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ANNUAL
REPORT
www.korvest.com.au
A MARKET LEADING INFRASTRUCTURE PROVIDER
Since 1970, Korvest has built itself a strong reputation for being a capable supplier of cable and pipe supports, industrial
access and safety systems, fastening solutions, and galvanising services. All Korvest’s business units work together, and
can develop an integrated, complete solution quickly and finished to recognised Australian and international standards.
EzyStrut produces a range of standard, customised and innovative products. 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. Korvest has the
capacity to scale up production should a project require more hands or hours to meet strict deadlines.
Nationally, Korvest has offices located in Adelaide, Melbourne, Sydney, Brisbane and Perth, with distributors in
Townsville and Hobart. The EzyStrut manufacturing plant and national distribution centre are based in Adelaide.
WE DELIVER ON OUR PROMISE
www.ezystrut.com.au
www.titantools.com.au
Torque and Tension Solutions
Cable and Pipe Supports
www.korvestgalvanisers.com.au
www.powerstep.com.au
Galvanising
2
Safety Access Systems
TABLE OF
CONTENTS
4
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18
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56
DIRECTORS’ REPORT
REMUNERATION REPORT
- AUDITED
5 YEAR SUMMARY
FINANCIAL STATEMENTS
ASX ADDITIONAL
INFORMATION
Korvest Ltd
and controlled entities
ABN: 20 007 698 106
Annual Report, 30 June 2019
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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 2019 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
Chris Hartwig
Gerard Hutchinson
BCom FCA MAICD
Chairman
Appointed Chairman
18 September 2014
A Director since May 2013
BA(Acc), MAICD
Managing Director
A Director since 28 February 2018
Mr Hartwig has held a number of senior
roles in the steel and electrical manufacturing
industries.
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 LimitedChairman
Azure Healthcare Ltd
Director DomaCom Ltd
Age 48
Age 63
MBA, MBL, MSc(IS), BEc, MA
(Research), FCA, FAICD, FAIM
Independent Non-Executive Director
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 Chief Financial Officer for AF
Construction LLC, a member of the Al-
Futtaim Group of Companies.
Director Depa PLC
Age 51
Gary Francis
Andrew Stobart
Steven McGregor
BSc. Hon. (Civil), MAICD
Independent Non-Executive Director
A Director since February 2014
Chairman of Remuneration Committee
Mr Francis has worked in the construction
industry at Senior Manager or Director level
in Australia and Asia.
Age 64
B. Eng (Hons), Grad Dip Bus Admin,
GAICD
Independent Non-Executive Director
A Director since August 2016
Chairman Nexans Olex Australia & New
Zealand
Age 64
BA(Acc), CA, AGIA, ACIS
Finance Director
Company Secretary since April 2008
Appointed as Finance Director
1 January 2009
Age 47
4
DIRECTORS’ REPORT 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, Graeme Billings and Andrew Stobart retire from the Board at the forthcoming Annual General Meeting on
25 October 2019 and offer themselves 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
Board
Meetings
Audit Committee
Meetings
Remuneration
Committee Meetings
A
12
12
12
11
12
12
B
12
12
12
12
12
12
A
4
4
4
3
-
-
B
4
4
4
4
-
-
A
2
2
2
2
-
-
B
2
2
2
2
-
-
A Number of meetings attended
B Total number of meetings available for attendance
FINANCIAL RESULTS
The revenue from trading activities for the year ended 30 June 2019 (FY19) was $60.8m, up 6.8% on the previous year. The Group recorded a
profit after tax of $2.9m compared to $1.4m in the previous year.
The improved FY19 result is attributable to growth in both volume and margin as a number of the markets in which Korvest operates have been
buoyant throughout the year.
DIVIDENDS
The directors announced a fully franked final dividend of 13.0 cents per share (2018: 7.0 cents per share) and 9.0 cents per share at the half
year (2018: 5.0 cents per share). The Dividend Reinvestment Plan (DRP) will be suspended for the final dividend. The dividend will be paid on 6
September 2019 with a record date of 23 August 2019.
A summary of dividends paid or declared by the Company to members since the end of the previous financial year were:
Declared and paid during the year 2019
Interim 2019 ordinary
Final 2018 ordinary
Total amount
Cents per share
Total amount $’000
9.0
7.0
1,006
781
1,787
Franked dividends declared and paid during the year were franked at the rate of 30 per cent.
Franked/
Unfranked
Date of payment
Fully franked
8 March 2019
Fully franked
7 September 2018
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
Cents per share
Total amount $’000
13.0
1,456
1,456
Franked/
Unfranked
Date of payment
Fully franked
6 September 2019
5
DIRECTORS’ REPORT DIRECTORS’ REPORT
DIRECTORS’ REPORT (Continued)
FOR THE YEAR ENDED 30 JUNE 2019
The financial effect of these dividends has not been brought to account in the financial statements for the year ended 30 June 2019 and will be
recognised in subsequent financial reports.
Dividends have been dealt with in the financial report as:
Dividends
Dividends – subsequent to 30 June 2019
Note
18
18
Total amount
$’000
1,787
1,456
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.
The improved results over the past two years have been driven by activity levels in the infrastructure sector. This sector remains strong, and the
outlook positive, with a number of major road and rail projects being constructed over the next few years. Korvest is well positioned to capitalise
on opportunities arising from this activity over the coming years as demonstrated by the company’s plan to significantly invest in manufacturing
capability and capacity
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 electrical wholesalers and contractors for small industrial developments.
Activity levels were strong in the markets serviced by EzyStrut in FY19. Major project activity remained high and this was supported by
increased work from the smaller projects and day-to-day markets. All states experienced growth compared to the prior year. NSW had the
strongest growth due to the supply of a major infrastructure project as well as an active day-to-day market. The SA market also performed well
as a number of mid-range projects were supplied throughout the year. The Victorian branch moved to a larger warehouse facility in February
2019 to enable it to more efficiently service the growing customer base.
In April 2019 a competitor exited the market. The competitor operated predominantly in NSW and Victoria and as a result it is anticipated that
more opportunities will become available in those states.
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 experienced subdued trading conditions compared to the
prior year. The results were also adversely impacted by stock losses following a detailed review of inventory on hand. The September 2018
retirement of the long-serving General Manager prompted a restructure resulting in a lower ongoing overhead cost.
PRODUCTION
In the Production group, the Galvanising business volumes were static although the mix of internal and external work changed with an increase
in internal work. Galvanising revenue from external customers reduced by 2.5% with price increases mitigating the impact of a 6% volume
drop. The cost of zinc and energy remain challenging for the business. The weighted average cost of zinc consumed in FY19 was 7% higher
than FY18. There was some small relief with energy costs as a new, lower electricity price was effective for the second half with further price
improvement contracted from January 2020 onwards. In addition the business has invested in energy efficient LED lighting and 173Kw of solar
panels during the year. However, offsetting this, gas pricing increased by 16% in the second half and gas pricing remains the more significant
concern in terms of energy costs going forward.
Labour efficiency improved during the year and this, along with a lower depreciation charge contributed to the improved Production result.
6
DIRECTORS’ REPORT 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 2019, 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 2019.
LIKELY DEVELOPMENTS
The Group will continue to focus on the significant infrastructure pipeline in the domestic market and servicing the day-to-day market. This will
include investment in product development and manufacturing capacity to ensure that the Group is well placed to secure and deliver major
projects.
Working capital management will continue to play a key role with an emphasis on non-project inventory reduction.
As outlined in the notes to the financial statements, the Group will adopt AASB 16 Leases on 1 July 2019. It is estimated that for the year ended
30 June 2020 the adoption of this standard will result in approximately $90,000-100,000 additional lease related expenses compared to the
current method of expensing lease rentals as they are paid.
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 DIRECTORS’ REPORT REMUNERATION REPORT AUDITED
For the year ended 30 June 2019
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.
Managing Director
Financial performance (55%)
Cost reduction (25%)
New markets (10%)
Safety (10%)
Other KMP *
Financial performance
Operational performance
Working capital
Cost reductions
Safety
Product diversification
* Each KMP have different KPIs and weightings. Some individual’s STI structures do not include all KPI categories listed.
8
DIRECTORS’ REPORT 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.
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 performance 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 yr 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.
9
DIRECTORS’ REPORT DIRECTORS’ REPORT REMUNERATION REPORT - AUDITED (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
SERVICES FROM REMUNERATION CONSULTANTS
During the year Guerdon Associates were engaged to provide advice in relation to possible amendments to the Korvest Performance Rights
Plan for future years. Guerdon Associates provided the Company with a range of alternative performance measures for the Remuneration
Committee to consider adopting for future issues under the Korvest Performance Rights Plan. Guerdon Associates did not make any
recommendations as to which measures should be adopted. The Remuneration Committee has adopted one of the alternatives included in the
Consultant’s report.
Guerdon Associates received a fee of $16,532 for the work.
Guerdon Associates surveyed Management to understand Management’s view of the current Plan. This was the only interaction between
Management and Guerdon Associates.
The Guerdon Associates report was supplied and presented directly to the Remuneration Committee. The Board confirms that given the limited
interaction between the consultants and Management, the Board is confident that the report was not unduly influenced by Management.
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 2018 and were applied for the entirety of the financial year ended 30 June 2019:
Chairman
$130,650
Director
$65,331
The Chairman of a Board Committee receives a further $10,887 p.a.
Superannuation is added to these fees where appropriate.
Non-executive directors do not receive performance-related compensation.
10
DIRECTORS’ REPORT
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:
Short Term
Post
employment
Salary &
Fees
$
Bonus
$
Superannuation
benefits
$
Year
Other
long term
– Long
Service
leave
$*
Share based
payments
Termination
Payment
Shares
$
Options
& Rights
$
Proportion of
remuneration
performance
related %
Total
$
Directors
G Billings
Non-executive
(Chairman)
G Francis
Non-executive
(Director)
G Hutchinson
Non-executive
(Director)
A Stobart
Non-executive
(Director)
C Hartwig 1,2
Executive
(Managing
Director)
2019
130,650
2018
128,088
2019
83,448
2018
81,816
2019
76,218
2018
74,724
2019
65,331
2018
64,050
-
-
-
-
-
-
-
-
2019
325,558
94,710
2018
293,150
48,404
12,412
12,168
-
-
7,241
7,099
6,206
6,085
25,006
25,199
-
-
-
-
-
-
-
-
9,650
9,539
S McGregor 2
Executive
(Finance Director)
2019
295,328
29,430
24,026
15,198
2018
285,533
10,636
25,046
10,193
Executives / other KMP
2019
190,000
29,925
20,175
1,061
2018
61,833
19,633
5,874
250
2019
188,500
17,520
18,130
11,551
2018
183,780
2,343
17,459
6,468
2019
66,252
-
6,294
(52,100)
148,498
S Taubitz
(became KMP
1 March 2018) 3
General Manager
Sales
G Christie
General Manager
Operations
P Assaf
(Retired 28 Sep
2018) 4
General Manager
Power Step &
Titan Technologies
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
143,062
140,256
83,448
81,816
83,459
81,823
71,537
70,135
18,883
473,807
499
9,143
385,934
-
-
-
-
19,566
383,548
10,233
341,641
6,100
247,261
-
87,590
998
11,638
248,337
998
499
5,738
216,786
-
169,443
-
-
-
-
-
-
-
-
24.0
14.9
12.8
6.1
14.6
8.8
11.7
3.7
-
2018
220,842
11,042
20,980
5,229
-
998
-
259,091
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.
1 From 1 July 2017 to 28 February 2018 C Hartwig 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. In July 2018 a payment of $12,550 was paid to C Hartwig as back-pay
for the period he was acting CEO. This payment is included in the 2019 Salary & Fees amount.
2 Executives have elected to have their superannuation contributions capped at $25,000 and instead have the balance above $25,000 paid as
salary rather than superannuation.
3 S Taubitz was appointed as General Manager Sales EzyStrut on 1 March 2018. For the comparative year salary and superannuation
benefits disclosed relate only to the period that he was part of KMP. The bonus and long service leave values for the comparative year are
full year values and therefore also include the period when he was in his prior role as State Manager – Victoria and not KMP. As the 2018
bonus payment relates to a full year the proportion of performance related remuneration has been calculated by annualising the salary and
superannuation components.
4 The termination payment for Paul Assaf represents the payment of accrued annual and long service leave.
The proportion of performance related remuneration is bonuses and share based payments divided by total remuneration.
11
DIRECTORS’ REPORT DIRECTORS’ REPORT
REMUNERATION REPORT - AUDITED (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
OPTIONS AND RIGHTS OVER EQUITY INSTRUMENTS GRANTED AS COMPENSATION DURING THE REPORTING PERIOD
Details on performance rights that were granted as compensation to each KMP during the reporting period are as follows:
Number of
performance rights
granted during the year
Grant date
Fair value per right at
grant date ($)
32,006
30,669
20,043
19,387
29 Oct 2018
29 Oct 2018
29 Oct 2018
29 Oct 2018
$2.03/$1.83
$2.03/$1.83
$2.03/$1.83
$2.03/$1.83
Expiry date
30 June 2021
30 June 2021
30 June 2021
30 June 2021
Directors
C Hartwig
S McGregor
Executives
S Taubitz
G Christie
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 $2.03. The fair value of the RTSR hurdle rights is $1.83.
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
DIRECTORS’ REPORT
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
C Hartwig
S McGregor
Executives
S Taubitz
G Christie
10,000*
23,000
28,000
32,006
28,500
29,300
30,669
20,043
12,500
19,000
19,387
Mar 09
Nov 16
Nov 17
Oct 18
Nov 16
Nov 17
Oct 18
Oct 18
Nov 16
Nov 17
Oct 18
-
44.8%**
-
-
-
55.2%
-
-
44.8%**
55.2%
-
-
-
-
-
-
44.8%**
55.2%
-
-
-
-
30 Jun 11
30 Jun 19
30 Jun 20
30 Jun 21
30 Jun 19
30 Jun 20
30 Jun 21
30 Jun 21
30 Jun 19
30 Jun 20
30 Jun 21
* 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.
** The three year performance period for performance rights issued in November 2016 ended on 30 June 2019. These rights were tested
against two performance hurdles, EPS and RTSR. The EPS hurdle was not met. Korvest’s total shareholder return over the performance period
was 43.38% which was at the 70th percentile of the comparator group. As a result 89.6% of the RTSR performance rights will vest. The vested
rights are able to be exercised up until 30 June 2020.
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
S Taubitz
G Christie
Granted in year $ (A)
Exercised in year $ (B)
Value of Rights / Options
61,740
59,161
37,398
38,663
-
-
-
-
(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 DIRECTORS’ REPORT
REMUNERATION REPORT - AUDITED (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
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 2018
AASB
Granted as
compensation
Exercised
Lapsed
Held at
30 June 2019
AASB
Held at
30 June 2019
ASX
Vested
during the
year
Directors
C Hartwig
S McGregor
Executives
S Taubitz
G Christie
61,000
57,800
-
31,500
32,006
30,669
20,043
19,387
-
-
-
-
(12,696)
(15,732)
-
(6,900)
80,310
72,737
20,043
43,987
70,310
72,737
20,043
-
10,304
12,768
-
5,600
No options held by KMP are vested but not exercisable.
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
N/A
17,500
-
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
S Taubitz*
G Christie
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
DIRECTORS’ REPORT
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 2018
Purchases
Allocated under
Employee/
Exec share plan
Held at
30 June 2019
Shares held subject
to non-recourse
loans
Directors
G Billings
C Hartwig
S McGregor
G Francis
G Hutchinson
A Stobart
Executives
S Taubitz
G Christie
667
13,993
32,004
6,271
500
500
2,128
-
8,000
6,100
-
-
-
5,000
-
-
-
-
-
-
-
-
394
-
8,667
20,093
32,004
6,271
500
5,500
2,522
-
-
10,000
-
-
-
-
-
-
No shares were granted to KMP during the reporting period as compensation other than those provided under the employee share plan on the
same terms and conditions as for all employees.
Held at
1 July 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
S Taubitz *
667
13,760
32,004
57,110
6,271
500
500
1,664
1,152
N/A
-
-
-
-
-
-
-
-
-
-
-
233
-
-
-
-
-
464
464
-
667
13,993
32,004
N/A
6,271
500
500
2,128
1,616
-
-
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 DIRECTORS’ REPORT
REMUNERATION REPORT - AUDITED (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
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.
KMP
C Hartwig
S McGregor
S Taubitz
G Christie
Maximum possible STI
Included in
remuneration $ (A)
% vested in year
% forfeited in year
(B)
Short-term incentive bonus
172,000
43,600
57,000
48,000
94,710
29,430
29,925
17,520
55.0
67.5
52.5
36.5
45.0
32.5
47.5
63.5
Amounts included in remuneration for the financial year represent the amount related to the financial year based on the achievement
(A)
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’ REPORT
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
Vested
30,093
8,667
32,004
6,271
500
5,500
60,006
-
59,969
-
-
-
10,304
-
12,768
-
-
-
C Hartwig
G Billings
S McGregor
G Francis
G Hutchinson
A Stobart
NON-AUDIT SERVICES
During the year KPMG, the Group’s auditor, has performed certain other services in addition to their statutory duties. The Board has considered
the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the Audit
Committee, is satisfied that the provision of these services did not compromise the auditor’s independence requirements of the Corporations Act
2001 for the following reasons:
•
•
all non-audit services were subject to the corporate 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
2019.
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-2019.pdf
Signed at Adelaide this Friday 26th of July 2019 in accordance with a resolution of the directors.
G A BILLINGS, Director
C A HARTWIG, Director
17
DIRECTORS’ REPORT DIRECTORS’ REPORT
5 YEAR SUMMARY
Sales revenue
Profit / (Loss) after tax
Depreciation/Amortisation
Cash flow from operations
Profit / (Loss) from ordinary activities
- As % of Shareholders’ Equity
- As % of Sales Revenue
Dividend
- Total amount paid
- Per issued share
Y
R
A
M
M
U
S
R
A
E
Y
5
- Times covered by profit from ordinary activities
Earnings per share
Number of employees
Shareholders
- Number at year end
2019
2018
2017
2016
2015
($’000)
60,843
56,962
44,731
54,981
63,025
($'000)
2,885
1,369
(1,578)
950
1,455
($'000)
1,469
1,625
1,710
1,716
1,642
($'000)
1,413
5,110
(384)
7,432
5,115
($'000)
9.3%
4.7%
1,787
16.0c
1.6
25.9
178
4.6%
2.4%
(5.4%)
(3.5%)
889
8.0c
1.5
2,192
20.0c
-
12.3
(14.4c)
180
171
2.9%
1.7%
2,328
22.0c
0.4
8.9c
193
4.4%
2.3%
5,032
48.0c
0.3
13.9c
225
1,652
1,694
1,813
1,882
2,029
Net assets per issued ordinary share
$2.76
$2.66
$2.63
$2.97
$3.13
Net tangible assets per issued ordinary share
$2.76
$2.66
$2.63
$2.97
$3.13
Share price as at 30 June
$2.70
$2.07
$2.36
$2.19
$3.55
18
TABLE OF CONTENTS
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. REVENUE AND OTHER INCOME
2. EXPENSES
3. FINANCE INCOME
4. EARNINGS PER SHARE
5. AUDITOR’S REMUNERATION
6. SEGMENT REPORTING
WORKING CAPITAL
7. TRADE AND OTHER RECEIVABLES
8.
INVENTORIES
9. TRADE AND OTHER PAYABLES
10. EMPLOYEE BENEFITS
11. PROVISIONS
TANGIBLE ASSETS
12. PROPERTY, PLANT AND EQUIPMENT
13.
IMPAIRMENT TESTING
14. COMMITMENTS FOR EXPENDITURE
20
21
22
23
24
24
26
26
26
27
27
28
28
30
30
31
31
31
34
35
35
38
38
CAPITAL STRUCTURE
15. CASH AND CASH EQUIVALENTS
16. FINANCIAL INSTRUMENTS
17. CAPITAL AND RESERVES
18. DIVIDENDS
TAXATION
19. CURRENT AND DEFERRED TAXES
BUSINESS COMBINATIONS
20.
INVESTMENT IN SUBSIDIARIES
OTHER NOTES
21. KEY MANAGEMENT PERSONNEL
22. PARENT ENTITY DISCLOSURES
23. SUBSEQUENT EVENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT
LEAD AUDITOR’S INDEPENDENCE
DECLARATION
ASX ADDITIONAL INFORMATION
SHAREHOLDINGS (AS AT 24 JULY 2019)
VOTING RIGHTS
TWENTY LARGEST SHAREHOLDERS
OFFICES AND OFFICERS
39
39
40
43
44
45
45
47
47
48
48
49
49
51
52
55
56
56
56
57
57
19
FINANCIAL STATEMENTSFINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2019
Continuing operations
Sales revenue
Other income
Expenses, excluding net finance costs
Profit before financing costs
Finance income
Net finance income
Profit before income tax
Income tax expense
Profit from continuing operations
Profit for the year
Total comprehensive income for the period
Attributable to:
Equity holders of the Company
Total comprehensive income for the period
Earnings per share attributable to the ordinary equity holders of
the Company:
Basic earnings per share from continuing operations
Diluted earnings per share from continuing operations
Note
1
2
3
19
4
4
2019
$’000
60,843
4
(56,775)
4,072
62
62
4,134
(1,249)
2,885
2,885
2,885
2,885
2,885
Cents
25.9
25.8
2018
$’000
56,962
-
(55,100)
1,862
40
40
1,902
(533)
1,369
1,369
1,369
1,369
1,369
Cents
12.3
12.3
The notes on pages 24 to 49 are an integral part of these consolidated financial statements.
20
FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION
For the year ended 30 June 2019
Note
2019
$’000
Assets
Cash and cash equivalents
Investment
Trade and other receivables
Prepayments
Inventories
Total current assets
Property, plant and equipment
Total non-current assets
Total assets
Liabilities
Trade and other payables
Employee benefits
Tax payable
Provisions
Total current liabilities
Employee benefits
Deferred tax liability
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained profit / (losses)
Total equity attributable to equity holders of the Company
Total equity
15
15
7
8
12
9
10
11
10
19
11
17
17
3,126
275
14,080
272
10,504
28,257
13,033
13,033
41,290
5,974
2,472
864
32
9,342
140
431
453
1,024
10,366
30,924
14,142
16,782
-
30,924
30,924
The notes on pages 24 to 49 are an integral part of these consolidated financial statements.
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
21
FINANCIAL STATEMENTSFINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2019
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 (payments) / refunds
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Acquisition of property, plant and equipment
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
Note
15
12
15
2019
$’000
66,461
(64,704)
1,757
62
(406)
1,413
24
(1,640)
(1,616)
(3)
(1,787)
(1,790)
(1,993)
5,119
3,126
2018
$’000
64,563
(59,600)
4,963
40
107
5,110
10
(804)
(794)
(2)
(889)
(891)
3,425
1,694
5,119
The notes on pages 24 to 49 are an integral part of these consolidated financial statements.
22
FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2019
Balance at 1 July 2018
Total comprehensive income for the
year
Profit for the year
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
Transfer to profits reserve
Balance at 30 June 2019
Share
capital
$’000
14,084
Equity
compensation
reserve
$’000
Asset
revaluation
reserve
$’000
Profits
reserve
$’000
Retained
profits /
(losses)
$’000
Total
$’000
248
3,735
11,854
(209)
29,712
-
-
-
58
-
-
58
-
-
-
-
56
-
-
56
-
-
-
-
-
-
-
-
-
14,142
304
3,735
-
-
-
-
(1,787)
(1,787)
2,676
12,743
2,885
-
2,885
2,885
-
2,885
-
-
-
-
114
-
(1,787)
(1,673)
(2,676)
-
-
30,924
Balance at 1 July 2017
14,039
227
3,735
12,743
(1,578)
29,166
Total comprehensive income for the
year
Profit for the year
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
-
-
-
45
-
-
45
-
-
-
21
-
-
21
-
-
-
-
-
-
-
-
-
-
-
(889)
(889)
1,369
-
1,369
-
-
-
-
1,369
-
1,369
66
-
(889)
(889)
Balance at 30 June 2018
14,084
248
3,735
11,854
(209)
29,712
The notes on pages 24 to 49 are an integral part of these consolidated financial statements.
23
FINANCIAL STATEMENTSFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
BASIS OF PREPARATION
CORPORATE INFORMATION
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 2019 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 26 July 2019.
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 12 – 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.
CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
The Group adopted AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments on 1 July 2018.
AASB 15 Revenue from Contracts with Customers
AASB 15 introduces a 5–step process for revenue recognition from contracts with customers. The standard requires that revenue be recognised
when the performance obligation is met, namely when the promised good or service is transferred to the customer. AASB 15 replaces all
previous revenue related accounting standards. AASB 15 was applied by the group from 1 July 2018. The Group adopted the full retrospective
transitional provisions in assessing the impact of AASB 15.
24
FINANCIAL STATEMENTS CHANGES IN SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues from sales of goods are recognised by the Group when the goods are transferred to the customer, namely from the time the customer
gains control of the goods. Revenue from services is recognised at the point the services are provided. Revenues are accounted for net of
discounts, rebates and returns.
The application of AASB 15 is not materially different from the previous standard in terms of recognition of revenue. Application of AASB 15 did
not impact the way in which the Group accounts for revenues.
AASB 9 Financial Instruments
The adoption of AASB 9 has not had a significant effect on the Group’s accounting policies related to financial liabilities. Trade receivables is
the only financial asset that has been impacted by the adoption of the standard, specifically the measurement basis for the impairment of trade
receivables.
As at 1 July, the Group reassessed the classification and measurement of financial assets and liabilities based on the business model by which
they are managed and their cash flow characteristics. Financial assets previously classified as loans and receivables of $15,344,000 were
recategorised as amortised costs.
AASB 9 replaces the ‘incurred loss’ model in AASB 139 with an ‘expected credit loss’ (ECL) model. The new impairment model applies to
financial assets measured at amortised cost and in Korvest’s case this includes trade receivables and cash and cash equivalents.
Under AASB 9, loss allowances are measured on either of the following bases:
•
•
12-month ECLs: these are ECLs that result from possible default events within the 12 months after reporting date; and
Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.
The Group has elected to measure loss allowances for trade receivables based on lifetime ECLs.
When determining the credit risk for trade receivables the Group uses quantitative and qualitative information and analysis, based on the
Group’s historical experience and informed credit assessment and including forward-looking information. Given the prudent approach to
estimating losses on receivables in accordance with the previous standard, the Group did not need to adjust the estimated recoverability of trade
receivables and other financial assets on transition to AASB 9.
STANDARDS ISSUED BUT NOT YET EFFECTIVE
A number of new standards are effective for annual periods beginnings after 1 July 2019 and earlier application is permitted; however, the Group
has not early adopted the new or amended standards in preparing these consolidated financial statements.
Of those standards that are not yet effective, AASB 16 Leases is expected to have a material impact on the Group’s financial statements.
AASB 16 Leases
The Group is required to adopt AASB 16 Leases from 1 July 2019. The Group has assessed the estimated impact that initial application of
AASB 16 will have on its consolidated financial statements. The actual impacts of adopting the standard on 1 July 2019 may change as the
new accounting policies are subject to change until the Group presents its first financial statements that include the date of initial application.
AASB 16 introduces a single, on–balance sheet accounting model for lessees. A Lessee recognises a right-of-use asset representing its right
to use the underlying asset and a liability representing its obligation to make lease payments. There are recognition exemptions for short-term
leases and leases of low-value items.
The Group will recognise new assets and liabilities for its operating leases of warehouses and a small number of forklifts. The nature of
expenses related to those leases will now change because the Group will recognise a depreciation charge for right-of-use assets and interest
expense on lease liabilities.
Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease.
Based on the information currently available, the Group estimates that on 1 July 2019 it will recognise lease liabilities and an offsetting right of
use asset of $5,162,000.
The Group plans to apply AASB 16 initially on 1 July 2019 using the modified retrospective approach. Therefore, the cumulative effect of
adopting AASB 16 will be recognised as an adjustment to the opening retained earnings as at 1 July 2019, with no restatement of comparative
information.
25
FINANCIAL STATEMENTSFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
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 customer gains control of the goods. Revenue from
services is recognised at the point the services are provided.
Good and services tax
Sales revenue
Sales of goods
Revenue is recognised net of goods and services tax (GST).
Disaggregation of revenue is presented in Note 6 Segment Reporting.
2. EXPENSES
2019
$’000
2018
$’000
60,843
56,962
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 before income tax has been arrived at after charging 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
Other:
Loss on disposal of property, plant and equipment
Research and development expense
26
2019
$’000
37,529
11,856
2,678
4,712
-
56,775
2018
$’000
36,088
12,320
2,403
4,279
10
55,100
15,462
15,317
1,842
1,217
1,304
101
62
-
79
1,708
1,180
1,129
200
48
10
-
FINANCIAL STATEMENTS 3. FINANCE INCOME
ACCOUNTING POLICIES
Finance income comprises interest income on funds invested. Interest income is recognised as it accrues, using the effective interest rate
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 earnings per share at 30 June 2019 was based on the net profit attributable to ordinary shareholders of $2,885,349
(2018: $1,368,595) and a weighted average number of ordinary shares outstanding during the financial year ended 30 June 2019 of
11,157,875 (2018: 11,104,989).
The calculation of diluted earnings per share at 30 June 2019 was based on the net profit attributable to ordinary shareholders of $2,885,349
(2018: $1,368,595) and a weighted average number of ordinary shares outstanding during the financial year ended 30 June 2019 of
11,191,027 (2018: 11,104,989).
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES (BASIC)
Issued ordinary shares at 1 July
Effect of shares issued during year
Weighted average number of ordinary shares at 30 June
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES (DILUTED)
Weighted average number of ordinary shares (basic)
Effect of Executive Share Plan
Weighted average number of ordinary shares at 30 June
BASIC AND DILUTED EARNINGS PER SHARE
Basic earnings per share from continuing operations
Diluted earnings per share from continuing operations
2019
Shares ’000
2018
Shares ’000
11,132
26
11,158
11,158
33
11,191
11,073
32
11,105
11,105
-
11,105
2019
Cents per
Share
25.9
25.8
2018
Cents per
Share
12.3
12.3
27
FINANCIAL STATEMENTSFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
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
6. SEGMENT REPORTING
2019
$
100,654
100,654
7,175
7,175
2018
$
97,300
97,300
7,175
7,175
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 predominantly 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.
Sales revenue
Depreciation and amortisation
Reportable segment profit before tax
Reportable segment assets
Capital expenditure
Industrial Products
Production
Total
2019
$’000
55,697
(875)
4,286
2018
$’000
51,682
(942)
2,126
25,178
19,531
1,136
421
2019
$’000
5,146
(209)
519
4,159
448
2018
$’000
5,280
(291)
227
4,214
379
2019
$’000
60,843
(1,084)
4,805
29,336
1,584
2018
$’000
56,962
(1,233)
2,353
23,745
800
28
FINANCIAL STATEMENTS 6. SEGMENT REPORTING (CONTINUED)
RECONCILIATION OF REPORTABLE SEGMENT PROFIT, ASSETS AND OTHER MATERIAL ITEMS
Profit
Total profit for reportable segments
Unallocated amounts – other corporate expenses (net of corporate income)
Profit 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 depreciation and amortisation
2019
$’000
4,805
(671)
4,134
29,336
7,333
3,401
1,220
41,290
1,584
56
1,640
1,084
385
1,469
2018
$’000
2,353
(451)
1,902
23,745
7,340
5,394
1,385
37,864
800
4
804
1,233
392
1,625
29
FINANCIAL STATEMENTSFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
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
2019
$’000
14,688
(608)
14,080
2018
$’000
10,589
(639)
9,950
Impairment
AASB 9 Financial Instruments was adopted on 1 July 2018. AASB 9 replaced the “incurred loss” model in AASB 139 with an ‘expected
credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortised cost and this includes trade
receivables.
Under AASB 9, loss allowances are measured on either of the following bases:
•
•
12-month ECLs: these are ECLs that result from possible default events within the 12 months after reporting date; and
Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.
The Group has elected to measure loss allowances for trade receivables based on lifetime ECLs.
When determining the credit risk for trade receivables the Group uses quantitative and qualitative information and analysis, based on the
Group’s historical experience and informed credit assessment and including forward-looking information. The Group did not need to adjust
the estimated recoverability of trade receivables and other financial assets on transition to AASB 9.
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.
Movement in allowance for impairment
Balance at 1 July
Amounts written off against allowance
Impairment loss recognised
Balance at 30 June
30
2019
$’000
(639)
31
-
(608)
2018
$’000
(582)
78
(135)
(639)
FINANCIAL STATEMENTS
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.
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
2019
$’000
2,339
351
7,814
10,504
2018
$’000
2,303
245
6,847
9,395
Finished goods are shown net of an impairment provision amounting to $1,454,000 (2018: $1,464,000) 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.
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.
Current
Trade payables and accrued expenses
Non-trade payables and accrued expenses
2019
$’000
3,279
2,695
5,974
2018
$’000
2,146
2,520
4,666
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 STATEMENTSFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
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
2019
$’000
925
1,547
2,472
140
2,612
2018
$’000
950
1,375
2,325
240
2,565
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.
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.
32
FINANCIAL STATEMENTS 10. EMPLOYEE BENEFITS (CONTINUED)
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.
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
November 2018
Total share options /
performance rights
Plan
ESP
ESP
KPRP
KPRP
KPRP
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
102,105
440,405
15,000
10,000
33,152
76,300
102,105
236,557
-
-
33,152
76,300
102,105
211,557
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:
2019
2018
RTSR hurdle
EPS Hurdle
RTSR hurdle
EPS Hurdle
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)
$1.83
$2.60
-
40.0%
4.6%
2.09%
3 yrs
2 yrs
$2.03
$2.60
-
40.0%
4.6%
2.09%
3 yrs
2 yrs
$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
33
FINANCIAL STATEMENTSFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
10. EMPLOYEE BENEFITS (CONTINUED)
Reconciliation of outstanding share options/rights
GRANT
DATE
EXERCISE
DATE
EXPIRY
DATE
EXERCISE
PRICE
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
2019
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 16
Jul 19
Jun 19
Nov 17
Jul 20
Jun 20
Nov 18
Jul 21
Jun 21
-
-
-
15,000
10,000
25,000
$4.13
74,000
76,300
-
-
-
-
-
-
102,105
-
-
-
(40,848)
-
-
150,300
102,105 (40,848)
-
-
-
-
-
-
-
Weighted average exercise price
$Nil
$Nil
$Nil
$Nil
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
Jun 18
Nov 16
Jul 19
Jun 19
Nov 17
Jul 20
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)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,000
10,000
25,000
$4.13
-
-
-
-
33,152
76,300
102,105
178,405
$Nil
15,000
10,000
25,000
$4.13
-
74,000
76,300
150,300
$Nil
-
-
33,152
$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
FINANCIAL STATEMENTS Site restoration and safety
A provision of $453,000 (2018: $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 (2018: 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 3.17% (2018: 3.0%) and an inflation
rate of 2.0% (2018: 2.0%) have been used for the calculation at 30 June 2019.
Current
Warranties
Non-current
Site restoration
TANGIBLE ASSETS
2019
$’000
2018
$’000
32
453
485
37
433
470
The following section shows the physical tangible and non-physical intangible assets used by the Group to operate the business, generating
revenues and profits.
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.
12. PROPERTY, PLANT AND EQUIPMENT
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;
•
•
• When the Group has an obligation to remove the assets or restore the site, an estimate of the costs of dismantling and removing
Any costs directly attributable to bringing the assets to a working condition for their intended use;
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.
35
FINANCIAL STATEMENTSFINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
12. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
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.
Land & Buildings
(fair value)
$’000
Plant &
Equipment (cost)
$’000
Total
$’000
Cost
Balance at 1 July 2017
Acquisitions
Disposals and write-offs
Transfer of equipment to inventory
Balance at 30 June 2018
Balance at 1 July 2018
Acquisitions
Disposals and write-offs
Balance at 30 June 2019
Accumulated depreciation and impairment losses
Balance at 1 July 2017
Depreciation charge for the year
Disposals
Transfer of equipment to inventory
Balance at 30 June 2018
Balance at 1 July 2018
Depreciation charge for the year
Disposals
Balance at 30 June 2019
Carrying amounts
At 30 June 2017
At 30 June 2018
At 30 June 2019
36
7,382
-
-
-
7,382
7,382
35
-
7,417
-
42
-
-
42
42
42
-
84
7,382
7,340
7,333
20,532
804
(340)
(16)
20,980
20,980
1,605
(244)
22,341
14,189
1,575
(320)
(6)
15,438
15,438
1,427
(224)
16,641
6,343
5,542
5,700
27,914
804
(340)
(16)
28,362
28,362
1,640
(244)
29,758
14,189
1,617
(320)
(6)
15,480
15,480
1,469
(224)
16,725
13,725
12,882
13,033
FINANCIAL STATEMENTS 12. PROPERTY, PLANT AND EQUIPMENT (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 2019.
The carrying amount of the Land and Buildings at cost at 30 June 2019 if not revalued would be $1,037,700 (2018:$1,056,410).
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 2017
Depreciation charge for the year
Balance at 30 June 2018
Balance at 1 July 2018
Additions
Depreciation charge for the year
Balance at 30 June 2019
$’000
7,382
(42)
7,340
7,340
35
(42)
7,333
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.
SIGNIFICANT UNOBSERVABLE
INPUTS
Market yield - 9.25%
Potential rental rate - $53/m2
Land value for vacant land - $150/m2
INTER-RELATIONSHIP BETWEEN KEY
UNOBSERVABLE INPUTS
AND FAIR VALUE MEASUREMENT
The estimated market value would
increase if:
•
•
Potential rental rate was higher
Land value was higher
VALUATION TECHNIQUE
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.
37
FINANCIAL STATEMENTSFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
13. IMPAIRMENT TESTING
ACCOUNTING POLICIES
The carrying amounts of the Group’s tangible 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. 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.
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 2019.
14. 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
2019
$’000
835
1,390
-
2,225
2018
$’000
759
1,372
-
2,131
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 $993,710 was recognised as an expense in the Statement of profit or loss and comprehensive income in respect
of operating leases (2018: $883,769).
38
FINANCIAL STATEMENTS 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.
15. CASH AND CASH EQUIVALENTS
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.
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.
Bank balances
Call deposits
Cash and cash equivalents in the statement of cash flows
Investments and term deposits
RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows from operating activities
Profit for the year
Adjustment for:
Depreciation and amortisation
Impairment of trade receivables
Impairment of inventories
Increase in provision for site rectification
Other
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
2019
$’000
1,884
1,242
3,126
275
2019
$’000
2,885
1,469
(4)
(10)
20
(2)
114
4,472
(4,126)
(29)
(1,098)
1,308
(20)
864
42
1,413
2018
$’000
1,468
3,651
5,119
275
2018
$’000
1,369
1,625
144
55
-
10
69
3,272
(817)
(23)
1,293
716
533
107
29
5,110
39
FINANCIAL STATEMENTSFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
16. FINANCIAL INSTRUMENTS
ACCOUNTING POLICIES
A number of the Group’s accounting policies and disclosures require measurement of fair values, for both financial and non-financial assets
and liabilities.
The Group applies 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).
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.
Financial assets and liabilities
All financial assets and liabilities are initially recognised at the fair value of consideration paid or received, net of transaction costs as
appropriate, and subsequently carried at fair value or amortised cost, as indicated in the table below.
FINANCIAL ASSETS AND LIABILITIES
CLASSIFICATION UNDER AASB 9
Cash, cash equivalents and Investments
Trade and other receivables
Trade and other payables
FINANCIAL RISK MANAGEMENT
Overview
Amortised cost
Amortised cost
Amortised cost
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.
40
FINANCIAL STATEMENTS 16. FINANCIAL INSTRUMENTS (CONTINUED)
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from customers.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting
date is summarised below:
Cash, cash equivalents and Investments
Trade and other receivables
Cash and cash equivalents
The cash, cash equivalents and investments are held with major Australian banks.
Trade and other receivables
2019
$’000
3,401
14,080
2018
$’000
5,394
9,950
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 uses an expected credit loss (ECL) model to measure the allowance for losses. The Group uses quantitative and qualitative
information based on the Group’s historical experience, informed credit assessment and including forward-looking information.
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
New Zealand
South America
Other
2019
$’000
2018
$’000
14,013
9,948
24
39
4
-
-
2
14,080
9,950
At 30 June 2019, the Group’s most significant customer, located in Australia, accounted for $2,472,702 of the trade and other receivables
carrying amount (2018: $2,015,121).
41
FINANCIAL STATEMENTSFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
16. FINANCIAL INSTRUMENTS (CONTINUED)
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
Liquidity risk
2019
$’000
10,431
3,642
7
-
2018
$’000
7,050
2,900
-
-
14,080
9,950
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).
2019
2018
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
5,974
5,974
(5,974)
(5,974)
(5,974)
(5,974)
-
-
4,666
4,666
(4,666)
(4,666)
(4,666)
(4,666)
-
-
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.
Currency risk
The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the Australian dollar (AUD).
The 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.
42
FINANCIAL STATEMENTS 16. FINANCIAL INSTRUMENTS (CONTINUED)
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.
17. 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.
Profits reserve
The profits reserve represents current year and accumulated profits transferred to a reserve to preserve the characteristic as a profit and not
appropriate against prior year accumulated losses. Such profits are available to enable payment of franked dividends in the future.
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
On issue at 30 June – fully paid
2019
Shares ’000
2018
Shares ’000
11,132
46
11,178
11,073
59
11,132
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.
43
FINANCIAL STATEMENTSFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
18. 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
2019
Interim 2019 ordinary
Final 2018 ordinary
Total amount
2018
Interim 2018 ordinary
Final 2017 ordinary
Total amount
Cents per
share
Total amount
$’000
Percentage
franked
Tax rate
Date of payment
9.0
7.0
5.0
3.0
1,006
781
1,787
556
333
889
100%
100%
100%
100%
30%
8 March 2019
30% 7 September 2018
30%
30%
9 March 2018
8 September 2017
UNRECOGNISED AMOUNTS
After the balance sheet date the following dividends were proposed by the directors. The dividends have not been provided.
2019
Final 2019 ordinary
Cents per
share
Total amount
$’000
Percentage
franked
Tax rate
Date of payment
13.0
1,456
100%
30% 6 September 2019
The financial effect of these dividends have not been brought to account in the financial statements for the financial year ended 30 June
2019 and will be recognised in subsequent financial reports.
DIVIDEND FRANKING ACCOUNT
30% franking credits available to shareholders of Korvest Ltd for subsequent financial years
2019
$’000
7,127
2018
$’000
7,273
The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:
(a) franking credits that will arise from the payment of the current tax liabilities;
(b) franking debits that will arise from the payment of dividends recognised as a liability at the year-end;
(c) franking credits that will arise from the receipt of dividends recognised as receivables by the tax consolidated group at the
year-end; and
(d) franking credits that the entity may be prevented from distributing in subsequent years.
The ability to utilise the franking credits is dependent upon being able to declare dividends. The impact on the dividend franking account of
dividends proposed after the reporting date but not recognised as a liability is to reduce it by $624,000 (2018: reduce by $334,700).
44
FINANCIAL STATEMENTS 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.
19. 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 20 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.
Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of a member of the tax consolidated 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.
45
FINANCIAL STATEMENTSFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
19. CURRENT AND DEFERRED TAXES (CONTINUED)
INCOME TAX RECOGNISED IN THE INCOME STATEMENT
Current tax expense
Current year
Deferred tax expense
Origination and reversal of temporary differences
- relating to current year
Total income tax expense in Statement of profit or loss and comprehensive income
2019
$’000
1,270
1,270
(21)
(21)
1,249
NUMERICAL RECONCILIATION BETWEEN TAX EXPENSE AND PRE-TAX NET PROFIT
Profit before tax
Income tax using the domestic corporation tax rate of 30% (2018:30%)
Non-deductible expenses
Recognition of previously unrecognised tax losses
Income tax expense on pre-tax net profit
RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities are attributable to the following:
2019
$’000
4,135
1,240
9
-
1,249
Property, plant and equipment
Inventories
Provisions / accruals
Provision for doubtful debts
Tax loss carried forward
Tax (assets) / liabilities
Set off of tax
Net tax (assets) / liabilities
Assets
Liabilities
Net
2019
$’000
2018
$’000
-
(436)
(975)
(181)
(287)
(1,879)
1,879
-
-
(439)
(970)
(190)
(380)
(1,979)
1,979
-
2019
$’000
1,780
530
-
-
-
2018
$’000
1,862
568
-
-
-
2,310
(1,879)
431
2,430
(1,979)
451
2019
$’000
1,780
94
(975)
(181)
(287)
431
-
431
2018
$’000
67
67
466
466
533
2018
$’000
1,902
570
(1)
(36)
533
2018
$’000
1,862
129
(970)
(190)
(380)
451
-
451
46
FINANCIAL STATEMENTS
19. CURRENT AND DEFERRED TAXES (CONTINUED)
MOVEMENT IN DEFERRED TAX BALANCES DURING THE YEAR
Balance
30 June 18
$’000
Recognised in
profit
$’000
Property, plant and equipment
Inventories
Provisions / accruals
Provision for doubtful debts
Tax loss carried forward
Property, plant and equipment
Inventories
Provisions / accruals
Provision for doubtful debts
Tax loss carried forward
(1,862)
(129)
970
190
380
(451)
Balance
30 June 17
$’000
(1,960)
(47)
945
192
952
82
Balance
30 June 19
$’000
(1,780)
(94)
975
181
287
(431)
82
35
5
(9)
(93)
20
Recognised in
profit
$’000
Balance
30 June 18
$’000
98
(82)
25
(2)
(572)
(533)
(1,862)
(129)
970
190
380
(451)
BUSINESS COMBINATIONS
This section outlines the Group’s structure and changes thereto.
20. INVESTMENT IN SUBSIDIARIES
ACCOUNTING POLICIES
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
Country of Incorporation
Ownership interest
PARENT ENTITY
Korvest Ltd
SUBSIDIARIES
Power Step (Australia) Pty Ltd
Power Step (Chile) SpA
Titan Technologies (SE Asia) Pty Ltd
Australia
Australia
Chile
Australia
2019
%
2018
%
100
100
100
100
100
100
47
FINANCIAL STATEMENTSFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 JUNE 2019
OTHER NOTES
21. 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
EXECUTIVE DIRECTORS
EXECUTIVES
• Graeme Billings (Chairman)
• Gary Francis
• Gerard Hutchinson
• Andrew Stobart
• Chris Hartwig (Managing Director from 28
February 2018, prior to that was Executive
General Manager, Sales & Marketing)
• Steven McGregor (Finance Director and
Company Secretary)
• Gavin Christie (General Manager, Operations)
• Stephen Taubitz (General Manager Sales -
EzyStrut) – became a member of KMP on
1 March 2018
• Paul Assaf (General Manager, Power Step &
Titan Technologies)
- Retired 28 September 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
Post-employment benefits
Termination payments
Long term benefits
Share based payments
2019
$
2018
$
1,592,870
1,565,929
119,489
149,498
(14,640)
57,684
145,261
247,680
(61,655)
23,034
1,903,901
1,920,249
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.
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.
48
FINANCIAL STATEMENTS 22. PARENT ENTITY DISCLOSURES
As at, and throughout, the financial year ending 30 June 2019 the parent entity of the Group was Korvest Ltd.
Result of parent entity
Profit for the period
Total comprehensive income for the period
Financial position of parent entity at year end
Current Assets
Total Assets
Current Liabilities
Total Liabilities
Share capital
Reserves
Retained earnings
Total Equity
2019
$’000
4,275
4,275
27,769
41,313
9,035
10,280
14,143
16,890
-
31,033
2018
$’000
1,262
1,262
24,074
37,510
6,385
7,787
14,084
15,793
(154)
29,723
GUARANTEES ENTERED INTO BY THE COMPANY
Bank guarantees given by the Company in favour of customers amounted to $57,483 (2018: $68,498).
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 2019, the Company had contractual commitments for the acquisition of property, plant and equipment of $187,000 (2018:
$144,000).
23. 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 STATEMENTSFINANCIAL STATEMENTS EzyStrut Victoria’s new facilities at Derrimut
DIRECTORS’ DECLARATION
DIRECTORS’ DECLARATION
For the year ended 30 June 2019
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 2019 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 2019.
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 26th July 2019
Signed in accordance with resolution of directors:
GRAEME BILLINGS
DIRECTOR
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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 2019 and of
its financial performance for the year ended
on that date; and
The Financial Report comprises:
• Consolidated statement of financial position as
at 30 June 2019;
• Consolidated statement of profit or loss and
income, Consolidated
other comprehensive
statement of
and
in equity,
Consolidated statement of cash flows for the
year then ended;
changes
• Notes
including a summary of significant
• complying with Australian Accounting
Standards and the Corporations Regulations
2001.
accounting policies; and
• Directors' Declaration.
The Group consists of the Company and the
entities it controlled at the year-end or from time to
time during the financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
audit of the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (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.
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.
52
INDEPENDENT AUDITOR’S REPORT
Valuation of inventories ($10.5m)
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
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.
3. Future inventory usage.
In assessing this key audit matter, we used senior
team members who understand the Group’s
business,
industry and the relevant economic
environment.
Our procedures included:
• Attending year-end stocktakes in significant
locations which included observing the Group’s
process of
identifying slow moving and
potentially obsolete inventory.
• Using
the current year selling price and
resulting gross margin for each product to
identify evidence of negative gross margin
products. We compared these negative gross
margin products to the inventory obsolescence
provision.
• Obtaining the calculation of the
inventory
obsolescence provision and comparing it to the
Group’s accounting policies,
the Group’s
analysis of slow moving inventory and current
year actual sales and usage.
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.
The Other information we obtained prior to the date of this Auditor’s report was the Directors’ report,
5 Year Summary and ASX Additional information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not
express an audit opinion or any form of assurance conclusion thereon, with the exception of the
Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In
doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or
our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information,
and based on the work we have performed on the Other Information that we obtained prior to the date of
this Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
• preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting
Standards and the Corporations Act 2001
• implementing necessary internal control to enable the preparation of a Financial Report that gives a true
and fair view and is free from material misstatement, whether due to fraud or error
• 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.
53
INDEPENDENT AUDITOR’S REPORT
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 2019,
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 2019.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted
in accordance with Australian Auditing Standards.
Paul Cenko
Partner
Adelaide
26 July 2019
KPMG
54
INDEPENDENT AUDITOR’S REPORT
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 2019 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
26 July 2019
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.
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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 24 JULY 2019)
SUBSTANTIAL SHAREHOLDERS
The number of shares held by substantial shareholders and their associates are set out below:
Shareholder
Perpetual Limited
Colonial First State Asset Management (Australia) Limited
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.
Percentage
10.72%
10.31%
6.14%
5.48%
Number
1,198,653
1,150,462
684,607
611,759
DISTRIBUTION OF EQUITY SECURITY HOLDERS
NUMBER OF EQUITY SECURITY HOLDERS
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Total Holders
726
615
147
140
14
1,642
Units
262,509
1,572,677
1,111,767
2,908,960
5,347,322
11,203,235
% Issued Capital
2.34
14.04
9.92
25.97
47.73
100
The number of shareholders holding less than a marketable parcel of ordinary shares is 286.
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
ASX ADDITIONAL INFORMATION TWENTY LARGEST SHAREHOLDERS
Name
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Donald Cant Pty Ltd
J P Morgan Nominees Australia Pty Limited
National Nominees Limited
Ace Property Holdings Pty Ltd
Brazil Farming Pty Ltd
Angueline Capital Pty Limited
Allegro Two Super Fund Pty Ltd
Rathvale Pty Limited
Brazil Farming Pty Ltd
Creative Living (Qld) Pty Ltd
Robert Nairn Pty Ltd
18&1 Capital Pty Limited
Gotterdamerung Pty Limited
Mrs Helen Elizabeth Rollinson
Mr Sean David Cunningham
Ms Nina Tschernykow
A & R Truda Pty Ltd
Mr Geoffrey Neil Huddleston + Mrs Raelene Jane Huddleston
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
1,194,928
1,183,089
611,759
609,768
482,172
200,000
181,163
153,196
129,803
128,858
124,554
120,000
118,032
110,000
84,327
66,633
65,263
60,720
60,683
54,644
10.67
10.56
5.46
5.44
4.30
1.79
1.62
1.37
1.16
1.15
1.11
1.07
1.05
0.98
0.75
0.59
0.58
0.54
0.54
0.49
5,739,592
51.22
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Korvest Ltd, 580 Prospect Road, Kilburn, SA 5084
T: 61 8 8360 4500 | F: 61 8 8360 4599 | E: korvest@korvest.com.au
www.korvest.com.au
www.ezystrut.com.au
www.powerstep.com.au
www.titantools.com.au
www.korvestgalvanisers.com.au