INTERIM FINANCIAL REPORT

Transcription

1 INTERIM FINANCIAL REPORT 31 DECEMBER 2016 VILLA WORLD LIMITED ABN CELEBRATING 30 YEARS SUCCESS THROUGH PROPERTY

2 Villa World Limited ABN Interim Financial Report - 31 December 2016 Contents Page Directors report 1 Auditor s Independence Declaration 5 Interim financial statements 6 Interim condensed consolidated statement of comprehensive income 7 Interim condensed consolidated balance sheet 8 Interim condensed consolidated statement of changes in equity 9 Interim condensed consolidated statement of cash flows 10 Notes to the interim condensed consolidated financial statements 11 Directors declaration 23 Independent auditor s review report to the shareholders of Villa World Limited 24 This interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the Annual Report for the year ended 30 June 2016 and any public announcements made by Villa World Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act ii

3 Villa World Limited Directors' report 31 December 2016 Directors' report The Directors of Villa World Limited present their report together with the interim financial report for the half-year ended 31 December This report relates to Villa World Limited and its subsidiaries ("Company") and the Company's interest in associates and jointly controlled entities. Directors The Directors of Villa World Limited during the period and up to the date of this report were: Director Role Independent Appointed Mark Jewell Independent Chairman Yes 28/11/2013 Craig Treasure Chief Executive Officer and Managing Director No 17/02/2012 David Rennick Non-Executive Director Yes 01/09/2014 Donna Hardman Non-Executive Director Yes 17/02/2016 Review of operations Key highlights for the half-year Statutory net profit after tax from continuing operations of $19.6 million (31 December 2015: $20.4 million statutory net profit after tax) Earnings per share from continuing operations of 17.4 cps 1 (31 December 2015: 18.5 cps) 8.0 cps fully franked interim dividend (31 December 2015: 8.0 cps fully franked) Revenue from the sale of property of $209.4 million (31 December 2015: $200.2 million) Accounting settlements 2 of 592 lots (including the Company's share of joint ventures) (31 December 2015: 550 lots) Net sales 3 of 673 lots (31 December 2015: 497 lots) for a gross value (inclusive of GST) of $258.6 million (31 December 2015: $191.0 million), inclusive of proportional share of joint ventures A total of 554 contracts on hand at 31 December 2016 (31 December 2015: 311 contracts) to carry forward for a gross value 4 of $191.6 million (31 December 2015: $107.7 million) Gearing 5 of 23.0% (30 June 2016: 25.6%) During the period, the Company secured an extension to the $50 million Westpac facility to 31 March 2019 as well as increasing the ANZ facility to $140 million. Financial commentary for the half-year Villa World has marked its half-year with strong sales, delivery and increased revenue contributing to a $19.6 million statutory profit after tax. The positive 1H17 result includes a guidance increase in the expected full year result representing growth of 11% on FY16. The financial result for the half-year to 31 December 2016 was a statutory net profit after tax of $19.6 million (17.4 cps), compared to a net profit after tax of $20.4 million (18.5 cps) for the half-year to 31 December Revenue from Land Development, Residential Building and Construction Contracts Continued sales momentum combined with $ million of carried forward sales from FY16, and excellent delivery of land and housing resulted in 592 accounting settlements in 1H17 (1H16: 550). As a result, revenue increased by 5% to $209.4 million (1H16: $200.2 million). The revenue mix reflects the Company s continued focus on its core capabilities in house and land, as well as very strong land only settlements. In total, 66% of revenue was generated through house and land product (1H16: 76%). Queensland remained the main contributor to revenue at 84% (1H16: 86%). 1 Basic earnings per share based on weighted average of shares on issue of 112,728,788 (1H16: 110,344,277). 2 Accounting settlements are based on the revenue recognition accounting policy. 3 Sale - executed contract of sale, not necessarily unconditional. 4 Contracts on hand gross value - total sales value (including GST) for conditional and unconditional contracts not yet recognised as revenue, inclusive of proportional share of joint ventures. 5 Gearing ratio (interest bearing liabilities less cash)/(total assets less cash). 6 Represents gross sales price inclusive of GST. 1

4 Villa World Limited Directors' report 31 December 2016 (continued) Review of operations (continued) Revenue from Land Development, Residential Building and Construction Contracts (continued) Average revenue per lot was $360.4k (1H16: $353.6k) and is reflective of the product mix. The average revenue per house and land lot rose 12% to $453.3k (1H16: $405.3k) with strong settlements of traditional house and land product, compared to a high number of settlements at the affordable townhouse project Orana in the prior year. Average land only revenue rose 4% to $254.7k (1H16: $244.0k) reflecting a high number of land only settlements across higher value projects in Queensland and continued settlements at the more affordable Cardinia Views and Sienna in Victoria. 2% to 5% revenue growth was experienced at selected (like for like) estates over FY16. Gross Margin The gross margin for 1H17 was $54.7 million or 26.1% (1H16: $55.0 million or 27.5%). All aspects of the Silverstone proceedings were concluded in 1H17, with $0.5 million (1H16: nil) released back into profit 7. Revenue - Development and Project Management During 1H17 the Company continued to progress its strategy to grow development and project management income streams by deploying development management skills into joint venture arrangements. These joint ventures delivered $1.0 million in fee income in 1H17 (1H16: $1.2 million). The Company anticipates development and project management fees will provide an ongoing revenue stream for the business. Share of Profit from Equity Accounted Investments The share of profit from equity accounted investments and associates of $0.9 million related to land settlements at the Rochedale joint venture. In the prior year, the settlement of the Eynesbury joint venture contributed $3.6 million to profit. Operational Performance The Company recorded 673 sales (1H16: 497) in 1H17 across 18 projects (1H16: 17 projects). The average sales rate remained strong at 112 per month (1H16: 83). Sales remained weighted to Queensland (68%) (1H16: 80%) due to the number of projects being marketed and continued supportive market conditions. The Company s strategy of targeting growth corridors continues to reap excellent results in Queensland, with strong sales in all south east Queensland corridors and in Hervey Bay. Victorian projects accounted for 26% of sales (1H16: 20%), with a strong performance from the land only project Cardinia Views, and near sell out of the Company s turnkey house and land product at Lavinia, and the house and land, and land only offering at Sienna. The Company maintains a solid position in all customer segments - the core being the retail market (comprising owner occupiers including first home buyers), as well as builders and predominantly local investors 8. The Company delivered 324 lots of land (1H16: 552). The Company s housing operations delivered 291 homes across both Queensland and Victoria (1H16: 385). Sales Contracts Carried Forward At 31 December 2016, the Company carried forward 554 sales contracts valued at $191.6 million 9, with 86% of contracts (479 contracts valued at $161.0 million) due to settle in 2H17 and the balance in FY18. The strong carried forward sales, when combined with the Company s continued sales focus, places the Company in a very strong position for the remainder of FY17. Property Sales and Marketing Costs The sales and marketing strategy introduced in 2015, which shifted focus onto the Villa World brand and targeted regional marketing campaigns, has benefitted both sales and sales and marketing costs. Sales and marketing costs for 1H17 were $11.0 million (1H16: $12.7 million), representing 5.3% of revenue (1H16: 6.3%). The Company expects sales and marketing costs for the full year to be consistent with the prior financial year. 7 Refer Finance Statements Note B3 (c) - Legal Claims. 8 Less than 5% of 1H17 sales were to international investors. 9 Represents gross sales price including GST. 2

5 Villa World Limited Directors' report 31 December 2016 (continued) Review of operations (continued) Employee Benefits The Company s continuing focus on generating and delivering strong sales, as well as expanding its geographic footprint, resulted in a number of roles added across operations, sales and marketing, and the Victorian office. The Company finished 1H17 with 129 full time equivalent employees (FY16: 113). The full period salary contribution of the new employees hired during 2H16, as well as the new employees hired in 1H17 resulted in a $2.2 million increase in staff costs over the 1H16. The full year salary contribution of the new employees hired in FY16, as well as hires in FY17 will result in an increase in employee costs of 20-25% over FY16. Assets and NTA Gross assets were $436.6 million as at 31 December 2016 (FY16: $478.0 million). Land acquisitions payable were $26.2 million and will be funded from the existing debt facility and working capital. The NTA per share has increased by 2.3% to $2.20 prior to the declaration of the 8.0 cent interim dividend (30 June 2016: $2.15 prior to the declaration of the 10.0 cent final dividend). Capital Management During 1H17, the Company operated a $190 million club facility with ANZ and Westpac. The $140 million ANZ facility has a staggered maturity, with $10 million expiring on 16 August 2018, $80 million expiring on 1 March 2019 and $50 million expiring on 30 October The $50 million Westpac facility expires on 31 March As at 31 December 2016, unused capacity in the facility was $65.1 million (30 June 2016: $32.7 million). Net debt was $97 million. The gearing ratio was 23.0% (30 June 2016: 25.6%), within the stated gearing target of 15-30%. The average cost of debt for the period ending 31 December 2016 was 7.7% compared to 8.6% as at 30 June A $90 million fixed interest swap of 3.69% remains in place through to June Strong operating cash flow enabled $66.6 million in acquisitions to be settled in 1H17. Dividend Villa World shareholders have benefitted from the strong financial performance during 1H17, with the Directors declaring post balance date an interim dividend of 8.0 cents per share fully franked (1H16: 8.0 cents per share), to be paid on 31 March This represent a payout ratio of 46%. Acquisitions The Company continues to execute on its acquisition strategy to replenish land stock through strategic purchases in proven growth corridors, and to take advantage of opportunities to diversify its geographic footprint along the east coast. In 1H17, the Company acquired 1,496 lots. Importantly, a joint venture was entered into with Greenfield Development Company for a project in Greenbank, which added ~750 lots (50% share), to the south east Queensland pipeline. The Company is progressing the expansion of its foot print by re-entering the New South Wales market primarily through capital efficient partnering arrangements. At 31 December 2016, the Company had a portfolio of 6,386 lots (FY16: 5,937) representing approximately 5.4 years of sales. Outlook In 2H17 the Company s focus will remain on delivering and settling carried forward sales and releasing flagship projects Killara (Logan) and Arundel Springs (Gold Coast). With 24 projects at various points in the life cycle selling during the remainder of FY17, the Company expects to better its FY16 sales performance, achieving at least 1,185 sales. The Company continues to progress its strategy of joint venture arrangements. In FY17, these arrangements will contribute $3.4 million to profit comprising development and project management fees and share of profit. 3

6 Villa World Limited Directors' report 31 December 2016 (continued) Review of operations (continued) Outlook (continued) The Company anticipates that development and project management fees will provide an ongoing and growing revenue stream, as the Company continues to pursue opportunities to grow the business in a capital efficient way, with a strong focus on return on assets. The FY17 gross margin is expected to be within the range of 24% to 26%. Guidance Assuming general consumer confidence is maintained, interest rates remain low and first home buyer grants remain in place, the Company is targeting statutory profit after tax of $37.5 million in FY17, an increase of 11% on FY16 ($33.7 million). This represents EPS of 33.1 cps (FY16: 30.6 cps). This result is underpinned by strong carried forward sales, continued sales momentum across the Company s markets, an increased delivery capability and greater clarity on delivery. It is the intention of the Board to continue the payment of strong dividends, in accordance with the stated payout policy of 50% to 75% of annual NPAT, paid semi-annually and fully franked. The Board anticipates paying total dividends of 18.5 cents per share fully franked in relation to FY17 (FY16: 18 cents per share). FY17 Acquisitions Strategy The Company has a continued commitment to acquire development sites. The near term focus will remain on growing a presence in New South Wales through partnering, the replenishment of the portfolio in south east Queensland, and growing the Victorian land bank with a focus on the south eastern and northern growth corridors of Melbourne. The Company will continue to progress the expansion of its project footprint, with a longer term strategy cementing a place as a leading east coast residential developer. In FY17, the Company expects cash outflow for acquisitions of $60-85 million funded from existing debt facilities and working capital, plus $40 million in capital lite transactions. Ongoing consideration will be given to capital management strategies, including the diversification and maturity of the Company s debt facilities. Auditor's independence declaration A copy of the auditor's independent declaration as required under section 307C of the Corporations Act 2001 is set out on page 5. Rounding of amounts The consolidated entity is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the 'rounding off' of amounts in the Directors' Report. Amounts in the Directors' Report have been rounded off in accordance with ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 to the nearest thousand dollars, or in certain cases, to the nearest dollar. This report is made in accordance with a resolution of the Directors. Craig Treasure Chief Executive Officer and Managing Director Broadbeach 14 February

7 Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: Fax: ey.com/au Auditor s Independence Declaration to the Directors of Villa World Limited As lead auditor for the review of Villa World Limited for the half-year ended 31 December 2016, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and b) no contraventions of any applicable code of professional conduct in relation to the review. This declaration is in respect of Villa World Limited and the entities it controlled during the financial period. Ernst & Young Ric Roach Partner 14 February 2017 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 5

8 Villa World Limited ABN Interim Financial Report - 31 December 2016 Contents Page Interim Financial Statements Interim condensed consolidated statement of comprehensive income 7 Interim condensed consolidated balance sheet 8 Interim condensed consolidated statement of changes in equity 9 Interim condensed consolidated statement of cash flows 10 Notes to the interim condensed consolidated financial statements 11 Directors declaration 23 Independent auditor s review report to the shareholders of Villa World Limited 24 FINANCIAL STATEMENTS 6

9 Villa World Limited Interim condensed consolidated statement of comprehensive income for the half-year ended 31 December 2016 Notes 31-Dec-15 Revenue from continuing operations Revenue from land development, residential building and construction contracts 209, ,153 Cost of land development, residential building and construction contracts (154,768) (145,138) Gross margin 54,672 55,015 Development and project management fee 1,021 1,159 Other income Reversal of impairment of investment in equity accounted investment D Net impairment of development land Share of profit from associates and joint ventures 880 3,450 Other expenses from ordinary activities Property sales and marketing expenses (11,015) (12,685) Land holding costs (1,902) (2,004) Legal and professional costs (799) (648) Employee benefits (9,960) (7,747) Depreciation and amortisation expense (254) (373) Administration costs and other expenses (2,374) (2,212) Finance costs C4 (3,986) (6,044) Profit before income tax 27,977 28,494 Income tax (expense) A3 (8,361) (8,068) Net profit for the half-year 19,616 20,426 Profit is attributable to: Owners of Villa World Limited 19,616 20,426 Other comprehensive income Other comprehensive income to be reclassified to profit or loss in subsequent periods: Changes in the fair value of cash flow hedges Income tax relating to components of other comprehensive income (298) (68) Other comprehensive income for the half-year, net of tax Total comprehensive income for the half-year 20,311 20,587 Total comprehensive income for the half-year is attributable to: Owners of Villa World Limited 20,311 20,587 FINANCIAL STATEMENTS Cents Cents Earnings per share for profit attributable to the ordinary equity holders of the Company: Basic earnings per share Diluted earnings per share The above interim condensed consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 7

10 Villa World Limited Interim condensed consolidated balance sheet as at 31 December 2016 ASSETS Current assets Notes 30-Jun-16 Cash and cash equivalents 14,130 8,358 Trade and other receivables 51,983 72,351 Inventories B1 140, ,037 Other current assets 3,577 3,157 Total current assets 210, ,903 Non-current assets Inventories B1 202, ,660 Property, plant and equipment 1,219 1,169 Investments accounted for using the equity method D1 22,739 18,482 Deferred tax assets Total non-current assets 226, ,106 Total assets 436, ,009 LIABILITIES Current liabilities Trade and other payables B2 55,894 79,030 Deferred income Current tax liabilities 5,375 4,868 Service warranties B3 4,199 14,392 Employee benefits Other provisions Total current liabilities 67,003 99,634 Non-current liabilities Trade and other payables B2 5,640 11,989 Borrowings C3 111, ,594 Deferred income Deferred tax liabilities 2,229 - Employee benefits - long service leave Other provisions Total non-current liabilities 119, ,495 Total liabilities 186, ,129 Net assets 249, ,880 EQUITY Contributed equity C1 447, ,271 Other reserves 202, ,320 Accumulated losses (400,170) (397,711) Total equity attributable to shareholders 249, ,880 Total equity 249, ,880 FINANCIAL STATEMENTS The above interim condensed consolidated balance sheet should be read in conjunction with the accompanying notes. 8

11 Villa World Limited Interim condensed consolidated statement of changes in equity for the half-year 31 December 2016 Notes Contributed equity Cash flow hedges Attributable to owners of Villa World Limited Other reserves Profits reserve Accumulated losses Total Balance at 1 July ,286 (2,677) ,550 (397,878) 220,598 Profit for the half-year as reported in the 2016 interim financial statements ,426 20,426 Movement in hedge reserve (net of tax) Transfer current year profit to profit reserve ,740 (21,740) - Total comprehensive income for the half-year ,740 (1,314) 20,587 Transactions with owners in their capacity as owners: Dividends provided for or paid A (11,034) - (11,034) Expenses related to share based payments Forfeited share based payments - - (38) - - (38) (11,034) - (10,908) Balance at 31 December ,286 (2,516) ,256 (399,192) 230,277 Balance at 1 July ,271 (2,355) 2, ,234 (397,711) 236,880 Profit for the half-year as reported in the 2017 interim financial statements ,616 19,616 Movement in hedge reserve (net of tax) Transfer current year profit to profit reserve ,075 (22,075) - Total comprehensive income for the half-year ,075 (2,459) 20,311 Transactions with owners in their capacity as owners: Dividends provided for or paid A (11,359) - (11,359) Expenses related to share based payments Exercise of options C1 4, ,062 Shares acquired by Employee Share Scheme Trust C1 (396) (396) 3, (11,359) - (7,411) Balance at 31 December ,937 (1,660) 2, ,950 (400,170) 249,780 FINANCIAL STATEMENTS The above interim condensed consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 9

12 Villa World Limited Interim condensed consolidated statement of cash flows for the half-year ended 31 December 2016 Cash flows from operating activities Notes 31-Dec-15 Receipts from customers (inclusive of goods and services tax) 249, ,808 Receipts from the transfer of development rights - 25,400 Payments to suppliers and employees (inclusive of goods and services tax) (132,527) (128,589) Cash generated from operating activities 117, ,619 Payments for land acquired (66,627) (53,127) Interest received Interest paid Borrowing costs GST paid (2,946) (3,733) (34) (270) (8,466) (6,290) Corporate tax paid (5,129) - Net cash inflow from operating activities 34,279 43,496 Cash flows from investing activities Payments for property, plant and equipment (294) (359) Payments for equity accounted investments (5,000) (11,815) Distributions received from equity accounted investments 2,250 10,257 Net cash (outflow) from investing activities (3,044) (1,917) Cash flows from financing activities Proceeds from borrowings 106,335 60,551 Repayment of borrowings (124,105) (106,300) Proceeds from exercise of options C1 4,062 - Payments for shares acquired by the Employee Share Scheme Trust C1 (396) - Dividends paid to Company's shareholders A2 (11,359) (11,034) Net cash (outflow) from financing activities (25,463) (56,783) Net increase / (decrease) in cash and cash equivalents 5,772 (15,204) Cash and cash equivalents at the beginning of the financial year 8,358 22,571 Cash and cash equivalents at end of half-year 14,130 7,367 FINANCIAL STATEMENTS The above interim condensed consolidated statement of cash flows should be read in conjunction with the accompanying notes. 10

13 Villa World Limited Notes to the interim condensed consolidated financial statements for the half-year ended 31 December 2016 Contents of the notes to the interim condensed consolidated financial statements Page A A1 A2 A3 B B1 B2 B3 B4 C C1 C2 C3 C4 D D1 E E1 E2 E3 RESULTS FOR THE YEAR Segment revenue 12 Dividends 13 Taxes 13 OPERATING ASSETS AND LIABILITIES Inventories 14 Trade and other payables 14 Provisions and contingencies 15 Capital and other commitments 16 CAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENT Contributed equity 18 Financial instruments 18 Borrowings 19 Finance costs 20 GROUP STRUCTURE Investments accounted for using the equity method 21 OTHER INFORMATION Reporting entity 22 Basis of preparation of half-year report 22 Events occurring after the reporting period 22 11

14 A A A Villa World Limited Notes to the interim condensed consolidated financial statements for the half-year ended 31 December 2016 (continued) RESULTS FOR THE YEAR This section provides information that is most relevant to explaining the Company's performance during the half-year and where relevant, the accounting policies that have been applied and significant estimates and judgements made. In this section: A1 A1 A2 A2 Segment Revenue Dividends A3 A3 Taxes A1 Segment revenue (a) Identification of reportable operating segments The Company is organised into two operating segments: Property development and construction - New South Wales and Queensland Property development and construction - Victoria The Company has identified its operating segments based on the internal reports that are reviewed and used by the executive committee (chief operating decision makers) in assessing performance and in determining resource allocation. The Company and its controlled entities develop and sell residential land and buildings predominately in New South Wales, Queensland and Victoria. The individual operating segments of each geographical area have been aggregated on the basis that they possess similar economic characteristics and are similar in nature of the product and production processes. RESULTS FOR THE YEAR The segment information provided to the executive committee for the reportable segments for the six months ended 31 December 2016 is as follows: 31-Dec-15 From continuing operations Segment revenue from land development, residential building and construction contracts New South Wales and Queensland 176, ,594 Victoria 33,077 28,559 Total segment revenue from land development, residential building and construction contracts 209, ,153 Segment cost of land development, residential building and construction contracts New South Wales and Queensland 130, ,837 Victoria 24,325 23,301 Total segment cost of land development, residential building and construction contracts 154, ,138 Segment gross margin New South Wales and Queensland 45,920 49,757 Victoria 8,752 5,258 Total segment gross margin 54,672 55,015 Segment assets and liabilities are not directly reported to the executive committee when assessing the performance of the operating segments and are therefore not relevant to the disclosure. 12

15 A A1 Segment revenue (continued) (b) Segment information provided to the executive committee (i) Segment revenue Villa World Limited Notes to the interim condensed consolidated financial statements for the half-year ended 31 December 2016 (continued) Revenue received from external parties is derived from land development, residential building and construction contracts. Revenue is reported to the executive committee in a manner consistent with that presented in the statement of comprehensive income. (ii) Segment gross margin The executive committee assesses the performance of the operating segments based on a measure of gross margin. This measurement basis consists of revenue less land, development, construction and sundry costs. A2 Dividends (a) Ordinary shares 31-Dec-15 Final fully franked ordinary dividend for the year ended 30 June 2016 of 10.0 cents (2015: 10.0 cents per fully paid share) paid on 30 September 2016 (2015: 30 September 2015) Final franked dividend based on tax paid at 30.0% 11,359 11,034 RESULTS FOR THE YEAR (b) Dividends not recognised at the end of the reporting period 31-Dec-15 In addition to the above dividends, since half-year end the Directors have recommended the payment of an interim fully franked dividend of 8.0 cents per fully paid ordinary share (2015: 8.0 cents per fully paid ordinary share) based on tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 31 March 2017 out of profits reserve at 31 December 2016, but not recognised as a liability at half-year end, is 9,086 8,828 A3 Taxes (a) Numerical reconciliation of income tax expense to prima facie tax payable 31-Dec-15 Profit from continuing operations before income tax expense 27,977 28,494 27,977 28,494 Tax at the Australian tax rate of 30.0% (2015: 30.0%) 8,393 8,548 Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Share of loss in equity accounted investments utilised (132) (525) 8,261 8,023 Other (26) 52 Adjustments for current tax of prior periods 126 (7) Income tax expense 8,361 8,068 -$36, $36,

16 B B B OPERATING ASSETS AND LIABILITIES Villa World Limited Notes to the interim condensed consolidated financial statements for the half-year ended 31 December 2016 (continued) This section shows the assets used to generate the Company's trading performance and the liabilities incurred as a result. B1 B1 B2 B2 B3 B3 B4 B4 In this section: Inventories Trade and other payables Provisions and contingencies Capital and other commitments B1 Inventories Current assets 30-Jun-16 Acquisition cost of land held for development and resale 65,301 94,909 Development costs 73,818 89,065 Capitalised interest 2,870 3,618 Impairment of development land (1,486) (1,555) Non-current assets 140, ,037 Acquisition cost of land held for development and resale 169, ,080 Development costs 31,959 36,991 Capitalised interest 7,385 6,224 Impairment of development land (6,564) (7,635) 202, ,660 Total inventory 342, ,697 OPERATING ASSETS AND LIABILITIES B2 Trade and other payables 30-Jun-16 Current liabilities Land acquisitions 21,349 37,791 Sub-contractors and materials 306 5,012 Total trade payables 21,655 42,803 Other current payables Accrued expenses 31,301 33,694 Other payables 1 2,938 2,533 Total current other payables 34,239 36,227 Total current trade and other payables 55,894 79,030 Non-current liabilities Land acquisitions 4,808 9,137 Other payables ,852 Total non-current trade and other payables 5,640 11,989 Total payables 1 Includes derivatives payable of $1.8 million (30 June 2016: $1.8 million). 61,534 91,019 2 Includes derivatives payable of $0.7 million (30 June 2016: $1.9 million). 14

17 B B3 Provisions and contingencies (a) Service warranties Villa World Limited Notes to the interim condensed consolidated financial statements for the half-year ended 31 December 2016 (continued) 30-Jun-16 Current liabilities Service warranties 4,199 14,392 4,199 14,392 A provision for warranties is recognised when the underlying products or services are sold. Provision is made for the estimated warranty claims in respect of Villa World Developments Pty Ltd built properties which are still under warranty at balance date. These claims are expected to be settled within the statutory warranty period. Where the Company expects some or all of a provision to be reimbursed, such as under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The following statutory warranty periods generally apply to the Company's housing products: New South Wales - 10 years from occupancy certificate Queensland - 6 years 6 months from completion of work Victoria - 10 years from issue of occupancy certificate OPERATING ASSETS AND LIABILITIES (b) Movements in provision for service warranties 30-Jun-16 Current liabilities Carrying amount at start of year 14,392 14,983 - additional provisions recognised 626 4,554 Amounts incurred and paid 1 (10,319) (4,215) - unused amounts reversed 2 (500) (930) Carrying amount at end of period 4,199 14,392 1 Includes amounts incurred and paid in relation to legal claims. Refer note B3 (c) Legal Claims. 2 Unused provision in relation to legal claims. Refer note B3 (c) Legal Claims. (c) Legal claims Silverstone litigation The Company has previously made a provision for the Silverstone litigation (refer to note B4 (d) - Provisions, Annual Financial Report for the period ended 30 June 2016). All outstanding aspects of the Silverstone proceedings were concluded during 1H17 including payment of the Company s contribution towards settlement of the claim, for amounts that were within the provision that was assessed at 30 June No further provision is required for this matter. (d) Amounts not expected to be settled within 12 months The current provision for employee benefits includes accrued annual leave and long service leave. For long service leave it includes all unconditional entitlements where employees have completed the required period of service. Included within the long service leave provision is an amount of $243,443 (30 June 2016: $164,137) classified as current, since the Company does not have an unconditional right to defer settlement for this obligation. The noncurrent long service leave provision covers conditional entitlements where employees have not completed their required period of service, adjusted for the probability of likely realisation. 15

18 B B3 Provisions and contingencies (continued) (e) Contingencies (i) Details and estimates of contingent liabilities are as follows: Villa World Limited Notes to the interim condensed consolidated financial statements for the half-year ended 31 December 2016 (continued) The Company has provided bank guarantees (excluding joint venture entities) to the total of $13.8 million (30 June 2016: $18.7 million) to authorities and councils in relation to certain works to be undertaken or maintained or in support of contractual commitments. (ii) Estimates of material amounts of contingent liabilities not provided for in the financial report The Company has entered into agreements to indemnify certain employees and former employees against all liabilities that may arise as a result of any claims against them by third parties as a result of the Company's building activities. It is impractical to estimate the amount that may arise from these arrangements. There were no claims made against the Company for the half-year ended 31 December 2016 (30 June 2016: nil). A controlled entity has contractual arrangements that provide for liquidated damages under certain circumstances. It is impractical to estimate the amount of any liability that may arise from these arrangements. (iii) Contingent liabilities in respect of other entities The Company has provided the following guarantees in respect of its interest in jointly controlled entities. Rochedale Joint Venture Donnybrook Joint Venture 30-Jun Jun-16 OPERATING ASSETS AND LIABILITIES Total financing facilities 22,000 22,000 11,220 11,220 Facilities utilised at reporting date 7,373 16,039 10,201 9,814 Bank guarantees utilised at reporting date Principal amount recoverable by the Company in respect of debt facility 50% 50% 51% 51% B4 Capital and other commitments (a) Put and call commitments Villa World Limited, through its wholly owned subsidiaries, assumed certain contractual obligations in conjunction with the execution of Put and Call Option Agreements (the Agreements) in relation to the acquisition of individual subdivided lots in property developments in New South Wales, Queensland and Victoria. The call option gives the Company (or a third party purchaser introduced by the Company) the option to purchase the lot(s) at a nominated price by a sunset date. On expiry of the sunset date, for any lots which haven t then been purchased, the put option gives the vendor the right to sell those lots to the Company at a nominated price. The potential total commitments remaining under the Agreements are $48.5 million (30 June 2016: $13.2 million). The commitments are crystallised on registration of the subdivided lots by the vendor and will be made available on a stage by stage basis. However, the Agreements are severable by development stage and the commitments may be less than the total commitments under the Agreements as outlined above. 30-Jun-16 Capital commitments in relation to put and call arrangements Opening balance 13,163 32,868 Crystallised and paid commitments (889) (21,276) Arrangements entered into during the year 36,239 1,571 Total commitments 48,513 13,163 16

19 B Villa World Limited Notes to the interim condensed consolidated financial statements for the half-year ended 31 December 2016 (continued) B4 Capital and other commitments (continued) (b) Joint Venture commitments As at 31 December 2016, the Company has commitments of $22.5 million which relate to the equity contributions committed under the Joint Venture agreement with Greenfields Development Company. (c) Lease commitments Accounting for leases Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. Non-cancellable operating leases The Company has entered into leases for office space on normal commercial terms with lease terms between three and five years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the lease are renegotiated. Future commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: 30-Jun-16 Within one year Later than one year but not later than five years ,173 OPERATING ASSETS AND LIABILITIES 17

20 C Villa World Limited Notes to the interim condensed consolidated financial statements for the half-year ended 31 December 2016 (continued) C C C1 C1 C2 C2 C3 C3 C4 C4 CAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENT This section outlines how the Company manages its capital structure and related financing costs, including its balance sheet liquidity and access to capital markets. In this section: Contributed equity Financial instruments Borrowings Finance costs C1 Contributed equity Issued Capital Shares '000 Shares 30-Jun-16 ' Jun-16 Ordinary shares fully paid Beginning of the financial period 110, , , ,286 Exercise of options 3,250-4,062 - Shares issued as part of the employee share scheme - 3,250-6,689 Treasury shares (176) (3,250) (396) (6,689) Shares acquired by the Employee Share Scheme Trust Share capital issue costs (15) End of the financial period 113, , , ,271 CAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENT C2 Financial instruments Interest rate swap contracts - cash flow hedges The Company measures its derivative financial liabilities at fair value at each reporting date. The fair value techniques used to value these financial instruments have not materially changed since 30 June Cash flow hedges are measured using significant observable inputs (level 2 of the fair value hierarchy). At balance date these interest rate swap contracts were liabilities with a fair value of $2.5 million (30 June 2016: $3.7 million). This is the only financial instrument included on the consolidated balance sheet and measured at fair value. The fair value of the swap is the estimated amount that the entity would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates, forward interest yield curves and the current creditworthiness of the swap counterparties. The fair value of the interest rate swap is calculated as the present value of the estimated future cash flows. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and accumulated in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. There is no material ineffectiveness for the half-year ended 31 December

21 C Villa World Limited Notes to the interim condensed consolidated financial statements for the half-year ended 31 December 2016 (continued) C3 Borrowings Financing arrangements Access was available at balance date to the following lines of credit: 30-Jun-16 Total financing facilities secured (i) Australia and New Zealand Banking Group 140, ,000 Westpac Banking Corporation 50,000 50, , ,000 Facilities utilised at reporting date Loan (secured) (i) - non-current 111, , , ,594 Bank guarantees utilised at reporting date Loan (secured) (i) 13,808 18,738 13,808 18,738 Facilities unutilised at reporting date Loan (secured) (i) 65,050 32,668 65,050 32,668 CAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENT Club facility During the six months ending 31 December 2016, the Company's Club Facility with Australia and New Zealand Banking Group Limited (ANZ) and Westpac Banking Corporation (Westpac) increased to $190 million (30 June 2016: $180 million). In August 2016 an additional $10 million was added to the ANZ facility increasing the facility to $140 million. The ANZ facility has $10 million expiring 16 August 2018, $80 million expiring on 1 March 2019 and $50 million expiring on 30 October The $50 million Westpac facility expires on 31 March As at 31 December 2016 the facility was drawn exclusive of bank guarantees at $111.1 million (30 June 2016: $128.6 million). Bank guarantees issued total $13.8 million (30 June 2016: $18.7 million). No restrictions have been imposed on this facility by the financiers during the period ending 31 December 2016 and drawdowns continue to be made in the ordinary course of business. All covenants under the facility were met within the required timeframes during the period. Interest is payable based on a margin over bank bill swap rate. The Company entered into interest rate swap contracts to fix the interest rate at 3.69% (excluding the margin and line fees applicable under the loan agreement) on $90 million of borrowings. The swap contract matures on 12 June The fair value of non-current borrowings and the bank guarantees equals their carrying amount, as the impact of discounting is not significant. 19

22 C Villa World Limited Notes to the interim condensed consolidated financial statements for the half-year ended 31 December 2016 (continued) C4 Finance costs Loan interest and charges 31-Dec-15 Other financial institutions 3,939 3,474 Unwind of discount deferred consideration Borrowing costs Fair value (loss)/gain on interest swap cash flow hedge (137) 53 4,419 4,279 Amount capitalised 1 (2,960) (2,540) Unwind of amount capitalised 2,527 4,305 (433) 1,765 Total finance costs included within the income statement 3,986 6,044 1 The weighted average interest rate applicable to the entity's outstanding borrowings during the half-year, including line fees and margins is 7.7% (31 December 2015: 9.6%). CAPITAL STRUCTURE, FINANCE COSTS AND FINANCIAL RISK MANAGEMENT 20

23 D D D Villa World Limited Notes to the interim condensed consolidated financial statements for the half-year ended 31 December 2016 (continued) GROUP STRUCTURE This section provides information which will help users understand how the group structure affects the financial position and performance of the Company as a whole. In this section: D1 D1 Investments accounted for using the equity method D1 Investments accounted for using the equity method The carrying amounts of the Company's interest in joint ventures at balance date were: 30-Jun-16 Interest in Eynesbury Joint Venture 51 1,580 Interest in Donnybrook Joint Venture 8,450 8,459 Interest in Rochedale Joint Venture 9,240 8,443 Interest in Villa Green Joint Venture 4,998-22,739 18,482 GROUP STRUCTURE (i) Eynesbury Joint Venture Due to certain changes in management's estimates, the Company has recorded a reversal of impairment loss in the Eynesbury Joint Venture during the half-year ended 31 December This impairment reversal of $0.6 million is based on the Board's assessment of the recoverable amount of the investment at reporting date and as a result of an increase in cash proceeds recovered and expected to be recovered from the investment. Payments totalling $2.25 million have been released by the joint venture to the Company during the half-year. As at 31 December 2016 the carrying amount of the Company's interest in the Eynesbury Joint Venture is $0.05 million (30 June 2016: $1.6 million). (ii) Villa Green Joint Venture The Company advised the market on 16 September 2016 that it had entered into a joint venture with Greenfields Development Company and agreed to the unconditional purchase of a 153 hectare site at Greenbank, 34kms south of the Brisbane CBD. The purchase price is $50 million (ex GST) with settlement anticipated to occur in stages during FY18 and FY19. The joint venture will obtain project specific finance for the development. The site has existing approvals over part of the land for approximately 1,000 lots. The joint venture will seek to amend the approval over the whole of the land to approximately 1,500 lots. The joint venture will deliver a high quality master planned community capitalising on the extensive greenspace surrounding the site. The project will offer a diverse range of home sites with lots ranging from 300sqm up to 2,000+ sqm. The joint venture is expected to commence contributing to the Company's profit in FY18. In undertaking the land component of the development, the joint venture partners are to contribute equal capital contributions, share profits on a 50/50 basis and utilise external funding on a 50/50 several liability basis. The Company's ownership interest in the development is a joint arrangement with joint control and is classified as a joint venture under AASB 11 Joint Arrangements. Under AASB 11, the Company accounts for the investment using the equity method in accordance with AASB 128 Investments in Associates and Joint Ventures. 21

24 E E E Villa World Limited Notes to the interim condensed consolidated financial statements for the half-year ended 31 December 2016 (continued) OTHER INFORMATION This section provides the remaining information relating to the Company that must be disclosed to comply with the Accounting Standards, the Corporations Act 2001 or the Corporations Regulations. In this section: E1 E1 E2 E2 Reporting entity Basis of preparation of half-year report E3 E3 Events occurring after the reporting period E1 Reporting entity Villa World Limited is a company incorporated and domiciled in Australia. The consolidated financial report of the Company for the half-year ended 31 December 2016 comprises Villa World Limited and its subsidiaries and the Company's interest in associates and jointly controlled entities. The interim financial report was authorised for issue by the Directors on 14 February E2 Basis of preparation of half-year report This condensed consolidated interim financial report for the half-year ended 31 December 2016 has been prepared in accordance with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act OTHER INFORMATION This condensed consolidated interim financial report does not include all the information and disclosures required in the annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 June 2016 and any public announcements made by Villa World Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act (i) Critical accounting estimates The preparation of interim financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The Directors have not identified any changes to the critical accounting estimates and assumptions from those disclosed in the 30 June 2016 financial report. (ii) New accounting standards and interpretations The accounting policies adopted in the preparation of the condensed consolidated interim financial report are consistent with those followed in the preparation of the Company's annual consolidated financial statements for the year ended 30 June The Company continues to evaluate the potential impact of AASB 15 Revenue from Contracts with Customers on its consolidated financial statements. The evaluation process includes reviewing the terms of contracts and evaluating customary business practices and considering these against the measurement, recognition and disclosure requirements of AASB 15. A key judgemental area will be determining when customers obtain control of land developed and residential building assets insofar as this impacts the timing of revenue recognition. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. New standards and amendments to standards that are mandatory for the first time for the new financial year beginning 1 July 2016 have not affected any of the amounts recognised in the current period or any prior period, and are not likely to affect future periods. E3 Events occurring after the reporting period Interim dividend On 14 February 2017, the Board declared a fully franked interim dividend of 8.0 cents per share. The ex-dividend date is 8 March 2017 and the record date for this dividend is 9 March Payments will be made on 31 March As at 31 December 2016, an amount of $3.6 million is held as franking credits in the Company. 22

25 Villa World Limited Directors' declaration 31 December 2016 In the Directors' opinion: (a) the interim financial statements and notes set out on pages 6 to 22 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and (ii) giving a true and fair view of the consolidated entity's financial position as at 31 December 2016 and of its performance for the half-year ended on that date, and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of Directors. Craig Treasure Chief Executive Officer and Managing Director Broadbeach 14 February

26 Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: Fax: ey.com/au Independent review report to the members of Villa World Limited Report on the Interim Financial Report We have reviewed the accompanying interim financial report of Villa World Limited, which comprises the interim condensed consolidated balance sheet as at 31 December 2016, the interim condensed consolidated statement of comprehensive income, interim condensed consolidated statement of changes in equity and interim condensed consolidated statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors declaration of the consolidated entity comprising the company and the entities it controlled at the half-year end or from time to time during the half-year. Directors Responsibility for the Interim Financial Report The directors of the company are responsible for the preparation of the interim financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the interim financial report that is free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express a conclusion on the interim financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity s financial position as at 31 December 2016 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations As the auditor of Villa World Limited and the entities it controlled during the half-year, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of an interim financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act We have given to the directors of the company a written Auditor s Independence Declaration, a copy of which is included in the Directors Report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 24

27 Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the interim financial report of Villa World Limited is not in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated entity s financial position as at 31 December 2016 and of its performance for the half-year ended on that date; and b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations Ernst & Young Ric Roach Partner Brisbane 14 February

28 Villa World Limited ABN Level 1 Oracle West, 19 Elizabeth Avenue, Broadbeach QLD 4218 PO Box 1899, Broadbeach QLD villaworld.com.au quadrant.com.au VWO43876