Villa World : 15 Feb 2017 - Half Year Financial Report to 31 December 2016

INTERIM FINANCIAL REPORT

31 DECEMBER 2016 VILLA WORLD LIMITED ABN 38 117 546 326

CELEBRATING 30 YEARS

SUCCESS THROUGH PROPERTY

Page

Directors' report 1

Auditor's Independence Declaration 5

Interim financial statements 6

Interim condensed consolidated statement of comprehensive income 7

Interim condensed consolidated balance sheet 8

Interim condensed consolidated statement of changes in equity 9

Interim condensed consolidated statement of cash flows 10

Notes to the interim condensed consolidated financial statements 11

Directors' declaration 23

Independent auditor's review report to the shareholders of Villa World Limited 24

This interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the Annual Report for the year ended 30 June 2016 and any public announcements made by Villa World Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

VILLA WORLD INTERIM REPORT - 31 DECEMBER 2016 ii

The Directors of Villa World Limited present their report together with the interim financial report for the half-year ended 31 December 2016.

This report relates to Villa World Limited and its subsidiaries ("Company") and the Company's interest in associates and jointly controlled entities.

The Directors of Villa World Limited during the period and up to the date of this report were:

• Statutory net profit after tax from continuing operations of $19.6 million (31 December 2015: $20.4 million statutory net profit after tax)

• Earnings per share from continuing operations of 17.4 cps1 (31 December 2015: 18.5 cps)

• 8.0 cps fully franked interim dividend (31 December 2015: 8.0 cps fully franked)

• Revenue from the sale of property of $209.4 million (31 December 2015: $200.2 million)

• Accounting settlements2 of 592 lots (including the Company's share of joint ventures) (31 December 2015: 550 lots)

• Net sales3 of 673 lots (31 December 2015: 497 lots) for a gross value (inclusive of GST) of $258.6 million

  (31 December 2015: $191.0 million), inclusive of proportional share of joint ventures

• A total of 554 contracts on hand at 31 December 2016 (31 December 2015: 311 contracts) to carry forward for a gross value4 of $191.6 million (31 December 2015: $107.7 million)

  • Gearing5 of 23.0% (30 June 2016: 25.6%)

• During the period, the Company secured an extension to the $50 million Westpac facility to 31 March 2019 as well as increasing the ANZ facility to $140 million.

Villa World has marked its half-year with strong sales, delivery and increased revenue contributing to a $19.6 million statutory profit after tax. The positive 1H17 result includes a guidance increase in the expected full year result representing growth of 11% on FY16.

The financial result for the half-year to 31 December 2016 was a statutory net profit after tax of $19.6 million (17.4 cps), compared to a net profit after tax of $20.4 million (18.5 cps) for the half-year to 31 December 2015.

Continued sales momentum combined with $165.66 million of carried forward sales from FY16, and excellent delivery of land and housing resulted in 592 accounting settlements in 1H17 (1H16: 550). As a result, revenue increased by 5% to $209.4 million (1H16: $200.2 million).

The revenue mix reflects the Company's continued focus on its core capabilities in house and land, as well as very strong land only settlements. In total, 66% of revenue was generated through house and land product (1H16: 76%). Queensland remained the main contributor to revenue at 84% (1H16: 86%).

1. Basic earnings per share based on weighted average of shares on issue of 112,728,788 (1H16: 110,344,277).

2. Accounting settlements are based on the revenue recognition accounting policy.

3. Sale - executed contract of sale, not necessarily unconditional.

4. Contracts on hand gross value - total sales value (including GST) for conditional and unconditional contracts not yet recognised as revenue, inclusive of proportional share of joint ventures.

5. Gearing ratio (interest bearing liabilities less cash)/(total assets less cash).

6. Represents gross sales price inclusive of GST.

   VILLA WORLD INTERIM REPORT - 31 DECEMBER 2016 1

   (continued)

   Review of operations (continued) Revenue from Land Development, Residential Building and Construction Contracts (continued)

   Average revenue per lot was $360.4k (1H16: $353.6k) and is reflective of the product mix. The average revenue per house and land lot rose 12% to $453.3k (1H16: $405.3k) with strong settlements of traditional house and land product, compared to a high number of settlements at the affordable townhouse project Orana in the prior year. Average land only revenue rose 4% to $254.7k (1H16: $244.0k) reflecting a high number of land only settlements across higher value projects in Queensland and continued settlements at the more affordable Cardinia Views and Sienna in Victoria.

   2% to 5% revenue growth was experienced at selected (like for like) estates over FY16.

   Gross Margin

   The gross margin for 1H17 was $54.7 million or 26.1% (1H16: $55.0 million or 27.5%). All aspects of the Silverstone proceedings were concluded in 1H17, with $0.5 million (1H16: nil) released back into profit7.

   Revenue - Development and Project Management

   During 1H17 the Company continued to progress its strategy to grow development and project management income streams by deploying development management skills into joint venture arrangements. These joint ventures delivered $1.0 million in fee income in 1H17 (1H16: $1.2 million). The Company anticipates development and project management fees will provide an ongoing revenue stream for the business.

   Share of Profit from Equity Accounted Investments

   The share of profit from equity accounted investments and associates of $0.9 million related to land settlements at the Rochedale joint venture. In the prior year, the settlement of the Eynesbury joint venture contributed $3.6 million to profit.

   Operational Performance

   The Company recorded 673 sales (1H16: 497) in 1H17 across 18 projects (1H16: 17 projects). The average sales rate remained strong at 112 per month (1H16: 83).

   Sales remained weighted to Queensland (68%) (1H16: 80%) due to the number of projects being marketed and continued supportive market conditions.

   The Company's strategy of targeting growth corridors continues to reap excellent results in Queensland, with strong sales in all south east Queensland corridors and in Hervey Bay. Victorian projects accounted for 26% of sales (1H16: 20%), with a strong performance from the land only project Cardinia Views, and near sell out of the Company's turnkey house and land product at Lavinia, and the house and land, and land only offering at Sienna.

   The Company maintains a solid position in all customer segments - the core being the retail market (comprising owner occupiers including first home buyers), as well as builders and predominantly local investors8.

   The Company delivered 324 lots of land (1H16: 552). The Company's housing operations delivered 291 homes across both Queensland and Victoria (1H16: 385).

   Sales Contracts Carried Forward

   At 31 December 2016, the Company carried forward 554 sales contracts valued at $191.6 million9, with 86% of contracts (479 contracts valued at $161.0 million) due to settle in 2H17 and the balance in FY18. The strong carried forward sales, when combined with the Company's continued sales focus, places the Company in a very strong position for the remainder of FY17.

   Property Sales and Marketing Costs

   The sales and marketing strategy introduced in 2015, which shifted focus onto the Villa World brand and targeted regional marketing campaigns, has benefitted both sales and sales and marketing costs. Sales and marketing costs for 1H17 were $11.0 million (1H16: $12.7 million), representing 5.3% of revenue (1H16: 6.3%). The Company expects sales and marketing costs for the full year to be consistent with the prior financial year.

7. Refer Finance Statements Note B3 (c) - Legal Claims.

8. Less than 5% of 1H17 sales were to international investors. 9 Represents gross sales price including GST.

VILLA WORLD INTERIM REPORT - 31 DECEMBER 2016 2