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Korvest Ltd, 580 Prospect Road, Kilburn, SA 5084
T: 61 8 8360 4500 | F: 61 8 8360 4599 | E: korvest@korvest.com.au
www.korvest.com.au
Annual Report
2016
KORVEST LTD:
A MARKET LEADING
INFRASTRUCTURE PROVIDER.
Annual Report
DIRECTORS’ REPORT
6
5 YEAR SUMMARY
24
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
AUDIT REPORT
LEAD AUDITOR’S INDEPENDENCE DECLARATION
ASX ADDITIONAL INFORMATION
26
27
28
29
30
59
60
62
64
Korvest Ltd
ABN: 20 007 698 106
Annual Report, 30 June 2016
1
TOGETHER, WE DELIVER SOLUTIONS
For projects around the world.
AUSTRALIA’S LEADING
RANGE OF CABLE & PIPE
SUPPORT SYSTEMS.
QUICK TURNAROUND GALVANISING
OF THE LARGEST, SMALLEST,
AND MOST COMPLEX
CONSTRUCTION INFRASTRUCTURE.
SAFETY ACCESS SYSTEMS
FOR ALL LARGE MOBILE
EQUIPMENT.
SUPERIOR AND COMPLETE BOLTING SOLUTIONS
FOR ANY INDUSTRY.
Staff Pictures
Staff Pictures
“KORVEST’S MOST SIGNIFICANT ASSETS
ARE ITS STAFF, AND THEIR COMMITMENT
TO DRIVING INNOVATION, PRODUCT QUALITY,
SAFETY, AND INTEGRITY. MANAGEMENT ACKNOWLEDGES
THE EFFORTS OF EVERY MEMBER OF THE KORVEST TEAM.”
ALEXANDER KACHELLEK, MANAGING DIRECTOR
Directors’ Report
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
The directors present their report together with the consolidated
financial statements of the Group comprising of Korvest Ltd (‘the
Company’) and its subsidiaries for the financial year ended 30 June
2016 and the auditor’s report thereon.
Directors
The directors of the Company at any time during or since the end of
the financial year are:
Graeme Billings
BCom FCA MAICD
60
Alexander Kachellek
BSc.CEng MIET FAICD
63
Chairman
Appointed Chairman 18 September 2014
A Director since May 2013
Mr Billings retired from PricewaterhouseCoopers in 2011 after 34
years where he was a senior partner in the Assurance practice.
Managing Director
A Director since June 2007
Mr Kachellek has experience in a number of industries including
Data Communications and Automotive, Lean Operations
Consultancy and Manufacturing.
Director G.U.D. Holdings Limited
Director Clover Corporation Limited
Chairman Azure Healthcare Ltd
Director Austmine Ltd
Peter Brodribb
F.I.E (Aust)
71
Gary Francis
BSc.Hon. (Civil), MAICD
61
Non-Independent
Non-Executive Director
A Director since 1984
Appointed Non-Executive Director in January 2005 after retiring
from the position of Managing Director that he had held since 1984.
Independent
Non-Executive Director
A Director since February 2014
Chairman of Remuneration Committee
Mr Francis has worked in the construction industry at Senior
Manager or Director level in Australia and Asia.
Retired 28 July 2016
Gerard Hutchinson
MBA, MBL, MSc(IS), BEc, MA (research), FCA, FAID, FAIM
48
Steven McGregor
BA (Acc), CA, AGIA, ACIS
44
Independent
Non-Executive Director
A Director since November 2014
Chairman of Audit Committee.
Former Managing Director AusGroup Limited
Finance Director
Company Secretary since April 2008
Appointed as Finance Director 1 January 2009
Company Secretary
Mr Steven J W McGregor CA, AGIA, ACIS, BA(Acc) was appointed
to the position of company secretary in April 2008. Mr McGregor
previously held the role of chief operating officer and company
secretary with an unlisted public company for seven years.
7
KOVASX
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
In accordance with the Articles of Association, Graeme Billings
retires from the Board at the forthcoming Annual General Meeting
on 28 October 2016 and offers himself for re-election. Mr Andrew
Stobart has been appointed as a director commencing on 1 August
2016 to fill the casual vacancy created by the retirement of Peter
Brodribb. As a director appointed since the last AGM Mr Stobart
will also seek re-election at the 2016 AGM.
Dividends
The directors announced a fully franked dividend of 10.0 cents per
share compared to 12.0 cents per share last year and 10.0 cents at
the half year. The Dividend Reinvestment Plan (DRP) will be
suspended for the final dividend. The dividend will be paid on
9 September 2016 with a record date of 26 August 2016.
A summary of dividends paid or declared by the Company to
members since the end of the previous financial year were:
Retirement and Re-Elections
At the 2015 AGM Peter Brodribb indicated that he would be
retiring prior to the 2016 AGM. Mr Brodribb retired from the Board
on 28 July 2016. The Board would like to acknowledge the
significant contribution that Mr Brodribb has made to Korvest over
a significant period of time. He joined the Company in April 1978
and became Managing Director in 1984. On his retirement from
this executive position in January 2005 he became a non-executive
director and has served in this capacity until his retirement.
Directors’ Meetings
The number of directors’ meetings (including meetings of
committees of directors) and number of meetings attended by each
of the directors of the Company during the financial year are:
Director
Board
Meetings
Audit Committee
Meetings
Remuneration
Committee Meetings
Nomination
Committee Meetings
Mr A Kachellek
Mr P Brodribb
Mr S McGregor
Mr G Billings
Mr G Francis
Mr G Hutchinson
A
14
14
14
14
14
14
B
14
14
14
14
14
14
A
-
3
-
3
3
3
B
-
3
-
3
3
3
A
-
4
-
4
4
4
B
-
4
-
4
4
4
A
-
3
-
3
3
3
B
-
3
-
3
3
3
A Number of meetings attended
B Total Number of meetings available for attendance
Financial Results
The revenue from trading activities for the year under review was
$55.0m, down 12.8% on the previous year. Profit after tax was
$0.95m compared to $1.45m in the previous year.
The FY16 result was adversely impacted in the first half by costs
associated with a significant acquisition opportunity which ultimately
did not proceed. The after tax financial impact of these
costs was $475k.
In addition, as trading conditions softened during the year, the
Company restructured its labour force with the restructuring costs
having an after tax impact of $488k during the year.
Cents per
share
Total amount
$’000
Franked/
unfranked
Date of payment
Declared and paid during the year 2016
Interim 2016 ordinary
Final 2015 ordinary
Total amount
10.0
12.0
1,066
1,262
2,328
Fully franked
Fully franked
11 March 2016
4 September 2015
Franked dividends declared and paid during the year were franked at the rate of 30 per cent.
Declared after end of year
After the reporting date the following dividends were proposed by the directors. The dividends have not been provided for and there are no
income tax consequences to the Company.
Final ordinary
Total amount
10.0
1,094
1,094
Fully franked
9 September 2016
The financial effect of these dividends has not been brought to account in the financial statements for the year ended 30 June 2016 and will
be recognised in subsequent financial reports.
Dividends have been dealt with in the financial report as:
Dividends
Dividends - subsequent to 30 June 2016
Note
19
19
Total amount
$’000
2,328
1,094
Strategy and Future Performance
Korvest’s businesses service a number of major markets
including infrastructure, commercial, utilities, mining, food
processing, oil & gas, power stations, health and industrial.
Historically these industries operate in cycles that sees Korvest’s
primary sources of revenue transition in line with those cycles.
Over recent years activity has been mainly in the oil & gas sector
whilst prior to that infrastructure and mining projects were the
significant contributors. The majority of the work on the various
LNG projects domestically is drawing to a close and the more
significant upcoming projects are in the infrastructure sector.
Korvest’s strategy domestically remains to consolidate and build on
market share through service and innovation.
The domestic market overall has been difficult for a number of years
now since the end of the mining construction boom. As a result
Korvest embarked on a strategy of pursuing international markets
specifically targeting Singapore, Hong Kong, New Zealand and the
Philippines. During the 2016 year relationships have been
developed in these regions with a view to targeting medium to
large project opportunities. Product development has also been
undertaken to provide appropriate accredited products for targeted
offshore projects.
Late in the year a Singaporean subsidiary was created and a
Singaporean business development resource employed to
target the region.
Over recent years Korvest has actively sought and pursued
acquisition opportunities. Given the current circumstances the
focus has now shifted to maximising organic growth opportunities
rather than specifically searching for an acquisition. However,
should a suitable acquisition opportunity present itself it
will be pursued.
Korvest continues to have a strong balance sheet providing the
capacity for further growth. Should a compelling acquisition
opportunity arise Korvest would consider taking on a prudent level
of debt and in this regards restates its guidance that it would look
to maintain a gearing ratio, measured as net debt/(net debt plus
equity), at below 30%.
Korvest has a long history of paying franked dividends. The target
dividend payout ratio range is 65-90% of after tax profits. The final
dividend declared is at the upper end of the range as the Board
recognises the benefit to shareholders in maximising the distribution
of the Company’s franking credits.
8
9
KOVASXKOVASX DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
The approach to acquisitions will be more passive than has been
the case over the past couple of years. There is no longer a
resource dedicated to seeking out acquisition opportunities however
compelling acquisition opportunities will still be considered should
the Company become aware of them.
Further information about likely developments in the operations of
the Group and the expected results of those operations in future
financial years has not been included in this report because
disclosure of the information would be likely to result in
unreasonable prejudice to the Group.
Directors and Officers Insurance
Since the end of the previous financial year the Company has paid
insurance premiums in respect of directors’ and officers’ liability and
legal expenses insurance contracts, for current and former directors
and officers of the Company and related entities. The insurance
premiums relate to:
a) costs and expenses incurred by the relevant officers
in defending proceedings, whether civil or criminal and
whatever their outcome; and
b) other liabilities that may arise from their position, with
the exception of conduct involving a wilful breach of duty
or improper use of information or position to gain a
personal advantage.
The premiums were paid in respect of all of the directors and officers
of the Company. The directors have not included details of the
nature of the liabilities covered or the amount of the premium paid
in respect of the directors’ and officers’ liability and legal expenses
insurance contracts, as such disclosure is prohibited under the
terms of the contract.
Principle Activities and Review of Operations
The principal continuing activities of the Group consist of hot dip
galvanising, sheet metal fabrication, manufacture of cable and
pipe support systems and fittings, design and assembly of access
systems for large mobile equipment and sale, repair and rental of
high torque tools.
The Group is comprised of the Industrial Products group which
includes the EzyStrut, Power Step and Titan Technologies and the
Production group which includes the Korvest Galvanisers business.
Industrial Products
In the Industrial Products group the EzyStrut cable and pipe support
business supplies products for major infrastructure developments
and also supplies products to contractors for small industrial
developments. During FY16 the oil & gas sector remained the
dominant source of revenue for EzyStrut due to the ongoing supply
for large LNG projects. Day-to-day activity has remained relatively
unchanged throughout the year albeit these levels are well below
those of a few years ago. Small to mid-size project activity declined
during the year resulting in all domestic regions reporting reduced
revenue compared to the prior year. Internationally, sales to the
New Zealand market showed pleasing improvement. During the
second half of FY16 the development in the SE Asian market has
seen the establishment of a Singaporean subsidiary and employ-
ment of a local representative.
Power Step designs and assembles access systems for large
mobile equipment. Titan Technologies supplies specialised tools in
the form of torque wrenches, hydraulic pumps and related
accessories. Both businesses rely principally on the mining industry
and as a consequence the performance of both businesses during
the year was again disappointing. Power Step has been working
on diversifying into a new product range not associated with mining
equipment. Late in the year a customer order was received for a
prototype safety access system associated with the rail transport
industry that will be made and delivered in early FY17. Should the
trials of the prototype prove successful then a new significant
market will be established. During the year a comprehensive review
of the inventory of both businesses was undertaken. Difficult trading
conditions over the past few years has resulted in many items being
considered slow moving and as a result a provision of $645k has
been raised against these items.
Production
In the Production group the Galvanising business volumes remained
at the low level experienced in the second half of FY15 for the
duration of FY16. This has resulted in annual plant volumes lower
than any year over the past decade. External tonnes reduced as
demand in the South Australian market declined despite the
business having maintained our market share within the state.
Internal demand also reduced with less activity in the EzyStrut
business having a flow on impact on the Galvanising business.
The management structure of the Galvanising business was
changed in the second half and the benefits of this change will be
realised in FY17.
Risk
The Board and Management periodically review and update risk
reviews that identify and assess the risks faced by the business
and the controls that are in place to mitigate those risks. General
Managers report to the Board monthly on any changes to the risk
profile of their business unit. There have been few if any changes to
the risk environment faced by Korvest over the past year.
Operational risks relate principally to continuity of supply and
continuity of production. To ensure continuity of supply Korvest
monitors the performance of key suppliers and establishes more
than one supply source for key products. For many bought in
finished goods the ability for the product to also be manufactured
in-house mitigates the risk.
Korvest’s in-house engineering and maintenance department is
responsible for preventative maintenance programmes to ensure
that a high level of plant reliability and low down time. FY16 showed
the value of this in-house resource as the plant down time was
again extremely low.
Financial risks faced by the business are typical of those faced by
most businesses and centre around management of working
capital. In particular trade receivables and inventory levels are
constantly reviewed and performance is monitored with key
performance indicators on an ongoing basis.
Significant Changes
In the opinion of the directors there were no significant changes in
the state of affairs of the Group that occurred during the financial
year under review.
Events Subsequent to Reporting Date
At the date of this report there is no matter or circumstance that has
arisen since 30 June 2016, that has significantly affected, or may
significantly affect:
(i) the operations of the Group;
(ii) the results of those operations; or
(iii) the state of affairs of the Group;
in the financial years subsequent to 30 June 2016.
Likely Developments
The main focus of the next financial year will be to improve domestic
market share through customer service and innovation.
Internationally the aim will be to build on the good growth
experienced in the New Zealand market. We now have our local
Singaporean subsidiary in place with local representation together
with product that is DNV certified making it suitable for off-shore oil
& gas projects (Singapore is the regional centre for projects of this
nature) together with shipbuilding. Our product standards also put
us in a good position for the region’s many on-shore infrastructure
projects. The next phase of the regional strategy will be to expand
into the Hong Kong market to build on the work already tendered in
that market.
Innovation by way of new product development will be a focus area
to broaden the markets serviced by Korvest’s existing businesses.
Process improvement will continue to be pursued to ensure that
manufacturing processes are optimised resulting in lead time
improvements to assist customer service and cost savings to ensure
continued cost competitiveness.
10
11
KOVASXKOVASX
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
Remuneration Report — Audited
Principles of compensation
Remuneration is referred to as compensation throughout this report.
The table below summarises the nature and weighting of the KPIs
included in the STIs.
Key Management Personnel (KMP) have authority and responsibility
for planning, directing and controlling the activities of the Group,
including directors of the Company and other executives. KMP
comprise the directors and senior executives of the Group.
Growth (20%)
Financial performance
Group Reorganisation (45%)
Process improvement
Financial performance (20%)
Working Capital
Managing Director
Other KMP*
Market Share (15%)
Innovation
Growth
Cost reductions
Market Share
*Each KMP have different KPIs and weightings. Some individual’s
STI structures do not include all KPI categories listed.
Compensation levels for KMP are competitively set to attract and
retain appropriately qualified and experienced directors
and executives.
The compensation structures explained below are designed to
attract suitably qualified candidates, reward the achievement of
strategic objectives, and achieve the broader outcome of creation
of value for shareholders. The compensation structures take into
account:
(a) the capability and experience of the KMP;
(b) the KMP’s ability to control performance; and
(c) the Group’s performance including the
Group’s earnings.
Fixed compensation
Fixed compensation consists of base compensation (which is
calculated on a total cost basis), as well as employer contributions
to superannuation funds.
Compensation levels are reviewed annually by the remuneration
committee.
Performance linked compensation
Performance linked compensation includes both short-term and
long-term incentives, and is designed to reward KMP for meeting or
exceeding their financial and personal objectives.
The short-term incentive (STI) is an ‘at risk’ cash bonus, while the
long-term incentive (LTI) is provided as performance rights under the
rules of the Korvest Performance Rights Plan.
Consequences of performance on shareholder wealth
In considering the Group’s performance and benefits for shareholder
wealth, the remuneration committee have regard to the indices set
out in the 5 Year Summary on page 24.
Short-term incentive bonus
The key performance indicators (KPIs) for the KMP are set annually.
The KPIs include measures relating to financial and operating
performance, safety, strategy and risk measures.
The KPIs are chosen to directly align the individual’s reward to
the KPIs of the Group and to its strategy and performance. The
non-financial objectives vary with position and responsibility and
include measures such as achieving strategic outcomes, safety and
environmental performance. The financial objectives relate to
earnings before interest and tax (EBIT) for various parts of the
business depending on the KMP.
Long-term incentive bonus
Performance rights are issued under the Korvest Performance
Rights Plan to employees (including KMP) as determined by the
remuneration committee. Performance rights become vested
performance rights if the Group achieves its performance hurdle.
If rights become vested performance rights and do not lapse, the
holder is able to acquire ordinary shares in the Company for no cash
payment.
The performance hurdle relates to growth in basic earnings per
share (EPS). EPS performance is measured in total over a three
year period. The performance hurdle is tested once at the
completion of the three year vesting period. The % growth is based
on a base year which is the year prior to the commencement of the
vesting period. For the most recent issue of Performance Rights the
table below sets out the % of rights that vest depending on the level
of EPS growth achieved.
Compound annual EPS
growth over 3 yr vesting
period
Less than 7.5%
7.5%
Between 7.5% - 15%
% of rights that vest
Nil
33.3%
Pro rata between 33.3% –
100%
15% or greater
100%
The EPS objective was chosen because it is a good indicator of
the Group’s earnings growth and is aligned to shareholder wealth
objectives.
The Company’s securities trading policy prohibits those that are
granted share-based payments as part of their remuneration from
entering into other arrangements that limit their exposure to losses
that would result from share price decreases. Entering into such
arrangements has been prohibited by law since 1 July 2011.
Service Contracts
It is the Group’s policy that service contracts for all KMP are
unlimited in term but capable of termination by providing 1 to 6
months’ notice depending on the KMP, and that the Group retains
the right to terminate the contract immediately by making payment
in lieu of notice. The Group has entered into a service contract with
each executive KMP.
On termination of employment the KMP are also entitled to receive
their statutory entitlements and accrued annual leave and long
service leave, as well as any entitlement to incentive payments and
superannuation benefits.
Services from remuneration consultants
The remuneration committee engaged the services of AON Hewitt
as remuneration consultants to provide insight into current market
practices for the structure of the executive LTI scheme as well as
recommendations in relation to the hurdles and vesting scales. As
a result of AON Hewitt’s recommendations it is proposed that the
performance rights issued in FY17 will include a second
performance hurdle (Relative Total Shareholder Return) along with
the existing EPS hurdle.
AON Hewitt was paid $20,140 for their advice.
AON Hewitt were engaged by and reported directly to the Chairman
of the remuneration committee. The only interaction between KMP
and the consultants was at the remuneration committee meeting
where the consultants presented their recommendations. The
Executive Directors were in attendance at that meeting. The
Executive Directors had not had any contact with the consultants
prior to the presentation of their recommendations.
The Board was aware of the process undertaken by AON Hewitt
and were present at the only time when KMP had interaction with
the consultants. Accordingly, the Board is satisfied that the AON
Hewitt report was made free from undue influence by members of
the key management personnel.
The remuneration committee consists entirely of non-executive
directors and is responsible for setting the remuneration levels for
KMP.
The Board is satisfied that the remuneration committee is able to
make a decision on remuneration levels without undue influence by
the members of the KMP about whom the recommendations
may relate.
Non-Executive directors
Non-executive directors receive a fixed fee. The total remuneration
for all non-executive directors was last voted upon by
shareholders at the AGM held on 25 October 2013 and is not to
exceed $450,000.
The current base fees became effective on 1 July 2014 and are:
Chairman
Director
$123,600
$61,800
The Chairman of a Board Committee receives a
further $10,300 p.a.
Superannuation is added to these fees where appropriate.
Non-executive directors do not receive
performance-related compensation.
12
13
KOVASXKOVASX
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
Remuneration Report — Audited (continued)
Directors and Executive Remuneration
Details of the nature and amount of each major element of
remuneration of each director of the Company, and other KMP
of the Group are:
Name
Directors
G Billings
Non-executive (Chairman)
P Brodribb
Non-executive (Director)
G Francis
Non-executive (Director)
G Hutchinson (appointed 19 Nov 2014)
Non-executive (Director)
A Kachellek
Executive (Managing Director)
S McGregor
Executive (Finance Director)
Former Director
P Stancliffe (retired 18 Sep 2014)
Non-executive (Director)
Executives/other KMP
C Hartwig
Executive General Manager
S Evans (ceased 18 Jan 2016)
General Manager Galvanising
G Christie (became KMP 18 Jan 2016)
General Manager Operations
P Assaf
General Manager Power Step & Titan
Technologies
SHORT TERM
POST EMPLOYMENT
SHARE BASED PAYMENTS
Salary & Fees
$
Bonus
$
Superannuation benefits
$
Termination
Payment
$
Other long term
– Long Service leave
$ *
Shares
$
Options & Rights
$
Total
$
Proportion of remuneration
performance related %
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
123,600
110,725
61,800
61,800
78,948
77,369
72,100
48,067
309,000
309,000
272,950
272,950
-
30,900
261,900
236,900
114,031
200,850
61,880
-
216,300
216,300
-
-
-
-
-
-
-
-
62,502
15,991
2,000
10,236
-
-
59,700
39,800
-
5,523
23,800
-
-
4,975
11,742
10,519
5,871
5,871
-
-
6,849
4,566
30,874
36,604
26,903
26,417
-
2,936
31,970
26,230
16,365
24,330
5,879
-
20,549
20,549
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
115,646
-
-
-
-
-
-
-
-
-
-
-
-
-
6,794
9,293
6,140
7,830
-
-
13,585
7,201
(28,083)
10,182
3,005
-
2,639
12,856
-
-
-
-
-
-
-
-
-
-
-
-
-
-
998
997
499
997
499
-
998
997
-
-
-
-
-
-
-
-
-
(39,763)
-
(31,479)
-
-
-
(21,538)
-
(14,911)
-
-
-
(8,284)
135,342
121,244
67,671
67,671
78,948
77,369
78,949
52,633
409,170
331,125
307,993
285,954
-
33,836
368,153
289,590
218,458
226,971
95,063
-
240,486
247,393
-
-
-
-
-
-
-
-
15.3
(7.2)
0.6
(7.4)
-
-
16.2
6.3
0.0
(4.1)
25.0
-
-
(1.3)
* This represents the accounting expense relating to the change in the provision for long service leave. It does not represent
cash payments or statutory obligations.
The proportion of performance related remuneration is bonuses and share based payments divided by total remuneration.
14
15
KOVASXKOVASX
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
Remuneration Report — Audited (continued)
Options and rights over equity instruments granted as compensation
during the reporting period
Details on performance rights that were granted as compensation to
each KMP during the reporting period are as follows:
Number of
performance rights
granted during
the year
Grant date
Fair value per right at grant
date ($)
Expiry date
36,400
28,800
20 Nov 2015
20 Nov 2015
21,200
18,400
20 Nov 2015
20 Nov 2015
5,000
20 Nov 2015
2.29
2.29
2.29
2.29
2.29
30 June 2018
30 June 2018
30 June 2018
30 June 2018
30 June 2018
Directors
A Kachellek
S McGregor
Executives
C Hartwig
S Evans
G Christie
All performance rights have a nil exercise price.
All performance rights expire on the earlier of their expiry date or
termination of the individual’s employment. The performance rights
are exercisable for one year after the conclusion of the vesting
period. In addition to the continuing employment service condition,
the ability to exercise performance rights is conditional on the Group
achieving performance hurdles. Details of the performance criterion
are included in the long-term incentives discussion on page 14.
No equity-settled share-based payment transaction terms (including
performance rights granted as compensation to KMP) have been
altered or modified by the Group during the reporting period or the
prior period.
Exercise of options granted as compensation
No shares were issued on the exercise of performance rights
previously granted as compensation during the reporting period.
Analysis of options and rights over equity instruments granted
as compensation
Details of vesting profiles of the options granted as remuneration to
each director and key executive of the Company are detailed below:
Directors
A Kachellek
S McGregor
Executives
C Hartwig
S Evans
G Christie
P Assaf
Options Granted
Number
Date
% vested in
current year
%
forfeited or
lapsed in
current year
Year in which
grant vests
24,000
24,000
36,400
19,000
19,000
28,000
10,000*
13,000
14,000
21,200
9,000
9,000
18,400
5,000
5,000
5,000
5,000
Nov 13
Nov 14
Nov 15
Nov 13
Nov 14
Nov 15
Mar 09
Nov 13
Nov 14
Nov 15
Nov 13
Nov 14
Nov 15
Nov 14
Nov 15
Nov 13
Nov 14
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%
100%
30 Jun 16
-%
-%
30 Jun 17
30 Jun 18
100%
30 Jun 16
-%
-%
-%
30 Jun 17
30 Jun 18
30 Jun 11
100%
30 Jun 16
-%
-%
100%
100%
100%
-%
-%
100%
-%
30 Jun 17
30 Jun 18
30 Jun 16
30 Jun 17
30 Jun 18
30 Jun 17
30 Jun 18
30 Jun 16
30 Jun 17
* - These options were issued under the previous Korvest Ltd
Executive Share Plan. They vested during the year ended 30 June
2011 and were exercised in January 2011. Restricted ordinary
shares were issued at an exercise price of $3.79 per share. Under
the terms of the previous Korvest Ltd Executive Share Plan upon
exercise of the options the individual must pay the exercise price
over a maximum term of 20 years. Dividends, after deduction of an
amount intended for the participant’s tax, are applied in payment of
the exercise price. The arrangement to pay the exercise price over
20 years is interest free and without personal recourse to the
participants (recourse is limited to the shares themselves). As a
result of these arrangements, under AASBs, the instruments are
treated as options until such time as the associated non-recourse
loan is fully repaid. The shares remain restricted until such time as
the loan is fully paid.
16
17
KOVASXKOVASX
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
Remuneration Report — Audited (continued)
Analysis of options and rights over equity instruments granted
as compensation (continued)
The movement during the reporting period, by value, of options over
ordinary shares in the Company held by each company director and
KMP are detailed below.
Value of Rights/Options
Granted in year $ (A)
Exercised in year $ (B)
Directors
A Kachellek
S McGregor
Executives
C Hartwig
S Evans
G Christie
83,468
66,040
48,613
42,192
11,465
-
-
-
-
-
(A) The value of performance rights granted in the year
is the fair value of the options calculated at grant date
using the Black Scholes option-pricing model. The total
value of the options granted is included in the table
above. This amount will be allocated to remuneration
over the vesting period (i.e. in years 1 July 2015 to
30 June 2018) subject to meeting the associated
performance conditions.
(B) The value of the options exercised during the year is
calculated as the market price of shares as at the close of
trading on the date the options were exercised after
deducting the price to exercise the option.
Further details regarding options granted to executives under the
Executive Share Plan are in Note 10 to the financial statements.
Options and rights over equity instruments
The movement during the reporting period in the number of options
over ordinary shares in Korvest Ltd held, directly, indirectly or
beneficially, by each KMP, including their related parties,
is as follows:
Held at
1 July
2015 IFRS
Granted as
compensation
Exercised
Lapsed
Held at
30 June
2016
IFRS
Held at
30 June
2016
ASX
Vested
during the
year
ASX
Vested and
exercised
during the
year ended
30 June 2016
Directors
A Kachellek
S McGregor
Executives
C Hartwig
S Evans
G Christie*
P Assaf
48,000
38,000
37,000
18,000
N/A
10,000
36,400
28,800
21,200
18,400
N/A
-
-
-
-
-
-
-
(24,000)
(19,000)
60,400
47,800
60,400
47,800
(13,000)
45,200
35,200
(36,400)
-
-
-
10,000
10,000
(5,000)
5,000
5,000
-
-
-
-
-
-
-
-
-
-
-
-
No options held by KMP are vested but not exercisable.
Held at
1 July
2014 IFRS
Granted as
compensation
Exercised
Lapsed
Held at
30 June
2015
IFRS
Held at
30 June
2015
ASX
Vested
during the
year
Directors
A Kachellek
S McGregor
Executives
C Hartwig
S Evans
P Assaf
62,895
48,925
47,925
20,470
5,000
24,000
(13,895)
19,000
(9,925)
14,000
9,000
5,000
(9,925)
(3,970)
-
(25,000)
(20,000)
(15,000)
(7,500)
-
48,000
38,000
37,000
18,000
10,000
48,000
38,000
27,000
18,000
10,000
-
-
-
-
-
ASX
Vested and
exercised
during the
year ended
30 June
2015
13,895
9,925
9,925
3,970
-
No options held by KMP are vested but not exercisable.
* Holding has been noted as N/A where the person was not a
member of KMP at that date. Transactions have only been
recorded where they occurred whilst the person was a
member of KMP.
18
19
KOVASXKOVASX
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2016
Remuneration Report — Audited (continued)
Movements in shares
The movement during the reporting period in the number of ordinary
shares in Korvest Ltd held, directly, indirectly or beneficially, by each
KMP, including their related parties, is as follows:
Held at
1 July 2015
Purchases
Allocated under
Employee/
Exec share plan
Allocated
under DRP
Held at
30 June 2016
Shares held
subject to
non-recourse
loans
Directors
G Billings
P Brodribb
S McGregor
A Kachellek
G Francis
G Hutchinson
Executives
C Hartwig
S Evans*
G Christie*
P Assaf
590
24,559
28,243
53,408
5,534
500
11,437
4,704
N/A
381
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
378
154
224
378
52
2,196
2,526
2,927
495
-
1,029
27
-
-
642
26,755
30,769
56,335
6,029
500
12,844
N/A
1,271
759
-
-
-
-
-
-
10,000
-
-
-
No shares were granted to KMP during the reporting period as
compensation other than those provided under the employee share
plan on the same terms and conditions as for all employees.
Held at
1 July 2014
Purchases
Allocated under
Employee/
Exec share plan
Held at
30 June 2015
Shares held
subject to
non-recourse
loans
Directors
P Stancliffe*
G Billings
P Brodribb
S McGregor
A Kachellek
G Francis
G Hutchinson*
Executives
C Hartwig
S Evans
P Assaf
5,435
590
24,559
18,318
38,498
1,684
N/A
1,305
527
174
-
-
-
-
1,015
3,850
500
-
-
-
-
-
-
9,925
13,895
-
-
10,132
4,177
207
No shares were granted to KMP during the reporting period as
compensation other than those provided under the employee share
plan on the same terms and conditions as for all employees.
*Shareholding has been noted as N/A where the person was not a
member of KMP at that date. Purchase and sale transactions have
only been recorded where they occurred whilst the person was a
member of KMP.
20
N/A
590
24,559
28,243
53,408
5,534
500
11,437
4,704
381
-
-
-
-
-
-
-
10,000
-
-
Analysis of bonuses included in remuneration
Executive bonuses are paid on the achievement of specified
performance targets. Those targets vary for each executive and
are aligned to each executive’s role and responsibilities. The targets
relate to financial, operational, strategic and safety measures.
Details of the vesting profile of the short-term incentive cash
bonuses awarded as remuneration to each director of the Company,
and to other key management personnel are detailed below.
Short-term incentive bonus
Maximum Possible STI
Included in remuneration $ (A)
% vested in year
% forfeited in year (B)
Directors
A Kachellek
S McGregor
Executives
C Hartwig
G Christie
P Assaf
132,098
40,943
99,498
35,000
68,260
62,502
2,000
59,700
23,800
-
47%
5%
60%
68%
0%
53%
95%
40%
32%
100%
(B) The amounts forfeited are due to the performance
criteria not being met in relation to the current
financial year.
Lead Auditor’s Independence Declaration
The lead auditor’s independence declaration is set out on page 62
and forms part of the Directors’ report for the financial year ended
30 June 2016.
Rounding Off
The Company is of a kind referred to in ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument 2016/191 and
in accordance with that Instrument, amounts in the Financial report
and Directors’ report have been rounded off to the nearest thousand
dollars, unless otherwise stated.
Corporate Governance
The Company’s Corporate Governance Statement can be found on
the Korvest website at
http://www.korvest.com.au/investors/corporate-governance/
Signed at Adelaide this Thursday 28th of July 2016 in accordance
with a resolution of the directors.
G A BILLINGS, Director
A H W KACHELLEK, Director
(A) Amounts included in remuneration for the financial
year represent the amount related to the financial year
based on the achievement of specified performance
criteria. The remuneration committee approved these
amounts on 28 July 2016.
Directors’ Interests
The relevant interest of each director over the shares and rights over
such instruments issued by the Company and other related bodies
corporate as notified by the directors to the Australian Securities
Exchange in accordance with S250G(1) of the Corporations Act
2001, at the date of this report is as follows:
Korvest Ltd
Ordinary Shares
Korvest Ltd
Performance Rights
Unvested
A Kachellek
P Brodribb
G Billings
S McGregor
G Francis
G Hutchinson
53,838
20,318
642
30,769
6,029
500
84,400
-
-
66,800
-
-
Non-Audit Services
During the year KPMG, the Group’s auditor, has performed certain
other services in addition to their statutory duties. The Board has
considered the non-audit services provided during the year by the
auditor and in accordance with written advice provided by resolution
of the Audit Committee, is satisfied that the provision of these
services did not compromise the auditor’s independence
requirements of the Corporations Act 2001 for the
following reasons:
• all non-audit services were subject to the corporate govern-
•
ance procedures adopted by the Group; and
the non-audit services provided do not undermine the general
principles relating to auditor independence as set out in APES
110 Code of Ethics for Professional Accountants, as they did
not involve reviewing or auditing the auditor’s own work, acting
in a management or decision making capacity for the Group,
acting as an advocate for the Group or jointly sharing risk and
rewards.
For details of non-audit services fees charged refer to Note 5 to the
financial statements.
21
KOVASXKOVASX
Financial Statements
FOR THE YEAR ENDED 30 JUNE 2016.
5 YEAR SUMMARY
FOR THE YEAR ENDED 30 JUNE 2016
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
KOV
2016
2015
2014
2013
2012
Sales revenue
Profit after tax
($’000)
54,981
63,025
73,756
61,723
72,322
($’000)
950
1,455
5,603
3,825
6,201
Depreciation/Amortisation
($’000)
1,716
1,642
1,774
1,652
1,542
Cash flow from operations
($’000)
7,432
5,115
4,228
7,524
8,681
Profit from ordinary activities
- As % of Shareholders’ Equity
- As % of Sales revenue
Dividend
- Total amount paid
- Per issued share
- Times covered by profit from ordinary activities
2.9%
1.7%
4.4%
2.3%
15.1%
7.6%
10.8%
6.2%
17.1%
8.6%
($’000)
2,328
21.0c
0.4
5,032
48.0c
0.3
12,830
146.0c
0.4
4,863
56.0c
0.8
3,299
38.0c
1.9
Earnings per share
8.9c
13.9
64.1c
44.0c
71.6c
Number of employees
193
225
242
217
259
Shareholders
- Number at year end
1,882
2,029
2,034
1,627
1,271
Net assets per issued ordinary share
Net tangible assets per issued ordinary share
Share price as at 30 June
$2.97
$2.97
$2.19
$3.13
$3.13
$3.55
$3.501
$3.332
$5.60
$4.01
$3.77
$5.80
$4.13
$4.13
$4.65
1Net assets per issued ordinary share figure was impacted by the issue of 1,607,000 new shares in June 2014 in relation to the Special
dividend and Dividend Reinvestment Plan. Had these not been issued, the figure would have been $4.14.
2Net tangible assets per issued ordinary share figure was impacted by the issue of 1,607,000 new shares in June 2014 in relation to Special
dividend and Dividend Reinvestment Plan. Had these not been issued, the figure would have been $3.94.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
NOTES TO THE FINANCIAL STATEMENTS
BASIS OF PREPARATION
RESULTS FOR THE YEAR
1.
2.
3.
4.
5.
6.
REVENUE AND OTHER INCOME
EXPENSES
NET FINANCE INCOME
EARNINGS PER SHARE
AUDITOR’S REMUNERATION
SEGMENT REPORTING
WORKING CAPITAL
7.
8.
9.
10.
11.
TRADE AND OTHER RECEIVABLES
INVENTORIES
TRADE AND OTHER PAYABLES
EMPLOYEE BENEFITS
PROVISIONS
TANGIBLE AND INTANGIBLE ASSETS
12.
13.
14.
15.
INTANGIBLE ASSETS
TANGIBLE ASSETS
IMPAIRMENT TESTING
COMMITMENTS FOR EXPENDITURE
CAPITAL STRUCTURE
16.
17.
18.
19.
TAXATION
CASH AND CASH EQUIVALENTS / (BANK OVERDRAFT)
FINANCIAL INSTRUMENTS
CAPITAL AND RESERVES
DIVIDENDS
20.
CURRENT AND DEFERRED TAXES
BUSINESS COMBINATIONS
21.
INVESTMENT IN SUBSIDIARIES
OTHER NOTES
22.
23.
24.
25.
KEY MANAGEMENT PERSONNEL
RELATED PARTY DISCLOSURES
PARENT ENTITY DISCLOSURES
SUBSEQUENT EVENTS
DIRECTORS’ DECLARATION
AUDIT REPORT
LEAD AUDITOR’S INDEPENDENCE DECLARATION
ASX ADDITIONAL INFORMATION
SHAREHOLDINGS (AS AT 26 JULY 2016)
VOTING RIGHTS
TWENTY LARGEST SHAREHOLDERS
OFFICES AND OFFICERS
26
27
28
29
30
30
32
32
32
33
34
34
34
36
36
36
37
37
41
42
42
43
46
46
47
47
48
50
52
53
53
56
56
57
57
57
57
58
59
60
62
64
64
64
65
65
24
25
KOVASXASX
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2016
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2016
In thousands of AUD
Continuing operations
Sales revenue
Other income
Expenses, excluding net finance costs
Profit before financing costs
Finance income
Finance expenses
Net finance income
Profit before income tax
Income tax expense
Profit from continuing operations
Profit for the year
Total comprehensive income for the period
Attributable to:
Equity holders of the Company
Total comprehensive income for the period
Earnings per share attributable to the ordinary equity holders of the Company:
Basic earnings per share from continuing operations
Diluted earnings per share from continuing operations
4
4
Note
2016
2015
1
1
2
3
3
54,981
63,025
10
-
54,991
63,025
(53,688)
(60,305)
1,303
2,720
42
(3)
39
41
(3)
38
1,342
2,758
In thousands of AUD
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Tax receivable
Total current assets
Property, plant and equipment
Intangible assets
Total non-current assets
Total assets
Liabilities
Bank overdrafts
20
(392)
(1,303)
Trade and other payables
950
950
950
950
950
Cents
8.9
8.9
1,455
1,455
1,455
1,455
1,455
Cents
13.9
13.9
Employee benefits
Provisions
Total current liabilities
Employee benefits
Deferred tax liability
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity attributable to equity holders of the Company
Total equity
Note
2015
2015
16
7
8
13
12
16
9
10
11
10
20
11
18
18
5,088
8,238
11,492
971
25,789
14,631
17
14,648
40,437
-
4,224
2,340
26
-
13,592
13,611
273
27,476
15,907
25
15,932
43,408
500
6,359
2,743
42
6,590
9,644
372
513
433
1,318
7,908
32,529
13,798
18,731
-
32,529
32,529
438
51
333
822
10,466
32,942
12,833
20,109
-
32,942
32,942
The notes on pages 30 to 58 are an integral part of these consolidated financial statements.
The notes on pages 30 to 58 are an integral part of these consolidated financial statements.
26
27
KOVASXKOVASX CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2016
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2016
In thousands of AUD
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Interest received
Income taxes paid
Net cash from operating activities
Note
2016
2015
65,592
73,394
(57,576)
(66,273)
8,016
7,121
3
39
(623)
16
7,432
38
(2,044)
5,115
287
(1,367)
(1,080)
-
-
-
(5,032)
(5,032)
(997)
497
(500)
Cash flows from investing activities
Proceeds from sale of property, plant and equipment and assets held for sale
Acquisition of property, plant and equipment and intangible assets
12, 13
Net cash from investing activities
Cash flows from financing activities
Repayment of borrowings
Proceeds from issue of share capital
Transaction costs related to issue of share capital
Dividends paid
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 July
47
(481)
(434)
-
-
(5)
(1,405)
(1,410)
5,588
(500)
Cash and cash equivalents / (bank overdrafts) at 30 June
16
5,088
In thousands of AUD
Balance at 1 July 2015
Total comprehensive income for the year
Profit
Total comprehensive income for the year
Transactions with owners of the Company
recognised directly in equity
Contributions by and distributions to owners of the
Company
Shares issued under the Share Plans
Issue of ordinary shares
Dividends to shareholders
Total contributions by and distributions to
owners of the Company
Transfer to profits reserve
Balance at 30 June 2016
Share
capital
Equity
compensation
reserve
Asset
revaluation
reserve
Profits
reserve
Retained
earnings
Total
12,833
211
3,585
16,313
-
950
950
32,942
950
950
-
-
60
905
-
965
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,798
211
3,585
14,935
950
(950)
Balance at 1 July 2014
12,764
343
3,585
19,890
Total comprehensive income for the year
Profit
Total comprehensive income for the year
Transactions with owners of the Company
recognised directly in equity
Contributions by and distributions to owners of the
Company
Shares issued under the Share Plans
Dividends to shareholders
Share options exercised
Total contributions by and distributions to
owners of the Company
Transfer to profits reserve
Balance at 30 June 2015
-
-
69
-
-
69
-
12,833
-
-
-
-
(132)
(132)
-
211
-
-
-
-
-
-
-
1,455
(1,455)
3,585
16,313
-
32,942
-
-
-
-
(2,328)
(2,328)
-
-
-
(5,032)
-
(5,032)
-
-
-
-
-
-
1,455
1,455
-
-
-
-
60
905
(2,328)
(1,363)
-
32,529
36,582
1,455
1,455
69
(5,032)
(132)
(5,095)
-
The notes on pages 30 to 58 are an integral part of these consolidated financial statements.
The notes on pages 30 to 58 are an integral part of these consolidated financial statements.
28
29
KOVASXKOVASX NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
Basis of preparation
Foreign Currency
Foreign currency transactions
Transactions in foreign currencies are translated to the functional
currencies of the Group at exchange rates at the dates of
transactions.
Monetary assets and liabilities denominated in foreign currencies are
translated into the functional currency at the exchange rate at the
reporting date. Non-monetary assets and liabilities that are
measured at fair value in a foreign currency are translated to the
functional currency at the exchange rate at the date that the fair
value was determined. Non-monetary assets and liabilities that are
measured based on historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction.
Foreign currency differences are generally recognised in
profit or loss.
Reporting Entity
Korvest Ltd (the ‘Company’) is a company domiciled in Australia.
The address of the Company’s registered office is 580 Prospect
Road, Kilburn SA 5084. The consolidated financial statements of
the Company as at and for the year ended 30 June 2016
comprise the Company and its subsidiaries (together referred to
as the ‘Group’ and individually as ‘Group entities’). The Group is a
for-profit entity and is primarily involved in manufacturing businesses
as detailed in the Segment Reporting (Note 6).
Basis of Accounting
Statement of compliance
The consolidated financial statements are general purpose financial
statements which have been prepared in accordance with Australian
Accounting Standards (AASBs) adopted by the Australian
Accounting Standards Board (AASB) and the Corporations Act
2001. The consolidated financial statements comply with
International Financial Reporting Standards (IFRSs) adopted by the
International Accounting Standards Board (IASB).
The consolidated financial statements were approved by the Board
of Directors on 28th July 2016.
Basis of measurement
The consolidated financial statements have been prepared on the
historical cost basis except for land and buildings, which are
measured at fair value.
Functional and presentation currency
These consolidated financial statements are presented in Australian
dollars, which is the Company’s functional currency.
Use of estimates and judgements
The preparation of the consolidated financial statements in
conformity with AASBs and IFRS requires management to make
judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ
from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised and in any future periods
affected.
Information about assumptions and estimation uncertainties that
have a significant risk of resulting in a material adjustment within the
next financial year are included in the following notes:
• Note 7 Trade and other receivables
• Note 8 Inventories
• Note 11 Provisions
• Note 13 Tangible assets
New standards and interpretations not yet adopted
A number of new standards, amendments to standards and
interpretations are effective for annual periods beginning after 1 July
2016, and have not been applied in preparing these consolidated
financial statements. Those which may be relevant to the Group are
set out below. The Group does not plan to adopt these standards
early, and continues to assess the impact on the entity.
New or amended standard
Summary of requirements
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with
Customers
IFRS 16 Leases
IFRS 9, published in July 2014, replaces
the existing guidance in IAS 39 Financial
instruments: Recognition and Measurement.
IFRS 9 includes revised guidance on the
classification and measurement of financial
instruments, including a new expected
credit loss model for calculating impairment
on financial assets, and the new general
hedge accounting requirements. It also
carries forward the guidance on recognition
and derecognition of financial instruments
from IAS 39.
IFRS 9 is effective for annual reporting
periods beginning on or after 1 January
2018, with early adoption permitted.
IFRS 15 establishes a comprehensive
framework for determining whether, how
much, and when revenue is recognised.
It replaces existing revenue recognition
guidance, including IAS 18 Revenue, IAS
11 Construction contracts and IFRIC 13
Customer Loyalty Programmes.
IFRS 15 is effective for annual reporting
periods beginning on or after 1 January
2018, with early adoption permitted.
IFRS 16 introduces a single lessee
accounting model and requires a lessee to
recognise assets and liabilities for all leases
with a term of more than 12 months, unless
the underlying asset is of low value. AASB
16 substantially carries forward the lessor
accounting requirements in IFRS 117
Leases.
IFRS 16 is effective for annual reporting
periods beginning on or after
1 January 2019.
Possible impact on consolidated
financial statements
The standard is not expected to have a
significant impact on the Group’s
consolidated financial statements.
The Group is assessing the potential impact
on its consolidated financial statements
resulting from application of IFRS 15.
The Group is assessing the potential impact
on its consolidated financial statements
resulting from application of IFRS 16.
30
31
KOVASXKOVASX
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
RESULTS FOR THE YEAR
This section focuses on the Group’s performance. Disclosures in
this section include analysis of the Group’s profit before tax by
reference to the activities performed by the Group and analysis
of key revenues and operating costs, segmental information, net
finance costs and earnings per share.
Underlying earnings before interest, tax (“EBIT”) and before
exceptional items remain the Group’s key profit indicator. This
reflects how the business is managed and how the Directors assess
the performance of the Group.
1. Revenue and other income
Accounting policies
Sales of goods
Revenue from the sale of goods in the ordinary course of business is
measured at the fair value of the consideration received or
receivable, net of returns, trade discounts and volume rebates.
Revenue is recognised when the significant risks and rewards of
ownership have been transferred to the customer, recovery of the
consideration is probable, the associated costs and possible return
of goods can be estimated reliably, there is no continuing
management involvement with the goods, and the amount of the
revenue can be measured reliably. Transfer of risks and rewards
vary according to the terms of individual sale contracts. Transfer
usually occurs when the product is received by the customer or
upon completion when the customer requests delayed delivery.
Goods and service tax
Revenues are recognised net of amount of goods and
services tax (GST).
In thousands of AUD
2016
2015
Sales revenue
Sales of goods
Other income
54,981
54,981
63,025
63,025
Profit on sale of fixed assets
10 -
10 -
2. Expenses
Accounting policies
Depreciation
Items of property, plant and equipment are depreciated from the
date that they are installed and are ready for use, or in respect of
internally constructed assets, from the date that the asset is
completed and ready for use.
Depreciation is calculated to write off the carrying value of property,
plant and equipment less the estimated residual values using the
straight-line basis over their estimated useful lives. Depreciation is
generally recognised in profit or loss, unless the amount is included
in the carrying amount of another asset. Leased assets are
depreciated over the shorter of the lease term and their useful lives
unless it is reasonably certain that the Group will obtain ownership
by the end of the lease term. Land is not depreciated.
The estimated useful lives for the current and comparative years of
significant items of property, plant and equipment are as follows:
• Buildings
• Plant and equipment
40 years
3-12 years
Depreciation methods, useful lives and residual values are reviewed
at each reporting date and adjusted if appropriate.
Amortisation
Except for goodwill, intangible assets are amortised on a
straight-line basis in profit or loss over their estimated useful lives,
from the date that they are available for use.
The estimated useful life of patents and trademarks for the current
and comparative years is 5 years.
Amortisation methods, useful lives and residual values are reviewed
at each reporting date and adjusted if appropriate.
Good and services tax
Expenses are recognised net of the amount of goods and services
tax (GST), except where the amount of GST incurred is not
recoverable from the taxation authority. In these circumstances,
the GST is recognised as part of the expense.
Expenses by nature
In thousands of AUD
Cost of goods sold
Sales, marketing and
warehousing expenses
Administration expenses
Distribution expenses
Goodwill impairment
Other expenses
Note
2016
2015
3. Net finance income
Accounting policies
34,037
36,515
12,585
14,769
3,494
2,876
3,572
4,253
-
-
1,721
171
53,688
60,305
Finance income
Finance income comprises interest income on funds invested.
Interest income is recognised as it accrues, using the effective
interest rate method.
Finance costs
Finance costs are comprised of interest expense on borrowings.
Borrowing costs that are not directly attributable to the acquisition,
construction or production of a qualifying asset are recognised in
profit or loss using the effective interest method.
In thousands of AUD
2016
2015
Interest income on bank
deposits held
Interest expense from bank
overdrafts
Net financing income
42
(3)
39
41
(3)
38
Profit before income tax has been
arrived at after charging / (crediting)
the following expenses:
Depreciation and amortisation:
Depreciation of buildings
Depreciation of plant
and equipment
Amortisation
13
13
12
39
36
1,659
1,582
18
24
Employee benefits:
Wages and salaries
Other associated personnel
expenses
Contributions to defined
contribution superannuation funds
Expense relating to annual and
long service leave
Termination benefits
Employee share bonus plan
expense
Executive share bonus plan
expense
Other:
Bad debts written off
Change in allowance for
impairment of receivables
Loss on disposal of property,
plant and equipment
Research and development
expense
13,330
16,466
2,099
2,161
1,314
1,493
1,052
1,452
624
140
61
69
-
(132)
7
7
247
(50)
-
4
(8)
65
34
64
32
33
KOVASXKOVASX
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
4. Earnings per share
5. Auditor’s remuneration
The Company presents basic and diluted earnings per share (EPS)
data for its ordinary shares. Basic EPS is calculated by dividing the
profit or loss attributable to ordinary shareholders of the Company
by the weighted average number of ordinary shares outstanding
during the period. Diluted EPS is determined by adjusting the profit
or loss attributable to ordinary shareholders and the weighted
average number of ordinary shares outstanding for the effects of
all dilutive potential ordinary shares, which comprise share options
granted to employees.
Basic and diluted earnings per share
The calculation of basic earnings per share at 30 June 2016 was
based on the net profit attributable to ordinary shareholders of
$949,674 (2015: $1,454,245) and a weighted average number of
ordinary shares outstanding during the financial year ended 30 June
2016 of 10,719,520 (2015: 10,484,041). The calculation of diluted
earnings per share at 30 June 2016 was based on the profit
attributable to ordinary shareholders of $949,674 (2015:
$1,454,245) and a weighted average number of ordinary shares
outstanding during the financial year ended 30 June 2016 of
10,719,520 (2015: 10,484,416).
Weighted average number of ordinary shares (basic)
In thousands of shares
2016
2015
Issued ordinary shares at
1 July
Effect of shares issued
during year
Weighted average
number of ordinary shares
at 30 June
10,507
10,427
213
57
10,720
10,484
Weighted average number of ordinary shares (diluted)
In thousands of shares
2016
2015
In AUD
2016
2015
Audit services
Auditors of the Group
(KPMG Australia) – audit
and review of
financial statements
Other services
Auditors of the Group
(KPMG Australia) – other
taxation, consulting and
due diligence services
6. Segment Reporting
87,350
87,350
93,300
93,300
191,557
191,557
9,900
9,900
Segment results that are reported to the Group’s Managing Director
(the chief operating decision maker) include items directly
attributable to a segment as well as those that can be allocated on
a reasonable basis. Unallocated items comprise mainly corporate
assets, head office expenses, and income tax assets and liabilities.
Business segments
The Group has two reportable segments. The business is organised
based on products and services. The following summary describes
the operations in each of the Company’s reportable segments.
Industrial Products
Industrial Products segment includes the manufacture of electrical
and cable support systems, steel fabrication and access systems.
It also includes the sale, hire and repair of high torque tools. It
includes the businesses trading under the EzyStrut, Power Step and
Titan Technologies names and formerly the Indax name.
Production
Production segment represents the Korvest Galvanising business,
which provides hot dip galvanising services.
Weighted average number
of ordinary shares (basic)
Effect of Executive
share plan
Weighted average
number of ordinary shares
at 30 June
10,720
10,484
-
-
Both reportable segments consist of the aggregation of a
number of operating segments in accordance with
AASB 8 Operating Segments.
10,720
10,484
Geographical segments
The Group operates in Australia.
Industrial Products
Production
Total
Business Segments
In thousands of AUD
External revenue
Depreciation and amortisation
Reportable segment profit/(loss) before tax
2016
2015
50,701
58,338
1,143
2,989
1,157
5,155
Reportable segment assets
21,470
29,561
Capital expenditure
182
692
Reconciliation of reportable segment profit, assets and other material items
In thousands of AUD
Profit
Total profit for reportable segments
Impairment of goodwill
Unallocated amounts – other corporate expenses (net of corporate income)
Profit before income tax
Assets
Total assets for reportable segments
Land and buildings
Cash and cash equivalents
Other unallocated amounts
Total assets
Capital Expenditure
Capital expenditure for reportable segments
Other corporate capital expenditure
Total capital expenditure
Other material items
Depreciation and amortisation for reportable segments
Unallocated amounts – corporate depreciation
Total
2016
4,280
278
(48)
3,519
102
2015
4,687
291
697
3,896
209
2016
2015
54,981
63,025
1,421
2,941
1,448
5,852
24,990
33,457
284
901
2016
2015
2,941
-
(1,599)
1,342
24,990
7,207
5,088
3,152
40,473
284
197
481
1,421
295
1,716
5,852
(1,721)
(1,373)
2,758
33,457
7,246
-
2,705
43,408
901
466
1,367
1,448
194
1,642
Basic and diluted earnings per share
Cents per share
Basic earnings per share
from continuing operations
Diluted earnings per share
from continuing operations
2016
8.9
8.9
2015
13.9
13.9
Customers
Revenue from one customer of the Group’s Industrial Products
segment represented $13,910,000 (2015: $13,029,000) of the
Group’s total revenues.
Information regarding the operations of each reportable segment is
included below in the manner reported to the chief operating
decision maker as defined in AASB 8. Performance is measured
based on segment profit before tax (PBT). Inter-segment
transactions are not recorded as revenue. Instead a cost allocation
relating to the transactions is made based on negotiated rates.
34
35
KOVASXKOVASX
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
WORKING CAPITAL
Working capital represents the assets and liabilities the Group
generates through its trading activity. The Group therefore defines
working capital as inventory, trade and other receivables, trade and
other payables and provisions.
Careful management of working capital ensures that the Group
can meet its trading and financing obligations within its ordinary
operating cycle.
This section provides further information regarding working capital
management and analysis of the elements of working capital.
7. Trade and other receivables
In thousands of AUD
2016
2015
Movement in allowance
for impairment
Balance at 1 July
Amounts written off against
allowance
Impairment loss recognised
Balance at 30 June
(627)
247
(187)
(527)
(562)
25
(90)
(627)
The impairment loss at 30 June 2016 relates to a number of
customers where an assessment has been made that the amounts
are likely to be uncollectable.
Accounting Policies
Trade receivables
Trade receivables are non-derivative financial instruments that are
initially recognised at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, they are
measured at amortised cost using the effective interest method,
less any identified impairment losses.
The Group sells to a variety of customers including wholesalers and
end users and does not have a concentration of credit risk in any
one sector.
Based on the Group’s monitoring of customer credit risk, the Group
believes that, except as indicated above, no impairment allowance
is necessary in respect of trade receivables not past due.
The fair values of trade and other receivables are estimated as the
present value of future cash flows, discounted at the market rate of
interest at the measurement date. Short-term receivables with no
stated interest rate are measured at the original invoice amount if the
effect of discounting is immaterial. Fair value is determined at initial
recognition and, for disclosure purposes, at each annual
reporting date.
Goods and services tax
Trade receivables are recognised inclusive of the amount of goods
and services tax (GST) which is payable to taxation authorities. The
net amount of GST payable to the taxation authority is included as
part of receivables or payables.
The ageing of the trade and other receivables at the reporting date
that were not impaired was as follows:
In thousands of AUD
Gross amounts
Not past due nor impaired
Past due 0-30 days
Past due 31-90 days
More than 91 days
2016
2015
5,710
2,054
474
-
8,238
7,902
3,125
2,354
211
13,592
2016
2015
8. Inventories
In thousands of AUD
Current
Trade receivables
Less: Allowance for
impairment
Net trade receivables
Other receivables and
prepayments
8,594
13,970
(567)
8,027
211
8,238
(627)
13,343
249
13,592
Accounting Policies
Inventories
Inventories are measured at the lower of cost and net realisable
value. The cost of inventories is based on average cost and
includes expenditure incurred in acquiring the inventories,
production and conversion costs, and other costs incurred in
bringing them to their existing location and condition. In the case
of manufactured inventories and work in progress, cost includes
an appropriate share of production overheads based on normal
operating capacity.
Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and
estimated costs necessary to make the sale.
The fair value of inventories acquired in a business combination
is determined based on its estimated selling price in the ordinary
course of business less the estimated costs of completion and
sale, and a reasonable profit margin based on the effort required to
complete and sell the inventories.
Impairment
Debtors are assessed at each reporting date to determine whether
there is any objective evidence that they are impaired. An allowance
for impairment is recognised if there is objective evidence of
impairment as a result of one or more events that occurred after
the initial recognition of the asset, and that the loss event(s) had an
impact on the estimated future cash flows of the asset that can be
estimated reliably.
Objective evidence that financial assets are impaired includes default
or delinquency by a debtor or indications that a debtor will enter
administration.
36
Goods and services tax
Non-financial assets such as inventories are recognised net of
amount of goods and services tax (GST), except where the amount
of GST incurred is not recoverable from taxation authority, it
is recognised as part of the cost of acquisition of the asset.
at the reporting date which have maturity dates approximating to
the terms of the Company’s obligations.
In thousands of AUD
2016
2015
Current
In thousands of AUD
Current
Raw materials and
consumables
Work in progress
Finished goods
2016
2015
Liability for annual leave
1,018
1,271
2,045
222
9,225
11,492
Liability for long
service leave
2,623
506
Non-Current
10,482
13,611
Liability for long
service leave
Total employee benefits
1,322
2,340
372
2,712
1,472
2,743
438
3,181
Finished goods are shown net of an impairment provision amounting
to $1,449,000 (2015: $891,000) arising from the likely inability to sell
a product range at or equal to the cost of inventory.
Accrued wages and salaries are included in accrued
expenses in note 9.
9. Trade and other payables
Accounting Policies
Payables
Trade and other accounts payable are non-derivative financial
instruments measured at cost.
Goods and services tax
Trade payables are recognised inclusive of the amount of goods and
services tax (GST) which is recoverable from taxation authorities.
The net amount of GST recoverable from the taxation authority is
included as part of receivables or payables.
In thousands of AUD
2016
2015
Current
Other trade payables and
accrued expenses
Non-trade payables and
accrued expenses
10. Employee benefits
2,074
3,139
2,150
4,224
3,220
6,359
Accounting Policies
Short-term benefits
Short-term employee benefit obligations are expensed as the related
service is provided. A liability is recognised for the amount expected
to be paid if the Group has a present legal or constructive
obligation to pay this amount as a result of past service provided by
the employee and the obligation can be estimated reliably.
Long-term benefits
The Group’s net obligation in respect of long-term service benefits
is the amount of future benefit that employees have earned in return
for their service in the current and prior periods. The obligation is
calculated using expected future increases in wage and salary rates,
including related on-costs and expected settlement dates, and is
discounted using the rates attached to high quality corporate bonds
Defined contribution superannuation funds
A defined contribution plan is a post-employment benefit plan under
which an entity pays fixed contributions into a separate entity and
will have no legal or constructive obligation to pay further amounts.
Obligations for contributions to defined contribution superannuation
funds are recognised as an employee benefit expense in profit or
loss in the periods during which related services are rendered by
employees. Prepaid contributions are recognised as an asset to
the extent that a cash refund or a reduction in future payments is
available.
Share based payments
The grant-date fair value of share-based payment awards
granted to employees is recognised as an employee expense, with
a corresponding increase in equity, over the period that the
employees become unconditionally entitled to the awards. The
amount recognised as an expense is adjusted to reflect the number
of awards for which the related service and non-market
performance conditions are expected to be met, such that the
amount ultimately recognised as an expense is based on the
number of awards that meet the related service and non-market
performance conditions at the vesting date. For share-based
payment awards with non-vesting conditions, the grant-date fair
value of the share-based payment is measured to reflect such
conditions and there is no true-up for differences between expected
and actual outcomes.
The fair value of the performance rights is measured using the
Black-Scholes formula. Measurement inputs include share price
on measurement date, exercise price of the instrument, expected
volatility (based on weighted average historic volatility of the
Company’s share prices, adjusted for changes expected due to
publicly available information), weighted average expected life of
the instruments, expected dividends, and the risk-free interest rate
(based on government bonds). Service and non-market
performance conditions attached to the transactions are not
taken into account in determining fair value.
37
KOVASXKOVASX NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
Measurement of fair values
The fair value of the rights granted through the KPRP was measured
based on the Black-Scholes formula. Expected volatility is
estimated by considering historic share price volatility over the
twelve months prior to grant date.
The inputs used in the measurement of the fair value at grant date of
the KPRP were as follows:
Fair value at grant date
Share price at grant date
Exercise price
Share price volatility
Dividend yield
Risk free interest rate
Life of options
Advised restriction period
(after vesting)
2016
$2.29
$3.05
-
28.0%
9.51%
2.90%
3 yrs
2015
$3.76
$5.22
-
32.0%
10.92%
3.34%
3 yrs
2 yrs
2 yrs
10. Employee benefits (continued)
Employee Share Bonus Plan
The Employee Share Bonus Plan allows Group employees to receive
shares of the Company. Shares are allotted to employees who have
served a qualifying period. Up to $1,000 per year in shares is
allotted to each qualifying employee. The fair value of shares issued
is recognised as an employee expense with a corresponding
increase in equity. The fair value of the shares granted is measured
using a present value method.
Executive Share Plan
The Executive Share Plan and the Performance Rights Plan allow
Group employees to receive shares of the Company. The fair value
of options or rights granted is recognised as an employee expense
with a corresponding increase in equity. The fair value is measured
at grant date and spread over the period during which the
employees become unconditionally entitled to the options/right.
Executive Share Plan (ESP) – discontinued
In March 2005, the Group established a share option plan that
entitled selected senior executives to acquire shares in the entity
subject to the successful achievement of performance targets
related to improvements in total shareholder returns over a two-year
option period. The plan was discontinued in 2010 with no new
issues made under the plan since that time. The plan remains in
operation for those employees granted options under that plan prior
to 2010.
The options were exercisable if the total shareholder return
(measured as share price growth plus dividends paid) over a
two-year period from the grant date exceeded ten per cent plus
CPI per annum. The shares issued pursuant to these options are
financed by an interest free loan from the Company repayable within
twenty years from the proceeds of dividends declared by the
Company. These loans are of a non-recourse nature.
For accounting purposes these 20-year loans are treated as part
of the options to purchase shares, until the loan is extinguished at
which point the shares are recognised.
The options were offered only to selected senior executives. Details
of the options are below:
Korvest Performance Rights Plan (KPRP)
In August 2011 the Company established a performance rights plan
to replace the ESP. In November 2011 the first performance rights
were granted under the plan and further issues have been granted
annually since. The plan is designed to provide long term incentives
to eligible senior employees of the Group and entitles them to
acquire shares in the Company, subject to the successful
achievement of performance hurdles related to earnings per share
(EPS).
Under the plan, eligible employees are offered Performance Rights,
which enables the employee to acquire one fully paid ordinary share
in the Company for no monetary consideration, once the
Performance Rights vest. The conditions attached to the
Performance Rights are measured over the three year period
commencing at the beginning of the financial year in which the
Performance Rights are granted. If the performance conditions at
the end of the three year period are met, in whole or in part, all or
the relevant percentage of the Performance Rights will vest.
Options subject to a non-recourse loan for the purchase of shares
are not recognised as exercised by International Financial Reporting
Standards, until the loan is extinguished at which point the shares
are recognised.
Grant date
March 2005
March 2009
November 2014
November 2015
Total share options / performance rights
Plan
ESP
ESP
KPRP
KPRP
Number of options /
rights initially granted
60,000
85,000
99,000
142,400
386,400
Number
outstanding at
balance date
Number
outstanding at
balance date
AASBs
15,000
10,000
85,000
114,000
224,000
ASX
-
-
85,000
114,000
199,000
38
39
KOVASXKOVASX NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
Rights
granted
Number of
options
/ rights at
beginning of
year
Lapsed
Forfeited
Exercised
Exercisable
at 30 June
Number
of options
at end of
year on
issue
10. Employee benefits (continued)
Reconciliation of outstanding share options/rights
Grant
date
Exercise
date
Expiry
date
Exercise price
2016
Previous Plan
Mar 05
Jan 07
Jan 27 $4.36
Mar 09
Jan 11
Jan 31 $3.79
Weighted average exercise price
Current Plan
Nov 13
Jul 16
Nov 14
Jul 17
Nov 15
Jul 18
Jun 16
Jun 17
Jun 18
-
-
-
15,000
10,000
25,000
$4.13
79,500
99,000
-
-
-
-
-
-
142,400
-
-
-
-
-
-
(70,500)
(9,000)
-
-
(14,000)
(28,400)
178,500
142,400
(70,500)
(51,400)
Weighted average exercise price
$Nil
$Nil
$Nil
$Nil
2015
Previous Plan
Mar 05
Jan 07
Jan 27
$4.36
Mar 09
Jan 11
Jan 31
$3.79
Weighted average exercise price
Current Plan
Nov 12
Jul 15
Nov 13
Jul 16
Nov 14
Jul 17
Jun 15
Jun 16
Jun 17
-
-
-
15,000
10,000
25,000
$4.13
73,000
79,500
-
-
-
-
-
-
-
99,000
-
-
-
-
(73,000)
-
-
152,500
99,000
(73,000)
-
-
-
-
-
-
-
-
Weighted average exercise price
$Nil
$Nil
$Nil
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,000
10,000
25,000
$4.13
-
85,000
114,000
199,000
$Nil
15,000
10,000
25,000
$4.13
-
79,500
99,000
178,500
$Nil
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11. Provisions
Accounting policies
A provision is recognised if, as a result of a past event, the Group
has a present legal or constructive obligation that can be estimated
reliably, and it is probable that an outflow of economic benefits will
be required to settle the obligation. Provisions are determined by
discounting risk adjusted future expected cash flows at a pre-tax
discount rate that reflects the time value of money. The unwinding
of the discount is recognised as a finance cost.
Warranties
A provision for warranties is recognised when the underlying
products or services are sold. The provision is based on historical
warranty data and a weighting of all possible outcomes against
their associated probabilities. Power Step assemblies are sold with
a warranty period of 12 months from installation date or 18 months
from invoice date, whichever occurs first. The provision is based on
estimates made from historical warranty data associated with similar
products. The entire warranty provision has been treated as current.
Site restoration and safety
A provision of $433,000 (2015: $333,000) is held in respect of the
Company’s obligation to rectify potential environmental damage at
the main site premises in Kilburn. The provision is reassessed
annually and is based on an estimate of the current day cost to
rectify the site. It has been assumed that the rectification would
occur in 15 years (2015: 10 years). Provisions are determined by
discounting risk adjusted future expected cash flows at a pre-tax
discount rate that reflects the time value of money. A discount rate
of 3.0% (2015: 6.5%) and an inflation rate of 2.0% (2015: 3%) have
been used for the calculation at 30 June 2016.
In thousands of AUD
2016
2015
Current
Warranties
Non-current
Site restoration
26
433
459
42
333
375
40
41
KOVASXKOVASX
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
TANGIBLE AND INTANGIBLE ASSETS
The following section shows the physical tangible and non-physical intangible assets used by the Group to operate the business, generating
revenues and profits. Intangible assets include patents, trademarks and goodwill.
13. Tangible assets
Accounting policies
This section explains the accounting policies applied and specific judgments and estimates made by the Directors in arriving at the net book
value of these assets
12. Intangible assets
Accounting policies
Goodwill
Goodwill that arises upon the acquisition of subsidiaries is presented with intangible assets.
Goodwill is measured at cost less accumulated impairment losses.
Other intangible assets
Other intangible assets that are required by the Group and have finite useful lives are measured at cost less accumulated amortisation and
any accumulated impairment losses.
Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific assets to which it
relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.
In thousands of AUD
Cost
Balance at 1 July 2014
Impairment
Acquisitions
Balance at 30 June 2015
Balance at 1 July 2015
Acquisitions
Balance at 30 June 2016
Accumulated amortisation and
impairment losses
Balance at 1 July 2014
Amortisation for the year
Balance at 30 June 2015
Balance at 1 July 2015
Amortisation for the year
Balance at 30 June 2016
Carrying amounts
At 1 July 2014
At 30 June 2015
At 30 June 2016
Goodwill
Patents and Trademarks
1,721
(1,721)
-
-
-
-
-
-
-
-
-
-
-
1,721
-
-
44
-
15
59
59
10
69
10
24
34
34
18
52
34
25
17
Total
1,765
(1,721)
15
59
59
10
69
10
24
34
34
18
52
1,755
25
17
Recognition and measurement
Items of plant and equipment are measured at cost less
accumulated depreciation and any accumulated impairment losses.
Land and buildings are measured at fair value.
Cost includes expenditure that is directly attributable to the
acquisition of the asset. The cost of self-constructed
assets includes the following:
• The cost of materials and direct labour;
• Any costs directly attributable to bringing the assets
to a working condition for their intended use;
• When the Group has an obligation to remove the assets or
restore the site, as estimate of the costs of dismantling and
removing the items and restoring the site on which they are
located; and
• Capitalised borrowing costs.
Purchased software that is integral to the functionality of the related
equipment is capitalised as part of that equipment.
When parts of an item of property, plant and equipment have
different useful lives, they are accounted for as separate items
(major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and
equipment (calculated as the difference between the net proceeds
from disposal and the carrying amount of the item) is recognised in
profit or loss.
Fair value measurement
The fair value of property, plant and equipment recognised as a
result of a business combination is the estimated amount for which
a property could be exchanged on the date of acquisition between
a willing buyer and a willing seller in an arm’s length transaction after
proper marketing wherein the parties had each acted
knowledgeably. The fair value of items of plant, equipment, fixtures
and fittings is based on the market approach and cost approaches
using quoted market prices for similar items when available and
depreciated replacement cost when appropriate. Depreciated
replacement cost reflects adjustments for physical deterioration as
well as functional and economic obsolescence. Land and buildings
are valued by an independent valuer every three years. In the
intervening years between independent valuations the directors
make an assessment of the value of the land and buildings having
regard for the most recent independent valuation.
Subsequent expenditure
Subsequent expenditure is capitalised only when it is probable that
the future economic benefits associated with the expenditure will
flow to the Group. On-going repairs and maintenance are expensed
as incurred.
Amortisation is recognised as an expense in Note 2.
42
43
KOVASXKOVASX NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
13. Tangible assets (continued)
In thousands of AUD
Cost
Balance at 1 July 2014
Acquisitions
Disposals
Transfer from assets held for sale
Transfer of equipment to inventory
Balance at 30 June 2015
Balance at 1 July 2015
Acquisitions
Disposals
Transfer of equipment to inventory
Balance at 30 June 2016
Accumulated depreciation and impairment losses
Balance at 1 July 2014
Depreciation charge for the year
Disposals
Transfer from assets held for sale
Transfer of equipment to inventory
Balance at 30 June 2015
Balance at 1 July 2015
Depreciation charge for the year
Disposals
Transfer of equipment to inventory
Balance at 30 June 2016
Carrying amounts
At 1 July 2014
At 30 June 2015
At 30 June 2016
Depreciation is recognised as an expense in Note 2.
Land and
buildings
(fair value)
7,080
202
-
-
-
Plant and equipment
(cost)
Total
18,408
1,150
(131)
581
(44)
25,488
1,352
(131)
5,819
(44)
7,282
19,964
27,246
7,282
19,964
27,246
-
-
-
471
(226)
(14)
471
(226)
(14)
7,282
20,195
27,477
-
36
-
-
-
36
36
39
-
-
75
9,576
1,582
(77)
225
(3)
9,576
1,618
(77)
225
(3)
11,303
11,339
11,303
11,339
1,659
(189)
(2)
1,698
(189)
(2)
12,771
12,846
7,080
7,246
7,207
8,832
8,661
7,424
15,912
15,907
14,631
Fair value hierarchy of land and buildings
At least every three years the directors obtain an independent
valuation to support the fair value of Land and Buildings.
This valuation is used by the directors as a guide in determining the
directors’ valuation for the Land and Buildings. An independent
valuation of Land and Buildings was carried out in March 2014 by
Mr Mark Klenke, AAPI MRICS FFIN of AON Valuation Services on
the basis of the open market value of the properties concerned in
their highest and best use and was used as a reference for
directors’ valuation as at 30 June 2016.
The carrying amount of the Land and Buildings at cost at 30 June
2016 if not revalued would be $1,163,449.
The following table shows a reconciliation from the opening
balances to the closing balances for Land and Buildings being
based on Level 3 fair values:
In thousands of AUD
Balance at 1 July 2014
Acquisitions
Depreciation charge for the year
Balance at 30 June 2015
Balance at 1 July 2015
Acquisitions
Depreciation charge for the year
Balance at 30 June 2016
7,080
202
(36)
7,246
7,246
-
(39)
7,207
Valuation technique and significant unobservable inputs
The following table shows the valuation technique used in
measuring the fair value of Land and Buildings, as well as the
significant unobservable inputs used.
Valuation technique
Significant unobservable inputs
Market yield - 9.5%
Potential rental rate - $56/m2
Land value for vacant land - $150/m2
Capitalised income approach: the valuation
model applies a yield to the property’s value
to assess its value less any required capital
expenditure. The yield applied to the
potential rental return from the property is
based on recent sales and has been
calculated by dividing the estimated rental
return from comparable sales to derive a
fair market sales price. Capitalised value
has been increased by value of a vacant
land as the property has below average
site coverage indicating further capacity for
development.
Inter-relationship between key
unobservable inputs and fair
value measurement
The estimated market value would
increase if:
• Market yields were higher
•
•
Potential rental return was higher
Land value was higher
44
45
KOVASXKOVASX NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
Following the impairment loss relating to the Power Step and Titan
Technologies businesses the recoverable amount is equal to the
carrying amount and accordingly an impairment test was not
performed at 30 June 2016.
Other CGU’s were not tested for impairment as there were no
impairment indicators at 30 June 2016 or 30 June 2015.
15. Commitments for expenditure
Operating leases
Operating lease payments are recognised as an expense on a
straight-line basis over the lease term. Lease incentives received are
recognised as an integral part of the total lease expense, over the
term of the lease.
Leases as lessee
At the end of the reporting period, the future minimum lease pay-
ments under non-cancellable operating leases are payable
as follows:
In thousands of AUD
Less than one year
Between one and five years
More than five years
2016
987
1,832
-
2,819
2015
838
1,580
-
2,418
The Group leases a number of warehouse and factory facilities
under operating leases. The leases typically run for a period of
five years, with an option to renew the lease after that date. Lease
payments are increased periodically to reflect market rentals. None
of the leases includes contingent rentals. Rentals are increased by
CPI or similar each year.
During the financial year ended 30 June 2016, $930,154 was
recognised as an expense in the Statement of profit or loss and
comprehensive income in respect of operating leases
(2015: $929,913).
14. Impairment testing
Accounting policies
The carrying amounts of the Group’s tangible and intangible assets
are reviewed at each reporting date to determine whether there
is any indication of impairment. If any such indication exists then
the asset’s recoverable amount is estimated. Goodwill is tested
annually for impairment. An impairment loss is recognised if the
carrying amount of an asset or cash-generating unit (CGU) exceeds
its recoverable amount.
The recoverable amount of an asset or CGU is the greater of its
value in use and its fair value less costs to sell. In assessing value in
use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the
asset or CGU. For impairment testing assets are grouped together
into the smallest group of assets that generate cash inflows from
continuing use that are largely independent of the cash inflows of
other assets or CGUs. Subject to an operating segment ceiling test,
CGUs to which goodwill has been allocated are aggregated so that
the level at which impairment testing is performed reflects the lowest
level at which goodwill is monitored for internal reporting purposes.
Goodwill acquired in a business combination is allocated to groups
of CGUs that are expected to benefit from the synergies of the
combination.
Impairment losses are recognised in profit or loss. Impairment
losses recognised in respect of CGUs are allocated first to reduce
the carrying amount of any goodwill allocated to the CGU (group of
CGUs), and then to reduce the carrying amount of the other assets
in the CGU (group of CGUs) on a pro rata basis.
Any impairment loss in respect of goodwill is not reversed. For other
assets, an impairment loss is reversed only to the extent that the
asset’s carrying amounts does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if
no impairment loss had been recognised.
Results
During the year ended 30 June 2015 the Group recognised an
impairment of goodwill in relation to the Power Step and
Titan Technologies businesses. The carrying amount of the cash
generating unit (CGU) was determined to be higher than its
recoverable amount and an impairment loss of $1,721,000 was
recognised. The impairment loss was allocated fully to goodwill
and reduced the goodwill to $nil. The amount has been separately
disclosed in Note 12.
The value in use was determined by discounting the future cash
flows expected to be generated from the continuing use of the unit
based on the following key assumptions:
14.6%
• Discount rate
• Terminal growth rate
3.0%
• Sales growth rate (average of next five years) 7.2%
The values assigned to the key assumptions represented
Management’s assessment of future trends in the industry and are
based on historical data from both internal and external sources.
CAPITAL STRUCTURE
This section outlines how the Group manages its capital structure,
including its balance sheet liquidity and access to capital markets.
The directors determine the appropriate capital structure of the
Group, specifically how much is realised from shareholders and
how much is borrowed from the financial institutions to finance the
Group’s activities now and in the future.
16. Cash and cash equivalents/(Bank overdraft)
Accounting policies
Cash and cash equivalents and Bank overdrafts comprise cash
balances and call deposits with maturities of three months or less
from the acquisition date that are subject to an insignificant risk
of changes in their fair value and are used by the Company in the
management of its short-term commitments.
In thousands of AUD
Cash in hand
Bank balances
Call deposits
Cash and cash equivalents / (Bank overdraft) in the statement of cash flows
The Group had an overdraft facility of $0.75m as at 30 June 2016.
Reconciliation of cash flows from operating activities
In thousands of AUD
Cash flows from operating activities
Profit for the period
Adjustment for:
Depreciation and amortisation
Impairment of trade receivables
Impairment of inventories
Impairment of goodwill
Increase in provision for site rectification
Disposal of property, plant and equipment including transfer to inventory
Equity-settled share-based payment expense / (reversal)
Changes in:
Trade and other receivables
Inventories
Trade and other payables
Deferred tax liabilities
Income taxes payable
Provisions and employee benefits
Net cash from operating activities
Goods and services tax
Cash flows are included in the Statement of cash flows on a gross
basis. The GST components of cash flows arising from investing
and financing activities which are recoverable from, or payable to,
the ATO are classified as operating cash flows.
2016
1
317
4,770
5,088
2015
1
(640)
139
(500)
950
1,455
1,716
1,642
196
558
-
100
2
60
62
-
1,721
-
34
(63)
3,582
4,851
5,151
1,561
(2,142)
462
(697)
(485)
4,052
(1,438)
(1,825)
231
(972)
216
7,432
5,115
46
47
KOVASXKOVASX
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
on the trade date, which is the date that the Group becomes a party
to the contractual provision of the instrument.
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or if it transfers the
rights to receive the contractual cash flows in a transaction in which
substantially all the risks and rewards of ownership of the financial
asset are transferred. Any interest in such transferred financial
assets that is created or retained by the Group is recognised as a
separate asset or liability.
Financial assets and liabilities are offset and the net amount
presented in the statement of financial position when, and only
when, the Group has a legal right to offset the amounts and intends
either to settle them on a net basis or to realise the asset and settle
the liability simultaneously.
The Group classifies non-derivative financial assets into the following
categories: financial assets at fair value through the profit or loss,
held to maturity financial assets, loans and receivables and
available-for-sale financial assets.
Non-derivative financial liabilities
The Group initially recognises financial liabilities on the trade date,
which is the date that the Group becomes a party to the contractual
provisions of the instrument.
The Group derecognises a financial liability when its contractual
obligations are discharged, cancelled or expire.
The Group classifies non-derivative financial liabilities into the other
financial liabilities category. Such financial liabilities are recognised
initially at fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these financial liabilities are
measured at amortised cost using the effective interest rate method.
Other financial liabilities comprise loans and other borrowings, bank
overdrafts, and trade and other payables.
Bank overdrafts that are repayable on demand and form an integral
part of the Group’s cash management are included as a component
of cash and cash equivalents for the statement of cash flows.
Other non-derivative financial liabilities are measured at fair value,
at initial recognition and for disclosure purposes, at each annual
reporting date. Fair value is calculated based on the present value
of future principal and interest cash flows, discounted at the market
rate of interest at the measurement date. For finance leases the
market rate of interest is determined by reference to similar lease
agreements.
17. Financial instruments
Accounting policies
A number of the Group’s accounting policies and disclosures require
measurement of fair values, for both financial and non-financial
assets and liabilities.
The Group applies IFRS 13 Fair Value Measurement, which
establishes a single framework for measuring fair value and making
disclosures about fair value measurements when such
measurements are required or permitted by other IFRSs. It unifies
the definition of fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. It replaces
and expands the disclosure requirements about fair value
measurements in other IFRSs. As a result, the Group has applied
additional disclosures in this regard (see Notes 6 and 17).
The Group has an established control framework with respect to
the measurement of fair values. The Finance Director has overall
responsibility for all significant fair value measurements, including
Level 3 fair values.
The Finance Director regularly reviews significant unobservable
inputs and valuation adjustments. If third party information is used
to measure fair values, the Finance Director assesses the evidence
obtained from the third parties to support the conclusion that such
valuations meet the requirements of AASB, including the level in the
fair value hierarchy in which such valuations should be classified.
Significant valuation issues are reported to the Audit Committee.
When measuring the fair value of an asset or liability, the Group uses
market observable data as far as possible. Fair values are
categorised into different levels in a fair value hierarchy based on
inputs used in the valuation techniques as follows:
• Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities
• Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly (i.e.
prices) or indirectly (i.e. derived from prices)
• Level 3: inputs for asset or liability that are not based on
observable market data (unobservable inputs).
If inputs used to measure fair value of an asset or liability might be
categorised in different levels of the fair value hierarchy, then the fair
value measurement is categorised in its entirety in the same level of
the fair value hierarchy as the lowest level input that is significant to
the entire measurement.
The Group recognises transfers between levels of the fair value
hierarchy at the end of the reporting period during which the change
has occurred.
Non-derivative financial assets
The Group initially recognises loans and receivables on the date
that they are originated. All other financial assets (including assets
designated at fair value through profit or loss) are recognised initially
48
Financial risk management
Overview
The Group has exposure to the following risks from their use of
financial instruments:
• credit risk;
•
• market risk.
liquidity risk; and
The board of directors has overall responsibility for the
establishment and oversight of the risk management framework.
Risk management policies are established to identify and analyse
the risks faced by the Group, to set appropriate risk limits and
controls, and to monitor risks and adherence to limits. The Audit
Committee oversees how management monitors compliance with
the risk management policies and procedures and reviews the
adequacy of the risk management framework in relation to the risks
faced by the Group.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from
customers.
Exposure to credit risk
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk at the
reporting date is summarised below:
Goods are sold subject to retention of title clauses, so that in the
event of non-payment the Group may have a secured claim. The
Group otherwise does not require collateral in respect of trade and
other receivables.
The Group establishes an allowance for impairment that represents
its estimate of incurred losses in respect of trade and other
receivables and investments. The main components of this
allowance are a specific loss component that relates to individually
significant exposures, and a collective loss component established
for groups of similar assets in respect of losses that have been
incurred but not yet identified. The collective loss allowance is
determined based on historical data of payment statistics for similar
financial assets.
The maximum exposure to credit risk for trade and other
receivables at the end of the reporting period by geographic
region was as follows:
In thousands of AUD
Carrying Values
Australia
South East Asia
Other
2016
2015
7,905
203
130
8,238
12,657
807
1,128
13,592
At 30 June 2016, the Group’s most significant customer, located in
Australia, accounted for $1,739,600 of the trade and other
receivables carrying amount (2015: $1,981,900).
In thousands of AUD
Cash and cash equivalents
Trade and other receivables
2016
5,088
8,238
2015
-
13,592
Impairment losses
The ageing of the trade and other receivables at the reporting date
that were not impaired is set out in note 7.
Cash and cash equivalents / (Bank overdraft)
The Group had a bank overdraft of $nil (2015: $500,000) at 30 June
2016, which represents its maximum credit exposure on these
assets. The cash and cash equivalents / bank overdrafts are held
with major Australian banks.
Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the
individual characteristics of each customer. However, management
also considers the demographics of the Group’s customer base,
including the default risk of the industry and country in which
customers operate, as these factors may have an influence on credit
risk, particularly in the current deteriorating
economic circumstances.
There is an established credit policy under which each new
customer is analysed individually for creditworthiness before the
Group’s standard payment and delivery terms and conditions are
offered. The Group’s review includes external ratings and in some
trade references when applicable and available. Purchase limits
are established for each customer, which represent the maximum
open amount without requiring further approval. These limits are
subject to on-going review. Customers that fail to meet the Group’s
benchmark creditworthiness may transact with the Group only on a
prepayment basis.
49
KOVASXKOVASX NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
Equity compensation reserve
The Equity compensation reserve represents the accumulated
expense recognised for share-based payments granted by the
Company to date. This reserve will be reversed against share
capital or retained earnings when the underlying shares vest in the
employee. No gain or loss is recognised in profit or loss on the
purchase, sale, issue or cancellation of the Company’s own
equity instruments.
In thousands of shares
2016
2015
Ordinary shares
On issue at 1 July
Issued under the Employee
Share Bonus Plan
Issued under the Executive
Share Plan
Issued under Dividend
Reinvestment Plan
On issue at 30 June
– fully paid
10,507
10,427
59
-
374
43
37
-
10,940
10,507
The holders of ordinary shares are entitled to receive dividends as
declared from time to time and are entitled to one vote per share at
meetings of the Company. All shares rank equally with regard to the
Company’s residual assets.
17. Financial instruments (continued)
Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in
meeting the obligations associated with its financial liabilities that are
settled by delivering cash or another financial asset. The Group’s
approach to managing liquidity is to ensure, as far as possible, that
it will always have sufficient liquidity to meet its liabilities when due,
under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Group’s reputation.
The Group monitors the level of expected cash inflows on trade and
other receivables together with expected cash outflows on trade
and other payables.
In addition, the Group maintains the following lines of credit:
• $0.75m overdraft facility that is unsecured.
The following are the remaining contractual maturities at the end of
the reporting period of financial liabilities, including estimated interest
payments. The amounts disclosed are the contractual undiscounted
cash flows (inflows shown as positive, outflows as negative).
In thousands of AUD
Non-derivative
financial liabilities
Bank overdraft
Trade and other payables
2016
2015
Carrying
amount
Contractual cash
flows
6 mths
or less
6 – 12
mnths
Carrying
amount
Contractual
cash flows
6 mths
or less
6 – 12
mnths
-
4,224
4,224
-
-
(4,224)
(4,224)
(4,224)
(4,224)
-
-
-
500
6,359
6,859
(500)
(500)
(6,359)
(6,359)
(6,859)
(6,859)
-
-
-
Market Risk
Market risk is the risk that changes in market prices, such as foreign
exchange rates, interest rates and equity prices will affect the
Group’s income or the value of its holdings of financial instruments.
The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while
optimising the return.
Capital management
The Group’s objectives when managing capital (net debt and equity)
are to safeguard its ability to continue as a going concern, so that
it can continue to provide returns for shareholders and benefits for
other stakeholders and to maintain an optimal capital structure to
reduce the cost of capital.
Currency risk
The Group is exposed to currency risk on sales and purchases
that are denominated in a currency other than the Australian dollar
(AUD). The currency in which these transactions primarily are de-
nominated is US dollars (USD).
Exposure to currency risk
The Group did not have any material exposure to foreign currency
risk and as a result movements in the Australian dollar against other
currencies will not have a material impact on the Group’s
profit or equity.
During the year the Group was not subject to externally imposed
capital requirements.
There were no changes in the Group’s approach to capital
management during the year.
Accounting classifications and fair values
The carrying amounts of the Group’s financial assets and liabilities
are considered to be a reasonable approximation of their fair values.
18. Capital and reserves
Accounting policies
Interest rate risk
The Group is not currently exposed in any material way to interest
rate risk. The risk is limited to the re-pricing of short term deposits
utilised for surplus funds. Such deposits generally re-price
approximately every 30 days.
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly
attributable to issue of ordinary shares and share options are
recognised as a deduction from equity, net of any tax effects.
Exposure to interest rate risk
Movements in interest rates will not have a material impact on the
Group’s profit or equity.
Asset revaluation reserve
The revaluation reserve relates to land and buildings measured at
fair value in accordance with Australian Accounting Standards.
Other market price risk
The Group has no material financial instrument exposure to other
market price risk as it is not exposed to either commodity price risk
or equity securities price risk. The Group does not enter into
commodity contracts other than to meet the Group’s expected
usage requirements.
Profits reserve
The profits reserve represents current year and accumulated profits
transferred to a reserve to preserve the characteristic as a profit and
not appropriate against prior year accumulated losses. Such profits
are available to enable payment of franked dividends in the future.
50
51
KOVASXKOVASX
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
system for the tax-consolidated group was 1 March 2013.
Current tax expense (income), deferred tax liabilities and deferred
tax assets arising from temporary differences of the members of the
tax-consolidated group are allocated to the Company and
recognised using a ‘group allocation’ approach. Deferred tax assets
and deferred tax liabilities are measured by reference to the carrying
amounts of the assets and liabilities in the Company’s balance sheet
and their tax values applying under tax consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising
from unused tax losses of a member of the tax consolidation group
are assumed by the head entity of the tax-consolidated group and
are recognised as amounts payable (receivable) to other entities
in the tax-consolidated group in conjunction with any tax funding
arrangement amounts. Any difference between these amounts
is recognised by the member of the tax consolidated group as an
equity contribution from or distribution to the head entity.
19. Dividends
Accounting policies
Dividends paid are classified as distribution of profit consistent
with the balance sheet classification of the related debt or equity
instrument.
Recognised amounts
2016
Interim 2016 ordinary
Final 2015 ordinary
Total amount
2015
Interim 2015 ordinary
Final 2014 ordinary
Total amount
Cents per share
Total amount
$’000
Percentage
Franked
Tax Rate
Date of payment
10.0
12.0
17.0
31.0
1,066
1,262
2,328
1,786
3,246
5,032
100%
100%
100%
100%
30%
11 March 2016
30% 4 September 2015
30%
13 March 2015
30% 5 September 2014
Unrecognised amounts
After the balance date the following dividends were proposed by the directors. The dividends have not been provided.
Cents per share
Total amount
$’000
Percentage
Franked
Tax Rate
Date of payment
2016
Final 2016 ordinary
10.0
1,094
100%
30% 9 September 2016
The financial effect of these dividends have not been brought to account in the financial statements for the financial year ended
30 June 2016 and will be recognised in subsequent financial reports.
Dividend Franking Credit
In thousands of AUD
30% franking credits available to shareholders of Korvest Ltd for subsequent financial years
2016
9,567
2015
9,939
The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:
(a) franking credits that will arise from the payment of the current tax liabilities;
(b) franking debits that will arise from the payment of dividends recognised as a liability at the year-end;
(c) franking credits that will arise from the receipt of dividends recognised as receivables by the tax consolidated
group at the year-end; and
(d) franking credits that the entity may be prevented from distributing in subsequent years.
The ability to utilise the franking credits is dependent upon being able to declare dividends. The impact on the dividend franking account of
dividends proposed after the reporting date but not recognised as a liability is to reduce it by $469,918 (2015: reduce by $541,662).
TAXATION
This section outlines the tax accounting policies, current and
deferred tax impacts, a reconciliation of profit before tax to the tax
charge and the movement in deferred tax assets and liabilities.
20. Current and deferred taxes
Accounting policies
Tax expense comprises current and deferred tax. Current and
deferred tax are recognised in profit or loss except to the extent that
it relates to a business combination, or items recognised directly in
equity or in other comprehensive income.
Current tax
Current tax is the expected tax payable or receivable on the taxable
income or loss for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in
respect of previous years. Current tax payable also includes any tax
liability arising from the declaration of dividends.
Deferred tax
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised for:
•
•
temporary differences on the initial recognition of assets or
liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable profit or loss
temporary differences related to investments in subsidiaries,
associates and jointly controlled entities to the extent that the
group is able to control the timing of the reversal of the
temporary differences and it is probable that they will not
reverse in the foreseeable future
•
taxable temporary differences arising on the initial recognition
of goodwill.
Deferred tax is measured at the tax rates that are expected to be
applied to temporary differences when they reverse, using tax rates
enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax liabilities and assets, and they
relate to taxes levied by the same tax authority on the same taxable
entity, or on different tax entities, but they intend to settle current tax
liabilities and assets on a net basis or their tax assets and liabilities
will be realised simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits
and deductible temporary differences, to the extent that it is
probable that future taxable profits will be available against which
they can be utilised. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
Tax consolidation
The Company and the wholly owned Australian subsidiaries set out
in Note 21 are part of a tax-consolidated group with Korvest Ltd as
the head entity. The implementation date of the tax consolidation
52
53
KOVASXKOVASX
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
Movement in deferred tax balances during the year
In thousands of AUD
Property, plant and equipment
Inventories
Provisions / accruals
Other items
Tax loss carried forward
In thousands of AUD
Property, plant and equipment
Inventories
Provisions / accruals
Other items
Tax loss carried forward
Recognised in profit
Balance
30 June 15
Relating to current
year
Adjustment
relating to prior year
(1,552)
(184)
1,119
316
250
(51)
(32)
148
(124)
(95)
-
(103)
(348)
-
-
(11)
-
(359)
Balance
30 June 16
(1,932)
(36)
995
210
250
(513)
Balance
30 June 14
Recognised in profit
Balance
30 June 15
(1,488)
110
1,053
255
250
180
(64)
(294)
66
61
-
(231)
(1,552)
(184)
1,119
316
250
(51)
20. Current and deferred taxes (continued)
Income tax recognised in the income statement
In thousands of AUD
Current tax expense
Current year
Adjustments for prior year
Deferred tax expense
Origination and reversal of temporary differences
-
-
relating to current year
relating to prior year
Total income tax expense in Statement of profit or loss and other comprehensive income
Numerical reconciliation between tax expense and pre-tax net profit
In thousands of AUD
Profit before tax
Income tax using the domestic corporation tax rate of 30% (2015:30%)
Non-deductible expenses – impairment of goodwill
Adjustments relating to prior years
Non-deductible expenses
Income tax expense on pre-tax net profit
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
2016
291
(361)
(70)
103
359
462
392
2016
1,342
403
-
(3)
(8)
392
Assets
Liabilities
Net
In thousands of AUD
Property, plant and equipment
Inventories
Provisions / accruals
Other items
Tax loss carried forward
Tax (assets) / liabilities
Set off of tax
Net tax (assets) / liabilities
2016
-
(435)
(995)
(212)
(250)
(1,892)
1,892
-
2015
-
(269)
(1,119)
(319)
(250)
(1,957)
1,957
-
2016
1,932
471
-
2
-
2,405
(1,892)
513
2015
1,552
453
-
3
-
2,008
(1,957)
51
2016
1,932
36
(995)
(210)
(250)
513
-
513
2015
1,381
-
1,381
(78)
-
(78)
1,303
2015
2,758
827
516
-
(40)
1,303
2015
1,552
184
(1,119)
(316)
(250)
51
-
51
54
55
KOVASXKOVASX NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
BUSINESS COMBINATIONS
This section outlines the Group’s structure and changes thereto.
of subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control
ceases.
21. Investment in subsidiaries
Accounting policies
Business Combinations
Business combinations are accounted for using the acquisition
method as at the acquisition date – i.e. when control is transferred
to the Group. Control is the power to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities. In assessing control, the Group takes into consideration
potential voting rights that currently are exercisable.
The Group measures goodwill at acquisition date as:
The fair value of the consideration transferred; plus
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income
and expenses arising from intra-group transactions, are eliminated in
preparing the consolidated financial statements.
Group entities
Parent entity
Korvest Ltd
Subsidiaries
Country of
Incorporation
Ownership Interest %
2016
2015
Australia
The recognised amount of any non-controlling interests in the
acquiree; plus
Power Step
(Australia) Pty Ltd
If the business combination is achieved in stages , the fair
value of the existing equity interest in the acquiree; less
The net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
Power Step
(Chile) SpA
Titan Technologies
(SE Asia) Pty Ltd
EzyStrut Pte. Ltd
Australia
100
100
Chile
100
100
Australia
Singapore
100
100
100
-
•
•
•
•
The consideration transferred does not include amounts related
to the settlement of pre-existing relationships. Such amounts are
generally recognised in profit or loss.
Transaction costs, other than those associated with the issue of
debt or equity securities, that the Group incurs in connection with a
business combination are expensed as incurred.
Any contingent consideration payable is recognised at fair value
at the acquisition date. If contingent consideration is classified as
equity, it is not remeasured and settlement is accounted for within
equity. Otherwise, subsequent changes to the fair value of the
contingent consideration are recognised in profit or loss.
The fair value of contingent consideration arising in a business
combination is calculated using the income approach based on the
expected payment amounts and their associated probabilities (i.e.
probability-weighted). Since the contingent consideration is
long-term in nature, it is discounted to present value.
There were no business combinations in the current or prior years.
Basis of consolidation
These financial statements are the financial statements for all the
entities that comprise the Group, being the Company and its
subsidiaries as defined in Accounting Standard AASB10
Consolidated financial statements.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls
an entity when it is exposed to, or has rights to, variable returns
from its investment with the entity and has the ability affect those
returns through its power over the entity. The financial statements
56
OTHER NOTES
22. Key management personnel
The following were key management personnel of the Company at
any time during the reporting period and unless otherwise indicated
were key management personnel for the entire period:
Non-executive Directors
• Graeme Billings (Chairman)
• Peter Brodribb (Retired 28 July 2016)
• Peter Stancliffe (Retired 18 September 2014)
• Gary Francis
• Gerard Hutchinson
Executive Directors
• Alexander Kachellek (Managing Director)
• Steven McGregor (Finance Director)
Executives
Apart from the details disclosed in this note, no director has entered
into a material contract with the Company since the end of the
previous year and there were no material contracts involving
directors’ interests existing at year-end.
Other key management personnel transactions with the Group
From time to time, key management personnel of the Group, or their
related entities, may purchase goods from the Group. These
purchases are on the same terms and conditions as those entered
into by other Group employees or customers and are trivial or
domestic in nature.
23. Related party disclosures
Identity of related parties
The Company has a related party relationship with its key
management personnel (see Note 22). Hills Limited was considered
a related party until 18 September 2014 by virtue of Peter Stancliffe
being a director of both companies. Hills Limited ceased to be a
related party on 18 September 2014 when Peter Stancliffe retired
as a Korvest Director. Transactions between the Company and Hills
Limited were carried out under normal commercial terms
and conditions.
• Chris Hartwig (Executive General Manager, Sales & Marketing)
• Gavin Christie (General Manager, Operations)
24. Parent entity disclosures
– became a member of KMP on 18 January 2016
• Paul Assaf (General Manager, Power Step &
Titan Technologies)
• Steven Evans (General Manager, Korvest Galvanisers)
– ceased as a member of KMP on 18 January 2016
As at, and throughout, the financial year ending 30 June 2016 the
parent entity of the Group was Korvest Ltd.
In thousands of AUD
2016
2015
Key management personnel compensation policy
Apart from the details disclosed in this note, no director has entered
into a material contract with the Company since the end of the
previous financial year and there were no material contracts
involving directors’ interests existing at year-end.
Key management personnel compensation
The key management personnel compensation comprised:
In AUD
2016
2015
Short-term employee
benefits
Post-employment benefits
Termination payments
Long term benefits
Equity compensation
benefits
1,720,511
1,641,386
157,002
115,646
4,080
158,022
-
47,362
-
(112, 984)
Share based payments
2,995
2,991
2,000,234
1,736,777
Individual directors and executives compensation disclosures
Information regarding individual directors’ and executives’
compensation and some equity instrument disclosure as permitted
by Corporations Regulations 2M.3 is provided in the remuneration
report section of the Directors’ report.
Result of parent entity
Profit for the period
Other comprehensive
income
Total comprehensive
income for the period
Financial position of
parent entity at year end
Current Assets
Total Assets
Current Liabilities
Total liabilities
Share capital
Reserves
Retained earnings
Total Equity
233
-
233
25,338
42,208
6,349
9,525
13,798
18,885
-
2,027
-
2,027
25,055
45,015
8,786
11,201
12,833
20,981
-
32,683
33,814
57
KOVASXKOVASX
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
DIRECTORS’ DECLARATION
FOR THE YEAR ENDED 30 JUNE 2016
24. Parent entity disclosures (continued)
Guarantees entered into by the Company
Bank guarantees given by the Company in favour of customers
amounted to $66,109 (2015: $124,899).
The Group’s bankers have provided an overdraft facility that is
interchangeable between the Australian Group entities.
The Company has guaranteed the subsidiaries’ debt
under this facility.
Contingent liabilities of the Company
The Company does not have any contingent liabilities other than the
guarantees disclosed above.
Parent entity capital commitments for acquisition of property,
plant and equipment
At 30 June 2016, the Company had no significant contractual
commitments for the acquisition of property, plant and equipment
(2015: $nil).
25. Subsequent events
There has not arisen between the end of the year and the date of
this report any item, transaction or event of a material nature likely,
in the opinion of the directors of the Company, to affect significantly
the operations of the Group in subsequent financial periods.
1. In the opinion of the Directors of Korvest Ltd (the Company):
(a) the consolidated financial statements and notes that are set out on pages 26 to 58 and the Remuneration report in
the Directors’ report, set out on pages 12 to 21, are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 30 June 2016 and of its performance for the financial
year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable.
2. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer
and chief financial officer for the financial year ended 30 June 2016.
3. The Directors draw attention to the Basis of preparation note on page 30, which includes a statement of compliance with International
Financial Reporting Standards.
Dated at Adelaide this 28th July 2016
Signed in accordance with resolution of directors:
Graeme Billings
Director
58
59
KOVASXKOVASX
AUDIT REPORT
FOR THE YEAR ENDED 30 JUNE 2016
AUDIT REPORT
FOR THE YEAR ENDED 30 JUNE 2016
60
61
KOVASXKOVASX LEAD AUDITOR’S INDEPENDENCE DECLARATION
FOR THE YEAR ENDED 30 JUNE 2016
62
KOVASX ASX ADDITIONAL INFORMATION
FOR THE YEAR ENDED 30 JUNE 2016
Additional information required by the Australian Securities
Exchange Limited Listing Rules and not disclosed elsewhere in this
report is set out below.
Shareholdings (as at 26 July 2016)
Substantial Shareholders
The number of shares held by substantial shareholders and their
associates are set out below:
Shareholder
Perpetual Limited
Colonial First State
Asset Management
(Australia) Limited
11.12%
10.52%
Number
1,218,843
1,150,462
Donald Cant Pty Ltd
6.2%
677,009
Voting Rights
Ordinary Shares
Refer to note 18 in the financial statements.
Options
Refer to note 10 in the financial statements.
Distribution of equity security holders
ASX ADDITIONAL INFORMATION
FOR THE YEAR ENDED 30 JUNE 2016
(continued)
Twenty largest shareholders
Name
Number of ordinary Shares held
Percentage of capital held
RBC Investor Services Australia Nominees Pty Ltd
Citicorp Nominees Pty Limited
Donald Cant Pty Ltd
J P Morgan Nominees Australia Limited
De Bruin Securities Pty Ltd
Brazil Farming Pty Ltd
Angueline Capital Pty Limited
Brazil Farming Pty Ltd
South Hong Nominees Pty Ltd
Keiser Investments Pty Ltd
Gotterdamerung Pty Limited
Allegro Two Super Fund Pty Ltd
Bourgeoisie Calypso Pty Ltd
Mr William Francis Cannon
Mrs Helen Elizabeth Rollinson
Mr John Frederick Bligh
Rathvale Pty Limited
1,221,143
1,175,129
677,009
356,982
348,638
227,906
195,000
119,745
109,738
87,919
84,327
70,322
65,000
64,213
64,061
60,720
56,758
54,644
50,000
50,000
11.14
10.72
6.17
3.26
3.18
2.08
1.78
1.09
1.00
0.80
0.77
0.64
0.59
0.59
0.58
0.55
0.52
0.50
0.46
0.46
5,139,254
46.87
Number of Equity Security Holders
Mr Geoffrey Neil Huddleston + Mrs Raelene Jane Huddleston
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Total Holders
847
705
188
133
9
1,882
Units
335,441
1,778,954
1,382,347
3,043,414
4,424,609
10,964,765
% Issued Capital
Fosterton Holdings Pty Limited
3.06
16.22
12.61
27.76
40.35
100.00
Mr Francis Stephen Rudolph Sullivan
Offices and officers
Company Secretary
Steven John William McGregor BA(Acc), CA, AGIA, ACIS
The number of shareholders holding less than a marketable parcel
of ordinary shares is 368.
Securities Exchange
The Company is listed on the Australian Securities Exchange.
The Home exchange is Adelaide.
Other information
Korvest Ltd, incorporated and domiciled in Australia, is a publicly
listed company limited by shares.
On Market Buy Back
There is no current on-market buy back.
Principal Registered Office
Korvest Ltd
580 Prospect Road
Kilburn, South Australia, 5084
Ph: (08) 8360 4500
Fax: (08) 8360 4599
Locations of Share Registry
Adelaide
Computershare Investor Services Pty Ltd
Level 5
115 Grenfell Street
Adelaide, South Australia, 5000
Ph: (08) 8236 2300
Fax: (08) 8236 2305
64
65
KOVASXKOVASX