abc learning-annual-report-2006
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A.B.C. Learning Centres LimitedAnnual Report 2006
A.B
.C. Learning C
entres Limited A
BN
93 079 736 664 Annual R
eport 2006
Contents1 2006 Highlights2 Chairman’s Report4 CEO’s Report6 ABC’s four Building Blocks8 Review of Operations
– Australia, New Zealand and United States
– Education14 Board of Directors17 Financial Report
Corporate Directory
1
Financial Highlights 2006 2005 % Change (AIFRS) (AIFRS) 2005/2006
Revenue $631.5m $252.7m 149.9Operating profi t after tax $81.1m $43.5m 86.4Earnings per share – basic 27.7 cents 23.0 cents 20.4Final dividend – fully franked 8.0 cents 6.0 cents 33.3Full year dividend – fully franked 15.0 cents 11.0 cents 36.4
Earnings per share 27.7c
+20.4%
Revenue $631.5m
+149.9%Operating profi t after tax $81.1m
+86.4%
Another record year has seen ABC grow its business exponentially and provide an increased return to shareholders.
Business Highlights
January 2006
Acquisition of Learning Care Group, Inc. in the United States
June 2006
Acquisition of Kids Campus Limited
Growth in Childcare Places 2004–2006
22,969
2004
46,164
2005
112,179
2006
2
Chairman’s Report
The past 12 months have been a landmark year, a transforming year for the Company. With the acquisition of the US based Learning Care Group, ABC became the world’s largest listed childcare provider. As we stood on the threshold of this new stage of development this year, we took time to do what we have always done – pursue a program of well planned and well managed growth, underpinned by the highest quality of early childhood education and care.
It was ABC’s foray into the US that gave us the most exciting business headlines of the year. In November 2005, we announced our intention to acquire Learning Care, at that time the third largest for-profi t childcare provider in North America. More recently, in August 2006, we agreed to purchase Dallas-based Children’s Courtyard, the ninth largest childcare provider in North America.
These acquisitions came out of our strong belief that the US provides exceptional opportunities for ABC. The US has a similar childcare market to Australia, with more mothers in the workforce and a greater demand for the highest quality education and care, but is served by a fragmented industry where no company holds more than three per cent of the market. This has meant that the US industry has not yet had the benefi t of the capital injection we have achieved here.
We have always been aware that a move by an Australian company into the US can be viewed as risky. But the Board and management have absolute confi dence in our proven track record of good management and sound planning in a market that is similar to ours but 15 times larger.
Working closely with the existing Learning Care Group and Children’s Courtyard senior management, ABC can repeat its successful Australian and New Zealand formula of achieving high occupancy by lifting the standard of care and providing a world-class curriculum, quality staff and a comprehensive program of renewal and renovation.
Within Australia, the acquisition of Kids Campus in June 2006 further consolidated our position. ABC had demonstrated its ability to integrate new centres with a successful merger with the Peppercorn Management Group in 2004, and this continued with Kids Campus. In July, we announced the acquisition of Hutchison’s Child Care Services.
Another exciting development this year was our expansion into corporate childcare, meaning parents have access to centres either actually in or near their workplaces. I have visited two Westpac-ABC centres, a 75-place centre in Brisbane and a 50-place centre in Westpac’s new building in Sydney, which have transformed those lucky families’ lives. Arrangements with the Commonwealth Bank are also underway, as part of the bank’s new staff wellbeing program.
Corporate childcare has emerged as an important service that fi ts well into ABC’s strategy of managed growth.
Right from the beginning, we have understood the importance not only of our families but also of our communities.
An important aspect of this strategy is our continual review and revision of our educational and developmental programs to ensure they capture the latest research and are in line with our approach to lifelong learning. You can read about these important programs later in this report.
Right from the beginning, we have understood the importance not only of our families but also of our communities. We have always been involved with the communities, large and small, that have been home to our centres. And we have relished the opportunity to champion a number of causes, particularly those with an emphasis on children, families and education. So this year ABC introduced SIDS and Kids Safe Sleeping kits into our centres right across Australia and New Zealand and helped our children fundraise on Red Nose Day. Our support has been as varied as the Australian Children’s Music Foundation and the establishment of a Chair in Midwifery to be established by the Mater Mother’s Hospital and the Australian Catholic University.
For you, our shareholders, the benefi ts of being part of a dynamic, responsible company are equalled by our solid fi nancial results.
Revenue this year was $631 million, an increase of 150 per cent on last year, and our operating profi t after tax was $81 million, an increase of 86 per cent.
The increase in revenue is being passed on to shareholders as a fi nal dividend of 8 cents per share, fully franked, making a full year dividend of 15 cents per ordinary share fully franked for the year.
In conclusion, it has been a year of progress on all fronts. It is the progress ABC has consistently shown since it started its fi rst centre less than 20 years ago and listed fi ve years ago on the Australian Stock Exchange. There have been many people on that journey and many people who continue to make it successful. I would like to congratulate and thank them all.
Your Directors feel enormous confi dence in the road ahead, and we thank you for joining us.
Sallyanne Atkinson AOChairman
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4
CEO’s Report
Consolidation and International ExpansionIn the last 12 months, ABC has evolved into a substantially different company. We are a signifi cantly larger company and now also an international organisation.
During the year, we commenced our expansion into the US, gaining a substantial part of the largest childcare market in the world.
We cemented our position as the leading childcare provider in the Australian market through our acquisitions of Kids Campus and Hutchison’s Child Care Services and are now Australia’s leading provider of childcare services.
Our fi nancial position has been strengthened with an additional capital raising underpinning our acquisitions and funding our future growth opportunities.
These initiatives have positioned ABC at the forefront of the childcare industry, enabling us to continue to provide the highest quality of care for children and families in our centres and strategically positioning us to capitalise on these investments over the longer term.
Expansion into the USOne of the major initiatives we have undertaken in the past year has been our expansion into the US. Our acquisition of the Learning Care Group, Inc. in January, with 460 owned and franchised centres, gave ABC a signifi cant position in the US market.
The US expansion was a logical progression for the company. Our previous merger with Peppercorn Group meant we were of suffi cient scale to warrant international expansion and the Learning Care Group was a natural, strategic fi t for the Company.
We were able to bring the benefi t of our management experience to an existing provider with two respected operating subsidiaries, Tutor Time and Childtime, subsequently expanding our operations further, with Tutor Time acquiring an additional 17 centres in southern California.
ABC has consolidated its position in the giant US market with the recent acquisition of Children’s Courtyard in Texas, giving us a total of 417 owned centres and 108 franchised centres in the US.
Our expansion into the US has been measured, with a deliberate focus on strategic integration into our existing business, enabling us to deliver shareholder value through an immediate return on invested capital.
We see greater potential in the US market for further acquisitions in addition to building new centres and acquiring franchised businesses.
Australian AcquisitionsWe have continued to build our leadership position in the Australian market through further acquisitions. Building on our merger with the Peppercorn Group, we acquired Kids Campus Limited and announced the acquisition of Hutchison’s Child Care Services Limited.
These acquisitions give us benefi ts of scale and importantly provide ABC with the opportunity to provide an enhanced choice of centres for our corporate partners.
With the Peppercorn merger, ABC has demonstrated its ability to manage and integrate acquisitions to enhance shareholder value without compromising quality of care or education.
The successful integration of operational and administrative functions also enables centre staff to spend more time on what they do best – providing an exciting and challenging early learning environment for the children in their care.
Realising the benefi ts of these acquisitions is not an easy undertaking and we are fortunate to have dedicated staff who are committed to ensuring the success of this program. The amalgamation of the various offi ces into one corporate offi ce has been a signifi cant achievement and I would like to extend my appreciation to our staff for making this happen.
ABC is now an international childcare provider with an increasingly strong fi nancial and shareholder focus. During the year, we have repaid debt and funded acquisitions and further growth opportunities.
Our expansion into the US has been measured, with a deliberate focus on strategic integration into our existing business, enabling us to deliver shareholder value through an immediate return on invested capital.
Following the acquisition of the Hutchison centres, ABC will have over 1000 centres in Australia and New Zealand, or approximately 20 per cent of long day care centres nationally.
In addition to growth by acquisition, we will continue to selectively build new centres in the coming year.
Capital ManagementDuring the year, ABC has raised suffi cient capital to repay debt and fund acquisitions and further growth opportunities. Our net debt position at the end of June was $29.3 million. We can now feel comfortable in increasing the debt position of the Company as we continue to grow.
The breadth and scale of our operations now means that we have also moved into the ASX Top 100 list of companies. The Company and its operations are now attracting the attention of a new set of institutional shareholders and one of our priorities is to engage with this market to build understanding of our development strategy.
Commitment to Training and QualityIn the past year the Company has experienced a signifi cant transformation in the size and composition of our business while remaining fi rmly focused on the provision of quality early childhood care and education.
This has been the hallmark of our business success and continues to be the primary focus of management.
In the next fi nancial year, as part of our commitment to raising standards across our industry, ABC will make signifi cant investments in centre staff training programs. In addition, we will continue our corporate partnership program to develop childcare centres for entities such as the major banks.
In the past year, ABC has been transformed as we have signifi cantly expanded the scope and size of our business, while remaining true to our commitment to quality in all our centres.
The outlook for our business remains positive and we will continue to selectively acquire and construct centres where they meet a community need and add to our business.
We thank our dedicated staff for their help in building ABC into a prosperous international company.
Edmund S GrovesCEO Operations (Global)
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ABC’s four Building Blocks
The best foundation for a child’s future
ABC Learning Centres is committed to ensuring each child is loved, nurtured, educated and given the best possible chance in life. That is why we have specifi cally created the ‘Four Building Blocks’. Each one of these building blocks is a pathway to a child’s overall wellbeing and future development.
We recognise that in order for young children to reach their full potential in a learning environment, they must each be viewed as an individual. At ABC, we recognise that each child is uniquely different. Our tailored learning curriculum focuses on each child’s unique style of learning that allows them to gain the most from these experiences. Literacy, numeracy, and computer skills are key elements of this building block.
We offer specialised and fun programs to nurture a child’s nutritional and physical development. Our aim is to ensure children begin and continue to make healthy choices, as well as developing and enhancing their gross and fi ne motor skills. The programs and the activities offered in this building block are based on the individual child. Each child is able to develop skills according to their own unique abilities and special interests.
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ABC prides itself on the special learning environments it creates. Centre facilities are constantly upgraded, ensuring a safe and secure environment for all children. That’s why we have re-invested close to $100 million into our early learning centres over the last four years. Our extensive play and educational facilities are specifi cally designed with child safety and child development as the main priority. We are also the only company continuing to build centres in all areas where need exists across the country.
Real Mums. Real Stories. “My son attends an ABC childcare
centre one day a week, and has done since 12 weeks of age. It is on these days that we fi nd he is most settled, he is happy when I arrive to pick him up. He spends his days fi nger painting, experiencing a myriad of toys that no parent would be able to provide in such a variety or quantity. The staff there assist parents in learning how best to cope with diffi cult moments, how to introduce solids,
how to use a cup and baby eating utensils and settling problems.
ABC staff and directors assisted me with post-natal depression, this assistance is given freely and is not part of the school fees. This kind of care and attention to a little person, his growth and development and his family’s overall wellbeing is nothing short of a fantastic community service to all.”
Mrs K Barry, ABC Grays Point
ABC centre staff are early childhood professionals, dedicated to the development of every individual child. All our staff training and assessment services are not only relevant to the real world but also incorporate holistic practices in child development. They undertake continuing levels of study to achieve their qualifi cations developed specifi cally for the care and education of children under six years of age. In Australia, centre staff qualifi cations range from Certifi cate level through to Diplomas, Advanced Diplomas and Bachelor of Education (Early Childhood). ABC centre staff are employed according to the Child Care Regulations and Acts specifi c to each State/Territory.
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Review of Operations
Australia, New Zealand and United States
SummaryOperations grew signifi cantly through the year. The total number of centres increased from 660 to 933 (905 in Australia, 28 in New Zealand), a growth of 41 per cent.
The Company continued to acquire high quality groups and excellent sites and centres in outstanding locations. A strengthening of our operational structure has enabled us to focus on and measure our quantitative and qualitative performance indicators more effectively. Systems have continued to improve and have reduced the administrative burden for our centre staff, enabling them to spend additional time with the children. Our Corporate Care division has progressed markedly, securing further major organisations. Marketing has been enhanced this year, with a number of major campaigns boosting occupancies.
AcquisitionsThe acquisition of Kids Campus Limited (KDS) for $127.9 million was the most signifi cant new initiative during the fi nancial year. KDS has added 75 centres and an existing pipeline of 21 centres to the group, with 8,000 places in strategic locations. The transaction also included a further 4,000 places to be provided over three years.
Another signifi cant acquisition was the six childcare centres managed by the Universal group in metropolitan Sydney. This acquisition comprised 421 existing places with a further 960 places to be developed. More than half of the places are to be for children under three years of age.
A further 192 centres were acquired through the year in small groups or individually.
Delivery of ServicesThe main focus of the delivery of services to our children and families continued to be on our high quality educational curriculum.
Staff training continued as a key focal point with curriculum training and our Rewards Success Program featuring strongly.
It was a year of unprecedented expansion, with ABC achieving a growth rate of 41 per cent in its number of childcare centres, moving into the US and New Zealand and signifi cantly expanding the corporate care division.
Real Parents. Real Stories. “Our daughter who is now 26 months old has been going to a local (privately-run) day care centre for just on two years. In July last year it was turned into an ABC Centre, a move which my husband and I, being small business owners, were originally ambivalent about. However, what we have noticed since the changeover is that, parents are now better informed, every toy and piece of equipment in the centre has been replaced
or updated, and the systems and procedures have improved.
Our daughter (who originally attended one day and now attends three full days per week) has grown and fl ourished and turned into a happy healthy toddler under their care. ABC is the best thing that could have happened to our centre.”
Lana and Craig White, ABC Jerraboombah
9
New South Wales
210Victoria
281South Australia
56Tasmania
11
Queensland
335
New Zealand
28
Western Australia
78
Our operational structure was strengthened by the addition of more than 40 area managers to the management team. These managers were mostly senior Centre Directors promoted into the position but still retaining a strong connection to the centres.
Operations Central, a centralised support service staffed by senior early childhood personnel, was launched through the year. Operations Central has provided centre staff and families with much improved support and the Company with essential feedback data on its operations.
PerformanceUnder the Commonwealth Quality Improvement and Accreditation System, 213 of our centres were accredited this year, 98 per cent achieving the highest level.
And under our internal Quality Assurance Program, each of our centres was visited once per quarter, resulting in 1,856 centre visits and the issuing of 4,937 quality assurance certifi cates in the areas of Industry Compliance, Early Childhood Learning Environment, Centre Presentation and Administration.
Centre staff turnover continued at the low rate of 8.3 per cent. Much of the turnover was for family or travel reasons.
Refurbishments were carried out at 212 centres through the year and over 30,000 maintenance responses were undertaken.
Staff computers were provided to over 200 centres and there were over 6,000 IT&T responses in the year.
SystemsImproved access by Centre Directors to centre relief staff was achieved through our labour management system, Kronos. This system was also extended to our New Zealand centres. We also commenced automated child attendance times in our New Zealand centres, improving our security and management processes.
A new rostering system was developed in our childcare centre systems as well as automatic direct debiting of fees and improved banking systems. These developments have been instrumental in reducing offi ce time for Centre Directors.
Substantial work was undertaken on our intranet throughout the year. All centre policies and procedures and other essential centre information is now at the fi ngertips of the Centre Director. Online ordering of toys and equipment as well as purchasing of supplies for the centres has been further developed.
Northern Territory
15Australian
CapitalTerritory
8
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Corporate CareThe Corporate Care division commenced the management of the existing 19 Department of Defence childcare centres. A number of existing ABC centres were converted to Defence corporate care centres, increasing the total number to 35 centres.
Other corporate partners who joined through the year included the Commonwealth Bank of Australia, Optus, Chisholm TAFE, Chandler Macleod and the Queensland Institute of Medical Research.
MarketingIt has always been ABC’s experience that word of mouth is our best form of marketing. This year has been no different in this regard and the constant stream of support letters that we receive from our excited families suggests that the neighbourhood grapevine is hard at work. It is also a constant reminder that the Company must continually fi nd improved ways to support and inspire those families.
We bolstered our marketing efforts this year with a major re-enrolment campaign over the summer holiday period. The campaign included an extensive fl yer distribution and TV advertisements which continued through the Commonwealth Games and local radio advertisements. Additional call centre staff were engaged and trained to respond to the huge infl ux of enquiries.
Other campaigns through the year included the 2 Weeks Free and “Guess Who” campaigns. New signage turnaround times for acquired centres was also greatly reduced, enabling the centres to be identifi ed with the ABC marketing campaigns.
Regional marketing information was amended to include the local centre telephone number as well as the toll-free number (1800 222 543 in Australia, 0508 222 543 in New Zealand).
Learning Care GroupJoining the ABC Group has brought exciting opportunities for growth and development of the Learning Care Group in the US. Since the acquisition by ABC in January 2006, the Learning Care Group has made a strategic shift in its business strategy, which previously focused on growth through the franchise market.
Real Parents. Real Stories. “When I was pregnant with Miranda, I struggled to fi nd her an place in childcare as all the places were full. My husband I and kept getting knocked back. Originally, we had avoided the larger corporate centres such as ABC for fear of our baby being treated as just another customer. But we then phoned ABC and were surprised with the response we got. We were invited to visit the centre and see how the kids enjoy their time there. We were told that a place would be found
for Miranda and not to worry about things, just enjoy the remainder of the pregnancy and impending parenthood. This was very reassuring.
The staff are all thrilled when we carry her in the door, and are genuinely concerned for her welfare. We are very thankful for the love and care that our daughter has received, and would recommend ABC centres to any other parents.”
Brad and Janelle McKenzie, ABC Newtown
Review of Operations
Australia, New Zealand and United States
11
Today, the company is driving growth by:
(a) acquiring other regional early education providers who are known for their exceptional quality;
(b) purchasing franchised Tutor Time centres; and
(c) developing new centres to increase concentration in select key markets.
In the eight months since the ABC acquisition, the Learning Care Group has been highly successful in executing this shift in business strategy by acquiring 23 previously franchised Tutor Time centres and contracting to purchase Children’s Courtyard, which operates 46 schools (comprised of 74 centres) in Texas.
The Children’s Courtyard acquisition was an ideal fi t under Learning Care Group’s umbrella of brands, as they have a strong commitment to high quality early education and care. The synergies among both companies will allow for continued growth in the marketplace and will position Learning Care Group as a leading early education provider in Texas.
As a result of these acquisitions, the Learning Care Group operates in nearly 500 locations in the United States of America.
We are currently undergoing an extensive remodelling program and have budgeted approximately US$40 million to undertake these refurbishments at more than 180 of the Childtime centres across the country. These enhancements include an updated classroom environment that supports our new The Empowered Child™ curriculum. Early indications of recently completed remodels show an improvement in enrolment, which is anticipated for all the centres involved throughout this process.
Midwest
91East
128
South
138West
125
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College – AustraliaThe National Institute of Early Childhood Education (NIECE), has experienced steady yet signifi cant growth over the previous 12 months.
NIECE provides specialised training in Children’s Services qualifi cations to an average of 2,300 students at any given time, on a national basis. Over 1,000 students have successfully graduated with Children’s Services qualifi cations in the previous year.
Trainers/assessors are based in nine locations around Australia, delivering courses to full-time and external students. NIECE’s unique delivery model allows external students to access regular workshops in metropolitan and regional locations as well as receive one-on-one mentoring.
NIECE has been awarded DET-funded User Choice contracts to deliver training services to trainees and apprentices in Queensland, New South Wales, Victoria, Tasmania, South Australia, Western Australia and the Northern Territory. Trainees and apprentices equate to almost one-third of enrolled students, the remainder being self-funded students who select NIECE as their provider of choice.
NIECE is fi rmly established as a nationally Recognised Training Organisation and is the largest private provider delivering the Certifi cate lll, Diploma and Advanced Diploma in Children’s Services.
ABC LifeSmart Curriculum – Australia/New ZealandThis year, while experiencing exceptional growth both in the quantity and the types of early learning services we have acquired, we have focused specifi c attention on improving our exciting and innovative programs and educational services.
The introduction of the ABC LifeSmart Curriculum has been an educational initiative developed to further enhance the educational programs currently offered in the oldest age group classrooms at ABC Learning Centres. The curriculum meets and extends on the varying legislative requirements of each state and territory of Australia and the Te Whariki guidelines established by the New Zealand Ministry of Education.
The ABC LifeSmart Curriculum provides children with the foundation learning skills they require to become confi dent lifelong learners. The curriculum gives children the opportunities to explore and extend upon these skills through their participation in a wide range of experiences in their early learning environment.
The experiences offered by the early learning environment, the daily routine and the interactions with educators all contribute to create a supportive, stimulating and challenging program.
Within the environment a range of activities are offered that actively engage children to enhance all areas of their development, promote confi dence and independence and assist them in transitioning to their fi rst year of compulsory schooling.
The ABC LifeSmart Curriculum has a signifi cant focus on literacy, numeracy and computer skills development. It also includes:
– Letterland – a phonemic awareness program to promote early literacy skills;
– Broadlearn – a specialised program for children to develop computer skills using a digital library of over 300 learning activities;
– Behavioural Learning – a special program for children to facilitate positive peer interactions and to assist children with self-regulation and behaviour management;
– Read for 10 – a reading program for families which has been developed by the ABC Education Department in conjunction with the Dymocks Literacy Foundation and the National Institute of Early Childhood Education; and
– Hold on Tight, Stay in Sight – a program developed by the ABC Education Department to encourage all children and families to be conscious of car safety in driveways.
Review of Operations
Education
Education is what we do. ABC’s National Institute of Early Childhood Education had steady growth through the year. Educational initiatives such as the ABC LifeSmart Curriculum have enhanced our programs for older children in our centres.
To help support each of these exciting new initiatives, the ABC Education Department has launched its own site on the ABC Learning Centre’s intranet. This site provides additional support for centre personnel with each of these new programs and offers additional advice for program planning and implementation.
Each and every one of these projects is very special. Each project has been specifi cally developed to extend the educational opportunities for children and to increase their learning outcomes.
ABC has been developing and providing early childhood programs for the past 18 years. The launch of our new ABC LifeSmart Curriculum is a further example of our dedication to the ongoing development of educational programs for the children in our care.
Education and Curriculum – United StatesLearning Care Group is committed to providing our families with the best care, staff and centres. To ensure we have achieved all of these goals, we are taking steps that will help our schools through the accreditation process, either on a national or local level. These certifi cations may come from the National Association for the Education of Young Children (NAEYC), the National Early Childhood Program Accreditation (NECPA) or other state governing agencies.
The government relations department at Learning Care Group has been very involved with the Early Care and Education Consortium, with one of our staff members serving as the committee’s president. Our team continues to strengthen its legislative relationships and raise awareness on the issues affecting early education providers, ensuring Learning Care Group has a strong voice in the fi eld.
To be a leader in the early education fi eld, it is imperative to utilise state-of-the-art technology and to streamline processes. We are currently in the process of testing and installing a variety of technology enhancements, including:
– Biometric access systems – fi ngerprint identity verifi cation to provide our families with an added sense of security;
– Next Generation Application data solution – which gives both parents and centre staff the ability to seamlessly interact over the internet;
– PeopleSoft – designed to improve internal support systems and provide up-to-date human resources functions, as well as serving as a portal for company-wide information; and
– Galileo educational software – helping teaching staff tailor their educational program to the unique needs of the classroom and individual students.
The proprietary curriculum at Learning Care Group is one of our key differentiators and strengths. The Tutor Time LifeSmart™ and Childtime The Empowered Child™ educational offerings help inspire a lifelong love of learning. We are currently in the process of providing all our teaching staff with additional training on this curriculum, making this the fi rst time that Learning Care Group has made the fi nancial commitment to bring teachers together from an entire area and train them using a professional resource.
Recently, we completed a pilot of the online lesson planning portion of our new Curriculum Embedded Assessment System. The teachers were very receptive, reporting that lesson planning was more enjoyable and saved them time. Teachers will begin using this system company-wide in December.
Through extensive market research, Learning Care Group has seen more and more parents turn to online/web-based resources when considering an early education provider for their child. We will continue to explore e-marketing opportunities to ensure that Learning Care Group and its brands are providing our target web-based audience with the information they need in a user-friendly format.
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Mrs Sallyanne Atkinson AO
Chairman
Sallyanne Atkinson is a former Lord Mayor of Brisbane, Australian Senior Trade Commissioner to Paris and Chairman of Queensland Tourism. She is a director of several public companies and associations, including APN News & Media Limited and The Australian Ballet. She is chairman of the Federal Ministerial Taskforce on Dementia and of the Crawford Fund (Qld). Sallyanne is also a Special Representative for Queensland, South East Asia in the Queensland State Government.
Among Sallyanne’s many achievements, she has received several awards including Offi cer of the Order of Australia and recently was awarded an Honorary Doctorate by the Australian Catholic University. She is a Fellow of the Australian Institute of Management, Australian Institute of Company Directors and Australian Institute of Planning.
Sallyanne holds a Bachelor of Arts degree from the University of Queensland.
Mr Edmund Groves
CEO Operations (Global)
Eddy Groves is co-founder of ABC and was the architect behind ABC’s listing on the ASX in 2001. He is renowned as one of Australia’s business leaders and brings over 18 years’ experience in the childcare industry. Eddy has primary responsibility for fi nancial and operational matters. He also provides industry acknowledged skills in acquisition strategy, centre location and design, business development and corporate strategic planning. He is among Australia’s leading public speakers and regularly addresses a range of business and childcare industry forums and events.
Dr Le Neve Groves
CEO Education
Le Neve Groves is co-founder of ABC, CEO of Education and Principal of the National Institute of Early Childhood Education (formerly ABC Early Childhood Training College). Le Neve holds several early childhood qualifi cations, including a Diploma of Teaching Primary/Preschool, Bachelor of Education, Master of Education and a PhD in Education.
Le Neve assists in the development of and oversees all early childhood philosophies, policies and practices in the ABC Group. Since the inception of ABC Developmental Learning Centres, Le Neve has supported the design and implementation of ABC’s high quality programs for which we have received 17 industry awards. Le Neve is also the Chairman of ABC’s risk management committee.
Le Neve, a member of the Stronger Families and Communities Partnership established in 2004 by the Commonwealth Government, is also Queensland State Director for Young Media Australia.
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Board of Directors
Mr Martin Kemp
Executive Director
CEO Operations
(Australia and
New Zealand)
Martin Kemp has 16 years’ experience in childcare and has, in that time, co-founded a number of childcare groups including Premier Early Learning Centres. He has owned, managed, operated, acquired or developed over 300 childcare centres throughout Australia and New Zealand.
Martin holds a Bachelor of Engineering (Hons) degree and a Masters of Engineering Science degree and is a member of the Institution of Engineers Australia. He has extensive project management experience in multi-million dollar projects around Australia.
Martin has been a member of the Commonwealth Child Care Advisory Council, President of the Queensland Professional Child Care Centres Association, President of the Australian Confederation of Child Care, President of the Queensland Private Child Care Centres Employers Organisation and a Foundation Board Member of the Australian Childcare Centres Association (federal employer organisation).
Mr William Bessemer
Non-Executive Director
Bill Bessemer is currently Chairman of Austock Group Limited and Australia Pacifi c Exchange Limited and is a director of public company Timbercorp Limited.
He has extensive experience and practical corporate skills covering debt and equity raisings, fi nancial structuring, mergers, acquisitions and business recoveries.
Bill holds a Bachelor of Economics degree from the University of Queensland, a Master of Business Administration degree from the University of Melbourne and is a Certifi ed Practising Accountant.
Mr David Ryan AO
Non-Executive Director
David Ryan is the Chairman of Tooth & Co and other Residual Assco Group Limited group companies. He is also a non-executive director of Transurban Group and Lend Lease Corporation Limited, as well as a member of the Advisory Board of Virgin Management Asia-Pacifi c Pty Ltd and a member of the Advisory Board of Caliburn Partnership.
David has extensive business experience through his current and former roles which include holding senior executive management positions in public companies and being a member of a number of public company boards.
David is well credentialed to provide support to the ABC board as a Non-Executive Director.
Non-Executive Director
Larry Anthony is currently a board member of Learning Care Group, Inc, Macquarie Media Group, Indue Ltd and the National Chairman for the Duke of Edinburgh’s Awards Australia.
Larry has vast experience in government sectors and fi nance including roles with Merrill Lynch and Potter Warburg. He is a former Federal Minister for Children and Youth Affairs, Community Services and the Parliamentary Secretary for Trade. He is also involved with various charities across Australia.
Larry holds a Bachelor of Commerce degree from the University of New South Wales, a diploma from the Australian Institute of Company Directors, a diploma of Applied Finance and Investment and is a Member of the Banking and Securities Institute of Australia and Australian Institute of Company Directors.
15
The Hon. Lawrence Anthony
16
A.B.C. Learning Centres LimitedAnnual Financial Report for the year ended 30 June 2006
18 Corporate Governance Statement
23 Directors’ Report
36 Auditors’ Independence Declaration
37 Independent Audit Report
39 Directors’ Declaration
40 Income Statements
41 Balance Sheets
42 Statement of Changes in Equity
44 Cash Flow Statements
45 Notes to the Financial Statements
98 Additional Stock Exchange Information
17
18
Corporate Governance Statement
Corporate Governance
The Company is committed to implementing the highest standards of corporate governance. In determining what those high standards should involve the Company has turned to the ASX Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice Recommendations. The Company is pleased to advise that the Company’s policies are consistent with those ASX guidelines.
Where the Company’s corporate governance practices do not correlate with the practices recommended by the Council, the Company is working towards compliance.
1. Board of Directors
1.1 Role of the BoardThe Board’s role is to govern the Company rather than to manage it. In governing the Company, the Directors must act in the best interests of the Company as a whole. It is the role of senior management to manage the Company in accordance with the direction and delegations of the Board and the responsibility of the Board to oversee the activities of management in carrying out these delegated duties.
In carrying out its governance role, the main task of the Board is to drive the performance of the Company. The Board must also ensure that the Company complies with all of its contractual, statutory and any other legal obligations, including the requirements of any regulatory body. The Board has the fi nal responsibility for the successful operations of the Company.
To assist the Board carry out its functions, it has a Code of Conduct to guide the Directors, the Chief Executive Offi cers, the Chief Financial Offi cer and other key executives in the performance of their roles.
1.2 Composition of the BoardTo add value to the Company the Board has been formed so that it has effective composition, size and commitment to adequately discharge its responsibilities and duties. The names of the Directors and their qualifi cations and experience are stated on pages 25 to 27 along with the term of offi ce held by each of the Directors. Directors are appointed based on the specifi c governance skills required by the Company and on the independence of their decision-making and judgement.
The Company recognises the importance of Non-Executive Directors and the external perspective and advice that Non-Executive Directors can offer. Mrs Sallyanne Atkinson (Chairman), Mr William Bessemer, Mr David Ryan and the Hon. Larry Anthony are all Non-Executive Directors. In addition to being Non-Executive Directors, Mrs Sallyanne Atkinson, Mr David Ryan and the Hon. Larry Anthony also meet the following criteria for independence adopted by the Company.
An Independent Director:
1. is a Non-Executive Director;
2. is not a substantial shareholder of the Company or an offi cer of, or otherwise associated directly with, a substantial shareholder of the Company;
3. within the last three years has not been employed in an executive capacity by the Company or another group member, or been a Director after ceasing to hold any such employment;
4. within the last three years has not been a principal of a material professional adviser or a material consultant to the Company or another group member, or an employee materially associated with the service provided;
5. is not a material supplier or customer of the Company or another group member, or an offi cer of or otherwise associated directly or indirectly with a material supplier or customer;
6. has no material contractual relationship with the Company or other group member other than as a Director of the Company;
7. has not served on the Board for a period which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Company; and
8. is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Company.
A majority of the Board is not made up of independent Directors. The Board currently has three independent Directors and four non-independent Directors.
Mr William Bessemer is a Non-Executive Director of the Company and is also the Chairman and shareholder of the Austock Group Limited which owns the Company’s corporate advisors and as such does not meet the Company’s criteria for independence. However, as one of the founding Directors of the Company, his experience and knowledge of the Company makes his contribution to the Board such that it is appropriate for him to remain on the Board.
As the Company is now a global operation, the Board needs to carefully consider an appropriate and relevant Board structure for the future before it appoints further Directors.
1.3 Responsibilities of the BoardIn general, the Board is responsible for, and has the authority to determine, all matters relating to the policies, practices, management and operations of the Company. It is required to do all things that may be necessary to be done in order to carry out the objectives of the Company.
Without intending to limit this general role of the Board, the principal functions and responsibilities of the Board include the following.
1. Leadership of the Organisation: overseeing the Company and establishing codes that refl ect the values of the Company and guide the conduct of the Board, management and employees.
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2. Strategy Formulation: working with senior management to set and review the overall strategy and goals for the Company and ensuring that there are policies in place to govern the operation of the Company.
3. Overseeing Planning Activities: overseeing the development of the Company’s strategic plan and approving that plan as well as the annual and long-term budgets.
4. Shareholder Liaison: promoting effective communications with shareholders through an appropriate communications policy and promoting participation at general meetings of the Company.
5. Monitoring, Compliance and Risk Management: overseeing the Company’s risk management, compliance, control and accountability systems and monitoring and directing the fi nancial and operational performance of the Company.
6. Company Finances: approving expenses in excess of those approved in the annual budget and approving and monitoring acquisitions, divestitures and fi nancial and other reporting.
7. Human Resources: appointing, and, where appropriate, removing the Chief Executive Offi cers (CEOs) and Chief Financial Offi cer (CFO) as well as reviewing the performance of the CEOs and monitoring the performance of senior management in their implementation of the Company’s strategy.
8. Ensuring the Health, Safety and Well-Being of Employees: in conjunction with the senior management team, developing, overseeing and reviewing the effectiveness of the Company’s occupational health and safety systems to promote the well-being of all employees.
9. Delegation of Authority: delegating appropriate powers to the CEOs to ensure the effective day-to-day management of the Company and establishing and determining the powers and functions of the Committees of the Board.
Full details of the Board’s role and responsibilities are contained in the Board Charter, a copy of which is available upon request.
1.4 Board Policies1.4.1 Confl icts of InterestDirectors must:
– disclose to the Board actual or potential confl icts of interest that may or might reasonably be thought to exist between the interests of the Director and the interests of any other parties in carrying out the activities of the Company; and
– if requested by the Board, within seven days or such further period as may be permitted, take such necessary and reasonable steps to remove any confl ict of interest.
If a Director cannot or is unwilling to remove a confl ict of interest then the Director must, in accordance with the Corporations Act, absent himself or herself from the room when discussion and/or voting occurs on matters about which the confl ict relates.
1.4.2 CommitmentsEach member of the Board is committed to spending suffi cient time to enable them to carry out their duties as a Director of the Company.
1.4.3 Confi dentialityIn accordance with legal requirements and agreed ethical standards, Directors and key executives of the Company have agreed to keep confi dential, information received in the course of the exercise of their duties and will not disclose non-public information except where disclosure is authorised or legally mandated.
1.4.4 Continuous DisclosureThe Board has designated the Company Secretary as the person responsible for overseeing and coordinating disclosure of information to the ASX as well as communicating with the ASX. In accordance with the ASX Listing Rules the Company immediately notifi es the ASX of information:
1. concerning the Company that a reasonable person would expect to have a material effect on the price or value of the Company’s securities; and
2. that would, or would be likely to, infl uence persons who commonly invest in securities in deciding whether to acquire or dispose of the Company’s securities.
1.4.5 Education and InductionNew Directors undergo an induction process in which they are given a full briefi ng on the Company. This includes meetings with key executives, tours of the premises, an induction package and presentations. Information conveyed to new Directors include:
– details of the roles and responsibilities of a Director with an outline of the qualities required to be a successful Director;
– formal policies on Director appointment as well as conduct and contribution expectations;
– details of all relevant legal requirements;
– a copy of the Board Charter;
– guidelines on how the Board processes function;
– details of past, recent and likely future developments relating to the Board including anticipated regulatory changes;
– background information on and contact information for key people in the organisation including an outline of their roles and capabilities;
– an analysis of the Company;
– a synopsis of the current strategic direction of the Company including a copy of the current strategic plan and annual budget; and
– a copy of the Constitution of the Company.
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In order to achieve continuing improvement in Board performance, all Directors are encouraged to undergo continual professional development. Specifi cally, Directors are provided with the resources and training to address skills gaps where they are identifi ed.
1.4.6 Independent Professional AdviceThe Board collectively and each Director has the right to seek independent professional advice at the Company’s expense, up to specifi ed limits, to assist them to carry out their responsibilities.
1.4.7 Related Party TransactionsRelated party transactions include any fi nancial transaction between a Director and the Company and will be reported in writing to each Board meeting. Unless there is an exemption under the Corporations Act from the requirement to obtain shareholder approval for the related party transaction, the Board cannot approve the transaction.
1.4.8 Shareholder CommunicationThe Company respects the rights of its shareholders and to facilitate the effective exercise of those rights the Company is committed to:
1. communicating effectively with shareholders through releases to the market via ASX, the Company’s website, information mailed to shareholders and the general meetings of the Company;
2. giving shareholders ready access to balanced and understandable information about the Company and corporate proposals;
3. making it easy for shareholders to participate in general meetings of the Company; and
4. requesting the external auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report.
The Company also makes available a telephone number and email address for shareholders to make enquiries of the Company.
1.4.9 Trading in Company SharesThe Company has a Share Trading Policy under which Directors, members of senior management and other employees likely to be in possession of unpublished price sensitive information and their associates may not trade in the Company’s securities during the following “blackout periods” commencing:
– 30 days prior to the release by the Company of its half-yearly results to the ASX and concluding two days after such release; and
– 30 days prior to the release by the Company of its annual results to the ASX and concluding two days after such release.
In addition, consistent with the law, designated offi cers are prohibited from trading in the Company’s securities while in the possession of unpublished price sensitive information concerning the Company. Unpublished price sensitive information is information regarding the Company, of which the market is not aware, that a reasonable person would expect to have a material effect on the price or value of the Company’s securities.
Notice of an intention to trade must be given prior to trading in the Company’s securities as well as a confi rmation that the person is not in possession of any unpublished price sensitive information. The completion of any such trade by a Director must also be notifi ed to the Company Secretary who in turn advises the ASX.
1.4.10 Performance Review/EvaluationGenerally, it is the policy of the Board to conduct an evaluation of its performance annually. The Board’s performance will be measured against both qualitative and quantitative indicators. The objective of this evaluation is to provide best practice corporate governance to the Company.
The Board is currently undergoing an independent review of its performance by external management consultants.
1.4.11 Attestations by CEO and CFOIn accordance with the Board’s policy, the CEO and the CFO made the attestations recommended by the ASX Corporate Governance Council as to the Company’s fi nancial condition prior to the Board signing this Annual Report.
2. Board Committees
2.1 Audit CommitteeBelow is a summary of the role, composition and responsibilities of the Audit Committee. Further details are contained in the Audit Committee’s Charter.
2.1.1 RoleThe Audit Committee is responsible for reviewing the integrity of the Company’s fi nancial reporting and overseeing the independence of the external auditors.
2.1.2 CompositionDuring the 2006 fi nancial year, the Audit Committee consisted of three members. The Hon. Larry Anthony was appointed to the Audit Committee in August 2006. Members are appointed by the Board from amongst the Non-Executive Directors, a majority of whom are also independent. The current members of the Audit Committee are Mr David Ryan (Chairman), Mrs Sallyanne Atkinson, Mr William Bessemer and the Hon. Larry Anthony. All members can read and understand fi nancial statements and are otherwise fi nancially literate and Mr David Ryan, the Chairman, is a qualifi ed accountant with experience in fi nancial and accounting matters. The details of the member’s qualifi cations may be found in their Director Profi les on pages 25 to 27.
The Audit Committee held two meetings throughout the year and details of attendance of the members of the Audit Committee are contained in the following table.
Corporate Governance Statement
21
August 2005 February 2006
Mr David Ryan ✓ ✓
Mrs Sallyanne Atkinson ✓ ✓
Mr William Bessemer ✓ ✓
2.1.3 ResponsibilitiesThe Audit Committee reviews the audited annual and half-yearly fi nancial statements and any reports which accompany published fi nancial statements before submission to the Board and recommends their approval.
The Audit Committee also recommends to the Board the appointment of the external auditor and each year, reviews the appointment of the external auditor, their independence, the audit fee, and any questions of resignation or dismissal.
2.2 Nomination and Remuneration CommitteeBelow is a summary of the role, composition and responsibilities of the Nomination and Remuneration Committee. Further details are contained in the Nomination and Remuneration Committee’s Charter.
2.2.1 RoleThe role of the Nomination and Remuneration Committee is to help achieve a structured Board that adds value to the Company by ensuring an appropriate mix of skills are present in Directors on the Board at all time and to assist the Board in fulfi lling its responsibilities in respect of establishing appropriate remuneration levels and incentive policies for employees.
2.2.2 CompositionMrs Sallyanne Atkinson (Chairman), Mr Edmund Groves and Mr David Ryan are the current members of the Nomination and Remuneration Committee the majority of whom are independent Directors.
The Nomination and Remuneration Committee held two meetings throughout the year and details of attendance of the members of the Committee are contained in the following table.
September 2005 June 2006
Mrs Sallyanne Atkinson ✓ ✓
Mr Edmund Groves ✓ ✓
Mr David Ryan ✓ ✓
2.2.3 Responsibilities in respect of NominationsThe responsibilities for nominations include devising criteria for Board membership, reviewing the need for various skills and experience on the Board and where appropriate identifying specifi c individuals for nomination as Directors for review by the Board. The Committee also oversees management succession plans, including the CEO’s and evaluates the Board’s performance and makes recommendations for the appointment and removal of Directors.
2.2.4 Criteria for selection of DirectorsDirectors are appointed based on the specifi c governance skills required by the Company. Given the size of the Company and the business it operates, the Company aims at all times to have at least one Director with experience in the childcare industry. In addition, Directors should have the relevant blend of personal experience in:
– accounting and fi nancial management;
– legal skills; and
– CEO-level business experience.
2.2.5 Responsibilities in respect of RemunerationThe responsibilities of the Committee include setting policies for senior offi cers’ remuneration, setting the terms and conditions of employment for the Chief Executive Offi cers, reviewing and making recommendations to the Board on the Company’s incentive schemes and superannuation arrangements, reviewing the remuneration of both Executive and Non-Executive Directors and making recommendations to the Board on any proposed changes and undertaking an annual review of the Chief Executive Offi cers’ performance, including, setting with the Chief Executive Offi cers goals for the coming year and reviewing progress in achieving these goals.
2.2.6 Remuneration PolicyDetails of the Board’s policy on remuneration are set out on pages 27 to 34 of the Directors’ Report which incorporates the Company’s remuneration report.
2.3 Risk Management CommitteeBelow is a summary of the role, composition and responsibilities of the Risk Committee. Further details are contained in the Risk Committee’s Charter.
2.3.1 RoleThe role of the Risk Management Committee is to ensure that the Company is able to manage a diverse and complex range of signifi cant risks. The committee is also responsible for establishing policies on risk oversight and management.
2.3.2 CompositionThe members of the Risk Management Committee are:
– Dr Le Neve Groves (Chairman);
– Mr William Bessemer; and
– Mr Martin Kemp.
The Risk Management Committee held fi ve meeting during the year and details of attendance of the members of the Committee are contained in the following table.
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2.3.3 ResponsibilitiesThe duties and responsibilities of the Risk Management Committee include:
(a) Assessing the internal processes for determining and managing key risk areas, particularly:
(i) non-compliance with laws, regulations, standards and best practice guidelines, including environmental and industrial relation laws;
(ii) litigation and claims; and
(iii) relevant business risks other than those that are dealt with by other specifi c Board committees.
(b) Ensuring that the ABC Group has an effective risk management system and that major risks to the ABC Group are reported at least annually to the Board.
(c) Receiving from management reports on all suspected and actual frauds, thefts and breaches of laws.
(d) Evaluating the process the ABC Group has in place for assessing and continuously improving internal controls, particularly those related to areas of signifi cant risk.
(e) Assessing whether management has controls in place for unusual types of transactions and/or any potential transactions that may carry more than an acceptable degree of risk.
(f) Meeting periodically with key management, internal and external auditors and compliance staff to understand and discuss the ABC Group’s control environment.
3. Company Code of Conduct
As part of its commitment to recognising the legitimate interests of stakeholders, the Company has a Code of Conduct to guide compliance with legal and other obligations to legitimate stakeholders. These stakeholders include shareholders, employees, clients, customers, government authorities, creditors and the community as whole. The Code includes the following:
Responsibilities to Shareholders and the Financial Community GenerallyThe Company complies with the spirit as well as the letter of all laws and regulations that govern shareholders’ rights. The Company has processes in place designed to ensure the truthful and factual presentation of the Company’s fi nancial position and prepares and maintains its accounts fairly and accurately in accordance with the generally accepted accounting and fi nancial reporting standards.
Responsibilities to Clients, Customers and ConsumersEach employee has an obligation to use their best efforts to deal in a fair and responsible manner with each of the Company’s clients, customers and consumers. The Company
for its part is committed to providing clients, customers and consumers with fair value.
Employment PracticesThe Company endeavours to provide a safe workplace in which there is equal opportunity for all employees at all levels of the Company. The Company does not tolerate the offering or acceptance of bribes or the misuse of Company assets or resources.
Obligations Relative to Fair Trading and DealingThe Company aims to conduct its business fairly and to compete ethically and in accordance with relevant competition laws. The Company strives to deal fairly with the Company’s customers, suppliers, competitors and other employees and encourages its employees to strive to do the same.
Responsibilities to the CommunityAs part of the community the Company:
– is committed to conducting its business in accordance with applicable environmental laws and regulations and encourages all employees to have regard for the environment when carrying out their jobs;
– encourages all employees to engage in activities benefi cial to their local community; and
– supports community charities.
Responsibility to the IndividualThe Company is committed to keeping private information from employees, clients, customers, consumers and investors confi dential and protected from uses other than those for which it was provided.
Confl icts of InterestEmployees and Directors must avoid confl icts as well as the appearance of confl icts between personal interests and the interests of the Company.
How the Company Complies with Legislation Affecting its OperationsWithin Australia, the Company strives to comply with the spirit and the letter of all legislation affecting its operations. Outside Australia, the Company will abide by local laws in all countries in which it operates. Where those laws are not as stringent as the Company’s operating policies, particularly in relation to the environment, workplace practices, intellectual property and the giving of “gifts”, Company policy will prevail.
How the Company Monitors and Ensures Compliance with its CodeThe Board, management and all employees of the Company are committed to implementing this Code of Conduct and each individual is accountable for such compliance. Disciplinary measures may be imposed for violating the Code.
Corporate Governance Statement
September 2005 November 2005 February 2006 April 2006 June 2006
Dr Le Neve Groves ✓ ✓ ✓ ✓ ✓
Mr William Bessemer ✓ ✓ ✓ ✓ ✓
Mr Martin Kemp ✓ ✓ ✓ ✓ ✓
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Directors’ Report
Your Directors present their Annual Report on the Company and its controlled entities (referred to hereafter as the Group) for the fi nancial year ended 30 June 2006.
Directors
The names of the Directors in offi ce at any time during the year and to the date of this report are:
Mrs Sallyanne Atkinson AOMr Edmund S GrovesDr Le Neve A GrovesMr William E BessemerMr Martin Vincent KempMr David John Ryan AOHon. Lawrence James Anthony
Directors have been in offi ce since the start of the fi nancial year until the date of this report unless otherwise stated.
Principal Activities
The principal activities of the Group during the fi nancial year were the provision of childcare services and education.
Operating Results
The consolidated profi t of the Group for the fi nancial year after providing for income tax amounted to $81,110,000 (2005: $43,534,000 AIFRS).
Dividends Paid or Recommended
The Directors have declared a fully franked fi nal dividend of 8 cents per share ($31,451,724). The dividends will be franked at a rate of 30%. The fi nal dividend will be paid on 29 September 2006.
Dividend Date paid Dividend per share Total dividend
Ordinary Shares – Final dividend for the year ended 30 June 2005
29 September 2005 6 cents franked to 100%
$15,036,962
Preference Shares – Final dividend for the year ended 30 June 2005
30 November 2005 16.9212 centsfranked to 100%
$2,030,543
Ordinary Shares – Interim dividend for the year ended 30 June 2006
31 March 2006 7 cents franked to 100%
$18,417,078
Preference Shares – Interim dividend for the year ended 30 June 2006
31 May 2006 16.8288 centsfranked to 100%
$2,019,457
Review of Operations
A Review of the Operations of the Group during the year ended 30 June 2006 and up to the date of this report appears in the separate section “Review of Operations” on pages 8–13.
Signifi cant Changes in State of Affairs
The following signifi cant changes in the state of affairs of the Group occurred during the year:
(i) On 13 September 2005, the Company issued 10,000,000 ordinary shares at $6.00 per share to raise capital to reduce debt and to fund the Company’s ongoing acquisition program;
(ii) On 15 December 2005, the Company issued 37,200,000 ordinary shares at $7.00 to raise funds for the acquisition of the Learning Care Group, Inc. and to fund the Company’s ongoing acquisition program;
(iii) On 11 January 2006, the Company acquired the Learning Care Group, Inc. for US$159,100,000;
(iv) On 9 May 2006, the Company issued 44,104,239 ordinary shares at an issue price of $7.30 each to a range of institutional and professional investors to refi nance the Company’s balance sheet to place the Company in a strong position to take advantage of global acquisition opportunities;
(v) In May 2006, the Company acquired Kids Campus Limited for $127,897,000; and
(vi) On 14 June 2006, the Company issued 38,087,542 ordinary shares at an issue price of $7.30 each to a range of institutional and professional investors to refi nance ABC’s balance sheet to place the Company in a strong position to take advantage of global acquisition opportunities.
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Signifi cant Events After Balance Date
On 7 July 2006 the Company announced an off-market takeover bid of Hutchison’s Child Care Services Ltd for $1.50 per ordinary share. On 25 September 2006 the Company declared the takeover bid unconditional and commenced compulsory acquisition of the remaining shares.
On 6 September 2006 the Company acquired 100% of The Children’s Courtyard LLP, the ninth largest childcare provider in the US for US$66 million.
No other matter or circumstance has arisen since 30 June 2006 that has signifi cantly affected, or may signifi cantly affect:
(a) the Group’s operations in future fi nancial years; or
(b) the results of those operations in future fi nancial years; or
(c) the Group’s state of affairs in future fi nancial years.
Future Developments
The likely developments in the operations of the Group and the expected results of those operations in future fi nancial year is the proposed acquisition of a number of childcare centres in locations throughout Australia, New Zealand and the United States of America.
The Board expects that the above developments will provide a wider market penetration and enable the Group’s activities to be expanded.
Environmental Issues
The Group’s operations are not regulated by any signifi cant environmental regulation under a law of the Commonwealth or of a State or Territory.
Options
Sign-on options were granted over ordinary shares during the fi nancial year by the Company to the Learning Care Group, Inc. executives in accordance with their employment agreements.
The options granted under the employment agreements were:
1. 1,083,000 sign-on options granted to William Davis at an option premium of $0.00 per option and an exercise price of $7.35 per option;
2. 375,145 sign-on options granted to Frank Jerneycic at an option premium of $0.00 per option and an exercise price of $7.35 per option;
3. 334,807 sign-on options granted to Kathy Myers at an option premium of $0.00 per option and an exercise price of $7.35 per option; and
4. 119,239 sign-on options granted to Scott Smith at an option premium of $0.00 per option and an exercise price of $7.35 per option.
The options granted will vest at a rate of 20% per annum on each anniversary or at the end of the executives’ compensation period (if the employment agreement is not renewed through to 2011).
Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company or any related body corporate or in the interest of any other registered scheme.
During and since the end of the fi nancial year no options have been exercised.
Directors’ Report
25
Information on Directors
Mrs Sallyanne Atkinson AO Chairman – Non-Executive.Appointed 3 October 2000.Qualifi cations Bachelor of Arts (University of Queensland),
Fellow, Australian Institute of Management,Fellow, Australian Institute of Company Directors,Fellow, Australian Institute of Planning,Fellow, Australian Marketing Institute,Doctor of the University (Hon) Australian Catholic University.
Experience Appointed Chairman in November 2000. Former Lord Mayor of Brisbane, Australian Senior Trade Commissioner to Paris and Chairman of Queensland Tourism. Director of several public companies and associations, including APN News & Media Limited and The Australian Ballet. She is chairman of Federal Ministerial Taskforce on Dementia and of the Crawford Fund (Qld). Currently, Special Representative for Queensland, South East Asia in the Queensland Government. Represented Australia on the International Olympic Committee, at major trade and business forums such as the OECD and the International Chamber of Commerce and has spoken at conferences in Europe, Asia and the United States.
Interest in shares and options 695,000 ordinary shares.Special Responsibilities Member of the Audit Committee and Chairman of the Nomination and Remuneration
Committee.
Mr Edmund S Groves Chief Executive Offi cer – Operations (Global).Appointed 15 August 1997.Qualifi cations Member, Australian Institute of Company Directors.Experience Co-founder of ABC Developmental Learning Centres Pty Limited in 1988. Controls one of
the largest milk distribution operations in Queensland.Interest in shares and options 16,797,500 ordinary shares.Special Responsibilities Primary responsibility for all fi nancial and operational matters and liaising with government
and regulatory bodies. Member of the Nomination and Remuneration Committee.
Dr Le Neve A Groves Chief Executive Offi cer – Education.Appointed 15 August 1997.Qualifi cations Diploma of Teaching Primary/Preschool,
Bachelor of Education (University of South Australia),Master of Education (University of South Australia),Doctor of Education (University of South Australia),Member, Australian Institute of Company Directors.
Experience Co-founder of ABC Developmental Learning Centres Pty Limited in 1988. Principal of the National Institute of Early Childhood Education (formerly ABC Early Childhood Training College) since its inception in 1996. She is currently a member of the Stronger Families and Communities Partnership established in 2004 by the Commonwealth Government.
Interest in shares and options 16,810,500 ordinary shares.Special Responsibilities Develops and oversees all early childhood philosophies, policies and practices of the Group.
Designs and implements high quality educational programs for ABC’s Learning Centres. Chairman of the Risk Management Committee.
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Mr William E Bessemer Non-Executive Director.Appointed 15 August 1997.Qualifi cations Bachelor of Economics (University of Queensland),
Master of Business Administration (University of Melbourne),Certifi ed Practising Accountant.
Experience Currently Chairman of Austock Group Limited and Australia Pacifi c Exchange Limited. He is also a Director of Timbercorp Limited. He has extensive experience covering debt and equity raisings, fi nancial structuring, mergers acquisitions and business recoveries.
Interest in shares and options 105,000 ordinary shares.Special Responsibilities Member of the Audit Committee and Risk Management Committee.
Mr Martin V Kemp Chief Executive Offi cer – Operations (Australia and New Zealand).Appointed 28 November 2001.Qualifi cations Bachelor of Engineering (Hons) (University of Queensland),
Master of Engineering Science (University of Sydney),Member of Institution of Engineers, Australia.
Experience Owner, operator, manager and developer of childcare centres for 16 years. Project manager for numerous multi-million dollar projects around Australia. He has been a member of the Commonwealth Child Care Advisory Council, President of the Queensland Professional Child Care Centres Association, President of the Australian Confederation of Child Care, President of the Queensland Private Child Care Centres Employers Organisation and a Foundation Board Member of the Australian Childcare Centres Association (federal employer organisation).
Interest in shares and options 10,462,259 ordinary shares.50,000 redeemable converting preference shares.
Special Responsibilities Primary responsibility for all development and acquisitions by the Group. Member of the Risk Management Committee.
Mr David J Ryan AO Non-Executive Director.Appointed 26 June 2003.Qualifi cations Bachelor of Business Studies (NSW University of Technology),
Fellow, Australian Institute of Company Directors,Fellow, Certifi ed Practising Accountant.
Experience Chairman of Tooth & Co and other Residual Assco Group Ltd group companies, Non-Executive Director of Transurban Group and Lend Lease Corporation Limited, member of the Advisory Board of Virgin Management Asia-Pacifi c Pty Ltd and member of the Advisory Board of Caliburn Partnership. Extensive fi nancial and operational experience through current and former roles including senior executive management positions in public companies and being a member of a number of public company boards.
Interest in shares and options 239,595 ordinary shares.Special Responsibilities Chairman of the Audit Committee and a member of the Nomination and Remuneration
Committee.
Directors’ Report
27
The Hon. Lawrence J Anthony Non-Executive Director.Appointed 16 March 2005Qualifi cations Bachelor of Commerce (University of New South Wales),
Diploma of Applied Finance and Investment,Fellow, Australian Institute of Company Directors,Member, Banking and Securities Institute of Australia,
Experience He is currently a Board Member of Learning Care Group, Inc., Macquarie Media Group, Indue Ltd, National Chairman for the Duke of Edinburgh’s Awards Australia and National Chairman of National Credit Union Assn Inc. He has vast experience in government sectors and fi nance including roles with Merrill Lynch and Potter Warburg. He is a former Federal Government Minister for Children and Youth Affairs, Community Services and Parliamentary Secretary for Trade. He is also involved with various charities across Australia.
Interest in shares and options 106,622 ordinary shares.Special responsibilities Member of the Audit Committee.
Information on Company Secretary
Ms Jillian G Bannan Company Secretary.Appointed 8 March 2004Qualifi cations Bachelors of Law and Commerce from James Cook University, Queensland,
Member of the Queensland Law Society,Affi liate of Chartered Secretaries Australia.
Experience She commenced with the Group in February 2003. Prior to joining ABC, she worked as a solicitor in private practice principally in the commercial and corporate law fi elds.
Remuneration Report
The Directors of the Company present the Remuneration Report prepared in accordance with section 300A of the Corporations Act for the Company and the consolidated entities for the year ended 30 June 2006.
The Company’s remuneration strategy is designed to attract, retain and motivate appropriately qualifi ed and experienced directors and senior executives. Details of the Company’s remuneration strategy for the 2006 fi nancial year are set out in this Remuneration Report. This Remuneration Report forms part of the Directors’ Report.
Non-Executive DirectorsThe fees paid to Non-Executive Directors are set at levels which refl ect both the responsibilities of, and the time commitments required from, each Non-Executive Director to discharge their duties. Fee levels are set having regard to independent professional advice and the fees paid by comparable companies. The fees paid to Non-Executive Directors are not linked to the performance of the Company.
Executive Directors and Senior ExecutivesIn the 2005/2006 year, executive remuneration was comprised of a fi xed cash component for Executive Directors and a combination of a fi xed cash component and fi xed share component for senior executives.
In June 2006, shareholders approved a new remuneration structure for Executive Directors at an extraordinary general meeting. Executive Director remuneration under the new structure comprises both a fi xed component and an at-risk component which is intended to remunerate executives for increasing shareholder value and for achieving fi nancial targets and business strategies. It is also designed to attract and retain high calibre executives.
An overview of the elements of the 2005/2006 remuneration structure and the new remuneration structure are set out in Tables 1A and 1B.
A more detailed discussion of each element is contained in this Remuneration Report.
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Table 1A – Overview of Elements of 2005/2006 Remuneration Structure2005/2006
Australia Discussion in Directors Directors Senior US Senior Remuneration Elements of remuneration Non-Executive Executive Executives Executives Report
Fixed remuneration Fees ✓ ✗ ✗ ✗ Pg 28 Salary ✗ ✓ ✓ ✓ Pg 31 Superannuation ✓ ✓ ✓ ✓ Pg 31 Other benefi ts ✓ ✓ ✓ ✓ Pg 31At-risk remuneration Short-term incentive ✗ ✗ ✗ ✓ Pg 31 Long-term incentive ✗ ✗ ✗ ✓ Pg 31Post-employment Notice periods and termination payments ✗ ✓ ✓ ✓ Pg 33
Table 1B – Overview of Elements of New Remuneration Structure2006/2007 – New Remuneration Structure – Executive Directors
Discussion in Directors Remuneration Elements of remuneration Executive Report
Fixed remuneration Fees ✗ Pg 31 Salary ✓ Pg 31 Superannuation ✓ Pg 31 Other benefi ts ✓ Pg 31At-risk remuneration Short-term incentive ✓ Pg 31 Long-term incentive ✓ Pg 31Post-employment Notice periods and termination payments ✓ Pg 33
Section 1 – Non-Executive Directors’ RemunerationA. Board Policy on Remuneration – Attracting and retaining high calibre directorsNon-Executive Directors’ fees, including committee fees, are set by the Board within the maximum aggregate amount of $400,000 approved by shareholders. This amount was approved in 2003.
In order to maintain Non-Executive Directors’ independence and impartiality, their remuneration is not linked to the performance of the Company. In setting fee levels, the Nomination and Remuneration Committee, which makes recommendations to the Board, takes into account:
– the Company’s existing remuneration policies;
– fees paid by comparable companies;
– the general time commitment required from Directors and the risks associated with discharging the duties attaching to the role of Director; and
– the level of remuneration necessary to attract and retain Directors of a suitable calibre.
Details of the membership of the Nomination and Remuneration Committee and its responsibilities are set out on page 21 of the Corporate Governance Statement.
FeesFor the 2005/2006 year, Non-Executive Directors received a fee of $40,000 per annum in relation to their services as Directors. The Chairman, taking into account the greater time commitment required, received a fee of $80,000. The Company does not pay additional fees for membership of the Board’s committees.
In accordance with rule 7.3(f) of the Company’s Constitution, Directors are also permitted to be paid additional fees for special duties. Such fees are not included in the aggregate remuneration cap approved by shareholders. No such fees were paid during the year.
Directors are also entitled to be reimbursed for all business related expenses, including travel on Company business, as may be incurred in the discharge of their duties.
Directors’ Report
29
Superannuation contributions are also made on behalf of the Non-Executive Directors in accordance with the Company’s statutory superannuation obligations.
The Board will continue to review its approach to Non-Executive Director remuneration to ensure it remains in line with general industry practice and best practice principles of corporate governance.
Retirement Benefi tsIn the past, the Company has not paid retirement benefi ts to Non-Executive Directors. It is not the intention of the Board to initiate payment of retirement benefi ts.
B. Details of RemunerationDetails of Non-Executive Directors’ remuneration for the year ended 30 June 2006 are set out in the following table. All values are in Australian dollars unless otherwise stated.
Table 2 – Non-Executive Director Remuneration
Superannuation Directors’ Fees Contributions1 Other2 Total $ $ $ $
S Atkinson (Chairman) 79,999 7,200 – 87,199L J Anthony 39,998 3,600 – 43,598W E Bessemer – – 40,000 40,000D J Ryan 39,998 3,600 – 43,598Total 159,995 14,400 40,000 214,395
1 Superannuation contributions made on behalf of Non-Executive Directors to satisfy the Company’s obligations under applicable Superannuation Guarantee legislation.
2 Includes the cost of motor vehicles provided by the Company (inclusive of applicable fringe benefi ts tax).
Section 2 – Executive Director and Senior Executive RemunerationThe disclosures in this section relate to the executives listed below, being the Executive Directors and the senior executives with authority and responsibility for planning, directing and controlling the activities of the Company and the Group during the fi nancial year. This group of executives are the key management personnel as defi ned in AASB 124 “Related Party Disclosures” and includes the fi ve most highly remunerated Company and Group executives during the fi nancial year.
Table 3 – Executive Directors and Senior ExecutivesAustraliaExecutive Director/Senior Executive Position
E S Groves Chief Executive Offi cer – Operations (Global)L A Groves Chief Executive Offi cer – EducationM V Kemp Chief Executive Offi cer – Operations (Australia and New Zealand)J M Reynolds Chief Operating Offi cerM P Loveday Chief Financial Offi cerJ G Bannan Company Secretary and General Counsel
United States of AmericaExecutive Director/Senior Executive Position
W Davis President and Chief Executive Offi cerF Jerneycic Chief Financial Offi cer and TreasurerK Myers Chief Operating Offi cerS Smith Human Resources Vice President
Board Policy on Remuneration – Rewarding individual and Company performanceThe remuneration of the Executive Directors and senior executives is designed to reward executives for increasing shareholder value and for achieving fi nancial targets and business strategies. It is also set to attract, retain and motivate appropriately qualifi ed and experienced executives. Accordingly, the Board considers it desirable for remuneration packages of Executive Directors and senior executives to include both a fi xed component and an at-risk or performance related component (comprising both short-term and long-term incentives). The Board views the at-risk component as an essential driver of the Company’s high performance culture. Where the Company’s remuneration practices do not correlate with this policy, the Company is working towards compliance.
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The Nomination and Remuneration Committee has recommended, and the Board has adopted, a policy that remuneration will:
(a) reinforce the short, medium and long-term fi nancial targets and business strategies of the Company as set out in the strategic business plans endorsed by the Board;
(b) provide a common interest between executives and shareholders; and
(c) be competitive in the markets in which the Company operates in order to attract, motivate and retain high calibre executives.
Company PerformanceThe benefi ts to the Company and its shareholders of the Board’s policy on Executive Director and senior executive remuneration are demonstrated by the Company’s growth and development over the last fi ve years.
EarningsThe Company’s earnings for the fi ve years to 30 June 2006 are summarised in Table 4.
Table 4 – Earnings
Year ended Year ended Year ended Year ended Year ended 30 June 06* 30 June 05 30 June 04 30 June 03 30 June 02 $’000 $’000 $’000 $’000 $’000
Revenue 631,450 292,700 96,421 40,911 23,838EBITDA 157,900 68,127 27,727 17,088 9,800NPAT 81,110 52,337 21,368 12,072 6,858
* 2006 stated under AIFRS. Previous years stated under AGAAP.
Shareholder WealthTable 5 shows the Company’s Total Shareholder Return, basic earnings per share, dividends per share and the share price from 2002 to 2006, all of which are measures of the consequences of Company performance on shareholder wealth.
Table 5 – Shareholder Wealth
Year ended Year ended Year ended Year ended Year ended 30 June 06 30 June 05 30 June 04 30 June 03 30 June 02*
Share price** $6.40 $5.58 $3.70 $3.10 $2.64Total dividends paid 15 cents 11 cents 10 cents 7 cents 5.6 centsFranked dividends 100% 100% 100% 100% 100%EPS 27.7 cents*** 25.7 cents 17.5 cents 14.0 cents 9.8 centsTotal Shareholder Return 17.4% 53.8% 22.6% 20.1% 426.6%
* Measures calculated to take into account 5:1 share split which occurred in November 2002.** The amount disclosed is the closing price of the Company’s shares on the ASX on 30 June of the relevant year.*** 2006 EPS calculated under AIFRS. Previous years calculated under AGAAP.
As can be seen from the results provided, the Company has experienced consistent growth in earnings per share of approximately 282% over the last fi ve years, resulting in:
– an increase in the Company’s share price; and
– EPS average annual increase of 38%.
Components of RemunerationExecutive DirectorsAs indicated above, the Executive Directors were paid a fi xed cash remuneration package for the 2005/2006 year (refer to Table 1A). Each Executive Director currently maintains a shareholding in the Company which is not part of their remuneration package. For two out of the three Executive Directors, this shareholding amounts to over 4% of the issued capital of the Company. This indicates that the Executive Directors have an interest in the long-term outcome for the Company.
As the Company has rapidly grown, the Board determined that it was prudent to put in place a more relevant and suitable remuneration structure. This new structure was approved by shareholders at an extraordinary general meeting held on 7 June 2006.
Directors’ Report
31
The new remuneration structure for Executive Directors has the following components (refer to Table 1B):
1. Fixed remuneration; and
2. Performance-based at-risk remuneration, comprising:
– Short-Term Incentive (STI) – based on annual performance at an individual, business unit and Company level; and
– Long-Term Incentive (LTI) – based on sustained creation of shareholder value over a three year period.
The Board aims to achieve a balance between fi xed and performance-related components of remuneration that refl ect market conditions at each job and seniority level.
The relative proportion of Executive Directors’ total remuneration packages that is performance-based is set out in Table 6 below:
Table 6 – Proportion of Fixed and At-Risk Remuneration
% of Total Target Remuneration (Annualised)
Performance-based Fixed Remuneration Remuneration
STI* LTI**
Executive Directors 50 25 25
* The STIs are based on target.** The LTIs are based on target.
The proportion of Total Target Remuneration is based on the various Executive Directors meeting their targeted rewards. Should the stretch rewards be met, the proportion of remuneration which is performance-based will be higher than stated above, in accordance with the plan rules.
Senior Executives (Australia)Remuneration for senior executives in the Australian operations has the following components:
1. Fixed remuneration; and
2. Fixed number of ordinary shares.
This remuneration structure was introduced in 2003 and senior executives entered into fi ve year service agreements on this basis. This structure includes an issue of shares that is not dependent upon the satisfaction of any performance conditions. The rationale behind this was to encourage the alignment of personal and shareholder interests. The Company believes this policy to have been effective in increasing shareholder wealth over the past three years. It is the intention of the Company to introduce a remuneration structure similar to the new structure in place for Executive Directors which includes short-term and long-term incentives on expiry of the service agreements.
Senior Executives (United States of America)Remuneration for senior executives in the US operations has the following components:
1. Fixed remuneration; and
2. Performance-based at-risk remuneration, comprising:
(a) cash bonus – based on annual performance at a Company level;
The level of cash bonus payable to the senior executives will be based on a percentage of their salary for achieving percentages of the EBITDA budget goal (and prorated for levels in between) set by the Company at the beginning of the fi nancial year.
% of EBITDA Goal Achieved % of Salary
80% or less 0%90% 25%100% 50%110% 75%120% or more 100%
This cash bonus was structured to focus the senior executives’ remuneration on achieving the fi nancial results set by the Company.
In assessing whether the senior executives have achieved these goals, the Company will calculate the percentage of EBITDA goal achieved from the Company’s audited fi nancial report.
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(b) performance share bonus – based on annual performance at a Company level;
The performance share bonus is equal to at least 50% of the senior executives’ current fi xed remuneration taken as ordinary shares. The price payable for the shares is the market share price on 1 July of the fi nancial year to which the bonus accrues.
The performance share bonus is based on the achievement of a percentage of EBITDA budget goal achieved (and prorated for levels in between):
% of EBITDA Goal Achieved % of Award Vested
80% or less 0%90% 50%100% 100%
The rationale behind the performance share bonus was to encourage the alignment of personal and shareholder interests.
In assessing whether the senior executives have achieved these goals, the Company will calculate the percentage of EBITDA goal achieved from the Company’s audited fi nancial report.
The Board aims to achieve a balance between fi xed and performance-related components of remuneration that refl ect market conditions at each job and seniority level.
The relative proportion of US senior executives’ total remuneration packages that is performance-based is set out in the table below:
% of Total Target Remuneration (Annualised)
Performance-based Fixed Remuneration Remuneration
STI* LTI
US Senior Executives 50 50 0
* The STIs are based on target performance.
The proportion of total target remuneration is based on the various senior executives meeting their targeted rewards. Should the stretch rewards be met, the proportion of remuneration which is performance-based will be higher than stated above, in accordance with the executives’ employment agreements.
Fixed Remuneration – All Executive Directors and Senior ExecutivesThe terms of employment for all Executive Directors and senior executives contain a fi xed remuneration component. This is expressed as a dollar amount that the executive may take in a form agreed with the Company. Fixed remuneration is made up of base salary, exclusive of superannuation contributions and benefi ts, including fringe benefi ts tax. This amount of remuneration is not dependent upon performance and is set by reference to appropriate benchmark information for an individual’s responsibilities, performance, qualifi cations, experience and location.
Service AgreementsThe remuneration and other terms of employment for Executive Directors and the senior executive team are formalised in their service agreements.
Duration of ContractUnder the terms of the service agreements:
(a) the Executive Directors continue to be employed until their employment is terminated;
(b) the senior executives (Australia) have a fi ve year employment term; and
(c) the senior executives (United States of America) have a three year employment term.
Directors’ Report
33
Notice Periods and Payments on TerminationThe service agreements provide for termination payments to be made in certain circumstances. In particular, the Company may terminate the employment of:
(a) the Executive Directors on six months’ notice; and
(b) the Australian and US senior executives on three months’ notice.
The Company may make a payment in lieu of notice.
In general, a senior executive must give the Company at least 90 days’ notice of resignation. In certain circumstances, such as a substantial diminution of responsibility, the Company may be deemed to have terminated the employment of the senior executive and will be liable to make compensation payments.
Termination payments payable to the senior executives if the Company terminates their contract of employment will not, in general, exceed 18 months’ fi xed salary (except in relation to the US senior executives who, if terminated without cause are entitled to the balance of their unpaid employment agreement). The Company makes provision for employee entitlements in accordance with applicable Accounting Standards.
Sign-on IncentivesAs part of the acquisition of the Learning Care Group, Inc, an issue of options valued at $5,403,302 (at date of issue) was made to key US executives as part of their consideration for agreeing to hold offi ce. Such payments were made by the Company to compensate those US executives for bonuses they forfeited from their previous employer on agreeing to take up employment with the Company.
These options will vest at the rate of 20% per year on each anniversary, or upon earlier cessation of employment (the executives’ service agreements have a three year employment term). Shares issued upon exercise of options will rank equally in all respects with existing fully paid ordinary shares.
Remuneration PaidDetails of the remuneration paid to Executive Directors and each of the named senior executives are set out in the following table.
Post- Employment Short-Term Employment Benefi ts Benefi ts Share-based Payments
Primary Incentive Non-Monetary Superannuation Equity (a), Sign-on Fixed Salary Payments Benefi ts Benefi ts (b) Share/Units Options Total $ $ $ $ $ $ $
Australia (AU$)E S Groves 350,011 – 10,168 31,501 – – 391,680L A Groves 350,011 – 34,350 31,501 – – 415,862M V Kemp 299,988 – – 26,999 – – 326,987J M Reynolds 194,999 – 26,614 17,550 283,800 – 522,963M P Loveday 109,652 – – 9,869 258,000 – 377,521J G Bannan 153,404 – 25,599 9,306 154,800 – 343,109USA (US$)W Davis 186,954 98,000 4,292 3,656 – – 292,902*F Jerneycic 106,354 55,750 – 3,656 – – 165,760*K Myers 106,354 55,750 – – – – 162,104*S Smith 80,096 42,250 – 3,090 – – 125,436*USA (AU$)W Davis – – – – – 3,060,246 3,060,246F Jerneycic – – – – – 1,060,052 1,060,052K Myers – – – – – 946,068 946,068S Smith – – – – – 336,935 336,935
* Remuneration accrued since 11 January 2006.
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In accordance with the requirements of the Accounting Standards, remuneration includes a proportion of the notional value of equity compensation granted or outstanding during the year. The notional value of equity instruments which do not vest during the reporting period is determined as at the grant date and is progressively allocated over the vesting period. The amount included as remuneration is not related to or indicative of the benefi t (if any) that individual executives may ultimately realise should the equity instruments vest. The notional value of options as at the date of their grant has been determined in accordance with AASB 2 applying the Black Scholes valuation method and is based on the following assumptions:
Grant Date 27 January 2006Expiry Date 27 January 2011Price at grant date $7.61Exercise Price $7.35Number of options 1,912,191Dividend Yield 1.84%Volatility 28.992%Risk Free Rate 5.31%Vesting Date 20% on 27 January 2007 20% on 27 January 2008 60% on 27 January 2009
It is the Company’s belief that all US executives will remain in employment with Learning Care Group Inc. for the duration of their contract, and as such, all options will vest according to the conditions of the options granted.
Meetings of DirectorsDuring the fi nancial year, 19 meetings of directors (including committees) were held. Attendances were:
Committee Meetings
Nomination and Risk Management Directors’ Meetings Audit Committee Remuneration Committee Committee
Number Number Number Number eligible to Number eligible to Number eligible to Number eligible to Number attend attended attend attended attend attended attend attended
Sallyanne Atkinson 10 10 2 2 2 2 – –Edmund S Groves 10 10 – – 2 2 – –Le Neve A Groves 10 10 – – – – 5 5William E Bessemer 10 10 2 2 – – 5 5Martin V Kemp 10 10 – – – – 5 5David J Ryan 10 9 2 2 2 2 – –Lawrence J Anthony 10 9 – – – – – –
Indemnifying Offi cers or AuditorDuring or since the end of the fi nancial year the Company has paid or agreed to pay insurance premiums as follows:
The Company has paid premiums to insure each of the Directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of Director of the Company, other than conduct involving a wilful breach of duty in relation to the Company. The policy prohibits the disclosure of the premium paid.
The Company has entered into agreements to indemnify offi cers of the Company against any damages in relation to any act or omission of the offi cer in fulfi lling his/her duties as an offi ceholder. The agreements provide for the Company to pay all damages and costs which may be awarded against the offi cer. The indemnity does not apply to the extent that any damages result from any wilful neglect, wilful default or dishonesty by the offi cer or to any claim by the Company against the offi cer.
Proceedings on Behalf of the CompanyNo person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings.
The Company was not a party to any such proceedings during the year.
Auditor’s DeclarationA copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 36.
Directors’ Report
35
Non-Audit ServicesThe Board of Directors in accordance with advice from the Audit Committee is satisfi ed that the provision of the non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfi ed that the services disclosed below did not compromise the external auditor’s independence.
Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor as outlined in note 5 to the fi nancial statements.
Rounding of AmountsThe Company is an entity to which ASIC Class Order 98/100 applies. Accordingly, amounts in the fi nancial statements and Directors’ Report have been rounded to the nearest thousand dollars.
Signed in accordance with a resolution of the Board of Directors.
Sallyanne Atkinson AOChairman
Edmund S GrovesDirector
Signed at Brisbane on the 28th day of September 2006
36
Independence Declarationto the Directors of A.B.C. Learning Centres Limited
AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF A.B.C. LEARNING CENTRES LIMITED
As lead engagement partner for the audit of A.B.C. Learning Centres Limited and its controlled entities for the year ended 30 June 2006, I declare that, to the best of my knowledge and belief in relation to the audit, there have been:
(a) no contraventions of the auditor independence requirements of the Corporations Act 2001; and
(b) no contraventions of any applicable code of professional conduct.
Pitcher Partners
S A GreenPartner
Brisbane, 28 September 2006
37
Independent Audit Reportto the Members of A.B.C. Learning Centres Limited
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF A.B.C. LEARNING CENTRES LIMITED
ScopeThe fi nancial report, remuneration disclosures and directors’ responsibilityThe fi nancial report comprises the income statements, balance sheets, statements of changes in equity, cash fl ow statements and the directors’ declaration for both A.B.C. Learning Centres Limited (“the company”) and A.B.C. Learning Centres Limited and its controlled entities (“the group”) for the year ended 30 June 2006. The group comprises both the company and the entities it controlled during that year.
The company has disclosed information about the remuneration of key management personnel (“remuneration disclosures”), as required by Accounting Standard AASB 124 Related Party Disclosures under the heading “Remuneration Report” on pages 27–34 of the directors’ report, as permitted by the Corporations Regulations 2001.
The directors of the company are responsible for the preparation and true and fair presentation of the fi nancial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the fi nancial report. The directors are also responsible for the remuneration disclosures contained in the directors’ report.
Audit approachWe conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the fi nancial report is free of material misstatement and the remuneration disclosures comply with Accounting Standard AASB 124 and the Corporations Regulations 2001. The nature of an audit is infl uenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected.
We performed procedures to assess whether in all material respects the fi nancial report present fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards and other mandatory fi nancial reporting requirements in Australia, a view which is consistent with our understanding of the company’s and the group’s fi nancial position, and of their performance as represented by the results of their operations and cash fl ows and whether the remuneration disclosures comply with Accounting Standard AASB 124 and the Corporations Regulations 2001.
We formed our audit opinion on the basis of these procedures, which included:
• examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the fi nancial report and remuneration disclosures; and
• assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of signifi cant accounting estimates made by the directors.
While we consider the effectiveness of managements’ internal controls over fi nancial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls.
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Independent Audit Reportto the Members of A.B.C. Learning Centres Limited
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF A.B.C. LEARNING CENTRES LIMITED (continued)
IndependenceIn conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.
Audit opinionIn our opinion;
(1) the fi nancial report of the company and the group is in accordance with:
(a) the Corporations Act 2001, including:
(i) giving a true and fair view of the company’s and the group’s fi nancial position as at 30 June 2006 and of their performance for the year ended on that date; and
(ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
(b) other mandatory fi nancial reporting requirements in Australia; and
(2) the remuneration disclosures that are contained on pages 27–34 of the directors’ report comply with Accounting Standard AASB 124 and the Corporations Regulations 2001.
Pitcher Partners S A GreenBrisbane, 28 September 2006 Partner
39
In the Directors’ opinion:
(a) the fi nancial statements and notes set out on pages 40 to 97 are in accordance with the Corporations Act 2001, including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and
(ii) giving a true and fair view of the Company’s and Group’s fi nancial position as at 30 June 2006 and of its performance, as represented by the results of their operations, changes in equity and their cash fl ows, for the fi nancial year ended on that date; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable;
(c) the audited remuneration disclosures set out on pages 27 to 34 of the Directors’ Report comply with Accounting Standards AASB 124 “Related Party Disclosures” and the Corporations Regulations 2001.
The Directors have been given the declarations by the chief executive offi cer and chief fi nancial offi cer required by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
On behalf of the Directors
Sallyanne Atkinson AOChairman
Edmund S GrovesDirector
Brisbane28 September 2006
Directors’ Declaration
40
Consolidated Company
2006 2005 2006 2005 Note $’000 $’000 $’000 $’000
Revenue 2(a) 592,176 230,621 – –Other income 2(b) 39,274 22,056 67,528 36,212 2 631,450 252,677 67,528 36,212Changes in inventories of fi nished goods (14,731) (1,622) – –Employee benefi ts (240,586) (80,928) (7,631) (4,630)Depreciation and amortisation (15,073) (5,282) (48) (48)Impairment (11,346) (1,603) (1,000) –Finance costs (22,401) (10,022) (19,078) (8,206)Rental and other property expenses (114,631) (59,948) – –Children catering and consumables (27,016) (8,357) – –Advertising and promotions (8,754) (1,350) – –Insurances (6,126) (2,918) (259) (74)Communication (4,893) (2,451) – –Travel (6,867) (2,175) (6) (4)Other (38,608) (15,718) (1,219) (513)Profi t before income tax expense 120,418 60,303 38,287 22,737Income tax expense 3(a) (39,308) (16,769) (4,323) (2,316)Profi t from continuing operations 81,110 43,534 33,964 20,421Profi t attributable to members of the parent entity 81,110 43,534 33,964 20,421
Earnings per share:Basic (cents per share) 21 27.7 23.0Diluted (cents per share) 21 27.7 22.9
Notes to the fi nancial statements are included on pages 45 to 97.
Income StatementsFor the fi nancial year ended 30 June 2006
41
Balance SheetsAs at 30 June 2006
Consolidated Company
2006 2005 2006 2005 Note $’000 $’000 $’000 $’000
Current assetsCash and cash equivalents 32 132,470 45,560 57,641 34,189Trade and other receivables 6 114,814 31,139 36,675 7,846Other fi nancial assets 7 252 3,649 – 500Inventories 8 5,453 4,226 – –Other 9 26,160 17,304 1,179 491Total current assets 279,149 101,878 95,495 43,026
Non-current assetsTrade and other receivables 6 558 414 55,754 51,544Other fi nancial assets 7 78,367 31,093 1,765,887 807,367Property, plant and equipment 10 241,962 82,714 654 702Deferred tax assets 3 34,579 8,782 14,230 8,744Childcare licences 11 1,343,423 772,697 – –Goodwill 12 313,717 175,187 – –Other intangible assets 13 31,531 664 – –Total non-current assets 2,044,137 1,071,551 1,836,525 868,357Total assets 2,323,286 1,173,429 1,932,020 911,383
Current liabilitiesTrade and other payables 14 121,601 52,214 11,444 129Short-term borrowings 15 8,067 4,456 – –Current tax payables 3 14,123 3,061 13,380 2,964Provisions 16 9,540 5,891 – –Other 17 999 – – –Total current liabilities 154,330 65,622 24,824 3,093
Non-current liabilitiesLong-term borrowings 15 234,888 246,272 209,107 211,007Deferred tax liabilities 3 77,857 59,649 57,494 56,598Provisions 16 1,999 911 – –Other 17 16,480 5,723 – –Total non-current liabilities 331,224 312,555 266,601 267,605Total liabilities 485,554 378,177 291,425 270,698Net assets 1,837,732 795,252 1,640,595 640,685
EquityIssued capital 18 1,635,028 636,145 1,635,028 636,145Reserves 19 109,977 114,033 597 79Retained earnings 20 92,727 45,074 4,970 4,461Total equity 1,837,732 795,252 1,640,595 640,685
Notes to the fi nancial statements are included on pages 45 to 97.
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Foreign Employee Available- Total Asset currency equity-settled for-sale attributable to Ordinary revaluation translation benefi t revaluation Retained equity holders shares reserve reserve reserve reserve earnings of the entity $’000 $’000 $’000 $’000 $’000 $’000 $’000
Balance at 1 July 2005 636,145 114,002 31 – – 45,074 795,252Gain/(loss) on revaluation of licences – (4,139) – – – – (4,139)Related income tax on revaluations – 100 – – 266 – 366Gain/(loss) on available-for-sale investments – – – – (887) – (887)Translation of asset revaluation reserve – (1,008) – – – – (1,008)Exchange differences arising on translation of foreign operations – – 473 – – – 473Net income recognised directly in equity – (5,047) 473 – (621) – (5,195)Net profi t for the year – – – – – 81,110 81,110Total recognised income and expense for the year – (5,047) 473 – (621) 81,110 75,915Transactions with equity holders in their capacity as equity holdersRecognition of share-based payments 6,492 – – – – – 6,492Issue of shares – share placement 994,704 – – – – – 994,704Issue of shares – dividend reinvestment 11,415 – – – – – 11,415Transfer from employee equity-settled reserve – – – 1,139 – – 1,139Share issue costs (19,560) – – – – – (19,560)Related income tax 5,832 – – – – – 5,832Dividends – – – – – (33,457) (33,457)Total issue of shares 998,883 – – 1,139 – (33,457) 966,565Balance at 30 June 2006 1,635,028 108,955 504 1,139 (621) 92,727 1,837,732
Notes to the fi nancial statements are included on pages 45 to 97.
Statement of Changes in EquityFor the fi nancial year ended 30 June 2006
43
Foreign Employee Available- Total Asset currency equity-settled for-sale attributable to Ordinary revaluation translation benefi t revaluation Retained equity holders shares reserve reserve reserve reserve earnings of the entity $’000 $’000 $’000 $’000 $’000 $’000 $’000
Balance at 1 July 2004 124,879 3,834 37 – – 20,447 149,197Gain/(loss) on revaluation of licences – 165,852 – – – – 165,852Related income tax on revaluations – (55,684) – – – (55,684)Exchange differences arising on translation of foreign operations – – (6) – – – (6)Net income recognised directly in equity – 110,168 (6) – – – 110,162Net profi t for the year – – – – – 43,534 43,534Total recognised income and expense for the year – 110,168 (6) – – 43,534 153,696Transactions with equity holders in their capacity as equity holdersIssue of shares – share placement 400,033 – – – – – 400,033Issue of shares – dividend reinvestment 1,154 – – – – – 1,154Issue of shares – on scheme of arrangement 108,120 – – – – – 108,120Issue of shares – exercise options 8,211 – – – – – 8,211Issue of shares – other (staff) 500 – – – – – 500Transfer from employee equity-settled reserve – – – – – – –Recognition of share-based payments 4,038 – – – – – 4,038Share issue costs (15,090) – – – – – (15,090)Related income tax 4,300 – – – – – 4,300Dividends – – – – – (18,907) (18,907)Total issue of shares 511,266 – – – – (18,907) 492,359Balance at 30 June 2005 636,145 114,002 31 – – 45,074 795,252
Notes to the fi nancial statements are included on pages 45 to 97.
Statement of Changes in EquityFor the fi nancial year ended 30 June 2005
44
Consolidated Company
2006 2005 2006 2005 Note $’000 $’000 $’000 $’000
Cash fl ow from operating activitiesReceipts from customers 632,352 236,933 1,015 (162)Payment to suppliers and employees (500,598) (165,061) (1,966) (683)Interest received 4,961 2,354 4,394 1,910Interest and other costs of fi nance paid (22,237) (10,022) (18,910) (8,206)Income tax paid (25,412) (21,030) (24,831) (6,152)Net cash provided by/(used in) operating activities 32(e) 89,066 43,174 (40,298) (13,293)Cash fl ows from investing activitiesPayment for investment securities (23,832) (3,020) (21,239) (2,737)Proceeds on sale of investment securities 9,601 44,485 – 862Proceeds from repayment/(amounts advanced to) related party loans 8 9 (502,371) –Proceeds from repayment/(amounts advanced to) related parties 343 (13) – (155,810)Amounts advanced to other parties (24,470) (6,183) (23,987) (3,183)Payment for property, plant and equipment (133,967) (66,034) (937) –Proceeds from sale of property, plant and equipment 27,869 13,546 – –Payment for childcare licences (354,618) (193,066) (3,808) –Proceeds from sale of childcare licences 8,050 – – –Proceeds from/(payments for) other items (1,854) 199 – –Payment for businesses 28 (358,289) (243,888) (340,593) (247,994)Net cash used in investing activities (851,159) (453,965) (892,935) (408,862)Cash fl ows from fi nancing activitiesProceeds from issues of equity securities 994,697 408,742 994,702 408,742Payment for share issue costs (19,560) (15,091) (19,560) (15,091)Proceeds from borrowings 5,545 114,490 5,483 79,900Repayment of borrowings (108,532) (33,873) (1,900) –Dividends paid:members of the parent entity (22,041) (17,752) (22,040) (17,752)Net cash provided by fi nancing activities 850,109 456,516 956,685 455,799Net increase in cash and cash equivalents 88,016 45,725 23,452 33,644Cash and cash equivalents at the beginning of the fi nancial year 44,131 (1,588) 34,189 545Effects of exchange rate changes on the balance of cash held in foreign currencies (430) (6) – –Cash and cash equivalents at the end of the fi nancial year 32(a) 131,717 44,131 57,641 34,189
Notes to the fi nancial statements are included on pages 45 to 97.
Cash Flow StatementsFor the fi nancial year ended 30 June 2006
45
Note Contents Page
1 Summary of Accounting Policies 46
2 Profi t from Operations 53
3 Income Taxes 54
4 Key Management Personnel 58
5 Remuneration of Auditors 62
6 Trade and Other Receivables 62
7 Other Financial Assets 63
8 Inventories 63
9 Other Current Assets 63
10 Property, Plant and Equipment 64
11 Childcare Licences 66
12 Goodwill 67
13 Other Intangible Assets 68
14 Trade and Other Payables 68
15 Borrowings 69
16 Provisions 70
17 Other Liabilities 70
18 Issued Capital 71
19 Reserves 72
20 Retained Earnings 73
21 Earnings per Share 73
22 Dividends 75
23 Commitments for Expenditure 76
24 Contingent Liabilities and Contingent Assets 76
25 Leases 77
26 Economic Dependency 77
27 Subsidiaries 78
28 Acquisition of Businesses 79
29 Segment Information 82
30 Related Party Disclosures 83
31 Subsequent Events 85
32 Notes to the Cash Flow Statement 85
33 Financial Instruments 86
34 Impacts of the adoption of Australian equivalents to International Financial Reporting Standards 89
35 Share-based Payments 96
36 Additional Company Information 97
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
46
Note 1. Summary of Accounting Policies
Statement of complianceThe fi nancial report is a general purpose fi nancial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Urgent Issues Group Interpretations, and complies with other requirements of the law. Accounting Standards include Australian equivalents to International Financial Reporting Standards (“AIFRS”). Compliance with the AIFRS ensures that the consolidated fi nancial statements and notes of the consolidated entity comply with International Financial Reporting Standards (“IFRS”). The parent entity fi nancial statements and notes also comply with IFRS except for the disclosure requirements in IAS 32 “Financial Instruments: Disclosure and Presentation” as the Australian equivalent Accounting Standard, AASB 132 “Financial Instruments: Disclosure and Presentation” does not require such disclosures to be presented by the parent entity where its separate fi nancial statements are presented together with the consolidated fi nancial statements of the consolidated entity.
(a) Basis of accountingThe principal accounting policies adopted in the preparation of the fi nancial report are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.
In the application of AIFRS management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgements. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements made by management in the application of AIFRS that have signifi cant effects on the fi nancial statements and estimates with a signifi cant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the fi nancial statements.
Accounting policies are selected and applied in a manner which ensures that the resulting fi nancial information satisfi es the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.
The Group changed its accounting policies on 1 July 2005 to comply with AIFRS. The transition to AIFRS is accounted for in accordance with Accounting Standard AASB 1 “First-time Adoption of Australian Equivalents to International Financial
Reporting Standards”, with 1 July 2004 as the date of transition. Reconciliations and descriptions of the effect of transition from previous AGAAP to AIFRS on the Group’s equity and its net income are given in note 34.
Historical cost conventionThese fi nancial statements have been prepared under the historical cost convention, as modifi ed by the revaluation of available-for-sale fi nancial assets, fi nancial assets and liabilities (including derivative instruments) at fair value through profi t or loss, certain classes of property, plant and equipment and investment property. Cost is based on the fair values of the consideration given in exchange for assets.
(b) Principles of consolidationA controlled entity is any entity controlled by A.B.C. Learning Centres Limited. Control exists where A.B.C. Learning Centres Limited has the capacity to dominate the decision-making in relation to the fi nancial and operating policies of another entity so that the other entity operates to achieve the objectives of A.B.C. Learning Centres Limited.
The fi nancial statements of the subsidiaries are prepared for the same reporting period as the parent Company, using consistent accounting policies.
All inter-Company balances and transactions between entities in the Group, including any unrealised profi t or losses, have been eliminated on consolidation. Where controlled entities have entered or left the Group during the year, their operating results have been included from the date control was obtained or until the date control ceased.
(c) Foreign currency translation(i) Functional and presentation currenciesItems included in the fi nancial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated fi nancial statements are presented in Australian dollars, which is A.B.C. Learning Centres Limited functional and presentation currency.
(ii) Transactions and balancesForeign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash fl ow hedges and qualifying net investment hedges.
Translation differences on non-monetary items, such as equities held at fair value through profi t or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classifi ed as available-for-sale fi nancial assets, are included in the fair value reserve in equity.
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
47
(iii) Group companiesThe results and fi nancial position of all the Group entities (none of which has the currency of a hyperinfl ationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
– assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
– income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
– all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other currency instruments are taken to shareholders’ equity. When a foreign operation is sold or borrowings repaid, a proportionate share of such exchange differences are recognised in the income statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
(d) Borrowing costsBorrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed.
(e) Impairment of assetsGoodwill, childcare licences and other intangible assets that have an indefi nite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment losses are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifi able cash infl ows which are largely independent of the cash infl ows from other assets or groups of assets (cash-generating units).
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profi t or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease to the extent of previous revaluation increments relating to that specifi c asset.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profi t or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase to the extent of previous revaluation increments relating to that specifi c asset. Impairment losses recognised for goodwill are not subsequently reversed.
(f) ProvisionsProvisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is more likely than not that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation and a reliable estimate can be made of the amount of obligation.
The amount recognised as a provision is the best-estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash fl ows estimated to settle the present obligation, its carrying amount is the present value of those cash fl ows.
When some or all of the economic benefi ts required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably.
Onerous lease contractsAn onerous contract is considered to exist where the Group has a contract under which the unavoidable cost of meeting the contractual obligations exceed the economic benefi ts estimated to be received. Present obligations arising under onerous contracts are recognised as a provision to the extent that the present obligation exceeds the economic benefi ts estimated to be received.
RestructuringA provision for restructuring is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected. It will carry out the restructuring by:
– starting to implement the plan; or
– announcing its main features to those affected by it.
(g) Segment reportingA business segment is a group of assets and operations engaged in providing services that are subject to risks and returns that are different to those of other business segments. A geographical segment is engaged in providing services within a particular economic environment and is subject to risks and returns that are different from those of segments operating in other economic environments.
48
Note 1. Summary of Accounting Policies continued(h) Income taxThe income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the fi nancial statements, and to unused tax losses.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. Exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profi t or taxable profi t or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.
Current and deferred tax balances attributable to amounts recognised in equity, consequently require the tax effect to also be recognised in equity.
A.B.C. Learning Centres Limited is the head Company of a tax consolidated group under the Tax Consolidation Regime. All Australian wholly owned companies in the Group are part of the tax consolidated group and are therefore taxed as a single entity. Consequently, A.B.C. Learning Centres Limited is responsible for recognising the current and deferred tax assets and liabilities for the tax consolidated group.
The Group has notifi ed the Australian Tax Offi ce that it has formed an income tax consolidated group to apply from 30 June 2004. The tax consolidated group has entered a tax sharing agreement whereby each Company in the group contributes to the income tax payable in proportion to their contribution to the net profi t before tax of the tax consolidated group. Such amounts are refl ected in amounts receivable from or payable to other entities in the tax consolidated group.
(i) ReceivablesReceivables are carried at nominal amounts less any provision for doubtful debts. A provision for doubtful debts is recognised
when collection of the full nominal amount is no longer probable. Receivables are normally on 7 to 30 day terms.
(j) Property, plant and equipmentLand and buildings are measured at cost less accumulated depreciation. Property improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight-line method. Plant and equipment is stated at cost less accumulated depreciation. Cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefi ts associated with the item will fl ow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the fi nancial period in which they are incurred.
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives as follows:
Buildings – over 20 years;Plant and equipment – over 2 to 15 years;Property improvements – over 20 years; andMotor vehicles under fi nance lease – over 10 years.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(e)).
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefi ts are expected to arise from the continued use of the asset.
RevaluationsFollowing initial recognition at cost, land and buildings are carried at a revalued amount which is fair value at the date of the revaluation less any subsequent accumulated depreciation on buildings and accumulated impairment losses.
Fair value is determined by reference to market-based evidence, which is the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date.
Any revaluation surplus is credited to the asset revaluation reserve included in the equity section of the balance sheet unless it reverses a revaluation decrease of the same asset previously recognised in the income statement.
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
49
Any revaluation defi cit is recognised in the income statement unless it directly offsets a previous surplus of the same asset in the asset revaluation reserve.
In addition, any accumulated depreciation as at revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset.
Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.
Independent valuations are performed with suffi cient regularity to ensure that the carrying amount does not differ materially from the asset’s fair value at the balance sheet date.
(k) LeasesLeases of property, plant and equipment, where the Group has substantially all the risks and rewards of ownership are classifi ed as fi nance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of fi nance charges, are included in current and non-current borrowings as appropriate. Each lease payment is allocated between the liability and fi nance charges so as to achieve a constant rate on the fi nance balance outstanding. The interest element of the fi nance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under fi nance leases is depreciated over the shorter of the asset’s useful life and the lease term.
Leases in which a signifi cant portion of the risks and rewards of ownership are retained by the lessor are classifi ed as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. Amounts accrued in respect of rental increases payable under operating lease commitments in future periods are classifi ed as other liabilities.
(l) Investments and other fi nancial assetsThe Group classifi es its investments in the following categories; fi nancial assets at fair value through profi t or loss, loans and receivables, held-to-maturity investments and available-for-sale fi nancial assets. The classifi cation depends on the purpose for which the investments were acquired. Management determines the classifi cation of its investments at initial recognition and re-evaluates this designation at each reporting date.
(i) Financial assets at fair value through profi t or lossThis category has two sub-categories: fi nancial assets held for trading, and those designated at fair value through profi t or loss on initial recognition. A fi nancial asset is classifi ed in this category if acquired principally for the purpose of selling in the short term or if so designated by management. The policy of management is to designate a fi nancial asset if there exists the possibility it will be sold in the short term and the asset is subject to frequent changes in fair value. Assets in this category are classifi ed as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.
(ii) Loans and receivablesLoans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable and are normally on seven- to 30-day terms.
They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classifi ed as non-current assets. Loans and receivables are included in receivables in the balance sheet.
(iii) Held-to-maturity investmentsNon-derivative fi nancial assets with fi xed or determinable payments and fi xed maturity are classifi ed as held-to-maturity when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undefi ned period are not included in this classifi cation.
(iv) Available-for-sale fi nancial assetsAvailable-for-sale fi nancial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classifi ed in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.
Purchases and sale of fi nancial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place are recognised on the trade date (i.e. the date that the Group commits to purchase the asset). Investments are initially recognised at fair value plus transaction costs for all fi nancial assets not carried at fair value through profi t or loss. Financial assets are derecognised when the rights to receive cash fl ows from the fi nancial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
Available-for-sale fi nancial assets and fi nancial assets at fair value through profi t and loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the “fi nancial assets at fair value through profi t or loss” category are included in the income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classifi ed as available-for-sale are recognised in equity in the available-for-sale investments revaluation reserve. When securities classifi ed as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities.
For investments that are actively traded in organised fi nancial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date.
50
Note 1. Summary of Accounting Policies continued(m) BorrowingsBorrowings are initially recognised at fair value. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method.
Redeemable converting preference shares are classifi ed as liabilities. The dividends on these preference shares are recognised in the income statement as interest expense.
Borrowings are classifi ed as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
(n) Trade and other payablesLiabilities are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the Group. These liabilities are normally settled on 30 day terms.
(o) InventoriesInventories are measured at the lower of cost and net realisable value.
(p) Employee benefi ts(i) Wages and salaries, annual leave and sick leaveLiabilities for wages and salaries, including non-monetary benefi ts, annual leave and vesting sick leave expected to be settled within 12 months of the reporting date are recognised in other payables and provisions in respect of employees’ services up to the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-vesting sick leave are recognised when the leave is taken and measured at the rates paid or payable.
(ii) Long service leaveThe liability for long service leave is recognised in the provision for employee benefi ts and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outfl ows.
(iii) Share-based paymentsThe Group makes equity-settled share-based payments only. The Group provides benefi ts to employees and carers in the form of share-based payments, whereby employees and carers render services in exchange for shares or rights over shares (equity-settled transactions).
There are currently three types of share-based payments provided by the Group;
– the Carers Share Plan, which provides benefi ts to the employees of regional management companies;
– the Employee Share Plan, which provides benefi ts to Australian head offi ce employees; and
– the Employee Share Option Plan, which provides benefi ts to the Executives of the US operations.
The cost of the equity-settled transactions outlined above are measured by reference to the fair value of the equity instrument at the date at which they are granted. The fair value of share options granted is measured by use of the Black Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The fair value of shares granted is measured using the market price at the date of grant.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or services conditions are fulfi lled, ending on the date on which the relevant employee/carer becomes fully entitled to the award (vesting period).
The dilutive effect, if any, of outstanding options is refl ected as additional share dilution in the computation of earnings per share (see note 21).
(q) Cash and cash equivalentsCash and cash equivalents includes cash on hand, deposits held at call with fi nancial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignifi cant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.
(r) Revenue recognitionRevenue from the rendering of a service is recognised upon delivery of the service to the customers.
Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the fi nancial assets.
Dividend revenue is recognised when the right to receive a dividend has been established.
Lease income from operating leases is recognised in income on a straight-line basis over the term of the lease.
Royalty revenue is recognised when the right to receive the royalty has been established.
All revenue is stated net of the amount of goods and services tax (GST).
(s) Goods and services tax (“GST”)Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of fi nancial position are shown inclusive of GST.
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
51
Cash fl ows are presented on a gross basis. The GST components of cash fl ows arising from investing or fi nancing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash fl ow.
(t) Rounding of amountsThe parent entity has applied the relief available to it under ASIC Class Order 98/0100 and accordingly, amounts in the fi nancial report and Directors’ Report have been rounded off to the nearest $1,000.
(u) Acquisitions of assetsThe purchase method of accounting is used for all acquisitions of assets (including business combinations) regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their market price as at the date of exchange, unless in rare circumstances, it can be demonstrated that the published market price as at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of the acquisition. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent fi nancier under comparable terms and conditions.
Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifi able net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identifi cation and measurement of the net assets acquired.
(v) Intangible assets and expenditure carried forwardChildcare licencesChildcare licences are recorded at fair value less any subsequent accumulated impairment losses.
Childcare licences are intangible assets and are initially recorded at cost. Childcare licences are acquired and therefore are not internally generated. Subsequent to initial recognition licences are recorded at their fair value with reference to an active market. Childcare licences are also regarded as having an indefi nite useful life as there is no foreseeable limit to the period over which the asset is expected to generate net cash infl ows for the Group. Intangible assets with an indefi nite useful life are not amortised but are tested for impairment in accordance with note 1(e).
GoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifi able assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included as an intangible asset. Goodwill acquired in business combinations is not amortised and instead is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefi t from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or group of units.
Each unit or group of units to which goodwill is allocated:
– represents the lowest level within the Group at which goodwill is monitored for internal management purposes; and
– is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format determined in accordance with AASB 114 “Segment Reporting”.
OtherOther intangible assets include fi nancial, childcare, education, curriculum, trademarks and franchise agreements and are recorded at cost less amortisation and impairment. Amortisation of other intangible assets is calculated using the straight-line method to allocate their cost over their estimated useful lives as follows:
– curriculum – over 15 years
– trademarks – over 20 years
– franchise agreements – over 15 years
– fi nancial systems – over 2.5 years
(w) Earnings per shareBasic earnings per shareBasic earnings per share is determined by dividing net profi t after income tax attributable to members of the Company, excluding any costs of servicing equity other than ordinary shares, by weighted average number of ordinary shares outstanding during the half-year, adjusted for bonus elements in ordinary shares issued during the year.
Diluted earnings per shareDiluted earnings per share adjusts the fi gures used in the determination of basic earnings per share to take into account the fi nance costs with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.
52
Note 1. Summary of Accounting Policies continued(x) Contributed equityOrdinary shares are classifi ed as equity. Preference shares are classifi ed as liabilities.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are included in the cost of the acquisition as part of the purchase consideration.
(y) Assets (or disposal groups) held for saleAssets (or disposal groups) are classifi ed as held for sale and stated at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction rather than through continuing use.
Impairment losses are recognised for any initial or subsequent write down of the asset (or disposal group) to fair value less
costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.
Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classifi ed as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classifi ed as held for sale continue to be recognised.
Non-current assets classifi ed as held for sale and the assets of a disposal group classifi ed as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classifi ed as held for sale are presented separately from the other liabilities in the balance sheet.
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
53
Consolidated Company
2006 2005 2006 2005Note 2. Profi t from Operations $’000 $’000 $’000 $’000
(a) RevenueRevenue from continuing operations consisted of the following items:Revenue from the rendering of services 592,176 230,621 – – 592,176 230,621 – –
(b) Other incomeRental revenue:Operating lease rental revenue 525 431 45 45Interest revenue:Bank deposits 4,510 2,354 3,942 1,910Interest-bearing loans 812 – 812 –Controlled entities – – 27,243 11,256 5,322 2,354 31,997 13,166Royalties 5,706 – – –Dividends:Subsidiaries – – 35,486 22,958Other entities 4,325 4 – – 4,325 4 35,486 22,958Other 1,364 – – 2Attributable to:Continuing operations 17,242 2,789 67,528 36,171Gain/(loss) on disposal of property, plant, and childcare licences 22,175 4,726 – 41Gain/(loss) on disposal of investments (143) 14,541 – –Gains attributable to continuing operations 22,032 19,267 – 41Total other income from continuing operations 39,274 22,056 67,528 36,212Total revenue and other income from continuing operations 631,450 252,677 67,528 36,212
(c) Profi t before income taxProfi t/(loss) before income tax has been arrived at after charging the following expenses.Finance costs:Interest on loans 17,111 5,558 14,696 4,156Dividends on instruments classifi ed as fi nancial liabilities 4,050 4,050 4,050 4,050Other fi nance costs 1,240 414 332 –Total fi nance costs 22,401 10,022 19,078 8,206Net bad and doubtful debts arising from:Other entities 1,062 59 – –Impairment of investments 1,000 1,603 1,000 –Impairment of property, plant and equipment 1,922 – – –Impairment of childcare licences 8,424 – – –Total impairment 11,346 1,603 1,000 –
54
Consolidated Company
2006 2005 2006 2005Note 2. Profi t from Operations continued $’000 $’000 $’000 $’000
Depreciation of non-current assets 14,233 5,282 48 48Amortisation of non-current assets 926 – – –Amortisation of onerous contracts (86) – – – 15,073 5,282 48 48Operating lease rental expenses 93,813 51,439 – – 93,813 51,439 – –Employee benefi t expense:Share-based payments:Equity-settled share-based payments 6,492 4,038 6,492 4,038Executive option plan 1,139 – 1,139 – 7,631 4,038 7,631 4,038Termination benefi ts 277 – – –Other employee benefi ts 232,678 76,890 – 592Total employee benefi ts 240,586 80,928 7,631 4,630
Consolidated Company
2006 2005 2006 2005Note 3. Income Taxes $’000 $’000 $’000 $’000
(a) Income tax recognised in profi tTax expense/(income) comprises:Current tax expense/(income) 39,370 15,836 5,282 2,306Adjustments recognised in the current year in relation to the current tax of prior years (284) – (144) –Deferred tax expense/(income) relating to the origination and reversal of temporary differences 222 933 (815) 10Total tax expense/(income) 39,308 16,769 4,323 2,316Attributable to:Continuing operations 39,308 16,769 4,323 2,316
The prima facie income tax expense on pre-tax accounting profi t from operations reconciles to the income tax expense in the fi nancial statements as follows:Profi t from continuing operations 120,418 60,303 38,287 22,737Profi t from operations 120,418 60,303 38,287 22,737
Income tax expense calculated at 30% 36,126 18,091 11,486 6,821Equity-based payment expenses 2,290 1,211 2,289 1,135Interest on redeemable converting preference shares 1,215 1,136 1,215 1,136Dividends from related entities – – (10,646) (6,887)Non-assessable capital gains – (4,952) – –Other non-assessable/non-deductible items (520) 1,252 123 111Effect on varying rates of tax on overseas income 481 31 – – 39,592 16,769 4,467 2,316(Over)/under provision of income tax in previous year (284) – (144) – 39,308 16,769 4,323 2,316
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
55
The tax rates used in the reconciliations are the corporate tax rates of 30%, 33% and 36.64% payable by Australian, New Zealand and United States of America corporate entities, respectively, on taxable profi ts under tax laws in each jurisdiction. There has been no change in Australian and New Zealand corporate tax when compared with previous reporting period.
Consolidated Company
2006 2005 2006 2005 $’000 $’000 $’000 $’000
(b) Income tax recognised directly in equityThe following current and deferred amounts were charged directly to equity during the period:Current tax:Share – issue expenses (2,322) (1,155) (2,322) (1,155)Deferred tax:Childcare licence revaluations (100) 55,684 – –Revaluations of available-for-sale securities (266) – (266) –Share issue expenses deductible over fi ve years (3,510) (3,145) (3,510) (3,145) (6,198) 51,384 (6,098) (4,300)
(c) Current tax assets and liabilitiesCurrent tax assets:Tax refund receivable – – – – – – – –
Current tax payables:Income tax payable attributable to:Parent entity 2,960 1,112 2,960 1,111Entities in the tax consolidated group 10,420 1,849 10,420 1,853Other 743 100 – – 14,123 3,061 13,380 2,964
(d) Deferred tax balancesDeferred tax assets comprise:Tax losses – revenue 4,174 – – –Tax losses – capital – – – –Temporary differences 30,405 8,782 14,230 8,744 34,579 8,782 14,230 8,744
Deferred tax liabilities comprise:Temporary differences 77,857 59,649 57,494 56,598 77,857 59,649 57,494 56,598
56
Note 3. Income Taxes continuedTaxable and deductible temporary differences arise from the following:
Consolidated
Opening Charged Charged Acquisitions/ Closing balance to income to equity disposals Other balance2006 $’000 $’000 $’000 $’000 $’000 $’000
Gross deferred tax liabilities:Licences (57,119) – 100 – – (57,019)Property, plant and equipment (2,110) (1,409) – (16,707) – (20,226)Other items (420) 283 – (475) – (612) (59,649) (1,126) 100 (17,182) – (77,857)Gross deferred tax assets:Share issue expenses 4,216 – 3,510 – – 7,726Lease accrual 1,717 1,790 – 2,102 – 5,609Employee provisions 1,919 (264) – 3,585 – 5,240Property, plant and equipment (USA) – (31) – 7,519 – 7,488Tax losses (USA) – (832) – 5,006 – 4,174Other items 930 241 266 2,905 – 4,342 8,782 904 3,776 21,117 – 34,579 (50,867) (222) 3,876 3,935 – (43,278)
Attributable to:Continuing operations (43,278) (43,278)
Company
Opening Charged Charged Acquisitions/ Closing balance to income to equity disposals Other balance2006 $’000 $’000 $’000 $’000 $’000 $’000
Gross deferred tax liabilities:Licences – – – – – –Property, plant and equipment – – – – – –Other items – – – – – – – – – – – –Gross deferred tax assets:Share issue expenses 4,216 – 3,510 – – 7,726Lease accrual – – – – – –Employee provisions – – – – – –Other items 5 815 266 – – 1,086 4,221 815 3,776 – – 8,812 4,221 815 3,776 – – 8,812
Add: Balances recognised in relation to entities in the tax consolidated group:Gross deferred tax assets 5,418Gross deferred tax liabilities (57,494) (43,264)
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
57
Taxable and deductible temporary differences arise from the following:
Consolidated
Opening Charged Charged Acquisitions/ Closing balance to income to equity disposals Other balance2005 $’000 $’000 $’000 $’000 $’000 $’000
Gross deferred tax liabilities:Licences (1,435) – (55,684) – – (57,119)Property, plant and equipment (1,292) (818) – – – (2,110)Other items (229) 992 – (1,183) – (420) (2,956) 174 (55,684) (1,183) – (59,649)Gross deferred tax assets:Share issue expenses 1,071 – 3,145 – – 4,216Lease accrual 647 1,070 – – – 1,717Employee provisions 95 521 – 1,303 – 1,919Property, plant and equipment (USA) – – – – – –Tax losses (USA) – – – – – –Other items 18 (2,698) – 3,610 – 930 1,831 (1,107) 3,145 4,913 – 8,782 (1,125) (933) (52,539) 3,730 – (50,867)
Attributable to:Continuing operations (50,867) (50,867)
Company
Opening Charged Charged Acquisitions/ Closing balance to income to equity disposals Other balance2005 $’000 $’000 $’000 $’000 $’000 $’000
Gross deferred tax liabilities:Licences – – – – – –Property, plant and equipment – – – – – –Other items – – – – – – – – – – – –Gross deferred tax assets:Share issue expenses 1,071 – 3,145 – – 4,216Lease accrual – – – – – –Employee provisions – – – – – –Other items 15 (10) – – – 5 1,086 (10) 3,145 – – 4,221 1,086 (10) 3,145 – – 4,221
Add: Balances recognised in relation to entities in the tax consolidated group:Gross deferred tax assets 4,523Gross deferred tax liabilities (56,598) (47,855)
58
Note 4. Key Management Personnel
Details of Key Management PersonnelThe Key Management Personnel of A.B.C. Learning Centres Limited during the year were:
– Mrs S Atkinson AO (Chairman – Non-Executive)
– Mr E S Groves (Chief Executive Offi cer – Operations (Global))
– Dr L A Groves (Chief Executive Offi cer – Education)
– Mr W E Bessemer (Non-Executive Director)
– Mr M V Kemp (Chief Executive Offi cer – Operations (Australia and New Zealand))
– Mr D J Ryan (Non-Executive Director)
– Hon. L J Anthony (Non-Executive Director)
– Ms J M Reynolds (Chief Operating Offi cer)
– Mr M P Loveday (Chief Financial Offi cer)
– Ms J G Bannan (Company Secretary and General Counsel)
– Mr W Davis (President and Chief Executive Offi cer – Learning Care Group Inc.)
– Mr F Jerneycic (Chief Financial Offi cer and Treasurer – Learning Care Group Inc.)
– Mrs K Myers (Chief Operating Offi cer – Learning Care Group Inc.)
– Mr S Smith (Human Resources Vice President – Learning Care Group Inc.)
(a) Key Management Personnel compensationThe aggregate compensation of the Key Management Personnel of the Group and the Company is set out below:
Consolidated Company
2006 2005 2006 2005 $’000 $’000 $’000 $’000
AustraliaShort-term employee benefi ts 1,755 1,692 200 166Post-employment benefi ts 141 148 14 15Share-based payment 697 946 697 946 2,593 2,786 911 1,127United States of America (AUD)Short-term employee benefi ts 999 – – –Post-employment benefi ts 14 – – –Share-based payment 5,403 – 5,403 – 6,416 – 5,403 –
The Company has taken advantage of the relief provided by ASIC Class Order 06/50 and has transferred the detailed Key Management Personnel remuneration disclosures to the Directors’ Report. The relevant information can be found in remuneration report on pages 27 to 34.
(b) Executive share options of A.B.C. Learning Centres Limited
Balance Balance at Granted as Net other Balance at Vested at 1 July 2005 remuneration Exercised change 30 June 2006 30 June 20062006 No. No. No. No. No. No.
W Davis – 1,083,000 – – 1,083,000 –F Jerneycic – 375,145 – – 375,145 –K Myers – 334,807 – – 334,807 –S Smith – 119,239 – – 119,239 – – 1,912,191 – – 1,912,191 –
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
59
Executive share options of A.B.C. Learning Centres Limited
Balance Balance at Granted as Net other Balance at vested at 1 July 2004 remuneration Exercised change 30 June 2005 30 June 20052005 No. No. No. No. No. No.
Nil – – – – – – – – – – – – – – – – – –
An initial incentive award of options valued at $5,403,302 were provided to the senior executives of the Learning Care Group, Inc. in return for the execution of their employment agreements.
These options will vest at the rate of 20% per year on each anniversary, or upon earlier cessation of employment. Shares issued upon exercise of options will rank equally in all respects with existing fully paid ordinary shares.
Further details on options provided as remuneration and shares issued on the exercise of such options, together with the terms and conditions of the options can be found in the remuneration report on pages 27 to 34 of the Directors’ Report.
The following share-based payment arrangements were in existence during the period:
Options series Number Grant date Expiry date Exercise price $
1 1,912,191 27-Jan-06 27-Jan-11 7.35
In accordance with the terms of the share-based payment arrangement, options issued on 27 January 2006 vest as detailed below:
– 382,438 options vest on 27 January 2007
– 382,438 options vest on 27 January 2008
– 1,147,315 options vest on 27 January 2009
For further detail on the policy for options granted refer to the remuneration report on pages 27 to 34 of the Directors’ Report.
The weighted average fair value of the share options granted during the fi nancial year is $5,403,302 (2005: nil). Options were priced using a Black Scholes Option Valuation Formula. Where relevant, the expected life used in the model has been adjusted based on the details as follows:
The model inputs for options granted during the year ended 30 June 2006 included:
(a) Grant date share price: $7.61
(b) Exercise price: $7.35
(c) Expected volatility: 28.992%
(d) Option life: 5.00274 years
(e) Dividend yield: 1.84%
(f) Risk-free interest rate: 5.31%
The following reconciles the outstanding share options granted under the ABC Executive option plan at the beginning and end of the fi nancial year:
2006 2005
Number of Weighted average Number of Weighted average options exercise price options exercise price No. $ No. $
Balance at beginning of the fi nancial year –Granted during the fi nancial year 1,912,191 7.35 2,550,000 3.22Forfeited during the fi nancial year – – –Exercised during the fi nancial year (i) – – (2,550,000) –Expired during the fi nancial year – – – –Balance at end of the fi nancial year 1,912,191 –
Exercisable at end of the fi nancial year 1,912,191 – – –
60
Note 4. Key Management Personnel continued(b) Executive share options of A.B.C. Learning Centres Limited continued(i) Exercised during the fi nancial yearThe following share options granted under the ABC Directors option plan were exercised during the fi nancial year:
2006 Number exercised Exercise date Share price at exercise dateOptions series $
Nil – – –
2005 Number exercised Exercise date Share price at exercise dateOptions series $
S Atkinson 210,000 7-Jun-05 4.92E S Groves 745,000 9-Mar-05 5.61L A Groves 745,000 9-Mar-05 5.61W E Bessemer 105,000 7-Jun-05 4.92M V Kemp 640,000 9-Mar-05 5.61D J Ryan 105,000 7-Jun-05 4.92 2,550,000
(c) Fully paid ordinary shares of A.B.C. Learning Centres Limited
Balance at Granted as Received on Balance at 1 July 2005 remuneration exercise of options Net other change 30 June 20062006 No. No. No. No. No.
Directors of A.B.C. Learning Centres LimitedOrdinary sharesS Atkinson 695,000 – – – 695,000E S Groves 18,595,000 – – (1,797,500) 16,797,500L A Groves 18,608,000 – – (1,797,500) 16,810,500W E Bessemer 105,000 – – – 105,000M V Kemp 9,099,545 – – 1,362,714 10,462,259D J Ryan 235,000 – – 4,595 239,595L J Anthony 25,000 – – 81,622 106,622Other Key Management Personnel of the GroupOrdinary sharesJ M Reynolds 112,035 55,000 – (66,200) 100,835M P Loveday 50,000 50,000 – (100,000) –J G Bannan 30,000 30,000 – (33,000) 27,000W Davis – – – 229,000 229,000F Jerneycic – – – 20,000 20,000K Myers – – – 20,000 20,000S Smith – – – 15,000 15,000
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
61
Balance at Granted as Received on Balance at 1 July 2004 remuneration exercise of options Net other change 30 June 20052005 No. No. No. No. No.
Directors of A.B.C. Learning Centres LimitedOrdinary sharesS Atkinson 500,000 – 210,000 (15,000) 695,000E S Groves 16,033,755 – 745,000 1,816,245 18,595,000L A Groves 17,861,715 – 745,000 1,285 18,608,000W E Bessemer 375,000 – 105,000 (375,000) 105,000M V Kemp 5,459,545 – 640,000 3,000,000 9,099,545D J Ryan 30,000 – 105,000 100,000 235,000L J Anthony – – – 25,000 25,000Other Key Management Personnel of the GroupOrdinary sharesJ M Reynolds 56,000 55,000 – 1,035 112,035M P Loveday – 50,000 – – 50,000J G Bannan – 30,000 – – 30,000
(d) Redeemable converting preference shares of A.B.C. Learning Centres Limited
Balance at Granted as Received on Balance at 1 July 2005 remuneration exercise of options Net other change 30 June 20062006 No. No. No. No. No.
M V Kemp 50,000 – – – 50,000 50,000 – – – 50,000
Balance at Granted as Received on Balance at 1 July 2004 remuneration exercise of options Net other change 30 June 20052005 No. No. No. No. No.
M V Kemp 50,000 – – – 50,000D J Ryan 40,000 – – (40,000) – 90,000 – – (40,000) 50,000
(e) Loans to Key Management PersonnelThere are no loans made or outstanding with Directors and other Key Management Personnel of the Group, including any related parties at 30 June 2006 (2005: nil).
(f) Other transactions with Key Management PersonnelDuring the year no loans were advanced by the Group to Key Management Personnel (2005: nil).
62
Consolidated Company
2006 2005 2006 2005Note 5. Remuneration of Auditors Note $’000 $’000 $’000 $’000
Auditor of the parent entity (i)Audit or review of the fi nancial report 449 229 74 26Taxation services – 5 – 5Other assurance services 8 32 – 4Due diligence – 63 – 63 457 329 74 98Other auditors (ii)Auditing the fi nancial report 164 – – – 621 329 74 98
(i) The auditor of A.B.C. Learning Centres Limited and Australian subsidiaries is Pitcher Partners, an independent member of Baker Tilly International.(ii) The auditor of Learning Care Group, Inc. is Rehmann Robson, an independent member of Baker Tilly International.
Consolidated Company
2006 2005 2006 2005Note 6. Trade and Other Receivables Note $’000 $’000 $’000 $’000
CurrentTrade receivables 77,582 14,368 4 –Allowance for doubtful debts (1,463) (188) – – 76,119 14,180 4 –Property settlements receivable 20,892 7,410 – –Deposits (cash under restrictions) (i) 2,069 432 – –Tax related receivable (ii) – – 35,860 7,804Goods and services tax (GST) recoverable 620 2,313 451 (138)Other receivables 15,114 6,804 360 180 114,814 31,139 36,675 7,846
Non-currentTrade receivables 105 – – – 105 – – –Rental bonds 453 414 – –Tax related receivable (ii) – – 55,754 51,544 558 414 55,754 51,544
(i) Security deposits held are classifi ed as a receivable and represent cash held under restrictions.(ii) Tax related receivables relate to subsidiaries.
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
63
Consolidated Company
2006 2005 2006 2005Note 7. Other Financial Assets Note $’000 $’000 $’000 $’000
CurrentNon-interest-bearing loans at call advanced to:Other entities 252 3,649 – 500
Non-currentShares in controlled entities – – 726,568 386,547At fair valueAvailable-for-sale:Shares – Listed entities (i) 2,520 3,037 2,520 2,737Centre development costs 18,663 24,082 3,974 –Other investments (i) 27,847 1,212 25,534 – 46,510 25,294 29,508 –Interest-bearing loans advanced to:Other entities 21,211 – 20,971 –Non-interest-bearing loans advanced to:Subsidiaries – – 980,115 415,398Other entities 8,126 2,762 6,205 2,685 29,337 2,762 1,007,291 418,083 78,367 31,093 1,765,887 807,367
(i) The Group holds shares in listed and non-listed entities. At 30 June 2006 and 30 June 2005, it does not consider any of the investments as investments in associates due to the Group not exerting signifi cant infl uence over the entities and the share holdings being less than 20% of the voting or potential voting power of the investee.
Consolidated Company
2006 2005 2006 2005Note 8. Inventories $’000 $’000 $’000 $’000
Finished goods:At cost 5,453 4,226 – – 5,453 4,226 – –
Consolidated Company
2006 2005 2006 2005Note 9. Other Current Assets $’000 $’000 $’000 $’000
Prepayments 16,667 10,944 242 491Land and buildings held for on sale 9,493 6,360 937 – 26,160 17,304 1,179 491
64
Note 10. Property, Plant and Equipment
Consolidated
Property Plant and Motor vehicles Freehold Buildings improvements equipment under fi nance land at cost at cost at cost at cost lease at cost Total $’000 $’000 $’000 $’000 $’000 $’000
Gross carrying amountBalance at 1 July 2004 93 1,238 19,603 19,378 54 40,366Additions 3 6 36,105 11,492 – 47,606Disposals – – (1,989) (835) (54) (2,878)Acquisitions through business combinations – – 1,073 8,093 – 9,166Transfers – (66) 66 – – –Balance at 1 July 2005 96 1,178 54,858 38,128 – 94,260Additions – 201 75,780 30,495 – 106,476Disposals (453) (9,180) (3,014) (2,737) – (15,384)Acquisitions through business combinations 15,385 41,892 14,258 12,678 – 84,213Classifi ed as held for sale (96) (213) – – – (309)Transfers – – 1,220 (1,220) – –Net foreign currency exchange differences 254 558 (121) (13) – 678Balance at 30 June 2006 15,186 34,436 142,981 77,331 – 269,934
Accumulated depreciation/amortisation and impairmentBalance at 1 July 2004 – 223 1,142 3,207 32 4,604Disposals – (5) (141) – (32) (178)Acquisitions through business combinations – – 117 1,721 – 1,838Depreciation expense – 52 2,315 2,915 – 5,282Balance at 1 July 2005 – 270 3,433 7,843 – 11,546Disposals – (6) (2,169) (1,035) – (3,210)Acquisitions through business combinations – 2,073 362 1,046 – 3,481Classifi ed as held for sale – (8) – – – (8)Impairment losses charged to profi t (i) – – 1,890 32 – 1,922Depreciation expense – 496 5,703 8,034 – 14,233Net foreign currency exchange differences – 38 – (30) – 8Balance at 30 June 2006 – 2,863 9,219 15,890 – 27,972
Net book valueAs at 30 June 2005 96 908 51,425 30,285 – 82,714
As at 30 June 2006 15,186 31,573 133,762 61,441 – 241,962
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
65
Company
Property Plant and Motor vehicles Freehold Buildings improvements equipment under fi nance land at cost at cost at cost at cost lease at cost Total $’000 $’000 $’000 $’000 $’000 $’000
Gross carrying amountBalance at 1 July 2004 – 965 – – – 965Balance at 1 July 2005 – 965 – – – 965Additions – – – – – –Disposals – – – – – –Balance at 30 June 2006 – 965 – – – 965
Accumulated depreciation/amortisation and impairmentBalance at 1 July 2004 – 214 – – – 214Depreciation expense – 49 – – – 49Balance at 1 July 2005 – 263 – – – 263Depreciation expense – 48 – – – 48Balance at 30 June 2006 – 311 – – – 311
Net book valueAs at 30 June 2005 – 702 – – – 702
As at 30 June 2006 – 654 – – – 654
(i) Impairment losses are included in the line item impairment in the income statement. The impairment losses recognised during the period (2005: nil) relate to write downs of various items of property, plant or equipment that were held by childcare centres that were closed.
Consolidated Company
2006 2005 2006 2005 $’000 $’000 $’000 $’000
Aggregate depreciation allocated, whether recognised as an expense or capitalised as part of the carrying amount of other assets during the year:Buildings 496 52 48 49Property improvements 5,703 2,315 – –Plant and equipment 8,034 2,915 – – 14,233 5,282 48 49
On transition to the Australian equivalents to International Financial Reporting Standards (AIFRS) the Group has elected to measure buildings previously recorded at valuation at the date of transition to AIFRS at its fair value and use that fair value as its deemed cost at that date.
66
Consolidated Company
2006 2006Note 11. Childcare Licences $’000 $’000
Gross carrying amountBalance at 1 July 2004 235,746 –Additions 108,396 –Acquisitions through business combinations 267,223 –Disposals or classifi ed as held for sale (4,519) –Net revaluation increments/(decrements) 165,851 –Balance at 1 July 2005 772,697 –
Additions 359,708 –Acquisitions through business combinations 169,633 –Disposals or classifi ed as held for sale (7,327) –Reclassifi ed from goodwill 62,806 –Balance at 30 June 2006 1,357,517 –
ImpairmentNet adjustment from revaluation increments/(decrements) 5,670 –Impairment losses charged to profi t and loss 8,424 –Balance at 30 June 2006 14,094 –
Net book valueAs at 30 June 2005 772,697 –
As at 30 June 2006 1,343,423 –
(a) Impairment chargeThe impairment charge relates to childcare centres that were closed during the fi nancial year.
(b) Allocation of childcare licences to cash-generating unitsThe Group has identifi ed an individual childcare licence as a cash-generating unit.
The recoverable amount of the childcare licence cash-generating unit’s have been determined based on a value in use calculation using cash fl ow projections from fi nancial budgets approved by management covering a fi ve year period.
The discount rate applied to the cash fl ow projections is 9.5% which refl ects with the Group’s weighted average cost of capital (WACC). Applicable growth rates have been applied to the budgeted infl ows and outfl ows for years one to fi ve based on historical information and industry norms. As the life of a childcare licence is indefi nite a terminal value has been included based upon the forecasted cash fl ows at year fi ve.
Whilst that each childcare licence is a CGU the note above has been disclosed on an aggregate basis.
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
67
Consolidated Company
2006 2005 2006 2005Note 12. Goodwill $’000 $’000 $’000 $’000
Gross carrying amountBalance at beginning of fi nancial year 175,187 – – –Additional amounts recognised from business combinations occurring during the period 194,052 175,187 – –Effects of foreign currency exchange differences 2,659 – – –Reclassifi ed to childcare licences (62,806) – – –Other 4,625 – – –Balance at end of fi nancial year 313,717 175,187 – –
Accumulated impairment lossesBalance at beginning of fi nancial year – – – –Impairment losses for the year – – – –Eliminated on disposal of a subsidiary – – – –Effect of foreign currency exchange differences – – – –Balance at end of fi nancial year – – – –
Net book value 313,717 175,187 – –
Allocation of goodwill to cash-generating unitsThe Group has identifi ed the following Cash-Generating Units (CGU) to which goodwill has been allocated:
– An individual childcare licence
– Training college (see note 13)
– Wholesaling of education toys
– US Childcare Operation
– Rights to further acquisitions
– Trademark (see note 13)
All goodwill is allocated to a cash-generating units on the following basis:
Consolidated Company
2006 2005 2006 2005 Note $’000 $’000 $’000 $’000
Training college (a) 1,836 – – –Wholesale and education toys (b) 3,259 – – –US Childcare Operations (c) 173,468 – – –Rights to further acquisitions (d) 109,892 175,187 – –Unallocated (e) 25,262 – – –Total 313,717 175,187 – –
(a) The recoverable amount of the training college cash-generating unit has been determined based on a value in use calculation using cash fl ow projections from fi nancial budgets approved by management covering a fi ve year period. For a conservative valuation no growth rate was applied during the fi ve years. The discount rate applied to the cash fl ow projections was 9.5%.
(b) The recoverable amount of the wholesale and education toys cash-generating unit has been determined based on a value in use calculation using cash fl ow projections from fi nancial budgets approved by management covering a fi ve year period. For a conservative valuation no growth rate was applied during the fi ve years. The discount rate applied to the cash fl ow projections was 9.5%.
(c) The recoverable amount of the US Childcare Operations cash-generating unit has been determined based on a value in use calculation using cash fl ow projections from fi nancial budgets approved by management covering fi ve years. The discount rate applied to the cash fl ow projections is 12%. Applicable growth rates have been applied to the budgeted infl ows and outfl ows for years one to fi ve based on historical data and industry norms.
(d) The recoverable amount of the rights to further acquisitions cash-generating unit has been determined based on the number of places expected to be acquired over the next three years as a result of the business combination. A profi t per place is then applied based on historical data and averages. The discount rate applied in the discounted cash fl ow calculation was 10.5% which refl ects the risk associated with this cash-generating unit.
(e) As Kids Campus Limited was acquired on 29 May 2006 a formal allocation of goodwill was not fi nalised prior to reporting date.
68
Consolidated Company
2006 2006Note 13. Other Intangible Assets Note $’000 $’000
Gross carrying amountBalance at 1 July 2004 1,078 –Additions (i) 38 –Acquisitions through business combinations – –Disposals or classifi ed as held for sale – –Net revaluation increments/(decrements) – –Net foreign currency exchange differences – –Other (445) –Balance at 1 July 2005 671 –Additions (i) 2,464Acquisitions through business combinations (ii) 29,726 –Disposals or classifi ed as held for sale – –Net revaluation increments/(decrements) – –Net foreign currency exchange differences 274 –Reclassifi ed to goodwill (671) –Balance at 30 June 2006 32,464 –
Accumulated amortisation and impairmentBalance at 1 July 2004 (7) –Amortisation expense – –Impairment losses charged to profi t – –Reversals of impairment losses charged to profi t – –Net foreign currency exchange differences – –Balance at 1 July 2005 (7) –Amortisation expense (926) –Impairment losses charged to profi t – –Reversals of impairment losses charged to profi t – –Net foreign currency exchange differences – –Balance at 30 June 2006 (933) –
Net book valueAs at 30 June 2005 664 –
As at 30 June 2006 31,531 –
(i) Additional intangibles relate to fi nancial, childcare and education systems.(ii) Intangibles acquired through business combination include curriculum, trademarks and franchise agreements.
Consolidated Company
2006 2005 2006 2005Note 14. Trade and Other Payables $’000 $’000 $’000 $’000
Trade payables 13,324 5,431 19 27Sundry creditors and accrued expenses 108,277 46,783 11,425 102 121,601 52,214 11,444 129
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
69
Consolidated Company
2006 2005 2006 2005Note 15. Borrowings Note $’000 $’000 $’000 $’000
CurrentSecured (i)At amortised cost (2005: cost):Bank overdrafts 753 1,429 – –Bank loans 87 1,000 – –Other loans (Hire purchase loans) 7,227 2,027 – – 8,067 4,456 – –
Non-currentUnsecuredAt amortised cost (2005: cost):Redeemable converting preference shares (ii) 58,107 58,107 58,107 58,107Bank loans (i) 161,786 – 151,000 – 219,893 58,107 209,107 58,107Secured (i)At amortised cost (2005: cost):Bank loans – 184,020 – 152,900Finance lease liabilities 14,981 – – –Hire purchase loans 14 4,145 – – 14,995 188,165 – 152,900 234,888 246,272 209,107 211,007
(i) In accordance with the security arrangements of liabilities, the carrying amounts of non-current assets pledged as security are as follows:
Consolidated Company
2006 2005 2006 2005 $’000 $’000 $’000 $’000
First mortgageFreehold land and buildings – 1,004 – 702Floating charge over assets – 1,058,360 – 860,514 – 1,059,364 – 861,216
The Company’s bankers have provided the Company’s fi nancing facility on an unsecured basis. The Company holds releases for all securities previously held by the banks. These releases have being lodged with the relevant authorities.
In the 2005 fi nancial year, the bank borrowings were secured by registered mortgages over the parent entity and each of its controlled entities, and interlocking debt and interest guarantees between the parent entity and each of its controlled subsidiaries, and a registered fi rst mortgage over certain freehold property of a controlled entity.
Finance leases and hire purchases are secured by the assets under lease or under hire purchase respectively.(ii) During 2004 $60 million of redeemable converting preference shares were issued, with $7.5 million being initially classifi ed as debt. Transaction costs of
$1.893 million were also incurred and offset against the value of the equity portion of the preference shares. Upon transition to AIFRS the equity balance of the redeemable converting preference shares were reclassifi ed from equity to debt and included above.
70
Consolidated Company
2006 2005 2006 2005Note 16. Provisions Note $’000 $’000 $’000 $’000
CurrentEmployee benefi ts 9,071 4,907 – –Restructuring and termination costs (i) 277 984 – –Onerous lease contracts 25 192 – – – 9,540 5,891 – –
Non-currentEmployee benefi ts 881 911 – –Onerous lease contracts 25 1,118 – – – 1,999 911 – –
Consolidated Company
Restructuring Restructuring and termination Onerous lease and termination Onerous lease costs(i) contracts costs(i) contracts $’000 $’000 $’000 $’000
Balance at 1 July 2005 984 – – –Additional provision through acquisition of business combinations 277 1,396 – –Reductions arising from payments/other sacrifi ces of future economic benefi ts (984) (86) – –Balance at 30 June 2006 277 1,310 – –
Current 277 192 – –Non-current – 1,118 – 277 1,310 – –
(i) The provision for restructuring and termination costs represents the present value of the directors’ best estimate of the costs directly and necessarily caused by the restructuring that are not associated with the ongoing activities of the entity, including termination benefi ts, and were an existing liability at date of acquisition.
Consolidated Company
2006 2005 2006 2005Note 17. Other Liabilities $’000 $’000 $’000 $’000
CurrentOperating lease liability 999 – – – 999 – – –
Non-currentOperating lease liability 16,480 5,723 – – 16,480 5,723 – –
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
71
Consolidated Company
2006 2005 2006 2005Note 18. Issued Capital $’000 $’000 $’000 $’000
393,146,555 fully paid ordinary shares (2005: 250,344,916) 1,635,028 636,145 1,635,028 636,145 1,635,028 636,145 1,635,028 636,145
2006 2005
No. No. ’000 $’000 ’000 $’000
Fully paid ordinary sharesBalance at beginning of fi nancial year 250,345 636,145 116,428 124,879Issue of shares – Share placement 140,151 994,704 100,008 400,033Issue of shares – Scheme of arrangement – – 30,033 108,120Issue of shares – Dividend reinvestment 1,694 11,415 271 1,154Issue of shares – Carers incentive 625 4,716 406 2,038Issue of shares – Other (staff) 332 1,776 417 2,000Issue of shares – on settlement with vendors – – 231 500Issue of shares – exercise of options – – 2,550 8,211Transaction costs on share issue – (19,560) – (15,090)Tax effect on transaction costs – 5,832 – 4,300Balance at end of fi nancial year 393,147 1,635,028 250,344 636,145
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
Share optionsAs at 30 June 2006 there are 1,912,191 unvested options which were granted to the executives of Learning Care Group Inc. in accordance with their employment agreements.
During the year ended 30 June 2005 the Directors exercised their remuneration options, converting 2,550,000 ordinary shares at $3.22 per share.
72
Consolidated Company
2006 2005 2006 2005Note 19. Reserves $’000 $’000 $’000 $’000
Asset revaluation 108,955 114,002 79 79Foreign currency translation 504 31 – –Employee equity-settled benefi ts 1,139 – 1,139 –Available-for-sale revaluation (621) – (621) – 109,977 114,033 597 79
Asset revaluation reserveBalance at beginning of fi nancial year 114,002 3,834 79 79Revaluation increments/(decrements) on childcare licences (4,139) 165,852 – –Foreign exchange translation (1,008) – – –Deferred tax liability arising on revaluation 100 (55,684) – –Balance at end of fi nancial year 108,955 114,002 79 79
The asset revaluation reserve is used to record increases in the fair value of childcare licences and buildings and decreases to the extent that such decreases relate to an increase on the same asset previously recognised in equity.
Consolidated Company
2006 2005 2006 2005 $’000 $’000 $’000 $’000
Foreign currency translation reserveBalance at beginning of fi nancial year 31 37 – –Translation of foreign operations 473 (6) – –Balance at end of fi nancial year 504 31 – –
The foreign currency translation resulted from differences relating to the translation from US dollars and NZ dollars, being the functional currency of the Group’s foreign controlled entities in the United States of America and New Zealand, into Australian dollars that are brought to account by entries made directly to the foreign currency translation reserve.
Consolidated Company
2006 2005 2006 2005 $’000 $’000 $’000 $’000
Employee equity-settled benefi ts reserveBalance at beginning of fi nancial year – – – –Share-based payment 1,139 – 1,139 –Transfer to share capital – – – –Balance at end of fi nancial year 1,139 – 1,139 –
The employee equity-settled benefi ts reserve arises on the grant of share options to the executives under the executive share option plan. Amounts are transferred out of the reserve and into the issued capital when the options are exercised.
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
73
Consolidated Company
2006 2005 2006 2005 $’000 $’000 $’000 $’000
Available-for-sale revaluation reserveBalance at beginning of fi nancial year – – – –Restated balance at beginning of fi nancial year – – – –Valuation gain/(loss) recognised (887) – (887) –Cumulative (gain)/loss transferred to the income statement on sale of fi nancial assets – – – –Cumulative (gain)/loss transferred to the income statement on impairment of fi nancial assets – – – –Deferred tax arising on revaluation 266 – 266 –Balance at end of fi nancial year (621) – (621) –
Changes in the fair value of investments, such as equities, classifi ed as available-for-sale fi nancial assets, are taken to the available-for-sale investments revaluation reserve, as described in note 1(m). Amounts are recognised in profi t and loss when the associated assets are sold or impaired.
Consolidated Company
2006 2005 2006 2005Note 20. Retained Earnings Note $’000 $’000 $’000 $’000
Balance at beginning of fi nancial year 45,074 20,446 4,461 2,946Net profi t attributable to members of the parent entity 81,110 43,534 33,964 20,421Dividends paid 22 (33,457) (18,906) (33,455) (18,906)Balance at end of fi nancial year 92,727 45,074 4,970 4,461
Consolidated
2006 2005Note 21. Earnings per Share Cents per share Cents per share
Basic earnings per share:From continuing operations 27.7 23.0Total basic earnings per share 27.7 23.0Diluted earnings per share:From continuing operations 27.7 22.9Total diluted earnings per share 27.7 22.9
Basic earnings per shareThe earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:
2006 2005 $’000 $’000
Earnings from continuing operations (a) 81,110 43,534Total earnings (a) 81,110 43,534
2006 2005 No. ’000 No. ’000
Weighted average number of ordinary shares for the purposes of basic earnings per share 292,937 189,436
74
Note 21. Earnings per Share continued(a) Earnings used in the calculation of basic earnings per share and total basic earnings per share from continuing operations reconciles to net profi t in the
income statement as follows:
Consolidated
2006 2005 $’000 $’000Net profi t 81,110 43,534Redeemable converting preference share dividend – –Earnings used in the calculation of basic EPS from continuing operations 81,110 43,534Total earnings used in the calculation of basic EPS 81,110 43,534
Diluted earnings per shareThe earnings and weighted average number of ordinary shares used in the calculation of diluted earnings per share are as follows:
2006 2005 $’000 $’000
Earnings from continuing operations (a) 81,110 43,534Total earnings (a) 81,110 43,534
2006 2005 No.’000 No.’000
Weighted average number of ordinary shares for the purposes of diluted earnings per share (b), (c), (d) 292,937 190,461
(a) Earnings used in the calculation of diluted earnings per share and total diluted earnings per share from continuing operations reconciles to net profi t in the income statement as follows: 2006 2005 $’000 $’000Net profi t 81,110 43,534Redeemable converting preference share dividend – –Earnings used in the calculation of diluted EPS from continuing operations 81,110 43,534Total Earnings used in the calculation of diluted EPS 81,110 43,534
(b) The weighted average number of ordinary shares for basic earnings per share reconciles to the weighted average number of ordinary shares for the purposes of diluted earnings per share as follows: 2006 2005 No. ’000 No. ’000Weighted average number of ordinary shares used in the calculation of basic EPS 292,937 189,436Weighted average number of shares deemed to be issued for no consideration in respect of:Employee options – 1,025Weighted average number of ordinary shares used in the calculation of diluted EPS 292,937 190,461
(c) The following potential ordinary shares are not dilutive and are therefore excluded from the weighted average number of ordinary shares for the purposes of diluted earnings per share: 2006 2005 No. ’000 No. ’000Redeemable converting preference shares 12,000 12,000Executive share option plan 1,912 – 13,912 12,000
(d) Weighted average number of converted, lapsed, or cancelled potential ordinary shares included in the calculation of diluted earnings per share: 2006 2005 No. ’000 No. ’000
Options to purchase ordinary shares pursuant to the executive share option plan – 1,025
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
75
Consolidated Company
2006 2005 2006 2005Note 22. Dividends $’000 $’000 $’000 $’000
Recognised amountsFully paid ordinary shares2005 Final dividend:Fully franked to 30% (Prior Year fully franked to 30%) 15,037 6,427 15,037 6,4272006 Interim dividend:Fully franked to 30% (Prior Year fully franked to 30%) 18,419 12,479 18,418 12,479 33,456 18,906 33,455 18,906
Unrecognised amountsFully paid ordinary shares2006 Final dividend:Fully franked to 30% (Prior Year fully franked to 30%) 31,452 15,037 31,452 15,037
Company
2006 2005 $’000 $’000
Adjusted franking account balance 33,095 10,453Impact on franking account balance of dividends not recognised 13,479 6,444Income tax consequences of unrecognised dividends – –
76
Consolidated Company
2006 2005 2006 2005Note 23. Commitments for Expenditure $’000 $’000 $’000 $’000
(a) Capital expenditure commitmentsPlant and equipmentNot longer than one year 3,822 – – –Longer than one year and not longer than fi ve years – – – –Longer than fi ve years – – – – 3,822 – – –
Intangible assetsNot longer than one year 39,475 – – –Longer than one year and not longer than fi ve years – – – –Longer than fi ve years – – – – 39,475 – – –
(b) Lease commitmentsFinance lease liabilities and non-cancellable operating lease commitments are disclosed in note 25 to the fi nancial statements.
Consolidated Company
2006 2005 2006 2005 $’000 $’000 $’000 $’000
Hire purchase commitmentsNot longer than one year 7,373 2,027 – –Longer than one year and not longer than fi ve years 14 4,145 – –Longer than fi ve years – – – – 7,287 6,172 – –
(c) Centre Development CostsCentre development costs of $206,462,000 have received Board approval but are subject to fi nal contractual arrangements.
Note 24. Contingent Liabilities and Contingent Assets
The parent entity and Group had contingent liabilities at 30 June 2006 in respect of:
(i) GuaranteesBank guarantees in Australia for specifi c commitments of the Group total $5.9 million.
(ii) Guarantees in respect of franchisee lease commitmentsA subsidiary of the Company is primarily or contingently liable for many of the leases of Tutor Time’s franchisees. In an effort to build its franchisee network, Tutor Time either leased the prospective site for a franchisee, with a subsequent sublease of the site to the franchisee, or provided a lease guarantee to the landlord for the benefi t of the franchisee in exchange for a monthly lease guarantee fee payable by the franchisee that is based upon the monthly rent expense of the guaranteed lease. The payments the Company could be required to pay related to leases and guarantees aggregates US$58.3 million and US$10.0 million, respectively, in case of default by the franchisee. Should the Company be required to make payments under these leases, it may assume obligations for operating the centre. Should the centre not be economically viable, the Company will make provision for the lease termination at that time.
These guarantees may give rise to liabilities in the parent entity if the subsidiaries do not meet their obligations under the terms of the overdrafts, loans, leases or other liabilities subject to the guarantees. No material losses are anticipated in respect of any of the above contingent liabilities.
(iii) Letter of Credit issued to JP Morgan ChaseA letter of credit has been issued by the Company’s bankers for US$17 million to secure the Learning Care Group, Inc. bank facility with JP Morgan Chase.
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
77
Note 25. Leases
Disclosures for lesseesFinance leasesLeasing arrangementsFinance leases relate to sale and leaseback transactions relating to some childcare centres in the United States of America.
Finance lease liabilities
Minimum future lease payments
Consolidated Company
2006 2005 2006 2005 Note $’000 $’000 $’000 $’000
No later than one year 1,519 – – –Later than one year and not later than fi ve years 6,440 – – –Later than fi ve years 24,745 – – –Minimum lease payments (i) 32,704 – – –Less future fi nance charges 17,723 –Present value of minimum lease payments 15 14,981 – – –
(i) Minimum future lease payments includes the aggregate of all lease payments and any guaranteed residual.
Operating leasesLeasing arrangementsThe economic entity has non-cancellable property leases with varying terms of up to 23 years. All leases provide for additional option periods. Contingent rental provisions within the lease agreements provide for increases within the rental structure in line with consumer price index and market value, subject to review with the landlord. Equipment rental agreements provide for a maximum rental period of three years.
Consolidated Company
2006 2005 2006 2005 Note $’000 $’000 $’000 $’000
Non-cancellable operating lease paymentsNot longer than one year 110,891 58,891 – –Longer than one year and not longer than fi ve years 327,143 197,895 – –Longer than fi ve years 770,919 159,125 – – 1,208,953 415,911 – –
In respect of non-cancellable operating leases the following liabilities have been recognised:Current:Onerous lease contracts 16 192 – – –Non-currentOnerous lease contracts 16 1,118 – – – 1,310 – – –
Note 26. Economic Dependency
The operation of childcare centres and training colleges benefi t from the continued support by statutory authorities of the Federal Governments as well as the Federal Government’s policies on the provision of subsidies to the childcare industry and benefi ts provided to parents of children attending childcare centres.
78
Note 27. Subsidiaries
Ownership interest
Name of entity Country of incorporation 2006 2005 % %
Parent entityA.B.C. Learning Centres Limited AustraliaSubsidiariesA.B.C. Developmental Learning Centres Pty Ltd Australia 100 100A.B.C. Early Childhood Training College Pty Ltd Australia 100 100A.B.C. Corporate Care Pty Ltd Australia 100 100Premier Early Learning Centres Pty Ltd Australia 100 100A.C.N. 097 028 923 Pty Ltd Australia 100 100ABC Developmental Learning Centres (NZ) Limited New Zealand 100 100A.B.C. Education Services Pty Ltd Australia 100 100A.B.C. Land Holdings Pty Ltd Australia 100 100A.B.C. New Ideas Pty Ltd Australia 100 100ABC Land Holdings (NZ) Limited New Zealand 100 100DPPA Pty Ltd Australia 100 100FutureOne Pty Ltd Australia 100 100 A.C.N. 089 836 180 Pty Ltd Australia 100 100 Brighter Future Family Services Pty Ltd (in administration) Australia 100 100 Interlink Education Systems Pty Ltd Australia 100 100 A.C.N. 084 147 446 Pty Ltd Australia 100 100 A.C.N. 084 147 393 Pty Ltd Australia 100 100Child Care Centres Australia Ltd Australia 100 100 Highland Park Child Care Centre Pty Ltd Australia 100 100 Kiddies Place Childcare Pty Ltd Australia 100 100 Australian Montessori Education Pty Ltd Australia 100 100Peppercorn Management Group Ltd Australia 100 100 PMG Corporate Pty Ltd Australia 100 100 Peppercorn Holdings No. 1 Pty Ltd Australia 100 100 Peppercorn Holdings No. 2 Pty Ltd Australia 100 100 Peppercorn Holdings No. 3 Pty Ltd Australia 100 100 Peppercorn Holdings No. 4 Pty Ltd Australia 100 100 Peppercorn Holdings No. 5 Pty Ltd Australia 100 100 Peppercorn Holdings No. 6 Pty Ltd Australia 100 100 Peppercorn Holdings No. 7 Pty Ltd Australia 100 100 Peppercorn Holdings No. 8 Pty Ltd Australia 100 100 Peppercorn Management Group (NZ) Limited New Zealand 100 100Judius Pty Ltd Australia 100 100 Chosen Products Pty Ltd Australia 100 100 Judius (NZ) Limited New Zealand 100 100Childcare Development Solutions Pty Ltd (note 28) Australia 100 – Childcare Development Solutions Unit Trust Australia 100 –
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
79
Ownership interest
Name of entity Country of incorporation 2006 2005 % %
Learning Care Group, Inc. (note 28) United States 100 – Childtime Childcare, Inc. United States 100 – Tutor Time Learning Centers LLC United States 100 – Tutor Time Franchise LLC United States 100 – Tutor Time Learning Centers International, Inc. United States 100 –Kids Campus Limited (note 28) Australia 100 – Kids Campus Australia Pty Ltd Australia 100 – Kids Campus Holdings Pty Ltd Australia 100 – Kids Campus (W.A.) Pty Ltd Australia 100 –
Note 28. Acquisition of Businesses
Date of Proportion Cost ofNames of businesses acquired Principal activity acquisition acquired (%) acquisition $’000
Childcare Development Solutions Unit Trust Provision of childcare 29 July 2005 100 12,530 servicesChildcare Development Solutions Pty Ltd Trustee for the Childcare 29 July 2005 100 – Development Solutions Unit TrustLearning Care Group, Inc. Provision of childcare and 11 January 2006 100 213,885 franchising servicesKids Campus Limited Provision of childcare 29 May 2006 100 127,897 servicesBalance at 30 June 2006 354,312
80
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
Childcare Development Solutions Pty Limited and Trust
Fair value Fair value on Book value adjustment acquisitionNet assets acquired $’000 $’000 $’000
Current assets:Cash and cash equivalents 36 – 36Other debtors – – –Receivables (52) – (52)Inventories – – –Other – – –Non-current assets:Receivables – – –Other fi nancial assets – – –Childcare licences 3,447 14,575 18,022Property, plant and equipment 9,711 – 9,711Intangible assets – – –Goodwill – – –Deferred tax assets – – –Current liabilities:Payables (247) – (247) Short-term borrowings (15,377) – (15,377) Current tax liabilities – – – Provisions (35) – (35) Non-current liabilities:Long-term borrowings – – – Deferred tax liabilities – – – Provisions – – – (2,517) 14,575 12,058Goodwill on consolidation 472
Cash consideration 12,530
Goodwill on consolidation
Goodwill from acquisitions
Goodwill from business combinations
Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000
Cash consideration 12,530 – – – Less:Cash acquired (36) – – – Outfl ow of cash 12,494 – – –
From the date of acquisition Childcare Development Solutions Pty Ltd and Trust have contributed $2,923,000 to the profi t after tax position of the Group.
From the date of acquisition the Learning Care Group, Inc. have contributed $4,267,000 to the profi t after tax position of the Group.
From the date of acquisition Kids Campus Limited has contributed a loss of $43,000 to the profi t after tax position of the Group.
If the acquisition of Childcare Development Solutions Pty Ltd and Trust had taken place at the beginning of the year, the profi t after tax for the ABC Group would have been $80,748,000 and revenue from continuing operations would have been $592,479,000.
Note 28. Acquisition of Businesses continued
81
Learning Care Group Inc. Kids Campus Limited
Fair value Fair value on Fair value Fair value on Total fair value Book value adjustment acquisition Book value adjustment acquisition on acquisition $’000 $’000 $’000 $’000 $’000 $’000 $’000
1,654 – 1,654 (5,667) – (5,667) (3,977) 3,197 – 3,197 3,690 – 3,690 6,887 13,568 – 13,568 584 – 584 14,100 – – – – – – – 6,251 – 6,251 1,243 – 1,243 7,494 307 – 307 – – – 307 4,017 – 4,017 (726) – (726) 3,291 (464) – (464) 69,825 82,250 152,075 169,633 66,506 – 66,506 4,514 – 4,514 80,731 29,726 – 29,726 – – – 29,726 156,183 – 156,183 1,434 – 1,434 157,617 20,830 – 20,830 1,392 – 1,392 22,222 (47,434) – (47,434) (6,421) – (6,421) (54,102) (157) – (157) (649) – (649) (16,183) 368 – 368 (1,024) – (1,024) (656) (4,520) – (4,520) (2,325) – (2,325) (6,880) (24,923) – (24,923) (44,051) – (44,051) (68,974) (17,705) – (17,705) – – – (17,705) (5,653) – (5,653) – – – (5,653) 201,751 – 201,751 21,819 82,250 104,069 317,878 12,134 23,828 36,434
213,885 127,897 354,312
36,434
157,617
194,051
Consolidated Company Consolidated Company 2006 2005 2006 2005 2006 2005 2006 2005 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
213,885 – 212,782 – 127,897 – 127,811 – (1,654) – – – 5,667 – – – 212,231 – 212,782 – 133,564 – 127,811 –
If the acquisition of the Learning Care Group, Inc. had taken place at the beginning of the year, the profi t after tax for the ABC Group would have been $77,909,000 and revenue from continuing operations would have been $708,570,000.
If the acquisition of Kids Campus Limited had taken place at the beginning of the year, the profi t after tax for the ABC Group would have been $71,835,000 and revenue from continuing operations would have been $643,642,000.
Goodwill on consolidation on the acquisition of Kids Campus Limited of $25,262,000 has not been allocated to a cash-generating unit as it was acquired on 29 May 2006 (note 12).
82
Note 29. Segment Information
The Group is managed on a global basis and operates in one industry segment in three geographical areas.
AustraliaThe home country of the Group and the origin of the listed parent Company. The areas of operation include the provision of childcare services.
United States of AmericaAs a result of the acquisition of the Learning Care Group, Inc. in January 2006, a new geographic segment has arisen.
New ZealandThe geographical segment of New Zealand forms part of the Group through the provision of childcare services.
Segment revenues
External sales Inter-segment (i) Other Total
2006 2005 2006 2005 2006 2005 2006 2005 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Australia 425,703 221,420 – – 33,370 22,052 459,073 243,472United States of America 150,579 – – – 5,816 – 156,395 –New Zealand 15,894 9,225 – – 88 (20) 15,982 9,205
Total of all segments 631,450 252,677Consolidated 631,450 252,677
Segment result
2006 2005 $’000 $’000
Continuing operations:Australia 111,585 58,990United States of America 6,451 –New Zealand 2,382 1,313Profi t before income tax expense 120,418 60,303Income tax expense (39,308) (16,769)Profi t for the period from continuing operations 81,110 43,534
Segment assets and liabilities
Assets Liabilities
2006 2005 2006 2005 $’000 $’000 $’000 $’000
Australia 2,233,744 1,162,869 422,198 385,300United States of America 307,358 – 101,051 –New Zealand 37,404 20,700 3,729 3,017Total of all segments 2,578,506 1,183,569 526,978 388,317Eliminations (255,220) (10,140) (41,424) (10,140)Consolidated 2,323,286 1,173,429 485,554 378,177
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
83
Other segment information
Australia United States of America New Zealand Total
2006 2005 2006 2005 2006 2005 2006 2005 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Acquisition of segment assets 98,751 418,725 5,087 – 2,638 6,933 106,476 425,658Impairment losses 11,346 1,603 – – – – 11,346 1,603Depreciation and amortisation of segment assets 11,112 5,144 3,647 – 314 138 15,073 5,282Straight-line lease 5,510 3,315 249 – 46 – 5,805 3,315Share-based payment expense 6,492 4,038 – – – – 6,492 4,038Rent 75,505 55,498 31,582 – 1,739 1,135 108,826 56,633Interest expense 21,403 9,992 950 – 48 30 22,401 10,022Employee benefi ts 141,652 72,752 85,569 – 6,873 4,138 234,094 76,890Gain/(Loss) on sale of Non-Current Assets 22,126 19,267 (94) – – – 22,032 19,267
Note 30. Related Party Disclosures
(a) Equity interests in related partiesEquity interests in subsidiariesDetails of the percentage of ordinary shares held in subsidiaries are disclosed in note 27 to the fi nancial statements.
(b) Key Management Personnel remunerationDetails of Key Management Personnel remuneration are disclosed in note 4 to the fi nancial statements.
(c) Loans to Key Management PersonnelDetails of loans made to Key Management Personnel remuneration are disclosed in note 4 to the fi nancial statements.
(d) Key Management Personnel equity holdingsRefer to Key Management Personnel Compensation note 4 for full disclosure.
(e) Other transactions with Key Management Personnel (and their related parties) of A.B.C. Learning Centres LimitedTransactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.
Consolidated Company
2006 2005 2006 2005 $’000 $’000 $’000 $’000
Transactions with other related parties:(i) Mr W E Bessemer is a director of Austock Group Ltd
(“Austock”). Transactions with Austock during the year were: – Acquisition & merger work for Peppercorn Group – 1,632 – 1,632 – Payment and commission on capital raising 24,533 13,453 24,533 13,453 – Management fees 13 39 13 39 – Underwriting fee 1,905 875 1,905 875 – Property rental 789 – – –(ii) Mr E S Groves holds a 4% (2005: 4.08%) shareholding
in Austock at 30 June 2006. For details of transactions with Austock made during the current period refer above.
(iii) Relatives of directors, E S & L A Groves, operate Queensland Maintenance Services (“QMS”), a company which provides maintenance and capital development services to the economic entity.
– Maintenance services 5,783 1,631 – – – Capital development services 68,919 13,828 – –
84
Note 30. Related Party Disclosures continued(e) Other transactions with Key Management Personnel (and their related parties) of A.B.C. Learning Centres Limited continued
Consolidated Company
2006 2005 2006 2005 $’000 $’000 $’000 $’000
(iv) Mr E S Groves operates the Brisbane Bullets basketball franchise. Transactions with the Brisbane Bullets involved the prepayment of advertising and other sponsorship costs.
– Annual sponsorship 352 255 – –(v) Mr M V Kemp is also a director of Sheramere Pty Ltd
(“Sheramere”), a company which entered into an agreement with the Group to sell certain childcare businesses and a childcare management business to the economic entity. Transactions with Sheramere during the year were:
– Centre operating costs recoverable from Sheramere under this agreement – 164 – –
(vi) Mr M V Kemp is also a director of Ezi Debit Australia Pty Ltd (“Ezi Debit”). Mr M & Mrs M Kemp and Mr E S & Dr L A Groves own indirectly 11.5% each (2005: 12.5%) of Ezi Debit. Ezi Debit has entered into an agreement with the Group to provide parent payment solutions. Transactions with Ezi Debit during the year were: 156 9 – –
(f) Transactions with Key Management Personnel of A.B.C. Learning Centres LimitedRefer to Key Management Personnel Compensation note 4 for full disclosure.
(g) Transactions with other related partiesNo amounts were provided for doubtful debts relating to debts due from other related parties (2005: nil).
Amounts receivable from and payable to these other related parties are disclosed in notes 7 and 15 to the fi nancial statements. Any loans advanced to and payable to other related parties are unsecured and subordinate to other liabilities.
Transactions involving the parent entityDuring the fi nancial year, A.B.C. Learning Centres Limited recognised a net payable of $10.42 million (2005: $1.849 million) from its wholly-owned subsidiaries for their tax payable for the current period. Details of tax balances are disclosed in note 3 to the fi nancial statements.
During the fi nancial year, A.B.C. Learning Centres Limited received dividends of $35.486 million (2005: $22.958 million) from its subsidiaries. Details of dividends received from related parties are disclosed in note 2 to the fi nancial statements.
(h) Parent entitiesThe parent entity in the Group, the ultimate Australia parent entity and the ultimate parent entity is A.B.C. Learning Centres Limited.
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
85
Note 31. Subsequent Events
On 7 July 2006 the Company announced an off-market takeover of Hutchison’s Child Care Services Ltd. The fi nancial effect of the transaction can not be ascertained at the date of signing the Annual Report. On 25 September 2006, the Company declared the takeover bid unconditional and commenced compulsory acquisition of the remaining shares. The offer at the date of signing of the Directors’ Report is as follows:
(a) Cash offer made at $1.50 per Hutchison’s Child Care Services Ltd ordinary share for all outstanding equity of 65.9 million shares on a fully diluted basis.
(b) The off-market takeover which was unanimously recommended by the Hutchison’s Child Care Services Ltd board values Hutchison’s Child Care Services Ltd at $96.2 million.
(c) ABC has agreed to divest seven long day care services as part of the acquisition in order to address Australian Competition and Consumer Commission competition concerns.
On 25 September 2006 the Company declared the takeover bid unconditional.
On 6 September 2006 the Company acquired 100% of The Children’s Courtyard LLP, the ninth largest childcare provider in the United States of America for US$66 million. Due to the acquisition date of Children’s Courtyard being so close to the date of the fi nancial report, detailed disclosure has not been provided.
No other matter or circumstance has arisen since 30 June 2006 that has signifi cantly affected, or may signifi cantly affect:
(a) the Group’s operations in future fi nancial years; or
(b) the results of those operations in future fi nancial years; or
(c) the Group’s state of affairs in future fi nancial years.
Note 32. Notes to the Cash Flow Statements
(a) Reconciliation of cash and cash equivalentsFor the purposes of the cash fl ow statement, cash and cash equivalents includes cash on hand, cash at bank and outstanding bank overdrafts. Cash and cash equivalents at the end of the fi nancial year as shown in the cash fl ow statement is reconciled to the related items in the balance sheet as follows:
Consolidated Company
2006 2005 2006 2005 $’000 $’000 $’000 $’000
Cash and cash equivalents 132,470 45,560 57,641 34,189Bank overdrafts (753) (1,429) – – 131,717 44,131 57,641 34,189
(b) Non-cash fi nancing and investing activitiesDuring the year the Group did not acquire subsidiaries by way of equity issue (2005: $108.12 million). During the year the Company offered a dividend reinvestment plan. The value of the shares issued as a result of participation in the plan for the year was $11.415 million (2005: $1.154 million).
Consolidated Company
2006 2005 2006 2005 $’000 $’000 $’000 $’000
(c) Financing facilitiesUnsecured multi-option facility, reviewed annually and payable at call:– amount used 181,699 – 181,140 –– amount unused 144,551 – 138,860 – 326,250 – 320,000 –
Secured bank loan facilities– amount used – 197,361 – 152,975– amount unused – 32,134 – 25 – 229,495 – 153,000
86
Note 32. Notes to the Cash Flow Statements continued(d) Cash balances not available for useRefer note 6 for security deposits held.
(e) Reconciliation of net profi t for the period to net cash fl ows from operating activities
Consolidated Company
2006 2005 2006 2005 $’000 $’000 $’000 $’000
Profi t for the period 81,110 43,534 33,964 20,421(Gain)/loss on sale or disposal of non-current assets (22,032) (19,268) – (41)Depreciation and amortisation of non-current assets 15,073 5,282 48 48Straight-line amortisation 5,808 3,315 – –Equity-settled share-based payment 7,631 4,038 7,631 4,038Interest income received and receivable – – (27,243) (11,256)Dividends received and receivable – – (35,486) (22,958)Rent received from subsidiaries – – (45) (45)Impairment of non-current assets 11,346 1,603 1,000 –Increase/(decrease) in current tax liability 10,493 (425) (21,850) 1,321Increase/(decrease) in deferred tax balances 3,455 (3,836) 1,342 (5,157)Changes in net assets and liabilities, net of effects from acquisition and disposal of businesses:(Increase)/decrease in assets:Current receivables (35,395) 5,882 (773) (164)Current inventories (1,227) – – –Other current assets 1,882 (2,376) 249 312Increase/(decrease) in liabilities:Current payables 11,821 9,922 865 188Current provisions (899) (4,497) – –Net cash from operating activities 89,066 43,174 (40,298) (13,293)
Note 33. Financial Instruments
(a) Financial risk management objectivesThe Group’s principal fi nancial instruments comprise bank loans and overdraft, redeemable converting preference shares, fi nance leases and hire purchase contracts, and cash and short-term deposits.
The main purpose of these fi nancial instruments is to raise fi nance for the Group’s operations. The Group has various other fi nancial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The Group also enters into derivative transactions, being forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of fi nance. It is, and has been throughout the period under review, the Group’s policy that no trading in fi nancial instruments shall be undertaken. The main risks arising from the Group’s fi nancial instruments are cash fl ow interest rate risk, liquidity risk, foreign currency risk and credit risk.
(b) Signifi cant accounting policiesDetails of the signifi cant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of fi nancial asset, fi nancial liability and equity instrument are disclosed in note 1 to the fi nancial statements.
(c) Foreign currency risk managementThe consolidated group is exposed to foreign currency translation risk through its controlled operations in the United States of America and New Zealand. Foreign currency gains or losses arising from the translation of net assets of these operations are shown as a movement in the foreign currency translation reserve (note 19).
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
87
Maturity profi le of fi nancial instrumentsThe following table details the Group’s exposure to interest rate risk as at 30 June 2006:
Fixed maturity dates
Weighted average Variable Less Non- effective interest than 1-2 2-3 3-4 4-5 5+ interest interest rate rate one year years years years years years bearing Total2006 % $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Financial assets:Cash and cash equivalents 5.4% 132,470 – – – – – – – 132,470Trade receivables – – – – – – – – 115,372 115,372Investments – – – – – – – – 45,056 45,056Loans 8% – 25,185 – – – – – 8,378 33,563 132,470 25,185 – – – – – 168,806 326,461
Financial liabilities:Trade payables – – – – – – – – 121,601 121,601Bank overdraft 9.3% 753 – – – – – – – 753Bank loans 6.5% 161,786 – – – – – – 87 161,873Other loans (HP loans) 9% – 7,373 14 – – – – 7,387Finance lease liabilities 9.6% – 696 698 723 763 766 11,335 – 14,981Redeemable cumulative preference shares – – – – – – – 58,107 – 58,107 162,539 8,069 712 723 763 766 69,442 121,688 364,702
The following table details the Group’s exposure to interest rate risk as at 30 June 2005:
Maturity dates
Weighted average effective Variable Less than More than Non-interest interest rate interest rate one year 1-5 years fi ve years bearing Total2005 % $’000 $’000 $’000 $’000 $’000 $’000
Financial assets:Cash and cash equivalents – – – – – 45,560 45,560Trade and other receivables – – – – – 31,741 31,741Other receivables – – – – – 13,768 13,768 – – – – 91,069 91,069
Financial liabilities:Trade payables – – – – – 52,214 52,214Bank overdraft 9.08% 1,429 – – – – 1,429Bank loans 5.72% – 1,000 184,020 – – 185,020Other loans 7.60% – 2,026 4,145 – – 6,171RCPS – – – 58,107 – – 58,107 1,429 3,026 246,272 – 52,214 302,941
88
Note 33. Financial Instruments continued(d) Credit risk managementThe Group trades only with recognised, creditworthy third parties.
It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verifi cation procedures.
In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not signifi cant.
There are no signifi cant concentrations of credit risk within the Group.
For transactions that are not denominated in the functional currency of the relevant operating unit, the Group does not offer credit terms without specifi c approval.
With respect to credit risk arising from the other fi nancial assets of the Group, which comprise cash and cash equivalents, available-for-sale fi nancial assets and certain derivative instruments, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments.
Since the Group trades only with recognised third parties, there is no requirement for collateral.
(e) Fair value of fi nancial instrumentsExcept as detailed in the following table, the Directors consider that the carrying amount of fi nancial assets and fi nancial liabilities recorded in the fi nancial statements approximates their fair values (2005: net fair value).
The fair values and net fair values of fi nancial assets and fi nancial liabilities are determined as follows:
– The fair value of fi nancial assets and fi nancial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and
– The fair value of other fi nancial assets and fi nancial liabilities are determined in accordance with generally accepted pricing models based on discounted cash fl ow analysis.
Transaction costs are included in the determination of net fair value.
The following tables detail the fair value (2005: net fair value) of fi nancial assets and fi nancial liabilities:
Carrying amount Fair value2006 $’000 $’000
Financial assets – –
Financial liabilitiesRedeemable converting preference shares 58,107 79,200 58,107 79,200
Carrying amount Fair value2005 $’000 $’000
Financial liabilitiesRedeemable converting preference shares 58,107 75,840 58,107 75,840
The fi nancial statements include share holdings in unlisted companies (note 7). Fair value is estimated using a discounted cash fl ow model, which includes some assumptions that are not supportable by observable market prices or rates. Changes in these assumptions do not signifi cantly change the fair value recognised.
(f) Liquidity risk managementThe Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash fl ows and matching the maturity profi les of fi nancial assets and liabilities.
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
89
Note 34. Impacts of the adoption of Australian equivalents to International Financial Reporting Standards
The Group changed its accounting policies on 1 July 2005 to comply with Australian equivalents to International Financial Reporting Standards (“AIFRS”). The transition to AIFRS is accounted for in accordance with Accounting Standard AASB 1 “First-time Adoption of Australian equivalents to International Financial Reporting Standards”, with 1 July 2004 as the date of transition.
An explanation of how the transition from AGAAP policies to AIFRS has affected the Company and Group’s balance sheet, income statement and cash fl ows is set out in the following tables and the notes that accompany the tables.
(a) At the date of transition to AIFRS – 1 July 2004 (Consolidated)
Consolidated
AGAAP Adjustment AIFRS Note $’000 $’000 $’000
Current assetsCash and cash equivalents 2,313 – 2,313Trade and other receivables 13,555 – 13,555Other fi nancial assets 983 – 983Inventories – – –Other (i) 22,572 (1,025) 21,547Total current assets 39,423 (1,025) 38,398
Non-current assetsTrade and other receivables 267 – 267Other fi nancial assets 1,670 – 1,670Property, plant and equipment 35,762 – 35,762Childcare licences 235,746 – 235,746Deferred tax assets (vi) 113 1,718 1,831Goodwill – – –Other intangible assets 1,072 – 1,072Total non-current assets 274,630 1,718 276,348Total assets 314,053 693 314,746
Current liabilitiesTrade and other payables 4,605 – 4,605Short-term borrowings 19,671 – 19,671Current tax payables 1,954 – 1,954Provisions 246 – 246Other – – –Total current liabilities 26,476 – 26,476
Non-current liabilitiesLong-term borrowings (iv) 83,353 50,607 133,960Deferred tax liabilities (vi) 1,664 1,292 2,956Provisions 1 – 1Other (vii) – 2,156 2,156Total non-current liabilities 85,018 54,055 139,073
Total liabilities 111,494 54,055 165,549
Net assets 202,559 (53,362) 149,197
EquityIssued capital (iv), (vi) 174,009 (49,130) 124,879Reserves 3,871 – 3,871Retained earnings (i), (vi), (vii) 24,679 (4,232) 20,447
Total equity 202,559 (53,362) 149,197
90
Note 34. Impacts of the adoption of Australian equivalents to International Financial Reporting Standards continued(b) At the end of the last annual reporting period under AGAAP – 30 June 2005 (Consolidated)
Consolidated
AGAAP Adjustment AIFRS Note $’000 $’000 $’000
Current assetsCash and cash equivalents 45,560 – 45,560Trade and other receivables 31,139 – 31,139Other fi nancial assets 3,649 – 3,649Inventories 4,226 – 4,226Other (i) 18,484 (1,180) 17,304Total current assets 103,058 (1,180) 101,878
Non-current assetsTrade and other receivables 414 – 414Other fi nancial assets (v) 32,696 (1,603) 31,093Property, plant and equipment 82,714 – 82,714Childcare licences 772,697 – 772,697Deferred tax assets (vi), (vii) 2,849 5,933 8,782Goodwill (iii), (vii) 170,193 4,994 175,187Other intangible assets (iii) 650 14 664Total non-current assets 1,062,213 9,338 1,071,551Total assets 1,165,271 8,158 1,173,429
Current liabilitiesTrade and other payables 52,214 – 52,214Short-term borrowings 4,456 – 4,456Current tax payables 3,061 – 3,061Provisions 5,891 – 5,891Other – – –Total current liabilities 65,622 – 65,622
Non-current liabilitiesLong-term borrowings (iv) 195,665 50,607 246,272Deferred tax liabilities (vi) 57,539 2,110 59,649Provisions 911 – 911Other (vii) – 5,723 5,723Total non-current liabilities 254,115 58,440 312,555
Total liabilities 319,737 58,440 378,177
Net assets 845,534 (50,282) 795,252
EquityIssued capital (ii), (iv), (vi) 676,935 (40,790) 636,145Reserves 114,033 – 114,033Retained earnings (i), (ii), (iii), (iv), (v), (vi), (vii) 54,566 (9,492) 45,074
Total equity 845,534 (50,282) 795,252
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
91
Note 34. Impacts of the adoption of Australian equivalents to International Financial Reporting Standards continued(c) Reconciliation of profi t for the year ended 30 June 2005 (Consolidated)
Consolidated
AGAAP Adjustment AIFRS Note $’000 $’000 $’000
Revenue 230,621 – 230,621Other income (viii) 62,079 (40,023) 22,056Changes in inventories of fi nished goods (1,622) – (1,622)Employee benefi ts (ii) (76,890) (4,038) (80,928)Depreciation and amortisation (iii) (10,114) 4,832 (5,282)Impairment (v) – (1,603) (1,603)Finance costs (iv) (6,478) (3,544) (10,022)Rental and other property expenses (vii) (56,633) (3,315) (59,948)Children catering and consumables (8,357) – (8,357)Advertising and promotions (1,350) – (1,350)Insurances (2,918) – (2,918)Communication (2,451) – (2,451)Travel (2,175) – (2,175)Cost of sales (viii) (40,023) 40,023 –Other (15,562) (156) (15,718)Profi t before income tax expense 68,127 (7,824) 60,303
Income tax expense (vi) (15,790) (979) (16,769)Profi t from continuing operations 52,337 (8,803) 43,534
Profi t attributable to members of the parent entity 52,337 (8,803) 43,534
No material impacts are expected to the net cash fl ows presented under AGAAP on adoption of AIFRS.
92
Note 34. Impacts of the adoption of Australian equivalents to International Financial Reporting Standards continued(d) At the date of transition to AIFRS – 1 July 2004 (Company)
Company
AGAAP Adjustment AIFRS Note $’000 $’000 $’000
Current assetsCash and cash equivalents 696 – 696Trade and other receivables 2,506 – 2,506Other fi nancial assets – – –Inventories – – –Other 803 – 803Total current assets 4,005 – 4,005
Non-current assetsTrade and other receivables – – –Other fi nancial assets 256,583 – 256,583Property, plant and equipment 751 – 751Childcare licences – – –Deferred tax assets (vi) 95 1,071 1,166Goodwill – – –Other intangible assets – – –Total non-current assets 257,429 1,071 258,500Total assets 261,434 1,071 262,505
Current liabilitiesTrade and other payables 35 – 35Short-term borrowings 151 – 151Current tax payables 1,642 – 1,642Provisions – – –Other – – –Total current liabilities 1,828 – 1,828
Non-current liabilitiesLong-term borrowings (iv) 80,500 50,607 131,107Deferred tax liabilities 1,664 – 1,664Provisions – – –Other – – –Total non-current liabilities 82,164 50,607 132,771
Total liabilities 83,992 50,607 134,599
Net assets 177,442 (49,536) 127,906
EquityIssued capital (iv), (vi) 174,009 (49,130) 124,879Reserves 79 – 79Retained earnings (vi) 3,354 (406) 2,948
Total equity 177,442 (49,536) 127,906
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
93
(e) At the end of the last annual reporting period under AGAAP – 30 June 2005 (Company)
Company
AGAAP Adjustment AIFRS Note $’000 $’000 $’000
Current assetsCash and cash equivalents 34,189 – 34,189Trade and other receivables (vi) 7,454 392 7,846Other fi nancial assets 500 – 500Inventories – – –Other 491 – 491Total current assets 42,634 392 43,026
Non-current assetsTrade and other receivables 51,544 – 51,544Other fi nancial assets (v) 808,970 (1,603) 807,367Property, plant and equipment 702 – 702Childcare licences – – –Deferred tax assets (vi) 2,811 5,933 8,744Goodwill – – –Other intangible assets – – –Total non-current assets 864,027 4,330 868,357Total assets 906,661 4,722 911,383
Current liabilitiesTrade and other payables 129 – 129Short-term borrowings – – –Current tax payables 2,964 – 2,964Provisions – – –Other – – –Total current liabilities 3,093 – 3,093
Non-current liabilitiesLong-term borrowings (iv) 160,400 50,607 211,007Deferred tax liabilities (vi) 54,489 2,109 56,598Provisions – – –Other – – –Total non-current liabilities 214,889 52,716 267,605
Total liabilities 217,982 52,716 270,698
Net assets 688,679 (47,994) 640,685
EquityIssued capital (ii), (iv), (vi) 676,935 (40,790) 636,145Reserves (v) 1,682 (1,603) 79Retained earnings (ii), (iv), (vi) 10,062 (5,601) 4,461
Total equity 688,679 (47,994) 640,685
94
Note 34. Impacts of the adoption of Australian equivalents to International Financial Reporting Standards continued(f) Reconciliation of profi t for the year ended 30 June 2005 (Company)
Company
AGAAP Adjustment AIFRS Note $’000 $’000 $’000
Revenue – – –Other income (viii) 37,121 (909) 36,212Changes in inventories of fi nished goods – – –Employee benefi ts (ii) (592) (4,038) (4,630)Depreciation and amortisation (48) – (48)Impairment – – –Finance costs (iv) (4,662) (3,544) (8,206)Rental and other property expenses – – –Children catering and consumables – – –Advertising and promotions – – –Insurances (74) – (74)Communication – – –Travel (4) – (4)Cost of sales (viii) (909) 909 –Other (513) – (513)Profi t before income tax expense 30,319 (7,582) 22,737
Income tax expense (vi) (1,161) (1,155) (2,316)Profi t from continuing operations 29,158 (8,737) 20,421
Profi t attributable to members of the parent entity 29,158 (8,737) 20,421
(i) The Group has impaired formation costs that have been carried as a current asset in the consolidated group’s balance sheet under AGAAP. The effect is as follows:
At 1 July 2004: For the Group there has been a decrease in retained earnings of $1,024,967 and a decrease to other current assets of $1,024,967.
At 30 June 2005: For the Group there has been a decrease in retained earnings of $1,180,305 and a decrease to other current assets of $1,180,305.
(ii) Share-based payments are provided to selected employees, licensees and suppliers for nil consideration. The market value of the shares are expensed to the income statement when the shares are issued. A corresponding entry is made to increase issued capital. The effect is as follows:
Group At 30 June 2005: For the Group there has been a decrease in retained earnings of $4,037,931 and an increase in issued capital
of $4,037,931.
Company At 30 June 2005: For the Company there has been a decrease in retained earnings of $4,037,931 and an increase in issued
capital of $4,037,931.
(iii) Under AASB 3 “Business Combinations” purchased goodwill is not permitted to be amortised but instead is subject to impairment testing on an annual basis or upon the occurrence of triggers which may indicate a potential impairment. As the goodwill has not been impaired, amortisation has been reversed. The effect is as follows:
Group At 30 June 2005: For the Group, there has been an increase in retained earnings of $4,832,150 and an increase in goodwill and
other intangible assets of $4,832,150.
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
95
(iv) The Company’s redeemable converting preference shares have been classifi ed as debt. The effect is as follows:
Group At 1 July 2004 and 30 June 2005: For the Group there has been an increase of long-term borrowings of $50,607,020 and a
decrease to issued capital of $50,607,020.
Company At 1 July 2004 and 30 June 2005: For the Company there has been an increase of long-term borrowings of $50,607,020 and a
decrease to issued capital of $50,607,020.
Group At 30 June 2005: For the Group there has been a decrease to retained earnings of $3,543,750 representing interest expense
resulting from the reclassifi cation of redeemable converting preference shares from equity to debt. A corresponding increase to retained earnings of $3,543,750 has also been processed which is a reversal of the dividend paid on these shares.
Company At 30 June 2005: For the Company there has been a decrease to retained earnings of $3,543,750 representing interest expense
resulting from the reclassifi cation of redeemable converting preference shares from equity to debt. A corresponding increase to retained earnings of $3,543,750 has also been processed which is a reversal of the dividends paid on these shares.
Group(v) Listed shares held by the Group at 30 June 2005 were revalued under AGAAP. The revaluation has been reversed under AIFRS
and the impairment has resulted in a decrease to net profi ts at 30 June 2005 of $1,602,766 with a corresponding increase to reserves of $1,602,766.
Listed shares held by the Group at 30 June 2005 were revalued under AGAAP. The revaluation has been reversed under AIFRS resulting in decrease to other fi nancial assets of $1,603,125 and a decrease to reserves by $1,603,125 to refl ect no revaluation amount.
The net reduction to the reserves was $359.
Company Listed shares held by the Company at 30 June 2005 were revalued under AGAAP. The revaluation has been reversed under
AIFRS resulting in decrease to other fi nancial assets of $1,603,125 and decrease to reserves by $1,603,125.
(vi) Under AGAAP income tax expense was calculated by reference to accounting profi t after allowing for permanent differences. Deferred tax asset was not recognised in relation to amounts recognised directly in equity such as costs associated with capital raising.
A deferred tax liability is recognised for the difference between tax and accounting written-down value in respect of depreciating assets.
Group At 1 July 2004: For the Group there has been an increase in deferred tax liability of $1,292,014 and a decrease to retained
earnings of $1,292,014.
At 30 June 2005: For the Group there has been an increase in deferred tax liability of $2,109,359 and a decrease to retained earnings of $2,109,359.
Company At 30 June 2005: For the Company there has been an increase in deferred tax liability of $2,109,359 and an increase in
receivables of $2,109,359 to subsidiary under tax sharing agreement.
96
Note 34. Impacts of the adoption of Australian equivalents to International Financial Reporting Standards continued(f) Reconciliation of profi t for the year ended 30 June 2005 (Company) continued Group A deferred tax asset arises in relation to capital raising costs recorded in equity that are deductible for taxation purposes over
fi ve years.
At 1 July 2004: For the Group there has been an increase in deferred tax asset of $1,070,780 and an increase to equity of $1,477,101 and decrease to retained earnings of $406,321.
At 30 June 2005: For the Group there has been an increase in deferred tax asset of $4,216,270 and an increase to equity of $5,778,237 and decrease to retained earnings of $1,561,967.
In addition, a deferred tax asset arises where operating leases are recorded for accounting purposes on a straight-line basis, however for tax purposes are deductible when incurred.
At 1 July 2004: For the Group there has been an increase in deferred tax asset of $646,882 and an increase to retained earnings of $646,882.
At 30 June 2005: For the Group there has been an increase in deferred tax asset of $1,641,257 and an increase to retained earnings of $1,641,257.
Company At 1 July 2004: For the Company there has been an increase in deferred tax asset of $1,070,780 and an increase in equity of
$1,477,101 and decrease to retained earnings of $406,321.
At 30 June 2005: For the Company, there has been an increase in deferred tax asset of $5,933,267 and increase in equity of $5,778,237, decrease to receivables of $1,716,997 and decrease to retained earnings of $1,561,967.
(vii) The Company’s operating leases are required to be expensed on a straight-line basis. The effect is as follows:
Group At 1 July 2004: For the Group there has been a decrease in retained earnings of $2,156,275 and an increase in other non-current
liabilities of $2,156,275.
At 30 June 2005: For the Group there has been a decrease in retained earnings of $5,470,854 and an increase in other non-current liabilities of $5,470,854. The Group purchased Child Care Centres Australia/Peppercorn Management Group Limited in December 2004. The net assets did not refl ect straight-line lease liability. This resulted in an increase in goodwill of $176,729 and an increase of $75,741 in deferred tax asset and increase in other non-current liabilities of $252,470.
(viii) Under AIFRS the Group and Company are required to show gains from the sale of assets on a net basis. This change does not affect the retained profi ts of the Company but requires a reclassifi cation of $40,022,363 from expenses to revenue for the Group and $908,552 for the Company.
Note 35. Share-based Payments
(i) Employee Share PlanA scheme is in place where shares may be issued by the Company to employees for no cash consideration. All Australian resident permanent employees (excluding Executive Directors) who have been continuously employed by the Group for a period of at least one year are eligible to participate in the scheme. Employees may elect not to participate in the scheme.
Under the scheme, eligible employees may be offered fully-paid ordinary shares in A.B.C. Learning Centres Limited annually for no cash consideration. The market value of shares issued under the scheme, measured as the average market price on the day of issue of the shares, is recognised in the Balance Sheet as share capital and as part of employee benefi t costs in the period the shares are granted.
Notes for the Financial StatementsFor the fi nancial year ended 30 June 2006
97
Consolidated Company
2006 2005 2006 2005 No. ’000 No. ’000 No. ’000 No. ’000
Number of shares issued under the plan to participating employees during the fi nancial year: 332 417 332 417
2006 2005 2006 2005 $’000 $’000 $’000 $’000
Total expense arising from share-based payment transactions: 1,776 2,000 1,776 2,000
(ii) Carers Share PlanA scheme is in place where shares may be issued by the Company to carers for no cash consideration.
Under the scheme, eligible carers may be offered fully-paid ordinary shares in A.B.C. Learning Centres Limited annually for no cash consideration. The market value of shares issued under the scheme, measured as the average market price on the day of issue of the shares, is recognised in the Balance Sheet as share capital and as part of employee benefi t costs in the period the shares are granted.
Consolidated Company
2006 2005 2006 2005 No. ’000 No. ’000 No. ’000 No. ’000
Number of shares issued under the plan to participating carers during the fi nancial year: 625 406 625 406
2006 2005 2006 2005 $’000 $’000 $’000 $’000
Total expense arising from share-based payment transactions: 4,716 2,038 4,716 2,038
(iii) OptionsOptions have been issued to the Key Management Personnel in the Learning Care Group, Inc. No other options have been granted. Details of these options are outlined in note 4.
2006 2005 2006 2005 $’000 $’000 $’000 $’000
Total expense arising from share-based payment transactions: 1,139 – 1,139 –
Note 36. Additional Company Information
A.B.C. Learning Centres Limited is a listed public company, incorporated in Australia. The Company operates in Australia, New Zealand and the United States of America.
Registered offi ce Principal place of business43 Metroplex Avenue 43 Metroplex AvenueMurarrie MurarrieQueensland, Australia 4172 Queensland, Australia 4172
98
(a) Distribution of Holders of Equity Securities
(i) Ordinary shares
Number of holders Total ordinary sharesSize of holding in each category in each category
1 – 1,000 10,303 5,909,9701,001 – 5,000 13,861 33,601,4025,001 – 10,000 2,184 15,731,10610,001 – 100,000 1,139 27,105,933100,001 and over 165 311,118,144 27,652 393,466,555
The number of security investors holding less than a marketable parcel of 81 securities ($6.18 on 15/09/2006) is 432 and they hold 18,245 securities.
(ii) Redeemable converting preference shares
Number of holders Total RCPS sharesSize of holding in each category in each category
1 – 1,000 301 218,1531,001 – 5,000 730 2,045,3435,001 – 10,000 195 1,438,45010,001 – 100,000 64 1,450,606100,001 and over 11 6,847,448 1,301 12,000,000
The number of security investors holding less than a marketable parcel of 78 securities ($6.47 on 15/09/2006) is 5 and they hold 194 securities.
(b) The Names of the Substantial Shareholders who Have Notifi ed the Company in Accordance with section 671B of the
Corporations Act 2001 as at 15 September 2006 Are:
Fully PaidOrdinary shareholders Number
National Australia Bank Limited Group 28,712,230Ausbil Dexia Limited 21,598,180Commonwealth Bank of Australia 21,432,147Newton Investment Management Limited 19,887,583 91,630,140
(c) Voting Rights
The voting rights attached to each class of equity securities are set out below:
(i) Ordinary Shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.
Additional Stock Exchange InformationAs at 15 September 2006
99
(ii) Redeemable Converting Preference Shares
A preference share does not entitle its holder to vote at any general meeting of the Company except in the following circumstances:
(a) on a proposal:
– to reduce the share capital of the Company;
– that affects the rights attached to the preference share;
– to wind up the Company; or
– for the disposal of the whole of the property, business and undertaking of the Company;
(b) on a resolution to approve the terms of a buy-back agreement;
(c) during a period in which a dividend or part of dividend of a preference share is in arrears as set out in terms of issue;
(d) during the winding up of the Company; or
(e) in any other circumstances in which the Listing Rules required holders of preference shares to be entitled to vote.
(iii) Options
There are no voting rights attached to this class of equity.
(d) Twenty Largest Holders of Quoted Equity Securities
(i) Ordinary Shares
Fully Paid
Number Percentage
1 National Nominees Limited 49,542,225 12.592 Westpac Custodian Nominees Limited 40,340,795 10.253 Citicorp Nominees Pty Limited 29,576,222 7.524 JP Morgan Nominees Australia Limited 21,393,583 5.445 ANZ Nominees Limited 18,295,474 4.656 Dr Le Neve Groves 16,810,500 4.277 Mr Edmund Groves 16,797,500 4.278 Cogent Nominees Pty Limited 13,656,418 3.479 RBC Dexia Investor Services Australia Nominees Pty Limited 6,995,820 1.7810 Warbont Nominees Pty Ltd 6,821,283 1.7311 Fleet Nominees Pty Limited 5,932,136 1.5112 Abned Nominees Pty Limited 4,590,057 1.1713 Woodross Nominees Pty Ltd 3,831,807 0.9714 ANZ Nominees Limited 3,800,188 0.9715 UBS Nominees Pty Ltd 3,573,166 0.9116 Suncorp Custodian Services Pty Limited 3,396,963 0.8617 Citicorp Nominees Pty Limited 3,234,825 0.8218 Jimm Pty Ltd 2,962,000 0.7519 Queensland Investment Corporation 2,544,657 0.6520 MLEQ Nominees Pty Limited 2,335,260 0.59 256,430,879 65.17
Unquoted equity securities
Number on issue Number of holders
1,912,191* 4
Options issued as an initial incentive award to senior executives of the Learning Care Group, Inc. to take up ordinary shares.* Number of unissued ordinary shares under the options.
100
(ii) Redeemable Converting Preference Shares
Fully Paid
Number Percentage
1 JP Morgan Nominees Australia Pty Limited 2,306,412 19.222 Brispot Nominees Pty Ltd 1,166,201 9.723 ANZ Nominees Limited 911,734 7.604 Irrewarra Investments Pty Ltd 889,000 7.415 Fortis Clearing Nominees Pty Limited 390,654 3.266 Sandhurst Trustees Ltd 303,718 2.537 Westpac Custodian Nominees Limited 270,274 2.258 National Nominees Limited 219,300 1.839 Trim Investments Pty Ltd 155,000 1.2910 Medical Research Foundation for Women and Babies 120,000 1.0011 Citicorp Nominees Pty Limited 115,155 0.9612 RBC Dexia Investor Services Australia Nominees Pty Limited 72,387 0.6013 Caergwrle Investments Pty Ltd 70,000 0.5814 Mutual Trust Pty Ltd 50,000 0.4215 Volbane Pty Ltd 50,000 0.4216 UBS Nominees Pty Ltd 47,200 0.3917 Bond Street Custodians Limited 45,000 0.3818 Yarranilgie Pty Ltd 42,310 0.3519 Asset Custodian Nominees (Aust) Pty Ltd 40,000 0.3320 Contemplator Pty Ltd 40,000 0.33 7,304,345 60.87
Company Secretary
Ms J G Bannan
Registered Offi ce
43 Metroplex AvenueMurarrieQueensland, Australia 4172
Share Registry
Link Market Services LimitedLevel 12300 Queen StreetBrisbane QLD 4000
Additional Stock Exchange InformationAs at 15 September 2006
Corporate Directory
Directors
ChairmanMrs Sallyanne Atkinson AO (Non-Executive)
Executive DirectorsMr Edmund S GrovesChief Executive Offi cer – Global Operations
Dr Le Neve A GrovesChief Executive Offi cer – Education
Mr Martin V KempChief Executive Offi cer – Operations (Australia and New Zealand)
Non-Executive DirectorsMr William E BessemerMr David J Ryan AOThe Hon. Lawrence J Anthony
Registered Offi ce
43 Metroplex AvenueMurarrie QLD 4172
Telephone: +61 7 3906 2000Facsimile: +61 7 3908 2577Email: [email protected]: www.childcare.com.au
Corporate Advisor
Austock Corporate Finance LimitedLevel 1350 Collins StreetMelbourne VIC 3000
Telephone: +61 3 8601 2000Facsimile: +61 3 9670 1057Email: [email protected]: www.austock.com.au
Share Registry
Link Market Services LimitedLevel 12300 Queen StreetBrisbane QLD 4000
Telephone: +61 2 8280 7454Facsimile: +61 2 9287 0309Email: [email protected]: www.linkmarketservices.com.au
Financial and Accounting Advisors
Harris Black Chartered AccountantsLevel 2262 Adelaide StreetBrisbane QLD 4000
Telephone: +61 7 3032 0200Facsimile: +61 7 3032 0201Email: [email protected]: www.harrisblack.com.au
Legal Advisors
Freehills LawyersLevel 42101 Collins StreetMelbourne VIC 3000
Telephone: +61 3 9288 1234Facsimile: +61 3 9288 1567Email: [email protected]: www.freehills.com
Auditors
Pitcher Partners Accountants, Auditors and AdvisorsLevel 21300 Queen StreetBrisbane QLD 4000
Telephone: +61 7 3228 4000Facsimile: +61 7 3221 6420Email: [email protected]: www.pitcher.com.au
precinct.com.au
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