NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016 30 OPERATING LEASES Leasing Arrangements Operating leases relate to business premises and the Group’s motor vehicle fleet with lease terms of between three and six years. All operating lease contracts contain market review clauses in the event that the Group exercises its option to renew. The Group does not have an option to purchase the leased asset at the expiry of the lease period. Non-cancellable Operating Lease Payments 2016 2015 $’000 $’000 Not later than 1 year 5,414 Later than 1 year and not later than 5 years 12,389 Later than 5 years - 17,803 2,269 2,543 4,812 No liabilities have been recognised in respect of non-cancellable operating leases. 31 CONTINGENT LIABILITIES The Directors do not believe there are any contingent liabilities as at 30 June 2016. 32 SUBSIDIARIES AND OTHER RELATED COMPANIES Details of the Group’s subsidiaries at the end of the financial year are as follows. INTEREST 2015 % PRINCIPAL ACTIVITY Australia Australia 100 50 Blackmores Nominees Pty Limited4 Pat Health Limited Blackmores Beijing Co., Limited Blackmores (Shanghai)  Trading Co., Limited Blackmores (Taiwan) Limited Pure Animal Wellbeing Pty Limited4 92 OWNERSHIP 2016 % Blackmores SPV Co Pty Limited4 Bemore Partnership Pty Limited2 BLACKMORES ANNUAL REPORT 2016 COUNTRY OF NAME OF ENTITY INCORPORATION Australia Hong Kong China 100 100 100 - Holding company -  Marketing of infant and life stage nutritional powders 100 Management of employee share plans 100 Marketing of natural health products 100 Marketing of natural health products China Taiwan Australia 100 100 100 Blackmores (New Zealand) Limited Blackmores (Singapore) Pte Limited Blackmores (Malaysia) Sdn Bhd Blackmores Holdings Limited Blackmores Limited Blackmores Korea Limited Blackmores International Pte. Limited PT Kalbe Blackmores Nutrition3 FIT-BioCeuticals Limited4 FIT-BioCeuticals (NZ) Limited1 PharmaFoods Pty Limited4 FIT-BioCeuticals Limited FIT-BioCeuticals (HK) Limited Hall Drug Technologies Pty Limited4 New Century Herbals Pty Limited4 Global Therapeutics Pty Limited1,4 New Zealand Singapore Malaysia Thailand Thailand Korea Singapore Indonesia Australia New Zealand Australia United Kingdom Hong Kong Australia Australia Australia 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 Marketing of natural health products 100 Marketing of natural health products 100  Holder of intellectual property for Animal Health Division 100 Marketing of natural health products 100 Marketing of natural health products 100 Marketing of natural health products 100 Holding company 100 Marketing of natural health products 100 Marketing of natural health products 100 Regional head office - Marketing of natural health products 100 Marketing of natural health products 100 Marketing of natural health products 100 Marketing of natural health products 100 Marketing of natural health products 100 Marketing of natural health products 100 Marketing of natural health products - Holding company - Marketing of natural health products 1. These wholly owned subsidiaries have entered into a deed of cross guarantee with Blackmores Limited pursuant to ASIC class order 98/1418 and are relieved from the requirement to prepare and lodge an audited financial report. 2. Companies incorporated during the year ended 30 June 2016 for the purpose of the newly formed partnership with Bega Cheese Limited. Bemore Parternership Pty Limited represents 50% of shares issue and is a joint operation owned and managed equally by Bega Cheese Limited and Blackmores Limited. 3. PT Kalbe Blackmores Nutrition was incorporated during the year ended 30 June 2016. Blackmores International Pte Limited’s shareholding in PT Kalbe Blackmores Nutrition represents 50%+1 of shares issued. 4. These subsidiaries are members of Blackmores Limited’s Australian Tax Consolidated Group. Companies incorporated outside Australia carry on business in the country of incorporation. All overseas entities have been audited by overseas firms of Deloitte Touche Tohmatsu, except the overseas entities owned by FIT-BioCeuticals Limited. Economic Dependency The Group is not significantly dependent upon any other entity. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016 32 SUBSIDIARIES AND OTHER RELATED COMPANIES (CONT.) 32.1 FINANCIAL SUPPORT The Consolidated Statement of Profit or Loss and Other Comprehensive Income and the Consolidated Statement of Financial Position of the entities party to the deed of cross guarantee are: Statement of Profit or Loss and Other Comprehensive Income 2016 2015 $’000 $’000 Sales 620,937 409,721 Other income 11,079 18,267 Promotional and other rebates (86,744) (65,877) Revenue and other income 545,272 362,111 Raw materials and consumables used 213,207 144,692 Employee benefits expense 112,303 79,918 Selling and marketing expenses 31,685 24,119 Depreciation and amortisation expenses 6,544 6,156 Operating lease rental expenses 3,262 2,721 Professional and consulting expenses 7,390 5,440 Repairs and maintenance expenses 3,886 3,176 Freight expenses 8,431 5,992 Bank charges 2,041 1,316 Other expenses 16,367 13,661 Total expenses 405,116 287,191 Earnings before interest and tax 140,156 74,920 Interest revenue 252 297 Interest expense (2,231) (3,914) Net interest expense (1,979) (3,617) Profit before tax 138,177 71,303 Income tax expense (39,744) (17,767) Profit for the year 98,433 53,536 Other comprehensive income Items that may be reclassified subsequently to profit or loss Net gain/(loss) on hedging instruments entered into for cash flow hedges, net of tax 537 (572) Other comprehensive income for the year, net of tax 537 (572) Total comprehensive income for the year 98,970 53,136 Profit attributable to: Owners of the parent 98,433 53,536 Non-controlling interests - 98,433 53,536 Total comprehensive income attributable to: Owners of the parent 98,970 53,136 Non-controlling interests - 98,970 53,136 BLACKMORES ANNUAL REPORT 2016 93 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016 32 SUBSIDIARIES AND OTHER RELATED COMPANIES (CONT.) 32.1 FINANCIAL SUPPORT (CONT.) Statement of Financial Position 2016 2015 $’000 $’000 ASSETS CURRENT ASSETS Cash and cash equivalents 10,512 15,957 Receivables 129,554 101,273 Inventories 99,429 29,902 Other assets 4,493 3,582 Total current assets 243,988 150,713 NON-CURRENT ASSETS Property, plant and equipment 66,126 60,030 Investment property 2,160 2,160 Other intangible assets 31,450 17,429 Goodwill 19,374 16,205 Deferred tax assets 8,864 6,550 Other financial assets 15,588 5,584 Total non-current assets 143,562 107,957 Total assets 387,550 258,670 LIABILITIES CURRENT LIABILITIES Trade and other payables 147,012 80,221 Current tax payable 21,902 11,629 Other financial liabilities - 1,348 Provisions 8,844 5,942 Other - 3,751 Total current liabilities 177,758 102,892 NON-CURRENT LIABILITIES Interest-bearing liabilities 52,000 44,000 Provisions 1,134 1,274 Other financial liabilities 1,139 109 Other 1,160 226 Total non-current liabilities 55,433 45,609 Total liabilities 233,191 148,501 Net assets 154,359 110,169 EQUITY CAPITAL AND RESERVES BLACKMORES ANNUAL REPORT 2016 94 Issued capital 37,753 Reserves 3,419 Retained earnings 113,187 Total equity 154,359 37,753 5,813 66,603 110,169 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016 33 JOINT OPERATIONS The Group has the following interest in joint operations: Bemore Partnership Pty Ltd The following amounts are included in the Group’s Financial Statements in relation to the joint operation, representing the Group’s 50% share of Bemore Partnership Pty Ltd: 2016 $’000 Sales 4,329 Promotional and other rebates (1,075) Revenue and other income 3,254 Raw materials and consumables 1,945 Operating expenses 2,123 Net loss for the period ended 30 June 2016 (814) 30 June 2016 $’000 Cash and cash equivalents 822 Receivables 626 Inventory 5,029 Total assets 6,477 Other payables 510 Payables to Joint operators1 1,781 Loans from Joint operators1 5,000 Total liabilities 7,291 Net liabilities (814) 1. Included in these balances are amounts owing to the Blackmores Group of $3,960 thousand. 34 RELATED PARTY AND KEY MANAGEMENT PERSONNEL DISCLOSURES 34.1 EQUITY INTERESTS IN RELATED PARTIES Equity interests in subsidiaries Details of the percentage of ordinary shares held in controlled entities are disclosed in note 32 to the Consolidated Financial Statements. 34.2 DISCLOSURES LOAN There were no loan balances exceeding $100,000 due from Key Management Personnel during or at the end of the financial year (2015: nil). 34.3 OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL Key Management Personnel received dividends on their shareholdings, whether held privately or through related entities or through the employee share plans on fully vested shares in the same manner as all ordinary shareholders. No interest was paid to or received from Key Management Personnel. 34.4 RELATED PARTY TRANSACTIONS The immediate parent and ultimate controlling party of the Group is Blackmores Limited (incorporated in Australia). Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. During the year, group entities did not enter into any trading transactions with related parties that are not members of the Group (2015: $nil). Other related party transactions During the financial year ended 30 June 2016, the following transactions occurred between the Group and its other related parties: •  alileo Kaleidoscope Pty Ltd, a company of which Brent Wallace is a Director, performed certain consulting services for the Company for G which fees of $100,675 (2015: $259,246) were charged. Balances with related parties No balances outstanding at the end of the financial year with related parties that are not members of the Group (2015: $nil). BLACKMORES ANNUAL REPORT 2016 Trading transactions 95 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016 35 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS 35.1 CASH AND CASH EQUIVALENTS For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the Consolidated Statement of Cash Flows is reconciled to the related items in the Consolidated Statement of Financial Position as follows: 2016 2015 $’000 $’000 Cash and bank balances Cash and cash equivalents 35.2 37,653 37,653 36,931 36,931 570 4,430 5,000 5,000 5,000 - - - 44,000 69,000 113,000 FINANCING FACILITIES Unsecured bank overdraft facility, reviewed annually and payable at call: Amount used Amount unused Unsecured bank bill acceptance facility, reviewed annually: Amount used Amount unused Unsecured revolving term debt facility under Common Terms Deed: Amount used Amount unused 55,446 82,060 137,506 - The Group restructured borrowings during the year to unsecured debt under a Common Terms Deed with three banks. The Group has access to financing facilities at reporting date as indicated above. The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets. 35.3 RECONCILIATION OF PROFIT FOR THE YEAR TO NET CASH FLOWS FROM OPERATING ACTIVITIES 2016 2015 $’000 $’000 BLACKMORES ANNUAL REPORT 2016 96 Profit for the year 100,020 46,556 Loss on disposal of non-current assets 358 14 Interest revenue disclosed as investing cash flow (462) (415) Dividend income disclosed as investing cash flow (25) (11) Depreciation and amortisation of non-current assets 7,045 6,391 Revaluation of investments (67) (26) Share-based payments 3,362 1,078 Other 1,308 (295) Increase in current tax liability 11,330 9,057 Increase in deferred tax balances (4,830) (2,668) Decrease in deferred tax balances related to hedge reserve in equity (230) 172 Movements in working capital: Current receivables (24,212) (34,055) Current inventories (73,845) 6,459 Other debtors and prepayments (415) (1,714) Current trade payables 62,927 39,943 Provisions 1,412 641 Net cash flows from operating activities 83,676 71,127 35.4 NON-CASH TRANSACTIONS During the current year, the Group entered into the following non-cash investing and financing activity which is not reflected in the Consolidated Statement of Cash Flows: During the year no shares (2015: 109,252) were issued under the Dividend Reinvestment Plan. Dividends settled in shares rather than cash during the year totalled nil (2015: $3,251 thousand). NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016 36 FINANCIAL INSTRUMENTS 36.1 CAPITAL MANAGEMENT The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from 2015. The capital structure of the Group consists of net debt (borrowings as disclosed in note 21 offset by cash and cash equivalents as disclosed in note 35) and equity of the Group (comprising issued capital, reserves and retained earnings as disclosed in notes 23, 24 and 25 respectively). The Group operates globally, primarily through the Company and subsidiary companies established in the markets in which the Group trades. None of the entities within the Group are subject to externally imposed capital requirements. Operating cash flows are used to maintain and expand the Group’s production and distribution assets, as well as make the routine outflows of tax, dividends and repayment of maturing debt. The Group’s policy is to borrow centrally, using a variety of capital market issues and borrowing facilities, to meet anticipated funding requirements. The Group established a debt facility in Singapore during 2016 to assist with Asian funding. The Group’s Audit and Risk Committee reviews the capital structure of the Group on a semi-annual basis. Based upon recommendations of the Committee, the Group will balance its overall capital structure through the payment of dividends, new share issues and share buy-backs as well as the issue of new debt or redemption of existing debt with third parties and, if appropriate, related parties. Gearing ratio The gearing ratio at the end of the year was as follows: 2016 2015 $’000 $’000 Debt1 Cash and bank balances Net debt Equity2 Net debt divided by the sum of net debt and shareholders’ equity 55,446 44,000 (37,653) (36,931) 17,793 7,069 178,263 132,915 9.1% 5.1% 1. Debt is defined as long and short-term borrowings, as detailed in note 21. 2. Equity includes all capital and reserves that are managed as capital. Categories of financial instruments Financial Assets Cash and bank balances Loans and receivables Other financial assets 37,653 134,636 471 172,760 36,931 107,076 391 144,398 Derivative instruments in designated hedge accounting relationships Loans and payables 834 215,924 216,758 424 138,908 139,332 Financial Liabilities 36.2 FINANCIAL RISK MANAGEMENT OBJECTIVES The Group’s Corporate Treasury function provides services to the business, coordinates access to domestic and international financial markets and monitors and manages the financial risks relating to the operations of the Group. The Group seeks to minimise the effects of currency risk and interest rate risk by using derivative financial instruments to hedge these risk exposures. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written principles on foreign exchange risk, interest rate risk and the use of financial derivatives. Compliance with policies and exposure limits is reviewed internally on a continuous basis. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. BLACKMORES ANNUAL REPORT 2016 36.3 SIGNIFICANT ACCOUNTING POLICIES Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses are recognised, in respect of each class of financial asset and financial liability, are disclosed in note 2.6 to the Consolidated Financial Statements. 97 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016 36 FINANCIAL INSTRUMENTS (CONT.) 36.4 FOREIGN CURRENCY RISK MANAGEMENT The Group undertakes transactions denominated in foreign currencies; consequently exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts. The Group is mainly exposed to New Zealand Dollar (NZD), United States Dollar (USD), and Canadian Dollar (CAD). The Australian Dollar carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows: LIABILITIES ASSETS 2016 2015 2016 2015 $’000 $’000 $’000 $’000 United States Dollar (USD) New Zealand Dollar (NZD) Euro (EUR) Canadian Dollar (CAD) Swiss Franc (CHF) Chinese (CNY) Japanese Yen (JPY) South Korean Won (KRW) Thai Baht (THB) Singapore Dollars (SGD) Malaysian Ringgit (MYR) 19,363 10,917 832 690 93 4 17 47 5 2 7 4,759 7,678 79 226 (13) - - - - - - 3,045 297 - - - 57 - - 12 - - 1,158 19 - Foreign currency sensitivity analysis The following table details the Group’s sensitivity to a 10% increase and decrease in the Australian Dollar against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to Key Management Personnel and represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit or equity where the Australian Dollar strengthens 10% against the relevant currency. For a 10% weakening of the Australian Dollar against the relevant currency, there would be a comparable impact on the profit or equity, and the balances below would be negative. PROFIT/ (LOSS) 10% INCREASE 10% DECREASE 2016 2015 2016 2015 $’000 $’000 $’000 $’000 USD impact NZD impact EUR impact CAD impact CHF impact CNY impact JPY impact KRW impact 1,483 965 75 63 9 (5) 2 4 327 694 7 21 (1) - - - (1,813) (1,180) (93) (76) (10) 6 (2) (5) (400) (851) (9) (25) 1 - This is mainly attributable to the exposure outstanding on foreign currency payables in the Group at the end of the reporting period. BLACKMORES ANNUAL REPORT 2016 98 EQUITY 10% INCREASE 10% DECREASE 2016 2015 2016 2015 $’000 $’000 $’000 $’000 USD impact NZD impact (2,499) (24) - (2,273) 2,098 73 819 From time to time during the year, the Group entered into NZD, USD and CAD forward exchange contracts in order to reduce foreign currency risk. Option contracts The Group did not utilise any option contracts during the year, so there were no open contracts at 30 June 2016 (2015: $nil). Forward foreign exchange contracts The Group utilised forward foreign exchange contracts during the year. At 30 June 2016 there were open contracts of NZD2.0m, USD18.5m and MYR 1.2m (2015: NZD19.4m, USD3.1m and CAD 0.5m). These contracts are a partial hedge for upcoming raw material purchases. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016 36 FINANCIAL INSTRUMENTS (CONT.) 36.5 INTEREST RATE RISK MANAGEMENT The Group is exposed to interest rate risk as it borrows funds on a floating interest rate basis. The risk is managed by the Group by the use of interest rate swap contracts. The following table sets out the Group’s exposure to interest rate risk. 2016 2015 $’000 $’000 Financial Liabilities Borrowings (55,446) (44,000) Interest rate swap1 20,000 44,000 Net exposure (35,446) 1. Represents the notional amount of the interest rate swaps. The following table details the notional amounts and remaining terms of interest rate swap contracts outstanding as at reporting date: AVERAGE CONTRACTED FIXED INTEREST RATE OUTSTANDING FIXED FOR FLOATING CONTRACTS 2016 2015 2016 2015 2016 2015 % % $’000 $’000 $’000 $’000 Less than 1 year 1 to 2 years 2 to 5 years > 5 years 5.61 - 1.89 - 2.82 3.28 5.61 - - 3.54 NOTIONAL PRINCIPAL AMOUNT 5,000 - 15,000 - 20,000 39,000 5,000 - - 44,000 FAIR VALUE (90) - (20) - (110) (173) (250) (423) The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is the Australian bank bill swap bid rate. All interest rate swap contracts are designated as cash flow hedges. The Group will settle the difference between fixed and floating interest on a net basis. All other financial assets and liabilities (in the current and prior financial years) are non-interest bearing. Interest Rate Sensitivity Analysis The sensitivity analyses below have been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to Key Management Personnel and represents management’s assessment of the possible change in interest rates. For the year ended 30 June 2016, if interest rates had been 50 basis points higher or lower and all other variables were held constant, the Group’s net profit would decrease by $273 thousand (2015: $342 thousand) or increase by $273 thousand (2015: $342 thousand) respectively as a result of changes in the interest rates applicable to commercial bank bills. For the year ended 30 June 2016, if interest rates had been 50 basis points higher or lower and all other variables were held constant, the Group’s other equity reserves would increase by $154 thousand or decrease by $166 thousand respectively (2015: increase by $92 thousand or decrease by $132 thousand respectively) mainly as a result of the changes in the fair value of the interest rate swap. There has been no change to the manner in which the Group manages and measures the risk from the previous year. Interest Rate Swap Contracts The Group entered into $15m in new interest rate swaps during the 2016 financial year, and $39m matured during the year. BLACKMORES ANNUAL REPORT 2016 Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of variable rate debt. The fair value of interest rate swaps at the end of the reporting period is determined by discounting the future cash flows using the curves at the end of the reporting period and the credit risk inherent in the contract and is disclosed below. The average interest rate is based on the outstanding balances at the end of the financial year. 99 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016 36 FINANCIAL INSTRUMENTS (CONT.) 36.6 RISK MANAGEMENT CREDIT Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties. The Group only transacts with entities that have a positive credit history. The information used to determine creditworthiness is supplied by independent rating agencies where available and, if not available, the Group uses publicly available financial information, trade references and their own trading record to rate their major customers. Ongoing credit evaluation is performed on the financial condition of accounts receivable and, where appropriate, credit guarantee insurance. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with sound credit ratings assigned by international credit-rating agencies. The carrying amount of financial assets recorded in the consolidated Financial Statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk. There has been no change to the Group’s exposure to credit risk or the manner in which it manages and measures the risk from the previous year. 36.7 LIQUIDITY RISK MANAGEMENT Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group’s short-, medium- and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves and banking facilities and through the continual monitoring of forecast and actual cash flows. Liquidity and Interest Risk The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The tables include both interest and principal cash flows. WEIGHTED AVERAGE 3 MONTHS EFFECTIVE INTEREST <1 MONTH 1-3 MONTHS TO 1 YEAR 1-5 YEARS 5 YEARS TOTAL RATE % $’000 $’000 $’000 $’000 $’000 $’000 2016 Trade and other payables 0.00 - Borrowings 2.82 - - 160,478 - 160,478 - - - - 55,446 55,446 - - - 160,478 55,446 215,924 94,908 - 94,908 - - - - 44,000 44,000 - - - 94,908 44,000 138,908 2015 Trade and other payables 0.00 Borrowings 3.54 - - - There has been no change to the Group’s exposure to liquidity risks or the manner in which it manages and measures the risk from the previous year. The following table details the Group’s liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted net cash inflows/(outflows) on the derivative instrument that settle on a net basis and the undiscounted gross inflows/(outflows) on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by the yield curves existing at the reporting date. 3 MONTHS <1 MONTH 1-3 MONTHS TO 1 YEAR 1-5 YEARS 5 YEARS TOTAL $’000 $’000 $’000 $’000 $’000 $’000 2016 BLACKMORES ANNUAL REPORT 2016 100 Net settled: Interest rate swaps (84) - (74) 40 - (118) (84) - (74) 40 - (118) 2015 Net settled: Interest rate swaps (89) - (257) (84) - (430) (89) - (257) (84) - (430) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016 36 FINANCIAL INSTRUMENTS (CONT.) 36.8 FAIR VALUE OF FINANCIAL INSTRUMENTS The Directors consider that the carrying amounts of financial assets and financial liabilities recognised at amortised cost in the consolidated Financial Statements approximate their fair values. Valuation techniques and assumptions applied for the purpose of measuring fair value The fair values of financial assets and financial liabilities are determined as follows: • the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; • the fair value of derivative instruments are calculated using quoted prices. Where such prices are not available, a discounted cash flow analysis is performed using the applicable yield curve for the duration of the instruments for non-optional derivatives and option pricing models for optional derivatives; and • the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions. Fair value measurements recognised in the consolidated statement of financial position The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). 2016 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL $’000 $’000 $’000 $’000 Financial Assets at FVTPL - - - - - - - Unquoted equities - Asset-backed securities reclassified from fair value through profit or loss - Total - - - - 471 - 471 471 471 110 110 - - 110 110 Derivative financial assets Non-derivative financial assets held for trading Available-for-sale Financial Assets Financial Liabilities at FVTPL Derivative financial Liabilities - Total - 2015 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL $’000 $’000 $’000 $’000 Financial Assets at FVTPL Derivative financial assets Non-derivative financial assets held for trading - - - - - - - - - - - - - 391 - 391 391 391 - - 423 423 Available-for-sale Financial Assets: Financial liabilities at FVTPL Derivative financial liabilities Total - - 423 423 There were no transfers between Levels 1 and 2. Derivatives Interest rate swaps are measured at present value of future cash flows estimated and discounted based upon the applicable yield curves derived from quoted interest rates. BLACKMORES ANNUAL REPORT 2016 Unquoted equities Asset-backed securities reclassified from fair value through profit or loss Total 101 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016 37 ASSETS PLEDGED AS SECURITY In accordance with the security arrangements of liabilities, as disclosed in note 21 to the Consolidated Financial Statements, all assets of the Parent Entity have been pledged as security. The holder of the security does not have the right to sell or repledge the assets. 38 BUSINESS COMBINATIONS 38.1 SUBSIDIARIES ACQUIRED On 10 May 2016 Blackmores Limited acquired 100% of Global Therapeutics Pty Limited and 100% of New Century Herbals Pty Limited. 38.2 CONSIDERATION TRANSFERRED 2016 $’000 Cash Total 22,880 22,880 38.3 ASSETS ACQUIRED AND LIABILITIES ASSUMED AT THE DATE OF ACQUISITION 10 MAY 2016 Current assets Cash and cash equivalents 219 Trade and other receivables 3,349 Inventories 3,976 Other assets 262 Non-current assets Deferred tax assets Plant and equipment Intangible assets 187 209 14,460 Current liabilities Trade and other payables (2,642) Tax liabilities (12) Provisions (297) 19,711 38.4 GOODWILL ARISING ON ACQUISITION 38.5 NET CASH OUTFLOW ON ACQUISITION OF SUBSIDIARIES Consideration transferred Less: fair value of identifiable net assets acquired Goodwill arising on acquisition 22,880 (19,711) 3,169 Consideration paid in cash Less: cash and cash equivalent balances acquired 22,880 (219) 22,661 38.6 IMPACT OF ACQUISITION ON THE RESULTS OF THE GROUP Included in profit for the year is $300 thousand attributable to the additional business generated by Global Therapeutics Limited. Revenue for the year includes $3,100 thousand. Had this business combination been effected on 1 July 2015, the revenue of the Group from continuing operations would have been $20,627 thousand and the profit for the year from continuing operations would have been $1,781 thousand. The directors of the Group consider these ‘pro-forma’ numbers to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in future periods. BLACKMORES ANNUAL REPORT 2016 102 In determining the ‘pro-forma’ revenue and profit of the Group had Global Therapeutics been acquired at the beginning of the current year, the directors have calculated depreciation of plant and equipment acquired on the basis of the fair values arising in the initial accounting for the business combination rather than the carrying amounts recognised in the pre-acquisition financial statements. 2015 No subsidiaries were acquired during the financial year ended 30 June 2015. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016 39 PARENT ENTITY INFORMATION The accounting policies of the Parent Entity, which have been applied in determining the financial information shown below, are the same as those applied in the consolidated Financial Statements. Refer to note 2 for a summary of the significant accounting policies relating to the Group. 2016 2015 $’000 $’000 Financial position Assets Current assets Non-current assets Total assets 207,705 154,191 361,896 127,561 114,822 242,383 Liabilities Current liabilities Non-current liabilities Total liabilities 160,735 61,096 221,831 138,209 1,041 139,250 Equity Issued capital 37,753 37,753 Retained earnings 98,808 59,493 Reserves 3,504 5,887 Total equity 140,065 103,133 Financial performance Profit for the year Other comprehensive income Total comprehensive income 91,164 537 91,701 57,313 (400) 56,913 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The Company has provided Letters of Support in relation to Pat Health Ltd and Blackmores (Taiwan) Ltd, both wholly owned subsidiaries of the Group. The directors have a reasonable expectation that the Company will have sufficient financial accommodation to enable payment of the subsidiaries' debts as and when they fall due for a period of at least 12 months from the date of signing the local Financial Statements of the above mentioned entities. Contingent liabilities The Directors do not believe there are any contingent liabilities as at 30 June 2016 (2015: $nil). Commitments for the acquisition of property, plant and equipment by the parent entity Plant and equipment Not longer than 1 year 40 EVENTS AFTER THE REPORTING PERIOD 3,906 3,906 9,800 9,800 Final dividend The Directors declared a fully franked final dividend of 210 cents per share on 24 August 2016 as described in note 28. 41 APPROVAL OF FINANCIAL STATEMENTS BLACKMORES ANNUAL REPORT 2016 The Consolidated Financial Statements were approved by the Board of Directors and authorised for issue on 24 August 2016. 103