Alamos Gold
Annual Report 2013

Plain-text annual report

AnnuAl RepoRt 2013 Ainsworth’s product revolution continues to expand and deliver excellence, anchored by high player appeal, serviceability and robustness of the A560™ platform portfolio and led by its universally entertaining and truly inspirational game brands. Ainsworth’s advancement in technology and success is driven by its comprehensive product development strategy, leveraging market leading hardware design coupled with highly innovative game concepts to provide a diverse product range renowned for its superior and sustainable product performance. is synonymous the Ainsworth brand globally with outstanding performance, comprehensive product flexibility and extraordinary innovation. As a global business, its Ainsworth reputation for providing the ultimate gaming experience to all its stakeholders and operating with complete commitment to its core values of quality, innovation and excellence. is dedicated to continue Key DAtes Annual General meeting: wednesday 20 november 2013 results announcement for six months ending 31 December 2013: tuesday 25 February 2014 results announcement for year ending 30 June 2014: wednesday 27 August 2014 Dates may be subject to change. notice of AnnuAl GeneRAl MeetinG Ainsworth Game technology limited ABn 37 068 516 665 notice is hereby given that the 2013 Annual General meeting of the members of Ainsworth Game technology limited will be held at: Bankstown sports club “Georges river room” 8 Greenfield Parade (cnr Greenfield Pde and mona st) BAnKstown nsw 2200 on wednesday 20 november 2013 at 11.00am. Ainsworth GAme technoloGy tAble of contents RepoRt to shAReholDeRs 2013 highlights chairman’s report chief executive officer’s report shareholder information corporate Governace 02 04 06 09 11 finAnciAl stAteMents Directors’ report 20 notes to the Financial statements 42 statement of Financial Position statement of comprehensive income statement of changes in equity statements of cash Flows 38 Directors’ Declaration 39 40 41 independent Auditor’s report lead Auditor’s independence Declaration 82 83 84 coMpAny infoRMAtion corporate Directory 85 for the year ended 30 June 2013 01 AnnuAl RepoRt 20132013 hiGhliGhts 200 200 150 150 100 100 50 50 0 0 25 25 200 200 200 ) ) 200 150 100 50 0 R&D expenDituRe peRcentAGe (M) R&D as a Percentage of Revenues R&D as a Percentage of Revenues R&D as a Percentage of Revenues H1 H1 H1 20 20 150 150 150 15 15 100 100 100 10 10 m $ A m $ A ( e r u t i d n e p x E D & R ( e r u t i d n e p x E D & R 50 50 50 5 5 0 0 0 0 0 24.6 24.6 24.6 20.6 20.6 20.6 FY09 FY09 FY09 25 H2 H2 H2 20 15 10 ) m $ A ( e r u t i d n e p x E D & R 37.9 37.9 37.9 5 31.4 31.4 31.4 0 FY10 FY10 FY10 25% 25% 20% 20% 23.2 23.2 101.6 101.6 101.6 23.2 18.6 18.6 82.3 82.3 82.3 18.6 15% 15% 13.1 13.1 54.1 54.1 54.1 43.9 43.9 43.9 13.1 96.5 96.5 96.5 10% 10% 68.3 68.3 68.3 5% 5% ) ) % % ( e g a t n e c r e P D & R ( e g a t n e c r e P D & R FY11 FY11 FY11 FY11 FY11 FY12 FY12 FY12 FY12 FY12 FY13 FY11 FY13 FY13 FY13 FY13 0% 0% FY12 FY13 25% 20% 15% 10% 5% 0% ) % ( e g a t n e c r e P D & R peRfoRMAnce hiGhliGhts – leading product performance achieved on the company’s range of innovative gaming products across global markets – 23 new regulatory licenses since July 2012 – Australia: continuing mid-Denomination excellence (reels of wheels™, multiplay™ and Big time ii) and stronger low-Denomination performance (Quad shot™) resulting in continuing increased ship share and market share – Australia: release of A560™ in Victoria and A560st™ & QX32™ in core states – Americas: Growth in Game operations installed base to 1,156 units – Americas: revenue contribution increase of 70% – Americas: Appointment of new Presidents for north and south American operating divisions – Americas: First licensed theme product (magnificent seven™) displayed at G2e Gaming exhibition in las Vegas – Americas: Acquisition of approx. 24 acres of vacant land in las Vegas, nevada for Us$7.0 million – other Regions: new Zealand, europe and Asia increased contribution by 7%, with Asia increasing 94% over same period in 2012 – Group: established an unsecured multi-option currency facility of $30 million for an initial term of 3 years with AnZ Banking Group – 02 Ainsworth GAme technoloGy ReVenues (M) (Fiscal years ended June 30) ebitDA (M) (Fiscal years ended June 30) npAt (M) (Fiscal years ended June 30) 200 150 100 50 0 H1 H2 cAGr 34% 54.1 43.9 37.9 31.4 24.6 20.6 FY09 101.6 96.5 82.3 68.3 100 75 50 25 0 FY10 FY11 FY12 FY13 120 90 60 30 0 42.3 31.9 H1 H2 cAGr 137% 32.4 H1 H2 cAGr 121% 17.5 23.8 6.5 1.4 (2.0) FY09 0.9 FY10 8.2 FY11 FY12 FY13 1.4 (4.2) 19.8 3.3 (2.8) (9.8) FY09 finAnciAl hiGhliGhts – totAl ReVenue up 32% to $198 million – ebitDA up 32% to $74 million – pRofit befoRe tAx up 50% to $69 million – pRofit befoRe tAx percentage of revenue increased to 35% (2012: 31%) – RepoRteD npAt of $52 million (2012: $64 million including one-off $18 million income tax benefit for previously unrecognised deferred tax asset) – eps of $0.16 per share (2012: $0.23 per share) – stRonG Balance sheet, cash Position and cash Flow – totAl DiViDenDs of 8.0 cents per share for Fy2013 representing a payout ratio of 49% Interim Dividend 3.0 cents Unfranked (Paid 12 April 2013) Final Dividend 5.0 cents Unfranked (Paid 27 Sept 2013) Tax Benefit of $18.1m recognised in FY12 23.8 40.5 30.2 22.0 FY10 FY11 FY12 FY13 03 AnnuAl RepoRt 2013chAiRMAn’s RepoRt cabinet family improvement “the continued in the financial results in fy13 confirm my longstanding confidence in the company’s investment in research and development activities that enable the creation of an expanding range of innovative and entertaining gaming products.” 04 DeAR shAReholDeRs, I have been involved in the gaming industry for more than 60 years and I have never been more optimistic that AGT will continue to expand and gain increased market share. The Company has established a strong financial position and continues to prudently invest in product initiatives to capitalise on the increasing world opportunities. I am confident of our opportunities in all world markets. Further expansion in the key international market of the Americas is expected to realise additional financial gains as we increase our global footprint in this region. The recent appointment of Mr Mike Drietzer as President for North America and Canada, will ensure we capitalise on the foundation established by the Company’s Chief Executive Officer, Mr Danny Gladstone, during his recent tenure in the USA, and take maximum advantage of the opportunities in this region. New products displayed at the G2E Gaming Exhibition, including the introduction of the Group’s first licenced themed product, Magnificent Seven™, have been well received and are expected to increase the Group’s gaming operations revenues. Our recent acquisition of 24 acres of land in Las Vegas will allow the Group the option to build a larger purpose-built facility in Las Vegas prior to expiry of our current lease with the potential for consequential economies. Ainsworth GAme technoloGyThe Company has established external banking and financial facilities with a leading Australian bank. These facilities will ensure additional flexibility to manage working capital requirements and allow for competitive borrowings in US dollars thus creating a natural hedge against adverse foreign currency movements. The addition of two new independent non-executive directors during the year will further assist the Company to maintain its commitment to the highest level of corporate governance and provide fresh insights and strategic input to ensure our Board processes continue to function in accordance with ASX guideline best practice. I welcome both David Macintosh and Colin Henson to the Board and have no doubt that they will provide valuable contribution to our activities. like to personally acknowledge the significant I would contribution of Mr Stewart Wallis who retired on 30 June 2013, not only as a director but a major contributor on all the Company’s established sub-committees. Mr Wallis’ commitment over a period of 11 years ensured a solid foundation to the existing strong corporate governance practices and compliance related processes across all areas of the Company’s operations. The gaming industry is one of the most highly regulated environments in the world and we continue to ensure the necessary resources, processes and procedures are in place to maintain our existing gaming licences whilst pursuing new licences in markets where it is considered that growth opportunities exist. The Company’s increased profile has continued to provide greater interest from institutional investors resulting in a broadening of our share register. The recent progression into the S&P/ASX All Australian 200 Index should further enhance investor interest. The Board resolved to pay a final (unfranked) dividend of 5 cents per ordinary share resulting in total dividends for the year of 8 cents per ordinary share. The introduction of dividends in FY13 has provided all shareholders with a cash return on their investment. We will continue to target a dividend strategy whereby 40-60% of after tax profits are distributed as dividends, which given the strong cashflows being generated, are not expected to impact the level of investment necessary to continue to deliver on current and future growth initiatives. I wish to thank the Board, our CEO Mr Danny Gladstone, the Leadership Team, the Company’s valued employees and my fellow shareholders for their continued support and contributions to the success achieved thus far. It is my expectation that given the pipeline of new products and our continued leading performance, further market share gains within current and new gaming markets will be achieved and should translate into further financial gains beyond the current year. lh Ainsworth executive chairman 05 AnnuAl RepoRt 2013chief executiVe officeR’s RepoRt ReVenue/pRofitAbility – AuD (M) (Fiscal years ended June 30) Total Revenue Profit/(Loss) Before Tax (PBT) 100 80 60 40 20 0 –20 97 102 82 68 54 21 25 31 38 44 (3) (10) (4) 2 3 11 27 30 19 39 H1 FY09 H2 FY09 H1 FY10 H2 FY10 H1 FY11 H2 FY11 H1 FY12 H2 FY12 H1 FY13 H2 FY13 “i am once again delighted to report continued improvement in financial performance with a profit after tax of  $52.2 million for the full year ended 30 June 2013.” DeAR shAReholDeRs, I am once again delighted to report continued improvement in financial performance with a profit after tax of $52.2 million for the full year ended 30 June 2013. FY13 was one of consolidation in domestic markets with a concentration on product investment and development international markets. The strong product performance achieved across all global markets in which we are operating enabled the Group to secure its reputation as a leading provider of reliable and high performing innovative gaming products. initiatives within targeted We have now established a profitability track record, recording revenue growth over ten consecutive half years. We have invested in an increasing pipeline of innovative, high quality products to assist in achieving further expansion across international markets and a continued strengthening of our domestic market share. The Group’s balance sheet is in a strong position enabling flexibility and capacity to further drive earnings growth into the future. The previously introduced capital management initiatives have provided the necessary financial capabilities to accelerate planned growth internationally and further secure our domestic market share. 06 Ainsworth GAme technoloGytotal Revenue by continent $42.9m $1.3m $6.2m $19.6m $124.4m $3.6m We continue to maintain a disciplined approach to capital management and prudently manage working capital to further improve our cash flow from operations in this new financial year. Sales revenue achieved for the financial year ended 30 June 2013 was $198 million, a 32% increase over the previous corresponding period in 2012. Progression of development strategies in all geographical markets together with establishment of a greater presence in the Americas has provided a strong foundation for future growth. Domestic revenue was $124 million, an increase of 21% compared to the previous corresponding period in 2012. This result benefited from the release of the A560ST™ gaming cabinets and Quad Shot™ in New South Wales and Queensland markets. A significant increase of revenue within Victoria in the second half of FY13 was achieved following the approval of the A560™ and the transition to the new monitoring provider. Further market share gains for AGT across all domestic segments were achieved in FY13. The approval and successful release of the mid denomination 4 level standalone progressive Reels of Wheels™ and Multiplay™ Big Time II within New South Wales continue to produce leading product performance. International revenue for the period was $74 million, an increase of 55% compared to the previous corresponding period in 2012. Significantly, South America recorded an increase of 77% and represented 27% of overall international revenue. Continued progress to gain market share and revenue growth within the key international market of North America in FY14 is expected, as new products progress through the necessary regulatory approval cycles. As we continue to focus on our international market expansion plans we will pursue and evaluate further growth opportunities within both traditional land based gaming markets and emerging online gaming markets as this exciting new opportunity develops. We have completed the initial phase of development of products for regulated online markets in Europe and North America and we expect to capitalise on additional revenue streams from these markets. The appointment of Mr Mike Drietzer to oversee the North American and Canadian sales strategies will assist in capitalising on the significant opportunities available in this market. I am confident that when I return to Australia, Mike’s experience and expertise will further improve on the financial profitability and revenue growth objectives established during my tenure at the Las Vegas, Nevada facility. The successful restructure of the Company’s operations in the South American market resulted in an increase in revenues reported for the second half of FY13. As part of the restructure, Mr Miguel Cuadros has now been appointed to the position of President of South America to further pursue growth opportunities in this region. Revenue from other international markets of New Zealand, Europe and Asia contributed $11 million (15% of international revenue), an increase of 7% on the corresponding period in 2012. The Asian market represented 56% of the revenue from these geographical segments and achieved a 94% increase over the same period in 2012. 07 AnnuAl RepoRt 2013chief executiVe officeR’s RepoRt (continued) The AGT Group of companies has obtained 23 new operating licences since July 2012 and is well positioned to capitalise on opportunities to continue to expand its global footprint. The Company is licensed by every domestic regulator in Australia, holds licences in 18 US states and 100 Indian tribal licences, and is registered with three provinces in Canada. It is also licensed in seven other countries namely Macau, Philippines, Singapore, Greece, the Dominican Republic, Peru and Puerto Rico. Following the previously successful introduction of performance based employee incentive arrangements, a new long term incentive plan was introduced in July 2013 for the participation of all employees. This incentive plan is aligned to increasing shareholder value and will assist in rewarding and retaining our workforce. We are committed to recognising and rewarding the efforts of our employees and to ensure their continued development through education and training programmes. Established workplace health and safety guidelines are continually maintained and reviewed to ensure we maintain a high level of compliance with all relevant legislation and provide a safe workplace for all employees, visitors and contractors. I would like to thank the Directors for their valuable insight and continued support. I also thank the Executive Chairman, Mr LH Ainsworth, for his personal contribution and longstanding commitment throughout a distinguished and recognised career within the gaming industry. The dedication and commitment to excellence of our talented employees across the world has enabled AGT to continue to report improved profitability and be recognised globally as a provider of high performing and reliable gaming products. The extensive technical and operational experience of the Leadership Team and staff across the company is a major contributing factor to the success the company is now achieving. Danny Gladstone chief executive officer in north America “the high yielding performance of the Group’s current range of products, increasing yields on products under in participation particular, and the opportunity for additional products to generate revenue under this recurring revenue model are expected to enable the Group to further improve financial results.” A gross margin of 66% was achieved, compared to 68% in 2012. Margins within domestic markets remained strong and the margin decrease in the year was primarily due to the increased proportion of revenue derived from the lower margin territory of South America. Continued cost reduction initiatives combined with higher sales volumes, production efficiencies and a greater concentration of premium progressive recurring revenue games are expected to assist in off-setting potential negative margin impacts as international revenue increases as a proportion of total revenue. Operating costs, excluding cost of sales, other expenses and financing costs, were $66 million, an increase of 22% over 2012. This increased increase was primarily attributed to variable selling costs in line with revenue increases, increased expenditure on research and development and increased investment within the Company’s operational facility in Las Vegas, Nevada. The necessary USA infrastructure is now in place to support the expected expansion in targeted international markets, with further expansion to be aligned with the achievement of international revenue growth. The high yielding performance of the Group’s current range of products, increasing yields on products under participation in North America in particular, and the opportunity for additional products to generate revenue under this recurring revenue model are expected to enable the Group to further improve financial results. Further increases in research and development expenditure in future periods will ensure the Group will continue to provide high performing, innovative and technically advanced products to our customers within existing markets while actively pursuing new markets. 08 Ainsworth GAme technoloGy shAReholDeR infoRMAtion infoRMAtion About shAReholDeRs Shareholder information required by the Australian Securities Exchange Limited Listing Rules and not disclosed elsewhere in this report is set out below: shARe holDinGs (As At 13 septeMbeR 2013) number of shareholders and shares on issue The issued shares in the Company were 322,025,876 ordinary shares held by 3,073 shareholders. substantial shareholders The number of shares held by substantial shareholders and their associates are set out below: shareholder Mr LH Ainsworth Votraint No. 1019 Pty Ltd (MCA Private Investment A/C) number of ordinary shares 178,395,162* 29,003,563 * Mr LH Ainsworth granted share options over a portion of his existing personal shareholding to Australian employees, excluding directors. Share options outstanding as at 13th September 2013 were 5,420,518 (issued to 200 employees) and remain unexercised. Voting rights Ordinary shares The voting rights attaching to ordinary shares are that on a show of hands every member present in person or by proxy has one vote and upon a poll, each share shall have one vote. Options and Performance Rights Option and performance right holders have no voting rights. Distribution of shareholders on market buy-back There is no current on market buy-back of ordinary shares. unquoted equity securities At 13 September 2013, 567,094 unlisted non-transferable options and 1,301,822 performance rights have been issued to 22 and 372 employees, respectively. If shareholders approve the issue of performance rights to the Chief Executive Officer, Mr DE Gladstone, at the 2013 Annual General Meeting on 20 November 2013, the number of performance rights issued will increase to 1,439,358 issued to 373 employees. These options and performance rights remain unexercised. Regulatory considerations affecting shareholders The Company is subject to a strict regulatory regime in regard to the gaming licences and operations within the gaming industry. It is necessary for the Company to regulate the holding of shares to protect the businesses of the Company in respect of which a gaming licence is held. By accepting shares, each potential investor acknowledges that having regard to the gaming laws, in order for the Company to maintain a gaming licence, the Company must ensure that certain persons do not become or remain a member of the Company. The Constitution of the Company contains provisions that may require shareholders to provide certain information to the Company and the Company has powers to require divesture of shares, suspend voting rights and suspend payments of certain amounts to shareholders. category 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total nUmBer oF eQUity shAreholDers ordinary shares Performance rights options 600 1,434 490 474 75 3,073 – – 6 15 1 22 13 312 29 18 – 372 The number of shareholders holding less than a marketable parcel of ordinary shares is 89 (1,900 ordinary shares). 09 AnnuAl RepoRt 2013twenty largest shareholders name Mr L H Ainsworth Votraint No. 1019 Pty Ltd (MCA Private Investment A/C) National Nominees Limited HSBC Custody Nominees (Australia) Limited JP Morgan Nominees Australia Limited Associated World Investments Pty Limited Baclupas Pty Limited (Valhalla A/C) Citicorp Nominees Pty Limited BNP Paribas Noms Pty Limited (DRP) JP Morgan Nominees Australia Limited (Cash Income A/C) Writeman Pty Limited (P L H A Investment A/C) HSBC Custody Nominees (Australia) Limited (NT-Comnwlth Super Corp A/C) BNP Paribas Noms Pty Limited ACF Pengana (DRP A/C) Citicorp Nominees Pty Limited (Colonial First State Inv A/C) UBS Nominees Pty Limited Merrill Lynch (Australia) Nominees Pty Limited Casola Holdings Pty Limited (Nordiv Holdings S/Fund A/C) Mr Sasha Alexander Cajkovac Hotel Bondi Pty Limited (Bondi Unit A/C) Miss Pattarawadee Smarnkeo Total number of ordinary Percentage of total 163,049,797 29,003,563 22,900,032 18,857,553 14,647,403 9,165,240 6,047,225 4,623,339 3,212,790 2,099,032 2,000,000 1,833,189 1,755,000 1,591,831 1,519,972 1,172,536 1,025,000 674,916 660,000 659,999 50.63 9.01 7.11 5.86 4.55 2.84 1.88 1.44 1.00 0.65 0.62 0.57 0.54 0.49 0.47 0.36 0.32 0.21 0.20 0.20 286,498,417 88.95 10 Shareholder InformatIon (continued)Ainsworth GAme technoloGycoRpoRAte GoVeRnAnce the coMpAny’s AppRoAch to coRpoRAte GoVeRnAnce The Company’s Board of Directors and management strongly support the principles of good corporate governance to create long-term value for shareholders and maintaining the Company’s strong reputation for integrity. This is particularly important given the highly regulated nature of the industry within which the Company operates and is essential for securing new gaming licences and protection of current licences. Set out below are the Company’s corporate governance principles and practices in line with the ASX Corporate Governance Council current release of “Corporate Governance Principles and Recommendations with 2010 Amendments, 2nd edition”. Statements to this corporate governance section have been referenced to the applicable ASX Recommendations and compliance is indicated by . pRinciple 1 lay solid foundations for management and oversight long-term shareholder value. To role of the Board The Board’s primary role is the protection and enhancement fulfill this role, the of Board is responsible for the overall corporate governance of the Company, including guiding its strategic direction, approving and monitoring capital expenditure, monitoring financial performance, setting remuneration and reviewing the performance of the Chief Executive Officer. The Board is responsible for ensuring appointments, removals and succession plans for directors and where necessary, seeking shareholder approval. In addition, the Board is responsible for appointing, removing and creating succession polices for the Chief Executive Officer and senior executives. The Board establishes and monitors the achievement of management’s goals, ensuring the integrity of internal control and management information systems and approves and monitors financial and other business related reporting. In his role as Executive Chairman, Mr LH Ainsworth provides input into technical design, strategic guidance and overview of the Company with the responsibility for management of the day to day operations delegated to the Chief Executive Officer. Responsibilities are delineated by formal authority delegations. Board Processes To assist in the execution of its responsibilities, the Board has established three Board Sub-Committees namely the Remuneration and Nomination Committee, the Regulatory and Compliance Committee and the Audit Committee. Each Committee has a Charter which includes a more detailed description of their duties and responsibilities. These Charters are regularly reviewed and approved by the Board and are available in the Corporate Governance section of the Company’s website. The Board has also established a framework for the management of the Company including a system of internal control, a business risk management process and the establishment of appropriate ethical standards. The Board currently holds monthly scheduled meetings throughout the year and any extraordinary meetings at such other times as may be necessary to address any specific significant matters that may arise. The agenda for the Board meetings is prepared in conjunction with the Chairperson, Chief Executive Officer and the Chief Financial Officer/Company Secretary. Standing items include declaration of interests or conflicts, the Chief Executive Officer’s report, financial reports and any issues relating to strategic matters, governance and compliance requirements of the Company. Board papers and submissions are circulated in advance. Executives are regularly involved in Board discussions and directors have the opportunity for contact with a wider group of employees and other stakeholders. During the year under review, the Board met twelve times and the Board members’ attendance record is disclosed in the table of directors’ meetings on page 22 of this Report. Performance of Key executives The Remuneration and Nomination Committee reviews the performance of the Company’s Chief Executive Officer and senior executives who directly report to the Chief Executive Officer. Their findings are reported to the Board. A performance management review process is undertaken which involves review against previously established goals and objectives set by the Board. The performance of the Company’s senior executives has been assessed this year in accordance with this process. Key aspects of the review process are described below. The Chief Executive Officer’s Key Performance Indicators (KPIs) are annually determined by the Board based on recommendations from the Remuneration and Nomination Committee. The key aspects included in the KPIs are financial performance measures, strategic initiatives, staff and human relations matters and compliance performance. The Remuneration and Nomination Committee reviews performance against the established KPIs on an ongoing basis, with a formal evaluation being completed at the end of each financial year and its findings are reported to the Board. The Chief Executive Officer evaluates, at least annually, the performance of the following key executives: Chief Financial Officer/Company Secretary, Group General Manager of Strategy and Development, General Manager of Research and Development, General Manager of Manufacturing, General Counsel, Group Compliance Manager and Divisional Sales Managers. Both qualitative and quantitative measures are used that vary according to an individual’s role. Factors that are taken into consideration when accessing performance include relative contributions to profit, how business is conducted, people leadership and adherence to the Company’s Code of Conduct and compliance policies. These performance assessments are reviewed by the Remuneration and Nomination Committee and reported to the Board. AsX corporate Governance council’s recommendations 1.1,1.2,1.3 11 AnnuAl RepoRt 2013pRinciple 2 structure the board to add value composition of the Board The names and details of the directors of the Company in office at the date of signing the Financial Report are set out on page 20 of this Report. The composition of the Board is evaluated and reviewed to ensure it provides a broad range of skills, personal qualities, expertise, ability to exercise independent judgment and diversity required to discharge its responsibilities. Provision of such skills and experience is aimed to assist the Company to achieve its objectives and continual development. The Remuneration and Nomination Committee assists the Board in regularly evaluating the effectiveness, size and composition of the Board. It identifies and evaluates suitability qualified candidates as directors and makes recommendations to the Board for consideration. An objective of the Company is to ensure that the majority of the Board should comprise independent, non-executive directors with no other significant business or other links to the Company. An independent director is a director who is not a member of the management (i.e. a non-executive director) team and who: – holds less than five percent of the voting shares of the Company and is not an officer of the Company, or otherwise associated, directly or indirectly, with a shareholder of more than five percent of the voting shares of the Company; – has not within the last three years been employed in an executive capacity by the Company or another group member, or has been a director after ceasing to hold any such employment; – within the last three years has not been a principal or employee of a material* professional adviser or a material* consultant to the Company or another group member; – is not a material* supplier or customer of the Company or another group member, or an officer of the Company or otherwise associated, directly or indirectly, with a material* supplier or customer; – has no material* contractual relationship with the Company or another group member other than as a director of the Company; – has not served on the Board for a period which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the Company; and – is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the Company. 12 * the Board considers, “material”, in this context to be where any director-related business relationship has represented, or is likely in future to represent the lesser of at least 10% of the relevant segment’s or the director-related business’s revenue. The Board has considered the nature of the relevant industries’ competition and the size and nature of each director-related business relationship, in arriving at this threshold. The majority of the Board comprises independent non- executive directors with the roles of the Chairperson and Chief Executive Officer not being exercised by the same individual. Each director has the right of access to all Company information and to the Company’s executives. Further, subject to informing the Board, a director may seek independent professional advice from a suitably qualified adviser at the Company’s expense. A copy of the advice received by the director is made available to all other members of the Board. The Company has a formal process to educate new directors about the nature of the business, current issues, the corporate strategy and the expectations of the Company concerning performance of directors. Directors also have the opportunity to meet with management to gain a better understanding of business operations. Directors are able to access continuing education opportunities to update and enhance their skills and knowledge. Board Performance review The Chairman of the Board is responsible for evaluating the performance of the Board, its committees and individual directors. The performance of the Board is currently under assessment and given the new appointments in the current year, the assessment will be undertaken in 2014 in accordance with the process described below. The process for conducting the Board’s performance review consists of individual interviews with each director. The review includes an assessment of the individual contribution of each Board member as well as the performance of the Board as a whole. The performance criteria that is taken into account include each director’s contribution to setting the direction, strategy and financial objectives of the group and monitoring compliance with regulatory requirements and ethical standards. A written report discussing the results, issues for discussion and recommendations is to be presented to the Board and discussed at a Board Meeting. Each of the Board Committees undertakes a periodic review of their performance in accordance with their Charters. The results of these reviews are then presented and discussed at a Board meeting. sub-committees of the board 1. Audit committee Details regarding the composition of the Committee, its role and responsibilities are provided under Principle 4 of this statement. 2. remuneration and nomination committee Details regarding the composition of the Committee and its role and responsibilities are provided under Principle 8 of this statement. Corporate GovernanCe (continued)Ainsworth GAme technoloGy3. regulatory and compliance committee The members of the Committee during the year are set out below: composition of Regulatory and compliance committee chairman: Mr MB Yates (Independent Non-Executive Director, appointed as Chairman on 30 June 2013) Mr SL Wallis AO (Lead Independent Non-Executive Director until retirement on 30 June 2013) members: Mr GJ Campbell (Lead Independent Non-Executive Director) Mr DE Gladstone (Executive Director/Chief Executive Officer) Mr JF O’Reilly (Independent Member) Due to the highly regulated nature of the gaming industry within which the Company operates, the securing of new gaming licences and protection of current licences is an ongoing process which is of great importance to the Company. The Regulatory and Compliance Committee Charter, which is reviewed regularly and has been approved by the Board, outlines responsibilities to monitor, review, advise and assist the Board to ensure all compliance related matters and procedures have been established and are operating effectively. The Charter is available on the website of the Company. A majority of members are independent, including two non-executive directors and the chairman is not the Chairman of the Board. The Regulatory and Compliance Committee monitors probity related matters, technical compliance issues and compliance conduct and issues, systems and procedural requirements to ensure that the Company maintains a high standard of compliance with all of its gaming regulatory and licence In addition, the Regulatory and Compliance obligations. Committee advises and makes recommendations to the Board regarding regulatory compliance matters, including the suitability of key employees and other persons or entities with whom the Company has or intends to have an association or affiliation, in line with gaming regulations. The Group Compliance Manager and the Technical Compliance Manager are invited to the Regulatory and Compliance Committee meetings to present and discuss their reports and recommendations. The Regulatory and Compliance Committee met four times during the year and the directors’ attendance record is disclosed in the table of directors’ meetings on page 22 of this Report. Due to the importance of the regulatory environment within which the Company operates, and to ensure the commitment by the Board within this important area, the Committee is scheduled to meet at least four times each financial year and as required to address any specific issues that may arise. The main responsibilities of the Regulatory and Compliance Committee are to: – oversees activities of the compliance, licencing and technical compliance functions; – regularly review the application of compliance to ensure that the Company meets all requirements outlined in its Compliance Policy; – deal with and investigate any breaches, complaints and derogatory information of which it becomes aware; – provide assistance and advice to the Board on matters pertaining to the Company’s continuing suitability to obtain and maintain gaming licences; – review operational policies and recommendations relating to compliance issues; and – perform, at least annually, a performance evaluation of the Committee members to ensure delivery on its Charter and continually enhance the Committee’s contribution to the Board. The Regulatory and Compliance Committee may seek independent professional advice, at the Company’s expense, in carrying out these duties, subject to informing the Board. The Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities and is provided with the right to direct access to any person within the Company. AsX corporate Governance council’s recommendations 2.1,2.3,2.4,2.5,2.6 Non-compliance to the ASX Corporate Governance Council’s Recommendations is as below: Principle 2.2 The chair should be an independent director Given that the Chairman, Mr LH Ainsworth, is a substantial shareholder of the Company, he is not considered to be an independent director. Mr GJ Campbell was appointed as the lead independent director following the retirement of Mr SL Wallis AO on 30 June 2013 to ensure that any conflicts which may arise are dealt with in line with ASX Corporate Governance Principles and Recommendations. 13 AnnuAl RepoRt 2013pRinciple 3 promote ethical and responsible decision-making Diversity and inclusion The Company recognises that a diverse and inclusive workforce is important in attracting and retaining talented employees, inspiring greater innovation, and embracing the Company business objectives. The Company is supportive of the ASX diversity recommendations and will continually be committed to promote and achieve diversity across the Company. In addition to the Company’s Equal Employment Opportunity/ Anti-Discrimination Policy, the Company has established a Diversity Policy which is available on the Company’s website. The Board will continually develop measureable objectives for key diversity categories in line with the Diversity Policy. The Remuneration and Nomination Committee will review the progress of the objectives annually and will report the outcomes and make recommendations as appropriate to the Board. its commitment to gender The Company demonstrated diversity by setting a target for female representation across the Company. The measureable objectives set by the Board are: – Female representation in company-wide level to be a minimum of 30% by 2015; – Female representation in senior management level to be a minimum of 15% by 2015; and – At least one female Non-Executive Director by 2015. The proportion of women at various levels within the Company at the end of the financial year is shown in the chart below. proportion of female employees (as at 30 June 2013) Board of Directors Nil senior management 9% company-wide 29% ethical standards All directors, managers and employees are expected to act with complete integrity and objectivity in all their activities related to the Company, striving at all times to enhance the reputation and performance of the Company. Every employee has a nominated supervisor to whom they may refer any issues or complaints arising from their employment. To further promote a culture within the Company where ethical standards are maintained in accordance with Company policy, the Company has established a “Whistleblower” Policy which ensures protection of individuals reporting any incidents of misconduct or unethical behaviour. conflict of interest Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. 14 The Board has developed procedures to ensure that directors disclose any potential conflicts of interest. Where the Board believes that a significant conflict exists for a director on a Board matter, the director concerned does not participate in any discussion and voting on the applicable matter and, if considered appropriate, the director is requested not to be present whilst the matter is considered. Details of director related transactions with the Company are set out in Note 30 in the financial statements. code of conduct The Company has established a Code of Conduct that embraces high standards of personal and corporate conduct. Each director, manager and employee has been advised that they must comply with this Code. The full Code may be viewed on the Company’s website and it requires all directors and officers to: – conduct all dealings with internal and external stakeholders in a truthful, honest and trustworthy manner; – value and maintain professionalism; – treat all persons with whom they interact, with respect and dignity; – respect the rights of individuals; – act towards others without discrimination; – comply with procedures; the Company’s internal policies and – report unethical behaviour or wrongdoing; – use authority in a fair and unbiased way; – comply with all applicable laws, regulations and licensing conditions; and – not knowingly make a misleading statement. A copy of the Code of Conduct is made available to all staff. The Code is reviewed regularly by the Board and processes are in place to communicate any amendments to the Code to all staff. New employees are issued with an employee handbook containing the Code of Conduct and prior to commencing their respective employment, they are required to certify that they have read and understood the requirements contained within it. The Company has established procedures to monitor compliance with the Code of Conduct. In addition to the Code of Conduct and the Whistleblower policy, the Company also has policies which govern: – Workplace Health and Safety; and – Dealing in Company’s securities. All employees are required to complete the workplace grievance and compliance training conducted by the Company. The workplace grievance training covers issues like harassment, discrimination, bullying and violence which are governed by the Company’s policies and copies of these documents are available on the Company’s website. AsX corporate Governance council’s recommendations 3.1,3.2,3.3,3.4,3.5 Corporate GovernanCe (continued)Ainsworth GAme technoloGypRinciple 4 safeguard integrity in financial reporting Audit Committee The members of the Committee during the year are set out below: composition of the Audit committee chairman: Mr GJ Campbell (Lead Independent Non-Executive Director) members: Mr CJ Henson (Independent Non-Executive Director, appointed on 30 June 2013) Mr DH Macintosh (Independent Non-Executive Director, appointed on 30 June 2013) Mr SL Wallis AO (Lead Independent Non-Executive Director, member until retirement on 30 June 2013) Mr MB Yates (Independent Non-Executive Director, member until resignation on 30 June 2013) The Audit Committee has a documented Charter, which is regularly reviewed and approved by the Board. All members are currently independent non-executive directors. The chairman of the Committee is not the Chairman of the Board. The Committee advises on the establishment and maintenance of a framework of internal financial control for the management of the Company. The external auditors, the Chief Executive Officer and Chief Financial Officer/Company Secretary, are invited to attend Audit Committee meetings at the discretion of the Committee. The Committee met two times during the year and Committee members’ attendance record is disclosed in the table of directors’ meetings on page 22 of this Report. The external auditor met with the Audit Committee and the Board during the year, without management being present. The Chief Executive Officer and the Chief Financial Officer/ Company Secretary declared in writing to the Board that the Company’s financial reports for the year ended 30 June 2013 present a true and fair view, in all material respects, of the Company’s financial condition and operational results and are in accordance with relevant accounting standards. This statement is required for the full year and half year reporting periods. The main responsibilities of the Audit Committee are to: – assist the Board to discharge its fiduciary responsibilities with regard to the Company’s accounting, control and reporting internal control practices by monitoring the risk and environment and management over corporate assets; – review internal controls and any changes thereto approved and submitted by the Company’s Chief Financial Officer/ Company Secretary; – provide assurance regarding the quality and reliability of financial information used by the Board; – oversee the activities of the internal audit function and external audit staff of the Company and to review the Company’s risk management policies and internal control processes; – review and recommend to the Board the adoption of the Company’s half year and annual financial statements; – liaise with and review the performance of the external auditor; – consider whether non-audit services provided by the external auditor are consistent with maintaining the external auditors’ independence; and – perform, at least annually, a performance evaluation of the Committee members to ensure delivery on its Charter and continually enhance the Committee’s contribution to the Board. The Audit Committee reviews the performance of the external auditors on an annual basis and meets with them during the year to: – discuss the external audit and internal audit plan; – identify any significant changes in structure, operations, internal controls or accounting policies likely to impact the financial statements; – review the fees proposed for the audit work to be performed; – review the half-year and preliminary final reports and any significant adjustments required as a result of the auditor’s findings prior to lodgement with the ASX; – review the results and findings of the auditor and monitor the implementation of any recommendations made; and – organise, review and report as required on any special reviews or investigations deemed necessary by the Board subject to the engagement not impairing audit independence. The Audit Committee’s Charter is available on the Company’s website. The Audit Committee also considers the selection and appointment of external auditors and the rotation of external audit engagement partners. AsX corporate Governance council’s recommendations 4.1,4.2,4.3,4.4 pRinciple 5 Make timely and balanced disclosure The Company is listed on the ASX and is committed to ensuring that information which is expected to have a material effect of the price or value of its shares is notified to the ASX in a timely and balanced manner, with regard to the Corporations Act 2001 and ASX Listing Rules outlining continuous disclosure requirements for listed companies. 15 AnnuAl RepoRt 2013All senior executives must follow a process which involves monitoring all areas of the Company’s internal and external environment to identify and communicate significant matters in a timely manner to the Chief Financial Officer/Company Secretary. The Chief Executive Officer and Chief Financial Officer/Company Secretary are responsible for determining whether matters are required to be disclosed in accordance with the above continuous disclosure requirements and for informing the Board accordingly. The Chief Financial Officer/Company Secretary is responsible for co-ordinating disclosure to the ASX and ensuring that such information is not released to any person until the ASX has confirmed its release to the market. Such matters are advised to the ASX on the day they are identified as being material. AsX corporate Governance council’s recommendations 5.1,5.2 pRinciple 6 Respect the rights of shareholders The Company is committed to keeping shareholders fully informed of significant developments and activities of the Company. This commitment is fulfilled as follows: – all announcements made to the market and related information (including investor presentations, information provided to analysts or the media during briefings), are placed on the Company’s website after lodgement with the ASX; – the Annual Report (including relevant information about the operations of the Company during the year and changes in the state of affairs) is distributed to all shareholders (unless a shareholder has specifically requested not to receive the document); – the half yearly report contains summarised financial information and a review of the operations of the Company during the period. The half year reviewed financial report is lodged with the Australian Securities and Investments Commission and the ASX and sent to any shareholder who requests it; – the full texts of notices of meetings and associated explanatory material are placed on the Company’s website; – the Board encourages full participation of shareholders at the AGM, to ensure a high level of accountability and identification with the Company’s strategy and goals; – important issues are presented to shareholders as single resolutions; – shareholders are requested to vote on the appointment and aggregate remuneration of directors as well as changes to the Constitution. The Constitution is available on the website of the Company and copies are also given to shareholders who request for the same; and – the external auditor is requested to attend the AGM to answer any questions concerning the audit and the content of the Auditor’s report. AsX corporate Governance council’s recommendations 6.1,6.2 16 pRinciple 7 Recognise and manage risk oversight of the risk management system The Board oversees the establishment, implementation and annual review of the Company’s risk management system. Management has established and implemented the risk management system for identifying, assessing, monitoring and managing operational, financial reporting, and compliance risks for the Company. The Chief Executive Officer and the Chief Financial Officer/Company Secretary have declared, in writing to the Board, that the financial reporting risk management and associated compliance and controls have been assessed and found to be operating efficiently and effectively. All risk assessments covered the whole financial year and the period up to the signing of the annual financial report for all material operations in the Company and material associates. risk profile and the Audit committee The Audit Committee reports to the Board on the status of risks through integrated risk management processes and programs aimed at ensuring that risks are identified, assessed and appropriately managed. Each business operational unit is responsible and accountable for implementing and managing the standards required by the risk management system. The major risks that the Company faces are allocated to individual executives and are reviewed to determine progress and to provide updates as to the individual status and to ensure the identification of any further risks. risk management and compliance and control The Company has implemented a compliance program which complies with the Australian Standard for Compliance Programs AS 3806. This Standard was prepared by the Standards Australia Committee following a request by the Australian Competition and Consumer Commission and details the essential elements of an effective compliance program. The Standard provides principles for the development, implementation and maintenance of an effective compliance program, whilst emphasising the need for continuous improvement. The use of these principles will enable the Company to identify risks and to develop processes to ensure compliance with relevant laws and regulations, including gaming regulatory and licence obligations. The Company’s quality management system complies with the AS/NZ ISO 9001:2008 standard Quality Management System- Internal Organisation for Requirements, published by the Standardisation (ISO). The recent re-certification audit conducted in 2013 by independent auditors further demonstrated the Company’s commitment to continuous improvement. The next annual surveillance audit is currently scheduled for May 2014. In addition to the above, the Company continually reviews internal controls and operating procedures, to enable compliance with Gaming Machine National Standards and the Company’s Control System Manual. Corporate GovernanCe (continued)Ainsworth GAme technoloGyTo ensure that these standards are maintained, there are a number of internal reporting measures including monthly Compliance Reports from all department managers and monthly Continuous Disclosure Reports from all senior executives. The Regulatory and Compliance Committee receives details from the above reports and reviews the Company’s reporting and processes on all these matters. The Board is responsible for the overall internal control framework, but recognises that no cost effective internal control system will preclude all errors and irregularities. The Board’s policy on internal control is continually under review to ensure it keeps pace with internal and external changes. The Board oversees the Company’s internal compliance and control systems, including: Operating unit controls – Operating units confirm compliance with financial controls and procedures, including information systems controls detailed in procedures manuals; Functional specialty reporting – Key areas subject to regular reporting to the Board include Treasury and Risk Management, Environmental, Legal and Insurance matters; and Investment appraisal – Guidelines for capital expenditure review include annual budgets, detailed appraisal and procedures, levels of authority and due diligence requirements where businesses are being acquired or divested. Comprehensive practices have been established to ensure: – capital expenditure and revenue commitments above a certain size, obtain prior Board approval; – workplace health and safety standards and management systems are monitored and reviewed to achieve high standards of performance and compliance with regulations; – business transactions are properly authorised and executed; – the quality and integrity of personnel is maintained (see below); – financial reporting accuracy and compliance with the financial reporting regulatory framework (see below); and – Environmental regulation compliance (see below). Quality and integrity of personnel Written confirmation of compliance with policies of the Company is obtained from all operating units. Formal appraisals are conducted at least annually for all employees. Training and development and appropriate remuneration and incentives with regular performance reviews create an environment of co- operation and constructive dialogue with employees and senior management. A formal succession plan has been established to ensure competent and knowledgeable employees fill senior positions, as and when retirements or resignations occur. Financial reporting The Chief Executive Officer and the Chief Financial Officer/ Company Secretary have declared, in writing to the Board, that the Company’s financial reports are founded on a sound system of risk management and internal compliance and control. Monthly actual results are reported against budgets approved by the directors and revised forecasts for the year are prepared regularly. Environmental regulation The Company’s operations are not subject to significant environmental regulations under either Commonwealth or State legislation. The Board believes that the Company has adequate systems in place for the management of its environmental requirements and is not aware of any breaches of those environmental requirements as they apply to the Company. Assessment of effectiveness of risk management Internal audit To further assist the Board in ensuring compliance with these internal controls and risk management programs, the Company allocated the responsibilities of the Internal Audit function to a key employee within the Company’s compliance department. This role is to oversee and regularly review the effectiveness of the abovementioned compliance and control systems and conduct regular audits against the International and Australian Standards as well as against all operating policies and procedures. The Audit Committee is responsible for approving the internal audit plan to be undertaken during the year and for the scope of the work to be performed. AsX corporate Governance council’s recommendations 7.1,7.2,7.3,7.4 pRinciple 8 Remunerate fairly and responsibly remuneration and nomination committee The members of the Committee during the year are set out below: composition of the Remuneration and nomination committee chairman: Mr DH Macintosh (Independent Non-Executive Director, appointed as chairman on 30 June 2013) Mr SL Wallis AO (Lead Independent Non-Executive Director, until retirement on 30 June 2013) members: Mr MB Yates (Independent Non-Executive Director, appointed as member on 30 June 2013) Mr CJ Henson (Independent Non-Executive Director, appointed as member on 30 June 2013) Mr GJ Campbell (Independent Non-Executive Director, member until resignation on 30 June 2013) Mr ML Ludski (Chief Financial Officer/Company Secretary, member until resignation on 30 June 2013) 17 AnnuAl RepoRt 2013The Remuneration and Nomination Committee has a documented Charter which is regularly reviewed and approved by the Board. A majority of members are independent non- executive directors and the chairman of the Committee is not the Chairman of the Board. The Chief Executive Officer and Human Resources/Payroll Manager are invited to attend the Remuneration and Nomination Committee meetings, as required, to discuss senior executives’ performance and remuneration packages. The Chief Executive Officer and Chief Financial Officer/Company Secretary are not involved in matters pertaining to their own remuneration. During the year under review, the Committee met three times and the directors’ attendance record is disclosed in the table of directors’ meetings on page 22 of this Report. The main responsibilities of the Remuneration and Nomination Committee are to: – review the composition of the Board and make evaluations and recommendations thereon; – identify and evaluate potential candidates as non-executive directors and report findings to the Board; – recommend the selection, appointment, induction process and succession planning process for the Chief Executive Officer, the Chief Financial Officer/Company Secretary and other senior executives; – recommend to the Board ways in which the skills, experience and expertise levels of existing directors and senior executives can be enhanced and developed; – conducts an annual review of performance of the Chief Executive Officer, the Chief Financial Officer/Company Secretary and the senior executives reporting directly to them, and report findings to the Board; – review and make recommendations to the Board on remuneration packages and incentive policies applicable to the Chief Executive Officer, Chief Financial Officer/Company Secretary, senior executives and directors themselves; – establish, review and monitor key diversity objectives outlined in the Company’s Diversity Policy and a review annually of measureable objectives is to be undertaken with outcomes and recommendations reported to the Board as appropriate; and – perform, at least annually, a performance evaluation of the Committee members to ensure delivery on its Charter and continually enhance the Committee’s contribution to the Board. responsibilities are outlined the Remuneration and Nomination Further details of Committee’s its Charter, which is available on the Company’s website. The policy and procedure for appointment of directors also forms a part of the Committee’s Charter. in remuneration report The Remuneration Report is set out on pages 29 to 37 of this Report. 18 remuneration policies Remuneration levels for key personnel of the Company are competitively set to attract and retain appropriately qualified and experienced executives and directors. The Remuneration and Nomination Committee obtains independent advice on the appropriateness of remuneration packages, given trends in comparative companies both locally and internationally. The remuneration structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives and achieve the broader outcome of creation of value for shareholders. The remuneration structures take into account: – the capability and experience of key management personnel; – the key management personnel’s performance against Key Performance Indicators (KPIs) and individual contributions to the Company’s performance; – the Company’s performance includes; – revenue and earnings; – growth in share price and delivering returns on shareholder wealth; and – the amount of incentives within each key management person’s compensation. Remuneration packages include a mix of fixed and variable remuneration and short-term and long-term performance- based incentives. In addition to salaries, the Company also provides non-cash benefits to its key management personnel and contributes to defined contribution superannuation plans on their behalf. Senior executives may receive bonuses based on the achievement of specific performance hurdles. The performance hurdles are a blend of the Company’s and each relevant segment’s result. In the year under review, the Company exceeded the minimum performance targets, with most segments exceeding operational budgeted targets which resulted in short-term incentives being earned during 2013 and was approved by the Board for payment, after release of the Group’s annual results. remuneration for all non-executive directors, Total last voted upon by shareholders is not to exceed $850,000 per annum. The base fee for individual non-executive directors for the financial year under review was $100,000 per annum, excluding superannuation and covers all main Board activities. Membership of Committees is remunerated in addition to the base fee as outlined in the Remuneration Report on page 32 of this Report. Non-executive directors do not receive any performance related remuneration or bonuses or retirement benefits other than statutory superannuation payments. AsX corporate Governance council’s recommendations 8.1,8.2,8.3,8.4 Corporate GovernanCe (continued)Ainsworth GAme technoloGyfinAnciAl stAteMents Ainsworth Game technology finAnciAl stAteMents Directors’ report 20 notes to the Financial statements 42 statement of Financial Position statement of comprehensive income statement of changes in equity statements of cash Flows 38 Directors’ Declaration 39 40 41 independent Auditor’s report lead Auditor’s independence Declaration 82 83 84 for the year ended 30 June 2013 19 AnnuAl RepoRt 2013The directors present their report together with the consolidated financial statements of the Group comprising of Ainsworth Game Technology Limited (the Company) and its subsidiaries for the financial year ended 30 June 2013 and the auditor’s report thereon. 1. Directors The directors of the Company at any time during or since the end of the financial year are: Name, qualifications and independence status CURRENT Mr Leonard Hastings Ainsworth Executive Chairman 90 yrs Age Experience, special responsibilities and other directorships – Sixty years gaming industry experience – Founder and former Managing Director of Aristocrat – Fellow of the Institute of Company Directors in Australia and the Australian Institute of Management – Life member – Clubs N.S.W – Founder of Australian Gaming Machines Manufacturers Association – now Gaming Technology Association – Founder of Australasian Gaming Exhibition – Inducted into the Australian Gaming Hall of Fame and U.S Gaming Hall of Fame in 1994 and 1995, respectively – Recognition as export hero in 2002 by Australian Institute of Export – G2E Asia Gaming Visionary Award Recipient in 2010 – Recipient of Clubs NSW award for outstanding contribution to the club industry in 2011 – Director and Chairperson since 1995 – Executive Chairperson since 2003 – Graeme has specialised in the area of liquor and hospitality for over 30 years in corporate consultancy services with particular emphasis on hotels and registered clubs – Chairman of Harness Racing NSW – Director of Central Coast Stadium and Blue Pyrenees Wines – Chairman of Audit Committee of Illawarra Catholic Club Group – Director since 2007 – Chairperson of Audit Committee and member of Regulatory and Compliance Committee – Member of Remuneration and Nomination Committee until 30 June 2013 – Lead Independent Non-Executive Director since 30 June 2013 Mr Graeme John Campbell Lead Independent Non-Executive Director 56 yrs Mr Michael Bruce Yates B.Com (with merit), LLB Independent Non-Executive Director 59 yrs – Michael has extensive commercial and corporate law experience in a career spanning over 33 years – He is a former senior corporate partner of Sydney Law practices Holding Redlich and Dunhill Madden Butler and has acted for a number of clients involved in the gaming industry – Director since 2009 – Member of Audit Committee until 30 June 2013 – Chairperson of Regulatory and Compliance Committee and member of Remuneration and Nomination Committee since 30 June 2013 20 Directors’ reportfor the year ended 30 June 2013Ainsworth GAme technoloGyName, qualifications and independence status CURRENT Mr Daniel Eric Gladstone Executive Director and Chief Executive Officer Mr Colin John Henson, Dip Law- BAB, FCPA, FCIS, FAICD Independent Non-Executive Director (subject to regulatory approval) Age Experience, special responsibilities and other directorships 58 yrs – Danny has held senior positions within the gaming industry over a successful career spanning 39 years – Inducted into the Club Managers Association Australia Hall of Fame in 2000 – Chairman of Gaming Technologies Association from 2011 until resignation on 21 February 2012 – Chief Executive Officer since 2007 – Executive Director since 2010 – Member of Regulatory and Compliance Committee 65 yrs – Colin has had a lengthy career in senior corporate positions and as a director of private and publicly listed companies across a broad range of industries – Currently the Non-Executive Chairman of Videlli Limited and consultant to the Board of ASX listed company ComOps Limited – Formerly the Executive Chairman of Redcape Property Fund Limited, Mr David Hugh Macintosh, AM, BBus, FCA Independent Non-Executive Director (subject to regulatory approval) 57 yrs FORMER Mr Stewart Laurence Wallis AO BCE (Hon), FIE Aust Aust CP Eng Lead Independent Non-Executive Director 79 yrs an ASX Listed Property Trust – Fellow of the Australian Institute of Company Directors, CPA Australia and Australian Institute of Corporate Managers, Secretaries and Administrators – Non practising member of the Law Society of NSW – Appointed Director (subject to regulatory approval) on 3 April 2013 – Member of Audit Committee and Remuneration and Nomination Committee since 30 June 2013 – David has an extensive career spanning over 30 years experience in transport and the construction industry specialising in the hospitality and gaming industry – Currently the Managing Director of Paynter Dixon Constructions – Formerly the Executive Chairman and director of Payce Consolidated Limited for a period of approximately 20 years – Inducted into the Club Managers Association Australia Hall of Fame in March 2006 – Fellow of the Institute of Chartered Accountants Australia – Member of the Order of Australia in June 2011 – Appointed Director (subject to regulatory approval) on 3 April 2013 – Chairperson of Remuneration and Nomination Committee and member of Audit Committee since 30 June 2013 – Fellow of The Institution of Engineers Australia – Former Chief Executive and Director of Leighton Holdings Limited – Director since 2002, retired as director on 30 June 2013 – Chairperson of Remuneration and Nomination Committee, Regulatory and Compliance Committee and member of Audit Committee until retirement 21 AnnuAl RepoRt 2013Directors’ report (continued) 2. company secretary Mr Mark L Ludski has held the position of Company Secretary since 2000. Mr ML Ludski previously held the role of Finance Manager with another listed public company for ten years and prior to that held successive positions in two leading accounting firms where he was employed in each of their respective audit, taxation and business advisory divisions. Mr ML Ludski is a Chartered Accountant holding a Bachelor of Business degree, majoring in accounting and sub-majoring in economics. 3. Directors’ meetings The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the directors of the Company during the financial year are: Director LH Ainsworth SL Wallis GJ Campbell MB Yates DE Gladstone CJ Henson DH Macintosh Board Meetings Audit Committee Meetings Remuneration & Nomination Committee Meetings Regulatory & Compliance Committee Meetings A 12 11 12 12 11 3 3 B 12 12 12 12 12 3 3 A – 2 2 2 – – – B – 2 2 2 – – – A – 3 3 – – – – B – 3 3 – – – – A – 4 4 – 3 – – B – 4 4 – 4 – – A Number of meetings attended B Number of meetings held during the time the director held office during the year 4. principal activities The principal activity of the Group during the course of the financial year was the design, development, production, lease, sale and servicing of gaming machines and other related equipment and services. There were no significant changes in the nature of the activities of the Group during the year. objectives The Group’s objectives are to: – focus on increasing revenue and profitability within geographical markets which are expected to achieve the greatest contributions to the Group’s financial results and creation of sustained growth; – continue investing in product research and development in order to provide quality market leading products that are innovative and entertaining resulting in increased player satisfaction and therefore greater venue profitability; – provide a growing return on shareholder equity through increasing profitability, payment of dividends and share price growth; – prudently manage levels of investment in working capital and further improve cash flow from operations in the ensuing financial year; and – continue to pursue greater presence within the Americas. In order to meet these objectives the following priority actions will continue to apply in future financial years: – grow market share for existing business and increase revenue and operating activities in domestic and international markets; – continual investment in research and development; – further reduce product and overhead costs through improved efficiencies in supply chain and inventory management; – continue to improve and manage working capital; – maintain best practice compliance policies and procedures and increase stakeholder awareness of the Group’s regulatory environment; and – ensure retention and development of key employees. 22 for the year ended 30 June 2013Ainsworth GAme technoloGy5. operating anD financial review overview of the group The profit after income tax for the year ended 30 June 2013 was $52.2 million, compared to $64.3 million in 2012. The result in 2012 included the recognition of previously unrecognised deferred tax assets, resulting in an income tax benefit of $18.1 million being recognised in the full year profit after tax compared to an income tax expense of $17.1 million in the current year. The profit before tax in the current year was $69.3 million compared to $46.2 million in 2012, an increase of 50%. This result includes a second half profit before tax of $39.2 million compared to the reported profit before tax of $30.1 million for the six month period ended 31 December 2012, an increase of 30%. Sales revenue in the current year was $198.1 million compared to $150.6 million in 2012, an increase of 32%. Further strong product performance and increased market share was achieved following the continued leading product performance of the A560™ product family within domestic and international markets. Progression of development strategies in all geographical markets together with progress to establish a greater presence in the Americas assisted to provide a strong foundation for growth in the future. The Group continues to invest in product development to enable pursuit of new markets and provide further extensions to the current product range in established markets. shareholder returns 2013 $ 2012 $ 2011 $ 2010 $ 2009 $ Profit/(loss) attributed to owners of the company 52,202,000 64,275,000 23,121,000 (2,721,000) (12,542,000) Basic EPS Dividends paid Change in share price 0.16 9,661,000 1.93 0.23 – 1.74 0.08 – 0.27 (0.01) – 0.02 (0.05) – (0.02) Net profit amounts for 2009 to 2013 have been calculated in accordance with Australian Accounting Standards (AASBs). investments for future performance The Group continues to review and evaluate opportunities within the gaming sector. Further increases in research and development expenditure in future periods will continue to ensure that the expansion of the Group’s range of products is innovative and technically advanced with a view to building on the consistently high performance achieved to date. review of financial condition Capital structure and treasury policy The Company currently has on issue 322,025,876 ordinary shares. The Board continues to ensure a strong capital base is maintained to invest in the future development of the business. Group performance is monitored to ensure an acceptable return on capital is achieved and that dividends are provided to ordinary shareholders in future periods. There were no changes in the Group’s approach to capital management and no externally imposed capital requirements in place. The Group is exposed to foreign currency risks on sales and purchases that are denominated in currencies other than AUD. The Group regularly monitors and reviews the financial impact of currency variations to determine strategies to minimise the volatility of changes and adverse financial effects in foreign currency exchange rates. No hedging arrangements were utilised in the current period due to the expectation of a reduction in the Group’s net asset exposure and the favourable reversal of previous translational impacts. Liquidity and funding The Group continues to generate positive cashflows from operating activities. Subsequent to the reporting date the Group has established a $30 million multi-option facility with a leading Australian bank consistent with strategies outlined in the 2012 financial report. This facility will allow the Group to pursue traditional financing alternatives, including the ability to minimise working capital investment previously provided by cash reserves. Cash flows from operations The cash inflow from operations for the year ended 30 June 2013 was $31.6 million, an increase of 45% on the prior corresponding period in 2012. The Group monitors closely its working capital requirements given the investment necessary to pursue recurring revenue streams through placement of gaming products in the Americas on participation or revenue sharing arrangements. 23 AnnuAl RepoRt 2013Directors’ report (continued) 5. operating anD financial review (continued) Impact of legislation and other external requirements The Group continues to work with regulatory authorities to ensure that the necessary product approvals to support its operations within global markets are granted on a timely and cost effective basis. The granting of such licences will allow the Group to expand its operations. in The Group aims to conduct jurisdictions where gaming is legal and commercially viable. Accordingly, the Group is subject to licensing and other regulatory requirements of those jurisdictions. its business worldwide The Group’s ability to operate in existing and new jurisdictions could be adversely impacted by new or changing laws or regulations and delays or difficulties in obtaining or maintaining approvals and licences. review of principal businesses Revenue Sales revenue of $198.1 million was recorded in the year under review compared to $150.6 million in 2012, an increase of 32%. Within domestic markets revenue achieved was $124.4 million, an increase of 17% over the prior corresponding year in 2012. This increase was predominately in the New South Wales, Queensland and Victorian markets which contributed 94% of domestic revenue. The continued success of the A560™ gaming machine, release of new game combinations and leading product performance resulted in the Group further increasing its market share in these markets. The increased revenue within Australia was primarily due to the product introduced providing development strategies previously continued high yielding performance and the expansion of the cabinet variants within the A560™ product family. The Victorian market contributed revenue of $16.8 million, in the second half of FY13, an increase of 349% compared to the six months ended 31/12/2012 as transitional changes to the new monitoring provider were implemented and the A560 ™ was released. International revenue was $73.7 million compared to $47.5 million in 2012, representing an increase of 55%. The key markets of North and South America contributed 85% of total international revenue, an increase of 70% over the corresponding year in 2012. The Group expects to achieve further increases in international revenue in FY14, from additional initiatives complemented by the increased resources and capability within the Americas. Combined with the ongoing release of newly developed product initiatives, the establishment of an operational base for North America in Las Vegas, Nevada in 2012, is expected to assist in the achievement of growth objectives. 24 Revenue from other international markets of New Zealand, Europe and Asia contributed $11.1 million (15% of international revenue), an increase of 7% on the corresponding period in 2012. The market of Asia represented 56% of revenue within these geographical segments and achieved a 94% increase over the same period in 2012. Operating costs Gross margin of 66% was achieved, compared to 68% in 2012. The Company noted that margins within domestic markets remained strong and the margin decrease in the year was primarily due to the increased revenue from South America which is at a lower margin. Continued cost reduction initiatives combined with higher sales volumes, favourable currency movements, production efficiencies and a greater concentration of premium progressive recurring revenue games are expected to assist in off-setting potential negative margin impacts as international revenue increases its contribution to total revenue of the Group. Operating costs, excluding cost of sales, other expenses and financing costs, were $65.9 million, an increase of 22% over 2012. This increase was primarily attributed to increased variable selling costs in line with revenue increases, increased expenditure on research and development on new product initiatives and the full year impact of the increased investment within the Company’s operational facility in Las Vegas, Nevada established in 2012. The Group has now established the necessary USA infrastructure to support the expected expansion in targeted international markets. Further expansion will be aligned to the achievement of revenue growth within international market segments. Research and development (R&D) expense was $23.2 million, an increase of 24% over 2012 and represented 12% of revenue (2012: 12%). Further investment into the A560 cabinet range with the addition of a Slant Top bench model and a 32” LCD slimline (SL) upright is designed to enhance game presentation and leverage off the intellectual property in the A560 game library. These hardware initiatives have allowed for an expanded library of the Premium Plus range of recurring revenue games targeted for international markets. Administration costs were $15.2 million, an increase of $2.8 million (23%) compared to 2012. The costs represented 8% of total revenue, no change from 8% in 2012. This increase was primarily due to the full year impact of expansion of the American facility established in FY12 which accounted for 57% of the overall increase. The Group has now established the USA infrastructure necessary to support the expected expansion in targeted international markets. for the year ended 30 June 2013Ainsworth GAme technoloGyFinancing income and costs Net financing income was $6.2 million in the current period, a positive movement of $10.3 million on the net financing costs of $4.1 million in 2012. This movement was a result of net foreign exchange gains of $2.9 million (2012: $0.5 million), a reduction in interest costs of $6.0 million as a result of debt reduction initiatives undertaken in 2012 and interest income earned on cash deposits and trade receivables of $3.3 million, an increase of $1.8 million on 2012. significant changes in the state of affairs Investment in research and development continues to help ensure new initiatives positively affect future product performance. Further investment within the Americas was undertaken in the 2013 financial year to ensure the Group is positioned to capitalise on the significant opportunities within this region. The high yielding performance of the Group’s current range of products combined with further development and release of new products in selected markets is expected to enable the Group to further improve financial results. Other than the matters noted above, there were no significant changes in the state of affairs of the Group during the financial year. 6. DiviDenDs Dividends paid or declared by the Company to members since the end of the previous financial year were: Declared and paid during the year 2013 Interim 2013 ordinary (unfranked) Total amount Cents per share Total amount $’000 Date of payment 3.0 9,661 9,661 12 April 2013 Declared after end of year After the balance sheet date the following dividend was declared by the directors. Final ordinary (unfranked) Total amount Cents per share Total amount $’000 Date of payment 5.0 16,101 27 September 2013 16,101 The financial effect of this dividend has not been brought to account in the consolidated financial statements for the year ended 30 June 2013 and will be recognised in subsequent financial reports, and there are no income tax consequences. 7. events subsequent to reporting Date After the reporting date, the Company declared an unfranked dividend of 5 cents per ordinary share amounting to $16,101,000 with an expected payment date of 27 September 2013. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2013 and will be recognised in subsequent financial reports. Subsequent to 30 June 2013 the Group acquired approximately 24 acres of vacant land in Las Vegas, Nevada for US$7.0 million. This acquisition will allow the Group the option to build a bigger purpose built facility in Las Vegas prior to the expiration of the current lease in November 2016. In addition to the above and subsequent to the reporting date the Company has established an unsecured multi-option currency facility of $30 million for an initial term of three years with the Australia and New Zealand Banking Group (ANZ) consistent with strategies outlined in 2012. This facility will ensure additional flexibility to manage working capital, ensure over time an appropriate mix of debt on the balance sheet and assist in creating a natural hedge against adverse foreign currency movements. Other than matters discussed above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. 25 AnnuAl RepoRt 2013Directors’ report (continued) 8. likely Developments The Group will evaluate and pursue further product approvals to help ensure sustainable revenue growth and continued financial improvement in future periods. This strategy is aimed at achieving increased market share in selected geographical business sectors so as to positively contribute to Group results in future financial years. The presence in the Americas through the Las Vegas, Nevada facility and release of new product initiatives is expected to help ensure sustainable revenue growth. Further information about likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Group. 9. Directors’ interests The relevant interest of each director in the shares and rights or options over such instruments issued by the companies within the Group and other related bodies corporate, as notified by the directors to the ASX in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows: Mr LH Ainsworth Mr GJ Campbell Mr MB Yates Mr CJ Henson Mr DH Macintosh Mr DE Gladstone Ainsworth Game Technology Limited Ordinary shares 178,395,162 500,000 108,400 50,000 – 5,000 Options over ordinary shares – – – – – 500,000* * The options issued to Mr DE Gladstone are over a portion of the personal shareholding of the Company’s Executive Chairman, Mr LH Ainsworth. 10. share options/performance rights options granted to directors and executives of the company During or since the end of the financial year, the Company granted performance rights for no consideration over unissued ordinary shares in the Company to the following directors and to the following of the five most highly remunerated officers of the Company as part of their remuneration: Directors Mr DE Gladstone Executives Mr ML Ludski Mr V Bruzzese Mr I Cooper Mr S Clarebrough Mr M Cuadros Number of performance rights granted 137,536 61,084 44,911 39,490 77,178 17,747 No options or performance rights were granted during the financial year. All performance rights have been granted since the end of the financial year. 26 for the year ended 30 June 2013Ainsworth GAme technoloGyThe performance rights over ordinary shares in the Company allocated to the share units granted to Mr DE Gladstone are conditional on shareholder approval at the Company’s Annual General Meeting (AGM) on 20 November 2013. Should shareholder approval not be given this allocation of 137,536 performance rights under the Rights Share Trust (RST) plan are to be cancelled. shares issued on exercise of options During or since the end of the financial year, the Group issued ordinary shares of the Company as a result of the exercise of options under the Employee Share Option Trust (ESOT) as follows (there are no amounts unpaid on the shares issued): Number of shares 213,101 unissued shares under option or performance right At the date of this report unissued ordinary shares of the Group under option or performance right are: Amount paid on each share $0.225 Expiry date 1 March 2016 22 July 2018 Exercise price $0.225 $Nil Number of shares 567,094 1,439,358 2,006,452 All unissued shares are ordinary shares of the Company. Performance rights of 1,439,358 include 137,536 performance rights under the RST plan granted to Mr DE Gladstone which are conditional on shareholder approval. In addition to the share options issued by the Company, an incentive plan was previously introduced in 2011 whereby share options were granted under the LH Ainsworth Share Option Trust (ASOT) to Australian employees, excluding directors. These share options were granted over a portion of the personal shareholding of the Company’s Executive Chairman, Mr LH Ainsworth. During or since the end of the financial year 54,876 options were forfeited due to cessation of employment and 3,690,067 were exercised leaving a balance of 5,461,896 share options under issue. The options under the ASOT plan have vesting conditions, which must be satisfied prior to the options being exercised. The vesting conditions are set with reference to the anniversary of the issue date of the option. All options expire on the earlier of their expiry date or termination of the employee’s employment. These options do not entitle the holder to participate in any share issue of the Company or any other body corporate. The share options outstanding at 30 June 2013 under the ASOT plan issued to key management personnel, totalled 1,788,627 share options. Share options exercised by key management personnel during the year were 1,018,628 options following completion of vesting conditions. 11. inDemnification anD insurance of officers anD auDitors indemnification The Group has agreed to indemnify current and former directors of the Group against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as directors of the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses. Neither the Group nor Company have indemnified the auditor in relation to the conduct of the audit. insurance premiums Since the end of the previous financial year, the Company has paid insurance premiums in respect of directors’ and officers’ liability and legal expenses’ insurance contracts, for current and former directors and officers, including senior executive officers of the Company and directors, senior executive and secretaries of its controlled entities. The directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the directors’ and officers’ liability and legal expenses contracts, as such disclosure is prohibited under the terms of the contract. 27 AnnuAl RepoRt 2013Directors’ report (continued) 12. non-auDit services During the year KPMG, the Group’s auditor, has performed certain other services in addition to the audit and review of the financial statements. The board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided to the audit committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: – all non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed by the audit committee to ensure they do not impact the integrity and objectivity of the auditor; and – the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards. Details of the amounts paid to the auditor of the Group, KPMG, and its network firms for audit and non-audit services provided during the year are set out below. Services other than audit and review of financial statements: Other assurance services Convertible note audit Other services Regulatory services Due diligence services Audit and review of financial statements Total paid to KPMG 2013 $ 7,500 3,100 130,000 140,600 222,000 362,600 13. leaD auDitor’s inDepenDence D eclaration The Lead auditor’s independence declaration is set out on page 84 and forms part of the directors’ report for the financial year ended 30 June 2013. 14. rounDing off The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the consolidated financial statements and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. 28 for the year ended 30 June 2013Ainsworth GAme technoloGy15. remuneration report – auDiteD 15.1 principles of compensation – audited Remuneration is referred to as compensation throughout this report. Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Group, including directors of the Company and other executives. Key management personnel comprise the directors of the Company and senior executives for the Group. Compensation levels for key management personnel and secretaries of the Group are competitively set to attract and retain appropriately qualified and experienced directors and executives. The remuneration and nomination committee reviews market surveys on the appropriateness of compensation packages of the Group given trends in comparative companies both locally and internationally, and the objectives of the Group’s compensation strategy. The compensation structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The compensation structures take into account: – the capability and experience of the key management personnel; – the key management personnel’s performance against Key Performance Indicators (KPIs) and individual contributions to the Group’s performance; – the Group’s performance including: – revenue and earnings; – growth in share price and delivering returns on shareholder wealth; and – the amount of incentives within each key management person’s compensation. Compensation packages include a mix of fixed and variable compensation and short-term and long-term performance- based incentives. In addition to their salaries, the Group also provides non-cash benefits to its key management personnel, and contributes to post-employment defined contribution superannuation plans on their behalf. Fixed compensation Fixed compensation consists of base compensation (which is calculated on a total cost basis and includes any FBT charges related to employee benefits including motor vehicles), as well as employer contributions to superannuation funds. Compensation levels are reviewed annually by the remuneration and nomination committee through a process that considers individual, segment and overall performance of the Group. In addition market surveys are obtained to provide further analysis so as to ensure the directors’ and senior executives’ compensation is competitive in the market place. A senior executive’s compensation is also reviewed on promotion and performance. Performance linked compensation Performance linked compensation includes both short-term and long-term incentives and is designed to reward key management personnel for meeting or exceeding their financial and personal objectives. The short-term incentive (STI) is an ‘at risk’ bonus provided in the form of cash, while the long-term incentive (LTI) is provided as options or performance rights over ordinary shares of the Company under the rules of the Employee Share Option Plans (see Note 23 to financial statements). In addition to their salaries, selected key sales management personnel receive commission on sales within their specific business segments as part of their service contracts at each vesting date. Short-term incentive bonus Each year the remuneration and nomination committee sets the KPIs for the key management personnel. The KPIs generally include measures relating to the Group, the relevant segment, and the individual, and include financial, people, customer, strategy and risk measures. The measures are chosen as they directly align the individual’s reward to the KPIs of the Group and to its strategy and performance. The financial performance objective is ‘profit before tax’ excluding foreign currency gains/(losses) and any extra- ordinary items (e.g., the profit on sale in the 2012 financial year following the sale and leaseback of the Company’s property), which is compared to budgeted amounts. This objective is designed to reward key management personnel for the Group’s performance and not simply the achievement of individual segment results. The non-financial objectives vary with position and responsibility and include measures such as achieving strategic outcomes, safety measures, and compliance with established regulatory processes, customer satisfaction and staff development. At the end of the financial year the remuneration and nomination committee assesses the actual performance of the Group, the relevant segment and individual against the KPI’s set at the beginning of the financial year. A pre-determined maximum amount is awarded depending on results with an additional amount awarded for stretch performance. No bonus is awarded where performance falls below the minimum performance established. The performance evaluation in respect of the year ended 30 June 2013 has taken place in accordance with this process. The remuneration and nomination committee recommends the cash incentive to be paid to the individuals for approval by the board. The method of assessment was chosen as it provides the Committee with an objective assessment of the individual’s performance. 29 AnnuAl RepoRt 2013Directors’ report (continued) 15. remuneration report – auDiteD (continued) 15.1 principles of compensation – audited (continued) For the year ended 30 June 2013, the Group exceeded the minimum performance targets outlined in the incentive plan approved by the Board in November 2012, with most segments exceeding operational targets. This resulted in short-term incentives being earned during 2013 and confirmed by the Board on 27 August 2013. Currently, the performance linked component of compensation comprises approximately 35% (2012: 45%) of total payments to key management personnel. Long-term incentive There were two share option schemes in place during the 2013 financial year. Options for new shares were issued under an Employee Share Option Trust (ESOT) to American employees. Additionally, there is an option scheme entitling Australian employees to options over a number of existing shares personally held by the Company’s Executive Chairman, Mr LH Ainsworth under the LH Ainsworth Share Option Trust (ASOT). These share option plans provide for employees to receive options over new or existing ordinary shares at a pre- determined exercise price. The ability to exercise the options is conditional on continuation of employment. Since the reporting date a new employee incentive plan was established whereby performance rights were granted under the Rights Share Trust (RST). Under the RST eligible employees were allocated performance rights over ordinary shares in the Company. The performance rights were granted at nil consideration or exercise price however are dependent on service conditions, vesting conditions and performance hurdles. The vesting conditions of the performance rights issued on 22 July 2013 under the RST are as follows: Date 1 September 2016 1 September 2017 Vesting condition (% of rights vesting) 50% 50% In addition to the vesting conditions above, specific performance hurdles relative to Total Shareholder Return (TSR) relative targets and Earnings Per Share (EPS) targets are required to be met. The Group prohibits employees that are granted share-based payments as part of their remuneration from entering into other arrangements that limit their exposure to losses that would result from share price decreases. Entering into such arrangements has been prohibited by law since 1 July 2011. Short-term and long-term incentive structure The remuneration and nomination committee considers that the above performance-linked remuneration structure is appropriate because it is designed to maximise the Group’s performance. 30 for the year ended 30 June 2013Ainsworth GAme technoloGyConsequences of performance on shareholder wealth In considering the Group’s performance and benefits for shareholder wealth, the remuneration and nomination committee have regard to the following indices in respect of the current financial year and the previous four financial years. 2013 $ 2012 $ 2011 $ 2010 $ 2009 $ Profit/(loss) attributable to owners of the company 52,202,000 64,275,000 23,121,000 (2,721,000) (12,542,000) Dividends paid Change in share price 9,661,000 1.93 – 1.74 – 0.27 – 0.02 – (0.02) Profit is considered as one of the financial performance targets in setting the short-term incentive bonus. Profit/(loss) amounts for 2009 to 2013 have been calculated in accordance with Australian Accounting Standards (AASBs). Other benefits Key management personnel receive additional benefits such as non-monetary benefits, as part of the terms and conditions of their appointment. Non-cash benefits typically include payment of club memberships and motor vehicles, and the Group pays fringe benefits tax on these benefits. Service contracts It is the Group’s policy that service contracts for Australian key management personnel and key employees be unlimited in term but capable of termination by either party on 12 months’ notice and that the Group retains the right to terminate the contracts immediately, by making payment equal to 12 months’ pay in lieu of notice. The Group has entered into service contracts with each Australian key management person that provide for the payment of benefits where the contract is terminated by the Group. The key management persons are also entitled to receive on termination of employment their statutory entitlements of accrued annual and long service leave, together with any accrued superannuation. The service contract outlines the components of remuneration paid to the key management personnel but does not prescribe how remuneration levels are modified year to year. Remuneration levels are reviewed each year to take into account cost-of-living changes, any change in the scope of the role performed by the senior executive, retention of key personnel and any changes required to meet the principles of the remuneration policy. Mr Danny Gladstone, Executive Director and Chief Executive Officer (CEO), has a contract of employment dated 5 February 2007 and amended on 7 December 2010 with the Company. The contract specifies the duties and obligations to be fulfilled by the CEO and provides that the board and CEO will early in each financial year, consult and agree objectives for achievement during that year. The CEO has no entitlement to a termination payment in the event of removal for misconduct as specified in his service contract. Refer to Note 28 of the financial statements for details on the financial impact in future periods resulting from the Group’s commitments arising from non-cancellable contracts for services with key management personnel. Non-executive directors Total compensation for all non-executive directors, last voted upon by shareholders at the 2012 Annual General Meeting, is not to exceed $850,000 per annum, with effect from 1 July 2012. Directors’ base fees are presently $100,000 per annum (excluding superannuation) and is set based on a review of fees paid to other non-executive directors of comparable companies. The fees paid to non-executive directors reflect the demands and responsibilities associated with their roles and the global nature of the operations within the highly regulated environment within which the Group operates. Fees incorporate an allowance for the onerous probity requirements placed on non-executive directors by regulators of the jurisdictions in which the Group operates or proposes to operate in. In addition to these fees the cost of reasonable expenses are reimbursed as incurred. Non-executive directors do not currently receive or participate in any performance related compensation. 31 AnnuAl RepoRt 2013Directors’ report (continued) 15. remuneration report – auDiteD (continued) 15.1 principles of compensation – audited (continued) Current fees for directors excluding superannuation, are set out below. The Executive Chairman, CEO and Company Secretary do not receive any additional fees for undertaking Board or Committee responsibilities. Other independent non-executive directors who also chair or are a member of a committee receive a supplementary fee in addition to their annual remuneration. POSITION Australian resident non-executive director Chair of Audit Committee Chair of Regulatory and Compliance Committee Chair of Remuneration and Nomination Committee Member of Audit Committee Member of Regulatory and Compliance Committee Member of Remuneration and Nomination Committee $ (per annum) 100,000 16,000 20,000 9,000 10,000 12,000 6,000 Non-executive directors are not provided with retirement benefits apart from statutory superannuation. Services from remuneration consultants The remuneration and nomination committee, comprising of independent non-executive directors only, engaged CRA Plan Managers Pty Ltd (CRA) as remuneration consultant to the board to review the amount and elements of the key management personnel remuneration and provide recommendations in relation thereto. CRA was paid $13,445 for the remuneration recommendations in respect of their review. In addition to CRA the remuneration and nomination committee similarly engaged Remuneration Strategies Group (RSG) to undertake the review and introduction of a Long Term Incentive Plan (LTI). RSG was paid $5,000 for the remuneration recommendation in respect of reviewing the amount and elements of the new LTI (RST) introduced on 22 July 2013. RSG was paid $8,700 in total for all services, including services in relation to previous incentive plans. The engagement of CRA and RSG by the remuneration and nomination committee was subject to protocols to be followed by CRA and RSG, members of the remuneration and nomination committee and members of the key management personnel for the way in which remuneration recommendations would be developed and provided to the board. The protocols included the prohibition of CRA and RSG providing advice or recommendations to key management personnel before the advice or recommendations were given to members of the remuneration and nomination committee and not unless they had approval to do so from members of the remuneration and nomination committee. These arrangements were implemented to ensure that CRA and RSG would be able to carry out their work, including information capture and the formation of its recommendations, free from undue influence by members of the key management personnel about whom the recommendations may relate. The board is satisfied that the remuneration recommendations were made by CRA and RSG free from undue influence by members of the key management personnel about whom the recommendations may relate. The board undertook its own inquiries and review of the processes and procedures followed by CRA and RSG during the course of their assignment and is satisfied that its remuneration recommendations were made free from undue influence. These inquiries included arrangements under which CRA and RSG was required to provide the board with a summary of the way in which it carried out its work, details of its interaction with key management personnel in relation to the assignment and other services, and respond to questioning by members of the board after the completion of the assignment. 32 for the year ended 30 June 2013Ainsworth GAme technoloGy% f o e u a V l s a s n o i t p o f o n o i t r o p o r p n o i t a r e n u m e r % d e t a e r l f o n o i t r o p o r P n o i t a r e n u m e r e c n a m r o f r e p $ l a t o T d e s a b - e r a h S s t n e m y a p g n o l r e h t O m r e t - t s o P s t i f e n e b t n e m y o p m e l $ ) B ( s n o i t p O s t i f e n e b n o i t a n m r e T i $ $ $ - r e p u S s t i f e n e b n o i t a u n n a $ l a t o T $ - n o N s t i f e n e b y r a t e n o m – – – – – – – – – – – – – – – – – – – – – – – – 0 6 0 6 4 1 , 0 7 0 4 3 1 , 0 0 9 9 1 1 , 5 3 6 0 1 1 , 7 7 5 6 2 , – – 7 7 5 6 2 , 8 0 5 1 5 1 , 2 0 7 8 3 1 , 2 2 6 0 7 4 , 7 0 4 3 8 3 , – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 0 6 0 2 1 , 0 7 0 1 1 , 0 0 9 9 , 5 3 1 9 , 4 9 1 2 , – 4 9 1 2 , – – – 8 4 3 6 2 , 5 0 2 0 2 , 0 0 0 4 3 1 , 0 0 0 3 2 1 , 0 0 0 0 1 1 , 0 0 5 1 0 1 , 3 8 3 4 2 , – – 3 8 3 4 2 , 8 0 5 1 5 1 , 2 0 7 8 3 1 , , 4 7 2 4 4 4 2 0 2 3 6 3 , – – – – – – – – – – – – $ $ – – – – – – – – – – – – – – – – – – – – – – – – m r e t - t r o h S h s a c I T S l s e a S ) A ( s u n o b n o i s s i m m o C $ y r a l a S s e e f & 0 0 0 4 3 1 , 0 0 0 3 2 1 , 0 0 0 0 1 1 , 0 0 5 1 0 1 , 3 8 3 4 2 , – – 3 8 3 4 2 , 8 0 5 1 5 1 , 2 0 7 8 3 1 , , 4 7 2 4 4 4 2 0 2 3 6 3 , 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 l l e b p m a C J G r M s r o t c e r i D D U A n I t n e r r u C s e t a Y B M r M ) 3 1 0 2 l i r p A 3 d e t n o p p a ( i n o s n e H J C r M ) 3 1 0 2 l i r p A 3 d e t n o p p a ( i i h s o t n c a M H D r M ) 3 1 0 2 e n u J 0 3 d e r i t e r ( s i l l a W L S r M r e m r o F 3 1 0 2 e v i t u c e x e - n o n l a t o t - b u S 2 1 0 2 n o i t a r e n u m e r ’ s r o t c e r i d 33 : e r a y t i t n e d e t a d i l o s n o c e h t f o l e n n o s r e p t n e m e g a n a m y e k r e h t o d n a , y n a p m o C e h t f o r o t c e r i d h c a e f o n o i t a r e n u m e r f l o t n e m e e r o a m h c a e f j o t n u o m a d n a e r u t a n e h t f o s l i a t e D d e t i d u a – n o i t a r e n u m e r ’ s r e c ffi o e v i t u c e x e d n a ’ s r o t c e r i D 2 5 1 . AnnuAl RepoRt 2013 g n o l r e h t O m r e t - t s o P s t i f e n e b t n e m y o p m e l % – – % 1 % 2 % 1 % 1 % 1 % 2 % 2 % 3 % 2 % 3 % 2 % 2 n o i t a r e n u m e r s n o i t p o f o e u a V l f o n o i t r o p o r p s a – – % 8 3 % 3 5 % 6 2 % 0 4 % 1 4 % 3 5 % 2 4 % 2 5 % 2 4 % 2 5 % 0 4 % 1 5 % d e t a e r l f o n o i t r o p o r P n o i t a r e n u m e r e c n a m r o f r e p $ l a t o T 0 0 0 0 8 2 , 0 0 5 7, 6 2 , 6 6 1 4 7 5 1 , , 9 8 2 1 8 8 1 , , 8 8 7 4 2 3 2 , , 6 9 1 2 3 5 2 , 5 2 8 7, 8 8 , 1 0 1 5 6 0 1 , , 4 1 0 4 4 6 8 0 7 2 9 7 , , 1 4 4 2 7 5 4 0 6 8 0 7 , , 4 3 4 1 4 0 1 , , 2 9 0 3 9 2 1 , $ ) B ( – – 5 2 5 1 2 , 9 7 9 3 3 , 5 2 5 1 2 , 9 7 9 3 3 , 5 2 4 2 1 , 5 1 6 9 1 , 5 1 9 2 1 , 8 8 3 0 2 , 5 1 9 2 1 , 8 8 3 0 2 , 0 2 2 7, 1 3 8 1 7, 2 s n o i t p O d e s a b - e r a h S s t n e m y a p $ – – – – – – – – – – – – – – s t i f e n e b n o i t a n m r e T i $ – – 7 2 9 8 , 3 3 3 8 , 7 2 9 8 , 3 3 3 8 , 4 5 3 5 , 4 3 7 4 , 5 6 3 4 , 0 6 1 4 , – – – – $ – – 5 7 9 5 9 , 9 2 2 8 3 1 , 3 2 3 2 2 1 , 4 3 4 8 5 1 , - r e p u S s t i f e n e b n o i t a u n n a $ l a t o T $ - n o N s t i f e n e b y r a t e n o m 0 0 0 0 8 2 , 0 0 5 7, 6 2 0 0 0 0 3 , 0 0 0 0 3 , $ – – 9 3 7 7, 4 4 1 , 6 0 7 3 0 2 , 0 0 0 0 0 6 , , 8 4 7 0 0 7 1 , , 3 1 0 2 7 1 2 , 8 8 7 3 2 1 , , 2 5 8 1 0 0 1 , 6 0 7 3 3 2 , 0 0 0 0 0 6 , , 0 5 4 1 3 3 2 , 8 8 7 3 5 1 , , 2 5 8 1 0 0 1 , 0 9 7 2 6 , 6 5 2 7, 0 8 3 5 0 5 9 , , 6 4 2 6 6 3 7 4 2 6 7 , 7 2 7 8 4 , 9 5 8 9 5 , 6 5 9 2 4 , 1 2 9 2 5 , 0 7 3 9 7 , , 5 0 5 4 6 9 7 0 0 8 7 5 , , 1 0 3 8 0 7 0 7 5 6 1 5 , 5 9 2 5 3 6 , 6 6 4 5 9 , 0 0 0 4 2 , 0 0 0 4 2 , 4 3 5 8 2 , 3 5 2 0 3 , , 6 5 1 3 6 5 9 2 9 1 7 2 , 1 1 5 5 1 4 , 8 0 3 0 4 2 , , 7 5 5 6 6 3 4 4 8 4 4 9 , 0 0 0 0 4 , , 0 1 1 0 2 4 6 4 4 8 9 , 3 6 4 7, 6 1 1 , 0 0 0 0 4 , 8 4 8 6 5 6 , $ – – – – – – – – – – – – – – $ 0 0 0 0 5 2 , 0 0 5 7, 3 2 , 3 3 0 4 4 6 , 8 0 1 5 7 5 , 7 0 3 8 3 3 1 , , 0 1 8 5 7 1 1 , , 7 5 9 5 4 3 3 8 8 5 0 3 , , 8 7 0 2 8 2 , 0 9 7 8 6 2 8 2 7 7 4 2 , 5 8 4 8 3 2 , , 4 3 7 4 8 4 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 s r o t c e r i d e v i t u c e x E ) n a m r i a h C e v i t u c e x E ( h t r o w s n A H L r i M D U A n I e n o t s d a G E D l r M ) r e c i f f O e v i t u c e x E f e h C i ( i f e h C – i k s d u L L M r M ’ s r o t c e r i d l a t o T n o i t a r e n u m e r s e v i t u c e x E / r e c i f f O l i a c n a n F i l a r e n e G – e s e z z u r B V r M y r a t e r c e S y n a p m o C l i a c n h c e T r e g a n a M g n i r u t c a f u n a M r e g a n a M l a r e n e G – r e p o o C I r M i s e c v r e S 3 1 0 2 p u o r G - h g u o r b e r a C S r l M y g e t a r t S r e g a n a M l a r e n e G , 5 1 6 0 7 4 2 1 0 2 l t n e m p o e v e D d n a m r e t - t r o h S h s a c I T S l s e a S ) A ( s u n o b n o i s - s i m m o C s e e f & y r a l a S ) d e u n i t n o c ( d e t i d u a – n o i t a r e n u m e r ’ s r e c ffi o e v i t u c e x e d n a ’ s r o t c e r i D 2 5 1 . ) d e u n i t n o c ( D e t i D u a – t r o p e r n o i t a r e n u m e r . 5 1 3 1 0 2 e n u J 0 3 d e d n e r a e y e h t r o f ) d e u n i t n o c ( ’ s r o t c e r D i t r o p e r 34 Ainsworth GAme technoloGy d e s a b - e r a h S s t n e m y a p g n o l r e h t O m r e t - t s o P s t i f e n e b t n e m y o p m e l – – % 2 % 2 % 1 % 2 – % 9 % 1 4 % 9 4 % 5 3 % 5 4 n% o i t a r e n u m e r s n o i t p o f o e u a V l f o n o i t r o p o r p s a d% e t a e r l f o n o i t r o p o r P n o i t a r e n u m e r e c n a m r o f r e p l$ a t o T – 3 8 8 0 2 3 , , 4 1 7 5 4 1 3 , , 8 8 3 0 8 1 4 , , 2 0 5 0 7 4 5 , , 4 8 5 2 1 7 6 , )$ B ( – s n o i t p O 8 1 3 6 , 5 7 4 5 5 , 2 9 8 3 9 , 0 0 0 7, 7 1 7 8 7, 2 1 – – – – – – $ s t i f e n e b n o i t a n m r e T i $ – – 9 1 7 9 , 4 9 8 8 , 6 4 6 8 1 , 7 2 2 7, 1 8 4 8 3 6 4 , , 8 3 6 3 0 1 6 , 1 4 9 7, 1 3 4 8 3 3 2 , , 4 1 4 5 0 3 , 6 6 1 6 5 3 , 4 2 6 6 9 2 4 7 4 3 3 , 0 6 2 9 1 , 2 1 2 9 2 , 8 7 6 4 1 2 , , 7 7 6 6 4 8 2 , , 8 8 1 2 7 7 3 , , 0 9 6 8 1 0 5 , 7 8 5 7, 8 1 , 3 9 1 3 2 2 3 9 2 1 2 4 , 1 8 9 6 7 3 , , 3 9 5 8 9 2 1 , , 2 3 3 1 2 0 2 , , 3 9 5 8 9 8 1 , , 4 8 1 3 2 0 3 , – – 2 1 2 9 2 , 2 1 2 9 2 , , 7 9 4 0 6 3 1 , , 1 5 4 8 9 4 1 , , 4 0 8 8 9 6 2 , , 1 6 2 4 7 6 2 , – – – – – – s$ t i f e n e b - r e p u S n o i t a u n n a l$ a t o T - n o N m r e t - t r o h S y r a t e n o m h s a c I T S s$ t i f e n e b )$ A ( s u n o b l s e a S n$ o i s - s i m m o C s$ e e f & y r a l a S 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 i & e c n a n F s n o i t a r e p O P V - ) 1 ( s o r d a u C M r M s e v i t u c e x e l a t o T n o i t a r e n u m e r s a c i r e m A – R H d n a ’ s r o t c e r i d l a t o T ’ s r e c i f f o e v i t u c e x e n o i t a r e n u m e r D U A n I r e m r o F d n a n o i t a r e n u m e r d e t u t i t s n o c l y w e n e h t y b 3 1 0 2 l y u J 3 2 n o d e r e d i s n o c s a w t n u o m a e h T . 9 2 e g a p n o t u o t e s a i r e t i r c e h t g n i s u r a e y l i a c n a n fi 3 1 0 2 e n u J 0 3 e h t g n i r u d e c n a m r o f r e p r o f s i s u n o b e v i t n e c n i m r e t - t r o h s e h T . A d e t i d u a - n o i t a r e n u m e r ’ s r e c ffi o e v i t u c e x e d n a l ’ s r o t c e r i d f o e b a t e h t o t n o i t a e r n l i s e t o N . 2 1 0 2 h c r a M 2 1 e v i t c e ff e l e n n o s r e p t n e m e g a n a M y e K a d e fi i s s a c e b o t d e s a e c s o r d a u C M l r M ) 1 ( . s t n e m e t a t s l i a c n a n fi d e t i d u a e h t f i o g n n g i s d n a n o i t e p m o c e h t o t l j t c e b u s , l n a p e v i t n e c n i d e v o r p p a y i l s u o v e r p e h t n o d e s a b d o i r e p t n e r r u c e h t r o f i d a p e b s e s u n o b t a h t d e d n e m m o c e r o h w e e t t i m m o c n o i t a n m o n i e u a v l e h T . e t a d g n i t s e v o t e t a d t n a r g m o r f d o i r e p e h t l r e v o y n e v e d o i r e p g n i t r o p e r h c a e o t d e t a c o l l a d n a l e d o m g n c i i r p - n o i t p o n o t r e M l s e o h c S l k c a B e h t g n i s u t n a r g f o e t a d e h t t a d e t a u c a c l l s i s n o i t p o e h t f o e u a v l r i a f e h T . B d e d n e r a e y e h t n i r o f i d e d v o r p n e e b e v a h s e s u n o b e v i t n e c n i m r e t t r o h S . 9 2 e g a p n o d e s s u c s i d s i d e t a e r l e c n a m r o f r e p s i t a h t n o i t a r e n u m e r f o n o i t r o p o r p e h t o t n o i t a e r l n i y c i l o p ’ s p u o r G e h t f o s l i a t e D . 3 1 0 2 e n u J 0 3 . d o i r e p g n i t r o p e r s i h t n i d e s i n g o c e r s n o i t p o e h t f l o e u a v r i a f e h t f o n o i t r o p e h t s i d e s o c s i d l d e t i d u a - n o i t a r e n u m e r d e t a e r e c n a m r o f r e p f o s l i l a t e D 35 AnnuAl RepoRt 2013 Directors’ report (continued) 15. remuneration report – auDiteD (continued) 15.3 analysis of bonuses included in remuneration – audited Details of the vesting profile of the short-term incentive cash bonuses awarded as remuneration to each director of the Company, and other key management personnel are detailed below: Short term incentive bonus Included in remuneration $ (A) % vested in year % Forfeited in year (B) Director Mr DE Gladstone Executives Mr ML Ludski Mr V Bruzzese Mr I Cooper Mr S Clarebrough 600,000 366,246 271,929 240,308 420,111 100% 100% 100% 100% 100% 0% 0% 0% 0% 0% A. Amounts included in remuneration for the financial year represent the amount that vested in the financial year based on achievement of personal goals and satisfaction of specified performance criteria. No amounts vest in future financial years in respect of the bonus schemes for the 2013 financial year. The newly constituted remuneration committee approved these amounts on 23 July 2013 based on the review and criteria previously undertaken and approved. B. The amounts forfeited are due to the performance or service criteria not being met in relation to the current financial year. 15.4 equity instruments – audited All options refer to options and performance rights over ordinary shares of Ainsworth Game Technology Limited, unless otherwise stated, which are exercisable on a one-for-one basis under the ESOT and RST plans. 15.4.1 Options and rights over equity instruments granted as compensation – audited Details on options and rights over ordinary shares in the Company that were granted as compensation to each key management person during the reporting period and details on options that vested during the reporting period are as follows: Number of options granted during 2013 Number of options vested during 2013 Fair value per option at grant date ($) Grant date Exercise price per option ($) Expiry date Director Mr DE Gladstone Executives Mr ML Ludski Mr V Bruzzese Mr I Cooper Mr S Clarebrough – – – – – – – – – – 250,000* 0.079 0.225 1 March 2016 144,314* 150,000* 150,000* 200,000* 0.079 0.079 0.079 0.079 0.225 1 March 2016 0.225 1 March 2016 0.225 1 March 2016 0.225 1 March 2016 * Share options granted under ASOT over a portion of the personal shareholding of the Group’s Executive Chairman, Mr LH Ainsworth. All options expire on the earlier of their expiry date or termination of the individual’s employment. The options are exercisable on an annual basis over a three year period from grant date. Further details, including grant dates and exercise dates regarding options granted to executives under ESOT and ASOT plans are in Note 23 to the financial statements. 36 for the year ended 30 June 2013Ainsworth GAme technoloGy15.4.2 Modification of terms of equity-settled share-based payment transactions – audited No terms of equity-settled share-based payment transactions (including options granted as compensation to a key management person) have been altered or modified by the issuing entity during the reporting period or the prior period. 15.4.3 Exercise of options granted as compensation – audited During the reporting period 213,101 shares (2012: Nil shares) were issued under the ESOT plan on the exercise of options previously granted as compensation. Options under the ASOT plan exercised during 2013 were 3,690,067 (2012: 391,609) which were transferred to the ASOT on behalf of employees from the Company’s Executive Chairman, Mr LH Ainsworth. 15.4.4 Analysis of options and rights over equity instruments granted as compensation – audited Details of vesting profiles of the options granted as remuneration to each key management person of the Group are detailed below: Director Mr DE Gladstone Executives Mr ML Ludski Mr V Bruzzese Mr I Cooper Mr S Clarebrough Options granted Number (A) Date % vested in year % Forfeited in year (B) Financial years in which grant vests 1,000,000 1 March 2011 577,255 600,000 600,000 800,000 1 March 2011 1 March 2011 1 March 2011 1 March 2011 25% 25% 25% 25% 25% – – – – – 2012 – 2014 2012 – 2014 2012 – 2014 2012 – 2014 2012 – 2014 A. Share options granted over a portion of the personal shareholding of the Group’s Executive Chairman, Mr L H Ainsworth B. The % forfeited in the year represents the reduction from the maximum number of options available to vest. 15.4.5 Analysis of movements in options – audited The movement during the reporting period, by value, of options over ordinary shares in the Company held by each key management person of the Group is detailed below: Mr DE Gladstone Mr ML Ludski Mr V Bruzzese Mr I Cooper Mr S Clarebrough Granted in year $ Amount paid on Exercise $ Exercised in year $ (A) Forfeited in year $ – – – – – 112,500 64,941 67,500 67,500 90,000 1,525,000 880,315 915,000 915,000 1,470,000 – – – – – A. All options exercised were granted over a portion of the personal shareholding of the Group’s Executive Chairman, Mr LH Ainsworth under the ASOT plan. The value of options exercised during the year is calculated as the market price of shares of the Company as at close of trading on the date the options were exercised after deducting the price paid to exercise the options. No amounts remain unpaid on options exercised. This Directors’ report is made out in accordance with a resolution of the directors: lh ainsworth Executive Chairman Dated at Sydney this 27th day of August 2013 37 AnnuAl RepoRt 2013 Note 2013 2012 17 16 15 16 14 12 13 24 21 22 25 21 22 40,135 106,394 29,931 766 22,928 83,496 16,552 501 177,226 123,477 22,042 12,409 16,535 17,864 68,850 246,076 27,641 533 9,830 2,356 248 13,714 26,899 10,727 17,438 68,778 192,255 19,473 911 9,022 200 107 40,608 29,713 421 629 1,050 41,658 516 502 1,018 30,731 204,418 161,524 182,290 50,639 (28,511) 204,418 182,242 10,729 (31,447) 161,524 In thousands of AUD Assets Cash and cash equivalents Receivables and other assets Inventories Prepayments Total current assets Receivables and other assets Deferred tax assets Property, plant and equipment Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Loans and borrowings Employee benefits Current tax liability Provisions Total current liabilities Loans and borrowings Employee benefits Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Accumulated losses Total equity The Notes on pages 42 to 81 are an integral part of these consolidated financial statements. 38 Consolidated statement of finanCial positionas at 30 June 2013Ainsworth GAme technoloGyIn thousands of AUD Revenue Cost of sales Gross profit Other income Sales, service and marketing expenses Research and development expenses Administrative expenses Other expenses Results from operating activities Finance income Finance costs Net finance costs Profit before income tax Income tax (expense)/benefit Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit and loss: Foreign currency translation Total comprehensive income for the year Profit attributable to owners of the Company Total comprehensive income attributable to the owners of the Company Earnings per share: Basic earnings per share (dollars) Diluted earnings per share (dollars) The Notes on pages 42 to 81 are an integral part of these consolidated financial statements. Note 2013 2012 7 8 11 11 14 20 20 198,147 (67,536) 130,611 156 (27,516) (23,162) (15,186) (1,812) 63,091 6,264 (88) 6,176 69,267 (17,065) 52,202 93 52,295 52,202 52,295 $0.16 $0.16 150,647 (48,853) 101,794 2,727 (23,223) (18,613) (12,320) (44) 50,321 2,000 (6,128) (4,128) 46,193 18,082 64,275 33 64,308 64,275 64,308 $0.23 $0.22 39 Consolidated statement of Comprehensive inComefor the year ended 30 June 2013AnnuAl RepoRt 2013In thousands of AUD Balance at 1 July 2011 Issued capital Attributable to equity holders of the Company Equity compensation reserve Accumulated losses Fair value reserve Translation reserve Profits reserve Total equity 122,373 770 11,287 (9) (95,729) – 38,692 Total comprehensive income for the year Profit Other comprehensive income Foreign currency translation reserve Total other comprehensive income Total comprehensive income for the year Transactions with owners, recorded directly in equity – – – – Issue of ordinary shares Transaction costs of shares issued 60,832 (963) Equity component of related party borrowings Equity component of re-purchase of convertible note Share based payment transactions Share based payment adjustment on non-vesting options – – – – – – – – – – – (127) 385 (7) – – – – – – (1,603) – – – Total transactions with owners Balance at 30 June 2012 Balance at 1 July 2012 59,869 182,242 182,242 251 (1,603) 1,021 1,021 9,684 9,684 Total comprehensive income for the year Profit Transfer between reserves Other comprehensive income Foreign currency translation reserve Total other comprehensive income Total comprehensive income for the year Transactions with owners, recorded directly in equity – – – – – Issue of ordinary shares on exercise of share options 48 Dividends to owners of the Company Share based payment transactions Share based payment adjustment on non-vesting options Total transactions with owners Balance at 30 June 2013 – – – 48 – – – – – – – 212 (5) 207 – – – – – – – – – – The Notes on pages 42 to 81 are an integral part of these consolidated financial statements 40 – 33 33 33 – – – – – – – 24 24 – – 93 93 93 – – – – – 64,275 – 64,275 – – 64,275 – – – – – 7 7 – – – – – – – – – – 33 33 64,308 60,832 (963) (1,603) (127) 385 – 58,524 (31,447) (31,447) – 161,524 – 161,524 52,202 – 52,202 (49,271) 49,271 – – – – – 93 93 2,931 49,271 52,295 – (9,661) – 5 (9,656) – – – – – 48 (9,661) 212 – (9,401) 182,290 1,228 9,684 117 (38,172) 49,271 204,418 Consolidated statement of CHanges in equityfor the year ended 30 June 2013Ainsworth GAme technoloGyIn thousands of AUD Note 2013 2012 Cash flows from/(used in) operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Income taxes paid Borrowing costs paid 181,320 (148,135) 33,185 (691) (928) Net cash from operating activities 17 31,566 Cash flows from/(used in) investing activities Proceeds from sale of property, plant and equipment Interest received Acquisitions of property, plant and equipment Proceeds from/(investment in) call deposits Development expenditure Net cash used in investing activities Cash flows from/(used in) financing activities Proceeds from issue of ordinary shares Proceeds from exercise of share options Payment of transaction costs Repayment of borrowings Re-purchase of convertible notes Redemption of convertible notes Payment of finance lease liabilities Dividend paid Net cash from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 July Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 30 June The Notes on pages 42 to 81 are an integral part of these consolidated financial statements 389 2,964 (6,028) 3,482 (4,681) (3,874) – 48 – – (121) – (962) (9,661) (10,696) 16,996 22,928 211 40,135 13 17 135,610 (112,016) 23,594 (106) (1,774) 21,714 50 1,411 (3,966) (30,000) (5,120) (37,625) 44,100 – (963) (12,639) (419) (5,460) (1,219) – 23,400 7,489 15,377 62 22,928 41 Consolidated statement of Cash flowsfor the year ended 30 June 2013AnnuAl RepoRt 2013inDex to notes to the financial statements anD significant accounting policies 1. Reporting entity 2. Basis of preparation 3. Significant accounting policies a. Basis of consolidation b. Foreign currency c. Financial instruments d. Property, plant and equipment e. Intangible assets f. Leased assets g. Inventories h. Impairment i. Employee benefits j. Provisions k. Warranties l. Revenue m. Lease payments n. Finance income and finance costs o. Income tax p. Earnings per share q. Segment reporting r. New standards and interpretations not yet adopted 4. Determination of fair values 5. Financial risk management 6. Operating segments 7. Revenue 8. Other income 9. Expenses by nature 43 43 43 43 44 44 45 45 46 46 46 47 48 48 48 48 48 48 49 49 49 50 50 52 54 54 54 10. Personnel expenses 11. Finance income and finance costs 12. Property, plant and equipment 13. Intangible assets 14. Taxes 15. Inventories 16. Receivables and other assets 17. Cash and cash equivalents 55 55 56 57 59 60 61 62 17a. Reconciliation of cash flows from operating activities 62 18. Capital and reserves 19. Dividends 20. Earnings per share 21. Loans and borrowings 22. Employee benefits 23. Share-based payments 24. Trade and other payables 25. Provisions 26. Financial instruments 27. Operating leases 28. Capital and other commitments 29. Contingencies 30. Related parties 31. Group entities 32. Subsequent events 33. Auditor’s remuneration 34. Parent entity disclosures 63 64 64 65 67 68 69 70 70 75 75 75 76 80 80 81 81 42 Ainsworth GAme technoloGynotes to the financial statements 1. reporting entity Ainsworth Game Technology Limited (the ‘Company’) is a company domiciled in Australia. The address of the Company’s registered office is 10 Holker Street, Newington, NSW, 2127. The consolidated financial statements of the Company as at and for the year ended 30 June 2013 comprise the Company and its subsidiaries (together referred to as the ‘Group’ and individually as ‘Group entities’). The Group is a for-profit entity and primarily is involved in the design, development, manufacture, sale and servicing of gaming machines and other related equipment and services. 2. basis of preparation a. statement of compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board (IASB). The consolidated financial statements were authorised for issue by the Board of Directors on 27 August 2013. b. basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for loans and borrowings with a Director related entity, which were measured initially at fair value and then subsequently carried at amortised cost. c. functional and presentation currency The financial information of each of the Group’s entities and foreign branches is measured using the currency of the primary economic environment in which it operates (the functional currency). These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency and presentation currency. The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated. d. use of estimates and judgements The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ to these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are included in Note 13 – Intangible assets and Note 26 – Financial instruments (trade and other receivables). e. presentation of transactions recognised in other comprehensive income From 1 July 2012 the Group applied amendments to AASB 101 Presentation of Financial Statements outlined in AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Items of Other Comprehensive Income. The change in accounting policy only relates to disclosures and has had no impact on consolidated earnings per share or profit. The changes have been applied retrospectively and require the Group to separately present those items of other comprehensive income that may be reclassified to profit of loss in the future from those that will never be reclassified to profit or loss. These changes are included in the statement of profit or loss and other comprehensive income. 3. significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities. Certain comparative amounts have been reclassified to conform with the current year’s presentation. a. basis of consolidation i. Subsidiaries Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. ii. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. iii. Acquisitions prior to 1 July 2004 As part of its transition to AASBs, the Group elected to restate only those business combinations that occurred on or after 1 July 2004. In respect of acquisitions prior to 1 July 2004, goodwill represents the amount recognised under the Group’s previous accounting framework, Australian GAAP. 43 for the year ended 30 June 2013AnnuAl RepoRt 2013notes to the financial statements (continued) 3. significant accounting policies (continued) iv. Acquisitions on or after 1 July 2004 For acquisitions on or after 1 July 2004, goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised immediately in profit or loss. b. foreign currency i. Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance date are retranslated to the functional currency at the foreign exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the year. ii. Foreign operations The assets and liabilities of foreign operations are translated to Australian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Australian dollars at the average exchange rates for the period. recognised income and presented in other Foreign currency differences are comprehensive in the Translation Reserve in equity. When a foreign operation is disposed of such that control is lost, the cumulative amount in the Translation Reserve related to that foreign operation is transferred to the profit or loss, as part of gain or loss on disposal. When the Group disposes of only a part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant portion of cumulative amounts is re-attributed to non-controlling interest. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation, are recognised in other comprehensive income and are presented in the translation reserve in equity. 44 c. financial instruments i. Non-derivative financial assets Non-derivative financial assets comprise trade and other receivables and cash and cash equivalents. Trade and other receivables are recognised on the date that they are originated. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of ownership of the financial asset are transferred. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Trade and other receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value. Subsequent to initial recognition trade and other receivables are measured at amortised cost using the effective interest method, less any impairment losses. Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. ii. Non-derivative financial liabilities Non-derivative financial borrowings and trade and other payables. liabilities comprise loans and Debt securities issued and subordinated liabilities are initially recognised on the date that they are originated. All other financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Loans and borrowings and trade and other payables are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Where the terms and conditions of borrowings are modified, the carrying amount is remeasured to fair value. Any difference between the carrying amount and fair value is recognised in equity. for the year ended 30 June 2013Ainsworth GAme technoloGyiii. Compound financial instruments Compound financial instruments issued by the Group comprise convertible notes that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value. The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition. Interest, losses and gains relating to the financial liability are recognised in profit or loss. On conversion, the financial liability is re-classified to equity. No gain or loss is recognised on conversion. iv. Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. d. property, plant and equipment i. Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Machines previously held as inventory are transferred to property, plant and equipment when a rental or participation agreement is entered into. When the rental or participation agreements cease and the machines become held for sale, they are transferred to inventory at their carrying amount. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment and are recognised net within “other income” in profit and loss. ii. Subsequent costs The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of an item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. iii. Depreciation Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the assets. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. Items of property, plant and equipment are depreciated from the date that they are installed and are ready for use, or in respect of internally constructed assets, from the date that the asset is completed and ready for use. The estimated useful lives for the current and comparative periods are as follows: – buildings – leasehold improvements – plant and equipment – machines under rental or participation 40 years 10 years 2.5 – 20 years 3 years agreements Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. e. intangible assets i. Goodwill Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. For the measurement of goodwill at initial recognition, see Note 3(a) (iii) and (iv). ii. Subsequent measurement Goodwill is measured at cost less accumulated impairment losses. 45 AnnuAl RepoRt 2013notes to the financial statements (continued) 3. significant accounting policies (continued) iii. Research and development Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, is recognised in profit or loss when incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use Other development expenditure is recognised in profit or loss when incurred. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. intangible assets, which iv. Other intangible assets include service contracts, Other that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses. v. Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss when incurred. vi. Amortisation Amortisation is based on the cost of an asset less its residual value. Amortisation is recognised in profit or loss on a straight- line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefit embodied in the asset. The estimated useful lives for the current and comparative periods are as follows: – capitalised development costs – service contracts – intellectual property 4 years 8 years 10 years Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. f. leased assets Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and the leased assets are not recognised on the Group’s statement of financial position. g. inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. h. impairment i. Non-derivative financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise and indications that a debtor will enter bankruptcy. Financial assets measured at amortised cost The Group considers evidence of impairment for financial assets measured at amortised cost (loans and receivables) at both a specific and collective level. All individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic, industry and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. 46 for the year ended 30 June 2013Ainsworth GAme technoloGyAn impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, the present value of the estimated future cash flows discounted at the original effective interest rate. All impairment losses are recognised in profit or loss and reflected in an allowance account against receivables. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit and loss. ii. Non-financial assets The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, recoverable amount is estimated at each reporting date. An impairment loss is recognised if the carrying amount of an asset or its related cash generating unit (CGU) exceeds its estimated recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset, CGU or group of CGUs. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “CGU or group of CGUs”). The goodwill acquired in a business combination for the purpose of impairment testing, is allocated to CGUs or group of CGUs that are expected to benefit from the synergies of the combination. The Group’s corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs or group of CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU or group of CGUs to which the corporate asset is allocated. An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGUs and then to reduce the carrying amount of the other assets in the CGU or group of CGUs on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. i. employee benefits i. Defined contribution superannuation funds A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. for contributions to defined contribution Obligations superannuation funds are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. ii. Other long term employee benefits The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods plus related on-costs; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield rate at the reporting date on government bonds that have maturity dates approximating the terms of the Group’s obligations. iii. Termination benefits Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised if the Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. iv. Short term benefits Liabilities for employee benefits for wages, salaries and annual leave represent present obligations resulting from employees’ services provided to reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at reporting date including related on-costs, such as workers remuneration insurance and payroll tax. Non-accumulating non-monetary benefits, such as cars and free or subsidised goods and services, are expensed based on the net marginal cost to the Group as the benefits are taken by the employees. A liability is recognised for the amount expected to be paid under short-term cash bonus plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. 47 AnnuAl RepoRt 2013notes to the financial statements (continued) 3. significant accounting policies (continued) v. Share-based payment transactions The grant date fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to reflect the actual number of share options for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. j. provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The unwinding of the discount is recognised as a finance cost. k. warranties A provision for warranties is recognised when the underlying products are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. l. revenue i. Goods sold Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, allowances and trade discounts. Revenue is recognised when persuasive evidence exists usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. Transfer of risks and rewards vary depending on the individual terms of the contract of sale. When gaming machines, games, conversions and other incidental items are licensed to customers for extended periods, revenue is recognised on delivery for gaming machines and games and for other items including conversions on a straight line basis over the licence term. The revenue recognised for each item is based on the relative fair values of the items included in the arrangement. 48 ii. Services Revenue from services rendered is recognised in profit or loss when the services are performed. iii. Participation and rental Participation revenue is where the Group’s owned machines are placed directly by the Group or indirectly through a licensed operator in venues in return for a fee per day which can either be fixed or performance based. The amount of revenue recognised is calculated by either; (i) multiplying a daily fee by the total number of days the machine has been operating on the venue floor in the reporting period; or (ii) an agreed fee based upon a percentage of turnover of participating machines. is recognised Revenue from rental of gaming machines in profit or loss on a straight line basis over the term of the rental agreement. m. lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. n. finance income and finance costs Finance income comprises interest income and foreign currency gains. Interest income is recognised in profit or loss as it accrues using the effective interest method. Finance costs comprise interest expense on borrowings, foreign currency losses and impairment losses recognised on financial assets. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method. Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position. o. income tax Income tax expense comprises current and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. for the year ended 30 June 2013Ainsworth GAme technoloGyDeferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for temporary differences arising from: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. Deferred tax is not recognised for taxable temporary differences arising from the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised, see Note 14. p. earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees. q. segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are regularly reviewed by the Group’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. r. new standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 July 2012, and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. i. AASB 119 Employee Benefits (2011) AASB 119 (2011) changes the definition of short-term and other long-term employee benefits to clarify the distinction between the two. Upon adoption of AASB 119 (2011), the annual leave liability will be classified as an other long-term employee benefit, resulting in a change in the recognition and measurement of the liability. This change will not have a significant effect on the consolidated financial statement of the Group. AASB 119 (2011) is effective for annual periods beginning on or after 1 January 2013 with early adoption permitted. No other new standards, amendments to standards and interpretations are expected to affect the Group’s consolidated financial statements. 49 AnnuAl RepoRt 2013notes to the financial statements (continued) 4. Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. i. Intangible assets The fair value of customer contracts acquired in a business combination is based on the discounted cash flows expected to be derived from the use or eventual sale of these contracts. The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets. ii. Trade and other receivables/payables For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. The fair value of all other receivables/payables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. iii. Non-derivative financial instruments Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. In respect of the liability component of convertible notes, the market rate of interest is determined by reference to similar liabilities that do not have a conversion option. For finance leases the market rate of interest is determined by reference to similar lease agreements. iv. Loans and borrowings Fair value is calculated based on discounted expected future principal and interest cash flows. v. Finance lease liabilities The fair value is estimated as the present value of future cash flows, discounted at market interest rates for homogeneous lease agreements. The estimated fair values reflect changes in interest rates. vi. Share-based payment transactions The fair value of employee stock options is measured using the Black Scholes Merton model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. 50 5. financial risk management overview The Group has exposure to the following risks from their use of financial instruments: – Credit risk; – Liquidity risk; and – Market risk. This note presents information about the Group’s exposure to each of the above risks, its objectives, policies and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout this financial report. risk management framework The Board of Directors has overall responsibility for the establishment and oversight of risk management framework. The Board has established processes through the Group Audit Committee, which is responsible for developing and monitoring risk management policies. The Committee reports regularly to the Board of Directors on its activities. the Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Group’s Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes reviews of risk management controls and procedures, the results of which are reported to the Audit Committee. credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers. Trade and other receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer, including the default risk of the industry and country in which customers operate. The Group’s most significant receivable amount is represented by a customer within South America, which accounts for 4% (2012: 10%) of the trade receivables carrying amount as at 30 June 2013. for the year ended 30 June 2013Ainsworth GAme technoloGyCredit policy guidelines have been introduced under which each new customer is assessed by the compliance division as to suitability and analysed for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes investigations, external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, which represents the maximum open amount without requiring approval from the Board. Customers that fail to meet the Group’s creditworthiness criteria may only transact with the Group within established limits unless Board approval is received or otherwise only on a prepayment basis. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, whether they are a distributor, operator or customer, geographic location, aging profile, maturity and existence of previous financial difficulties. The Group’s trade and other receivables relate mainly to the Group’s direct customers, operators and established distributors. Customers that are graded as “high risk” require future sales to be made on a prepayment basis within sales limits approved by the Chief Executive Officer and Chief Financial Officer, and thereafter only with Board approval. Goods are sold subject to retention of title clauses, so that in the event of non-payment the Group may have a secured claim. The Group does not require collateral in respect of trade and other receivables. The Group has established an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures. guarantees The Group’s policy is to provide financial guarantees only for wholly-owned subsidiaries. At 30 June 2013 no guarantees were outstanding (2012: none). liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Typically the Group ensures that it has access to sufficient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. currency risk The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currencies of Group entities, primarily the Australian dollar (AUD), but also the US dollar (USD). The currencies in which these transactions primarily are denominated are AUD, USD, Euro and New Zealand dollars (NZD). The Group regularly monitors and reviews, dependant on available facilities, the hedging of net assets denominated in a foreign currency. The Group has previously utilised currency call options to hedge its currency risk, most with a maturity of less than six months. No hedging arrangements were utilised during the reporting period. In respect of other monetary assets and liabilities denominated in foreign currencies, the Group monitors its net exposure to address short-term imbalances in its exposure. interest rate risk The Group’s borrowing rates are fixed and no interest rate risk exists. capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board continues to monitor group performance so as to ensure an acceptable return on capital is achieved and that dividends are able to be provided to ordinary shareholders in the short term. The Board continues to review alternatives to ensure present employees will hold 3-5% of the Company’s ordinary shares. This is expected to be partially achieved assuming all outstanding share options issued vest and/or are exercised. These share options were issued on 1 March 2011 to all Australian employees over a portion of the Executive Chairman’s shareholding under the ASOT plan and to US employees under the ESOT plan, see Note 23. There were no changes in the Group’s approach to capital management during the year. The Group is not subject to externally imposed capital requirements. 51 AnnuAl RepoRt 2013l a n r e t n i s w e v e r i ) O E C ( r e c ffi O e v i t u c e x E i f e h C e h t , s t i n u s s e n i s u b i c g e t a r t s e h t f o h c a e r o F . s t i n u s s e n i s u b i c g e t a r t s ’ s p u o r G e h t e r a i h c h w , w o e b l d e fi i t n e d i s a s t n e m g e s l e b a t r o p e r e n n i s a h p u o r G e h T s t n e m g e s g n i t a r e p o . 6 3 1 0 2 e n u J 0 3 d e d n e r a e y e h t r o f ) d e u n i t n o c ( s t n e m e t a t s l a c n a n i f i e h t o t s e t o n 52 e r a s e i t i l i c a f g n i r u t c a f u n a m d n a n e k a t r e d n u s i t n e m p o e v e d l d n a n g i s e d l l a e r e h w a i l a r t s u A , l s e a W h t u o S w e N n i d e t a c o l s i e c ffi o d a e h e t a r o p r o c ’ s p u o r G e h T . s i s a b l y h t n o m a n o s t r o p e r t n e m e g a n a m . ) a d a v e N d n a a d i r o F ( l s a c i r e m A e h t d n a d n a l s n e e u Q , l s e a W h t u o S w e N n i d e t a r e p o e r a s e c ffi o s e a S l . d e t a r e p o . a d a v e N n i y t i l i l c a f y b m e s s a t c u d o r p a s e t a r e p o o s l a p u o r G e h t , 2 1 0 2 y r a u n a J m o r F t a h t s t r o p e r t n e m e g a n a m l a n r e t n i n i d e d u c n l i s a t l u s e r t n e m g e s d n a e u n e v e r t n e m g e s n o d e s a b d e r u s a e m s i e c n a m r o . l f r e P w o e b d e d u c n l i s i l t n e m g e s e b a t r o p e r h c a e f i o s t l u s e r e h t g n d r a g e r n o i t a m r o n f I , 7 4 1 8 9 1 3 2 3 1 , l a t o T r e h t O / e p o r u E 7 9 5 3 , w e N d n a l a e Z a i s A 3 2 2 6 , h t u o S a c i r e m A 8 2 6 9 1 , s a c i r e m A h t r o N a c i r e m A 3 3 9 2 4 , h t u o S a i l a r t s u A S A T / C V I D L Q a i l a r t s u A 9 1 8 4 , 8 8 8 9 1 , 1 0 3 9 3 , W S N 5 3 4 0 6 , e u n e v e r t n e m g e s e b a t r o p e R l D U A f o s d n a s u o h t n I 3 1 0 2 e n u J 0 3 d e d n e r a e y e h t r o F ) 8 8 ( 8 9 4 2 , ) 2 6 1 3 2 ( , ) 6 8 1 5 1 ( , 7 6 2 9 6 , ) 5 6 0 7, 1 ( 2 0 2 2 5 , 5 0 2 5 0 1 , 8 3 6 2 5 3 2 , 5 3 2 3 , 5 4 3 9 , 8 8 7 9 1 , 9 2 0 3 , 9 7 8 3 1 , 2 5 7 4 2 , 7 8 1 8 2 , d e t a c o l l a t o n e u n e v e r t s e r e t n I e s n e p x e t s e r e t n I e s n e p x e D & R s t n e m g e s o t i e v i t a r t s i n m d a d n a e t a r o p r o C t l u s e r t n e m g e S t l u s e R e s n e p x e x a t e m o c n I x a t r e t f a t i f o r p t e N s e s n e p x e x a t e r o f e b t i f o r P . s r e m o t s u c f o n o i t a c o l l i a c h p a r g o e g e h t n o d e s a b s i e u n e v e r t n e m g e s , s t n e m g e s e b a t r o p e r l f o s i s a b e h t n o n o i t a m r o n f i g n i t n e s e r p n I . e c n a m r o f r e p t n e m g e s g n i t a u a v e n l i h c a o r p p a t n a v e e r l t s o m e h t s i s e v e i l e b t n e m e g a n a m h c h w i , l s t s o c e b a t u b i r t t a y l t c e r i d t n u o c c a o t n i l s e k a t y n o t l u s e r t n e m g e S . ’ O E C s p u o r G e h t y b d e w e v e r e r a i . l w o e b d e d u c n l i o s l a s i x a t r e t f a t fi o r p t e n o t t l u s e r t n e m g e s f o n o i t i n g o c e r A s t n e m g e s e b a t r o p e r l t u o b a n o i t a m r o f n i Ainsworth GAme technoloGy 7 4 6 0 5 1 , 6 5 9 1 , l a t o T r e h t O / e p o r u E 3 5 4 5 , w e N d n a l a e Z a i s A 8 0 2 3 , h t u o S a c i r e m A 0 9 0 1 1 , s a c i r e m A h t r o N a c i r e m A 8 9 7 5 2 , h t u o S a i l a r t s u A S A T / C V I D L Q a i l a r t s u A 2 6 5 4 , 0 1 6 5 1 , 2 5 8 2 3 , W S N 8 1 1 0 5 , e u n e v e r t n e m g e s e b a t r o p e R l D U A f o s d n a s u o h t n I 2 1 0 2 e n u J 0 3 d e d n e r a e y e h t r o F 5 1 2 1 , ) 8 2 1 6 ( , 2 4 6 2 , ) 3 1 6 8 1 ( , ) 4 6 3 2 1 ( , 3 9 1 6 4 , 2 8 0 8 1 , 5 7 2 4 6 , 1 4 4 9 7 , 4 1 7 5 3 3 3 , 1 7 5 1 , 5 6 5 4 , 9 8 5 8 , 3 7 6 2 , 0 0 5 0 1 , 3 2 1 1 2 , 1 7 3 6 2 , d e t a c o l l a t o n e u n e v e r t s e r e t n I e s n e p x e t s e r e t n I s t n e m g e s o t i e v i t a r t s i n m d a d n a e t a r o p r o C y t r e p o r p f l o e a s n o t i f o r P e s n e p x e D & R e s n e p x e x a t e m o c n I x a t r e t f a t i f o r p t e N s e s n e p x e x a t e r o f e b t i f o r P t l u s e r t n e m g e S t l u s e R 53 . s r e m o t s u c f o n o i t a c o l l i a c h p a r g o e g e h t n o d e s a b s i e u n e v e r t n e m g e s , s t n e m g e s e b a t r o p e r l f o s i s a b e h t n o n o i t a m r o n f i g n i t n e s e r p n I s t n e m g e s e b a t r o p e r l t u o b a n o i t a m r o f n i AnnuAl RepoRt 2013 notes to the financial statements (continued) 7. revenue In thousands of AUD Sale of goods Rendering of services Rental and participation revenue 8. other income In thousands of AUD Net gain on sale of property, plant and equipment Other income 9. expenses by nature In thousands of AUD Changes in raw material and consumables, finished goods and work in progress Employee benefits expense Depreciation and amortisation expense Legal expenses Evaluation and testing expenses Marketing expenses Operating lease expenses Impairment loss Other expenses Note 2013 2012 185,019 142,705 5,255 7,873 5,098 2,844 198,147 150,647 2013 18 138 156 2013 62,600 43,202 8,130 1,004 3,879 2,661 2,316 1,812 9,608 2012 2,642 85 2,727 2012 48,853 36,640 5,187 2,643 3,319 2,550 1,148 44 2,669 135,212 103,053 15 10 12,13 27 54 for the year ended 30 June 2013Ainsworth GAme technoloGy10. personnel expenses In thousands of AUD Wages and salaries Short term incentives Contributions to defined contribution superannuation funds Increase in liability for annual leave Increase in liability for long service leave Termination benefits Equity settled share-based payment transactions 11. finance income anD finance costs In thousands of AUD Interest income on trade receivables Interest income on bank deposits Net foreign exchange gain Finance income Interest expense on financial liabilities Finance costs Net financing income/(costs) recognised in profit or loss Note 22 22 2013 33,530 5,675 2,995 466 310 14 212 2012 27,510 5,553 2,658 277 231 26 385 43,202 36,640 2013 844 2,498 2,922 6,264 (88) (88) 6,176 2012 297 1,215 488 2,000 (6,128) (6,128) (4,128) 55 AnnuAl RepoRt 2013notes to the financial statements (continued) 12. property, plant anD equipment In thousands of AUD Cost Balance at 1 July 2011 Re-classification of inventory to plant and equipment Additions Disposals Transfers Effect of movements in foreign exchange Balance at 30 June 2012 Balance at 1 July 2012 Re-classification of inventory to plant and equipment Additions Disposals Transfers Effect of movements in foreign exchange Balance at 30 June 2013 Depreciation and impairment losses Balance at 1 July 2011 Depreciation charge for the year Disposals Transfers Effect of movements in foreign exchange Balance at 30 June 2012 Balance at 1 July 2012 Depreciation charge for the year Disposals Transfers Effect of movements in foreign exchange Balance at 30 June 2013 Carrying amounts At 1 July 2011 At 30 June 2012 At 30 June 2013 Land and buildings Plant and equipment Leasehold Improvements Total 20,242 – – (20,242) – – – – – – – – – – 2,362 239 (2,601) – – – – – – – – – 17,880 – – 18,190 3,595 3,853 (240) (641) 4 24,761 24,761 5,466 4,115 (2,662) (1,303) 85 30,462 12,531 2,575 (176) (318) (3) 14,609 14,609 3,618 (994) (439) 51 16,845 5,659 10,152 13,617 83 – 651 (4) – 5 735 735 – 2,483 (98) – 72 3,192 83 76 (4) – 5 160 160 257 (173) – 30 274 – 575 2,918 38,515 3,595 4,504 (20,486) (641) 9 25,496 25,496 5,466 6,598 (2,760) (1,303) 157 33,654 14,976 2,890 (2,781) (318) 2 14,769 14,769 3,875 (1,167) (439) 81 17,119 23,539 10,727 16,535 Transfers in the table above relate to gaming machines that have been transferred to inventory after being returned or have been sold to customers. 56 for the year ended 30 June 2013Ainsworth GAme technoloGyleased plant and equipment The Group leases plant and equipment and motor vehicles under hire purchase agreements. At the end of each of these agreements the Group has the option to purchase the equipment at a beneficial price. The leased equipment and guarantees by the Group secure lease obligations. Acquisition of plant and equipment including computer equipment and motor vehicles, by means of hire purchase agreements amounted to $570 thousand (2012: $572 thousand). At 30 June 2013, the net carrying amount of leased plant and equipment was $1,558 thousand (2012: $1,840 thousand). 13. intangible assets In thousands of AUD Cost Goodwill Development costs* Intellectual property Nevada Licence Costs Service Contracts Total Balance at 1 July 2011 2,436 21,098 836 1,583 1,223 27,176 Development costs fully amortised and written off Development costs capitalised during the year Balance at 30 June 2012 Balance at 1 July 2012 Development costs/service contracts fully amortised and written off Development costs capitalised during the year Balance at 30 June 2013 Amortisation and impairment losses Balance at 1 July 2011 Development costs fully amortised and written off Amortisation for the year Balance at 30 June 2012 Balance at 1 July 2012 Development costs/service contracts fully amortised and written off Amortisation for the year Balance at 30 June 2013 Carrying amounts At 1 July 2011 At 30 June 2012 At 30 June 2013 – – 2,436 2,436 – – 2,436 – – – – – – – – 2,436 2,436 2,436 * Development costs relate to development of new products (10,359) 5,120 15,859 15,859 – 4,681 20,540 11,232 (10,359) 2,059 2,932 2,932 – 4,096 7,028 9,866 12,927 13,512 – – 836 836 – – – – 1,583 1,583 – – 836 1,583 335 – 84 419 419 – 84 503 501 417 333 – – – – – – – – 1,583 1,583 1,583 – – 1,223 1,223 (10,359) 5,120 21,937 21,937 (1,223) (1,223) – – 4,681 25,395 994 12,561 – 154 1,148 1,148 (1,223) 75 – 229 75 – (10,359) 2,297 4,499 4,499 (1,223) 4,255 7,531 14,615 17,438 17,864 57 AnnuAl RepoRt 2013 notes to the financial statements (continued) 13. intangible assets (continued) amortisation charge and impairment loss The amortisation charge is recognised in the following line items in the income statement: In thousands of AUD Cost of sales Other operating expenses 2013 84 4,171 4,255 2012 84 2,213 2,297 impairment testing for Development costs The carrying amount of the Group’s development costs amounts to $13,512 thousand (2012: $12,927 thousand). Development costs include product development costs relating to products that are not yet available for sale and as such the recoverable amount is assessed at the end of the reporting date. Development costs contribute to sales of products in multiple geographic regions and across multiple cash generating units (CGUs) and are therefore allocated to the group of CGUs (‘CGU group’) to which they relate. The recoverable amount of the CGU group was estimated based on its value in use. The carrying amount of the CGU group was $100,378 thousand, comprising $13,512 thousand of development costs, $15,520 thousand of property, plant and equipment, $333 thousand of other intangibles, $1,583 thousand of Nevada licence costs and $69,430 thousand of opening working capital. The value in use for the CGU group was estimated by discounting the forecast future cash flows expected to be generated from the sales of machines and products, based on the following key assumptions: – Cash inflows in the years 2014 to 2016 from the sale of the group’s products, estimated based on forecast revenue, having regard to Board approved budgets, the Group’s 3 year business plan and supporting strategic actions, historical experience and actual operating results; – Annual revenue growth forecast in the year after the Group’s 3 year business plan of 5% for the year 2017; – Positive cash flows will be generated for 4 years; and – A discount rate of 10.2% based on the weighted average cost of capital adjusted for uncertainty of regulatory conditions. As the recoverable amount of the CGU group tested was estimated to be higher than the carrying amount of the group, no impairment was considered necessary. impairment testing for nevada licence costs The Nevada licence costs capitalised are classified as an intangible asset with an indefinite life, and as such the recoverable amount is assessed at each reporting date. The carrying amount of $4,589 thousand, comprising of $1,583 thousand of Nevada licence costs and $3,006 thousand of gaming machines under leasing arrangements capitalised in property, plant and equipment was allocated to the Nevada CGU without corporate assets in a ‘bottom-up test’ under the key assumptions noted below. The Nevada licence costs were also included in the impairment assessment for the minimum collection of CGUs to which corporate assets can be allocated reasonably and consistently (‘top-down test’) under the key assumptions noted above (refer Impairment testing for Development Costs above). The value in use for the Nevada CGU was estimated by discounting the forecasted future cash flows to be generated from the sale of machines and products in Nevada, and was based on the following key assumptions: – Cash inflows in the years 2014 to 2016, from the sale of the group’s products, estimated based on forecast sales revenue, having regard to Board approved budgets, the Group’s 3 year business plan and supporting strategic actions; – Annual revenue growth forecasts in the years after the Group’s 3 year business plan of 5% for the years 2017 and 2018; – The Nevada license will generate cash flows for 5 years; and – A discount rate of 10.2% based on the weighted average cost of capital adjusted for volatility of regulatory conditions. As the recoverable amount of the CGUs tested under both the bottom-up test and the top-down test were estimated to be higher than the carrying amount of the asset, no impairment was considered necessary. 58 for the year ended 30 June 2013Ainsworth GAme technoloGyimpairment testing for goodwill Goodwill relates to acquired service businesses and entities in Australia. The recoverable amount of the Australian service CGU was estimated based on its value in use. The carrying amount of the Australian service CGU was $3,804 thousand, comprising of $1,015 thousand of property, plant and equipment, $104 thousand of other intangibles, $2,149 thousand of goodwill and $536 thousand of opening working capital. Value in use was determined by discounting the future cash flows generated from the continuing use of the service unit and was based on the following key assumptions: – Cash flows were projected based on actual operating results over a projected four year period. Cash flows for a further 10 year period were extrapolated using a constant growth rate of 5 percent, which does not exceed the long term average growth rate for the industry. Management believes that this forecast period was justified due to the long term nature of the service business; – Revenue was projected at $7,342 thousand in the 2014 year with anticipated annual revenue growth included in the cash flow projections of 5 percent for the years 2015 to 2017. Management has forecast to achieve annual revenue of $8,514 thousand in the fourth year; and – A discount rate of 10.2% based on the weighted average cost of capital. As the recoverable amount of the CGU was estimated to be higher than the carrying amount of the Group, no impairment was considered necessary. The values assigned to the key assumptions represent management’s assessment of future trends in the service business and are based on internal sources and historical data. The above estimates are particularly sensitive in the following areas: – An increase of 1 percentage point in the discount rate used would have reduced the recoverable amount of the cash generating unit by $415 thousand but no impairment would have resulted; and – A 5 percent decrease in future planned revenues would have resulted in an impairment loss of $1,417 thousand. 14. taxes current tax expense In thousands of AUD Tax recognised in profit or loss Current tax expense Current year Prior year adjustments Recognition of previously unrecognised tax losses and timing differences Deferred tax benefit Timing differences movement Recognition of R&D tax credits Recognition of previously unrecognised tax losses Total income tax (expense)/benefit 2013 2012 (23,967) (14,996) 1,311 – (22,656) 277 5,314 – 5,591 (17,065) – 14,687 (309) 713 3,443 14,235 18,391 18,082 59 AnnuAl RepoRt 2013notes to the financial statements (continued) 14. taxes (continued) reconciliation of effective tax rate In thousands of AUD Profit before income tax 2013 2013 69,267 2012 2012 46,193 Income tax (expense)/benefit using the Company’s domestic tax rate (30.00%) (20,780) (30.00%) (13,858) Effective tax rates in foreign jurisdictions Non-deductible expenses Non-assessable income and concessions Prior year adjustments Utilisation of previously unrecognised tax losses Recognition of previously unrecognised tax losses and timing differences (0.63%) (7.79%) 11.49% 2.29% – – (433) (5,393) 7,956 1,585 – – (24.64%) (17,065) (0.14%) (6.65%) 13.51% – 31.79% 30.63% 39.14% recognised deferred tax assets Deferred tax assets are attributable to the following: In thousands of AUD Employee benefits Provisions Other items R&D non-refundable tax offset credits Tax loss carry-forwards Net tax assets Assets 2013 1,533 896 178 9,658 144 12,409 (66) (3,073) 6,242 – 14,687 14,150 18,082 2012 1,104 608 474 3,443 21,270 26,899 The deductible temporary differences and tax losses do not expire under current tax legislation. R&D non-refundable tax offset credits are available to be applied against income tax payable in future years and do not expire under current tax legislation. Management has assessed that the carrying amount of the deferred tax assets of $12,409 thousand should be recognised as management considers it probable that future taxable profits would be available against which they can be utilised. 15. inventories In thousands of AUD Raw materials and consumables Finished goods Stock in transit Inventories stated at the lower of cost and net realisable value 2013 9,215 15,981 4,735 29,931 2012 11,681 3,632 1,239 16,552 During the year ended 30 June 2013 raw materials, consumables and changes in finished goods and work in progress recognised as cost of sales amounted to $62,600 thousand (2012: $48,853 thousand). A re-classification from inventory to property, plant and equipment of $5,466 thousand (2012: $3,595 thousand) was recorded to reflect gaming products for which rental and participation agreements were entered into during the year. During the year ended 30 June 2013, the write down of inventories to net realisable value amounted to $991 thousand (2012: $Nil). The write down is included in cost of sales. 60 for the year ended 30 June 2013Ainsworth GAme technoloGy16. receivables anD other assets In thousands of AUD Current Trade receivables Less impairment losses Call deposits Other assets Non-current Trade receivables Note 2013 2012 26 80,953 (2,089) 78,864 26,518 1,012 106,394 22,042 22,042 53,474 (102) 53,372 30,000 124 83,496 13,714 13,714 The Group realised impairment losses of $1,812 thousand (2012: $44 thousand) for the year ended 30 June 2013. Receivables denominated in currencies other than the functional currency comprise $49,959 thousand of trade receivables denominated in US dollars (2012: $30,055 thousand), $650 thousand in New Zealand Dollars (2012: $1,762 thousand) and $2 thousand in Euro (2012: $571 thousand). leasing arrangements Included in trade receivables are receivables from gaming machines that have been sold under finance lease arrangement. The lease payments receivable under these contracts is as follows: In thousands of AUD 2013 2012 Minimum lease payments under finance leases are receivable as follows: Within one year Later than one year but not later than 5 years Unearned finance income Within one year Later than one year but not later than 5 years The present value of minimum lease payments is as follows: Within one year Later than one year but not later than 5 years Lease receivables are classified as follows: Within one year Later than one year but not later than 5 years 3,390 3,069 6,459 434 409 843 2,956 2,660 5,616 2,956 2,660 5,616 – – – – – – – – – – – – The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables are disclosed in Note 26. 61 AnnuAl RepoRt 2013notes to the financial statements (continued) 17. cash anD cash equivalents In thousands of AUD Bank balances Call deposits Cash and cash equivalents in the statement of cash flows 2013 5,492 34,643 40,135 2012 3,718 19,210 22,928 The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 26. 17a. reconciliation of cash flows from operating activities In thousands of AUD Cash flows from operating activities Profit for the period Adjustments for: Depreciation Impairment losses on trade receivables Amortisation of intangible assets Net finance (income)/costs (Gain) on sale of property, plant and equipment Equity-settled share-based payment transactions Income tax expense/(benefit) Operating profit before changes in working capital and provisions Change in trade and other receivables Change in inventories Change in other assets Change in trade and other payables Change in provisions and employee benefits Interest paid Income taxes paid Net cash from operating activities Note 2013 2012 52,202 64,275 12 26 13 11 8 10 14 16 15 3,875 1,812 4,255 (6,176) (18) 212 17,065 73,227 (33,695) (18,845) (265) 11,687 1,076 33,185 (928) (691) 31,566 2,890 44 2,297 4,128 (2,642) 385 (18,082) 53,295 (29,665) (6,755) 67 1,821 4,831 23,594 (1,774) (106) 21,714 62 for the year ended 30 June 2013Ainsworth GAme technoloGy18. capital anD reserves share capital In thousands of shares On issue at 1 July Exercise of share options Placement of new ordinary shares Convertible note conversions to ordinary shares On issue at 30 June – fully paid Ordinary shares 2013 2012 321,813 278,942 213 – – 322,026 – 30,000 12,871 321,813 Ordinary shares The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid. All shares rank equally with regard to the Company’s residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. Issue of ordinary shares During the year, 213 thousand ordinary shares were issued as a result of the exercise of vested options arising from the 2011 ESOT. Options were exercised at a price of $0.225 per options (see Note 23). nature and purpose of reserve Equity compensation reserve The equity compensation reserve represents the cost of share options issued to employees. Fair value reserve The fair value reserve comprises the cumulative net change in fair value of related party loans and borrowings where interest is charged at below market rates. Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations where their functional currency is different to the presentation currency of the reporting entity, as well as from the translation of liabilities that hedge the Company’s net investment in a foreign subsidiary. Profits reserve This reserve is comprised wholly of the profits generated by the Australian entity which would be eligible for distribution as a frankable dividend. 63 AnnuAl RepoRt 2013notes to the financial statements (continued) 19. DiviDenDs The following dividends were declared by the Company for the year ended 30 June: In thousands of AUD 2013 Interim 2013 ordinary (unfranked) Total amount After 30 June 2013, the following dividend was declared by the directors. In thousands of AUD Final ordinary (unfranked) Total amount Cents per share Total amount Date of payment 3.0 9,661 9,661 12 April 2013 Cents per share Total amount Date of payment 5.0 16,101 16,101 27 September 2013 The financial effect of this dividend has not been brought to account in the consolidated financial statements for the year ended 30 June 2013 and will be recognised in subsequent financial reports, and there are no income tax consequences. 20. earnings per share Basic earnings per share The calculation of basic earnings per share at 30 June 2013 was based on the profit attributable to ordinary shareholders of $52,202 thousand (2012: $64,275 thousand) and a weighted average number of ordinary shares outstanding during the financial year ended 30 June 2013 of 321,932 thousand (2012: 283,874 thousand), calculated as follows: Profit attributable to ordinary shareholders In thousands of AUD Profit for the period Profit attributable to ordinary shareholders Weighted average number of ordinary shares In thousands of shares Issued ordinary shares at 1 July Effect of shares issued Weighted average number of ordinary shares at 30 June Note 18 2013 52,202 52,202 2012 64,275 64,275 321,813 119 321,932 278,942 4,932 283,874 64 for the year ended 30 June 2013Ainsworth GAme technoloGyDiluted earnings per share The calculation of diluted earnings per share at 30 June 2013 was based on the profit attributable to ordinary shareholders of $52,204 thousand (2012: $65,651 thousand) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of 322,241 thousand (2012: 298,895 thousand), calculated as follows: Profit attributable to ordinary shareholders (diluted) In thousands of AUD Profit attributable to ordinary shareholders Interest expense on convertible notes and options, net of tax Profit attributable to ordinary shareholders (diluted) Weighted average number of ordinary shares (diluted) In thousands of shares Weighted average number of ordinary shares at 30 June Effect of convertible notes Effect of shares issued Effect of share options on issue Weighted average number of ordinary shares (diluted) at 30 June Note 2013 52,202 2 52,204 2012 64,275 1,376 65,651 321,932 278,942 – – 309 14,954 4,932 67 322,241 298,895 21. loans anD borrowings This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risk, see Note 26. In thousands of AUD Current Finance lease liabilities Convertible notes Non-current Finance lease liabilities 2013 2012 533 – 533 421 790 121 911 516 Terms and debt repayment schedule Terms and conditions of outstanding loans were as follows: In thousands of AUD Currency Nominal interest rate Year of maturity Convertible notes Finance lease liabilities Total interest-bearing liabilities AUD AUD 10% 2011–2014 1% – 11% 2013–2018 2013 2012 Face value – 1,017 1,017 Carrying amount – 954 954 Face value 121 1,413 1,534 Carrying amount 121 1,306 1,427 65 AnnuAl RepoRt 2013notes to the financial statements (continued) 21. loans anD borrowings (continued) Convertible notes In thousands of AUD Proceeds from issue of 19,714,717 convertible notes on 20 December 2004 Transaction costs Net proceeds Amount classified as equity Transaction costs classified as equity Accreted interest capitalised Re-purchase of convertible notes Redemption of convertible notes Convertible notes converted into share capital Equity component of convertible notes repurchased and converted Carrying amount of liability at 30 June Current Non-current 2013 25,629 (1,085) 24,544 (2,842) 121 782 (540) (5,460) (16,732) 127 – – – – 2012 25,629 (1,085) 24,544 (2,842) 121 782 (419) (5,460) (16,732) 127 121 121 – 121 The Company notified holders of its intention to redeem their convertible notes on 30 June 2012 at which time the noteholders had the option to convert their notes to new fully paid ordinary shares on the proposed redemption date. Notes totalling 12,870,471 were converted on 30 June 2012 on a one for one basis to new fully paid ordinary shares in full satisfaction to all amounts owing. Notes totalling 92,978 were not converted to ordinary shares and were redeemed at face value on 2 July 2012. Loans – secured This related party loan, which was repaid during the year ended 30 June 2012, was initially recorded at fair value and was subsequently carried at amortised cost, as the interest rate applied to the facility was lower than that which could be obtained commercially. At the end of each reporting period, the earliest expected repayment date of the loan was reviewed and the effective interest rate amended accordingly. In thousands of AUD Fair value of the loan at 1 July Repayment of borrowings Net (borrowings)/proceeds Amount classified as equity Accreted interest capitalised Carrying amount of liability at 30 June 66 2013 – – – – – – 2012 11,558 (13,126) (1,568) 1,272 296 – for the year ended 30 June 2013Ainsworth GAme technoloGyloans – unsecured These related party loans, which were repaid during the year ended 30 June 2012, are recorded at fair value, as the interest rate applied is lower than that which could be obtained commercially. Subsequently these loans were carried at amortised cost, see Note 3(c). In thousands of AUD Fair value of the loan at 1 July Borrowings under trade facility established Repayment on borrowings Foreign currency movement Net borrowings Amount classified as equity Accreted interest capitalised Carrying amount of liability at 30 June 2013 – – – – – – – – 2012 9,856 8,790 (19,896) 237 (1,013) 671 342 – (a) (a) Amount classified as equity relates to the recognition of borrowings to fair value. Finance lease liabilities Finance lease liabilities of the Group are payable as follows: In thousands of AUD Less than one year Between one and five years Future minimum lease payments 2013 577 440 1,017 Present value of minimum lease payments 2013 Future minimum lease payments 2012 533 421 954 868 545 1,413 Interest 2013 44 19 63 Present value of minimum lease payments 2012 790 516 1,306 Interest 2012 78 29 107 The Group leases plant and equipment under finance leases with terms expiring from three to five years. At the end of the lease term, there is the option to purchase the equipment at a discount to market value, a price deemed to be a bargain purchase option. 22. employee benefits In thousands of AUD Current Accrual for salaries and wages Accrual for short term incentive plan Liability for annual leave Liability for long service leave Non–current Liability for long service leave 2013 2012 273 5,730 2,746 1,081 9,830 629 629 465 5,379 2,280 898 9,022 502 502 67 AnnuAl RepoRt 2013notes to the financial statements (continued) 23. share-baseD payments The Group has in place two share option plans – Employee Share Option Trust (ESOT) and LH Ainsworth Share Option Trust (ASOT) which are replacements to the employee share option plans previously approved on 30 July 2001. The ESOT granted share options over ordinary new shares to all American employees on 1 March 2011. The ASOT granted share options to all Australian employees, excluding directors, over a portion of the personal share holding of the Company’s Executive Chairman Mr LH Ainsworth. The terms and conditions of the grants under the ESOT and ASOT outstanding at balance date are as follows, whereby all options are settled by physical delivery of shares: Grant date/employee entitled Option grant to senior and other employees at 1 March 2011 Total share options ESOT Option grant to key management at 1 March 2011 Option grant to senior and other employees at 1 March 2011 Total share options ASOT Number of instruments 567,094 567,094 1,788,627 3,673,269 5,461,896 Vesting conditions Three years of service as per ESOT below Three years of service as per ASOT below Three years of service as per ASOT below Contractual life of options 5 years 5 years 5 years To be eligible to participate in the ESOT and ASOT the employee must be selected by the directors and reviewed by the remuneration and nomination committee. Options may be exercised within a five-year period, starting on the first anniversary of the issue of the options, subject to earlier exercise where a takeover offer or takeover announcement is made, or a person becomes the holder of a relevant interest in 50% or more of the Company’s voting shares. Both the ESOT and ASOT provide for employees to receive options for no consideration. Each option is convertible to one ordinary share. Option holders have no voting or dividend rights. On conversion from option to ordinary shares, the issued shares will have full voting and dividend rights. The exercise price of the options is determined in accordance with the rules of the ESOT and ASOT. The ability to exercise the options is conditional on the continuing employment of the participating employee. The vesting conditions of the share options issued on 1 March 2011 under the ESOT and ASOT are as follows: Date First Anniversary of Grant Date Second Anniversary of Grant Date Third Anniversary of Grant Date Vesting Condition (% of Options vesting) 25% 25% 50% 68 for the year ended 30 June 2013Ainsworth GAme technoloGyesot plan The number and weighted average exercise prices of Group issued share options under ESOT is as follows: In thousands of options outstanding at the beginning of the period forfeited during the period cancelled during the period exercised during the period granted during the period outstanding at the end of the period exercisable at the end of the period Weighted average exercise price 2013 Number of options 2013 Weighted average exercise price 2012 Number of options 2012 $0.225 $0.225 – $0.225 – $0.225 808 (28) – (213) – 567 182 $0.225 $0.225 – – – $0.225 1,025 (217) – – – 808 202 The options outstanding at 30 June 2013 have an exercise price of $0.225 and a remaining life of 2.67 years. asot plan The share options granted under the ASOT to Australian employees on 1 March 2011 totalled 9,899,182. During the year 59,167 previously granted share options were cancelled and 3,685,776 were exercised with 5,461,896 share options outstanding as at 30 June 2013. The following factors and assumptions were used in determining the fair value of options under the EOST and ASOT plans on grant date: Grant Date Expiry Date Fair value per option Exercise price Price of shares on grant date Expected volatility Risk free interest rate Dividend yield 1 March 2011 1 March 2016 $0.079 $0.225 $0.225 51% 5.25% – The estimate of the fair value of the services received is measured based on the Black Scholes Merton model. The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The contractual life of the option is used as an input into this model. Expectations of early exercise are incorporated into these models. The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available information. Where new share options were issued in respect of cancelled share options these new share options were treated as a modification to the cancelled share options and the increase in the fair value was determined by reference to the difference in the fair value of the new share options granted on 1 March 2011 ($0.079) and the fair value of the cancelled share options valued as at that date ($0.01) of $0.069. 24. traDe anD other payables In thousands of AUD Current Trade payables Other payables and accrued expenses Amount payable to director/shareholder controlled entities 2013 2012 12,651 14,980 10 27,641 5,438 13,341 694 19,473 The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 26. Trade and other payables denominated in currencies other than the functional currency comprise $10,830 thousand of payables denominated in US Dollars (2012 $9,426 thousand), $3 thousand of payables denominated in Euro (2012: $Nil thousand), $384 thousand of payables denominated in NZD (2012: $132 thousand), and $137 thousand of payables denominated in GBP (2012: $Nil). 69 AnnuAl RepoRt 2013 notes to the financial statements (continued) 25. provisions In thousands of AUD Balance at 1 July 2012 Provisions made during the year Provisions used during the year Provision reversed during the year Balance at 30 June 2013 26. financial instruments Service/ Warranties Legal Total – 203 – – 203 107 45 (104) (3) 45 107 248 (104) (3) 248 credit risk Exposure to credit risk Trade and other receivables The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum exposure to credit risk at the reporting date was: In thousands of AUD Receivables Note 16 Carrying amount 2013 100,906 100,906 2012 67,086 67,086 The Group’s maximum exposure to credit risk at the reporting date was $100,906 thousand (2012: $67,086 thousand) for receivables. The Group’s gross maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: In thousands of AUD Australia Americas Europe New Zealand Asia 2013 49,643 49,711 6 1,350 2,285 102,995 2012 34,798 30,025 579 1,763 23 67,188 The Group’s gross maximum exposure to credit risk for receivables at the reporting date by geographic region in Australian dollars was $49,711 thousand (2012 $30,025 thousand) for the Americas, $49,643 thousand (2012: $34,798 thousand) for Australia, $6 thousand (2012: $579) for Europe, $2,285 thousand (2012 $23 thousand) for Asia and $1,350 thousand (2012: $1,763 thousand) for New Zealand, totalling $102,995 thousand (2012: $67,188 thousand). The Group’s most significant receivable amount is represented by a customer within South America, which accounts for $4,427 thousand of the trade receivables carrying amount at 30 June 2013 (2012: $6,475 thousand). 70 for the year ended 30 June 2013Ainsworth GAme technoloGyCash and cash equivalents The Group held cash of $5,492 thousand at 30 June 2013 (2012: $3,718 thousand) and $61,161 thousand of cash deposits at 30 June 2013 (2012: $49,210 thousand), which represents its maximum credit exposure on these assets. The cash and cash deposits are held with bank and financial institution counterparts, which are rated AA- to A-, based on rating agency Standard & Poor ratings. Impairment losses The aging of the Group’s trade receivables at the reporting date was: Gross 2013 Impairment 2013 Gross 2012 Impairment 2012 In thousands of AUD Not past due Past due 0-30 days Past due 31-120 days Past due 121 days to one year More than one year 81,379 12,023 8,598 950 45 102,995 – – 1,796 248 45 2,089 42,434 13,744 10,583 413 14 67,188 2013 102 (7) 1,812 182 2,089 – – 60 42 – 102 2012 286 (274) 44 46 102 The movement in the allowance for impairment in respect of trade receivables during the year was as follows: In thousands of AUD Balance at 1 July Impairment loss written off Provision during the year Effect of exchange rate fluctuations Balance at 30 June The provision of $1,812 thousand (2012: $44 thousand) was recognised in other expenses in the income statement. Based on historic default rates and current repayment plans in place, the Group believes that apart from the above, no impairment is necessary in respect of trade receivables not past due or on amounts past due as these relate to known circumstances that are not considered to impact collectability. An impairment allowance of $293 thousand has been provided for amounts past due more than 121 days and relates to a customer where the Group has assessed potential collectability issues. The remaining balance where no impairment allowance has been provided relates to negotiated repayment plans from long standing customers and distributors who have met or had their obligations previously re-negotiated. The allowance for impairment losses in respect of receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amounts are considered irrecoverable and are written off against the financial asset directly. 71 AnnuAl RepoRt 2013notes to the financial statements (continued) 26. financial instruments (continued) liquidity risk The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: 30 June 2013 In thousands of AUD Non-derivative financial liabilities Finance lease liabilities Trade and other payables Carrying Amount Contractual Cash flows 6 mths or less 6-12 mths 1-2 years 2-5 years 954 27,641 28,595 (1,017) (27,641) (28,658) (319) (27,641) (27,960) (257) – (257) (314) – (314) (127) – (127) It is not expected that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts. 30 June 2012 In thousands of AUD Non-derivative financial liabilities Convertible notes – Payable to director/shareholder controlled entities – Other note holders Finance lease liabilities Trade and other payables Carrying Amount Contractual Cash flows 6 mths or less 6-12 mths 1-2 years 2-5 years 688 271 1,306 19,473 21,738 (688) (271) (1,413) (19,473) (21,845) (688) (271) (513) (19,473) (20,945) – – (355) – (355) – – (398) – (398) – – (147) – (147) It is not expected that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts. Currency risk The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than the AUD. The Group monitors and assesses under its Treasury Risk policy and facilities available whether hedging of all trade receivables and trade payables denominated in a foreign currency from time to time is considered appropriate. The Group uses foreign currency call options to hedge its foreign currency risk. No foreign currency call options were utilised during the year. Exposure to currency risk The Group’s significant exposures to foreign currency risk at balance date were as follows, based on notional amounts: In thousands Trade receivables Trade payables Net exposure in statement of financial position 2013 USD Euro 49,959 (10,830) 39,129 2 (3) (1) 2012 NZD 650 (384) 266 GBP USD Euro NZD – 30,055 (137) (137) (9,426) 20,629 571 – 571 1,762 (132) 1,630 72 for the year ended 30 June 2013Ainsworth GAme technoloGyThe following significant exchange rates applied during the year: AUD USD Euro NZD GBP Average Rate Reporting date spot rate 2013 1.0271 0.7949 1.2497 0.6549 2012 1.0319 0.7707 1.2831 0.6514 2013 0.9275 0.7095 1.1871 0.6072 2012 1.0191 0.8092 1.2771 0.6529 Sensitivity analysis In managing currency risks the Group aims to reduce the impact of short-term fluctuations on the Group earnings. Over the longer- term, however, permanent changes in foreign exchange will have an impact on profit/(loss). A 10 percent strengthening of the Australian dollar against the following currencies at 30 June would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis is performed on the same basis for 2012. Effect in thousands of AUD 30 June 2013 USD Euro NZD GBP 30 June 2012 USD Euro NZD Equity Profit or (loss) (3,650) (3,559) – (24) 12 (1,938) (51) (149) – (24) 12 (1,876) (51) (149) A 10 percent weakening of the Australian dollar against the following currencies at 30 June would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis is performed on the same basis for 2012. Effect in thousands of AUD 30 June 2013 USD Euro NZD GBP 30 June 2012 USD Euro NZD Equity Profit or (loss) 4,012 3,912 – 20 (13) 2,130 57 164 – 26 (13) 2,063 57 164 73 AnnuAl RepoRt 2013notes to the financial statements (continued) for the year ended 30 June 2013 26. financial instruments (continued) Fair values The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows: In thousands of AUD Note Assets carried at amortised cost Receivables and other assets Cash and cash equivalents In thousands of AUD Liabilities carried at amortised cost Trade and other payables Finance leases Convertible notes 16 17 24 21 21 Carrying amount 2013 128,436 40,135 168,571 Carrying amount 2013 Fair value 2013 128,436 40,135 168,571 Fair value 2013 27,641 27,641 954 – 954 – 28,595 28,595 Carrying amount 2012 97,210 22,928 120,138 Carrying amount 2012 19,473 1,306 121 20,900 Fair value 2012 97,210 22,928 120,138 Fair value 2012 19,473 1,306 121 20,900 Estimates of fair values The methods used in determining the fair values of financial instruments are discussed in Note 4. Interest rates used for determining fair value The interest rates used to discount estimated cash flows, where applicable, are based on the government yield curve as of 30 June 2013 plus an adequate constant credit spread and are as follows: Loans and borrowings Receivables Leases Interest rate risk The Group’s borrowing rates are fixed and no interest rate risk exists. 2013 2012 – 10.96% – 11.37% 3.84% – 10.25% 5.0% – 12.0% 0.91% – 11.25% 0.91% – 15.18% 74 Ainsworth GAme technoloGy27. operating leases leases as lessee Non-cancellable operating lease rentals are payable as follows: In thousands of AUD Less than one year Between one and five years More than five years 2013 2,172 9,308 4,741 2012 1,750 8,231 5,575 16,221 15,556 The Group leases a number of warehouse and office facilities under operating leases. The leases typically run for a period of 3-10 years, with an option to renew the lease after that date. Lease payments are increased every year either by annual increases of 2-4% per annum, or by market rent reviews at stipulated dates. None of the leases include contingent rentals. During the year $2,316 thousand was recognised as an expense in profit or loss in respect of operating leases (2012: $1,148 thousand). The warehouse and office lease are combined leases of land and buildings. Since the land title does not pass, the rent paid to the landlord for the building is increased to market rent at regular intervals, and the Group does not participate in the residual value of the building, it was determined that substantially all the risks and rewards of the building are with the landlord. As such, the Group determined that the leases are operating leases. 28. capital anD other commitments In thousands of AUD Plant and equipment Contracted but not yet provided for and payable: Within one year Employee compensation commitments Key management personnel 2013 2012 663 151 Commitments under non-cancellable employment contracts not provided for in the financial statements and payable: Within one year 2,149 2,107 29. contingencies The Company is engaged in a dispute in the Federal Court of Australia with a competitor. In this dispute the competitor is claiming that certain products of the Company infringe its patents. The Company is vigorously defending this claim and has counterclaimed that all of the patents being asserted against it are invalid. Given the current stage of proceedings it is not practicable to estimate the size or timing of the financial effect (if any) of these proceedings. The Directors at this time do not expect this dispute to have a material effect on the Group’s financial position and no amount has been recognised with respect to this matter as at and for the year ended 30 June 2013. 75 AnnuAl RepoRt 2013notes to the financial statements (continued) 30. relateD parties The following were key management personnel of the Group at any time during the reporting period and unless otherwise indicated were key management personnel for the entire period: Non-executive directors Current Mr GJ Campbell Mr MB Yates Executives Current Mr ML Ludski (Chief Financial Officer and Company Secretary, Ainsworth Game Technology Limited) Mr V Bruzzese (General Manager Technical Services, Ainsworth Game Technology Limited) Mr CJ Henson - since appointment (subject to regulatory approval) on 3 April 2013 Mr I Cooper (General Manager, Manufacturing, Ainsworth Game Technology Limited) Mr DH Macintosh- since appointment (subject to regulatory approval) on 3 April 2013 Mr S Clarebrough (Group General Manager, Strategy and Development, Ainsworth Game Technology Limited). Former Mr SL Wallis Executive directors Mr LH Ainsworth (Executive Chairperson) Mr DE Gladstone (Executive Director and Chief Executive Officer, Ainsworth Game Technology Limited) Key management personnel compensation The key management personnel compensation included in ‘personnel expenses’ (see Note 10) is as follows: In AUD Short-term employee benefits Post-employment benefits Share based payments Other long term benefits 2013 2012 5,018,690 6,103,638 356,166 463,848 77,000 18,646 127,871 17,227 5,470,502 6,712,584 Individual directors and executives compensation disclosures Information regarding individual directors and executives compensation and some equity instruments disclosures as permitted Corporations Regulations 2M.3.03 and 2M.6.04 is provided in the Remuneration Report section of the Directors’ Report. Apart from the details disclosed in this note, no director has entered into a material contract with the Group since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year-end. Other key management personnel transactions A number of key management persons, or their related parties, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of those entities. A number of those entities transacted with the Group during the year. Other than as described below the terms and conditions of the transactions with key management persons and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-director related entities on an arm’s length basis. 76 for the year ended 30 June 2013Ainsworth GAme technoloGyThe aggregate value of transactions and outstanding balances relating to key management personnel and their related parties were as follows: In AUD Key management person Mr LH Ainsworth Transaction Leased plant and equipment and other costs Mr LH Ainsworth Sales revenue Mr LH Ainsworth Purchases and other charges for payments made on behalf of the Company Mr LH Ainsworth Interest paid/payable on financing facilities Mr LH Ainsworth Convertible note interest Mr SL Wallis Convertible note interest Mr LH Ainsworth Profit recorded on sale of Newington property Mr LH Ainsworth Operating lease rental costs Transactions value year ended 30 June Balance receivable/ (payable) as at 30 June Note 2013 2012 2013 2012 (i) (ii) (ii) (iii) (iv) (iv) (v) (vi) 62,400 81,150 1,315,062 1,947,600 – 6,221 – 538,369 12,456 705,020 – – – – 1,536,135 2,034,714 1,350,085 30,159 2,657,557 451,222 – – – – – 110,729 – (5,625) (673,195) (14,909) – 94,611 (i) (ii) The Company leased associated plant and equipment from an entity controlled by Mr LH Ainsworth on normal commercial terms and conditions. The reimbursement of financial consultancy costs incurred ceased in 2012 and no related costs were reimbursed in the current period. Transactions were with Ainsworth (UK) Ltd and Associated World Investments Pty Ltd, entities controlled by Mr LH Ainsworth. These sales and purchases/charges were on normal commercial terms and conditions. (iii) As disclosed in Note 21 a company controlled by Mr LH Ainsworth had previously extended a loan and facilities to the Group which were repaid during the 2012 year. The terms of this loan and facilities provided were more favourable to the Group than could be obtained from the Group’s bankers or at arms length in the open market at the time. (iv) Interest paid/payable during the 2012 year to Mr LH Ainsworth and Mr SL Wallis and entities controlled by them for convertible notes held. (v) This interest was under the same terms and conditions as all convertible note holders. The Company sold its property located at 10 Holker Street Newington on 27 February 2012 to an entity controlled by Mr LH Ainsworth for the total consideration of $22,330,641. This transaction resulted in the Company recording a profit on sale of $2,657,557. Approval was received by shareholders at a general meeting held on 22 February 2012 for this transaction. (vi) Following the sale of the Newington property on 27 February 2012, as noted above, the Company leased the premises from an entity controlled by Mr LH Ainsworth on normal commercial terms and conditions. In addition to the transactions above, AGT Pty Argentina S.R.L. was incorporated during the year with the shareholding currently held in trust by Mr D Gladstone and an officer of Ainsworth Game Technology Inc. on behalf of the Group. This shareholding is to be transferred in FY14 and was to facilitate the initial incorporation within Argentina once establishment had occurred. 77 AnnuAl RepoRt 2013notes to the financial statements (continued) 30. relateD parties (continued) Amounts receivable from and payable to key management personnel and their related parties at reporting date arising from these transactions were as follows: In AUD 2013 2012 Assets and liabilities arising from the above transactions Current receivables and other assets Trade receivables Other assets Current trade and other payables 6,221 120,729 538,369 94,611 Amount payable to director/shareholder controlled entities 10,000 693,729 Options and rights over equity instruments The movement during the reporting period in the number of options over ordinary shares in Ainsworth Game Technology Limited held directly, indirectly or beneficially, by each key management person including their related parties, is as follows: Directors Mr DE Gladstone Executives Mr ML Ludski Mr V Bruzzese Mr I Cooper Mr S Clarebrough Directors Mr DE Gladstone Executives Mr ML Ludski Mr V Bruzzese Mr I Cooper Mr M Cuadros Mr S Clarebrough Held at 1 July 2012 Granted as remuneration Exercised Held at 30 June 2013 Vested during the year Vested and exercisable at 30 June 2013 1,000,000 577,255 600,000 600,000 800,000 – – – – – (500,000) 500,000 250,000 (288,628) (300,000) (300,000) (400,000) 288,627 300,000 300,000 400,000 144,314 150,000 150,000 200,000 – – – – – Held at 1 July 2011 Granted as remuneration Exercised Held at 30 June 2012 Vested during the year Vested and exercisable at 30 June 2012 1,000,000 577,255 600,000 600,000 200,000 800,000 – – – – – – – – – – – – 1,000,000 250,000 250,000 577,255 600,000 600,000 200,000 800,000 144,314 150,000 150,000 50,000 200,000 144,314 150,000 150,000 50,000 200,000 The above share options granted were over a portion of the personal shareholding of Mr LH Ainsworth under the ASOT Plan, except for Mr M Cuadros whose share options were over new ordinary shares under the ESOT Plan. Share options held by key management personnel that are vested and exercisable at 30 June 2013 were Nil (2012: 814,314) as the first and second vesting conditions have occurred. No options were held by related parties of key management personnel. 78 for the year ended 30 June 2013Ainsworth GAme technoloGy Movements in shares The movement during the reporting period in the number of ordinary shares in Ainsworth Game Technology Limited held directly, indirectly or beneficially, by each key management person including their related parties, is as follows: Directors Mr LH Ainsworth Mr SL Wallis Mr GJ Campbell Mr MB Yates Mr DE Gladstone(1) Mr CJ Henson(2) Mr DH Macintosh Executives Mr M Ludski(1) Mr V Bruzzese(1) Mr I Cooper(1) Mr S Clarebrough(1) Directors Mr LH Ainsworth Mr SL Wallis Mr GJ Campbell Mr MB Yates Mr DE Gladstone Executives Mr V Bruzzese Mr I Cooper Mr M Cuadros(3) Mr S Clarebrough Held at 1 July 2012 Purchases Sales on exercise of options under ASOT plan Sales Held at 30 June 2013 219,283,429 128,849 (3,690,067) (5,815,986) 209,906,225 – 1,352,403 1,352,403 939,674 108,400 100,000 – – – 2,700 10,000 261,000 – – 500,000 50,000 – 288,628 300,000 300,000 400,000 – – – – – (288,628) (300,000) (300,000) (400,000) (439,674) – – – – – (10,000) 500,000 108,400 5,000 50,000 – – 2,700 – – 261,000 (500,000) (95,000) Held at 1 July 2011 Purchases Received on conversion of Convertible Notes Sales (A) Held at 30 June 2012 210,715,062 1,022,403 799,674 108,400 100,000 2,700 30,000 15,000 261,000 – 12,283,568 (3,715,201) 219,283,429 100,000 140,000 – – – – – – 230,000 – – – – – – – 1,352,403 939,674 108,400 100,000 2,700 10,000 15,000 261,000 – – – (20,000) – – (1) Purchases and sales identified relate to exercise of previously held share options by the trustee under the ASOT plan. (2) Shares relate to initial holding as at appointment date of 3 April 2013 as disclosed in Appendix 3X – Initial Directors Interest Notice lodged with the Australian Securities Exchange (ASX). Mr M Cuadros ceased to be classified as a key management person on 12 March 2012. (3) (A) Sales in FY12 included 391,609 share options exercised by employees under the ASOT, see Note 23. No shares were granted to key management personnel during the reporting period as compensation in 2013 or 2012. There were no changes in key management in the period after the reporting date and prior to the date when the Financial Report was authorised for issue. 79 AnnuAl RepoRt 2013continued notes to the financial statements (continued) 31. group entities Parent entity Ainsworth Game Technology Limited Subsidiaries AGT Pty Ltd AGT Pty Mexico S. de R.L. de C.V. AGT Pty Peru S.A.C. AGT Pty Argentina S.R.L. Ainsworth Game Technology Inc AGT Service Pty Ltd AGT Service (NSW) Pty Ltd J & A Machines Pty Ltd RE & R Baker & Associates Pty Ltd Bull Club Services Pty Ltd Ownership Interest Country of Incorporation 2013 2012 Australia Australia Mexico Peru Argentina USA Australia Australia Australia Australia Australia 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% – – – 100% 100% 100% 100% 100% 100% 32. subsequent events After the reporting date, the Company declared an unfranked dividend of 5 cents per ordinary share amounting to $16,101,000 with an expected payment date of 27 September 2013. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2013 and will be recognised in subsequent financial reports. Subsequent to 30 June 2013 the Group acquired approximately 24 acres of vacant land in Las Vegas, Nevada for US$7.0 million. This acquisition will allow the Group the option to build a bigger purpose built facility in Las Vegas prior to the expiration of the current lease in November 2016. In addition to the above and subsequent to the reporting date the Company has established an unsecured multi-option currency facility of $30 million for an initial term of three years with the Australia and New Zealand Banking Group (ANZ) consistent with strategies outlined in 2012. This facility will ensure additional flexibility to manage working capital, ensure over time an appropriate mix of debt on the balance sheet and assist in creating a natural hedge against adverse foreign currency movements. Other than matters discussed above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. 80 for the year ended 30 June 2013Ainsworth GAme technoloGy 33. auDitor’s remuneration In AUD Audit services Auditors of the Company – KPMG Audit and review of financial reports Other services Auditors of the Company – KPMG 2013 2012 222,000 195,000 In relation to regulatory, due diligence and other services 140,600 – 34. parent entity Disclosures As at and throughout the financial year ended 30 June 2013 the parent entity of the Group was Ainsworth Game Technology Limited. In thousands of AUD Result of parent entity Profit for the year Total comprehensive income for the year Financial position of parent entity at year end Current assets Total assets Current liabilities Total liabilities Total equity of parent entity comprising of: Share capital Equity compensation reserve Fair value reserve Profit reserves Accumulated losses Total equity Parent entity capital commitments for acquisitions of property plant and equipment In thousands of AUD Plant and equipment Contracted but not yet provided for and payable: Within one year 2013 2012 51,540 51,540 172,598 245,461 35,845 43,313 63,484 63,484 120,893 189,831 24,126 29,824 182,290 182,242 1,228 9,684 39,610 (30,664) 202,148 1,021 9,684 – (32,940) 160,007 2013 2012 663 151 81 AnnuAl RepoRt 2013 1. In the opinion of the directors of Ainsworth Game Technology Limited (the ‘Company’): a. the consolidated financial statements and notes that are set out on pages 38 to 81 and the Remuneration report in sections 15.1 to 15.4 in the Directors’ report, are in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the Group’s financial position as at 30 June 2013 and of its performance for the financial year ended on that date; and ii. complying with Australian Accounting Standards and the Corporations Regulations 2001; and b. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. 3. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2013. The directors draw attention to Note 2(a) to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards. Signed in accordance with a resolution of the directors: lh ainsworth Executive Chairman Dated at Sydney this 27th day of August 2013. 82 Directors’ DeclarationAinsworth GAme technoloGy inDepenDent auDitor’s report to the members of ainsworth game technology limiteD report on the financial report We have audited the accompanying financial report of Ainsworth Game Technology Limited (the company), which comprises the consolidated statement of financial position as at 30 June 2013, and consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, Notes 1 to 34 comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the Group 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 2(a), the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards. 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. These Auditing 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 judgement, 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 that gives a true and fair view 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 performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group’s financial position and of its performance. 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. Auditor’s opinion In our opinion: a. the financial report of the Group is in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the Group’s financial position as at 30 June 2013 and of its performance for the year ended on that date; and ii. complying with Australian Accounting Standards and the Corporations Regulations 2001. b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2(a). KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. 83 Independent AudItor’s reportAnnuAl RepoRt 2013 inDepenDent auDitor’s report (continued) inDepenDent auDitor’s report to the members of ainsworth game technology limiteD (continued) report on the remuneration report We have audited the Remuneration Report included in sections 15.1 to 15.4 of the directors’ report for the year ended 30 June 2013. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with Section 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 auditing standards. auditor’s opinion In our opinion, the remuneration report of Ainsworth Game Technology Limited for the year ended 30 June 2013, complies with Section 300A of the Corporations Act 2001. kpmg tony nimac Partner Sydney 27 August 2013 leaD auDitor’s inDepenDence Declaration unDer section 307c of the corporations act 2001 To: the directors of Ainsworth Game Technology Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2013 there have been: i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii. no contraventions of any applicable code of professional conduct in relation to the audit. kpmg tony nimac Partner Sydney 27 August 2013 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. 84 Ainsworth GAme technoloGy corporate Directory corporate Directory executive chairman Mr LH Ainsworth independent non-executive Directors Mr GJ Campbell Mr MB Yates Mr CJ Henson Mr DH Macintosh AM chief executive officer and executive Director Mr DE Gladstone company secretary and chief financial officer Mr ML Ludski offices australia Corporate and Head Office 10 Holker Street, Newington NSW Australia 2127 Tel: +61 2 9739 8000 Fax: +61 2 9648 4327 Email: enquiries@ainsworth.com.au Queensland Unit 5 / 3990 Pacific Highway Loganholme QLD Australia 4129 Tel: +61 7 3209 6210 Fax: +61 7 3209 6510 Email: glen.coleman@ainsworth.com.au South Australia Ms Toni Odgers South Australia Sales Executive Tel: +61 0402 927 833 Email: toni.odgers@ainsworth.com.au Victoria Mr Wayne Flood State Sales Manager Tel: +61 0419 551 454 Email: wayne.flood@ainsworth.com.au stock exchange listing The Company is listed on the Australian Stock Exchange. The Home Exchange is Sydney. coDe: agi website www.ainsworth.com.au share registry Computershare Investor Services Pty Ltd Level 3, 60 Carrington Street, Sydney NSW Australia 2001 Tel: 1300 850 505 (within Aust) +61 3 9415 4000 (outside Aust) Fax: +61 3 9473 2500 auditor KPMG 10 Shelley Street Sydney NSW Australia 2000 Tel: +61 2 9335 7000 Fax: +61 2 9299 7001 other information Ainsworth Game Technology Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. the americas Nevada 6975 S. Decatur Blvd. Suite 140 Las Vegas, NV 89118 USA Tel: +1 (702) 778-9000 Fax: +1 (702) 778-9001 Email: enquiries@ainsworth.com.au Florida 6600 NW 12 Avenue, Suite 201 Ft. Lauderdale, FL 33309 USA Tel: +1 (954) 317-5500 Fax: +1 (954) 317-5555 Email: enquiries@ainsworth.com.au asia Malaysia Mr Jonathan Siah Key Account Sales Executive Tel: +60 1225 40866 Email: jonathan.siah@ainsworth.com.au Macau Ms Kate Pang Key Account Sales Executive Tel: +853 6338 3593 Email: kate.pang@ainsworth.com.au 85 AnnuAl RepoRt 2013 ainsworth game technology 10 Holker Street, Newington, NSW Australia, 2127 T. +61 2 9739 8000 F. +61 2 9648 4327 www.ainsworth.com.au 

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