AVJennings : 31 December 2019 Half Year Report-Appendix 4D Opens in a new Window

AVJennings Limited

ABN: 44 004 327 771

31 December 2019 Half-Year Report Appendix 4D

This Interim Financial Report does not include all the notes of the type normally included in an Annual Financial Report. Accordingly, it is recommended that this Report be read in conjunction with the Annual Report for the year ended 30 June 2019 and any public announcements made by AVJennings Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Listing Rules of the Australian Securities Exchange.

AVJennings Limited ABN 44 004 327 771 - Page 1

31 December 2019 Half-Year Report

Contents
		Page
Results for Announcement to the Market......................................................................	3
Directors' Report...........................................................................................................	4
Consolidated Statement of Comprehensive Income....................................................	9
Consolidated Statement of Financial Position...............................................................	10
Consolidated Statement of Changes in Equity..............................................................	11
Consolidated Statement of Cash Flows........................................................................	12
Notes to the Consolidated Financial Statements..........................................................	13
1	Corporate information.............................................................................................	13
2	Basis of preparation and accounting policies.........................................................	13
3	Revenues from contracts with customers.............................................................	17
4	Income and expenses.............................................................................................	18
5	Income tax...............................................................................................................	19
6	Dividends ................................................................................................................	20
7	Contributed equity ..................................................................................................	21
8	Operating segments ..............................................................................................	22
9	Net tangible asset backing......................................................................................	25
10	Interest in joint operations.......................................................................................	25
11	Investments accounted for using the equity method..............................................	26
12	Investment property.................................................................................................	26
13	Borrowings..............................................................................................................	26
14	Contingencies.........................................................................................................	27
15	Significant events after the balance sheet date......................................................	27
Directors' Declaration....................................................................................................	28
Independent Auditor's Review Report...........................................................................	29

AVJennings Limited ABN 44 004 327 771 - Page 2

31 December 2019 Half-Year Report

Results for Announcement to the Market

Appendix 4D for the half-year ended 31 December 2019

For the half-year ended

31 December 31 December

	2019		2018	Increase
	$'000		$'000	$'000	%
Revenues	171,422		113,246	58,176	51.4%
Profit after tax	8,884		1,421	7,463	525.2%
Net profit attributable to
owners of the Company	8,884		1,421	7,463	525.2%
Dividends	Cents per		Franked amount per
share		share at 30% tax
Current period
Interim dividend	1.2		1.2
Total dividend	1.2		1.2
Previous period
Interim dividend	1.0		1.0
Total dividend	1.0		1.0
Record date for determining entitlements to dividend:		6 March 2020
Payment date:
		27 March 2020
The Company's Dividend Re-Investment Plan remains suspended.

Explanation of results

The Operating and Financial Review in the Directors' Report provides an explanation of the results.

AVJennings Limited ABN 44 004 327 771 - Page 3

31 December 2019 Half-Year Report

Directors' Report

For the half-year ended 31 December 2019

The Directors present their Report on the Company and its controlled entities for the half-year ended 31 December 2019.

DIRECTORS

The names of the Company's Directors in office during the year and until the date of this Report are as below. Directors were in office for the entire period unless otherwise stated.

S Cheong	Non-Executive Chairman
RJ Rowley	Non-Executive Deputy Chairman
PK Summers	Managing Director and Chief Executive Officer
E Sam	Non-Executive Director
B Chin	Non-Executive Director
BG Hayman	Non-Executive Director
TP Lai	Non-Executive Director
BL Tan	Non-Executive Director
P Kearns	Non-Executive Director

OPERATING AND FINANCIAL REVIEW

Financial Results

The Company recorded Net Profit Before Tax of $12.6M for the half year ended 31 December 2019 up 482% on the previous corresponding half (31 December 2018: $2.2M), and Profit After Tax of $8.9M (31 December 2018: $1.4M).

The result is consistent with the Company's impression that its primary Brisbane, Sydney and Melbourne markets are in the early stages of a shallow recovery that it expects to continue through the second half of financial 2020. Comparison with the previous corresponding period should be made after taking account of settlement delays affecting that period.

Business Overview

The steady improvement in trading conditions evident through the latter part of the second half of financial 2019 continued in the half under review, with contract signings rising moderately from the previous corresponding period. Settlements rose to 566 lots (31 December 2018: 364 lots), including the last remaining superlots at 'Buckley B, Hobsonville Point' New Zealand that were sold to builders in earlier accounting periods.

Average gross margin increased to 22.2% (31 December 2018: 21.3%) due to higher margin contributions arising from settlements in Queensland ('Arbor' at Rochedale) and NSW ('Argyle' at Elderslie, 'East Village', 'South Village' and the Evergreen PDA at Spring Farm, and 'Magnolia' at Hamlyn Terrace) in particular.

The positive contribution from Queensland is particularly pleasing given the effort made in recent periods to resolve impediments to development on certain projects such as 'Riverton', Jimboomba, completion of the first stage of which is expected shortly, with settlements scheduled to commence in the second half of financial 2020.

AVJennings Limited ABN 44 004 327 771 - Page 4

31 December 2019 Half-Year Report

Directors' Report

For the half-year ended 31 December 2019

OPERATING AND FINANCIAL REVIEW (continued)

In NSW, work on the 'Rosella Rise', Warnervale, project will commence around June, providing a new point of focus on the Central Coast as the last dwellings in Magnolia are completed and the project finalised.

With the effective completion of the Company's holdings at Hobsonville Point, the importance of the new flagship 'Ara Hills' project located in Orewa, Auckland New Zealand has intensified, and development of the first stage is progressing well, with completion anticipated in the first half of financial 2021. A strong level of interest in this stage has been shown by local builders, with whom contract terms are under active negotiation, permitting, in accordance with the wholesale model employed by the Company in New Zealand, the recognition of first revenues in the first half of financial 2021.

The Victorian business contributed at a lower level for reasons of production timing at 'Waterline Place', Williamstown and 'Lyndarum North', that will persist into the second half of financial 2020, while capital continues to be steadily recovered in South Australia.

Reorganisation of the Company's management and project control structure is now largely bedded down and contributing positively towards improving the efficiency of project delivery. A new senior role combining responsibility for marketing and sales at a national level was created, underscoring the critical importance of effectively coordinating these functions with building and land development operations.

Balance Sheet and Land Holdings

Land of approximately 12,433 lots (including land over which the Group holds an option) is well up on the previous corresponding half (31 December 2018: 9,864 lots) and from the level at 30 June 2019 (9,531 lots). This is mainly due to the signing of an option agreement over land (approximately 3,500 lot equivalents) at Caboolture Queensland, exercise of which is subject to achievement of an acceptable development approval, together with a contract for approximately 230 lots in Mernda Victoria that is conditional upon gazettal of a Planning Scheme Amendment for rezoning.

Work in progress was down half-on-half to 1,480 lots at balance date (31 December 2018: 2,241 lots) and from the position at 30 June 2019 (1,600 lots) due to a combination of stage completions and planned delay in commencements pending sustained improvement in market conditions. Importantly, the Company is well positioned to increase the level of work in progress in line with the anticipated continuing improved market.

Gearing (net debt/ total assets) remained low at 25.2% (total net debt $164.3M), down from the position in the previous corresponding half (31 December 2018: 28.8%) and as at 30 June 2019 (26.6%).

Net cash generated from operating activities of $25M represented a strong half-on-half turnaround (31 December 2019: net cash used in operating activities $61.1M) reflecting more settlements and lower investment in work in progress.

Four of the Company's five corporate lenders have provisionally agreed to extend the termination date of their aggregate $250M commitment under the Club Facility for a further 12 months. The remaining lender, relatively new to the Club, indicated a preference to hold its current position and consider extension of its $50M commitment later, and so the facility will, upon formal extension, have two termination dates, being 30 September 2021 (as to $50M) and 30 September 2022 (as to $250M). This is not expected to adversely affect the Company.

AVJennings Limited ABN 44 004 327 771 - Page 5

31 December 2019 Half-Year Report

Directors' Report

For the half-year ended 31 December 2019

OPERATING AND FINANCIAL REVIEW (continued)

Outlook

The Board and management of AVJennings believe that the key Brisbane, Sydney and Melbourne residential property markets are becoming more firmly established in the early stage of a shallow recovery, while demand in Auckland New Zealand remains robust. Although global headwinds are evident, including the uncertainty around any impact of COVID-19, perceptibly more positive local demand indicators, together with supportive domestic macroeconomic conditions suggest that financial 2020 is likely to be a stronger year for the Company than the prior year.

DIVIDENDS

A fully franked final dividend of 1.5 cents per share for the year ended 30 June 2019 was paid on 20 September 2019 (30 June 2018 fully franked final dividend: 3.0 cents). Subsequent to the end of the half year, the Directors have recommended a fully franked interim dividend of 1.2 cents per share to be paid on 27 March 2020 (1 cent per share was declared in respect of the half-ended 31 December 2018). The Dividend Reinvestment Plan remains suspended.

COMPARATIVE FIGURES

To enable meaningful comparison, some comparatives have been reclassified to conform with the current period's presentation.

SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

No matter or circumstance has arisen since 31 December 2019 that has significantly affected, or may significantly affect:

1. the Group's operations in future financial years; or
2. the results of those operations in future financial years; or
3. the Group's state of affairs in future financial years.

AVJennings Limited ABN 44 004 327 771 - Page 6

31 December 2019 Half-Year Report

Directors' Report

For the half-year ended 31 December 2019

ROUNDING

ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 is applicable to the Group and in accordance with that Instrument, amounts in the Financial Report and the Directors' Report are rounded to the nearest thousand dollars, unless otherwise stated.

AUDITORS INDEPENDENCE DECLARATION

We have obtained the following independence declaration from our auditors, Ernst & Young. It is set out on page 8.

The Report is made in accordance with a resolution of the Directors.

Peter Summers

Director

26 February 2020

AVJennings Limited ABN 44 004 327 771 - Page 7

31 December 2019 Half-Year Report

Ernst & Young	Tel: [phone]
200 George Street	Fax: [phone]
Sydney NSW 2000 Australia	ey.com/au
GPO Box 2646 Sydney NSW 2001

Auditor's Independence Declaration to the Directors of AVJennings Limited

As lead auditor for the review of the half-year financial report of AVJennings Limited for the half-year ended 31 December 2019, I declare to the best of my knowledge and belief, there have been:

1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and
2. No contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of AVJennings Limited and the entities it controlled during the financial period.

Ernst & Young

Glenn Maris

Partner

26 February 2020

A member firm of Ernst & Young Global Limited

Liability limited by a scheme approved under Professional Standards Legislation

AVJennings Limited ABN 44 004 327 771 - Page 8

31 December 2019 Half-Year Report

Consolidated Statement of Comprehensive Income

For the half-year ended 31 December 2019

		31 December 31 December
		2019	2018
	Note	$'000	$'000
Continuing operations
Revenue from contracts with customers	3	171,422	113,246
Revenue		171,422	113,246
Cost of sales	4	( 133,321 )	( 89,124 )
Gross profit		38,101	24,122
Share of net profit/(loss) of joint ventures	11	15	( 11 )
Provision for loss on equity accounted investments		( 518 )	-
Change in inventory loss provisions	4	( 556 )	-
Fair value adjustment of financial asset		( 104 )	( 333 )
Fair value adjustment to investment property	12	-	780
Selling and marketing expenses		( 3,128 )	( 3,566 )
Employee expenses		( 13,417 )	( 12,282 )
Other operational expenses		( 3,349 )	( 2,952 )
Management and administration expenses		( 4,004 )	( 3,996 )
Depreciation and amortisation expenses	4	( 1,082 )	( 108 )
Finance income	4	571	416
Finance costs	4	( 181 )	( 64 )
Other income	4	274	161
Profit before income tax		12,622	2,167
Income tax	5	( 3,738 )	( 746 )
Profit after income tax		8,884	1,421
Net profit		8,884	1,421
Other comprehensive income (OCI)
Foreign currency translation		414	1,036
Other comprehensive income		414	1,036
Total comprehensive income		9,298	2,457
Profit attributable to owners of the Company		8,884	1,421
Total comprehensive income attributable to
owners of the Company		9,298	2,457
Earnings per share (cents per share):
Basic earnings per share		2.19	0.36
Diluted earnings per share		2.19	0.36

AVJennings Limited ABN 44 004 327 771 - Page 9

31 December 2019 Half-Year Report

Consolidated Statement of Financial Position

As at 31 December 2019

		31 December	30 June
		2019	2019
	Note	$'000	$'000
Current assets
Cash and cash equivalents		15,704	18,209
Receivables		27,919	15,088
Inventories		175,842	194,748
Tax receivable		1,147	-
Other assets		3,242	2,392
Total current assets		223,854	230,437
Non-current assets
Receivables		12,789	10,033
Inventories		392,626	430,261
Investment Property	12	1,770	1,770
Equity accounted investments		6,146	6,649
Financial assets		2,107	2,211
Plant and equipment		1,355	1,059
Right-of-use assets	2	7,337	-
Intangible assets		2,816	2,816
Total non-current assets		426,946	454,799
Total assets		650,800	685,236
Current liabilities
Payables		16,385	41,234
Borrowings		-	543
Lease liabilities	2	1,637	-
Tax payable		567	3,179
Provisions		6,041	6,547
Total current liabilities		24,630	51,503
Non-current liabilities
Payables		25,632	22,009
Borrowings		180,022	199,792
Lease liabilities	2	6,260	-
Deferred tax liabilities		14,728	15,173
Provisions		559	482
Total non-current liabilities		227,201	237,456
Total liabilities		251,831	288,959
Net assets		398,969	396,277
Equity
Contributed equity	7	174,179	174,509
Reserves		9,529	8,882
Retained earnings		215,261	212,886
Total equity		398,969	396,277

AVJennings Limited ABN 44 004 327 771 - Page 10

31 December 2019 Half-Year Report

Consolidated Statement of Changes in Equity

For the half-year ended 31 December 2019

			Attributable to equity
			holders of AVJennings Limited
			Foreign	Share-
			Currency	based
		Contributed	Translation	Payment	Retained
		Equity	Reserve	Reserve	Earnings
	Note	$'000	$'000	$'000	$'000
At 1 July 2018		167,943	3,010	3,896	224,149
Effect of adoption of new
accounting standard		-	-	-	( 11,792 )
At 1 July 2018 (restated)		167,943	3,010	3,896	212,357
Comprehensive income:
Profit for the half-year		-	-	-	1,421
Other comprehensive income for
the half-year		-	1,036	-	-
Total comprehensive income for
the half-year		-	1,036	-	1,421
Transactions with owners in their
capacity as owners:
- Ordinary share capital raised	7(a)	7,480	-	-	-
- Treasury shares acquired		( 493 )	-	-	-
- Share-based payment expense
reversed (lapsed rights)		-	-	( 380 )	-
- Share-based payment expense		-	-	535	-
- Dividends paid	6	-	-	-	( 11,848 )
Total transactions with owners in
their capacity as owners		6,987	-	155	( 11,848 )
At 31 December 2018		174,930	4,046	4,051	201,930
At 1 July 2019		174,509	4,256	4,626	212,886
Effect of adoption of new
accounting standard	2	-	-	-	( 416 )
At 1 July 2019 (restated)		174,509	4,256	4,626	212,470
Comprehensive income:
Profit for the half-year		-	-	-	8,884
Other comprehensive income for
the half-year		-	414	-	-
Total comprehensive income for
the half-year		-	414	-	8,884
Transactions with owners in their
capacity as owners:
- Treasury shares acquired	7(b)	( 435 )	-	-	-
- Other transactions	7(b)	105	-	-	-
- Share-based payment expense
reversed (lapsed rights)		-	-	( 225 )	-
- Share-based payment expense		-	-	458	-
- Dividends paid	6	-	-	-	( 6,093 )
Total transactions with owners in
their capacity as owners		( 330 )	-	233	( 6,093 )
At 31 December 2019		174,179	4,670	4,859	215,261

Total Equity

$'000

398,998

• 11,792 )
  387,206

1,421

1,036

2,457

7,480 ( 493 )

( 380 )

535

( 11,848 )

• 4,706 )
  384,957

396,277

• 416 )
  395,861

8,884

414

9,298

• 435 )
  105

• 225 )
  458

( 6,093 )

• 6,190 )
  398,969

AVJennings Limited ABN 44 004 327 771 - Page 11 31 December 2019 Half-Year Report

Consolidated Statement of Cash Flows

For the half-year ended 31 December 2019

		31 December	31 December
		2019	2018
	Note	$'000	$'000
Cash flows from operating activities
Receipts from customers (inclusive of GST)		172,978	141,220
Payments to other suppliers and employees (inclusive of GST)	(134,784)	(183,793)
Interest paid		(5,401)	(5,861)
Income tax paid		(7,765)	(12,686)
Net cash from/(used in) operating activities		25,028	(61,120)
Cash flows from investing activities
Payments for plant and equipment		(472)	(733)
Interest received		571	416
Distributions received from joint venture entities		-	198
Net cash from/(used in) investing activities		99	(119)
Cash flows from financing activities
Proceeds from borrowings		36,665	149,525
Repayment of borrowings		(56,978)	(89,200)
Principal elements of lease payments		(922)	-
Net payment for treasury shares		(330)	(493)
Dividends paid	6	(6,093)	(11,848)
Proceeds from issue of shares		-	7,480
Net cash (used in)/from financing activities		(27,658)	55,464
Net decrease in cash and cash equivalents		(2,531)	(5,775)
Cash and cash equivalents at beginning of the half-year		18,209	8,491
Effects of exchange rate changes on cash and cash equivalents	26	-
Cash and cash equivalents at end of the half-year		15,704	2,716

AVJennings Limited ABN 44 004 327 771 - Page 12

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

1. CORPORATE INFORMATION

The Consolidated Report of AVJennings Limited for the half-year ended 31 December 2019 was authorised for issue in accordance with a resolution of the Directors on 26 February 2020. The Company is a for profit company limited by shares domiciled and incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange and the Singapore Exchange through SGX GlobalQuote.

2. BASIS OF PREPARATION AND ACCOUNTING POLICIES

The half-year condensed financial report has been prepared in accordance with the requirements of the Corporations Act 2001, AASB 134 Interim Financial Reporting and other mandatory professional requirements.

It is recommended that this Report be read in conjunction with the Annual Report for the year ended 30 June 2019 and considered together with any public announcements made by AVJennings Limited during the half-year ended 31 December 2019 in accordance with the continuous disclosure obligations of the ASX listing rules.

This Report is presented in Australian Dollars and all values are rounded to the nearest thousand dollars ($'000) unless otherwise stated. Except for the application of AASB 16 Leases from 1 July 2019, the accounting policies adopted are consistent with those of the previous financial year.

The nature and effect of the changes as a result of adoption of AASB 16 are described below.

Several other amendments and interpretations apply for the first time in 2020, but do not have an impact on the Consolidated Financial Statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued, but are not yet effective.

AASB 16 Leases: (adopted by the Group on 1 July 2019)

AASB 16 supersedes AASB 117 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model.

Lessor accounting under AASB 16 is substantially unchanged from that under AASB 117. Lessors will continue to classify leases as either operating or finance leases using similar principles as in AASB 117.

The Group adopted AASB 16 using the modified retrospective method of adoption with the date of initial application of 1 July 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application. The Group elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option ('short-term leases'), and lease contracts for which the underlying asset is of low value ('low-value assets').

AVJennings Limited ABN 44 004 327 771 - Page 13

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

2. BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued) The effect of the adoption of AASB 16 as at 1 July 2019 is as follows:

		Increase/
		(decrease)
Assets	Note	$'000
Right-of-use assets	(a)	3,524
Total adjustment on assets		3,524
Liabilities
Lease liabilities	(b)	4,118
Deferred tax liabilities	(c)	( 178 )
Total adjustment on liabilities		3,940
Equity
Retained earnings	(d)	( 416 )
Total adjustment on equity		( 416 )

1. Right of use assets recognised relating to operating leases
2. Lease liabilities recognised relating to operating leases
3. Tax effect of the difference between right of use assets and lease liabilities at adoption
4. The post tax effect of the adoption on opening retained earnings

Upon adoption of AASB 16, the Group applied a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets.

The Group recognised right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. The right-of-use assets for most leases were recognised based on the carrying amount as if the standard had always been applied, apart from the use of incremental borrowing rate at the date of initial application. In some leases, the right-of-use assets were recognised based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. The weighted average incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 5.68%.

The Group also applied the available practical expedients wherein it:

• Used a single discount rate to a portfolio of leases with reasonably similar characteristics.
• Relied on its assessment of whether leases are onerous immediately before the date of initial application.
• Applied the short-term lease exemptions to lease with lease terms that end within 12 months at the date of initial application.
• Excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application.
• Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

AVJennings Limited ABN 44 004 327 771 - Page 14

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

2. BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued)

Lease liabilities as at 1 July 2019 can be reconciled to operating lease commitments as at 30 June 2019 as follows:

	$'000
Operating lease obligations at 30 June 2019	4,262
Recognition exemptions:
- Leases of low value assets	( 387 )
- Leases with remaining lease term of less than 12 months	( 426 )
Cost of service type non-lease components and other adjustments	( 166 )
Reasonably certain lease extensions	1,231
Sub-total	4,514
Effect of discounting	( 396 )
Lease liability opening balance reported as at 1 July 2019 under AASB 16	4,118

Set out below are the new accounting policies of the Group upon adoption of AASB 16, which have been applied from the date of initial application:

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.

After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases of plant and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e., below $5,000). Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.

AVJennings Limited ABN 44 004 327 771 - Page 15

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

2. BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued)

Significant judgement in determining the lease term of contracts with renewal options

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Group has the option, under some of its office leases to lease the assets for additional terms of up to three years. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).

The Group included the renewal period as part of the lease term for leases of office space due to the significance of these assets to its operations. The renewal options if any, for leases of plant and equipment and motor vehicles were not included as part of the lease term because the Group has a record of not exercising any renewal options for such leases.

Set out below, are the carrying amounts of the Group's right-of-use assets and lease liabilities and the movements during the period:

		Right-of-use assets
	Motor	IT	Office
	vehicle	equipment premises		Lease
	lease	lease	lease	Total	liabilities
	$'000	$'000	$'000	$'000	$'000
As at 1 July 2019	464	316	2,744	3,524	4,118
Additions	268	14	4,670	4,952	4,952
Amortisation expense	( 141 )	( 69 )	( 728 )	( 938 )	-
Disposal	-	( 5 )	( 196 )	( 201 )	( 251 )
Principal elements of payments	-	-	-	-	( 922 )
As at 31 December 2019	591	256	6,490	7,337	7,897
Current	-	-	-	-	1,637
Non-current	591	256	6,490	7,337	6,260
Total	591	256	6,490	7,337	7,897

The Group recognised rent expense from short-term leases of $157,000 and leases of low-value assets of $123,000 for the six months ended 31 December 2019.

AVJennings Limited ABN 44 004 327 771 - Page 16

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

3. REVENUES FROM CONTRACTS WITH CUSTOMERS

(a) Disaggregated revenue information

The disaggregation of the Group's revenue from contracts with customers is set out below:

Operating Segments	NSW	VIC	QLD	SA	NZ	Total
31 December 2019	$'000	$'000	$'000	$'000	$'000	$'000
Types of goods or services
Sale of Land	29,291	11,540	27,382	3,879	25,316	97,408
Sale of Integrated Housing	41,809	11,911	5,138	3,803	5,546	68,207
Sale of Apartments	-	4,319	-	-	-	4,319
Property Development & Other Services	163	1,325	-	-	-	1,488
Total Revenue from Contracts with Customers	71,263	29,095	32,520	7,682	30,862	171,422
Timing of revenue recognition
Goods transferred at a point in time	71,100	27,770	32,520	7,682	30,862	169,934
Services transferred over time	163	1,325	-	-	-	1,488
Total Revenue from Contracts with Customers	71,263	29,095	32,520	7,682	30,862	171,422

(b) Revenue recognition accounting policy

1. Sale of land, integrated housing and apartments
   Revenue from the sale of land, houses and apartments is recognised at a point in time when control is transferred to the customer. Except for certain contractual arrangements discussed below, this occurs at settlement when legal title passes and an enforceable right to payment exists.
   For the following contractual arrangements, revenue is recognised prior to settlement where the customer has obtained control, and a right to payment exists:
2. • Revenue from sales of land on deferred terms to builders in New Zealand. The builder gains control of the land on completion of physical works and can commence building at that point.
   • Sales of englobo land on deferred terms. Control passes when the contract is unconditional, physical works are complete and the customer has unfettered rights to the land before settlement.
   • Revenue from sales of land to builders in Australia under put and call arrangements where the builder is the ultimate purchaser and not a conduit between AVJennings and a retail purchaser. The builder gains control of the land on completion of the physical works and can commence building at that point.
3. Property development and other services
   AVJennings Properties Ltd provides property development and other services to joint venture arrangements entered into by other entities within the Group. The performance obligation is satisfied over-time and revenue is progressively recognised based on the terms of the service agreement.
4. Financing components

The Group does not expect to have any contracts for the sale of land, integrated housing and apartments where the duration between the transfer of the goods to the customer and payment by the customer exceeds one year in Australia.

In the case of certain contracts for the sale of land in New Zealand and the provision of services in Australia, the duration may exceed one year.

AVJennings Limited ABN 44 004 327 771 - Page 17

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

4. INCOME AND EXPENSES

	31 December	31 December
	2019	2018
	$'000	$'000
Revenues
Revenue from contracts with customers	171,422	113,246
Total revenues	171,422	113,246
Cost of sales include:
Utilisation of inventory provisions	( 347 )	( 291 )
Amortisation of finance costs capitalised to inventories	4,918	6,299
Impairment of assets
Net increase in inventory loss provisions	( 556 )	-

For the half year ended 31 December 2019, the movement in the provision resulted from a realignment of future assumptions with current market conditions relating to a project in Queensland.

Depreciation and amortisation expense
Depreciation owned assets	144	108
Amortisation right of use assets	938	-
Total depreciation and amortisation expense	1,082	108
Finance income
Interest from financial assets held for cash management purposes	571	416
Finance costs
Bank loans and overdrafts	5,252	5,861
Interest on lease liabilities	149	-
Less: Amount capitalised to inventories	( 5,220 )	( 5,797 )
Finance costs expensed	181	64
Other income
Rent from investment property	67	-
Sundry income	207	161
Total other income	274	161

AVJennings Limited ABN 44 004 327 771 - Page 18

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

5. INCOME TAX

	31 December	31 December
Income tax expense/(credit)	2019	2018
Note	$'000	$'000
Income tax expense
The major components of income tax are:
Current income tax
Current income tax charge	3,784	2,937
Adjustment for prior year	226	93
Deferred income tax
Current temporary differences	( 105 )	( 2,284 )
Adjustment for prior year	( 167 )	-
Income tax reported in the Consolidated
Statement of Comprehensive Income	3,738	746

Numerical reconciliation between aggregate tax recognised in the	Consolidated	Statement
of Comprehensive Income and tax calculated per the statutory income tax rate:
Accounting profit before income tax	12,622	2,167
Tax at Australian income tax rate of 30%	3,787	650
Net share of equity accounted Joint Venture (gains)/losses	( 5 )	3
Other non-deductible items	5	( 53 )
Foreign jurisdiction (losses)/gains	( 5 )	62
Effect of lower tax rate in foreign jurisdiction	( 103 )	( 9 )
Adjustment for prior year	59	93
Income tax expense	3,738	746
Effective tax rate	30%	34%

AVJennings Limited ABN 44 004 327 771 - Page 19

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

6. DIVIDENDS

	31 December	31 December
	2019	2018
	$'000	$'000
Cash dividends declared and paid
2019 final dividend of 1.5 cents per share,	6,093	-
paid 20 September 2019. Fully franked @ 30% tax
2018 final dividend of 3.0 cents per share,
paid 11 October 2018. Fully franked @ 30% tax	-	11,848
Total cash dividends declared and paid	6,093	11,848
Dividends proposed
2020 interim dividend of 1.2 cents per share,
to be paid 27 March 2020. Fully franked @ 30% tax	4,875	-
2019 interim dividend of 1.0 cent per share,
paid 22 March 2019. Fully franked @ 30% tax	-	4,062
Total dividends proposed	4,875	4,062

The Company's Dividend Reinvestment Plan is suspended.

AVJennings Limited ABN 44 004 327 771 - Page 20

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

7. CONTRIBUTED EQUITY

	31 December	30 June	31 December	30 June
	2019	2019	2019	2019
	Number	Number	$'000	$'000
Ordinary shares	406,230,728	406,230,728	177,961	177,961
Treasury shares	-	( 762,619 )	( 3,782 )	( 3,452 )
Share capital	406,230,728	405,468,109	174,179	174,509
(a) Movement in ordinary share capital	Number	Number	$'000	$'000
As at the beginning of the year	406,230,728	394,926,905	177,961	170,481
Issued under the Dividend Reinvestment Plan	-	11,303,823	-	7,480
As at the end of the period	406,230,728	406,230,728	177,961	177,961
(b) Movement in treasury shares	Number	Number	$'000	$'000
As at the beginning of the year	( 762,619 )	( 495,632 )	( 3,452 )	( 2,538 )
On market acquisition of shares	( 757,523 )	( 1,462,177 )	( 435 )	( 914 )
Excess funds received from AVJDESP	-	-	105	-
Employee share scheme issue	1,520,142	1,195,190	-	-
As at the end of the period	-	( 762,619 )	( 3,782 )	( 3,452 )

During the year, 757,523 treasury shares were purchased by the AVJ Deferred Employee Share Plan Trust (AVJDESP) at a cost of $435,000.

Fully paid ordinary shares carry one vote per share and carry the right to dividends. There are currently no unexercised or outstanding options. No options were exercised during the half-year.

Treasury shares are shares in AVJennings Limited that are held by the AVJDESP for the purpose of issuing shares to Executives.

The original cost of the shares is treated as a reduction in share capital and the underlying shares identified separately as treasury shares.

AVJennings Limited ABN 44 004 327 771 - Page 21

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

8. OPERATING SEGMENTS

The Group operates primarily in residential development.

The Group determines segments based on information that is provided to the Managing Director who is the Chief Operating Decision Maker (CODM). The CODM assesses the performance and makes decisions about the resources to be allocated to the segment. Each segment prepares a detailed finance report on a monthly basis which summarises the following:

• Historic results of the segment; and
• Forecast of the segment for the remainder of the year.

Reportable segments

Jurisdictions:

This includes activities relating to Land Development, Integrated Housing and Apartments Development.

Other:

This includes numerous low value items, amongst the most significant of which is interest.

AVJennings Limited ABN 44 004 327 771 - Page 22

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

8. OPERATING SEGMENTS (continued)

The following table presents the revenues and results information regarding operating segments:

	NSW		VIC	QLD		SA		NZ	Other	Total
Operating Segments	31 December	31 December	31 December	31 December	31 December	31 December	31 December
2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018
	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000
Revenues
External sales	71,099	59,531	27,770	19,762	32,520	20,664	7,682	12,613	30,863	-	-	-	169,934	112,570
Management fees	163	-	1,325	517	-	159	-	-	-	-	-	-	1,488	676
Total segment revenues	71,262	59,531	29,095	20,279	32,520	20,823	7,682	12,613	30,863	-	-	-	171,422	113,246
Results
Segment results	9,981	11,847	5,032	(181)	3,480	(860)	(942)	(1,476)	5,605	793	606	205	23,762	10,328
Share of loss of joint ventures	-	-	-	-	-	-	-	(9)	-	-	15	(2)	15	(11)
Other non-segment revenue	-	-	-	-	-	-	-	-	-	-	778	577	778	577
Rent from investment property	-	-	67	-	-	-	-	-	-	-	-	-	67	-
Change in inventory loss
provisions	-	-	-	-	(556)	-	-	-	-	-	-	-	(556)	-
Fair value adjustments	-	-	-	780	-	-	-	-	-	-	(104)	(333)	(104)	447
Provision for loss on equity
accounted investments	-	-	-	-	-	-	-	-	-	-	(518)	-	(518)	-
Unallocated depreciation and
amortisation	-	-	-	-	-	-	-	-	-	-	-	-	(1,082)	(108)
Unallocated expenses	-	-	-	-	-	-	-	-	-	-	-	-	(9,559)	(9,002)
Unallocated interest expense	-	-	-	-	-	-	-	-	-	-	-	-	(181)	(64)
Profit before tax													12,622	2,167
Income tax													(3,738)	(746)
Net profit													8,884	1,421

AVJennings Limited ABN 44 004 327 771 - Page 23

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

8. OPERATING SEGMENTS (continued)

The following table presents the assets and liabilities information regarding operating segments:

	NSW	VIC	QLD	SA		NZ		Other	Total
Operating	31 Dec	30 Jun	31 Dec	30 Jun	31 Dec	30 Jun	31 Dec	30 Jun	31 Dec	30 Jun	31 Dec	30 Jun	31 Dec	30 Jun
Segments	2019	2019	2019	2019	2019	2019	2019	2019	2019	2019	2019	2019	2019	2019
	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000
Assets
Segment
assets	174,550	195,646	160,688	173,724	117,856	125,709	61,163	62,903	104,731	105,524	31,812	21,730	650,800	685,236
Total assets	174,550	195,646	160,688	173,724	117,856	125,709	61,163	62,903	104,731	105,524	31,812	21,730	650,800	685,236
Liabilities
Segment
liabilities	19,625	15,941	13,443	19,458	6,976	16,389	1,156	970	53,920	58,711	156,711	177,490	251,831	288,959
Total
liabilities	19,625	15,941	13,443	19,458	6,976	16,389	1,156	970	53,920	58,711	156,711	177,490	251,831	288,959

AVJennings Limited ABN 44 004 327 771 - Page 24

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

9. NET TANGIBLE ASSET BACKING

	31 December	30 June
	2019	2019
Net Tangible Asset backing (NTA) - cents per ordinary share	97.5	97.0

The number of ordinary shares used in the computation of NTA as at 31 December 2019 was 406,230,728 (30 June 2019: 405,468,109). Refer to note 7 for details.

Net tangible assets are calculated using the values of net assets less intangible assets, as per the respective balance sheet headings.

10. INTEREST IN JOINT OPERATIONS

The Group's interest in the profits and losses of Joint Operations is included in the Consolidated Statement of Comprehensive Income under the following classifications:

	31 December	31 December
	2019	2018
	$'000	$'000
Revenues	11,579	10
Cost of property developments sold	( 7,159 )	-
Other expenses	( 633 )	( 312 )
Profit/(loss) before income tax	3,787	( 302 )
Income tax	( 1,136 )	91
Profit/(loss) after income tax	2,651	( 211 )

AVJennings Limited ABN 44 004 327 771 - Page 25

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

11. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

The interests in a joint venture are accounted for using the equity method of accounting and are carried at cost. Under the equity method, the Group's share of the results of the joint venture are recognised in the Consolidated Statement of Comprehensive Income, and the share of movements in reserves is recognised in the Consolidated Statement of Financial Position. The information is set out below:

Equity accounted Joint Ventures	Interest held	Share of net profit/(loss)
	31 December	31 December	31 December	31 December
	2019	2018	2019	2018
			$'000	$'000
Woodville JV	-	50.0%	-	(9)
Pindan Capital Group Dwelling Trust	33.3%	33.3%	15	(2)
Profit/(loss) after income tax			15	(11)

12. INVESTMENT PROPERTY

The Group accounts for its investment property at fair value and revaluations are recognised through profit and loss. The fair value at reporting date has been determined by the Directors with reference to the most recent external valuation performed by Knight Frank as at 21 November 2018.

The Capitalisation Approach using a capitalisation rate of 6.00%, and Direct Comparison Approach methods have been adopted in determining the fair value.

	31 December	30 June
	2019	2018
	$'000	$'000
Opening balance at 1 July	1,770	-
Transfer from inventory	-	970
Net gain from fair value remeasurement	-	800
Closing balance	1,770	1,770

13. BORROWINGS

The fair value for borrowings less than 12 months to maturity is deemed to equal the carrying value. All other borrowings are discounted if the effect of discounting is material. The fair value of borrowings are determined by using the discounted cash flow method with a discount rate that reflects the issuer's borrowing rate as at the end of the reporting period.

Borrowings are classified as level 2 financial instruments.

The Group remains compliant with all lending covenants.

AVJennings Limited ABN 44 004 327 771 - Page 26

31 December 2019 Half-Year Report

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2019

14. CONTINGENCIES

Secured

Performance guarantees

Contingent liabilities in respect of certain performance guarantees, granted by the Group's bankers in the normal course of business to unrelated parties, at 31 December 2019, amounted to $16,208,000 (30 June 2019: $16,177,000). No material liability is expected to arise.

Financial guarantees

Financial guarantees granted by the Group's bankers to unrelated parties in the normal course of business at 31 December 2019, amounted to $1,185,000 (30 June 2019: $1,148,000). No material liability is expected to arise.

Unsecured

Contract performance bond facility

The Parent Entity has entered into Deeds of Indemnity with various controlled entities to indemnify the obligation of those entities in relation to Contract performance bond facilities. Contingent liabilities in respect of certain performance bonds, granted by the Group's financiers, in the normal course of business as at 31 December 2019, amounted to $36,784,000 (30 June 2019: $39,812,000). No material liability is expected to arise.

15. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

No matter or circumstance has arisen since 31 December 2019 that has significantly affected, or may significantly affect:

1. the Group's operations in future financial years; or
2. the results of those operations in future financial years; or
3. the Group's state of affairs in future financial years.

AVJennings Limited ABN 44 004 327 771 - Page 27

31 December 2019 Half-Year Report

Directors' Declaration

For the half-year ended 31 December 2019

In accordance with a resolution of the Directors of AVJennings Limited, we state that:

In the opinion of the Directors:

1. The Consolidated Financial Statements and notes of the Group are in accordance with the Corporations Act 2001, including:
2. 1. giving a true and fair view of the financial position as at 31 December 2019 and of the performance for the half-year ended on that date; and
   2. complying with AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and
3. There are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable.

On behalf of the Board.

Peter Summers

Director

26 February 2020

AVJennings Limited ABN 44 004 327 771 - Page 28

31 December 2019 Half-Year Report

Ernst & Young	Tel: [phone]
200 George Street	Fax: [phone]
Sydney NSW 2000 Australia	ey.com/au
GPO Box 2646 Sydney NSW 2001

Independent Auditor's Review Report to the Members of AVJennings Limited

Report on the Half-Year Financial Report

Conclusion

We have reviewed the accompanying half-year financial report of AVJennings Limited (the Company) and its subsidiaries (collectively the Group), which comprises the statement of financial position as at 31 December 2019, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration.

Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the half-year financial report of the Group is not in accordance with the Corporations Act 2001, including:

1. Giving a true and fair view of the consolidated financial position of the Group as at 31 December 2019 and of its consolidated financial performance for the half-year ended on that date; and
2. Complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

Directors' Responsibility for the Half-Year Financial Report

The directors of the Company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, anything has come to our attention that causes us to believe that the half-year financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the Group's consolidated financial position as at 31 December 2019 and its consolidated financial performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of the Group, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

A member firm of Ernst & Young Global Limited

Liability limited by a scheme approved under Professional Standards Legislation

AVJennings Limited ABN 44 004 327 771 - Page 29

31 December 2019 Half-Year Report

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.

Ernst & Young

Glenn Maris

Partner

Sydney

26 February 2020

A member firm of Ernst & Young Global Limited

Liability limited by a scheme approved under Professional Standards Legislation

AVJennings Limited ABN 44 004 327 771 - Page 30

31 December 2019 Half-Year Report