Boise Cascade Company Annual Report 2018

Plain-text annual report

World Reach Limited ABN 39010 568 804 5 / 8 Anzed Court, Mulgrave, Victoria, Australia 3170 T +61 3 8561 4200 F +61 3 9560 9055 E: info@worldreach.com.au 12 September 2018 The Manager Market Announcements Platform Australian Securities Exchange Annual Report for Year Ending 30 June 2018 The Company has great pleasure in releasing its Annual Report for the Year Ending 30 June 2018 including the Chairman’s Report and the Corporate Governance Statement, as well as the Directors’ Report and the audited FY2018 Financial Statements and Notes to the Accounts. Yours faithfully Dennis Payne Secretary 2018 ANNUAL REPORT DIRECTORATE NON-EXECUTIVE CHAIRMAN Mr Simon Lister Wallace MANAGING DIRECTOR Mr Michael Ian Capocchi NON-EXECUTIVE DIRECTORS Mr Carl Cheung Hung Mr David Paul James Stewart COMPANY SECRETARY Mr Dennis Frank Payne REGISTERED OFFICE Unit 5/8 Anzed Court Mulgrave, Vic, 3170 Ph: (03) 8561 4200 Fax: (03) 9560 9055 Email: info@worldreach.com.au SHARE REGISTER Link Market Services Ltd Locked Bag A14 Sydney South, NSW, 1235 Ph: 1300 554 474 Fax: (02) 9287 0303 SOLICITORS TO THE COMPANY GrilloHiggins Lawyers Level 20, 31 Queens Street Melbourne, Vic, 3000 Ph: (03) 8621 8880 AUDITOR RSM Australia Partners Level 21, 55 Collins Street MELBOURNE VIC 3000 Ph: (03) 9286 8000 Fax: (03) 9286 8199 ASX OFFICE Based in Melbourne ASX CODE WRR CONTENTS Directorate Testimonials Iridium GO! New Video Chairman’s Report Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement Consolidated Financial Statements Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Auditor’s Report Australian Securities Exchange Information 1 2 3 4 6 20 24 32 33 34 35 36 56 58 62 8 1 0 2 T R O P E R L A U N N A 1 ANNUAL REPORT 2016 CHAIRMAN’S REPORT BEAM TIMELINE “Excellent shopping experience will deﬁnitely come back if we need anything else. Easy to deal with and the online chat staff went above and beyond. Thank You :)” Spaulding. Devonport, TAS “Staff were helpful informative friendly and very efﬁcient. As good as it gets.” Keith C. QLD “Fast hassle free transaction, dealing with professional staff providing good old fashion service.” Philip. Morley, WA “Really can’t thank the staff enough, the ladies are really switched on and know what they’re talking about. A big thanks to the staff. Will be doing business with SatPhone Shop more often.” Jeff. Springwood, QLD “Staff were helpful informative friendly and very efﬁcient. It’s as good as it gets.” Keith “Your staff were fantastic to deal with and the follow up was fantastic and so helpful. Will be recommending to others.” Kristy. Nickol, WA “The staff are very polite, efﬁcient and have excellent product knowledge. A pleasure to deal with.” H C A E R Ivan. Renmark, SA D L R O W 2 “Excellent shopping experience will deﬁnitely come back if we need anything else. Easy to deal with and the online chat staff went above and beyond. Thank You :)” Spaulding. Devonport, TAS “Really can’t thank the staff enough, the ladies are really switched on and know what they’re talking about. A big thanks to the staff. Will be doing business with SatPhone Shop more often.” Jeff. Springwood, QLD “Staff were helpful informative friendly and very efﬁcient. As good as it gets.” Keith C. QLD “Fast hassle free transaction, dealing with professional staff providing good old fashion service.” Philip. Morley, WA “The staff are very polite, efﬁcient and have excellent product knowledge. A pleasure to deal with.” Ivan. Renmark, SA “Staff were helpful informative friendly and very efﬁcient. It’s as good as it gets.” Keith “Your staff were fantastic to deal with and the follow up was fantastic and so helpful. Will be recommending to others.” Kristy. Nickol, WA BEAM TIMELINE GO! anywhere and keep in touch with friends, family or work. A small yet powerful device, Iridium GO!® enables you to make calls, send texts, track your location and share your photos online. Whatever the application or the need, Iridium GO! ® can take your communications further. 7 1 0 2 T R O P E R L A U N N A 3 CHAIRMAN’S REPORT CHAIRMAN’S REPORT “Strong organic product sales, including another revenue contribution from SatPhone Shop exceeding $1M and a fantastic reception of SatPhone Shop’s new website” I am pleased to provide the following Chairman’s Report on the World Reach Group of companies for the year ended 30 June 2018. This included amortization of the Thuraya WE project from March 2018 onwards. Profit Performance, Major Impacts and Outlook No, FY2018 was not the year we planned for some 18 months ago. After 3 consecutive years of profits in FY2014, 15 and 16, and a dip into the red in FY2017, the expectation of management and the board was that the significant contracts the Group had secured during those years would realise major deliveries of product, and a profit, through the year. Yes, the impact of these modest delays and balance sheet adjustments does reflect the lumpy nature of Beam’s business incomes, and our financial sensitivity to timing oscillations, and, yes, we eagerly look forward to these revenues being enjoyed in the 2019 financial year, but when assessed as a single reporting period, FY2018 was quite unsatisfactory. Alas due to events almost entirely beyond the control of Beam Communications Pty Ltd (‘Beam’) (www.beamcommunications.com. au), two major product shipments were not able to be effected before 30 June and instead will be delayed until early in FY2019. There will be no reduction in the value of the shipments, but the rescheduling of the deliveries had a material impact on the Group’s full year result, which was extremely frustrating and disappointing for all stakeholders. The delivery of the remaining 2618 Thuraya WE units is now expected in this financial year, with its delay having pushed the group into a net loss for the FY2018 year. We remain in heated agreement with our channels, development partners and Thuraya, that this unique product will be enthusiastically received. We look forward to sharing with you confirmation of the commencement of these remaining deliveries, which will release a minimum of USD3,000,000 in contracted revenues within the first 12 months. The Inmarsat BRM (BGAN Radio Module) development project had been paused and the board took the conservative decision to write-back 100% of the investment at a net cost of $0.66m. The total cost of the impairment and other project amortization for the FY2018 year was $1.49m, partly offset by Australian government R&D grants of $0.49m. Beam has now received a fifth order from Iridium for a further 5000 units of the Iridium GO! ® product for delivery in the second half of FY2019. This is good news, which will further enhance the profits derived by Beam from this development, whose continued utility and appeal is something of which we and our shareholders should be very proud. Strong organic product sales, including another revenue contribution from SatPhone Shop exceeding $1M and a fantastic reception of SatPhone Shop’s new website, gave the business momentum into the end of the financial year, which has continued in the early part of FY2019. Cash and Funding The Group continues to benefit from the Australian Government R&D rebate, which subsidises our costly investments in new product development. $0.6m was received in July 2017 from the Government R&D fund, which related to expenditure in FY2016. In May 2018 an R&D grant of $1.1m in cash was received, related to FY2017 development expenditures, both mostly concerning the Thuraya WE project. World Reach received $1.94m from a share placement on 12 September 2017. The net funds received of $1.86m were, and will be, used to fund existing and prospective product developments while limiting the Group’s reliance on existing debt facilities. H C A E R D L R O W 4 CHAIRMAN’S REPORT World Reach had previously arranged a secured loan facility of up to $US2.0m with SGV1 Holdings Limited (‘SGV1’). The loan facility has been available since 1 January 2017 and was only recently utilised (in July 2018) to the extent of US$0.33m. The term of the facility is 36 months (expiring on 1 January 2020). This facility will greatly aid our ability to progress our existing product aspirations. Another interesting opportunity being investigated currently may require the assistance of an international partner experienced in this particular market segment to bring the product onto the global market. Expectations are that revenues could be achieved from early FY2020. More will be known and announced once sufficient progress has been made. Directors and Investors World Reach Director, Carl Hung is Managing Director of SGV1, which holds a strategic investment of 17.48% in World Reach. SGV1 is a company associated with Season Group (‘Season’) of which Mr Hung is President and CEO. The relationship with Season has developed over the past 5 years and is an important and strategic one for World Reach. Importantly Season has engineering and contract manufacturing capabilities around the globe but one that may prove very beneficial for Beam is in the USA, at a time when the US government is tightening trade embargoes on non-USA manufactured products. In the coming year Beam will be engaged with Iridium on the development of new products along with the enhancement of existing products to support the newest satellite constellation deployed by Iridium. This new constellation will introduce enhanced speeds and IP capabilities not previously available on the Iridium network. Some of these new projects will require significant cash development funds, while other products are likely to require much less engineering and development time. Beam’s reputation for innovative and quality communications developments continues to be enhanced. The share placement in September 2017 was to Glenayr Pty Ltd, an entity controlled by David Stewart who now holds 19.93% of the shares in World Reach. The placement conferred a right to a board position and I was so pleased when David agreed to join us as a director on 9 November. Previously the MD and CEO of NetComm Wireless Limited until 2016, David brings - and the Group benefits from - his technical and commercial expertise in the assessment of product developments and corporate opportunities. Product Developments After more than 3 and a half years in development the Thuraya WE is now a reality and only minor software issues are holding up the full launch of the product. It is anticipated that Thuraya WE will be a major contributor to the Group’s financial wellbeing in FY2019 and future years. A number of new products are on the horizon. David Stewart has been influential in appraising the Group of the opportunities that exist in communications outside the purely satellite space. Trials are underway which will test the prospective products and the extent of the market open to Beam for incremental sales especially in FY2020. The Inmarsat BRM project, while defunct in its original format, is being considered in a revised form with an overseas based contractor engaged to evaluate development of the product at a much lower cost than the original plan. Staff and Board As much of rural Australia battles with drought, we are reminded that cutting ourselves to profit is not a tolerable strategy. We must continue to invest, tend our commercial fields and position ourselves to benefit most from a change in conditions, which we can already see has begun. I would like to thank my fellow Non-executive Directors, Carl Hung and David Stewart for their respective valuable insights. In addition, I again express my appreciation to our Managing Director and CEO, Michael Capocchi, as well as Michael’s executive team and staff, for maintaining morale and high standards as we work collectively to build a business while delivering the best possible returns for our shareholders. Mr Simon Wallace Chairman Date: 12 September 2018 8 1 0 2 T R O P E R L A U N N A 5 DIRECTORS’ REPORT DIRECTORS’ REPORT Your Directors present their report on the company and its controlled entities for the financial year ended 30 June 2018. DIRECTORS The persons who have been a Director of the Company since the start of the financial year to the date of this report are: Simon Lister Wallace Michael Ian Capocchi Carl Cheung Hung David Paul James Stewart The qualifications, experience and special responsibilities of each of the directors who held office during the year are: H C A E R D L R O W 6 Simon Lister Wallace Chairman Age: 44 Simon Wallace is a corporate lawyer and, based in Melbourne, he is presently an equity partner of Dentons, which is the largest law firm in the world. Simon has extensive legal and commercial proficiency, with particular expertise in the areas of project finance, fundraising and corporate governance. He also has substantial professional experience in the areas of investment banking, structured and direct equity investments, product formulation and sales. More recently, he was a director of ASX-listed Hastings Rare Metals Limited (now known as Hastings Technology Metals Limited). Simon is admitted to practise as a barrister and solicitor of the Supreme Court of Victoria, the Federal Court of Australia and the High Court of Australia, and he holds degrees from the Australian National University in both Law and Commerce. Simon has been a Director since 5 February 2015 and was elected Chairman on 22 December 2016. DIRECTORS’ REPORT Michael Ian Capocchi Managing Director Carl Cheung Hung Non Executive Director David Paul James Stewart Non Executive Director (appointed 9 November 2017) Age: 47 Age: 34 Age: 64 Michael Capocchi has over 20 years’ Carl Hung has a Bachelor of Commerce David Stewart is an experienced CEO and experience in the ICT industry and has held degree from the University of British successful entrepreneur with more than 30 several senior management positions. Columbia and an Executive Masters of years in management and business leadership Michael is based in Chicago, USA, which Business Administration from University roles. David founded Banksia Technology Pty places him closer to the important centres of Western Ontario’s (UWO) Richard Ivey Limited in 1988 and successfully managed for satellite School of Business. He is a Six Sigma Black the company as a fast growing and highly communications in the USA and UK/Europe. Belt certified by SGS. He is also a Certified profitable business. In 1996 he instigated Management Accountant. the successful takeovers of a number of his Michael joined World Reach Limited as the competitors, including NetComm Limited, General Manager of the subsidiary, Beam Carl is President and CEO of Season Group which was completed in November 1997. Communications Pty Ltd, in 2003 and was International Inc, a global Electronic David assumed the role of CEO and Managing appointed as Managing Director of World Manufacturing Services provider. He has Director until retiring in December 2016. A Reach Limited in March 2008. helped grow the company from USD15 year later David was appointed as a Non- million in 2002 to USD161 million in 2016, Executive Director of NetComm Wireless and Prior to joining World Reach, Michael was the expanding the company’s footprint from remains the single largest shareholder. Regional Sales Director for Iridium Satellite China, Canada and Malaysia to include the LLC, directly managing the sales, distribution USA, Mexico and the UK. and channel management strategies for the In June 2016 David was recognised for his significant and valuable contribution to the Asia-Pacific region. Season Group has been the preferred Australian communications industry with contract manufacturer for Beam the presentation of the Communications Michael has held senior management, Communications Pty Ltd for several years Ambassador 2016 award. The Australian positions as the Sales and Marketing and has been instrumental in rationalising Communications Ambassador award is Director of Pacific Internet responsible for Beam’s manufacturing and supply processes. the highest honour presented by ACOMMS establishing the Australian operations of the Communications Alliance and CommsDay company and with Optus Communications Carl has been a Director of World Reach each year. and Myer Stores Limited. Limited since 21 February 2013. Michael Capocchi is an integral part of the World Reach business, including managing the day to day operations of the group which occasions extensive domestic and international travel. Since retiring, David began working with a number of tech startups in an advising and investing capacity. He was announced as Chairman for Pycom on 1 July 2017 and a Director of World Reach Limited on 9 November 2017, following investments in both. At the start of 2018, David joined the board of Lockbox Technologies. 8 1 0 2 T R O P E R L A U N N A 7 DIRECTORS’ REPORT Indemnification of Directors and Officers During the year, the economic entity has paid premiums in respect of an insurance contract to indemnify its directors and officers against liabilities that may arise from their positions. Directors and officers indemnified include all Directors, the Company Secretary and all executive officers participating in the management of the economic entity. Further disclosure required under section 300(9) of the Corporations Law is prohibited under the terms of the insurance contract. Directorships of Other Listed Companies Simon Wallace held the position of non- executive director of Hastings Rare Metals Ltd from 9 December 2013 to 18 November 2014. David Stewart is a non-executive director of NetComm Wireless Limited. No other director of World Reach Limited has been a director of a listed company in the three years immediately before the end of the financial year. COMPANY SECRETARY Dennis Frank Payne has held the position of Company Secretary since 2010. Dennis joined the Company in 2005 and has also served since that date as Chief Financial Officer. Prior to joining World Reach Limited Dennis held senior financial and commercial roles at Cadbury Schweppes and Optus Communications. He has a Bachelor of Economics and is a qualified CPA. PRINCIPAL ACTIVITIES The activities of the company and its controlled entities during year were the development and marketing of a range of communication products and services, mainly satellite based. H C A E R D L R O W 8 DIRECTORS’ REPORT 8 1 0 2 T R O P E R L A U N N A 9 DIRECTORS’ REPORT OPERATING RESULTS AND REVIEW OF ACTIVITIES which pleasingly was exceeded by over 20% profit position moved from an anticipated the comparable revenues enjoyed in the NPBT to a substantial loss. Although the The Consolidated Group reports a total comprehensive loss of $1,565,134 for the FY2018 year on total revenue of $11,638,170 (2017: total comprehensive loss of $558,320 on revenue of $9,880,153). first half of FY2018, Beam Communications revelation was very disappointing, the Board Pty Ltd (‘Beam’) the subsidiary company is significantly comforted by management’s concerned, has also been pursuing the firm expectation that deliveries would be completion of those major contract deliveries. made in the September quarter and that this Due to events almost entirely beyond Beam’s represents merely a deferral of contractually control the two major product shipments assured revenues. The size and impact of the adjusted revenue scheduling is reflective both of the lumpy nature of Beam’s business incomes and also the significant revenues that Beam expects to receive from further orders of these products in the 2019 financial year. A summary of the result for the year is as June 2018 but will instead be delayed until were not able to be affected before 30 2018 $000 2017 $000 11,638 9,880 the first quarter of FY2019. There will be no reduction in the quantum or value of the shipments, which are the subject of contractually enforceable commitments, but the rescheduling of the deliveries had a follows: Revenue Deduct Cost of goods sold, research & development, material impact on the Group’s full year result. In addition, the decision was made to write- While this was a frustrating and disappointing back 100% of the Inmarsat BRM (BGAN Radio outcome, and reflects the lumpiness of our Module) development project which had been administrative 12,245 9,751 business, we look forward to expanding our subject to rolling changes and delays, and was marketing and corporate expenses Operating profit before amortisation, depreciation, interest and tax Deduct Amortisation Depreciation Interest product suite in FY2019. In October 2017 the delivery of 2500 Iridium GO! ® units to Iridium completed the third major order for this product. The first half of the fourth order for 5000 Iridium GO! ® units was delivered in March 2018 and (607) 129 it was expected that the balance would currently on hold, at a net cost of $0.66m. The total cost of the impairment and other project amortization for the FY2018 year was $1.49m, partly offset by take up of corresponding Australian government R&D grants at $0.49m. This included amortization of the Thuraya WE project from March 2018 onwards. 694 424 77 54 78 50 be delivered in June. Due to a very minor The largely offsetting influences on the cosmetic issue, not relating to the product’s value of the tax asset carried forward, being function or performance, the release of the the FY2018 loss itself and the major R&D last 2500 units was delayed until early July, grants received, resulted in a tax expense for while this product labelling issue was easily the year of $120,000 related to the Group’s rectified and at no cost to Beam. Beam has Australian companies, and $13,000 for our Loss before income tax (1432) (423) now received a fifth order from Iridium for a USA subsidiary. Tax (expense) (133) (135) half of FY2019. further 5000 units for delivery in the second Although the Directors expect sufficient future profitability to enable the full value of deferred tax assets, which now stand at Loss for the year (1565) (558) Total comprehensive Loss for the year (1565) (558) Performance and Profit As reported at the half year and again recently in the 2018 Outlook Update, Beam $1.23m (being 60% of the total tax-effected had previously experienced issues that were losses carried forward) to be utilized, the delaying the finalisation of the Thuraya WE decision has been taken not to increase unit’s software. Those issues unfortunately, the proportion taken up at this time, with and unexpectedly, lingered and hampered a demonstration of the Group’s return to efforts to complete the contracted delivery profitability required before the board would The Group’s financial year result for 2017/18 was greatly influenced by the timing of major of 3000 units within the financial year. Once consider doing so. again, rectification is expected to take place product shipments, both those completed and relatively quickly (within Q1 of FY 2019). Cash and Funding those in the end delayed until FY2019. Due to the magnitude of these unfulfilled In the Half Year Financial Report, the Group shipments within FY2018, the consequential reported a before tax loss of $568,000 for the impact on the Group’s annual profit, World first half of FY2018, but the Board considered Reach Limited, the parent company, (‘World and agreed that the outlook for the second Reach’) was obliged to advise the market of half of that FY, inclusive of the anticipated a significant adjustment of its anticipated major contract sales and deliveries, would annual result, which was released on 26 June. The delays to revenue had a predictably negative impact on cash generation for the reporting period. Although the Group had prudently revised its new product development program and exercised strong operational cash control, there were several material influences on our cash position and “deliver a lift in gross and net profit which will Until it was finally determined that the above generation in FY2018: produce a profit result for the full financial shipments were not possible to be made year to 30 June 2018”. While working to increase the Group’s base sales revenue in the second half of FY2018, before 30 June, the Group was confidently anticipating a Net Profit Before Tax broadly in line with forecasts. The lack of the two major shipments meant that the Group’s • $0.6m was received in July 2017 from the Australian Government R&D fund, which subsidises costly investment in new product development, related H C A E R D L R O W 10 to expenditure in FY2016. This is only improving sales figures and revenues of over 19.93% of the shares in the World Reach. brought to profit on a monthly straight- $1.0m enjoyed in FY2018. SatPhone Shop is The placement conferred a right to a board line basis matching the amortization of expected to contribute incremental revenue position which Mr Stewart enthusiastically the related development project. gains in FY2019 as the market for rental accepted and David was welcomed to our DIRECTORS’ REPORT • In May 2018 an R&D grant of $1.1m in equipment and pre-paid sim cards expands. board on 9 November. David is Sydney based cash was received, related to FY2017 Extensive revisions to Beam’s new product development expenditures, mostly development program during 2017 led to the concerning the Thuraya WE project. acceleration of later projects and also the augmentation of our existing and prospective product lines, including those with utility and was MD/CEO of Netcomm Limited until retirement in 2016. The Group has already benefited from David’s technical and commercial expertise in the assessment of product developments. • In August 2017, World Reach announced an investment of $1.94m by way of a share placement, which was completed on 12 September 2017. The net funds received of $1.86m were, and will be, used to fund existing and prospective product developments while limiting the Group’s reliance on existing debt facilities. outside the purely satellite space. A range of The placement and David’s decision to join sample products is being trialed at present the board reflects the investor’s positive and it is anticipated that a modest level of view of the Group’s growth prospects in the incremental sales will be achieved later in communications sector as it continues to FY2019, ramping up in FY2020. The Inmarsat embark on the release of new and innovative BRM project, while defunct in its original communication products. format, is being considered in a revised form with an external contractor engaged to • To ensure funding for its continuing perform the initial design investigation. Some development program, World Reach of these new projects will require significant had previously entered into a loan cash development funds, possibly in place of agreement for a secured loan finance expenditure on the BRM development, while facility of up to $US2.0m, (‘Finance other products are likely to require much less Facility’) by SGV1 Holdings Limited engineering and development time. Despite the result in FY2018, the Directors are confident that the Group’s revenues in FY2019 will be greatly enhanced and, as a consequence, return the Group to a significant profit situation once again. We look forward to updating the market, in the near future, on successfully completed major shipments as well as the progress of our new product developments. One of the interesting projects being worked on currently may require the partnership of an SIGNIFICANT CHANGES IN STATE OF experienced international partner to bring the AFFAIRS (‘SGV1’). The interests of SGV1 are secured by a general security interest granted over the Company’s assets and undertakings. The security ranks behind the interests of the Group’s transactional financier, National Australia Bank Limited. The Finance Facility has been available from 1 January 2017 and was only recently utilised (in July 2018) to the extent of US$0.33m. The term of the facility is 36 product into the global market. This product and revenue would not replace but add to our existing product offerings. Expectations are that revenues could be achieved from late FY2019 and the Directors look forward to advising investors once significant progress has been made. months (expiring on 1 January 2020). The Board remains determined to continue The Board believes the Group has secured the requisite financial accommodation to fund the Group’s ongoing investment in currently approved product developments, and when investments in innovative and advanced technologies over the medium and long terms. Directors and Investors Other than those noted above, there were no significant changes in the state of affairs of the Consolidated Group during the financial year. EVENTS AFTER REPORTING DATE On 5 July 2018 the Group released a statement which announced the dispatch of the delayed shipment of 2500 Iridium GO!® units which completed the fourth order from Iridium. On 17 July the Group announced the receipt of a fifth order from Iridium for 5000 Iridium GO!® units to be delivered in the combined with minimum contracted revenues World Reach Director, Carl Hung is Managing second half of FY2019. of over US$3.0m in respect of Thuraya WE Director of SGV1, which holds a strategic deliveries, we believe the Group is well placed investment of 17.48% in World Reach. SGV1 to cope with the periods of volatility that are is a company associated with Season Group typical of our business. (‘Season’) of which Mr Hung is President Other than the above, there have been no significant events since the end of the reporting period. and CEO. The relationship with Season has DIVIDENDS PROPOSED OR RECOMMENDED Outlook and Products developed over the past 5 years and is an important and strategic one for World Reach. As mentioned above, there has been a Apart from a significant role in assisting with substantial shift of revenues into the 2019 engineering, tool making and testing services, its financial year. Although this may potentially contract manufacturing facilities in Guangdong, No dividends were paid or declared since the start of the financial year. No recommendation for payment of dividends has been made. delay some succeeding orders, base product China, as well as the USA, provides flexible ENVIRONMENTAL ISSUES sales by Beam are holding strong, such that we market options especially at a time when the US believe that the Group’s total sales revenues government is tightening trade embargoes on will increase substantially over FY2018. non-USA manufactured products. The economic entity’s operations are not regulated by any significant environmental regulation under any Commonwealth, State or In addition, the growth of SatPhone Shop, The share placement in September 2017 was Territory laws. World Reach’s on-line business, will enhance to related party Glenayr Pty Ltd, an entity our FY2019 performance, with steadily controlled by David Stewart who now holds 8 1 0 2 T R O P E R L A U N N A 11 DIRECTORS’ REPORT FUTURE DEVELOPMENTS The company will continue the development of the Satellite Communications Services and related businesses. SHARES ISSUED ON THE EXERCISE OF OPTIONS No ordinary shares of the Company were issued during the year ended 30 June 2018 on the exercise of options. DIRECTORS’ INTERESTS The relevant interests of the Directors in the securities of the Company are detailed in the Remuneration Report as part of the Directors’ Report. SHARES UNDER OPTION At the date of this report, the unissued ordinary shares of the Company under option are as follows: Issue Date Date of Exercise Expiry Price Number Under Option 31.03.15 31.03.20 $0.1950 789,525 24.12.15 31.08.20 $0.1950 789,525 REMUNERATION REPORT (Audited) This report details the nature and amount of contribution to successful outcomes for the company is demonstrated and the individual remuneration for each director of World Reach Limited, and for the executives receiving the highest remuneration. Remuneration Policy attains and excels against pre-agreed key performance indicators during a performance cycle. For FY2018 the Managing Director had a performance bonus potential of 10% of the The Company is committed to remunerating Group net profit for the financial year, subject its executive directors and senior executives to the achievement of a minimum operating in a manner that is market competitive, consistent with best practice and supports the interests of shareholders. The Company aims to align the interests of executive profit before amortisation, depreciation, interest and tax of $1,000,000. The minimum target level was not attained and therefore none of the Managing Director’s potential directors and senior executives with those of performance bonus became payable. shareholders by remunerating through For FY2019, under a new contract, a greater performance and long-term incentive plans in portion of the Managing Director’s addition to fixed remuneration. remuneration will be at risk. The remuneration of Non-executive Directors is determined by the Board having regard to the level of fees paid to non-executive directors by other companies of similar size and stature and in aggregate must not exceed the maximum annual amount approved by the Company’s shareholders, currently $500,000 as determined at the General Meeting held on 3 August 2007. No other key management executive has a contractual performance bonus entitlement. In assessing the relative performance of the senior executives and the Group as a whole on the primary objective of enhancing shareholder value, the board has regard to key financial indicators measured over time. In accordance with Section 300A of the Corporations Act 2001 the following table summarises the Group’s performance over Senior executives’ remuneration consists of the last 5 years. the following elements: - fixed salary; Net profit/ 2018 2017 2016 2015 2014 24.12.15 30.11.20 $0.1950 907,500 - short-term incentive bonus where (loss) before (1,432) (423) 417 645 439 2,486,550 applicable based on performance; - long-term incentive share option scheme; and: DIRECTORS’ MEETINGS - other benefits including superannuation. During the year ended 30 June 2018 the Company held 15 meetings of Directors (including Audit Committee meetings). Attendances by each Director during the year were: Fixed Salary The salary of senior executives is determined from a review of the market and reflects core tax ($’000) EBITDA ($’000) Basic earnings / (loss) per share (cents) (607) 129 1,363 2,571 1846 (3.07) (1.29) 1.12 5.13 3.45 performance requirements and expectations. Share price at In addition, the Company considers the 30 June ($) 0.16 0.13 0.23 0.31 0.33 following: Directors meetings Commitees - The scope of the individual’s role; - The individual’s level of skill and Director d e d n e t t A m u m i x a M e l b i s s o P d e d n e t t A d e d n e t t A m u m i x a M e l b i s s o P M Capocchi 12 D Stewart C Hung S Wallace 6 10 12 12 6 12 12 0 0 3 3 0 0 3 3 experience; - The Company’s legal and industrial obligations; - Labour market conditions; and - The size and complexity of the Company’s business. Performance Bonus The purpose of the performance bonus is to reward an individual’s actual achievement of performance objectives and for materially improved company performance. Consequently, performance-based remuneration is paid where a clear Market Capitalisation 8.46 5.61 9.93 13.38 4.83 at 30 June Dividends per share Nil Nil Nil Nil Nil The board believes that due to the nature of the Group’s business there are often major influences on a particular financial year’s profit result that are largely beyond the direct control of senior executives, such as the ‘bring to market date’ of products from long term development projects. This was the case in FY2018 where the later than expected completion of the Thuraya WE project severely restricted the Group’s overall financial results. Further, the board accepts that the Group’s net profit result is not wholly H C A E R D L R O W 12 reflective of the performance of senior executives during the year, however it does acknowledge that the FY2018 result (and as was the case also for FY2017) does not justify the payment of incentives for this period. REMUNERATION REPORT (continued) Long-term Incentives The Company’s Share Options Incentive Plan in which executive directors and senior executives may participate was approved by shareholders on 27 October 2017 and authorises the Directors to issue up to 10% of the issued shares. The Company ensures that the payment of equity-based executive remuneration is made in accordance with thresholds set in plans approved by shareholders. No options were issued to key management personnel or to Directors during FY2018. Other Benefits Senior executives are entitled to statutory superannuation and other bonus payments subject to the discretion of the Managing Director and the Board. Employment Contracts Employment Contracts of Senior Executives A newly negotiated employment contract for the Managing Director was executed by the Company and Michael Capocchi on 30 June 2018 under which he will continue as Managing Director and CEO of the Company on an ongoing basis but with a minimum term of 2 years. The terms of Mr Capocchi’s contract were renegotiated such that the fixed base salary was reduced, and a greater portion of his remuneration will now be at risk. The contract can be terminated by either the Company or Mr Capocchi with a minimum of 9 months’ notice, subject to completion of the minimum term. All other key management personnel are permanent employees. 2018 2017 2016 2015 2014 (loss) before (1,432) (423) 417 645 439 (607) 129 1,363 2,571 1846 (3.07) (1.29) 1.12 5.13 3.45 0.16 0.13 0.23 0.31 0.33 Capitalisation 8.46 5.61 9.93 13.38 4.83 Nil Nil Nil Nil Nil Net profit/ tax ($’000) EBITDA ($’000) Basic earnings / (loss) per share (cents) Share price at 30 June ($) Market at 30 June Dividends per share DIRECTORS’ REPORT 8 1 0 2 T R O P E R L A U N N A 13 DIRECTORS’ REPORT REMUNERATION REPORT (continued) (a) Names and positions held of consolidated group and parent entity Key Management Personnel in office at any time during the financial year are: Directors Mr S Wallace Mr M Capocchi Mr C Hung Mr D Stewart Non-Executive Chairman Executive Managing Director Non-Executive Director Non-Executive Director (appointed 9 November 2017) Other key management personnel Mr D Payne Mr W Christie Chief Financial Officer and Company Secretary Chief Technical Officer (b) Details of remuneration for the year The remuneration for each director and each of the other key management personnel of the consolidated group receiving the highest remuneration during the year was as follows: Short-term employee benefits Cash salary & fees $ Cash bonus & Commissions $ Motor vehicle & other allowances $ Employee benefits payable [b] $ Post- employ- ment benefits Super- annuation $ Other long- term benefits Termi- nation benefits Share- based payments Employee benefits payable $ Eligible termination benefits $ Options [a] $ Total $ Performance related % Remuneration consisting of options % 2018 Directors Mr S Wallace 44,216 Mr M Capocchi [c] 477,107 Mr C Hung Mr D Stewart Other 44,216 27,777 Mr D Payne 188,147 Mr W Christie 171,275 - - - - 47,031 24,599 45,303 9,138 - - (812) 17,874 (5,519) (2,641) 16,271 3,299 Total 952,738 - 47,031 21,146 79,448 6,918 - - - - - - - - 44,216 0.00% 603,178 0.00% 44,216 0.00% 27,777 0.00% 0.00% 0.00% 199,690 188,204 1,107,281 0.00% 0.00% 0.00% 0.00% Short-term employee benefits Cash salary & fees $ Cash bonus & Commissions $ Motor vehicle & other allowances $ Employee benefits payable [b] $ Post- employ- ment benefits Super- annuation $ 2017 Directors Other long- term benefits Termi- nation benefits Share- based payments Employee benefits payable $ Eligible termination benefits $ Options [a] $ Total $ Performance related % Remuneration consisting of options % Mr D Dawson 20,833 Mr S Wallace 45,138 Mr M Capocchi [c] 456,966 Mr C Hung 45,138 Other Mr D Payne 186,748 Mr W Christie 170,000 Total 924,823 - - - - 31,655 (2,643) 43,412 9,366 - - (2,050) 17,741 (3,929) 1,196 16,150 3,273 31,655 (3,497) 77,303 8,710 - - - - - - - - 20,833 45,138 0.00% 0.00% 538,756 0.00% 45,138 0.00% 198,510 190,619 1,038,994 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Option based compensation relates to the value of options issued to date and brought to account pro-rata to the time period from the date of granting to the date of vesting, except where Accounting Standard AASB 2 required expensing to begin from the commencement of service related to those options, notwithstanding that the issue of those options, in the case of Directors was subject to shareholder approval, and in the case of key management employees, subject to performance review. Employee benefits payable represents net increase in benefits payable charged to the consolidated statement of profit or loss and other comprehensive income in the current year. The majority of Mr Capocchi’s remuneration is in US dollars. For 2018 his remuneration has been converted into AU dollars at the exchange rate on 30 June 2018 of 0.7391. [a] [b] [c] H C A E R D L R O W 14 Short-term employee benefits Cash Cash salary & bonus & fees Commissions $ $ Motor vehicle & other Employee benefits payable allowances $ [b] $ Post- employ- ment benefits Super- annuation $ Other long- term benefits Termi- nation Share- based benefits payments Employee Eligible benefits payable termination benefits $ $ Options [a] $ Total $ Performance related % Remuneration consisting of options % 2018 Directors Mr S Wallace 44,216 Mr C Hung Mr D Stewart Other 44,216 27,777 Mr D Payne 188,147 Mr W Christie 171,275 - - - - Mr M Capocchi [c] 477,107 47,031 24,599 45,303 9,138 Total 952,738 - 47,031 21,146 79,448 6,918 - - - (812) 17,874 (5,519) (2,641) 16,271 3,299 - - - - - - - 44,216 0.00% 603,178 0.00% 44,216 0.00% 27,777 0.00% 0.00% 0.00% 199,690 188,204 1,107,281 0.00% 0.00% 0.00% 0.00% DIRECTORS’ REPORT REMUNERATION REPORT (continued) (c) (i) Options granted as part of remuneration for the year 2018 Grant date [a] Granted number Value per option at grant date $ Value of options granted during the year $ Value of options exercised during year $ Value of options lapsed during year $ Total $ Directors Mr S Wallace Mr M Capocchi Mr C Hung Mr D Stewart Other Mr D Payne Mr W Christie - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (81,900) (81,900) - - - - - - - - 2017 Grant date [a] Granted number Value per option at grant date $ Value of options granted during the year $ Value of options exercised during year $ Value of options lapsed during year $ Total $ Directors Mr D Dawson Mr S Wallace Mr M Capocchi Mr C Hung Other Mr D Payne Mr W Christie - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (96,400) (48,600) (96,400) (48,600) - - - - (1,300) (1,300) (1,300) (1,300) [a] Option based compensation relates to the value of options issued to date and brought to account pro-rata to the time period from the date of granting to the date of vesting, except where Accounting Standard AASB 2 required expensing to begin from the commencement of service related to those options, notwithstanding that the issue of those options, in the case of Directors was subject to shareholder approval. Until shareholder approval was obtained at the Annual General Meeting in November 2015 and the options subsequently issued, the options were not deemed to be granted. 8 1 0 2 T R O P E R L A U N N A 15 DIRECTORS’ REPORT REMUNERATION REPORT (continued) (c) (ii) Options granted and/or vested during the year 2018 Vested No. Granted No. Terms & conditions for each grant Grant date [a] Value per option at grant date $ Exercise price $ Expiry date First exercise date Last exercise date Directors Mr S Wallace Mr M Capocchi Mr C Hung Mr D Stewart Other Mr D Payne Mr W Christie Total - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2017 Vested No. Granted No. Terms & conditions for each grant Grant date [a] Value per option at grant date $ Exercise price $ Expiry date First exercise Last date exercise date Directors Mr D Dawson Mr S Wallace - - Mr M Capocchi 200,000 Mr C Hung Other Mr D Payne Mr W Christie - - - 200,000 - - - - - - - - - - - - - - - - 0.1480 0.6500 01/07/17 01/07/16 01/07/17 - - - - - - - - - - - - - - - - - - - - - - Option based compensation relates to the value of options issued to date and brought to account pro-rata to the time period from the date of granting to the date of vesting, except where Accounting Standard AASB 2 required expensing to begin from the commencement of service related to those options, notwithstanding that the issue of those options, in the case of Directors was subject to shareholder approval. Until shareholder approval was obtained at the Annual General Meeting in November 2015 and the options subsequently issued, the options were not deemed to be granted. For further details relating to options, refer to Note 18 to the financial statements. Total [a] H C A E R D L R O W 16 2018 Vested No. Granted No. option at grant Exercise price $ Expiry date First exercise Last date exercise date Terms & conditions for each grant Grant date [a] Value per date $ Directors Mr S Wallace Mr M Capocchi Mr C Hung Mr D Stewart Other Mr D Payne Mr W Christie Total - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - [a] Option based compensation relates to the value of options issued to date and brought to account pro-rata to the time period from the date of granting to the date of vesting, except where Accounting Standard AASB 2 required expensing to begin from the commencement of service related to those options, notwithstanding that the issue of those options, in the case of Directors was subject to shareholder approval. Until shareholder approval was obtained at the Annual General Meeting in November 2015 and the options subsequently issued, the options were not deemed to be granted. For further details relating to options, refer to Note 18 to the financial statements. DIRECTORS’ REPORT REMUNERATION REPORT (continued) (d) Option holdings The number of options over ordinary shares in the Company held during the financial year by each key management person including their personally related parties is set out below. Balance 1.07.17 Granted as Remuneration Issued as Equity Investment Options Exercised Options Lapsed Balance 30.06.18 Total Vested 30.06.18 Exercisable 30.06.18 Unexer- cisable 30.06.18 2018 Directors Mr S Wallace - Mr M Capocchi 1,507,500 Mr C Hung Mr D Stewart - - Other Mr D Payne 381,150 Mr W Christie 544,500 - - - - - - Total 2,433,150 - - - - - - - - - - - - - - - - - - (600,000) 907,500 907,500 907,500 - - - - - - - - 381,150 544,500 381,150 381,150 544,500 544,500 - - - - - - (600,000) 1,833,150 1,833,150 1,833,150 - 2017 Balance 1.07.16 Granted as Remuneration Issued as Equity Investment Options Exercised Options Lapsed Balance 30.06.17 Total Vested 30.06.17 Exercisable 30.06.17 Unexer- cisable 30.06.17 Directors Mr D Dawson Mr S Wallace 400,000 400,000 Mr M Capocchi 1,507,500 Mr C Hung - Other Mr D Payne 391,150 Mr W Christie 554,500 Total 3,053,150 - - - - - - - - - - - - - - - - - - - - - (400,000) (200,000) - - - - - - - - 1,507,500 1,507,500 1,507,500 - - - (10,000) 381,150 (10,000) 544,500 381,150 544,500 381,150 544,500 (620,000) 2,433,150 2,433,150 2,433,150 - - - - - - - 8 1 0 2 T R O P E R L A U N N A 17 DIRECTORS’ REPORT REMUNERATION REPORT (continued) (e) Share Holdings The number of shares in the Company held during the financial year by each key management person including their personally related parties are set out below. 2018 Directors Mr S Wallace Mr M Capocchi Mr C Hung Mr D Stewart Other Mr D Payne Mr W Christie 2017 Directors Mr D Dawson Mr S Wallace Mr M Capocchi Mr C Hung Other Mr D Payne Mr W Christie Balance 1.07.17 Received as Remuneration Options Exercised Placement Issue [b] Net Change Other [a] Balance 30.06.18 178,600 1,603,899 9,243,207 - 328,570 62,778 11,417,054 - - - - - - - - - - - - - - - - - - - - 178,600 1,603,899 9,243,207 9,700,000 840,000 10,540,000 - - - - 328,570 62,778 9,700,000 840,000 21,957,054 Balance 1.07.16 Received as Remuneration Options Exercised Placement Issue [b] Net Change Other [a] Balance 30.06.17 300,000 - 1,408,561 9,243,207 328,570 62,778 11,343,116 - - - - - - - - - - - - - - (300,000) 178,600 195,338 - - - - 178,600 1,603,899 9,243,207 328,570 62,778 73,938 11,417,054 [a] [b] Net Change Other refers to shares purchased or sold on-market or off-market at current market prices during the financial year. Placement Issue refers to the placement of ordinary shares to Glenayr Pty Ltd, a company owned by Mr Stewart, on 12 September 2017 H C A E R D L R O W 18 DIRECTORS’ REPORT REMUNERATION REPORT (continued) (f) Convertible notes No convertible notes were issued, sold or matured during the financial year to key management personnel in the financial year ended 30 June 2018 or the comparative year ended 30 June 2017. (g) Shares issued on exercise of remuneration options No options were exercised by key management personnel during the financial year ended 30 June 2018 or the comparative year ended 30 June 2017. (h) Voting and comments made at the Company’s 2017 Annual General Meeting (AGM) At the Company’s most recent AGM, a resolution to adopt the prior year remuneration report was put to the vote and at least 75% of ‘yes’ votes were cast for adoption of that report. No comments were made on the remuneration report at the AGM. AUDITOR RSM Australia Partners was appointed Company auditor on 28 November 2013 and will continue in office in accordance with section 327 of the Corporations Act 2001. Pursuant to section 324 DAB of the Corporations Act 2001, the Board of 4 April 2018, following a recommendation from the Audit Committee, approved that Jason Croall, a partner of RSM Australia Partners may continue to play a significant role in the audit of the company for a further 2 years until the financial year ended 30 June 2020. Reasons for the extension include continuity of knowledge and experience that Jason has accumulated over the years, as well as, key relationships formed during this period’ is considered a material benefit to maintaining the quality of audit work for a further period covering the two financial years ending 30 June 2019 and 2020. The Board is satisfied that the extension of the auditor rotation period is consistent with maintaining the quality of the audit and would not give rise to conflict of interest situation. RSM Australia Partners has agreed to extend the above extension. NON AUDIT SERVICES No non audit services were undertaken by the external auditors during the year ended 30 June 2018. AUDITOR’S INDEPENDENCE DECLARATION The Auditor’s Independence Declaration is attached and forms part of the Directors’ Report. Signed in accordance with a resolution of the Board of Directors dated 30 August 2018. [a] [b] Net Change Other refers to shares purchased or sold on-market or off-market at current market prices during the financial year. Placement Issue refers to the placement of ordinary shares to Glenayr Pty Ltd, a company owned by Mr Stewart, on 12 September 2017 Mr Simon Wallace Chairman Date: 30 August 2018 8 1 0 2 T R O P E R L A U N N A 19 AUDITOR’S INDEPENDENCE DECLARATION RSM Australia Partners Level 21, 55 Collins Street Melbourne VIC 3000 PO Box 248 Collins Street West VIC 8007 T +61 (0) 3 9286 8000 F +61 (0) 3 9286 8199 www.rsm.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of World Reach Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) (ii) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS J S CROALL Partner 30 August 2018 Dated: 30 August 2018 Melbourne, VIC THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation H C A E R D L R O W 20 8 1 0 2 T R O P E R L A U N N A 21 H C A E R D L R O W 22 8 1 0 2 T R O P E R L A U N N A 23 CORPORATE GOVERNANCE STATEMENT CORPORATE GOVERNANCE To assist in the execution of its legal compliance; The Directors of World Reach Limited (Company) are committed to protecting and enhancing shareholder value and conducting the company’s business ethically and in accordance with the highest standards of corporate governance. responsibilities the Board has established an • monitoring senior management’s Audit Committee with a formalised charter and operating principles. Activities which may performance and implementation of strategy, and ensuring appropriate be conducted by separate committees in a resources are available; larger company such as Directors Nomination, Risk Management and Remuneration are dealt with by the full Board as separate and • • dealing with approaches to take over the company; and approving and monitoring financial In accordance with the ASX Corporate specific agenda items in accordance with the and other reporting. Governance Council’s Corporate Governance principles and policies set down in the Principles and Recommendations: 3rd Edition Company’s corporate governance programme. Chairman’s Appointment and Responsibilities (the Principles), the corporate governance statement reports on the Company’s adoption of the Principles on an exception basis. This statement provides specific information whereby disclosure is required of any recommendations that have not been adopted by the Company, together with the reasons why they have not been adopted. The Company’s corporate governance principles and policies are therefore structured with reference to the Principles, which are as follows: The Company has adopted a Board Charter which details the functions and responsibilities of the Board of Directors. A copy of the Board Charter is on the Company’s website. The employment contract between the Company and the Chief The Chairman is appointed by the board from the non-executive directors. The Chairman: • • provides appropriate leadership to the board and the Company; ensures membership of the board is balanced and appropriate for the Executive Officer and the letter of Company’s needs; engagement for the Chief Financial Officer • facilitates board discussions to and senior executives details the terms of employment, job specifications and responsibilities. ensure the core issues facing the organisation are addressed; • maintains a regular dialogue and mentor relationship with the Chief 1. Lay solid foundations for management The Role of the Board of Directors Executive Officer; and oversight. The World Reach Board is responsible to its • monitors board performance; and 2. Structure the Board to add value. shareholders for the protection and • guides and promotes the on-going 3. Act ethically and responsibly. enhancement of long term shareholder value. 4. Safeguard integrity in corporate reporting. To fulfil this role the Board is responsible for: effectiveness and development of the board and individual directors. 5. Make timely and balanced disclosure. • oversight of the Group, including its Conduct of Board Business 6. Respect the rights of security holders. controls, risk management, financial The Board normally holds monthly formal 7. Recognise and manage risk. structures and accountability systems; board meetings and will also meet whenever 8. Remunerate fairly and responsibly. • setting strategic direction for necessary to carry out its responsibilities. management with a view to In the year ended 30 June 2018, the Board 1. Lay Solid Foundations for Management maximising shareholder value; and/or its committees met 15 times. When and Oversight • input into and final approval of conducting Board business, Directors have Recommendation 1.1: The Board and Senior Management – Roles and Responsibilities Board Processes The Board recognises that its responsibilities should accord with the following general principles: • • • • • the Board should be made up of a majority of Independent Directors; the Chairman of the Board should be an Independent Director; the roles of Chairman and Chief Executive Officer should not be exercised by the same person; the Board should meet on a monthly basis; all available information in connection with items to be discussed at a meeting of the Board shall be provided to each Director prior to that meeting; and • Directors are entitled to seek independent professional advice. strategic plans and goal and a duty to question, request information, performance objectives and key raise any issue of concern, and fully canvas • • operational and financial matters; all aspects of any issue confronting the determining dividend payments; Company and vote on any resolution selecting, appointing and reviewing according to their own judgment. Directors the performance of the Chief keep confidential, board discussions, Executive Officer (CEO); deliberations and decisions that are not • ratifying the appointment and, where publicly known. appropriate, the removal of the Chief Financial Officer (CFO) and Company Access to Information Secretary; Directors are encouraged to access members • approval of annual and half yearly of the senior management team at any time financial reports and related Australian to request relevant information in accordance Stock Exchange reports; with protocols adopted by the Board. Where • • • • selecting and appointing new Directors perceive an irregularity in a non-executive directors; Company related matter, they are entitled to approving major capital expenditure seek independent advice at the Company’s and acquisitions; expense. Directors must ensure that the evaluating the Board’s performance costs are reasonable and must inform the and that of individual directors; Chairman before the advice is sought. The reviewing and ratifying systems of risk advice must be made available to the rest of management and internal compliance the Board. and control, codes of conduct and H C A E R D L R O W 24 CORPORATE GOVERNANCE STATEMENT Independent Professional Advice Functions of Senior Executives stand for re-election at the next meeting of Each Director has the right to seek The Chief Executive Officer reports to the shareholders. independent legal and other professional Board and is responsible for the operation advice at the Company’s expense concerning and administration of the Company any aspect of the Company’s operations or including the implementation of the undertakings in order to fulfil their duties and Company’s strategies, plans, policies and responsibilities as directors. control programmes. He is supported by a Conflicts of Interest management team whose responsibilities are delineated by formal authority delegations. Directors are required to continually monitor The team meets regularly to co-ordinate and disclose any potential conflicts of activities and to review and monitor interest that may arise. Directors must: performance. • disclose to the Board any actual or potential conflicts of interest that may Recommendation 1.2: Board Nominations exist as soon as the situation arises; Appointment of Directors • take necessary and reasonable steps The Company has not established a to resolve any conflict of interest nomination committee for recommending the Further information regarding Director nominations can be found in the Company’s Election of Directors Policy as posted on the Company’s website. Recommendation 1.3: Terms of Appointment – Directors and Senior Executives Each new Non-Executive Director will receive a letter formalising their appointment and outlining the material terms of their appointment. Non-Executive Directors of the Company have not been appointed for fixed terms. Senior Executives will generally have written employment agreements with the Company setting out their duties, obligations within an appropriate period, if appointment of Directors. and remuneration. required by the Board or deemed appropriate by that director; and • comply with the Corporations Act requirements about disclosing interests and restrictions on voting. Given the nature and size of the Company, the The remuneration paid/payable to the Board considers that as a 4-member Board of a small public company the selection and Company’s ‘key management personnel’ is outlined within the Remuneration Report in appointment of Directors is such an important the Company’s latest Annual Report. task that it should be the responsibility of Directors should discuss with the Chairman the entire Board to consider the nominations Recommendation 1.4: The Company any other proposed Board or executive process. The structure of the Board is Secretary appointments they are considering reviewed annually as to qualifications, skills, undertaking and advise the Company of their experience and diversity to ensure the Board appointments to other companies as soon as has an appropriate mix. In a 4-member Board possible after the appointment is made. the highest requirement is for appropriate The same requirement exists for related party transactions including financial transactions with the Company. Related party transactions are reported in writing to the Company skill. Where a vacancy exists or there is a need for particular skills, the Board will determine the selection criteria and identify and appoint a suitable candidate. Secretary and where appropriate, raised for Since 22 December 2016, following a consideration at the next board meeting. resignation, the Company’s Board has Retirement of Directors consisted of only 3 Directors while the Board attempted to identify a suitable replacement One-third of the Directors are required to Director. retire by rotation at each Annual General Meeting (AGM). The Directors to retire at each AGM are those who have been longest in office since their last election. Where Directors have served for equal periods, they may agree amongst themselves or determine by lot who will retire. A Director must retire at the third AGM since last elected or re-elected. A Director appointed as an additional or casual director by the Board will hold office until the next AGM when the Director may be re-elected. This re-election will be in addition to any rotational retirements. The Company will undertake appropriate checks before appointing a person, or putting forward a candidate for election as a Director, and provide shareholders with this information. Candidates will be assessed through interviews, meetings and background reference checks as appropriate. External advisors may be used in this process. The Company will provide shareholders with all material information in its possession relevant to the decision on whether or not to elect (or re-elect) a Director, either in the notice of the meeting at which the A CEO, if also a Managing Director, is not election of the Director is to be held, or by The Company Secretary is appointed by the Board and is responsible for developing and maintaining the systems and processes that are appropriate for the Board to fulfil its role. The Company Secretary is responsible to the Board for ensuring compliance with Board procedures and governance matters. The Company Secretary is accountable directly to the Board, through the Chair, on all matters to do with the proper functioning of the Board. The Company Secretary is also responsible for overseeing and co-ordinating disclosure of information to the ASX as well as communicating with the ASX. Recommendation 1.5: Diversity Policy The Company has taken measures to establish a corporate culture in which the principles of diversity are embedded. By promoting and supporting transparent recruiting processes, flexible work practices, an enlightened code of conduct, equal employment opportunity policies and clear reporting of outcomes, the Board feels that the objectives of diversity will be achieved. The results of recruiting and the composition of staff are reported by the Chief Executive Officer and reviewed at monthly Board subject to retirement by rotation and is not including in the notice a clear reference meetings. to be taken into account in determining the to the location on the Company’s website, rotation of retirement of Directors. Annual Report or other document lodged with ASX where the information can be found. Directors appointed by the Board must The Board, at this time, has not established an explicit policy on diversity or measureable objectives for achieving gender diversity. Because of the size of the Company (38 staff 8 1 0 2 T R O P E R L A U N N A 25 CORPORATE GOVERNANCE STATEMENT including Board members, as at the date of Evaluating the Performance of Senior Recommendations 2.3 and 2.4: Independent this report), the Board is of the view that the Executives Directors scale and nature of the Company’s operations does not currently lend itself to an effective and meaningful application of a targeted Arrangements put in place by the Board to monitor the performance of the Group’s key executives include: diversity policy. Rather, the Board recognises the positive benefits for the organisation of increased diversity, especially gender, and has sought to integrate diversity objectives within the existing policies and procedures of the Company. The Board intends to reconsider the adoption of a formal diversity policy periodically. At the date of this report the Company has a total staff excluding Board members of 34 employees of which 24% (8 employees) are women. The Senior Executive team is made up of 4 managers including one female. At this time there are no women on the Board • regular monthly reporting submitted to the Board and attendance at all Board Meetings by the Chief Executive Officer and Chief Financial Officer; • a review by the Board of the Group’s financial performance and revised forecast results on a monthly and annual basis at Board meetings at which reports are presented by the key executives; and Directors Independence At the date on which the Directors’ report is made out, the Company’s Board has four directors. The Board currently consists of three Non-Executive Directors. At this time only one (Mr Simon Wallace) of the three Non- Executive Directors is considered by the Board to be independent, and as such the Company does not comply with Recommendation 2.4 of the Corporate Governance Council, which recommends that a majority of Board members should be independent. • an evaluation of the detailed However, the Board considers that both its presentations made by the Chief structure and composition are appropriate given Executive Officer and his direct reports the size of the Group and that the interests of during business planning / strategy shareholders are well met. meetings which are at least bi-annual. In the interest of clear disclosure: • Mr Carl Hung, a Non-Executive Director, is also the President and Recommendation 2.1: Nomination Committee CEO of Season Group. The Company which comprises 4 positions. 2. Structure Board to Add Value Recommendation 1.6 and 1.7 – Performance Review and Evaluation Evaluation of Directors Performance The Board has adopted a self-evaluation Due to the small size of the Board and the Company’s current level of operations, the Company does not have a separate nomination committee. Nominations for process to measure its own performance and positions on the Board are considered by the the performance of its Committees. entire Board. has subcontracted manufacturing on an arms-length basis to Season Group and Mr Hung, through SGV1 Holdings Limited, holds an interest at the date of this report in 17.48% of the Company’s issued shares and is thereby a substantial holder. On an annual basis, the Chairman facilitates a discussion and evaluation of the Board’s performance in accordance with this process. This includes discussions about the Board’s role, processes, performance and other relevant issues. Each Director’s performance is reviewed by the Chairman and Board prior to the Director standing for re-election. Performance evaluations will take place during September at the same time as those for all staff members. A performance evaluation was undertaken during the reporting period. If the contribution of a Non-Executive Director appears to a majority of Directors to be less than adequate, they may direct the Chairman to inform that Director accordingly and ask that person to consider his or her position on the Board. If the Director takes no action in response, a circulated minute signed by a majority of Directors will authorise the Company Secretary to inform the shareholders that the Board will not support the re-election of the Director at the general meeting where they are next due to offer for re-election. H C A E R D L R O W 26 Recommendation 2.2: Skills, Knowledge and • Mr David Stewart, a Non-Executive Experience Director, is not regarded as being Directors are appointed based on the specific independent, as a company business, industry and governance skills and experience as required by the Company. The Board recognises the need for Directors to have a relevant and applicable range of skills and personal experience in a range of disciplines as required for the proper management and oversight of the Company’s operations, as having regard to the scale and nature of its activities. The Board skills matrix set out below describes the skills, experience and expertise associated with and controlled by Mr Stewart, Glenayr Pty Ltd, holds 9,700,000 ordinary shares in the Company. In addition, Mr Stewart personally holds another 840,000 ordinary shares in the Company, In total, Mr Stewart holds a relevant interest in 10,540,000 shares in the Company, representing 19.93% of the issued capital of the Company and Mr Stewart is thereby a substantial holder. that the Board would look to maintain and The names, qualifications and experience of regulatory and compliance Recommendation 2.5: Independent Chairman build on: capital markets corporate finance operations sales • marketing corporate governance • • • • • • • each Director of the Company are detailed in the Directors Report in the Annual Report. The Chairman, Mr Simon Wallace, is the only independent Non-Executive Director of the Company at this time. Mr Wallace was appointed as Chairman of the Company on financial and business acumen 22 December 2016, based on his extensive experience in legal and commercial matters, project finance and fundraising background and his experience as a Director including of an ASX listed entity. CORPORATE GOVERNANCE STATEMENT act with integrity and fairness; Director was appointed Chairman of the create a safe, challenging and fun Audit Committee due to his accounting workplace; qualifications and commercial experience. The Chief Executive Officer of the Company is Mr Michael Capocchi. Recommendation 2.6: Induction of New Directors The Company has a program for inducting new Directors. This includes giving new Directors a full briefing about the nature of the business, current issues, the corporate strategy and the expectations of the Board concerning the performance of the Directors • • • • • • • • encourage a corporate culture which embraces diversity; recognise the needs of the community; protect the environment; be commercially competitive; foster a performance driven culture; and encourage innovation and technical and access to all employees to gain full leadership. background to the Company’s operations. Directors are encouraged to attend director 4. Safeguard Integrity in Corporate Reporting training and professional development Recommendation 4.1: Audit Committee courses, as may be required to enable them The Board has established an Audit to develop and maintain the skills and Committee to consider certain issues and knowledge needed to effectively perform their functions in further detail. The chairman of roles as Directors, at the Company’s expense the Audit Committee reports to the Board (as approved by the Chairman and or the on any matters of substance at the next full Board, as appropriate and applicable). board meeting. The Audit Committee has 3. Act Ethically and Responsibly Board and reviewed annually, with additional Recommendation 3.1: Act Ethically and Responsibly Code of Conduct review when appropriate. The members of the Committee at the date of this report are Mr Carl Hung and Mr Simon Wallace. Carl Hung is the current Chairman As part of the Board’s commitment to the of the Audit Committee. Details of the highest standard of personal and corporate qualifications, experience and attendance behaviour, the Company adopts a Code of at Committee meetings by each Committee Conduct to guide executives, management Member is included in the Directors Report in and employees in carrying out their duties the Annual Report. The Audit Committee assists the Board to discharge its corporate governance responsibilities, in regard to the business’ relationship with, and the independence of, the external auditors. It especially: • • • • • recommends appointment of external auditors and fees; ensures reliability and integrity of disclosure in the financial statements and external related financial communications, although ultimate responsibility rests with the full Board; reviews compliance with statutory responsibilities; reviews budgets and accounting policy; ensures maintenance of an effective management including compliance and internal controls and monitoring of the internal audit function; • reviews adequacy of the Company’s insurance program, including directors’ and officers’ professional indemnity and other liability insurance cover; • promotes and ensures an ethical financial culture is embedded throughout the Company; • undertakes any special investigations its own terms of reference, approved by the framework of business risk and responsibilities. The code of conduct covers such matters as: The ASX Corporate Governance Council has required by the Board. made recommendations for the composition responsibilities to shareholders; of the Audit Committee: • • • • compliance with laws and regulations; relations with customers and suppliers; ethical responsibilities including responsibility for reporting and investigating unethical practices; • • • • employment practices including a fair and open approach to all forms of diversity; and • responsibilities to the environment and The Audit Committee provides a forum for the Committee should consist only of the effective communication between the Non-Executive Directors; Board and external auditors. The Committee it should have a majority of reviews: Independent Directors; it should be chaired by an independent Director who is not Chairman of the Board; • the Committee should have at least 3 members. • the annual and half-year financial report prior to their approval by the Board; • the effectiveness of management information systems and systems of internal control; and the community. While recognising these recommendations, • the efficiency and effectiveness of The Code of Conduct is available at the Company’s website. the Board is restricted by having currently external audit functions, including only four Board positions. The Board’s small reviewing the respective audit plans. size is a function of the relatively small scale The Company’s objective is to maintain and of the Company’s operations. The Company further develop its business to increase may assess the composition of the Board shareholder value while also adding value from time to time, with a view to considering for customers, employees and other compliance with the recommendation that stakeholders. To ensure this occurs, the the Audit Committee have a majority of Group conducts its business within the Code Independent Directors. The Committee invites the CEO, the CFO, the Company’s remaining Director and the external auditors to attend Committee meetings where appropriate. The Committee also meets with and receives regular reports from the external auditors concerning any matters which arise in connection with of Ethics, documented and outlined in the Company’s Code of Conduct, and the Group’s core values which are, to: The one independent Director on the Board the performance of their respective roles, is a member of the Audit Committee. Mr including the adequacy of internal controls. Carl Hung although not an independent The Company’s Audit Committee met 3 times 8 1 0 2 T R O P E R L A U N N A 27 CORPORATE GOVERNANCE STATEMENT during the course of the financial year ended • Specific exclusion of the audit firm and without delay, the Company may request 30 June 2018. from work which may give risk to a that the ASX grant a trading halt or suspend The Company’s Audit Committee has a formal charter setting out the Committee’s role and responsibilities. The charter is posted on the Company’s website. conflict. the Company’s securities from quotation. Management of the Company may consult Recommendation 4.3: Auditor attendance external professional advisers and the at AGM ASX in relation to whether a trading halt or The Company’s external Auditor attends the suspension is required. Recommendation 4.2: Approval of Financial Statements The Board receives regular reports about the financial condition and operational results of the Company and its controlled entities. The CEO and CFO periodically provide formal Company’s AGMs and is available to answer shareholder questions about the conduct of the audit and the preparation and content of the Auditor’s Report. 5. Make Timely and Balanced Disclosure The Company’s Policy Continuous Disclosure Policy is available on the Company’s website. 6. Respect the Rights of Security Holders Recommendation 6.1: Communication to statements to the Board that, in all material Recommendation 5.1: Continuous Disclosure Shareholders and Investors aspects, the Company’s financial statements Policy The Company is committed to increasing present a true and fair view of the Company’s The Board and senior management are aware the transparency and quality of its financial condition and operational results. of the continuous disclosure requirements communication and to be regarded by our The CEO and the CFO each provide declarations to the Board in accordance with Section 295A of the Corporations Act 2001 Disclosure Policy. confirming that in their opinion, with regard The guiding principle of this policy is that to risk management and internal compliance the Company must immediately notify the with shareholders and financial markets is set out in the Company’s Shareholder Communication Strategy document. of the ASX and have written policies and shareholders as an outstanding corporate procedures in place, including a Continuous citizen. Our approach to communication and control systems: market via an announcement to the ASX of Information is communicated to shareholders i. the statements made with respect to the integrity of financial statements and notes thereto are founded on a sound system of risk management any information concerning the Company that through the distribution of the Company’s a reasonable person would expect to have Annual Report and other communications. a ‘material’ effect on the price or value of the All significant information is posted on the Company’s securities. and internal control systems which, The Board must ensure that Company in all material respects, implement announcements: Company’s website as soon as it is disclosed to the ASX. All investors will have equal and timely access to information on the Company’s financial position, performance, ownership and the policies adopted by the Board of Directors; ii. the risk management and internal control systems are operating effectively and efficiently in all material respects in relation to financial reporting risks. • • • • are made in a timely manner; governance. Shareholders who wish to send are factual; and receive communications with the Company do not omit material information; electronically should contact the Company are expressed in a clear and objective Secretary, Mr Dennis Payne. manner that allows investors to assess the impact of the information when making investment decisions. The Company ensures that shareholders are informed of all major developments affecting the Group promptly through the issue of Auditor independence Best practice in financial and audit governance is rapidly evolving and the independence of the external auditor is Where that information, however, is ASX announcements and commentary on incomplete or confidential, or its disclosure operations in quarterly reports. All ASX is illegal, no disclosure is required. The announcements and quarterly reports are Directors and senior management of the posted on the ASX website for the Company particularly important to shareholders and Company ensure that the Company Secretary and on the Company’s website. the Board. To ensure that the Company’s is aware of all information to be presented practices are up to date, the Board has at briefings with analysts, stockbrokers, adopted a Charter of Audit Independence shareholders, the media and the public. Prior that is reviewed regularly to keep it in line to being presented, information that has not with emerging practices domestically and already been the subject of disclosure to the internationally. The key points covered by the Charter include: market and is not generally available to the market is the subject of disclosure to the ASX. Only when confirmation of receipt of • • Rotation of the senior audit partner the disclosure and release to the market by every five years; the ASX is received may the information be Annual confirmation by the auditor presented. All shareholders receive copies of shareholders notices by email or post and a copy of the annual report is distributed to all shareholders who elect to receive one (hardcopy in the mail or electronically). The Company’s most recent annual report is also available on the Company’s website. Website Information The Company has established a website at www.worldreach.com.au, where shareholders If the Company becomes aware of market- can access information about the Company’s sensitive information which ought to be corporate governance policies and practices. disclosed, but the Company is not in a Information lodged on this website in a specific position to issue an announcement promptly corporate governance section includes: that it has satisfied all professional regulations relating to auditor independence; • Half yearly reporting on the levels of audit and non-audit fees; and H C A E R D L R O W 28 CORPORATE GOVERNANCE STATEMENT • • • • • • Board Charter Audit Committee Charter Risk Management Policy Remuneration Policy Securities Trading Policy CEO and CFO Declarations • Whistle Blower Policy • • • • Code of Conduct Election of Directors Policy Disclosure Policy Shareholder Communication Policy • Health and Safety Policy • • • Environmental and Community Relations Policy Corporate Ethics Policy Related Parties and Conflicts Policy Recommendation 6.2 Investor Relations Program Two-way communication between the Company and its shareholders is facilitated email address for the Company is corporate and legal responsibilities; info@worldreach.com.au and shareholders and may submit electronic queries to the • assure management and the Board Company’s Share Registry via its website that the framework is effective. www.linkmarketservices.com.au. 7. Recognise and Manage Risk Responsibility for control and risk management is delegated to the appropriate levels of management within the Company Recommendation 7.1: Risk Committee and the CEO has ultimate responsibility to Due to the size of the Company and the the Board for risk management and control. nature of the Company’s operations, a formal Areas of significant business risk to the Risk Committee has not been established. Company are detailed in the Business Plan The Board is responsible for ensuring presented to the Board by the CEO at the start appropriate measures are in place in order to of each financial year. The Board reviews manage risk in line with the Company’s risk and approves the parameters under which strategy. An external consultant has assisted significant business risks will be managed the Board in this process. before adopting the Business Plan. Risk The Board has required management to implement internal control systems to manage the Company’s material business parameters and compliance information are reported monthly to the Board by the CEO and CFO. risks and to report on whether risks are being The Board has adopted reporting procedures primarily via the Company’s AGM. The Board effectively managed. which allow it to: encourages shareholder participation at the AGM and other general meetings of the shareholders. The Chairman encourages questions and comments from shareholders and seeks to ensure that shareholders are given ample opportunity to participate. Shareholders who are unable to attend the AGM or a general meeting may submit questions and comments before the meeting to the Company and/or to the Auditor (in the case of the AGM). Recommendation 6.3: Shareholders Participation at General Meetings All shareholders are encouraged to attend and participate in shareholder meetings. All Directors, senior managers, Auditors and the Company Secretary attend these meetings and respond to shareholder questions in relation to specific agenda items and general business. The Annual General Meeting • • • • Arrangements put in place by the Board to • monitor the Company’s compliance with monitor risk include: the continuous disclosure requirements review of risk areas at monthly Board of the ASX; and meetings; • assess the effectiveness of its risk regular monthly reporting to the Board management and control framework. in respect of operations, the financial position of the Company and new contracts; reports by the Chairman of the Audit Committee; attendance and reports by the Managing Director, CFO and the Company’s management team at Board Meetings; • any Director may request that operational and project audits be The Company recognises, in particular, the environmental and social risks to which it may be exposed. The Company considers environmental risk to be the ability to continue its undertakings without compromising the health of the ecosystems in which it operates. The Company views social sustainability as the ability to continue operations in a manner that is acceptable to social norms. undertaken either internally or be The Board does not consider that the external consultants. Company currently has any material exposure to environmental or social-sustainability risk, Recommendation 7.2: Risk Management however the Board intends to manage such features an address by the Chairman and an Framework risks in accordance with the Company’s Risk extensive presentation by the CEO which is also released as an ASX announcement for shareholders who cannot attend the meeting. A description of the arrangements the Company has to promote communications with shareholders is detailed in the Shareholder Communication Policy, available at the Company’s website. Recommendation 6.4: Electronic Communication Shareholders may elect to send communication to and receive communications from the Company and its Share Registry electronically. The contact The Company has implemented a risk Management Policy, if such risks should be management program that enables the identified in the future. business to identify and assess risks, respond appropriately and monitor risks and controls. The Company is exposed to risk from operations (employee health and safety, environmental, insurance, litigation, disaster, business continuity), compliance issues and financial risks (interest rate, foreign currency, credit and liquidity). To mitigate these risks, the Company has established risk and assurance policies and procedures, which aim to: • assist management to discharge its The Company reviews its risk management framework on at least an annual basis. Such a review took place in the 2018 financial year. The Company’s Risk Management Policy is available on the Company’s website. Recommendation 7.3: Internal Audit Function The Audit Committee assists the Board in fulfilling its responsibilities in this regard by reviewing the financial and reporting aspects of the Group’s risk management and control framework. 8 1 0 2 T R O P E R L A U N N A 29 its Executive Directors and senior executives senior executives. CORPORATE GOVERNANCE STATEMENT The Audit Committee meets regularly to ensure, amongst other things, that the risk management internal control structures is determined by the Board having regard to the level of fees paid to Non-Executive Directors by other companies of similar size and compliance with laws and regulations and stature. are operating effectively. Details of the Audit Committee are also set out in the Risk Management Policy, available at the Company’s website. Recommendation 7.4: Exposure to Risks The Company regularly undertakes reviews of risks that may be material to its business. The review examines the processes and procedures that the Company must initiate to control and/or mitigate these risks from impacting upon the performance of the Company. The key risk categories to which the Company is exposed, and how it manages or intends to manage those risks, are set out in the Risk Management Policy on the Company’s website. 8. Remunerate Fairly and Responsibly Recommendation 8.1: Remuneration Committee The Board considers that, due to its small size, and the current level of the Company’s operations, all members of the Board should be involved in determining remuneration levels. Accordingly it has not established a separate remuneration committee. Instead time is set aside at two Board meetings The aggregate amount payable to the Company’s Non-Executive Directors must not exceed the maximum annual amount approved by the Company’s shareholders, currently $500,000 as determined at the General Meeting held on 3 August 2007. The Company is committed to remunerating in a manner that motivates them to pursue the long-term growth and success of the Company and is consistent with best practice. The Company aims to align the interests of Executive Directors and senior executives with those of shareholders through short-term and long-term incentive plans which demonstrate a clear relationship between performance and remuneration. Consequently, Executive Directors and senior executives’ remuneration consists of the following elements: • • • • fixed salary; short-term incentive bonus based on performance; long-term incentive share/option scheme; and other benefits including superannuation. each year specifically to address the matters Fixed Salary usually considered by a remuneration committee. Executive Directors absent themselves during discussion of their remuneration. At these two meetings the Board reviews the following: • the Company’s remuneration, recruitment, retention and termination policies and procedures for senior executives senior executives remuneration and incentives superannuation arrangements remuneration framework for Directors; and remuneration by gender. • • • • Recommendation 8.2: Remuneration of Executive and Non-Executive Directors The remuneration structure of Non-Executive Directors and executives is disclosed in the Remuneration Report within the Directors’ Report in the Annual Report. The remuneration of Non-Executive Directors The salary of Executive Directors and senior executives is determined from a review of the market and reflects core performance requirements and expectations. In addition, the Company considers the following: • • • • • the scope of the individual’s role; the individual’s level of skill and experience; the Company’s legal and industrial obligations; labour market conditions; and the size and complexity of the Company’s business. Performance Bonus The purpose of the performance bonus is to reward actual achievement by the individual of performance objectives and for materially improved Company performance. Consequently, performance- based remuneration is paid where a clear contribution to successful outcomes for the Company is demonstrated and the individual attains and excels against pre- agreed key performance indicators during a H C A E R D L R O W 30 performance cycle. Other Benefits Senior executives are entitled to statutory superannuation and may also receive other bonus payments subject to the discretion of the Board. Long-Term Incentives The Company has a share options scheme which is discussed further below which is designed to provide long-term incentives to Termination Payments Senior executives may be entitled to a payment upon termination of employment from the Company. Where so entitled, the termination payment has been agreed in the senior executive’s contract of employment and it is not payable where termination of employment is for misconduct. Further details in relation to the Company’s remuneration policies are contained in the Remuneration Report within the Director’s Report in the Annual Report. The Company’s Remuneration Policy is available on the Company’s website. Recommendation 8.3: Equity Based Remuneration Long-Term Incentives The Company has a share option scheme in which senior executives may be invited to participate. The Share Option Incentive Plan was approved by shareholders on 27 October 2017 and authorises the Directors to issue options up to 10% of the shares issued by the Company. The number of shares and options issued under the scheme is reasonable in relation to the existing capitalisation of the Company and all payments under the scheme are made in accordance with thresholds set in plans approved by shareholders. Any issue of options to Executive and Non-Executive Directors must be approved by Shareholders. The Company has a Share Trading Policy which aims to: • • protect stakeholders’ interests at all times; ensure that directors and employees do not use any information they possess for their personal advantage or the Company’s detriment; and • ensure that Directors and employees comply with insider trading legislation of the various jurisdictions in which transactions may take place. Purchase or sale of the Company’s shares and/or options over such shares by Directors, executives and staff of the Company should only occur in circumstances where the market is considered to be fully informed of the Company’s activities. This policy requires that the relevant person notify the Company Secretary of their intention to trade in the Company’s shares and/or options over such shares prior to the transaction and that the Company Secretary be required to discuss the proposed trading intentions with the Chairman. The Board recognises that it is the individual responsibility of each Director to comply with this policy. Breaches of this policy may lead to disciplinary action being taken, including dismissal in serious cases. The Company’s Employee Share Trading Policy is available on the Company’s website. The Corporations Act prohibits the key management personnel of an ASX listed company established in Australia, or a closely related party of such personnel, from entering into an arrangement that would have the effect of limiting their exposure to risk relating to an element of their remuneration that either has not vested or has vested but remains subject to a holding lock. CORPORATE GOVERNANCE STATEMENT 8 1 0 2 T R O P E R L A U N N A 31 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2018 Revenue Changes in inventories Raw materials, consumables and other costs of sale Employee benefits expense Depreciation expense Amortisation expense Impairment expense Finance costs expense Auditor remuneration expense Accounting, share registry and secretarial expense Consultancy and contractor expense Legal, insurance and patent expense Marketing and ICT expense Other expenses Loss before income tax Tax expense Loss for the year Other comprehensive income Note 2(a) 2(b) 7(a) 9(a) 9(a) 2(c) 19 2(d) 3(a) Year ended 30 June 2018 30 June 2017 $ 11,638,170 1,533,096 (8,491,173) (2,804,827) (76,599) (694,447) (793,922) (54,300) (55,000) (74,055) (227,279) (172,609) (265,315) (893,670) (1,431,929) (133,205) (1,565,134) - $ 9,880,153 (908,716) (5,021,607) (2,196,194) (78,381) (423,782) - (49,447) (58,000) (72,844) (260,632) (169,686) (262,727) (800,907) (422,769) (135,551) (558,320) - Total comprehensive loss for the year (1,565,134) (558,320) Net loss and total comprehensive loss are both fully attributable to owners of the Company Loss per share (cents) Diluted loss per share (cents) 21 21 (3.07) (3.07) (1.29) (1.29) H C A E R D L R O W 32 The above Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018 Current assets Cash and cash equivalents Inventories Trade and other receivables Total current assets Non-current assets Plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Provisions Total current liabilities Non-current liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings / (accumulated losses) Total equity CONSOLIDATED FINANCIAL STATEMENTS 30 June 2018 30 June 2017 Note $ $ 4 5 6 7 8 9 10 12 12 13 528,925 4,158,153 1,747,412 6,434,490 122,998 1,228,857 4,835,509 6,187,364 595,734 2,625,058 1,617,641 4,838,433 169,432 1,349,789 4,338,410 5,857,631 12,621,854 10,696,064 4,447,866 704,706 5,152,572 19,919 19,919 5,172,491 7,449,363 7,646,641 411,189 (608,467) 7,449,363 2,895,417 638,671 3,534,088 9,195 9,195 3,543,283 7,152,781 5,784,925 493,089 874,767 7,152,781 The above Statement of Financial Position should be read in conjunction with the accompanying notes. 8 1 0 2 T R O P E R L A U N N A 33 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2018 Issued capital $ Reserves $ Retained earnings $ Balance at 1 July 2016 5,784,925 668,780 Total loss and comprehensive income for the year Transactions with owners in their capacity as owners: - Adjustment for employee share options lapsed - - Balance at 30 June 2017 5,784,925 - (175,691) 493,089 1,257,396 (558,320) 175,691 874,767 Total equity $ 7,711,101 (558,320) - 7,152,781 Balance at 1 July 2017 5,784,925 493,089 874,767 7,152,781 Total loss and other comprehensive income for the year - Transactions with owners in their capacity as owners: - Shares issued, net of transaction costs - Adjustment for employee share options lapsed Balance at 30 June 2018 1,861,716 - 7,646,641 - - (81,900) 411,189 (1,565,134) (1,565,134) - 1,861,716 81,900 (608,467) - 7,449,363 H C A E R D L R O W 34 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2018 Issued capital $ Reserves Retained earnings $ Total equity $ Balance at 1 July 2016 5,784,925 668,780 1,257,396 (558,320) 7,711,101 (558,320) Total loss and comprehensive income for the year Transactions with owners in their capacity as owners: - Adjustment for employee share options lapsed Balance at 30 June 2017 5,784,925 7,152,781 (175,691) 493,089 175,691 874,767 Balance at 1 July 2017 5,784,925 493,089 874,767 7,152,781 Total loss and other comprehensive income for the year Transactions with owners in their capacity as owners: - Shares issued, net of transaction costs - Adjustment for employee share options lapsed Balance at 30 June 2018 (1,565,134) (1,565,134) 1,861,716 7,646,641 - 1,861,716 (81,900) 411,189 81,900 (608,467) 7,449,363 - - - - - - $ - - - WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2018 Cash flow from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest and finance charges paid Income tax paid Cash flow from investing activities Purchases of plant and equipment Development costs capitalised Research and development grant Net cash used in investing activities Cash flow from financing activities Net cash proceeds on share placement / rights issue Net cash used in financing activities CONSOLIDATED FINANCIAL STATEMENTS Year ended 30 June 2018 30 June 2017 Note $ $ 12,116,540 (13,685,446) 13,608 (54,300) (12,273) 7(a) (50,418) (1,985,468) 1,729,233 (306,653) 10,338,855 (9,442,298) (2,307) (49,447) (1,398) 843,405 (73,918) (2,685,603) 223,952 (2,535,569) 1,861,715 1,861,715 - - Net cash (used in)/ provided by operating activities 16(a) (1,621,871) Net decrease in cash and cash equivalents (66,809) (1,692,164) Cash and cash equivalents at beginning of year 595,734 2,287,898 Cash and cash equivalents at end of financial year 16(b) 528,925 595,734 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. 8 1 0 2 T R O P E R L A U N N A 35 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 1. Summary of significant accounting policies (i) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001 and comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless stated otherwise. Reporting Basis and Conventions Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. New or amended Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by AASB that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. (ii) Accounting policies The following is a summary of the material accounting policies adopted by the consolidated group in the preparation of the financial report. The accounting policies have been consistently applied to all years presented, unless otherwise stated. When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (a) Principles of consolidation The consolidated financial statements incorporate all of the assets, liabilities and results of the parent (World Reach Limited) and all of the subsidiaries which are entities the parent controls. A list of the subsidiaries is provided in Note 24. (b) Income tax Income tax expense (benefit) for the year comprises current income tax expense and deferred income tax expense (benefit). A net deferred tax expense has been recognised in the current year reflecting the movements in deferred tax assets and liabilities for the period. Deferred tax is accounted for using the liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the statement of profit or loss and other comprehensive income except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. At each reporting date, the consolidated group re-assesses unrecognised deferred tax assets as to the extent that it has become probable that future tax profit will enable recognition. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. H C A E R D L R O W 36 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 1. Summary of significant accounting policies (continued) (ii) Accounting policies (continued) (b) Income tax (continued) World Reach Limited and its wholly owned Australian subsidiaries have formed a tax consolidated group under the tax consolidation regime. Each entity in the group recognises its own tax expense and deferred tax. The current tax liability of each group entity and deferred tax assets arising from tax losses are immediately assumed by the parent entity. (c) Plant & equipment Plant and equipment is carried at cost less any accumulated depreciation and impairment losses, where applicable. The carrying amount of plant and equipment is reviewed at each reporting date by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. Repairs and maintenance to plant and equipment is charged to the statement of profit or loss and other comprehensive income during the financial period in which it is incurred. The depreciable amount of plant and equipment is depreciated on a straight line basis over their useful lives to the consolidated group commencing from the time the asset is held ready for use. The straight line depreciation rates for plant and equipment were: Office furniture and equipment Computer and test equipment Rental equipment 10% - 20% 33% 20% - 33% The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of profit or loss and other comprehensive income. (d) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials and direct labour. (e) Intangible assets – development costs Development costs are capitalised only when it is probable that the expected future economic benefits would flow to the company and can be measured reliably. Development costs have a finite life and are amortised on a systematic basis matched to future production. Expenditure not related to the creation of a new product is recognised as an expense when incurred. The amortisation rate for capitalised development costs is dependent on an assessment of the minimum useful life of each project. Recent projects/products have been assessed at 4 years giving a 25% amortisation rate during 2018. (f) Employee benefits Short-term employee benefits Provision is made for the Group’s obligation for short-term employee benefits. Short-term employee benefits are benefits (other than termination benefits) that are expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service, including wages, salaries and sick leave. Short-term employee benefits are measured at the undiscounted amounts expected to be paid when the obligation is settled. The Group’s obligations for short-term employee benefits such as wages, salaries and sick leave are recognised as a part of current trade and other payables in the statement of financial position. The Group’s obligations for employees’ annual leave and long service leave entitlements are recognised as provisions in the statement of financial position. 8 1 0 2 T R O P E R L A U N N A 37 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 1. Summary of significant accounting policies (continued) (ii) Accounting policies (continued) (f) Employee benefits (continued) Other long-term employee benefits Provision is made for employees’ long service leave and annual leave entitlements not expected to be settled wholly within 12 months after the end of the annual reporting period in which the employees render the related service. Other long-term employee benefits are measured at the present value of the expected future payments to be made to employees. Expected future payments incorporate anticipated future wage and salary levels, durations of service and employee departures and are discounted at rates determined by reference to market yields at the end of the reporting period on government bonds that have maturity dates that approximate the terms of the obligations. Any re-measurements for changes in assumptions of obligations for other long-term employee benefits are recognised in profit or loss in the periods in which the changes occur. Option based compensation relates to the value of options issued to date and brought to account pro-rata to the time period from the date of issue to the date of vesting, except in the case of Director’s where Accounting Standard AASB 2 requires expensing to begin from the commencement of service related to those options, notwithstanding that the issue of those options is subject to shareholder approval. The Group’s obligations for long-term employee benefits are presented as non-current provisions in its statement of financial position, except where the Group does not have an unconditional right to defer settlement for at least 12 months after the end of the reporting period, in which case the obligations are presented as current provisions. (g) Financial instruments Financial instruments in the form of trade receivables, trade payables and other financial assets and liabilities are initially measured at transaction cost on trade date when the related contractual rights or obligations arise. Realised and unrealised gains or losses arising from changes in the fair value of these assets or liabilities are included in the statement of profit or loss and other comprehensive income in the period in which they arise. At each reporting date, the group assesses whether there is objective evidence that a financial instrument has been impaired. Impairment losses are recognised in the statement of profit or loss and other comprehensive income. Refer Note 14 for a detailed review of the group’s financial instruments. The Group does not designate any interests in subsidiaries as being subject to the requirements of Financial Instruments accounting standards. (h) Impairment of assets At each reporting date, the group reviews the carrying values of its tangible assets to determine whether there is an indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the assets carrying value over its recoverable amount is expensed to the statement of profit or loss and other comprehensive income. Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash- generating unit to which the asset belongs. (i) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Where applicable, bank overdrafts are disclosed within other financial liabilities in current liabilities on the statement of financial position. (j) Revenue recognition Revenue from the sale of goods and services is recognised at the fair value of the consideration received upon delivery of goods or performance of services to customers. Interest revenue and rental income is recognised when it becomes receivable. Other revenue is recognised when the right to receive the revenue has been established. H C A E R D L R O W 38 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 1. Summary of significant accounting policies (continued) (ii) Accounting policies (continued) (k) Government grants Government grants in the form of refundable Research and Development Tax Offsets received in respect of capitalised Development Costs are initially recognised as deferred income upon receipt, and brought to account as income on a systematic basis over the useful life of the related Development Cost assets. Export market development grants are brought to account in the statement of profit or loss and other comprehensive income in the period received. There are no unfulfilled conditions or other contingencies attaching to government grants recognised in the financial statements. (l) Foreign currency transactions and balances Functional and presentation currency The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. The functional currency of each of the group’s entities is measured using the currency of the primary economic environment in which that entity operates. Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the statement of profit or loss and other comprehensive income. (m) Leases Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. (n) Goods and Services Tax (GST) Revenue, expenses and assets are recognised net of the amount of GST, except where the amount of GST is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the asset or expense cost. Receivables and Payables are shown in the statement of financial position as inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities which are disclosed as operating cash flows. (o) Critical accounting estimates and judgments The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group. Accounting estimates and judgements made in relation to the recognition of deferred tax assets are indicated in Note 3(c). 8 1 0 2 T R O P E R L A U N N A 39 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 1. Summary of significant accounting policies (continued) (ii) Accounting policies (continued) (p) New accounting standards for application in future periods Accounting Standards and Interpretations issued by AASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncements on the Group when adopted in future periods, are discussed below: - AASB 9: Financial Instruments and associated Amending Standards (applicable to annual reporting periods beginning on or after 1 January 2018). The Standard will be applicable retrospectively and includes revised requirements for the classification and measurement of financial instruments, revised recognition and derecognition requirements for financial instruments and simplified requirements for hedge accounting. The directors anticipate that the adoption of AASB 9 may have little, if any, impact on the Group’s financial instruments. - AASB 15: Revenue from Contracts with Customers (applicable to annual reporting periods commencing on or after 1 January 2018). When effective, this Standard will replace the current accounting requirements applicable to revenue with a single, principles-based model. The new revenue model in AASB 15 will apply to all contracts with customers which requires the company to recognise revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled. The directors have examined the Group’s contracts and believe there are no current contracts with varying unit pricing over successive years that will require certain revenues to be reported materially differently from FY2019 onwards. The directors recognise that possible future contracts or relevant circumstances such as warranties and year-end bonuses may be those that AASB 15 is intended to cover and in that case the adoption of AASB 15 may possibly have significant impact on the Group’s financial statements. Until such contracts or circumstances arise it is impracticable to provide a reasonable estimate of the impact. - AASB 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019). When effective, this standard will replace the current accounting requirements applicable to leases in AASB 117: Leases and related interpretations. AASB 16 introduces a single lease accounting model that eliminates the requirement for leases to be classified as operating or finance leases and recognises a right to use asset, depreciation and liability for all leases (excluding short term leases with less than 12 months of tenure and leases relating to low value assets), with additional disclosure requirements. The transitional provisions of AASB 16 permit a lessee to either retrospectively apply the Standard to comparatives in line with AASB 108 or recognise the cumulative effect of retrospective application as an adjustment to opening equity on the date of initial application. The directors’ review of AASB 16 shows that its adoption will have an impact on the Group’s financial statements with leases greater than 12 months to be recognised on balance sheet as a lease liability and a related right to use asset. It is anticipated that the Net Present Value of the Group’s lease commitments greater than 12 months will be brought to account on the balance sheet as an asset and current and non- current liability from FY2020. The NPV of the commitments shown in Note 15 is $720,000. H C A E R D L R O W 40 WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 2 (Loss) / profit before income tax (a) Revenue Sales revenue - Equipment sales - Airtime - Other Other income - Research and Development grant - Interest (b) Cost of sales Opening inventories Add: Purchases and other stock adjustments Closing inventories (Note 5) (c) Finance costs expense Interest expense on financial liabilities (d) Other expenses include: - Product development costs expensed - Operating lease payments 3 Income tax (a) The components of tax expense / (benefit) comprise: Current tax - Current tax expense (d) - Current movement of temporary difference in net deferred tax assets - Movement in deferred tax asset associated with carry forward tax losses Income tax expense transferred to statement of profit or loss and other comprehensive income (b) Reconciliation of income tax expense and tax at statutory rate: CONSOLIDATED FINANCIAL STATEMENTS Year ended 30 June 2018 30 June 2017 $ $ 10,671,739 428,878 42,325 11,142,943 481,619 13,608 495,227 11,638,170 2,625,058 8,491,173 11,116,231 (4,158,153) 6,958,078 9,017,125 482,863 86,802 9,586,790 290,906 2,457 293,363 9,880,153 3,533,773 5,021,607 8,555,380 (2,625,058) 5,930,322 54,300 49,447 309,148 227,581 239,530 234,285 12,273 57,129 63,803 133,205 1,398 249,442 (115,289) 135,551 Loss from ordinary activities (1,431,929) (422,769) Income tax benefit at statutory rate of 27.5% (2017: 27.5%) (393,781) (116,261) Add / (Less): Tax effect of: - Tax reconciling items - Deferred tax assets expensed Income tax expense attributable to the Consolidated Group 406,053 120,932 133,205 117,659 134,154 135,551 8 1 0 2 T R O P E R L A U N N A 41 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 3 Income tax (continued) (c) The deferred tax expense reflects the movements in the deferred assets and liabilities The directors have maintained a conservative approach and have recognised 60% (2017: 60%) of the deferred tax assets and liabilities inclusive of carried forward tax losses. Although the Directors expect sufficient future profitability to enable the full value of all deferred tax assets to be utilized, the decision has been taken not to increase the proportion taken up at this time, with a demonstration of the Group’s return to profitability required before the Board would consider doing so. The amount of unused net deferred tax assets relating to tax losses which have not been brought to account (being the 40% portion) is $1,230,449 (2017: $1,272,984); and capital tax losses of $1,850,085 (2017: $1,850,085). The amount of net deferred tax assets which may be realised in the future is dependent on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the Consolidated Group will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. (d) Income tax expense comprises current year tax of $12,273 incurred by the Group’s USA subsidiary which is unable to be claimed against Australian tax losses. (e) There are no franking credits available to equity holders. Year ended 30 June 2018 30 June 2017 $ $ 528,925 595,734 599,097 1,696,743 1,862,313 4,158,153 1,124,442 - 506,940 116,030 1,747,412 872,992 - 1,752,066 2,625,058 1,231,608 (58,420) 328,423 116,030 1,617,641 4 Cash and cash equivalents Cash at bank and on hand 5 Inventories Raw materials Work in Progress Finished Goods 6 Trade and other receivables (a) Current Trade receivables Less: Provision for impairment of receivables Other receivables and prepayments Rental & other security deposits H C A E R D L R O W 42 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 6 Trade and other receivables (continued) (b) Ageing reconciliation Gross amount Within trade Past due but not impaired (days overdue) terms 31 - 60 61 - 90 90+ Past due & impaired 1,124,442 506,940 116,030 615,271 506,940 116,030 63,979 100,449 344,744 - - - - - - - - - 2018 Current Trade receivables Other receivables Rental & other security deposits 2017 Current Trade receivables Other receivables Rental & other security deposits 116,030 116,030 1,231,608 328,423 965,740 328,423 91,395 92,256 23,797 58,420 - - - - - - - - 4 Cash and cash equivalents Cash at bank and on hand 5 Inventories Raw materials Work in Progress Finished Goods 6 Trade and other receivables (a) Current Trade receivables Less: Provision for impairment of receivables Other receivables and prepayments Rental & other security deposits Year ended 30 June 2018 30 June 2017 $ 528,925 595,734 $ - 872,992 1,752,066 2,625,058 1,231,608 (58,420) 328,423 116,030 1,617,641 599,097 1,696,743 1,862,313 4,158,153 1,124,442 - 506,940 116,030 1,747,412 All trade receivables past due terms but not impaired are expected to be received in the normal course of business. 7 Plant and equipment Office furniture and equipment - at cost Less: Accumulated depreciation and impairment Computer and test equipment - at cost Less: Accumulated depreciation and impairment Rental equipment - at cost Less: Accumulated depreciation and impairment Total plant and equipment Year ended 30 June 2018 30 June 2017 $ $ 458,261 (407,999) 50,262 357,313 (293,382) 63,931 30,537 (21,731) 8,806 122,998 449,551 (390,014) 59,537 315,979 (245,220) 70,759 58,963 (19,827) 39,136 169,432 8 1 0 2 T R O P E R L A U N N A 43 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 7 Plant and equipment (continued) (a) Movements in carrying amounts Movements in the carrying amounts of each class of plant and equipment between the beginning and the end of the current financial year Office Furniture & Computer & Test Equipment Equipment Rental Equipment Total 65,862 10,401 - (16,726) 59,537 8,710 - (17,985) 50,262 91,251 25,598 - (46,090) 70,759 41,334 - (48,163) 63,931 17,290 37,919 (508) (15,565) 39,136 374 (20,252) (10,452) 8,806 174,403 73,918 (508) (78,381) 169,432 50,418 (20,252) (76,599) 122,998 Balance at 1 July 2016 Additions Disposals Depreciation expense Balance at 30 June 2017 Additions Disposals Depreciation expense Balance at 30 June 2018 8 Tax Non-current Deferred tax assets Deferred tax assets: Provision for doubtful debts Carrying amount of patents and capital raising costs Accruals Provisions Tax losses Deferred tax liability: Product development costs Balance as at 30 June 2018 Opening balance Charged to Income Closing balance 9,639 694 19,944 125,873 1,909,477 2,065,627 (715,838) 1,349,789 (9,639) (368) 14,842 20,057 (63,803) (38,911) (82,021) (120,932) - 326 34,786 145,930 1,845,674 2,026,716 (797,859) 1,228,857 H C A E R D L R O W 44 WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 9 Intangible assets Development costs capitalised - at cost Accumulated amortisation and impairment (a) Movements in carrying amounts Balance at the beginning of the year Additional costs capitalised Amortisation expense Impairment expense Balance at the end of the year The Group has assessed the minimum useful life of products from recent development projects at 4 years giving a 25% amortisation rate on completed projects during FY2018. In line with the accounting policy detailed in Note 1 (ii) (g) the Inmarsat BRM (BGAN Radio Module) development project carrying value was assessed and reduced to zero at a gross cost of $793,922. At the same time $130,082 of R&D grants received in relation to the project were brought into income (refer Note 2 (a)) 10 Trade and other payables Current Trade payables and accruals Deferred income Included in Deferred Income at 30 June 2018 is $1,580,925 of deferred R&D grant income (2017: $333,311). The Group brings to account the R&D grant income over the same period as the amortisation of the related completed project cost. This resulted in $481,619 of R&D grant income being recognised in the statement of profit & loss for the year as shown in Note 2 (a). 11 Other financial liabilities Bank facilities All bank facilities are secured by first ranking Registered Mortgage Debenture over the Consolidated Group’s assets including uncalled capital and called but unpaid capital. At 30 June 2018, the company had the following unused bank facilities: - an Australian dollar overdraft with a limit of $300,000. The overdraft was not utilised at 30 June 2018. - a US dollar overdraft with a limit of US$320,000. The US dollar overdraft was not utilised at 30 June 2018. Other facilities The group has a secured loan finance facility with SGV1 Holdings Limited for US$2,000,000. As at 30 June 2018 none of this facility had been drawn down. The security is a general security interest over the group’s assets and undertakings, ranking second behind the bank facilities. The secured loan facility is for a 36 month term expiring on 1 January 2020 and will be utilized mainly for the purposes of funding product development projects. CONSOLIDATED FINANCIAL STATEMENTS Year ended 30 June 2018 30 June 2017 $ $ 12,131,893 (7,296,384) 4,835,509 4,338,410 1,985,468 (694,447) (793,922) 4,835,509 10,146,425 (5,808,014) 4,338,410 2,076,589 2,685,603 (423,782) - 4,338,410 1,533,060 2,914,806 4,447,866 1,532,598 1,362,819 2,895,417 8 1 0 2 T R O P E R L A U N N A 45 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 12 Provisions Current Employee benefits Warranty costs Non current Employee benefits (a) Movements in provisions for the year ended 30 June 2018 Balance at the beginning of the year Additional provisions Amounts used Balance at the end of the year Employee benefits 533,938 434,107 (378,400) 589,645 13 Issued capital Issued and paid up capital: Ordinary fully paid shares The Company has 52,873,452 ordinary shares on issue at 30 June 2018 (2017: 43,173,452). Balance at 30 June 2017 Shares Issued (net of costs) (a) Balance at 30 June 2018 (a) Share issue On 12 September 2017, World Reach Limited completed the issue of shares to Glenayr Pty Ltd, a company owned by Mr David Stewart, now a Director of World Reach Limited, which subscribed for a placement of 9,700,000 ordinary shares at an issue price of $0.20 per share to raise $1,940,000 for working capital purposes. (b) Options over issued capital The total number of potential ordinary shares attributable to options outstanding as at 30 June 2018 is 2,486,550 (2017: 3,086,550), of which 1,579,050 (2017: 1,579,050) were issued to employees under the Company’s Share Option Incentive Plan and 907,500 (2017: 1,507,500) were issued to Directors following shareholder approval. Refer Note 18: Share Based Payments, for details of options issued, exercised and lapsed during the financial year and the options outstanding at year end. Year ended 30 June 2018 30 June 2017 $ $ 499,378 134,980 634,358 524,743 113,928 638,671 19,919 9,195 Warranty costs Total 113,928 58,560 (37,508) 134,980 647,866 492,667 (415,908) 724,625 Year ended 30 June 2018 30 June 2017 $ $ 7,646,641 5,784,925 Number of shares $ 43,173,452 9,700,000 52,873,452 5,784,925 1,861,716 7,646,641 H C A E R D L R O W 46 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 13 Issued capital (continued) (c) Capital management When managing capital, management’s objective is to ensure the Consolidated Group continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. No dividends have been paid or declared in respect of ordinary shares for the 2018 or prior years. The Consolidated Group effectively manages its capital by assessing the financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders, share issues, or convertible note issues. 14 Financial instruments The Consolidated Group undertakes transactions in a range of financial instruments including: - cash assets; - receivables; - payables; - deposits; Activities undertaken by entities within the Consolidated Group result in exposure to a number of financial risks, including market risk (interest rate risk, foreign currency risk), credit risk and liquidity risk. Due to the size of operation conducted by the Consolidated Group, risk management is monitored directly by the Board of Directors of the parent company with the aim of mitigation of the above risks and reduction of the volatility on the financial performance of the Group. The risks associated with material financial instruments and the Consolidated Group’s policies for minimising these risks are detailed below. (a) Interest rate risk management Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. Interest rate risk for the Consolidated Group primarily arises from: - Bank Funding - Facilities are provided by the Consolidated Group’s bankers and if drawn upon are at variable interest rates based upon Business Overdraft Prime Indicator rates plus a risk margin. The group diligently manages the facilities and its accompanying rate risk in its daily operations by keeping the net debt portfolio at a minimum level or in an infunds position. These risk exposures related to the financial instruments are not considered material and therefore no sensitivity analysis has been provided. Financial Instrument Composition and Maturity: The Consolidated Group’s exposure to interest rate risk, and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows: 2018 Financial asset Cash assets Receivables TOTAL Financial liability Payables (excluding deferred income) TOTAL 2017 Financial asset Cash assets Receivables TOTAL Financial liability Payables (excluding deferred income) TOTAL Floating Interest Fixed Interest Weighted Average Non-Interest Interest Rate bearing 528,925 - 528,925 - - 595,734 - 595,734 - - - - - - - - - - - - 0.02% 0.00% 0.00% 0.03% 0.00% 0.00% - 1,747,412 1,747,412 1,533,060 1,533,060 - 1,617,641 1,617,641 1,532,598 1,532,598 TOTAL 528,925 1,747,412 2,276,337 1,533,060 1,533,060 595,734 1,617,641 2,213,375 1,532,598 1,532,598 8 1 0 2 T R O P E R L A U N N A 47 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 14 Financial instruments (continued) b) Foreign currency risk management Foreign currency risk refers to the risk that the value of a financial commitment, recognised asset or liability will fluctuate due to changes in foreign currency rates. The Consolidated Group conducts the majority of its receivable and payable transactions in foreign currency, primarily in US Dollars. The Group’s foreign currency exchange risk arises from the holding of foreign currency deposits and transactions in normal trading operations resulting in trade receivables and payables being held at balance date. Foreign currency risk sensitivity: If foreign exchange rates were to increase/decrease by 10% from rates used to determine values as at reporting date then the impacts on profit and equity due to unrealised foreign currency exchange gains or losses on foreign currency deposits and trade receivables and payables are as follows: Impact on profit after tax Impact on equity Foreign currency movement +/- 10% +/- 10% Year ended 30 June 2018 30 June 2017 $ +/- 30,012 +/- 30,012 $ +/- 32,200 +/- 32,200 The above sensitivity reflects the low net holding of foreign currency financial instruments at balance date. Whilst foreign currency payables and receivables are largely offsetting during the year, the Group monitors and manages the associated currency risks in order to reduce the impact of market risk volatility, therefore no further sensitivity analysis has been provided. (c) Credit risk management Credit risk is the risk that a contracting entity will not complete its obligations under a financial instrument and cause a financial loss to the Consolidated Group. The credit risk on financial assets of the Consolidated Group that have been recognised in the statement of financial position is the carrying amount, net of any provision for doubtful debts. The Consolidated Group minimises credit risk by performing credit assessments on all new customers, continuing major customers, and where necessary, obtaining advance payments. Ongoing credit evaluation is performed on the financial condition of customers and, where appropriate, an allowance for doubtful debts is raised. The Consolidated Group does not have any credit risk arising from money market instruments foreign currency contracts, cross currency and interest rate swaps. (d) Liquidity risk management Liquidity risk includes the risk that, as a result of the Consolidated Group’s operational liquidity requirements, the group: - will not have sufficient funds to settle a transaction on the due date; - will be forced to sell financial assets at a value which is less than what they are worth; - may be unable to settle or recover a financial asset at all. To help reduce these risks the Consolidated Group: - has a liquidity policy which targets a minimum and average level of cash and cash equivalents to be maintained; and - monitors forecast cash flows and endeavours to ensure that adequate borrowing facilities are maintained and/or maturity dates are managed appropriately. The Consolidated Group’s exposure to liquidity risk on classes of financial assets and financial liabilities, is as follows: 2018 Asset class Cash and cash equivalents Receivables Payables (excluding deferred income) Net maturities 2017 Asset class Cash and cash equivalents Receivables Payables (excluding deferred income) Net maturities < 1 Year 1 - 5 Years Total contractual cash flows Carrying amount 528,925 1,631,382 (1,533,060) 627,247 595,734 1,501,611 (1,532,598) 564,747 - 116,030 - 116,030 - 116,030 - 116,030 528,925 1,747,412 (1,533,060) 743,277 595,734 1,617,641 (1,532,598) 680,777 528,925 1,747,412 (1,533,060) 743,277 595,734 1,617,641 (1,532,598) 680,777 (e) Net fair values of financial assets and liabilities Net fair values at balance date of each class of financial asset and liability do not materially differ from the carrying amounts disclosed in the statement of financial position. H C A E R D L R O W 48 WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 15 Commitments and contingencies Operating lease commitments Future minimum rentals payable under non-cancellable operating leases contracted for but not capitalised in the financial statements are as follows: Not later than one year Later than one year but not later than five years Later than five years The Consolidated Group and parent entity negotiated a 2 year extension to the non- cancellable commercial rental property lease at Mulgrave in March 2017. The new lease expires in December 2023. There is an option to renew the lease for a further 6 year period but no committment has been entered into. The Consolidated Group also has a minor office equipment lease for a 5 year period expiring in March 2023. Capital expenditure commitments Capital expenditure projects Not longer than one year Longer than one year and not longer than five years Longer than five years Capital commitments relate to product development projects being undertaken by World Reach Limited’s subsidiary, Beam Communications Pty Ltd. Superannuation commitments World Reach Limited makes superannuation contributions to prescribed superannuation funds on behalf of employees and executive directors, as required by the Superannuation Guarantee legislation. The principal types of benefits are death, permanent disability and superannuation benefits upon retirement. 16 Notes to the statement of cash flows (a) Reconciliation of (loss) / profit after income tax benefit to net cash flow from operating activities Loss after tax Adjustments for Depreciation Amortisation Impairment Net profit on disposal of plant and equipment Changes in assets and liabilities: Increase in trade and other receivables (Increase) / Decrease in inventory Decrease in deferred tax assets Increase / (Decrease) in trade and other payables Increase / (Decrease) in employee provisions Increase in provision for warranty costs Increase / (Decrease) in provision for stock obsolescence Decrease in provision for doubtful debts Net cash (used in)/ provided by operating activities CONSOLIDATED FINANCIAL STATEMENTS Year ended 30 June 2018 30 June 2017 $ $ 194,409 852,463 111,045 1,157,917 183,423 795,751 328,860 1,308,034 1,655,188 - - 1,655,188 2,073,897 820,147 - 2,894,043 (1,565,134) (558,320) 76,599 694,447 793,922 20,253 (71,351) (1,543,096) 120,932 (176,783) 55,707 21,052 10,000 (58,420) 78,381 423,782 508 (455,189) 928,716 134,154 513,674 (202,298) - (20,000) (1,621,871) 843,405 8 1 0 2 T R O P E R L A U N N A 49 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 Year ended 30 June 2018 30 June 2017 $ $ 16 Notes to the statement of cash flows (continued) (b) Reconciliation of cash Cash at the end of the financial year as shown in the consolidated statement of cash flows is reconciled to items in the consolidated statement of financial position as follows: Cash and cash equivalents (Note 4) 528,925 595,734 (c) Non cash financing and investing activities Non cash financing and investing activities undertaken by the Consolidated Group during the year are disclosed in Note 18. (d) Facilities At 30 June 2018, the Consolidated Group had the following unused bank facilities with the National Australia Bank: - an Australian dollar overdraft with a limit of $300,000. The overdraft was not utilised at 30 June 2018. - a US dollar overdraft with a limit of US$320,000. The US dollar overdraft was not utilised at 30 June 2018. Bank guarantee facilities of the Consolidated Group total $150,000 of which $100,000 has been allocated to a subsidiary company and $50,000 to the parent. Both were fully utilised at 30 June 2018. The Consolidated Group’s banking facilities are subject to the Group satisfying quarterly covenants set by the bank. The Group did not meet all covenants during the year ended 30 June 2018 however the bank reconfirmed the banking facilities as continuing on 24 August 2018. 17 Key management personnel disclosures Compensation by category The aggregate compensation made to directors and other members of key management personnel of the consolidated entity is set out below: Short-term employee benefits Post-employee benefits Other long-term benefits Termination benefits Share-based payments 1,020,915 79,448 6,918 - - 952,981 77,303 8,710 - - 1,107,281 1,038,994 H C A E R D L R O W 50 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 18 Share based payments Share options are granted at the discretion of the directors based on terms and conditions set out in the Company’s Share Option Incentive Plan. The directors may at any time and from time to time determine eligible persons for the purposes of the option plan and select amongst those eligible persons participants who will be invited to participate in the option plan. Options issued to directors pursuant to the option plan will be subject to approval of shareholders in general meeting, in compliance with the Listing Rules. (a) The following share based payment arrangements existed at 30 June 2018: (i) 884,813 options were granted on 31 March 2015 to key employees with an expiry date of 31 March 2020 on the terms and conditions set out in the Company’s Share Option Incentive Plan. These options were exercisable from 30 June 2015 at $0.195 per share (Issue WRR55). 95,288 of these options lapsed or were cancelled in the periods prior to 30 June 2018. 789,525 of these options are outstanding as at 30 June 2018. (ii) 884,813 options were granted on 24 December 2015 to key employees with an expiry date of 31 August 2020 on the terms and conditions set out in the Company’s Share Option Incentive Plan. These options were exercisable from 30 June 2016 at $0.195 per share (Issue WRR56). 95,288 of these options lapsed or were cancelled in the periods prior to 30 June 2018. 789,525 of these options are outstanding as at 30 June 2018. (iii) 907,500 options were granted on 24 December 2015 to a director with an expiry date of 30 November 2020 on the terms and conditions set out in the Company’s Share Option Incentive Plan. These options were exercisable from 30 June 2016 at $0.195 per share (Issue WRR57). 907,500 of these options are outstanding as at 30 June 2018. (b) The following table illustrates the number (No.) and weighted average exercise prices (WAEP) and movements in share options issued during the year for the Company: Outstanding at the beginning of the financial year Granted during the financial year Lapsed during the financial year Cancelled during the financial year Exercised during the financial year Expired during the financial year Outstanding at the end of the financial year 30 June 2018 30 June 2017 No. 3,086,550 WAEP $ 0.2834 - - - - (600,000) 2,486,550 - - - - 0.6500 0.1950 No. 3,944,626 - (200,576) - - (657,500) 3,086,550 WAEP $ 0.2686 - 0.2077 - - 0.2173 0.2834 Exercisable at the end of the financial year 2,486,550 0.1950 3,086,550 0.2834 (c) Notes to Share Based Payments (i) The weighted average remaining contractual life for the share options outstanding as at 30 June 2018 is 2.12 years (2017: 2.52 years). The exercise price for options outstanding at the end of the year was $0.195 (2017: A range of $0.195 - $0.65). The weighted average fair value of options granted during the year was $0 (none granted) (2017: $0 (none granted)). The fair value of equity-settled share options granted under the Company’s Share Option Incentive Plan is estimated as at grant date using the Binomial Option Valuation model, with Black Scholes crosscheck, taking into account the terms and conditions upon which the options were granted. 8 1 0 2 T R O P E R L A U N N A 51 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 19 Remuneration of auditors Remuneration of the Auditor for auditing or reviewing financial reports of the Consolidated Group 55,000 58,000 20 Related party transactions Related party transactions with the Seasons Group, which is related to Mr C Hung, a director of the Year ended 30 June 2018 30 June 2017 $ $ company. Transactions with the Seasons Group - Purchases - Sales Amounts outstanding with the Seasons Group - Receivables - Payables Mr C Hung is a director of the company, and is also the president and a director of Season Group. During the year ended 30 June 2018 the company subcontracted manufacturing on an arms length basis to Season Group, in accordance with a contract signed prior to his appointment as director. Transactions between the company and Season Group are on normal commercial terms and conditions no more favourable than those available to other parties. On 19 October 2016 the Group entered into a secured finance facility with a major shareholder, SGV1 Holdings Limited, a company associated with Mr Carl Hung. Refer to note 11 for more details. 21 Earnings per share Overall operations Basic earnings per share Dilutive earnings per share 3,273,218 (259,410) 19,981 (622,198) 1,393,718 (109,416) 56,927 (463,104) ¢ (3.07) (3.07) ¢ (1.29) (1.29) No. No. Weighted average number of ordinary shares used in the calculation of Basic Earnings Per Share 50,933,452 43,173,452 Weighted average number of dilutive options Weighted average number of ordinary shares and potential ordinary shares used in the calculation of Dilutive Earnings Per Share - - 50,933,452 43,173,452 Anti-dilutive options on issue not used in dilutive EPS calculation 2,486,550 3,086,550 Anti-dilutive options have not been considered in the dilutive earnings per share calculation due to the average market price being less than the exercisable price. Earnings: Earnings used in the calculation of Basic Earnings Per Share Earnings used in the calculation of Dilutive Earnings Per Share $ $ (1,565,134) (1,565,134) (558,320) (558,320) H C A E R D L R O W 52 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 22 Segment reporting (a) Sole operating segment The Consolidated Group has identified operating segments based upon internal reports that are reviewed and used by the Directors in assessing performance and determining the allocation of resources in respect of its satellite communications products services and online sales. As the online sales segment operated by SatPhone Shop Pty Ltd, a wholly owned subsidiary company, does not meet the quantitative threshold for separate disclosure, the company considers its aggregate segment as it sole segment. Accordingly, revenue and results are fully disclosed in the consolidated statement of profit or loss and other comprehensive income for this aggregated sole operating segment. Revenue and results are fully disclosed in the consolidated statement of profit or loss and other comprehensive income for the aggregated sole operating segment. The consolidated statement of financial position discloses the sole operating segment assets and liabilities which are held within Australia. (b) Revenue by geographical region Revenue attributable to external customers is disclosed below, based upon the location of the external customer Sales by country Australia United States of America United Kingdom Canada United Arab Emirates Japan China Other foreign countries (c) Major customers Year ended 30 June 2018 Year ended 30 June 2017 $ % $ % 3,336,752 2,721,418 1,222,954 1,135,482 1,048,097 610,956 251,945 1,310,566 11,638,170 28.67% 23.38% 10.51% 9.76% 9.01% 5.25% 2.16% 11.26% 100.00% 3,380,980 2,010,198 1,479,123 341,151 41,272 488,396 946,383 1,192,651 9,880,153 34.22% 20.35% 14.97% 3.45% 0.42% 4.94% 9.58% 12.07% 100.00% The Consolidated Group has a number of customers to whom it provides products and services. The Consolidated Group supplied a single customer in the USA accounting for 16% of external revenue (2017: the largest customer was also in the USA, 11%) and the second largest customer, located in the United Arab Emirates accounted for 8% of external revenue (2017: second largest customer was in the UK, 10%). The next most significant customer also accounts for 8% of external revenue (2017: 10%). 8 1 0 2 T R O P E R L A U N N A 53 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 23 Parent company disclosures Year ended Set out below is the supplementary information about the parent entity. (a) Statement of profit or loss and other comprehensive income Loss from continuing operations Tax expense Loss for the year attributable to owners of the Company Other comprehensive income 30 June 2018 30 June 2017 $ $ (1,051,055) (120,932) (1,171,987) - (907,522) (134,154) (1,041,676) - Total loss and other comprehensive income for the year attributable to owners of the Company (1,171,987) (1,041,676) 799,728 1,343,049 2,142,777 2,879,788 19,919 2,899,707 577,329 1,480,084 2,057,414 3,494,873 9,195 3,504,068 (756,929) (1,446,654) 7,646,641 411,189 (8,814,755) (756,926) 5,784,925 493,089 (7,724,668) (1,446,654) (b) Statement of financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Deficiency of net assets Equity Issued capital Reserves Accumulated losses Total equity H C A E R D L R O W 54 CONSOLIDATED FINANCIAL STATEMENTS WORLD REACH LIMITED AND CONTROLLED ENTITIES ABN 39 010 568 804 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 23 Parent company disclosures (continued) (c) Guarantees The parent company has no contractual guarantees in place. (d) Contractual commitments Parent entity operating lease commitments are the same as consolidated entity commitments as disclosed in Note 15. The parent entity has no capital expenditure commitments. (e) Significant accounting policies of the parent are the same as those for the consolidated entity. 24 Controlled entities Investments in unquoted corporations being controlled entities: Beam Communications Pty Ltd SatPhonerental Pty Ltd SatPhone Shop Pty Ltd Beam Communications USA Inc Pacarc (PNG) Limited (Dormant) 25 Events after the Reporting Period Incorporated Share class Holding Australia Australia Australia USA Papua New Guinea Ordinary Ordinary Ordinary Ordinary Ordinary 2018 100% 100% 100% 100% 100% 2017 100% 100% 100% 100% 100% On 5 July 2018 the Group released a statement which announced the dispatch of the delayed shipment of 2500 Iridium GO!® units which completed the fourth order from Iridium. On 17 July the Group announced the receipt of a fifth order from Iridium for 5000 Iridium GO!® units to be delivered in the second half of FY2019. Other than the above, there have been no significant events since the end of the reporting period. 26 Company details and principal place of business World Reach Limited is a limited company incorporated in Australia. The principal activities of the Company and subsidiaries are outlined in the Director’s Report. The address of its registered office and principal place of business is: 5 / 8 Anzed Court Mulgrave Victoria 3170 Australia 8 1 0 2 T R O P E R L A U N N A 55 DIRECTORS’ DECLARATION DIRECTORS’ DECLARATION The directors of World Reach Limited declare that: 1. The financial statements and notes as set out in pages 32 to 55 are in accordance with the Corporations Act 2001 and: (a) comply with Australian Accounting Standards, which, as stated in accounting policy Note 1 to the financial statements, constitutes compliance with International Financial Reporting Standards; (b) give a true and fair view of the financial position as at 30 June 2018 and of the performance for the year ended on that date of the company and consolidated group; and (c) any other matters that are prescribed by the regulations for the purposes of this declaration in relation to the financial statements and the notes for the financial year are also satisfied. 2. In the director’s opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. This declaration has been made after receiving the declarations required to be made by the Chief Executive Officer and Chief Financial Officer to the directors in accordance with sections 295A of the Corporations Act 2001 for the financial year ending 30 June 2018. This declaration is made in accordance with a resolution of the Board of Directors on 30 August 2018. Mr Simon Wallace Chairman Date: 30 August 2018 H C A E R D L R O W 56 8 1 0 2 T R O P E R L A U N N A 57 AUDITOR’S REPORT RSM Australia Partners Level 21, 55 Collins Street Melbourne VIC 3000 PO Box 248 Collins Street West VIC 8007 T +61 (0) 3 9286 8000 F +61 (0) 3 9286 8199 www.rsm.com.au INDEPENDENT AUDITOR’S REPORT To the Members of World Reach Ltd Opinion We have audited the financial report of World Reach Ltd. (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. 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 auditor independence requirements of 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 (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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. These matters were 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 these matters. THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation H C A E R D L R O W 58 AUDITOR’S REPORT Key Audit Matters (Continued.) Key Audit Matter How our audit addressed this matter Impairment of Intangible Assets Refer to Note 9 in the financial statements The Group has intangible assets of $4.8m, being capitalised development costs relating to Thuraya and Marconi projects. The Thuraya asset was available for use from March 2018, and therefore amortisation commenced during FY18. The Marconi asset was not available for use as at 30 June 2018. Management have performed an impairment assessment for both assets based on a value in use calculation, which determined that no impairment had occurred. We identified this area as a Key Audit Matter due to the size of the intangible assets balance and the judgment involved in determining the value in use of the relevant assets based on the estimated future cash flows generated. Deferred Tax Asset – tax losses Refer to Note 3 and Note 8 in the financial statements The Group has a material Deferred Tax Asset balance of $1.2m relating to operating losses and temporary differences. This is considered a key audit matter as there is a high degree of subjectivity and complexity in respect of the recognition of the expectation that future profits against which the deferred tax asset can be utilised are more likely than not. tax asset and the deferred Our audit procedures in relation to intangible assets included: • • • Assessing management’s impairment assessment by checking the mathematical accuracy of the cash flow model, and reconciling input data to supporting evidence, such as approved budgets and considering the reasonableness of these budgets; the reasonableness key Challenging assumptions, including the cash flow and revenue projections, revenue growth rate, exchange rates, discount rates, and any sensitivities used; and of Confirming our understanding of the nature of the intangible assets, the strategic purpose of the projects and its ability to generate future revenues through discussions with management. Our audit procedures in relation to the deferred tax balance included: • • Assessing management’s assumptions in relation to the recoverability of the deferred tax asset and the manner in which temporary differences would be included reversed and losses utilised. reviewing and challenging management’s budgets and cash flow forecasts, and determining the historical accuracy of management’s assumptions; and This Assessing the appropriateness and adequacy of disclosures made in the financial statements in note 3 Income Tax. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2018, but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, 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. 8 1 0 2 T R O P E R L A U N N A 59 AUDITOR’S REPORT Other Information (Continued.) If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are 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 the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and 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 this 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: www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2018. In our opinion, the Remuneration Report of World Reach Ltd., for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. RSM AUSTRALIA PARTNERS J S CROALL Partner Dated: 30 August 2018 Melbourne, Victoria 30 August 2018 H C A E R D L R O W 60 AUDITOR’S REPORT 8 1 0 2 T R O P E R L A U N N A 61 AUSTRALIAN SECURITIES EXCHANGE INFORMATION AUSTRALIAN SECURITIES EXCHANGE INFORMATION SUBSTANTIAL SHAREHOLDERS As at 31 August 2018. This section includes information required by ASX Listing Rules which is not disclosed elsewhere in this Annual Report. TWENTY LARGEST SHAREHOLDERS Number of Shares % of Class DAVID STEWART/GLENAYR P/L 10,540,000 SGV1 HOLDINGS LIMITED FF OKRAM PTY LTD 9,243,207 8,634,258 19.93% 17.48% 16.33% - These shareholders do not hold any options to subscribe for ordinary shares. Number % of Class DISTRIBUTION OF SHARES DAVID STEWART/GLENAYR P/L 10,540,000 19.93% Size of Holdings SGV1 HOLDINGS LIMITED 9,243,207 17.48% FF OKRAM PTY LTD 8,634,258 16.33% 1 to 1,000 ARTPRECIATION PTY LTD 1,848,632 3.50% 1,001 to 5,000 Number of Number of Holders Shares % 0.14% 0.70% 0.88% 71,922 369,134 465,454 5,505,238 10.41% 46,461,704 87.87% 251 132 63 156 51 5,001 to 10,000 10,001 to 100,000 100,001 and over TOTAL 653 52,873,452 100.00% HOLDERS OF LESS THAN A MARKETABLE PARCEL OF QUOTED ORDINARY SHARES Number of Holders % of Total Holders Number of Shares % of Total Quoted Shares 347 53.14% 289,169 0.55% CAPOCCHI SUPER PTY LTD KILLARNEY PROPERTIES P/L RAPAKI PTY LTD IVAN & FELICITY TANNER HOTTON FAMILY EVERCITY PTY LTD TOM BEKIARIS VINCENT GALANTE SIMPSON FAMILY PETER LINCOLN SIMPSON ROBERT MANSFIELD NIALL TWARTZ FAMILY TASMAN DOUGLAS LOVELL NICHOLAS ANDREW ROXBURGH HUGH WILLIAM ROXBURGH INVIA CUSTODIAN PTY LTD 1,603,899 1,212,245 1,076,473 861,035 807,052 800,000 731,835 694,487 600,000 600,000 527,200 416,666 410,000 370,000 360,000 348,731 3.03% 2.29% 2.04% 1.63% 1.53% 1.38% 1.70% 1.31% 1.13% 1.13% 1.00% 0.79% 0.78% 0.70% 0.68% 0.66% TOTAL TOP 20: 41,685,720 78.84% TOTAL ISSUED: 52,873,452 100.00% HOLDERS OF EACH CLASS OF EQUITY SECURITY The company has issued: - 52,873,452 ordinary fully paid shares to 653 shareholders. - 2,486,550 options to subscribe for ordinary shares to 7 option holders. No convertible notes remain on issue. VOTING RIGHTS There are 52,873,452 ordinary fully paid shares held by 653 members and these are the only class of share currently issued. The Company’s Constitution provides that every member present in person, by proxy or by corporate representative or by appointed attorney shall on the show of hands have one vote. H C A E R D L R O W 62 8 1 0 2 T R O P E R L A U N N A 63 World Reach Limited ABN 39 010 568 804 5/8 Anzed Court, Mulgrave Victoria, Australia 3170 +61 3 8561 4200 +61 3 9560 9055 info@worldreach.com.au www.worldreach.com.au Beam Communications Pty Ltd SatPhone Shop Pty Ltd ABN 97 103 107 919 ABN 40 099 121 276 SatPhonerental Pty Ltd ABN 18 114 959 992 Beam Communications USA Inc. Delaware Corporation No. 5228652 5/8 Anzed Court, Mulgrave Victoria, Australia 3170 +61 3 8588 4500 +61 3 9560 9055 5/8 Anzed Court, Mulgrave Victoria, Australia 3170 +61 1 300 368 611 +61 3 8669 4424 5/8 Anzed Court, Mulgrave Victoria, Australia 3170 +61 1 300 368 611 +61 3 8669 4424 C/- Martensen Wright PC One Capitol Mall, Suite 670 Sacramento, CA 95814 USA +1 800 250 5819 (USA only) +1 888 972 8037 info@beamcommunications.com info@satphoneshop.com rentals@satphoneshop.com support@beamcommunications.com www.beamcommunications.com www.satphoneshop.com www.satphonerentals.com.au www.beamcommunications.com/support

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