A Annual Report 2021 Contents AGM i ii iv 01 71 72 76 78 2021 highlights Chairman and Managing Director’s Review Review of Operations and Safety Financial Report Directors’ Declaration Independent Auditor’s Report Additional Information Corporate Directory The Annual General Meeting (AGM) of Bisalloy Steel Group Limited will be held on Wednesday, 24 November 2021. The Company has considered the implications of COVID-19, government restrictions and prioritising health and safety of its shareholders and employees and has determined that this year’s AGM will be held online. Further details can be found in the Notice of Meeting. www.bisalloy.com.au 2021 highlights We are a proudly Australian company producing the BISALLOY® range of quenched and tempered performance steels across three main product areas of high wear, structural and armour grade specialty steels. EBITDA $m Debt $m 20 16 12 8 4 0 20 16 12 8 4 0 Gearing % 30 25 20 15 10 5 0 7 1 Y F 8 1 Y F 9 1 Y F 0 2 Y F 1 2 Y F 7 1 Y F 8 1 Y F 9 1 Y F 0 2 Y F 1 2 Y F 7 1 Y F 8 1 Y F 9 1 Y F 0 2 Y F 1 2 Y F $16.7m EBITDA $7.0m Net Debt 9.0c Final Dividend 31.1% Net Profit after Tax Increase Bisalloy Steel Group Limited 2021 Annual Report i i Chairman & Managing Director’s Review A new Board to build a more profitable and sustainable business for shareholders. 9.0c Dividend (FY20: 5.0c) Twelve months ago, a new Board took over from the one which had overseen this company for over two decades. This occurred because shareholders of your company have received unacceptably low returns from this business over a long period of time and are now wanting the new Board to push the company to achieve improved and more sustainable results. In the last 12 months our earnings are up by 25% and our share price has followed. Your Board believes that the company has only begun to demonstrate the potential that exists for this small, Australian manufacturer with an internationally regarded brand to grow and deliver stronger earnings into the future. Looking ahead over the next couple of years, there will be a relentless and sharper focus on financial and operating performance that strengthens and builds a more sustainable business for shareholders. We will enable this shift in four ways. 1. Sharper strategic overlay as to how the business positions itself and operates. Business strategy matters and the ability to execute against that strategy in an innovative, commercial, and nimble way matters even more. We understand that we are operating on a playing field wedged between two large multi-national companies who will constrain what we can do. However, when opportunities emerge to advance our strategic agenda, we must be ready to take advantage. We do not believe that the strategy of reaction is the correct choice. This strategy is inherently defensive and leads to incremental improvement at best. 2. Increased emphasis on building customer and supplier partnerships founded upon being the only producer of Q+T plate in Australia. Bisalloy is uniquely positioned to be the supplier of choice for Australian Q+T plate users. We have a world class product. We have an internationally regarded brand. We have been in business for over 40 years. We have a much shorter supply chain than international Q+T plate producers who wish to export their product into Australia. We also have a tailwind to support Australian manufacturing that is driving end users of Q+T plate to buy from Bisalloy. With the relaxation of domestic and international travel restrictions brought on by COVID-19, 2022 is the right time to increase our investment in building and strengthening long-term partnerships with all suppliers and users of Q+T plate. We will achieve this, not only by forging stronger personal relationships, but also by providing better availability than our competitors whilst having the humility to accept that our customers have choices to buy their Q+T plate elsewhere. 3. Clearer focus and alignment around short term and longer-term business performance, sustainability. Sharpening management’s focus on bottom line improvement and growth is achieved through a combination of actions; how the Board challenges senior management; how management measures and reports performance; the mindset and aspirations of management to improve and grow; the short term and long-term incentives that are offered to all employees if they deliver. The Board has worked extensively in all these areas over the last year. We are confident that the soon to be appointed CEO and CFO will actively propel the company forward in the areas described above. 4. Significant change in the way management and Board work together. Bisalloy is a small publicly listed company. Our company, like all smaller companies, requires its Board to be an extension of management in functions where the skills and experience of senior management is limited. In our case, the Board does not need to get involved with day-to-day operations of making and selling Q+T plate but has a vital role to play in supporting senior management to set the company’s strategies, oversee potential acquisitions and create access to relevant individuals in government and industry. On behalf of the Board, I would like to thank our departing CEO and CFO for their service and leadership over the last few years. Their choices to move on are understood and accepted and they leave with our best wishes. ii Bisalloy Steel Group Limited 2021 Annual Report From left: Mr David Balkin AM, Chairman Mr Glenn Cooper, Managing Director and CEO We are grateful to our employees for their service, and to our distributors, customers and of course shareholders for their support. Your Board is very optimistic about our company’s future and earnings potential. We know there is much to improve, and we know this is a journey that will take time. We cannot be certain about the challenges the international political, business, and competitive environment will dish up. But if we continually progress the initiatives and approaches outlined above, we are certain your company will be a stronger, more sustainable, and much more profitable one. Mr David Balkin AM Chairman Mr Glenn Cooper Managing Director and CEO Looking ahead over the next couple of years, there will be a relentless and sharper focus on financial and operating performance that strengthens and builds a more sustainable business for shareholders. Bisalloy Steel Group Limited 2021 Annual Report iii Review of Operations and Safety Safety & Environmental stewardship – our journey to zero harm The Unanderra Manufacturing site returned to over 12-months Lost Time Injury (LTI) free last year, and our LTI frequency remains below the benchmark rate for Ferrous Steel Product manufacturing in Australia. Our International operations in Indonesia and Thailand maintain their highly impressive commitment to safety. They have now delivered sixteen years without an LTI with the Chinese Joint venture, passing ten years LTI-free. Our environmental performance improved as we were able to achieve a reduction in our specific energy consumption by 10%, and therefore our carbon emissions due to Natural Gas consumption. Further work into 2022 seeks to address a reduction in our electricity consumption from our Quench pump circuit. 10% Reduction in Energy Consumption Record Breaking continues Our signature BisEnergy program continues to provide a platform for our employees innovation and continuous improvement action. From this Bisalloy broke daily and monthly production records. Considerable gains were seen in freight planning and efficiency, consumable material transfer procedures, production scheduling and customer service. Feed Security FY21 saw the commencement of another “super-cycle” in the steel industry with global supply and shipping becoming increasingly more challenging. Many steel suppliers found sourcing a challenge. Bisalloy was relatively well positioned throughout this period through continued cooperation with our joint venture partners in Shandong Steel, through two modern alternative mills in Laiwu and Rizhao supplementing our Australian raw material requirements. Further diversification of our supply chain continues to be explored to reduce risk. Throughout this period Bisalloy remains committed to our long-term partners at BlueScope Steel. They will continue to supply the majority of our Unanderra steel feed. Innovative Defence and Mining industry partner Bisalloy remains a trusted partner of many global defence equipment manufacturers. The company demonstrated excellent capability in the qualification towards the previous Commonwealth Future Submarine Program. This track record combined with previous experience manufacturing Quench & Tempered naval grade structural steels sets Bisalloy in good stead to take advantage of future decisions regarding the domestic Naval investment. Bisalloy as the second qualified supplier of TL certified armour steel (German Army) is also currently supplying into the Australian LAND400 program. Both headline achievements underpin the group’s Mission to “Enabling Innovation with Steel”. Mining grade development saw the successful launch of Bisalloy Wear© 500PLUS, a highly wear resistant and tough Q&T steel grade used by manufacturers for the mining and mineral processing sector to reduce the weight of mobile equipment or increase the wear life of components. iv Bisalloy Steel Group Limited 2021 Annual Report 2021 Financial Report Bisalloy Steel Group Limited 2021 Annual Report Your Directors submit their report for the year ended 30 June 2021. 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 and 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 38 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. Mr Cave left Bisalloy on 27 August 2020. Mr Richard Grellman AM FCA CHAIRMAN Skills and Experience: Mr Grellman brings significant accounting and finance skills to the Company, having had over 34 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 as Director in February 2003 and as Chairman in August 2020. Mr Grellman left Bisalloy on 27 November 2020. Mr David Balkin AM CHAIRMAN Skills and Experience: Mr Balkin brings extensive knowledge and understanding of global basic materials industries through 25 years as a consultant, senior partner and leader of McKinsey & Company’s global basic materials practice. He is also an experienced director and chairman of a number of private companies where he actively advises and supports management to improve shareholder returns and build more sustainable businesses. Term of office: Appointed as Director and Chairman on 27 November 2020. Mr Balkin is subject to election in November 2021. Board Committees: • Audit and Risk Committee • Nominations and Remuneration Committee Other Directorships: • RIS Safety Pty Ltd, Chairman • Root Partnership Pty Ltd, Chairman • Commitworks Pty Ltd, Director Mr Greg Albert MBA MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER Skills and Experience: 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 was a Director of Bisalloy Steel Group’s majority owned businesses – PT Bima Bisalloy and Bisalloy Thailand. Mr Albert was also Vice-Chairman of the Group’s Co-operative Joint Venture, Bisalloy Shangang (Shandong) Steel Plate Co., Limited. Term of office: Appointed in January 2016. Mr Albert left Bisalloy on 6 July 2020. 2 Directors’ Reportfor the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Mr Glenn Cooper MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER Skills and Experience: Mr Cooper has an engineering background and over 25 years experience as a senior executive in the mining, construction, transport and quarrying industries. He is an experienced senior executive across all business functions including sales, aftermarket, distribution and market development. Glenn has held previous senior executive roles at regional and global levels for major global OEM’s and manufacturers. Mr Cooper is a Director of Bisalloy Steel Group’s majority owned businesses – PT Bima Bisalloy and Bisalloy Thailand. Mr Cooper is also Vice-Chairman of the Group’s Co-operative Joint Venture, Bisalloy Shangang (Shandong) Steel Plate Co., Limited. Term of office: Mr Cooper was appointed CEO Australia in November 2019 before being appointed as Managing Director and Chief Executive Officer on 6 July 2020. As the Managing Director he is not subject to re-election by rotation. Board Committees: • Audit and Risk Committee • Nominations and Remuneration Committee Other Directorships: Nil Mr Kym Godson DIP TECH (BUS ADMIN), FAICD, FAIM NON-EXECUTIVE DIRECTOR Skills and 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. Mr Godson left Bisalloy on 27 November 2020. Mr Barry Morris NON-EXECUTIVE DIRECTOR Skills and Experience: Mr Morris is a former interim Bisalloy Chief Financial Officer and Company Secretary. Term of office: Appointed in August 2020. Mr Morris left Bisalloy on 27 November 2020. Mr Ian Greenyer NON-EXECUTIVE DIRECTOR Skills and Experience: Mr Greenyer brings significant financial and business analysis and improvement skills, through 27 years as an independent consultant, actively identifying and effecting change in small and medium sized companies operating in a broad range of business sectors based in Australia. These activities flowed from a background as an actuary, investment analyst and stockbroker. Term of office: Appointed as Director on 27 November 2020. Mr Greenyer is subject to election in November 2021. Board Committees: • Audit and Risk Committee • Nominations and Remuneration Committee Other Directorships: • Greenyer & Co, Director 3 Bisalloy Steel Group Limited 2021 Annual Report Mr Michael Gundy MBA, B Bus, Assoc Dip Metallurgy NON-EXECUTIVE DIRECTOR Skills and Experience: Mr Gundy is an experienced executive with 34 years of steel industry experience spread across Australia, S.E. Asia, New Zealand, and the United States. In his career Mr Gundy has been involved in profitably growing businesses, opening new markets, developing distribution channels and business restructuring. Term of office: Appointed as Director on 27 November 2020. Mr Gundy is subject to election in November 2021. Board Committees: • Audit and Risk Committee • Nominations and Remuneration Committee Other Directorships: Nil Company Secretary Mr Luke Beale B COMM, MBA, ACA, GAICD COMPANY SECRETARY AND CHIEF FINANCIAL OFFICER Skills and Experience: Appointed in April 2018. Mr Beale is a Chartered Accountant with 21 years professional experience working in senior financial positions with listed companies in Australia, New Zealand and Asia. Mr Beale is a Director of Bisalloy Steel Group’s majority owned businesses – PT Bima Bisalloy and Bisalloy Thailand. Mr Beale is also Financial Supervisor of the Group’s Co-operative Joint Venture, Bisalloy Shangang (Shandong) Steel Plate Co., Limited. Mr Beale resigned on 21 July 2021 and his last day with Bisalloy will be 12 October 2021. 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 Cave R Grellman D Balkin G Albert G Cooper K Godson B Morris I Greenyer M Gundy Dividends Final dividend recommended on ordinary shares (fully franked) Dividends paid in the year Number of ordinary shares Nil Nil 7,781,095 Nil 5,813 Nil Nil 100,000 500 Cents 9.0 5.0 $’000 4,137 2,271 Principal activities The principal activity of the Group during the financial year was the manufacture and sale of quenched and tempered, high-tensile, and abrasion resistant steel plates (“Q&T plate”). 4 Directors’ Report (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Operating and Financial Review Operations Group 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 Co-Operative Joint Venture (CJV) – Bisalloy Shangang (Shandong) Steel Plate Co, Ltd. Bisalloy continues to prioritise the journey to zero harm to our people, stakeholders and the environment. In FY21, the Group sustained a period through H1 of 12 months LTI free. The focus for the year was to continue to address risk, improve our internal audit compliance, and safety education to our frontline workforce. 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 distributors and directly to select manufacturers and end users in Australia and internationally. For armour grade steels, Bisalloy deals directly with 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 12 months ended 30 June 2021, Bisalloy utilised greenfeed steel supply mainly from neighbouring BlueScope Steel in Wollongong, complemented with selected supply from international greenfeed suppliers, including the CJV. Financial review Operating results The Group’s net profit for the year after income tax was $8,954,000 (2020: $6,828,000). The profit increase was primarily driven by an increase in domestic Australian margins offset by a loss in domestic market share. Export sales from Australia were strong, as were domestic sales in China. Overhead savings relative to the previous year were also achieved. Operating results are summarised as follows: Operating Segments Australia Overseas Consolidated entity adjustments Consolidated entity revenue and profit after tax for the year 2021 Revenue Profit after tax 92,357 17,920 110,277 (5,450) 104,827 9,674 2,136 11,810 (2,856) 8,954 5 Bisalloy Steel Group Limited 2021 Annual Report Shareholder returns The Board has decided to pay a dividend of 9.0 cents per share for the year ended 30 June 2021. Basic earnings / (loss) per share (cents) Net profit / (loss) attributable to members ($’000) Return on equity (reported PAT/equity) (%) Gearing (net debt / net debt + equity) (%) Dividends paid (cents) Dividends proposed (cents) Dividend franking Liquidity and capital resources The consolidated statement of cash flows details an increase in cash and cash equivalents before exchange rate differences for the year ended 30 June 2021 of $1,845,000 (2020: decrease of $1,388,000). Operating activities resulted in a net cash inflow of $10,900,000 (2020: outflow of $2,001,000) partially driven by a reduction in working capital. Investing activities resulted in a net cash inflow of $155,000 (2020: outflow of $2,222,000). This included cash outflows of $1,252,000 (2020: $2,052,000) for investment in operating plant and equipment and dividends received of $1,751,000 (2020: $0). Financing activities resulted in a net cash outflow of $9,210,000 (2020: inflow of $2,835,000), including a repayment of $6,979,000 in borrowings (2020: increase in borrowings of $4,832,000) and the dividend paid in cash to shareholders in November 2020 totalling $1,703,000 (2019: $1,472,000). Funding The Group’s net debt decreased to $7.0m at 30 June 2021, down from $15.6m at 30 June 2020, with a decrease in gearing to 13%, down from 27% at the end of the previous year. Bisalloy Steel Group Limited and Bisalloy Steels Pty Limited have the following facilities in place with Westpac Banking Corporation: a trade finance facility of $9 million, an invoice finance facility of $12 million and a two year bank bill business facility of $6 million. The total limit of these facilities is $27 million. The Group has IDR 44.5b revolver facilities as well as a USD$500k Letter of Credit facility available to its Indonesian based subsidiary. Business strategy and outlook Strategy Australian Sales Bisalloy’s strategy is to be the supplier of choice to Australian fabricators and manufacturers as the only Australian producer of high-quality quenched and tempered steel. With a globally recognised brand and over 40 years of experience, Bisalloy is well positioned to use existing technical 6 2021 19.3c 8,810 18.5% 13% 5.0c 9.0c 2020 14.9c 6,736 16.0% 27% 4.0c 5.0c 2019 8.3c 3,682 12.6% 21% 4.0c 4.0c 100% 100% 100% 2018 8.2c 3,636 12.6% 16% 2.5c 4.0c 100% 2017 3.4c 1,509 6.6% 15% 2.5c 2.5c 100% know-how to work closely with customers in the Mining, Construction, Transport and Defence sectors to provide the best quality material for their purposes, offering an efficient and effective supply chain by taking advantage of our local manufacturing capability and high-quality greenfeed supply. The Board with senior management has initiated a series of strategic reviews to better support our end user customers, strengthen our relationships with our largest customers and build a more robust supply chain at a time of major capacity shortages in shipping and steel production globally. Domestic sales volumes were negatively impacted by increased US imports during FY21 which was partially offset by improved margins. On 16th March 2021, the Anti-Dumping Commission initiated an investigation in respect of quenched and tempered steel plate imported into Australia from the USA. The investigation is ongoing and the public record relating to this investigation can be found at https://www.industry.gov.au/regulations- and-standards/anti-dumping-and-counterveiling-systems/ anti-dumping-commission-current-cases/578. The result of this investigation will have a material impact on our strategy in the Australian market. China Co-Operative Joint Venture (CJV) Bisalloy has worked closely with the CJV over the last 10 years to build a strong business across China and North Asia. Our strategy with the CJV is to continue to leverage Bisalloy’s technical know-how and research and development (R&D) capabilities to strengthen and grow the position and reputation of the business as a premium supplier of quenched and tempered steel plate for the domestic Chinese market. In June 2021, Bisalloy and Shandong converted the Co-Operative Joint Venture to a Foreign Invested Limited Liability Company, which means that the current terms, conditions and working arrangements with the CJV are ongoing with no set end date. The CJV also plays a key role in providing an alternate supply of suitable greenfeed for Bisalloy. The CJV had a very strong FY21 with sales volumes up 29% on FY20. Directors’ Report (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Overseas Distribution Bisalloy’s well established distribution businesses in Thailand and Indonesia have remained profitable during a period where Covid-19 lockdowns and restrictions have limited market growth with sales volumes down by 31% and 14% respectively on FY20 results. 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. Both businesses are well positioned with experienced sales teams and a developed supply chain with Bisalloy Australia, to take advantage of market growth in these two key South East Asian markets post Covid-19. • 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. Bisalloy is also exploring options for supply of some grades of quenched and tempered plate from the CJV. Armour The Armour business continues to be of strategic importance to Bisalloy with new market opportunities both domestically and internationally. Bisalloy’s strategy remains unchanged with a clear focus on leveraging our globally recognised brand by the military in western markets, our R&D and technical know-how to work closely with several industry participants in the development of the right technical and quality solutions for their individual needs. Covid-19 Whilst Covid-19 has not had a material impact on FY21 demand in Australia or China, the impact on demand in Thailand, Indonesia and our export Armour business continues to be affected. The Covid-19 restrictions on domestic and international travel have hindered the business from executing initiatives focused on growing market share and business improvements in key markets. No plant or operational closures have occurred to-date. FY22 Outlook In Australia, lockdowns and travel restrictions have continued into the FY22 financial year and impacts on market conditions and demand remain unclear. Subject to any long-term continuation of these limitations, Bisalloy is forecasting increased profitability in FY22. Bisalloy will continue to focus on marketing and selling our range of premium quenched and tempered steels to the Mining and Construction sectors which account for the largest share of Australian sales whilst building our position in the Armour sector. Business risk management 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 Director. 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. • 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 risks that have a potential to materially impact on the financial outlook for the Group are pricing and availability of greenfeed and continued upward pressure on energy prices. Bisalloy is working through options with our main greenfeed supplier as well as other suppliers including the CJV, to mitigate the above-mentioned risks. Electricity and natural gas are integral inputs into the Group’s manufacturing process, and affordable energy resources are critical if the Group is to maintain its competitive advantage. Bisalloy Australia currently has retail contracts in place for electricity supply through to the end of December 2022 and gas supply through to the end of December 2023. Significant changes in the state of affairs Total equity increased from $42,580,000 to $48,414,000, an increase of $5,834,000 that was driven by the increase in net profit for the year offset by a final dividend totalling $2,271,000 in respect of the year ended 30 June 2020 which was paid to shareholders in November 2020. Significant events after the balance date There have been no significant events after the balance date. Indemnification and insurance of directors and officers 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. 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 7 Bisalloy Steel Group Limited 2021 Annual Report 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. Environmental regulation 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. Rounding 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 Corporations Instrument 2016/191. The company is an entity to which the Class Order applies. Auditor independence The Directors received the declaration on page 22 from the auditor of Bisalloy Steel Group Limited which forms part of this report. Indemnification of auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, KPMG, 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 KPMG during or since the financial year. Non-audit services During the year the Company’s auditor, KPMG, has performed certain other services in addition to the audit and review of the financial statements. The board has considered the non-audit services during the year by the auditor and is satisfied that the provision of those non-audit services is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001. Details of the amounts paid to the Company’s auditor for audit and non-audit services provided during the year are set out below. Services other than audit and review of financial statements – Tax compliance engagement Audit and review of financial statements Total paid to KPMG 2021 11,000 197,000 208,000 Likely developments and expected results In FY22 Bisalloy is continuing with its growth strategy of focusing on the premium grades of QT steels from its Unanderra plant, including armour and defence grades while developing the volume growth of other products sourced from Bisalloy’s CJV operation. This strategy and focus has resulted in strong margin growth in the second half of FY21 with good momentum going into FY22. Bisalloy is forecasting profitability to be up in FY22. 8 Directors’ Report (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Directors’ meetings The number of Directors meetings and number of meetings attended by each of the Directors of the Company during the financial year are: Number of Meetings Held Number of Meetings Attended P Cave R Grellman D Balkin G Albert G Cooper K Godson B Morris I Greenyer M Gundy Committee Meetings Directors’ meetings Audit and risk Nomination and remuneration 13 2 4 8 0 13 5 3 8 8 3 1 1 2 0 3 1 0 2 2 4 1 1 3 0 4 1 0 3 3 Remuneration report (audited) This remuneration report for the year ended 30 June 2021 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 Nominations and remuneration committee 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. 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. Remuneration policy 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’ dependent upon meeting pre-determined performance hurdles. 4. Establish appropriately demanding performance hurdles in relation to variable executive remuneration. 5. Provide the opportunity for non-executive Directors to sacrifice a portion of their fees to acquire shares in the Company at market price. Remuneration structure The structure of non-executive Director and executive remuneration is separate and distinct, in accordance with good corporate governance principles. Non-executive director remuneration Objective The Board sets aggregate remuneration at a level which is intended to provide the Company with the ability to attract and retain non-executive 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 $383,250. The Board will not seek any increase for the fee pool at the 2021 AGM. The remuneration of non-executive Directors must not include a commission on, or a percentage of, profits or operating revenue but non-executive Directors are entitled to be reimbursed for travelling and other expenses incurred in attending to the Company’s affairs. Each non-executive Director receives a fee for being a non-executive Director of the Company and an additional fee for each Board Committee on which a non-executive Director sits. The payment of additional fees for serving on a committee recognises the additional time commitment 9 Bisalloy Steel Group Limited 2021 Annual Report required by non-executive 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 2021 is detailed in the table on page 12 of this report. Structure Executive Directors and executive 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. 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 2021 is detailed in the table on page 12 of this report. Variable remuneration – short term incentives (STI) Executive director and executive manager remuneration Objective 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 and 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 2021 is detailed in the table on page 12 of this report. Fixed remuneration Objective The STI program has been designed to align the remuneration received by executive Directors and executive 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 executive Directors and executive 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 Director and executive 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 Director or executive manager. The aggregate of STI payments and STI payments to individuals is subject to the approval of the Nominations and Remuneration Committee. The individual needs to be employed at the time of payment to be eligible for the payment. Payments made are normally paid as cash but the recipient is also able to elect to receive payment in alternative forms. Variable remuneration – long term incentives (LTI) Objective The LTI program has been designed to align the remuneration received by executive Directors and executive 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 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. At the 2019 Annual General Meeting, the 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 10 Directors’ Report (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report 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 2021 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 their share rights and be allocated a fully paid ordinary share of Bisalloy at no cost to the employee or the equivalent in cash at the Board’s discretion. A total of 1,050,000 share rights (2020: 400,000) were granted under this scheme during the year. Group performance The Board has determined that 65.54% of the performance components of the 2021 share rights have vested based on an ROE achieved that was between budget ROE and stretch ROE. For further detail of historical performance, refer to the following table. Return on equity (reported PAT/equity) (%) 2021 18.5% 2020 16.0% 2019 12.6% 2018 12.6% 2017 6.6% Details of key management personnel of the company and group G Albert – Managing Director and Chief Executive Officer (until 6 July 2020) (i) Directors • Regular employment contract without fixed term P Cave Non-executive Chairman (until 27 August 2020) • Participation in STI and LTI schemes R Grellman Non-executive Chairman (Director until 27 November 2020; Chairman from 27 August 2020 until 27 November 2020) D Balkin Non-executive Chairman (from 27 November 2020) • 6 months notice required for termination of employment by employee • 12 months notice required for termination by company G Cooper – Managing Director and Chief Executive Officer (from 6 July 2020) K Godson Non-executive Director (until 27 November 2020) • Regular employment contract without fixed term B Morris Non-executive Director (from 27 August 2020 until 27 November 2020) I Greenyer Non-executive Director (from 27 November 2020) M Gundy Non-executive Director (from 27 November 2020) G Albert Managing Director and Chief Executive Officer (until 6 July 2020) G Cooper Managing Director and Chief Executive Officer (from 6 July 2020) (ii) Executives • Participation in STI and LTI schemes • 6 months notice required for termination of employment L Beale – Chief Financial Officer and Company Secretary • Regular employment contract without fixed term • Participation in STI and LTI schemes • 3 months notice required for termination of employment M Enbom – Chief Operations Officer • Regular employment contract without fixed term L Beale Chief Financial Officer and Company Secretary • Participation in STI and LTI schemes M Enbom Chief Operations Officer • 3 months notice required for termination of employment A Egan Bisalloy Australia Sales and Marketing Manager Executive contracts Remuneration arrangements for the key management personnel are formalised in employment contracts. Details of these contracts are provided below. A Egan – Bisalloy Australia Sales and Marketing Manager • Regular employment contract without fixed term • Participation in STI and LTI schemes • 1 month notice required for termination of employment 11 Bisalloy Steel Group Limited 2021 Annual Report % d e t a e r l e c n a m r o f r e P $ l a t o T s t n e m y a p d e s a b - e r a h S – – – – – – – – – % 7 4 % 8 % 6 3 % 6 3 % 3 2 % 3 3 % 8 1 s t h g i r e r a h S r e h t O s t fi e n e b s t fi e n e b n o i t a u n n a e v a e l s u n o b h s a C s e e f 0 0 0 , 5 2 0 5 7 , 5 5 5 2 6 , 5 4 8 3 6 , 8 2 6 7 0 , 7 9 7 1 7 , 4 6 7 1 7 , 4 6 4 2 5 , 1 8 3 3 0 0 , 8 9 4 5 4 4 , 0 9 8 $ – – – – – – – – $ – – – – – – – – 3 5 1 , 1 7 2 – ) 4 8 6 , 1 1 3 ( 0 0 0 , 0 0 2 8 4 4 , 8 8 3 , 1 ) 1 3 5 , 0 4 ( 0 0 0 , 0 0 2 2 0 3 , 2 7 5 1 0 0 , 5 6 5 4 7 4 , 6 0 3 1 8 4 , 8 3 1 8 6 8 , 1 3 1 7 6 4 , 1 4 7 7 7 , 3 4 4 , 1 6 1 8 , 1 1 3 – – – – 9 4 7 , 3 1 2 , 3 5 8 2 , 1 7 2 0 0 0 , 0 0 2 $ – – – – – – – – – – – – – – – – $ – – – – – – – – – – – – – – – – $ – – 8 5 9 , 3 5 8 4 , 2 2 2 4 , 8 5 1 6 , 5 5 1 6 , 5 5 9 0 , 6 2 0 4 8 , 5 2 0 0 0 , 5 2 $ – – – – – – – – – $ – – – – – – – – – 9 8 4 , 1 2 9 3 4 , 9 4 1 $ 0 0 0 , 5 2 0 5 7 , 5 5 7 6 6 , 1 4 4 5 1 , 6 2 4 5 6 . 8 8 2 0 1 , 9 5 2 0 1 , 9 5 9 2 4 , 5 5 3 6 4 8 , 3 8 5 5 6 3 , 3 2 4 0 4 8 , 0 5 9 8 4 , 1 2 9 3 4 , 9 4 1 1 1 2 , 7 0 0 , 1 s r o t c e r i D e v i t u c e x E - n o N l l 2 n a m e r G R 2 n o s d o G K 3 s i r r o M B 1 e v a C P l i 4 n k a B D e v i t u c e x E - n o N l a t o t - b u S s r o t c e r i D s r o t c e r i D e v i t u c e x E e v i t u c e x E l a t o t - b u S s r o t c e r i D 6 r e p o o C G 5 t r e b A G l 4 r e y n e e r G I 4 y d n u G M 0 0 0 , 5 2 0 0 0 , 5 2 0 5 0 , 8 1 0 5 0 , 8 6 5 8 9 , 4 4 1 1 2 5 , 9 1 5 9 3 , 3 1 9 6 0 , 7 5 8 9 , 9 3 3 7 4 , 1 6 5 3 8 , 8 6 8 3 7 , 9 6 9 8 8 , 7 2 1 6 4 , 6 6 1 0 0 9 , 5 1 3 5 6 4 , 0 2 3 0 0 0 , 5 2 3 0 0 0 , 2 1 2 5 6 4 , 7 5 8 5 0 1 , 0 2 2 , 2 P M K e v i t u c e x E l a t o t - b u S l s a t o T m o b n E M l 7 e a e B L n a g E A l e n n o s r e p t n e m e g a n a m y e k r e h t O t n e m y o p m e l t s o P m r e t - g n o L m r e t - t r o h S n o i t a n m r e T i t n e m e r i t e R - r e p u S l a u n n a d n a i e c v r e s g n o L d n a y r a a S l p u o r g d n a y n a p m o c e h t f o l e n n o s r e p t n e m e g a n a m y e k f o n o i t a r e n u m e R 1 2 0 2 e n u J 0 3 d e d n e r a e Y 12 . k 0 0 2 $ d e t a i t o g e n r e h t r u f a s a l l e w s a t n e m e l t t e s l a n fi i s h f o t r a p s a y r a a s l s ’ r a e y i e n o d a p s a w e H . 0 2 0 2 l y u J 6 n o d e t a n m r e t i s a w t n e m y o p m e l s ’ t r e b A r l M . 1 2 0 2 r e b o t c O 2 1 e b l l i w t n e m y o p m e l f o y a d l a n fi i s h d n a 1 2 0 2 l y u J 1 2 n o d e n g s e r i l e a e B r M . 0 2 0 2 l y u J 6 n o r o t c e r i i D g n g a n a M s a d e t n o p p a i s a w r e p o o C r M . 0 2 0 2 r e b m e v o N 7 2 n o d e t n o p p a i e r e w y d n u G r M d n a r e y n e e r G r M i , n k a B l r M . M G A e h t t a n o i t c e e l i s h e v o r p p a o t g n i l i a f y o l l a s B i f o l s r e d o h e r a h s g n w o i l l o f 0 2 0 2 r e b m e v o N 7 2 n o d e n g s e r i s i r r o M r M . 0 2 0 2 r e b m e v o N 7 2 n o d e n g s e r i n o s d o G r M d n a n a m l l e r G r M . 0 2 0 2 t s u g u A 7 2 m o r f e v i t c e f f e d e n g s e r i e v a C r M 1 2 3 4 5 6 7 Directors’ Report (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report % d e t a e r l e c n a m r o f r e P $ l a t o T s t n e m y a p d e s a b - e r a h S t n e m y o p m e l t s o P m r e t - g n o L m r e t - t r o h S s t h g i r e r a h S s t fi e n e b s t fi e n e b n o i t a u n n a e v a e l s u n o b h s a C s e e f n o i t a n m r e T i t n e m e r i t e R - r e p u S l a u n n a d n a i e c v r e s g n o L d n a y r a a S l – – – – % 8 4 % 8 4 – % 5 3 % 7 2 – % 1 3 % 6 1 % 1 2 % 8 2 0 0 0 , 0 5 1 0 0 5 , 9 0 1 0 0 5 , 9 0 1 0 0 0 , 9 6 3 $ – – – – 1 9 3 , 7 6 1 , 1 0 1 7 , 7 5 5 1 9 3 , 7 6 1 , 1 0 1 7 , 7 5 5 8 3 7 , 1 8 3 3 1 8 , 7 7 4 6 1 2 , 3 6 1 3 6 0 , 7 0 4 6 9 0 , 1 5 – 6 9 4 , 1 6 0 8 0 , 2 9 ) 4 5 6 , 5 5 ( 4 9 5 , 4 4 9 9 6 , 4 5 2 1 6 9 , 1 $ – – – – – – – – – – – 1 4 6 , 0 3 6 2 6 , 5 3 7 , 1 7 7 4 , 4 4 1 7 1 0 , 2 7 2 , 3 7 8 1 , 2 0 7 1 4 6 , 0 3 1 4 6 , 0 3 $ – – – – – – – – – – – – – – $ – 0 0 5 , 9 0 0 5 , 9 0 0 0 , 9 1 0 0 0 , 5 2 0 0 0 , 5 2 5 4 5 , 5 1 0 0 0 , 5 2 5 8 8 , 5 1 4 0 2 , 3 2 1 4 8 , 3 0 7 9 , 4 2 5 4 4 , 8 0 1 5 4 4 , 2 5 1 $ – – – – 1 8 6 , 9 1 8 6 , 9 – 1 4 0 , 0 2 2 0 7 , 4 1 8 4 5 , 2 1 4 0 6 , 3 2 6 9 , 7 8 5 8 , 8 5 9 3 5 , 8 6 $ – – – – – – – – 6 6 0 , 1 7 5 7 9 , 4 3 3 6 4 , 2 8 2 5 0 , 0 4 6 5 5 , 8 2 2 6 5 5 , 8 2 2 $ 0 0 0 , 0 5 1 0 0 0 , 0 0 1 0 0 0 , 0 0 1 0 0 0 , 0 5 3 0 0 0 , 5 7 5 0 0 0 , 5 7 5 0 9 5 , 3 1 2 6 5 0 , 1 1 3 4 4 3 , 2 7 1 4 5 2 , 4 4 2 1 5 6 , 3 4 4 5 7 , 9 7 1 9 4 6 , 4 6 1 , 1 9 4 6 , 9 8 0 , 2 s r o t c e r i D e v i t u c e x E - n o N l a t o t - b u S l e n n o s r e p t n e m e g a n a m y e k r e h t O s r o t c e r i D e v i t u c e x E l a t o t - b u S s r o t c e r i D e v i t u c e x E 1 t r e b A G l s r o t c e r i D e v i t u c e x E - n o N l l n a m e r G R n o s d o G K e v a C P P M K e v i t u c e x E l a t o t - b u S l s a t o T 2 r e p o o C G l e a e B L 3 n o s e e G S l m o b n E M 4 n a g E A p p e t s k c u H A 0 2 0 2 e n u J 0 3 d e d n e r a e Y . 0 2 0 2 r e b m e t p e S n i i d a p e b o t d o i r e p g n i t r o p e r e h t n i r o f d e u r c c a e s o h t e r a s e r u g fi ’ s u n o b h s a c ‘ e h T . 0 2 0 2 y r a u r b e F 3 1 s a w t n e m y o p m e l f o y a d l a n fi i s H . 9 1 0 2 r e b m e v o N 4 1 n o d e n g s e r i n o s e e G l r M . 0 2 0 2 l i r p A 5 1 n o d e t n o p p a i s a w n a g E r M . 9 1 0 2 r e b m e v o N 1 1 n o d e t n o p p a i s a w r e p o o C r M . 0 2 0 2 y u J l 6 n o y o l l a s B i t f e l t r e b A r l M 1 2 3 4 5 13 Bisalloy Steel Group Limited 2021 Annual Report Share rights 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. Performance rights holdings of key management personnel of the company and group Executives G Albert1 G Cooper2 L Beale3 M Enbom A Egan Balance at 1 July 2020 Granted during the year Rights exercised during the year Forfeited or lapsed Balance at 30 June 2021 Vested and exercisable Unvested 833,333 – 400,000 600,000 – – (833,333) – (57,440) 942,560 – – – 942,560 333.333 – (200,000) (22,976) 110,357 (110,357) – 166,667 250,000 – 200,000 – – (25,848) 390,819 (11,488) 188,512 – – 390,819 188,512 1,733,333 1,050,000 (200,000) (951,085) 1,632,248 (110,357) 1,521,891 1 Mr Albert’s unvested rights were forfeited upon the termination of his employment on 6 July 2020. 2 Mr Cooper’s new issue of 600,000 share rights was approved at the AGM on 27 November 2020. 3 200,000 of Mr Beale’s rights vested on 15 April 2021. The Board elected to provide a cash payment for 50% of these with the remaining 50% exercised as shares. Mr Beale resigned on 21 July 2021 and his final day of employment will be 12 October 2021. Mr Beale will be issued 110,357 shares on 25 August 2021. L Beale1 M Enbom G Albert2 G Cooper #1 A Egan G Cooper3 #2 M Enbom #2 Total Grant date Vesting date 16-Apr-18 5-Nov-18 26-Feb-19 11-Nov-19 1-Jul-20 6-Jul-20 6-Jul-20 30-Jun-21 4-Nov-21 25-Feb-22 10-Nov-22 30-Jun-23 5-Jul-23 5-Jul-23 Fair value at grand date $0.82 $0.79 $1.00 $0.97 $0.85 $1.16 $0.82 Balance at 1 July 2020 333,333 166,667 833,333 400,000 – – – 1,733,333 New grants in the year – Exercised in the year (200,000) – – – – – – 200,000 600,000 250,000 1,050,000 – – – (200,000) Lapsed during the year (22,976) (11,488) (833,333) (22,976) (11,488) (34,464) (14,360) (951,085) Balance at 30 June 2021 110,357 155,179 Vested and exercisable at 30 June 2021 110,357 – – – 377,024 188,512 565,536 235,640 1,632,248 – – – – 110,357 1 200,000 of Mr Beale’s rights vested on 15 April 2021. The Board elected to provide a cash payment for 50% of these with the remaining 50% exercised as shares. Mr Beale resigned on 21 July 2021 and his final day of employment will be 12 October 2021. Mr Beale will be issued 110,357 shares on 25 August 2021. 2 Mr Albert’s unvested rights were forfeited upon the termination of his employment on 6 July 2020. 3 Mr Cooper’s 600,000 share rights awarded on 6 July 2020 were approved at the AGM on 27 November 2020. The fair value at the date of the initial award was $0.82. The fair value on the date of approval was $1.16. The Board has determined that 65.54% of the performance components of the 2021 share rights have vested based on an ROE achieved that was between budget ROE and stretch ROE. Final vesting of the share rights are subject to each executive remaining employed by the Group until the vesting date. 14 Directors’ Report (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Shareholdings of key management personnel Shareholdings include shares held personally and through related parties. Directors P Cave1 K Godson2 R Grellman2 B Morris3 D Balkin4 I Greenyer4 M Gundy4 G Albert5 G Cooper6 Executives L Beale7 M Enbom A Egan Balance at 30-Jun-20 Performance rights exercised Other Balance at 30-Jun-21 7,646,022 1,344,766 41,693 – 7,781,095 – – 327,904 5,813 – – – – – – – – – (7,646,022) (1,344,766) (41,693) – – 100,000 500 (327,904) – – – – – 7,781,095 100,000 500 – 5,813 7,500 100,000 7,500 115,000 – – – – – – – – 17,154,793 100,000 (9,252,385) 8,002,408 1 Mr Cave resigned effective from 27 August 2020. 2 Mr Grellman and Mr Godson resigned on 27 November 2020. 3 Mr Morris resigned on 27 November 2020 following shareholders of Bisalloy failing to approve his election at the AGM. 4 Mr Balkin, Mr Greenyer and Mr Gundy were appointed on 27 November 2020. 5 Mr Albert’s employment was terminated on 6 July 2020. He was paid one year’s salary as part of his final settlement as well as a further negotiated $200k. 6 Mr Cooper was appointed as Managing Director on 6 July 2020. 7 Mr Beale resigned on 21 July 2021 and his final day of employment will be 12 October 2021. Audit 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 22. Glenn Cooper Managing Director 25 August 2021 15 Bisalloy Steel Group Limited 2021 Annual Report 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 Yes No 1.1 Companies should establish the functions reserved to the Board and those delegated to senior executives and disclose those functions. 1.2 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. 1.3 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. 1.4 Companies should disclose in Yes each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the Board. 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. 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 1.2. 10% of employees across the organisation are women and there are no women in senior executive positions or on the Board. 1.5 Companies should disclose Yes the process for evaluating the performance of senior executives. 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. 1.6 Additional information. The Corporate Governance Code and other relevant charters are available on the Company’s website. The Equal Employment Opportunity Policy is available on the Company website. 16 Corporate Governance Statementfor the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Recommendation Comply Yes/No Reference/Explanation Principle 2 – Structure the Board to be effective and add value 2.1 A majority of the Board should be Yes independent Directors. The Board currently has four Directors, two 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. The following Directors are considered independent: • Mr Greenyer • Mr Gundy 2.2 The Chair should be an independent Director. No 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. 2.3 The roles of Chair and Chief Yes Executive Officer should not be exercised by the same individual. The roles of Chair and Chief Executive Officer are not exercised by the same individual. 2.4 The Board should establish a nomination committee. 2.5 Companies should disclose the process for evaluating the performance of the Board, its committees and individual Directors. Yes Yes 2.6 Additional information The Company has a combined Remuneration & Nominations Committee. The charter can be reviewed on the Company’s website. 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. 17 Bisalloy Steel Group Limited 2021 Annual Report Recommendation Comply Yes/No Reference/Explanation Principle 3 – Instil a culture of acting lawfully, ethically and responsibly 3.1 Companies should establish a code of conduct and disclose the code or a summary of the code as to: Yes • • • 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. 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. 3.2 Additional information The Company values are available on the Company website. Principle 4 – Safeguard the integrity of corporate reports 4.1 The Board should establish an Yes The Company has an Audit & Risk Committee. audit committee. 4.2 The audit committee should be Yes At the date of this report the Company’s Audit and Risk Committee was: structured so that it: • comprised of non-executive Directors being Mr Greenyer, Mr Balkin • consists only of non-executive and Mr Gundy. 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 • Chaired by Mr Greenyer • 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. 18 Corporate Governance Statement (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Recommendation Comply Yes/No Reference/Explanation Principle 5 – Make timely and balanced disclosure 5.1 Establish written policies Yes designed to 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. 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. 5.2 Additional information The Company’s Continuous Disclosure Policy is available on the Company’s website. Principle 6 – Respect the rights of security holders 6.1 Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. Yes 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 Principle 7 – Recognise and manage risk 7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. Yes 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. 19 Bisalloy Steel Group Limited 2021 Annual Report Recommendation Comply Yes/No Reference/Explanation 7.2 The Board should require Yes 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. 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. 7.4 Additional information. 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. 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. 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 publicly. 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 structured so that it: • Consists of a majority of independent Directors • Is Chaired by an independent Chair • Has at least three members At the date of this report the Company’s Remuneration Committee was: • comprised of non-executive Directors being Mr Balkin, Mr Greenyer and Mr Gundy. • Chaired by Mr Balkin, with two 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. 20 Corporate Governance Statement (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Recommendation Comply Yes/No Reference/Explanation 8.3 Companies should clearly Yes distinguish the structure of non- executive Directors’ remuneration from that of executive Directors and senior executives. 8.4 Additional information 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. 21 Bisalloy Steel Group Limited 2021 Annual Report Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Bisalloy Steel Group Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Bisalloy Steel Group Limited for the financial year ended 30 June 2021 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Warwick Shanks Partner Wollongong 26 August 2021 22 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. 22 Auditor’s Independence Declarationfor the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Consolidated Statement of Profit or Loss and other Comprehensive Income For the year ended 30 June 2021 In thousands of dollars Continuing operations Consolidated Notes Year ended 30 June 2021 Year ended 30 June 2020 Revenue from contracts with customers 3 104,827 Cost of goods sold Gross profit Other income / (expenses) Distribution expenses Marketing expenses Occupancy expenses Administrative expenses Operating profit Finance costs Finance income Share of profit of joint venture, net of tax Profit before income tax Income tax expense Profit after income tax Attributable to: Non-controlling interest Owners of the parent Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss: Fair value revaluation of land and buildings Foreign currency translation Actuarial gains / (losses) Income tax effect on items in other comprehensive income 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 5(a) 5(b) 5(b) 6 7(a) 23(d) (81,476) 23,351 33 (2,323) (2,818) (730) (6,215) 11,298 (1,107) 6 2,355 12,552 (3,598) 8,954 144 8,810 8,954 – (1,410) 13 92 (1,305) 7,649 (236) 7,885 7,649 Earnings per share for profit attributable to ordinary equity holders of the parent – Basic earnings per share (cents) – Diluted earnings per share (cents) 8 8 19.3 18.5 110,719 (87,173) 23,546 (453) (2,534) (3,163) (758) (8,085) 8,553 (1,231) 42 1,653 9,017 (2,189) 6,828 92 6,736 6,828 3,032 114 (56) (910) 2,180 9,008 141 8,867 9,008 14.9 14.3 23 Bisalloy Steel Group Limited 2021 Annual Report Consolidated Statement of Financial Position As at 30 June 2021 In thousands of dollars ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Contract assets Income tax receivable Derivative asset Total current assets Non-current assets Investment in joint venture Other non-current assets Property, plant and equipment Intangibles Income tax receivable Deferred tax asset Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Loans and borrowings Income tax payable Employee benefit liabilities Lease liabilities Contract liabilities Derivative liabilities Total current liabilities Non-current liabilities Loans and borrowings Employee benefit liabilities Lease liabilities 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 24 Consolidated Notes 30 June 2021 30 June 2020 10(a) 11 12 13 3.2 7(e) 22 6 13 14 15 7(e) 7(d) 18 19.2 7(e) 20 21 3.2 22 19.2 20 21 7(d) 23(a) 23(e) 23(f) 23(d) 2,347 23,532 27,936 1,072 135 78 – 672 17,031 38,228 1,182 200 496 8 55,100 57,817 6,601 122 21,204 514 297 51 28,789 83,889 17,837 9,315 1,708 2,172 262 395 33 6,554 – 22,002 170 62 28,788 86,605 19,736 10,552 1,785 2,019 225 283 – 31,722 34,600 – 1,438 386 1,929 3,753 35,475 48,414 12,886 25,116 6,955 44,957 3,457 48,414 5,742 1,562 266 1,855 9,425 44,025 42,580 12,318 18,527 7,855 38,700 3,880 42,580 Bisalloy Steel Group Limited 2021 Annual Report Consolidated Statement of Cash Flows For the year ended 30 June 2021 In thousands of dollars 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 Net cash received from operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangible assets Dividends received from investments Net cash received from investing activities Cash flows from financing activities Repayments of / proceeds from borrowings Dividends paid to non-controlling interests Dividends paid to shareholders of the parent Principal lease payments Net cash used in financing activities Net increase / (decrease) in cash held Net foreign exchange differences Cash at the beginning of the financial year Cash at the end of the financial year Consolidated Notes Year Ended 30 June 2021 Year Ended 30 June 2020 106,910 120,067 (91,536) (119,438) 6 (1,107) (3,373) 10,900 (1,252) (344) 1,751 155 (6,979) (187) (1,703) (341) (9,210) 1,845 (170) 672 2,347 42 (1,231) (1,441) (2,001) (2,052) (170) – (2,222) 4,832 (226) (1,472) (299) 2,835 (1,388) 17 2,043 672 10(b) 10(d) 10(a) 25 Bisalloy Steel Group Limited 2021 Annual Report Consolidated Statement of Changes in Equity For the year ended 30 June 2021 l a t o T y t i u q e - n o N - r t n o c g n i l l o i d e n a t e R r e h t O i n g e r o F y t i u q E - e l t t e s t n e m t e s s A - l a v e r n o i t a u - s n a r t n o i t a l n o ) s s o l ( y t i u q e w o fl h s a c s t fi e n e b y c n e r r u c i / n a g t e N e e y o p m E l t s e r e t n i l a t o T i s g n n r a e s e v r e s e r e v r e s e r e v r e s e r e v r e s e r s e g d e h e v r e s e r y n a p m o C e h t l f o s r e d o h y t i u q e o t l e b a t u b i r t t A 0 9 1 , 5 3 9 4 1 , 4 1 4 0 , 1 3 6 3 5 , 3 1 ) 7 3 ( – 8 2 8 , 6 0 8 1 , 2 2 9 9 4 – – 6 3 7 , 6 1 3 1 , 2 – 5 4 6 3 7 , 6 8 0 0 , 9 1 4 1 7 6 8 , 8 1 8 7 , 6 8 1 3 ) 0 1 4 ( ) 8 4 1 ( 2 0 7 ) 0 9 2 ( ) 0 9 7 , 1 ( – – ) 0 1 4 ( – – – – 8 1 3 ) 8 4 1 ( 2 0 7 ) 0 9 2 ( – – – – – ) 0 9 7 , 1 ( ) 0 9 7 , 1 ( – – ) 6 5 ( ) 6 5 ( – – – – – – 0 8 5 , 2 4 0 8 5 , 2 4 0 8 8 , 3 0 8 8 , 3 0 0 7 , 8 3 7 2 5 , 8 1 0 0 7 , 8 3 7 2 5 , 8 1 ) 3 9 ( ) 3 9 ( – 4 5 9 , 8 4 4 1 ) 5 0 3 , 1 ( ) 0 8 3 ( – ) 5 2 9 ( 0 1 8 , 8 – 0 5 0 1 8 , 8 9 4 6 , 7 ) 6 3 2 ( 5 8 8 , 7 0 6 8 , 8 8 6 5 ) 7 8 1 ( ) 1 7 2 , 2 ( 5 7 – – – – ) 7 8 1 ( – – – – 5 7 – – 8 6 5 – – – – – ) 1 7 2 , 2 ( ) 1 7 2 , 2 ( – 9 – 9 – – – – – – 4 1 4 , 8 4 7 5 4 , 3 7 5 9 , 4 4 6 1 1 , 5 2 ) 4 8 ( 6 – – – – – – – – – 0 1 3 6 1 3 6 1 3 – – – – – – – – – ) 2 8 ( 8 9 3 3 0 1 , 4 5 8 0 , 1 – ) 5 4 ( 2 2 1 , 2 7 7 0 , 2 – – – – – – – 7 5 ) 0 5 ( 0 8 1 , 6 0 8 1 , 6 7 – – – – – – – – 5 6 5 6 – – – – – – 0 5 1 , 1 0 5 1 , 1 – – ) 1 9 9 ( ) 1 9 9 ( – – – – – – 7 8 1 , 6 9 5 1 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 8 4 3 ) 8 5 4 ( 2 0 7 ) 0 9 2 ( 2 0 3 2 0 3 – – – – – – – 5 7 2 8 – – – – – – – – – – – d e u s s I l a t i p a c 0 0 0 , 2 1 – – – – 8 1 3 , 2 1 8 1 3 , 2 1 : s r e n w o s a y t i c a p a c r i e h t n i s r e n w o h t i w s n o i t c a s n a r T n o i t a u a v e r l g n d i l i u b r o f r e f s n a r t i n o i t a c e r p e D e m o c n i e v i s n e h e r p m o c l a t o T ) 9 e t o N ( s r e d o h e r a h s l i o t d a p s d n e d v d y r a n d r O i i i 8 1 3 ) ) b ( 3 2 e t o N ( n a P l i t n e m t s e v n e R d n e d v D i i : s r e n w o s a y t i c a p a c r i e h t n i s r e n w o h t i w s n o i t c a s n a r T n o i t a u a v e r l g n d i l i u b r o f r e f s n a r t i n o i t a c e r p e D e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i i e v s n e h e r p m o c r e h t O ) 9 e t o N ( s r e d o h e r a h s l i o t d a p s d n e d v d y r a n d r O i i i 8 6 5 ) ) b ( 3 2 e t o N ( n a P l i t n e m t s e v n e R d n e d v D i i – – – – s t s e r e t n i g n i l l o r t n o c - n o n i o t d a p s d n e d v D i i s t h g i r e c n a m r o f r e p f o t n e m e l t t e S ) 6 1 e t o N ( s t n e m y a p d e s a b e r a h S ) 0 2 e t o N ( y t i l i b a i l o t d e r r e f s n a r T s t s e r e t n i g n i l l o r t n o c - n o n i o t d a p s d n e d v D i i s t h g i r e c n a m r o f r e p f o t n e m e l t t e S ) 6 1 e t o N ( s t n e m y a p d e s a b e r a h S ) 0 2 e t o N ( y t i l i b a i l o t d e r r e f s n a r T 0 2 0 2 e n u J 0 3 t A 0 2 0 2 l y u J 1 d o i r e p e h t r o f t fi o r P e m o c n i i e v s n e h e r p m o c r e h t O s r a l l o d f o s d n a s u o h t n I d o i r e p e h t r o f t fi o r P 9 1 0 2 l y u J 1 26 5 9 2 6 8 8 , 2 1 1 2 0 2 e n u J 0 3 t A Bisalloy Steel Group Limited 2021 Annual Report 1. Corporate information The financial report of Bisalloy Steel Group Limited and its subsidiaries (“the Group”) for the year ended 30 June 2021 was authorised for issue in accordance with a resolution of the directors on 25 August 2021. Bisalloy Steel Group Limited is a for profit 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. 2. Summary of significant accounting policies Table of Contents a) Basis of preparation b) Basis of consolidation and investments in joint venture c) Significant accounting judgements, estimates and assumptions d) Operating segments e) Taxation f) Cash and cash equivalents g) Trade and other receivables h) Inventories i) Property, plant and equipment j) Intangible assets k) Trade and other payables l) Contributed equity m) Employee benefits n) Share-based payment transactions o) Provisions p) Financial Instruments q) Goods and services tax r) Revenue from contracts with customers s) Other income t) Borrowing costs u) Leases v) Foreign currency translation w) Earnings per share (EPS) x) Derivative financial instruments and hedging y) Fair value measurement z) Changes in accounting standards aa) Standards issued but not yet effective a) Basis of preparation The financial report is a general purpose financial report, which has been prepared in accordance with the Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The financial report complies with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB). 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. Comparative information Comparative information is consistent with the current years presentation. b) 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. 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 27 Notes to the Consolidated Financial Statementsfor the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report 2. Summary of significant accounting policies (continued) is accounted for using the equity method and is not part of the consolidated Group. discounted cash flow models using the assumptions dealt with in note 2(n). 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 and other comprehensive income 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 and other comprehensive income. 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, estimates c) and assumptions 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: Property, plant and equipment The Group measures the fair value of land buildings by reference to valuations performed at reporting date. The fair value is determined by an external valuer every three years, unless determined by Directors’ valuation that the fair value has moved significantly or at the request of a finance provider. The valuation method is detailed in note 19.3. Share-based payment transactions The Group measures the cost of cash-settled transactions with employees (including directors and other senior executives) by reference to the fair value at the reporting date. The fair value is determined by reference to the price of shares of the issuer. d) 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: • 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. Taxation e) 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. Current income tax relating to items recognised directly in equity is recognised in equity and not in the The Group measures the cost of equity-settled transactions with employees (including directors and other senior executives) by reference to the fair value at the date on which they are granted. The fair value is determined by an external valuer using statement of profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. 28 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report 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. 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 • in respect of deductible temporary differences associated with investments in subsidiaries, associates or interests in joint ventures, deferred tax assets 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 assets and liabilities relate to the same taxable entity and the same taxation authority. Bisalloy Steel Group Limited and its wholly-owned Australian controlled entities implemented the tax consolidation legislation as of 1 July 2003. The head entity, Bisalloy Steel Group Limited and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the Group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, Bisalloy Steel Group Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused losses. Assets or liabilities under tax funding arrangements with the tax consolidation entities are recognised as amounts receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. Cash and cash equivalents f) 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. Trade and other receivables g) A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policies of financial assets in note 2(p) Financial instruments. Inventories h) 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 a weighted average cost basis. Work in progress and finished goods • 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. Property, plant and equipment i) 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 29 Bisalloy Steel Group Limited 2021 Annual Report 2. Summary of significant accounting policies (continued) 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 or other market requirements such as in Indonesia where land and buildings are revalued every 12 months as a result of lending requirements, to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Depreciation is calculated on a straight-line basis over the estimated useful life of the specific assets as follows: • Land • Buildings not depreciated 50 years • Plant and equipment 3 – 10 years • Leasehold improvements 5 – 10 years or lease life if shorter 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. Intangible assets j) Recognition and measurement Expenditure on research activities is recognised in profit or loss as incurred. Development expenditure is capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortization and any accumulated impairment losses. Subsequent expenditure Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as incurred. Amortisation Amortisation is calculated to write off the cost of intangible assets less their estimated residual values using the straight-line method over their estimated useful lives and is generally recognised in profit or loss. The estimated useful life for current periods for development costs is 3 years. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Trade and other payables k) 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 make future payments in respect of the purchase of these goods and services. Contributed equity l) 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 30 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report 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 Group’s experience with staff departures. Related on-costs have also been included in the liability. The Group contributes to defined contribution superannuation plans, as well as an unfunded defined benefit plan in Indonesia and a defined benefit plan in Thailand. Share-based payment transactions n) 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. If the issue of shares in the Board’s opinion does not achieve the desired outcome, then the Board may determine to satisfy the entitlement to Shares under a Vested Right in the form of cash rather than Shares. In recent years, there have been a number of instances in which settlement has taken the form of 50% equity and 50% cash (‘cash-settled transactions’). Equity-settled transactions 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’). Cash-settled transactions The cost of cash-settled transactions with employees is measured by reference to the fair value at the reporting date and ultimately at settlement. The fair value is determined by reference to the price of the shares of the issuer (‘market conditions’). The cost of cash-settled transactions is recognised, together with a corresponding increase in liability, 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 both equity-settled and cash-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 estimate is formed based on the best available information at balance date. The statement of profit or loss and other 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. Provisions o) 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. Financial instruments p) A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets Initial recognition and measurement Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15. Refer to the accounting policies in note 2(r) Revenue from contracts with customers. In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. 31 Bisalloy Steel Group Limited 2021 Annual Report 2. Summary of significant accounting policies (continued) Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset. Subsequent measurement For purposes of subsequent measurement, financial assets are classified in four categories: • Financial assets at amortised cost (debt instruments) • Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) • Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) • Financial assets at fair value through profit or loss Financial assets at amortised cost (debt instruments) This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met: • The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets at amortised cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group’s financial assets at amortised cost include trade receivables. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include derivative assets which are mandatorily required to be measured at fair value. Derivatives are classified as held for trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss. Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s consolidated statement of financial position) when the rights to receive cash flows from the asset have expired. Impairment Further disclosures relating to impairment of financial assets are also provided in the following notes: • Significant accounting judgements, estimates and assumptions Note 2(c) • Trade and other receivables Note 2(g) The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The Group considers a financial asset in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, and derivative financial instruments. Subsequent measurement The measurement of financial liabilities depends on their classification, as described below: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. 32 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in the statement of profit or loss. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Group has not designated any financial liability as at fair value through profit or loss. Financial liabilities at amortised cost This is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss. All loans and 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. This category generally applies to interest-bearing loans and borrowings. For more information, refer to Note 19. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. 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. 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. Revenue from contracts with customers r) The Group is in the business of manufacturing and selling quench and tempered steel plates. Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. The Group has concluded that it is the principal in its revenue arrangements, as it controls the goods or services before transferring them to the customer. Sale of goods Revenue from the sale of steel plates is recognised at the point in time when control of the asset is transferred to the customer, which is on delivery of the goods for domestic sales, on invoice for Bill and Hold sales and on bill of lading for export sales. Revenue from the services of shipping and handling is recognised over time as the service is performed. The normal credit terms are 30 to 90 days upon end of month invoiced. The Group considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated (e.g., shipping). In determining the transaction price for the sale of goods, the Group considers the effects of variable consideration, the existence of significant financing components, non-cash consideration, and consideration payable to the customer (if any). Sale of goods (i) Variable consideration If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Some contracts for the sale of steel plates provide customers with a right of return and early settlement discounts. The rights of return and early settlement discounts give rise to variable consideration. 33 Bisalloy Steel Group Limited 2021 Annual Report 2. Summary of significant accounting policies (continued) Early Settlement Discounts The Group provides early settlement discounts to certain customers if the payment for the sale of goods is made within a specified period of time. The discounts are offset against amounts payable by the customer. To estimate the variable consideration to which it will be entitled, the Group applies the ‘expected value method’ to estimate the settlement discounts that will be issued. This method best predicts the amount of variable consideration to which the Group will be entitled. The Group then applies the requirements on constraining estimates of variable consideration that can be included in the transaction price. (ii) Significant financing component Generally, the Group receives payment for the sale of goods between 30 to 90 days after the goods have been delivered. Should a significant financing component exist, the Group will apply the practical expedient in AASB 15. Using this, the Group does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised good or service to the customer and when the customer pays for that good or service will be one year or less. (iii) Non-cash consideration The Group does not receive non-cash consideration for the sale of goods. Contract balances Contract Assets A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional. Trade Receivables A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policies of financial assets in section p) Financial instruments – initial recognition and subsequent measurement. Contract Liabilities A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract. s) Other Income Interest income Interest income is recognised as it accrues using the effective interest rate (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 and other comprehensive income. Dividend income Dividend income is recognised when the Group’s right to receive the payment is established. Borrowing costs t) 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). Leases u) At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in AASB 16. This policy is applied to contracts entered into, on or after 1 July 2020. Group as a lessee At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices. However, the Group has elected for all leases in which it is a lessee, not to separate non-lease components and will instead account for the lease and non- lease components as a single lease component. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property 34 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if the that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of asset leased. Lease payments included in the measurement of the lease liability comprise of the following: • Fixed payments, included in-substance fixed payments; • Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; • Amounts expected to be payable under a residual value guarantee; and • The exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes it assessment of where it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero,. The Group presents right-of-use assets in ‘property, plant and equipment’, the same line item as it presents underlying assets of the same nature that it owns and lease liabilities in ‘lease liabilities’ in the statement of financial position. Short-term leases and leases of low-value assets The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. Foreign currency translation v) 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. w) 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 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. Derivative financial instruments and hedging x) 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. 35 Bisalloy Steel Group Limited 2021 Annual Report 2. Summary of significant accounting policies (continued) For the purpose of hedge accounting, hedges are classified as: Fair Value Hedges • 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 or the foreign currency risk in an unrecognised firm commitment. 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, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements: • There is ‘an economic relationship’ between the hedged item and the hedging instrument. • The effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship. • The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item. Hedges that meet all the qualifying 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 and other comprehensive income 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. 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 and other comprehensive income 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. Fair Value Measurement y) The Group measure financial instruments such as derivatives at fair value at each reporting date. 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 36 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report • 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. Changes in accounting standards z) The accounting policies adopted in the preparation of the condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 30 June 2020, except for the adoption of new standards effective as of 1 July 2020. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. aa) Standards issued but not yet effective A number of new standards are effective for annual periods beginning after 1 July 2020 and earlier application is permitted; however the Group has not early adopted the new or amended standards in preparing these consolidated financial statements. No new standard is considered to have a material impact on the Group. 3. Revenue from contracts with customers 3.1 Disaggregated revenue information Set out below is the disaggregation of the Group’s revenue from contracts with customers: In thousands of dollars Performance obligation Sales of steel plates Shipping and handling Total revenue from contracts with customers Timing of revenue recognition Goods transferred at a point in time Services transferred over time Total revenue from contracts with customers In thousands of dollars Performance obligation Sales of steel plates Shipping and handling Total revenue from contracts with customers Timing of revenue recognition Goods transferred at a point in time Services transferred over time Total revenue from contracts with customers For the year ended 30 June 2021 Australia Overseas Total 82,499 4,408 86,907 82,499 4,408 86,907 17,580 340 17,920 17,580 340 17,920 100,079 4,748 104,827 100,079 4,748 104,827 For the year ended 30 June 2020 Australia Overseas Total 86,754 5,815 92,569 86,754 5,815 92,569 17,834 316 18,150 17,834 316 18,150 104,588 6,131 110,719 104,588 6,131 110,719 37 Bisalloy Steel Group Limited 2021 Annual Report 3. Revenue from contracts with customers (continued) 3.2 Contract balances In thousands of dollars Trade receivables (refer to note 11) Contract assets Contract liabilities Consolidated Year ended 30 June 2021 Year ended 30 June 2020 22,705 16,486 135 (395) 200 (283) Trade receivables are non-interest bearing and are generally on terms of 30 to 90 days end of month. Contract assets are initially recognised for revenue earned from shipping and handling services as receipt of consideration is conditional on delivery of the steel plates. Upon delivery of the steel plates, the amounts recognised as contract assets are reclassified to trade receivables. Contract liabilities are recognised for shipping and handling services yet to be provided with respect to the steel plates invoiced and for any settlement discounts expected to be obtained by customers. 3.3 Performance Obligations The Group’s contracts with customers are for the sale of steel plates. In completing the sale of the steel plates, there are two performance obligations identified, being the provision of steel plates and the provision of shipping and handling. The Group has concluded that revenue from the provision of steel plates is recognised at the point in time when control of the asset is transferred to the customer and revenue from the services of shipping and handling is recognised over time as the service is performed. As at 30 June 2021, the unsatisfied performance obligations per each segment as presented below. In thousands of dollars Shipping and handling Total Revenue from contracts with customers The remaining performance obligations are expected to be recognised within the next 12 months. 4. Operating Segments Identification of reportable segments 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. Consolidated Year ended 30 June 2021 Year ended 30 June 2020 395 395 200 200 Bisalloy Steels Pty Limited manufactures and sells 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 Limited is the corporate entity, also located in Unanderra NSW, which incurs expenses such as head office costs and interest. Corporate charges are allocated across the Australian and Overseas segments. 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 also includes the co-operative joint venture Bisalloy Shangang Steel Plate (Shandong) Co. Limited in the People’s Republic of China for the marketing, sale 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: 38 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report 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 two customers who account for 32% (2020: 30%) and 12% (2020: 13%) of total external revenue. These customers are in the Australian operating segment. In thousands of dollars Revenue: Sales to external customers Inter-segment sales 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 Income tax expense Segment assets Capital expenditure Segment liabilities In thousands of dollars Revenue: Sales to external customers Inter-segment sales 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 Income tax expense Segment assets Capital expenditure Segment liabilities For the year ended 30 June 2021 Australia Overseas Total 86,907 5,450 92,357 9,674 1 760 1,880 – 3,415 69,097 1,972 24,343 17,920 – 17,920 2,136 5 347 325 2,355 202 17,001 120 5,353 104,827 5,450 110,277 (5,450) 104,827 11,810 6 1,107 2,205 2,355 3,617 86,098 2,092 29,696 For the year ended 30 June 2020 Australia Overseas Total 92,569 6,315 98,884 7,323 28 924 1,801 – 2,283 68,786 2,097 31,476 18,150 18,150 1,378 14 307 248 1,653 50 19,706 908 6,015 110,719 6,315 117,034 (6,315) 110,719 8,701 42 1,231 2,049 1,653 2,333 88,492 3,005 37,491 39 Bisalloy Steel Group Limited 2021 Annual Report 4. Operating Segments (continued) In thousands of dollars i) Segment revenue reconciliation to the statement of comprehensive income Total segment revenue Inter-segment sales elimination Total revenue Consolidated Year ended 30 June 2021 Year ended 30 June 2020 110,277 (5,450) 104,827 117,034 (6,315) 110,719 Revenue from external customers by geographical location is detailed below. Revenue is attributed to geographic location based on the location of the customers. In thousands of dollars Australia Indonesia Thailand Other foreign countries Total revenue Consolidated Year ended 30 June 2021 Year ended 30 June 2020 74,508 21,946 2,476 5,897 80,397 18,022 3,735 8,565 104,827 110,719 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. In thousands of dollars Reconciliation of segment net operating profit after tax to net profit before tax Segment net operating profit after tax Intercompany eliminations (net of tax) Income tax expense Total net profit before tax per the statement of profit or loss Consolidated Year ended 30 June 2021 Year ended 30 June 2020 11,810 (2,856) 3,598 12,552 8,701 (1,873) 2,189 9,017 40 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report 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 derivative assets, deferred tax assets, and pension assets. In thousands of dollars Reconciliation of segment operating assets to total assets Segment operating assets Inter-segment eliminations Deferred tax assets Income tax receivable Derivative assets Consolidated Year ended 30 June 2021 Year ended 30 June 2020 86,098 (2,635) 51 375 – 88,492 (2,453) 62 496 8 Total assets per the statement of financial position 83,889 86,605 The analysis of the location of non-current assets other than financial instruments, deferred tax assets and pension assets is as follows: In thousands of dollars Australia Overseas Total non-current assets Consolidated Year ended 30 June 2021 Year ended 30 June 2020 25,742 2,996 28,738 25,480 3,246 28,726 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 Group operations. The executive management committee reviews the level of debt for each segment in the monthly meetings. In thousands of dollars Reconciliation of segment operating liabilities to total liabilities Segment operating liabilities Inter-segment eliminations Income tax payable Employee benefit liabilities Deferred tax liabilities Consolidated Year ended 30 June 2021 Year ended 30 June 2020 29,696 (1,468) 1,708 3,610 1,929 37,491 (687) 1,785 3,581 1,855 Total liabilities per the statement of financial position 35,475 44,025 41 Bisalloy Steel Group Limited 2021 Annual Report 5. Other income and expenses In thousands of dollars (a) Other (income) / expenses Foreign exchange loss / (gain) 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 Depreciation* Cost of inventories Provision for inventory Cost of inventories recognised as an expense (d) Employee benefits expense* Wages and salaries Superannuation costs Expense of share-based payments Consolidated Year ended 30 June 2021 Year ended 30 June 2020 12 (45) (33) 1,107 1,107 (6) (6) 2,205 64,242 (18) 64,224 12,677 1,090 271 14,038 459 (6) 453 1,231 1,231 (42) (42) 2,049 69,028 127 69,155 14,013 1,023 702 15,738 * These costs are apportioned over several functions of the Group. Investment in a joint venture 6. Interests in the joint venture are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of the profit or loss and OCI of equity-accounted investees, until the date on which significant influence or joint control ceases. The financial statements of the joint venture are prepared on a December balance date, however, as the Group equity accounts for this, the necessary adjustments are made to align these to the Group’s reporting period. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. In July 2011, Bisalloy Steel Group Limited signed a Cooperative Joint Venture Agreement with Ji’nan Iron & Steel Co., Limited to establish Bisalloy Jigang Steel Plate (Shandong) Co., Limited (‘the joint venture’) for the marketing, sale and distribution of quench & tempered steel plate in the People’s Republic of China and other international markets. The Group has joint control under the terms of the Joint Venture Agreement. Under the terms of the JV, Bisalloy initially 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 an initial 33% ownership of the equity and a 50% share in the operating result of the joint venture. In 2018 the JV changed its registered name to Bisalloy Shangang (Shandong) Steel Plate Co., Limited. In April 2020, due to the substantial growth in the CJV, both parties in the joint venture increased their contribution to registered capital, with Bisalloy’s contribution increasing from US$1.0m to US$2.5m, representing a 41.67% ownership of the equity and a 50% share in the operating result of the joint venture. The increase was funded through distributable profits from 2017 and 2018 calendar years that would have otherwise been fully paid to Bisalloy as a dividend in November 2018 and November 2019. In June 2021, it was agreed that Bisalloy would increase their contribution to registered capital to ensure both parties had a 50% share in equity. Bisalloy’s contribution increased from US$2.5m to US$3.5m, representing a 50% ownership of the equity and a continuation of the 50% share in the operating result of the joint venture. The increase was funded through distributable profits from 2020 calendar year that would have otherwise been fully paid to Bisalloy as a dividend in November 2021. Dividends of $1,751,417 (2020:$0) were received from the JV during the year. 42 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report In thousands of dollars Joint venture’s statement of financial position: Current assets, including cash of $2,650,978 (2020: $2,541,566) Non-current assets Current liabilities Equity Joint ventures revenue and profit: Revenue Expenses Finance (expense) / income Profit before income tax Income tax Profit for the year Group’s share of profit Carrying amount of the investment The joint venture has no capital commitments or contingent liabilities at 30 June 2021 (2020: None). 7. Income tax In thousands of dollars (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 Adjustments in respect of current income tax of previous years 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 Actuarial losses and gains Change in tax rates in foreign jurisdictions Net gain on revaluation of land and buildings and derivative assets Income tax expense reported in equity Consolidated Year ended 30 June 2021 Year ended 30 June 2020 25,411 33 (12,242) 13,202 81,421 (74,978) (131) 6,312 (1,602) 4,710 2,355 6,601 23,917 45 (9,506) 14,456 61,896 (57,330) (189) 4,377 (1,072) 3,305 1,653 6,554 Consolidated Year ended 30 June 2021 Year ended 30 June 2020 3,404 15 3,419 124 55 179 3,598 3,598 3,598 (2) 95 – 93 3,180 (466) 2,714 (551) 26 (525) 2,189 2,189 2,189 – – (910) (910) 43 Bisalloy Steel Group Limited 2021 Annual Report 7. Income tax (continued) (c) Numerical reconciliation between aggregate tax expense recognised in the income statement and tax expense calculated per the statutory income tax rate In thousands of dollars Accounting profit before tax At the Group's statutory income tax rate of 30% (2020: 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 Foreign tax credits allowed Income not assessable for tax purposes Share of profit of equity-accounted investees reported net of tax Effect of tax rates in foreign jurisdictions Adjustments in respect of current income tax of previous years Consolidated Year ended 30 June 2021 Year ended 30 June 2020 12,552 3,765 – 76 204 313 (71) – (707) (52) 70 9,017 2,705 – 91 399 121 (83) (23) (496) (59) (466) Income tax expense on pre-tax net profit 3,598 2,189 In thousands of dollars (d) Deferred tax assets (DTA) and liabilities (DTL) The balance comprises of temporary differences attributable to: Property, plant and equipment Employee entitlement provisions Other provisions and accruals Inventory Other Derivatives Deferred tax assets and liabilities reflected in the balance sheet Movements Opening balance at 1 July: Charged / (credited) to profit or loss Charged / (credited) to other comprehensive income Closing balance at 30 June: Consolidated Net DTA Net DTL Year ended 30 June 2021 Year ended 30 June 2020 Year ended 30 June 2021 Year ended 30 June 2020 – 42 9 – – – 51 62 (11) – 51 – 47 15 – – – 62 – 62 – 62 (3,254) (3,355) 833 394 240 (142) – 881 499 223 (101) (2) (1,929) (1,855) (1,855) (1,408) (167) 93 463 (910) (1,929) (1,855) Of the DTA and DTL’s recognised for the Group the following amounts are attributed to the Thailand and Indonesian tax jurisdiction at 30 June 2021, the balance relates to the Australian tax jurisdiction: 44 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report In thousands of dollars The balance comprises of temporary differences attributable to: Property, plant and equipment Employee entitlement provisions Other provisions and accruals Deferred tax assets and liabilities reflected in the balance sheet Net DTA / (DTL) Thailand 2021 $’000 Indonesia 2020 $’000 – 42 9 51 (354) 156 98 (100) (e) Current income tax at 30 June 2021 relates to the following: The current tax payable for the Group of $1,707,824 (2020: $1,785,399) represents the amount of income tax payable in respect of the current and prior periods. The current tax payable of the Group is made up of $1,590,351 payable in the Australian jurisdiction and $117,472 in the Thailand tax jurisdiction. The current tax receivable of $78,255 (2020: $495,931) and the non-current tax receivable of $296,780 (2020: $0) for the Group represents the amount of income tax receivable in respect of the current and prior periods. The amount of tax receivable is entirely attributed to the Indonesian tax jurisdiction. The Group 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 2021, 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 (2020: 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. Tax effect accounting by members of the tax (ii) 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. 45 Bisalloy Steel Group Limited 2021 Annual Report 8. Earnings per share (EPS) In thousands of dollars 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) In thousands of dollars Weighted average number of ordinary shares for basic earnings per share Effects of dilution: Performance rights Adjusted weighted average number of ordinary shares for diluted earnings per share Weighted average number of lapsed or cancelled potential ordinary shares included in diluted earnings per share 9. Dividends paid or proposed In thousands of dollars (a) Dividends paid during the year Interim Final Consolidated Year ended 30 June 2021 Year ended 30 June 2020 8,954 (144) 6,828 (92) 8,810 6,736 Thousands Thousands 45,720 45,168 1,894 47,614 1,836 47,004 79 15 Consolidated Year ended 30 June 2021 Year ended 30 June 2020 – 2,271 2,271 – 1,790 1,790 (b) Proposed dividend (not recognised as a liability as at 30 June) Final dividend for 2021: 9.0 cents per share (2020: 5.0 cents per share) 4,137 2,271 (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 credits that will arise from the payment 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 6,971 1,590 (1,773) 6,788 4,832 1,730 (973) 5,589 46 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report 10. Cash and cash equivalents In thousands of dollars (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 (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 Provision for stock obsolescence Provision for doubtful debts Profit on sale of fixed assets Share of profit of a joint venture Net fair value change on derivatives (Increase)/decrease in foreign currency translation Change in operating assets and liabilities (Increase)/decrease in receivables and other assets Decrease/(increase) in inventories Increase/(decrease) in tax assets and liabilities (Increase)/decrease in prepayments (Decrease)/increase in trade creditors Increase/(decrease) in employee benefit liabilities Settlement of share rights Net cash from operating activities (c) Disclosure of financing facilities Refer note 19.2 (d) Reconciliation of movements of liabilities to cash flows arising from financing activities Changes from financing cash flows Proceeds from loans and borrowings Repayment of borrowings Net decrease in borrowings Consolidated Year ended 30 June 2021 Year ended 30 June 2020 2,345 2 2,347 669 3 672 8,954 6,828 2,205 271 (18) (41) – 2,049 702 127 – – (2,355) (1,653) 41 (904) (6,392) 10,309 225 (14) (8) (170) 834 (6,365) 747 175 (1,606) (5,316) 225 – 505 (456) 10,900 (2,001) – (6,979) (6,979) 5,298 (466) 4,832 47 Bisalloy Steel Group Limited 2021 Annual Report 11. Trade and other receivables In thousands of dollars Current Trade receivables Less: Allowance for expected credit losses Other Goods and services tax Consolidated Year ended 30 June 2021 Year ended 30 June 2020 22,939 (234) 22,705 827 – 827 16,761 (275) 16,486 257 288 545 23,532 17,031 Trade receivables are non-interest bearing and are generally on 30-90 day terms. Refer to note 19.3 for more information of the allowance for expected credit losses. 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. The Group has a credit insurance policy in place that covers 90% of the sales value to Australian and Indonesian eligible customers. 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 19.3. 12. Inventories In thousands of dollars Current Raw materials Finished goods 13. Other current assets In thousands of dollars Current Prepayments Non-current Prepayments 48 Consolidated Year ended 30 June 2021 Year ended 30 June 2020 2,007 25,929 27,936 3,121 35,107 38,228 Consolidated Year ended 30 June 2021 Year ended 30 June 2020 1,072 1,072 122 122 1,182 1,182 – – Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report 14. Property, plant and equipment (a) Reconciliation of carrying amounts at the beginning and end of the period Freehold land and buildings Leasehold improvements Plant and equipment Total In thousands of dollars Consolidated Year ended 30 June 2021 At 1 July 2020, net of accumulated depreciation and impairment Additions Disposals Revaluation adjustment Depreciation and amortisation charge for the year Exchange adjustment At 30 June 2021, net of accumulated depreciation and impairment At 1 July 2020 Cost or fair value Accumulated depreciation and impairment Net carrying value At 30 June 2021 Cost or fair value Accumulated depreciation and impairment Net carrying value In thousands of dollars Consolidated Year ended 30 June 2020 At 1 July 2019, net of accumulated depreciation and impairment Additions Disposals Revaluation adjustment Depreciation and amortisation charge for the year Exchange adjustment At 30 June 2020, net of accumulated depreciation and impairment At 1 July 2019 Cost or fair value Accumulated depreciation and impairment Net carrying value At 30 June 2020 Cost or fair value Accumulated depreciation and impairment Net carrying value Freehold land and buildings Leasehold improvements Plant and equipment 14,454 112 – – (389) (279) 13,898 15,081 (627) 14,454 14,915 (1,017) 13,898 – – – – – – – 34 (34) – 34 (34) – 10,936 800 – 3,032 (349) 35 14,454 12,953 (2,017) 10,936 15,081 (627) 14,454 – – – – – – – 34 (34) – 34 934) – 7,548 1,636 – – (1,816) (62) 22,002 1,748 – – (2,205) (341) 7,306 21,204 24,853 (17,305) 7,548 26,272 (18,966) 7,306 7,208 2,036 – – (1,700) 4 39,968 (17,966) 22,002 41,221 (20,017) 21,204 Total 18,144 2,836 – 3,032 (2,049) 39 7,548 22,002 22,717 (15,509) 7,208 24,853 (17,305) 7,548 35,704 (17,560) 18,144 39,968 (17,966) 22,002 49 Bisalloy Steel Group Limited 2021 Annual Report 14. Property, plant and equipment (continued) (b) Revaluation of freehold land and freehold buildings Freehold land and freehold buildings are required by the Group to be externally revalued every three years at minimum. In addition to this, Indonesian freehold land and freehold buildings are required to be externally revalued every 12 months in order to meet lending requirements stipulated by their finance provider. 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. In 2019, the Group engaged KJPP Pung’s Zulkarnain Dan Rekan, accredited independent valuers to determine the fair value of its Indonesian land and buildings. The effective date of the valuation was 30 June 2019 and fair value was determined as $2,375,572. In 2020, the Group engaged Herron Todd White, accredited independent valuers to determine the fair value of its Australian land and buildings respectively. The effective date of the valuation was 30 June 2020 and fair value was determined as $11,800,000. There has been no change in the valuation technique in current or prior period. For June 2021, it was determined by the finance provider and supported by the directors that there was no significant change in fair value for its Indonesian land and buildings. The directors also determined that there was no significant change in fair value for its Australian land and buildings. (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: In thousands of dollars Cost Accumulated depreciation and impairment Net carrying amount Consolidated 2021 Freehold land and buildings 2020 Freehold land and buildings 7,048 (2,249) 4,799 6,787 (1,980) 4,807 (d) Leased assets ‘Property, plant and equipment’ comprise of owned and leased assets that do not meet the definition of investment property. In thousands of dollars Property, plant and equipment owned Right-of-use assets Right-of-use assets in each category is shown below: In thousands of dollars Balance at 1 July 2020 Additions Depreciation charge for the year Exchange adjustment Balance at 30 June 2021 50 Consolidated Note 14(a) 2021 20,577 627 21,204 2020 21,518 484 22,002 Consolidated Freehold land and buildings Leasehold improvements Plant an equipment 280 46 (118) (26) 182 – – – – – 204 451 (210) – 445 Total 484 497 (328) (26) 627 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report In thousands of dollars Balance at 1 July 2019 Additions Depreciation charge for the year Exchange adjustment Balance at 30 June 2020 15. Intangible Assets Consolidated Freehold land and buildings Leasehold improvements Plant and equipment 60 337 (119) 2 280 – – – – – 315 71 (182) – 204 Total 375 408 (301) 2 484 Consolidated Year ended 30 June 2021 Year ended 30 June 2020 514 – 514 170 – 170 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 their share rights and be allocated a fully paid ordinary share of Bisalloy at no cost to the employee or the equivalent in cash at the Board’s discretion. During the 30 June 2021 financial year, 1,050,000 share rights were awarded 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 5.1% dividend yield for Grant 9, a 4.5% dividend yield for Grant 11, a 3.9% dividend yield for Grants 12, 13, 14 and 15 and a 4.9% dividend yield for Grant 16 (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. In thousands of dollars Cost Accumulated depreciation and impairment Net carrying amount The Group is currently investing in the further development of their existing enterprise resource planning system. These developments were completed in July 2021 and the new system is currently scheduled to go-live in September 2021 pending the end of the Covid lockdown in the Greater Sydney Area. 16. Share-based payments plans 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 2019 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 2021 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. 51 Bisalloy Steel Group Limited 2021 Annual Report % 9 5 . 7 2 % 9 5 . 7 7 % 6 2 . 4 9 % 6 2 . 4 9 % 6 2 . 4 9 % 6 2 . 4 9 2 8 . 0 $ 9 7 . 0 $ 7 9 . 0 $ 5 8 . 0 $ 2 8 . 0 $ 6 1 . 1 $ f o n o i t r o p o r P e r a t a h t s t h g i r f o e u a V l i g n d n a t s t u o t h g i r e n o s r a e y e e r h t f o m r e t y r i p x E : 1 2 0 2 e n u J 0 3 t a s a s t n a r g g n d n a t s t u o i r o f s t u p t u o n o i t a u a v l e h t s t s i l l e b a t i g n w o l l o f e h T ) d e u n i t n o c ( s n a p l s t n e m y a p d e s a b - e r a h S . 6 1 52 s r a l l o d f o s d n a s u o h t n I 9 t n a r G 1 1 t n a r G 3 1 t n a r G 4 1 t n a r G 5 1 t n a r G 6 1 t n a r G f o r e b m u n e h t s w o h s l e b a t i g n w o l l o f e h T . d o i r e p g n i t s e v r a e y e e r h t e h t r e v o s s o l d n a t fi o r p e h t n i e s n e p x e n a s a t n u o c c a o t t h g u o r b s i d e t n a r g s t h g i r e c n a m r o f r e p e h t f o e u a v l r i a f e h T e t o n n i l d e s o c s d s i i s t n e m y a p d e s a b e r a h s o t n o i t a e r l n i e m o c n i i e v s n e h e r p m o c f o t n e m e t a t s e h t n i i d e s n g o c e r e s n e p x e e h T . r a e y i s u o v e r p e h t n i d n a r a e y e h t g n i r u d g n d n a t s t u o i s t h g i r l a t o T d e t s e v n U d e t s e v n U d e t s e v n U d e t s e v n U 6 1 t n a r G 5 1 t n a r G 4 1 t n a r G 3 1 t n a r G 2 1 t n a r G d e t i e f r o F 1 1 t n a r G d e t s e v n U 0 1 t n a r G d e t i e f r o F 9 t n a r G d e t s e V 8 t n a r G d e t s e V 6 t n a r G d e t s e V 0 0 . 0 $ 0 0 . 0 $ 0 0 . 0 $ 0 0 . 0 $ 0 0 . 0 $ 0 0 . 0 $ 0 0 . 0 $ 3 0 . 1 $ 1 1 . 1 $ 1 1 . 1 $ 0 2 0 2 l u J 6 0 0 2 0 2 l u J 6 0 0 2 0 2 l u J 1 9 1 0 2 v o N 1 1 9 1 0 2 b e F 6 2 8 1 0 2 v o N 5 0 8 1 0 2 n u J 5 1 8 1 0 2 r p A 6 1 6 1 0 2 t c O 9 1 6 1 0 2 b e F 6 2 3 2 0 2 l u J 5 3 2 0 2 y u J l 5 3 2 0 2 n u J 0 3 2 2 0 2 v o N 0 1 2 2 0 2 b e F 5 2 1 2 0 2 v o N 4 0 1 2 0 2 n u J 0 3 1 2 0 2 n u J 0 3 0 2 0 2 t c O 8 1 0 2 0 2 b e F 5 2 e c i r p e s c r e x E i e t a d t n a r G e t a d y r i p x E . ) d ( 5 – 8 8 8 , 6 0 0 , 2 0 0 0 , 0 0 4 ) 2 5 8 , 1 9 4 ( ) 3 0 7 , 1 8 1 ( 3 3 3 , 3 3 7 , 1 – – – – – – – – – – – – – – – – – – ) 0 0 0 , 0 0 2 ( – – – 0 0 0 , 0 5 0 , 1 0 0 0 , 0 0 6 0 0 0 , 0 5 2 0 0 0 , 0 0 2 – – – – – – – – – 0 0 0 , 0 0 4 3 3 3 , 3 3 8 7 6 6 , 6 6 1 ) 5 8 0 , 1 5 9 ( ) 4 6 4 , 4 3 ( ) 0 6 3 , 4 1 ( ) 8 8 4 , 1 1 ( ) 6 7 9 , 2 2 ( ) 3 3 3 , 3 3 8 ( ) 7 8 4 , 1 1 ( 7 5 3 , 0 1 1 – – – – 8 4 2 , 2 3 6 , 1 6 3 5 , 5 6 5 0 4 6 , 5 3 2 2 1 5 , 8 8 1 4 2 0 , 7 7 3 – – – 9 7 1 , 5 5 1 – 3 3 3 , 3 3 8 7 6 6 , 6 6 1 3 3 3 , 3 8 3 3 3 , 3 3 3 8 1 3 , 2 6 2 4 0 9 , 7 2 3 9 1 0 2 e n u J 0 3 t a e c n a a B l – – 0 0 0 , 0 0 4 – – – – – – – – ) 3 3 3 , 3 8 ( – – – ) 0 7 3 , 8 9 ( – – r a e y e h t n i s t n a r g w e N ) 8 4 9 , 3 6 1 ( ) 4 0 9 , 7 2 3 ( r a e y e h t n i i d e s c r e x E – – – – – – – – – 3 3 3 , 3 3 3 ) 0 0 0 , 0 0 2 ( ) 6 7 9 , 2 2 ( 7 5 3 , 0 1 1 7 5 3 , 0 1 1 – – – – – – – – – – – – – – – 0 2 0 2 e n u J 0 3 t a i l e b a s c r e x E 0 2 0 2 e n u J 0 3 t a e c n a a B l r a e y e h t g n i r u d d e t i e f r o F 1 2 0 2 e n u J 0 3 t a e c n a a B l r a e y e h t g n i r u d d e t i e f r o F r a e y e h t n i s t n a r g w e N r a e y e h t n i i d e s c r e x E 1 2 0 2 e n u J 0 3 t a i l e b a s c r e x E . ) s r a e y 0 7 . 1 : 0 2 0 2 ( s r a e y 3 3 . 1 s i 1 2 0 2 e n u J 0 3 t a s a i g n d n a t s t u o s t h g i r e r a h s e h t r o f e f i l l a u t c a r t n o c i i g n n a m e r e g a r e v a d e t h g e w e h T i Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report 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 $271,285 (2020: $702,187). 17. Pensions and other post-employment benefit plans Superannuation commitments The Group contributes to externally managed defined contribution superannuation plans, as well as an unfunded defined benefit plan in Indonesia and a defined benefit plan in Thailand. The contributions are defined by the terms of each individual employee’s employment. 18. Trade and other payables In thousands of dollars Current Trade payables Other payables and accruals Goods and services tax Consolidated Year ended 30 June 2021 Year ended 30 June 2020 15,153 2,428 256 17,837 16,764 2,972 – 19,736 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. 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 19.3. 19. Financial assets and financial liabilities 19.1 Financial assets In thousands of dollars Financial assets at amortised cost Trade receivables (note 11) Total financial assets Total current Total non-current Consolidated Year ended 30 June 2021 Year ended 30 June 2020 22,705 22,705 22,705 – 16,486 16,486 16,486 – 53 Bisalloy Steel Group Limited 2021 Annual Report 19. Financial assets and financial liabilities (continued) 19.2 Financial liabilities Interest-bearings loans and borrowings In thousands of dollars Current Consolidated Year ended 30 June 2021 Year ended 30 June 2020 Borrowings secured by fixed and floating charges 9,315 10,552 Non-current Borrowings secured by fixed and floating charges – 5,742 Fair values Unless disclosed below, the carrying amount of the Group’s current and non-current borrowings approximate their fair value. Interest rate, foreign exchange and liquidity risk Details regarding interest rate, foreign exchange and liquidity risk is disclosed in note 19.3. Assets pledged as security The fixed and floating charge covers all current and future assets of the Bisalloy Closed Group (note 25). In thousands of dollars At reporting date, the following financing facilities had been negotiated and were available: Total facilities Consolidated Year ended 30 June 2021 Year ended 30 June 2020 – invoice finance facility (incl. bank guarantees) (i) 12,000 12,000 – bank bill facility (i) – trade finance facility (i) – Bisalloy Thailand facility (ii) – PT Bima facility (iii) Facilities used at reporting date Current – invoice finance facility – trade finance facility – PT Bima facility – bank bill facility Non–current – bank bill facility 6,417 9,000 125 4,072 6,884 9,000 141 5,282 31,614 33,307 244 – 2,654 6,417 9,315 – – 1,855 4,817 3,880 – 10,552 5,742 5,742 Total facilities used at reporting date 9,315 16,294 54 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report In thousands of dollars Facilities unused at reporting date – invoice finance facility (incl. bank guarantees) – bank bill facility – trade finance facility – Bisalloy Thailand facility – PT Bima facility Consolidated Year ended 30 June 2021 Year ended 30 June 2020 11,756 – 9,000 125 1,419 10,145 1,142 4,183 141 1,402 Total facilities unused at reporting date 22,300 17,013 (i) Bisalloy Steel Group Limited’s facility with Westpac Banking Corporation 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 an equity ratio covenant, a leverage ratio covenant and an interest coverage ratio. The bank bill facility has a two-year term, whilst the other facilities are ongoing. The drawn invoice finance facility balance is limited to the value of the available collateral being eligible receivables and fluctuates daily. The facility is variable rate linked to an interest rate plus a fixed margin. The average variable interest rate for the year is 3.53% (2020: 4.28%). (ii) The bank overdraft facility available to its Thailand based subsidiary is secured by a guarantee from Bisalloy Steel Group Limited. (iii) The revolver facility and Letter of Credit facility available to its Indonesian based subsidiary are secured by a charge over the assets of the Indonesian subsidiary and mature on 30 September 2021. Other financial liabilities In thousands of dollars Other financial liabilities at amortised cost, other than interest-bearing loans and borrowings Trade and other payables (note 18) Total financial liabilities Total current Total non-current 19.3 Financial risk management 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: Consolidated Year ended 30 June 2021 Year ended 30 June 2020 17,837 17,837 17,837 – 19,736 19,736 19,736 – • 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. • 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. 55 Bisalloy Steel Group Limited 2021 Annual Report 19. Financial assets and financial liabilities (continued) 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. • Official Manager • Receiver and Manager • Administrator • Liquidator 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: or similar business administration is appointed to the customer’s business. The Group performs an impairment analysis at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e. geographical region and coverage by insurance). The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. The maximum exposure to credit risk for these financial assets is limited to their carrying amounts as disclosed in note 11. The Group does not hold collateral as security. The Group evaluates the concentration of risk with respect to trade receivables as low, as its customers are located in several jurisdictions and industries and operate in largely independent markets. The Group has for a number of years had credit insurance in place for Australian sales, and Indonesian local sales. Set out below is the information about the credit risk exposure on the Group’s trade receivables and contract assets using a provision matrix: 30 June 2021 In thousands of dollars Current <=30 days 30-60 days 61-90 days >91 days >91 days* Expected credit loss rate 0.03% 0.21% 0.59% 1.54% 6.41% 90.09% Trade Receivables Estimated total gross carrying amount at default Expected Credit Loss 30 June 2020 20,688 6 1,436 3 169 1 65 1 359 23 222 200 Trade Receivables In thousands of dollars Current <=30 days 30-60 days 61-90 days >91 days >91 days* Expected credit loss rate 0.01% 0.12% 0.60% 2.67% 6.06% 90.91% Estimated total gross carrying amount at default Expected Credit Loss 14,569 1 629 1 436 3 252 7 627 38 248 225 * Indonesian receivables with no insurance coverage Total 1.02% 22,939 234 Total 1.64% 16,761 275 56 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report 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 24 January 2021 the Group entered into a new facility agreement comprising a $7m bank bill facility (increased from $5.8m), a $12m invoice finance facility (increased from $10m) and a $9m trade finance facility (increased from $6m). The drawn invoice finance facility balance is limited to the value of the available collateral being eligible receivables, 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 $65.3m (2020: $65.0m). In addition to the eligible collateral, the Group has several general and financial undertakings which it must comply with including an Equity Ratio covenant, a Leverage Ratio covenant and an Interest Cover 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 2021. 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 2021. In thousands of dollars 6 months or less 6-12 months 1-5 years Over 5 years Consolidated 2021 27,979 121 404 – 2020 30,947 397 6,125 – 28,504 37,469 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. 57 Bisalloy Steel Group Limited 2021 Annual Report 19. Financial assets and financial liabilities (continued) In thousands of dollars <=6 months 6-12 months 1-5 years >5 years Total Year ended 30 June 2021 Consolidated Financial assets Cash and cash equivalents Trade and other receivables Contract assets Derivatives – gross settled Inflows Outflows Financial liabilities Trade and other payables Interest bearing loans and borrowings Contract liabilities Lease liabilities Derivatives – gross settled Inflows Outflows Net inflow/(outflow) 2,347 23,532 135 – – 26,014 17.837 9,551 395 163 33 – 27,979 (1,965) – – – – – – – – – – – – – – – – – – 121 404 – – 121 (121) – – 404 (404) – – – – – – – – – – – – – – 2,347 23,532 135 – – 26,014 17,837 9,551 395 688 33 – 28,504 (2,490) In thousands of dollars <=6 months 6-12 months 1-5 years >5 years Total Year ended 30 June 2020 Consolidated Financial assets Cash and cash equivalents Trade and other receivables Contract assets Derivatives – gross settled Inflows Outflows Financial liabilities Trade and other payables Interest bearing loans and borrowings Contract liabilities Lease liabilities Derivatives – gross settled Inflows Outflows Net inflow/(outflow) 58 672 17,031 200 8 – 17,911 19,552 10,974 283 138 – – 30,947 (13,036) – – – – – – 184 103 – 110 – – 397 (397) – – – – – – – 5,845 – 280 – – 6,125 (6,125) – – – – – – – – – – – – – – 672 17,031 200 8 – 17,911 19,736 16,922 283 528 – – 37,469 (19,558) Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report 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 macroeconomic 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. In thousands of dollars Sensitivity to USD Consolidated AUD/USD +10% AUD/USD -10% Post tax profit Higher / (lower) Effect on equity Higher / (lower) 2021 2020 2021 2020 (144) 177 (119) 146 – – – – 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 2021, the Group had the following mix of financial assets and liabilities exposed to variable interest rates that are not designated in cash flow hedges. In thousands of dollars Financial Assets Consolidated 2021 2020 Cash and cash equivalents less cash on hand 2,345 669 Financial Liabilities Bank loans Net exposure (9,315) (6,970) (16,294) (15,625) 59 Bisalloy Steel Group Limited 2021 Annual Report 19. Financial assets and financial liabilities (continued) 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 +100/-100 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. In thousands of dollars Consolidated +1% (100 basis points) - 1% (100 basis points) Post tax profit Higher / (lower) Effect on equity Higher / (lower) 2021 2020 2021 2020 (49) 49 (109) 109 – – – – Commodity risk 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. 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 2021 the fair values of land, buildings and improvements were determined by reference to valuations performed in June 2020 (Note 14 (b)). For properties not subject to independent valuations, fair value was determined by Directors’ valuation. Year ended 30 June 2021 Valuation technique- non market observable inputs (Level 2) Valuation technique- non market observable inputs (Level 3) Quoted market price (Level 1) – – – – – 14,176 – 14,176 33 33 – – – – – Total 14,176 – 14,176 33 33 Year ended 30 June 2020 Valuation technique- non market observable inputs (Level 2) Valuation technique- non market observable inputs (Level 3) Quoted market price (Level 1) – – – – – 14,176 8 14,184 – – – – – – – Total 14,176 8 14,184 – – In thousands of dollars Consolidated Assets Land & buildings Foreign exchange contracts Liabilities Foreign exchange contracts The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. 60 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Transfer between categories There were no transfers between levels during the year. The fair value of loans and borrowings approximates the carrying value. 20. Employee benefit liabilities In thousands of dollars Current Employee entitlements Share based payment Defined benefit plan Non-current Employee entitlements Share based payment Defined benefit plan Consolidated Year ended 30 June 2021 Year ended 30 June 2020 1,883 152 137 2,172 358 232 848 1,996 – 23 2,019 317 290 955 1,438 1,562 The Group has an unfunded defined benefit plan in Indonesia and a defined benefit plan in Thailand. The Indonesian plan provides severance and service benefits pursuant to Indonesian Labor Law No. 13/2003 and Company Regulation. The principal assumptions used in determining the obligation under the defined benefit plan are shown below: Discount rate Future salary increases 2021 % 7.5 8.0 2020 % 7.5 8.0 61 Bisalloy Steel Group Limited 2021 Annual Report 21. Lease liabilities a) Maturity analysis of contractual cash flows In thousands of dollars Less than one year Between one and five years More than five years In thousands of dollars Less than one year Between one and five years More than five years b) Amounts recognised in profit or loss In thousands of dollars Interest on lease liabilities Expenses relating to short-term leases or low-value assets 22. Derivative financial instruments In thousands of dollars Current Assets Forward currency contracts – Fair value hedges Current Liabilities Forward currency contracts – Fair value hedges Consolidated For the year ended 30 June 2021 Future minimum lease payments Present value of minimum lease payments Interest 284 404 – 688 (22) (18) – (40) 262 386 – 648 Consolidated For the year ended 30 June 2020 Future minimum lease payments Present value of minimum lease payments Interest 248 280 – 528 (23) (14) – (37) 225 266 – 491 Consolidated Year ended 30 June 2021 Year ended 30 June 2020 33 106 139 21 122 143 Consolidated Year ended 30 June 2021 Year ended 30 June 2020 – – 33 33 8 8 – – 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. 62 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Forward currency contracts Inventory purchases During the year ended 30 June 2021, 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 $EUR 0k (2020: $EUR 468k) and $AUD 4.7m (2020: $AUD 2.4m). These contracts hedged highly probable forecasted purchases and they were timed to mature when payments are scheduled to be made. Fair value hedges As at balance date, the details of outstanding contracts in respect of fair value hedges were: In thousands of dollars Buy EUR$ Sell AUD $ Buy AUD$ Sell IDR $ Buy AUD$ Sell THB $ 23. Contributed equity and reserves In thousands of dollars (a) Ordinary shares, issued and fully paid Average exchange rate 30 June 2021 30 June 2020 30 June 2021 30 June 2020 – (35) 2 6 – 2 – 0.6155 11,297.0000 – 24.3000 21.3150 Consolidated Year ended 30 June 2021 Year ended 30 June 2020 12,886 12,318 Fully paid ordinary shares carry one vote per share and carry the right to dividends. Shares have no par value. In thousands of dollars (b) Movements in shares on issue Number of Shares 2021 $’000 Number of Shares 2020 $’000 Balance at 1 July 45,418,007 12,318 44,751,957 12,000 New shares issued under Dividend Reinvestment Plan Exercise of performance rights Balance at 30 June 449,844 100,000 568 – 305,355 360,695 318 – 45,967,851 12,886 45,418,007 12,318 (c) Capital management 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 2021 and 2020. 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%. The Group includes within net debt interest bearing loans and borrowings less cash and cash equivalents. The gearing ratios based on continuing operations at 30 June 2021 and 2020 were as follows: 63 Bisalloy Steel Group Limited 2021 Annual Report 23. Contributed equity and reserves (continued) In thousands of dollars 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. In thousands of dollars (d) Non-controlling interests Balance at 1 July (Loss) / gain on translation of overseas controlled entities Revaluation of land and buildings Share of net profit for the year Dividends paid Balance at 30 June In thousands of dollars (e) Retained earnings Balance at 1 July Net profit for the year Depreciation transfer for revaluation of buildings Dividends paid Balance at 30 June Consolidated Year ended 30 June 2021 Year ended 30 June 2020 9,315 (2,347) 6,968 48,414 55,382 13% 16,294 (672) 15,622 42,580 58,202 27% Consolidated Year ended 30 June 2021 Year ended 30 June 2020 3,880 4,149 (418) 38 144 (187) 3,457 49 – 92 (410) 3,880 Consolidated Year ended 30 June 2021 Year ended 30 June 2020 18,527 8,810 50 (2,271) 25,116 13,536 6,736 45 (1,790) 18,527 64 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report In thousands of dollars (f) Reserves At 30 June 2019 Currency translation differences Share-based payments Settlement of performance rights Net loss on cash flow hedge Depreciation transfer for revaluation of buildings Actuarial gains/(losses) Revaluation of land and buildings At 30 June 2020 Currency translation differences Share-based payments Settlement of performance rights Net loss on cash flow hedge Depreciation transfer for revaluation of buildings Actuarial gains/(losses) Revaluation of land and buildings Consolidated Employee equity benefits reserve Foreign currency translation reserve Cash flow hedge reserve Asset revaluation reserve Equity settlement reserve Other reserves Total 348 – 410 (456) – – – – 302 – 75 (82) – – – – 1,085 65 – – – – – – 1,150 (991) – – – – – – – – – – – – – – – – – – – – – – – 4,103 – – – – (45) – 2,122 6,180 – – – – (50) – 57 6 – – 310 – – – – 316 – – 82 – – – – (37) 5,505 – – – – – (56) – (93) – – – – – 9 – 65 410 (146) – (45) (56) 2,122 7,855 (991) 75 – – (50) 9 57 6,187 398 (84) 6,955 At 30 June 2021 295 159 Nature and purpose of reserves 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 16 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. Other Reserve Relates to actuarial losses from defined benefit pensions. 65 Bisalloy Steel Group Limited 2021 Annual Report 24. Commitments and contingencies In thousands of dollars (a) Capital expenditure commitments Estimated capital expenditure contracted for at balance date, but not provided for payable: Not later than one year Later than one year, but not later than five years 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 2021 30 June 2020 208 – 208 13 – – 13 564 7 571 24 – – 24 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 25 regarding the class order between certain subsidiaries and the Company. 25. Related parties A Director of the Company, Mr P 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: In thousands of dollars Director P Cave Director – related entity Anchorage Capital Partners Pty Ltd 25,000 150,000 Consolidated 2021 2020 The above amounts were paid in relation to P Cave’s services in his capacity as a director and are included in Directors’ remuneration in the Directors’ Report. The outstanding balance owing at 30 June 2021 is $0 (2020: $0). 66 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Investments In thousands of dollars Name of parent Bisalloy Steel Group Limited Controlled entities Bisalloy Steels Pty Limited PT Bima Bisalloy Bisalloy Holdings (Thailand) Co Ltd Bisalloy (Thailand) Co Limited Bisalloy North America LLC^ Joint venture Bisalloy Shangang (Shandong) Steel Plate Co.,Limited* * Refer Note 6 for details regarding equity interest, share of interest and joint control ^ This entity continues to be dormant Percentage of equity interest held by the Consolidated entity 30 June 2021 % Percentage of equity interest held by the Consolidated entity 30 June 2020 % 100.00 60.00 85.00 85.00 100.00 60.00 85.00 85.00 100.00 100.00 Country of incorporation Australia Australia Indonesia Thailand Thailand United States of America People’s Republic of China 50.00 41.67 Entities subject to class order relief Pursuant to Class Order 2016/785, 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: In thousands of dollars i. Consolidated Income Statement Profit from continuing operations before income tax Income tax expense Profit after income tax Accumulated profits at the beginning of the year Depreciation transfer for revaluation of buildings Dividends provided for or paid Closed Group 30 June 2021 Closed Group 30 June 2020 12,470 (3,415) 9,055 10,730 44 (2,271) 8,657 (2,283) 6,374 6,108 38 (1,790) 67 Bisalloy Steel Group Limited 2021 Annual Report 25. Related parties (continued) In thousands of dollars Accumulated profits at the end of the year ii. Consolidated Balance Sheet Current assets Cash and cash equivalents Trade and other receivables Inventories Contract assets Other financial assets Total current assets Non-current assets Investments Property, plant and equipment Intangible assets Other financial assets Total non-current assets Total assets Current liabilities Trade and other payables Income tax payable Interest bearing liabilities Employee benefit liabilities Lease liabilities Contract liabilities Total current liabilities Non-current liabilities Interest bearing liabilities Lease liabilities Employee benefit liabilities Deferred tax liability Total non-current liabilities Total liabilities NET ASSETS Shareholders’ equity Contributed equity Reserves Accumulated profits TOTAL SHAREHOLDERS’ EQUITY 68 Closed Group 30 June 2021 Closed Group 30 June 2020 17,558 10,730 124 21,161 20,630 135 898 42,948 3,175 18,504 514 122 22,315 65,263 101 13,239 27,662 200 1,043 42,245 3,788 18,755 170 – 22,713 64,958 16,793 18,533 1,590 6,661 2,035 137 395 1,730 6,672 1,996 117 283 27,611 29,331 – 324 590 2,070 2,984 30,595 34,668 12,886 4,224 17,558 34,668 5,742 90 607 1,946 8,385 37,716 27,242 12,318 4,194 10,730 27,242 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report The following table provides the total amount of transactions, other than amounts disclosed above, that have been entered into between the Group and related parties for the relevant financial year: In thousands of dollars Related Party Bisalloy Shangang Steel Plate (Shandong) Co.,Limited Interest and management fees to related parties Sales to and purchase from Amounts owed by related parties Amounts owed to related parties 2021 2020 – – 172 1,492 679 19 – – 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 2021 were $171,562 (2020: $1,492,000). Outstanding balances at year-end are unsecured. Compensation of key management personnel of the Group In thousands of dollars Short-term employee benefits Post employment benefits Other long-term benefits Termination benefits Other Share-based payments Consolidated Year ended 30 June 2021 Year ended 30 June 2020 2,536,006 2,318,205 144,985 61,473 – 200,000 271,285 152,445 68,539 30,641 – 702,187 Total compensation paid to key management personnel 3,213,749 3,272,017 26. Events after the balance date No significant events after the balance sheet date. 27. Auditors’ remuneration The auditor of Bisalloy Steel Group Limited is KPMG. In thousands of dollars Amounts received or due and receivable by KPMG 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 Amounts received or due and receivable by related practices of KPMG for: – an audit or review of the financial report of any other entity in the consolidated Group – tax compliance and advice Consolidated Year ended 30 June 2021 Year ended 30 June 2020 137 11 – – 60 208 137 57 18 – 66 278 69 Bisalloy Steel Group Limited 2021 Annual Report 28. Parent entity information In thousands of dollars 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 2021 30 June 2020 613 6,576 1,590 1,590 12,886 (7,936) 36 4,986 4,107 4,107 – 7,345 1,730 4,762 12,318 (9,771) 36 2,583 900 900 Guarantees have been entered into by the Parent entity on behalf of Bisalloy Steels Pty Limited and Bisalloy (Thailand) Co Limited. The guarantees in place cover Bisalloy Steels Pty Limited’s $27M Westpac facility and 85% of Bisalloy Thailand’s THB 3M bank overdraft facility. There are no contingent liabilities or contractual commitments as at the reporting date. 70 Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report 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 2021 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; b. the financial statements and notes also comply with International Financial Reporting Standards (AASB) as disclosed in note 2. c. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. d. as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in Note 25 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee. e. 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 ended 30 June 2021. On behalf of the Board Glenn Cooper Managing Director 25 August 2021 71 Directors’ Declarationfor the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Independent Auditor’s Report To the shareholders of Bisalloy Steel Group Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Bisalloy Steel Group Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its financial performance for the year ended on that date; and The Financial Report comprises: Consolidated statement of financial position as at 30 June 2021; Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended; Notes including a summary of significant accounting policies Directors’ Declaration. complying with Australian Accounting Standards and the Corporations Regulations 2001. The Group consists of Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. 72 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 72 Independent Auditor’s Reportfor the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Key Audit Matters Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. This matter was addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter. Revenue from contracts with customer ($104.8 million) Refer to Note 3 to the Financial Report The key audit matter How the matter was addressed in our audit Recognition of revenue is a key audit matter due to the: Significance of revenue to the financial statements; and Varying contract arrangements applicable to the Group with different points in time when control of the asset is transferred to the customer. In addition, the Group recognises revenue from the services of shipping and handling over time as the service is performed. This results in complex and judgemental revenue recognition from sale of goods and services of shipping and handling and therefore significant audit effort is required to gather sufficient audit evidence for revenue recognition. We also focused on the Group’s assessment of the amount of revenue recognised from sale of goods with variable consideration which is highly probable of not reversing, as applicable. The Group's determination that variable consideration is highly probable requires a degree of estimation and judgement. This increased the audit effort we applied to gather sufficient audit evidence. Our procedures included: • Obtaining an understanding of the Group’s process for revenue recognition from sale of goods and services of shipping and handling. • Considering the appropriateness of the Group’s accounting policies for the recognition and measurement of revenue, including variable consideration, against the requirements of AASB 15 Revenue from Contracts with Customers. • Selecting a sample of revenue transactions across varying contract arrangements applicable to the Group: - during the year, we evaluated the timing and amount of revenue recognised in comparison to underlying records including, terms and conditions in the underlying customer contract, sales invoice, and bank statement cash receipts; - during the year, we checked revenue transactions to sales order, approved dispatch notes or/and bank statement cash receipts. We obtained direct sales confirmation from a sample of customers; - focussed around the year end cut-off. We evaluated the timing and amount of revenue recognised in comparison to underlying records including, terms and conditions in the underlying customer contract, sales invoice, delivery docket and bank statement cash receipts. we evaluated the method applied by the Group to estimate the highly probable amount of the variable consideration against the specific contract terms. This included gathering 73 73 Bisalloy Steel Group Limited 2021 Annual Report underlying evidence in relation to the customer’s early settlement discounts against the terms of the contract. We then recalculated the amount of variable consideration. We compared the recalculated amount to the amounts recorded by the Group as offsets to revenue. Assessing the appropriateness of disclosures in the financial statements using our understanding obtained from our testing and against the requirements of the accounting standards. Other Information Other Information is financial and non-financial information in Bisalloy Steel Group Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Director’s Report and Remuneration Report. The Chairman and Managing Director’s review, Review of Operations and Safety and ASX Additional Information are expected to be made available to us after the date of the Auditor's Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Renumeration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; assessing the Group’s ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. 74 74 Independent Auditor’s Report (continued)for the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Auditor’s responsibilities for the audit of the Financial Report Our objective is: to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf . This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Bisalloy Steel Group Limited for the year ended 30 June 2021, complies with Section 300A of the Corporations Act 2001. 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 responsibilities We have audited the Remuneration Report included in pages 9 to 15 of the Directors’ report for the year ended 30 June 2021. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Warwick Shanks Partner Wollongong 26 August 2021 KPM_INI_01 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 75 75 Bisalloy Steel Group Limited 2021 Annual Report 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 2021. In thousands of dollars 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 The number of shareholders holding less than a marketable parcel of shares based on a share price of $1.28 at the date of this report are There are 1,632,248 performance rights issued. Performance rights do not carry a right to vote. In thousands of dollars b. Twenty largest shareholders The number of shareholders, by size of holding in each class of share are: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. BALRON NOMINEES PTY LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED BNP PARIBAS NOMINEES PTY LTDEVELIN INVESTMENTS PTY LIMITED HORRIE PTY LTD NATIONAL NOMINEES LIMITED SOUTHERN STEEL INVESTMENTS PTY LIMITED MR MANFRED REIS + MRS EVELYN JEANETTE REIS BRAZIL FARMING PTY LTD HILLMORTON CUSTODIANS PTY LTD JETAN PTY LTD RATHVALE PTY LIMITED NETWEALTH INVESTMENTS LIMITED KILCONQUHAR SUPERANNUATION FUND PTY LTD MR NIGEL BURGESS + MRS YUKARI BURGESS VELKOV FUNDS MANAGEMENT PTY LTD T MITCHELL PTY LTD BALKIN PTY LTD FINANCE ASSOCIATES PTY LTD WESTFERRY OPERATIONS PTY LTD Ordinary shares Number of holders Number of shares 563 603 193 306 46 345,136 1,500,129 1,514,189 10,968,864 31,639,533 1,711 45,967,851 103 17,456 Listed ordinary shares Number of shares % of ordinary shares 7,409,505 5,950,494 2,981,338 1,349,330 1,216,310 1,006,500 843,916 650,000 631,983 561,374 549,999 520,240 500,000 423,000 414,557 400,000 388,865 371,590 365,000 299,328 16.12 12.94 6.49 2.94 2.65 2.19 1.84 1.41 1.37 1.22 1.20 1.13 1.09 0.92 0.90 0.87 0.85 0.81 0.79 0.65 76 ASX Additional Informationfor the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report Dates of last notice Number of shares Fully paid % c. Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: SOUTHERN STEEL INVESTMENTS PTY LIMITED 31 August 2020 8,664,611 SAMUEL TERRY ASSET MANAGEMENT PTY LTD 13 December 2018 5,024,614 GREIG & HARRISON PTY LTD TURNBULL & PARTNERS PTY LIMITED 26 August 2020 4,272,000 15 June 2021 2,933,698 18.84 10.93 9.29 6.38 Voting Rights: d. All ordinary shares carry one vote per share without restriction. 77 Bisalloy Steel Group Limited 2021 Annual Report Legal Advisors Workplace Advisory Group 473 Darling Street Balmain NSW 2041 Telephone: +61 (0)419 265 466 Annual General Meeting The Group will hold its 2021 Annual General Meeting at 11:00am on Wednesday, 24 November 2021. Copies of the annual report or further information can be obtained by emailing 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. Registered Office 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 Auditors KPMG Level 7, 77 Market Street Wollongong NSW 2500 Telephone: +61 (0)2 4229 2633 Facsimile: +61 (0)2 4229 2273 Bankers Westpac Banking Corporation Share Registry 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 www.computershare.com 78 Corporate Directoryfor the year ended 30 June 2021Bisalloy Steel Group Limited 2021 Annual Report