Eureka : 2021 Annual Report

Annual Report 2021

30 June 2021

ABN: 15 097 241 159

Eureka Group Holdings Limited and controlled entities

Directors' Report

The Directors present their report on Eureka Group Holdings Limited (the Company) and its controlled entities (the Group, Eureka or the Consolidated Entity) for the year ended 30 June 2021 (the year).

DIRECTORS

The following persons were directors of the Company during the whole of the financial year and up to the date of this report, unless otherwise stated:

Murray Boyte

Sue Renkin

Russell Banham

Greg Paramor AO

PRINCIPAL ACTIVITIES

The principal activities of the Group include the provision of:

• Accommodation and services to independent senior residents; and
• Specialist property management and caretaking services for seniors' independent living communities.

REVIEW OF OPERATIONS AND RESULTS

The Group has reported a profit before tax for the year of $8.74 million (2020: $9.08 million) and a profit after tax of $6.28

million (2020: $8.10 million). Underlying EBITDA1 was $10.57 million (2020: $8.70 million) and Underlying Profit before tax1

was $7.36 million (2020: $5.60 million).

The growth in the Group's underlying results is due to the increased revenue and profit contribution from the Group's portfolio of residential village assets, including the acquisition during the year of two rental villages, ownership of the 124-unit rental village in Bundaberg for the whole year and improved occupancy across the portfolio of owned villages to 98% (2020: 95%).

The strong village performance has resulted in a net increase in the fair value of investment properties during the year, including the Tasmanian assets which are owned in a joint venture. The Group's profit before tax is lower than the previous year due to a lesser gain on the sale of units at Terranora, a reduction in the carrying value of the Terranora land held for sale, impairment of the Couran Cove loan and receipt in the previous year of a multi-period goods and services tax (GST) refund. The financial impact of COVID-19 has been minimal with increased operating costs mitigated by Government support.

The current year income tax expense of $2.46 million (2020: $0.98 million) is higher than the prior year because deferred tax assets relating to all carry forward revenue tax losses were recognised in the prior year. The Group's statutory tax rate is 26% (2020: 30%). No cash tax will be payable until the Group has utilised its carry forward revenue tax losses.

Net operating cash flow for the year was $7.85 million (2020: $7.61 million).

At 30 June 2021, Eureka owned 32 villages (2020: 30), 5 of which are owned in a joint venture, and has 8 villages under

management, representing 2,191 units (2020: 2,147 units).

A summary of the Group's performance and reconciliation to the Group's Underlying EBITDA1 is shown below:

1 The terms EBITDA, Underlying EBITDA and Underlying Profit before tax are defined on page 2.

Eureka Group Holdings Limited and controlled entities

Directors' Report

1. EBITDA (Earnings before interest, tax, depreciation and amortisation) is an unaudited non-IFRS measure. The Directors believe it is a readily calculated measure that has broad acceptance and is referred to by regular users of published financial statements as a proxy for overall operating performance. EBITDA is calculated from amounts disclosed in the financial statements.
   Underlying EBITDA is an unaudited non-IFRS measure that represents the operating performance of the Group and excludes valuation adjustments, asset disposals and certain non-core or non-recurring transactions.
2. Underlying Profit before tax is an unaudited non-IFRS measure and equals Underlying EBITDA less finance costs, depreciation and amortisation.
3. Prior year land tax estimate.

Financial Position

Summary information in relation to the Group's financial position is shown below:

1 Balance sheet gearing is calculated as net debt (being interest-bearing drawn debt net of cash) divided by net debt plus equity.

Significant balance sheet movements during the year are described below.

Eureka Group Holdings Limited and controlled entities

Directors' Report

Acquisitions and asset management

The Group acquired two rental villages for a total consideration of $13.00 million (excluding transactions costs) in November 2020 consisting of a 70-unit village in Earlville (Cairns), Qld and a 53 unit village in Hervey Bay, Qld. The Group also acquired an additional 3 units in its strata-titled village in Elizabeth Vale, South Australia for $0.35 million.

The Group spent $3.19 million (2020: $1.94 million) on enhancing its owned villages through capital improvements including expenditure on its solar energy program, security and safety upgrades and progression of the Wynnum village expansion.

There were no other significant acquisitions made during the year.

Disposals - Terranora, NSW

During the year, the Group completed the sale of all remaining units at Terranora, NSW. 31 units (2020: 27 units) were sold

and settled for total consideration of $6.02 million (2020: $6.39 million) resulting in a gain on sale of $0.73 million (2020: $1.03 million). The total consideration and gain realised from the sale of the 60 units at Terranora since 2019 was $12.95 million and $1.76 million respectively.

The Group still owns a vacant 4.8 hectare parcel of land at Terranora with a carrying value of $1.83 million (2020: $2.30

million) and a manager's unit with a carrying value of $0.60 million (2020: $0.60 million). The land has been reclassified from

investment property to non-current assets held for sale and a fair value decrement of $0.47 million (2020: $nil) has been recorded. A conditional contract for the sale of the land has been entered into since balance date for a value in line with the carrying value at year end. The contract is subject to due diligence and has a six month settlement period.

The manager's unit continues to be held as investment property and opportunities for the realisation of this asset are being considered.

Couran Cove loans receivable

The carrying value of the West Cabin loan receivable ($0.32 million) has not changed during the year. Since balance date, a 12 month repayment plan has been agreed. Two cabins at Couran Cove, Qld continue to be held as security against the loan. Details are contained in Note 8.

The carrying value of a loan receivable for $3 million, including land option, which gives the Group a first right of refusal to purchase 60 proposed cabin sites for $50,000 per site at Couran Cove, Qld has been reassessed following a thorough review during the year including independent assessment of the land held as security for the loan. The assessed fair value of $nil (2020: $1.05 million), resulted in an impairment charge of $1.05 million (2020: $0.19 million) being recorded during the year. There has been no change to the Group's security arrangements, including a mortgage over the land. The loan expiry date was extended to 31 August 2021 during the year. Details are contained in Note 9.

Capital management - debt & equity

Debt

During the year, the Group's National Australia Bank (NAB) facility was increased from $60.00 million to $77.50 million to facilitate the acquisition of the new villages in Hervey Bay and Cairns, expansion of the Wynnum village and to provide headroom for future acquisitions. The expiry date was extended to 31 March 2024 and the limit will increase to $80 million upon settlement of the deferred consideration payable for the Hervey Bay acquisition and return of the associated bank guarantee in November 2022.

The Group was in compliance with all banking covenants during the year. Under the terms of its NAB debt facility, Eureka is able to deposit and withdraw funds in accordance with its working capital needs, subject to satisfaction of the bank's covenants. At balance date, the drawn amount under the facility was $57.18 million (2020: $54.47 million). Details are contained in Note 19.

Equity

Equity movements and balances for the year are as follows:

• Dividends of $2.62 million (2020: $3.57 million) were paid during the year, comprising $1.98 million in cash (2020:
  $3.57 million) and $0.64 million in shares (2020: $nil) pursuant to the Dividend Reinvestment Plan (DRP) established during the year.