17.28
Rights to deferred shares granted, vested and forfeited during the year:
Balance
at start
of year
Granted
during
the year
Rights to deferred shares
Vested
Forfeited
Balance
at end of
year
Maximum
value in
future
periods1
Grant Date
Number
Number
Number
%
Number
%
Number
$
Dec 2015
Dec 2016
Dec 2017
Dec 2018
31,045
29,398
124,839
–
M R Roderick
Dec 2017
26,747
D R Grbin
I D Bloodworth
Apr 2018
Dec 2018
Dec 2015
Dec 2016
Dec 2017
Dec 2018
7,319
–
4,967
4,116
9,987
–
–
–
–
75,144
–
–
15,029
–
–
–
6,012
15,523
–
–
–
–
–
–
2,484
–
–
–
50%
–
–
–
–
–
–
50%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15,522
29,398
124,839
75,144
26,747
7,319
15,029
2,483
4,116
9,987
6,012
–
38,805
–
–
–
–
–
–
5,433
–
–
50
1. The maximum value of the deferred rights in future periods has been determined as the fair value of the rights that is yet to be expensed.
The minimum value of the rights yet to vest is nil, as the rights will be forfeited if the vesting conditions are not met.
51
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Directors' Report – Remuneration Report
9. Other statutory information
Shareholdings of KMP
The following tables show the number of:
1 shares in WHSP;
1 shares in New Hope; and
1 preference shares in Pitt Capital Partners Limited
that were held during the financial year by key management personnel, including their personally related parties.
Balance at
start of year
Purchased/
(sold)
Received on
the vesting
of LTI rights
Other changes
during the
Year
Balance at
end of year
Shares in WHSP
Directors of WHSP
R D Millner
T J Barlow
T L Fuller
M J Hawker
T C D Millner
W M Negus
R G Westphal
19,440,093
5,000
1,800
35,300
18,737,977
47,000
28,739
135,000
–
–
–
135,000
–
–
–
15,523
–
–
–
–
–
–
–
–
–
–
–
–
–
19,575,093
20,523
1,800
35,300
18,872,977
47,000
28,739
2,484
Other key management personnel
I D Bloodworth
–
–
2,484
Shares in New Hope Corporation Limited
Balance at
start of year
Purchased/
(sold)
Received on
the vesting
of LTI rights
Other changes
during the
Year
Balance at
end of year
Directors of WHSP
R D Millner
T J Barlow
T C D Millner
R G Westphal
3,937,774
19,900
3,774,368
40,000
220,000
–
200,000
–
–
–
–
–
–
–
–
–
4,157,774
19,900
3,974,368
40,000
Pitt Capital Partners Limited
Class RP01 Preference Shares
Balance at
start of year
Purchased/
(sold)
Received on
the vesting
of LTI rights
Other changes
during the
Year
Balance at
end of year
Directors of WHSP
T J Barlow
1
–
–
–
1
None of the shares above are held nominally by the Directors or any of the other KMP.
Loans to KMP
No loans have been made to the Directors or other KMP.
Other transactions with KMP
The KMP and their related entities received dividends during the year in respect of their shareholdings in Group
companies consistent with other shareholders.
Reliance on external remuneration consultants
No remuneration advice was received during the year.
Voting on the 2018 Remuneration Report
The Parent Company’s Remuneration Report for the 2018 financial year was adopted at its 2018 Annual General
Meeting on a show of hands with with fewer than 25% of votes cast against.
This is the end of the Remuneration Report
Shares Under Option
The Parent Company did not issue any options over its unissued shares during the financial year or in the period
to the date of this report. There are no such options on issue at the date of this report.
Indemnification of Officers and Auditors
Indemnification
The Parent Company’s constitution provides for an indemnity of Directors, Secretaries and Executive Officers (as
defined in the Corporations Act 2001) where liability is incurred in the performance of their duties in those roles,
other than conduct involving a wilful breach of duty in relation to the Company. The Constitution further provides
for an indemnity in respect of any costs and expenses incurred in defending proceedings in which judgement is
given in their favour, they are acquitted, or the Court grants them relief under the Corporations Act 2001.
Insurance
In accordance with the provisions of the Corporations Act 2001, the Parent Company has a Directors’ and Officers’
Liability policy covering Directors and Officers of the Parent Company and some of its controlled entities. The
insurance policy prohibits disclosure of the nature of the liability insured against and the amount of the premium.
Auditors
No indemnities have been given or insurance premiums paid during or since the end of the financial year in
respect of any person who is or has been an auditor of the Parent Company or its controlled entities.
Proceedings on Behalf of the Company
No person has applied to the Court for leave to bring proceedings on behalf of the Parent Company or to
intervene in any proceedings to which the Parent Company is a party, for the purpose of taking responsibility on
behalf of the Parent Company for all or part of those proceedings. The Parent Company was not a party to any
such proceedings during the year.
52
53
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Directors' Report
Non Audit Services
During the year, Pitcher Partners Sydney, the Parent Company’s auditor, performed certain other services in
addition to their statutory audit duties. An entity associated with Pitcher Partners Sydney was paid $162,305 for
providing tax compliance and other services in respect of the Group. Details of the amounts paid to the auditors
are disclosed in note 39 of the financial statements.
The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the
provision of those non-audit services by the auditor is compatible with, and did not compromise, the auditor
independence requirements of the Corporations Act 2001 for the following reasons:
1 All non-audit services were subject to the corporate governance procedures adopted by the Parent Company
and have been reviewed by the Audit Committee to ensure they do not impact the integrity and objectivity
of the auditor; and
1 The non-audit services provided do not undermine the general principles relating to auditor independence
as set out in Professional Statement APES 110: Code of Ethics for Professional Accountants, as they did not
involve: reviewing or auditing the auditor’s own work; acting in a management or decision making capacity
for the Parent Company; acting as an advocate for the Parent Company; or jointly sharing risks and rewards
Auditor’s Independence Declaration
The lead auditor’s independence declaration for the year ended 31 July 2019 has been received and is included
on page 55.
Rounding of Amounts
The company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191, and in accordance with that legislative instrument, amounts in the Directors’ Report and Financial
Report have been rounded to the nearest thousand dollars, unless otherwise stated.
Signed in accordance with a resolution of the Board of Directors:
R D Millner
Director – Chairman
T J Barlow
Managing Director
Dated this 22nd day of October 2019.
Auditor’s Independence
Declaration
Level 16, Tower 2 Darling Park
201 Sussex Street
Sydney NSW 2000
Postal Address
GPO Box 1615
Sydney NSW 2001
p. +61 2 9221 2099
e. sydneypartners@pitcher.com.au
Auditor’s Independence Declaration
to the Directors of Washington H. Soul Pattinson and Company Limited
ABN 49 000 002 728
In relation to the independent audit for the year ended 31 July 2019, to the best of my
knowledge and belief there have been:
(i) no contraventions of the auditor independence requirements of the Corporations Act
2001; and
(ii) no contraventions of any applicable code of professional conduct.
This declaration is in respect of Washington H. Soul Pattinson and Company Limited and the
entities it controlled during the year.
M A Alexander
Partner
Pitcher Partners
Sydney
21 October 2019
54
Adelaide Brisbane Melbourne Newcastle Perth Sydney
Pitcher Partners is an association of independent firms.
An independent New South Wales Partnership. ABN 17 795 780 962. 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.
pitcher.com.au
55
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Financial Report
Financial Report
for the year ended 31 July 2019
About this report
The financial report is for the Consolidated Entity consisting of Washington H. Soul Pattinson and Company
Limited and its subsidiaries for the year ending 31 July 2019. Throughout the report, the Consolidated Entity
is also referred to as the ‘Group’.
The notes to the financial statements are ordered so as to focus on the drivers of the Group’s performance.
Please refer to the contents page for how the notes are structured and ordered. In addition to the relevant
financial information, the notes include a description of the accounting policies applied, and where
applicable key judgements and estimates used by management in applying these policies.
Consolidated Entity perspective
This consolidated financial report combines the operating results, financial positions and cash flows of Washington H. Soul Pattinson and
Company Limited (the Parent Entity) and each entity that it controls (subsidiaries), into a single set of financial statements.
A controlling stake in a subsidiary often occurs where the Parent Entity owns less than 100% of the subsidiary. The term ‘non-controlling
interest’ is used to describe that portion not owned by the Parent Entity. The non-controlling interest’s share of the consolidated profit and
net assets is disclosed separately in the statement of comprehensive income, the consolidated statement of financial position and the
consolidated statement of changes in equity.
Investments in which the Parent Entity or a subsidiary has significant influence but does not have control are termed ‘associate entities’.
Unlike subsidiaries, the individual financial reports of associates are not consolidated. Associates are equity accounted with the Group’s
share of an associate’s result recorded in profit. The investment in associates is disclosed as a line item (equity accounted associates) in the
consolidated statement of financial position and is adjusted for the Group’s share of the associate’s result and decreased by any dividends
received. This method treats dividends from associates as if they are a return of capital rather than being recognised in profit or loss.
Parent Entity perspective
Financial information for Washington H. Soul Pattinson and Company Limited, the ‘Parent Entity’ has also been provided. In contrast to
the consolidated financial report, the Parent Entity information reflects Washington H. Soul Pattinson and Company Limited’s activities as
an ‘investor’ and provides details of its investments (subsidiaries, associate entities and other investments), together with the cash flows
generated by them (largely dividend income).
Washington H. Soul Pattinson and Company Limited (the Company, the Parent Entity or WHSP) is a for profit
company limited by shares, incorporated and domiciled in Australia. The shares are publicly traded on the
Australian Securities Exchange. Its registered office and principal place of business is as follows:
Washington H. Soul Pattinson and Company Limited
Level 14, 151 Clarence Street, Sydney, NSW 2000
A description of the nature of the Consolidated Entity’s operations and its principal activities is included
in the Directors’ report, which is not part of this financial report.
This financial report was authorised for issue in accordance with a resolution of the Directors on 21 October 2019.
56
Washington H. Soul Pattinson and Company Limited
Annual Report 2019
57
Financial Report
Contents
Financial Statements
Revenue and expenses
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the Financial Statements
Basis of preparation
Basis of consolidation
Parent Entity information
1
Parent Entity financial information:
• statement of financial position;
• statement of comprehensive income;
• source of shareholder dividends;
• market value of listed investments; and
• related cash flows
2
Payment of dividends to shareholders
New Accounting Standards
3 New Accounting standards and Interpretations
Group structure and performance
4
5
6
7
Segment information
Reserves
Share capital
Business combinations
8 Discontinued operations
9
Events after the reporting period
Accounting for our Investments
10
Investments in subsidiaries
11
Investments in joint arrangements
12 Equity accounted associates
13 Trading equities
14 Long term equity investments
15
Investment properties
16 Term deposits
17 Cash and cash equivalents
59
61
62
64
65
66
68
68
69
69
69
71
72
78
83
86
87
90
92
93
94
95
100
101
102
104
105
18 Revenue
19 Other income
20 Expenses
Taxation
21
Income tax expense
22 Deferred tax assets and deferred tax liabilities
Risk management
23 Financial risk management
24 Fair value estimation
25 Derivative financial instruments
26
Interest bearing liabilities
27 Contingent liabilities
Fixed assets
28 Property plant and equipment
29 Exploration and evaluation assets
30
Intangible assets
Other operating assets and liabilities
31 Trade and other receivables
32
Inventories
33 Trade and other payables
34 Provisions
Other notes
35 Share-based payments
36 Related party transactions
37 Commitments
38 Other accounting policies
39 Remuneration of auditors
40 Deed of cross guarantee
Directors’ declaration
Independent auditor’s report
106
108
109
112
114
116
121
124
126
130
131
138
140
144
145
146
147
151
153
155
156
158
159
161
162
Consolidated Statement of Comprehensive Income
for the year ended 31 July 2019
Revenue from continuing operations
Other income
Expenses
Cost of sales
Selling and distribution expenses
Administration expenses
Acquisition costs expensed
Impairment expense
Other expenses
Finance costs
Share of results from equity accounted associates
Profit before income tax expense from
continuing operations
Income tax expense
Profit after income tax expense from
continuing operations
Profit/(loss) after income tax expense from
discontinued operations
Profit after income tax expense for the year
Profit for the year is attributable to:
Owners of Washington H. Soul Pattinson and Company Limited
Non-controlling interest
Other comprehensive income/(loss)
Items that will not be reclassified subsequently to profit or loss
Changes in the fair value of equity investments at fair value through
other comprehensive income, net of tax
Disposal of long term equity investments, net of tax
Net movement in capital profit reserves, net of tax
Items that may be reclassified subsequently to profit or loss
Net movement in the fair value of long term equity investments, net of tax
Net movement in hedge reserve, net of tax
Net movement in foreign currency translation reserve, net of tax
Net movement in equity reserve, net of tax
Total other comprehensive income/(loss) for the year, net of tax
Notes
18
19
20
12
21
8
2019
$’000
1,615,888
117,409
(967,001)
(196,107)
(74,043)
(46,041)
(60,450)
(21,675)
(27,857)
134,343
474,466
(115,197)
*Restated
2018
$’000
1,174,748
98,588
(565,502)
(167,183)
(48,721)
(5,662)
(113,908)
(14,976)
(5,424)
161,661
513,621
(140,490)
359,269
373,131
220
(37,831)
359,489
335,300
247,943
111,546
359,489
266,846
68,454
335,300
28,211
(19,299)
22,815
–
(15,251)
2,275
(913)
17,838
–
(7,107)
–
9,065
(14,649)
1,897
238
(10,556)
Total comprehensive income for the year
377,327
324,744
Total Comprehensive income for the year is attributable to:
Owners of Washington H. Soul Pattinson and Company Limited
Non-controlling interest
264,304
113,023
377,327
263,211
61,533
324,744
•
Comparative figures have been restated to present the impacts of the discontinued operations (as outlined in note 8) as well as other
reclassifications on the consolidated statement of comprehensive income to better reflect the disclosures in the current year.
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
58
Washington H. Soul Pattinson and Company Limited
Annual Report 2019
59
Consolidated Statement of Comprehensive Income
for the year ended 31 July 2019
Consolidated Statement of Financial Position
as at 31 July 2019
Earnings per share from continuing operations
attributable to the Owners of Washington H. Soul Pattinson
and Company Limited
Basic earnings per share
Diluted earnings per share^
Earnings per share from discontinued operations
attributable to the Owners of Washington H. Soul Pattinson
and Company Limited
Basic earnings per share
Diluted earnings per share^
Earnings per share attributable to the Owners of
Washington H. Soul Pattinson and Company Limited
Basic earnings per share
Diluted earnings per share^
2019
Cents
*Restated
2018
Cents
103.48
103.48
127.27
127.27
0.09
0.09
103.57
103.57
(15.8)
(15.8)
111.47
111.47
Weighted average number of shares used in calculating basic
and diluted earnings per share (refer to note 38d)
No. of shares
No. of shares
239,395,320
239,395,320
^ Diluted EPS is equal to the basic earnings per share as any long-term incentive plan rights that vest in future financial years are expected
to be satisfied by purchasing shares on market.
* Comparative figures have been restated to present the impacts of the discontinued operations (as outlined in note 8) as well as other
reclassifications on the consolidated statement of comprehensive Income to better reflect the disclosures in the current year.
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
Current assets
Cash and cash equivalents
Term deposits
Trade and other receivables
Inventories
Assets classified as held for sale
Trading equities
Total current assets
Non-current assets
Trade and other receivables
Equity accounted associates
Long term equity investments
Other financial assets
Derivative financial instruments
Investment properties
Property, plant and equipment
Exploration and evaluation
Deferred tax assets
Intangibles
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Interest bearing liabilities
Derivative financial instruments
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained profits
Parent entity interest
Non-controlling interest
Total equity
Notes
31 July 2019
$’000
31 July 2018
$’000
17
16
31
32
13
31
12
14
25
15
28
29
22
30
33
26
25
34
33
26
22
34
6
5
125,445
1,470
162,258
120,471
53
77,148
337,933
206,044
131,723
93,236
1,407
69,930
486,845
840,273
38,588
1,603,610
785,135
–
190
106,281
2,351,799
333,623
56,669
114,479
53,525
1,517,125
732,298
17,571
–
158,254
1,520,573
310,798
71,567
73,553
5,390,374
4,455,264
5,877,219
5,295,537
158,874
591
32,537
10,774
9,234
93,029
131,521
–
25,267
3,353
81,091
71,219
305,039
312,451
15,989
370,213
422,445
252,064
1,060,711
1,365,750
30,033
19,790
405,270
186,388
641,481
953,932
4,511,469
4,341,605
43,232
176,603
3,301,831
3,521,666
989,803
43,232
605,865
2,718,057
3,367,154
974,451
4,511,469
4,341,605
60
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
61
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Consolidated Statement of Changes in Equity
for the year ended 31 July 2019
Consolidated Statement of Changes in Equity
for the year ended 31 July 2019
Year ended 31 July 2019
Total equity at the beginning of the year
– 1 August 2018
Effect of initial adoption of AASB 9 (note 3)
Effect of initial adoption of AASB 15 (note 3)
Restated balance at the beginning of the year
– 1 August 2018
Net profit for the year after tax
Other comprehensive income for the year
Net movement in asset revaluation reserve, net of tax
Net movement in hedge reserve, net of tax
Net movement in foreign currency translation reserve,
net of tax
Net movement in equity reserve, net of tax
Net movement in general reserve, net of tax*
Net movement in capital gains reserve, net of tax
Total comprehensive income for the year
Transactions with owners
Dividends declared and paid
Net movement in share based payments reserve
Return of capital
Share
capital
$’000
Retained
profits
$’000
Reserves
$’000
Total
Parent
Entity
interest
$’000
Non-
controlling
interest
$’000
Total
equity
$’000
43,232
2,718,057
605,865
3,367,154
974,451
4,341,605
–
–
52,687
1,174
(53,892)
–
(1,205)
1,174
–
–
(1,205)
1,174
43,232
2,771,918
551,973
3,367,123
974,451
4,341,574
247,943
–
247,943
111,546
359,489
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,260
9,260
(12,720)
(12,720)
(348)
(2,531)
8,912
(15,251)
2,275
(913)
2,275
(913)
–
–
–
–
2,275
(913)
–
402,206
(402,206)
(8,715)
27,174
18,459
4,356
22,815
641,434
(377,130)
264,304
113,023
377,327
**(111,726)
–
(111,726)
(75,096)
(186,822)
205
–
1,760
–
1,965
361
2,326
–
(22,936)
(22,936)
Total equity at the end of the year – 31 July 2019
43,232
3,301,831
176,603
3,521,666
989,803
4,511,469
*
The General reserve historically recorded funds set aside for future requirement of the Group and related to the Parent Entity.
This reserve was created by transferring from retained profits in prior years. The majority of this balance has been transferred back to retained profits in the current year.
** After the elimination of a proportion of the Parent Entity dividend paid to Brickworks Limited (2019: 43.8%)
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Year ended 31 July 2018
Total equity at the beginning of the year
– 1 August 2017
Net profit for the year after tax
Other comprehensive income for the year
Net movement in asset revaluation reserve, net of tax
Net movement in hedge reserve, net of tax
Net movement in foreign currency translation reserve,
net of tax
Net movement in equity reserve, net of tax
Total comprehensive income for the year
Transactions with owners
Dividends declared and paid
Net movement in share-based payments reserve
Return of capital
Transactions with non-controlling interests
Tax on partial disposal of controlling entity to
non-controlling interests
Equity transfer from members on issue of share capital
in a subsidiary
Share
capital
$’000
Retained
profits
$’000
Reserves
$’000
Total
Parent
Entity
interest
$’000
Non-
controlling
interest
$’000
Total
equity
$’000
43,232
2,603,186
611,226
3,257,644
780,666
4,038,310
–
–
–
–
–
–
–
–
–
–
–
–
266,846
–
266,846
68,454
335,300
–
–
–
–
2,006
(7,776)
1,897
238
2,006
(7,776)
1,897
238
(48)
1,958
(6,873)
(14,649)
–
–
1,897
238
266,846
(3,635)
263,211
61,533
324,744
*(106,943)
–
(106,943)
(46,933)
(153,876)
74
–
1,781
–
1,855
–
41
(5,968)
1,896
(5,968)
(1,238)
(3,507)
(4,745)
180,457
175,712
(43,868)
–
–
–
(43,868)
–
(43,868)
–
4,655
4,655
Total equity at the end of the year – 31 July 2018
43,232
2,718,057
605,865
3,367,154
974,451
4,341,605
* After the elimination of a proportion of the Parent Entity dividend paid to Brickworks Limited (2018: 43.8%)
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
62
63
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Consolidated Statement of Cash Flows
for the year ended 31 July 2019
Notes
2019
$’000
2018
$’000
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Dividends received
Interest received
Acquisition costs expensed
Finance costs
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Proceeds from sale of debt to third party
Payments for property, plant and equipment and intangibles
Proceeds from sale of property, plant and equipment
Payments for capitalised exploration and evaluation activities
Net proceeds from / (payments to) term deposits
Payments for acquisition and development of investment properties
Proceeds from sale of investment properties
Payments for equity investments
Proceeds from sale of equity investments
Proceeds from part sale of a subsidiary
Payments to acquire equity accounted associate
Payments for acquisition of businesses, net of cash acquired
Loan advanced
Loan repayments
Net cash outflow from investing activities
Cash flows from financing activities
Dividends paid to WHSP shareholders
Dividends paid by subsidiaries to non-controlling interests
Repayments of external borrowings
Proceeds from external borrowings
Payment for establishment costs of debt/guarantee facilities
Proceeds from issue of equity
Payments for return of capital
Payments for shares acquired for the employee long term incentive plan
7
17
7
2
26
26
26
1,563,833
(1,077,978)
1,171,513
(725,384)
485,855
446,129
89,723
14,607
(46,041)
(12,561)
(165,581)
76,325
9,465
(5,662)
(1,452)
(17,245)
366,002
507,560
8,000
(165,243)
96,255
(29,591)
204,574
(32,577)
100,068
(95,025)
94,882
–
(11,172)
(839,086)
(56,911)
29,084
–
(110,863)
3,159
(38,294)
(205,629)
(16,088)
29,059
(94,941)
88,485
175,736
(1,430)
(48,349)
(58,218)
7,697
(696,742)
(269,676)
(136,455)
(74,997)
(425,272)
790,000
(12,802)
–
(22,937)
(569)
(131,667)
(47,119)
(42,356)
12,017
–
4,524
(5,968)
–
Net cash inflow/(outflow) from financing activities
116,968
(210,569)
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
(213,772)
337,933
1,284
27,315
301,275
9,343
Cash and cash equivalents at the end of the financial year
17
125,445
337,933
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Notes to the
Financial Statements
Basis of preparation
This financial report is a general purpose financial report which:
1 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);
1 complies with International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB);
1 has been prepared on a for profit basis;
1 is presented in Australian dollars with all values rounded to the nearest thousand dollars ($’000), or
in certain cases, to the nearest dollar, unless otherwise stated, in accordance with ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument 2016/191;
1 presents reclassified comparative information where required for consistency with the current year’s
presentation;
1 adopts all new and amended Accounting Standards and Interpretations issued by the AASB that are
relevant to the operations of the Group and effective for reporting periods beginning on or after
1 August 2018;
1 does not adopt any Accounting Standards and Interpretations that have been issued or amended but
are not yet effective (such as AASB 16 Leases). Refer to Note 3(b) for more information;
1 has been prepared on a historical cost basis except for certain items, which are measured on an
alternative basis, identified in the accounting policies.
1 where Parent Entity information is disclosed, relevant accounting policies are described when
different to the Group accounting policies.
64
65
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Basis of consolidation
The consolidated financial statements of the Group incorporates the financial statements of Washington H. Soul
Pattinson and Company Limited and its subsidiaries, and its equity accounted associates. A diagram is set out in
note 4, listing the main subsidiaries and associates.
i. Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power to direct the activities of the entity.
Subsidiaries are consolidated from the date on which control is obtained to the date on which control is disposed.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting.
The financial statements of subsidiaries are prepared for the same reporting period as the Parent Entity, using
consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that
may exist.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated
statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of
financial position respectively.
The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions
with equity owners of the Group. For purchases from non-controlling interests, the difference between any
consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is
deducted from equity. For disposals to non-controlling interests, differences between any proceeds received and
the relevant share of non-controlling interests are also recorded in equity.
ii.
Joint arrangements
A joint arrangement is an arrangement where two or more parties share control. Joint arrangements are classified
as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of
each investor, rather than the legal structure.
Joint operations
A joint operation is a joint arrangement in which the parties that share joint control, have rights to the assets,
and obligations for the liabilities relating to the arrangement. The Group recognises its direct right to the assets,
liabilities; revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities,
revenues and expenses. These have been incorporated into the Group’s financial statements under the appro-
priate headings.
Joint ventures
A joint venture is a joint arrangement in which the parties that share joint control have rights to the net assets
of the arrangement. Interests in joint ventures are accounted for using the equity method, after initially being
recognised at cost.
iii. Associates
Associates are all entities over which the Group has significant influence and are neither subsidiaries nor
jointly controlled. This is generally the case where the Group holds between 20% and 50% of the voting rights.
Investments in associates are accounted for in the consolidated financial statements using the equity method of
accounting, after initially being recognised at cost.
The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on
acquisition. The Group’s share of its associates’ post-acquisition profits or losses is recognised in the profit or loss
and its share of post-acquisition other comprehensive income is recognised in the consolidated statement of
comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount
of the investment. Dividends received/receivable from associates are recognised in the consolidated financial
statements by reducing the carrying amount of the investment.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any
unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made
payments on behalf of the associate.
66
iv. Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transac-
tions are eliminated. Unrealised gains arising from transactions with an associate are eliminated to the extent of
the Group’s interest in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only
to the extent that there is no evidence of impairment. Where practical, accounting policies of the associates have
been changed to ensure consistency with the policies adopted by the Group.
Other accounting policies
Significant and other accounting policies relevant to gaining an understanding of the financial statements have
been grouped with the relevant notes to the financial statements.
Key judgements and estimates
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s accounting policies. The areas
involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant
to the financial statements are disclosed within the following notes:
Note
reference
Key judgements and estimates
Note 2
Note 7
Note 11
Note 12
Note 15
Note 20
Note 22
Note 24
Note 28
Revenue – provisional pricing arrangements
Business combination – acquisition fair value
Classification of joint arrangements
Recoverable value of investments in associates
Recoverable value of investment properties
Recoverable value
Deferred tax assets
Financial assets (level 3)
Impairment of non-current assets
1 Determination of recoverable value – New Hope Corporation Limited
(Queensland mining operations)
1 Determination of recoverable value – Round Oak Minerals Pty Limited (copper
processing plant, equipment and capitalised mine development costs)
Note 29
Note 30
Note 34
Exploration and evaluation expenditure
Impairment of intangible assets
Reserve estimates and rehabilitation costs
Page
73
89
94
96
103
110
115
122
134
139
143
148
67
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Notes to the Financial Statements
Parent Entity Information
1
NOTE 1
PARENT ENTITY
FINANCIAL
INFORMATION
Source of
shareholders
dividends
The Board declares dividends
having regard to regular
operating cash flows
before non-regular items.
The following information
has been provided to
demonstrate the underlying
value of the Parent Entity’s
investments and regular profit
and the cash flows generated
by these investments.
Regular profit after tax is
a measure of the Parent
entity’s performance. This
measurement excludes the
effects of non-regular items of
income and expense which
by nature are outside the
ordinary course of business
or are part of ordinary
operations but are unusual
due to their size.
Accounting policies
Parent Entity
The statement of financial position, profit after tax and
total comprehensive income for the Parent Entity, have
been prepared on the same basis as the consolidated
financial statements except for Investments in subsidi-
aries and investments in associates.
continued on page 70 >>>
The classification of income
and expenses as regular or
non-regular is consistent with
the Consolidated entity’s
measurement of segment
results. This is a non-statutory
measure and a reconciliation
to the Parent Entity’s statutory
profit after tax is provided. The
Director’s have presented this
information, which is used by
the Chief Operating Decision
Maker, as they consider the
disclosure enhances the
understanding of the results
to members and users of the
financial statements.
68
Statement of
Financial Position
Current assets
Cash and term deposits
Assets held for sale
Other current assets
Total current assets
Non-current assets
Long term equity investments
– measured at market value
Other financial assets
Listed controlled and associated entities
– measured at the lower of cost or impaired value
Unlisted entities
– measured at the lower of cost or impaired value
Other non-current assets
Total non-current assets
Total assets
Total current liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained profits
Total equity
Statement of
Comprehensive Income
Profit after tax
Less: Non-regular items after tax
Net gain on sale of property
Net gain on disposal of investments
Non cash unfranked dividend on
demerger of listed investment
Net impairment expense on investments
Net impairment expense on associates
Other
As at
31 July
2019
$'000
38,830
53
120,483
As at
31 July
2018
$'000
41,946
1,407
98,525
159,366
141,878
739,587
688,576
547,325
552,950
456,827
85,209
381,363
108,202
1,828,948
1,731,091
1,988,314
1,872,969
33,171
106,593
139,764
2,495
92,662
95,157
1,848,550
1,777,812
43,232
187,934
1,617,384
43,232
620,952
1,113,628
1,848,550
1,777,812
2019
$'000
2018
$'000
164,903
164,903
(68,968)
–
(3,592)
82,451
(4,327)
4,270
–-
(140,278)
–
3,413
–
2,737
Regular profit after tax
174,737
138,851
Other comprehensive income
Net movement in the fair value of the listed
investment portfolio
(25,521)
1,881
Market value of listed investments as at 31 July 2019
(based on ASX closing prices 31 July 2019)
Long term equity investments
Milton Corporation Limited
BKI Investment Company Limited
Clover Corporation Limited
Commonwealth Bank of Australia
Woolworths Limited
Macquarie Group Limited
Pengana International Equities Limited
Bailador Technology Investments Limited
Magellan Financial Group Limited
Brambles Limited
Wesfarmers Limited
Other listed entities
$'000
107,971
107,025
83,028
53,586
31,698
27,562
26,320
24,265
22,184
21,248
19,646
215,054
Market value of long term equity investments
739,587
Regular Profit after Tax
and Regular Operating
Cash Flows
For the year ended 31 July 2019
Interest income (from cash and loans)
Dividend and distribution income
Milton Corporation Limited
BKI Investment Company Limited
Clover Corporation Limited
Commonwealth Bank of Australia
Woolworths Limited
Macquarie Group Limited
Pengana International Equites Limited
Magellan Financial Group Limited
Brambles Limited
Wesfarmers Limited
Other listed entities
TPG Telecom Limited
New Hope Corporation Limited
Brickworks Limited
Australian Pharmaceutical Industries Ltd
Pengana Capital Group Limited
Apex Healthcare Berhad
Listed controlled and
associated entities
Holding
$'000
Other controlled and associates
TPG Telecom Limited
New Hope Corporation Limited
Brickworks Limited
Australian Pharmaceutical Industries Ltd
Pengana Capital Group Limited
Apex Healthcare Berhad
Palla Pharma Limited (formerly TPI Enterprises)
25.3%
50.0%
43.8%
19.3%
38.6%
30.1%
19.9%
Market value of listed controlled
and associated entities
1,636,085
1,043,398
1,099,556
137,374
59,742
106,076
21,352
4,103,583
Total value of WHSP's listed investments
4,843,170
Tax payable if WHSP's listed investments were disposed of:
WHSP is a long term equity investor.
If WHSP had disposed of all of its assets on 31 Jul 2019, a capital gains
tax liability of approximately $1,121.1 million would have arisen based
on market values as at 31 Jul 2019. Of this amount, only $103.98 million
has been recognised in the Parent company accounts at 31 Jul 2019.
The market values of the listed investments are based on the last sale
prices as quoted on the ASX on 31 Jul 2019 and are therefore subject to
price fluctuations.
Total dividend and distribution income
Net pharmacy profit
Other revenue
Realised and fair value (losses)/gains on equities
Other expenses
Finance costs
Regular profit before tax
Income tax (expense)
Regular profit after tax
Non-cash fair value (gains)/loss on equities
Net movements in working capital
Regular operating cash flows
The Board declares dividends having regard to the
Parent company's regular operating cash flows.
Dividends paid/payable
Interim of 24 cents per share paid 9 May 2019
Final of 34 cents per share payable 9 Dec 2019
Total dividends paid/payable
Payout ratio
Dividends as a percentage of regular
operating cash flows
Year ended
31 July 2019
$'000
16,854
5,127
5,507
671
3,841
934
1,231
1,706
265
470
1,604
11,464
9,376
66,511
36,105
7,368
4,182
1,612
14,023
171,997
–
165
6,700
(14,325)
(774)
180,617
(5,880)
174,737
(6,700)
1,546
169,583
57,455
81,394
138,849
81.88%
69
Washington H. Soul Pattinson and Company LimitedAnnual Report 2019
Parent Entity Information
1 NOTE 1
PARENT ENTITY FINANCIAL INFORMATION (continued)
Accounting policies
Parent Entity >>> continued from page 68
In the Parent Entity, investments in subsidiaries and associates are carried at the lower of cost or impaired value.
Dividends from these entities are recognised as income within profit or loss. This approach reflects the Parent
Entity’s activities as an investor.
The consolidated financial statements recognises the individual assets, liabilities, income and expenses of
subsidiaries. Associates are equity accounted, with the initial investment being increased/(decreased) by profits/
(losses) recognised in the profit or loss, movements in other comprehensive income and decreased by dividends
received. Dividends from both subsidiaries and associates are not recognised in the consolidated statement of
comprehensive income.
a)
Interest bearing liabilities of the Parent Entity
During the year, the Parent Entity utilised short term bank finance. At 31 July 2019, the debt owing was $30
million (2018: $nil) and is included within current liabilities in the statement of financial position. The debt
is secured by certain long term equities of the Parent Entity, is repayable upon either the bank or the Parent
Entity providing 30 days’ notice, and incurs interest at a variable rate. The interest rate at 31 July 2019 was
1.76% per annum. Refer to note 26.
The Parent Entity is not subject to any externally imposed capital requirements by financial institutions.
b) Guarantees entered into by the Parent Entity
The Parent Entity provides cash backed guarantees for environmental bonds that are required by the 100%
owned subsidiary, Round Oak Minerals Pty Limited. As at 31 July 2019 these guarantees totalled $22.678
million (2018: $16.413 million).
c) Contingent liabilities of the Parent Entity
The Parent Entity did not have any contingent liabilities as at 31 July 2019 or 31 July 2018.
d)
e)
Contractual commitments made by the Parent Entity, for the acquisition of property,
plant or equipment
The Parent Entity’s contractual commitments for property, plant or equipment as at 31 July 2019 are $44.000
million (2018: $nil).
Contractual commitments made by the Parent Entity on non-cancellable operating lease
The Parent Entity entered into a seven year non-cancellable operating lease for its new office premise at
Barrack Place, Sydney. The lease commenced on the 1 April 2019. Other commitments include an operating
lease for office equipment.
Operating Leases
Commitments for minimum lease payments in relation to
non-cancellable operating leases are payable as follows:
– Within one year
– Later than one year but not later than five years
– Later than five years
2019
$’000
1,234
5,468
2,519
9,221
2018
$’000
399
5,177
3,953
9,529
70
2 NOTE 2
PAYMENT OF DIVIDENDS TO SHAREHOLDERS
Accounting policy
A liability is recognised for the amount of any dividend declared on or before the end of the year but not
distributed at reporting date. As the final dividend was declared by Directors after year end, the final dividend has
not been recognised as a liability.
a) Dividends paid during the year
Final dividend for the year ended 31 July 2018 of 33 cents
(2017: 32 cents) per fully paid ordinary share paid on 10 December 2018
(2017: 11 December 2017) fully franked based on tax paid at 30%
Interim dividend for the year ended 31 July 2019 of 24 cents
(2018: 23 cents) per fully paid ordinary share paid on 9 May 2019
(2018: 10 May 2018) fully franked based on tax paid at 30%
Total dividends paid
b) Dividends not recognised at year end
In addition to the above dividends, since year end the Directors have
declared the payment of:
A final dividend of 34 cents per fully paid ordinary share,
(2018: 33 cents) fully franked based on tax paid at 30%
2019
$’000
2018
$’000
79,000
76,606
57,455
136,455
55,061
131,667
81,394
79,000
This dividend is due to be paid on 9 December 2019 (2018: 10 December 2018) out of retained profits as at
31 July 2019, and has not been recognised as a liability at year end.
c) Franking of dividends
The final dividend for 31 July 2019 will be franked out of existing
franking credits or out of franking credits arising from the payment of
income tax in the year ending 31 July 2019.
Franking credits available for future dividend payments
Franking credits available for subsequent years based on an Australian
company tax rate of 30% (2018: 30%).
The above franking credits represent the balance of the franking
account as at the end of the year, adjusted for franking credits that will
arise from the payment of provision for income tax, franking debits that
will arise from the payment of dividends recognised as a liability at the
reporting date, and franking credits that will arise from the receipt of
dividends recognised as receivables at the reporting date.
Subsequent to year end, the franking account will be reduced by the final
dividend to be paid on 9 December 2019 (2018: 10 December 2018)..
Balance of franking credits available after payment
of the final dividend
554,977
547,947
(34,883)
(33,857)
520,094
514,090
71
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 New Accounting Standards
3 NOTE 3
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
(a) New or amended Accounting Standards and Interpretations adopted
The Consolidated Entity has adopted all of the new or amended Accounting Standards and Interpretations issued
by the Australian Accounting Standards Board (AASB) that are mandatory for the current reporting period.
The following new and amended Accounting Standards and Interpretations are most relevant to the
Consolidated Entity:
(i)
AASB 15 Revenue from Contracts with Customers
AASB 15 is the new standard for recognition of revenue and replaces AASB 118 which covered revenue arising
from the sale of goods and the rendering of services and AASB 111 which covered construction contracts. The
Group adopted AASB 15 from 1 August 2018 which resulted in minor changes in accounting policies and adjust-
ments to amounts previously recognised in the financial statements. In accordance with the transition provisions
in AASB 15, the Group adopted the modified retrospective method of implementation and comparative figures
were not restated.
The standard established new principles and models for revenue to be allocated in accordance with the
satisfaction of the performance obligation of a contract. It addresses revenue derived from provision of goods,
services and customer contracts. Revenue is recognised when the control of goods or services are transferred to
customers and for the amount to which the company expects to be entitled, either over time or at a point in time.
Revenue recognition
The Group recognises sales revenue related to the transfer of promised goods or services when the performance
obligations under the contract have been satisfied. The amount of revenue recognised reflects the consideration
to which the Group is or expects to be entitled for satisfying the performance obligation.
Revenue from contracts with customers is recognised for the major business activities as follows:
1 Coal sales revenue is recognised at a point in time when control of the products have been transferred to the
customer in accordance with the sales terms, in this instance when the risks and benefits of ownership has
transferred. The legal title, risks and rewards, and therefore the fulfilment of performance obligations normally
occurs at the time of loading the shipment for export sales, and generally at the time the coal is delivered to
the customer for domestic sales.
1 Oil sales revenue is recognised at the point in time when control of the products have been transferred to the
customer in accordance with the sales terms, in this instance when the risks and benefits of ownership have
transferred. This is normally when the oil is delivered to the customer.
1 Copper, zinc, silver and gold sales revenue is initially recognised at its estimated sales value when control
and the risks of ownership of the product are passed onto the customer. Adjustments are made for changes
in commodity prices, assays, weight and currency between the time of the sale and the time of the final
settlement of the sales proceeds.
1 Service fee income, including consulting and management fee income, is recognised as revenue over time as
the services are performed.
Performance obligation for domestic and export sales
For domestic sales, the performance obligation is satisfied upon delivery of the products to the customer.
For export sales, the revenue contracts are on Free On Board (FOB) basis. The performance obligation is satisfied
when the product is loaded on a ship.
Provisional pricing arrangements
Sales contracts for commodities often incorporate provisional pricing. Provisional pricing might arise for a variety
of reasons:
Sale of coal
1 The time taken to transport the product might mean that the customer wishes to pay the market price at the
date of eventual delivery at the final destination – in those situations, a provisional price is charged on the
date control of the product initially transfers.
1 The final quality and volume of the component commodities will not be known until further testing at its
final destination.
Sale of copper, zinc, silver and gold metals
Sales revenue on copper, zinc, silver and gold metals are recognised in three stages:
1 First provisional invoice for 90% of the transaction value is issued based on the market price, quality and
quantity of the metals at date when control is passed to the buyer at the port of loading. The payment is due
on the day of loading.
1 Second provisional invoice for 10% of the metal value is issued based on the latest known market price,
quality and quantity of the metals. The payment is due between 90 and 180 days of delivery.
1 Final invoice is issued when adjustments are made for changes in commodity prices, assays, weight and
currency, which is generally 90-180 days after sales was initially recognised.
Key judgement and estimates
Judgement is required by management to determine the amount of revenue recognised for each shipment at the
port of loading. Such estimates are determined using either the ‘expected value’ or ‘most likely amount’ method. If
provisional pricing results in variable consideration, further judgement will be required to determine whether the
estimated revenue is subject to significant reversal. This might be particularly relevant where the final quality of
products delivered will not be known until testing at its destination.
Adoption of AASB 15 by Associates
The associates of the Consolidated Entity have adopted AASB 15 which resulted in the changes in their
accounting policies for set-up revenue, brand fee income received from franchisees, subscriber acquisition costs,
sales commission costs and rebates agreements. These costs were previously expensed as incurred. Under the
new AASB 15, these costs are capitalised as contract costs and amortised over the anticipated contract period.
The associates have adopted AASB 15 using the modified retrospective approach. Therefore, the net impact of the
change in the associates’ accounting policy on the Consolidated Entity’s financial statement was a $1.174 million
restatement to opening retained profit and a corresponding increase in the Consolidated Entity’s share on net
assets of the associates. The adoption of AASB 15 by the associates did not have an impact on the consolidated
statement of comprehensive income.
Impact of adoption of AASB 15
The Group has reviewed its current policies in relation to the amounts and timing of revenue recognised from
its contractual arrangements. As the Group’s revenue is derived primarily from the sales of minerals on a free on
board basis in which the transfer of the risks and rewards coincides with the fulfilment of performance obligations
and transfer of control as defined by AASB 15, there was no quantitative change in respect of the timing and
amount of revenue the Group currently recognises.
Fees in advance, totalling $0.591 million as at 31 July 2019 (2018: $0.387 million), which were previously included
in trade and other payables, are now disclosed separately as contract liabilities in accordance with AASB 15.
(ii) AASB 9 Financial Instruments
This standard includes new requirements for classification and measurement of financial assets and liabilities,
impairment of financial assets and hedge accounting of financial instruments. This standard replaces AASB 139
Financial Instruments: Recognition and Measurement. The Group has adopted AASB 9 and related amendments
from 1 August 2018. Comparative results are not restated as permitted by the standard.
Classification and measurement
The Group has performed a comprehensive assessment of its financial instruments based on the Group’s business
model for managing financial assets. Debt assets, derivatives and equity holdings are first tested against the
“contractual cash flow characteristics test”.
72
73
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 New Accounting Standards
3 NOTE 3
Financial assets at amortised cost
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED)
AASB 9 introduces a new Expected Credit Loss (ECL) model. This model is a forward looking method for
impairment of debt or derivative financial assets, measured at amortised cost or Fair Value through Other
Comprehensive Income (FVOCI). Debt based financial assets include loans, intercompany loans and receivables.
Under the old standard, the impairment existed when a default event occurred. An impairment loss was
recognised as a separate provision against the gross value of the receivable. Under the new AASB 9, the Group
measures the loss allowance for a financial asset using a three-stage impairment model based on whether or not
a significant change in credit risk has occurred since initial recognition.
Where the financial assets credit risk has not significantly increase since initial recognition, the Group will measure
the loss allowance under Stage 1 Performing financial assets, based on 12 month ECL. For the assets with a significant
increase in credit risk since initial recognition, a loss allowance will be provided under Stage 2 Underperforming or
Stage 3 Non-performing financial assets based on lifetime ECL for credit losses expected over the life of the exposure.
The Group classifies its financial assets as at amortised cost only if both the following criteria are met:
1 the assets is held within a business model whose objective is to collect the contractual cash flows, and
1 the contractual terms give rise to cash flows that are solely payments of principal and interest.
Trade receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of
business. They are generally due for settlement between 30 and 45 days and therefore are all classified as current.
Trade receivables are recognised initially at fair value. The Group holds the trade receivables with the objective to
collect the contractual cash flows and therefore measure them subsequently at amortised cost using the effective
interest method.
Loans to external parties and intercompany
The Parent Entity is the main entity within the Group holding loans (both external and intercompany). There is no
change in classification of loans from the old standard, AASB 139 to the new standard AASB 9. Loans will continue
to be held at amortised cost (ie. principal and interest).
Other receivables
These amounts generally arise from transactions outside the usual operating activities of the Group. Interest may
be charged at commercial rates where the terms of repayment exceed the due date.
A simplified approach is taken to accounting for trade and other receivables as well as contract assets with the
loss allowance equal to the lifetime ECL recorded. In applying this simplified method, the Group uses its historical
experience, external indicators and forward-looking information to calculate the ECL.
The Group has revised its impairment methodology under AASB 9 for financial assets under the new expected
credit loss model for all its assets held at amortised cost. There has been no material financial impact in the change
to the impairment assessment of financial assets held at amortised cost as a result of this change in methodology.
Adoption of AASB 9 by Associates
An associate of the Group has adopted AASB 9 resulting in the changes in their accounting policies for provision
for doubtful debts. AASB 9 replaced the ‘incurred loss’ model in AASB 139 with a forward-looking ECL model. The
associates had adopted AASB 9 using the modified retrospective approach. The net impact of the change in the
associates’ accounting policy on the Group’s financial statement was a $1.205 million restatement to opening
retained profit and a corresponding decrease in the Group’s share of net assets of the associate. The adoption of
AASB 9 by the associate did not have an impact on the consolidated statement of comprehensive income.
74
Financial assets at fair value through profit or loss (FVTPL)
The Parent Entity is the main entity within the Group that holds equities held for trading. An “investment held for
trading” has the following characteristics, including:
1 Investing primarily for the purpose of providing shareholders with returns from short term capital
appreciation; and
1 A short to medium term investment strategy, with an intention to sell the investment at an appropriate time.
The Group’s financial assets classified as trading equities are measured at FVTPL. These financial assets which were
previously held at FVTPL under AASB 139 continue to be measured at FVTPL under AASB 9. There is no change to
the classification and measurement of financial assets at FVTPL on adoption of AASB 9.
Financial assets at fair value through other comprehensive income (FVOCI)
For the Group, a “long term equity investment” is one that has the following characteristics, including:
1 An intention to hold for the long-term investment with prospects for value appreciation (both capital and a
sustainable, fully franked dividend income stream) that is consistent with the Group’s investment strategy;
and
1 Providing diversification benefits to the Group’s investment portfolio.
The Group has performed a comprehensive review of its investment portfolio. For the Group’s financial assets
classified as long term equity investments, an irrevocable election in classifying these long term equity invest-
ments to be measured at FVOCI has been made. This is in accordance with the Group’s business model and the
contractual terms of the investments cash flows.
On disposal of these equity investments, any related balance within the FVOCI reserve is reclassified to retained
earnings.
In the prior year, the Group had designated long term equity investments as available-for-sale where manage-
ment intended to hold them for the medium to long term.
Impact of adoption of AASB 9
The Group elected to present in other comprehensive income changes in the fair value of all its Long term equity
investments, previously accounted for as available for sale (AFS) financial assets under AASB 9. These investments
are held as long term strategic investments that are not expected to be sold in the short to medium term. Upon
adoption of AASB 9, these financial assets are now accounted for as financial assets classified as FVOCI resulting in
a reclassification of prior year fair value adjustments from retained profits to reserves.
Other financial assets have been reclassified as part of Long term equity investments on the consolidated
statement of financial position.
The main effects resulting from the reclassification of the Group’s investment portfolio are as follows:
Other financial assets – equity investments at 31 July 2018 – AASB 139
Long term equity investments at 31 July 2018 – AASB 139
Reclassify other financial assets and long term equity investments to FVOCI
Long term equity investments at 1 August 2018 – AASB 9
AFS
$’000
17,571
732,298
(749,869)
–
FVOCI
$’000
–
–
749,869
749,869
At 31 July 2018, the Group held $750 million of long term equity investments which are now classified as FVOCI
financial assets under AASB 9. Under AASB 139, changes in the fair value of these investments were recognised in
the asset revaluation reserve within equity and any impairments of these investments were recognised in profit
or loss. When the investment is disposed, the cumulative fair value changes would have been recycled from asset
revaluation reserve to the profit or loss as a reclassification adjustment.
From 1 August 2018, under AASB 9, these long term equity investments are classified as FVOCI. However, any
impairment loss recognised will be transferred to asset revaluation reserve and no longer be recognised in profit
or loss. Any realised gain or loss on disposal will be transferred from asset revaluation reserve to the Capital gains
reserve within equity.
75
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 The Group has reviewed all of the leasing arrangements in light of the new lease accounting rules in AASB 16. The
standard will affect primarily the accounting for the Group’s operating leases. As at balance date, the Group has
non-cancellable operating lease commitments. The Group does hold within these lease commitments a number
of short term leases and low value assets which will be recognised on a straight-line basis as an expenses in profit
or loss.
This standard is mandatory for financial years commencing on or after 1 January 2019 and the Group does
not intend to adopt the standard before its effective date. This standard will be first applicable for the year
commencing 1 August 2019 and the Group is currently in the final stages of determining the final impact on the
consolidated financial statement.
The Group expects to recognise on the consolidated statement of financial position right-of-use assets of
approximately $108.0 million on 1 August 2019, lease liabilities of $108.0 million and no deferred tax assets.
Overall, no material change to net assets is expected. The Group expects that net profit after tax will decrease by
approximately $1.0 million as a result of adopting the new lease rules.
In modelling these scenarios, the Group has made certain assumptions and judgements in relation to economic
conditions including, but not limited to: the incremental borrowing rates, composition of the lease portfolio, and
non-cancellable lease terms that may cause the actual output to differ to that experienced in the current year.
The Consolidated Entity plans to adopt AASB 16 Leases using the modified retrospective approach with no
restatement of comparative information for the year ending 31 July 2020 upon initial adoption.
(ii)
Interpretation 23 Uncertainty over Income tax treatments
Interpretation 23 sets out how to determine the accounting tax position when there is uncertainty over income
tax treatments. The Interpretation requires an entity to:
1 Determine whether uncertain tax positions are assessed separately or as a group; and
1 Assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to
be used, by an entity in its income tax filings.
The Interpretation is effective for annual periods beginning on or after 1 January 2019 and the Group did not
adopt the interpretation before its effective date. The date of first application of the interpretation was 1 August
2019. The directors do not anticipate that the application of the Interpretation will have a material impact on the
Group’s consolidated financial statements.
There are no other standards or interpretations that are not yet effective that are expected to have a material
impact on the Group.
New Accounting Standards
3 NOTE 3
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED)
The impact of the above AASB 9 and AASB 15 changes on the Group’s equity is as follows:
Closing balance at 31 July 2018
Reclassify long term equity investments from available for sale to FVOCI
Effect of initial adoption of AASB 9 by Associate
Effect of initial adoption of AASB 15 by Associate
Effect on
reserve
$’000
605,865
(53,892)
–
–
Effect on
retained
profits
$’000
2,718,057
53,892
(1,205)
1,174
Opening balance at 1 August 2018 – AASB 9
551,973
2,771,918
The cumulative effect on initial application of AASB 9 on long term equity investments is a change to opening
retained profits and a decrease in the Asset revaluation reserve of $53.9 million at 1 August 2018. This is predom-
inately due to the reclassification of previous impairment losses of long term equity investments from retained
profits to be presented in reserves.
Hedging (commodity and forward foreign exchange contracts)
The new hedge accounting rules under AASB 9 align the accounting for hedge instruments more closely with
the Group’s risk management practices. The Group has confirmed that its current hedge relationships qualify as
continuing hedges upon the adoption of AASB 9 on 1 August 2018. There is no rebalancing of any of the hedging
relationships necessary on initial application as the critical terms of the hedging instruments match those of their
corresponding hedged items, all hedging relationships continue to be effective under AASB 9’s effectiveness
assessment requirements. The Group has also not designated any hedging relationships under AASB 9 that would
not have met the qualifying hedge accounting criteria under AASB 139.
(b) Accounting Standards issued but not yet implemented
Certain new accounting standards and interpretations have been published that are not mandatory for the
current year and have not been early adopted by the Group. The Group’s provisional assessment of the impact of
these new standards on the financial statements for the current year is set out below:
(i) AASB 16 Leases
AASB 16 replaces AASB 117 ‘Leases’ and for lessees will eliminate the classifications of operating leases and finance
leases.
Subject to exceptions, a ‘right-of-use’ (ROU) asset will be capitalised in the consolidated statement of financial
position, measured at the present value of the unavoidable future lease payments to be made over the lease
term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets where an
accounting policy choice exists whereby either a ‘right-of-use’ asset is recognised or lease payments are expensed
to the profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted
for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future
restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced
with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the
recognised lease liabilities (included in finance costs). In the earlier periods of the lease, the expenses associated
with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA
(Earnings before Interest, Tax, Depreciation and Amortisation) results will be improved as the operating expense
is now replaced by interest expense and depreciation in profit or loss under AASB16. For classification within
the consolidated statement of cash flows, the lease payments will be separated into both a principal (financing
activities) and interest (either operating or financing activities) component. For lessor accounting, the standard
does not substantially change how a lessor accounts for leases.
76
77
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Group Structure and Performance
4 NOTE 4
SEGMENT INFORMATION
Corporate structure
The Parent Entity is an investment company that invests in a diversified range of entities and asset classes.
Larger holdings in a single entity are classified as follows:
Subsidiaries
The Parent Entity is able to control the activities of the organisation.
Associates
The Parent Entity has significant influence but does not control the activities of the organisa-
tion. Results from listed associates are sourced from publicly available information. Unlisted
associates results are sourced directly from the investee.
Acquisition
During the year, New Hope Corporation Limited, a subsidiary of the Group acquired an additional 40% interest in
the Bengalla Joint Venture. Refer to note 7.
During the year, WHSP Aquatic Achievers Pty Limited, a subsidiary of the Group acquired 100% interest in two
swim schools - one in Australian Capital Territory and one in Victoria. Refer to note 7.
Discontinued operations
On 17 October 2018, two New Hope Corporation Limited wholly owned subsidiaries, Northern Energy
Corporation Limited and Colton Coal Pty Limited were placed into voluntary administration. Effective on this date,
New Hope Corporation Limited, a subsidiary of the Group lost control over these subsidiaries. Refer to note 8.
For changes in ownership of associates, refer to note 12.
Change in reporting segments
The Group has amended its segment disclosures to more accurately reflect the current information provided
to the Chief Operating Decision Maker (CODM) and the changes to how the CODM manages and assesses the
performance of the operating segments. The information provided to the CODM has changed since the prior
year and therefore it was appropriate to update the segment disclosure to reflect these changes. The comparative
segment disclosures have been updated to be consistent with the current year segment disclosures.
Segment reporting
The Parent Entity, its subsidiaries and associates operate within five segments. Four segments are based on material
holdings of individual investments, where the Parent Entity has board representation. All segments are predomi-
nately based in Australia.
Operating segments are reported in a manner consistent with the internal reporting provided to the CODM. The
CODM, who is responsible for allocating resources and assessing performance of the operating segments, has
been identified as the Board.
The Group’s operating segments are described as:
New Hope Corporation Limited
The Group engages in coal, oil and gas activities
which include exploration, development, production,
processing, associated transport infrastructure and
ancillary activities.
Round Oak Minerals Pty Limited
The Group engages in zinc, copper and gold mining
activities which includes exploration, mining and
processing of ore into copper concentrate, copper
sulphide and gold.
TPG Telecom Limited (TPG)
The Parent Entity has a 25.3% strategic investment in
TPG. TPG is a telecommunications and internet provider.
Brickworks Limited (Brickworks)
The Parent Entity has a 43.8% strategic investment in
Brickworks. Brickworks is a diversified business that
has four divisions, manufacture and sales of building
products Australia, building products North America,
property development and an investment in WHSP.
Other investing activities
The Group invests in diverse portfolio of equities,
properties, loans, cash and term deposits.
WHSP GROUP
(CONSOLIDATED ENTITY)
New Hope
Corporation
Limited
ASX: NHC
Round Oak
Minerals
Pty Limited
Brickworks
Limited
TPG Telecom
Limited
ASX: BKW
ASX: TPM
OTHER
INVESTING
ACTIVITIES
WHSP: 50.01%
WHSP: 100%
WHSP: 43.8%
WHSP: 25.3%
ACTIVITIES
WHSP
Loans
WHSP
Property
WHSP Equities
Portfolios
Australian
Pharmaceutical
Industries Limited
ASX: API
Apex
Healthcare
Berhad
KLS: 7090*
Palla
Pharma
Limited
ASX: PAL
WHSP: 19.3%
WHSP: 30.1%
WHSP: 19.9%
Pengana
Capital
Group Limited
ASX: PCG
Ampcontrol
Pty Limited
Verdant
Minerals
Limited
WHSP: 38.6%
WHSP: 42.9%
WHSP: 33.4%
78
79
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019SEGMENTSControlled entities (subsidaries) and associated entitiesWHSP group percentage ownership determines the extent the Parent entity is able to manage theunderlying operationsCONTROLLED ENTITIESASSOCIATED ENTITIESOTHER ASSOCIATESSignificant influenceWHSP group percentageownership of associates* Listed on the Malaysian Stock Exchange
Group Structure and Performance
b) Reporting segments
4 NOTE 4
SEGMENT INFORMATION (continued)
Business performance – measurement of segment results
Segment performance is measured by regular profit and regular profit after tax attributable to members. These
results are non-statutory profit measures and represent profit from continuing operations before non-regular items.
The measurement basis in general, excludes the effects of non-regular items of income and expense which by
nature are outside the ordinary course of business or are part of ordinary activities but are unusual due to their size.
Regular profit after tax attributable to members is the main measure of segment profit.
A reconciliation between regular profit after tax attributable to members and profit after tax is set out below, and
for each segment is set out in note 4a.
The Directors have presented this information which is used by the CODM, as they consider the disclosure
enhances the understanding of the results to members and users of the financial statements.
The allocation of income and expense items between regular and non-regular profit is consistent with the prior
year. Transactions between business segments are on an arm’s length basis in a manner similar to transactions
with third parties. Segment revenue, expenses and results include transactions between business segments. These
transfers are eliminated on consolidation.
a)
Reconciliation between regular profit after tax attributable
to members and profit after tax:
Regular profit after tax attributable to members
307,262
331,143
2019
$’000
2018
$’000
Non-regular items – net of tax
Acquisition costs expensed
Deferred tax recognised on equity accounted associates
Gain on deemed disposal of equity accounted associates
Gain on de-recognition as equity accounted associates
Gain on disposal of equity investments
Gain on sale of 160 Pitt Street
Onerous contract and other expenses
Impairment expense on equity accounted associates
Impairment expense on mine development assets
Impairment expense on equity investments
Impairment expense on exploration assets
Impairment (expense)/reversal on other assets
Non-cash in-specie dividend
Redundancies
Share of non-regular items from equity accounted associates
Other items
Total non-regular losses after tax attributable to members
Profit after tax attributable to members
(17,101)
(13,632)
1,345
–
–
68,968
(10,000)
(34,807)
(16,645)
–
–
(1,323)
3,592
(1,791)
(37,129)
(796)
(59,319)
247,943
(3,963)
(39,198)
190
50,641
18,748
–
(5,243)
(16,545)
–
(4,206)
(46,310)
14
–
(1,081)
(16,617)
(727)
(64,297)
266,846
n
o
i
t
a
r
o
p
r
o
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e
p
o
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w
e
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d
e
t
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m
i
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i
t
s
e
v
n
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s
e
i
t
i
v
i
t
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a
r
e
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e
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e
t
i
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i
L
$’000
$’000
$’000
Year ended 31 July 2019
Revenue from external customers**
Intersegment revenue***
1,306,429
–
176,321
116,730
133,138
–
Total revenue
1,306,429
293,051
133,138
m
o
c
e
l
e
T
G
P
T
^
d
e
t
i
m
i
L
$’000
–
–
–
s
k
r
o
w
k
c
i
r
B
^
d
e
t
i
m
i
L
$’000
/
t
n
e
m
g
e
s
r
e
t
n
I
d
e
t
a
c
o
l
l
a
n
u
$’000
d
e
t
a
d
i
l
o
s
n
o
C
$’000
–
–
–
–
(116,730)
1,615,888
–
(116,730)
1,615,888
Regular profit/(loss) before income tax
Add non-regular items before tax
384,287
(76,517)
112,360
47,546
(76,163)
(27,606)
95,044
(51,136)
Profit/(loss) before income tax
307,770
159,906
(103,769)
43,908
Less income tax (expense)/benefit
Profit after tax from discontinued operations
(97,338)
220
(25,156)
–
30,303
–
#(9,783)
–
54,710
27,181
81,891
#(17,795)
–
*(13,805)
(1,435)
556,433
(81,967)
(15,240)
474,466
4,572
–
(115,197)
220
Profit/(loss) after tax
Less (profit) attributable to
non-controlling interests
Profit/(loss) after tax
attributable to members
Profit/(loss) after tax
attributable to members (as above)
Non-regular loss/(profit) after tax
attributable to members
Regular profit/(loss) after tax
attributable to members
210,652
134,750
(73,466)
34,125
64,096
(10,668)
359,489
(105,305)
(6,241)
–
–
–
–
(111,546)
105,347
128,509
(73,466)
34,125
64,096
(10,668)
247,943
105,347
128,509
(73,466)
34,125
64,096
(10,668)
247,943
28,923
(41,465)
19,324
60,919
(9,386)
1,004
59,319
134,270
87,044
(54,142)
95,044
54,710
(9,664)
307,262
* Unallocated represents Parent Entity corporate costs that are not allocated to individual segments.
** The revenue of New Hope Corporation Limited and Round Oak Minerals Pty Limited is in respect of contracts with customers recognised at a point in time.
*** Represents inter-segment dividends and interest received from subsidiaries and associates that are eliminated on consolidation.
^ These investments are equity accounted associates, consequently there is no revenue recognised as only the share of associates profit after tax is recognised in profit or loss.
# The income tax expense relates to the equity accounted associates deferred tax on consolidation.
80
81
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
Group Structure and Performance
4 NOTE 4
SEGMENT INFORMATION (continued)
b) Reporting segments (continued)
n
o
i
t
a
r
o
p
r
o
C
e
p
o
H
w
e
N
d
e
t
i
m
i
L
g
n
i
t
s
e
v
n
I
s
e
i
t
i
v
i
t
c
a
r
e
h
t
O
y
t
P
s
l
a
r
e
n
M
i
k
a
O
d
n
u
o
R
d
e
t
i
m
i
L
$’000
$’000
$’000
Year ended 31 July 2018
(restated)
Revenue from external customers**
Intersegment revenue***
1,078,439
–
62,364
94,497
Total revenue
1,078,439
156,861
33,945
–
33,945
m
o
c
e
l
e
T
G
P
T
^
d
e
t
i
m
i
L
$’000
–
–
–
s
k
r
o
w
k
c
i
r
B
^
d
e
t
i
m
i
L
$’000
/
t
n
e
m
g
e
s
r
e
t
n
I
d
e
t
a
c
o
l
l
a
n
u
$’000
d
e
t
a
d
i
l
o
s
n
o
C
$’000
–
–
–
–
(94,497)
1,174,748
–
(94,497)
1,174,748
Regular profit/(loss) before income tax
Add non-regular items before tax
373,207
(105,594)
71,158
67,809
(13,804)
(4,064)
109,033
(8,998)
44,518
(4,012)
*(12,808)
(2,824)
571,304
(57,683)
Profit/(loss) before income tax
267,613
138,967
(17,868)
100,035
40,506
(15,632)
513,621
Less income tax (expense)/benefit
Loss after tax from discontinued operations
(80,284)
(37,831)
(34,122)
–
5,281
–
#(27,214)
–
#(8,841)
–
4,690
–
(140,490)
(37,831)
149,498
104,845
(12,587)
72,821
31,665
(10,942)
335,300
(68,033)
(421)
–
–
–
–
(68,454)
81,465
104,424
(12,587)
72,821
31,665
(10,942)
266,846
Profit/(loss) after tax
Less (profit) attributable to
non-controlling interests
Profit/(loss) after tax
attributable to members
Profit/(loss) after tax
attributable to members (as above)
Non-regular loss/(profit) after tax
attributable to members
Regular profit/(loss) after tax
attributable to members
5 NOTE 5
RESERVES
Certain changes in the value of assets and liabilities are not recognised in the profit or loss but are instead
included in other comprehensive income.
Also included in reserves is the Group’s share of the reserves of equity accounted associates.
a) Reserves attributable to members
Asset revaluation reserve
General reserve
Foreign currency translation reserve
Capital profits reserve
Hedge reserve
Share-based payments reserve
Equity reserves
Capital gains reserve
Closing balance at 31 July
b) Major movements in reserves consist of:
Asset revaluation reserve
Opening balance at 1 August
Adjustment on initial adoption of AASB 9
Revaluation of long term equity investments, gross
Revaluation of long term equity investments, deferred tax
Transfer gain on sale of long term equity investments to
capital gains reserve, gross
Transfer gain on sale of long term equity investments to
capital gains reserve, deferred tax
Transfer on sale of long term equity investments to profit, gross
Transfer on sale of long term equity investments to profit, deferred tax
Impairment of long term equity investments, gross
Impairment of long term equity investments, deferred tax
Share of associates – (decrements)/increments
Other revaluations
2019
$’000
167,561
2,342
4,058
7,861
(14,067)
6,757
(11,150)
13,241
2018
$’000
198,260
404,548
1,783
7,861
(1,347)
4,997
(10,237)
–
176,603
605,865
198,260
(39,960)
65,374
(27,065)
(25,530)
6,231
–
–
(13,167)
3,951
(329)
(204)
196,254
–
4,679
(25)
–
–
(10,711)
3,449
5,889
(1,683)
408
–
81,465
104,424
(12,587)
72,821
31,665
(10,942)
266,846
Closing balance at 31 July
167,561
198,260
51,539
(41,139)
2,856
36,212
12,853
1,976
64,297
133,004
63,285
(9,731)
109,033
44,518
(8,966)
331,143
Asset revaluation reserve
At balance date, the asset revaluation reserve predominately relates to the net unrealised gains of the Parent
Entity’s long term equity investments.
* Unallocated represents Parent Entity corporate costs that are not allocated to individual segments.
** The revenue of New Hope Corporation Limited and Round Oak Minerals Pty Limited is in respect of contracts with customers recognised at a point in time.
*** Represents inter-segment dividends and interest received from subsidiaries and associates that are eliminated on consolidation.
^ These investments are equity accounted associates, consequently there is no revenue recognised as only the share of associates profit after tax is recognised in profit or loss.
# The income tax expense relates to the equity accounted associates deferred tax on consolidation.
82
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Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
Group Structure and Performance
5 NOTE 5
RESERVES (continued)
Capital profits reserve
Opening balance at 1 August
Transactions with non-controlling interests
Closing balance at 31 July
2019
$’000
7,861
–
7,861
2018
$’000
11,368
(3,507)
7,861
Capital Profit Reserve
Movements in the capital profit reserve relates to the decrease in the Parent Entity’s share of this reserve.
This decrease was due to the Parent Entity disposing of 9.64% of interest in New Hope Corporation Limited
to non-controlling interests during the prior year.
General reserve
Opening balance at 1 August
Transfer to retained profits
Closing balance at 31 July
2019
$’000
404,548
(402,206)
2,342
2018
$’000
404,548
–
404,548
General reserve
The general reserve historically recorded funds set aside for future requirements of the Group and related to the
Parent Entity. This reserve was created by transferring from retained profits in prior years. In the current year, the
majority of this balance has been transferred back to retained profits.
Capital gains reserve
Opening balance at 1 August
Adjustment on initial adoption of AASB 9
Gains on sale of long term equity investments, net of tax
Closing balance at 31 July
2019
$’000
–
(13,933)
27,174
13,241
2018
$’000
–
–
–
–
Capital gains reserve
The movement in capital gains reserve predominately relates to the net gains on the sale of the Parent Entity’s
long term equity investments.
Hedge reserve
Opening balance at 1 August
Revaluation, gross
Revaluation, deferred tax
Transfer to profit, gross
Transfer to profit, deferred tax
Share of associates (decrements)/increments
2019
$’000
(1,347)
(14,167)
4,253
10,554
(3,166)
(10,194)
2018
$’000
6,429
(4,185)
1,274
(7,356)
2,207
284
Closing balance at 31 July
(14,067)
(1,347)
Hedge reserve
Decrements in the Group’s share of associates in the current year relate to movements in TPG Telecom Limited’s
interest rate swap contracts to hedge the interest rate risk on its debt facilities.
84
85
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 6
Group Structure and Performance
NOTE 6
SHARE CAPITAL
Accounting policy – Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or
options are shown in equity as a deduction net of tax, from the proceeds. The amounts of any capital return are
applied against share capital.
Group and Parent Entity
Group and Parent Entity
2019
No of shares
239,395,320
2019
$’000
2018
No of shares
43,232
239,395,320
2018
$’000
43,232
Fully paid ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in
proportion to the number of, and amounts paid on the shares held. On a show of hands every holder of ordinary
shares present at a meeting in person or by proxy is entitled to one vote, and upon a poll each share is entitled to
one vote. Ordinary shares have no par value.
Capital Management
The objective of the Group’s capital management approach is to maintain a strong capital base in order to
maintain investor, creditor and market confidence and to sustain the future development of the Group.
There were no changes to the Group’s approach to capital management during the year.
The Group’s capital base consists of total shareholders’ equity, borrowings and other interest bearing liabilities.
The movement in shareholders equity is shown in the consolidated statement of changes in equity. Refer to
page 62.
During the year, the Parent Entity utilised short term bank finance. At 31 July 2019, this balance was $30 million
(2018: $nil). In addition, non-recourse debt of $12.000 million (2018: $34.825 million) has been utilised to finance
investment properties held within a 100% wholly owned subsidiary. Refer to note 26a.
The Parent Entity is not subject to any externally imposed capital requirements by financial institutions.
The Board declares dividends having regard to the Parent Entity’s regular operating cash flows, refer to note 1.
7 NOTE 7
BUSINESS COMBINATIONS
Accounting policy – Business combinations
The acquisition method of accounting is used to account for all business combinations regardless of whether
equity instruments or assets are acquired. The consideration transferred for the acquisition of a business combi-
nation comprises the fair value of the assets transferred and the liabilities incurred. The consideration transferred
also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing
equity interest in the subsidiary. Acquisition-related costs are expensed as incurred.
Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are,
with limited exceptions, measured at fair values at the acquisition date. On an acquisition-by-acquisition basis,
the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling
interest’s proportionate share of the acquiree’s net identifiable assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable
assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets
of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised
directly in profit or loss as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted
to present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate,
being the rate at which similar borrowings could be obtained from an independent financier under comparable
terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial
liability are subsequently remeasured to fair value with changes in fair value recognised in the profit or loss.
If the Group recognises previous acquired deferred tax assets after the initial acquisition accounting is completed
there will be no adjustment to goodwill. As a consequence, the recognition of the deferred tax asset will increase
the Group’s net profit after tax.
Other unincorporated arrangements
As a result of the acquisition of an additional 40% interest in the Bengalla Joint Venture, New Hope Corporation
Limited has identified another category of interest in other entities and provides below the updated accounting
policy of that arrangement. Refer to Note 11.
a)
New Hope Corporation Limited acquisition of additional interests
in the Bengalla Joint Venture
New Hope Corporation Limited increased its stake in the assets and liabilities of the Bengalla Joint Venture by
30% on 3 December 2018 and a further 10% on 25 March 2019. The 10% acquisition had an effective date of
1 December 2018, with a purchase price adjustment for working capital movements between 1 December 2018
and 25 March 2019. The Bengalla Joint Venture is a coal mining and extraction operation producing thermal coal
in the Hunter Valley, New South Wales in which New Hope Corporation Limited has held a 40% interest since
1 March 2016.
Revenue and profit contribution
The acquired business contributed revenues of $253.024 million and a regular profit before tax since acquisition
of $82.173 million to New Hope Corporation Limited for the period 1 December 2018 to 31 July 2019. The
anticipated increase in production and sales tonnes annually is 4 million tonnes. Due to the variability in key
market factors and operational variations, it is considered impractical to disclose an estimated revenue and profit
or loss assuming the acquisition had occurred on 1 August 2018.
86
87
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Group Structure and Performance
7 NOTE 7
Details of the acquisition
BUSINESS COMBINATIONS (continued)
Purchase consideration and the net assets acquired are as follows:
30%
$’000
10%
$’000
2019 Total
40%
$’000
The fair value of assets and liabilities recognised
as a result of the acquisition are as follows:
Total purchase consideration
645,147
193,275
838,422
Cash
Trade and other receivables
Inventories
Property, plant and equipment
Intangibles
Trade and other payables
Provisions
Net assets acquired
3,787
13,721
18,236
622,188
31,133
(12,240)
(31,678)
3,371
5,239
7,233
185,419
10,447
(7,038)
(11,396)
7,158
18,960
25,469
807,607
41,580
(19,278)
(43,074)
645,147
193,275
838,422
Net cash outflow for the acquisition are as follows:
Outflow of cash to acquire subsidiary, net of cash acquired:
Total cash consideration – current year
Less: cash balance acquired
645,147
(3,787)
193,275
(3,371)
838,422
(7,158)
Outflow of cash – investing activities
641,360
189,904
831,264
b) WHSP Aquatic Achievers Pty Limited’s acquisition of two swim schools
On 1 December 2018, a 100% subsidiary of the Parent Entity, WHSP Aquatic Achievers Pty Limited, acquired 100%
interest in two swim schools – one in Australian Capital Territory and one in Victoria.
An earn-out clause in the Business Sale Agreement requires the Group to pay the vendor amounts in excess of
base EBITDA of $0.445 million for the twelve-month period ending 31 October 2019. The deferred liability of
$0.225 million has been calculated based on the estimated profit forecasts in support of the acquisition business
case. The key assumption taken into consideration is the probability of meeting the performance targets.
Revenue and profit contributions
From the date of the acquisition, the operation of the two swim schools contributed $1.68 million of revenues and
$0.84 million to regular profit before tax of the Group. If the acquisition had occurred on 1 August 2018, revenue
and regular profit before-tax would have been $2.52 million and $1.26 million respectively.
Details of the acquisition
Purchase consideration and the net assets acquired are as follows:
The fair value of assets and liabilities recognised
as a result of the acquisition are as follows:
Total purchase consideration
Total cash consideration – current year
Contingent consideration (earn-out)
Total purchase consideration
Cash and cash equivalent
Other receivables
Inventories
Property
Plant and equipment
Trade and other payables
Provisions
Fair value of net identifiable assets
Goodwill on acquisition
Net assets acquired
Net cash outflow for the acquisition are as follows:
Outflow of cash to acquire swim schools, net of cash acquired:
Total cash consideration – current year
Less: Cash balance acquired
Outflow of cash – investing activities
Stamp duty expensed
Other acquisition costs expensed
Total cash outflow
2019
$’000
8,097
7,872
225
8,097
50
12
3
4,010
1,603
(63)
(29)
5,586
2,511
8,097
7,872
(50)
7,822
180
382
8,384
The goodwill on acquisition arose from the excess of purchase price over the land, building and plant and
equipment acquired and are considered to have an indefinite life with no amortisation applied.
Key judgements and estimates
Acquisition fair value
The determination of the fair values of net identifiable assets acquired, and of any goodwill, involves significant
judgement. The allocation of fair value between intangible assets, and the tangible assets with which they are
used, is also judgmental. The Group engages third-party valuers to advise on the purchase price allocation for
significant acquisitions.
88
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Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Group Structure and Performance
c) Details of the disposal of the subsidiaries
Total consideration
Carrying amount of net liabilities
Profit before income tax
Income tax expense
Profit on loss of control of subsidiary after income tax
2019
$’000
–
(3,022)
3,022
–
3,022
2018
$’000
–
–
–
–
–
8 NOTE 8
DISCONTINUED OPERATIONS
Accounting policy – Discontinued operations
A discontinued operation is a component or subsidiary of the entity that has been disposed of or is classified as
held for sale and that represents a separate major line of business or geographical area of operations, is part of
a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired
exclusively with a view to resale. The results of discontinued operations are presented separately in the consoli-
dated statement of comprehensive income.
a) Description
On 17 October 2018, two New Hope Corporation Limited wholly owned subsidiaries, Northern Energy
Corporation Limited and Colton Coal Pty Limited were placed into voluntary administration. Effective on this
date, New Hope Corporation Limited lost control over these subsidiaries. The financial information relating to the
discontinued operations for the period to 17 October 2018 is set out below.
b) Financial performance and cash flow information
The financial performance and cash flow information presented reflects the operations for the period ended
17 October 2018 and the comparative balance for the year ended 31 July 2018.
Revenue
Expenses
Loss before income tax
Income tax benefit
Loss after income tax of discontinued operations
Profit on loss of control of subsidiary after income tax
Profit/(loss) from discontinued operations
Other comprehensive income from discontinued operations
Net cash outflow from operating activities
Net cash inflow / (outflow) from investing activities
Net cash inflow / (outflow) from financing activities
Net cash (outflow) from discontinued operations
Basic earnings per share from discontinued operations
Diluted earnings per share from discontinued operations
2019
$’000
26
(2,828)
(2,802)
–
(2,802)
3,022
220
–
(329)
26
303
–
2019
Cents
0.09
0.09
2018
$’000
134
(53,935)
(53,801)
15,970
(37,831)
–
(37,831)
–
(9,940)
(667)
(4,016)
(14,623)
2018
Cents
(15.80)
(15.80)
90
91
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
Group Structure and Performance
9
NOTE 9
EVENTS AFTER THE REPORTING PERIOD
New Hope Corporation Limited
On 10 September 2019, New Hope Corporation Limited received the judgment from the Queensland Court of
Appeal in relation to the New Acland Stage 3 project which ruled against Oakey Coal Action Alliance and in favour
of New Hope Corporation Limited on groundwater and apprehension of bias. New Hope Corporation Limited is
pleased with the outcome however will await final orders to be handed down in due course before assessing next
steps for the project. New Hope Corporation Limited remains committed to delivering the New Acland Stage 3
project in a timely manner to ensure continuity of operations and ongoing employment in the region.
TPG Telecom Limited
On 10 September 2019, the Federal Court hearing commenced in relation to the proposed merger of TPG
Telecom Limited and Vodafone Hutchison Australia.
Other than the above, the Directors are not aware of any other events subsequent to balance date that would
significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group
in subsequent years.
Accounting for Our Investments
10 NOTE 10
INVESTMENTS IN SUBSIDIARIES
Accounting policy – Investments in subsidiaries
Investments in subsidiaries such as New Hope Corporation Limited, the PSRE Urban Regeneration Trust, Round
Oak Minerals Pty Limited (refer to segment note for a detailed listing of subsidiaries) are not recognised as
individual investments in the consolidated financial statements. The assets and liabilities of each subsidiary
are instead recognised in the consolidated statement of financial position. Dividends from subsidiaries are not
recognised in the profit or loss, instead the results from each subsidiary are included in profit or loss.
The Parent Entity has a 50.01% (2018: 50.01%) shareholding in its subsidiary, New Hope Corporation Limited.
New Hope Corporation Limited is an Australian listed company, its shares are publicly traded on the Australian
Securities Exchange. It is a diversified energy company with operations covering coal mining and production,
coal port operations and oil and gas production and exploration. Operations are mainly based in South East
Queensland and in the Hunter Valley region, NSW with the Bengalla Joint Venture. The remaining 49.99% (2018:
49.99%) shareholding in New Hope Corporation Limited (non-controlling interests) has a proportional share in the
results and equity of New Hope Corporation Limited.
The Group consolidates the net assets and results of subsidiaries in full, and discloses separately for each, the
amounts not controlled by the Group (non-controlling interests). The following provides a summary of the
financial information of New Hope Corporation Limited:
1 Non-controlling interest share of profit after income tax for the year $105.305 million (2018: profit after
income tax of $68.033 million);
1 Net decrease in cash and cash equivalents $217.432 million (2018: increase $28.747 million);
1 Total assets $2.801 billion (2018: $2.338 billion);
1 Total liabilities $840.401 million (2018: $449.967 million);
1 Net assets $1.961 billion (2018: $1.888 billion); and
1 Non-controlling interest share of net assets $980.310 million (2018: $944.011 million).
Changes in group structure
Please refer to Note 4 for changes in the group structure.
92
93
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
Accounting for Our Investments
11 NOTE 11
INVESTMENTS IN JOINT ARRANGEMENTS
Accounting policy – Investments in joint arrangements
A joint arrangement is an arrangement where two or more parties share control. Joint arrangements are classified
as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of
each investor, rather than the legal structure.
Joint operations
A joint operation is a joint arrangement in which the parties that share joint control, have rights to the assets,
and obligations for the liabilities relating to the arrangement. The Group recognises its direct right to the assets,
liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities,
revenues and expenses. These have been incorporated into the Group’s financial statements under the appro-
priate headings.
Joint ventures
A joint venture is a joint arrangement in which the parties that share joint control have rights to the net assets
of the arrangement. Interests in joint ventures are accounted for using the equity method, after initially being
recognised at cost.
Through New Hope Corporation Limited and its subsidiaries, the Group holds interests in the following joint
arrangements, each of which have been accounted for as a joint operation as described in the accounting policy
above.
Name
Accounted for as:
Group’s interest
Segment allocated to
Bengalla Joint Venture
Lenton Joint Venture
Joint operation
Joint operation
80%
90%
New Hope Corporation Limited
New Hope Corporation Limited
Bengalla Joint Venture
New Hope Corporation Limited holds a 80% interest in Bengalla thermal coal mine in New South Wales. This is an
unincorporated joint venture that is operated by Bengalla Mining Company Pty Limited, which is proportionately
owned by the participants.
New Hope Corporation Limited increased its stake in the assets and liabilities of the Bengalla Joint Venture by
30% on 3 December 2018 and a further 10% on 25 March 2019. The 10% acquisition had an effective date of 1
December 2018. This increased New Hope Corporation Limited’s interest in Bengalla Joint Venture from 40% to
80%. Refer to Note 7 for more details of the Bengalla Joint Venture acquisition.
Key judgement
Classification of joint arrangements
The Group assesses whether it has the power to direct the relevant activities of the investee by considering the
rights it holds with respect to the work programme and budget approval, investment decision approval, voting
rights in joint operating committees and changes to the joint arrangement participant holdings. Where the Group
has control, judgement is also required to assess whether the arrangement is a joint operation or a joint venture.
12 NOTE 12
EQUITY ACCOUNTED ASSOCIATES
Accounting policy – Investments in associates
Associates are equity accounted, with the initial investment being increased/(decreased) by the Group’s share
of the associate’s profits/(losses) as recognised in the profit or loss, movements in their reserves (other compre-
hensive income) and decreased by dividends received. Dividends from associates are not recognised in the
consolidated statement of comprehensive income.
As the accounting policy for Investments in associates is considered key to understanding the Group’s results and
financial position, the detailed accounting policy is set out in the basis of consolidation at the beginning of this
financial report (refer to Basis of preparation).
Non-current assets
Equity accounted associates
a) Movements in equity accounted carrying values
Opening balance at 1 August
New investments during the period
Reclassification of a long term equity investment to equity
accounted associate
Reclassification of equity accounted associate to long term
equity investment
Gain on deemed disposal of equity accounted associates
Share of profits after income tax, before impairment
Net impairment expense of equity accounted associates
Dividends received/receivable
Add back share of dividends received by associate
Share of associates (decrement)/increment in reserves
Effect of initial adoption of AASB 9 and 15 from associates
2019
$’000
2018
$’000
1,603,610
1,517,125
1,517,125
11,172
1,415,973
10,751
20,000
–
1,921
134,343
(34,807)
(59,069)
24,730
(11,774)
(31)
–
(25,940)
272
161,661
(16,545)
(57,051)
24,721
3,283
–
Closing balance at 31 July
1,603,610
1,517,125
94
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Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
Accounting for Our Investments
12 NOTE 12
EQUITY ACCOUNTED ASSOCIATES (continued)
b) Details of investments and results in associates
Group’s percentage of holding
at balance date*
Share of results from equity accounted associates
Contribution to Group net profit for the year**
2019
2018
Name of associated entity
July 2019
July 2018
%
30.1
19.3
43.8
38.6
25.3
19.9
%
30.3
19.3
43.9
39.2
25.3
19.9
Apex Healthcare Berhad(i)
Australian Pharmaceutical Industries Limited(i)
Brickworks Limited(i)
Pengana Capital Group Limited(ii)
TPG Telecom Limited
Palla Pharma Limited (formerly TPI Enterprises Limited)
Other Associates
Total
Gain on de-recognition of associates, net of tax
Net gain on deemed disposal of equity accounted associates, net of tax
Deferred tax expense recognised on equity accounted associates
Net impairment expense of associates
Total non-regular items from equity accounted associates
various
various
3,642
(3,459)
183
6,671
Regular
Non-Regular
$’000
$’000
5,917
10,351
54,710
3,058
95,044
(1,250)
(96)
(1,063)
27,181
(8,566)
(51,136)
10
Total
$’000
5,821
9,288
81,891
(5,508)
43,908
(1,240)
Regular
Non-regular
$’000
$’000
5,019
9,669
44,518
4,799
109,033
(1,431)
(28)
(355)
(4,012)
(2,061)
(8,998)
(807)
(356)
Equity accounted
carrying amount***
July 2019
July 2018
$’000
40,130
131,412
531,234
59,742
732,177
21,352
$’000
35,905
131,954
459,932
115,679
706,311
20,705
Total
$’000
4,991
9,314
40,506
2,738
100,035
(2,238)
6,315
87,563
46,639
171,472
(37,129)
134,343
178,278
(16,617)
161,661
1,603,610
1,517,125
–
–
–
–
–
–
1,345
(13,632)
(34,807)
–
1,345
(13,632)
(34,807)
(47,094)
(47,094)
–
–
–
–
–
50,641
190
(39,198)
(16,545)
50,641
190
(39,198)
(16,545)
(4,912)
(4,912)
Net contribution from equity accounted associates
171,472
(84,223)
87,249
178,278
(21,529)
156,749
* The percentage holding represents the Group’s total holding in each Associate.
** Contribution to Group net profit represents the amount included in profit after tax before non-controlling interest.
*** Equity accounted carrying amount is the carrying value of the associates in the consolidated statement of financial position.
(i)
(ii)
During the current year, Apex Healthcare Berhad, Australian Pharmaceutical Industries Limited and Brickworks
Limited issued shares by way of employee share scheme. The Parent Entity did not participate in the share
issues. As a result, there has been a change in the Group’s shareholding in each of these investments.
During the current year, Pengana Capital Group Limited issued shares under its Loan Share Plan and as
consideration for the acquisition of PT Private Capital Pty Limited. The Parent Entity did not participate in the
shares issues. As a result, the shareholding in this investment has reduced by 0.6% to 38.6%.
Key judgements and estimates
Recoverable value of investments in associates
The recoverable amount of investments in equity accounted associates is reviewed at each reporting date after
taking into consideration any applicable impairment indicators. Refer to note 20 for more details.
96
97
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Accounting for Our Investments
12 NOTE 12
EQUITY ACCOUNTED ASSOCIATES (continued)
c)
Group’s share of associates’ expenditure
commitments
Capital commitments
Lease commitments
2019
$’000
2018
$’000
80,783
113,760
49,641
117,332
d) Group’s share of associates’ contingent liabilities
Share of contingent liabilities incurred jointly with
other investors of the associate
16,011
19,182
e)
Summarised Group’s share of associates
financial information
Assets
Liabilities
Net assets
Revenue
Profit before income tax
Income tax expense
Profit after income tax
2,919,135
(1,102,816)
1,816,319
2,015,107
173,078
(38,735)
134,343
3,095,207
(1,238,513)
1,856,694
1,995,301
227,051
(65,390)
161,661
f )
Extract of financial information as reported by associates
that are material to the Group
The information disclosed reflects the total amounts reported in the financial statements of Brickworks Limited
and TPG Telecom Limited amended to reflect adjustments made by the Group in applying the equity method.
Brickworks Limited
TPG Telecom Limited
2019
$’000
495,024
1,385,888
(261,798)
(461,078)
2018
(restated)
$’000
368,473
1,236,615
(177,655)
(417,482)
2019
$’000
213,200
5,099,600
(895,600)
(1,529,900)
2018
(restated)
$’000
231,800
5,158,500
(885,300)
(1,720,800)
1,158,036
1,009,951
2,887,300
2,784,200
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Group’s percentage holding
43.8%
43.9%
25.3%
25.3%
Group’s share of total net assets
Goodwill
Equity accounted carrying value
Revenue
Profit after tax attributable to members
Other comprehensive income
507,568
23,666
531,234
918,695
154,642
2,646
443,772
16,160
459,932
729,428
2,749
732,177
703,289
3,022
706,311
785,238
2,477,400
2,496,100
175,442
(530)
173,800
(37,100)
396,400
7,300
Total comprehensive income
157,288
174,912
136,700
403,700
Dividends received by the Parent
Entity from the associate
36,105
34,135
9,376
*9,321
*
The Parent Entity participated in the TPG Telecom Limited dividend reinvestment plan (non-cash transaction) during 2018.
98
99
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
14
13
Accounting for Our Investments
NOTE 13
TRADING EQUITIES
Accounting policy – Trading equities
Trading equities are initially recognised at fair value and any transaction costs are immediately expensed. These
equities are principally held for the purpose of selling in the short to medium term.
Recognition
Purchase or sales of trading equities are recognised on trade-date, the date on which the Group commits to
purchase or sell the asset.
Classification
Trading equities are classified as financial assets at fair value through profit or loss and are included in current
assets.
Subsequent measurement
At each balance date, trading equities are remeasured to fair value. Gains or losses arising from changes in the fair
value of trading equities are recognised in the profit or loss within other income in the period in which they arise.
Derecognition
Trading equities are derecognised on trade date and when the rights to receive cash flows from the investments
have expired or have been sold and the Group has transferred substantially all the risks and rewards of ownership.
Current assets
Trading equities – listed
Trading equities – unlisted
Total trading equities
Fair value and price risk
2019
$’000
60,950
16,198
77,148
2018
$’000
60,902
9,028
69,930
Information regarding the Group’s exposure to price risk is set out in note 23 and fair value classification is set out
in note 24.
The Group has used the following valuation techniques: market approach, income approach, cost approach and
net asset approach to determine the fair value of unlisted equity investments. Refer to note 24 for details of these
valuation techniques.
Listed and unlisted trading equities
Represents equities held by the Parent Entity.
100
NOTE 14
LONG TERM EQUITY INVESTMENTS
Accounting policy – long term equity investments
Long term equity investments are initially recognised at
fair value plus any transaction costs. These investments
are intended to be held for the long term for capital
growth and dividend income. These investments are
included in non-current assets unless management
intends to dispose of the investment within 12 months
of the reporting date at which time they are transferred
to and disclosed as held for sale equities.
Recognition
Purchases of equity investments are recognised
on trade date being the date on which the Group
commits to purchase the asset.
Classification
Long term equity investments are classified as
financial assets at fair value through other comprehen-
sive income.
Non-current assets
Long term equity investments – listed (refer to note 14a)
Long term equity investments – unlisted
Total long term equity investments
Dividends
Dividends from long term equity investments held at
FVOCI recognised in profit or loss in other income:
Related to investments sold during the year
Related to investments held at the end of the year
Total Dividends
Subsequent measurement
At each balance date, long term equity investments
are remeasured to fair value. Changes in the fair value
of long term equity investments are recognised in
equity through the asset revaluation reserve after
allowing for deferred capital gains tax. All long term
equities are subject to capital gains tax.
Derecognition
Equity investments are derecognised on trade date
and when the rights to receive cash flows from the
equity investments have expired or have been sold
and the Group has transferred substantially all the risks
and rewards of ownership.
When securities classified as long term equity
investments are sold, the accumulated fair value
adjustments previously recognised in equity, are
transferred to Capital gains reserve in equity.
2019
$’000
753,966
31,169
785,135
1,920
31,435
33,355
2018
$’000
720,297
12,001
732,298
673
26,151
26,824
a) Long term equity investments pledged as security for short term finance
Long term equity investments with a fair value of $30 million (2018: $nil) have been transferred to the Parent
Entity’s bank as security for the $30 million equity finance loan. As the Parent Entity retains the risks and benefits
of ownership of the transferred long term equity investments, including the right to receive dividends, these long
term equity investments continue to be included as an asset in the consolidated statement of financial position.
b) Fair value and price risk
Information regarding the Group’s exposure to price risk is set out in note 23 and fair value classification is set out
in note 24.
The Group has used the following valuation techniques: market approach, income approach, cost approach and
net asset approach to determine the fair value of unlisted long term equity investments. Refer to note 24 for
details of these valuation techniques.
Long term equity investments
At 31 July 2019, the Parent Entity held $758.780 million (2018: $630.213 million) of the consolidated balance.
101
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 15
Accounting for Our Investments
NOTE 15
INVESTMENT PROPERTIES
Accounting policy – Investment properties
Investment properties consist of properties held for
long term rentals and/or capital appreciation and
properties being constructed or developed for future
use as investment properties.
Recognition
Investment properties are initially recognised at cost
including transaction costs. Other costs capitalised into
the carrying value of investment properties include
development, construction, redevelopment, refurbish-
ment (other than repairs and maintenance) and interest
(until the property is ready for its intended use).
Classification
Investment properties are classified as non-current
assets at fair value. Changes in fair value are recog-
nised as gains or losses in the profit or loss as part of
‘Other income’.
Subsequent Measurement
Valuations are obtained periodically, and at least
every three years from independent Registered
Property Valuers who hold recognised and relevant
qualifications and have recent valuation experience in
the location and categories of each property held.
At the end of each reporting period, the Directors
update their assessment of the fair value of each
property, taking account of the most recent inde-
pendent valuations.
Amounts provided to customers as lease incentives
and assets relating to fixed rental income increases in
operating lease contracts are included within invest-
ment property values. Lease incentives are amortised
over the term of the lease on a straight line basis. The
amortisation is applied to reduce gross rental income.
Rental income is recognised on a straight line basis
within revenue.
Derecognition
On disposal of an investment property, a gain or loss is
recognised in the profit or loss in the year of disposal.
It is calculated as the difference between the carrying
amount of the asset at the date of disposal and the net
proceeds received.
Non-current assets
Investment properties
Industrial property
Commercial property
Property under development
Total investment properties
Reconciliation
Opening balance at 1 August
Disposals
Capitalised costs
Property transferred from property, plant and equipment
Property transferred to property, plant and equipment
Variation of a lease
Net fair value gain on investment properties
Movement in tenant incentives, ‘make good’ contributions,
contracted rent uplift balance and leasing fee asset
Closing balance at 31 July
2019
$’000
33,734
72,547
–
2018
$’000
33,716
72,428
52,110
106,281
158,254
158,254
(85,756)
26,321
–
–
–
7,655
165,016
(25,454)
13,007
3,757
(669)
2,650
–
(193)
(53)
106,281
158,254
During the year, the Group sold two investment properties for a total of $100.068 million. The Parent Entity holds
a 50.1% interest in these properties, with URB Investments Limited (ASX: URB) holding 49.9%. These properties
are all located within the greater Sydney area.
In the prior year, the Group sold its 100% owned Sydney metropolitan commercial property for $29.059 million.
a)
Amounts recognised in the profit or loss
for investment properties
Rental income
Direct operating expenses from property that generated rental income
Direct operating expenses from property that did not generate income
2019
$’000
8,674
4,532
–
2018
$’000
7,058
4,588
1,102
Operating expenses for property that generated income includes finance costs of $688,000 (2018: $1,006,000).
b) Measuring investment properties at fair value
The basis of valuations for investment properties is fair value, being the amounts for which the assets could be
exchanged between knowledgeable willing parties in an arm’s length transaction, based on current prices in an
active market for similar properties in the same location and condition and subject to similar leases.
The fair value hierarchy, as discussed in note 24 to this report, provides an indication about the reliability of the
inputs used in determining fair value. All investment properties have been categorised within the Level 3 fair value
basis as some of the inputs required to value property are not based on ‘observable market data’.
c) Non-current assets pledged as security
As at 31 July 2019, $26.848 million (2018: $72.427 million) of the Group’s investment property was pledged as
security. Refer to note 26 for information on non-current assets pledged as security by the Group.
d) Leasing arrangements
The Group is entitled to receive rental income from non-cancellable
operating leases on investment properties. The amounts have not been
recognised in the financial statements and are receivable as follows:
Within one year
Later than one year but not later than five years
Later than five years
2019
$’000
2018
$’000
4,678
6,716
2,069
13,463
6,160
8,992
3,677
18,829
Key judgements and estimates
In determining fair value, appropriate valuation techniques may be used, including the discounted cashflow and
capitalisation methods. Discount rates and capitalisation rates are determined based on industry experience and
knowledge and where possible, a direct comparison to third party rates for similar assets in comparable locations.
Rental revenue from current leases and assumptions about future leases, as well as any expected operational cash
outflows in relation to the property, are reflected in fair value.
In relation to properties under development, fair value is determined based on the market value of the property
on the assumption it has already been completed at the valuation date less costs to complete the project,
including an appropriate adjustment for profit and risk.
102
103
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 16
Accounting for Our Investments
NOTE 16
TERM DEPOSITS
Accounting policy – Term deposits
Term deposit investments are non-derivative financial assets with fixed or determinable payments and fixed
maturities that the Group’s management has the positive intention and ability to hold to maturity. Term deposit
financial assets are included in current assets, except those with maturities of more than 12 months from the
reporting date, which are classified as non-current assets.
Recognition and derecognition
A term deposit is recognised on the date when the cash funds are deposited with the bank. The term deposit
is derecognised on the term maturity date of the deposit.
Subsequent measurement
Term deposits are carried at amortised cost using the effective interest method.
Current assets
Term deposits
2019
$’000
1,470
2018
$’000
206,044
Term deposits are held to their maturity of less than one year and carry a weighted average interest rate of 2.2%
per annum (2018: 2.55%).
At 31 July 2019, Round Oak Minerals Pty Limited, a subsidiary, held $1.470 million (2018: $1.044 million) of
the consolidated balance. At 31 July 2018, New Hope Corporation Limited held $205 million (2019: $nil) of the
consolidated balance.
104
17
NOTE 17
CASH AND CASH EQUIVALENTS
Accounting policy – Cash and cash equivalents
Cash and cash equivalents includes cash on hand, cash at bank, and deposits held with financial institutions for
which there is a short-term identified use in the operating cash flows of the Group. Bank overdrafts, should they
occur, are shown within borrowings in current liabilities in the consolidated statement of financial position.
Current assets
Cash at bank and on deposit
2019
$’000
2018
$’000
125,445
337,933
Cash at bank and on deposit attracts variable interest at rates between 0% and 1.85% per annum
(2018: 0% and 1.85%).
Cash at bank in the consolidated statement of financial position at reporting date includes cash held by the Parent
Entity and its subsdiaries. At 31 July 2019, the Parent Entity held $38.830 million (2018: $41.946 million) and New
Hope Corporation Limited held $58.827 million (2018: $274.975 million) of the consolidated balance.
Reconciliation of profit after income tax to
net cash inflow from operating activities
Profit after tax for the year
Adjustments for non-cash items:
Depreciation and amortisation
Amortisation of transaction costs
Gain from discontinued operations
Gain on deemed disposal of equity accounted associates
Gain on derecognition of equity accounted associates
Gain on revaluation of investment property
Gain on sale of long term equity investments
Gain on sale of investment property
Impairment charges
(Gain)/loss on trading equities fair valued through profit or loss
Net foreign exchange (gain)
Net (gain)/loss on sale of non-current assets
Non-cash in-specie dividend
Non-cash share based payments
Share of profits of associates not received as dividends or distributions
Other non-cash items
Changes in operating assets and liabilities,
net of effects from purchase and sales of businesses:
Decrease/(increase) in trade debtors, other debtors and prepayments
(Increase)/decrease in inventory
(Decrease)/increase in trade creditors and accruals
Increase in employee entitlements, other liabilities and provisions
Decrease in current tax asset
(Decrease)/increase in current tax payable
Increase/(decrease) in deferred tax liability
Decrease in deferred tax asset
2019
$’000
2018
$’000
359,489
335,300
162,949
1,384
(220)
(1,921)
–
(7,655)
–
(6,657)
60,450
(6,700)
(1,283)
(90,641)
(3,592)
2,820
(75,272)
5,181
19,718
(1,763)
(1,282)
6,619
–
(71,857)
1,337
14,898
98,694
–
–
(272)
(72,247)
–
(22,687)
(3,195)
154,436
1,003
(9,343)
769
–
1,880
(105,326)
2,462
(28,598)
5,325
18,178
36,036
13,024
52,267
(8,893)
38,747
Net cash inflow from operating activities
366,002
507,560
105
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 18
Revenue and Expenses
NOTE 18
REVENUE
Accounting policy – Revenue
Revenue from contracts with customers
Revenue is recognised at an amount that reflects
the consideration to which the consolidated entity is
expected to be entitled in exchange for transferring
goods or services to a customer. For each contract
with a customer, the consolidated entity: identifies the
contract with the customer; identifies the performance
obligations in the contract; determines the transaction
price which takes into account estimates of variable
consideration and the time value of money; allocates
the transaction price to the separate performance
obligations on the basis of the relative stand-alone
selling price of each distinct goods and service to be
delivered; and recognises revenue when or as each
performance obligation is satisfied in a manner that
depicts the transfer to the customer of the goods or
services performed.
Variable consideration within the transaction price,
if any, reflects concessions provided to the customer
such as discounts, rebates and refunds and any other
contingent events. Such estimates are determined
using either the ‘expected value’ or ‘most likely
amount’ method. The measurement if variable
consideration is subject to a constraining principle
whereby revenue will only be recognised to the extent
that it is highly probable that a significant reversal in
the amount of cumulative revenue recognised will not
occur. The measurement constraint continues until the
uncertainty associated with the variable consideration
is subsequently resolved.
The Group recognises revenue from sales from
contracts with customers as follows:
1 Coal sales revenue is recognised at a point in
time when control of the products have been
transferred to the customer in accordance with
the sales terms, in this instance when the risks
and benefits of ownership has transferred. The
legal title, risks and rewards, and therefore the
fulfilment of performance obligations normally
occurs at the time of loading the shipment for
From continuing operations
Revenue from contracts with customers
Revenue from sale of goods
Revenue from provisional pricing adjustments
Rental revenue
Revenue from services
export sales, and generally at the time the coal is
delivered to the customer for domestic sales.
1 Oil sales revenue is recognised at the point in
time when control of the products have been
transferred to the customer in accordance with
the sales terms, in this instance when the risks
and benefits of ownership have transferred.
This is normally when the oil is delivered to the
customer.
1 Copper, zinc, silver and gold sales revenue is
initially recognised at estimated sales value when
the control and the risks of ownership of the
product are passed to the customer. Adjustments
are made for changes in commodity prices,
assays, weight and currency between the time of
the sale and the time of the final settlement of
sales proceeds.
1 Revenue from the sale of goods (net of returns,
discounts and allowances) is recognised
when title has transferred to the customer in
accordance with the sales terms. Where a sale
is settled through instalments, interest revenue
is recognised over the contract term, using the
effective interest rate method.
1 Rental income is recognised on a straight-line
basis over the lease term.
1 Service fee income, including consulting and
management fee income, is recognised as
revenue over time as the services are performed.
Other revenue
1 Interest revenue is recognised on a time propor-
tion basis using the effective interest method.
1 Dividend income is taken into revenue when
the right to receive payment is established. As
earnings from subsidiaries and associates are
included in consolidated profit, dividends from
subsidiaries and associates are not included in
consolidated revenue.
2019
$’000
1,509,588
5,041
9,901
32,044
Restated
*2018
$’000
1,090,445
7,496
8,904
22,222
Total revenue from contracts with customers
1,556,574
1,129,067
Other revenue
Dividend and distribution revenue
Interest revenue
Other
Total other revenue
2019
$’000
36,838
16,261
6,215
59,314
Restated
*2018
$’000
28,789
9,780
7,112
45,681
Revenue from continuing operations
1,615,888
1,174,748
* Comparative figures have been restated to present the impact of the discontinued operations (as outlined in note 8) as well as other
reclassifications to better reflect the disclosures in the current year.
Revenue from contracts with customers
a) Disaggregation of revenue
The Group presented disaggregated revenue based on what each major strategic investment provided to
customers and the timing of transfer of goods and services.
New Hope
Corporation
Limited
$’000
Other
Investing
activities
$’000
Round Oak
Minerals Pty
Limited
$’000
Major product lines
Coal, oil and gas
Copper, gold and zinc
Other goods and services
Total revenue from contracts with customers
Other revenue
Total revenue from continuing operations
Total revenue from contracts with customers by geographical regions
Australia
Asia
1,281,235
–
13,565
1,294,800
11,629
1,306,429
81,786
1,213,014
–
–
128,758
128,758
47,563
176,321
128,758
–
2019
Total
$’000
1,281,235
133,016
142,323
1,556,574
59,314
1,615,888
–
133,016
–
133,016
122
133,138
30,417
102,599
240,961
1,315,613
Total revenue from contracts with customers
1,294,800
128,758
133,016
1,556,574
Timing of revenue recognition from contracts with customers
Goods and services transferred at a point in time
Goods and services transferred over time
1,281,235
13,565
118,397
10,361
133,016
–
1,532,648
23,926
Total revenue from contracts with customers
1,294,800
128,758
133,016
1,556,574
Major product lines
Revenue from contracts with customers come from the sale of coal, oil, gas, copper, zinc, silver, gold, properties
and the provision of management and consulting services.
Major customer
Included within revenue from the sale of coal, oil and gas is one customer that represents more than 10% of the
Group’s total revenue. During the year, one customer contributed $189.013 million (2018: $210.390 million) of the
Group’s external revenue.
106
107
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 19
Revenue and Expenses
NOTE 19
OTHER INCOME
Accounting policies – Other income
Other income includes gains or losses made on:
1 changes in fair value for certain assets including trading equities, investment property and where an equity
accounted associate becomes an equity investment.
1 the sale of an asset including the sale of trading equities, investment property and equity accounted
associates. The gain or loss is calculated as the difference between the proceeds received and the carrying
value of the asset; and
1 deemed disposals of equity accounted associates. This occurs when the Group’s percentage holding in an
associate decreases but there has not been a loss of significant influence. The Group continues to equity
account the associate.
Reclassification adjustment on sale of long term equity investments(i)
Gain on sale of property, plant and equipment
Gain on deemed disposals of equity accounted associates
Gain on de–recognition of equity accounted associates
Gain/(loss) on trading equities fair valued through profit or loss
Gain on revaluation of investment property
Gain on sale of investment property
Insurance recovery
Other items
2019
$’000
–
90,641
1,921
–
6,700
7,655
6,657
3,264
571
Restated
*2018
$’000
22,687
–
272
72,247
(1,003)
–
3,195
298
892
Total other income
117,409
98,588
* Comparative figures have been restated to present the impact of the discontinued operations as outlined in note 8 as well as other
reclassifications to better reflect the disclosures in the current year.
(i) From 1 August 2018, under AASB 9, the realised gain or loss on the sales of long term equity investments are
recognised in capital gains reserves in equity.
In the prior year and in accordance with AASB 139, the realised gain or loss on sale of long term equity
investments were calculated as the difference between the proceeds received and the carrying value of the
assets and any fair value changes that have previously been recognised in equity (through reserves). As these
amounts have not previously been recognised in the profit or loss, they are included in profit or loss as a
reclassification adjustment when the long term equity investment is sold.
20
NOTE 20
EXPENSES
Accounting policies – Expenses
Depreciation and amortisation
Depreciation and amortisation expenses are non-cash expenses and represent the allocation of the cost of certain
fixed assets such as buildings, plant and equipment and mining reserves and development, over the time that the
asset is expected to generate revenue for the Group.
Different depreciation rates apply to each asset and are included in the notes for each asset.
Impairment
Impairment charges are non-cash expenses and are recognised when the carrying value of an asset or group of
assets exceeds its recoverable amount either through the use or sale of the asset. Recoverable value assessment
for each asset class is discussed within the notes for each asset.
Impairment losses are expensed to the profit or loss unless the asset has been previously revalued. Where the
asset has been previously revalued, the reduction in value is recognised as a reversal to the extent of the previous
revaluation, and any residual is recognised as an impairment expense.
An impairment expense recognised on goodwill is permanent and is prohibited from being reversed.
For all other assets, an assessment is made at each reporting date as to whether an impairment loss recognised
in a prior period no longer exists or has decreased. If it is determined that the impairment is no longer required,
the carrying value of the asset is increased and the previously recognised impairment expense is reversed in the
profit or loss.
Employee benefits expense
Employee benefits expense includes the payment of salary and wages (including the value of non-cash benefits
such as share based payments), sick leave, superannuation and accruals for annual leave and long service leave.
Finance costs
Finance costs are expensed when incurred, except for interest incurred on borrowings that relate to the construc-
tion of Investment properties. This interest is included in the cost of the properties.
Exploration costs expensed
Exploration costs that do not satisfy the criteria to be capitalised are expensed. Refer Note 29 for discussion
on the criteria.
108
109
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
Revenue and Expenses
20
NOTE 20
EXPENSES (continued)
Profit before income tax from continuing operations
includes the following specific expenses:
Depreciation
Buildings
Plant and equipment
Total depreciation
Amortisation
Mining reserves and mine development
Intangible assets
Oil producing assets
Lease incentive and leasing fee assets
Total amortisation
Impairment charges/(reversals)
Equity accounted associates(i)
Long term equity investments(ii)
Plant and equipment(iii)
Coal exploration and evaluation assets(iv)
Other assets
Total impairment charges/(reversals)
Operating lease costs expensed
Employee benefits expense(v)
Exploration costs expensed(vi)
Onerous contract and other liquidation related expenses(vii)
2019
$’000
Restated
*2018
$’000
2,255
60,694
62,949
88,747
3,280
7,885
88
100,000
34,807
–
24,209
–
1,434
60,450
20,656
231,140
16,009
21,675
1,555
51,079
52,634
35,664
2,360
7,961
75
46,060
16,545
5,889
570
91,761
(857)
113,908
14,706
148,732
13,561
14,976
* Comparative figures have been restated to present the impact of the discontinued operations as outlined in note 8 as well as other
reclassifications to better reflect the disclosures in the current year.
Key estimate
Recoverable value
The assessments of the recoverable value of non-current assets involves significant areas of estimation and
judgement by management. Valuations have an element of uncertainty and therefore may not reflect the actual
values of these assets in the future.
i)
Impairment of equity accounted associates
The recoverable amount of investments in equity accounted associates has been assessed as at 31 July 2019.
Where the carrying value of an investment exceeded the recoverable amount, the investment has been
impaired. At each reporting date, an assessment is made as to whether there are any circumstances that
would indicate that the impairment recognised has decreased or no longer exists. Where evidence supports
a reduction in the impairment, the impairment expense may be reversed through the profit or loss. During
the year, an impairment expense of $46.519 million was recognised on the investment in Pengana Capital
Group Limited and reversal of impairment of $9.915 million and $1.797 million were recognised for Verdant
Minerals Limited and Palla Pharma Limited (formerly TPI Enterprises Limited) respectively.
ii)
Impairment of long term equity investments
From 1 August 2018, under AASB 9, these long term equity investments are classified as FVOCI investments
by way of an irrevocable election. Any fair value adjustment recognised will be transferred to the asset
revaluation reserve and no longer will be recognised in the profit or loss. Any realised gain or loss on disposal
will be transferred from the asset revaluation reserve to the capital gains reserve within equity.
In the prior year and in accordance with AASB 139, a ‘prolonged decline in the fair value of an investment in
an equity instrument below its cost is objective evidence of impairment’. Where a long term equity invest-
ment’s last sale price is lower than the original cost, and the investment is considered to be ‘impaired’, the
Group had recognised an impairment expense in respect of these investments in the profit or loss. In 2018,
$5.889 million impairment expenses were recognised by the Group in the profit or loss.
iii) Impairment of property, plant and equipment (including mine development costs)
An impairment loss on property, plant and equipment (including mine development costs) is recognised
for the amount by which the asset’s carrying values exceeds its recoverable amount. The recoverable
amount is the higher of an asset’s fair value less cost to sell and its value in use. For the purpose of assessing
impairment under value in use testing, assets are grouped at the lowest levels for which there are separately
identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of
assets (cash-generating units). At each reporting date, an assessment is undertaken to determine if there
are any circumstances that would indicate that an asset had been impaired. During the year, an impairment
expense of $24.209 million was recognised on mine development costs in Round Oak Minerals Pty Limited.
iv) Impairment of coal exploration and evaluation assets
In the prior year, New Hope Corporation Limited determined that an indicator of impairment existed as
at balance date in respect of the Colton Coal Pty Limited (Colton) exploration project. The indicator arose
from recently increased charges associated with access to Wiggins Island Coal Export Terminal (WICET)
which were materially higher than those previously forecast and ongoing work regarding the assessment
of Joint Ore Reserves Committee (JORC) reserves position of this asset. As a result, an impairment test was
undertaken and an impairment of $92.331 million (restated in the current year from $132.290 million due
to discontinued operations reclassification) was recognised in the prior year.
v) Employee benefits expense
Employee benefits expense represents expenses paid to all employees within the Group. This amount
includes $185.559 million (2018: $132.82 million) paid to employees of New Hope Corporation Limited and
$42.936 million (2018: $2.821 million) paid to employees of Round Oak Minerals Pty Limited. Employee
benefits expense includes superannuation expenses of $15.364 million (2018: $10.072 million).
vi) Exploration costs expensed
These amounts relate to New Hope Corporation Limited and Round Oak Minerals Pty Limited exploration
costs expensed.
vii) Onerous contract and other liquidation related expenses
These amounts relate to New Hope Corporation Limited future handling charges arising from an onerous
contract and liquidation related expenses.
110
111
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 21
Taxation
NOTE 21
INCOME TAX EXPENSE
Accounting policy – Income tax expense
The income tax expense or benefit for the year represents the tax payable on the current year’s taxable income
based on the Australian corporate income tax rate (30%) adjusted by changes in deferred tax assets and liabilities
attributable to the temporary differences between the tax bases of assets and liabilities and their carrying
amounts in the financial statements, and unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at
the end of the reporting period in the countries where the company’s subsidiaries and associates operate and
generate taxable income. Management periodically evaluates positions taken in tax returns with respect to
situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appro-
priate on the basis of amounts expected to be paid to the tax authorities.
Income taxes relating to items recognised directly in equity are recognised in equity and not in the profit or loss.
Tax consolidation legislation
Some of the entities within the Group have formed tax consolidated groups under the tax consolidation regime.
The Australian Tax Office has been notified on these decisions.
Subsidaries within the relevant tax consolidated groups, continue to be responsible under tax funding
agreements, for funding their share of tax payments that are required to be made by the head entity in their
tax consolidation group. These tax amounts are measured as if each entity within the tax consolidated group,
continues to be a stand-alone tax payer in their own right.
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 amounts receivable or payable under the tax funding
agreements are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.
a) Income tax expense comprises:
Current income tax expense
Current year
Adjustments in respect of prior years
(Over) provision in prior year
Deferred income tax expense
Relating to the origination and reversal of temporary differences
Income tax expense recognised in the profit or loss
Deferred tax included in income tax expense comprises:
Increase in deferred tax assets
Increase in deferred tax liabilities
2019
$’000
Restated
*2018
$’000
97,947
924
(990)
17,316
115,197
(21,861)
39,177
17,316
95,888
17,735
–
10,897
124,520
(1,716)
12,613
10,897
* Comparative figures have been restated to present the impacts of the discontinued operations (as outlined in note 8) as well as other
reclassifications on the consolidated statement of comprehensive Income to better reflect the disclosures in the current year.
b) Reconciliation of prima facie tax expense
to income tax expense:
Profit before income tax expense from continuing operations
Profit/(loss) before income tax expense from discontinued operations
Tax at the Australian tax rate of 30% (2018: 30%)
Tax effect of amounts which are not deductible/(taxable)
in calculating taxable income:
Sale of long term equity investments
Net impairment expense
Franking credits received (excluding subsidiary and associate entities)
Tax benefit on the carrying value of equity accounted associates
(Over) provision for income tax
Other
Total income tax expense
Effective tax rates:
Income tax expense is attributable to:
Profit from continuing operations
Loss from discontinued operations
c) Amounts recognised directly in equity
Aggregate current and deferred tax arising in the year and not
recognised in net profit or loss but directly charged or credited to equity
Decrease to deferred tax assets
Increase/(decrease) to deferred tax liabilities
Net deferred tax charged directly to equity
d) Unrecognised deferred tax assets
Relating to the tax consolidated groups of
Washington H. Soul Pattinson and Company Limited
New Hope Corporation Limited
Total unrecognised deferred tax assets
Potential tax benefit at 30%
2019
$’000
Restated
*2018
$’000
474,466
220
474,686
142,406
–
18,135
(8,455)
(26,671)
(9,633)
(585)
513,621
(53,801)
459,820
137,946
(2,204)
5,219
(7,337)
(9,302)
–
198
115,197
124,520
24.3%
27.1%
115,197
–
115,197
140,490
(15,970)
124,520
1,770
12,987
14,757
38,435
12,697
51,132
15,340
44,371
(6,133)
38,238
45,810
178,008
223,818
67,145
* Comparative figures have been restated to present the impacts of the discontinued operations (as outlined in note 8) as well as other
reclassifications on the consolidated statement of comprehensive Income to better reflect the disclosures in the current year.
112
113
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 22
Taxation
NOTE 22
DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES
Accounting policy – Deferred tax assets and deferred tax liabilities
Deferred tax assets and liabilities are calculated on the differences (temporary differences) between the carrying
amount of assets and liabilities as recognised in the consolidated financial statements and their tax cost base
multiplied by the tax rate expected to apply when these assets are recovered or liabilities are settled. The current
Australian corporate tax rate applicable to the Group is 30%.
Deferred tax asset or liabilities are provided in full, using the liability method. An exception is made for certain
temporary differences arising from the initial recognition of an asset or liability. No deferred tax asset or liability
is recognised in relation to these temporary differences if they arose in a transaction, other than a business
combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and
liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net
basis, or to realise the asset and settle the liability simultaneously.
Deferred tax assets comprises temporary
differences attributable to:
Amounts recognised in profit or loss:
Provisions
Accrued expenses
Impairment losses
Capitalised exploration
Property, plant and equipment
Tax value of losses carried-forward
Other
Amounts recognised in equity:
Long term equity investments
Share issue costs
Total deferred tax assets
Set-off of deferred tax liabilities pursuant to set-off provisions
Net deferred tax assets
Movements:
Opening balance at 1 August
Credited to profit or loss
Charged to equity
Additions through business combinations
Closing balance at 31 July
2019
$’000
106,009
98
19,219
2,702
5,566
22,949
2,896
2018
$’000
58,612
3,544
16,331
9,192
6,264
23,732
10,721
159,439
128,396
3,290
10
3,300
162,739
(106,070)
56,669
129,712
21,861
(1,770)
12,936
162,739
1,306
10
1,316
129,712
(58,145)
71,567
165,005
1,716
(44,371)
7,362
129,712
Key estimate
Deferred tax assets
Deferred tax assets have been recognised relating to carried forward capital losses, income losses and temporary
differences, based on current tax rates. Utilisation of capital tax losses and income losses requires the realisation
of capital gains and taxable income respectively, in subsequent years and the ability to satisfy certain tests at the
time the losses are recouped. The actual tax results in future periods may differ from the estimate made at the
time the deferred taxes are recognised.
Deferred tax liabilities comprises temporary
differences attributable to:
Amounts recognised in profit or loss:
Property, plant and equipment
Inventories
Capitalised exploration
Investment
Other
Amounts recognised in equity:
Long term equity investments
Property, plant and equipment
Other investments
Total deferred tax liabilities
Set-off of deferred tax liabilities pursuant to set-off provisions
Net deferred tax liabilities
Movements:
Opening balance at 1 August
Charged to profit or loss
Credited to equity
Amounts recognised on acquisition of businesses
Closing balance at 31 July
2019
$’000
2018
$’000
12,575
7,300
62,030
264,557
6,152
793
5,475
60,949
280,886
1,049
352,614
349,152
97,492
77,225
1,184
67,909
42,484
3,870
175,901
114,263
528,515
(106,070)
422,445
463,415
39,177
12,987
12,936
528,515
463,415
(58,145)
405,270
453,311
12,613
(6,133)
3,624
463,415
It is important to note, that the deferred tax liability recognised above does not represent the total tax that would
be incurred if all assets of the Group were to be sold. This is predominately due to subsidiaries and the associate
entities not being carried at their market value in the consolidated financial statements. The market values of
the listed investments together with the estimate of capital gains tax payable thereon is set out in note 1, Parent
Entity financial information.
114
115
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 23
Risk Management
NOTE 23
FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, price risk and
interest rate risk), credit risk, and liquidity risk. The Group’s overall risk management program focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance
of the Group. Entities within the Group use derivative financial instruments such as foreign exchange contracts
and interest rate swaps to hedge certain risk exposures. Derivatives are used exclusively for hedging purposes, i.e.
not as trading or other speculative instruments. The Group uses different methods to measure different types of
risk to which it is exposed. These methods include sensitivity analyses in the case of interest rate, foreign exchange
and other price risks and ageing analyses for credit risk.
Risk management is carried out in accordance with written policies approved by the Board of Directors. These
written policies cover specific areas, such as mitigating foreign exchange, interest rate and credit risks, use of
forward exchange contracts and investment of excess liquidity.
The Group holds the following financial instruments:
Fair value
through Other
Comprehensive
Income
$’000
Hedging
Derivatives
$’000
Amortised cost
$’000
Fair Value
through
Profit or Loss
$’000
–
–
–
–
785,135
–
–
785,135
–
–
–
–
749,869
–
749,869
–
–
–
–
–
–
190
190
–
–
–
–
–
–
–
Total
$’000
125,445
1,470
200,846
77,148
785,135
1,603,610
190
125,445
1,470
181,561
–
–
1,603,610
–
–
–
19,285
77,148
–
–
–
1,912,086
96,433
2,793,844
337,933
206,044
146,683
–
–
1,517,125
–
–
38,565
69,930
–
–
337,933
206,044
185,248
69,930
749,869
1,517,125
2,207,785
108,495
3,066,149
Financial assets
2019
Cash and cash equivalents
Term deposits
Loans and receivables
Trading equities
Long term equity investments
Equity accounted associates
Derivatives financial instruments
Total financial assets
2018
Cash and cash equivalents
Term deposits
Loans and receivables
Trading equities
Long term equity investments
Equity accounted associates
Total financial assets
116
Financial liabilities
2019
Trade and other payables
Derivative financial instruments
Interest bearing liabilities
Lease liabilities
Total financial liabilities
2018
Trade and other payables
Derivative financial instruments
Interest bearing liabilities
Lease liabilities
Total financial liabilities
Fair value
through Other
Comprehensive
Income
$’000
Hedging
Derivatives
$’000
Amortised cost
$’000
Fair Value
through
Profit or Loss
$’000
–
–
–
–
–
–
–
–
–
–
–
10,774
–
–
10,774
–
3,353
–
–
3,353
175,454
–
394,948
7,802
578,204
161,554
–
34,825
10,232
206,611
–
–
–
–
–
–
–
–
–
–
Total
$’000
175,454
10,774
394,948
7,802
588,978
161,554
3,353
34,825
10,232
209,964
a) Market risk
i. Foreign exchange risk
Foreign exchange risk arises when future commercial transactions and recognised asset and liabilities are
denominated in a currency that is not the Group’s functional currency. The Group is exposed to foreign exchange
risk arising from currency exposures to the US dollar through its subsidiaries, New Hope Corporation Limited and
Round Oak Minerals Pty Limited.
Forward contracts are used to manage foreign exchange risk. Senior management is responsible for managing
exposures in each foreign currency by using forward currency contracts. Contracts are designated as cash flow
hedges. Foreign exchange contracts are designated at Group level as hedges of foreign exchange risk on specific
future transactions.
The Group’s risk management policy is to hedge up to 65% of anticipated transactions (export coal sales) in US
dollars for the subsequent year, up to 57% of anticipated revenue beyond a year but less than two years and up
to 50% for revenue beyond two years but less than three years. All hedges of projected export coal sales qualify as
“highly probable” forecast transactions for hedge accounting purposes.
The Group’s exposure to foreign currency risk at the reporting date was as follows:
US dollar exposure
Cash and cash equivalents
Trade receivables
Trade payables
2019
USD $’000
2018
USD $’000
19,620
37,671
1,794
6,127
52,391
1,363
Forward exchange contracts – sell foreign currency (cash flow hedge)
503,000
201,600
ii. Commodity hedge risk
Commodity hedge contracts are used to manage price risk. Senior management is responsible for managing
exposures in pricing by using commodity hedge contracts. Contracts are designated as cash flow hedges.
Commodity price contracts are designated at Group level as hedges of price risk on specific future transactions.
Refer to note 25 for more details on forward commodity price hedge contracts.
117
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 23
Risk Management
NOTE 23
FINANCIAL RISK MANAGEMENT (continued)
Sensitivity analysis
Based on the cash, trade receivables and trade payables held at 31 July 2019, had the Australian dollar weak-
ened/ strengthened by 10% against the US dollar with all other variables held constant, the Group’s post-tax
profit for the year would have increased/(decreased) by $6.262 million/($5.123 million) (2018: $4.957 million/
($5.919 million)), mainly as a result of foreign exchange gains/(losses) on translation of US dollar receivables
and cash balances as detailed in the above table. The Group’s equity as at balance date would have increased/
(decreased) by the same amounts.
Based on the forward exchange contracts held at 31 July 2019, had the Australian dollar weakened/strengthened
by 10% against the US dollar with all other variables held constant, the Group’s equity would have increased/
(decreased) by $79.647 million/($65.239 million) (2018: $24.406 million/($29.821 million)). There is no effect on
post-tax profits.
iii. Price risk
The Parent Entity is an investment company and is exposed to equity securities price risk. The majority of the
Group’s investments are publicly traded on the Australian Securities Exchange.
Investments held for the long-term for capital growth and dividend income are classified in the consolidated
statement of financial position as long term equity investments. As the market value of individual equities
fluctuate, the fair value of the portfolio changes. Fair value adjustments are recognised in the asset revaluation
reserve within equity.
Investments held principally for the purpose of selling in the short to medium term are classified in the consoli-
dated statement of financial position as trading equities. As the market value of individual companies fluctuate,
the fair value of this portfolio changes with the movement being recognised through profit or loss.
Investments in associates are not carried at fair value in the consolidated statement of financial position but are
instead equity accounted. The initial investment is increased/(decreased) by the Group’s share of the associate’s
profits/(losses) as recognised in the profit or loss, movements in their reserves (other comprehensive income) and
decreased by dividends received. For listed associates the market value is taken into consideration when assessing
the recoverable value of an equity accounted associate.
Sensitivity analysis
The following table summarises the financial impacts of a hypothetical 5% increase/(decrease) in the market
value of those investments (trading equities and long term equity investments) that are carried at fair value as at
reporting date. Where this decrease results in an individual security being valued below its cost, the reduction
below cost may be recognised in the profit or loss where Directors consider the investment to be impaired. For
long term equity investments, a 5% increase/(decrease) in market values would have no impact on the profit or
loss as all fair value movements are recognised directly in equity.
Impact to post-tax profit
Impact on reserves
2019
$’000
(2,133)
–
(2,133)
2018
$’000
(2,132)
–
(2,132)
2019
$’000
–
(26,412)
2018
$’000
–
(24,963)
(26,412)
(24,963)
Trading equities
Long term equity investments
iv. Fair value interest rate risk
Refer to note 23e below.
b) Credit risk
Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of
contract obligations that could lead to a financial loss to the Group.
Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and
financial institutions, long term equity investments provided to the bank as security for short term debt, as well as
credit exposure to export and domestic customers, including outstanding receivables and committed transactions.
The Group has policies in place to ensure that sales of products and services are made to customers with an
appropriate credit history. The majority of customers, both export and domestic, have long term relationship with
the Group and sales are secured with long term supply contracts. Sales are secured by letters of credit when deemed
appropriate.
The Group’s derivative counterparties and term deposits are limited to financial institutions with a rating of at least
BBB. The Group has policies that limit the maximum amount of credit exposure to any one financial institution.
Credit risk further arises in relation to financial guarantees given to certain parties (refer note 26c). Such guarantees
are only provided in exceptional circumstances and are subject to specific Board approval.
The credit quality of financial assets that are neither past due nor impaired, can be assessed by reference to historical
information about counterparty defaults. To mitigate credit risk, management within each of the Group entities apply
policies to assess and monitor the credit worthiness of customers and set appropriate credit limits for each customer,
taking into account their financial positions, past experience and other factors pertaining to each industry segment.
The maximum exposure to credit risk at the reporting date is the carrying amount of assets as stated in the consoli-
dated statement of financial position. The following table summarises these assets:
Cash and cash equivalents
Term deposits
Trade and other receivables
Derivative financial instruments
Long term equity investments*
2019
$’000
125,445
1,470
200,846
190
30,000
2018
$’000
337,933
206,044
185,248
–
–
357,951
729,225
*
The long term equity investments balance as stated above represents amounts that bank holds as security against short term debt.
Refer note 26.
The trade and other receivables balances as stated above reflect the recoverable value and are net of any
impairments or allowance for expected credit loss. Refer note 31 for further description on the impairment of
receivables.
c) Liquidity risk
Liquidity risk is the risk that an entity is unable to meet its financial obligations as they fall due.
Prudent liquidity risk management is adopted by the Group through maintaining sufficient cash and marketable
securities, the ability to borrow funds from credit providers and to close-out market positions.
The Group manages liquidity risk by continually monitoring forecast and actual cashflows and matching maturity
profiles of financial assets and liabilities. Surplus funds are generally only invested in instruments that are tradeable
in highly liquid markets.
Financing arrangements
Details of existing financial arrangements are set out in note 26.
118
119
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
Risk Management
NOTE 23
FINANCIAL RISK MANAGEMENT (continued)
23
24
d) Maturity of financial liabilities
The Group has trade and other payables that are payable within 12 months and greater than 12 months. Trade
and other payables classified as current are predominately trade payables which are generally due or paid within
45 days of invoice date. Trade and other payables classified as non-current relate to the purchase consideration for
business acquisitions during the current and prior year and are due to be settled within the next two years. This
non-current balance is calculated using the present value of the future expected cash flows. Details of non-cur-
rent trade payables are set out in note 33.
The Group’s interest-bearing liabilities comprise finance leases payable over a period of two and four years is set
out in note 26b.
New Hope Corporation Limited’s secured borrowings as outlined in note 26 are an amortising facility reducing by
$30 million six monthly with any final balance up to $330 million at the end of the facility term being payable in
the two to five year period.
The Parent Entity utilises short term bank financing. The balance at year-end was $30 million (2018: $nil).
The outstanding debt can be repaid by providing 30 days notice.
A property trust of the Parent Entity has a $12.0 million bank loan facility for a commercial property in Penrith.
The balance at year end was $12 million (2018: $12 million). This outstanding loan facility is due to be repaid in
2 years.
The Group’s maturity analysis for derivative financial instruments is set out in note 25.
e) Cash flow and fair value interest rate risk
The Group may from time to time have significant interest-bearing assets which are placed with reputable
financial institutions for up to 12 months. The Group has treasury investment policies approved by each of the
relevant entity’s Board which stipulates the maximum exposure to each financial institution. Significant changes in
market interest rates may have an effect on the Group’s profit or loss and operating cash flows. Cash flow interest
rate risk is managed by placing excess funds in at call deposits, term deposits and other fixed interest bearing
assets. Refer to notes 16 and 17 for details.
Based on the deposits held at reporting date, the sensitivity to a hypothetical 1% per annum increase or decrease
in interest rates would increase/(decrease) after tax profit by $0.888 million (2018: $3.808 million). This scenario
assumes all cash and term deposits at balance date continue to remain invested for the whole year.
The Parent Entity utilises short term bank financing. The balance at year-end was $30 million (2018:$nil). The
debt is exposed to variable interest rates. Interest rate risk is minimised as the outstanding debt can be repaid by
providing 30 day notice.
f ) Climate related risk
Climate risk is a risk for the Group. The impacts of climate change have the potential to affect the value of assets
and liabilities of the Group, in particular the carrying value of its investments in mining, natural resources and
significant energy users. These impacts include long-term changes in climatic conditions, extreme weather
events, and the action taken by governments, regulators or society more generally to transition to a low carbon
economy. A key step in due diligence of the Group’s investments is the assessment of potential transactions for
environmental, social and governance (ESG) risks, including climate risk, through our Sustainable Investment
Policy and Climate Risk Policy. Significant new investments are evaluated through the Group’s compulsory ESG
risk assessment process. The risk of climate change is assessed at origination and continues after an investment is
made through the on-going investment review process. Exposures with medium or high risk profile are subject
to additional due diligence and heightened consideration and assessment. As at 31 July 2019, the Directors
considered climate related risk in the preparation of the financial statements.
NOTE 24
FAIR VALUE ESTIMATION
Accounting policy – Fair value estimation
The fair value of financial assets, financial liabilities and investment properties must be estimated for recognition
and measurement or for disclosure purposes.
The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting
date. The quoted market price used for financial assets and financial liabilities held by the Group is the last sale
price.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter
derivatives) is determined using valuation techniques. The Group uses a variety of methods and makes assump-
tions that are based on market conditions existing at each balance date. The fair value of forward exchange
contracts is determined using forward exchange market rates at the reporting date.
The carrying value less estimated credit adjustments and expected credit losses of trade receivables and payables
are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for
disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest
rate that is available to the Group for similar financial instruments.
Fair value hierarchy
Judgements and estimates are made in determining the fair values of assets and liabilities. To provide an
indication of the reliability of the inputs used in determining fair value, the Group categories each asset and
liability into one of the following three levels as prescribed by accounting standards:
Level 1:
Fair value is determined by reference to quoted prices (unadjusted) in active markets for identical assets or
liabilities as at the end of the year.
Level 2:
Fair value is determined by using valuation techniques incorporating observable market data inputs.
Level 3:
Fair value is determined by using valuation techniques that rely on inputs that are not based on
observable market data.
Fair value measurements
The following table presents the Group’s assets and liabilities measured and recognisd at fair value as at 31 July
2019 and 31 July 2018.
Consolidated 2019
Financial assets
Trading equities*
Long term equity investments**
Derivatives financial instruments
Non-financial assets
Investment properties
Total assets
Financial liabilities
Derivatives financial instruments
Total liabilities
Note
13
14
25
15
25
Level 1
$’000
60,950
753,966
–
–
814,916
Level 2
$’000
–
–
190
–
190
–
–
10,774
10,774
Level 3
$’000
16,198
31,169
–
106,281
153,648
–
–
Total
$’000
77,148
785,135
190
106,281
968,754
10,774
10,774
*
From 1 August 2018, financial assets referred to as Trading equities have been accounted for as financial assets classified as Fair Value through
Profit or Loss financial assets in accordance with AASB 9 Financial Instruments (refer note 3(a)(ii)).
** From 1 August 2018, financial assets referred to as Long term equity investments have been accounted for as financial assets classified as Fair
Value through Other Comprehensive Income financial assets in accordance with AASB 9 Financial Instruments (refer note 3(a)(ii)).
120
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Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Risk Management
24 NOTE 24
FAIR VALUE ESTIMATION (continued)
Consolidated 2018
Financial assets
Trading equities
Long term equity investments
Other financial asset
Non-financial assets
Investment properties
Total assets
Financial liabilities
Derivatives financial instruments
Total liabilities
Note
13
14
15
25
Level 1
$’000
60,902
720,327
–
–
781,229
Level 2
$’000
–
–
–
–
–
–
–
3,353
3,353
Level 3
$’000
9,028
11,971
17,571
158,254
196,824
–
–
Total
$’000
69,930
732,298
17,571
158,254
978,053
3,353
3,353
Fair value measurements using significant unobservable inputs (level 3)
The following table presents the change in level 3 items for the year ended 31 July 2019 and 31 July 2018:
Trading
equities
$’000
Long term
equity
investments
$’000
Investment
properties
$’000
Opening balance 1 August 2017
Acquisitions
Disposals
Transfer from Equity accounted associates
Transfer from Property, plant and equipment
(Losses)/gains recognised in other income
Closing balance 31 July 2018
Acquisitions
Disposals
Transfer to Equity accounted associates
Gain recognised in other income
Closing balance 31 July 2019
14,484
2,588
(7,703)
–
–
(341)
9,028
4,620
(2,038)
–
4,588
16,198
4,987
17,566
(4,982)
11,971
–
–
29,542
13,884
–
(12,257)
–
31,169
165,016
13,007
(25,454)
–
3,757
1,928
158,254
26,321
(85,756)
–
7,462
106,281
153,648
Total
$’000
184,487
33,161
(38,139)
11,971
3,757
1,587
196,824
44,825
(87,794)
(12,257)
12,050
Valuation techniques
Refer to note 15b for further details on the valuation techniques used for investment properties.
Listed equities
The fair value of listed equities is based on quoted market prices being the last sale price, at the reporting date.
Listed equities are traded in an active market, with the majority of the Group’s investments being publicly traded
on the Australian Securities Exchange.
Unlisted equities
In the absence of an active market for unlisted equities, the Parent Entity selects and uses one or more valuation
techniques to measure the fair value of these unlisted equities. The Parent Entity selects a valuation technique that
is appropriate in the circumstances and for which sufficient data is available to measure fair value.
The following valuation techniques are used by the Parent Entity:
1 Market approach: valuation techniques that use prices and other relevant information generated by market
transactions for identical or similar assets including ongoing discussions with potential purchasers.
1 Income approach: valuation techniques that convert estimated future cash flows or income and expenses
into a single discounted present value.
1 Cost approach: valuation techniques that reflect the current replacement cost of an asset as its current
service capacity.
1 Net asset approach: valuation techniques that use prices and other relevant information generated by market
transactions for identical or similar assets including ongoing discussions with potential purchasers.
Each valuation technique requires inputs that reflect the assumptions that buyers and sellers would use when
pricing the asset or liability, including the assumptions about risk. When selecting a valuation technique, the
Parent Entity gives priority to those techniques that maximise the use of observable inputs and minimise the use
of unobservable inputs. Inputs that are developed using market data (such as publicly available information on
actual transactions) and reflect the assumptions that buyers and sellers would generally use when pricing the
asset or liability are considered observable, whereas inputs for which market data is not available and therefore are
developed using the best information available about such assumptions are considered unobservable.
122
123
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
25
Risk Management
NOTE 25
DERIVATIVE FINANCIAL INSTRUMENTS
Accounting policy – Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subse-
quently remeasured to their fair value at each reporting date. The method of recognising the resulting gain or loss
depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being
hedged. The Group designates derivatives as hedges of highly probable forecast transactions (cash flow hedges).
At the inception of the transaction, the Group documents the relationship between hedging instruments and
hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions.
The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the
derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting
changes in fair values or cash flows of hedged items.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges
is recognised in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately
in the profit or loss.
Amounts accumulated in equity are recycled in the profit or loss in the periods when the hedged item will affect
profit or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transac-
tion that is hedged, results in the recognition of a non-financial asset (for example, inventory) or a non-financial
liability, the gains or losses previously deferred in equity are transferred from equity and included in the measure-
ment of the initial carrying amount of the asset or liability.
When a hedging instrument expires, is sold or terminated, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss in equity at that time remains in equity and is recognised when the
forecast transaction is ultimately recognised in the profit or loss. When a forecast transaction is no longer expected
to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to the profit or loss.
At reporting date the outstanding contractual receivables/payables at fair value are (AUD Equivalents):
Non-current assets
Forward foreign exchange contracts
Current liabilities
Forward foreign exchange contracts
Interest rate swap
Forward commodity price hedge contracts
2019
$’000
190
10,774
–
–
10,774
2018
$’000
–
1,827
9
1,517
3,353
Derivative contracts are held by New Hope Corporation Limited in the normal course of business in order to hedge
exposure to fluctuations in foreign currency exchange rates and commodity prices.
These instruments are used in accordance with the Group’s financial risk management policies.
Fair value measurement
The fair value measurement of forward foreign exchange contracts are determined using forward exchange
market rates at the reporting date.
The fair value measurement of forward commodity price hedge contracts are determined using forward
commodity pricing at the reporting date.
The fair value of interest rate swaps is determined using forward interest rates at the reporting date.
Credit risk exposures of derivative financial instruments
Credit risk arises from the potential failure of counterparties to meet their obligations under the respective
contracts at maturity. A material exposure arises from forward exchange contracts and the New Hope Corporation
Limited Group is exposed to losses in the event that counterparties fail to deliver the contracted amount. At
balance date $714.946 million (2018: $269.101 million) was receivable relating to forward foreign exchange
contracts and $nil (2018: $44.114 million) relating to forward price hedge contracts (AUD equivalents). Refer to
note 23 for additional information.
At balance date the details of outstanding forward foreign exchange contracts are:
Maturity
0 to 6 months
6 to 12 months
12 to 18 months
Sell US dollars
Buy Australian dollars
Average
exchange rate
2019
$’000
365,570
311,894
37,482
714,946
2018
$’000
183,219
85,882
–
269,101
2019
USD:AUD
2018
USD:AUD
0.7057
0.7022
0.6937
0.7510
0.7452
–
At balance date the details of outstanding forward commodity price hedge contracts are:
Maturity
0 to 6 months
6 to 12 months
Revenue
Per tonne
2019
USD $’000
2018
USD $’000
2019
USD/t
–
–
–
24,827
8,188
33,015
–
–
2018
USD/t
103.44
102.35
124
125
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 26
Risk Management
NOTE 26
INTEREST BEARING LIABILITIES
Accounting policy – Interest bearing liabilities
Interest bearing liabilities are initially recognised at fair value, net of any transactions costs incurred. These
balances are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction
costs) and the redemption amount is recognised in the profit or loss over the term of the liability using the
effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of
the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is
deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the
facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the
term of the facility to which it relates.
Interest bearing liabilities are classified as current liabilities to the extent that the Group has an unconditional
right to defer settlement of the liability for at least 12 months after the balance date.
Lease liabilities
Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of
ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value
of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental
obligations, net of finance charges, are included in other short-term and long-term payables.
The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or
(if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term), over the
shorter of the asset’s useful life and the lease term.
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as
lessee are classified as operating leases. Payments made under operating leases (net of any incentives received
from the lessor) are charged to the profit or loss on a straight line basis over the term of the lease.
Current liabilities
Secured loans
Finance lease liabilities
Equity finance loan
Non-current liabilities
Secured loans
Finance lease liabilities
Fair value disclosures
Notes
26b
26a
26a
26b
2019
$’000
–
2,537
30,000
32,537
364,948
5,265
370,213
2018
$’000
22,825
2,442
-
25,267
12,000
7,790
19,790
The carrying value of financial liabilities as disclosed approximates their fair values.
Changes in liabilities – financing activities
The total change in liabilities arising from financing activities relates to cash proceeds from external borrowings
and cash repayments of external borrowings made during the year, refer to the consolidated statement of cash
flows for further details.
a) Borrowings
Secured by assets pledged as security
The total borrowings secured are as follows:
Equity finance loan(i)
Short term borrowings(ii)
Long term borrowings(iii)
2019
$’000
30,000
–
364,948
394,948
2018
$’000
–
22,825
12,000
34,825
(i) During the year, the Parent Entity utilised $30.000 million in short term bank finance. The debt incurs interest
at a variable rate and is repayable upon either the bank or the Parent Entity providing notice of 30 days.
As security, the Parent Entity transfers ownership of title over certain long term equity investments to the
bank. As the Parent Entity retains the risks and benefits of ownership of the transferred equity investments,
including the right to receive dividends, these securities continue to be included as an asset on the Group’s
consolidated statement of financial position. Upon repayment of the debt, ownership of title of the equity
investments, is transferred back to the Parent Entity.
(ii) During the year, the Parent Entity repaid the $22.825 million bank loan facility on behalf of its subsidiary.
(iii) At 31 July 2019, long term secured loan comprised of New Hope Corporation Limited of $352.948 million
(2018: $nil) and the Parent Entity’s property trust’s bank loan facility for a commercial property in Penrith of
$12.000 million (2018: $12.000 million).
New Hope Corporation Limited
During the year, New Hope Corporation Limited entered into a $600.000 million secured drawable amortising
debt facility with a syndicate of Australian and international banks and a $300.000 million credit support facility.
The syndicated debt facility’s drawable line of credit is for general corporate purposes and has a maturity of
November 2023. Under the terms of the secured syndicated debt facility, the facility limit has amortised to
$570.000 million as at 31 July 2019.
During the year, $400.000 million of debt drawn down under the facility by New Hope Corporation Limited was
repaid.
The financiers to the secured facility hold fixed and floating charges over all assets held by New Hope Corporation
Limited (with the exception of certain excluded subsidiaries).
The transaction costs incurred by New Hope Corporation Limited in obtaining the secured debt facility and the
credit support facility totalled $12.802 million. Amortisation of the transaction costs and setup fees for the credit
support facility totalled $5.750 million during the year was recorded as financing expenses in the profit or loss.
As at 31 July 2019, the transaction costs balance was $7.052 million and offset against the secured loans balance.
New Hope Corporation Limited’s secured borrowings are an amortising facility reducing by $30.000 million six
monthly with any final balance up to $330.000 million at the end of the facility term being repayable in the two to
five year period.
126
127
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
Risk Management
26 NOTE 26
INTEREST BEARING LIABILITIES (continued)
b) Secured – finance lease liabilities
Commitments in relation to finance leases are payable as follows:
Within one year
Later than one year but not later than five years
Minimum finance lease
Future finance charges
Total lease liability
The present value of finance lease liabilities is as follows:
Current
Non-current
Recognised as a liability
Secured liability
2019
$’000
2,767
5,353
8,120
(318)
7,802
2,537
5,265
7,802
2018
$’000
2,767
8,120
10,887
(655)
10,232
2,442
7,790
10,232
Lease liabilities are effectively secured as the rights to the leased assets recognised in the financial statements
revert to the lessor in the event of default. No other assets are pledged as security for borrowings.
c) Other financing arrangements
The Group has access to bank overdraft and bank guarantee facilities as follows:
Bank overdraft
Total facility
Used at balance date
Unused at balance date
Bank guarantees
Total facilities
Used at balance date
Unused at balance date
Bank guarantees include:
Unsecured facilities, no fixed term, with variable rates:
i.
ii.
Mining restoration and rehabilitation
The liability has been recognised by New Hope Corporation Limited
in relation to its rehabilitation obligations.
Statutory Body suppliers
No liability was recognised by New Hope Corporation Limited in
relation to these guarantees as no losses are foreseen on these
contingent liabilities with the exception of those identified in note 34
relating to the take or pay contracts of the Colton exploration project.
Secured, no fixed term, with variable rates:
iii. Environmental bond
The net present value of this liability has been recognised by Round
Oak Minerals Pty Limited in relation to this guarantee. The guarantee
has been provided by the Parent Entity.
iv. Sydney office lease
No liability was recognised by the Parent Entity in relation to the
bank guarantee for Sydney office lease.
2019
$’000
1,000
–
1,000
905,270
(616,983)
288,287
2018
$’000
1,000
–
1,000
214,510
(194,972)
19,538
209,657
153,457
24,740
30,803
22,678
16,413
819
–
257,894
200,673
128
129
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
Risk Management
27 NOTE 27
CONTINGENT LIABILITIES
Details and estimates of contingent liabilities for which no provision is included in the accounts, are as follows:
i. Undertakings and guarantees issued by a subsidiary’s bankers to
the Department of Natural Resources and Mines, Statutory Power
Authorities and various other entities
ii. Undertakings and guarantees issued by the bankers of the
Bengalla Joint Venture (of which a subsidiary is a party) for rail
and port suppliers
2019
$’000
2018
$’000
33,996
26,708
13,422
47,418
6,391
33,099
The contingent liabilities as described above are not secured by any charges on the Group’s assets. For contingent
liabilities of the Parent Entity, refer to note 1c, page 70. For contingent liabilities relating to associates refer to note
12d, page 98.
Other than the above and the matters set out in note 34(iii), there are no other contingent liabilities of the Group
as at 31 July 2019.
28
Fixed Assets
NOTE 28
PROPERTY, PLANT AND EQUIPMENT
Accounting policy – Property, plant
and equipment
Freehold land is carried at the lower of cost and
recoverable amount.
Property, plant and equipment, (excluding investment
properties, refer to note 15), is stated at historical cost
less accumulated depreciation and impairment losses.
Historical cost includes expenditure that is directly
attributable to the acquisition of the assets. Cost may
also include transfers from equity relating to any
gains/losses on qualifying cash flow hedges of foreign
currency purchases of property, plant and equipment.
The cost of self-constructed assets includes the cost of
materials, direct labour, the initial estimate where rele-
vant, of the cost of dismantling and removing the items
and restoring the site under which they are located and
an appropriate portion of production overhead.
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 Group and the cost of the item can be measured
reliably. All other repairs and maintenance are charged
to the profit or loss during the reporting period in
which they are incurred.
The depreciable amount of all fixed assets including
buildings and capitalised lease assets, but excluding
freehold land, is depreciated commencing from the
time the asset is held ready for use.
Depreciation is calculated so as to expense the cost
of each item of property, plant and equipment over
its expected economic life to the Consolidated Entity.
Each item’s useful life has due regard both to its own
physical life limitations and to present assessments
of economically recoverable resources (when related
to mining activities). Estimates of residual values
and remaining useful lives are made on an annual
basis. The straight line method is predominately
used (Copper float and solvent extraction plants are
depreciated on the units of production method). The
expected useful life of plant and equipment is 4 to 20
years, buildings is 25 to 40 years and motor vehicles is
4 to 8 years. Land is not depreciated.
The assets residual values and useful lives are
reviewed, and adjusted if appropriate, at each
reporting date.
An asset’s carrying amount is written down immedi-
ately to its recoverable amount if the asset’s carrying
amount is greater than its recoverable amount.
Gains or losses on disposals are determined by
comparing proceeds with carrying amount. These are
included in the profit or loss.
Accounting policy – Mine development
costs, mining reserves and leases and
oil producing assets
Development expenditure incurred by the Group
is accumulated separately for each area of interest
in which economically recoverable mineral and oil
resources have been identified to the satisfaction
of the Directors. Direct development expenditure,
pre-operating mine start-up costs, and an appropriate
portion of related overhead expenditure are capital-
ised as mine development costs up until the relevant
mine is in commercial production.
Mining reserves, leases and mine development costs
are amortised over the estimated productive life of
each applicable mine on either a unit of production
basis or years of operation basis, as appropriate.
Amortisation commences when a mine commences
commercial production.
The cost of acquiring mineral reserves and mineral
resources are capitalised in the consolidated statement
of financial position as incurred.
Oil producing assets are amortised on a unit of
production basis. The method uses the actual costs
of the asset to date plus all its projected future costs.
Amortisation commences when an area of interest is
ready for use.
Impairment of non-current assets
Assets are tested for impairment whenever events or
changes in circumstances indicate that the carrying
amount may not be recoverable.
An impairment loss is recognised for the amount by
which the asset’s carrying amount exceeds its recover-
able amount. The recoverable amount is the higher of
an asset’s fair value less cost to sell and its value in use.
For the purposes of assessing impairment under value
in use testing, assets are grouped at the lowest levels
for which there are separately identifiable cash inflows
which are largely independent of the cash inflows
from other assets or groups of assets (cash-generating
units). Annual assessments of impairments reversals
are undertaken.
All property, plant and equipment allocated to cash-
generating units (CGU’s) containing goodwill must be
tested for impairment at the CGU level on an annual
basis. Other property, plant and equipment assets
must also be tested for impairment when impairment
indicators of impairment are identified.
130
131
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Fixed Assets
28 NOTE 28
PROPERTY, PLANT AND EQUIPMENT (continued)
Land
$’000
Buildings
$’000
Plant,
fixtures,
motor
vehicles
$’000
Oil
producing
assets
$’000
Mining
reserves
and leases
$’000
Mine
develop-
ment
$’000
Total
$’000
Non-current assets
2019
At 1 August 2018
Cost
166,114
73,420
1,088,811
160,627
663,841
258,705
2,411,518
Accumulated depreciation/
amortisation and impairment
(567)
(25,395)
(558,066)
(90,840)
(93,325)
(122,752)
(890,945)
Net book amount
165,547
48,025
530,745
69,787
570,516
135,953
1,520,573
Year ended 31 July 2019
Opening net book amount
Acquisition of businesses
Additions
Mining restoration and
rehabilitation
Transfers in/(out)
Disposal of assets
Impairment of assets
Depreciation/amortisation
charge
165,547
14,344
–
–
–
–
–
–
48,025
13,618
3,212
–
108
–
–
530,745
185,804
97,267
4,771
(518)
(367)
(162)
69,787
–
18,596
1,616
–
–
–
570,516
582,028
–
–
–
–
–
135,953
1,520,573
17,426
57,652
14,960
4,499
–
(24,047)
813,220
176,727
21,347
4,089
(367)
(24,209)
(2,823)
(75,346)
(7,885)
(45,555)
(27,972)
(159,581)
Closing net book amount
179,891
62,140
742,194
82,114
1,106,989
178,471
2,351,799
Land
$’000
Buildings
$’000
Plant,
fixtures,
motor
vehicles
$’000
Oil
producing
assets
$’000
Mining
reserves
and leases
$’000
Mine
develop-
ment
$’000
Total
$’000
Non-current assets
2018
At 1 August 2017
Cost
163,915
51,820
972,075
149,537
663,841
163,348
2,164,536
Accumulated depreciation/
amortisation and impairment
–
(23,840)
(506,984)
(82,879)
(65,086)
(115,327)
(794,116)
Net book amount
163,915
27,980
465,091
66,658
598,755
48,021
1,370,420
Year ended 31 July 2018
Opening net book amount
Acquisition of businesses
Additions
Mining restoration and
rehabilitation
Transfers (out)/in
Disposal of assets
Impairment of assets
Depreciation/amortisation
charge
163,915
1,217
4,341
–
(3,319)
(40)
(567)
27,980
7,288
6,988
–
7,344
(20)
–
465,091
26,445
108,174
–
(15,195)
(2,688)
(3)
66,658
–
5,217
–
5,873
–
–
598,755
–
–
–
–
–
–
48,021
39,150
4,531
45,869
5,807
–
–
1,370,420
74,100
129,251
45,869
510
(2,748)
(570)
–
(1,555)
(51,079)
(7,961)
(28,239)
(7,425)
(96,259)
Closing net book amount
165,547
48,025
530,745
69,787
570,516
135,953
1,520,573
At 31 July 2018
Cost
Accumulated depreciation/
amortisation and impairment
166,114
73,420
1,088,811
160,627
663,841
258,705
2,411,518
(567)
(25,395)
(558,066)
(90,840)
(93,325)
(122,752)
(890,945)
Net book amount
165,547
48,025
530,745
69,787
570,516
135,953
1,520,573
At 31 July 2019
Cost
Accumulated depreciation/
amortisation and impairment
180,458
90,358
1,375,768
180,839
1,245,869
353,242
3,426,534
Pledged assets
(567)
(28,218)
(633,574)
(98,725)
(138,880)
(174,771)
(1,074,735)
Plant, fixtures and motor vehicles include assets with a net book value of $7.802 million (2018: $10.232 million), which the Group leases under
finance leases. Refer note 26 for details.
Net book amount
179,891
62,140
742,194
82,114
1,106,989
178,471
2,351,799
Impairments of property plant and equipment
During the year ended 31 July 2019, the impairment charges to property, plant and equipment was $24.209 million, mainly attributable to the
impairment of mine development assets of Round Oak Minerals Pty Limited. In the prior year, the impairment charge was $0.570 million. Refer
below for details.
132
133
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Fixed Assets
28 NOTE 28
PROPERTY, PLANT AND EQUIPMENT (continued)
Key judgements and estimates
a)
Determination of recoverable value – New Hope Corporation Limited
(Queensland mining operations)
In accordance with accounting standards, New Hope Corporation Limited has completed an impairment
assessment for its Queensland mining operations.
As a result of this assessment, New Hope Corporation Limited has determined that no impairment is required
in relation to these assets for the year.
Details of the assessment, the significant judgements and estimates, are as follows:
Impairment assessment
All property, plant and equipment allocated to CGU’s containing goodwill must be tested for impairment at the
CGU level on an annual basis. Other property, plant and equipment assets must also be tested for impairment
when impairment indicators are identified.
Judgement is involved in assessing whether there are indicators of impairment of property, plant and equipment
including in relation to the impact of events or changes in circumstances. For coal mining and oil production
assets, key judgements include external factors such as forecast commodity prices and foreign exchange rates.
Judgement is also required in relation to the estimation of coal and oil reserves and resources.
Where the recoverable amounts of New Hope Corporation Limited’s CGU’s are tested for impairment using
analyses of discounted cash flows, the resulting valuations are also sensitive to changes in estimates of long-term
commodity prices, production timing and recovery rates, exchange rates, operating costs, reserve and resource
estimates, closure costs and discount rates. Estimates in respect of the timing of project expansions and the cost
to complete asset construction are also critical to determining the recoverable amounts for CGU’s (refer below in
relation to specific considerations related to New Acland Stage 3 approvals).
Estimation of coal and oil reserves and resources
New Hope Corporation Limited estimates its coal reserves and resources based on information compiled by
Competent Persons as defined in accordance with the Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves of December 2012 (the JORC Code, which is produced by the Australasian
Joint Ore Reserves Committee). The oil reserves and resources are equivalently calculated by appropriately
qualified persons in accordance with the SPE Petroleum Reserves Management System (SPE-PRMS) published by
the Society of Petroleum Engineers (updated June 2019).
The estimation of reserves and resources requires judgement to interpret available geological data and then to
select an appropriate mining method and establish an extraction schedule. It also requires assumptions about
future commodity prices, exchange rates, production costs, recovery rates and discount rates and, in some
instances, the renewal of mining licences. There are many uncertainties in the estimation process and assump-
tions that are valid at the time of estimation may change significantly when new information becomes available.
In particular the increasing global focus on climate change and associated policy and regulatory risks may impact
on future coal demand and prices which could impact reserves and resource estimations.
Changes in coal reserves could have an impact on: the calculation of depreciation, amortisation and impairment
charges; the timing of the payment of closedown and restoration costs; and the recovery of deferred tax assets.
Changes in coal resources could have an impact on the recoverability of exploration and evaluation costs capitalised.
New Acland Stage 3 approvals
A number of uncertainties associated with the approvals timeline and conditionality of the New Acland Coal Stage
3 project (NAC03) remain at 31 July 2019. Consistent with the position outlined in the financial report for the
prior year, the significant delays in the approval process, which have the potential to delay the commencement of
NAC03, have been assessed to be an indicator of potential impairment of the Queensland coal mining operations
CGU assets.
A summary of the key events pertaining to NAC03 project approvals are:
1 On 31 May 2017, the Land Court recommended that the Environmental Authority (EA) and Mining Leases
(ML) for the project not be granted;
1 On 14 February 2018, the Chief Executive of the Department of Environment and Science (DES) made a
decision to refuse the application for amendment of the EA;
1 On 28 May 2018 the Supreme Court of Queensland ruled in favour of New Acland with the key orders being:
! The decisions made by the Land Court on 31 May 2017 recommending rejection of the ML applications
for NAC03, and for the refusal of the application for amendment of the EA, were set aside with effect
from 31 May 2017;
! The decision of the Chief Executive of DES to refuse the application for an amendment of the EA was set
aside with effect from 14 February 2018; and
! The recommendations of the Land Court in respect of groundwater and intergenerational equity (as it
relates to groundwater) were held to be not relevant for consideration by the Land Court and that the
matter of noise required further consideration by the Land Court.
1 A hearing of the Land Court, in accordance with the instructions of the Supreme Court from the Judicial
Review, was held in early October 2018 with a decision handed down on 7 November 2018. The Land Court
conditionally recommended that the ML and EA amendment be granted subject to certain conditions
including the Coordinator-General first amending the noise limit conditions to 35 dBA in the evening and
night with the DES incorporating the changes in the amendment of the EA by 31 May 2019;
1 On 12 February 2019, NAC03 received a change report from the Coordinator-General in respect of the noise
conditions for NAC03. On 15 February 2019, DES confirmed that the change report had satisfied all of the
preconditions imposed by the Land Court for the approval of the ML and amendments to the EA and the EA
was granted on 12 March 2019;
1 The Supreme Court of Queensland decision has been appealed by the Oakey Coal Action Alliance (OCAA).
New Acland has successfully defended the Judicial Review decision of the Supreme Court of QLD in the Court
of Appeal with a judgement against the Oakey Coal Action Alliance received on 10 September 2019. The
orders relating to the judgement are yet to be finalised. The decision from the Court of Appeal process may
still be subject to an application for special leave to appeal to the High Court by the appellant (OCAA);
1 The Associated Water Licence (AWL) application process re-started during July 2018 following engagement
with the Department of Natural Resources, Mines and Energy (DNRM). On 19 January 2019, NAC03 lodged an
Amended AWL application which has now progressed through public consultation and is with the Minister
for decision.
New Hope Corporation Limited has undertaken an impairment assessment as required under AASB 136
for the current year. New Hope Corporation Limited carefully considered the potential impact that recent
developments in the legal and regulatory environment may have and the possibility of any resultant impacts
on future cash flows.
The fair value discounted cash flow models prepared for the CGU have confirmed that the recoverable amount
exceeds the carrying value. The updated models include assumptions relating to approval timelines and coal
price as follows:
(i) Extensions of approvals timeline
The assessments assume that project approvals will be received in the commencement of the 2021 financial year
and any delay beyond this may result in impairment. The assumptions of the impairment assessment reflect that
once approvals are granted NAC03 operates for the full life of mine.
(ii) Coal price assumptions
Short term coal prices have improved slightly since 31 July 2018 and long term indications of pricing have also
improved. New Hope Corporation Limited has acknowledged the decrease in the current spot pricing during the
second half of the year and also the increased differential between high calorific value coals and lower calorific
value coals in concluding on its pricing assumptions. The coal price range for assessments at 31 July 2019 is US$59
– US$125 per tonne (nominal basis).
In undertaking its impairment assessment, New Hope Corporation Limited has considered the potential impact
of climate change risk on the future cash flows contained within the fair value discounted cash flow model. These
risks include the potential impact on future coal prices of changes in market supply and demand dynamics over
the life of NAC03, and the potential for cost volatility associated with factors such as climate change related
regulatory changes and/or market participation by suppliers of services to New Hope Corporation Limited.
134
135
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Fixed Assets
The carrying value of the Port operations CGU’s assets is set out below:
28 NOTE 28
PROPERTY, PLANT AND EQUIPMENT (continued)
These types of risks are taken into account in a variety of ways which include the use of forecast commodity prices
and industry risk measures as an input into the calculation of the discount rate applied against future cash flows.
In addition, given the near term timing and expected life of the project, New Hope Corporation Limited does
not consider there to be a significant risk of climate change materially impacting project outcomes once current
approvals are received.
Having due regard to all relevant information, New Hope Corporation Limited has concluded that none of these
matters, either individually or in aggregate, result in the recoverable amount for the CGU being below its carrying
value. As a result of the impairment assessment undertaken there are no impairments required in relation to the
assets of the Queensland mining operations CGU as at 31 July 2019.
The carrying value of the Queensland coal mining CGU’s assets of New Hope Corporation Limited is set out below:
Property, plant and equipment
Land and buildings
Plant and equipment
Mine reserves, leases and development assets
Plant under construction
Intangibles
Software
Exploration and evaluation
Exploration and evaluation at cost
Total carrying value
2019
$’000
56,193
98,025
2,887
49,495
2018
$’000
55,509
107,981
3,977
50,978
887
1,207
42,025
249,512
37,873
257,525
The Queensland coal mining CGU has take or pay agreements for rail, port and water supply. The rail agreement
is generally aligned to the recovery of Stage 2 coal while the port and water agreements are longer term. These
arrangements are not of a sufficient amount to constitute a material impact on value unless approval delays
extend beyond those currently foreseeable.
The financial statements have been prepared on the basis that approvals are granted within a reasonable time
period, and as a result, there is no significant impact on the value recoverable from the project and therefore
the Queensland coal mining CGU at 31 July 2019. In the event that future events have a negative impact on
the recoverable value of the Queensland coal mining operations CGU, the assets of that CGU may be subject to
impairment.
The Queensland coal mining CGU is a customer of the Port operations CGU of New Hope Corporation Limited.
As such in the event that there are circumstances which further impact the coal mining operations this may
be relevant to the value of those operations (shown below) and will be a factor in any future impairment
considerations.
Property, plant and equipment
Land and buildings
Plant and equipment
Mine reserves, leases and development assets
Plant under construction
Intangibles
Software
Goodwill
Total carrying value
2019
$’000
1,617
80,552
11,367
1,556
112
5,596
2018
$’000
1,694
84,477
11,872
284
142
5,596
100,800
104,065
b)
Determination of recoverable value – Round Oak Minerals Pty Limited
(copper processing plant, equipment and capitalised mine development costs)
The Group performed its annual impairment test in July 2019 and July 2018. The assessment of recoverable value
includes making estimates in relation to quantities of economically recoverable reserves that are supported by
detailed mine plans and interpretations of geological models. The assessment of recoverable value also requires
assumptions to be made that include short and long-term exchange rates, short and long-term commodity prices,
future capital expenditure requirements, working capital needs and estimates of the economic life of plant and
equipment and its residual value. Changes in these estimates and applying different assumptions may impact
significantly the assessment of the recoverable value of the plant, equipment and capitalised mine development
costs, as well as the amount of depreciation and amortisation charged to the profit or loss.
During the year the Group re-assessed the manner in which it considered its CGUs for the Round Oak Minerals Pty
Limited Group. In previous periods assets had been aggregated into CGUs based on the underlying commodities
being extracted, however given the growth of the number of active projects it has been determined that
aggregating assets by project is more appropriate. The reassessment was made on the basis that each project is
capable of generating independent cash inflows.
The 2019 recoverable value assessment determined that the carrying values of the following CGU’s exceeded their
respective recoverable amounts and a pre-tax impairment charge of $23.778 million ($16.645 million post-tax)
was recognised as an impairment expense in the profit or loss. The recoverable value of CGUs are based on value
in use estimates have been calculated using after tax cash flows that have been risk adjusted and a real after tax
discount rate of 8%.
The decrease in the recoverable amount of capitalised mining costs (included in property, plant and equipment
and exploration and evaluation assets) by CGU was as follows:
1 Jaguar CGU required impairment of $2.2 million, due lower expected production volumes
1 Wallace CGU required an impairment of $10.3 million from lower expected metal recoveries and increased
operating costs
1 Barbara CGU required an impairment of $11.3 million, due to higher operating costs
The directors are satisfied that the estimates and assumptions made are based on observable and other
supportable inputs and therefore that the impaired carrying value of the copper processing plant, equipment and
capitalised mine development costs at 31 July 2019 is appropriate.
136
137
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Fixed Assets
29 NOTE 29
EXPLORATION AND EVALUATION ASSETS
Accounting policy – Exploration and evaluation assets
Exploration, evaluation and relevant acquisition costs are accumulated separately for each area of interest for which
a mining tenement is current. They are initially recognised at cost and include acquisition of rights to explore,
studies, exploratory drilling, trenching, sampling and an appropriate portion of related overhead expenditure.
Costs are carried forward only if they relate to an area of interest for which rights of tenure are current and such
costs are expected to be recouped through successful development and exploitation or from sale of the area.
Exploration and evaluation expenditure which does not satisfy these criteria is expensed.
Where a decision is made to proceed to the development of a mine, the relevant exploration and evaluation costs for
that area of interest are transferred to mine development (disclosed within Note 28 – Property, plant and equipment).
Non-current assets
Exploration and evaluation at cost
Movement
Opening net book amount
Additions
Impairment expenses(i)
Impairment expenses from discontinued operation(i)
Disposal
Transfers out
2019
$’000
2018
$’000
333,623
310,798
310,798
29,591
(1,457)
–
(1,159)
(4,150)
418,582
30,378
(92,332)
(39,957)
–
(5,873)
Closing net book amount
333,623
310,798
(i) The impairment expense of $132.289 million at 31 July 2018 relates to coal exploration assets, which are allocated to the Energy CGU for the
purpose of assessing recoverable value. Refer to Key judgements and estimates below.
Exploration and evaluation assets
Exploration and evaluation assets includes New Hope Corporation Limited of $301.589 million (2018: $280.301
million) and Round Oak Minerals Pty Limited of $28.111 million (2018: $30.497 million).
Key judgements and estimates
Exploration and evaluation expenditure
During the year, the subsidiaries of New Hope Corporation Limited and Round Oak Minerals Pty Ltd, capitalised
various items of expenditure to exploration and evaluation assets. The relevant items of expenditure were
deemed to be part of the capital cost of developing future mining operations, which would then be amortised
over the useful life of the mine.
The key judgement applied in considering whether the costs should be capitalised, is that costs are expected to
be recovered through either successful development (through mining operations) or sale of the relevant mining
interest.
Factors that could impact the exploration and evaluation costs being transferred to future mine operations
include the level of reserves and resources, changes in commodity prices and foreign exchange rates, future legal
changes and any future technology changes.
In the prior year, New Hope Corporation Limited determined that an indicator of impairment existed as at
balance date in respect of the Colton coal exploration project. The indicator arose from recently increased charges
associated with access to WICET which were materially higher than those previously forecast and ongoing work
regarding the assessment of JORC reserves position of this asset. As a result an impairment test was undertaken
and an impairment was recognised.
For the purposes of assessing impairment of the Colton exploration project, New Hope Corporation Limited has
utilised the fair value less costs of disposal method underpinned by a resource multiple. A resource multiple is
considered the appropriate valuation methodology for an exploration asset of this type. The fair value method-
ology adopted is considered level 3 in the hierarchy due to the judgemental nature of the discounts applied to the
resource multiples.
Given the significant costs associated with access to WICET (which have increased significantly since the terminal
commenced operations) New Hope Corporation Limited determined that it is appropriate to discount recent
transaction multiples to account for the onerous nature of the obligations to WICET. At the prevailing WICET costs
New Hope Corporation Limited determined that it is inappropriate to ascribe any value to the JORC resources
and as a result a full impairment for the carrying value of the Colton assets of $132.860 million was recognised as
outlined below:
2018
Exploration and evaluation
Property, plant and equipment
Note
29
28
Carrying
value
$’000
132,289
571
132,860
Recoverable
value
$’000
Impairment
loss
$’000
–
–
–
(132,289)
(571)
(132,860)
138
139
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Fixed Assets
30 NOTE 30
INTANGIBLE ASSETS
Accounting policy – Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net
identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of
subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in the carrying
amount of investments in associates.
Goodwill is not amortised. Instead, goodwill is tested for impairment annually or more frequently if events or changes
in circumstances indicate that it may be impaired, and is carried at cost less accumulated impairment losses. Goodwill
acquired is allocated to CGUs for the purpose of impairment testing. The allocation is made to those CGUs or group of
CGUs that are expected to benefit from the business combination in which the goodwill arose. CGUs are discussed in
the impairment section below.
Gains or losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Water rights and mining information
The Group benefits from water rights associated with its mining operations through the efficient and cost effec-
tive operations of the mine. The value of exploration, pre-feasibility and feasibility costs necessary for regulatory,
reporting and internal control purposes have been recognised as a mining information intangible asset.
Software
Software is stated at historical cost less applicable amortisation. Historical cost includes expenditure that is
directly attributable to the acquisition of software. Amortisation is calculated so as to write off the cost of each
item of software during its expected economic life to the Group.
Other intangible assets
Other intangible assets including brands and curriculum that are acquired by the Group are stated at cost less
accumulated amortisation and impairment losses.
Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic
benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
Amortisation of intangible assets
Amortisation is charged to the profit or loss on a straight line basis, unless otherwise stated, over the estimated
useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life are
systematically tested for impairment at each balance date.
Other intangible assets are amortised from the date they are available for use. The estimated useful lives of
intangibles are as follows:
Class of intangible
Goodwill
Water rights and mining information
Software
Other intangibles (includes brands and curriculum)
Useful life
Indefinite life
Estimated life of mine
3 – 5 years
Indefinite life
Impairment
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested
annually for impairment or more frequently if changes or circumstances indicate that they may be impaired.
Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Refer to Note 20 for details on impairment testing.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For
the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows which are largely independent of the cash inflows from other assets or groups of assets
(CGUs). Intangible assets other than goodwill that suffered impairment are reviewed for possible reversal of the
impairment at each reporting date. Goodwill impairments are not reversible.
Impairment losses for intangible assets are recognised in the profit or loss.
Goodwill
$’000
Water
rights
$’000
Mining
informa-
tion
$’000
Other
intangibles
$’000
Software
$’000
Non-current assets
At 31 July 2017
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 31 July 2017
Opening net book amount
Additions
Assets acquired by purchase of businesses
Transfers out to property, plant and equipment
Amortisation charged to the profit or loss
(refer to note 20)
Closing net book amount
At 31 July 2018
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 31 July 2018
Opening net book amount
Additions
Assets acquired by purchase of businesses
Transfers in from property, plant and equipment
Amortisation charged to the profit or loss
(refer to note 20)
22,830
(4,157)
18,673
18,673
–
7,921
–
–
26,594
30,751
(4,157)
26,594
26,594
–
2,511
–
6,560
(372)
6,188
6,188
–
–
–
(262)
5,926
6,560
(634)
5,926
5,926
–
6,511
–
34,900
(1,981)
32,919
32,919
909
–
–
(1,396)
32,432
35,809
(3,377)
32,432
32,432
–
35,000
–
–
(433)
(2,313)
Closing net book amount
29,105
12,004
65,119
As 31 July 2019
Cost
Accumulated amortisation and impairment
33,262
(4,157)
13,071
(1,067)
70,809
(5,690)
Net book amount
29,105
12,004
65,119
Total
$’000
81,445
(21,419)
60,026
60,026
1,235
14,707
(55)
(2,360)
73,553
97,332
(23,779)
73,553
73,553
54
44,091
61
17,155
(14,909)
2,246
2,246
326
–
(55)
(702)
1,815
17,426
(15,611)
1,815
1,815
54
69
61
(534)
(3,280)
1,465
114,479
17,610
(16,145)
141,538
(27,059)
1,465
114,479
–
–
–
–
–
6,786
–
–
6,786
6,786
–
6,786
6,786
–
–
–
–
6,786
6,786
–
6,786
140
141
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Fixed Assets
30 NOTE 30
INTANGIBLE ASSETS (continued)
Recoverable amount of goodwill
Intangible assets, which have indefinite lives are allocated to the Group’s CGU’s identified according to business
segment and country of operation.
A segment-level summary of the goodwill allocation is presented below:
Energy(i)
Carrying amount of goodwill
Swimming pool owner and operator(iii)
Opening balance at 1 August 2018
Goodwill acquired as part of business acquisition
(refer to note 7)
Consulting(ii)
Carrying amount of Goodwill
Closing net book value
Country of
operation
2019
$’000
2018
$’000
Australia
18,098
18,098
Australia
Australia
Australia
7,921
2,511
10,432
575
29,105
7,921
–
7,921
575
26,594
The recoverable amount of the cash generating units for which goodwill has been allocated is determined based
on the fair value less cost of disposal method (FVLCD). Assumptions and methodology applied to each CGU are as
follows:
(i) Energy
The brought forward balance of goodwill relates to acquisitions by New Hope Corporation Limited, primarily
Queensland Bulk Handling Pty Limited (goodwill of $5.596 million) and certain coal exploration assets (goodwill
of $12.271 million).
The recoverable amount of the cash-generating unit to which the exploration asset’s goodwill is attributable
has been based on the FVLCD method using a comparable resource transaction multiple multiplied by the
resources attributable to this CGU. This assessment is determined under Level 2 of the fair value hierarchy based
on observable external market data for reserve and resources transaction multiples, rather than quoted prices
(refer note 24 for an explanation on fair value hierarchy). Observable transactions included in the assessment of an
appropriate multiple are comparable transactions in the last four years for Australian coal exploration projects with
the same coal type as the CGU assets. The estimation of the resources used to determine the recoverable amount
requires judgement and assumptions as detailed in Note 28.
The recoverable amount of Queensland Bulk Handling Pty Limited CGU has been based on value in use calcula-
tions using discounted cash flow model. The future cash flows have been discounted using a post-tax rate of 9%
(2018: 9%). This assessment is determined under level 3 of the fair value hierarchy.
(ii) Consulting
Brought forward goodwill relates to obtaining control of Pitt Street Real Estate Partners Pty Limited.
(iii) Swimming pool owner and operator
The brought forward balance of goodwill relates to the acquisition by WHSP Aquatic Achievers Pty Limited,
a subsidiary of the Parent Entity, of the Aquatic Achievers business, a swimming pool owner and operator
providing swimming programs. As a result of this acquisition, $7.921 million of goodwill has been recognised.
An additional goodwill amount of $2.511 million has been recognised from the acquisition of two swim
schools on 1 December 2018.
In addition intangible assets comprising Aquatic Achievers brand of $1.429 million and curriculum of $5.357
million have been recognised. These intangible assets are all considered to have indefinite lives with no amortisa-
tion applied.
The recoverable amount of the brand and curriculum were valued on royalty-based valuation method by
applying royalty rates, based on observable transactions, to the swimming lesson revenue used on the profit
forecasts to support the acquisition. The resulting income stream was used in the discounted cash flow model
over a 5.5 year period at the post-tax discount rate of 13.2% per annum. This assessment is determined under level
3 of the fair value hierarchy.
Key estimates
Impairment of intangible assets
At each reporting date the Group considers the recoverable value of intangible assets. Intangible assets are
allocated to CGUs for which the recoverable value is determined. The recoverable value may be determined based
on fair value less costs to sell and is estimated based on recent market transaction information. These calculations
require the use of assumptions.
142
143
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Other Operating Assets and Liabilities
31 NOTE 31
TRADE AND OTHER RECEIVABLES
Accounting policy – Trade and other
receivables
Trade receivables are recognised initially at fair
value and subsequently at amortised cost, less any
allowance for expected credit losses (ECL). Trade
receivables are due for settlement between 30 and 45
days from the date of recognition.
Loans and receivables are non-derivative financial
assets with fixed or determinable payments that
are not quoted in an active market. They are initially
recognised at fair value, and subsequently at amortised
costs less any ECLs.
The Consolidated Entity measures the loss allowance
for trade and other receivables at an amount equal
to the lifetime ECL except where the financial asset’s
credit risk is considered low or has not increased signif-
icantly since initial recognition, the loss allowance
is based on 12-months ECL. A simplified approach is
taken to accounting for trade and other receivables
and records the loss allowance at the amount equal to
the lifetime ECL. In applying this simplified method,
the Consolidated Entity uses its historical experience,
external indicators and forward looking information to
calculate the ECL.
Current assets
Trade receivables
Trade receivables – provisionally priced
Loan to external parties – secured
Other receivables
Prepayments
Total current receivables
Non-current assets
Loans to external parties – secured
Other receivables and prepayments
Total non-current receivables
The amount of any allowance for expected credit loss is
recognised in the profit or loss. When a trade receivable
for which an allowance had been recognised becomes
uncollectible in a subsequent period, it is written off
against the allowance account. Subsequent recoveries
of amounts previously written off are credited to the
profit or loss.
Measurement
Loans to external parties
There is no change in classification of loans from the
old standard, AASB 139 to the new standard AASB 9.
Loans continues to be held at amortised cost.
Other receivables
These amounts generally arise from transactions
outside the usual operating activities of the Group.
Interest may be charged at commercial rates where
the terms of repayment exceed the due date. Other
receivables are carried at amortised cost.
2019
$’000
55,336
20,294
41,388
32,663
12,577
2018
$’000
44,639
42,912
6,051
31,310
6,811
162,258
131,723
36,200
2,388
38,588
48,200
5,325
53,525
Trade receivables
The balance at 31 July 2019 includes $74.261 million (2018: $77.763 million) relating to New Hope Corporation
Limited. As at reporting date, trade receivables past due but not impaired were nil (2018: nil).
Loans to external parties – secured
During the year, the Parent Entity, provided loans to external parties on commercial rates. The total balance of
loans at 31 July 2019 was $77.588 million (2018: $54.251 million). These loans are secured.
32
NOTE 32
INVENTORIES
Accounting policy – Inventory
Inventories are measured at the lower of cost and net realisable value. Cost comprises direct materials, direct
labour and an appropriate portion of variable and fixed overheads, the latter being allocated on the basis of
normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business
less the estimated costs of completion and the estimated costs necessary to make the sale.
Current assets
Raw materials and stores
Work in progress
Finished goods
Less: Provision for obsolescence
2019
$’000
41,607
155
80,962
(2,253)
78,709
2018
$’000
26,041
4,184
65,623
(2,612)
63,011
120,471
93,236
Inventory expense
Inventories recognised as an expense during the year amounted to $869.156 million (2018: $652.089 million).
The write-down of inventory to net realisable value recognised as an expense during the year amounted
$2.400 million (2018: $2.010 million).
The Group assessed the ECL in relation to trade and other receivables during the year and the prior year to be
immaterial and no loss allowance has been recorded.
Credit, foreign exchange, fair value and interest rate risk
Information about the Group’s exposure to these risks in relation to trade and other receivables is provided in note 23.
The carrying value less impairment provisions of trade receivables are assumed to approximate their fair value.
144
145
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Other Operating Assets and Liabilities
33
NOTE 33
TRADE AND OTHER PAYABLES
Accounting policy – Trade and other payables
Trade and other payables are stated at their amortised cost. These amounts represent liabilities for goods and
services provided to the Group prior to the end of the year and which are unpaid. The amounts are unsecured and
usually paid within 30 to 45 days of recognition.
Non-current trade and other payables are stated at the present value of the future expected cash flows. These
amounts are contractually due for settlement at least 12 months after the reporting date.
Current liabilities
Trade and other payables
Non-current liabilities
Trade and other payables
2019
$’000
2018
$’000
158,874
131,521
15,989
30,033
Current liabilities
Trade and other payables
The balance at 31 July 2019 includes $108.701 million (2018: $78.753 million) relating to New Hope Corporation
Limited and $43.676 million (2018: $43.588 million) relating to Round Oak Minerals Pty Limited.
Non-current liabilities
Trade and other payables
The balance relates to the deferred purchase consideration of Jaguar copper-zinc operations and Aquatic
Achievers Pty Limited acquired in the current and prior year.
146
34
NOTE 34
PROVISIONS
Accounting policy – Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events,
it is probable that an outflow of resources will be required to settle the obligation and the amount has been
reliably estimated. Provisions are not recognised for future operating losses.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle
the present obligation at the end of the reporting period. The discount rate used to determine the present value is a
pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
i. Restoration, rehabilitation and environmental expenditure
Provisions are recognised for restoration, rehabilitation and environmental expenditure as soon as an obligation
exists, with the cost being charged to profit or loss in respect of ongoing rehabilitation. Where the obligation
relates to decommissioning of assets and restoring the sites on which they are located, the costs are carried
forward in the value of the asset and amortised over its useful life.
The obligations include profiling, stabilisation and revegetation of the completed area, with cost estimates based
on current statutory requirements and current technology.
ii. Employee entitlements
Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits, annual leave, vesting sick leave and redun-
dancies expected to be settled within 12 months after the end of the period in which the employees render the
related service are recognised in respect of employees’ services up to the end of the reporting period. These are
measured at the amounts expected to be paid when the liabilities are settled. The liability of annual leave and
accumulating sick leave is recognised in the provision for employee benefits. All other short-term employee
benefit obligations are presented as payables.
Other long-term employee benefit obligations
The liabilities for long service leave and annual leave which are not expected to be settled within 12 months
of balance date are recognised in the provision for employee benefits and measured as the present value
of expected future payments to be made in respect of services provided by employees up to the end of the
reporting period using the projected unit credit method.
Consideration is given to expected future wage and salary levels, experience of employee departures and periods
of service. Expected future payments are discounted using market yields at the end of the reporting period on
a high quality corporate bond rates with terms to maturity and currency that match, as closely as possible, the
estimated future cash outflows.
Current liabilities
Onerous contracts(i)
Mining restoration and site rehabilitation(ii)
Employee benefits
Other(iii)
Non-current liabilities
Mining restoration and site rehabilitation(ii)
Employment benefits
Onerous contracts(i)
Other(iii)
2019
$’000
223
17,717
59,089
16,000
93,029
242,836
8,374
656
198
2018
$’000
14,976
12,912
43,331
–
71,219
178,822
6,909
–
657
252,064
186,388
147
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Other Operating Assets and Liabilities
34
NOTE 34
PROVISIONS (continued)
(i) Onerous contracts
In the prior year, the Group recognised provisions for onerous contracts in relation to take or pay agreements
associated with New Hope Corporation Limited’s Colton exploration project for $14.976 million.
As outlined in note 20, there was an impairment of the assets of the Colton exploration project. It was considered
that the charges associated with the WICET Agreement at that time were materially higher than previously
forecast, and had a material impact on the viability of that project. As such, the New Hope Corporation Limited
Group had determined that the long term take or pay agreements associated with this project were onerous
contracts.
The New Hope Corporation Limited Group determined for the prior year that the lowest unavoidable cost
associated with the onerous contracts was represented by a failure to fulfill the contracts. The cost to the New
Hope Corporation Limited Group of failing to fulfil its obligations under the contracts was the value of the bank
guarantees which had been provided as security against the contractual obligations.
During the year, the bank guarantees issued by the New Hope Corporation Limited Group in respect of the take
or pay agreements were fully drawn and settled. As such, the lowest unavoidable costs under the contracts is now
considered to be $nil.
(ii) Mining restoration and site rehabilitation
Movements
Opening balance at 1 August
Provision arising on acquisition of businesses
Provisions capitalised recognised
Provisions (credited)/charged to profit or loss
Charged to profit or loss – unwinding of discount
Closing balance at 31 July
Disclosed as:
Current liabilities
Non-current liabilities
Total provision for mining restoration and site rehabilitation
2019
$’000
191,734
35,552
31,973
(3,427)
4,721
260,553
17,717
242,836
260,553
2018
$’000
113,766
17,381
49,584
7,464
3,539
191,734
12,912
178,822
191,734
Key estimates
Reserves estimates and rehabilitation costs
Provision is made for rehabilitation, restoration and environmental costs when the obligation arises, based on the
net present value of estimated future costs. The ultimate cost of rehabilitation and restoration is uncertain, and
management uses its judgement and experience to provide for these costs over the life of the operations.
The Group makes estimates about the future cost of rehabilitating tenements which are currently disturbed,
based on legislative requirements and current costs. There are policy change risks in particular with the growing
global focus on climate change which may impact on rehabilitation obligations. Cost estimates take into account
past experience and expectations of future events that are expected to alter past experiences. Any changes to
legislative requirements could have a significant impact on the expenditure required to restore these areas.
The estimation of reserves and resources are also a key judgement that affects the timing of the payment of
closedown and restoration costs as detailed in note 28.
(iii) Other provisions – New Hope Corporation Limited
Administration of subsidiaries
Northern Energy Corporation Limited (NEC) and Colton Coal Pty Limited (Colton), wholly owned subsidiaries of
New Hope Corporation Limited, were placed into voluntary administration on 17 October 2018. The companies
have subsequently been placed into liquidation. New Hope Corporation Limited has recognised a provision for
$16 million which it considers is the best estimate of the probable future economic outflows associated with the
NEC and Colton liquidation process.
There have been a number of developments during the year associated with this matter outlined below.
Deed of cross guarantee proceedings
In proceedings relating to those administrations, WICET submitted that the debts of NEC and Colton are
guaranteed by New Hope Corporation Limited and certain of its subsidiaries pursuant to a Deed of Cross
Guarantee (DOCG). New Hope Corporation Limited denied this claim.
On 1 February 2019, New Hope Corporation Limited commenced proceedings in the Supreme Court of New
South Wales (Proceedings) seeking orders confirming that New Hope Corporation Limited is not bound by the
DOCG in respect of the debts of certain subsidiaries including NEC and Colton. A hearing of these proceedings
occurred between 17 to 20 June 2019.
On 12 July 2019, the Supreme Court of New South Wales concluded that New Hope Corporation Limited has not
guaranteed the debts of NEC and Colton under the DOCG. On 20 August 2019, WICET filed an appeal with the
Court of Appeal in New South Wales in relation to the Supreme Court’s decision on the DOCG.
If WICET’s claim is upheld, New Hope Corporation Limited will be exposed to a liability of approximately
$155 million. New Hope Corporation Limited continues to deny this claim.
Administration/liquidation process
In February 2019, in proceedings relating to the administrations of NEC and Colton, WICET applied successfully
to the Court for an order that special purpose administrators be appointed to investigate a transaction that NEC
entered into prior to the administrations of NEC and Colton, being a corporate restructure NEC undertook in
February 2016.
In March 2019, New Hope Corporation Limited put forward a conditional binding Term Sheet in respect of
a proposed Deed of Company Arrangement (DOCA) for NEC and Colton. The proposed DOCA, subject to all
conditions being met, required New Hope Corporation Limited to contribute $19 million into trust for the
purpose of distribution to the creditors of NEC and Colton in accordance with the priorities and principles of the
administration (Contribution). As New Hope Corporation Limited has a secured loan receivable of $7.060 million
from NEC (representing the amount owing at the date of administration which was impaired during the year),
the Contribution, if paid and the proposed DOCA accepted, would have resulted in $7.060 million being paid
in priority by NEC to New Hope Corporation Limited, and any and all claims by NEC or Colton against the New
Hope Corporation Limited Group (whether in respect of the DOCG, the February 2016 corporate restructure or
otherwise) being released.
On 28 June 2019, the special purpose administrators appointed to NEC and Colton provided a report on their
investigations into the February 2016 corporate restructure.
On 19 July 2019, the administrators appointed to NEC and Colton issued a Voluntary Administrators Report (the
Report) in advance of the second meeting of creditors. The Report identified a number of alleged claims that may
be available to any liquidators appointed to NEC and Colton, subject to the liquidators obtaining funding and
conducting further investigations. If funding is obtained, further investigations are conducted and the alleged
claims are pursued against New Hope Corporation Limited, the Report identifies potential exposure to New
Hope Corporation Limited is between nil and $48.1 million. The claims which it is alleged may be available to the
liquidators relate to two transactions:
1 The corporate restructure that NEC undertook in February 2016. The value attributed to the claims it is
alleged may be available in respect of this transaction in the Report is between nil and $20.5 million;
1 A loan repayment made by Colton to the New Hope Corporation Limited Group in 2017. The value attributed
to the claims it is alleged may be available in respect of this transaction in the Report is between $nil and
$27.6 million.
148
149
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 34
Other Operating Assets and Liabilities
NOTE 34
PROVISIONS (continued)
New Hope Corporation Limited denies these alleged claims and does not consider that it has any obligations in
respect of them.
In July 2019, New Hope Corporation Limited gave a revised DOCA proposal to NEC and Colton that was presented
to the second meeting of creditors held on 26 July 2019 which included a revised Contribution of $16 million
however introduced a subordination of the secured loan receivable of New Hope Corporation Limited to below
the claims of unsecured creditors.
At the second creditors meeting of creditors on 26 July 2019, the creditors did not vote in favour of this DOCA
and instead voted to place NEC and Colton into liquidation.
In acknowledging the ongoing matters associated with the liquidation New Hope Corporation Limited has
considered its position and has determined that the proposed revised Contribution of $16 million is the best
estimate of the future probable economic outflows that will be incurred as a result of the NEC and Colton
liquidation process. Although the DOCA has lapsed following the second meeting of creditors, New Hope
Corporation Limited has not withdrawn the proposal and considers it to represent a present obligation that
should be reflected as a provision.
35
Other Notes
NOTE 35
SHARE-BASED PAYMENTS
Accounting policy – Share-based payments
Share-based compensation benefits are provided to select employees of the Parent Entity and New Hope
Corporation Limited via various employee incentive schemes.
A summary of each scheme is provided below.
The fair value of options and rights granted under each of these schemes is recognised as an employee benefits
expense with a corresponding increase in the share-based payment reserve within equity.
The fair value is measured at grant date and the total amount to be expensed is recognised over the period during
which the employee becomes unconditionally entitled to the options and rights. The fair value of options and
rights granted is based on the market price of the issuing company’s shares, adjusted to reflect any market perfor-
mance conditions and the impact of any non-vesting conditions. Non-market vesting conditions are included in
assumptions about the number of options and rights that are expected to become exercisable. At each reporting
date, the entity revises its estimate of the number of options and rights that are expected to become exercisable.
The employee benefits expense each period takes into account the most recent estimate. The impact of the
revision to the original estimate, is recognised in profit or loss with a corresponding adjustment to equity.
Washington H. Soul Pattinson and Company Limited – Long term incentive plan
The Parent Entity provides share based compensation benefits to its executive team and management team via a
Long Term Incentive Plan (LTI plan) whereby rights to shares are granted for $nil consideration. Rights are granted
in accordance with the plan at the sole discretion of the Parent Entity’s Board. Rights vest and automatically
convert to ordinary shares in the Parent Entity following the satisfaction of the relevant performance and service
conditions. Performance and service conditions applicable to each issue of rights are determined by the Board at
the time of granting. Rights granted under the plan carry no dividend or voting rights until they have vested and
have been converted into shares in the Parent Entity. Detailed vesting conditions are set out in the Remuneration
report. Refer to pages 36 to 53.
The fair value of services received in return for performance rights granted is based on the fair value of the perfor-
mance rights granted. The fair value of rights was independently determined by valuation specialists Lonergan
Edwards & Associates Limited and was based on the market price of the Parent Entity’s shares at the grant date,
with an adjustment made to take into account the vesting period, expected dividends during that period that will
not be received by the participants and the probability that the market performance conditions will be met.
150
151
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 Other Notes
NOTE 35
SHARE-BASED PAYMENTS (continued)
35
Performance
hurdle
TSR Hurdle
or Non TSR
Hurdle
Movement in number of performance rights granted
Fair value at
grant date
Balance at
start of year
Granted
during the
year
Vested
Forfeited
Balance at
end of year
Grant Date
Vest Date
Dec 2018
Dec 2018
Dec 2018
Dec 2018
Dec 2018
Dec 2018
Dec 2017
Dec 2017
Dec 2017
Dec 2017
Dec 2017
Dec 2017
Dec 2016
Dec 2016
Dec 2016
Dec 2016
Dec 2016
Dec 2016
Dec 2015
Dec 2015
Dec 2015
Dec 2015
Dec 2015
Dec 2015
Sep 2021
(Sep 2022)*
Sep 2021
(Sep 2022)
Aug 2022
(Sep 2022)*
Aug 2022
(Sep 2022)*
Aug 2023
Aug 2023
Sep 2020
(Sep 2021)*
Sep 2020
(Sep 2021)*
Aug 2021
(Sep 2021)*
Aug 2021
(Sep 2021)*
Aug 2022
Aug 2022
Sep 2019
(Sep 2020)*
Sep 2019
(Sep 2020)*
Aug 2020
(Sep 2020)*
Aug 2020
(Sep 2020)*
Aug 2021
Aug 2021
Sep 2018
(Sep 2019)*
Sep 2018
(Sep 2019)*
Aug 2019
(Sep 2019)*
Aug 2019
(Sep 2019)*
Aug 2020
Aug 2020
Non-TSR
TSR
Non-TSR
TSR
Non-TSR
TSR
Non-TSR
TSR
Non-TSR
TSR
Non-TSR
TSR
Non-TSR
TSR
Non-TSR
TSR
Non-TSR
TSR
Non-TSR
TSR
Non-TSR
TSR
Non-TSR
TSR
$17.28
$22.11
$17.28
$22.11
$17.28
$22.11
$7.70
$6.16
$7.70
$6.16
$7.70
$6.16
$13.10
$5.22
$13.10
$3.25
$13.10
$2.56
$13.86
$12.25
$13.86
$11.08
$13.86
$10.87
–
–
–
–
–
–
43,110
43,110
25,865
25,864
17,244
17,244
12,717
12,716
7,630
7,630
5,086
5,086
14,198
14,197
8,518
8,518
5,679
5,678
24,591
24,591
14,755
14,754
9,836
9,835
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(9,450)
(9,450)
(4,748)
(4,747)
–
–
–
–
–
–
–
–
24,951
24,951
14,755
14,754
9,836
9,835
43,110
43,110
25,865
25,864
17,244
17,244
12,717
12,716
7,630
7,630
5,086
5,086
–
–
8,518
8,518
5,679
5,678
280,090
98,362
(18,900)
(9,495)
350,057
* Certain tranches of performance rights are subject to ‘re-testing dates’. Details of vesting conditions and performance hurdles are set out in the
Remuneration report. Refer to pages 36 to 53.
During the year an expense of $2.096 million (2018: $1.525 million) was recognised in the profit or loss for the
rights issued under the Parent Entity LTI plan. The total fair value of the performance rights outstanding at year
end was $3.922 million (2018: $2.356 million).
New Hope Corporation Limited- Employee Share option and Performance rights share plans
New Hope Corporation Limited provides share based compensation benefits to its employees via the New Hope
Corporation Limited Employee Share Option Plan and the New Hope Corporation Limited Employee Performance
Rights Share Plan (Rights plan). Membership of the Rights plan is open to those senior employees and those
Directors of New Hope Corporation Limited, its subsidiaries and associated bodies corporate whom, the Directors
believe have a significant role to play in the continued development of the Group’s activities.
Rights are granted for $nil consideration. Rights will vest at the nominated vesting date and automatically convert to
ordinary shares in New Hope Corporation Limited following the satisfaction of the relevant performance and service
conditions. Service and performance conditions applicable to each issue of rights are determined by the New Hope
Corporation Limited’s Board at the time of the grant. Total expense arising from rights issued under the New Hope
Corporation Limited employee performance share rights plan during the year was $724,000 (2018: $355,000). The
total fair value of the performance rights outstanding at year end was $3.615 million (2018: $3.234 million).
36
NOTE 36
RELATED PARTY TRANSACTIONS
a) Parent Entity
The ultimate Parent Entity is Washington H. Soul Pattinson and Company Limited.
b) Subsidiaries and associates
Interest in subsidiaries and associates are set out in note 4.
c) Key management personnel (KMP) compensation
Short-term employee benefits
Post-employment benefits
Long-term employee benefits
Termination benefits
Share-based payments
Paid to KMP of the
Consolidated Entity
Paid to KMP of the
Parent Entity
2019
$’000
4,544
228
30
–
2,046
6,848
2018
$’000
7,924
288
101
356
1,898
10,567
2019
$’000
3,959
181
30
–
2,046
6,216
2018
$’000
4,154
181
25
355
1,542
6,257
KMP remuneration has been included in the Remuneration Report section of the Directors’ Report on pages 36
to 53.
i. Subsidiaries
Transactions between the Parent Entity and its subsidiaries and between subsidiaries are at normal commercial
terms and conditions. Transactions consist of the transfer of funds for day to day financing, provision of consulting,
management and advisory services, loans advanced and repaid, interest, dividend and rental payments.
Transactions between members of the Group which are eliminated on consolidation are not disclosed in this note.
ii. Associates
Transactions with associates are at normal commercial terms and conditions.
Transactions consist of the supply of pharmaceutical products to the Parent Entity, advisory, consulting, under-
writing, management fees, and rent received from/paid to associates, loans advanced and repaid, interest and
dividend payments.
152
153
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
37
NOTE 37
COMMITMENTS
a) Lease commitments – operating
Commitments for minimum lease payments in relation to
non-cancellable operating leases are payable as follows:
Within one year
One to five years
More than five years
2019
$’000
2018
$’000
35,188
38,935
24,549
98,672
11,531
28,253
28,836
68,620
The Group leases port facilities and has a share in commitments for minimum lease payments relating to property,
plant and equipment under non-cancellable operating leases expiring within five to twenty years. The leases have
varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. The Group
leases office space and small items of office equipment under operating leases.
b) Capital commitments
Capital expenditure contracted for at year end
but not recognised as liabilities is as follows:
Within one year
One to five years
More than five years
59,364
58,106
5,258
63,914
74,334
5,936
122,728
144,184
Capital commitments include contracted management services for mining services, exploration permits and
acquisition of property, plant and equipment.
For commitments relating to associates refer to note 12.
Other Notes
NOTE 36
RELATED PARTY TRANSACTIONS (continued)
36
Summary of transactions
Advisory, consulting, underwriting, management and other fees:
– received by subsidiaries from associates
– rent income received by Parent Entity from associate
Management fees paid by Parent Entity to an associate
Purchases of pharmaceutical products from associate
Interest income from associates
2019
$’000
47
72
248
–
4,926
2018
$’000
780
24
–
3,902
1,423
Loans to associates
During the year, the Parent Entity increased its stand-by loan facility to Palla Pharma Limited (formerly TPI
Enterprises Limited) from $12.5 million to $31.0 million. The amount owed at 31 July 2019 was $31.0 million
(2018: $6.05 million). Interest is charged at market rates. The facility matures on 31 August 2021.
All accrued interest was settled in cash.
Director related entities
Transactions with Contact Asset Management Pty Limited (Contact)
Mr R D Millner and Mr T C D Millner are both Directors of WHSP and are Directors of Contact. Mr T C D Millner is
also a 40% shareholder of Contact.
In November 2018, WHSP entered into an Investment Management Agreement with Contact. Under this
agreement Contact is responsible for managing WHSP’s Large Caps investment portfolio and providing reports on
the performance of that portfolio to WHSP.
During the year, Contact was paid $247,500 (2018: $Nil) to manage the Large Caps portfolio on behalf of WHSP. No
performance fees are payable to Contact.
The Directors, excluding Mr T C D Millner, reviewed the terms of the agreement and concluded that it was more
favourable to WHSP than an arm’s length agreement for similar services.
Transactions with URB Investments Limited (ASX: URB)
Mr W M Negus is a director of both WHSP and URB Investments Limited (URB).
Mr R D Millner and Mr T C D Millner are both Directors of WHSP and are Directors of URB.
WHSP has entered into a co-investment agreement with URB, Contact (in its capacity as investment manager of
URB) and Pitt Street Real Estate Partners Pty Limited (PSRE).
Transactions with Ampcontrol Limited
Mr R G Westphal is a director of both WHSP and was a Director of Ampcontrol Limited (Ampcontrol) until his
resignation on 22 October 2018.
During the prior year, the Group provided a $24.426 million loan facility to Ampcontrol, an associate of Souls
Private Equity Limited (SPEL), a subsidiary of WHSP.
The loan facility was secured by registered mortgages over the property, plant and equipment of a subsidiary of
Ampcontrol. This loan was repaid in July 2019. The loan amount owed at 31 July 2019 was $nil (2018: $24 million).
Interest was charged at 12% per annum.
154
155
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
38
Other Notes
NOTE 38
OTHER ACCOUNTING POLICIES
a) Foreign currency translation
i. Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of
the primary economic environment in which the entity operates (“the functional currency”). The consolidated
financial statements are presented in Australian dollars, which is the Group’s functional and presentation currency.
ii. Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains or losses resulting from the settlement of such transactions
and from the translation of monetary assets and liabilities denominated in foreign currencies at year end
exchange rates are recognised in the profit or loss. They are deferred in equity if they relate to qualifying cash
flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign
operation.
Transaction differences on non-monetary items, such as equity instruments held at fair value through profit or
loss, are reported as part of the fair value gain or loss on the instrument. Translation differences on non-monetary
items are included in the fair value reserve in equity.
iii. Group companies
The results and financial position of all of the Group’s foreign operations (none of which has the currency of a
hyperinflationary economy) that have a functional currency different from the presentation currency are trans-
lated into the presentation currency as follows:
1 assets and liabilities for each Balance sheet presented are translated at the closing rate at the date of that
Balance Sheet;
1 income and expenses for each statement of comprehensive income are translated at average exchange
rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the dates of the transactions); and
1 all resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and
of borrowings and other financial instruments designated as hedges of such investments, are recognised in other
comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment
are repaid, the exchange differences are reclassified to the consolidated statement of comprehensive income, as
part of the gain or loss on sale.
b) Deferred stripping costs
New Hope Corporation Limited does not recognise any deferred stripping costs. Based on the nature of the New
Hope Corporation Limited’s mining operations and the stripping ratio for the components of its operations, the
recognition criteria of a deferred stripping asset are not satisfied. Further, it is anticipated that the operations will
maintain a consistent stripping ratio at the component level and as such no overburden in advance should be
recognised. In the event that a stripping campaign is undertaken in the future a deferred stripping asset will be
recognised at that time and amortised in accordance with the requirements of Australian Interpretation 20. An
asset will be recognised for stripping activity where the following criteria are met:
1 It is probable that the future economic benefit (improved access to the ore body) associated with the
stripping activity will flow to the entity;
1 The entity can identify the component of the ore body for which access has been improved; and
1 The costs relating to the stripping activity associated with that component can be measured reliably.
c) Finance costs
Finance costs incurred for the construction of any qualifying asset are capitalised during the period of time that is
required to complete and prepare the asset for its intended use or sale. Other finance costs are expensed.
d) Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing:
1 the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary
shares; and
1 by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus
elements in ordinary shares issued during the year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into
account:
1 the after income tax effect of interest and other financing costs associated with dilutive potential ordinary
shares; and
1 the weighted average number of additional ordinary shares that would have been outstanding assuming the
conversion of all dilutive potential ordinary shares.
Long-term incentive plan rights that vest in future financial years are expected to be satisfied by purchasing shares
on market. Diluted EPS is equal to the basic earnings per share.
e) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST
incurred is not recoverable from the Australian Taxation Office (ATO). 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 consolidated statement of financial position are shown inclusive of GST receiv-
able or payable. The net amount of GST recoverable from, or payable to the ATO is included with other receivables
or payables in the consolidated statement of financial position.
Cash flows are presented in the consolidated statement of cash flows on a gross basis, except for the GST
component of investing and financing activities, which are disclosed as operating cash flows.
f ) Financial statements presentation
The Group has attempted to improve the transparency of its reporting by adopting ‘plain English’ where possible.
Key ‘plain English’ phrases and their equivalent AASB terminology are as follows:
‘Plain English’ terminology
AASB terminology
Share capital
Trading equities
Contributed equity
Financial assets at fair value through profit or loss
Long term equity investments
Financial assets at fair value through other comprehensive income
Equity accounted associates
Investments accounted for using the equity method
Term deposits
Held to maturity investments
The accounting standards also require the presentation of the consolidated statement of comprehensive income
which presents all items of recognised income and expenditure either in one statement or in two linked state-
ments. The Group has elected to present one statement.
156
157
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019 39
Other Notes
NOTE 39
REMUNERATION OF AUDITORS
During the year, the following fees were paid or payable for services provided by the auditor.
a) Audit services
Parent Entity and Consolidated Entity
Pitcher Partners Sydney for audit and review of financial reports and
other audit work under the Corporations Act 2001
Other Group entities
Pitcher Partners Sydney for audit and review of financial reports
Other audit firms for the audit or review of financial reports
Total remuneration for audit and review services
b) Other services
Pitcher Partners Sydney
Tax compliance services
Other services
Other auditors of Group entities
Other services
Total remuneration for other services
2019
$’000
380
292
612
1,284
139
24
161
324
2018
$’000
333
222
444
999
116
6
74
196
40
NOTE 40
DEED OF CROSS GUARANTEE
During 2012, the Parent Entity and a subsidiary, Souls Private Equity Limited entered into a deed of cross guar-
antee under which each company guarantees the debts of the other.
Whilst party to this deed, wholly owned entities are relieved from the requirements to prepare a financial report
and directors’ report under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 issued by the
Australian Securities and Investments Commission.
The parties to this deed are referred to as the ‘Closed Group’. The effect of the deed is that each party to it has
guaranteed to pay any deficiency in the event of the winding up of any of the entities in the Closed Group.
i)
Consolidated statement of comprehensive income and summary of movements
in consolidated retained profits and consolidated statement of financial position
for the members of the Closed Group
Consolidated statement of comprehensive income – closed group
Profit before income tax
Income tax expense
Profit after tax attributable to closed group
Other comprehensive income – closed group
Net movement in fair value of long term equity investments, net of tax
Share of other comprehensive income movements, net of tax
Total other comprehensive (loss)/income for the year, net of tax
2019
$’000
2018
$’000
226,560
(37,703)
188,857
(25,520)
14,215
(11,305)
478,514
(103,274)
375,240
2,290
4,094
6,384
Total comprehensive income attributable to the closed group
177,552
381,624
Summary of movements in consolidated retained earnings – closed group
Opening balance at 1 August
Profit for the year
Transfer from General reserve to retained profits
Effect of initial adoption of AASB 9
Effect of initial adoption of AASB 15
Dividends declared and paid
1,857,408
188,857
402,206
38,754
1,174
(111,727)
1,589,111
375,240
–
–
–
(106,943)
Closing balance at 31 July
2,376,672
1,857,408
158
159
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
Other Notes
NOTE 40
DEED OF CROSS GUARANTEE (continued)
40
Consolidated statement of financial position
Current assets
Cash and cash equivalents
Trade and other receivables
Trading equities
Assets classified as held for sale
Total current assets
Non-current assets
Trade and other receivables
Equity accounted associates
Long term equity investments
Property, plant and equipment
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liability
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained profits
Total equity
2019
$’000
38,874
50,510
77,148
53
2018
$’000
42,066
35,869
69,930
1,407
166,585
149,272
75,617
1,621,058
1,049,298
7,808
73,708
104,475
1,523,169
968,703
3,800
74,690
2,827,489
2,674,837
2,994,074
2,824,109
6,378
30,000
538
36,916
18,141
358,246
597
376,984
413,900
1,052
–
317
1,369
–
347,790
530
348,320
349,689
2,580,174
2,474,420
43,232
160,270
2,376,672
43,232
573,780
1,857,408
2,580,174
2,474,420
Directors’ Declaration
In the Directors’ opinion:
1 the attached financial statements and notes comply with the Corporations Act 2001, the Accounting
Standards, the Corporations Regulations 2001 and other mandatory professional reporting
requirements;
1 the attached financial statements and notes comply with International Financial Reporting Standards
as issued by the International Accounting Standards Board as described in the Basis of Preparation on
page 65;
1 the attached financial statements and notes give a true and fair view of the Consolidated Entity’s
financial position as at 31 July 2019 and of its performance for the financial year ended on that date;
1 there are reasonable grounds to believe that the Parent Entity will be able to pay its debts as and
when they become due and payable; and
1 at the date of this declaration, there are reasonable grounds to believe that the members of the
Extended Closed Group will be able to meet any obligations or liabilities to which they are, or may
become, subject by virtue of the deed of cross guarantee described in note 40 to the financial
statements.
The Directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the
Corporations Act 2001.
On behalf of the Directors
R D Millner
Director
T J Barlow
Managing Director
Dated this 22nd day of October 2019.
160
161
Notes to the Financial StatementsWashington H. Soul Pattinson and Company LimitedAnnual Report 2019
Independent Auditor’s
Report
Level 16, Tower 2 Darling Park
201 Sussex Street
Sydney NSW 2000
Postal Address
GPO Box 1615
Sydney NSW 2001
p. +61 2 9221 2099
e. sydneypartners@pitcher.com.au
Independent Auditor’s Report
to the Members of Washington H. Soul Pattinson and Company Limited
ABN 49 000 002 728
Report on the Financial Report
Opinion
We have audited the financial report of Washington H. Soul Pattinson and Company Limited (“the Company”) and
its controlled entities (“the Group”), which comprises the consolidated statement of financial position as at 31 July
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, and notes to the financial statements, including
a summary of significant accounting policies and other explanatory information and the Directors’ Declaration.
In our opinion the financial report of the Group is in accordance with the Corporations Act 2001, including:
i.
giving a true and fair view of the Group’s financial position as at 31 July 2019 and of its financial
performance for the year then ended; and
ii.
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis of Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibility 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 on 21 October 2019, 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.
Adelaide Brisbane Melbourne Newcastle Perth Sydney
Pitcher Partners is an association of independent firms.
An independent New South Wales Partnership. ABN 17 795 780 962. 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.
pitcher.com.au
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
How our audit addressed the key audit matter
Consolidation and reliance on the work of other auditors
Refer to Basis of consolidation (page 66)
The consolidated financial report of the Group
comprises the financial reports of Washington H. Soul
Pattinson and Company Limited, its subsidiaries, and
its share of results from equity accounted associates.
This involves the consolidation of financial
reporting received from subsidiaries and associates
(“components”) and reliance is placed on the work of
the auditors of these components.
Given the number of associates and subsidiaries
within the Group, and accounting complexities due
to the transactions undertaken by the Group during
the year, the key audit matter for us was whether
the consolidation process had been accurately and
completely performed by management.
As a result, we focused on:
1 identifying and understanding the significant
components of the Group and the risks of
material misstatement within them;
1 the assessment of each components’ compliance
with Group accounting policies; and
1 the consolidation procedures (including
consolidation journals and intercompany
transactions) undertaken by management.
Our procedures included, amongst others:
1 Providing instructions and questionnaires to
component auditors and working with component
auditors, to identify risks that are significant to
the audit of the Group and to plan relevant audit
procedures to address them.
1 Auditing investment movements during the year
for consolidation/equity accounting impacts.
1 Enquiring of management about WHSP’s
procedures in place for the identification of
intercompany transactions.
1 Performing detailed audit testing of consolidation
workpapers, journals and supporting
documentation including reconciliations.
1 Auditing the financial data used in the
consolidation process for consistency with the
financial data audited by component auditors.
1 Reviewing the financial reports of significant
subsidiaries and associates.
1 Evaluating the accounting policies of subsidiaries
for consistency with WHSP policies and Australian
accounting standards.
1 Based on our assessment of risk, meeting with
component auditors to discuss the outcome
of their audit procedures and where necessary
reviewing relevant component auditor workpapers.
162
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Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Independent Auditor’s Report
Key Audit Matter
How our audit addressed the key audit matter
Valuation and classification of equity investments
Refer to Note 13: Trading Equities and Note 14: Long Term Equity Investments
Equity investments are a significant asset within
the consolidated statement of financial position,
representing $862.2 million or 14.7% of total assets.
There is significant focus in ensuring the underlying
equity investments are correctly classified as either
fair value through profit or loss or fair value through
other comprehensive income or whether an
investment should be accounted for as an associate,
should significance influence exist. The classification
of equity investments is important as it determines
how revenue and fair value adjustments (realised
and unrealised) are reported, be it in profit or loss
or through other comprehensive income or in the
case of an associate through the equity accounting
method.
The determination of the valuation of financial
investments held at fair value, is based on a range
of inputs, approximately 84% of equity investments
are level 1 and can be valued based on quoted
prices in active markets. Where observable data is
not available, for example, when determining the
valuation of unlisted investments, estimates are
developed based on the most appropriate source
data and are subject to a higher level of judgement.
Our procedures included, amongst others:
1 Obtaining an understanding, evaluating
and auditing relevant controls surrounding
investment purchases, disposals and
classification.
1 Obtaining an understanding, evaluating and
auditing management’s initial assessment and
ongoing monitoring of whether the Group has
significant influence over an underlying equity
investment.
1 Confirming the accurate recording and
ownership of investments.
1 Confirming the valuation of the total listed
investment portfolio at balance date by
reference to external sources.
1 Reviewing the appropriateness of valuation
techniques used by management in
determining the fair value of unlisted
investments and assessing the reasonableness
of judgements and estimates used.
1 Reviewing management’s analysis of the
investments for indicators of impairment and
assessing the reasonableness of the judgements
and estimates of impairments made by reference
to market and specific entity conditions.
1 Checking the mathematical accuracy of the
impairment expense recognised in the financial
report.
Directors’ Responsibility for the Financial Report
The Directors of the Company are responsible for the preparation of the financial report that gives a 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 have no realistic
alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance
with 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 Australian Auditing Standards, we exercise professional judgement and
maintain professional scepticism throughout the audit.
We also:
1 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.
1 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.
1 Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by the Directors.
1 Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures
in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based
on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Group to cease to continue as a going concern.
1 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.
1 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.
Other information
The Directors are responsible for the other information. The other information comprises the information in the
Group’s annual report for the year ended 31 July 2019 but does not include the financial report and the auditor’s
report thereon.
Our opinion on the financial report does not cover the other information and 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.
164
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Washington H. Soul Pattinson and Company LimitedAnnual Report 2019 Independent Auditor’s Report
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 36 to 53 of the Directors’ Report for the year ended
31 July 2019. In our opinion, the Remuneration Report of Washington H. Soul Pattinson and Company Limited, for
the year ended 31 July 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.
M A Alexander
Partner
22 October 2019
Pitcher Partners
Sydney
Pitcher Partners is an association of independent firms.
ABN 17 795 780 962.
An independent New South Wales Partnership.
166
ASX Additional Information
Distribution of Equity Securities as at 1 October 2019
Size of Holding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
TOTAL
Holding less than a marketable parcel
Top 20 Shareholders as at 1 October 2019
1
2
3
4
5
6
7
8
9
10
11
12
Brickworks Limited
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Milton Corporation Limited
J S Millner Holdings Pty Limited
Dixson Trust Pty Limited
Citicorp Nominees Pty Limited
T G Millner Holdings Pty Limited
Hexham Holdings Pty Limited
Argo Investments Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
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