Bisalloy Steel Group Limited
Annual Report 2016

Plain-text annual report

Bisalloy Steel Group Limited 2016 Annual Report Contents i ii v 1 2016 Highlights Chairman and Managing Director’s Review Review of Operations Financial Report 65 Directors’ Declaration 66 Independent Auditor’s Report 68 Additional Information 70 Corporate Directory Annual General Meeting The Group will hold its 2016 Annual General Meeting in the Press Room at the Radisson Blu Plaza Hotel located at 27 O’Connell Street, Sydney NSW at 11.00am on Monday, 21 November 2016. 2016 Highlights i EBITDA of $5.0m (FY2015 – $6.8m) Net debt of $7.7m (FY2015 – $3.6m) Final dividend for the FY2016 year of 2.5cps, fully franked Revenue decreased by 9.8% EBITDA $m FY12 12.4 FY13 8.4 FY15 6.8 FY16 5.0 FY14 2.5 Debt $’000s FY12 11,106 FY13 10,362 FY14 10,135 FY16 7,704 FY15 3,611 FY16 23% FY15 12% Gearing % FY12 34% FY14 32% FY13 29% ii Chairman & Managing Director’s Review Mr Phil Cave, AM Chairman Mr Greg Albert Managing Director and CEO Bisalloy Steels Group achieved good results in FY2016 despite a weakening of demand in many of our traditional markets. playing field, Q&T imports are being closely monitored and, if dumping is apparent, further anti-dumping action will be considered. A combination of a further slowdown in the resource sector and the appointment of Voluntary Administrators in April 2016 to oversee the affairs of One Steel Metal Centre (a subsidiary of Arrium), one of Bisalloy Steels largest Australian distributors, adversely affected the Group’s FY2016 trading performance compared to FY2015. The Group had an outstanding debt with this distributor at the time it entered voluntary administration and whilst the company has settled its claims this resulted in unusually higher levels of stock and debt as at 30th June 2016. This is seen as a one-off occurrence and the market is expected to normalise over the next 6 months. Despite these headwinds, our profitability remained solid and we also made good progress in making Bisalloy Steels an increasingly better and more competitive company in our current operating environment. While the challenges facing the resource sector will take some time to normalise, further market share gains are being targeted during 2017 through a restructured sales organisation with a focus on significantly penetrating new markets away from the resource sector. Rather than passively lamenting the changes in our traditional resource market environment, we have embarked on aggressively renewing the company’s way to market model, our branding, our product offering and our customer service levels. Although we are at an early stage in this development, we are in a strong position to create value for our customers and other stakeholders. The Group’s distribution subsidiaries in Indonesia and Thailand continued to operate profitably despite difficult business conditions in both markets. Improvement plans to continue to increase profits from these businesses, in line with the Australian growth priorities to be delivered through FY2017, are now underway. During FY2016 the Indonesian operation was hampered by new import licence restrictions. The Group’s Indonesian subsidiary has now successfully secured import licences for the coming year and we are already seeing increasing sales volumes return. The Group’s Cooperative Joint Venture (CJV) for the production and sale of Q&T steel plate into China and North Asian markets continues to operate profitably in a highly competitive market, albeit at relatively low tonnages for the domestic market. The sales resources have been strengthened, including the appointment of a Vice General Manager of Sales to drive the growth plan. A major upgrade is underway to improve product quality, brand awareness, as well as to provide timely supply and improve stock levels to better meet the unique needs of the Chinese domestic market. Although the overall market environment in China has declined, there are significant growth opportunities for the CJV in both domestically in China and in select neighbouring international markets. The CJV is forecasting a steady increase in its financial contributions to the Group results in FY2017. During FY2016 Bisalloy Steels Australia performed strongly in its domestic market despite a reduction in the Australian Quench & Tempered (Q&T) market. The main competitor from Sweden continued to import mainly from its mills in the USA. This was in response to the Group’s successful Anti-Dumping case in 2014. Consistent with the Group’s reasonable expectation to compete on a level The Group’s net debt increased to $7.7m at 30 June 2016, up from $3.6m at 30 June 2015, adversely impacted by the outstanding receivable due from One Steel Metal Centre, who appointed a Voluntary Administrator in April 2016. The Group also reintroduced the payment of a dividend to shareholders and a total of $1.7m was paid in November 2016. Bisalloy Steel Group Limited2016 Annual Reportiii We would like to highlight occupational safety alongside our financial performance. Safety has a direct impact on productivity, quality and customer satisfaction. We are pleased to report that again this year due to the Group’s focus and diligent commitment to safety from employees and management, the Australian production operations reached 1,134 days without a lost time injury as at 30 June 2016, setting a new safety record for the Australian business. Our operations in Indonesia and Thailand continued their highly impressive commitment to safety and have now delivered eleven years without a lost time injury, and the Chinese Joint venture has now passed five years lost time injury free. During the first half of 2016 a three year strategic plan was activated targeting higher profitability and growth. In the first half of 2016 a new Collective Agreement to 30 June 2016 was reached with the Unanderra production workforce and was approved by Fair Work Australia. This has been a good outcome for both the employees and the company forming a strong collaborative approach and creating the environment for a productive motivated workforce. Bisalloy continues to invest in R&D to develop new high performance steels to meet the ever changing needs of the market. During FY2016 and moving into FY2017, Bisalloy has established close partnerships with major defence contractors to collaboratively work on researching and developing innovative steels for defence applications. Through the efforts of the Bisalloy Steels technical and R&D centre these can be utilised in new non-defence related applications, requiring the highest level of strength and toughness. As an example, the SEA1000 Future Submarine Program will be the largest defence program ever undertaken by Australia, and while submarines are the most complex, sensitive and expensive Defence acquisition Government can make, Bisalloy Steels is well positioned to provide the grades of steel required for longer range, higher endurance and greater breadth capabilities than the existing Collins Class Fleet, which used Bisalloy Steels products. During FY2017 Bisalloy steels will be working through the selection and design phase and will be strengthening our metallurgical technical personnel. On the back of the strong and collaborative working relationship with the key companies working to deliver the Bushmaster IMV and Land 400 military vehicles, Bisalloy Steels is continuing engagement with key stakeholders and are forecasting armour orders in FY2017 for such projects. During FY2016 Bisalloy Steels was successful in achieving accreditation with a number of international defence forces for the supply of ballistic and blast proof grade steels with an increase in sales forecasted in FY2017. Bisalloy Steels is fast becoming known worldwide as a premium trusted producer of Armour steels. A focus on this in FY2017 is a strategic priority. Bisalloy Steels currently supplies a high proportion of its production in Australia to the resource sector which experienced a significant downturn in 2016. Low commodity prices have negatively impacted the mining sector’s investment activity, prompting mining companies to cut costs and close some mines. These factors have also affected the maintenance and service side of mining companies. Bisalloy Steels’ objective is to increase its market share in the environment of a declining resource sector and simultaneously start widening its market penetration beyond the resource sector, and introduce products iv Chairman and Managing Director’s Review continued to allow it to compete more widely. We currently have a portfolio of products and knowledge that will allow us to enter markets we have serviced previously. These products are already being produced in our Unanderra plant. High strength steel is a material of the future offering a number of advantages which can be exploited in developing solutions to both every day and difficult or unusual engineering problems. High strength steel can offer environmentally positive benefits such as weight savings, reduced production costs, the possibility of high loads or high fatigue operations, and greater load carrying capacities. To date, Australian engineers have not fully exploited higher strength materials in all its capacities, and there remains considerable scope for innovative design. Following several years of strong activity in the broader mining markets in Australia and Asia, Bisalloy Steels is looking to the future where applications require high strength materials. These applications include specialised renewable energy applications, complex building structures, offshore applications and transportation. High strength steel is the ideal material of choice, not only offering cost saving, but able to extend operation life even in the most demanding conditions. During the first half of 2016 a three year strategic plan was activated targeting higher profitability and growth. We continually strive for higher profitability and growth in our core business, and ensure value creation for our customers and shareholders. Bisalloy Steels will move to compete in a broader market base by developing partnerships that can fill product gaps, transfer knowledge and open new markets for the Group’s high strength products in three main areas, being, wear, structural and armour grade performance steels, in Australia and internationally. Our market positioning, our experience and well recognised brand in all our targeted industries provides attractive opportunities for us all. In addition the increasing focus on sustainability generates new types of demands from our customers requesting lighter, stronger and more sustainable steel solutions. Our market positioning, our experience and well recognised brand in all our targeted industries provides attractive opportunities for us all. In closing, we wish to thank all Bisalloy Steels employees for their commendable dedication and commitment during this tough time in the resource sector and the move towards a new way of working. We would like to thank our customers and shareholders for their trust in Bisalloy Steels, and we hope that we continue to be worthy of your trust for this coming year. Bisalloy Steel Group Limited will hold its 2016 Annual General Meeting in the Press Room at the Radisson Blu Plaza Hotel located at 27 O’Connell Street, Sydney, NSW at 11:00am on Monday, 21st November 2016. We look forward to welcoming you to that meeting. Mr Phillip Cave, AM Chairman Mr Greg Albert Managing Director and CEO Bisalloy Steel Group Limited2016 Annual Reportv Review of Operations Bisalloy Steel Group comprises Bisalloy Steels Pty Ltd in Australia, the majority owned distribution businesses in Indonesia (PT Bima Bisalloy) and Thailand (Bisalloy Thailand) and the investment in the Chinese CJV – Bisalloy Jigang (Shandong) Steel Plate Co, Ltd. The Group is focused on leveraging off its significant intellectual property associated with the formulation of the raw material input (“greenfeed”) and the quench & tempered (Q&T) steel plate production processes. While the primary value of this intellectual property has been delivered through the production of Bisplate® quench & tempered steel plate from our Unanderra production facility, the ability to replicate and therefore build upon this intellectual property, is now proven through the Joint Venture in China. The Group will continue to manufacture quench & tempered steel plate at its plant in Unanderra, with a maximum production capacity of around 65,000 tonnes per annum. Maximising the tonnes per day through our highly efficient continuous flow production process at Unanderra is fundamental to increasing Group profitability. Maintaining its position as the only Australian manufacturer of quench & tempered steel plate will continue to be an important element of our marketing strategy going forward. The process used to consistently manufacture high quality quench & tempered steel plate is not easily replicated. Product quality and cost competitive output is highly dependent on the intellectual property associated with: vi Review of Operations continued • Greenfeed formulations; • Processes and timings required to achieve the metallurgical changes desired; • Reliability and suitability of the continuous flow processing equipment; and • Quality and experience of the management and workforce. The greenfeed is heated and rapidly cooled to a carefully managed ‘recipe’ so as to alter the grain structure of the steel plate to achieve a homogenous grain profile and the associated physical properties. Greenfeed is sourced from several steel mills located predominantly in Australia and North Asia, with greenfeed supply based on quality, reliability, technical competency and value proposition. In addition to maximising opportunities from movements in global steel pricing, this strategy has reduced the risks associated with a single dominant supply association. Bisalloy Steels Australia Bisalloy Steels is Australia’s only manufacturer of high tensile, abrasion resistant and armour grade quench and tempered steel plates. Located on a 23,600 m² site in Unanderra, south of Sydney, Bisalloy Steels manufactures these products through a highly efficient, continuous flow process. Distribution is through a network of distributors across Australia, directly to end users, through its businesses in Indonesia, Thailand, the People’s Republic of China and through agents in at least a dozen countries worldwide. The Australian business has the ability to rapidly ramp up production to 24hr production over a maximum 300+ days per calendar year without any significant additional capital expenditure, which provides a base for future growth and increased profitability. The Joint Venture in the PRC provides an additional quench & temper heat treatment capacity of around 150,000 tonnes per annum. The facility in Unanderra maintains a stock of finished goods to reduce lead times to customers which is supported by smaller stock holdings in Queensland and West Australia. Sales offices operate in Queensland, New South Wales, Victoria, South Australia and West Australia to provide support to the local markets. Bisalloy Steels is Australia’s only manufacturer of high tensile, abrasion resistant and armour grade quench and tempered steel plates. Products Bisalloy Steels’ high tensile and abrasion resistant quench and tempered steel plates are categorised across structural, wear and armour grades. The Bisplate grades produced are of a world competitive standard, successfully challenging the performance of imported products from the largest Q&T manufacturers in the world. The increased strength of structural grades allow for advantages in building construction and in the manufacture of equipment including dump truck bodies, storage bins, hoppers and chutes where the strength to weight ratio is critical. Bisalloy Steel Group Limited2016 Annual Reportvii Wear grade Q&T plate is utilised in applications generating severe impacts and high rates of abrasion. The applications are varied but include the lining of dump trucks, the teeth of crushers, the mixer blade of a cement mixer and the compactor of a garbage truck. Armour and Defence grades of Q&T provide personal protection from both blast and projectile threats. Bisalloy has an on-going commitment to developing and enhancing its product line to meet the changing requirements of our customers. Toward this objective, an association with the Australian Government sponsored ‘Steel Research Hub’ is currently researching new technologies that can be applied in the Group’s product development program. Armour and Defence grades of Q&T provide personal protection from both blast and projectile threats. Marketing Mix Bisalloy Steels’ Q&T steel plates are in demand across the different phases of the mining equipment life cycle. When new capital equipment is not in high demand, the need to refurbish and repair existing mining equipment provides a strong base for the consumption of abrasion resistant Q&T plate. As new mining equipment increases in volume some reduction in abrasion resistant Q&T plate is taken up by an increase in high tensile Q&T plate which gives the mining vehicles high strength at lower on-road weights. Q&T plate is used throughout the resource extraction process from ‘pit to port’. An increased exposure to structural applications has been established for Bisplate structural grades through the inclusion of quench & tempered steel in the Australian Steel Structures Standard AS4100-1998. Armour plate sales are a niche market with demand for vehicle protection in both military and civilian applications. Bisalloy Steels has developed a suite of products that attract attention from customers all over the world. The inclusion of Bisalloy Steels personnel on international committees which develop the criteria for future product specifications continue to ensure that Bisalloy Steels remains competitive in this specialised application. Bisalloy Asia Bisalloy Steel Group owns 60% of PT Bima Bisalloy which commenced trading in 1995 and 85% of Bisalloy Thailand which commenced trading in 2002. The businesses in Indonesia and Thailand both maintain niche market positions in their respective countries, distributing both Bisplate and associated wear related products. PT Bima Bisalloy services the Indonesian archipelago and operates across the resources, agriculture, cement and power industries with its business leveraged towards the ongoing development of the local viii Review of Operations continued resources industry and infrastructure expansion. Bisalloy Thailand has a greater dependence on original equipment manufacturers involved in the export trade to Europe and the US. Both operations have low fixed cost bases, which combined with development work undertaken to broaden product and customer base, have proved effective in maintaining solid and reliable profitability. Bisalloy’s 50:50 Cooperative Joint Venture (CJV) with Shandong Iron & Steel Group Co., Limited involves the production and sale of quench & tempered steel plate in the substantial China market and other regional markets. The CJV provides Bisalloy access to at least 150,000 tonnes per annum of quench & tempered steel processing capacity, which is more than double Bisalloy Australia’s current capacity. This is possible by utilising Jigang’s state of the art, German designed quench & temper mill. The quench & tempered plate is produced to Bisalloy’s exacting specifications and marketed under the respected Bisplate brand. Safety Safety is a key focus for the Group with an aim of zero harm to all employees, contractors and visitors through safety systems that involve and challenge all stakeholders. Every person at any Group operation is empowered to Stop and Think about what their role involves, Assess any risks that may emerge and then pro-actively Respond to those risks with appropriate actions. The STAR program continues to deliver outstanding Work Health and Safety, quality and environmental outcomes. Since the introduction of the STAR program into the Indonesian and Thailand businesses some eleven years ago, neither business has recorded an LTI. Similarly, the Chinese Joint Venture has now passed five years lost time injury free. Regular auditing of the Asian businesses ensures all processes and systems are uniform across the Group and that Group standards must be applied to the business where local standards are either lower or not specified. Charge end Hard stamp Shot blasting Laser Guided Vehicle Transfer Austenitising furnace Roller quench Tempering furnace Shot blasting Thickness check Auto grinding Hardness test Hardness reading Leveller Test cut Bar coding Stencil Packing Finishing end Bisalloy Steel Group Limited2016 Annual Report1 Bisalloy Steel Group Limited 2016 Financial Report Charge end Hard stamp Shot blasting Laser Guided Vehicle Transfer Austenitising furnace Roller quench Tempering furnace Shot blasting Thickness check Auto grinding Hardness test Hardness reading Leveller Test cut Bar coding Stencil Packing Finishing end 2 2 Directors’ Report Your directors submit their report for the year ended 30 June 2016. Directors The names and details of the Company’s directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Mr Phillip Cave, AM B.Bus, FCPA Chairman Skills & Experience: Mr Cave is an experienced director, Chairman and Chief Executive Officer with a career in major corporate turnaround projects, structured finance and corporate advisory service. Over a 35 year career, Mr Cave’s experience has combined a mixture of operational management expertise across a wide variety of industries with an in depth knowledge of finance and banking. Term of office: A founding director of the Company and Chairman since appointed in November 2001 and is retiring by rotation pursuant to the requirements of the Company’s constitution in order to seek re-election at the 2016 AGM. Board Committees: • Chairman of the Nominations & Remuneration Committee • Audit & Risk Committee Public company directorships during past three years: • Chairman Dick Smith Holdings Ltd from December 2013 to February 2015. Other directorships: • Chairman Anchorage Capital Partners • Chairman Excelsia College • Chairman Ability First Australia • Acrow Formwork & Scaffolding Pty Ltd • First Engineering Ltd Mr Greg Albert Managing Director and CEO Skills & Experience: Mr Albert was appointed Managing Director / CEO on 4th January 2016. Mr Albert has professional qualifications in Mechanical Engineering, Marketing and has an MBA. Mr Albert brings a wealth of experience in the steel, mining and construction industries, as well as solid knowledge of international markets, having held postings in Asia and Europe. Mr Albert is a Director of Bisalloy Steel Group’s joint venture businesses – PT Bima Bisalloy and Bisalloy Thailand. Mr Albert is also Chairman of the Group’s Co- operative Joint Venture, Bisalloy Jigang (Shandong) Steel Plate Co., Limited. Term of office: Appointed in January 2016. As the managing director he is not subject to re-election by rotation. Board Committees: Nil Other directorships: Nil Bisalloy Steel Group Limited2016 Annual Report3 3 Mr Robert Terpening Former Managing Director and CEO Skills & Experience: Mr Terpening was appointed Managing Director / CEO on 6th November 2008 and retired on 4th January 2016. Mr Terpening is an experienced manager of industrial businesses having had 18 years in Sales & Marketing and Operations roles followed by 20 years in General Management of manufacturing businesses. Mr Terpening’s management experience has included operations across Australia, Indonesia, Thailand, New Zealand and the PRC. Mr Terpening was a Director of Bisalloy Steel Group’s joint venture businesses – PT Bima Bisalloy and Bisalloy Thailand. Mr Terpening was also the Vice Chairman of the Group’s Co-operative Joint Venture, Bisalloy Jigang (Shandong) Steel Plate Co., Limited. Term of office: Appointed in November 2008. Retired on 4th January 2016. Board Committees: Nil Other directorships: Nil Mr Kym Godson, Dip Tech (Bus Admin), FAICD, FAIM Non-executive Director Skills & Experience: Mr Godson is an experienced public company director and has extensive experience in the management of industrial businesses, particularly within the steel industry. He is a former Managing Director and CEO of the Company having retired from the position in November 2008. Term of office: A founding director of the Company appointed in November 2001 and is retiring by rotation pursuant to the requirements of the Company’s constitution in order to seek re-election at the 2016 AGM. Board Committees: • Audit & Risk Committee • Nominations & Remuneration Committee Other directorships: • The House of M&K Pty. Ltd 4 Mr Richard Grellman, AM FCA Non-executive Director Skills & Experience: Mr Grellman brings significant accounting and finance skills to the Company, having had over 32 years experience in the accounting profession. He was a partner at KPMG from 1982 to 2000 and a member of KPMG’s National Board from 1995 to 1997 and National Executive from 1997 to 2000. Term of office: • Appointed in February 2003. Last re-elected in November 2015. Board Committees: • Chairman of the Audit & Risk Committee • Nominations & Remuneration Committee Public company directorships during past three years: • Chairman, Crowe Horwath Australasia Ltd. • Chairman, Genworth Mortgage Insurance Ltd • Chairman, IPH Ltd Other directorships: • Chairman, Bible Society Australia • Chairman, AMP Foundation Mr Dario Pong, AB in Economics Non-executive Director Skills & Experience: Mr Pong is currently based in Hong Kong and has lived for extended periods in Shanghai and Beijing, with wide ranging experience in the steel industry in the People’s Republic of China. Mr Pong provides valuable experience and insight as Bisalloy develops its Asian growth strategy, including its Chinese Joint Venture. Term of office: Appointed in September 2013. Last re-elected in November 2015. Board Committees: • Audit & Risk Committee • Nominations & Remuneration Committee Other directorships: • Ferro Resources Ltd • Shiu Wing Steel Ltd Company Secretary Mr Darren Collins B Comm ACA Skills & Experience Mr Collins is a Chartered Accountant with 30 years professional experience working in senior financial positions with both listed and private companies. Interests in shares of the company and related bodies corporate As at the date of this report, the interests of the directors in the shares of Bisalloy Steel Group Limited were: P J Cave G Albert K Godson R Grellman D Pong Number of Ordinary Shares 7,573,562 0 1,344,766 41,693 115,883 Bisalloy Steel Group Limited2016 Annual ReportDirectors’ Report continued5 DI V IDE NDS FIN A NCI A L RE V IE W Cents $’000 O P E R AT I N G R E S U LT S Final dividend recommended on ordinary shares (fully franked) Dividends paid in the year 2.50 1,102 4.00 1,759 PRINCIPA L AC TI V ITIE S The principal activity of the Group during the financial year was the processing and sale of quenched and tempered, high-tensile, and abrasion resistant steel plates (“Q&T plate”). OPE R ATING A ND FIN A NCI A L RE V IE W OPE R ATION S G R O U P Bisalloy Steel Group comprises Bisalloy Steels Pty Ltd in Australia, the majority owned distribution businesses in Indonesia (PT Bima Bisalloy) and Thailand (Bisalloy Thailand) and the investment in the Chinese CJV – Bisalloy Jigang (Shandong) Steel Plate Co, Ltd. Safety is a key commitment of the Group with a continued focus on zero harm to all employees, contractors and visitors. All employees across the Group’s operations are empowered under the STAR program to Stop, Think, Act and Respond to any issue in regard to ensuring safe working conditions. For the second consecutive year, the Group recorded no Lost Time Injuries across its operations and as at 30 June 2016 had achieved 1,134 days Lost Time Injury free. Bisalloy Steels is Australia’s only processor of quenched and tempered high strength, abrasion resistant and armour grade alloyed steel plates. Bisalloy distributes wear and structural grade plates through both distributors and directly to select manufacturers and end users in Australia and internationally. For defence grade steels Bisalloy exclusively deals directly to select companies. Bisalloy’ s unique stand-alone heat treatment facility at Unanderra near Wollongong, is a highly automated and efficient operation providing a relatively low cost base, allowing it to compete with a variety of imported products. During the year Bisalloy utilised greenfeed steel supply mainly from neighbouring BlueScope Steel in Wollongong, complimented with selected supply from our partner in China. The Group’s net profit for the year after income tax was $1,741,000 (2015: $2,819,000). Earnings for the year have been adversely impacted following the appointment of Voluntary Administrators to oversee the affairs of One Steel Metal Centre (a subsidiary of Arrium), one of Bisalloy’s largest distributors in Australia. The Group had an outstanding debt from this distributor at the time it entered voluntary administration and whilst the company has settled its claims this has resulted in unusually higher levels of stock and debt levels, as at 30th June 2016. The Directors see this as a once off and the market should normalise over the next six months. Operating results are summarised as follows: Operating Segments Australia Overseas 2016 Revenue $000s Profit after tax $000s 47,025 1,118 14,153 715 61,178 1,833 Consolidated entity adjustments (6,148) (92) Consolidated entity revenue and profit after tax for the year 55,030 1,741 S H A R E H O L D E R R E T U R N S The return to shareholders reflect the difficult market conditions experienced in the second half of FY16, although the overall returns remained positive and have allowed the Board to maintain the payment of a dividend for the year ended 30 June 2016. Basic earnings / (loss) per share (cents) Net profit / (loss) attributable to members ($’000) Return on equity (reported PAT/equity) (%) Gearing (net debt / net debt + equity) (%) 2016 2015 2014 2013 3.5c 5.7c (3.8c) 8.0c 1,541 2,490 (1,650) 3,483 6.8% 11.9% (5.9%) 16.0% 23% 12% 32% 29% Dividends paid (cents) 4.0c 0.0c 0.0c 4.0c Dividend franking 100% – – 100% 6 L I Q U I D I T Y A N D C A P I TA L R E S O U R C E S The consolidated statement of cash flows details a decrease in cash and cash equivalents before exchange rate differences for the year ended 30 June 2016 of $3,557,000 (2015: increase of $3,513,000). Operating activities resulted in a net cash outflow of $1,273,000 (2015: inflow of $6,208,000), adversely impacted by both the short-term reduction in demand following the appointment of a Voluntary Administrator to one of the one of the Group’s three main distributors in Australia, and the outstanding receivable due from that distributor. Investing activities required $958,000 (2015: $815,000) of net cash outflows for investment in operating plant and equipment. In addition a dividend of $346,000 (2016: $316,000) was received from the Bisalloy Jigang joint venture. Net cash outflows from financing activities were $1,681,000 (2015: outflow of $2,196,000), including the dividend paid to shareholders in November 2015 totalling $1,706,000 (2015: $Nil). F U N D I N G The Group’s net debt increased to $7.7m at 30 June 2016, up from $3.6m at 30 June 2015, adversely impacted by the outstanding receivable due from One Steel Metal Centre who appointed a Voluntary Administrator. The debt was settled in August 2016. The Group maintains its objective of reducing debt to the most appropriate level with both capital expenditure and working capital continuing to be closely managed. Bisalloy Steel Group Limited and Bisalloy Steels Pty Limited entered into a renewed facility agreement with GE Commercial Australasia Pty Limited on 30 June 2015. The facility provides Bisalloy Steel Group Limited with a: • $12m revolving loan facility; and • $7.17m term loan facility. The facility has a maturity date of 30 June 2018. BU SINE S S S T R AT EGY A ND O U T LOOK O U T L O O K Further market share gains are being targeted during 2017 through a restructured sales organisation, a focus on new markets away from the resource sector, a refresh of the branding including a targeted marketing campaign, and a revitalisation of existing and past key partners in Australian industries. An initiative to significantly penetrate several new markets is already underway. Bisalloy, through close partnerships and technology sharing with major defence contractors, are researching innovative defence offerings. Through Bisalloy’s Technical and R&D centre these can be utilised in to new, non- defence related applications requiring the highest level of strength and toughness. The SEA1000 Future Submarine Program will be the largest defence program ever undertaken by Australia, and while submarines are the most complex, sensitive and expensive Defence capability acquisition Government can make, Bisalloy are well positioned to provide the grades of steel required for longer range, higher endurance and a greater breadth of capabilities than the existing Collins Class fleet, which used Bisalloy Steels products.. Time for this programme is expected in the next 24 to 36 months. On the back of a strong and collaborative working relationship with the key primes to deliver the Bushmaster IMV, Bisalloy are continuing engagement with key stakeholders in the Bushmaster replacement project, Land 400 Phase 2 and Phase 3 military vehicles. The Group’s distribution subsidiaries in Indonesia and Thailand should continue to operate profitably despite difficult business conditions in both markets, with improvement plans in line with the Australian growth priorities to be delivered through FY2017, to increase profits from these businesses. The Group’s Cooperative Joint Venture (CJV) for the production and sale of quench & tempered steel plate into China and other North Asian markets continues to operate profitably, albeit at relatively low tonnages for the domestic market. Profit is up 10% for the year. A strengthening of the sales resources was undertaken, which included the appointment of a Vice General Manager of Sales to drive the strategic growth plan. A major upgrade is under way to improve the quality of the products, supply and improve stock levels to better serve the needs of the market. Although the overall market environment in China has declined, there are still significant growth opportunities and Bisalloy’ s Cooperative Joint Venture in the People’s Republic of China remains attractive with significant upside, in both the domestic China market and selected international markets. The CJV is forecasting a steady increase in its financial contributions to Group results through FY2017 with new resources in place to drive the business growth and improve operational efficiency and quality of products and supply. Commenting on the result Managing Director, Greg Albert said “The challenges facing the mining services sector are well documented. Bisalloy currently supplies a high proportion of its production in Australia to the resource sector which experienced a significant downturn in 2016. Along with the resulting reduction in capital investment by the Australian mining companies, the market for repairs and maintenance spending was flat”. Bisalloy Steel Group Limited2016 Annual ReportDirectors’ Report continued7 N E W M A R K E T S Bisalloy’s objective is to maintain its market share in the environment of a declining resource sector market and to start the process of widening its market penetration beyond the resource sector, and introduce products to allow it to compete more widely. High strength steel is a material of the future offering a number of advantages which can be exploited in developing solutions to both every day and difficult or unusual engineering problems. High strength steel can offer environmentally positive benefits such as weight savings, reduced production costs, the possibility of high load or high fatigue operations, and greater load carrying capacities. To date, Australian engineers have not fully exploited higher strength materials in all its capacities, and there remains considerable scope for innovative design. Following several years of strong activity in the broader mining markets in Australia and Asia, Bisalloy is looking to the future where applications require high strength materials. These applications include specialised renewable energy applications, offshore applications and transportation. High strength steel is the ideal material of choice, not only offering cost saving, but able to extend operation life even in the most demanding conditions. To provide the solutions for these advanced applications, Bisalloy are continuing with ongoing production and operational efficiency increases and improvements and have activated a three year strategic plan. This has already created opportunities to develop partnerships that can fill product gaps and provide the transfer of technical know-how, and with partners who can relatively easily open new markets for the Group’s high strength products both in Australia and internationally. BU SINE S S RISK M A N AGEME N T The Group takes a proactive approach to risk management. The board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Group’s objectives and activities are aligned with the risks and opportunities identified by the board. The board has established an Audit and Risk Committee comprising non-executive directors, whose meetings are also attended by the executive directors. In addition sub-committees are convened as appropriate in response to issues and risks identified by the board, and the sub-committee further examines the issue and reports back to the board. The board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified by the board. These include the following: • Board approval of a strategic plan, which encompasses the Group’s vision, mission and strategy statements, designed to meet stakeholders’ needs and manage business risk. • Implementation of board approved operating plans and budgets and board monitoring of progress against these budgets, including the establishment and monitoring of KPIs of both a financial and non-financial nature. • Establishment of committees to report on specific business risks, including for example, such matters as environmental issues and concerns and occupational health and safety. • Board review of financial risks such as the Group’s liquidity, currency, interest rate and credit policies and exposures and monitors management’s actions to ensure they are in line with Group policy. The major high level business risk with the greatest potential to materially impact on the financial outlook for the Group is the prolonged deferral by the resource companies in undertaking the level of repairs and maintenance reflective of the reported levels of output. The Board is confident that Bisalloy has the products, strategies and management team to meet the challenges presented by any continued downturn in demand and is well positioned to take advantage of the eventual market recovery. SIGNIFICA N T CH A NGE S IN T HE S TAT E OF A F FA IRS Total equity decreased from $25,754,000 to $25,613,000, a decrease of $141,000 driven by the net profit for the year and by foreign currency translation gains of $154,000 relating to the overseas subsidiaries as a result of the revaluation of the Australian dollar at the end of the year. In addition a final dividend totalling $1,759,000 in respect of the year ended 30 June 2015 was paid to shareholders in November 2015. SIGNIFICA N T E V E N T S A F T E R T HE BA L A NCE DAT E There have been no significant events after the balance date. INDEMNIFICATION A ND IN S U R A NCE OF DIREC TORS A ND OF FICE RS The Group must, subject to certain exceptions set out in the constitution, indemnify each of its officers on a full indemnity basis and to the full extent permitted by law against all losses, liabilities, costs, charges and expenses incurred by the officer, as an officer of the Group (including all liabilities incurred where the officer acts as an officer of any other body corporate at the request of the Group) including any liability for negligence and for reasonable legal costs. 8 During the year or since the end of the year, the Group has paid premiums in respect of a directors and officers liability insurance policy. Details of the nature of the liabilities covered or the amount of the premium paid in respect of the policy have not been disclosed, as such disclosure is prohibited under the terms of the contract. E N V IRONME N TA L REG U L ATION The Group’s activities are governed by a range of environmental legislation and regulations. The Group utilises both internal and external environmental assessments to verify its compliance with applicable environmental legislation and regulations. The Group is registered under National Greenhouse and Energy Reporting Act 2007 under which it is required to report energy consumption and greenhouse gas emissions for its Australian facilities. The Group has implemented systems and processes for the collection and calculation of the data to meet its reporting requirements. The Board believes that the consolidated entity has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the consolidated entity. RO U NDING The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the company under ASIC Class Order 98/0100. The company is an entity to which the Class Order applies. AUDITOR INDE PE NDE NCE The directors received the declaration on page 21 from the auditor of Bisalloy Steel Group Limited which forms part of this report. INDEMNIFICAT ION OF AUDITORS To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. NON -AUDIT SE RV ICE S No non audit services were provided by the Company’s auditor, Ernst & Young in relation to the year ended 30 June 2016. DIREC TORS’ ME E T ING S The number of directors meetings and number of meetings attended by each of the directors of the Company during the financial year are: Committee Meetings Directors’ Meetings Audit & Risk Nominations & Remuneration Number of Meetings Held Number of Meetings Attended P J Cave R Terpening (retired 4th January 2016) G Albert (appointed 4th January 2016) K Godson R Grellman D Pong 8 8 5 3 7 8 8 4 4 – – 4 4 4 2 2 – – 2 2 2 REM U NE R ATION RE P OR T (AUDIT ED) This remuneration report for the year ended 30 June 2016 outlines the remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations. This information has been audited as required by section 308(3C) of the Act The remuneration report details the remuneration arrangements for key management personnel (KMP) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company, and includes the five executives in the Group receiving the highest remuneration. R E M U N E R AT I O N P O L I C Y The remuneration policy is set in recognition that the performance of the Group depends upon the quality of its directors and executives. In order to perform, the Group must be successful in attracting, motivating and retaining directors and executives of the highest quality. To assist in achieving this objective, the remuneration policy embodies the following principles: 1. Provide competitive remuneration to attract high calibre directors and executives. 2. Align executive rewards with creation of shareholder value. 3. Ensure a significant component of executive remuneration is ‘at risk’ dependant upon meeting pre-determined performance hurdles. 4. Establish appropriately demanding performance hurdles in relation to variable executive remuneration. Bisalloy Steel Group Limited2016 Annual ReportDirectors’ Report continued9 5. Provide the opportunity for non-executive directors to sacrifice a portion of their fees to acquire shares in the Company at market price. E X E C U T I V E D I R E C T O R A N D E X E C U T I V E M A N A G E R R E M U N E R AT I O N N O M I N AT I O N S A N D R E M U N E R AT I O N C O M M I T T E E The Nominations and Remuneration Committee is responsible for determining and reviewing compensation arrangements for the directors, the Managing Director and other senior executives, and the review and recommendation of general remuneration principles. R E M U N E R AT I O N S T R U C T U R E The structure of non-executive director and executive remuneration is separate and distinct, in accordance with good corporate governance principles. N O N - E X E C U T I V E D I R E C T O R R E M U N E R AT I O N Objective The Board sets aggregate remuneration at a level which is intended to provide the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. Structure The Company’s constitution and the ASX listing rules specify that the non-executive director fee pool shall be determined from time to time by a general meeting. The non-executive director fee pool is currently set at $500,000. The board will not seek any increase for the fee pool at the 2016 AGM. The remuneration of non-executive directors must not include a commission on, or a percentage of, profits or operating revenue but directors are entitled to be reimbursed for travelling and other expenses incurred in attending to the Company’s affairs. Each director receives a fee for being a director of the Company and an additional fee for each Board Committee on which a director sits. The payment of additional fees for serving on a committee recognises the additional time commitment required by directors who serve on one or more sub committees. Non-executive directors are encouraged by the Board to hold shares in the Company and are able to participate in the Non-executive Director (“NED”) Share Plan. Under the NED Share Plan a non-executive director can choose to sacrifice up to 100% of their annual director’s fee and instead be allocated shares up to the equivalent value. The value of the allocated shares is determined by reference to the market value on the day they are acquired on market. The remuneration of non-executive directors for the period ended 30 June 2016 is detailed in the table on page 12 of this report. Objective The Group aims to reward executives with a level and mix of remuneration commensurate with their duties and responsibilities within the Group and to: • • reward executives for Group, business unit and individual performance measured against targets set by reference to appropriate benchmarks; link reward with the achievement of the Group’s strategic goals; • align the interests of executives with those of shareholders; and • ensure total remuneration is competitive. Structure Executive director and executive manager remuneration consists of the following key components: 1. Fixed Remuneration 2. Variable Remuneration made up of: – Short Term Incentive (STI); and – Long Term Incentive (LTI) The proportion of total remuneration that is fixed or variable (either short term or long term incentives) is determined for each individual executive by the Nominations & Remuneration Committee. The remuneration of members of management who have the authority and responsibility for planning, directing and controlling the activities of the Group for the year ended 30 June 2016 is detailed in the table on page 12 of this report. F I X E D R E M U N E R AT I O N Objective The level of fixed remuneration is set so as to provide a base level of remuneration which is both commensurate with the individual’s duties and responsibilities within the Group and competitive in the market. Fixed remuneration is reviewed annually by the Nominations and Remuneration Committee utilising a process of reviewing group-wide, business unit and individual performance, relevant comparative remuneration in the market and internal and external advice on policies and practice. Structure Executive directors and senior managers are provided with the opportunity to receive their fixed remuneration in a variety of forms, including cash, additional superannuation contributions and fringe benefits such as motor vehicles. 10 The aim is to provide payments in a form that is both optimal for the recipient and cost efficient for the Group. The fixed remuneration component of executive directors and members of management who have the authority and responsibility for planning, directing and controlling the activities of the Group for the year ended 30 June 2016 is detailed in the table on page 12 of this report. VA R I A B L E R E M U N E R AT I O N – S H O R T T E R M I N C E N T I V E S ( S T I ) Objective The STI program has been designed to align the remuneration received by executives and senior managers with the achievement of the Group’s operational and financial targets. The total potential STI available for payment is determined so as to provide sufficient incentive to executives and senior managers to achieve the targets and so that the cost to the Group is reasonable in the circumstances. Structure The actual STI payments granted to each executive and senior manager depends upon the extent to which specific operational and financial targets set at the beginning of the financial year are met. The targets consist of a number of both financial and non-financial Key Performance Indicators (KPIs). After the end of each financial year, consideration is given to performance against each of these KPIs to determine the extent of any payment to an individual executive and senior manager. The aggregate of STI payments and STI payments to individuals is subject to the approval of the Nominations & Remuneration Committee. Payments made are normally paid as cash but the recipient is also able to elect to receive payment in alternative forms. VA R I A B L E R E M U N E R AT I O N – L O N G T E R M I N C E N T I V E S ( LT I ) Objective The LTI program has been designed to align the remuneration received by executive directors and senior managers with the creation of shareholder wealth. Consequently LTI grants are only made to executives who are in a position to influence shareholder wealth and thus have the opportunity to influence the company’s performance against the relevant long term performance hurdles. Structure At the 2015 Annual General Meeting, a LTI plan was renewed for LTI grants to executives in the form of share rights. These rights are granted in two equal parts. The first part is based on retention and requires the holder remain an employee for three years from grant date. The second part is based on delivering superior long-term performance as measured by Return on Equity (“ROE”), with each grant of rights divided into three equal tranches. For each tranche, actual ROE is measured against a budget ROE and a stretch ROE as determined annually by the board in respect of the forthcoming year. The proportion of the rights which vest depend on where within this range the Group performs, with 100% vesting on achieving the stretch ROE and no rights vesting if actual ROE is less than 90% of the budgeted ROE. For the 2016 year, the stretch ROE was set at 115% of the budget ROE. Any rights to which the employee may become entitled on achieving the performance criteria, are still subject to the three year retention criteria before they can vest. Any share rights which do not vest, as a result of the relevant performance condition not being satisfied, lapse. If the holder leaves the business, the unvested rights lapse on the leaving date unless the board determines otherwise. In the event of a change in control of the Group, the vesting date will generally be brought forward to the date of change of control and share rights will vest subject to performance over this shortened period, subject to ultimate board discretion. Once vested a holder may exercise his share rights and be allocated a fully paid ordinary share of Bisalloy Steel Group Ltd at no cost to the employee. No share rights were granted under this scheme during the year. G R O U P P E R F O R M A N C E The board have determined that the Group did not meet its budgeted ROE for the year and so the performance components of the 2016 share rights have not vested. For further detail of historical performance, refer to the shareholder returns section earlier in this Directors’ report. Details of key management personnel of the Company and Group (i) Directors P J Cave Non-executive Chairman R Grellman Non-executive Director K Godson Non- executive Director D Pong Non-executive Director G Albert Managing Director (appointed 4th January 2016) R Terpening Managing Director (retired 4th January 2016) Bisalloy Steel Group Limited2016 Annual ReportDirectors’ Report continued11 (ii) Executives D Collins T Matinca Chief Financial Officer and Company Secretary Business Development & Strategy Manager (ceased employment 1 July 2016) M Bradmore Operations Manager (ceased employment 1 July 2016) M Sampson Sales and Marketing Manager E X E C U T I V E C O N T R A C T S T Matinca – Business Development & Strategy Manager • Regular employment contract without fixed term • Participation in STI and LTI schemes • 3 months notice required for termination of employment M Bradmore – Operations manager • Regular employment contract without fixed term • Participation in STI and LTI schemes Remuneration arrangements for the key management personnel are formalised in employment contracts. • 3 months notice required for termination of employment Details of these contracts are provided below. M Sampson – Sales & Marketing manager G Albert – Managing Director • Regular employment contract without fixed term • Regular employment contract without fixed term • Participation in STI and LTI schemes • Participation in STI and LTI schemes • 1 month notice required for termination of employment • 6 months notice required for termination of employment by employee • 12 months notice required for termination by company D Collins – Chief Financial Officer & Company Secretary • Regular employment contract without fixed term • Participation in STI and LTI schemes • 3 months notice required for termination of employment by employee • 6 months notice required for termination by company 12 R E M U N E R AT I O N O F K E Y M A N A G E M E N T P E R S O N N E L O F T H E C O M PA N Y A N D G R O U P Year ended 30 June 2016 Non-Executive Directors P Cave R Grellman K Godson D Pong Sub-total Non-Executive Directors Executive Directors Sub-total Executive Directors Other key management personnel D Collins T Matinca3 Short-term Long-term Post employment Salary and fees $ Cash bonus $ Long service leave $ Super- annuation $ Retirement benefits $ Termination benefits Share-based payments Share Rights $ Total $ Performance Related % 120,000 80,000 80,000 100,000 – – – – – – – – – 7,600 7,600 – 380,000 – – 15,200 $ – – – – – – – – 120,000 87,600 87,600 100,000 – – 395,200 – – – – – G Albert1 280,404 – 7,306 11,263 R Terpening2 264,647 131,250 31,344 35,000 274,857 – – 23,973 322,945 11,031 748,130 7% 19% 545,051 131,250 38,650 46,263 274,857 – 35,004 1,071,075 16% 277,890 – 5,545 18,997 250,771 34,392 6,042 35,170 M Bradmore3 193,385 25,145 4,426 17,070 M Sampson 161,564 23,444 5,688 35,000 Sub-total executive KMP 883,609 82,981 21,701 106,238 – Totals 1,808,660 214,231 60,351 167,701 274,857 1. Mr Albert commenced 1 December 2015. 2. Mr Terpening retired on 4 January 2016. 3. Mr Matinca and Mr Bradmore ceased employment on 1 July 2016. – – – – – – 5,973 4,479 2,986 1,493 308,404 330,855 243,012 227,189 14,931 1,109,460 49,935 2,575,735 2% 12% 12% 11% 9% 11% – – – – – – – – – – Bisalloy Steel Group Limited2016 Annual ReportDirectors’ Report continued13 Total $ Performance Related % Short-term Long-term Post employment Salary and fees $ Cash bonus $ Long service leave $ Super- annuation $ Retirement benefits $ Termination benefits Share-based payments Share Rights $ Year ended 30 June 2015 Non-Executive Directors R Grellman K Godson D Pong Sub-total Non-Executive Directors Executive Directors 80,000 80,000 100,000 – – – – – – 7,600 7,600 – 260,000 – – 15,200 R Terpening 490,000 – 8,456 35,000 Other key management personnel D MacLaughlin1 A Elliott2 D Collins3 T Matinca M Bradmore M Sampson 65,717 145,954 40,320 240,092 185,577 136,742 Sub-total executive KMP Totals 1,304,401 1,564,401 – – – – – – – – – – – 3,744 16,097 – 9,554 34,401 4,017 15,583 4,282 34,996 26,309 139,821 26,309 155,021 $ – – – – – – – – – – – – – – – – – – – 87,600 87,600 100,000 – – 275,200 – – – – – 33,025 566,481 6% – (41,096) 28,365 55,000 – – – – – – – – – 217,051 40,320 284,047 205,177 176,020 55,000 (8,071) 1,517,460 55,000 (8,071) 1,792,660 – – – – – – – _ 1. Mr MacLaughlin resigned effective 22 August 2014. 2. Mr Elliott was appointed 22 August 2014 and resigned 8 May 2015. 3. Mr Collins was appointed 11 May 2015 and was contracted from Talent2 Pty Limited. Remuneration disclosed reflects payments to Talent2 Pty Limited. S H A R E R I G H T S Share rights holders do not have any entitlement, by virtue of the rights, to participate in any share issue of the Company or any related body corporate or in the interest issue of any other registered scheme. P E R F O R M A N C E R I G H T S H O L D I N G S O F K E Y M A N A G E M E N T P E R S O N N E L O F T H E C O M PA N Y A N D G R O U P Balance at 1 July 2015 Granted during the year Rights exercised during the year Forfeited or Lapsed Balance at 30 June 2016 Vested and exercisable Unvested Executives G Albert D Collins T Matinca M Bradmore M Sampson R Terpening – – – – – 1,000,000 400,000 300,000 200,000 100,000 – – – – – 250,000 – (250,000) – – – – – – 1,000,000 400,000 300,000 200,000 100,000 – 250,000 2,000,000 (250,000) – 2,000,000 – – – – – – – 1,000,000 400,000 300,000 200,000 100,000 – 2,000,000     14 G Albert D Collins T Matinca M Bradmore M Sampson R Terpening Total Grant date Vesting date 26-Feb-16 23-Mar-16 23-Mar-16 23-Mar-16 23-Mar-16 4-Jan-13 25-Feb-19 22-Mar-19 22-Mar-19 22-Mar-19 22-Mar-19 4-Jan-16 Fair value at grant date $0.42 $0.33 $0.33 $0.33 $0.33 $1.19 Balance at 1 July 2015 – – – – – 250,000 250,000 New grants in the year 1,000,000 400,000 300,000 200,000 100,000 – 2,000,000 Exercised in the year1 Lapsed during the year – – – – – – – – – – Balance at 30 June 2016 1,000,000 400,000 300,000 200,000 100,000 Vested at 30 June 2016 – – – – – (250,000) (250,000) – – – – 2,000,000 – 1. During the year the cash equivalent of 250,000 ordinary shares was paid to key management personnel on the exercise of vested performance rights. The budget Return on Equity as set by the Board for the 2016 financial year was not achieved and so none of the performance portion of the LTI vested for 2016. Final vesting of the share rights are subject to each Executive remaining employed by the Group until the vesting date. S H A R E H O L D I N G S O F K E Y M A N A G E M E N T P E R S O N N E L Shareholdings include shares held personally and through related parties. Executives D Collins T Matinca M Bradmore M Sampson A U D I T Balance at 30 June 2015 Performance Rights exercised Other Balance at 30 June 2016 – 72,667 67,239 66,855 206,761 – – – – – – – – 72,667 (19,000) 48,239 (66,855) – (85,855) 120,906 The information contained in the Remuneration Report has been audited. Signed in accordance with a resolution of the directors. The directors have received the Auditors independence declaration which is included on page 21 of the annual report. Greg Albert Managing Director 1 November 2016 Bisalloy Steel Group Limited2016 Annual ReportDirectors’ Report continued       Corporate Governance Statement 2016 15 The board of directors of Bisalloy Steel Group Limited is responsible for establishing the corporate governance framework of the Group having regard to the ASX Corporate Governance Council (CGC) published guidelines as well as its corporate governance principles and recommendations. The board guides and monitors the business and affairs of Bisalloy on behalf of the shareholders by whom they are elected and to whom they are accountable. The tables below summarise the Group’s compliance with the CGC’s recommendations. The Company’s website from which the documents referred to can be accessed is at www.bisalloy.com.au Recommendation Comply Yes/No Reference/Explanation PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT 1.1 Companies should establish the Yes functions reserved to the board and those delegated to senior executives and disclose those functions. 1.2 Companies should disclose the Yes process for evaluating the performance of senior executives. 1.3 Additional information. The board has a formal Corporate Governance Code which sets out the respective roles and responsibilities of the board and management. In addition, the board committees have specific Charters which provide further details on the matters reserved for the board or its committees. A formal structured review is undertaken each year for each employee. Senior executives are reviewed by the CEO and input provided by the Chair. This process generally takes place in May each year. The Corporate Governance Code and other relevant charters are available on the Company’s website. PRINCIPLE 2 – STRUCTURE THE BOARD TO ADD VALUE 2.1 A majority of the board should be Yes independent directors. The board currently has five directors, three of whom are considered independent. The board has adopted the CGC’s guidelines as the basis for determining whether a director can be considered independent and has set relevant thresholds for materiality. Whether or not a director meets the CGC guidelines for independence, each director is expected to exercise unfettered and independent judgement. • Mr Grellman • Mr Godson • Mr Pong 2.2 The chair should be an independent director. 2.3 The roles of chair and chief executive officer should not be exercised by the same individual. 2.4 The board should establish a nomination committee. No Yes Yes The board believes that while the Chairman is not independent, the current composition of the board with its combined skills and capability, best serves the interests of the shareholders. The roles of chair and chief executive officer are not exercised by the same individual. The Company has a combined Remuneration & Nominations Committee. The charter can be reviewed on the Company’s website. 16 16 Recommendation 2.5 Companies should disclose the process for evaluating the performance of the board, its committees and individual directors. Comply Yes/No Yes 2.6 Additional information Reference/Explanation The Chair monitors the performance of the board and conducts informal meetings with the other directors during the year. The board undertakes a formal review every 12 to 18 months. The review includes: • examination of the effectiveness and composition of the board, including the required mix of skills, experience and other qualities which the non-executive directors should bring to the board for it to function competently and efficiently; • review of Bisalloy’s strategic direction and objectives; • assessment of the Managing Director’s performance by the non-executive directors; • assessment of whether corporate governance practices are appropriate and reflect “good practice”; and • assessment of whether the expectations of differing stakeholders have been met. As part of this process the Chairman also: • meets with the senior executives to discuss with them their views of the board’s performance and level of involvement; • discusses each individual director’s contributions face-to-face as appropriate; and • meets with the other non-executive directors without any management present (this is in addition to the consideration of the Managing Director’s performance and remuneration which is conducted in the absence of the Managing Director). Details of the composition, skills, experience, term in office, attendance at meetings of the members of the board at the date of this statement are set out in the Directors’ Report. Bisalloy Steel Group Limited2016 Annual ReportCorporate Governance Statement 2016 continuedBisalloy Steel Group Limited2016 Annual Report17 Recommendation Comply Yes/No Reference/Explanation PRINCIPLE 3 – PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING 3.1 Companies should establish a code Yes of conduct and disclose the code or a summary of the code as to: • • • the practices necessary to maintain confidence in the company’s integrity the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. No 3.2 Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity for the board to assess annually both the objectives and progress in achieving them. 3.3 3.3 Companies should disclose in No each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress toward achieving them. 3.4 3.4 Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board. 3.5 3.5 Additional information The Group has an established Code of Conduct which applies to all employees, officers and directors of the Group. An annual adherence declaration is required of each employee as part of their performance appraisal discussed at Principle 1.2. The Code of Conduct has four key principles as follows: 1. We respect each other and treat all people fairly 2. We respect the law and act accordingly 3. We act honestly and fairly in all our business activities and relationships 4. We use Bisalloy’s property responsibly and in the best interests of Bisalloy: The Group also has a number of other policies and standards which underpin the Code of Conduct including policies on Appropriate Workplace Behaviour, Equal Employment Opportunity, Safety, Fitness for Work, Workplace Harassment and Discrimination. Together these form a framework for ethical and responsible decision making and proscribe how the individuals of the Group behave internally and externally. In addition, the board has an established Corporate Governance Code as discussed under Recommendation 1. The Company has an Equal Employment Opportunity Policy under which it commits to ensuring applicants for employment are drawn from a full cross section of the community and that the merit principle forms the basis of recruitment and promotion. In light of the total number of employees and low turnover levels in all management levels of the Group, the board believes that little effective benefit would be achieved from the setting of measurable objectives for achieving gender diversity and that the interests of the Group are best served in this case by rigorous application of the merit principle in all recruitment and promotion decisions. Measurable objectives for achieving gender diversity are not set by the board as discussed under Principle 3.2. Yes 10% of employees across the organisation are women and there are no women in senior executive positions or on the board. The Equal Employment Opportunity Policy is available on the Company website. 18 18 Recommendation Comply Yes/No Reference/Explanation PRINCIPLE 4 – SAFEGUARD INTEGRITY IN FINANCIAL REPORTING 4.1 The board should establish an audit committee. 4.2 The audit committee should be structured so that it: Yes Yes The Company has an Audit & Risk Committee. At the date of this report and throughout the reporting period the Company’s Audit and Risk Committee was: • consists only of non-executive • comprised of non-executive directors being directors • consists of a majority of independent directors • is chaired by an independent chair, who is not chair of the board • has at least three members 4.3 The audit committee should have a Yes formal charter. 4.4 Additional information. Mr Grellman, Mr Cave, Mr Godson and Mr Pong. • chaired by Mr Grellman • governed by a Charter approved by the Board • sufficiently autonomous to be able to discharge its duties and responsibilities including the authority to select, retain and terminate external advisers as the Committee considers necessary without seeking approval of the board or management. The Audit & Risk Committee is governed by a formal Charter and is responsible for ensuring that an effective internal control framework exists within the Group. This includes internal controls for effective reporting of financial information, the appropriate application and amendment of accounting policies and the identification and management of risk. Full details in relation to names, skills, term of office and attendance at meetings for each member of the Committee are set out in the Directors’ Report. The Audit & Risk Committee Charter is available on the Company’s website. PRINCIPLE 5 – MAKE TIMELY AND BALANCED DISCLOSURE 5.1 Establish written policies designed to Yes ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. 5.2 Additional information The Group has a formal Continuous Disclosure Policy. The policy aims to ensure that once management becomes aware of any information concerning the Group that a reasonable person would expect to have a material effect on the price or value of the Company’s shares (subject to the relevant exceptions), that such information is released to the market. The board is committed to ensuring all investors have equal and timely access to material information concerning the Group and that the Group’s announcements are factual and presented in a clear and balanced way. The Company Secretary is the person responsible for continuous disclosure and communicating with the ASX. This role includes responsibility for ensuring compliance with the continuous disclosure requirements under the ASX Listing Rules and overseeing and co-ordinating information disclosed to the ASX, market participants and the public. The Company’s Continuous Disclosure Policy is available on the Company’s website. Bisalloy Steel Group Limited2016 Annual ReportCorporate Governance Statement 2016 continuedBisalloy Steel Group Limited2016 Annual Report19 Recommendation Comply Yes/No Reference/Explanation PRINCIPLE 6 – RESPECT THE RIGHTS OF SHAREHOLDERS 6.1 Design a communications policy for Yes promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. PRINCIPLE 7 – RECOGNISE AND MANAGE RISK Yes Yes 7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. 7.2 The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. In order to facilitate shareholders accessing information about the Group, all Group announcements, briefings, presentations and reports are posted on the Company’s website after release. The website includes additional news items about the activities of the Group which are not market sensitive. Shareholders are entitled to receive a copy of the Annual Report and can elect the method by which it is delivered. The Group encourages shareholders to elect to receive the Annual Report and other correspondence from the Company electronically and requires shareholders to ‘opt in’ if they wish to receive a hard copy of the report. Shareholders are encouraged to attend for the Annual General Meeting as full use is made of the occasion to inform shareholders of current developments through presentations and the opportunity to ask questions of management and the Group’s external auditors. The board has allocated responsibility to the Audit & Risk Committee to ensure there are adequate polices, procedures and control systems in relation to risk management and compliance. The Committee reviews and approves polices pertaining to material business risks to ensure they are current and adequately address the necessary aspects of risk management. The Company has developed and implemented a risk management process to ensure that there are up-to-date risk management policies and procedures which reflect the board’s appetite for risk and which are consistently applied across the Group. Conformance with policies and procedures is the responsibility of management and compliance reviewed on a periodic basis. The Company has an Audit & Risk Committee which meets regularly during the year. At the meetings the Committee receives explanations from management on any breakdowns in internal controls identified and the actions proposed to resolve them. Items remain open and are reviewed at following committee meetings until resolved to the Committee’s satisfaction. 7.3 The board should disclose whether it has received assurance from the chief executive officer and the chief financial officer that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Yes In accordance with section 295A of the Corporations Act, the CEO and CFO have provided a written statement to the board that: • • their view provided on the Group’s financial report is founded on a sound system of risk management and internal compliance and control which implements the financial policies adopted by the board. the Company’s risk management and internal compliance and control system is operating effectively in all material respects. 20 20 20 Recommendation 7.4 Additional information. Comply Yes/No Reference/Explanation The risk management process, discussed at Principle 7.3, includes a wide range of proprietary policies and procedures which have been developed specifically for the Company and its business. The Company believes it would be unreasonably prejudicial to its interests and inappropriate to disclose this information publically. PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY 8.1 The board should establish a remuneration committee. Yes The Company has a Nominations and Remuneration Committee which meets as required each year. 8.2 The remuneration committee should be Yes structured so that it: • Consists of a majority of independent directors • Is chaired by an independent chair • Has at least three members 8.3 Companies should clearly distinguish Yes the structure of non-executive directors’ remuneration from that of executive directors and senior executives. 8.4 Additional information At the date of this report and throughout the reporting period the Company’s Remuneration Committee was: • comprised of non-executive directors being Mr Cave, Mr Grellman, Mr Godson, and Mr Pong. • chaired by Mr Cave, with 3 independent directors. • governed by a Charter approved by the Board sufficiently autonomous to be able to discharge its duties and responsibilities including the authority to select, retain and terminate external advisers as the Committee considers necessary without seeking approval of the board or management. Full details of the Company’s remuneration policy are set out in the Remuneration Report. Full details in relation to names, skills, term of office and attendance at meetings for each member of the Committee are set out in the Directors’ Report. The Nominations and Remuneration Committee Charter is available on the Company’s website. Bisalloy Steel Group Limited2016 Annual ReportCorporate Governance Statement 2016 continuedBisalloy Steel Group Limited2016 Annual ReportErnst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au 21 Auditor’s Independence Declaration to the Directors of Bisalloy Steel Group Limited As lead auditor for the audit of Bisalloy Steel Group Limited for the financial year ended 30 June 2016, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Bisalloy Steel Group Limited and the entities it controlled during the financial year. Ernst & Young Glenn Maris Partner Sydney 1 November 2016 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 22 22 Bisalloy Steel Group Limited Bisalloy Steel Group Limited 2016 Annual Report 2016 Annual Report Statement of Profit or Loss for the year ended 30 June 2016 Continuing operations Sales of goods Revenue Cost of goods sold Gross profit Other income Distribution expenses Marketing expenses Occupancy expenses Administration expenses Operating profit Finance costs Finance income Share of profit of joint venture Profit before income tax Income tax expense Profit after income tax Attributable to: Non-controlling interest Owners of the parent Other comprehensive income: Profit for the year Items that may be reclassified subsequently to profit or loss: Fair value gain on cash flow hedges Income tax effect Foreign currency translation Income tax effect Other comprehensive income for the period, net of tax Total comprehensive income for the period, net of tax Attributable to: Non-controlling interest Owners of the parent Earnings per share for profit attributable to ordinary equity holders of the parent – Basic earnings per share (cents) – Diluted earnings per share (cents) Consolidated Year ended 30 June 2016 $’000 Year ended 30 June 2015 $’000 Notes 55,030 55,030 60,979 60,979 5(c) (42,225) (47,529) 12,805 13,450 5(a) 5(b) 5(b) 6 7(a) 21(d) 8 8 450 (1,309) (2,924) (643) 550 (1,352) (2,510) (651) (5,550) (4,803) 2,829 (664) 7 593 2,765 (1,024) 1,741 200 1,541 1,741 4,684 (946) 11 532 4,281 (1,462) 2,819 329 2,490 2,819 1,741 2,819 13 (4) 9 154 – 154 163 1,904 288 1,616 1,904 3.5 3.4 96 (29) 67 1,598 – 1,598 1,665 4,484 646 3,838 4,484 5.7 5.6 Consolidated Statement of Financial Position As at 30 June 2016 23 23 23 23 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Derivative financial instruments Total current assets Non-current assets Other financial assets Investment in joint venture Property, plant and equipment Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Interest bearing loans and borrowings Income tax payable Provisions Total current liabilities Non-current liabilities Interest bearing loans and borrowings Provisions Deferred tax liabilities Total non-current liabilities Total liabilities NET ASSETS EQUITY Equity attributable to equity holders of the parent Contributed equity Accumulated profits Other reserves Parent interests Non-controlling interests TOTAL EQUITY Consolidated Notes 30 June 2016 $’000 30 June 2015 $’000 10(a) 11 12 13 20 13 6 14 17 18 7(e) 19 18 19 7(d) 21(a) 21(e) 21(f) 21(d) 896 10,310 15,579 1,037 13 4,446 12,222 16,433 947 – 27,835 34,048 57 1,450 14,762 16,269 44,104 6,085 1,433 297 1,294 9,109 7,167 1,264 951 9,382 18,491 25,613 99 1,203 15,155 16,457 50,505 13,043 391 171 1,593 15,198 7,666 960 927 9,553 24,751 25,754 11,531 11,478 8,778 2,202 22,511 3,102 25,613 8,967 2,231 22,676 3,078 25,754 24 24 Bisalloy Steel Group Limited Bisalloy Steel Group Limited 2016 Annual Report 2016 Annual Report Consolidated Statement of Cash Flows for the year ended 30 June 2016 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Borrowing costs Income tax paid Consolidated Year ended 30 June 2016 $’000 Year ended 30 June 2015 $’000 Notes 61,121 63,931 (60,864) (56,225) 7 (664) (873) 11 (946) (563) Net cash (outflow)/inflow from operating activities 10(b) (1,273) 6,208 Cash flows from investing activities Proceeds from sale of fixed assets Payments for property, plant and equipment Dividends received from investments Net cash outflow from investing activities Cash flows from financing activities Increase/(decrease) in borrowings Dividends paid to non-controlling interests Dividends paid to shareholders of the parent Net cash outflow from financing activities Net (decrease)/increase in cash held Net foreign exchange differences Cash at the beginning of the financial year Cash at the end of the financial year 9 (958) 346 (603) 289 (264) (1,706) (1,681) – (815) 316 (499) (1,873) (323) – (2,196) (3,557) 3,513 7 4,446 896 119 814 4,446 10(a) Consolidated Statement of Changes in Equity for the year ended 30 June 2016 25 25 25 25 Attributable to equity holders of the Company Employee equity benefits reserve $’000 Net gain/ (loss) on cash flow hedges $’000 Foreign currency translation reserve $’000 Issued capital $’000 Asset revaluation reserve $’000 Equity Settlement Reserve $’000 Retained earnings $’000 Non- controlling interest $’000 Total $’000 Total equity $’000 At 30 June 2015 11,478 270 Profit for the period Other comprehensive income Depreciation transfer for building revaluation Total comprehensive income Transactions with owners in their capacity as owners: Ordinary dividends paid to shareholders (Note 9) Dividend Reinvestment Plan (Note 21) Dividends paid to non-controlling interests Share based payments (Note 15) Modification of performance rights – – – – – 53 – – – At 30 June 2016 11,531 – – – – – – – 50 (281) 39 – – 9 – 9 – – – – – 9 (573) 2,684 (150) 8,967 22,676 3,078 25,754 – 66 – – – (29) 66 (29) – – – – – – – – – – – – – – – – – – 156 1,541 1,541 200 1,741 – 29 75 – 88 163 – – 1,570 1,616 288 1,904 (1,759) (1,759) – – (1,759) 53 53 – – – – – (264) (264) 50 (125) – – 50 (125) (507) 2,655 6 8,778 22,511 3,102 25,613 At 30 June 2014 11,478 396 (67) (1,854) 2,713 (188) 6,448 18,926 2,755 21,681 Profit for the period Other comprehensive income Depreciation transfer for building revaluation Total comprehensive income Transactions with owners in their capacity as owners: Ordinary dividends paid to shareholders (Note 9) Dividend Reinvestment Plan (Note 21) Dividends paid to non-controlling interests Share based payments (Note 15) Settlement of performance rights – – – – – – – – – At 30 June 2015 11,478 – – – – – – – (8) (118) 270 – – 67 1,281 – – – – (29) 67 1,281 (29) – – – – – – – – – – – – – – – – – – – – – – – – 38 2,490 2,490 329 2,819 – 1,348 317 1,665 29 – – – 2,519 3,838 646 4,484 – – – – – – – – (8) (80) – – – – (323) (323) – – (8) (80) (573) 2,684 (150) 8,967 22,676 3,078 25,754 26 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 NOT E 1.  CORP OR AT E INF ORM AT ION The financial report of Bisalloy Steel Group Limited and its subsidiaries (“the Group”) for the year ended 30 June 2016 was authorised for issue in accordance with a resolution of the directors on 25 August 2016. Bisalloy Steel Group Limited is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Stock Exchange. The nature of the operations and principal activities of the Group are described in the Directors’ Report. NOT E 2 .  S U MM A RY OF SIGNIFICA N T   ACCO U N TING P OLICIE S TA B L E O F C O N T E N T S a. Basis of preparation b. Statement of compliance c. Basis of consolidation and investments in joint venture d. Significant accounting judgements, estimates and assumptions e. Operating segments f. Taxation g. Cash and cash equivalents h. Trade and other receivables i. Inventories j. Property, plant and equipment k. Trade and other payables l. Contributed equity m. Employee benefits n. Share-based payment transactions o. Provisions p. Interest bearing loans and borrowings q. Goods and services tax r. Revenue recognition s. Borrowing costs t. Leases u. Foreign currency translation v. Earnings per share (EPS) w. Derivative financial instruments and hedging x. Fair value measurement y. Changes in accounting standards a. Basis of preparation The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis, except for land and buildings classified as property, plant and equipment and derivative financial instruments, which are measured at fair value. The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that Instrument, all financial information presented in Australian Dollars has been rounded to the nearest thousand unless otherwise stated. The consolidated financial statements provide comparative information in respect of the previous period. New Accounting Standards and Interpretations The accounting policies adopted are consistent with those of the previous financial year except the following which the Group adopted from 1 July 2015: • AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ended 30 June 2016. Comparative information Certain comparative information was amended in these financial statements to conform to the current year presentation. These amendments do not impact the group’s financial result and do not have any significant impact on the Group’s balance sheet. b. Statement of compliance The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards as issued by the International Accounting Standards Board. c. Basis of consolidation and investments in joint venture The consolidated financial statements comprise the financial statements of the Company, being Bisalloy Steel Group Limited, and its subsidiaries (“the Group”) as at the reporting date. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) • Exposure, or rights, to variable returns from its involvement with the investee, and • The ability to use its power over the investee to affect its returns. Bisalloy Steel Group Limited2016 Annual Report27 The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group, and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from the equity of the owners of the parent. The Group has an interest in a joint venture, which is a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entity. The Group’s investment in the joint venture is accounted for using the equity method and is not part of the consolidated Group. Under the equity method, the investment in the joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the joint venture since the acquisition date. Goodwill relating to the joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The statement of profit or loss reflects the Group’s share of the results of operations of the joint venture. When there has been a change recognised directly in the equity of the joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the joint venture are eliminated to the extent of the interest in the joint venture. The Group’s share of profit of the joint venture is shown on the face of the statement of profit or loss outside operating profit or loss after tax and non-controlling interests in the subsidiaries of the joint venture. The financial statements of the joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. d. Significant accounting judgements, estimates and assumptions In the application of the Group’s accounting policies as described below, management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. These estimates and underlying assumptions are reviewed on an ongoing basis. Significant accounting judgements In applying the Group’s accounting policies, management have not made any significant accounting judgements which affect the amounts recognised in the financial statements. Significant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Net realisable value of inventory The Group undertakes a detailed review of its inventory by major product category to ensure its provisions reflect inventory at the lower of cost and net realisable value. This review takes into consideration management’s assessment of current and forecast market conditions, including drivers of the price of quenched and tempered steel and alloyed steel plate. Impairment of other non-financial assets Non-financial assets other than goodwill and indefinite life intangibles are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Group conducts an annual review of asset values, which is used as a source of information to assess for any indicators of impairment. External factors, such as changes in expected future processes, technology and economic conditions, are also monitored to assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or group of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have been reversed. Share-based payment transactions The Group measures the cost of equity-settled transactions with employees (including directors and other senior executives) by reference to the fair value 28 28 NOT E 2 .  S U MM A RY OF SIGNIFICA N T   ACCO U N TING P OLICIE S (C ON T IN U ED) at the date on which they are granted. The fair value is determined by an external valuer using discounted cash flow models using the assumptions dealt with in note 2(n). e. Operating segments An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start-up operations which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the board of directors. Operating segments have been identified and based on the information provided to the chief operating decision makers – being the executive management team. The Group aggregates two or more operating segments when they have similar economic characteristics, and the segments are similar in each of the following respects: Deferred tax liabilities are recognised for all taxable temporary differences except: • when the deferred income tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • in respect of taxable temporary differences associated with investments in subsidiaries, associates or interests in joint ventures, when the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, the carry-forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised, except: • when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • nature of the products and services, • • nature of production processes, • type or class of customer for their products and services, • methods use to distribute their products or provide their services, and if applicable • nature of the regulatory environment. Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. f. Taxation Current income tax Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date in the countries where the Group operates and generates taxable income. Deferred tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. in respect of deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, deferred tax asset are recognised only to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report29 assets and liabilities relate to the same taxable entity and the same taxation authority. Depreciation is calculated on a straight-line basis over the estimated useful life of the specific assets as follows: g. Cash and cash equivalents Cash and short term deposits in the statement of financial position and the cash flow statement is comprised of cash at bank and on hand and short-term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value. h. Trade and other receivables Trade and other receivables are carried at amounts due less an allowance for any uncollectible amounts. The collectability of debts is assessed at balance date and provision is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified. Trade debtors are generally on 30-60 day terms. These are non-interest bearing. i. Inventories Raw materials, work in progress and finished goods are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: Raw materials • Purchase cost is on an average cost basis. Work in progress and finished good • Cost of direct materials, labour and an appropriate proportion of manufacturing overheads is based on normal operating capacity, but excluding borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. j. Property, plant and equipment Plant and equipment is stated at historical cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if the recognition criteria are satisfied. All other repairs and maintenance are recognised in the profit or loss as incurred. Land and buildings are measured at fair value using the revaluation model, less accumulated depreciation on buildings and any impairment losses recognised after the date of the revaluation. Valuations are performed every three years, or sooner should there be a significant change in market conditions, to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. • Land • Buildings not depreciated 50 years • Plant and equipment 5 – 10 years • Leasehold improvements 5 – 10 years The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted prospectively if appropriate, at each financial year end. Revaluations of land and buildings Any revaluation increment is credited to the asset revaluation reserve in equity, except to the extent that it reverses a revaluation decrement for the same asset previously recognised in profit or loss, in which case the increment is recognised in profit or loss. Any revaluation decrement is recognised in profit or loss, except to the extent that it offsets a previous revaluation increment for the same asset, in which case the decrement is debited directly to the asset revaluation reserve to the extent of the credit balance existing in the revaluation reserve for that asset. Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amounts of the assets and the net amounts are restated to the revalued amounts of the assets. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the profit or loss. Upon disposal or derecognition, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Derecognition An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the profit and loss in the period the item is derecognised. Information technology costs Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and / or cost reduction are capitalised to information technology costs. Amortisation is calculated on a straight line basis over periods not exceeding 10 years. k. Trade and other payables Trade and other payables are carried at amortised cost and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to 30 30 NOT E 2 .  S U MM A RY OF SIGNIFICA N T   ACCO U N TING P OLICIE S (C ON T IN U ED) make future payments in respect of the purchase of these goods and services. l. Contributed equity Ordinary share capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity, net of tax, as a reduction of the share proceeds received. m. Employee benefits Liabilities arising in respect of short-term employee benefits such as wages, salaries, annual leave and sick leave represent the amount which the entity has a present obligation to pay resulting from employees’ services provided up to the balance date. Liabilities in respect of short-term employee benefits are measured at their nominal amounts. Long-term employee benefit liabilities such as long service leave represent the present value of the estimated future cash outflows to be made by the employer resulting from employees’ services provided up to the balance date. Long-term employee benefit liabilities are measured at their present values using corporate bond rates which most closely match the terms of maturity of the related liabilities. In determining the employee benefit liabilities, consideration has been given to future increases in wage and salary rates, and the consolidated entity’s experience with staff departures. Related on-costs have also been included in the liability. The Group contributes to several defined contribution superannuation plans. Contributions are charged against income as they are made. n. Share-based payment transactions Employees (including directors and other senior executives) of the Group receive remuneration in the form of a grant of Rights, whereby employees render services as consideration for equity instruments (‘equity-settled transactions’). There is currently a Share Rights Plan in place to provide these benefits. The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by an external valuer using a discounted cash flow methodology. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the issuer (‘market conditions’), if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. This opinion is formed based on the best available information at balance date. The statement of comprehensive income charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for Rights that do not ultimately vest. Any Rights that do not become vested Rights, lapse. The dilutive effect, if any, of outstanding Rights is reflected as additional share dilution in the computation of diluted earnings per share. o. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense related to any provision is presented in the statement of comprehensive income net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. p. Interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. q. Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), or GST equivalents, such as Value Added Tax, except: • where the amount of GST incurred is not recoverable from the Australian Tax Office (ATO), or equivalent foreign organisations. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expenses; • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as part of receivables or payables in the statement of financial position. Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report31 Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. r. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is received. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes and duty. The specific recognition criteria described below must also be met before revenue is recognised: Sale of goods Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the customer, which is on delivery of the goods. Revenue from the sale of goods is measured at fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Interest income Interest income is recognised as it accrues using the effective interest (EIR) method. The EIR is the rate that exactly discounts estimated future cash receipts over the expected life of the financial asset to the net carrying amount of the financial asset. Interest income is included in finance income in the statement of profit or loss. Dividend income Dividend income is recognised when the Group’s right to receive the payment is established. s. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Bisalloy Steel Group Limited does not currently hold qualifying assets but, if it did, the borrowing costs directly associated with this asset would be capitalised (including any other associated costs directly attributable to the borrowing and temporary investment income earned on the borrowing). t. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an agreement. Group as a lessee Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and a reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are included in finance costs in the statement of profit or loss. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term. u. Foreign currency translation The Group’s consolidated financial statements are presented in Australian dollars (A$), which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the statement of financial position date. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. The functional currency of the foreign operations is the currency in circulation in the country they each reside in. As at the reporting date, the assets and liabilities of these subsidiaries are translated into the Company’s presentation currency (A$) at the rate of exchange ruling at balance date, and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are recognised in the foreign currency translation reserve within equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the statement of comprehensive income. v. Earnings per share (EPS) Basic EPS is calculated as net profit attributable to members, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted 32 32 NOT E 2 .  S U MM A RY OF SIGNIFICA N T   ACCO U N TING P OLICIE S (C ON T IN U ED) average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net profit attributable to members, adjusted for: • costs of servicing equity (other than dividends); • the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and • other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. w. Derivative financial instruments and hedging The Group uses derivative financial instruments such as forward currency contracts to hedge its risks associated with foreign currency risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to net profit or loss for the year. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments. For the purpose of hedge accounting, hedges are classified as: • fair value hedges: when hedging the exposure to changes in the fair value of a recognised asset or liability; or • cash flow hedges: when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly forecast transaction. A hedge of the foreign currency risk of a firm commitment is accounted for as a cash flow hedge. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Hedges which meet the strict criteria for hedge accounting are accounted for as described below: Cash Flow Hedges The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred to the statement of profit or loss when the hedged transaction affects profit or loss, such as when hedged financial income or financial expense is recognised or when a forecast sale or purchase occurs. Where the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is taken to profit or loss. Fair Value Hedges The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognised in the statement of profit or loss as a finance cost. When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in profit or loss. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets criteria for hedge accounting or the Group revokes the designation. Any adjustment to the carrying amount of a hedge financial instrument for which the effective interest method is used is amortised to the profit or loss. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. x. Fair Value Measurement The Group measure financial instruments such as derivatives at fair value at each reporting date. Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report33 Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • • in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: • Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities • Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable • Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of the reporting period. y. Changes in accounting standards Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ended 30 June 2016. Those that may be applicable to the Group are outlined on the following page. z. Amendment to the Annual Report Subsequent to Lodgement Date Subsequent to the lodgement of the 2016 Annual Report on 25 August 2016 with the ASX and the Australian Securities and Investments Commission (“ASIC”), additional information has come to light which revealed an omission in the table disclosing “Remuneration of Key Management Personnel” detailed on page 12 and in Note 23 Related Parties on page 60. Both the table on page 12, and Note 23 on page 60 have been amended to rectify this omission. 34 34 NOT E 2 .  S U MM A RY OF SIGNIFICA N T ACCO U N TING P OLICIE S (CON T IN U ED) Reference Title Summary AASB 9/IFRS 9 Financial Instruments AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 On 24 July 2014 The IASB issued the final version of IFRS 9 which replaces IAS 39 and includes a logical model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018. However, the Standard is available for early application. The own credit changes can be early applied in isolation without otherwise changing the accounting for financial instruments. The final version of IFRS 9 introduces a new expected-loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected losses on a more timely basis. The AASB is yet to issue the final version of AASB 9. A revised version of AASB 9 (AASB 2013-9) was issued in December 2013 which included the new hedge accounting requirements, including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and disclosures. AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB 2010- 7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The Standard makes amendments to AASB 101 Presentation of Financial Statements arising from the IASB’s Disclosure Initiative project. The amendments are designed to further encourage companies to apply professional judgment in determining what information to disclose in the financial statements. For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. The amendments also clarify that companies should use professional judgment in determining where and in what order information is presented in the financial disclosures. Application date of standard Impact on Group financial report Application date for Group 1 January 2018 The 1 July 2018 amendments are not expected to have a significant impact on the financial statements 1 January 2016 The 1 July 2016 amendments are not expected to have a significant impact on the financial statements Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report35 Application date of standard Impact on Group financial report Application date for Group 1 January 2018 The 1 July 2018 amendments are not expected to have a significant impact on the financial statements 1 January 2016 The 1 July 2016 amendments are not expected to have a significant impact on the financial statements Reference Title Summary IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. IFRS 15 supersedes: a. b. c. d. IAS 11 Construction Contracts IAS 18 Revenue IFRIC 13 Customer Loyalty Programmes IFRIC 15 Agreements for the Construction of Real Estate IFRIC 18 Transfers of Assets from Customers e. f. SIC-31 Revenue—Barter Transactions Involving Advertising Services The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: a. Step 1: Identify the contract(s) with a customer b. Step 2: Identify the performance obligations in the contract c. Step 3: Determine the transaction price d. Step 4: Allocate the transaction price to the performance obligations in the contract e. Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation Early application of this standard is permitted. AASB 2014-10 amends AASB 10 Consolidated Financial Statements and AASB 128 to address an inconsistency between the requirements in AASB 10 and those in AASB 128 (August 2011), in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require: a. a full gain or loss to be recognised when a transaction involves a business (whether it is housed in a subsidiary or not); and b. a partial gain or loss to be recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. AASB 2014-10 also makes an editorial correction to AASB 10. AASB 2014-10 applies to annual reporting periods beginning on or after 1 January 2016. Early adoption permitted. AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 36 36 NOT E 2 .  S U MM A RY OF SIGNIFICA N T ACCO U N TING P OLICIE S (CON T IN U ED) Reference Title Summary AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012–2014 Cycle Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38) The subjects of the principal amendments to the Standards are set out below: AASB 5 Non-current Assets Held for Sale and Discontinued Operations: • Changes in methods of disposal – where an entity reclassifies an asset (or disposal group) directly from being held for distribution to being held for sale (or vice versa), an entity shall not follow the guidance in paragraphs 27–29 to account for this change. AASB 7 Financial Instruments: Disclosures: • Servicing contracts – clarifies how an entity should apply the guidance in paragraph 42C of AASB 7 to a servicing contract to decide whether a servicing contract is ‘continuing involvement’ for the purposes of applying the disclosure requirements in paragraphs 42E–42H of AASB 7. • Applicability of the amendments to AASB 7 to condensed interim financial statements – clarify that the additional disclosure required by the amendments to AASB 7 Disclosure– Offsetting Financial Assets and Financial Liabilities is not specifically required for all interim periods. However, the additional disclosure is required to be given in condensed interim financial statements that are prepared in accordance with AASB 134 Interim Financial Reporting when its inclusion would be required by the requirements of AASB 134. AASB 119 Employee Benefits: • Discount rate: regional market issue – clarifies that the high quality corporate bonds used to estimate the discount rate for post- employment benefit obligations should be denominated in the same currency as the liability. Further it clarifies that the depth of the market for high quality corporate bonds should be assessed at the currency level. AASB 134 Interim Financial Reporting: • Disclosure of information ‘elsewhere in the interim financial report’ -amends AASB 134 to clarify the meaning of disclosure of information ‘elsewhere in the interim financial report’ and to require the inclusion of a cross-reference from the interim financial statements to the location of this information. IAS 16 and IAS 38 both establish the principle for the basis of depreciation and amortisation as being the expected pattern of consumption of the future economic benefits of an asset. The IASB has clarified that the use of revenue- based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. Application date of standard Impact on Group financial report Application date for Group 1 January 2016 The 1 July 2016 amendments are not expected to have a significant impact on the financial statements 1 January 2016 The 1 July 2016 amendments are not expected to have a significant impact on the financial statements. Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report37 Application date of standard Impact on Group financial report Application date for Group 1 January 2019 The 1 July 2019 amendments are not expected to have a significant impact on the financial statements. Reference Title Summary AASB16 Leases The key features of AASB 16 are as follows: Lessee accounting • Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. • A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities. • Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. • AASB 16 contains disclosure requirements for lessees. Lessor accounting • AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. • AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk. AASB 16 supersedes: a. AASB 117 Leases b. Interpretation 4 Determining whether an Arrangement contains a Lease c. SIC-15 Operating Leases—Incentives d. SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as AASB 16. NOT E 3.  FIN A NCI A L   RISK M A N AGEME N T Overview The Group has exposure to the following risks from their use of financial instruments: • Credit risk • Liquidity risk • Market risk The board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Group’s objectives and activities are aligned with the risks and opportunities identified by the board. The board has established an Audit and Risk Committee comprising non-executive directors, whose meetings are also attended by the executive directors. In addition sub-committees are convened as appropriate in response to issues and risks identified by the board, and the sub- committee further examines the issue and reports back to the board. The board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified by the board. These include the following: • Board approval of a strategic plan, which encompasses the Group’s vision, mission and strategy statements, designed to meet stakeholders’ needs and manage business risk. • Implementation of board approved operating plans and budgets and board monitoring of progress against these budgets, including the establishment and monitoring of KPIs of both a financial and non-financial nature. • The establishment of committees to report on specific business risks, including for example, matters such as environmental issues and concerns and occupational health and safety. 38 38 NOT E 3.  FIN A NCI A L RISK M A N AGEME N T (CON T IN U ED) • The board reviews financial risks such as the Group’s liquidity, currency, interest rate and credit policies and exposures and monitors management’s actions to ensure they are in line with Group policy. Credit risk Credit risk is the risk of financial loss to the Group if a customer 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. The Group has a narrow customer base and has the potential to be exposed to credit risk on a specific customer. A credit policy is in place, the objective of which is: • To ensure all credit worthiness checks are carried out prior to opening new credit accounts and appropriate authorisations obtained; • To ensure the approved credit limit is appropriate to the inherent risk of trading with any particular customer; • To ensure all orders are converted into cash within trading terms; • To minimise late payments and any potential bad debts through the constant application of sound commercial debtor management on a continuing basis; The credit policy requires credit insurance to be taken out against customers where the concentration risk of trading with any specific customer is assessed as high. Goods are sold subject to retention of title clauses that permit the Group to reclaim stock from a customer up to the value of monies owed in the event: • Official Manager • Receiver and Manager • Administrator • Liquidator or similar business administration is appointed to the customer’s business. The Group has established an allowance for impairment that represents their 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, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss is based on historical data of payment statistics for similar financial assets. The maximum exposure to credit risk for these financial assets is limited to their carrying amounts as disclosed in note 11. 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 as and when they fall due without incurring unacceptable losses or risking damaging the Group’s reputation. On 30 June 2015 the Group renewed its facility agreement which currently comprises a $7.17m term loan and $12m revolver borrowing facility. The drawn revolver facility balance is limited to the value of the available collateral and fluctuates daily. Eligible trade receivables, eligible inventory, plant and equipment and real property constitute available collateral. At reporting date, the carrying amount of assets pledged as collateral was $34.2m (2015: $40.1m). In addition to the eligible collateral, the Group have several general and financial undertakings which they must comply with including a $6m (2015: $6m) limit on capital expenditure, a Tangible Net Worth covenant, and a Fixed Charge Coverage Ratio covenant. Due to the nature of the facility, cashflow is managed on a daily basis, comparing actual against forecast collateral, receipts and payments. Each month a complete review is undertaken of the projected daily cashflow. Contractual maturity of financial liabilities The table below reflects all contractually fixed payments for settlement, repayments and interest resulting from recognised financial liabilities, including derivative financial instruments as at 30 June 2016. For derivative financial instruments the market value is presented, whereas for the other obligations the respective undiscounted cash flows for the respective upcoming fiscal years are presented. Cash flows for financial assets and liabilities without fixed amount or timing are based on the conditions existing at 30 June 2016. 6 months or less 6-12 months 1-5 years Over 5 years Consolidated 2016 $’000 7,539 666 8,642 – 2015 $’000 13,421 849 9,239 – 16,847 23,509 Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report39 Management analysis of financial assets and liabilities The table below is based on management expectations of the timing of cash inflows and outflows from its financial assets and liabilities which reflect a balanced view of cash inflows and outflows. Net settled derivatives comprise forward exchange contracts that are used to hedge future sales and purchase commitments. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing of assets used in our ongoing operations such as property, plant, equipment and investments in working capital (e.g., inventories and trade receivables). These assets are considered in the Group’s overall liquidity risk. To monitor existing financial assets and liabilities as well as to enable an effective controlling of future risks, the Group has established comprehensive risk reporting covering its operation that reflects expectations of management of expected settlement of financial assets and liabilities. Year ended 30 June 2016 Consolidated Financial assets Cash and cash equivalents Trade and other receivables Income tax receivable Derivatives1 Inflows Outflows Financial liabilities Trade and other payables Interest bearing loans and borrowings Income tax payable Derivatives – gross settled1 Inflows Outflows Net inflow/(outflow) 1. Derivatives are measured at fair value through other comprehensive income. <=6 months $’000 6-12 months $’000 1-5 years $’000 >5 years $’000 Total $’000 896 10,310 – – 13 11,219 6,085 1,157 297 – – 7,539 3,680 – – – – – – – – – – – – 666 8,642 – – – – – – 666 8,642 (666) (8,642) – – – – – – – – – – – – 896 10,310 – – 13 11,219 6,085 10,465 297 – – 16,847 (5,628) 40 40 NOT E 3.  FIN A NCI A L RISK M A N AGEME N T (CON T IN U ED) Year ended 30 June 2015 Consolidated Financial assets Cash and cash equivalents Trade and other receivables Income tax receivable Derivatives1 Inflows Outflows Financial liabilities Trade and other payables Interest bearing loans and borrowings Income tax payable Derivatives – gross settled1 Inflows Outflows Net inflow/(outflow) <=6 months $’000 6-12 months $’000 1-5 years $’000 >5 years $’000 Total $’000 4,446 12,222 – – – 16,668 13,043 207 171 – – 13,421 3,247 – – – – – – – – – – – – 849 9,239 – – – – – – 849 9,239 (849) (9,239) – – – – – – – – – – – – 4,446 12,222 – – – 16,668 13,043 10,295 171 – – 23,509 (6,841) 1. Derivatives are measured at fair value through other comprehensive income. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and commodity prices 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 return. Foreign exchange risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense is denominated in different currency from the Group’s functional currency) and the Group’s net investment in foreign subsidiaries. The Group manages its foreign currency risk by hedging transactions that are expected to occur within a maximum twelve month period. The Group generally adopts a policy of covering exchange exposures related to purchases and sales of product at the time they are incurred or committed. Throughout the year the foreign exchange risk has been actively managed through periodic risk assessments. The objective of these assessments is to stratify foreign exchange exposure into risk categories and enable available hedge facilities to be applied to those assessed as higher risk. Risk assessments take into account macro economic lead indicators such as interest rate differentials, inflation rate differentials and externally published market analytical data to determine the likelihood of movement in exchange rates. The likelihood is applied to the Group’s foreign currency exposure to determine financial impact on a sensitivity basis. Sensitivity analysis The following table summarises the sensitivity of financial instruments held at balance date to possible movements in the exchange rate of the Australian dollar to foreign currencies, with all other variables held constant. The +10%/-10% sensitivity is based on reasonably possible changes, over a financial year, using the observed range of actual historical rates for the preceding 5 year period, along with consideration for current market trends. Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report 41 Sensitivity to USD Consolidated AUD/USD +10% AUD/USD -10% Post tax profit Higher / (Lower) Effect on equity Higher / (Lower) 2016 $’000 2015 $’000 2016 $’000 2015 $’000 (27) 33 (149) 182 – – – – Interest rate risk The Group’s borrowing facility has a variable interest rate attached to it. The Group monitors the underlying interest rate outlook and considers the use of interest rate derivatives (principally swaps) to manage the exposure to interest rate fluctuations. The Group’s exposure to market interest rates relates primarily to the Group’s interest bearing borrowings. At 30 June 2016, the Group had the following mix of financial assets and liabilities exposed to variable interest rates that are not designated in cash flow hedges. Financial Assets Cash and cash equivalents Financial Liabilities Bank loans Net exposure Consolidated 2016 $’000 2015 $’000 894 877 (8,600) (7,706) (8,057) (7,180) Interest rate sensitivity analysis The following table summarises the sensitivity of the fair value of financial instruments held at the balance date following a movement in interest rates, with all other variables held constant. The +1.0/-1.0 basis points sensitivity is based on reasonably possible changes over a financial year, using the observed range of actual historical rates for the preceding 5 year period. Consolidated +1.0% (100 basis points) -1.0% (100 basis points) C O M M O D I T Y R I S K Post tax profit Higher / (Lower) 2016 $’000 2015 $’000 Other comprehensive income Higher / (Lower) 2016 $’000 2015 $’000 (54) 54 (50) 50 – – – – The Group does not hedge for movements in the underlying price of product, but manages commodity risk within the parameters of the markets within which it trades. Assets/Liabilities Measured at Fair value The Group uses various methods in estimating the fair value of assets and liabilities. The methods comprise: Level 1 – the fair value is calculated using quoted prices in active markets. Level 2 – the fair value is calculated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data. 42 42 NOT E 3.  FIN A NCI A L RISK M A N AGEME N T (CON T IN U ED) The fair value of the assets and liabilities as well as the methods used to estimate the fair value are summarised in the table below. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. At 30 June 2016 the fair values of land, buildings and improvements were determined by reference to valuations performed in June 2014. For properties not subject to independent valuations, fair value was determined by Directors’ valuation. Year ended 30 June 2016 Valuation technique- market observable inputs (Level 2) $000 Valuation technique- non market observable inputs (Level 3) $000 Quoted market price (Level 1) $000 Year ended 30 June 2015 Valuation technique- market observable inputs (Level 2) $000 Valuation technique- non market observable inputs (Level 3) $000 Total $000 Quoted market price (Level 1) $000 Total $000 Consolidated Assets Land & Buildings Foreign exchange contracts Liabilities Foreign exchange contracts – – – – – – 13 13 – – 7,733 7,733 – 13 7,733 7,746 – – – – – – – – – – – – – – 7,837 7,837 – – 7,837 7,837 – – – – The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. Transfer between categories There were no transfers between levels during the year. The fair value of interest bearing loans and borrowings approximates the carrying value. NOT E 4 .  OPE R AT ING SEGME N T S I D E N T I F I C AT I O N O F R E P O R TA B L E S E G M E N T S The Group has identified its operating segments based on the internal reports that are reviewed and used by the executive management team (the chief operating decision makers) in assessing performance and in determining the allocation of resources. The operating segments are identified by management based on country of origin. Discrete financial information about each of these operating businesses is reported to the executive management team on at least a monthly basis. The reportable segments are based on aggregated operating segments determined by the similarity of economic characteristics. Geographical areas Australian operations The Australian operations are comprised of Bisalloy Steels Pty Limited and Bisalloy Steel Group Limited. Bisalloy Steels Pty Limited distributes wear-grade and high tensile plate through distributors and directly to original equipment manufacturers in both Australia and Overseas. Bisalloy Steels is located in Unanderra, near Wollongong, NSW. Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report43 Year ended 30 June 2016 Australia $’000 Overseas $’000 Income tax expense 689 335 Total $’000 1,024 Segment assets 38,493 14,224 52,717 Capital expenditure 907 52 959 Segment liabilities 16,051 2,829 18,880 Year ended 30 June 2015 Australia $’000 Overseas $’000 Total $’000 Revenue: Sales to external customers 47,379 13,600 60,979 Inter-segment sales 6,954 – 6,954 Total segment revenue Inter-segment elimination Total consolidated revenue Segment net operating profit after tax Interest income Interest expense Depreciation Share of profit of joint venture 54,333 13,600 67,933 (6,954) 60,979 1,630 1,189 2,819 9 905 1,242 – 2 41 68 532 428 11 946 1,310 532 1,462 Bisalloy Steel Group Limited is the corporate entity, also located in Unanderra NSW, which incurs expenses such as head office costs and interest. All corporate charges relate to the Australian operations and are linked to Australian segment revenue only. Overseas operations The overseas operations comprise of PT Bima Bisalloy and Bisalloy (Thailand) Co Limited located in Indonesia and Thailand respectively. These businesses distribute Bisalloy Q&T plate as well as other steel plate products. The overseas operations include the co-operative joint venture Bisalloy Jigang Steel Plate (Shandong) Co. Ltd in the People’s Republic of China for the marketing and distribution of quench & tempered steel plate. Accounting policies and inter-segment transactions The accounting policies used by the Group in reporting segments internally are the same as those contained in note 2 to the accounts and in the prior period except as detailed below: Inter-entity sales Inter-entity sales are recognised based on an internally set transfer price. This price is set monthly and aims to reflect what the business operation could achieve if they sold their output to external parties at arm’s length. Major customers The group has a number of customers to which it provides products. There are three major distributors who account for 21% (2015: 18%), 14% (2015: 16%) and 13% (2015: 11%) of total external revenue. All these customers are in the Australian operating segment. Year ended 30 June 2016 Australia $’000 Overseas $’000 Total $’000 Income tax expense 1,034 Revenue: Sales to external customers Segment assets 43,876 14,395 58,271 Capital expenditure 798 17 815 40,877 14,153 55,030 Segment liabilities 22,234 2,153 24,387 Inter-segment sales 6,148 – 6,148 Total segment revenue Inter-segment elimination Total consolidated revenue Segment net operating profit after tax Interest income Interest expense Depreciation Share of profit of joint venture 47,025 14,153 61,178 (6,148) 55,030 1,026 715 1,741 – 655 1,298 7 9 66 7 664 1,364 – 593 593 Consolidated Year ended 30 June 2016 $’000 Year ended 30 June 2015 $’000 i) Segment revenue reconciliation to the statement of comprehensive income Total segment revenue 61,178 67,933 Inter-segment sales elimination (6,148) (6,954) Total revenue 55,030 60,979 44 44 NOT E 4 .  OPE R AT ING SEGME N T S   (CON TIN U ED) Revenue from external customers by geographical location is detailed below. Revenue is attributed to geographic location based on the location of the customers. Reconciliation of segment operating assets to total assets Consolidated Year ended 30 June 2016 $’000 Year ended 30 June 2015 $’000 Consolidated Segment operating assets 52,717 58,271 Year ended 30 June 2016 $’000 Year ended 30 June 2015 $’000 35,837 11,088 3,586 4,519 37,396 9,290 4,641 9,652 Inter-segment eliminations (8,626) (7,766) Derivative assets 13 – Total assets per the statement of financial position 44,104 50,505 The analysis of the location of non-current assets other than financial instruments, deferred tax assets, pension assets is as follows: Australia Indonesia Thailand Other foreign countries Total revenue 55,030 60,979 ii) Segment net operating profit after tax reconciliation to the statement of comprehensive income The executive management committee meets on a monthly basis to assess the performance of each segment by analysing the segment’s net operating profit after tax. A segment’s net operating profit after tax excludes non-operating income and expense such as dividends received, fair value gains and losses and impairment charges. Consolidated Year ended 30 June 2016 $’000 Year ended 30 June 2015 $’000 Australia Overseas Total assets 15,747 15,934 522 523 16,269 16,457 iv) Segment liabilities reconciliation to the statement of financial position Segment liabilities include trade and other payables and debt. The Group has a centralised finance function that is responsible for raising debt and capital for the Australia operations. Each Australian entity or business uses this central function to invest excess cash or obtain funding for its operations. The executive management committee reviews the level of debt for each segment in the monthly meetings. Consolidated Year ended 30 June 2016 $’000 Year ended 30 June 2015 $’000 Reconciliation of segment net operating profit after tax to net profit before tax Segment net operating profit after tax Income tax expense Total net profit before tax per the statement of profit or loss 1,741 1,024 2,819 1,462 Reconciliation of segment operating liabilities to total liabilities 2,765 4,281 Segment operating liabilities 18,880 24,387 iii) Segment assets reconciliation to the statement of financial position In assessing the segment performance on a monthly basis, the executive management committee analyses the segment result as described above and its relation to segment assets. Segment assets are those operating assets of the entity that the management committee views as directly attributing to the performance of the segment. These assets include plant and equipment, receivables, inventory and intangibles and exclude available-for-sale assets, derivative assets, deferred tax assets, and pension assets. Inter-segment eliminations (4,195) (4,164) Income tax payable Provisions Deferred tax liabilities 297 2,558 951 171 2,553 1,804 Total liabilities per the statement of financial position 18,491 24,751 Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report45 NOT E 5.  RE V E N U E A ND E X PE N SE S Consolidated Year ended 30 June 2016 $’000 Year ended 30 June 2015 $’000 (a) Other income Foreign exchange gains Other income (b) Finance (income) and costs Bank interest and borrowing costs Total finance costs Bank interest Total finance income (c) Depreciation and costs of inventories included in statement of comprehensive income 390 60 450 664 664 (7) (7) 528 22 550 946 946 (11) (11) Depreciation and amortisation 1,364 1,310 Costs of inventories recognised as an expense 42,225 47,529 (d) Lease payment and other expenses included in statement of profit or loss NOT E . 6.  IN V E S T ME N T IN A   J OIN T V E N T U RE In July 2011 the Group signed a Cooperative Joint Venture Agreement with Jigang Iron & Steel Co., Limited to establish Bisalloy Jigang Steel Plate (Shandong) Co., Limited (‘the joint venture’) for the marketing and distribution of quench & tempered steel plate in the People’s Republic of China and other international markets. Under the terms of the JV, Bisalloy has contributed US$1 million in capital and licenced its Q&T intellectual property and brand name to the joint venture to produce quench & tempered steel plate at Jinan’s production facility in Shandong Province, PRC for a 33% ownership of the equity and a 50% share in the operating result of the joint venture. Dividends of $345,829 (2015: $316,416) were received from the JV during the year. Consolidated 30 June 2016 $’000 30 June 2015 $’000 Joint venture’s statement of financial position: Current assets, including cash of $2,140,953 (2015: $2,604,000) Non-current assets 6,227 79 6,724 97 Current liabilities (598) (1,546) Rental – operating leases 285 300 Equity 5,708 5,275 (e) Employee benefits expense Wages and salaries Superannuation costs Expense of share-based payments Joint venture’s revenue and profit: 9,607 787 9,410 722 Revenue Expenses 50 (8) Finance income 10,444 10,124 Profit before income tax Income tax and statutory reserves Profit for the year Group’s share of profit Carrying amount of the investment 7,608 12,315 (5,907) (10,748) 62 1,763 (577) 1,186 593 49 1,616 (552) 1,064 532 1,450 1,203 The assets and liabilities are disclosed at their carrying value which is assumed to approximate their fair value. The joint venture has no capital commitments or contingent liabilities at 30 June 2016 (2015: None). 46 46 NOT E 7.  INC OME TA X (a) Income Tax Expense The major components of income tax expense are: Income Statement Current income tax Current income tax charge Adjustments in respect of current income tax of previous years Deferred income tax Relating to origination and reversal of temporary differences Income tax expense The income tax expense for the period is disclosed as follows: Income tax expense attributable to continuing operations (b) Amounts charged or credited directly to equity Deferred income tax related to items charged or credited directly to equity Net gain on revaluation of derivative assets Income tax expense reported in equity Consolidated Year ended 30 June 2016 $’000 Year ended 30 June 2015 $’000 983 20 1,003 21 1,024 1,024 1,024 799 – 799 663 1,462 1,462 1,462 4 4 29 29 (c) Numerical reconciliation between aggregate tax expense recognised in the income statement and tax expense calculated per the statutory income tax rate Accounting profit before tax 2,765 4,281 At the Group’s statutory income tax rate of 30% (2015: 30%) Consolidation adjustment to prior year CFC temporary tax difference Income assessable for tax purposes Expenditure not allowable for tax purposes De-recognition of foreign income tax credits Income not assessable for tax purposes Expenditure allowable for tax purposes Non-allowable withholding tax on foreign joint venture dividend Adjustments in respect of deferred income tax of previous years 830 92 283 99 (177) 20 (178) 35 20 1,284 4 405 76 (160) (57) (182) 32 60 Income tax expense on pre-tax net profit 1,024 1,462 Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report 47 Statement of financial position Statement of comprehensive income Equity Year ended 30 June 2016 $’000 Year ended 30 June 2015 $’000 Year ended 30 June 2016 $’000 Year ended 30 June 2015 $’000 Year ended 30 June 2016 $’000 Year ended 30 June 2015 $’000 (d) Deferred income tax Deferred income tax at 30 June relates to the following: CONSOLIDATED Accelerated depreciation for tax purposes (1,713) (1,737) Tax losses available for offset against future taxable benefits Employee entitlement provisions Other provisions and accruals Inventory Other Foreign income tax credits Derivatives – 507 52 28 179 – (4) – 548 40 92 130 – – Deferred tax (liabilities)/assets reflected in the balance sheet (951) (927) Deferred tax credit/expense Equity (24) – 41 (12) 64 (48) – – 3 732 4 (20) (27) (27) – (2) 21 663 – – – – – – 4 4 – – – – – – 29 29 (e) Current income tax at 30 June relates to the following: The current tax payable for the Consolidated entity of $297,297 (2015: $171,047) represents the amount of income tax payable in respect of the current and prior periods that arises from the payment of tax in deficit of the amounts due to the relevant tax authority. The Consolidated entity liability includes both the income tax payable by all members of the tax consolidated group and those members outside the tax consolidated group and outside the Australian tax jurisdiction. (f) Unrecognised temporary differences At 30 June 2016, there are no unrecognised temporary differences associated with the Group’s investments in subsidiaries, as the Group has no liability for additional taxation should unremitted earnings be remitted (2015: Nil). (g) Tax consolidation (i) Members of the tax consolidation group and the tax sharing arrangement Effective 1 July, 2003, for the purposes of income taxation, the Company and its 100% owned Australian subsidiaries formed a tax consolidated group. Members of the group have entered into a tax sharing arrangement. This arrangement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of a default is remote. The head entity of the group is Bisalloy Steel Group Limited. (ii) Tax effect accounting by members of the tax consolidated group Members of the tax consolidated group have entered into a tax funding agreement. The allocation of taxes under the tax funding agreement is recognised under the separate tax payer within a group approach. Allocations under the tax funding agreement are made on a semi-annual basis. The amount that is allocated under the tax funding agreement is done so in accordance with a method permitted by UIG1052 and is recognised by way of an increase or decrease in the subsidiaries intercompany accounts. 48 48 NOT E 8 .  E A RNING S PE R SH A RE ( E P S) The following reflects the income and share data used in the basic and diluted earnings per share computations: Net profit for the period Net profit attributable to non-controlling interest holders Net profit attributable to equity holders of the parent (used in calculating basic and diluted EPS) Year ended 30 June 2016 $’000 Year ended 30 June 2015 $’000 1,741 (200) 2,819 (329) 1,541 2,490 Thousands Thousands Weighted average number of ordinary shares for basic earnings per share 44,047 43,987 Effects of dilution: Performance rights 885 423 Adjusted weighted average number of ordinary shares for diluted earnings per share 44,932 44,410 Weighted average number of lapsed or cancelled potential ordinary shares included in diluted earnings per share – – NOT E 9.  DI V IDE NDS PA ID OR PROP O SED (a) Dividends paid during the year Interim 2016 – Nil (2015: Nil) Final 2015 Nil (2014: Nil) (b) Proposed dividend (not recognised as a liability as at 30 June) Final dividend for 2016: 2.5 cents per share (2015: 4.0 cents per share) (c) Franking credit balance The amount of franking credits available for the subsequent financial year are: Franking account balance as at the end of the financial year at 30% Franking debits that will arise from the refund of tax as at the end of the financial year Franking debits that will arise from the payment of dividends as at the end of the financial year Consolidated Year ended 30 June 2016 $’000 Year ended 30 June 2015 $’000 – 1,759 1,759 – – – 1,102 1,759 4,174 260 (330) 4,519 10 (528) 4,104 4,001 Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report49 NOT E 10.  CA SH A ND CA SH EQUI VA L E N T S (a) Reconciliation of cash For the purpose of the cash flow statement, cash and cash equivalents comprise the following at 30 June: Cash at bank Cash at hand Total As at 30 June 2015 $3.57M of the above cash related to a surplus in the working capital facility with GE. This cash can only be used by the group for working capital purposes in the ordinary course of business. Refer to Note 18 for further information about this facility. (b) Reconciliation of net profit after income tax to net cash provided by operations Net profit after tax Non cash items Depreciation and amortisation Share-based payments expense Impairment and write-off of current assets Share of profit of a joint venture Net fair value change on derivatives Change in operating assets and liabilities Consolidated 30 June 2016 $’000 30 June 2015 $’000 894 2 896 4,444 2 4,446 1,741 2,819 1,364 1,310 50 (23) (593) 13 (8) 31 (532) 24 Decrease /(increase) in receivables and other assets 1,912 (2,387) Decrease/(increase) in foreign currency translation Decrease /(increase) in inventories Increase/(decrease) in tax assets and liabilities Decrease/(increase) in other financial assets (Increase)/decrease in prepayments (Decrease)/increase in trade creditors Increase/(decrease) in provisions Settlement of share rights Net cash used in operating activities (c) Disclosure of financing facilities Refer note 18. 361 877 151 99 (147) 360 (672) 899 43 (88) (6,958) 4,301 5 (125) 184 (76) (1,273) 6,208 50 50 NOT E 11.  T R A DE A ND OT HE R RECEI VA BL E S Current Trade receivables Less: Provision for doubtful debts Other Consolidated 30 June 2016 $’000 30 June 2015 $’000 10,258 12,205 (260) (45) 9,998 12,160 312 62 10,310 12,222 Trade receivables are non-interest bearing and are generally on 30-60 day terms. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. At 30 June, the ageing analysis of trade receivables is as follows: Total $’000 10,258 12,205 0-30 Days $’000 6,624 7,619 31-60 Days $’000 1,644 3,583 61-90 Days PDNI* $’000 1,256 649 61-90 Days CI* $’000 – – +91 Days PDNI* $’000 474 309 +91 Days CI* $’000 260 45 2016 Consolidated 2015 Consolidated * Past due not impaired (‘PDNI’) Considered impaired (‘CI’) Receivables past due and considered impaired are $260,415 (2015: $45,480) which relate to specific receivables. Credit has been stopped on these accounts until full payment is made. Receivables over 91 days past due not impaired relate accounts for which repayment terms have been renegotiated. The Group reports the aged status of receivables against original terms of trade and does not adjust for renegotiated terms. Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due. Fair value and credit risk Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security, nor is it the Group’s policy to transfer (on-sell) receivables to special purpose entities. Foreign exchange and interest rate risk Detail regarding foreign exchange and interest rate risk exposure is disclosed in note 3. NOT E 12 .  IN V E N TORIE S Current Raw materials and stores Finished goods Consolidated 30 June 2016 $’000 30 June 2015 $’000 801 14,778 15,579 2,438 13,995 16,433 (a) Inventory expense Inventories recognised as an expense for the year ended 30 June 2016 totalled $42,225,000 (2015: $47,529,000). This expense has been included in the cost of sales line item as a cost of inventories. Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report 51 The amount expensed includes $16,512 (2015: $30,914) for the Group relating to inventory write-downs. NOT E 13.  OT HE R FIN A NCI A L A S SE T S Current Prepayments Non-current Prepayments Consolidated 30 June 2016 $’000 30 June 2015 $’000 1,037 1,037 57 57 947 947 99 99 NOT E 14 .  PROPE R T Y, PL A N T A ND EQUIPME N T (a) Reconciliation of carrying amounts at the beginning and end of the period Consolidated Year ended 30 June 2016 Freehold land and buildings $’000 Leasehold improvements $’000 Plant and equipment $’000 Total $’000 At 1 July 2015, net of accumulated depreciation and impairment 7,837 25 7,293 15,155 Additions Disposals Revaluations Depreciation and amortisation charge for the year Exchange adjustment At 30 June 2016, net of accumulated depreciation and impairment At 1 July 2015 Cost or fair value Accumulated depreciation and impairment Net carrying value At 30 June 2016 Cost or fair value Accumulated depreciation and impairment Net carrying value – – – (123) 19 7,733 9,234 (1,397) 7,837 9,277 (1,544) 7,733 – – – (1) – 24 60 (35) 25 958 958 (9) – (9) – (1,240) (1,364) 3 22 7,005 14,762 17,250 26,544 (9,957) (11,389) 7,293 15,155 65 18,256 27,598 (41) (11,251) (12,836) 24 7,005 14,762 52 52 NOT E 14 .  PROPE R T Y, PL A N T A ND EQUIPME N T (CON T IN U ED) Consolidated Year ended 30 June 2015 Freehold land and buildings $’000 Leasehold improvements $’000 Plant and equipment $’000 Total $’000 At 1 July 2014, net of accumulated depreciation and impairment 7,922 25 7,653 15,600 Additions Disposals Revaluations Depreciation and amortisation charge for the year Exchange adjustment – – – (123) 38 – – – – – 815 815 – – – – (1,187) (1,310) 12 50 At 30 June 2015, net of accumulated depreciation and impairment 7,837 25 7,293 15,155 At 1 July 2014 Cost or fair value Accumulated depreciation and impairment Net carrying value At 30 June 2015 Cost or fair value Accumulated depreciation and impairment Net carrying value 9,248 (1,326) 7,922 9,234 (1,397) 7,837 58 (33) 25 60 (35) 25 16,482 25,788 (8,829) (10,188) 7,653 15,600 17,250 26,544 (9,957) (11,389) 7,293 15,155 (b) Revaluation of freehold land and freehold buildings In 2014, the Group engaged Colliers International, an accredited independent valuer, to determine the fair value of its Australian land and buildings. Fair value is the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date. Fair value is determined by direct reference to recent market transactions on arm’s length terms for land and buildings comparable in size and location to those held by the Group, and to market based yields for comparable properties. The effective date of the valuation was 30 June 2014 and fair value was determined as $7,850,000. In determining the current Fair Value of the property a Depreciated Replacement Cost (DRC) Approach was adopted. This method is used when there is limited transaction evidence, and principally applies to specialised property assets. The DRC Approach involves the addition of the deprecated value of the existing improvements to the underlying land value. There has been no change in the valuation technique in current or prior period. For June 2015 and June 2016, it was determined by Directors valuation that there was no significant change in fair value. (c) Carrying amounts if land and buildings were measured at cost less accumulated depreciation and impairment If land and buildings were measured using the cost model the carrying amounts would be as follows: Cost Accumulated depreciation and impairment Net carrying amount 2016 Freehold land and buildings $’000 2015 Freehold land and buildings $’000 5,277 (1,339) 3,938 5,234 (1,274) 3,960 Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report53 15. SH A RE- BA SED PAY ME N T S PL A N S   Long Term Incentives (LTI) Plan The LTI program has been designed to align the remuneration received by executive directors and senior managers with the creation of shareholder wealth. Consequently LTI grants are only made to executives who are in a position to influence shareholder wealth and thus have the opportunity to influence the company’s performance against the relevant long term performance hurdles. Structure At the 2015 Annual General Meeting, an LTI plan was renewed for LTI grants to executives in the form of share rights. These rights are granted in two equal parts. The first part is based on retention and requires the holder remain an employee for three years from grant date. The second part is based on delivering superior long- term performance as measured by Return on Equity (“ROE”), with each grant of rights divided into three equal tranches. For each tranche, actual ROE is measured against a budget ROE and a stretch ROE as determined annually by the board in respect of the forthcoming year. The proportion of the rights which vest depend on where within this range the Group performs, with 100% vesting on achieving the stretch ROE and no rights vesting if actual ROE is less than 90% of the budgeted ROE. For the 2016 year, the stretch ROE was set at 115% of the budget ROE. Any rights to which the employee may become entitled on achieving the performance criteria, are still subject to the three year retention criteria before they can vest. Any share rights which do not vest, as a result of the relevant performance condition not being satisfied, lapse. If the holder leaves the business, the unvested rights lapse on the leaving date unless the board determines otherwise. In the event of a change in control of the Group, the vesting date will generally be brought forward to the date of change of control and share rights will vest subject to performance over this shortened period, subject to ultimate board discretion. Once vested a holder may exercise his share rights and be allocated a fully paid ordinary share of Bisalloy at no cost to the employee. During the 30 June 2016 financial year 2,000,000 share rights were granted to executives under this scheme. The share rights have been valued by Mercer (Australia) Pty Ltd. A fair value expressed as a value per share right has been determined as at the grant date for each grant of rights. The rights have been valued according to a discounted cash flow (DCF) methodology. The share price at valuation date and a 7.7% dividend yield for Grant 6; and a 7.7% dividend yield for Grant 7 (based on historic and future estimates at the time) formed the basis of the valuation. Refer to note 2(n) for further details on the valuation methodology. The following table lists the valuation outputs for outstanding grants as at 30 June 2016: Grant 6 Grant 7 Expiry term of three years Value of one right Proportion of rights that vest $0.42 $0.33 100% 100% The fair value of the performance rights granted is brought to account as an expense in the profit and loss over the three year vesting period. The following table shows the number of rights outstanding during the year and in the previous year. The expense recognised in the statement of comprehensive income in relation to share based payments is disclosed in note 5(e). 54 54 15. SH A RE- BA SED PAY ME N T S PL A N S (CON T IN U ED) Grant 3 Vested Grant 4 Unvested Grant 5 Unvested Grant 6 Unvested Grant 7 Unvested Total Grant date Expiry date Exercise price 1 July 2011 4 Jan 2013 1 July 2013 26 Feb 2016 23 Mar 2016 30 June 2014 4 Jan 2016 30 June 2016 25 Feb 2019 22 Mar 2019 $0.00 $0.00 $0.00 $0.00 $0.00 Balance at 30 June 2014 200,001 New grants in the year Exercised in the year Lapsed during the year Balance at 30 June 2015 Exercisable at 30 June 2015 New grants in the year Exercised in the year Lapsed during the year Balance at 30 June 2016 Exercisable at 30 June 2016 – (200,001) – – – – – – – – – – – – – – (83,333) (166,667) 250,000 – – (250,000) – – – – – – – – – – – – 200,001 – – – – – – – – – – – (200,001) (250,000) 250,000 – 1,000,000 1,000,000 2,000,000 – – – – (250,000) – 1,000,000 1,000,000 2,000,000 – – – The weighted average remaining contractual life for the share rights outstanding as at 30 June 2016 is 2.75 years (2015: 0.25 years). Share Rights Plan The net amount entered in the Profit or Loss in relation to the above for the current year was a debit of $ 49,935 (2015: income $8,071). NOT E 16.  PE N SION S A ND OT HE R P O S T- EMPLOY ME N T BE NE FIT PL A N S Superannuation commitments The Company makes superannuation contributions on behalf of employees to externally managed defined contribution superannuation funds. The contributions are defined by the terms of each individual employee’s employment and fully vest at the time the contributions are made. NOT E 17.  T R A DE A ND OT HE R PAYA BL E S Current Trade payables Other payables and accruals Goods and services tax Consolidated 30 June 2016 $’000 30 June 2015 $’000 4,804 1,337 11,634 1,432 (56) (23) 6,085 13,043 Trade payables are non-interest bearing and are normally settled on 30 day terms. Other payables and accruals are non-interest bearing and have an average term of three months. Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report        55 Fair value Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value. Interest rate, foreign exchange and liquidity risk Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 3. At reporting date, the following financing facilities had been negotiated and were available: Total facilities Consolidated 30 June 2016 $’000 30 June 2015 $’000 NOT E 18 .  IN T E RE S T- BE A RING LOA N S   A ND BORROW ING S Consolidated 30 June 2016 $’000 30 June 2015 $’000 Current – revolver facility (i) 12,000 12,000 – term loan (i) – Bisalloy Thailand facility (ii) – PT Bima facility (iii) Facilities used at reporting date 7,167 956 2,795 7,666 964 1,530 22,918 22,160 Borrowings secured by fixed and floating charges 1,433 391 Current Non-current Borrowings secured by fixed and floating charges 7,167 7,666 – revolver facility (incl. bank guarantees) – PT Bima facility Fair values Unless disclosed below, the carrying amount of the Group’s current and non-current borrowings approximate their fair value. Non-current – term loan – Bisalloy Thailand facility Interest rate, foreign exchange and liquidity risk Details regarding interest rate, foreign exchange and liquidity risk is disclosed in note 3. Assets pledged as security The fixed and floating charge covers all current and future assets of the Bisalloy Closed Group (note 23). Facilities unused at reporting date – revolver facility (incl. bank guarantees) – term loan – Bisalloy Thailand facility – PT Bima facility 962 471 1,433 – 391 391 7,167 7,666 – 7,167 8,600 – 7,666 8,057 11,038 12,000 – 956 2,324 14,318 – 964 1,139 14,103 (i) On 30 June 2015 Bisalloy Steel Group Ltd entered into a renewed facility with GE Commercial Australasia Pty Ltd, with a maturity date of 30 June 2018. This facility currently provides Bisalloy Steel Group Limited and Bisalloy Steels Pty Ltd with a: • $12m revolving loan facility; and • $7.17m term loan facility The facility is secured by a fixed and floating charge over all assets of the Closed Group. The facility is subject to usual provisions such as negative covenants and various undertakings, including compliance with a fixed charge coverage ratio. The drawn revolver facility balance is limited to the value of the available collateral and fluctuates daily. Eligible trade receivables, eligible         56 56 NOT E 18 .  IN T E RE S T- BE A RING LOA N S   A ND BORROW ING S (C ON TIN U ED) inventory, plant and equipment and real property constitute available collateral. The facility is variable rate linked to an interest rate plus a fixed margin. The average variable interest rate for the year is 4.73% (2015: 5.51%). (ii) The Group had a THB 22m promissory note facility and a THB 3m bank overdraft facility available to its Thailand based subsidiary as at 30 June 2016. These facilities are secured by a guarantee from Bisalloy Steel Group Limited. (iii) The Group has IDR 1billion and USD$1,500,000 revolver facilities as well as a USD$500,000 Letter of Credit facility available to its Indonesian based subsidiary. These facilities are secured by a charge over the assets of the Indonesian subsidiary. NOT E 19.  PROV ISION S Consolidated Employee entitlements $’000 Total $’000 At 1 July 2015 2,553 2,553 Arising during the year Utilised 893 (888) 893 (888) At 30 June 2016 2,558 2,558 Current 2016 Non-current 2016 Current 2015 Non-current 2015 1,294 1,264 2,558 1,593 960 2,553 1,294 1,264 2,558 1,593 960 2,553 NOT E 2 0.  DE RI VAT I V E FIN A NCI A L   IN S T RU ME N T S Consolidated 30 June 2016 $’000 30 June 2015 $’000 Current Assets Forward currency contracts – Cash flow hedges Forward currency contracts – Fair value hedges Current Liabilities Forward currency contracts – Cash flow hedges Forward currency contracts – Fair value hedges 13 – 13 – – – – – – – – – Instruments used by the Group Derivative financial instruments are used by the Group in the normal course of business in order to hedge exposure to fluctuations in foreign exchange rates. Forward currency contracts Inventory purchases During the year ended 30 June 2016, in order to protect against exchange rate movements and to manage the inventory costing process, the Group had entered into forward exchange contracts to purchase US$685,000. These contracts hedged highly probable forecasted purchases and they were timed to mature when payments are scheduled to be made. Cash flow hedges These hedges are considered cash flow hedges to the point where a purchase invoice is received (and a payable financial liability generated). From this point the hedge protects the financial liability from exchange rate movements and is, therefore, a fair value hedge. Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report   57 The cash flows of these hedges were expected to occur between 1 – 6 months from balance date and the profit and loss will be affected over 12 months as the inventory is either used in production or sold. As at balance date, the details of outstanding contracts in respect of inventory purchases were: 30 June 2016 $’000 30 June 2015 $’000 30 June 2016 Avg Exchange Rate 30 June 2015 Avg Exchange Rate Buy US$/Sell Australian $ 910 – 0.7529 – Fair value hedges As referred to above, once a purchase invoice has been received for a forecast purchase for which a cash flow hedge was taken out, the hedge now protects the financial liability from exchange rate movements and is, therefore, reclassified as a fair value hedge. As at balance date, the details of outstanding contracts in respect of fair value hedges were: 30 June 2016 $’000 30 June 2015 $’000 30 June 2016 Avg Exchange Rate 30 June 2015 Avg Exchange Rate Buy US$/Sell Australian $ – – – – Interest rate risk Information regarding interest rate risk exposure is set out in note 3. Credit risk Credit risk arises from the potential failure of counterparties to meet their obligations at maturity of contracts. This arises on derivative financial instruments with unrealised gains. Management only undertakes such contracts with major Australian banks and financial institutions. NOT E 21.  C ON T RIBU T ED EQUIT Y A ND RE SE RV E S   (a) Ordinary shares, issued and fully paid Consolidated 30 June 2016 $’000 30 June 2015 $’000 11,531 11,478 Fully paid ordinary shares carry one vote per share and carry the right to dividends. Shares have no par value. 2016 2015 Number of Shares $’000 Number of Shares $’000 (b) Movements in shares on issue Balance at 1 July 43,987,234 11,478 43,987,234 11,478 Shares issued under Dividend Reinvestment Plan 95,539 53 – – Balance at 30 June 44,082,773 11,531 43,987,234 11,478 (c) Capital management When managing capital, the Groups objective is to maintain optimal returns to shareholders and benefits for other When managing capital, the Group’s objective is to maintain optimal returns to shareholders and benefits for other stakeholders. The Group also aims to maintain a capital structure that delivers the lowest cost of capital available to its operations. The Group adjusts the capital structure to take advantage of favourable costs of capital or high returns on assets. As the economic conditions change, the Group may change the amount of dividends to be paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. No changes were made in the objectives, policies or processes for managing capital during the years ended 30 June 2016 and 2015. The Group monitors capital through the gearing ratio (net debt/ total equity plus net debt) and currently targets a gearing ratio of between 10% and 35% while focus remains on reducing the Groups net debt position. The Group includes within 58 58 NOT E 21.  C ON T RIBU T ED EQUIT Y A ND RE SE RV E S (CON T IN U ED) net debt interest bearing loans and borrowings less cash and cash equivalents. The gearing ratios based on continuing operations at 30 June 2016 and 2015 were as follows: Total borrowings Less cash and cash equivalents Net debt Total equity Total capital Gearing ratio The Group is not subject to any externally imposed capital requirements. (d) Non-controlling interests Balance at 1 July Gain on translation of overseas controlled entities Share of net profit for the year Dividends paid Balance at 30 June (e) Retained earnings Balance at 1 July Net profit for the year Depreciation transfer on revaluation of buildings Dividends paid Balance at 30 June Consolidated 30 June 2016 $’000 30 June 2015 $’000 8,600 8,057 (896) (4,446) 7,704 25,613 33,317 23% 3,611 25,754 29,365 12% Consolidated 30 June 2016 $’000 30 June 2015 $’000 3,078 2,755 88 200 (264) 3,102 317 329 (323) 3,078 Consolidated 30 June 2016 $’000 30 June 2015 $’000 8,967 1,541 29 (1,759) 8,778 6,448 2,490 29 – 8,967 Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report59 Consolidated Employee equity benefits reserve $’000 Foreign currency translation reserve $’000 Cash flow hedge reserve $’000 Asset revaluation reserve $’000 Equity settlement reserve $’000 Total $’000 (f) Reserves At 30 June 2014 Currency translation differences Share-based payments Equity settlement Net gain on cash flow hedge Depreciation transfer for revaluation of buildings At 30 June 2015 Currency translation differences Share-based payments Equity settlement Net gain on cash flow hedge Depreciation transfer on revaluation of buildings At 30 June 2016 Nature and purpose of reserves 396 (1,854) (67) 2,713 (188) – (8) (118) – – 270 – 50 (281) – – 39 1,281 – – – – (573) 66 – – – – (507) – – – 67 – – – – – 9 – 9 – – – – (29) – – 38 – – 1,000 1,281 (8) (80) 67 (29) 2,684 (150) 2,231 – – – – (29) 2,655 – – 156 – – 6 66 50 (125) 9 (29) 2,202 Employee equity benefits reserve This reserve is used to record the value of share-based payments provided to employees and directors as part of their remuneration. Refer to note 15 for further details of these plans. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. Cash flow hedge reserve This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge. Asset Revaluation Reserve The asset revaluation reserve is used to record increases and decreases in the fair value of land and buildings (net of tax) to the extent that they offset one another. The reserve can only be used to pay dividends in limited circumstances. Equity Settlement Reserve The equity settlement reserve records the net difference between payment for shares upon the exercise of performance rights under the LTIP and the amount expensed in the profit and loss and recorded in the employee equity benefits reserve over the three year vesting period.         60 60 NOT E 2 2 .  COMMIT ME N T S A ND C ON T INGE NCIE S (a) Capital expenditure commitments Estimated capital expenditure contracted for at balance date, but not provided for payable: Not later than one year These capital expenditure commitments relate to office refurbishment and plant upgrade works. (b) Operating lease expenditure commitments Not later than one year Later than one year, but not later than five years Later than five years Consolidated 30 June 2016 $’000 30 June 2015 $’000 194 194 158 174 – 332 46 46 140 57 – 197 These operating lease commitments relate to motor vehicle leases and rent. (c) Contingent liabilities The directors draw the following contingent liabilities to the attention of users of the financial statements: Note 23 regarding the class order between certain subsidiaries and the Company. NOT E 2 3.  RE L AT ED PA R T IE S A Director of the Company, Mr P J Cave, has an interest in and is a Director of Anchorage Capital Partners Pty Ltd. The terms and conditions of any transactions with Directors and their Director related entities are no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non Director related entities on arm’s length basis. The total value of the transactions during the year with Director related entities were as follows: Director P J Cave Director – related entity Consolidated 30 June 2016 $’000 30 June 2015 $’000 Anchorage Capital Partners Pty Ltd 120 – The above amounts were paid in relation to P J Cave’s services in his capacity as a director and are included in Directors’ remuneration in the Directors’ Report. Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report61 Investments Country of Incorporation Name of parent Bisalloy Steel Group Limited Australia Controlled entities Bisalloy Steels Pty Limited PT Bima Bisalloy Bisalloy Holdings (Thailand) Co Ltd Bisalloy (Thailand) Co Limited Australia Indonesia Thailand Thailand Percentage of equity interest held by the Consolidated entity 30 June 2016 % Percentage of equity interest held by the Consolidated entity 30 June 2015 % 100.00 100.00 60.00 85.00 85.00 60.00 85.00 85.00 Bisalloy North America LLC United States of America 100.00 100.00 Joint venture Bisalloy Jigang (Shandong) Steel Plate Co., Ltd People’s Republic of China 33.33 33.33 Entities subject to class order relief Pursuant to Class Order 98/1418, relief has been granted to Bisalloy Steels Pty Limited from the Corporations Act 2001 requirements for preparation, audit and lodgement of their financial reports. As a condition of the Class Order, Bisalloy Steel Group Limited and Bisalloy Steels Pty Limited (the “closed” Group) entered into a Deed of Cross Guarantee on the 18th April, 2002. The effect of the deed is that Bisalloy Steel Group Limited has guaranteed to pay any deficiency in the event of winding up of the controlled entity. The controlled entity has also given a similar guarantee in the event that Bisalloy Steel Group Limited is wound up. The consolidated statement of profit or loss and statement of financial position of the entities which are members of the “Closed Group” are as follows: i. Consolidated Income Statement Profit from continuing operations before income tax Income tax expense Profit after income tax Accumulated profit/(losses) at the beginning of the year Dividends provided for or paid Accumulated profits at the end of the year ii. Consolidated Balance Sheet Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Other financial assets Total current assets Closed Group 30 June 2016 $’000 Closed Group 30 June 2015 $’000 2,972 (625) 2,347 2,372 (1,759) 2,960 3,935 (1,060) 2,875 (503) – 2,372 8 7,756 3,597 8,822 10,090 10,544 13 853 – 735 18,720 23,698 62 62 NOT E 2 3.  RE L AT ED PA R TIE S (C ON TIN U ED) Non-current assets Investments Property, plant and equipment Other financial assets Total non-current assets Total assets Current liabilities Trade and other payables Interest bearing liabilities Provisions Income tax payable Derivative financial instruments Total current liabilities Non-current liabilities Interest bearing liabilities Other liabilities Provisions Deferred tax liability Total non-current liabilities Total liabilities NET ASSETS Shareholders’ equity Contributed equity Reserves Accumulated profits TOTAL SHAREHOLDERS’ EQUITY Closed Group 30 June 2016 $’000 Closed Group 30 June 2015 $’000 1,689 14,240 57 15,985 34,705 1,689 14,631 99 16,419 40,117 7,922 14,487 962 426 221 – – 1,504 (10) – 9,531 15,981 7,167 – 1,264 1,209 9,640 19,171 15,534 7,666 – 323 1,187 9,176 25,157 14,960 11,531 11,478 1,043 2,960 1,110 2,372 15,534 14,960 The following table provides the total amount of transactions that have been entered into between the Group and related parties for the relevant financial year: Related Party Bisalloy Jigang Steel Plate (Shandong) Co.,Ltd Interest and management fees to related parties $’000 2016 2015 – – Amounts owed by related parties $’000 Amounts owed to related parties $’000 46 20 – – Other $’000 – – Terms and conditions of transactions with related parties Sales to and purchase from related parties are made in arm’s length transactions both at normal market price and on normal commercial terms. Sale and purchases with related parties during 2016 were nil (2015: nil). Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual Report Outstanding balances at year-end are unsecured. Short-term employee benefits Post employment benefits Other long-term benefits Termination benefits Share-based payments Total compensation paid to key management personnel 2 4 . E V E N T S A F T E R T HE BA L A NCE DAT E No significant events after the balance sheet date. 2 5. AUDITORS’ REM U NE R ATION The auditor of Bisalloy Steel Group Limited is Ernst & Young. Amounts received or due and receivable by Ernst & Young (Australia) for: – an audit or review of the financial report of the entity and any other entity in the consolidated Group – tax compliance and advice – assurance related – other 63 Consolidated 30 June 2016 $’000 30 June 2015 $’000 1,902,892 1,564,401 442,558 155,021 60,351 – 26,309 55,000 49,935 (8,071) 2,455,736 1,792,660 Consolidated Year ended 30 June 2016 $ Year ended 30 June 2015 $ 157,000 146,800 – – – – – – Amounts received or due and receivable by related practices of Ernst & Young (Australia) for: – an audit or review of the financial report of any other entity in the consolidated Group 51,606 47,793 – tax compliance and advice – – 208,606 194,593 64 64 NOT E 2 6.  PA RE N T E N T IT Y INF ORM AT ION Information relating to Bisalloy Steel Group Limited: Current assets Total assets Current liabilities Total liabilities Issued capital Accumulated losses Reserves Total shareholder’s equity Profit of the parent entity Total comprehensive income of the parent entity 30 June 2016 $’000 30 June 2015 $’000 – – 4,127 3,971 706 706 211 211 11,531 11,478 (8,977) (8,160) 36 36 2,590 3,354 831 831 828 828 Guarantees have been entered into by the Parent entity on behalf of Bisalloy Steels Pty Limited and Bisalloy (Thailand) Co Limited. There are no contingent liabilities or contractual commitments as at the reporting date. Bisalloy Steel Group Limited2016 Annual ReportNotes to the Consolidated Financial Statements For the year ended 30 June 2016 (continued)Bisalloy Steel Group Limited2016 Annual ReportDirectors’ Declaration 65 In accordance with a resolution of the directors of Bisalloy Steel Group Limited, I state that: In the opinion of the directors: (a) the financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; the financial statements and notes also comply with International Financial Reporting Standards (IFRS) as disclosed in note 2. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. this declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2016. (b) (c) (d) On behalf of the Board Greg Albert Managing Director Sydney 1 November 2016 66 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent auditor’s report to the members of Bisalloy Steel Group Limited Report on the financial report We have audited the accompanying financial report of Bisalloy Steel Group Limited, which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year. Directors' responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 2(b) of the financial statements, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor's responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 67 Opinion In our opinion: a. the financial report of Bisalloy Steel Group Limited is in accordance with the Corporations Act 2001, including: i ii giving a true and fair view of the consolidated entity's financial position as at 30 June 2016 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2(b). Report on the remuneration report We have audited the Remuneration Report included on pages 8 to 14 of the directors' report for the year ended 30 June 2016. 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 Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of Bisalloy Steel Group Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. Amendments to the Financial Report and Remuneration Report Without qualification to the opinions expressed above, attention is drawn to the following matter. This auditor’s report replaces our previously issued audit report dated 25 August 2016 and included together with the Director’s report and financial report lodged with the Australian Securities and Investments Commission on that date. The financial report and remuneration report have been subsequently amended for the reasons set out in Note 2 (z) to the financial statements. Ernst & Young Glenn Maris Partner Sydney 1 November 2016 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 68 68 Additional Information Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 31 July 2016. a. Distribution of equity securities The number of shareholders, by size of holding in each class of share are: 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Ordinary Shares Number of Holders Number of Shares 549 582 142 215 41 338,638 1,358,248 1,056,568 6,999,427 34,329,892 1,529 44,082,773 The number of shareholders holding less than a marketable parcel of shares based on a share price of $0.40 at the date of this report are 649 452,820 There are 2,000,000 performance rights issued. Performance rights do not carry a right to vote. Bisalloy Steel Group Limited2016 Annual ReportAdditional Information Bisalloy Steel Group Limited2016 Annual Report69 69 b. Twenty largest shareholders The names of the twenty largest holders of quoted shares are: 1. BALRON NOMINEES PTY LTD 2. ANCHORAGE (BSG) PTY LTD 3. RBC INVESTOR SERVICES AUSTRALIA NOMINEES 4. PROSPECT CUSTODIAN LIMITED 5. EVELIN INVESTMENTS PTY LTD 6. SILVERSTREET PTY LTD 7. J.P MORGAN NOMINEES AUSTRALIA LTD 8. REIS PENSION & SUPER FUND 9. CROANNA PTY LTD 10. CLYDE BANK HOLDINGS (AUST) PTY LTD 11. INTERB INVESTMENTS PTY LTD 12. ABEILLE INVESTMENTS PTY LIMITED 13. HSBC CUSTODY NOMINEES (AUSTRALIA) LTD 14. KILCONQUHAR SUPERANNUATION FUND PTY LTD 15. BOND STREET CUSTODIANS LTD 16. BALKIN PTY LTD (BALKIN SUPER FUND) 17. THE GENUINE SNAKE OIL COMPANY PTY LTD 18. MARTRE PROPERTIES PTY LTD 19. BOTSIS HOLDINGS PTY LTD 20. SENRAB (VIC) PTY LTD c. Substantial Shareholders: The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: David Balkin, Mr Peter Smaller, Mirond Holdings Pty Ltd, Smaller Holdings Pty Ltd, Balron Nominees Pty Ltd Anchorage (BSG) Pty Limited and Mr Phillip Cave RBC Investor Services Australia Nominees Pty Limited d. Voting Rights: All ordinary shares carry one vote per share without restriction. Listed Ordinary Shares Number of Shares % of Ordinary Shares 7,786,081 7,016,575 4,862,042 2,174,692 1,349,330 1,344,364 1,149,478 900,000 677,582 605,635 556,987 475,436 411,187 400,540 400,000 371,590 350,000 275,000 250,000 250,000 17.66 15.92 11.03 4.93 3.06 3.05 2.61 2.04 1.54 1.37 1.26 1.08 0.93 0.91 0.91 0.84 0.79 0.62 0.57 0.57 Fully Paid Number of shares % 8,157,671 7,573,562 4,862,042 20,593,275 18.51 17.18 11.03 46.72 70 Corporate Directory R E G I S T E R E D O F F I C E 18 Resolution Drive Unanderra NSW 2526 Telephone: +61 (0)2 4272 0444 Facsimile: +61 (0)2 4272 0445 www.bisalloy.com.au companysecretary@bisalloy.com.au A U D I T O R S Ernst & Young The EY Centre Level 34, 200 George Street Sydney NSW 2000 Telephone: +61 (0)2 9248 5555 Facsimile: +61 (0)2 9248 5575 S H A R E R E G I S T RY Computershare Yarra Falls 452 Johnston Street Abbotsford VIC 3067 GPO Box 2975, Melbourne VIC 3001 Telephone (within Australia): 1300 738 768 Telephone: +61 (0)3 9415 4377 Facsimile: +61 (0)3 9473 2500 Web: www.computershare.com L E G A L A D V I S O R S Minter Ellison Level 40 Governor Macquarie Tower 1 Farrer Place Sydney NSW 2000 Telephone: +61 (0)2 9921 8888 Facsimile: +61 (0)2 9921 8123 Bisalloy Steel Group Limited2016 Annual Report 71 71 Annual General Meeting The Group will hold its 2016 Annual General Meeting in the Press Room at the Radisson Blu Plaza Hotel located at 27 O’Connell Street, Sydney NSW at 11.00am on Monday, 21 November 2016. Copies of the annual report or further information can be obtained by e-mailing companysecretary@bisalloy.com.au or writing to the Company Secretary at the registered office. An electronic copy of this report is available on the Company’s website. Designed and produced by FCR www.fcr.com.au 

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