ANNUAL REPORT - ARA Group · 2018-08-16 · 3 the. ara group annual report . 2018. page . 4. ara....

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ANNUAL REPORT 2018

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AR18

ABN 47 074 886 561

ANNUALREPORT2018

ANNUAL REPORT 2018

COVER PHOTO

Diana JefriARA Building

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The ARA Group acknowledges the connection of people, land and communities within the areas of which we work.

We pay our respects to Elders past, present and future.

Acknowledgement of Country

We seek to maintain meaningful partnerships by undertaking the appropriate engagement practices within our business and for our communities.

As an Australian company we know the importance of respecting, understanding and sharing the oldest living cultures in the world.

PAGE 3 PAGE 4ANNUAL REPORT 2018THE ARA GROUP

ARA Divisions

LETTER FROM THE MANAGING DIRECTOR

ARA CONFIDENCE

8

9

17 YEARS OF GROWTH

17 YEARS OF PROFITABILITY

NET DEBT AND SHAREHOLDERS’ EQUITY

ARA DIVIDENDS

13

14

15

16

ARA 2018

Financial Year Highlights

ARAIn TheCommunity

Audited Financial Statements

ARA Initiatives

19

22

23

RECENT ACQUISITIONS

ARA RENEWABLE ENERGY

HEALTHCARE CLEANING

36

37

RECONCILIATION ACTION PLAN

PARTNERSHIPS

41

87

AUDITED FINANCIAL STATEMENTS

ARA DIRECTORY

DIVISIONS

LOCATIONS

LEADERSHIP TEAM

27

29

31

View the Annual Report online:aragroup.com.au/2018-annual-report

0LETTER FROM THE MANAGING DIRECTOR

ARA CONFIDENCE

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9

ARA2018

PAGE 6ANNUAL REPORT 2018THE ARA GROUP

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PAGE 5

Ben PagewoodARA Fire


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2018

Edward Federman - Managing Director

Reflecting on ARA’s growth has affirmed our confidence in both our vision and our people.

The 2018 financial year has been very successful for the ARA Group and its various stakeholders. I am pleased to report that ARA has completed its seventeenth year of business operations with our third consecutive year of record sales and earnings. We have accomplished this whilst still maintaining an affordable amount of financial leverage and paying significant fully franked dividends to our shareholders.

Building upon the step change we made in the previous financial year, the theme of this year’s annual report is ‘Confidence’. As a multi-service provider for facilities across Australia and New Zealand, we are always looking for ways to enhance the scale and quality of our offerings. The growth and success we have enjoyed is the result of the many obstacles we have overcome during the past 17 years. From navigating economically tumultuous times and the highly competitive and demanding industries in which we operate, we have learned the true value of transparency across our operations; being accountable when confronted with any shortcomings; and taking initiative to problem-solve any challenges we face as a Group.

Reflecting on ARA’s growth has affirmed our confidence in both our vision and our people. The hard work and collaborative effort of our employees and the strong leadership of our senior management team are essential to providing the high level of service our customers demand of us as their service provider. I want to extend a very big thank you to our senior management team and all of our employees. Without their contributions and

service delivery to our clients, ARA would not have achieved its profitable growth.

The Board of Directors continued to provide strategic direction for the Group throughout this past financial year. I want to thank the Board for their contribution to the overall success of ARA. Allison McCann, the ARA Group Chief Financial Officer, joined the Board during the past financial year. Allison is well placed to provide guidance and advice to the company as a member of the Board of Directors.

Revenue grew from $372 million in 2017 to $479 million - an increase of $107 million, or 29%. This is the sixteenth year out of the seventeen years of ARA’s operations that sales increased from the prior year and it was the eighth consecutive year of record sales. Revenue has grown at a compounded growth rate of 10% during the past ten years. ARA has consistently grown due to a combination of organic growth and strategic acquisitions. I am very pleased to report that the company had 13% organic growth in revenue in 2018.

EBITDA before acquisition expenses increased from $22.9 million in 2017 to $27.0 million in 2018 - an increase of $4.1 million, or 18%. EBITDA before profit sharing with management and employees and acquisition expenses was $31.2 million, or 7% of revenue. This represents an increase of $5.1 million, or 20%, from the previous financial year’s EBITDA before profit sharing with management and employees and acquisition expenses ($26.1 million). EBITDA has grown at a compounded growth rate of 11% during the past ten years.

Cash flow from operations has been strong and a good indicator of solid operating results. ARA is consistently focused on generating cash from the profits earned by the company. In 2018, ARA converted 89% of its EBITDA into operating cash flow, an increase from the 73% of 2017’s EBITDA that was converted into operating cash flow. Free cash flow in 2018 was $12.1 million as compared to free cash flow in 2017 of $11.5 million.

All seven of our divisions were profitable in 2018. Confirmed forward orders for the Group has increased to $243 million at 30 June 2018 as compared to $203 million at the end of the previous financial year, an increase of 20%. This is a record backlog for ARA and puts the Group in a strong operating position for the start of the new financial year.

It has been an exciting year for the ARA Group in 2018. I want to personally thank Leo Browne, my fellow co-founder of ARA, for his guidance during the past seventeen years. In his current role as a Director, his advice is invaluable to myself and to the company. As always, I want to thank our senior management team, our employees, our Board of Directors and our shareholders for all of their work and support to help ARA get to where it is today.

Letter fromthe Managing

Director

Edward Federman

Executive Chair and Managing Director ARA Group Limited


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2018

“Confidence lies at the heart of everything we do.”

The Annual Report is an opportunity to reflect on the success ARA has enjoyed and the challenges that we have faced as a company during the year. As a privately owned company, it is also an opportunity to make ARA’s audited financial statements public and to showcase the breadth of our work as a national service provider. The focus of this year’s Annual Report is the confidence we have in our vision and our people as we look back on seventeen years of growth and profitability.

For ARA, confidence is more than taking pride in our success and the quality of our work. It is the determination that we have shown when faced with setbacks and shortcomings, our willingness to learn from them, and our commitment to constant improvement. As the proud partner of many prominent clients and organisations across Australia and New Zealand, we strive to maintain an open dialogue with our customers, partners, employees and stakeholders to ensure we are attentive to any problems that arise. Their feedback helps us respond to new

challenges and remain relevant to the many changing markets in which we are present so that we can continue to learn and grow as a company.

The majority of our senior leadership team have been with the ARA Group for at least ten years, and their continuity has had a significant impact on our performance as a Group. The decentralised nature of our organisation means that division management and their employees are empowered to take initiative in order to deliver their services and products to their customers. Being able to rely on our leadership team and the collaborative effort of all our employees is an indispensable part of our everyday operation.

As we embark on our eighteenth year, we remain focused on organic growth and strategic acquisitions. We will be working diligently to fulfil the commitments of our Reconciliation Action Plan (RAP) and we have plans in place to build the balance of the ARA Endowment Fund. We look forward to the challenges that lie ahead.

ARA Confidence

– Edward Federman

Matt Georgallis - 17 years with ARA Electrical

2PAGE 12ANNUAL REPORT 2018

Brian Hyuk ParkARA Property Services

PAGE 11 THE ARA GROUP

0FinancialYearHighlights

17 YEARS OF GROWTH

17 YEARS OF PROFITABILITY

NET DEBT AND SHAREHOLDERS’ EQUITY

ARA DIVIDENDS

13

14

15

16

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HIG

HLIG

HTS


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17 Yearsof Growth

Revenue grew to $479 million in 2018 from $372 million in 2017. The increase of $107 million of revenue represents a 29% increase from the prior year. This is the sixteenth year out of ARA’s seventeen years of operations that revenue has increased from the prior financial year. From 2009 to 2018, a period of the last ten years, revenue has grown at a compound growth rate of 10%. Organic growth in 2018 was 13%. The other major reason for the large increase in revenue in 2018 was a full year of results from the CMC Property Services acquisition completed in the fourth quarter of 2017.

17 Years ofProfitability

EBITDA in 2018 was ARA’s third successive record year of profit. EBITDA in 2018, before acquisition expenses, was $27,039,897 - an increase of $4,133,059 from the prior year. The increase of $4.1 million represents an 18% increase from 2017. From 2009 to 2018, a period of the last ten years, EBITDA before acquisition expenses has grown at a compound growth rate of 11%, slightly

greater than the comparable compound growth rate in revenue. The improvement in profit in 2018 was principally due to the strong organic growth in 2018, improved operating results in the Products and Security divisions, the positive effect of the acquisition of the Property Services division in the fourth quarter of 2017, and acquisitions made in the second half of 2018.

ANNUAL EBITDA

SERVICE CONSTRUCTIONPRODUCT

Breakdown by

2002

$ 2

692

817

2006

$ 7

447

844

2010

$ 6

553

299

2014

$ 1

3 02

0 85

7

2004

$ 4

042

872

2008

$ 9

901

948

2012

$ 1

2 04

9 34

2

2016

$ 1

6 65

8 91

9

2003

$ 1

424

211

2007

$ 8

277

627

2011

$ 9

243

426

2015

$ 1

0 02

8 50

1

2005

$ 6

911

968

2009

$ 1

0 58

8 94

8

2013

$ 8

809

653

2017

2018

$ 2

2 90

6 83

8

$ 2

7 03

9 89

7

2017

2018

$ 3

72 3

32 3

84

$ 4

79 2

11 2

31

2016

$ 3

52 3

22 3

32

2011

$ 2

48 5

52 0

09

2010

$ 1

97 3

95 7

99

2009

$ 2

01 2

31 9

51

2008

$ 1

84 0

24 8

16

2007

$ 1

54 0

37 9

26

2006

$ 9

6 94

6 95

5

2005

$ 8

6 18

7 41

9

2004

$ 7

2 22

1 95

6

2003

$ 6

2 99

3 64

0

2002

$ 2

8 08

2 55

2

2015

$ 3

21 6

78 5

29

2014

$ 3

01 0

54 2

33

2013

$ 2

79 9

72 9

44

2012

$ 2

70 1

67 3

54


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Net Debt &Shareholders’

EquityARA

Dividends

The principal reason for the increase in Shareholders’ Equity from $95 million to $106 million was the net income for the year less the dividends declared plus the issuance of shares during 2018.

The net debt (total debt less cash) increased this financial year to $45.8 million from $22.9 million. The principal reason for the

increase in net debt in 2018 was to finance the acquisitions completed during the year. ARA has consistently worked diligently to keep its net debt at a level that is affordable relative to its earnings. 2018 was no exception as the leverage ratio (net debt divided by the trailing twelve months EBITDA adjusted for a full year of acquisitions completed in the current year) was 1.56 at 30 June 2018 (0.94 at 30 June 2017).

$ 4

9 54

4 62

7$

10

142

530

$ 5

4 31

2 25

4$

16

485

212

$ 3

3 35

2 42

8$

8 0

66 9

86

$ 5

2 85

6 65

0$

10

779

681

$ 6

6 63

8 12

4$

13

291

250

$ 5

1 23

1 60

5$

10

500

332

$ 6

0 91

1 03

1$

17

493

603

$ 4

6 23

5 87

1$

12

455

351

$ 5

3 67

9 01

0$

4 5

81 4

92

$ 9

5 04

8 69

2$

22

852

804

2010

2014

2008

2012

2016

2011

2015

2009

2013

2017

2018

$ 1

05 9

07 6

16$

45

791

843

2009

$ 2

478

503

16c

2012

$ 4

372

666

22c

2015

$ 1

967

495

9c

2010

$ 2

038

132

11c

2013

$ 2

782

606

14c

2016

$ 1

0 98

2 44

2

42.5c

2008

$ 2

592

151

20c

2011

$ 2

583

848

13c

2014

$ 4

076

438

20c

2017

$ 9

250

220

30c

2018

$ 1

1 48

3 72

3

31.2c

ARA has consistently attempted to grow the company, keep financial leverage at an affordable level, and provide a good return to its shareholders through the payment of dividends. The payment of dividends is always subject to earnings and cash flow being sufficient to support the dividends.

The total dividends declared in the previous ten years was $52.0 million.

2018 was the third successive year with dividends declared a minimum of $0.30 per share. The $11.5 million of dividends declared in 2018 was a record for ARA. At 30 June 2018, ARA has approximately $20 million of unused franking credits.

NET DEBT EQUITY CENTS PER SHARE DECLARED TOTAL DIVIDENDS DECLARED

0 3ARAInitiatives

19

22

23

RECENT ACQUISITIONS

ARA RENEWABLE ENERGY

HEALTHCARE CLEANING

PAGE 18ANNUAL REPORT 2018PAGE 17 THE ARA GROUP

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TIVES

Nada YazjiARA Electrical


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TIVES

We have made three excellent acquisitions during this financial year. As well as adding

significant sales, they have helped us to break into new market sectors and broaden our range

of service and product offerings as a Group.

Sherry Service & Maintenance Industrial Electrical Services

The addition of Sherry Service & Maintenance has bolstered ARA Electrical’s existing capabilities and market share with their expertise in PLC programming, AC and DC drive installation and achieving high plant availability and maximum production uptime for facilities. ARA acquired 100% of the industrial electrical services business on 1 November 2017 and has been impressed with the inclusion of Sherry’s highly trained team of technicians and notable clients across the printing, packaging, recycling, food, mining and petrochemical industries.

RecentAcquisitions

Complex Solutions Specialist Healthcare Cleaning

Having established a reputation for their professional cleaning services in the Sydney Metro area for the last 20 years, Complex Solutions joined ARA with a prominent customer base in both the commercial and healthcare sectors. As of 1 February 2018, Complex Solutions, led by General Manager Ash Jones, became part of the ARA Property Services team, strengthening the division’s commercial cleaning services and broadening the scope of their service offerings to include specialist healthcare cleaning and food manufacturing cleaning.

See page 23 for more information.

HUD Security Security Products Manufacturing

Recognised as a trusted service provider for Australia’s largest national and regional banks, retailers, government agencies and pharmaceutical companies, HUD is a well-established security products provider with over 30 years of experience in design, manufacture and installation. As of 3 April 2018, ARA’s Security division acquired HUD Security, led by Managing Director Glen Lighton, with HUD’s impressive range of physical and customisable security products adding significant value to the division’s supply of turnkey solutions.

Blair Gemmell - Sherry Service & Maintenance


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TIVES

ARA Renewable Energy was formed last year as part of a major expansion of the in-house sustainability services offered by our Electrical division. ARA Renewable Energy is primed to respond to the significant opportunities for growth in energy efficiency and harness ARA Electrical’s capacity, as well as ARA Mechanical’s expertise in metering and energy management systems. We are now one of the few Australia-wide companies offering a fully in-house solar photo-voltaic (PV) service for large-scale commercial, industrial and regional projects that require high voltage transmission, solar switchboards, solar farm substation design and solar battery storage.

Graeme McMullan, the General Manager of ARA Renewable Energy, is an industry expert with over 25 years of experience in solar systems and the delivery of large-

scale projects. Under Graeme’s leadership and expertise, ARA Renewable Energy is a vertically integrated business that has synergy with ARA’s Electrical and Mechanical divisions. Over the past year, ARA Renewable Energy has taken on a number of projects across the residential, retail and agricultural sectors in NSW.

In our 2017 Annual Report, we published the findings of our Materiality Assessment and determined the sustainability issues that were of the most importance to our staff and stakeholders. Given that climate change ranked as one of our top priorities, we are eager to bolster our activity in the renewable energy industry and find more opportunities to extend our offerings through sustainable energy sources with low environmental impact.

ARARenewable

Energy

Solar PV systems for commercial & industrial sites.

Solar hybrid systems with battery storage.

Solar farms Electrical installation, HV transmission, substation design & installation.

SOLAR CAPABILITIES

Solar switchboards Main switchboard, distribution board, network protection board design & manufacture.

Tania Weinert & Graeme McMullan - ARA Renewable Energy


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TIVES

HealthcareCleaning

Following the acquisition of specialist cleaning provider Complex Solutions in February 2018, ARA Property Services has secured valuable opportunities for organic growth in the healthcare and food manufacturing sectors. Complex Solutions is a highly meticulous and responsive cleaning provider for hospitals, medical centres and professional clinics, as well as high-rise and multi-site commercial facilities across the Sydney Metro area and surrounds.

All sites managed by Complex Solutions are visited and inspected frequently to ensure their work meets and exceeds the requisite health standards. For healthcare clients, monthly cleaning audits are carried out to assist with their ongoing compliance requirements. It is vital that these facilities

receive immaculate service - from the wards and operating theatres to staff and admin areas - for the health and wellbeing of patients, practitioners and staff members alike. The Complex team are on standby 24/7 to deal with any infections or bacterial outbreaks in a timely manner and are trained in the latest methods for infection prevention and control (IPC), sterile room environment cleaning and terminal cleaning for MRSA and VRE bacteria areas.

As the trusted partner to some of the most prominent names in healthcare across the Sydney Metro area and surrounds, Complex Solutions is well-positioned to harness ARA’s wide range of clients and resources and continue to grow their presence in this sector.

The ARA Property Services division was strategically created in May 2017 through the acquisition of CMC Property Services. It was the largest acquisition in ARA history to date, and a significant part of our step change in the past financial year, by extending ARA’s technical service offerings to include cleaning

and property maintenance solutions for the commercial, government and education sectors. Under the leadership of Managing Director Paul McCann, this division is a proud ambassador for the Group and adds value to our service offerings and community partnerships.

ARA PROPERTY SERVICES

Wilson Zaia - Complex Solutions

PAGE 26ANNUAL REPORT 2018

4PAGE 26ANNUAL REPORT 2018

Matthew GeorgallisARA Electrical

PAGE 25 THE ARA GROUP

0SEC

TION

04 AR

A D

IVISION

S

27

29

31

ARADivisions

DIVISIONS

LOCATIONS

LEADERSHIP TEAM


$97 million

Electrical, high voltage, data & engineering

High Voltage Services

Low Voltage Services

Engineering Solutions

Installation Services

Switchboards

Mobile Switch Rooms

Data Centres

Structured Cabling

Renewables

Energy Efficiency

Operates within ARA Property Services with a plan to pull through all ARA services in the future.

ARADivisions

REVENUEDivisions

DIVISIONCapabilities

INDIGENOUSServices

REVENUE Indigenous

All aspects of fire protection

Inspection & Testing

Sprinkler Systems

Detection & EWIS

Passive & Fire Doors

Portable Systems

Special Hazards

Oxygen Reduction

Pipe Fabrication

$79 million

Integration of & solutions for electronic security

Access Control

CCTV

ATM Security & Guarding

Cash In Transit Solutions

Electronic Security Solutions

Safes, Vaults & Teller Units

$79 million

$12 million

In 2018

In 2018

Versatile building & maintenance services

Remedial Building Repairs

24/7 Emergency Service

Exterior & Interior Design

Installations

Construction

Fit Outs

Refurbishments

Multi Trade Services

$37 million

Energy management for commercial buildings

HVAC Design

Mechanical Ventilation

Air Conditioning

Chiller Plants

Building Automation

Energy Management

Metering

$69 million

Commercial cleaning & maintenance

Commercial Cleaning

Healthcare Cleaning

Maintenance

Rapid Response

Grounds Maintenance

Waste Management & Recycling

$61 million

Distribution & Manufacture

Access Control

CCTV

Photo ID Systems

Identity Security

Architectural Hardware

Locksmith Services

Commercial Doors

Industrial Doors

High Security Doors

Physical Security Systems

$57 million

$479REVENUEComprised of

2018Revenue Million

Service71% 16% 13%

Construction Product

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NS


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LocationsARA

AUSTRALIA

ACT

CANBERRA

NSW

ARTARMON

BANKSMEADOW

BELROSE

CARINGBAH

CHIPPING NORTON

COFFS HARBOUR

INGLEBURN

KINGSGROVE

KINGS PARK

MAITLAND

MEDOWIE

NOWRA

ORANGE

PARRAMATTA

RYDALMERE

SINGLETON

STANMORE

TUGGERAH

WAUCHOPE

WINDSOR

WOLLONGONG

QLD

BUNDABERG

EAGLE FARM

KINGSTON

LOGANHOLME

TINGALPA

SA

ADELAIDE

REGENCY PARK

VIC

ARDEER

MELBOURNE

PORT MELBOURNE

WA

KALGOORLIE

PERTH

NEW ZEALAND

AUCKLAND

KERIKERI

WELLINGTON

SECURITY

PROPERTY SERVICES

MECHANICAL

BUILDING

ELECTRICAL

FIRE

PRODUCTS

INDIGENOUS SERVICES

KEY BY BUSINESSES


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DIVISIO

NS

There has been significant continuity for all of our senior managers. Through the years they have created a culture that values the

hard work of our employees and encourages our divisions to work together for the overall

benefit of the Group.

Leadership Team

The ARA senior management team is critical to our success.

Edward Federman Managing Director

ARA Group 17 years with ARA

Allison McCann Chief Financial Officer

ARA Group 7 years with ARA

Brett Chambers Managing Director

ARA Electrical 17 years with ARA

Brian Davies Managing Director

ARA Fire 12 years with ARA

Tony Murr Managing Director

ARA Building 14 years with ARA

Phil Harding Managing Director ARA Mechanical

12 years with ARA

Tony Franov Managing Director

ARA Security 17 years with ARA

Stuart Harmer Managing Director

ARA Products 9 years with ARA

Paul McCann Managing Director

ARA Property Services ARA acquired CMC 2017

Michael O’Loughlin Managing Director

ARA Indigenous Services ARA acquired CMC 2017

This leadership team is one of ARA’s finest assets.

0 536

37

RECONCILIATION ACTION PLAN

PARTNERSHIPS

PAGE 33 THE ARA GROUP PAGE 34ANNUAL REPORT 2018

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Michael GrechARA Indigenous Services

ARAIn TheCommunity


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Reconciliation Action Plan

The ARA Group spans over 30 locations throughout Australia and New Zealand and it is important that we acknowledge the Traditional Owners of the lands on which we live and work. After 17 years of continued growth and last year’s acquisition of 49% of ARA Indigenous Services, we have strengthened our relationships with the Aboriginal and Torres Strait Islander community and have started to make meaningful contributions to reconciliation. We are proud to launch our first Reconciliation Action Plan (RAP) this year, joining over one thousand Australian organisations that share this vision.

Since our combination, ARA Indigenous Services has provided guidance on engagement and employment objectives for Aboriginal and Torres Strait Islander peoples. Under the leadership of Managing Director Michael O’Loughlin, ARA Indigenous Services has successfully tapped into the Group’s

resources and expertise and is quickly evolving into a leading service provider. Although principally a commercial cleaning business, ARA Indigenous Services can also serve as a conduit for all of ARA’s services to the facility management industry. ARA Indigenous Services has also been instrumental in driving cultural awareness training throughout the Group and providing mentoring for positive business practices for inclusion across the country. 56 ARA staff members have attended cultural awareness training over 6 sessions so far, with many more set to take place. Knowledge sharing has been integral to the success of this partnership.

ARA Indigenous Services’ General Manager, Suzanne Grech, is the Champion of our RAP. It is with her dedication that we were able embark on an Innovate RAP program from 2018 to 2020 based on our current means of contributing to reconciliation as a Group. Led by the majority of Senior Management

and Aboriginal and Torres Strait Islander representation, our Steering Committee will be responsible for ensuring we deliver strong outcomes for our commitments in four key focus areas: Meaningful Community Partnerships, Aboriginal and Torres Strait Islander Business Inclusion, Sustainable Employment and Cultural Awareness. As well as launching the Wiimali employment program this year, and a three-year partnership with the National Aboriginal Sporting Chance Academy (NASCA), ARA’s RAP aims to provide solid opportunities for Aboriginal and Torres Strait Islander peoples and their businesses to succeed.

Our reconciliation journey is just beginning. We encourage all of our staff and stakeholders to familiarise themselves with our RAP. ARA’s commitments will be embraced by the Group in the years ahead. Together we can make a strong and concerted contribution to reconciliation in Australia.

“Employment is an opportunity for practical reconciliation, in which corporations can

make meaningful change.” - Edward Federman

Hailey Marks & Michael O’Loughlin - ARA Indigenous Services


Photo courtesy of the Indigenous Literacy Foundation

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ITY Partnerships

THE ARA ENDOWMENT FUND The ARA Group established the ARA Endowment Fund in 2009. The purpose of the Endowment Fund is to build its principal balance and distribute the income earned by the Endowment Fund to registered Australian charities. The Endowment Fund is a registered charity in its own right. The Fund is managed by Equity Trustees within its larger charitable fund. The current principal balance of the ARA Endowment Fund is approximately $1 million. The ARA Endowment Fund has made donations to more than forty registered charities since its inception.

Beginning in 2018, we have made a strategic change to the Endowment Fund in order to focus our charitable efforts on three select partnerships: the GO Foundation, the Indigenous Literacy Foundation and the David Lynch Foundation. Each of these organisations are dedicated to providing support for youth

in Australia. By sharpening the focus of the Endowment Fund it is our hope that we will not only provide these charities with more substantial donations, we also hope that the long-term nature of our commitment will facilitate more meaningful change as well. Our goal is to grow the principal balance of the Endowment Fund and support these organisations for the foreseeable future. Our dream is that, with millions of dollars in the ARA Endowment Fund, we can build a legacy that will last forever and provide meaningful donations in perpetuity.

A PROUD PARTNER In 2018, ARA became the first corporate Principal Partner of the iconic Sydney Writers’ Festival and sponsored the talks of several prominent international and Australian authors. Building on our ongoing support of the festival as a Major Sponsor since 2016, and our contributions to the Festival’s ‘Russ

the Story Bus’ initiative for children, we have committed to a five year Principal Partner Sponsorship. We look forward to engaging with the wider community over the next few years with this unique opportunity for meaningful engagement. We also continued our ongoing support of the Emus at Sydney Taronga Zoo and remain a proud Champion Sponsor of their education and conservation efforts.

With approximately 2,000 ARA employees, and more than thirty Group locations across Australia and New Zealand, a large part of ARA’s confidence comes from the quality of our relationships and the partnerships we have built over the past seventeen years. We take our corporate social responsibility seriously, which is why we will continue to form partnerships that will have meaningful outcomes for the communities in which we work and live.

The GO Foundation provides mentoring, leadership and educational opportunities for Aboriginal and Torres Strait Islander youth, from kindergarten to employment. We look forward to being part of the GO Foundation journey and building on our relationship with GO Foundation co-founder and Managing Director of ARA Indigenous Services, Michael O’Loughlin.

The Indigenous Literary Foundation (ILF) is a national not-for-profit charity focused on improving literacy levels in very remote Aboriginal and Torres Strait Islander communities. Through the Book Supply, Book Buzz and Community Literacy Projects, the ILF provide culturally relevant books to encourage reading and writing abilities from an early age.

The David Lynch Foundation was founded by American film-maker David Lynch in 2005 to make the Transcendental Meditation technique freely accessible for disadvantaged adults and youth around the world. The foundation has recently established its base in Australia and will continue to assist youth at risk, victims of domestic violence and veterans to alleviate stress and trauma.

THE ARA ENDOWMENT FUND CURRENTLY DONATES 100% OF THE INTEREST EARNED ANNUALLY TO THE FOLLOWING FOUNDATIONS:

6Daniel ZaiaARA Property Services

PAGE 40PAGE 39 THE ARA GROUP

041

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AUDITED FINANCIAL STATEMENTS

ARA DIRECTORY

AuditedFinancialStatements

ANNUAL REPORT 2018

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ENTS


ARA Group Limited and Controlled Entities

Directors' report

Your directors submit their report on ARA Group Limited (the "Company") and its controlled entities (collectivelythe "Group") for the year ended 30 June 2018.

Directors

The names and details of the Company's directors in office during the financial year and until the date of thisreport are set out below. Directors were in office for this entire period, unless otherwise stated.

Edward Federman (Executive Director and Executive Chair)

Edward Federman is a co-founder, Executive Chair and Managing Director of the Company. Edward holds anMBA and has over thirty years experience in the building services industry. Edward also serves on the Group’sCompensation Committee.

Leo Browne (Non-Executive Director)

Leo Browne is a co-founder and Non-Executive Director of the Company. Leo has over fifty years experience inthe building services industry. Leo is the chair of the Compensation Committee.

James Marshall (Non-Executive Director)

James Marshall joined the Board as a Non-Executive Director in 2014. James is a corporate lawyer and Head ofRestructuring at Ashurst law firm. James’ legal and commercial experience brings a breadth of expertise to theBoard.

Brett Chambers (Executive Director)

Brett Chambers joined the Board as an Executive Director in 2010. Brett has over thirty years of experience inthe electrical industry and has worked for the Company since 2001. Brett is the Managing Director of the ARAElectrical Division.

Brian Davies (Executive Director) (resigned 29 June 2018)

Brian Davies joined the Board as an Executive Director in 2008. Brian has over thirty years of experience in thefire industry and has worked for the Company since 2006. Brian is the Managing Director of the ARA FireDivision.

Norbert Schweizer (Non-Executive Director)

Norbert Schweizer joined the Board as a Non-Executive Director in 2006. Norbert is a corporate lawyer andfounder of Schweizer Kobras legal practice. Norbert has extensive experience in corporate law.

Allison McCann (Executive Director and Company Secretary)

Allison McCann joined the Board as an Executive Director in 2017 and was appointed Company Secretary in2012. Allison is the Group’s Chief Financial Officer and has worked for the Group since 2010. Allison is achartered accountant and has over fifteen years of finance and commercial experience.

David Sefton (Company Secretary)

David Sefton was appointed Company Secretary in 2015. David is the Group’s Chief Risk Officer and has workedfor the Company since 2015. David is a corporate lawyer with over thirty years of experience.

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Directors' report (continued)

Directors' meetings

The number of meetings of directors (including meetings of committees of directors) held during the year and thenumber of meetings attended by each director were as follows:

Directors

Number ofBoard meetings

held

Number ofBoard meetings

attended

Number ofcompensationcommittee

meetings held

Number ofcompensationcommittee

meetings attended

Leo Browne 7 6 1 1Edward Federman 7 7 1 1James Marshall 7 7 - -Brett Chambers 7 7 - -Brian Davies 7 6 - -Norbert Schweizer 7 7 - -Allison McCann 7 7 - -

Results of operations

The total comprehensive income of the economic entity for the financial year after providing for income taxamounted to $14,665,682 (2017: $12,626,922). The total comprehensive income increased 16% from theprevious year.

The increase in total comprehensive income was principally due to a full year of earnings for the Group's PropertyServices Division acquired at the end of last financial year, and strong performances from the Security andProducts Divisions.

Review of operations

Total sales of the Group's products and services were $479,211,231 in 2018 compared with $372,332,384 in2017, an increase of $107 million, or 29%. The Group's earnings before interest, tax, depreciation andamortisation (EBITDA) amounted to $27,039,897 in 2018 (before acquisition expenses) compared with$22,906,838 in 2017 (before acquisition expenses), an increase of $4.1 million, or 18%. The Group's EBITDAbefore acquisition expenses and profit sharing expense was $31.1 million in 2018 (6% of revenue) and $26.1million in 2017 (7% of revenue).

Earnings before interest, tax, depreciation, amortisation and profit sharing expense summary

2018 2017$ $

Earnings before interest, tax, depreciation, amortisation and profit sharingexpense 31,110,810 26,093,930Profit sharing expense (4,070,913) (3,187,092)EBITDA (Earnings before interest, tax, depreciation, amortisation andacquisition expense) 27,039,897 22,906,838

Acquisition expense (33,940) (471,023)Depreciation and amortisation expense (3,924,730) (2,530,741)

EBIT (Earnings before interest and tax) 23,081,227 19,905,074

Net interest expense (2,674,442) (2,094,728)

Profit before income tax 20,406,785 17,810,346

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Review of operations (continued)

The Group made two major acquisitions during the financial year. The largest acquisition was a NSW cleaningbusiness, Complex Solutions Pty Ltd, which was purchased to expand the Group’s Property Services Division.The second largest acquisition was a national manufacturer and installer of security products including safes,vaults and teller units. The acquisition expands the service offering of our existing Security Division.

Throughout the financial year, the operating businesses maintained a strong forward order book. At 30 June2018, the confirmed forward orders totalled approximately $243 million (30 June 2017: $203 million) an increaseof 20%. The backlog remains strong across all divisions.

The Group's net senior bank debt (senior bank debt less cash) increased by $23.5 million from $21.9 million at 30June 2017 to $45.4 million at 30 June 2018. The increase in net senior bank debt is principally due to an increasein borrowings to pay for the acquisitions of Complex Solutions Pty Ltd and HUD Security Pty Ltd.

The overall EBITDA operating margin remained at 6% of sales. The Group will continue to seek to improve itsoperating margin in 2019.

Principal activities

The principal activities of the economic entity during the financial year were the provision of essential buildingservices (installation and service) such as fire protection services, electrical, electrical engineering and highvoltage services, electronic security services and products, air conditioning, building fit out and building repairsand building automation, cleaning services and the manufacturing of specialised building products such as steeldoors, ballistic doors and partitions, steel security doors and steel fire doors, aluminium security shutters andgrilles. The acquisitions in 2018 increased the activities of the companies in the economic entity during the year.

Significant changes in the state of affairs

During the year, the Group issued 2,111,916 new shares, increasing the number of shares issued from36,132,565 at 30 June 2017 to 38,244,481 at 30 June 2018. This increased contributed equity by $7,948,140from $74,141,593 at 30 June 2017 to $82,089,733.

The issue of new shares relate to:

• 15,000 new shares issued on exchange for subordinated debentures• 777,500 new shares issued as purchase consideration for businesses acquired, and• 1,319,416 newly issued shares to new and existing shareholders.

The Group made several acquisitions during the year. The two major acquisitions were discussed above. Therewere no other significant changes in the state of affairs of the company during the financial year.

Significant events after the reporting period

There have been no significant events occurring after the reporting period which may affect either the Group'soperations or results of those operations or the Group's state of affairs.

Future developments

The Group will continue to focus on margin improvements in all of its businesses. The directors continue to seekmanagement to focus on margin improvements, although it is recognised that the competitive environment andthe state of some sectors of the local economy makes it difficult for significant margin increases.

The Group's acquisition strategy will remain consistent in its approach to examine opportunities that complementits current services and products. One element of the Group's acquisition strategy is to acquire companies thatincrease the overall operating margin of the Group. It is expected the Group will continue to focus on organicgrowth and improved operating margin in 2019, although appropriate acquisition opportunities will be thoroughlyinvestigated. It remains the goal of the directors to pay $0.30 dividends per share during the financial year 2019.

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Future developments (continued)

If the Group identifies appropriate acquisitions in 2019, it will likely use a combination of new equity, cash flowfrom operations, and borrowings to finance the execution of any acquisitions, as it did in 2018. In any event, thedirectors will ensure that the Group does not become highly leveraged. In the absence of any acquisitions in2019, the Group has budgeted to reduce debt in the amount of $3.9 million. The goal of the Group remains thatits net debt will not exceed 30% of its capital structure. At 30 June 2018, net debt was $45.4 million, or 30% of itscapital structure ($21.9 million at 30 June 2017 and 19% of its capital structure). The increase in debt wasprincipally due to debt funding for the acquisition of Complex Solutions Pty Ltd and HUD Security Pty Ltd. At 30June 2018, the leverage ratio (total net senior bank debt excluding bank guarantees, divided by the trailing twelvemonths EBITDA, adjusted for acquisitions made during the year) was 1.56 (30 June 2017: 0.94).

Net interest expense increased by only $579,714, despite increased borrowings for acquisitions. The Group'sinterest cover ratio (EBIT divided by interest expense) was 8 times in 2018 compared to 8 times in 2017.

Environmental regulations

The economic entity's operations are not regulated by any significant environmental regulation under a law of theCommonwealth or of a State or Territory. The Group has embarked upon a plan to reduce its carbon footprint inthe environment. The Group has implemented an Environmental Management Policy and continues to worktowards ISO accreditation in all of its businesses.

Dividends

Fully franked dividends amounting to $11,483,723, or $0.312 per share, were declared during the financial year(2017: $9,250,220 or $0.30 per share). $2,868,336, or $0.075 per share, was paid on 3 July 2018 and wasprovided for at 30 June 2018 and $458,934 or $0.012 per share will be paid during financial year 2019. Bothdividends payments were provided for at 30 June 2018. The Group paid $0.30 per share in 2018 (2017: $0.35per share).

In addition to dividends paid by ARA Group Limited, ARA Indigenous Services Pty Ltd paid total dividends of$455,644 in 2018 to its shareholders.

Share options

No option to acquire shares in the Company has been granted to any person. No shares have been issuedduring the financial year or since the end thereof by virtue of the exercise of any options. There are no unissuedshares under option at the date of this report.

Indemnification and insurance of directors and officers

Insurance premiums of $30,218 were paid during the financial year for Directors and Officer Liability Insurance.

Indemnification of auditor

To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of theterms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecifiedamount). No payment has been made to indemnify Ernst & Young during or since the financial year.

Proceedings on behalf of the Company

No person has applied for leave of the Court to bring proceedings on behalf of the Company or intervene in anyproceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Companyfor all or any part of those proceedings. The Company was not a party to any such proceedings during the year.

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Consolidated statement of profit or loss and othercomprehensive income

For the year ended 30 June 2018

2018 2017Notes $ $

Revenues 4.1 479,211,231 372,332,384

Other income 4.2 178,489 255,571

Changes in inventories of finished goods and work in progress 2,596,068 2,596,408Raw materials and consumables used (126,652,132) (90,756,674)Employee benefits expense (164,634,181) (131,377,040)Management and sub contract fees (121,764,203) (94,138,098)Profit sharing expense (4,070,913) (3,187,092)Depreciation and amortisation expense 4.4 (3,924,730) (2,530,741)Finance costs 4.3 (2,760,458) (2,112,936)Other expenses from ordinary activities 4.5 (37,738,446) (32,800,413)Acquisition expenses (33,940) (471,023)Profit before income tax expenses 20,406,785 17,810,346

Income tax expense 5 (5,675,646) (5,320,158)

Net profit for the year 14,731,139 12,490,188

Net profit for the year is attributable to:Owners of the Parent 14,286,451 12,407,455Non-controlling interests 444,688 82,733

14,731,139 12,490,188

Other comprehensive income

Other comprehensive income to be reclassified to profit or loss insubsequent periods:Net (loss)/gain on cash flow hedges, net of tax 16.2 (65,457) 136,734Net other comprehensive (loss)/income to be reclassified to profitor loss in subsequent periods (65,457) 136,734

Other comprehensive (loss)/income for the year (65,457) 136,734

Total comprehensive income for the year 14,665,682 12,626,922

Total comprehensive income for the year is attributable to:Owners of the Parent 14,220,994 12,544,189Non-controlling interests 444,688 82,733

14,665,682 12,626,922

The accompanying notes form part of these financial statements.

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Consolidated statement of financial position

As at 30 June 2018

2018 2017Notes $ $

AssetsCurrent assetsCash and cash equivalents 7 11,689,157 15,751,960Trade and other receivables 8 81,138,473 64,398,478Inventories and construction work in progress 9 19,084,432 16,488,364Prepayments 1,818,804 850,258

Total current assets 113,730,866 97,489,060

Non-current assetsOther financial assets 243,487 372,747Property, plant and equipment 11 11,257,553 11,878,710Deferred tax assets 5 5,910,977 5,558,229Goodwill and intangible assets 12 136,698,483 108,206,248Total non-current assets 154,110,500 126,015,934

Total assets 267,841,366 223,504,994

LiabilitiesCurrent liabilitiesTrade payables 13 54,159,505 42,640,004Other payables 13 29,544,255 26,635,505Interest bearing loans and borrowings 14 4,154,038 1,881,157Income tax payable 536,487 2,456,047Employee benefits 15 13,234,113 11,565,497

Total current liabilities 101,628,398 85,178,210

Non-current liabilitiesTrade and other payables 13 1,437,500 2,250,000Interest-bearing loans and borrowings 14 53,326,962 36,373,607Subordinated debentures 14 - 350,000Deferred tax liabilities 5 3,713,306 2,577,005Employee benefits 15 1,827,584 1,727,480

Total non-current liabilities 60,305,352 43,278,092

Total liabilities 161,933,750 128,456,302

Net assets 105,907,616 95,048,692

EquityContributed equity 16 82,089,733 74,141,593Other reserves 16 (2,768,587) (2,703,130)Retained earnings 26,330,224 23,527,496Equity attributable to equity holders of the parent 105,651,370 94,965,959Non-controlling interests 256,246 82,733

Total equity 105,907,616 95,048,692


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Consolidated statement of changes in equity


Contributedequity

(Note 16)Retainedearnings

Otherreserves(Note 16)

Non-controllinginterests Total equity

$ $ $ $ $At 1 July 2016 49,107,727 20,370,261 (2,839,864) - 66,638,124

Profit for the year - 12,407,455 - 82,733 12,490,188Other comprehensive income - - 136,734 - 136,734Total comprehensive income for theyear - 12,407,455 136,734 82,733 12,626,922

Transactions with owners in theircapacity as owners:Shares issued during the year 25,033,866 - - - 25,033,866Dividends paid or provided for - (9,250,220) - - (9,250,220)

At 30 June 2017 74,141,593 23,527,496 (2,703,130) 82,733 95,048,692

At 1 July 2017 74,141,593 23,527,496 (2,703,130) 82,733 95,048,692

Profit for the year - 14,286,451 - 444,688 14,731,139Other comprehensive loss - - (65,457) - (65,457)Total comprehensive income/(loss)for the year - 14,286,451 (65,457) 444,688 14,665,682

Transactions with owners in theircapacity as owners:Shares issued during the year 7,948,140 - - - 7,948,140Dividends paid or provided for - (11,483,723) - (271,175) (11,754,898)

At 30 June 2018 82,089,733 26,330,224 (2,768,587) 256,246 105,907,616


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Consolidated statement of cash flows


2018 2017Notes $ $

Operating activitiesReceipts from customers 514,638,005 402,697,248Payments to suppliers and employees (489,158,836) (385,993,061)Dividends received 1,247 1,056Interest received 86,016 18,208Borrowing costs paid (2,760,458) (2,112,936)Income tax paid (8,109,546) (4,528,377)

Net cash flows from operating activities 7 14,696,428 10,082,138

Investing activitiesPurchase of plant and equipment (1,799,983) (3,069,039)Proceeds from sale of plant and equipment 338,283 321,648Payment for investments and businesses acquired 3 (29,759,043) (20,605,094)

Net cash flows used in investing activities (31,220,743) (23,352,485)

Financing activitiesProceeds from borrowings 34,000,000 113,250,000Repayment of borrowings (14,500,000) (96,975,000)(Repayments)/proceeds from subordinated debentures (290,000) 2,814,000Payment of finance lease liabilities (389,057) (117,539)Proceeds from issued capital 4,778,140 7,343,366Dividends paid - owners of the parent entity (10,866,396) (9,966,270)Dividends paid to non-controlling entity (271,175) -

Net cash flows from financing activities 12,461,512 16,348,557

Net (decrease)/increase in cash and cash equivalents (4,062,803) 3,078,210Cash and cash equivalents at 1 July 15,751,960 12,673,750

Cash and cash equivalents at 30 June 7 11,689,157 15,751,960


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Notes to the consolidated financial statements


1. Corporate information

The consolidated financial report of ARA Group Limited and its controlled entities (the "Group") for the yearended 30 June 2018 was authorised for issue in accordance with a resolution of the directors on 7 August 2018.

ARA Group Limited (the "Company") is a for-profit company limited by shares, incorporated and domiciled inAustralia.

The registered office and principal place of business of the parent entity is 10 Bridge Road, Stanmore, NSW2048.

The nature of the operations and principal activities of the Group are described in the directors' report.

2. Summary of significant accounting policies

2.1 Basis of preparation

Statement of compliance

The financial report is a general purpose financial report, which has been prepared in accordance with therequirements of the Corporations Act 2001, Australian Accounting Standards - Reduced DisclosureRequirements and other authoritative pronouncements of the Australian Accounting Standards Board. The Groupis a for-profit, private sector entity which is not publicly accountable. Therefore, the consolidated financialstatements for the Group are general purpose financial statements which have been prepared in accordance withAustralian Accounting Standards - Reduced Disclosure Requirements (AASB - RDRs) and other authoritativepronouncements of the Australian Accounting Standards Board.

The financial report has been prepared on a historical cost basis except for derivative financial instruments andcontingent considerations that have been measured at fair value.

The financial report is presented in Australian dollars ($).

2.2 Changes in accounting policies, disclosures, standards and interpretations

New and amended standards and interpretationsThe new and amended Australian Accounting Standards and AASB Interpretations that apply for the first time in2017/2018 do not materially impact the financial statements of the Group.

Accounting standards and interpretations issued but not yet effectiveCertain Australian Accounting Standards and Interpretations have recently been issued or amended but are notyet effective and have not been adopted by the Group for the annual reporting period ended 30 June 2018. Thedirectors have not early adopted any of these new or amended standards or interpretations. The directors are inthe process of assessing the impact of the applications of AASB 9 Financial Instruments (effective 1 January2018), AASB 15 Revenue from Contracts with Customers (effective 1 January 2018), and AASB 16 Leases(effective 1 January 2019) and its amendments to the extent relevant to the financial statements of the Group.

AASB 15 was issued in December 2014, and amended in May 2016 and establishes a five-step model to accountfor revenue arising from contracts with customers. Under AASB 15, revenue is recognised at an amount thatreflects the consideration to which an entity expects to be entitled in exchange for transferring goods or servicesto a customer. The new revenue standard will supersede all current revenue recognition requirements underAustralian Accounting Standards. Either a full retrospective application or a modified retrospective application isrequired for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Group expectsto adopt this standard from 1 July 2018 and is currently undertaking a comprehensive review of theimplementation impact of AASB 15. The Group has not reached a determination as to the impact of thisaccounting standard and has not determined whether the retrospective method or modified retrospectiveapplication will be adopted.

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Notes to the consolidated financial statements (continued)


2. Summary of significant accounting policies (continued)

2.3 Basis of consolidation

Subsidiaries are all those entities over which the Group has the power to govern the financial and operatingpolicies so as to obtain benefits from their activities. The existence and effect of potential voting rights that arecurrently exercisable or convertible are considered when assessing whether the Group controls another entity.

The financial statements of the subsidiaries are prepared for the same reporting period as ARA Group Limited,using consistent accounting policies. In preparing the consolidated financial statements, all intercompanybalances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends havebeen eliminated in full.

The acquisition of subsidiaries is accounted for using the acquisition method of accounting. The acquisitionmethod of accounting involves recognising at acquisition date, separately from goodwill, the identifiable assetsacquired, the liabilities assumed and any non-controlling interest in the acquiree. The identifiable assets acquiredand the liabilities assumed are measured at their acquisition date fair values.

The difference between the above items and the fair value of the consideration (including the fair value of anypre-existing investment in the acquiree) is goodwill.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose ofimpairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each ofthe Group’s cash-generating units (CGUs) that are expected to benefit from the combination, irrespective ofwhether other assets or liabilities of the acquiree are assigned to those units.

Non-controlling interests are allocated their share of net profit after tax in the consolidated statement of profit orloss and other comprehensive income and are presented within equity in the consolidated statement of financialposition, separately from the equity of the owners of the Parent. Losses are attributed to the non-controllinginterest even if that results in a deficit balance.

A change in the ownership interest of a subsidiary that does not result in a loss of control, is accounted for as anequity transaction.

If the Group loses control over a subsidiary, it:

• Derecognises the assets (including goodwill) and liabilities of the subsidiary;

• Derecognises the carrying amount of any non-controlling interest;

• Derecognises the cumulative translation differences, recorded in equity;

• Recognises the fair value of the consideration received;

• Recognises the fair value of any investment retained;

• Recognises any surplus or deficit in profit or loss; and

• Reclassifies the Parent's share of components previously recognised in other comprehensive income toprofit or loss, or retained earnings, as appropriate.

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(a) Current versus non-current classification

The Group presents assets and liabilities in the consolidated statement of financial position based oncurrent/non-current classification. An asset is current when it is:

• Expected to be realised or intended to be sold or consumed in the Group's normal operating cycle

• Held primarily for the purpose of trading

• Expected to be realised within twelve months after the reporting period, or

• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at leasttwelve months after the reporting period

All other assets are classified as non-current.

A liability is current when:

• It is expected to be settled in the Group's normal operating cycle

• It is held primarily for the purpose of trading

• It is due to be settled within twelve months after the reporting period, or

• There is no unconditional right to defer the settlement of the liability for at least twelve months after thereporting period

The Group classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

(b) Income tax

The charge for income tax expense for the year is based on the profit for the year adjusted for anynon-assessable or disallowed items. It is calculated using tax rates that have been enacted or are substantivelyenacted by the reporting date.

Deferred tax is accounted for using the statement of tax balance sheet method in respect of temporarydifferences arising between the tax bases of assets and liabilities and their carrying amounts in the financialstatements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excludinga business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised orliability is settled. Deferred tax is credited in the consolidated statement of profit or loss and other comprehensiveincome except where it relates to items that may be credited directly to equity, in which case the deferred tax isadjusted directly against equity.

Deferred income tax assets are recognised to the extent that it is probable that future profits will be availableagainst which deductible temporary differences can be utilised.

The amount of benefit brought to account or which may be realised in the future is based on the assumption thatno adverse change will occur in income taxation legislation and the anticipation that the economic entity willderive sufficient future assessable income to enable the benefit to be realised and comply with the conditions ofdeductibility imposed by the law.

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(b) Income tax (continued)

ARA Group Limited and its wholly-owned subsidiaries have formed an income tax consolidated group under theTax Consolidation Regime. Each entity in the group recognises its own current and deferred tax liabilities, exceptfor any deferred liabilities resulting from unused tax losses and tax credits, which are immediately assumed bythe parent entity. The current tax liability of each group entity is then subsequently assumed by the parent entity.The group notified the Australian Taxation Office that it had formed an income tax consolidated group to applyfrom 1 July 2004. The consolidated group has entered into a tax sharing agreement whereby each company inthe group contributes to the income tax payable in proportion to their contribution to profit before tax of the taxconsolidated group.

(c) Trade and other receivables

Trade receivables, which generally have 30 day terms, are recognised initially at fair value and subsequentlymeasured at that value less an allowance for impairment. Due to their short-term nature they are not discounted.

Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts thatare known to be uncollectible are written off when identified. An impairment provision is recognised when there isobjective evidence that the Group will not be able to collect the receivable. Financial difficulties of the debtor,default payments or debts significantly overdue are considered objective evidence of impairment.

(d) Inventories

Raw material and stores, work in progress and finished goods are measured at the lower of cost and netrealisable value. Costs are assigned on a first-in first-out basis and include direct materials, direct labour and anappropriate proportion of variable and fixed overhead expenses. Net realisable value is the estimated sellingprice in the ordinary course of business, less estimated costs of completion and estimated costs necessary tomake the sale.

(e) Construction contracts and work in progress

Construction work in progress is valued at cost less invoicing to date, plus profit recognised to date less anyprovision for anticipated future losses. Cost includes both variable and fixed costs relating to specific contracts,and those costs that are attributable to the contract activity in general and that can be allocated on a reasonablebasis.

The stage of completion of each project is assessed using the proportion of costs incurred to date compared tothe total cost. Construction profits are recognised on this percentage of completion. Where losses are anticipatedthey are provided for in full.

Construction revenue has been recognised on the basis of the terms of the contract adjusted for any variations orclaims allowable under the contract.

(f) Property, plant and equipment

Each class of property, plant and equipment is carried at cost less, where applicable, any accumulateddepreciation.

Plant and equipment

The carrying amount of property, plant and equipment is reviewed annually by directors to ensure it is not inexcess of the recoverable amount from those assets. The recoverable amount is assessed on the basis of theexpected net cash flows which will be received from the assets employment and subsequent disposal.

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(f) Property, plant and equipment (continued)

Depreciation

The depreciable amount of all fixed assets including capitalised leased assets are depreciated on a straight linebasis over their estimated useful lives commencing from the time the asset is held ready for use. Leaseholdimprovements are depreciated over the shorter of either the unexpired period of the lease or the estimated usefullives of the improvements.

Class of fixed asset Depreciation rateLeasehold improvements 10 - 20%Plant and equipment 7.5 - 40%Office furniture and equipment 7.5 - 20%Computer equipment and software 33 - 40%Motor vehicles 22.5%

Derecognition and disposal

An item of property, plant and equipment is derecognised upon disposal or when no further future economicbenefits are expected from its use or disposal.

Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposalproceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed ateach financial year end and adjusted prospectively, if appropriate.

(g) Leases

The determination of whether an arrangement is (or contains) a lease is based on the substance of thearrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of thearrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to usethe asset (or assets), even if that assets is (or those assets are) not explicitly specified in an arrangement.

Group as a lessee

A lease is classified at the inception date as a finance lease or an operating lease. A lease that transferssubstantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease.

Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leasedproperty or, if lower, at the present value of the minimum lease payments. Lease payments are apportionedbetween finance charges and reduction of the lease liability so as to achieve a constant rate of interest on theremaining balance of the liability. Finance charges are recognised in finance costs in the consolidated statementof profit or loss and other comprehensive income.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty thatthe Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of theestimated useful life of the asset and the lease term.

An operating lease is a lease other than a finance lease. Operating lease payments are recognised as anoperating expense in the consolidated statement of profit or loss and other comprehensive income on astraight-line basis over the lease term.

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(h) Impairment

The carrying value of all assets are reviewed for impairment at each reporting date, with the recoverable amountbeing estimated when events or changes in circumstances indicate that the carrying value may be impaired.

The recoverable amount of all assets is the higher of fair value less costs to sell and value in use. In assessingvalue in use, the estimated future cash flows are discounted to their present value using a pre-tax discount ratethat reflects current market assessments of the time value of money and the risks specific to the asset.

For an asset that does not generate largely independent cash inflows, recoverable amount is determined for theCGU (cash generating unit) to which it belongs, unless the asset's value in use can be estimated to be close to itsfair value.

An impairment exists when the carrying value of the asset or CGU exceeds its estimated recoverable amount.The asset or CGU is then written down to its recoverable amount.

(i) Foreign currency transactions and balances

Foreign currency transactions during the year are converted to Australian currency at the rates of exchangeapplicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance dateare converted at the rates of exchange ruling at that date.

The gains and losses from conversion of short-term assets and liabilities, whether realised or unrealised, areincluded in profit from ordinary activities as they arise.

Both the functional and presentation currency of the Group is Australian dollars ($).

(j) Trade and other payables

Trade and other payables are carried at amortised cost and due to their short-term nature they are notdiscounted. They represent liabilities for goods and services provided to the Group prior to the end of thefinancial year that are unpaid and arise when the Group becomes obliged to make future payments in respect ofthe purchase of these goods and services. The amounts are unsecured and are usually paid within 30 - 60 daysof recognition.

(k) Interest-bearing loans and borrowings

All loans and borrowings are recognised at the fair value of the consideration received. Fees paid on theestablishment of loan facilities are amortised over the term of the loans.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (i.e. anasset that necessarily takes a substantial period of time to get ready for its intended use or sale) are capitalisedas part of the cost of that asset. All other borrowing costs are expensed in the period they occur. Borrowing costsconsist of interest and other costs that an entity incurs in connection with the borrowing of funds.

(l) Employee entitlements

Provision is made for the Group’s liability for employee entitlements arising from services rendered by employeesto balance date. Employee entitlements expected to be settled within one year together with entitlements arisingfrom wages and salaries and annual leave which will be settled after one year, have been measured at theirnominal amount. Other employee entitlements payable later than one year have been measured at an amountthat is considered to approximate the present value of the estimated future cash outflows to be made for thoseentitlements.

Contributions are made by the Group to employee superannuation funds and are charged as expenses whenincurred.

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(m) Contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares areexpensed when incurred.

(n) Dividend to equity holders of the parent

The Group recognises a liability to make cash distributions to equity holders of the parent when the distribution isauthorised and the distribution is no longer at the discretion of the Group. A corresponding amount is recogniseddirectly in equity.

(o) Business combinations

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measuredas the aggregate of the consideration transferred, which is measured at acquisition date fair value, and theamount of any non-controlling interest in the acquiree. For each business combination, the Group elects whetherto measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree’sidentifiable net assets. Acquisition-related costs are expensed as incurred, and disclosed separately in theconsolidated statement of profit or loss and other comprehensive income.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriateclassification and designation in accordance with the contractual terms, economic circumstances and pertinentconditions as at the acquisition date.

Change in the ownership interest in a controlled entity (without loss of control) is accounted for as a transactionwith owners in their capacity as owners and these transactions will not give rise to a gain or loss. Where there isa change in ownership and the Group loses control, the gain or loss will be recognised in the consolidatedstatement of profit or loss and other comprehensive income.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date.Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liabilityare recognised in accordance with AASB 139 in the consolidated statement of profit or loss and othercomprehensive income. If the contingent consideration is classified as equity, it is not remeasured until it is finallysettled within equity.

(p) Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assetsacquired in a business combination is their fair value at the date of acquisition. Following initial recognition,intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairmentwhenever there is an indication that the intangible asset may be impaired. The amortisation period and theamortisation method for an intangible asset with a finite useful life are reviewed at least at the end of eachreporting period. Changes in the expected useful life or the expected pattern of consumption of future economicbenefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, andare treated as changes in accounting estimates and adjusted on a prospective basis. The amortisation expenseon intangible assets with finite lives is recognised in the consolidated statement of profit or loss and othercomprehensive income as the expense category that is consistent with the function of the intangible assets.

Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, eitherindividually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually todetermine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite tofinite is made on a prospective basis.

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(p) Intangible assets (continued)

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the netdisposal proceeds and the carrying amount of the asset and are recognised in the consolidated statement ofprofit or loss and other comprehensive income when the asset is derecognised.

A summary of the policies applied to the Group's intangible assets is as follows:

Goodwill Developmentcosts

Customercontracts

Intellectualproperty

Useful lives Indefinite Finite Finite Finite

Amortisation methodused

No amortisation Amortised on astraight line basisover 7 years

Amortised on astraight line basisover 7 years

Amortised on astraight line basisover 10 years

Research and development costs

Research costs are expensed as incurred. An intangible asset arising from development expenditure on aninternal project is recognised only when the Group can demonstrate the technical feasibility of completing theintangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell theasset, how the asset will generate future economic benefits, the availability of resources to complete thedevelopment and the ability to measure reliably the expenditure attributable to the intangible asset during itsdevelopment. Following the initial recognition of the development expenditure, the cost model is applied requiringthe asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Anyexpenditure so capitalised is amortised over the period of expected benefit from the related project.

The carrying value of an intangible asset arising from development expenditure is tested for impairment annuallywhen the asset is not yet available for use, or more frequently when an indication of impairment arises during thereporting period.

(q) Goodwill

Goodwill acquired and goodwill on consolidation are initially recorded at the amount by which the purchase pricefor a business or for a controlling interest in an entity exceeds the fair value attributed to its net tangible andidentified intangible assets at the date of acquisition. Goodwill is tested annually for impairment and carried atcost less accumulated losses. Gains and losses on the disposal of an entity include the carrying amount ofgoodwill relating to the entity sold.

(r) Cash and cash equivalents

For the purposes of the consolidated statement of cash flows, cash includes cash on hand and at call depositswith banks or financial institutions, investments in money market instruments maturing within less than threemonths and net of bank overdrafts.

(s) Revenue

Revenue from the sale of goods is recognised upon the transfer of title to customers.

Revenue from construction contracts is recognised in accordance with the accounting policy set out in the note2(e).

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(s) Revenue (continued)

Interest revenue

Interest revenue is recognised as interest accrues using the effective interest method. This is a method ofcalculating the amortised cost of a financial asset and allocating the interest income over the relevant periodusing the effective interest rate, which is the rate that exactly discounts estimated future cash receipts throughthe effective life of the financial asset to the net carrying amount of the financial asset.

Dividend revenue

Dividend revenue is recognised when the right to receive a dividend has been established.

Rendering of services

Revenue from the rendering of a service is recognised upon the performance of the service to the customers.

(t) Goods and services tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except:

• Where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as partof the cost of acquisition of an asset or as part of an item of expense; or

• For receivables and payables which are recognised inclusive of GST.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivablesor payables.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, thetaxation authority.

Cash flows are included in the consolidated statement of cash flows on a gross basis. The GST component ofcash flows arising from investing and financing activities which is recoverable from, or payable to, the taxationauthority is classified as part of operating cash flows.

(u) Financial instruments

Recognition and initial measurement

Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entitybecomes a party to the contractual provisions of the instrument.

Financial instruments are initially measured at fair value plus transaction costs where the instrument is notclassified as at fair value through profit and loss. Transaction costs related to instruments classified as at fairvalue through profit or loss are expensed to profit or loss immediately. Financial instruments are classified andmeasured as set out below.

Classification and subsequent measurement

Financial assets at fair value through profit or loss

Financial assets are classified at fair value through profit or loss when they are held for trading for the purpose ofshort term profit taking, where they are derivatives not held for hedging purposes, or designated as such to avoidan accounting mismatch or to enable performance evaluation where a group of financial assets is managed bykey personnel on a fair value basis in accordance with a documented risk management or investment strategy.Realised and unrealised gains and losses arising from changes in fair value are included in profit or loss in theperiod in which they arise.

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(u) Financial instruments (continued)

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are notquoted in an active market and are subsequently measured at amortised cost using the effective interest ratemethod.

Financial liabilitiesNon-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised costusing the effective interest rate method.

Convertible debentures

Convertible debentures are separated into liability and equity components based on the terms of the contract. Onissuance of the convertible debentures, the fair value of the liability component is determined using a market ratefor an equivalent non-convertible instrument. This amount is classified as a financial liability measured atamortised cost (net of transaction costs) until it is extinguished on conversion or redemption. The remainder ofthe proceeds is allocated to the conversion option that is recognised and included in equity. Transaction costs arededucted from equity, net of associated income tax. The carrying amount of the conversion option is notre-measured in subsequent years. Transaction costs are apportioned between the liability and equitycomponents of the convertible debentures based on the allocation of proceeds to the liability and equitycomponents when the instruments are initially recognised.

Derecognition

Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset istransferred to another party whereby the entity no longer has any significant continuing involvement in the risksand benefits associated with the asset. Financial liabilities are derecognised where the related obligations areeither discharged, cancelled or expire. The difference between the carrying value of consideration paid, includingthe transfer of non-cash assets or liabilities assumed, is recognised in profit or loss.

(v) Derivative financial instruments and hedge accounting

Initial recognition and subsequent measurement

The Group uses derivative financial instruments, such as interest rate swaps to hedge its interest rate risks. Suchderivative financial instruments are initially recognised at fair value on the date on which a derivative contract isentered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when thefair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, exceptfor the effective portion of cash flow hedges, which is recognised in other comprehensive income (OCI) and laterreclassified to profit or loss when the hedge item affects profit or loss.

For the purpose of hedge accounting, hedges are classified as cash flow hedges when hedging the exposure tovariability in cash flows that is either attributable to a particular risk associated with a recognised asset or liabilityor a high probable forecast transaction. The Group currently has cash flow hedges attributable to future interestpayments.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship towhich it wishes to apply hedge accounting and the risk management objective and strategy for undertaking thehedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, thenature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedginginstrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flowsattributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes infair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highlyeffective throughout the financial reporting periods for which they were designated.

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(v) Derivative financial instruments and hedge accounting (continued)

Hedges that meet the strict criteria for hedge accounting are accounted for as described below:

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognised directly in OCI in the cash flowhedge reserve, while any ineffective portion is recognised immediately in the consolidated statement of profit orloss and other comprehensive income.

Amounts recognised as OCI are transferred to profit or loss when the hedged transaction affects profit or loss,such as when the hedged financial income or financial expense is recognised. When the hedged item is the costof a non-financial asset or non-financial liability, the amounts recognised as OCI are transferred to the initialcarrying amount of the non-financial asset or liability.

If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover (as part ofthe hedging strategy), or if its designation as a hedge is revoked, or when the hedge no longer meets the criteriafor hedge accounting, any cumulative gain or loss previously recognised in OCI remains separately in equity untilthe forecast transaction occurs or the foreign currency firm commitment is met.

(w) Critical accounting estimates and judgements

The Directors evaluate estimates and judgements incorporated into the financial report based on historicalknowledge and best available current information. Estimates assume a reasonable expectation of future eventsand are based on current trends and economic data, obtained both externally and within the group.

JudgementThe Group considers that the entity in which it owns less than 50% of the voting rights meets the requirementsunder the accounting standards to be consolidated as part of the Group. Although ARA Group Limited hold 49%of the share capital of the entity with the remaining 51% being held by one other party, ARA Group Limited hasthe casting vote in Board decisions in the event of a deadlock.

Key estimates - ImpairmentThe Group assesses impairment at each reporting date by evaluating conditions specific to the Group that maylead to an impairment of assets. Where an impairment exists, the recoverable amount of the asset is determined.Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates.

Key estimates - Long service leaveAs discussed in Note 2(l), the liability for long service leave is recognised and measured at the present value ofthe estimated future cash flows to be made in respect of all employees at balance date. In determining thepresent value of the liability, attrition rates and pay increases through promotion and inflation have been takeninto account.

Key estimates - Estimation of useful life of assetsThe estimation of the useful lives of assets has been based on historical experience as well as manufacturers'warranties (for plant and equipment), leased terms (for leasehold improvements) and turnover policies (for motorvehicles). In addition, the condition of the assets is assessed at least once per year and considered against theremaining useful life. Adjustments to useful lives are made when considered necessary. Depreciation chargesare included in Note 4.4.

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(w) Critical accounting estimates and judgements (continued)

Key estimates - Costs to complete on construction contractsThe stage of completion of each project is assessed using the proportion of costs incurred to date compared tothe total estimated cost. Construction profits are recognised on this percentage of completion. Where losses areanticipated they are provided for in full.

Key estimates - Impairment of goodwill with indefinite useful lifeThe Group determines whether goodwill are impaired at least on an annual basis. This requires an estimation ofthe recoverable amount of the CGUs, using a value in use discounted cash flow methodology, to which thegoodwill and intangibles with indefinite useful lives are allocated. No impairment loss was recognised in thecurrent year or the prior year in respect of goodwill.

Key estimates - TaxationThe Group's accounting policy for taxation requires management's judgement as to the types of arrangementsconsidered to be a tax on income in contrast to an operating cost. Judgement is also required in assessingwhether deferred tax assets and certain deferred tax liabilities are recognised on the consolidated statement offinancial position. Deferred tax assets, including those arising from unrecouped tax losses, capital losses andtemporary differences, are recognised only where it is considered more likely than not that they will be recovered,which is dependent on the generation of sufficient future taxable profits. Deferred tax liabilities arising fromtemporary differences in investments, caused principally by retained earnings held in foreign tax jurisdictions, arerecognised unless repatriation of retained earnings can be controlled and are not expected to occur in theforeseeable future.

Assumptions about the generation of future taxable profits and repatriation of retained earnings depend onmanagement's estimates of future cash flows. These depend on estimates of future production and salesvolumes, operating costs, restoration costs, capital expenditure, dividends and other capital managementtransactions. Judgements are also required about the application of income tax legislation. These judgementsand assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstanceswill alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognisedon the consolidated statement of financial position and the amount of other tax losses and temporary differencesnot yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assetsand liabilities may require adjustment, resulting in a corresponding credit or charge to the consolidated statementof profit or loss and other comprehensive income.

Key estimates - Fair value measurement of financial instrumentsWhen the fair values of financial assets and financial liabilities recorded in the consolidated statement of financialposition cannot be measured based on quoted prices in active markets, their fair value is measured usingvaluation techniques including the discounted cash flow (DCF) model. The inputs to these models are taken fromobservable markets where possible, but where this is not feasible, a degree of judgement is required inestablishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk andvolatility.

Contingent consideration, resulting from business combinations, is valued at fair value at the acquisition date aspart of the business combination. When the contingent consideration meets the definition of a financial liability, itis subsequently remeasured to fair value at each reporting date. The determination of the fair value is based ondiscounted cash flows. The key assumptions take into consideration the probability of meeting each performancetarget and the discount factor. The contingent consideration is classified as current and non-current other payable(Note 13).

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3. Business combinations

Acquisitions in 2018

Effective 1 February 2018, the Group acquired Complex Solutions Pty Ltd (Complex) for cash consideration of$14,000,000. Complex is a Sydney based cleaning and property maintenance business.

Effective 3 April 2018, the Group purchased all shares of two NSW based security companies, HUD Security PtyLtd and HUD Electronic Security Pty Ltd. The total purchase price for the businesses was $11,500,000. Cashconsideration of $9,000,000 was paid and 625,000 shares in ARA Group Limited at $4.00 per share was issuedto the principal.

Included in other acquisitions were two small acquisitions with a deferred contingent consideration component of$200,000.

No contingent liabilities were identified at the acquisition date for any business combinations acquired.

Assets acquired and liabilities assumed

The below table discloses the fair values of the identifiable assets and liabilities of acquisitions in 2018 as at thedate of acquisition:

Fair value recognised on acquisition

Complex HUD Others Total$ $ $ $

AssetsReceivables 1,300,741 857,509 1,857,710 4,015,960Inventories 18,857 581,274 157,763 757,894Other assets 7,205 - 126,947 134,152Property, plant and equipment 89,811 - 785,268 875,079Deferred tax asset 10,857 20,464 100,120 131,441

1,427,471 1,459,247 3,027,808 5,914,526

LiabilitiesPayables and other liabilities 340,812 721,947 1,236,840 2,299,599Deferred tax liability - - 1,455,900 1,455,900Total identifiable net assets at fair value 1,086,659 737,300 335,068 2,159,027

Goodwill arising on acquisition (Note 12) 12,913,341 10,762,700 5,557,794 29,233,835

Purchase consideration transferred 14,000,000 11,500,000 5,892,862 31,392,862

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3. Business combinations (continued)

Complex HUD Others Total$ $ $ $

Purchase considerationShares issued, at fair value (Note 16) - 2,500,000 610,000 3,110,000Cash 14,000,000 9,000,000 5,082,862 28,082,862Deferred consideration liability - - 200,000 200,000

Total consideration 14,000,000 11,500,000 5,892,862 31,392,862

Net cash outflow on acquisitionCash consideration 14,000,000 9,000,000 5,082,862 28,082,862Deferred consideration paid for an acquisitionmade in prior year - - 1,676,181 1,676,181

14,000,000 9,000,000 6,759,043 29,759,043

4. Revenue and expenses

4.1 Revenue

2018 2017$ $

Sale of goods 61,088,115 50,986,371Rendering of services 341,236,882 265,760,926Construction revenue 76,886,234 55,585,087

479,211,231 372,332,384

4.2 Other income

2018 2017$ $

Dividends 1,247 1,056Interest 86,016 18,208Profit on disposal of property, plant and equipment 18,108 157,534Other income 73,118 78,773

178,489 255,571

4.3 Finance costs

2018 2017$ $

Borrowing costs- External interest paid 2,760,458 2,112,936

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4. Revenue and expenses (continued)

4.4 Depreciation and amortisation expense

2018 2017$ $

Depreciation of non-current assetsLeasehold improvements 708,717 645,067Plant and equipment 1,123,339 979,081Office furniture and equipment 152,673 127,207Computer equipment and software 549,744 326,595Motor vehicles 441,571 280,935

Total depreciation 2,976,044 2,358,885

AmortisationAmortisation of borrowing costs 207,086 57,656Amortisation of development costs - 57,598Amortisation of customer contracts 685,000 -Amortisation of intellectual property 56,600 56,602

Total amortisation 948,686 171,856

Total depreciation and amortisation expenses 3,924,730 2,530,741

4.5 Other expenses from ordinary activities

2018 2017$ $

Rent and outgoings 5,180,555 4,555,366Motor vehicle expense 5,214,525 3,405,695Leasing costs 6,063,164 6,111,090Consultants 2,526,522 2,305,710Communication 2,309,018 2,286,459Insurances 1,894,567 1,765,709Repairs and maintenance 370,034 350,466Computer expenses 1,712,470 1,203,671Travel 1,561,950 1,286,664Other staff expenses 1,610,531 1,686,887Refinancing costs - 175,780Other expenses 9,295,110 7,666,916

37,738,446 32,800,413

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5. Income tax

The major components of income tax expense for the years ended 30 June 2018 and 2017 are:

Consolidated statement of profit or loss and other comprehensive income 2018 2017$ $

Current income tax:Current income tax charge 6,243,359 5,822,912Adjustments in respect of current income tax of previous year (5,777) (4,388)Deferred tax:Relating to origination and reversal of temporary differences (561,936) (498,366)Income tax expense reported in the consolidated statement of profit orloss and other comprehensive income 5,675,646 5,320,158

The prima facie tax payable on profit from ordinary activities before income tax is reconciled to the income taxexpense as follows:

2018 2017$ $

Accounting profit before income tax 20,406,785 17,810,346

At Australia's statutory income tax rate of 30% (2017: 30%) 6,122,036 5,343,104Difference in tax rates (8,029) -Non-allowable items (423,771) (7,765)Other tax offsets (7,921) -Over provision in prior year (5,777) (4,388)Other (892) (10,793)

Income tax expense attributable to profit from ordinary activities 5,675,646 5,320,158

Deferred tax

Deferred tax relates to the following:

Consolidated statement offinancial position

Consolidated statement ofprofit or loss and othercomprehensive income

2018 2017 2018 2017$ $ $ $

Doubtful debt 497,358 316,833 (179,735) (101,654)Other provisions and accrual 1,180,246 962,165 (249,472) (37,787)Employee leave provisions 4,495,561 3,972,746 (384,091) (374,162)Fixed assets (394,430) (449,999) (53,281) (55,626)Work in progress (1,776,753) (1,393,659) 383,094 (43,931)Retentions (553,911) (426,862) 127,049 114,794Intangible asset (1,250,400) - (205,500) -

Deferred tax benefit 2,197,671 2,981,224 (561,936) (498,366)

Net deferred tax assets 2,197,671 2,981,224 (561,936) (498,366)Reflected in the consolidated statement offinancial position as follows:Deferred tax assets 5,910,977 5,558,229 - -Deferred tax liabilities (3,713,306) (2,577,005) - -

Deferred tax assets, net 2,197,671 2,981,224 - -

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5. Income tax (continued)

Reconciliation of deferred tax assets, net

2018 2017$ $

As of 1 July 2,981,224 1,926,291Tax income during the period recognised in profit or loss 540,906 368,911Deferred taxes acquired in business combinations (1,324,459) 686,022

As at 30 June 2,197,671 2,981,224

The Group offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current taxassets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxeslevied by the same tax authority.

6. Dividends

2018 2017

Dividends declared (all franked to 30%)Cents pershare $

Cents pershare $

Quarter 1— Fully paid, Ordinary class (36,232,565 shares) (2017:28,228,853 shares) 7.50 2,717,443 7.50 2,117,163Quarter 2— Fully paid, Ordinary class (36,235,065 shares) (2017:28,280,590 shares) 7.50 2,717,630 7.50 2,121,044Quarter 3— Fully paid, Ordinary class (36,285,065 shares) (2017:30,694,257 shares) 7.50 2,721,380 7.50 2,302,070Quarter 4— Declared and not paid, Ordinary Class (38,244,481shares) (2017: 36,132,565 shares) 7.50 2,868,336 7.50 2,709,943— Declared and not paid, Ordinary Class (38,244,481shares) 1.20 458,934 - -

Total 31.20 11,483,723 30.00 9,250,220

Dividends payable brought forward 2,709,943 3,425,993

Dividends declared during the year 11,483,723 9,250,220

Dividends paid during the year (10,866,396) (9,966,270)

Dividends payable carried forward (Note 13) 3,327,270 2,709,943

Dividends fully paid by ARA Indigenous 271,175 -

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6. Dividends (continued)

2018 2017$ $

Franking credit balanceThe amount of franking credits available for the subsequent financial year are:Franking account balance as at the end of the financial year at 30% (2017:30%) 15,885,544 15,444,803Franking credits that will arise from the payment of income taxes payable asat the end of the financial year 8,948,202 7,341,687Franking debits that will arise from the payment of dividends as at the end ofthe financial year (4,575,007) (6,900,946)

20,258,739 15,885,544

7. Cash and cash equivalents

2018 2017$ $

Cash at bank and on hand 11,689,157 15,751,960

2018 2017$ $

a.) Cash flow reconciliationReconciliation of net profit after tax to net cash flows from operations:Profit for the year 14,731,139 12,490,188

Adjustments for:Acquisition costs 33,940 471,023Depreciation and amortisation 3,924,730 2,530,741Increase in provision for doubtful debts 591,753 522,283Profit (net) on sale of assets (18,108) (157,534)

Changes in assets and liabilities:(Increase)/decrease in trade and other receivables and other financial assets (13,186,528) (7,567,968)(Increase)/decrease in inventories and construction work in progress (1,838,175) (2,202,439)(Increase)/decrease in prepayment (1,041,480) (491,825)(Increase)/decrease in deferred tax assets (514,341) (356,437)Increase/(decrease) in trade and other payables 12,822,969 3,162,821Increase/(decrease) in income tax payable (1,919,560) 1,148,218Increase/(decrease) in employee benefits 1,110,089 533,067

Net cash flows from operating activities 14,696,428 10,082,138

b.) Non-cash financing activitiesSettlement of subordinated debentures by means of issuance of shares (Note16) 60,000 7,079,000

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7. Cash and cash equivalents (continued)

c.) Credit stand-by arrangement and loan facilities

The Group has a bank facility with Westpac Banking Corporation. The total facility available to the Group is$80,100,000 (2017: $65,125,000). Of these facilities, $62,787,388 was utilised at 30 June 2018. All bankcovenants were satisfied during the year.

The Group is required to repay principal of $3,900,000 in financial year 2019 under its bank facility agreement.

8. Trade and other receivables

2018 2017$ $

CurrentTrade receivables 77,985,595 61,602,408Provision for doubtful debts (1,647,863) (1,056,110)

76,337,732 60,546,298

Retentions 2,116,854 1,586,945Other debtors 2,683,887 2,265,235

81,138,473 64,398,478

Movement in the provision for doubtful debts that are assessed collectively are as follow:

2018 2017$ $

At 1 July 1,056,110 533,827Charge for the year 634,135 552,655Utilised (42,382) (30,372)

At 30 June 1,647,863 1,056,110

9. Inventories and construction work in progress

2018 2017$ $

InventoriesRaw materials and stores 1,981,978 2,496,483Work in progress 909,615 1,148,179Finished goods 10,110,553 8,167,275Provision for obsolescence (4,100) (2,900)

12,998,046 11,809,037

Construction work in progressUnbilled revenue 6,086,386 4,679,327

6,086,386 4,679,327

19,084,432 16,488,364

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10. Controlled entities

% Equity interestName Principal Activities 2018 2017

Allen & Newton Pty Ltd Building 100 100Allen & Newton Queensland Pty Limited Building 100 100ARA Building Services Pty Limited Building 100 100ARA Corporate Services Pty Limited Corporate 100 100ARA Electrical Engineering Services Pty Limited Electrical 100 100ARA Fire Protection Services Pty Limited Fire 100 100ARA Indigenous Services Pty Ltd (a) Property 49 49ARA Manufacture Pty Limited Security 100 100ARA Electrical High Voltage Services Pty Limited Electrical 100 100ARA Mechanical Services Pty Limited Mechanical 100 100ARA Property Services Pty Ltd the trustee for CMC Unit Trust (b) Property 100 100ARA Security Services Pty Limited Security 100 100Asset Fire Security & Mechanical Services Pty Limited Fire 100 100CMC Cleaning Services Pty Ltd Property 100 100CMC ECRM Pty Ltd Property 100 100CMC Maintenance Pty Ltd Property 100 100CMC Property Services (Aust) Pty Ltd Property 100 100CMC Rapid Response Pty Ltd Property 100 100Complex Solutions Pty Ltd (c) Property 100 -Crimewatch Video Pty Limited Security 100 100Datatech Australia Pty Limited Electrical 100 100Dynamic Facilities Maintenance Group Pty Limited Building 100 100Environmental Automation Pty Limited Mechanical 100 100Excell Control Pty Limited Electrical 100 100HUD Security Pty Ltd (d) Security 100 -HUD Electronic Security Pty Ltd (d) Security 100 -Hunter Power Pty Limited Electrical 100 100ID Supplies Pty Limited Security 100 100International Security Control Solutions Pty Limited Security 100 100Monarch Group Pty Limited Security 100 100National Construction Solutions Pty Limited Building 100 100Parking Guidance Australia Pty Limited Security 100 100Sherry Services & Maintenance Pty Ltd (e) Electrical 100 -TALV Pty Limited Building 100 100Transelect Pty Limited Electrical 100 100Web ID Pty Limited Mechanical 100 100ARA Group NZ Limited Security 100 100

3649 3249

(a) CMC Indigenous Services Pty Ltd name was changed to ARA Indigenous Services Pty Ltd effective 22August 2017.

(b) CMC Property Services Pty Ltd the trustee for CMC Unit Trust name was changed to ARA Property ServicesPty Ltd the trustee for CMC Unit Trust effective 23 August 2017.

(c) Complex Solutions Pty Ltd was acquired by ARA Group Limited effective 1 February 2018.

(d) HUD Security Pty Ltd and HUD Electronic Security Pty Ltd were acquired by ARA Security Services PtyLimited effective 3 April 2018.

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10. Controlled entities (continued)

(e) Sherry Services & Maintenance Pty Ltd was acquired by ARA Electrical Engineering Services Pty Limitedeffective 1 November 2017.

All wholly owned controlled entities incorporated in Australia are subject to a Deed of Cross Guarantee.

All wholly owned controlled entities are incorporated in Australia with the exception of ARA Group NZ Limited,which is incorporated in New Zealand.

31




10. Controlled entities (continued)

(e) Sherry Services & Maintenance Pty Ltd was acquired by ARA Electrical Engineering Services Pty Limitedeffective 1 November 2017.

All wholly owned controlled entities incorporated in Australia are subject to a Deed of Cross Guarantee.

All wholly owned controlled entities are incorporated in Australia with the exception of ARA Group NZ Limited,which is incorporated in New Zealand.

31

ARAGroupLimitedandControlledEntities

Notestotheconsolidatedfinancialstatements(continued)

Fo

rtheyearended

30June

20

18

11

.Property,plantandequipment

Leasehold

improvements

Plantand

equipment

Office

furnitureand

equipment

Computer

equipment

andsoftware

Motor

Vehicles

Total

$$

$$

$$

Cost

At

1July

20

17

7,2

83

,80

91

4,3

48

,95

62

,09

2,5

67

5,5

69

,54

92

,69

3,0

65

31

,98

7,9

46

Additions

36

9,1

00

58

0,3

64

61

,26

95

58

,86

42

30

,38

61

,79

9,9

83

Acquisitionsofasubsidiary(Note

3)

4,7

62

45

8,9

48

32

,59

11

3,1

98

36

5,5

80

87

5,0

79

Disposals

-(9

6,3

33

)-

(83

,79

5)

(35

8,4

86

)(5

38

,61

4)

Transfer(to)/fromothergroupcompany

(NB

V)

-(1

8,6

07

)-

-1

8,6

07

-

At

30June

20

18

7,657,671

15,273,328

2,186,427

6,057,816

2,949,152

34,124,394

Accumulateddepreciation

At

1July

20

17

3,2

00

,31

69

,85

5,3

36

1,4

20

,24

34

,48

7,2

64

1,1

46

,07

72

0,1

09

,23

6Depreciationchargedfortheyear

70

8,7

17

1,1

23

,33

91

52

,67

35

49

,74

44

41

,57

12

,97

6,0

44

Disposals

-(6

1,9

01

)-

(68

,72

4)

(87

,81

4)

(21

8,4

39

)

At

30June

20

18

3,909,033

10,916,774

1,572,916

4,968,284

1,499,834

22,866,841

Netbookvalue

At

30June

20

17

4,0

83

,49

34

,49

3,6

20

67

2,3

24

1,0

82

,28

51

,54

6,9

88

11

,87

8,7

10

At

30June

20

18

3,748,638

4,356,554

613,511

1,089,532

1,449,318

11,257,553 3

2

ARAGroupLimitedandControlledEntities

Notestotheconsolidatedfinancialstatements(continued)

Fo

rtheyearended

30June

20

18

11

.Property,plantandequipment

Leasehold

improvements

Plantand

equipment

Office

furnitureand

equipment

Computer

equipment

andsoftware

Motor

Vehicles

Total

$$

$$

$$

Cost

At

1July

20

17

7,2

83

,80

91

4,3

48

,95

62

,09

2,5

67

5,5

69

,54

92

,69

3,0

65

31

,98

7,9

46

Additions

36

9,1

00

58

0,3

64

61

,26

95

58

,86

42

30

,38

61

,79

9,9

83

Acquisitionsofasubsidiary(Note

3)

4,7

62

45

8,9

48

32

,59

11

3,1

98

36

5,5

80

87

5,0

79

Disposals

-(9

6,3

33

)-

(83

,79

5)

(35

8,4

86

)(5

38

,61

4)

Transfer(to)/fromothergroupcompany

(NB

V)

-(1

8,6

07

)-

-1

8,6

07

-

At

30June

20

18

7,657,671

15,273,328

2,186,427

6,057,816

2,949,152

34,124,394

Accumulateddepreciation

At

1July

20

17

3,2

00

,31

69

,85

5,3

36

1,4

20

,24

34

,48

7,2

64

1,1

46

,07

72

0,1

09

,23

6Depreciationchargedfortheyear

70

8,7

17

1,1

23

,33

91

52

,67

35

49

,74

44

41

,57

12

,97

6,0

44

Disposals

-(6

1,9

01

)-

(68

,72

4)

(87

,81

4)

(21

8,4

39

)

At

30June

20

18

3,909,033

10,916,774

1,572,916

4,968,284

1,499,834

22,866,841

Netbookvalue

At

30June

20

17

4,0

83

,49

34

,49

3,6

20

67

2,3

24

1,0

82

,28

51

,54

6,9

88

11

,87

8,7

10

At

30June

20

18

3,748,638

4,356,554

613,511

1,089,532

1,449,318

11,257,553 3

2




11. Property, plant and equipment

Leaseholdimprovements

Plant andequipment

Officefurniture andequipment

Computerequipment

and softwareMotor

Vehicles Total$ $ $ $ $ $

CostAt 1 July 2017 7,283,809 14,348,956 2,092,567 5,569,549 2,693,065 31,987,946Additions 369,100 580,364 61,269 558,864 230,386 1,799,983Acquisitions of a subsidiary (Note 3) 4,762 458,948 32,591 13,198 365,580 875,079Disposals - (96,333) - (83,795) (358,486) (538,614)Transfer (to)/from other group company (NBV) - (18,607) - - 18,607 -

At 30 June 2018 7,657,671 15,273,328 2,186,427 6,057,816 2,949,152 34,124,394

Accumulated depreciationAt 1 July 2017 3,200,316 9,855,336 1,420,243 4,487,264 1,146,077 20,109,236Depreciation charged for the year 708,717 1,123,339 152,673 549,744 441,571 2,976,044Disposals - (61,901) - (68,724) (87,814) (218,439)

At 30 June 2018 3,909,033 10,916,774 1,572,916 4,968,284 1,499,834 22,866,841

Net book value

At 30 June 2017 4,083,493 4,493,620 672,324 1,082,285 1,546,988 11,878,710

At 30 June 2018 3,748,638 4,356,554 613,511 1,089,532 1,449,318 11,257,553

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11. Property, plant and equipment (continued)

Finance leasesThe carrying value of motor vehicles held under finance leases and hire purchase contracts at 30 June 2018 was$309,839 (2017: $463,243). The carrying value of plant and equipment held under finance leases and hirepurchase contracts at 30 June 2018 was $43,282 (2017: $262,984). Additions during the year were as a result ofthe acquisition of Sherry Services & Maintenance Pty Ltd. Leased assets and assets under hire purchasecontracts are pledged as security for the related finance lease and hire purchase liabilities.

12. Goodwill and intangible assets

GoodwillDevelopment

costsCustomercontracts

Intellectualproperty Total

$ $ $ $ $

CostAt 1 July 2017 107,840,067 326,750 - 566,000 108,732,817Reclassification on finalisation ofprovisional accounting (4,853,000) - 4,853,000 - -Acquisition of subsidiary (Note 3) 29,233,835 - - - 29,233,835

At 30 June 2018 132,220,902 326,750 4,853,000 566,000 137,966,652

Accumulated amortisationAt 1 July 2017 - 326,750 - 199,819 526,569Amortisation - - 685,000 56,600 741,600

At 30 June 2018 - 326,750 685,000 256,419 1,268,169

Net book value

At 30 June 2017 107,840,067 - - 366,181 108,206,248

At 30 June 2018 132,220,902 - 4,168,000 309,581 136,698,483

13. Trade and other payables

2018 2017$ $

Current

Trade payables 54,159,505 42,640,004

Trade creditors accruals 3,148,765 3,124,625Other creditors and accruals 16,246,887 12,757,340Deferred purchase consideration for acquisitions 1,461,370 3,829,637Cash on deposit owing to third parties 2,915,074 2,875,604Dividends payable (Note 6) 3,327,270 2,709,943Contract revenue received in advance 2,444,889 1,338,356

29,544,255 26,635,505

2018 2017$ $

Non-current

Deferred purchase consideration for acquisitions 1,437,500 2,250,000

33




13. Trade and other payables (continued)

In non-current creditors, there is an amount of $1,437,500 in 2018 (2017: $2,250,000) which represents thedeferred purchase consideration for the acquisition of CMC. This was a share purchase acquisition acquired inMay 2017. A further $208,000 is also included in non current creditors for deferred purchase consideration for thebusiness assets acquired for Northgen. These amounts are not contingent upon reaching earnings thresholdsand have been recorded at present value at the balance sheet date.

14. Interest-bearing loans and borrowings

Interest rate Maturity 2018 2017% Financial years $ $

blankCurrentBank bills and loans secured (14(a)) 4.00 - 4.30 2019 3,900,000 1,500,000Finance leases and hire purchase contracts(14(a)) 4.65 - 8.30 2019 254,038 381,157

4,154,038 1,881,157

Non-currentBank bills and loans secured (Note 18) (14(a)) 4.00 - 4.30 2019-2022 53,225,000 36,125,000Finance leases and hire purchase contracts(14(a)) 4.65 - 8.30 2019-2022 101,962 248,607

53,326,962 36,373,607

Subordinated debentures (14(c)) 8 June 2021 - 350,00057,481,000 38,604,764

(a) Total current and non-current secured liabilities

Bank bills and loans 57,125,000 37,625,000Finance leases and hire purchase contracts 356,000 629,764

57,481,000 38,254,764

The bank bills and loans are secured by a fixed charged over the Group's assets. Finance leases and hirepurchase contracts are secured by the lessor's title to the leased assets.

(b) The carrying amounts of assets pledged as security, the current market value of which exceeds the value ofthe mortgage

First mortgage over all of the assets of the parent entity and all controlledentities - total assets pledged as security 267,841,366 223,504,994

(c) Unsecured liabilities

8% Subordinated debentures - 350,000- 350,000

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14. Interest-bearing loans and borrowings (continued)

The Company issued 8% subordinated debentures on and around 30 June 2016. Each subordinated debenturebears an 8% interest rate on its allocated subscription amount from (and including) its issue date to (butexcluding) its maturity date. The maturity date for each debenture is five years from the date of issuance of thenote. The debentures can be extended upon agreement of the Company and the debenture holder or repaid withnotice by the Company. In March 2017, the board approved an exchange of notes to equity at a $3.00 per shareconversion. In May 2018, all of the remaining debentures were repaid or exchanged for equity.

15. Employee benefits

2018 2017$ $

CurrentAnnual leave 9,725,822 8,463,129Long service leave 3,508,291 3,102,368

13,234,113 11,565,497

Non-currentLong service leave 1,827,584 1,727,480

1,827,584 1,727,480

Aggregate employee entitlement liability 15,061,697 13,292,977

16. Contributed equity and reserves

2018 2017$ $

Fully paid shares

Fully paid ordinary shares 82,089,733 74,141,593

2018 2017Fully paid ordinary shares No. $ No. $At beginning of financial year 36,132,565 74,141,593 27,407,942 49,107,727Converted from debentures 15,000 60,000 2,734,666 7,079,000Issued during financial year- acquisitions 777,500 3,110,000 3,464,333 10,611,500- capital raising 1,319,416 4,778,140 2,525,624 7,343,366

At reporting date 38,244,481 82,089,733 36,132,565 74,141,593

At the reporting date, the issued capital consists of 38,244,481 ordinary shares. All ordinary shares participate individends and the proceeds on winding up of the parent entity in proportion to the number of shares held. Atshareholders' meetings each ordinary share is entitled to one vote per share held when a poll is called, otherwiseeach shareholder has one vote on a show of hands.

35




16. Contributed equity and reserves (continued)

The Company issued 5,000 ordinary shares at $3.00 per share, 1,286,291 ordinary shares at $3.60 per share,and 33,125 ordinary shares at $4.00 per share during the year to new and existing shareholders increasingequity by $4,778,140. The Company issued 777,500 ordinary shares at $4 per share as purchase considerationfrom acquisitions made during the year. This includes 625,000 shares issued as purchase price consideration tothe vendor of HUD Electronics and HUD Electronic Security Pty Ltd effective 3 April 2018. A further 15,000shares were issued at $4.00 per share in exchange for 8% subordinated debentures.

Other reserves

(a) Composition

2018 2017$ $

Other reserve 2,839,864 2,839,864Hedge reserve (71,277) (136,734)

2,768,587 2,703,130

(b) Movement

2018 2017$ $

Other reserveBalance at the start of the financial year 2,839,864 2,839,864

2,839,864 2,839,864

2018 2017$ $

Hedge reserveBalance at the start of the financial year (136,734) -Net unrealised gain/(loss) on cash flow hedges 93,510 (195,334)Deferred tax on net realised (loss)/gain on cash flow hedges (28,053) 58,600

(71,277) (136,734)

On 26 August 2016, the Group entered into a 5 year interest rate swap. A mark to market valuation of $71,277has been recognised in other reserves at 30 June 2018 (2017: $136,734).

(c) Nature and purpose of reserve

Other reserveThe other reserves represents goodwill arising from subsequent acquisitions of previous non-controlling interests.The acquisitions are treated as transactions between owners and the resulting goodwill is recognised directly inother reserves.

Hedge reserveThis reserve records movements for the interest rate swap contracts qualifying for hedge accounting.

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17. Related party disclosure

Transaction with key management personnel

Rental property paid to DirectorsThe Group rented certain properties that are controlled by members of the Group’s Key Management Personnel.Total rental paid during the year amounted to $796,519 (2017: $793,236).

Amounts paid to related parties during the year for rent are subject to commercial lease and are at arms length.

Compensation of key management personnel of the GroupTotal compensation paid to key management personnel during the year amounted to $5,483,782 (2017:$4,353,294).

Subordinated noteholdersTotal interest paid to noteholders of subordinated debentures amounted to $nil (2017: $317,903). Interest waspaid to key management personnel who own subordinated debentures during the year.

Directors feesTotal directors fees paid during the year amounted to $147,000 (2017: $118,000).

18. Commitments and contingencies

18.1 Operating lease commitments

Operating lease commitments comprise motor vehicle leases and property leases.

The property leases are non-cancellable with terms of up to 10 years, and rent payable monthly in advance.Contingent rental provisions within the lease agreements require that the minimum lease payments shall beincreased by either CPI or market. An option exists to renew certain leases at the end of their current term.

Non-cancellable operating leases contracted for but not capitalised in the financial statements:

2018 2017$ $

Within one year 7,707,539 7,905,035After one year but not more than five years 15,546,656 16,495,862More than five years 872,154 2,083,929

24,126,349 26,484,826

37




18. Commitments and contingencies (continued)

18.2 Finance lease and hire purchase commitments

The Group has finance leases and hire purchase contracts for various items of motor vehicles and plant andmachinery. The Group's obligations under finance leases are secured by the lessor's title to the leased assets.Future minimum lease payments under finance leases and hire purchase contracts, together with the presentvalue of the net minimum lease payments are, as follows:

2018 2017

$ $

Within one year 219,102 299,555After one year but not more than five years 148,651 363,113Total minimum lease payments 367,753 662,668Less amounts representing finance charges (11,753) (32,904)

Present value of minimum lease payments 356,000 629,764

18.3 Contingent liabilities

The parent company and all its wholly owned controlled entities, are subject to a Cross Deed of Guarantee inrespect of finance facilities provided to its ultimate parent entity and other entities controlled thereby. All assets ofthe Company are pledged as security in respect of this facility with a registered charge being in place. The totalfacility available to the Group from Westpac Banking Corporation is $80,100,000 (2017: $65,125,000). Of thesefacilities, an amount of $5,000,000 (2017: $15,000,000) is available for indemnity guarantees and as at 30 June2018 the economic entity had $4,659,851 (2017: $13,017,051) of indemnity guarantees outstanding.

In February 2018, the Group established a $25,000,000 surety bond facility with Liberty Mutual InsuranceCompany. At 30 June 2018, the Group had $15,292,404 of surety bonds outstanding with Liberty MutualInsurance.

19. Events after the reporting period

There have been no significant events occurring after the reporting period which may affect either the Group'soperations or results of those operations or the Group's state of affairs.

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20. Closed group class order

20.1 Entities subject to class order relief

Pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785, the wholly owned subsidiarieslisted below are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement offinancial reports.

It is a condition of the Class Order that the parent company and each of its subsidiaries enter into a deed of crossguarantee (Deed). Under the Deed the parent company guarantees the payment of all debts of each of thenamed subsidiaries in full, in the event of a winding up. The subsidiaries in turn guarantee the payment of alldebts of the parent company in full in the event that it is wound up.

The subsidiaries that are party to the Deed are:

Allen & Newton Pty LtdAllen & Newton Queensland Pty LimitedARA Building Services Pty LimitedARA Corporate Services Pty LimitedARA Electrical Engineering Services Pty LimitedARA Fire Protection Services Pty LimitedARA Electrical High Voltage Services Pty LimitedARA Manufacture Pty LimitedARA Mechanical Services Pty LimitedARA Property Services Pty Ltd the trustee for CMC Unit TrustARA Security Services Pty LimitedAsset Fire Security & Mechanical Services Pty LimitedCMC Cleaning Services Pty LtdCMC ECRM Pty LtdCMC Maintenance Pty LtdCMC Property Services (Aust) Pty LtdCMC Rapid Response Pty LtdComplex Solutions Pty LtdCrimewatch Video Pty LimitedDatatech Australia Pty LimitedDynamic Facilities Maintenance Group Pty LimitedEnvironmental Automation Pty LimitedExcell Control Pty LimitedHUD Security Pty LtdHUD Electronic Security Pty LtdHunter Power Pty LimitedID Supplies Pty LimitedInternational Security Control Solutions Pty LimitedMonarch Group Pty LimitedNational Construction Solutions Pty LimitedParking Guidance Australia Pty LimitedSherry Services & Maintenance Pty LtdTALV Pty LimitedTranselect Pty LimitedWeb ID Pty Limited

39




20. Closed group class order (continued)

20.2 Consolidated statement of profit or loss and other comprehensive income

Closed group2018 2017

$ $

Profit before income tax expense 19,317,863 17,113,704Income tax expense (5,028,833) (5,121,853)

Net profit for the period 14,289,030 11,991,851Retained earnings at the beginning of the period 23,111,892 20,370,261Dividends provided for or paid (11,483,723) (9,250,220)

Retained earnings at the end of the period 25,917,199 23,111,892

20.3 Consolidated statement of financial position

The consolidated statement of financial position of the Closed Group is as follows:


$ $

Current assetsCash and cash equivalents 11,080,249 14,831,516Trade and other receivables 78,193,328 61,602,239Income tax receivable 5,655 -Inventories and construction work in progress 18,829,272 16,488,364Other assets 1,377,521 1,026,090

Total current assets 109,486,025 93,948,209

Non-current assetsOther financial assets 2,018,251 2,442,670Property, plant and equipment 10,985,225 11,626,314Deferred tax assets 5,859,106 5,506,358Goodwill and intangible assets 135,469,900 106,729,584

Total non-current assets 154,332,482 126,304,926

Total assets 263,818,507 220,253,135

Current liabilitiesTrade payables 53,225,385 41,902,536Other payables 32,258,220 27,064,451Income tax payable - 2,247,310Employee benefits 12,795,945 11,214,624

Total current liabilities 98,279,550 82,428,921

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20. Closed group class order (continued)

20.3 Consolidated statement of financial position (continued)


$ $

Non-current liabilitiesOther creditors 1,437,500 2,250,000Other financial liabilities 53,326,962 36,723,607Deferred tax liabilities 3,713,306 2,577,005Employee benefits 1,822,839 1,723,247

Total non-current liabilities 60,300,607 43,273,859

Total liabilities 158,580,157 125,702,780

Net assets 105,238,350 94,550,355

EquityShare capital 82,089,738 74,141,593Retained earnings 25,917,199 23,111,892Other reserves (2,768,587) (2,703,130)

Total equity 105,238,350 94,550,355

21. Information relating to parent ARA Group Limited

2018 2017$ $

Current assets 29,793,920 26,012,417Non-current assets 206,519,506 164,720,529

Total assets 236,313,426 190,732,946

Current liabilities 8,736,066 10,519,295Non-current liabilities 173,823,881 122,147,935

Total liabilities 132,667,230

Net assets 53,753,479 58,065,716

Contributed equity 82,089,733 74,141,593Hedge reserves 71,277 136,734Accumulated losses (28,407,531) (16,212,611)

53,753,479 58,065,716

Loss for the year (20,609) (826,517)

41




22. Auditor's remuneration

The auditor of ARA Group Limited and Controlled Entities is Ernst & Young (Australia).

2018 2017$ $

Amounts received or due and receivable by Ernst & Young audit firm for:Ernst & Young audit 380,000 325,030Ernst & Young other services 205,569 407,280

585,569 732,310Amounts received or due and receivable by non Ernst & Young audit firm for:Services provided by other accounting firms 38,182 38,271

623,751 770,581

42

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AR18

Office Directory

ARA GROUP 1300 233 305 www.aragroup.com.au

10 Bridge Rd, Stanmore NSW 2048 Locked Bag 5501, Camperdown NSW 2050

ARA BUILDING 1300 660 573 www.arabuilding.com.au

ACT 1/9 Lithgow St, Fyshwick ACT 2609

NSW Unit 7, 47 Boultwood St, Coffs Harbour NSW 2450

Head Office Level 2, 10 Bridge Rd, Stanmore NSW 2048

18 Investigator Dr, Unanderra NSW 2526

Unit 1, 22 Reliance Dr, Tuggerah NSW 2259

QLD Unit 37, 1631 Wynnum Rd, Tingalpa QLD 4173

VIC 93 Cook St, Port Melbourne VIC 3207

ARA ELECTRICAL 1300 272 353 www.araelect.com.au

NSW Unit 21, 85 Alfred Rd, Chipping Norton NSW 2170

14c Williamson Rd, Ingleburn NSW 2565

Level 1, 28 Church St, Maitland NSW 2320

15 Abundance Rd, Medowie NSW 2318

34 Norfolk Ave, Nowra NSW 2541

8 Magpie St, Singleton NSW 2330


23 Commerce St, Wauchope NSW 2446

QLD Unit 37, 1631 Wynnum Rd, Tingalpa QLD 4173

ARA FIRE 1300 272 347 www.arafire.com.au


NSW 20 Binney Rd, Kings Park NSW 2148


1729 Botany Rd, Banksmeadow NSW 2019

QLD Unit 2, 102 Enterprise St, Bundaberg QLD 4670

37 Mary St, Kingston QLD 4114

45 Chetwynd St, Loganholme QLD 4129

SA 19 Taminga St, Regency Park SA 5010


WA 10 Halley Rd, Balcatta WA 6021

Unit 7, 14 Atbara St, West Kalgoorlie WA 6430

ARA INDIGENOUS SERVICES 1300 889 210 www.araindigenous.com.au

NSW Level 2, 10 Bridge Rd, Stanmore NSW 2048

VIC 442 - 450 Auburn Rd, Hawthorn VIC 3122

ARA MECHANICAL 1300 332 237 (ACES) 1300 322 627 (EA) www.aramechanical.com.au


NSW Head Office Unit 7, 192 Kingsgrove Rd, Kingsgrove NSW 2208

86 Bathurst Rd, Orange NSW 2800


QLD Unit 37-1631 Wynnum Rd, Tingalpa QLD 4172


ARA PRODUCTS 1300 111 010 1300 306 440 (Manufacturing) www.araproducts.com.au

NSW Austlink Corporate Park Unit 3, 4 Narabang Way, Belrose NSW 2085

Unit 1, 5 Endeavour Rd, Caringbah NSW 2229

Unit 22, 287 Victoria Rd, Rydalmere NSW 2116

15A Walker St, South Windsor NSW 2756

QLD Unit 8, 4 Henry St, Loganholme QLD 4129


61 Goodwood Rd, Wayville SA 5034

VIC 28 Reid St, Ardeer VIC 3022

Unit 2, 34 Wirraway Dr, Port Melbourne VIC 3207

ARA PROPERTY SERVICES 1300 889 210 www.arapropertyservices.com.au

NSW Level 2, 10 Bridge Rd, Stanmore NSW 2048

8 Ferris St, North Parramatta NSW 2151


VIC 442 - 450 Auburn Rd, Hawthorn VIC 3122

ARA SECURITY 1300 303 325www.arasec.com.au www.arasec.co.nz


NSW Head Office Level 1, 10 Bridge Rd, Stanmore NSW 2048

Unit 8/8-20 Hotham Pde, Artarmon NSW 2064

QLD 2/41 Lavarack Ave, Eagle Farm QLD 4009



WA 10 Halley Rd, Balcatta WA 6021

NEW ZEALAND 7/9 General Gates Ave, Kerikeri 0230

608A Rosebank Rd, Avondale 1026

Unit E2, 63 Marsden St, Lower Hutt Wellington 5042

1300 233 305AUS

NZ 0508 272 732aragroup.com.au

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ANNUAL REPORT - ARA Group · 2018-08-16 · 3 the. ara group annual report . 2018. page . 4. ara....

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