China Rapid Finance Limited
Annual Report 2014

Plain-text annual report

XRF SCIENTIFIC LIMITED ABN 80 107 908 314 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2014 For personal use only           CONTENTS CHAIRMAN’S LETTER DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION CORPORATE GOVERNANCE DISCLOSURE CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DIRECTORS’ DECLARATION AUDITOR’S REPORT SHAREHOLDER INFORMATION CORPORATE DIRECTORY 3 4 17 18 25 26 27 28 29 63 64 66 68 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 1  For personal use only       FINANCIAL RESULTS SUMMARY Sales down 4% Net Profit After Tax down 36% 25,408 22,496 21,666 20,061 3,813 3,579 2,635 2,441 11 12 13 14 Sales Revenue ($'000) 11 12 13 14 Net Profit After Tax ($'000) Operating Cash Flow down 37% Earnings Per Share down 38% 4,131 3,662 2,594 2,612 2.8 2.9 2.5 1.8 11 12 13 14 11 12 13 14 Operating Cash Flow ($'000) Earnings Per Share (Cents) 2 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only     CHAIRMAN’S LETTER Dear Shareholder, The flow on effects of the Global Financial Crisis, the continuing decline in iron ore and coal prices along with a weakening of the Chinese economy during The Company, fortunately, has remained debt-free, maintained very tight control on staff numbers, operating costs and streamlined its management structure. 2013-2014 introduced serious challenges into the Although net profit was down by $1.4m on the laboratory services sector in Australia. preceding year, it has been possible to pay a dividend The challenges were felt elsewhere around the world. All of XRF Scientific Ltd’s (XRF) customers were under of 1.1 cents per share. Based on earnings per share of 1.8 cents, this represents a payout ratio of 61%. strong pressures to increase efficiency and reduce With recent problems in the Middle East, political operating costs and prices. Amongst the larger turmoil in parts of central Europe and a slowing of minerals exploration and mining companies there economic growth in China it is difficult to be highly was, and remains, considerable pressure for optimistic about the next 12 to 18 months. However, increased automation and efficiency. there are signs that the laboratory services sector is As the major supplier of XRF consumables in Australia and increasingly in overseas markets – especially North America – the GFC had provided a salutary warning signal that considerable effort would be needed to maintain our position in the market and sustain profitability. While several significant acquisitions were being considered, the Board decided stabilising, and with the run-down of thermal coal stocks in India and a sorting out of the iron ore markets in China that the outlook for 2014-2015 may improve slightly. Going forward, of considerable importance is XRF’s strong exposure to production mining and its IP, which continue to provide a steady base of earnings. that any expansion of the business had to be able to The Board and Management will be keeping tight meet credible and sustainable earnings ratios. control over costs. Following its successful acquisition of Sigma The Chief Executive Officer, Vance Stazzonelli, and his Chemicals in 2011 and a smaller acquisition in Canada staff deserve strong commendation for a sound result in 2013, the Board and Management consciously in a very difficult industry sector climate and uncertain decided to work to maintain its market position and to financial conditions. reward shareholders. Also, it sought to build its international client base in major mining countries such as Canada, South Africa, Brazil and in parts of Europe where there is a demand for the chemicals, platinum labware and the specialised furnaces and laboratory equipment that XRF Scientific Ltd manufactures. Kenneth Baxter Chairman XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 3  For personal use only       FINANCIAL RESULTS SUMMARY DIRECTORS’ REPORT Your directors present their report on the company XRF Scientific Limited and its controlled entities for the financial year ended 30 June 2014. DIRECTORS The names of the directors in office at any time during or since the end of the financial year are: Kenneth Baxter (Chairman) David Brown David Kiggins Fred Grimwade Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. PRINCIPAL ACTIVITY The principal activity of the economic entity during the financial year was the business of manufacturing and marketing precious metal products, specialised chemicals and instruments for the scientific and analytical industries and in particular, the mining industry. No significant change in the nature of these activities occurred during the year. DIVIDENDS – XRF SCIENTIFIC LIMITED AND CONTROLLED ENTITIES Dividends paid to members during the financial year were as follows: Final dividend for the year 2014 $ 2013 $ 2,246,329 1,932,354 In addition to the above dividends, since the end of the financial year the directors have declared the payment of a fully franked final dividend of 1.1 cents per share to be paid on 26 September 2014 out of retained earnings at 30 June 2014. 4 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only     DIRECTORS’ REPORT REVIEW OF OPERATIONS A review of the operations of the economic entity during the financial year and the results of those operations found that during the year, the economic entity continued to engage in its principal activity and the results and financial position are disclosed in the attached financial statements. The consolidated entity has produced a Net Profit After Tax (NPAT) of $2,441,258 for the year ended 30 June 2014, compared with $3,812,772 for the previous year. Details of the results for the financial year ended 30 June 2014 are as follows: Total revenue and other income NPAT Basic earnings per share – (cents per share) Diluted earnings per share – (cents per share) Underlying profit before tax OPERATING RESULTS June 2014 June 2013 Increase / (decrease) over prior year $ $ 22,043,121 23,246,536 2,441,258 3,812,772 1.8 1.8 2.9 2.9 3,880,991 5,622,098 % (5) (36) (38) (38) (31) XRF Scientific Ltd (“XRF” or “Company”) is pleased to report its June 2014 full-year results to shareholders. The Company has generated revenue of $21.8m and underlying profits before tax of $3.9m, before expensing $340k in acquisition related due diligence and integration costs. The Directors have confirmed that a final dividend of 1.1 cents per share, fully franked, will be payable with a record date of 12 September 2014 and payment date of 26 September 2014. This provides a dividend payout ratio that is consistent with prior years of 61%. The revenue and underlying earnings for the second half were steady on the first half, indicating that conditions in the market, although challenging, appear to have stabilised. Sales to production based clients have increased, however sales to the exploration related industry have remained flat, at the low levels that have been experienced for the past 18 months. The cash at bank balance reduced from $8.6m as at 30 June 2013 to $6.2m as at 30 June 2014. This reduction was mainly the result of the CAD$1.7m paid for the Kitco Labware acquisition. Sales of consumable products were lower at $6.4m, compared to the previous corresponding period (PCP) of $7.2m, mainly as a result of the downturn in the exploration industry. Profits before tax were reduced to $2.4m from $2.8m in the PCP. Results were also adversely affected by the USD strength against the AUD and some minor one-off costs. XRF increased its shareholding in emerging Canadian x-ray flux manufacturer Gestion Scancia Inc. from 19.99% to 49.99%. This was achieved through the conversion of a 10% convertible note and the purchase of 20% from existing shareholders for CAD$250,000. The Precious Metals division was able to deliver a reasonable profit before tax of $1.34m, compared to $1.43m in the PCP. The division was able to maintain profits, both through the Kitco Labware acquisition and generation of normal repeat manufacturing income. Sale of new products were difficult, in line with general CAPEX demand, however there was a notable improvement in the second-half of the year. The division released a new premium platinum labware range, which is intended to extend the life of products, which provides certain benefits to XRF and our customers. A number of large clients have already standardised on this product, having experienced the benefits of the longer life and lower internal maintenance required. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 5  For personal use only           DIRECTORS’ REPORT OPERATING RESULTS continued The Kitco Labware acquisition was completed at the beginning of August 2013 and has contributed $300k in profits before tax for the first eleven months of trading. The business has been successfully integrated into the XRF Scientific group, and the next phase has commenced, of using Kitco Labware’s distribution to sell new and additional products. The Capital Equipment division suffered a fall in profitability, generating $354k in profits before tax, as compared to $1,143k in the PCP. Capital Equipment orders were weak in the first half of the year, mainly as a result of labs in Australia having excess capacity, and being restricted in their CAPEX purchases. As a result, most of the demand came from offshore, from production companies seeking to expand or replace their equipment base. Although product development costs were capitalised throughout the period, research costs have been expensed. Costs associated with gearing up for the manufacture of new products were also incurred during the year. The launch of the flagship xrFuse 6 fusion machine in October is helping to turn this situation around, with numerous orders having been received, of which a number of units were delivered during the year. As the installed base of machines grows, so does its reputation of being a low maintenance and robust unit, as indicated by an increased level of orders and quotations over the past few months. The addition of this machine to XRF’s product range provides access to a new large segment of the market, that XRF has not been in contact with for numerous years. The xrFuse 6 has many new innovative qualities and has been designed to meet the growing safety and reliability standards of miners. The division has also recently completed the launch of the smaller xrFuse 2 in August 2014. This machine takes all of the high quality features of the xrFuse 6, built into a smaller unit, designed for lower throughput labs in the cement, research and industrial sectors. Such customers are prevalent in markets such as USA and Europe, where there are more opportunities for capital equipment than consumables. Again, the machine fills a gap in XRF’s product range that has remained open to opportunities for a number of years. Following the release of xrFuse 2 and xrFuse 6, the division is currently working on a number of further new product initiatives. A number of exciting acquisition opportunities were reviewed throughout the year. Unfortunately some of these acquisition targets did not meet the Board’s strict criteria and thus the processes were terminated. The Board continues to work its way throughout a pipeline of high quality opportunities, which may be completed in 2015. With significant cash reserves available, XRF is well positioned to take advantage of these opportunities. Looking forward into 2015, the focus of the Board and Management revolves around new product developments, international sales growth, acquisitions and tight control over costs. Although XRF’s traditional mining markets continue to prove difficult, the Company is positioning itself for growth in alternative areas. Many of the initiatives currently underway will also ensure that the Company is positioned in the best possible way when an improvement in mining occurs. In the interim, XRF’s strong balance sheet is allowing it to invest for the future, to ensure it remains the leader in its field. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR The Kitco Labware purchase agreement required XRF to pay the former owners additional consideration of up to CAD$600,000, should the business meet certain profit milestones. The unaudited results indicate that these milestones have not been achieved, therefore a liability for additional consideration has not been recorded. A final dividend of 1.1 cents per share fully franked was declared on 22 August 2014, for the 2014 financial year results, with a record date of 12 September 2014 and payment date of 26 September 2014. There were no other events subsequent to the reporting date which have significantly affected or may significantly affect the XRF Scientific Limited operations, results or state of affairs in future years. 6 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only           DIRECTORS’ REPORT LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Likely results in the operations of the economic entity and the expected results of those operations in the future financial year have not been included in this report, as the disclosure of such information may lead to commercial prejudice to the economic entity. SIGNIFICANT CHANGES IN STATE OF AFFAIRS There have been no significant changes in the affairs of the Group. ENVIRONMENTAL REGULATION All companies within the group continued to comply with all environmental requirements. Wherever possible, carbon emissions have been limited, and new production techniques adopted to reduce energy use. The Directors have considered compliance with the National Greenhouse and Energy Reporting Act 2007 which requires entities to report greenhouse gas emissions and energy use. For the measurement period 1 July 2013 to 30 June 2014 the directors have assessed that there are no current reporting requirements, but the Company may be required to do so in the future. The economic entity is also subject to the environmental regulations under the laws of the Commonwealth or of a State or Territory in which it operates. The Directors are not aware of any breaches of these regulations. INFORMATION ON DIRECTORS Kenneth Baxter Qualifications: Chairman (Non-Executive) Bachelor of Economics, Fellow of Australian Institute of Management and Fellow of the Australian Institute of Company Directors Experience: Former Chairman of PNG Energy Developments Ltd, former Chairman of TFG International Pty Ltd, former Non-Executive Director of the Hydro Electric Corporation of Tasmania, former Director of Air Niugini Ltd, former Secretary of Department of Premier & Cabinet Victoria, former Chairman of the Australian Dairy Corporation & Thai Dairy Industries Ltd. Other current directorships: Chairman of PNG Sustainable Infrastructure Ltd and of Infraco Asia Developments Former directorships in last 3 years: Chairman of PNG Energy Developments Ltd and other private companies Special responsibilities: Chairman of the Board, member of the Audit & Governance Committee and Pte Ltd; Non-Executive Director of Dairy NSW, and other private companies No. of options: No. of shares: David Brown Qualifications: Experience: Remuneration Committees Nil 578,334 fully paid ordinary shares Director (Non-Executive) Bachelor of Science, Bachelor of Economics Has 40 years of experience in research and development and manufacturing of X- Ray Flux chemicals, formerly chief chemist for Swan Brewery Co. Ltd, formerly Chairman of Scientific Industries Council of WA. Other current directorships: Private companies only Former directorships in last 3 years: Private companies only Special responsibilities: Technical consultant to XRF Chemicals Pty Ltd No. of options: No. of shares: Nil 7,870,916 fully paid ordinary shares XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 7  For personal use only               DIRECTORS’ REPORT INFORMATION ON DIRECTORS continued David Kiggins Qualifications: Director (Non-Executive) Bachelor of Science (HONS), member of the Institute of Chartered Accountants of England and Wales, member of the Institute of Chartered Secretaries and member of Australian Institute of Company Directors. Experience: Spent ten years at Arthur Andersen, working in audit and business consulting, in the UK and Australia. Experience in public companies includes roles such as GM Business Development and Company Secretary at Automotive Holdings Group Limited, and as Finance Director and Company Secretary at Global Construction Services Limited. Currently the Chief Financial Officer at the Heliwest Group. Other current directorships: Private companies only Former directorships in last 3 years: Private companies only Special responsibilities: Chairman of the Audit & Governance Committee, member of the Remuneration No. of options: No. of shares: Fred Grimwade Qualifications: Committee Nil 212,900 Director (Non-Executive) Bachelor of Commerce, Bachelor of Law, Master of Business Administration, Fellow of the Institute of Chartered Secretaries of Australia, Life Member of the Financial Services Institute of Australasia and Fellow of the Australian Institute of Company Directors. Experience: Has held general management positions at Colonial Agricultural Company, the Colonial Group, Western Mining Corporation and Goldman, Sachs & Co. He has a broad range of experience in strategic management, mining, finance, corporate governance and law. Currently a Principal and Executive Director of Fawkner Capital, a specialist corporate advisory and investment firm. Other current directorships: Chairman of CPT Global Limited; Non-Executive Director of Select Harvests Limited, Troy Resources Limited, Australian United Investment Company Limited, NewSat Limited and other private companies Former directorships in last 3 years: Chairman of Fusion Retail Brands Pty Ltd and other private companies Special responsibilities: Chairman of the Remuneration Committee, member of the Audit & Governance No. of options: No. of shares: Committee Nil 400,000 COMPANY SECRETARIES Vance Stazzonelli, B.Comm, CPA – Vance has held the role of Company Secretary since June 2008. Andrew Watson, B.Comm, CA – Andrew was appointed Joint Company Secretary in August 2013. OTHER KEY MANAGEMENT Vance Stazzonelli (Chief Executive Officer – XRF Scientific Limited) Vance joined XRF Scientific as CFO in October 2009. He was subsequently appointed to Chief Operating Officer in January 2011 and then Chief Executive Officer in August 2012. Vance is a Certified Practising Accountant. He has held the role of Company Secretary since June 2008. 8 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only           DIRECTORS’ REPORT MEETINGS OF DIRECTORS The number of meetings held by the Board of Directors including meetings of the committees of the Board and the number of meetings attended by each of the Directors during the financial year ended 30 June 2014 were as follows: Kenneth Baxter David Brown David Kiggins Fred Grimwade Full meetings of Directors Meetings of committees - Audit, Corporate Governance & Remuneration A 14 14 14 14 B 14 13 14 14 A 4 ** 4 4 B 4 ** 4 4 A = Meetings held during the time the director held office or was a member of the Committee during the year B = Meetings attended ** = Not a member of the relevant Committee REMUNERATION REPORT (Audited) (a) Principles used to determine the nature and amount of remuneration. Remuneration governance The Remuneration Committee is a committee of the Board. It is primarily responsible for making recommendations to the Board on:     the over-arching executive remuneration framework operation of the incentive plans which apply to the executive team, including key performance indicators and performance hurdles remuneration levels of executive directors and other key management personnel, and non-executive director fees Their objective is to ensure that remuneration policies and structures are fair and competitive and aligned with the long-term interests of the company. The Corporate Governance Statement provides further information on the role of this committee. Non-executive directors Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors’ fees and payments are reviewed periodically by the Board. The Chairman’s fees are determined independently to the fees of non-executive directors based on comparative roles in the external market. The Chairman is not present at any discussions relating to determination of his own remuneration. The Chairman’s remuneration is inclusive of committee fees. Non-executive directors may receive share options. Directors’ fees The current base remuneration was last reviewed in November 2012, as ratified by a resolution passed at the 2012 Annual General Meeting. The maximum currently stands at $400,000 per annum and was approved by shareholders at the Annual General Meeting in November 2012. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 9  For personal use only           DIRECTORS’ REPORT REMUNERATION REPORT (Audited) continued Base director fees Chairman Non-Executive Directors Committee Chairman Executive pay $80,000 $50,000 $7,500 The executive pay and reward framework has three components: 1. Base pay and benefits, including superannuation 2. Short-term performance incentives, and 3. Long-term incentives. It is Board policy to review key management annually, and adjust such compensation taking into account the manager’s performance, the performance of the entity which they manage, and the performance of the group of companies. Where appropriate, there is a direct link between financial performance (profit or growth) to key managers’ compensation by way of bonus, which is assessed under a weighted balanced scorecard method, as set out by the Remuneration Committee at the start of each year. This method is accepted by the Board as being an appropriate incentive for encouraging key management personnel to reach targets that are in excess of budgeted growth. (i) Base Pay Executives are offered a competitive base pay that forms the fixed component of pay. Base pay for executives is reviewed annually to ensure the executive’s pay is competitive with the market. An executive’s pay is reviewed on promotion. (ii) Benefits Executives may receive benefits including car/mileage allowance. (iii) Superannuation Retirement benefits of 9.5%, effective 1 July 2014 (2013: 9.25%), of the base pay are delivered to the individual super fund of the executive’s choice. (iv) Short-term performance incentives Bonuses may be paid on the performance of the individual entity based on full year performance for the financial year. In most instances bonus payments are based on the achievement of a percentage of that year’s budget and targets/objectives being met. A short term incentive (STI) pool is available for executives during the annual review, which is subject to caps that are in place. 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. Specific details of key management personnel bonuses can be found under the service contracts section of this report. (v) Long-term incentives There are no specific long term incentives in place, however the matter is currently being considered by the Remuneration Committee. 10 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only           DIRECTORS’ REPORT REMUNERATION REPORT (Audited) continued (b) Details of remuneration (i) Non-Executive Kenneth Baxter David Brown David Kiggins Fred Grimwade Chairman Non-Executive Director Non-Executive Director Non-Executive Director (ii) Other Key Management Personnel The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group: Vance Stazzonelli Chief Executive Officer Percentage of performance related compensation of total remuneration Certain key management personnel are paid performance bonuses in addition to set remuneration amounts. The Board of Directors have set these bonuses to encourage growth and profitability. Bonuses are paid as per the conditions set out in page 10. Fixed Remuneration The level of fixed remuneration is set as to provide base level of remuneration which is both appropriate to the position and its competitive market. Fixed remuneration is reviewed annually by the Remuneration Committee based on market rates, as well as having regard to the Company, divisional and individual performance. The fixed remuneration of other key management personnel is contained in information that follows. Variable Remuneration (Short-Term Incentive) To assist in achieving the objective of retaining a high quality executive team, the Remuneration Committee links the nature and amount of the executive emoluments to the Company’s financial and operating performance. Variable remuneration is calculated based on an assessment of the executive’s achievement of key performance indicators, which is assessed under a weighted balanced scorecard method, as set out by the Remuneration Committee at the start of each year. Options issued as part of total remuneration No options have been issued in 2013 or 2014 as part of total remuneration. Securities Trading Policy The Company has adopted a policy that imposes certain restrictions on Directors and employees trading in the securities of the Company. The restrictions have been imposed to prevent trading in contravention of the insider trading provisions of the Corporations Act. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 11  For personal use only           DIRECTORS’ REPORT REMUNERATION REPORT (Audited) continued (b) Details of remuneration continued Voting and comments made at the company’s 2013 Annual General Meeting The company received validly appointed proxies of 97% of “yes” votes on its remuneration report for the 2013 financial year. The remuneration resolution was carried on a show of hands. The company did not receive any specific feedback at the AGM or throughout the year on its remuneration practices. Amounts of remuneration Details of the remuneration of directors and the key management personnel (as defined in AASB 124 Related Party Disclosures) of XRF Scientific Limited are set out in the following: Short-term Benefits Post-employment Benefits Long-term Benefits 2014 Non-executive directors Kenneth Baxter David Brown David Kiggins Fred Grimwade Sub-total non-executive directors Other key management personnel Vance Stazzonelli Sub-total key management personnel Cash Salary $ 73,226 45,767 52,632 52,632 224,257 237,986 237,986 462,243 Cash Long Service Termination Bonuses Other Superannuation Leave benefits $ $ $ $ - - - - - - - - - 1 163,032 - - 163,032 - - 163,032 6,774 4,233 4,868 4,868 20,743 24,977 24,977 45,720 - - - - - 4,499 4,499 4,499 - - - - - - - - Short-term Benefits Post-employment Benefits Long-term Benefits 2013 Non-executive directors Kenneth Baxter David Brown David Kiggins Fred Grimwade John Parsons (resigned 23 May 2013) Cash Salary $ 73,395 23,462 52,752 52,752 21,701 Sub-total non-executive directors 224,062 Other key management personnel Vance Stazzonelli Sub-total key management personnel 227,378 227,378 451,440 32,110 32,110 32,110 Cash Long Service Termination Bonuses Other Superannuation Leave benefits $ $ $ $ - - - - - - - 1 175,557 - 1,835 1 52,534 229,926 - - 229,926 6,605 - 4,748 4,913 1,953 18,219 23,354 23,354 41,573 - - - - - - 6,714 6,714 6,714 - - - - - - - - - Total $ 80,000 213,032 57,500 57,500 408,032 267,462 267,462 675,494 Total $ 80,000 199,019 57,500 59,500 76,188 472,207 289,556 289,556 761,763 1 Technical services provided by consultancy (such as technical sales and support, analytical method development). 12 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only           DIRECTORS’ REPORT REMUNERATION REPORT (Audited) continued (b) Details of remuneration continued The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Fixed Remuneration At risk - STI At risk - LTI 2014 2013 2014 2013 2014 2013 Other key management personnel Vance Stazzonelli 100% 88% - 12% – – Refer to page 11 for details of the Company’s policies on short-term incentives. (c) Shareholder Wealth The following is a summary of key shareholder wealth statistics for the Company over the past 5 years (listed since 2006). 2009/10 2010/11 2011/12 2012/13 2013/14 EBIT $ 382,807 3,841,980 4,809,646 5,142,299 3,358,127 Earnings Per Share Cents 0.3 2.5 2.8 2.9 1.8 Share Cents – 1.0 1.5 1.7 1.1 Dividends Declared Per Share Price Market Capitalisation Cents $ 15 22 26 31 21 13,741,752 22,798,237 33,494,179 40,968,700 27,752,990 (d) Shares held by key management personnel Details of equity instruments (other than options and rights) held directly, indirectly or beneficially by key management personnel and their related parties are as follows: Name July 2013 compensation rights Other changes June 2014 Balance at 1 Granted as options on Balance at 30 Received on exercise of Directors of XRF Scientific Limited Kenneth Baxter David Brown David Kiggins Fred Grimwade Other key management personnel Vance Stazzonelli 1 On-market trade. Option holdings 518,334 8,432,000 125,000 200,000 190,000 - - - - - - - - - - 1 60,000 1 (561,084) 1 87,900 1 200,000 578,334 7,870,916 212,900 400,000 1 40,000 230,000 There were no options over ordinary shares in the company held during the financial year by directors of XRF Scientific Limited or other key management personnel of the Group. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 13  For personal use only           DIRECTORS’ REPORT REMUNERATION REPORT (Audited) continued (e) Service Agreements Remuneration for the Chief Executive Officer is set out in a service agreement, which is detailed below: Vance Stazzonelli, Chief Executive Officer of XRF Scientific Limited Terms of agreement – Ongoing employment contract effective 1 July 2012. Payment of a termination benefit on early termination by the Company, other than for gross misconduct, equal to six months full pay. Notice period by the employee of six months. Payment of bonuses is based on a range of strategic, financial, operational, personnel, and Board-related key performance indicators. No other key management personnel are currently employed under service contracts. (f) Share-based compensation There was no share based compensation to any Director or Key Management Personnel for the years ended 30 June 2013 and 2014. The Company has not adopted an employee share option scheme. (g) Additional Information Each individual Key Management Personnel performance bonus was discussed and reviewed against the requirements set out on page 10. It was agreed that the proposed performance bonuses met these conditions, specifically individual performance against agreed Key Performance Indicators. For each cash bonus included in the tables on page 12, the percentage that was paid and vested in the prior financial year, and the percentage that was forfeited because the person did not meet the service and performance criteria is set out below. No cash bonuses were provided for in the current financial year. Directors Kenneth Baxter David Brown David Kiggins Fred Grimwade Cash bonus Paid Forfeited % % Year granted –.. –.. –.. –.. –.. –.. –.. –.. – – – – Other key management personnel Vance Stazzonelli 100.. –.. 2013 (h) Remuneration consultants No remuneration consultants were used in the years ended 30 June 2014 and 30 June 2013. (i) Other transactions with key management personnel Premises were rented from a related entity of Director David Brown during the financial year. These properties were rented on normal commercial terms and conditions, totalling $108,434 (2013: $100,977). No amounts were outstanding at the end of the year. As the sole director of XRF Chemicals Pty Ltd, Vance Stazzonelli is currently guarantor on a lease in Osborne Park. (j) Loans to directors and executives No loans were made to directors and executives during the financial years ended 30 June 2014 and 30 June 2013. End of remuneration report (Audited). 14 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only           DIRECTORS’ REPORT OPTIONS No unissued ordinary shares of XRF Scientific Limited remain under option at the date of this report. INSURANCE OF DIRECTORS AND OFFICERS During the financial year, the company paid insurance premiums to insure the directors and officers of the company and its Australian–based controlled entities, and general managers of each of the divisions of the Group. The liabilities insured are legal costs that may be incurred in defending civil or some criminal proceedings that may be brought against the officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. PROCEEDINGS ON BEHALF OF OR INVOLVING THE ECONOMIC ENTITY No person has applied for leave of Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001. NON-AUDIT SERVICES Details of the non-audit services provided by the Company’s external auditor BDO Audit (WA) Pty Ltd during the year ended 30 June 2014 are outlined in the following table. Based on advice from the Company’s Audit and Governance Committee, the Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and the scope of each type of non-audit service provided means that auditor independence was not compromised. During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: Assurance & other services BDO Audit (WA) Pty Ltd Audit and review of financial reports Taxation services Other services Consolidated 2014 $ 2013 $ 106,105 34,119 3,535 98,081 59,070 1,836 Total remuneration for audit and other services 143,759 158,987 The Board is satisfied that the auditors of the Company, BDO Audit (WA) Pty Ltd remain independent. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 15  For personal use only           DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 17. AUDITOR BDO Audit (WA) Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors and signed for and on behalf of the Board by: Kenneth Baxter Chairman Perth 24 September 2014 16 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only           Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia DECLARATION OF INDEPENDENCE BY PETER TOLL TO THE DIRECTORS OF XRF SCIENTIFIC LIMITED As lead auditor of XRF Scientific Limited for the year ended 30 June 2014, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of XRF Scientific Limited and the entities it controlled during the period. Peter Toll Director BDO Audit (WA) Pty Ltd Perth, 24 September 2014 BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. For personal use onlyCORPORATE GOVERNANCE DISCLOSURE ASX CORPORATE GOVERNANCE COUNCIL’S PRINCIPLES The table below summarises the Company’s compliance with the ASX Corporate Governance Council’s Revised Principles and Recommendations. Comply Yes/No Reference/ Explanation Lay solid foundations for management and oversight 1.1: Companies should establish the functions reserved to the Board and those delegated to senior executives and disclose those functions. 1.2: Companies should disclose the process for evaluating the performance of senior executives. 1.3: Companies should provide the information indicated in the Guide to reporting on Principle 1. Yes Page 22 Yes Page 10 Yes Page 22 Structure the Board to add value 2.1: A majority of the Board should be independent directors. Yes 2.2: The chair should be an independent director. 2.3: The roles of chair and chief executive officer should not be exercised by the same individual. 2.4: The Board should establish a nomination committee. Yes Yes No K. Baxter, D. Kiggins and F. Grimwade are independent directors, therefore a majority of the Board is independent. K. Baxter is an independent Director. Vance Stazzonelli is Chief Executive Officer and Kenneth Baxter is Chairman. Given the size of the Board, it was determined that the Board will execute the functions of a nomination committee and that a separate nomination committee is not warranted. 2.5: Companies should disclose the process for evaluating the performance of the Board, its committees and individual directors. Yes Page 22 2.6: Companies should provide the information indicated in the Guide to reporting on Principle 2. Yes In addition to the information presented in the Company’s 2014 Annual Report:     See pages 7-8 for details of the skills, experience and expertise relevant to the position of director held by each director in office at the date of the annual report. K. Baxter, D. Kiggins and F. Grimwade are considered to be independent directors. There is no formal procedure agreed by the Board for directors to take independent professional advice at the expense of the company. However, directors are cognisant of the fact the independent advice should be obtained if and as when the need arises. As no nomination committee exists, a formal charter can’t be posted to the Company’s website. 18 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only           CORPORATE GOVERNANCE DISCLOSURE Structure the Board to add value (continued) 2.6: Companies should provide the information indicated in the Guide to reporting on Principle 2. (continued)  The terms of office for each Director to 30 June 2014 are as follows: Comply Yes/No Reference/ Explanation o o o o K. Baxter – Appointed 5 July 2005 as Non-Executive Director and subsequently 7 May 2009 as Chairman. D. Brown – Appointed 7 June 2004 as Executive Director and subsequently 1 October 2009 as Non-Executive Director. D. Kiggins – Appointed 1 May 2012 as Non-Executive Director. F. Grimwade – Appointed 1 May 2012 as Non-Executive Director.  There is no formal procedure for the selection and appointment of new directors to the Board Although the Company has an older code of conduct, it will move to adopt an up to date version, in order to address the various recommendations under Principle 3. Promote ethical and responsible decision-making 3.1: Companies should establish a code of conduct and disclose the code or a summary of the code as to: No • • • the practices necessary to maintain confidence in the company’s integrity the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. 3.2: Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the Board to establish measurable objectives for achieving gender diversity for the Board to assess annually both the objectives and progress in achieving them. 3.3: Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the Board in accordance with the diversity policy and progress towards achieving them. 3.4: Companies should disclose in each annual report the proportion of women employees in the whole organisation, in senior executive positions and on the Board. No No Yes The Company implemented an Equal Opportunity policy in 2013, however, measurable objectives for gender diversity have not yet been set. The Board of Directors has determined that Gender diversification may be important to the ongoing success of the Company. Measurable objectives for gender diversity have not yet been set. Whole organisation – 16% Senior Executive Positions – 10% Board of Directors – 0% 3.5: Companies should provide the information indicated in the Guide to reporting on Principle 3 Yes Page 24 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 19  For personal use only               CORPORATE GOVERNANCE DISCLOSURE Comply Yes/No Reference/ Explanation Safeguard integrity in financial reporting 4.1: The Board should establish an audit committee. 4.2: The audit committee should be structured so that it: • • • • consists only of non-executive directors consists of a majority of independent directors is chaired by an independent chair, who is not chair of the Board has at least three members. 4.3: The audit committee should have a formal charter. 4.4: Companies should provide the information indicated in the Guide to reporting on Principle 4. Yes Yes Yes Yes Page 22 Page 22. The Audit and Governance Committee comprises three Board members, one being the non-executive Chairman, and two non-executive directors. The Chairman of the committee is different from the Chairman of the Board. Page 22 The Audit Committee Charter has been posted to the Company’s website. There are formal procedures for the selection and appointment of the Company’s external auditor. The Company’s external auditor has a policy regarding the rotation of engagement partners. Make timely and balanced disclosure 5.1: Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. Yes Page 24 5.2: Companies should provide the information indicated in the Guide to reporting on Principle 5. Yes Page 24 Respect the rights of shareholders 6.1: Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. Yes Page 24 6.2: Companies should provide the information indicated in the Guide to reporting on Principle 6. Yes Page 24 Recognise and manage risk 7.1: Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. 7.2: The Board should require management to design and implement the risk management and internal control system to manage the company's material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the company's management of its material business risks. Yes Page 24 Yes Page 24 20 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only               CORPORATE GOVERNANCE DISCLOSURE Recognise and manage risk (continued) 7.3: The Board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Comply Yes/No Yes Reference/ Explanation The Board has received a statement from the Chief Executive Officer and the Chief Financial Officer that the declaration provided in accordance with section statement 295A of the Corporations Act 2001 is founded on a sound system of risk management and internal control and that the system is operating efficiently and effectively in all material respects in relation to the financial reporting risks. 7.4: Companies should provide the information indicated in the Guide to reporting on Principle 7. Yes Page 24 Remunerate fairly and responsibly 8.1: The Board should establish a remuneration committee. 8.2: The Remuneration Committee should be structured so that it: • • • consists of a majority of independent directors is chaired by an independent chair has at least three members. 8.3: Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives. 8.3: Companies should provide the information indicated in the Guide to reporting on Principle 8. Yes Yes Yes Yes Page 22 Page 22. The Remuneration Committee comprises three Board members, one being the non-executive Chairman, and two non-executive directors. The Chairman of the committee is different from the Chairman of the Board. Pages 9-14, the remuneration report discloses structure of Director remuneration. A review of the overall performance of the Board was conducted during 2012, which resulted in the appointment of an additional two independent non-executive Directors. Descriptions for the process for performance evaluation of the Board, its committees and individual directors, and key executives are available in the remuneration report on pages 9- 14, as well as page 22. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 21  For personal use only           CORPORATE GOVERNANCE DISCLOSURE ROLE OF THE BOARD The Board of Directors is responsible for the overall corporate governance of XRF Scientific Limited, and is committed to the principles underpinning best practice in corporate governance, applied in a manner that meets ASX standards and best addresses the Directors’ accountability to shareholders. Whilst the Company will endeavour to comply with all of the guidelines under the ASX Corporate Governance Recommendations, the Board considers that the Company is not currently of a size, nor are its affairs of such complexity, to justify the additional expense of compliance with all recommendations. A brief summary of XRF’s main corporate governance policies and practices is outlined below. THE BOARD OF DIRECTORS The Board is comprised of non-executive Directors. Presently there are four non-executive Directors (three independent). The chairman is an independent director. It is XRF’s aim to have a majority of non-executive directors on the Board. The membership of the Board, its activities and composition is subject to periodic review. The criteria for determining the identification and appointment of a suitable candidate for the Board shall include the quality of the individual, experience and achievement, credibility within the Company’s scope of activities, intellectual ability to contribute to the Board’s duties and ability to undertake Board duties and responsibilities. The Company’s full Board is responsible for such nominations and appointments rather than a separate committee. Performance of the Board The Board undertakes an annual self-assessment of its collective performance, the performance of the Chairman and the performance of its committees. The results are discussed at Board level and any action plans are documented together with specific performance goals which are agreed for the coming year. Further, the Chairman undertakes an annual assessment of the performance of individual directors and meets privately with each director to discuss this assessment. A Board review will be conducted in the second half of the 2014 calendar year. COMMITTEES OF THE BOARD The Board has established the following committees: Audit and Governance Committee The Audit and Governance Committee comprises three Board members, one being the non-executive Chairman, and two non-executive directors. The Chairman of the committee is different from the Chairman of the Board. The primary responsibility of this Committee is to monitor the integrity of the financial statements of the Company, and to review and monitor the Company’s internal financial control system. The committee has implemented a formal charter. Remuneration Committee The Remuneration Committee comprises three Board members, one being the non-executive Chairman, and two non-executive directors. The Chairman of the committee is different from the Chairman of the Board. The primary responsibility of this Committee is to discharge the Board’s responsibilities in relation to remuneration of the Company’s executives, including securities and benefit plans. Further information on directors’ and executives’ remuneration is set out in the Remuneration Report. The committee has implemented a formal charter. 22 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only           CORPORATE GOVERNANCE DISCLOSURE RESPONSIBILITIES OF THE BOARD The management and control of the business is vested in the Board. The Board’s primary responsibility is to oversee the Company’s business activities and management for the benefit of the shareholders. The Board strives to create shareholder value and ensure that shareholder’s funds are safeguarded. The key responsibilities of the Board include: • • • • • • The overall corporate governance of the Company including its strategic direction and financial objectives, establishing goals for management and monitoring the attainment of these goals; Approving strategic plans, key operational and financial matters, as well as major investment and divestment proposals; Approving the nominations of Directors to the Board and appointment of key executives; Evaluating and rewarding senior management and ensuring executive succession planning; Ensuring that the Directors have a good understanding of the Company’s business; Ensuring Management maintains a sound system of internal controls to safeguard the assets of the Company; • Monitoring the performance of the Company; • Appointing and removing Managing Director or Chief Executive Officer; • Ratifying the appointment and, where appropriate, the removal of the Chief Financial Officer (or equivalent) and/or the company secretary; • Reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct and legal compliance, safety and occupational health policies, community and environmental issues; • Monitoring senior management’s performance and implementation of strategy, and ensuring appropriate resources are available; and • Approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestitures, together with any recommendations from management associated with these activities. POLICIES AND PROCEDURES Continuous Disclosure Policy The Company has adopted a continuous disclosure policy so as to comply with its continuous disclosure obligations of ASX. The aims of this policy are to: • Report continuous disclosure matters to the Board; • Assess new information and co-ordinate any disclosure or releases to the ASX, or any advice required in relation to that information, in a timely manner; • Provide an audit trail of the decisions regarding disclosure to substantiate compliance with the Company’s continuous disclosure obligations; and • Ensure that employees, consultants, associated entities and advisors of the Company understand the obligations to bring material information to the attention of the Board. Securities Trading Policy The Company has adopted a policy that imposes certain restrictions on Directors and employees trading in the securities of the Company. The restrictions have been imposed to prevent trading in contravention of the insider trading provisions of the Corporations Act. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 23  For personal use only           CORPORATE GOVERNANCE DISCLOSURE POLICIES AND PROCEDURES continued Risk Management Policy The Board has developed and implemented policies and practices which ensure that the material risks facing the Company are adequately identified, assessed, monitored, and managed throughout the whole organisation. These include: • Comprehensive Board papers containing relevant operational, strategic, financial and legal information circulated to Directors before each meeting; • • • Actual results for the Company presented to the Board at each meeting, compared against budget and forecast, with revised forecasts if required; Financial authority limits set by the Board; and Insurance cover appropriate to the size and nature of the Company’s operations to reduce the financial impact of any significant insurable losses. Shareholder Communications Strategy The Board aims to ensure that shareholders are kept informed of all major developments affecting the Company. Information is communicated to shareholders through: • Continuous disclosure in the form of public announcements on the ASX; • • • Annual and half-year reports to shareholders; Investor briefings; The Chief Executive Officer’s address delivered at the Annual General Meeting; and • Notices of all meetings of shareholders and explanatory notes of proposed resolutions. Equal Opportunity Policy The Company values its employees and believes in conducting business ensuring fair, equitable and non- discriminatory employment and operational practices. Equal opportunity in employment means that an employee is judged on their ability to do their job based on merit rather than any assumption about the employee based on particular characteristics. 24 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only           CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2014    Revenue from continuing operations Cost of sales Gross profit Other income Administration expenses Other expenses Occupancy expenses Share of profit / (loss) of investments accounted for using the equity method Finance costs Profit before income tax Income tax expense Note Consolidated 2014 $ 2013 $ 5 21,850,062 22,807,416 (13,242,679) (13,380,637) 8,607,383 9,426,779 5 193,059 393,454 (3,760,155) (3,409,445) (789,947) (616,466) (521,966) (481,190) 12 (92,158) (500) 45,666 (10,865) 3,541,216 5,442,433 7 (1,099,958) (1,629,661) Profit after income tax from continuing operations attributable to equity holders of XRF Scientific Limited 2,441,258 3,812,772 Other comprehensive income Items that will be classified to profit or loss Foreign currency translation differences Total comprehensive income for the year (136,997) - 2,304,261 3,812,772 Profit and total comprehensive income attributable to equity holders of XRF Scientific Limited 2,304,261 3,812,772 Earnings per share for the year attributable to equity holders of XRF Scientific Limited Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 31 31 1.8 1.8 2.9 2.9 The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 25  For personal use only       CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2014 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other assets Investment in convertible note Total Current Assets NON-CURRENT ASSETS Property, plant and equipment Intangible assets Investments accounted for using the equity method Deferred tax asset Total Non-Current Assets Total Assets CURRENT LIABILITIES Trade and other payables Provisions Other current liabilities Current income tax liability Total Current Liabilities NON-CURRENT LIABILITIES Deferred tax liability Provisions Total Non-Current Liabilities Total Liabilities Net Assets EQUITY Issued capital Reserves Retained profits Total Equity Note Consolidated 2014 $ 2013 $ 8 9 10 11 13 14 12 15 16 17 18 19 6,201,770 8,641,808 3,867,255 3,522,551 2,977,727 2,732,258 210,926 - 351,782 150,770 13,257,678 15,399,169 3,582,303 3,665,552 13,566,922 11,507,772 656,300 432,301 335,906 349,037 18,237,826 15,858,267 31,495,504 31,257,436 1,291,430 1,125,849 369,580 157,882 252,521 289,395 656 570,735 2,071,413 1,986,635 171,978 133,733 305,711 82,566 127,787 210,353 2,377,124 2,196,988 29,118,380 29,060,448 20 21(a) 21(b) 18,257,772 18,257,772 622,246 759,243 10,238,362 10,043,433 29,118,380 29,060,448 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 26 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2014 30 JUNE 2014 – CONSOLIDATED Issued Share Capital Share Option Reserve $ $ Foreign Currency Translation Reserve $ Retained Profits Total $ $ Balance at 1 July 2013 18,257,772 759,243 - 10,043,433 29,060,448 Profit for the period Other comprehensive income / (loss) Total comprehensive income / (loss) for the period Transactions with Equity Holders in their capacity as Equity Holders Dividends paid - - - - - - - - - - - (136,997) (136,997) 2,441,258 - 2,441,258 2,441,258 (136,997) 2,304,261 - - (2,246,329) (2,246,329) (2,246,329) (2,246,329) Balance at 30 June 2014 18,257,772 759,243 (136,997) 10,238,362 29,118,380 30 JUNE 2013 – CONSOLIDATED Balance at 1 July 2012 Profit for the year Other comprehensive income Total comprehensive income for the period Transactions with Equity Holders in their capacity as Equity Holders Ordinary shares issued, net of transaction costs and deferred income tax expense Dividends paid Issued Share Capital Share Option Reserve $ $ 17,594,594 759,243 - - - 663,178 - 663,178 - - - - - - Balance at 30 June 2013 18,257,772 759,243 Foreign Currency Translation Reserve $ Retained Profits Total $ $ - - - - - - - - 8,163,015 26,516,852 3,812,772 - 3,812,772 3,812,772 - 3,812,772 - (1,932,354) (1,932,354) 663,178 (1,932,354) (1,269,176) 10,043,433 29,060,448 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 27  For personal use only         CONSOLIDATED STATEMENT OF CASH FLOWS AS AT 30 JUNE 2014 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Finance costs Other revenue Income taxes paid Interest received Note Consolidated 2014 $ 2013 $ 21,656,004 23,955,980 (17,814,574) (18,069,470) (500) - (10,865) 201,146 (1,412,025) (2,262,659) 183,590 316,633 Net cash inflow (outflow) from operating activities 29 2,612,495 4,130,765 23 Cash flows from investing activities Payments for property, plant and equipment Payment for acquisition of business Payments for intangibles Proceeds from sales of intangible assets Amounts received under LIBS IP license agreements Payments for additional investments accounted for under the equity method Proceeds from sale of property, plant and equipment Net cash inflow (outflow) from investing activities Cash flows from financing activities Dividends Paid Proceeds from issue of shares (net of transaction costs) Repayment of borrowings Net cash inflow (outflow) from financing activities Cash and cash equivalents at the beginning of the financial period Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the end of the financial period 8 (408,366) (1,292,810) (1,798,890) (459,693) - 122,527 - - 350,000 91,699 (261,782) - - 26,203 (2,806,204) (824,908) (2,246,329) (1,932,354) - - 661,683 (109,245) (2,246,329) (1,379,916) 8,641,808 (2,440,038) 6,201,770 6,715,867 1,925,941 8,641,808 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 28 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented. (a) Basis of preparation The financial report of XRF Scientific Limited for the year ended 30 June 2014 was authorised for issue in accordance with a resolution of the directors on 24 September 2014 and covers XRF Scientific Limited as an individual entity as well as the consolidated entity consisting of XRF Scientific Limited and its subsidiaries. These financial statements are presented in the Australian currency. XRF Scientific Limited is a company limited by shares incorporated in Australia and is a for-profit entity whose shares are publicly traded on the Australian Stock Exchange. These general purpose financial statements have been prepared in accordance with Australian Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations and the Corporations Act 2001. Compliance with IFRS The financial statements of XRF Scientific Limited also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. Historical cost convention These financial statements have been prepared under the historical cost convention. Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Financial statement presentation The following significant accounting policies have been adopted in the preparation and presentation of the financial report. New and amended Standards adopted by the group None of the new Standards and amendments to Standards that are mandatory for the first time for the financial year beginning 1 July 2013 affected any of the amounts recognised in the current period or any prior period and are not likely to affect future periods. However, amendments made to AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements effective from 1 July 2013, now require the individual requirements of AASB 124 to be removed from the notes to the financial statements and these requirements will be disclosed in the Remuneration Report only; and additional note disclosures are required under AASB 12 Disclosure of Interests in Other Entities effective from 1 July 2013. (b) Principles of consolidation (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of XRF Scientific Limited (“company” or “parent company”) as at 30 June 2014 and the results of all subsidiaries for the year then ended. XRF Scientific Limited and its subsidiaries together are referred to in this report as the Group or the consolidated entity. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its investment with the entity and has the ability to affect those returns through its power to direct the activities of the entity. All controlled entities have a 30 June financial year end. The consolidated financial statements are prepared by combining the financial statements of all entities that comprise the consolidated entity, being the company (the parent company) and its subsidiaries as defined in AASB 127 ‘Consolidated and Separate Financial Statements’. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements. On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. If, after reassessment, the fair values of the identifiable net assets acquired exceed the cost of acquisition, the deficiency is credited to profit or loss in the period of acquisition. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 29  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued The consolidated financial statements include the information and results of each subsidiary from the date on which the company obtains control and until such time as the company ceases to control such entities. All intercompany balances and transactions between entities in the economic entity, including any unrealised profits or losses, have been eliminated on consolidation. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Accounting policies of subsidiaries are consistent with the policies adopted by the Group. (ii) Investments in associates and joint-ventures Investment in associates is accounted for using the equity method of accounting in the consolidated financial statements. Under the equity method, the investment in the associates is carried in the consolidated statement of financial position at cost plus post-acquisition changes in the Group’s share of net assets of the associate. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group’s net investment in the associate. The Group's share of the associate post-acquisition profits or losses is recognised in the statement of profit or loss and other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in the associate equals or exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The reporting dates of the associate and the Group are identical and the associate’s accounting policies conform to those used by the Group for like transactions and events in similar circumstances. (iii) Changes in ownership interests The group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of XRF Scientific Limited. When the group ceases to have control, joint control or significant influence, any retained interest in the entity is re- measured to its fair value with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, jointly controlled entity or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. If the ownership interest in a jointly-controlled entity or an associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. (c) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. (d) Foreign currency translation Functional and presentation currency The functional currency of each group entity is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. Transaction and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. 30 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Exchange differences arising on the translation of monetary items are recognised in the income statement, except where deferred in equity as a qualifying cash flow or net investment hedge. The differences taken to equity are recognised in profit or loss on disposal of the net investment. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction, and are recognised in the profit or loss. Group Companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary currency economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows. Assets and liabilities for each statements of financial position presented are translated at the closing rate at the date of that statement of financial position. Income and expenses for each profit or loss item are translated at average exchange rates. All resulting exchange differences are recognised in other comprehensive income. (e) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties. Revenue is recognised for major business activities as follows: (i) Sale of goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Risks and rewards of ownership are considered passed to the buyer at the time of delivery of goods to the customer. (ii) Interest income Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. (iii) Dividends Dividend revenue is recognised when the right to receive a dividend has been established. (iv) Rendering of services Revenue from rendering of services is recognised by reference to the stage of completion of a contract. Stage of completion is measured by reference to labour hours incurred to date as a percentage of total estimated labour hours for each contract. When the contract outcome cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable. (f) Income tax The income tax expense or revenue for the period is the tax payable on the current years taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantially enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 31  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. XRF Scientific Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, XRF Scientific Limited, and the controlled entities in the tax consolidated group account for their own deferred tax amounts. Current tax is accounted for by each subsidiary entity, which is then consolidated up into the tax consolidated group, as per the tax sharing agreement. In addition to its own share of current and deferred tax amounts, XRF Scientific Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Income tax is allocated under the separate taxpayer within group approach. Details about the tax funding agreement are disclosed in note 7. (g) Leases Leases of property, plant and equipment where the entity has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the lease term. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases (note 25(a)(i)). Payments made under operating leases (net of any incentives received from the lessor) are charged to the profit or loss on a straight-line basis over the period of the lease. Lease income from operating leases is recognised in income on a straight-line basis over the lease term. (h) Business combinations The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the group’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently re-measured to fair value with changes in fair value recognised in profit or loss. All purchase consideration is now recorded at fair value at the acquisition date. Contingent payments classified as debt are subsequently re-measured through profit or loss. Under the group’s previous policy, contingent payments were only recognised when the payments were probable and could be measured reliably and were accounted for as an adjustment to the cost of acquisition. Acquisition-related costs are expensed as incurred. Previously, they were recognised as part of the cost of acquisition and therefore included in goodwill. 32 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Non-controlling interests in an acquiree are now recognised either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. This decision is made on an acquisition-by-acquisition basis. Under the previous policy, the non-controlling interest was always recognised at its share of the acquiree’s net identifiable assets. If the group recognises previous acquired deferred tax assets after the initial acquisition accounting is completed there will no longer be any adjustment to goodwill. As a consequence, the recognition of the deferred tax asset will increase the group’s net profit after tax. (i) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash flows from other assets or groups of assets (cash- generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. (j) Cash and cash equivalents For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid instruments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the Statement of Financial Position. (k) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for doubtful debts. Trade receivables are due for settlement no more than 90 days from the date of recognition. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off to the income statement. A provision for impairment of receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. Other indicators that determine the trade receivable is impaired is if the party is deemed to be bankrupt. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The movement in the provision is recognised in the income statement. (l) Inventories Raw materials and stores, work in progress and finished goods Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost comprises of direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of inventory on the basis of weighted average costs. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (m) Investments and other financial assets Classification The Company classifies its investments in the following categories: other financial assets, loans and receivables. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 33  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets. Loans and receivables are included in receivables in the Statement of Financial Position (note 9). (ii) Recognition and derecognition Regular purchases and sales of investments are recognised on trade-date – the date on which the Company commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive the cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership. (iii) Subsequent measurement Loans and receivables are carried at amortised cost using the effective interest method. Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analysed between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the security. The translation differences are recognised in profit or loss and other changes in carrying amount are recognised in equity. Changes in the fair value of other monetary and non-monetary securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as gains and losses from investment securities. Details of how the fair value of financial instruments is determined is discussed in note 2. (iv) Fair value The fair value of quoted investments are based on current bid prices. If the market for a financial asset is not active (or for unlisted securities), the Company establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs. (v) Impairment The Company assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. If there is evidence of impairment for any of the Group’s financial assets carried at amortised cost, the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, excluding future credit losses that have not been incurred. The cash flows are discounted at the financial asset’s original effective interest rate. The loss is recognised in the profit or loss. (n) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and available-for-sale securities) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Company is the current bid price: the appropriate quoted market price for financial liabilities is the current ask price. The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. 34 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued The carrying amount less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Company for similar financial instruments. (o) Property, plant and equipment Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Depreciation is calculated using a mixture of the straight line and diminishing value methods to allocate their cost, net of their residual values, over their estimated useful lives, as follows: Plant and Equipment Furniture, Fixtures and Fittings Motor Vehicles Office Equipment 5%-40% 5%-20% 15%-22.5% 7.5%-40% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(i)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the profit or loss. (p) Intangible assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifiable assets of the acquired subsidiary/associate/business at the date of acquisition. Goodwill on acquisitions of subsidiaries and businesses is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is assigned to cash-generating units for the purpose of impairment testing. Each of those cash-generating units represents the Company’s investment in each country of operation by each primary-reporting segment (note 14(a)). (ii) Patents, trademarks and licences Patents, trademarks and licences have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of patents, trademarks and licences over their estimated useful lives, which vary from 3 to 20 years. (iii) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technical feasibility and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life, which varies from 1 to 4 years. (q) Trade and other payables These amounts represent liabilities for goods and services provided to the Company prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 60 days of recognition. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 35  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued (r) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities, which are not incremental costs relating to the actual draw-down of the facility, are recognised as prepayments and amortised on a straight-line basis over the term of the facility. The fair value of the liability portion of a convertible bond is determined using a market interest rate for an equivalent non- convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders’ equity, net of income tax effects. Borrowings are removed from the Statement of Financial Position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or other expenses. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. (s) Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. All other borrowing costs are recognised as an expense in profit or loss in the period in which they are incurred. (t) Provisions Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as an interest expense. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions for legal claims, service warranties and make good obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. (u) Employee benefits (i) Short-term obligations Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled wholly within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. (ii) Other long-term employee benefit obligations The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experiences of employee departures and periods of service. There amounts are not expected to be settled wholly within 12 months of the reporting date. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (iii) Retirement benefit obligations The amount charged to profit or loss in respect of superannuation represents the contributions made by the Group to superannuation funds as nominated by the individual employee. Contributions made by the Company to employee superannuation funds are charged as expenses when incurred. 36 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued (iv) Share-based payments For options issued the fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The fair value of the options granted is adjusted to reflect market vesting conditions, but excludes the impact of any non- market vesting conditions (e.g. profitability and sales forecast targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each reporting date, the entity revises its estimate of the number of options that are expected to become exercisable. (v) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after reporting date are discounted to present value. (v) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of acquisition as part of the purchase consideration If the entity reacquires its own equity instruments, e.g. as the result of a share buy-back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity. (w) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial year but not distributed at reporting date. (x) Goods and services tax Revenues, expenses and assets are recognised net of the amount of associated goods and services tax (GST), unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the taxation authority, are presented as operating cash flows. (y) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 37  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued (z) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2014 reporting periods. The group’s and the parent entity’s assessment of the impact of these new standards and interpretations is set out below. (i) AASB 9 Financial Instruments (issued December 2009 and amended December 2010 and June 2014) (effective from 1 January 2018) Amends the requirements for classification and measurement of financial assets. The available-for-sale and held-to- maturity categories of financial assets in AASB 139 have been eliminated. AASB 9 requires that gains or losses on financial liabilities measured at fair value are recognised in profit or loss, except that the effects of changes in the liability’s credit risk are recognised in other comprehensive income. Adoption of AASB 9 is only mandatory for the year ending 30 June 2019. The group has not yet made an assessment of the impact of these amendments. (ii) IFRS 15 Revenue from Contracts with Customers (issued June 2014) (effective from 1 January 2017) An entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This means that revenue will be recognised when control of goods or services is transferred, rather than on transfer of risks and rewards as is currently the case under IAS 18 Revenue. Due to the recent release of this standard, the Group has not yet made a detailed assessment of the impact of this standard. (iii) IFRS 9 Equity Accounting in Separate Financial Statements (issued August 2014) (effective from 1 January 2016) Currently, investments in subsidiaries, associates and joint ventures are accounted for in separate financial statements at cost or at fair value under IAS 39/IFRS 9. These amendments provide an additional option to account for these investments using the equity method as described in IAS 28 Investments in Associates and Joint Ventures. The entity currently accounts for investments in associates and joint ventures in the parent financial information at cost. When these amendments are first adopted, the entity will decide whether to account for these investments in the parent financial information using the equity method. This may result in an increase in investments and retained earnings on 1 July 2015 so that investments are recorded at the equity accounted amount under IAS 28. (iv) AASB 2013-3 Amendments to AASB 136 Recoverable Amount Disclosures for Non-Financial Assets (issued June 2013) (effective from 1 January 2014) Clarifies the disclosure requirements for cash-generating units (CGUs) with significant amounts of goodwill and intangibles with indefinite useful lives and also adds additional disclosures when recoverable amount is determined based on fair value less costs to sell. As this standard amends disclosure requirements only, there will be no impact on amounts recognised in the financial statements. The recoverable amount for CGUs with significant amounts of goodwill and intangibles with indefinite lives will only be required to be disclosed where an impairment loss has been recognised. However, there will be additional disclosures about the level of the fair value hierarchy where recoverable amount for a CGU is determined based on fair value less costs to sell. (v) AASB 3 Business Combinations (issued June 2014) (effective from 1 July 2014) The amendment clarifies that contingent consideration is assessed as either a liability or an equity instrument on the basis of AASB 132 Financial Instruments: Presentation. The amendment also requires contingent consideration that is not classified as equity to be remeasured to fair value at each reporting date, with changes in fair value being reported in profit or loss. There will be no impact on the financial statements when these amendments are first adopted because they apply prospectively to business combinations for which the acquisition date is on or after 1 July 2014. 38 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued (vi) AASB 8 Operating Segments (issued June 2014) (effective from 1 July 2014) When operating segments have been aggregated in determining reportable segments, additional disclosures are required regarding judgments made by management in applying the aggregation criteria used to assess that the aggregated segments have similar economic characteristics, including:   A description of the operating segments that have been aggregated The economic indicators considered in determining that the aggregated operating segments share similar economic characteristics. There will be no impact on the financial statements when these amendments are first adopted because this is a disclosure standard only. However, as the group currently aggregates operating segments in determining reportable segments, additional disclosures regarding judgments made by management in applying the aggregation criteria will be required when this amendment is adopted for the first time in the financial statements for the year ended 30 June 2015. (vi) AASB 124 Related Party Disclosures (issued June 2014) (effective from 1 July 2014) The amendment clarifies that an entity that provides key management personnel services (‘management entity’) to a reporting entity (or to the parent of the reporting entity), is a related party of the reporting entity. The amendment also requires separate disclosure of amounts recognised as an expense for key management personnel services provided by a separate management entity (but not in the categories set out in AASB 124.17). There will be no impact on the financial statements when these amendments are first adopted because this is a disclosure standard only. As the group does not currently engage the services of a management entity, it is also unlikely that any additional disclosures will be required when this amendment is adopted for the first time for the year ended 30 June 2015. NOTE 2: FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks; market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Risk management is carried out by management under policies approved by the Board of Directors. Management identifies, evaluates and hedges financial risks in close co-operation with the Company’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as mitigating foreign exchange, interest rate and credit risks, use of financial instruments and investing excess liquidity. (a) Market risk (i) Foreign exchange risk The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the Australian Dollar. The currencies giving rise to this risk are predominantly Euros, the US Dollar, and the Canadian Dollar. Foreign currency risk arises where settlement of a trade receivable, payable or borrowings is denominated in a currency that is not the entity’s functional currency, which may result in a foreign currency gain or loss. The group seeks to mitigate this risk by engaging in a majority of commercial transactions that are generally in AUD. The group’s exposure to foreign currency risk at the reporting date was as follows: Trade receivables Trade payables Group sensitivity 30 June 2014 30 June 2013 CAD 78,231 172,247 EUR USD CAD EUR USD 50,101 152,070 - - - - 67,780 76,506 - - Based on the financial instruments held at 30 June 2014, had the Australian dollar strengthened / weakened by 10% (based on historical reasonableness movements) against the exchange rates in the above tables, with all other variables held constant, the Group’s post-tax profit for the year would have been $12,790 lower / $15,632 higher (2013: $16,370 lower / $20,008 higher), mainly as a result of foreign currency exchange gains/losses on translation of foreign currency denominated financial instruments as detailed in the table above. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 39  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 2: FINANCIAL RISK MANAGEMENT continued (ii) Price risk As the group does not have any investments in equities or commodities, its exposure to equities price risk and commodity price risk is minimal. While the group uses commodities in its operations, customer commitments to spot rates purchased result in the Group’s exposure to commodities price risk being immaterial. (iii) Cash flow, fair value and interest rate risk As at 30 June 2014 the group had no variable interest rate debt, therefore consider fair value interest rate risk minimal. Group sensitivity At 30 June 2014, if interest rates had changed by -/+ 100 basis points (based upon forward treasury rates) from the year- end rates with all other variables held constant, post-tax profit for the year would have been $12,851 higher / lower (2013: $21,770 higher / lower), mainly as a result of higher/lower interest income from cash and cash equivalents. Cash and cash equivalent balances at 30 June 2014 would have been higher/lower by the same amount. (b) Credit risk Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit risk arises from cash and cash equivalents, trade receivables and other receivables. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted. The Group trades only with recognised, creditworthy third parties. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. Counterparties without external credit ratings are in majority existing customers (<6months) with no history of defaults (Group 2). With respect to credit risk arising from the other financial assets of the Group, which comprise of cash and cash equivalents, and trade and other receivables, the Group’s exposure to credit risk arises from the default of the counter party, with a maximum exposure equal to the carrying amount of these financial assets. There are no significant concentrations of credit risk within the Group at the reporting date. The following table represents the group’s exposure to credit risk: Cash and cash equivalents (AA- rated) Trade receivables, net of impairment provision (note 9) (Group 2) Other receivables (external parties) Consolidated 2014 $ 2013 $ 6,201,770 3,782,504 84,751 8,641,808 3,399,605 273,717 10,069,025 12,315,130 Credit risk exposure is not significantly different for any of the segments of the group. Details of impaired trade receivables, and trade receivables overdue but not impaired can be found at note 9. An analysis of the Group’s consolidated trade receivables is as follows: Current Over 30 Over 60 Over 90 Total days days days 2014 2,433,113.. 737,280 525,944 91,167.. 3,787,504.. 2013 1,940,873.. 987,827 276,209 199,696.. 3,404,605.. 40 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 2: FINANCIAL RISK MANAGEMENT continued (c) Liquidity risk The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, debentures, finance leases and hire purchase contracts. The below analyses the group’s financial liabilities into relevant maturity groupings based on the remaining period at the reporting date. The amounts disclosed in the table are the contractual undiscounted cash flows. There have been no breaches or defaults on the repayment of debt. Contractual maturities of financial liabilities Less than 6 months 6 – 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows As at 30 June 2014 $ $ $ $ $ $ Carrying Amount (assets)/ liabilities $ Non-derivatives Trade and other payables Total non-derivatives 966,438 966,438 As at 30 June 2013 Non-derivatives Trade and other payables Total non-derivatives 827,778 827,778 - - - - - - - - - - - - - - - - 966,438 966,438 966,438 966,438 827,778 827,778 827,778 827,778 The group had access to the following undrawn borrowing facilities at the end of the reporting period: Bank overdraft facility Bank guarantee facility Consolidated 2014 $ 2013 $ 1,000,000 1,501,545 2,501,545 1,000,000 595,180 1,595,180 (d) Fair value estimation The fair value bases of financial assets and financial liabilities are outlined in note 1(n). All financial assets and liabilities have carrying values that are reasonable approximates of their fair values, for the Consolidated Entity. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 41  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 3: CRITICAL ACCOUNTING ESTIMATES AND SIGNIFICANT JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 1(p). Please refer to note 14 for the details on impairment tests performed on goodwill. (b) Capitalisation of development expenditures The Group capitalises development costs where management considers it probable that the related projects will be commercially and technically feasible and successful, in accordance with the accounting policy stated in note 1(p)(iii). (c) Tax The determination of the group's provision for income tax as well as deferred tax assets and liabilities involves significant judgements and estimates on certain matters and transactions, for which the ultimate outcome may be uncertain. If the final outcome differs from the group's estimates, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. NOTE 4: SEGMENT INFORMATION Operating Segments – AASB 8 requires a management approach under which segment information is presented on the same basis as that used for internal reporting purposes. This is consistent to the approach used in previous periods. Operating segments are reported in a uniform manner to which is internally provided to the chief operating decision maker. The chief operating decision maker has been identified as the Chief Executive Officer. An operating segment is a component of the group that engages in business activities from which it may earn revenues and incur expenses, including those that relate to transactions with any of the Group’s other components. Each operating segment’s results are reviewed regularly by the Chief Executive Officer to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The Chief Executive Officer monitors segment performance based on profit before income tax expense. Segment results that are reported to the Chief Executive Officer include results directly attributable to a segment as well as those allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment and intangible assets other than goodwill. The consolidated entity has determined that strategic decision making is facilitated by evaluation of operations on the customer segments of Capital Equipment, Precious Metals & Consumables. For each of the strategic operating segments, the Chief Executive Officer reviews internal management reports on a monthly basis. (a) Description of segments The following summary describes the operations in each of the group’s reportable segments: Capital Equipment Design, manufacture and service organisation, specialising in automated fusion equipment, high temperature test and production furnaces, as well as general laboratory equipment. Precious Metals Manufactures products for the laboratory and platinum alloy markets. Consumables Produces and distributes consumables, chemicals and other supplies for analytical laboratories. 42 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 4: SEGMENT INFORMATION continued (b) Primary reporting format – business segments Segment information provided to the Chief Executive Officer for the full-year ended 30 June 2014 is as follows: Full-year ended 30 June 2014 $ $ $ Capital Equipment Precious Metals Consumables Total $ Segment revenue Total segment revenue Inter segment sales Revenue from external customers 5,553,570 (146,598) 5,406,972 10,445,135 (597,431) 9,847,704 6,402,883 - 6,402,883 22,401,588 (744,029) 21,657,559 Profit before income tax expense 354,106 1,340,612 2,357,681 4,052,399 Full-year ended 30 June 2013 Segment revenue Total segment revenue Inter segment sales Revenue from external customers 8,354,173 (121,011) 8,233,162 8,501,702 (1,433,326) 7,068,376 7,222,557 - 7,222,557 24,078,432 (1,554,337) 22,524,095 Profit before income tax expense 1,143,404 1,429,991 2,825,831 5,399,226 Segment assets At 30 June 2014 At 30 June 2013 Segment liabilities At 30 June 2014 At 30 June 2013 Depreciation expense For the year ended 30 June 2014 For the year ended 30 June 2013 5,500,293 5,148,160 10,082,109 7,199,216 16,540,705 14,897,539 32,123,107 27,244,915 483,189 354,685 50,007 43,547 2,590,257 462,844 210,540 175,551 Revenue from external customers – segments Unallocated revenue Revenue from external customers – total Profit before income tax expense – segments Eliminations and unallocated (corporate) Profit before income tax expense from continuing operations Total segment assets Eliminations and unallocated (corporate) Total assets Total segment liabilities Eliminations and unallocated (corporate) Total liabilities 171,624 181,173 173,456 189,251 2014 $ 21,657,559 192,503 21,850,062 4,052,399 (511,183) 3,541,216 32,123,107 (627,603) 31,495,504 3,245,070 (867,946) 2,377,124 3,245,070 998,702 434,003 408,349 2013 $ 22,524,095 283,321 22,807,416 5,399,226 43,207 5,442,433 27,244,915 4,012,521 31,257,436 998,702 1,198,286 2,196,988 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 43  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 5: REVENUE From continuing operations Revenue from continuing operations Sale of goods Interest received Other income Profit on sale of non-current assets Recoveries Other revenue NOTE 6: EXPENSES Profit/(loss) before income tax includes the following specific expenses Depreciation Depreciation (included in administration expenses) Depreciation (included in cost of goods sold) Total depreciation Amortisation Patents and trademarks (included in administration expenses) Research and development (included in administration expenses) Total amortisation Other specific expenses Consolidated 2014 $ 2013 $ 21,666,472 22,496,417 183,590 310,999 21,850,062 22,807,416 - 41,507 151,552 193,059 150,922 106,296 136,236 393,454 Consolidated 2014 $ 2013 $ 152,811 313,114 465,925 10,806 78,103 88,909 120,968 310,359 431,327 10,707 169,058 179,765 Employee benefits expenses (included in administration expenses) Rental expense relating to operating leases (included in occupancy expenses) Acquisition of business costs (included in other expenses) 2,622,891 2,286,430 515,675 339,776 450,138 65,056 44 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 7: INCOME TAX EXPENSE (a) Income tax expense Current tax Deferred tax Adjustments for current tax of prior periods Income tax expense is attributed to: Profit from continuing operations Deferred income tax expense included in income tax expense comprises: Decrease (increase) in deferred tax assets (note 15) (Decrease) increase in deferred tax liabilities (note 18) (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit/(loss) from continuing operations before income tax expense Tax at the Australian rate of 30% (2013: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Acquisition of business costs Share of (profit) / loss of investments accounted for using the equity method Sundry items Adjustments for deferred tax of prior periods Adjustments for current tax of prior periods Income tax expense (c) Amounts recognised directly in equity Aggregate current and deferred tax arising in the reporting period and not recognised in the net profit or loss but directly debited to equity: Net deferred tax – debited (credited) directly to equity (d) Tax losses Unused tax losses for which no deferred tax asset has been recognised Potential benefit @ 30% All unused tax losses were incurred by Australian entities. Consolidated 2014 $ 2013 $ 1,113,297 1,624,561 6,148 (19,487) 14,117 (9,017) 1,099,958 1,629,661 1,099,958 1,629,661 (83,264) 89,412 6,148 130,309 (116,192) 14,117 3,541,216 3,541,216 5,442,433 5,442,433 1,062,365 1,632,730 85,337 27,648 (55,905) 19,517 (13,700) 131 1,119,445 1,638,678 - - (19,487) (9,017) 1,099,958 1,629,661 - – (1,495) (1,495) – XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 45  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 7: INCOME TAX EXPENSE continued (e) Tax consolidation legislation XRF Scientific Limited and its wholly-owned Australian controlled entities elected to enter into the tax consolidation regime from 1 July 2005. The accounting policy in relation to this legislation is set out in note 1(f). The entities have entered into a tax funding agreement under which the wholly-owned entities fully compensate XRF Scientific Limited for any current tax payable assumed and are compensated by XRF Scientific Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to XRF Scientific Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax installments. The funding amounts are recognised as current intercompany receivables or payables. NOTE 8: CURRENT ASSETS – CASH AND CASH EQUIVALENTS Cash at bank and on hand Deposits at call Reconciliation to cash at the end of the year Balances as above Balance per statements of cash flows (a) Cash at bank and on hand Consolidated 2014 $ 2,563,657 3,638,113 6,201,770 2013 $ 2,288,498 6,353,310 8,641,808 6,201,770 6,201,770 8,641,808 8,641,808 Cash at bank earns interest at floating rates based on daily bank deposit rates of between 0.01% to 3.00% pa (2013: 0.01% to 3.00%). Cash available for use is as reported above, with no restrictions applicable. (b) Deposits at call Short-term deposits are made for varying periods of between no set term and 4 months, depending on the immediate cash requirements of the company, and earn interest at the respective short-term deposit rates. Deposits at call are subject to interest rates between 3.17% to 3.65% pa (2013: 4.15% to 4.50% pa). (c) Risk exposure The Group’s exposure to interest rate risk is discussed in note 2. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of cash and cash equivalents mentioned above. 46 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 9: CURRENT ASSETS – TRADE AND OTHER RECEIVABLES Trade receivables Allowance for impairment of receivables Other receivables from: Other external parties Total trade and other receivables Past due but not impaired Up to 3 months Up to 6 months Allowance for impairment of receivables Balance at 1 July (Increase)/Decrease in allowance during the year Balance at 30 June (a) Impaired trade receivables Consolidated 2014 $ 2013 $ 3,787,504 3,404,605 (5,000) (5,000) 3,782,504 3,399,605 84,751 122,946 3,867,255 3,522,551 1,263,224 1,290,561 91,167 199,696 1,354,391 1,490,257 (5,000) (5,000) - - (5,000) (5,000) The consolidated entity has recognised no losses (2013: $3,180) in respect of impaired trade receivables during the year ended 30 June 2014. Prior year losses have been included as ‘other expenses’ in the statement of profit or loss and other comprehensive income. (b) Past due but not impaired As at 30 June 2014, trade receivables of the Group of $1,354,391 (2013: $1,490,257) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is in note 2. The other classes within trade and other receivables do not contain impaired assets and are not past due. Based on the credit history of these classes, it is expected that these amounts will be received when due. The Group does not hold any collateral in relation to these receivables. (c) Other receivables These amounts generally arise from transactions outside the usual operating activities of the Group. Other receivables are subject to the same terms as trade receivables. Those terms have been described in Note 1(k). (d) Effective interest rates and credit risk Information concerning the effective interest rate and credit risk of both current and non-current receivables is set out in note 2. (e) Non-current receivables There are no non-current receivables in the current year (2013: Nil). XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 47  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 10: CURRENT ASSETS – INVENTORIES Raw material and stores ‐ at cost Work-in-progress Finished goods ‐ at cost Consolidated 2014 $ 2013 $ 2,461,600 2,018,501 - 72,671 516,127 641,086 2,977,727 2,732,258 Stock was valued at lower of cost and net realisable value on 30 June 2014 and 30 June 2013. Inventory expense Inventories recognised as expense during the year ended 30 June 2014 amounted to $ 8,997,518 (2013: $8,326,584). The cost of writing down inventories to net realisable value during the year ended 30 June 2014 was $6,110 (2013: Nil). NOTE 11: OTHER CURRENT ASSETS Deposits paid Accrued income Prepayments (insurance policies, rates and other fees) Consolidated 2014 $ 18,982 15,985 175,959 210,926 2013 $ 94,701 63,410 193,671 351,782 NOTE 12: INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD Set out below are the associates and joint ventures of the group as at 30 June 2014 which, in the opinion of the directors, are material to the group. The entities listed below have share capital consisting solely of ordinary shares, which are held directly by the group. The country of incorporation or registration is also their principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held. % of ownership Quoted Place of interest Nature of Measurement fair value Carrying amount Name of entity business 2014 Gestion Scancia Inc. Canada 49.99 2013 19.99 relationship Associate 1 method Equity 2014 N/A 2 2013 2014 2013 N/A 2 529,414 208,967 Immaterial joint venture (c) Total equity accounted investments 126,886 126,939 - - 656,300 335,906 1 Scancia is a manufacturer of chemical x-ray fluxes, used for x-ray fluorescence analysis and is based in Quebec, Canada. Its products complement the XRF’s existing range and the investment supports the Group’s international expansion strategy. 2 Private entity – no quoted price available. (a) Commitments and contingent liabilities in respect of associates and joint ventures As at 30 June 2014, there are no contingent liabilities or commitments to provide funding for the capital commitments of associates and joint venture entities (2013: Nil). 48 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 12: INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD continued (b) Summarised financial information for associate Gestion Scancia Inc. has a reporting date of 31 May. The different date does not have a material effect on the reportable balances of the Group, so no adjustments have been made. (i) Summarised balance sheet Current assets Non-current assets Current liabilities Non-current liabilities Net assets Reconciliation to carrying amounts: Opening net assets 1 July Total comprehensive income / (loss) for the period Issue of shares Closing net assets Group’s share in % of closing net assets Group’s share in $ of closing net assets Goodwill Carrying amount (ii) Summarised statement of comprehensive income Revenue Total comprehensive income / (loss) Gestion Scancia Inc. 2014 $ 2013 $ 201,384 345,445 (169,190) (387,330) (9,691) 143,108 (307,887) 155,088 (9,691) 49.99% (4,845) 534,259 529,414 258,857 242,260 (57,039) (300,970) 143,108 191,502 48,394 - 143,108 19.99% 28,607 180,360 208,967 861,367 (307,887) 517,903 48,394 (c) Individually immaterial joint venture In addition to the interest in the associate disclosed above, the group also has an interest in an individually immaterial joint venture, XRock Automation Pty Ltd, which is accounted for using the equity method. Aggregate carrying amount of individually immaterial joint venture Aggregate amount of the Group’s share of: Profit/(loss) from continuing operations Post-tax profit or loss from discontinued operations Other comprehensive income Total comprehensive income (d) Group’s share of profit / (loss) of investments accounted for using the equity method Gestion Scancia Inc. XRock Automation Pty Ltd XRock Automation Pty Ltd 2014 $ 2013 $ 126,885 126,939 (54) - - (54) 26,939 - - 26,939 2014 $ (92,104) (54) (92,158) 2013 $ 18,727 26,939 45,666 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 49  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 13: NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT Consolidated Equipment Vehicles Improvements Equipment Plant & Motor Property Office $ $ $ $ Total $ At 30 June 2012 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2013 Opening net book amount Transfers between asset classes Additions Disposals Depreciation charge Closing net book amount At 30 June 2013 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2014 Opening net book amount Transfers between asset classes Additions Disposals Depreciation charge Closing net book amount At 30 June 2014 Cost or fair value Accumulated depreciation Net book amount 3,463,549 (911,627) 2,551,922 2,551,922 (200,129) 1,069,612 (12,287) (310,359) 3,098,759 4,200,930 (1,102,171) 3,098,759 3,098,759 (5,456) 17,780 (25,005) (314,131) 2,771,947 4,165,835 (1,393,888) 2,771,947 100,911 (37,300) 63,611 63,611 - 31,219 (15,672) (10,529) 68,629 101,405 (32,776) 68,629 68,629 - 54,739 - (16,255) 107,113 157,652 (50,539) 107,113 288,713 (131,863) 156,850 156,850 3,856 109,963 (1,978) (58,019) 210,672 405,024 (194,352) 210,672 210,672 5,456 178,489 (405) (63,268) 330,944 579,383 (248,439) 330,944 212,800 4,065,973 (146,554) (1,227,344) 66,246 2,838,629 66,246 196,273 82,016 (4,623) (52,420) 287,492 2,838,629 - 1,292,810 (34,560) (431,327) 3,665,552 500,732 5,208,091 (213,240) (1,542,539) 287,492 3,665,552 287,492 3,665,552 - 157,358 (280) (72,271) 372,299 - 408,366 (25,690) (465,925) 3,582,303 649,699 5,552,569 (277,400) (1,970,266) 372,299 3,582,303 All items of property, plant and equipment were recorded at cost as at 30 June 2014 and 30 June 2013. The cost values of all items are not considered to be materially different to their fair values. 50 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 14: NON-CURRENT ASSETS – INTANGIBLE ASSETS Consolidated At 30 June 2012 Cost or fair value Accumulated amortisation and impairment Net book amount Year ended 30 June 2013 Opening net book amount Additions Disposals Amortisation charge Closing net book amount At 30 June 2013 Cost or fair value Accumulated amortisation and impairment Net book amount Year ended 30 June 2014 Opening net book amount Additions Disposals Foreign currency adjustment Amortisation charge Closing net book amount At 30 June 2014 Cost or fair value Accumulated amortisation and impairment Net book amount Research & Development Goodwill $ $ Patents trademarks & other rights $ Total $ 1,094,077 12,073,882 (656,880) (768,445) 437,197 11,305,437 216,131 (68,501) 147,630 13,384,090 (1,493,826) 11,890,264 437,197 11,305,437 147,630 11,890,264 - (202,727) (169,058) - - - 65,412 11,305,437 - (10,707) 136,923 - (202,727) (179,765) 11,507,772 530,914 (465,502) 11,335,437 (30,000) 65,412 11,305,437 216,131 (79,208) 136,923 12,082,482 (574,710) 11,507,772 65,412 11,305,437 136,923 11,507,772 460,299 - - (78,103) 447,608 1,798,890 - (111,130) - 12,993,197 - - - (10,806) 126,117 2,259,189 - (111,130) (88,909) 13,566,922 990,607 (542,999) 13,023,197 (30,000) 447,608 12,993,197 216,131 (90,014) 126,117 14,229,935 (663,013) 13,566,922 All intangible assets were recorded at cost as at 30 June 2014 and 30 June 2013. The cost values of all items are not considered to be materially different to their fair values. (a) Impairment tests for goodwill Goodwill is allocated to the consolidated entity’s cash generating units (CGU’s) identified according to business segment. A segment-level summary of the goodwill allocation is presented below. Capital Equipment CGU Precious Metals CGU Consumables CGU Consolidated 2014 $ 1,650,171 3,756,054 7,586,972 2013 $ 1,650,171 2,068,294 7,586,972 12,993,197 11,305,437 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 51  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 14: NON-CURRENT ASSETS – INTANGIBLE ASSETS continued (b) Key assumptions used for fair value less costs to sell calculations The recoverable amount of a CGU is determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets approved by the Board covering a five-year period. Growth rates of 3% to 5% used do not exceed the long-term average growth rates for the industry in which each CGU operates. Discount rates of 13% to 16% used reflect specific risks relating to the relevant segments. (c) Impact of possible changes in key assumptions Management believes that no reasonably possible change in any of the above key assumptions would cause the carrying values to materially exceed recoverable amounts. (d) Impairment charge No impairment charges have been deemed necessary for the current period. NOTE 15: NON-CURRENT ASSETS – DEFERRED TAX ASSETS Consolidated 2014 $ 2013 $ 36,174 55,788 212,224 188,849 36,502 90,430 21,600 35,371 396,127 432,301 349,037 83,264 - 432,301 189,845 242,456 432,301 37,412 45,988 21,000 - 293,249 349,037 477,851 (130,309) 1,495 349,037 30,000 319,037 349,037 The balance comprises temporary differences attributable to: Amounts recognised directly in equity: Share issue expenses Amounts recognised in profit or loss: Employee benefits Depreciation of tangible assets Accruals Provisions Other Net deferred tax assets Movements: Opening balance at 1 July (Charged)/credited to profit or loss (note 7) (Charged)/credited to equity Closing balance at 30 June Deferred tax assets expected to be recovered within 12 months Deferred tax assets expected to be recovered after more than12 months 52 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 16: CURRENT LIABILITIES – TRADE AND OTHER PAYABLES Trade payables Sundry creditors and accruals Employee benefits – annual leave (a) Consolidated 2014 $ 380,213 586,225 324,992 2013 $ 247,036 580,742 298,071 1,291,430 1,125,849 Terms and conditions of trade payables vary between suppliers, however terms of trade are generally 30 days. (a) Amounts not expected to be settled within the next 12 months The entire obligation is presented as current, since the Group does not have an unconditional right to defer settlement. However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave within the next 12 months. The following amounts reflect leave that is not expected to be taken within the next 12 months: Annual leave obligations expected to be settled after 12 months (b) Risk exposure Information about the Group’s exposure to foreign exchange risk is provided in note 2. NOTE 17: CURRENT LIABILITIES – PROVISIONS Long service leave (a) Dividends payable to ordinary shareholders Making good of leases (b) Movements in provision for Making good of leases: Opening balance at 1 July Charged to profit or loss Reversed to fund building repairs on vacation of premises Closing balance at 30 June Consolidated 2014 $ 2013 $ 214,495 198,071 Consolidated 2014 $ 2013 $ 248,689 48,891 72,000 369,580 65,000 12,000 (5,000) 72,000 203,636 20,759 65,000 289,395 53,000 12,000 - 65,000 (a) Amounts not expected to be settled within the next 12 months The current provision for long service leave includes all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount is presented as current, since the Group does not have an unconditional right to defer settlement. Based on past experience, the Group does not expect all employees to take the full amount of accrued long service leave or require payment within the next 12 months. The following amounts reflect leave that is not to be expected to be paid within the next 12 months: Long service leave obligations expected to be settled after 12 months Consolidated 2014 $ 2013 $ 186,517 153,636 (b) Making good of leases provision XRF Scientific Limited is required to restore leased premises to their original condition at the end of the respective lease terms. A provision has been recognised for the present value of the estimated expenditure required for general repairs to premises. All amounts provided for have been expensed in full through the profit or loss as occupancy expenses. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 53  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 18: NON-CURRENT LIABILITIES – DEFERRED TAX LIABILITIES The balance comprises temporary differences attributed to: Amounts recognised in profit or loss Research and development Depreciation Other Net deferred tax liabilities Movements: Opening balance at 1 July Charged/(credited) to profit or loss (note 7) Closing balance 30 June NOTE 19: NON-CURRENT LIABILITIES – PROVISIONS Employee benefit – long service leave Consolidated 2014 $ 2013 $ 134,282 24,050 13,646 171,978 19,624 29,354 33,588 82,566 171,978 82,566 82,566 89,412 171,978 198,758 (116,192) 82,566 Consolidated 2014 $ 2013 $ 133,733 127,787 54 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 20: ISSUED CAPITAL Issued capital Ordinary shares fully paid Total issued capital Consolidated Consolidated 2014 Shares 2013 Shares 2014 $ 2013 $ 132,157,097 132,157,097 18,257,772 18,257,772 132,157,097 132,157,097 18,257,772 18,257,772 Effective 1 July 1998 the corporations legislation abolished the concept of authorised capital and par value of shares. Accordingly these are not disclosed. Movements in ordinary share capital: Date Details 1 July 2012 Opening balance Exercise of options on 30 November 2012 Transaction costs (net of deferred tax) Exercise of options on 7 December 2012 Transaction costs (net of deferred tax) Closing balance 30 June 2013 1 July 2013 Opening balance 30 June 2014 Closing balance (a) Ordinary shares Number of shares 128,823,764 2,000,000 1,333,333 132,157,097 132,157,097 132,157,097 Issue Price 0.20 0.20 $ 17,594,594 400,000 (1,943) 266,667 (1,546) 18,257,772 18,257,772 18,257,772 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 amount 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. (b) Dividend reinvestment plan The parent entity does not have a dividend reinvestment plan in place. (c) Capital risk management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can continue to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The gearing ratios at 30 June 2014and 30 June 2013 were as follows: Total borrowings Less: cash and cash equivalents Net debt / (positive cash position) Total equity Total equity plus net debt Gearing ratio Consolidated 2014 $ 2013 $ - - (6,201,770) (8,641,808) (6,201,770) (8,641,808) 29,118,380 29,060 448 22,916,610 20,418,640 Net cash (27.1%) Net cash (42.3%) XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 55  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 21: RESERVES AND RETAINED PROFITS (a) Reserves Foreign currency translation reserve Share-based payments reserve Balance 30 June (b) Retained Profits Movements in retained profits were as follows: Balance 1 July Net profit for the year Dividends paid or provided for Balance 30 June (c) Nature and purpose of reserves Foreign currency translation reserve Consolidated 2014 $ 2013 $ (136,997) 759,243 622,246 - 759,243 759,243 10,043,433 2,441,258 8,163,015 3,812,772 (2,246,329) (1,932,354) 10,238,362 10,043,433 The foreign currency translation reserve is used to recognise the unrealised gains and losses arising from the consolidation of subsidiaries denominated in currencies other than Australian dollars. Share-based payment reserve The share-based payments reserve is used to store the historic movements in the fair value of exercised options. NOTE 22: DIVIDENDS Final dividend for the year ended 30 June 2013 of 1.7 cent per share paid on 27 September 2013 Total dividends provided for or paid Consolidated 2014 $ 2013 $ 2,246,329 2,246,329 1,932,354 1,932,354 A fully franked dividend of 1.1 cents per share has been declared on ordinary shares post 30 June 2014. Franked Dividends Consolidated 2014 $ 2013 $ Franking credits available for subsequent financial years based on a tax rate of 30% (2013: 30%) 4,146,509 3,502,873 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: (a) (b) (c) franking credits that will arise from the payment of the amount of the provision for income tax; franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries were paid as dividends. The franked portions of the final dividends recommended after 30 June 2014 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ended 30 June 2014. The impact on the franking account of the dividend recommended by the directors since year end, but not recognised as a liability at year end, will be a reduction in the franking account of $623,026 (2013: $962,859). 56 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 23: BUSINESS COMBINATIONS (a) Summary of acquisition On 2 August 2013 XRF Scientific Limited acquired the business of Kitco Labware, a supplier of platinum labware and precious engineered products based in Montreal, Canada. The business was founded in 2002 and currently has sales into Canada, USA and Latin America. It has a diverse customer base that operates in industries such as cement, soil analysis, mining and petrochemicals. Details of the purchase consideration and goodwill are as follows: (i) Purchase consideration: Cash paid upfront The assets and liabilities recognised as a result of the acquisition are as follows: Goodwill 2014 $ 1,798,890 1,798,890 The goodwill is attributable to Kitco Labware’s strong position and profitability in trading in the platinum labware and precious engineered products markets and synergies expected to arise after the company’s acquisition of the business. None of the goodwill is expected to be deductible for tax purposes. (ii) Revenue and profit contribution The acquired business contributed revenues of $3.6m and net profit before tax of $300k to the group for the period of 2 August 2013 to 30 June 2014. If the acquisition had occurred on 1 July 2013, consolidated revenue and consolidated net profit before tax for the period ended 30 June 2014 would have been $22.2m and $3.6m respectively. These amounts have been calculated using the group’s accounting policies. (iii) Contingent consideration The agreement required XRF to pay the former owners of Kitco Labware additional consideration up to a maximum undiscounted amount of CAD$600,000. The terms of the contingent consideration are as follows:   Additional cash paid via deferred consideration of CAD$300,000, should the business generate EBITDA of CAD$500,000 in the period of 12 months from settlement (cid:2)Further cash paid via deferred consideration of CAD300,000 should the business generate and EBITDA result of between CAD$500,000 and CAD$650,000 in the period of 12 months from settlement. The unaudited results indicate that these milestones have not been achieved, therefore a liability for additional consideration has not been recorded (note 33). (b) Purchase consideration – cash outflow Outflow of cash to acquire business of Kitco Labware, net of cash acquired Cash consideration Total outflow of cash - investing activities Direct costs relating to the acquisition 2014 $ 2013 $ 1,798,890 1,798,890 - - Recognised in profit or loss and in operating cash flows in the statement of cash flows Total outflow of cash - operating activities 108,887 108,887 65,056 65,056 NOTE 24: CONTINGENCIES At 30 June 2014, the consolidated entity had no material contingent liabilities in respect of claims, contingent considerations, associates and joint ventures or any other matters. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 57  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 25: COMMITMENTS (a) Lease commitments Commitments in relation to leases contracted for at the reporting date but not recognised as liabilities, payable: Consolidated 2014 $ 2013 $ Within one year Later than one year but not later than five years Later than five years Representing: Cancellable operating leases Non-cancellable operating leases (i) (i) Non-cancellable operating leases 452,340 904,078 - 428,758 1,052,158 14,166 1,356,418 1,495,082 1,356,418 1,356,418 - 1,495,082 1,495,082 Consolidated 2014 $ 2013 $ 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 452,340 904,078 - 428,758 1,052,158 14,166 1,356,418 1,495,082 The specific terms of each operating lease vary and are on normal commercial terms. (b) Financing arrangements The group has an overdraft facility of $1,000,000 as a safeguard on working capital requirements. An additional $1,600,000 facility is utilised for bank guarantees. The group’s undrawn borrowing facilities were as follows as at 30 June 2014: Bank overdraft facility Bank guarantee facility Consolidated 2014 $ 1,000,000 1,501,545 2,501,545 2013 $ 1,000,000 595,180 1,595,180 NOTE 26: REMUNERATION OF AUDITORS During the year the following fees were paid or payable for services provided by the auditor of the Company, its related practices and non-related audit firms: Assurance & other services BDO Audit (WA) Pty Ltd Audit and review of financial reports Taxation services Other services Total remuneration for audit and other services 58 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT Consolidated 2014 $ 2013 $ 106,105 34,119 3,535 143,759 98,081 59,070 1,836 158,987 For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 27: RELATED PARTY TRANSACTIONS (a) Parent entity The ultimate parent and controlling entity is XRF Scientific Limited which at 30 June 2014 owns 100% of all subsidiaries listed in note 28. (b) Interests in subsidiaries Interests in subsidiaries are set out in note 28. (c) Directors and key management compensation Short-term employee benefits Post-employment benefits Long-term benefits Consolidated 2014 $ 625,275 45,720 4,499 675,494 2013 $ 713,476 41,573 6,714 761,763 No other post-employment or termination benefits have been provided. Detailed remuneration disclosures are available in the remuneration report from pages 9-14. (d) Loans to key management personnel There were no loans to any key management personnel during either of the years ended 30 June 2013 or 30 June 2014. (e) Other transactions with key management personnel Premises were rented from a related entity of Director David Brown during the financial year. These properties were rented on normal commercial terms and conditions, totalling $104,657 (2013: $100,977). No amounts were outstanding at the end of the year. All directors of XRF Chemicals Pty Ltd are guarantors on a lease in Osborne Park. Vance Stazzonelli is currently the sole director. NOTE 28: SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities, and results of the following subsidiaries in accordance with the accounting policy described in note 1(b): Name of entity KPL Scientific Inc. Laser Analysis Technologies Pty Ltd 1 Precious Metals Engineering (WA) Pty Ltd XFlux Pty Ltd XRF Chemicals Pty Ltd XRF Labware Pty Ltd XRF Products Pty Ltd 1 XRF Technology (VIC) Pty Ltd XRF Technology (WA) Pty Ltd 1 Deregistered during the period. Country of Incorporation Canada Australia Australia Australia Australia Australia Australia Australia Australia Class of shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Entity holding 2014 % 2013 % 100 - 100 100 100 100 - 100 100 - 100 100 100 100 100 100 100 100 The proportion of ownership interest is equal to the proportion of voting power held. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 59  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 29: RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES Profit for the year Depreciation and amortisation Share of JV equity (profits) / losses Net exchange differences Net (gain) loss on sale of non-current assets (Increase) decrease in trade and other debtors (Increase) decrease in inventories (Increase) decrease in other current asset (Increase) decrease in deferred tax asset (Decrease) increase in trade and other creditors (Decrease) increase in provision for income taxes (Decrease) increase in provision for deferred income tax (Decrease) increase in other liabilities (Decrease) increase in other provisions Consolidated 2014 $ 2013 $ 2,441,258 3,812,772 554,834 92,158 (18,574) 23,737 (467,230) (245,469) 140,855 (83,264) 165,581 (318,215) 89,412 157,227 80,185 611,092 (45,666) - (137,266) 1,477,674 65,743 (275) 128,814 (732,234) (647,115) (116,192) (16,565) (270,017) Net cash inflow (outflow) from operating activities 2,612,495 4,130,765 NOTE 30: SHARE-BASED PAYMENTS There were no share-based payments during the year ended 30 June 2014. The tables below summarise movements in options during the year ended 30 June 2013: Category Grant date Expiry date Consolidated - 2013 Exercise price Balance at Granted Exercised Forfeited Balance at start of the during the during the during the end of the year year year year year Vested and exercisable at end of the year $ Number Number Number Number Number Number Sigma Chemicals 28 July 2010 30 December 0.20 2,000,000 - 2,000,000 2012 Sigma 23 November 30 December 0.20 1,333,333 - 1,333,333 Chemicals 2010 2012 Total 3,333,333 - 3,333,333 - - - - - - - - - Weighted average exercise price $0.20 - $0.20 - - - 60 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 31: EARNINGS PER SHARE (a) Basic earnings per share Profit attributable to the ordinary equity holders of the company (b) Diluted earnings per share Profit attributable to the ordinary equity holders of the Company (c) Reconciliations of earnings used in calculation earnings per share Profit attributable to the ordinary equity holders of the company Profit attributable to the ordinary equity holders of the company Consolidated 2014 Cents 2013 Cents 1.8 1.8 2.9 2.9 $ $ 2,441,258 2,441,258 3,812,772 3,812,772 Number Number (d) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator 132,157,097 130,734,266 in calculating basic earnings per share Options on issue are not dilutive on the current or prior periods. NOTE 32: PARENT ENTITY FINANCIAL INFORMATION (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Statement of Financial Position Current assets Total assets Current liabilities Total liabilities Shareholder’s equity Issued capital Reserves Accumulated losses Profit or (loss) for the year 2014 $ 2013 $ 7,615,584 3,060,106 21,190,802 16,224,609 8,810,797 1,292,098 9,910,056 1,308,702 18,257,772 18,257,770 630,074 759,243 (6,540,543) (4,101,106) 12,347,303 14,915,907 (193,110) 21,113 Total comprehensive income / (loss) for the year (193,110) 21,113 (b) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2014 or 30 June 2013. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 61  For personal use only         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2014 NOTE 33: EVENTS OCCURRING AFTER THE REPORTING DATE Acquisition The Kitco Labware purchase agreement required XRF to pay the former owners additional consideration of up to CAD$600,000, should the business meet certain profit milestones. The results indicate that these milestones have not been achieved, therefore a liability for additional consideration has not been recorded (note 23). Dividend A final dividend of 1.1 cents per share fully franked was declared on 22 August 2014, for the 2014 financial year results, with a record date of 12 September 2014 and payment date of 26 September 2014. Other events There were no other events subsequent to the reporting date which have significantly affected or may significantly affect the XRF Scientific Limited operations, results or state of affairs in future years. 62 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only         DIRECTORS’ DECLARATION  FOR THE YEAR ENDED 30 JUNE 2014 XRF Scientific Limited and its controlled entities ACN 107 908 314 The directors of the company declare that: 1. The financial statements, comprising the consolidated statement of profit or loss and other comprehensive income, consolidated statement of financial position, consolidated statement of cash flow, consolidated statement of changes in equity and accompanying notes, are in accordance with the Corporations Act 2001 and: (a) (b) Comply with Accounting Standards and the Corporations Regulations 2001 and other mandatory professional reporting requirements after 2001; and Give a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its performance for the year ended on that date. 2. 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. 3. The directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer as required by section 295A. 4. The company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by. Kenneth Baxter Chairman Dated this 24th day of September 2014 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 63  For personal use only         Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia INDEPENDENT AUDITOR’S REPORT To the members of XRF Scientific Limited Report on the Financial Report We have audited the accompanying financial report of XRF Scientific Limited, which comprises the consolidated statement of financial position as at 30 June 2014, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. For personal use onlyIndependence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of XRF Scientific Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of XRF Scientific Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2014. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of XRF Scientific Limited for the year ended 30 June 2014 complies with section 300A of the Corporations Act 2001. BDO Audit (WA) Pty Ltd Peter Toll Director Perth, 24 September 2014 For personal use onlySHAREHOLDER INFORMATION Additional information (as at 28 August 2014) required by the ASX Listing Rules and not disclosed elsewhere in this Annual Report is set out below: SUBSTANTIAL SHAREHOLDINGS The number of shares held by substantial shareholders and their associates is as follows: Shareholder Private Portfolio Managers Skye Alba Pty Ltd National Australia Bank Limited D & GD Brown Nominees Pty Ltd 1 Number of Ordinary Shares 14,255,265 13,316,641 9,096,216 7,870,916 1 D & GD Brown Nom PL is a company owned by David Brown and his wife. David Brown is a director. NUMBER OF OPTION HOLDERS Class of Security Nil VOTING RIGHTS Number of Holders - In accordance with the Constitution of the Company and the Corporations Act 2001(Cth), every member present in person or by proxy at a general meeting of the members of the Company has: • On a vote taken by a show of hands, one vote; and • On a vote taken by a poll, one vote for every fully paid ordinary share held in the Company A poll may be demanded at a general meeting of the members of the Company in the manner permitted by the Corporations Act 2001 (Cth). DISTRIBUTION OF SHARE AND OPTION HOLDERS Distribution of Shares & Options 1-1,000 1,000-5,000 5,001-10,000 10,001-100,000 100,001 and above Number of Holders of Ordinary Shares Number of Holders of Options 43 118 144 434 144 883 – – – – – – 66 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only       SHAREHOLDER INFORMATION TOP 20 SHAREHOLDERS No. Holder name Number of Ordinary Shares Percentage of Ordinary Shares 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 NATIONAL NOM LTD SKYE ALBA PL BNP PARIBAS NOMS PL D & GD BROWN NOM PL1 EVELIN INV PL J P MORGAN NOM AUST LTD TZELEPIS NOM PL PARSONS JOHN GRAHAM PROSSOR STEPHEN W + F C GREAT WESTERN CAP PL PARSONS JULIE ANN ABN AMRO CLEARING SYDNEY BETA GAMMA PL J G H METZ PL METZ JORG + CARR WENDY J G & E PROPS PL KLARIE PETER HIGGINS PETER + GAIL IMAJ PL BROWN DAVID + GLENYS D 17,558,891 13,316,641 8,000,000 7,013,300 6,300,000 4,348,467 3,280,000 2,864,509 2,669,767 2,649,578 2,500,000 2,364,619 2,000,000 1,500,000 1,443,637 1,120,000 1,091,141 1,006,941 1,000,000 857,616 13.29% 10.08% 6.05% 5.31% 4.77% 3.29% 2.48% 2.17% 2.02% 2.00% 1.89% 1.79% 1.51% 1.14% 1.09% 0.85% 0.83% 0.76% 0.76% 0.65% 1 D & GD Brown Nom PL is a company owned by David Brown and his wife. David Brown is a director of XRF Scientific Limited. 82,885,107 62.73% RESTRICTED SECURITIES There are currently no restricted securities. NON-MARKETABLE PARCELS Class of Security Ordinary shares Number of Securities Number of Holders 20,979 52 UNQUOTED SECURITIES The Company does not have any unquoted securities. ON-MARKET BUY BACK The Company does not have a current on-market buy-back scheme. XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT 67  For personal use only       CORPORATE DIRECTORY DIRECTORS Kenneth Baxter (Chairman) David Brown David Kiggins Fred Grimwade COMPANY SECRETARIES Vance Stazzonelli Andrew Watson KEY MANAGEMENT PERSONNEL Vance Stazzonelli (Chief Executive Officer) REGISTERED OFFICE 98 Guthrie Street Osborne Park WA 6017 Tel: +61 8 9244 0600 Fax: +61 8 9244 9611 COMPANY AUDITOR BDO Audit (WA) Pty Ltd 38 Station Street Subiaco WA 6008 BANKERS Westpac Banking Corporation 109 St George Terrace Perth WA 6000 SOLICITORS HWL Ebsworth Level 11, Westralia Plaza 167 St Georges Terrace Perth WA 6000 SHARE REGISTRY Security Transfer Registrars 770 Canning Highway Applecross WA 6153 Tel: +61 8 9315 2333 Fax: +61 8 9315 2233 WEBSITE www.xrfscientific.com ASX Company Code: XRF 68 XRF SCIENTIFIC LIMITED | 2014 ANNUAL REPORT For personal use only       

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