Villa World Ltd
Annual Report 2016

Plain-text annual report

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 CELEBRATING 30 YE ARS SUCCESS THROUGH PROPERT Y SHAREHOLDERS INFORMATION VILLA WORLD LIMITED Villa World Limited ABN 38 117 546 326 Level 1 Oracle West, 19 Elizabeth Avenue, Broadbeach QLD 4218 Mailing address: PO Box 1899, Broadbeach QLD 4218 Telephone: +61 7 5588 8888 Facsimile: +61 7 5588 8800 Website: villaworld.com.au Email: info@villaworld.com.au Shareholder information and enquiries All enquiries and correspondence regarding shareholdings should be directed to Villa World’s share registry provider: Computershare Investor Services Pty Limited Mailing address: GPO Box 2975EE, Melbourne VIC 3000 Telephone: 1300 651 684 or +61 3 9415 4000 (outside Australia) Fax: +61 3 9473 2500 (within & outside Australia) Website: computershare.com.au Email: web.queries@computershare.com.au Villa World Info line Inside Australia: 1300 552 434 Outside Australia: +61 7 5588 8851 Company Secretary: Paulene Henderson CONTENTS Key Highlights 4 Chairman’s Report 6 Managing Director and Chief Executive Officer’s Review 8 Operating Financial Review 10 Current Portfolio 16 Directors’ Report 26 Auditor’s Independent Declaration 48 Corporate Governance Statement 49 Financial Statements 50 Directors’ Declaration 89 Independent Auditor’s Report to the Members of Villa World Limited 90 ASX Additional Information 92 Rochedale Grand Display Home - Rochedale 2 VILL A WORLD LIMITED ANNUAL REPORT 2016 VISION MISSION Villa World’s vision is to be the Company of choice for people to achieve success through property. Villa World’s mission is to create property solutions where demand meets opportunity as we deliver value and positive experiences across all our relationships. VALUES PERFORMANCE KNOWLEDGE We efficiently deliver effective and quality outcomes to achieve financial objectives. AGILITY We are agile in how we run the business, we adapt quickly and initiate change. INTEGRITY Our people are accountable, make ethical decisions and are socially responsible. Our team applies high level skills to achieve positive outcomes. UNITY We are a team – we care for and empower our people, support each other and recognise achievements. RESPECT We value and appreciate our people, partners and customers. VILL A WORLD LIMITED ANNUAL REPORT 2016 3 KEY HIGHLIGHTS REVENUE UP 20% 32% NET PROFIT AFTER TAX EARNINGS PER SHARE UP 19% 1 13% DIVIDEND UP Portfolio of 5,937 lots representing 5 years sales diversified across and within east coast states 67% 32% 1% QUEENSLAND 6 CORRIDORS VICTORIA 3 CORRIDORS NEW SOUTH WALES 4 VILLA WORLD LIMITED ANNUAL REPORT 2016 SALES PER FY 41% FY 16 FY 14 FY 15 FY 13 FY 12 496 611 831 843 1185 LAND DELIVERED 26% FY12 FY13 FY14 FY15 FY16 661 757 618 840 CONSERVATIVE GEARING OF 25.6% With headroom / unused capacity 27.6% 24.4% 18.7% 16.9% 1060 Gearing (%) 25.6% VILL A WORLD LIMITED ANNUAL REPORT 2016 5 CHAIRMAN’S REPORT ON OUR 30TH ANNIVERSARY, I AM PROUD TO ANNOUNCE ANOTHER TREMENDOUS SET OF RESULTS FOR VILLA WORLD. Our philosophy of success through property not only reflects our strength in the short-term but more importantly our commitment to creating long-term value for shareholders. land and housing to owner occupiers, first home buyers and local investors in the affordable to mid- market range. We will continue to concentrate our operations in these markets that we know so well. This year Villa World recorded a statutory after tax profit of $33.7 million, an increase of 32% on the previous year. This result flowed from a 20% increase in revenue to $387 million. The Board declared total full year dividends of 18 cents per share representing a yield of 7% fully franked. This is consistent with the Company’s Dividend Policy distributing 50 percent to 75 percent of annual net profit after tax. We remain one of the highest yielding stocks on the ASX. In order to ensure long-term value for shareholders, the Board paid particular attention to Villa World’s strategy, risk and governance during the year. Refreshed strategies have been put in place to achieve our goal of being recognised as one of Australia’s leading property development companies. We will continue to focus on our teams, customers, shareholders and our core capabilities. We will grow our core business with new projects in our existing markets, enter new geographical locations and new partnering arrangements. We will lead through continued strong performance, strong management and learn from our experience. This approach builds off our current strengths, the first of which is our product. The Villa World portfolio includes an inventory of high quality projects and completed designer homes. During the year, we added a number of strategic acquisitions to the mix, including highly sought- after land in south east Queensland, at Logan, Arundel and Strathpine. We now have an impressive development pipeline in excess of five years. Our second strength is our expertise and continued focus on our core business of providing Thirdly, the strength, vision and depth of our management team, which has been in place for a number of years and capably led by Chief Executive Officer Craig Treasure, provides a stable anchor for the Company and strong leadership going forward. And finally, our financial strength, characterised by prudent gearing, a healthy cash flow and solid balance sheet, provides a strong foundation for Villa World to pursue growth opportunities. This year, as well as delivering more product for Villa World families, we did something very special through an innovative collaboration with the Gold Coast Project for Homeless Youth. The Company delivered a new seven-bedroom crisis care facility built through donations of labour, materials and money from Villa World, our staff and our business partners. We look forward to handing over the keys and making a real difference for young people faced with living on the streets. I thank all involved in the project, including the Villa World team who generously made personal donations in support of this project. I would like to acknowledge the valuable contribution throughout this year from my fellow Independent Directors, David Rennick and Donna Hardman. David’s insight across property and legal issues has served the Company well, particularly in his role as Chair of the Audit and Risk Committee. Since joining the Board in February 2016, Donna’s experience beyond the property sector has bolstered the skills and diversity of our Board and has already been marked by a number of positive changes under her guidance as Chair of the Remuneration and Nomination Committee. 6 VILL A WORLD LIMITED ANNUAL REPORT 2016 “Refreshed strategies have been put in place to achieve our goal of being recognised as one of Australia’s leading property development companies.” I would like to thank our Chief Executive Officer and Managing Director, Craig Treasure, his management team and all the Villa World staff for the exceptional effort they put in during the past year to achieve these outstanding results. Villa World has entered an exciting period in its history. With a reinvigorated strategic focus, Villa World will continue to grow the portfolio characterised by increasing diversity in geography and product that appeals to the customer market and performs well in variable market conditions. I take pleasure in presenting our Annual Report. It is our demonstration that, both now and into the future, Villa World is delivering success through property. Mark Jewell Chairman Bill Hoyer House, Homeless Youth Project - Gold Coast VILL A WORLD LIMITED ANNUAL REPORT 2016 7 MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER’S REVIEW VILLA WORLD’S SUCCESS IS NOT FOUNDED ON ONE SET OF GOOD RESULTS. IT COMES FROM GETTING THE BUSINESS FUNDAMENTALS RIGHT AND CONSISTENTLY ACHIEVING OR BETTERING WHAT WE SET OUT TO DO. I am pleased to report that FY16 was a continuation of our year-on-year growth and the successful execution of our business strategy. We exceeded our profit guidance of $46.6 million with a before tax result of $47.2 million and closed out the year with a 20% increase in revenue to $387 million. Our FY16 Net Profit After Tax result of $33.7 million was up 32% from $25.6 million last year, and Earnings Per Share increased 19%. These results exemplify the notion of a ‘step change’ in our business – a notion we have been talking about for some years and have delivered across our four strategic pillars of sales, delivery, portfolio, and capital management. SALES We continued to enjoy strong sales growth, meeting our sales target for the year with 1,185 contracts to the end of June 2016, compared with 843 in FY15, and almost double the result from three years ago. The Queensland market again performed well and our turn-key delivery model gained traction in the Victorian market. Our proven experience and investment in valued relationships with suppliers and contractors has delivered a smoother passage to enter new geographic markets, such as New South Wales. With $165.6 million in carried forward sales and new projects contributing to current and future earnings growth, the Company expects to maintain sales growth and profit momentum into FY17. DELIVERY Our Company’s focus on operational efficiency and long-term relationships underpinned strength in the delivery of land and houses, with 47% more product in FY16 than the previous four-year average. PORTFOLIO Growth in the Company’s portfolio reflects greater geographic and product diversification enabling us to capitalise on variabilities across market segments. The Company will adopt a carefully-managed approach to the New South Wales market, and will shortly finalise partnering arrangements for an initial 90 homes to be built in south west Sydney. We delivered in line with our strategy of acquiring land in strategic corridors to support continued growth in our delivery output. With 5,937 lots, up from 5,191 last year, we maintain a solid five year growth pipeline in sought-after locations. CAPITAL MANAGEMENT Our operational result was underpinned by a strong balance sheet and cash flow. Net debt at year-end was $120 million with $32.7 million of undrawn capacity in debt facilities. Net tangible assets at year-end were $236.9 million, up from $220.6 million, representing $2.15 per share (FY15: $2.00) before the declaration of the final dividend. 8 VILLA WORLD LIMITED ANNUAL REPORT 2016 “Our FY16 net profit after tax result of $33.7 million was up 32% from $25.6 million last year, and earnings per share increased 19%.” The Company continues to maintain a prudent gearing level at 25.6%, within the target range of 15-30%. Careful financial management over the medium term has delivered flexibility and increasing diversity in funding sources, and created a strong, sustainable balance sheet. This will continue as we move ahead with our forward plan. FOCUS, GROW, LEAD Against the backdrop of continued strong performance across the Company’s four pillars – sales, delivery, portfolio and capital management - Villa World is ideally positioned for the future. Our 30th year as a listed company afforded us the opportunity to reflect on our strategy and plot the course for the next decade. This reflection has brought into sharper focus the key areas the Company will concentrate on to achieve its vision. Our strategy roadmap is clear and the commitment of our team is unwavering. We look forward to welcoming more families to their Villa World home and delivering success through property. Craig Treasure Managing Director and Chief Executive Officer VILL A WORLD LIMITED ANNUAL REPORT 2016 9 OPERATING FINANCIAL REVIEW FINANCIAL RESULT During 2016, the Company continued to build on its previous successes and this year has delivered continued strong earnings growth, improved shareholder returns and outstanding operating performance. The Company finished the 2016 financial year with a strong full year result, reporting a statutory net profit after tax of $33.7 million (30.6 cps), a 32% increase on net profit after tax of $25.6 million (25.6 cps) reported for the period ended 30 June 2015. The Company reported a profit before tax of $47.2 million, exceeding guidance of $46.6 million. REVENUE FROM LAND DEVELOPMENT, RESIDENTIAL BUILDING AND CONSTRUCTION CONTRACTS Continued sales momentum combined with $134.1 million1 of carried-forward sales from FY15, and an outstanding delivery of land and housing resulted in 1,073 accounting settlements2 in FY16 (FY15: 816). As a result, revenue increased by 20% to $387.0 million (FY15: $321.6 million). The revenue mix reflects the Company’s continued focus on its core capabilities in house and land, as well as strong land only sales, particularly in Victoria. In total, 73% of revenue was generated through house and land product (FY15: 80%). Queensland remained the main contributor to revenue at 83% (2015: 90%). Average revenue per lot was $355.5k down from $395.2k in the prior year, and is reflective of product mix. The average revenue per house and land lot rose 3% to $424.6k. With a large number of settlements of our land only product, including a significant portion of settlements at our affordable land estate, 1 Inclusive of GST. 2 1,073 settlements of Company owned lots (FY15: 814), and nil lots relating to joint ventures (FY15: 2), which are reflected in Share of Joint Venture Profits. 10 Cardinia Views, in south east Melbourne, the average land only revenue was down to $244.1k per lot. The previous corresponding year had been positively impacted by the settlement of premium land only projects Astonbrook, Seaside, Lacosi and Waterline. Pleasingly an average of 4.5% revenue growth was achieved during the year. PERFORMANCE FY16 FY15 CHANGE Number of projects contributing to profit Revenue - property sales ($m) House and Land Land Only Revenue - development and project management fee ($m) Settlements (lots)A - inc. Joint Ventures Settlements (lots) - ex. Joint Ventures House and Land Land Only Revenue - property sales ($k/Lot)B House and Land Land OnlyC Gross margin ($m) Margin (%) Underlying gross margin ($m)D Underlying margin (%) 19 20 ▼ -5% 387.0 321.6 ▲ 20% 280.9 258.7 ▲ 9% 106.1 1.2 62.9 ▲ 69% ▲ n/m 0.0 1073 816 ▲ 31% 1073 814 ▲ 32% 662 411 625 ▲ 6% 189 ▲ 117% 355.5 395.2 ▼ -10% 424.6 414.1 ▲ 3% 244.1 332.7 ▼ -27% 100.6 77.8 ▲ 29% 26.0% 24.2% ▲ 7% 102.5 86.7 ▲ 18% 26.5% 27.0% ▼ -2% ▲ 45% Share of Profits and Other Income ($m) 4.1 2.8 Sales (lots)E 1185 Mean rate of sale pcm - FY 98.8 843 ▲ 41% 70.3 ▲ 41% A Accounting Settlements require cash settlement in New South Wales. In Queensland and Victoria an unconditional sales contract and for land only, land registration; for house and land, land registration and a certificate of building completion is required. B Average revenue per lot = ($387.0m less englobo sale of $6.0m)/ (1073 settlements less 1 englobo lot) C Average revenue per land only lot = ($106.1m less englobo sale of $6.0m)/ (411 settlements less 1 englobo lot) D Underlying Gross Margin is exclusive of provision for litigation. E Sales - executed contracts, not necessarily unconditional. VILLA WORLD LIMITED ANNUAL REPORT 2016 Era - Capalaba GROSS MARGIN The gross margin for FY16 was $100.6 million or 26.0% (FY15: $77.8 million or 24.2%). This included a net provision for legacy litigation issues of $1.9 million (FY15: $8.9 million). An additional provision of $2.8 million was raised in 2H16 related to the Silverstone litigation which is expected to be concluded in FY173. All outstanding aspects of the Thornleigh proceedings were concluded in 2H16, with $0.9 million released back into profit4. REVENUE – DEVELOPMENT AND PROJECT MANAGEMENT During 1H16 the Company progressed its strategy to grow development and project management income streams by deploying development management skills into further joint venture arrangements. These ventures delivered $1.2 million in fee income in FY16 and the Company anticipates development and project management fees will provide an ongoing revenue stream for the business. SHARE OF PROFIT FROM EQUITY ACCOUNTED INVESTMENTS AND OTHER INCOME The share of profit from equity accounted investments and associates of $3.4 million related largely to the Eynesbury joint venture which settled the second tranche of the sale to the Hyde Group in 1H16, with an increase in selling price and extension fees contributing $3.6 million to profit. 3 Mediation and trial scheduled for 1H17. 4 Refer Note B4(c) Movement in provisions Financial Statements. 5 Less than 5% of FY16 sales were to international investors. Other income of $0.7 million was generated this year, largely made up of bank interest received and penalty interest on delayed settlements. OPERATIONAL PERFORMANCE The Company achieved its sales target of between 1,000 and 1,200 sales, with a total of 1,185 sales recorded during FY16 (FY15: 843). Sales remained weighted to Queensland (74%) due to the number of projects being marketed and continued supportive market conditions. The Company’s strategy of targeting growth corridors continued to reap excellent results in Queensland, with the Brisbane bayside estates contributing 28% of sales, northside representing 23% of sales, and the Brisbane Gold Coast corridor on the south side representing 17% of sales. Regional Queensland accounted for 6% of sales. Further growth in our Victorian projects resulted in 26% of sales. The Company’s land estates continued to sell very strongly in Melbourne, while sales from the Company’s turn-key housing model continued to grow. The Company maintains a solid position in all customer segments – our core being the retail market (comprising owner occupier including first home buyers), as well as builders and predominantly local investors5. The Company delivered 1,060 lots of land, up 26% on the 840 lots delivered in FY15. The Company’s housing operations delivered 632 homes across both Queensland and Victoria (FY15: 654). VILL A WORLD LIMITED ANNUAL REPORT 2016 11 Operating Financial Review (continued) SALES CONTRACTS CARRIED FORWARD At 30 June 2016, the Company carried-forward 464 sales contracts valued at $165.6 million6, with 72% of contracts (335 lots valued at $120.0 million) due to settle in 1H17, and the balance in 2H17. These strong carried-forward sales, when combined with the Company’s continued sales focus, place the Company in a very strong position for 2017. PROPERTY SALES AND MARKETING COSTS The sales and marketing strategy introduced in 2015, which shifted focus onto the Villa World brand and targeted regional marketing campaigns, has benefitted both sales, and sales and marketing costs which were 5.7% of revenue (FY15: 5.6% of revenue). These changes to the sales and marketing strategy included bringing the on-site sales team in-house. On-site sales staff are contracted to particular projects and are included in cost of sales. LEGAL AND PROFESSIONAL COSTS Legal and professional costs represented 0.4% of revenue (FY15: 0.4%), and related to the establishment of the Long Term Incentive program and supporting employee trust structure, general accounting and taxation advice in relation to capital efficient structures and general consulting to support the operations team. EMPLOYEE BENEFITS The Company finished FY16 with 113 full time equivalent employees (FY15: 95). The Company’s focus this year was on generating and delivering strong sales and expanding its geographic footprint. Accordingly, a number of sales and operational roles were added in Victoria and Queensland. Key management roles were appointed in New South Wales as the Company prepared to expand into the greater Sydney market. The full year salary contribution of the new employees hired in FY15, as well as the new employees hired in FY16 resulted in a 16% increase in staff costs year-on-year. Employee costs fell for the third year, as a percentage of revenue to 4.3% (FY15: 4.5%). The full year salary contribution of the new employees hired in FY16 is expected to result in an increase in employee costs of 15-20%. TAX POSITION The effective tax rate for FY16 was 28.6%. The effective tax rate is expected to be 30% in FY17. Carried forward unused tax losses of $19.3 million (DTA of $5.8 million) were fully utilised during the FY16 year. The Company returned to paying cash tax on an instalment basis in 2H16, with $1.6 million cash tax payments in 2H16. ASSETS AND NTA Gross assets increased to $478.0 million at 30 June 2016 from $432.7 million, as acquisition momentum continued. The NTA per share increased by 7.5% to $2.15, prior to the declaration of the 10 cent fully franked dividend (FY15: $2.00, prior to the declaration of 10 cent dividend). CAPITAL MANAGEMENT During the year, the Company operated a $180 million club facility with Westpac and ANZ. During FY16, the term of the ANZ facility was extended. The maturity was staggered, with $80 million extended through to 1 March 2019 and $50 million to 16 October 2020. At 30 June 2016, the ANZ facility was for $130 million. Post year end, documentation was finalised raising the facility limit to $140 million. The further $10 million will assist the Company to implement its business strategy. At 30 June 2016, the $50 million Westpac facility was due to mature on 2 March 2018. Post year end, documentation will be finalised extending this facility through to March 2019. 6 Represents gross sales price including GST. 12 VILLA WORLD LIMITED ANNUAL REPORT 2016 At 30 June 2016, the cash on hand and unused capacity in the facility was $41.0 million (30 June 2015: $98 million). The gearing ratio at year end was 25.6% (FY15: 16.9%), within the stated gearing target of 15-30%. Strong sales and settlements during the year generated $131.5 million (FY15: $75.5 million) in operating cash. Strong cash flow, combined with headroom in the debt facility enabled $162.9 million in acquisitions to be settled. Strategic negotiation of acquisitions continues to ensure efficient use of capital. Strong cashflow, the unused capacity in the facility and capital lite structures will enable the continued execution of the acquisition strategy throughout FY17. The average cost of debt during the year was 8.6% (FY15: 7.8%). A $90 million fixed interest rate swap of 3.69% remains in place through to June 2018. The Company’s funding has been repositioned, a very strong and sustainable balance sheet has been created and cash flow has been effectively managed across the portfolio. DIVIDENDS Villa World shareholders have benefited from the strong financial performance during the year with the Directors declaring total dividends of 18 cps fully franked in relation to the 2016 financial year. This represents a 13% growth year on year. An interim dividend of 8cps was paid in March 2016. A final dividend has been declared post year end of 10cps and will be paid in September 2016. The full year dividend of 18 cps represents an annual payout of 61% of NPAT (FY15: 69%), which is within the Company’s stated dividend policy (payout ratio of 50-75% of NPAT, paid semi-annually). ACQUISITION The Company continued to execute on its acquisition strategy to replenish land stock through strategic purchases in proven growth corridors, and take advantage of opportunities to diversify our geographic footprint along the east coast. The Company acquired 2,139 lots, including three sizeable projects at Logan, Arundel and Strathpine, in south east Queensland, which will provide product continuity for four to six years, as our very successful Park Vista and Mt Cotton projects complete. The Company will progress the expansion of its foot print by re-entering the New South Wales market through capital efficient partnering arrangements. The Company will soon finalise a development agreement with Greenfield Development Corporation in south west Sydney, for delivery of an initial 90 homes. In Victoria, the Company’s Donnybrook joint venture has entered into a conditional contract to sell a part of the project7. This has significantly improved the joint venture’s commercial position and will free up capital to develop the remainder of the project and reinvest in new sites. As at 30 June 2016, the Company had a portfolio of 5,937 lots, representing approximately 5 years of sales. In the near term, Queensland remains central to the Company’s business, however, the portfolio is diversified across the east coast states, and in strong growth corridors. Importantly, the Company has broadened its 7 The Donnybrook joint venture has entered into a conditional contract to sell ~67.9 ha (~1,000 lots, VLW 51% share being 510 lots) to Satterley Property Group Pty Ltd. The sale contract is conditional on PSP Approval being obtained by 6 April 2020, and this process has commenced. The total sale price for the Property is $34 million (plus GST), subject to adjustment based on final developable land yield. Cash settlement and title transfer is to occur in four equal stages, commencing 30 days after PSP approval and then 12, 24 and 36 months after the first settlement. The joint venture intends to retain and develop the remaining parcel of land comprising ~206.1ha (~1,196 lots, VLW 51% share being 610 lots). The entire property was purchased by the Donnybrook joint venture in late CY14 for $22.8 million. Rochedale Grand Display Home - Rochedale VILL A WORLD LIMITED ANNUAL REPORT 2016 13 Operating Financial Review (continued) reach across product and price point, adding to its resilience and providing strong and sustainable cash flows. The land acquisition payable at 30 June 2016 is $46.9 million in total, current $37.8 million and non-current $9.1 million. This payable will be settled from operating cash flows and settlement proceeds from third party settlements. Since year end, $21.6 million has been paid. THE VILLA WORLD STRATEGY Villa World’s continued strong performance in FY16 reflects the success of its business strategy and a commitment to achieving its long-term goal of being recognised as a leading Australian property group. The Company has refined its strategy around three key themes: focus, grow and lead. These themes provide clear direction for the Company’s approach to its development portfolio, sales, operational delivery and capital management. Villa World will continue to focus on our teams, customers, shareholders and core capabilities in the residential land and housing market. The Company made a number of strategic land acquisitions in FY16 and will continue to grow by taking advantage of new core business opportunities that complement the Villa World business model, support geographic diversity of its market footprint, and leverage strengthened staff capability. Villa World’s 30-year history supports the Company to lead through continued strong performance and to learn from past experience. KEY RISKS While the underlying current is one of strong and supportive market conditions, the Company continues to prudently manage sales, development and finance risk, along with risks associated with general warranty claims. The Company continues to monitor government policies, including macroprudential regulation and foreign ownership policies. Consumer confidence will continue to influence sales. Economic conditions including interest rates, unemployment and wages directly impact consumer confidence. The Company has maintained a diversified portfolio and prudent gearing position assisted by structured acquisition deals and a product portfolio that minimises sales risk. The Company’s portfolio has well managed project-based risk. In most cases, development approvals are either in place prior to acquisitions, or residential use is allowed and approval risk is mitigated by appropriate due diligence. Risks associated with longer-dated projects, with the opportunity to add value through the planning process, are mitigated through partnering arrangements or appropriately structured acquisition terms. Production-based risk is further mitigated by the diversified portfolio, scalable business model, transparency on development costs and the experience of the Company’s development team. Warranty claims and potential litigation are inherent risks in the development and construction industry. The Company is currently defending litigation involving the following matter at Silverstone: The Silverstone litigation (refer to the Note B4(d) Legal claims in the 2016 Financial statements) relates to alleged defects at a residential building located in Tweed Heads, New South Wales. The building comprises 27 units and was completed in 2009. A Villa World subsidiary, Villa World Developments Pty Ltd, was the registered builder. Villa World Developments Pty Ltd engaged independent subcontractors to carry out construction. Based on further developments in the litigation during 2H16, the Directors have assessed this provision at approximately $8.5 million as at 30 June 2016 in respect of the Company’s proportion of the Applicant’s potential claim amount. This is in addition to the provisions for legal fees and experts costs which have been made since 30 June 2015 and expensed through cost of sales. Estimating this provision requires the exercising of significant judgement and it is therefore possible that actual amounts may differ from this estimate. 14 VILLA WORLD LIMITED ANNUAL REPORT 2016 At 30 June 2016, the Company had in place a $180 million Club financing arrangement with ANZ and Westpac. The Club financing arrangement comprises a facility of $130 million with ANZ with $80 million expiring on 1 March 2017 and $50 million expiring on 30 October 2020, and a facility of $50 million with Westpac expiring on 2 March 2018. Each facility is able to be negotiated and extended independent of the other. Post year end, the Westpac facility will be extended through to March 2019 and the ANZ facility limit has been increased to $140 million. OUTLOOK In FY17 the Company’s focus will remain on delivering and settling carried forward sales and releasing flagship projects at Killara, Logan and Arundel Springs, Gold Coast. With 28 projects at various points in the lifecycle selling during the FY17 year, the Company expects to better its FY16 sales performance. The Company’s strategy of pursuing joint venture arrangements will begin to contribute to profit in FY17, initially through the Rochedale JV with the Donnybrook JV to follow in FY19. The FY17 contribution from Rochedale will be $3.4 million comprising $1.5 million in development and project management fees and $1.9 million share of profit, representing a very strong return on the investment (30 June 2016: $8.9 million). In addition, the Company will recognise $0.8 million in revenue from contract building the homes at the project, which fall outside the joint venture. The Company anticipates that development and project management fees will provide an ongoing and growing revenue stream, as the Company continues to pursue opportunities to grow the business in a capital efficient way, with a strong focus on return on assets. The gross margin for the coming year on wholly owned projects is expected to be 24-26%. Several existing high margin projects were recently completed, new flagship projects will commence contributing to profit in 2H17, and it is anticipated that margins at these projects will improve as they mature beyond FY17. Further, several capital lite projects will contribute to profit in FY17. While such projects deliver a lower margin, they provide a strong return on investment. GUIDANCE Assuming general consumer confidence is maintained, interest rates remain low and first home buyer grants remain in place, the Company is targeting statutory profit after tax growth of at least 5% to $35.4 million in FY17. This result is underpinned by strong carried forward sales, continued sales momentum across Queensland and Victoria, and an increased delivery capability. It is the intention of the Board to continue the payment of strong dividends, in accordance with the stated payout policy of 50-75% of NPAT, paid semi-annually. The Board anticipates paying a dividend of at least 18 cents per share fully franked in FY17. FY17 ACQUISITION STRATEGY The Company has a continued commitment and capacity to acquire development sites. The near term focus will remain on the continued replenishment of the portfolio in south east Queensland, growing the Victorian land bank with a focus on the south eastern and Northern growth corridors of Melbourne, and growing a presence in New South Wales. The Company’s use of capital efficient means, such as the capital lite model and joint ventures, will enable it to progress the expansion of its footprint, with a longer-term strategy of cementing our place as a leading east coast residential developer. In FY17, the Company expects cash outflow for acquisitions of $60-85 million funded from existing debt facilities and working capital, plus $40 million in capital lite transactions. Circa - Nudgee VILL A WORLD LIMITED ANNUAL REPORT 2016 15 CURRENT PORTFOLIO BRISBANE NORTH Brisbane North continued to be a strong residential growth corridor of south-east Queensland and a successful market for the Company during FY16. Our existing projects in the region reached significant milestones and a number of new projects commenced to ensure continuance of supply. Master planned for 533 lots in total, Park Vista at Mango Hill is one of our most successful projects in the current portfolio. Neighbouring North Lakes with its town centre and education facilities, the Park Vista community is now an established village style neighbourhood comprising contemporary family homes and park recreation facilities, surrounded by dedicated native reserve. FY16 saw the sell-out of the original precinct of completed homes and the release of the project’s new land precinct on the eastern side of Anzac Avenue. The much anticipated Moreton Bay Rail Link, which includes a new station just 1km from our new release, is set to open by the end of 2016. Adjoining Park Vista is Orana, where 108 townhomes set around recreation facilities, including a swimming pool and covered outdoor entertaining areas, reached final sell-out during FY16. Haven on Greens is a recently acquired site for 70 homes in the suburb of Griffin close to North Lakes. This project, set to commence in FY17, will further extend our commitment to the area and fill the demand created by the sell-out at Park Vista. Situated beside a nature reserve, just a short drive from Moreton Bay, Bay Road at Burpengary is a boutique sized community of only 143 homes, which sold out during FY16. The recent purchase of a further 37 lots will see the continuation of the project in FY17. Currently under planning is a 291 lot land project in Upper Caboolture, close to the Caboolture River and only a short drive west of the Morayfield retail heart. Fast approaching sell-out is the marquee 209-home community of Circa situated in the prestige inner suburb of Nudgee just 12km from the Brisbane CBD. Circa has been developed over a number of years in boutique sized stages and has consequently achieved a premium price point in a highly sought- after northside location. FY16 saw the project’s ultimate release of two-storey designer homes. During FY16, in recognition of the expanding small business professionals market, we launched a new product type called HQ Urban Business Residences. Located at The Nest in Fitzgibbon Chase, a precinct planned by the State Government’s building and development arm EDQ (Economic Development Queensland), HQ Urban Business Residences combine a ground floor professional suite with streetfront commercial presence, with a contemporary upper level 1 or 2 bedroom residence. Construction and marketing of these 12 lots has commenced. Also in FY16 the Company launched Eminence at Bridgeman Downs which comprises 34 townhomes and 5 free standing homes. This boutique project, less than 16km from the CBD, gives us a further presence in Brisbane’s prestige inner northern suburbs. Now in the planning stage is a new project located in Strathpine on a picturesque site with frontage to an extensive South Pine River reserve. Set to commence in FY18 and become our new flagship project in the region, this site will comprise 383 homes targeted at our core customer group of middle market families. At nearby Joyner just minutes from Lake Samsonvale, the Company is currently constructing an 81 lot land project called Riva, which adjoins a country golf course in the popular Pine Rivers region 25km from the CBD. Riva is situated in a prime location close to Petrie’s train station and local retail district. 16 VILLA WORLD LIMITED ANNUAL REPORT 2016 “ The Company continued to execute its acquisition strategy to replenish land stock” CABOOLTURE C UPPER CABOOLTURE BURPENGARY BAY ROAD M 1 M O T O R W A Y NORTH LAKES MANGO HILL REDCLIFFE ORANA PARK VISTA RIVA H HAVEN ON GREENS S STRATHPINE EMINENCE THE NEST CIRCA PETRIE GRIFFIN JOYNER STRATHPINE BRIDGEMAN DOWNS FITZGIBBON CHASE NUDGEE M 1 M O T O R W A Y BRISBANE GLADSTONE LITTLE CREEK AUGUSTUS QLD HERVEY BAY BOX HILL ALLURE LACOSI HILL ESTATE SYDNEY MELBOURNE DONNYBROOK LAVINIA & ROXBURGH PARK SIENNA PLUMPTON CARDINIA VIEWS CASCADES ON CLYDE M 1 M O T O R W A Y Y A W R O T O Y M A W E T A G ROCHEDALE LOGAN MOTORWAY WATERFORD LOGAN MOTORWAY LOGAN RESERVE PARK RIDGE CLEVELAND CAPALABA THORNLANDS VICTORIA POINT REDLAND BAY MT COTTON ERA WATERLINE AFFINITY ROCHEDALE GRAND SEASCAPE ELLABAY MT COTTON VILLAGE THE SANCTUARY M 1 M O T O R W A Y JACOBS WELL SEABRIGHT KILLARA C COTTONWOOD COOMERA PARKSIDE ARUNDEL ARUNDEL SPRINGS VILL A WORLD LIMITED ANNUAL REPORT 2016 17 Current Portfolio (continued) BRISBANE SOUTH With its freeway connection to the CBD and ease of access to the Gold Coast, Brisbane’s southside has for generations been a highly sought-after residential corridor. During FY16 the Company launched its new flagship address, Rochedale Grand. The holistic approach to the design of this project has resulted in a stunning master planned community where modern luxury residences with prestige tree-lined setting, blend as one. The community comprises 167 premium priced homes, many with glimpses of the city skyline. Rochedale today has a contemporary residential character and this new designer product range has been developed to reflect this market positioning. BRISBANE BAYSIDE Redlands offers a relaxed bayside lifestyle some 35km from the Brisbane CBD. The region’s population continues to grow and the Company has invested in its future by assembling a portfolio of projects. Our original Redlands project Mt Cotton Village which commenced in 2009, sold out during FY16. The 572 lot community features intimate neighbourhoods of designer homes set among picturesque native bushland with easy access to community parks with recreation facilities. It remains a showcase project for the Company. Era is a 200 home contemporary address set beside a natural bushland sanctuary in Capalaba around 32km from the Brisbane CBD. Launched at the start of FY15 and expected to sell-out during FY17, this project was the first location to feature our new range of designer homes. In the nearby suburb of Redland Bay, the Company launched Ellabay during FY16. This boutique 84-lot community just 1km from the waterfront offers a stunning new range of designer homes and a select number of land lots. Construction has now commenced at Seascape, a residential resort project in Redland Bay, where 187 designer townhomes are set beside a community garden, residents’ swimming pool and BBQ facilities. Seascape is well situated in a growth location close to the proposed Weinam Creek marina development. Waterline at Thornlands is a 227 lot premium land project offering prestige level homesites in a bayside setting complete with its own community park and nature walk with bicycle and walking paths. A 23 home display village showcasing designs by a range of leading builders has just opened. We anticipate sell-out of the project during FY17. FY16 saw the launch of another land project in Thornlands. Affinity is centrally located in this popular area and comprises 118 family sized elevated blocks just a short walk to the Victoria Point Shopping Centre. Registration of the first two stages is complete. Era - Capalaba 18 VILLA WORLD LIMITED ANNUAL REPORT 2016 Ellabay - Redland Bay Waterline - Thornlands VILL A WORLD LIMITED ANNUAL REPORT 2016 19 Current Portfolio (continued) LOGAN Logan City, south of Brisbane, is now one of Queensland’s fastest growing corridors, with independent research predicting a population increase of up to 200,000 over the next two decades. The Company’s first project in the region, The Sanctuary, was the final stage of the successful Woodlands master planned development at Waterford, 31km from the Brisbane CBD. This 81 home project bordered by 30 hectares of lush open spaces will be sold out during FY17. Commencing during FY17 is our signature development in the region. Killara will be a master planned 721-lot land project with extensive parklands and adventure trails situated on Chambers Flat Road, in Logan Reserve. The project will offer a wide variety of lot sizes to our core customer group of middle market families and ensure several years of land supply for the Company in a strong growth corridor of south- east Queensland. Just a short drive south, in Park Ridge is our recently purchased Cottonwood project, which is currently under planning for construction of 160 Villa World homes. GOLD COAST During FY16, the Company expanded its foothold in its foundation market, the Gold Coast. On the back of sales success at Parkside in Coomera, two additional site acquisitions were made. Parkside, which we anticipate will sell-out early in FY17, comprises 179 contemporary family homes set around a central park, just minutes from the future Coomera Town Centre. Just a short drive north, within a short walk of Tipplers Passage and its boating facilities, is our newly launched 107- home Jacobs Well project, Seabright. At Arundel, just a few minutes from the new Gold Coast University Hospital and Westfield Helensvale, our new marquee Gold Coast project Arundel Springs will launch during FY17. This represents one of the final ever releases of retail land in the central Gold Coast corridor. Extensive planning has been undertaken to ensure the project’s 386 premium homesites and townhomes blend harmoniously with the bordering Coombabah Lakelands Conservation Area. REGIONAL QUEENSLAND During FY16, the Company continued to develop its contemporary lifestyle communities on the Central Queensland Coast. Little Creek in Gladstone has been master planned to be the city’s premier address. Set around the Little Creek parklands, a network of parks with playgrounds and recreation facilities, this 688 lot project offers a mix of land and Villa World homes. Augustus is located on the picturesque Fraser Coast 31/2 hours from Brisbane, in the famous whale watching town of Hervey Bay. Centrally located within the town, Augustus has been master planned for a total of 730 contemporary family homes. The project sold well in FY16 and will benefit during FY17 from the Fraser Coast Council’s extension of the $12,000 Destination Hervey Bay home buyers grant. A limited number of land lots are also being marketed. SYDNEY Western Sydney remains one of Australia’s key residential growth corridors. The 55 land lots at the Company’s Lacosi Hill project in Schofields close to the new Rouse Hill Town Centre, sold out during FY16. In the neighbouring suburb of Box Hill, our new Allure project, comprising some 44 Villa World homes, is now in the planning stages. Augustus - Hervey Bay Parkside - Coomera 20 VILLA WORLD LIMITED ANNUAL REPORT 2016 Killara - Logan Reserve Seabright - Jacobs Well VILL A WORLD LIMITED ANNUAL REPORT 2016 21 Current Portfolio (continued) MELBOURNE SOUTH EAST MELBOURNE NORTH In the major growth corridor of Melbourne’s south east around 55km from the CBD, our 1,138 lot Cascades on Clyde project is in its final stages. Over the past eight years, this master planned community has been a very successful land project for the Company. It features 14 hectares of wetlands and parklands as well as walking tracks, BBQ facilities and children’s playgrounds. A final 44 lots remain for sale. Land at Cardinia Views, which launched in FY15, is selling strongly. This 320 lot land project located in the semi-rural area of Pakenham some 60km south-east of the CBD, features views of the rolling countryside. With its variety of homesite sizes, the project is attracting family buyers. MELBOURNE NORTH WEST With its proximity to the Caroline Springs and Taylors Hill town centres and freeway access to the CBD, Melbourne’s North West corridor continues to experience solid population growth. In Plumpton, 35km to the CBD’s north west, the Company now has two projects close to Victoria University and local facilities. Sienna, comprising 165 Villa World designer homes from a new range crafted for the Melbourne lifestyle, was launched in FY16. The neighbouring site, located on Saric Court, will add a further 254 land lots and is currently in the planning stages. Melbourne’s north corridor continues to be in solid demand among family buyers. Lavinia at Greenvale, just 10km from Melbourne Airport, is a master planned project comprising 131 designer homes bordering the Greenvale Reserve. The community neighbours a park with playground facilities and is well positioned with easy access to local amenities. Construction of 30 terrace style urban homes is now underway at our boutique sized project Roxburgh Park Central, close to Greenvale and some 20km north of the CBD. The Company has a 51% share in a joint venture to develop a 274 hectare land project at Donnybrook, an emerging residential area to the city’s north. A portion of the site is currently under conditional contract to a third party. The joint venture intends to retain and develop the remaining land. Sienna - Plumpton Sienna - Plumpton 22 VILLA WORLD LIMITED ANNUAL REPORT 2016 Lavinia - Greenvale Lavinia - Greenvale Sienna - Plumpton VILL A WORLD LIMITED ANNUAL REPORT 2016 23 Rochedale Grand - Rochedale Villa World Limited ABN 38 117 546 326 Annual report - 30 June 2016 Contents Director’s report Corporate governance statement Financial statements Independent auditor’s report to the members Page 26 49 50 90 These financial statements are the consolidated financial statements of the consolidated entity consisting of Villa World Limited and its subsidiaries. The financial statements are presented in Australian currency. Villa World Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office is: Villa World Limited Level 1 Oracle West, 19 Elizabeth Avenue, Broadbeach QLD 4218 A description of the nature of the consolidated entity’s operations and its principal activities is included in the Directors’ report on page 26, which is not part of these financial statements. The financial statements were authorised for issue by the Directors on 16 August 2016. The Directors have the power to amend and reissue the financial statements. Through the use of the internet, we have ensured that our corporate reporting is timely and complete. All ASX announcements, financial reports and other information are available on our website: www.villaworld.com.au VILL A WORLD LIMITED ANNUAL REPORT 2016 25 DIRECTORS’ REPORT Your Directors present their report on the consolidated entity (referred to hereafter as the Company) comprising of Villa World Limited and its subsidiaries and the Company’s interest in associates for the year ended 30 June 2016. Directors The Directors of Villa World Limited during the year and up to the date of this report were: Mark Jewell BCom CA (SA), GAICD Non-Executive Director since 28 November 2013 Chairman since 28 May 2014 Mark is an independent director with more than 25 years senior executive and directorship experience in publicly listed companies. He brings to the Board a wide range of expertise in the Australian property industry including strategy, risk, compliance and an in-depth experience in land and housing developments. Board Committee memberships • • Member of the Audit and Risk Committee (since 28 November 2013) Member of the Remuneration and Nomination Committee (since 5 February 2015) Craig Treasure BASc (Surveying) (QUT), FDIA Executive Director 17 February 2012 – 1 August 2012 Chairman and Executive Director 1 August 2012 – 5 October 2012 Chairman and Managing Director 5 October 2012 – 28 May 2014 Chief Executive Officer and Managing Director since 28 May 2014 Craig Treasure has more than 30 years’ experience in property development, specifically in the residential land and housing sectors along the eastern seaboard of Australia. Craig has previously held a number of executive roles and directorships within the property industry. David Rennick BEc, LLB Non-Executive Director since 1 September 2014 David is an independent director and senior Melbourne based lawyer with nearly three decades experience in the property industry, having acted for leading developers and institutions as principal legal advisor and on property and business strategy. His area of practice in property includes master planned community projects, property development, corporate real estate, institutional property and retail centre developments and leasing. He is currently a Partner and Head of Australia, for international law firm Pinsent Masons. Prior to that role, he was a property partner and then CEO of national law firm Maddocks where he was responsible for leadership, client and people strategies and management. Board Committee memberships • • • • Chair of the Audit and Risk Committee (since 5 November 2015) Chair of the Remuneration and Nomination Committee (5 February 2015 – 17 February 2016) Member of the Audit and Risk Committee (since 1 September 2014) Member of the Remuneration and Nomination Committee (since 17 February 2016) Mark Jewell Craig Treasure David Rennick 26 VILL A WORLD LIMITED ANNUAL REPORT 2016 Donna Hardman MBA, BCom, GAICD, FAMI Non-Executive Director since 17 February 2016 Donna is an independent director and brings a broad skill set and strategic acumen which has been gained through 25 years in senior executive and director level roles, particularly within the international financial services sector. Donna has a strong human capital focus and risk management mindset and her professional experience includes both senior executive and consultancy roles as a business and IT strategist. Board Committee memberships • • Chair of the Remuneration and Nomination Committee (since 17 February 2016) Member of the Audit and Risk Committee (since 17 February 2016) Other directorships (current and recent) In the past three years Donna has served as a Non-Executive Director of Quay Credit Union (since June 2013). Company Secretary Paulene Henderson BBus Acc MBA CA Chief Financial Officer / Company Secretary As Chief Financial Officer since 2010, Paulene has been responsible for guiding Villa World’s capital management strategy. This has included two highly successful equity raisings and a restructuring of the Company’s debt facilities to provide flexibility and support the Villa World growth strategy. Paulene has a wealth of experience, having held roles in strategic finance, financial management and accounting, primarily in the property and hospitality sectors. She combines technical accounting expertise and commercial acumen to manage all aspects of Villa World’s financial strategy, including debt and capital market transactions, treasury, forecasting and planning, and investor relations. As the leader of our successful Investor Relations and Finance team, Paulene demonstrates excellent leadership skills as well as her extensive knowledge of corporate funding, risk management and taxation matters. She has worked with global professional services firm EY and held senior financial roles with two subsidiaries of Fortune 500 Company Wyndham Worldwide. Paulene was appointed Company Secretary 19 November 2012. Gerald (Gerry) Lambert BCom (Hnrs), CA, GAICD Non-Executive Director from 22 January 2015 – 5 November 2015 Gerry is an independent director who has held key financial roles in both listed and unlisted companies in the building and property development, and mining industries. He has had a 30 year corporate career with expertise and experience in the financial, strategic, governance, management and human resource areas. Other directorships (current and recent) Gerry is currently a Non-Executive Director of yourtown (since February 2011), a national charitable organisation and served as a Non-Executive Director of CuDeco Limited (27 April 2010 – 18 September 2015), an ASX listed mining and exploration company. Gerry has previously been an Executive Director of Villa World Limited from 2000 to 2005, at which time he was CFO and General Manager. Board Committee memberships • • Chair of the Audit and Risk Committee (18 June 2014 – 5 November 2015) Member of the Remuneration and Nomination Committee (5 February 2015 – 5 November 2015) Donna Hardman Paulene Henderson VILL A WORLD LIMITED ANNUAL REPORT 2016 27 Directors’ interests Directors’ interests in shares of Villa World Limited as of the date of this report Mark Jewell Craig Treasure David Rennick Donna Hardman Meetings of Directors 103,390 834,864 45,000 - The number of meetings held by Villa World Limited’s Board of Directors, including Board Committees and the number of meetings attended by each Director are listed below: Mark Jewell Craig Treasure David Rennick Gerry Lambert Donna Hardman Board meetings1 B A 16 16 14 16 4 9 16 16 4 9 Audit and Risk Committee B A 4 4 - 3 2 1 - 4 2 1 Remuneration and Nomination Committee A 5 - 5 2 3 B 5 - 5 2 3 A = Number of meetings attended B = Number of meetings held during the time the Director held office or was a member of the committee during the period 1 = The Board recognises the importance of developing and implementing the Company’s strategy and during FY16 dedicated three Board meetings for this purpose. Principal activities The principal activities of the Company continued to be the development and sale of residential land, and the development, construction and sale of house and land packages. Review of operations and consolidated results Group Financial Summary Revenue1 Expenses Finance costs Profit before income tax Income tax expense Profit for the period Profit is attributable to: Owners of Villa World Limited Consolidated 30-Jun-16 $’000 30-Jun-15 $’000 392,303 324,289 (335,592) (284,713) (9,464) 47,247 (13,534) 33,713 (10,196) 29,380 (3,743) 25,637 33,713 25,637 1 Includes revenue from land and development, residential building and construction contracts, other income and share of profit/(loss) from equity accounted investments. The breakdown of revenue can be found in the Consolidated statement of comprehensive income on page 51. A review of operations for the financial year and the results of those operations are set out in the Operating and Financial Review on page 10. 28 VILL A WORLD LIMITED ANNUAL REPORT 2016 Directors’ report 30 June 2016 (continued) Dividends The Board declared an interim dividend of 8.0 cents per share fully franked on 16 February 2016. Payment was made to shareholders on 31 March 2016. Matters subsequent to the end of the financial year Final dividend On 16 August 2016 the Board declared a fully franked final dividend of 10.0 cents per share. The ex-dividend date is 1 September 2016 and the record date for this dividend is 2 September 2016. Payment will be made on 30 September 2016. The balance of the franking account is $8.2 million and includes franking credits that will arise from the payment of tax recognised as a liability at the reporting date. Refer note A4(c) - Franking credits on page 59. Club facility During August 2016, Villa World and ANZ agreed a credit approved term sheet to extend the ANZ facility to $140 million. This comprised a further $10 million unsecured facility to expire in August 2018 and will provide the Company with further financial flexibility to implement its business strategy. At 30 June 2016 the $50 million Westpac facility was due to mature on 2 March 2018. Post year end, this facility has been extended with a credit approved term sheet in hand. The formal documentation process is expected to be completed in September 2016. The facility will be extended through to March 2019. REMUNERATION REPORT: ANNUAL STATEMENT BY THE REMUNERATION AND NOMINATION COMMITTEE CHAIR Villa World strives for excellence across every aspect of our business, with a clear focus on our customers and the creation of sustained growth in shareholder value. Since my appointment in February 2016 as Chair of the Remuneration and Nomination Committee, I have consulted with investors and their representative bodies to ensure that we reflect diversity of thought as a pathway to help define our strategic approach. This Remuneration Report responds to feedback for greater transparency and simplicity in the way we demonstrate the link between our Company’s strategy, its performance and the remuneration outcomes for our executives. This year’s financial results confirm our view that the Company’s success reflects our greatest asset: our people. Villa World has invested in the retention, recognition and development of top talent during the past year. The benefits are evident in our sales, delivery and financial management, and in the senior leadership team’s contribution to fostering an environment that promotes ownership and accountability for delivery of outcomes. With the support and encouragement of Chief Executive Officer and Managing Director Craig Treasure, Villa World’s State Manager Queensland, Michael Vinodolac, was recognised among the key management personnel in FY16, with a recent further promotion to General Manager Operations. We have also seen Chief Financial Officer Paulene Henderson taking on an expanded public role during the period as the Company has confirmed its excellent financial management credentials. VILL A WORLD LIMITED ANNUAL REPORT 2016 29 Remuneration report (continued) Pay for performance FY16 The Company’s support and encouragement of its high-calibre senior team has corresponded with an increase in the executive team’s responsibilities and prompted a review of salary levels based on performance. As a result, short-term incentives (STIs) were paid during the year. The Committee determined that maximum weighting outcomes available under STIs were achieved. In addition to financial performance, cash bonuses awarded to executives in FY16 were determined based on the achievement of individual operational and performance measures set by the Board and recommended by the Committee. Consistent with the Company’s commitment to sustained performance, a key priority in FY16 was to review the structure of long-term incentive plans (LTIPs), and to provide greater transparency to shareholders around remuneration outcomes. The Company has two LTIPs: a legacy option plan, due to vest during the period July 2016 to February 2017, and a new plan effective from 1 July 2016. The new LTIP was confirmed at the 2015 Annual General Meeting and is intended as the Company’s principal vehicle for granting long-term incentive awards to senior executives and other eligible employees. It includes performance rights which vest based on ongoing employment and the achievement of specific performance targets. The Committee has undertaken a full review of the performance measures and ranges and is satisfied that the vesting conditions align with the Company’s strategy of providing incentives based on growth and the efficient use of Villa World’s assets to generate revenue. The performance conditions of the new LTIP are that: • • 75% of the grant will vest based on Villa World’s Relative Total Shareholder Return (TSR) over the performance period 25% of the grant will vest based on Return on Assets (ROA). The Committee has been conscious of the importance of benchmarking performance against the external remuneration environment. For this reason, consultants Ernst and Young (EY) were engaged to assist in providing advice on implementation of the new LTIP, as well as providing benchmarking analysis of remuneration levels for executives, in conjunction with the Committees own internal analysis. Based on this information, the Committee determined that the higher performance-based remuneration mix achieved during FY16 was appropriate. It reflects competitive reward for meeting the vesting conditions, namely contribution to growth in shareholder wealth and the efficient use of assets to generate revenue. Changes for FY17 The Committee has undertaken its regular review of performance measures and has set new targets for FY17. There are no planned material changes to the way in which the Executive Remuneration Policy will be implemented in FY17. The Committee remains focused on maintaining a close link between remuneration and the performance of the Company, the achievement of individual targets and the creation of shareholder value. This is further supported by a focus on non-executive performance measures to ensure maximisation of Board effectiveness with alignment to the strategic objectives of the Company that will ultimately deliver greater value and wealth to its shareholders. Retaining and attracting a diverse pool of talent is a cornerstone of Villa World’s success. We will continue to offer a competitive remuneration mix that rewards performance and encourages diverse perspectives and flexibility in thinking leading to a higher level of creativity, innovation and organisational agility. I thank the members of the Remuneration and Nomination Committee for their efforts. Donna Hardman Chair, Remuneration and Nomination Committee 30 VILL A WORLD LIMITED ANNUAL REPORT 2016 REMUNERATION REPORT 2016 (AUDITED) Contents Section A: Introduction Section B: Key management personnel disclosed in this report Section C: Summary of FY16 remuneration Section D: Approach to remuneration Section E: Actual remuneration earned in FY16 Section F: Our assets: Our people Section G: Remuneration framework and link to business strategy Section H: FY16 remuneration outcomes Section I: Remuneration structure Section J: Service agreements for Executive KMP Section K: Non-Executive Directors’ remuneration Section L: Additional required disclosures Section A: Introduction Page 31 31 32 33 34 35 35 36 38 42 43 44 The Villa World Limited Board is pleased to present the Remuneration Report for FY16. This Report is presented in accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations. This information has been audited as required by section 308(3C) of the Act. The Board is committed to an executive remuneration framework that fosters a strong performance culture and links the remuneration outcomes for our executives with the Company’s strategy and forward plan. Section B: Key management personnel disclosed in this report This Report outlines how the Company’s FY16 performance has been reflected in remuneration outcomes for key management personnel (KMP) as defined in AASB 124 Related Party Disclosures. The Company’s KMP comprise of Non-Executive Directors (NEDs), and Executive Directors and senior executives (collectively the “executives”), being those persons considered by the Board to have the authority and responsibility for planning, directing and controlling (either directly or indirectly) the Company’s major objectives. KMP Position Non-Executive Directors Mark Jewell David Rennick Independent Chairman Independent Non-Executive Director Donna Hardman1 Independent Non-Executive Director Gerald (Gerry) Lambert2 Independent Non-Executive Director Term Full Year Full Year Part Year Part Year Executive Director Craig Treasure Senior Executives Chief Executive Officer and Managing Director (CEO/MD) Full Year Paulene Henderson Chief Financial Officer (CFO) and Company Secretary Michael Vinodolac3 General Manager Operations Full Year Part Year 1 Donna Hardman was appointed Non-Executive Director on 17 February 2016. 2 Gerald (Gerry) Lambert resigned as Non-Executive Director on 5 November 2015. 3 Michael Vinodolac became a KMP effective 1 October 2015 after a period of transition into his current role of State Manager - QLD, with a recent further promotion into the role of General Manager Operations. VILL A WORLD LIMITED ANNUAL REPORT 2016 31 Section C: Summary of FY16 remuneration The Company’s Remuneration and Nomination Committee (RNC) noted strong performance in delivery and sales, as well as sustained strength in the balance sheet enabling effective cash flow management across the portfolio. Increased environmental complexity and geographic and product diversity has been accompanied by expanded roles and responsibilities for the executive team. Appropriately, the RNC reviewed salary levels based on performance. Key remuneration outcomes are as follows: Fixed Remuneration CEO/MD Remuneration “Short-term incentives (STI)” “Long-term incentives (LTI)” NED fees Executives received increases (~9%-10%) in fixed remuneration in recognition for high performance and delivery of business strategy. Fixed remuneration for the CEO was revised to $675k for FY16, an increase of 12.5%. The increase was based on peer comparison and his increased accountabilities following strong growth and business performance. Total STI remained at 40% of fixed salary. Total remuneration for the CEO is tabled in Section E. The STI pool awarded to all employees, including those awarded to executives totalled $1.2 million in FY16 (FY15: $1.1 million). The increase reflected the Companys’ strong financial performance in FY16 and the Boards assessment of performance against individual KPI measures. STI for executives remain between 20-40% of fixed salary. A new LTI plan was established in FY16 replacing the legacy Villa World Limited Option Plan. The maximum LTI opportunities during FY16 were equivalent to 100% of fixed remuneration for the CEO and up to 80% of fixed remuneration for other executives and eligible employees. Performance hurdles have been aligned to shareholder wealth and vesting of performance rights are dependent on achieving target relative TSR and ROA over 3 years. NEDs received ~12% increase in base fees to reflect additional workloads as well as market relativities. Total Board and Committee fees paid during FY16 were $289k (see Section K) which is within the current maximum aggregate amount of $600k. NEDs do not receive variable pay. 32 VILL A WORLD LIMITED ANNUAL REPORT 2016 Section D: Approach to remuneration The Board, RNC, external advisers and management work closely to apply our remuneration principles and ensure our strategy supports long-term sustainable growth in shareholder value. The executive remuneration strategy demonstrates a strong link between our Company’s strategy, its performance and the remuneration outcomes for our executives. The Company’s approach to setting remuneration, including roles and responsibilities is illustrated below. Board - Responsible for the overall strategic direction and corporate governance of Villa World Limited Remuneration and Nomination Committee External advisers From time-to-time the Committee and Board utilise the services of specialist human resources and remuneration consultants to provide advice regarding: • Executive remuneration levels • Remuneration frameworks • Succession planning Protocols have also been established for the engagement of remuneration consultants and the provision of recommendations free of undue influence. Assist and make recommendations to the Board by overseeing remuneration policies and practices to ensure executives are rewarded fairly and responsibly having regard to the performance of the Company. The Committee’s role is to assist and make recommendations to the Board on the following: • Board remuneration policies and practices that enable it to attract and retain executives and Directors who will create value for shareholders • Remuneration packages for the Senior Executive Team • Fees for Non-Executive Directors • Board composition • Human resources policies aligned to the overall business strategy • Policies that promote and support equal opportunity and diversity within the Company Management - Make recommendations to the Committee regarding the Company’s remuneration policies and frameworks The Company’s remuneration strategy, policies and practices are designed to attract and retain the best people and reward employees for supporting the strategic and operational objectives of the Company. This is achieved by setting remuneration levels which are competitive with executives in comparable companies and roles and by regularly reviewing performance measures and targets. VILL A WORLD LIMITED ANNUAL REPORT 2016 33 Section E: Actual remuneration earned in FY16 Remuneration earned by Executive Key Management Personnel (KMP) reflects the Company’s strong FY16 business performance and sustained growth in shareholder value over a number of years. The following table sets out the actual value of remuneration earned by Executive KMP members during the year. Non-Executive Directors Mark Jewell (Chairman) David Rennick Donna Hardman1 Gerald (Gerry) Lambert2 Alexander (Sandy) Beard3 Total Non-Executive Directors Executive Director and KMP Craig Treasure (CEO and MD) Michael Vinodolac4 Scott Payten5 Total Executive Director and KMP Long- term benefits Long service leave6 Share based payments Share options Perfor- mance Rights Termi- nation benefits Short-term benefits Salary and fees Cash Bonus $ 2016 123,288 2015 110,000 2016 2015 2016 2015 2016 2015 2016 82,192 60,000 30,242 - 28,662 31,938 - 2015 13,140 2016 264,384 2015 215,078 $ - - - - - - - - - - - - Post- employ- ment Super- annuation contri- butions $ 11,712 10,450 7,808 5,700 2,873 - 2,723 3,034 - - 25,116 19,184 $ - - - - - - - - - - - - $ - - - - - - - - - - - - $ - - - - - - - - - - - - TOTAL $ 135,000 120,450 90,000 65,700 33,115 - 31,385 34,972 - 13,140 289,500 234,262 1,145,100 893,406 422,220 347,442 318,188 - - $ - - - - - - - - - - - - - - - - - - - Paulene Henderson 2016 280,692 66,145 2016 655,692 240,000 19,308 18,128 100,000 111,972 2015 571,963 199,905 18,783 2,755 100,000 - 2015 256,217 59,369 2016 2015 2016 2015 210,519 51,395 - - 103,921 - - - 19,308 18,783 14,481 - - 7,930 4,740 8,333 8,333 39,812 - 11,488 15,375 14,930 - - - - - - - 2016 1,146,903 357,540 53,097 37,546 123,708 166,714 - 1,885,508 9,392 764 (25,000) 445,692 534,769 2015 932,101 259,274 46,958 8,259 83,333 - 445,692 1,775,617 TOTAL 2016 1,411,287 357,540 78,213 37,546 123,708 166,714 - 2,175,008 2015 1,147,179 259,274 66,142 8,259 83,333 - 445,692 2,009,879 1 Donna Hardman was appointed Non-Executive Director on 17 February 2016. 2 Gerald (Gerry) Lambert resigned 5 November 2015. 3 Alexander (Sandy) Beard resigned 2 September 2014. 4 Michael Vinodolac became a KMP effective 1 October 2015 after a period of transition into his current role of State Manager - QLD, with a recent further promotion into the role of General Manager Operations. 5 Scott Payten ceased employment 24 September 2014 and received a termination payment inclusive of annual leave entitlement, long service leave, notice period and redundancy. 6 Long service leave represents the amount expensed by the Company for the period. 34 VILL A WORLD LIMITED ANNUAL REPORT 2016 Section F: Our assets: Our people Villa World aims to engage our people over the long- term by fostering diversity, providing challenging work and development opportunities, and encouraging strong delivery through performance. These aims are underpinned by our values of performance, agility, integrity, knowledge, unity and respect. The Company has applied itself to ensuring it has the right people, systems and structure in place to focus, grow and lead. Our commitment to sustained performance is reflected in incentive plans that promote and reward decision-making with a positive long-term impact, while avoiding excessive risk. Section G: Remuneration framework and link to business strategy The Company rewards its executives with a level and mix of remuneration consistent with the approach outlined above. As a gateway for each executive to attain their target short- term incentive, there is a set of overarching Company- wide specific hurdles that must first be achieved before consideration is given to financial remuneration. The table below explains the linkage between the remuneration components and the Company’s performance focus. n o i t a r e n u m e R d e x F i n o i t a r e n u m e r k s i r t A Component Design Purpose and link to strategy Total fixed remuneration Base salary, superannuation contributions and other non- monetary benefits • Retention and attraction - market competitive, bench marked against peer company • Positioned at a level that reflects the contribution and value to the Company • Recognises capability, expertise and performance of the executive STI Cash A cash bonus awarded based on successful achievement of Board Key Performance Indicators (KPIs) and delivering longer term strategic plan against target • Rewards and motivates achievement of Company annual strategic plan • Creates transparent link between performance and remuneration • Individual KPIs encourage accountability and consider a broader view of performance and specific strategic prorities LTI A deferred equity award of conditional rights or options subject to performance conditions measured over a three year performance period • Rewards longer-term performance • Performance measures (ROA and relative TSR) provide significant link to performance and strategic goals and are key metrics in aligning remuneration outcomes with shareholder value • Retention and shareholder alignment VILL A WORLD LIMITED ANNUAL REPORT 2016 35 Section H: FY16 remuneration outcomes The Company has achieved substantial improvement in overall business performance in relation to the current financial position, total shareholder returns and operational performance targets during the past 12-24 months. These achievements were taken into consideration during the annual remuneration review for FY16. (i) KMP remuneration mix Fixed Remuneration, STI and LTI work together to help generate alignment between the successful execution and management of the Company’s strategy and business objectives to deliver in the interests of shareholders. The CEO and all Company senior executives have a significant portion of their remuneration linked to performance and therefore ‘at risk’. For FY16, this portion was increased, with greater emphasis on long-term incentives for the CEO and Company executives compared to FY15, with a view to increasing shareholder alignment for this key group. The relative mix of these components for different roles for FY16 is summarised in the table below. Executive Director Craig Treasure Other KMP Paulene Henderson Michael Vinodolac Total remuneration package components TFR STI LTI 2016 2015 2016 2015 2016 2015 60% 66% 21% 22% 19% 12% 72% 73% 80% - 16% 17% 17% - 12% 10% 3% - Fixed remuneration for the CEO and CFO increased in FY16 by 12.5% and 9.1% respectively. This increase ensures that KMP remuneration remains competitive with companies of comparable size and complexity. Total fixed remuneration is still lower than the average/median remuneration rewarded to executives in comparable companies and roles, whilst maximum total remuneration, which includes STI and LTI awards, support the Company focus and direction on a competitive higher performance-based remuneration structure. 36 VILL A WORLD LIMITED ANNUAL REPORT 2016 (ii) FY16 STI outcome The following table sets out the performance conditions for STI’s and the weighting between these measures for executives for FY16. Metric CEO CFO General Mananger Operations Weighting of financial measure l a i c n a n F i s e r u s a e m l a i c n a n fi - n o N i s e r u s a e m c fi c e p s n o i t i s o P s Operational performance e r u s a e m • Achieve FY16 financial plan Financial performance • Gearing and interest cover within Board policy limit • NTA/share against target Business growth and sustainability • Build, replenish and diversify the Company portfolio • Develop current pipeline with acceptable level of risk • Achieve production and supply of inventory measured against targets • Develop five year growth and sustainability strategy to support business • Define corporate structure to support future performance and sustainability Overall efficiency • Drive efficiences through cost, time and resource effectiveness Corporate governance and Company Secretarial compliance • Audit, tax, GST, ASX reporting Compliance with financial institutions including review of cash facility • Sourcing of financing options and maintaining relationships with banks Investor Relations • Raise corporate awareness and understanding, strengthen corporate image through regular, transparent, two way communication with the financial community and other stakeholders • Contribute to Company’s shares achieving a fair valuation Production and supply of inventory performance - Queensland • Achieve production, supply or stock measured against Queensland targets 40% 20% 35% 20% 15% 15% 30% 15% 20% 10% 10% 10% 20% 10% 10% 20% Performance assessment: Below threshold hurdle At target VILL A WORLD LIMITED ANNUAL REPORT 2016 37 (iii) FY16 LTI outcome Villa World Limited Executive Long-Term Incentive Plan Under the Villa World Limited Executive LTI plan, which was introduced in FY16, the Company awards performance rights to executives and other eligible employees with the objective of improving the link between shareholder returns and executive remuneration. Awards granted will be tested against the relative TSR & ROA performance measures over three financial years until the date the performance rights vest and at which time it will be determined whether the rights are exercisable. Refer to Section I (iii) for the plans terms and conditions. No awards have vested during FY16. The table below sets out the performance rights awarded to executives during FY16: Perform- ance rights awarded Value Grant date Value of perform- ance rights at grant date Expiry date Vesting date KMP Craig Treasure 30/11/2015 316,902 $1.06 $335,916 31/08/2018 30/06/2018 Paulene Henderson 30/11/2015 112,676 $1.06 $119,437 31/08/2018 30/06/2018 Michael Vinodolac 30/11/2015 56,338 $1.06 $59,718 31/08/2018 30/06/2018 Expected price volatility of shares Expected dividend yield Risk free interest rate 27% 27% 27% 7.6% 7.6% 7.6% 2.1% 2.1% 2.1% Section I: Remuneration structure Executives receive fixed remuneration and variable remuneration consisting of short and long term incentive opportunities. Executive remuneration levels are reviewed annually by the RNC with reference to the remuneration guiding principles and market movements. Recommendations are submitted for Board approval. Total fixed remuneration “TFR” Short-term incentives “STI” Long-term incentives “LTI” (i) Total fixed remuneration Total Fixed Remuneration (“TFR”) is a market related base salary including superannuation contributions and other non-monetary benefits (such as vehicle and parking allowances). It is determined according to industry standards, relevant laws and regulations, market conditions and the Company’s business operations with relevance to the employee’s position. TFR will reflect the core performance requirements and expectations of the Company. (ii) Short-term incentives The Company has implemented a bonus incentive program designed to create a strong, transparent link between performance and remuneration. Executives and eligible employees have a target STI opportunity depending on the accountabilities of their role and impact on the Company’s performance. Actual STI awards can range from 0-40% of TFR. These are awarded based on the successful achievement of pre-determined Board approved KPIs. Performance is assessed against both Company and individual performance criteria. Each year the Board considers the appropriate targets and KPIs to link to the STI plan and the weightings if targets are met for executives. This may include setting any maximum payout under the STI plan and minimum levels of performance to trigger payment of STI. The STI award is determined after the end of the financial year following a review of performance over the year against the STI performance measures by the CEO (and in the case of the CEO, by the Board). The Board approves the final STI award based on this assessment of performance and it is paid in cash four months after the end of the performance period. If an executive resigns or is terminated with cause before the STI award payment date, Board discretion is applied. 38 VILL A WORLD LIMITED ANNUAL REPORT 2016 (iii) Long-term incentives The grant of performance rights was introduced as a LTI on 30 November, 2015 subsequent to approval of the plan at the FY15 Annual General Meeting (AGM). The plan is intended to be the Company’s principal vehicle for granting LTI awards to executives and other eligible employees. The primary objectives of the plan are to: • • • • assist in the attraction, retention and motivation of key individuals ensure enhanced focus on the Company’s long-term performance and strategic direction link the reward of senior executives and other eligible employees to performance and the creation of shareholder value and encourage increased alignment between reward outcomes and shareholder interest by providing an opportunity for executives and other eligible employees to receive an equity interest, build their shareholding in the Company, and share in the Company’s future growth. VILL A WORLD LIMITED ANNUAL REPORT 2016 39 The table below provides a summary of the terms and conditions of the Villa World Limited executive long-term incentive plan: Who participates? How is it paid? The Board may grant Performance Rights to senior executives and other eligible employees of the Company. In general, the Board will invite those who are considered to have capacity to impact the long-term performance of the Company. Non-Executive Directors will not be elegible to participate in the Plan. Performance rights. On vesting each performance right converts into one share. No dividends/distributions are paid on unvested LTI awards. This ensures that executives are only rewarded when performance hurdles have been achieved at the end of the performance period. How much can executives earn? The maximum LTI opportunities during FY16 were equivalent to 100% of fixed remuneration for the CEO/MD and 80% of fixed remuneration for other executives. What is the performance period? The vesting conditions will be measured and tested over a three-year vesting period determined by the Board. For the FY16 grant, performance will be measured from 1 July 2015 to 30 June 2018. How is performance measured? The Board may determine vesting conditions, which may include performance and/ or service conditions that must be satisfied before the performance rights vest. After careful consideration of the long-term financial focus and strategic direction of the Company, the Board has determined the performance conditions for the inital grant to be as follows: Relative TSR (75% of the LTI allocation) TSR measures the percentage change in a Company’s share price and dividends paid. The Company’s TSR is measured relative to a comparator group of ASX-listed companies ranked 200-300 on the ASX300 Index (excluding companies in the mining and financial services sectors and A-REITS). These companies were chosen as they are of a similar size and reflect the Company’s competitors for capital. The relative TSR for the Company is measured over three financial years. The proportion of performance rights that may vest based on relative TSR performance is determined based on the following vesting schedule. Relative TSR performance At or above the 75th percentile Percentage vesting 100% Between 50th and 75th percentile Straight line vesting between 50-100% At the 50th percentile Below the 50th percentile 50% Nil 40 VILL A WORLD LIMITED ANNUAL REPORT 2016 How is performance measured? (continued) ROA (25% of LTI allocation) ROA measures how well the Company has managed its assets to generate earnings. ROA is calculated by taking the average of the three annual ROA figures (which are calculated as adjusted earnings of a financial year divided by average monthly operating assets for the financial year). The proportion of performance rights that may vest based on ROA performance is determined based on the following vesting schedule. ROA performance At or above Maximum (13.5%) Between Threshold (12%) and Maximum (13.5%) At Threshold (12%) Below Threshold (12%) Percentage vesting 100% Straight line vesting between 50-100% 50% Nil The performance conditions are independent and will be tested separately. The applicable TSR and ROA performance targets and relevant vesting schedules will be the same for all participants in the Plan. The Plan provides the Board with the ability to review and adjust the performance conditions, targets and vesting schedules on a grant-by- grant basis, ensuring they remain appropriate and sufficiently challenging. Clawback? In the event of fraud, dishonesty or material misstatement of financial statements, the Board may make a determination, including lapsing unvested performance rights to ensure that no unfair benefit is obtained by a participant. What happens if an executive leaves the Company? If an executive resigns or is terminated for cause, any unvested LTI awards are forfeited, unless otherwise determined by the Board. The treatment of vested and unexercised awards will be determined by the Board with reference to the circumstances of cessation. VILL A WORLD LIMITED ANNUAL REPORT 2016 41 Section J: Service agreements for Executive KMP (i) Employment agreements Remuneration and other terms of employment for executives are formalised in service agreements. The service agreements provide for base salary inclusive of superannuation, performance related bonuses, other benefits including car and parking allowances and notice periods. The key provisions of the agreements relating to terms of employment and notice periods for the year ended 30 June 2016 are set out in the table below: Base fee inclusive of superannuation Term of agreement Notice period Review period Chief Executive Officer and Managing Director Craig Treasure Other KMP Paulene Henderson Michael Vinodolac $675,000 Rolling 6 months Annual $300,000 $300,000 Rolling Rolling 6 months 3 months Annual Annual Maximum annual cash bonus (%) 1 40% 25% 20% 1 Anticipated cash bonus as a proportion of base salary depending on corporate and individual performance. (ii) Termination provisions Other than statutory entitlements, there are no termination benefits applicable to the current executives. The Board and the RNC must approve all termination payments. 42 VILL A WORLD LIMITED ANNUAL REPORT 2016 Section K: Non-Executive Directors’ remuneration The Company’s NED fee policy is designed to attract and retain high-calibre Directors who can discharge the roles and responsibilities required in terms of good governance, strong oversight, independence and objectivity. Board and Committee fees are reviewed annually having regard to the level of fees paid to NEDs of Australian companies of comparable size and complexity. This approach reflects the responsibilities and time commitment necessary for the role. NEDs receive fees only and do not participate in any performance-related incentive awards. NED fees reflect the demands and responsibilities of the Directors. (i) Service agreements On appointment to the Board, all NEDs enter into a letter of appointment with the Company. The letter of appointment sets out the terms of appointment, services to be provided, remuneration, and corporate policies and codes of conduct to be complied with. (ii) Maximum aggregate NED fee pool Fees are determined within an aggregate Directors’ fee pool limit which is periodically recommended for approval by shareholders. Shareholders have approved maximum aggregate Board and committee fees payable to NEDs of $600,000. The total of Non-Executive Directors’ fees paid for the year ended 30 June 2016 was $289,500 (30 June 2015: $234,262). (iii) NED remuneration NEDs receive a fixed fee for their services. Fees are reviewed annually by the RNC, taking into account amounts paid to NEDs with comparable roles in the external market. Recommendations are submitted to the Board for final approval. With the exception of the Chair, NEDs receive additional fees if they are appointed the Chair of Committees. NEDs do not receive termination benefits other than accumulated superannuation. NEDs may be reimbursed for expenses reasonably incurred in performing their role. In FY16 the Board decided to increase the base fee for NEDs to reflect additional workloads as well as national benchmarks. The FY17 base fee for NEDs is expected to be well within the approved $600,000 remuneration pool for NEDs. The annual fees paid for the Board and Board Committees are shown in the table below. The amounts shown are inclusive of applicable statutory superannuation contributions. Base fees Chair Other NEDs Additional fees Committee - Chair FY16 FY15 $135,000 $120,450 $80,000 $78,840 $10,000 - VILL A WORLD LIMITED ANNUAL REPORT 2016 43 Section L: Additional required disclosures (i) Past financial performance The measures of the Company’s financial performance over the past five years as required by the Corporations Act 2001 are shown in the table below. These are not necessarily consistent with the measures used in determining the variable amounts of remuneration awarded to KMP. Consequently, there may not always be a direct correlation between the statutory key performance measures and the variable remuneration awarded. Performance KPI Revenue Debt Gearing NTA per security (cents) Dividends (relating to the year) Interim dividend (cents) Final dividend (cents) Earnings per share (cents) Share price at 30 June FY12 $m FY13 $m FY14 $m FY15 $m FY16 $m $145.6 $169.4 $229.5 $321.6 $387.0 $74.2 27.6% 201.0 - - 10.1 $0.79 $70.0 24.4% 185.0 - - (18.2) $1.13 $69.1 18.7% 192.0 6.0 9.0 21.5 $92.0 16.9% 200.0 $128.6 25.6% 215.0 6.0 10.0 25.6 8.0 10.0 30.6 $2.02 $2.00 $2.08 (ii) Equity instrument disclosures relating to KMP Shareholding of KMP for the year ended 30 June 2016 Balance at the start of the year Granted during the year Other changes during the year Balance at the end of the year Direct holding Indirect holding Direct holding Indirect holding Direct holding Indirect holding Direct holding Indirect holding Directors Mark Jewell Craig Treasure David Rennick Donna Hardman Gerald (Gerry) Lambert 1 Other KMP Paulene Henderson Michale Vinodolac - 103,390 252,432 582,432 - - - - - 22,500 - 22,432 86,468 - Total 252,432 817,222 - - - - - - - - - - - - - - - - - - - - - - 3,192 - - 103,390 - 252,432 582,432 22,500 - - - - - - - 45,000 - - - 86,468 3,192 - 3,192 22,500 255,624 817,290 1 Gerald (Gerry) Lambert resigned as Non-Executive Director on 5 November 2015. (iii) Villa World Limited Option Plan The Villa World Limited Option Plan was introduced in FY14 and was designed to attract and retain key personnel and align the interest of employees with those of shareholders. Under the plan, share-based compensation benefits in the form of options are granted to executives and eligible employees. The options only vest if the participating employees continue their respective service agreements with the Company for three years from the grant date. No options were granted or vested during FY16. Options under this plan were last granted on 11 February, 2014 and will expire on 11 August, 2017. Options will commence vesting on 26 July, 2016. This plan is no longer used and has been replaced by the Villa World Limited Executive LTI Plan. The following table discloses the number of share options granted, vested or lapsed during the year. Share options do not carry any voting or dividend rights, and can only be exercised once the vesting conditions have been met, until their expiry date. 44 VILL A WORLD LIMITED ANNUAL REPORT 2016 KMP Grant date Expiry date Exercise price Granted as compen- sation Value of options at grant date1 Expected price volatility of shares Expected dividend yield Risk free interest rate Vesting date Craig Treasure 26/07/2013 26/01/2017 $1.25 3,000,000 $300,000 26/07/2016 Paulene Henderson 26/07/2013 26/01/2017 $1.25 250,000 $25,000 26/07/2016 Michael Vinodolac 11/02/2014 11/08/2017 $1.60 150,000 $61,500 11/02/2017 25% 25% 30% 9.0% 9.0% 7.1% 2.57% 2.57% 3.10% 1 The value of options is 10 cents per option for those options granted on 26 July 2013 and 41 cents per option for those options granted on 11 February 2014. This is calculated in accordance with AASB2 Share-based payments. (iv) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows: Performance rights issued to KMP Options issued to KMP (v) Use of remuneration advisors Consolidated 30-Jun-16 30-Jun-15 $'000 $'000 166 124 290 - 83 83 The Company seeks relevant benchmarking and commentary on a number of remuneration issues from a variety of independent external consultants. The Company’s remuneration policy is reviewed annually by the RNC. During FY16, the RNC appointed Ernst & Young (EY) to provide advice in relation to the implementation of the long-term incentive plan for senior executives as well as providing some benchmarking analysis with regard to remuneration levels for executives. No remuneration recommendations were provided by EY or any other advisor during the reporting period. (vi) Clawback of remuneration The Clawback Policy was adopted by the Board during FY16 to align the remuneration outcomes of executives under the relevant incentive programs (including STI and LTI plans) with the expectations and interests of Company shareholders. The policy provides the Board with the ability to claw back incentives paid to executives where an “unfair” benefit has arisen. The Board has discretion to determine the relevant action(s) it deems necessary to enforce this policy including cancellation or forfeiture of unvested STI and/or LTI awards. The Clawback Policy is effective from 1 July 2015 and covers only STI and LTI awards made after that date. (vii) Securities dealing policy Consistent with the Corporations Act 2001, executives are prohibited under the Company’s Securities Dealing Policy from hedging or otherwise reducing or eliminating the risk associated with unvested equity-based incentives. If the executive hedges in breach of this policy, consequences may involve disciplinary action and could result in dismissal and the forfeiture of equity-based incentives. Conviction of insider trading can attract criminal and civil liability under the Corporations Act 2001. (viii) Remuneration report approval at FY15 Annual General Meeting (AGM) Of the eligible votes cast at the Company’s AGM held on 5 November 2015, 96.04% were in favour of the remuneration report for FY15. The Company did not receive any specific feedback at the AGM on its remuneration practices. VILL A WORLD LIMITED ANNUAL REPORT 2016 45 Directors’ report 30 June 2016 (continued) Environmental regulation The Company is subject to environmental regulation in respect of its land development and construction activities as set out below: (i) Land development approvals Approvals are required for land development from various Councils and other government agencies. Those Councils and agencies will assess environmental factors when issuing approvals and, where applicable, will impose relevant conditions. To the best of the Directors’ knowledge, all activities have been undertaken in compliance with the requirements of all development approvals. (ii) Dwelling construction / building approvals Building approvals are obtained for the construction of dwellings from the relevant Councils. The construction of dwellings is subject to strict requirements regarding environmental impacts including noise, silt, dust, run-off and drainage. To the best of the Directors’ knowledge, all construction activities have been undertaken in compliance with the requirements of building approvals, Council requirements and other applicable laws. Indemnification and Insurance of officers and auditors Indemnification During the year, the Company paid premiums for policies insuring Directors and officers of the Company and its related bodies corporate against certain liabilities (subject to certain exclusions and to the extent permitted by law). The Directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the Directors’ and officers’ insurance policies as (in accordance with normal practice) such disclosure is prohibited under the terms of the policies. Insurance premiums The Company’s constitution provides that it must indemnify, on a full indemnity basis and to the full extent permitted by law, officers of the Company and its related bodies corporate for all losses and liabilities incurred by the person in their position as an officer, unless covered by insurance. The Company has entered into Deeds of Indemnity in favour of each of the Directors referred to in this report who held office during the year and the Company Secretary. Additionally, separate deeds of indemnity have been entered into with other persons who have been requested to act as Directors or officers, or as nominees for the purposes of licenses held by the Company or its related bodies corporate. The indemnities in these deeds operate to the full extent permitted by law and are not subject to a monetary limit. The Company is not aware of any liability having arisen and no claims have been made during or since the financial year under the Deeds of Indemnity. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or auditor. Indemnity of auditors Details of the amounts paid to the auditors of the Company, Ernst & Young for audit and non-audit services provided during the year are set out in note E3 - Remuneration of auditors. To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. 46 VILL A WORLD LIMITED ANNUAL REPORT 2016 Non-audit services Details of the amounts paid or payable to the auditor (Ernst & Young) for audit and non-audit services provided during the year are set out in note E3 - Remuneration of auditors. The Board has considered the position and, in accordance with the advice received from the Audit and Risk Committee, is satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the auditor’s provision of non-audit services did not compromise the Act’s independence requirements because none of the services undermine the general principles relating to auditor independence as set out in APES110 Code of Ethics for Professional Accountants. The Audit and Risk Committee reviewed all non-audit services to ensure they did not impact the auditor’s impartiality and objectivity. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 48. The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 to the nearest thousand dollars, or in certain cases, to the nearest dollar. This report is made in accordance with a resolution of Directors. Craig Treasure Chief Executive Officer and Managing Director Gold Coast 16 August 2016 VILL A WORLD LIMITED ANNUAL REPORT 2016 47 Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Auditor’s Independence Declaration to the Directors of Villa World Limited As lead auditor for the audit of Villa World Limited for the financial year ended 30 June 2016, I declare to the best of my knowledge and belief, there have been: Auditor’s Independence Declaration to the Directors of Villa World Limited a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. As lead auditor for the audit of Villa World Limited for the financial year ended 30 June 2016, I declare to the best of my knowledge and belief, there have been: This declaration is in respect of Villa World Limited and the entities it controlled during the financial year. a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Villa World Limited and the entities it controlled during the financial year. Ernst & Young Ernst & Young Ric Roach Partner 16 August 2016 Ric Roach Partner 16 August 2016 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 48 VILL A WORLD LIMITED ANNUAL REPORT 2016 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation CORPORATE GOVERNANCE STATEMENT 30 June 2016 Corporate governance statement The Board believes that genuine commitment to good corporate governance is essential to the performance and sustainability of the Company's business. The Board has given due consideration to the ASX 'Corporate Governance Principles and Recommendations', which offer a framework for good corporate governance. The Board has approved the Corporate Governance Statement for the year ended 30 June 2016, which is available in the Corporate Governance section of its website at http://www.villaworld.com.au/corporate-governance-statement-2016 VILL A WORLD LIMITED ANNUAL REPORT 2016 49 Annual Report - 30 June 2016 Contents Financial statements Financial statements Consolidated statement of comprehensive income Consolidated statement of comprehensive income Consolidated balance sheet Consolidated balance sheet Consolidated statement of changes in equity Consolidated statement of changes in equity Consolidated statement of cash flows Consolidated statement of cash flows Notes to the consolidated financial statements Notes to the consolidated financial statements Directors' declaration Directors' declaration Independent auditor's report to the members Independent auditor's report to the members Page 51 51 52 52 53 53 54 54 55 55 89 89 90 90 50 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 50 FINANCIAL STATEMENTSConsolidated statement of comprehensive income For the year ended 30 June 2016 Consolidated statement of comprehensive income For the year ended 30 June 2016 Consolidated Revenue from continuing operations Revenue from land development, residential building and construction Revenue from continuing operations contracts Revenue from land development, residential building and construction Cost of land development, residential building and construction contracts contracts Gross Margin Cost of land development, residential building and construction contracts Development and project management fee Gross Margin Other income Development and project management fee Net impairment of development land Other income Share of profit from associates and joint ventures Net impairment of development land Other expenses from ordinary activities Share of profit from associates and joint ventures Property sales and marketing expenses Other expenses from ordinary activities Land holding costs Property sales and marketing expenses Legal and professional costs Land holding costs Employee benefits Legal and professional costs Depreciation and amortisation expense Employee benefits Administration costs and other expenses Depreciation and amortisation expense Finance costs Administration costs and other expenses Profit before income tax Finance costs Income tax expense Profit before income tax Profit for the period Income tax expense Profit is attributable to: Profit for the period Owners of Villa World Limited Profit is attributable to: Owners of Villa World Limited Earnings per share for profit attributable to the ordinary equity holders of the Company: Earnings per share for profit attributable to the ordinary equity Basic earnings per share holders of the Company: Diluted earnings per share Basic earnings per share Diluted earnings per share Profit for the period Other comprehensive income Profit for the period Items that may be reclassified to profit or loss Other comprehensive income Changes in the fair value of cash flow hedges Items that may be reclassified to profit or loss Income tax relating to these items Changes in the fair value of cash flow hedges Other comprehensive income for the period, net of tax Income tax relating to these items Total comprehensive income for the period, net of tax Other comprehensive income for the period, net of tax Total comprehensive income for the period is attributable to: Total comprehensive income for the period, net of tax Owners of Villa World Limited Total comprehensive income for the period is attributable to: Owners of Villa World Limited Notes Notes A1 A1 A1 A1 A1 A1 D3 D3 C5 C5 A5(a) A5(a) A2 A2 A2 A2 Notes Notes C3(a) C3(a) C3(a) C3(a) Consolidated 30-Jun-16 $'000 30-Jun-16 $'000 30-Jun-15 $'000 30-Jun-15 $'000 387,002 (286,400) 387,002 100,602 (286,400) 1,159 100,602 697 1,159 (83) 697 3,445 (83) 3,445 (22,090) (3,777) (22,090) (1,489) (3,777) (16,705) (1,489) (607) (16,705) (4,441) (607) (9,464) (4,441) 47,247 (9,464) (13,534) 47,247 33,713 (13,534) 33,713 33,713 33,713 Cents Cents 30.6 30.1 30.6 30.1 321,550 (243,760) 321,550 77,790 (243,760) 44 77,790 867 44 77 867 1,828 77 1,828 (17,963) (3,565) (17,963) (943) (3,565) (14,352) (943) (958) (14,352) (3,249) (958) (10,196) (3,249) 29,380 (10,196) (3,743) 29,380 25,637 (3,743) 25,637 25,637 25,637 Cents Cents 25.6 25.2 25.6 25.2 Consolidated Consolidated 30-Jun-16 $'000 30-Jun-16 33,713 $'000 33,713 30-Jun-15 $'000 30-Jun-15 25,637 $'000 25,637 460 (138) 460 322 (138) 34,035 322 34,035 34,035 34,035 (1,805) 541 (1,805) (1,264) 541 24,373 (1,264) 24,373 24,373 24,373 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. VILLA WORLD ANNUAL REPORT 2016 VILL A WORLD LIMITED ANNUAL REPORT 2016 | 51 51 VILLA WORLD ANNUAL REPORT 2016 | 51 FINANCIAL STATEMENTSConsolidated balance sheet As at 30 June 2016 Consolidated balance sheet As at 30 June 2016 Consolidated ASSETS Current assets ASSETS Cash and cash equivalents Current assets Trade and other receivables Cash and cash equivalents Inventories Trade and other receivables Other current assets Inventories Total current assets Other current assets Non-current assets Total current assets Inventories Non-current assets Property, plant and equipment Inventories Investments accounted for using the equity method Property, plant and equipment Deferred tax assets Investments accounted for using the equity method Total non-current assets Deferred tax assets Total assets Total non-current assets LIABILITIES Total assets Current liabilities LIABILITIES Trade and other payables Current liabilities Deferred income Trade and other payables Current tax liabilities Deferred income Employee benefits Current tax liabilities Service warranties Employee benefits Other provisions Service warranties Total current liabilities Other provisions Non-current liabilities Total current liabilities Trade and other payables Non-current liabilities Borrowings Trade and other payables Deferred income Borrowings Employee benefits - long service leave Deferred income Other provisions Employee benefits - long service leave Total non-current liabilities Other provisions Total liabilities Total non-current liabilities Net assets Total liabilities EQUITY Net assets Contributed equity EQUITY Other reserves Contributed equity Accumulated losses Other reserves Capital and reserves attributable to owners of Villa World Limited Accumulated losses Total equity Capital and reserves attributable to owners of Villa World Limited Total equity Notes Notes B2 B1 B2 B1 B1 B1 D3 A5(d) D3 A5(d) B3 B3 A5(a) A5(a) B4(a) B4(a) B3 C4 B3 C4 C2 C3(a) C2 C3(a) Consolidated 30-Jun-16 $'000 30-Jun-16 $'000 30-Jun-15 $'000 30-Jun-15 $'000 8,358 72,351 8,358 186,037 72,351 3,157 186,037 269,903 3,157 269,903 187,660 1,169 187,660 18,482 1,169 795 18,482 208,106 795 478,009 208,106 478,009 79,030 527 79,030 4,868 527 772 4,868 14,392 772 45 14,392 99,634 45 99,634 11,989 128,594 11,989 473 128,594 375 473 64 375 141,495 64 241,129 141,495 236,880 241,129 236,880 444,271 190,320 444,271 (397,711) 190,320 236,880 (397,711) 236,880 236,880 236,880 22,571 41,907 22,571 191,318 41,907 3,588 191,318 259,384 3,588 259,384 148,326 898 148,326 16,779 898 7,286 16,779 173,289 7,286 432,673 173,289 432,673 96,452 - 96,452 1,196 - 635 1,196 14,983 635 239 14,983 113,505 239 113,505 5,926 92,044 5,926 - 92,044 339 - 261 339 98,570 261 212,075 98,570 220,598 212,075 220,598 444,286 174,190 444,286 (397,878) 174,190 220,598 (397,878) 220,598 220,598 220,598 The above consolidated balance sheet should be read in conjunction with the accompanying notes. The above consolidated balance sheet should be read in conjunction with the accompanying notes. 52 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 52 | 52 FINANCIAL STATEMENTSConsolidated statement of changes in equity For the year ended 30 June 2016 Consolidated statement of changes in equity For the year ended 30 June 2016 Consolidated Balance at 1 July 2014 Consolidated Profit for the year as reported in the Balance at 1 July 2014 2015 financial statements Profit for the year as reported in the Movement in hedge reserve (net of 2015 financial statements tax) Movement in hedge reserve (net of Total comprehensive income for the tax) period Total comprehensive income for the Contributions of equity, net of period transaction costs and tax Contributions of equity, net of Securities issued under the share transaction costs and tax purchase plan, net of transaction Securities issued under the share costs and tax purchase plan, net of transaction Transfer current year profit to profit costs and tax reserve Transfer current year profit to profit Dividends provided for or paid reserve Share based payments and other Dividends provided for or paid expenses Share based payments and other expenses Balance at 30 June 2015 Balance at 1 July 2015 Balance at 30 June 2015 Profit for the year as reported in the Balance at 1 July 2015 2016 financial statements Profit for the year as reported in the Movement in hedge reserve (net of 2016 financial statements tax) Movement in hedge reserve (net of Total comprehensive income for the tax) period Total comprehensive income for the Dividends provided for or paid period Share based payments and other Dividends provided for or paid expenses Share based payments and other Employee Share Scheme expenses Transfer current year profit to profit Employee Share Scheme reserve Transfer current year profit to profit Share capital issue costs reserve Share capital issue costs Balance at 30 June 2016 Balance at 30 June 2016 Notes Notes Contributed equity Contributed $'000 equity $'000 413,375 413,375 - - - - - - 25,911 25,911 5,000 5,000 - - - - - 30,911 - 444,286 30,911 444,286 444,286 444,286 - - - - - - - - - - - - - (15) - (15) (15) 444,271 (15) 444,271 C2 C2 C2 C2 C3(a) A4(a) C3(a) A4(a) A4(a) A4(a) C3(a) C3(a) C3(a) C2 C3(a) C2 (1,413) - - (1,264) (1,264) (1,264) (1,264) - - - - - - - - - - - (2,677) - (2,677) (2,677) (2,677) - - 322 322 322 - 322 - - - - - - - - - - (2,355) - (2,355) Attributable to owners of Villa World Limited Attributable to owners of Profit Other Villa World Limited Reserve reserves Profit Other $'000 $'000 reserves Reserve $'000 $'000 174 166,013 Cash flow hedges Cash flow $'000 hedges $'000 (1,413) 174 - 166,013 - Accumulated losses Accumulated $'000 losses (397,904) 180,245 $'000 (397,904) 180,245 25,637 Total $'000 Total $'000 25,637 - - - - - - - - - - - - - 143 143 143 317 143 317 317 317 - - - - - - - - 230 1,894 230 1,894 - - - 2,124 - 2,441 2,124 2,441 - - - - - - - - 25,637 - - 25,637 25,637 - - - 25,637 (1,264) (1,264) 24,373 24,373 25,911 25,911 5,000 - 25,587 (15,050) 25,587 (15,050) - 10,537 - 176,550 10,537 176,550 176,550 176,550 - - (25,587) (25,587) 5,000 - - (15,050) - - (15,050) 118 (25) (25,612) (25,612) (25) 15,979 118 (397,878) 220,598 15,979 (397,878) 220,598 (397,878) 220,598 (397,878) 220,598 33,713 33,713 - - 33,713 - 33,713 322 - - (19,862) - (19,862) - - - - 33,546 - 33,546 13,684 - 190,234 13,684 33,713 - 33,713 322 34,035 - (19,862) 34,035 - (19,862) 230 - 1,894 - 230 - 1,894 - - (33,546) (15) - (33,546) - (33,546) (17,753) (15) - (397,711) 236,880 (33,546) (17,753) 190,234 (397,711) 236,880 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. VILLA WORLD ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 VILL A WORLD LIMITED ANNUAL REPORT 2016 | 53 | 53 53 FINANCIAL STATEMENTSConsolidated statement of cash flows For the year ended 30 June 2016 Consolidated statement of cash flows For the year ended 30 June 2016 Consolidated Consolidated Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Cash flows from operating activities Receipts from the transfer of development rights Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services Receipts from the transfer of development rights tax) Payments to suppliers and employees (inclusive of goods and services tax) Payments for land acquired Interest received Payments for land acquired Interest paid Interest received Borrowing costs Interest paid Corporate tax paid Borrowing costs GST paid Corporate tax paid Net cash outflow from operating activities GST paid Cash flows from investing activities Net cash outflow from operating activities Payments for property, plant and equipment Cash flows from investing activities Payments for equity accounted investments Payments for property, plant and equipment Distributions received from equity accounted investments Payments for equity accounted investments Net cash inflow from investing activities Distributions received from equity accounted investments Cash flows from financing activities Net cash inflow from investing activities Proceeds from borrowings Cash flows from financing activities Repayment of borrowings Proceeds from borrowings Proceeds from issue of share capital Repayment of borrowings Transactions costs of issue of shares Proceeds from issue of share capital Dividends paid to Company's shareholders Transactions costs of issue of shares Net cash inflow from financing activities Dividends paid to Company's shareholders Net (decrease) / increase in cash and cash equivalents Net cash inflow from financing activities Cash and cash equivalents at the beginning of the financial year Net (decrease) / increase in cash and cash equivalents Cash and cash equivalents at end of period Cash and cash equivalents at the beginning of the financial year Reconciliation to cash at the end of the year: Cash and cash equivalents at end of period Cash and cash equivalents Reconciliation to cash at the end of the year: Cash and cash equivalents at the end of the year: Cash and cash equivalents Cash and cash equivalents at the end of the year: Notes Notes A6 A6 D3 D3 D3 D3 A4(a) A4(a) 30-Jun-16 $'000 30-Jun-16 $'000 352,402 26,400 352,402 26,400 (247,298) 131,504 (247,298) (162,930) 131,504 445 (162,930) (6,494) 445 (250) (6,494) (1,616) (250) 7,712 (1,616) (31,629) 7,712 (31,629) (850) (11,258) (850) 13,000 (11,258) 892 13,000 892 193,886 (157,500) 193,886 - (157,500) - - (19,862) - 16,524 (19,862) (14,213) 16,524 22,571 (14,213) 8,358 22,571 8,358 8,358 8,358 8,358 8,358 30-Jun-15 $'000 30-Jun-15 $'000 318,436 - 318,436 - (242,923) 75,513 (242,923) (102,123) 75,513 575 (102,123) (6,313) 575 (723) (6,313) - (723) 2,612 - (30,459) 2,612 (30,459) (708) (6,366) (708) 9,383 (6,366) 2,309 9,383 2,309 211,437 (188,360) 211,437 31,693 (188,360) (1,117) 31,693 (15,050) (1,117) 38,603 (15,050) 10,453 38,603 12,118 10,453 22,571 12,118 22,571 22,571 22,571 22,571 22,571 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 54 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 54 | 54 FINANCIAL STATEMENTSNotes to the consolidated financial statements 30 June 2016 Contents of the notes to the consolidated financial statements A A A1 A2 A3 A4 A5 A6 A1 A2 A3 A4 A5 A6 B B B1 B2 B3 B4 B5 B1 B2 B3 B4 B5 C C C1 C2 C3 C4 C5 C6 C1 C2 C3 C4 C5 C6 D D D1 D2 D3 D4 D1 D2 D3 D4 E E E1 E2 E3 E4 E5 E1 E2 E3 E4 E5 RESULTS FOR THE YEAR RESULTS FOR THE YEAR Revenue and gross profit Revenue and gross profit Earnings per share Earnings per share Segment revenue Segment revenue Dividends Dividends Taxes Taxes Reconciliation of profit after income tax to net cash inflow from operating activities Reconciliation of profit after income tax to net cash inflow from operating activities OPERATING ASSETS AND LIABILITIES OPERATING ASSETS AND LIABILITIES Inventories Inventories Trade and other receivables Trade and other receivables Trade and other payables Trade and other payables Provisions and contingencies Provisions and contingencies Capital and other commitments Capital and other commitments CAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENT CAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENT Capital risk management Capital risk management Contributed equity Contributed equity Other reserves Other reserves Borrowings Borrowings Finance costs Finance costs Financial risk management Financial risk management GROUP STRUCTURE GROUP STRUCTURE Subsidiaries Subsidiaries Deed of cross guarantee Deed of cross guarantee Investments accounted for using the equity method Investments accounted for using the equity method Parent entity financial information Parent entity financial information OTHER INFORMATION OTHER INFORMATION Basis of preparation Basis of preparation Key management personnel disclosures Key management personnel disclosures Remuneration of auditors Remuneration of auditors Events occurring after the reporting period Events occurring after the reporting period Other accounting policies Other accounting policies Page 56 56 56 56 57 57 57 57 58 58 59 59 62 62 63 63 63 63 64 64 64 64 65 65 67 67 68 68 68 68 69 69 70 70 70 70 72 72 72 72 77 77 77 77 77 77 79 79 81 81 83 83 83 83 83 83 85 85 85 85 86 86 VILL A WORLD LIMITED ANNUAL REPORT 2016 55 VILLA WORLD ANNUAL REPORT 2016 | 55 FINANCIAL STATEMENTSNotes to the consolidated financial statements 30 June 2016 (continued) A A A1 A1 A2 A2 A3 A3 A4 A4 A5 A5 A6 A6 RESULTS FOR THE YEAR This section provides information that is most relevant to explaining the Company's performance during the year and where relevant, the accounting policies that have been applied and significant estimates and judgements made. In this section: Revenue and gross profit Earnings per share Segment revenue Dividends Taxes Reconciliation of profit after income tax to net cash inflow from operating activities A1 Revenue and gross profit Revenue from land only development Revenue from land development, residential building and construction contracts Revenue from land development, residential building and construction contracts Cost of land only development Cost of land development, residential building and construction contracts Other direct costs Costs of land development, residential building and construction contracts Gross profit Gross margin Other income Rebates received Other income Recognition and measurement Consolidated 30-Jun-16 $'000 106,128 280,874 30-Jun-15 $'000 62,887 258,663 387,002 71,243 213,040 2,117 286,400 100,602 26.0% 321,550 41,730 193,107 8,923 243,760 77,790 24.2% Consolidated 30-Jun-16 $'000 30-Jun-15 $'000 60 637 697 115 752 867 Revenue is measured at the fair value of the consideration received or receivable net of returns, trade allowances, rebates and amounts collected on behalf of third parties. The Company recognises revenue when the amount of revenue can be reliably measured, it is probable that the future economic benefits will flow to the entity and specific criteria have been met for each of the Company's activities as described below. Land development and residential housing Revenue is recognised when the risks and rewards of ownership and effective control have passed to the buyer. In Queensland and Victoria an unconditional sales contract and registration of the land and/or certification of building completion is required for revenue to be recognised. Cash settlement is therefore not required in Queensland or Victoria to recognise revenue for land only and house and land packages. However cash settlement is required in New South Wales due to section 66K of the Conveyancing Act 1919 which specifies that risk does not pass to the purchaser until the completion of the sale or possession of the land. 56 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 56 ARESULTS FOR THE YEAR Notes to the consolidated financial statements 30 June 2016 (continued) A1 Revenue and gross profit (continued) Construction contracts Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments. As soon as the outcome of a construction contract can be estimated reliably, contract revenue is recognised in profit or loss in proportion to the stage of completion of the contract. The stage of completion is assessed internally and based on costs incurred to forecast total costs. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognised immediately in the income statement. A2 Earnings per share Profit attributable to the ordinary equity holders of the Company Weighted average number of ordinary shares used in calculating basic earnings per share Weighted average number of diluted shares used in calculating diluted earnings per share Basic earnings per share Diluted earnings per share Accounting for earnings per share Basic earnings per share Consolidated 30-Jun-16 $'000 33,713 30-Jun-15 $'000 25,637 Number '000 Number '000 110,344 100,141 111,895 Cents 30.6 30.1 101,630 Cents 25.6 25.2 Basic earnings per share is calculated by dividing the profit attributable to the equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration. Share based options and Performance rights Share based options and Performance rights are granted to employees under Villa World Limited's Legacy Long- Term Incentive Option Plan and the Villa World Limited's Executive Long-Term Incentive Plan. Both of these performance based measures are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. They have been excluded when calculating basic earnings per share. A3 Segment revenue (a) Identification of reportable operating segments The Company is organised into two operating segments: (i) Property development and construction - Queensland and New South Wales (ii) Property development and construction - Victoria. The Company has identified its operating segments based on the internal reports that are reviewed and used by the executive committee (chief operating decision makers) in assessing performance and in determining resource allocation. VILL A WORLD LIMITED ANNUAL REPORT 2016 57 VILLA WORLD ANNUAL REPORT 2016 | 57 ARESULTS FOR THE YEARNotes to the consolidated financial statements 30 June 2016 (continued) A3 Segment revenue (continued) (a) Identification of reportable operating segments (continued) The Company and its controlled entities develop and sell residential land and buildings predominately in Queensland, New South Wales and Victoria. The individual operating segments of each geographical area have been aggregated on the basis that they possess similar economic characteristics and are similar in nature of the product and production processes. The segment information provided to the executive committee for the reportable segments for the year ended 30 June 2016 is as follows: From continuing operations Segment revenue from land development, residential building and construction contracts Queensland and New South Wales Victoria Total segment revenue from land development, residential building and construction contracts Segment cost of land development, residential building and construction contracts Queensland and New South Wales Victoria Total segment cost of land development, residential building and construction contracts Segment gross margin Queensland and New South Wales Victoria Total segment gross margin Consolidated 30-Jun-16 $'000 30-Jun-15 $'000 330,326 56,676 303,156 18,394 387,002 321,550 240,683 45,717 231,548 12,212 286,400 243,760 89,643 10,959 100,602 71,608 6,182 77,790 Segment assets and liabilities are not directly reported to the executive committee when assessing the performance of the operating segments and are therefore not relevant to the disclosure. (b) Segment information provided to the strategic executive committee (i) Segment revenue The revenue from external parties reported to the executive committee is measured in a manner consistent with that in the income statements. Revenues from external customers are derived from land development, residential building and construction contracts. (ii) Segment gross margin The executive committee assesses the performance of the operating segments based on a measure of gross margin. This measurement basis consists of revenue less land, development, construction and sundry costs. A4 Dividends Accounting for dividends When determining dividend return to shareholders, the Company considers a number of factors, including the Company's anticipated cash requirements to fund its growth and operational plans and current and future economic conditions. According to these anticipated needs, the Company aims to return to shareholders approximately 50-75% of net profit after income tax (NPAT). Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period. 58 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 58 ARESULTS FOR THE YEARNotes to the consolidated financial statements 30 June 2016 (continued) A4 Dividends (continued) (a) Ordinary shares Final fully franked ordinary dividend for the year ended 30 June 2015 of 10.0 cents per fully paid share paid on 28 September 2015 (2014: 9.0 cents per share) Final franked dividend based on tax paid at 30.0% Interim dividend for the year ended 30 June 2016 of 8.0 cents per fully paid share (2015: 6.0 cents per fully paid share) paid on 31 March 2016. Interim franked dividend based on tax paid at 30.0% (b) Dividends not recognised at the end of the reporting period In addition to the above dividends, since period end the Directors have recommended the payment of a final dividend of 10.0 cents per fully paid ordinary share (2015: 10.0 cents per fully paid ordinary share) fully franked based on tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 30 September 2016 out of profits reserve at 30 June 2016, but not recognised as a liability at period end, is: (c) Franking credits Franking credits available for subsequent reporting periods based on a tax rate of 30.0% (2015 - 30.0%) Franking credits that will arise from the payment of income tax payable as at the end of the financial year Consolidated 30-Jun-16 $'000 30-Jun-15 $'000 11,034 8,430 8,828 19,862 6,620 15,050 Consolidated 30-Jun-16 $'000 30-Jun-15 $'000 11,359 11,034 Consolidated entity 30-Jun-16 $'000 30-Jun-15 $'000 3,354 4,868 8,222 10,251 - 10,251 The above amounts represent the balance of the franking account as at the end of the reporting period, adjusted for franking debits that will arise from the payment of dividends recognised as a liability at the reporting date. The consolidated amounts include franking credits that would be available to the Parent entity if distributable profits of subsidiaries were paid as franked dividends. A5 Taxes Accounting for taxes Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or other comprehensive income. Current tax expense represents the expense relating to the expected taxable income at the applicable tax rate for the financial year. Deferred tax expense represents the tax expense in respect of the future tax consequences of recovering or settling the carrying amount of an asset or liability. Comparatives have been adjusted to be consistent with the current period. Tax consolidation legislation The Company and its wholly-owned Australian controlled entities are part of a tax consolidated group (TCG) where all members are taxed as if they were part of a single entity. The head entity in the TCG is Villa World Limited. The entities within the TCG have entered both tax sharing and tax funding arrangements with the head entity. These arrangements limit the joint and several liability between the head entity and the members, and ensure the members pay/receive their share of tax payable/receivable settled via an intercompany loan. VILL A WORLD LIMITED ANNUAL REPORT 2016 59 VILLA WORLD ANNUAL REPORT 2016 | 59 ARESULTS FOR THE YEARNotes to the consolidated financial statements 30 June 2016 (continued) A5 Taxes (continued) (a) Numerical reconciliation of income tax expense to prima facie tax payable Profit from continuing operations before income tax expense Tax at the Australian tax rate of 30.0% (2015 - 30.0%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Share of loss in equity accounted investments utilised Recognition of deferred tax asset for losses Other Adjustments for current tax of prior periods Income tax expense Current tax amounts recognised in equity Movement in temporary differences Income tax payable for the financial year Income taxes payable at the beginning of the financial year Income taxes paid Income tax payable at 30 June Income tax expense Current tax Deferred tax Adjustments for current tax of prior periods Income tax expense / (benefit) included in income tax expense comprises: Decrease / (increase) in deferred tax assets Increase in deferred tax liabilities Consolidated 30-Jun-16 $'000 47,247 47,247 14,174 30-Jun-15 $'000 29,380 29,380 8,814 - 14,174 - (633) (7) (640) 13,534 (1,893) (6,353) 5,288 1,196 (1,616) 4,868 7,152 6,353 29 13,534 4,188 2,165 6,353 (461) 8,353 (4,300) 72 (382) (4,610) 3,743 - (2,547) 1,196 - - 1,196 1,196 2,547 3,743 (4,796) 7,343 2,547 Villa World Limited does not recognise a deferred tax asset on its investment in the Eynesbury Pastoral Trust on the basis that the deferred tax asset represents an unrealised capital loss for which the future use is not probable. (b) Tax (income) / expense relating to items of other comprehensive income Cash flow hedges Total tax (income) / expense relating to items of other comprehensive income (c) Tax losses Consolidated 30-Jun-16 $'000 (138) 30-Jun-15 $'000 541 (138) 541 During the year prima facie taxable income, before utilisation of losses of $36.7 million (30 June 2015: $20.5 million taxable income) was generated by the Company. Tax losses of $19.3 million as at 30 June 2015 were fully utilised during the year ended 30 June 2016. 60 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 60 ARESULTS FOR THE YEARNotes to the consolidated financial statements 30 June 2016 (continued) A5 Taxes (continued) (d) Deferred tax assets and tax liabilities The balance comprises temporary differences attributable to: Inventories Tax losses Accruals Employee benefit Provisions Property, plant and equipment Other Capital raising costs Trade debtors Other Tax assets/(liabilities) Movements As at 1 July - to profit or loss - through equity As at 30 June Deferred tax assets 30-Jun-16 $'000 17,116 - 445 344 4,352 30-Jun-15 $'000 15,129 5,806 490 320 4,673 155 1,248 364 - - 116 1,303 513 - - Deferred tax liabilities Net 30-Jun-16 $'000 (1,611) - - - - - - - (21,022) (596) 30-Jun-15 $'000 (4,427) - - - - - - - (15,988) (649) 30-Jun-16 $'000 15,505 - 445 344 4,352 155 1,248 364 (21,022) (596) 30-Jun-15 $'000 10,702 5,806 490 320 4,673 116 1,303 513 (15,988) (649) 24,024 28,350 (23,229) (21,064) 795 7,286 28,350 (4,188) (138) 24,024 22,679 4,796 875 28,350 (21,064) (2,165) - (23,229) (13,721) (7,343) - (21,064) 7,286 (6,353) (138) 795 8,958 (2,547) 875 7,286 Accounting for deferred tax assets and liabilities Deferred tax is recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: • when the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits, or • when the taxable temporary difference is associated with interest in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. (e) Critical accounting estimates and assumptions for income taxes The Company is subject to income taxes in Australia. The Company recognises liabilities based on the current understanding of the tax law. Where that final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made. In addition, the Company has recognised deferred tax assets relating to carried forward tax losses to the extent there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority. Utilisation of the tax losses also depends on the ability of the Company to satisfy certain tests at the time the losses are recouped. It is believed that the Company will satisfy those tests in order to utilise any tax losses. VILL A WORLD LIMITED ANNUAL REPORT 2016 61 VILLA WORLD ANNUAL REPORT 2016 | 61 ARESULTS FOR THE YEARNotes to the consolidated financial statements 30 June 2016 (continued) A6 Reconciliation of profit after income tax to net cash inflow from operating activities Profit for the year Depreciation and amortisation Capitalised interest and fees Borrowing costs Net gain on disposal of property, plant and equipment Share of gain from associate Impairment of development land Hedge ineffectiveness on interest rate swaps Change in operating assets and liabilities: (Increase) / decrease in trade debtors (Increase) / decrease in inventories (Decrease) / increase in trade creditors Decrease / (increase) in deferred tax assets Increase / (decrease) in other operating assets and liabilities Increase / (decrease) in other provisions Net cash inflow / (outflow) from operating activities Consolidated 30-Jun-16 $'000 33,713 607 2,067 358 (28) (3,445) 83 293 (30,442) (34,136) (13,427) 6,491 3,373 2,864 (31,629) 30-Jun-15 $'000 25,637 958 3,028 560 (23) (1,828) (77) - (25,202) (81,344) 39,662 2,211 (104) 6,063 (30,459) 62 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 62 ARESULTS FOR THE YEARNotes to the consolidated financial statements 30 June 2016 (continued) B B B1 B1 B2 B2 B3 B3 B4 B4 B5 B5 OPERATING ASSETS AND LIABILITIES This section shows the assets used to generate the Company's trading performance and the liabilities incurred as a result. In this section: Inventories Trade and other receivables Trade and other payables Provisions and contingencies Capital and other commitments B1 Inventories Current assets Acquisition cost of land held for development and resale Development costs Capitalised interest Impairment of development land Non-current assets Acquisition cost of land held for development and resale Development costs Capitalised interest Impairment of development land Total inventory Accounting for inventories Land held for resale and development costs Consolidated 30-Jun-16 $'000 30-Jun-15 $'000 94,909 89,065 3,618 (1,555) 186,037 152,080 36,991 6,224 (7,635) 187,660 373,697 110,505 76,459 4,958 (604) 191,318 114,451 35,880 6,324 (8,329) 148,326 339,644 Land held for resale is stated at the lower of cost and net realisable value. Cost includes the cost of acquisition, development and borrowing costs. When development is completed borrowing costs are expensed as incurred. Other holding costs are expensed as incurred. The cost of land and buildings acquired under contracts entered into but not settled prior to balance date are not taken up as inventories and as liabilities at balance date unless all contractual conditions have been fulfilled and there is certainty of completion of the purchase evident at balance sheet date. Estimates of net realisable value ('NRV') of inventories The NRV of inventories is the estimated selling price in the ordinary course of business less estimated costs of completion and cost to sell. The net realisable value amount has been determined based on the current future estimated cash flow of the projects. Realisation is dependent on the ability to meet forecasted/estimated cash flows. These estimates take into consideration fluctuation of price or cost directly relating to events occurring after the end of the period to the extent that such events confirm conditions existing at the end of the period. Consistent with previous periods, key estimates have been reviewed including the costs of completion and dates of completion. Borrowing costs Borrowing costs included in the cost of land held for resale are those costs that the Company incurs in connection with the borrowing of funds. Borrowing costs which are directly attributable to the acquisition, construction or production of a qualifying asset such as inventories are capitalised using the interest incurred method. In these circumstances, borrowing costs are capitalised to the cost of the assets whilst in active development until the assets are ready for their intended use or sale. In the event that a development is suspended for an extended period of time the borrowing costs are recognised as expenses. VILL A WORLD LIMITED ANNUAL REPORT 2016 63 VILLA WORLD ANNUAL REPORT 2016 | 63 BOPERATING ASSETS AND LIABILITIES Notes to the consolidated financial statements 30 June 2016 (continued) B2 Trade and other receivables Accounting for trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less an allowance for impairment. Collectability of trade receivables is reviewed on an ongoing basis and at balance date, specific impairment losses are recorded for any doubtful accounts. Trade receivables are recognised in accordance with the Company's revenue recognition policy (refer note A1 – Revenue and gross profit). Also considered in this process is the ageing of the trade receivables, the settlement history of the buyer and any current feedback or other information known regarding the buyer. Collectability of trade receivables is generally upon settlement or per the terms of the contract. As at 30 June 2016 the balance of trade receivables is $70.3 million and they are expected to be received when due. Other receivables generally arise from transactions outside the usual operating activities of the Company. Interest may be charged at commercial rates where the terms of repayment exceed six months. Collateral is not normally obtained and settlement is generally no more than 60 days from date of recognition. Separate negotiated arrangements outside of the standard collection policy are made on occasion when the purchaser enters into multiple contracts or extensions are required to facilitate settlement. These balances do not contain impaired assets and based on credit history, it is expected that these other balances will be received when due. Trade receivables Trade receivable properties Trade receivables due from related parties Other receivables Total trade and other receivables The Company’s credit risk management policy is discussed in note C6 (b) - Credit risk. The ageing of current trade receivables is as follows: 1 to 3 months 3 to 6 months Over 6 months Past due but not impaired Consolidated 30-Jun-16 $'000 210 70,075 - 70,285 2,066 72,351 30-Jun-15 $'000 271 40,156 660 41,087 820 41,907 Consolidated 30-Jun-16 $'000 65,492 3,643 1,150 70,285 30-Jun-15 $'000 37,715 3,372 - 41,087 As of 30 June 2016, the trade receivables of the Company of $nil (30 June 2015: $nil) were past due but not impaired. B3 Trade and other payables Accounting for trade and other payables Trade and other payables are initially recognised at fair value less transaction costs and subsequently carried at amortised cost using the effective interest method. Trade and other payables are recognised as current if they are due within 12 months of the reporting date. Land acquisitions represent amounts payable for the purchase of inventory secured for the purpose of land development, residential construction and resale. Trade payables represent the liability for goods and services provided to the Company prior to the end of financial year which are unpaid. Other payables are unsecured amounts. The Company maintains a rolling cash flow to ensure its operational requirements are met within the contractual terms of the agreements; whilst providing sufficient flexibility to fund growth, working capital requirements and future strategic opportunities. 64 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 64 BOPERATING ASSETS AND LIABILITIESNotes to the consolidated financial statements 30 June 2016 (continued) B3 Trade and other payables (continued) Accounting for trade and other payables (continued) Current liabilities Land acquisitions Sub-contractors and materials Total trade payables Other current payables Accrued expenses Other payables1 Total current other payables Total current trade and other payables Non-current liabilities Land acquisitions Other payables2 Total non-current trade and other payables Total payables 1. Includes derivatives payable of $1.8m (30 June 2015: $1.6m). Refer note C6(d) - Fair value measurements. 2. Includes derivatives payable of $1.9m (30 June 2015: $2.2m). Refer note C6(d) - Fair value measurements. B4 Provisions and contingencies Accounting for provisions Consolidated 30-Jun-16 $'000 30-Jun-15 $'000 37,791 5,012 42,803 33,694 2,533 36,227 79,030 9,137 2,852 11,989 91,019 65,627 5,931 71,558 21,671 3,223 24,894 96,452 3,408 2,518 5,926 102,378 Provisions are recognised when the Company has a present (legal or constructive) obligation as a result of a past event, it is probable the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre- tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. (a) Service warranties Current liabilities Service warranties Total current provisions Consolidated 30-Jun-16 $'000 30-Jun-15 $'000 14,392 14,392 14,983 14,983 A provision for warranties is recognised when the underlying products or services are sold. Provision is made for the estimated warranty claims in respect of Villa World Developments Pty Ltd built properties which are still under warranty at balance date. These claims are expected to be settled within the statutory warranty period. Where the Company expects some or all of a provision to be reimbursed, such as under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The following statutory warranty periods generally apply to the Company's housing products: • Queensland - 6 years 6 months from completion of work • Victoria - 10 years from issue of occupancy certificate • New South Wales - 10 years from issue of occupation certificate. Management estimates the related provision for future warranty claims based on historical warranty claim information, as well as recent trends that might suggest that past cost information may differ from future claims. The Company includes legal costs in the provision for warranty claims to the extent that it has a present obligation to incur these costs at the end of the reporting period. Estimating this provision requires the exercise of significant judgement and it is therefore possible that actual amounts may differ from this estimate. The assumptions made in relation to the current period are consistent with those in the prior year. VILL A WORLD LIMITED ANNUAL REPORT 2016 65 VILLA WORLD ANNUAL REPORT 2016 | 65 BOPERATING ASSETS AND LIABILITIESNotes to the consolidated financial statements 30 June 2016 (continued) B4 Provisions and contingencies (continued) (b) Amounts not expected to be settled within 12 months The current provision for employee benefits includes accrued annual leave and long service leave. For long service leave it includes all unconditional entitlements where employees have completed the required period of service. Included within the long service leave provision is an amount of $164,137 (30 June 2015: $120,505) classified as current, since the Company does not have an unconditional right to defer settlement for this obligation. The non-current long service leave provision covers conditional entitlements where employees have not completed their required period of service, adjusted for the probability of likely realisation. (c) Movements in provisions Consolidated Current liabilities Carrying amount at the start of the year - additional provisions recognised Amounts incurred and paid - unused amounts reversed1 Carrying amount at end of period 1. Unused provision reversed in relation to Home warranty claim - Thornleigh. Refer note (d) below. (d) Legal claims Home warranty claim - Thornleigh Service warranties 30-Jun-16 $'000 Service warranties 30-Jun-15 $'000 14,983 4,554 (4,215) (930) 14,392 10,079 10,213 (5,309) - 14,983 The Company has previously made provision for the Thornleigh litigation (refer to note B3(d) - Provisions, Interim Financial Report for the period ended 31 December 2015). All outstanding aspects of the Thornleigh proceedings were concluded during 2H16, for amounts that were within the provision that was assessed at 31 December 2015. No further provision is required for this matter. Silverstone Litigation The Silverstone litigation relates to alleged defects at a residential building located in Tweed Heads, NSW. The building comprises 27 units and was completed in 2009. A Villa World subsidiary, Villa World Developments Pty Ltd, was the registered builder. Villa World Developments Pty Ltd engaged independent subcontractors to carry out construction. Based on further developments in the litigation during 2H16, the Directors have assessed this provision at approximately $8.5 million as at 30 June 2016 in respect of the Company’s proportion of the Applicant’s potential claim amount. This is in addition to the provisions for legal fees and experts costs which have been made since 30 June 2012 and expensed through cost of sales. Estimating this provision requires the exercise of significant judgement and it is therefore possible that actual amounts may differ from this estimate. The information in relation to provisions usually required by AASB137 Provisions, Contingent Liabilities and Contingent Assets is not disclosed on the grounds that it is expected to prejudice the outcome of the potential litigation. (e) Contingencies (i) Estimates of material amounts of contingent liabilities not provided for in the financial report The Company has entered into agreements to indemnify certain employees and former employees against all liabilities that may arise as a result of any claims against them by third parties as a result of the Company’s building activities. It is impractical to estimate the amount that may arise from these arrangements. There were no claims made against the Company at 30 June 2016 (30 June 2015: nil). A controlled entity has contractual arrangements for liquidated damages under certain circumstances. It is impractical to estimate the amount of any liability that may arise from these arrangements. There were no claims made against the Company at 30 June 2016 (30 June 2015: nil). that provide The Company has provided bank guarantees to the total of $18.7 million (30 June 2015: $13.0 million) to authorities and councils in relation to certain works to be undertaken or maintained or in support of contractual commitments. 66 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 66 BOPERATING ASSETS AND LIABILITIESNotes to the consolidated financial statements 30 June 2016 (continued) B4 Provisions and contingencies (continued) (ii) Contingent liabilities in respect of other entities The Company has provided the following guarantees in respect of its interest in jointly controlled entities. Total financing facilities Facilities utilised at reporting date Bank guarantees utilised at reporting date Principal amount recoverable by the Company in respect of debt facility Eynesbury Joint Venture Donnybrook Joint Venture Rochedale Joint Venture 30-Jun-16 $'000 - - 30-Jun-15 $'000 10,356 10,000 30-Jun-16 $'000 11,220 9,814 30-Jun-15 $'000 5,100 5,100 30-Jun-16 $'000 22,000 16,039 30-Jun-15 $'000 - - - -% 242 50% - - 51% 51% 527 50% - -% B5 Capital and other commitments (a) Capital commitments Villa World Developments Pty Ltd, a wholly owned subsidiary of Villa World Limited, assumed certain contractual obligations in conjunction with the execution of Put and Call Option Agreements (the Agreements) in relation to the acquisition of individual subdivided lots in property developments within Queensland, New South Wales and Victoria. The call option gives Villa World Developments Pty Ltd (or a third party) the option to purchase the lot(s) at a nominated price by a sunset date. The put option gives the vendor the right to sell to the Company at a nominated price on expiry of the call option sunset date. The potential total commitments remaining under the Agreements are $13.2 million (30 June 2015: $32.9 million). The commitments are crystallised on registration of the land by the vendor and will be made available on a stage by stage basis. However, the Agreements are severable by development stage and the commitments may be less than the total commitments under the Agreements as outlined above. Capital commitments in relation to put and call arrangements Opening balance Crystallised and paid commitments Agreements entered into during the year Total commitments (b) Lease commitments Accounting for leases Consolidated 30-Jun-16 $'000 30-Jun-15 $'000 32,868 (21,276) 1,571 13,163 38,465 (30,493) 24,896 32,868 Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. Non-cancellable operating leases The Company has entered into leases for office space on normal commercial terms with lease terms between three and five years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the lease are renegotiated. Future 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 Consolidated 30-Jun-16 $'000 458 715 - 30-Jun-15 $'000 357 1,018 - 1,173 1,375 VILL A WORLD LIMITED ANNUAL REPORT 2016 67 VILLA WORLD ANNUAL REPORT 2016 | 67 BOPERATING ASSETS AND LIABILITIESNotes to the consolidated financial statements 30 June 2016 (continued) C C C1 C1 C2 C2 C3 C3 C4 C4 C5 C5 C6 C6 CAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENT This section outlines how the Company manages its capital structure and related financing costs, including its balance sheet liquidity and access to capital markets. In this section: Capital risk management Contributed equity Other reserves Borrowings Finance costs Financial risk management C1 Capital risk management The Company’s objectives when managing capital is to safeguard the ability to continue as a going concern, continue to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company will consider a range of alternatives which may include: • • • • • raising or reducing borrowings adjusting the dividend policy issue of new securities return of capital to shareholders sale of assets. Capital strength remains a strategic focus and allows the Company to: • • • • pursue growth opportunities through the development of the existing portfolio reinvest in the business through value accretive acquisitions grow dividends strengthen balance sheet. Consistent with others in the industry, the Company monitors capital on the basis of the gearing ratio. This ratio is calculated as total debt divided by total assets adjusted for cash on hand. Total debt is calculated as borrowings (including “interest bearing liabilities” and “other financial commitments” as shown in the balance sheet). The Company's policy is to continue to manage debt levels and maintain the gearing ratio between 15% and 30%. As at 30 June 2016, the gearing ratio was 25.6% (30 June 2015: 16.9%). The Company has complied with the financial covenants of its borrowing facilities during the 2016 and 2015 reporting periods. Total borrowings (excluding bank guarantees) Less: Cash and cash equivalents Net debt Total assets Less: Cash and cash equivalents Gearing ratio Notes C4(a) Consolidated 30-Jun-16 $'000 128,594 (8,358) 120,236 478,009 (8,358) 469,651 25.6% 30-Jun-15 $'000 92,044 (22,571) 69,473 432,673 (22,571) 410,102 16.9% 68 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 68 CCAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENT Notes to the consolidated financial statements 30 June 2016 (continued) C2 Contributed equity Contributed equity accounting policy 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. Ordinary shares Opening balance Shares issued as part of the employee share scheme Treasury shares Shares issued as part of the capital raising Shares issued as part of the share purchase plan Transaction costs arising on share issue net of tax (a) Ordinary shares Shares 30-Jun-16 '000 Shares 30-Jun-15 '000 30-Jun-16 $'000 30-Jun-15 $'000 110,344 93,664 444,286 413,375 3,250 (3,250) - - - 110,344 - - 14,050 2,630 - 110,344 6,689 (6,689) - - (15) 444,271 - - 26,693 5,000 (782) 444,286 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 and Villa World Limited does not have a limited amount of authorised capital. (b) Treasury shares Treasury shares refer to those shares issued to Villa World Ltd Employee Share Scheme Pty Ltd as trustee for Villa World Ltd Employee Share Scheme Trust. The shares are fully paid ordinary shares in the capital of the Company and rank equally with all other existing shares from the date issued. Under the accounting standards, the Company is deemed to control the Villa World Employee Share Scheme and the shares (and associated transactions) are eliminated on consolidation, thereby deducting these issued shares from issued capital whilst held by the Trustee. As these shares are deemed not to have been issued by the consolidated entity, they are not included in the Company's earnings per share and statements regarding the gross value of dividends, unless transacted by the Employee Share Scheme outside of the group. No gain or loss on treasury share is recognised in profit and loss. Upon disposal, any gain will be recognised to a component of equity. (c) Options and Performance Rights Information relating to the Company, including details of options and performance rights issued, exercised and lapsed during the financial year, is set out in the Remuneration report and in note E2(b) - Equity instrument disclosures relating to key management personnel. VILL A WORLD LIMITED ANNUAL REPORT 2016 69 VILLA WORLD ANNUAL REPORT 2016 | 69 CCAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENTNotes to the consolidated financial statements 30 June 2016 (continued) C3 Other reserves (a) Movements in other reserves (i) Profits reserve Opening balance Transfer current year profit Dividends provided for or paid Closing balance (ii) Hedging reserve - cash flow hedges Opening balance Revaluation - gross Deferred tax Closing balance (iii) Share-based payments Opening balance Share-based payments expense Employee Share Scheme Closing balance Total other reserves (b) Nature and purpose of other reserves (i) Profits reserve Notes A4(a) A5(b) E2(c) Consolidated 30-Jun-16 $'000 30-Jun-15 $'000 176,550 33,546 (19,862) 190,234 (2,677) 460 (138) (2,355) 317 230 1,894 2,441 190,320 166,013 25,587 (15,050) 176,550 (1,413) (1,805) 541 (2,677) 174 143 - 317 174,190 The profits reserve represents opening retained profits and current year profits transferred to a reserve to preserve the characteristic as a profit and not allocate against prior year accumulated losses. Any such profits are available to enable payment of franked dividends in the future should the Directors declare by resolution. Profits are determined and transferred on an entity basis. Losses are retained by the entity. (ii) Cash flow hedges The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge, considered an effective hedge, that are recognised in other comprehensive income. Amounts are reclassified to profit or loss when the associated hedged transaction affects profit or loss (for instance when the forecast transaction that is hedged takes place). (iii) Share-based payments The share-based payments reserve is used to recognise the fair value of options and performance rights issued to key management personnel and executives. Equity instrument disclosures relating to key management personnel can be found in note E2 and section L(ii) within the Remuneration report. C4 Borrowings Accounting for borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred and are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings 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 period of the facility to which it relates. Interest expense is accrued at the effective interest rate. 70 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 70 CCAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENTNotes to the consolidated financial statements 30 June 2016 (continued) C4 Borrowings (continued) Accounting for borrowings (continued) Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. (a) Financing arrangements Access was available at balance date to the following lines of credit: Total financing facilities secured (i) Australia and New Zealand Banking Group Westpac Banking Corporation Facilities utilised at reporting date Loan (secured) (i) - non-current Bank guarantees utilised at reporting date Loan (secured) (i) Facilities unutilised at reporting date Loan (secured) (i) (i) Club facility Consolidated 30-Jun-16 $'000 30-Jun-15 $'000 130,000 50,000 180,000 128,594 128,594 18,738 18,738 32,668 32,668 130,000 50,000 180,000 92,044 92,044 12,981 12,981 74,975 74,975 The Company has in place a $180 million Club Financing Arrangement with Australia and New Zealand Banking Group Limited (ANZ) and Westpac Banking Corporation (Westpac), to provide funding for the Company's ongoing requirements for its core business. It comprises a facility of $130 million with ANZ and a facility of $50 million with Westpac. The maturity of the ANZ facility has been staggered, with $80 million expiring on 1 March 2019 and $50 million expiring on 30 October 2020. The facility of $50 million with Westpac expires on 2 March 2018. As at 30 June 2016 the facility was drawn exclusive of bank guarantees at $128.6 million (30 June 2015: $92.0 million). Bank guarantees issued total $18.7 million (30 June 2015: $13.0 million). The bank guarantees are also disclosed in note B4(e) - Contingencies. No restrictions have been imposed on this facility by the financiers during the year ending 30 June 2016 and drawdowns continue to be made in the ordinary course of business. All covenants under the facility were met within the required timeframes during the year. Interest is payable based on a margin over bank bill swap rate. The Company entered into interest rate swap contracts to fix the interest rate at 3.69% (excluding the margin and line fees applicable under the loan agreement) on $90 million of borrowings. Refer to note C6(d)(ii) - Derivative financial instruments. The swap contract matures on 12 June 2018. The fair value of non-current borrowings and the bank guarantees equals their carrying amount, as the impact of discounting is not significant. VILL A WORLD LIMITED ANNUAL REPORT 2016 71 VILLA WORLD ANNUAL REPORT 2016 | 71 CCAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENTNotes to the consolidated financial statements 30 June 2016 (continued) C4 Borrowings (continued) (b) Assets pledged as security All of the consolidated entity's assets are pledged as security for the Company's finance facilities. The carrying amounts of assets pledged as security are set out below: Total inventory: Current inventory Non-current inventory Aggregate carrying amount C5 Finance costs Accounting for finance costs Consolidated 30-Jun-16 $'000 30-Jun-15 $'000 186,037 187,660 373,697 191,318 148,326 339,644 The interest incurred method is currently utilised for all Villa World projects. Borrowing 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. Interest allocation which relates to non-qualifying assets is expensed. For each accounting settlement the actual capitalised interest is then expensed / (unwound) on a per lot basis through finance costs. Once an asset has been impaired or development activity has ceased, then subject to detailed review and Board approval, capitalisation of interest may cease and the borrowing costs will be expensed in the month incurred. Consolidated 30-Jun-16 $'000 30-Jun-15 $'000 Loan interest and charges Financial institutions Unwind of discount deferred consideration Borrowing costs Fair value loss on interest swap cash flow hedge - transfer from equity 6,748 721 355 293 8,117 (3,203) 4,550 9,464 6,616 1,436 551 - 8,603 (3,096) 4,689 10,196 Amount capitalised1 Unwind of amount capitalised Total finance costs included within the income statement 1. The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 8.6% (30 June 2015: 7.80%). C6 Financial risk management The Company's activities are exposed to a variety of financial risks: Risk Exposure arising from Measurement Management Market risk - interest rate risk Credit risk Borrowings at variable rates Cash and cash equivalents, derivative financial instruments, deposits with banks and financial institutions, credit exposure of outstanding receivables Liquidity risk Borrowings and other liabilities Cash flow forecasting, sensitivity analysis Interest rate swaps Ageing analysis, credit ratings, management of deposits Management of cash flows and forecast, gearing analysis Ongoing management review, contractual arrangements Availability and flexibility of financing facilities It is the responsibility of the Board and management to ensure that adequate risk identification, assessment and mitigation practices are in place for the effective oversight and management of these risks. The Board provides written principles for overall risk management as well as written policies covering specific items, such as mitigating interest rate and credit risks, use of derivative financial instruments and investing excess liquidity. Risk management is carried out by the finance department under oversight from the Board. 72 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 72 CCAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENTNotes to the consolidated financial statements 30 June 2016 (continued) C6 Financial risk management (continued) The Company’s overall risk management program focuses on the unpredictability of financial markets, is managed centrally to ensure alignment of financial risk management with corporate objectives and seeks to minimise potential adverse effects on the financial performance of the Company. The Company holds the following financial instruments: Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Borrowings Derivative payable (a) Market risk Valuation basis Amortised cost Amortised cost Amortised cost Amortised cost Fair value Consolidated 30-Jun-16 30-Jun-15 $'000 $'000 8,358 72,351 91,019 128,594 3,656 22,571 41,907 102,378 92,044 3,823 Market risk is the risk that the fair value or future cash flows of a financial asset or financial liability will fluctuate because of changes in market prices. The Company’s market risk arises from its interest rate risk. Interest rate risk The Company’s main interest rate risk arises from borrowings issued at variable interest rates. Borrowings issued at variable rates expose the Company to cash flow interest rate risk. The Company manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. The Company agrees to exchange, at specified intervals, the difference between fixed and variable interest rate interest amounts calculated by reference to an agreed notional principal amount. These swaps are designated to hedge interest costs associated with underlying debt obligations. The Company policy is to maintain a minimum of $90.0 million (2015: $90.0 million) of its borrowings fixed by way of interest rate swaps. As at the end of the reporting period, the Company had the following variable rate borrowings and interest rate swap contracts outstanding: Consolidated 30 June 2016 30 June 2015 Club facility Interest rate swaps - syndicated loans Net exposure to cash flow interest rate risk 1. Does not include any margin and line fees applicable under the loan agreement. -% Weighted average interest rate %1 1.9% 3.7% Weighted average interest rate %1 2.1% 3.7% -% Balance $'000 128,594 (90,000) 38,594 Balance $'000 92,044 (90,000) 2,044 An analysis by maturities is provided in note (c). Sensitivity analysis At 30 June 2016, if interest rates had changed by -/+ 25 basis points from the year end rates with all other variables held constant, post-tax profits for the year, would have been $0.04 million lower/higher (30 June 2015: $0.02 million lower/higher), mainly as a result of higher/lower interest expense from interest bearing liabilities. Other components of equity would have been $0.4 million lower/higher (30 June 2015: $0.6 million lower/higher) mainly as a result of an increase/decrease in the fair value of the cash flow hedges of borrowings. (b) Credit risk Credit risk is the risk that a contracting entity will not complete its obligation under a financial instrument or contractual arrangement. Credit risk is managed on a consolidated basis. VILL A WORLD LIMITED ANNUAL REPORT 2016 73 VILLA WORLD ANNUAL REPORT 2016 | 73 CCAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENTNotes to the consolidated financial statements 30 June 2016 (continued) C6 Financial risk management (continued) (b) Credit risk (continued) The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets mentioned above. Credit risk arises primarily from trade receivables relating to the sale of properties (including the sale of house and land packages or land only) but also from the Company’s cash and deposits with financial counterparties. (i) Trade and receivables This group of receivables is primarily from the sale of land or house and land packages. The Company’s revenue recognition policy is set out in note A1 - Revenue and gross profit and in note B2 - Trade and other receivables. The Company has no significant concentrations of credit risk to any single counterparty for trade receivables. The Company also has policies to ensure that sales of properties are made to customers with an appropriate credit history. Trade receivables are secured against those properties until the proceeds are received. The credit risk associated with trade receivables from joint venture entities is monitored through management’s review of project feasibilities and the Company’s ongoing involvement in the operations of those entities. The Company did not recognise any trade receivable impairment losses in the current year (30 June 2015: nil). Overall, the trade receivable balance is low relative to the scale of the balance sheet and, owing to the short-term nature of the ageing of the balance and balances secured against property, the credit risk of trade receivables is considered to be low. (ii) Cash and deposits For cash and deposits held with banks and financial institutions, only independently rated parties with a minimum rating of "AA-" are accepted. (c) Liquidity risk This is the risk that suitable funding for the Company’s activities may not be available. The Company addresses this risk through review of rolling cash flow forecasts throughout the year to assess and monitor the current and forecast availability of funding, and to ensure sufficient headroom against facility limits and compliance with banking covenants. At 30 June 2016, the Company carried forward 464 sales contracts worth $165.6 million (incl GST). Of these 335 contracts worth $120.0 million will settle in 1H17. Further detail is provided in the Operating and Financial Review on page 12. Furthermore, the Company’s policy is to minimise its exposure to liquidity risk by managing its refinancing risk. Refinancing risk may be reduced by reborrowing prior to the contracted maturity date, effectively switching liquidity risk for market risk. This is subject to credit facilities being available at the time of the desired refinancing. The Company’s gearing policy is discussed in note C1 - Capital risk management and the Company’s borrowings are set out in note C4 - Borrowings. The Club Financing Arrangement with Australia and New Zealand Banking Group Limited (ANZ) and Westpac Banking Corporation (Westpac) is the Company's primary banking facility and provides funding for the Company's core business. The Board considers that the use of two credit providers will minimise the concentration of risks and therefore mitigate financial loss through potential counterparty failure. Each facility with ANZ and Westpac is able to be negotiated and extended with the consent of that lender, independent of the other. Refer note C4 - Borrowings. At 30 June 2016 the company had unutilised borrowing facilities of $32.7 million (30 June 2015: $75.0 million). (i) Maturities of financial liabilities The table below analyses the Company’s financial liabilities including derivatives into relevant maturity groupings based on the period remaining to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows and therefore may not reconcile with the amounts disclosed on the Balance Sheet. For interest rate swaps the cash flows have been estimated using forward interest rates applicable at the reporting date. 74 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 74 CCAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENTNotes to the consolidated financial statements 30 June 2016 (continued) C6 Financial risk management (continued) (i) Maturities of financial liabilities (continued) Contractual maturities of financial liabilities At 30 June 2016 Non-derivatives Commitments Trade payables Club facility Total non-derivatives Derivatives Net settled (interest rate swaps) Total derivatives At 30 June 2015 Non-derivatives Commitments Trade payables Club facility Total non-derivatives Derivatives Net settled (interest rate swaps) Total derivatives Less than 6 months $'000 6 - 12 months $'000 Between 1 and 2 years $'000 Between 2 and 5 years $'000 Over 5 years $'000 - 42,803 3,149 45,952 13,163 - 3,107 16,270 - 9,137 5,908 15,045 - - 135,612 135,612 861 861 925 925 1,870 1,870 - - 1,628 47,313 2,872 51,813 - 19,985 2,847 22,832 18,077 7,668 60,362 86,107 13,163 - 36,841 50,004 835 835 753 753 1,325 1,325 910 910 Total contrac- tual cash flows $'000 Carrying amount (assets)/ liabilities $'000 13,163 51,940 147,776 212,879 - 51,940 128,594 180,534 3,656 3,656 3,656 3,656 32,868 74,966 102,922 210,756 - 74,966 92,044 167,010 3,823 3,823 3,823 3,823 - - - - - - - - - - - - The Company expects to meet its financial liabilities through the various available liquidity sources, including sale contracts carried forward, cash deposits, undrawn committed borrowing facilities and, in the longer-term, debt refinancings. (d) Fair value measurements (i) Carrying amounts versus fair values At 30 June 2016, the carrying amounts of the Company’s financial assets and liabilities approximate their fair values. (ii) Derivative financial instruments The Company is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest rates. In accordance with the Company's financial risk management policies, the Company does not hold or issue derivative financial instruments for trading purposes. It is policy to protect part of the Club Facility of $180.0 million from exposure to fluctuating interest rates. Accordingly the Company has entered into an interest rate swap contract under which it is obliged to receive interest at variable rates and to pay interest at fixed rates. Interest payments for interest rate swaps are net settled every 30 days. The interest rate swap contract is designated as a cash flow hedging instrument. The Club facility for the Company bears an average variable interest rate of 8.6% (including line and facility fees). The interest rate swap contract in place is referred to in the table below: Amount hedged $'000 Expiry date Loan facility $'000 Percent hedged %1 Fixed rate %2 Variable rate as at 30-Jun-16 %3 Valuation as at 30-Jun-16 $'000 90,000 12-Jun-18 180,000 50.0% 3.69% 1.9% $3,656 Interest rate swap Club Facility - Swap 1. % of loan facility limit. 2. The swap rate outlined above does not include any margin and line fees applicable under the loan agreement. 3. Variable rate is 30 day BBSY @ 30 June 2016. VILL A WORLD LIMITED ANNUAL REPORT 2016 75 VILLA WORLD ANNUAL REPORT 2016 | 75 CCAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENTNotes to the consolidated financial statements 30 June 2016 (continued) C6 Financial risk management (continued) (ii) Derivative financial instruments (continued) The fair value of the interest rate swap liability at 30 June 2016 was $3.7 million (30 June 2015: $3.8 million). The fair value of the interest rate swap is the estimated amount that the entity would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates, forward interest yield curves and the current creditworthiness of the swap counterparties. The fair value of interest rate swap is calculated as the present value of the estimated future cash flows. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and accumulated in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss within finance costs. There is no material ineffectiveness for the year ended 30 June 2016. The amount accumulated in equity is retained in other comprehensive income and reclassified to profit or loss in the same period or periods during which the hedged item affects profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, the hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the amount accumulated in equity is reclassified to profit and loss. Fair value hierarchy All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1), (b) (c) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2), and inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). During the year, there were no transfers between Level 1, Level 2 and Level 3 fair value categories. The fair value measurement of interest rate swap liability of $3.7 million (30 June 2015: $3.8 million) has been categorised as Level 2. This is the Company’s only financial instrument included on the balance sheet measured at fair value. 76 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 76 CCAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENTNotes to the consolidated financial statements 30 June 2016 (continued) D D D1 D1 D2 D2 D3 D3 D4 D4 GROUP STRUCTURE This section provides information which will help users understand how the group structure affects the financial position and performance of the Company as a whole. In this section: Subsidiaries Deed of cross guarantee Investments accounted for using the equity method Parent entity financial information D1 Subsidiaries Accounting for subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of all subsidiaries at 30 June 2016. Subsidiaries are all entities (including structured entities) over which the Company has control. The Company controls an entity when it 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 entity's activities. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities within the Company are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Investments in subsidiaries are accounted for at cost in the individual financial statements of the Company. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company. Significant investments in subsidiaries Name of entity incorporation Class of shares Equity holding Country of 2016 % 2015 % - - Parent entity Villa World Limited1 Controlled entities of Villa World Limited Villa World Developments Pty Ltd1 Villa World (Vic) Pty Ltd GPDQ Pty Ltd1 Hervey Bay (JV) Pty Ltd1 Villa World Thornlands Pty Ltd1 Villa World Redlands Pty Ltd1 Villa World Seascape Pty Ltd1 Villa World Properties Pty Ltd1, 2 Villa World Rochedale Pty Ltd Villa World Realty Pty Ltd3 Villa World ESS Pty Ltd as trustee for Villa World - Employee Share Scheme Trust - Villa World Byron Pty Ltd Villa World Strathpine Pty Ltd1 - 1. These companies are parties to the Deed of Cross Guarantee and members of the Closed Group as at 30 June 2016. They have been granted relief from the necessity to prepare financial reports in accordance with ASIC Corporations (Rounding in Financial/Directors’ Report) Instrument 98/1418 issued by the Australian Securities and Investments Commission (Refer note D2 Deed of cross guarantee). 2. Formerly known as Villa World Greenacre Pty Ltd. 3. Formerly known as Villa World Pinelands Pty Ltd. Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Australia Australia Australia Ordinary Ordinary Ordinary 100 100 100 D2 Deed of cross guarantee Villa World Limited, and certain wholly-owned companies (the 'Closed Group'), identified in note D1, are parties to a Deed of Cross Guarantee (the 'Deed'). The effect of the Deed is that the members of the Closed Group guarantee to each creditor, payment in full of any debt, in the event of winding up of any of the members under certain provisions of the Corporations Act 2001. VILL A WORLD LIMITED ANNUAL REPORT 2016 77 VILLA WORLD ANNUAL REPORT 2016 | 77 DGROUP STRUCTURE Notes to the consolidated financial statements 30 June 2016 (continued) D2 Deed of cross guarantee (continued) ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 98/1418 (as amended) dated 13 August 1998, provides relief to parties to the Deed from the Corporations Act 2001 requirements for preparation, audit and lodgement of Financial Reports and Directors' reports, subject to certain conditions as set out therein. This Class Order does not apply to trusts. Pursuant to the requirements of this Class Order, a summarised consolidated Statement of Comprehensive Income, for the year ended 30 June 2016 and consolidated Balance Sheet as at 30 June 2016, comprising the members of the Closed Group after eliminating all transactions between members are set out below. The Deed of Cross Guarantee was not in place at 30 June 2015. (a) Consolidated statement of comprehensive income Set out below is a consolidated statement of comprehensive income for the year ended 30 June 2016 of the closed group. Revenue from continuing operations Revenue from land development, residential building and construction contracts Cost of land development, residential building and construction contracts Gross Margin Development and project management fee Other income Net impairment of development land Share of net profits of associates and joint venture partnership accounted for using the equity method Other expenses from ordinary activities Property sales and marketing expenses Land holding costs Legal and professional costs Employee benefits Depreciation and amortisation expense Administration costs and other expenses Finance costs Profit before income tax Income tax expense Profit for the period Other comprehensive income Items that may be reclassified to profit or loss Changes in the fair value of cash flow hedges Income tax relating to these items Other comprehensive income for the period, net of tax Total comprehensive income for the period 30-Jun-16 $'000 387,002 (286,400) 100,602 2,159 697 (83) 24 (22,090) (3,777) (1,483) (23,405) (607) (4,438) (9,463) (65,263) 38,136 (13,282) 24,854 460 (138) (322) 25,176 78 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 78 DGROUP STRUCTURENotes to the consolidated financial statements 30 June 2016 (continued) D2 Deed of cross guarantee (continued) (b) Consolidated balance sheet Set out below is a consolidated balance sheet as at 30 June 2016 of the closed group. Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets Non-current assets Inventories Property, plant and equipment Investments accounted for using the equity method Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Current tax liabilities Employee benefits Service warranties Other provisions Total current liabilities Non-current liabilities Trade and other payables Borrowings Other provisions Employee benefits Intercompany loan payable Total non-current liabilities Total liabilities Net assets Equity Contributed equity Other reserves Accumulated losses Total equity 30-Jun-16 $'000 8,346 81,127 182,350 3,155 274,978 189,267 1,169 8,459 1,417 200,312 475,290 77,013 5,992 772 14,392 45 98,214 11,988 128,594 64 375 2,851 143,872 242,086 233,204 62,637 185,014 (14,447) 233,204 D3 Investments accounted for using the equity method A joint venture is either a venture or operation over whose activities the Company has joint control established by contractual agreement. Investments in joint venture entities are accounted for on an equity accounted basis. Under the equity method, the share of profits or losses of the joint venture are recognised in the income statement. The share of post-acquisition movements in reserves is recognised in other comprehensive income. Investments in joint ventures are assessed for impairment when indicators or impairment are present and if required, written down to the recoverable amount. Transactions with the joint venture are eliminated to the extent of the Company's interest in the joint venture until such time as they are realised by the joint venture on consumption or sale. VILL A WORLD LIMITED ANNUAL REPORT 2016 79 VILLA WORLD ANNUAL REPORT 2016 | 79 DGROUP STRUCTURE80 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016|80Notes to the consolidated financial statements30 June 2016(continued)D3Investments accounted for using the equity method(continued)The Company has the following interests in jointly controlled entities.Name of EntityNotes% OwnedPurposeEynesbury Holdings Pty Ltd50The owner of the Eynesbury Development Joint Venture Land, Victoria, as Trustee. The balance land was sold and settled in two tranches during FY14 and FY16. The entity will be deregistered in due course.Eynesbury Pastoral Trust50The owner of the Eynesbury Development Joint Venture Land, Victoria. The balanceland was sold and settled in twotranches during FY14 and FY16. The entity will be wound up in due course.Eynesbury Golf Pty Ltd50The golf course and homestead hospitality business were sold and settled during FY14. The entity will be deregistered in due course.Eynesbury Development Joint VentureD3(a)50Residential development at Eynesbury has ceased and the final lots settled during FY15. The entity will be wound up once the remaining assets and liabilities are cleared.Expression Homes Pty Ltd50Residential development and construction projects primarily in Victoria.Donnybrook JV Pty LtdD3(b)51Residential development at Donnybrook, VictoriaVilla World Rochedale Pty Ltd and Ausin Rochedale Pty Ltd as trustee for Ausin Rochedale TrustD3(c)50Residential development at Rochedale, QueenslandThe carrying amounts of these joint ventures at balance date were:Eynesbury Joint VentureDonnybrook Joint VentureRochedale Joint VentureTotal30-Jun-16$'00030-Jun-15$'00030-Jun-16$'00030-Jun-15$'00030-Jun-16$'00030-Jun-15$'00030-Jun-16'00030-Jun-15'000Opening balance10,90217,9685,877---16,77917,968Add: Cash contribution--2,5586,3668,700-11,2586,366Add: Share of net profit / (loss) of associates and joint ventures3,6781,93424(106)(257)-3,4451,828Less: Repayment to Company(13,000)(9,000)-(383)--(13,000)(9,383)Total1,58010,9028,4595,8778,443-18,48216,779(a)Eynesbury joint ventureThe equity accounted investment in the Company's Eynesbury Township joint venture as at 30 June 2016 is $1.6 million (30 June 2015: $10.9 million).On 7 December 2015, the Company announced that settlement of the second tranche (comprising the balance of the land) was completed at a sale price of $34.5million (plus GST). The sale price was increased from $30 million (plus GST) as part of the arrangements to extend settlement.Payments totalling $13 million have been released to the joint venture for the year ended 30 June 2016. The Company's share of profit from the Eynesbury joint venture for the year ended 30 June 2016 is $3.7 million (30 June 2015: $1.9 million).(b)Donnybrook joint ventureThe equity accounted investmentin the Company's Donnybrook joint venture as at 30 June 2016 is $8.5 million (30 June 2015: $5.9 million). DGROUP STRUCTUREVILL A WORLD LIMITED ANNUAL REPORT 2016 81 VILLA WORLD ANNUAL REPORT 2016|81Notes to the consolidated financial statements30 June 2016(continued)D3Investments accounted for using the equity method (continued)(b)Donnybrook joint venture(continued)Summarised financial information of the Donnybrook joint venture is set out below:Consolidated 30-Jun-16$'00030-Jun-15$'000Villa World's share of assets and liabilities in Donnybrook Joint VentureAssets including inventories $25.8m (2015: $24.9m); cash and cash equivalents $0.5m (2015: $0.5m); trade debtors and other receivables $0.5m (2015:$0.05m)26,74525,390Total assets26,74525,390Current liabilities including trade and other payables $0.3m (2015: $8.8m) and bill facility of nil (2015: $5.1m).34413,866Non-current liabilities including bill facility9,814-Total liabilities10,15813,866Equity16,58711,524Proportion of the Company's ownership51%51%Equity attributable to the investment8,4595,877Donnybrook joint venture is jointly controlled as the parties contractually share the agreed control of the arrangement including the unanimous consent of the parties sharing control for decision making.(c)Villa World Rochedale Pty Ltd and Ausin Rochedale Pty Ltd as trustee for Ausin Rochedale TrustThe Company advised the market on 19 October 2015 that it had entered into a joint venture with Ausin Rochedale Pty Ltd ATF Ausin Rochedale Trust for the right to develop the land component.This joint venture will free up a significant amount of capital for the Company to recycleinto other projects, while participating in profits on the land component as well as generating acquisition fees, development management fees and construction profits for the 167 premium house builds outside the joint venture.The development will be marketed as a premium price point house and land community, starting at approximately $650,000. These premium houses will be built exclusively by the Company under the capital efficient split contract method where the buyer progressively pays for the house build.Summarised financial information of the Rochedale joint venture is set out below:Consolidated 30-Jun-16$'000Villa World's share of assets and liabilities in Rochedale Joint VentureAssets including inventories $32.4m; cash and cash equivalents $0.7m33,142Total assets33,142Liabilities including bill facility of $16.0m (2015: nil)16,256Total liabilities16,256Equity16,886Proportion of the Company's ownership50%Equity attributable to the investment8,443For the Rochedale joint venture entities, the joint venture parties have agreed that they will share liabilities in the same proportion as their holdings in the joint venture (50% each). If the parties have entered an agreement which creates on each of them a joint and several (unlimited) liability to a third party, they have agreed to indemnify each other to the extent that one of them is required to pay more than 50% of the liability to a third party.D4Parent entity financial informationThe financial information for the Parent entity, Villa World Limited has been prepared on the same basis as the consolidated financial statements. Investments in controlled entities are carried in the Company's financial statements at the lower of cost or recoverable amount. Villa World Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation.Refer note A5 -Taxes. DGROUP STRUCTURENotes to the consolidated financial statements 30 June 2016 (continued) D4 Parent entity financial information (continued) (a) Summary financial information The individual financial statements for the parent entity, Villa World Limited, show the following aggregate amounts: Balance sheet Current assets Net assets Shareholders' equity Issued capital Reserves Retained earnings Total equity (Loss) / profit for the period 30-Jun-16 $'000 30-Jun-15 $'000 32,313 181,674 (454,174) 17,835 199,605 (434,880) 127,247 61,474 (7,047) 181,674 (6,867) 120,573 79,212 (180) 199,605 4,018 (b) Contingent liabilities of the parent entity The parent entity has provided a financial guarantee in respect of the Club Facility with Australia and New Zealand Banking Group and Westpac Banking Corporation. Details of the parent entity's contingent liabilities are disclosed in note B4 - Provisions and contingencies. 82 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 82 DGROUP STRUCTURENotes to the consolidated financial statements 30 June 2016 (continued) E E E1 E1 E2 E2 E3 E3 E4 E4 E5 E5 OTHER INFORMATION This section provides the remaining information relating to the Company that must be disclosed to comply with the Accounting Standards, the Corporations Act 2001 or the Corporations Regulations. In this section: Basis of preparation Key management personnel disclosures Remuneration of auditors Events occurring after the reporting period Other accounting policies E1 Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Villa World Limited is a for-profit entity for the purpose of preparing the financial statements. (i) Compliance with IFRS The consolidated financial statements of Villa World Limited also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (ii) Historical cost convention These financial statements have been prepared under the historical cost convention, except for financial assets and liabilities (including derivative instruments) which are measured at fair value through profit or loss. (iii) Critical accounting 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 Company'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 relevant note. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. (iv) Functional and presentation currency The consolidated financial statements are presented in Australian dollars, which is the functional and presentation currency of Villa World Limited. E2 Key management personnel disclosures (a) Key management personnel compensation Short-term employee benefits Post-employment benefits Long-term benefits Termination benefits Share-based payments Detailed remuneration disclosures are provided in the remuneration report. Consolidated 30-Jun-16 $ 1,768,827 78,213 37,546 - 290,422 2,175,008 30-Jun-15 $ 1,406,453 66,142 8,259 445,692 83,333 2,009,879 VILL A WORLD LIMITED ANNUAL REPORT 2016 83 VILLA WORLD ANNUAL REPORT 2016 | 83 EOTHER INFORMATION Notes to the consolidated financial statements 30 June 2016 (continued) E2 Key management personnel disclosures (continued) (b) Equity instrument disclosures relating to key management personnel Villa World Limited Option Plan The Villa World Ltd Option Plan was introduced in FY14 and was designed to attract and retain key personnel and align the interest of employees with those of shareholders. Under the plan, share-based compensation benefits in the form of options are granted to executives and eligible employees. The options only vest if the participating employees continue their respective service agreements with the Company for three years from the grant date. No options were granted or vested during FY16. Options under this plan were last granted on 17 February, 2014 and will expire on 11 August, 2017. Options will commence vesting on 26 July, 2016. This plan is no longer used and has been replaced by the Villa World Limited Executive Long Term Incentive Plan. The total amount to be expensed is determined by reference to the fair value of the options granted, which includes any market performance conditions and the impact of any non-vesting conditions but excludes the impact of any service and non-market performance vesting conditions. The total expense is recognised over the vesting period which is the period over which all of the specified vesting conditions are to be satisfied. It recognises the impact of the revision to original estimates, if any, in the profit or loss, with a corresponding adjustment to equity. The volatility assumption is representative of the level of uncertainty expected in the movements of the share price over the life of the option. The historic volatility of the market price of the Company's shares and the mean reversion tendency of volatilities are the two factors which are assessed when determining the expected volatility. Set out below is a summary of the terms and conditions of each grant of options to key management personnel and other senior employees under the Villa World Ltd Option Plan which will effect remuneration in the future reporting period: Grant Date 26/07/2013 05/11/2013 11/02/2014 Balance as at 1 July 2016 3,750,000 250,000 150,000 Forfeited / lapsed during year 500,000 250,0001 - Balance as at 30 June 2016 Vesting date Expiry Date 3,250,000 26/01/2017 26/07/2016 05/05/2017 05/11/2016 11/08/2017 11/02/2017 - 150,000 Exercise Price $1.25 $1.60 $1.60 Expected price volatility of shares 25% 30% 30% Expected dividend yield 9.0% 5.5% 7.1% Risk free interest rate 2.57% 3.15% 3.10% 1. Options were forfeited on 8 July 2016 with communication and approval by Board prior 30 June 2016. * The value of options at grant date is 10 cents per option for those issued on 26 July 2013, 27 cents per option for those issued on 5 November 2013 and 41 cents per option for those issued 11 February, 2014. The value of options are calculated in accordance with AASB2 Share-based Payments. Villa World Limited Executive Long Term Incentive Plan The grant of performance rights were introduced as a Long Term Incentive (LTI) in FY16 on 30 November 2015 subsequent to approval of the plan at the FY15 Annual General Meeting. The plan is intended to be the Company's principal vehicle for granting LTI awards to executives and other eligible employees. Under the Plan, awards granted will be tested against relative performance measures over three financial years until the date the performance rights vest and at which time it is determined whether rights are exercisable. A portion of the Rights are subject to Relative Total Shareholder Return performance hurdles (75%). The percentage of Rights that Vest is determined by references to the percentile ranking achieved by the Company as compared to nominated peer companies over the period. These Rights vest independently of those Rights issued with Non-market Vesting Conditions. A portion of the Rights are subject to Absolute Return on Assets performance hurdles (25%). These Rights vest independently of those Rights issued with Market Vesting Conditions. The fair value at grant date is estimated using a binomial pricing model, taking into account the terms and conditions upon which the Rights were granted. No awards have vested during FY16. 84 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 84 EOTHER INFORMATIONNotes to the consolidated financial statements 30 June 2016 (continued) E2 Key management personnel disclosures (continued) (b) Equity instrument disclosures relating to key management personnel (continued) Villa World Limited Executive Long Term Incentive Plan (continued) The table below sets out the terms of performance rights awarded to executives during the period ended 30 June 2016. Grant Date 30/11/2016 Granted as compensation 485,916 Balance as at 30 June 2016 485,916 Expiry Date Vesting date 31/08/2018 30/06/2018 Weighted average price of Rights $1.06 Expected price volatility of shares 27% Expected dividend yield 7.6% Risk free interest rate 2.1% (c) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows: Options issued to key management personnel Performance rights issued to key management personnel Options issued to senior employees Performance rights issued to senior employees (d) Loans to KMP Consolidated 30-Jun-16 $'000 124 166 (66) 6 230 30-Jun-15 $'000 83 - 60 - 143 For the financial year ended 30 June 2016, there were no loans to key management personnel (2015: $nil). E3 Remuneration of auditors During the year, the following fees were paid or payable for services provided by the Lead Auditor, Ernst & Young of the consolidated entity and its related practices: Audit and other assurance services Audit and review of financial statements Total remuneration for audit and other assurance services Other services: Taxation services Other services Total remuneration for other services Total remuneration of Ernst & Young E4 Events occurring after the reporting period Final Dividend Consolidated 30-Jun-16 $ 30-Jun-15 $ 130,000 130,000 159,334 81,054 240,388 370,388 130,000 130,000 29,547 74,064 103,611 233,611 On 16 August 2016 the Board declared a fully franked final dividend of 10.0 cents per share. The ex-dividend date is 1 September 2016 and the record date for this dividend is 2 September 2016. Payment will be made on 30 September 2016. The balance of the franking account is $8.2 million and includes franking credits that will arise from the payment of tax recognised as a liability at the reporting date. Refer note A4(c) - Franking credits. Club facility During August 2016, Villa World and ANZ agreed a credit approved term sheet to extend the ANZ facility to $140 million. This comprised a further $10 million unsecured facility to expire in August 2018 and will provide the Company with further financial flexibility to implement its business strategy. VILL A WORLD LIMITED ANNUAL REPORT 2016 85 VILLA WORLD ANNUAL REPORT 2016 | 85 EOTHER INFORMATIONNotes to the consolidated financial statements 30 June 2016 (continued) E4 Events occurring after the reporting period (continued) Club Facility (continued) At 30 June 2016 the $50 million Westpac facility was due to mature on 2 March 2018. Post year end, this facility has been extended with a credit approved term sheet in hand. The formal documentation process is expected to be completed in September 2016. The facility will be extended through to March 2019. E5 Other accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below unless disclosed within the individual notes. These policies have been consistently applied to all the periods presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Villa World Limited and its subsidiaries. (a) Expense recognition Expenses are recognised in the income statement on an accrual basis. (b) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss. (ii) Depreciation Depreciation is calculated on a straight-line or diminishing value basis to write off the net cost of each item of property, plant and equipment, including leased equipment, over its expected useful life to the consolidated entity. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. The expected useful lives of property, plant and equipment are: - - - - Vehicles Plant and equipment Leasehold improvements Information technology 3 - 5 years 3 - 10 years 2 - 8 years 4 years The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. (c) Impairment of assets The carrying amounts of the Company’s assets are tested for impairment at each balance sheet date where there are events or changes in circumstances that indicate they might be impaired. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the income statement unless the asset has previously been re-valued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through the income statement. The recoverable amount of assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. 86 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 86 EOTHER INFORMATIONNotes to the consolidated financial statements 30 June 2016 (continued) E5 Other accounting policies (continued) (c) Impairment of assets (continued) The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. (d) Cash and cash equivalents For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the consolidated balance sheet. (e) Employee benefits (i) Short-term obligations Liabilities for salaries and wages, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised as provisions in respect of employees services up to the reporting date and are measured as the amounts expected to be paid when the liabilities are settled. (ii) Other long-term employee benefit obligations The Company's net obligation in respect of long-term employee benefits is the amount of future benefits that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Re-measurements are recognised in profit or loss in the period in which they arise. The obligations are presented as current liabilities in the consolidated balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur. (iii) Bonus plans The Company recognises a liability and an expense for bonuses. The Company recognises a liability where it is contractually obliged or where there is a past practice that has created a constructive obligation. (iv) Termination benefits Termination benefits are expensed at the earlier of when the Company can no longer withdraw the offer of those benefits and when the Company recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the end of the reporting period, then they are discounted. (f) Goods and Services Tax (GST) Revenues, expenses and assets/liabilities (other than receivables) are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. (g) Rounding of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors' Report) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the 'rounding off' of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with Instrument 2016/191 to the nearest thousand dollars, or in certain cases, the nearest dollar. VILL A WORLD LIMITED ANNUAL REPORT 2016 87 VILLA WORLD ANNUAL REPORT 2016 | 87 EOTHER INFORMATIONNotes to the consolidated financial statements 30 June 2016 (continued) E5 Other accounting policies (continued) (h) New accounting standards and interpretations Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Company for the annual reporting period ended 30 June 2016. The Company's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Company are set out below. New standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 July 2016 have been adopted by the Company. The Company has assessed the impact of the following new standards and interpretations and has determined there is no material impact. (i) AASB9 Financial Instruments and its consequential amendments AASB9 Financial Instruments includes requirements for the classification, measurement and derecognition of financial assets. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The standard is not applicable to the Company until 1 July 2018 but is available for early adoption. The Company is currently assessing the impact of the new guidance. (ii) AASB15 Revenue from Contracts with Customers AASB15 Revenue from Contracts with Customers supersedes nearly all existing revenue recognition guidance under Australian Accounting Standards. The core principle of AASB15 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. AASB15 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing Australian Accounting Standards. These include, but are not limited to, identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. AASB15 will be required to be applied by the Company for the financial year ended 30 June 2019, however is available for early adoption. On application, the standard will be applied using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined in AASB15; or (ii) the cumulative effect of initially applying AASB15 recognized at the date of initial application, with no restatement of comparatives presented. The Company is currently evaluating the potential impact on its consolidated financial statements resulting from the application of AASB15. (iii) AASB16 Leases AASB16 Leases introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligations to make lease payments. AASB16 substantially carries forward the lessor accounting requirements in AASB117 Leases. Accordingly a lessor continues to classify its leases as operating leases, and to account for those two types of leases differently. AASB16 requires enhanced disclosures for both lessees and lessors to improve information disclosed about an entity's exposure to leases. This new standard is applicable to annual reporting periods beginning on or after 1 January 2019, with early application permitted. The Company is currently assessing the impact of the new guidance. There are no other standards that are not yet effective and that are expected to have a material impact on the Company. 88 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 88 EOTHER INFORMATIONDirectors' declaration 30 June 2016 In the Directors' opinion: (a) the financial statements and notes set out on pages 50 to 88 are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and giving a true and fair view of the consolidated entity's financial position as at 30 June 2016 and of its performance for the year ended on that date, and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. Note E1 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of Directors. Craig Treasure Chief Executive Officer and Managing Director Gold Coast 16 August 2016 VILL A WORLD LIMITED ANNUAL REPORT 2016 89 VILLA WORLD ANNUAL REPORT 2016 | 89 Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Independent auditor's report to the members of Villa World Limited Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Report on the financial report We have audited the accompanying financial report of Villa World Limited, which comprises the consolidated balance sheet as at 30 June 2016, the consolidated statement of comprehensive income, Independent auditor's report to the members of Villa World Limited the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory Report on the financial report information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year. We have audited the accompanying financial report of Villa World Limited, which comprises the consolidated balance sheet as at 30 June 2016, the consolidated statement of comprehensive income, Directors' responsibility for the financial report the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory The directors of the company are responsible for the preparation of the financial report that gives a information, and the directors' declaration of the consolidated entity comprising the company and the true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 entities it controlled at the year's end or from time to time during the financial year. and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note E1, Directors' responsibility for the financial report the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. 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 Auditor's responsibility and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note E1, Our responsibility is to express an opinion on the financial report based on our audit. We conducted our the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial audit in accordance with Australian Auditing Standards. Those standards require that we comply with Statements, that the financial statements comply with International Financial Reporting Standards. relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. Auditor's responsibility An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgement, including the Our responsibility is to express an opinion on the financial report based on our audit. We conducted our assessment of the risks of material misstatement of the financial report, whether due to fraud or error. audit in accordance with Australian Auditing Standards. Those standards require that we comply with In making those risk assessments, the auditor considers internal controls relevant to the entity's relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain preparation and fair presentation of the financial report in order to design audit procedures that are reasonable assurance about whether the financial report is free from material misstatement. appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting the financial report. The procedures selected depend on the auditor's judgement, including the policies used and the reasonableness of accounting estimates made by the directors, as well as assessment of the risks of material misstatement of the financial report, whether due to fraud or error. evaluating the overall presentation of the financial report. In making those risk assessments, the auditor considers internal controls relevant to the entity's We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for preparation and fair presentation of the financial report in order to design audit procedures that are our audit opinion. appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as Independence evaluating the overall presentation of the financial report. In conducting our audit we have complied with the independence requirements of the Corporations Act We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a our audit opinion. copy of which is included in the directors’ report. Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 90 VILL A WORLD LIMITED ANNUAL REPORT 2016 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Opinion In our opinion: a. the financial report of Villa World Limited is in accordance with the Corporations Act 2001, including: Opinion i In our opinion: giving a true and fair view of the consolidated entity's financial position as at 30 June 2016 and of its performance for the year ended on that date; and a. b. complying with Australian Accounting Standards and the Corporations Regulations ii the financial report of Villa World Limited is in accordance with the Corporations Act 2001, 2001; and including: the financial report also complies with International Financial Reporting Standards as i disclosed in Note E1. giving a true and fair view of the consolidated entity's financial position as at 30 June 2016 and of its performance for the year ended on that date; and Report on the remuneration report complying with Australian Accounting Standards and the Corporations Regulations 2001; and ii b. We have audited the Remuneration Report included in the directors' report for the year ended 30 June the financial report also complies with International Financial Reporting Standards as 2016. The directors of the company are responsible for the preparation and presentation of the disclosed in Note E1. 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 Report on the remuneration report accordance with Australian Auditing Standards. We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the Opinion Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our In our opinion, the Remuneration Report of Villa World Limited for the year ended 30 June 2016, responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in complies with section 300A of the Corporations Act 2001. accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of Villa World Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. Ernst & Young Ernst & Young Ric Roach Partner Brisbane 16 August 2016 Ric Roach Partner Brisbane 16 August 2016 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation VILL A WORLD LIMITED ANNUAL REPORT 2016 91 ASX Additional Information Additional information requested by the Australian Securities Exchange Limited Listing Rules and not disclosed elsewhere in this report are set out below: Shareholdings (as at 8 August 2016) The following holds were listed in the register of substantial shareholders: UniSuper Limited Westpac Banking Corporation Brazil Farming Pty Ltd Industry Super Holdings Pty Ltd Distribution of Shareholders (as at 31 July 2016): Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total No of shares held 6,989,481 6,216,610 5,567,286 5,549,979 Total holders 771 1,718 742 943 77 4,251 The total number of shareholders with less than a marketable parcel of 211 shares is 189. Unquoted equity securities Options issued under the Villa World Limited Option Plan to take up ordinary shares, as part of an employee incentive plan, as at 8 August 2016 is 3,400,000. Classes of units and voting rights As at 30 June 2016 there were 4,244 shareholders (30 June 2015: 3,911). The voting rights attaching to the shares, as set out in section 253C of the Corporations Act were: (a) (b) at an adjourned meeting the holders with voting rights who are present either in person or by proxy constitute a quorum and are entitled to pass the resolutions; and on a show of hands every person present who is a shareholder has one vote and on a poll every present in person or by proxy or attorney has one vote for each share held. Options There are not voting rights attached to the options. For details of registered office and share registry details refer to inside front cover – Shareholder Information. 92 VILL A WORLD LIMITED ANNUAL REPORT 2016 VILLA WORLD ANNUAL REPORT 2016 | 92 ASX Additional Information (continued) Top 20 Shareholders (as at 8 August 2016) Name Units % of Units HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 19,408,872 17.09 J P MORGAN NOMINEES AUSTRALIA LIMITED BNP PARIBAS NOMINEES PTY LTD BRAZIL FARMING PTY LTD NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED VILLA WORLD ESS PTY LTD BNP PARIBAS NOMS PTY LTD 9,458,508 6,989,481 6,617,286 6,453,363 4,894,909 3,250,000 1,752,694 RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED 1,722,914 BRISPOT NOMINEES PTY LTD RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED MR MALCOLM JOHN ROSS + MRS JUNE ROSS CITICORP NOMINEES PTY LIMITED DEBUSCEY PTY LTD HORRIE PTY LTD GEOMAR SUPERANNUATION PTY LTD CRAIG G TREASURE PTY LTD ZERO NOMINEES PTY LTD MAYHAMPTON PTY LTD SHAYANA PTY LTD 998,678 819,710 813,880 704,264 644,235 612,432 607,198 582,432 550,000 464,568 434,593 8.33 6.15 5.83 5.68 4.31 2.86 1.54 1.52 0.88 0.72 0.72 0.62 0.57 0.54 0.53 0.51 0.48 0.41 0.38 Totals: Top 20 holders of FULLY PAID ORDINARY SHARES (TOTAL) 67,780,017 59.67 VILL A WORLD LIMITED ANNUAL REPORT 2016 93 VILLA WORLD ANNUAL REPORT 2016 | 93 THIS PAGE IS LEFT BLANK INTENTIONALLY THIS PAGE IS LEFT BLANK INTENTIONALLY 94 VILL A WORLD LIMITED ANNUAL REPORT 2016 THIS PAGE IS LEFT BLANK INTENTIONALLY THIS PAGE IS LEFT BLANK INTENTIONALLY VILL A WORLD LIMITED ANNUAL REPORT 2016 95 THIS PAGE IS LEFT BLANK INTENTIONALLY 96 VILL A WORLD LIMITED ANNUAL REPORT 2016 Villa World Limited ABN 38 117 546 326 Level 1 Oracle West, 19 Elizabeth Avenue, Broadbeach QLD 4218 PO Box 1899, Broadbeach QLD 4218 +61 7 5588 8888 villaworld.com.au 7 9 8 2 4 O W V u a . m o c . t n a r d a u q 

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