korvest
Annual Report 2023

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Annual Report Korvest Ltd (ABN 20 007 698 106) 30 June 2023 Table of Contents ESG STRATEGY STATEMENT AND CORE VALUES ..................................................................................................................... 3 DIRECTORS’ REPORT .............................................................................................................................................................. 7 REMUNERATION REPORT – AUDITED ................................................................................................................................... 13 5 YEAR SUMMARY ............................................................................................................................................................... 25 FINANCIAL STATEMENTS ...................................................................................................................................................... 26 ASX ADDITIONAL INFORMATION ......................................................................................................................................... 67 2 Korvest Ltd ESG Strategy Statement and Core Values Our ESG Vision is as follows: Korvest aims to integrate ESG considerations into all facets of our business activities. We conduct our business in a socially responsible and ethical manner, aiming to protect the environment and benefit the communities where we work. We look after the health, safety and wellbeing of our employees and ensure effective corporate governance, whilst achieving strong financial performance. Korvest has developed a set of values that underpin the way in which we operate and help to achieve our vision. The core values are as follows: • Always Safe & Environmentally Focussed • Act with Integrity • Work as One Team • Think Customer • Pursue Excellence • Financially Responsible Social Safety performance Through ongoing continuous improvement and consultation, Korvest continued to drive down the numbers of lost time injuries. Building on a significant reduction in FY22, the ongoing improvement in FY23 resulted in a reduction of the lost time injury frequency rate by 67%. This downwards trend was also evident in the total injury rate with a decrease of 44% during FY23. Automation of manual handling tasks is a key area of improvement with the implementation of new tow tugs for moving loaded trolleys around the manufacturing plant and the commissioning of our latest multi axis welding robot being rolled out during the year. Employee health & wellbeing In addition to safety, Korvest undertakes a number of programmes aimed to improve the health and wellbeing of our employees, including: • Employee Assistance Program providing access to free counselling and support across many areas such as health, wellbeing, finances, psychology, legal, etc. • Ongoing health surveillance program to monitor the hearing of employees • Voluntary health screening including cholesterol and blood sugar readings • Voluntary skin checks • Voluntary influenza vaccinations Korvest Charity Scheme Korvest has operated a company-wide workplace giving charity scheme for many years. The scheme allows employees to make donations to a nominated charity that are matched on a dollar-for-dollar basis by the company. Korvest’s Staff Consultative Committee choose the designated charity for 2 years on a rotational basis. A new initiative in FY23 saw Korvest launch the Korvest Community Support Program, providing donations to staff-nominated not for profit groups, organisations and charities that are important to them and their community. A total of $24,500 was donated by Korvest in FY23 under this scheme. Diversity and Inclusion Korvest is committed to promoting a culture that embraces a diverse mix of employees throughout all levels of the company. We recognise that our success is directly related to our people. Our people reflect a growing diversity, with different gender, ages, family status, cultures, ethnicities, and religions represented among our employees. The Board and Management have set specific gender targets for various areas within the business. Our gender representation statistics are shown in the table below against our long-term objective. 3 Korvest Ltd Objective Actual 2022 Actual 2023 % 40% 50% 20% Number 5 21 32 % 28% 58% 15% Number % 4 22 31 20% 63% 13% Number of females in senior management positions Number of females in administration/sales positions Number of female employees in the whole organisation Environment The protection of our environment is a cornerstone of our business. Korvest maintains ISO14001 (Environmental Management) accreditation, a South Australian Environmental Protection Authority (EPA) Licence for the Kilburn manufacturing facility and a WHS Management System in compliance with each states’ legislative requirements. Legislative compliance In October 2022, the SA EPA renewed Korvest’s licence for a further 3 years for the Kilburn factory. Noise Management Korvest continued to roll out Noise Management Plan initiatives over the period including: • • • Completing the replacement of steel plate drain covers with a concrete dish drain to remove noise when traffic traversed the drain, Increasing the fleet of electric forklifts, replacing previously LPG powered machines on site, and Trialling the installation of PLEXIGLASS Soundstop Noise Barrier sheeting around some machines. Energy Energy efficiency and greenhouse gas emissions go hand in hand. Efficient use of energy and implementing opportunities to generate solar power have been an ongoing strategy for Korvest over a number of years. With 12 months of production from our new system on the warehouse supplementing the original system on the factory roof Korvest generated approximately 342.1MWh of electricity from the 580 Prospect Rd system. This contributed to approximately 22% of the factory’s overall power consumption for the period whilst contributing nearly 100MWh of power exported to the grid. The chart below demonstrates the effect of the LED and Solar Projects on CO2e emissions for the Kilburn plant relative to the hours worked over the period. What is observed now is the results of our investments with a repeated seasonal trend over the winter period. 4 00.00050.0010.00150.0020.0025Jul-18Oct-18Jan-19Apr-19Jul-19Oct-19Jan-20Apr-20Jul-20Oct-20Jan-21Apr-21Jul-21Oct-21Jan-22Apr-22Jul-22Oct-22Jan-23Apr-23Kilburn CO2e tonnes per hours worked Korvest Ltd Year 22/23 21/22 Change Total Scope 1 CO2e emissions (tonnes) 2,237 2,206 Total Scope 2 CO2e emissions (tonnes) 411 526 1.4% increase 21.9% reduction Overall change 3.1% reduction The significant reduction in our Scope 2 emissions is due to the full 12 months of generation by the Kilburn Warehouse solar installation compared to only 6 month in the previous financial year. The slight increase in the Scope 1 emissions were partly due to the increase in the company fleet of vehicles over the period. However, Korvest are working to offset this increase with the introduction of hybrid sales representative’s vehicles and additional electric forklifts as we change over the existing fleet. Our focus has now turned to mains gas savings opportunities at the Kilburn plant with gas being a major input into our galvanising processes and accounting for the majority of our total Scope 1 emissions. These are complex engineering projects and will be implemented over the next 2 years. Galvanising Plant Emissions Korvest continues to participate in the National Pollution Inventory (NPI) reporting scheme for our galvanising emissions. This data is publicly available through the NPI web site. Our galvanising dust plant operated for the full operational hours of the kettle this year with the zinc oxide collected from this plant sold for recycling. Waste Management & Recycling Korvest initiated a new recycling data capturing system during the financial year. Korvest measures the tonnes of all materials sent off site for recycling. This includes zinc composites recovered from the galvanising kettles and the dust plant, various metals and wood. Prior to being sent off for recycling, zinc ash is reprocessed on site (MZR recovery) with approximately 45 tonnes of reclaimed zinc being added back into the galvanising kettles during the year. 5 Natural gasLPGPetrolDieselElectricitySource of Scope 1 and 2 Emissions Korvest Ltd Governance Korvest’s corporate governance statement, which was approved by the Board on 24 July 2023 is available on the company’s website at Corporate Governance. Compliance Training Korvest provides a range of relevant role-specific training to employees delivered in various ways including face-to-face sessions and online modules. Compliance training is provided on a cyclical basis on a range of topics including:- Competition and Consumer Law, • Anti bribery and corruption, • • Whistle-blower, • Bullying and harassment, • • Modern Slavery. IT Awareness and Cyber Safety, and Cyber Security Given the increasing risks associated with cyber security, Korvest engages IT specialists to assist with the operation and security of the Korvest IT environment. During the year Korvest completed a range of projects aimed at achieving at least Maturity Level 1 for each of the Australian Signals Directorate (ASD) Essential 8. User training plays a key role in reducing cyber risks and Korvest continued providing all IT users with regular training on cyber security. Users receive a short 3 minute training video every 3-4 weeks on different cyber security topics. Over 80% of users have indicated that they have changed something they do in their daily work practices to make them more secure after completing the training. 6 Zinc ashZinc drossZinc via MZRWoodAluminiumSteelStainlessSteelCopperTonnes Recycled Directors’ report For the year ended 30 June 2023 The directors present their report together with the financial statements of Korvest Ltd (‘the Company’) for the financial year ended 30 June 2023 and the auditor’s report thereon. Korvest Ltd DIRECTORS The directors of the Company at any time during or since the end of the financial year are: Name, qualifications and independence status Experience, special responsibilities and other directorships Andrew Stobart B. Eng (Hons), Grad Dip Bus Admin, GAICD Chairman Appointed Chairman 31 August 2021 A Director since August 2016 Former Chairman Nexans Olex Australia & New Zealand Member of Audit and Remuneration Committees Chris Hartwig 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 Director Galvanising Association of Australia Gerard Hutchinson MBA, MBL, MSc(IS), BEc, MA (Research), FCA, FAICD Independent Non-Executive Director Gary Francis BSc. (Hons) (Civil), MAICD Independent Non-Executive Director Therese Ryan LLB, GAICD Independent Non-Executive Director A Director since November 2014 Mr Hutchinson has held roles of Chief Financial Officer and Managing Director in a range of large and publicly-listed businesses across the construction, engineering and services sectors. He is currently Chief Financial Officer of Al-Futtaim Contracting Chairman of Audit Committee and member of Remuneration Committee A Director since February 2014 Mr Francis has worked in the construction industry at Senior Manager or Director level in Australia and Asia Chairman of Remuneration Committee and member of Audit Committee A Director since 1 September 2021 Director Sustainable Timber Tasmania Chair Gippsland Water Deputy Chair VicForests Chair Hancock Victorian Plantations Director Bapcor Limited until September 2022 Member of Audit and Remuneration Committees Steven McGregor BA(Acc), FCA, AGIA, ACG Finance Director Company Secretary since April 2008 Appointed as Finance Director 1 January 2009 Mr McGregor previously held the role of Chief Operating Officer and Company Secretary for an unlisted public company. Prior to that he spent 9 years in the assurance division of KPMG. COMPANY SECRETARY Mr Steven J W McGregor FCA, AGIA, ACG, BA(Acc) was appointed to the position of company secretary in April 2008. Mr McGregor previously held the role of Chief Operating Officer and Company Secretary with an unlisted public company for seven years. 7 Korvest Ltd Directors’ Report For the year ended 30 June 2023 RETIREMENT AND RE-ELECTIONS In accordance with the Constitution, Gary Francis and Steven McGregor retire from the Board at the forthcoming Annual General Meeting on 31 October 2023 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 Board Audit Committee Remuneration Committee A B A Mr A Stobart 12 12 Mr G Francis 12 12 Mr G Hutchinson 12 12 Ms T Ryan 12 12 Mr C Hartwig 12 12 Mr S McGregor 12 12 4 4 4 4 - - B 4 4 4 4 - - A 2 2 2 2 - - B 2 2 2 2 - - Nomination Committee A B - - - - - - - - - - - - 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 2023 (FY23) was $107.48m, up 8.3% on the previous year. Price rises for the general market to recover the impact of input cost increases was the primary reason for the revenue growth. The timing of project requirements resulted in reduced project revenue in FY23. 8 Korvest Ltd Directors’ Report For the year ended 30 June 2023 DIVIDENDS The directors announced a fully franked final dividend of 35.0 cents per share (2022: 35.0 cents per share) following an interim dividend of 25.0 cents per share at the half year (2022: 25.0 cents per share). The Dividend Reinvestment Plan (DRP) will remain suspended for the final dividend. The dividend will be paid on 6 September 2023 with a record date of 18 August 2023. 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 2023 Interim 2023 ordinary Final 2022 ordinary Total amount Cents per share Total amount $’000 Franked/ unfranked 25.0 35.0 2,892 Fully franked 4,045 Fully franked 6,937 Date of payment 3 March 2023 2 September 2022 Franked dividends declared and paid during the year were franked at the rate of 30 per cent. Declared after end of year After the reporting date the following dividends were proposed by the directors. The dividends have not been provided for and there are no income tax consequences to the Company. Final ordinary Total amount 35.0 4,052 Fully franked 4,052 6 September 2023 The financial effect of these dividends has not been brought to account in the financial statements for the year ended 30 June 2023 and will be recognised in subsequent financial reports. Dividends have been dealt with in the financial report as: Dividends Dividends – subsequent to 30 June 2023 Note Total amount $’000 18 18 6,937 4,052 PRINCIPAL ACTIVITIES, STRATEGY AND FUTURE PERFORMANCE The principal activities of the Company consist of hot dip galvanising, sheet metal fabrication and the manufacture of cable and pipe support systems and fittings. The Company is comprised of the Industrial Products Group which includes the EzyStrut business 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 segments. Supply to the infrastructure sector remained strong in FY23 albeit at lower levels than was the case in FY22. The majority of the infrastructure activity comprises road and rail tunnels on the Eastern Coast. Three major projects were completed during FY23 and a further three major projects that were supplied during FY23 will continue into FY24. Subject to the broader economic environment the day-to-day and project markets are expected to continue at similar levels to FY23. Korvest’s recent and future focus for investment will be on production capability and capacity. Options are being explored to redevelop parts of the Kilburn site to accommodate new equipment to further improve productivity. Korvest has a long history of paying franked dividends. The target dividend payout ratio range is 65-90% of after tax profits. 9 Korvest Ltd Directors’ Report For the year ended 30 June 2023 REVIEW OF OPERATIONS Industrial Products In the Industrial Products segment, 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. Six major infrastructure projects were supplied at various times during the year. Three of those projects were completed during the year, with the remaining three projects to continue into FY24. The day-to-day and small project markets improved in all states when compared to the prior year. The improvement was due to both volume increases and price increases. Price increases were applied to maintain margins in response to increased input costs, particularly steel, freight and labour. Inventory reduced from the higher levels that had been in place in response to the supply chain challenges experienced during COVID19. Production The Galvanising business had reduced volumes compared to the record FY22 volumes. The reduction in EzyStrut major project work resulted in lower levels of internal work for the plant in FY23. External volumes grew as did the average selling price for external work. The selling price improvement is attributable to the introduction of a gas levy to recover the significant increase in the cost of gas from 1 January 2023 when new contracted rates commenced. The cost of zinc fluctuated over the course of the year but overall was higher in FY23 compared to FY22. The average cost of zinc consumed in FY23 was 16% higher than in FY22. FY23 margins were comparable to the prior year as the extra costs of zinc, gas and labour were recovered from customers via price increases and the gas levy. 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 and this will encompass any changes to the risk profile of their business unit. Operational risks relate principally to continuity of supply and 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 purchased finished goods the ability for the product to also be manufactured in-house mitigates the risk. During COVID19 the risk of global supply chain disruption and labour shortages became evident. These risks have diminished during FY23 as global supply chains have improved and the labour market issues have moderated. 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. Credit insurance is carried to mitigate the collection risk associated with trade receivables. Strategic risks cover a range of areas including competitors, customers and products together with global and local market developments. Korvest’s risks in relation to climate change are similar to those faced by other manufacturers. The cost and availability of energy has become a significant national issue in recent years. Electricity is used in the factory and gas is used in the galvanising plant. Over recent years Korvest has invested in solar at Kilburn and has 443kW of generation capacity on site to reduce consumption of externally generated electricity. 10 Korvest Ltd Directors’ Report For the year ended 30 June 2023 SIGNIFICANT CHANGES In the opinion of the directors there were no significant changes in the state of affairs of the Company that occurred during the financial year under review. EVENTS SUBSEQUENT TO REPORTING DATE Other than the dividend declared after reporting date, at the date of this report there is no matter or circumstance that has arisen since 30 June 2023, that has significantly affected, or may significantly affect: (i) the operations of the Company; (ii) the results of those operations; or (iii) the state of affairs of the Company; in the financial years subsequent to 30 June 2023. LIKELY DEVELOPMENTS Korvest’s focus remains on improving the production capability at the Kilburn factory. Options are being explored to redevelop parts of the Kilburn site to accommodate new equipment to further improve productivity. Working capital management is always a focus area. Inventory levels have reduced as the risks from the last few years have diminished. Increasing costs of key materials result in higher Inventory value however the focus is on reducing the volume of inventory being held without impacting on customer service to minimise the value of stock being held. Collection of accounts receivables has been well controlled during the year and this focus on collection will continue. Further information about likely developments in the operations of the Company 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 Company. ENVIRONMENTAL REGULATION Korvest’s Kilburn operations are subject to environment regulation under both Commonwealth and State legislation in relation to its manufacturing and galvanising activities. Korvest is committed to achieving a high standard of environmental performance through: • maintenance of ISO14001 accreditation • • • regular monitoring of SA EPA licence requirements implementing environmental management plans as required where there may be significant environmental impact reporting annual emissions through the National Pollution Inventory report Based on results of enquiries made, the board is not aware of any significant breaches during the period covered by this report. INDEMNIFICATION AND INSURANCE OF OFFICER AND AUDITORS Since the end of the previous financial year the Company has paid insurance premiums in respect of directors’ and officers’ liability for current and former directors and officers of the Company and related entities. The insurance premiums relate to: a) b) costs and expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and whatever their outcome; and 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 as such disclosure is prohibited under the terms of the contract. Korvest Ltd has not, during or since the financial year, indemnified or agreed to indemnify the auditor of Korvest Ltd against a liability incurred as auditor. 11 Korvest Ltd Directors’ Report For the year ended 30 June 2023 SHARE OPTIONS AND PERFORMANCE RIGHTS Options There are no unissued ordinary shares of Korvest Ltd under option at the date of this report. Unvested performance rights Performance rights granted become exercisable if certain performance requirements are achieved. If achieved, performance rights are exercisable into the same number of ordinary shares in the company in the twelve month period following vesting. Expiry date (end of Performance Period) Exercise price Number of shares 30 June 2023 30 June 2024 30 June 2025 Nil Nil Nil 84,814 65,230 67,232 Shares issued on exercise of options or performance rights No options were exercised during the year ended 30 June 2023 or up to the date of this report. Vested Performance Rights 91,796 ordinary shares of Korvest Ltd were issued during the year ended 30 June 2023 on the vesting of performance rights granted under the Korvest Performance Rights Plan. No amount is payable on the vesting of the performance rights and accordingly there are no amounts unpaid on the shares issued. 12 Korvest Ltd Remuneration Report – Audited For the year ended 30 June 2023 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 Company, including directors of the Company and other senior executives. KMP comprise the directors and senior executives of the Company. Compensation levels for KMP are competitively set to attract and retain appropriately qualified and experienced directors and executives. The Company has not engaged third party consultants during FY23. 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 executive; (b) the executive’s ability to control performance; and (c) the Company’s performance including the Company’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 executives 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 Company’s performance and benefits for shareholder wealth, the remuneration committee have regard to the indices set out below. Profit after tax Dividend - Total amount paid - Per issued share Earnings per share Share price as at 30 June Return on invested capital (ROIC) ($'000) ($'000) 2023 11,177 2022 11,336 6,937 60.0c 96.7c $7.75 23.5% 5,152 45.0c 99.0c $7.01 26.7% 2021 6,054 3,169 28.0c 53.5c $4.99 18.4% 2020 4,027 3,149 28.0c 35.8c $4.00 13.8% 2019 2,885 1,787 16.0c 25.9c $2.70 10.3% 13 Korvest Ltd Remuneration Report – Audited For the year ended 30 June 2023 Short-term incentive bonus The key performance indicators (KPIs) for the executives are set annually. The KPIs include measures relating to financial and operating performance, strategy implementation and risk management. The KPIs are chosen to directly align the individual’s reward to the KPIs of the Company 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 executive. The table below summarises the nature and weighting of the KPIs included in the STIs. Managing Director Financial performance (50%) Operational performance (25%) New markets (20%) Environmental (5%) Other executives * Financial performance Operational performance New markets Safety & Environment Working capital * Each executive has different KPIs and weightings aligned with their focus of responsibility. Some individual’s STI structures do not include all KPI categories listed. Long-term incentive bonus Performance rights are issued under the Korvest Performance Rights Plan to employees (including KMP) as determined by the Remuneration Committee. Performance rights become vested performance rights if the Company 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). The EPS objective was chosen because it is a good indicator of the Company’s earnings growth and is aligned to shareholder wealth objectives. 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. To determine the aggregate EPS performance required over the performance period, a % growth is applied to a base EPS. For the most recent issue of Performance Rights, the base EPS is equal to the average of the statutory EPS for the FY21 and FY22 years. The table below sets out the % of rights that vest depending on the aggregate level of EPS achieved over the performance period. Aggregate EPS over performance period (3 years to 30 June 2025) % of rights that vest Less than 252.398 cents 252.398 cents Between 252.398 and 288.174 288.174 or greater Nil 25% Pro rata between 25% – 100% 100% 14 Remuneration Report For the year ended 30 June 2023 The second performance hurdle relates to Return on Invested Capital (ROIC). The ROIC performance hurdle measures the efficiency in allocating capital to generate profitable returns. The ROIC is calculated as follows: Korvest Ltd ROIC = Net Operating Profit After Tax (NOPAT) Total Invested Capital (TIC) Where • NOPAT is the average of the net operating profit after tax over the three years of the vesting period • TIC is the average of the Company’s invested capital, calculated as follows: (current assets – current liabilities – cash and investments) + (property, plant and equipment + goodwill + intangibles). The average TIC will be the average of the balances as at 30 June and 31 December during the vesting period. The ROIC performance rights issued during FY 23 will vest in accordance with the table below: Average 3 year ROIC Less than 8% 8% Above 8% and below 12% % of rights that vest Nil 50% Between 50% and 100% using a straight line analysis 12% or greater 100% 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 Company 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 Company’s policy that service contracts for all executives are unlimited in term but capable of termination by providing 1 to 6 months’ notice depending on the executive, and that the Company retains the right to terminate the contract immediately by making payment in lieu of notice. The Company has entered into a service contract with each executive KMP. On termination of employment the executives are also entitled to receive their statutory entitlements and accrued annual leave and long service leave, as well as any entitlement to incentive payments and superannuation benefits. Services from remuneration consultants No remuneration consultants were used during the year. 15 Korvest Ltd Remuneration Report For the year ended 30 June 2023 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 2022 and were applied for the entirety of the financial year ended 30 June 2023: Chairman Director $136,067 $71,508 The Chairman of a Board Committee receives a further $11,894 p.a. Superannuation is added to these fees where appropriate. Non-executive directors do not receive performance-related compensation. 16 Remuneration Report For the year ended 30 June 2023 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 Company are: Korvest Ltd Name Non-Executive Directors A Stobart Non-executive (Chairman) G Francis Non-executive (Director) G Hutchinson Non-executive (Director) T Ryan Non-executive (Director) Former Director G Billings Non-executive (Chairman) (retired 31 August 2021) Total 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 Short Term Fees $ Post employment Superannuation benefits $ 136,067 124,599 83,402 79,287 83,402 79,296 71,508 56,640 14,287 12,460 8,757 7,929 8,757 7,930 7,508 5,664 Total $ 150,354 137,059 92,159 87,216 92,159 87,226 79,016 62,304 - - - 22,654 374,379 362,476 2,265 39,309 36,248 24,919 413,688 398,724 17 Remuneration Report For the year ended 30 June 2023 Korvest Ltd Name Executive Directors C Hartwig 1 2023 Executive (Managing Director) 2022 S McGregor 1 2023 2022 Executive (Finance Director) Executives / other KMP S Taubitz 1 2023 2022 General Manager Sales 2023 G Christie General Manager Operations 2022 Total executives’ remuneration 2023 2022 Short Term Salary & Fees* $ 360,583 343,287 333,285 315,899 286,569 250,060 210,000 200,000 1,190,437 1,109,246 Bonus $ 168,784 141,593 42,856 27,780 111,100 100,558 59,934 48,419 382,674 318,350 * Salary & fees includes payments for annual leave taken. Other long term – Long Service leave $ ** Post employment Superannuation benefits $ Share based payments Performance Rights $ Shares $ Proportion of remuneration performance related % Total $ 27,773 27,672 27,764 27,665 27,865 27,800 27,134 25,250 110,536 108,387 10,990 13,874 11,358 19,331 16,537 14,391 7,327 11,341 46,212 58,937 - - - - 994 999 994 999 1,988 1,998 100,642 94,203 96,450 90,258 72,698 67,605 60,087 58,479 329,877 310,545 668,772 620,629 511,713 480,933 515,763 461,413 365,476 344,488 2,061,724 1,907,463 40.3 38.0 27.2 24.5 35.6 36.4 32.8 31.0 ** 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 Where annual superannuation contributions exceed $27,500 executives can elect to have some or all of the superannuation contributions above $27,500 paid as salary rather than superannuation. The proportion of performance related remuneration is bonuses and performance rights divided by total remuneration. 18 Korvest Ltd Remuneration Report For the year ended 30 June 2023 Performance rights over equity instruments granted as compensation during the reporting period Details on performance rights that were granted as compensation to each KMP during the reporting period are as follows: Number of performance rights granted during the year Grant date Fair value per right at grant date ($) Expiry date 18,490 17,730 13,164 10,052 26 Oct 2022 26 Oct 2022 26 Oct 2022 26 Oct 2022 $5.04 $5.04 $5.04 $5.04 30 June 2025 30 June 2025 30 June 2025 30 June 2025 Directors C Hartwig S McGregor Executives S Taubitz G Christie Half of the performance rights issued to each KMP will be tested against an Earnings Per Share (EPS) hurdle with the other half being tested against a Return on Invested Capital (ROIC) hurdle. 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 Company achieving performance hurdles. Details of the performance criteria are included in the long-term incentives discussion on page 15. No equity-settled share-based payment transaction terms (including performance rights granted as compensation to KMP) have been altered or modified by the Company during the reporting period or the prior period. Exercise of performance rights granted as compensation During or since the end of the financial year, the Company issued ordinary shares of the Company as a result of the exercise of performance rights as follows (there are no amounts unpaid on the shares issued): Number of Shares Amount paid on each share 91,796 Nil 19 Korvest Ltd Remuneration Report For the year ended 30 June 2023 Analysis of performance 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 25,936* 19,530 18,490 24,852* 18,710 17,730 17,930* 14,860 13,164 16,096* 12,130 10,052 Oct 20 Oct 21 Oct 22 Oct 20 Oct 21 Oct 22 Oct 20 Oct 21 Oct 22 Oct 20 Oct 21 Oct 22 Directors C Hartwig S McGregor Executives S Taubitz G Christie % vested in current year % forfeited or lapsed in current year Year in which grant vests 100% - - 100% - - 100% 100% - - - - - - - - - - - - 30 Jun 23 30 Jun 24 30 Jun 25 30 Jun 23 30 Jun 24 30 Jun 25 30 Jun 23 30 Jun 24 30 Jun 25 30 Jun 23 30 Jun 24 30 Jun 25 * The three year performance period for performance rights issued in October 2020 ended on 30 June 2023. These rights were tested against two performance hurdles, earnings per share (EPS) and return on invested capital (ROIC). Korvest’s aggregate EPS was 249.2 over the performance period. This results in 100% of the EPS performance rights vesting. Korvest’s ROIC was 23.3% over the performance period. This results in 100% of the ROIC performance rights vesting. 20 Korvest Ltd Remuneration Report For the year ended 30 June 2023 Analysis of movements in performance rights granted as compensation The movement during the reporting period, by value, of performance rights over ordinary shares in the Company held by each 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 93,115 89,288 66,293 50,621 210,540 201,735 145,545 130,650 (A) The value of performance rights granted in the year is the fair value of the options calculated at grant date using the Black-Scholes option-pricing model. The total value of the options granted is included in the table above. This amount will be allocated to remuneration over the vesting period (i.e. in years 1 July 2022 to 30 June 2025) subject to meeting the associated performance conditions. (B) The value of the performance rights exercised during the year is calculated as the market price of shares as at the close of trading on the date the performance rights were exercised after deducting the price to exercise the option. Further details regarding options granted to executives under the Executive Share Plan are in Note 10 to the financial statements. Options and rights over equity instruments The movement during the reporting period in the number of options over ordinary shares in Korvest Ltd held directly, indirectly or beneficially, by each KMP, including their related parties, is as follows: Held at 1 July 2022 Granted as compen- sation Exercised Lapsed 73,538 70,460 18,490 17,730 (28,072) (26,898) 52,196 45,646 13,164 10,052 (19,406) (17,420) - - - - Directors C Hartwig S McGregor Executives S Taubitz G Christie No options held by KMP are vested but not exercisable. Held at 1 July 2021 Granted as compen- sation Exercised Lapsed 85,645 82,066 19,530 18,710 (31,637) (30,316) 57,148 52,680 14,860 12,130 (19,812) (19,164) - - - - Directors C Hartwig S McGregor Executives S Taubitz G Christie No options held by KMP are vested but not exercisable. Held at 30 June 2023 Vested during the year 63,956 61,292 25,936 24,852 45,954 38,278 17,930 16,096 Held at 30 June 2022 Vested during the year 73,538 70,460 28,072 26,898 52,196 45,646 19,406 17,420 21 Remuneration Report For the year ended 30 June 2023 Movements in shares Korvest Ltd 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: Allocated under Employee/ Exec share plan Held at 30 June 2022 Held at 30 June 2023 Purchases Directors C Hartwig S McGregor G Francis G Hutchinson A Stobart T Ryan Executives S Taubitz G Christie 86,034 89,738 8,947 500 16,000 3,000 20,506 37,480 - - - - - - - - 28,072 26,898 - - - - 19,542 17,556 114,106 116,636 8,947 500 16,000 3,000 40,048 55,036 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. Directors G Billings C Hartwig S McGregor G Francis G Hutchinson A Stobart T Ryan Executives S Taubitz G Christie Held at 30 June 2021 Purchases Allocated under Employee/ Exec share plan Held at 30 June 2022 11,667 54,397 59,422 8,947 500 8,500 - 530 18,152 - - - - - 7,500 3,000 - - - 31,637 30,316 - - - - 19,976 19,328 N/A* 86,034 89,738 8,947 500 16,000 3,000 20,506 37,480 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. * G Billings retired 31 August 2021 22 Korvest Ltd Remuneration Report For the year ended 30 June 2023 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 Included in remuneration $ (A) 168,784 42,856 111,100 59,934 Short-term incentive bonus % vested in year % forfeited in year (B) 83.8 83.8 96.2 89.0 16.2 16.2 3.8 11.0 (A) Amounts included in remuneration for the financial year represent the amount related to the financial year based on the achievement of specified performance criteria. (B) The amounts forfeited are due to the performance criteria not being met in relation to the current financial year. Key management personnel transactions From time to time, key management personnel of the Company, or their related entities, may purchase goods from the Company. These purchases are on the same terms and conditions as those entered into by other Company employees or customers and are trivial or domestic in nature. 23 Korvest Ltd Directors’ Report For the year ended 30 June 2023 DIRECTORS’ INTERESTS The relevant interest of each director over the shares and rights over such instruments issued by the Company as notified by the directors to the ASX 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 C Hartwig S McGregor G Francis G Hutchinson A Stobart T Ryan NON-AUDIT SERVICES 114,106 116,636 8,947 500 16,000 3,000 Unvested 38,020 36,440 - - - Vested 25,936 24,852 - - - During the year KPMG, the Company’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 Company; 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 Company, acting as an advocate for the Company 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 66 and forms part of the Directors’ report for the financial year ended 30 June 2023. 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 Corporate Governance. Signed at Adelaide this Monday 24th of July 2023 in accordance with a resolution of the directors. A STOBART, Director C HARTWIG, Director 24 5 Year Summary Korvest Ltd 2023 2022 2021 2020 2019 Sales revenue Profit after tax ($'000) 107,484 99,223 69,786 63,088 60,843 ($'000) 11,177 11,336 6,054 4,027 2,885 Depreciation/Amortisation (plant & equipment) Depreciation (right-of-use asset) ($'000) 1,459 1,282 1,434 1,286 1,469 ($'000) 846 874 879 887 - Cash flow from operations ($'000) 14,944 3,987 6,509 10,460 1,413 Profit from ordinary activities - As % of Shareholders’ Equity - As % of Sales Revenue Dividend - Total amount paid - Per issued share 22.8% 10.4% 25.9% 11.4% 16.9% 8.7% 12.3% 6.4% 9.3% 4.7% ($'000) 6,937 60.0c 5,152 45.0c 3,169 28.0c 3,149 28.0c 1,787 16.0c Earnings per share (Basic) 96.7c 99.0c 53.5c 35.8c 25.9c Number of employees Shareholders - Number at year end 241 215 207 189 178 2,420 2,157 1,947 1,708 1,652 Net assets per issued ordinary share Net tangible assets per issued ordinary share* $4.24 $3.81 $3.82 $3.37 $3.17 $2.63 $2.90 $2.48 $2.76 $2.76 Share price as at 30 June $7.75 $7.01 $4.99 $4.00 $2.70 * From 2020 onwards the application of AASB 16 leases has affected the calculation of NTA per ordinary share as the lease liability forms part of the calculation however the right-of-use asset does not. As a result the calculated NTA is lower than would have been the case prior to the introduction of AASB 16. 25 Korvest Ltd Financial Statements STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ................................................................. 27 STATEMENT OF FINANCIAL POSITION ........................................................................................................................ 28 STATEMENT OF CASH FLOWS ..................................................................................................................................... 29 STATEMENT OF CHANGES IN EQUITY ......................................................................................................................... 30 NOTES TO THE FINANCIAL STATEMENTS .................................................................................................................... 31 BASIS OF PREPARATION ........................................................................................................................................................ 31 RESULTS FOR THE YEAR ............................................................................................................................................. 33 1. 2. 3. 4. 5. 6. REVENUE ............................................................................................................................................................. 33 EXPENSES ............................................................................................................................................................. 33 FINANCE INCOME .................................................................................................................................................. 34 EARNINGS PER SHARE ............................................................................................................................................. 34 AUDITOR’S REMUNERATION ..................................................................................................................................... 35 SEGMENT REPORTING ............................................................................................................................................ 35 WORKING CAPITAL .................................................................................................................................................... 37 7. 8. 9. 10. 11. TRADE AND OTHER RECEIVABLES ............................................................................................................................... 37 INVENTORIES ........................................................................................................................................................ 38 TRADE AND OTHER PAYABLES ................................................................................................................................... 39 EMPLOYEE BENEFITS ............................................................................................................................................... 39 PROVISIONS .......................................................................................................................................................... 42 TANGIBLE ASSETS ...................................................................................................................................................... 42 12. 13. PROPERTY, PLANT AND EQUIPMENT ........................................................................................................................... 43 IMPAIRMENT TESTING ............................................................................................................................................. 46 LEASES ....................................................................................................................................................................... 46 14. LEASES ................................................................................................................................................................ 46 CAPITAL STRUCTURE .................................................................................................................................................. 48 15. 16. 17. 18. CASH AND CASH EQUIVALENTS ................................................................................................................................. 48 FINANCIAL INSTRUMENTS ........................................................................................................................................ 49 CAPITAL AND RESERVES ........................................................................................................................................... 53 DIVIDENDS ........................................................................................................................................................... 54 TAXATION .................................................................................................................................................................. 56 19. CURRENT AND DEFERRED TAXES ................................................................................................................................ 56 GROUP COMPOSITION ............................................................................................................................................... 59 20. SALE OF SUBSIDIARIES ............................................................................................................................................. 59 OTHER NOTES ............................................................................................................................................................ 59 21. 22. 23. 24. KEY MANAGEMENT PERSONNEL ................................................................................................................................ 59 COMMITMENTS AND CONTINGENCIES ........................................................................................................................ 59 GUARANTEES ENTERED INTO BY THE COMPANY ........................................................................................................... 60 SUBSEQUENT EVENTS ............................................................................................................................................. 60 ASX ADDITIONAL INFORMATION ............................................................................................................................... 67 SHAREHOLDINGS (AS AT 21 JULY 2023) .................................................................................................................................. 67 VOTING RIGHTS .................................................................................................................................................................. 67 TWENTY LARGEST SHAREHOLDERS .......................................................................................................................................... 68 OFFICES AND OFFICERS......................................................................................................................................................... 68 26 Statement of profit or loss and other comprehensive income For the year ended 30 June 2023 Korvest Ltd Note 1 20 2 3 19 Revenue Other income Profit on sale of subsidiaries Expenses, excluding net finance costs Profit before financing costs Finance income Finance costs – lease liability interest Net finance cost Profit before income tax Income tax expense Profit from continuing operations Profit for the year Other comprehensive income Items that will not be reclassified to profit or loss Revaluation of property, plant and equipment Related tax Total other comprehensive income Total comprehensive income for the period Attributable to: Equity holders of the Company Total comprehensive income for the period Earnings per share attributable to the ordinary equity holders of the Company: Basic earnings per share from continuing operations Diluted earnings per share from continuing operations 4 4 The notes on pages 31 to 60 are an integral part of these financial statements. 2023 $’000 107,484 27 - (91,432) 16,079 134 (137) (3) 16,076 (4,899) 11,177 11,177 814 (244) 570 11,747 11,747 11,747 Cents 96.7 95.5 2022 $’000 99,223 19 815 (84,053) 16,004 13 (161) (148) 15,856 (4,520) 11,336 11,336 1,914 (574) 1,340 12,676 12,676 12,676 Cents 99.0 97.7 27 Statement of financial position As at 30 June 2023 Assets Cash and cash equivalents Investment Trade and other receivables Prepayments Inventories Total current assets Property, plant and equipment Right-of-use asset Total non-current assets Total assets Liabilities Trade and other payables Employee benefits Tax payable Lease liabilities Total current liabilities Employee benefits Deferred tax liability Lease liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Retained profit / (losses) Note 15 15 7 8 12 14 9 10 14 10 19 14 11 17 17 Total equity attributable to equity holders of the Company Total equity The notes on pages 31 to 60 are an integral part of these financial statements. 2023 $’000 8,940 275 18,864 537 16,791 45,407 20,353 4,896 25,249 70,656 9,671 3,274 664 776 14,385 355 2,460 4,418 - 7,233 21,618 49,038 14,395 34,643 - 49,038 49,038 Korvest Ltd 2022 $’000 3,556 275 16,874 308 20,457 41,470 19,232 5,211 24,443 65,913 9,231 3,138 1,580 790 14,739 267 1,844 4,678 560 7,349 22,088 43,825 14,334 29,491 - 43,825 43,825 28 Statement of cash flows For the year ended 30 June 2023 Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operating activities Interest received Interest paid lease liabilities Income tax payments Net cash from operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Proceeds from sale of subsidiaries Acquisition of property, plant and equipment Net cash from investing activities Cash flows from financing activities Transaction costs related to issue of share capital Payment of lease liabilities 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 Korvest Ltd 2023 $’000 122,979 (102,590) 20,389 135 (137) (5,443) 14,944 53 - (1,864) (1,811) (7) (805) (6,937) (7,749) 5,384 3,556 8,940 2022 $’000 110,047 (101,964) 8,083 13 (161) (3,948) 3,987 48 880 (2,110) (1,182) (4) (783) (5,152) (5,939) (3,134) 6,690 3,556 Note 15 20 12 18 15 The notes on pages 31 to 60 are an integral part of these financial statements. 29 Korvest Ltd Statement of changes in equity For the year ended 30 June 2023 Balance at 1 July 2022 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 Equity-settled share-based payments Dividends to shareholders Total contributions by and distributions to owners of the Company Transfer to profits reserve Balance at 30 June 2023 Balance at 1 July 2021 Total comprehensive income for the year Profit for the year Other comprehensive income Total comprehensive income for the year the Transactions with owners of Company recognised directly in equity Contributions by and distributions to owners of the Company Shares issued under the Share Plans Equity-settled share-based payments Dividends to shareholders Total contributions by and distributions to owners of the Company Transfer to profits reserve Balance at 30 June 2022 Share capital $’000 Equity compensation reserve $’000 Asset revaluation reserve $’000 Profits reserve $’000 Retained profits / (losses) $’000 Total $’000 14,334 1,068 5,733 22,690 - 43,825 - - - 61 - - 61 - 14,395 - - - - 570 570 - - - 11,177 - 11,177 11,177 570 11,747 - 342 - 342 - 1,410 - - - - - (6,937) - - - - - 6,303 (6,937) 11,177 26,930 - (11,177) - 61 342 (6,937) (6,534) - 49,038 14,268 758 4,393 16,506 - 35,925 - - - 66 - - 66 - 14,334 - - - - 1,340 1,340 - - - 11,336 - 11,336 11,336 1,340 12,676 - 310 - 310 - 1,068 - - - - - (5,152) - - - - - 5,733 (5,152) 11,336 22,690 - (11,336) - 66 310 (5,152) (4,776) - 43,825 The notes on pages 31 to 60 are an integral part of these financial statements. 30 Korvest Ltd Notes to the financial statements For the year ended 30 June 2023 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 Company 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 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 financial statements comply with International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board (IASB). The Company disposed of its only subsidiaries on 31 August 2021 therefore the profit or loss of these subsidiaries up to the date of disposal has been consolidated in the comparatives. Refer Note 20 for more information. The financial statements were approved by the Board of Directors on 24 July 2023. Basis of measurement The 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 financial statements are presented in Australian dollars, which is the Company’s functional currency. Use of estimates and judgements In preparing these financial statements management has made judgements and estimates that affect the application of Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively. 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 8 – Inventories • Note 12 – Property, plant and equipment Rounding 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 statements and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. 31 Korvest Ltd Notes to the financial statements For the year ended 30 June 2023 Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the functional currency of the Company 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. Standards issued but not yet effective A number of new standards are effective for annual periods beginning after 1 July 2023 and earlier application is permitted; however, the Company has not early adopted the new or amended standards in preparing these financial statements and they are not expected to have a material effect on the Company’s financial statements. 32 Notes to the financial statements For the year ended 30 June 2023 Results for the Year This section focuses on the Company’s performance. Disclosures in this section include analysis of the Company’s profit before tax by reference to the activities performed by the Company and analysis of key revenues and operating costs, segmental information, net finance costs and earnings per share. Korvest Ltd 1. Revenue Accounting policies Sale of goods and services 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 from sale of goods (industrial products) is recognised at a point in time when the customer gains control of the goods which is usually when the goods are delivered to the customer or picked up from the Company’s premises. Revenue from galvanising services is recognised at the point in time the services are provided which, given the short term nature of the process, is when the customers’ product has been galvanised. The Company’s standard trading terms are 30 days end of month. Goods and services tax Revenue is recognised net of goods and services tax (GST). Sales revenue Sale of goods and services Disaggregation of revenue is presented in Note 6 Segment Reporting. 2. Expenses Accounting policies Good and services tax 2023 $’000 107,484 2022 $‘000 99,223 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 Cost of goods sold Sales, marketing and warehousing expenses Administration expenses Distribution expenses Bad and doubtful debts expense net of reimbursement right Loss on sale of fixed assets Derecognition of site restoration provision 2023 $’000 68,397 15,612 2,894 4,974 71 44 (560) 91,432 2022 $’000 63,215 13,540 3,071 4,194 33 - - 84,053 33 Notes to the financial statements For the year ended 30 June 2023 2. Expenses (continued) 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 Executive share plan expense Other: Loss/(Gain) on disposal of property, plant and equipment Research and development expense Depreciation – property, plant and equipment Depreciation – right-of-use asset (Profit) on sale of subsidiaries (before selling costs) 3. Finance income Accounting policies Korvest Ltd 2023 $’000 21,109 2,653 1,820 1,674 13 61 342 44 306 1,459 846 - 2022 $’000 20,179 2,440 1,615 1,590 24 66 310 (19) 247 1,282 874 (815) 2021 $‘000 17,231 2,023 1,395 1,439 3 66 325 148 78 1,434 879 - 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 2023 was based on the net profit attributable to ordinary shareholders of $11,177,000 (2022: $11,336,000) and a weighted average number of ordinary shares outstanding during the financial year ended 30 June 2023 of 11,561,650 (2022: 11,446,930). The calculation of diluted earnings per share at 30 June 2023 was based on the net profit attributable to ordinary shareholders of $11,177,000 (2022: $11,336,000) and a weighted average number of potential ordinary shares outstanding during the financial year ended 30 June 2023 of 11,704,006 (2022: 11,607,716). 34 Notes to the financial statements For the year ended 30 June 2023 4. Earnings per share (continued) 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 5. Auditor’s remuneration Audit services: Auditors of the Company (KPMG Australia) – audit and review of financial statements Other services: Auditors of the Company (KPMG Australia) – taxation advice and tax compliance services * – consulting services Korvest Ltd 2023 Shares ’000 2022 Shares ’000 11,466 96 11,562 11,562 142 11,704 2023 Cents per share 96.7 95.5 11,327 120 11,447 11,447 161 11,608 2022 Cents per share 99.0 97.7 2023 $ 2022 $ 127,000 127,000 115,000 115,000 9,000 - 9,000 8,200 5,000 13,200 * The basis for determining the fee for other services was on a time and materials basis 6. Segment Reporting Segment results that are reported to the Company’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 Company 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. It includes the business trading under the EzyStrut name. Production Production segment represents the Korvest Galvanising business, which provides hot dip galvanising services. 35 Korvest Ltd Notes to the financial statements For the year ended 30 June 2023 6. Segment reporting (continued) Geographical segments The Company predominantly operates in Australia. Customers Revenue from one customer of the Group’s Industrial Products segment represented $12,924,000 of the Group’s total revenues. In the prior year no single customer represented more than 10% of the Company’s total revenue. Information regarding the operations of each reportable segment is included below in the manner reported to the chief operating decision maker as defined in AASB 8. Performance is measured based on segment profit before tax (PBT). Inter- segment transactions are not recorded as revenue. Instead a cost allocation relating to the transactions is made based on negotiated rates. Business segments Industrial Products 2023 $’000 2022 $’000 Production 2023 $’000 Sales revenue Depreciation and amortisation Depreciation ROU Asset Reportable segment profit before tax Reportable segment assets Capital expenditure 97,705 (866) (843) 14,488 38,094 1,503 91,366 (704) (865) 14,795 39,411 1,796 9,779 (316) (2) 1,654 5,991 337 2022 $’000 7,857 (256) (9) 1,292 5,939 230 Total 2023 $’000 107,484 (1,182) (845) 16,142 44,085 1,840 Reconciliation of reportable segment profit, assets and other material items Profit Total profit for reportable segments Profit on sale of subsidiaries 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 Right-of-use asset 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 2023 $’000 16,142 - (66) 16,076 44,085 10,730 9,215 4,896 1,730 70,656 1,840 24 1,864 1,182 277 1,459 2022 $’000 99,223 (960) (874) 16,087 45,350 2,026 2022 $’000 16,087 815 (1,046) 15,856 45,350 10,000 3,831 5,211 1,521 65,913 2,026 84 2,110 960 322 1,282 36 Korvest Ltd Notes to the financial statements For the year ended 30 June 2023 Working Capital Working capital represents the assets and liabilities the Company generates through its trading activity. The Company therefore defines working capital as inventory, trade and other receivables, trade and other payables and provisions. Careful management of working capital ensures that the Company 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 Add: Reimbursement right Net trade receivables Impairment 2023 $’000 18,958 (133) 39 18,864 2022 $’000 16,967 (118) 25 16,874 The Company uses an allowance matrix to measure the Expected Credit Loss (ECL) of trade receivables. Loss rates are calculated using a “roll rate” method based on the probability of a receivable progressing through successive stages of delinquency to write-off. When determining the credit risk for trade receivables the Company uses quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment and including forward-looking information. The Company takes out trade credit insurance and this gives rise to a reimbursement right for any expected credit loss that arises on trade receivables. This reimbursement right is recognised at the same time as the expected credit loss provision is recognised. The Company sells to a variety of customers including wholesalers and end users. 37 Notes to the financial statements For the year ended 30 June 2023 7. Trade and other receivables (continued) Movement in allowance for impairment Balance at 1 July Amounts written off against allowance Net remeasurement of loss allowance Balance at 30 June 8. Inventories Accounting policies Inventories Korvest Ltd 2023 $’000 (118) 65 (80) (133) 2022 $’000 (120) - 2 (118) 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. 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 2023 $’000 3,872 357 12,562 16,791 2022 $’000 5,383 973 14,101 20,457 Finished goods are shown net of an impairment provision amounting to $732,000 (2022: $552,000) arising from the likely inability to sell a product range at or equal to the cost of inventory. The impairment provision is calculated having regard for the quantity of stock on hand for each item in comparison to usage over the past year. Where items have been on hand for more than twelve months and more than ten years of stock are held based on recent sales history, then a provision is held for the entire stock value (net of scrap recoveries). Using the same measures, where more than five but less than ten years of stock are on hand 20% of the value (net of scrap recoveries) is provided for. During the year ended 30 June 2023 inventories of $59,410,000 (2022: $55,705,000) were recognised as an expense during the year and included in cost of goods sold. 38 Korvest Ltd Notes to the financial statements For the year ended 30 June 2023 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 10. Employee benefits Accounting policies Short-term benefits 2023 $’000 4,679 4,992 9,671 2022 $’000 5,148 4,083 9,231 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 Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Long-term benefits The Company’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 2023 $’000 1,467 1,807 3,274 355 3,629 2022 $’000 1,388 1,750 3,138 267 3,405 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. 39 Notes to the financial statements For the year ended 30 June 2023 10. Employee benefits (continued) Share based payments Korvest Ltd 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. Employee Share Bonus Plan The Employee Share Bonus Plan allows Company 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. Korvest Performance Rights Plan (KPRP) The plan is designed to provide long term incentives to eligible senior employees of the Company and entitles them to acquire shares in the Company, subject to the successful achievement of performance hurdles. For each issue two performance hurdles are applied. Since FY20 the two performance hurdles used have been Earnings per Share (EPS) and Return on Invested Capital (ROIC). 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 October 2020 October 2021 October 2022 Total performance rights Plan Performance hurdles KPRP KPRP KPRP EPS/ROIC EPS/ROIC EPS/ROIC Number of rights initially granted Number outstanding at balance date 84,814 65,230 67,232 217,276 84,814 65,230 67,232 217,276 40 Notes to the financial statements For the year ended 30 June 2023 10. Employee benefits (continued) Measurement of fair values Korvest Ltd The fair value of both the ROIC and EPS hurdle rights were measured based on the Black-Scholes method. In addition, as any resulting shares issued due to vested performance rights have a two year trading restriction, a discount for lack of marketability is applied using the Finnerty Model. The inputs used in the measurement of the fair value at grant date of the KPRP were as follows: Fair value at grant date Share price at grant date Exercise price Share price volatility Dividend yield Risk free interest rate Life of options Advised restriction period (after vesting) 2023 $5.04 $7.01 - 35.4% 8.56% 3.92% 2.7 yrs 2 yrs 2022 $5.48 $6.45 - 33.67% 5.43% 1.79% 2.7 yrs 2 yrs Reconciliation of outstanding share options/rights Grant date Exercise date Expiry date Exer- cise price Number of rights at beginning of year Rights granted Lapsed Forfeited Exer- cised 2023 Nov 19 Oct 20 Oct 21 Oct 22 Jul 22 Jul 23 Jul 24 Jul 25 Jun 22 Jun 23 Jun 24 Jun 25 - - - - Weighted average exercise price 2022 Previous plan * Mar 05 Jan 07 Jan 27 $4.36 Weighted average exercise price Current plan Oct 18 Nov 19 Oct 20 Oct 21 Jun 21 Jun 22 Jun 23 Jun 24 Jul 21 Jul 22 Jul 23 Jul 24 - - - - Weighted average exercise price 91,796 84,814 65,230 - 241,840 $Nil - - - 67,232 67,232 $Nil - - - - - - - - - - $Nil $Nil (91,796) - - - (91,796) $Nil Number of options at end of year on issue - 84,814 65,230 67,232 217,276 $Nil Exercis- able at 30 June 84,814 - - 84,814 $Nil 15,000 15,000 $4.36 100,929 91,796 84,814 - 277,539 $Nil - - - - - 65,230 65,230 $Nil - - - - - - - - - - - - - - (15,000) (15,000) - - - - (100,929) - - - (100,929) - 91,796 84,814 65,230 241,840 $Nil - 91,796 - - 91,796 $Nil $Nil $Nil $Nil * The Previous Plan was an 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. The shares issued pursuant to these options were financed by an interest free loan from the Company repayable within twenty years from the proceeds of dividends declared by the Company. These loans were 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. In September 2021 the last of these loans was extinguished and as a result the options were treated as having been exercised. 41 Korvest Ltd Notes to the financial statements For the year ended 30 June 2023 11. Provisions Accounting policies A provision is recognised if, as a result of a past event, the Company 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. Site restoration and safety The Environment Protection Authority has advised the Company that no remedial works are required at the Kilburn site at this time. As a result the previously held provision of $560,000 has been derecognised and reversed through profit and loss. Non-current Site restoration Tangible assets 2023 $’000 - - 2022 $’000 560 560 The following section shows the physical tangible assets used by the Company 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 Company 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 25 years 3-12 years Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. 42 Notes to the financial statements For the year ended 30 June 2023 12. Property, plant and equipment Accounting policies Recognition and measurement Korvest Ltd Items of plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Land and buildings are measured at fair value. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the following: The cost of materials and direct labour; • • Any costs directly attributable to bringing the assets to a working condition for their intended use; • When the Company has an obligation to remove the assets or restore the site, an estimate of the costs of dismantling and removing the items and restoring the site on which they are located; and Capitalised borrowing costs. • Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss. Fair value measurement Land and buildings are usually 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. Due to volatility in industrial property markets over recent years, the Directors obtained an independent valuation in both 2022 and 2023. 43 Notes to the financial statements For the year ended 30 June 2023 12. Property, plant and equipment (continued) Subsequent expenditure Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Company. On-going repairs and maintenance are expensed as incurred. Korvest Ltd Cost Balance at 1 July 2021 Acquisitions Disposals and write-offs Revaluation Balance at 30 June 2022 Balance at 1 July 2022 Acquisitions Disposals and write-offs Revaluation Balance at 30 June 2023 Accumulated depreciation and impairment losses Balance at 1 July 2021 Depreciation charge for the year Revaluation Disposals Balance at 30 June 2022 Balance at 1 July 2022 Depreciation charge for the year Revaluation Disposals Balance at 30 June 2023 Carrying amounts At 30 June 2021 At 30 June 2022 At 30 June 2023 Land & Buildings (fair value) $’000 8,232 - - 1,768 10,000 Plant & Equipment (cost) $’000 26,028 2,110 (1,696) - 26,442 10,000 26 - 704 10,730 73 73 (146) - - - 110 (110) - - 8,159 10,000 10,730 26,442 1,836 (281) - 27,997 17,598 1,209 - (1,597) 17,210 17,210 1,348 - (184) 18,374 8,430 9,232 9,623 Total $’000 34,260 2,110 (1,696) 1,768 36,442 36,442 1,862 (281) 704 38,727 17,671 1,282 (146) (1,597) 17,210 17,210 1,458 (110) (184) 18,374 16,589 19,232 20,353 44 Korvest Ltd Notes to the financial statements For the year ended 30 June 2023 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 June 2023 by Mr Ivo Kafka, AAPI 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 the directors’ valuation as at 30 June 2023. The carrying amount of the Land and Buildings at cost at 30 June 2023 if not revalued would be $846,000 (2022: $874,000). 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. The valuation of land and buildings is based on Level 2 fair values. Significant unobservable inputs Market yield – 7.9% Potential rental rate - $65/m2 Land value for vacant land - $200/m2 Inter-relationship between key unobservable inputs and fair value measurement The estimated market value would increase if: • Market yield was lower • Potential rental rate was higher Land value was higher • Valuation technique income approach: the Capitalised valuation model applies a yield to the property’s income 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 against its sale price 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. 45 Korvest Ltd Notes to the financial statements For the year ended 30 June 2023 13. Impairment testing Accounting policies The carrying amounts of the Company’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 to reduce the carrying amount of the 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 assets’ carrying amounts do not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Results The Company has determined that calculation of the recoverable amount of assets or CGUs is not required as at 30 June 2023 as there were no impairment indicators. Leases 14. Leases At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This policy is applied to contracts entered into on or after 1 July 2019. The Company recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term. The right-of-use asset is periodically reduced by any impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease, or if that rate cannot be readily determined, the Company’s incremental borrowing rate. The Company determines its incremental borrowing rate by seeking from its bankers, indicative interest rates for the type of asset being leased. Lease payments included in the measurement of the lease liability comprise the following: • • fixed payments; and variable lease payments that depend on an index or rate, initially measured using the index or rate as at the commencement date; The lease liability is measured at amortised cost using the effective interest rate method. It is remeasured when there is a change in future lease payments arising from a change in index or rate. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Company has elected not to recognise right-of-use assets and lease liabilities for short-term leases. Lease payments associated with these leases are expensed on a straight-line basis over the lease term. 46 Notes to the financial statements For the year ended 30 June 2023 Leases as a lessee The Company leases warehouse facilities and forklifts. Warehouse leases are generally for periods ranging from 3 to 10 years with options to renew the lease after that date. Warehouse leases provide for annual rent reviews based on CPI or market rents. For warehouse leases it is assumed to be reasonably certain that all options will be exercised. Forklifts leases are for 5 years with no renewal option. Korvest Ltd Information about leases for which the Company is a lessee is presented below. i. Right-of-use assets Warehouses $’000 Forklifts $’000 Balance at 1 July 2022 Additions to right-of-use assets Depreciation of right-of-use asset Balance at 30 June 2023 Balance at 1 July 2021 Additions to right-of-use assets Depreciation of right-of-use asset Balance at 30 June 2022 ii. Lease liability 5,200 531 (835) 4,896 6,011 17 (828) 5,200 Current Non-current Total Lease liability Amounts recognised in profit or loss iii. Depreciation right-of-use asset Interest on lease liabilities Expenses relating to short-term leases iv. Amounts recognised in statement of cash flows Cash flows used in operating activities Cash flows used in financing activities Total cash outflow for leases Leases commitment 11 - (11) - 57 - (46) 11 2023 $’000 776 4,418 5,194 846 137 69 206 805 1,011 Total $’000 5,211 531 (846) 4,896 6,068 17 (874) 5,211 2022 $’000 790 4,678 5,468 874 161 17 178 783 961 The Company has entered into agreements to lease two adjoining buildings in New South Wales to accommodate the Sydney EzyStrut branch. One of the buildings will be sublet with the arrangement allowing Korvest to control a common hardstand area between the two buildings. The buildings are new constructions and availability is dependent on the completion of construction. One building became available in July 2023 and the second is expected to be completed in the first half of FY24 therefore these leases are not recognised as a right of use asset/lease liability as at 30 June 2023. In aggregate the first twelve months’ rent for the two properties will be $813,000 with this being offset by the sublease rent of $295,000. The leases and sublease are subject to annual CPI escalation clauses and are for a term of 7 years. 47 Korvest Ltd Notes to the financial statements For the year ended 30 June 2023 Capital Structure This section outlines how the Company manages its capital structure, including its balance sheet liquidity and access to capital markets. The directors determine the appropriate capital structure of the Company, specifically how much is realised from shareholders and how much is borrowed from the financial institutions to finance the Company’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 balance 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 Term deposits Reconciliation of cash flows from operating activities Cash flows from operating activities Profit for the year Adjustment for: Depreciation and amortisation Depreciation right-of-use asset Impairment of trade receivables (Reversal of) Impairment of inventories Increase / (decrease) in provision for site rectification (Profit) on sale of subsidiaries Loss / (Profit) on disposal of property, plant and equipment 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 2023 $’000 1,270 7,670 8,940 275 2023 $’000 11,176 1,459 846 71 180 (560) - 44 412 13,628 (2,061) (229) 3,486 440 372 (916) 224 14,944 2022 $’000 1,918 1,638 3,556 275 2022 $’000 11,336 1,282 874 33 (25) 68 (815) (19) 380 13,114 (2,836) (19) (8,121) 902 208 364 375 3,987 48 Notes to the financial statements For the year ended 30 June 2023 16. Financial instruments Accounting policies Korvest Ltd A number of the Company’s accounting policies and disclosures require measurement of fair values, for both financial and non-financial assets and liabilities. The Company 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 the Standards, 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 Company 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 Company 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 Cash, cash equivalents and Investments Trade and other receivables Trade and other payables Classification under AASB 9 Amortised cost Amortised cost Amortised cost 49 Notes to the financial statements For the year ended 30 June 2023 16. Financial instruments (continued) Financial risk management Overview Korvest Ltd The Company has exposure to the following risks from their use of financial instruments: credit risk; liquidity risk; and • • • market risk. Risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. The board of directors has overall responsibility for the establishment and oversight of the risk management framework. 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 Company. Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’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. 2023 $’000 9,215 18,864 2022 $’000 3,831 16,874 2021 $’000 6,965 4,153 50 Notes to the financial statements For the year ended 30 June 2023 16. Financial instruments (continued) Trade and other receivables Korvest Ltd The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Company’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 Company’s standard payment and delivery terms and conditions are offered. The Company’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 Company’s benchmark creditworthiness may transact with the Company only on a prepayment basis. The Company takes out trade credit insurance to reduce the Company’s credit risk exposure. Goods are sold subject to retention of title clauses, so that in the event of non-payment the Company may have a secured claim. The Company otherwise does not require collateral in respect of trade and other receivables. The Company uses an expected credit loss (ECL) model to measure the allowance for losses. The Company uses quantitative and qualitative information based on the Company’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 2023 $’000 18,799 65 18,864 2022 $’000 16,804 70 16,874 At 30 June 2023, the Company’s most significant customer, located in Australia, accounted for $3,989,194 of the trade and other receivables carrying amount (2022: $3,758,589). 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 2023 $’000 11,834 6,682 348 - 18,864 2022 $’000 11,740 4,963 171 - 16,874 51 Notes to the financial statements For the year ended 30 June 2023 16. Financial instruments (continued) Liquidity risk Korvest Ltd Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’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 Company’s reputation. The Company 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 and leases, including estimated interest payments. The amounts disclosed are the contractual undiscounted cash flows (inflows shown as positive, outflows as negative). 2023 Contractual cash flows Carrying amount $’000 Total $’000 Less than 1 year $’000 1-5 years More than 5 years $’000 $’000 Carrying amount $’000 Total 2022 Contractual cash flows Less than 1 year 1-5 years More than 5 years $’000 $’000 $’000 $’000 Non-derivative financial liabilities Trade and other payables Lease liabilities* 9,671 5,194 (9,671) (5,867) (9,671) (923) - (2,535) 14,865 (15,538) (10,594) (2,535) - (2,409) (2,409) 9,231 5,468 (9,231) (6,225) (9,231) (930) - (2,362) - (2,933) 14,699 (15,456) (10,161) (2,362) (2,933) * The lease liability contractual cashflows include any optional lease renewal periods where those options have not yet been exercised. They do not include any CPI based adjustments for future periods as the rate of those adjustments is unknown. 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 Company’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 Company is exposed to currency risk on 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 Company 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 Company’s profit or equity. Interest rate risk The Company 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 Company’s profit or equity. 52 Korvest Ltd Notes to the financial statements For the year ended 30 June 2023 16. Financial instruments (continued) Other market price risk The Company 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 Company does not enter into commodity contracts other than to meet the Company’s expected usage requirements. Capital management The Company’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 Company was not subject to externally imposed capital requirements. The Company holds trade credit insurance to insure some of the risk associated with the collection of trade receivables. Accounting classifications and fair values The carrying amounts of the Company’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. 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. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments. 53 Notes to the financial statements For the year ended 30 June 2023 17. Capital and reserves (continued) Share capital Ordinary shares On issue at 1 July Issued under the Employee Share Bonus Plan Issued under the Executive Share Plan On issue at 30 June – fully paid Korvest Ltd 2023 Shares ’000 2022 Shares ’000 11,466 18 92 11,576 11,327 23 116 11,466 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. 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 2023 Interim 2023 ordinary Final 2022 ordinary Total amount 2022 Interim 2022 ordinary Final 2021 ordinary Total amount Unrecognised amounts Cents per share Total amount $’000 Percentage franked 25.0 35.0 25.0 20.0 2,892 4,045 6,937 2,864 2,288 5,152 100% 100% 100% 100% Tax rate 30% 30% 30% 30% Date of payment 3 March 2023 2 September 2022 4 March 2022 3 September 2021 After the balance sheet date the following dividends were proposed by the directors. The dividends have not been provided. 2023 Final 2023 ordinary Cents per share Total amount $’000 Percentage franked Tax rate Date to be paid 35.0 4,052 100% 30% 6 September 2023 The financial effect of these dividends have not been brought to account in the financial statements for the financial year ended 30 June 2023 and will be recognised in subsequent financial reports. 54 Notes to the financial statements For the year ended 30 June 2023 18. Dividends (continued) Dividend franking account 30% franking credits available to shareholders of Korvest Ltd for subsequent financial years Korvest Ltd 2023 $’000 2022 $‘000 14,020 12,466 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 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 $1,736,000 (2022: reduce by $1,720,000). 55 Notes to the financial statements For the year ended 30 June 2023 Taxation Korvest Ltd 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. IFRIC 23 Uncertainty over Income Tax Treatments The Company’s existing accounting policy for uncertain income tax treatments is consistent with the requirements of IFRIC 23 Uncertainty over Income Tax Treatments which became effective on 1 July 2019. 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 Company 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. 56 Notes to the financial statements For the year ended 30 June 2023 19. Current and deferred taxes (continued) Income tax recognised in the income statement Current tax expense Current year Prior year Deferred tax expense Origination and reversal of temporary differences - - relating to current year relating to prior year Korvest Ltd 2023 $’000 4,614 (87) 4,527 302 70 372 2022 $’000 4,312 - 4,312 208 - 208 Total income tax expense in Statement of profit or loss and comprehensive income 4,899 4,520 Numerical reconciliation between tax expense and pre-tax net profit Profit before tax Income tax using the domestic corporation tax rate of 30% (2022:30%) Non-deductible expenses Capital loss on sale of subsidiaries Prior year over provision Income tax expense on pre-tax net profit Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: 2023 $’000 16,075 4,823 92 - (16) 4,899 Property, plant and equipment Leases Inventories Provisions / accruals Provision for doubtful debts Other Tax loss carried forward Tax (assets) / liabilities Set off of tax Net tax liabilities Assets 2023 $‘000 - 1,558 220 1,149 28 19 552 3,526 (3,526) - 2022 $‘000 - 1,640 166 1,249 28 26 552 3,661 (3,661) - Liabilities 2023 $‘000 (3,800) (1,469) (717) - - - (5,986) 3,526 (2,460) 2022 $‘000 (3,207) (1,563) (735) - - - (5,505) 3,661 (1,844) Net 2023 $‘000 (3,800) 89 (497) 1,149 28 19 552 (2,460) - (2,460) 2022 $’000 15,856 4,757 28 (265) - 4,520 2022 $‘000 (3,207) 77 (569) 1,249 28 26 552 (1,844) - (1,844) 57 Notes to the financial statements For the year ended 30 June 2023 19. Current and deferred taxes (continued) Movement in deferred tax balances during the year Korvest Ltd Property, plant and equipment Leases Inventories Provisions / accruals Provision for doubtful debts Other Tax loss carried forward Property, plant and equipment Leases Inventories Provisions / accruals Provision for doubtful debts Other Tax loss carried forward Balance 30 June 22 Recognised in profit Recognised directly in equity $’000 (3,207) 77 (569) 1,249 28 26 552 (1,844) $’000 (278) 12 72 (100) - (8) - (302) $’000 (244) - - - - - - (244) Balance 30 June 21 Recognised in profit Recognised directly in equity $’000 (2,374) 50 (163) 1,169 8 7 287 (1,016) $’000 (259) 27 (406) 126 20 19 265 (208) $’000 (574) - - - - - - (574) Over provision prior year $’000 (70) - - - - - - (70) Disposed in sale of subsidiaries $’000 - - - (46) - - - (46) Balance 30 June 23 $’000 (3,799) 89 (497) 1,149 28 18 552 (2,460) Balance 30 June 22 $’000 (3,207) 77 (569) 1,249 28 26 552 (1,844) 58 Korvest Ltd Notes to the financial statements For the year ended 30 June 2023 Group Composition This section outlines the Group’s structure and changes thereto. 20. Sale of subsidiaries On 31 August 2021 Power Step (Australia) Pty Ltd and its controlled entity, and Titan Technologies (SE Asia) Pty Ltd were sold. Consideration received was $880,000. Net assets sold were $65,000 resulting in a profit on sale of $815,000 not including costs of $72,000 that were incurred in selling the business. Other Notes 21. Key management personnel The following were key management personnel of the Company at any time during the reporting period and unless otherwise indicated were key management personnel for the entire period: Non-executive Directors • Andrew Stobart (Chairman) • Gary Francis • Gerard Hutchinson • Therese Ryan Executive Directors • • Chris Hartwig (Managing Director) Steven McGregor (Finance Director and Company Secretary) Executives • Gavin Christie (General Manager, Operations) • Stephen Taubitz (General Manager Sales - EzyStrut) 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 Long term benefits Share based payments 2023 $ 1,947,490 149,845 46,212 331,865 2,475,412 2022 $ 1,790,072 144,635 58,937 312,543 2,306,187 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. 22. Commitments and contingencies At 30 June 2023, the Company had contractual commitments for the acquisition of property, plant and equipment of $1,847,000 (2022: $1,034,000). 59 Korvest Ltd Notes to the financial statements For the year ended 30 June 2023 23. Guarantees entered into by the Company Bank guarantees given by the Company in favour of customers and landlords amounted to $1,489,407 (2022: $1,462,047). 24. Subsequent events Other than the dividend disclosed in Note 18, 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 Company in subsequent financial periods. 60 Korvest Ltd Directors’ declaration For the year ended 30 June 2023 1. In the opinion of the Directors of Korvest Ltd (the Company): (a) the financial statements and notes that are set out on pages 27 to 60 and the Remuneration report in the Directors’ report, set out on pages 13 to 23, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Company’s financial position as at 30 June 2023 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. 3. 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 2023. The Directors draw attention to the Basis of preparation note on page 31, which includes a statement of compliance with International Financial Reporting Standards. Dated at Adelaide this 24th July 2023 Signed in accordance with resolution of directors: Andrew Stobart Director 61 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 Company’s financial position as at 30 June 2023 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion The Financial Report comprises: • Statement financial of position as at 30 June 2023; • Statement of profit or and other comprehensive income, Statement of cash flows and Statement of changes in equity for the year then ended 30 June 2023; loss • Notes including a summary of significant accounting policies; and • Directors’ Declaration. 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 Company in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with these requirements. 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 global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 62 Valuation of finished goods inventory ($12.562 million) Refer to Note 8 to the Financial Report – Inventories The key audit matter How the matter was addressed in our audit The valuation of EzyStrut finished goods inventory is a key audit matter due to: Our procedures included applying our understanding of the Company’s business model in: • • • EzyStrut specialised in nature; finished goods inventory being • Importance of EzyStrut finished goods inventory valuation to the business operations and financial performance of the Company; and Company’s judgment involved in estimating the amount of the impairment provision. Estimating the provision, and therefore the net carrying value of finished goods inventory, requires consideration of the quantity of finished goods on hand, anticipated future usage and expected recoverable amount. Such judgments may have a significant impact on the Company’s finished goods inventory impairment provision, and the overall net carrying value of finished goods inventory, necessitating additional audit effort. therefore In auditing this key audit matter, we used senior team members who understand the Company’s business, industry and the relevant economic environment. • • • • • Assessing the Company’s policies for the valuation of the against requirements of the accounting standards; finished goods inventory Critically evaluating the Company’s methodology to identify finished goods that are slow moving or selling below cost; Testing the Company’s finished goods inventory impairment assessment at year-end, by: – – Assessing the accuracy of the underlying finished goods inventory provision model by performing computation checks; and in the finished goods Checking the accuracy of the expected time period to sell inventory, by product, as a key input inventory provision. We evaluated the expected time period to sell inventory on hand using the sales / usage quantities experienced during the year ended 30 June 2023. We checked a sample of those sales quantities to sales invoices; Comparing the unit cost of each finished good on hand from the Company’s impairment assessment to the average sales price for the year of these products, as a proxy for expected recoverable amount; Challenging the Company’s assumptions, such as the provision percentages by product category and aging, using our understanding of the Company’s business and knowledge of the market; and locations in significant Attending stocktakes observing the Company’s processes, which included identifying slow moving and potentially obsolete finished goods inventory. 63 Other Information Other Information is financial and non-financial information in Korvest Ltd’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • • • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and assessing the 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 Company or to cease operations or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar2_2020.pdf. This description forms part of our Auditor’s Report. 64 Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Korvest Ltd for the year ended 30 June 2023, complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 13 to 23 of the Directors’ report for the year ended 30 June 2023. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Darren Ball Partner Adelaide 24 July 2023 65 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 2023 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG KPM_INI_01 Darren Ball Partner Adelaide 24 July 2023 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 66 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 21 July 2023) Substantial shareholders The number of shares held by substantial shareholders and their associates are set out below: Korvest Ltd Shareholder Colonial First State Investments Limited Phoenix Portfolios Pty Ltd Donald Cant Pty Ltd Voting rights Ordinary shares Refer to note 17 in the financial statements. Options Refer to note 10 in the financial statements. Distribution of equity security holders Category 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total Holders 1,231 846 171 161 11 2,420 9.8% 7.3% 5.4% Number 1,138,760 844,564 621,759 NUMBER OF EQUITY SECURITY HOLDERS Units 462,295 2,163,205 1,302,622 3,575,591 4,072,576 11,576,289 % Issued Capital 3.99 18.69 11.25 30.89 35.18 100 The number of shareholders holding less than a marketable parcel of ordinary shares is 78. 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. 67 ASX Additional information For the year ended 30 June 2023 Twenty largest shareholders Name Citicorp Nominees Pty Limited Donald Cant Pty Ltd J P Morgan Nominees Australia Pty Limited Creative Living (Qld) Pty Ltd Anacacia Pty Ltd National Nominees Limited Rathvale Pty Limited Allegro Two Super Fund Pty Ltd Brazil Farming Pty Ltd Mr William Francis Cannon Brazil Farming Pty Ltd Robert Nairn Pty Ltd Mr Steven McGregor Gotterdamerung Pty Limited Gotterdamerung Pty Limited Mrs Helen Elizabeth Rollinson Angueline Capital Pty Limited Mr Chris Hartwig Ms Nina Tschernykow A & R Truda Pty Ltd Offices and officers Company Secretary Steven John William McGregor BA(Acc), FCA, AGIA, ACG 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) Korvest Ltd Number of ordinary Shares held 1,201,392 621,759 552,063 320,000 308,037 282,934 191,558 173,780 166,416 130,083 124,554 100,000 95,878 91,430 79,539 72,343 70,000 67,187 60,720 60,683 4,770,356 Percentage of capital held 10.38 5.37 4.77 2.76 2.66 2.44 1.65 1.50 1.44 1.12 1.08 0.86 0.83 0.79 0.69 0.62 0.60 0.58 0.52 0.52 41.21 68

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