ANN UAL REPOR T 2019 YEAR END ED 30 JUNE 2019 Viva Leisure’s mission is to connect as many people as possible to a healthy lifestyle, delivering to its members an uncompromising fitness experience via accessible, affordable and quality facilities and services. About this Report This 2019 Annual Report for Viva Leisure Limited (ACN 607 079 792) has been prepared as at 23 September 2019. Please note that terms such as Viva Leisure, VVA and Viva Leisure Limited have the same meaning unless the context requires otherwise. Viva Leisure is committed to reducing the environmental footprint associated with the production of this annual report and printed copies are only posted to shareholders who have elected to receive a printed copy. Shareholders can request a printed copy of the Annual Report free of charge by emailing investor.relations@vivaleisure.com.au or by writing to the Company Secretary, PO Box 1, Mitchell ACT 2911. V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 CO NTE NTS OUR LOCAT IONS AND BR ANDS 2019 HIGHLIGHTS LETTER FROM THE CHAIR CEO’S REPORT DIRECTORS REPORT REMUNERATI ON R EPORT CORPORATE GOV ERNANC E STATE ME NT AUDITORS INDEPENDENCE DE C LAR AT IO N FINANCIAL STATEMENTS Consolidated Statement of Profit or Loss Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements SIGNED REPORTS Directors Declaration Independent Auditor’s Report SHAREHOLDER AND ASX INF O RM AT IO N Shareholder Information Information in Relation to Certain Property Leases Corporate Directory 1 3 5 7 9 18 26 27 29 3 1 33 35 37 78 79 86 9 1 93 O U R L O C A T I O N S A N D B R A N D S 1 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 NSW 10 VI C 1 ACT 29 2 2 0 1 9 H I G H L I G H T S RE VEN UE - UP 37.1% $33.1m M EM BE RS H IP S - U P 51 .7% 54,039 LO C AT IO NS - U P 90.4% 40 EB IT DA* - U P 57.7% $8.2m EB IT DA M ARGI N* - UP 14.8% 24.8% 3 *E xcludes one-of f pu blic l isting costs of $ 9 14 k 2019 HIGHLIGHTS V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 REVENUE ($m ) % R 1 6 . 4 G A C 20.7m 18.0m 18.4m 33.1m 1% 7. 3 24.1m EB IT DA ($m ) 8.2m % R 6 8.0 G A C % 7.7 5 5.2m 3.3m 1.8m 1.0m FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 MEMBERS 54,039 % R 2 1. 0 G A C % 51.7 35,631 25,218 26,754 29,124 E BITDA M ARG IN (%) 10.0% 5.7% 24.8% 21.6% 15.8% FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 new locations one every 2.7 weeks. $183 13.6% $161 EB IT DA p e r m e m b e r ($ p. a.) FY16-FY19 C A G R 37.2% $118 $71 FY2015 FY2016 FY2017 FY2018 FY2019 EBITDA per member based on average member number for the year 4 19 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 LE T TER FROM T H E C HAIR Dear Shareholder O U R FIR ST YE AR AS A LISTE D CO MPANY On behalf of the Board, I am pleased to present the Viva Leisure Limited 2019 Annual Report. During 2019, our first year as a listed company, Viva Leisure continued the strong financial performance of previous years, demonstrated by outperforming our prospectus on all key metrics. In particular: • Statutory total revenues from continuing operations were $33.1 million compared to $24.1 million in the financial year ended 30 June 2018. Prospectus forecast total revenues were $32.9 million; • Trading Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) increased to $8.2 million from $5.2 million when excluding the one-off costs ($914k) of the listing; • Profit before income tax from operations has increased to $5.0 million compared with $3.7 million in the financial year ended 30 June 2018; • Net Profit After Tax (NPAT) from continuing operations was $3.2 million compared with $2.9 million in the financial year ended 30 June 2018; • Cash and cash equivalent reserves remain strong at $14.4 million, up from $1.1 million as at 30 June 2019, predominantly due to the capital raised during our listing in June 2019; • There was an increase in net assets to $25.8 million compared to -$0.1 million as at 30 June 2018. 5 L E T T E R F R O M T H E C H A I R DIVIDENDS B OARD AND MAN AG E ME NT As highlighted in the Prospectus and reflecting Viva Leisure’s growth profile and continuing investment opportunities, the Directors confirm that no dividend will be paid in respect of the FY19 performance. OPERATING HIGHLIGHTS FOR TH E YE A R Highlights for the year were: • An increase in operating locations/clubs from 21 to 40; • A strong pipeline of new locations secured setting up FY20 to be another significant year of growth; • The launch of the first hiit republic boutique studio; • Membership increasing to over 50,000 for the first time; • Strengthening our presence in regional NSW, and entering the regional Victorian market; • Acquisitions completed of xceler8 Fitness (Wagga Wagga, NSW), Elite Physique (Canberra), Absolute Fitness (Goulburn, NSW) and Fitness 24 Seven (Albury (NSW)) and Wodonga (Victoria)). SOCIAL AND COMMUNIT Y COM IT MEN T Viva Leisure has continued during the year its commitment to ongoing support of appropriate community needs. The Board and Management team are justifiably proud of the impact that is made in the community by taking a role as a responsible corporate citizen. Likewise, we are proud of the opportunities offered for employment of some staff who may have special circumstances. It has been a pleasure working with the Viva Leisure Management team and Directors during this very busy and exciting year for the Company. I appreciate the significant contribution and achievements Harry Konstantinou, his executive team and of the entire Viva Leisure team, now comprising over 600 strong. O U TLO O K Our mission statement epitomises the objective of providing the opportunity for an affordable healthy lifestyle for members. Our respectful view is that this is a worthy objective and will continue to provide sustainability to the business of Viva Leisure. We aim to be anticipatory to potential changes in the nature and manner of delivery of all aspects of fitness and health. The Board and Management team are alert to the opportunities for Viva Leisure to continue expansion of the business by way of new greenfield locations and acquisitions, and in some respects, this is only the beginning. The Board and I are confident that, in setting the business plans in a dynamic business environment for the Company, we are well placed to execute on those plans in favour of our shareholders. In closing, I extend the gratitude of the Board to our shareholders, employees and members for their continued support throughout the year and for our first few months as a listed entity. Yours sincerely Mr Bruce Glanville C H A I R 6 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 C E O’ S REPORT I am so very proud to present Viva Leisure’s first annual report as a listed company. Viva Leisure, an “overnight success” has actually taken 15 years of “overnights” (and hard work) to achieve. We have quietly, but fiercely, grown year on year and achieved some significant milestones in an extremely competitive and fast-paced industry. I could not be more thrilled to have both taken part in, and shared with many, Viva Leisure’s first XV. During financial year 30 June 2019 Viva Leisure recorded more than 2.9 million visits to our facilities; our membership increased to 54,039, representing a five- year CAGR of 21.0%, and a 51.7% increase from the previous year. Even more impressive than our five-year membership CAGR is our EBITDA CAGR which grew at 68.0% for the five years to 30 June 2019, and an impressive 57.7% over the previous corresponding periods. Notwithstanding these significant achievements, to quote Jeff Bezos, the Founder and CEO of Amazon.com Inc “.. this is but Day 1”. Today, the health and fitness market in Australia services approximately 15% of the population, and Viva is committed to using our world class facilities to reach more. We want to continue to help our members to become fitter, healthier, stronger and feel better about life and living. Our mission is to enhance life’s experience for all our members and to integrate seamlessly with their lifestyles as they grow to both appreciate, and covet, that health is the real wealth in life. 7 C E O ’ S R E P O R T OVERVIEW T HE FU TU R E Viva Leisure now own and operate 40 locations. Just shy of 50% of these, a total of 19 locations, were either opened or acquired in the previous 12 month period. To put this into perspective, on average we opened or integrated a new location every 2.7 weeks of the year. Together with new club openings, we also ensured our like-for-like locations continued to increase and grow, with 90.4% of our existing sites having membership growth from the period 1 July 2018 to 30 June 2019. This highlights that our growth is not only coming from new locations being opened. From the previous corresponding year, our revenue increased by 37.1% to $33.1 million. Our trading EBITDA margin (excluding one-off public listing costs of $914k) increased to 24.8%, up from 21.6% and 15.8% in the two previous corresponding periods. Our growth continued to extend outside of the Australian Capital Territory (ACT). At year end, New South Wales comprised 21% and Victoria 2% of our total membership base. The reliance on being just an ACT-based company to produce our profits and growth decreased from over 90% in 2018 to 77% in 2019, and this will continue to decrease in the short term as we apply our growth strategy to broader geographic regions. TALENT To support our ambitious future growth, and as we have done in the past, our executive team is focused on attracting the best possible talent, as well as retaining, fostering and offering growth opportunities to our already bright shining stars. Our business is all about experiences, and these can only be offered sincerely when we have the very best working in harmony. Our team is highly motivated, excited, and constantly educating and adapting to remain at the forefront. Viva Leisure is excited and committed to continue our current growth trajectory in all key market segments which we operate. Our hiit republic brand has already achieved significant recognition both in the realised markets and in those where we are yet to open. We have accelerated the hiit republic brand rollout and will continue to provide an unmatched value proposition when partnered with a Club Lime health club membership. Our unique FaaS (Fitness as a Service) model is disrupting the traditional health and fitness market with our accessible, affordable, no contract, no joining fee, boutique and health club combination membership. Our sophisticated data-driven decision-making process will continue to have a competitive advantage in site identification, member analysis, churn and retention. We will continue to strongly build on our significant loyal membership base to provide new revenue streams and digital options, again looking to disrupt existing experiences being offered and improving them. I look forward to leading the team into our first full year as a listed company, extending our services out to many more members, increasing the opportunities for our team and growing the value of the company for our shareholders. Harry Konstantinou F O U N D E R , M A N A G I N G D I R E C T O R A N D C H I E F E X E C U T I V E O F F I C E R 8 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 D IREC TORS’ REP OR T 9 D I R E C T O R S ’ R E P O R T The Directors of Viva Leisure Limited present their report together with the financial statements of the consolidated entity, being Viva Leisure Limited and its controlled entities (the Group) for the financial year ended 30 June 2019. DIRECTORS The following persons were Directors of Viva Leisure Limited during the financial year: HA R RY KONSTANTI NOU Managing Director and Chief Executive Officer Appointed 15 July 2015 Member of the People and Culture Committee Appointed 12 October 2018 Qualifications BA, (University of Canberra) Other Current Directorships None Experience Company co-founder and Director since 2004. Harry has over 25 years of experience developing, managing and selling technology services business. Directorships held in other listed entities during the three years prior to the current year None Interest in Shares and Options 23,230,502 ordinary shares and options to acquire a further 2,170,000 ordinary shares B R UCE GL AN VI LLE Independent Non-Executive Director Independent Chair Member of the Audit and Risk Committee and Chair of the People and Culture Committee Appointed 12 October 2018 Qualifications Fellow of Chartered Accountants ANZ, Member of Australian Institute of Company Directors Experience Appointed Board and Committee member and Chair on 12 October 2018. Bruce is a Chartered Accountant and was formerly a partner at Duesburys, Rolins and Deloitte. He has extensive experience providing board leadership and governance in addition to driving growth strategies to the businesses he has led. Other Current Directorships None Directorships held in other listed entities during the three years prior to the current year None Interest in Shares and Options 300,000 ordinary shares and options to acquire a further 200,000 ordinary shares 1 0 D I R E C T O R S ’ R E P O R T MA R K MCCONNELL Non-Executive Director Member of the People and Culture Committee Appointed 12 October 2018 Qualifications Bachelor of Science, Graduate Diploma of Employment Relations, Graduate Diploma of Logistics Management, Master of Business Administration, Fellow of Australian Institute of Company Directors Experience Appointed Board and Committee member on 12 October 2018. Mark has over 20 years of management, executive and non-executive experience in a range of industries, including aviation, technology and investment finance. Mark’s experience and skills include business strategy, investor relations, capital raisings and innovation. Other Current Directorships Citadel Group Limited (ASX:CGL) Adveritas Limited (ASX:AV1) Directorships held in other listed entities during the three years prior to the current year None Interest in Shares and Options 4,543,296 ordinary shares SUSAN FORRESTER A M Independent Non-Executive Director Audit and Risk Committee Chair Appointed 12 October 2018 Qualifications Bachelor of Arts, Bachelor of Law (Hons), Master of Business Administration, Fellow of the Institute of Company Directors Other Current Directorships National Veterinary Care Ltd (ASX:NVL) G8 Education Limited (ASX:GEM) Experience Appointed Board and Committee member on 12 October 2018. Susan is a highly respected and accomplished professional company Director with a powerful blend of management, board and consulting experience across ASX-listed, public and private companies. She draws on 25 years of executive management expertise covering law, finance, HR, business and governance, to bring a practical and pragmatic approach to her board contributions. Over the Wire Holdings Limited (ASX:OTW) Directorships held in other listed entities during the three years prior to the current year Xenith IP Group Limited (ASX:XIP) between 2015 and August 2019 Interest in Shares and Options 24,593 ordinary shares and options to acquire 100,000 ordinary shares 1 1 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 KYM GALLAGHER Company Secretary and Chief Financial Officer Appointed 12 October 2018 Qualifications Bachelor of Economics, Member of Chartered Accountants ANZ Other Current Directorships None Experience Appointed Company Secretary on 12 October 2018. Kym has considerable experience as the CFO and other senior management roles of numerous ASX listed companies, commencing with RG Capital Radio (ASX:REG) in 2000, followed by Macquarie Media Group (ASX:MMG) in 2005 and Southern Cross Media (ASX:SXL) in 2010 Directorships held in other listed entities during the three years prior to the current year None Interest in Shares and Options 100,000 ordinary shares and options to acquire a further 175,000 ordinary shares M OR G AN BRYANT Company Secretary and Group General Counsel Appointed 19 March 2019 Qualifications Bachelor of Arts (International Studies), Bachelor of Laws, Graduate Diploma of Legal Practice, admitted Barrister and Solicitor of the High Court of Australia Experience Appointed Company Secretary on 19 March 2019. Prior to joining Viva, Morgan spent the first 6-years of his career working privately in various legal and marketing roles, including with a large multi-national privately-held company, before spending a further 7-years in various executive roles within Government. Morgan is an experienced lawyer with a broad practice. Other Current Directorships None Directorships held in other listed entities during the three years prior to the current year None Interest in Shares and Options 5,000 ordinary shares 1 2 D I R E C T O R S ’ R E P O R T PRINCIPAL ACTIVITIES The principal activities of the consolidated group during the financial year were health club operation. No significant change in the nature of these activities occurred during the year. R EVIEW OF OPERATIONS AND F INANCIAL RESULTS Financial highlights for the year: • Statutory total revenues from continuing operations were $31.2 million compared with $7.6 million in the financial year ended 30 June 2018; • Profit before income tax from continuing operations has increased to $4.0 million, compared with $1.6 million in the financial year ended 30 June 2018; • Net Profit After Tax (NPAT) from continuing operations and attributable to members was $2.9 million compared with a financial year ended 30 June 2018 result of $1.3 million; • Cash and cash equivalent reserves available for deployment on acquisitions is strong at $14.4 million, up from $0.5 million in the financial year ended 30 June 2018; and, • There was an increase in net assets of $25.2 million to $25.8 million compared to $0.6 million at the financial year ended 30 June 2018. • Ignoring the impacts of the restructure as described below and in Note 4, and assuming that there was a consistent group structure across the two financial periods: • Statutory total revenues from continuing operations were $33.1 million compared with $24.1 million in the financial year ended 30 June 2018, an increase of 37.1%; • Profit before income tax from continuing operations has increased to $4.3 million, compared with $3.1 million in the financial year ended 30 June 2018, an increase of 36.1%; • Net Profit After Tax (NPAT) from continuing operations and attributable to members was $3.2 million compared with a financial year ended 30 June 2018 result of $2.9 million, an increase of 8.2%; • These results are consistent with the financial information presented in the Company’s prospectus dated 14 May 2019. A summary comparison of the results between 2019, 2018 and the prospectus forecast appears below: Key Information 2019 2018 Increase / (Decrease) % Prospectus Increase / (Decrease) % Total revenue and other income 33,081,934 24,127,453 37.1 32,910,000 EBITDA 7,285,461 5,207,727 39.9 6,812,000 Depreciation and amortisation (2,327,020) (1,536,556) 51.4 (2,399,000) EBIT Finance costs NPBT Tax expense NPAT 4,958,441 3,671,171 35.1 4,413,000 (682,983) (530,597) 28.7 (713,000) 4,275,458 3,140,574 36.1 3,700,000 (1,120,842) (223,905) 400.6 (1,017,000) 3,154,616 2,916,669 8.2 2,683,000 0.5 7.0 (3.0) 12.4 (4.2) 15.6 10.2 17.6 Note: these are 12-month year on year results. Refer to note 4 (b) for further information. 1 3 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 Operational highlights for the financial year: • An increase in operating locations/clubs from 21 to 40; • Member numbers increasing from 35,600 at June 2018 to 54,000 at 30 June 2019; • Strengthening our presence in regional NSW, and entering the regional Victorian market; • The launch of the first hiit republic boutique studio; • Acquisitions completed of xceler8 Fitness (Wagga Wagga, NSW), Elite Physique (Canberra), Absolute Fitness (Goulburn, NSW) and Fitness 24 Seven (Albury (NSW) and Wodonga (Victoria)) SIGNIFICANT CHANGES I N T HE STATE OF AFFAIRS During the year, the following significant changes occurred within the Group: 1. Group Restructure: Subsequent to the financial year ended 30 June 2018, a group restructure occurred whereby the following transactions took place: a. On 31st July 2018 the Company reorganised its share capital by executing a share split of 37,500 ordinary class shares for every one share issued, to increase issued capital to 4,500,000 ordinary shares; b. On 31st July 2018 the Company acquired the businesses of the Club Group Trust for consideration of 11,850,000 shares in the Company; c. On 1st August 2018 the Company acquired the share capital of The Club Group Pty Limited and its subsidiary Club MMM! Pty Limited for consideration of 4,650,000 shares in the Company. As the restructure was determined to occur under the control of the same shareholders, a common control reserve was created in the equity section of the balance sheet. A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that the control is not transitory. Where an entity within the group acquires an entity under common control, the acquirer consolidates the carrying values of the acquired entity’s assets and liabilities from the date of acquisition. The consolidated financial statements of the group include the acquired entity’s income and expenses from the date of acquisition onwards. Any difference between the fair value of the consideration paid/transferred by the acquirer and the net assets/ (liabilities) of the acquired entity are taken to the common control reserve. 2. Pre-IPO Investment: On the 1st August 2018 the Company issued 3,425,000 shares (which were converted to 4,543,296 under the share reconstruction that occurred prior to the IPO. See Note 21.) for a consideration of $3.5 million. The investment was undertaken by a controlled entity of Mark McConnell, a Director of Viva Leisure. The terms of the investment were agreed during the financial year ended 30 June 2018, but was contingent upon a corporate restructure taking place, which did not occur until early in the financial year ended 30 June 2019. The investment was settled immediately after the restructure occurred. The funds from the investment were used to fund the acquisitions described in point 3 below. 3. Acquisition of Xceler8: In September 2018, the Company acquired the business of Xceler8 in Wagga Wagga, New South Wales for cash consideration of approximately $3.2 million in aggregate (see note 28). The acquisition was under a business sale arrangement. As part of the acquisition of Xceler8, Viva Leisure also assumed $380,000 in lease finance liabilities of which $184,000 were paid out at completion. Intangibles resulting from these Acquisitions totalled approximately $2.9 million, comprising member contracts at $720,000 with the balance being goodwill. 4. Acquisition Elite Physique: In September 2018, the Company acquired the business of Elite Physique in the Australian Capital Territory for $575,570. The acquisition was under a business sale arrangement. Intangibles resulting from these Acquisitions totalled $450,000, comprising member contracts at $250k with the balance being goodwill 1 4 D I R E C T O R S ’ R E P O R T 5. Initial Public Offering: 8. Repayment of related party debt The Company undertook an initial public offering of 20 million shares at an issue price of $1.00 to raise $20 million (less costs of the offer). Following Completion of the IPO, the Company repaid $3.36 million in related party debt on 11 June 2019. The offer was completed on 30 May 2019 with the issue of shares occurring on the 31st May 2019 and commencement of trading on the ASX on 7th June 2019. 6. Acquisition of Absolute Fitness In April 2019, the company acquired the business of Absolute Fitness in Goulburn, NSW for cash consideration of approximately $127,000. The acquisition was under a business sale arrangement. 7. Acquisition of Fitness 24/7 In June 2019, the Company acquired the businesses of Fitness 24/7 in the Albury, New South Wales and Wodonga, Victoria for cash consideration of approximately $3.44 million in aggregate (see note 28). The acquisitions were under business sale arrangements. E VE NTS SU B SE Q UE NT TO TH E E ND O F TH E RE P OR TIN G PE RI OD No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the consolidated group, the results of those operations, or the state of affairs of the consolidated group in future financial years. LIK E LY DE VE LO PME NTS AN D E XP E CT ED RE S U LTS OF O PE RAT IO NS Likely developments in the operations of the consolidated group and the expected results of those operations in future financial years have not been included in this report as the inclusion of such information is likely to result in unreasonable prejudice to the consolidated group. D IRECTORS’ MEETINGS The number of meetings of Directors (including meetings of Committees of Directors) held during the year from the date of appointment on 12th October 2018 and the number of meetings attended by each Director is as follows: Director’s name Board Meetings Audit and Risk Committee People and Culture Committee Harry Konstantinou Bruce Glanville Mark McConnell Susan Forrester Where: A 13 13 13 13 B 13 13 13 13 A - - - - B - - - - A - - - - B - - - - • column A: is the number of meetings the Director was entitled to attend • column B: is the number of meetings the Director attended 1 5 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 UNISSUED SHAR ES UNDER OP TI ON Unissued ordinary shares of the Company under option at the date of this report are: Date options granted Expiry date Exercise price of shares ($) Number under option 2 May 2019 2 May 2019 7 June 2019 2 May 2023 2 May 2023 7 June 2024 1.34 1.43 0.00 1,500,000 1,000,000 295,000 2,795,000 These options were issued under either the LTI, Tranche 1 or Tranche 2 Plans (described in Note 20.2 to the financial statements) and have been allotted to individuals on conditions as follows: • LTI Plan Options: The vesting of those options and will be subject to the satisfaction of appropriate service-based conditions and/or performance hurdles determined by the Board. Options issued under the LTI program expire on the earlier of their expiry date or termination of the employee’s employment; • Tranche 1 and Tranche 2 Plan Options: The options are currently vested. Options issued under Tranche 1 and Tranche 2 program expire four years from the date of grant of the options. S HARES ISSUED DURING O R S INCE THE END OF THE YEAR AS A RES ULT OF EXERCISE There have been no issued ordinary shares as a result of the exercise of options during or since the end of the financial year. ENVIRONMENTAL LEGISLAT ION The consolidated group’s operations are not subject to any particular or significant environmental regulation under a law of the Commonwealth or of a State or Territory in Australia. D IVIDENDS There were no dividends paid or declared since the start of the financial year (2018: nil). INDEMNITIES GIVEN TO, AND INSURANCE P REMIUMS PAID FOR, AUDITOR’S AND OFFIC ERS Insurance of Officers During the year, Viva Leisure paid a premium to insure officers of the Group. The officers of the Group covered by the insurance policy include all Directors. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else to cause detriment to the Group. Details of the amount of the premium paid in respect of insurance policies are not disclosed as such disclosure is prohibited under the terms of the contract. The Group has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify any current or former officer of the Group against a liability incurred as such by an officer. No indemnities have been given or insurance premiums paid, during or since the end of the financial year, for any person who is or has been an officer or auditor of the consolidated group. Indemnity of officers The Company has entered into deeds of access, indemnity and insurance with each Director (Director’s Protection Deed) which confirm and extend the Director’s statutory and general law rights of access to Board papers and the books 1 6 D I R E C T O R S ’ R E P O R T and records of the Company and its Subsidiaries. The Director’s Protection Deeds provide that the Director be allowed access to and a copy of records in certain circumstances. • All non-audit services have been reviewed by the audit committee to ensure they do not impact the impartiality and objectivity of the auditor; and • None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. Details of the amounts paid to the auditors of the Company, Hall Chadwick, and its related practices for audit and non-audit services provided during the year are set out in Note 25 to the financial statements. The total paid for non-audit services was $174,907. Director ______________________________ Harry Konstantinou Dated this 28 day of August 2019. In accordance with the Constitution, the Company must indemnify any current and former Directors and officers of the Company and its Subsidiaries against any liability incurred by that person in that capacity, including legal costs. The Director’s Protection Deed also requires the Company to indemnify the Director for liability incurred as an officer of the Company and its Subsidiaries, including reasonably incurred legal costs, to the maximum extent permitted by law. The Constitution also allows the Company to enter into and pay premiums on contracts insuring any liability incurred by any current and former Directors and officers of the Company and its Subsidiaries, which is incurred by them in that capacity, including legal costs. Accordingly, the Director’s Protection Deed requires the Company to maintain, to the extent permitted by law, an insurance policy which insures Directors and officers against liability as a Director or officer of the Company and its Subsidiaries. Indemnity of auditors The Group has agreed to indemnify its auditors, Hall Chadwick, to the extent permitted by law, against any claim by a third party arising from the Group’s breach of its agreement. The indemnity requires the Group to meet the full amount of any such liabilities including a reasonable amount of legal costs. Non-audit services During the year, Hall Chadwick, the Company’s auditors, performed certain other services in addition to their statutory audit duties. The board of directors has considered the position and, in accordance with the advice received from the audit committee, is satisfied that the provision of the non-audit services is compatible with the general standard if independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non- audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: 1 7 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 REM UN ERATION REP OR T (AUDITED) 1 8 R E M U N E R A T I O N R E P O R T ( A U D I T E D ) The Directors of Viva Leisure Ltd (Viva Leisure, the Group, or the Company) present the Remuneration Report for Non-Executive Directors, Executive Directors and other Key Management Personnel, prepared in accordance with the Corporations Act 2001 and the Corporations Regulations 2001. The Remuneration Report is set out under the following main headings: a. Principles used to determine the nature and amount of remuneration; b. Details of remuneration; c. Service agreements; d. Share-based remuneration; and • long term incentives (LTIs), being participation in the form of options. The People and Culture Committee assess the appropriateness of the nature and amount of remuneration on a periodic basis by reference to recent employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and Executive Team. The payment of bonuses, share options and other incentive payments are reviewed by the People and Culture Committee annually as part of the review of executive remuneration and a recommendation is put to the Board for approval. All bonuses, options and incentives must be linked to pre-determined performance criteria. A . PRINCIPLES USED TO DE TE RMI NE T H E N ATURE AND AMOUNT OF R EMU NER AT IO N Short Term Incentives (STIs) The principles of the Group’s executive strategy and supporting incentive programs and frameworks are: • to align rewards to business outcomes that deliver value to shareholders; • to drive a high performance culture by setting challenging objectives and rewarding high performing individuals; and • to ensure remuneration is competitive in the relevant employment market place to support the attraction, motivation and retention of executive talent Viva Leisure has structured a remuneration framework that is market competitive and complementary to the reward strategy of the Group. The Board has established a People and Culture Committee which operates in accordance with its charter as approved by the Board and is responsible for determining and reviewing compensation arrangements for the Directors and the Executive Team. The Committee has engaged independent remuneration consultants to provide any necessary information to assist in the discharge of its responsibilities (refer to the disclosures below). The remuneration structure that has been adopted by the Group consists of the following components: • fixed remuneration being annual salary; • short term incentives (STIs), being cash based payments; Performance measures involve the use of annual performance objectives, metrics, performance appraisals and continuing emphasis on living the Company values. The performance measures are set annually after consultation with the Directors and executives and are specifically tailored to the areas where each executive has a level of control. The measures target areas the Board believes hold the greatest potential for expansion and profit and cover financial and non-financial measures. Entitlement to an annual STI payment for the Executive Team is subject to the following: • the achievement of targets as against key performance indicators (KPIs) and the budget adopted by the Board for the financial year ending 30 June of each year; • a clear audit report for that financial year; • the People and Culture Committee will assess whether those KPIs have been achieved or otherwise and provide a recommendation to the Board; • where the KPIs are only partially achieved, the Board will, wholly at its sole discretion, determine the basis upon which any STI payment will be calculated in those circumstances; and • any STI amount is only payable upon finalisation of the financial accounts by the Company. 1 9 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 Long Term Incentives (LTIs) Use of Remuneration Consultants Viva Leisure Limited’s Board engaged the services of Crichton + Associates to review and to provide recommendations in respect of the amount and elements of executive remuneration, including short-term and long-term incentives. Gadens were engaged to design the long-term incentives plan and associated documentation. Under the terms of the engagement, Crichton + Associates and Gadens provided remuneration recommendations as defined in section 9B of the Corporations Act 2001 and were paid $8,225 and $25,000 respectively for these services. Each of Crichton + Associates and Gadens have confirmed that the above recommendations have been made free from undue influence by members of the Group’s key management personnel. Crichton + Associates and Gadens were engaged by, and reported directly to, the Board of Directors. The agreement for the provision of remuneration consulting services of each consultant was executed by the Chair of the Board of Directors on behalf of the Board. The reports containing the remuneration recommendations was provided by Crichton + Associates and the documentation related to the long-term incentives plan and associated documentation by Gadens were provided directly to the Chair of the Board of Directors. The Board is satisfied that the recommendations were made free from undue influence from any members of the key management personnel. The table below describes the performance hurdles EPS CAGR over the three Financial Years Ending 30 June 2021 Percentage of Options that Vest Less than 15% (minimum Target) 15% to 20% (within target range) 0% 50% - 100% (on a straight-line basis) Greater than 20% (above maximum target) 100% and vesting conditions that apply as at the date of the Prospectus and in relation to the 295,000 options granted to senior executives: Earnings per Share (EPS) Cumulative Compound Annual Growth Rate (CAGR) The percentage of options that vest for each % EPS CAGR is illustrated in the following table: • For the purposes of the above performance hurdles, Earnings per Share means the Basic EPS recorded in the Company’s audited financial statements. • The Basic EPS may be adjusted for items which the Board, in its discretion, considers should be excluded from the EPS result (such as items of a one-off and non-recurring nature). • The Company’s Basic EPS for FY2019 will be calculated following the IPO and confirmation of the number of Shares on issue as at the date of listing. • The Performance Hurdle will be tested only once the Vesting Condition has been met by the grantee senior executive and following the Company’s audited accounts being finalised for FY2021. 2 0 R E M U N E R A T I O N R E P O R T ( A U D I T E D ) B .DETAILS OF REMUNERAT ION Details of the nature and amount of each element of the remuneration of each Key Management Personnel (KMP) of Viva Leisure are shown in the table below.: Directors and other Key Management Personnel Short-term Employee Benefits Post- employment Benefits Long-term Benefits Share-based Payments Performance based on % of Remuneration Employee Year Cash salary and fees Cash bonus Super- annuation Long service leave Termination benefits Options Total Executive Directors Harry Konstantinou 2019 2 7 3 , 1 1 1 84,375 22,840 107,885 (Managing Director) 2018 230,000 - 2 0,139 Non-executive Directors Bruce Glanville* 2019 73,194 200,000* (Independent) 2018 66,833 Mark McConnell 2019 60,000 (Non-Independent) 2018 41,666 Susan Forrester 2019 68,750 (Independent) 2018 - - - - - - - - - - - - - - - - - - - - - - - - - - - 127,552 615,763 34.42% - 250,139 11,064 284,258 - - - 66,833 60,000 41,666 5,532 74,282 - - Nil Nil Nil Nil Nil Nil Nil *Rollins Consulting, an associated entity of Mr Bruce Glanville was paid a $200,000 incentive fee for a successful initial public offering. Note: Directors were paid as Advisory Board members until their appointment on 12th October, 2018. Directors and other Key Management Personnel Short-term Employee Benefits Post- employment Benefits Long-term Benefits Share- based Payments Performance based on % of Remuneration Employee Year Cash salary and fees Cash bonus Super- annuation Long service leave Termination benefits Options Total Other Key Management Personnel Kym Gallagher (Chief Financial Officer) Angelo Konstantinou (Chief Technology Officer) Sean Hodges (Chief Operating Officer) 2019 231,718 56,250 23,945 8,055 2018 172,869 25,000 16,583 236 2019 176,029 42,063 15,356 50,769 2018 145,000 - 13,775 - 2019 164,267 25,000 14,564 9,459 2018 148,205 6,000 14,080 7,533 2019 Total 2019 1,047,069 407,688 76,705 176,168 2018 Total 2018 804,573 31,000 64,577 7,769 - - - - - - - - 5,532 325,500 - 214,688 5,532 289,749 - - - 158,775 213,290 175,818 155,212 1,862,842 - 907,919 19.0% 11.6% 16.4% Nil 11.7% 3.4% 30.2% 3.4% 2 1 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Fixed remuneration At Risk Short-Term Incentives (STI) At risk options Executive Directors Harry Konstantinou Other Key Management Personnel Kym Gallagher Angelo Konstantinou Sean Hodges 450,000 112,500 127,552 300,000 219,000 169,725 75,000 54,750 25,000 5,532 5,532 - Since the long-term incentives are provided exclusively by way of options, the percentages disclosed also reflect the value of remuneration consisting of options, based on the value of options expensed during the year. C . SERVICE AGREEMENTS Remuneration and other terms of employment for the Executive Directors and other Key Management Personnel are formalised in a Service Agreement. The major provisions of the agreements relating to remuneration are set out below: Employee Base Salary Harry Konstantinou Kym Gallagher Angelo Konstantinou Sean Hodges 425,000 275,000 200,000 155,000 Term of Agreement Notice Period Three years Six months Three years Three months Three years Three months Three years Three months 2 2 R E M U N E R A T I O N R E P O R T ( A U D I T E D ) D. SHARE-BASED REMUNERATION All options refer to options over ordinary shares of the Company, which are exercisable on a one-for- one basis under the terms of the agreements. Options granted to the Executive Team are under the LTI Plan and under Tranche 1 and Tranche 2 Plans: • LTI Plan Options: The vesting of those options and will be subject to the satisfaction of appropriate service-based conditions and/or performance hurdles determined by the Board; • Tranche 1 and Tranche 2 Plan Options: These options are currently vested. Options granted under the LTI, Tranche 1 and Tranche 2 Plans carry no dividends or voting rights. Details of options over ordinary shares in the Company that were granted as remuneration to each key management personnel are set out in the table below. Non-Executive Directors are not entitled to participate in the LTI Plan. There were no options granted at the beginning of the year. No options under the LTI Plan have been exercised or forfeited during the year. Employee Number granted Grant date Value per Option at Grant Date Value of Options at Grant Date Number Vested Exercise Proceeds ($) Vesting and First Exercise Date Last Exercise Date Directors and other Key Management Personnel Executive Directors Tranche 1 1,000,000 2 May 2019 $0.055 $55,320 Harry Konstantinou Tranche 2 1,000,000 2 May 2019 $0.072 $77,232 LTI 170,000 7 June 2019 - - Non-Executive Directors Bruce Glanville Tranche 1 200,000 2 May 2019 $0.055 $11,064 Susan Forrester Tranche 1 100,000 2 May 2019 $0.055 $5,532 Other Key Management Personnel Kym Gallagher Angelo Konstantinou Tranche 1 100,000 2 May 2019 $0.055 $5,532 LTI 75,000 7 June 2019 - - Tranche 1 100,000 2 May 2019 $0.055 $5,532 LTI 50,000 7 June 2019 - - - - - - - - - - - - - - - - - - - - 7 June 2019 2 May 2023 7 June 2019 2 May 2023 7 June 2022 7 June 2024 7 June 2019 2 May 2023 7 June 2019 2 May 2023 7 June 2019 2 May 2023 7 June 2022 7 June 2024 7 June 2019 2 May 2023 7 June 2022 7 June 2024 2 3 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 S HARES HELD BY DIRECTORS AND K E Y MANAG E ME NT PE RS O N NE L The number of ordinary shares in the Company during the 2019 reporting period held by each of the Group’s key management personnel, including their related parties, is set out below: Directors and other Key Management Personnel Balance at Start of Year Granted as Remuneration Received on Exercised Options Shares Purchased Executive Directors Harry Konstantinou 23,230,502 Non-Executive Directors Bruce Glanville Mark McConnell Susan Forrester Other Key Management Personnel Kym Gallagher - - - - Angelo Konstantinou 23,230,502 Sean Hodges - - - - - - - - - - - - - - - Held at the End of the Reporting Period - 23,230,502 300,000 300,000 4,543,296 4,543,296 24,593 24,593 100,000 100,000 - 23,230,502 40,000 40,000 At 30 June 2019 there were no loans outstanding to Directors or Key Management Personnel. 2 4 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 CO R PORATE G OVER NANCE STAT EMENT 2 5 R E M U N E R A T I O N R E P O R T ( A U D I T E D ) The Board is committed to achieving and demonstrating the highest standards of corporate governance. As such, Viva Leisure Ltd and its Controlled Entities (the Group) have adopted the third edition of the Corporate Governance Principles and Recommendations. The Group’s Corporate Governance Statement for the financial year ended 30 June 2019 is dated as at 30 June 2019 and was approved by the Board on 23 September 2019. The Corporate Governance Statement is available on Viva Leisure’s Investor Relations website at https://investors.vivaleisure.com.au. 2 6 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 AUDITOR’S I N DE PENDENCE DEC LA RATION 2 72 72 7 A U D I T O R ’ S I N D E P E N D E N C E D E C L A R A T I O N 2 82 8 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 CO NSOLIDATED STATEMENT OF PROFIT O R LOSS AND OT HER COMPRE HE NSIVE INCOME FOR THE Y EA R EN DED 3 0 J UNE 2 019 2 9 2 9 C O N S O L I D A T E D S T A T E M E N T O F P R O F I T O R L O S S A N D O T H E R C O M P R E H E N S I V E I N C O M E Sales revenue Other income Rental expense Employee benefits expense Bank Charges Advertising and marketing costs Utilities and cleaning Licences and subscriptions Insurances Repairs and maintenance Professional fees Depreciation and amortisation expense Finance costs Costs of initial public offering Other expenses Profit before income tax Tax expense Profit for the year Total other comprehensive income for the year Note 2019 $ 5 5 6 31,069,941 90,279 (6,742,218) 2018 $ 2,768,323 4,839,175 (700,167) 20 (9,664,619) (2,906,387) (425,835) (1,007,700) (2,383,840) (479,020) (180,255) (625,137) (148,450) (2,201,812) (631,570) (913,619) (1,780,200) 3,975,945 7 9 (1,120,842) 2,855,103 - (200,283) (550,273) (187,819) (96,996) (141,970) (59,670) (247,651) (165,797) (84,395) - (639,153) 1,626,937 (281,914) 1,345,023 - Total comprehensive income for the year 2,855,103 1,345,023 This statement should be read in conjunction with the notes to the financial statements. Earnings per share 23 Cents Cents Basic earnings per share: Earnings from continuing operations Diluted earnings per share: Earnings from continuing operations 5.4 5.2 N/A N/A 3 0 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 CO NSOLIDATED STATEMENT OF FINANC IA L POSIT ION AS AT 30 JUNE 2019 3 1 3 1 C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Other current assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Property, plant and equipment Intangible assets Deferred tax assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Borrowings Contract liabilities Current tax liabilities Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Borrowings Contract Liabilities Provisions Deferred tax liabilities TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Retained earnings TOTAL EQUITY Note 2019 $ 2018 $ 10 11 12 11 15 16 17 18 14 19 17 20 14 19 20 17 21 22 14,385,895 218,443 365,306 535,530 719,641 139,359 14,969,644 1,394,530 114,230 19,196,838 6,564,081 3,460,781 29,335,930 44,305,574 2,542,778 2,274,815 1,299,678 1,495,149 1,176,473 8,788,893 5,668,840 1,294,002 115,937 2,675,844 9,754,623 18,543,516 25,762,058 43,715,691 (21,430,110) 3,476,477 25,762,058 1,644,043 943,455 38,121 223,695 2,849,314 4,243,844 954,417 168,727 89,312 386,615 29,490 1,628,561 1,844,364 18,344 - 131,081 1,993,789 3,622,350 621,494 120 - 621,374 621,494 This statement should be read in conjunction with the notes to the financial statements. 3 2 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 CONSOLIDATE D STATEMEN T O F CHANGES IN EQUITY FO R TH E Y E AR ENDED 30 JUN E 201 9 3 3 3 3 C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y F O R T H E Y E A R Share Capital $ Reserves $ Retained Earnings (Accumulated a) $ Total Equity $ Balance at 30 June 2017 Comprehensive income Profit for the year Total comprehensive profit for the year attributable to members of the entity Total transactions with owners and other transfers Balance at 30 June 2018 Balance at 1 July 2018 Transactions with owners 120 - - - 120 120 Issue of shares, net of transaction costs and tax 22 ,7 1 5, 57 1 Issue of shares under group restructure 21,000,000 - - - - - - - - - Common control reserve arising from group restructure Share option premium reserve - - (21,585,321) 155,211 Total transactions with owners 43,715,571 (21,430,110) (723,649) (723,529) 1,345,023 1,345,023 1,345,023 1,345,023 1,345,023 1,345,023 621,374 621,494 621,374 621,494 - - - - - 22 ,7 1 5,57 1 21,000,000 (21,585,321) 155,211 22,285,461 Profit for the period Total comprehensive profit for the year attributable to members of the entity - - - - 2,855,103 2,855,103 2,855,103 2,855,103 Balance at 30 June 2019 43,715,691 (21,430,110) 3,476,477 25,762,058 This statement should be read in conjunction with the notes to the financial statements. 3 4 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 CONSOLIDATE D STATEMEN T O F CASH FLOWS FOR THE YEA R ENDED 30 JUN E 201 9 3 5 3 5 C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S F O R T H E Y E A R CASH FLOWS FROM OPERATING ACTIVITIES Note Receipts from customers Payments to suppliers and employees Interest received Payments of tax Net cash provided by / (used in) operating activities 24 CASH FLOWS FROM INVESTING ACTIVITIES 2019 $ 2018 $ 35,881,038 4,358,637 (27,470,717) (4,503,243) 35,699 (469,785) 7,976,235 85 - (144,521) Purchase of property, plant and equipment (3,928,258) (262,858) Proceeds from sale of property, plant and equipment Purchase of intangibles Payments for business combinations, net of cash acquired 168,882 (335,431) (7,121,033) - - - Net cash (used in) investing activities (11,215,840) (262,858) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Direct costs of issue of shares Lease payments Proceeds from borrowings Repayment of borrowings Interest paid Net cash provided by financing activities Net increase in cash held Cash at beginning of financial year Cash acquired under Group restructure 23,500,000 (951,652) (1,986,449) - (3,480,228) (631,570) 16,450,101 13,210,496 535,530 639,869 - - (150,633) 671,272 - (84,395) 436,244 28,865 506,665 - Cash at end of financial year 10 14,385,895 535,530 This statement should be read in conjunction with the notes to the financial statements. 3 6 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 NOT ES TO THE CON SO LIDATE D FINANCI AL STATEMENTS F O R THE YEAR EN DED 3 0 J UNE 2 01 9 3 7 3 7 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 NOTE 1 - NATURE OF OPERATIONS AASB 9 Financial Instruments The principal activities of the consolidated group during the financial year were health club operations. No significant change in the nature of these activities occurred during the year. NOTE 2 - GENERAL INFORMAT IO N AND STATEMENT OF COMPLIANC E The consolidated general purpose financial statements of the Group have been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB). Compliance with Australian Accounting Standards results in full compliance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Viva Leisure Limited is a for-profit entity and statements are prepared on accruals basis under the historical cost convention. Viva Leisure Limited is the Group’s Ultimate Parent Company. Viva Leisure Limited is a Public Company incorporated and domiciled in Australia. The address of its registered office and its principal place of business is Unit 7, 141 Flemington Road, Mitchell, ACT, Australia. The consolidated financial statements for the year ended 30 June 2019 were approved and authorised for issue by the Board of Directors on 27 August 2019. N OT E 3 - CHANGES IN SIGNIFICANT ACCOUNTING POLICIES The same accounting policies and methods of computation have been followed in this financial report as were applied in the most recent annual financial statements, taking into account the previous year’s financial statements were prepared on an aggregated basis. Amended Standards Adopted by the Group which do not have a Material Impact Group has considered the implications of following new or amended Accounting Standards below. AASB 9 Financial Instruments replaces AASB 139 Financial Instruments: Recognition and Measurement. It makes major changes to the previous guidance on the classification and measurement of financial assets and introduces an ‘expected credit loss’ model for impairment of financial assets. When adopting AASB 9, the Group has opted not to restate prior periods. Differences arising from the adoption of AASB 9 in relation to classification, measurement, and impairment are recognised in opening retained earnings as at 1 July 2018. There was no impact from the adoption of this standard. AASB 15 Revenue from contracts with customers AASB 15 replaces AASB 118 Revenue, AASB 111 Construction Contracts and several revenue-related Interpretations. Except for a limited number of exceptions, including leases, the new revenue model in AASB 15 applies to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers. The core principle of the Standard is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. The Directors determined that the application of this standard does not impact the way the Group has historically recognised its revenue. NOTE 4 - S U MMARY O F ACCO UN TIN G PO LI CIE S a. Overall Considerations The consolidated financial statements have been prepared using the significant accounting policies and measurement bases summarised below. 3 8 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 b. Basis of Consolidation The Group financial statements consolidate those of the Parent Company and all of its subsidiaries as of 30 June 2019. The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of 30 June. Refer to Note 29 for the list of subsidiaries. All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. Subsequent to the FY2018 year end, a group restructure occurred whereby the following transactions took place: a. On 31st July 2018 the Company reorganised its share capital by executing a share split of 37,500 ordinary class shares for every one share issued, to increase issued capital to 4,500,000 ordinary shares; b. On 31st July 2018 the Company acquired the businesses of the Club Group Trust for consideration of 11,850,000 shares in the Company; c. On 1st August 2018 the Company acquired the share capital of The Club Group Pty Limited and its subsidiary Club MMM! Pty Limited for consideration of 4,650,000 shares in the Company. As the restructure was determined to occur under the control of the same shareholders, a common control reserve was created in the equity section of the balance sheet. A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that the control is not transitory. Where an entity within the group acquires an entity under common control, the acquirer consolidates the carrying values of the acquired entity’s assets and liabilities from the date of acquisition. The consolidated financial statements of the group include the acquired entity’s income and expenses from the date of acquisition onwards. Any difference between the fair value of the consideration paid/transferred by the acquirer and the net assets/ (liabilities) of the acquired entity are taken to the common control reserve. The impact of these transactions is that prior to the restructure certain entities and businesses under common control were not consolidated for financial reporting purposes for the comparative period to 30 June 2018, and not restated in the numbers presented in this report. The table below at b. (i) provide details of the Statement of Profit or Loss and Other Comprehensive Income if those entities and businesses were included for the comparative period to 30 June 2018. In addition, the consolidated group as presented in this report contains approximately 11 months of results post restructure. The table below at b. (ii) provide details of the Statement of Profit or Loss and Other Comprehensive Income if those entities and businesses were included for the 12 months. 3 93 9 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 b. (i) Comparative Period - Statement of Profit or Loss and Other Comprehensive Income for the Year Ended 30 June 2018 Sales revenue Other income Rental expense Employee benefits expense Bank Charges Advertising and marketing costs Utilities and cleaning Licences and subscriptions Insurances Repairs and maintenance Professional fees Depreciation and amortisation expense Finance costs Costs of initial public offering Other expenses Profit before income tax Tax expense Profit for the year Total other comprehensive income for the year Year Ended 30 June 2018 Aggregated $ As Presented $ 24,101,642 25,811 (4,907,908) 2,768,323 4,839,175 (700,167) (8,337,129) (2,906,387) (247,571) (619,199) (2,029,513) (322,247) (160,465) (467,099) (254,854) (1,536,556) (530,597) - (200,283) (550,273) (187,819) (96,996) (141,970) (59,670) (247,651) (165,797) (84,395) - (1,573,741) (639,153) 3,140,574 1,626,937 (223,905) (281,914) 2,916,669 1,345,023 - - Total comprehensive income for the year 2,916,669 1,345,023 The accompanying notes form part of these financial statements. 4 0 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 b. (ii) 12 Month’s Results - Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2019 Sales revenue Other income Rental expense Employee benefits expense Bank Charges Advertising and marketing costs Utilities and cleaning Licences and subscriptions Insurances Repairs and maintenance Professional fees 12 Months $ As Presented $ 32,991,655 31,069,941 90,279 90,279 (7,123,775) (6,742,218) (10,186,787) (9,664,619) (425,835) (425,835) (1,009,800) (1,007,700) (2,539,302) (2,383,840) (496,736) (180,255) (658,880) - (479,020) (180,255) (625,137) (148,450) Depreciation and amortisation expense (2,327,020) (2,201,813) Finance costs Costs of initial public offering Other expenses Profit before income tax Tax expense Profit for the year Total other comprehensive income for the year (682,983) (913,619) (2,261,484) 4,275,458 (1,120,842) 3,154,616 - (631,570) (913,619) (1,780,199) 3,975,945 (1,120,842) 2,855,103 - Total comprehensive income for the year 3,154,616 2,855,103 The accompanying notes form part of these financial statements. Earnings per share Cents Cents Basic earnings per share: Earnings from continuing operations Diluted earnings per share: Earnings from continuing operations 6.0 5.7 5.4 5.2 4 14 1 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 c. Business Combinations The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition- date fair values. Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of: (a) fair value of consideration transferred, (b) the recognised amount of any non- controlling interest in the acquiree, and (c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately. See note 16. d. Fair Value of Assets and Liabilities Where applicable, the Group measures some of its assets and liabilities at fair value on either a recurring or non-recurring basis, depending on the requirements of the applicable Accounting Standard. Fair value is the price the Group would receive to sell an asset or would have to pay to transfer a liability in an orderly (ie unforced) transaction between independent, knowledgeable and willing market participants at the measurement date. As fair value is a market-based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to the characteristics of the specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. To the extent possible, market information is extracted from either the principal market for the asset or liability (ie the market with the greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the entity at the end of the reporting period (ie the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs). For non-financial assets, the fair value measurement also takes into account a market participant’s ability to use the asset in its highest and best use or to sell it to another market participant that would use the asset in its highest and best use. The fair value of liabilities and the entity’s own equity instruments (excluding those related to share-based payment arrangements) may be valued, where there is no observable market price in relation to the transfer of such financial instruments, by reference to observable market information where such instruments are held as assets. Where this information is not available, other valuation techniques are adopted and, where significant, are detailed in the respective note to the financial statements. e. Revenue Revenue is derived mainly from the sale of health club membership services to its customers. To determine whether to recognise revenue, the Group follows a 5-step process: i. Identifying the contract with a customer; ii. Identifying the performance obligations iii. Determining the transaction price iv. Allocating the transaction price to the performance obligations v. Recognising revenue when/as performance obligation(s) are satisfied The health club membership services revenue stream focuses on providing customers with access to the groups’ gym facilities. Revenue is recognised as the customers are provided access to the gym. Under AASB 15: Revenue from Contracts with Customers, this happens over time as customers pay in advance of receipt of this service. The consideration received in advance of providing these services is recognized as a contract liability. Therefore, revenue is recognised over time as the customer consumes these services. The transaction 4 2 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 price is determined with reference to the contract price as stated in the customers contract. Interest revenue is recognised using the effective interest method, which for floating rate financial assets is the rate inherent in the instrument. All revenue is stated net of the amount of goods and services tax. f. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is necessary to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed in the period in which they are incurred and reported in finance costs. h. Other Intangible Assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of acquisition. Intangible assets acquired separately are initially recognised at cost. Intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in the profit or loss arising from derecognition of an intangible asset is measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangibles are reviewed annually. Changes in expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. g. Goodwill i. Plant and Equipment Goodwill represents the future economic benefits arising from a business combination that are not individually identified and separately recognised. Each class of plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses. Goodwill is carried at cost less any accumulated impairment losses. Goodwill is calculated as the excess of the sum of: i. the consideration transferred at fair value; ii. any non-controlling interest (determined under either the fair value or proportionate interest method); and iii. the acquisition date fair value of any previously held equity interest; over the acquisition date fair value of any identifiable assets acquired and liabilities assumed. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the separate financial statements. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is tested for impairment annually and is allocated to the Group’s cash-generating units or groups of cash-generating units, representing the lowest level at which goodwill is monitored and not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity disposed of. Plant and equipment are measured on the cost basis and are therefore carried at cost less accumulated depreciation and any accumulated impairment losses. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss. A formal assessment of recoverable amount is made when impairment indicators are present (refer to Note 4 k. for details of impairment). The cost of fixed assets constructed within the consolidated group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the consolidated group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised as expenses in profit or loss in the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including buildings and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line basis over the asset’s useful life to 4 34 3 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 the consolidated group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Depreciation Rate Plant and equipment Furniture and fittings Motor Vehicles Leased plant and equipment Leasehold improvements 10-40% 10-20% 15-25% 5-20% 5-20% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or losses are recognised in profit or loss when the item is derecognised. j. Leases Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset – but not the legal ownership – are transferred to the consolidated group, are classified as finance leases. Finance leases are capitalised by recognising an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as expenses on a straight- line basis over the lease term. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term. k. Impairment Testing of Goodwill, Other Intangible Assets and Property, Plant and Equipment For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors goodwill. Cash-generating units to which goodwill has been allocated (determined by the Group’s management as equivalent to its operating segments) are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value-in- use. To determine the value-in-use, management estimates expected future cash flows from each cash- generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group’s latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect management’s assessment of respective risk profiles, such as market and asset-specific risks factors. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge is reversed if the cash- generating unit’s recoverable amount exceeds its carrying amount. 4 4 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 l. Financial Instruments Subsequent measurement financial assets Recognition, initial measurement and derecognition Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument, and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss, which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities are described below. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Classification and subsequent measurement Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with AASB 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable) For the purpose of subsequent measurement, financial assets other than those designated and effective as hedging instruments are classified into the following categories upon initial recognition: • • • • amortised cost fair value through profit or loss (FVPL) equity instruments at fair value through other comprehensive income (FVOCI) debt instruments at fair value through other comprehensive income (FVOCI) Classifications are determined by both: • • The entities business model for managing the financial asset The contractual cash flow characteristics of the financial assets All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables, which is presented within other expenses. Financial assets at amortised cost Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVPL): • • they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. Impairment of Financial assets AASB 9’s impairment requirements use more forward looking information to recognize expected credit losses – the ‘expected credit losses (ECL) model’. Instruments within the scope of the new requirements include loans and other debt-type financial assets measured at amortised cost and FVOCI, trade receivables, contract assets recognised and measured under AASB 15 and loan commitments and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss. The Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument. In applying this forward-looking approach, a distinction is made between: • • financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’) and financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (‘Stage 2’). 4 54 5 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 ‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date. The carrying amount of financial assets measured at amortised cost includes the loss allowance relating to that asset. ‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are recognised for the second category. Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument. Low credit risk operational simplification approach If a financial asset is determined to have low credit risk at the initial reporting date, the Group assumes that the credit risk has not increased significantly since initial recognition. In order to make such a determination that the financial asset has low credit risk, the Group applies its internal credit risk ratings or other methodologies using a globally comparable definition of low credit risk. A financial asset is considered to have low credit risk if: • • • there is a low risk of default by the borrower; the borrower has strong capacity to meet its contractual cash flow obligations in the near term; adverse changes in economic and business conditions in the longer term may, but not necessarily will, reduce the ability of the borrower to fulfil its contractual cash flow obligations. A financial asset is not considered to carry low credit risk merely due to existence of collateral, or because a borrower has a risk of default lower than the risk inherent in the financial assets, or lower than the credit risk of the jurisdiction in which it operates. Recognition of expected credit losses in financial statements At each reporting date, the Group assesses the credit risk and recognises a loss allowance if appropriate. Any movement in the loss allowance from prior year is treated as an impairment gain or loss in the statement of profit or loss and other comprehensive income. Classification and measurement of financial liabilities As the accounting for financial liabilities remains largely unchanged from AASB 139, the Group’s financial liabilities were not impacted by the adoption of AASB 9. However, for completeness, the accounting policy is disclosed below. The Group’s financial liabilities include borrowings, trade and other payables. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss. Subsequently, financial liabilities are measured at amortised cost using the effective interest method. All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income. Trade and other payables Trade and other payables represent the liabilities for goods and services received by the consolidated group that remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 30 days of recognition of the liability. m. Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes all expenses directly attributable to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. n. Income taxes Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity. 4 6 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 Current income tax assets and / or liabilities comprise those obligations to, or claims from, the Australian Taxation Office (ATO) and other fiscal authorities relating to the current or prior reporting periods that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred income taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with investments in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted by the end of the reporting period. Deferred tax assets are recognised to the extent that it is probable that they will be able to be utilised against future taxable income, based on the Group’s forecast of future operating results which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. Deferred tax liabilities are always provided for in full. Deferred tax assets and liabilities are offset only when the Group has a right and intention to set off current tax assets and liabilities from the same taxation authority. Changes in deferred tax assets or liabilities are recognised as a component of tax income or expense in profit or loss, except where they relate to items that are recognised in other comprehensive income (such as the revaluation of land) or directly in equity, in which case the related deferred tax is also recognised in other comprehensive income or equity, respectively. Viva Leisure Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the consolidated financial statements. o. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. p. Employee Benefits Short-term employee benefits Provision is made for the consolidated group’s obligation for short-term employee benefits. Short-term employee benefits are benefits (other than termination benefits) that are expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service, including wages, salaries and sick leave. Short- term employee benefits are measured at the (undiscounted) amounts expected to be paid when the obligation is settled. The consolidated group’s obligations for short- term employee benefits such as wages, salaries and sick leave are recognised as part of current trade and other payables in the statement of financial position. Other long-term employee benefits Provision is made for employees’ long service leave and annual leave entitlements not expected to be settled wholly within 12 months after the end of the annual reporting period in which the employees render the related service. Other long-term employee benefits are measured at the present value of the expected future payments to be made to employees. Expected future payments incorporate anticipated future wage and salary levels, durations of service and employee departures and are discounted at rates determined by reference to market yields at the end of the reporting period on government bonds that have maturity dates that approximate the terms of the obligations. Upon the remeasurement of obligations for other long- term employee benefits, the net change in the obligation is recognised in profit or loss as part of employee benefits expense. The consolidated group’s obligations for long- term employee benefits are presented as non- current provisions in its statement of financial position, except where the consolidated group does not have an unconditional right to defer settlement for at least 12 months after the 4 74 7 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 end of the reporting period, in which case the obligations are presented as current provisions. All employees of the consolidated group receive defined contribution superannuation entitlements, for which the consolidated group pays the fixed superannuation guarantee contribution (currently 9.5% of the employee’s average ordinary salary) to the employee’s superannuation fund of choice. All contributions in respect of employees’ defined contribution entitlements are recognised as an expense when they become payable. The consolidated group’s obligation with respect to employees’ defined contribution entitlements is limited to its obligation for any unpaid superannuation guarantee contributions at the end of the reporting period. All obligations for unpaid superannuation guarantee contributions are measured at the (undiscounted) amounts expected to be paid when the obligation is settled and are presented as current liabilities in the consolidated group’s statement of financial position. q. Share-based Employee Remuneration The Group operates equity-settled share-based remuneration plans for its employees (see note 20). None of the Group’s plans feature any options for a cash settlement. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the equity instruments granted. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example profitability and sales growth targets and performance conditions). All share-based remuneration is ultimately recognised as an expense in profit or loss with a corresponding credit to share option reserve. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options, the proceeds received net of any directly attributable transaction costs are allocated to share capital up to the nominal (or par) value of the shares issued with any excess being recorded as share premium. r. Provisions Provisions are recognised when the consolidated group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result, and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period. s. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of financial position. 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 ATO, are presented as operating cash flows included in receipts from customers or payments to suppliers. t. Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. The comparatives reflect the consolidated group. Refer to Note 4(d) for the aggregated year on year results. Where the consolidated group retrospectively applies an accounting policy, makes a retrospective restatement of items in the financial statements or reclassifies items in its financial statements, a third statement of financial position as at the beginning 4 8 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 of the preceding period in addition to the minimum comparative financial statements is presented. v. New Accounting Standards for Application in Future Periods u. Critical Accounting Estimates and Judgements The directors evaluate estimates and judgements incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the consolidated group. Key estimates and uncertainty Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different. Impairment In assessing impairment, management estimates the recoverable amount of each asset or cash- generating unit based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate. Useful lives of depreciable assets Management reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets. Inventories Management estimates the net realisable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realisation of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices. Business combinations Management uses valuation techniques in determining the fair values of the various elements of a business combination. Particularly, the fair value of contingent consideration is dependent on the outcome of many variables that affect future profitability. AASB 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019). When effective, this Standard will replace the current accounting requirements applicable to leases in AASB 117: Leases and related Interpretations. AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases. The main changes introduced by the new Standard include: • recognition of a right-to-use asset and liability for all leases (excluding short-term leases with less than 12 months of tenure and leases relating to low-value assets); • depreciation of right-to-use assets in line with AASB 116: Property, Plant and Equipment in profit or loss and unwinding of the liability in principal and interest components; • variable lease payments that depend on an index or a rate are included in the initial measurement of the lease liability using the index or rate at the commencement date; • by applying a practical expedient, a lessee is permitted to elect not to separate non- lease components and instead account for all components as a lease; and • additional disclosure requirements The transitional provisions of AASB 16 allow a lessee to either retrospectively apply the Standard to comparatives in line with AASB 108 or recognise the cumulative effect of retrospective application as an adjustment to opening equity on the date of initial application. At inception of a contract, the group assess whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contracts conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the group assesses whether: • The contract involves the use of an identified asset – this may be explicitly or implicitly and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; 4 94 9 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 • The Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and • The Group has the right to direct the use of the asset. The Group has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Group has the right to direct the use of the asset if either: • The Group has the right to operate the asset; or • The Group has designed the asset in a way that predetermines how and for what purpose it will be used. At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. However, for the leases of land and buildings in which it is a lessee, the Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component. The group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or at the end of the lease term. The estimated useful lives of right-of-use asset are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discounted rate. Lease payments included in the measurement of the lease liability comprise the following: • fixed payments, including in-substance fixed payments; • variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; • amounts expected to be payable under a residual value guarantee; and • the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal • period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the • Group is reasonably certain not to terminate early. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right- of-use asset has been reduced to zero. The Group presents the right-of-use assets that do not meet the definition of investment property in ‘property, plant and equipment’ and lease liabilities in ‘loans and borrowings’ in the statement of financial position. Short-term leases The Group has elected not to recognise lease liabilities for short-term leases that have a lease term of 12 months or less. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. AASB 16 impacts AASB 16 applies to financial years commencing on or after 1 January 2019. While not early adopting AASB 16, Viva Leisure has estimated the impact of the application of this accounting standard to include: 5 0 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 • the take up of the initial Lease Liability of • the removal of deferred rental and deferred approximately $77 million and Right of Use Asset of approximately $78 million and related deferred tax; fitout incentive liabilities of approximately $1.5m million currently shown in the historical balance sheet and related deferred tax; and • the take up of a provision for make good of approximately $2.1 million and related deferred tax; • the net balance of the above transactions will be taken to opening retained earnings and is approximately $0.4 million. NOT E 5 - REVENUE AND OTH ER INCO ME Revenue from contracts with customers Other sources of income Other income Total revenue and other income 2019 $ 31,069,941 35,699 31,105,640 54,580 2018 $ 2,768,323 4,839,175 7,607,498 - 31,160,220 7,607,498 5a 5b 5c The group operates in one segment, health club services. a. Revenue from contracts with customers: 31,069,941 2,768,323 Timing of revenue recognition Over time Total revenue from contracts with customers b. Other revenue: Interest received Trust distribution received Shared services income Total other revenue c. Other income: Gain on disposal of property, plant and equipment Total other income NOTE 6 - PROFIT FOR THE Y E AR Profit before income tax from continuing operations includes the following specific expenses: Rental expense on operating leases • Minimum lease payments 5 15 1 31,069,941 31,069,941 2,768,323 2,768,323 35,699 - - 35,699 54,580 54,580 85 1,027,175 3,811,915 4,839,175 - - 2019 $ 2018 $ 6,742,218 700,167 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 NOTE 7 - FIN ANCE COSTS AND FINANC E I NCO M E Interest expense from borrowings at amortised cost: External entities Interest expenses for finance lease arrangements Total interest expense 2019 $ 2018 $ 209,127 422,443 631,570 - 84,395 84,395 NOTE 8 - SEGMENT REPORTING Management have determined that the Group operates in one business segment – health club operation; and one geographic segment. NOTE 9 - INCOME TAX EXPE NS E The major components of tax expense and the reconciliation of expected tax expense based on the effective tax rate of Viva Leisure Limited at 27.5% (2018: 27.5%) and the reported tax expense in profit or loss are as follows: Profit before tax Domestic tax rate Expected tax expense Adjustment for non-deductible expenses: Non-deductible expenses Prior year’s over provision of tax Actual tax expense / (income) Tax expense comprises Current tax expense Deferred tax expense 2019 $ 2018 $ 3,927,857 1,626,937 27.5% 1,080,161 52,022 (11,341) 1,120,842 1,465,952 (345,110) 1,120,842 30.0% 488,081 7,327 (213,494) 281,914 367,751 (85,837) 281,914 5 2 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 NOTE 10 - CASH AND CASH E Q UIVALE NTS Cash at bank and on hand Short-term bank deposits Cash backed bank guarantees 2019 $ 2018 $ 3,392,562 384,280 10,000,000 993,333 14,385,895 - 151,250 535,530 The effective interest rate on short-term bank deposits was 2.49% (2018: 0.5%); these deposits have an average maturity of 90 days. NOTE 10 - CASH AND CASH E Q UIVALE NTS Current Trade receivables Other receivables Non-current Bonds held Loans to other related parties Total trade and other receivables 2019 $ 2018 $ 202,184 16,260 218,444 114,230 - 114,230 332,674 716,765 2,876 719,641 - 1,644,043 1,644,043 2,363,683 The net carrying of trade receivables is considered a reasonable approximation of fair value. All of the Group’s trade and other receivables are within current terms and therefore at 30 June 2019 there is no expected losses recognised. NOTE 12 - OTHER CURRENT ASS E TS Current Stock on hand Prepayments 5 35 3 2019 $ 2018 $ 167,989 197,317 365,306 24,405 114,954 139,359 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 NOTE 13 - FINANCIAL ASS ETS A ND LI AB ILI TI E S 13.1 Categories of financial assets and liabilities Note 4 l. provides a description of each category of financial assets and financial liabilities and the related accounting policies. The carrying amounts of financial assets and financial liabilities in each category are as follows: Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Current borrowings Trade and other payables Non-current borrowings Notes Amortised Cost 2019 $ Total 20 20119 $ 10 11 14 18 14 14,385,895 14,385,895 332,674 332,673 14,718,569 14,718,568 2,274,815 2,542,778 2,274,815 2,542,778 5,668,840 5,668,840 10,486,433 10,486,433 The financial instrument classifications in the prior period are in accordance with AASB 139 as follows: Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Current borrowings Trade and other payables Non-current borrowings Notes Amortised Cost 2018 $ Total 2018 $ 10 11 14 18 14 535,530 2,363,684 2,899,213 535,530 2,363,683 2,899,213 168,727 954,417 168,727 954,417 1,844,364 1,844,364 2,967,508 2,967,508 A description of the Group’s financial instrument risks, including risk management objectives and policies is given in Note 31. Financial assets and financial liabilities measured at fair value in the statement of financial position are measured at amortised cost. 5 4 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 NOTE 14 - BORROWINGS 2019 $ 2018 $ 2019 $ 2018 $ At amortised cost: Finance lease liabilities 2,274,815 168,727 5,668,840 Loans from other related parties - - - 210,786 1,633,578 2,274,815 168,727 5,668,840 1,844,364 There are several asset specific security interests registered on the PPS Register against each of the following members of the Group: Finance lease liabilities are secured against the underlying leased equipment and are at an average interest rate of 6.2%. • Viva Leisure Operations Pty Ltd; • The Club Group (Greenway) Pty Limited; • The Club Group Pty Ltd; and • Psycle Life Pty Ltd. These security interests generally relate to equipment finance leases for the provision of gymnasium equipment, office equipment and motor vehicles for the purposes of the ordinary trading of the Group. The related party loan was unsecured, and the interest rate payable was nil. This amount was offset as an elimination under the Group’s restructure. The carrying amount of the finance lease liabilities is considered to be a reasonable approximation of the fair value. 5 55 5 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 N OTE 15 - PROPERTY, PLANT AND EQ U IPM E NT Details of the Group’s property, plant and equipment and their carrying amounts are as follows: Plant and Equipment Furniture and Fittings Motor Vehicles Leasehold Improvements Leased Plant and Equipment Total $ $ $ $ $ $ Gross carrying amount Balance at 1 July 2018 Additions 110,360 833,852 4,880 55,428 Acquisitions through Group 1,192,901 258,833 restructure 73,421 99,990 53,925 327,854 426,940 943,455 3,539,046 5,505,706 10,034,022 2,630,936 4,503,478 8,640,073 Acquisitions through business 1,119,508 101,844 - 228,975 167,806 1,618,133 combination Disposals (41,592) - (26,069) - (46,639) (114,300) Depreciation expense (360,146) (50,686) (33,187) (350,880) (1,129,646) (1,924,545) Carrying amount at 30 June 2019 2,854,883 370,299 168,080 6,375,931 9,427,645 19,196,838 Plant and Equipment Furniture and Fittings Motor Vehicles Leasehold Improvements Leased Plant and Equipment Total $ $ $ $ $ $ Gross carrying amount Balance at 1 July 2017 Additions Depreciation expense Carrying amount at 30 June 2018 85,735 43,125 (18,500) 110,360 5,482 - 43,147 42,478 (602) (12,204) 324,369 22,301 (18,816) 356,537 148,960 815,270 256,864 (78,557) (128,679) 4,880 73,421 327,854 426,940 943,455 All depreciation and impairment charges are included within depreciation, amortisation and impairment of non-financial assets. 5 6 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 NOTE 16 - INTANGIBLES Details of the Group’s intangibles and their carrying amounts are as follows: Goodwill Customer Contracts Trademarks Capitalised Software Digital Assets $ $ $ $ $ Total $ - - - - - - 1,432 36,689 - 38,121 4,582 317,800 13,050 335,432 37,926 76,515 - 114,441 4,773,354 1,570,000 10,000 - - 6,353,354 Gross carrying amount Balance at 1 July 2018 Additions Acquisitions through Group restructure Acquisitions through business combination Amortisation expense - (180,327) (3,470) (93,309) (161) (277,267) Carrying amount at 30 June 2019 4,773,354 1,389,673 50,470 337,695 12,889 6,564,081 Goodwill Customer Contracts Trademarks Capitalised Software Digital Assets $ $ $ $ $ Total $ Gross carrying amount Balance at 1 July 2017 Additions Amortisation expense Carrying amount at 30 June 2018 - - - - - - - - 1,606 67,392 6,244 (174) (36,947) 1,432 36,689 - - - - 68,998 6,244 (37,121) 38,121 All amortisation is included in within depreciation and amortisation expense. 16.1 Impairment Testing For the purpose of annual impairment testing, the Group has one cash-generating unit which is expected to benefit from the synergies of the business combinations in which the goodwill arises. The following key assumptions were used in the value-in-use calculations: Growth Rate Discount Rate Health Clubs 3% 8% The recoverable amount above is determined based on value-in-use calculations. Value-in-use is calculated based on the present value of cash flow projections over a five-year period plus a terminal value calculated using a terminal growth rate of 3% less selling costs as determined by management. The present value of the expected cash flows is determined by applying an estimated weighted average cost of capital (WACC) of 8.0%. 5 75 7 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 16.2 Growth Rates The growth rates reflect the estimated long-term average growth rates for mature health clubs. 16.3 Discount Rates The discount rates reflect appropriate adjustments relating to market risk and any specific risk factors. 16.4 Cash Flow Assumptions Management’s key assumptions include stable profit margins, based on past experience in this market. The Group’s management believes that this is the best available input for forecasting this mature market. Cash flow projections reflect stable profit margins achieved immediately before the budget period. No expected efficiency improvements have been taken into account and prices and wages reflect publicly available forecasts of inflation for the industry. Apart from the considerations described in determining the value-in-use of the cash-generating units described above, management is not currently aware of any other probable changes that would necessitate changes in its key estimates. 5 8 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 NOTE 17 - TAX 1 July 2018 Acquired Businesses under Group Reconstruction Recognised in Equity Recognised in Profit and Loss 30 June 2019 $ $ $ $ $ Non-Current Assets Property, plant and equipment 5,768 (1,308,053) Leased assets Other intangible assets Non-Current Liabilities Provisions Lease liabilities Deferred legal costs Current Liabilities Provisions Accruals Lease liabilities Contract liabilities Equity Costs of IPO put direct to equity (117,408) 16,361 - 57,966 6,001 8,110 61,494 46,400 7,922 - 92,614 Non-Current Assets Property, plant and equipment Leased assets Other intangible assets Non-Current Liabilities Lease liabilities Deferred legal costs Current Liabilities Provisions Accruals Lease liabilities Contract liabilities - (5,274) - 541,952 77,414 180,339 - 405,375 88,077 - - - - - - - - - - 1,224,800 (77,485) (2,475,194) (2,592,602) (16,843) (5,757) 171,408 959,013 100,091 171,408 1,558,931 183,507 (4,444) (36,744) 173,799 322,701 184,005 24,750 625,574 418,700 - (20,170) 367,383 367,383 (73,477) 293,906 345,110 784,937 1 July 2017 Recognised in Profit and Loss 30 June 2018 $ $ $ - - - - - - - - - 5,768 5,768 (117,408) (117,408) 16,361 16,361 57,966 6,001 57,966 6,001 8,110 61,494 46,400 7,922 92,614 8,110 61,494 46,400 7,922 92,614 All deferred tax assets have been recognised in the statement of financial position. Tax Payable CURRENT Income tax payable 5 95 9 2019 $ 2018 $ 1,495,149 386,615 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 N OT E 18 - TRADE AND OTHE R PAYAB L ES CURRENT Trade payables Sundry payables and accrued expenses 2019 $ 2018 $ 1,533,550 1,009,228 2,542,778 307,163 647,253 954,416 All amounts are short-term. The carrying values of trade and other payables are considered to be the fair value. NOT E 19 - CONTRAC T LIABILITIE S CURRENT Amounts received in advance for sale of gym memberships Operating lease fitout incentives received Operating lease rent incentives received NON-CURRENT Operating lease fitout incentives received Operating lease rent incentives received Total contract liabilities Refer to note 4 e. for the revenue recognition policy. 2019 $ 2018 $ 1,071,135 174,121 54,422 1,299,678 1,006,400 287,602 1,294,002 2,593,680 78,849 - 10,463 89,312 - 18,344 18,344 107,656 6 0 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 NOTE 20 - EMPLOYEE REMUNERATIO N 20.1 Employee benefits - expense Expenses recognised for employee benefits are analysed below: Wages and salaries Employee leave entitlements Share based payments Superannuation Employee Benefits Expense 2019 $ 2018 $ 8,289,001 2,540,256 537,523 155,211 682,884 140,732 - 225,399 9,664,619 2,906,387 20.2 Share-Based Employee Remuneration As at 30 June 2019, the Company maintained a Long-Term Incentive (LTI) share-based payment scheme for employee remuneration, which will be settled in equity. In addition, the Company has issued Tranche 1 and Tranche 2 options. Options granted to the Executive Team are under the LTI Plan and under Tranche 1 and Tranche 2 Plans: • LTI Plan Options: The vesting of those options and will be subject to the satisfaction of appropriate service-based conditions and/or performance hurdles determined by the Board; • Tranche 1 and Tranche 2 Plan Options: These options are currently vested. Options granted under the LTI, Tranche 1 and Tranche 2 Plans carry no dividends or voting rights. Long Term Incentives (LTIs) The table below describes the performance hurdles and vesting condition that apply as at the date of the Prospectus and in relation to the 295,000 options granted to senior executives: Earnings per Share (EPS) Cumulative Compound Annual Growth Rate (CAGR) The percentage of options that vest for each % EPS CAGR is illustrated in the following table: EPS CAGR over the three Financial Years Ending 30 June 2021 Percentage of Options that Vest Less than 15% (minimum Target) 15% to 20% (within target range) Greater than 20% (above maximum target) 0% 50% - 100% (on a straight-line basis) 100% • For the purposes of the above performance hurdles, Earnings per Share means the Basic EPS recorded in the Company’s audited financial statements. • The Company’s Basic EPS for FY2019 will be calculated following the IPO and confirmation of the number of Shares on issue as at the date of listing. • The Basic EPS may be adjusted for items • The Performance Hurdle will be tested only which the Board, in its discretion, considers should be excluded from the EPS result (such as items of a one-off and non-recurring nature). once the Vesting Condition has been met by the grantee senior executive and following the Company’s audited accounts being finalised for FY2021. All options refer to options over ordinary shares of the Company, which are exercisable on a one-for- one basis under the terms of the agreements. There were no share options exercised during the reporting period. 6 16 1 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 LTI Tranche 1 Tranche 2 No of Options No of Options No of Options 295,000 1,500,000 1,000,000 - - - 295,000 1,500,000 1,000,000 - 1,500,000 1,000,000 Outstanding at 1 July 2018 Granted Exercised Outstanding at 30 June 2019 Exercisable at 30 June 2019 The fair values of options granted were determined using the Black Scholes option pricing model. The following principal assumptions were used in the valuation: Grant date Vesting period ends Share price at grant date Volatility Option Life Dividend yield Risk free investment rate Fair value at grant date Exercise price at date of grant Exercisable from LTI Tranche 1 Tranche 2 No of Options No of Options No of Options 7 June 2019 7 June 2019 7 June 2019 Release of FY2021 results 1.00 25% 7 June 2019 7 June 2019 1.00 25% 1.00 25% 5 years 4 years 4 years 0% 2% 82,979 1.34 0% 2% 72,232 1.43 7 June 2019 7 June 2019 0% 2% Nil Nil Release of FY2021 Results Exercisable to 7 June 2024 2 May 2023 2 May 2023 Weighted average remaining contractual life 4.95 Years 3.94 Years 3.94 Years The underlying expected volatility was determined by reference to historical data of comparable listed entities over a period of time. No special features inherent to the options granted were incorporated into measurement of fair value. In total, $155,211 (2018: $nil) of employee remuneration expense (all of which related to equity-based payment transactions) has been included in profit or loss and credited to share option reserve. 20.3 Employee benefits - liabilities Current: Employee leave entitlements Non-Current: Employee leave entitlements Total employee obligations 2019 2018 1,176,473 29,490 115,937 - 1,292,410 29,490 6 2 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 NOTE 21 - EQUITY 21.1 Share Capital The share capital of Viva Leisure consists only of fully paid ordinary shares. All shares are equally eligible to receive dividends and the repayment of capital and represent one vote at the shareholders’ meeting of Viva Leisure. Shares issued and fully paid: Beginning of the year Shares issued Group restructure Share reconstruction Initial Public Offer (less costs of offer) Total contributed equity at 30 June Capital Management 2019 Shares 2018 Shares 2019 $ 2018 $ 120 120 120 120 3,425,000 21,000,000 7,974,880 20,200,000 52,600,000 - - - - 3,500,000 21,000,000 - 19,215,571 - - - 120 43,715,691 120 Management controls the capital of the Group in order to maintain a sustainable debt to equity ratio, generate long-term shareholder value and ensure that the Group can fund its operations and continue as a going concern. The Group’s debt and capital include ordinary share capital and financial liabilities, supported by financial assets. The Group is not subject to any externally imposed capital requirements. Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the Group since the prior year. This strategy is to ensure that the Group’s gearing ratio remains below 70%. The gearing ratios for the years ended 30 June 2019 and 30 June 2018 are as follows: 2019 $ 7,943,655 14,385,895 (6,442,240) 25,762,058 2018 $ 2,013,091 535,530 1,477,561 621,494 19,319,818 2,099,055 N/A 70.4% Total borrowings Less cash and cash equivalents Net debt Total equity Total capital Gearing ratio 6 36 3 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 NOTE 22 - RESERVES a. Common Control Reserve A common control reserve was created when the Group restructure took place as it was determined to occur under the control of the same shareholders. A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that the control is not transitory. Where an entity within the group acquires an entity under common control, the acquirer consolidates the carrying values of the acquired entity’s assets and liabilities from the date of acquisition. The consolidated financial statements of the group include the acquired entity’s income and expenses from the date of acquisition onwards. Any difference between the fair value of the consideration paid/transferred by the acquirer and the net assets/ (liabilities) of the acquired entity are taken to the common control reserve. Common Control Reserve Measurement under Group restructure Movement in common control reserve b. Share Options Reserve 2019 $ 2018 $ (21,585,321) (21,585,321) The share option reserve records items recognised as expenses on valuation of employee share options. Share Options Reserve Issue of options to key management personnel Movement in share options reserve 2019 $ 2018 $ 155,211 155,211 - - - - 6 4 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 NOTE 23 - EARNINGS PER S HARE AND D IV IDE NDS 23.1 Earnings per Share Both the basic and diluted earnings per share have been calculated using the profit attributable to shareholders of the Parent Company as the numerator (i.e. no adjustments to profit were necessary in 2019 or 2018). The reconciliation of the weighted average number of shares for the purposes of diluted earnings per share to the weighted average number of ordinary shares used in the calculation of basic earnings per share is as follows: Weighted average number of shares used in basic earnings per share* 52,600,000 Shares deemed to be issued for no consideration in respect of options granted 2,795,000 Weighted average number of shares used in diluted earnings per share 55,395,000 N/A N/A N/A 2019 2018 $ $ *The weighted average shares are calculated from the date of listing on 7th June 2019. 23.2 Dividends There were no dividends declared or paid during the year (2018: nil) 23.3 Franking Credits The amount of franking credits available for subsequent reporting periods are: Balance at the end of the reporting period Franking credits that will arise from payment of the amount of provision for income tax Total franking credits 2019 2018 $ $ 485,676 12,087 1,495,149 - 1,980,825 12,087 6 56 5 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 NOTE 24 - RECONCILIATION OF CAS H F LOWS Cash flows from operating activities Profit after income tax Non-cash flows in profit — depreciation and amortisation — net (gain)/loss on disposal of property, plant and equipment — interest expenses included in financing activities — tax effect of expenses taken to equity — charges to common control reserve — charges to share options reserve — (increase)/decrease in trade and term debtors — (increase)/decrease in other assets — (increase)/decrease in deferred tax — increase/(decrease) in payables — increase/(decrease) in current tax — increase/(decrease) in other liabilities — increase/(decrease) in provisions Net cash from operating activities Non-cash Financing and Investing Activities Share issue: 2019 $ 2018 $ 2,855,103 1,345,023 2,201,813 (54,580) 631,570 167,383 (194,349) 155,211 322,987 (57,825) (526,293) 165,797 - 84,395 - - - 176,456 41,955 (85,837) (840,004) (1,600,305) 1,000,513 1,707,563 607,143 367,751 (655,978) 16,222 7,976,235 (144,521) Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries 200,000 shares were granted to Bruce Glanville as consideration for services performed during the group’s listing on the ASX. These have been reflected as a cost of capital in the statement of financial position. Finance Lease Additions: During the year the group had additions to property, plant and equipment via way of finance lease of $6,146,560. 6 6 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 NOTE 25 - AUDITOR REMUNE RAT IO N Remuneration of the auditor for: Audit and review of financial statements Financial year ended 30 June 2019 Financial year ended 30 June 2018 Total audit services Other non-audit services Financial year ended 30 June 2016* Half year ended 31 December 2018* Taxation and business services Investigating Accountant services for the initial public offering Total non-audit services Total auditor remuneration *These relate to work performed as part of the Group’s listing on the ASX. 2019 $ 2018 $ 43,500 - 43,500 26,500 18,148 40,050 90,209 174,907 218,407 - 35,000 35,000 - - - - - 35,000 NOTE 26 - RELATED PARTY T RANSACT IO NS The Group’s related parties include key management of the Group which are considered to be any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. Related parties continue to own several properties which are leased by the Group as described below. The Board considers that each of these arrangements are on arm’s length terms, commercial terms and are subject to the usual risks associated with other leases entered by the Company. The Board has obtained independent valuation advice to confirm that the arrangements are arm’s length. A related party, KGFUND Pty Ltd and The Club Group Pty Ltd (a Subsidiary of the Company) were parties to a loan agreement under which KGFUND Pty Ltd has advanced a loan to The Club Group Pty Ltd in the amount of $3.4 million (KGFUND Loan). The KGFUND Loan was repaid by the Company on behalf of the Club Group Pty Ltd on 14th June 2019. On the repayment of the KGFUND Loan, the loan agreement was terminated and the Group has no outstanding liabilities owing to KGFUND Pty Ltd. 26.1 Transactions with Key Management Personnel Short-term Employee Benefits: Wages and salaries (including bonuses and Annual Leave entitlements) Superannuation Total short-term employee benefits Long service leave Total other long-term benefits Share-based payments Total remuneration 6 76 7 2019 $ 2018 $ 1,454,757 835,573 76,705 64,577 176,168 7,769 155,212 - 1,862,842 907,919 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 Short-term employee benefits These amounts include fees and benefits paid to the non-executive Chair and non-executive directors as well as all salary, paid leave benefits, fringe benefits and cash bonuses awarded to executive directors and other KMP. Post-employment benefits These amounts are the superannuation contributions made during the year. Other long-term benefits These amounts represent long service leave benefits accruing during the year, long-term disability benefits and deferred bonus payments. Share-based payments These amounts represent the expense related to the participation of KMP in equity-settled benefit schemes as measured by the fair value of the options granted on grant date (see Note 20.2). Further information in relation to KMP remuneration can be found in the directors’ report and at Note 20. 2019 $ 2018 $ 26.2 Related Party Properties Total related party property transactions 2,537,853 - NOT E 27 CONTINGENT LIAB ILIT IE S The company has no contingent assets or liabilities. 6 8 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 NOTE 28 - BUSINESS COMB INATIONS a. Elite Physique – Phillip, ACT On 10 September 2018, the Group acquired the health club business Elite Physique (Elite) from Changing Shapes Pty Limited for a purchase consideration of $575,570. The acquisition is part of the Group’s overall strategy to expand into existing territories where it sees demand for its services. The purchase was satisfied by the payment of $575,570. Fair value of consideration transferred Amount settled in cash Recognised amounts of identifiable net assets acquired Plant and equipment Intangible assets Total non-current assets Trade and other receivables Total current assets Trade and other payables Other liabilities Total current liabilities Identifiable net assets Goodwill on acquisition Net cash outflow on acquisition Acquisition costs charged to the profit and loss Net cash paid relating to the acquisition $ 575,570 200,000 250,000 450,000 859 859 (1,297) (73,992) (75,289) 375,570 200,000 575,570 4,250 579,820 i. ii. Consideration transferred Acquisition-related costs amounting to $4,250 are not included as part of consideration transferred and have been recognised as an expense in the consolidated statement of profit or loss and other comprehensive income, as part of other expenses. Identifiable net assets The fair value of the trade and other receivables acquired as part of the business combination amounted to $859. The Directors believe the receivables are fully recoverable and no provision for impairment is required. The fair value of identifiable intangible assets has been determined taking into consideration forecast sales derived from the existing member base adjusted for estimated churn rates. iii. Goodwill The goodwill that arose on the combination can be attributed to the synergies expected to be derived from the combination and the strong geographic positioning in relation to other Group health clubs which cannot be recognised as an intangible asset. The goodwill that arose from this business combination is not expected to be deductible for income tax purposes. iv. Contribution to the Group’s results Elite contributed $626,975 and $149,892 to the Group’s revenues and profits from the date of the acquisition to 30 June 2019. 6 96 9 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 b. Xceler8 – Wagga Wagga, NSW On 28 September 2018, the Group acquired the health club business, Xceler8 from Xceler8 Fitness Centre Pty Limited for a purchase consideration of $3,229,984. The acquisition is part of the Group’s overall strategy to expand into other territories. The purchase was satisfied by the payment of $2,850,141 plus the payout of certain finance lease liabilities at completion of $183,404 plus the assumption of other finance lease liabilities of $196,439. Fair value of consideration transferred Amount settled in cash Finance lease liabilities paid out Finance lease liabilities assumed Recognised amounts of identifiable net assets acquired Plant and equipment Intangible assets Total non-current assets Trade and other receivables Total current assets Borrowings Total non-current liabilities Provisions Other liabilities Total current liabilities Identifiable net assets Goodwill on acquisition Net cash outflow on acquisition Acquisition costs charged to the profit and loss Net cash paid relating to the acquisition $ 2,850,141 183,404 196,439 3,229,984 616,766 720,000 1,336,766 6,831 6,831 (196,432) (196,432) (134,281) (112,692) (246,973) 900,192 2,133,353 3,033,545 4,250 3,037,795 i. ii. Consideration transferred Acquisition-related costs amounting to $4,250 are not included as part of consideration transferred and have been recognised as an expense in the consolidated statement of profit or loss and other comprehensive income, as part of other expenses. Identifiable net assets The fair value of the trade and other receivables acquired as part of the business combination amounted to $6,831. The Directors believe the receivables are fully recoverable and no provision for impairment is required. The fair value of identifiable intangible assets has been determined taking into consideration forecast sales derived from the existing member base adjusted for estimated churn rates. iii. Goodwill The goodwill that arose on the combination can be attributed to the synergies expected to be derived from the combination and the strong geographic positioning in relation to other Group health clubs which cannot be recognised as an intangible asset. The goodwill that arose from this business combination is not expected to be deductible for income tax purposes. 7 0 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 iv. Contribution to the Group’s results Xceler8 contributed $2,179,879 and $586,154 to the Group’s revenues and profits respectively from the date of the acquisition to 30 June 2019. c. Fitness 24/7 Albury, NSW and Wodonga, Victoria On 14 June 2019, the Group acquired the health club businesses Fitness 24/7 from Changing Shapes Pty Limited for a purchase consideration of $3,439,887. The acquisition is part of the Group’s overall strategy to expand into other territories. The purchase was satisfied by the payment of $3,439,887. Fair value of consideration transferred Amount settled in cash Recognised amounts of identifiable net assets acquired Plant and equipment Intangible assets Total non-current assets Prepayments Total current assets Provisions Other liabilities Total current liabilities Identifiable net assets Goodwill on acquisition Net cash outflow on acquisition Net cash paid relating to the acquisition $ 3,439,887 780,000 610,000 1,390,000 17,180 17,180 (50,074) (277,219) (327,293) 1,079,887 2,360,000 3,439,887 3,439,887 i. ii. Identifiable net assets The fair value of identifiable intangible assets has been determined taking into consideration forecast sales derived from the existing member base adjusted for estimated churn rates. Goodwill The goodwill that arose on the combination can be attributed to the synergies expected to be derived from the combination and the strong geographic positioning in relation to other Group health clubs which cannot be recognised as an intangible asset. The goodwill that arose from this business combination is not expected to be deductible for income tax purposes. iii. Contribution to the Group’s results Fitness 24/7 contributed $104,907 and $39,613 to the Group’s revenues and profits from the date of acquisition to 30 June 2019. d. Absolute Fitness, Goulburn NSW In April 2019, the company also acquired the business of Absolute Fitness in Goulburn, NSW for cash consideration of approximately $127,000, after liabilities of approximately $4,500 were assumed. 7 17 1 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 Proportion of Ownership Interests held by the Group 30 June 2019 30 June 2018 N OT E 29 - INTERESTS IN S UB S IDIARIE S Name of Subsidiary Principal Activity Viva Leisure Limited Parent Viva Leisure Operations Pty Limited Health club operation Viva Leisure People Pty Limited Health club operation Viva Leisure Property Pty Limited Health club operation Viva Leisure Memberships Pty Limited Health club operation Psycle Life Pty Limited The Club Group Pty Limited Health club operation Health club operation The Club Group (Greenway) Pty Limited Health club operation Club MMM! Pty Limited Health club operation HIIT Republic Australia Pty Limited Health club operation Club Lime Pty Limited Club Pink Pty Limited Club Blue Pty Limited Club Swim Pty Limited Club Team Pty Limited Dormant Dormant Dormant Dormant Dormant 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% As part of the Group restructure that occurred during the year the following companies under common control were acquired (refer Note 4(b)): Name of Subsidiary Principal Activity The Club Group Pty Limited Club MMM! Pty Limited Health club operation Health club operation Club Lime Pty Limited Club Pink Pty Limited Club Blue Pty Limited Club Swim Pty Limited Club Team Pty Limited Dormant Dormant Dormant Dormant Dormant 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - 100% - - - - - - - - - - - - - - 7 2 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 NOTE 30 - LEASES 30.1 Finance Leases (as lessee) The majority of the Group’s health club equipment is held under finance lease arrangements. As of 30 June 2019, the net carrying amount of the equipment is $9,427,644 (2018: $426,940) The Group’s finance lease liabilities, which are secured by the related assets held under finance leases, are classified as follows: Current Finance lease liabilities Non-Current Finance lease liabilities 2019 $ 2018 $ 2,274,815 168,727 5,668,840 210,786 Future minimum finance lease payments at the end of each reporting period under review were as follows: 30 June 2019 Lease payments Finance charges Net present values 30 June 2018- Lease payments Finance charges Net present values Minimum Lease Payments Due Within 1 Year $ 1 to 5 Years $ After 5 Years Total $ $ 2,726,832 6,249,321 (452,017) (580,481) 2,274,815 5,668,840 194,374 (25,647) 168,727 232,659 (21,873) 210,786 - - - - - - 8,976,153 (1,032,498) 7,943,655 427,034 (47,520) 379,514 30.2 Operating Leases (as lessee) The Group leases health club and office space under operating leases. The future minimum lease payments are as follows: Minimum Lease Payments Due Within 1 Year $ 1 to 5 Years $ After 5 Years Total $ $ 30 June 2019 30 June 2018 8,807,608 36,944,474 31,410,576 77,162,658 723,364 2,814,433 2,173,576 5,711,373 7 37 3 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 N OT E 31 - FINANCIAL INSTRUMENT R IS K The Group is exposed to various risks in relation to financial instruments. The Group’s financial assets and liabilities by category are summarised in Note 13.1. The main types of risks are market risk, credit risk and liquidity risk. The Group’s risk management is coordinated at its headquarters, in close cooperation with the Board of Directors, and focuses on actively securing the Group’s short to medium-term cash flows by minimising the exposure to financial markets. The Group does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The most significant financial risks to which the Group is exposed are described below. 31.1 Market Risk Analysis The Group is exposed to market risk through its use of financial instruments and specifically to interest rate risk, which result from its operating and investing activities. Short term exposure Long term exposure $ $ 30 June 2019 Financial assets Financial liabilities Total exposure 30 June 2018 Financial assets Financial liabilities Total exposure 14,718,569 (4,817,593) 9,900,976 1,255,171 (1,123,144) 132,027 - (5,668,840) (5,668,840) 1,644,043 (1,844,364) (200,321) Interest rate sensitivity The Group’s policy is to minimise interest rate cash flow risk exposures on long-term financing. Longer- term borrowings are therefore usually at fixed rates. At 30 June 2019, the Group is not exposed to changes in market interest rates as its borrowings are at fixed interest rates. The Group’s investments in term deposits all pay fixed interest rates. The following table illustrates the sensitivity of profit and equity to a reasonably possible change in interest rates of +/- 1% (2018: +/- 1%). These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on a change in the average market interest rate for each period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates. All other variables are held constant. 30 June 2019 30 June 2018 Profit for the Year Equity $ +1% 67,749 1,560 $ -1% (67,749) (1,560) $ +1% 67,749 1,560 $ -1% (67,749) (1,560) 7 4 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 31.2 Credit Risk Analysis Credit risk is the risk that a counterparty fails to discharge an obligation to the Group. The Group is exposed to this risk for various financial instruments, for example receivables to customers, placing deposits, investment in term deposits, etc. Credit risk management The credit risk is managed on a group basis based on the Group’s credit risk management policies and procedures. The credit risk in respect of cash balances held with banks and deposits with banks are managed via diversification of bank deposits, and are only with major reputable financial institutions. The majority of the Group’s customer pay on an upfront basis by way of direct debit and as such, the Group does not provide for bad debts as revenue is not recorded until received. 31.3 Liquidity Risk Analysis Liquidity risk is the risk that the Group might be unable to meet its obligations. The Group manages its liquidity needs by monitoring scheduled debt servicing payments for long-term financial liabilities as well as forecast cash inflows and outflows due in day-to-day business. The data used for analysing these cash flows is consistent with that used in the contractual maturity analysis below. See Note 14 for details of borrowings during the financial periods under review. At 30 June 2019, the Group had no debt facilities in place, apart from finance lease liabilities as described in Note 30. 31.4 Financial Risk Management Within 1 Year 1 to 5 Years Over 5 Years Total 2019 $ 2018 $ 2019 $ 2018 $ 2019 $ 2018 $ 2019 $ 2018 $ Consolidated Group Financial liabilities due for payment Trade and other 2,542,778 954,417 - - - payables Contract liabilities 1,299,678 89,312 261,870 18,344 1,032,132 Finance lease 2,274,815 168,727 5,668,840 210,786 liabilities Amounts payable to related parties Total expected outflows - 1,633,578 - - - 6,117,271 2,846,034 5,930,710 229,130 1,032,132 Financial assets – cash flows realisable Cash and cash 14,385,895 535,530 equivalents Trade receivables 218,443 719,641 114,230 Total anticipated 14,604,338 1,255,171 114,230 - - - - - inflows Net (outflow)/ inflow on financial 8,487,067 (1,590,864) (5,816,480) (229,130) (1,032,132) instruments - - - - - - - - - 2,542,778 954,417 2,593,680 107,656 7,943,655 379,514 - 1,633,578 13,080,113 3,075,165 14,385,895 535,530 332,673 719,641 14,718,568 1,255,171 1,638,455 (1,819,994) 7 57 5 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 NOTE 32 - FAIR VALUE MEAS URE ME NT Financial assets and financial liabilities measured at fair value in the statement of financial position are measured at amortised cost. NOTE 33 - PARENT ENTITY INFO RMATIO N Statement of Financial Position Current Assets Non-Current Assets Total Assets Current Liabilities Non-Current Liabilities Total Liabilities Net Assets Issued Capital Reserves Retained Earnings Total Equity Statement of Profit and Loss and Other Comprehensive Income Profit for the year Other comprehensive income Total Comprehensive Income Guarantees and Security Interests 2019 $ 2018 $ 22,584,246 11,838 22,596,084 12,087 - 12,087 22,583,997 43,715,691 (21,430,110) 298,416 22,583,997 298,665 - 298,665 120 28,494 28,614 28,743 - 28,743 (129) 120 - (249) (129) (249) - (249) There are several asset specific security interests registered on the PPS Register against each of the following members of the Group: • Viva Leisure Operations Pty Ltd; • The Club Group (Greenway) Pty Limited; • The Club Group Pty Ltd; and • Psycle Life Pty Ltd. These security interests generally relate to equipment finance leases for the provision of gymnasium equipment, office equipment and motor vehicles for the purposes of the ordinary trading of the Group. In addition to the asset specific security interests described above, there are also security interests registered on the PPS Register over all of the present and after acquired property of: • Viva Leisure Operations Pty Ltd; and • Viva Leisure Property Pty Ltd, each in favour of the National Australia Bank Limited (NAB). 7 6 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 The security interest registered against Viva Leisure Operations Pty Ltd by NAB relates to a general security deed granted by Viva Leisure Operations Pty Ltd to NAB in connection with a corporate cards facility and a bank guarantee facility. The security interest registered against Viva Leisure Property Pty Ltd by NAB relates to a general security deed granted by Viva Leisure Property Pty Ltd to NAB in connection with a bank guarantee facility. Contractual commitments At 30 June 2019, Viva Leisure Limited has the following contractual commitments. The Company had entered into binding agreements to lease certain rental properties, but the lease terms had not commenced as at the reporting date: Contractual Commitments Within 1 Year $ 1 to 5 Years $ After 5 Years Total $ $ 30 June 2019 30 June 2018 1,785,046 11,504,094 18,618,400 31,907,541 - - - - N OT E 34 - EVENTS AFTER TH E RE POR TI NG PE RI O D The following events occurred after the reporting period: • The acquisition of Project Fitness Group was completed on 24 July 2019 • The acquisition of Fitness 24 Seven Wodonga occurred on the 13 August 2019 N OTE 35 - COMPANY INF ORMATI ON Viva Leisure Limited is the Group’s Ultimate Parent Company. Viva Leisure Limited is a Public Company incorporated and domiciled in Australia. The address of its registered office and its principal place of business is Unit 7, 141 Flemington Road, Mitchell, ACT, Australia. 7 77 7 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 VIVA LEISURE G RO U P DIREC TORS’ DE CLAR AT I ON 1) In the opinion of the Directors of Viva Leisure Ltd: a) The consolidated financial statements and notes of Viva Leisure Ltd are in accordance with the Corporations Act 2001, including: i) Giving a true and fair view of its financial position as at 30 June 2019 and of its performance for the financial year ended on that date; and ii) Complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and b) There are reasonable grounds to believe that Viva Leisure Ltd will be able to pay its debts as and when they become due and payable.; 2) The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2019. 3) Note 2 confirms that the consolidated financial statements also comply with International Financial Reporting Standards. Signed in accordance with a resolution of the Directors. Director ______________________________________________ Harry Konstantinou Dated this 28 day of August 2019. 7 8 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 I ND EP ENDENT AUDITOR’S REPORT 7 9 I N D E P E N D E N T A U D I T O R ’ S R E P O R T 8 0 A Member of PrimeGlobal An Association of Independent Accounting Firms SYDNEY · PENRITH · MELBOURNE · ADELAIDE · PERTH · DARWIN · BRISBANE Liability limited by a scheme approved under Professional Standards Legislation www.hallchadwick.com.au VIVA LEISURE LIMITED ABN 76 607 079 792 AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VIVA LEISURE LIMITED Opinion We have audited the financial report of Viva Leisure Limited (the Company and its and controlled entities “the Group”), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity, and the consolidated statement of cash flows for the year then ended, notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion the accompanying financial report of Viva Leisure Limited and controlled entities is in accordance with the Corporations Act 2001, including: a. giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance for the year ended; and b. complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis of Opinion We conducted our audit in accordance with Australian Auditing Standards. Those Standards require that we comply with 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. Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110: Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the year ended 30 June 2019. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. I N D E P E N D E N T A U D I T O R ’ S R E P O R T VIVA LEISURE LIMITED ABN 76 607 079 792 AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VIVA LEISURE LIMITED Key Audit Matter How Our Audit Addressed the Key Audit Matter Our procedures included, amongst others: • Held discussions with management to understand the nature of the transactions • Obtained and assessed managements calculation of the restructure and support for the transaction values used in finalising the accounting entries • Assessed the appropriateness of the disclosures in the financial statements in relation to the group restructure. Our procedures included, amongst others, the following: • We obtained an understanding of the key controls in the revenue recognition cycle. • Sample tested revenue transactions throughout the year to ensure that revenue was recognised in accordance with AASB 15: Revenue from Contracts with Customers. • We ensured the carrying value of the contract liabilities were accurate and complete. Accounting for Group Restructure Refer to Note 4(b) ‘Basis of consolidation’ During the year ended 30 June 2019 the group underwent a group restructure whereby the company acquired the business of Club Group Trust, The Club Group Pty Limited and its subsidiary Club MMM! Pty Limited. This resulted in a common control reserve of $21,585,321. This was considered a key audit matter as there is significant judgement in determining the transaction values and the accounting complexities of a common control transaction. Revenue Recognition and Contract Liabilities Refer to Note 4(e) ‘Revenue and Other Income’ and Note 19 ‘Contract Liabilities’ Refer to Note 4(e) for the group’s revenue recognition policy. The group recognises revenue from health club membership services and is recognised as the customer consumes these services. Customers pay in advance for these services and this consideration is recorded as contract liability. The revenue recognised for the year ended 30 June 2019 was $31,069,941. At 30 June 2019 the group recognised $1,071,135 in contract liabilities for consideration received in advance for health club membership services. We focused on this area as a key audit matter given the significance of the balance and that there is a risk that revenue may not be recognised in accordance with the revenue recognition principles as set out in AASB 15: Revenue from Contracts with Customers. 8 18 1 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 VIVA LEISURE LIMITED ABN 76 607 079 792 AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VIVA LEISURE LIMITED Key Audit Matter How Our Audit Addressed the Key Audit Matter Accounting for Business Combinations Refer to Note 28 ‘Business Combinations’ During the financial year ended 30 June 2019 the group made a number of acquisitions as disclosed in Note 28. Accounting for acquisitions is complex and involves a number of significant judgements. We focused on this area as a key audit matter due to amounts involved being material and the judgements involved in determining the fair value of the assets acquired and liabilities assumed. Carrying value of goodwill Refer to Note 16 ‘Intangible Assets’ The Group has recognised goodwill of $4,773,354 at 30 June 2019 resulting from business combinations. The assessment of impairment of the group’s goodwill balances incorporated significant judgement in respect of factors such as forecasted revenue, costs, discount rates and terminal growth rates. We have focused on this area as a key audit matter due to amounts involved being material and the inherent subjectivity associated with critical judgements being made in relation to forecasted revenue, costs, discount rates and terminal growth rates. Our procedures included, amongst others, the following: • Reviewing the purchase agreements to understand the terms and conditions of the acquisitions and evaluating management’s assessments under AASB3 Business combinations • Assessing the fair value of the assets acquired and the liabilities assumed • Assessing the adequacy of the Group’s disclosures in the financial statements Our procedures included, amongst others, the following: • Evaluated management’s impairment assessment of goodwill. • Reviewed key inputs in the value-in-use model such as forecasted revenue, costs, discount rates and terminal growth rates. • Involved our valuation specialists to recalculate management’s discount rates based on external data where available. The valuation specialist was also involved in assessing the value-in use model used for valuation methodology including treatment of terminal value calculations and the net present value calculations. • Performed sensitivity analysis on the assumptions used such as terminal growth; and discount rate. • Assessed the Group’s disclosures of the quantitative and qualitative considerations in relation to the valuation of goodwill and other intangible assets, by comparing these disclosures to our understanding of the matter. 8 2 I N D E P E N D E N T A U D I T O R ’ S R E P O R T VIVA LEISURE LIMITED ABN 76 607 079 792 AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VIVA LEISURE LIMITED Information Other than the Financial Report and Auditor’s Report thereon The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2019 but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. Director’s Responsibilities of the Director for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australia Accounting Standards and the Corporations Act 2001 and for such internal control as directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. 8 38 3 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 VIVA LEISURE LIMITED ABN 76 607 079 792 AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VIVA LEISURE LIMITED Auditor’s Responsibility for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: – Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control – – – – – Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 8 4 I N D E P E N D E N T A U D I T O R ’ S R E P O R T 8 58 5 VIVA LEISURE LIMITED ABN 76 607 079 792 AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VIVA LEISURE LIMITED We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report We have audited the remuneration report included as part of the directors’ report for the year ended 30 June 2019. In our opinion, the remuneration report of Viva Leisure Limited for the year ended 30 June 2019 complies with s 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with s 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. HALL CHADWICK Level 40, 2 Park Street Sydney NSW 2000 Sandeep Kumar Partner Dated: 20 August 2019 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 AD DITIONAL I N FO R MATION FOR L ISTED CO MPANIES 8 6 A D D I T I O N A L I N F O R M A T I O N F O R L I S T E D C O M P A N I E S The following information is current as at 30th August 2019 1. DISTRIBUTION OF SHAREH OLDE RS The Distribution of issued capital is as follows: Holding 100,001 and over 10,001 – 100,000 5,001 – 10,000 1,001 – 5,000 1 – 1,000 2. DISTRIBUTION OF OPTIONS Holding 100,001 and over 10,001 – 100,000 5,001 – 10,000 1,001 – 5,000 1 – 1,000 Total No. of Shares Held No. of Shareholders 48,620,298 3,121,570 460,643 377,057 20,432 52,600,000 20 78 59 138 33 328 Total No. of Options Held No. of Shareholders 2,695,000 100,000 - - - 2,795,000 4 1 - - - 5 8 7 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 3 . 20 LARGEST S HAREHOLD ER S Shareholder SHJA MANAGEMENT PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MERA VALE NO 1 PTY LTD NATIONAL NOMINEES LIMITED DOMA EQUITIES PTY LTD CITICORP NOMINEES PTY LIMITED ANGELO KONSTANTINOU HARRY KONSTANTINOU SPIROS KONSTANTINOU JOHN KONSTANTINOU BNP PARIBAS NOMINEES PTY LTD BNP PARIBAS NOMINEES PTY LTD TRENWITH NOMINEES PTY LIMITED MRS LEORA SHAMGAR ROBERT MCCLURE SUPER FUND PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2 BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP MRS KRISTIN JANE ARTHUR MR DEREK HILL & MRS JOANNA HILL BOND STREET CUSTODIANS LIMITED Number Held % of Issued Shares 21,688,434 5,280,708 4,543,296 3,559,816 3,000,000 1,552,321 1,542,068 1,542,068 1,542,067 1,542,067 693,527 600,000 300,000 260,000 250,000 250,000 232,926 128,000 109,000 104,000 41.2% 10.0% 8.6% 6.8% 5.7% 3.0% 2.9% 2.9% 2.9% 2.9% 1.3% 1.1% 0.6% 0.5% 0.5% 0.5% 0.4% 0.2% 0.2% 0.2% 8 8 A D D I T I O N A L I N F O R M A T I O N F O R L I S T E D C O M P A N I E S 4. SUBSTANTIAL S HAREHOLDE RS The names of the substantial shareholders listed in the holding company’s register as at 30 August 2019 are: Shareholder VIVA LEISURE LIMITED* SHJA MANAGEMENT PTY LTD* ANGELO KONSTANTINOU* HARRY KONSTANTINOU* JOHN KONSTANTINOU* SPIROS KONSTANTINOU* HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MERA VALE NO 1 PTY LTD NATIONAL NOMINEES LIMITED DOMA EQUITIES PTY LTD * Nature of relevant interest for Viva Leisure Limited Number of Shares % of Issued Shares 29,515,866 29,515,866 29,515,866 29,515,866 31,057,933 31,057,933 5,280,708 4,543,296 3,559,816 3,000,000 56.1% 56.1% 56.1% 56.1% 59.0% 59.0% 10.0% 8.6% 6.8% 5.7% Viva Leisure Limited has entered into voluntary escrow deeds with respect to fully paid ordinary shares held by: • SHJA Management Pty Ltd; • Harry Konstantinou; • Angelo Konstantinou; • Trenwith Nominees Pty Ltd; and • Mera Vale No.1 Pty Ltd, which restrict disposal of shares as disclosed in the prospectus lodged by Viva Leisure Limited on 14 May 2019 and which gives Viva Leisure Limited a technical relevant interest under s608(1)(c) of the Corporations Act 2001 (Cth) (Act). However the escrow deeds do not restrict the exercise of voting rights attaching to the escrowed securities. By virtue of section 608(3)(a) of the Act (and independent of any shares they individually hold in the Viva Leisure Limited) each of Angelo, Harry, John and Spiros Konstantinou is deemed to have a relevant interest in all shares in which SHJA Management Pty Ltd has a relevant interest. Further, by virtue of section 608(3)(b) of the Act, SHJA Management Pty Ltd is deemed to have a relevant interest in all shares in which Viva Leisure Limited has a relevant interest. ASIC has granted relief modifying section 609 of the Act by removing the relevant interest created under the escrow deeds from the operation of Chapter 6 of the Act. However, under the customary ASIC relief, securities subject to escrow arrangements are included for substantial holding disclosure purposes. 8 9 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 5. LESS THAN MARKETABLE PARCE L O F O RD INARY SH AR E S There is one shareholder with an unmarketable parcel totalling 1 share. 6 . UNQUOTED EQUIT Y S EC URIT IE S The company had the following unquoted securities on issue as at 30 August 2019 Security Unquoted Options No. of Securities 2,795,000 7. RESTRICTED SECURITIES The company had the following restricted securities on issue as at 30 August 2019: Class Fully paid ordinary shares - voluntary escrow Restricted until the earlier of lodgement of the company's financial reports for the year ended 30 June 2020 and 24 months Restricted until the earlier of lodgement of the company's financial reports for the year ended 30 June 2020 and 24 months Restricted until the earlier of lodgement of the company's financial reports for the year ended 30 June 2020 and 24 months Restricted until the earlier of lodgement of the company's financial reports for the year ended 30 June 2020 and 24 months Restricted until the earlier of lodgement of the company's financial reports for the year ended 30 June 2020 and 24 months Number of Shares % of Issued Shares 21,688,434 41.2% 4,543,296 1,542,068 1,542,068 8.6% 2.9% 2.9% 200,000 0.4% 7. VOT ING RIGHTS In accordance with the Constitution each member present at a meeting whether in person, or by proxy, or by power of attorney, or in a duly authorised representative in the case of a corporate member, shall have one vote on a show of hands, and one vote for each fully paid ordinary share, on a poll. Performance rights and Options have no voting rights. 8. ON-MARKET BUY BACKS There is no current on-market buy-back in relation to the Company’s securities 9 0 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 INFORM ATION IN RELATION TO CERTAIN P ROPER TY LEAS ES 9 1 I N F O R M A T I O N I N R E L A T I O N T O C E R T A I N P R O P E R T Y L E A S E S R ELATED PARTY LEASE AGRE E ME NTS The Company received a waiver from Listing 10.1 at time of listing to the extent necessary to permit the Company not to seek shareholder approval in relation to rental payments made during the remaining initial terms of certain lease agreements as set out in the following table. A condition of the ASX waiver is for inclusion of a summary of the material terms of these lease agreements in each annual report of the Company during the terms of the leases. The table below sets out the material terms of these lease agreements. Location Lessor Mitchell Office space Dimensional Developments Australia Pty Ltd Club Lime Mitchell Dimensional Developments Australia Pty Ltd Mitchell Expanded office space Dimensional Developments Australia Pty Ltd Term and options to renew 5 years commencing on 1 August 2018. 3 further options to renew for 5 years each. 5 years commencing on 1 August 2018. 3 further options to renew for 5 years each. 4 years commencing on 1 July 2019. 3 further options to renew for 5 years each. Club Lime and Ladies Only Gym and Pool CISAC Sports Centres Australia Pty Ltd 10 years commencing 1 August 2018. 2 further options to renew for 10 years each. ClubMMM at CISAC Sports Centres Australia Pty Ltd 5 years commencing 1 August 2018. 2 further options to renew for 5 years each. Speedo shop at CISAC Sports Centres Australia Pty Ltd 5 years commencing 1 August 2018. 2 further options to renew for 5 years each. Club Lime Curtin Akon Holdings Pty Ltd 5 years commencing 1 July 2018 2 further options to renew for 5 years each. Club Lime Kambah Jenke Investments Pty Ltd 5 years commencing 1 August 2018. 2 further options to renew for 5 years each. Current annual rent (plus GST) and future increases $96,000 Rent increases by 3% per annum in the initial term, after which the base rent is set by market review on each exercise of the options with further fixed annual increases of 3% per annum. $154,500 Rent increases by 3% per annum in the initial term, after which the base rent is set by market review on each exercise of the options with further fixed annual increases of 3% per annum. $98,880 Rent is fixed yearly (increasing incrementally year on year by 3%) for the initial term of the lease, after which the base rent is set by market review on each exercise of the options with further fixed annual increases of 3% per annum. $1,664,000 Rent is fixed yearly (increasing incrementally year on year by 4%) for the initial term of the lease, after which the base rent is set by market review on each exercise of the options with further fixed annual increases of 4% per annum. $190,736 Rent is fixed yearly (increasing incrementally year on year by 4%) for the initial term of the lease, after which the base rent is set by market review on each exercise of the options with further fixed annual increases of 4% per annum. $36,400 Rent is fixed yearly (increasing incrementally year on year by 4%) for the initial term of the lease, after which the base rent is set by market review on each exercise of the options with further fixed annual increases of 4% per annum. $130,000 Rent is fixed yearly (increasing incrementally year on year by $10,000) for the initial term of the lease, after which the base rent is set by market review on each exercise of the options with further fixed annual increases of 3.5% per annum. $226,500 Rent is fixed yearly (increasing incrementally year on year by 3%) for the initial term of the lease, after which the base rent is set by market review on each exercise of the options with further fixed annual increases of 3% per annum. Club Lime Conder Konstantinou Consultants Pty Ltd as trustee for Ramesses Discretionary Trust 10 years commencing 1 April 2019 2 further options to renew for 10 years each. $320,000 Rent increases by 4% per annum in the initial term, after which the base rent is set by market review on each exercise of the options with further fixed annual increases of 4% per annum. OTHER KEY TERMS The Board considers that the leases are on arms’ length terms which reflect customary provisions commonly found in commercial leases of a similar nature. Set out below are some key terms of these leases (other than those set out in the other columns of this table). Rent is payable in advance by monthly instalments and the lessor may charge daily interest on any late payment at 2% above the rate that would be charged by the lessor’s bank for unsecured overdrafts. On termination of the lease, the lessee is responsible for make good of the premises. The lessee is responsible for maintaining insurance to cover standard risks applicable to a lessee in the health club industry, public liability and for the plate glass on the premises. The lessee releases the lessor from, and indemnifies the lessor against, claims for damages, loss, injury or death. 9 2 V I V A L E I S U R E A N N U A L R E P O R T 2 0 1 9 CO R PORATE D IREC TORY 9 3 C O R P O R A T E D I R E C T O R Y CEO: Harry Konstantinou COMPANY SECRETARIES: Kym Gallagher Morgan Bryant R EGISTERED OFFICE AND PRINCIPAL P LAC E O F B U S IN E SS : Unit 7, 141 Flemington Road, Mitchell ACT 2911 02 6163 8011 investor.relations@vivaleisure.com.au www.vivaleisure.com.au R EGISTERS OF SECURITIES ARE HE LD AT TH E F O LLOW ING A D D RE SS : Link Market Services Level 12, 680 George Street, Sydney NSW 2000 1300 554 474 registrars@linkmarketservices.com.au www.linkmarketservices.com.au STOCK EXCHANGE LISTING Quotation has been granted for all the ordinary shares of the company on all Member Exchanges of the Australian Securities Exchange Limited under the code “VVA”. AUDITORS Hall Chadwick Level 40, 2 Park St, Sydney NSW 2000 9 4
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