Magontec Limited

Annual Report 2017

Magontec is a leading manufacturer 
of magnesium alloys and Cathodic 
Corrosion Protection (anode) products 
made from magnesium and titanium.

Magontec is a pioneer in the field of magnesium 
alloys and anode products with vast experience 
in production and development of new alloy and 
anode applications.

Dehydration

Reduction

b

Contents

2 

3 

4 

6 

8 

2017 Highlights

Global Locations and Activities

Executive Chairman’s Letter

Financial Summary

Workplace Safety and Environment 

10  Magontec Qinghai

12  Metals Division

19 

20 

22 
26 
27 
40 
41 
80 
81 
83 

Cathodic Corrosion Protection 

Board of Directors

Executive Management

Directors’ Report

Remuneration Report

Independent Auditor’s Declaration

Financial Statements

Directors’ Declaration

Independent Auditor’s Report

Shareholder Information

Cast house

Image: Qinghai Electrolytic Magnesium Smelter 
complex including Magontec Cast House Project.

A summary of the Company’s corporate governance 
practices including the Corporate Governance Statement 
discussing adherence to the Australian Securities Exchange’s 
Third Edition “Corporate Governance Principles and 
Recommendations” can be located at www.magontec.com 
under the Investor Centre section.

1

Page Title  |  Magontec Annual Report 20172017 
Highlights

A strong focus on 
employee safety

Completion of 
Magontec Qinghai Project

In 2017 Magontec maintained its strong 
safety record, recording 4 minor injuries 
during the year across 4 operating plants 
that employ 412 people.

The installation and hot commissioning 
of Magontec Qinghai’s Magnesium Alloy 
Cast House was completed in 2017. 

Over the coming 12 months the Cast 
House will move towards full production 
raising Magontec magnesium alloy 
production capacity to over 56,000 
metric tonnes. 

Despite a challenging year operationally, 
underlying operating cash flow remained positive 
and Magontec was able to renew its banking facility 
with Commerzbank Germany through to 2020.

2

Global Locations and Activities  |  Magontec Annual Report 2017

Global Locations 
and Activities

Toronto

Rhode Island

Santana

Golmud

Bottrop

Shanxi

Xi’an

Tokyo

Sydney
Melbourne

Production       

Sales Office         

Technology Centre    

Cast House Project

Headquarters

3

Executive 
Chairman’s 
Letter

Nicholas Andrews
Executive Chairman

In 2018 the Company achieved its key objective of 
commencing production of primary magnesium alloys 
at the new Magontec Qinghai facility in Qinghai Province, 
PRC, a critical step towards a more profitable business. 

The last 12 months were a challenging 
period for Magontec as we commenced 
production at the new plant in Qinghai 
and managed a difficult labour 
situation at our Romanian magnesium 
alloy recycling facility. The loss of 
significant volume in the Chinese 
magnesium anode business and 
a number of large ‘one-off’ events 
further impacted the final result. 

While the Financial Year result to 
31 December 2017 is well below the 
levels that the company targeted for 
the period, I do draw comfort from the 
fact that Magontec’s management 
teams in Europe and Asia have 
been equal to the issues that arose. 

4

As we enter a new financial year 
there are indications that 2018 will 
see a recovery in the underlying 
recycling and anode operations that 
underperformed in 2017, while the new 
primary magnesium alloy business 
at Qinghai offers considerable scope 
for earnings growth. Shareholders 
should note that the new facility at 
Magontec Qinghai is in a start-up 
phase. Until the facility is producing 
a volume of around 1,000 metric 
tonnes a month, operating and 
depreciation costs will negatively 
impact profitability.

There were many bright spots in the 
performance in the period under 
review. The German metal business 
recorded a strong uplift in volumes and 
a higher EBIT contribution, the result 
of a continued focus on costs. Similarly 
the Chinese primary magnesium 
alloy facility in Shanxi Province 
made a strong contribution at the 
EBIT line, also a result of reduced 
conversion costs. Across the group 
there were only 4 recorded injuries 
and no serious accidents. 

In a company that deals with liquid 
metal and high temperature transfers, 
this is testament to the attention to 
detail and competence of our health 
and safety officers.

At the new Magontec Qinghai plant , 
in the period to 31 December 2017, we 
have produced over 200 metric tonnes 
of ‘AZ91’ magnesium alloys on one line 
and will commence production of ‘AM’ 
alloys in the coming weeks. We will also 
be producing some speciality alloys 
in the near future and, as the year 
progresses, we can expect volumes 
to rise steadily. 

Executive Chairman’s Letter  |  Magontec Annual Report 2017

It is difficult to overestimate the 
complexities involved in building and 
commissioning an industrial facility 
such as the one constructed by our 
partner, Qinghai Salt Lake Magnesium 
Co Ltd (QSLM), at Golmud in Qinghai 
Province. Magontec’s Magnesium 
Alloy Cast House (MACH) has been in 
a ‘ready to go’ state for some months 
and in October 2017 we were able 
to commence production as QSLM 
brought the dehydration units and 
reduction cell house on line. It is likely 
that through 2018 the facility will rise 
towards full production, although both 
QSLM and Magontec will require much 
patience and caution in this period. 

Magontec Qinghai represents a 
revolution in the world of magnesium 
and magnesium alloy production. 
The product from this facility will be 
the greenest magnesium alloy ever 
manufactured, using 85% renewable 
energy, and represents the first major 
step towards moving the industry away 
from the environmentally challenging 
technology of ‘Pidgeon’ process 
production. 

Qinghai is the first new electrolytic 
plant to be constructed in the 21st 
century. Indeed since the closure of 
the Noranda and Norsk Hydro facilities 
in 2003 and 2006, the only electrolytic 
magnesium has come from protected 
and privileged markets in Israel, Russia 
and the USA, and at prices above those 
available from Chinese manufacturers.

Elsewhere in the Magontec business 
we have met other challenges head on. 
In Romania we have now largely settled 
our labour issues after a period of high 
staff turnover and some workplace 
friction. The senior managers in 
Romania adopted innovative schemes 
to attract qualified staff in a labour 
market that is very well bid. 

In the last few weeks of 2017 and in 
the first month of 2018 we are seeing a 
considerably more settled workplace 
and one that is beginning to recover 
efficiencies that were lost in the 
second quarter of last year. 

In China, where the magnesium anode 
business lost a large contract, sales 
staff were successful in finding new 
customers through the year and the 
operations team have successfully 
reduced processing costs. Through 
the first quarter of 2018 we expect 
to regain much of the lost volume 
and have improved the economics of 
the Xi’an facility such that we will be 
able to bid more confidently for new 
contracts in Asia and the USA. The 
economics of both the Romanian and 
Chinese magnesium anode plants will 
improve again through 2018 as new 
machinery and management initiatives 
drive greater efficiencies.

The financial fraud that the company 
suffered in May last year was a 
particularly heavy blow. A Hong Kong 
based entity interposed itself between 
Magontec GmbH and a supplier. The 
Hong Kong bank responsible for the 
fraudulent entity bank accounts 
has been unable to recover the 
funds. Since this event we have put 
in place revised order and banking 
processes, but it is a sad reflection 
on financial transactions regulatory 
authorities in a major financial hub 
that a fraudulent party could operate 
with such impunity.

In 2017 the European businesses have 
invested in a new Enterprise Resource 
Planning (ERP) system, which is 
expected to become operational 
through the second half of 2018. This 
will start in Germany and roll out to 
Romania. In China we will begin to 
introduce a compatible local system 
later in 2018. Moving to a modern ERP 
system will assist the company to 
streamline administrative activities 
and better manage logistics and 
business risk.

In the last quarter of 2017 we 
successfully re-negotiated our banking 
lines with Commerzbank in Germany 
for a further 3 year period taking us 
through the Magontec Qinghai start up 
period. This will provide the company 
with additional working capital 
capacity in Europe and North America. 
The German subsidiary also completed 
a tax audit. Some mention of this was 
made in the 2017 Interim Commentary. 

The final outcome of this process was 
a payment to the German Tax Office 
that was not material.

2018 represents a new horizon for 
Magontec and the culmination of 
nearly 4 years work. The new facility 
at Qinghai was conceived after a visit 
to Golmud in late 2011 and took two 
and a half years to finalise prior to 
agreements being signed in May 2014. 
The new plant will deliver Magontec 
improved operating economies of 
scale, although we will need to be 
producing many more tonnes per 
month before the economics are 
properly accessed. It will certainly 
present our managers, technicians 
and sales people with considerable 
challenges through the next 
12 months.

As I have noted in previous 
commentaries Magontec is fortunate 
to have a very competent team of 
senior managers and technical 
executives. As the magnesium 
industry enters a new era, now led by 
Magontec and QSLM, we are fortunate 
to count among our employees some 
of the world’s leading magnesium 
industry experts

I would also like to thank the Board 
of Magontec for their advice and 
assistance through 2017. As a company 
we have benefitted from having a 
stable group of individuals on the 
Board who have developed a thorough 
knowledge of the magnesium industry 
over their years of service. 

Nicholas Andrews 
26 February 2018

5

Financial 
Summary

Despite a challenging year operationally, underlying 
operating cash flow remained positive and 
Magontec was able to renew its banking facility 
with Commerzbank Germany through to 2020.

For the 12 months to 31 December 
2017 the reported accounting net loss 
was $1.6 million, below the prior year 
result due to operational reasons and 
a number of significant items outlined 
in the table below.

These significant items are mostly 
non-cash accounting charges or items 
which are not expected to be recurring 
in nature and are highlighted in order 
to aid shareholder understanding of 
the composition of the result. 

The main significant items in 2017 
included a non-cash accounting 
expense for share issues, initial 
costs at the Magontec Qinghai plant 
as operations commenced building 
scale, a financial fraud suffered in our 
European business, costs associated 
with the establishment and investment 
in operating costs of Magontec US 
as well as a one off historical real 
estate transfer tax related to the initial 
acquisition of Magontec in 2011.

EBITDA/EBIT ($m)

5

4

3

2

1

0

-1

4.3

3.3

1.6

1.5

2.5

1.8

0.1

0.3

2014

2015

2016

2017

  EBITDA       

  EBIT

Reconciliation of significant items in earnings

12 months to 
31 Dec 2017
$’000

12 months to 
31 Dec 2016
$’000

Net Profit Before Tax, unrealised FX and significant items

685

2,611

Significant items before tax

   Less non-cash share issue expense (ESIP and LTI)

   Less STI provision

   Less start-up costs at Qinghai facility

   Less Magontec US costs

   Less one off historical real estate transfer tax

   Less doubtful debts expense PRC

   Less impact of fraudulent inventory loss

Net Profit Before Tax excluding unrealised FX

   Less tax expense

Net Profit After Tax before unrealised FX (underlying NPAT)

   Add/(subtract) unrealised FX gains/(losses)

Reported Net Profit After Tax

6

(191)

–

(194)

(211)

(102)

(63)

(292)

(368)

(809)

(1,177)

(437)

(1,614)

(325)

(145)

–

–

–

(202)

–

1,939

(821)

1,118

(498)

620

 
 
Analysis
In 2017 the consolidated entity saw 
a reduction in the Gross Profit margin 
to 9.6% (2016: 11.3%), principally the 
result of production issues in metal 
recycling and lower volumes in anodes 
leading to a loss of scale. However, the 
Gross Profit margin remains above 
both 2014 and 2015. 

Cashflow, balance sheet  
and banking facilities 
Underlying operating cash flow is one 
of the key metrics that management 
monitors internally and is defined as 
operating cash flow before interest, 
tax payments and working capital 
movements. 

For Magontec, working capital 
movements in any particular period 
can have a large impact on overall 
operating cash flow. These movements 
are generally a reflection of timing 
differences in cash receipts and 
payments in the metals business, 
which is working capital intensive.

During 2017, Magontec generated 
underlying operating cash flow of 
$2.3 million, which, while still positive, 
was significantly lower than the prior 
corresponding period (2016: $4.9m). 

Balance sheet and banking 
facilities 
Net debt rose to $18.0 million as at 
31 December 2017, with balance sheet 
gearing of 35.5% on a net debt to net 
debt + equity basis (31 December 
2016: 22.8%). 

The increase in net debt was driven by 
$5.0 million invested in working capital 
during 2017 (including $2.5 million 
during December) that was funded 
by bank debt and arises due to timing 
differences. Indeed, a large portion 
of this cash was already collected in 
January 2018. A significant portion of 
this working capital was also tied up 
due to a long delay in the consumption 
of consignment stock by a large metals 
customer that will be resolved over the 
coming months, but was still in effect 
at balance date. The 2017 year also 
saw $3.1 million of capital expenditure 
incurred as the Qinghai facility 
progresses towards completion.

Return on capital 
The return on invested capital fell 
during the year, with ROIC for 2017 
being 0.3% (2016: 5.4%). This was due 
in part to the operational result and 
in part to the impact of significant 
items discussed above.

Financial Report  |  Magontec Annual Report 2017

Gross Margin ($m)

Cash flow from underlying 
operations ($m)

12

10

8

6

4

2

0

5

4

3

2

1

0

2014

2015

2016

2017

2014

2015

2016

2017

Net debt to Net 
Debt + Equity (%)

Return on invested 
capital (ROIC) (%)

50

45

40

35

30

25

20

15

10

5

0

6

5

4

3

2

1

0

-1

2014

2015

2016

2017

2014

2015

2016

2017

2017 Cash Flow Summary ($m)

4.9

(5.0)

2.3

(3.4)

4.6

(0.02)

(1.0)

2.3

01 Jan 17

Underlying 
operating 
cash

Financing Working 
capital

Investing

Foreign 
exchange 
effects

Interest 
and tax 
paid

31 Dec 17

7

Workplace Safety 
and Environment 

Total Recordable Injury Frequency Rate (TRIFR) 

12 month TRIFR*

Monthly TRIFR

9.00

8.00

7.00

6.00

5.00

4.00

3.00

2.00

1.00

0.00

8.3

8.3

8.4

6.0

4.8

6.0

4.8

4.9

4.9

6.2

6.3

5.3

1

2

1

Jan 17

Feb 17 Mar 17

Apr 17 May 17

Jun 17

Jul 17

Aug 17

Sep 17

Oct 17 Nov 17

Dec 17

All TRI event in current month

Group TRIFR (rate) – 12 month average

*TRIFR = TRIs/number of hours worked *1,000

35

30

25

20

15

10

5

0

Plant

Fatalities

Lost time injuries

Medically treated 
injuries

Restricted work 
injuries

MAB (Bottrop)

MAR (Santana)

MAY (Shanxi)

MAX (Xi’an)

MAQ (Qinghai)

0

0

0

0

0

0

0

1

0

0

1

2

0

0

0

0

0

0

0

0

8

Page Title HerePrimary magnesium 
alloy manufacturing and 
recycling involve handling 
molten metals, dealing 
with high temperatures 
and heavy products 
throughout the production 
process. In magnesium 
anode manufacturing, 
employees also deal with 
molten metal and operate 
machinery that then 
converts metal rods into 
finished anode products. 
The company has rigorous 
operating protocols that 
it applies on a consistent 
basis across the group. 

Workplace Safety and Environment  |  Magontec Annual Report 2017

Magontec Germany Management Team.

In addition to monitoring of workplace 
protocols and proper use of equipment 
Magontec also conducts bi-annual 
heath checks for employees. 

Magontec measures safety on the 
basis of Total Recordable Injuries 
(TRI), including fatalities, lost time 
injures, medically treated injuries 
and restricted work injuries and 
calculates a Total Recordable Injury 
Frequency Rate (TRIFR) each month 
for management and Board review. 

The Company has a target of zero 
reportable injuries at the start of each 
year. In the year to 31 December 2017 
a total of 4 injuries were reported at the 
5 Magontec plants in Europe and Asia, 
none of which were serious.

Magontec is also subjected to a variety 
of regulatory and other inspections 
that cover environmental emissions 
as well as the structural integrity 
and safety of its buildings. In Europe 
these included ISO audits covering 
energy efficiency, environment and 
waste. In 2017 there were no penalties 
or other sanctions issued and all 
factories in Europe and China achieved 
the requisite environmental and 
emission standards.

In August 2017 the new Magontec 
Qinghai factory passed the Qinghai 
Production Supervision and 
Administration safety review and the 
Haixi Environmental Protection Bureau 
of Qinghai Province also approved 
the environmental impact statement 
for this facility.

9

Magontec Qinghai

In late October 2017 the Magontec Qinghai Magnesium Alloy Cast House began 
operation. Over the last two months of 2017 and in January 2018 the cast house 
produced just over 300 metric tonnes. Intermittent supply of liquid pure magnesium 
from our partners, Qinghai Salt Lake Magnesium Co Ltd (QSLM) commenced in 
late December 2017.

While the construction and commissioning phases were longer than anticipated when this project was first announced in 
2013, it is very pleasing to see the efforts of so many people and organisations come to fruition. The QSLM plant is the first 
electrolytic plant to be constructed anywhere in the world for many years and represents an important milestone for the 
global magnesium industry.

Modern 
complex

Proprietary 
technology

Automated 
production

High volume electrolytic 
magnesium raw material source
Over the last 20 years the Chinese 
magnesium industry has grown 
to dominate global magnesium 
production. Except for protected 
or privileged access companies in 
the USA, Russia, Brazil and Israel, 
Chinese magnesium is the world’s 
most important source of supply, 
representing over 80% of global 
production and an even larger 
proportion of freely traded material. 

Over the last 30 years the Chinese 
magnesium industry has been built 
on an older technology, the ‘Pidgeon’ 
process, that requires high labour and 
energy inputs and emits high levels of 
carbon pollution in its manufacturing 
process. The magnesium project 
at Qinghai, where Magontec has 
an exclusive right to manufacture 
magnesium alloys for the period of its 
10 + 10-year lease, is a measure of the 
rapid changes that are taking place in 
this Chinese industry as it transitions 
from a ‘start-up’ phase to a leading 
role in both production volumes and 
production technologies. 

Supply of raw material from the new 
electrolytic magnesium facility at 
Qinghai will allow Magontec to offer 
its customers the world’s greenest 
magnesium alloys. The QSLM 
facility will draw 85% of its power 
requirements from renewable energy 
sources including hydro, wind and 
solar. Golmud, situated in the Haixi 
region of Qinghai Province, sits at 2,800 
metres above sea level and enjoys 
many cloudless days and very high 
solar radiation. In the years ahead the 
Qinghai Provincial Government plans 
to significantly increase renewable 
energy investment, particularly solar.

10

Magontec Qinghai  |  Magontec Annual Report 2017

Power source – 85% renewable energy

Qinghai Province & QSLM energy source (2017) **
Qinghai Province & QSLM energy source (2017) **

90%

90%

Region has targeted 90% 
Region has targeted 90% 
of its energy to come from 
of its energy to come from 
renewable
renewable
sources
sources

Hydro
Hydro

Solar
Solar

17.90%
17.90%

Thermal
Thermal

15.30%
15.30%

Wind
Wind

3.00%
3.00%

63.80%
63.80%

** Qinghai Economic and Information Committee, www.qhec.org.cn
** Qinghai Economic and Information Committee, www.qhec.org.cn

Magontec Qinghai will ramp 
up towards rated annualised 
production of 56,000 metric 
tonnes per annum as QSLM 
supply is brought on-stream. 
For the 2018 financial year 
output will be considerably 
less than this, perhaps 15-25% 
of full production capacity. 

In the early stages of production the 
economics of the plant will be inferior 
to those expected at full production 
and, as with any new plant, it is difficult 
to properly predict the ultimate 
operating efficiency. 

By comparison with Magontec’s 
current primary magnesium alloy 
plant in Shanxi Province there will be 
many advantages in terms of both 
automation and volume. The new 
Magontec Qinghai cast house will take 
its raw material as a liquid magnesium 
metal and not, as hitherto, in solid pure 
magnesium ingots requiring melting 
prior to alloying. The alloying, casting 
and post production tasks are largely 
automated producing full pallets with 
minimal human intervention. 

Notwithstanding the great cost 
benefits that accrue from our 
investment in a ‘green’ and clean 
process, Magontec may continue 
to struggle against Chinese export 
competitors who do not pay VAT. The 
magnesium industry suffers from 
this illegal activity that the Chinese 
authorities appears unable to address.

In April 2018 there will be an official 
opening ceremony at the factory in 
Golmud and we are very pleased to 
announce that a representative of 
the Australian Embassy in Beijing 
will be in attendance on this most 
important occasion. Through 2018 
regular updates on the progress at 
Magontec Qinghai will be posted to 
the company’s ASX page and website 
(www.magontec.com).

11

Metals Division
Magnesium alloy production 
and recycling

Automated 
processes

State of the 
art equipment

IATF 16949 
Certification

Magnesium alloy recycling crew at Magontec 
GmbH in Bottrop.

In the 12 months to 
31 December 2017 
Magontec operated 
four magnesium alloy 
production facilities 
at Golmud and Shanxi 
in China, Santana in 
Romania and Bottrop 
in Germany. 

At each of these facilities the 
Company produces both primary 
magnesium alloys and recycled 
material. Magontec’s principal 
primary magnesium alloy plant is 
in Shanxi Province PRC while the 
two European facilities are recycling 
plants that have modest primary 
alloy production capacity.

In the last few months of 2017 
production commenced at the 
new primary magnesium alloy 
manufacturing site at Golmud in 
Qinghai Province, PRC. Production 
volumes from the new Magontec 
Qinghai facility in 2017 were 
less than 200 metric tonnes 
manufactured in a ‘ramp-up’ phase.

12

Overall magnesium alloy production 
volumes from all Magontec plants 
were slightly below the previous 
corresponding period, entirely the 
result of lower output at the Romania 
plant due to labour issues. Volumes 
at the main Shanxi plant and at the 
German plant in Bottrop were both 
above 2016 levels.

At both the Bottrop and Shanxi 
plants conversion costs (the cost 
at which the company converts raw 
materials - pure magnesium, alloying 
elements and scrap - into magnesium 
alloy ingots) again improved over 
the previous corresponding period 
while the Romanian plant at Santana 
experienced a sharp reversal on the 
levels of 2016.

Problems experienced in Romania 
reflect a number of issues; some 
common to the region and others 
specific to our business. Over the 
last few years there has been strong 
growth in employment opportunities 
in Romania resulting in a more mobile 
labour force. As a result staff turnover 
in Santana was exceptional in 2017 and 
the effect on production volumes and 
output quality presented a range of 
challenges to local management. 

Gross profit from the Romanian 
magnesium alloy facility fell 
significantly on the previous 

corresponding period and was a 
significant contributor to the lower 
overall result for 2017. Gross profit 
from the German recycling business 
was up marginally, entirely driven by 
improved costs.

The fourth quarter results from the 
Romanian business show a marked 
improvement on the third quarter as 
the plant moved back to four shifts. 
We expect the Romania magnesium 
alloy recycling business to experience 
continued recovery in productivity 
through the first quarter of 2018.

In Shanxi PRC there were also good 
improvements in costs. While this plant 
will close in the second half of 2018 it 
should be noted that the workforce 
and management team have done a 
great job in difficult conditions at this 
rented facility over the last 5 years. 
Some of the key staff from the Shanxi 
plant will relocate to the new Magontec 
Qinghai cast house, bringing with them 
operating and industry skills vital for 
the smooth transfer of production. 

2017 was a particularly busy year for 
process and safety training as the 
Company took on many new employees 
to operate furnace equipment in 
Qinghai and Romania. In 2018 we also 
expect to engage a large number of 
new employees at the new facility 
in Qinghai all requiring training in 
process and safety.

Metals Division  |  Magontec Annual Report 2017

Metals Division
Magnesium metals pricing 
and market conditions

Magontec’s metals division 
acquires raw material in the 
form of pure magnesium, 
alloying elements and 
scrap returns from die 
cast manufacturers. 

The pricing of these raw materials is generally passed through to the customer 
although at times of high raw material price volatility there is considerable scope 
for unexpected losses and profits.

The price of pure magnesium in 2017 was very volatile, driven in large part by 
environmental factors that are beyond the control of our raw material suppliers. 
Indeed, higher price volatility has been a growing feature of magnesium markets 
for the last two years as shown in the chart below. 

Mg Positive & Negative Price Runs

¥4,000

¥4,000

¥3,000

¥3,000

¥2,000

¥2,000

¥1,000

¥1,000

¥0

¥0
¥1,000

¥1,000

¥2,000

¥2,000

¥3,000

¥3,000

¥4,000

¥4,000

Dec 13

Dec 14

Dec 15

Dec 16

Dec 17

Dec 13

Dec 14

Actual Negative Price Run

Dec 15

Actual Positive Price Run

Dec 16

Dec 17

Actual Negative Price Run

Actual Positive Price Run

China, the world’s largest manufacturer of pure magnesium, has used the Pidgeon process for all of its production. 
Negative environmental issues surrounding this production process are significant and continue to attract attention from 
Chinese authorities.

Mg, Al, FeSi & Zinc – Based to 100 – 1 January 2016

240.00

230.00

220.00

240.00

210.00

230.00

200.00

220.00

190.00

210.00

180.00

200.00

170.00

190.00

160.00

  Al Ingot 99.7% Ch RMB 

  FeSi 75% Ch RMB/mt Base 100 

  Mg 99.9% Ch RMB Base 100 

  Zinc ingot 99.99% Ch RMB Base 100 

  Al Ingot 99.7% Ch RMB 

  FeSi 75% Ch RMB/mt Base 100 

  Mg 99.9% Ch RMB Base 100 

  Zinc ingot 99.99% Ch RMB Base 100 

150.00

140.00

130.00

120.00

110.00

100.00

90.00

180.00

170.00

160.00

150.00

140.00

130.00

120.00

110.00

100.00

90.00

04-Jan-16
04-Feb-16

04- M ar-16
04-Feb-16
04- M ar-16

04-A pr-16

04- M ay-16
04-Ju n-16
04-A pr-16
04- M ay-16
04-Ju n-16

04-S ep-16
04-A ug-16
04-Jul-16
04-S ep-16
04-A ug-16

04- M ar-17
04-N ov-16
04-D ec-16
04-Feb-17
04-Jan-17
04-O ct-16
04- M ar-17
04-N ov-16
04-D ec-16
04-Feb-17
04-Jan-17

04-O ct-16

04-Jul-16

04-A pr-17

04-A pr-17

04- M ay-17
04-Ju n-17
04-Jul-17
04- M ay-17
04-Ju n-17

04-S ep-17
04-A ug-17
04-O ct-17
04-S ep-17
04-A ug-17

04-N ov-17
04-D ec-17
04-Jan-18
04-N ov-17
04-D ec-17
04-Jan-18

04-O ct-17

04-Jul-17

13

04-Jan-16

Metals Division
Magnesium metals pricing 
and market conditions

continued

Price volatility stems from the raw material supply chain that feeds the Pidgeon process; dolomite and ferro-silicon directly 
and coal supply for power generation. Ferro-silicon represents around 90% by value of the raw material cost input for Pidgeon 
magnesium and is also a key input for the steel industry. Mixed signals from the Chinese authorities towards domestic steel 
production volume targets, together with ferro-silicon plant closures and production interruption occasioned by environmental 
inspections, have created a very uncertain market. Chinese environmental authorities have also forced temporary and 
permanent closure of dolomite and coal production sites, particularly lower cost operations, through 2017.

Pure Mg and Ferro-silicon prices – Since 1 January 2016

Mg 99.9% China RMB

FeSi 75% Ch RMB/mt

m
u
i
s
e
n
g
a
m
e
r
u
P

¥19,000

¥18,000

¥17,000

¥16,000

¥15,000

¥14,000

¥13,000

¥12,000

¥11,000

n
o
c
i
l
i
s
-
o
r
r
e
F

¥9,500

¥8,500

¥7,500

¥6,500

¥5,500

¥4,500

¥3,500

04- M ay-17
04- M ay-16
04- M ar-16
04- M ar-17
04-N ov-16
04-N ov-17
04-S ep-16
04-S ep-17
04-A ug-17
04-A ug-16
04-D ec-17
04-D ec-16
04-Feb-17
04-Feb-16
04-Ju n-17
04-Ju n-16
04-Jan-18
04-Jan-16
04-Jan-17
04-A pr-16
04-A pr-17
04-O ct-17
04-O ct-16
04-Jul-17
04-Jul-16

Price volatility is further exacerbated 
by the highly dispersed nature of the 
Chinese magnesium industry. There 
are around 60 operational Pidgeon 
magnesium manufacturers across 
China who start or stop production 
depending on the marginal price of 
pure magnesium and local production 
economics. 

Continuing environmental inspections, 
pure magnesium raw material site 
closures and uncertainty in the steel 
industry appear likely to feature again 
in 2018. 

Magontec addresses a key supply 
chain risk by moving primary 
magnesium alloy production from the 
Shanxi plant, which relies on supply 
from Pidgeon producers of pure 
magnesium, to the new electrolytic 
magnesium facility at Qinghai. 

The Qinghai facility does not use 
dolomite or ferro-silicon in its 
production process and consumes 
only small quantities of coal in its 
thermal power station (15% of total 
power supply). While this does not 
address the wider pricing issue, 
which will continue to be dominated 
by manufacturers using the Pidgeon 
process, it is a significant positive 
step for the consumers of magnesium 
alloys around the world. 

As the QSLM facility moves to 100,000 
mtpa (~12% of China’s current annual 
production), and higher volumes in 
the years ahead, volatility should 
decrease. For Magontec the off-take 
price agreement with Qinghai Salt Lake 
Magnesium Co Ltd directly references 
Chinese domestic market prices, so 
short-term price volatility cannot 
be fully addressed, except through 
longer-term contracts.

In the magnesium alloy recycling 
business (more than 40% of annual 
primary magnesium alloy sold is 
returned as scrap) prices generally 
follow primary magnesium alloy price 
trends plus a margin for conversion. 
The critical metrics for magnesium 
alloy recycling are volume throughput 
and conversion costs. 

In Europe today Magontec has a strong 
market share and, particularly over 
the last two years, has successfully 
focused on reducing costs to win 
new contracts and retain existing 
customers. The market for recycled 
product in Europe is highly competitive 
and recovering competitiveness at 
Magontec’s Romanian plant together 
with further improvement in costs in 
Germany are key to European division 
profitability in the year ahead. 

14

 
Metals Division  |  Magontec Annual Report 2017

Metals Division
Magnesium alloy volumes 
and market growth

Reliable statistics on total Chinese 
magnesium and magnesium alloy 
production are not published, however 
Chinese export statistics are collected 
on a monthly basis and give an 
accurate account of total volumes sold 
from China by manufacturer. 

In 2017 Magontec was again one 
of the top three magnesium alloy 
manufacturers supplying international 
customers from China. As China 
currently produces over 80% of all 
magnesium manufactured in the world 
today this serves as a relatively good 
proxy for the position of Magontec in 
the global market.

In 2017 Magontec had an 8% share 
of total Chinese magnesium alloy 
exports, up only marginally on the 
previous corresponding period. While 
total Chinese exports were also up only 
marginally in 2017, over the last four 
years the export market has grown by 
more than 15%. Given the rapid growth 
in Chinese automotive manufacturing 
output, up from 5.3 million in 2010 to 
a forecast of over 24 million in 2017, 
the sharpest rise in magnesium alloy 
demand continues to come from 
the Chinese domestic market. The 
establishment of new plants and the 
expansion of existing operations by 

Chinese Mg alloy exports (‘000s metric tonnes)
Chinese Mg alloy exports (‘000s metric tonnes)

102

106

115

117

118

120

100

80

60

40

20

0

2013

2014

2015

2016

2017

Chinese, Japanese, European and 
American automotive companies is 
matched by the growing investment 
by major automotive supply chain 
manufacturers. 

Recycling volumes in the Chinese 
export markets, principally 
Europe, Canada and Japan, are 
directly impacted by the volumes 
of magnesium alloy materials that 
arrive in each country. 

The vast majority of magnesium alloys 
that arrive in these importing countries 
are destined for the automotive 
industry and the automotive die 
casting scrap rate is 40%. Magontec 
competes strongly for these volumes 
at its two European plants in a market 
that is highly competitive and where 
conversion costs and volumes play 
a critical role.

15

Metals Division
Magnesium alloy 
demand drivers

Over 80% of magnesium alloys are purchased by die casting 
companies in the automotive supply chain and there has been 
a strong recovery in automotive manufacturing volumes since 
the GFC and the emergence of China as the world’s leading 
automotive manufacturer by output. 

In this paradigm light-weighting 
ICEs will continue to be very ‘front 
of mind’ for automotive engineers 
for many years to come and light 
weight magnesium alloy applications 
offering significant CO2 emission 
advantages over aluminium and 
other commonly used automotive 
metals, present opportunities for 
application innovation.

Discussed at greater length in the 
section dealing with Research and 
Development are many potential new 
magnesium alloy applications that 
are under development by Magontec 
in association with multiple partners 
in industry and academia around the 
world. Among these are thermally 
conductive magnesium alloys 
(Magontec proprietary alloys) that 
may have attractive characteristics for 
PHEV and BEV applications. A critical 
issue for BEVs is heat dissipation; 
lower running temperatures in 
batteries and inverters improves 
efficiency and longevity. In large part 
we expect magnesium alloys to be 
power plant agnostic; the lighter the 
vehicle the lower the tailpipe emissions 
(for ICEs) and the longer lasting the 
energy store for all vehicles, whether 
BEV, PHEV or ICE.

Magontec Romania Team.

Automotive production is forecast 
to continue to grow, albeit at lower 
levels than in previous years, and 
the much anticipated switch from 
internal combustion engine (ICE) to 
petrol hybrid electric (PHEV) and 
battery electric vehicles (BEV) is 
expected to give additional impetus 
to fleet renewal rates and new car 
sales. Indeed industry analysts 
expect BEVs to rise from the very 
low levels of 2017 to around 10% in 
2025. And all the time the pressure on 
automotive manufacturers to further 
reduce tailpipe emissions also grows 
– the EU has recently announced 
that they will mandate a further 
30% reduction in CO2 passenger car 
emissions by 2030, down from the 
95grams per kilometre currently 
targeted for 2020/21. The options 
open to automotive manufactures 
are smaller, electric or lighter vehicles. 

While magnesium alloy offers known 
benefits for automotive engineers 
seeking lighter unit weight, there 
remains much speculation over which 
materials will be chosen for battery 
electric vehicles. 

16

There are certainly many opportunities 
in the re-design phase to examine 
magnesium alloy options and for 
specific BEV parts, such as motor, 
inverter and battery cases, there 
is a strong case to be made for 
magnesium alloys. 

Given the risks inherent in new vehicle 
design it is likely that, at least in the 
early years, BEV manufacturers will 
resist material changes while the 
power plant undergoes a revolution. 
Conventional magnesium alloy parts 
in modern automobiles include the 
steering wheel armature, instrument 
panel beams, gearbox cases, seat and 
door frame inners as well as some 
limited tailgate and front-end parts. 
Except for gear box cases, all of these 
parts are likely to feature in future 
PHEV and BEV vehicles. 

Whichever materials are chosen, ICE 
vehicles are still expected to comprise 
up to 90% of the global fleet in 2025 
and still as high as 84% by 2030 when 
unit tailpipe emissions are required 
to be, on average, around 66.5 grams 
per kilometre. 

Metals Division  |  Magontec Annual Report 2017

Δ Kg 
CO 2eq

Production

Use

Life Cycle 
Assessment 
(LCA) Analysis: 

Lower CO2
emissions than 
‘Pidgeon’ magnesium

Lower CO2
emissions than 
aluminium global 
average 

Additional  CO 2
emissions

Reference 
Aluminium

Extra CO2
savings

6

4

2

0

-2

-4

-6

-8

-10

-12

Pidgeon Mg 

average

Pidgeon Mg 

average 

with credits

Electrolysis Mg

Qinghai

Electrolysis Mg

Qinghai  incl. 

credits

0km

50,000km

100,000km

150,000km

200,000km

Δ Kg 
CO 2eq

Production

Use

Life Cycle 
Assessment 
(LCA) Analysis: 

Lower CO2
emissions than 
‘Pidgeon’ magnesium

Lower CO2
emissions than 
aluminium global 
average 

Additional  CO 2
emissions

Reference 
Aluminium

Extra CO2
savings

6

4

2

0

-2

-4

-6

-8

-10

-12

Pidgeon Mg 
average

Pidgeon Mg 
average 
with credits

Electrolysis Mg
Qinghai

Electrolysis Mg
Qinghai  incl. 
credits

0km

50,000km

100,000km

150,000km

200,000km

This chart compares the Life Cycle CO2 emissions of ‘Pidgeon’ magnesium and Qinghai electrolytic 
magnesium against the global aluminium average (Reference Aluminium). It demonstrates one of 
the reasons why aluminium has continued to be preferred by auto manufacturers and why magnesium 
from Qinghai, with its high renewable energy input, is so attractive by comparison.

Lower tailpipe emissions give Magnesium an accelerating advantage over aluminium.

17

Metals Division
Magnesium alloy  
Research and Development

The development of new alloys 
and applications presents many 
opportunities and challenges. 
Design engineers have multiple 
material choices including 
magnesium and aluminium 
alloys, steels, plastics and carbon 
fibre composites. The challenge 
of new alloy development is to 
create materials with the best 
combinations of desired properties 
and to effectively communicate 
these developments to designers.

Opportunities and challenges 
arise from continually advancing 
technologies and transforming 
market environments. The 
transition to electric vehicles 
presents challenges for alloys 
used for internal combustion drive 
train components, yet a proactive 
approach can change this to an 
opportunity. For example, alloys 
suitable for automatic transmission 
housing could instead be applied to 
electric engine and inverter housings. 

Magontec leverages relationships 
with leading academic research 
organisations and works in 
close cooperation with OEM 
manufacturers and diecasters to 
ensure market relevance of alloy 
developments.  

1

1. 

 Atomic resolution imaging of AE alloy  
- High angle angular dark field

2.  Porsche V8 Engine Parts

3.  Audi TFSI Quattro oil housing

4.  Audi gearbox housing

5.  Stihl chainsaw crankcase

18

Case Study – AE Alloys

Magontec’s proprietary AE44 and AE44-2 alloys have 
been used for many years by automakers including Audi 
and Porsche and, more recently, for non-automotive 
applications including Stihl chainsaws. 

In recent years breakthrough discoveries in the AE alloy family have led to 
new application opportunities. The discovery of heat treatable AE alloys is 
perhaps the most significant advance. Unlike some aluminium alloys, the 
conventional magnesium alloys are not amenable to strengthening via heat 
treatment. Conventional alloys trade off strength and ductility. For example 
AZ91 alloy has a high strength but is relatively brittle while AM60 alloy 
has lower strength but is more ductile. Heat treatable AE alloys combine 
strength and ductility enabling higher strength structural components and 
leading to greater weight saving potential.

In another recent development, AE alloys have been identified with over 
twice the thermal and electrical conductivity of common alloys such as 
AZ91. This opens up new opportunities for light weight heat dissipating 
components for electronic and power applications.

The combination of access to state of the art research capabilities in leading 
research institutes and universities with an understanding of end user 
needs accelerates new alloy and application development.

2

3

4

5

Page Title HereCathodic Corrosion Protection  |  Magontec Annual Report 2017

Cathodic Corrosion Protection 
Magnesium and Electronic Anodes

Magontec is one of 
the world’s largest 
manufacturers of 
magnesium and 
electronic anodes, a 
part of the global supply 
chain for water heater 
manufacturers. The 
Company manufactures 
cast and extruded anodes 
in Xi’an, China for the 
Chinese domestic and 
export markets and 
cast anodes in Santana, 
Romania for supply 
to Europe, the Middle 
East and other regional 
markets.

Magontec global volumes in 2017 were 
down on 2016 due to the loss of a single 
large contract in China while European 
volumes were up 8%. In China a 
number of new contracts were won 
through the year, limiting the overall 
decline in global volumes to 6%.

Magnesium anode prices and margins 
are also sensitive to underlying raw 
material prices for magnesium alloys. 
As noted in the Metals report, prices 
were volatile in the 12 months to the 
end of December 2017 and there is no 
reason to assume this will change in 
the coming months. 

Over the period under review 
magnesium anode unit prices fell 
almost 5.3% across the two business 
while pure magnesium prices rose on 
average nearly 4.5%, putting further 
pressure on producers to reduce 
processing costs.

The combined impact of rising raw 
material prices and lower volumes 
in China caused average gross 
profit margins to fall in 2017. At the 
Xi’an factory there were positive 
contributions from improved operating 
metrics driven by higher levels of 
automation and improved organisation 
resulting in a headcount reduction of 
24% through the year.

In the first quarter of 2018, Magontec’s 
Chinese business expects to have 
recovered much of the volume lost in 
early 2017 and looks forward to higher 
production levels in the current year. 
The magnesium anode business is very 
sensitive to volumes and, all things 
being equal, this should translate into 
an improvement in profitability in 2018.

The electronic anodes business 
experienced a steady increase in 
demand. Electronic anodes have 
an external power source while 
magnesium anodes rely on a 
galvanic current. 

While domestic thermal solar 
installations have seen only modest 
growth in recent years, increasingly 
giving way to photo voltaic in domestic 
systems, heat pump systems with 
an attached water tank continue 
to experience strong growth as a 
highly efficient home and water 
heating system. 

In addition to domestic heat pump 
systems the electronic anodes 
business has sought new customers by 
developing new industrial applications 
suitable for the catering, dairy and 
other businesses where water is stored 
in a steel tank, as well as applications 
for heat exchangers. To meet these 
opportunities Magontec is currently 
developing new electronic anode 
systems and equipment that will 
be available in the market in 2018.

19

Board of 
Directors

Nicholas Andrews

Xie Kangmin

Andre Labuschagne

1

2

3

4

Li Zhongjun

20

3. Andre Labuschagne
Non-Executive Director  
(re-appointed 11 May 2016)

Member of the Finance, Audit 
and Compliance Committee (FAC)

B. Comm (Potchefstroom University) 

Mr Labuschagne is the Executive 
Chairman of Aeris Resources Limited 
(formerly Straits Resources Limited) 
which is a substantial shareholder 
of Magontec Limited to the extent of 
13.06% at the date of this report.

Mr Labuschagne is an experienced 
mining executive with a career 
spanning more than 25 years, primarily 
in the gold industry, and has held 
various executive roles in South Africa, 
PNG, Fiji and Australia for a number 
of leading gold companies, including 
Emperor Gold Mines, DRD Gold and 
AngloGold Ashanti. Mr Labuschagne 
was previously Managing Director of 
ASX-listed gold company, Norton Gold 
Fields Limited.

4. Li Zhongjun 
Non-Executive Director  
(re-appointed 8 May 2015)

Member of the Remuneration 
and Appointments Committee (REM)

Graduate of Wuhan University of Technology

Mr Li is the owner of Tianjin Keweier 
Metal Material Co Ltd (KWE (TJ)) in 
China. He is a graduate of Wuhan 
University of Technology and spent 
10 years at Tianjin Auto Industry 
Company Ltd. For more than 10 
years, Mr Li has built a trading 
and manufacturing business that 
specialises in magnesium products. 
KWE (TJ) has facilities located in 
Hong Kong and Tianjin and a broad 
experience of the global magnesium 
industry. Mr Li is a major beneficial 
shareholder in Magontec Limited.

1. Nicholas Andrews
Executive Chairman

B Ec.(Syd)

Mr Andrews has been the Executive 
Chairman of Magontec Limited since 
November 2009.

From 2007 to 2009 Mr Andrews 
served as a Non-Executive Director of 
Advanced Magnesium Limited prior 
to the acquisition of Magontec GmbH 
and the company name change to 
Magontec Limited.

Mr Andrews has a financial services 
background in the funds management 
industry and in investment banking. 
From 1996 to 2005 he was a Managing 
Director at UBS Investment Bank and 
responsible for global distribution of 
Australian and New Zealand Equity 
products. From 1989 to 1996 Mr 
Andrews was the Chief Investment 
Officer at LGT Investment Management 
in charge of the group’s investment 
portfolios for the Australasian region.

Mr Andrews is also a Vice President 
of the International Magnesium 
Association. 

2. Xie Kangmin
Non-Executive Director  
(re-appointed 8 May 2015)

Member of the Finance, Audit 
and Compliance Committee (FAC)

Graduate of Chongqing University

Mr Xie is the President of Qinghai Salt 
Lake Industry Co., Ltd. Mr Xie has been 
an employee of the Qinghai Salt Lake 
Industry Co Ltd (QSLI) since 1984 and 
through this period has held a number 
of roles within the organisation and 
its subsidiary companies. Mr Xie is a 
Senior Engineer and holds a Bachelor 
of Engineering (Mining) degree from 
Chongqing University. QLSI is the 
parent company of Qinghai Salt Lake 
Magnesium Limited (QSLM).

QSLM is a 28.99% substantial 
shareholder in Magontec Limited and 
the company with whom Magontec 
Limited has entered into a number of 
agreements in relation to the Magontec 
Qinghai alloy production facility at 
Golmud in Qinghai Province PRC.

Board of Directors  |  Magontec Annual Report 2017

7. Li Shun
Alternate Non-Executive Director 
(appointed 25 October 2017)

Mr Li Shun graduated from 
Qinghai University with a degree 
in Accounting and is a qualified 
intermediate accountant. Within 
Qinghai Salt Lake Industry Co Ltd 
(QSLI), he is currently the Section 
Head of Securities Affairs (Board 
Secretary Department of QSLI) and 
the Securities Affairs Representative. 
His previous experience within QSLI 
also includes serving in the capacity 
of the deputy section chief of equity 
management (Investment Department) 
as well as experience in the QSLI audit 
department.

He serves as the alternate director 
to Mr Xie Kangmin.

8. Li Yong
Alternate Non-Executive Director 
(appointed 29 May 2014,  
resigned 12 July 2017) 

In 2014, Mr Li was appointed as the 
Secretary of the Board of Qinghai Salt 
Lake Industry Co Ltd (QSLI), the parent 
company of QSLM. After graduating 
from the Sichuan School of Statistics 
in 1992, Mr Li joined the Qinghai Salt 
Lake group of companies, maintaining 
responsibility and involvement in 
a number of functions including 
investor relations, external reporting, 
economics, finance and accounting. 

He served as the alternate director to 
Mr Xie Kangmin, prior to his resignation 
on 12 July 2017.

5. Robert Shaw
Independent Director  
(re-appointed 17 May 2017)

Chairman of the Finance, Audit 
and Compliance Committee (FAC) 

Member of the Remuneration and 
Appointments Committee (REM)

BE, MBA, MPA, FAICD, JP

Mr Shaw has extensive experience 
in business management in both 
an Executive and Non-Executive 
capacity. He has specialist skills in 
finance and financial analysis, audit 
committees and corporate governance. 
He is currently a Non-Executive 
Director of Credit Corp (CCP) where 
he is Chairman of the Audit and Risk 
Committee. Mr Shaw holds Bachelor 
of Industrial Engineering, Master of 
Business Administration and Master 
of Professional Accounting degrees.

6. Robert Kaye SC
Independent Director  
(re-appointed 17 May 2017)

Chairman of the Remuneration 
and Appointments Committee (REM)

LLB (Syd), LLM (Cambridge) (Hons)

Mr Kaye was admitted to legal practice 
in 1978 and employed as a solicitor 
at Allen, Allen & Hemsley Solicitors. 
Thereafter he pursued his legal career 
at the NSW Bar and was appointed 
Senior Counsel in 2003, practising in 
commercial law. He has been involved 
in an array of commercial matters 
both advisory and litigious in nature 
and served on a number of NSW Bar 
Association committees including the 
Professional Conduct Committee. He 
has also served as a director for various 
private companies. In the conduct of 
his practice as a barrister, he has acted 
for many financial institutions and 
commercial enterprises, both public 
and private and given both legal and 
strategic advice. He has had significant 
mediation experience and been 
involved in the successful resolution of 
complex commercial disputes. Mr Kaye 
is currently Chairman of Collins Foods 
Limited and a Non-Executive Director 
of HT&E Limited.

21

5

6

7

8

Robert Shaw

Robert Kaye SC

Li Shun

Li Yong

Executive 
Management

1. Tong Xunyou
President, Magontec Asia

3. Derryn Chin
Chief Financial Officer

Graduate of Dalian University

B Com (UNSW), CA, CFA

Mr Chin joined Magontec Limited in 
2014 and was appointed as the Chief 
Financial Officer in 2016.

Prior to joining Magontec, Mr Chin 
was an equity research analyst at 
Macquarie Group in Australia and prior 
to that held roles in both the audit and 
financial advisory divisions of KPMG. 

He is a member of Chartered 
Accountants Australia and New 
Zealand, a CFA charterholder and 
speaks conversational Mandarin. 
He graduated with a Bachelor of 
Commerce from the University of New 
South Wales with a double major in 
Accounting and Finance.

Mr Tong joined Magontec Limited 
(then Hydro Magnesium) in 2003 in the 
role of Production Manager, Finance 
Manager and Deputy General Manager. 
In 2006 Mr Tong was appointed General 
Manager and assumed responsibility 
for all of Magontec’s Chinese recycling 
and anode manufacturing activities.

Prior to joining Magontec Limited Mr 
Tong spent eight years with the Henkel 
Adhesive Company Limited where he 
was Production and Branch Manager.

Mr Tong holds a Bachelors degree 
in Chemistry from Dalian University 
of Science and Engineering and an 
MBA from Hong Kong Polytechnic 
University.

2. Christoph Klein-Schmeink
President Magontec Europe, 
North America and Middle East

MBA (Münster University)

Mr Klein-Schmeink joined Magontec 
Limited (then Hydro Magnesium) 
in 2000 as Sales and Marketing 
Manager responsible for global sales 
of the company’s anode products. 
He was appointed Head of Sales and 
Marketing in 2007 and Vice-President 
of Global Sales and Marketing in 
2011. In 2012 Mr Klein-Schmeink was 
appointed President of Magontec 
GmbH and has responsibility for the 
Group’s activities in Europe, North 
America and the Middle East. 

Prior to joining Magontec Mr Klein-
Schmeink held the position of Sales 
Director Asia Pacific with the global 
mining services company Terex 
Mining Corp. 

Mr Klein-Schmeink holds a Masters of 
Business Administration degree from 
Münster University. 

1

2

3

Tong Xunyou

Christoph Klein-Schmeink

Derryn Chin

22

Executive Management  |  Magontec Annual Report 2017

4

5

Patrick Look

John Talbot

4. Patrick Look
Vice President, Finance & HR

Business Economist VWA

Mr Look is the Vice-President 
of Finance & HR, with primary 
finance and operating oversight 
responsibilities for the company’s 
divisions in Europe, North America 
and the Middle East. Mr Look started 
his career at Magontec GmbH (then 
Hydro Magnesium) in 1998 as part of 
the industrial business management 
trainee program. Over the last 19 years, 
after assuming various finance roles 
in the company including accounting, 
purchasing and logistics and 
graduating as a Business Economist 
(VWA) he was appointed Finance 
Manager in 2009 and Vice-President 
Finance & HR in 2012.     

5. John Talbot
Company Secretary

B Bus, Accounting (UTS)

Mr Talbot has been the Company 
Secretary for Magontec since 
February 2008, a role he has previously 
combined with that of Chief Financial 
Officer. Mr Talbot relinquished his 
responsibilities as CFO in February 
2016. 

From 1988 to Sept 2000 Mr Talbot 
was a senior executive at the 
Commonwealth Bank of Australia 
where he headed the Bank’s Project 
and Infrastructure Finance Division. 
Prior to 1988 his other responsibilities 
within the bank included capital 
markets activity and income tax 
compliance. From 2000 to his 
appointment in February 2008 with 
Magontec, he undertook various 
corporate advisory roles in Australia 
and overseas.

23

Financial 
Report

Directors’ Report

Remuneration Report

Independent Auditor’s Declaration

Consolidated Statement of Profit & Loss and Other Comprehensive Income

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the Financial Statements

1.  Summary of Accounting Policies

2.  Results from Operations

3. 

Income Taxes

4.  Key Management Personnel Remuneration

5.  Remuneration of Auditors

6.  Current Trade and Other Receivables

7.  Current Inventories

8.  Other Current Assets

9.  Non Current Trade and Other Receivables

10.  Property Plant & Equipment

11.  Intangibles

12.  Current Trade and Other Payables

13.  Borrowings

14.  Current Provisions

15.  Non-Current Provisions

16.  Share Capital

17.  Reserves

18.  Accumulated Losses

19.  Earnings/(Loss) Per Share

20.  Contingent Liabilities and Assets

21.  Capital and Leasing Commitments

22.  Controlled Entities

23.  Segment Information

24.  Related Party Disclosures

25.  Financial Instruments

26.  Parent Entity Information Magontec Limited

27.  Subsequent Events

28.  Additional Company Information

Directors’ Declaration

Independent Auditor’s Report

Shareholder Information

26 
27 
40 
41 
43 
44 
45 
46 
46 
51 
53 
56 
56 
57 
57 
57 
57 
58 
59 
59 
60 
61 
61 
63 
64 
65 
65 
66 
67 
68 
70 
72 
73 
78 
80 
80 
80 
81 
83 

24

Financial Report

for the year ended 31 December 2017

1.  Corporate information 
The consolidated financial statements of Magontec Limited and its controlled subsidiaries as listed in Note 22 herein 
(collectively, the Group) for the year ended 31 December 2017 were authorised for issue in accordance with a resolution of 
the directors on 26 February 2018. Magontec Limited is a company limited by shares incorporated in Australia. The shares 
are publicly traded on the Australian Securities Exchange (ASX) under the code “MGL”.

2.  Glossary of entities referred to in this report 

Formal Name of Entity

Description of Entity

Referred to as

Head office entities
Magontec Limited

The ultimate parent/holding company of the Group.

Advanced Magnesium Technologies Pty Limited Wholly owned subsidiary of Magontec Limited that acts 

Parent Entity, 
the Company 
or MGL 
AMT

Varomet Holdings Limited

Operating entities
Magontec GmbH

Magontec SRL

Magontec Xi’an Co Ltd.

Magontec Shanxi Company Limited

Magontec Suzhou Co Ltd

Magontec Qinghai Co. Ltd.

Magontec US LLC

Major related shareholders
Qinghai Salt Lake Magnesium Co. Limited

Straits Mine Management Pty Limited

KWE (HK) Investment Development Co Ltd

as the administrative operating entity.
The holding company that owns the Group’s operating 
businesses at Bottrop (Germany), Xi’an (PRC) and 
Suzhou (PRC). In turn, Magontec Limited owns all of the 
ordinary shares issued by Varomet Holdings Limited. 

The wholly owned entity that owns the Group’s 
operations in Bottrop, Germany.
The wholly owned entity that owns the Group’s 
operations in Santana, Romania.
The wholly owned entity that owns the Group’s 
operations in Xi’an, PRC.
The joint venture operations in Jishan, Shanxi 
province PRC.
The wholly owned entity that owns the Group’s 
operations in Suzhou, PRC. Production ceased at this 
facility in 2016.
The wholly owned entity that owns the Group’s 
operations in Qinghai, PRC.

The wholly owned entity that acts as the group’s 
distributor located in the United States of America.

A subsidiary of Qinghai Salt Lake Industry Co. Limited 
(a company listed on the Shenzhen Securities Exchange) 
and a 28.99% shareholder in MGL at the date of this 
report.
The company from which MGL acquired the Magontec 
group of companies on 4 July 2011. SMM, a subsidiary 
of Aeris Resources Limited remains a 13.06% substantial 
shareholder of MGL at the date of this report. Mr Andre 
Labuschagne, a director of Magontec Limited is the 
Executive Chairman of Aeris Resources Limited.
Shareholder in Magontec Limited. Mr Li Zhongjun, 
a director of Magontec Limited is also a director and 
shareholder of KWE (HK) Investment Development 
Co Ltd.

VHL

MAB

MAR

MAX

MAY

MAS

MAQ

MAU

QSLM

SMM

KWE (HK)

3.  Rounding errors
The tables in this report may indicate apparent errors to the extent of one unit (being $1,000) in:

 − the addition of items comprising total and sub totals; and
 − the comparative balances of items from the financial accounts for the period ended 31 December 2016. 

Such differences arise from the process of:

 − converting foreign currency amounts to two decimal places in AUD; and
 − subsequent rounding of the AUD amounts to one thousand dollars.

25

Financial Report  |  Magontec Annual Report 2017Directors’ Report

The Directors of Magontec Limited submit herewith the Annual Financial Report of the Group for the twelve-month period 
ended 31 December 2017. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows. 
A summary of the experience of each director is provided on pages 20-21 of this document.

Directors who held office during and since the end of the financial year were:

 − Mr Nicholas Andrews (Executive Chairman) 
 − Mr Xie Kangmin (Non-Executive Director)
 − Mr Li Zhongjun (Non-Executive Director)
 − Mr Robert Shaw (Independent Director)
 − Mr Robert Kaye (Independent Director)
 − Mr Andre Labuschagne (Non-Executive Director)
 − Mr Li Yong (Alternate Non-Executive Director to Mr Xie Kangmin) – resigned 12 July 2017
 − Mr Li Shun (Alternate Non-Executive Director to Mr Xie Kangmin) – appointed 25 October 2017

Directorships of other Listed Companies
Directors who have held a Directorship position in another publicly listed company in the three years immediately before 
the end of the financial year are as follows:

 − Mr Robert Shaw is a Non-Executive Director of Credit Corp Group Limited
 − Mr Robert Kaye is Chairman of Collins Food Limited and a Non-Executive Director of HT&E Limited. He was also formerly 

a director at UGL Limited and Spicers Limited during the relevant 3-year period

 − Mr Andre Labuschagne is Executive Chairman of Aeris Resources Limited (formerly Straits Resources Limited)
 − Mr Xie Kangmin is a director of Qinghai Salt Lake Industry Co. Limited

Company Secretary
Mr John Talbot, B Bus (Acctg)

Mr Talbot has been the Company Secretary for Magontec since February 2008, a role he has previously combined with that 
of Chief Financial Officer. Mr Talbot relinquished his responsibilities as Chief Financial Officer in February 2016. Prior to 2008 
he was engaged as a financial consultant in the corporate finance field. Prior to 2000 he was a senior executive with the 
Commonwealth Bank of Australia.

Principal Activities
The principal activities of the consolidated entity during the course of the financial year consisted of:

 − Manufacture and sale of generic and specialist alloys (including both primary alloy manufacture and recycling); 
 − Manufacture and distribution of magnesium and titanium cathodic corrosion protection products (anodes);
 − Research and development of new proprietary magnesium alloys and technologies;
 − Research and development of cathodic corrosion protection products (CCP); and
 − Creating markets for new magnesium alloys and technologies by supporting demonstration trials and programs 

for developing new applications.

Directors’ Meetings
The following table sets out the number of directors’ meetings (including meetings of committees of directors) held during 
the financial year and the number of meetings attended by each director (while they were a director or committee member).

Director

Attended

Held

Attended

Held

Attended

Held

Board Meetings

FAC Meetings (2)

REM Meetings (3)

Mr Nicholas Andrews

Mr Xie Kangmin 

Mr Li Zhongjun 

Mr Robert Shaw

Mr Robert Kaye

Mr Andre Labuschagne

Mr Li Yong (1)

Mr Li Shun (1)

8

–

8

8

8

7

2

2

8

8

8

8

8

8

5

2

–

2

2

1

1

2

2

2

1

1

2

2

2

2

2

2

(1) 

 Mr Li Yong was the alternate director to Mr Xie Kangmin during the period until his resignation on 12 July 2017.  
Mr Li Shun was appointed as the alternate director to Mr Xie Kangmin commencing 25 October 2017. 

(2)  Finance, Audit & Compliance Committee.
(3)  Remuneration & Appointments Committee.

26

Directors’ Report

continued

Directors’ Shareholdings
The following table sets out the relevant interest (direct and indirect) of each serving director in shares, debentures, 
and rights or options in shares or debentures of the Company or a related body corporate as at the date of this report.

Director

Mr Nicholas Andrews

Mr Xie Kangmin 

Mr Li Zhongjun 

Mr Robert Shaw

Mr Robert Kaye

Mr Andre Labuschagne

Mr Li Yong

Mr Li Shun

Ordinary
Shares

Performance
Rights

20,870,953

11,086,660

–

56,197,298

800,000

–

–

–

–

–

–

–

–

–

–

–

REMUNERATION REPORT
The Remuneration Report for the year ended 31 December 2017 outlines the remuneration arrangements of the Group 
in accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations.

The Remuneration Report details the remuneration arrangements for key management personnel (KMP) who are defined 
as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, 
directly or indirectly, including any director (whether executive or otherwise) of the Parent Entity. Directors and executives 
with a direct reporting responsibility to the Executive Chairman are deemed to be such individuals.

The remuneration report is presented under the following sections:

Individual key management personnel disclosures

1. 
2.  Remuneration at a glance
3.  Board oversight of remuneration
4.  Non-executive director remuneration arrangements
5.  Executive remuneration arrangements 
6.  Group performance and the link to remuneration
7.  Executive contractual arrangements

1.  INDIVIDUAL KEY MANAGEMENT PERSONNEL (KMP) DISCLOSURES
Details of KMP are set out below and their remuneration is detailed in the table on page 29.

(i)  Directors during the year ended 31 December 2017
 − Mr Nicholas Andrews (Executive Chairman)
 − Mr Xie Kangmin (Non-Executive Director)
 − Mr Li Zhongjun (Non-Executive Director)
 − Mr Robert Shaw (Independent Director)
 − Mr Robert Kaye (Independent Director)
 − Mr Andre Labuschagne (Non-Executive Director)
 − Mr Li Yong (Alternate Non-Executive Director to Mr Xie Kangmin) – resigned 12 July 2017
 − Mr Li Shun (Alternate Non-Executive Director to Mr Xie Kangmin) – appointed 25 October 2017

(ii)   Key Management Personnel (KMP) (Being the Executive Chairman and his Direct Reports) during the year ended 

31 December 2017

 − Mr Nicholas Andrews - Executive Chairman
 − Mr Christoph Klein-Schmeink - President Magontec Europe, North America and Middle East
 − Mr Tong Xunyou - President Magontec Asia
 − Mr Derryn Chin - Chief Financial Officer 

27

Financial Report  |  Magontec Annual Report 2017Directors’ Report

continued

2.  REMUNERATION AT A GLANCE 

5.  EXECUTIVE REMUNERATION ARRANGEMENTS

Remuneration Strategy
The Group uses a combination of cash and non-cash 
mechanisms to remunerate key management personnel. 
At the Company’s 2017 Annual General Meeting shareholders 
approved a new plan for the global management group 
comprising cash based short term incentives and equity 
based long term incentives in the form of performance rights.

3.  BOARD OVERSIGHT OF REMUNERATION

Remuneration & Appointments Committee
The Remuneration & Appointments Committee is 
responsible for making recommendations to the board on 
the remuneration arrangements for non-executive directors 
(NEDs) and executives.

The committee assesses the appropriateness of the nature 
and amount of remuneration of NEDs and executives on 
a periodic basis by reference to relevant employment 
market conditions, with the overall objective of ensuring 
maximum benefit from the retention of its directors and 
executive team.

Remuneration Approval Process
The board approves the remuneration arrangements 
of the Executive Chairman and executives following 
recommendations from the remuneration committee.

Remuneration Structure
The structure of Non-Executive Director and Executive 
Remuneration are separate and distinct processes as 
outlined in the following sections.

4. 

 NON-EXECUTIVE DIRECTOR REMUNERATION 
ARRANGEMENTS – BOARD POLICY AND STRUCTURE

The remuneration of Non-Executive Directors consists of 
directors’ fees. The aggregate amount of Non-Executive 
Directors’ fees is approved by Shareholders and is currently 
limited to $600,000 per annum. Any increase to the 
aggregate amount must be approved by Shareholders. 
The Board decides how the aggregate amount or a lesser 
amount is divided between the Directors.

Within the constraint of the aggregate $600,000 fees 
approved by Shareholders for Non-Executive Directors, the 
Board has increased compensation to $60,000 per annum 
commencing from 1 September 2017 (previously $35,000 
per annum) for each Non-Executive Director inclusive of 
any payments for superannuation. There are currently no 
additional fees being paid to those directors serving on 
either the Finance, Audit & Compliance Committee or the 
Remuneration & Appointments Committee.

Equity based compensation including the issue of options 
is generally avoided for non-executive directors. However, 
this can be provided to directors as long as any such issue 
complies with the requirements of the Corporations Act 
and the ASX Listing Rules.

28

Board Policy
The Board of Directors’ policy on Executive remuneration is 
as follows:

 − When an executive or an employee is recruited, the 

Group’s aim is to reward its staff at market rates within 
the manufacturing technology industry as determined 
and in consultation with a remuneration specialist where 
appropriate;

 − The remuneration policy aims to retain key employees 
and align employee interests with Group performance 
and shareholders’ interests;

 − On 18 December 2013, the Board approved an incentive 
plan comprising short-term incentive (STI) and long-
term incentive (LTI) components for the Magontec global 
management group. This plan was known as the 2013 
Board Approved Plan.

 − Subsequent amendments to the 2013 Board Approved 
Plan were approved by the Board on 23 February 2017 
and presented at the Group’s AGM on 17 May 2017, 
which was then ratified by shareholders. This plan is now 
known as the 2017 Shareholder Approved Plan. 

 − The implementation of this plan is utilised to:

a.  motivate key management personnel (KMP) to 
originate and innovate strategies for growth;

b.  reward KMP for the satisfaction of positive strategic 

c. 

and financial outcomes; and 
in the case of the LTI scheme, to provide an adjunct 
to cash remuneration to preserve cash resources.

Each KMP has a set of key performance indicators (KPIs) 
mutually agreed by the employee with the Executive 
Chairman/Board (as appropriate) on an annual basis. The 
KPIs reflect the employee’s ability to add value to the entity 
and increase shareholder wealth by ensuring productive 
gains such as increasing efficiencies, reduction in costs and 
increased profitability by maximising sales volumes and 
margins on sale revenues. Performance against these KPIs 
forms a component of the assessment of STI amounts as 
outlined below. The Board retains discretion to adjust final 
remuneration outcomes for all Executives.

Board Policy is reviewed periodically by the Remuneration 
and Appointments Committee. Where appropriate, 
recommendations to the Board for variations will be made.

Eligible executives for the 2017 Shareholder Approved Plan 
are outlined in the table below.

Participant

Current Position

Nicholas Andrews Executive Chairman

John Talbot
Derryn Chin (1)
Christoph 
Klein-Schmeink
Xunyou Tong

Patrick Look

Company Secretary and Consultant
Chief Financial Officer
President Europe, North America & 
Middle East
President Asia
Vice President Finance & Human 
Resources

(1) 

 Mr Chin was not eligible to participate in the 2015-17 LTI Plan, 
as he was not part of the global management group at its 
commencement date of 1 January 2015.

Directors’ Report

continued

5.  EXECUTIVE REMUNERATION ARRANGEMENTS (continued)

Previous Schemes
As at 31 December 2017, both the Employees’ Share Option Plan (ESOP) and Executives’ Securities Issue Plan (ESIP) 
are no longer active as there are no outstanding obligations to employees.

Outcomes
During the year ended 31 December 2017:

 − No STI provision has been made for performance during the current year.
 − Regarding the LTI scheme, a total of 7,864,192 shares with respect to the 3-year period from 2014-2016 were issued to 

members of the global management group following approval at the company’s AGM in May 2017.

Remuneration for directors and KMP in the current reporting period prepared according to accounting standards is shown below.

Key Management Personnel Remuneration 12 months ended 31-Dec-17 and 31-Dec-16

Non-Performance Related

Performance Related

Salary & 
Allowances 
$

Termination 
Payment 
$

Super & 
Statutory 
Pension 
Benefits 
$

Share 
Based 
Payments 
$

Motor 
Vehicle 
& Other 
Allowances 
$

LTI 
shares  
$

LTI 
rights  
$

STI  
$

Total 
$

481,172
498,125

Mr N Andrews
(Exec Chairman)

2017
2016

Mr C Klein-Schmeink
2017
(President Magontec Europe) 2016

2017
2016

2017
2016

2017
2016

2017
2016

2017
2016

2017
2016

2017
2016

2017
2016

Mr X Tong
(President Magontec Asia)

Mr D Chin
(Chief Financial Officer) (1)

Mr J Talbot 
(Former CFO & Coy Sec) (2)

Mr K Xie
(Non Exec Dr)

Mr Z Li
(Non Exec Dr)

Mr R Shaw
(Independent Dr)

Mr R Kaye 
(Independent Dr)

Mr A Labuschagne
(Non Exec Dr)

Total year ended 
31 December 2017
Total year ended 
31 December 2016

403,993
382,988

281,325
249,591

278,371
260,588

230,002
191,668

–
35,000

–
–

43,333
35,000

39,574
31,670

43,333
35,000

43,333
35,000

1,363,265

1,256,506

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–

–

30,000
35,000

23,274
20,350

14,820
14,786

21,850
18,208

–
5,833

–
–

–
–

3,760
3,330

–
–

–
–

93,704

–
–

–
– 46,362

– 35,675 11,504
–

33,776

–
115,148

– 36,612
29,850
28,405 33,091 34,663

8,299
–

379,360
481,248

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–

–
– 29,663

– 29,748
28,164

7,796

330,736
– 333,202

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
5,000

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

2,690
–

254,543
214,877

–
–

–
–

–
–

–
–

–
–

–
–

–
40,834

–
–

43,333
35,000

43,333
35,000

43,333
35,000

43,333
35,000

29,850

– 102,036 30,289 1,619,144

97,507

115,148

28,405 114,116 96,603

– 1,708,285

(1) 

 During 2016, Mr Derryn Chin was only deemed as KMP during the period commencing from 1 March 2016 to 1 December 2016, and as 
such the 2016 figures only reflect his remuneration for that 10 month period. No increase to fixed contractual remuneration was made 
during 2017.

(2)  Mr John Talbot ceased to be a KMP on 1 March 2016. His remuneration for the period from 1 January 2016 to February 2016 is shown.

29

Financial Report  |  Magontec Annual Report 2017Directors’ Report

continued

5. 

 EXECUTIVE REMUNERATION ARRANGEMENTS 
(continued)

Structure
The Group’s limited resources mean that its remuneration 
structures must be simple. The arrangements therefore 
must balance ease of administration with appropriate 
reward. 

Non-cash mechanisms are confined to shares and options. 
The issue of shares will be in terms of resolutions put to 
shareholders pursuant to ASX Listing Rules and other 
relevant governing regulations.

Technical services tend to be required by the Group on 
an irregular basis. There is a reliable base of technical 
consultants on which the Group can call upon when the 
need arises. This avoids the cost of maintaining permanent 
resources. 

Key Management Personnel are defined as Directors, 
the Executive Chairman and those with direct reporting 
responsibility to the Executive Chairman except the 
Company Secretary. 

Under the 2017 Shareholder Approved plan, staff 
remuneration has three components: 

a.  Base or fixed remuneration; 
b.  A short-term incentive (STI) in the form of cash; and
c.  A long-term incentive (LTI) in the form of performance 

rights.

Further detail on each component is provided below.

Potential Remuneration Mix
The chart below outlines the target remuneration mix 
for the Executive Chairman and other key management 
personnel based on latest estimates of maximum possible 
remuneration at the date of this report.

Remuneration Mix Target (%)

100

80

60

40

20

0

53.0

10.8

36.1

50.5

11.4

38.1

Executive Chairman

Other KMP

Fixed

STI

LTI

Fixed Cash Remuneration
Executive contracts of employment include post-employment benefits (superannuation and certain social benefits for 
Chinese personnel) but do not include any guaranteed base pay increases. These are assessed on a periodic basis with the 
assistance of external consultants where deemed necessary.

Use of Remuneration Consultants
During the current year ended 31 December 2017, the Group engaged the services of four separate independent remuneration 
consultants as detailed below:

Remuneration Consultant 

Position

Godfrey Remuneration Group (Australia); Executive Chairman

Kienbaum (Germany)

Mercer (China)
KPMG (Australia)

President, Magontec Europe, 
North America & Middle East
President, Magontec Asia
Non-Executive Directors

Cash consideration for remuneration 
market services (A$) excluding GST

8,500

7,273

2,885
5,125

Aside from Godfrey Remuneration Group (Australia), these consultants only provided remuneration benchmarking data that 
was considered by the Board in conjunction with other factors when forming its remuneration decisions.

30

Directors’ Report

continued

5. 

 EXECUTIVE REMUNERATION ARRANGEMENTS 
(continued)

With respect to recommendations provided by Godfrey 
Remuneration Group (Australia), the board is satisfied that 
the remuneration recommendations were made free from 
undue influence from the Executive Chairman, to whom the 
report relates. Godfrey Remuneration Group is regarded 
amongst the leading independent remuneration consultants 
in Australia.

With respect to other services provided by remuneration 
consultants, KPMG (Australia) also provided limited 
assistance to the Group in compiling a binomial options 
pricing model which was used to determine the fair value 
of performance rights issued to executives. Specifically, 
KPMG (Australia) did not express any opinions regarding 
assumptions or inputs to the model. Cash consideration 
for this additional service was $7,767. 

Executive STI Plan
The STI plan rewards executives according to a set formula 
with reference to group profitability. The Board determines 
the size of the pool based on actual financial metrics 
achieved relative to budget, and has discretion to adjust 
these payments depending on the particular circumstances 
of the Group and other qualitative factors as it sees fit. 
STI awards are 100% cash-settled.

Details of the STI plan forming part of the 2017 Shareholder 
Approved Plan are as follows:

 − The commencement date of the STI plan is 1 January 

2017 and annually thereafter.

 − The STI performance period is the one-year period from 

the relevant commencement date.

 − The STI pool available for distribution is calculated 

as being equal to 25% of the excess of the actual net 
operating profit after tax (Actual NOPAT) over budgeted 
net operating profit after tax (Budgeted NOPAT) – the 
resultant figure being referred to as “The Pool”;
 − Net operating profit after tax (NOPAT) is defined as 

reported net profit after tax adjusted for specific items 
as deemed appropriate by the board.

 − The amount of The Pool is modified as follows:

a.  The Pool would not be created where Actual NOPAT 

b. 

is negative; and
In order to limit the amount of The Pool when 
profitability is low, the 25% ratio of excess Actual 
NOPAT over Budgeted NOPAT on which the Pool 
is calculated would be reduced according to the 
principles in the following table 

1. If POOL as a % of ACTUAL
NOPAT is equal to:

2. The Pool is MODIFIED to 
this % of excess ACTUAL 
NOPAT over BUDGET NOPAT

From 0.0% to 12%

Over 12.0% to 20%
Over 20.0%

25.0%

15.0%
8.0%

This constraint will be reviewed for appropriateness 
periodically by the Remuneration and Appointments 
Committee.

 − Executives in the global management group participate 

in The Pool on a pro rata basis according to the 
percentage that their salary represents of the aggregate 
of salaries of eligible executives, the resultant figure 
being referred to as “The Provisional Payment”;

 − Eligible executives will receive –

a.  45% of the Provisional Payment by way of a fixed 

component as determined by the formula described 
above; and

b.  Up to 55% of the Provisional Payment by way of 
a residual discretionary component determined 
according to an assessment of the eligible executive’s 
contribution to regional and Group performance, 
satisfaction of KPIs laid down by management; 
and other subjective factors identified by the 
Remuneration and Appointments Committee.

 − The resultant payments are subject to approval by the 
Board upon the recommendation of the Remuneration 
and Appointments Committee and may only be taken 
in cash.

Executive LTI Plan
Long term incentives are issued in the form of performance 
rights to the global management group and provide for 
vesting into Magontec ordinary shares subject to the 
achievement of pre-determined share price targets. 

The plan uses absolute total shareholder return (TSR) as the 
basis for performance measurement targets based on the 
30-day VWAP for each year ended 31 December. 

TSR comprises the percentage change in the Company’s 
share price, plus the value of any future dividends during the 
period and is measured over a 3-year period. 

The performance condition of TSR is deemed as being the 
most appropriate by the Board due to the following reasons:

1.  There are no comparable companies either on the 

ASX or globally that would provide a reliable relative 
performance benchmark
It is more simple to administer given limited human 
resources
It aligns the interests of employees in the management 
group with those of shareholders

2. 

3. 

As the company moves to profitability, the Board will 
consider introducing other measurements.

During the year ended 31 December 2017, a total of 
64,347,817 performance rights were issued with respect to 
the three-year periods to 31 December 2017, 31 December 
2018 and 31 December 2019 pursuant to the 2017 
Shareholder Approved Plan which was approved at the 
2017 AGM. 

No other options were issued to KMP during the current 
financial period. 

31

Financial Report  |  Magontec Annual Report 2017Directors’ Report

continued

 EXECUTIVE REMUNERATION ARRANGEMENTS (continued)

5. 
Further details of the LTI plan forming part of the 2017 Shareholder Approved Plan are as follows:

 − The commencement date of the LTI plan is 1 January 2017 and annually thereafter up to and including 1 January 2020.
 − The LTI performance period is the 3-year period from the relevant commencement date.
 − A Performance Right is a conditional right granted by the Company to an eligible executive whereby that conditional right 
may, subject to the relevant terms and conditions, vest as Magontec ordinary shares in respect of participation in the LTI.
 − Performance Rights will automatically lapse in the event of the death, dismissal, retrenchment, retirement or resignation 

of the eligible executive prior to the end date of the 3-year LTI performance period.

 − Performance Rights will vest immediately in the event of a takeover (being the acquisition of control over the voting shares) 

of the Company.

 − Performance Rights may not be transferred, assigned or novated except with the approval of the Remuneration and 

Appointments Committee. 

 − Eligible executives will not grant any security interest in or over or otherwise dispose of or deal with any Performance 

Rights or any interest in them until the relevant Magontec ordinary shares are issued to that eligible executive, and any 
such security interest or disposal or dealing will not be recognised in any manner by the Company.

 − Performance Rights do not confer on a participant the right to participate in new issues of shares by the Company, 

including by way of bonus issue, rights issue or otherwise.

Grant of Performance Rights
At the commencement date of the relevant 3-year LTI performance period an eligible executive will receive Performance 
Rights –

i.  equal in value to 30% of the eligible executive’s gross salary at that date;
ii.  equal in number to the value in i. divided by 75% of the greater of the market value of Magontec ordinary shares on the 

same date and the market value adopted under this provision at the commencement date of the immediately prior 3-year 
LTI performance period; and

iii.  at nil consideration.

The number of Performance Rights is rounded down to the next whole number if it is not a whole number. Performance rights 
issued to executives do not have escrow periods.

No entitlement to Performance Rights accrues to the eligible executive until an appropriate confirmation from the Company 
has been received by the eligible executive.

The calculation of these Performance Rights was included in the notice to the 2017 AGM, with the number of performance 
rights by employee provided in the table below.

Calculation of Performance Rights Issued to Global Management Group

3 Year LTI Performance Period

1 Jan 15 to 
31 Dec 17

1 Jan 16 to 
31 Dec 18

1 Jan 17 to 
31 Dec 19

1 Jan 18 to 
31 Dec 20

1 Jan 19 to 
31 Dec 21

1 Jan 20 to 
31 Dec 22

1. 

2. 

3. 

4. 

5. 

 Aggregate salaries of eligible 
participants at commencement 
of 3 year LTI period

$1,405,381

$1,580,264

$1,527,227

$1,527,227

$1,527,227

$1,527,227

 Multiplied by 30%

$421,614

$474,079

$458,168

$458,168

$458,168

$458,168

 Share price at commencement 
of 3 year LTI period assumed 

 Performance Rights issued at 
commencement = Amount in 
step 2 / 75% * share price in 
step 3

 Gross up for possible dilution 
in the period to the end of the 
3 year LTI period 

$0.025

$0.025

$0.040

$0.045

$0.050

$0.055

22,486,093

25,284,226

15,272,266

13,575,348

12,217,813

11,107,103

22,976,789

25,749,882

15,621,146

13,884,941

12,494,505

11,337,287

Date of issue of Performance 
Rights

Date for conversion to ordinary 
shares

01-Jan-15

01-Jan-16

01-Jan-17

01-Jan-18

01-Jan-19

01-Jan-20

31-Dec-17

31-Dec-18

31-Dec-19

31-Dec-20

31-Dec-21

31-Dec-22

32

Directors’ Report

continued

5.  EXECUTIVE REMUNERATION ARRANGEMENTS (continued)

Performance Rights Issued to Global Management Group

3 Year LTI Performance Period

1 Jan 15 to 
31 Dec 17

1 Jan 16 to 
31 Dec 18

1 Jan 17 to 
31 Dec 19

1 Jan 18 to 
31 Dec 20

1 Jan 19 to 
31 Dec 21

1 Jan 20 to 
31 Dec 22

Nicholas Andrews
Derryn Chin (1)

 6,833,947 

 6,811,172 

 4,275,488 

 3,800,291 

 3,419,730 

 3,103,001 

–

 2,607,152 

 2,576,033 

 2,289,721 

 2,060,428 

 1,869,595 

Christoph Klein-Schmeink

 4,806,295 

 5,085,769 

 2,973,577 

 2,643,081 

 2,378,403 

 2,158,120 

Xunyou Tong
John Talbot (2)

Patrick Look

 4,570,313 

 4,769,268 

 2,674,317 

 2,377,081 

 2,139,041 

 1,940,927 

 4,496,018 

 3,992,195 

 1,227,413 

 1,090,993 

 981,741 

 890,814 

 2,270,217 

 2,484,327 

 1,894,318 

 1,683,775 

 1,515,162 

 1,374,831 

Total Performance Rights

 22,976,790 

 25,749,882 

 15,621,145 

 13,884,941 

 12,494,505 

 11,337,287 

(1)  Role altered to Chief Financial Officer 1 March 2016.
(2)  Role altered to Company Secretary 1 March 2016.

Vesting of Performance Rights as Magontec Ordinary Shares 

 − If, at the end date of the 3-year LTI performance period, the Performance Rights have not lapsed or vested then, at that 

date, an individual eligible executive’s entitlement to –
i. 

the number of Performance Rights will be adjusted for any dilution caused by capital restructures during the relevant 
3-year LTI performance period; and

ii.  the adjusted number of Performance Rights will vest as Magontec ordinary shares according to the relevant 

paragraphs above.

 − Performance Right share prices targets are assessed according to the 30-day VWAP to 31 December in the year of vesting.
 − The percentage of Performance Rights that will vest as Magontec ordinary shares is determined according to the following 

vesting % tables for the 2015-2017 Plan, the 2016-2018 Plan and the 2017-2019 Plan.

2015-17 LTI Plan Vesting Schedule

Performance Level

Below threshold

Threshold range
Target range
Stretch

2016-18 LTI Plan Vesting Schedule

Performance Level

Below threshold

Threshold range
Target range
Stretch

2017-2019 LTI Plan Vesting Schedule

Performance Level

Below threshold

Threshold range
Target range
Stretch

Share price <

Share price =
Share price =
Share price >=

Share price <

Share price =
Share price =
Share price >=

Share price <

Share price =
Share price =
Share price >=

Share Price

% of Performance 
Rights vesting 

4.6

4.6
6.6
8.8

0%

25%
50%
100%

Share Price

% of Performance 
Rights vesting 

5.1

5.1
7.3
9.7

0%

25%
50%
100%

Share Price

% of Performance 
Rights vesting 

6.2

6.2
8.8
11.7

0%

25%
50%
100%

 − For example, in the 2015-2017 plan, if the share price had reached 4.6 cents per share (the Threshold Range), this would 

have given rise to 25% of the Performance Rights vesting into Magontec ordinary shares. 

33

Financial Report  |  Magontec Annual Report 2017Directors’ Report

continued

5.  EXECUTIVE REMUNERATION ARRANGEMENTS (continued)
 − Under the 2015-17 Plan, if the share price had increased above 4.6 cents per share, the percentage of Performance Rights 
vesting would increase on a pro-rata basis through to 100% vesting on achievement of the maximum Stretch target (being 
8.8 cents per share). All other LTI plans for later years work in the same manner.

 − No entitlement to Magontec ordinary shares accrues to the eligible executive until an appropriate confirmation from the 

Company has been received by the eligible executive.

 − The Magontec ordinary shares to be issued with respect to the Plan are issued at the 10- day VWAP on the date of issue 

of the ordinary shares. 

 − The LTI Amount is equal to the number of Magontec ordinary shares multiplied by the 10-day VWAP on the date of issue 

of the ordinary shares.

LTI Plan Vesting Share Price Targets

8.8

7.3

6.6

6.2

5.1
4.6

)
e
r
a
h
s
r
e
p
s
t
n
e
c
(
e
c
i
r
p
e
r
a
h
S

12

10

8

6

4

2

0

12

10

8

6

4

2

0

11.7

9.7

8.8

2015-17 LTI Plan

2016-18 LTI Plan

2017-19 LTI Plan

MGL share price 
31 Dec 2017

25%

50%

75%

100%

% of Performance Rights Vesting

Valuation of Performance Rights
The fair value of goods and services received as consideration by the Group has been estimated by reference to the fair value 
of the equity instruments granted. 

An external consultant (KPMG Australia) provided limited assistance to the Group with respect to compiling a binomial 
options pricing model which was used to determine the fair value of performance rights issued to executives. In particular, 
KPMG Australia did not specifically express any opinions regarding assumptions or inputs to the model. 

Assumptions regarding dividend yield and volatility have been estimated based on historical dividend payouts (nil) and 
volatility on an appropriate period deemed to have excluded instances of non-normal trading. 

The fair value of the equity instruments granted is calculated assuming a 0% probability of forfeiture before grant date 
(i.e. it is assumed all participants remain employed by Magontec during the period), and is expensed on a straight-line 
basis over the vesting period.

The table below outlines the assumptions used to determine the value of performance rights granted during the year ended 
31 December 2017.

Table of assumptions

Share price 
(cents)

Grant date

Contractual 
Life (years)

Dividend 
yield

3.6 19-May-17

3.6 19-May-17

3.6 19-May-17

0.62

1.62

2.62

0.0%

0.0%

0.0%

Volatility

18.4%

21.3%

21.3%

Risk free 
rate

TSR share 
price 100% 
vest (cents)

Performance 
Right Fair 
Value (cents)

1.63%

1.63%

1.74%

 8.8 

 9.7 

 11.7 

 0.076 

 0.186 

0.119

Plan

2015-17 Plan

2016-18 Plan

2017-19 Plan

34

 
 
 
 
Directors’ Report

continued

5.  EXECUTIVE REMUNERATION ARRANGEMENTS (continued)

Loans to Members of Key Management Personnel
As at 31 December 2017, there were 2 employee loans outstanding to Mr Christoph Klein-Schmeink for a total of A$59,312 
(2016: A$63,642). 

The first loan of A$7,105 is due for repayment by 30 November 2018, with the remaining $52,207 loan having a maturity date 
of 16 July 2021, which can be extended by a further 10 years at the option of the Company. There is no interest attached to 
the loan. There were no other employee loans to key management personnel outstanding as at 31 December 2017. 

Key Management Personnel Equity Holdings
Fully paid ordinary shares of Magontec Limited - 31 Dec 2017

Mr Z Li (1)
Mr N Andrews (2)

Mr R Shaw

Mr C Klein-Schmeink

Mr X Tong

Mr D Chin

Mr J Talbot

Balance  
@ 1/01/17

Granted as 
remuneration

No.

56,197,298

No.

–

18,993,502

1,877,451

800,000

–

4,215,436

1,926,776

8,317,435

1,565,538

1,000,000

–

4,113,268

1,566,077

93,636,939

6,935,842

Received on 
exercise of 
options

Acquired On 
Market or 
Under Share 
Purchase Plan 

Total balance 
(held directly 
and indirectly) 
@ 31/12/17

Balance held 
nominally 
(indirectly)

No.

No.

No.

No.

–

–

–

–

–

–

–

–

56,197,298

55,797,298

20,870,953

15,409,401

800,000

800,000

6,142,212

9,882,973

1,000,000

25,747

5,705,092

25,747 100,598,528

72,006,699

(1)  55,797,298 shares held via KWE (HK) Investment Development Co Limited and 400,000 shares were held directly.
(2)  15,409,401 shares are held via DEWBERRI PTY LIMITED as trustee for Andrews Superannuation Fund and 5,461,552 were held directly.

Fully paid ordinary shares of Magontec Limited - 31 Dec 2016

Balance  
@ 1/01/16

Granted as 
remuneration

Received on 
exercise of 
options

Acquired On 
Market or 
Under Share 
Purchase Plan

Total balance 
(held directly 
and indirectly) 
@ 31/12/16

Balance held 
nominally 
(indirectly)

No.

No.

No.

No.

No.

No.

Mr Z Li (1)
Mr N Andrews (2)

Mr R Shaw

56,197,298

18,993,502

800,000

–

–

–

Mr C Klein-Schmeink

1,141,542

3,073,894

Mr X Tong

Mr D Chin

Mr J Talbot

Total

8,317,435

266,883

4,078,280

–

–

–

89,794,940

3,073,894

–

–

–

–

–

–

–

–

56,197,298

55,797,298

18,993,502

15,409,401

800,000

800,000

4,215,436

8,317,435

733,117

1,000,000

34,988

4,113,268

768,105

93,636,939

72,006,699

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

(1)  55,797,298 shares held via KWE (HK) Investment Development Co Limited and 400,000 shares were held directly.
(2)  15,409,401 shares are held via DEWBERRI PTY LIMITED as trustee for Andrews Superannuation Fund and 3,584,101 were held directly.

35

Financial Report  |  Magontec Annual Report 2017Directors’ Report

continued

6.  GROUP PERFORMANCE AND THE LINK TO REMUNERATION
In summary, resources have been directed to the following high-level tasks;

 − restructure and redirect manufacturing resources to improve production efficiencies;
 − rationalise inventories;
 − planning for the installation of manufacturing plant and equipment at Golmud;
 − initial marketing of potential production output from the new Golmud plant;
 − monitoring manufacturing operations at all centres with a view to efficiency improvements; and
 − negotiating the group debt position and working capital requirements among other financial imperatives.

Rewards are directed to those personnel who can directly or indirectly further the Group’s objectives of:

 − developing and executing strategic initiatives;
 − cost efficiency; and
 − market development.

During the reporting period ended 31 December 2017, the focus of the Group’s management resources is described in 
the Executive Chairman’s address. Outcomes with respect to financial performance over the last 5 years and details with 
respect to STI remuneration is summarised below.

Summary of financial performance

12 months to  
31 Dec 13 
$

12 months to  
31 Dec 14 
$

12 months to  
31 Dec 15 
$

12 months to  
31 Dec 16 
$

12 months to  
31 Dec 17 
$

Profit attributable to shareholders

292,121

(1,663,983)

44,807

619,800

(1,614,255)

 Less unrealised FX gains/ 
add unrealised FX losses

(2,527,737)

(333,030)

(292,610)

498,282

Add back non cash equity expense

79,612

15,822

174,371

–

–

–

–

–

–

183,456

145,078

141,478

436,901

190,585

–

–

Add back provision for STI

Add back provision for LTI

Profit excluding unrealised FX, STI and 
non cash share based payments (1)

STI pool ($)

STI pool as a % of (1)

(2,156,004)

(1,981,191)

(73,432)

1,588,094

(986,768)

–

0.0%

–

0.0%

–

145,078

0.0%

9.1%

–

0.0%

With respect to the LTI scheme, the share price targets approved by shareholders at the 2017 AGM for the 3-year 
assessment period ended 31 December 2017 were not achieved. 

During the 3-year period ended 31 December 2017, the share price of the Company increased from 2.0 cents per share as 
at 1 January 2015 to 3.6 cents per share (30-day VWAP as at 31 December 2017) giving rise to an increase in the market 
capitalisation of Magontec Limited from $22.3 million to $41.0 million. After adjusting for new capital raised, dividends 
paid, return of capital (nil) during the 3-year assessment period, total shareholder wealth increased to an adjusted total of 
$40.2 million, representing an increase of $17.9 million during the LTI assessment period. However, as this fell short of the 
targets as outlined in the 2015-17 plan, no performance rights with respect to this period were eligible for vesting and thus 
have lapsed.

The table below summarises the STI and LTI awards for key management personnel at their face value, which differs from 
the remuneration report table above that is prepared according to accounting standards.

36

 
 
 
 
Directors’ Report

continued

6.  GROUP PERFORMANCE AND THE LINK TO REMUNERATION (continued)

Summary of STI and LTI awarded to key management personnel

Current KMP executives

  Nicholas Andrews

Christoph Klein-Schmeink

Xunyou Tong

Derryn Chin

Former KMP executives

John Talbot (3)

Total

2017 STI 
awarded 
$

2017 LTI face  
value 
awarded (1) 
$

2017 STI & LTI  
awarded 
$

2016 STI 
awarded 
$

2016 LTI face  
value 
awarded (2) 
$

2016 STI & LTI  
awarded 
$

–

–

–

–

–

–

22,863

16,584

15,464

7,880

22,863

16,584

15,464

7,880

46,362

33,091

29,663

5,000

69,451

71,275

57,912

–

115,813

104,366

87,575

5,000

–

–

12,339

57,932

70,271

62,790

62,790

126,455

256,571

383,026

(1) 

(2) 

(3) 

 The 2017 LTI face value awarded amount relates to the face value of the 2015-17, 2016-18 and 2017-19 plans granted to each executive 
listed above. 
 The LTI amount proposed in the 2016 Annual Report had not been approved by shareholders at the time of writing. Therefore, this 
number has now been updated to reflect the actual value that shares were issued at following approval at the 2017 AGM as at 
19 May 2017.
 Mr Talbot ceased to be a member of KMP as at 1 March 2016, thus no further disclosures are made for him in respect of the 2017 year.

The following table details the number of LTI performance rights granted, lapsed or exercised during the year ended 
31 December 2017, by plan participant and in aggregate. 

Performance Rights Issued to Global Management Group

Grant date

Performance 
Condition

Fair value/
right 
(cents per 
share)

Holding at 
01 Jan 17

Granted in 
2017

Lapsed in 
2017

Holding at  
31 Dec 17

Vested at  
31 Dec 17

Name

Nicholas Andrews

2015-17 Plan

2016-18 Plan

2017-19 Plan

Subtotal

Derryn Chin

19-May-17

19-May-17

19-May-17

2015-17 Plan (not eligible) 19-May-17

2016-18 Plan

2017-19 Plan

Subtotal

19-May-17

19-May-17

Christoph Klein-Schmeink

2015-17 Plan

2016-18 Plan

2017-19 Plan

Subtotal

Xunyou Tong

2015-17 Plan

2016-18 Plan

2017-19 Plan

Subtotal

19-May-17

19-May-17

19-May-17

19-May-17

19-May-17

19-May-17

 TSR 

 TSR 

 TSR 

 TSR 

 TSR 

 TSR 

 TSR 

 TSR 

 TSR 

 TSR 

 TSR 

 TSR 

0.08

0.19

0.12

0.08

0.19

0.12

0.08

0.19

0.12

0.08

0.19

0.12

– 6,833,947 (6,833,947)

–

–

6,811,172

– 4,275,488

–

–

6,811,172

4,275,488

– 17,920,607 (6,833,947) 11,086,660

–

–

–

2,607,152

– 2,576,033

–

5,183,185

–

–

–

–

–

2,607,152

2,576,033

5,183,185

– 4,806,295 (4,806,295)

–

– 5,085,769

– 2,973,577

–

–

5,085,769

2,973,577

– 12,865,641 (4,806,295) 8,059,346

–

4,570,313 (4,570,313)

–

– 4,769,268

–

2,674,317

–

–

4,769,268

2,674,317

– 12,013,898 (4,570,313)

7,443,585

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

37

Financial Report  |  Magontec Annual Report 2017 
 
 
 
Directors’ Report

continued

6.  GROUP PERFORMANCE AND THE LINK TO REMUNERATION (continued)

Performance Rights Issued to Global Management Group

Name

John Talbot

2015-17 Plan

2016-18 Plan

2017-19 Plan

Subtotal

Patrick Look

2015-17 Plan

2016-18 Plan

2017-19 Plan

Subtotal

Aggregate

2015-17 Plan

2016-18 Plan

2017-19 Plan

Total

Grant date

Performance 
Condition

Fair value/
right 
(cents per 
share)

Holding at 
01 Jan 17

Granted in 
2017

Lapsed in 
2017

Holding at  
31 Dec 17

Vested at  
31 Dec 17

19-May-17

19-May-17

19-May-17

19-May-17

19-May-17

19-May-17

19-May-17

19-May-17

19-May-17

 TSR 

 TSR 

 TSR 

 TSR 

 TSR 

 TSR 

 TSR 

 TSR 

 TSR 

0.08

0.19

0.12

0.08

0.19

0.12

0.08

0.19

0.12

– 4,496,018 (4,496,018)

–

–

–

3,992,195

1,227,413

–

–

3,992,195

1,227,413

– 9,715,625 (4,496,018)

5,219,607

–

2,270,217 (2,270,217)

–

– 2,484,327

–

1,894,318

–

–

2,484,327

1,894,318

– 6,648,861 (2,270,217) 4,378,644

– 22,976,790 (22,976,790)

–

– 25,749,882

– 15,621,145

– 25,749,882

– 15,621,145

– 64,347,817 (22,976,790) 41,371,027

–

–

–

–

–

–

–

–

–

–

–

–

7.  EXECUTIVE CONTRACTUAL ARRANGEMENTS

Executive Contractual Arrangements

Name

Position

2017 
Remuneration (1)

Contract 
Term

Contract 
Expiry

Notice Period 
for Termination

Payment 
in  Lieu of 
Notice

Mr N Andrews Executive Chairman

$481,172

3 years

30-Jun-20 Employer initiated - 6 mths 
Employee initiated - 6 mths

6 months’ pay

Mr C Klein-
Schmeink

President Magontec 
Europe & North America

$379,360

5 years

14-Aug-22 Employer initiated - 12 mths 
Employee initiated - 12 mths

12 months’ pay

Mr X Tong

President Magontec 
Asia

$330,736

No fixed term  
or expiry

Employer initiated - 6 mths 
Employee initiated - 6 mths

6 months’ pay

Mr D Chin

Chief Financial Officer 

$254,543

3 years

01-Mar-18 Employer initiated - 6 mths 
Employee initiated - 6 mths

6 months’ pay

Total 2017 Remuneration for the reporting period ended 31 December 2017 differs from current contractual arrangements 
due to pay rises granted during the year to certain executives as well as impacts associated with the equity expense arising 
from the grant of shares and the LTI schemes outlined in the 2017 Notice of AGM.

Current contractual arrangements are as follows for each member of key management personnel:

Mr Andrews’ fixed contractual cash remuneration at 31 December 2017 is $450,000.

Mr Klein-Schmeink’s fixed contractual cash remuneration at 31 December 2017 is $345,209.

Mr Tong’s fixed contractual cash remuneration at 31 December 2017 is $314,843.

Mr Chin’s fixed contractual cash remuneration at 31 December 2017 is $251,850.

OPERATIONS REPORT AND SIGNIFICANT CHANGES TO THE ENTITY’S STATE OF AFFAIRS
Refer to the Operations Reports contained on pages 4-19.

38

Directors’ Report

continued

Dividends
The Directors have not recommended payment of a dividend and no dividends have been paid or declared since the end of 
the previous financial year.

Subsequent Events
Subsequent events are detailed in Note 27.

Future Developments
Disclosure of information regarding likely developments in the operations of the consolidated entity in future financial 
years and the expected results of those operations are likely to result in unreasonable prejudice to the consolidated entity. 
Accordingly, this information has not been disclosed in this report.

Non-Audit Services
Camphin Boston (the Group’s auditors) provided tax and other services during the financial year. Aggregate fees for non 
audit services paid in the financial year were $14,230.

Auditor’s Independence Declaration
The Auditor’s independence declaration is included on page 40 of this Annual Report.

Indemnification of Officers and Auditors
The Group paid premia to insure certain officers of the Company and related bodies corporate in relation to performance of 
their duties as officers of the Company. The officers of the Group covered by this insurance include directors or secretaries 
of controlled entities.

The Company has not otherwise, during or since the financial year except to the extent permitted by law, indemnified or 
agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such 
an officer or auditor.

On behalf of the Board of Directors

Mr N Andrews 
Executive Chairman 

Mr R Shaw 
Non-Executive Director

Signed on the 26 February 2018 in accordance with a resolution of the Directors made pursuant to Section 298(2) of the 
Corporations Act 2001.

39

Financial Report  |  Magontec Annual Report 2017 
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MAGONTEC LIMITED 

Report on the Financial Report 

Auditor’s Opinion  
We have audited the accompanying financial report of Magontec Limited and Controlled Entities, which 
comprises the consolidated balance sheet as at 31 December 2017, and the consolidated statement of 
profit & loss and other comprehensive income, consolidated statement of changes in equity and 
The Board of Directors 
consolidated statement of cash flows for the year ended on that date, a statement of accounting policies, 
Magontec Limited 
other explanatory notes and the directors’ declaration. 
Suite 1.03, 46A Macleay St 
In our opinion: 
Potts Point NSW 2011 
(a) the financial report of Magontec Limited is in accordance with the Corporations Act 2001, including: 

(i) 

(ii) 

Dear Board Members, 

(i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 
2017 and of its performance for the year ended on that date; and 
(ii) complying with Accounting Standards (including the Australian Accounting Interpretations) and 
the Corporations Regulations 2001. 

no contraventions of the auditor independence requirements as set out in the Corporations Act 
2001 in relation to the audit; and 

Lead Auditor’s Independence Declaration  
Under Section 307C of the Corporations Act 2001 
(b) the financial report also complies with International Financial Reporting Standards as disclosed in 
Note 1. 
We hereby declare, that to the best of our knowledge and belief, during the financial year ended 31 December 
Basis for Opinion  
2017 there have been:  
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under 
those standards are further described in the Auditor’s Responsibilities section of our report. We are 
independent of the Group in accordance with the auditor independence requirements of the Corporations 
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s 
APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the 
no contraventions of any applicable code of professional conduct in relation to the audit. 
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the 
Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a 
basis for our opinion. 
Camphin Boston  
Chartered Accountants                  
Key Audit Matters 
Key audit matters are those matters that, in our professional judgement, were of most significance in our 
audit of the financial report of the current period. These matters were addressed in the context of our 
audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a 
Justin Woods 
separate opinion on these matters. 
Lead Audit Partner 
Key audit matter 
Existence & Valuation of Inventories 
We focused on this area as a key 
audit matter due to the: 
  Quantum of amounts involved; 
  Sensitivity of the Company’s 
margins to changes in the 
underlying price of Magnesium; 
and 

Our procedures included, amongst others, 
  Attendance at stock takes for all significant locations to 
conduct test counts and assess internal controls; 
Testing of carrying value to subsequent sales and cost; 

 
  Review of costing methodology applied by entities within 
the group for compliance with the Group accounting 
policy; 

How our audit addressed the key audit matter 

Dated this 26 February 2018.   

Sydney 

  Multiple geographical areas. 

  Challenging management’s view of the recoverable 

value of aged inventory. 

Existence & Valuation of Property, Plant & Equipment 
The Company continues to invest in 
significant plant & equipment in both 
China and Europe. We focused on 
this area due to the: 
  Significant level of additions 
occurring during the year 

Our procedures included, amongst others, 
  Assessing management’s determination of any 

impairment charge, and analysis of internal reporting to 
assess how operating performance is monitored and 
reported; 

  Assessment of key forward looking assumptions used to 
estimate any possible impairment, including projected 
future growth rates, costs, and the discount rate applied; 

  Substantive testing of asset additions. 
  Assessment of the classification of capitalised costs  as 

Construction in Progress 

  Extent of management judgment 
involved in assessing impairment 
indicators and determining the 
assumptions used in evaluating 
these indicators 

40

Liability limited by a scheme approved under Professional Standards Legislation.Liability limited by a scheme approved under Professional Standards Legislation. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statement of Profit & 
Loss and Other Comprehensive Income

for the year ended 31 December 2017

Sale of goods

Cost of sales

Gross profit

Other income

Interest expense

Impairment of inventory, receivables & other financial assets

Travel, accommodation and meals

Research, development, licensing and patent costs 

Promotional activity

Information technology

Personnel

Depreciation & amortisation

Office expenses

Corporate

Foreign exchange gain/(loss)

Other operating expenses

Profit/(Loss) before income tax expense/benefit from continuing operations

Income tax (expense)/benefit

Profit/(Loss) after income tax expense/benefit from continuing operations

Profit/(Loss) after income tax expense from discontinued operations

Profit/(Loss) after income tax expense/benefit including 
discontinued operations

Other Comprehensive Income - that may later emerge in the Profit 
and Loss Statement

Exchange differences taken to reserves in equity – translation of overseas 
entities

Other Comprehensive Income - that will not emerge in the Profit 
and Loss Statement

Movement in various actuarial assessments

Total Comprehensive Income

Profit/(Loss) after income tax expense for the year (incl discontinued 
operations) attributable to

Minority interests

Members of the parent entity

Total

Comprehensive Income for the year attributable to

Minority interests

Members of the parent entity

Total Comprehensive Income for the year

Note

2(a)

2(b)

2(c)

2(d)

3(a)

17

17

12 months to 
31 Dec 2017 
$’000

12 months to 
31 Dec 2016 
$’000

130,323

128,096

(117,775)

(113,670)

12,548

14,426

811

(918)

(92)

(721)

(422)

(116)

(319)

844

(1,100)

(303)

(682)

(418)

(67)

(332)

(6,607)

(6,750)

(369)

(350)

(475)

(333)

(3,370)

(3,162)

(825)

(56)

(805)

(809)

(1,614)

–

(143)

(64)

1,440

(821)

620

–

(1,614)

620

(228)

(1,112)

60

(1,782)

(620)

(1,112)

–

(1,614)

(1,614)

–

(1,782)

(1,782)

–

620

620

–

(1,112)

(1,112)

41

Financial Report  |  Magontec Annual Report 2017 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statement of Profit & 
Loss and Other Comprehensive Income

continued

Profit/(Loss) after income tax expense for the year 
(including discontinued operations)

Members of the parent entity - Basic (cents per share)

Members of the parent entity - Diluted (cents per share)

Profit/(Loss) after income tax expense for the year 
(excluding discontinued operations)

Members of the parent entity - Basic (cents per share)

Members of the parent entity - Diluted (cents per share) 

12 months to 
31 Dec 2017 
cents per 
share

12 months to 
31 Dec 2016 
cents per 
share

(0.142)

(0.136)

(0.142)

(0.136)

0.055

0.055

0.055

0.055

Note

19

19

19

19

42

Consolidated 
Balance Sheet

as 31 December 2017

Current assets

Cash and cash equivalents

Trade & other receivables

Inventory

Other

Total current assets

Non-current assets

Other receivables

Property, plant & equipment

Deferred tax asset

Intangibles

Total non-current assets 

TOTAL ASSETS

Current liabilities

Trade & other payables

Bank borrowings

Provisions

Total current liabilities

Non-current liabilities

Other payables

Bank borrowings

Provisions

Total non-current liabilities

TOTAL LIABILITIES

NET ASSETS

Equity attributable to members of MGL

Share capital

Reserves

Accumulated (losses)/profits

Equity attributable to minority interests

Share capital

Reserves

Accumulated (losses)/profits

Total equity

Note

25(d)

6

7

8

9

10

3(c)

11

12

13

14

13

15

16

17

18

16

17

18

31 Dec 2017 
$’000

31 Dec 2016 
$’000

2,309

26,704

24,372

191

4,593

21,956

22,302

227

53,576

49,077

1,037

22,831

1,521

3,109

28,499

82,074

15,873

9,200

1,677

26,750

–

11,135

11,408

22,543

49,293

32,782

1,045

20,543

1,542

2,869

25,999

75,077

13,672

14,734

1,337

29,742

146

–

10,815

10,961

40,703

34,373

58,907

4,897

58,616

5,165

(31,485)

(29,871)

463

–

–

463

–

–

32,782

34,373

43

Financial Report  |  Magontec Annual Report 2017 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statement 
of Changes in Equity

for the year ended 31 December 2017

Share Capital

Ordinary

Options 
Valuation

Retained 
Earnings (1)

Foreign 
Currency 
Translation 
Reserve (1)

Capital 
Reserve

Actuarial 
Reserve

Expired 
Options 
Reserve

Employee 
Share 
Issue 
Reserve

Minority 
Interests

Total  
Equity

$’000

$’000

$’000

$’000

$’000

$’000

$’000

$’000

$’000

$’000

Balance 1 Jan 2016

 58,433 

 – 

(30,491)

 4,154 

 2,750 

(1,785)

 1,637 

 – 

 463 

 35,161 

Profit/(Loss) 
attributable to 
members of parent 
entity

Other

Comprehensive 
income

 – 

 – 

 – 

Issue of shares

 183 

Balance 31 Dec 2016

 58,616 

Balance 1 Jan 2017

 58,616 

Profit/(Loss) 
attributable to 
members of parent 
entity

Other

Comprehensive 
income

 – 

 – 

 – 

Issue of shares

 291 

Balance 31 Dec 2017  58,907 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 620 

 – 

 – 

 – 

 – 

 – 

(1,112)

 – 

 – 

 – 

 – 

 – 

 – 

 – 

(620)

 – 

 – 

 – 

 – 

 – 

 – 

 141 

 – 

 – 

 – 

 – 

 – 

 – 

 620 

 141 

(1,732)

 183 

(29,871)

 3,042 

 2,750 

(2,405)

 1,637 

 141 

 463 

 34,373 

(29,871)

 3,042 

 2,750 

(2,405)

 1,637 

 141 

 463 

 34,373 

(1,614)

 – 

 – 

 – 

 – 

 – 

(228)

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 60 

 – 

 – 

 – 

 – 

 – 

(31,485)

 2,814 

 2,750 

(2,346)

 1,637 

 – 

 – 

 – 

(100)

 41 

 – 

 – 

 – 

 – 

(1,614)

 – 

(168)

 191 

 463  32,782

(1) 

 During the prior period, A$1.3m of the Foreign Currency Translation Reserve (FCTR) was reclassified into retained losses.  
No impact on overall equity balance as at 31 December 2016 or 31 December 2017. 

44

 
 
 
 
 
Consolidated 
Cash Flow Statement

for the year ended 31 December 2017

Cash flows from operating activities

Profit before taxation

Adjustments for:

– Non-cash equity expense

– Depreciation & amortisation

– Foreign currency effects

– Other non-cash items

12 months to 
31 Dec 2017 
$’000

12 months to 
31 Dec 2016 
$’000

Note

(805)

 1,440 

191 

 1,653 

 437 

874

 325 

 1,713 

 498 

 888 

Cash generated from/(utilised in) underlying operating activities

2,349

 4,865 

Movement in working capital balance sheet accounts

– Trade and other receivables

– Inventory

– Trade and other payables

Cash generated from/(utilised in) underlying operational cash flow  
and net working capital assets

– Net interest paid

– Income tax paid

(4,358)

(1,260)

618

(2,650)

(841)

(129)

(1,158)

 3,163 

(937)

 5,933 

(1,045)

(85)

Cash generated from/(utilised in) other operating activities

(3,620)

 4,804 

Cash flows from investing activities 

Net cash out on purchase/disposal of property, plant & equipment

Group information technology software

Security deposit

Other

Net cash provided by/(used in) investing activities

Cash flows from financing activities

Proceeds from borrowings

Repayment of borrowings

Net capital raised from issue of securities

Other

(3,112)

(269)

 1 

– 

(3,326)

(12)

(1)

– 

(3,381)

(3,339)

 28,867 

(23,850)

– 

(152)

 11,757 

(16,966)

–

–

Net cash provided by financing activities

2(e)

 4,864 

(5,209)

Net increase/(decrease) in cash and cash equivalents

Foreign exchange effects on total cash flow movement 

Cash and cash equivalents at the beginning of the reporting period

Cash and cash equivalents at the end of the reporting period

25(d)

25(d)

(2,137)

(147)

 4,593 

 2,309 

(3,744)

(153)

 8,490 

 4,593 

45

Financial Report  |  Magontec Annual Report 2017 
 
 
Notes to the 
Financial Statements

for the year ended 31 December 2017

1.  SUMMARY OF ACCOUNTING POLICIES

Statement of Compliance
The financial report is a general purpose financial 
report which has been prepared in accordance with the 
Corporations Act 2001, Australian Accounting Standards, 
Australian Accounting Interpretations and other 
authoritative pronouncements of the Australian Accounting 
Standards Board.

Australian Accounting Standards set out accounting 
policies that the AASB has concluded would result in a 
financial report containing relevant and reliable information 
about transactions, events and conditions. Compliance with 
Australian Accounting Standards ensures that the financial 
statements and notes also comply with International 
Financial Reporting Standards. Material accounting 
policies adopted in the preparation of this financial report 
are presented below and have been consistently applied 
unless otherwise stated.

The audited accounts were authorised for issue by the 
Directors on 26 February 2018.

The Group has adopted all new standards and amendments 
to standards, including any consequential amendments to 
other standards, with a date of initial application of 
1 January 2017.

There were no significant changes from the prior year 
deemed relevant to the Company.

Basis of Preparation
The financial report has been prepared on an accruals basis 
and is based on historical cost, modified where applicable, 
by the measurement at fair value of selected non-current 
assets, financial assets and financial liabilities.

Cost is based on the fair values of the consideration given 
in exchange for assets. All amounts are presented in 
Australian dollars, unless otherwise noted.

Significant Accounting Polices
The following significant accounting policies have been 
adopted in the preparation and presentation of the financial 
report:

a.  Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand, cash in 
banks, at call and on deposit.

b.  Employee Benefits
Provision is made for benefits accruing to employees 
in respect of wages and salaries, annual leave and long 
service leave when it is probable that settlement will be 
required and they are capable of being measured reliably.

Provisions made in respect of employee benefits expected 
to be settled within 12 months are measured at their 
nominal values using the remuneration rate expected to 
apply at the time of settlement.

46

Provisions made in respect of employee benefits which are 
not expected to be settled within 12 months are measured 
at the present value of the estimated future cash outflows 
to be made by the consolidated entity in respect of services 
provided by employees up to reporting date.

Contributions by the Group to superannuation plans 
on behalf of Australian employees and other defined 
contribution payments on behalf of employees are 
expensed when incurred. Provision is made for any long 
term defined benefit pension obligations the Group has to 
employees in foreign jurisdictions. The required amount of 
the provision is actuarially assessed having regard to such 
matters as future interest rates, the date at which pension 
payments might commence and the likely period over which 
pensions may be paid.

c.  Financial Assets
Subsequent to initial recognition, investments in 
subsidiaries are measured at cost less any allowance for 
impairment. Other financial assets are classified into the 
following specified categories: financial assets ‘at fair value 
through profit or loss’, ‘held-to-maturity’ investments, 
‘available-for- sale’ financial assets, and ‘loans and 
receivables’. The classification depends on the nature and 
purpose of the financial assets and is determined at the 
time of initial recognition. 

Receivables
Trade receivables and other receivables are recognised 
initially at their fair value and subsequently at amortised 
cost less impairment.

d.  Financial Instruments Issued by the Company

Debt and Equity Instruments
Debt and equity instruments are classified as either 
liabilities or as equity in accordance with the substance of 
the contractual arrangement.

Transaction Costs on the Issue of Equity Instruments
Transaction costs arising on the issue of equity instruments 
are recognised directly in equity as a reduction of the 
proceeds of the equity instruments to which the costs 
relate.

Transaction costs are the costs that are incurred directly in 
connection with the issue of those equity instruments and 
which would not have been incurred had those instruments 
not been issued.

e.  Foreign Currency

Foreign Currency Transactions
All foreign currency transactions during the financial year 
are brought to account using the exchange rate in effect 
at the date of the transaction. Foreign currency monetary 
items are translated at the exchange rate prevailing at the 
end of the reporting period. Non-monetary items measured 
at fair value are reported at the exchange rate prevailing at 
the date when the fair value was determined.

Notes to the 
Financial Statements

continued

1.  SUMMARY OF ACCOUNTING POLICIES (continued)

h.  Income Tax

Foreign Operations
On consolidation, the assets and liabilities of the 
consolidated entity’s overseas operations are translated at 
exchange rates prevailing at the reporting date. Income and 
expense items are translated at the average exchange rates 
for the period unless exchange rates fluctuate significantly.

Exchange differences arising, if any, are recognised in the 
foreign currency translation reserve, and recognised in 
profit or loss on disposal of the foreign operation.

f.  Goods and Services Tax and Value Added Tax
Revenues, expenses, assets and liabilities are recognised 
net of the amount of goods and services tax (GST) or value 
added tax (VAT) for certain foreign jurisdictions, except 
where the GST or VAT is not recoverable from the relevant 
tax authority. In these circumstances the GST or VAT is 
recognised as part of the cost of acquisition of the asset or 
as part of an item of the expense. Receivables and payables 
in the balance sheet are shown inclusive of GST.

Cash flows are included in the cash flow statement on a 
gross basis. The GST or VAT component of cash flows arising 
from investing and financing activities which is recoverable 
from, or payable to, the taxation authority is classified as 
operating cash flows.

g.  Impairment of Assets
At each reporting date, the consolidated entity reviews 
the carrying amounts of its tangible and intangible assets 
to determine whether there is any indication that those 
assets have been impaired. If any such indication exists, 
the recoverable amount of the asset, being the higher of 
the asset’s fair value less costs to sell and value in use, 
is compared to the asset’s carrying value. Any excess of 
the asset’s carrying value over its recoverable amount is 
expensed to the income statement.

Where it is not possible to estimate the recoverable amount 
of an individual asset, the consolidated entity estimates the 
recoverable amount of the cash generating unit to which the 
asset belongs.

Current Tax
Current tax is calculated by reference to the amount of 
income taxes payable or recoverable in respect of the 
taxable profit or loss for the period. It is calculated using tax 
rates and tax laws that have been enacted or substantively 
enacted by reporting date. Current tax for current and prior 
periods is recognised as a liability to the extent that it is 
unpaid.

Deferred Tax
Deferred tax assets and liabilities are ascertained based 
on temporary differences arising from differences between 
the carrying amount of assets and liabilities in the financial 
statements and the corresponding tax base of those items.

In principle, deferred tax liabilities are recognised for all 
taxable temporary differences. Deferred tax assets are 
recognised to the extent that it is probable that sufficient 
taxable amounts will be available against which deductible 
temporary differences or unused tax losses and tax offsets 
can be utilised. However, deferred tax assets and liabilities 
are not recognised if the temporary differences giving rise 
to them arise from the initial recognition of assets and 
liabilities (other than as a result of a business combination) 
which affects neither taxable income nor accounting profit.

Deferred tax liabilities are recognised for taxable temporary 
differences arising on investments in subsidiaries, 
branches, associates and joint ventures except where the 
consolidated entity is able to control the reversal of the 
temporary differences and it is probable that the temporary 
differences will not reverse in the foreseeable future.

Deferred tax assets arising from deductible temporary 
differences associated with these investments and 
interests are only recognised to the extent that it is 
probable that there will be sufficient taxable profits against 
which to utilise the benefits of the temporary differences 
and they are expected to reverse in the foreseeable future.

Deferred tax assets and liabilities are calculated at the tax 
rates that are expected to apply to the period(s) when the 
asset is realised or the liability is settled, based on tax rates 
enacted or substantively enacted at reporting date.

Their measurement also reflects the manner in which 
management expects to recover or settle the carrying 
amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when they 
relate to income taxes levied by the same taxation authority 
and the Company/consolidated entity intends to settle its 
current tax assets and liabilities on a net basis.

47

Financial Report  |  Magontec Annual Report 2017Notes to the 
Financial Statements

continued

1.  SUMMARY OF ACCOUNTING POLICIES (continued)

Current and Deferred Tax for the Period
Current and deferred tax is recognised as an expense or 
income in the income statement, except when it relates 
to items credited or debited directly to equity, in which 
case the deferred tax is recognised directly in equity, or 
where it arises from the initial accounting for a business 
combination, in which case it is taken into account in the 
determination of goodwill or excess.

Tax Consolidation
The Parent Entity and all its wholly-owned Australian 
subsidiaries are part of a tax-consolidated group under 
Australian tax consolidation legislation. Magontec Limited 
is the head entity in the tax-consolidated group. Tax 
expense/income, deferred tax liabilities and deferred 
tax assets arising from temporary differences of the 
members of the tax-consolidated group are recognised 
in the separate financial statements of the members 
of the tax-consolidated group using the ‘stand-alone 
taxpayer’ approach. Current tax liabilities and assets and 
deferred tax assets arising from unused tax losses and 
tax credits of the members of the tax consolidated group 
are recognised by the Company (as head entity in the tax-
consolidated group).

Due to the existence of a tax funding arrangement between 
the entities in the tax-consolidated group, amounts are 
recognised as payable to or receivable by the Company 
and each member of the group in relation to the tax 
contribution amounts paid or payable between the parent 
entity and the other members of the tax-consolidated 
group in accordance with the arrangement. Further 
information about the tax funding arrangement is detailed 
in Note 3 to the financial statements. Where the tax 
contribution amount recognised by each member of the 
tax-consolidated group for a particular period is different 
to the aggregate of the current tax liability or asset and 
any deferred tax asset arising from unused tax losses 
and tax credits in respect of that period, the difference is 
recognised as a contribution from (or distribution to) equity 
participants.

i. 

Intangible Assets

Patents, Trademarks and Licences
Patents, trademarks and licences are recorded at cost of 
acquisition. Patents and trademarks have an indefinite 
useful life and are carried at cost. Carrying values are 
subject to the impairment tests as outlined above.

Research and Development Costs
Expenditure on the research phase of a project is 
recognised as an expense when incurred. Development 
costs are capitalised only when technical feasibility 
studies identify that the project is expected to deliver 
future economic benefits and these benefits can be 
measured reliably.

48

Inventories

j. 
Inventories are measured at the lower of cost and net 
realisable value. Costs are assigned to inventory using a 
weighted average cost method most appropriate to each 
particular class of inventory, being valued on a first in first 
out basis. Net realisable value represents the estimated 
selling price less all estimated costs of completion and 
costs to be incurred in marketing, selling and distribution.

k.  Leases
Leases are classified as finance leases where the terms of 
the lease transfer substantially all the risks and rewards of 
ownership to the lessee. All other leases are classified as 
operating leases.

Operating lease payments are recognised as an expense 
on a straight-line basis over the lease term, except where 
another systematic basis is more representative of the time 
pattern in which economic benefits from the leased asset 
are consumed. Rentals arising under operating leases are 
recognised as an expense in the period in which they are 
incurred.

Lease Incentives
In the event that lease incentives are received to enter 
into operating leases, such incentives are recognised as a 
liability. The aggregate benefits of incentives are recognised 
as a reduction of rental expense on a straight-line basis 
over the life of the lease term.

l.  Non-current Assets Held for Sale 
Non-current assets (and disposal groups) classified as held 
for sale are measured at the lower of carrying amount and 
fair value less costs to sell.

Non-current assets and disposal groups are classified 
as held for sale if their carrying amount will be recovered 
through a sale transaction rather than through continuing 
use. This condition is regarded as met only when the 
sale is highly probable and the asset (or disposal group) 
is available for immediate sale in its present condition. 
The sale of the asset (or disposal group) is expected to be 
completed within one year from the date of classification.

m.  Payables
Trade payables and other accounts payable are recognised 
when the consolidated entity becomes obliged to make 
future payments resulting from the purchase of goods and 
services.

n.  Presentation Currency
The presentation currency of the Group is Australian 
dollars.

Notes to the 
Financial Statements

continued

1.  SUMMARY OF ACCOUNTING POLICIES (continued)

o. 

 Principles of Consolidation and Investments in 
Subsidiaries

The consolidated financial statements are prepared by 
combining the financial statements of all the entities that 
comprise the consolidated entity, being the Company (the 
parent entity) and its subsidiaries as defined in Accounting 
Standard AASB 127 ‘Consolidated and Separate Financial 
Statements.’

A list of subsidiaries appears in Note 22 to the financial 
statements. Consistent accounting policies are employed 
in the preparation and presentation of the consolidated 
financial statements.

On acquisition, the assets, liabilities and contingent 
liabilities of a subsidiary are measured at their fair values at 
the date of acquisition. Any excess of the cost of acquisition 
over the fair values of the identifiable net assets acquired 
is recognised as goodwill. Similarly, any excess of the fair 
market value over the cost of acquisition is recognised as a 
discount upon acquisition.

The consolidated financial statements include the 
information and results of each subsidiary from the date 
on which the Company obtains control and until such time 
as the Company ceases to control such entity. In preparing 
the consolidated financial statements, all intercompany 
balances and transactions, and unrealised profits arising 
within the consolidated entity are eliminated in full.

p.  Plant and Equipment
Plant and equipment are stated at cost less accumulated 
depreciation and impairment. Cost includes expenditure 
that is directly attributable to the acquisition of the item. 

In the event that settlement of all or part of the purchase 
consideration is deferred, cost is determined by discounting 
the amounts payable in the future to their present value as 
at the date of acquisition.

Subsequent costs are included in the asset’s carrying 
amount or recognised as a separate asset, as appropriate, 
only when it is probable that future economic benefits 
associated with the item will flow to the Group and the cost 
of the item can be measured reliably. All other repairs and 
maintenance are charged to the income statement during 
the financial period in which they are incurred.

Depreciation is provided on plant and equipment and is 
calculated on a straight-line basis so as to write off the 
net cost or other revalued amount of each asset over its 
expected useful life to its estimated residual value.

Useful life is determined having regard to the nature of 
the plant and equipment, the environment in which it 
operates (including geographical and climatic conditions) 
and an expectation that maintenance is conducted on a 
scheduled basis.

Leasehold improvements are depreciated over the period of 
the lease or estimated useful life, whichever is the shorter, 
using the straight-line method. The assets’ estimated 
useful lives and residual values were reviewed, and 
adjusted if appropriate, at the end of each annual reporting 
period. The estimated useful lives of significant items of 
property, plant and equipment are as follows:

Land & Buildings 
Plant & Equipment 

4 - 60 years
3 - 20 years

q.  Provisions
Provisions are recognised when the consolidated entity has 
a legal or constructive obligation, as a result of past events, 
for which it is probable that an outflow of economic benefits 
will result and that outflow can be reliably measured.

r.  Revenue Recognition

Sale of Goods
Revenue from the sale of goods is recognised when the 
consolidated entity has transferred to the buyer the 
significant risks and rewards of ownership of the goods. The 
Group’s activities involve the sale and delivery of a variety of 
products including primary and recycled magnesium ingots, 
as well as both magnesium and titanium anodes.

As it relates to Magontec specifically, the timing of revenue 
recognition is determined with reference to the INCO 
shipping terms (e.g. FOB, CIF, DDP, DAP) that apply to each 
delivery. Invoices are issued and revenue is recognised at 
the point where the transfer of the significant risks and 
rewards of ownership of the goods are determined to have 
passed to the customer in line with this framework. For 
example, under FOB shipping terms, the Group recognises 
revenue at the point when goods have arrived at the port of 
departure and has received the bill of lading.

Rendering of Services
Revenue from a contract to provide services is recognised 
by reference to the stage of completion of the contract.

Interest Revenue
Interest revenue is recognised on a time proportionate 
basis that takes into account the effective yield on the 
financial asset.

s.  Share-based Payments
Senior executives of the Company receive remuneration 
in the form of share-based payments, whereby employees 
render services as consideration for equity instruments 
(equity-settled transactions).

49

Financial Report  |  Magontec Annual Report 2017 
 
Notes to the 
Financial Statements

continued

1.  SUMMARY OF ACCOUNTING POLICIES (continued)

Equity-settled Transactions
The cost of equity-settled transactions is determined by 
the fair value at the date when the grant is made using a 
binomial options pricing valuation model. The fair value 
determined at the grant date of the equity-settled share-
based payments is expensed on a straight-line basis over 
the vesting period, based on the Company’s estimate of 
shares that will eventually vest.

The cumulative expense recognised for equity-settled 
transactions at each reporting date until the vesting date 
reflects the extent to which the vesting period has expired 
and the Company’s best estimate of the number of equity 
instruments that will ultimately vest. The expense or credit 
in the statement of profit or loss for a period represents 
the movement in cumulative expense recognised as at the 
beginning and end of that period.

Service and non-market performance conditions are not 
taken into account when determining the grant date fair 
value of awards, but the likelihood of the conditions being 
met is assessed as part of the Company’s estimate of the 
number of equity instruments that will ultimately vest.

Market performance conditions are reflected within the 
grant date fair value.

Any other conditions attached to an award, but without an 
associated service requirement, are considered to be non-
vesting conditions. Non-vesting conditions are reflected 
in the fair value of an award and lead to an immediate 
expensing of an award unless there are also service and/or 
performance conditions.

No expense is recognised for awards that do not ultimately 
vest because non-market performance and/or service 
conditions have not been met. Where awards include a 
market or non-vesting condition, the transactions are 
treated as vested irrespective of whether the market or 
non-vesting condition is satisfied, provided that all other 
performance and/or service conditions are satisfied.

When the terms of an equity-settled award are modified, 
the minimum expense recognised is the grant date fair 
value of the unmodified award, provided the original terms 
of the award are met. Any additional expense, measured 
as at the date of modification, is recognised for any 
modification that increases the total fair value of the share-
based payment transaction, or is otherwise beneficial to 
the employee. Where an award is cancelled by the entity or 
by the counterparty, any remaining element of the fair value 
of the award is expensed immediately through profit or loss.

The dilutive effect of outstanding options is reflected as 
additional share dilution in the computation of diluted 
earnings per share.

Cash-settled Transactions
A liability is recognised for the fair value of cash-settled 
transactions. The fair value is measured initially and at each 
reporting date up to and including the settlement date, 
with changes in fair value recognised in employee benefits 
expense. The fair value is expensed over the period until the 
vesting date with recognition of a corresponding liability.

50

t. 

 Critical Accounting Judgements and Key Sources 
of Estimation Uncertainty

In the application of the Group’s accounting policies, 
which are described in this note, management is required 
to make judgements, estimates and assumptions about 
carrying values of assets and liabilities that are not readily 
apparent from other sources. The estimates and associated 
assumptions are based on historical experience and various 
other factors that are believed to be reasonable under 
the circumstances, the results of which form the basis of 
making the judgements. Actual results may differ from 
these estimates.

The estimates and underlying assumptions are reviewed 
on an ongoing basis. Revisions to accounting estimates are 
recognised in the period in which the estimate is revised if 
the revision affects only that period or in the period of the 
revision and future periods if the revision affects both the 
current and future periods.

Material examples of management applying critical 
accounting judgements and key sources of estimation 
uncertainty include:

 − actuarial assessment of future pension liabilities;
 − value of trade debtors; and
 − valuation of intellectual property acquired with the 

Magontec group of companies in July 2011.

u. 

 New Accounting Standards for Application 
in Future Periods

The AASB has issued new and amended standards and 
interpretations that have mandatory application dates for 
future reporting periods. The Group has not early adopted 
any of these standards. New standards and disclosures 
that will be significant to the Group in future years include:

 − AASB 9 Financial Instruments. Effective from 1 January 
2018. Caused by a re-write of the financial instruments 
standard by the International Accounting Standards 
Board this new standard will affect classification 
and measurement of financial assets (AASB 2009), 
classification, measurement and derecognition of 
financial liabilities (AASB 9 2010) and Hedge Accounting 
(AASB 9 2013).

 − IFRS 9 (2014) Financial Instruments – Impairment. Not 

yet approved by the AASB this standard will introduce 
a new model for testing impairment of financial 
instruments on an ‘expected loss’ basis.

 − IFRS 16 Leases. Effective from 1 January 2019, 

this standard will require all operating leases to be 
recognised as finance leases including the recognition 
of a right of use asset and a lease liability captured on 
the balance sheet.

Notes to the 
Financial Statements

continued

2.  RESULTS FROM OPERATIONS

(a) Sales Revenue – continuing operations:

Alloys

Anodes

(b) Cost of Sales – continuing operations:

Alloys

Anodes

(c) Other Income in Comprehensive Income Statement

Interest revenue

Government Grants

Receipt for insurance claims

Derivative market re-valuation

Gain/(Loss) on disposal of fixed assets

Write back of provisions and other adjustments

Subsidies for R&D and other reimbursements

Other

(1) 

 The government grants received have no unfulfilled conditions attached to them.

12 months to
31 Dec 2017
$’000

12 months to
31 Dec 2016
$’000

 107,647 

 104,743 

 22,676 

 23,353 

 130,323 

 128,096 

(102,291)

(97,397)

(15,484)

(16,272)

(117,775)

(113,670)

81

 404 

 51 

 38 

 19 

 129 

–

 89 

 811 

 54 

 145 

 25 

 27 

 9 

 411 

95

 76 

 844 

51

Financial Report  |  Magontec Annual Report 2017 
 
 
12 months to 
31 Dec 2017 
$’000

12 months to 
31 Dec 2016 
$’000

(435)

(191)

 – 

(581)

(5,401)

(6,607)

(173)

(92)

(92)

(339)

(325)

(9)

(823)

(5,255)

(6,750)

(140)

(303)

(303)

Notes to the 
Financial Statements

continued

2.  RESULTS FROM OPERATIONS (continued)

(d) Significant expenses in Comprehensive Income Statement (not detailed elsewhere)

Personnel Costs

Consultancies

Share based payments (ESIP and LTI)

Other staff termination payments

Defined contribution payments recognised as an expense

Other staff payments

Total personnel costs

Director fees

Asset impairment expense

  Write down of trade debtors

Total asset impairment expense

(e) Financing cash flows reconciliation

Bank Borrowings

Long term other payables

31 Dec 2016
$’000

Cash flows 
$’000

Non-cash FX  
$’000

31 Dec 2017 
$’000

 14,734 

 5,017 

 585 

 20,335 

 146 

(152)

 6 

–

Total liabilities from financing activities

 14,880 

 4,864 

 591 

 20,335 

(f) Share-Based Payments

Executive STI Plan
The STI plan is designed to award executives for achieving group financial performance targets. The Board determines the 
size of the pool based on actual financial metrics achieved relative to budget, and has discretion to adjust these payments 
depending on the particular circumstances of the consolidated entity and other qualitative factors as it sees fit. STI awards 
are 100% cash-settled.

Executive LTI Plan
Under the executive LTI plan, awards are made to executives and other key talent who have an impact on the consolidated 
entity’s performance. LTI awards are delivered in the form of share grants which vest upon achievement of share price 
targets. The Board uses absolute total shareholder return (TSR) as the key performance measure. TSR comprises the 
percentage change in the company’s share price, plus the value of any future dividends received during the period and is 
measured over a 3 year period. The fair value of the equity instruments granted is calculated assuming a 0% probability 
of forfeiture before the expiry of the escrow period, and is expensed on a straight-line basis over the vesting period. 

Expense recognised from equity-settled share-based payments

Total expense - share-based payments

31 Dec 2017
$’000

31 Dec 2016
$’000

(191)

(191)

(325)

(325)

52

 
 
 
Notes to the 
Financial Statements

continued

3.  INCOME TAXES

(a)  Income tax recognised in profit and loss 

Tax expense comprises:

Current tax expense

Deferred tax expense

  Utilisation of tax losses

  Change in recognised deductible temporary differences

Subtotal deferred tax expense

Total tax expense

Attributable to:

  Continuing operations

  Discontinued operations 

The prima facie income tax expense on pre-tax accounting profit/(loss) from operations 
reconciles to the income tax expense in the financial statements as follows:

Profit/(Loss) before tax from continuing operations

Profit/(Loss) from discontinued operations

Profit/(Loss) from total operations

Nominal Income tax benefit/(expense) calculated at 30%

Nominal tax benefit (expense) affected by:

  Adjusted for effect of tax rates in foreign jurisdictions

  Tax effect - P & L items not assessable or deductible for tax purposes.

  Adjustments - changes in deductible temporary differences, tax losses

Actual tax benefit/(expense)

12 months to 
31 Dec 2017 
$’000

12 months to 
31 Dec 2016 
$’000

(708)

(446)

 – 

(101)

(101)

(809)

(809)

 – 

(809)

(805)

 – 

(805)

241

122

(1,061)

(111)

(809)

 (280) 

(94)

(374)

(821)

(821)

 – 

(821)

1,440

 – 

1,440

(432)

 286 

(630)

(44)

(821)

The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on 
taxable income under Australian tax law. There has been no change in the corporate tax rate when compared with the 
previous report.

53

Financial Report  |  Magontec Annual Report 2017Notes to the 
Financial Statements

continued

3.  INCOME TAXES (continued)

(b)  Income tax amounts recognised in OCI

  Revaluation of defined benefit pension plan

Tax effect (expense)/benefit through OCI

1  DTA = Deferred Tax Asset, ITP = Income Tax Payable

(c)  Future Income tax benefit

Current

Non-Current

  Timing differences

  Carryforward tax losses

Total

Tax Consolidation

12 months to 
31 Dec 2017 
$

12 months to 
31 Dec 2016 
$

 80 

(20)

(928)

 306 

31 Dec 2017 
$’000

31 Dec 2016 
$’000

 – 

 – 

1,346

175

1,521

1,523

19

1,542

Relevance of Tax Consolidation to the Consolidated Entity
The parent Company and its wholly-owned Australian subsidiary have formed a tax-consolidated group with effect from 
1 February 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated 
group is Magontec Limited. The members of the tax-consolidated group are identified at Note 22.

54

Notes to the 
Financial Statements

continued

3.  INCOME TAXES (continued)

Nature of Tax Funding Arrangements and Tax Sharing Agreements
Entities within the tax-consolidated group ensure that inter-company transactions are conducted at fair market value and at 
arm’s length.

(d)  Unrecognised deferred tax balances

The following deferred tax assets have not been brought to account as assets:

Australian Tax Consolidated Group 

Deferred Tax Asset (DTA) on pre-tax consolidation revenue losses

DTA on post-tax consolidation revenue losses

DTA on capital losses

Sub Total Australian Tax Consolidated Group 

Foreign Subsidiaries

DTA on revenue losses

Sub Total Foreign Subsidiaries

Consolidated Group Total

These are based on the following tax losses:

Aust consolidated group Tax losses – revenue pre-tax consolidation

Aust consolidated group Tax losses – revenue post-tax consolidation

Foreign subsidiaries Tax losses – revenue

Aust consolidated group Tax losses – capital

Consolidated Group Total

Consolidated Parent Entity

31 Dec 2017
$’000

31 Dec 2016 
$’000

81,581

37,428

29,019

81,581

36,643

29,019

148,028

147,242

 18 

 18 

 93 

 93 

148,046

 147,335 

 271,936 

 271,935 

124,759

122,142

 74 

 371 

 96,732 

 96,731 

493,501

491,180

The benefit from the Australian deferred tax asset in respect of unused tax losses will only be obtained if:

a. 

  the tax consolidated group derives future Australian assessable income of a nature and amount sufficient to enable the 
benefits to be realised;

b.  the consolidated group continues to comply with the conditions for deductibility imposed by the tax law; and
c.  no changes in tax legislation adversely affect the consolidated group in realising the benefit of the losses.

No deferred tax asset has been brought to account as an asset because it is not probable that taxable profit will be available 
against which such an asset could be utilised.

Unused tax losses incurred after the formation of the former Advanced Magnesium Limited (the former name of Magontec 
Limited) consolidated group are $124.8 million. These losses will be fully available to offset future taxable income to the 
extent MGL continues to satisfy the loss integrity rules (i.e. Continuity of Ownership Test and Same Business Test).”

Based on testing performed by MGL and its advisors, these losses should satisfy the loss integrity rules as at 31 December 2017.

Unused tax losses incurred prior to the formation of the former Advanced Magnesium Limited (the former name 
of  Magontec Limited) consolidated group were $271.9 million. These losses will be subject to restricted use 
(Available Fraction rules).

These restrictions on use are in addition to the loss integrity rules. Broadly, the Available Fraction rules limit the amount 
of losses that can be used each year by applying the following formula:

Available Fraction x Taxable income for year = Pre consolidation losses available for use for year.

55

Financial Report  |  Magontec Annual Report 2017Notes to the 
Financial Statements

continued

3.  INCOME TAXES (continued)
Based on testing performed by MGL and its advisors, MGL’s pre consolidation losses should satisfy the loss integrity rules 
at 31 December 2017 subject to further testing and continued compliance with loss integrity rules. No detailed Available 
Fraction calculations have been performed as at 31 December 2017, however it is unlikely that the Available Fraction applying 
to pre-consolidation tax losses will be greater than 0.2.

The Australian tax consolidated entity has not paid income tax up to 31 December 2017 and neither is any assessment 
expected to be received which will result in a tax liability for the period to 31 December 2017. Accordingly, there are no 
franking credits available for distribution in the year ended 31 December 2017.

Tax outside of Australian tax consolidation regime
The Group has overseas entities which are not subject to Australian tax consolidation and are therefore not sheltered 
by Australian tax losses. Those entities may incur income tax based on local corporate tax law and are subject to the 
local jurisdiction.

4.  KEY MANAGEMENT PERSONNEL REMUNERATION
The aggregate compensation of the key management personnel of the Group is set out below:

Short term employee benefits

Termination benefits

Post-employment benefits

Motor vehicle

Equity based payment

Total Remuneration KMP

12 months to 
31 Dec 2017 
$’000

12 months to 
31 Dec 2016 
$’000

 1,363 

 1,371 

–

 94 

 30 

 132 

1,619

–

 98 

 28 

 212 

1,708

Individual Directors and Executives Compensation Disclosures
Information regarding individual directors’ and executives’ compensation and some equity instruments disclosures as 
required by Corporations Regulations 2M.3.03 is provided in the remuneration report section of the directors’ report.

5.  REMUNERATION OF AUDITORS

Group auditor

-  Audit or review of the financial report

-  Accounting/taxation services

Auditors of subsidiaries

-  Audit or review of the financial reports

-  Accounting/taxation services

12 months to 
31 Dec 2017 
$’000

12 months to 
31 Dec 2016 
$’000

112

 14 

125

 68 

319

 92 

 21 

 111 

 41 

 265 

The auditor of Magontec Limited is Camphin Boston Chartered Accountants. Magontec GmbH, Magontec Xi’an Co Limited, 
Magontec Qinghai Co Limited and Magontec Romania are all audited by local auditors who supply information as requested 
by the Group Auditor Camphin Boston.

56

Notes to the 
Financial Statements

continued

6.  CURRENT TRADE AND OTHER RECEIVABLES

Trade receivables (1)

Allowance for doubtful debts 

Net GST/VAT recoverable

Security deposits

Derivatives fair value adjustment

25(f)

Other receivables due to operating entities

Other

Total receivables

(1)  Trade receivables represent 56.01 days sales at 31 Dec 17 (42.57 days sales at 31 Dec 16).

7.  CURRENT INVENTORIES

Inventory of finished alloy at cost 

Provision for Inventory loss

Net value of finished goods inventory

Raw materials

Work in progress

31 Dec 2017
$’000

31 Dec 2016 
$’000

 19,999 

 14,898 

(335)

(975)

 19,664 

 13,923 

2,127

 1,513 

 73 

–

 37 

 66 

 4,840 

 6,367 

–

 50 

7,040

 8,034 

26,704

 21,956 

31 Dec 2017
$’000

31 Dec 2016
$’000

9,612

(30)

9,583

14,482

307

9,525

(63)

9,461

11,802

1,038

Current inventories at net realisable value

24,372

22,302

8.  OTHER CURRENT ASSETS

Other Prepayments 

9.  NON CURRENT TRADE AND OTHER RECEIVABLES

Pension asset

Security deposits and prepayments 

31 Dec 2017
$’000

31 Dec 2016
$’000

 191 

 191 

 227 

 227 

31 Dec 2017 
$’000

31 Dec 2016 
$’000

 444 

 592 

 443 

 602 

 1,037 

 1,045 

57

Financial Report  |  Magontec Annual Report 2017Notes to the 
Financial Statements

continued

10. PROPERTY PLANT & EQUIPMENT

Gross carrying amount

Balance at 1 January 2016

Additions

Adjustments and reclassifications

Impairment/adjustment MAS (1)

Disposals and write offs 

Net foreign currency exchange differences

Balance at 31 December 2016

Additions

Write Offs

Adjustments and reclassifications

Impairment

Disposals

Net foreign currency exchange differences

Capital WIP
$’000

Land & 
Buildings
$’000

Plant & 
Equipment
$’000

Total
$’000

 3,854 

 2,539 

 – 

 – 

 – 

(204)

 6,190 

 2,629 

 – 

(28)

 – 

 – 

(98)

 18,246 

24,845

 46,945 

 110 

(15)

 – 

 – 

(459)

 662 

(301)

 85 

(89)

(823)

 3,311 

(316)

 85 

(89)

(1,485)

 17,882 

 24,379 

 48,450 

 91 

 – 

 28 

 – 

(87)

 469 

 968 

 3,688 

 – 

 – 

 – 

(772)

 575 

 – 

(1)

 – 

(858)

 946 

Balance at 31 December 2017

 8,694 

 18,383 

 25,150 

 52,226 

Accumulated depreciation/amortisation and impairment

Balance at 1 January 2016

Disposals and write offs

Adjustments and reclassifications

Impairment at MAS (1)

Depreciation expense

Net foreign currency exchange differences 

Balance at 31 December 2016

Disposals

Write Offs

Adjustments and reclassifications

Impairment

Depreciation expense

Net foreign currency exchange differences 

Balance at 31 December 2017

Net Book Value As at 31 Dec 16

Net Book Value As at 31 Dec 17

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 6,190 

 8,694 

 8,148 

 19,230 

 27,377 

 – 

 – 

 – 

 548 

(216)

(58)

(176)

 121 

 998 

(687)

(58)

(176)

 121 

 1,545 

(903)

 8,480 

 19,427 

 27,907 

(87)

 – 

 – 

 – 

 573 

 288 

 9,254 

 9,403 

 9,129 

(750)

(836)

 – 

 – 

 – 

 1,048 

415

 20,141 

 4,952 

 5,009 

 – 

 – 

 – 

 1,621 

 702 

 29,394 

 20,543 

 22,831 

(1)  Relates to write down of residual assets at the Suzhou recycling facility (MAS) following the closure of this plant.

58

 
Notes to the 
Financial Statements

continued

11. INTANGIBLES

Gross carrying amount

Balance at 31-Dec-16

Disposals

Adjustments and reclassifications

Net foreign currency exchange differences

Additions

Balance at 31-Dec-17

Accumulated depreciation/amortisation and impairment

Balance at 31-Dec-16

Disposals

Adjustments and reclassifications

Depreciation/amortisation expense

Net foreign currency exchange differences

Balance at 31-Dec-17

Net Book Value As at 31 Dec 16

Net Book Value As at 31 Dec 17

Indefinite 
Life (1)
$’000

Finite  
Life
$’000

Total 
$’000

 2,800 

 1,373 

 4,173 

 – 

 – 

 – 

 – 

(88)

 – 

 59 

(88)

 – 

 59 

 269 

 269 

 2,800 

 1,613 

 4,413 

 – 

 – 

 – 

 – 

 – 

 – 

 2,800 

 2,800 

 1,305 

 1,305 

(88)

 – 

 32 

 56 

 1,304 

 69 

 309 

(88)

 – 

 32 

 56 

 1,304 

 2,869 

 3,109 

(1) 

 Indefinite Life Intangible Assets - Patents in relation to “AE44” and “Correx”.

The indefinite life intangible assets comprise the patents held over the range of “AE” alloys and the “Correx” anode system. 
The Board believes both products enjoy a margin of technical superiority over possible alternatives and as such both 
continue to provide high gross margins.

In testing the value of this asset for impairment, the Group has applied a discount rate of 7.0% to management cash flow 
forecasts. A zero growth rate has been assumed over the initial 5 year period, with a declining terminal rate of decline of 
12.4% per annum assumed thereafter. The final result found the value in use to be in excess of its carrying amount and thus 
no impairment loss was recorded.

12. CURRENT TRADE AND OTHER PAYABLES

Trade creditors (1)

Other creditors and accruals

31 Dec 2017  
$’000

31 Dec 2016 
$’000

12,278

 11,219 

 3,595 

 2,453 

15,873

 13,672 

(1)  Trade creditors represent 38.05 days cost of goods sold at 31 Dec 17 (36.12 days cost of goods sold at 31 Dec 16).

59

Financial Report  |  Magontec Annual Report 2017Notes to the 
Financial Statements

continued

13. BORROWINGS

31 Dec 2017

Notes

$’000

31 Dec 2017
Maturity 
Date

31 Dec 2017
Interest 
pa (1)

31 Dec 2016

$’000

31 Dec 2016
Maturity 
Date

31 Dec 2016
Interest 
pa (1)

Bank & Institutional Borrowings

Magontec GmbH (Bank Loan) (2) (5)

25(g)

11,135 30-Sep-20

Magontec GmbH (Bank Loan) (2) (5)

25(g)

– 30-Sep-20

1.55%

1.55%

2,922

30-Jun-17

3,521

30-Jun-17

2.15%

2.15%

Magontec GmbH  
(Hire Purchase Facility) 

Magontec GmbH 
(Factoring Facility) (4)

Magontec SRL (Working Capital 
Facility) (3)

25(g)

270

31-Dec-18

2.50%

472

31-Dec-18

2.50%

781

30-Nov-18

1.34%

796

30-Nov-16

1.34%

3,015

Open 

3.15%

3,583

Open 

3.15%

2.70%

Magontec SRL (Bank Loan) 

–

–

–

231

30-Nov-16

Magontec Xi’an Limited 
(Bank Loan) 

Magontec Xi’an Limited 
(Bank Loan)

Total Bank Borrowings

Current Borrowings

Bank borrowings as above 
(excluding factoring facility)

Total Current Borrowings

Non-Current Borrowings

Bank borrowings as above

Total Non-Current borrowings

25(g)

1,981

14-Feb-18

5.78%

–

–

–

3,934

12-May-18

4.70%

4,005

25-Apr-17

4.52%

Various

21,116

9,200

9,200

11,135

11,135

15,530

14,734

14,734

–

–

–

–

Various

(1) 
(2) 

Interest rate is the rate that applied at the end of the relevant reporting period and is expressed as compounding annually in arrears.
 These borrowings are secured by a charge over MAB’s trade debtors to the extent of €1,858,000 ($2,852,962) and inventory of 
€4,475,000 ($6,871,369).

(3)  These borrowings are secured by a charge over MAR’s trade debtors and inventory to the extent of RON 9,526,861 ($3,122,541).
(4)  This facility is set off against trade debtors, and thus is not shown in ‘Borrowings’ on the balance sheet.
(5) 

 Refer to the ‘Financial Instruments’ note for details of interest rate swaps which the group uses to hedge against adverse movements 
in variable rates.

60

 
 
 
 
Notes to the 
Financial Statements

continued

14. CURRENT PROVISIONS

Note

31 Dec 2017
$’000

31 Dec 2016
$’000

Provision for annual & long service leave and employee costs

Provision for income tax payable

Provision for loss on FX hedges and interest rate swaps

25(f)

Other current provisions

Totals

15. NON-CURRENT PROVISIONS

Provision for defined benefit pension obligation

Other provisions

Totals

Reconciliation of the Defined Benefit Pension Obligation 

Defined benefit obligation beginning of year

Current service cost

Interest cost

Total benefits paid - actual

Foreign currency exchange rate changes

Experience adjustments (gains)/losses

Actuarial (gains)/losses due to change of assumptions

 463 

 1,088 

 6 

 120 

 638 

 458 

 38 

 203 

 1,677 

 1,337 

31 Dec 2017
$’000

31 Dec 2016
$’000

11,189

10,624

219

192

11,408

10,815

Year Ended
31 Dec 2017
$’000

Year Ended
31 Dec 2016
$’000

10,624

9,761

235

198

(318)

540

–

(90)

195

217

(290)

(188)

–

928

Defined benefit obligation end of year

11,189

10,624

The extent of the Provision for the Defined Benefit Obligation is assessed annually based on actuarial calculations which take 
into account such matters as:

 − number of participants in the plan;
 − likely retirement salaries of participants in the pension plan;
 − their life expectancy beyond retirement; and
 − implied interest earnings on the extent of the fund.

61

Financial Report  |  Magontec Annual Report 2017Notes to the 
Financial Statements

continued

15. NON-CURRENT PROVISIONS (continued)
The defined benefit plan is an unfunded plan which has been provided to employees in the European business. Increasing 
interest rates will act to decrease the Provision. The converse is also true. In the context of falling interest rates in Europe 
(where the beneficiaries of this pension plan are domiciled) there has been upward pressure on the Provision over the 
last few years. A summary of the key assumptions underpinning the actuarial calculation and a sensitivity analysis is 
provided below.

Key Actuarial Assumptions used in Calculation of the Defined Benefit Obligation

Discount rate

Expected salary increase per annum

Expected pension increase per annum

Year Ended
31 Dec 2017
$’000

Year Ended
31 Dec 2016
$’000

1.85%

2.75%

1.75%

1.80%

2.75%

1.75%

Key Sensitivities of Actuarial Assumptions used in Calculation of Defined Benefit Obligation

% chg

+0.5%

(0.5)%

+0.5%

(0.5)%

+0.5%

(0.5)%

+ 1 year

Year Ended
31 Dec 2017
$’000

Year Ended
31 Dec 2016
$’000

(933)

1,079

63

(60)

763

(692)

491

(941)

1,089

64

(60)

772

(699)

486

Discount rate (%)

Salary increase (%)

Pension increase (%)

Life expectancy (years)

62

Notes to the 
Financial Statements

continued

16. SHARE CAPITAL

Opening balance of share capital attributable to members of MGL

Issue of shares to Executives of Magontec Limited (1)(2)

Various costs associated with above issues

31 Dec 2017 
$’000

31 Dec 2016 
$’000

 58,616 

 58,433 

 291 

–

 183 

–

Share capital on issued ordinary shares 1,140,073,483 (2016: 1,132,209,291)

 58,907 

 58,616 

Summary of share capital 

Share capital attributable to members of MGL

Share capital attributable to minority interest

Total share capital

 58,907 

 58,616 

 463 

 463 

 59,370 

 59,079 

(1)  Shares in 2016 issued in terms of entitlement under Resolution 5 of the Company’s 2015 AGM held 8 May 2015.
(2)  Shares in 2017 issued pursuant to Resolutions 5, 6 and 7 of the Company’s 2017 AGM held 17 May 2017.

A reconciliation of the movement in fully paid ordinary shares at the line in Note 16 ‘Share capital on issued ordinary shares 
1,140,073,483 (31 Dec 2016: 1,132,209,291) is set out below:

Consolidated Parent Entity

31 Dec 2017

31 Dec 2016

No.

$'000

No.

$'000

Fully paid ordinary shares

Balance at beginning of financial year

1,132,209,291

58,616

1,127,311,901

58,433

Expenses of various issues

–

Issue of shares to Executives of Magontec Limited

7,864,192

–

291

–

4,897,390

–

183

1,140,073,483

58,907 1,132,209,291

58,616

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

Share Options
All share options carry no rights to dividends and no voting rights until paid for at the time when converted into ordinary 
shares. Further details of the share-based payment schemes are contained in the Remuneration Report.

63

Financial Report  |  Magontec Annual Report 2017Notes to the 
Financial Statements

continued

17. RESERVES

Capital reserve

Balance at beginning of financial year (1)

Balance at end of financial year

Foreign currency translation reserve

Balance at beginning of financial year

Movement in VHL Consolidated accounts

Balance at end of financial year

Actuarial Reserves

Balance at beginning of financial year

Derivatives

Deferred tax assets

Employee pensions

Other

Balance at end of financial year

Expired Options Reserve

Balance at beginning of financial year

ESOP options expiry

Balance at end of financial year

Share Issue Reserve

Balance at beginning of financial year

Fair value of performance rights 2014-16 Plan 

Issue of ordinary shares on conversion of rights

Fair value of performance rights issued for future periods

Balance at end of financial year

Total reserves

Reserves attributable to minority interests

Reserves attributable to members of MGL

Total reserves

Other Comprehensive Income - that may later emerge in the Profit and Loss 
Statement

Exchange differences taken to reserves in equity – translation of overseas entities

Movement in various actuarial assessments

Total Other Comprehensive Income

31 Dec 2017
$’000

31 Dec 2016
$’000

 2,750 

 2,750 

 3,042 

(228)

 2,814 

 2,750 

 2,750 

 4,154 

(1,112)

 3,042 

(2,405)

(1,785)

–

(20)

 80 

–

–

 306 

(928)

 1 

(2,346)

(2,405)

 1,637 

 1,637 

–

 1,637 

 141 

 149 

(291)

41

 41 

4,897

–

4,897

4,897

(228)

60

(168)

–

1,637

–

141

–

_

 141 

 5,165 

–

 5,165 

 5,165 

(1,112)

(620)

(1,732)

(1) 

 The capital reserve is a historical reserve from 2002 that arose after calculation of the outside equity interest in the (as it was then) 
Australian Magnesium Investments Pty Ltd consolidated entity.
 The foreign currency translation reserve arises as a result of translating overseas subsidiaries from their functional currency to the 
presentation currency of Australian dollars.
 The expired options reserve captures the balance of unexercised options on their expiry date from the appropriate share capital 
account. 
 The actuarial reserve represents the cumulative amount of actuarial gains /(losses) on the Group’s unfunded defined benefit pension 
obligation that needs to be recognised in “Other comprehensive income” (OCI) as well as movements attributable to the market value 
of derivatives and deferred tax assets where relevant.

64

 
 
 
Notes to the 
Financial Statements

continued

18. ACCUMULATED LOSSES

Balance at beginning of financial year

Profit/(Loss) attributable to members of Magontec Limited

Profit/(Loss) attributable to minority interests

Accumulated losses attributable to members of Magontec Limited

Accumulated losses attributable to minority interests

Total accumulated losses

19. EARNINGS/(LOSS) PER SHARE

Basic earnings/(loss) per share (including Discontinued Operations):

Diluted earnings/(loss) per share (including Discontinued Operations):

Basic earnings/(loss) per share (excluding Discontinued Operations):

Diluted earnings/(loss) per share (excluding Discontinued Operations):

31 Dec 2017
$’000

31 Dec 2016
$’000

(29,871)

(30,491)

(1,614)

–

 620 

–

(31,485)

(29,871)

(31,485)

(29,871)

–

–

(31,485)

(29,871)

12 months to
31 Dec 2017
cents per 
share

12 months to
31 Dec 2016
cents per 
share

(0.142)

(0.136)

(0.142)

(0.136)

0.055

0.055

0.055

0.055

The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted loss per share are 
as follows:

12 months to 
31 Dec 2017 
$’000

12 months to 
31 Dec 2016 
$’000

Profit/(Loss) after income tax expense/benefit including discontinued operations

Members of the parent entity

Profit/(Loss) after income tax expense/benefit from continuing operations

Members of the parent entity

(1,614)

(1,614)

620

620

Weighted average number of ordinary securities on issue (for basic earnings calculation) 1,137,078,626

1,129,787,358

Performance rights 

47,706,950

7,864,192

Weighted average number of ordinary securities on issue (for diluted earnings calculation) 1,184,785,576 1,129,808,845

65

Financial Report  |  Magontec Annual Report 2017Notes to the 
Financial Statements

continued

20. CONTINGENT LIABILITIES AND ASSETS
At 31 December 2017 a contingent asset exists in relation to the item below.

1.  Romanian Tax Office Audit of MAR
Note 5 in the half year report at 30 June 2015 referred to an audit by the Romanian tax office of VAT matters at MAR. 
The audit was expanded to a full tax audit.

The audit was completed in October 2015 and resulted in two primary adjustments in the 2015 financial statements.

(i)  a reduction of $181,169 in the Deferred Tax Asset at 31 December 2014; and 
(ii)  imposition of penalties and interest amounting to $117,107 associated with the denial of a VAT input credit.

Item (ii) may be recovered in 3 ways -

 − under a formal objection;
 − under a professional indemnity claim; and 
 − under Romanian amnesty legislation recently enacted.

Legal action continued during the 2017 year and the matter remains unresolved.

At 31 December 2017 a contingent liability also exists in relation to the item below.

2.  Claim against MAS
A claim was made against the Magontec Suzhou (MAS) company with respect to restoration costs on the property formerly 
occupied by this plant. The company does not believe there is a reasonable basis for this claim, and continues to vigorously 
contest the matter.

66

Notes to the 
Financial Statements

continued

21. CAPITAL AND LEASING COMMITMENTS

a.  Operating Lease Arrangements (contractual lease payments to lease expiry the Group is obligated to make)

Nature of Lease

MAB company car

MAB company car

Date of 
First Lease 
Payment

Date of 
Last Lease 
Payment

Frequency 
of Lease 
Payments

Lease 
Payment 
Per 
Frequency 
(AUD)

Current 
Year  
(2017) 
Lease 
Payments

Lease 
Payments 
Due Within 
12 Months 
(ie year 
ended  
31 Dec 
2018)

Lease 
Payments 
Due 
Beyond  
12 Months  
(ie beyond 
31 Dec 
2018)

Unexpired 
Lease 
Obligation

5-Jun-15

4-Jun-18 Monthly

$1,061

$12,732

$6,366

–

$6,366

1-Jul-16 30-Jun-20 Monthly

MAB company car

18-May-17 18-May-21 Monthly

MAB company car

28-Jan-15 27-Jan-19 Monthly

$680

$517

$481

$8,163

$8,163

$12,244

$20,407

$4,140

$6,210

$15,006

$21,216

$5,767

$5,767

$481

$6,248

MAB wheel loader

1-Apr-17 1-Mar-21 Monthly

$2,624

$23,616

$31,488

$70,849

$102,337

MAB wheel loader

1-May-16 30-Nov-19 Monthly

$1,622

$19,468

$19,468

$17,846

$37,314

MAB forklift trucks

1-Jun-15 31-May-20 Monthly

$2,150

$25,796

$25,796

$36,545

$62,341

MAB forklift trucks

2-Jul-09 30-Jun-19 Monthly

$437

$5,246

$5,246

$2,623

$7,870

MAB forklift trucks

1-Nov-14 31-Oct-19 Monthly

$1,174

$14,093

$14,093

$11,744

$25,837

MAB forklift trucks

1-Nov-14 31-Oct-19 Monthly

$1,174

$14,093

$14,093

$11,744

$25,837

MAB forklift trucks

1-Jul-14 30-Jun-19 Monthly

$1,416

$16,988

$16,988

$8,494

$25,483

MAB external storage 
facility (1)

MAB Canon copy/scan 
systems

1-Jun-06

Open Monthly

$5,374

$64,491

$16,123

–

$16,123

29-Jan-16 31-Jan-20 Monthly

$4,275

$51,298

$51,298

$55,573

$106,871

MAR car operating lease

1-Dec-16 1-May-20 Monthly

$1,612

$19,347

$19,347

$27,408

$47,756

MGL head office lease

15-Jul-14 15-Jul-18 Monthly

$3,513

$42,156

$24,591

–

$24,591

Total

$327,396 $265,039 $270,558 $535,597

(1)  Able to be cancelled at any time by giving 3 months notice.

MAB = Magontec GmbH (Bottrop Germany)  
MAY = Magontec Shanxi Company Limited  

MAS = Magontec SuZhou Co Ltd 
MAR = Magontec SRL (Romania) 

MGL = Magontec Limited (Sydney head office)

Non-cancellable operating lease payments

Not longer than 1 year

Longer than 1 year and not longer than 5 years

Longer than 5 years

Total

31 Dec 2017
$’000

31 Dec 2016
$’000

265

271

–

536

354

286

–

639

67

Financial Report  |  Magontec Annual Report 2017Notes to the 
Financial Statements

continued

21. CAPITAL AND LEASING COMMITMENTS (continued)

b.  Capital Expenditure Commitments
On 10 June 2012, the Company entered into an agreement with Qinghai Salt Lake Magnesium Company Limited (QSLM) to 
construct plant and equipment for an alloy manufacturing operation at Golmud in Qinghai province in China. Magontec will 
own and operate the magnesium alloy production plant and equipment to be installed in a building owned by QSLM adjacent 
to the Qinghai electrolytic magnesium smelter.

At the inception of the project, the plant and equipment was expected to cost approximately $12.5 million.

Depending on requirements, up to $3 million of the project cost is expected to be incurred during 2018 and will be funded 
from a combination of:

 − cash resources of $2.3 million as at 31 Dec 2017;
 − cash generated from operations;
 − the undrawn component of existing debt facilities; and
 − potential new debt facilities to be negotiated.

22. CONTROLLED ENTITIES

a.  Consolidated Controlled Entities

Name of Entity

Parent entity

Magontec Limited (a)

Ownership  
Entity

Country of 
Incorporation

Ownership 
Interest 
31 Dec 2017

Ownership 
Interest 
31 Dec 2016

Australia

100%

100%

Directly Controlled Subsidiaries Of Parent

Advanced Magnesium Technologies Pty Ltd (a)

Magontec Limited

Australia

AML China Ltd (b)

Varomet Holdings Limited

Magontec Qinghai Co. Ltd.

Magontec US LLC

Indirectly Controlled Subsidiaries of Parent – Level 1

Magontec Xi’an Co Ltd.

Magontec GmbH

Magontec Suzhou Co Ltd.

Magontec Limited

China

Magontec Limited

Cyprus

Magontec Limited

China

Magontec Limited

United States

Varomet Holdings Ltd

China

Varomet Holdings Ltd

Germany

Varomet Holdings Ltd

China

Indirectly Controlled Subsidiaries of Parent – Level 2

Magontec Shanxi Company Limited (c) 

Magontec Xi’an Co. Ltd China

Magontec SRL

Magontec GmbH

Romania

100%

100%

100%

100%

100%

100%

100%

100%

70%

100%

100%

100%

100%

100%

100%

100%

100%

100%

70%

100%

(a)  Entities included in the Australian tax consolidated Group.
(b)  Dormant from 30 June 2012
(c) 

 Joint venture entity through which alloying operations are conducted at Shanxi. The joint venture arrangements provide that from 
1 January 2013, 100% of the benefits and responsibilities of transactions on revenue account accrue to Magontec Xi’an Co Ltd. 
The Group’s joint venture partner maintains an entitlement to a return of its original capital contribution.

68

Notes to the 
Financial Statements

continued

22. CONTROLLED ENTITIES (continued)

b.  Corporate Structure as at 31 December 2017

Parent  
Entity

Administration 
Entities

Operating 
Entities

MAGONTEC LIMITED CORPORATE STRUCTURE

Magontec Limited 
(Australia)

100%

100%

Varomet Holdings Limited 
(Cyprus)

Advanced Magnesium 
Technologies Pty Limited 
(Australia)

100%

100%

Magontec US LLC 
(United States)

Magontec Qinghai Co Ltd 
(China)

100%

100%

100%

Magontec Suzhou Co Ltd 
(China)

Magontec Xi’an Co Ltd 
(China)

Magontec GmbH 
(Germany)

70%

100%

Magontec Shanxi Co Ltd 
(China)

Magontec SRL 
(Romania)

c.  Acquisition of Controlled Entities
There were no acquisitions of controlled entities made during the relevant period. Magontec US LLC was established 
on 16 June 2016.

d.  Disposal of Controlled Entities
There were no disposals of controlled entities made during the relevant period.

69

Financial Report  |  Magontec Annual Report 2017Notes to the 
Financial Statements

continued

23. SEGMENT INFORMATION

Identification of Reportable Segments
The consolidated entity comprises the entities as described in Note 22.

In respect of the period to 31 December 2017, segment information is presented in respect of the three main departments 
within the company. 

 − ‘Admin Units’ = Magontec administrative entities performing a Head Office function comprising -

 −   

Magontec Limited (Australia)
Advanced Magnesium Technologies Pty Limited (Australia) 
Varomet Holdings Limited (Cyprus)

 −  ‘EUR’ = Magontec operating entities in Europe comprising -

Magontec GmbH (Germany) 
Magontec SRL (Romania) 
Magontec LLC (United States)

 −  ‘PRC’ = Magontec operating entities in the People’s Republic of China comprising -

Magontec Xi’an Co. Ltd. (China) 
Magontec Shanxi Co. Ltd. (China)  
Magontec Suzhou Co. Ltd. (China)  
Magontec Qinghai Co. Ltd. (China) 

Types of Products and Services
The principal operating activities comprise:

 − Magnesium alloy production
 − Magnesium alloy recycling
 − Manufacture of cathodic corrosion protection products

Accounting Policies and Inter-segment Transactions
The accounting policies used by the Group in reporting segments internally are the same as those contained in Note 1 to the 
accounts. Magontec GmbH (Bottrop, Germany) is the entity through which alloy production at Magontec Xi’an Co Limited 
(Xi’an, PRC) and Magontec Shanxi Company Limited (Shanxi, PRC) destined for Europe is sold.

The segment data below on page 71 is presented net of intergroup transactions (other than sales).

70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the 
Financial Statements

continued

23. SEGMENT INFORMATION (continued)

Statement of Comprehensive Income

Sale of goods

Less Inter-company sales

Net Sales

Cost of sales

Less Inter-company sales

Net Cost of Sales

Gross Profit

Other income

Interest expense

Impairment of inventory, 
receivables & other financial assets

Travel, accommodation and meals

(155)

Research, development, licensing 
and patent costs 

Promotional activity

Information technology

(88)

(2)

(44)

12 months to 31 December 2017

12 months to 31 December 2016

$’000 
Admin

$’000 
EUR

$’000 
PRC

$’000 
TOTAL

$’000 
Admin

$’000 
EUR

$’000 
PRC

$’000 
TOTAL

 – 

 80,628 

 53,416 

 134,044 

 – 

 83,252 

 52,148 

 135,401 

(3,721)

(7,305)

 – 

– 

– 

– 

 10 

– 

– 

 80,628 

 53,416 

 130,323 

(71,130)

(50,366)

(121,496)

 3,721 

(71,130)

(50,366)

(117,775)

 9,499 

 3,049 

 12,548 

 311 

(566)

(29)

(445)

(165)

(115)

(226)

 490 

(351)

(63)

(120)

(170)

 – 

(49)

 811 

(918)

(92)

(721)

(422)

(116)

(319)

 – 

 – 

 – 

 – 

 89 

 – 

 – 

(172)

(94)

(1)

(36)

 83,252 

 52,148 

 128,096 

(73,111)

(47,864)

(120,974)

 7,305 

(73,111)

(47,864)

(113,670)

 10,141 

 4,285 

 14,426 

 474 

(725)

(209)

(367)

(137)

(66)

(244)

 281 

(376)

(94)

(143)

(187)

 – 

(52)

 844 

(1,100)

(303)

(682)

(418)

(67)

(332)

Personnel

(1,209)

(4,345)

(1,053)

(6,607)

(1,368)

(4,154)

(1,228)

(6,750)

Depreciation & amortisation

Office expenses

Corporate and other

Foreign exchange gain/(loss)

Profit/(Loss) before income tax 
expense

Income tax expense

Profit/(Loss) after income tax 
expense/benefit including 
discontinued operations

Other Comprehensive Income

Movement in various actuarial 
assessments

Exchange differences taken to 
reserves in equity – translation 
of overseas entities

Total Comprehensive Income

(1)

(52)

(732)

(643)

(327)

(211)

(1,857)

(412)

(2,915)

1,113

–

(582)

(41)

(87)

(837)

 229 

 996 

(227)

(369)

(350)

(1)

(57)

(453)

(152)

(22)

(125)

(475)

(333)

(3,426)

(533)

(1,594)

(1,100)

(3,226)

(825)

(84)

 106 

(165)

(143)

(805)

(809)

(2,257)

 2,621 

 1,076 

 1,440 

– 

(620)

(201)

(821)

(2,915)

 531 

 769 

(1,614)

(2,257)

 2,001 

 876 

 620 

–

60

– 

60

– 

(620)

 –

(620)

(18)

(2,932)

 1 

592

(211)

 558 

(228)

(89)

(240)

(783)

(1,112)

(1,782)

(2,345)

 1,141 

 92 

(1,112)

71

Financial Report  |  Magontec Annual Report 2017Notes to the 
Financial Statements

continued

23. SEGMENT INFORMATION (continued)

31 Dec 
2017 
$’000 
Admin

31 Dec 
2017 
$’000 
EUR

31 Dec 
2017 
$’000 
PRC

31 Dec 
2017 
$’000 
TOTAL

31 Dec 
2016 
$’000 
Admin

31 Dec 
2016 
$’000 
EUR

31 Dec 
2016 
$’000 
PRC

31 Dec 
2016 
$’000 
TOTAL

Segment Assets

Gross Segment assets

54,907

 43,263 

 38,252 

136,422

 56,998 

 41,929 

 35,006 

 133,933 

Eliminations

– Inter-Coy Loans

(40,078)

(1,588)

(418)

(42,084)

(40,135)

(1,743)

(4,082)

(45,959)

– Investment in subsidiaries

– Other

(15,392)

3,511

 – 

(45)

 – 

(15,392)

(15,392)

(339)

3,128

 2,715 

 – 

 6 

 – 

(15,392)

(227)

 2,494 

As per Consolidated Balance 
Sheet

Segment Liabilities

 2,949 

41,631

 37,495 

82,074

 4,187 

 40,192 

 30,698 

 75,077 

Gross Segment liabilities

30,586

 37,762 

 22,971 

91,318

 29,065 

 37,057 

 20,855 

 86,976 

Eliminations

– Inter-Coy Loans

– Other

 – 

–

–

–

–

–

–

–

(30,422)

(1,950)

(9,654)

(42,026)

(28,894)

(7,268)

(9,756)

(45,918)

 – 

 – 

 – 

 – 

 102 

 – 

(458)

(355)

As per Consolidated Balance 
Sheet

Net assets

Segment Disclosures

–  Acquisition of segment fixed 

assets

–  Non-cash share based payments 

expense

Provisioning

– Inventory Increase/(Decrease) 

–  Doubtful debts Increase/

(Decrease)

 – 

 – 

24. RELATED PARTY DISCLOSURES

a.  Equity Interests in Related Parties

164

 35,811 

 13,317 

49,293

 274 

 29,788 

 10,641 

 40,703 

2,785

5,820

 24,178 

32,782

 3,913 

 10,404 

 20,057 

34,373

–

850

2,838

 3,688 

 – 

 508 

 2,802 

 3,311 

 191 

 – 

 191 

 325 

 – 

 – 

 – 

(33)

(33)

(19)

 – 

 – 

(42)

(598)

(640)

(252)

 522 

 270 

 – 

 – 

 325 

(19)

Equity interest in subsidiaries
Details of the percentage of ordinary shares held in subsidiaries are disclosed in Note 22 to the financial statements.

b.  Transactions with Key Management Personnel
Details of Key Management Personnel compensation are disclosed in Note 4 to the financial statements and in the 
Remuneration Report.

c.  Group Entity
The parent entity is Magontec Limited. Members of the group are set out in Note 22. Transactions during the financial year 
between group entities included: 

 − Investment in controlled entities;
 − Repayment of interest free funds from controlled entities to the parent entity; and
 − Incurring expenditure on behalf of other entities for office rental and related costs, travel costs, seconded employees 

and other sundry costs. 

The entity is fully reimbursed for these costs on an actual cost basis.

72

Notes to the 
Financial Statements

continued

25. FINANCIAL INSTRUMENTS

a.  Capital Risk Management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while 
maximising the potential future return to stakeholders through the development and marketing of the Group’s technologies 
and its production facilities.

The capital structure of the Group consists of cash and cash equivalents, equity attributable to equity holders of the parent, 
comprising issued capital, reserves and accumulated losses as disclosed in Note 16, Note 17 and Note 18 respectively and 
debt funding provided by Chinese and European banks (Note 13).

The group’s main financial risk management issues are:

 − ensuring the integrity of debtors;
 − planning for production capacity expansion in China; and
 − continued availability of debt funding.

The Group operates globally, primarily through subsidiary companies established in the markets in which the Group 
operates or trades. None of the Group’s entities are subject to externally imposed capital requirements.

b.  Financial Risk Management Objectives
The magnesium alloy industry operates with a disparity of trade terms on the purchase of production inputs (generally 
not better than 15 days) and the sale of output (up to 120 days). The Group’s senior management effort is aimed at firstly, 
arranging funding for working capital and secondly, negotiating with purchasers and buyers the best available terms. 

The Group’s senior management team co-ordinates access to domestic and international financial markets and monitors 
and manages the financial risks relating to the operations of the Group in line with the Group’s policies. These risks include 
market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow 
interest rate risk. 

The consolidated entity does not enter into or trade financial instruments, including derivative financial instruments, for 
speculative purposes. 

c.  Significant Accounting Policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of 
measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, 
financial liability and equity instrument are disclosed in Note 1 to the financial statements.

d.  Categories and Maturity Profile of Financial Instruments and Interest Rate Risk
The following table details the consolidated entity’s exposure to interest rate risk as at 31 December 2017.

31 December 2017

Financial assets:

Weighted 
average 
effective 
interest 
rate 
%

Notes

Variable 
interest  
rate 
$’000

Fixed  
interest  
rate 
$’000

Non- 
interest 
bearing 
$’000

Total  
$’000

Cash and cash equivalents

0.32%

 2,309 

Trade & other receivables (net of provision for loss)

Other

Financial liabilities:

Trade & other payables

Current Bank Borrowings

Non Current Bank Borrowings

–

–

–

13

13

4.36%

1.55%

 – 

 – 

 2,309 

 – 

9,981

 11,135 

21,116

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

26,704

 191 

 2,309 

26,704

 191 

26,895

29,204

15,873

 – 

 – 

15,873

15,873

9,981

11,135

36,989

73

Financial Report  |  Magontec Annual Report 2017 
 
 
 
 
 
 
Notes to the 
Financial Statements

continued

25. FINANCIAL INSTRUMENTS (continued)
The following table details the consolidated entity’s exposure to interest rate risk as at 31 December 2016.

31 December 2016

Financial assets:

Weighted 
average 
effective 
interest 
rate 
%

Notes

Variable 
interest  
rate 
$’000

Fixed  
interest 
rate 
$’000

Non-
interest 
bearing 
$’000

Total 
$’000

Cash and cash equivalents

0.26%

 4,593 

Trade & other receivables (net of provision for loss)

Other

Financial liabilities:

Trade & other payables

Current Borrowings

Non-Current Borrowings

–

–

–

 – 

 – 

 4,593 

 – 

13

13

3.05%

 15,530 

–

 – 

 15,530 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 – 

 4,593 

 21,956 

 21,956 

 227 

 227 

 22,183 

 26,776 

 13,672 

 13,672 

 – 

 – 

 15,530 

 – 

 13,672 

 29,202 

e.  Market Risk 
Refer comments under headings a and b of Note 25.

f.  Foreign Currency Risk Management
The Group has exposure to four main currencies – the United States Dollar (USD), the Euro (EUR), the Chinese Yuan (RMB) 
and the Romanian Leu (RON). The carrying amount of the Group’s foreign currency denominated monetary assets and 
monetary liabilities at the reporting date are as follows.

Foreign currency monetary assets and liabilities

Cash and cash equivalents 

Trade and other receivables

Other non-current receivables

Trade and other payables 

Provisions

Borrowings 

Other

Other net assets and liabilities

Total

Foreign Currency Monetary Assets & Liabilities Table

Assets

Liabilities

31 Dec 2017 
$’000

31 Dec 2016 
$’000

31 Dec 2017 
$’000

31 Dec 2016 
$’000

2,196

26,885

1,034

4,525

21,970

1,043

16,072

12,956

 13,909 

 11,702 

 20,335 

 14,734 

51,959

82,074

47,539

75,077

(70)

 359 

49,293

40,703

The Group undertakes sales transactions denominated in RMB, USD and EUR and incurs manufacturing input costs 
denominated in EUR, RMB and RON. Additionally certain Head Office overheads are incurred in AUD and the Group reports 
in AUD. The objective is to centralise treasury risk and cash management so that foreign exchange risk washes through to 
a single point.

74

Notes to the 
Financial Statements

continued

25. FINANCIAL INSTRUMENTS (continued)

Foreign Currency Sensitivity Analysis
The following table details the Group’s sensitivity to a 10% increase and 10% decrease in relevant foreign currency monetary 
items against the Australian Dollar. 10% is the sensitivity rate used when reporting foreign currency risk internally to key 
management personnel and represents management’s assessment of the possible change in foreign exchange rates over 
the medium term. The sensitivity analysis includes foreign currency monetary items and adjusts their translation at the 
period end for a 10% change in foreign currency rates.

A positive number in the table below indicates an increase in profit or a decrease in loss and other equity where the foreign 
currency strengthens against the Australian dollar. A negative number in the table below indicates a decrease in profit or 
an increase in loss and other equity where the foreign currency weakens against the Australian dollar.

Effect on Profit/Loss of a 10% increase in USD rate

Effect on Profit/Loss of a 10% decrease in USD rate

Effect on Profit/Loss of a 10% increase in EUR rate

Effect on Profit/Loss of a 10% decrease in EUR rate

Effect on Profit/Loss of a 10% increase in RMB rate

Effect on Profit/Loss of a 10% decrease in RMB rate

Effect on Profit/Loss of a 10% increase in RON rate

Effect on Profit/Loss of a 10% decrease in RON rate

Notes

(i)

Notes

(ii)

Notes

(iii)

Notes

(iv)

USD impact

31 Dec 2017 
$’000

31 Dec 2016 
$’000

 318 

(318)

 271 

(271)

EUR impact

31 Dec 2017 
$’000

31 Dec 2016 
$’000

(2,141)

2,141

(1,792)

 1,792 

RMB impact

31 Dec 2017 
$’000

31 Dec 2016 
$’000

 224 

(224)

 430 

(430)

RON impact

31 Dec 2017 
$’000

31 Dec 2016 
$’000

(326)

326

(190)

 190 

A positive number in the above table represents a reduction in the operating profit/loss.
(i) 

 Exposure to USD is represented by net monetary assets of USD 2.5 million in respect of period ended 31-Dec-17 (exposure on net 
monetary assets of USD 2.0 million in period ended 31-Dec-16) 
 Exposure to EUR is represented by net monetary liabilities of EUR 13.9 million in respect of period ended 31-Dec-17 (exposure on net 
monetary liabilities of EUR 12.3 million in period ended 31-Dec-16) 

(ii) 

(iii)   Exposure to RMB is represented by net monetary assets of RMB 11.4 million in respect of period ended 31-Dec-17 (exposure on net 

monetary assets of RMB 21.5 million in period ended 31-Dec-16)

(iv)   Exposure to RON is represented by net monetary liabilities of RON 10.0 million in respect of period ended 31-Dec-17 (exposure on net 

monetary liabilities of RON 5.9 million in period ended 31-Dec-16)

75

Financial Report  |  Magontec Annual Report 2017 
 
 
Notes to the 
Financial Statements

continued

25. FINANCIAL INSTRUMENTS (continued)

Derivatives and Hedge Accounting 
During the period, the Company engaged in both foreign exchange hedges and interest rate swaps in order to manage risks 
associated with:

1.  securing the EUR:USD rate on real metal purchases of pure magnesium in USD; and
2.  to protect against adverse movements in interest rates associated with the group’s borrowing facilities.

The group designates these derivative financial instruments as cash flow hedges and records transactions in accordance 
with hedge accounting requirements. Specifically, gains and losses on positions are recognised through Other 
Comprehensive Income in equity, until such time that the position is liquidated for cash settlement (usually at maturity) 
at which point the gain or loss is recognised in the profit and loss statement. 

The gains and losses associated with the ineffective portion of hedges (where applicable) are recognised directly in the 
profit and loss statement.

31 December 2017

FX hedges

Interest rate swaps

31 December 2016

FX hedges

Interest rate swaps

Notes

Carrying value 
$’000

Market value 
$’000

Cash flow due 
within 1 year 
$’000

Cash flow due 
after 1 year 
$’000

6,14

6,14

6,14

6,14

(6)

–

66

(38)

(6)

–

66

(585)

(6)

–

66

(585)

–

–

–

–

The sensitivity of FX hedges and interest rate swaps to a 10% movement in the relevant exchange rate and a 0.5% movement 
in interest rates respectively is outlined below:

AUD impact of change

31 Dec 2017 
$’000

31 Dec 2016 
$’000

–

–

–

–

167

(167)

31

(31)

FX hedges

Sensitivity to +10% change in USD EUR rate

Sensitivity to -10% change in USD EUR rate

Interest rate swaps

Sensitivity to +0.5% change in interest rates

Sensitivity to -0.5% change in interest rates

76

Notes to the 
Financial Statements

continued

25. FINANCIAL INSTRUMENTS (continued)

g.  Capital Management and Interest Rate Risk Management
The Group has bank loans outstanding of $13,385,959 (refer Note 13) owing to Commerzbank globally. An interest rate 
swap arrangement expired in June 2017. In the context of ongoing low interest rates, the Group decided not to enter 
a new arrangement but will continue to monitor market conditions for appropriateness in this respect.

h.  Credit Risk Management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the 
Group. The Group has adopted a policy of as far as possible dealing with creditworthy counterparties – an ideal not always 
possible in a product development environment. The use of collateral or other contributions can act as a means of mitigating 
the risk of financial loss from defaults. Credit exposure is controlled by limits that are continually reviewed. 

The Group’s alloy sales to European customers are, for the most part, centralised through Magontec GmbH in Bottrop 
Germany. Magontec GmbH has insurance cover in place to cover its exposure to debtors secured under the Commerzbank 
facility. The insured percentage cover for ‘named’ debtors is 90% and for ‘unnamed’ debtors is 80% but with individual 
claims in respect of ‘unnamed’ debtors limited to EUR 10,000.

The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents 
the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained.

i.  Liquidity Risk Management
The consolidated entity manages liquidity risk by maintaining adequate cash reserves and banking facilities by continuously 
monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

j.  Fair Value of Financial Instruments
The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost 
in the financial statements approximate their fair values.

77

Financial Report  |  Magontec Annual Report 2017 
Notes to the 
Financial Statements

continued

26. PARENT ENTITY INFORMATION MAGONTEC LIMITED

Statement of Comprehensive Income

Sale of goods

Cost of sales

Gross profit

Other income

Interest expense

Magontec Limited

12 months to 
31 Dec 17 
$’000

12 months to 
31 Dec 16 
$’000

– 

–

 – 

 13 

 – 

–

–

–

 323 

 – 

Impairment of inventory, receivables & other financial assets

(852)

 (1,255)

Travel, accommodation and meals

Research, development, licensing and patent costs

Promotional activity

Information technology

Personnel

Depreciation & amortisation

Office expenses

Corporate

Foreign exchange gain/(loss)

Other operating expenses

 (4)

 (30)

 –

 (14)

 (14)

 –

 (4)

 (607)

 (48)

 –

 (12)

 (76)

 – 

 (10)

 (187)

 – 

 (8)

 (472)

 (179)

 – 

Profit/(Loss) before income tax expense/benefit from continuing operations

Income tax (expense)/benefit

Profit/(Loss) after income tax expense/benefit from continuing operations

Profit/(Loss) after income tax expense from discontinued operations

(1,560)

(1,875)

 –

 – 

(1,560)

(1,875)

 –

 – 

Profit/(Loss) after income tax expense/benefit including discontinued operations

(1,560)

(1,875)

Other Comprehensive Income - that may later emerge in the Profit and Loss Statement

Exchange differences taken to reserves in equity - translation of overseas entities

Other Comprehensive Income - that will not emerge in the Profit and Loss Statement

Movement in various actuarial assessments

Total Comprehensive Income

Profit/(Loss) after income tax expense for the year (incl discontinued operations) attributable to

Minority interests

Members of the parent entity

Total

Comprehensive Income for the year attributable to

Minority interests

Members of the parent entity

Total Comprehensive Income for the year

78

 –

 –

 –

 – 

 – 

 – 

(1,560)

(1,875)

 –

(1,560)

(1,560)

 –

(1,560)

(1,560)

 – 

 (1,875)

 (1,875)

 – 

 (1,875)

 (1,875)

Notes to the 
Financial Statements

continued

26. PARENT ENTITY INFORMATION MAGONTEC LIMITED (continued)

Balance Sheet

Cash and cash equivalents

Trade & other receivables

Other

Total current assets

Non-current assets

Inter company loan receivables (net of provisioning)

Investment in shares of subsidiaries (net of provisioning)

Total non-current assets

Total assets

Current liabilities

Trade & other payables

Provisions

Total current liabilities

Non-current liabilities

Other

Total non-current liabilities

Total liabilities

Net assets

Equity attributable to members of MGL

Share capital

Reserves

Accumulated losses

Equity attributable to minority interests

Share capital

Reserves

Accumulated losses

Total equity

Magontec Limited

31 Dec 17 
$’000

31 Dec 16 
$’000

26

3

38

67

17,124

11,718

28,842

28,909

7

–

7

4,995

4,995

5,002

1,241

56

77

1,374

17,190

11,718

28,907

30,282

47

–

47

4,768

4,768

4,815

23,907

25,467

58,616

58,616

1,637

1,637

(36,346)

(34,786)

–

–

–

–

–

–

23,907

25,467

79

Financial Report  |  Magontec Annual Report 2017Notes to the 
Financial Statements

continued

26. PARENT ENTITY INFORMATION MAGONTEC LIMITED (continued)

Contingent Liabilities
The parent entity had no contingent liabilities as at 31 December 2017.

Capital Commitments - Property, Plant and Equipment
The parent entity had no capital commitments for property, plant and equipment as at 31 December 2017.

Significant Accounting Policies
The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in Note 1.

27. SUBSEQUENT EVENTS
To the best of the company’s knowledge there have been no other material subsequent events that require disclosure.

28. ADDITIONAL COMPANY INFORMATION
Magontec Limited (ASX:MGL) is a listed public company and is incorporated in Australia. The MGL Group operates globally 
including subsidiaries in Australia, Europe, China and the United States.

Registered Office and Principal Place of Business
Suite 1.03 
46A Macleay St
Potts Point, NSW 2011
Tel: 61 2 8005 4109
Fax: 61 2 9252 8960

Directors’ 
Declaration

The Directors declare as follows -

a. 

b. 

 in the Directors’ opinion, there are reasonable grounds to believe that the Group will be able to pay its debts as and when 
they become due and payable;
in the Directors’ opinion, the financial statements and notes thereto set out on pages 41 to 80 of this Annual Report, are in 
accordance with the Corporations Act 2001, including compliance with accounting standards and give a true and fair view 
of the financial position and performance of the Group; and

c.  the Directors have been given the declarations required by s.295A of the Corporations Act 2001.

Signed in accordance with a resolution of the Directors made pursuant to s.295A of the Corporations Act 2001.

On behalf of the Board of Directors

Mr N Andrews 
Executive Chairman 

26 February 2018

Mr R Shaw 
Non-Executive Director

80

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MAGONTEC LIMITED 

Report on the Financial Report 

Auditor’s Opinion  

We have audited the accompanying financial report of Magontec Limited and Controlled Entities, which 

comprises the consolidated balance sheet as at 31 December 2017, and the consolidated statement of 

profit & loss and other comprehensive income, consolidated statement of changes in equity and 

consolidated statement of cash flows for the year ended on that date, a statement of accounting policies, 

other explanatory notes and the directors’ declaration. 

In our opinion: 

(a) the financial report of Magontec Limited is in accordance with the Corporations Act 2001, including: 

(i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 

2017 and of its performance for the year ended on that date; and 

(ii) complying with Accounting Standards (including the Australian Accounting Interpretations) and 

the Corporations Regulations 2001. 

(b) the financial report also complies with International Financial Reporting Standards as disclosed in 

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under 

those standards are further described in the Auditor’s Responsibilities section of our report. We are 

independent of the Group in accordance with the auditor independence requirements of the Corporations 

Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s 

APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the 

financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the 

Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a 

Note 1. 

Basis for Opinion  

basis for our opinion. 

Key Audit Matters 

Key audit matters are those matters that, in our professional judgement, were of most significance in our 

audit of the financial report of the current period. These matters were addressed in the context of our 

audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a 

separate opinion on these matters. 

Key audit matter 

How our audit addressed the key audit matter 

Existence & Valuation of Inventories 

We focused on this area as a key 

Our procedures included, amongst others, 

audit matter due to the: 

  Quantum of amounts involved; 

  Sensitivity of the Company’s 

margins to changes in the 

underlying price of Magnesium; 

  Attendance at stock takes for all significant locations to 

conduct test counts and assess internal controls; 

 

Testing of carrying value to subsequent sales and cost; 

  Review of costing methodology applied by entities within 

the group for compliance with the Group accounting 

and 

policy; 

  Multiple geographical areas. 

  Challenging management’s view of the recoverable 

value of aged inventory. 

Existence & Valuation of Property, Plant & Equipment 

The Company continues to invest in 

Our procedures included, amongst others, 

significant plant & equipment in both 

China and Europe. We focused on 

this area due to the: 

  Significant level of additions 

occurring during the year 

  Assessing management’s determination of any 

impairment charge, and analysis of internal reporting to 

assess how operating performance is monitored and 

reported; 

  Assessment of key forward looking assumptions used to 

  Extent of management judgment 

estimate any possible impairment, including projected 

involved in assessing impairment 

future growth rates, costs, and the discount rate applied; 

indicators and determining the 

assumptions used in evaluating 

these indicators 

  Substantive testing of asset additions. 

  Assessment of the classification of capitalised costs  as 

Construction in Progress 

Liability limited by a scheme approved under Professional Standards Legislation. 
 
 
 
 
 
 
 
 
 
 
 
 
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MAGONTEC LIMITED 

Report on the Financial Report 
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MAGONTEC LIMITED 

Auditor’s Opinion  
Report on the Financial Report 
We have audited the accompanying financial report of Magontec Limited and Controlled Entities, which 
comprises the consolidated balance sheet as at 31 December 2017, and the consolidated statement of 
Auditor’s Opinion  
profit & loss and other comprehensive income, consolidated statement of changes in equity and 
We have audited the accompanying financial report of Magontec Limited and Controlled Entities, which 
consolidated statement of cash flows for the year ended on that date, a statement of accounting policies, 
comprises the consolidated balance sheet as at 31 December 2017, and the consolidated statement of 
other explanatory notes and the directors’ declaration. 
profit & loss and other comprehensive income, consolidated statement of changes in equity and 
In our opinion: 
consolidated statement of cash flows for the year ended on that date, a statement of accounting policies, 
(a) the financial report of Magontec Limited is in accordance with the Corporations Act 2001, including: 
other explanatory notes and the directors’ declaration. 
In our opinion: 
(a) the financial report of Magontec Limited is in accordance with the Corporations Act 2001, including: 

(i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 
2017 and of its performance for the year ended on that date; and 
(ii) complying with Accounting Standards (including the Australian Accounting Interpretations) and 
(i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 
the Corporations Regulations 2001. 
2017 and of its performance for the year ended on that date; and 
(ii) complying with Accounting Standards (including the Australian Accounting Interpretations) and 
the Corporations Regulations 2001. 

(b) the financial report also complies with International Financial Reporting Standards as disclosed in 
Note 1. 

(b) the financial report also complies with International Financial Reporting Standards as disclosed in 
Basis for Opinion  
Note 1. 
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under 
those standards are further described in the Auditor’s Responsibilities section of our report. We are 
Basis for Opinion  
independent of the Group in accordance with the auditor independence requirements of the Corporations 
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under 
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s 
those standards are further described in the Auditor’s Responsibilities section of our report. We are 
APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the 
independent of the Group in accordance with the auditor independence requirements of the Corporations 
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the 
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s 
Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a 
APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the 
basis for our opinion. 
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the 
Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a 
Key Audit Matters 
basis for our opinion. 
Key audit matters are those matters that, in our professional judgement, were of most significance in our 
audit of the financial report of the current period. These matters were addressed in the context of our 
Key Audit Matters 
audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a 
Key audit matters are those matters that, in our professional judgement, were of most significance in our 
separate opinion on these matters. 
audit of the financial report of the current period. These matters were addressed in the context of our 
audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a 
separate opinion on these matters. 

How our audit addressed the key audit matter 

Key audit matter 
Existence & Valuation of Inventories 
We focused on this area as a key 
Key audit matter 
audit matter due to the: 
Existence & Valuation of Inventories 
  Quantum of amounts involved; 
We focused on this area as a key 
  Sensitivity of the Company’s 
audit matter due to the: 
margins to changes in the 
  Quantum of amounts involved; 
underlying price of Magnesium; 
  Sensitivity of the Company’s 
and 
margins to changes in the 
  Multiple geographical areas. 
underlying price of Magnesium; 
and 

Our procedures included, amongst others, 
How our audit addressed the key audit matter 
  Attendance at stock takes for all significant locations to 
conduct test counts and assess internal controls; 
Our procedures included, amongst others, 
 
Testing of carrying value to subsequent sales and cost; 
  Attendance at stock takes for all significant locations to 
  Review of costing methodology applied by entities within 
conduct test counts and assess internal controls; 
the group for compliance with the Group accounting 
 
Testing of carrying value to subsequent sales and cost; 
policy; 
  Review of costing methodology applied by entities within 
  Challenging management’s view of the recoverable 
the group for compliance with the Group accounting 
value of aged inventory. 
policy; 

  Challenging management’s view of the recoverable 
Our procedures included, amongst others, 
  Assessing management’s determination of any 

value of aged inventory. 

  Multiple geographical areas. 
Existence & Valuation of Property, Plant & Equipment 
The Company continues to invest in 
significant plant & equipment in both 
Existence & Valuation of Property, Plant & Equipment 
China and Europe. We focused on 
The Company continues to invest in 
this area due to the: 
significant plant & equipment in both 
  Significant level of additions 
China and Europe. We focused on 
occurring during the year 
this area due to the: 
  Extent of management judgment 
  Significant level of additions 
involved in assessing impairment 
occurring during the year 
indicators and determining the 
  Extent of management judgment 
assumptions used in evaluating 
involved in assessing impairment 
these indicators 
indicators and determining the 
assumptions used in evaluating 
these indicators 

Our procedures included, amongst others, 
  Assessing management’s determination of any 

impairment charge, and analysis of internal reporting to 
assess how operating performance is monitored and 
reported; 
impairment charge, and analysis of internal reporting to 
  Assessment of key forward looking assumptions used to 
assess how operating performance is monitored and 
estimate any possible impairment, including projected 
reported; 
future growth rates, costs, and the discount rate applied; 
  Assessment of key forward looking assumptions used to 
  Substantive testing of asset additions. 
estimate any possible impairment, including projected 
  Assessment of the classification of capitalised costs  as 
future growth rates, costs, and the discount rate applied; 
Construction in Progress 
  Substantive testing of asset additions. 
  Assessment of the classification of capitalised costs  as 

Construction in Progress 

81

Financial Report  |  Magontec Annual Report 2017Liability limited by a scheme approved under Professional Standards Legislation.Liability limited by a scheme approved under Professional Standards Legislation. 
 
 
 
 
 
 
 
 
 
 
 
 
 
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MAGONTEC LIMITED 

Report on the Financial Report 
Directors’ Responsibility for the Financial Report  
Auditor’s Opinion  
The directors of Magontec Limited are responsible for the preparation and fair presentation of the 
We have audited the accompanying financial report of Magontec Limited and Controlled Entities, which 
financial report in accordance with Australian Accounting Standards (including the Australian Accounting 
comprises the consolidated balance sheet as at 31 December 2017, and the consolidated statement of 
profit & loss and other comprehensive income, consolidated statement of changes in equity and 
Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining 
consolidated statement of cash flows for the year ended on that date, a statement of accounting policies, 
internal controls relevant to the preparation and fair presentation of the financial report that is free from 
other explanatory notes and the directors’ declaration. 
material misstatement, whether due to fraud or error; selecting and applying appropriate accounting 
In our opinion: 
(a) the financial report of Magontec Limited is in accordance with the Corporations Act 2001, including: 
policies; and making accounting estimates that are reasonable in the circumstances. In Note 1 the 
directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial 
Statements, that the Group financial statements and notes comply with International Financial Reporting 
Standards. 
(b) the financial report also complies with International Financial Reporting Standards as disclosed in 
Note 1. 

(i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 
2017 and of its performance for the year ended on that date; and 
(ii) complying with Accounting Standards (including the Australian Accounting Interpretations) and 
the Corporations Regulations 2001. 

Auditor’s Responsibility  
Basis for Opinion  
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under 
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our 
those standards are further described in the Auditor’s Responsibilities section of our report. We are 
audit in accordance with Australian Auditing Standards. These Auditing Standards require that we 
independent of the Group in accordance with the auditor independence requirements of the Corporations 
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s 
comply with relevant ethical requirements relating to audit engagements and plan and perform the audit 
APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the 
to obtain reasonable assurance about whether the financial report is free from material misstatement. 
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the 
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in 
Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a 
basis for our opinion. 
the financial report. The procedures selected depend on the auditor’s judgement, including the 
assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In 
Key Audit Matters 
Key audit matters are those matters that, in our professional judgement, were of most significance in our 
making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation 
audit of the financial report of the current period. These matters were addressed in the context of our 
and fair presentation of the financial report in order to design audit procedures that are appropriate in the 
audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a 
separate opinion on these matters. 
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s 
internal controls. An audit also includes evaluating the appropriateness of accounting policies used and 
Key audit matter 
Existence & Valuation of Inventories 
the reasonableness of accounting estimates made by the directors, as well as evaluating the overall 
We focused on this area as a key 
Our procedures included, amongst others, 
presentation of the financial report. 
  Attendance at stock takes for all significant locations to 
audit matter due to the: 
  Quantum of amounts involved; 
conduct test counts and assess internal controls; 
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for 
  Sensitivity of the Company’s 
Testing of carrying value to subsequent sales and cost; 
our audit opinion. 
margins to changes in the 
underlying price of Magnesium; 
and 

 
  Review of costing methodology applied by entities within 
the group for compliance with the Group accounting 
policy; 

How our audit addressed the key audit matter 

Report on the Remuneration Report 
  Multiple geographical areas. 

  Challenging management’s view of the recoverable 

value of aged inventory. 

Our procedures included, amongst others, 
  Assessing management’s determination of any 

Auditor’s Opinion 
Existence & Valuation of Property, Plant & Equipment 
The Company continues to invest in 
We have audited the Remuneration Report included in pages 27 to 38 of the directors’ report for the year 
significant plant & equipment in both 
ended 31 December 2017. 
China and Europe. We focused on 
impairment charge, and analysis of internal reporting to 
this area due to the: 
assess how operating performance is monitored and 
In our opinion the Remuneration Report of Magontec Limited for the year ended 31 December 2017 
  Significant level of additions 
reported; 
complies with section 300A of the Corporations Act 2001. 
occurring during the year 
  Extent of management judgment 
involved in assessing impairment 
Responsibilities 
indicators and determining the 
The directors of the company are responsible for the preparation and presentation of the Remuneration 
assumptions used in evaluating 
these indicators 
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an 
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian 
Auditing Standards. 

  Assessment of key forward looking assumptions used to 
estimate any possible impairment, including projected 
future growth rates, costs, and the discount rate applied; 

  Substantive testing of asset additions. 
  Assessment of the classification of capitalised costs  as 

Construction in Progress 

Camphin Boston 
Chartered Accountants 

Justin Woods 
Partner 

Level 5, 179 Elizabeth Street, Sydney NSW 2000 
Dated:   26 February 2018 

82

Liability limited by a scheme approved under Professional Standards Legislation. 
 
  
 
 
 
 
 
 
 
 
Shareholder 
Information

Class: 

Code: 

Voting Rights: 

Ordinary shares fully paid

MGL

 Voting rights of members are governed by the Company’s constitution. In summary, every member present 
in person or by proxy, attorney or representative has one vote on a show of hands and one vote for each 
share on a poll.  

Twenty Largest Holders of Ordinary Shares as at End Date of Current Reporting Period

Name of Holder

No. Of Shares

%

SUBSTANTIAL SHAREHOLDERS

1 QINGHAI SALT LAKE MAGNESIUM CO LTD

2 STRAITS MINE MANAGEMENT PTY LTD

3 J P MORGAN NOMINEES AUSTRALIA

4 CITICORP NOMINEES PTY LIMITED

OTHER SHAREHOLDERS

5 KEWEIER METAL CO LTD & LI ZHONG JUN

6 NATIONAL NOMINEES LIMITED

7 MR NICHOLAS WILLIAM ANDREWS

8 MR SCOTT PARHAM

9 HSBC CUSTODY NOMINEES

10 MRS DAWN PATRICIA DAVIS

11 MR XUNYOU TONG

12 DALSIZ PTY LTD

13 ESCOR EQUITIES CONSOLIDATED

14 YELLOWZONE PTY LTD

15 BRIAN GORMAN SELF MANAGED

16 MR CHRISTOPH KLEIN-SCHMEINK

17 DR ANDREW DUNCAN

18 DADIASO HOLDINGS PTY LTD

19 MR JOHN DAVID TALBOT

20 MR PETER FABIAN HELLINGS & MRS JACQUELINE KIM

330,535,784

148,874,507

101,439,754

77,535,177

56,197,298

23,488,937

20,870,953

18,355,666

17,200,087

13,600,000

9,882,973

8,000,000

8,000,000

7,139,831

7,000,000

6,142,212

6,075,000

6,000,000

5,705,091

5,700,000

 28.99 

 13.06 

 8.90 

 6.80 

 4.93 

 2.06 

 1.83 

 1.61 

 1.51 

 1.19 

 0.87 

 0.70 

 0.70 

 0.63 

 0.61 

 0.54 

 0.53 

 0.53 

 0.50 

 0.50 

TOTAL

877,743,270

 76.99 

Distribution of Shareholders as at End Date of Current Reporting Period

Number Held

1–1,000

1,001–5,000

5,001–10,000

10,001–100,000

100,001 and over

TOTAL

Holders

No. of Securities

Percentage

9,749

1,836

397

1,272

3,262,820

4,014,393

3,193,029

41,405,691

430

1,088,197,550

13,684

1,140,073,483

0.29

0.35

0.28

3.63

95.45

100.00

83

Financial Report  |  Magontec Annual Report 2017Shareholder 
Information

continued

Substantial Shareholders
Magontec Limited has been notified of the following substantial shareholdings:

Holder

Qinghai Salt Lake Magnesium Co. Ltd (QSLM)

Allan Gray Australia Pty Limited

Straits Mine Management Pty Ltd

Number of 
ordinary shares

% of issued 
ordinary 
share capital

 330,535,784 

 176,858,972 

 148,874,507 

28.99%

15.51%

13.06%

As at 31-Dec-2017 a marketable parcel of securities ($500) is a holding of at least 13,889 securities (1).

1. Based on a closing share price of $0.036

Issued Capital and Securities

Ordinary Shares fully paid

On Issue at  
31 Dec 2017

1,140,073,483

Share Registry: Boardroom Pty Limited Postal:

Local:

International

Address: Level 12, Grosvenor Place

GPO Box 3993,

Tel: 1300 737 760

Tel: +61 2 9290 9600

225 George Street

SYDNEY, NSW 2000

SYDNEY 2001

Fax: 1300 653 459

Fax: +61 2 9279 0664

Website: www.boardroomlimited.com.au

84

Suite 1.03 | 46A Macleay Street | Potts Point | 2011 NSW Australia
T. +61 2 8005 4109 | www.magontec.com