Australian Adventure Tourism : Annual Report - 30 June 2021

Annual Report

2021

Issued by: Australian Adventure Tourism Group Limited ACN 010 547 912

Date: 13th September 2021

CONTENTS

CHAIRMAN'S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. 3
DIRECTORS' REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
AUDITORS INDEPENDENCE DECLARATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME. 15
CONSOLIDATED STATEMENT OF FINANCIAL POSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
CONSOLIDATED STATEMENT OF CASH FLOWS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . .	19
DIRECTORS' DECLARATION .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	50
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	51
SHAREHOLDER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57
CORPORATE DIRECTORY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	59

Australian Adventure Tourism Group Limited 2021

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CHAIRMAN'S REPORT

As Executive Chair of Australian Adventure Tourism Group Limited and its controlled entities (Group), I am pleased to present the 2021 Chairman's Report to shareholders..

Australian Adventure Tourism Group

The Group's key business focus has continued to be on tourism and accommodation related activities at Airlie Beach, the mainland centre of Queensland's beautiful Whitsundays.. Australian Adventure Tourism Group continues to own and operate the Magnums Unique Accommodation property, which occupies approximately 17,000 square metres of the most centrally located land in the Airlie Beach township.. During 2020, the property was repositioned from its multi-decade target market of International backpackers under the well-known brand of Magnums Backpackers.. The Group continues to explore options to maximise the potential of this valuable town centre property..

The transition to Magnums Unique Accommodation developed as a direct result of the impacts of the COVID-19 Pandemic.. The era of operating as an award-winning "backpackers" had come to an end hastened by the onset of the COVID-19 Pandemic.. Magnums, prior to the Pandemic, consisted wholly of dormitory style shared accommodation, with guests sharing all facilities, including bathrooms, recreation areas, kitchen and laundry facilities.. Magnums' transition from Backpackers to Unique Accommodation

is now completed with renovated facilities re-opening on a progressive basis from 21 June 2020.. Magnums can now trade as a certified COVID-19Clean-Covid Ready operation and meet all past and current social distancing legislation which has enabled the business to refocus on revenue generation and yield management..

At the time of this important decision-making process, the prospects for such accommodation at Airlie Beach were unclear, although, the passage of one year, has validated the decisions made with growing current accommodation demand from the Australian domestic markets in Queensland and southern states.. This has been facilitated by a very strong "drive-yourself" market, which has been targeted through multiple successful marketing campaigns and a measured and focused rebranding campaign to support the repositioning.. The Whitsunday Shire Council, which also operates the regional Whitsunday Coast Airport, has worked hard to re-establish and build passenger capacity. To date their efforts have proved to be successful with the return of twice-weekly Qantas flights adding significant passenger capacity from Southern markets and most recently adding intra-state, Rockhampton and Cairns flights. Magnums, like all regional businesses, continues to be highly dependent on the Queensland Borders being open to travellers.. Magnums' current 2021/22 business model has zero dependence on international borders being opened in the foreseeable future..

During the repositioning period, the Group was able to internally fund all costs of the renovation without borrowing and the entire Magnums workforce was maintained, with the exception of one full-time administration position..

With the prospect of the COVID-19 Pandemic likely continuing to impact significant aspects of tourism, the Board has also continued to progress its involvement in the Whitsunday Skyway Project as a stand-alone project with a capacity to generate significant new International standard interstate and intrastate tourism activity on the mainland and new employment in the Whitsunday region.. There is continued support from the local community, including amongst other tourism operators, who recognise the potential value in having a significant new regional tourism drawcard providing an international standard tourism activity facility on the Whitsunday mainland.. There is ongoing and increasing interest and support coming from the Regional, State and Federal Governments and the assessment process at Queensland Government level is continuing positively.. The Board continues to classify the Whitsunday Skyway Project as speculative and dependent on securing several approvals..

The primary goal for Australian Adventure Tourism Group in the 2022 financial year is to continue to reposition Magnums, building occupancy levels and maximising yield in the Group's targeted business model, whilst actively pursuing the new markets and corporate development that will develop with the success of the Whitsunday Skyway Project..

Elizabeth Hackett

Executive Chairman

Australian Adventure Tourism Group Limited 2021

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DIRECTORS' REPORT

The board of directors (Board) of Australian Adventure Tourism Group Limited (Australian Adventure Tourism Group) submits to members the Financial Report of the company and its controlled entities (Group) for the year ended 30 June 2021..

PRINCIPAL ACTIVITIES AND SIGNIFICANT CHANGES IN THE NATURE OF THOSE ACTIVITIES

The principal activities of the Group during the year were:

Tourism and hospitality activities comprising:

• the ownership and operation of Magnums Unique Accommodation (Magnums) and Magnums Tour Office.

Investment activities comprising:

• listed investments, including Australian Dairy Nutritionals Group (ASX Code: AHF)..
  The investment in AHF was originally made in October 2014 by the Group's former parent company Trustees Australia
  Limited (ASX Code: TAU), which was instrumental in the formation of AHF and initiated its initial public offering and ASX listing in October 2014..
  The investment in AHF remained with AAT when AAT Group was demerged from TAU and separately listed on NSX in August 2017, contemporaneously with Trustees Australia Limited's separate merger with Cashwerkz Limited (ASX Code: CWZ)..

Since that time, the investment by tourism-focused AAT Group in the listed milk processing company, AHF, has not been a core activity of the Group and consequently is held for sale subject to market price considerations..

Property activities comprising:

• development property ownership in respect of under-utilised land associated with Magnums (Lot 331 Land)..

There has been no significant change in the nature of these activities during the year other than completing the repositioning of Magnums operations from the Backpacker market focus to Unique Accommodation, aimed primarily at the Australian domestic market..

BUSINESS MODEL AND OBJECTIVES

The Group is primarily focused on the operation and progressive repositioning of its tourism and property activities.. This includes continuing consideration and strategic development of new domestic tourism markets for the Magnums facilities, particularly with a short-term focus to the Australian domestic market..

Clearly the impact of the COVID-19 Pandemic has accelerated change in the Group's target markets and marketing approach, with progressive international and domestic border closures.. The Board and management are well placed from an experience and knowledge base perspective to accommodate these changes and facilitate the continued expansion of business activities..

As an integral part of continuing to adapt to changing markets and expand the Group's potential future business opportunities, the Group has continued to progress the approval process for the Whitsunday Skyway Project with the Queensland and Federal Governments. This project, if approved, has potential to add a significant new tourism attraction to the Airlie Beach / Whitsunday mainland.. As previously advised by the Board, the Whitsunday Skyway Project is regarded as a valuable project if approved, however, until that time it is considered by the Board as speculative in nature..

The Directors remain strongly aware of the strategic location and size of the Group's landholdings in the heart of Airlie Beach and continue to explore opportunities to be able to take advantage of changing market conditions in the Airlie Beach - mainland Whitsunday region..

OPERATING RESULTS

The consolidated comprehensive loss for the year ended 30 June 2021 attributed to members of Australian Adventure Tourism Group, after providing for income tax was $239,772 (2020: $2,492,468 loss)..

The result was achieved on revenue and other income of $2,155,340 (2020: $2,394,184), total expenses of $2,035,809 (2020:

$3,478,057) and a non-cash loss on fair value movement on financial assets of $359,303 (2020: $1,408,595 loss).

The fair value movement of financial assets primarily reflects the decrease in the ASX quoted market value of the stapled securities

held in ASX listed Australian Dairy Nutritionals Group (AHF).. Holding listed investments is not a long-term core activity for the Group and the intention is to progressively dispose of the holding to release cash for core business development.. Subject to being able to realise an adequate sale price for the securities, the Group expects to realise this asset in the next 12 months as the Group implements its plans with respect to target market repositioning and its aspirations for the Whitsunday Skyway Project progress..

Australian Adventure Tourism Group Limited 2021

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DIRECTORS' REPORT (cont'd)

FINANCIAL POSITION

The net assets of the Group are $6,440,045 at 30 June 2021, a decrease of $239,772 from 30 June 2020..

At 30 June 2021, the Group has cash and cash equivalents of $1,285,080 (2020: $64,780) and borrowings of $1,167,511 (2020: $111,909).. Borrowings at 30 June 2021 includes an advance from entities associated with Michael Hackett, a former founding director of the Group and a current director of the major shareholders in the Group.. The facility is a three-year, unsecured loan facility with an interest rate based on the published rates by the National Australia Bank Limited for comparable loan facilities..

A condition of the loan facility is that the Board will seek approval from shareholders at the 2021 Annual General Meeting of the Group for approval to convert the unsecured loan facility to Redeemable Preference Shares.. Terms are to be agreed with the Board and considered by unassociated shareholders in compliance with regulatory requirements of ASIC and NSX..

The Group believes it is in a position to expand and grow its current operations as opportunities present.. Despite the challenges presented by the COVID-19 Pandemic for tourist travel in FY 2020 and FY2021 and potentially beyond, the Group is confident that its combined experience in the Australian tourism industry and the Whitsunday region will ensure that the repositioning changes underway will result in profitable new outcomes.

REVIEW OF OPERATIONS AND BUSINESS SEGMENTS

• TOURISM AND HOSPITALITY - MAGNUMS OPERATIONS
  The Group's operations were materially adversely effected by the COVID-19 Pandemic during the financial year.
  From March 2020, the COVID-19 Pandemic materially changed the travel plans of all tourists resulting in the temporary full closure of Magnums Backpackers on 6 April 2020, as seen in most tourist destinations in Queensland and other states and throughout the world..
  As part of the closure process, most personnel were stood down for some time and they and the Group benefitted from the various government support packages such as Job Keeper and Job Seeker.. As outlined in the Chairman's report, during the
  2021 financial year the Group has transitioned its backpacker style accommodation to Unique Accommodation.
  Magnums Unique Accommodation is open for business at the time of this report, and is experiencing encouraging occupancy levels, predominantly from the Queensland drive and week-end markets, while interstate visitation is adversely impacted by "Lockdowns" in most major Australian centres.. Airline and other public transport from those areas has virtually ceased and interstate road travel is essentially non-existent at the time of this report..
  Several Airlie Beach based tour operators conducting reef visits and dive experiences are operating with limited passenger numbers, whilst also observing precautions for COVID-19 transmissions.. At the time of writing this report, there is no clear indication of what the future will present, however there are prospects of being able to continue to operate within tourism "bubbles" for intra-state and potentially inter-state and New Zealand visitors..
• INVESTMENTS - AUSTRALIAN DAIRY NUTRITIONALS GROUP
  Australian Adventure Tourism Group is a significant securityholder in ASX listed Australian Nutritionals Group (AHF), holding
  15,309,892 fully paid stapled securities or 3..11% (2020: 4..13%).. The securities were acquired as part of a corporate action by the Group's former holding company in 2014 and were retained by the Group on its demerger from the former parent company in 2017.. The AHF securities have been valued at the 30 June 2021 ASX bid price of 4..6 cents (2020: 6..8 cents).. Since that date the securities have traded between 5 cents and 6 cents.. The holdings are not regarded as core assets and are available for sale depending on market price..
• PROPERTY
  In addition to the Magnums freehold land and buildings, the Group owns Lot 331 Land at Airlie Beach adjoining the Magnums property, which is currently used for vehicle parking and access.. The land parcel has a strategic value in terms of the future development of various adjoining land parcels and potentially for development in conjunction with a future Whitsunday Skyway Project..
  The Board is currently evaluating development options for this land, which is already zoned for commercial development and is well located adjoining the central "loop road" for the central business district of Airlie Beach..

FUTURE DEVELOPMENTS, PROSPECTS AND BUSINESS STRATEGIES

The Whitsunday Skyway Project is a prospective independent financial, economic and operational feasibility for a scenic gondola cableway project that the Group had been considering for several years to connect the centre of Airlie Beach with an unnamed 430 metre high peak in the adjacent Conway National Park to the south west of the Airlie Beach town-centre.. Work on the feasibility and economic impact assessment is advanced and continuing..

As advised by the Board in earlier announcements, the proposal is regarded by the Board as speculative and is subject to, and will rely on obtaining State and Federal Government and Local Authority approvals, including an approval for limited development in a section of the Conway National Park. The feasibility is materially complete and looks financially and economically prospective, although various operational and assessment challenges remain to be undertaken and completed..

The Whitsunday Skyway Project is being assessed by the Queensland Government as an Exclusive Transaction following the Queensland Premier Annastacia Palaszczuk's public announcement of support in October 2020..

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