Knights Capital Group Limited ABN 39 072 769 174 Financial ... Consol Financials 2018_.pdf ·...

Knights Capital Group Limited ABN 39 072 769 174

Financial Statement

30 June 2018

Contents Page

Directors’ report 2

Lead auditor’s independence declaration 10

Consolidated statement of profit or loss and comprehensive income 11

Consolidated statement of changes in equity 12

Consolidated statement of financial position 13

Consolidated statement of cash flows 14

Notes to the consolidated financial statements 15 – 40

Directors’ declaration 41

Audit report

Knights Capital Group Limited Directors’ Report For the year ended 30 June 2018

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The directors present their report together with the financial statements of Knights Capital Group Limited (‘the Company and/or KCGL’) and of the Group, being the Company and its subsidiaries, for the financial year ended 30 June 2018 and the auditor’s report thereon.

Contents of directors’ report Page

Directors 3

Directors’ activity 4

Principal activities 4

Review and results of operations 5

Remuneration Report 7

Dividends 8

Events Subsequent to Reporting Date 8

Likely developments 8

Registered office 8

Directors’ interests 9

Indemnification and insurance of officers and auditors 9

Lead auditor’s independence declaration 10


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1. Directors

The directors of the Company at any time during or since the end of the financial year are:

Name, qualifications and independence status

Experience, special responsibilities and other directorships

Michael BRITTON B.Juris, LLB, FCIS, GAICD Non-Executive Director, Knights Capital Group Limited (“KCGL”)

• Mr Britton has over 38 years of commercial and financial services experience with a leading reputation in the delivery of independent Responsible Entity services.

• He is a director of Westfield Corporation Limited and Westfield America Management Limited.

• He currently chairs compliance committees of a number of ASX listed and unlisted managed investment schemes operated by the Evans Dixon Group and is a Panel Member for the Financial Complaints Authority.

• He is a member of the NorthWest Healthcare Australia RE Limited and Angas Securities Limited Compliance Committees.

• Director since 1 March 2013.

Grant HODGETTS B.A, Assoc DipVal, AAPI, MAICD Executive Director, KCGL Director, Knights Parks & Properties Pty Ltd (“KP&P”)

• Mr Hodgetts is currently non-executive Chairman of Folkestone Funds Management Limited.

• He is a non-executive Director of Folkestone Investment Management Limited.

• He is a non-executive Director of Cedar Woods Wellard Limited. • He is a Director of Bethley Group Pty Ltd. • He is Principal of Hodgetts and Partners. • Director since 1 March 2013.

Gregory PARAMOR AO FAPI, FRICS Non-Executive Director, KCGL

• Mr Paramor has more than 38 years experience in the Real Estate and Funds Management Industry.

• He is the Managing Director of Folkestone Ltd. • He is a board member of the Sydney Swans. • Director since 1 March 2013.

Grant PRIEST B. Bus, FCA, CTA, Dip.FinSvcs Company Secretary, KCGL Director, KP&P

• Mr Priest is a director of UHY Haines Norton Perth Pty Ltd. • Mr Priest has more than 36 years experience in the financial

services industry. • He is Chairman of the charity Life Plan Recreation and Leisure

Association and co-founded Life Plan in 1999. • Mr Priest is a non-executive director on Ensurance Limited • Mr Priest sits on the Ethics Committee of Princess Margaret

Hospital. • Company Secretary since 14 March 2013.


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2. Directors’ activity

2.1 Directors’ meetings

The number of directors’ meetings and number of meetings attended by each of the directors of the Company during the financial year are:

Attended Eligible to Attend Held

Michael BRITTON 2 2 2 Grant HODGETTS 2 2 2 Gregory PARAMOR 2 2 2

2.2 Audit Committee Meetings

The number of audit committee meetings and number attended by each of the directors of the Company during the financial year are:


Michael BRITTON 2 2 2 Grant HODGETTS 2 2 2 Grant PRIEST 2 2 2

2.3 Directors’ briefings

The number of directors’ briefings and number attended by each of the directors of the Company during the financial year are:


Michael BRITTON 20 20 20 Grant HODGETTS 20 20 20 Gregory PARAMOR 20 20 20

3. Principal activities

The principal activities of the consolidated entity during the financial year, were its operation (through its fully owned subsidiary Knights Parks & Properties Pty Ltd (“KP&P”)) of the Albany Gardens Holiday Resort and the operation of the Albany Gardens Lifestyle Village; investments in Arbortech Industries Ltd; and its investment in listed and unlisted securities (See Note 16). Knights Capital Management Pty Ltd (“KCM”) operations ceased on the wind up of Knights Coastal Land Fund in June 2017. KCM no longer received any management fees, therefore the directors proceeded to wind up the company with deregistration completed in January 2018. There were no other significant changes in the nature of the activities of the Group during the year.


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4. Review and results of operations

Company Overview

The consolidated income statement shows a consolidated loss after tax attributable to members of ($340,750) compared with a profit after tax of $399,815 in 2017. The Group’s income has, in prior years, been dependent upon the return from the Company’s various equity investments; the fee income derived through KCM, its wholly owned funds management subsidiary; and the returns derived from its investment in Knights Coastal Land Fund (‘KCLF’) and Knights Tourist Park Fund (“KTPF”). KCLF and KTPF were wound up in 2017 and 2015 respectively and in July 2017 KCM ceased operations. As a result, the group no longer receives management fees from KCM or a return on its investments in either KCLF or KTPF resulting in a consolidated loss for the group in 2018. The Group continued to focus on maximising the returns from the investments it can directly influence, while monitoring, and influencing where possible, the investment performance of the remaining assets in its portfolio Through its investment in KP&P, the group owns and operates Albany Gardens Lifestyle Village (“the Village”) and Albany Gardens Holiday Resort (“the Resort”). The Village continues to enjoy a reputation for being one of the best villages of its type in Albany. The wet and cold winter in the early months of 2018 and a general downturn in visitation to the Southwest of WA has had a significant downward impact on the turnover and profitability of the Holiday Resort and this has resulted in a reduced contribution to the Group.

As previously disclosed, the Company was advised by the Department of Environment Regulation (“DWER”) in October 2016 that 22 Wellington Street, Centennial Park – Albany Gardens Holiday Resort – was suspected to be possibly contaminated and that investigation was required. The Directors have been advised that the contamination has arisen as a result of diesel previously leaking from a nearby petrol station on Albany Highway. In order to protect its interests, the Company appointed consultants to act on its behalf. A soil sampling regime was established and testing of 22 Wellington Street, Centennial Park was completed by late 2017.The results of the latest sampling indicate that the ‘groundwater impact identified is therefore not considered to pose an unacceptable risk to the human health of residents of this site via vapour intrusion into enclosed spaces.” In addition, the water bore at 22 Wellington Street was sampled again in 2017 and “…hydrocarbons were not detected above the laboratory level of reporting… but further monitoring of the production bore is recommended to ensure that groundwater is suitable for the proposed use.”

Further tests were undertaken in early 2018. As a result, the memorial previously placed on the title of the property is to be replaced by one that has removed most of the conditions affecting the land. Importantly, the replacement memorial reinstates our ability to use ground water in the grounds of the caravan park and it allows the owner to excavate to a depth of one (1) metre without requiring DWER’s regulatory approval. The updated conditions ensure that we can not only minimise our use of town water for the care & maintenance of the grounds, but we will be able to undertake works, including repairs and maintenance, without having to obtain DWER’s approval prior to commencement.

An application to the Australian Securities Investment Commission (‘ASIC’) was made on 21 June 2017 to cancel the AFS Licence of KCM and this was approved on 12 July 2017. The directors then proceeded to commence liquidation of the subsidiary, passing a resolution to return the capital and cancel the shares. An application to deregister KCM was lodged with ASIC on 16 November 2017 with the deregistration completed on 21 January 2018.

An application was made to ASIC on 30 June 2017 to deregister Knights Investments (Aust) Pty Ltd which was a dormant entity of the group. ASIC approved the deregistration on 30 August 2017.

The Group’s investment in Cedar Woods Wellard Ltd (“CWWL”) continues to be detrimentally affected by the slowdown in demand for residential lots in the suburban Perth market, particularly markets to the South of Perth. Emerald Park, the CWWL project, is expected to continue until 2019. The Company received a total of $1,050,000, in two instalments, as a return of capital up to 30 June 2018. Acquired between 2007 and 2012 at a cost of $248,415, the Group’s holding in Discovery Africa (previously Argosy Minerals and Baru Resources) continues to disappoint with a total market value as at 30 June 2018 of $8,605. The investment held in Greatcell Solar Limited (formerly Dyesol Limited) was voluntarily suspended from the ASX on 9 March 2018 and to date remains suspended. Due to the suspension the shares cannot be traded. As both investments would crystallise significant losses if and when they are sold, and the amount received would not be material, it has been decided to retain them in the hope that they may be sold at a later date and at a better price.


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4.

Review and results of operations (cont’d)

The Group retains its long standing investment in the unlisted company, Arbortech Industries Limited, and it notes that the fair value of its investment has increased from $0.86c/share to $1.01c/share – an increase of 17.4% - but we remain disappointed that Arbortech has not progressed with its previously stated intention of creating liquidity in the Company’s shares. While it is a major objective of the Group to realise its investment in Arbortech, it is also the Board’s intention to ensure that the value of the Group’s interest in Arbortech is maximised and not just sold at a price that does not represent its inherent value. As shareholders are aware, the Management Agreement with Bajada & Associates Pty Ltd (“BAA”) was terminated in late July 2013. Proceedings in the Supreme Court of Western Australia by KCGL (“the Company”) against BAA and Mr. Selwyn Bajada claiming, following amendment, $1,298,910.90 as monies wrongly paid by the Company, and the counterclaim by BAA against KCGL, claiming unpaid management fees and performance bonuses of $1,864,331.61, and for special damages for alleged loss of profits in the sum of $6,877,993.92, are continuing. In December 2014, your directors and company secretary applied for summary judgement to dismiss the claim brought by BAA against them. That application was successful and on 4 March 2016 Justice Pritchard of the Supreme Court of Western Australia dismissed BAA’s claim for special damages against your directors and company secretary. BAA appealed the decision of Justice Pritchard but subsequently decided to withdraw its appeal in February 2017. Some costs have been awarded by the Court and BAA has been ordered to pay them. To date, two sets of costs have been paid being $27,018.08 and $56,788.28 (plus $4,406.65 in interest). In addition, and under the terms of the Company’s Directors and Officers insurance policy, Chubb Insurance have contributed toward the costs of litigation. The Company also applied to the Court for security for costs from BAA in relation to its counterclaim. The Court handed down its decision in relation to this application on 24 August 2017 and ordered that not only must BAA provide interim security for costs in the sum of $50,000 by paying that sum into Court which has now been done, it must also pay the Company’s costs of the application for security for costs and gave liberty for the Company to apply for further security for costs. A hearing to consider the Company’s application for the payment of further security for costs is scheduled for October 2018. In addition, we have advised the Court that we are anxious for this litigation to proceed as expeditiously as possible as we have received, and continue to receive, complaints from investors in relation to the time that has elapsed since the writ was issued in June of 2014; the summary judgement application having been heard in December of 2014 and three Court convened mediation hearings have failed to resolve the proceedings. On 11 December 2017 Pritchard J made orders that the trial be provisionally allocated for three weeks in December 2018 and provided the programme and milestone dates that must be met by both parties prior to trial. Pritchard J’s orders provided for a re-convened mediation hearing in May 2018. This was adjourned after no agreement was reached between the parties, and a subsequent mediation conference took place in August 2018 but again, no agreement was reached between the parties. Both parties have complied with the directions for General Discovery and the Company has complied with its obligations in regard to the completion of non-expert witness statements. At a Directions hearing on 14 August 2018, BAA advised the Court that it could not meet the Court’s timetable for the completion of its witness statements and it sought to have the December 2018 trial dates vacated into 2019. The Court rejected the application to vacate the trial dates, but it did give BAA an extension of time until 12 October 2018 to complete its witness statements. Shareholders should be aware that BAA lodged its original defence and counterclaim with the Court in August 2014. Since then, it has lodged an amended defence and counter claim; a re-amended defence and counter claim and three further re-amended defence and counter claims. In August 2018, BAA lodged a substituted defence and counterclaim. BAA has increased its claim for unpaid management fees and performance bonuses from $1,864,331.61 to $2,200,791.90 but has not amended the quantum of its claim for special damages. In addition, BAA changed its legal representation from Hopgood & Ganim to Bennett & Co in February 2017 and, in mid 2017, the solicitor handling the matter on BAA’s behalf left Bennett & Co and a replacement solicitor assumed responsibility for the file.


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4.

Review and results of operations (cont’d)

The manner in which BAA has dealt with this matter has added significant time and cost to the orderly resolution of this matter. The directors are unable to quantify the likely recovery from Bajada & Associates Pty Ltd, or Mr Bajada, nor are they able to quantify the final costs of undertaking this litigation or the time taken to resolve the proceedings. There is little likelihood of these proceedings being resolved before early 2019. While the Company has a strong cash position, and its Directors would like to return capital to shareholders, it is unlikely that the Group will be able to return capital or pay dividends to shareholders until these proceedings are resolved. Significant changes in the state of affairs The consolidated entity’s total assets decreased by $203,067 to $20,029,721 (2017: $20,232,788) over the year. The decrease in total assets principally comprised:

• The increase in cash and cash equivalents to $7,991,584 (2017: $7,212,740) (see Note 13) is primarily due to return of capital from the CCWL Investment;

• The decrease in financial assets to $5,272,307 (2017: $6,280,346) (see Note 16) was primarily a result of the return of capital from CCWL Investment.

The net equity per share for the consolidated entity decreased to 81.48c/share (2017: 82.81c/share), decreasing due to a decrease in total net assets.

The Consolidated entity’s gearing (defined as the ratio of net debt to net debt plus net assets) remained at 0% (2017: 0%) as cash and cash equivalents far exceeded total borrowings for the group at 30 June 2018.

5. Remuneration report

Key management personnel include the executive and non-executive directors of the Company, and the company secretary, together they have the authority and responsibility for planning, directing and controlling the activities of the Company. Mr G Hodgetts was appointed to the Board of Directors of the Company on 1 March 2013 becoming an executive director of the Company at that time. Mr Hodgetts is a director of Bethley Group Pty Ltd, and principal of Hodgetts and Partners, and these entities have been entitled to receive Director’s fees, travel allowances and the reimbursement of expenses, as remuneration for the services provided by Mr. Hodgetts. Of the remuneration listed below for Mr Hodgetts, $50,000 relates to a bonus considered appropriate by the independent non-executive directors and accrued at year end. Mr Hodgetts also receives a per diem allowance which is listed as “other” remuneration.


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Details of the nature and amount of each major element of remuneration of each director of the Company are:

Salary & fees

$ Director’s fees

$ Other

$

Non-monetary benefits

$

Total $

Executive director

Mr G Hodgetts 2018 - 227,000 38,919 265,919

2017 - 243,300 49,910 - 293,210

Non-executive directors

Mr G Paramor 2018 24,638 24,638

2017 24,638 - - - 24,638

Mr M Britton 2018 33,398 33,398

2017 24,638 - - - 24,638

Company secretary

Mr G Priest 2018 43,200 43,200

2017 47,520 - - - 47,520

6. Dividends

No dividends were declared for the financial year ended 30 June 2018 (30 June 2017: nil). 7. Events after the Reporting Period

Other than the above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years.

8. Likely developments

The delay in completing Emerald Park, the development being undertaken by CWWL, and the reduction in expected returns, will detrimentally affect revenue in the coming period.

It is the Board’s strategy to maximise returns to its shareholders in what it believes to be in the best interest of investors and the sale of other assets held by the Company will be pursued in the current year.

9. Registered office

The registered office of the Company is:

C/- UHY Haines Norton Perth Chartered Accountants Level 2 35 Havelock Street West Perth WA 6005

Knights Capital Group Limited Consolidated Statement of Profit or Loss and Comprehensive Income For the year ended 30 June 2018

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Note 2018 2017

$ $

Revenue 6 1,276,358 1,747,645

Cost of sales (6,229) (7,628)

Gross profit

1,270,129 1,740,017

Other income 7 130,614 15,000

Administrative expenses (197,789) (241,365)

Impairment of intangible assets 21 (124,621) (2,658)

Revaluation of investment property 18 48,836 2,266

Other expenses 8 (1,717,911) (1,488,080)

Results from operating activities

(590,742) 25,180

Financial income 11 152,265 427,227

Financial expenses 11 (3,582) -

Net financing income

148,683 427,227

(Loss)/profit before income tax (442,059) 452,407

Income tax benefit/(expense) 12 101,309 (52,592)

(Loss)/profit for the year

(340,750) 399,815

Other comprehensive income for the period net of tax: Items that may be reclassified subsequently to profit or loss

Net (loss)/gain on revaluation of land and buildings (20,463) 3,749

Net gain/(loss) on revaluation of financial assets 41,962 286,036

Net (loss)/gain in fair value of Available for Sale financial assets

reclassified to profit or loss - (334,130)

Total other comprehensive income/(loss) for the period

21,499 (44,345)

Total comprehensive (loss)/income for the year

(319,251) 355,470

(Loss)/profit attributable to equity holders of the parent (340,750) 399,815

Total comprehensive (loss)/income attributable to equity holders of the parent

(319,251) 355,470

This Statement of Profit and Loss and Comprehensive Income is to be read in conjunction with the accompanying Notes to the financial statements set out on pages 15 to 40.

Knights Capital Group Limited Consolidated Statement of Changes in Equity For the year ended 30 June 2018

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Issued Capital

$

Fair value Reserve

$

Accumulated Profit/(Losses)

$

Total Equity

$

Balance at 1 July 2016 Transactions with owners in their capacity as owners:

29,281,915

3,544,221

(13,237,533)

19,588,603

Other comprehensive (loss) for the period

- (44,345) - (44,345)

Profit for the period - - 399,815 399,815

Balance at 30 June 2017

29,281,915

3,499,876

(12,837,718)

19,944,073

Balance at 1 July 2017 Transactions with owners in their capacity as owners:

29,281,915 3,499,876 (12,837,718) 19,944,073

Other comprehensive income for the period

- 21,499 - 21,499

Profit for the period - - (340,750) (340,750)

Balance at 30 June 2018

29,281,915

3,521,375

(13,178,468)

19,624,822

The Statement of Changes in Equity is to be read in conjunction with the accompanying Notes to the financial statements set out on pages 15 to 40.

Knights Capital Group Limited Consolidated Statement of Financial Position As at 30 June 2018

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Note 2018 2017

Assets $ $ Current assets

Cash and cash equivalents 13 7,991,584 7,212,740

Trade and other receivables 14 31,244 8,969

Inventories 15 1,185 1,203

Other 81,349 61,457

Total current assets 8,105,362 7,284,369

Non-current assets

Financial assets 16 5,272,307 6,280,346

Investment property 18 2,700,000 2,650,000

Deferred tax assets 19 252,064 143,071

Property, plant and equipment 20 3,699,988 3,750,381

Intangible assets 21 - 124,621

Total non-current assets 11,924,359 12,948,419

Total assets 20,029,721 20,232,788

Liabilities

Current liabilities

Trade and other payables 22 370,482 263,495

Provisions 23 7,141 4,213

Deferred tax liabilities 19 19,661 11,977

Loans and borrowings 24 7,615 9,030

Total current liabilities 404,899 288,715

Total liabilities 404,899 288,715

Net assets 19,624,822 19,944,073

Equity

Issued capital 29,281,915 29,281,915

Reserves 3,521,375 3,499,876

Accumulated losses (13,178,468) (12,837,718)

Total equity attributable to the equity holders of the company 19,624,822 19,944,073

This Statement of Financial Position is to be read in conjunction with the accompanying Notes to the financial statements set out on pages 15 to 40.

Knights Capital Group Limited Consolidated Statement of Cash Flows For the year ended June 30 2018

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Note 2018 2017

Cash flows from operating activities $ $

Cash receipts from customers 1,384,697 1,804,881

Cash paid to suppliers and employees (1,772,756) (1,662,145)

Cash generated from operations (388,059) 142,736

Interest and borrowing costs paid (3,582) -

Income taxes refunded - 3,533

Net cash from operating activities 29 (391,641) 146,269

Cash flows from investing activities

Capital proceeds returned on investments 1,050,000 1,040,807

Interest received 11 123,883 107,911

Dividends received 28,381 -

Acquisition of property, plant and equipment 20 (30,364) (78,604)

Net cash from investing activities 1,171,900 1,070,114

Cash flows from financing activities

Repayment of borrowings (1,415) (218)

Net cash used in financing activities (1,415) (218)

Net increase in cash and cash equivalents 778,844 1,216,165

Cash and cash equivalents at 1 July 7,212,740 5,996,575

Cash and cash equivalents at 30 June 13 7,991,584 7,212,740

The Statements of Cash Flows are to be read in conjunction with the Notes to the financial statements set out on pages 15 to 40.

Knights Capital Group Limited Notes to the Consolidated Financial Statements For the year ended June 30 2018

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1. Reporting entity

Knights Capital Group Limited (the “Company” or “KCGL”) is a company domiciled in Australia. The consolidated financial report of the Company for the year ended 30 June 2018 comprises the Company and its subsidiaries (together referred to as the “Group”). The address of the company’s registered office is Level 2, 35 Havelock Street, West Perth WA 6005. The Group’s activities during the course of the financial year were the operation of the Albany Gardens Holiday Resort and the operation and management of the Albany Gardens Lifestyle Village; Knights Capital Management Pty Ltd until the company was deregistered; and its investment in listed and unlisted securities (see Notes 16, 18, 20 and 21). The consolidated financial report was authorised for issue by the directors on the 27th September 2018.

2. Basis of preparation

(a) Statement of compliance

The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board (“AASB”), the Corporations Act 2001 and International Financial Reporting Standards as issued by the International Accounting Standards Board. The consolidated financial report of the Group and the financial report of the Company comply with the IFRS and interpretations adopted by the International Accounting Standards Board. All amounts are presented in Australian dollars unless otherwise Noted.

(b) Basis of measurement

The consolidated financial report is prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: financial instruments classified as available-for-sale, and investment property.

(c) Functional and presentation currency

The consolidated financial report is presented in Australian dollars, which is the company’s functional currency and the functional currency of the Group.

(d) Use of estimates and judgements

The preparation of a financial report requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial report are described in the following Notes: Note 21 – measurement of recoverable amounts of cash-generating units, Note 16 and 4(b) – measurement of fair value of unlisted equity securities, Note 18 – determination of fair value of investment property and Note 19 – utilisation of tax losses. The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial statements and have been applied consistently by Group entities.

Knights Capital Group Limited Notes to the Consolidated Financial Statements For the year ended June 30 2018

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3. Significant accounting policies

(a) Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial report from the date that control commences until the date that control ceases.

(ii) Transactions eliminated on consolidation

Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(b) Property, plant and equipment

(i) Recognition and measurement

Plant & equipment

Items of plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of an asset.

Where parts of an item of plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Property

Freehold land and buildings are shown at their fair value (being the amount for which an asset could be exchanged between knowledgeable willing parties in an arm’s length transaction), based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation for buildings.

In the periods when the freehold land and buildings are not subject to an independent valuation, the directors conduct directors’ valuations to ensure the land and buildings’ carrying amount is not materially different to the fair value.

Increases in the carrying amount arising on revaluation of land and buildings are credited to a revaluation reserve in equity. Decreases that offset previous increases of the same asset are charged against fair value reserves directly in equity and other comprehensive income. Other net revaluation increases/decreases are recognised in profit or loss to the extent that it reverses an amount previously recognised in the same manner.

Any accumulated depreciation at the date of the revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset.

Knights Capital Group Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018

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3. Significant accounting policies (continued)

(b) Property, plant and equipment (continued)

(ii) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of day-to-day servicing of property, plant and equipment are recognised in the statement of comprehensive income as incurred.

(iii) Depreciation Depreciation is recognised in profit or loss on a straight-line basis for buildings and a reducing balance

basis for plant and equipment over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives in the current and comparative periods are as follows: • buildings 20 years • plant and equipment 5 - 12 years • fixtures and fittings 5 - 12 years • motor vehicle 8 years Depreciation methods, useful lives and residual values, if not insignificant, are reassessed at the reporting date.

(c) Intangible assets

Goodwill

All business combinations are accounted for by applying the purchase method. Goodwill arises on the acquisition of subsidiaries and associates and represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is no longer amortised but is tested annually for impairment. Negative goodwill arising on an acquisition is recognised directly in the statement of comprehensive income.

(d) Financial instruments

(i) Non-derivative financial instruments

Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair

value through the statement of comprehensive income, any directly attributable transaction costs, except as described below. Subsequent to initial recognition non-derivative financial instruments are measured as described below.

A financial instrument is recognised if the Group becomes a party to the contractual provisions of the

instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.

Cash and cash equivalents comprise cash balances and cash on hand.


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(d) Financial Instruments (continued)

Available-for-sale financial assets The Group’s investments in equity securities and certain debt securities are classified as available-for-

sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see Note 3(g)(i)), are recognised as a separate component of equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to the statement of profit or loss and other comprehensive income.

(i) Non-derivative financial instruments

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are

not quoted in an active market and are subsequently measured at amortised cost. Loans and receivables are included in current assets, except for those which are not expected to mature within 12 months after the end of the reporting period, which will be classified as non-current assets. Financial Liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. Other Other non-derivative financial instruments are measured at amortised cost using the effective interest method less any impairment losses.

(ii) Share capital

Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares and share options are recognized as a deduction from equity, net of any related income tax benefit. Convertible notes Convertible notes that can be converted to share capital at the option of the Group and where the conversion price is fixed are treated as equity.

(e) Investment Property

Investment property is property held either to earn rental income or for capital appreciation or for both. Investment property is measured at fair value with any change therein recognised in the statement of profit or loss.

When the use of a property changes such that it is reclassified as property, plant or equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.

(f) Inventories

Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.


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(g) Impairment

(i) Financial assets

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognised in the statement of comprehensive income. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in other comprehensive income is transferred to the statement of profit or loss.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in the statement of comprehensive income. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity.

(ii) Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than investment property, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication for impairment. If any such indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, recoverable amount is estimated at each reporting date.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds

its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in the statement of comprehensive income or profit or loss.

Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying

amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair

value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses

recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.


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(h) Revenue

(i) Goods sold and services rendered

Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods.

(ii) Sale of homes

Revenue from the sale of homes is recognised when risks and rewards pass to the customers, which occurs when the homes are available for occupation.

(iii) Rental income

Revenue from the rental of park home sites is recognised when receivable from the tenants.

Revenue from the rental of holiday resort accommodation is recognised when guests arrive.

(iv) Other

Interest revenue is recognised when received.

Dividend revenue and trust distributions are recognised when the right to receive the income has been established.

(i) Income in Advance

Income in advance is classified as current (Note 22) and consists of customer deposits for holiday accommodation at the resort. The amount is recognised as revenue once the booking cancellation period expires and guests arrive at the resort, or deposits are forfeited.

(j) Expenses

(i) Operating lease payments

Payments made under operating leases are recognised in the statement of comprehensive income on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the lease term.

(ii) Net financing costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income and gains on the disposal of available-for-sale financial assets.

Interest income is recognised as it accrues in the statement of comprehensive income, using the effective interest method.

Dividend income is recognised in the statement of comprehensive income on the date the Group’s right to receive payments is established which in the case of quoted securities is the ex-dividend date. Finance expenses comprise interest expense on borrowings and impairment losses recognised on financial assets. All borrowing costs are recognised in the statement of comprehensive income using the effective interest method.


21


(k) Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised.

(i) Tax consolidation

The Company and its wholly owned Australian resident entities Knights Parks & Properties Pty Ltd and Knights Capital Management Pty Ltd have formed a tax-consolidated group and are therefore taxed as a single entity. The head entity within the tax consolidated group is Knights Capital Group Limited.

Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the separate taxpayer within group approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation.

Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised by the Company (as head entity in the tax-consolidated group and are recognised by the company as amounts payable/(receivable) to/(from) other entities in the tax consolidated group). Any difference between these amounts is recognised by the company as an equity contribution or distribution. Deferred tax assets and deferred tax liabilities are measured by reference to the carrying amounts of the assets and liabilities in the Company’s statement of financial position and their tax values applying under tax consolidation.

The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the asset can be utilised.

Any subsequent period adjustments to deferred tax assets arising from unused tax losses assumed from subsidiaries are recognised by the head entity only.

(l) Goods and services tax

Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In this situation the financial supplies are input taxed and the related acquisitions are not for a creditable purpose as such the GST input tax credit is blocked, except in the case of certain acquisitions that are classed as reduced credit acquisitions. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.


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3. Significant accounting policies (continued) (l) Goods and services tax (continued) Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable

from, or payable to, the ATO is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a net basis except where the GST incurred is prevented from being recovered in full or partially by the Australian Taxation Office. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.

(m) Employee benefits - Wages, salaries, annual leave, sick leave and non-monetary benefits

Liabilities for employee benefits for wages, salaries, annual leave and sick leave represent present obligations resulting from employees’ services provided to reporting date, calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at reporting date including related on-costs, such as workers compensation insurance and payroll tax. Non-accumulating non-monetary benefits, such as medical care and free or subsidised goods and services, are expensed based on the net marginal cost to the consolidated entity as the benefits are taken by the employees.

(n) Cash and cash equivalent

Cash and cash equivalents include cash on hand, deposits available on demand with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are reported within short-term borrowings in current liabilities in the statement of financial position.

(o) Provisions

Provisions are recognised when the 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.

(p) Trade and other receivables

Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinary course of business. Receivables expected to be collected with 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets. Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Refer to Note 1 (g) for further discussion on the determination of impairment losses.

(q) Trade and other payables

Trade and other payables represent the liabilities for goods and services received by the entity 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 the recognition of the liability.


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(r) New Accounting Standards for Application in Future Periods

The following standards, amendments to standards and interpretations have been published but are not mandatory for the reporting period ending 30 June 2018. The Director’s assessment of the impact of these new standards and interpretations is set out below.

• AASB 9: Financial Instruments and associated Amending Standards

AASB 9 Financial Instruments addresses the clarification, measurement and de-recognition of financial assets and financial liabilities as well as the new hedge accounting requirements. This new standard supersedes AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 mandatorily applies to annual reporting periods beginning on or after 1 January 2018. The Directors do not expect this to have a significant impact on the recognition and measurement of the Group’s financial instruments as they are carried at fair

value through profit or loss.

• AASB 15: Revenue from Contracts with Customers

AASB 15 effective with annual reporting periods beginning on or after 1 January 2018, as deferred by AASB 2015-8: Amendments to Australian Accounting Standards – Effective Date of AASB 15 With effect this standard will supersede AASB 111, AASB 118 and Interpretations 13, 15, 18 and 131. This standard will re-define the core principals of revenue recognition and the processes required in recording revenue. It will apply to all contracts with customers. The Directors’ at this stage do not anticipate that this will have an impact on the Company’s financial statements and it is also impracticable to provide a reasonable estimate of any such impact.

• AASB 16: Leases

AASB 16 effective with annual reporting periods beginning on or after 1 January 2019, will supersede AASB 117, and related interpretations. This standard introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases. The Directors’ at this stage do not anticipate that this will have an impact on the Company’s financial statements and it is also impracticable to provide a reasonable estimate of any such impact.

4. Determination of fair values

A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods and under guidance of AASB 13. When applicable, further information about the assumptions made in determining fair values is disclosed in the Notes specific to that asset or liability.

(a) Investment property An external, independent valuation company, having appropriate recognised professional qualifications and

recent experience in the location and category of property being valued, values the Group’s investment property portfolio annually. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

(b) Investment in equity securities The fair value of available-for-sale financial assets is determined by reference to their quoted bid price at the

reporting date. The fair value of the unlisted equity securities investments have been determined with reference to the most recent sale of ordinary shares and/or the net asset backing of the security which is reflective of the fair value at reporting date.


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(b) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. Obligations with respect to the construction of the park homes is matched to the progress payments received from customers.

5. Financial risk management

Overview The Company and Group have exposure to the following risks from their use of financial instruments:

• credit risk

• liquidity risk

• market risk

This Note presents information about the Company’s and Group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout this financial report. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board of Directors oversees how management monitors compliance with the Company’s and Group’s risk management and reviews the adequacy of the risk management framework in relation to the risks faced by the Company and Group.

(a) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails

to meet its contractual obligations, and arises principally from the Group’s receivables from customers and investment securities. For the Company it arises from receivables due from subsidiaries.

Trade and other receivables

The Company’s and Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry in which customers operate, has less of an influence on credit risk. However, geographically there is no concentration of credit risk. The Group does not require collateral in respect of trade and other receivables.

Investments

The Group has exposure to credit risk by investing in liquid and illiquid securities.

Guarantees

Group policy is to provide financial guarantees only to wholly-owned subsidiaries. There are no outstanding guarantees at present, other than that disclosed in Note 24 Interest bearing loans and borrowings.


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5. Financial risk management (continued)

(c) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and property and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Interest rate risk

At the reporting date the Group’s financial asset affected by interest rate risks is cash. At 30 June 2018, the Group had an insignificant exposure to interest rate risk. The exposure is limited to changes in future cash flows of the cash equivalents held as term deposits. The risk arising from fluctuations in market interest rates is limited by investing the cash equivalent in term deposits over the shorter term period. Investments in equity securities and short term receivables and payables are not exposed to interest rate risk.

Capital management

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Group defines as net operating income divided by total shareholders’ equity, excluding non-redeemable preference shares and minority interests. From time to time the Group purchases its own shares; the timing of these purchases depends on market conditions. There were no changes in the Group’s approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

6. Revenue Note 2018 2017

$ $

Rentals 910,123 914,109

Rental income - investment property 343,102 343,189

Shop sales 23,133 16,994

Fund management fees - 45,853

Asset disposal fee - 427,500

Total revenues 1,276,358 1,747,645

7. Other income 2018 2017

$ $

Directors fees received 15,000 15,000

Insurance claim 100,000 -

Telstra Refund 15,614

130,614 15,000

8. Other expenses 2018 2017

$ $

Direct operating expenses:

Depreciation 59,131 82,241

Balancing Adjustment on Property, Plant & Equipment 1,313 957

Rent expenses 12,588 12,179

Personnel expenses 9 662,209 692,592

Operational and occupancy expenses 405,164 418,780

Professional fees 419,778 88,481

Compliance and licencing fees 17,275 34,311

Travel 96,832 109,000

General administrative expenses 43,621 49,539

1,717,911 1,488,080


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9. Personnel expenses 2018 2017

$ $

Directors and management fees 265,919 293,210

Wages and salaries 340,417 342,237

Contributions to complying superannuation funds 55,873 57,145

662,209 692,592

10. Auditors’ remuneration 2018 2017

$ $

Audit services

Auditors of the Company

Accru Perth:

Audit and review of financial reports 44,818 41,782

44,818 41,782

11. Net financing income and expense 2018 2017

$ $

Interest income 123,894 107,911

Dividend income 28,381 -

Net gain on disposal of available for sale financial assets reclassified from equity

- 319,316

Financial income 152,265 427,227

Interest expense (3,582) -

Financial expenses (3,582) -

Net financing (expense)/income 148,683 427,227

12. Income tax expense

Recognised in the consolidated statement of profit or loss and comprehensive income

2018 2017

$ $

Current tax expense

Current year - -

Under provision in prior years (538) 15,308

Deferred tax (benefit)/expense

Current year (11,964) 37,284

Tax losses (88,807) -

Total income tax expense/(benefit) (101,309) 52,592

The balance of franking credits as at 30 June 2018 adjusted for payment of provision for income tax is $735,755 (2017: $735,755).

Numerical reconciliation between tax expense and pre-tax net profit 2018 2017

$ $

(Loss)/profit before tax (442,059) 452,407

Income tax using the domestic corporation tax rate of 27.5% (2017: 27.5%) (121,566) 124,412

(Decrease)/increase in income tax (benefit)/expense due to:

Non-allowable items 19,719 (87,128)

Under provision in prior years 538 15,308

Income tax (benefit)/expense on pre-tax net profit (101,309) 52,592


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2018 2017

13. Cash and cash equivalent $ $ Bank balances 7,991,584 7,212,740

Cash and cash equivalents 7,991,584 7,212,740

2018 2017

14. Trade and other receivables $ $ Current Trade receivables 13,140 2,287 Other receivables 18,104 6,682

31,244 8,969

Credit risk The Group has no significant concentration of credit risk with respect to any single counterparty or group of

counterparties. The main source of credit risk to the Group is considered to relate to the class of assets described as ‘trade and other receivables’. The following table details the Group’s trade and other receivables exposed to credit risk. No trade and other receivables are ‘past due’ or are considered impaired. Amounts are considered as ‘past due’ when the debt has not been settled within the terms and conditions agreed between the Group and the customer or counterparty to the transaction. Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are provided for where there are specific circumstances indicating that the debt may not be fully repaid to the Group.

14. Trade and other receivables (continued)

Gross Amount $

Past Due and Impaired

$

Past Due but not Impaired

$

Within Trade Terms

$ 2018 Current Trade receivables 13,140 - - 13,140 Other receivables 18,104 - - 18,104 31,244 - - 31,244 2017 Current Trade receivables 2,287 - - 2,287 Other receivables 6,682 - - 6,682 8,969 - 8,969

Neither the Group nor the parent entity holds any financial assets whose terms have been renegotiated, but which would otherwise be past due or impaired.

15.

Inventories

Current 2018 2017 $ $ Goods available for sale 1,185 1,203

Carrying amount of inventories stated at cost 1,185 1,203


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16. Financial assets

Non-current investments 2018 2017 $ $ Listed equity securities available for sale 8,605 39,011 Unlisted equity securities available for sale 5,263,702 6,241,335

5,272,307 6,280,346

Interests in unlisted equity securities

(a) The Company has a 9.39% interest in Arbortech Industries Ltd (“Arbortech”), an unlisted public company. Arbortech’s principal activities include the design and manufacture of innovative cutting tools and leisure products such as the Allsaw 170, Woodcarver blades and Airboard, as well as other technologies. The fair value of the investment (being $1,307,173 or $1.01 per Arbortech share), was determined with reference to the net assets of the company as at 30 June 2018 (2017: $0.86 per share). A revaluation gain of $203,310 was recognised in the consolidated statement of profit or loss and other comprehensive income during the period.

(b) The Company has a 35.00% interest in Cedar Woods Wellard Ltd. Based on the Net Assets the fair value of the investment has been determined to be $3,956,526 ($0.71 per share) as at 30th June 2018 compared to $5,137,470 as at 30 June 2017. This being the result of a return of capital during the year of $1,050,000. A revaluation loss of $130,944 was recognised in the consolidated statement of profit or loss and other comprehensive income for the year ending 30 June 2018.

The fair value of the unlisted equity securities as at 30 June 2018 is considered to be based on significant observable inputs other than Level 1 inputs. There were no transfers between Level 1 and Level 2 during the period. There were also no changes during the period and compared to 2017 in the valuation techniques used by the Company to determine Level 2 fair values.

Interests in listed shares

(a) The Company’s holdings in Discovery Africa Ltd (previously Argosy Minerals Inc.) as at 30 June 2018

totalled 614,637 shares; which were acquired from 2007 to 2012 at a cost of $248,415. The market value of these shares was $0.014 per share at 30 June 2018 (2017: $0.011 per share) for a total market value of $8,605.

(b) The Company’s holdings in Greatcell Solar Limited, previously known as Dyesol Limited at a 30 June

2018 totalled 150,000 shares. The market value of these shares as at 30 June 2018 could not be determined due to the company being suspended from the ASX, (2017: $0.215 per share)

The fair value of listed shares as at 30 June 2018 is considered to be based on Level 1 of the fair value hierarchy. There were no changes during the period and compared to 2017 in the valuation techniques used by the Company to determine Level 1 fair values.

17. Current tax assets and liabilities

2018 2017 $ $ Current tax assets: Income tax - - Current tax liabilities: Income tax - -

- -


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18. Investment property

2018 2017

$ $

Balance at 1 July 2,650,000 2,650,000 Disposals/Depreciation 1,164 (2,266) Fair value adjustments 48,836 2,266

Balance at 30 June 2,700,000 2,650,000

At cost 3,020,603 3,020,603 Cost additions prior year adjustment 1,970 807 Fair value adjustments (322,573) (371,410)

2,700,000 2,650,000 Investment property comprises land situated at 40 Wellington Street, Albany, WA. This property has been

developed for park home accommodation on a ground lease and service fee delivery model covering 42 individual sites. There are lease and service agreements in place with each of the park home owners. The carrying amount of investment property is the fair value of the property as determined by the external independent valuation company, Opteon Property Group. This valuation dated 1 April 2018 is based on market value and is calculated using the capitalisation of adjusted net income approach. The fair value of the Investment Property as at 30 June 2018 is considered to be based on significant observable inputs other than Level 1 inputs. There were no transfers between Level 1 and Level 2 during the period. There were also no changes during the period compared to 2017 in the valuation techniques used by the Company to determine Level 2 fair values

19. Deferred tax assets and liabilities Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following:

Assets Liabilities Net

2018 2017 2018 2017 2018 2017 $ $ $ $ $ $ Other (105,883) (67,867) 19,661 11,977 (86,222) (55,890) Value of loss carry-forwards

recognised (146,181) (75,204) - - (146,181) (75,204) Tax (assets)/liabilities (252,064) (143,071) 19,661 11,977 (232,403) (131,094)

Net tax (assets)/liabilities (252,064) (143,071) 19,661 11,977 (232,403) (131,094)

Unrecognised deferred tax assets and liabilities Deferred tax assets have not been recognised in respect of the following items:

2018 2017 $ $ Capital Losses 2,972,376 2,972,376 2,972,376 2,972,376


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The carrying amount of land and buildings is the fair value of the property as determined by the external valuation company, Opteon Property Group. This valuation dated effective 1 April 2018 is based on market value and the valuation methodology uses the capitalisation of net income approach. The cost of the land and buildings including additions is $3,192,547.

The fair value of the land and buildings as at 30 June 2018 is considered to be based on significant observable inputs other than Level 1. There were no transfers between Level 1 and Level 2 during the period. There were also no changes during the period and compared to 2017 in the valuation techniques used by the Company to determine Level 2 fair values.

20. Property, Plant and Equipment Land and

buildings Plant and

equipment Total

$ $ $ Cost Balance at 1 July 2016 3,801,441 335,378 4,136,819 Asset revaluation 3,715 - 3,715 Disposals/Written off - (3,101) (3,101) Additions 60,546 18,058 78,604

Balance at 30 June 2017 3,865,702 350,335 4,216,037

Balance at 1 July 2017 3,865,702 350,335 4,216,037 Asset impairment (20,463) - (20,463) Disposals/Written off - (6,379) (6,379) Additions 4,293 23,561 27,854

Balance at 30 June 2018 3,849,532 367,517 4,217,049

Depreciation and impairment losses

Balance at 1 July 2016 (194,791) (193,991) (388,782) Disposal/Written off - 5,366 5,366 Depreciation charge for the year (26,949) (55,291) (82,240)

Balance at 30 June 2017 (221,740) (243,916) (465,656)

Balance at 1 July 2017 (221,740) (243,916) (465,656) Disposal/Written off - 7,726 7,726 Depreciation charge for the year (22,037) (37,095) (59,131)

Balance at 30 June 2018 (243,777) (273,285) (517,061)

Carrying amounts At 1 July 2016 3,606,650 141,387 3,748,037 At 30 June 2017 3,643,962 106,419 3,750,381 At 1 July 2017 3,643,962 106,419 3,750,381

At 30 June 2018 3,605,755 94,232 3,699,988


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21. Tangible and Intangible assets Goodwill Total $ $ Year ended 30 June 2017 Balance at beginning of the year 127,278 127,278 Impairment losses (2,657) (2,657)

Closing Value at 30 June 2017 124,621 124,621

Year ended 30 June 2018 $ $ Balance at beginning of the year 124,621 124,621 Impairment losses (124,621) (124,621) Closing Value at 30 June 2018 - - Impairment tests for cash generating units containing goodwill Goodwill is allocated to the following cash-generating unit;

Albany Gardens Holiday Resort

Goodwill Carrying Amount

$

Initial Balance 318,367 Impairment (318,367) Final value 30 June 2018 - Land & Buildings Carrying

Amount Revaluation

Surplus $ $ Initial Balance 2,965,573 658,229 Revaluation - (18,024) Final value 30 June 2018 2,965,573 640,205 Plant & Equipment Carrying

Amount Revaluation

Surplus $ $ Initial Balance 77,736 19,220 Revaluation - (2,439) Final value 30 June 2018 77,736 16,781

22. Trade and other payables

Current 2018 2017 $ $ Other trade payables and accrued expenses 367,186 259,047 Income in advance 3,296 4,448 370,482 263,495

Financial liabilities at amortised cost classified as trade and other payables Total current 370,482 263,495 Less: Income in advance (3,296) (4,448)

Financial liabilities as trade and other payables 367,186 259,047


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23. Provisions

2018 2017 $ $ Provision for annual leave 7,141 4,213

7,141 4,213

Movement in provision for annual leave Balance as at 1 July 4,213 16,427 Add: Additional provisions 11,830 6,167 Less: Amounts used or taken (8,902) (18,381)

Balance as at 30 June 7,141 4,213

24. Interest-bearing loans and borrowings

This Note provides information about the contractual terms of the consolidated entity’s interest-bearing loans

and borrowings. 2018 2017 $ $ Non-current liabilities Credit card facilities 7,615 9,030

7,615 9,030


Collateral provided

The only remaining borrowing for the group is the National Australia Bank credit card facility maintained by the Company (KCGL), with a facility limit of $10,000.

Financing facilities

2018 2017 $ $

Credit cards 10,000 10,000 10,000 10,000

Facilities utilised at reporting date Credit cards 7,615 9,030 7,615 9,030

Facilities not utilised at reporting date Credit cards 2,385 970 2,385 970

Financing arrangements

Visa – National Australia Bank $10,000 Interest is charged by the financial institution at a variable rate. The rate as at 30 June 2018 was 13.99%. (2017: 15.50%). The credit card is not secured against any assets of the group.


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25. Issued capital No. of ordinary shares

2018 2017

On issue at 1 July 24,086,297 24,086,297

On issue at 30 June – fully paid 24,086,297 24,086,297

Effective 1 July 1998, the Company Law Review Act abolished the concept of par value shares and the concept of authorised capital. Accordingly, the Company does not have authorised capital or par value in respect of its issued shares.

The value of ordinary issued shares at balance date is $29,281,915 (2017: $29,281,915).

Equity per share 2018 2017

Shares on issue 24,086,797 24,086,297

Equity attributable to shareholders $19,624,822 $19,944,703

Equity per share 81.48c 82.80c

Terms and conditions of ordinary shares

Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. In the event of winding up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any proceeds of liquidation

Fair value reserve

The revaluation reserve relates to financial Assets available-for-sale and land and buildings measured at fair value in accordance with applicable Australian Accounting Standards.

Capital management

Management controls the capital of the Group in order to maintain a good debt to equity ratio, provide the shareholders with adequate returns and ensure that the Group can fund its operations and continue as a going concern. The Group’s debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. There are no externally imposed capital requirements. Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. 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 prior year. This strategy is to ensure that the Group’s gearing ratios remains below 50%. The gearing ratios are as follows:

Note 2018 2017

$ $

Total borrowings 24 7,615 9,030

Less cash and cash equivalents 13 (7,991,584) (7,212,740)

Net debt (7,983,969) (7,203,710)

Total equity 19,624,822 19,944,703

Total capital 11,640,853 12,740,993 Gearing ratio 0% 0%


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26.

Dividends

No provisions for dividends have been made for period ending 30 June 2018. The board has suspended its dividend and share buy back policies until the outcome of legal proceedings currently underway is known.

27. Financial risk management The Group’s financial instruments consist mainly of deposit with banks, local money market instruments,

equity investments, accounts receivable and payable, loans to and from subsidiaries and derivatives. The total for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies to these financial statements are as follows:

2018 2017

$ $

Financial assets

Cash and cash equivalents 7,991,584 7,212,740

Receivables 31,244 8,969

Available for sale financial assets 5,272,307 6,280,346

13,295,135 13,502,055

Financial liabilities

Trade and other payables 370,482 259,047

Borrowings 7,615 9,030

378,097 268,077

Financial risk management policies

The directors' overall risk management strategy seeks to assist the Company in meeting its financial targets, whilst minimising potential adverse effects on financial performance. Risk management policies are approved and reviewed by the Board of Directors on a regular basis. These include the credit risk policies and future cash flow requirements The main purpose of non-derivative financial instruments is to raise finance for Company operations. Risk management policies are approved and reviewed by the Board on a regular basis. These include credit risk policies and future cash flow requirements.

Specific financial risk exposure and management The primary risks that the Group is exposed to from holding financial instruments is market risk, equity price

risk, liquidity risk and credit risk. Each specific risk exposure and management by the group is identified below.

Market risk - Interest rate risk Exposure to interest rate risk arises on financial assets and financial liabilities recognised at reporting date

whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The Group is also exposed to earnings volatility on floating rate instruments. Interest rate risk was deemed by the directors to be low due to the current stability of the market and therefore financing arrangements were under variable interest rate terms. Additionally, the Groups exposure to increasing interest rates on financial liabilities has been reduced with the full discharge of long term borrowings.

Floating rate instruments: 2018 2017

$ $

Borrowings 7,615 9,030


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27.

Financial risk management (cont’d)

Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or

otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms: • preparing forward-looking cash flow analyses in relation to its operational, investing and financing activities; • monitoring undrawn credit facilities; • obtaining funding from a variety of sources; • maintaining a reputable credit profile; • managing credit risk related to financial assets; • only investing surplus cash with major financial institutions; and • comparing the maturity profile of financial liabilities with the realisation profile of financial assets The tables below reflect an undiscounted contractual maturity analysis for financial liabilities. Bank overdrafts have been deducted in the analysis as management does not consider that there is any material risk that the bank will terminate such facilities. The bank does however maintain the right to terminate the facilities without notice and therefore the balances of overdrafts outstanding at year end could become repayable within 12 months. Cash flows realised from financial assets reflect management's expectation as to the timing of realisation. Actual timing may therefore differ from that disclosed. The timing of cash flows presented in the table to settle financial liabilities reflect the earliest contractual settlement dates and do not reflect management's expectations that banking facilities will roll forward.

Within 1 Year 1 to 5 years Total

Financial liabilities due for payment

2018 2017 2018 2017 2018 2017

$ $ $ $ $ $

Credit card facilities 7,615 9,030 - - 7,615 9,030

Trade and other payables 370,482 259,047 - - 370,482 259,047

378,097 268,077 - - 378,097 268,077

Financial assets – cash flows realisable

Cash and cash equivalents 7,991,584 7,212,740 - - 7,991,584 7,212,740

Trade and other receivables 31,244 8,969 - - 31,244 8,969

8,022,828 7,221,709 - - 8,022,828 7,221,709

Credit risk

Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of contract obligations that could lead to a financial loss to the Group. Credit risk is managed on a Group basis and reviewed regularly by the board. Credit risk is managed through maintaining procedures ensuring, to the extent possible, that customers and counterparties to transactions are of sound credit worthiness.


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27. Financial risk management (cont’d)

Credit risk (continued) Risk is also minimised through investing surplus funds in financial institutions that maintain a high credit

rating. Credit risk exposures The maximum exposure to credit risk by class of recognised financial assets at balance date, excluding the value of any collateral or other security held, is equivalent to the carrying value and classification of those financial assets (net of any provisions) as presented in the statement of financial position. The Group has no significant concentration of credit risk with any single counterparty or Group of counterparties. Credit risk related to balances with banks and other financial institutions is managed by the Board in accordance with policy. Such policy requires that surplus funds are only invested with counterparties with a Standard and Poor's (S&P) rating of at least AA-.

Market risk – Equity price risk

The Company is not exposed to any material commodity price risk. Equity price risk is the risk that fair value of equities decreases as a result of changes in market prices, whether those factors are caused by factors specific to the individual equity or factors affecting all equities in the market. Equity price risk arises from the Company’s investment portfolio denoted as ‘Financial Assets’ in the financial report. Refer to the sensitivity analysis for details of the profit and loss impact of this specific risk.

Net fair values

Fair value estimation The fair values of financial assets and financial liabilities are presented in the following table and can be compared to their carrying values as presented in the balance sheet. Fair values are those amounts which an asset could be exchanged, or a liability, between knowledgeable willing parties in an arm’s length transaction. Fair values derived may be based on information that is estimated or subject to judgement, where changes in assumptions may have a material impact on the amounts estimated. Areas of judgement and the assumptions have been detailed below. Where possible, valuation information used to calculate fair value is extracted from the market, with more reliable information available from markets that are actively traded. In this regard, fair values for listed securities are obtained from quoted market bid prices. Where securities are unlisted and no market quotes are available, fair value is obtained using discounted cash flow analysis and other valuation techniques commonly used by market participants. Differences between fair values and carrying values of financial instruments with fixed interest rates are due to the change in discount rates being applied by the market since their initial recognition by the Group. Most of these instruments which are carried at amortised cost (that is loan liabilities) are to be held until maturity and therefore the net fair value figures calculated bear little relevance to the Group.

2018 2017

Net Carrying

Value Net Fair Value

Net Carrying Value

Net Fair Value

$ $ $ $

Financial assets

Cash and cash equivalents (i) 7,991,584 7,991,584 7,212,740 7,212,740

Trade and other receivables (i) 31,244 31,244 8,969 8,969

Financial assets available for sales (iii) 5,272,307 5,272,307 6,280,346 6,280,346

Total financial assets 13,295,135 13,295,135 13,502,055 13,502,055

Financial liabilities

Trade and other payables (i) 370,482 370,482 259,047 259,047

Bank debt (ii) 7,615 7,615 9,030 9,030

Total financial Liabilities 378,097 378,097 268,077 268,077


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27. Financial risk management (cont’d)

The fair values disclosed in the above table have been determined based on the following methodologies:

(i) Cash and cash equivalents, trade and other receivables and trade and other payables are short term instruments in nature whose carrying values is equivalent to fair value. Trade and other payables exclude amounts provided for relating to annual leave which is not considered a financial instrument

(ii) Discounted cash flows models are used to determine the fair values of bank debt and hire purchase liabilities. Discount rates used on the calculations are based on interest rate existing at reporting date for similar types of bank debt and hire purchase liabilities. Differences between fair values and carrying values largely represent movements in the effective interest rate determined on initial recognition and current market rates.

(iii) For listed available for sale financial assets, closing quoted bid prices at reporting date are used. The fair values for unlisted available for sale assets have been based on the net asset position of the respective investments. The net asset position is then adjusted for the most recent valuations of the underlying assets.

Sensitivity analysis

The following table illustrates sensitivities to changes in interest rates and equity prices. The table indicates the impact of how profit and equity values reported at balance date would have been affected by changes in the relevant risk variable that management considers to be reasonably possible

Profit Equity

Year ended 30 June 2018

+/- 2% in interest rates +/-152 +/-152

+/- 10% in total investments +/- 527,230 +/- 527,230

Year ended 30 June 2017

+/- 2% in interest rates +/- 181 +/- 181

+/- 10% in total investments +/- 628,035 +/- 628,035

The above sensitivity analysis has been performed on the assumption that all other variables remain unchanged.

28. Operating leases

Leases as lessee

Non-cancellable operating lease rentals are payable as follows:

2018 2017

$ $

Less than one year 12,587 12,179

Between one and five years - -

12,587 12,179

The Group leases the business premises under an operating lease. The lease terms are on a periodic basis, with no set expiry date.

During the financial year ended 30 June 2018, $12,587 was recognised as an expense in profit or loss in respect of operating leases (2017: $12,179).


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29. Reconciliation of cash flows from operating activities Cash flows from operating activities 2018 2017 $ $ Profit for the period (319,251) 355,470 Adjustments for: Depreciation 59,131 82,241 Revaluation of investment property (48,836) (2,266) Interest income (123,883) (107,911) Revaluation of property, plant and equipment 20,463 (3,715) Balancing adjustment on property, plant and equipment 1,313 957 Impairment of intangibles 124,621 2,658 Revaluation of financial assets (43,275) 47,104 Gain on disposal of financial asset - (319,316) Dividends Received (28,382) - Operating loss before changes in working

capital and provisions (358,099) 55,222 (Increase)/decrease in trade and other receivables (42,167) 45,187 Decrease/(increase) in inventories 18 (643) (Increase)/decrease in deferred tax assets/liabilities (101,309) 52,589 Increase/(decrease) in current tax liability - 3,534 Increase/(decrease) in Provisions 2,928 (12,214) Increase/(decrease) in trade and other payables 106,989 2,594 Net cash from operating activities (391,641) 146,269

30. Related parties

The following were key management personnel of the Group at any time during the reporting period and

unless otherwise indicated were key management personnel for the entire period. Movements in shares

Directors’ Interest Balance

30 June 2017 Purchases / Placements

Share Consolidation

Balance 30 June 2018

Gregory Paramor 348,500 - - 348,500 348,500 - - 348,500

Mr Grant Hodgetts is principal of Hodgetts and Partners and director of Bethley Group Pty Ltd. These entities are entitled to receive directors’ fees for Mr Hodgetts role as Executive Director of the Company. During the financial year ended 30 June 2018 these entities became entitled to director fees totalling $265,919 (2017: $243,300) of which $50,000 were accrued at 30 June 2018.

Mr Grant Priest is a Partner at UHY Haines Norton Perth Chartered Accountants (formerly Sothertons). This firm provides accounting and tax services to the Group. All services are provided in the ordinary course of business and on normal commercial terms and conditions. During the financial year UHY Haines Norton Perth Chartered Accountants were paid $199,536 (2017: $153,251).

The breakdown of services provided for $199,536 being as follows:

$

Company Secretarial Fees $43,200

Litigation

Temporary staff fees

Accounts Preparation Fees

$82,359

$ 4,172

$60,770

Taxation compliance obligations $ 9,035


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30. Related parties (cont’d)

The above fees are exclusive of GST. Directors’ and key management personnel’s compensation Directors fees were paid to Mr Britton and Mr Paramor as remuneration for their services as non-executive directors, amounted to $24,638 each (2017: $24,638 each).

Non-key management personnel disclosures The Group has a related party relationship with its subsidiaries (see below), associates (see Note 16) and

with its key management personnel (refer to disclosures for key management personnel above). Identity of related parties Subsidiaries Loans are made by the Company to wholly owned subsidiaries for capital purchases. Loans outstanding

between the Company and its controlled entities are repayable on demand, however the Company has not imposed a fixed date of repayment and currently these loans are non-interest bearing. During the financial year ended 30 June 2018 such loans to subsidiaries totalled $5,156,347 (2017: $4,970,279) have been eliminated on consolidation.

Subsidiaries Country of

Incorporation Ownership Interest

2018 2017

Parent entity

Knights Capital Group Limited

Subsidiaries

Knights Capital Management Pty Ltd – Deregistered Australia - 100%

Knights Parks & Properties Pty Ltd Australia 100% 100%

Knights Investments (Aust) Pty Ltd - Deregistered Australia - 100%

An application to the Australian Securities Investment Commission (‘ASIC’) was made on 21 June 2017 to cancel the AFS Licence of KCM. ASIC approved the cancellation of KCM’s AFS Licence on 12 July 2017. The directors then proceeded to commence liquidation of the subsidiary, passing a resolution to return the capital and cancel the shares. An application to deregister KCM was lodged with ASIC on 16 November 2017, with deregistration completed on 21 January 2018.

An application was made to ASIC on 30 June 2017 to deregister Knights Investments (Aust) Pty Ltd. ASIC approved the deregistration on 30 August 2017.


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31. Parent entity disclosures

Financial position

2018 2017

$ $

Assets

Current assets 7,296,909 6,362,384

Non-current assets 10,635,754 11,776,559

Total assets 17,932,663 18,138,943

Liabilities

Current liabilities 353,076 170,202


Net assets 17,579,587 17,968,741

Equity

Issued capital 29,281,915 29,281,915

Retained earnings (14,566,751) (14,774,199)

Revaluation reserve 2,864,423 3,461,025

Total equity 17,579,587 17,968,741

Financial performance 2018 2017 $ $ (Loss)/profit for the year (552,085) 290,954 Income tax benefit/(expense) 162,932 117,347

Total comprehensive (loss)/income (309,153) 408,302

32. Contingent Liability

Shareholders should be aware that BAA lodged its original defence and counterclaim with the Court in August 2014. Since then, it has lodged an amended defence and counter claim; a re-amended defence and counter claim and three further re-amended defence and counter claims. In August 2018, BAA lodged a substituted defence and counterclaim. BAA has increased its claim for unpaid management fees and performance bonuses from $1,864,331.61 to $2,200,791.90 but has not amended the quantum of its claim for special damages.

33.

Events after the Reporting Period

Other than the above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years.

Knights Capital Group Limited ABN 39 072 769 174 Financial ... Consol Financials 2018_.pdf ·...

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