MaxiPARTS
Annual Report 2015

Plain-text annual report

M A X I T R A N S I N D U S T R I E S L I M I T E D A N N U A L R E P O R T 2 0 1 5 MAXITRANS INDUSTRIES LIMITED ANNUAL REPORT 2015 Revenue ($m) Net profit after tax ($m)2 363 352 329 277 202 26.00 17.10 12.33 3.71 6.30 2011 2012 2013 2014 2015 1 2011 2012 2013 2014 2015 FINANCIAL OVERVIEW 2015 Earnings per share (Basic) (cents)2 Ordinary dividends declared per share (cents) 14.11 9.26 6.70 2.02 8.50 6.00 4.25 3.41 1.50 2.00 1 2011 2012 2013 2014 1 2015 2011 2012 2013 2014 2015 Cover Image A Freighter B-Double logging skel servicing the Victorian forestry industry. Another example of the diversity of the Company’s customer base and the capability of MaxiTRANS’ engineers to design and manufacture a wide range of transport equipment. 1 Excludes impairment charges and restructuring costs 2 Underlying NPAT attributable to Equity Holders Illustrated is a specialised waste ejector trailer. This trailer is filled at a transfer station with compacted waste. It then transports that waste to a landfill where it is safely ejected through the rear door without the trailer having to tip. The unit illustrated is a special, high capacity “PBS” unit with four axles, part of a large order for a major waste management company. MaxiTRANS has a range of designs ideally suited to waste transfer including its High Volume Side Tipper, “Walking Floor” units, hook-lift trailers and conventional tippers. Waste transfer is a growth sector and a focus of MaxiTRANS’ sales efforts. CHAIRMAN’S AND MANAGING DIRECTOR’S REVIEW MaxiTRANS has delivered revenue of $329 million in FY15, representing a 6.5% reduction from the previous year. Underlying net profit after tax attributable to MaxiTRANS equity holders of $6.3 million was in line with the trading update provided to the market in April 2015. However, as recently announced, an impairment charge of $2.58m pre-tax has also been recognised against the carrying value of the AZMEB intangible assets, resulting in a reported net profit after tax attributable to MaxiTRANS equity holders of $4.50 million. The cyclical downturn experienced in FY14 continued throughout FY15 together with further contraction in the resources sector which adversely impacted most segments of the Australian business. TRAILER BUSINESS Australia Continuing slow Australian economic conditions, further contraction in the resources sector and prolonged drought conditions, particularly in Queensland, led to an overall market decline in trailer registrations in 2015. MaxiTRANS’ trailer sales declined by 9.8% during FY15. However, against this backdrop, MaxiTRANS increased its share of the Australian trailer market during the year through competitive pricing and a superior product offering. Strong demand for refrigerated vans, combined with competitive pricing made possible by the continuous improvement cost reduction program resulted in sales of Maxi-CUBE vans increasing by 24% in FY15. We expect these market conditions to continue well into FY16 and this is currently reflected in the strong order book. The successful continuous improvement program is now being extended to MaxiTRANS’ other products where similar benefits are expected to be achieved. 1 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED CHAIRMAN’S AND MANAGING DIRECTOR’S REVIEW / CONTINUED An aggressive pricing strategy saw market share for Freighter trailers increase during the year. However, revenue declined 5% on prior year in what was considered a declining trailer market. In May 2015, MaxiTRANS launched the new VersaBOLT® tipper product at the Brisbane Truck Show, a versatile and cost-effective product aimed at increasing share of the tipper market. This innovative product was awarded ‘Trailer of the Show’ and has so far received very positive feedback from the market. The product is being commercialised in FY16. External market conditions most significantly impacted sales of the tipper product range with sales down 53% on the prior year. With the outlook for the resources sector not expected to improve in the foreseeable future and to ensure an optimal manufacturing model, subsequent to the end of FY15 the Company decided to close the Bundaberg manufacturing facility at which the AZMEB product was produced and relocate production to its other facilities. New Zealand We are delighted our New Zealand business capitalised on strong market conditions and launched a number of new Freighter products to achieve revenue growth of 39%, the second consecutive year of double digit growth. The business is the market leader in refrigerated and non-refrigerated vans in New Zealand and continued to gain market share in FY15. Profit growth exceeded revenue growth due to a favourable product mix and continued realisation of procurement efficiencies. PARTS & SERVICE BUSINESS Revenue for the Parts & Service business decreased 6.7% from the prior year largely due to a weaker performance from the MaxiPARTS business. However, net profit before tax declined by 84% principally due to the poor trading conditions and the product recall impacting the MaxiPARTS business. Australia The MaxiPARTS business experienced a softening in the truck and trailer parts market in FY15, in particular in Queensland where further contraction in resources activity and continued drought has had a significant economic impact. MaxiPARTS derives approximately one third of its revenue from Queensland and consequently those conditions were a significant contributor to the result. As a result, three under-performing stores in Queensland were closed during the year. Furthermore, the wholesale business was also impacted by lower sales to other trailer manufacturers due to lower trailer sales across the market, in particular in Western Australia. MaxiPARTS was also adversely impacted by a product recall initiated during the year which had a cost impact of $2.45 million in FY15. The recall was in relation to a third-party supplied suspension product of which MaxiPARTS had experienced strong sales in recent years. An alternate source of supply has been secured and sales of the product resumed in late FY15. China The market for MTC’s refrigerated and dry freight panel product softened over the year as the sales of heavy duty trucks in China declined by 33%, particularly in the second half of FY15. However, we remain confident that this business will achieve strong growth as supply chains in China continue to develop to support the growth in local consumption. 2 The all new Hamelex White VersaBOLT® tipper was released at the 2015 Brisbane Truck Show where it won the “Trailer of the Show” award for its innovative design. Unlike conventional tippers that are welded together, the Versabolt is bolted or riveted together. It can be manufactured in one location and then shipped in kit form to its assembly location close to the customer, thus reducing labour and freight costs significantly. The VersaBOLT incorporates a number of patents and a registered design covering a wide range of innovative features ranging from hinges and door locks to its assembly method. Innovation is a key platform in MaxiTRANS’ product strategy. MaxiTRANS New Zealand has been a strong performer in FY15 thanks to its successful strategy of bringing the Freighter brand to the New Zealand market while also growing its share in the refrigerated van sector. This has been facilitated by inter-country cooperation between various MaxiTRANS divisions and also by the recently built, much larger, manufacturing facility in Auckland. Geographic diversification is an important part of MaxiTRANS’ market strategy. 3 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITEDCHAIRMAN’S AND MANAGING DIRECTOR’S REVIEW / CONTINUED Whilst we expect the market in Australia in FY16 will continue to be subdued, the strategies put in place are aimed at increasing market share in all of its segments and rigorous management of costs and the continuous improvement program should deliver significant profit improvement over FY15. In our offshore markets, New Zealand should continue to build on its momentum to further gain market share from its expanding Freighter and Maxi-CUBE product range. As Chinese markets start to improve and a number of new, value added products are launched during the year in both its local and export markets, our Chinese business is well positioned to take advantage of improving market conditions. Notwithstanding the soft trading conditions experienced, MaxiTRANS is putting strategies in place to deliver growth ahead of its markets and capitalise on improving market conditions. Ian Davis Chairman Michael Brockhoff Managing Director DIVIDENDS The Board has resolved that a final dividend for FY15 will not be paid. The Company paid an interim fully franked dividend of 2.0 cents per share in April, 2015, representing a full year payout ratio of 82% of reported net profit after tax attributable to MaxiTRANS shareholders (59% of underlying net profit after tax attributable to MaxiTRANS shareholders). OUTLOOK The Trailer business expects to benefit from the buoyant market for refrigerated vans, which together with the continued manufacturing efficiency initiatives will drive growth of the Maxi-CUBE product in FY16. This is supported by a strong order book for Maxi-CUBE as we enter FY16. As product improvements and manufacturing efficiencies are attained in the Freighter products, the Company expects to grow market share in this market segment as well. The launch of the VersaBOLT tipper in FY16 should also bolster tipper sales in an otherwise soft market. The opening of our new Company-owned NSW trailer dealership in early FY16 will build on the national distribution network and will create opportunities to further increase our share of the Australian trailer market. With the profit impact of the product recall in FY15 behind us, we expect an improved contribution from the Parts & Service business over the outlook period. A number of new sales initiatives such as the MaxiPARTS online purchasing portal launched in early FY16 and new, value added service offerings to the major truck and trailer fleets should see MaxiPARTS increase share in its market. Growth in the product range including the relaunch of the CS suspension product should also benefit the Parts & Service business during FY16. 4 MaxiTRANS has produced more rigid truck bodies in the past year to meet demand from the growing parcel freight industry. The truck body at right illustrates one unit of a large order for StarTrack, a division of Australia Post. MaxiTRANS is servicing emerging growth sectors in the transport industry. Illustrated is an extra-long, 26 pallet, Maxi-CUBE PBS unit. Typically, such a trailer would only have floor space for 24 pallets. This PBS unit is also available up to 28 pallet capacity. PBS refers to “Performance Base Standards” which allow trailer/truck combinations to be larger than usual provided safety standards are maintained. PBS units are designed to increase transport efficiency, thus reducing net operating costs. MaxiTRANS is the market leader in the design and manufacture of PBS units thanks to its large team of professional engineers and draftspersons, providing its customers with a market advantage. MaxiPARTS has recently moved to an all new, purpose designed warehouse/office complex in Melbourne. The new facility is designed to be more efficient and to cater for MaxiPARTS’ expanding operations. This new facility is also the management and distribution centre for the new MaxiPARTS on-line sales portal. 5 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITEDOFFICES & OFFICERS Company Secretary Mr. C. Richards Registered Office 346 Boundary Road Derrimut VIC 3030 Principal Place of Business 346 Boundary Road Derrimut VIC 3030 Contact numbers Tel +61 3 8368 1100 Fax +61 3 8368 1178 Share Registry Computershare Investor Services Yarra Falls, 452 Johnston Street Abbotsford VIC 3067 Solicitors Minter Ellison Level 23, Rialto Towers 525 Collins Street Melbourne VIC 3000 Auditor KPMG 147 Collins Street Melbourne VIC 3000 Bankers Australia and New Zealand Banking Group Limited Westpac Banking Corporation Stock Exchange The Company is listed on the Australian Securities Exchange. The Home Exchange is the Australian Securities Exchange. The Company’s home branch of the Australian Securities Exchange is Melbourne. Other Information MaxiTRANS Industries Limited ACN 006 797 173 incorporated and domiciled in Australia, is a publicly listed company limited by shares. BOARD OF DIRECTORS Left to right: Michael Brockhoff Managing Director Ian Davis Chairman & Non-Executive Director Robert Wylie Non-Executive Director James Curtis Deputy Chairman & Non-Executive Director Geoffrey Lord Non-Executive Director Joseph Rizzo Non-Executive Director 6 Contents 8 9 28 Financial Summary Report of the Directors Directors’ Declaration Consolidated Statement of Profit or Loss & Consolidated Statement of Comprehensive Income 29 30 Consolidated Balance Sheet 31 Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows 33 Notes to the Consolidated Financial Statements 34 68 Independent Auditor’s Report 69 ASX Additional Information REPORT OF THE DIRECTORS AND FINANCIAL REPORT MaxiTRANS Industries Limited ACN 006 797 173 and Controlled Entities 7 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITEDREPORT OF THE DIRECTORS AND FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2015 Financial Summary Revenue $’000 202,476 276,767 362,534 351,968 329,165 EBITDA (excluding significant items)(2) $’000 11,230 23,549 44,219 30,594 16,247 F2011 F2012 F2013 F2014 F2015 EBIT (excluding significant items)(2) NPBT (excluding significant items)(2) NPAT (excluding significant items)(2) (3) Significant Items NPAT – attributable to equity holders Basic EPS Ordinary dividends/share declared Depreciation Amortisation – leased assets Amortisation – intangibles Capex additions Operating cash flow NTA Net assets $’000 $’000 $’000 $’000 $’000 cents cents $’000 $’000 $’000 $’000 $’000 5,879 18,116 38,316 25,185 10,604 4,341 16,795 36,358 23,172 4,171 12,334 25,965 17,075 8,079 6,303 (70) – – – ( 1,806)(1) 4,171 12,334 25,965 17,075 4,497 2.27 1.50 6.70 4.25 3,697 3,818 874 780 835 780 14.11 8.50 3,309 1,446 1,148 9.26 6.00 2.43 2.00 3,600 3,967 690 550 1,119 1,126 3,888 4,701 6,706 13,239 10,893 9,058 17,567 23,543 16,612 12,138 $’000 64,652 55,033 71,662 75,876 78,380 $’000 91,722 98,695 115,764 121,813 120,612 Interest bearing liabilities $’000 16,161 29,884 26,218 42,580 47,302 Finance costs Total bank debt Net debt/equity $’000 1,538 1,321 1,958 2,013 2,525 $’000 12,700 26,000 23,013 39,713 45,196 % 11% 3.87 26% 13.71 21% 19.57 31% 12.51 36% 4.20 Interest cover (excluding significant items)(2) times (1) Relates to impairment loss on AZMEB intangible assets of $2.58m net of tax. (2) EBIT, EBITDA, NPBT and NPAT excluding significant items are non-IFRS financial measures, which have not been subject to review or audit by the Group’s external auditors. These measures are presented to enable understanding of the underlying performance of the Group by users. (3) Also referred to as underlying net profit after tax attributable to MaxiTRANS equity holders. 8 REPORT OF THE DIRECTORS FOR THE YEAR ENDED 30 JUNE 2015 Your directors submit their report together with the consolidated financial report of MaxiTRANS Industries Limited (“the Company”) and its subsidiaries (together referred to as the "Group"), and the Group's interest in joint ventures for the year ended 30 June 2015 and the auditor’s report thereon. Directors Corporate Governance Statement The Corporate Governance Statement of the Directors, and the accompanying Appendix 4G, is separately lodged with ASX, and forms part of this Directors’ Report. It may also be found on the Company’s website at www.maxitrans.com. The names of directors in office at any time during or since the end of the financial year are: Environmental Regulation Mr Ian R. Davis Mr James R. Curtis Mr Michael A. Brockhoff Mr Geoffrey F. Lord Mr Robert H. Wylie Mr Joseph Rizzo (Chairman since 1994) (Deputy Chairman since 1994) (Managing Director since 2000) (Director since 2000) (Director since 2008) (Director since 2014) Principal Activities The principal activities of the Group during the year consisted of the design, manufacture, sale, service and repair of transport equipment and related components and spare parts. There were no changes in the nature of the Group’s principal activities during the financial year. Dividends Dividends paid or declared for payment are as follows: Ordinary shares A fully franked dividend of 2.25 cents per share was paid on 10 October 2014 totalling $4,164,206. A fully franked dividend of 2.00 cents per share was paid on 16 April 2015 totalling $3,701,513. No final divided was proposed by the directors for year ended 30 June 2015. State of Affairs There were no significant changes in the state of affairs of the Group which occurred during the financial year. Events Subsequent to Balance Date There were no material events subsequent to balance date impacting on the financial statements. The Group’s environmental obligations are regulated under Local, State and Federal Law. All environmental performance obligations are internally monitored and subjected to regular government agency audit and site inspections. The Group has a policy of complying with its environmental performance obligations. No breach of any environmental regulation or law has been notified to the Group during or since the year ended 30 June 2015. Operating & Financial Review REVIEW OF OPERATIONS MaxiTRANS operates two types of businesses: the manufacture and sale of trailing solutions in Australia and New Zealand (the “Trailer business”); and a trailer service and truck and trailer parts business down the eastern seaboard of Australia (“the Parts and Service business”). The Parts and Service business also has an 80% share in a Chinese company, Yangzhou Maxi-CUBE Tong Composites Co Ltd (“MTC”), that manufactures panels for refrigerated and dry freight trailers in China. MTC sells these products in both its domestic and export markets. The cyclical downturn experienced in FY14 continued throughout FY15 together with further contraction in the resources sector which adversely impacted most segments of the Australian business. Trailer business The Trailer business has a diverse portfolio of trailing solutions with market leading brands and a reputation for high quality with customers. Sales of products through our dealer network, comprising both owned dealerships and licenced dealerships provides a full solution including after sales service and parts to those customers. Continuing slow Australian economic conditions, further contraction in the resources sector and prolonged drought conditions, particularly in Queensland, led to an overall market decline in trailer registrations in 2015. 9 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED REPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 MaxiTRANS’ trailer sales declined by 6.5% during FY15. However, against this backdrop, notwithstanding the overall market decline, MaxiTRANS increased its share of the trailer market during the year through competitive pricing and a superior product offering. Vans, Trailers and Rigid Bodies (Australia) Strong demand for refrigerated vans combined with competitive pricing made possible by the continuous improvement cost reduction program resulted in sales of Maxi-CUBE vans increasing by 24% in FY15. We expect these market conditions to continue well into FY16 and this is currently reflected in the strong order book. The success from the continuous improvement program has now been extended to MaxiTRANS’ other products where similar benefits are expected to be obtained. Notwithstanding an aggressive pricing strategy to gain market share, sales of Freighter trailers declined 5% on prior year in what was considered a competitive trailer market. Tippers (Australia) External market conditions most significantly impacted sales of the tipper product range with sales down 53% on prior year. With the outlook for equipment requirements into the resources sector not expected to improve in the foreseeable future and to ensure an optimal manufacturing model in Australia, subsequent to the end of FY15, the Board decided to close its Bundaberg manufacturing facility at which the AZMEB product was produced and relocate production to its other manufacturing facilities. As a result of this outlook, an impairment charge of $2.6m pre-tax has been made against the carrying value of the AZMEB intangible assets. In May 2015, MaxiTRANS launched the new VersaBOLT tipper product at the Brisbane Truck Show, a versatile and cost-effective product aimed at increasing share of the tipper market. This innovative product was awarded ‘Trailer of the Show’ and has so far received positive feedback from the market. The product is being commercialised in FY16. New Zealand The New Zealand business capitalised on strong market conditions and launched a number of new Freighter products in achieving revenue growth of 39%, the second consecutive year of double digit growth. This has led to the business continuing to gain market share in FY15 and is the market leader in refrigerated and non-refrigerated vans in New Zealand. Profit growth exceeded revenue growth due to favourable product mix and continued realisation of procurement efficiencies. Parts & Service business The Parts & Service business sells truck and trailer parts at both a wholesale and retail level in Australia. The retail business sells parts to road transport operators as well as truck and trailer service and repair providers mainly along the eastern seaboard of Australia. The wholesale business operates in Victoria, Queensland, New South Wales and Western Australia. Wholesale customers are typically truck dealers and trailer manufacturers. At the end of FY15, MaxiPARTS operated 22 wholesale sites and retail stores. As outlined above, the Parts & Service business also includes the panel manufacturing operation in China through our 80% shareholding in MTC. Revenue for the Parts & Service business decreased 6.7% from prior year largely due to a weaker performance from the MaxiPARTS business. However, net profit before tax declined 84% largely due to the poor trading conditions and the product recall impacting the MaxiPARTS business. Australia The MaxiPARTS business experienced a softening in the truck and trailer parts market in FY15, in particular in Queensland where further contraction in resources activity and continued drought has had a significant economic impact. The MaxiPARTS business derives approximately one third of its revenue in Queensland and consequently those conditions were a significant contributor to the result. As a result, three under-performing stores in Queensland were closed during the year. Furthermore, the wholesale business was also impacted by lower sales to other trailer manufacturers due to lower trailer sales across the market, in particular in Western Australia. The MaxiPARTS business was also adversely impacted by a major product recall initiated during the year which had a cost impact of $2.45 million pre-tax. The recall was in relation to a third party supplied suspension product of which MaxiPARTS had experienced strong sales in recent years. An alternate source of supply has been secured and sales of the product have resumed. 10 REPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 China The market for MTC’s refrigerated and dry freight panel product softened over the year as the sales of heavy duty trucks in China declined by 33%, particularly in the second half of FY15. However, we remain confident that this business will achieve strong growth as supply chains in China continue to develop to support the growth in local consumption. FINANCIAL REVIEW Sales Total revenue declined by 6.5% to $329 million for FY15, down from $352 million in FY14. The Trailer business achieved external sales revenue of $200 million, a 6.5% decrease over FY14 revenue. A strong performance from sales of Maxi-CUBE vans and continued strong growth from the New Zealand business assisted in mitigating the significant decline in the Australian tipper business. Financing costs of $2.5 million were higher than FY14 due to higher net borrowings arising from the lower trading performance. Cash Generation & Capital Management Operating cash flow of $12.1 million was generated during FY15 which was 27% lower than FY14 due to the weaker trading results of both the Trailer business and the Parts & Service business. Working capital has improved on the prior year with a particular focus on inventory management and this continues to be rigorously managed. Net cash outflows from investing activities were lower than prior year. The major investment activity during the year was associated with Project TRANSform. No businesses were acquired during the year. Due to the weaker operating cash flows, gearing levels were higher at the end of FY15 than at the end of FY14. Net debt for FY15 increased to 36% of equity, up from 31% in FY14. The Parts & Service business recorded a 6.7% external revenue decline to finish FY15 with revenue of $127.2 million. External Financing Facilities Profit Reported net profit after tax and significant items attributable to MXI equity holders was $4.5 million in FY15, a decrease of 74% on FY14. Underlying net profit after tax attributable to MXI equity holders was $6.3m, a decrease of 63%. Trading margins in the Australian Trailer business further declined in FY15, due to lower production volumes and continuing aggressive price competition in the market. Profitability in the Parts & Service businesses declined by 84% due to the following: ƒƒ Lower sales volumes, particularly in the MaxiPARTS Queensland stores; ƒƒ Costs associated with the recall of a core suspension product; MaxiTRANS has syndicated debt facilities, totalling $75 million with the ANZ Banking Group and Westpac Banking Corporation. The facility is used to fund ongoing business requirements and facilitate funding future growth opportunities. The facility has both three year and five year maturities. These facilities are sufficient to support the business in its current form. The facilities have a number of covenant and ratio requirements and the Group has complied with these throughout FY15. In addition, MTC has an RMB 20 million facility with China Merchant Bank to support its ongoing requirements. Subsequent to the end of the financial year, ANZ Banking Group in China replaced China Merchant Bank and has provided debt facilities guaranteed by the parent company totalling RMB 25 million to MTC. ƒƒ Further start-up losses on the greenfields MaxiPARTS stores in Darwin and Mackay; and Dividends ƒƒ Costs of relocating to the new MaxiPARTS Victorian warehouse. The total dividend to shareholders for the year was 2.0 cents per share and was fully franked. The total ordinary dividend of 2.0 cents per share compared with 6.0 cents per share in the prior year and represents an 82% pay out ratio of FY15 net profit after tax attributable to MXI shareholders. 11 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITEDREPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 RISK The Group has sought to mitigate this risk by: The MaxiTRANS Audit & Risk Management Committee, a sub-committee of the Board, governs the framework and process for the identification and mitigation of material business risks. A business risk is the threat that an event or action will pose to MaxiTRANS' ability to meet its business objectives or capture an opportunity. This process requires the business to identify the material business risks and classify them as between “very high”, “high”, “medium” or “low” based on the consequences arising from the occurrence of the risk and the likelihood of it occurring. The business is then required to develop action plans to mitigate these risks and determine action plans in the event they occur. Operational Risks The Group has identified the following operational risks as “very high” in its most recent risk assessment: ƒƒ The Trailer business, which contributes in excess of 60% of Group revenue and net profit before tax, is engaged in the manufacture and sale of high value discretionary capital goods. The success of this business is largely dependent on the prosperity of the economy driving freight movement. There is a risk that any decline in the domestic economy will reduce freight movement and therefore the demand for new trailing solutions and expanding customer fleets. The Group has sought to mitigate this risk by: ƒƒ ensuring that its products are of consistently high quality; ƒƒ expanding into other sectors; ƒƒ expanding the Service & Parts business to provide more stable recurring income; and ƒƒ expanding into international markets including by improving product offerings in New Zealand and improving manufacturing capacity in China. ƒƒ The risk of greater competition from competitors selling imported trailers in the Australian market resulting in a potential loss of market share. ƒƒ ensuring that product quality remains high thereby protecting its brands; ƒƒ investigating low cost country sourcing opportunities to maintain margins; ƒƒ reducing the manufacturing cost base through efficiencies to maintain margins; and ƒƒ minimising lead times to delivery. Foreign Exchange & Commodities Risk The Group has exposure to the United States dollar and the Euro. The Trailer business has exposures to these currencies arising from the purchase of raw materials and components consumed in the manufacture of trailers. The Trailer business also has significant exposure to commodity price fluctuations for steel and aluminium used in the manufacturing process. Similarly, the Parts & Service business also has exposure to these currencies as a result of importing parts for sale. The Group has a policy of only hedging foreign currency cash flow risk utilising forward contracts to protect against movements in short term committed expenditure. The Group does not hedge against currency risk arising from the translation of foreign operations. Depreciation of the Australian dollar may: ƒƒ adversely affect the operating cost base and therefore margins. The Group currently hedges short term committed foreign currency purchases. Some or all of this risk may be further mitigated by price management and efficiency improvement, however; ƒƒ may also benefit the Group insofar as it also acts as a potential barrier to entry for imports that may be uncompetitive in price against locally produced products. Conversely, an appreciating Australian dollar against major currencies increases the risk of import competition. The specialised and customised nature of the trailer industry, together with demand for short delivery times, reduces this risk. 12 REPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 HEALTH & SAFETY In FY14, the Company commenced a major program to step change the safety culture of the organisation and provide a high level of care for all employees. This program, known as “MaxiSAFE” will initially be conducted over a three year period at eight principal sites. It will equip and empower management to drive improvements in health and safety and engage all employees in a cultural shift in respect of work health and safety. The same improvements will be progressively implemented across all Company sites. In FY15, the program yielded the lowest injury frequency rate in a decade and is on track to achieve the aggressive targets set at the commencement of the program. This has also had a positive effect on organisational culture and employee engagement. The Board currently monitors, and will continue to monitor, the Group’s health and safety performance on a monthly basis. STRATEGY MaxiTRANS' strategy focuses on the following pillars that will continue to drive superior shareholder returns: ƒƒ continue to develop innovative products that improve our customers’ business performance; ƒƒ continuing to build the Parts & Service business through a combination of organic and acquisitive growth initiatives; ƒƒ continuing to improve the efficiency and capacity of manufacturing facilities; ƒƒ continuing to diversify participation, both in terms of industry sectors and geographic presence; and ƒƒ identifying strategic acquisitions that continue to build upon our vertically integrated business model and integrating them successfully. Successfully identifying and integrating acquisitions The Group continually assesses acquisition opportunities for their potential to diversify industry sector and geographical participation, and will pursue those opportunities as and when suitable, value accretive targets become available. Increasing the contribution of the Parts & Service business The Parts & Service business comprised 38% of the Group’s revenue in FY15. As previously outlined, the Parts business encountered a number of challenges in FY15. However, notwithstanding these challenges, the Group still supports the pursuit of increasing the contribution from the Parts & Service business. To support the future growth of the Parts business, the business opened a new, larger Victorian office and warehouse on more favourable terms than its previous facility. The Group will continue to review future growth opportunities for the Parts & Service business to satisfy customer demand. Improving manufacturing efficiency MaxiTRANS' has undertaken significant capital investment in its manufacturing facilities in recent years, including the construction of a new facility in New Zealand in FY11 and the completion of construction of the new facility in China in FY14. The focus now is optimising the utilisation of these facilities by: ƒƒ improving the efficiency of manufacturing processes; ƒƒ continually improving the quality of product produced at these facilities; and ƒƒ managing the volume and mix of products produced at each facility. Consistent with this strategy, the Company has decided to relocate the production of its AZMEB products to its other manufacturing facilities and close the Bundaberg manufacturing facility in FY16 due to the poor outlook for the resources sector into the foreseeable future. The Company will continue to manufacture, sell and support the AZMEB products in Australia and to explore international opportunities. 13 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITEDREPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 Expanding industry sector and geographical coverage The current product portfolio provides the Company with opportunities in most freight based industry sectors throughout Australia. The Board will continue to identify organic growth and acquisition opportunities in both the product portfolio and distribution channels to increase our geographic coverage. During FY15, a new Company owned trailer dealership commenced in NSW, replacing its former independent dealer. The dealership will relocate to new premises in early FY16 and will provide the company with improved opportunities to further increase market share. Business Transformation Program Recognising the Company’s history of growth through acquisitions, each with their own legacy systems the Company has committed to a significant investment in a business transformation program known as “Project TRANSform”. The program will replace thirteen outdated legacy IT systems with a single enterprise resource planning system across the business. This will allow the Company to streamline many business processes, thus creating operational efficiencies and mitigating business risk. OUTLOOK The Trailer business expects to benefit from the buoyant market for refrigerated vans, which together with the continued manufacturing efficiency initiatives, will drive growth of the Maxi-CUBE product in FY16. This is supported by a strong order book for Maxi-CUBE as we enter FY16. As product improvements and manufacturing efficiencies are attained in our Freighter products, we expect to grow market share in this market segment as well. The launch of the VersaBOLT tipper in FY16 should also bolster tipper sales in an otherwise soft market. The opening of our new Company owned NSW trailer dealership in early FY16 will build on our national distribution network and will create opportunities to further increase our share of the Australian trailer market. With the profit impact of the product recall in FY15 behind us, we expect an improved contribution from the Parts & Service business over the outlook period. A number of new sales initiatives such as the MaxiPARTS online purchasing portal launched in early FY16 and new, valued added service offerings to the large truck and trailer fleets should see MaxiPARTS increase share in its market. Growth in the product range including the relaunch of the CS suspension product should also benefit the Parts & Service business during FY16. Whilst we expect the market in Australia in FY16 will continue to be subdued, the strategies put in place are aimed at increasing market share in all of our segments and rigorous management of costs should deliver significant profit improvement over FY15. In our offshore markets, New Zealand should continue to build on its momentum to further gain market share from its expanding Freighter and Maxi-CUBE product range. As Chinese markets start to improve and a number of new, value added products are launched during the year in both its local and export markets, our Chinese business is well positioned to take advantage of improving market conditions. Notwithstanding the soft trading conditions experienced, MaxiTRANS is putting the strategies in place to deliver growth ahead of its markets and capitalise on improving market conditions. 14 REPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 Information of Directors Mr. Ian R. Davis Chairman, Independent Non-Executive, Age 70 Qualifications & Experience: Law degree with honours from University of Melbourne. Appointed Chairman 1994. Head of Private Wealth and previously National Chairman of international law firm, Minter Ellison, Mr. Davis has extensive experience in the corporate and commercial area of law in which he practices. He was formerly a Non-Executive Director of Redflex Holdings Ltd from October 2009 to February 2013, and is a former Non-Executive Chairman and former Non-Executive Director of a number of publicly listed and private companies. Special Responsibilities: Chairman of Corporate Governance Committee, Remuneration Committee and Nomination Committee. Member of Audit & Risk Management Committee. Interest in Shares: 1,502,193 ordinary shares beneficially held. Options over Ordinary Shares: Nil Mr. James R. Curtis Deputy Chairman, Non-Executive, Age 80 Qualifications & Experience: Appointed Deputy Chairman in 1994. Mr. Curtis was one of the founders of the Group in 1972. He has over 50 years' experience in the transport equipment industry and is a pioneer of fibreglass road transport equipment in Australia. Special Responsibilities: Member of Corporate Governance Committee, Audit & Risk Management Committee, Remuneration Committee and Nomination Committee. Interest in Shares: 24,943,030 ordinary shares beneficially held. Options over Ordinary Shares: Nil Mr. Michael A. Brockhoff Managing Director, Executive, Age 62 Qualifications & Experience: Appointed Managing Director in June 2000. Thirty-eight years' experience in the road transport industry. Special Responsibilities Member of Nomination Committee Interest in Shares: 3,090,172 ordinary shares beneficially held. Options over Ordinary Shares: Nil 15 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED REPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 Mr. Geoffrey F. Lord Independent Non-Executive Director, Age 70 Qualifications & Experience: B. Econ. (Honours), M.B.A. (Distinction), ASSA, Fellow of the Australian Institute of Company Directors. Appointed Director in October 2000. Chairman and Chief Executive Officer of Belgravia Group. Chairman of Terrain Capital Ltd. Former chairman of LCM Litigation Fund Pty Ltd. Former Chairman and current Deputy Chairman of UXC Limited since September 2002. Deputy Chairman of Institute of Drug Technology Limited since October 1998. Board member of the Melbourne Business School. Formerly a Director of Northern Energy Corporation from December 2007 to October 2011. Former Chairman/inaugural member of Melbourne Victory. Special Responsibilities: Member of Audit & Risk Management Committee, Corporate Governance Committee, Remuneration Committee and Nomination Committee. Interest in Shares: 1,049,604 ordinary shares beneficially held. Options over Ordinary Shares: Nil Mr. Robert H. Wylie Independent Non-Executive Director, Age 65 Qualifications & Experience: Fellow of the Institute of Chartered Accountants in Australia, a member of the Institute of Chartered Accountants of Scotland and a Fellow of the Australian Institute of Company Directors. Appointed Director in September 2008. Currently a Director of The Walter + Eliza Hall Institute of Medical Research, Mr. Wylie has wide ranging experience in professional service in a variety of management roles with Deloitte. He has previously held senior positions with Deloitte Touche USA LLP. Prior to this, he was Deputy Managing Partner Asia Pacific. This followed a long career with Deloitte Australia, including eight years as National Chairman. Mr. Wylie also served on the Global Board of Directors and the Governance Committee of Deloitte Touche Tohmatsu and the Global Board of Directors of Deloitte Consulting. Mr Wylie is also a former National President of the Institute of Chartered Accountants in Australia. Formerly a Director of Elders Limited from November 2009 to August 2012 and Director of both Centro Properties Limited and CPT Manager Limited from October 2008 to December 2011. Special Responsibilities: Chairman of Audit & Risk Management Committee. Member of Corporate Governance Committee and Nomination Committee. Interest in Shares: 21,364 ordinary shares beneficially held. Options over Ordinary Shares: Nil 16 REPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 Mr. Joseph Rizzo Independent Non-Executive Director, Age 59 Qualifications & Experience: Bachelor of Economics (Monash University), Executive Program (University of Michigan), Graduate of the Australian Institute of Company Directors (GAICD). Appointed Non-Executive Director 2014. Formerly Managing Director of PACCAR Australia Pty Ltd with thirty-five years’ experience in the road transport equipment manufacturing industry. Mr. Rizzo has a wide knowledge of the industry generally along with strong manufacturing, sales and marketing experience in a directly related field. Former Vice President of the Truck Industry Council. Special Responsibilities: Member of Audit & Risk Management Committee, Corporate Governance Committee, Remuneration Committee and Nomination Committee. Interest in Shares: 50,000 ordinary shares beneficially held. Options over Ordinary Shares: Nil Company Secretaries Mr. Campbell R. Richards B. Bus. (Acc), CA Appointed to the position of Company Secretary in June 2013. Mr. David Poldrugovac B. Eco. (Acc), CA Appointed to the position of Assistant Company Secretary in March 2014. 17 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED REPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 Details of attendances by directors at Board and committee meetings during the year are as follows: Directors’ Meetings Audit & Risk Management Committee Remuneration Committee Nomination Committee (i) Corporate Governance Committee (ii) Number Number Number Number Number Number Number Number Number Number eligible attended eligible attended eligible attended eligible attended eligible Attended to attend to attend to attend to attend to attend Ian Davis James Curtis Michael Brockhoff Geoffrey Lord Robert Wylie Joseph Rizzo 15 15 15 15 15 15 15 13 15 14 15 15 4 4 – 4 4 4 4 3 – 4 4 4 2 2 2 2 2 2 2 2 2 1 2 2 – – – – – – – – – – – – – – – – – – – – – – – – (i) The Nomination Committee did not meet during the year. (ii) The Corporate Governance Committee meeting for the year ended 30 June 2014 was held in July 2014. Remuneration Report Information contained in the Remuneration Report is audited. Remuneration levels for directors, secretaries and executives of the Company, and relevant group executives of the Group (“the directors and senior executives”) are competitively set to attract and retain appropriately qualified and experienced directors and senior executives. The Remuneration Committee obtains independent advice on the appropriateness of remuneration of non-executive directors and the Managing Director having regard to trends in comparative companies and the objectives of the Group’s remuneration strategy. The remuneration structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The remuneration structures take into account: ƒƒ The capability and experience of the directors and senior executives; ƒƒ The directors’ and senior executives’ ability to control the relevant segment/s’ performance; The Directors continue to be focussed on ensuring that MaxiTRANS provides a remuneration structure which genuinely attracts, motivates and retains executive talent and aligns the interests of management and shareholders. The following is a summary of the key elements of the structure of remuneration for executive directors and senior management: ƒƒ the structure of executive director and senior management remuneration includes a mix of fixed and performance-linked components; ƒƒ the mix of total remuneration between fixed and performance-linked components to average 60% and 40% respectively; ƒƒ the performance-linked component of total remuneration comprises a Short Term Incentive (‘STI’) scheme and a Long Term Incentive (‘LTI’) scheme; and ƒƒ the mix of performance-linked remuneration (as a percentage of total remuneration) between STI and LTI components to average 15% and 25% respectively; ƒƒ The Group’s performance including the Group’s earnings per share; and The Directors are of the view that the remuneration structure supports alignment between the Group and shareholders. ƒƒ The amount of incentives within each director’s and senior executive’s remuneration. Each of the components of total remuneration for executive directors and senior management are described in more detail below. 18 REPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 Fixed remuneration Fixed remuneration consists of base remuneration, including any FBT charges related to employee benefits which have been salary sacrificed, as well as employer contributions to superannuation funds. Remuneration levels are reviewed annually by both the Remuneration Committee and the Managing Director through a process that considers individual, segment and overall performance of the Group. In addition and as required, external consultants may be engaged to provide analysis and advice to ensure the directors’ and senior executives’ remuneration is competitive in the market place. A senior executive’s remuneration is also reviewed on promotion. Performance-linked remuneration Performance linked remuneration includes both STI's and LTI's and is designed to reward executive directors and senior executives for meeting or exceeding specified objectives. The STI includes an “at risk” incentive provided in the form of cash. The LTI is provided in the form of Performance Rights. The MaxiTRANS Performance Rights Plan (‘PRP’) was approved by the shareholders at the Annual General Meeting held on 15 October 2010. STI Each year KPIs (key performance indicators) are set for senior executives and executive directors. The KPIs generally include measures relating to the Group, the relevant segment, and the individual, and include financial, people, customer, strategy and risk measures. The measures are chosen as they directly align the individual’s reward to the KPIs of the Group and to its strategy and performance. The key financial performance objective is “net profit before tax” compared to budgeted amounts. The non- financial objectives vary with position and responsibility and include measures such as achieving strategic outcomes, safety and environmental performance, customer satisfaction and staff development. At the end of the financial year the actual performance of the Group, the relevant segment and individual is measured against the KPIs set at the beginning of the financial year. The method of assessment was chosen as it provides an objective assessment of the individual’s performance. In line with the Group’s philosophy of rewarding employees for performance, STI's based on the achievement of KPIs are also available to staff other than executive directors and senior management. LTI The LTI scheme available to executive directors and to senior management is based on the annual grant of a specified number of Performance Rights which can be converted by executive directors and senior management into a specified number of ordinary shares in the Company. Performance Rights will vest and will be able to be exercised upon the achievement of specified long term performance targets in a period not less than three years after the date upon which the Performance Rights are granted to executive directors and senior management provided they remain in the employment of the Group throughout that period. Traditionally, the Board has set a long term incentive target for management to achieve an increase in the Group's Return on Invested Capital ('ROIC'). During financial year 2015 the Board introduced a secondary LTI target based on Earnings Per Share growth. Both targets are weighted equally and operate independently of the other. The parameters that have been set by the Board are set out in Note 15. If the minimum ROIC target is reached, 50% of the Performance Rights will vest. The percentage of Performance Rights that vest increases on a sliding scale once the minimum target is reached. 100% of the Performance Rights will vest where the target is fully achieved or exceeded. No director or senior executive has entered a hedging arrangement with respect to the value of unvested Performance Rights. The Earnings Per Share target represents an absolute hurdle with no sliding scale for achievement below the target. 19 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITEDREPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 Other benefits Non-executive directors are not entitled to receive additional benefits as a non-cash benefit. Non-executive directors may receive a component of their directors’ fees as superannuation. Senior executives can receive additional benefits as non-cash benefits, as part of the terms and conditions of their appointment. Other benefits typically include payment of superannuation, motor vehicles, telephone expenses and allowances, and where applicable, the Group pays fringe benefits tax on these benefits. Consequences of performance on shareholder wealth In considering the Group’s performance and benefits for shareholder wealth, the remuneration committee have regard to the indices highlighted in the table on page 23. Net profit before tax is considered as one of the financial performance targets in setting the STI. Service agreements It is the Group’s policy that service contracts for executive directors and senior executives be unlimited in term but capable of termination on up to six months notice and that the Group retains the right to terminate the contract immediately, by making payment of up to twelve months’ pay in lieu of notice. The Group has entered into service contracts with each executive director and senior executive that entitle those executives to receive, on termination of employment, their statutory entitlements of accrued annual and long service leave, together with any superannuation benefits. The service contract outlines the components of remuneration paid to the executive directors and senior executives but does not prescribe how remuneration levels are modified year to year. Remuneration levels are reviewed each year to take into account cost-of-living changes, any change in the scope of the role performed by the senior executive and any changes required to meet the principles of the remuneration policy including performance related objectives if applicable. Mr Michael Alan Brockhoff, Managing Director, has a contract of employment with the Company dated 3 May 2000. The contract specifies the duties and obligations to be fulfilled by the Managing Director and provides that the Board and Managing Director will early in each financial year, consult and agree objectives for achievement during that year. The service contract can be terminated either by the Company or Mr Brockhoff providing six months notice. The Company may make a payment in lieu of notice of six months, equal to base salary, motor vehicle allowance and superannuation. This payment represented market practice at the time the terms were agreed. The Managing Director has no entitlement to a termination payment in the event of removal for misconduct or breach of any material terms of his contract of employment. Mr Campbell Richards, Company Secretary, has a contract of employment with the Company dated 3 May 2013. The contract can be terminated either by the Company or Mr Richards providing three months notice. The Company may make a payment in lieu of notice of three months, equal to base salary and superannuation. Non-executive directors Total remuneration for all non-executive directors, last voted upon by shareholders at the 2012 AGM, is not to exceed $600,000 per annum and directors' fees are set based on advice from external advisors with reference to fees paid to other non-executive directors of comparable companies. Directors’ base fees (inclusive of superannuation) for the year were $75,000 per annum. The Chairperson received $140,000 per annum. Non-executive directors do not receive performance related remuneration and are not entitled to either a STI or LTI. Directors’ fees cover all main board activities and membership or chairing of all committees. Non-executive directors are not entitled to any retirement benefits. Services of remuneration consultant In keeping with the above policies, the Remuneration Committee engaged Mercer as remuneration consultant to review the amount of non-executive director and senior executive remuneration during the year. Mercer was paid $7,088 for the remuneration recommendations. Remuneration recommendations regarding senior executives were provided directly to the Remuneration Committee. A declaration was received from Mercer as part of its report that advice provided was made free from undue influence of senior executives. 20 REPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 Directors’ and executive officers’ remuneration Details of the nature and amount of each major element of remuneration of each director of the Company and other key management personnel of the Group: Primary Post Equity Other Total Salary & fees (i) $ STI (ii) $ Non-cash benefits Super $ $ Year PR's (iii) $ 2015 127,854 2014 128,146 2015 68,493 2014 68,650 2015 68,493 2014 68,650 2015 40,000 2014 40,000 2015 40,000 2014 3,574 – – – – – – – – – – – – – – – – – – – – 12,146 11,854 6,507 6,350 6,507 6,350 35,000 35,000 35,000 330 – – – – – – – – – – (iv) $ – – 20,000 – – – – – – – Proportion of remuneration performance related Value of PR's as proportion of remuneration $ % % 140,000 140,000 95,000 75,000 75,000 75,000 75,000 75,000 75,000 3,904 – – – – – – – – – – – – – – – – – – – – DIRECTORS Non-executive Mr I Davis Chairman Mr J Curtis (v) Mr G Lord Mr R Wylie Mr J Rizzo Executive Mr M Brockhoff 2015 651,461 – 3,627 64,201 156,641 50,229 926,159 Managing Director 2014 657,407 175,000 20,169 78,842 181,159 58,261 1,170,838 16.9% 30.4% 16.9% 15.5% EXECUTIVES Mr C Richards 2015 351,360 Chief Financial Officer 2014 338,457 – – – – 31,500 36,886 29,702 16,204 – – 419,746 384,363 8.8% 4.2% and Company Secretary Mr A Wibberley 2015 300,293 – 2,291 30,633 67,297 37,451 Group General Manager 2014 253,974 39,360 27,488 27,690 70,309 9,543 437,965 428,364 15.4% 26.5% – Manufacturing Mr P Buttler 2015 231,469 28,253 14,258 26,086 57,324 21,636 General Manager 2014 228,028 34,602 34,220 23,587 57,475 6,567 379,026 384,479 21.9% 23.9% – Ballarat MaxiTRANS Australia Pty Ltd Mr A McKenzie (vi) 2015 64,437 Group General Manager 2014 – – Sales and Distribution Mr S Harkin (vii) 2015 75,880 Group Supply Manager 2014 – – – – – – – 6,112 – 5,267 7,171 – – – – – – 4,428 – 4,935 – 74,977 – 93,253 – – – – – 8.8% 4.2% 15.4% 16.4% 14.7% 14.9% – – – – 21 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED REPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 Primary Post Equity Other Total (iv) Salary & fees (i) $ STI (ii) $ Non-cash benefits Super $ $ Year PR's (iii) $ $ $ % % Proportion of remuneration performance related Value of PR's as proportion of remuneration EXECUTIVES (continued) Mr N Zantuck (viii) 2015 214,971 General Manager 2014 200,403 – Vic Branch, MaxiTRANS Australia Pty Ltd Mr P Loimaranta 2015 275,890 General Manager 2014 264,658 – MaxiPARTS Pty Ltd – – – – – – – – 24,348 5,431 26,621 20,320 56,903 31,086 271,371 308,712 2.0% 18.4% 2.0% 18.4% 28,423 68,314 31,099 26,818 69,916 30,920 403,726 392,312 16.9% 17.8% 16.9% 17.8% Notes in relation to table of directors’ and executive officers' remuneration (i) Includes the accrual of short-term statutory entitlements. (ii) STI entitlement is 15% of total remuneration for each of the individuals listed above. The short-term cash incentives disclosed above are for performance for the 30 June 2014 financial year using the criteria set out in the Remuneration Report. The amounts were determined after performance reviews were completed. The proportion of STI entitlements which vested during the year were as follows based on the operating performance of the relevant business units to which each individual belongs: ƒƒ Mr P Buttler (50%). The balance of STI entitlements was forfeited. (iii) The fair value of performance rights (PR's) is calculated at the date of grant using the Monte Carlo simulation model and allocated to each reporting period evenly over the period from grant date to vesting date, adjusted for any changes in the probability of performance and service targets being achieved. The value disclosed is the portion of the fair value recognised in this reporting period. In valuing the PR's, market conditions have been taken into account. Further details in respect of PR's are contained on the following page of the Remuneration Report. Details of PR’s vested during the period are contained in Note 15 – Share Based Payments. (iv) Includes the accrual of long-term statutory entitlements. (v) Other remuneration relates to the provision of consulting services to the Group. (vi) Mr A McKenzie was appointed 20 April 2015. (vii) Mr S Harkin was appointed 9 February 2015. (viii) Mr N Zantuck resigned effective 27 May 2015. All PR’s held by Mr Zantuck at that time were cancelled. 22 REPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 Analysis of share-based payments granted as remuneration Details of the vesting profile of the PR's granted as remuneration to each of the Company directors and other key management personnel of the Group during the reporting period are detailed below. Directors Mr M Brockhoff Company executives Mr C Richards Consolidated entity executives Mr A Wibberley Mr P Buttler Mr N Zantuck Mr P Loimaranta PR's granted Fair value at (no.) Grant date grant date ($) Vesting date Expiry date 437,113 31 Aug. 2014* 0.7683 31 Aug. 2017 31 Aug. 2021 196,456 31 Aug. 2014 0.7683 31 Aug. 2017 31 Aug. 2021 192,741 154,019 130,456 177,670 31 Aug. 2014 31 Aug. 2014 31 Aug. 2014 31 Aug. 2014 0.7683 0.7683 0.7683 0.7683 31 Aug. 2017 31 Aug. 2021 31 Aug. 2017 31 Aug. 2021 31 Aug. 2017 31 Aug. 2021 31 Aug. 2017 31 Aug. 2021 * PR's were issued to Mr Brockhoff subject to the approval of shareholders at the Annual General Meeting held on 24 October 2014. The 2011 PR’s granted to the Company directors and key management personnel had a vesting date of November 2014. 53% of these PR’s vested during the current year and were exercised by the holders of the PR’s. All PR's expire on the earlier of their expiry date or termination of the individual's employment. In order for PR's to vest, holders must continue to be in the employment of the Group until vesting date. The PR's vest three years after the date they were issued, subject to the satisfaction of performance hurdles. PR's may only be exercised during a four year period after they have vested. Details of the performance criteria are included in the discussion on LTI's. The estimated maximum value of PR's on issue for future years is the current share price. This is subject to future movements in the share price. The estimated minimum value is $nil. Unissued Shares Under Rights At the date of this report there are no unissued ordinary shares of the Company relating to vested PR's. Consolidated Results and Shareholder Returns 2015 2014 2013 2012 2011 Net profit/(loss) attributable to equity holders of the parent $4,497,000 $17,075,000 $25,965,000 $12,334,000 $4,171,000 Basic EPS 2.43¢ 9.26¢ 14.11¢ 6.70¢ 2.27¢ Dividends declared $3,701,513 $11,104,542 $15,639,438 $7,819,719 $2,759,901 Dividends declared per share 2.00¢ Share price 39.5¢ 6.00¢ 97.0¢ 8.50¢ $1.065 4.25¢ 61.5¢ 1.50¢ 23.0¢ 23 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED REPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 Directors’ and executives’ holdings of shares For key management personnel, the movements in shares held directly, indirectly or beneficially at the reporting date in the Company are set out below: Held at 1 July 2014 3,138,338 1,502,193 24,380,030 1,049,604 21,364 – 126,522 140,447 – 119,716 Held at 1 July 2013 2,642,500 1,502,193 24,205,030 1,049,604 21,364 – – – – Purchases Sales Held at 30 June 2015 451,834 – 563,000 – – 50,000 162,123 170,083 145,321 142,085 500,000 – – – – – 27,929 89,023 – – 3,090,172 1,502,193 24,943,030 1,049,604 21,364 50,000 260,716 221,507 145,321 n/a Purchases Sales Held at 30 June 2014 495,838 – 175,000 – – – 126,522 140,447 119,716 – – – – – – – – – 3,138,338 1,502,193 24,380,030 1,049,604 21,364 – 126,522 140,447 119,716 2015 Shares MaxiTRANS Industries Limited Directors: Mr M Brockhoff Mr I Davis Mr J Curtis Mr G Lord Mr R Wylie Mr J Rizzo Executives: Mr P Loimaranta Mr A Wibberley Mr P Buttler Mr N Zantuck 2014 Shares MaxiTRANS Industries Limited Directors: Mr M Brockhoff Mr I Davis Mr J Curtis Mr G Lord Mr R Wylie Mr J Rizzo Executives: Mr P Loimaranta Mr A Wibberley Mr N Zantuck End of Remuneration Report 24 REPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 Audit and Risk Management Committee As at the date of this report, the Company had an Audit and Risk Management Committee of the Board of Directors that met four times during the year. The details of the functions and memberships of the committees of the Board are presented in the Corporate Governance Statement. Indemnity With the exception of the matters noted below the Company has not, during or since the end of the financial year, in respect of any person who is or has been an officer or auditor of the Company or a related body corporate: (i) (ii) Indemnified or made any relevant agreement for indemnifying against a liability incurred as an officer, including costs and expenses in successfully defending legal proceedings; or Paid or agreed to pay a premium in respect of a contract insuring against a liability incurred as an officer for the costs or expenses to defend legal proceedings. The Group has entered into a contract of insurance in relation to the indemnity of the Group’s directors and officers. The insurance policy relates to claims for damages, judgements, settlements or costs in respect of wrongful acts committed by directors or officers in their capacity as directors or officers but excluding wilful, dishonest, fraudulent, criminal or malicious acts or omissions by any director or officer. The directors indemnified are those existing at the date of this report. The officers indemnified include each full time executive officer and secretary. During the financial year, the Group paid premiums of $43,971 (2014: $44,006) in respect of directors’ and officers’ liability insurance contracts. Clause 98 of the Company’s constitution contains indemnities for officers of the Company. The Company has entered into a deed of protection with each of the directors to: (i) Indemnify the director to ensure that the director will have the benefit of the indemnities after the director ceases being a director of any group company; (ii) Insure the director against certain liabilities after the director ceases to be a director of any group company; and (iii) Provide the director with access to the books of group companies. Share Options Share options granted to directors and highly remunerated officers No options were granted to any of the directors or the five most highly remunerated executives of the Company or Group as part of their remuneration during or since the end of the financial year. Shares Issued on the Exercise of Options No options were exercised during the financial year. Further details on the Group's Performance Rights Plan are detailed in Note 15 to the consolidated financial statements and in the Remuneration Report. 25 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITEDREPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 Non-Audit Services During the year, KPMG, the Company’s auditor, performed certain other services in addition to their statutory duties. The Board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the Audit and Risk Management Committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: ƒƒ All non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed by the Audit and Risk Management Committee to ensure they do not impact the integrity and objectivity of the auditor; and ƒƒ The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards. A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act is included in, and forms part of this Report of the Directors on page 27. Details of the amounts paid to the auditor of the Company, KPMG, for audit and non-audit services provided during the year are set out below. Remuneration of Auditor Remuneration of the auditor of the Group for: KPMG Australia: – auditing and reviewing the financial statements – other services (taxation & advisory) Overseas KPMG Firms: – auditing and reviewing financial statements – other services (taxation, advisory & due diligence) Total Proceedings on Behalf of Company Consolidated 2015 $ 2014 $ 286,200 55,590 229,900 225,497 341,790 455,397 76,350 28,916 105,266 65,503 7,897 73,400 447,056 528,797 No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. 26 REPORT OF THE DIRECTORS (cont) FOR THE YEAR ENDED 30 JUNE 2015 Rounding of Accounts The parent entity has applied the relief available to it in ASIC Class Order 98/100 dated 10 July 1998 and, accordingly, amounts in the financial statements and Report of the Directors have been rounded to the nearest thousand dollars unless specifically stated to be otherwise. This report has been made in accordance with a resolution of the Board of Directors. Mr. Ian Russell Davis, Director Mr. Michael Alan Brockhoff, Director Dated this 21st day of August 2015 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To: the directors of MaxiTRANS Industries Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2015 there have been: (i) No contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) No contraventions of any applicable code of professional conduct in relation to the audit. KPMG Melbourne 21 August 2015 Tony Romeo Partner KPMG, an Australian partnership and member firm of the KPMG network of independent member firms affiliated with KPMG Liability limited by a scheme approved under Professional International Cooperative ("KPMG International"), a Swiss entity. Standards Legislation 27 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2015 In the opinion of the directors of MaxiTRANS Industries Limited (“the Company”): (a) the consolidated financial statements and notes as set out on pages 29 to 67, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2015 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. There are reasonable grounds to believe that the Company and the group entities identified in Note 19 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those group entities pursuant to ASIC Class Order 98/1418. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2015. The directors draw attention to Note 1 to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards. This declaration is made in accordance with a resolution of the Board of Directors. Mr. Ian Russell Davis, Director Mr. Michael Alan Brockhoff, Director Dated this 21st day of August 2015 28 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2015 CONSOLIDATED STATEMENT OF PROFIT OR LOSS Sale of goods Rendering of services Raw materials and consumables used Interest income Employee expenses Depreciation and amortisation expenses Impairment loss on intangible assets Finance costs Other expenses Share of net profits of joint ventures accounted for using the equity method Profit before income tax Income tax expense Profit for the year Profit attributable to: Equity holders of the company Non-controlling interests Note 6,7 7 9 20 Consolidated 2015 $’000 317,678 11,487 2014 $’000 338,516 13,452 (200,820) (212,227) 97 (82,924) (5,643) (2,580) (2,525) (30,268) 997 5,499 91 (83,584) (5,409) – (2,013) (27,125) 1,471 23,172 3(a) (1,036) (6,027) 4,463 17,145 4,497 (34) 17,075 70 Earnings per share for profit attributable to the ordinary equity holders of the company: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 12 12 2.43¢ 2.43¢ 9.26¢ 9.16¢ CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Profit for the year 4,463 17,145 Other comprehensive income Items that may subsequently be re-classified to profit or loss: Net exchange difference on translation of financial statements of foreign operations Other sundry movements Items that will never be re-classified to profit or loss: Revaluation of land and buildings Related tax Other comprehensive income for the year, net of tax Total comprehensive income for the year Total comprehensive income attributable to: Equity holders of the company Non-controlling interests 597 (81) 3,127 (917) 2,726 7,189 1,264 (6) 2,583 (775) 3,066 20,211 6,992 197 20,167 44 The consolidated statement of profit or loss and consolidated statement of comprehensive income is to be read in conjunction with the accompanying notes to the consolidated financial statements. 29 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED CONSOLIDATED BALANCE SHEET FOR THE YEAR ENDED 30 JUNE 2015 Current Assets Cash and cash equivalents Trade and other receivables Inventories Current tax assets Other Total Current Assets Non-Current Assets Investment in joint venture Property, plant & equipment Intangible assets Deferred tax assets Other Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Interest bearing loans and borrowings Current tax liability Provisions Total Current Liabilities Non-Current Liabilities Interest bearing loans and borrowings Deferred tax liabilities Provisions Other Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Retained earnings Equity attributable to equity holders of the Company Non-controlling interest Total Equity Note 4 5 3(c) 6 7 3(b) 8 9 3(c) 10 9 3(b) 10 Consolidated 2015 $’000 4,345 42,961 53,735 1,410 1,790 2014 $’000 5,041 43,031 54,587 – 2,418 104,241 105,077 3,926 73,354 42,232 933 1,156 3,994 63,197 45,938 – 818 121,601 113,947 225,842 219,024 43,216 5,266 362 12,694 61,538 42,036 260 1,152 244 43,692 105,230 41,040 4,399 231 10,608 56,278 38,181 1,561 1,070 121 40,933 97,211 120,612 121,813 11 56,386 15,583 46,805 56,386 13,069 50,457 118,774 119,912 1,838 1,901 120,612 121,813 The consolidated balance sheet is to be read in conjunction with the notes to the consolidated financial statements. 30 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2015 Issued capital $’000 Asset revaluation reserve1 $’000 Retained earnings $’000 Non- controlling interest $’000 Other reserves2 $’000 Total $’000 Note Balance at 1 July 2013 56,386 8,028 48,142 1,857 1,351 115,764 Comprehensive income for the year Profit for the year Other comprehensive income Net exchange differences on translation of financial statements of foreign operations Revaluation of land and buildings Other sundry movements Total comprehensive income for the year Transactions with owners recorded directly in equity Dividends to equity holders Share-based payment transactions 13 15 Total transactions with owners – – – – – – – – – 17,075 70 – 17,145 – 1,808 – – – – 1,808 17,075 – – – (14,760) – (14,760) (26) 1,290 1,264 1,808 (6) – (6) 1,284 20,211 – (14,760) 598 598 598 (14,162) – – 44 – – – Balance at 30 June 2014 56,386 9,836 50,457 1,901 3,233 121,813 1. Asset revaluation reserve The asset revaluation reserve includes the net revaluation increments arising from the revaluation of land and buildings. 2. Other reserves Other reserves comprises the foreign currency translation reserve, share based payment reserve and hedging reserve. The consolidated statement of changes in equity is to be read in conjunction with the notes to the consolidated financial statements. 31 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2015 Issued capital $’000 Asset revaluation reserve1 $’000 Retained earnings $’000 Non- controlling interest $’000 Other reserves2 $’000 Total $’000 Note Balance at 1 July 2014 56,386 9,836 50,457 1,901 3,233 121,813 4,497 (34) – 4,463 Comprehensive income for the year Profit for the year Other comprehensive income Net exchange differences on translation of financial statements of foreign operations Revaluation of land and buildings Other sundry movements Total comprehensive income for the year Transactions with owners recorded directly in equity Dividends to equity holders Share-based payment transactions 13 15 Total transactions with owners – – – – – – – – – – 2,210 – – – – 2,210 4,497 – – – (7,866) (283) (8,149) 231 – – 197 (260) – (260) 366 – (81) 285 597 2,210 (81) 7,189 – 19 19 (8,126) (264) (8,390) Balance at 30 June 2015 56,386 12,046 46,805 1,838 3,537 120,612 1. Asset revaluation reserve The asset revaluation reserve includes the net revaluation increments arising from the revaluation of land and buildings. 2. Other reserves Other reserves comprises the foreign currency translation reserve, share based payment reserve and hedging reserve. The consolidated statement of changes in equity is to be read in conjunction with the notes to the consolidated financial statements. 32 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2015 Cash Flows from Operating Activities Receipts from customers Payments to suppliers & employees Interest received Interest & other costs of finance paid Income tax paid Consolidated Note 2015 $’000 2014 $’000 360,828 (341,211) 97 (2,525) (5,051) 384,473 (352,451) 91 (2,013) (13,488) Net Cash Provided by/(Used in) Operating Activities 21(a) 12,138 16,612 Cash Flows from Investing Activities Payments for property, plant & equipment Dividends received Proceeds from sale of property, plant & equipment Acquisition of business Net Cash Provided by/(Used in) Investing Activities Cash Flows from Financing Activities Proceeds from borrowings Payment of finance lease liabilities Dividends paid Net Cash Provided by/(Used in) Financing Activities Net increase/(decrease) in cash Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year – 13 (10,026) 1,065 218 (13,239) 1,307 1,564 (3,451) (8,743) (13,819) 5,219 (1,184) (8,126) (4,091) (696) 5,041 4,345 17,383 (1,430) (14,760) 1,193 3,986 1,055 5,041 The consolidated statement of cash flows is to be read in conjunction with the notes to the consolidated financial statements. 33 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES MaxiTRANS Industries Limited (the ‘Company’) is a company domiciled in Australia and its registered office is 346 Boundary Road, Derrimut, Victoria. The consolidated financial statements of MaxiTRANS Industries Limited as at and for the year ended 30 June 2015 comprise the Company and its subsidiaries (together referred to as the ‘Group’) and the Group’s interest in joint ventures and jointly controlled entities. The Group is a for-profit entity. Basis of preparation The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (‘AASBs’) adopted by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001. The financial report also complies with International Financial Reporting Standards ('IFRSs') adopted by the International Accounting Standards Board ('IASB'). The financial report has been prepared on an accruals basis and is based on historical costs and does not take into account changing money values or, except where stated, current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. These accounting policies have been consistently applied to all periods presented in the consolidated financial report by each entity in the Group and are consistent with those of the previous year. These consolidated financial statements are presented in Australian dollars, which is the Company's functional currency. The Group has applied the relief available to it in ASIC Class Order 98/100 dated 10 July 1998 and, accordingly, amounts in the financial statements and Report of the Directors have been rounded to the nearest thousand dollars unless specifically stated to be otherwise. The financial report was approved by the board of directors on 21 August 2015. Standards taking effect from 1 July 2015 and later ƒRevenue from contracts with customers (Amendments to AASB 15) – applicable for annual reporting periods beginning on or after 1 January 2017 – The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at point in time or over time. The model features a contract- based five-step analysis of transactions to determine whether, how much and when revenue is recognised.  IFRS 9 Financial Instruments – applicable for annual reporting periods beginning on or after 1 January 2018 – The new standard includes revised guidance on the classification and measurement of financial assets, including a new expected credit loss model for calculating impairment, and supplements the new general hedge accounting requirements previously published. It supersedes AASB 9 (issued in December 2009 – as amended) and AASB 9 (issued in December 2010 – as amended). The Group expect to adopt these standards in the financial year they apply. The financial impact of adopting the new or amended standards has not yet been determined. The following is a summary of the material accounting policies adopted by the Group in the preparation of the financial report. (a) Principles of consolidation The consolidated financial report comprises the financial statements of MaxiTRANS Industries Limited and all of its subsidiaries. A subsidiary is any entity controlled by MaxiTRANS Industries Limited or any of its subsidiaries. Control exists where MaxiTRANS Industries Limited is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. A list of subsidiaries is contained in Note 18 to the financial statements. All inter-company balances and transactions between entities in the Group, including any unrealised profits or losses, have been eliminated on consolidation. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. 34 –– 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. Where subsidiaries have entered or left the Group during the year, their operating results have been included from the date control was obtained or until the date control ceased. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Joint ventures are those entities for which the Group has joint control, but not control, whereby the Group has rights to the net assets of the arrangement rather than rights to its assets and obligations for its liabilities. The financial statements include the Group’s share of the total recognised gains and losses of the joint venture on an equity accounted basis, from the date that joint control commences until the date that joint control ceases. When the Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of a joint venture. foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the consolidated statement of profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into Australian dollars at foreign exchange rates ruling at the dates the fair value was determined. (ii) Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated into Australian dollars at foreign exchange rates ruling at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars at rates approximating the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on translation are recognised directly in a separate component of equity. (c) Inventories Inventories are valued at the lower of cost and net realisable value. Costs are assigned on a weighted average basis and include direct materials, direct labour and an appropriate proportion of variable and fixed factory overheads, based on the normal operating capacity of the production facilities. Net realisable value is determined on the basis of each inventory line’s normal selling pattern. (d) Property, plant and equipment Unrealised gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the joint venture. (i) Owned assets Land and buildings (b) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into Australian dollars at the Property whose fair value can be measured reliably is carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the reporting date. 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (ii) Leased assets Independent valuations were obtained at 30 June 2015 in relation to the majority of land and buildings. These were considered by the directors in establishing revaluation amounts. If an asset’s carrying amount is increased as a result of a revaluation, the increase is credited directly to equity under the heading of Asset Revaluation Reserve. However, the increase is recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss. If an asset’s carrying amount is decreased as a result of a revaluation, the decrease is recognised in profit or loss. However, the decrease is debited directly to equity under the heading of Asset Revaluation Reserve to the extent of any credit balance existing in the revaluation reserve in respect of that asset. Changes to an asset’s carrying amount are brought to account together with the tax effects applicable to the revaluation amount. On realisation of any amounts contained in the Asset Realisation Reserve, the balance is transferred to retained earnings. Plant and equipment Items of plant and equipment are stated at cost or deemed cost less accumulated depreciation and impairment losses (see accounting policy (i)). The cost of self-constructed assets includes the cost of materials, direct labour, and an appropriate proportion of production overheads. The cost of self-constructed assets and acquired assets includes (i) the initial estimate, at the time of installation and during the period of use, when relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and (ii) changes in the measurement of existing liabilities recognised for these costs resulting from changes in the timing or outflow of resources required to settle the obligation or from changes in the discount rate. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Leases for which the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. The plant and equipment acquired by way of a finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation. Lease payments are accounted for as described in accounting policy (v). (iii) Depreciation Depreciation is charged to the consolidated profit and loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are reflected in the following rates in the current and comparative periods: 2015 2014 Buildings 2.5-4.0% 2.5-4.0% Plant and equipment 5.0-50% 5.0-50% Leased plant and equipment 10.0-30% 10.0-30% The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually. (e) Intangibles (i) Goodwill All business combinations are accounted for by applying the acquisition method. Goodwill represents the difference between the consideration transferred for the acquisition and the net recognised amount (generally fair value of the identifiable assets acquired and liabilities assumed), all measured as of acquisition date. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (see accounting policy (i)). In respect of joint ventures, the carrying amount of goodwill is 36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) included in the carrying amount of the investment in the joint venture. Negative goodwill arising on an acquisition is recognised directly in profit or loss. (ii) Research and development Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the profit and loss as an expense as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources to complete development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development expenditure is recognised in the profit and loss as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation (see below) and impairment losses (see accounting policy (i)). (iii) Other intangible assets Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (see following) and impairment losses. (iv) Amortisation Amortisation of intangibles other than goodwill is charged to the profit and loss on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill and intangible assets with an indefinite useful life are tested for impairment at least at each annual reporting date. Other intangible assets are amortised from the date that they are available for use. The estimated useful lives are reflected in the following rates in the current and comparative periods: Brand names 2015 0% 2014 0% Intellectual property 0%-4.0% 0%-4.0% Patents & trademarks 5.0%-12.0% 5.0%-12.0% Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate. (f) Non-current assets held for sale Non-current assets that are expected to be recovered primarily through sale or distribution rather than through continuing use, are classified as held for sale. Immediately before classification, the assets are remeasured in accordance with the Group's accounting policies. Thereafter, generally the assets are measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss. (g) Trade and other receivables Trade and other receivables are stated at their amortised cost less impairment losses (see accounting policy (i)). (h) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. (i) Impairment The carrying amounts of the Group’s assets, other than inventories (see accounting policy (c)) and deferred tax assets (see accounting policy (p)), are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) An impairment loss in respect of goodwill is not reversed. For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at least annually. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the profit and loss unless the asset has previously been revalued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through the profit and loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (l) Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the profit or loss over the period of the borrowings on an effective interest basis. (j) Calculation of recoverable amount (m) Employee benefits The recoverable amount of the Group’s receivables carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e., the effective interest rate computed at initial recognition of these financial assets). Receivables with a short duration (less than 12 months) are not discounted. The recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax nominal discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. (k) Reversals of impairment An impairment loss in respect of receivables carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. (i) Defined contribution superannuation funds Obligations for contributions to defined contribution superannuation funds are recognised as an expense in the profit or loss as incurred. During the year superannuation contributions of $4,683,366 (2014: $4,969,762) were expensed. (ii) Long-term service benefits The Group’s net obligation in respect of long-term service benefits, other than pension plans, is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates, and is discounted using the rates attached to corporate bonds at the reporting date which have maturity dates approximating the terms of the Group’s obligations. (iii) Share based payments transactions MaxiTRANS Industries Limited grants performance rights from time to time to certain employees under the Performance Rights Plan. 38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (o) Warranties The fair value of performance rights granted is recognised as an employee expense with a corresponding increase in equity recorded over the vesting period. The fair value of the performance rights is calculated at the date of grant using a Monte Carlo simulation model and allocated to each reporting period over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the performance rights allocated to this reporting period. Where relevant, in valuing the performance rights, market conditions have been taken into account in both the current and prior period. (iv) Wages, salaries, annual leave, sick leave and non-monetary benefits Liabilities for employee benefits for wages, salaries, annual leave and sick leave represent present obligations resulting from employees’ services provided to reporting date, calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at reporting date including related on-costs, such as workers compensation insurance and payroll tax. Non- accumulating non-monetary benefits, such as medical care, housing, cars and free or subsidised goods and services, are expensed based on the net marginal cost to the Group as the benefits are taken by the employees. (n) Provisions A provision is recognised in the consolidated balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability. A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and known warranty claims. (p) Income tax Income tax expense comprises current and deferred tax. Income tax is recognised in the profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. In determining the amount of current and deferred tax, the Group takes into account the impact of uncertain tax positions. The Group believes that its accruals for tax liabilities are adequate for all open tax years. This assessment relies on estimates and assumptions and may involve judgements about future events. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (r) Earnings per share Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. (q) Tax consolidation The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax consolidated group is MaxiTRANS Industries Limited. Due to the existence of a tax contribution agreement between the entities in the tax consolidated group, the parent entity recognises the tax effects of its own transactions and the current tax liabilities and the deferred tax assets arising from unused tax losses and unused tax credits assumed from the subsidiary entities. Current tax income/expense, 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 ‘separate taxpayer within group’ approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation. In accordance with the tax contribution agreement, the subsidiary entities are compensated/charged for the assets and liabilities assumed by the parent entity as intercompany receivables and payables and for amounts which equal the amounts initially recognised by the subsidiary entities. Basic earnings per share (“EPS”) is calculated by dividing the net profit attributable to members of the parent entity for the reporting period, by the weighted average number of ordinary shares of the Company. Diluted EPS is calculated by dividing the basic earnings, adjusted by the after tax effect of financing costs associated with dilutive potential ordinary shares and the effect on revenues and expenses of conversion to ordinary shares associated with dilutive potential ordinary shares, by the weighted average number of ordinary shares and dilutive potential ordinary shares. (s) Revenue (i) Revenue from the sale of goods Revenue from the sale of goods is recognised upon the constructive delivery of goods to customers in accordance with contracted terms, at which point the significant risks and rewards of ownership are transferred. (ii) Revenue from the rendering of services Revenue from the rendering of services is recognised as the services are performed/rendered. (iii) Other income Interest income is recognised in the profit and loss as it accrues, using the effective interest method. (iv) Dividend income Dividend revenue is recognised when the right to receive a dividend has been established. 40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (iii) Finance costs (t) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the Australian Tax Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Finance costs comprise interest payable on borrowings calculated using the effective interest method, foreign exchange losses, and losses on hedging instruments that are recognised in the profit and loss. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of the asset. All other borrowing costs are recognised in the profit and loss using the effective interest method. Receivables and payables are stated with the amount of GST included. (w) Derivative financial instruments The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the consolidated balance sheet. Cash flows are included in the statements of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (u) Trade and other payables Liabilities are recognised for amounts to be paid in the future for goods or services received. Trade accounts payable are normally settled within 60 days. (v) Expenses (i) Operating lease payments Payments made under operating leases are recognised in the profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in the profit or loss as an integral part of the total lease expense and spread over the lease term. (ii) Finance lease payments Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. The Group from time to time uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities. The Group does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in OCI and accumulated in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognised in the profit or loss. The amount accumulated in equity is retained in OCI and reclassified to profit or loss in the same period or periods during which the hedged item affects profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the amount accumulated in equity is reclassified to profit or loss. 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (x) Accounting estimates and judgements Management discussed with the Audit and Risk Management Committee the development, selection and disclosure of the Group’s critical accounting policies and estimates and the application of these policies and estimates. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (i) Impairment of goodwill and intangibles Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk controls, and to monitor risks and adherence to limits. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The Group’s activities expose it primarily to the financial risks associated with changes in foreign currency exchange rates and interest rates. The carrying value of financial assets and financial liabilities recognised in the accounts approximate their fair value with the exception of borrowings which are recorded at amortised cost. The Group assesses whether goodwill and intangibles with indefinite useful lives are impaired at least annually in accordance with accounting policy (i). There have not been any changes to the objectives, policies and procedures for managing risk during the current year or in the prior year. These calculations involve an estimation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with indefinite useful lives are allocated. (ii) Provisions The calculation of the provisions for warranty claims and impairment provisions for inventory and receivables involves estimation and judgement surrounding future claims and potential losses and exposures based primarily on past experience, the likelihood of claims or losses and exposures arising in the future as well as management knowledge and experience together with a detailed examination of financial and non financial information and trends. Refer accounting policy (n) for details of the recognition and measurement criteria applied. (y) Financial Risk Management (i) Overview The Group has exposure to credit, market and liquidity risks associated with the use of financial instruments. The Board has delegated to the Audit and Risk Management Committee responsibility for the establishment of policies on risk oversight and management. (ii) Capital Management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board monitors the earnings per share and the levels of dividends to ordinary shareholders together with the net debt/equity ratio, which at 30 June 2015 was 36% (2014: 31%). The Dividend Reinvestment Plan was suspended on 21 June 2011. The Board seeks to maintain a balance between higher returns that might be possible with higher levels of borrowings and the advantages afforded by a sound capital position. (z) Segment reporting Operating segments are identified and segment information disclosed on the basis of internal reports that are regularly provided to, or reviewed by the Group's chief operating decision maker which, for the Group, is the Managing Director. In this regard, such information is provided using different measures to those used in preparing the consolidated statement of profit or loss and consolidated balance sheet. Reconciliations of such management information to the statutory information contained in the financial report have been included. 42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (iv) Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements. (ab) Government grants From time to time the Group becomes eligible for government grants. These grants are accounted for in accordance with AASB 120 Accounting for Government Grants and Disclosure of Government Assistance. The current grants relate to assets, and have been presented in the balance sheet by deducting the grant value from the cost of the asset in arriving at the asset carrying amount. As at 30 June 2015, the Group has accounted for two government grants. The first grant, relating to the relocation of the Hamelex White manufacture and assembly production line from Hallam to Ballarat, amounts to $2.5 million. At 30 June 2015 $2.2 million has been received. In accordance with the terms of the grant, the Group is required to recruit and maintain certain levels of employee numbers, and maintain and operate the facility for a period of not less than 3 years from the date of completion. The grant has been offset against the cost of setting up the new production line within plant and equipment. The second grant, relating to relocation compensation for the MTC (China) facility amounts to $3.42 million. At 30 June 2015 $3.38 million has been received. Conditions relating to this grant have been met, and the company has initially applied the grant against the write off of the old facility ($0.8m), and the balance of the grant has been applied against the cost of the new facility ($2.58m). (aa) Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. (i) Land and buildings The fair value of property is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing and knowledgeable buyer and seller in an arm’s length transaction after proper marketing. (ii) Derivatives The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract. The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group entity and counterparty when appropriate. (iii) Trade and other receivables The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes. 43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 2. PROFIT FROM ORDINARY ACTIVITIES Net (income)/expenses from movements in provision for: – employee entitlements – warranty (1) – other Net (income)/expense resulting from movements in provisions Rental expense on operating leases Research and development expenditure written off as incurred Crediting as income: Net gain on disposal of: – property, plant and equipment (1) Includes provision for product recall costs of $2.45m pre-tax. 3. TAXATION (a) Income tax Reconciliation of tax expense Prima facie tax payable on profit before tax at 30% (2014: 30%) Add/(deduct) tax effect of: Research & development allowance Non-deductible/(deductible) expenses Joint venture equity accounted income Prior year adjustments Impact of tax rates in foreign jurisdictions Current year losses for which no deferred asset is recognised Income tax expense in consolidated statement of profit or loss Income tax expense attributable to operating profit is made up of: Current tax expense Prior year adjustment – current tax Deferred tax expense – origination and reversal of temporary difference – prior year adjustment – deferred differences Income tax expense in consolidated statement of profit or loss 44 Consolidated 2015 $’000 2014 $’000 600 1,567 315 2,482 5,812 872 (47) (566) 259 5,291 821 717 (43) (238) – 1,650 6,952 (400) 123 (299) (19) (19) (614) 1,036 3,323 735 (2,268) (754) 1,036 (348) (126) (441) (149) (20) 159 (925) 6,027 5,486 (149) 323 367 6,027 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 3. TAXATION (continued) (b) Deferred tax assets/(deferred tax liabilities) The deferred tax assets/(deferred tax liabilities) are made up of the following estimated tax benefits: – Provisions and accrued employee benefits – Property, plant & equipment – Leases – Intangible assets – Inventory – Other Net deferred tax asset/(liability) Balance at beginning of year Recognised in profit or loss Acquired through business combination Recognised in equity Net deferred tax asset/(liability) (c) Current tax asset/(liability) Consolidated 2015 $’000 2014 $’000 6,166 (4,498) (3) (2,163) 654 517 673 (1,561) 3,075 (841) 673 3,924 (3,196) (21) (2,933) 533 132 (1,561) (1,125) 235 51 (722) (1,561) – The Group’s current tax asset of $1,409,887 (2014: $nil) and current tax liability of $362,328 (2014: $231,289) represents the amount of income taxes receivable/(payable) in respect of current and prior financial periods. 4. TRADE AND OTHER RECEIVABLES Impairment losses Not past due Past due 0 – 30 days Past due 31 – 60 days Past due over 61 days Trade debtors Other receivables Total trade and other receivables Consolidated 2015 Consolidated 2014 Gross $’000 Impairment $’000 Total $’000 Gross $’000 Impairment $’000 Total $’000 30,264 9,951 1,607 77 (200) (51) (11) (56) 30,064 9,900 1,596 21 28,183 10,858 2,096 1,660 (140) (65) (11) (358) 28,043 10,793 2,085 1,302 41,899 (318) 41,581 42,797 (574) 42,223 1,380 42,961 808 43,031 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 5. INVENTORIES Second–hand units – at net realisable value Finished goods – at cost Work in progress – at cost Raw materials – at cost Less: provision for impairment loss Total inventories 6. PROPERTY, PLANT & EQUIPMENT Land and buildings at fair value Accumulated depreciation Total land and buildings Plant and Equipment Plant & equipment at cost Accumulated depreciation Office equipment at cost Accumulated depreciation Leased plant & equipment Accumulated depreciation Capital work in progress Total plant and equipment Total property, plant and equipment Consolidated 2015 $’000 2014 $’000 4,848 32,693 4,245 14,675 (2,726) 53,735 3,319 34,376 3,143 15,905 (2,156) 54,587 46,380 (728) 45,652 43,178 (202) 42,976 39,267 (28,234) 37,595 (28,466) 11,033 9,129 8,706 (6,174) 2,532 2,136 (663) 1,473 12,664 27,702 73,354 9,109 (6,086) 3,023 4,278 (2,444) 1,834 6,235 20,221 63,197 Independent valuations were obtained at 30 June 2015 in relation to the majority of land and buildings held at that time, for use by the directors in assessing land and buildings at fair value. Refer to Note 25(e) for details of security over land and buildings. 46 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 6. PROPERTY, PLANT & EQUIPMENT (continued) Reconciliations Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below: Land and buildings Carrying amount at the beginning of the financial year Additions Fair value increment Transfers from capital works in progress Disposals Depreciation Other sundry movements Carrying amount at the end of the financial year Plant and equipment Carrying amount at the beginning of the financial year Additions Transfers from leased plant and equipment Transfers from capital works in progress Disposals Depreciation Other sundry movements Carrying amount at the end of the financial year Office equipment Carrying amount at the beginning of the financial year Additions Transfers from capital works in progress Disposals Depreciation Other sundry movements Carrying amount at the end of the financial year Leased plant and equipment Carrying amount at the beginning of the financial year Additions Transfers to plant and equipment Amortisation Carrying amount at the end of the financial year Capital works in progress Carrying amount at the beginning of the financial year Additions Transfers to property, plant and equipment Carrying amount at the end of the financial year Consolidated 2015 $’000 2014 $’000 42,976 – 3,127 – – (874) 423 45,652 9,129 3,115 496 43 (163) (1,955) 368 11,033 3,023 621 – (12) (1,138) 38 2,532 1,834 685 (496) (550) 1,473 6,235 6,472 (43) 12,664 37,243 1,499 2,583 5,279 (2,950) (714) 36 42,976 6,589 4,401 49 14 (182) (1,885) 143 9,129 2,118 1,267 592 (7) (1,001) 54 3,023 1,566 1,007 (49) (690) 1,834 6,082 6,038 (5,885) 6,235 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED Consolidated 2015 $’000 2014 $’000 24,645 24,945 6,930 (691) 6,239 6,930 (691) 6,239 22,665 (11,673) 22,665 (10,935) 10,992 11,730 891 (535) 356 42,232 4,229 (1,205) 3,024 45,938 24,945 – (300) 24,645 6,239 6,239 11,730 (738) 10,992 3,024 (388) (2,280) 356 21,990 2,955 – 24,945 6,239 6,239 12,460 (730) 11,730 3,413 (389) – 3,024 7. INTANGIBLES Goodwill at cost Brand names at cost Accumulated amortisation Intellectual property at cost Accumulated amortisation Patents and trademarks at cost Accumulated amortisation Total Intangibles Reconciliations Reconciliations of the carrying amounts for each class of intangible assets are set out below: Goodwill Carrying amount at the beginning of the financial year Acquisition through business combination Impairment losses Carrying amount at the end of the financial year Brand names Carrying amount at the beginning of the financial year Carrying amount at the end of the financial year Intellectual property Carrying amount at the beginning of the financial year Amortisation Carrying amount at the end of the financial year Patents and trademarks Carrying amount at the beginning of the financial year Amortisation Impairment losses Carrying amount at the end of the financial year 48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 7. INTANGIBLES (continued) CGU Freighter Maxi–CUBE Lusty EMS AZMEB Hamelex White MaxiPARTS Yangzhou Maxi–CUBE Tong Composites (China) Transport Connection – – – Consolidated Other Intangibles Allocation Goodwill Allocation 2015 $’000 12,814 2,333 – 2,440 – 17,587 2014 $’000 13,220 – 2,530 2,624 2,619 – – – 20,993 2015 $’000 2,853 762 – – – 16,699 2,753 1,578 24,645 2014 $’000 2,853 762 – 300 – 16,699 2,753 1,578 24,945 Impairment tests for Goodwill and Other Intangibles The recoverable amount of the CGU’s to which goodwill and other intangible assets with indefinite useful lives are allocated is determined based on value–in–use calculations. These calculations use cash flow projections based on most recent budgeted projections by key operational management. These projections are derived based on current market conditions, order intake and expectations with regards to market share. Projections are extrapolated using estimated growth rates for a five year period with a terminal growth rate of 2% which is below the long–term market average. The growth rate used for years 2-5 is 2.75% which is based on recent Australian Government GDP forecasts and the after-tax nominal discount rates used were 9.6% – 10.6% (2014: 11.8% – 12.8%). As a result of this testing, the carrying amount of the AZMEB CGU was determined to be higher than its recoverable amount. The decline in resources sector investment and mining activity has significantly reduced the demand for the AZMEB product, with no material improvement in demand expected for these products into the foreseeable future. An impairment loss of $2,580,000 has therefore been recognised for the year ended 30 June 2015, allocated $2,280,000 to Other Intangible Assets and $300,000 to Goodwill. The recoverable amount of all other CGUs, was found to be in excess of their respective carrying values. As such, no additional impairment charges were required for the year ended 30 June 2015. 8. TRADE AND OTHER PAYABLES Trade payables Other payables and accruals Total trade and other payables 9. INTEREST BEARING LOANS AND BORROWINGS Current Bank loans – secured Lease liability Total current interest bearing liabilities Consolidated 2015 $’000 2014 $’000 31,871 11,345 43,216 29,613 11,427 41,040 25 4,196 1,070 5,266 2,463 1,936 4,399 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 9. INTEREST BEARING LOANS AND BORROWINGS (continued) Non Current Bank loans Lease liability Total non–current interest bearing liabilities Consolidated 2015 $’000 41,000 1,036 42,036 2014 $’000 37,250 931 38,181 25 Bank loans are subject to a floating interest rate. Interest rate swaps have been executed in respect of $13.5m (2014: $29.0m) of this debt in order to mitigate interest rate risk. Refer to note 25(b) for further details. Finance Costs: – Interest on bank loans – Finance lease charges Total finance costs 10. PROVISIONS Current Employee entitlements Warranty Total current provisions Non Current Employee entitlements Aggregate employee entitlements liability 11. ISSUED CAPITAL Balance at 30 June 2014 Balance at 30 June 2015 2,359 166 2,525 1,778 235 2,013 9,485 3,209 8,967 1,641 12,694 10,608 1,152 10,637 1,070 10,037 Number of Ordinary Shares Share Capital $’000 185,075,653 185,075,653 56,386 56,386 Ordinary shares Subject to the Constitution of the Company, holders of ordinary shares are entitled to vote as follows: ƒƒ Every shareholder may vote; ƒƒ On a show of hands every shareholder has one vote; ƒƒ On a poll every shareholder has: (i) One vote for each fully paid share; and (ii) For each partly paid share held by the shareholder, a fraction of a vote equivalent to the proportion which the amount paid (not credited) is of the total amounts paid and payable (excluding amounts credited) on the share. Subject to the Constitution of the Company, ordinary shares attract the right in a winding up to participate equally in the distribution of the assets of the Company (both capital and surplus), subject only to any amounts unpaid on shares. 50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 12. EARNINGS PER SHARE Basic earnings per share Earnings reconciliation Net profit attributable to equity holders of the company Basic earnings Consolidated 2015 – $’000 2014 – $’000 4,497 4,497 17,075 17,075 2015 – Number 2014 – Number Weighted average number of shares Ordinary shares on issue at 1 July Effect of shares issued during the year – 185,075,653 Weighted average number for basic earnings per share 185,075,653 183,993,392 326,161 184,319,553 Diluted earnings per share The calculation of diluted earnings per share at 30 June 2015 is based on net profit attributable to equity holders of the company of $4,497,000 and the weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of nil. 2015 – Number 2014 – Number Weighted average number of shares (diluted) Weighted average number of shares (basic) Effect of Performance Rights on issue – 185,075,653 Weighted average number for diluted earnings per share 185,075,653 184,319,553 2,056,364 186,375,917 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 13. DIVIDENDS Dividends paid 2015 Interim – ordinary Total dividends paid 2014 Interim – ordinary Final – ordinary Total dividends paid Dividends proposed Cents per share Total amount $’000 Date of payment Tax rate for franking credit Percent franked 2.00 2.00 3.75 2.25 6.00 3,702 3,702 6,940 4,164 11,104 16 April 2015 30% 100% 17 April 2014 10 October 2014 30% 30% 100% 100% No final dividend was proposed for the financial year ended 30 June 2015. Dividend franking account Franking credits available to shareholders of MaxiTRANS Industries Limited for subsequent financial years The Company 2015 $’000 2014 $’000 18,685 17,044 The ability to utilise the franking credits is dependent upon the ongoing solvency of the Company. The impact on the dividend franking account of dividends proposed after the reporting date but not recognised as a liability is to reduce it by $nil (2014: $1,784,658). 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 14. SEGMENT INFORMATION It is the Group’s policy that inter–segment pricing is determined on an arm’s length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise, interest–bearing loans, borrowings and expenses, and corporate assets and expenses. Total finance costs of the Group are included in unallocated corporate costs. Year ended 30 June 2015 Business Segments Revenue External segment revenue Inter–segment revenue Total segment revenue Unallocated sundry revenue Total revenue Trailer & Tipper Units Parts & Service Eliminations Consolidated $’000 $’000 $’000 $’000 200,647 2,212 202,859 127,240 23,772 151,012 – (25,984) (25,984) 327,887 – 327,887 1,278 329,165 Segment Net profit before tax 6,475 1,570 – 8,045 Share of net profit of equity accounted investments Unallocated corporate expenses Profit before related income tax expense Income tax expense Net profit Depreciation and amortisation Unallocated depreciation and amortisation Total depreciation and amortisation Assets Segment assets Unallocated corporate assets Consolidated total assets Liabilities Segment liabilities Unallocated corporate liabilities Consolidated total liabilities Capital expenditure(i) Unallocated capital expenditure Consolidated capital expenditure 2,814 2,570 – 124,336 70,490 – 12,787 26,049 – 1,409 3,216 – 997 (3,543) 5,499 (1,036) 4,463 5,384 259 5,643 194,826 31,016 225,842 38,836 66,394 105,230 4,625 6,268 10,893 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 14. SEGMENT INFORMATION (continued) Year ended 30 June 2014 Business Segments Revenue External segment revenue Inter–segment revenue Total segment revenue Unallocated sundry revenue Total revenue Trailer & Tipper Units Parts & Service Eliminations Consolidated $’000 $’000 $’000 $’000 214,503 1,825 216,328 136,438 23,127 159,565 – (24,952) (24,952) 350,941 – 350,941 1,027 351,968 Segment Net profit before tax 15,422 9,783 – 25,205 Share of net profit of equity accounted investments Unallocated corporate expenses Profit before related income tax expense Income tax expense Net profit Depreciation and amortisation Unallocated depreciation and amortisation Total depreciation and amortisation Assets Segment assets Unallocated corporate assets Consolidated total assets Liabilities Segment liabilities Unallocated corporate liabilities Consolidated total liabilities Capital expenditure(i) Unallocated capital expenditure Consolidated capital expenditure 3,183 2,045 120,956 74,089 13,907 22,263 1,821 6,922 – – – – 1,471 (3,504) 23,172 (6,027) 17,145 5,228 180 5,408 195,045 23,979 219,024 36,170 61,041 97,211 8,743 5,577 14,320 (i) Capital expenditure includes the acquisition of leased assets Geographical segments The Group’s external revenues are predominantly derived from customers located within Australia. The customer base is sufficiently diverse to ensure the Group is not reliant on any particular customer. The Group’s assets and capital expenditure activities are predominantly located within Australia. 54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 15. SHARE BASED PAYMENTS On 15 October 2010, the Group established the MaxiTRANS Performance Rights Plan (‘PRP’) that entitles executive directors and senior management to receive a specified number of Performance Rights (‘PR’s’) which upon vesting can be converted into a specified number of ordinary shares in the Company. The terms and conditions relating to PR’s currently on issue are as follows: Period Grant date Total PR's Issued Total PR’s Forfeited Total PR's remaining on issue Vesting conditions Base ROIC Target increase in ROIC 1 July 2014 – 30 June 2017 1 July 2013 – 30 June 2016 1 July 2012 – 30 June 2015 30 September 2014 30 September 2013 30 September 2012 2,072,978 130,456 1,942,522 ROIC – 50% EPS – 50% 1,532,292 98,824 1,433,468 1,831,097 419,096 1,412,001 ROIC – 100% ROIC – 100% 9.62% (year ended 15.0% (year ended 10.1% (year ended 30 June 2014) 30 June 2013) 30 June 2012) Average of 1.50% per annum Average of 0.33% per annum Average of 1.15% per annum (4.50% over 3 years) (1.00% over 3 years) (3.45% over 3 years) Percentage increase in base ROIC required 47% 7% 34% Minimum % of ROIC target that must be 67% (i.e. average of 1.00% Base ROIC of 15.0% must 70% (i.e. average of 0.81% achieved for Performance Rights to vest per annum) be achieved per annum) Target EPS Average 10.0% compound growth over 2014 Basic EPS – 9.26% n/a n/a Minimum service requirement 3 years from grant date 3 years from grant date 3 years from grant date Details of 2011 PR’s exercised during the year: Total PR's issued Total PR’s forfeited Total PR’s exercised Measurement of fair value 2,893,613 1,593,349 1,300,264 The fair value of PR’s is calculated at the date of grant by an independent external valuer, Grant Thornton, using the Monte Carlo simulation model and allocated to each reporting period evenly over the period from grant date to vesting date. Expected volatility is estimated by considering historic average share price volatility. PR’s are granted under a service condition and, for grants to key management personnel, non–market performance conditions. Non–market performance conditions are not taken into account in the grant date fair value measurement of the services received. The inputs used in the measurement of the fair values at grant date of the PR’s are as follows: 2015 2014 2013 Fair value at grant date 76.83¢ $1.012 59.65¢ Share price at grant date Expected volatility Expected dividend yield Risk–free rate of return Liquidity discount 86.50¢ 40.00% 6.50% 2.90% 15.00% $1.325 40.00% 6.50% 3.60% 15.00% 76.50¢ 40.00% 6.50% 2.50% 15.00% 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 15. SHARE BASED PAYMENTS (continued) Expense recognised in profit and loss PR's on issue Total share based payment expense recognised as employee costs 16. RELATED PARTY DISCLOSURES (a) Director and other key management personnel disclosures Consolidated 2015 $’000 570 570 2014 $’000 598 598 Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Group. Key management personnel comprise the directors of the Company and executives for the Group. The following were key management personnel of the Group at any time during the reporting period and unless otherwise indicated were key management personnel for the entire period: Non-executive directors – Mr I Davis (Chairman) – Mr J Curtis (Deputy Chairman) – Mr G Lord – Mr R Wylie – Mr J Rizzo Executive directors – Mr M Brockhoff (Managing Director) Executives – Mr C Richards (Chief Financial Officer and Company Secretary) – – Mr A Wibberley (Group General Manager – Manufacturing) Mr P Buttler (General Manager – Ballarat) – Mr N Zantuck (General Manager – Vic Branch) – resigned effective 27 May 2015 – Mr P Loimaranta (General Manager – MaxiPARTS) – Mr A McKenzie (Group General Manager – Sales and Distribution) – appointed 20 April 2015 – Mr S Harkin (Group Supply Manager) – appointed 9 February 2015 (b) Directors’ transactions in shares Directors and their related entities acquired 1,064,834 existing ordinary shares in MaxiTRANS Industries Limited during the year. (c) Director and other key management personnel transactions MaxiTRANS Industries Limited and controlled entities paid legal fees of $621,204 (2014: $769,147) to Minter Ellison of which Mr I. Davis was a senior partner during the year. All dealings were in the ordinary course of business and on normal commercial terms and conditions. Amounts owing at year end total $nil (2014: $nil). MaxiTRANS Industries Limited and controlled entities paid consulting fees of $1,470,406 (2014: $2,369,566) to UXC Red Rock Pty Ltd, a subsidiary of UXC Limited of which Mr G Lord is Deputy Chairman. All dealings were in the ordinary course of business and on normal commercial terms and conditions. During the year, the contractual arrangements between the parties came to an end. Amounts owing at year end total $nil (2014: $nil). Apart from the details disclosed in this note, no key management personnel have entered into a material contract with the Company or the Group since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year–end. 56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 16. RELATED PARTY DISCLOSURES (continued) (d) Transactions with joint venture During the year the Group derived revenue from the joint venture of $35,668,496 (2014: $38,212,000) for the sale of new units, parts and the provisions of services. Amounts receivable from the joint venture at year end total $6,838,947 (2014: $3,772,000). During the year the Group paid for services and parts from the joint venture totalling $1,268,351 (2014: $1,254,000). Amounts owing at year end total $37,573 (2014: $55,000). All dealings were in the ordinary course of business and on normal commercial terms and conditions. (e) Key management personnel remuneration The key management personnel remuneration (see Remuneration Report) is as follows: Short–term employee benefits Post–employment benefits Share based payment benefits Consolidated 2015 $’000 2,761 313 392 3,466 2014 $’000 2,719 267 452 3,438 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 17. PARENT ENTITY As at 30 June 2015 and throughout the financial year ending on that date, the parent company of the Group was MaxiTRANS Industries Limited. Results of the parent company Profit/(loss) for the year Other comprehensive income Total comprehensive income Financial position of the parent company Current assets Total assets Current liabilities Total liabilities Net Assets Total equity of the parent company comprising of: Issued capital Reserves Retained earnings Total equity Parent company investment in subsidiaries and joint ventures – Company 2015 $’000 11,659 11,659 36,763 83,863 400 400 2014 $’000 19,766 – 19,766 57,836 91,102 983 983 83,463 90,119 56,386 1,181 25,896 83,463 56,386 1,161 32,572 90,119 Investments in subsidiaries and joint ventures are carried at historical cost in the parent company less, where applicable, any impairment charge. Parent company contingencies At any given point in time, the parent company may be engaged in defending legal actions brought against it. The directors are not aware of any such actions that would give rise to a material contingent liability to the parent company. 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 18. CONTROLLED ENTITIES Particulars in relation to controlled entities Country of incorp. Class of shares Interest held 2015 % 2014 % The Company: MaxiTRANS Industries Limited Controlled entities of MaxiTRANS Industries Limited: MaxiTRANS Australia Pty Ltd – Transport Connection Pty Ltd Transtech Research Pty Ltd Trail Truck Parts Pty Ltd (i) MaxiTRANS Industries (N.Z.) Pty Ltd Peki Pty Ltd (i) Ultraparts Pty Ltd (i) MaxiTRANS Services Pty Ltd MaxiTRANS Finance Pty Ltd (i) Lusty EMS Pty Ltd Hamelex White Pty Ltd (i) MaxiPARTS Pty Ltd (formerly Colrain Pty Ltd) – Colrain Queensland Pty Ltd – Colrain (Albury) Pty Ltd – Queensland Diesel Spares Pty Ltd (formerly Colrain (Ballarat) Pty Ltd) (i) – Colrain Pty Ltd (formerly Colrain (Geelong) Pty Ltd) (i) – MaxiPARTS (Qld) Pty Ltd (formerly Queensland Diesel Spares Pty Ltd) MaxiTRANS Employee Share Plan Pty Ltd MaxiTRANS (China) Limited (i) Yangzhou Maxi–CUBE Tong Composites Co Ltd Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Hong Kong China (i) Dormant entity 19. DEED OF CROSS GUARANTEE Ord. Ord Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 The Company, together with its subsidiaries, MaxiTRANS Australia Pty Ltd, Transtech Research Pty Ltd, Lusty EMS Pty Ltd, Peki Pty Ltd, MaxiTRANS Industries (N.Z.) Pty Ltd, MaxiPARTS Pty Ltd (effective 1 September 2008, previously ineligible) and Queensland Diesel Spares Pty Ltd (effective 22 June 2012, previously ineligible) each of which are incorporated in Australia, entered into a “Deed of Cross Guarantee” so as to seek the benefit of the accounting and audit relief available under Class Order (98/1418) made by the Australian Securities & Investments Commission which was granted on 30 June 2006. A consolidated statement of comprehensive income and consolidated balance sheet, comprising the Company and controlled entities which are party to the Deed, after eliminating all transactions between parties to the Deed of Cross Guarantee, for the year ended 30 June 2015 is set out as follows: 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 19. DEED OF CROSS GUARANTEE (continued) Consolidated statement of comprehensive income Total revenue Raw materials and consumables used Other income Employee expenses Depreciation and amortisation expenses Impairment loss on intangible assets Finance costs Other expenses Share of net profits of joint ventures accounted for using the equity method Profit before income tax Income tax expense Profit for the year Other comprehensive income Items that may subsequently be re-classified to profit or loss: Net exchange difference on translation of financial statements of foreign operations Other sundry movements Items that will never be re-classifed to profit or loss: Revaluation of land and buildings Related tax Other comprehensive income/(loss) for the year, net of tax Total comprehensive income for the year Profit attributable to: Equity holders of the company Total comprehensive income attributable to: Equity holders of the company 60 Consolidated 2015 $’000 2014 $’000 294,824 310,661 (172,807) (176,203) 90 (79,809) (4,857) (2,580) (2,322) (27,671) 997 5,865 361 (81,413) (4,959) – (1,939) (25,516) 1,471 22,463 (1,197) (5,628) 4,668 16,835 (558) (81) 3,127 (917) 1,571 6,239 1,390 (6) 2,583 (775) 3,192 20,027 4,668 16,835 6,239 20,027 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 19. DEED OF CROSS GUARANTEE (continued) Consolidated balance sheet Current Assets Cash and cash equivalents Trade and other receivables Inventories Other Total Current Assets Non-Current Assets Investment in joint venture Investments in controlled entities Property, plant & equipment Intangible assets Deferred tax assets Other Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Interest bearing loans and borrowings Current tax liability Provisions Total Current Liabilities Non-Current Liabilities Interest bearing loans and borrowings Deferred tax liabilities Provisions Other Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Retained profits Total Equity Consolidated 2015 $’000 2,974 37,284 49,886 3,123 93,267 3,926 7,294 63,631 37,895 288 1,157 2014 $’000 2,942 37,131 50,501 2,371 92,945 3,994 7,294 54,321 41,601 – 818 114,191 108,028 207,458 200,973 35,686 1,069 291 11,747 48,793 42,036 311 1,152 244 43,743 92,536 32,163 1,936 89 9,826 44,014 38,181 1,714 1,012 119 41,026 85,040 114,922 115,933 56,386 13,612 44,924 56,386 12,222 47,325 114,922 115,933 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 20. INVESTMENT IN JOINT VENTURE Name of Entity Principal Activity Trailer Sales Pty Ltd Trailer retailer. Repairs and service provider. Sale of spare parts within Australia, which is the country of incorporation. Ownership 2015 % 36.67 2014 % 36.67 $’000 2015 2014 Revenues (100%) Net profit after tax (100%) Share of joint venture profit recognised Total assets Total liabilities Net assets as reported by joint venture 64,765 71,667 2,718 4,012 997 1,471 23,069 22,081 13,489 12,315 9,580 9,766 Commitments The share of the joint venture’s capital commitments contracted but not provided for or payable within one year was $nil at 30 June 2015 (2014: $nil). 21. NOTE TO THE CONSOLIDATED STATEMENT OF CASH FLOWS (a) Reconciliation of cash flows from operating activities with operating profit/(loss) after tax Consolidated 2015 $’000 2014 $’000 4,463 17,145 5,643 2,580 (43) (997) (264) (202) 269 584 2,316 (1,229) (3,175) 2,193 5,409 – (238) (1,471) 598 (1,640) 627 715 3,370 (8,353) (293) 743 12,138 16,612 Profit for the year Non cash items in operating profit Depreciation/amortisation of assets Impairment loss on intangible assets Profit on sale of fixed assets Share of joint venture profit Share based payments expense Change in assets & liabilities (Increase)/decrease in receivables (Increase)/decrease in other assets (Increase)/decrease in inventories Increase/(decrease) in trade payables and other liabilities Increase/(decrease) in income tax payable Increase/(decrease) in deferred taxes Increase/(decrease) in provisions Net cash flows from operating activities 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 21. NOTE TO THE CONSOLIDATED STATEMENT OF CASH FLOWS (continued) (b) Non-cash financing and investing activities Acquisition of plant & equipment by means of finance leases These acquisitions are not reflected in the consolidated statement of cash flows. 22. CAPITAL AND LEASING COMMITMENTS (a) Operating lease commitments Future operating lease rentals not provided for in the financial statements and payable: – not later than 1 year – later than 1 year but not later than 5 years – later than 5 years Total operating lease commitments Consolidated 2015 $’000 2014 $’000 684 1,007 4,907 8,789 4,452 4,616 7,316 228 18,148 12,160 The Group leases property under operating leases expiring from one to ten years. Leases generally provide the Group with a right of renewal at which time all terms are renegotiated. (b) Capital expenditure commitments Payable – not later than 1 year – later than 1 year but not later than 5 years Total capital expenditure commitments 23. CONTINGENT LIABILITIES – 9,715 9,715 6,706 2,370 9,076 At any given point in time the Group may be engaged in defending legal actions brought against it. In the opinion of the directors such actions are not expected to have a material effect on the Group’s financial position. 24. REMUNERATION OF AUDITOR Remuneration of the auditor of the Company for: $ $ KPMG Australia: – auditing and reviewing the financial statements – other services (taxation & advisory) Overseas KPMG Firms: – auditing and reviewing financial statements – other services (taxation, advisory & due diligence) Total 286,200 55,590 229,900 225,497 341,790 455,397 76,350 28,916 105,266 65,503 7,897 73,400 447,056 528,797 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 25. FINANCIAL INSTRUMENTS (a) Risk management framework/policies The Groups key activities include the design, manufacture, sale, service and repair of transport equipment and related component and spare parts. These activities expose the Group to a variety of financial risks, including liquidity risk, credit risk and market risk such as currency and interest rate risk. The Group’s financial risk management program seeks to minimise the potential adverse effects of the unpredictability of financial markets on the financial performance of the Group by utilising derivative financial instruments for purchase of supplies and raw materials. The Group measures risk exposure through sensitivity analysis in the case of currency risk, cash flow forecasting and ageing analysis for credit risk. (b) Interest rate risk The Group is exposed to interest rate risk as it borrows at both fixed and floating interest rates. The risk is managed by the use of fixed interest rate contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring optimal hedging strategies are applied, by either positioning the statement of financial performance or protecting interest rate expense through different interest rate cycles. As at reporting date the interest rate profile of the Group’s interest bearing financial instruments were: Borrowings – fixed rate Borrowings – floating rate 2015 $’000 21,070 26,232 47,302 2014 $’000 31,867 10,713 42,580 As at reporting date, if interest rates on borrowings had moved as illustrated in the table below, with all other variables held constant, post tax profit for the year would have been affected as follows: 100bp increase 100bp decrease (c) Currency risk 2015 $’000 (136) 136 2014 $’000 (110) 110 The Group is exposed to foreign currency risk on purchases that are denominated in foreign currency, primarily United States Dollars. Derivative financial instruments (forward exchange contracts) are used by the Group to economically hedge exposure to exchange rate risk associated with foreign currency transactions. Forward exchange contracts The following table summarises the US Dollar forward exchange contracts outstanding as at the reporting date: Average Exchange Rate Foreign Currency Contract Value Fair Value 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Buy USD Dollar 0.8292 0.9278 2,637 4,337 3,180 4,675 297 (33) 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 25. FINANCIAL INSTRUMENTS (continued) As at reporting date, if the Australian Dollar had moved against the US Dollar currency as illustrated in the table below, with all other variables held constant, post tax profit for the year would have ben affected as follows: USD 10.0 cents increase (d) Credit risk 2015 $’000 2014 $’000 (87) (318) Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group is exposed to credit risk from its operating activities, primarily from trade and other receivables and financing activities, including deposits with financial institutions. The carrying amount of these financial assets at year-end represented the Group’s maximum exposure to credit risk. The Group has a policy of only dealing with creditworthy counterparties and obtaining sufficient security where appropriate, as a means of mitigating the risk of financial losses from defaults. The Group does not have any significant credit risk exposure to any single counter party. The majority of accounts receivable are due from entities within the transport industry. Guarantees Performance guarantees of $1,414,194 (2014: $561,448) are held by Australia and New Zealand Banking Group Limited on behalf of MaxiTRANS Australia Pty Ltd and MaxiPARTS Pty Ltd. (e) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk by maintaining adequate cash reserves, committed banking facilities and reserve borrowing facilities and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group’s liquidity management policies include Board approval of all changes to debt facilities including the terms of fixed rate debt. The liquidity management policies ensure that the Group has a well diversified portfolio of debt, in terms of maturity and source, which significantly reduces reliance on any one source of debt in any one particular year. Liquidity risk is managed by the Group based on net inflows and outflows from financial assets and financial liabilities. The following table summarises the maturities of the Group’s financial assets and liabilities based on the remaining earliest contractual maturities, excluding net interest payable on borrowings. 30 June 2015 Carrying Amount $’000 6 months or less $’000 6–12 months $’000 1–2 years $’000 2–5 years $’000 Trade and other payables and accruals Borrowings (43,216) (47,302) (43,216) (4,767) – (499) – (30,701) – (11,335) Effect of Derivative Instruments – Forward exchange contracts 277 277 – – – (90,241) (47,706) (499) (30,701) (11,335) 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED 25. FINANCIAL INSTRUMENTS (continued) 30 June 2014 Carrying Amount $’000 6 months or less $’000 6–12 months $’000 1–2 years $’000 Trade and other payables and accruals Borrowings (41,040) (42,580) (41,040) (2,342) – (2,057) – (30,389) 2–5 years $’000 – (7,792) Effect of Derivative Instruments – Forward exchange contracts Finance facilities (46) (46) – – – (83,666) (43,428) (2,057) (30,389) (7,792) At year end, the Group had the following financing facilities in place with its bankers: Loan facility Overdraft facility Multi-option facility Facility Amount Utilised Available 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2015 $’000 2014 $’000 64,196 2,000 13,000 63,421 2,000 13,000 45,196 – 2,106 39,713 – 2,867 19,000 2,000 10,894 23,708 2,000 10,133 79,196 78,421 47,302 42,580 31,894 35,841 The loan, overdraft and other facilities are fully secured by a registered charge (mortgage debenture) over the whole of the assets and undertakings of the Group and a registered mortgage over certain land and buildings of controlled entities. Core Australian and New Zealand loan facilities of $75.0m mature as follows, subject to continuing compliance with the terms of the facilities: – $45.0m in December 2016; – $30.0m in December 2018. Interest rates are a combination of fixed and variable. The MTC (China) core loan facility is an at-call facility of RMB 20.0m. Subsequent to the end of the financial year, ANZ Banking Group in China replaced China Merchant Bank and has provided debt facilities guaranteed by the parent company totalling RMB 25.0m to MTC. The terms and conditions of the bank facilities contain covenants in relation to gearing ratio, interest cover and EBITDA ratio. These covenants have been satisfied during the 2015 and 2014 financial years. (f) Fair value Determination of fair value Net fair value has been determined in respect of financial assets and financial liabilities, with reference to the carrying amount of such assets and liabilities in the consolidated balance sheet, determined in accordance with the accounting policies disclosed in Note 1 to the financial statements. The carrying amount approximates estimated net fair value for the Group’s financial assets and liabilities. 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015–– 25. FINANCIAL INSTRUMENTS (continued) Classification of fair value Fair Value Measurement requires that financial and non-financial assets and liabilities measured at fair value (being forward exchange contracts, interest rate swaps and land and buildings) be disclosed according to their position in the fair value hierarchy. There were no transfers between levels within the fair value hierarchy at 30 June 2015. ƒƒ Level 1 is based on quoted prices in active markets for identical items; ƒƒ Level 2 is based on quoted prices or other observable market data not included in level 1; ƒƒ Level 3 valuations are based on inputs other than observable market data. Forward exchange contracts and interest rate swaps are classified as Level 2 and their fair value is determined by reference to observable inputs from active markets or prices from markets not considered active. They are priced with reference to an active yield or rate, but with an adjustment applied to reflect the timing of maturity dates. The fair value of forward exchange contracts and interest rate swaps at balance date is as follows: Derivative assets Derivative liabilities 2015 $’000 22 – 2014 $’000 – 185 Land and buildings are classified as Level 3 and their fair value reflects the use of directly unobservable market inputs in their valuation, including assumptions about rents, yields and discount rates obtained from analysed transactions. Valuations have been performed at 30 June 2015 by external, independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued. The valuation technique is based on the highest and best use to market participants. The following table present changes in the fair value of land and buildings during 2014/15, including changes to the unobservable inputs. Opening balance as at 1 July 2014 Fair value revaluation Depreciation recognised in the statement of profit and loss Exchange rate variance Closing balance as at 30 June 2015 26. EVENTS SUBSEQUENT TO BALANCE DATE Land and Buildings $’000 37,174 3,127 (494) (473) 39,334 There have been no events subsequent to the reporting date which would have a material effect on the Group’s financial statements for the year ended 30 June 2015. 67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cont)FOR THE YEAR ENDED 30 JUNE 2015ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED INDEPENDENT AUDITOR'S REPORT FOR THE YEAR ENDED 30 JUNE 2015 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MAXITRANS INDUSTRIES LIMITED REPORT ON THE FINANCIAL REPORT We have audited the accompanying financial report of MaxiTRANS Industries Limited (the Company), which comprises the consolidated balance sheet as at 30 June 2015, and consolidated statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 26 comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the Group comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to fraud or error. In note 1, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards. We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group’s financial position and of its performance. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2015 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 1. Auditor’s responsibility REPORT ON THE REMUNERATION REPORT Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in 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 making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We have audited the Remuneration Report included in pages 18 to 24 of the directors’ report for the year ended 30 June 2015. The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards. Auditor’s opinion In our opinion, the remuneration report of MaxiTRANS Industries Limited for the year ended 30 June 2015, complies with Section 300A of the Corporations Act 2001. KPMG Melbourne 21 August 2015 Tony Romeo Partner KPMG, an Australian partnership and member firm of the KPMG Liability limited by a scheme approved under Professional network of independent member firms affiliated with KPMG Standards Legislation International Cooperative ("KPMG International"), a Swiss entity. 68 AUSTRALIAN STOCK EXCHANGE ADDITIONAL INFORMATION FOR THE YEAR ENDED 30 JUNE 2015 Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed elsewhere in this report. Distribution of shareholders (As at 31 July 2015) Category – No of shares No of shareholders SHAREHOLDINGS Substantial shareholders The names of the substantial shareholders listed in the Company’s register as at 31 July 2015 are: Ordinary shares Transcap Pty Ltd & related parties HGT Investments Pty Ltd 25,547,972 19,250,000 Voting rights 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over 568 1,348 862 1,603 192 4,573 Shareholders with less than a marketable parcel As at 31 July 2015, there were 641 shareholders holding less than a marketable parcel of 1,220 ordinary shares ($0.41 on 31 July 2015) in the Company totalling 422,583 ordinary shares. As at 31 July 2015, there were 4,573 holders of ordinary shares of the Company. On market buy-back There is no current on-market buy-back Subject to the Constitution of the Company, holders of ordinary shares are entitled to vote as follows: (a) every shareholder may vote; (b) on a show of hands every shareholder has one vote; (c) on a poll every shareholder has: (i) one vote for each fully paid share; and (ii) for each partly paid share held by the shareholder, a fraction of a vote equivalent to the proportion which the amount paid (not credited) is of the total amounts paid and payable (excluding amounts credited) on the share. As at 31 July 2015, there were no unquoted options over unissued ordinary shares. 69 ANNUAL REPORT 2015MAXITRANS INDUSTRIES LIMITED AUSTRALIAN STOCK EXCHANGE ADDITIONAL INFORMATION (cont) FOR THE YEAR ENDED 30 JUNE 2015 TWENTY LARGEST SHAREHOLDERS – ORDINARY SHARES AS AT 31 JULY 2015 Name HGT Investments Pty Ltd Transcap Pty Ltd Citicorp Nominees Pty Ltd Toroa Pty Ltd J P Morgan Nominees Australia Limited HSBC Custody Nominees Australia Limited BKI Investment Company Limited National Nominees Limited De Bruin Securities Pty Ltd Sandhurst Trustees Limited John E Gill Trading Pty Ltd Aust Executor Trustees Limited Mr E D Ross John E Gill Operations Pty Ltd Mr J R Curtis Mahata Pty Ltd Navigator Australia Limited Denvorcorp Holdings Pty Ltd Tanerka Pty Ltd Belgravia Strategic Equities Pty Ltd TOTAL Number of fully paid ordinary shares held Percentage held of issued ordinary shares 19,750,000 17,935,549 12,146,097 4,968,592 4,515,926 3,629,978 2,800,000 2,275,123 2,129,773 2,128,958 1,821,645 1,618,863 1,406,540 1,391,657 1,328,439 1,315,392 1,303,665 1,302,193 1,276,100 939,604 10.67% 9.69% 6.56% 2.68% 2.44% 1.96% 1.51% 1.23% 1.15% 1.15% 0.98% 0.87% 0.76% 0.75% 0.72% 0.71% 0.70% 0.70% 0.69% 0.51% 85,984,094 46.43% 70 This page has been left blank intentionally. MAXITRANS INDUSTRIES LIMITED ANNUAL REPORT 2015 71 This page has been left blank intentionally. 72 www.colliercreative.com.au #MAX0007 M A X I T R A N S I N D U S T R I E S L I M I T E D A N N U A L R E P O R T 2 0 1 5 www.maxitrans.com 

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