Hazer Group
Annual Report 2018

Plain-text annual report

Hazer Group Limited Appendix 4E Final report 1. Company details Name of entity: ABN: Reporting period: Previous period: Hazer Group Limited 40 144 044 600 For the year ended 30 June 2018 For the year ended 30 June 2017 2. Results for announcement to the market Revenues from ordinary activities Loss from ordinary activities after tax attributable to the owners of Hazer Group Limited Loss for the year attributable to the owners of Hazer Group Limited up up up Dividends Final dividend for the year ended 30 June 2018 Interim dividend for the year ended 30 June 2018 No dividend has been declared. Comments The loss for the company amounted to $11,009,331 (30 June 2017: $3,877,507). $ 137% to 798,877 183% to 11,009,331 183% to 11,009,331 Amount per security Cents Franked amount per security Cents 0.0 0.0 0.0 0.0 Losses after income tax increased by 183% on the prior year as the Company increased research and development activities to commercialise the Hazer Process and incurred higher non-cash expenditure. Non-cash expenses in the year increased by 457% to $6,747,979 (30 June 2017: $1,210,531) due to the commencement of amortisation of the pre-pilot plant during the year and share based payments. Share based payments during the year include a $3,672,579 expense for the issue of 11,500,000 Series B Options upon exercise of the Series A Options. The Series A Options, issued prior to the Company’s listing on the Australian Securities Exchange, were primary Options which upon exercise resulted in the issue of one ordinary share and one Series B Option (a secondary Option). Research and development paths undertaken included process scale-up work across multiple reactor designs, graphite product development / functionalisation and graphite commercialisation work. Operating expenses during the period principally related to employee expenses, consulting fees, general corporate overhead and research and development expenses. In December 2017, the Company was pleased to execute a binding Co-operation Agreement with Mineral Resources Limited (ASX:MIN and “MRL”) to jointly develop a large-scale commercial synthetic graphite facility funded by MRL, initially targeted towards the production of at least 1,000 tonnes per annum (tpa) of ultra-high purity graphite and capable of modular expansion to a nominal 10,000tpa. The Company’s cash and cash equivalents were $6,185,009 at 30 June 2018 (30 June 2017: $8,144,451) and net assets at 30 June 2018 were $6,884,346 (30 June 2017: $8,880,690). The operating cash outflow for the year increased by 71% to $4,407,006 (30 June 2017: $2,582,193) largely as a result of increased research and development activities. Operating cashflows include a research and development tax rebate received during the year of $863,821 (30 June 2017: $281,371). Investing cash outflows of $462,582 (30 June 2017: $1,078,171) related to parts and engineering services associated with the 2nd generation pre-pilot plant reactor design upgrades. Financing cash inflows decreased to $2,910,146 (30 June 2017: $7,126,896) with the prior year including a $5,000,000 strategic placement to existing shareholder Mineral Resources Limited (ASX:MIN) and a Share Purchase Plan which raised $2,133,860 before share issue costs from eligible shareholders. The principle capital raising activity during the year was the exercise of 11,500,000 Series A Options ($0.25 exercise price) which raised $2,875,000 before share issue costs. For personal use only Hazer Group Limited Appendix 4E Final report As an early stage company, the Company’s business model is highly dependent on the achievement of continued technical development success as well as future funding, customer engagement and general financial and economic factors. Reporting period Cents Previous period Cents 6.90 10.19 3. Net tangible assets Net tangible assets per ordinary security 4. Control gained over entities Not applicable. 5. Loss of control over entities Not applicable. 6. Details of associates and joint venture entities Not applicable. 7. Audit qualification or review The financial statements have been audited and an unqualified opinion has been issued. 8. Attachments The Annual Report of Hazer Group Limited for the year ended 30 June 2018 is attached. 9. Signed Signed ______________________________ Date: 31 August 2018 Tim Goldsmith Director For personal use only Hazer Group Limited ABN 40 144 044 600 Annual Report – 30 June 2018 For personal use only CORPORATE DIRECTORY Directors Tim Goldsmith (Non-Executive Chairman) Danielle Lee (Non-Executive Director) Andrew Harris (Non-Executive Director) Simon Rushton (Non-Executive Director) Company secretary Emma Waldon Registered office Principal place of business Share register Auditor Solicitors Bankers 2/29 The Avenue Nedlands Western Australia 6009 Phone: 08 9389 7050 2/29 The Avenue Nedlands Western Australia 6009 Phone: 08 9389 7050 Link Market Services Limited QV1 Building, Level 12 250 St Georges Terrace Perth WA 6000 Phone: 1300 554 474 RSM Australia Partners Level 32, Exchange Tower, 2 The Esplanade Perth Western Australia 6000 Fairweather Corporate Lawyers 595 Stirling Highway Cottesloe WA 6011 Commonwealth Bank of Australia 150 St Georges Terrace Perth WA 6000 Stock exchange listing Hazer Group Limited shares are listed on the Australian Securities Exchange (ASX code: HZR) Website www.hazergroup.com.au Corporate Governance Statement http://www.hazergroup.com.au/about/corporate-governance HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only CHAIRMAN’S LETTER Dear Shareholder On behalf of the Board I am pleased to present the 2018 Annual Report to shareholders. During the past year the Company made significant progress towards the commercialisation of the Hazer Process including further optimisation and significant scale up of the Fluidized Bed Reactor plant located in St Mary’s, Western Sydney such that it now has a production capacity that is a relevant demonstration of Hazer’s core reactor technology, and execution of a Binding Co-operation Agreement with Mineral Resource Limited (“MRL”, ASX:MIN) to jointly develop a reactor system focused primarily on high quality graphite production. Execution of this agreement with MRL is a significant commercial milestone for Hazer and will significantly accelerate the commercial deployment of the Hazer technology. With the Hazer-MRL project underway I was pleased to welcome Simon Rushton as a Non-Executive Director during the year. Simon is currently the General Manager of Commercial at Mineral Resources Limited and has extensive legal and commercial expertise across a range of industries, including logistics, mining, oil & gas as well as private legal practice. Over the past decade, Simon has been primarily responsible for managing the legal and commercial affairs of Mineral Resources, including all front end contract and corporate (including M&A) work as well as ongoing management of all major contracts. Simon also brings many strong relationships from the mining industry, both in Australia and overseas, as well as a network of relationships with State Government, both at ministerial and department level relevant to the mining industry. Finally, I would like to take the opportunity to acknowledge the contributions of former Managing Director, Geoff Pocock, and former Non-Executive Director Terry Walsh who both resigned during the year. Geoff was instrumental in identifying Hazer’s commercial potential while still a University research project, and successfully created and built the Company to where it is today. Through his guidance and leadership, Hazer has established itself as a well funded ASX-listed company. Under Geoff’s leadership the Company also has strong agreements and relationships with a number of leading potential partners, which have positioned Hazer well for growth into the future. I look forward to your continued support as a shareholder as the Company continues its commercialisation activities. Yours faithfully Mr Tim Goldsmith Non-Executive Chairman Hazer Group Limited HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only ACTING CHIEF EXECUTIVE OFFICER’S REPORT ABOUT HAZER GROUP Hazer Group Limited (“Hazer” or the “Company”) is the commercialisation entity for the Hazer Process – a potential low cost, low emission novel hydrogen and graphite production technology, originally developed at the University of Western Australia. The Hazer Process allows the production of hydrogen from methane in an environmentally friendly process together with the production of high purity graphite. Distinguishing features of the Hazer Process from existing commercial hydrogen production technologies include the use of iron ore/iron oxide as a low cost catalyst for the process, and the co-production of high purity graphite, avoiding a significant proportion of the CO2 emissions associated with traditional hydrogen production systems. During the course of the 2017-2018 year, the Company made significant progress on both the technical, commercial and corporate development necessary to see the commercialisation of the Hazer Process. TECHNICAL DEVELOPMENT During the year, Hazer expanded its scale up development activities, investigating alternative reactor systems in addition to the Pre-Pilot Plant located in St Mary’s, Sydney (now known as the FBR Pilot Plant due to capacity upgrades achieved). Hazer is evaluating multiple development pathways to expedite commercialisation of the technology, with a focus on optimising both graphite and hydrogen production and producing optimal reactor technologies to suit specific markets and business case scenarios. These alternative reactor systems demonstrate the flexibility of the Hazer Process in different application scenarios providing increased commercial opportunities. The reactor types are summarised as follows:  Fluidized Bed Reactor (FBR) – Core Hazer development path (including FBR Pilot Plant), highest efficiency reactor for this process, good operational and product flexibility, high purity hydrogen and graphite potential;  Paddle Tube Reactor (PTR) – Novel reactor development path in partnership with Mineral Resources Limited (“MRL”, ASX:MIN), focused primarily on high quality graphite production, high operational flexibility, high purity graphite and hydrogen potential  Rotary Tube Reactor (RTR) – Precedented Off-the-shelf equipment technology, batch process with potential for continuous operation, some operating condition and flexibility constraints, medium purity hydrogen and graphite potential Key technical achievements across the development pathways as at the date of this report include:  Fluidized Bed Reactor (FBR) – In August 2018, the Company announced that it had successfully upgraded and commissioned the 2nd Generation Pre-Pilot Plant with multiple test runs exceeding capacity targets by ~300%. Due to the significant increase in capacity of this plant, it is now referred to as the FBR Pilot Plant and has a production capacity that is a relevant demonstration of Hazer’s core reactor technology. Initial testing of the FBR Pilot Plant focussed on validating operations of the new systems and increasing the average production capacity for both graphite and hydrogen product. Testing will continue but with the focus shifting to optimising the purity of the products in conjunction with a rigorous regime of extended continuous operation testing.  Paddle Tube Reactor (PTR) – In December 2017, Hazer and MRL executed a binding Cooperation Agreement to work together for the purposes of developing and commercialising the Hazer Process. Under the terms of the agreement, MRL is providing all capital required for a staged development project for graphite production and Hazer has given MRL access to the existing Hazer IP portfolio, as well as technical assistance and support. The first stage of the project is the design, construction and operation of a pilot scale facility capable of producing 1tpa of high quality graphite, suitable for high value applications including lithium ion batteries and electrodes. Since execution of the agreement, Hazer and MRL have formed a joint project team to design the MRL Pilot Plant. The initial concept design phase has completed and the MRL Pilot Plant is expected to produce first graphite for testing in the 4th quarter of calendar year 2018, with a target to operate for several months.  Rotary Tube Reactor (RTR) – In June 2018, Hazer announced that it had successfully produced graphite and hydrogen in an RTR, providing another potential pathway to commercialise the Hazer Process. The successful demonstration was undertaken at a US based commercial scale equipment supplier on a toll basis using an existing off-the-shelf reactor configuration that is in common use across various commercial scale industries. The test facilities are purpose built to demonstrate proof of concept and generate test data required for further scale-up. There are some operating condition and flexibility constraints with this reactor and a larger number of reactors needed for a given production capacity compared to the Fluid Bed Reactor, however initial tests demonstrated promising hydrogen and graphite purity which may have superior advantages for certain cases. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only ACTING CHIEF EXECUTIVE OFFICER’S REPORT A summary of the development pathways of the different reactor technologies including actual equivalent product capacity rate achieved, target timelines and nominal scales of graphite production capacity planned as at the date of this report is outlined below: Hazer also undertook testing of the graphite produced by the Hazer Process (Hazer graphite) which showed that non- optimised high purity Hazer graphite exhibited strong performance against fully-optimised commercial graphite benchmarks in half-cell lithium-ion batteries. The Hazer graphite samples (all purified to 99.95%wt) showed comparable performance against commercially available graphite that has been specifically made for Li-ion battery anodes. This includes natural spherical graphite (coated), and synthetic spherical graphite (uncoated). These results provide a foundation for continued development of the optimum processing conditions needed to manufacture Hazer graphite for lithium-ion batteries, as well as potential applications in other graphite markets. CORPORATE During the last few months, Hazer has taken steps to reduce its cost base and consolidate its operations. Hazer plans to relocate the FBR Pilot Plant to Perth on completion of testing currently underway. The consolidation of the Hazer head office and technical team into Western Australia, and the closing of the Sydney office, will have significant cost saving benefits and at the same time ensure the joint Hazer-Mineral Resources development team is best placed to commercialise both Company’s technology in the most efficient and expeditious manner possible. With the progressed technical development of the Hazer Process our focus is now shifting to the commercialisation phase where we will develop multiple strategies to generate revenue from this exciting new technology. Mr Mark Edwards Acting Chief Executive Officer HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT The directors present their report, together with the financial statements, on the company (referred to hereafter as the 'company') consisting of Hazer Group Limited (referred to hereafter as the 'company' or 'parent entity') for the year ended 30 June 2018. Directors The following persons were directors of Hazer Group Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Geoff Pocock (resigned 6 April 2018) Tim Goldsmith (appointed 24 July 2017) Rick Hopkins (resigned 24 July 2017) Danielle Lee Andrew Harris Terry Walsh (resigned 6 April 2018) Simon Rushton (appointed 20 April 2018) Principal activities During the financial year the principal continuing activities of the Company consisted of research and development of novel graphite and hydrogen production technology. The Company has intellectual property rights to a technology which allows the production of hydrogen gas from the thermo- catalytic decomposition of methane (natural gas) with negligible carbon dioxide emissions and the co-production of a high purity graphite product (the ‘Hazer Process’). Dividends There were no dividends paid during the year. Review of operations The loss for the company amounted to $11,009,331 (30 June 2017: $3,877,507). Losses after income tax increased by 183% on the prior year as the Company increased research and development activities to commercialise the Hazer Process and incurred higher non-cash expenditure. Non-cash expenses in the year increased by 457% to $6,747,979 (30 June 2017: $1,210,531) due to the commencement of amortisation of the pre-pilot plant during the year and share based payments. Share based payments during the year include a $3,672,579 expense for the issue of 11,500,000 Series B Options upon exercise of the Series A Options. The Series A Options, issued prior to the Company’s listing on the Australian Securities Exchange, were primary Options which upon exercise resulted in the issue of one ordinary share and one Series B Option (a secondary Option). Research and development paths undertaken included process scale-up work across multiple reactor designs, graphite product development / functionalisation and graphite commercialisation work. Operating expenses during the period principally related to employee expenses, consulting fees, general corporate overhead and research and development expenses. In December 2017, the Company was pleased to execute a binding Co-operation Agreement with Mineral Resources Limited (ASX:MIN and “MRL”) to jointly develop a large-scale commercial synthetic graphite facility funded by MRL, initially targeted towards the production of at least 1,000 tonnes per annum (tpa) of ultra-high purity graphite and capable of modular expansion to a nominal 10,000tpa. The Company’s cash and cash equivalents were $6,185,009 at 30 June 2018 (30 June 2017: $8,144,451) and net assets at 30 June 2018 were $6,884,346 (30 June 2017: $8,880,690). The operating cash outflow for the year increased by 71% to $4,407,006 (30 June 2017: $2,582,193) largely as a result of increased research and development activities. Operating cashflows include a research and development tax rebate received during the year of $863,821 (30 June 2017: $281,371). Investing cash outflows of $462,582 (30 June 2017: $1,078,171) related to parts and engineering services associated with the 2nd generation pre-pilot plant reactor design upgrades. Financing cash inflows decreased to $2,910,146 (30 June 2017: $7,126,896) with the prior year including a $5,000,000 strategic placement to existing shareholder Mineral Resources Limited (ASX:MIN) and a Share Purchase Plan which raised $2,133,860 before share issue costs from eligible shareholders. The principle capital raising activity during the year was the exercise of 11,500,000 Series A Options ($0.25 exercise price) which raised $2,875,000 before share issue costs. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT Significant changes in the state of affairs There were no significant changes in the state of affairs of the company during the financial year. Matters subsequent to the end of the financial year On 30 August 2018, the Company announced the appointment of a new Chief Executive Officer, Geoff Ward, commencing 8 October 2018. The Company has agreed to issue the following options to Geoff Ward, subject to any required shareholder approval (i) 2,000,000 options over ordinary shares with an exercise price of $0.50 and an expiry date of 30 June 2022, vesting 6 months after commencing employment, (ii) 2,000,000 options over ordinary shares with an exercise price of $0.70 and an expiry date of 30 June 2023, vesting 18 months after commencing employment and (iii) 2,000,000 options over ordinary shares with an exercise price of $0.90 and an expiry date of 30 June 2024, vesting 30 months after commencing employment. With Geoff’s appointment Acting Chief Executive Officer Mark Edwards will return to the role of Chief Operating Officer. On 30 August 2018, the Company agreed to issue 500,000 options over ordinary shares with an exercise price of $0.70 and an expiry date of 30 June 2023 to Mark Edwards. No other matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect the company's operations, the results of those operations, or the company's state of affairs in future financial years. Likely developments and expected results of operations Information on likely developments in the operations of the company and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the company. Environmental regulation The company is not subject to any significant environmental regulation under Australian Commonwealth or State law. Information on directors Name: Title: Qualifications: Experience and expertise: Length of service: Other current directorships: Tim Goldsmith Non-Executive Chairman (Independent Director) Bachelor of Commerce from the Polytechnic of North London (now North London University). Member of the Institute of Chartered Accountants Australia and New Zealand. Tim was previously a partner at global professional firm PricewaterhouseCoopers (PwC) for over 20 years. Tim held multiple roles during his PwC career and is best known for leading PwC’s global mining team with more than 2,000 partners and staff in more than 100 mining countries. During his tenure as Global Mining Leader, Tim was also responsible for PwC’s thought leadership on the future of the mining industry and was a well-known presenter at mining conferences around the globe. Tim was an early participator in the China growth story and initiated a China focus in 2002 that lead to PwC’s Australia China desk, which is known throughout China today. As National China Desk Leader, Tim worked extremely closely with many state-owned and private Chinese investors and companies to facilitate Chinese foreign investment in Australian mining and other assets. Director since 24 July 2017 Chairman of Angel Seafood Holdings Limited (ASX: AS1) and Non-Executive Director of Costa Group Holdings Ltd (ASX: CGC) from 1 September 2018. services Former directorships (last 3 years): Chairman of Kopore Metals Limited (ASX: KMT) Special responsibilities: Member of the Audit and Risk Committee and Member of Remuneration and Nomination Committee 558,422 62,500 (Listed options) and 3,750,000 (Unlisted options) None Interests in shares: Interests in options: Contractual rights to shares: HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT Name: Title: Qualifications: Experience and expertise: Danielle Lee Non-Executive Director (Independent Director) Bachelor of Economics from the University of Western Australia, Bachelor of Laws from the University of Western Australia (first class honours) Danielle is an experienced corporate lawyer more than 23 years’ experience shared between private law firms and the Australian Securities Exchange. She has a broad range of skills and legal experience in the areas of corporate advisory, governance and equity capital markets. She has advised a range of Australian public and private companies in a range of industries on corporate transactions including capital raisings, ASX listings, business and share acquisitions, shareholder agreements and joint venture arrangements. Director since 16 September 2015 Non-Executive Director of Ocean Grown Abalone Ltd (ASX: OGA) Chair of Audit and Risk Committee and Member of Remuneration and Nomination Committee 150,000 950,000 (Unlisted options) None Length of service: Other current directorships: Former directorships (last 3 years): None Special responsibilities: Interests in shares: Interests in options: Contractual rights to shares: Experience and expertise: Name: Title: Qualifications: Andrew Harris Non-Executive Director (Independent Director) PhD in engineering from the University of Cambridge and undergraduate degrees in engineering and science from the University of Queensland. A Fellow of the Institution of Chemical Engineers and Engineers Australia and a member of the Australian Institute of Company Directors Dr Andrew Harris is highly experienced in renewable energy, sustainability, biomimicry, nanotechnology, process engineering and the hydrogen energy economy. He is the lead Director of the Engineering Excellence Group within Laing O’Rourke’s internal engineering and innovation team. Laing O’Rourke is one of the world’s largest privately owned engineering and construction companies, with annual revenues of $8 billion, 15,000 staff and operations in Europe, North America, the Middle East, Asia and Australia. The Engineering Excellence Group was established to be a global centre of excellence, to transform Laing O’Rourke’s capabilities through strategic innovation, research and development, and enhanced technical performance. Dr Harris is also Professor of Chemical and Bimolecular Engineering at the University of Sydney and co- director of the Laboratory for Sustainable Technology, the state of art laboratory where Hazer has established its core development activities for the Hazer Process. Dr Harris was the youngest ever professor of Chemical Engineering appointed at the University of Sydney. Dr Harris was also previously the Chief Technology O cer of Zenogen Pty Ltd, a Sydney-based hydrogen production technology company, and was a co-founder of Oak Nano, a University of Sydney start-up commercialising novel carbon nanotube technology. Oak Nano designed and built the largest carbon nanotube production facility in the southern hemisphere. Director since 21 June 2017 Length of service: Other current directorships: None Former directorships (last 3 years): None Special responsibilities: ffi Chair of Remuneration and Nomination Committee and Member of the Audit and Risk Committee None 1,150,000 (Unlisted options) None Interests in shares: Interests in options: Contractual rights to shares: HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT Name: Title: Qualifications: Experience and expertise: Simon Rushton Non-Executive Director Bachelor of Commerce and Bachelor of Laws Simon is currently the General Manager of Commercial at Mineral Resources Limited (ASX: MIN) and has extensive legal and commercial expertise across a range of industries, including logistics, mining, oil & gas as well as private legal practice. Over the past decade, Simon has been primarily responsible for managing the legal and commercial affairs of Mineral Resources, including all front end contract and corporate (including M&A) work as well as ongoing management of all major contracts. Director since 20 April 2018 Length of service: None Other current directorships: Former directorships (last 3 years): None None Special responsibilities: None Interests in shares: None Interests in options: None Contractual rights to shares: 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretary Emma Waldon has held the role of Company Secretary since 10 August 2015. Emma has diverse global corporate advisory, capital markets and corporate governance experience having held roles in accounting and debt and equity capital markets in Australia and the United Kingdom. Emma Waldon qualified as a Chartered Accountant with Ernst & Young in Perth, worked as an Equities Analyst with Euroz Securities and spent 9 years in London with Bank of Scotland and Lloyds Bank originating and re-structuring debt finance for private equity leveraged buy-outs of businesses across Europe. On returning to Perth in 2012, Emma was a Director within Deloitte’s financial advisory services division and is also currently Company Secretary of Parkd Ltd (ASX: PKD) and a number of unlisted companies. Emma Waldon completed a Bachelor of Commerce at UWA, is a member of the Institute of Chartered Accountants of Australia and New Zealand and a Certificated Member of the Governance Institute of Australia. Meetings of directors The number of meetings of directors (including meetings of committees of directors) held during the year ended 30 June 2018, and the number of meetings attended by each director were: Geoff Pocock Tim Goldsmith Rick Hopkins Danielle Lee Andrew Harris Terry Walsh Simon Rushton Full board Audit & Risk Committee Remuneration & Nomination Committee Attended Held Attended Held Attended Held 4 6 - 6 6 4 2 4 6 - 6 6 4 2 - 1 1 1 2 1 - - 1 1 1 2 1 - - 2 - 2 2 - - - 2 - 2 2 - - Held: represents the number of meetings held during the time the director held office. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the company, in accordance with the requirements of the Corporations Act 2001 and its regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: ● Principles used to determine the nature and amount of remuneration ● Details of remuneration ● Service agreements ● Share-based compensation ● Additional information ● Additional disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration The objective of the company’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and conforms to the market best practice for the delivery of reward. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices: ● competitiveness and reasonableness ● acceptability to shareholders ● performance linkage / alignment of executive compensation ● transparency ● capital management The Remuneration and Nomination Committee is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the company depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel and is based on the following factors: Alignment to shareholders' interests: ● focuses on sustained growth in shareholder wealth, including growth in the share price, as well as focusing the executive on key non-financial drivers of value ● attracts and retains high calibre executives Alignment to program participants' interests: ● rewards capability and experience ● reflects competitive reward for contribution to growth in shareholder wealth ● provides a clear structure for earning rewards In accordance with best practice corporate governance, the structure of non-executive directors and executive remunerations are separate. Non-executive directors remuneration Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive directors' fees and payments are reviewed annually by the Remuneration and Nomination Committee. The Remuneration and Nomination may, from time to time, receive advice from independent remuneration consultants to ensure non-executive directors' fees and payments are appropriate and in line with the market. The chairman's fees are determined independently to the fees of other non-executive directors based on comparative roles in the external market. The chairman is not present at any discussions relating to the determination of his own remuneration. Non-executive directors do not receive any retirement benefits, other than statutory superannuation. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT HazerGroup ASX listing rules require the aggregate non-executive director’s remuneration be determined periodically by a general meeting. Aggregate fixed remuneration for all non-executive directors as determined by the Board is not to exceed $300,000 per annum. Directors’ fees cover all main board and committee activities. The level of non-executive director fixed fees as at the reporting date are as follows: Tim Goldsmith $60,000 plus statutory superannuation per annum Danielle Lee $40,000 plus statutory superannuation per annum ($25,000 plus statutory superannuation per annum up to 30 June 2018) Andrew Harris $40,000 plus statutory superannuation per annum ($25,000 plus statutory superannuation per annum up to 30 June 2018) Simon Rushton Nil Non-executive directors may also receive performance related compensation via options following receipt of shareholder approval. The issue of share based payments as part of non-executive director remuneration ensures that director remuneration is competitive with market standards as well as providing an incentive to pursue longer term success for the Company. It also reduces the demand on the cash resources of the Company, and assists in ensuring the continuity of service of directors who have extensive knowledge of the Company, its business activities and assets and the industry in which it operates. Details of share-based compensation is contained in this report. Executive remuneration The company aims to reward executives with a level and mix of remuneration based on their position and responsibility, which has both fixed and variable components. The executive remuneration and reward framework has four components: ● base pay and non-monetary benefits ● short-term performance incentives ● share-based payments ● other remuneration such as superannuation and long service leave The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually based on individual and business unit performance, the overall performance of the company and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the company and provides additional value to the executive. Performance based short-term incentives ('STI') may be provided to executives to align the targets of the business with the targets of those executives responsible for meeting those targets. The long-term incentives ('LTI') include long service leave and share-based payments. Shares and options may be awarded to executives based on long-term incentive measures including increasing shareholder value. Share based LTIs issued to the Managing Director are subject to shareholder approval. The Nomination and Remuneration Committee reviewed the long-term equity-linked performance incentives specifically for executives during the year ended 30 June 2018. Use of remuneration consultants During the financial year ended 30 June 2018, the Company engaged the services of an independent remuneration consultant to review its remuneration for Directors, key management personnel and other senior executives. Voting and comments made at the company's Annual General Meeting ('AGM') The Company received 75.81% of “for” votes on its Remuneration Report for the year ended 30 June 2017. Whilst the Company did not receive any specific feedback at the AGM on its remuneration practices it elected to undertake an independent review of remuneration during the financial year ended 30 June 2018. There were no significant findings or recommendations as a result of this review. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the company are set out in the following tables. The key management personnel of the company consisted of the following directors of Hazer Group Limited: ● Geoff Pocock – Managing Director (resigned 6 April 2018) ● Tim Goldsmith – Non-Executive Chairman (appointed (24 July 2017) ● Rick Hopkins – Non- Chairman (resigned 24 July 2017) ● Danielle Lee - Non- Executive Director ● Andrew Harris – Non- Executive Director ● Terry Walsh – Non-Executive Director (resigned 6 April 2018) ● Simon Rushton – Non-Executive Director (appointed 20 April 2018) And the following persons: ● Mark Edwards – Acting Chief Executive Officer (from 6 April 2018), Chief Operating Officer (from 11 December 2017) and Member of Science Advisory Committee (until 30 November 2017) Short-term benefits Post- employment benefits Long-term benefits Share- based payments Cash salary Termination Non- benefits monetary $ $ Super- Long service leave $ annuation $ Equity- settled $ Total $ 2018 and fees $ Non-Executive Directors: Tim Goldsmith1 Rick Hopkins2 Danielle Lee Andrew Harris Terry Walsh3 imSimon Rushton4 56,296 2,917 25,000 25,000 147,732 - - - - - - - Executive Directors: Geoff Pocock 231,692 120,000 Other Key Management Personnel: Mark Edwards 100,010 588,647 - 120,000 - - - - - - - - - 5,348 - 2,375 2,375 - - - - - - - - 749,616 - 47,903 115,210 100,619 - 811,260 2,917 75,278 142,585 248,351 - 30,400 - 1,348,086 1,730,178 9,501 49,999 - 147,933 - 2,509,367 257,444 3,268,013 1 2 3 4 Represents remuneration from 24 July 2017 to 30 June 2018 Represents remuneration from 1 July 2017 to 24 July 2017 Represents remuneration from 1 July 2017 to 6 April 2018 as a Director and 13 May 2018 as a consultant Represents remuneration from 20 April 2018 to 30 June 2018 HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT Short-term benefits Post- employment benefits Long-term benefits Share-based payments 2017 Cash salary and fees $ Cash Non- bonus monetary $ $ Super- Long service leave $ annuation $ Equity- settled $ Total $ Non-Executive Directors: Rick Hopkins3 Bryant McLarty1,3,4 Danielle Lee Andrew Harris Terry Walsh2 Executive Directors: Geoff Pocock 35,000 14,583 25,000 25,000 10,167 - - - - - 240,000 349,750 120,000 120,000 - - - - - - - 3,325 792 2,375 2,375 966 22,800 32,633 - - - - - - - 8,192 (7,231) 5,958 271,469 17,183 46,517 8,144 33,333 298,844 28,316 29,789 325,360 412,589 827,743 1 2 3 4 Represents remuneration from 1 July 2016 to 7 February 2017 Represents remuneration from 7 February 2017 to 30 June 2017 Payments above are only those made in capacity as Director. They do not include amounts for other services paid. Related party payments have been disclosed in Note 18. These include the forfeiture of series D options as a result of not meeting the service condition. The proportion of remuneration linked to performance and the fixed proportion are as follows: Name Non-Executive Directors: Tim Goldsmith Rick Hopkins Bryant McLarty Danielle Lee Andrew Harris Terry Walsh Simon Rushton Executive Directors: Geoff Pocock Fixed remuneration 2018 2017 At risk - STI 2018 2017 At risk - LTI 2018 2017 8% 100% - 36% 19% 59% - - 83% # 83% 10% 40% - - - - - - - - - - - - - - - 92% - - 64% 81% 41% - - 17% # 17% 90% 60% - 22% 64% - 29% 78% 7% Other Key Management Personnel: Mark Edwards 43% - - - 57% - # Percentage of relative proportion linked to performance not disclosed as the total amount of LTI remuneration expense was negative for the period. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Title: Mark Edwards Acting Chief Executive Officer (from 6 April 2018) and Chief Operating Officer (from 11 Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: December 2018 to 5 April 2018) 11 December 2017 Open Base salary of $220,000 inclusive of statutory superannuation, to be reviewed by the Remuneration and Nomination Committee 12 months from commencement and every 12 months thereafter or as otherwise agreed. 3 month termination notice by either party. 6 month non-solicitation clause after termination. Geoff Pocock Managing Director and Chief Executive Officer 1 December 2015 Terminated 4 May 2018 (Termination Date) Base salary of $240,000 plus statutory superannuation, to be reviewed by the Remuneration and Nomination Committee 12 months from commencement and every 12 months thereafter or as otherwise agreed. 6 month termination notice by either party. 6 month non-solicitation clause after termination. The Company may terminate without notice in certain circumstances such as misconduct. For a period of 6 months from the Termination Date, Geoff Pocock will be engaged as an independent contractor to provide executive advice and the Company will pay $1,000 per month for these services. Terry Walsh Non-Executive Director 14 March 2016 Ceased 13 May 2018 Consulting agreement with Walsh Consulting (WA) Pty Ltd, a company controlled by Terry Walsh. Compensation: (i) a monthly retainer of $8,500 plus GST as at 14 March 2016, reduced to $6,500 plus GST as at 1 January 2017 and increased to $8,500 plus GST as at 1 July 2017, (ii) 100,000 ordinary shares and (iii) 250,000 Series E Options ($0.30 exercise price, expiring 31 December 2018) issued upon appointment for no consideration. Working hours: The Consultant to provide the services of Terry Walsh for 18 working hours per week, plus excess travel commitments when required. Agreement to continue until terminated by Walsh Consulting (WA) Pty Ltd on 28 days written notice or on 56 days written notice by Hazer Group Limited. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT Share-based compensation Options The terms and conditions of each grant of options over ordinary shares during this financial year affecting remuneration of directors and other key management personnel in this financial year or future reporting years are as follows: Option series Series G Series I Series G Series J Series K Series G Series J Series K Series B3 Total Number of options issued Grant date Vesting date and exercisable date Expiry date Exercise price per option at grant date Fair value 450,000 7 February 20171 450,000 7 February 20171 1,750,000 24 July 20172 2,250,000 24 July 20172 3,000,000 24 July 20172 250,000 11 December 2017 750,000 11 December 2017 1,000,000 11 December 2017 3,150,000 29 December 2017 30 June 2020 31 December 2020 30 June 2020 31 December 2020 31 December 2021 30 June 2020 7 August 2017 7 August 2018 24 January 2018 24 July 2018 24 January 2019 11 March 2018 11 December 2018 31 December 2020 11 June 2019 31 December 2021 29 December 2017 31 December 2020 $0.75 $0.90 $0.75 $0.95 $1.20 $0.75 $0.95 $1.20 $0.40 13,050,000 0.21 0.21 0.21 0.20 0.22 0.14 0.14 0.15 0.32 1 2 3 The Company agreed to grant these options to Terry Walsh on 7 February 2017 subject to shareholder approval. Shareholder approval was obtained at the 2017 AGM and these options were issued on 11 December 2017. The Company agreed to grant these options to Tim Goldsmith and Geoff Pocock on 24 July 2017 subject to shareholder approval. Shareholder approval was obtained at the 2017 AGM and these options were issued on 11 December 2017. The Series B Options granted were issued upon the exercise of Series A options. The Series A options were primary Options which upon exercise resulted in the issue of one Share and one Series B Option (a secondary option). The Series A Options were issued prior to the Company’s listing on the Australian Stock Exchange in December 2015. The options vest if the holder has continued to be engaged as an employee, contractor, consultant or Board member of the Company prior to the vesting date. Options granted carry no dividend or voting rights. The number of options over ordinary shares granted to and vested by directors and other key management personnel as part of compensation during the year ended 30 June 2018 are set out below: Name Geoff Pocock Tim Goldsmith Rick Hopkins Bryant McLarty Danielle Lee Andrew Harris Terry Walsh Simon Rushton Mark Edwards Total options granted Number of Number of Number of Number of options vested during the during the during the during the year 2017 options granted options vested year 2017 year 2018 year 2018 6,250,000 3,750,000 - - 150,000 - 900,000 - 2,000,000 13,050,000 - - - - - 1,150,000 - - 200,000 1,350,000 4,750,000 1,000,000 - - 150,000 575,000 450,000 - 250,000 7,175,000 2,000,000 - 550,000 - 400,000 575,000 250,000 - 200,000 3,975,000 HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT Values of options over ordinary shares granted, exercised and lapsed for directors and other key management personnel as part of compensation during the year ended 30 June 2018 are set out below: Name Geoff Pocock Tim Goldsmith Rick Hopkins Bryant McLarty Danielle Lee Andrew Harris Terry Walsh Simon Rushton Mark Edwards Value of options granted Value of Remuneration Value of options consisting of options options lapsed exercised for the during the during the during the year year % $ year $ year $ 1,643,001 787,231 - - 47,903 - 187,217 - 147,933 2,813,285 43,622 - - - 1,616 - - - - 45,238 (261,933) - - - - - (80,063) - - (341,996) 78% 92% - - 64% 81% 41% - 57% Additional information The earnings of the entity for the five years to 30 June 2018 are summarised below: 2018 $ 2017 $ 2015 $ 2014 $ 2013 $ Revenues from ordinary activities Loss after income tax Net Assets 798,877 11,009,331 6,884,346 337,785 3,877,507 8,880,690 83,552 1,844,358 4,420,770 6,632 522,493 545,091 2,596 166,214 69,477 The factors that are considered to affect total shareholders return ('TSR') are summarised below: 2018 2017 2015 2014 2013 Share price at financial year end ($) 1 Total dividends declared (cents per share) Basic loss per share (cents per share) 0.25 0.0 13.37 0.49 0.00 5.74 0.45 0.00 3.57 n/a 0.00 2.24 n/a 0.00 1.09 1 The company was admitted to the official list of the ASX on 30 November 2015 hence N/A for periods before admission. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT Additional disclosures relating to key management personnel Shareholding The number of shares in the company held during the financial year by each director and other members of key management personnel of the company, including their personally related parties, is set out below: Ordinary shares Geoff Pocock1 Tim Goldsmith2 Rick Hopkins3 Danielle Lee Andrew Harris Terry Walsh4 Simon Rushton5 Mark Edwards Balance at the start of the year Received as part of remuneration Disposals/ Other Balance at the end of the year Additions 4,200,000 358,422 800,010 - - 50,000 - - 5,408,432 - - - - - - - - - 3,000,000 200,000 - 150,000 - - - - 3,350,000 - - - - - - - - 7,200,000 558,422 800,010 150,000 - 50,000 - - 8,758,432 1 2 3 4 5 Closing balance represents ordinary shares held on resignation (6 April 2018) Opening balance represents ordinary shares held on appointment (24 July 2017) Closing balance represents ordinary shares held on resignation (24 July 2017) Closing balance represents ordinary shares held on resignation (6 April 2018) Opening balance represents ordinary shares held on appointment (20 April 2018) Option holding The number of options over ordinary shares in the company held during the financial year by each director and other members of key management personnel of the company, including their personally related parties, is set out below: Options over ordinary shares Geoff Pocock1 Tim Goldsmith2 Rick Hopkins3 Danielle Lee4 Andrew Harris Terry Walsh5 Simon Rushton6 Mark Edwards Balance at the start of the year Expired/ forfeited/ Granted Exercised Other 8,050,000 6,250,000 (3,000,000) 1,500,003 950,000 1,150,000 140,000 - 62,500 3,750,000 - 150,000 - 900,000 - 200,000 2,000,000 12,052,503 13,050,000 - - (150,000) - - - - (3,150,000) (1,500,000) - - - - (450,000) - - (1,950,000) Balance at the end of the year 9,800,000 3,812,500 1,500,003 950,000 1,150,000 590,000 - 2,200,000 20,002,503 1 2 3 4 5 6 Closing balance represents ordinary shares held on resignation (6 April 2018). 3,000,000 of the options granted represent the issue of Series B on the exercise of Series A options. The Series A options are primary Options which upon exercise result in the issue of one Share and one Series B Option (a secondary option). Opening balance represents ordinary shares held on appointment (24 July 2017) Closing balance represents ordinary shares held on resignation (24 July 2017) Options granted represent the issue of Series B on the exercise of Series A options. The Series A options are primary Options which upon exercise result in the issue of one Share and one Series B Option (a secondary option). Closing balance represents ordinary shares held on resignation (6 April 2018) Opening balance represents ordinary shares held on appointment (20 April 2018) HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT Other transactions with key management personnel and their related parties During the financial year, the following payments were made to key management personnel and their related parties: - Mac Equity Partners (International) Pty Ltd a company of which former Directors Bryant McLarty and Geoff Pocock were directors and shareholders received $26,000 pursuant to a corporate services agreement to provide office space, internet, telephone, company secretarial and accounting services to the Company. This agreement was terminated on 31 August 2017. - Walsh Consulting (WA) Pty Ltd, a company controlled by Terry Walsh received fees totalling $128,565 pursuant to a consulting agreement to provide the services of Terry Walsh. This consulting agreement ceased on 13 May 2018. All transactions were made on normal commercial terms and conditions and at market rates. This concludes the remuneration report, which has been audited. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT Shares under option Unissued ordinary shares of Hazer Group Limited under option at the date of this report are as follows: Option series Grant date Expiry date Exercise price Number under option Series C Series D Listed options Series F Series G Series G Series G Series F Series G Series H Series G Series J Series K Series G Series G Series G Series J Series K Series B 16 September 2015 16 September 2015 28 April 2016 1 July 2016 1 July 2016 22 August 2016 31 October 2016 15 November 2016 15 November 2016 20 March 2017 20 March 2017 6 April 2017 6 April 2017 13 June 2017 6 September 2017 11 December 2017 11 December 2017 11 December 2017 29 December 2017 31 December 2018 31 December 2019 31 December 2018 30 June 2019 30 June 2020 30 June 2020 30 June 2020 30 June 2019 30 June 2020 31 December 2019 30 June 2020 31 December 2020 31 December 2021 30 June 2020 30 June 2020 30 June 2020 31 December 2020 31 December 2021 31 December 2020 Total 30 June 2018 $0.25 $0.40 $0.30 $0.55 $0.75 $0.75 $0.75 $0.55 $0.75 $0.70 $0.75 $0.95 $1.20 $0.75 $0.75 $0.75 $0.95 $1.20 $0.40 5,250,000 4,850,000 24,969,838 575,000 575,000 100,000 600,000 575,000 575,000 4,166,667 350,000 750,000 1,000,000 1,300,000 300,000 5,450,000 3,000,000 2,500,000 11,500,000 68,386,505 No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the company or of any other body corporate. Shares issued on the exercise of options The following ordinary shares of Hazer Group Limited were issued during the year ended 30 June 2018 and up to the date of this report on the exercise of options granted: Date options granted Date shares issued 28 April 2016 28 April 2016 30 January 2015 9 February 2015 16 September 2015 2 December 2015 28 April 2018 2 December 2015 Total 31 October 2017 8 December 2018 29 December 2017 29 December 2017 29 December 2017 1 February 2018 1 February 2018 5 February 2018 Exercise price Number of shares issued $0.30 $0.30 $0.25 $0.25 $0.25 $0.30 $0.30 $0.30 5,000 40,000 8,000,000 3,000,000 500,000 100,000 6,250 100,000 11,751,250 Indemnity and insurance of officers The company has indemnified the directors and executives of the company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the company paid a premium in respect of a contract to insure the directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ REPORT Indemnity and insurance of auditor The company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the company or any related entity against a liability incurred by the auditor. During the financial year, the company has not paid a premium in respect of a contract to insure the auditor of the company or any related entity. Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. Non-audit services There were no amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor. Officers of the company who are former partners of RSM Australia Partners There are no officers of the company who are former partners of RSM Australia Partners. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on the following page. Auditor RSM Australia Partners continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors ______________________________ Tim Goldsmith Chairman 31 August 2018 Melbourne HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only RSM Australia Partners Level 32, Exchange Tower 2 The Esplanade Perth WA 6000 GPO Box R1253 Perth WA 6844 T +61 (0) 8 9261 9100 F +61 (0) 8 9261 9111 www.rsm.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Hazer Group Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS Perth, WA Dated: 31 August 2018 TUTU PHONG Partner THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation For personal use only CONTENTS Contents Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Directors' declaration Independent auditor's report to the members of Hazer Group Limited Shareholder information General information The financial statements cover Hazer Group Limited as a single entity. The financial statements are presented in Australian dollars, which is Hazer Group Limited's functional and presentation currency. Hazer Group Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business are: Registered office 2/29 The Avenue Nedlands WA 6009 Principal place of business 2/29 The Avenue Nedlands WA 6009 A description of the nature of the company’s operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 31 August 2018. The directors have the power to amend and reissue the financial statements. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Revenue Interest received R&D Rebate Expenses Administration expenses Consulting and research expenses Share based payments Finance costs Employee benefits expense Amortisation expense Loss before income tax expense Income tax expense Note 2018 $ 2017 $ 40,376 758,501 56,414 281,371 (1,215,780) (1,535,813) (6,102,841) (2,283) (2,306,353) (645,138) (951,299) (642,946) (1,210,531) (1,369) (1,409,147) - (11,009,331) (3,877,507) 10 - - Loss after income tax expense for the year (11,009,331) (3,877,507) Other comprehensive income Other comprehensive income for the year, net of tax - - Total comprehensive loss for the year (11,009,331) (3,877,507) Basic loss per share Diluted loss per share Cents Cents 22 22 13.37 13.37 5.74 5.74 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only STATEMENT OF FINANCIAL POSITION Assets Current assets Cash and cash equivalents Other current assets Total current assets Non-current assets Capitalised development costs for pilot plant Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Provisions Total current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Note 2018 $ 2017 $ 5 6 7 8 9 6,185,009 136,713 6,321,722 8,144,451 95,450 8,239,901 793,238 793,238 1,081,114 1,081,114 7,114,960 9,321,015 165,462 65,152 230,614 274,067 166,258 440,325 230,614 440,325 6,884,346 8,880,690 11 12 13 16,030,724 13,120,578 2,649,225 (6,889,113) 8,752,066 (17,898,444) 6,884,346 8,880,690 The above statement of financial position should be read in conjunction with the accompanying notes HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only STATEMENT OF CHANGES IN EQUITY 2017 Issued capital $ Reserves $ Accumulated losses $ Total equity $ Balance at 1 July 2016 5,993,682 1,438,694 (3,011,606) 4,420,770 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive loss for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 11) Share- based payments (note 21) - - - - (3,877,507) (3,877,507) - - - - (3,877,507) (3,877,507) 7,126,896 - - 1,210,531 - - 7,126,896 1,210,531 Balance at 30 June 2017 13,120,578 2,649,225 (6,889,113) 8,880,690 2018 Issued capital $ Reserves $ Accumulated Losses $ Total equity $ Balance at 1 July 2017 13,120,578 2,649,225 (6,889,113) 8,880,690 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive loss for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 11) Share-based payments (note 21) - - - - (11,009,331) (11,009,331) - - - - (11,009,331) (11,009,331) 2,910,146 - - 6,102,841 - - 2,910,146 6,102,841 Balance at 30 June 2018 16,030,724 8,752,066 (17,898,444) 6,884,346 The above statement of changes in equity should be read in conjunction with the accompanying notes HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only STATEMENT OF CASH FLOWS Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest and other finance costs paid Research and development tax rebate received Note 2018 $ 2017 $ - (5,308,920) - (2,929,224) (5,308,920) 40,376 (2,283) 863,821 (2,929,224) 67,030 (1,369) 281,371 Net cash used in operating activities 20 (4,407,006) (2,582,193) Cash flows from investing activities Payments for pilot plant Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Share issue transaction costs Proceeds from exercise of share options Net cash from financing activities (462,582) (1,078,171) (462,582) (1,078,171) - (40,229) 2,950,375 7,133,882 (43,129) 36,143 2,910,146 7,126,896 Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year (1,959,442) 8,144,451 3,466,532 4,677,919 Cash and cash equivalents at the end of the financial year 5 6,185,009 8,144,451 The above statement of cash flows should be read in conjunction with the accompanying notes HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 1. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New, revised or amending Accounting Standards and Interpretations adopted The company has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board that are mandatory for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001, as appropriate for for- profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of available-for-sale financial assets, financial assets and liabilities at fair value through profit or loss, investment properties, certain classes of property, plant and equipment and derivative financial instruments. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. Operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation The financial statements are presented in Australian dollars, which is Hazer Group Limited's functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 1. Significant accounting policies (Cont’d) Revenue recognition Revenue is recognised when it is probable that the economic benefit will flow to the company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other income Other income is primarily the research and development tax refund received for a claim under the Commonwealth Government’s Research and Development Tax Incentive Regime. Revenue is recognised when the company is reasonably assured of receiving the benefit. Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or ● When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 1. Significant accounting policies (Cont’d) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities on the statement of financial position. Trade and other payables These amounts represent liabilities for goods and services provided to the company prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Hazer Group Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 1. Significant accounting policies (Cont’d) Share-based payments The company provides benefits in the form of share-based payments, whereby persons render services in exchange for shares or rights over shares (‘equity settled transactions’). The company does not provide cash settled share-based payments. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using an option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the company receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the period in which the service conditions are fulfilled, ending on the date on which the relevant persons become fully entitled to the award (the ‘vesting period’). The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. All changes in the liability are recognised in profit or loss. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the company or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the company or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Research and development Research costs are expensed in the period in which they are incurred. Capitalised Development Cost for Pilot Plant Costs directly attributable to create, produce and prepare the pilot plant to be capable of operating in the manner intended by management are recognised as an intangible asset when the following criteria are met: It is technically feasible to complete the pilot plant so that it will be available for use; • • Management intends to complete the pilot plant and use it; • There is an ability to use the pilot plant; • • Adequate technical, financial and other resources to complete the development and to use the pilot plant; and • The expenditure attributable to the pilot plant during its development can be reliably measured. It can be demonstrated how the pilot plant will generate probable future economic benefits; Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset will begin when the development is complete and the asset is available for use. It will be amortised over the period of expected future benefit. Amortisation will be recorded in profit and loss. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 1. Significant accounting policies (Cont’d) Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non- financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. New Accounting Standards and Interpretations not yet mandatory or early adopted A number of Australian Accounting Standards that have been issued or amended but are not yet effective have not been adopted by the Company for the annual reporting period ended 30 June 2018. The effect of these new or amended Accounting Standards is expected to give rise to additional disclosures and new policies being adopted. Refer below for the Standards relevant to the Company that are not yet effective and have not been early adopted. AASB 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 'Financial Instruments: Recognition and Measurement'. AASB 9 introduces new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost, if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, which arise on specified dates and solely principal and interest. All other financial instrument assets are to be classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive income ('OCI'). For financial liabilities, the standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment will be measured under a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. The standard introduces additional new disclosures. The entity has made an assessment and determined that this standard will have little to no impact on the entity as it does not have any financial instruments. AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity's performance and the customer's payment. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgments made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. The entity has made an assessment and determined that this standard will have little to no impact on the entity as it currently does not earn revenue. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 1. Significant accounting policies (Cont’d) AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 'Leases' and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a 'right-of-use' asset will be capitalised in the statement of financial position, measured at the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a 'right-of-use' asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The entity has made an assessment and determined that this standard will have little to no impact on the entity only had short term leases of 12 months or less for the period ended 30 June 2018. Note 2: Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Share-based payment transactions The company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial or Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Capitalised development costs of pilot plant The company capitalises developments costs for the pre-pilot plant in accordance with the accounting policy. Initial capitalisation of costs is based on management’s judgement that technological and economic feasibility is confirmed, usually when the project moves from the research phase into the development phase. In determining the amounts to be capitalised, management makes assumptions in relation to what costs relate to the development stage. Impairment of capitalised development costs of pilot plant The company has assessed the capitalised development costs at the reporting date. This requires determining the recoverable amount of the asset either using the fair value less costs of disposal or a value-in-use calculation, which require management to use a number of key estimates and assumptions. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 3. Operating segments The company has considered the requirements of AASB8 – Operating Segments and has identified its operating segments based on the internal reports that are reviewed and used by the board of directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The company operates as a single segment being research and development of novel graphite and hydrogen production technology. There is no difference between the audited financial report and the internal reports generated for review. The company is domiciled in Australia and is currently in the development phase and hence has not begun to generate revenue from operations. All the assets are located in Australia. Note 4. Financial risk management objectives and policies The company’s principal financial instruments comprise cash and short term deposits. The company manages its exposure to key financial risks, including interest rate and liquidity risk in accordance with its financial risk management policy. The objective of the policy is to support the delivery of its financial targets whilst protecting future financial security. The company uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate risk and assessments of market forecasts for interest rates. Liquidity risk is monitored through the development of future rolling cash flow forecasts. Primary responsibility for identification and control of financial risks rests with the Board. The Board reviews and agrees policies for managing each of the risks identified below. Interest rate risk At reporting date, the entity had $6,185,008 (2017: $8,144,451) in cash and cash equivalents exposed to interest rate risk. The entity’s exposure to market interest rates relates primarily to cash and short-term deposits. At reporting date, if interest rates had moved, as illustrated in the table below, with all other variables held constant, net loss and equity would have been affected as follows: Net loss Higher / (lower) 2018 $ 2017 $ Equity Higher / (lower) 2018 $ 2017 $ +1% (100 basis points) 61,850 81,444 61,850 81,444 -1% (100 basis points) (61,850) (81,444) (61,850) (81,444) The movements are due to higher / lower interest revenue from cash balances. Liquidity Risk Liquidity risk is managed through the entity’s objective to maintain adequate funding to meet its needs, currently represented by cash and short term deposits sufficient to meet the current cash requirements. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 4. Financial risk management objectives and policies (Cont’d) Capital management The primary objective of the entity’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The entity manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the entity may return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 30 June 2018 and 30 June 2017. The entity monitors capital with reference to the net debt position. The entity’s current policy is to keep the net debt position negative, such that cash and cash equivalents exceeds debt. Note 5. Cash and cash equivalents Cash at bank Cash on deposit Note 6. Other current assets Prepayments GST refundable Other receivables Accrued interest Note 7. Capitalised development costs of Pilot Plant Capitalised development cost of Pilot Plant 2018 $ 2017 $ 6,114,755 70,254 8,094,197 50,254 6,185,009 8,144,451 2018 $ 36,102 97,971 2,640 - 2017 $ - 87,330 8,120 - 136,713 95,450 2018 $ 2017 $ 793,238 1,081,114 793,238 1,081,114 HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 7. Capitalised development cost (Pilot plant) (Cont’d) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Balance at 1 July 2017 R&D tax offset Additions Amortisation expense Balance at 30 June 2018 Pilot plant First Generation Second Generation Total 1,081,114 (105,321) - (645,138) - - 462,583 - 1,081,114 (105,321) 462,583 (645,138) 330,655 462,583 793,238 The pilot plant is a key stage in the development of the Hazer process and the first stage in its transition from laboratory based standard equipment to customer-designed constructed plant. Development costs directly attributable to create, produce and prepare the pilot plant for the purpose intended by management is recognised as an intangible asset when the criteria under AASB 138 are satisfied. Capitalised development costs are recognised as an intangible asset and amortised from the point at which the asset is ready for use. Commissioning of the first generation pre-pilot plant occurred on 6 July 2017. Prior to this, the asset was not available for use nor was it in a condition necessary for it to be capable of operating in the manner intended by management. The company performed its annual impairment test as at reporting date. Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. Management have determined that, at reporting date the pre-pilot plant’s fair value less costs of disposal was in excess of its carrying value. Note 8. Trade and other payables Trade payables Other payables Note 9. Provisions Employee benefits Research agreement HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 2018 $ 2017 $ 125,180 40,282 61,937 212,130 165,462 274,067 2018 $ 2017 $ 65,152 - 66,258 100,000 65,152 166,258 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 10. Income Tax The prima facie tax receivable on loss before income tax is reconciled to the income tax expense as follows: Prima facie benefit on operating loss at 27.5% (2017: 28.5%) Tax losses not brought to account Income tax benefit attributable to operating loss 2018 $ 2017 $ 3,027,566 (3,027,566) 1,105,089 (1,105,089) - - A potential deferred tax asset, attributable to tax losses carried forward, amounts to approximately $4,880,748 (2017: $1,853,182) and has not been brought to account at reporting date because the directors do not believe it is appropriate to regard realisation of the deferred tax asset as probable at this point in time. This benefit will only be obtained if: • • • the company derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the loss and research and development expenditure to be realised; the company continues to comply with the conditions for deductibility imposed by law; and no changes in tax legislation adversely affect the company in realising the benefit from the deductions for the loss and research and development expenditure. Note 11. Equity - issued capital Ordinary shares Listed options Ordinary share capital Movements in ordinary share capital 2018 Shares 2017 Shares 2018 $ 2017 $ 88,302,245 76,550,995 15,884,073 12,973,415 24,969,838 15,221,088 146,651 147,163 Details Date No of shares Issue price $ Balance Issue of shares1 Issue of shares1 Issue of shares1 Issue of shares Share issue transaction costs, net of tax Issue of shares1 Issue of shares Share issue transaction costs, net of tax Issue of shares1 Issue of shares1 Transfer from listed options1 Balance 1 July 2016 29 July 2016 1 September 2016 9 November 2016 20 March 2017 20 March 2017 21 March 2017 27 April 2017 27 April 2017 27 April 2017 14 June 2017 30 June 2017 30 June 2017 64,540,752 33,632 11,132 13,000 8,333,333 - 6,250 3,556,434 - 11,962 44,500 - 76,550,995 $0.30 $0.30 $0.30 $0.60 $0.30 $0.60 $0.30 $0.30 $0.01 5,845,279 10,090 3,339 3,900 5,000,000 (13,250) 1,875 2,133,882 (29,879) 3,589 13,350 1,240 12,973,415 HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 11. Equity - issued capital (Cont’d) Details Date No of shares Issue price $ Balance Issue of shares1 Issue of shares1 Issue of shares Share issue transaction costs, net of tax Issue of shares1 Note 11. Equity - issued capital (Cont’d) Issue of shares Issue of shares Share issue transaction costs, net of tax Transfer from listed options1 Balance 1 July 2017 31 October 2017 8 December 2017 29 December 2017 76,550,995 5,000 40,000 11,500,000 $0.30 $0.30 $0.25 1 February 2018 6,250 $ $0.30 1 February 2018 5 February 2018 100,000 100,000 30 June 2018 30 June 2018 88,302,245 $0.30 $0.30 $0.01 12,973,415 1,500 12,000 2,875,000 (19,164) 1,875 30,000 30,000 (21,065) 512 15,884,073 Listed options Movements in listed options Balance Issue of shares Issue of shares Issue of shares Quotation of unlisted Series E options Issue of shares Issue of shares Issue of shares Transfer to ordinary shares1 Balance Balance Exercise of options Exercise of options Exercise of options Quotation of unlisted Series E options Quotation of unlisted Series E options Transfer to ordinary shares1 1 July 2016 29 July 2016 1September 2016 9 November 2016 9 November 2016 21 March 2017 27 April 2017 14 June 2017 30 June 2017 30 June 2017 1 July 2017 31 October 2017 8 December 2017 1 February 2018 28 February 2018 21 June 2018 30 June 2018 30 June 2018 15,041,564 (33,362) (11,132) (13,000) 300,000 (6,250) (11,962) (44,500) 15,221,088 15,221,088 (5,000) (40,000) (6,250) 3,266,667 6,533,333 - 24,969,838 $0.01 $0.01 148,403 - - - - - - - (1,240) 147,163 147,163 - - - - - (512) 146,651 Total issued capital 30 June 2018 16,030,724 1 Relate to the issue of shares upon the exercise of listed options. Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back scheme in place. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 11. Equity - issued capital (Cont’d) Capital risk management The company’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The company would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current company's share price at the time of the investment. The company is not actively pursuing additional investments in the short term as it continues to integrate and grow its existing businesses in order to maximise synergies. The capital risk management policy remains unchanged from the previous financial reporting year. Note 12. Equity - reserves Option reserve 2018 $ 2017 $ 8,752,066 2,649,225 8,752,066 2,649,225 Option reserve The option reserve records items recognised as expenses on the valuation of share options. Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Balance at 30 June 2017 Options issued during the prior year vesting over multiple periods Options issued during the current year vesting over multiple periods Options exercised during the period Existing options quoted as listed options during the year Forfeiture Balance at 30 June 2018 Note 13. Equity – accumulated losses Accumulated losses at the beginning of the financial year Loss after income tax expense for the year Accumulated losses at the end of the financial year HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 No of Options Value $ 42,166,667 2,649,225 - 24,700,000 (11,700,000) (9,800,000) (1,950,000) 929,523 5,515,315 - - (341,997) 43,416,667 8,752,066 2018 $ 2017 $ 6,889,113 11,009,331 3,011,606 3,877,507 17,898,444 6,889,113 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 14. Key management personnel disclosures Compensation The aggregate compensation made to key management personnel of the company is set out below: Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Note 15. Remuneration of auditors 2018 $ 2017 $ 708,647 49,999 - 2,509,367 469,750 32,633 - 325,360 3,268,013 827,743 During the financial year the following fees were paid or payable for services provided by RSM Australia Partners, the auditor of the company, its network firms and unrelated firms: Audit services Audit or review of the financial statements Note 16. Contingent assets and liabilities The company does not have any contingent assets or contingent liabilities at 30 June 2018. Note 17. Commitments Committed at the reporting date but not recognised as liabilities: Corporate services – including lease of Perth office space, company and secretarial services, lease of office space and warehouse space in Sydney and lease of equipment Within one year One to five years More than five years Total Research collaboration agreement Within one year One to five years More than five years Total 2018 $ 2017 $ 41,000 37,500 2018 $ 2017 $ 38,617 - - 38,617 252,585 - - 252,585 64,457 - - 64,457 - - - - HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 18. Related party transactions Key management personnel Disclosures relating to key management personnel are set out in note 14 and the remuneration report in the directors' report. Transactions with related parties During the financial year, the following payments were made to key management personnel and their related parties: - Mac Equity Partners (International) Pty Ltd a company of which former Directors Bryant McLarty and Geoff Pocock were directors and shareholders received $26,000 pursuant to a corporate services agreement to provide office space, internet, telephone, company secretarial and accounting services to the Company. This agreement was terminated on 31 August 2017. - Walsh Consulting (WA) Pty Ltd, a company controlled by Terry Walsh received fees totalling $128,565 pursuant to a consulting agreement to provide the services of Terry Walsh. This consulting agreement ceased on 13 May 2018. All transactions were made on normal commercial terms and conditions and at market rates. Receivable from and payable to related parties There were no amounts receivable or payable to related parties at 30 June 2018. There was $12,777 owing to PKF International Pty Ltd, a company of which former Director Rick Hopkins is partner, at 30 June 2017. Note 19. Events after the reporting period On 30 August 2018, the Company announced the appointment of a new Chief Executive Officer, Geoff Ward, commencing 8 October 2018. The Company has agreed to issue the following options to Geoff Ward, subject to any required shareholder approval (i) 2,000,000 options over ordinary shares with an exercise price of $0.50 and an expiry date of 30 June 2022, vesting 6 months after commencing employment, (ii) 2,000,000 options over ordinary shares with an exercise price of $0.70 and an expiry date of 30 June 2023, vesting 18 months after commencing employment and (iii) 2,000,000 options over ordinary shares with an exercise price of $0.90 and an expiry date of 30 June 2024, vesting 30 months after commencing employment. With Geoff’s appointment Acting Chief Executive Officer Mark Edwards will return to the role of Chief Operating Officer. On 30 August 2018, the Company agreed to issue 500,000 options over ordinary shares with an exercise price of $0.70 and an expiry date of 30 June 2023 to Mark Edwards. No other matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect the company’s operations, the results of those operations, or the company’s state of affairs in future financial years. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 20. Reconciliation of profit after income tax to net cash from operating activities Loss after income tax expense for the year (11,009,331) (3,877,507) 2018 $ 2017 $ Adjustments for: Share-based payments Amortisation Change in operating assets and liabilities: trade and other receivables trade and other payables employee benefits other provisions - - - - Net cash used in operating activities 6,102,841 1,210,531 - 645,138 (41,967) (2,580) (1,107) (100,000) (19,682) 156,848 47,617 (100,000) (4,407,006) (2,582,193) HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 21. Share based payments For the year ended 30 June 2018: Set out below are summaries of the movements of options granted to key management personnel, employees and contractors of the company: 2018 Grant date Expiry date 30/01/2015 09/02/2015 16/09/2015 16/09/2015 16/09/2015 25/11/2015 01/07/2016 01/07/2016 22/8/2016 31/10/2016 15/11/2016 15/11/2016 20/03/2017 06/04/2017 06/04/2017 13/06/2017 06/09/2017 04/12/2017 04/12/2017 04/12/2017 04/12/2017 29/12/2017 31/12/2017 31/12/2017 31/12/2017 31/12/2018 31/12/2019 31/12/2018 30/06/2019 30/06/2020 30/06/2020 30/06/2020 30/06/2019 30/06/2020 30/06/2020 31/12/2020 31/12/2021 30/06/2020 30/06/2020 30/06/2020 31/12/2020 31/12/2020 31/12/2021 31/12/2020 Exercise price Balance at the start of the year Exercised/ Quoted as Granted Listed options Expired/ forfeited/ other Balance at the end of the year $0.25 $0.25 $0.25 $0.25 $0.40 $0.30 $0.55 $0.75 $0.75 $0.75 $0.55 $0.75 $0.75 $0.95 $1.20 $0.75 $0.75 $0.75 $0.90 $0.95 $1.20 $0.40 - (8,000,000) 8,000,000 - (3,000,000) 3,000,000 (500,000) - 500,000 - - 5,250,000 - - 4,850,000 - (10,000,000)1 10,000,000 - - 575,000 - - 575,000 - - 100,000 - - 600,000 - - 575,000 - - 575,000 - - 350,000 - - 750,000 - - 1,000,000 - - 1,300,000 - - 300,000 - 5,450,0002 - - - 450,000 - - 3,000,000 - - 4,000,000 - - 11,500,000 - - - - - - - - - - - - - - - - - - (450,000) - (1,500,000) - - - - 5,250,000 4,850,000 - 575,000 575,000 100,000 600,000 575,000 575,000 350,000 750,000 1,000,000 1,300,000 300,000 5,450,000 - 3,000,000 2,500,000 11,500,000 38,000,000 24,700,000 (21,500,000) (1,950,000) 39,250,000 Weighted average exercise price $0.39 $0.69 $0.27 $1.13 $0.57 1 2 9,800,000 unlisted options were quoted as listed options during the period. Includes 2,250,000 of options with a vesting term conditional on Hazer signing a binding partnership with a third party within 18 months of execution of the original agreement. As at signing date, no contract has been signed and due to further uncertainty over meeting this vesting condition management has assigned a zero value to the options. The probability will be re-assessed at the next reporting period. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 21. Share based payments (Cont’d) For the year ended 30 June 2017: Set out below are summaries of the movements of options granted to key management personnel, employees and contractors of the company: 2017 Grant date Expiry date 30/01/2015 09/02/2015 16/09/2015 16/09/2015 16/09/2015 25/11/2015 14/03/2016 01/07/2016 01/07/2016 22/8/2016 31/10/2016 15/11/2016 15/11/2016 20/03/2017 06/04/2017 06/04/2017 13/06/2017 31/12/2017 31/12/2017 31/12/2017 31/12/2018 31/12/2019 31/12/2018 31/12/2018 30/06/2019 30/06/2020 30/06/2020 30/06/2020 30/06/2019 30/06/2020 30/06/2020 31/12/2020 31/12/2021 30/06/2020 Exercise price Balance at the start of the year Exercised/ Quoted as Granted Listed options Expired/ forfeited/ other Balance at the end of the year $0.25 8,000,000 $0.25 3,000,000 $0.25 500,000 $0.25 5,250,000 5,250,000 $0.40 $0.30 10,000,000 300,000 $0.30 - $0.55 - $0.75 - $0.75 - $0.75 - $0.55 - $0.75 - $0.75 - $0.95 - $1.20 - $0.75 - - 575,000 575,000 100,000 600,000 575,000 575,000 350,000 750,000 1,000,000 1,300,000 - - - - - - (300,000) 1 - - - - - - - - - - - - - - (400,000) 8,000,000 3,000,000 500,000 5,250,000 4,850,000 - 10,000,000 - - 575,000 - 575,000 - 100,000 - 600,000 - 575,000 - 575,000 - 350,000 - 750,000 - 1,000,000 - 1,300,000 - 32,300,000 6,400,000 (300,000) (400,000) 38,000,000 Weighted average exercise price $0.29 $0.81 $0.30 $0.40 $0.38 1 300,000 unlisted options were quoted as listed options during the period. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 21. Share based payments (Cont’d) Set out below are the options exercisable at the end of the financial year: Option series Grant date Expiry date Series A Series A Series A Series C Series D Series E Series F Series F Series G Series G Series H Series G Series G Series G Series J Series G Series G Series G Series B 30/01/2015 09/02/2015 16/09/2015 16/09/2015 16/09/2015 25/11/2015 01/06/2017 15/11/2016 22/08/2016 31/10/2016 20/03/2017 20/03/2017 01/06/2017 15/11/2016 06/04/2017 13/06/2017 06/09/2017 11/12/2017 29/12/2017 31/12/2018 31/12/2018 31/12/2018 31/12/2018 31/12/2019 31/12/2018 30/06/2019 30/06/2019 30/06/2020 30/06/2020 30/06/2019 30/06/2020 30/06/2020 30/06/2020 31/12/2020 30/06/2020 30/06/2020 30/06/2020 31/12/2020 2018 Number 2017 Number - 8,000,000 3,000,000 - 500,000 - 5,250,000 5,250,000 4,850,000 4,850,000 - 10,000,000 575,000 575,000 100,000 600,000 4,166,667 350,000 - - - - - - - 575,000 575,000 100,000 600,000 4,166,667 350,000 575,000 575,000 750,000 1,300,000 300,000 3,200,000 11,500,000 34,666,667 37,966,667 The Series A Options are primary Options which upon the exercise of each Series A Option result in the issue of one Share and one Series B Option (a secondary Option). Series B Options have an exercise price of 40 cents and an expiry date of 31 December 2020. The weighted average remaining contractual life of options outstanding at the end of the financial year was 2.23 years (2017: 2.31 years). For the options granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date 06/09/2017 11/12/2017 11/12/2017 11/12/2017 11/12/2017 29/12/2017 30/06/2020 30/06/2020 31/12/2020 31/12/2020 31/12/2021 31/12/2020 Share price at grant date Exercise price Expected volatility Dividend yield Risk-free Fair value interest rate at grant date 0.49 0.52 .52 .52 0.42 0.53 $0.75 $0.75 $0.90 $0.95 $1.20 0.40 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.95% 1.91% 1.91% 1.91 1.97% 2.13% 0.20 0.21 0.21 0.20 0.15 0.32 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 21. Share based payments (Cont’d) Expenses arising from share based payment transactions Total expenses arising from share based payment transactions recognised during the period were as follows: Options issued to KMP Options issued to employees/consultants Shares issued to employees/consultants Less: Forfeiture – options granted to KMP Total Note 22. Earnings per share Loss after income tax Non-controlling interest 2018 $ 2017 $ 2,509,367 3,935,469 - 332,591 885,171 - (341,997) (7,231) 6,102,841 1,210,531 2018 $ 2017 $ 11,009,331 - 3,877,507 - Loss after income tax attributable to the owners of Hazer Group Limited 11,009,331 3,877,507 Weighted average number of ordinary shares used in calculating basic earnings per share 82,342,420 67,524,529 Number Number Basic loss per share Diluted loss per share Cents Cents 13.37 13.37 5.74 5.74 HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only DIRECTORS’ DECLARATION In the directors' opinion: ● the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; ● the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; ● the attached financial statements and notes give a true and fair view of the company’s financial position as at 30 June 2018 and of its performance for the financial year ended on that date; ● there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors ______________________________ Tim Goldsmith Chairman 31 August 2018 Melbourne HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only RSM Australia Partners Level 32, Exchange Tower 2 The Esplanade Perth WA 6000 GPO Box R1253 Perth WA 6844 T +61 (0) 8 9261 9100 F +61 (0) 8 9261 9111 www.rsm.com.au INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HAZER GROUP LIMITED Opinion We have audited the financial report of Hazer Group Limited (the Company) which comprises the statement of financial position as at 30 June 2018, the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Company is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Company's financial position as at 30 June 2018 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation For personal use only Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How our audit addressed this matter Intangible Assets - Capitalised Development Costs Refer to note 7 in the financial statements In accordance with AASB 138, the Company has capitalised development costs in relation to their pre- pilot plant. The amount of the capitalised development costs at the reporting date was $793,238. We have determined this to be a key audit matter as significant judgements are required to determine the appropriate carrying value of the development costs at the reporting date. In particular, the Company is required to;  demonstrate that the costs incurred in the construction of the pre-pilot plant are development costs in accordance with AASB 138; and in accordance with AASB 136, the amount capitalised for impairment. required to be tested is  Our audit procedures included:  Reviewing the Company’s accounting policy in relation to the capitalisation of development costs to ensure it is in accordance with Accounting Standards;  Obtaining a detailed understanding of the project;  Agreeing a sample of additions to capitalised development costs during the year to supporting documentation and ensuring that the amounts were directly attributable and necessary to create, produce and prepare the pre-pilot plant to be capable of operating in the manner intended by management;  Confirming with management obtaining corroborative evidence, whether the pre-pilot plant was available for use that at the reporting date and if so, when it was commissioned during the year; and  Challenging the reasonableness of key assumptions included in management’s annual impairment test; and  Assessing the appropriateness of the Company’s disclosures in the financial report. Other Information The directors are responsible for the other information. The other information comprises the information included in the Company's annual report for the year ended 30 June 2018, but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. For personal use only Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Company to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included within the directors' report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Hazer Group Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. RSM AUSTRALIA PARTNERS Perth, WA Dated: 31 August 2018 TUTU PHONG Partner For personal use only SHAREHOLDER INFORMATION ASX Additional Information The Company’s ordinary shares are quoted as ‘HZR’ on ASX. The Company’s listed options are quoted as ‘HZRO’ on ASX. The shareholder information set out below was applicable as at 29 August 2018 Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 100,001 and over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Holding less than a marketable parcel 100,001 and over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Holding less than a marketable parcel Number of ordinary Number of holders shares of ordinary shares 57,750,626 25,591,869 2,998,321 1,885,529 75,900 125 751 362 656 176 88,302,245 2,070 231,720 286 Number of listed options Number of holders of listed options 16,670,737 7,507,664 343,005 407,523 40,909 24,969,838 1,242,429 58 185 43 145 59 490 282 HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only SHAREHOLDER INFORMATION Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of each class of quoted equity securities are listed below: MINERAL RESOURCES LIMITED POINT AT INFINITY PTY LTD OOFY PROSSER PTY LTD THE UNIVERSITY OF WESTERN AUSTRALIA CITICORP NOMINEES PTY LIMITED JAKANA PTY LTD MR ADRIAN JOHN MCTIERNAN MR NICHOLAS STUART BEATON DUNCAN MR JAMIE PHILLIP BOYTON J P MORGAN NOMINEES AUSTRALIA LIMITED TILPA PTY LTD MR PETER HOWELLS MRS LORRAINE ALYSSA GOLDSMITH SHERKANE PTY LTD EDISON CAPITAL GROUP PTY LTD MR JASON PAUL SKINNER 5150 CAPITAL PTY LTD MRS JOANNE ROSEMARY LLOYD MRS MEGAN LESLIE MCCAW WYTHENSHAWE PTY LTD MR ROBERT DUNCAN MILLAR POINT AT INFINITY PTY LTD OOFY PROSSER PTY LTD MR CHRISTOPHER JAMES BROWNE MR COLIN ALISTER ROGER JOBLIN MOJO METALS PTY LTD GEBA PTY LTD MINERAL RESOURCES LIMITED MR ALEX JON FISCHER MR CHRISTOPHER JOHN GIRLING & MS YVETTE LOUISE CLARK MR GRAEME STANLEY AH KIT MRS JENNIFER LOUISE WILLIAMS JENSON SUPER PTY LTD MR ANTHONY JOHN VETTER & MRS JEANNETTE VETTER MR MICHAEL JAMES BROWNE & MRS ANGELA MARGARET BROWNE MADEIROS PTY LTD MS TARA VINAY SHAH MR JOHN VANRAALTE MRS CARLY ELIZABETH WILLIAMS MR JAMES EDWARD BERTRAM HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 Ordinary shares Number held % of total shares issued 10,333,333 6,548,583 5,873,168 1,516,567 1,249,255 1,140,238 1,080,000 951,893 780,000 681,630 628,173 625,000 558,422 525,000 504,615 500,000 500,000 500,000 500,000 500,000 11.70 7.42 6.65 1.72 1.41 1.29 1.22 1.08 0.88 0.77 0.71 0.71 0.63 0.59 0.57 0.57 0.57 0.57 0.57 0.57 35,495,877 40.20 Listed options Number held % of total shares issued 1,200,000 1,000,000 937,146 800,000 590,000 570,000 533,333 507,190 500,000 490,000 425,000 413,744 400,000 400,000 374,000 350,000 340,000 340,000 337,500 305,706 4.41 3.75 3.20 2.80 2.69 2.28 2.14 2.00 2.00 1.96 1.90 1.60 1.60 1.52 1.40 1.40 1.38 1.36 1.22 1.20 10,448,064 41.84 For personal use only SHAREHOLDER INFORMATION Unquoted equity securities Options over ordinary shares – Series B Options over ordinary shares – Series C Options over ordinary shares – Series D Options over ordinary shares – Series F Options over ordinary shares – Series G Options over ordinary shares – Series H Options over ordinary shares – Series J Options over ordinary shares – Series K Total Number on issue Number of holders 11,500,000 5,250,000 4,850,000 1,150,000 9,250,000 4,166,667 3,750,000 3,500,000 43,416,667 7 6 5 2 24 1 4 3 Mineral Resources Limited holds 4,166,667 Series H options issued as part of a capital raising. The remaining unquoted equity securities were issued to key management personnel, employees and contractors of the company. Substantial holders Substantial holders in the company are set out below: Geoff Pocock Andrew Cornejo Mineral Resources Limited Ordinary shares Number held1 % of total shares issued 7,200,000 6,748,483 10,333,333 8.15% 7.64% 11.70% 1 Number of shares held as per last substantial shareholder notice lodged on the ASX by the shareholder. Voting rights The voting rights attached to ordinary shares are set out below: Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. On-market Buy-back There is no current on-market buy-back of the Company’s securities in place. HAZER GROUP LIMITED FOR THE YEAR ENDED 30 JUNE 2018 For personal use only

Continue reading text version or see original annual report in PDF format above