2018
KORVEST
ANNUAL
REPORT
KORVEST LTD:
A MARKET LEADING INFRASTRUCTURE PROVIDER
Since 1970, Korvest Ltd has grown to become Australia’s largest manufacturer and supplier of cable and pipe
support systems trading as EzyStrut. EzyStrut produces a range of standard, customised and innovative products.
Queensland based Power Step and Titan Technologies design and assemble access systems for large mobile
equipment as well as bolting solutions. Korvest Galvanisers operates a hot dip galvanising business in South
Australia servicing a range of local and national customers.
Korvest’s workforce of around 180 employees is multi-skilled, and lead by a central management team.
The EzyStrut manufacturing plant and national distribution centre are in Adelaide servicing sales offices and
warehouses in Adelaide, Melbourne, Sydney, Brisbane and Perth, and distributors in Townsville and Hobart.
AUSTRALIA’S LEADING RANGE
OF CABLE AND PIPE SUPPORT
SYSTEMS
SAFETY ACCESS SYSTEMS FOR
ALL LARGE MOBILE EQUIPMENT
www.ezystrut.com.au
www.powerstep.com.au
QUICK TURNAROUND GALVANISING
OF THE LARGEST, SMALLEST, AND
MOST COMPLEX CONSTRUCTION
INFRASTRUCTURE
SUPERIOR AND COMPLETE
BOLTING SOLUTIONS FOR ANY
INDUSTRY
www.korvestgalvanisers.com.au
www.titantools.com.au
2
TABLE OF
CONTENTS
4 DIRECTORS’ REPORT
8 REMUNERATION REPORT -
AUDITED
18 5 YEAR SUMMARY
19 FINANCIAL STATEMENTS
56 ASX ADDITIONAL
INFORMATION
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Annual Report, 30 June 2018 2
Korvest Ltd
ABN: 20 007 698 106
3
DIRECTORS’ REPORT
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 2018 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
Chairman
BCom, FCA, MAICD
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.
Director G.U.D. Holdings Limited
Director Clover Corporation Limited
Chairman Azure Healthcare Ltd
Director DomaCom Ltd
Director Escala Partners Ltd
Age 62
Chris Hartwig
Managing Director
BA(Acc), MAICD
Gerard Hutchinson
Independent
Non-Executive Director
Andrew Stobart
Independent
Non-Executive Director
MBA, MBL, MSc(IS), BEc,
MA (Research), FCA, FAICD, FAIM
B. Eng (Hons), Grad Dip Bus Admin,
GAICD
A Director since November 2014
Chairman of Audit Committee
Mr Hutchinson has held roles at Chief
Financial Officer and Managing Director
level in a range of large businesses. He
is currently Group Chief Financial Officer
of a multinational facilities management
business.
Age 50
Appointed 1 August 2016
Executive Chairman Nexans Olex
Australia & New Zealand
Age 63
Steven McGregor
Finance Director
BA(Acc), CA, AGIA, ACIS
Gary Francis
Independent
Non-Executive Director
Company Secretary since April 2008
Appointed as Finance Director
1 January 2009
BSc. Hon. (Civil), MAICD
Age 46
A Director since 28 February 2018
A Director since February 2014
Chairman of Remuneration Committee
Mr Hartwig has held a number of
senior roles in the steel and electrical
manufacturing industries.
Mr Francis has worked in the
construction industry at Senior Manager
or Director level in Australia and Asia.
Director Harness Racing SA Limited
Director ZKP Group Ltd
Age 47
Age 63
Alexander Kachellek
Former Managing Director
BSc.CEng MIET FAICD
A Director since June 2007
Retired 30 September 2017
Age 65
4
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.
RETIREMENT AND RE-ELECTIONS
In accordance with the Constitution, Gerard Hutchinson retires from the Board at the forthcoming Annual General Meeting on 24
October 2018 and offers himself for re-election.
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
Mr G Billings
Mr G Francis
Mr G Hutchinson
Mr A Stobart
Mr C Hartwig
Mr S McGregor
Mr A Kachellek
BOARD
MEETINGS
AUDIT COMMITTEE
MEETINGS
REMUNERATION
COMMITTEE MEETINGS
A
14
13
14
14
4
14
2
B
14
14
14
14
4
14
4
A
4
4
4
4
-
-
-
B
4
4
4
4
-
-
-
A
3
3
3
2
-
-
-
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 $57.0m, up 27.3% on the previous year. The Group recorded a
profit after tax of $1.4m compared to a loss after tax of $1.6m in the previous year.
The FY18 result is a significant improvement on the prior year result, due to an increase in project work and day-to-day activity levels.
Gross margins recovered after sell price increases were successfully implemented to counteract the rising cost of steel, zinc and
energy.
DIVIDENDS
The directors announced a fully franked final dividend of 7.0 cents per share (2017: 3.0 cents per share) and 5.0 cents per share at the
half year. The Dividend Reinvestment Plan (DRP) will be suspended for the final dividend. The dividend will be paid on 7 September
2018 with a record date of 24 August 2018.
A summary of dividends paid or declared by the Company to members since the end of the previous financial year were:
CENTS
PER SHARE
TOTAL AMOUNT
$’000
FRANKED/ UNFRANKED
DATE OF PAYMENT
Declared and paid during the year 2018
Interim 2018 ordinary
Final 2017 ordinary
Total amount
5.0
3.0
556
333
889
Fully franked
9 March 2018
Fully franked
8 September 2017
5
DIRECTORS’ REPORT DIRECTORS’ REPORT (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2018
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
7.0
781
781
Fully franked
7 September 2018
The financial effect of these dividends has not been brought to account in the financial statements for the year ended 30 June 2018
and will be recognised in subsequent financial reports.
Dividends have been dealt within the financial report as:
Dividends
Dividends subsequent to 30 June 2018
Note
19
19
TOTAL AMOUNT
$’000
889
781
PRINCIPAL ACTIVITIES, STRATEGY AND FUTURE PERFORMANCE
The principal 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 businesses
and the Production Group which includes the Korvest Galvanisers business.
Korvest’s businesses service a number of major markets including infrastructure, commercial, utilities, mining, food processing, oil &
gas, power stations, health and industrial. By servicing this broad range of industries Korvest has the opportunity to capitalise on the
relative movement in the activity of these sectors.
The current and forecast activity levels in the infrastructure sector are positive. There are many large road and rail projects being
constructed over the next few years which should provide Korvest with encouraging opportunities during that period. In addition, there
are signs of improved levels of investment in the mining and resources sector which should also provide opportunities for the Company.
Korvest has a long history of paying franked dividends. The target dividend payout ratio range is 65-90% of after tax profits.
REVIEW OF OPERATIONS
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 FY18 activity levels grew in the markets serviced by
EzyStrut. The increased activity was in the day-to-day and small project market as well as in major projects. NSW achieved the most
significant growth as a result of a large infrastructure project however strong growth was recorded in almost all states. Major project
work is expected to increase in FY19 as a result of work already secured however the timing of supply will be dependent on customers’
construction schedules. Revenue growth was also achieved following a price rise on 1 August 2017. The price rise was in response to
the increasing cost of raw materials and energy.
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. These businesses entered the year with a lower cost base and the
combination of this, and increased activity in the mining sector, resulted in their best financial result under Korvest ownership.
Production
In the Production group, the Galvanising business volumes improved significantly with growth in both external and internal work.
Galvanising revenue grew by 18% through a combination of volume and price increases. The price increases were necessary due
to increases in zinc and energy costs. The weighted average cost of zinc in FY18 was 13% higher than in FY17 and energy costs
increased by $145,000 in FY18.
6
Due to the increased EzyStrut activity the internal tonnes processed through the galvanising plant were 46% higher than the prior year.
This volume assists with overhead recovery and therefore was a strong contributor to the improved Production result.
Risk
The Board and Management periodically review and update an Enterprise Risk Register that identifies and assesses 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.
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 a high
level of plant reliability and low down time.
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 2018, 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 2018.
LIKELY DEVELOPMENTS
The key focus for the next financial year will be to capitalise on the significant infrastructure pipeline in the domestic market as well as the
improving day to day market. The drive to ensure that both production costs and external sourcing costs are minimised will remain.
Working capital management will continue to play a key role with an emphasis on inventory reduction and optimisation.
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.
7
DIRECTORS’ REPORT REMUNERATION REPORT AUDITED
Principles of compensation
Remuneration is referred to as compensation throughout this report.
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.
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 18.
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, 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 aimed at achieving strategic outcomes. The financial
objectives relate to earnings before interest and tax (EBIT) for various parts of the business depending on the KMP.
The table below summarises the nature and weighting of the KPIs included in the STIs.
During the financial year Chris Hartwig transitioned from Executive General Manager EzyStrut to Managing Director. As a result his
performance was measured against different KPIs for each role.
CHRIS HARTWIG
MANAGING DIRECTOR
EXECUTIVE GENERAL MANAGER
EZYSTRUT
OTHER KMP*
Financial performance (40%)
Financial performance (65%)
Financial performance
Group reorganisation (30%)
Working Capital (35%)
Operational performance
Cost reduction (30%)
Working Capital
Group reorganisation
Cost reductions
*Each KMP have different KPIs and weightings. Some individual’s STI structures do not include all KPI categories listed.
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 hurdles. 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.
8
For performance rights issued during the year two performance hurdles were applied. Half of the rights issued will be tested against
each of the two performance hurdles. The first 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 EPS which was calculated as the average of the statutory EPS for the FY14, FY15
and FY16 years as the Board considers that this represents an appropriate EPS hurdle. 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 YEAR VESTING PERIOD
% OF RIGHTS THAT VEST
Less than 5%
5%
Between 5% - 15%
15% or greater
Nil
25%
Pro rata between 25% – 100%
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 second performance hurdle relates to Relative Total Shareholder Return (RTSR). The RTSR is a ranking of Korvest’s total
shareholder return compared to a comparative group of 20 companies over the three year performance period. Total shareholder return
is calculated as the growth in share price plus dividends and any capital returns to shareholders to produce the total return to each
shareholder expressed as a percentage. The comparator group of companies was selected by the Board as a group that has a spread
and size of operations similar to Korvest and also are impacted by economic and cyclical factors in a manner similar to Korvest.
At the end of the three year performance period, Korvest’s performance will be assessed against the comparator group and the % of
rights that will vest will be determined in accordance with the following table.
KORVEST’S TSR AGAINST TSR OF THE COMPARATOR GROUP
% OF RIGHTS THAT VEST
Below the 51st percentile
At the 51st percentile
Nil
50%
Above the 51st percentile but below the 75th percentile
Between 50% and 100% using a straight line analysis
At or above the 75th percentile
100%
Notwithstanding Korvest’s performance relative to the comparator group, no performance rights will vest if Korvest’s TSR over the
performance period is less than zero.
In addition to the performance measures, there is also a service condition whereby unvested performance rights will lapse if the holder
ceases employment with the Group apart from in some specific circumstances such as death or permanent disability.
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
No remuneration consultants were used during the year.
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 following base fees became effective on 1 July 2017 and were applied for the entirety of the financial year ended 30 June 2018:
Chairman
Director
$128,088
$64,050
The Chairman of a Board Committee receives a further
$10,674 p.a.
Superannuation is added to these fees where appropriate.
Non-executive directors do not receive performance-related compensation.
9
DIRECTORS’ REPORT
REMUNERATION REPORT - AUDITED (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2018
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)
G Francis
Non-executive (Director)
G Hutchinson
Non-executive (Director)
A Stobart (appointed 1 August 2016)
Non-executive (Director)
C Hartwig 1
Executive (Managing Director)
S McGregor
Executive (Finance Director)
A Kachellek (retired 30 September 2017)
Executive (Former Managing Director)
EXECUTIVES/OTHER KMP
S Taubitz (became KMP 1 March 2018) 2
General Manager Sales
G Christie
General Manager Operations
P Assaf
General Manager Power Step &
Titan Technologies
SHORT TERM
POST EMPLOYMENT
SHARE BASED PAYMENTS
SALARY & FEES
$
BONUS
$
SUPERANNUATION BENEFITS
$
OTHER LONG TERM
TERMINATION
– LONG SERVICE LEAVE
PAYMENT
$ *
$**
SHARES
$
OPTIONS & RIGHTS
$
PROPORTION OF
REMUNERATION
PERFORMANCE RELATED %
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
128,088
125,454
81,816
80,136
74,724
73,182
64,050
57,500
293,150
270,903
285,533
277,800
80,054
313,635
-
-
-
-
-
-
-
-
48,404
-
10,636
-
-
-
61,833
19,633
-
183,780
180,000
220,842
216,300
-
2,343
-
11,042
-
12,168
11,918
-
-
7,099
6,952
6,085
5,462
25,199
34,533
25,046
26,581
25,351
35,733
5,874
-
17,459
19,361
20,980
20,549
-
-
-
-
-
-
-
-
9,539
(1,898)
10,193
10,265
(93,334)
11,877
250
-
6,468
15,712
5,229
4,670
247,680
-
-
-
-
-
-
-
-
-
-
-
-
-
-
499
998
998
998
998
998
-
-
-
-
-
-
-
-
-
-
-
-
-
9,143
3,450
10,233
4,275
(4,575)
5,738
1,875
TOTAL
$
140,256
137,372
81,816
80,136
81,823
80,134
70,135
62,962
385,934
307,986
341,641
318,921
255,176
365,820
87,590
-
216,786
217,946
259,091
242,517
-
-
-
-
-
-
-
14.9
1.1
6.1
1.3
(1.8)
1.3
8.8
-
3.7
0.9
4.3
-
* 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.
** A Kachellek’s termination payment comprised $87,570 of accrued leave entitlements and $160,110 in lieu of notice.
1 C Hartwig was KMP for the entire year. From 1 July 2017 to 28 February 2018 he was Executive General Manager EzyStrut. From 4
September 2017 to 28 February 2018 he was also acting CEO. From 1 March 2018 he was Managing Director.
2 S Taubitz was appointed as General Manager Sales EzyStrut on 1 March 2018. Salary and superannuation benefits disclosed relate
only to the period that he was part of KMP. The bonus and long service leave values are full year values and therefore also include the
period when he was in his role as State Manager – Victoria and not KMP. As the bonus payment relates to a full year the proportion of
performance related remuneration has been calculated by annualising the salary and superannuation components.
The proportion of performance related remuneration is bonuses and share based payments divided by total remuneration.
10
NAME
DIRECTORS
G Billings
Non-executive (Chairman)
G Francis
Non-executive (Director)
G Hutchinson
Non-executive (Director)
A Stobart (appointed 1 August 2016)
Non-executive (Director)
C Hartwig 1
Executive (Managing Director)
S McGregor
Executive (Finance Director)
A Kachellek (retired 30 September 2017)
Executive (Former Managing Director)
EXECUTIVES/OTHER KMP
S Taubitz (became KMP 1 March 2018) 2
General Manager Sales
General Manager Operations
G Christie
P Assaf
General Manager Power Step &
Titan Technologies
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
128,088
125,454
81,816
80,136
74,724
73,182
64,050
57,500
293,150
270,903
285,533
277,800
80,054
313,635
-
183,780
180,000
220,842
216,300
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
48,404
10,636
2,343
11,042
61,833
19,633
12,168
11,918
-
-
7,099
6,952
6,085
5,462
25,199
34,533
25,046
26,581
25,351
35,733
5,874
-
17,459
19,361
20,980
20,549
SHORT TERM
POST EMPLOYMENT
SHARE BASED PAYMENTS
SALARY & FEES
$
BONUS
$
SUPERANNUATION BENEFITS
$
OTHER LONG TERM
– LONG SERVICE LEAVE
$ *
TERMINATION
PAYMENT
$**
SHARES
$
OPTIONS & RIGHTS
$
-
-
-
-
-
-
-
-
9,539
(1,898)
10,193
10,265
(93,334)
11,877
250
-
6,468
15,712
5,229
4,670
247,680
-
-
-
-
-
-
-
-
499
998
-
-
-
-
-
-
998
998
998
998
-
-
-
-
-
-
-
-
9,143
3,450
10,233
4,275
(4,575)
-
-
-
5,738
1,875
-
-
TOTAL
$
140,256
137,372
81,816
80,136
81,823
80,134
70,135
62,962
385,934
307,986
341,641
318,921
255,176
365,820
87,590
-
216,786
217,946
259,091
242,517
PROPORTION OF
REMUNERATION
PERFORMANCE RELATED %
-
-
-
-
-
-
-
14.9
1.1
6.1
1.3
(1.8)
1.3
8.8
-
3.7
0.9
4.3
-
11
DIRECTORS’ REPORT
REMUNERATION REPORT - AUDITED (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2018
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
DIRECTORS
C Hartwig
S McGregor
EXECUTIVES
G Christie
28,000
29,300
19,000
GRANT DATE
1 Nov 2017
1 Nov 2017
FAIR VALUE PER RIGHT AT
GRANT DATE ($)
EXPIRY DATE
$1.84/$1.22
$1.84/$1.22
30 June 2020
30 June 2020
1 Nov 2017
$1.84/$1.22
30 June 2020
Half of the performance rights issued to each KMP will be tested against an EPS hurdle with the other half being tested against a
Relative Total Shareholder Return (RTSR) hurdle. The fair value of the EPS hurdle rights is $1.84. The fair value of the RTSR hurdle
rights is $1.22.
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
criteria are included in the long-term incentives discussion on page 9.
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.
12
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:
OPTIONS/RIGHTS GRANTED
NUMBER
DATE
% VESTED IN
CURRENT YEAR
% FORFEITED OR LAPSED IN
CURRENT YEAR
YEAR IN WHICH
GRANT VESTS
DIRECTORS
A Kachellek
S McGregor
C Hartwig
EXECUTIVES
G Christie
36,400
30,500
28,800
28,500
29,300
10,000*
21,200
23,000
28,000
5,000
12,500
19,000
Nov 15
Nov 16
Nov 15
Nov 16
Nov 17
Mar 09
Nov 15
Nov 16
Nov 17
Nov 15
Nov 16
Nov 16
-
-
-
-
-
-
-
-
-
-
-
-
100
100
100
-
-
-
100
-
-
100
-
-
30 Jun 18
30 Jun 19
30 Jun 18
30 Jun 19
30 Jun 20
30 Jun 11
30 Jun 18
30 Jun 19
30 Jun 20
30 Jun 18
30 Jun 19
30 Jun 20
* 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 Australian Accounting standards,
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.
Analysis of movements in options and rights granted as compensation
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.
DIRECTORS
C Hartwig
S McGregor
EXECUTIVES
G Christie
VALUE OF RIGHTS/OPTIONS
GRANTED IN YEAR $ (A)
EXERCISED IN YEAR $ (B)
42,788
44,775
29,035
-
-
-
(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 for the EPS hurdle performance rights and a Monte Carlo simulation for the RTSR hurdle performance rights.
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 2017 to 30 June 2020) 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.
13
DIRECTORS’ REPORT
REMUNERATION REPORT - AUDITED (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2018
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 2017
AASB
GRANTED AS
COMPENSATION
EXERCISED
LAPSED
HELD AT
30 JUNE 2018
AASB
HELD AT
30 JUNE 2018
ASX
VESTED
DURING
THE YEAR
66,900
54,200
57,300
17,500
N/A
-
28,000
29,300
19,000
-
-
-
-
-
-
(66,900)
(21,200)
(28,800)
-
61,000
57,800
-
51,000
57,800
(5,000)
31,500
31,500
-
-
-
-
-
-
-
-
DIRECTORS
A Kachellek
C Hartwig
S McGregor
EXECUTIVES
G Christie
S Taubitz
No options held by KMP are vested but not exercisable.
HELD AT
1 JULY 2016
AASB
GRANTED AS
COMPENSATION
EXERCISED
LAPSED
HELD AT
30 JUNE 2017
AASB
HELD AT
30 JUNE 2017
ASX
VESTED
DURING
THE YEAR
60,400
47,800
45,200
10,000
5,000
30,500
28,500
23,000
12,500
-
-
-
-
-
-
(24,000)
(19,000)
(14,000)
(5,000)
(5,000)
66,900
57,300
54,200
17,500
-
66,900
57,300
44,200
17,500
-
-
-
-
-
-
DIRECTORS
A Kachellek
S McGregor
EXECUTIVES
C Hartwig
G Christie
P Assaf
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.
14
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 2017
PURCHASES
ALLOCATED UNDER
EMPLOYEE/
EXEC SHARE PLAN
HELD AT
30 JUNE 2018
SHARES HELD SUBJECT TO
NON-RECOURSE LOANS
DIRECTORS
G Billings
C Hartwig
S McGregor
A Kachellek*
G Francis
G Hutchinson
A Stobart
EXECUTIVES
G Christie
P Assaf
667
13,760
32,004
57,110
6,271
500
500
1,664
1,152
-
-
-
-
-
-
-
-
-
-
233
-
-
-
-
-
464
464
667
13,993
32,004
N/A
6,271
500
500
2,128
1,616
-
10,000
-
-
-
-
-
-
-
S Taubitz
-
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.
N/A
-
-
-
HELD AT
1 JULY 2016
PURCHASES
ALLOCATED UNDER
EMPLOYEE/
EXEC SHARE PLAN
ALLOCATED
UNDER DRP
HELD AT
30 JUNE 2017
SHARES HELD
SUBJECT TO
NON-RECOURSE
LOANS
DIRECTORS
G Billings
P Brodribb *
S McGregor
A Kachellek
G Francis
G Hutchinson
A Stobart *
EXECUTIVES
C Hartwig
G Christie
P Assaf
642
26,755
30,769
56,335
6,029
500
N/A
12,844
1,271
759
-
-
-
-
-
-
500
-
-
-
-
-
-
-
-
-
-
393
393
393
25
N/A
1,235
775
242
-
-
523
-
-
667
N/A
32,004
57,110
6,271
500
500
13,760
1,664
1,152
-
-
-
-
-
-
-
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.
* 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.
15
DIRECTORS’ REPORT REMUNERATION REPORT - AUDITED (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2018
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.
MAXIMUM POSSIBLE
STI
INCLUDED IN REMUNERATION $ (A)
% VESTED IN YEAR
% FORFEITED IN YEAR (B)
SHORT-TERM INCENTIVE BONUS
KMP
C Hartwig
S McGregor
G Christie
P Assaf
S Taubitz
A Kachellek
168,000
42,545
46,864
22,084
33,333
144,100
48,404
10,636
2,343
11,042
19,633
-
28.8
25
5
50
59
-
71.2
75
95
50
41
100
(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.
(B) The amounts forfeited are due to the performance criteria not being met in relation to the current financial year.
16
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
C Hartwig
G Billings
S McGregor
G Francis
G Hutchinson
A Stobart
NON-AUDIT SERVICES
23,993
667
32,004
6,271
500
500
51,000
-
57,800
-
-
-
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 governance 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.
LEAD AUDITOR’S INDEPENDENCE DECLARATION
The lead auditor’s independence declaration is set out on page 55 and forms part of the Directors’ report for the financial year ended 30
June 2018.
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/assets/downloads/Korvest-Corporate-Governance-2018.pdf
Signed at Adelaide this Friday 27th of July 2018 in accordance with a resolution of the directors.
G A BILLINGS, Director
C A HARTWIG, Director
17
DIRECTORS’ REPORT
5 YEAR SUMMARY
SALES REVENUE
($'000)
56,962
44,731
54,981
63,025
73,756
2018
2017
2016
2015
2014
PROFIT / (LOSS) AFTER TAX
($'000)
1,369
(1,578)
950
1,455
5,603
DEPRECIATION/AMORTISATION
($'000)
1,625
1,710
1,716
1,642
1,774
CASH FLOW FROM OPERATIONS
($'000)
5,110
(384)
7,432
5,115
4,228
PROFIT / (LOSS) FROM ORDINARY ACTIVITIES
- As % of Shareholders’ Equity
- As % of Sales Revenue
4.6%
2.4%
(5.4%)
(3.5%)
2.9%
1.7%
4.4%
2.3%
15.1%
7.6%
DIVIDEND
- Total amount paid
- Per issued share
- Times covered by profit from ordinary activities
($'000)
889
8.0c
1.5
2,192
20.0c
-
2,328
22.0c
0.4
5,032
48.0c
0.3
12,830
146.0c
0.4
EARNINGS PER SHARE
12.3c
(14.4c)
8.9c
13.9c
64.1c
NUMBER OF EMPLOYEES
180
171
193
225
242
SHAREHOLDERS
- Number at year end
1,694
1,813
1,882
2,029
2,034
NET ASSETS PER ISSUED ORDINARY SHARE
NET TANGIBLE ASSETS PER ISSUED ORDINARY SHARE
$2.66
$2.66
$2.63
$2.63
$2.97
$2.97
$3.13
$3.13
$3.50
$3.33
SHARE PRICE AS AT 30 JUNE
$2.07
$2.36
$2.19
$3.55
$5.60
18
FINANCIAL STATEMENTS
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.
TRADE AND OTHER RECEIVABLES
INVENTORIES
TRADE AND OTHER PAYABLES
10.
EMPLOYEE BENEFITS
11.
PROVISIONS
TANGIBLE AND INTANGIBLE ASSETS
12.
INTANGIBLE ASSETS
13.
TANGIBLE ASSETS
14.
IMPAIRMENT TESTING
15.
COMMITMENTS FOR EXPENDITURE
20
21
22
23
24
24
26
26
26
27
27
28
28
30
30
31
31
31
34
35
35
36
38
39
CAPITAL STRUCTURE
CASH AND CASH EQUIVALENTS / (BANK
OVERDRAFT)
16.
17.
FINANCIAL INSTRUMENTS
18.
CAPITAL AND RESERVES
19.
DIVIDENDS
TAXATION
20.
CURRENT AND DEFERRED TAXES
BUSINESS COMBINATIONS
21.
INVESTMENT IN SUBSIDIARIES
OTHER NOTES
22.
KEY MANAGEMENT PERSONNEL
23.
PARENT ENTITY DISCLOSURES
24.
SUBSEQUENT EVENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT
LEAD AUDITOR’S INDEPENDENCE DECLARATION
ASX ADDITIONAL INFORMATION
SHAREHOLDINGS (AS AT 25 JULY 2018)
VOTING RIGHTS
TWENTY LARGEST SHAREHOLDERS
OFFICES AND OFFICERS
39
39
40
44
44
45
45
47
47
48
48
49
49
51
52
55
56
56
56
57
57
19
FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2018
CONTINUING OPERATIONS
Sales revenue
Expenses, excluding net finance costs
PROFIT/ (LOSS) BEFORE FINANCING COSTS
Finance income
NET FINANCE INCOME
PROFIT/ (LOSS) BEFORE INCOME TAX
Income tax expense
PROFIT/ (LOSS) FROM CONTINUING OPERATIONS
PROFIT/ (LOSS) FOR THE YEAR
OTHER COMPREHENSIVE INCOME
Revaluation of property plant and equipment
Related tax
TOTAL COMPREHENSIVE INCOME / (LOSS) FOR THE PERIOD
ATTRIBUTABLE TO:
Equity holders of the Company
TOTAL COMPREHENSIVE INCOME / (LOSS) 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
Note
2018
$’000
2017
$’000
1
2
3
20
4
4
56,962
44,731
(55,100)
(47,022)
1,862
(2,291)
40
40
54
54
1,902
(2,237)
(533)
1,369
1,369
-
-
659
(1,578)
(1,578)
214
(64)
1,369
(1,428)
1,369
1,369
CENTS
12.3
12.3
(1,428)
(1,428)
CENTS
(14.4)
(14.4)
The notes on pages 24 to 49 are an integral part of these consolidated financial statements.
20
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2018
ASSETS
Cash and cash equivalents
Investment
Trade and other receivables
Prepayments
Inventories
Tax receivable
TOTAL CURRENT ASSETS
Property, plant and equipment
Intangible assets
Deferred tax asset
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
Trade and other payables
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 losses
TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
TOTAL EQUITY
Note
16
16
7
8
13
12
20
9
10
11
10
20
11
18
18
2018
$’000
5,119
275
9,950
243
9,395
-
24,982
12,882
-
-
12,882
37,864
4,666
2,325
37
7,028
240
451
433
1,124
8,152
29,712
14,084
15,837
(209)
29,712
29,712
2017
$’000
1,694
275
9,278
220
10,733
107
22,307
13,725
8
82
13,815
36,122
3,950
2,216
38
6,204
319
-
433
752
6,956
29,166
14,039
16,705
(1,578)
29,166
29,166
The notes on pages 24 to 49 are an integral part of these consolidated financial statements.
21
FINANCIAL STATEMENTS Note
2018
$’000
2017
$’000
64,563
47,863
(59,600)
(49,165)
4,963
(1,302)
3
16
40
107
5,110
10
-
(804)
(794)
(2)
(889)
(891)
3,425
1,694
5,119
54
864
(384)
10
(275)
(745)
(1,010)
(5)
(1,995)
(2,000)
(3,394)
5,088
1,694
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from / (used by) operations
Interest received
Income tax refunds
NET CASH FROM OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment and assets held for sale
Investments and term deposits
Acquisition of property, plant and equipment and intangible assets
12,13
NET CASH FROM INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
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
CASH AND CASH EQUIVALENTS AT 30 JUNE
16
The notes on pages 24 to 49 are an integral part of these consolidated financial statements.
22
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2018
In thousands of AUD
Balance at 1 July 2017
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Profit
Other comprehensive income
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
SHARE
CAPITAL
$’000
14,039
EQUITY
COMPENSATION
RESERVE
ASSET
REVALUATION
RESERVE
$’000
227
$’000
3,735
PROFITS
RESERVE
RETAINED
LOSSES
$’000
$’000
TOTAL
$’000
12,743
(1,578)
29,166
-
-
-
45
-
-
45
-
-
-
21
-
-
21
248
-
-
-
-
-
-
-
-
-
-
-
(889)
(889)
1,369
1,369
-
-
1,369
1,369
-
-
-
-
66
-
(889)
(823)
3,735
11,854
(209)
29,712
BALANCE AT 30 JUNE 2018
14,084
Balance at 1 July 2016
13,798
211
3,585
14,935
-
32,529
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Loss
Other comprehensive income
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
BALANCE AT 30 JUNE 2017
-
-
-
56
185
-
241
14,039
-
-
-
16
-
-
16
227
-
150
150
-
-
-
-
-
-
-
-
(2,192)
(2,192)
(1,578)
(1,578)
-
150
(1,578)
(1,428)
-
-
-
-
72
185
(2,192)
(1,935)
3,735
12,743
(1,578)
29,166
The notes on pages 24 to 49 are an integral part of these consolidated financial statements.
23
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
Basis of preparation
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 2018 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 27 July 2018.
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
•
•
•
•
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.
24
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 2018,
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.
NEW OR AMENDED STANDARD
SUMMARY OF REQUIREMENTS
AASB 9 Financial Instruments AASB 9, published in July 2014, replaces
the existing guidance in IAS 39 Financial
instruments: Recognition and Measurement.
AASB 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 AASB 39.
AASB 9 is effective for annual reporting periods
beginning on or after 1 January 2018, with early
adoption permitted.
AASB 15 establishes a comprehensive
framework for determining whether, how much,
and when revenue is recognised. It replaces
existing revenue recognition guidance, including
AASB 18 Revenue, AASB 11 Construction
contracts and IFRIC 13 Customer Loyalty
Programmes.
AASB 15 is effective for annual reporting periods
beginning on or after 1 January 2018, with early
adoption permitted.
AASB 15 Revenue from
Contracts with Customers
POSSIBLE IMPACT ON CONSOLIDATED FINANCIAL
STATEMENTS
The Group has assessed the potential impact on
its consolidated financial statements resulting from
the application of AASB 9. The most significant
impact identified relates to the calculation of the
impairment of trade receivables using an expected
credit loss model. It is likely that the new calculation
methodology will result in a reduction in the provision
recognised.
The Group’s assessment has identified two potential
performance obligations being:
- the provision of industrial products or
galvanising services; and
- where applicable, delivery of product.
Revenue is currently recognised when the significant
risks and rewards of ownership transfer. In the case
of the galvanising business, this is the point when the
product is ready for collection by, or delivery to, the
customer. In the case of Industrial Products, this is
the point of collection by, or delivery to, the customer.
Under the new standard revenue will be recognised
when performance obligations are satisfied. In most
contracts this will be at the point the customer
takes final receipt of Industrial Product or galvanised
product. Where the group enters a contract to
provide bespoke product for which the group does
not have an alternate use, revenue will be recognised
over time.
The new standard is not expected to materially
impact the Group’s net profit after tax.
AASB 16 Leases
AASB 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 AASB 117
Leases.
AASB 16 is effective for annual reporting periods
beginning on or after 1 January 2019.
The Group has assessed the potential impact
on its consolidated financial statements resulting
from application of AASB 16. The most significant
impact identified is that the Group will recognise
new assets and liabilities for its operating leases of
warehouses and mobile plant. As at 30 June 2018,
the Group’s future minimum lease payments under
non-cancellable operating leases amounted to
$2,131,000, on an undiscounted basis (see Note 15).
25
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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 and 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
Sale 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.
Good and services tax
Revenue is recognised net of goods and services tax (GST).
SALES REVENUE
Sales of goods
2. Expenses
2018
$’000
2017
$‘000
56,962
44,731
Accounting policies
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
Cost of goods sold
Sales, marketing and warehousing expenses
Administration expenses
Distribution expenses
Other expenses
PROFIT / (LOSS) BEFORE INCOME TAX HAS BEEN ARRIVED AT AFTER
CHARGING / (CREDITING) THE FOLLOWING EXPENSES:
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
26
NOTE
2018
$’000
36,088
12,320
2,403
4,279
10
2017
$‘000
29,919
11,275
2,242
3,498
88
55,100
47,022
13
13
12
15,317
12,425
1,708
1,180
1,129
200
48
1,883
1,113
1,080
160
51
2. Expenses (continued)
OTHER:
Bad debts written off
Change in allowance for impairment of receivables
Loss on disposal of property, plant and equipment
Research and development expense
3. Net finance income
NOTE
2018
$’000
2017
$‘000
7
7
87
57
10
-
73
(88)
88
29
Accounting policies
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.
4. Earnings per share
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 and diluted earnings per share at 30 June 2018 was based on the net profit attributable to ordinary shareholders
of $1,368,595 (2017: Loss $1,577,891) and a weighted average number of ordinary shares outstanding during the financial year ended
30 June 2018 of 11,104,989 (2017: 10,992,738).
Weighted average number of ordinary shares (basic)
Issued ordinary shares at 1 July
Effect of shares issued during year
2018
2017
Shares ’000 Shares ’000
11,073
10,940
32
53
Weighted average number of ordinary shares at 30 June
11,105
10,993
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares (basic)
Effect of Executive Share Plan
11,105
10,993
-
-
Weighted average number of ordinary shares at 30 June
11,105
10,993
Basic and diluted earnings per share
Basic earnings per share from continuing operations
Diluted earnings per share from continuing operations
12.3
12.3
(14.4)
(14.4)
27
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
5. Auditor’s remuneration
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
2018
$
2017
$
97,300
97,300
93,970
93,970
7,175
7,175
7,585
7,585
6. Segment reporting
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.
Production
Production segment represents the Korvest Galvanising business, which provides hot dip galvanising services.
Both reportable segments consist of the aggregation of a number of operating segments in accordance with AASB 8 Operating
Segments.
Geographical segments
The Group operates in Australia.
Customers
There was no individually significant customer that would represent more than 10% of total revenues in the current financial year.
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.
BUSINESS SEGMENTS
INDUSTRIAL PRODUCTS
PRODUCTION
TOTAL
Sales revenue
Depreciation and amortisation
Reportable segment profit / (loss) before tax
Reportable segment assets
Capital expenditure
2018
$’000
2017
$’000
51,682
40,269
942
2,126
19,531
421
1,041
(1,633)
20,984
465
2018
$’000
5,280
291
227
4,214
379
2017
$’000
4,462
278
(301)
3,720
222
2018
$’000
56,962
1,233
2,353
23,745
800
2017
$’000
44,731
1,319
(1,934)
24,704
687
28
6. Segment reporting (continued)
Reconciliation of reportable segment profit, assets and other material items
PROFIT / (LOSS)
Total profit / (loss) for reportable segments
Unallocated amounts – other corporate expenses (net of corporate income)
Profit / (Loss) before income tax
ASSETS
Total assets for reportable segments
Land and buildings
Cash, cash equivalents and investments
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
2018
$‘000
2,353
(451)
1,902
2017
$‘000
(1,934)
(303)
(2,237)
23,745
24,704
7,340
5,394
1,385
7,382
1,969
2,067
37,864
36,122
800
4
804
1,233
392
1,625
687
58
745
1,319
391
1,710
29
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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
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 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.
CURRENT
Trade receivables
Less: Allowance for impairment
Net trade receivables
Impairment
2018
$’000
10,589
(639)
9,950
2017
$‘000
9,860
(582)
9,278
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.
MOVEMENT IN ALLOWANCE FOR IMPAIRMENT
Balance at 1 July
Amounts written off against allowance
Impairment loss recognised
Balance at 30 June
2018
$’000
(582)
78
(135)
(639)
2017
$‘000
(567)
73
(88)
(582)
The impairment loss at 30 June 2018 relates to a number of customers where an assessment has been made that the amounts are
likely to be uncollectable.
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.
30
8. Inventories
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.
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.
CURRENT
Raw materials and consumables
Work in progress
Finished goods
2018
2017
$’000
$‘000
2,303
2,142
245
441
6,847
8,150
9,395
10,733
Finished goods are shown net of an impairment provision amounting to $1,464,000 (2017: $1,409,000) arising from the likely inability to
sell a product range at or equal to the cost of inventory.
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.
2018
2017
$’000
$‘000
CURRENT
Trade payables and accrued expenses
2,146
2,226
Non-trade payables and accrued expenses
2,520
1,724
4,666
3,950
10. Employee benefits
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.
31
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
10. Employee benefits (continued)
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 at
the reporting date which have maturity dates approximating to the terms of the Company’s obligations.
CURRENT
Liability for annual leave
Liability for long service leave
NON-CURRENT
Liability for long service leave
Total employee benefits
2018
2017
$’000
$‘000
950
940
1,375
1,276
2,325
2,216
240
319
2,565
2,535
Accrued wages and salaries are included in accrued expenses in note 9.
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 with only non-market performance conditions 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.
The fair value of performance rights with market related performance conditions is measured using a Monte Carlo simulation.
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.
32
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. For issues made between November 2011 and November 2015 only one performance hurdle related to earnings
per share (EPS) was used. From the November 2016 issue onwards a second hurdle related to Relative Total Shareholder Return
(RTSR) was introduced.
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.
GRANT DATE
March 2005
March 2009
November 2016
November 2017
PLAN
ESP
ESP
KPRP
KPRP
TOTAL SHARE OPTIONS / PERFORMANCE RIGHTS
NUMBER OF OPTIONS / RIGHTS
INITIALLY GRANTED
NUMBER OUTSTANDING AT
BALANCE DATE AASBS
NUMBER OUTSTANDING
AT BALANCE DATE ASX
60,000
85,000
117,000
76,300
338,300
15,000
10,000
74,000
76,300
175,300
-
-
74,000
76,300
150,300
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.
Measurement of fair values
The fair value of the rights granted through the KPRP with an EPS hurdle was measured based on the Black-Scholes formula. The fair
value of the rights granted through the KPRP with an RTSR hurdle is measured using a Monte Carlo simulation. 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)
2018
2017
RTSR HURDLE
EPS HURDLE
RTSR hurdle
EPS Hurdle
$1.22
$2.35
-
32.0%
5.4%
2.0%
3 yrs
2 yrs
$1.84
$2.35
-
32.0%
5.4%
2.0%
3 yrs
2 yrs
$0.90
$2.00
-
29.4%
6.0%
1.9%
3 yrs
2 yrs
$1.74
$2.00
-
29.4%
6.0%
1.9%
3 yrs
2 yrs
33
FINANCIAL STATEMENTS NUMBER OF
OPTIONS/
RIGHTS AT
BEGINNING
OF YEAR
RIGHTS
GRANTED
LAPSED
FORFEITED EXERCISED
NUMBER OF
OPTIONS
AT END OF
YEAR ON
ISSUE
EXERCISABLE
AT 30 JUNE
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
10. Employee benefits (continued)
Reconciliation of outstanding share options/rights
GRANT
DATE
EXERCISE
DATE
EXPIRY
DATE
EXERCISE
PRICE
2018
PREVIOUS PLAN
Mar 05
Jan 07
Jan 27
Mar 09
Jan 11
Jan 31
$4.36
$3.79
Weighted average exercise price
CURRENT PLAN
Nov 15
Jul 18
Nov 16
Jul 19
Nov 17
Jul 20
Jun 18
Jun 19
Jun 20
-
-
-
15,000
10,000
25,000
$4.13
104,000
104,500
-
-
-
-
-
-
76,300
-
-
-
-
-
-
(67,600)
(36,400)
-
-
(30,500)
-
Weighted average exercise price
$Nil
$Nil
$Nil
$Nil
208,500
76,300 (67,600)
(66,900)
2017
PREVIOUS PLAN
Mar 05
Jan 07
Jan 27
Mar 09
Jan 11
Jan 31
$4.36
$3.79
Weighted average exercise price
CURRENT PLAN
Nov 14
Jul 17
Nov 15
Jul 18
Nov 16
Jul 19
Jun 17
Jun 18
Jun 19
-
-
-
15,000
10,000
25,000
$4.13
85,000
114,000
-
-
-
-
-
-
117,000
-
-
-
-
-
-
(77,000)
(8,000)
-
-
(10,000)
(12,500)
Weighted average exercise price
$Nil
$Nil
$Nil
$Nil
199,000
117,000 (77,000)
(30,500)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,000
10,000
25,000
$4.13
-
74,000
76,300
150,300
$Nil
15,000
10,000
25,000
$4.13
-
104,000
104,500
208,500
$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.
34
11. Provisions (continued)
Site restoration and safety
A provision of $433,000 (2017: $433,000) 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 cost to rectify the site. It has
been assumed that the rectification would occur in 15 years (2017: 15 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% (2017: 3.0%) and an
inflation rate of 2.0% (2017: 2.0%) have been used for the calculation at 30 June 2018.
CURRENT
Warranties
NON-CURRENT
Site restoration
2017
$’000
2016
$‘000
37
38
433
470
433
471
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.
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.
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.
12. Intangible assets
Patents and trademarks
2018
$’000
-
2017
$‘000
8
35
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
13. Tangible assets
Accounting policies
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, an 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.
36
COST
Balance at 1 July 2016
Acquisitions
Revaluation
Disposals and write-offs
Transfer of equipment to inventory
Balance at 30 June 2017
Balance at 1 July 2017
Acquisitions
Revaluation
Disposals and write-offs
Transfer of equipment to inventory
Balance at 30 June 2018
ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES
Balance at 1 July 2016
Depreciation charge for the year
Revaluation
Disposals
Transfer of equipment to inventory
Balance at 30 June 2017
Balance at 1 July 2017
Depreciation charge for the year
Revaluation
Disposals
Transfer of equipment to inventory
Balance at 30 June 2018
CARRYING AMOUNTS
At 30 June 2016
At 30 June 2017
At 30 June 2018
LAND & BUILDINGS
(FAIR VALUE)
PLANT & EQUIPMENT
(COST)
$’000
7,282
-
100
-
-
7,382
7,382
-
-
-
-
$’000
20,195
742
-
(390)
(15)
TOTAL
$’000
27,477
742
100
(390)
(15)
20,532
27,914
20,532
27,914
804
-
(340)
(16)
804
-
(340)
(16)
7,382
20,980
28,362
75
39
(114)
-
-
-
-
42
-
-
-
42
7,207
7,382
7,340
12,771
1,659
-
(237)
(4)
12,846
1,698
(114)
(237)
(4)
14,189
14,189
14,189
1,575
-
(320)
(6)
14,189
1,617
-
(320)
(6)
15,438
15,480
7,424
6,343
5,542
14,631
13,725
12,882
37
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
13. Tangible assets (continued)
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 2017 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 director’s valuation as at 30 June
2018.
The carrying amount of the Land and Buildings at cost at 30 June 2018 if not revalued would be $1,056,410 (2017:$1,109,869).
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:
Balance at 1 July 2016
Revaluation
Depreciation charge for the year
Balance at 30 June 2017
Balance at 1 July 2017
Depreciation charge for the year
Balance at 30 June 2018
$’000
7,207
214
(39)
7,382
7,382
(42)
7,340
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 - 9.25%
Potential rental rate - $53/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 the value of vacant land as
the property has below average site coverage
indicating further capacity for development.
14. Impairment testing
INTER-RELATIONSHIP BETWEEN KEY
UNOBSERVABLE INPUTS
AND FAIR VALUE MEASUREMENT
TThe estimated market value would
increase if:
•
•
Potential rental rate was
higher
Land value was higher
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.
38
14. Impairment testing (continued)
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
The Group has determined that calculation of the recoverable amount of assets or CGUs is not required as at 30 June 2018.
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 payments under non-cancellable operating leases are payable as follows:
Less than one year
Between one and five years
More than five years
2018
$’000
759
1,372
-
2,131
2017
$’000
801
974
-
1,775
The Group leases a number of warehouse and factory facilities under operating leases. The leases typically run for a period of up to 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 2018 $883,769 was recognised as an expense in the Statement of profit or loss and
comprehensive income in respect of operating leases (2017: $893,204).
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 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.
Investments and term deposits comprise deposits with maturities greater than three months at acquisition date.
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.
Cash in hand
Bank balances
Call deposits
Cash and cash equivalents in the statement of cash flows
Investments and term deposits
2018
$’000
1
1,467
3,651
5,119
275
2017
$‘000
1
1,156
537
1,694
275
39
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
16. Cash and cash equivalents / (Bank overdraft) (continued)
Reconciliation of cash flows from operating activities
CASH FLOWS FROM OPERATING ACTIVITIES
Profit / (Loss) for the period
Adjustment for:
Depreciation and amortisation
Impairment of trade receivables
Impairment of inventories
Disposal of property, plant and equipment including transfer to
inventory and write-offs
Equity-settled share-based payment expense
Changes in:
Trade and other receivables
Prepayments
Inventories
Trade and other payables
Deferred tax
Income taxes payable
Provisions and employee benefits
NET CASH FROM OPERATING ACTIVITIES
17. Financial instruments
2018
$’000
2017
$‘000
1,369
(1,578)
1,625
144
55
10
69
3,272
(817)
(23)
1,293
716
533
107
29
5,110
1,710
88
(40)
154
72
406
(1,334)
(9)
800
(287)
(659)
864
(165)
(384)
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 AASB 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 Accounting Standards. 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 Accounting Standards. As a result, the Group has applied additional disclosures in this regard within Notes 7 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 13, including the level in the fair value hierarchy in which such valuations should be classified.
Significant valuation issues are required to be 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).
40
17. Financial instruments (continued)
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 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.
Financial risk management
Overview
The Group has exposure to the following risks from their use of financial instruments:
•
•
credit risk;
liquidity risk; and
• market risk.
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.
41
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
17. Financial instruments (continued)
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:
Cash, cash equivalents and Investments
Trade and other receivables
2018
$’000
5,394
9,950
2017
$‘000
1,969
9,278
Cash and cash equivalents
The cash, cash equivalents and investments 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 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.
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:
CARRYING VALUES
Australia
South East Asia
Other
2018
$’000
2017
$‘000
9,948
9,377
-
2
81
40
9,950
9,498
At 30 June 2018, the Group’s most significant customer, located in Australia, accounted for $2,015,121 of the trade and other
receivables carrying amount (2017: $1,588,100).
Impairment losses
The ageing of the trade and other receivables at the reporting date that were not impaired is set out below.
GROSS
Not past due nor impaired
Past due 0-30 days
Past due 31-90 days
More than 91 days
42
2018
$’000
7,050
2,900
-
-
2017
$‘000
6,519
2,829
150
-
9,950
9,498
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.
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).
2018
2017
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
6 MONTHS
OR LESS
6 – 12
MONTHS
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
6 MONTHS
OR LESS
6 – 12
MONTHS
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
NON-DERIVATIVE
FINANCIAL LIABILITIES
Trade and other
payables
4,666
4,666
(4,666)
(4,666)
(4,666)
(4,666)
-
-
3,950
3,950
(3,950)
(3,950)
(3,950)
(3,950)
-
-
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.
Current 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 currencies in which these transactions primarily are denominated are US dollars (USD) and Thai Baht (THB).
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.
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.
Exposure to interest rate risk
Movements in interest rates will not have a material impact on the Group’s profit or equity.
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.
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.
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.
43
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
18. Capital and reserves
Accounting policies
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.
Asset revaluation reserve
The revaluation reserve relates to land and buildings measured at fair value in accordance with Australian Accounting Standards.
Profit 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.
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.
Share capital
ORDINARY SHARES
On issue at 1 July
Issued under the Employee Share Bonus Plan
Issued under Dividend Reinvestment Plan
On issue at 30 June – fully paid
2018
2017
Shares ’000
Shares ‘000
11,073
10,940
59
-
57
76
11,132
11,073
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.
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
2018
Interim 2018 ordinary
Final 2017 ordinary
Total amount
2017
Interim 2017 ordinary
Final 2016 ordinary
Total amount
CENTS PER SHARE
TOTAL AMOUNT
$’000
PERCENTAGE
FRANKED
TAX RATE
DATE OF PAYMENT
5.0
3.0
10.0
10.0
556
333
889
1,098
1,094
2,192
100%
100%
100%
100%
30%
30%
9 March 2018
8 September 2017
30%
30%
10 March 2017
9 September 2016
Unrecognised amounts
After the balance sheet 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
2018
Final 2018 ordinary
7.0
781
100%
30%
7 September 2018
The financial effect of these dividends have not been brought to account in the financial statements for the financial year ended 30
June 2018 and will be recognised in subsequent financial reports.
44
19. Dividends (continued)
Dividend franking account
30% franking credits available to shareholders of Korvest Ltd for subsequent financial years
2018
$’000
7,273
2017
$‘000
7,761
The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:
(a)
(b)
(c)
franking credits that will arise from the payment of the current tax liabilities;
franking debits that will arise from the payment of dividends recognised as a liability at the year-end;
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 $334,700 (2017: reduce by $142,688).
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 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.
45
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
20. Current and deferred taxes (continued)
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.
Income tax recognised in the income statement
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 COMPREHENSIVE INCOME
Numerical reconciliation between tax expense and pre-tax net profit
Profit / (Loss) before tax
Income tax using the domestic corporation tax rate of 30% (2017:30%)
Adjustments relating to prior years
Non-deductible expenses
Recognition of previously unrecognised tax losses
Income tax expense / (benefit) on pre-tax net profit / (loss).
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
2018
$’000
67
-
67
466
-
466
533
2018
$’000
1,902
570
-
(1)
(36)
533
Property, plant and equipment
Inventories
Provisions / accruals
Other items
Tax loss carried forward
Tax (assets) / liabilities
Set off of tax
NET TAX (ASSETS) / LIABILITIES
ASSETS
LIABILITIES
NET
2018
$‘000
-
(439)
(970)
(192)
(380)
(1,981)
1,981
-
2017
$‘000
-
(423)
(945)
(194)
(952)
(2,514)
2,432
(82)
2018
$‘000
1,862
568
-
2
-
2,432
(1,981)
451
2017
$‘000
1,960
470
-
2
-
2,432
(2,432)
-
2018
$‘000
1,862
129
(970)
(190)
(380)
451
-
451
2017
$‘000
(701)
-
(701)
42
-
42
(659)
2017
$‘000
(2,237)
(671)
-
12
-
(659)
2017
$‘000
1,960
47
(945)
(192)
(952)
(82)
-
(82)
46
Movement in deferred tax balances during the year
Property, plant and equipment
Inventories
Provisions / accruals
Other items
Tax loss carried forward
Property, plant and equipment
Inventories
Provisions / accruals
Other items
Tax loss carried forward
BALANCE
30 JUNE 17
RECOGNISED
IN PROFIT
BALANCE
30 JUNE 2018
$’000
(1,960)
(47)
945
192
952
82
$’000
98
(82)
25
(2)
(572)
(533)
$’000
(1,862)
(129)
970
190
380
(451)
RECOGNISED IN PROFIT
BALANCE
30 JUNE 16
RELATING TO
CURRENT YEAR
RECOGNISED DIRECTLY IN
EQUITY
$’000
(1,932)
(36)
995
210
250
(513)
$’000
36
(11)
(50)
(18)
702
659
$’000
(64)
-
-
-
-
(64)
BUSINESS COMBINATIONS
This section outlines the Group’s structure and changes thereto.
21. Investment in subsidiaries
BALANCE
30 JUNE 17
$’000
(1,960)
(47)
945
192
952
82
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
The recognised amount of any non-controlling interests in the acquiree; plus
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.
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.
47
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
21. Investment in subsidiaries (continued)
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 AASB 10 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 to affect those returns through its power over the entity. The financial statements
of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control
ceases.
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
Power Step (Australia) Pty Ltd
Power Step (Chile) SpA
Titan Technologies (SE Asia) Pty Ltd
EzyStrut Pte. Ltd
COUNTRY OF INCORPORATION
OWNERSHIP INTEREST
2018
%
2017
%
100
100
100
-
100
100
100
100
Australia
Australia
Chile
Australia
Singapore
OTHER NOTES
22. Key mangement 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)
• Gary Francis
• Gerard Hutchinson
•
Andrew Stobart
Executive Directors
• Chris Hartwig (Managing Director from 28
February 2018, prior to that was Executive
General Manager, Sales & Marketing)
Steven McGregor
(Finance Director and Company Secretary)
Alexander Kachellek
(Managing Director until 30 September 2017)
•
•
Executives
• Gavin Christie (General Manager,
•
•
Operations)
Paul Assaf (General Manager, Power
Step & Titan Technologies)
Stephen Taubitz (General Manager
Sales - EzyStrut) – became a member
of KMP on 1 March 2018
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:
Short-term employee benefits
1,565,929
1,600,137
2018
$
2017
$
Post-employment benefits
Termination payments
Long term benefits
Share based payments
48
145,261
247,680
(61,655)
23,034
161,586
-
40,626
17,170
1,920,249
1,819,519
22. Key mangement personnel (continued)
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.
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. Parent entity disclosures
As at, and throughout, the financial year ending 30 June 2018 the parent entity of the Group was Korvest Ltd.
Result of parent entity
Profit / (Loss) for the period
Other comprehensive income
2018
$’000
2017
$’000
1,262
(1,617)
-
150
Total comprehensive income for the period
1,262
(1,467)
Financial position of parent entity at year end
Current Assets
Total Assets
Current Liabilities
Total liabilities
Share capital
Reserves
Retained earnings
Total Equity
24,074
21,361
37,510
35,598
6,385
7,787
5,400
6,318
14,084
14,039
15,793
16,858
(154)
(1,617)
29,723
29,280
Guarantees entered into by the Company
Bank guarantees given by the Company in favour of customers amounted to $68,498 (2017: $156,468).
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 2018, the Company had contractual commitments for the acquisition of property, plant and equipment of $144,000 (2017:
$214,000).
24. 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.
49
FINANCIAL STATEMENTS 50
DIRECTORS’ DECLARATION
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 20 to 49 and the Remuneration report in the
Directors’ report, set out on pages 8 to 16, 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 2018 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.
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 2018.
The Directors draw attention to the Basis of preparation note on page 24, which includes a statement of compliance with
International Financial Reporting Standards.
2.
3.
Dated at Adelaide this 27th July 2018
Signed in accordance with resolution of directors:
GRAEME BILLINGS
DIRECTOR
N
O
I
T
A
R
A
L
C
E
D
’
S
R
O
T
C
E
R
D
I
51
Independent Auditor’s Report
To the shareholders of Korvest Ltd
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of
Korvest Ltd (the Company).
In our opinion, the accompanying Financial
Report of the Company is in accordance with
the Corporations Act 2001, including:
• giving a true and fair view of the Group's
financial position as at 30 June 2018 and
of its financial performance for the year
ended on that date; and
• complying with Australian Accounting
Corporations
the
Standards
and
Regulations 2001.
The Financial Report comprises:
• Consolidated statement of financial position as at 30
June 2018;
• Consolidated statement of profit or loss and other
comprehensive income, Consolidated statement of
changes in equity, and Consolidated statement of
cash flows for the year then ended;
• Notes including a summary of significant accounting
policies; and
• Directors' Declaration.
The Group consists of the Korvest Ltd (the Company) and
the entities it controlled at the year-end or from time to
time during the financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit
of the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements
of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled
our other ethical responsibilities in accordance with the Code.
Key Audit Matters
Key Audit Matters are those matters that, in our professional judgement, were of most significance in our
audit of the Financial Report of the current period.
This matter was addressed in the context of our audit of the Financial Report as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on this matter.
52
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
Valuation of inventories ($9.4m)
Refer to Note 8 Inventories to the Financial report
The key audit matter
How the matter was addressed in our audit
The valuation of inventories is a key audit
matter because of its highly specialised
nature which results in the Group holding
various inventory types that can be unique
to the equipment they are manufactured
for. This adds complexity to our evaluation
of the Group’s assessment of
obsolescence and net realisable value
(NRV) of inventories.
We particularly focused on the estimates
listed below which significantly impact the
valuation:
1. Expected selling price of inventory.
2. Ageing of inventory.
Our procedures included:
• We tested the controls relevant to management’s
valuation of inventories, including authorisation of key
inputs such as inventory cost, expected selling price of
inventory and inventory purchased and sold during the
year.
• We attended year-end stocktakes in significant
locations which included observing the management’s
process of identifying slow moving and potentially
obsolete inventory.
• We analysed the future selling price and resulting
gross margin for each product to identify evidence of
negative gross margin and compared this to the
inventory obsolescence provision.
3. Future inventory usage.
• We obtained management’s calculation for the
In assessing this key audit matter, we
used senior team members who
understand the Group’s business, industry
and the relevant economic environment.
inventory obsolescence provision, including the ageing
of inventory, and considered it against the Group’s
accounting policies, historic sales trends, analysis of
slow moving inventory and future usage estimates.
Other Information
Other Information is financial and non-financial information in Korvest Ltd’s annual reporting which is
provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the
Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not
express an audit opinion or any form of assurance conclusion thereon, with the exception of the
Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In
doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or
our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information,
and based on the work we have performed on the Other Information that we obtained prior to the date of
this Auditor’s Report we have nothing to report.
53
AUDITOR’S INDEPENDENCE DECLARATION
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
• preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting
Standards and the Corporations Act 2001
• implementing necessary internal control to enable the preparation of a Financial Report that gives a true
and fair view and is free from material misstatement, whether due to fraud or error
• assessing the Group and Company's ability to continue as a going concern and whether the use of the
going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless they either intend to liquidate
the Group and Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
• to obtain reasonable assurance about whether the Financial Report as a whole is free from material
misstatement, whether due to fraud or error; and
• to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the
Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and
Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This
description forms part of our Auditor’s Report.
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report
of Korvest Ltd for the year ended 30 June
2018, complies with Section 300A of the
Corporations Act 2001.
The Directors of the Company are responsible for the
preparation and presentation of the Remuneration Report in
accordance with Section 300A of the Corporations Act 2001.
Our responsibilities
We have audited the Remuneration Report included in the
Directors’ report for the year ended 30 June 2018.
Our responsibility
is to express an opinion on the
Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
KPMG
Paul Cenko
Partner
Adelaide
27 July 2018
54
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Korvest Ltd
I declare that, to the best of my knowledge and belief, in relation to the audit of Korvest Ltd for the
financial year ended 30 June 2018 there have been:
i.
no contraventions of the auditor independence requirements as set out in the Corporations
Act 2001 in relation to the audit; and
ii.
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Paul Cenko
Partner
Adelaide
27 July 2018
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
55
AUDITOR’S INDEPENDENCE DECLARATION
ASX ADDITIONAL INFORMATION
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 25 JULY 2018)
Substantial shareholders
The number of shares held by substantial shareholders and their associates are set out below:
10.31%
8.94%
6.14%
5.48%
NUMBER
1,150,462
997,060
684,607
611,759
SHAREHOLDER
Colonial First State Asset Management (Australia) Limited
Perpetual Limited
Phoenix Portfolios Pty Ltd
Donald Cant Pty Ltd
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
CATEGORY
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
NUMBER OF EQUITY SECURITY HOLDERS
TOTAL HOLDERS
754
641
155
131
13
1,694
UNITS
277,260
1,644,528
1,179,753
2,982,355
5,072,781
11,156,677
% ISSUED CAPITAL
2.49
14.74
10.57
26.73
45.47
100
The number of shareholders holding less than a marketable parcel of ordinary shares is 357.
Securities Exchange
The Company is listed on the Australian Securities Exchange. The Home exchange is Sydney.
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.
56
TWENTY LARGEST SHAREHOLDERS
NAME
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Donald Cant Pty Ltd
Brazil Farming Pty Ltd
National Nominees Limited
Ace Property Holdings Pty Ltd
De Bruin Securities Pty Ltd
South Hong Nominees Pty Ltd
Allegro Two Super Fund Pty Ltd
Brazil Farming Pty Ltd
Creative Living (Qld) Pty Ltd
Angueline Capital Pty Limited
Robert Nairn Pty Ltd
Rathvale Pty Limited
Gotterdamerung Pty Limited
Mrs Helen Elizabeth Rollinson
Mr William Francis Cannon
Mr David Philip Rickards + Mrs Kerry Anne Rickards
Ms Nina Tschernykow
OFFICES AND OFFICERS
Company Secretary
Steven John William McGregor BA(Acc), CA, AGIA, ACIS
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: 1300 556 161 (within Australia) or +61 3 9415 4000 (outside Australia)
NUMBER OF ORDINARY
SHARES HELD
PERCENTAGE OF
CAPITAL HELD
1,184,189
1,028,588
875,153
611,759
237,058
206,618
200,000
180,000
137,368
129,803
124,554
120,000
115,000
100,000
95,358
84,327
66,633
64,213
61,296
60,720
10.61
9.22
7.84
5.48
2.12
1.85
1.79
1.61
1.23
1.16
1.12
1.08
1.03
0.90
0.85
0.76
0.60
0.58
0.55
0.54
5,682,637
50.93
57
ASX ADDITIONAL INFORMATION 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
www.ezystrut.com.au
www.powerstep.com.au
www.titantools.com.au
www.korvestgalvanisers.com.au
60