Advanced Braking Technology Limited
Annual Report 2012

Plain-text annual report

ADVANCED BRAKING TECHNOLOGY LTD AND CONTROLLED ENTITIES ABN 66 099 107 623 ANNUAL REPORT 2012 ANNUAL REPORT 2012 i ADVANCED BRAKING TECHNOLOGY LTD AND CONTROLLED ENTITIES ABN 66 099 107 623 CORPORATE DIRECTORY Company Secretary Clare Madelin Bankers Bank of Western Australia Ltd (BankWest) Level 20, 108 St George’s Terrace Perth, WA, 6000 Directors David Humann Malcolm Richmond David Slack Ken Johnsen Registered Office Unit 1 3 McDonald Street Osborne Park WA 6017 Telephone: + 61 8 9273 4800 Facsimile: + 61 8 9201 9986 Manufacturing Safe Effect (Thailand) Co. Ltd Laem Chabang Industrial Estate No. 242 Moo 3 Tambol Thungsukla, Amphur Sriracha Chonburi 20230 Thailand Share Registry Computershare Investor Services Pty Ltd Level 2, Reserve Bank Building 45 St George's Terrace Perth, WA, 6000 Telephone: + 61 8 9323 2000 Facsimile: + 61 8 9323 2033 Auditors Moore Stephens Level 3 12 St George's Terrace Perth, WA, 6000 Solicitors Q Legal Level 4 105 St George's Terrace Perth, WA, 6000 ASX Home Branch Australian Securities Exchange (ASX) Level 8, Exchange Plaza 2 The Esplanade Perth, WA, 6000 Country of Incorporation Australia Legal form of entity Listed public company ASX Code ABV – Ordinary shares ii ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd CONTENTS CORPORATE DIRECTORY COMPANY OVERVIEW CHAIRMAN’S LETTER CHIEF EXECUTIVE OFFICER UPDATE CORPORATE GOVERNANCE STATEMENT DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION AUDITOR’S REPORT STOCK EXCHANGE INFORMATION ii 2 3 4 8 14 24 25 26 27 28 29 70 71 73 ANNUAL REPORT 2012 1 Advanced Braking Technology Ltd COMPANY OVERVIEW The Advanced Braking Technology Ltd group (ABT) is a provider of improved vehicle braking systems based on the patented Sealed Integrated Braking System (SIBS®) technology. ABT designs, manufactures and distributes these systems to customers around the world. The key features of the SIBS® technology is that a single brake rotor runs within a sealed housing containing oil. The oil within the housing is used to cool the brake. During braking an oil film is maintained between the braking surfaces and this results in minimal wear of the friction surfaces. A fail-safe mechanism is also incorporated into the SIBS® design that improves vehicle safety. SIBS® technology has been in used in the mining industry for almost two decades. The Company offers a range of brake upgrade kits that are fitted to light, medium and heavy commercial vehicles used in mining. In many underground mines SIBS are fitted across the entire light vehicle fleet. The key benefits of SIBS® are; • Reduced brake wear which provides lower operating costs • • • • • Can be adapted to most vehicle types Lower operating temperatures Improved safety through less wear and fail safe features Elimination of airborne dust particles Elimination of brake noise. Having gained a strong presence in the mining sector with SIBS® ABT will, this coming financial year, begin the commercial sales of SIBS® in the waste collection market. Based on results of 4 years of development this promises to be a very lucrative business opportunity that will transition the Group from being a successful participant in a niche market to being a strong participant in a global and recession proof market. 2 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd CHAIRMAN’S LETTER Dear Shareholder, Advanced Braking Technology has entered a new and exciting phase of growth. The future direction of the Company will focus on our mining sector products, the new Garbage Truck Brake and on further developing other Australian and overseas markets. Progress during FY2012 was strong. The Company has consolidated its strong market position within the mining sector. There have also been significant advances in the development of our Garbage Truck Brake, with the decision to commercialise the revolutionary product in FY2013. ABT has invested heavily in product research and development across both the mining and waste removal sectors, laying solid foundations for significant growth in this coming financial year. From a financial perspective, total revenue was up by 10% to $8 million. The mining sector experienced strong sales in the first three quarters, securing ABT’s position in the mining market. In pursuing our growth strategy we increased expenditure on product upgrades. Funding for product development came from our internal cash flows, a substantial Commercialisation Australia grant and also from a successful equity capital raising in April 2012. ABT’s investment and commitment to upgrading our products have translated to a small statutory loss for the financial year. A continuing investment in the improvement and expansion of our product range is necessary to realising the long-term growth potential of the Company. Despite the “end of the mining boom” commentary in recent weeks, industry sales volumes are at record levels and margins of profit in the major mineral classes are excellent. New mine development, particularly in iron ore, coal and copper is very strong. We expect to see the Chinese leadership fulfil its promise to its people that growth in China’s economy will continue – this indicates a re-stimulation of that economy. It is our intention to become a major player in the waste removal sector. Earlier this year, ABT announced its commitment to the commercial roll-out of the garbage truck brake in FY2013. The potential is unlimited and the product has global applications. Waste management is an essential, worldwide industry which is largely unaffected by fluctuating economic conditions. ABT’s future focus on its two core business divisions, mining and waste removal, will diversify the Company’s exposure to the cyclical nature of the mining industry and minimises its overall risk profile. Both business divisions will continue to play an important role in our overall business strategy. Our people are fundamental to our success. This year we have expanded our workforce, enhancing our sales and technical expertise. I am confident that this expansion in knowledge and experience will strengthen the Company’s ability to deliver on its key priorities and developments. We have also focused on improving the efficiency of our manufacturing plant and the performance of our suppliers in Thailand. We have implemented sound project management, logistical and internal control systems, as well as active communication between our Western Australian and Thai operations. With administrative and resourcing improvements, ABT is well placed to manage the additional workload expected to arise following the commercial launch of our garbage truck product. ABT’s outlook for 2013 is very promising, with the Company’s continued focus on product commercialisation. This is directly aligned with ABT’s intended aim of delivering significant shareholder value. I would like to acknowledge the dedication and efforts of our CEO, Ken Johnsen, throughout the year, and to thank my fellow Directors and all our staff for their diligent efforts. I would also like to thank you, our shareholders, for your ongoing support of ABT. I look forward to reporting to you over the next year with updates on our progress. DAVID HUMANN Chairman ANNUAL REPORT 2012 3 Advanced Braking Technology Ltd CHIEF EXECUTIVE OFFICER UPDATE Introduction The 2012 financial year was a period of significant progress for Advanced Braking Technology Group (ABT). Substantial human and financial capital was invested over the year in the development of our revolutionary garbage truck brake and I am pleased to report that this “company making” product is now poised for commercial rollout in 2013. Furthermore, advancements were also made to our existing business in the mining sector. Here, considerable enhancements were made to our product offering and the Company’s market positioning was maintained despite challenging macro industry conditions. Year’s Highlights Readiness for commercial production and roll-out of the SIBS Garbage Truck Brake during FY13   Development of an ABS (anti-skid) version of the SIBS Garbage Truck Brake   Confirmation of the significant environmental benefits of the SIBS Garbage Truck Brake The transition to the improved SIBS II version of the light commercial vehicle brake across various Landcruiser models The expansion of the existing mining vehicle market by the development for the SIBS II variant for the Toyota Hilux and other similar sized vehicles.  A successful $2.1 million capital raising in April 2012  A small loss combined with a substantial investment in upgraded products  An expanded workforce with bolstered expertise across sales and technical areas to support planned  expansion of the mining business and the new garbage truck business. SIBS® Garbage Truck Brake ABT has developed a revolutionary new garbage truck braking product which aims to deliver significant “triple bottom line” benefits to fleet operators. These include: substantially reduced servicing costs, more consistent and reliable braking performance and the elimination of noise and dust emissions. Importantly, Board approval was provided in July 2012 for the Group to progress towards the commercial rollout of its garbage truck brake in the second half of the 2013 financial year. This decision follows the culmination of a four year product development program and a comprehensive assessment of the products technical and commercial viability. We strongly believe our garbage truck braking product has the potential to transform ABT and drive significant shareholder value over the long term. Put simply, the product’s business fundamentals are compelling. Consider:     The market opportunity – large, recession resistant, global market The customer proposition – significant savings, superior operating performance and environmental benefits Competition – none currently and protection is provided via a broad patent portfolio The commercial model based on healthy margins designed for scalability Furthermore, the technical risk associated with our garbage truck braking product is considered to be very low. Our confidence in this assessment is based on:    4 The ABT team’s significant experience and expertise with the associated technology The Group’s long history of successfully utilising this technology for other applications The extensive and successful testing process which has been undertaken through our multi-year product development phase ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd CHIEF EXECUTIVE OFFICER UPDATE (continued) Importantly, our product development activities have confirmed that all of the key desired performance attributes established at the outset of the project will be delivered to customers. These comprise:  Significantly extended brake overhaul intervals A compelling driver for the widespread adoption of this new approach to truck braking is that extensive testing has shown that the major brake overhaul interval on a garbage truck can be extended from an average of 5 months to potentially over 24 months.  Compatibility with modern anti-skid systems (ABS) The Company has confirmed that the SIBS Garbage Truck Brake can interface with and is compatible with standard anti-lock braking. This will enable the system to be available on new truck models that are factory fitted with ABS and also provide the opportunity to provide an ABS upgrade for those operators wishing to retro-fit our system to their existing fleets.  Availability as a retro-fit braking system A key design goal of ABT was to ensure that the SIBS Garbage Truck Brake could be retrofitted the garbage trucks. After fuel, brake repair and maintenance is the second highest cost of operating a garbage truck. The ability to retro-fit the system without any modifications to the vehicle provides huge benefits to potential customers and the immediate access to an enormous worldwide market for the Company.  A compelling commercial proposition All current testing has indicated that the Group will be able to offer a braking system that will allow operators a payback on their initial investment of around two years and ongoing annual savings per truck of up to $15,000. From the Company’s position, it has been confirmed that a selling price that will be attractive to fleet operators will also deliver the Group a gross margin in-line with expectations.  Environmental benefits Apart from the supply of a key product to the waste collection industry, the commercial roll-out of the SIBS brake technology has significant community benefits. Firstly, standard braking systems on garbage trucks are a major source of noise pollution. Brake squeal is one of the most cited community complaints – especially by those awoken by brake squeal during early morning bin collection. The SIBS Garbage Truck Brake eliminates all brake squeal. Company research and testing has also confirmed that the SIBS Garbage Truck Brake will assist in improving the air quality by eliminating up to 30 kilograms of fine brake dust particles every year, for every truck that uses our system. In Australia, this translates to over 90 tonnes of fine particulate matter that could be eliminated from the atmosphere per annum if all garbage trucks used the SIBS Garbage Truck Brake. ABT is currently finalizing all necessary arrangements to facilitate commercial rollout during the 2013 financial year. Final testing and validation of the pilot production sample will take place during the first half of FY13. The Group’s aim is to have the SIBS Garbage Truck Brake sets available for sale during the second half of FY13. These final steps prior to the commercial release of the brakes continue to be supported with – Early Stage Commonwealth Commercialisation program. The Company’s own investment in this activity is being matched with Commonwealth funding. the Commercialisation Australia funding assistance through The year ahead for ABT is full of potential. The Group is being transformed and is well positioned for exponential growth as it prepares for first entry into the global waste industry, with a compelling new patented product. ANNUAL REPORT 2012 5 Advanced Braking Technology Ltd CHIEF EXECUTIVE OFFICER UPDATE (continued) Mining Products Advanced Braking continues to offers a range of braking products based around its proprietary SIBS technology which allows mine operators to improve the safety, reliability and operating cost of the vehicle they use to support their mining activities. These vehicle fall into three categories; light commercial vehicles, such as Toyota Landcruisers, medium duty trucks, such as Fuso Canter, and heavy rigid trucks, such as Mack. The Company offers SIBS brakes for each of these three categories. The Group experienced strong sales in the first three quarters of the year with sales as at 31 March being 17% ahead of the prior year. A softer than expected 4th quarter resulted in sales for the full year being 3% ahead of the prior year. This softening towards year end was due to a number of short term external factors impacting the resource sector resulting in capital expenditure being delayed and many mine expansions being curtailed. The strong demand experienced through most of the year indicates that SIBS brakes are fulfilling a clear market need and are now well established as the benchmark product for safer braking systems in the mining sector with many mines having equipped their entire fleet of light vehicles. The benefits of the upgraded SIBS II mining brake were realised across the Company’s customer base with improved serviceability and reliability and reduced operating cost. SIBS II has replaced SIBS I our standard product offering across the Landcruiser range in Australia and is being carried across to other products. Importantly, export sales now account for 22% of total sales – up from 19% in the prior year. This reflects an increasing awareness of our product internationally and demonstrates its global rollout potential. Ongoing product development activities aimed at enhancing the attractiveness of the mining products and widening the areas of product application are expected to yield increased sales in the coming year. The mining sales force has also increased with two additional sales staff to cover the eastern states of Australia and also augment the existing sales activity in South Africa. The mining division contributed $1.33 million of profit to the group. Results Discussion Total revenue in the year for the Group increased 10% to $7.97 million (2011 - $7.24 million) and a net loss after tax of $123,000 was recorded compared to a profit last year of $550,000. The main profit driver was the mining side of the business with a segment profit (before tax) of $1.33 million on sales of $6.4 million. The increased investment in development activities aimed at enhancing growth prospects, supported by the cash generated by the mining division and external funding sources, served to reduce the mining profit to the small loss reported. The engineering services division that is responsible for all Group development activities, had income of $1.6 million (grant and R&D incentives) and overall expenditure including depreciation of $3.78 million. Of this expenditure, $1.25 million was capitalised as pre-production and development expenditure relating to the SIBS Garbage Truck Brake. R&D expenditure on mining products is expensed as it is incurred. This division recorded a net loss of $927,000. The net loss in the engineering division of $927k, combined with other unallocated costs (IP amortization, finance and legal fees) of $527k reduce the mining division profit of $1.33 million to a net after tax loss for the Group of $123k. The Company benefits from two Commonwealth assistance programs in support of its development and commercialisation activities. In April 2011 it was awarded a $2 million Commercialisation Australia Early Stage Commercialisation grant. This year the Company recognized income of $761,000 from this grant and 6 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd CHIEF EXECUTIVE OFFICER UPDATE (continued) further amounts totalling up to $862,000 towards eligible expenditure will be receivable up to the completion of grant period on 30th June 2013. The introduction of the new Commonwealth R&D Tax Incentive arrangements will provide a 45% cash rebate on eligible R&D expenditure from 1st July 2012. An amount of $780,000 has been accrued and is expected as a cash payment following lodgment of the Company’s 2012 tax return. From a cash flow perspective, net cash used from operations for the 12 month period was $415,000 compared to cash provided over the previous year of $141,000. The cash balance at year’s end was $2.925 million. Included in the investment activities for the 12 month period was the purchase of property plant and equipment of $647k and expenditure on capitalised pre-production activity of $1,252 million. Included in the current assets at year’s end is inventory of $2.23 million - up $452,000 on the previous year. Current and non-current interest bearing liabilities totaled $406,000 and comprised hire purchase and lease arrangements, primarily for test vehicles. Net assets increased by $2 million to $9.65 million this year as a result of a capital raising during the year. Outlook With the decision to commence commercial production of the SIBS Garbage Truck Brake this financial year, ABT will begin its transition from being a leading player in the small mine vehicles market to being a significant player in the global waste collection industry. In contrast to the highly cyclical mining sector, the shift into the waste industry provides solid growth potential in a recession proof sector. The mining business will continue to play an important part in the Company’s business as it grows and extends what has been proven as a viable business model across to the waste collection market. This business model combines low cost offshore manufacturing with ABT’s proprietary technology to deliver significant value to customers and is expected to generate increasing shareholder value. Acknowledgements I would like to acknowledge the significant contribution over the period from all ABT staff members and the continued and valued support from our customers. My appreciation also goes to a supportive Chairman and Board of Directors through a year in which the prospects of the Group have shown considerable improvement. Ken Johnsen Chief Executive Officer and Managing Director 31st August 2012 ANNUAL REPORT 2012 7 Advanced Braking Technology Ltd CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 30 JUNE 2012 The Board of Directors of Advanced Braking Technology Ltd has adopted the following set of principles for the corporate governance of the Company. These principles establish the framework of how the Board carries out its duties and obligations on behalf of the shareholders. ASX BEST PRACTICE RECOMMENDATIONS The ASX Listing Rules require listed companies to include in their annual report a statement disclosing the extent to which they have complied with the ASX Best Practice Recommendations in the reporting period. These recommendations are guidelines designed to produce an efficiency, quality or integrity outcome. if a company considers that a recommendation is inappropriate having regard to its particular circumstances, the the company has recommendations, the annual report must identify which recommendations have not been followed and give reasons for not following them. The recommendations are not prescriptive so that to follow it. Where a company has not the flexibility not followed all Details have been included at Recommendations with which the Company has and has not complied in the reporting period. this statement setting out the end of the ASX Best Practice Details of the Company’s corporate governance practices in the relevant reporting period are set out below. THE BOARD OF DIRECTORS Role of the Board The primary responsibilities of the Board are set out in a written policy and include:  the establishment of the long term goals of the Company and strategic plans to achieve those goals; the financial performance of the Company and  monitoring the achievement of these goals;   the review of management accounts and reports to monitor the progress of the Company; the review and adoption of budgets for monitoring the results on a regular basis to assess performance; the review and approval of the annual and half-year financial reports; nominating and monitoring the external auditor; approving all significant business transactions; appointing and monitoring senior management; all remuneration, development and succession issues; and ensuring that internal control together with appropriate monitoring of compliance activities. the Company has implemented adequate systems of       risk management and The Board evaluates this policy on an ongoing basis. Board composition The Directors’ report contains details of the Directors’ skill, experience and education. The Board seeks to establish a Board that consists of Directors with an appropriate range of experience, skill, knowledge and vision to enable it to operate the Company’s business with excellence. In particular the Board seeks a cross section of experience in commerce, technology and in related industry sectors as well as experience on Boards of other public listed companies. To maintain the balance of skills and experience, the Company’s policy is that non-executive directors should serve at least 3 years. At the completion of the first 3 years, the position of the Director is reviewed to ascertain if circumstances warrant a further term. The Board comprises three non-executive Directors and one executive Director. Details of the Directors are set out in the Directors’ Report. 8 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd CORPORATE GOVERNANCE STATEMENT (continued) FOR THE YEAR ENDED 30 JUNE 2012 The Board requires that the Chairperson should be an independent director and that the role of Chairperson and chief executive officer should not be exercised by the same individual. The role of the chairperson has been fulfilled by Mr David Humann and the role of Chief Executive Officer has been fulfilled by Mr Ken Johnsen. Appointment of Directors The Board is primarily responsible for identifying potential new Directors but has the option to use an external consulting firm to identify and approach possible new candidates for Directorship. The selection of the Directors must be approved by the majority of the shareholders. Retirement and re-election of Directors The Constitution of the Company requires one third of Directors, other than the Managing Director, to retire from office at each Annual General Meeting. Directors who have been appointed by the Board are required to retire from office at the next Annual General Meeting and are not taken into account in determining the number of Directors to retire at that Annual General Meeting. Retiring Directors are eligible for re-election by shareholders. Independence of Directors The Board of Directors are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgment. In the context of director independence, “materiality” is considered from both the Company and individual director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed to be quantitatively immaterial if it is equal to or less than 5% of the appropriate base amount. It is presumed to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 10% of the appropriate base amount. Qualitative factors considered include whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangement governing it and other factors that point to the actual ability of the director in question to shape the direction of the Company’s loyalty. In accordance with the definition of the independence above, and the materiality threshold set, the following directors of Advanced Braking Technology Ltd are considered to be independent: Name Mr David Humann Prof. Malcolm Richmond Position Non-executive Director, Chairman Non-executive Director Independent professional advice With the prior approval of the Chairperson, each Director has the right to seek independent legal and other professional advice at the Company’s the Company’s expense concerning any aspect of operations or undertakings in order to fulfil their duties and responsibilities as Directors. Board performance review The performance of all Directors is assessed through review by the Board as a whole. A Director’s attendance at and involvement in Board meetings, his contribution and other matters identified by the Board or other Directors are taken into consideration. Significant issues are actioned by the Board. Due to the Board’s assessment of the effectiveness of these processes, the Board has not otherwise formalised measures of a Director’s performance. ANNUAL REPORT 2012 9 Advanced Braking Technology Ltd CORPORATE GOVERNANCE STATEMENT (continued) FOR THE YEAR ENDED 30 JUNE 2012 The Company has not conducted a performance evaluation of the members of the Board during the reporting period, however the Board conducts a review of the performance of the Company against budgeted targets on an ongoing basis. DIRECTOR REMUNERATION AND PERFORMANCE REVIEW Details of the Company’s remuneration policies are included in the “Directors’ and executives’ remuneration” section of the Directors’ Report and Note 5. Non-executive Directors will be remunerated by cash or share benefits alone and will not be provided in exceptional circumstances) other than statutory superannuation with retirement benefits contributions. Executive Directors may be remunerated by both fixed remuneration and equity performance no termination remuneration plus statutory superannuation contributions payments will be agreed other than a reasonable period of notice of termination as detailed in the executive’s employment contract. (except based but SENIOR EXECUTIVES The Board has delegated the operation and administration of the group to the Managing Director and the senior executive team. Their performance is assessed formally by the Board on an annual basis both subjectively and by measuring performance against Key Performance Indicators. Performance evaluations were completed in 2012 in accordance with the policy. DIVERSITY POLICY Diversity includes, but is not limited to, gender, age, ethnicity and cultural background. The company is committed to diversity and recognises the benefits arising from employee and board diversity and the importance of benefiting from all available talent. Accordingly, the company has established a diversity policy which is provided to all staff with responsibility for recruitment. This diversity policy outlines requirements for the Board to develop measurable objectives for achieving diversity, and annually assess both the objectives and the progress in achieving those objectives. Accordingly, the Board has developed the following objectives regarding gender diversity and aims to achieve these objectives over the next few years as positions become vacant and appropriately qualified candidates become available: Actual 2012 Objectives 2013–2014 No. - 1 11 % - 50% 20% No. - 1 18 % - 50% 25% Women on the Board Women in senior executive positions Women employees in the company MANAGING BUSINESS RISK The Company maintains policies and practices designed to identify and manage significant business risks, including:      regular budgeting and financial reporting; procedures and controls to manage financial exposures and operational risks; the Company’s business plan; corporate strategy guidelines and procedures to review and approve the Company’s strategic plans; and insurance and risk management programmes which are reviewed by the Board. 10 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd CORPORATE GOVERNANCE STATEMENT (continued) FOR THE YEAR ENDED 30 JUNE 2012 The Board reviews these systems and the effectiveness of implementation annually and considers the management of risk at its meetings. The Company’s management has reported to the Board on the effectiveness of the Company’s management of its material business risk. The Company’s risk profile is reviewed annually. The Board may consult with the Company’s external auditors on external risk matters or other appropriately qualified external consultants on risk generally, as required. their The Board receives regular the consolidated group. The Managing Director (or Chief Executive Officer) and the Chief Financial Officer annually provide a formal statement to the Board that in all material respects and to the best of their knowledge and belief: the financial condition and operating results of reports about   the Company’s financial reports present a true and fair view of the Company’s financial condition and operational results and are in accordance with relevant accounting standards; and the Company’s risk management and internal control systems are sound, appropriate and operating efficiently and effectively. INTERNAL CONTROLS Procedures have been established at the Board and executive management levels that are designed to safeguard the assets and interests of the Company, and to ensure the integrity of reporting. These include accounting, financial reporting and internal control policies and procedures. To achieve this, the non-executive Directors perform the following procedures:    ensure appropriate follow-up of significant audit findings and risk areas identified; review the scope of the external audit to align it with Board requirements; and conduct a detailed review of published accounts. AUDIT COMMITTEE The Board has delegated the Audit review responsibilities to a sub-committee of the Board, consisting of two non-executive Directors, Mr David Slack (Chairperson) and Mr David Humann. The Audit Committee has a formal charter. Meetings are held as required between the Audit Committee, the Company’s Chief Financial Officer and the auditors to discuss the Company’s ongoing activities and to discuss, where appropriate, any proposed changes prior to their implementation and to seek advice in relation thereto. The Board has no formal procedures for the selection, appointment or rotation of its external auditor but reviews this matter on an ongoing basis and implements changes as required. ETHICAL STANDARDS In pursuit of the highest ethical standards, the Company has adopted a Code of Conduct which establishes the standards of behaviour required of Directors and employees in the conduct of the The Board monitors This Code is provided to all Directors and employees. Company’s affairs. implementation of this Code. Unethical behaviour is to be reported to the Company’s Managing Director (or in his place the Chairperson of the Board) as soon as practicable. The Code of Conduct is based on respect for the law, and acting accordingly, dealing with conflicts of interest appropriately, using the consolidated entity’s assets responsibly and in the best interests of the Company, acting with integrity, being fair and honest in dealings, treating other people with dignity and being responsible for actions and accountable for the consequences. ANNUAL REPORT 2012 11 Advanced Braking Technology Ltd CORPORATE GOVERNANCE STATEMENT (continued) FOR THE YEAR ENDED 30 JUNE 2012 TRADING IN THE COMPANY’S SECURITIES BY DIRECTORS AND EMPLOYEES The Board has adopted a policy in relation to dealings in the securities of the Company which applies to all Directors, employees, contractors and consultants (“personnel”). Under the policy, personnel are prohibited from dealing in the company’s securities whilst in possession of price sensitive information. Directors and key management personnel are also prohibited from trading except during specific trading windows and are required to advise the Company Secretary of their intention to do so before dealing in the Securities. In exceptional circumstances, such as severe financial hardship, trading may be permitted in a prohibited trading period, with the prior written consent of the Chairman of the Board or, if being sought by the Chairman of the Board, of the Chairperson of the Audit Committee. The securities trading policy has been lodged with the ASX. This policy is provided to all personnel. Compliance with it is reviewed on an ongoing basis in accordance with the Company’s risk management systems. CONTINUOUS DISCLOSURE The Company has in place a continuous disclosure policy, a copy of which is provided to all Company officers and employees who may from time to time be in the possession of undisclosed information that may be material to the price or value of the Company’s securities. The continuous disclosure policy aims to ensure timely compliance with the Company’s continuous disclosure obligations under the Corporations Act 2001 (Cth) and ASX Listing Rules and ensure officers and employees of the Company understand these obligations. The procedure adopted by the Company is essentially that any information which may need to be disclosed must be brought to the attention of the Chairperson, who in consultation with the Board (where practicable) and any other appropriate personnel, will consider the information and whether disclosure is required and prepare an appropriate announcement. At least once in every 12 month period, the Board will review the Company’s compliance with this continuous disclosure policy and update it from time to time, if necessary. SHAREHOLDERS The Board aims to ensure that shareholders are kept informed of all major developments affecting the Company. Information is communicated to shareholders as follows:       as the Company is a disclosing entity, regular announcements are made to the Australian Stock Exchange in accordance with the Company’s continuous disclosure policy, including quarterly cash flow reports, half-year audit reviewed accounts, year- end audited accounts and an Annual Report; the Board ensures the Annual Report includes relevant information about the operations of the Company during the year, changes in the state of affairs and details of future developments; shareholders are advised in writing of key issues affecting the Company by effective use of the Company’s share registry; any proposed major changes in the Company’s affairs are submitted to a vote of shareholders, as required by the Corporations Act 2001; the Board encourages full participation of shareholders at the Annual General Meeting to ensure the Company’s strategies and goals. a high level of accountability and identification of All shareholders who are unable to attend these meetings are encouraged to communicate or ask questions by writing to the Company; and the external auditor is requested to attend the annual general meetings to answer any questions concerning the audit and the content of the auditor’s report. The Board reviews this policy and compliance with it on an ongoing basis. 12 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd CORPORATE GOVERNANCE STATEMENT (continued) FOR THE YEAR ENDED 30 JUNE 2012 ASX BEST PRACTICE RECOMMENDATIONS Pursuant to the ASX Listing Rules, the Company advises that based upon the information set out above, issued by the ASX Corporate Governance Council, with the exception of the following: it does comply with the Best Practice Recommendations, Recommendation 2.1: A majority of the board should be independent Directors. As one of the non-executive directors is a major shareholder in the Company, and one of the directors is an executive of the Company, the Board is not comprised of a majority of independent directors, which is a departure from ASX Corporate Governance Council best practice recommendation. The Board considers its current composition is the most appropriate blend of skills and expertise, relevant to the Company’s business. The Board will review this on an on-going basis. to be performed by a nomination committee under Recommendation 2.4 The Board should establish a nomination committee The functions the ASX Best Practice Recommendations are currently performed by the full Board and this is reflected in the written policy the responsibilities of the Board. Having regard to the number of members currently setting out comprising the Company’s Board, the Board does not consider it appropriate to delegate these responsibilities to a sub-committee. These arrangements will be reviewed periodically by the Board to ensure that they continue to be appropriate to the Company’s circumstances. Recommendation 4.2: The Audit Committee should be structured so  it consists only of non-executive directors  consists of a majority of independent directors  is chaired by an independent chair who is not chair of the Board  has at least three members The Audit committee comprises only two non- Executive Directors, only one of whom is considered to be independent (see “Independence of Directors” above). The non-independent Director is also the Chairperson of the audit Committee, but is not the Chairperson of the Board. The structure of the audit committee is reviewed each year by the Board and is considered appropriate given the size and structure of the Board. to be performed by a remuneration committee under Recommendation 8.1: The Board should establish a remuneration committee The functions the ASX Best Practice Recommendations are currently performed by the full Board, except that Executive Directors are required to absent themselves from that part of any meeting where executive Directors’ remuneration is discussed, and this is reflected in the written policy setting out the responsibilities of the Board. Having regard to the number of members currently comprising the Company’s Board, the Board does not consider it appropriate to delegate these responsibilities to a sub-committee. These arrangements will be reviewed periodically by the Board to ensure that they continue to be appropriate to the Company’s circumstances. ANNUAL REPORT 2012 13 Advanced Braking Technology Ltd DIRECTORS’ REPORT The Directors of Advanced Braking Technologies Ltd submit herewith the annual financial report for the financial year ended 30 June 2012. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows: Directors The names and particulars of the Directors of the Company during or since the end of the financial year are: David Humann Chairman, Appointed 28 August 2006 Mr Humann is a Fellow of the Institute of Chartered Accountant, A Fellow of the Institute of Certified Practicing Accountants and Fellow of the Australian Institute of Company Directors. He was Chairman and Senior Partner of Price Waterhouse (Hong Kong and China firm) from 1986 until 1994. Mr Humann was also the Managing Partner of Price Waterhouse, Asia Pacific Region, and a member of the World Board of Price Waterhouse and of the global firm’s World Executive Committee based in London and New York. He was formerly a member of the Australian and New Zealand firm’s Executive Policy Committee. Mr Humann is a member of the boards of a number of public and private companies. Professor Malcolm Richmond Non-Executive Director, Appointed 28 August 2006 Professor Richmond was, until recently, visiting Professor of Business and Professor of Engineering at the University of Western Australia and was formerly Adviser Technology Commercialisation at Curtin University. Currently he is a Director of Water Resources Group Ltd, Argonaut Resources NL, Strike Resources Limited and Cuervo Resources Inc (listed on Canadian National Stock Exchange) and was formerly Chairman of Territory Iron Limited. He is a metallurgist by profession whose career spanned 26 years with CRA/Rio Tinto Group where - Strategy and Acquisitions; he worked in a number of positions including: Vice President Managing Director - Development of - Research and Technology; Managing Director Hamersley Iron Pty Limited. He was recently Vice Chairman of the Australian Mineral Industries Research Association and a member of the Murdoch University Senate. Mr Ken Johnsen Executive Director and CEO, Appointed 30 April 2007 Mr Ken Johnsen joined the Company as Chief Executive Officer on 9 September 2005. Mr Johnsen has over 38 years’ experience in the development and licensing of advanced technology for the automotive industry. He has held senior management roles in both Australia and the USA with Orbital Corporation Ltd and served on the Orbital board for 13 years. David Slack Non-Executive Director, Appointed 9 September 2009 Mr Slack is the Managing Partner, Chief Investment Officer and Investment Manager - Small Companies for Karara Capital Limited. Over the past 30 years Mr Slack has made a significant contribution to the Australian funds management industry. Notably he was the co-founder and Joint Managing Director of Portfolio Partners, which had $5.3 billion in funds under management when it was sold to Norwich Union in 1998. Prior to that, Mr Slack was a founding executive director of County NatWest Investment Management, where he was Head of Australian Equities. He was formerly a non-executive director of the Victorian Funds Management Corporation and until 2007 was its deputy Chairman and Chair of the Board Investment Committee. David has a Bachelor of Economics degree with Honours and is a Fellow of FINSIA. 14 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd DIRECTORS’ REPORT (continued) Directorships of other listed companies Directorships of other listed companies held by Directors in the 3 years immediately before the end of the financial year are as follows: Name Company Braemore Resources PLC India Resources Ltd (re-appointed) Logicamms Ltd Matrix Metals Ltd Mincor Resources NL Argonaut Resources NL Cuervo Resource Inc, (listed on Canadian National Stock Exchange) Mil Resources Ltd Strike Resources Limited Structural Monitoring Systems Ltd David Humann Malcolm Richmond Company Secretary Period of Directorship 2006 – 2009 2006 – 2008 and 2010 – to date 2008 – 2011 2006 – 2009 2006 – to date 2012 – to date 2011 – to date 2001 – 2012 2006 – to date 2006 – 2010 Clare Madelin was appointed as Company Secretary on the 27 January 2011. Ms Madelin is a Chartered Accountant. Principal activities The principal activity of the Consolidated Group during the course of the year was the commercialisation, research, development and manufacture of the SIBS®. Operating results the Consolidated Group for The results of the year ended 30 June 2012 were a loss from continuing activities, after income tax, of $123,000 (2011: profit of $550,000) and a total comprehensive loss of $109,000 (2011: profit of $567,000). Revenues from trading activities were $6,299,000 for the year ending 30 June 2012 compared with $6,631,000 for the year ending 30 June 2011. Dividends There have been no dividends paid or declared by the Company in the last two years. Summary of material transactions  In March 2008 the Company entered into a Development and License Agreement with Brake Developments Pty Ltd under which Brake Developments would provide up to $4 million towards the development of the SIBS® garbage truck brake in return for the payment of 10% royalty on the sale of each SIBS® braking system. A total of $2.5 million of funding has been provided by Brake Developments, the majority of which was used to in the development phase of the project that in March 2010 successfully demonstrated the “proof of concept” sign off the garbage truck brake. ANNUAL REPORT 2012 15 Advanced Braking Technology Ltd DIRECTORS’ REPORT (continued) On 30th August 2011, an agreement between the Company and Brake Developments Pty Ltd was signed to vary the terms of the Development and Licence Agreement so that royalty payable by Group to Brake Developments is reduced from 10% to 6.25% and in consideration for this Brake Development are not required to make any further payment under the Development and Licence Agreement.  During 2011 the Australian operating subsidiary, Advanced Braking Pty Ltd, accepted an Early Stage Commercialisation Grant under which the Commonwealth Government will provide $2 million over a 2.5 year period to support a project to accelerate the final validation and market entry of the Sealed Integrated Braking System (SIBS TM) on garbage trucks (the “supported product”). Under the original grant rules the grant was repayable at a rate of 5% of sales of the supported product once sales reach $100,000, but during the year ended 30 June 2012 the grant rules were amended and there is no longer a requirement to repay the grant.  On 1 May 2012 the Company issued 126 million ordinary fully paid shares at an issue price of $0.017 per share to sophisticated investors, raising share capital of $2.1 million. A further 17 million were applied for by Directors on the same terms and conditions and these were issued post year end – see “Events subsequent to balance date” below. Significant changes in the state of affairs Other than as described elsewhere in this report there were no significant changes in the state of affairs of the Company during the financial year. Events subsequent to balance date On 22 August 2012 legal proceedings against the Company in connection with events of approximately nine years ago were successfully concluded with judgement being handed down, and costs awarded, in favour of the Company. As announced by the Company on the 19th July 2012 the Board has approved that the Company undertake the final preparations to commence commercial production of the patented SIBS garbage truck brake during the year to June 2013. On 26 July 2012 the Company issued 17 million ordinary fully paid shares at an issue price of $0.017 per share to Directors, raising share capital of $0.3 million. These shares were applied for as part of an offer to sophisticated investors in April 2012. Placement shares were issued to external investors on 1 May 2012, but issues to Directors were issued on 26 July 2012 after approval by Shareholders at a General Meeting of Shareholders on 12 July 2012. Unissued Shares At the date of this report there were 20,660,000 unissued shares relating to share options. At the date of this report share option holders do not have any right, by virtue of the option, to participate in dividends or any new share issue of the Company or any related body corporate or in the interest issue of any other registered scheme. Future developments The Economic Entity will continue to commercialise the Wet Brake Technology business in Australia and expand into overseas markets, as well as develop variants for various makes of four wheel drive vehicles used in various continue with the development and commercialization of wet brakes for refuse trucks. applications. In addition it will industrial 16 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd DIRECTORS’ REPORT (continued) Directors’ interests The relevant interest of each Director in the share capital of the Company, as notified by the Directors to the Australian Stock Exchange in accordance with s205G(1) of the Corporations Act 2001, at the date of this report is as follows: Director D Humann M Richmond D Slack K Johnsen Ordinary shares 13,378,323 8,117,211 154,132,883 3,559,818 The relevant interest of each Director in share options of the Company as notified by the Directors to the Australian Stock Exchange in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows: Director D Humann M Richmond D Slack K Johnsen Unlisted options nil nil 10,000,000 4,500,000 During the financial year there were 3 meetings of the Audit Committee, including circulating and written resolutions. The Audit Committee members attended as follows: Meetings Attended 3 Possible Attended 3 3 3 D Slack (Chairperson) D Humann Directors’ meetings During the financial year there were 18 meetings of Directors, including circulating and written resolutions, pursuant to the Company’s Constitution. The attendances of the Directors at these meetings were: D Humann M Richmond D Slack K Johnsen Meetings Attended 18 Possible Attended 18 17 18 17 18 18 18 ANNUAL REPORT 2012 17 Advanced Braking Technology Ltd DIRECTORS’ REPORT (continued) REMUNERATION REPORT This remuneration report for the year ended 30 June 2012 outlines the remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations. This information has been audited as required by section 308(3C) of the Act. The remuneration report details the remuneration arrangements for key management personnel (KMP) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company.  Individual key management personnel disclosures Details of KMP of the Parent and Group are set out below. Key Management Personnel Directors: David Humann Malcolm Richmond David Slack Kenneth Johnsen Chairman (non-executive) Director (non-executive) Director (non-executive) Chief Executive Officer (and executive Director) Executives / other key management personnel: Clare Madelin Sam Leighton Company Secretary and Chief Financial Officer (appointed 11 January 2011 as CFO, appointed 27 January 2011 as Company Secretary) General Manager There were no changes to KMP after reporting date and before the date the financial report was authorised for issue.  Board Oversight of Remuneration Remuneration Committee During the year, the role of a Remuneration Committee was undertaken by the full Board of Directors. The Board determines remuneration policy and recommends salary increases for executive Directors and specified executives. Executive Directors are required to absent themselves from that part of any meeting where executive Directors’ remuneration is discussed. Remuneration Policy The remuneration policy of the Company is to pay executive Directors and specified executives at market rates which are sourced from average wage and salary publications. In addition Directors and employees may be issued share options, and employees may be issued shares, to encourage loyalty and to provide an incentive through the sharing of wealth created through equity growth which is linked to Company performance. During the year no share options were issued, but employees, including KMP but excluding directors, meeting prescribed criteria for length of employment, were offered shares under an employee share scheme. The Remuneration Committee members believe the remuneration policy to be appropriate and effective and tailored to increase congruence between shareholders and Directors and executives. 18 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd DIRECTORS’ REPORT (continued)  Non-executive director remuneration arrangements Remuneration policy The board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. The amount of aggregate remuneration sought to be approved by shareholders and the fee structure is reviewed against fees paid to non-executive directors of comparable companies. The Company’s constitution and the ASX listing rules specify that the non-executive directors’ fee pool shall be determined from time to time by a general meeting. The latest determination was at the 2005 annual general meeting (AGM) held on 1 November 2005 when shareholders approved an aggregate fee pool of $300,000 per year. The board will not seek any increase for the non-executive directors’ pool at the 2012 AGM. Structure The remuneration of non-executive directors consists of directors’ fees. There are no schemes for retirement benefits for non-executive Directors other than statutory superannuation and non-executive directors do not participate in any incentive programs. Other than the Chairman, each non-executive director received a base fee of $55,000 plus the superannuation guarantee contribution. The Chairman received a base fee of $92,650 but is not entitled to the superannuation guarantee contribution.  Executive remuneration arrangements Remuneration level and mix The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group and aligned with market practice. Advanced Braking Technology Ltd undertakes an annual remuneration review to determine the total remuneration positioning against the market. Structure In the 2012 financial year, components: - - Fixed remuneration; and Variable remuneration the executive remuneration framework consisted of the following ANNUAL REPORT 2012 19  Linked to group performance such as sales revenue, profit targets, performance against budget and inventory and receivable turnover.  Linked to share price performance for the CEO. No formal links to performance for others but in all cases at the judgement and discretion of the Board of Directors. Advanced Braking Technology Ltd DIRECTORS’ REPORT (continued) The table below illustrates remuneration arrangements: the structure of Advanced Braking Technology Ltd’s executive Payment Vehicle Purpose Link to performance  Set with reference to role, market and experience  Based on annual appraisal and reference to market rates. Remuneration component Fixed remuneration Short term incentive component (STI)  Represented by total employment cost (TEC)  Comprises base salary, plus superannuation  Paid in cash, plus contributions  Up to $1,000 in shares (excluding executive directors)  Rewards executives for their contribution to achievement of Group and business unit outcomes Long term incentive component (LTI)  Paid in cash or share performance rights. During the year there was no performance rights scheme in place.  Rewards executives for their contribution to achievement of Group and business unit outcomes Note that not all executives were entitled to all, or necessarily any, components.  Details of emoluments The details of the nature and amount of emoluments of each Director and Specified Executive (Key Management Personnel) of the Company are: Primary STI Salary & Fees $ 92,650 75,000 55,000 40,000 55,000 40,000 341,971 325,688 544,621 480,688 Cash bonus $ - - - - - - *70,000 - 70,000 - Post Employment Super Total $ - - 4,950 3,600 4,950 3,600 30,777 29,312 40,677 36,512 $ 92,650 75,000 59,950 43,600 59,950 43,600 442 ,748 355,000 655,298 517,200 Directors D Humann M Richmond D Slack K Johnsen Total Total Year 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 Note: Asterisked items relate wholly to performance in FY 2011 20 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd DIRECTORS’ REPORT (continued) Primary STI STI LTI Salary & Fees $ 184,500 85,385 168449 159,384 352,949 Sales Comm -ission $ - - 40,155 22,354 40,155 Cash Bonus Cash Bonus $ *8,538 - *22,735 - 31,273 $ *5,223 - *9,174 - 14,397 Executives Year 2012 C Madelin 2011 2012 2011 2012 S Leighton Total Total 2011 244,769 22,354 - - Note: Asterisked items relate wholly to performance in FY 2011. Post Employ- ment Super $ 17,844 7,685 21,646 16,356 39,490 24,041 Equity Total Shares $ 1,000 - 1,000 - 2,000 - $ 217,105 93,070 263,159 198,094 480,264 291,164 Note: Ms Madelin was appointed CFO on 11 January 2011 and Company Secretary on 27 January 2011.  Securities Received that are not Performance Related No members of key management personnel are entitled to receive securities which are not performance-based as part of their remuneration package, other than up to $1000 of shares under an employee share scheme (ESS shares). In 2012 ESS shares were issued to all employees, including KMP but excluding directors and casual staff, whose period of employment exceeded three months.  Cash Bonuses, Performance-related Bonuses and Share-based Payments The terms and conditions relating to s al es co m mi s s io n a nd b o n u se s granted as remuneration during the year to executive directors and key management personnel during the year are as follows: Mr Johnsen: Received the following incentive payments: – a short term incentive bonus of $70,000 relating to performance of the company in 2011 Mr Leighton: Received the following incentive payments: – short term incentive sales commission calculated at a percentage of qualifying sales revenue. The percentage for commission for the last quarter of 2011, paid in 2012, was 0.75%, and for 2012 was 0.50%. – a short term incentive bonus calculated at 0.375% of annual mining sales for 2011 – a long term incentive bonus of $9,174, relating to performance of the company in 2011 – $1000 of shares under an employee share scheme Ms Madelin: received the following incentive payments: – – – a short term incentive bonus of $8,538 relating to performance of the company in 2011 a long term incentive payment of $5,223 relating to performance of the company in 2011 $1000 of shares under an employee share scheme  Employment Contracts Mr K Johnsen, Ms Madelin and Mr Leighton are employed through employment contracts. Under the terms of the Employment Contract with Mr Johnsen both parties are required to provide 6 months’ notice to terminate the agreement. The Employment Contracts for Ms Madelin and Mr Leighton require both parties to provide one month’s notice to terminate the contract. Further details of Directors’ remuneration are contained in Note 5 to the Financial Statements. ANNUAL REPORT 2012 21 Advanced Braking Technology Ltd DIRECTORS’ REPORT (continued) Environmental regulation The Consolidated Entity is not subject under a law of the Commonwealth or of a State or Territory. to any particular and significant environmental regulation Indemnification and Insurance of Directors, Officers and Auditor During the course of the year the Company has paid $11,988 in premiums for Directors and Officers liability insurance for costs and expenses incurred by them in defending legal proceedings arising out of than their conduct whilst acting in the capacity of Director or Officer of conduct involving wilful breach of duty in relation to the Company. The Company has not during or since the end of the financial year, in respect of an auditor of the Consolidated Group, paid a premium to indemnify an auditor against a liability incurred as an auditor, including costs and expenses in successfully defending legal proceedings. the Company other The Company has not paid or agreed a premium in respect of a contract insuring against a liability incurred by anyone as a Director or an Officer of the Company. Proceedings on behalf of the Company No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Auditors’ Independence Declaration The Auditors’ independence declaration is included after this Director’s Report. Non-Audit Services The Directors are satisfied that the provision of non-audit services during the year by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. Details of the amounts paid to the auditor for audit and non-audit services provided during the year are set out below: Auditor of Consolidated Group Audit and review of financial reports Other Services Auditor of Safe Effect (Thailand) Co. Ltd Audit and review of financial reports Other Services CONSOLIDATED GROUP 2012 $'000 2011 $'000 32 14 46 4 - 4 34 - 34 4 - 4 22 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd DIRECTORS’ REPORT (continued) Rounding of Amounts The Company is an entity to which ASIC Class Order 98/100 applies and accordingly, amounts in the financial statements and Directors’ report have been rounded to the nearest thousand dollars. Signed in accordance with a resolution of the Board of Directors. Ken Johnsen Chief Executive Officer and Managing Director 31st August 2012 ANNUAL REPORT 2012 23 Level 3, 12 St Georges Terrace Perth WA 6000 PO Box 5785, St Georges Terrace WA 6831 T F +61 (0)8 9225 5355 +61 (0)8 9225 6181 www.moorestephens.com.au AUDITOR’S INDEPENDENCE DECLARATION UNDER S307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF ADVANCED BRAKING TECHNOLOGY LIMITED As lead auditor for the audit of Advanced Braking Technology Limited for the year ended 30 June 2012, I declare that, to the best of my knowledge and belief, there have been:   no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Advanced Braking Technology Limited during the year. Suan-Lee Tan Partner Moore Stephens Chartered Accountants Signed at Perth this 31st day of August 2012. 24 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2012 Revenues from trading activities Revenues from other activities Total revenue NOTES 2 CONSOLIDATED GROUP 2011 $'000 6,631 607 7,238 2012 $'000 6,299 1,669 7,968 Cost of sales Adjustment to prior period cost of sales Amortisation of IP Bad and doubtful debts Borrowing costs Computer related expenses Consulting fees Consumables and minor equipment Depreciation expense Employee expenses Insurance Legal fees Marketing and advertising expenses Patents Property expenses Share options cost Telephone and other communication Travel and accommodation Other expenses Overheads capitalised as development and pre-production activities Total expenses Profit / (Loss) from continuing activities before related income tax benefit Income tax credit Profit / (Loss) from continuing activities after related income tax benefit Other comprehensive income/(loss) Foreign exchange translation Total comprehensive income / (loss) for the period Basic profit / (loss) per share (cents) Diluted profit per share (cents) 3 4 7 7 (2,461) - (199) 60 (73) (52) (640) (370) (220) (3,931) (100) (277) (68) (40) (331) (22) (37) (213) (369) 1,252 (8,091) (2,179) 141 (199) (2) (33) (48) (433) (319) (166) (3,030) (85) (138) (51) (92) (370) (36) (39) (215) (284) 583 (6,995) (123) - 243 307 (123) 550 14 (109) cents (0.01) 17 567 cents 0.06 0.06 A diluted earnings per share has not been shown for 2012 as it would dilute the actual loss per share attributable to existing shareholders. Notes to the financial statements are included on pages 29 to 69. ANNUAL REPORT 2012 25 Advanced Braking Technology Ltd CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012 CONSOLIDATED GROUP CURRENT ASSETS Cash and Cash equivalents Trade and other Receivables Inventories Other current assets Total current assets NON-CURRENT ASSETS Trade and other Receivables Property, plant and equipment Intangibles Total non-current assets TOTAL ASSETS CURRENT LIABILITIES Trade and other Payables Interest bearing liabilities Provisions Share Application funds held in trust Deferred Income Total current liabilities NON-CURRENT LIABILITIES Interest-bearing liabilities Provisions Deferred Income Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued Capital Foreign Currency Reserve Other Reserves Accumulated losses TOTAL EQUITY NOTES 8 9 10 11 9 13 14 15 16 17 18 19 16 17 19 20 21 21 22 2012 $'000 2,925 797 2,225 839 6,786 31 1,162 3,625 4,818 11,604 848 89 223 294 23 2011 $'000 2,737 1,194 1,773 56 5,760 30 734 2,572 3,336 9,096 985 102 179 - - 1,477 1,266 317 74 88 479 1,956 9,648 45,153 (238) 730 133 - - 133 1,399 7,697 43,115 (252) 708 (35,997) (35,874) 9,648 7,697 Notes to the financial statements are included on pages 29 to 69. 26 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2012 CONSOLIDATED GROUP Net cash flows from operating activities Receipts from customers Payments to suppliers, consultants & employees Borrowing costs Interest received Net cash provided by / (used in) operating activities Cash flows from investing activities Proceeds from disposal of property, plant and equipment Purchase of property, plant and equipment Development and Pre-production expenditure capitalised Net cash (used in) investing activities Cash flows from financing activities Recovery of non-current deposits / bonds Proceeds from borrowings Costs of issuing shares Proceeds from issue of shares Share Application funds held in trust Proceeds from R&D tax offset Finance lease and HP repayments Net cash provided by financing activities Net increase / (decrease) in cash and cash equivalents held Effects of exchange rate fluctuations on the balance of cash held in foreign currencies Cash and Cash equivalents at the beginning of the financial year Cash and Cash equivalents at the end of the financial year NOTES 25 2012 $'000 8,202 (8,642) (73) 98 (415) 19 (647) (1,252) (1,880) - 371 (120) 2,137 294 - (200) 2,482 187 1 2,737 2011 $'000 7,159 (7,088) (33) 103 141 27 (430) (583) (986) 4 92 (113) 3,000 - 307 (211) 3,079 2,234 (7) 510 8 2,925 2,737 Notes to the financial statements are included on pages 29 to 69. ANNUAL REPORT 2012 27 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2012 Attributable to equity holders of the parent Issued Capital $'000 Accumulated Losses $'000 Other Reserves $'000 Total $'000 CONSOLIDATED GROUP At 1 July 2011 Foreign currency translation Profit for the year Total comprehensive income for the year Cost of share-based payment Issue of ordinary shares Total transactions with owners 43,115 (35,874) 456 7,697 - - - - 2,038 2,038 - (123) (123) - - - 14 0 14 22 - 22 14 (123) (109) 22 2,038 2,060 At 30 June 2012 45,153 (35,997) 492 9,648 CONSOLIDATED GROUP At 1 July 2010 Foreign currency translation Profit for the year Total comprehensive income for the year Cost of share-based payment Issue of ordinary shares Total transactions with owners Issued Capital $'000 Accumulated Losses $'000 Other Reserves $'000 Total $'000 40,150 (36,424) 403 4,129 - - - - 2,965 2,965 - 550 550 - - - 17 - 17 36 - 36 17 550 567 36 2,965 3,001 At 30 June 2011 43,115 (35,874) 456 7,697 Notes to the financial statements are included on pages 29 to 69. 28 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. Interpretations, other These consolidated financial statements and notes represent those of Advanced Braking Technology Ltd and Controlled Entities (the “consolidated group” or “group”). The separate financial statements of the parent entity, Advanced Braking Technology Ltd, have not been presented within this financial report as permitted by the Corporations Act 2001. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the IASB. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless otherwise stated. The financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. (a) Principles of Consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by Advanced Braking Technology Ltd at the end of the reporting period. A controlled entity is any entity over which Advanced Braking Technology Ltd has the ability and right to govern the financial and operating policies so as to obtain benefits from the entity’s activities. Where controlled entities have entered or left the Group during the year, the financial performance of those entities is included only for the period of the year that they were controlled. A list of controlled entities is contained in Note 12 to the financial statements. In preparing the consolidated financial statements, all inter-group balances and transactions between entities in the consolidated group have been eliminated in full on consolidation. Business combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed to the statement of comprehensive income. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. ANNUAL REPORT 2012 29 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 1. (b) STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign Currency Transactions and Balances Functional and presentation currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year- end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the underlying gain or loss is recognised in other comprehensive income; otherwise the exchange difference is recognised in profit or loss. Group companies The financial results and position of foreign operations, whose functional currency is different from the Group’s presentation currency, are translated as follows: – – – assets and liabilities are translated at exchange rates prevailing at the end of the reporting period; income and expenses are translated at average exchange rates for the period; and retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations with functional currencies other than Australian dollars are recognised in other comprehensive income and included in the foreign currency translation reserve in the statement of financial position. These differences are recognised in profit or loss in the period in which the operation is disposed. (c) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits available on demand with banks, other short-term highly liquid investments, net of any bank overdrafts. Bank overdrafts are reported within short-term borrowings in current liabilities in the statement of financial position. (d) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the ATO are presented as operating cash flows included in receipts from customers or payments to suppliers. 30 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (e) Impairment of Assets At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Standard (eg in accordance with the revaluation model in AASB 116). Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. (f) Income Tax The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities (assets) are measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax expense (income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. ANNUAL REPORT 2012 31 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (g) Financial Instruments Recognition and initial measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the company commits itself to either the purchase or sale of the asset (ie trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified “at fair value through profit or loss”, in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Finance instruments are subsequently measured at fair value, amortised cost using the effective interest rate method, or cost. Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense item in profit or loss. The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of Accounting Standards specifically applicable to financial instruments. (i) Financial assets at fair value through profit or loss Financial assets are classified at “fair value through profit or loss” when they are held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a Group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Loans and receivables are included in current assets, where they are expected to mature within 12 months after the end of the reporting period. 32 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) 1. (g) Financial Instruments (continued) (iii) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Group’s intention to hold these investments to maturity. They are subsequently measured at amortised cost. Held-to-maturity investments are included in current assets where they are expected to mature within 12 months after the end of the reporting period. All other investments are classified as non-current assets. (iv) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified into other categories of financial assets due to their nature, or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. They are subsequently measured at fair value with changes in such fair value (ie gains or losses) recognised in other comprehensive income (except for impairment losses and foreign exchange gains and losses). When the financial asset is derecognised, the cumulative gain or loss pertaining to that asset previously recognised in other comprehensive income is reclassified into profit or loss. Available-for-sale financial assets are included in current assets where they are expected to be sold within 12 months after the end of the reporting period. All other financial assets are classified as non-current assets. (v) Financial liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. Derivative instruments The Group designates certain derivatives as either: (i) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or (ii) hedges of highly probable forecast transactions (cash flow hedges). At the inception of the transaction the relationship between hedging instruments and hedged items, as well as the Group’s risk management objective and strategy for undertaking various hedge transactions, is documented. Assessments, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items, are also documented. (i) Fair value hedge Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recorded in the statement of comprehensive income, together with any changes in the fair value of hedged assets or liabilities that are attributable to the hedged risk. (ii) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is deferred to a hedge reserve in equity. The gain or loss relating to the ineffective portion is recognised immediately in the statement of comprehensive income. Amounts accumulated in the hedge reserve in equity are transferred to the statement of comprehensive income in the periods when the hedged item will affect profit or loss. ANNUAL REPORT 2012 33 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) 1. (g) Financial Instruments (continued) Impairment At the end of each reporting period, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in profit or loss. Also, any cumulative decline in fair value previously recognised in other comprehensive income is reclassified to profit or loss at this point. Financial guarantees Where material, financial guarantees issued that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due are recognised as a financial liability at fair value on initial recognition. The guarantee is subsequently measured at the higher of the best estimate of the obligation and the amount initially recognised less, when appropriate, cumulative amortisation in accordance with AASB 118: Revenue. Where the entity gives guarantees in exchange for a fee, revenue is recognised under AASB 118. The fair value of financial guarantee contracts has been assessed using a probability-weighted discounted cash flow approach. The probability has been based on: – – – the likelihood of the guaranteed party defaulting in a year period; the proportion of the exposure that is not expected to be recovered due to the guaranteed party defaulting; and the maximum loss exposed if the guaranteed party were to default. Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expire or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. (h) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period. 34 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) Earnings per share 1. (i) Basic earnings per share (“EPS”) is calculated by dividing the net profit or loss attributable to members of the parent entity for the reporting period, after excluding any costs of servicing equity (other than ordinary shares and converting preference shares classified as ordinary shares for EPS calculation purposes), by the weighted average number of ordinary shares of the Company, adjusted for any bonus issue. Diluted EPS is calculated by dividing the basic EPS earnings, adjusted by the after tax effect of financing costs associated with dilutive potential ordinary shares and the effect on revenues and expenses of conversion to ordinary shares associated with dilutive potential ordinary shares, by the weighted average number of ordinary shares and dilutive potential ordinary shares adjusted for any bonus issue. (j) Revenue and Other Income Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. When the inflow of consideration is deferred, it is treated as the provision of financing and is discounted at a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount initially recognised and the amount ultimately received is interest revenue. Revenue from the sale of goods is recognised when the consolidated entity has transferred to the buyer the significant risks and rewards of ownership of the goods. Interest revenue is recognised using the effective interest rate method. Dividend revenue is recognised when the right to receive a dividend has been established. Revenue from the rendering of services is recognised upon the delivery of the service to the customer. (k) Government Grants Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants relating to assets are credited to deferred income at fair value and are credited to income over the expected useful life of the asset. Where it is expected that a grant will be repaid if certain conditions are met, the liability to repay the grant is recognised as the conditions are met and the liability crystallises. R&D Tax incentives have been accounted for as government grants. (l) Intangibles Other than Goodwill Technology Assets / Patents Such assets are recognised at cost of acquisition. The cost of technology assets are amortised over the average life of the patents granted for each technology asset on a straight line basis. The average life of a patent varies between 10 and 20 years and technology assets in the Intellectual Property purchased from Safe Effect Technology International Ltd (SETI) are amortised over 15 years. The estimated useful life and amortisation method is reviewed at the end of each annual reporting period. ANNUAL REPORT 2012 35 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (l) Intangibles Other than Goodwill (continued) Research and development Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project is expected to deliver future economic benefits and these benefits can be measured reliably. Development costs have a finite life and are amortised on a systematic basis based on the future economic benefits over the useful life of the project. An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following are demonstrated:       the technical feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and the ability to measure reliably the expenditure attribute to the intangible asset during its development. Capitalised development costs will be amortised over commercial sales commence. their expected useful life once (m) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Such costs are assigned to inventory on hand by the method most appropriate to each particular class of inventory, with the majority being valued on a weighted average basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. (n) Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that is transferred to entities in the consolidated group, are classified as finance leases. Finance leases are capitalised by recognising an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Finance leased assets are depreciated on a straight-line basis over their estimated useful lives. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the lease term. 36 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (o) Property, Plant and Equipment Each class of property, plant and equipment is carried at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment indicators are present. The carrying amount of plant and equipment is reviewed periodically by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed within the consolidated group includes the cost of materials and externally supplied services. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including buildings and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line basis over the asset’s useful life to the consolidated group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The following estimated useful lives are used in the calculation of depreciation: Class of Fixed Asset Plant and equipment Motor vehicles Office equipment and furniture Intellectual Property 3-5 years 3-15 years 3-5 years 10-15 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income. When revalued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. ANNUAL REPORT 2012 37 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (p) Employee Benefits Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to the end of the reporting period. Employee benefits that are expected to be settled within a year have been measured at the amounts expected to be paid when the liability is settled. Employee benefits payable later than a year have been measured at the present value of the estimated future cash outflows to be made for those benefits. In determining the liability, consideration is given to employee wages increases and the probability that the employee may satisfy vesting requirements. Those cash flows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows. Equity-settled compensation The Group operates an employee share/option ownership plan. Share-based payments to employees and directors are measured at the fair value of the instruments issued and amortised over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the option reserve. The fair value of options is determined using the Black-Scholes pricing model. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognised for services received as consideration for the equity instruments granted is based on the number of equity instruments that eventually vest. (q) Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Where the Group has retrospectively applied an accounting policy, made a retrospective restatement of items in the financial statements or reclassified items in its financial statements, an additional statement of financial position as at the beginning of the earliest comparative period will be disclosed. (r) Rounding of Amounts The parent entity has applied the relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the financial statements and directors’ report have been rounded off to the nearest $1,000. (s) Critical Accounting Estimates and Judgments The directors evaluate estimates and judgments incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. Key Estimates – Impairment The group assesses impairment at each reporting date by evaluating conditions specific to the the group that may lead to the impairment of assets. Where an impairment recoverable amount of the assets is determined. Fair value less cost to sell and value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. trigger exists, 38 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 1. (t) STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) New Accounting Standards for Application in Future Periods The AASB has issued a number of new and amended Accounting Standards and Interpretations that have mandatory application dates for future reporting periods, some of which are relevant to the Group. The Group has decided not to early adopt any of the new and amended pronouncements. The Group’s assessment of the new and amended pronouncements that are relevant to the Group but applicable in future reporting periods is set out below: – AASB 9: Financial Instruments (December 2010) and AASB 2010–7: Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and Interpretations 2, 5, 10, 12, 19 & 127] (applicable for annual reporting periods commencing on or after 1 January 2013). These Standards are applicable retrospectively and include revised requirements for the classification and measurement of financial instruments, as well as recognition and derecognition requirements for financial instruments. The key changes made to accounting requirements include: - - - - - - - simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value; simplifying the requirements for embedded derivatives; removing the tainting rules associated with held-to-maturity assets; removing the requirements to separate and fair value embedded derivatives for financial assets carried at amortised cost; allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument; requiring financial assets to be reclassified where there is a change in an entity’s business model as they are initially classified based on: (a) the objective of the entity’s business model for managing the financial assets; and (b) the characteristics of the contractual cash flows; and requiring an entity that chooses to measure a financial liability at fair value to present the portion of the change in its fair value due to changes in the entity’s own credit risk in other comprehensive income, except when that would create an accounting mismatch. If such a mismatch would be created or enlarged, the entity is required to present all changes in fair value (including the effects of changes in the credit risk of the liability) in profit or loss. The Group has not yet been able to reasonably estimate the impact of these pronouncements on its financial statements. – AASB 2010–8: Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets [AASB 112] (applies to periods beginning on or after 1 January 2012). This Standard makes amendments to AASB 112: Income Taxes and incorporates Interpretation 121: Income Taxes – Recovery of Revalued Non-Depreciable Assets into AASB 112. ANNUAL REPORT 2012 39 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (t) New Accounting Standards for Application in Future Periods (continued) Under the current AASB 112, the measurement of deferred tax liabilities and deferred tax assets depends on whether an entity expects to recover an asset by using it or by selling it. The amendments introduce a presumption that an investment property is recovered entirely through sale. This presumption is rebutted if the investment property is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale. The amendments are not expected to significantly impact the Group. – AASB 10: Consolidated Financial Statements, AASB 11: Joint Arrangements, AASB 12: Disclosure of Interests in Other Entities, AASB 127: Separate Financial Statements (August 2011), AASB 128: Investments in Associates and Joint Ventures (August 2011) and AASB 2011–7: Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards [AASB 1, 2, 3, 5, 7, 9, 2009–11, 101, 107, 112, 118, 121, 124, 132, 133, 136, 138, 139, 1023 & 1038 and Interpretations 5, 9, 16 & 17] (applicable for annual reporting periods commencing on or after 1 January 2013). AASB 10 replaces parts of AASB 127: Consolidated and Separate Financial Statements (March 2008, as amended) and Interpretation 112: Consolidation – Special Purpose Entities. AASB 10 provides a revised definition of control and additional application guidance so that a single control model will apply to all investees. The Group has not yet been able to reasonably estimate the impact of this Standard on its financial statements. AASB 11 replaces AASB 131: Interests in Joint Ventures (July 2004, as amended). AASB 11 requires joint arrangements to be classified as either “joint operations” (where the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities) or “joint ventures” (where the parties that have joint control of the arrangement have rights to the net assets of the arrangement). Joint ventures are required to adopt the equity method of accounting (proportionate consolidation is no longer allowed). AASB 12 contains the disclosure requirements applicable to entities that hold an interest in a subsidiary, joint venture, joint operation or associate. AASB 12 also introduces the concept of a “structured entity”, replacing the “special purpose entity” concept currently used in Interpretation 112, and requires specific disclosures in respect of any investments in unconsolidated structured entities. This Standard will affect disclosures only and is not expected to significantly impact the Group. To facilitate the application of AASBs 10, 11 and 12, revised versions of AASB 127 and AASB 128 have also been issued. These Standards are not expected to significantly impact the Group. – AASB 13: Fair Value Measurement and AASB 2011–8: Amendments to Australian Accounting Standards arising from AASB 13 [AASB 1, 2, 3, 4, 5, 7, 9, 2009–11, 2010–7, 101, 102, 108, 110, 116, 17, 118, 119, 120, 121, 128, 131, 132, 133, 134, 136, 138, 139, 140, 141, 1004, 1023 & 1038 and Interpretations 2, 4, 12, 13, 14, 17, 19, 131 & 132] (applicable for annual reporting periods commencing on or after 1 January 2013). AASB 13 defines fair value, sets out in a single Standard a framework for measuring fair value, and requires disclosures about fair value measurement. AASB 13 requires: - - inputs to all fair value measurements to be categorised in accordance with a fair value hierarchy; and enhanced disclosures regarding all assets and liabilities (including, but not limited to, financial assets and financial liabilities) to be measured at fair value. These Standards are not expected to significantly impact the Group. 40 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (t) New Accounting Standards for Application in Future Periods (continued) – – AASB 2011–9: Amendments to Australian Accounting Standards – Presentation of Items of Other Comprehensive Income [AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049] (applicable for annual reporting periods commencing on or after 1 July 2012). The main change arising from this Standard is the requirement for entities to group items presented in other comprehensive income (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently. This Standard affects presentation only and is therefore not expected to significantly impact the Group. AASB 119: Employee Benefits (September 2011) and AASB 2011–10: Amendments to Australian Accounting Standards arising from AASB 119 (September 2011) [AASB 1, AASB 8, AASB101, AASB124, AASB134, AASB1049 & AASB 2011–8 and Interpretation 14] (applicable for annual reporting periods commencing on or after 1 January 2013). These Standards introduce a number of changes to accounting and presentation of defined benefit plans. The Group does not have any defined benefit plans and so is not impacted by the amendment. AASB 119 (September 2011) also includes changes to the accounting for termination benefits that require an entity to recognise an obligation for such benefits at the earlier of: (i) (ii) for an offer that may be withdrawn – when the employee accepts; for an offer that cannot be withdrawn – when the offer is communicated to affected employees; and (iii) where the termination is associated with a restructuring of activities under AASB 137: Provisions, Contingent Liabilities and Contingent Assets, and if earlier than the first two conditions – when the related restructuring costs are recognised. The Group has not yet been able to reasonably estimate the impact of these changes to AASB 119. ANNUAL REPORT 2012 41 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 CONSOLIDATED GROUP 2011 $’000 2012 $’000 98 5 19 - 761 786 1,669 103 52 1 74 377 - 607 2. REVENUES FROM OTHER ACTIVITIES Other activities - interest received - net foreign exchange gain - income from sale of fixed assets - Export Market Development Grant -Early Commercialisation Grant -R&D Tax Incentive Total revenue from other activities 3. PROFIT / (LOSS) BEFORE INCOME TAX Profit / (Loss) before income tax has been determined after deducting the following expenses: Current year Cost of sales Adjustment to prior period Cost of Sales 2,461 - 2,461 2179 (141) 2,038 Borrowing costs Depreciation of non-current assets - plant and equipment - motor vehicle - office equipment and furniture - leasehold improvements Total depreciation Bad and doubtful debts - trade debtors Total bad and doubtful debts Operating leases - Property Rental expense - Motor vehicle lease - Office Equipment Lease Total operating leases 73 102 83 28 7 220 (60) (60) 303 20 2 325 33 65 83 18 - 166 2 2 358 12 - 370 Overheads capitalised as development and pre-production activities (1,252) (583) 42 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 4. INCOME TAX EXPENSE (a) The components of tax expense comprise: Current tax Deferred tax CONSOLIDATED GROUP 2011 2012 $’000 $’000 - - - (307) - (307) (b) The prima facie tax expense / (benefit) on profit / (loss) from ordinary activities before income tax is reconciled to the income tax as follows: Prima facie tax expense / (benefit) on loss from ordinary activities before income tax at 30% (2011: 30%) (37) 73 Add tax effect of: - Non-allowable items Less tax effect of: - Revenue losses and other deferred tax balances not recognised - R&D tax offset Income tax benefit (c) Unrecognised deferred tax assets: Carry forward revenue losses Capital raising costs Provisions and accruals Plant and Equipment 433 396 (160) (236) 34 107 (414) - - (307) 3,713 4,688 60 153 577 28 68 - 4,503 4,784 The tax benefits of the above deferred tax assets will only be obtained if: (a) the company derives future assessable income of a nature and of an amount sufficient to enable the benefits to be utilised; (b) the company continues to comply with the conditions for deductibility imposed by law; and (c) no changes in income tax legislation adversely affect the company in utilising the benefits. ANNUAL REPORT 2012 43 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 5. DIRECTOR AND EXECUTIVE DISCLOSURES (a) Details of Key management personnel (i) Specified Directors Name D Humann M Richmond D Slack K Johnsen (ii) Specified Executives Position Chairman Non-Executive Director Non-Executive Director Executive Director & CEO Appointment Date Resignation Date 28 August 2006 28 August 2006 9 September 2009 30 April 2007 Name C Madelin S Leighton Position CFO & Company Secretary General Manager Appointment Date Resignation Date 11 January 2011 12 April 2010 - - - - - - b. Remuneration of Directors and Executives Remuneration policy The role of a Remuneration Committee is undertaken by the full Board of Directors, which is responsible for determining and reviewing compensation arrangements for the Directors, the chief executive officer and the executive team. The Directors assess the appropriateness and the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality board and executive team. As from 1 July 2011 executive Directors have been required to absent themselves from that part of any meeting where executive Directors’ remuneration is discussed. Executive Contracts Mr K Johnsen, Ms Madelin and Mr Leighton are employed through employment contracts. Under the terms of the Employment Contract with Mr Johnsen both parties are required to provide 6 months’ notice to terminate the agreement. The Employment Contracts for Ms Madelin and Mr Leighton require both parties to provide one month’s notice to terminate the contract. Directors fees for the year to 30 June 2012 and for the year to 30 June 2011 were paid in full by the year end in cash. On 26 July 2010, Mr D Humann was paid $35,000 plus $3,500 GST, Professor M Richmond was paid $20,000 and Mr Slack was paid $20,000 in the Company’s shares in payment of their Director fees to 30 June 2010.The shares in the Company were issued at the weighted average ASX trading price in the 30 days immediately preceding 30 June 2010. 44 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 5. DIRECTOR AND EXECUTIVE DISCLOSURES (continued) (b) Remuneration of Directors and Executives (continued) Primary STI Salary & Fees Cash bonus Post Employment Super Total Directors D Humann M Richmond D Slack K Johnsen Total Total Year 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 $ 92,650 75,000 55,000 40,000 55,000 40,000 341,971 325,688 544,621 480,688 $ - - - - - - *70,000 - 70,000 - $ - - 4,950 3,600 4,950 3,600 30,777 29,312 40,677 36,512 $ 92,650 75,000 59,950 43,600 59,950 43,600 442 ,748 355,000 655,298 517,200 Primary STI STI LTI Salary & Fees $ 184,500 85,385 168,449 159,384 352,949 Executives Year C Madelin 2012 2011 2012 2011 2012 S Leighton Total Total 2011 244,769 Sales Commis sion $ - - 40,155 22,354 40,155 22,354 Cash Bonus Cash Bonus $ *8,538 - *22,735 - 31,273 - $ *5,223 *9,174 14,397 - Post Employment Super Equity Total Shares $ 17,844 7,685 21,646 16,356 39,490 24,041 $ 1,000 - 1,000 - 2,000 $ 217,105 93,070 263,159 198,094 480,264 - 291,164 Note: Asterisked items relate wholly to performance in FY 2011. Note: Ms Madelin was appointed CFO on 11 January 2011 and Company Secretary on 27 January 2011. (c) Equity holdings and transactions The movement during the reporting period in the number of ordinary shares of Advanced Braking Technologies Ltd held, directly, indirectly or beneficially, by each specified Director, including their personally-related entities, is as follows: ANNUAL REPORT 2012 45 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 5. DIRECTOR AND EXECUTIVE DISCLOSURES (continued) (c) Equity holdings and transactions (continued) Specified Directors D Humann M Richmond D Slack K Johnsen Total Held at 1 July 2011 Movement during year 13,378,323 8,117,211 138,832,883 1,559,818 161,888,235 - - - - - Held at 30 June 2012 13,378,323 8,117,211 138,832,883 1,559,818 161,888,235 Options held directly by directors were as follows: Vested Granted Expired Granted Date Terms and condition of each grant Exercise price value per option at grant date Specified Directors K Johnsen No. No. No. $ $ Expiry Date 3,000,000 1,500,000 3,000,000 4,500,000 (3,000,000) - 25/10/2007 5/11/2009 0.044 0.009 0.075 0.035 1/7/2011 5/11/2013 4,500,000 7,500,000 (3,000,000) Options in which Directors held an indirect interest were as follows: Total Vested Total Granted Expired Director’s potential share Granted Date Terms and condition of each grant No. No. No. value per option at grant date $ Exercise price $ Expiry Date Specified Directors D Slack 10,000,000 10,000,000 20,000,000 10,000,000 10,000,000 20,000,000 (10,000,000) - (10,000,000) 25% 2/04/2008 25% 2/04/2008 0.005 0.006 0.052 0.065 1/03/2012 1/03/2013 46 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 6. AUDITORS’ REMUNERATION Remuneration of the auditor of the Consolidated Group for: Auditing the financial statements Other services Remuneration of auditor Safe Effect (Thailand) Co. Ltd 7. EARNINGS PER SHARE Basic Earnings per share Net profit / (loss) ( $’000’s) CONSOLIDATED GROUP 2011 $’000 2012 $’000 32 14 46 4 $’000 (123) Number (‘000’s) 34 - 34 4 $’000 550 Number (‘000’s) Weighted average number of ordinary shares during the year used in calculation of basic EPS (in ‘000’s) 985,069 920,019 Basic profit / (loss) per share (cents) Diluted earnings per share Weighted average number of ordinary shares and dilutive potential ordinary shares (in ‘000’s) Diluted profit per share (cents) cents (0.01) cents 0.06 Number (‘000’s) 926,824 cents 0.06 A diluted earnings per share has not been shown for 2012 as it would dilute the actual loss per share attributable to existing shareholders. 8. CASH AND CASH EQUIVALENTS Cash at bank Reconciliation of cash CONSOLIDATED GROUP 2011 $’000 2012 $’000 2,925 2,737 Cash at the end of the financial year as shown in the Cash Flows Statement is reconciled to items in the Balance Sheet as follows: Cash at bank 2,925 2,737 ANNUAL REPORT 2012 47 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 9. TRADE AND OTHER RECEIVABLES Current Trade debtors Less: provision for doubtful debts Non-current Other receivables CONSOLIDATED GROUP 2011 $’000 2012 $’000 816 (19) 797 31 31 1,273 (79) 1,194 30 30 Receivables Ageing and Impairment losses The aging of receivables for the consolidated group at the reporting date was: Not past due Past due 0 – 30 days Past due 31 – 60 days Over 60 days CONSOLIDATED GROUP Total Receivables Gross Impairment 2012 $’000 2011 $’000 2012 $’000 2011 $’000 509 190 17 100 816 949 242 7 75 1,273 (13) (4) - (2) (19) (59) (15) - (5) (79) The movement in the provision for impairment of trade receivables during the year is as follows: Balance at 1 July Impairment provision recognised / reversed during the year Bad debts written off Closing balance at 30 June CONSOLIDATED GROUP 2011 $'000 2012 $'000 (79) 60 - (19) (79) (2) 2 (79) The provision account for receivables is used to record impairment losses unless the Company is satisfied that there is no possibility of recovery of the amount, at which point it is directly written off against the amount owing. 10. INVENTORIES Current Finished Goods Components and WIP 1,147 1,078 2,225 915 858 1,773 48 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 11. OTHER CURRENT ASSETS Prepayments Accrued Income-R&D Tax incentive CONSOLIDATED GROUP 2011 $’000 2012 $’000 53 786 839 56 - 56 12. CONTROLLED ENTITES (a) Advanced Braking Pty Ltd ACN 088 129 917 (Incorporated in WA) Class and number of shares: ordinary Parent Entity 2012 Number 200,002 2011 Number 200,002 On 28 May 2002 the parent entity acquired 100% of Advanced Braking Pty Ltd for a the company is brake purchase consideration of $200,002. The principal activity of research, design, engineering and commercialisation, and sales of brakes and brake parts. (b) Safe Effect (Thailand) Co. Ltd Registration No. 10154601984 (Incorporated in Thailand) Class and number of shares: ordinary Advanced Braking Pty Ltd 2012 Number 2011 Number 876,600 876,600 On 22 June 2004, Advanced Braking Pty Ltd established a 100% owned subsidiary in Thailand, namely Safe Effect initial capital of $275,155. The principal activity of the company is the assembly of brakes. During the year to 30 June 2009, Advanced Braking Pty Ltd purchased 286,600 new shares at a total cost of $1,207,580 paid out of amounts owed by Safe Effect (Thailand) Co. Ltd to Advanced Braking Pty Ltd. (Thailand) Co. Ltd with the ANNUAL REPORT 2012 49 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 13. PROPERTY, PLANT AND EQUIPMENT Plant and equipment at cost Less: accumulated depreciation Motor vehicles at cost Less: accumulated depreciation Office equipment and furniture at cost Less: accumulated depreciation Leasehold improvements at cost Less: accumulated depreciation Total at net written down value CONSOLIDATED GROUP 2011 $’000 2012 $’000 1,104 (428) 676 591 (269) 322 273 (161) 112 59 (7) 52 1,162 823 (322) 501 408 (218) 190 176 (133) 43 - - - 734 Certain assets are secured in terms of Finance Lease and Hire Purchase Agreements as disclosed in Note 16(c). Reconciliation Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year. Plant & Equipment $'000 Motor Vehicles $'000 Office Equipment & Furniture $'000 Leasehold Improvements $'000 CONSOLIDATED GROUP 2012 Balance at the beginning of year Additions Disposals Depreciation expense Foreign exchange translation Carrying amount at the end of year 501 276 - (102) 1 189 217 - (84) - 676 322 44 95 - (27) - 112 Total $'000 734 647 - (220) 1 - 59 - (7) - 52 1,162 50 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 13. PROPERTY, PLANT AND EQUIPMENT (continued) Plant & Equipment $'000 Motor Vehicles $'000 Office Equipment & Furniture $'000 Leasehold Improvements $'000 171 400 - (64) (6) 292 - (19) (84) - 501 189 41 30 (7) (18) (2) 44 - - - - - - Total $'000 504 430 (26) (166) (8) 734 2011 CONSOLIDATED GROUP Balance at the beginning of year Additions Disposals Depreciation expense Foreign exchange translation Carrying amount at the end of year 14. INTANGIBLES Wet Brake technology assigned from Safe Effect Technologies International Ltd Less - Accumulated amortisation Carrying amount at the end of year Development and Pre-Production Costs capitalised Less-Accumulated amortisation Carrying amounts at the end of year Total carrying amount at the end of year CONSOLIDATED GROUP 2011 $’000 2012 $’000 2,984 (1,194) 1,790 1,835 - 1,835 3,625 2,984 (995) 1,989 583 - 583 2,572 Reconciliation Movement in the carrying amounts for each class of intangible asset between the beginning and the end of the current financial year: CONSOLIDATED GROUP 2012 Balance at the beginning of year Additions-internally developed Amortisation expense Carrying amount at the end of year Development and pre- production costs capitalised $'000 Total $'000 583 2,572 1,252 - 1,252 (199) Wet Brake Technology $'000 1,989 - (199) 1,790 1,835 3,625 ANNUAL REPORT 2012 51 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 14. INTANGIBLES (continued) CONSOLIDATED GROUP 2011 Balance at the beginning of year Additions-internally developed Amortisation expense Carrying amount at the end of year Development and pre- production costs capitalised $'000 Total $'000 - 2,188 583 - 583 (199) Wet Brake Technology $'000 2,188 - (199) 1,989 583 2,572 Impairment Disclosure No impairment assessment was performed in either 2012 or 2011 as there were no impairment triggers. CONSOLIDATED GROUP 2012 $’000 2011 $’000 15. 16. (a) (b) (c) TRADE PAYABLES Current (unsecured) Trade creditors Accrued expenses INTEREST BEARING LIABILITIES Current and non-current Current (secured) Lease and Hire purchase agreements Unexpired interest charges Non-current (secured) Lease and Hire purchase agreements Unexpired interest charges Total of current and non-current Lease and Hire purchase agreements Unexpired interest charges The carrying amounts of non-current assets pledged as security are: Plant and equipment Motor vehicles Office equipment 742 106 848 128 (39) 89 372 (55) 317 500 (94) 406 - 313 32 345 866 119 985 120 (18) 102 151 (18) 133 271 (36) 235 13 186 11 210 52 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 17. (a) PROVISIONS Current and non-current Current Warranties Employee entitlements Total Non-Current Employee Entitlements Other Total (b) Number of Employees Number of employees at year-end Australia Overseas Total 18. SHARE APPLICATION FUNDS HELD IN TRUST Directors’ share application funds Total CONSOLIDATED GROUP 2011 $’000 2012 $’000 60 163 223 71 3 74 - 179 179 - - - Number Number 37 18 55 27 13 40 CONSOLIDATED GROUP 2011 $’000 2012 $’000 294 294 - - On 26 July 2012 the Company issued 17 million ordinary fully paid shares at an issue price of $0.017 per share to Directors, raising share capital of $294,000. These shares were applied for as part of an offer to sophisticated investors in April 2012. Placement shares were issued to external investors on 1 May 2012, but issues to Directors were issued on 26 July 2012 after approval by Shareholders at a General Meeting of Shareholders on 12 July 2012. 19. DEFERRED INCOME Current Early Commercialisation Grant Total Non -current Early Commercialisation Grant 23 23 88 88 - - - - ANNUAL REPORT 2012 53 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 20. ISSUED CAPITAL (a) Issued Capital The Parent Entity had issued 1,088,204,889 (2011: 961,315,575) fully paid ordinary shares as at the 30 June 2012. Ordinary shares At the beginning of the financial year Shares issued 26 July 2010 to Mr Humann, Professor Richmond and Mr Slack for Directors’ Fees, including GST, for FY 2010 Shares issued for cash on 23 August 2010 Shares issued for cash on 28 October 2010 Shares issued under an Employee share scheme 24 January 2012 CONSOLIDATED GROUP 2012 2011 Number of shares $’000 Number of shares $’000 961,315,575 43,115 769,454,464 40,150 4,361,111 78 116,000,000 71,500,000 1,856 1,144 1,189,314 21 Shares issued for cash under a placement to sophisticated investors on 1 May 2012 125,700,000 2,137 Transaction costs relating to share issues 1,088,204,889 45,273 (120) 961,315,575 Balance at end of financial year 1,088,204,889 45,153 961,315,575 43,228 (113) 43,115 (b) Capital Management Management controls the capital of the Group in order to maintain a good debt to equity ratio, provide the shareholders with adequate returns and ensure that the Group can fund its operations and continue as a going concern. The Group’s debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. There are no externally imposed capital requirements. Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the Group since the prior year. Management aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. The gearing ratios for the years ended 30 June 2012 and 30 June 2011 are as follows: The gearing ratio is calculated as net debt divided by total capital. Net debt is defined as interest bearing liabilities less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the statement of financial position plus net debt. As noted below, the Group’s gearing ratio is nil as it has no net debt. Gearing ratio 2012 nil 2011 nil 54 ADVANCED BRAKING TECHNOLOGY LTD 22. 23. (a) Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 21. RESERVES Foreign Exchange Translation Reserve Option premium reserve CONSOLIDATED GROUP 2011 $’000 2012 $’000 (238) 730 (252) 708 No options were issued in the year ended 30 June 2012 (2011: nil). ACCUMULATED LOSSES Accumulated losses at the beginning of the financial year Net profit / loss attributable to members of the parent entity Accumulated losses at the end of the financial year (35,874) (123) (35,997) (36,424) 550 (35,874) 120 151 271 (36) 235 262 180 442 CONTRACT AND LEASING COMMITMENTS Hire purchase and Finance Lease commitments Payable - not later than 1 year - later than 1 year but not later than 5 years Less future finance charges Total hire purchase and finance lease liability 128 372 500 (94) 406 (b) Operating lease commitments Non-cancellable operating lease contracted for but not capitalised in the financial statements. Payable - not later than 1 year - later than 1 year but not later than 5 years 123 62 185 24. SEGMENT REPORTING The Group has identified its operating segments based on the internal reports that are reviewed in assessing the and used by the Board of Directors (chief operating decision makers) performance of the business and in determining the allocation of resources. The Group is managed primarily on the basis of product category and where the areas have inherently different resources requirements. Operating segments have been determined on the same basis. Types of products by segment (i) Mining brakes The mining brake sector manufactures and sells a variety of Sealed Integrated Braking Systems (SIBS®) for use in the mining sector. All models of brakes are similar in nature and are sold to similar types of customers. The manufacturing and sales process extends to installation of the brakes where required, support of the products and the sale and supply of replacement parts. ANNUAL REPORT 2012 55 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 24. SEGMENT REPORTING (continued) (ii) Engineering and development The engineering and development sector undertakes research and development of Sealed Integrated Braking Systems (SIBS®) for a variety of uses. This sector is also engaged in creating customized braking solutions for various customers. Basis of accounting for purposes of reporting by operating segments Accounting policies adopted Unless stated otherwise, all amounts reported to the Board of Directors, being the chief to operating segments, are determined in accordance with decision maker with respect accounting policies that are consistent with those adopted in the annual financial statements of the Group. Inter-segment transactions An internally determined transfer price is set for all inter-segment sales. This price is assessed annually and if appropriate reset. The price is based on what would be realised in the event the sale was made to an external party at arm’s length. All such transactions are eliminated on consolidation of the Group’s financial statements. Corporate charges are allocated in proportion to direct wages allocated to each segment. The Board of Directors believes that this is representative of likely consumption of head office expenditure that should be used in assessing segment performance and cost recoveries. loans payable and receivable are initially recognised at Inter-segment the consideration received/to be received net of transaction costs. If inter-segment loans receivable and payable are not on commercial terms, these are not adjusted to fair value based on market interest rates. This policy represents a departure from that applied to the statutory financial statements. Segment assets Where an asset according to the economic value derived from that asset. assets are clearly identifiable on the basis of their nature and physical location. is used across multiple segments, is apportioned across segments In the majority of instances, segment the asset Segment liabilities Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations of the segment. Tax liabilities are generally considered to relate to the Group as a whole and are not allocated. Unallocated items The following items of revenue, expenses, assets and liabilities are not allocated to operating segments as they are not considered part of the core operations of any segment: • Intangible assets re Wet Brake Technology. (Intangible assets re development and pre- production overheads capitalised are allocated to Engineering) • Amortization of Wet Brake Technology intangible assets • Finance Costs • Legal fees re court costs • Income tax expense 56 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 24. SEGMENT REPORTING (continued) Segment performance 30 June 2012 Revenue External Sales Other income Total segment revenue Reconciliation of segment revenue to group revenue Total group revenue Cost of materials Depreciation Other expenses Overheads capitalised as development and pre- production activities Mining brakes $'000 Engineering services $'000 6,299 72 6,371 - 6,371 (2,461) (57) (2,522) - 1,597 1,597 - 1,597 - (163) (3,613) Total $'000 6,299 1,669 7,968 - 7,968 (2,461) (220) (6,135) - 1,252 1,252 Segment net profit / (loss) before tax 1,331 (927) 404 Reconciliation of segment result to group net profit/loss before tax (i) Amounts not included in segment result but reviewed by Board ---Amortisation (ii) Unallocated items ---Finance costs --- Legal fees re court cases Net loss before tax from continuing operations 30 June 2011 Revenue External Sales Other income Total segment revenue Reconciliation of segment revenue to group revenue Total group revenue Cost of materials Depreciation Other expenses Overheads capitalised as pre-production activities Segment net profit / (loss) before tax Reconciliation of segment result to group net profit/loss before tax (i) Amounts not included in segment result but reviewed by Board ---Amortisation (ii) Unallocated items ---Finance costs Net profit before tax from continuing operations ANNUAL REPORT 2012 6,126 177 6,303 - 6,303 (2,038) (77) (2,369) - 1,819 505 430 935 - 935 - (89) (2,773) 583 (1,344) (199) (73) (255) (123) 6,631 607 7,238 - 7,238 (2,038) (166) (5,142) 583 475 (199) (33) 243 57 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 24. SEGMENT REPORTING (continued) Segment assets 30 June 2012 Segment assets Additions to non-current assets — capital expenditure — development and pre-production activities capitalised Reconciliation of segment assets to group assets Segment assets Inter-segment eliminations Unallocated assets: — Intangible assets re Wet Brake Technology Total group assets 30 June 2011 Segment assets Additions to non-current assets — capital expenditure — pre-production activities capitalised Reconciliation of segment assets to group assets Segment assets Inter-segment eliminations Unallocated assets: — Intangible assets re Wet Brake Technology Total group assets Segment liabilities 30 June 2012 Segment liabilities Reconciliation of segment liabilities to group liabilities Segment liabilities Inter-segment eliminations Unallocated liabilities: Total group liabilities 30 June 2011 Segment liabilities Reconciliation of segment liabilities to group liabilities Segment liabilities Inter-segment eliminations Unallocated liabilities: Total group liabilities Mining brakes $'000 Engineering services $'000 Total $'000 71 - 576 647 1,252 1,252 4,123 5,691 9,814 53 - 377 583 4,079 3,028 824 1,132 907 492 1,790 11,604 430 583 7,107 - 1,989 9,096 1,956 - - 1,956 1,399 - - 1,339 58 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 24. SEGMENT REPORTING (continued) Revenue by geographical region Revenue attributable to external customers is disclosed below based on the location of the external customer. Australia Canada New Zealand Papua New Guinea South Africa USA Zambia Total revenue from trading activities Assets by geographical region The location of segment assets by geographical location of the assets is disclosed low: Australia South Africa Thailand Total assets Major customers 2012 $’000 4,882 670 36 35 513 162 1 6,299 10,093 72 1,439 11,604 2011 $’000 5,355 651 54 87 380 95 9 6,631 7,981 82 1,033 9,096 The Group has a number of customers to whom it provides both products and services. The three most significant customers are : Significance 1st 2nd 3rd 2012 Sector Mining Mining Mining 2011 Sector 2012 % of total revenue from trading activities 11.9% 10.6% 8.6% Mining Mining Engineering 2011 % of total revenue from trading activities 15.3% 9.8% 7.5% ANNUAL REPORT 2012 59 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 25. CASH FLOW INFORMATION (a) Reconciliation of Cash Flow from operations with profit / (loss) after income tax CONSOLIDATED GROUP 2011 $’000 2012 $’000 Profit / (Loss) from ordinary activities after income tax (Profit) / loss on disposal of property, plant and equipment Non-cash flows in loss from ordinary activities Cost of share options Depreciation Unrealised foreign exchange (profit) / loss on Fixed Assets Amortisation of IP Shares issued for professional services Shares issued to employees Foreign exchange (gain)/loss Other R&D tax offset Changes in assets and liabilities (Increase) / decrease in trade and other receivable (Increase) / decrease in inventories (Increase) / decrease in other current assets Increase / (decrease) in deferred income Increase / (decrease) in trade and other payables Increase / (decrease) in provisions Cash inflows / (outflows) from operations (123) (19) 22 220 (1) 199 - 21 13 - 396 (452) (783) 111 (137) 118 (415) 550 (1) 35 166 8 199 79 - 24 (307) (497) (434) (9) - 247 81 141 (b) Non-cash financing and investing activities 2012 During the year to 30 June 2012 ordinary shares were issued to a number of employees, including key management personnel, but excluding directors, as remuneration under an employee share scheme. The transactions were as follows:  On 24 January 2012 twenty one employees were each paid $1000 remuneration in the Company’s shares. The shares were priced at the ASX volume weighted average trading price on the day of issue and the preceding four days. 2011 During the year to 30 June 2011 ordinary shares were issued to Mr Humann, Professor Richmond fees outstanding from the previous year. These and Mr Slack in satisfaction of Directors’ Director transactions were approved by shareholders in General Meeting on 2 November 2009. The transactions were as follows:  On 26 July 2010, Mr D Humann was paid $35,000 plus $3,500 GST, Professor M Richmond was paid $20,000 and Mr Slack was paid $20,000 in the Company’s shares in payment of their Director fees to 30 June 2010. The shares were priced at the ASX volume weighted average price in the month leading up to 30 June 2010. 60 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 26. RELATED PARTY TRANSACTIONS (a) Intercompany transactions Transactions between related parties are on normal commercial terms and conditions except inter company loans which are provided at no interest and are treated by the Parent Entity as an investment in the subsidiary. Related party transactions are eliminated on consolidation. Intercompany related party transactions are eliminated on consolidation. (b) Directors and Key Management Personnel During 2012, ordinary shares were issued under an employee share scheme to key management personnel. During 2011 ordinary shares were issued in satisfaction of Directors’ fees for the previous financial year. Details are disclosed in note 25(b) above. 27. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Overview The Company and its Subsidiaries financial instruments: i Market risk; ii Liquidity risk; iii Credit risk. (“Group”) have exposure to the risks below from The Directors have responsibility for the development and control of the risk management framework. The Audit Committee, established by the Directors, is responsible for development and monitoring of risk management policies. The Group’s principal financial instruments comprise cash, interest bearing deposits and lease and hire purchase finance. The purpose of these financial instruments is to finance the growth of the Group and to provide working capital for the Group’s operations. The Group has various other financial instruments including trade debtors and trade creditors which arise directly out of its operations and through the negotiation of trading terms with customers and suppliers. During the period under review the Group has not traded in financial instruments. However it is Group policy to hedge foreign currency against fluctuations where appropriate, which may result in exchange losses. The main risks arising from the Group’s financial instruments are market risk, including interest rate risk and foreign currency risk; liquidity risk and credit risk. The Directors review and agree policy for managing each of these risks and they are summarised as follows: (a) Market Risk Interest rate risk The economic entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows: ANNUAL REPORT 2012 61 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 27. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (a) Market Risk - Interest rate risk (continued) Average Interest Rate % Floating Interest Rate $’000 Within 1 Year $’000 1 to 5 Years $’000 Non- Interest Bearing $’000 2012 Financial assets Cash Receivables - current Accrued income-R&D Tax incentive (note 11) Receivables - non-current Total financial assets Financial liabilities Payables Hire purchase and finance lease liabilities Total financial liabilities Net Financial Assets/(Liabilities) 4.2% - - - - 10.4% 2,925 - - - 2,925 - - - - - - - - - 89 89 - - - - - - 317 317 Total $’000 2,925 797 786 31 4,539 - 797 786 31 1,614 848 - 848 406 848 1,254 2,925 (89) (317) 766 3,285 As at 30 June 2012 Advanced Braking Pty Ltd was entitled to interest on deposits at var io us b anks at rates up to 3.75 % per annum. (2 011 : 6.1% per annum). 2011 Financial assets Cash Receivables - current Receivables – non-current Total financial assets Financial liabilities Payables Hire purchase liabilities Total financial liabilities Net Financial Assets/(Liabilities) 3.9% - - - 11.4% 2,737 - - 2,737 - - - - - - - - 102 102 - - - - - 133 133 - 1,194 30 1,224 985 - 985 2,737 1,194 30 3,961 985 235 1,220 2,737 (102) (133) 239 2,741 The sensitivity analysis below is based on the interest rate risk exposure in existence at the balance sheet date. The 0.6% (2011: 0.9%) interest rate sensitivity is based on reasonable possible changes, over a financial year, using an observed range of historical Australian Reserve Bank rate movement over the last two years. In the year to 30 June 2012, if interest rates had moved, as illustrated in the table below, with all other variables held constant, the results before tax relating to financial assets and liabilities would have been affected as shown below (note: the Company has carried forward tax losses and is not expected to pay tax for the foreseeable future therefore sensitivity analysis is shown pre-tax): 62 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 27. (a) FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Market Risk - Interest rate risk (continued) Possible movements before tax: +0.6% (2011: 0.9%) per annum -0.6% (2011: 0.9%) per annum Reconciliation of net financial assets to net assets Net financial (liabilities)/assets as above Non-financial assets and liabilities -Inventories -Property, plant & equipment -Intangible Assets -Other current assets-prepayments (note 11) -Provisions -Share Application Funds held in trust Deferred income Net (liabilities)/assets as per the Balance Sheet CONSOLIDATED GROUP 2011 $’000 2012 $’000 12 (12) 3,285 2,225 1,162 3,625 53 (297) (294) (111) 9,648 21 (21) 2,741 1,773 734 2,572 56 (179) - - 7,697 The Directors’ objective is to earn the highest rate of interest on deposits with minimum risk. The Directors’ policy therefore is to place deposits with recognised banks which offer the highest variable rates. Similarly loans and asset finance contracts are shopped to find the lowest rates of interest expense. Foreign Currency Risk As a consequence of the location of the subsidiary Safe Effect (Thailand) Co Ltd (SETT) in Thailand and the currency of the net investment in the subsidiary being denominated in Thai Baht, the Company’s Balance Sheet can be affected significantly by movements in the Thai Baht/ AUD exchange rates. The Company does not currently hedge this exposure and, as the net investment in SETT is not a financial asset, the foreign currency risk is not analysed hereunder. However the Company may hedge against future foreign currency risk when considered appropriate. The net investment in The Company’s other subsidiary, Advanced Braking Pty Ltd, has limited exposure from time to time in foreign currency debtors and creditors, mainly in USD. The Company does not currently hedge this exposure. However the Company may hedge against future foreign currency risk when considered appropriate. At 30 June 2012 neither the Company nor its subsidiaries had any forward foreign exchange contracts in place. As at 30 June 2012 the Group had the following exposure to foreign currency: Financial Assets Cash and cash equivalents Trade and other receivables Other financial assets Financial Liabilities Payables Net Exposure 46 67 - 113 334 (221) 37 41 - 78 401 (323) 63 ANNUAL REPORT 2012 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 27. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (a) Market Risk -Foreign Currency Risk (continued) The following sensitivity analysis is based on the foreign currency risk exposure in existence at the balance sheet date. The 7% (2011: 8%) sensitivity is based on reasonable possible changes, over a financial year, using an observed range of actual historical rates in foreign exchange movements over the last two years. In the year to 30 June 2012 if the Australian Dollar had moved, as illustrated in the table below, with all other variables held constant, the results before tax relating to financial assets and would have been affected as shown below: Possible movements before tax: Pre Tax Profit – higher/(lower) +7% (2011:+8%) per annum -7% (2011: -8%) per annum . (b) Liquidity Risk CONSOLIDATED GROUP 2011 $’000 2012 $’000 (14) 16 (24) 28 The Group’s objective is to fund new product development and commercialisation through shareholder equity, government grants, R&D tax incentives and lease and hire purchase finance. Ongoing commercial operations support existing business growth. The Group manages liquidity risk by maintaining adequate cash reserves and through limited loan and asset finance. Future funding requirements are determined through the monitoring of rolling cash flow forecasts, which reflect management’s expectations in respect of future turnover and the settlement of financial assets and liabilities. The following are the contractual maturities of financial liabilities, interest payments: including estimated 0 – 6 months 6 – 12 months 1 – 5 years 912 64 372 1,348 1,045 60 151 1,256 64 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 27. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (b) Liquidity Risk (continued) The following table discloses maturity analysis of financial assets and liabilities based on management expectation: CONSOLIDATED GROUP as at 30 June 2012 < 6 Mths $'000 6 - 12 Mths $'000 1 - 5 Years $'000 Financial Assets Cash and cash equivalents Trade and other receivables Accrued Income-R&D Tax Incentive Financial Liabilities Payables Hire purchase and finance lease liabilities Total financial liabilities Net exposure 2,925 797 786 4,508 848 44 892 3,616 CONSOLIDATED GROUP as at 30 June 2011 Financial Assets Cash and cash equivalents Trade and other receivables Other financial assets Financial Liabilities Payables Net exposure 2,737 1,194 - 3,931 1,045 1,045 2,886 - - - - - 45 45 (45) - - - - 60 60 (60) - 31 - 31 - 317 317 (286) - 30 - 30 151 151 (121) Total $'000 2,925 828 786 4,539 848 406 1,254 3,285 2,737 1,224 - 3,961 1,256 1,256 2,705 ANNUAL REPORT 2012 65 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 27. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (c) Credit risk Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. The credit risk on financial assets of the Consolidated Group which have been recognised on Balance Sheet is the carrying amount, net of any provision for doubtful debts. At year end t he Consolidated Group’s exposure to credit risk arises primarily from the mining industry. The Consolidated Group is not materially exposed to any individual overseas country or individual customer. The Company’s policy is to manage credit risk by ensuring that all customers who wish to trade on the credit terms subject Company’s exposure to bad debts is not significant. themselves to credit worthiness checks. The Directors believe that Other than the concentration of credit risk described above, the economic entity does not have any significant risk exposure to any counterparty or group of parties. The carrying amount of financial assets recorded in the financial statements, net of any provision for losses, represents the economic entity’s maximum exposure to credit risk. (d) Net fair values The financial assets and liabilities included in current asset and current liabilities in the Balance Sheet position are carried at amounts that approximate net fair values or recoverable amount. No impairment assessment was performed in either 2012 or 2011as there were no impairment triggers. The intangible asset comprises a) the Wet Brake technology assigned from Safe Effect Technologies International Ltd on 27 June 2006, which is amortised over 15 years being the average life of patents which underpin the carrying value. b) development and pre-production overheads capitalised, which will be amortised over their expected useful life once sales commence. 28. EVENTS SUBSEQUENT TO BALANCE DATE Other than the following, the directors are not aware of any significant events since the end of the reporting period. On 22 August 2012 legal proceedings against the Company in connection with events of approximately nine years ago were successfully concluded with judgement being handed down, and costs awarded, in favour of the Company. As announced by the Company on the 19th July 2012 the Board has approved that the Company undertake the final preparations to commence commercial production of the patented SIBS garbage truck brake during the year to 30 June 2013. 66 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 28. EVENTS SUBSEQUENT TO BALANCE DATE (continued) On 26 July 2012 the Company issued 17 million ordinary fully paid shares at an issue price of $0.017 per share to Directors, raising share capital of $294,000. These shares were applied for as part of an offer to sophisticated investors in April 2012. Placement shares were issued to external investors on 1 May 2012, but issues to Directors were issued on 26 July 2012 after approval by Shareholders at a General Meeting of Shareholders on 12 July 2012. 29. CONTINGENT LIABILITIES There are no contingent liabilities. 30. SHARE BASED PAYMENTS The following share based payments were made during the financial year ended 30 June 2012: (a) On 24 January 2012 1,189,314 ordinary shares were issued at 1.77 cents each to a number of employees under an employee share scheme. The following share based payments were made during the financial year ended 30 June 2011: (a) On 26 July 2010, 4,361,111 ordinary shares were issued at 1.8 cents each as payment of directors’ fees, plus GST where appropriate, for the six months to 30 June 2010. OPTIONS CONSOLIDATED GROUP 2012 2011 Number of Options 33,660,000 - - - (13,000,000) 20,660,000 Weighted Average Exercise Price $ 0.05 - - - 0.06 0.04 Number of Options 42,660,000 - (1,750,000) - (7,250,000) 33,660,000 Outstanding at the beginning of the year Granted Forfeited Exercised Expired Outstanding at the year end Exercisable at the year end 11,500,000 0.06 20,000,000 Weighted Average Exercise Price $ 0.06 - 0.02 0.11 0.05 0.06 No options were granted during the year ended 30 June 2012 (2011: nil). Under cost of share options the expense in the income statement relating to share-based payments is $22,000 (2011: $36,000) and relates to the total cost value of all share options not forfeited, spread over the vesting period. ANNUAL REPORT 2012 67 Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 31. PARENT INFORMATION The following information has been extracted from the books and records of the parent and has been prepared in accordance with Accounting Standards. STATEMENT OF FINANCIAL POSITION ASSETS Current assets TOTAL ASSETS LIABILITIES Current Liabilities TOTAL LIABILITIES EQUITY Issued Capital Foreign Currency Reserve Other reserves Accumulated losses STATEMENT OF COMPREHENSIVE INCOME Total profit/(loss) after tax Total Comprehensive Income/(Loss) Guarantees 2012 $'000 2011 $'000 1,529 1,898 14,916 13,118 415 415 45 45 45,153 43,115 - 730 (31,382) 14,501 - 708 (30,750) 13,073 (632) (632) 160 160 At 30 June 2011 Advanced Braking Technology Ltd had granted a guarantee and indemnity in relation to the obligations of Advanced Braking Pty Ltd in favour of NAB in connection with a debtor finance facility which was no longer in use. The guarantee and indemnity was cancelled during the year ended 30 June 2012. In 2012 Advanced Braking Technology Ltd provided guarantees to a number of suppliers of Advanced Braking Pty Ltd in connection with the subsidiary negotiating finance under lease or HP agreements. The Directors have also resolved that the Company will continue to provide financial support to its subsidiaries for as long as it is required. 68 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2012 31. PARENT INFORMATION (continued) Contingent Liabilities There are no contingent liabilities. Contractual Commitments As at 30 June 2012, Advanced Braking Technology Ltd had not entered into any contractual commitments for the acquisition of property, plant and equipment (2011: Nil) At the date of this report the Company is negotiating the renewal of the lease of its Australian premises. ANNUAL REPORT 2012 69 Advanced Braking Technology Ltd DIRECTORS’ DECLARATION The Directors of the Company declare that: 1. The financial statements and notes, as set out on pages 25 to 69, are in accordance with the Corporations Act 2001: (a) (b) comply with Accounting Standards, which, as stated in accounting policy Note 1 to the financial statements, constitutes compliance with International Financial Reporting Standards (IFRS); and give a true and fair view of the financial position as at 30 June 2012 and of the performance for the year ended on that date of the consolidated group. 2. 3. The Chief Executive Officer and Chief Finance Officer have each given the declarations required by s295A of the Corporations Act 2001. In the Directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors and is signed by authority for and on behalf of the Directors by: D HUMANN Director Perth, Western Australia 31st August 2012 70 ADVANCED BRAKING TECHNOLOGY LTD Level 3, 12 St Georges Terrace Perth WA 6000 PO Box 5785, St Georges Terrace WA 6831 T F +61 (0)8 9225 5355 +61 (0)8 9225 6181 www.moorestephens.com.au INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ADVANCED BRAKING TECHNOLOGY LIMITED Report on the Financial Report We have audited the accompanying financial report of Advanced Braking Technology Limited which comprises the consolidated statement of financial position as at 30 June 2012, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the 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 financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards (IFRS). Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Advanced Braking Technology Limited, would be in the same terms if provided to the directors as at the date of this auditor’s report. ANNUAL REPORT 2012 71 Level 3, 12 St Georges Terrace Perth WA 6000 PO Box 5785, St Georges Terrace WA 6831 T F +61 (0)8 9225 5355 +61 (0)8 9225 6181 www.moorestephens.com.au Auditor’s Opinion In our opinion: (a) the financial report of Advanced Braking Technology Limited is in accordance with the Corporations Act 2001, including: i. ii. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the remuneration report as included in the directors’ report for the year ended 30 June 2012. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with s 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s Opinion In our opinion the remuneration report of Advanced Braking Technology Limited for the year ended 30 June 2012 complies with s 300A of the Corporations Act 2001. Suan-Lee Tan Partner Moore Stephens Chartered Accountants Signed at Perth this 31st day of August 2012. 72 ADVANCED BRAKING TECHNOLOGY LTD Advanced Braking Technology Ltd STOCK EXCHANGE INFORMATION Additional information required by the ASX Limited Listing Rules and not disclosed elsewhere in this report is set out below. 1. Statement of issued capital at 24th August 2012. (a) Distribution of fully paid ordinary shares Size of Holding Number of Shareholders 1 1,001 5,001 10,001 100,001 Total - - - - and 1,000 5,000 10,000 100,000 Over 54 19 152 591 579 1,395 Shares Held 3,026 67,722 1,451,533 26,601,538 1,077,381,070 1,105,504,889 (b) There are 445 shareholders with less than a marketable parcel. (c) There are no restrictions on voting rights attached to the ordinary shares on issue. On a show of hands, every member present in person shall have one vote and upon a poll, every member present in person or by proxy shall have one vote for every share held. 2. Substantial shareholders The Company has the following substantial shareholders at 24th August 2012: - Mr David Slack 154,132,883 shares 3. Shareholders The twenty largest shareholders hold 41.51% of the total issued ordinary shares in the Company as at 24th August 2012. 4. Share Options Unlisted Options expiring 1 March 2013 exercisable at $0.065 Number of Options Number of Holders 10,000,000 1 Unlisted Options expiring 31 August 2013 exercisable at $0.015 Number of Options Number of Holders 6,160,000 8 Unlisted Options expiring 5 November 2013 exercisable at $0.035 Number of Options Number of Holders 4,500,000 1 ANNUAL REPORT 2012 73 Advanced Braking Technology Ltd STOCK EXCHANGE INFORMATION (continued) 5. On-market buy-back. There is no current on-market buy-back. 6. Quotation Shares in Advanced Braking Technologies Ltd are listed on the Australian Securities Exchange. 74 ADVANCED BRAKING TECHNOLOGY LTD 2. 3. 4. 5. 6. 7. 8. 9. Advanced Braking Technology Ltd STOCK EXCHANGE INFORMATION (continued) Largest Fully Paid Ordinary Shareholders The names of the twenty largest shareholders who hold 41.51% of the fully paid ordinary shares in the Company at 24th August 2012, are: 1. WINDPAC PTY LTD DASI INVESTMENTS PTY LTD MR RICHARD PALMER + MRS TRACEY-ANN PALMER M/S TRACEY-ANN PALMER MR RICHARD ANDREW PALMER ANNAPURNA PTY LTD Number of shares 73,399,750 % of Issued Shares 6.64 46,794,746 32,500,000 25,144,893 24,334,036 24,000,000 4.23 2.94 2.27 2.20 2.17 FITEL NOMINEES LIMITED 23,000,000 2.08 MR DALE ALBERT MONSON + MRS DAGMAR ERNA MONSON MYALL RESOURCES PTY LTD 10. CLAYMORE CAPITAL PTY LTD 11. MR PETER RODNEY BOWER 22,639,843 20,759,500 19,591,302 19,500,000 12. WINDPAC PTY LTD 13. PERSHING AUSTRALIA NOMINEES PTY LTD 16,000,000 14. MR JIM SUMPTER + MRS DALE ELIZABETH 15,200,093 SUMPTER 15. KNARF INVESTMENTS PTY LTD 15,145,980 16. WINDPAC PTY LTD 14,900,000 17. MR DAVID HUMANN + MRS ANNE HUMANN 13,378,323 18. MONDAL INVESTMENTS PTY LTD 19. GALVALE PTY LTD 20. R E JONES PROPERTIES PTY LTD 12,273,927 12,000,000 10,829,399 2.05 1.88 1.77 1.76 1.58 1.45 1.37 1.37 1.35 1.21 1.11 1.09 0.98 Total 458,891,792 41.51 ANNUAL REPORT 2012 75 Advanced Braking Technology Ltd Unit 1, 3 McDonald Street Osborne Park, Western Australia 6017 76 ADVANCED BRAKING TECHNOLOGY LTD 

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