BSA Limited Annual Report 2016

Plain-text annual report

think.build.connect.maintain Appendix 4E - Results for Announcement to the Market and Annual Report BSA Limited 50 088 412 748 FOR THE YEAR ENDED 30 JUNE 2016 1 BSA LIMITED APPENDIX 4E | PRELIMINARY FINAL REPORT 2015CONTENTS - APPENDIX 4E - ANNUAL REPORT $’000 511,856 (2,219) (2,219) 2015 cents 1.11 1.10 3.94 2016 cents (0.52) (0.52) 3.63 Franked amount per Amount per security security at 30% tax (cents) (cents) Nil Nil Nil Nil RESULTS FOR ANNOUNCEMENT TO THE MARKET FOR THE PERIOD ENDED 30 JUNE 2016 PREVIOUS CORRESPONDING PERIOD 30 JUNE 2015 APPENDIX 4E Revenue from ordinary activities Down 5.9% Loss from ordinary activities after income tax attributable to members Down 157.3% Net loss for the period attributable to members Down 157.3% to to to Basic (loss) earnings per share Diluted (loss) earnings per share Net tangible asset backing per ordinary share DIVIDENDS Interim dividend (fully franked) Final dividend (fully franked) This report is based on the consolidated financial statements which have been audited by Deloitte Touche Tohmatsu, with the Independent Auditor’s Report included in the financial statements. BSA LIMITED RESULTS FOR ANNOUNCEMENT TO THE MARKET think.build.connect.maintain 2016 BSA Limited Annual Report Eastlands Shopping Centre BSA completed the mechanical services upgrade and extension to one of Australia’s premier shopping centres with Probuild. 2 BSA LIMITED ANNUAL REPORT 2016CONTENTS 4 — Chairman’s Report 6 — Managing Director’s Report 14 — Directors’ Report 17 — Remuneration Report 29 — Auditor’s Independence Declaration 30 — Financial Report 89 — Directors’ Declaration 90 — Independent Auditor’s Report 92 — Shareholder Information 94 — Corporate Directory 3 BSA LIMITED ANNUAL REPORT 2016CHAIRMAN’S REPORT KEY HIGHLIGHTS $511.9 million Revenue $4.1 million * EBITDA $2.2 million Net Loss * Reconciliation on page 13 4 Michael Givoni Chairman For BSA Limited (BSA), financial year 2016 has been a year of consolidation. The Group has maintained emphasis in the areas of right-sizing, cost reduction and focused investment in business development resources. Whilst costs associated with consolidation efforts have impacted the FY2016 results, they have also led to an overall lower cost base, which is a positive start to the FY2017 year. BSA LIMITED ANNUAL REPORT 2016The continuing expansion of the annuity style revenue streams within the year has been a real positive and strengthens the future earnings of the company The Group has made excellent progress on its business development and marketing plans and investments made in this area have led to a number of significant projects and contracts being secured across all growth through business development and diversification of services to existing clients. Over the last 12 months, BSA | Connect has won significant contracts with nbn and Ericsson and continues to have business units. In particular, the continuing expansion of the annuity a strong pipeline. Along with operational excellence and continued style revenue streams within the year has been a real highlight and growth, the immediate focus for this business unit will be the strengthens the future earnings of the company. successful mobilisation of contracts secured. Readers of the BSA 2016 Annual Report will notice a change in the BSA branding, and a departure from the original business unit names. In line BSA | Maintain has also undertaken a significant amount of rationalisation during the year. Whilst the business unit revenue has increased, costs with our business development focus, we have streamlined and simplified associated with the rationalisation program have impacted results for this the BSA branding. Our new branding is more in line with our existing markets and will emphasise the BSA brand across all business units, business unit. For the fourth year in a row, annuity revenue has increased, as the team focused on building its recurring contracted maintenance with less of a focus on the multiple business unit sub brands. In order to works. A renewed emphasis on business development has yielded new limit the expense associated with the rebranding program and reduce contract wins in excess of $20 million including important contract wastage, a decision was taken to soft launch the branding program, with wins providing maintenance on Barangaroo and for Land & Housing aspects being procured in line with normal business need, rather than Corporation NSW Department portfolio. blanket new brand procurement. I am pleased to announce our new Business Unit Names: • • • • BSA | Build (formerly Technical Design & Construction Projects/TDCP) BSA | Connect (formerly Technical Field Force Solutions/TFFS) BSA | Maintain (formerly Technical Maintenance Services/TMS) BSA | Think (new Business Initiative) A detailed review of our results is provided within the Managing Director’s report, however the key highlights are as follows: Revenue $511.9 million (2015: $543.7 million) EBITDA $4.1 million (2015:$14.2 million) Net loss $2.2 million (2015 $3.9 million profit) Operating cash flow $2.0 million (2015 $19.6 million) BSA’s continued investment in workplace health and safety has been rewarded with significant reductions in all reportable incidents across the Group, and BSA continues to track towards best practice in this key area. While the Board has resolved not to pay a final dividend for FY2016 this position will be further reviewed during FY2017. The market outlook for BSA’s operational sectors remains good. Each Business Unit has developed a solid pipeline of opportunities and a lower cost base across the board. Given the ongoing resolution of key legacy issues, and continued focus on selective business development the priority for the business in FY2017 is overall margin improvement. Once again, BSA has enjoyed a strong and supportive relationship with its financiers throughout FY2016 culminating in the renegotiation and extension of working capital facilities to 31st December 2018 offering Basic loss per share of 0.52 cents (2015: earnings per share of 1.11 cents) improved stability and flexibility and we look forward to their continued Net cash $18.5 million (2015: $18.4 million) support in FY2017. BSA | Build implemented a significant program of rightsizing and consolidation during the year. Along with streamlining of the leadership On behalf of the Board I would like to thank our Executive team and their staff for their continued efforts and ongoing commitment to our team, multiple brands in the Sydney market were amalgamated and customers and shareholders. rationalisation of fabrication facilities and other operations occurred during the year. Significant one off commissioning and completion costs at the new Royal Adelaide Hospital (nRAH) together with restructure costs impacted the business performance during the year. BSA | Build management continued its focus on functional disciplines, risk mitigation and margin improvement. The business unit maintains a strong forward order book and pipeline of opportunities. BSA | Connect completed over 853,000 tickets of work during FY2016. BSA’s heritage business unit has maintained its focus on I would like to acknowledge my fellow Directors for their contribution to BSA and for their support during FY2016. Michael Givoni Chairman 29 August 2016 5 BSA LIMITED ANNUAL REPORT 2016MANAGING DIRECTOR’S REPORT Nicholas Yates Managing Director and Chief Executive Officer OPERATIONAL AND FINANCIAL HIGHLIGHTS AND OUTLOOK FY2016 has seen BSA undertake a significant program of work in the areas of business rationalisation, rightsizing and cost reductions. The year also saw an increased focus on business development and service diversification as well as continued progress to close out remaining legacy issues. While costs associated with these programs have impacted the FY2016 results, they also provide a lower Group-wide cost base, and a strong and sustainable platform for future growth and improved earnings in FY2017 and beyond. This year’s results have also been significantly impacted by legacy issue costs, particularly in relation to the new Royal Adelaide Hospital (nRAH). BSA’s site works at nRAH are due for completion in the first quarter of FY2017 and discussions are continuing on resolving outstanding commercial issues. BSA is also continuing to work towards resolution of issues with the NSW Office of State Revenue, as previously reported. BSA generated revenue of $511.9 million for the year (FY2015 $543.7 million), EBITDA of $4.1 million (FY2015 $14.2 million) and a net loss after tax of $2.2 million (FY2015: profit of $3.9 million). Significantly, EBITDA excluding significant items relating to restructure costs, legal costs associated with legacy issues, nRAH commissioning and completion costs and additional provisions for the NSW OSR issue stood at $18.6m. The Group has continued to pay down debt and finished the year with a net cash position of $18.5 million (FY2015 $18.4 million) which is a significant improvement on the FY2016 H1 position ($9.2 million). Notably all term debt facilities have now been repaid which represents a key milestone for the Group and provides further capacity for future investment. GROWTH BSA enters FY2017 with a strong construction forward order book of $175m (BSA | Build) and annualised recurring revenues of $303m (BSA | Maintain & BSA | Connect) with further substantial wins with the National Broadband Network (nbn) and Ericsson after 30th June 2016. We expect to continue to build this forward workload pipeline whilst maintaining a focus on implementing solid disciplines around bid and contract management. Each Business Unit continues to refine its approach to marketing and business development to drive further growth and diversification opportunities. Further investment in business development is planned during FY2017. BSA | Build has a healthy forward order book and continues to source a solid pipeline of opportunities throughout Australia. The business is now focussing on the growth of its Fire business and the imminent completion of the nRAH project. 6 BSA LIMITED ANNUAL REPORT 2016As mentioned, BSA | Connect has won a significant amount of work in the year and further wins already in the new year, particularly in workplace through the “Walk the Talk” program, hazard identification and management to create a greater understanding of the risks faced relation to the nbn and it continues to bid for work across all the sectors both strategically and operationally and the development of a forward in which it operates. Our Registered Training Organisation, ‘Blue Sky looking perspective through the tracking and reporting of the lead Academy’ has expanded its training footprint into Tasmania and is heavily indicators contained in our HSEQ strategy. involved in training for nbn contracts. Diversification into the health and community sectors continued, with Blue Sky Academy commencing delivery of Aged Care training to a number of providers within the year. BSA | Maintain has reinforced its position as a major provider to Tier 1 customers, and continued its focus on diversification of its offerings to include multi service technical solutions through the provision of mechanical, fire, plumbing, electrical and other building services. NEW MARKET POSITIONING AND BRANDING BSA | Connect achieved Federal Safety Commissioner (FSC) Accreditation in January 2016 which represents a key milestone for the group allowing the business unit to bid for additional work for government funded projects. COMMUNITY SUPPORT During the year BSA, its subsidiaries and its employees, contributed to a number of charity fundraisers including Buildcorp Foundation, CircusOZ, Redkite, Love Mercy Foundation, Movember Foundation, the Royal As referred to in the Chairman’s Report, BSA has taken the opportunity Flying Doctor Service Outback Car Trek, the SNRLFC “Sleepy’s Cancer to streamline and simplify our branding profile. Part of this rebranding includes the creation of a new business initiative BSA | Think. Day”, Toy’s for Kids Christmas Appeal, UN Women and Youngcare Simpson Desert Challenge. We also continued our longstanding support BSA | Think provides a platform and focus for us to capture the great depth we have in technical expertise and smart solutions and make of Youngcare through the provision of services in-kind. this more readily available to our clients in a focused advisory and GENDER DIVERSITY consulting format. BSA is committed to providing a workplace for all employees that is free BSA | Think will showcase our ability to provide not only excellent on the ground technical skills but also consulting advice and innovative solutions from discrimination, harassment and bullying. BSA provides a working environment that promotes diversity and encourages all employees to to help solve bigger picture business issues including in the areas of: reach their potential. • • • • • • Asset management BSA advises that the significant majority of employment positions Design and Building Information Modelling (BIM) throughout the Group consist of specific skill sets. BSA has a Energy management and Sustainability Cost planning Project management commitment to diversity that ensures the elimination of discrimination against people based on gender, ethnic group, political or religious affiliation, health status or disabilities. The over-arching principle applied at BSA is that the most suitable person for a job is employed Compliance and certification where there is an existing vacancy. HEALTH, SAFETY, ENVIRONMENT AND QUALITY With its continued focus on Health and Safety, BSA has well and truly exceeded the targeted 20% reduction in lost time injury frequency rate (LTIFR), with a reduction of 30% LTIFR achieved in FY2016. This trend is indicative of a maturing approach in 2016. This approach has seen a change in focus to Total Recordable Injuries (TRI) and the reporting of this frequency rate (TRIFR) across business units and as a group. Along with the focus on this lagging indicator, a suite of leading Current staff summary: Board Senior Executives Managers and Professionals Technical, Administration and Other Staff indicators have been identified and incorporated into the Group Strategy. TOTAL The foundational work carried out in late 2014/2015 has continued to Percentage of Employment Female 0% 9% 11% 21% 18% Male 100% 91% 89% 79% 82% place BSA on a path to best practice and a leader-led HSEQ culture. BSA is also committed to recruiting, training and retaining talented In the coming year, further work to strengthen the robust HSEQ culture throughout BSA will focus on present and felt leadership in the future leaders, with apprentice and trainee employees making up 8% of our workforce. 7 BSA LIMITED ANNUAL REPORT 2016 MANAGING DIRECTOR’S REPORT BSA | Connect $205.7 million Revenue [2015: $215.4 million] $7.7 million EBITDA [2015: 8.3 million] NB: Excludes Corporate Recharges 8 BSA LIMITED ANNUAL REPORT 2016 BSA | Connect (Formerly Technical Field Force Solutions / TFFS) BSA | Connect has strengthened its market position as a leading national provider of telecommunications operations and maintenance services The nbn Operate and Maintain contract, awarded in December 2015, proved a highlight for the year. Since successfully mobilising and large scale workforce management solutions through the winning and mobilisation of multiple new telecommunications contracts during the last 12 months. EBITDA reduced during the year due to net one off operations across the four contract areas in New South Wales and Victoria, BSA | Connect is completing an average of 500 work orders per day including Fibre to the Node and Fibre to the Basement costs of $969k relating to restructure costs, an additional OSR provision activities. The nbn project team is gearing up to the delivery of more taken during H1 FY2016 and other one off contract costs. In addition, than 2,000 work orders per day by June 2017. increased business development costs were incurred during the year. During the year, BSA | Connect successfully launched the following, recently awarded, projects: • nbn Operate and Maintain Services on fixed line technologies in Sydney, South Melbourne, and Regional and Remote New South Wales; BSA | Connect supported longstanding client Optus with multiple programs of work during the year including the HFC network rollout trial, a door-to-door sales campaign and the previously mentioned Direct-to- Home Satellite Services. Attention has also been directed into positioning for medium and long term projects that will further diversify the services offered to Optus in years to come. • Optus Direct-to-Home Satellite Equipment Installation and Registered training organisation, Blue Sky Academy commenced delivery Maintenance Services Australia-wide in association with the of Aged Care training in the community services sector this year to English Premier League (EPL); and providers including KinCare and St Luke’s Aged Care. Training covered • nbn Approved Training Services through our RTO, Blue Sky Academy for various delivery partners that are engaged by nbn to build, operate and maintain the nbn network. Health and safety remains BSA | Connect’s highest priority and the business unit achieved Federal Safety Commissioner (FSC) Accreditation in January 2016. The accreditation complements BSA’s certified Integrated Management System and it has reinforced BSA’s capacity to compete for government-funded projects, including nbn works. The business unit has also achieved significant overall improvements to health and safety performance goals. BSA | Connect introduced a ‘Three Year Safety Strategy’, commencing in FY2016, to enhance the business unit’s safety culture. At the end of the financial year, the Foxtel project team celebrated achieving a notable ‘zero’ LTIFR over the 12-month period. accredited units of competency, technical skills to improve worker safety and refresher courses such as First Aid and CPR. The business unit pursued numerous other opportunities with existing and new clients during the second half. Following the FY2016 year end, after an 18-month procurement process, on 14th July 2016, BSA | Connect announced the signing of an additional contract with nbn to deliver HFC Deployment Services in Brisbane and Melbourne with works set to commence in August 2016. Soon after, on 8th August 2016, BSA | Connect welcomed a new client, Ericsson, to its portfolio and is working quickly to mobilise a delivery program for Fixed Wireless and Satellite Connection Services Australia-wide. Operational excellence, service diversification, margin improvement and growth remain the key themes for BSA | Connect through FY2017 and beyond. BSA LIMITED ANNUAL REPORT 2016 9 MANAGING DIRECTOR’S REPORT BSA | Maintain BSA | Maintain (Formerly Technical Maintenance Services / TMS) BSA | Maintain revenue increased by 5.7% to $79.9 million as the division focused on building its recurring contracted maintenance revenue. EBITDA increased by 17.6% from the previous year to $2.0 million. The business unit implemented a number of cost reduction and restructure activities and the improved operating margins were as a result of the partial impact of the rationalisation program as well as from increased revenue during the year. BSA | Maintain has achieved some significant new contract wins during the year resulting in a substantial increase in the maintenance contract order book. New business in excess of $20 million has been generated, and includes new maintenance and services for: • • • • • • • Land and Housing Corporation NSW Portfolio Roy Hill Metronode Global Switch Barangaroo Yarra Fertilisers CBD buildings across major Australian capital cities BSA | Maintain has also achieved contract extensions with existing clients, including: • • • • Monash University Metropolitan Fire Brigade Suncorp Stadium Power and Water BSA | Maintain has continued its strategy to diversify its recurring contract base to offer multiple technical services to customers through the provision of mechanical, fire, plumbing, electrical and other building services and a number of the new wins are in this area validating the ongoing strategy. Initiatives have also commenced using predictive maintenance software to assist customers achieve savings as part of our maintenance solution. In addition, new services including energy optimisation, automated monitoring and indoor air quality solutions have been added to the suite of services available to customers. A major upgrade of the asset management and customer reporting systems has commenced with implementation due in the coming year and this will provide additional capability to accommodate business growth, engage customers through automation and access to asset information. $79.9 million Revenue [2015: $75.6 million] $2.0 million EBITDA [2015: $1.7 million] NB: Excludes Corporate Recharges Harvey Norman BSA | Maintain is delivering fire maintenance services to Harvey Norman sites around Australia. 10 BSA LIMITED ANNUAL REPORT 2016 BSA LIMITED ANNUAL REPORT 2016 11 MANAGING DIRECTOR’S REPORT BSA | Build $226.4 million Revenue [2015: $252.7 million] ($1.5 million) EBITDA LOSS [2015: profit $10.1 million] NB: Excludes Corporate Recharges Barangaroo - Is the largest commercial Fire Protection Contract delivered in Australia. BSA| Build | Fire is proud to be partners with Lend Lease and its Joint Venture partner Premier Fire on such a prestigious landmark site. BSA | Build (formerly known as Technical Design & Construction Projects or TDCP) During 2016, BSA | Build was streamlined and refocused to offer market leading design & construct solutions in Heating, Ventilation & Air Conditioning (HVAC) systems and Fire Protection systems in the major managers as part of the implementation of the turnaround strategy. All businesses within BSA | Build continued to establish and maintain their status as tier 1 solutions providers with end-to-end in-house capability in state capital cities across Australia. the Fire and HVAC sectors. Significant restructuring occurred during the year including the The new Royal Adelaide Hospital (nRAH) contract is now close to consolidation of the two HVAC businesses in Sydney, consolidation of substantial completion. The combination of complications with three fabrication sites into two, rationalisation within other areas and streamlining of the BSA | Build leadership team. The restructuring has impacted the EBITDA during the year with net one off costs of $2.4m commissioning, completion and project delays have led to significant one off unexpected additional costs on the project of $7.5m in FY2016. In addition significant legal costs were incurred relating to the resolution incurred during the period although these changes are expected to of commercial issues on the contract. lead to improved performance in future years. The senior management team was also strengthened through the external appointment of key BSA has previously advised the market about unapproved variations at nRAH and is still seeking to maximise its recovery of variations and 12 BSA LIMITED ANNUAL REPORT 2016costs under its contractual arrangements and is continuing to pursue cash reimbursement under Security of Payment legislation or through finalisation of all these matters through a commercial settlement. The ongoing redesign and re-embedding of key functional disciplines to facilitate enhanced project delivery, improved risk mitigation and improved margins are expected to start delivering tangible results in FY2017. In FY2016 BSA | Build delivered works on a large number of landmark projects in almost every state. Examples include: • • • The new Royal Adelaide Hospital (SA) Pacific Fair Shopping Centre Redevelopment (QLD) Eastland Shopping Centre Redevelopment (VIC) • Westfield Hurstville Shopping Centre (NSW) • • Barangaroo Towers (NSW) Capital Square (WA) • • • Melbourne Convention Centre expansion & upgrade (VIC) La Trobe University Donald Whitehead Building (VIC) Macarthur Square Stage 4 Western Mall Extension (NSW) • Williamtown NACC WE01 (Fire & HVAC) (NSW) • • • • • • • • Global Switch East Stage 2 / 3 (HVAC & Fire) (NSW) 100 Mount Street (NSW) Darling Square South West Plot (NSW) University of Canberra Private Hospital (NSW) Commonwealth Games Parklands (QLD) Jupiters Casino New Suite Hotel (QLD) Double Tree by Hilton (WA) Latitude at Leighton Beach (WA) • Whitford City Stage 1 (WA) As part of BSA | Build’s strategic plans, initiatives are underway to increase the business value proposition for customers by focussing FY2017 has seen BSA | Build commence with a healthy Forward Order Book of $175 million and a strong pipeline of opportunities across on advisory and consulting services. When implemented successfully, these will allow the business to further enhance its reputation as one of Australia. During FY 2016 the business unit was awarded projects worth Australia’s market leaders in HVAC and Fire systems, and will broaden more than $100m including: BSA’s service offering in the construction industry. LOOKING FORWARD As mentioned in the Chairman’s report, the market outlook for BSA’s DISCLOSING NON-IFRS FINANCIAL INFORMATION operational sectors remains good, and with the expected resolution of Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) key legacy issues, recent significant contract wins and solid pipelines across the Group, the outlook for FY2017 is positive. Management will continue to drive organic growth by building on the FY2016 success in business development and marketing programs. The business is also focusing on improving margins and diversification (Loss)/profit for the year from continuing Operations of service offerings to leverage existing client relationships. Add back On behalf of the BSA Board and myself I would like to thank the Income tax expense/(benefit) committed and talented BSA Team for their contributions in FY2016 and Finance costs I look forward to their continued support through FY2017. As always, the BSA Board has continued to provide a strong level of Interest revenue Depreciation support and guidance, and I extend my thanks to the BSA Chairman and Amortisation expense fellow Directors for their continued support and advice during the year. EBITDA Total Significant Items (note 8.5) EBITDA excluding Significant Items FY2016 A$’000 FY2015 A$’000 (2,219) 3,875 (795) 741 1,564 1,253 (96) (294) 5,029 6,362 1,440 1,440 4,100 14,200 14,534 18,634 4,199 18,399 Nicholas Yates Managing Director and Chief Executive Officer 29 August 2016 13 BSA LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT THE BOARD OF DIRECTORS PRESENTS ITS REPORT The Directors of BSA Limited (‘BSA’ or the ‘Company’) present their report on the Company and its subsidiaries for the financial year end 30 June 2016. THE BOARD OF DIRECTORS AS AT 30 JUNE 2016 A D B E C F A - MICHAEL GIVONI CHAIRMAN (NON-EXECUTIVE) D - MARK LOWE NON-EXECUTIVE DIRECTOR Mr Lowe was appointed as a Director of BSA on 1 August 2007 upon completion of the acquisition of the Triple ‘M’ Group. Mark brings a wealth of knowledge to the Company from his 30 years’ experience in the installation and maintenance of Air Conditioning and Fire Protection Services. He is a former Director of Construction Information Systems Limited (NATSPEC) and a former National President of the Air Conditioning Mechanical Contractors Association of Australia. Following his retirement from executive duties Mark was appointed a Non- Executive Director on 2 March 2012. Mr Givoni has had extensive executive experience in the business-to- business (B2B) areas of commerce. His particular area of expertise is in E - MAX COWLEY NON-EXECUTIVE DIRECTOR strategy, business development and mergers and acquisitions. Michael Mr Cowley practised as Principal of Chartered Accounting firm E has held senior executive roles in listed companies including Spotless M Cowley & Co for 47 years. His years of corporate and financial Group Ltd. Prior to his executive career, Michael was a partner in a experience are extensive. Max is a director of WIN Corporation Pty prominent Melbourne legal practice. Michael joined BSA as a Non-Executive Director on 23 March 2005 and was appointed as Chairman from 29 April 2015. He holds a number of other Non-Executive Director and Advisory Board roles in prominent privately owned businesses. B - NICHOLAS YATES MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER Ltd, Australia’s largest regional television network and has been involved with that organisation from its commencement and over the past 36 years. Max is a Director of a number of Private Companies. Having previously served on the Board of BSA from 2 May 2006 until 27 November 2012, Max was appointed as a Non-Executive Director on 14 April 2014. F - GRAEME BARCLAY NON-EXECUTIVE DIRECTOR Mr Yates graduated with a Bachelor of Engineering (Mechanical) from the University of Sydney and went on to forge an extensive career in the building services and facilities management industries. Commencing as a site engineer overseeing mechanical services Mr Barclay has extensive experience in executive leadership and strategic development in areas that brings valuable skills to the BSA board and company. Mr Barclay successfully led all aspects of a major telecommunications group for more than a decade in the role of Group installations, Nicholas then progressed through various management CEO with responsibility for financial performance, strategy, sales, corporate roles within Lend Lease and eventually moved on to become CEO of APP Corporation Pty Limited, Australia’s leading Construction Project Management consulting business. When APP was acquired by Transfield Services, Mr Yates moved into a series of leadership roles within Transfield Services, most recently Chief Executive Officer, development, international expansion, operations and capital structure. Mr Barclay also has senior executive level experience within investment banking and accounting businesses, with responsibilities including property investment banking, corporate finance and corporate restructuring. Infrastructure ANZ. Nicholas sits on the Boards of a number of private Mr Barclay is a member of the Australian Institute of Company Directors, a companies and was appointed Managing Director and Chief Executive Fellow of the Financial Services Institute of Australasia and is a Chartered Officer of BSA Limited on 13 March 2014. C - PAUL TEISSEIRE NON-EXECUTIVE DIRECTOR Mr Teisseire is a professional independent Non-Executive Director. He spent over 20 years in private practices as a corporate lawyer specialising in business and corporate law with a special interest in corporate governance. He is a Non-Executive Director of Drake Supermarkets Pty Ltd. Paul was appointed as a Non-Executive Director on 23 March 2005. Accountant in Scotland and Australia/NZ. Mr Barclay is currently a Director and Non-Executive Chairman of Nextgen Group Holdings Pty Ltd and a Non-Executive Director of Codan Limited. Graeme was appointed as a Non-Executive Director on 30 June 2015. Graeme is also a Non-Executive Director of Axicom Group Holdings Pty Limited. 14 BSA LIMITED ANNUAL REPORT 2016DIRECTOR INDEPENDENCE The Board considers three of BSA’s Directors independent, as defined under the guidelines of the ASX Corporate Governance Council, being: Michael Givoni, Paul Teisseire and Graeme Barclay. In assessing the independence of Directors, the Board follows the ASX guidelines as set out in the Corporate Governance Statement on the Company’s website. PERFORMANCE OF DIRECTORS In accordance with Principle 2.5 of the ASX Corporate Governance Principles and Recommendations, the Board conducts a review of the performance of its Directors and the Board’s function as a whole each year. The evaluation of Directors is carried out in accordance with the process established by the Board, led by the chairman of the Remuneration Committee. COMPANY SECRETARY The following person held the position of Company Secretary at the end of the financial year: Mr Graham Seppelt - Mr Seppelt has had extensive experience as a contract accountant and in corporate advisory roles. He is currently Company Secretary for Legend Corporation Limited, Australian Zircon NL and UXA Resources Limited. ENVIRONMENTAL REGULATION AND PERFORMANCE BSA was not subject to any particular or significant environmental regulations of the Commonwealth, individual states, or territories, during the financial year. CORPORATE GOVERNANCE BSA continued to follow best practice recommendations as set out by the ASX Corporate Governance Council. Where the Company has not followed best practice for any recommendation, explanation is given in the Corporate Governance Statement which is available on the Company’s web site at www.bsa.com.au/pages/about/corporate-governance.html REVIEW OF OPERATIONS Information relating to the operations of BSA including a description of principal activities, a review of operations, significant changes in activities Pacific Fair and affairs during the year and likely future developments and prospects can be found in the Chairman’s Report and Managing Director’s Report on pages 4 to 13. Jewel of Gold Coast shopping options, the picturesque Resort Area and high end tenancies located centrally within the recently completed Pacific Fair Redevelopment. BSA | Build delivered mechanical services for this project. 15 BSA LIMITED ANNUAL REPORT 2016DIRECTORS’ REPORT INFORMATION ON DIRECTORS As at 30 June 2016, the following information is provided in relation to Directors: Director Special Responsibilities Ordinary Share Options Share Rights Michael Givoni Non-Executive Director Chairman of Board Member of Remuneration Committee Member of Audit Committee Nicholas Yates Executive Director Managing Director Max Cowley Non-Executive Director Member of Remuneration Committee Member of Audit Committee Paul Teisseire Non-Executive Director Member of Remuneration Committee Chairman of Audit Committee Mark Lowe Non-Executive Director Member of Remuneration Committee Member of Audit Committee Graeme Barclay Non-Executive Director Chairman of Remuneration Committee Member of Audit Committee 636,400 Nil Nil 2,727,273 Nil 1,116,667 66,000,000* Nil Nil 680,012 Nil Nil 10,315,403 Nil Nil Nil Nil Nil *Max Cowley is a director of Birketu Pty Ltd which holds the 66,000,000 ordinary shares in BSA Limited. At the date of this Annual Report, there has been no change to the above directors’ interest in shares, rights or options. 16 BSA LIMITED ANNUAL REPORT 2016DIRECTORSHIPS HELD IN OTHER LISTED ENTITIES Period of Appointment Name of Company Position Held (Non-Executive or Executive Director) Michael Givoni Appointed 1 July 2002 The Venture Bank Limited Non-Executive Director Graeme Barclay Appointed 1 February 2015 Codan Limited Non-Executive Director REMUNERATION REPORT - AUDITED This remuneration report details the nature and amount of remuneration for each Key Management Person of BSA Limited. The Company’s policy for determining the nature and amount of emoluments of Board members and Senior Executives of the Company is as follows and is set out under the following main headings: A. Principles used to determine the nature and amount of remuneration Details of remuneration Service agreements Cash bonuses Share-based compensation B. C. D. E. The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. A PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results In consultation with external remuneration consultants, the Group has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the organisation. Alignment to shareholders’ interests: • • Has economic profit as a core component of plan design; Focuses on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant return on assets as well as focusing the executive on key non- financial drivers of value; and • Attracts and retains high calibre Executives. Alignment to program participants’ interests: • • • • Rewards capability and experience; Reflects competitive reward for contribution to growth in shareholder wealth; Provides a clear structure for earning rewards; and Provides recognition for contribution. The framework provides a mix of fixed and variable pay as well as a delivered. The framework aligns executive reward with achievement of blend of short and long-term incentives. As executives gain seniority strategic objectives, the creation of value for shareholders and conforms within the Group, the balance of this mix shifts to a higher proportion of to market practice for delivery of the reward. The Board ensures that at risk rewards. the executive reward satisfies the following key criteria for good reward governance practices: Competitiveness and reasonableness; Acceptability to shareholders; The Board has established a Remuneration Committee which provides advice on remuneration and incentive policies and practices, as well as specific recommendations on remuneration packages and other terms of employment for Executive Directors, other Senior Executives and Non-Executive Directors. The Corporate Governance Statement Performance linkage/alignment of Executive compensation; provides further information on the role of this committee. Transparency; and Capital management 17 • • • • • BSA LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT The table below sets out summary information about the consolidated entity’s earnings and movements in shareholder wealth for the five years to 30 June 2016: Revenue Net profit/(loss) before tax Net profit/(loss) after tax Share price at start of year Share price at end of year Interim Dividend 1 Final Dividend 2 Basic earnings per share Diluted earnings per share 30 June 2016 30 June 2015 30 June 2014 30 June 2013 30 June 2012 $543.7m $491.5m $474.2m $491.8m $511.9m ($3.0)m ($2.2)m $0.17 $0.245 $5.4m $3.9m $0.10 $0.165 ($61.3)m ($54.8)m $0.15 $0.10 $2.8m $3.8m $0.20 $0.15 0.00 cps 0.00 cps 0.00 cps 0.50 cps 0.00 cps 0.00 cps 0.00 cps 0.00 cps (0.52)cps (0.52)cps 1.11 cps (23.97) cps 1.10 cps (23.97) cps 1.64 cps 1.60 cps $8.2m $5.8m $0.20 $0.20 1.00 cps 1.00 cps 2.57 cps 2.51 cps 1 Franked to 100% at 30% corporate income tax rate. 2 Declared after the end of the reporting period and not reflected in the financial statements. Non-Executive Directors Fees and payments to Non-Executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. Non- • Long-term incentives through participation in the employee share scheme, employee option plan and performance rights plan. Executive Directors’ fees and payments are reviewed annually by The combination of these components comprises the Executive’s the Board. The Board has also considered the advice of independent total remuneration. remuneration consultants to ensure Non-Executive Directors’ fees and payments are appropriate and in line with the market. Base Pay The Chairman’s fees are determined independently to the fees of Non-Executive Directors based on the Director’s experience and comparative roles in the external market. The Chairman is not present Base pay is structured as a total employment cost package which may be delivered as a combination of cash and prescribed non-financial benefits at the Executives’ discretion. at any discussions relating to determination of his own remuneration. Executives are offered a competitive base pay that comprises the Directors’ fees fixed component of pay and rewards. Base pay for Senior Executives is reviewed annually to ensure the executive’s pay is competitive with the The current base remuneration for Directors was last reviewed on 26 market and meets the responsibilities of the position. An executive’s June 2012. Directors’ fees are inclusive of superannuation and include the pay is also reviewed on promotion. There are no guaranteed base pay requirement to sit on two or more Board committees for the duration of increases included in the Senior Executive terms of employment. their tenure. Directors are reimbursed actual expenses or paid a per diem allowance for attendance at the monthly meetings. Benefits Non-Executive Directors’ fees are determined within an aggregate Executives receive benefits including allowances. Directors’ fee pool limit, which is periodically recommended for approval Retirement benefits by shareholders. The maximum currently stands at $600,000 per annum and was last approved by shareholders at the Annual General Meeting (AGM) on 26 November 2007. The following fees have applied: All employees are eligible to participate in the Company’s default superannuation fund. With the change in legislation as at 1 July 2005, employees can now exercise choice as to where their superannuation Base fees including superannuation is paid. Chairman $170,829 Short-Term Incentives Other Non-Executive Directors $91,560 Retirement allowances for Directors Non-Executive Directors do not participate in any share or option incentive plan and there are no retirement schemes or retirement benefits other than statutory benefits for Non-Executive Directors Executive Pay Executive remuneration packages include a bonus based on a combination of the Company achieving a pre-determined profit target and the operational pre-determined target being met. Using a profit target ensures variable reward is only available when value has been created for shareholders and when profit is consistent with the business plan. Each Executive with operational responsibilities has a short-term The Executive pay and reward framework has three components: incentive (STI) depending on the accountabilities of the role and impact Base pay and benefits, including superannuation; Short-term performance incentives; and on organisation and business unit performance. The maximum target bonus opportunity is 30% of base salary. • • 18 BSA LIMITED ANNUAL REPORT 2016 For the year ended 30 June 2016, the targets linked to the STI plans terms of the Loan Agreement, lend to the Executive such amount as the were based on the group and individual business objectives. The Executive has applied for in the Loan Application. target achievement required performance in reducing operating cost, increasing revenue and overall increase in EBITDA. The Group targets are generic across the management team. The Remuneration Committee is responsible for assessing whether The maximum amount of any loan shall be the total subscription price for the shares applied for. No interest is payable by the Borrower under the Loan Agreement. the targets are met. Targets are set at the beginning of the year All shares are held in escrow until loans are fully repaid. An executive and are assessed semi-annually. Short-term bonus payments are shall not sell, mortgage, charge, assign or otherwise dispose of or adjusted up or down in line with under or over achievement against encumber any shares before payment or repayment of any amount target performance levels. Because short-term targets cover several outstanding to the Company in respect thereof. operational areas of the business as well as the overall Company target, STI may be paid when operational targets are achieved although the Company’s overall target may not be met. The STI target annual payment is reviewed annually. Options Subject to the above restriction and to the terms of the Loan Agreement (if any) deemed to be entered into by the executive, an executive shall from the Date of Allotment, be the absolute beneficial owner of the shares. Unless the Directors of the Company otherwise provide in the terms No options were exercised during the year ended 30 June 2016. of any invitation, all Plan Shares shall rank for dividends declared on No amounts are unpaid on any shares issued on the exercise of options. or after the Date of Allotment and shall in all respects rank equally with and have the same rights and entitlements as all other fully paid All options have expired as at 30 June 2016. ordinary shares of the Company. Employee share scheme A scheme under which shares were issued by the Company to employees for no cash consideration was ratified by shareholders at the 2004 AGM. Offers under the scheme are at the discretion of the Company. No offers were made to Directors of BSA Limited or other key management personnel of the Group during the year ended 30 June 2016. All permanent employees (including Executive Directors) who were Employee Performance Rights Plan continuously employed by the consolidated entity for a period of at least one year were eligible to participate in the scheme. Employees could elect not to participate in the scheme. Under the scheme, eligible employees were offered $1,000 worth of fully- paid ordinary shares in BSA Limited for the Year Ended 30 June 2004 for no cash consideration. The market value of shares issued under the At the AGM held on 25 November 2008, shareholders approved the introduction of the BSA Employee Performance Rights Plan. This incentive plan is designed to increase the motivation of eligible key staff and to create a stronger link between increasing shareholder value and employee reward. scheme, measured as the weighted average market price on the day of To achieve its corporate objectives, the Company needs to attract and issue of the shares, was recognised in the statement of financial position retain its key staff. The Board believes that awards made to selected as share capital and as part of employee benefit costs. eligible employees under the proposed plan will: Offers under the scheme are at the discretion of the Company. No offers were made to Directors of BSA Limited or other key management • Provide an incentive for the creation of, and focus on, shareholder wealth; personnel of the Group during the year ended 30 June 2016. • Enable the Company to recruit and retain the talented people Executives Securities Loan The establishment of the BSA Executive Securities Plan was approved by shareholders at the 2005 AGM. The plan was established as a mechanism to provide the Company’s key Executives with a direct equity involvement and incentive in the Company which aligns them with the shareholders. The number of securities to be offered and the time at which securities may be offered from time to time to Executives, and the price and terms of payment shall be determined by the Board in its discretion. The Board may, at such times as it determines, invite any Executive to be a member of the plan. If an Executive to whom an invitation has been issued forwards to the Company a duly completed Loan Application and the Transfer Documents together with his acceptance, and where appropriate his Application for Shares, then the Company shall, in accordance with the needed to achieve the Company’s business objectives; • Link the reward of key staff with the achievement of strategic goals and the performance of the Company; • Align the financial interests of participants in the plan with those of Company shareholders; and • Ensure the remuneration packages of employees are consistent with market practice. As part of the Company’s strategy, the Board wishes to be in a position to offer rights to acquire shares in the company to selected eligible employees who, in the opinion of the Board, are able by virtue of their skill and their application in performing their allocated tasks within the Company to improve shareholder wealth. The flexibility of the Plan rules will enable the Board to design grants that best meet the particular circumstances. 19 BSA LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT The Board is cognisant that long-term equity-based reward for key have a life terminating five (5) years after the grant date or such other staff should be linked to the achievement by the Company of testing date as determined by the Board. performance hurdles. The Board will prescribe the date when performance under the hurdle is Rights granted to certain Plan participants in each grant will be at measured for each tranche. zero vesting value and will be subject to the following performance conditions as determined by the Board: On or after the end of the final measurement period and provided any performance hurdle prescribed by the Board has been achieved (i) Service condition of two to three years; or and, where applicable, to the extent it has been achieved, the plan (ii) The Company’s performance as measured by earnings per participant may then acquire shares by exercising the rights. share (EPS), being the EPS for the relevant Measurement Period A right lapses if the vesting conditions are not met. as determined by the Board having regard to the financial statements. Certain growth in EPS for the shares must be attained in respect of each Measurement Period and pro-rata in There is no Board policy in relation to the person limiting exposure to risk in relation to the securities issued as part of the remuneration. respect of the initial Measurement Period and service condition There was no new issue of rights in the current year. of three years. The Company must achieve these performance conditions before the rights vest. B DETAILS OF REMUNERATION Once rights have been exercised by an eligible employee (subject to performance conditions being met), the Company may make non- refundable contributions to either fund the purchase of a new plan share, or to acquire on the ASX existing shares and transfer these to an Details of the remuneration of the Directors, the key management personnel of the Group (as defined in AASB 124 Related Party Disclosures) and specified executives of BSA and the BSA Group are set out in the following tables. eligible employee. The Key Management Personnel of the Group are the following: The specific terms of a particular grant, including any performance (i) Chairman - Non-Executive conditions, will be contained in the invitation and associated Michael Givoni documentation sent to the eligible employee. A right granted to a participant is not transferable and may not otherwise be dealt with, except with the Board’s approval, or by operation of law on death or legal incapacity. Rights to acquire shares will not be exercisable until the end of the final measurement period, and until those rights have satisfied all vesting conditions and all performance hurdles established by the Board. This is subject to a number of exceptions (including death, cessation of employment, takeovers and schemes of arrangement). The rights will have a specified life determined by the Board. All grants of rights will (ii) Executive Directors Nicholas Yates (iii) Non-Executive Directors Paul Teisseire Max Cowley Mark Lowe Graeme Barclay (iv) Chief Financial Officer Nicholas Benson 20 BSA LIMITED ANNUAL REPORT 2016 Key Management Personnel of the Company and the Group 2016 Short-term Benefits Long- term Post Employment Benefits Share-based payments Cash, Interest Unwind Long Name Fees Bonus Loans Superannuation Leave Benefits Rights Rights Total Related Salary & Cash on Service Termination Performance $ $ $ $ $ $ $ % $ % Non-Executive Directors Michael Givoni Paul Teisseire Max Cowley Mark Lowe Graeme Barclay 156,008 83,616 87,230 311,230 83,616 Sub-total 721,700 Non-Executive Directors Executive Directors - - - - - - - - - - - - 14,821 7,944 8,287 29,567 7,944 68,563 - - - - - - - - - - - - - - - - - - - - - - - 170,829 91,560 95,517 340,797 91,560 790,263 - - - - - Nicholas Yates 659,422 268,000 - 20,010 8,554 - - - 955,986 28.03 Other Key Management Personnel Chief Financial Officer Nicholas Benson 369,310 72,000 Total compensation 1,750,432 340,000 - - 26,537 5,155 115,110 13,709 - - - - - 473,002 15.22 2,219,251 * During FY2016 Mark Lowe was contracted to the company within the BSA | Build business unit, to assist in driving improved performance from the business unit. $224,000 of Mark Lowe’s remuneration relates to his role assisting BSA | Build during the year. 21 BSA LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT 2015 Short-term Benefits Cash, Interest Unwind Long- term Post Employment Benefits Long Share-based payments Name Fees Bonus Loans Superannuation Leave Benefits Rights Rights Total Related Salary & Cash on Service Termination Performance $ $ $ $ $ $ $ % $ % Non-Executive Directors Ross Johnston 131,162 (Retired 28 April 2015) Paul Teisseire Michael Givoni Max Cowley Mark Lowe * Graeme Barclay (Appointed 30 June 2015) 83,616 92,151 84,000 276,000 - - - - - - - - - - - - - 7,161 7,944 8,746 7,972 26,212 - Sub-total 666,929 - - 58,035 - - - - - - - - - - - - - - - - - - - - - - - - - 138,323 91,560 100,897 91,972 302,212 - - - - - - - - - 724,964 Non-Executive Directors Executive Directors Nicholas Yates 634,500 75,000 - 28,030 14,443 - 184,250 19.68 936,223 27.69 Other Key Management Personnel Chief Financial Officer Nicholas Benson 335,000 36,000 Total compensation 1,636,429 111,000 - - 25,000 7,051 - - - 403,051 8.93 111,065 21,494 - 184,250 2,064,238 * During FY2015 Mark Lowe was contracted to the company within the BSA | Build business unit, to assist in driving improved performance from the business unit. $192,000 of Mark Lowe’s remuneration relates to his role assisting BSA | Build during the year. 22 BSA LIMITED ANNUAL REPORT 2016 Rights holdings The numbers of rights over ordinary shares in the Company held during the financial year by each Director of BSA Limited and other Key Management Personnel of the Group, including their personally related parties, are set out below. Balance at Net Balance the start of Granted as Rights Change at End of Vested but Not Vested Vesting and During Rights 2016 the year Compensation Exercised Other Year Exercisable Exercisable Year Nicholas Yates 1,116,667 1,116,667 - - - - - 1,116,667 - 1,116,667 - - 1,116,667 1,116,667 1,116,667 1,116,667 Balance at Net Balance the start of Granted as Rights Change at End of Vested but Not Vested Vesting and During Rights 2015 the year Compensation Exercised Other Year Exercisable Exercisable Year Nicholas Yates - - 1,116,667 1,116,667 - - - - 1,116,667 1,116,667 - - - - - - Further details of schemes can be found in the Directors’ Report. Share holdings The numbers of shares in the Company held during the year by each Director of BSA Limited and other Key Management Personnel of the Group, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation. Balance at the start of Rights the year Exercised Other Changes During the Year Balance at the Balance End of the Year Held Nominally 2016 Directors of BSA Limited Ordinary Shares Mark Lowe Paul Teisseire Michael Givoni Graeme Barclay Nicholas Yates 10,115,403 680,012 636,400 - 2,727,273 Ordinary Shares - Escrowed Mark Lowe 200,000 Key Management Personnel Ordinary Shares Nicholas Benson 1,363,636 15,722,724 - - - - - - - - - - - - - - - 10,115,403 680,012 636,400 - 2,727,273 200,000 1,363,636 15,722,724 Max Cowley is a nominee director of Birketu Pty Ltd and is also a director of Birketu Pty Ltd. Birketu Pty Ltd holds shares in BSA Limited of 66,000,000 (2015: 66,000,000). Max Cowley has no beneficial interest in Birketu Pty Ltd. - - - - - - - - 23 BSA LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT 2015 the year Exercised During the Year End of the Year Held Nominally Balance at the start of Rights Other Changes Balance at the Balance Directors of BSA Limited Ordinary Shares Ross Johnston (Retired 28 April 2015) 1,209,315 Mark Lowe Paul Teisseire Michael Givoni Graeme Barclay Nicholas Yates 10,115,403 404,769 230,000 - - Ordinary Shares - Escrowed Mark Lowe 200,000 Key Management Personnel Ordinary Shares Nicholas Benson - - - - - - - - - ( 309,315) - 275,243 406,400 - 2,727,273 900,000 10,115,403 680,012 636,400 - 2,727,273 - 200,000 1,363,636 1,363,636 - - - - - - - - Performance Income as a Proportion of Total Remuneration Remuneration and other terms of employment for the Managing Executive Directors and executives are paid performance based bonuses based on set monetary figures, rather than proportions of their salary. This has led to the proportions of remuneration related to performance varying between individuals. The Remuneration Committee has set these bonuses to encourage achievement of specific goals that have been given a high level of importance to the future growth and profitability of Director and the other Key Management Personnel are also formalised in service agreements. Each of these agreements provide for the provision of performance-related cash bonuses, other benefits, car allowances, and participation, when eligible, in the BSA Limited Option Plan and the BSA Performance Rights Plan. Other major provisions of the agreements relating to remuneration are set out below. the consolidated Group. All contracts with Executives may be terminated early by either party The Remuneration Committee will review the performance bonuses with three to six months’ notice. to gauge their effectiveness against achievement of the set goals, D CASH BONUSES and adjust future years’ incentives as they see fit, to ensure use of the most cost effective and efficient methods. C SERVICE AGREEMENTS Bonuses vested as per the below table during the financial year ended 30 June 2016. Key management personnel and executives are also entitled to a short- On appointment to the Board, all Non-Executive Directors enter into term cash incentive based on performance criteria described in section a service agreement with the Company in the form of a letter of A to this Remuneration Report. Details of these FY2016 short-term appointment. The letter summarises the Board policies and terms, incentives recognised as remuneration, forfeited or available for vesting in including compensation, relevant to the office of Director. A copy of the future financial years is outlined below. letter can be found on BSA Limited’s website. Name Key Management Personnel (Group) Nicholas Yates Nicholas Benson Included in Remuneration % Vested in current year % Forfeited in current year 268,000 72,000 100 100 - - 24 BSA LIMITED ANNUAL REPORT 2016 E SHARE-BASED COMPENSATION Executives Securities Plan Set out below are summaries of securities held in escrow: Issue Price Balance at Start Granted During During the Year Based on Balance in Escrow at Released from Escrow Grant Date (cents) of the Year Consolidated and parent entity 13 Oct 2006 19 Jul 2007 11 Sep 2007 13 Sep 2007 14 Dec 2007 10 Feb 2009 Total Number 700,000 1,600,000 150,000 200,000 400,000 1,700,000 4,750,000 0.23 0.63 0.68 0.68 0.68 0.10 the Year Number Full Loan Repayment End of the Year Number Number - - - - - - - - - - - - - - 700,000 1,600,000 150,000 200,000 400,000 1,700,000 4,750,000 Employee Performance Rights Plan There were no Rights on issue to key management personnel under the plan at the end of the year. REMUNERATION CONSULTANTS During the year under review, the Board did not engage any remuneration consultants to review and make independent recommendations in relation to the long-term and short- term incentive programs available to specific Key Management Personnel and Executive Management and no payments were made during the year (2015: Nil) for that advice. End of Audited Remuneration Report 25 BSA LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT MEETINGS OF DIRECTORS The number of meetings of BSA’s Board of Directors and each Board committee held during the year ended 30 June 2016, and the number of meetings attended by each Director were: Board Meetings Audit Committee Meetings Remuneration Committee Meetings Meetings Held Meetings Held during Meetings Attended during tenure Meetings in FY2016 Attended tenure in FY2016 Meetings Attended Meetings Held during tenure in FY2016 Michael Givoni Nicholas Yates Graeme Barclay Max Cowley Paul Teisseire Mark Lowe 16 16 15 13 16 16 16 16 16 16 16 16 6 * 5 5 6 6 6 * 6 6 6 6 5 * 5 5 5 5 5 * 5 5 5 5 *Not a member of the relevant committee, but invited to attend the Audit Committee meetings RETIREMENT, ELECTION AND CONTINUATION IN OFFICE OF DIRECTORS RIGHTS As at the date of this report, the unissued ordinary shares of the Directors are subject to retirement by rotation and election by Company, under right, are as follows: shareholders at a general meeting. No Director, other than the Managing Director, may remain on the Board for more than three years without re-election. Where a Director is appointed during the year, the Director will hold office until the next Annual General Meeting (AGM), and then be eligible for election. Paul Teisseire and Max Cowley are the Directors who have been longest in office and who, being eligible, offer themselves for re-election at the 2016 Annual General Meeting. Grant Date Date of Expiry Exercise Price Number under Right Fair value at grant date Number under Option* Fair value at grant date 14 Nov 2011 14 Nov 2016 $0.00 621,000 $0.19 422,280 $0.19 25 Nov2014 25 Nov 2019 $0.00 1,116,667 $0.17 Nil 1,737,667 - 422,280 Nil - INDEMNIFYING OFFICERS OR AUDITORS During the year, the Company paid a premium for a contract insuring all Directors, secretaries, Executive officers and officers of the Company, and of each related body corporate of the Company. The insurance does not provide cover for the independent auditors of the During the year ended 30 June 2016, 454,000 rights and 308,720 options granted under the BSA Limited Employee Performance Rights Plan were cancelled because vesting conditions were not met. No further shares have been issued since that date. No amounts are unpaid on any of the shares. Company, or of a related body corporate of the Company. No person entitled to exercise the right had, or has, any right by virtue of the right to participate in any share issue of any other body corporate. In accordance with usual commercial practice, the insurance contract prohibits disclosure of details of the nature of the liabilities covered by the insurance, the limit of indemnity and the amount of the premium paid under the contract. No liability has arisen under this indemnity as at the date of this report. OPTIONS As at the date of this report, there were no unissued ordinary shares of the Company under option. During the year ended 30 June 2016, no ordinary shares of the Company were issued on the exercise of options granted under the BSA Limited Employee Option Plan. No further shares have been issued since that date. No amounts are unpaid on any of the shares. 26 BSA LIMITED ANNUAL REPORT 2016484 St Kilda Road BSA successfully completed a NABERS central plant upgrade to a 30 year old plant with the latest energy efficient variable speed plant and equipment. PROCEEDINGS ON BEHALF OF THE COMPANY AUDITORS’ REMUNERATION No person has applied to the court under section 237 of the Corporations Act 2001 (Cth) for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the 2016 $ 2015 $ Company for all, or part, of those proceedings. Amounts due for the financial year to Deloitte Touche Tohmatsu for: No proceedings have been brought or intervened on behalf of the Company with leave of the court under section 237 of the Corporations Act 2001 (Cth). Auditing or reviewing the financial report 337,461 427,798 Taxation services Other non-audit services 152,426 200,071 12,333 12,250 NON AUDIT SERVICES AUDITORS INDEPENDENCE DECLARATION The Company may decide to employ the auditor on assignments The lead auditors’ independence declaration for the year ended 30 June additional to their statutory audit duties where the auditor’s expertise 2016 as required under section 307c of the Corporations Act 2001 (Cth) and experience with the Company and/or Group are important. has been received and can be found on page 29 of this report. Details of the amounts paid or payable to the auditor (Deloitte Touche Tohmatsu) for audit and non-audit services during the year ROUNDING OF AMOUNTS are set out below. The company is a company of the kind referred to in ASIC Corporations The Board of Directors has considered the position and in accordance (Rounding in Financials/Directors’ Reports) Instrument 2016/191, dated with the advice received from the Audit Committee, is satisfied that 24 March 2016, and in accordance with that Corporations Instrument the provision of non-audit services by the auditor, as set out below, amounts in the directors’ report and the financial statements are did not compromise the auditor independence requirements of the rounded off to the nearest thousand dollars, unless otherwise indicated. Corporations Act 2001 (Cth) for the following reasons: All non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality and objectivity of the auditor; and None of the services undermine the general principles relating to auditor independence as set out in Professional Statement APES 110 Code of Ethics for Professional Accountants, including reviewing or auditing the auditors own work, acting in a management or a decision making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. Signed in accordance with a resolution of the Board of Directors. Michael Givoni Chairman 29 August 2016 27 BSA LIMITED ANNUAL REPORT 2016Capital Square T1 30 Level Premium Grade Office Tower, 5 Star Green Star and 5 Star NABERS, proposed Woodside new headquarters 28 BSA LIMITED ANNUAL REPORT 2016AUDITOR’S INDEPENDENCE DECLARATION 29 BSA LIMITED ANNUAL REPORT 2016FINANCIAL REPORT BSA LIMITED ABN 50 088 412 748 31 — Consolidated Statement of Profit or Loss and Other Comprehensive Income 32 — Consolidated Statement of Financial Position 33 — Consolidated Statement of Changes in Equity 34 — Consolidated Statement of Cash Flows 35 — Notes to the Financial Statements 89 — Directors’ Declaration 90 — Independent Auditor’s Report 92 — Shareholder Information 30 BSA LIMITED ANNUAL REPORT 2016CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016 Revenue Investment revenue Other gains and losses Share of (losses)/profits of joint venture Changes in inventories of finished goods and work in progress Subcontractor and raw materials used Employee benefits expense Depreciation expenses Amortisation expenses Occupancy expenses Finance costs Other expenses (Loss)/profit before tax Income tax benefit/(expense) (Loss)/profit for the year Other comprehensive income for the year, net of tax Items that may be reclassified subsequently to profit or loss: Net gain recognised on cash flow hedges Total comprehensive income for the year, net of tax Earnings per share for profit from continuing operations: Basic (loss) earnings per share Diluted (loss) earnings per share Note 5 6 7 20 8.4 8.3 8.3 8.2 37 9.1 2016 $’000 511,856 96 120 (277) (1,969) (426,675) (46,931) (5,029) (1,440) (6,816) (741) (25,208) Consolidated 2015 $’000 543,693 294 77 94 4 (455,844) (44,448) (6,362) (1,440) (6,375) (1,253) (23,001) (3,014) 5,439 795 (1,564) (2,219) 3,875 - (2,219) 6 3,881 12 12 (0.52) cents (0.52) cents 1.11 cents 1.10 cents The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. 31 BSA LIMITED ANNUAL REPORT 2016CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Tax assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Investment in Joint Venture Other financial assets Property, plant & equipment Deferred tax assets Goodwill Other intangible assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Borrowings Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Borrowings Provisions Investment in Joint Venture TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued Capital Reserves Accumulated losses Profit Reserve TOTAL EQUITY Note 13 14 15 9.2 14 20 19 16 9.3 17 18 23 24 25 24 25 20 26 27 27 27 (a) (b) (c) 2016 $’000 21,490 77,795 2,731 - 102,016 1,957 - 3 7,723 7,795 15,185 3,152 35,815 137,831 70,593 1,895 21,684 94,172 1,094 1,052 17 2,163 96,335 41,496 97,592 1,410 (65,243) 7,737 41,496 Consolidated 2015 $’000 27,066 70,351 4,700 - 102,117 1,511 260 3 10,741 7,000 15,185 4,592 39,292 141,409 70,162 6,416 17,173 93,751 2,300 1,643 - 3,943 97,694 43,715 97,592 1,410 (63,024) 7,737 43,715 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 32 BSA LIMITED ANNUAL REPORT 2016 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016 Share-based Payment Cash Flow Reserve Hedge Reserve $’000 $’000 Issued Accumulated Capital $’000 Losses $’000 77,797 (63,024) - - - 21,345 (1,550) - - 97,592 - - - - - - - - - - - (63,024) (2,219) - (2,219) - - Profit Reserve $’000 3,862 3,875 - 3,875 - - - 1,301 - - - - 167 (58) 7,737 1,410 - - - - - - - - - - 97,592 (65,243) 7,737 1,410 (6) - 6 6 - - - - - - - - - - Balance at 1 July 2014 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Shares issued during period Share issue costs Share-based payment expense Shares issued in satisfaction of performance conditions Balance at 30 June 2015 Loss for the year Other comprehensive income for the year Total comprehensive income for the year Share-based payment expense Shares issued in satisfaction of performance conditions Balance at 30 June 2016 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. Consolidated Total $’000 19,930 3,875 6 3,881 21,345 (1,550) 167 (58) 43,715 (2,219) - (2,219) - - 41,496 33 BSA LIMITED ANNUAL REPORT 2016CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016 Note Cash Flows From Operating Activities: Cash receipts from customers Payments to suppliers and employees Interest received Interest and other costs of finance paid Income tax received Net cash generated by operating activities 30 (a) Cash Flows from Investing Activities: Proceeds from disposal of property, plant and equipment Payment for plant and equipment Net cash used in investing activities Cash Flows From Financing Activities: Proceeds from issue of shares Payment for shares issued for vesting rights Proceeds from borrowings Repayment of borrowings Payment of finance lease liabilities Share issue costs paid Net cash (used in)/generated by financing activities Net (decrease)/increase in cash Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 13 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 2016 $’000 557,462 (554,781) 96 (741) - 2,036 188 (1,406) (1,218) - - 3,513 (8,329) (1,578) - (6,394) (5,576) 27,066 21,490 Consolidated 2015 $’000 612,309 (593,011) 102 (1,253) 1,483 19,630 76 (1,637) (1,561) 21,345 (58) - (13,586) (2,451) (1,550) 3,700 21,769 5,297 27,066 34 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 1 GENERAL INFORMATION BSA Limited (the Company) is a limited company incorporated in Australia. The address of its registered office and principal places of business are disclosed in the Corporate Directory at the end of the Annual Report. The principal activities of the Company and its subsidiaries (the Group) are described in note 29. NOTE 2 APPLICATION OF NEW AND REVISED ACCOUNTING STANDARDS 2.1 Amendments to AASBs and the new Interpretation that are mandatorily effective for the current year In the current year, the Group has applied the following amendment to AASBs and a new Interpretation issued by the Australian Accounting Standards Board (AASB) that is mandatorily effective for an accounting period that begins on or after 1 July 2015, and therefore relevant for the current year end. AASB 2015-3 ‘Amendments to Australian Accounting arising from the This amendment completes the withdrawal of references to AASB 1031 in all Withdrawal of AASB 1031 Materiality’ Australian Accounting Standards and Interpretations, allowing that Standard to effectively be withdrawn. 2.2 Standards and Interpretations on issue not yet adopted As at the date of authorisation of the financial statements, the Standards and Interpretations that were issued but not yet effective are listed below. Standard/Interpretation AASB 9 ‘Financial Instruments’, and the relevant amending standards AASB 15 ‘Revenue from Contracts with Customers’ Effective for annual Expected to be reporting periods initially applied in the beginning on or after financial year ending 1 January 2018 30 June 2019 1 January 2018 30 June 2019 AASB 2014-3 ‘Amendments to Australian Accounting Standards – Accounting for Acquisitions of 1 January 2016 30 June 2017 Interests in Joint Operations’ AASB 2014-4 ‘Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of 1 January 2016 30 June 2017 Depreciation and Amortisation’ AASB 2014-9 ‘Amendments to Australian Accounting Standards – Equity Method in Separate Financial 1 January 2016 30 June 2017 Statements’ AASB 2014-10 ‘Amendments to Australian Accounting Standards – Sale or Contribution of Assets 1 January 2016 30 June 2017 between an Investor and its Associate or Joint Venture’ AASB 2015-1 ‘Amendments to Australian Accounting Standards – Annual Improvements to Australian 1 January 2016 30 June 2017 Accounting Standards 2012-2014 Cycle’ AASB 2015-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to 1 January 2016 30 June 2017 AASB 101’ AASB 16 ‘Leases’ 1 January 2019 30 June 2020 AASB 2016-1 ‘Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for 1 January 2017 30 June 2018 Unrealised Losses’ AASB 2016-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to 1 January 2017 30 June 2018 AASB 107’ At the date of authorisation of the financial statements, the following IASB Standards and IFRIC Interpretations were also in issue but not yet effective, although Australian equivalent Standards and Interpretations have not yet been issued. Classification and measurement of Share-based Payment Transactions (Amendment to AASB 2) 1 January 2018 30 June 2019 Management is currently assessing the impact, if any, of the adoption of the above Standards and Interpretations that were issued but not yet effective on BSA. 35 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES 3.1 Statement of compliance These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and comply with other requirements of the law. The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing consolidated financial statements, the Company is a for-profit entity. Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the Company and the Group comply with International Financial Reporting Standards (‘IFRS’). The financial statements were authorised for issue by the Directors on 29 August 2016. 3.2 Basis of preparation The consolidated financial statements have been prepared on the basis of historical cost, except for certain financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. All amounts are presented in Australian dollars, unless otherwise noted. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of AASB 2, leasing transactions that are within the scope of AASB 117, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in AASB 102 ‘Inventories’ or value in use in AASB 136 ‘Impairment of Assets’. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1,2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; • Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and • Level 3 inputs are unobservable inputs for the asset or liability. The Company is a company of the kind referred to in ASIC Corporations Instrument 2016/191, dated 24 March 2016, and in accordance with that Class Order amounts in the Financial Report are rounded off to the nearest thousand dollars, unless otherwise indicated. 36 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.3 Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company: • has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including: • the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; • potential voting rights held by the Company, other vote holders or other parties; • rights arising from other contractual arrangements; and • any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non- controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. The parent entity carries it’s investment in subsidiaries at cost less impairment (if any). 37 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.4 Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant Standards. Changes in the fair value of contingent consideration classified as equity are not recognised. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: • Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements, are recognised and measured in accordance with AASB 112 Income Taxes and AASB 119 Employee Benefits respectively; • Liabilities or equity instruments related to share-based payment arrangements of the acquiree, or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree, are measured in accordance with AASB 2 ‘Share-based Payment’ at the acquisition date; and • Assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 Noncurrent Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’ s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another Standard. Where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with AASB 139, or AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’, as appropriate, with the corresponding gain or loss being recognised in profit or loss. Where a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. 38 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.5 Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of the acquisition of the business (see 3.4 above) less accumulated impairment losses, if any. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. 3.6 Interests in Joint Arrangements Under AASB 11, there are only two types of joint arrangements, joint operations and joint ventures. The classification of joint arrangements under AASB 11 is determined based on the rights and obligations of parties to the joint arrangements by considering the structure, the legal form of the arrangements, the contractual terms agreed by the parties to the arrangement, and, when relevant, other facts and circumstances. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint venturers) have rights to the net assets of the arrangement. The Group’s Investments in joint ventures are accounted for using the equity method. Under the equity method, an investment in a joint venture is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the joint venture. Investments in joint operations are accounted for such that each joint operator recognises its assets (including its share of any assets jointly held), its liabilities (including its share of any liabilities incurred jointly), its revenue (including its share of revenue from the sale of the output by the joint operation) and its expenses (including its share of any expenses incurred jointly). The Group accounts for the assets and liabilities, as well as revenues and expenses, relating to its interest in the joint operation in accordance with the applicable Standards. 3.7 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. 3.7.1 Sale of goods • Revenue from the sale of goods is recognised when the goods are delivered and title has passed, at which time all the following conditions are satisfied: • The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; • The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; • The amount of revenue can be measured reliably; • It is probable that the economic benefits associated with the transaction will flow to the Group; and • The costs incurred or to be incurred in respect of the transaction can be measured reliably. 39 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.7.2 Rendering of services Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract. The stage of completion of the contract is determined as follows: • Installation fees are recognised by reference to the stage of completion of the installation, determined as the proportion of the total time expected to install that has elapsed at the end of the reporting period; • Servicing fees included in the price of products sold are recognised by reference to the proportion of the total cost of providing the servicing for the product sold; and • Revenue from time and material contracts is recognised at the contractual rates as labour hours are delivered and direct expenses are incurred. The Group’s policy for recognition of revenue from construction contracts is described at 3.8 below 3.7.3 Dividend and interest income Dividend income from investments is recognised when the shareholder’s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably). Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition. 3.8 Construction contracts and work in progress Construction contract revenue is recognised by reference to the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of contract revenue for work performed to date relative to the estimated total contract value. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably and its receipt is considered probable. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is shown as amounts due from customers for contract work. For contracts where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is shown as the amounts due to customers for contract work. Amounts received before the related work is performed are included in the consolidated statement of financial position, as a liability, as advances received. Amounts billed for work performed but not yet paid by the customer are included in the consolidated statement of financial position under trade and other receivables. 3.9 Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 3.9.1 The Group as lessee Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs (see 3.10 below). Contingent rentals are recognised as expenses in the periods in which they are incurred. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 40 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.10 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 3.11 Employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably. Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of long-term employee benefits are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. 3.12 Share-based payments Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 31. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service 3.13 Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. 3.13.1 Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the Consolidated Statement of Profit or Loss and Other Comprehensive Income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. 41 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.13.2 Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 3.13.3 Current and deferred tax for the year Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax are also recognized in other comprehensive income or directly in equity. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. 3.13.4 Tax consolidation The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 1 August 2007 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is BSA Limited. The members of the tax-consolidated group are identified in note 19. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities and assets and deferred tax assets arising from un-used tax losses and relevant tax credits of the members of the tax- consolidated group are recognised by the Company (as head entity in the tax-consolidated group). Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable to or received by the Company and each member of the Group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group in accordance with the arrangement. 42 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.14 Property, plant and equipment Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the Consolidated Statement of Financial Position at cost. Depreciation on buildings is recognised in profit or loss. Freehold land is not depreciated. Fixtures and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is recognised so as to write off the cost (other than freehold land) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. 3.15 Intangible assets 3.15.1 Intangible assets acquired separately Intangible assets with finite lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses. 3.15.2 Intangible assets acquired in a business combination Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. The following intangible assets were recognised separately from goodwill acquired during business combinations: - - Customer relationships acquired during a business combination which were assessed to have a useful life of 9 years Backlog of orders acquired during business combinations which were assessed to have useful lives of 1 to 9.5 years. 43 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.16 Impairment of tangible and intangible assets excluding goodwill At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). 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. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash- generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. 3.17 Inventories Inventories are stated at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories by the method most appropriate to the particular class of inventory, with the majority being valued on the basis of weighted average cost. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. 3.18 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material). When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. 3.18.1 Warranties Provisions for the expected cost of warranty obligations under construction contracts are recognised at the Directors’ best estimate of the expenditure required to settle the Group’s obligation. 3.18.2 Make Good Provisions for the estimated cost of work to comply with make good provisions in certain Group property leases are recognised at the Directors’ best estimate of the expenditure to settle the Group’s obligation. 44 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.19 Financial Assets Financial assets are classified into the specified category of ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. 3.19.1 Effective Interest Method The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. Income is recognised on an effective interest basis for debt instruments. 3.19.2 Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. 3.19.3 Impairment of financial assets Financial assets, other than those at Fair Value Through Profit or Loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 30 days, as well as observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. 3.20 Financial liabilities and equity instruments issued by the Group 3.20.1 Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. 3.20.2 Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. 3.20.3 Financial Liabilities Financial liabilities are classified as ‘other financial liabilities’. 45 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.20.4 Other Financial Liabilities Other financial liabilities, including borrowings and trade and other payables, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying on initial recognition. 3.21 Derivative financial instruments From time to time the Group enters into a variety of derivative financial instruments to manage its exposure to interest rate risk, including interest rate swaps. Further details of derivative financial instruments are disclosed in note 35. Derivatives are initially recognised at fair value at the date the derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. 3.21.1 Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the ‘other gains and losses’ line item. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognised in profit or loss, in the same line of the Consolidated Statement of Profit or Loss and Other Comprehensive Income as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability. Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss accumulated in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss. 3.22 Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: i. Where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or ii. For receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified within operating cash flows. 46 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 4 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group’s accounting policies, which are described in note 3, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. 4.1 Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. 4.1.1 Contracts - estimates to complete Construction contracts are accounted for as per 3.8. Inherent in the assessment of profitability of each contract is the estimate to complete. This estimate requires the Directors to assess the conduct of the contract to date and the expected cost to complete the contract. In addition, where appropriate, Management and the Directors assess the probability of recovery of variations within the contract estimates. 4.1.2 Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. The carrying amount of goodwill at 30 June 2016 was $15,185,000 (30 June 2015: $15,185,000). See note 17 for details. 4.1.3 Payroll Tax Liability BSA has previously advised the market about a possible payroll-tax related liability with the NSW Office of State Revenue (OSR). BSA has continued, along with our legal representatives to constructively work with the OSR to ensure an equitable and timely conclusion to this matter. BSA has a provision in its FY2016 accounts of $2,736,000 (FY2015 $2,000,000) and at this time there is no further information that would suggest this provision should be changed. See Note 25 for details 47 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 5 REVENUE The following is an analysis of the Group's revenue from continuing operations (excluding investment revenue - see note 6). Revenue from sale of goods Revenue from the rendering of services Contract revenue Total Revenue NOTE 6 INVESTMENT REVENUE Interest revenue Bank deposits Other loans and receivables The following is an analysis of investment revenue earned on financial assets by category of asset: Loans and receivables (including cash and bank balances) NOTE 7 OTHER GAINS AND LOSSES Continuing operations Gain on disposal of property, plant and equipment 48 2016 $’000 Consolidated 2015 $’000 21,969 183,715 306,172 24,641 190,764 328,288 511,856 543,693 2016 $’000 Consolidated 2015 $’000 96 - 96 96 96 2016 $’000 120 120 152 142 294 294 294 Consolidated 2015 $’000 77 77 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 8 (LOSS)/ PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS (Loss)/Profit for the year from continuing operations has been arrived at after charging/(crediting): 8.1 Cost of sales 8.2 Finance costs Interest on bank overdrafts and loans Total finance costs 8.3 Depreciation and amortisation expense Depreciation of property, plant and equipment Amortisation of intangible assets Total depreciation and amortisation expense 8.4 Employee benefits expense Post employment benefits Superannuation Share-based payments (see note 31(d)) Equity-settled share-based payments Termination benefits Other employee benefits 2016 $’000 Consolidated 2015 $’000 428,644 455,840 741 741 5,029 1,440 6,469 1,253 1,253 6,362 1,440 7,802 10,107 10,107 - 167 1,877 34,947 - 34,174 Total employee benefits expense 46,931 44,448 8.5 Significant Items Non-recurring key project provisions, releases and write downs Restructure costs nRAH completion and commissioning costs Other contract one-off items Legal costs relating to legacy issues Additional provision for NSW OSR issue i) Other significant items - 3,267 7,514 385 3,493 736 (861) 3,044 269 - 886 - - - Total significant items ii) 14,534 4,199 i) Following on from continued progress relating to the NSW OSR issue, a further provision of $736,000 was taken in the FY2016 results. ii) $14,534,000 (2015: $4,199,000) is included in the following categories in the Consolidated Statement of Profit or Loss and Other Comprehensive Income, ‘Subcontractors and raw materials’ ($12,847,000) (2015: $4,680,000), ‘Employee benefits expense’ ($1,197,000), ‘Other expenses’ ($398,000) (2015: -$481,000), ‘Finance costs’ ($11,000) and ‘Depreciation expense’ ($81,000). 49 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 9 INCOME TAXES 9.1 Income tax recognised in profit or loss Current tax In respect of the current year In respect of prior years Deferred tax In respect of the current year 2016 $’000 Note Consolidated 2015 $’000 - - - (795) (795) - - - 1,564 1,564 1,564 Total income tax (benefit)/expense recognised in the current year relating to continuing operations (795) The benefit for the year can be reconciled to the accounting (loss)/profit as follows: (Loss)/Profit from continuing operations (3,014) 5,439 Income tax expense calculated at 30% Adjusted for: Non-deductible expenses Research and development allowance Adjustments recognised in the current year in relation to the current tax of prior years Other (904) 138 - (766) (29) (29) 1,632 24 (110) 1,546 18 18 Total income tax (benefit)/expense recognised in the current year relating to continuing operations (795) 1,564 The tax rate used for the 2016 and 2015 reconciliations above is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. 9.2 Current tax assets and liabilities Current tax assets Tax refund receivable 50 - - - - BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 9 INCOME TAXES (CONTINUED) 9.3 Deferred tax balances 2016 Temporary differences Finance leases Intangible assets Employee benefits Provisions Doubtful debts Tax loss carried forward 2015 Temporary differences Finance leases Intangible assets Employee benefits Provisions Doubtful debts Tax loss carried forward Deferred tax balances are presented in the Statement of Financial Position as follows: Deferred tax assets Deferred tax liabilities Opening balance Recognised in profit or loss Closing balance (146) (1,378) 3,525 2,800 758 1,441 7,000 53 433 (256) 1,294 (216) (513) 795 (93) (945) 3,269 4,094 542 928 7,795 Opening balance Recognised in profit or loss Closing balance (66) (1,810) 3,287 3,576 1,098 2,479 8,564 (80) 432 238 (776) (340) (1,038) (1,564) (146) (1,378) 3,525 2,800 758 1,441 7,000 30/06/2016 30/06/2015 $’000 $’000 7,795 - 7,795 7,000 - 7,000 51 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 9 INCOME TAXES (CONTINUED) 9.4 Tax consolidation Relevance of tax consolidation to the Group The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 1 August 2007 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is BSA Limited. The members of the tax- consolidated group are identified in note 19. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the 'separate taxpayer within group' approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities and assets and deferred tax assets arising from un-used tax losses and relevant tax credits of the members of the tax-consolidated group are recognised by the Company (as head entity in the tax-consolidated group). Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable to or received by the Company and each member of the Group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group in accordance with the arrangement. NOTE 10 KEY MANAGEMENT PERSONNEL The aggregate compensation made to Directors and other Key Management Personnel of the Company and the Group is set out below: Compensation Short-term employee benefits Post-employment benefits Other long-term benefits Share-based payments 2016 $ Consolidated 2015 $ 2,090,432 115,110 13,709 - 1,747,429 111,065 21,494 184,250 2,219,251 2,064,238 Further information regarding the identity of key management personnel and their compensation can be found in the Audited Remuneration Report contained in the Directors’ Report on pages 17 to 25 of this Annual Report. 52 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 11 AUDITORS’ REMUNERATION Remuneration of the auditor of the Group for: - Auditing or reviewing the Financial Report - Taxation services - Other non-audit services The auditor of BSA Limited is Deloitte Touche Tohmatsu. NOTE 12 EARNINGS PER SHARE Basic (loss)/profit per share Diluted (loss)/profit per share (a) Reconciliation of Earnings to Profit (Loss)/Profit (Loss)/Profit used to calculate basic EPS and dilutive EPS 2016 $ 337,461 152,426 12,333 Consolidated 2015 $ 427,798 200,071 12,250 502,220 640,119 2016 Cents (0.52) (0.52) Consolidated 2015 Cents 1.11 1.10 $’000 $’000 (2,219) (2,219) 3,875 3,875 Number Number (b) Weighted average number of ordinary shares outstanding during 422,907,346 350,446,030 the year used in calculating basic EPS Weighted average number of options/rights outstanding - 2,564,796 Weighted average number of ordinary shares outstanding during the year used in calculating diluted EPS 422,907,346 353,010,826 (c) Information concerning the classification of securities Options/Rights Options granted to employees under the BSA Limited Employee Option Plan and rights granted to employees under the BSA Limited Employees Performance Rights Plan are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The options/rights have not been included in the determination of basic earnings per share. Details relating to the options and rights are set out in note 31. 53 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 13 CASH AND CASH EQUIVALENTS For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents include cash on hand and in banks. Cash at bank and on hand NOTE 14 TRADE AND OTHER RECEIVABLES CURRENT Trade receivables Allowance for doubtful debts Other receivables Executive Share Plan receivables Amounts due from customers under construction contracts Allowance for doubtful debts (construction contracts) Contract Retentions Accrued Revenue Prepayments NON-CURRENT Executive Share Plan receivables Other Receivables Trade receivables 2016 $’000 21,490 21,490 2016 $’000 5,381 (206) 5,175 1,408 1,328 56,115 (947) 7 13,332 1,377 72,620 Consolidated 2015 $’000 27,066 27,066 Consolidated 2015 $’000 8,908 (382) 8,526 1,142 194 49,200 (886) 65 11,242 868 61,825 77,795 70,351 313 1,644 1,957 1,511 - 1,511 Note 33 (c) 21 33(c) Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost. The average credit period for the Group is 44 days. No interest is charged on overdue receivables. Allowances for doubtful debts are recognised against trade receivables greater than 60 days based on estimated irrecoverable amounts determined by reference to past default experience of the counterparty. Before accepting a new customer, the Group uses an external credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer. 54 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 14 TRADE AND OTHER RECEIVABLES (CONTINUED) Age analysis of trade receivables that are past due but not impaired at the reporting date Not past due Past due [30] days Past due [30-60] days Past due [60-90] days Past due [>90] days Total Total $’000 4,206 633 223 155 164 5,381 Amounts due from customers under construction contracts 2016 Amount Amount Not Impaired Impaired $’000 4,206 633 223 10 103 5,175 $’000 - - - 145 61 206 2016 Not past due Past due [30] days Past due [30-60] days Past due [60-90] days Past due [>90] days Total Total $’000 40,889 6,518 2,515 1,661 4,532 56,115 Amount Amount Not Impaired Impaired $’000 - - - - 947 947 $’000 40,889 6,518 2,515 1,661 3,585 55,168 Consolidated 2015 Amount Amount Not Impaired Impaired $’000 5,012 3,103 165 - 246 8,526 Consolidated $’000 - 3 - 68 311 382 2015 Amount Amount Not Impaired Impaired $’000 - - - - 886 886 $’000 36,814 6,538 2,211 1,092 1,659 48,314 Total $’000 5,012 3,106 165 68 557 8,908 Total $’000 36,814 6,538 2,211 1,092 2,545 49,200 As at 30 June 2016, the Group had current trade receivables of $1,153,000 (2015: $1,268,000) that were impaired. The amounts relate to customers who had not responded to final request for payment notices, customers that BSA had requested external collection agencies to collect outstanding debts or customers who have disputed invoiced amounts. Analysis of Allowance Account Opening Balance Provisions for doubtful receivables current Receivables written off during the year Reversal of amounts provided Closing balance NOTE 15 INVENTORIES CURRENT Inventories of finished goods and work in progress at net realisable value Consolidated 2015 $’000 3,218 2,094 (1,415) (2,629) 1,268 Consolidated 2015 $’000 4,700 4,700 2016 $’000 1,268 474 (589) - 1,153 2016 $’000 2,731 2,731 The cost of inventories recognised as an expense includes $395,000 (2015: $324,000) in respect of write-down of inventory to net realisable value. 55 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 16 PROPERTY, PLANT AND EQUIPMENT Plant & Equipment Under Finance Leasehold Plant & Lease & Hire Land Buildings Improvements Equipment Purchase $’000 $’000 $’000 $’000 $’000 Make Good $'000 Total $’000 Cost Balance as at 1 July 2014 253 410 Additions Disposals Transfers * - - - - - - 3,186 37 - - 29,109 10,603 234 43,795 1,601 (385) 32 629 (96) (32) 17 - - 2,284 (481) - Balance as at 30 June 2015 253 410 3,223 30,357 11,104 251 45,598 Additions Disposals Transfers * - - - - - - 7 - - 1,401 (479) 94 659 (361) (94) 12 - - 2,079 (840) - Balance as at 30 June 2016 253 410 3,230 31,373 11,308 263 46,837 Accumulated depreciation and impairment Balance as at 1 July 2014 Additions Disposals Transfers Balance as at 30 June 2015 Additions Disposals Transfers * Balance as at 30 June 2016 Net Book Value as at 30 June 2016 Net Book Value as at 30 June 2015 * Transfers between categories - - - - - - - - - 253 253 39 16 - - 55 17 - - 72 338 355 1,701 575 - - 21,171 3,922 (385) 19 5,918 1,767 (96) (19) 147 82 - - 28,976 6,362 (481) - 2,276 24,727 7,570 229 34,857 477 - - 3,111 (442) 82 2,753 27,478 477 947 3,895 5,630 1,390 (330) (82) 8,548 2,760 3,534 34 - - 263 - 22 5,029 (772) - 39,114 7,723 10,741 16.1 The following useful lives are used in the calculation of depreciation: Buildings Leasehold improvements Plant and equipment Plant and equipment under finance lease 25 years 4 - 5 years 3 - 10 years 3 - 5 years 16.2 Assets held as security Fixed and floating charges over the whole of the parent entity and its subsidiaries' assets have been pledged as security for bank loans (see note 24). 56 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 17 NON-CURRENT ASSETS - GOODWILL $'000 Cost Balance at the beginning of year 2016 2015 Balance at end of year 2016 2015 Accumulated impairment losses Balance at the beginning of year 2016 2015 Impairment losses recognised in the year 2016 2015 Balance at end of year 2016 2015 Closing carrying value 2016 2015 BSA | Connect BSA | Build BSA | Maintain Consolidated 13,025 13,025 13,025 13,025 34,142 34,142 34,142 34,142 9,553 9,553 9,553 9,553 56,720 56,720 56,720 56,720 (13,025) (13,025) (18,957) (18,957) (9,553) (9,553) (41,535) (41,535) - - - - - - - - (13,025) (13,025) (18,957) (18,957) (9,553) (9,553) (41,535) (41,535) - - 15,185 15,185 - - 15,185 15,185 The recoverable amount of each cash generating unit is determined based on value-in-use calculations. Value-in-use is calculated based on the present value of cash flow projections over a three year period with the period extending beyond three years extrapolated using an estimated growth rate of 3.0% for BSA | Build. The cash flows are discounted using the weighted average cost of capital with mid-year discounting. 57 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 17 NON-CURRENT ASSETS - GOODWILL (CONTINUED) The following assumptions were used in the value-in-use calculations: BSA | Build 2017 2018 2019 Terminal Year Growth Rate (2.25%) 3.00% 3.00% 3.00% WACC/ Discount Rate 12.50% 12.50% 12.50% 12.50% Other assumptions used in the value-in-use model include Cost of Goods Sold (COGs), Operating Expenses (OPEX), Debtor Days, Creditor Days, Provisions and Work in Progress (WIP) Days. Forecasts used historical weighted average growth rates at which contracts are currently being written to project revenue. Costs are calculated taking into account historical gross margins. Discount rates are pre-tax and are adjusted to incorporate risks associated with a particular segment. Management considers that it has taken a moderate view of the market conditions and business operations. Recent improvements and the future impact of planned improvements and business re-engineering have not been fully incorporated in the value-in-use model. Management expects a potential uplift in the performance through these changes and the overall performance of the CGUs. Impact of possible changes to key assumptions Growth Rate BSA | Build - In a sensitivity analysis, Management estimates that a 5% reduction in top line revenue growth over the model period would cause a reduction in enterprise value of $9,674,000 and a 5% increase in the overall revenue growth would result in an increase in enterprise value by $9,674,000. A sensitivity analysis of 5% has been chosen due to the mature construction market and the current environment projected over a longer term. The impact on enterprise value excludes any compensating adjustments to operating expenses. Gross Margin: Revenue less Costs of Goods Sold (Direct Costs) BSA | Build - In a sensitivity analysis, Management estimates that a 1% reduction in gross margin would cause a reduction in enterprise value of $14,600,000 and an improvement in gross margin of 1% would increase the enterprise value by $14,600,000. A sensitivity analysis of 1% has been chosen due to the competitive nature of the industry that TDCP operates in that has resulted in lower than expected margin performance. Whilst the value-in-use model has gross margin steady, Management anticipates that based on current initiatives that gross margin percentages may improve slightly over the value-in-use cash flow projection period. As at 30 June 2016 the value-in-use amount for BSA | Build exceeds the carrying value by $33,409,000. 58 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 17 NON-CURRENT ASSETS - GOODWILL (CONTINUED) Working Capital Key components affecting working capital include debtor day collections, accounts payable days and project work In progress days. Management believe the assumptions used in the cash flow projection period are conservative based on historical performance and do not take into account initiatives to improve these metrics going forward. Applying sensitivity analysis impacts each respective cash-generating-unit as follows: BSA | Build – A sensitivity in adversely impacting working capital based on collecting debtors five days later and paying creditors two days earlier, and WIP reducing two days would reduce enterprise value by $6,649,000. Combined Scenario (Gross Margin, Working Capital, OPEX and Growth Rate) An assessment of combining the impact of the following key variables: • • • Revenue reduction of 1% Gross Margin reduction of 0.5% OPEX increase of 0.5% • Working capital movements due to collecting debtors two days later and paying creditors two days earlier and WIP reducing two days (BSA | Build) results in a potential reduction in enterprise value for BSA | Build of $15,134,000. In the event of the value-in-use model in line with this combined scenario occurring, Management expects that action would be taken to mitigate the impact of one or more variables. 59 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 18 NON-CURRENT ASSETS - OTHER INTANGIBLE ASSETS Intangible assets, other than goodwill, have finite lives. The current amortisation for intangible assets is included under depreciation and amortisation expense per the Consolidated Statement of Profit or Loss and Other Comprehensive Income. Customer Relationships $’000 Order Backlog $’000 Total $’000 16,979 - 16,979 - 16,979 (10,947) (1,440) (12,387) (1,440) (13,827) 10,079 - 10,079 - 10,079 (5,642) (674) (6,316) (674) (6,990) 3,089 3,152 3,763 4,592 Cost Balance as at 1 July 2014 Acquisitions through business combinations Balance at 30 June 2015 Acquisitions through business combinations Balance at 30 June 2016 Accumulated amortisation and impairment Balance as at 1 July 2014 Amortisation expense Balance at 30 June 2015 Amortisation expense Balance at 30 June 2016 Net Book Value as at 30 June 2016 Net Book Value as at 30 June 2015 6,900 - 6,900 - 6,900 (5,305) (766) (6,071) (766) (6,837) 63 829 The following useful lives are used in the calculation of amortisation. Customer relationships Order backlog 9 years 1 to 9.5 years 60 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 19 OTHER FINANCIAL ASSETS Shares in other corporations at cost (a) Shares in subsidiaries Details of Group Companies Parent Entity: BSA Limited Ultimate Parent Entity: BSA Limited Name of Subsidiary Mr Broadband Pty Limited Allstaff Airconditioning Holdings Pty Limited Allstaff Airconditioning (VIC) Pty Limited Allstaff Airconditioning (NSW) Pty Limited Allstaff Airconditioning (ACT) Pty Limited Complex Airconditioning Pty Limited Mr Antenna Pty Limited Satellite Receiving Systems (QLD) Pty Limited Mr Alarms Pty Limited MEC Services Pty Limited BSA Transmission Solutions Pty Limited 066 059 809 Pty Limited Triple M Group Pty Limited Triple M Mechanical Services Pty Limited Triple M Mechanical Services (Qld) Pty Limited Triple M Fire Pty Limited Triple M Mechanical Services (Administration) Pty Limited BSA Networks Pty Limited BurkeAir Pty Limited (b) Deed of Cross Guarantee: 2016 $’000 3 3 Consolidated 2015 $’000 3 3 Principal Percentage owned (%) Activity Country of incorporation 2016 2015 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia - - 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - - 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% BSA | Build BSA | Build BSA | Build BSA | Build BSA | Build BSA | Build BSA | Connect BSA | Connect BSA | Connect BSA | Maintain BSA | Connect BSA | Connect BSA | Build BSA | Build BSA | Build BSA | Build BSA | Build BSA | Connect BSA | Maintain All Controlled Entities are parties to the Deed of Cross Guarantee, where relief is obtained from preparing individual financial reports under ASIC Class Order 98/1418, and are members of the Closed Group. Under the Deed, BSA Limited agrees to support the liabilities and obligations of the Controlled Entities. (c) Tax Consolidation Group All the controlled entities are part of the Tax Consolidation Group. BSA Limited is the head entity in the Tax Consolidation Group. 61 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 19 OTHER FINANCIAL ASSETS (CONTINUED) 19.1 Composition of the Group Information about the composition of the Group at the end of the reporting period is as follows: Principal Activity BSA | Connect BSA | Build BSA | Maintain Place of incorporation and operation Australia Australia Australia NOTE 20 DETAILS OF JOINT VENTURE Details of the Group’s joint venture at the end of the reporting period is as follows: Name of Joint Venture Principal Activity Place of incorporation and principal place of business Triple M and Premier Fire JV Co Limited Installation of fire services Australia Number of wholly-owned subsidiaries 2016 2015 6 11 2 19 6 11 2 19 Proportion of ownership interest and voting power held by the group 2016 50% 2015 50% The above joint venture is accounted for using the equity method in these consolidated financial statements. Summarised financial information in respect of the Group’s material joint venture is set out below. The summarised financial information below represents amounts shown in the joint venture’s financial statements prepared in accordance with AASBs (adjusted by the Group for equity accounting purposes). Triple M and Premier Fire JV Co Limited Current Assets Non-current assets Current Liabilities Non-current liabilities The above amounts of assets and liabilities include the following: Cash and cash equivalents Current financial liabilities (excluding trade and other payables and provisions) Non-current financial liabilities (excluding trade and other payables and provisions) 2016 $’000 3,272 - (3,306) - 696 - - 2015 $’000 2,777 - (2,258) - 1,310 - - 62 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 20 DETAILS OF JOINT VENTURE (CONTINUED) Revenue Profit or loss from continuing operations Post-tax profit/(loss) from discontinued operations Profit/(loss) for the year Other comprehensive income for the year Total comprehensive income for the year Dividends received from the joint venture during the year The above profit/(loss) for the year include the following: Depreciation and amortisation Interest income Interest expenses Income tax expense (income) 2016 $’000 19,212 (554) - (554) - (554) - - - - (131) Reconciliation of the above summarised financial information to the carrying amount of the interest in the joint venture recognised in the consolidated financial statements: Net assets of the joint venture Proportion of the Group's ownership interest in the joint venture Goodwill Other adjustments Carrying amount of the Group's interest in the joint venture 2016 $’000 (34) 50% - - (17) NOTE 21 AMOUNTS DUE FROM (TO) CUSTOMERS UNDER CONSTRUCTION CONTRACTS Contracts in progress Construction costs incurred plus recognised profits less recognised losses to date Less: progress billings Represented by amounts due: - from customers under construction contracts (note 14) - to customers under construction contracts (note 23) Advances received from customers for contract work amounted to $8,188,000 (30 June 2015: Nil). 2016 $’000 311,804 (263,877) 47,927 56,115 (8,188) 47,927 2015 $’000 15,428 188 - 188 - 188 - - - - - 2015 $’000 519 50% - - 260 2015 $’000 340,065 (290,865) 49,200 49,200 - 49,200 63 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 22 PARENT ENTITY DISCLOSURES (a) Financial Position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net Assets Equity Issued capital Retained earnings Profit Reserve Reserves Share-based payments reserve Cash flow hedge reserve Total equity (b) Financial Performance Profit/(Loss) for the year Other comprehensive income for the year, net of tax Items that may be reclassified subsequently to profit or loss: Gain recognised on cash flow hedges Total comprehensive income for the year, net of tax 2016 $’000 29,083 80,573 109,656 25,865 959 26,824 82,832 97,592 (39,306) 23,136 1,410 - 82,832 (3,880) - (3,880) Consolidated 2015 $’000 49,458 81,727 131,185 41,978 2,495 44,473 86,712 97,592 (35,426) 23,136 1,410 - 86,712 988 6 994 (c) Guarantees entered into by the parent entity in relation to the debts of its subsidiaries BSA Limited has entered into a cross guarantee with its wholly owned subsidiaries. 57,164 73,660 (d) Contingent Liabilities Under the above cross guarantee, BSA Limited, as the parent entity, guarantees all contingent liabilities of the wholly owned subsidiaries. Guarantees established in favour of National Australia Bank Limited and Swiss Re International SE for Guarantees issued to various clients for satisfactory contract performance, secured by cross guarantees from all wholly owned group members amounting to $7,501,000 (2015: $10,120,000) directly relating to the parent. Guarantees secured by cross guarantee by all group members amounted to $39,420,000 (2015:$33,357,000). 64 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 23 TRADE AND OTHER PAYABLES Trade payables Other payables Work in progress Amounts due to customers under construction contracts (see note 21) Total Payables Note 2016 $’000 39,414 8,299 14,692 8,188 70,593 Consolidated 2015 $’000 31,501 24,629 14,032 - 70,162 The average credit period on purchases is 29 days. The Group has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms. NOTE 24 BORROWINGS CURRENT Secured liabilities at amortised cost: Hire purchase liabilities Lease liabilities Bank loans Other Total borrowings NON-CURRENT Secured liabilities at amortised cost: Hire purchase liabilities Lease liabilities Bank loans Total borrowings Note 2016 $’000 Consolidated 2015 $’000 (b), 28(iii) (b), 28(ii) (a) (b), 28(iii) (b), 28(ii) (a) 487 1,099 - 309 1,895 879 215 - 1,094 622 669 5,125 - 6,416 741 1,559 - 2,300 (a) The bank loans of the Group are secured by fixed and floating charges registered by mortgage debenture over assets and undertakings of the parent entity and its subsidiaries along with interlocking guarantees and indemnities for $57,164,000 between the parent entity and its subsidiaries. During the period the bank facilities were renegotiated with the Company’s bank. Facilities amounting to $51,500,000 were extended to 31 December 2018. The covenants within the bank borrowings have the following ratios as at 30 June 2016: Quarterly interest cover ratio greater than 3.5 times, Quarterly total leverage ratio less than 3.75 times. 65 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 24 BORROWINGS (CONTINUED) Total financial assets pledged as security CURRENT Cash and cash equivalents Trade and other receivables Inventories Tax assets NON-CURRENT Trade and other receivables Investment in Joint Venture Other financial assets Property, plant & equipment Deferred tax assets Goodwill Other intangible assets 2016 $’000 21,490 77,795 2,731 - 102,016 1,957 - 3 7,723 7,795 15,185 3,152 35,815 Consolidated 2015 $’000 27,066 70,351 4,700 - 102,117 1,511 260 3 10,741 7,000 15,185 4,592 39,292 (b) Lease liabilities and hire purchase liabilities are effectively secured as the rights to the assets recognised in the financial statements and revert to the financier in the event of default. Actual interest rates for HP liabilities outstanding during the year ranged between 4.56% and 7.64%. Actual interest rates for lease liabilities outstanding during the year ranged between 4.94% and 7.07%. Actual interest rates for bank loans outstanding during the year was 5.22%. (c) There were no defaults or breaches of any loan agreements during the current year. 137,831 141,409 66 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 25 PROVISIONS Employee benefits Other provisions (see below) CURRENT NON-CURRENT Note (i) Other Provisions Balance at 1 July 2015 Additional provisions recognised Balance at 30 June 2016 Office of State Revenue (ii) 2,000 736 2,736 Make Good (iii) 274 6 280 2016 $’000 9,428 13,308 22,736 21,684 1,052 22,736 Contract Provisions (iv) 6,615 3,677 10,292 Consolidated 2015 $’000 9,927 8,889 18,816 17,173 1,643 18,816 Total 8,889 4,419 13,308 (i) The provision for employee benefits represents annual leave and vested and non-vested long service leave entitlements accrued. (ii) The provision for NSW Office of State Revenue (OSR) relates to the following: BSA has previously advised the market about a possible payroll-tax liability with the NSW Office of State Revenue (OSR). BSA has continued, along with our legal representatives to constructively work with the OSR to ensure an equitable and timely conclusion to this matter. BSA has a provision in its FY2016 accounts of $2,736,000 (FY2015: $2,000,000) and at this time there is no further information that would suggest this provision should be changed. (iii) The provision for make good represents the estimated cost of work to comply with make good obligations in certain Group property leases. (iv) The provision for project provisions represents the expected cost of obligations under construction contracts recognised at the Directors’ best estimate of the expenditure to settle the Group’s obligation. The FY2016 result was impacted by specific provisions taken up during the year. 67 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 26 ISSUED CAPITAL (a) Share capital Ordinary shares - fully paid (b) Movements in ordinary share capital Date Details Parent Entity 2016 2015 Number of Number of Shares Shares 422,907,346 422,907,346 Note (c) Number of Issue Price Shares $ $’000 1 July 2014 Opening Balance 22 October 2014 Issue of shares under the Share Placement offer for cash 228,861,202 34,329,180 19 November 2014 Issue of shares under the Rights offer for cash (g) 155,626,055 1 December 2014 Issue of shares by way of placement to Executives for cash (f) 4,090,909 0.11 0.11 0.11 Less: transaction costs arising on shares issued 1 July 2015 Opening Balance 30 June 2016 Balance - 422,907,346 422,907,346 77,797 3,776 17,119 450 (1,550) 97,592 97,592 Changes to the Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore the Company does not have a limited amount of authorised capital and issued shares do not have a par value. (c) Ordinary Shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. (d) Options At 30 June 2016 no options were held over ordinary shares of the Company. Share options granted under the Share Option Plan carry no rights to dividends and no voting rights. Further information relating to the BSA Limited Employee Option Plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out in Note 31. (e) Executive Securities Plan The Company has established an Executive Securities Plan as a mechanism to provide the Company’s key Executives with a direct equity involvement and incentive in the Company which aligns them with the shareholders. (f) Dividend Reinvestment Plan The Company has established a dividend reinvestment plan under which holders of ordinary shares may elect to have all or part of their dividend entitlements satisfied by the issue of new ordinary shares rather than by being paid in cash. The Dividend Reinvestment Plan has been suspended since the final dividend for 30 June 2012. (g) Rights Information relating to the BSA Limited Performance Rights Plan, including details of rights issued, exercised and lapsed during the financial year and rights outstanding at the end of the financial year, is set out in Note 31. 68 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 27 RESERVES AND ACCUMULATED LOSSES (a) Reserves Cash flow hedging reserve Share-based payments reserve Cash flow hedging reserve Opening balance Gain/(Loss) recognised on cash flow hedges Closing balance 2016 $’000 - 1,410 1,410 - - - Consolidated 2015 $’000 - 1,410 1,410 (6) 6 - The cash flow hedging reserve represents the cumulative portion of gains and losses on hedging instruments deemed effective in cash flow hedges. The cumulative deferred gain or loss on the hedging instrument is reclassified to profit or loss only when the hedged transaction affects the profit or loss, or is included as a basis adjustment to the non-financial hedged item, consistent with the relevant accounting policy. Share-based payments reserve Opening balance Rights expense Shares issued in satisfaction of performance conditions Closing balance 1,410 - - 1,410 1,301 167 (58) 1,410 The share-based payments reserve relates to share options and share rights granted to employees under the Employee Share Option Plan and the Employee Performance Rights Plan. Further information about share-based payments to employees is set out in note 31. The share-based payments reserve records items recognised as expenses on valuation of employee share options and rights. (b) Accumulated losses Movements in accumulated losses were as follows: Balance at beginning of year Net loss for the year Balance at end of year (c) Profit Reserve Movements in profit reserve were as follows: Balance at beginning of year Net profit for the year Dividends Balance at end of year (63,024) (2,219) (65,243) 7,737 - - 7,737 (63,024) - (63,024) 3,862 3,875 - 7,737 69 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 27 RESERVES AND ACCUMULATED LOSSES (CONTINUED) (d) Dividends on equity instruments Year ended 30/06/16 Year ended 30/06/15 Cents per share Total ‘000 Cents per share Total ‘000 Recognised amounts Fully paid ordinary shares Interim dividend: Final dividend: Unrecognised amounts Fully paid ordinary shares Final dividend: - - - - - - The Directors have not recommended the payment of a final dividend in respect of the year ending 30 June 2016. (e) Franked credits Franking account balance as at 30 June 2016 $’000 16,285 - - - - - - Consolidated 2015 $’000 16,285 70 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 28 CAPITAL AND LEASING COMMITMENTS Note 2016 $’000 Consolidated 2015 $’000 (i) Operating Lease Commitments The Group leases various offices and warehouses under non-cancellable operating leases expiring within one to five years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years (ii) Finance Lease Commitments 4,438 1,483 - 5,921 4,248 3,773 - 8,021 The Group leases various plant and equipment with a carrying amount of $1,501,000 (2015: $2,386,000) under finance leases expiring within one to four years. Under the terms of the leases, the Group has the option to acquire the leased assets after paying the residual amount on expiry of the leases. Commitments in relation to finance leases are payable as follows: Within one year Later than one year but not later than five years Later than five years Minimum lease payments Less future finance charges Total Lease Liability Represented by: Current liability Non-current liability (iii) Hire Purchase Commitments 1,218 318 - 1,536 (222) 1,314 1,099 215 1,314 817 1,751 - 2,568 (340) 2,228 669 1,559 2,228 24 24 The Group has purchased various plant and equipment with a carrying amount of $1,177,000 (2015: $1,148,000) under hire purchase agreements expiring within one to four years. Under the terms of the agreements, the Group has the option to acquire the assets after paying the residual amount on expiry of the agreements. Commitments in relation to hire purchase agreements are payable as follows: Within one year Later than one year but not later than five years Later than five years Minimum payments Less future finance charges Total Hire Purchase Liability Represented by: Current liability Non-current liability 562 939 - 1,501 (135) 1,366 487 879 1,366 24 24 623 822 - 1,445 (82) 1,363 622 741 1,363 71 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 29 SEGMENT INFORMATION (a) AASB 8 Operating Segments AASB 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. (b) Products and services from which reportable segments derive their revenues The Group is organised into the following reportable segments: BSA | Connect BSA | Connect provides contracting services to the telecommunications, subscription television and communication industries. The contracting services include the delivery of bundled services over hybrid fibre coax network, the installation of subscription television, the installation of free to air television antennas and security systems. BSA | Build BSA | Build provides the design and installation of building services for commercial and industrial buildings including: Mechanical Services, Air Conditioning, Heating and Ventilation, Refrigeration and Fire services. BSA | Maintain BSA | Maintain provides the maintenance of building services for commercial and industrial buildings including: Mechanical Services, Air Conditioning, Heating and Ventilation, Refrigeration and Fire services. (c) Segment revenues and results The following is an analysis of the Group’s revenue and results by reportable operating segment: BSA | Connect BSA | Build BSA | Maintain Other Revenue Year Ended Segment Profit/Loss Year Ended 30 Jun 16 $’000 205,731 226,392 79,853 96 512,072 30 Jun 15 $’000 215,436 252,740 75,594 294 544,064 30 Jun 16 $’000 6,183 (3,285) (312) - 2,586 30 Jun 15 $’000 6,786 8,031 (1,038) - 13,779 Corporate costs including acquisition, legal and advisory (4,859) (7,087) Finance costs (Loss)/Profit before tax (741) (1,253) (3,014) 5,439 Segment revenue reported above represents revenue generated from external customers. There were no inter-segment sales in the current year (2015: Nil) The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 3. Segment profit/loss represents the profit/loss earned by each segment without allocation of central administration costs and Directors’ salaries, investment income, gains and losses, finance costs and income tax expense. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. 72 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 29 SEGMENT INFORMATION (CONTINUED) (d) Segment assets and liabilities Segment assets BSA | Connect BSA | Build BSA | Maintain Consolidated assets Segment liabilities BSA | Connect BSA | Build BSA | Maintain Consolidated liabilities Year Ended 30 Jun 16 $’000 37,936 80,406 19,489 30 Jun 15 $’000 56,236 72,897 12,276 137,831 141,409 33,768 52,950 9,617 42,805 48,825 6,064 96,335 97,694 For the purposes of monitoring segment performance and allocating resources between segments. All assets, except cash, are allocated to reportable segments. In 2016, cash is allocated to BSA | Connect, who operate the Group's treasury. Goodwill is allocated to reportable segments as described in note 17. Assets used jointly by reportable segments are allocated on the basis of the revenues earned by individual reportable segments; and All liabilities are allocated to reportable segments. Liabilities for which reportable segments are jointly liable are allocated in proportion to segment assets. * * (e) Other segment information Continuing operations BSA | Connect BSA | Build BSA | Maintain Depreciation and amortisation Additions to non-current assets Year Ended Year Ended 30 Jun 16 $’000 30 Jun 15 $’000 30 Jun 16 $’000 30 Jun 15 $’000 2,357 1,811 2,301 2,955 2,076 2,771 731 920 428 1,244 608 432 6,469 7,802 2,079 2,284 73 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 29 SEGMENT INFORMATION (CONTINUED) (f) Geographical information The Group only operates in Australia. The Group’s revenue from continuing operations from external customers and information about its non-current assets by geographical location are detailed below: Australia Revenue from external customers Non-current assets Year ended Year Ended 30 Jun 16 $’000 512,072 512,072 30 Jun 15 $’000 544,064 544,064 30 Jun 16 $’000 35,815 35,815 30 Jun 15 $’000 39,292 39,292 (g) Information about major customers The Group has a number of customers to whom it provides both products and services. The Group supplies a single external customer in the BSA | Connect segment who accounts for 26% of external revenue (2015:22%). The Group’s next most significant client is in the BSA | Build segment and accounts for 8% of external revenue (2015: 7%). 74 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 30 CASH FLOW INFORMATION FOR THE PERIOD (a) Reconciliation of profit/(loss) to net cash flows from operating activities for the year (Loss)/Profit for the year Depreciation Amortisation Share-based payment expense Net (profit) on sale of non-current assets Change in operating assets and liabilities (Increase)/decrease in trade receivables Decrease/(increase) in inventories (Increase)/decrease in deferred tax asset (Increase)/decrease in other operating assets Increase/(decrease) in trade payables (Decrease)/increase in other operating liabilities Decrease in tax receivable Increase/(decrease) in provisions Net cash generated by operating activities 2016 $’000 (2,219) 5,029 1,440 - (120) (5,580) 1,969 (795) (2,311) 7,913 (7,210) - 3,920 2,036 Consolidated 2015 $’000 3,875 6,362 1,440 167 (77) 14,143 (4) 1,564 1,677 (14,473) 6,066 1,483 (2,593) 19,630 (b) Non-cash transactions During the year the consolidated entity acquired plant and equipment with an aggregate value of $659,000 (2015:$629,000) by means of finance leases. These acquisitions are not reflected in the cash flow statement. (c) Credit Standby Arrangements with Banks Credit facility Amount utilised Unused credit facility The major facility is summarised as follows: A Working Capital Facility which covers the financial requirements of the day to day operations of the Group. (d) Master Asset Finance Facilities Total asset finance facility Amount utilised Total unused Master Asset Finance Facility 2016 $’000 20,000 - 20,000 5,000 (2,679) 2,321 Consolidated 2015 $’000 20,000 - 20,000 5,000 (3,591) 1,409 75 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 30 CASH FLOW INFORMATION FOR THE PERIOD (CONTINUED) (e) Loan facilities Loan facilities Amount utilised Unused loan facility 2016 $’000 - - - Consolidated 2015 $’000 5,125 (5,125) - The major facilities are summarised as follows: Acquisition Finance Loans All Acquisition Finance Loans have been fully repaid as at 30 June 2016. Finance will be provided under the facility provided the Company and the consolidated entity has not breached any borrowing requirements and the required financial ratios are met. During the year, the Company and the consolidated entity have not breached any borrowing requirements. (f) Guarantees Guarantees to the value of $20,424,000 were utilised at 30 June 2016 (2015: $21,195,000) and are secured by fixed and floating charge to the bank over the assets of the Company together with guarantees in favour of the parent given by all controlled entities. (g) Surety Bonds Surety Bonds of which $18,996,000 were utilised at 30 June 2016 (2015: $12,162,000), are unsecured. NOTE 31 SHARE-BASED PAYMENTS (a) Employee Option Plan The establishment of the BSA Limited Employee Option Plan was approved by shareholders at the 2004 AGM. Staff eligible to participate are those who are full time or permanent part-time employees of any company in the Group, including an Executive Director and Non-Executive Director of the company and whom the Board of Directors has sole discretion to determine to be eligible to participate but does not include a person who has a relevant interest in greater than 5% of the issued ordinary share capital of the Company. The exercise price and exercise period applicable to any options to be offered under the Option Plan will, at or before the time of issuing an invitation to eligible employees to subscribe for options, be determined by the Board in its absolute discretion. Subject to any restrictions in the Listing Rules or the Corporations Act 2001, the Board may in its absolute discretion impose on the options such other terms as it considers appropriate. As soon as practicable after receipt of a valid notice of exercise of an option together with the exercise price the Company will allot the appropriate number of ordinary shares. Any shares issued on the exercise of the options granted pursuant to the resolution will be officially quoted and will rank equally with all other shares on issue in the Company and all the rights and entitlements of the holders in respect of those shares will be identical to the rights and entitlements of the holders of the currently issued shares in the Company. Options can only be exercised after three years if the employee remains in the employment of the Company and the option will then expire two years after this date. If the employee terminates their employment within the three years, the option is exercisable for twelve months from the date after termination. If the Company is subject to a takeover the option will vest and be exercisable for a period of three months. Options may not be transferred, though prior to issue a nominee may be advised for consideration by the Board. There were no options outstanding at 30 June 2016 (2015: Nil). Fair value of options granted There have been no options granted since 25 November 2004. There is no employee benefits expense in the Consolidated Statement of Profit or Loss and Other Comprehensive Income (2015: nil), which relates, in full, to equity-settled share-based payment transactions. 76 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 31 SHARE-BASED PAYMENTS (CONTINUED) (b) Employee Share Scheme A scheme under which shares were issued by the Company to employees for no cash consideration was ratified by shareholders at the 2004 AGM. All permanent employees (including Executive Directors) who were continuously employed by the consolidated entity for a period of at least one year were eligible to participate in the scheme. Employees could elect not to participate in the scheme. Under the scheme, eligible employees were offered $1,000 worth of fully-paid ordinary shares in BSA Limited for the Year Ended 30 June 2004 for no cash consideration. The market value of shares issued under the scheme, measured as the weighted average market price on the day of issue of the shares, was recognised in the Consolidated Statement of Financial Position as share capital and as part of employee benefit cost. Offers under the scheme are at the discretion of the Company. No offers were made during year the ended 30 June 2016 (2015: Nil). Shares under the scheme may not be sold until the earlier of three years after issue or cessation of employment with the consolidated entity. In all other aspects the shares rank equally with other fully-paid ordinary shares on issue (see note 26(c)). The number of shares issued to participants in the scheme is the offered amount divided by the weighted average price at which the Company's shares are traded on the Australian Stock Exchange during the five trading days immediately before the date of the offer. (c) Executive Securities Plan The establishment of the BSA Executive Securities Plan was approved by shareholders at the 2005 AGM. The Plan was established as a mechanism to provide the Company's key executives with a direct equity involvement and incentive in the Company which aligns them with the shareholders. The number of securities to be offered and the time at which securities may be offered from time to time to executives and the price and terms of payment, shall be determined by the Board in its discretion. The Board may at such times as it determines invite any executive to be a member of the Plan. If an Executive to whom an invitation has been issued forwards to the Company a duly completed Loan Application and the Transfer Documents together with his acceptance, and where appropriate his Application for Shares, then the Company shall, in accordance with the terms of the Loan Agreement, lend to the Executive such amount as the Executive has applied for in the Loan Application. The maximum amount of any Loan shall be the total subscription price for the shares applied for. No interest is payable by the borrower under the Loan Agreement. An Executive shall not sell, mortgage, charge, assign or otherwise dispose of or encumber any shares before payment or repayment of any amount outstanding to the Company in respect thereof. Subject to the above restriction and to the terms of the Loan Agreement (if any) deemed to be entered into by the Executive, an Executive shall from the Date of Allotment, be the absolute beneficial owner of the shares. Unless the Directors of the Company otherwise provide in the terms of any Invitation, all Plan Shares shall rank for dividends declared on or after the Date of Allotment and shall in all respects rank equally with and have the same rights and entitlements as all other fully paid ordinary shares of the Company. Under the Loan Agreement, the borrower shall repay the balance outstanding of the Outstanding Principal when the borrower ceases to be an employee or Director of the Lender. BSA Limited has adopted the policy of having a rolling three year maturity date for all Executives who do not have a termed employment contract. Set out below are summaries of securities accepted under the plan: Consolidated and parent entity Issue Price Balance at Start Granted During Released from Escrow Balance in Escrow Grant Date Expiry Date (cents) of the Year 13 Oct 2006 19 Jul 2007 11 Sep 2007 13 Sep 2007 14 Dec 2007 10 Feb 2009 Total n/a n/a n/a n/a n/a n/a 0.23 0.63 0.68 0.68 0.68 0.10 Number 700,000 1,600,000 150,000 200,000 400,000 1,700,000 4,750,000 the Year Number During the Year at End of the Year Number Number - - - - - - - - - - - - - - 700,000 1,600,000 150,000 200,000 400,000 1,700,000 4,750,000 77 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 31 SHARE-BASED PAYMENTS (CONTINUED) (d) Employee Performance Rights Plan The establishment of the BSA Employee Performance Rights Plan was approved by shareholders at the 2008 AGM. The Plan was established to reward selected eligible employees and to: • Provide an incentive for the creation of, and focus on, shareholder wealth; • Enable the Company to recruit and retain the talented people needed to achieve the Company's business objectives; • Link the reward of key staff with the achievement of strategic goals and the performance of the Company; • Align the financial interests of participants in the Plan with those of Company shareholders; and • Ensure the remuneration packages of employees are consistent with market practice. Securities may be offered under the Plan and the Board has discretion to determine who is offered the opportunity to participate. Generally, securities are subject to a holding restriction and cannot be traded unless certain performance conditions are met or as otherwise specified at the time of the relevant award after acquisition by the participant. Rights to acquire shares will not be exercisable until the end of the final measurement period, and until those rights have satisfied all vesting conditions and all performance hurdles established by the Board. This is subject to a number of exceptions (including death, cessation of employment, takeovers and schemes of arrangement). The rights have a specified life determined by the Board. The initial grant of rights (the Grant Date) will have a life terminating five years after the Grant Date or such other date as determined by the Board (the Expiry Date). Rights granted to certain participants in the initial grant will be at zero vesting value and will be subject to the following performance conditions as determined by the Board: (i) (ii) Service condition of three years; or The Company’s performance as measured by earnings per share (“EPS”) being the EPS for the relevant Measurement Period as determined by the Board having regard to the financial statements. Certain growth in EPS for the shares must be attained in respect of each Measurement Period and pro rata in respect of each Measurement Period and service condition of three years. The Board will prescribe the date when performance under the hurdle is measured for each tranche. On or after the end of the final measurement period and provided any performance hurdle prescribed by the Board has been achieved and, where applicable, to the extent it has been achieved, the Plan Participant may then acquire shares by exercising the rights. A right lapses if it is not exercised by the Expiry Date. The Exercise Price (if any) will be an amount determined by the Board from time to time, fixed at the date of grant or determined by application of methodology approved by the Board. Once Rights have been exercised by an Eligible Employee (subject to certain Performance Conditions being met), the Company may make non- refundable contributions to the Plan Company to either: • • fund the purchase of a new Plan Share; or the acquisition on the ASX of an existing share and transfer to the participant of that share, to which the Participant is entitled under the rights. The plan company is Computershare Plan Co Pty Limited ACN 098 404 696 or any other Company that the Board may approve from time to time. After rights are exercised, the plan company will subscribe for new shares or acquire shares in the ordinary course of trading on the ASX for participants, as directed from time to time by the Board. 78 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 31 SHARE-BASED PAYMENTS (CONTINUED) Consolidated and parent entity Grant Date Exercise Date Expiry Date Exercise Price (cents) Balance at Start of the Year Under Right Balance at Start of the Year Under Option Granted During the Year Under Right Granted During the Year Under Option Exercised During the Year Under Right Exercised During the Year Under Option Cancelled During the Year Under Right Cancelled During the Year Under Option Balance in Escrow at End of the Year Under Right Balance in Escrow at End of the Year Under Option Number Number Number Number Number Number Number Number Number Number 24 Aug 10 24 Aug 13 24 Aug15 14 Nov 11 14 Nov 14 14 Nov 16 25 Nov 14 30 Jun 15 25 Nov 17 Total - - - 454,000 308,720 621,000 422,280 1,116,667 - 2,191,667 731,000 - - - - - - - - - - - - - - - - (454,000) (308,720) - - - - - - 621,000 422,280 1,116,667 - (454,000) (308,720) 1,737,667 422,280 NOTE 32 EVENTS OCCURRING AFTER THE BALANCE DATE The Directors are not aware of any significant events since the end of the reporting period. NOTE 33 RELATED PARTY TRANSACTIONS Transactions between related parties are on normal commercial terms and conditions no more favourable than those to other parties unless otherwise stated. (a) Transactions with related parties: 2016 $ Consolidated Entity 2015 $ Rent was paid to The Day Street Unit Trust in which M Lowe, a Director, has a beneficial 178,496 165,140 interest Outstanding balances arising from purchases of services No balances are outstanding at the reporting date in relation to transactions with related parties (2015: Nil). 79 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 33 RELATED PARTY TRANSACTIONS (CONTINUED) (b) Equity instrument disclosures relating to Key Management Personnel (i) Rights holdings The numbers of rights over ordinary shares in the Company held during the financial year by each Director of BSA Limited and other Key Management Personnel of the Group, including their personally related parties, are set out below. Balance at Net Balance the start of Granted as Rights Change at End of Vested but Not Vested Vesting and During Rights 2016 the year Compensation Exercised Other Year Exercisable Exercisable Year Nicholas Yates 1,116,667 1,116,667 - - - - - 1,116,667 - 1,116,667 - - 1,116,667 1,116,667 1,116,667 1,116,667 Balance at Net Balance the start of Granted as Rights Change at End of Vested but Not Vested Vesting and During Rights 2015 the year Compensation Exercised Other Year Exercisable Exercisable Year Nicholas Yates - - 1,116,667 1,116,667 - - - - 1,116,667 1,116,667 - - - - - - Further details of schemes can be found in the Directors’ Report. 80 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 33 RELATED PARTY TRANSACTIONS (CONTINUED) (ii) Share holdings The numbers of shares in the Company held during the year by each Director of BSA Limited and other Key Management Personnel of the Group, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation. Balance at the start of Rights the year Exercised Other Changes During the Year Balance at the Balance End of the Year Held Nominally 2016 Directors of BSA Limited Ordinary Shares Mark Lowe Paul Teisseire Michael Givoni Graeme Barclay Nicholas Yates 10,115,403 680,012 636,400 - 2,727,273 Ordinary Shares - Escrowed Mark Lowe 200,000 Key Management Personnel Ordinary Shares Nicholas Benson 1,363,636 15,722,724 - - - - - - - - - - - - - - - 10,115,403 680,012 636,400 - 2,727,273 200,000 1,363,636 15,722,724 - - - - - - - - Max Cowley is a nominee director of Birketu Pty Ltd and is also a director of Birketu Pty Ltd. Birketu Pty Ltd holds shares in BSA Limited of 66,000,000 (2015: 66,000,000). Max Cowley has no beneficial interest in Birketu Pty Ltd. 2015 the year Exercised During the Year End of the Year Held Nominally Balance at the start of Rights Other Changes Balance at the Balance Directors of BSA Limited Ordinary Shares Ross Johnston (Retired 28 April 2015) 1,209,315 Mark Lowe Paul Teisseire Michael Givoni Graeme Barclay Nicholas Yates 10,115,403 404,769 230,000 - - Ordinary Shares - Escrowed Mark Lowe 200,000 Key Management Personnel Ordinary Shares Nicholas Benson - - - - - - - - - ( 309,315) - 275,243 406,400 - 2,727,273 900,000 10,115,403 680,012 636,400 - 2,727,273 - 200,000 1,363,636 1,363,636 12,159,487 4,463.237 16,622.724 - - - - - - - - - 81 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 33 RELATED PARTY TRANSACTIONS (CONTINUED) (c) Executive Securities Loans Balance at Notional Notional Interest End of Year Interest Charged Not Charged Provision for Impairment Number of Individuals $000 $000 $000 $000 Opening Balance $000 1,705 1,473 1,473 1,477 2,552 2,656 2,487 2,437 1,029 833 807 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 1,734 1,705 1,473 1,473 1,477 2,552 2,656 2,487 2,437 1,029 833 29 232 90 90 93 44 334 171 148 63 26 - - - - - - - - - - - Individuals with loans above $100,000 in reporting period Opening Notional Interest Charged Using Balance at End 2016 Balance Effective Interest Rate Method Brendan Foley Ray Larkin Leaston Paull Bryce Wood Peter Tripodi * Younis Tehfe $ 579,242 223,011 223,011 189,339 143,750 132,733 $ 10,823 4,217 4,217 3,580 - 2,640 of Year $ 590,065 227,228 227,228 192,919 143,750 135,373 * Balance at year end stated at actual date to the terms of the loans Opening Notional Interest Charged Using Balance at End 2015 Balance Effective Interest Rate Method Brendan Foley Ray Larkin Leaston Paull Bryce Wood Peter Tripodi * Younis Tehfe $ 490,499 188,844 188,844 160,332 143,750 112,397 $ 88,743 34,167 34,167 29,007 - 20,336 * Balance at year end stated at actual due to the terms of the loans. of Year $ 579,242 223,011 223,011 189,339 143,750 132,733 - - - - - - - - - - - 11 11 11 11 11 13 13 13 13 6 1 Highest Balance During Period $ 590,065 227,228 227,228 192,919 143,750 135,373 Highest Balance During Period $ 579,242 223,011 223,011 189,339 143,750 132,733 The above current loans represent unsecured loans to purchase shares in BSA Limited which was passed at a meeting of members held on 12 December 2005. The shares were issued between 13 October 2006 and 10 February 2009 at values ranging from 10.0 cents per share to 68.0 cents per share. The loans are repayable on the termination of each individual from the Company and do not bear interest. These loans have been booked into the accounts at net present value on a rolling three year basis. At the discretion of the Board, the above loan to Peter Tripodi was not repaid at the termination date. The outstanding principal is now due and receivable and actions to recover are under way. 82 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 34 FINANCIAL INSTRUMENTS Fair value of financial instruments carried at amortised cost. The Directors consider that the carrying amounts of financial assets and financial liabilities recognised at amortised cost in the financial statements approximate their fair values. Financial Assets Cash and cash equivalents Loans and receivables Trade and other receivables 2016 $’000 Consolidated 2015 $’000 21,490 27,066 78,375 71,862 Financial Assets at amortised cost 99,865 98,928 Financial liabilities Financial liabilities held at amortised cost Trade and other payables Borrowings 61,165 2,989 70,162 8,716 Financial liabilities at amortised cost 64,154 78,878 NOTE 35 FINANCIAL RISK MANAGEMENT (a) General objectives, policies and processes In common with all other businesses, the Group is exposed to financial risks that arise. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. The principal financial instruments from which financial instrument risk arises are: - Trade receivables; - Cash at bank; - Bank overdrafts; - Trade and other payables; and - Borrowings. The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The Group’s risk management policies and objectives are therefore designed to minimise the potential impacts of these risks on the results of the Group where such impacts may be material. The Board receives monthly reports from the Finance Department through which it reviews the effectiveness of the processes put in place and the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. 83 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 35 FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Credit Risk Credit risk is the risk that the other party to a financial instrument will fail to discharge their obligation resulting in the Group incurring a financial loss. This usually occurs when debtors fail to settle their obligations owing to the Group. Trade receivables consist of a large number of customers. The Group does not have significant credit risk exposure to any single counterparty or group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are related entities. Concentration of credit risk to the largest counterparty did not exceed 11% of gross monetary assets at balance date. Concentration of credit risk to any other counterparty did not exceed 8% of gross monetary assets at balance date. The maximum exposure to credit risk at balance date is as follows: Receivables 2016 $’000 79,752 79,752 Consolidated 2015 $’000 71,862 71,862 Included in loans and receivables, the most significant customer accounts for 5.9% of trade receivables at 30 June 2016 (2015:10.0%). The maximum exposure to credit risk at balance date by country is as follows: Australia 2016 $’000 79,752 79,752 The maximum exposure to credit risk for cash and trade receivables at balance date by type of customer is as follows: BSA | Connect BSA | Build BSA | Maintain 2016 $’000 23,939 38,498 17,315 79,752 Consolidated 2015 $’000 71,862 71,862 Consolidated 2015 $’000 26,571 34,032 11,259 71,862 The Group’s most significant customer, a BSA | Build customer, accounts for $3,665,000 of trade receivables at 30 June 2016. At 30 June 2015, the Group’s most significant customer was a BSA | Connect customer which accounted for $5,694,000. All major customers are credit worthy, as detailed above The Group has significant concentration of credit risk as all loans and lease liabilities are with the one financial institution. 84 BSA LIMITED ANNUAL REPORT 2016NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 35 FINANCIAL RISK MANAGEMENT (CONTINUED) (c) Liquidity risk Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. The table below sets out details of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk. Financing arrangements The following financing facilities were available at balance date: Credit stand-by arrangements Total facilities: Corporate Market Loan Overdraft Facility Multi-Option Facility Debtor Finance Facility Used at balance date: Corporate Market Loan Overdraft Facility Multi-Option Facility Debtor Finance Facility Unused at balance date: Corporate Market Loan Overdraft Facility Multi-Option Facility Debtor Finance Facility Bank loans Total facilities: Used at balance date Unused at balance date Total unused credit facilities at balance date Master Asset Finance Facility Total facilities: Used at balance date Total unused Master Asset Finance Facility Total unused Facilities at balance date 2016 $’000 20,000 - - - 20,000 - - - - - 20,000 - - - 20,000 - - - 20,000 5,000 2,680 2,320 22,320 Consolidated 2015 $’000 4,000 - 16,000 20,000 - - - - 4,000 - 16,000 20,000 5,125 5,125 - 20,000 5,000 3,591 1,409 21,409 In addition to the above arrangements the consolidated entity has a bank guarantee facility of $26,500,000 (2015: $26,500,000) which was utilised to $20,424,000 (2015: $21,195,000). In addition to the above facilities the consolidated entity has a surety bond facility with Swiss Re International SE of $20,000,000 (2015: $20,000,000) which was utilised to $18,996,000 (2015: $12,162,000). Refer Note 24(a) for details of terms of financing arrangements. 85 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 35 FINANCIAL RISK MANAGEMENT (CONTINUED) Maturity Analysis - Group The following table details the Group’s remaining contractual maturity for its financial liabilities with agreed repayment periods. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are at floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period. The contractual maturity is based on the earliest date on which the Group may be required to pay. The table below includes the weighted average effective interest rate and a reconciliation to the carrying amount in the Statement of Financial Position as an example of summary quantitative data about exposure to interest rates at the end of the reporting period that an entity may provide internally to management personnel. Financial Liabilities 30 June 2016 Bank loans Other Trade creditors Other payables Finance lease and hire purchase liabilities TOTAL 30 June 2015 Bank loans Other Trade creditors Other payables Finance lease and hire purchase liabilities TOTAL Carrying Contractual Cash Amount $’000 - 309 39,414 53,915 2,680 96,318 Flows $’000 - 309 39,414 53,915 3,037 96,675 Carrying Contractual Cash Amount $’000 5,125 - 31,501 57,477 3,591 97,694 Flows $’000 5,294 - 31,501 57,477 4,013 98,285 < 6 mths $’000 - 309 39,414 53,915 890 94,528 < 6 mths $’000 1,894 - 31,501 57,477 720 91,592 6- 12 mths $’000 - - - - 890 890 6- 12 mths $’000 3,400 - - - 720 4,120 1-3 years $’000 - - - - 1,257 1,257 1-3 years $’000 - - - - 2,573 2,573 > 3 years $’000 - - - - - - > 3 years $’000 - - - - - - The following table details the Group’s expected maturity for its non-derivative financial assets. The table has been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets. The inclusion of information on non- derivative financial assets is necessary in order to understand the Group’s liquidity risk management as the liquidity is managed on a net asset and liability basis. Financial Assets 30 June 2016 Trade debtors Other receivables TOTAL 30 June 2015 Trade debtors Other receivables TOTAL 86 Carrying Contractual Cash Amount $’000 5,175 74,577 79,752 Flows $’000 5,381 75,641 81,022 Carrying Contractual Cash Amount $’000 8,526 63,336 71,862 Flows $’000 8,908 64,222 73,130 < 6 mths $’000 5,381 72,356 77,737 < 6 mths $’000 8,908 62,517 71,425 6- 12 mths $’000 - 1,328 1,328 6- 12 mths $’000 - 194 194 1-3 years $’000 - - - 1-3 years $’000 - - - > 3 years $’000 - 1,957 1,957 > 3 years $’000 - 1,511 1,511 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 35 FINANCIAL RISK MANAGEMENT (CONTINUED) (d) Market Risk Interest rate risk The Group’s main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, and by the use of interest rate swap contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies are applied. As at 30 June 2016 there were no bank borrowings. Sensitivity Analysis The sensitivity analysis below has been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 2% increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. Consolidated Carrying Amount AUD +2% of AUD IR -2% of AUD IR 2016 Borrowings AUD Tax effect (30%) After tax increase/(decrease) $’000 - - - Profit $’000 Other Equity $’000 Profit $’000 Other Equity $’000 - - - - - - - - - - - - The above analysis assumes all other variables remain constant. The same analysis was performed for the period ended 2015. Consolidated Carrying Amount AUD +2% of AUD IR -2% of AUD IR 2015 Borrowings AUD Tax effect (30%) After tax increase/(decrease) $’000 5,125 - 5,125 Profit $’000 Other Equity $’000 Profit $’000 Other Equity $’000 103 (31) 72 - - - (103) 31 (72) - - - The above analysis assumes all other variables remain constant. NOTE 36 CAPITAL RISK MANAGEMENT In managing its capital, the Group’s primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions. In order to achieve this objective, the Group seeks to maintain a gearing ratio that balances risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, either through altering its dividend policy, new share issues or the reduction of debt, the Group considers not only its short-term position but also its long-term operational and strategic objectives. It is the Group’s policy to review its gearing ratio to ensure adequate funds are available to meet its obligations. The Group’s gearing ratio at the balance sheet date is shown on page 88: 87 BSA LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 36 FINANCIAL RISK MANAGEMENT (CONTINUED) Gearing ratios Net (cash) / debt Total equity Total Gearing Ratio 2016 $’000 (18,501) 41,496 (44.59%) Consolidated 2015 $’000 (18,350) 43,715 (41.98%) Gearing levels have decreased due to a strong focus on working capital management. It is the Board’s intention to monitor gearing levels going forward to ensure flexibility. There have been no other significant changes to the Group’s capital management objectives, policies and processes in the year nor has there been any change in what the Group considers to be its capital. NOTE 37 OTHER EXPENSES Bad debt and debt collection (recovery)/expenses Motor vehicle expenses Travel and entertainment Other Total Other Expenses NOTE 38 CONTINGENT LIABILITIES Note 2016 $’000 399 3,239 2,350 19,220 25,208 Consolidated 2015 $’000 (661) 3,135 2,319 18,208 23,001 (i) Guarantees established in favour of National Australia Bank Limited and Swiss Re International SE for guarantees issued to various clients for satisfactory contract performance, secured by cross guarantees from all wholly owned group members amounting to $39,420,000 (2015: $33,357,000). (ii) On 27 June 2016 the Company received a certificate of finding under section 27J of the Industry Research and Development Act 1986 from Innovation Australia. The certificate of finding outlines Innovation Australia’s view that none of the activities claimed in previous years by BSA as Research and Development are “Core R&D activities” for the purpose of the Income Tax Assessment Acts. BSA has filed a section 30C internal review of the section 27J finding. In the event that BSA is unsuccessful in challenging the finding through appropriate mechanisms, the Company may be denied tax deductions previously claimed totalling approximately $2m (tax effected) of tax relating to prior years tax concessions claimed. Based on expert advice the directors are of the opinion that the activities fall within the legislative requirements for R&D claims to be made under the Income Tax Assessment Acts, that the documents submitted to Innovation Australia support and are consistent with the claims made and that therefore BSA is in a defendable position against the Innovation Australia finding under s27J. Accordingly, BSA has not made any provision in relation to this matter in these financial statements. NOTE 39 CORPORATE INFORMATION The Financial Report of BSA Limited for the year ended 30 June 2016 was authorised for issue in accordance with a resolution of the Directors on 29 August 2016 and covers the consolidated entity consisting of BSA Limited and its subsidiaries as required by the Corporations Act 2001. BSA Limited is a company limited by shares incorporated in Australia and whose shares are publicly traded on the Australian Stock Exchange. The financial report is presented in Australian currency. The address of the registered office and principal place of business is: 7 Figtree Drive Sydney Olympic Park NSW 2127 88 BSA LIMITED ANNUAL REPORT 2016DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2016 The Directors declare that: (a) In the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; (b) in the Directors’ opinion, the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 3.1 to the financial statements; (c) In the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; and (d) The Directors have been given the declarations required by s.295A of the Corporations Act 2001. At the date of this declaration, the Company is within the class of companies affected by ASIC Class Order 98/1418. The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee. In the Directors’ opinion, there are reasonable grounds to believe that the Company and the companies to which the ASIC Class Order applies, as detailed in note 19 to the financial statements will, as a group, be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee. Signed in accordance with a resolution of the Directors made pursuant to s.295(5) of the Corporations Act 2001 (Cth). On behalf of the Directors. Michael Givoni Chairman Sydney 29 August 2016 89 BSA LIMITED ANNUAL REPORT 2016 INDEPENDENT AUDITOR’S REPORT 90 BSA LIMITED ANNUAL REPORT 2016INDEPENDENT AUDITOR’S REPORT 91 BSA LIMITED ANNUAL REPORT 2016SHAREHOLDER INFORMATION THE SHAREHOLDER INFORMATION SET OUT BELOW WAS APPLICABLE AS AT 31 JULY 2016 A. DISTRIBUTION OF EQUITY SECURITIES Analysis of numbers of equity security holders by size of holding: Number of Holders Ordinary Shares Number of Holders Options of Holders Rights Number Performance 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and above 165 506 301 694 244 74,151 1,617,935 2,404,836 26,878,215 391,932,209 1,910 422,907,346 - - - - - - - - - - - - - - - 1 3 4 - - - 87,360 2,072,587 2,159,947 There were 283 (2015: 391) holders of less than a marketable parcel of ordinary shares. B. EQUITY SECURITY HOLDERS Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities are listed below: Name of Holder Ordinary Shares Number Percentage Held of Issued AUST EXECUTOR TRUSTEES LTD 80,472,334 19.03% BIRKETU PTY LTD CITICORP NOMINEES PTY LIMITED HGT INVESTMENTS PTY LTD BNP PARIBAS NOMS PTY LTD NATIONAL NOMINEES LIMITED SAMLOWE PTY LTD SANDHURST TRUSTEES LTD MR GREG MULLANE RUMDAB PTY LTD ACK PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED METANOMSKI INVESTMENTS PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 AVANTEOS INVESTMENTS LIMITED CTSF PTY LTD EDINGTON PTY LIMITED TALOOMBI PTY LTD VBS EXCHANGE PTY LTD EML INVESTMENTS PTY LIMITED 66,000,000 59,625,991 22,373,659 18,000,000 14,386,163 10,115,403 9,529,677 7,548,743 6,370,655 4,762,975 4,529,617 3,650,000 2,948,219 2,727,273 1,775,945 1,769,376 1,721,257 1,671,599 1,609,499 15.61% 14.10% 5.29% 4.26% 3.40% 2.39% 2.25% 1.78% 1.51% 1.13% 1.07% 0.86% 0.70% 0.64% 0.42% 0.42% 0.41% 0.40% 0.38% Top 20 Shareholders 321,588,385 76.05% 92 BSA LIMITED ANNUAL REPORT 2016 SHAREHOLDER INFORMATION THE SHAREHOLDER INFORMATION SET OUT BELOW WAS APPLICABLE AS AT 31 JULY 2016 C. SUBSTANTIAL SHAREHOLDERS Substantial shareholders in the Company are set out below: Ordinary Shares AUST EXECUTOR TRUSTEES LTD BIRKETU PTY LTD NAOS ASSET MANAGEMENT LIMITED HGT INVESTMENTS PTY LTD D. VOTING RIGHTS Number Held Percentage 80,472,334 66,000,000 56,696,771 22,373,659 19.03% 15.61% 13.41% 5.29% The voting rights attaching to each class of equity securities are set out below: (a) Ordinary shares On a show of hands every member present at a meeting in person, or by proxy, shall have one vote and upon a poll each share shall have one vote. (b) Option over an ordinary share No voting rights. (c) Rights over an ordinary share No voting rights. 93 BSA LIMITED ANNUAL REPORT 2016CORPORATE DIRECTORY BSA Limited - Corporate BSA | Build Share Registry Registered Office (Sydney) 7 Figtree Drive Head Office (Sydney) Level 3, Quad 2, 6 Parkview Drive Computershare Investor Services GPO Box 2975 Sydney Olympic Park NSW 2127 Sydney Olympic Park NSW 2127 Melbourne VIC 3001 Australia P F E W +61 2 8748 2400 +61 2 8748 2577 corporate@bsa.com.au www.bsa.com.au P F +61 2 9763 6200 +61 2 9763 6201 BSA | Connect Head Office (Sydney) 7 Figtree Drive Sydney Olympic Park NSW 2127 P F +61 2 8748 2400 +61 2 8748 2577 P P F 1300 85 05 05 +61 3 9415 4000 +61 3 9473 2500 Auditor Deloitte Touche Tohmatsu Eclipse Tower Level 19, 60 Station Street Parramatta NSW 2150 BSA | Maintain Banker Head Office (Sydney) Level 3, Quad 2, 6 Parkview Drive Sydney Olympic Park NSW 2127 P F +61 2 9763 6200 +61 2 9763 6201 National Australia Bank 255 George Street Sydney NSW 2000 www.bsa.com.au 94 BSA LIMITED ANNUAL REPORT 2016

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