Annual Report 2020
Contents
Company Highlights
Chairman’s Report
Business Unit Overview
Managing Director & CEO’s Report
Directors’ Report
Directors’ Declaration
Auditor’s Independence Declaration
Independent Auditor’s Report
Financial Report
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This Annual Report includes Engenco Limited’s Directors’ Report, the
Annual Financial Report and Independent Audit Report for the financial year
ended 30 June 2020 lodged with the Australian Securities and Investments
Commission and ASX Limited. The Annual Report is available on the Engenco
website www.engenco.com.au. A copy of our full Corporate Governance
Statement and ASX Appendix 4G outlining compliance with ASX Corporate
Governance Principles and Recommendations is available on our website at
engenco.com.au//investor-centre/corporate-governance-statement.
Engenco Limited ABN 99 120 432 144
Engenco Limited and its controlled entities | Annual Report 2020
Company Highlights
NET CASH
$14.1
MILLION
504
STAFF ACROSS
6 BUSINESS
UNITS
TOTAL REVENUE
$178.1
MILLION
Revenue – $’000
Net Profit Before Tax – $’000
2016
2017
2018
2019
2020
132,764*
129,319*
157,336
174,850
178,063
2016
2,210*
2017
2018
2019
2020
8,354*
13,014
12,690
10,150
0
20
40
60
80
100
120
140
160
180
0
3
6
9
12
15
Net Assets – $’000
Net Profit Before Tax (Adjusted) – $’000
2016
2017
2018
2019
2020
49,094
57,011
73,218
84,075
88,594
2016
2,210*
2017
2018
2019
2020
8,354*
13,014
10,005**
9,865**
0
10
20
30
40
50
60
70
80
90
0
3
6
9
12
15
Total Dividends – Cents
Operating Cash Flow – $’000
0.5
2017
2018
2019
2020
1.0
1.5
2.0
2016
2017
2018
2019
2020
11,054
6,400
8,292
12,321
14,093
0.0
0.5
1.0
1.5
2.0
0
3
6
9
12
15
* 2016 and 2017 figures for Revenue, Net Profit Before Tax and Basic Earnings Per Share are from continuing operations.
** Adjusted for gains on capital Wagon sales.
Engenco Limited and its controlled entities | Annual Report 2020 | 1
Chairman’s Report
Vince De Santis
In our 2019 Annual Report, we mentioned the need to deal with
the ever present risks that external shocks pose, some “on the
radar” and others completely unforeseeable.
COVID-19 was definitely not on our radar!
We however are enormously proud of
our people throughout the Engenco
Group for their hard work, resilience
and leadership, especially during the
final months of the year. It is off the
back of their efforts that we were able
to deliver a commendable financial
performance in FY20 comparable with
the previous year.
Notwithstanding the many challenges which arose in the most
unprecedented and trying circumstances most of us have
ever encountered, Engenco has also been very fortunate to
predominantly operate in sectors which to date, have been
classified as essential service providers.
Balance Sheet & Capital Management
We have spent the past few years firstly rebuilding the
company’s balance sheet and then positioning the same for the
investments we wanted to make to expand the Group’s capacity
and capability.
Our end of year cash balance was a healthy $14.1 million. While
this was lower than the $23.4 million held at the beginning of
the year, we once again increased the dividends paid to our
shareholders, and also managed a reasonably significant level
of investment as we embarked on a number of major capital
expenditure projects.
Our $10 million NAB line of credit facility remained undrawn
throughout the entire year. Since entering the current financial
year, we have extended the maturity date of our NAB facilities
by a further 2 years until 31 October 2023 and doubled our line
of credit facility limit to $20 million.
With no debt, cash in the bank and a $20 million undrawn
loan facility, our balance sheet is robust which is entirely
appropriate, and we believe an enviable position to be in during
the current period of uncertainty and extreme volatility. It also
provides the company with a great foundation from which it
can continue to grow through a mix of organic and potential
acquisition opportunities that may arise.
Dividends
During the year, Australian and global interest rates continued
to reach new depths never seen in our lifetimes.
We were therefore very pleased to once again, pay an income
to our shareholders with an interim dividend of 0.5 cents per
share (fully franked), and a final dividend of 1.5 cents per share
(also fully franked). These dividends were one third higher
than the 1.5 cents final dividend (fully franked) which we had
previously declared in respect of the 2019 financial year.
People
Over the past year we have been able to keep building and
developing the capability of our people with the focus on our
multi-year “people and culture” initiatives which continue to
permeate deeper into the business from one year to the next.
We are seeing the benefits of our investment and patience. We
remain committed with the Board no longer remaining as just
an observer but also becoming an active participant in such
programs during which we have also been working to improve
our own performance.
During the year, the company formed the Workforce Solutions
division comprising of the CERT Training and Momentum Rail
operations. We successfully recruited a new Executive General
Manager role which was created to lead and grow the business.
Notwithstanding the challenges created by COVID-19, we
2 | Engenco Limited and its controlled entities | Annual Report 2020
Chairman’s Report
Vince De Santis
remain very optimistic about the longer-term prospects for
Workforce Solutions.
Since the end of the year we have been able to further
increase the Board’s capability with the appointment of
Scott Cameron as a director of the company with effect from
1 September 2020. Scott arrives at Engenco with a wealth
of relevant experience gained from his many years in senior
executive leadership roles.
What’s ahead
Only a few months ago, most of us were simply getting on with
our lives unaware of the challenges we were about to face brought
on by COVID-19. We’re told that “it will end”, but no-one really
knows when this will occur or what “the end” might look like.
While the company’s financial stability is of great value, we are
most grateful for the enormous effort and contribution made
by our people as they come to work (or work from home) each
day, and for the support of our valued customers particularly
over these past few months which have been extremely testing
for everyone.
And to our shareholders, we again thank you for the confidence
you have placed in us as custodians of your investment. We will
endeavour to reciprocate and continue building an organisation
for whom people wish to work – as an employer of choice,
with whom customers want to deal – and receive superior
value, and in whom investors entrust their capital – to secure
superior returns.
However, we believe the company is
as well positioned as it can be and
it’s also pleasing to have entered the
new financial year carrying some of
the momentum with which we ended
the last.
Vince De Santis
Chairman
Group Overview
Engenco Limited and its controlled entities | Annual Report 2020 | 3
RAIL ANDROADPOWER AND PROPULSIONWORKFORCESOLUTIONS Business Unit Overview
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47.9% of total revenue
Revenue $’000
FY19
FY20
$68,009
$87,241
Net Profit Before Tax $’000
FY19
FY20
$10,313
$11,938
25.3% of total revenue
Revenue $’000
FY19
FY20
$47,902
$46,001
Net Profit Before Tax $’000
FY19
FY20
$5,158
$4,181
7.9% of total revenue
Revenue $’000
FY19
FY20
$14,419
Net Profit Before Tax $’000
FY19
FY20
$2,808
$1,518
Key Operations
• Rollingstock maintenance,
refurbishment and technology
upgrades.
• Wheelset, bearing and bogie rotable
maintenance and overhaul services.
• Technical expertise including
engineering design, product reliability
and manufacturing services.
Achievements
• Positive market share gain in the
maintenance of rollingstock and related
rotables in the major rail commodity
markets of Western Australia,
Queensland and New South Wales.
•
Improved operating leverage by
extending the use of core products and
services and leveraging OEM partner
technologies into new customers
particularly in our east coast operations.
• Building our People and Culture
strategy into a high trust organisation
with exemplary leadership and a
highly engaged workforce.
Outlook
Further penetration into the “tier 1” rail
operators driven by our disciplined,
customer facing and skilled operational
teams. Driving for high quality,
innovative solutions is expected to
continue Gemco’s growth.
Key Operations
• Maintenance, repair and overhaul of
driveline components.
• National branch footprint
encompassing workshop capability
and strategic inventory support with
genuine components and spare parts.
• Supporting quality global OEM brands
in the mining, transport, energy and
defence industries.
Achievements
• Refined branch network to align with
“customer first” approach.
• Development and implementation of
new products and services.
•
Invested in the development of the
People and Culture Plan.
Outlook
Growth prospects include, mid-
life component overhaul projects,
capital equipment installation and
through-life support, and ongoing
support for the Collins Class Submarine
life-extension program.
$23,685
• Customised workforce solutions.
Key Operations
• Highly skilled rail operators
including trainer assessors and
workplace mentors.
• Onboarding safe working /
infrastructure programs and
career pathways.
Achievements
• Establishment of customised and
Government funded onboarding
programs and talent pipelines into
the infrastructure industry.
• Further expansion of east coast
infrastructure workforce solution into
new “tier 1” clients.
• Further development of Government
funded onboarding programs
and talent pipelines to support
Momentum Rail’s growth in the
rail industry.
Outlook
With the continued industry growth,
Momentum Rail is well positioned
to supply workforce solutions to
nation-building projects, working closely
with “tier 1” infrastructure customers and
rail operators.
4 | Engenco Limited and its controlled entities | Annual Report 2020
Outlook
New opportunities from engineering
innovation, further development of
the production processes and future
increases in market activity.
8.1% of total revenue
Revenue $’000
FY19
FY20
$17,128
$14,817
Net Profit Before Tax $’000
FY19
FY20
$1,250
$946
Key Operations
• Manufacture of dry bulk goods
tankers for road transportation.
• Distribution of imported aluminium
dry bulk tankers.
• Maintenance, repair and overhaul,
component & compressor sales and
servicing capability.
Achievements
• New innovative production design
utilising the latest technology.
• Continuous evolution of production
processes utilising lean principles,
resulting in improved efficiency
and standards.
TURBO & DIESEL
5.2% of total revenue
Revenue $’000
FY19
FY20
$10,278
$9,401
Net Profit Before Tax $’000
Key Operations
• Maintenance, repair and overhaul of
Hedemora Diesel engines.
• Original manufacturer, installation
and retrofit of turbochargers.
• Maintenance, and spare parts
services for global customers.
Achievements
• Proven efficiency benefits from
installation of turbochargers.
• Continued support for global
customers utilising Hedemora
Diesel engines.
Outlook
Growth prospects include, increasing
market share of turbochargers in Europe
and the United States and ongoing
support for the Collins Class Submarine
life-extension program and other diesel
engine applications.
FY19
FY20
$566
• Development and implementation of
$883
new products and services.
5.6% of total revenue
Revenue $’000
FY19
FY20
$11,475
$10,215
Net Profit Before Tax $’000
FY19
FY20
$1,855
$1,277
Key Operations
• Registered Training
Organisation (RTO).
• Delivering Australian Government
accredited and funded national
training programs.
• Accredited and contracted
to deliver industry induction,
training and refresher programs to
the rail industry.
Achievements
• Further embracing new technology
through offering industry training
programs “online” including training
and assessment, across metro,
regional and remote areas.
• Participating in Government funded
training initiatives to upskill and reskill
new entrants and existing workers.
• Successfully transitioning to
a new learning management
system to automate student
enrolment processes.
Outlook
Growing demand for skilled workers in
response to Government investment
into long-term national rail and
infrastructure projects.
Engenco Limited and its controlled entities | Annual Report 2020 | 5
TRAINING Managing Director
and CEO’s Report Kevin Pallas
With another successful year behind us, Engenco is again looking forward
to growth opportunities across the industries we serve.
Last year, we realised further benefits of medium-term
investment projects commenced in previous years. We are
now reinvesting those returns to boost further growth and
to drive productivity. This multi-year investment strategy is
building increased scale, and enabling the company to attract
longer-term, more sustained projects and contracts. As revenue
increases, so does our appetite for growth, which in turn is
driving investments in people, products and services. As we
invest, grow and consider additional potential acquisitions,
we continue the focus on our core technical expertise and
customer service.
previous year. This was driven by the acquisition of productivity
enhancing growth assets, such as completing capacity build
phases in Gladstone, and securing strategic land in Western
Australia. The year ended with a healthy cash balance of
$14.1m, and the banking facility remained undrawn.
The AUD/USD exchange rate ranged from circa 0.71 cents to
0.57 cents during the year, while the AUD/EUR rate also traded
in a lower range, and this adversely affected the importation of
components in Drivetrain, Convair and Gemco. These volatile
exchange rates had the effect of squeezing profit margins due
to the lag effect of customer price adjustments.
We achieved consolidated revenue of
$178.1m for the year, representing a
1.84% increase over the previous year,
and a Compound Annual Growth Rate
(CAGR) of 7.1% over a four-year period.
Consolidated Group earnings before tax
(NPBT), adjusted for gains on capital
Wagon sales, was $9.9m, down from
$10.0m in the prior year.
This is a solid result, considering investments made in the
business during the first half, which contributed to the strong
returns in the second half and the COVID-19-related slowdown
in our people-focused businesses, and some supply chain
delays at Hedemora in Europe and at Convair.
We continued to generate healthy operational cash flows with
net cash flow from operations of $14.1m, up from $12.3m
last year. As part of our growth and sustainment strategy, we
substantially increased re-investment, and capital expenditure
and commitments was $13.8m compared to $3.1m the
Rail and Road
The growth of the Gemco Rail business demonstrates the
success of our long-term strategy of building a sustainable
platform, which is now receiving strong customer support and
generating greater value. This division is the most advanced in
terms of the Group’s plans to build greater scale and continues
to provide a growth model for our other businesses.
In January, we commenced revenue-generating operations at
the Gladstone workshop after several months of development
and commissioning activities. The focus is to service bulk-
freight operators in Central Queensland and follows the
successful opening of the Telarah workshop in the Hunter
Valley in early FY19. Telarah has been instrumental in the
delivery of rollingstock services – allowing us to offer a mix of
functions and products. While Gladstone is in the initial phase
of development, it is now operating as planned, delivering
rollingstock maintenance services to the nearby mining
industry. We will look to emulate this model in other locations
which demonstrate growth potential.
6 | Engenco Limited and its controlled entities | Annual Report 2020
The Inland Rail project, which will allow greater volumes
of freight to be moved by rail, is a potentially lucrative
growth opportunity for our rail-focused businesses. While
details on terminal locations have not yet been revealed,
we are monitoring the project and are ready to expand our
operations to capture the growth opportunities as the national
track footprint expands.
Convair recorded lower revenue and earnings compared to
last year, mainly due to supply disruptions. The pandemic’s
effect on the global shipping industry slowed the importation
of aluminium tankers from Germany for which Convair holds
customer orders, which will now be delivered in FY21. For
locally manufactured steel tankers the business unit cut tanker
production by one quarter as the pandemic took hold in March.
The business continues to focus on production efficiency
improvements and on developing innovative bulk transport
equipment, including a more efficient tanker design.
Power and Propulsion
Drivetrain’s branch structure was further optimised during the
year, with the closure of poorly utilised sites in Sydney, Brisbane
and New Zealand. Customers in those regions are being
serviced through our National branch network, and mainly
from our recently established centralised service and logistics
centre in Thornton, NSW. We have commenced an expansion
project for this facility to cater for the increased throughput.
In terms of capacity expansion, the newly established Adelaide
workshop provides greater opportunity to address demand as
we commence a maintenance programme for a major mining
contractor in South Australia. The optimisation projects added
about $1m in labour and other associated non-recurring costs.
Hedemora Turbo & Diesel’s continued push into the diesel
turbocharger market was encouraging, with customers
responding positively to our HS Turbocharger technology
Engenco Limited and its controlled entities | Annual Report 2020 | 7
Managing Director and CEO’s Report continued
around the world. We deployed a sales team in the United
States to help market the HS Turbocharger range and we are in
the process of gaining U.S. Environmental Protection Agency
certification to allow our products to be used on the major
Class I Railroad and in other sectors within North America.
Hedemora and Drivetrain benefited from the life-extension of
the Collins Class submarine fleet, although this requires the
company to maintain stocks of ageing parts. The COVID-19
pandemic impacted operations in Sweden, and we temporarily
reduced the workforce due to supply chain disruptions from
European partners. We also experienced some delays and
deferrals in capital purchasing commitments and new projects.
Workforce Solutions
Over the last few years, we have streamlined our businesses
with the creation of divisions that focus on our core expertise,
namely Power and Propulsion and Rail and Road. The
people-focused Workforce Solutions division was established
with this in mind, housing CERT Training and Momentum
Rail. With the appointment of a highly experienced Executive
General Manager, we are actively driving the benefits of the
synergies not previously realised. This is expected to open
further opportunities for growth in the mining and resources,
logistics and other industry sectors.
CERT Training experienced lower demand for classroom
sessions because of pandemic restrictions, particularly those
relating to social distancing. Our team was quick to pivot to
online learning channels as governments and clients introduced
restrictions. While there was an increase in willingness to
complete training online, this has initially been a small but
important contributor to revenue.
On a positive note, the pandemic alleviated some customer
hesitation around online services, and we expect the share of
courses delivered in this way to increase. We were able to take
advantage of the JobKeeper support payments for the CERT
Training team, which allowed the business to stay engaged
with its people, enabling a rapid return to growth once the
pandemic abates.
Momentum Rail revenue decreased after completion of a major
South Australian rail upgrade project in the first half. While
the business has become a prime provider of supplementary
rail personnel, opportunities can be cyclical, and we were
unable to immediately replace large contracts due to timing
of future opportunities. We are confident that Momentum Rail
will continue to build on its reputation as a reliable supplier
of skilled rail personnel, especially going into a period of
investment in the rail infrastructure industry.
People & Safety
The company continued to invest in its people, further
cultivating a high-performance work culture. We are growing
our future workforce, training more apprentices and employing
more young people than ever and we are doing this from a
diverse talent pool.
Building on FY19’s Group People and Culture Plan, we
maintained our well-supported training and development of
leadership teams. We are elevating our workforce into one
that is more accountable, with greater responsibility for their
decisions. Engenco recognises that to grow sustainably, high-
performance teams are a vital ingredient.
8 | Engenco Limited and its controlled entities | Annual Report 2020
Safety is of paramount importance and we are continually
looking for innovative ways to improve our performance. Our
centralised health, safety, environment and quality team “Make
Safe” help set policy, audit each site on a rotating basis and
make recommendations on best practices via regularly updated
work methodology statements.
We also introduced incentives to encourage better safety
practices, aimed at driving our employees to take greater
personal responsibility, and we rolled out an internally
developed “Take 5” mobile application across the company.
This software is designed to monitor safety, providing our
people with an easy way to record risk assessments, vehicle
and equipment statuses, pre-start and safety checks, as well as
incident and hazard reporting. With the availability of this data,
we can look at more focused ways to improve our safety record.
Summary
After several successful years, Engenco is well positioned to
take advantage of future growth opportunities, particularly
after COVID-19 restrictions are progressively eased and the
broader economy begins to recover. This recovery is expected
to be accentuated by rationalisation of the Australian industrial
relations landscape, and the roll-out of industry stimulus
packages likely to benefit our businesses. Our multi-year
investment strategy has delivered growth and we are building
increased scale, enabling us to take on longer-term, more
sustained projects. Investment in new facilities continues and
we are expecting strengthening contributions from these in
the future. We are now in a position to seek out vertical and
horizontal integration opportunities and sensible acquisitions
which complement our expertise.
The Group Lost Time Injury Frequency Rate decreased from
3.11 to 2.38, a year-on-year reduction of 30.7%. While this is
a pleasing result, we have decided to now focus on improving
Total Recordable Injury Frequency Rate in our next phase of
driving safety excellence.
Engenco is dedicated to ensuring continuity of service and
supply to our customers who operate within the transport,
logistics, resources and defence industries. We are monitoring
the pandemic actively so we can respond appropriately if the
impact on our operations intensifies.
COVID-19 Pandemic Response
Despite the heightened levels of market uncertainty, Engenco
is continuing to trade soundly during the various stages of
COVID-19 restrictions, with the exception of our people-focused
Workforce Solutions division.
At the outset of the pandemic, we responded in line with advice
from the Federal and State Governments, and other health
authorities. This included working closely with customers to
ensure all health requirements were met and developing an
action plan to protect our people and manage the impacts.
Where necessary, we implemented a work from home
programme, very ably supported by our IT team and utilising
our world-class, highly secure network platforms in which
we have invested over the years. Our aim has been to ensure
business continuity in what we call “business unusual” times.
I would like to take this opportunity to thank all our customers,
suppliers, shareholders and the communities in which we
operate who have supported us through this challenging, yet
successful financial year.
Our staff have proven themselves enthusiastic, dedicated and
professional in the face of this pandemic. With the ongoing
encouragement of a deeply supportive board of directors, I am
honoured to lead such a talented and skilled team who are the
backbone of our future.
Kevin Pallas
Managing Director and CEO
Engenco Limited and its controlled entities | Annual Report 2020 | 9
Gemco Rail has been a well-known supplier of
quality services and products to the rail sector for
many years. Building on this solid reputation and
experience, the business specialises in providing
fleet-management services to national rail
operators and in the manufacture, refurbishment
and overhaul of rail equipment. Gemco Rail provides
wagon and locomotive scheduled and ad-hoc
maintenance services and manufactures custom
designed and engineered new and refurbished
wagons, bogie component parts and associated rail
equipment. Gemco Rail also supplies a broad range
of rail track maintenance equipment and parts.
Convair designs and manufactures tankers for the
transportation of dry bulk products by road and rail.
The business repairs, maintains and supplies spare
parts for all makes of dry bulk tankers and offers
distribution, service and repair of compressors
and ancillary equipment used in the support of
dry bulk materials handling. Convair is an agent
for Feldbinder Spezialfahrzeugwerke GmbH of
Germany, supplementing the company’s range
of products with aluminium dry bulk tankers and
stainless steel liquid tankers. With its manufacturing
facility based in Melbourne, Convair services
customers throughout Australia and New Zealand.
Drivetrain’s services span the complete
engineering product life-cycle for heavy mobile
powertrain systems, large-frame turbochargers,
heavy diesel and gas power generation and gas
compression equipment.
Services include: Maintenance, repair, and
overhaul; design, installation and commissioning;
genuine component and spare parts distribution;
field service; technical and engineering services in
remote locations, and equipment life extension.
Gladstone Rollingstock Maintenance Facility
Gemco Rail’s new Gladstone Rollingstock Maintenance Facility commenced
operations in January 2020. Over the ensuing months, the facility has
increased its production output and capabilities to include wheelset
reprofiling, manufacture of new wheelset assemblies, refurbishment
of wheelset bearing assemblies and in more recent times, commenced
scheduled maintenance examinations of rollingstock.
Over the first 6 months of operations, the site has grown to a team of
25 multidisciplined technicians and support staff and further investment is
expected in future periods both in terms of human capital and machinery
capabilities with the committed installation of a new underfloor wheel lathe
expected to be commissioned by December 2020.
With this further investment, the site will be well positioned to capture
an increasing percentage of the rollingstock maintenance market in the
Central Queensland region.
Dry Bulk Tanker Operation Training
By having a comprehensive understanding of their customer’s needs Convair
have identified an opportunity to provide bulk tanker operation training, in
addition to the supply of purpose built, industry leading dry bulk tankers.
Through extensive industry knowledge Convair was aware of the possible
hazards involved in tanker operation. In collaboration with fluid mechanics
specialists, engineers, tanker operators and specialist maintenance staff
developed a tailored training program covering safety, componentry,
maintenance, efficiency and best practice to maximise the life of the tanker.
This employee lead initiative has led to greater employee engagement and
process efficiencies.
With the ability to deliver this one of a kind training both in person and by
webinar-style online sessions, Convair is entrenching itself as the industry
leader, and paving the way for highly efficient tanker operations, for
our customers.
South Australian Expansion
Drivetrain continues to work closely with our customers that depend on
quality local customer support.
Through effective customer relationship management key mining customers
have provided a forecast of planned large fleet component replacement
over the coming years. In understanding these requirements, Drivetrain has
relocated its South Australian operations to a larger fit-for-purpose facility in
Wingfield, Adelaide. This new branch provides the workshop and warehouse
capacity to sufficiently support this growth in the region. Additionally, an
investment in new service exchange components was actioned providing our
customers the reassurance of delivery in full and on time during the programs.
Drivetrain is experiencing a significant increase in activity since relocating and
will continue to work closely with its customers to understand how Drivetrain
can strengthen its value to be part of their success and support the position
for continuous growth in FY21.
10 | Engenco Limited and its controlled entities | Annual Report 2020
Penetrate Major Customer Base
Driving Efficiencies
Penetrate Major Customer Base
Engenco Limited and its controlled entities | Annual Report 2020 | 11
TURBO & DIESEL
Hedemora Turbo and Diesel is the original
manufacturer of Hedemora Turbochargers and
Hedemora Diesel Engines. Hedemora Diesel is a
well-known brand of engines used in a wide range
of applications. The turbocharger solutions for
engines with power output of 720-4200kw, can be
retrofitted to gain higher performance. Operating
out of Sweden, Hedemora Turbo and Diesel provide
full maintenance, development and spare parts
services for customers in all parts of the world.
Momentum Rail offers a range of workforce
provisioning services from providing skilled
individuals to fully-supervised and equipped crews
to carry out rail track construction, maintenance
and upgrades. Momentum Rail plan, implement
and manage safe working solutions for rail clients,
from hand-signallers and lookouts to highly
experienced Principal Protection Officers and
Locomotive Drivers. Operating out of branches
in Forrestfield, Wingfield, Thornton and Port
Melbourne, Momentum Rail’s strategic presence is
well placed to service the rail and resource sectors.
CERT Training (CERT) is a registered training
organisation (RTO) that provides responsive,
flexible and innovative training, assessment
and recertification services to the Australian rail
industry. CERT delivers nationally accredited and
industry-based training programs on a regular
basis, and provides customised courses to suit
individual business needs. The business has
training centres in Perth, Sydney, Newcastle,
Ipswich, Wingfield, Melbourne and Bunbury with
the flexibility to train on-site Australia wide.
Locomotive Turbochargers Retrofit Solution
Through collaboration and communication with its long-standing customer
Ulan-Bator Railways’ (UBZD), Hedemora Turbo & Diesel was able to understand
their requirements and successfully tailor a technical solution for their needs.
Due to operating conditions in Mongolia UBZD has been experiencing
reliability issues with the original installed turbochargers, predominantly
diffuser issues, rotor and turbine wheel cracks. Hedemora offered the HS5800
turbocharger as a reliable and highly efficient fuel optimising solution. Trialing
commenced in 2014 and the turbochargers were retrofitted to locomotives.
Upon completion an increase in fuel efficiency of 5% was identified and
subsequently Hedemora was nominated as a preferred supplier.
In 2020 the contract was signed for 12 x HS5800 units, inclusive of
installation kits, with delivery to be fulfilled by end of 2020. This is just
the start of an on-going relationship with UBZD which will see further
requirements for this solution over the coming years.
Workforce Solution for South Australia
In response to the ever changing labour market Momentum, in
collaboration with CERT Training (CERT), have partnered with Job
Prospects to offer off and on job Rail Industry training to those currently
out of the workforce.
This initiative gives jobseekers an opportunity to participate in CERT’s
Nationally Recognised training followed by practical work-experience alongside
Momentum’s experienced team of Safeworking subject matter experts.
Momentum has leveraged its extensive industry experience and has drawn
on CERT’s intricate knowledge of Australian Training requirements, and
ability to access available government funding to develop this holistic
Workforce Solution.
With proven success the program is now working with it’s third group of
job seekers, and is playing an integral part in providing local skilled workers
to the Australian labour market.
CERT Responds to Industry Needs with
Online Training
Leveraging a recent investment in a new Student Management System,
aXcelerate, COVID-19 restrictions have accelerated CERT’s development of
online training. The initial focus was the main course offering in each state,
and for QLD it was QR3.2 – Safely Access the Rail Corridor, which accounts
for approximately 40 classes and over 300 students per month.
April saw the first trial for this popular 1-day program. In consultation
with the customer, the trial was modified and extended, ultimately
receiving approval.
With the rail industry proceeding with scheduled projects, online training is
gaining traction within many companies. Having training accessible at their
fingertips, CERT’s online, interactive, facilitator led training has proven to
be a great success.
12 | Engenco Limited and its controlled entities | Annual Report 2020
TRAINING Expand Product Offerings
Driving Efficiences
Expand Product Offerings
Engenco Limited and its controlled entities | Annual Report 2020 | 13
Directors’ Report
The directors present their report, together with the consolidated financial statements of the Group, comprising of Engenco Limited
(“the Company”) and its controlled entities, for the financial year ended 30 June 2020 and the auditor’s report thereon.
Directors
The directors of the Company at any time during or since the end of the financial year are:
Vincent De Santis
BCom, LLB (Hons)
Kevin Pallas
BCom, MAICD
CHAIRMAN SINCE 24 MARCH 2016, NON-EXECUTIVE
DIRECTOR SINCE 19 JULY 2010, MEMBER OF AUDIT
AND RISK COMMITTEE SINCE 31 JULY 2013.
Vince was the Managing Director of the Elphinstone Group up
until December 2018. He initially joined the Elphinstone Group
in 2000 as the Group’s Legal Counsel and Finance & Investment
Manager. During his time with the Group, Vince also served as
a director of various subsidiary and joint venture companies
including William Adams Pty Ltd, Gekko Systems Pty Ltd and
APac Energy Rental Pte Ltd. Prior to that time, he was a Senior
Associate in the Energy, Resources & Projects team at national
law firm Corrs Chambers Westgarth, based in Melbourne. Vince
is also a member of the Tasmanian Development Board and the
Tasmanian Rhodes Scholarship Selection Committee.
MEMBER OF THE BOARD SINCE 17 DECEMEBER 2014,
MANAGING DIRECTOR & CEO SINCE 1 FEBRUARY 2015.
Kevin possesses senior management and leadership experience
through an extensive career in engineering, mining supplies,
metals and manufacturing industries. Holding a Bachelor of
Commerce degree, Kevin specialised in the areas of financial
and cost accounting systems’ design and development, and
operational and commercial management for a number
of multinationals in South Africa, New Zealand, Singapore
and Australia prior to joining the Group in 2007. He served
in the position of Chief Financial Officer from 1 March 2013
to 31 January 2015. In February 2015, Kevin was appointed
Managing Director and Chief Executive Officer.
From left: Dale Elphinstone, Vincent De Santis, Kevin Pallas, Alison von Bibra and Ross Dunning.
14 | Engenco Limited and its controlled entities | Annual Report 2020
Dale Elphinstone AO
FAICD
NON-EXECUTIVE DIRECTOR SINCE 19 JULY 2010.
Dale is the Executive Chairman of the Elphinstone Group which
he founded in 1975. Dale has considerable experience in the
engineering, manufacturing and heavy machinery industries
and among other things is one of the longest serving Caterpillar
dealer principals in Australia, having acquired the Caterpillar
dealership in Victoria and Tasmania in 1987. Dale is the Co-Chair
of the Joint Commonwealth and Tasmanian Economic Council,
a member of the Tasmanian Premier’s Economic and Social
Recovery Advisory Council and was a director of the Tasmanian
Health Organisation North-West until 30 June 2015. He was
a director of Caterpillar subsidiary, Caterpillar Underground
Mining Pty Ltd until December 2008 and of the formerly
publicly listed Queensland Gas Company Limited from October
2002 to November 2008. Dale was also a director of ASX listed
National Hire Group Limited until December 2011.
Ross Dunning AC
BE (Hons), BCom, FIE Aust, FIRSE, RPEQ
INDEPENDENT NON-EXECUTIVE DIRECTOR AND
MEMBER OF AUDIT AND RISK COMMITTEE SINCE
8 NOVEMBER 2010, CHAIRMAN OF AUDIT AND RISK
COMMITTEE SINCE 21 FEBRUARY 2017.
Ross has extensive exposure to the rail industry having served
as the Commissioner for Railways in Queensland, President
of the Australian Railways Association and Managing Director
of Evans Deakin Industries Limited (the predecessor to the
ASX listed company, Downer EDI Limited). Ross has been
awarded the Companion of the Order of Australia and has held
non-executive positions with a number of ASX listed companies
including Toll Holdings Limited and Downer EDI Limited,
Government owned corporations in Queensland and New South
Wales and on unlisted public companies. Ross is also chairman
of the Board of Indec Ltd.
Alison von Bibra
BSc, MBA
INDEPENDENT NON-EXECUTIVE DIRECTOR AND
MEMBER OF THE AUDIT AND RISK COMMITTEE
SINCE 17 JANUARY 2017.
Alison has held key positions at a number of organisations
including almost 10 years at ASX listed multi-national, CSL
Limited. During her time at CSL, Alison’s roles included Senior
Director, Human Resources based in the USA and General
Manager, Human Resources located at the company’s
Melbourne head office. Alison also has experience in a
range of board roles including among others, the Dental
Board of Australia, the Ballarat General Cemeteries Trust,
CSL Superannuation Fund and Westernport Regional Water
Corporation. She is currently a Member of the Chiropractic
Board of Australia.
Meetings of Directors
The number of directors’ meetings (including meeting of committees of directors) and number of meetings attended by each of the
directors of the Company during the financial year are:
Board Member
Vincent De Santis
Kevin Pallas
Dale Elphinstone
Alison von Bibra
Ross Dunning
Director Meetings
Audit and Risk
Committee Meetings
12/12
12/12
12/12
12/12
12/12
4/4
4/4
–
4/4
4/4
Engenco Limited and its controlled entities | Annual Report 2020 | 15
Directors’ Shareholdings
The directors’ shareholding of ordinary shares as at 30 June 2020 are:
Ordinary Shares
378,951
87,632
208,233,656
34,793
182,948
Principal Activities
The Group provides a diverse range of engineering services and
products through three business streams: Rail and Road, Power
and Propulsion and Workforce Solutions. Engenco businesses
specialise in:
• Maintenance, repair and overhaul of powertrain, propulsion,
heavy duty engines and gas compression systems;
• Maintenance, repair and overhaul of locomotives;
• Manufacture and maintenance of wagons, carriages and
associated rail equipment;
• Project management, training and workforce provisioning;
• Leasing of wagons and other rail equipment; and
• Manufacture and supply of road transport and storage
tankers for dry bulk products.
The Group services a diverse client base across the defence,
resources, marine, power generation, rail, heavy industrial and
infrastructure sectors.
The Group operates globally and employs over 500 people
(full-time equivalent) in over twenty locations in three countries.
Vincent De Santis
Kevin Pallas
Dale Elphinstone
Alison von Bibra
Ross Dunning
Company Secretaries
Paul Burrows
BCom, CA, GAICD
COMPANY SECRETARY AND CHIEF FINANCIAL OFFICER
SINCE 10 DECEMBER 2018.
Paul has vast experience in ASX listed entities and global
businesses. He holds a Bachelor of Commerce degree, is a
Chartered Accountant and is a Graduate of the Australian
Institute of Company Directors. Paul has significant experience
in corporate governance, mergers and acquisitions and
financial reporting in high growth environments together with
hands-on experience in the implementation of system and
process improvements.
Meredith Rhimes
BA, LLB
COMPANY SECRETARY SINCE 30 MARCH 2020.
Meredith is a lawyer with over 14 years’ experience, including
working in private practice and in-house for a multinational
corporation. Meredith holds a Bachelor of Arts from Queen’s
University (Canada) and a Bachelor of Laws from Western
University (Canada) and has practiced law in Canada, the United
Arab Emirates and Australia.
Andrew Nightingale
BCom, LLB
COMPANY SECRETARY FROM 1 AUGUST 2018 TO
10 JANUARY 2020.
Andrew is a lawyer with over 10 years’ experience, including
working for a corporate regulator, an ombudsman and a variety
of in-house teams. Andrew holds a Bachelor of Laws and a
Bachelor of Commerce from the University of Otago, and has
practiced law in the United Kingdom and New Zealand.
16 | Engenco Limited and its controlled entities | Annual Report 2020
Directors’ Report (continued) Group Overview
Operating and Financial Review
Operating Results
The Group reported a net profit after tax, including non-controlling interests, of $13,423,000 for the year ended 30 June 2020. The
consolidated result for the year is summarised as follows:
Revenue
EBIT1
Net profit / (loss) before tax
Net profit / (loss) before tax (adjusted)2
Profit / (loss) after tax
Net operating cash flow
Net assets
Net cash / (debt)
2020
$’000
2019
$’000
178,063
174,850
11,596
10,150
9,865
13,423
14,093
88,594
14,134
13,012
12,690
10,005
14,227
12,321
84,075
23,408
1 EBIT is earnings before finance costs and income tax expense.
2 Adjusted for gains on capital Wagon sales.
Note – EBIT is a non-IFRS financial measure, which has not been subject to review or audit by the Group’s external auditors. This measure is presented to
assist understanding of the underlying performance of the Group.
Review of Principal Businesses
Disclosure of information regarding principal business
performance and likely developments has been made in the
Chairman’s and Managing Director’s section of this report.
Significant Changes in the State of Affairs
In the opinion of the directors there were no significant changes
in the state of affairs of the Group that occurred during the
financial year under review.
Dividends
Since the end of the previous financial year, the Board declared
a final dividend of 1.5 cents per ordinary share (fully franked)
on 21 August 2019 and subsequently paid the dividend on
26 September 2019.
On 20 February 2020, the Board resolved to declare an interim
dividend of 0.5 cents per share (fully franked) and subsequently
paid this dividend on 20 March 2020.
On 19 August 2020, the Board resolved to declare a final
dividend of 1.5 cents per share (fully franked). Payment of the
dividend to shareholders will take place on 29 September 2020.
Events Subsequent to Reporting Date
As at 30 June 2020, the Group had entered into a contractual
commitment for the development of improvements to freehold
land of $2,341,000 which was subsequently completed on
4 August 2020.
On 18 August 2020, the Group increased its debt facilities
with National Australia Bank (NAB) to $27,100,000. The NAB
facility comprises a $20,000,000 revolving credit facility, a
$6,000,000 bank guarantee facility, a $600,000 corporate
card facility, and a $500,000 operation account overdraft
facility. The revolving credit facility expires 31 October 2023,
with the other facilities renewed annually.
Engenco Limited and its controlled entities | Annual Report 2020 | 17
RAIL ANDROADPOWER AND PROPULSIONWORKFORCESOLUTIONS On 18 August 2020, Scott Cameron was appointed to the
Board as an Independent Non-Executive Director, effective from
1 September 2020.
On 19 August 2020, the Board resolved to declare a final
dividend of 1.5 cents per share (fully franked). Payment of the
dividend to shareholders will take place on 29 September 2020.
• All non-audit services were subject to the corporate
governance procedures adopted by the Group and have
been reviewed by the Audit and Risk Committee to ensure
they do not impact the integrity and objectivity of the
auditor; and
• The non-audit services provided do not undermine the
general principles relating to auditor independence as set
out in APES 110 Code of Ethics for Professional Accountants,
as they did not involve reviewing or auditing the auditor’s
own work, acting in a management or decision making
capacity for the Group, acting as an advocate for the Group
or jointly sharing risks and rewards.
Details of the amounts paid to the auditor of the Group, KPMG
Australia, and its network firms for audit and non-audit services
provided during the year are set out below:
SERVICES OTHER THAN AUDIT AND
REVIEW OF FINANCIAL STATEMENTS:
Other Services
Taxation compliance services
AUDIT AND REVIEW OF FINANCIAL
STATEMENTS
TOTAL PAID TO KPMG
2020
$
7,078
7,078
320,965
328,043
Lead Auditor’s Independence Declaration
The lead auditor’s independence declaration is set out on
page 24 and forms part of the Directors’ Report for the financial
year ended 30 June 2020.
Rounding Off
The Group is of a kind referred to in ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument 2016/191
dated 1 April 2016 and in accordance with that Instrument,
amounts in the consolidated financial statements and Directors’
Report have been rounded off to the nearest thousand dollars,
unless otherwise stated.
Other than the above, there has not arisen, in the interval
between the end of the financial year and the date of this
report, any item, transaction or event which would have a
material effect on the financial statements of the Group at
30 June 2020.
Environmental Regulation
Group operations are subject to significant environmental
regulation under Commonwealth, State and international law,
including noise, air emissions and the use, handling, haulage
and disposal of dangerous goods and wastes.
The Group follows practices that minimise adverse
environmental impacts and comply with environmental
requirements.
The Board is not aware of any significant breaches during the
periods covered by this report nor does it consider the Group is
subject to any material environmental liabilities.
National Greenhouse and Energy
Reporting Guidelines
The Group’s environmental obligations are regulated under
both Federal and State law. The Group is not subject to
the conditions imposed by the registration and reporting
requirements of the National Greenhouse and Energy Reporting
Act 2007.
Indemnification and Insurance
of Officers
The Company has indemnified and paid premiums to insure
each of the Company’s directors and executives against
liabilities for costs and expenses incurred by them in defending
any legal proceedings arising out of their conduct while acting
in their capacity, other than conduct involving a wilful breach of
duty in relation to the Company.
Non-Audit Services
During the year KPMG, the Group’s auditor, has performed
certain other services in addition to the audit and review of the
financial statements.
The Board has considered the non-audit services provided
during the year by the auditor and is satisfied that the provision
of those non-audit services during the year by the auditor
is compatible with, and did not compromise, the auditor
independence requirements of the Corporations Act 2001 for
the following reasons:
18 | Engenco Limited and its controlled entities | Annual Report 2020
Directors’ Report (continued) Remuneration Report – Audited
Remuneration Policy
This report details the nature and amount of remuneration
for all directors and key executives of the Group who have a
strategic commercial impact upon the Group’s activities.
may choose to sacrifice part of their salary to increase
superannuation contributions.
• All remuneration paid to directors and executives is valued at
cost to the Group and expensed.
The Board’s policy for determining the nature and amount of
remuneration for board members and key executives of the
Group is as follows:
• All executive directors and key executives receive a salary
package comprised of a base salary, short-term incentive
and superannuation.
• The Board reviews executive packages annually by reference
to the Group’s performance, executive performance and
comparable market information.
• The performance objectives of each executive are agreed
at the beginning of each fiscal year and recorded via the
annual Short-Term Incentive Plan. These performance
objectives are based predominantly on achievement of the
Board approved budget targets, including net profit after
tax for the given year and improvements in the key safety
measure of Lost Time Injury Frequency Rate. Performance
against other recorded objectives is also monitored and
linked to the achievement of the Group’s strategy and overall
development. Incentive payments are at the discretion of the
Board of Directors. All performance objectives are aligned
with increasing shareholder value.
• The directors and key executives receive a superannuation
guarantee contribution required by the government
(which was 9.5% during the year) and do not receive any
other retirement benefits. Some individuals, however,
• The Board policy is to remunerate non-executive directors at
market rates for time, commitment and responsibilities. The
Board determines payments to non-executive directors and
reviews their remuneration annually, based on market practice,
duties and accountability. The maximum aggregate amount
of fees that can be paid to non-executive directors is subject to
approval by shareholders.
• To align directors’ interests with shareholder interests, the
directors are encouraged to hold shares in the Company.
Performance Conditions Linked to Remuneration
The remuneration level for key management personnel is based
on a number of factors, including skills and qualifications,
achievements of performance metrics and demonstrated
management capability. The contracts for service between
the Group and key management personnel are on a
continuing basis.
Consequences of Performance on Shareholder
Wealth
The short-term performance benefit awarded in the year
related to the achievement of targets established within the
FY20 Short-Term Incentive Plan for safety and Board approved
budget targets.
The following table shows the gross revenue, profits and dividends for the last 5 years for Engenco Limited, as well as the share
prices at the end of the respective financial years.
Revenue
135,318,000 129,399,000
157,336,000 174,850,000 178,063,000
NPAT attributable to members
3,828,000
8,309,000
18,003,000
14,227,000
13,423,000
2016
$
2017
$
2018
$
2019
$
2020
$
EBIT
Operating income growth1
Share price at year-end
% Change in share price
Capital employed2
Return on capital employed3
Dividends paid
5,503,000
9,117,000
13,490,000
13,012,000
11,596,000
n/a
$0.10
n/a
66%
$0.21
121%
48%
$0.49
133%
(4%)
$0.42
(14%)
(11%)
$0.45
7%
49,988,000
57,565,000
74,400,000
85,145,000
111,497,000
11%
–
16%
–
18%
15%
10%
1,567,000
3,134,000
6,268,000
1 Operating income growth is the movement in EBIT year-on-year
2 Capital employed is total assets less current liabilities
3 Return on capital employed is EBIT over capital employed
Engenco Limited and its controlled entities | Annual Report 2020 | 19
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20 | Engenco Limited and its controlled entities | Annual Report 2020
Directors’ Report (continued) Remuneration Report (continued)
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*
Engenco Limited and its controlled entities | Annual Report 2020 | 21
Loans to Key Management Personnel and their Related Parties
The balance of loans to key management personnel and their related parties outstanding as at 30 June 2020 is $NIL (2019: $NIL).
Service Contracts
The employment conditions of most key management personnel are formalised in contracts of employment. The employment
contract does not stipulate a term of employment period but does stipulate a notice period for resignation and periods of
remuneration and conditions under termination. Termination payments are not payable on resignation or dismissal for serious
misconduct. In the instance of serious misconduct, the Company can terminate employment at any time.
V De Santis
K Pallas
D Elphinstone
A von Bibra
R Dunning
P Burrows
Terms of Agreement
Termination Benefit
Ongoing director agreement
N/A – Non-Executive Director
Permanent employment contract
8 weeks’ pay
Ongoing director agreement
N/A – Non-Executive Director
Ongoing director agreement
N/A – Non-Executive Director
Ongoing director agreement
N/A – Non-Executive Director
Permanent employment contract
3 months’ pay
Options and Rights Over Equity Instruments Granted
In the 2019 and 2020 financial years no executive directors, non-executive directors or key management personnel had any options
or rights.
Other Transactions with Key Management Personnel
A number of key management personnel, or their relates parties, hold positions in other entities that result in them having control
or joint control over the financial or operating policies of those entities.
A number of these entities transacted with the Group during the year. The terms and conditions of the transactions with key
management personnel and their related parties were no more favourable than those available, or which might reasonably be
expected to be available, on similar transactions to non-key management personnel related entities on an arm’s-length basis.
From time to time, directors of the Group, or their related entities, may purchase goods from the Group. These purchases are on the
same terms and conditions as those entered into by other Group employees or customers and are non-material in nature.
Movements in Shares
The movement during the reporting period in the number of ordinary shares in Engenco Limited held, directly, indirectly or
beneficially, by each key management person, including their related parties, is as follows:
2020
V De Santis
K Pallas
D Elphinstone
A von Bibra
R Dunning
P Burrows
Balance
1 July 2020
Received as
compensation
Other
changes*
Balance
30 June 2020
378,951
72,632
202,406,914
34,793
182,948
–
–
–
–
–
–
–
–
15,000
378,951
87,632
5,826,742
208,233,656
–
–
–
34,793
182,948
–
*Other changes represent shares that were purchased or sold during the year.
This report of the directors is made in accordance with a resolution of the Board of Directors.
Vincent De Santis
Chairman
Dated 19 August 2020
22 | Engenco Limited and its controlled entities | Annual Report 2020
Directors’ Report (continued) Remuneration Report (continued) Directors’ Declaration
1.
In the opinion of the directors of Engenco Limited (the Company):
a. the consolidated financial statements and notes that are set out on pages 30 to 69 and the Remuneration Report on
pages 19 to 22 in the Directors’ Report, are in accordance with the Corporations Act 2001, including:
i. giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance for the financial
year ended on that date; and
ii. complying with Australian Accounting Standards and the Corporations Regulations 2001; and
b. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
2. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive
Officer and Chief Financial Officer for the financial year ended 30 June 2020.
3. The directors draw attention to Note 1 to the financial statements, which includes a statement of compliance with International
Financial Reporting Standards.
Signed in accordance with a resolution of the directors:
Vincent De Santis
Chairman
Dated 19 August 2020
Engenco Limited and its controlled entities | Annual Report 2020 | 23
Auditor’s Independence Declaration
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Engenco Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Engenco Limited for
the financial year ended 30 June 2020 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMGKP
KPMG
Suzanne Bell
Partner
Melbourne
19 August 2020
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
24 | Engenco Limited and its controlled entities | Annual Report 2020
Independent Auditor’s Report
Independent Auditor’s Report
To the shareholders of Engenco Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of
Engenco Limited (the Company).
The Financial Report comprises:
Consolidated Statement of Financial Position as at 30 June
In our opinion, the accompanying Financial
Report of the Company is in accordance
with the Corporations Act 2001, including:
giving a true and fair view of the
Group’s financial position as at 30
June 2020 and of
financial
performance for the year ended on
that date; and
its
complying with Australian Accounting
Standards
the Corporations
Regulations 2001.
and
2020;
Consolidated Statement of Profit or Loss and Other
Comprehensive
Income, Consolidated Statement of
Changes in Equity, and Consolidated Statement of Cash
Flows for the year then ended;
Notes including a summary of significant accounting
policies; and
Directors’ Declaration.
The Group consists of the Company and the entities it
controlled at the year end or from time to time during the
financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit
of the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements
of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial
Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
Engenco Limited and its controlled entities | Annual Report 2020 | 25
Key Audit Matters
Key Audit Matters are those matters that, in our professional judgement, were of most significance in our
audit of the Financial Report of the current period.
This matter was addressed in the context of our audit of the Financial Report as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on this matter.
Revenue Recognition from Rendering of Services ($42,165k) and
Construction Contracts ($75,711k)
Refer to Note 4 to the Financial Report
The key audit matter
How the matter was addressed in our audit
Revenue recognition from Rendering of Services
and Construction Contracts is a key audit matter
due to the financial significance to the Group’s
financial results and the significant audit effort
we applied.
Significant audit effort was driven from the
judgement we applied to assess the Group’s
recognition of services and
over
time
construction
an
contract
estimation of costs to complete. In particular, we
focussed on the high degree of estimation
uncertainty in relation to key estimates such as
expected labour hours and material costs due to
the bespoke nature of the Group’s business and
customer contracts.
revenue using
assessments
inherently
These
subjective, therefore we involved our senior
audit team members in assessing this key audit
matter.
can
be
Our procedures included:
We evaluated the Group’s accounting policy for
the recognition of services and construction
contract revenue against the requirements of
the accounting standards.
We obtained an understanding of the Group’s
processes regarding recognition of services and
construction contract revenue. We tested key
controls such as the automated matching and
approval of revenue entered into the Group’s IT
IT specialists; and
system,
management’s review of the recoverability of
costs of incomplete revenue contracts.
involving our
To assess the Group’s over time recognition of
services and construction contract revenue, for
a sample of contracts not completed at
reporting date, we:
-
-
-
Inspected relevant features and key terms
of revenue contracts, including pricing,
deliverables and the timetable;
reporting period
Compared the actual costs incurred during
the
to underlying
documents such as supplier invoices and
employee timesheet records;
Challenged the Group’s estimate of the
expected labour hours and material costs
remaining with relevant historical data
such as actual costs incurred on similar
service orders and construction contracts
during the current and previous reporting
periods; and
- We compared past estimates of costs to
complete to actual results to identify those
26 | Engenco Limited and its controlled entities | Annual Report 2020
Independent Auditor’s Report (continued)
assumptions at higher
unpredictability
application.
or
risk of bias,
in
inconsistency
Involving our data analytics specialists, we
checked a sample of revenue from rendering of
services and construction contracts throughout
the year to the invoice and the Group’s cash
receipts from customers on an
individual
transaction basis.
We assessed the revenue disclosures in the
financial
report using our understanding
obtained from our testing and against the
requirements of accounting standards.
Other Information
Other Information is financial and non-financial information in Engenco Limited’s annual reporting which is
provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the
Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not
express an audit opinion or any form of assurance conclusion thereon, with the exception of the
Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In
doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or
our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information,
and based on the work we have performed on the Other Information that we obtained prior to the date of
this Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
preparing the Financial Report that gives a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001;
implementing necessary internal control to enable the preparation of a Financial Report that gives a
true and fair view and is free from material misstatement, whether due to fraud or error; and
assessing the Group and Company’s ability to continue as a going concern and whether the use of
the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters
related to going concern and using the going concern basis of accounting unless they either intend
to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do
so.
Engenco Limited and its controlled entities | Annual Report 2020 | 27
Independent Auditor’s Report (continued)
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
to obtain reasonable assurance about whether the Financial Report as a whole is free from material
misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the
Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and
Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf.
This description forms part of our Auditor’s Report.
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of
Engenco Limited for the year ended 30
June 2020, complies with Section 300A of
the Corporations Act 2001.
The Directors of the Company are responsible for the
preparation and presentation of the Remuneration Report in
accordance with Section 300A of the Corporations Act 2001.
Our responsibilities
We have audited the Remuneration Report included in pages
19 to 22 of the Directors’ report for the year ended 30 June
2020.
responsibility
Our
the
Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
to express an opinion on
is
KPMG
Suzanne Bell
Partner
Melbourne
19 August 2020
28 | Engenco Limited and its controlled entities | Annual Report 2020
Independent Auditor’s Report (continued)
Consolidated Financial Statements Table of Contents
for the year ended 30 June 2020
Contents
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
Shareholder Information
Corporate Directory
30
31
32
33
70
72
Notes to the Consolidated Financial Statements
Note 1 – Significant Accounting Policies
Note 2 – Controlled Entities
Note 3 – Operating Segments
Note 4 – Revenue and Other Income
Note 5 – Expenses
Note 6 – Tax
Note 7 – Earnings Per Share
Note 8 – Cash and Cash Equivalents
Note 9 – Trade and Other Receivables
Note 10 – Inventories
Note 11 – Leases and Commitments
Note 12 – Other Assets
Note 13 – Property, Plant and Equipment
Note 14 – Net Tangible Assets
Note 15 – Intangible Assets
Note 16 – Trade and Other Payables
Note 17 – Financial Liabilities
Note 18 – Provisions
Note 19 – Contingent Liabilities
Note 20 – Issued Capital and Reserves
Note 21 – Parent Entity Disclosures
Note 22 – Cash Flow Information
Note 23 – Financial Risk Management
Note 24 – Related Party Transactions
Note 25 – Auditor’s Remuneration
Note 26 – Events Subsequent to Reporting Date
34
34
38
39
43
44
45
48
48
49
50
50
53
54
55
56
57
57
58
59
60
61
62
63
67
69
69
Engenco Limited and its controlled entities | Annual Report 2020 | 29
Independent Auditor’s Report (continued) Consolidated Statement of Profit or Loss and Other
Comprehensive Income
for the year ended 30 June 2020
Revenue
Other income
Changes in inventories of finished goods and work in progress
Raw materials and consumables used
Employee benefits expense
Depreciation and amortisation expense
Impairment of inventory
Finance costs
Subcontract freight
Repairs and maintenance
Insurances
Rent and outgoings
Foreign exchange movements
Other expenses
PROFIT / (LOSS) BEFORE INCOME TAX
Income tax benefit / (expense)
TOTAL PROFIT / (LOSS) FOR THE PERIOD
Profit / (loss) attributable to:
Owners of the Company
Non-controlling interest
OTHER COMPREHENSIVE INCOME
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of overseas subsidiaries
Other comprehensive income for the period, net of tax
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interest
EARNINGS PER SHARE
Basic & Diluted earnings per share (cents per share)
Consolidated Group
2020
$’000
2019*
$’000
178,063
174,850
2,915
5,269
(88,238)
(63,175)
(6,937)
(139)
(1,446)
(1,189)
(1,437)
(1,174)
(3,139)
(1)
(9,222)
10,150
3,273
13,423
13,423
–
13,423
2,869
2,630
(81,805)
(63,822)
(3,615)
(571)
(322)
(765)
(1,072)
(1,276)
(6,900)
(22)
(7,489)
12,690
1,537
14,227
14,227
–
14,227
459
459
409
409
13,882
14,636
13,882
14,636
–
–
13,882
14,636
Cents
4.28
Cents
4.54
Note
4
4
5
5
6
7
* The Group has initially applied AASB 16: Leases from 1 July 2019, using the modified retrospective approach. Under this approach, comparative information
is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. See Note 11.
The notes on pages 34 to 69 are an integral part of the consolidated financial statements.
30 | Engenco Limited and its controlled entities | Annual Report 2020
Consolidated Statement of Financial Position
as at 30 June 2020
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Contract assets**
Inventories
Current tax asset
Financial assets
Other current assets
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Intangible assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Contract liabilities**
Financial liabilities
Current tax liabilities
Lease liabilities
Provisions
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Lease liabilities
Provisions
Deferred tax liabilities
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Reserves
Profit reserve
Accumulated losses
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY
Non-controlling interest
TOTAL EQUITY
Consolidated Group
2020
$’000
2019*
$’000
Note
8
9
4
10
6
12
13
11
6
15
16
4
17
6
11
18
11
18
6
14,447
26,369
4,897
41,843
56
658
3,960
92,230
18,837
20,246
12,159
127
51,369
143,599
17,227
2,690
971
–
3,338
7,876
32,102
18,414
4,042
447
22,903
55,005
88,594
23,702
27,437
2,875
36,574
30
–
2,026
92,644
11,732
–
7,366
200
19,298
111,942
18,257
1,151
294
25
–
7,070
26,797
–
523
547
1,070
27,867
84,075
20
302,719
302,719
517
10,165
58
2,433
(218,978)
(215,306)
94,423
(5,829)
88,594
89,904
(5,829)
84,075
* The Group has initially applied AASB 16: Leases from 1 July 2019, using the modified retrospective approach. Under this approach, comparative information
is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. See Note 11.
** During the year, the Group modified the presentation of Contract assets and liabilities. Contract assets ($2,875,000 at 30 June 2019) were previously
disclosed as part of Trade and other receivables. Contract liabilities ($1,151,000 at 30 June 2019) were previously disclosed as part of Trade and other
payables. See Note 1(g).
The notes on pages 34 to 69 are an integral part of the consolidated financial statements.
Engenco Limited and its controlled entities | Annual Report 2020 | 31
–
–
–
–
–
–
14,227
–
409
14,636
(3,134)
(3,134)
(5,829)
84,075
Consolidated Statement of Changes in Equity
for the year ended 30 June 2020
Share
Capital
$’000
Accumu-
lated
Losses*
$’000
Foreign
Currency
Translation
Reserve
$’000
Profit
Reserve
$’000
Non-
controlling
Interest
$’000
Sub-Total
$’000
Total
Equity
$’000
Consolidated Group
BALANCE AT 1 JULY 2018
302,719
(223,592)
–
(645)
302,719
(224,237)
271
–
271
(351)
79,047
(5,829)
73,218
–
(645)
–
(645)
(351)
78,402
(5,829)
72,573
Adjustments from adoption
of AASB 9 & AASB 15
ADJUSTED BALANCE AT
1 JULY 2018
COMPREHENSIVE INCOME
Profit / (loss)
Transfer to profit reserve
Other comprehensive
income, net of tax
TOTAL COMPREHENSIVE
INCOME
–
–
–
–
14,227
(5,296)
–
5,296
–
–
14,227
–
–
–
409
409
8,931
5,296
409
14,636
TRANSACTIONS WITH OWNERS OF THE COMPANY
Contributions and Distributions:
Dividends paid
TOTAL CONTRIBUTIONS
AND DISTRIBUTIONS
–
–
–
–
BALANCE AT 30 JUNE 2019
302,719
(215,306)
(3,134)
(3,134)
2,433
–
–
58
(3,134)
(3,134)
89,904
Share
Capital
$’000
Accumu-
lated
Losses*
$’000
Foreign
Currency
Translation
Reserve
$’000
Profit
Reserve
$’000
Consolidated Group
BALANCE AT 1 JULY 2019
302,719
(215,306)
2,433
Adjustments from adoption
of AASB 16
ADJUSTED BALANCE AT
1 JULY 2019
COMPREHENSIVE INCOME
Profit / (loss)
Other comprehensive
income, net of tax
TOTAL COMPREHENSIVE
INCOME
–
(3,095)
–
302,719
(218,401)
2,433
–
–
–
(577)
14,000
13,423
–
–
459
459
(577)
14,000
459
13,882
TRANSACTIONS WITH OWNERS OF THE COMPANY
Contributions and Distributions:
Dividends paid
TOTAL CONTRIBUTIONS
AND DISTRIBUTIONS
–
–
–
–
BALANCE AT 30 JUNE 2020
302,719
(218,978)
(6,268)
(6,268)
10,165
–
–
517
(6,268)
(6,268)
94,423
Non-
controlling
Interest
$’000
Sub-Total
$’000
Total
Equity
$’000
89,904
(5,829)
84,075
(3,095)
–
(3,095)
86,809
(5,829)
80,980
58
–
58
–
–
–
–
–
–
13,423
459
13,882
(6,268)
(6,268)
(5,829)
88,594
* The Group has initially applied AASB 16: Leases from 1 July 2019, using the modified retrospective approach. Under this approach, comparative information
is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. See Note 11.
The notes on pages 34 to 69 are an integral part of the consolidated financial statements.
32 | Engenco Limited and its controlled entities | Annual Report 2020
Consolidated Statement of Cash Flows
for the year ended 30 June 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Finance costs
Income tax paid
Consolidated Group
2020
$’000
2019*
$’000
Note
198,138
(183,657)
189,462
(176,355)
72
(112)
(348)
74
(322)
(538)
NET CASH FROM / (USED IN) OPERATING ACTIVITIES
22(b)
14,093
12,321
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of non-current assets
Purchase of non-current assets
Payment for purchase of non-current asset held in escrow
NET CASH FROM / (USED IN) INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid
Release of funds on deposit
Payment of lease liabilities
NET CASH FROM / (USED IN) FINANCING ACTIVITIES
Net increase / (decrease) in cash and cash equivalents
Cash (net of bank overdrafts) at beginning of financial year
CASH (NET OF BANK OVERDRAFTS) AT END OF FINANCIAL YEAR
22(a)
1,140
(11,475)
(2,341)
(12,676)
(6,268)
–
(4,423)
(10,691)
(9,274)
23,408
14,134
7,301
(3,076)
–
4,225
(3,134)
1,678
–
(1,456)
15,090
8,318
23,408
* The Group has initially applied AASB 16: Leases from 1 July 2019, using the modified retrospective approach. Under this approach, comparative information
is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. See Note 11.
The notes on pages 34 to 69 are an integral part of the consolidated financial statements.
Engenco Limited and its controlled entities | Annual Report 2020 | 33
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020
Note 1 – Significant Accounting Policies
Except for the changes explained here within, the Group has
consistently applied the following accounting policies to all
periods presented in these consolidated financial statements.
Reporting Entity
Engenco Limited (the ‘Company’) is domiciled in Australia. The
Company’s registered office is at Level 22, 535 Bourke Street,
Melbourne, VIC 3000. These consolidated financial statements
comprise the Company and its subsidiaries (collectively ‘the
Group’ and individually ‘Group companies’). The Group is a
for-profit entity and is involved in the delivery of a diverse range
of engineering services and products.
Basis of Accounting
Statement of Compliance
The consolidated financial statements are general purpose
financial statements which have been prepared in accordance
with Australian Accounting Standards (AASBs) adopted by
the Australian Accounting Standards Board (AASB) and the
Corporations Act 2001. The consolidated financial statements
comply with International Financial Reporting Standards
(IFRS) adopted by the International Accounting Standards
Board (IASB).
The consolidated financial statements were authorised for issue
by the Board of Directors on 19 August 2020.
Functional and Presentation Currency
These consolidated financial statements are presented
in AUD, which is the Company’s functional currency. All
amounts have been rounded to the nearest thousand, unless
otherwise indicated.
Use of Judgements and Estimates
In preparing these consolidated financial statements,
management has made judgements, estimates and
assumptions that affect the application of the Group’s
accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from
these estimates.
Estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to estimates are
recognised prospectively.
Assumptions and Estimation Uncertainties
Information about assumptions and estimation uncertainties
that may have a risk of resulting in a material adjustment in the
year ended 30 June 2020 is included in the following notes:
• Note 4 – Revenue and Other Income
• Note 6 – Tax
• Note 9 – Trade and Other Receivables
• Note 10 – Inventories
• Note 11 – Leases and Commitments
COVID-19 Considerations
The ongoing COVID-19 global pandemic has increased
the estimation uncertainty in the preparation of financial
statements, generally, due to the impact of the following
key factors:
•
•
•
the extent and duration of restrictive actions put in place by
governments as a response to the health emergency and to
contain the spread of the virus, and the follow-on effects this
has on industries, businesses and consumers;
the extent and duration of the expected economic
downturn. This includes uncertainty relating to potential
disruption to capital markets, a deteriorating credit
environment, higher unemployment, heightened
geo-political tensions, and changes in consumer
discretionary spending behaviours; and
the effectiveness of government measures that have and
will be put in place to support businesses and consumers
through the changeable conditions, social disruption and
economic downturn.
During FY20, the Group experienced the following key impacts
on its operations and financial statements as a result of the
COVID-19 global pandemic environmental factors:
• Governments took varying approaches to containment
of the virus in Australia and Europe, being Engenco’s
key markets.
•
In general, transportation, defence and mining activities,
and the support services thereto that Engenco provides,
have been considered an essential service and have
continued without a significant impact on Engenco’s
main operations.
• Business operations that have been impacted to some
degree include CERT Training, whom provide training to
the rail industry in a classroom environment; and some
disruption in the European supply chain supporting
Hedemora Turbo & Diesel in Sweden.
•
In Engenco’s key markets, governments put in place fiscal
and economic stimulus packages of varying natures, the
majority of which remain in place at 30 June 2020, and at
the date of this report.
34 | Engenco Limited and its controlled entities | Annual Report 2020
In respect of these financial statements, the impact of the
COVID-19 pandemic is primarily relevant to estimates of
future performance which is in turn relevant to the areas of
recoverability of receivables (Note 9), net realisable value of
inventory (Note 10), impairment of non-financial assets (right-
of-use assets, Note 11 and property, plant and equipment, Note
13) and recoverability of income tax losses (Note 6).
In making estimates of future performance, the following
assumptions and judgements in relation to the potential impact
of COVID-19 have been applied by the Group. Actual results may
differ from these estimates under different assumptions and
conditions.
• Engenco’s operations are nationally diverse across the
Australian states and regions, with material operations
separated across all of the major states.
•
It is expected that States will continue to be operating with
differing degrees of COVID-19 impacts and restrictions
and our diversity of operations will assist our continued
operation as COVID-19 responses change.
• The services the Group provides and the industries served
continue to be considered essential services, and sites
continue operating with strict COVID-19 safety plans in
place. Operations are expected to continue on a similar
basis to those that have been in place from the outset of the
pandemic, which include a degree of COVID-19 disruption,
into the future. Government fiscal and economic stimulus
packages are expected to be maintained or extended, but
are phased out as economies return to historical output
levels in future periods.
Basis of Measurement
The consolidated financial statements have been prepared
on the historical cost basis except for non-derivative financial
instruments at fair value through profit or loss, which are
measured at fair value.
Going Concern
The consolidated financial statements have been prepared on
the going concern basis, which contemplates the continuity of
normal business activity, and the realisation of assets and the
settlement of liabilities in the ordinary course of business.
Significant Accounting Policies
(a) Basis of Consolidation
Non-controlling interests
Non-controlling interests (NCI) are measured at their
proportionate share of the acquiree’s identifiable net assets at
the date of acquisition.
Changes in the Group’s interest in a subsidiary that do not result
in a loss of control are accounted for as equity transactions.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has the right to,
variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the
entity. The financial statements of subsidiaries are included in
the consolidated financial statements from the date on which
control commences until the date on which control ceases.
Loss of control
When the Group loses control over a subsidiary, it derecognises
the assets and liabilities of the subsidiary, and any related NCI
and other components of equity. Any resulting gain or loss is
recognised in profit or loss. Any interest retained in the former
subsidiary is measured at fair value when control is lost.
Interests in equity-accounted investees
The Group’s interests in equity-accounted investees comprise of
interest in a joint venture.
A joint venture is an arrangement in which the Group has joint
control, whereby the Group has rights to the net assets of the
arrangement, rather than rights to its assets and obligations for
its liabilities.
Interest in the joint venture is accounted for using the equity
method. It is recognised initially at cost, which includes
transaction costs. Subsequent to initial recognition, the
consolidated financial statements include the Group’s share
of the profit or loss and other comprehensive income (OCI)
of equity-accounted investees, until the date on which joint
control ceases.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised
income and expenses arising from intra-group transactions,
are eliminated. Unrealised gains arising from transactions
with equity-accounted investees are eliminated against
the investment to the extent of the Group’s interest in the
investee. Unrealised losses are eliminated in the same way
as unrealised gains, but only to the extent that there is no
evidence of impairment.
(b)
Impairment
Non-financial assets
At each reporting date, the Group reviews the carrying amounts
of its non-financial assets (other than inventories and deferred
tax assets) to determine whether there is any indication of
impairment. If any such indication exists, then the asset’s
recoverable amount is estimated. Goodwill is tested annually
for impairment.
For impairment testing, assets are grouped together into the
smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows
of other assets or cash generating units (CGUs). Goodwill
Engenco Limited and its controlled entities | Annual Report 2020 | 35
Note 1 – Significant Accounting Policies (continued)
arising from a business combination is allocated to CGUs or
groups of CGUs that are expected to benefit from the synergies
of the combination.
The recoverable amount of an asset or CGU is the greater of
its value in use and its fair value less costs to sell. Value in use
is based on the estimated future cash flows, discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and
the risks specific to the asset or CGU. An impairment loss is
recognised if the carrying amount of an asset or CGU exceeds
its recoverable amount.
Impairment losses are recognised in profit or loss. They are
allocated first to reduce the carrying amount of any goodwill
allocated to the CGU, and then to reduce the carrying amounts
of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For
other assets, an impairment loss is reversed only to the extent
that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation
or amortisation, if no impairment loss had been recognised.
translated into the functional currency at the exchange rates
at the reporting date. The income and expenses of foreign
operations are translated into the functional currency at the
exchange rates at the dates of the transactions.
Foreign currency differences are recognised in OCI and
accumulated in the translation reserve, except to the extent
that the translation difference is allocated to NCI.
When a foreign operation is disposed of in its entirety or
partially such that control, significant influence or joint control
is lost, the cumulative amount in the translation reserve related
to that foreign operation is reclassified to profit or loss as part
of the gain or loss on disposal. If the Group disposes of part of
its interest in a subsidiary but retains control, then the relevant
proportion of the cumulative amount is reattributed to NCI.
When the Group disposes of only part of an associate or joint
venture while retaining significant influence or joint control, the
relevant proportion of the cumulative amount is reclassified to
profit or loss.
(d)
Finance Income and Finance Costs
The Group’s finance income and finance costs include:
(c)
Foreign Currency
Foreign currency transactions
•
•
Interest income;
Interest expense;
Transactions in foreign currencies are translated to the
respective functional currencies of Group companies at
exchange rates at the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies are
translated into the functional currency at the exchange rate at
the reporting date. Non-monetary assets and liabilities that are
measured at fair value in a foreign currency are translated into
the functional currency at the exchange rate when the fair value
was determined. Non-monetary items that are measured based
on historical cost in a foreign currency are translated at the
exchange rate at the date of the transaction. Foreign currency
differences are generally recognised in profit or loss.
However, foreign currency differences arising from the
translation of the following items are recognised in OCI:
• Fair Value through Other Comprehensive Income (FVTOCI)
equity investments (except on impairment in which case
foreign currency differences that have been recognised in
OCI are reclassified to profit or loss);
• A financial liability designated as a hedge of the net
investment in a foreign operation to the extent that the
hedge is effective; and
• Qualifying cash flow hedges to the extent that the hedges
are effective.
Foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on acquisition, are
• The net gain or loss on financial assets at fair value through
profit or loss;
• The foreign currency gain or loss on financial assets and
financial liabilities; and
•
Impairment losses recognised on financial assets (other than
trade receivables).
Interest income or expense is recognised using the effective
interest method.
(e) Government Grants
Grants that compensate the Group for expenses incurred are
recognised in profit or loss on a systematic basis in the periods
in which the expenses are recognised.
(f) Goods and Services Tax (GST)
Revenues, expenses and non-financial assets are recognised net
of the amount of GST, except where the amount of GST incurred
is not recoverable from the Tax Office. In these circumstances
the GST is recognised as part of the cost of acquisition of the
asset or as part of an item of the expense. Receivables and
payables in the Statement of Financial Position are shown
inclusive of GST.
Cash flows are presented in the Statement of Cash Flows on
a gross basis, except for the GST component of investing
and financing activities, which are disclosed as operating
cash flows.
36 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 (g) Comparative Figures
STANDARDS ISSUED BUT NOT YET EFFECTIVE
When required by Accounting Standards, comparative figures
have been adjusted to conform to changes in presentation for
the current financial year.
During 2019, the Group adopted AASB 15: Revenue from
Contracts with Customers that requires contract assets and
contract liabilities to be presented in the financial statements
and accompanying notes. The Group modified the presentation
of accrued income and deferred income to contract assets
and liabilities to reflect more appropriately the distinction
from trade and other receivables and trade and other
payables, respectively.
Other Accounting Standards
A number of new standards are effective for annual periods
beginning after 1 January 2019 and earlier application is
permitted; however, the Group has not early adopted the
new or amended statements in preparing these consolidated
financial statements.
The following new or amended standards are not expected
to have a significant impact on the Group’s consolidated
financial statements:
• Amendments to References to the Conceptual Framework in
IFRS Standards
(h) Rounding of Amounts
• Definition of a Material (Amendments to AASB 101 and
The Group has applied the relief available to it under ASIC
Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191 and accordingly, amounts in the financial
statements and Directors’ Report have been rounded off to the
nearest thousand dollars (unless otherwise indicated).
AASB 108)
• Definition of a Business (Amendments to AASB 3)
• Sale or Contribution of Assets between an investor and
its Associate or Joint Venture (Amendments to IFRS 10
and IAS28)
(i) New Accounting Standards and Interpretations
New accounting standards adopted
The Group has adopted the new and revised Standards and
Interpretations issued by the Australian Accounting Standards
Board (the “AASB”) that are relevant to its operations and
effective for the current reporting period.
New and revised Standards and Interpretations effective for the
current reporting period that are relevant to the Group include:
• AASB 16: Leases
•
IFRIC 23 Uncertainty over Income Tax Treatments
• Prepayment Features with Negative Compensation (AASB 9)
• Long term Interest in Associates and Joint Ventures
(AASB 128)
• Plan Amendment, Curtailment or settlement (AASB 119)
• Annual Improvements to IFRS’s 2015-2017 Cycle –
various standards
Aside from the impact of AASB 16, discussed in Note 11,
the other new standards adopted did not have an impact to
the Group.
Engenco Limited and its controlled entities | Annual Report 2020 | 37
Note 2 – Controlled Entities
Note: Subsidiaries are indented beneath their parent entity
Country of
Incorporation
Date of
Control
Percentage
Owned
2020
Percentage
Owned
2019
• Engenco Limited
– Convair Engineering Pty Ltd
– Engenco Logistics Pty Ltd
– Asset Kinetics Pty Ltd
– Engenco Investments Pty Ltd
– Australian Rail Mining Services Pty Ltd
– Centre for Excellence in Rail Training Pty Ltd
– EGN Rail Pty Ltd
– EGN Rail (NSW) Pty Ltd
– Midland Railway Company Pty Ltd
– Momentum Rail (Vic) Pty Ltd
– Momentum Rail (WA) Pty Ltd
– Sydney Railway Company Pty Ltd
– Greentrains Pty Ltd1 (formerly Greentrains Limited)
– Greentrains Leasing Pty Ltd
– Drivetrain Power and Propulsion Pty Ltd
– Drivetrain Australia Pty Ltd
– DTPP Energy Pty Ltd
– Drivetrain Philippines Inc.
– Drivetrain Singapore Pte Ltd
– Drivetrain Limited
– Turbochargers USA (formerly Drivetrain USA Inc.)
– Hyradix Inc.
– Hedemora Investments AB
– Hedemora Turbo & Diesel AB
– Gemco Rail Pty Ltd
– Railway Bearings Refurbishment Services Pty Ltd
– New RTS Pty Ltd
– Hedemora Pty Ltd
– Industrial Powertrain Pty Ltd
– PC Diesel Pty Ltd
– Total Momentum Pty Ltd
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
1 Jul 06
1 Jul 06
1 Jul 06
18 Apr 07
30 Apr 07
30 Apr 07
30 Apr 07
30 Apr 07
30 Apr 07
30 Apr 07
30 Apr 07
30 Apr 07
17 Jul 09
18 Jun 08
1 Jul 06
1 Jul 06
Australia
25 May 10
Philippines
Singapore
New Zealand
1 Jul 07
1 Jul 07
1 Jul 07
USA
USA
31 Dec 08
31 Dec 08
Sweden
Sweden
Australia
Australia
Australia
Australia
Australia
Australia
Australia
1 Jul 06
1 Jul 06
1 Jul 07
1 Jul 07
3 Dec 08
1 Jul 06
1 Jul 07
1 Jul 06
30 Apr 07
100
100
100
100
100
100
100
100
100
100
100
100
81
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
81
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
1 Total Engenco Group ownership of Greentrains Pty Ltd is 81% (split between Engenco Investments Pty Ltd, 61%, and Engenco Ltd, 20%).
38 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 Note 3 – Operating Segments
Basis of Segmentation
Identification of Reportable Segments
The Group has identified its operating segments based on the
internal reports that are reviewed and used by the Managing
Director/CEO (chief operating decision maker) in assessing
performance and determining the allocation of resources.
The Group is managed primarily on the basis of service
offerings since the diversification of the Group’s operations
inherently have notably different risk profiles and performance
assessment criteria. Operating segments are therefore
determined on the same basis.
Types of Products and Services by Segment
The chief operating decision maker considers the business from
a Business Line perspective and has identified five (5) reportable
segments as follows:
(a) Gemco Rail
Gemco Rail specialises in the remanufacture and repair of
locomotives, wagons, bearings and other rail products for rail
operators and maintainers. Gemco Rail provides wheelset,
bogie and in-field wagon maintenance and manufactures new
and refurbished wagons, bogie component parts, customised
remote controlled ballast car discharge gates, and a range of
rail maintenance equipment and spares.
(b) Convair Engineering (Convair)
Convair is a manufacturer of bulk pneumatic road tankers
and mobile silos for the carriage and storage of construction
materials, grains, and other dry bulk materials. Additional
services include maintenance, repair and overhaul, and
provisioning of ancillary equipment and spare parts sales.
(c) Drivetrain
Drivetrain is a provider of technical sales and services to the
mining, oil & gas, rail, transport, defence, marine, construction,
materials handling, automotive, agriculture, and power
generation industries. A broad product and service offering
includes engine and powertrain maintenance, repair and
overhaul, new components and parts, fluid connector products,
power generation design and construction, technical support,
professional engineering and training services.
(d) Momentum Rail
Momentum Rail is a provider of personnel and project
management services to freight rail and mining rail
infrastructure managers. Services include professional
recruitment, training and workforce solutions, including
managing and provisioning track construction and
maintenance projects.
(e)
Centre for Excellence in Rail Training
(CERT Training)
CERT Training provides specialist rail training including the
provision of competency based training; issuing of certificates
of competency; rail incident investigation training; security
(transit guard) training; first aid training; company inductions
and course design; and management of apprenticeship and
trainee schemes to major infrastructure and rail clients.
(f)
All Other
This includes the parent entity, non-reportable segments and
consolidation / inter-segment elimination adjustments.
Basis of Reporting by Operating Segments
(a) Basis of reporting
Unless stated otherwise, all amounts reported to the Managing
Director/CEO as the chief operating decision maker with
respect to operating segments are determined in accordance
with accounting policies that are consistent to those adopted in
the annual financial statements of the Group.
(b)
Inter-segment transactions
An internal transfer price is set for all inter-segment sales. This
price is set based on what would be realised in the event the
sale was made to an external party at arm’s length. All such
transactions are eliminated on consolidation of the Group’s
financial statements.
(c)
Segment assets
Assets are allocated to segments where there is a nexus
between control and ownership of the asset and the operations
of the business. Segment assets are disclosed at the net of
capital expenditure, investments and intangibles. Unless
indicated otherwise in the segment assets note, deferred tax
assets have not been allocated to operating segments.
(d)
Segment liabilities
Liabilities are allocated to segments where there is nexus
between the incurrence of the liability and the operations
of the segment. Unless indicated otherwise in the segment
liabilities note, deferred tax liabilities have not been allocated to
operating segments.
Information about Reportable Segments
Information related to each reportable segment is set out
below. Segment EBITDA is used to measure performance
because management believes this information is the most
relevant in evaluating the results of the respective segments
relative to other entities that operate in the same industries.
Engenco Limited and its controlled entities | Annual Report 2020 | 39
Note 3 – Operating Segments (continued)
(i)
Segment Performance
Year ended 30 June 2020
Reportable Segments
REVENUE
External revenue
Inter-segment revenue
Interest revenue
Gemco Rail
$’000
Convair
$’000
Drivetrain
$’000
Momentum
Rail
$’000
CERT
$’000
All Other
$’000
Group
$’000
87,239
14,817
45,807
14,135
10,119
2
–
–
–
179
15
284
–
96
–
5,874
3,497
57
177,991
4,058
72
TOTAL SEGMENT REVENUE
87,241
14,817
46,001
14,419
10,215
9,428
182,121
Reconciliation of segment
revenue to Group revenue:
Inter-segment eliminations
TOTAL GROUP REVENUE
SEGMENT EBITDA
Reconciliation of segment
EBITDA to Group net profit /
(loss) before tax:
Depreciation and
amortisation
Finance costs
NET PROFIT / (LOSS)
BEFORE TAX
Year ended 30 June 2019
Reportable Segments
REVENUE
External revenue
Inter-segment revenue
Interest revenue
–
87,241
16,933
–
14,817
1,564
–
46,001
5,531
–
14,419
1,552
–
10,215
1,528
(4,058)
5,370
(8,575)
(4,058)
178,063
18,533
(4,160)
(835)
(520)
(98)
(1,155)
(195)
(23)
(11)
(207)
(44)
(872)
(263)
(6,937)
(1,446)
11,938
946
4,181
1,518
1,277
(9,710)
10,150
Gemco Rail
$’000
Convair
$’000
Drivetrain
$’000
Momentum
Rail
$’000
CERT
$’000
All Other
$’000
Group
$’000
67,980
17,128
47,737
23,526
11,429
29
–
–
–
165
–
159
–
46
–
6,976
3,334
74
174,776
3,733
74
TOTAL SEGMENT REVENUE
68,009
17,128
47,902
23,685
11,475
10,384
178,583
Reconciliation of segment
revenue to Group revenue:
Inter-segment eliminations
TOTAL GROUP REVENUE
SEGMENT EBITDA
Reconciliation of segment
EBITDA to Group net profit /
(loss) before tax:
Depreciation and
amortisation
Finance costs
NET PROFIT / (LOSS)
BEFORE TAX
–
68,009
12,425
–
17,128
1,540
–
47,902
5,563
–
23,685
2,837
–
11,475
1,967
(3,733)
6,651
(7,705)
(3,733)
174,850
16,627
(2,109)
(3)
(286)
(4)
(391)
(14)
(29)
–
(79)
(33)
(721)
(268)
(3,615)
(322)
10,313
1,250
5,158
2,808
1,855
(8,694)
12,690
40 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 (ii)
Segment Assets
As at 30 June 2020
Reportable Segments
ASSETS
Segment assets
Capital expenditure
Intangibles
Reconciliation of segment
assets to Group assets:
Inter-segment eliminations
Unallocated items:
Deferred tax assets
TOTAL ASSETS
As at 30 June 2019*
Reportable Segments
ASSETS
Segment assets
Capital expenditure
Intangibles
Reconciliation of segment
assets to Group assets:
Inter-segment eliminations
Unallocated items:
Deferred tax assets
TOTAL ASSETS
Gemco Rail
$’000
Convair
$’000
Drivetrain
$’000
Momentum
Rail
$’000
CERT
$’000
All Other
$’000
Group
$’000
55,661
7,736
–
–
–
12,962
40,767
7,973
11,478
(4,139)
124,702
391
–
–
–
155
–
–
–
–
–
–
–
55
–
–
–
2,778
127
11,115
127
–
–
(4,504)
12,159
63,397
13,353
40,922
7,973
11,533
(1,234)
143,599
Gemco Rail
$’000
Convair
$’000
Drivetrain
$’000
Momentum
Rail
$’000
CERT
$’000
All Other
$’000
Group
$’000
35,612
1,801
–
–
–
13,905
38,689
6,150
9,678
2,770
106,804
369
–
–
–
82
–
–
–
–
–
–
–
187
–
–
–
528
200
2,967
200
–
–
(5,395)
7,366
37,413
14,274
38,771
6,150
9,865
3,498
111,942
* The Group has initially applied AASB 16: Leases from 1 July 2019, using the modified retrospective approach. Under this approach, comparative information
is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. See Note 11.
Engenco Limited and its controlled entities | Annual Report 2020 | 41
Note 3 – Operating Segments (continued)
(iii) Segment Liabilities
As at 30 June 2020
Reportable Segments
LIABILITIES
Segment liabilities
Reconciliation of segment
liabilities to Group liabilities:
Inter-segment eliminations
Unallocated items:
Deferred tax liabilities
TOTAL LIABILITIES
As at 30 June 2019*
Reportable Segments
LIABILITIES
Segment liabilities
Reconciliation of segment
liabilities to Group liabilities:
Inter-segment eliminations
Unallocated items:
Deferred tax liabilities
TOTAL LIABILITIES
Gemco Rail
$’000
Convair
$’000
Drivetrain
$’000
Momentum
Rail
$’000
CERT
$’000
All Other
$’000
Group
$’000
52,755
8,410
49,598
3,947
6,991
(62,639)
59,062
–
–
–
–
–
–
–
–
–
–
–
–
(4,504)
447
52,755
8,410
49,598
3,947
6,991
(62,639)
55,005
Gemco Rail
$’000
Convair
$’000
Drivetrain
$’000
Momentum
Rail
$’000
CERT
$’000
All Other
$’000
Group
$’000
76,247
2,528
49,359
835
1,047
(97,301)
32,715
–
–
–
–
–
–
–
–
–
–
–
–
(5,395)
547
76,247
2,528
49,359
835
1,047
(97,301)
27,867
* The Group has initially applied AASB 16: Leases from 1 July 2019, using the modified retrospective approach. Under this approach, comparative information
is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. See Note 11.
(iv) Geographical Information
The geographical information analyses the Group’s revenue and assets by the Company’s country of domicile and other countries.
In presenting the geographical information, segment revenue has been based on the geographical location of the selling party and
segment assets were based on the geographical location of the assets.
Revenue
Australasia
Europe
United States of America
TOTAL REVENUE
Assets
Australasia
Europe
United States of America
TOTAL ASSETS
(v) Major Customers
During the year, the Group did not have any major customers with revenue of greater than 10%.
42 | Engenco Limited and its controlled entities | Annual Report 2020
2020
$’000
168,662
9,401
–
2019
$’000
164,572
10,278
–
178,063
174,850
2020
$’000
134,845
8,733
21
2019
$’000
100,016
11,900
26
143,599
111,942
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 Note 4 – Revenue and Other Income
Revenue is recognised as contract performance obligations are
satisfied. The total contract consideration is allocated to the
performance obligations based on their observable stand alone
selling prices. Revenue is recognised when (or as) an entity
transfers control of goods or services to a customer at the
amount to which the entity expects to be entitled. Depending
on whether certain criteria are met, revenue is recognised:
• Over time, in a manner that depicts the entity’s
performance; or
• At a point in time, when control of the goods or services is
transferred to the customer.
Sale of Goods
The Group engages in the sale of spare parts and components
for various rail, road, powertrain and gas compression industry
sectors. Revenue is recognised at a point in time when a
customer obtains control of the goods. Revenue is measured
net of returns, trade discounts and volume rebates.
Rendering of Services
The Group performs a number of services to various industry
sectors, including maintenance, repairs and overhauls. Revenue
is recognised as contract performance obligations are satisfied
over time. The total contract consideration is allocated to the
performance obligations based on their observable stand alone
selling prices.
Construction Contracts
The Group is involved in the manufacture of wagons, carriages,
rail equipment and dry bulk tankers. Revenue is recognised as
contract performance obligations are satisfied over time. The
total contract consideration is allocated to the performance
obligations based on their observable stand alone selling prices.
Claims and variations are included in the contract consideration
only when they are approved.
RTO Training
The Group’s RTO entity (CERT Training) delivers nationally
accredited and industry-based training courses. Revenue
is recognised at the point in time when the performance
obligation is satisfied.
Lease Rental Income
The Group leases out its fleet of rollingstock and certain items
of property, plant and equipment to customers in the form
of operating lease arrangements. Rental income from leased
plant and equipment is recognised on a straight-line basis over
the term of the lease. Lease incentives granted are recognised
as an integral part of the total rental income, over the term of
the lease.
SALES REVENUE
Sales of goods and services
Lease rental income
TOTAL SALES REVENUE
OTHER REVENUE
Interest received – external
TOTAL OTHER REVENUE
TOTAL REVENUE
OTHER INCOME
Gain on disposal of property, plant and equipment
Other gains
TOTAL OTHER INCOME
2020
$’000
2019
$’000
176,993
998
177,991
72
72
173,022
1,754
174,776
74
74
178,063
174,850
396
2,519
2,915
2,656
213
2,869
Engenco Limited and its controlled entities | Annual Report 2020 | 43
Note 4 – Revenue and Other Income (continued)
Set out below is the disaggregation of the Group’s revenue from contracts with customers:
Revenue Stream
Sale of goods
Rendering of services
Construction contracts
RTO training
Lease rental income
TOTAL SALES REVENUE
Revenue
Recognition
Point in time
Over time
Over time
Point in time
Over time
2020
$’000
48,902
42,165
75,711
10,215
998
177,991
2019
$’000
53,342
48,555
59,650
11,475
1,754
174,776
Contract Assets and Liabilities
Contract assets are recognised as the right to consideration in exchange for work completed on construction contracts and services
rendered but not billed on the reporting date. Contract liabilities are recognised when the Group has an obligation to transfer goods
or services to a customer for which the entity has received consideration from the customer.
Contract assets ($2,875,000 at 30 June 2019) were previously disclosed as part of Trade and other receivables. Contract liabilities
($1,151,000 at 30 June 2019) were previously disclosed as part of Trade and other payables.
Contract assets
Contract liabilities
Note 5 – Expenses
FINANCE COSTS
Finance costs – leases
Other finance costs
TOTAL FINANCE COSTS
EMPLOYEE BENEFITS EXPENSE
Wages and salaries
Annual leave expense
Long service leave expense
Restructuring
Defined contribution plan
TOTAL EMPLOYEE BENEFITS EXPENSE
RENTAL EXPENSE ON OPERATING LEASES
Operating lease payments*
TOTAL RENTAL EXPENSE ON OPERATING LEASES
2020
$’000
4,897
2,690
2019
$’000
2,875
1,151
2020
$’000
2019
$’000
1,236
210
1,446
55,279
2,608
417
512
4,359
63,175
1,508
1,508
–
322
322
56,793
2,364
454
–
4,211
63,822
5,013
5,013
* The Group adopted AASB 16: Leases on 1 July 2019 and for the year ended 30 June 2020, operating lease payments expense disclosed above relates to
outgoings, short term and low value leases (all of which are not lease accounted or contained within Note 11).
44 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 Note 6 – Tax
Tax Consolidation
Engenco Limited and its wholly-owned Australian subsidiaries
have formed an income tax consolidated group under tax
consolidation legislation. Each entity in the group recognises
its own current and deferred tax assets and liabilities. Such
taxes are measured using the ‘stand-alone taxpayer’ approach
to allocation. Current tax liabilities/assets and deferred tax
assets arising from unused tax losses and tax credits in the
subsidiaries are immediately transferred to the head entity. The
Group notified the Australian Tax Office that it had formed an
income tax consolidated group to apply from 31 October 2007.
The tax consolidated group has entered into a tax funding
arrangement whereby each company in the Group contributes
to the income tax payable by the group in proportion to
their contribution to the group’s taxable income. Differences
between the amounts of net tax assets and liabilities
derecognised and the net amounts recognised pursuant to the
funding arrangement are recognised as either a contribution by,
or distribution to the head entity.
Income tax expense/benefit comprises current and deferred
tax. It is recognised in profit or loss except to the extent that it
relates to a business combination, or items recognised directly
in equity or OCI.
Estimates and Judgements
Balances disclosed in the financial statements and the notes
thereto, related to taxation, are based on the best estimates of
directors. These estimates take into account both the financial
performance and position of the Company as they pertain
to current income taxation legislation, and the directors’
understanding thereof. No adjustment has been made for
pending or future taxation legislation. The current income tax
position represents the directors’ best estimate, pending an
assessment by taxable authorities in relevant jurisdictions.
Current Tax
Current tax comprises the expected tax payable or receivable on
the taxable income or loss for the year, and any adjustment to
the tax payable or receivable in respect of previous years. The
amount of current tax payable or receivable is the best estimate
of the tax amount expected to be paid or received that reflects
uncertainty related to income taxes, if any. It is measured using
tax rates enacted or substantively enacted at the reporting
date. Current tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if certain criteria
are met.
Deferred Tax
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is not recognised for:
• Temporary differences on the initial recognition of assets or
liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable profit
or loss;
• Temporary differences related to investments in subsidiaries,
associates and joint arrangements to the extent that the
Group is able to control the timing of the reversal of the
temporary differences and it is probable that they will not
reverse in the foreseeable future; and
• Taxable temporary differences arising on the initial
recognition of goodwill.
Deferred tax assets are recognised for unused tax losses,
unused tax credits and deductible temporary differences to
the extent that it is probable that future taxable profits will
be available against which they can be used. Future taxable
profits are determined based on business plans for individual
subsidiaries in the Group. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realised;
such reductions are reversed when the probability of future
taxable profits improves.
Unrecognised deferred tax assets are reassessed at each
reporting date and recognised to the extent that it has become
probable that future taxable profits will be available against
which they can be used.
Deferred tax is measured at the tax rates that are expected
to be applied to temporary differences when they reverse,
using tax rates enacted or substantively enacted at the
reporting date.
The measurement of deferred tax reflects the tax consequences
that would follow from the manner in which the Group expects,
at the reporting date, to recover or settle the carrying amount
of its assets and liabilities.
Deferred tax assets and liabilities are offset only if certain
criteria are met.
Engenco Limited and its controlled entities | Annual Report 2020 | 45
Note 6 – Tax (continued)
CURRENT
Income tax receivable / (payable)
TOTAL CURRENT TAX INCOME
(a) The components of tax expense / (benefit) comprise:
Current income tax expense / (benefit)
– Current income tax expense / (benefit)
Deferred income tax expense / (benefit)
– Origination and reversal of temporary differences
Income tax expense / (benefit) reported in the Statement of Profit or Loss and OCI
(b) A reconciliation between tax expense / (benefit) and the product of accounting profit before
income tax multiplied by the Group’s applicable income tax rate is as follows:
Accounting profit / (loss) before tax
At the Company’s statutory domestic income tax rate of 30% (2019: 30%)
Add / (Less) tax effect of:
– Foreign tax rate adjustment
– Utilisation of tax losses – Australia
– Losses for which no deferred tax asset is recognised
– Utilisation of tax losses not previously recognised
– Other non-allowable items
– Movements in recognised temporary differences
– Other (deferred tax asset partial recognition of prior year losses)
INCOME TAX EXPENSE / (BENEFIT)
2020
$’000
2019
$’000
56
56
5
5
2020
$’000
2019
$’000
190
220
(3,463)
(3,273)
(1,757)
(1,537)
10,150
3,045
45
(2,931)
16
–
15
185
(3,648)
(3,273)
12,690
3,807
(49)
(3,967)
–
106
396
(73)
(1,757)
(1,537)
The tax receivable and payable relates to the Group companies outside the Australian Tax Consolidated Group.
46 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 Consolidated Group
Opening
Balance
$’000
Balance
Acquired
$’000
(Credited)/
Charged to
Income
$’000
Charged
Directly
to Equity
$’000
Charges
in Tax
Rate
$’000
Exchange
Differences
$’000
Other
$’000
Closing
Balance
$’000
694
694
547
547
1,121
–
4,454
5,575
1,156
–
6,210
7,366
–
–
–
–
–
–
–
–
–
–
–
–
(147)
(147)
(100)
(100)
(367)
–
1,756
1,389
(285)
–
3,648
–
–
–
–
–
–
–
–
1,322
–
–
3,363
1,322
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
402
–
–
402
108
–
–
547
547
447
447
1,156
–
6,210
7,366
2,301
–
9,858
108
12,159
NON-CURRENT
Deferred tax liabilities:
Other
BALANCE AT
30 JUNE 2019
Other
BALANCE AT
30 JUNE 2020
Deferred tax assets:
Provisions
Accruals
Losses
BALANCE AT
30 JUNE 2019
Provisions
Accruals
Losses
BALANCE AT
30 JUNE 2020
The Company has estimated Australian carry forward operating tax losses of $69,548,820 at June 2020 (2019: $79,142,794) which
are not fully recognised. The ability to utilise the operating tax losses will be subject to satisfying relevant eligibility criteria for the
recoupment of carry forward tax losses.
An additional deferred tax asset of $3,647,810 was partially recognised in 2020 from previously unrecognised tax losses, based on
the probable nature that future taxable profits would be available against which the tax losses can be recovered and, therefore, the
related deferred tax asset can be realised.
Upon transition of AASB 16: Leases a deferred tax asset of $1,322,000 was recognised on 1 July 2019. See Note 11.
Engenco Limited and its controlled entities | Annual Report 2020 | 47
Note 7 – Earnings Per Share
The calculation of basic earnings per share has been based on the following profit attributable to ordinary shareholders and
weighted-average number of ordinary shares outstanding.
The calculation of diluted earnings per share has been based on the following profit attributable to ordinary shareholders and
weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares.
(a) RECONCILIATION OF EARNINGS TO PROFIT OR LOSS
Profit / (loss) for the year
(Profit) / loss for the year, attributable to non-controlling interest
Earnings used to calculate basic EPS
Earnings used in the calculation of dilutive EPS
(b) WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING DURING THE YEAR
USED IN CALCULATING BASIC EPS
Weighted average number of dilutive options outstanding
Weighted average number of ordinary shares outstanding during the year used in calculating
dilutive EPS
2020
$’000
2019
$’000
13,423
–
13,423
13,423
14,227
–
14,227
14,227
No. ‘000
No. ‘000
313,381
313,381
–
–
313,381
313,381
Note 8 – Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments
with original maturities of three months or less, and bank overdrafts. Bank overdrafts, where the Group does not have the legal
right and the intention to settle on a net basis, are shown within short-term borrowings in current liabilities on the Statement of
Financial Position.
CASH AT BANK AND IN HAND
2020
$’000
14,447
14,447
2019
$’000
23,702
23,702
As at the reporting date, where the Group has the legally enforceable right of set-off and the intention to settle on a net basis within
its banking facilities, the Group has set-off bank overdrafts of $24,539,135 (2019: $21,782,819) against cash and cash equivalents
of $33,399,238 (2019: $28,845,402) resulting in a net positive cash position for these accounts of $8,860,103 (2019: $7,062,583).
48 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020
Note 9 – Trade and Other Receivables
CURRENT
Trade receivables
Provision for impairment of receivables
TOTAL TRADE RECEIVABLES
Sundry receivables
TOTAL OTHER RECEIVABLES
2020
$’000
2019*
$’000
26,586
(365)
26,221
148
148
28,045
(846)
27,199
238
238
TOTAL CURRENT TRADE AND OTHER RECEIVABLES
26,369
27,437
* Accrued income of $2,875,000 at 30 June 2019 is now classified as a Contract Asset and disclosed in Note 4.
(a)
Expected Credit Loss Provision for Impairment of Receivables
The Group has a Credit Management Policy under which each new customer application is analysed individually for creditworthiness
before the Group offers any form of credit, or any variation to the standard terms and conditions. Credit facilities are generally
offered on terms of 30 to 60 days from end of month. The Group’s review procedure includes the utilisation of external ratings,
credit agency information and other industry information. Credit limits are established and monitored for each customer with
any sales exceeding these limits requiring approval. The Group monitors the economic environments in which it operates,
and proactively takes any necessary actions to limit its credit exposure to customers and industries that are experiencing
economic volatility.
The Group has adopted the simplified approach when calculating its expected credit loss (ECL) provisions. This allows the
recognition of lifetime expected credit losses at all times. This provision is reassessed when there is a significant change in credit
risk. These amounts have been included in the provision for impairment of accounts receivable.
The Group uses a provisions matrix to measure the expected credit losses of trade receivables from individual customers. Loss
rates are calculated using a “roll rate” method based on the probability of a receivable progressing through successive stages of
delinquency to write-off. Roll rates are calculated separately per operating segment. Loss rates are based on actual credit loss
experience over the past three years, which are adjusted where deemed necessary for economic factors to reflect differences
in economic conditions over which the historical data has been collected, current conditions and the Group’s view of economic
conditions over the expected lives of the receivables.
The expected credit loss allowances for trade receivables are calculated based on key assumptions that determine the weighted
average loss rates and overall loss allowance.
Weighted
average
loss rate
%
0.26%
2.82%
9.66%
12.24%
41.63%
2020
Gross
carrying
amount
$’000
24,574
965
3
672
308
26,522
64
26,586
Loss
allowance
$’000
64
27
–
82
128
301
64
365
Weighted
average
loss rate
%
0.47%
2.99%
8.11%
15.96%
36.82%
2019
Gross
carrying
amount
$’000
23,676
2,434
210
675
813
27,808
237
28,045
Loss
allowance
$’000
Credit
impaired
112
73
17
108
299
609
237
846
No
No
No
No
Yes
Yes
Current (not past due)
1 – 30 days past due
31 – 60 days past due
61 – 90 days past due
More than 90 days past due
TOTAL ECL PROVISION
Specific Provision
TOTAL PROVISION
Engenco Limited and its controlled entities | Annual Report 2020 | 49
Note 10 – Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of finished goods includes direct materials, direct
labour and an appropriate portion of variable and fixed overheads included in bringing them to their existing location and condition.
Costs are assigned on the basis of weighted average costs.
The cost of raw materials includes all costs to transport the goods to a location ready for use including any duties and charges on
items purchased overseas.
CURRENT
At cost:
– Work in progress
– Finished goods
At net realisable value:
– Work in progress
– Finished goods
TOTAL INVENTORY
2020
$’000
2019
$’000
4,395
27,796
32,191
–
9,652
9,652
41,843
4,789
21,480
26,269
–
10,305
10,305
36,574
The Group has completed a comprehensive review of the carrying value of inventory, taking into consideration microeconomic
factors. As a result of the review, inventory was impaired by $139,000 (2019: $571,000).
Note 11 – Leases and Commitments
Leasing Activities and Accounting Policy
Engenco leases various properties and equipment. Property
leases typically are for a period of 3 to 10 years and often have
extension options and equipment leases are typically for a
period of 3 to 5 years. The Group accounts for these leases
under AASB 16: Leases which replaced AASB 117: Leases from
1 July 2019. The key change under AASB 16, and impact on the
Group, is the requirement that operating leases be recognised
on-balance sheet through the recognition of a Right-of-Use
(ROU) Asset and Lease Liability. Lease expenditure is also no
longer recognised as operating expenditure, but instead as
depreciation and interest. This change directly impacts EBITDA
(earnings before finance costs, income tax expense, and
depreciation and amortisation), which is a key metric used by
the Group.
AASB 16 eliminates the previous operating/finance lease dual
accounting model for leases. Instead, there is a single, on
balance sheet accounting model, similar to previous finance
lease accounting. The assessment of whether a contract
contains a lease determines whether the arrangement is
recognised on- or off-balance sheet.
A contract is, or contains, a lease if the contract conveys the
right to control the use of an identified asset for a period of time
in exchange for consideration. There are three key elements of
the new lease definition, and all three must be met in order for
the contract to contain a lease and the entity therefore be able
to apply lease accounting under AASB 16:
• Contract contains an identified asset;
• The lessee obtains substantially all the economic benefits
from the use of the asset; and
• The lessee directs the use of the asset.
During the year, the Group elected to apply the practical
expedient for rent concession relating to COVID-19, which
had an immaterial impact on the Group. The Group applied
the IFRIC decision on lease term issued in November 2019
retrospectively, which resulted in the following adjustment to
the Group’s transition impact:
• right-of-use assets increased by $2,202,000
•
lease liabilities increased by $2,624,000
• makegood provisions decreased by $165,000
• deferred tax assets increased by $77,000
• opening retained earnings decreased by $180,000
50 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 Judgements and Estimates
The Group applied judgement to determine the lease term
for some contracts in which it is a lessee that include renewal
options. The assessment of whether the Group is reasonably
certain to exercise such options impacts on the lease term,
which significantly affects the amount of lease liabilities and
right-of-use assets recognised. In determining the lease term,
management considers all facts and circumstances that
create an economic incentive to exercise an extension term.
Extension options are only included in the lease term if the
lease is reasonably certain to be extended. The assessment is
reviewed if a significant event or change in circumstance occurs
which affects this assessment and that is within the control of
the lessee.
Transition
The Group transitioned to AASB 16 from 1 July 2019, using the
“modified retrospective” transition method whereby the right-
of-use asset has been calculated at its carrying amount as if
AASB 16 had been applied since the lease commencement date,
discounted using the Group’s weighted average incremental
borrowing rate of 5.3% at 1 July 2019.
Under this method, there was no requirement to restate
comparatives.
On transition the Group elected to apply the practical expedient
to ‘grandfather’ the assessment of which contracts are leases
– AASB 16 lease accounting is only applied to those contracts
(a) Reconciliation of Operating Lease Commitments
previously identified to contain a lease under AASB 117. The new
lease definition requirement is only applied to those contracts
entered after the date of initial application.
In applying the modified retrospective approach to leases
previously classified as operating leases under AASB 117,
the Group has elected, on a lease-by-lease basis, whether
to apply a number of practical expedients on transition.
Engenco has applied a number of the practical expedients and
exemptions including:
• The application of a single discount rate to a portfolio of
leases with reasonably similar characteristics;
• Recognition exemption for short-term and low-value leases
– Leases which have a lease term of less than 12 months
or are less than A$10,000 in annual value will not be
accounted for under AASB 16;
• Utilising previous assessments of onerous leases;
• The use of hindsight in determining the lease term.
Another practical expedient that was available to the Group, is
to not separate non-lease components from lease components,
and instead account for each lease component and any
associated non-lease components as a single lease component.
The Group did not elect to combine lease and non-lease
components for its property leases. As such, the calculated
lease liability excludes an estimate of the stand-alone price of
the non-lease component.
The recognition of the lease liability can be reconciled to the operating lease commitments disclosed at 30 June 2019 as follows:
Operating lease commitments disclosed as at 30 June 2019
Discounted using the Groups weighted average incremental borrowing rate of 5.3%
(Less): short term leases and low value leases recognised on a straight-line basis as an expense
Add: adjustments as a result of different treatment of extension and termination options
LEASE LIABILITY RECOGNISED AS AT 1 JULY 2019 UNDER AASB 16
$’000
16,218
(5,165)
(1,531)
11,604
21,126
Engenco Limited and its controlled entities | Annual Report 2020 | 51
Note 11 – Leases and Commitments (continued)
(b)
Impact on Retained Earnings at Transition
On transition to AASB 16, the Group recognised additional right-of-use assets and lease liabilities, recognising the difference in
retained earnings. The impact on transition is summarised below.
RIGHT-OF-USE ASSETS
– Property
– Equipment
TOTAL RIGHT-OF-USE ASSETS
LEASE LIABILITIES
– Current lease liabilities
– Non-current lease liabilities
TOTAL LEASE LIABILITIES
Deferred tax assets
Makegood provision
TRANSITION IMPACT FOR AASB 16 RECOGNISED IN OPENING RETAINED EARNINGS /
(ACCUMULATED LOSSES)
Retained earnings / (Accumulated losses) as at 30 June 2019
Transition impact for AASB 16
RESTATED RETAINED EARNINGS / (ACCUMULATED LOSSES) AS AT 1 JULY 2019 UNDER AASB 16
$’000
19,156
411
19,567
(3,012)
(18,114)
(21,126)
1,322
(2,858)
(3,095)
$’000
(215,306)
(3,095)
(218,401)
(c) Movements in the Period
RIGHT-OF-USE ASSETS
Property
Equipment
TOTAL RIGHT-OF-USE ASSETS
LEASE LIABILITIES
Property
Equipment
TOTAL LEASE LIABILITIES
Current lease liabilities
Non-current lease liabilities
1 Jul 2019
$’000
Additions
$’000
Depreciation
$’000
De-recognition
$’000
30 Jun 2020
$’000
19,156
411
19,567
4,328
136
4,464
(3,534)
(205)
(3,739)
(18)
(28)
(46)
19,932
314
20,246
1 Jul 2019
$’000
Additions
$’000
Payments
$’000
De-recognition
$’000
30 Jun 2020
$’000
20,688
438
21,126
3,012
18,114
3,652
125
3,777
(2,967)
(221)
(3,188)
55
(18)
37
21,428
324
21,752
3,338
18,414
52 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 (d) Operating Lease Commitments
In accordance with AASB 117, payments made under operating leases were previously recognised in the profit or loss on a
straight-line basis over the lease of the term. Lease incentives received were recognised as an integral part of the total lease
expense, over the term of the lease. Minimum lease payments made under finance leases were apportioned between the finance
expense and the reduction of the outstanding liability.
OPERATING LEASE COMMITMENTS
Non-cancellable operating leases contracted for but not capitalised in the financial statements
Payable – minimum lease payments:
– not later than 12 months
– between 12 months and 5 years
– greater than 5 years
(e)
Leases as a Lessor
2019
$’000
4,250
9,440
2,528
16,218
The Group leases out portions of its fleet of rollingstock as well as other select items of property, plant and equipment to customers.
At the end of the reporting period, the future minimum lease payments under non-cancellable leases which are receivable are
shown below.
OPERATING LEASE RECEIVABLES
Receivable – minimum lease payments:
– not later than 12 months
– between 12 months and 5 years
– greater than 5 years
Note 12 – Other Assets
CURRENT
Other current assets
Prepayments
TOTAL CURRENT OTHER ASSETS
2020
$’000
2019
$’000
503
486
65
1,054
630
687
193
1,510
2020
$’000
2019
$’000
2,691
1,269
3,960
517
1,509
2,026
Engenco Limited and its controlled entities | Annual Report 2020 | 53
Note 13 – Property, Plant and Equipment
Recognition and Measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment
losses. If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as
separate items (major components) of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and
equipment is recognised in profit or loss.
Subsequent Expenditure
Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure
will flow to the Group.
Depreciation
Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using
the straight-line or diminishing returns method over their estimated useful lives, and is generally recognised in profit or loss. Leased
assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will
obtain ownership by the end of the lease term. Land is not depreciated.
The depreciation rates used for each class of depreciable assets are:
Class of Property, Plant & Equipment
Buildings
Leasehold improvements
Plant and equipment
Depreciation Rate
2.5%
10%-100%
5%-67%
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
LAND AND BUILDINGS
Freehold land:
– At cost
TOTAL LAND
Buildings:
– At cost
– Less accumulated depreciation
TOTAL BUILDINGS
TOTAL LAND AND BUILDINGS
PLANT AND EQUIPMENT
– At cost
– Accumulated depreciation and impairment
TOTAL PLANT AND EQUIPMENT
LEASEHOLD IMPROVEMENTS
– At cost
– Accumulated depreciation
TOTAL LEASEHOLD IMPROVEMENTS
TOTAL PROPERTY, PLANT AND EQUIPMENT
54 | Engenco Limited and its controlled entities | Annual Report 2020
2020
$’000
2019
$’000
2,578
2,578
806
(668)
138
2,716
85,436
(72,145)
13,291
6,726
(3,896)
2,830
18,837
53
53
806
(652)
154
207
80,933
(69,697)
11,236
3,557
(3,268)
289
11,732
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 (a) Reconciliation of Carrying Amounts
Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the
current financial year.
Consolidated Group
Freehold
Land
$’000
Buildings
$’000
Leasehold
Improvements
$’000
Plant and
Equipment
$’000
53
–
–
–
53
2,525
–
–
–
2,578
176
–
–
(22)
154
–
–
–
(16)
138
353
296
–
(360)
289
3,170
–
–
(629)
2,830
16,257
2,671
(4,592)
(3,100)
11,236
5,420
(722)
(195)
(2,448)
13,291
Total
$’000
16,839
2,967
(4,592)
(3,482)
11,732
11,115
(722)
(195)
(3,093)
18,837
BALANCE AT 30 JUNE 2018
Additions
Disposals
Depreciation expense
BALANCE AT 30 JUNE 2019
Additions
Disposals
Impairment
Depreciation expense
BALANCE AT 30 JUNE 2020
Contractual Commitments
At 30 June 2020, the Group had entered into a contractual commitment for the development of improvements to freehold land of
$2,341,000 which was subsequently completed on 4 August 2020. Refer to Note 26.
Note 14 – Net Tangible Assets
The Group’s Net Tangible Assets (NTA) is calculated as the net of net assets (excluding net deferred tax, non-controlling interest and
intangible assets) over fully paid ordinary shares. There was no change to the Group’s approach to calculating NTA.
Net tangible assets per ordinary share: 313,380,943 shares (2019: 313,380,943 shares)
2020
Cents
26.2
2019
Cents
26.5
Engenco Limited and its controlled entities | Annual Report 2020 | 55
Note 15 – Intangible Assets
Recognition and Measurement
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.
Expenditure on research activities is recognised in profit or loss as incurred.
Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technically and
commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete
development and to use or sell the asset. Otherwise, it is recognised in profit or loss as incurred. Subsequent to initial recognition,
development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses.
Other intangible assets, including customer relationships, patents and trademarks, and computer software, that are acquired by the
Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses.
Subsequent Expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to
which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or
loss as incurred.
Amortisation
Amortisation is calculated to write off the cost of intangible assets less their estimated residual values using the reducing-balance
method over their estimated useful lives, and is generally recognised in profit or loss. Goodwill is not amortised.
The estimated useful lives for current and comparative periods are as follows:
Class of Intangible Asset
Customer-related intangibles
Patents and trademarks
Development costs
Other intangible assets
Useful Life
3-10 years
Up to 13 years
Life of project
5-8 years
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
OTHER IDENTIFIABLE INTANGIBLES
Cost:
Opening balance
Additions
Closing balance
Accumulated amortisation and impairment:
Opening balance
Amortisation for the year
Closing balance
NET BOOK VALUE
TOTAL INTANGIBLE ASSETS
At cost
Accumulated amortisation and impairment
NET BOOK VALUE
2020
$’000
2019
$’000
13,078
32
13,110
12,993
85
13,078
(12,878)
(105)
(12,745)
(133)
(12,983)
(12,878)
127
200
13,110
(12,983)
127
13,078
(12,878)
200
Intangible assets have finite useful lives. The current amortisation charges for intangible assets are included under depreciation and
amortisation expense in the Consolidated Statement of Profit or Loss and OCI.
56 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 Note 16 – Trade and Other Payables
Trade and other payables represent the liability outstanding at the end of the reporting period for goods and services received by
the Group during the reporting period which remains unpaid. The balance is recognised as a current liability if expected to be settled
within 12 months.
CURRENT
Unsecured liabilities:
Trade payables
Sundry payables and accrued expenses
TOTAL TRADE AND OTHER PAYABLES
2020
$’000
2019*
$’000
14,390
2,837
17,227
15,571
2,686
18,257
* Deferred income of $1,151,000 as at 30 June 2019 is now classified as a Contract Liability and disclosed in Note 4.
Note 17 – Financial Liabilities
Non-Derivative Financial Liabilities – Measurement
Other non-derivative financial liabilities are initially measured at fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.
Non-Derivative Financial Liabilities – Recognition and Derecognition
The Group initially recognises loans and receivables and debt securities issued on the date when they are originated. All other
financial liabilities are initially recognised on the trade date, when the entity becomes a party to the contractual provisions of
the instrument.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
Financial liabilities are offset, and the net amount presented in the Statement of Financial Position when, and only when, the Group
has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realise the asset and
settle the liability simultaneously.
CURRENT
Secured liabilities:
Bank overdrafts
Forward contract
TOTAL CURRENT FINANCIAL LIABILITIES
Note
22(a)
2020
$’000
2019
$’000
313
658
971
294
–
294
Information about the Group’s exposure to interest rate, foreign currency and liquidity risk is included in Note 23 – Financial
Risk Management.
(a) Collateral Provided
Bank facility
As at 30 June 2020, the bank facility with the National Australia Bank (NAB) was comprised of a $10,000,000 Revolving Credit
Facility, $6,000,000 Bank Guarantee Facility, $600,000 Credit Card Facility and $500,000 Set off Facility. These facilities are
secured against the Australian assets of the Group. The facility expires on 20 November 2021.
On 18 August 2020, the Group increased its debt facilities with NAB to $27,100,000. The NAB facility comprises a $20,000,000
revolving credit facility, a $6,000,000 bank guarantee facility, a $600,000 corporate card facility, and a $500,000 operation
account overdraft facility. The revolving credit facility expires 31 October 2023, with the other facilities renewed annually.
Engenco Limited and its controlled entities | Annual Report 2020 | 57
Note 17 – Financial Liabilities (continued)
Defaults and breaches
There were no defaults or breaches during the year ended 30 June 2020 on any of the above mentioned facilities.
(b) Debt Facilities and Credit Standby Arrangements
A summary of the Group’s loan facilities is provided in the table below:
– NAB Revolving Credit
Facility*
– Swedish Overdraft
Facility (SEK)**
Facility
Available
2020
$’000
Facility
Used
2020
$’000
Maturity
Dates
2020
Facility
Available
2019
$’000
Facility
Used
2019
$’000
Maturity
Dates
2019
Interest
Basis
16,600
935
17,535
–
–
–
Nov-21
16,600
Dec-20
920
17,520
–
–
–
Nov-21
Floating
Dec-19
Floating
* Comprises net bank overdrafts, off balance sheet bank guarantees and business credit cards and other trade products.
** Facility is denominated in SEK, and presented in AUD above.
Note 18 – Provisions
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments
of the time value of money, and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost.
Provision for Long-Term Employee Benefits
A provision has been recognised for employee entitlements relating to long service leave. In calculating the present value of future
cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data.
Restructuring
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the
restructuring either has commenced or has been announced publicly. Future operating losses are not provided for. Restructuring
provisions include closure costs and redundancies announced before the reporting date.
Makegood
A provision has been recognised for makegood obligations at the end of the lease term for leased property. The Group calculates the
provisions on the present value of future cash flows in respect of meeting contract obligations.
Onerous Contracts
A provision for onerous contracts is measured at the present value of the lower of the expected cost of terminating the contract
and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment
loss on the assets associated with that contract (see Note 1(b)). The Group has identified loss making contracts which are non-
cancellable. The obligation for expected future losses has been provided for as at the reporting date.
Other Provisions
Other provisions relate to various categories including provisions for warranty costs and other costs required to be incurred under
contractual obligations.
58 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 Long
Service
Leave
Employee
Benefits
$’000
Annual
Leave
Employee
Benefits
2020
2,938
–
2,938
418
(370)
2,986
2,528
458
2,986
2,967
–
2,967
2,610
(2,307)
3,270
3,270
–
3,270
BALANCE AT 1 JULY 2019
AASB 16 transition impact
ADJUSTED BALANCE AT
1 JULY 2019
Provisions raised
Provisions used
BALANCE AT 30 JUNE 2020
Current
Non-current
BALANCE AT 30 JUNE 2020
Consolidated Group
Onerous
Contracts
$’000
Restruc-
turing
$’000
Makegood
$’000
Other
$’000
1,356
–
–
2,858
2,858
1,356
785
(59)
3,584
–
3,584
3,584
755
(322)
1,789
1,789
–
1,789
Total
$’000
7,593
2,858
10,451
5,427
(3,960)
11,918
7,876
4,042
11,918
332
–
332
–
(117)
215
215
–
215
–
–
–
859
(785)
74
74
–
74
Note 19 – Contingent Liabilities
There are a number of legal claims and exposures which arise from the ordinary course of business. There is significant uncertainty
as to whether a future liability will arise in respect to these items. The amount of the liability, if any, which may arise cannot be
reliably measured at the reporting date.
The Group has arranged for its bankers to guarantee its performance to third parties. The maximum amount of these guarantees at
30 June 2020 is $1,166,687 (2019: 1,289,974).
Engenco Limited and its controlled entities | Annual Report 2020 | 59
Note 20 – Issued Capital and Reserves
(a)
Share Capital
313,380,943 (2019: 313,380,943) fully paid ordinary shares
2020
$’000
302,719
302,719
2019
$’000
302,719
302,719
Ordinary shares
Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity. Income tax relating
to transaction costs of an equity transaction are accounted for in accordance with AASB 112: Income Taxes.
At beginning of reporting period
AT REPORTING DATE
2020
No.
2019
No.
313,380,943
313,380,943
313,380,943
313,380,943
Ordinary shares are eligible to participate in dividends and the proceeds on winding up of the parent entity in proportion to the
number of shares on issue.
At shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote
on a show of hands.
(b) Nature and Purpose of Reserves
Foreign currency translation reserve
The foreign currency translation reserve records exchange differences arising on translation of overseas subsidiaries.
Profit reserve
The profit reserve comprises a transfer of net profits and characterises profits available for distribution as dividends in future years.
(c) Dividends
After the reporting date, the following final dividend was declared by the board of directors. The dividend has not been recognised
as a liability as at 30 June 2020, and there are no tax consequences.
(a) INTERIM DIVIDEND DECLARED
0.5 cents per ordinary share (2019: NIL)
(b) FINAL DIVIDEND DECLARED
1.5 cents per ordinary share (2019: 1.5 cents)
(c) FRANKING CREDIT BALANCE
2020
$’000
2019
$’000
1,567
–
4,701
4,701
Amount of franking credits available to shareholders of Engenco Limited for subsequent
financial years are:
Franking account balance as at the end of the financial year at 30% (2019: 30%)
6,553
9,239
60 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 Note 21 – Parent Entity Disclosures
As at, and throughout the financial year ended, 30 June 2020 the parent entity of the Group was Engenco Limited. The ultimate
controlling party of the Company at reporting date was Elph Investments Pty Ltd, incorporated in Australia.
(a) Financial Position of Parent Entity at year end
ASSETS
Current assets
Non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Non-current liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Profit reserve
Accumulated losses
TOTAL EQUITY
(b) Result of Parent Entity
Profit / (loss) for the year
Other comprehensive income
TOTAL COMPREHENSIVE INCOME / (LOSS) FOR THE PERIOD
2020
$’000
2019
$’000
15,476
35,153
50,629
25,726
2,602
28,328
22,301
12,643
17,153
29,796
22,884
275
23,159
6,637
302,720
10,165
302,720
2,433
(290,584)
(298,516)
22,301
6,637
15,665
–
15,665
4,373
–
4,373
(c) Parent Entity Guarantees in respect of the debts of its subsidiaries
The parent entity acts as guarantor for debt facilities. Details of these facilities can be found in Note 17(a) – Financial Liabilities.
(d) Parent Entity Contingent Liabilities
At 30 June 2020, the parent entity has no significant contingent liabilities (2019: NIL).
(e) Parent Entity Capital Commitments for acquisition of property, plant and equipment
At 30 June 2020, the parent entity had not entered into any contractual commitments for the acquisition of property, plant and
equipment and other intangible assets (2019: NIL).
Engenco Limited and its controlled entities | Annual Report 2020 | 61
Note 22 – Cash Flow Information
(a) Reconciliation of Cash at End of Financial Year
Cash and cash equivalents
Bank overdrafts
CASH (NET OF BANK OVERDRAFTS) AT END OF FINANCIAL YEAR
Note
8
17
2020
$’000
14,447
(313)
14,134
2019
$’000
23,702
(294)
23,408
(b) Reconciliation of Cash Flow from Operating Activities with Profit / (Loss) after Income Tax
2020
$’000
13,423
2019
$’000
14,227
6,742
3,482
105
139
195
(140)
40
(3,273)
(396)
16,835
(787)
240
(5,408)
344
3,257
14,481
(40)
(348)
14,093
133
571
–
5
248
(1,537)
(2,656)
14,473
(1,997)
(429)
(3,201)
3,684
577
13,107
(248)
(538)
12,321
2020
$’000
313
313
PROFIT / (LOSS) AFTER INCOME TAX
Adjustments for non-cash items:
– Depreciation
– Other intangibles amortisation
– Impairment losses on inventory
– Impairment of property, plant and equipment
– Movement in ECL provision
– Net finance costs
– Income tax expense / (benefit)
– Gain on sale of property, plant and equipment
Changes in:
– (Increase) / decrease in trade and other receivables
– (Increase) / decrease in prepayments
– (Increase) / decrease in inventories
– Increase / (decrease) in trade payables and accruals
– Increase / (decrease) in provisions
Cash provided by / (used in) operating activities
– Net interest paid
– Income taxes paid
CASH FLOW PROVIDED BY / (USED IN) OPERATIONS
(c) Reconciliation of Financial Liabilities in Financing Activities
Bank overdraft
TOTAL FINANCIAL LIABILITIES
2019
$’000
Cash Flows
$’000
294
294
–
–
Non-Cash
Changes
$’000
19
19
62 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 Note 23 – Financial Risk Management
The Group’s financial instruments consist mainly of investments, accounts receivable and payable, forward contracts, loans from
external and related parties and leases.
FINANCIAL ASSETS
Cash and cash equivalents
Trade and other receivables
Contract assets
Forward contract
FINANCIAL LIABILITIES
Trade and other payables
Borrowings
Contract liabilities
Forward contract
Lease liabilities
Note
2020
$’000
2019
$’000
8
9
4
16
17
4
11
14,447
26,369
4,897
658
46,371
17,227
313
2,690
658
21,752
42,640
23,702
27,437
2,875
–
54,014
18,257
294
1,151
–
–
19,702
The Group measures Trade and other receivables along with Trade and other payables at amortised costs. The Group designates
certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast
transactions arising from changes in foreign exchange rates. The Group initially measures derivatives at fair value. Subsequent to
initial recognition, derivatives are measured at fair value, and any changes therein are recognised in profit or loss.
At inception of the designated hedging relationship, the Group documented the risk management objective and strategy for
undertaking the hedge. The Group also documented the economic relationship between the hedged item and the hedging
instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset
each other.
i.
Treasury Risk Management
Management, consisting of senior executives of the Group, discusses and monitors financial risk exposure and evaluates treasury
management strategies in the context of current economic conditions and forecasts. Management’s overall risk management
strategy seeks to assist the Group in meeting its financial targets, while minimising potential adverse effects on financial
performance. Management operates under the supervision of members of the Board of Directors. Risk management transactions
are approved by senior management personnel.
ii.
Financial Risk Exposures and Management
The main risks the Group is exposed to through its financial instruments are interest rate risk, currency risk, liquidity risk and
credit risk.
The Company’s Audit and Risk Committee has overall responsibility for the establishment and oversight of the Group’s risk
management framework, and is responsible for developing and monitoring the Group’s risk management policies.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk
limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and
procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles
and obligations.
The Audit and Risk Committee oversees how management monitors compliance with the Group’s risk management policies and
procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.
Engenco Limited and its controlled entities | Annual Report 2020 | 63
Note 23 – Financial Risk Management (continued)
a.
Interest Rate Risk
Exposure to interest rate risk arises on financial liabilities recognised at reporting date whereby a future change in interest rates will
affect future cash flows or the fair value of fixed rate financial instruments.
Currently the Group’s operations are financed using floating rate debt. The Group is not currently entered into any interest rate
swaps to fix its floating rate debt.
The variable interest rate borrowings exposes the Group to interest rate risk which will impact future cash flows and interest charges
and is indicated by the following floating interest rate financial liabilities:
FLOATING RATE INSTRUMENTS
Bank overdrafts
TOTAL FLOATING RATE INSTRUMENTS
b.
Liquidity Risk
2020
$’000
2019
$’000
313
313
294
294
Liquidity risk is the risk that the Group will encounter difficulty in meeting its obligations associated with its financial liabilities that
are settled by delivering cash or another financial asset. The Group manages this risk through the following mechanisms:
• Preparing forecast cash flow analysis in relation to its operational, investing and financing activities;
• Monitoring undrawn credit facilities;
• Obtaining funding from a variety of sources;
• Managing credit risk related to financial assets; and
• Monitoring the maturity profile of financial liabilities.
The following table reflects an undiscounted contractual maturity analysis for financial liabilities.
Cash flows realised from financial assets reflect management’s expectations as to the timing of realisation. Actual timing may
therefore differ from that disclosed. The timing of cash flows presented in the table to settle financial liabilities reflects the earliest
contractual settlement dates and does not reflect management’s expectations that banking facilities will be rolled forward.
Financial Liability Maturity Analysis
Consolidated Group
Within 1 Year
1 to 5 Years
Over 5 Years
Total
2020
$’000
2019
$’000
2020
$’000
2019
$’000
2020
$’000
2019
$’000
2020
$’000
2019
$’000
FINANCIAL LIABILITIES
DUE FOR PAYMENT
Trade and other payables
17,227
18,257
Bank overdrafts and loans
Contract liabilities
Forward contract
Lease liabilities
TOTAL EXPECTED
OUTFLOWS
c.
Currency Risk
313
2,690
658
3,338
294
1,151
–
–
–
–
–
–
14,668
24,226
19,702
14,668
–
–
–
–
–
–
–
–
–
–
3,746
3,746
–
–
–
–
–
–
17,227
18,257
313
2,690
658
21,752
294
1,151
–
–
42,640
19,702
The Group is exposed to currency risk to the extent that there is a mismatch between the currencies in which sales, purchases
and borrowings are denominated and the AUD functional currency of the Group. The majority of financial liabilities and assets
of the Group are denominated in the functional currency of the operational location. These are primarily Australian Dollars and
Swedish Krona.
64 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 d.
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer
or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group’s
receivables from customers and investments in debt securities.
Credit risk is managed through the maintenance of procedures
(such procedures include monitoring of exposures, payment
cycles and monitoring of the financial stability of significant
customers and counter parties) ensuring to the extent possible,
that customers and counter-parties to transactions are of
sound credit worthiness. Such monitoring is used in assessing
receivables for impairment. Credit terms differ between
each key business but are generally 30 to 60 days from end
of month.
Where the Group is unable to ascertain a satisfactory credit
risk profile in relation to a customer or counter-party, then risk
may be further managed through title retention clauses over
goods or obtaining security by way of personal or commercial
guarantees over assets of sufficient value which can be
claimed against in the event of any default. The Group has
established procedures to ensure Personal Property Securities
Act 2009 (Cth) registration is performed for all relevant assets.
The maximum exposure to credit risk by class of recognised
financial assets at balance date, excluding the value of any
collateral or security held, is equivalent to the carrying
value and classification of those financial assets (net of any
provisions) as presented in the Consolidated Statement of
Financial Position.
FINANCIAL ASSETS
Cash and cash equivalents
Trade and other receivables
Contract assets
Forward contract
FINANCIAL LIABILITIES
Trade and other payables
Loans and borrowings
Contract liabilities
Forward contract
Lease liabilities
On a geographical basis the Group has significant credit risk
exposures in Australia given the substantial operations in this
region. Details with respect of the credit risk of Trade and Other
Receivables can be found in Note 9.
Trade and other receivables that are neither past due
or impaired are considered to be of high credit quality.
Aggregates of such amounts are detailed in Note 9 – Trade and
Other Receivables.
Balances held with banks are with AA rated financial
institutions, details of these holdings can be found in Note 8 –
Cash and Cash Equivalents.
iii. Net Fair Values
Fair Value Estimation
The fair values of financial assets and financial liabilities are
presented in the following table and can be compared to their
carrying values as presented in the Statement of Financial
Position. Fair values are those amounts at which an asset could
be exchanged, or a liability settled, between knowledgeable,
willing parties in an arm’s length transaction.
Fair values derived may be based on information that
is estimated or subject to judgment, where changes in
assumptions may have a material impact on the amounts
estimated. Estimates, judgments and the associated
assumptions have been detailed below. Where possible,
valuation information used to calculate fair value is extracted
from the market, with more reliable information available from
markets that are actively traded. In this regard, fair values for
listed securities are obtained from quoted market bid prices.
Consolidated Group
2020
Carrying
Value
$’000
2020
Fair Value
$’000
14,447
26,369
4,897
658
46,371
17,227
313
2,690
658
21,752
42,640
14,447
26,369
4,897
658
46,371
17,227
313
2,690
658
21,752
42,640
2019
Carrying
Value
$’000
23,702
27,437
2,875
–
2019
Fair Value
$’000
23,702
27,437
2,875
–
54,014
54,014
18,257
18,257
294
1,151
–
–
294
1,151
–
–
19,702
19,702
Engenco Limited and its controlled entities | Annual Report 2020 | 65
Note 23 – Financial Risk Management (continued)
The fair values disclosed in the above table have been determined based on the following methodologies:
• Cash and cash equivalents, trade and other receivables and trade and other payables are short-term instruments in nature
whose carrying value is equivalent to fair value.
• Loans and borrowings have carrying values equivalent to fair value. The majority of these facilities have floating rates and those
that are fixed are expected to be held to maturity and as such when discounted bear little resemblance to the carrying value.
iv.
a.
Sensitivity Analysis
Interest Rate Risk and Currency Risk
The following tables illustrate sensitivities to the Group’s exposures to changes in interest rates and foreign currency exchange
rates. The tables indicate the impact on how profit and equity values reported at balance date would have been affected by changes
in the relevant risk variable that management considers to be reasonably possible. These sensitivities assume that the movement in
a particular variable is independent of other variables.
b.
Interest Rate Sensitivity Analysis
The Group is not sensitive to the effect on earnings and equity as a result of changes in the interest rate as at reporting date, the
Group does not carry any debt balances subject to a floating interest rate.
c.
Currency Risk Sensitivity Analysis
The effect on earnings and equity as a result of changes in the value of the Australian Dollar to the Swedish Krona, with all other
variables remaining constant would be as follows:
CHANGE IN EARNINGS
– Improvement in AUD to SEK by 5%
– Decline in AUD to SEK by 5%
CHANGE IN EQUITY
– Improvement in AUD to SEK by 5%
– Decline in AUD to SEK by 5%
2020
$’000
2019
$’000
(32)
32
497
(497)
(16)
16
467
(467)
The Group does not currently hedge against foreign exchange movements in net assets of its Swedish subsidiaries.
v.
Capital Management
Management monitors the capital of the Group in an effort to maintain an appropriate debt to equity ratio, provide the shareholders
with adequate returns and ensure that the Group can fund its operations. The Group’s debt and capital includes ordinary shares and
financial liabilities. The gearing ratios as at 30 June 2020 and 2019 are as follows:
Total borrowings
Net debt / (cash)
Total equity
TOTAL EQUITY AND NET DEBT
GEARING RATIO
2020
$’000
313
(14,134)
88,594
74,460
(16%)
2019
$’000
294
(23,408)
84,075
60,667
(28%)
The gearing ratio is negative as the Group had positive Net Cash. As at 30 June 2020 it remained negative, albeit at a reduced level
largely due to the cash utilisation in the current financial year.
66 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 Note 24 – Related Party Transactions
(a) Transactions with Key Management Personnel
Short-Term Employee Benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to
be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
Defined Contribution Plans
Obligations for contributions to defined contribution plans are expensed as the related service is provided. Prepaid contributions are
recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
Other Long-Term Employee Benefits
The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in
return for their service in the current and prior periods. That benefit is discounted to determine its present value. Remeasurements
are recognised in profit or loss in the period in which they arise.
Termination Benefits
Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the
Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting date,
then they are discounted.
(i)
Key Management Personnel Compensation
The totals of remuneration paid to key management personnel during the year (including termination benefits) are as follows:
Short-term employee benefits
Post-employment benefits
Termination benefits
Other long-term benefits
TOTAL
2020
$
2019
$
1,339,748
1,080,650
116,863
–
14,254
107,638
80,000
13,302
1,470,865
1,281,590
Compensation of the Group’s key management personnel includes salaries, superannuation and post-employment benefits.
(ii) Key Management Personnel Transactions
A number of key management personnel, or their related parties, hold positions in other companies that result in them having
control or significant influence over these companies.
A number of these companies transacted with the Group during the year. The terms and conditions of these transactions were no
more favourable than those available, or which might reasonably be expected to be available, in similar transactions with non-key
management personnel related companies on an arm’s length basis.
From time to time directors of the Group, or their related entities, may buy goods from the Group. These purchases are on the same
terms and conditions as those entered into by other Group employees or customers.
Engenco Limited and its controlled entities | Annual Report 2020 | 67
Note 24 – Related Party Transactions (continued)
The aggregate value of transactions and outstanding balances related to key management personnel and entities over which they
have control or significant influence were as follows:
Revenue/(Cost) for the year
ended 30 June
Receivable/(Payable) as at
30 June
Related Party
Elph Pty Ltd1
Elphinstone Group (Aust)
Pty Ltd2
Director
V De Santis/D Elphinstone
2020
$
–
2019
$
(91,135)
2020
$
–
V De Santis/D Elphinstone
(218,397)
(384,530)
(9,058)
William Adams Pty Ltd3
V De Santis/D Elphinstone
(864)
(1,943)
–
United Equipment Pty Ltd4
D Elphinstone
(634,210)
(408,987)
(20,670)
Southern Prospect Pty Ltd5
D Elphinstone
Elphinstone Pty Ltd6
D Elphinstone
52,509
75,128
1,177,869
2,949,281
7,131
6,345
2019
$
–
(8,030)
(1,738)
(12,534)
9,526
329,021
1 Line Fees and interest were incurred and paid to Elph Pty Ltd in the prior year in relation to the related party funding facility with the Group. Dale
Elphinstone is a director and the Chairman of this entity. Vincent De Santis was also a director of Elph Pty Ltd during the prior period, resigning
21 December 2018.
2 Director fees and travel expense reimbursements were paid to Elphinstone Group (Aust) Pty Ltd for the services of Dale Elphinstone (Non-Executive
Director) and Vincent De Santis (Chairman). Legal service fees were also paid to Elphinstone Group (Aust) Pty Ltd during the year. Dale Elphinstone is
Chairman of this entity. Vincent De Santis was also a director of Elph Pty Ltd during the prior period, resigning 21 December 2018.
3 Goods were purchased from and sold to William Adams Pty Ltd during the period. Dale Elphinstone is the Chairman and a director. Vincent De Santis was
also a director of Elph Pty Ltd during the prior period, resigning 21 December 2018.
4 Goods were purchased from and sold to United Equipment Pty Ltd in the period. Dale Elphinstone is a director of this entity.
5 Goods were sold to Southern Prospect Pty Ltd during the period. Dale Elphinstone is the Chairman of this entity.
6 Goods were sold to Elphinstone Pty Ltd during the period. Dale Elphinstone is a director and the Chairman of this entity.
(b) Other Related Party Transactions
The Group has the following balances outstanding at the reporting date in relation to transactions with related parties:
Related Party Transaction
Current receivables (parent entity):
Receivables from subsidiaries
2020
$’000
2019
$’000
314
524
The intercompany loans extended from Engenco Limited to its wholly owned subsidiaries are extended on the following terms:
Term:
Revolving Facility repayable when subsidiary is in a position to do so or as otherwise decided by the Company.
Rate:
Fixed rate reviewable quarterly.
68 | Engenco Limited and its controlled entities | Annual Report 2020
Notes to the Consolidated Financial Statements (continued)for the year ended 30 June 2020 Note 25 – Auditor’s Remuneration
AUDIT AND REVIEW SERVICES
Auditors of the Company
– KPMG Australia – audit and review of financial statements
– KPMG Overseas – audit and review of financial statements
Other auditors
– Audit and review of financial statements
TOTAL AUDIT AND REVIEW SERVICES
OTHER SERVICES
Auditors of the Company
– KPMG Australia – in relation to taxation compliance services
– KPMG Australia – in relation to advisory service
– KPMG Overseas – in relation to taxation compliance services
TOTAL OTHER SERVICES
Other Auditors
– Assurance services
TOTAL OTHER SERVICES
2020
$
2019
$
290,000
30,965
15,592
336,557
–
–
7,078
7,078
36,025
36,025
314,221
29,896
–
344,117
4,580
11,495
–
16,075
–
–
Note 26 – Events Subsequent to Reporting Date
As at 30 June 2020, the Group had entered a contractual commitment for the development of improvements to freehold land of
$2,341,000 which was subsequently completed on 4 August 2020.
On 18 August 2020, the Group increased its debt facilities with National Australia Bank (NAB) to $27,100,000. The NAB facility
comprises a $20,000,000 revolving credit facility, a $6,000,000 bank guarantee facility, a $600,000 corporate card facility,
and a $500,000 operation account overdraft facility. The revolving credit facility expires 31 October 2023, with the other facilities
renewed annually.
On 18 August 2020, Scott Cameron was appointed to the Board as an Independent Non-Executive Director, effective from
1 September 2020.
On 19 August 2020, the Board resolved to declare a final dividend of 1.5 cents per share (fully franked)]. Payment of the dividend to
shareholders will take place on 29 September 2020.
Other than the above, there has not arisen, in the interval between the end of the financial year and the date of this report, any
item, transaction or event which would have a material effect on the financial statements of the Group at 30 June 2020.
Engenco Limited and its controlled entities | Annual Report 2020 | 69
Shareholder Information
Additional Information for Listed Companies at 10 August 2020.
The following information is provided in accordance with the ASX Listing Rules.
1.
Shareholding
(a) Distribution of shareholders
Category (size of holding)
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – and over
No. of
Shareholders
151
192
122
247
101
813
%
0.01%
0.19%
0.31%
2.79%
No. Ordinary
Shares
28,900
603,117
976,425
8,735,581
96.70%
303,036,920
100.00%
313,380,943
(b) The number of shareholdings held in less than marketable parcels (less than $500 in value) is 156.
(c)
20 largest shareholders – ordinary shares
Position Name
Number of Ordinary
Fully Paid Shares Held
% Held of Issued
Ordinary Capital
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Elph Investments Pty Ltd
Elph Pty Ltd
UBS Nominees Pty Ltd
RAC & JD Brice Superannuation Pty Ltd
HSBC Customer Nominees (Australia) Limited
Marford Group Pty Ltd
Mr Hugh William Maguire & Mrs Susan Anne Maguire
Mr Neville Leslie Esler & Mrs Cheryl Anne Esler
Mr Dennis Graham Austin & Mrs Marilyn Alice Austin
Strategic Value Pty Ltd
Neko Super Pty Ltd
Mr Hugh William Maguire
Prussner Investments Pty Ltd
Dr Jared Charles Lawrence
J P Morgan Nominees Australia Pty Ltd
T B I C Pty Ltd
Mrs Margaret Jane Lundermann & Mr Luke Charles Lindemann
Robroz Pty Ltd
BFA Super Pty Ltd
Mr Bryan John Hiscock & Mrs Jean Helen Hiscock
110,070,536
98,163,120
23,802,310
19,150,583
11,784,606
4,356,297
3,697,600
2,296,925
1,645,000
1,485,400
1,438,442
1,300,000
1,170,688
1,133,807
1,009,009
814,146
800,000
700,000
644,950
550,000
35.12%
31.31%
7.60%
6.11%
3.76%
1.39%
1.18%
0.73%
0.52%
0.47%
0.46%
0.41%
0.37%
0.36%
0.32%
0.26%
0.26%
0.22%
0.21%
0.18%
286,013,419
91.27%
70 | Engenco Limited and its controlled entities | Annual Report 2020
(d)
Shareholders holding at least 5% of issued capital were listed in the holding company’s register as follows:
Shareholder
Elph Investments Pty Ltd
Elph Pty Ltd
Thorney Investments Group Pty Ltd
RAC & JD Brice Superannuation P/L
(e) Voting Rights
No. Ordinary
Shares
110,070,536
98,163,120
33,966,932
19,150,583
%
35.12%
31.31%
10.84%
6.11%
Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one
vote on a show of hands.
2.
The name of the Company Secretaries are:
Paul Burrows
Meredith Rhimes
3.
The address of the principal registered office in Australia is:
Level 22, 535 Bourke Street, Melbourne, VIC 3000
4. Registers of securities are held at the following address:
Automic Group
Level 5, 126 Phillip Street
Sydney NSW 2000
GPO Box 5193
Sydney NSW 2001
Securities Exchange Listing
5.
Quotation has been granted for all the ordinary shares of the Company on all Member Exchanges of the ASX Limited.
6. Unquoted Securities
N/A.
7. Other Information
Engenco Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares.
Engenco Limited and its controlled entities | Annual Report 2020 | 71
Corporate Directory
Corporate Office
Engenco Limited
Level 22
535 Bourke Street
Melbourne VIC 3000
T: +61 (0)3 8620 8900
F: +61 (0)3 8620 8999
investor.relations@engenco.com.au
www.engenco.com.au
Registered Office
Engenco Limited
Level 22
535 Bourke Street
Melbourne VIC 3000
T: +61 (0)3 8620 8900
F: +61 (0)3 8620 8999
Directors
Vincent De Santis
BCom, LLB (Hons)
Non-Executive Chairman
Kevin Pallas
BCom, MAICD
Managing Director & CEO
Dale Elphinstone OA
FAICD
Non-Executive Director
Alison von Bibra
BSc, MBA
Independent Non-Executive Director
Ross Dunning AC
BE (Hons), BCom, FIE Aust, FIRSE, RPEQ
Independent Non-Executive Director
Company Secretaries
Paul Burrows
BCom, CA, GAICD
Company Secretary
Meredith Rhimes
BA, LLB
Company Secretary
Auditors
KPMG
Tower Two
Collins Square
727 Collins Street
Melbourne VIC 3000
T: +61 (0)3 9288 5555
F: +61 (0)3 9288 6666
Share Registry
Automic Group
Level 5
126 Phillip Street
Sydney NSW 2000
GPO Box 5193
Sydney NSW 2001
T: +61 (0)2 8072 1400
hello@automicgroup.com.au
automic.group.com.au
72 | Engenco Limited and its controlled entities | Annual Report 2020
www.engenco.com.au