MaxiPARTS
Annual Report 2018

Plain-text annual report

ANNUAL REPORT 2018 MaxiTRANS Industries Limited ACN 006 797 173 LEADING THE WAYOUR PURPOSE LEAD OUR INDUSTRY TO BECOME SAFER AND MORE EFFICIENT, SO OUR CUSTOMERS CAN BETTER DELIVER THE NEEDS OF A NATION. Cover from left to right front row: Yunfeng Bao Graduate Product Engineer; Nor Nordin Business Graduate; Jackson Wright Graduate Engineer; Venkatesan Sethuraman Graduate Engineer; Ankita Wadhani Business Graduate. Left to right back row Caleb Pearce Graduate Design Engineer; Aislinn Seery Graduate Design Engineer; Matthew Kebernik Graduate Product Designer Image below from left to right: Jenny Chen Design Engineer; Daniel Grundell Design Engineer; Aislinn Seery Graduate Design Engineer MaxiTRANS Industries | Annual Report 2018 01 15 Executive Leadership Team 16 Report of the Directors and Financial Report CONTENTS 02 2018 Highlights 03 08 MaxiPARTS 10 Chairman’s Letter Australian Trailers 04 12 Managing Director’s Review International 06 14 Our People, Our Community Board of Directors DELIVERING THE NEEDS OF A NATION02 MaxiTRANS Industries | Annual Report 2018 2018 HIGHLIGHTS 409 17.1 6.0 9.2 352 340 340 329 10.7 10.1 8.8* 6.3* 3.5 3.5 3.0 2.0 5.8 5.4 4.7* 3.4* 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Revenue ($m) Net profit after tax ($m) Ordinary dividends declared per share (cents) Earnings per share (basic) (cents) * Excluding significant items Operating cash flow Women in management roles Australian trailer unit sales New Zealand trailer unit sales 25% 17% 45% 345% Medically treated injury rate $15K 20% Donated to support RUOK? Coles 386 trailers delivered MaxiTRANS Industries | Annual Report 2018 03 CHAIRMAN’S REPORT “MaxiTRANS builds even further upon already strong foundations. Focusing on operations to improve efficiencies as well as setting safety of our people and customers as a daily priority, is a clear demonstration of how MaxiTRANS continues to lead this industry to become better every day”. Dear Shareholder, Last year I spoke to you about our change agenda at MaxiTRANS and this year I can provide some further colour to that agenda, how it is tracking and the future the Board and Management have mapped out, but firstly let me touch briefly on the year just completed. Whilst our revenue objectives were met with an increase of 20% to $409.3 million, poor operating margins meant we did not meet our bottom line expectations with Net Profit After Tax of $10.1 million, 5.8% below last year. As a Board, we were disappointed at the need to make a trading update in May of this year. This unexpected downgrade was a direct result of manufacturing inefficiencies and supply chain shortages which emerged as the business tried to aggressively take advantage of a better than anticipated order book following the completion of the Coles order in Q3. After an intense period of recovery we have now regained control towards long run levels of efficiency and have started to see the expected levels of profitability return. Whilst this was a setback, the Board is confident that the strategy remains the right one for MaxiTRANS and we remain committed to our five strategic pathways that have seen good progress over the last year. This strategy will see the business double earnings over the plan period through a combination of margin accretion and revenue growth. Operational Excellence In building the foundation for the future, the business needs to introduce more standardised and repeatable processes through a consistent MaxiTRANS Production System supported by the new ERP platform, a rigorous Health, Safety, Environment and Quality platform and a collaborative whole-of-business supply chain network. Growth in Existing Markets Continuing with the successful growth of the product portfolio in the MaxiPARTS business and further leveraging our national customer relationships, we firmly believe we will – if we don’t already – have a first class distribution asset. Through a systemic review of our Sales, Service and Parts footprint, innovative product enhancements/additions and the flow-on effects of the Operational Excellence strategy, we will continue to increase market share whilst protecting margins. Growth in New Markets With a key desire to move up the value chain in China through a focus on the growing China and South East Asian markets and better leveraging our existing New Zealand footprint, we aim to have 25% of group earnings not exposed to the Australian economy by 2022. The success of these growth platforms can only happen by ensuring the organisation is capable to deliver and we are supporting this through our enabling strategies. Organisation Development and Corporate Image We are embedding a consistent set of values throughout our entire team and creating a talent management and performance framework that aligns the competencies of our people to meet our business needs, underpinned by a pride in being Australia’s largest and only listed player in our industry. Finally, I am pleased to report that we have also made good progress over the recent period in reviewing our capital allocation. In addition to the recently announced decision to sell our Chinese panel business, we have a number of other plans that will continue to be developed and implemented over the next year. So as I look forward, we – your Board of Directors – firmly believe we have a sound strategy and a developing diverse organisational capability to deliver that strategy. Robert H. Wylie Chairman 04 MaxiTRANS Industries | Annual Report 2018 MANAGING DIRECTOR’S REVIEW “Operating cashflow of $19m represented a 345% improvement over the prior year, largely as a result of improved working capital. This strong operating cashflow funded the continued investment in the group’s core IT transformation program and the Company’s dividend payments”. MaxiTRANS’ performance for the year ended 30th June 2018, reflects many encouraging signs for the future of the Company, in particular a continued rebalancing of the portfolio’s profitability as the MaxiPARTS business continues to become a substantive automotive distribution business in its own right, continued strong order book and sales in the Trailer segment. The year does however highlight that we still have work to do to capitalise on the opportunities that arise and, in particular, ensuring these generate improving returns for shareholders. Notwithstanding a significant improvement in employee engagement and commitment to improve our safety performance, our total injury rate improved only slightly. The continued introduction of a systemic Health, Safety, Environment and Quality program is now well underway and has started to drive leading indicator performance improvement over the second half of the year. This should continue in the coming year. One of our core values is “To send all our people home safely”, and the relentless pursuit of this desire remains a key focus across the business. From a financial perspective, all areas of our business, except China, contributed to deliver overall revenue growth of 20%. However, this strong top line growth did not translate to profit growth in the Trailer business due to a number of significant warranty issues in New Zealand as well as a disappointing manufacturing performance in Australia in Q4 of FY18 that resulted in the profit downgrade announced to the market in May, 2018. Operating cashflow of $19m represented a 345% improvement over the prior year, largely as a result of improved working capital. This strong operating cashflow funded the continued investment in the group’s core IT transformation program and the Company’s dividend payments. Net debt / equity at the end of FY18 was 30%, a slight improvement on prior year. The group’s financial position remains strong and we continue to have significant headroom in our debt facilities, enabling further investment in our strategic growth initiatives. The extensive capital investment in the company’s IT systems and processes in recent years will reduce in FY19 as the systems are deployed progressively. We expect operating cashflow in future years to consistently improve as the investment program reduces and the benefits of this investment are realised. As the strategy our Chairman articulated earlier has taken shape through the year, the business has also been able to critically look at our capital allocation and has taken a number of decisions that will not only fund growth but also improve the Return on Invested Capital. The first of these is to sell the MTC business in China as a result of the changing panel manufacturing landscape globally. The sale process is well underway and this will incorporate long- term supply arrangements for continued sourcing of product. MaxiPARTS Parts Business The MaxiPARTS business experienced strong revenue and profit growth from the launch of new products into the range including tyres, European after-market truck parts and North American after-market engine parts, as well as continued success of the MaxiSTOCK customer inventory management system to drive incremental sales. A change in the group business model now has MaxiPARTS operating as a key supplier to our manufacturing and service facilities, thus ensuring parts and component procurement is leveraging the company’s full scale, procurement and logistics capability. This more integrated supply chain is already showing early benefit in inventory levels and assisted in the improved working capital performance for the year. The strategic intent to drive sales volume increase through our existing national wholesale and retail network of 20 locations, together with tight cost control, resulted in net margin improvement over the prior year. This should continue as the benefits of our national footprint start to become clearer to key fleet customers. MaxiTRANS Industries | Annual Report 2018 05 Australian Trailer Business We continue to see an improvement in conditions for the Australian trailer market with new trailer registrations in 2017 increasing 17% over the prior year, representing the second year in a row of market growth, albeit somewhat affected by the scale of the Coles trailers being registered . This appears to indicate the start of the trailer equipment replacement cycle. Pleasingly, MaxiTRANS has continued its long term trend of increasing market share. Assisted by the order to build 386 trailers for Coles Supermarkets, the Australian trailer business increased its unit sales 17% and revenue by 25%. The order, regarded as the single largest order in the Australian trailer industry at the time, was completed on budget and ahead of time. Confirming the company’s credentials to deliver large scale orders. MaxiTRANS has also secured a number of other high volume contracts, but not of the same magnitude as the Coles contract. The Coles order drove the strong sales growth of Maxi-CUBE refrigerated vans and we also saw strong sales growth of our Freighter branded general freight products. This is the result of improved confidence in the general freight sector as well as the better than expected launch of a standard model trailer that is able to be delivered in a shorter lead time. Whilst still above average historical levels, sales of our portfolio of tipper products into the infrastructure construction, agriculture and waste sectors declined from the abnormally high sales levels of the prior year. We expect tipper sales to remain strong whilst investment in infrastructure construction continues. A solid pipeline of product development initiatives to deliver new innovative solutions for our customers and cost reductions will continue to deliver incremental sales into the future. The current market conditions are requiring our manufacturing facilities to increase production rates to high levels over a sustained period. This challenge, compounded by the sudden and dramatic shift in production mix, placed great strain on the manufacturing facilities, with the impact experienced in the last quarter of FY18. Pleasingly, our manufacturing management team have restored operating efficiency back towards normal levels as we enter the new financial year. Looking forward, the single point reliance on a sole manufacturing plant in Ballarat has resulted in an updated manufacturing strategy that will see the next phase of capacity growth likely to be in a new facility in Queensland. Not only does this reduce long-term strain on the Ballarat facility but it enables MaxiTRANS to better support the growing Northern NSW and Queensland markets, whilst realising operating efficiency on the present Queensland manufactured products. International Business New Zealand As foreshadowed last year, the New Zealand trailer market rebounded after the period of uncertainty surrounding the transport regulation changes. This, combined with a number of customer contract changes, drove a 45% increase in trailer unit sales. In addition, the business established its first permanent presence in the South Island during the year by opening a new service facility in Christchurch. This has been well received by our customers as it provides national support for our products. However, the business’ profit was significantly impacted by a number of product warranty claims resulting from unacceptable component design and manufacture in 2014. The issues have now been identified and largely resolved. China Our China business has been challenged this past year due to input cost increases combined with increased competition and product commoditisation, resulting in the compression of trading margins. An employee labour dispute in the second half also contributed to the margin pressure. The dispute is now resolved. Outlook We continue to see improving conditions in the Australian trailer market as operators upgrade their ageing fleets and most key economic drivers remain positive. This will benefit both our Australian trailer business as well as the MaxiPARTS parts business. In the short term, order intake remains strong, particularly in both the general freight and the food and grocery sectors, benefiting our Freighter and Maxi-CUBE products. Whilst our tipper order intake is lower than the last financial year, it is still somewhat dependent on the crop outlook and the timing of commencement of new infrastructure projects. With the New Zealand warranty issues now largely behind us and the establishment of our Christchurch service facility, we can look forward to this business returning to profitability in the next financial year. We look forward to completing the significant investment in our new IT systems over the next financial year. This will be a key enabler to driving operational efficiency through the business resulting in strong operating cashflow in future years. The Company continues to execute upon its corporate strategy to not only improve the operational efficiency in our current business but also to pursue growth opportunities in our existing markets, looking to identify new market opportunities, all with the aim of improving shareholder returns. Underlying this will be a continued focus on improving our safety performance to ensure we send our people home safely and also design our products to send our customer’s people home safely. Dean Jenkins Managing Director and CEO 06 MaxiTRANS Industries | Annual Report 2018 OUR PEOPLE, OUR COMMUNITY MaxiTRANS has ambitious plans for growth. We realise that the Company cannot grow without investing in our people. This is why we have made the conscious effort to have organisational development as one of our strategic pathways. The plans in this space are equally ambitious although the principles behind it are very simple – grow the people to grow the business. We are building the foundations in terms of policies and fundamental people processes, to develop the culture and build the leadership to drive growth. Investing in these programs will equip our people with even more capabilities to move the business forward. A culture based on solid values Having articulated our six values last year, the focus this year shifted to defining what they mean in terms of aligned behaviours. Defining the behaviours was a company-wide initiative to enable people to connect with the values. These values & behaviours are being progressively embedded in everything, instilling the MaxiTRANS Way. Our values and behaviours also form the basis of our recently implemented performance and development process. While this process will help us build focus on accountability and collaboration, it will help drive a culture based on a balance between results “the what” and behaviours “the how’. Diversity and gender balance MaxiTRANS recognises that diversity drives better results and wants to lead the way in breaking the mould within a typically male dominated industry. To this end, we have partnered with the National Association of Women in Operations (NAWO) to develop and drive strategies to build diversity and inclusion. These will involve mentoring and professional development programs to support the current workforce as well as internship programs to start investing in the future prospective workforce. We have set ourselves aspirational goals in terms of changing the face of our workforce in the coming years. These include the composition of our Senior Management Teams both in terms of recruitment but also in terms of internal succession planning and development. We also aim to bring diversity in our entry-level talent through graduate, apprenticeship and mixed ability programs. These efforts are already bearing fruit. We have experienced a 25% increase in females in management roles from 2017 to 2018. 25% increase in females in management roles from 2017 to 2018. GROW THE PEOPLE, TO GROW THE BUSINESSMaxiTRANS Industries | Annual Report 2018 07 Safety Overall, our health and safety KPIs improved, with our Total Injury Frequency Rate down 2% from last year. The biggest decline was the medically treated injury rate, down 20% from FY17 and 46% since FY15. Work groups have been established to examine tasks most often associated with injuries, and implement practical initiatives such as the modification of equipment. Our focus on safety was broadened in FY18 to reflect our value of sending all our people home safely. The more holistic view of safety also saw an increased focus on mental health. R U OK? Day For the first time in September 2017, MaxiTRANS participated in this national initiative, designed to draw attention and promote effective responses to the risk of suicide. Linked to the effort to raise awareness of mental health risks, MaxiTRANS staff supported events promoting RU OK? Day at sites across the business. MaxiTRANS donated $15,000 from all orders received on R U OK? Day to the charity. 08 MaxiTRANS Industries | Annual Report 2018 MaxiPARTS Operational highlights MaxiPARTS has expanded its product offering from trailer parts, consumables and tyres, to after-market North American engine parts and Euro truck and bus parts, by successfully securing new distribution arrangements with some of the world’s leading after-market suppliers. The comprehensive product portfolio has enabled MaxiPARTS to leverage its national network of 20 locations to strengthen its relationships with major corporate fleet customers, meeting their needs to maintain large truck, trailer and bus fleets. Investment in developing our people is further improving product quality and customer service. These competitive advantages will provide MaxiPARTS with the opportunity to grow by targeting new market segments and opportunities. These initiatives resulted in MaxiPARTS increasing its external revenue by 12% MaxiPARTS has also benefited from being part of Australia’s largest trailer supplier. A change in the Company business model now sees MaxiPARTS fulfil the role of major component supplier for the Group’s manufacturing facilities and service workshops. This enables the group to benefit from its scale and MaxiPARTS procurement and supply chain expertise. Further consolidation in procurement and focus on process improvement, enabled by the deployment of the new integrated IT systems across the group, will further enhance our efficiency, productivity and profitability over coming years. Our strength is our people Parts interpreters across our 20 branches dig deep into their “parts DNA” every day in order to problem solve on behalf of our customers. With such an extensive range of parts, it is common for a customer to come into a MaxiPARTS store and ask a member of the team to identify and source a part merely by looking at it. The part can either be 20 years old or new on the market; it could be an Original Equipment Manufacturer part or an after-market part. In a simple case, an order is placed with the proprietary supplier. However, it isn’t unusual for a sought-after part to be reproduced from an original drawing. Regardless of the nature of the request, our people know exactly where to source it and deliver quickly to meet the customer’s needs. The commitment by our MaxiPARTS team to add value to our customers by delivering what they need, when they need it, is our biggest strength. UNPARALLELED KNOWLEDGE BEARS FRUITMaxiTRANS Industries | Annual Report 2018 09 Empowering accountability with authority Our drive to build passionate and experienced teams of experts who deliver exceptional customer service based on unparalleled levels of knowledge continues to bear fruit. The growing team is now comprised of a much wider base of expert know-how, with personnel, logistical, systems and financial specialists all playing their role in building efficiency and improving levels of customer service. We are also delighted to report that 50% of new team members joining MaxiPARTS last year were female. Our exceptional team remains the business’s strongest asset and assurance of our capacity to sustain further substantial growth as Australia’s leading truck, trailer and bus parts network. 50% of new team members joining MaxiPARTS last year were female 10 MaxiTRANS Industries | Annual Report 2018 AUSTRALIAN TRAILERS Performance Strong revenue growth in the Australian Trailer business continued in FY2018, up 25% year on year. The growth comes on the back of continued strong results through our company owned and independent retail dealer network and the fulfilment of the balance of the Coles contract. The Coles contract, believed to be the largest of its kind in Australia, was delivered under budget and ahead of the agreed delivery schedule and is further testament to MaxiTRANS’ ability to deliver contracts of any size. Guided by our commitment to leading our industry to become safer and more efficient, allowing our customers to deliver the needs of a nation, MaxiTRANS introduced a number of exciting new products and enhanced service offerings to market throughout FY2018. Innovation A breakthrough innovation in safety was launched with the introduction of the SafeADJUST™ Mezzanine Deck in January 2018. The new deck system helps to meet Distribution Centre work health and safety requirements by removing the need for operators to enter the safety exclusion zone. SafeADJUST™, along with the suite of other product innovations introduced over the preceding 18 months have helped to create a compelling competitive advantage for our Freighter product line, and is a contributor to the 27% year on year growth in demand for this complex and highly customised product group. In FY2018, MaxiTRANS introduced the latest evolution of its popular Maxi-CUBE refrigerated trailer range. The revised trailer design went through a rigorous test and prototype regime that involved accelerated destruction testing, Finite Element Analysis (FEA) along with almost 1 million km of real world testing. The result: a 500kg tare weight reduction, and greater than 5% improvement in thermal efficiency. Efficiency For the past decade the Performance Based Standards (PBS) scheme has allowed heavy vehicle operators the potential to achieve greater productivity (mass and/or overall length concessions) through optimised vehicle designs that leverage the latest technology, which in turn provides improved safety outcomes for all road users. In May 2018 the National Heavy Vehicle Regulator (NHVR), the government body tasked with administering the scheme, released a report summarising its success. In its findings it revealed MaxiTRANS as the clear leader in providing these PBS-approved trailer combinations for use on Australia’s road network. As part of MaxiTRANS’ ongoing commitment to designing and building trailers that perform their tasks as productively, safely and sustainably as possible, MaxiTRANS increased its dedicated in-house PBS engineering capability by over 50% in FY2018. This strategic investment for the future is important to enable us to continue to offer bespoke PBS solutions that are tailored to our customer’s needs and unique operational requirements, as well as providing a developmental pathway for our future engineering leaders. TAILORING SOLUTIONS TO MEET CUSTOMER NEEDSMaxiTRANS Industries | Annual Report 2018 11 Customer Service Over the course of FY2018, and in order to help better service and support MaxiTRANS’ growing customer base, we extended our trading hours at our Customer Service Centres in Melbourne and Sydney. Additionally, we launched a remote servicing capability to allow our technicians to service vehicles at our customers’ premises. Throughout FY2018 continued investment was made in the growth of MaxiTRANS’ Trailer Rental fleet. The fleet now comprises of 100+ trailers in a range of configurations that help to better support our customers through their changing operational requirements. Manufacturing In January 2018, Trevor Negus took over as Group General Manager; Manufacturing. Trevor joins MaxiTRANS off the back of a long and distinguished career with Ford in various roles across their global operations. Trevor’s immediate focus has been on enhancing the manufacturing team’s strategic capabilities to complement MaxiTRANS’ credentialed manufacturing operational strengths. Standardisation of our engineering design approach and continued refinement of our manufacturing methodologies through Project TRANSForm have now delivered a base MRP system ready to be rolled out across our manufacturing facilities in H1, FY2019. Overall, MaxiTRANS continues as Australia’s largest and most diverse heavy duty trailer manufacturer. Throughout FY2018, we have invested for the future so that we are positioned and structured to enable substantial, sustained growth in design and delivery of ever safer and functionally superior trailers for the Australian road transport industry. 25% year on year revenue growth in the Australian Trailer business 12 MaxiTRANS Industries | Annual Report 2018 INTERNATIONAL Financial performance International business performance was challenged with margins being negatively impacted by a significant increase in raw material costs in China, and by a range of historical warranty issues in New Zealand. A stronger sales performance in New Zealand was underpinned by a very strong order book for refrigerated trailers. This was the result of not only new introduced changes to vehicle dimension and mass regulations by the Transport Authority but also because of a number of larger transport contracts changing. Also in New Zealand, improvements to labour efficiencies arising from operational excellence initiatives began to flow through in the second half of the year. These improvements are expected to make a significant contribution to higher profitability for the New Zealand manufacturing business in coming years. Operational highlights Expanding our after-sales service offer in NZ A significant step in our strategy to provide superior after- sales support to New Zealand customers was realised with the opening of our new service centre in Christchurch in December 2017. Complementing the established service facility in Auckland, this expanded national service offering begins to develop a strong competitive advantage in New Zealand’s road transport sector. It is expected to boost financial performance in coming years both through increased service revenues and by contributing a more competitive point of leverage for new trailer sales. A range of initiatives were explored and/or implemented throughout the year in pursuit of new avenues for sustained, profitable growth outside of Australia. Apart from the launch of an expanded after-sales service offering in New Zealand, we will also be launching a trailer rental business this financial year. It will enable our customers to respond rapidly to changing levels of demand and minimise PURSUING SUSTAINABLE, PROFITABLE GROWTHMaxiTRANS Industries | Annual Report 2018 13 down-time associated with the need for repairs or upgrades to existing trailer equipment. We will initially trial and refine the offer with a limited number of units before expanding the rental fleet in line with demand over coming years. The New Zealand business will also introduce a number of new product developments on the back of the overall group program, including the Maxi-CUBE Classic refrigerated van which will provide operators with both improved thermal performance and also have a tare weight saving. Throughout the year significant effort and time was also invested to better understand growth opportunities in various Asian markets. This is now translating into the prioritisation of and planning for new growth initiatives that will be assessed and implemented in coming years. 45% increase in trailer unit sales – the New Zealand trailer market rebounded after a period of uncertainty 14 MaxiTRANS Industries | Annual Report 2018 BOARD OF DIRECTORS A B C D E Robert Wylie (A) – Chairman, Non-Executive Director James Curtis (B) – Deputy Chairman, Non-Executive Director Dean Jenkins (C) – Managing Director and CEO Samantha Hogg (D) – Non-Executive Director Joseph Rizzo (E) – Non-Executive Director MaxiTRANS Industries | Annual Report 2018 15 EXECUTIVE LEADERSHIP TEAM B E C F A D G Campbell Richards (A) – Chief Financial Officer Andrew McKenzie (B) – Group GM, Sales and Marketing Trevor Negus (C) – Group GM Manufacturing Angelique Zammit (D) – Group Human Resources Manager Peter Loimaranta (E) – Group GM, International Justin O’Brien (F) – General Manager, MaxiPARTS Scott Harkin (G) – Group Supply Manager Dean Jenkins – Managing Director and CEO (pictured on page 14) 16 MaxiTRANS Industries | Annual Report 2018 REPORT OF THE DIRECTORS AND FINANCIAL REPORT CONTENTS Financial Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Consolidated Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 Report of the Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . .42 Directors’ Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81 Consolidated Statement of Profit or Loss and Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . .37 Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 Australian Stock Exchange Additional Information . . . . . . . . . . . . . . . . . . . . . .87 MaxiTRANS Industries Limited ACN 006 797 173 and Controlled Entities MaxiTRANS Industries | Annual Report 2018 17 REPORT OF THE DIRECTORS AND FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 Financial Summary Revenue EBITDA (excluding significant items)(3) EBIT (excluding significant items)(3) NPBT (excluding significant items)(3) NPAT (excluding significant items)(3)(4) Significant Items (net of tax) NPAT – attributable to equity holders Basic EPS(6) Ordinary dividends/share declared Depreciation Amortisation – leased assets Amortisation – intangibles Capex additions Operating cash flow NTA Net assets Interest bearing liabilities(5) Finance costs Total bank debt(5) Net debt/equity(5) Interest cover (excluding significant items) F2014 F2015 F2016 F2017 F2018 351,968 329,165 340,179 340,072 409,312 30,594 25,185 23,172 17,075 16,247 10,604 8,079 6,303 19,219 14,199 11,840 8,752 – (1,806)(1) (3,517)(2) 21,439 16,836 14,520 10,695 – 20,931 16,133 13,659 10,077 – 17,075 9.26 6.00 3,600 690 1,119 13,239 16,612 75,876 4,497 2.43 2.00 3,967 550 1,126 10,893 12,138 78,380 5,235 2.83 3.00 3,583 662 775 9,530 21,196 86,278 10,695 10,077 5.78 3.50 3,541 562 500 8,354 4,445 91,210 5.44 3.50 3,713 586 499 14,486 19,767 98,801 121,813 120,612 123,337 128,727 135,819 42,580 2,013 39,713 31% 12.51 47,302 2,525 45,196 36% 4.20 43,152 2,359 41,465 26% 5.75 47,697 2,316 46,214 32% 7.27 50,661 2,474 49,500 30% 8.62 $’000 $’000 $’000 $’000 $’000 $’000 $’000 cents cents $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 % times (1) Relates to impairment loss on AZMEB intangible assets of $2.58m pre-tax (disclosed above net of tax). (2) Relates to the impairment loss on Lusty EMS and Hamelex White intangible assets of $4.398m pre-tax and the closure cost of the Bundaberg facility of $0.626m pre-tax (disclosed above net of tax). (3) 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. (4) Also referred to as underlying net profit after tax attributable to MaxiTRANS equity holders. (5) F2018 excludes liabilities held for sale amounts. (6) Includes both earnings from continued and discontinued operations. 18 MaxiTRANS Industries | Annual Report 2018 Your directors submit their report together with the consolidated financial report of MaxiTRANS Industries Limited ACN 006 797 173 (“the Company”) and its subsidiaries (together referred to as the "Group"), and the Group's interest in associates for the year ended 30 June 2018 and the auditor’s report thereon. Directors The names of directors in office at any time during or since the end of the financial year are: Mr Robert H. Wylie (Chairman since 30 June 2016) Mr James R. Curtis (Director since 1987 – Deputy Chairman since October 1994) Mr Joseph Rizzo (Director since June 2014) Ms Samantha Hogg (Director since April 2016) Mr Dean Jenkins (Appointed Managing Director on 1 March 2017) 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 interim dividend of 2.00 cents per share was paid on 13 April 2018 totalling $3,701,513. A fully franked final dividend of 1.50 cents per share has been proposed by the directors after reporting date for payment on 12 October 2018. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2018 and will be recognised in subsequent financial reports. 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. Corporate Governance Statement The Corporate Governance Statement of the Directors and the accompanying Appendix 4G is separately lodged with the ASX and forms part of this Directors’ Report. It may also be found on the Company’s website at www.maxitrans.com. Environmental Regulation 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 2018. Operating & Financial Review REVIEW OF OPERATIONS The Group operates two types of businesses: the Trailer businesses comprising the design, manufacture, sale and servicing of trailers in Australia and New Zealand; and the Parts business, MaxiPARTS, a trailer and truck parts business in Australia. As a result of a review of capital returns across the MaxiTRANS’ businesses, the Company has decided to divest its interest in Maxi-CUBE Tong Composites Co Ltd (“MTC”), a business that manufactures panels in China for refrigerated and dry freight trailers for both its domestic and export markets. With increasing product commoditisation in China and rising input costs, it is unlikely the business will generate acceptable returns on the capital invested. MTC has been classified as a Discontinued Operation in the Consolidated Statement of Profit or Loss and classified as Assets Held For Sale and Liabilities Held For Sale in the Statement of Financial Position. Trailer Business The Trailer business has a diverse portfolio of trailers with market leading brands and a reputation for high quality with customers. Sales of products through our dealer network, comprising both owned dealerships and licensed dealerships provides a full solution including after sales service and parts to those customers. REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018MaxiTRANS Industries | Annual Report 2018 19 Australia The Australian trailer market continued to show improvement with new trailer registrations increasing 17% in 2017, the second year in a row of market growth. The Company’s diverse product portfolio assisted in maintaining its strong market leading position and achieving a 17% increase in unit sales. This strong sales result was assisted by the completion of the order for 386 units for Coles Supermarkets, widely regarded as the largest single trailer order in the Australian trailer industry. The order was completed on budget and ahead of schedule, confirming the Company’s ability to deliver on large-scale projects. This order also contributed to the strong market growth referred to above. Whilst the Coles order drove the sales growth of Maxi-CUBE refrigerated vans, pleasingly we also experienced strong sales growth of our Freighter branded trailers highlighting improved confidence in the general freight sector. Sales of our tipper products into the infrastructure, construction, agriculture and waste sectors declined from last years’ abnormally high levels, however, we expect sales to remain strong as the investment in infrastructure construction continues. Unfortunately, the strong revenue growth did not fully translate into improved profitability. Our strong sales order performance is requiring our manufacturing facilities to increase production rates to high levels over a sustained period. These high build rates, combined with a dramatic shift of production mix significantly adversely impacted our operating efficiency in the last quarter of FY18, resulting in the trading update in May, 2018. Pleasingly, efficiencies are returning to normal levels as we enter the new financial year. New Zealand As foreshadowed last year, the New Zealand trailer market rebounded after a period of uncertainty surrounding the transport regulation changes. This, combined with a number of customer contract changes drove a 45% increase in trailer unit sales. In addition, the business established its first permanent presence in the South Island during the year by opening a new service facility in Christchurch. This has been well received by our customers as it provides national support for our products. The business’ profit, however, was significantly impacted by a number of product warranty claims resulting from unacceptable component design and manufacture in 2014. The issues have now been identified and largely resolved. Parts Business The Parts business sells trailer and truck 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 under the MaxiPARTS brand. 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 FY18, MaxiPARTS operated 20 wholesale sites and retail stores. The MaxiPARTS business experienced strong revenue and profit growth from the launch of new products into its range including tyres, European aftermarket truck parts and North American aftermarket engine parts. The MaxiSTOCK customer inventory management system continued to drive incremental sales. A change in the group business model now has MaxiPARTS operating as a key supplier to our manufacturing and service facilities, thus ensuring parts and component procurement is leveraging the company’s full scale, procurement and logistics capability. This is also reflected in improved inventory levels as inventory holding duplication across the business is reduced. Discontinued Operation – China Our China panel business has been challenged in this past year due to input cost increases combined with increased competition and product commoditisation, resulting in the compression of trading margins. A labour dispute in the second half of the year, which has now been resolved, also impacted trading margins. As outlined above, the Company has decided to divest this business due to its inability to produce adequate capital returns. In line with the Company’s strategy to generate growth in new markets, the Company continues to investigate other strategic opportunities in China and more broadly across South East Asia. REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 201820 MaxiTRANS Industries | Annual Report 2018 FINANCIAL REVIEW Sales Total revenue increased by 20% for the year to $409.3 million. With the exception of our China business, all businesses delivered revenue growth. The Trailer business increased external revenue by 26% to $291 million and the Parts business (the MaxiPARTS business) recorded a 12% external revenue increase to finish FY18 with revenue of $102 million. The investment associated with Project TRANSform, our substantial program to replace our ageing and end-of-life IT systems continued during the year. We are on track to deploy the systems during FY19. Once implemented, we expect our cashflow to significantly improve as a result of the reduced capital investment in later years and the realisation of the operating efficiencies to be obtained from the new systems and processes. Net debt for FY18 reduced to 30% of equity, down from 32% in FY17. Profit External Financing Facilities Notwithstanding the strong revenue growth, net profit after tax attributable to MXI equity holders was $10.1 million in FY18, a decrease of 5.7%. Trading margins were lower in FY18 across all business units. Overheads were higher during the year due to: •• Increased warranty expenses, particularly in the New Zealand trailer business; •• Higher selling costs associated with increased sales volumes and trailer depreciation on rental trailers; and •• Increased corporate costs to deliver the business growth (Health & Safety, HR, Finance & Administration and IT). Cash Generation & Capital Management Operating cash flow of $19.7 million was generated during FY18 which was 345% higher than FY17. Notwithstanding the sustained high build rates during the year, working capital reduced predominantly due to a reduction in inventory and an increase in deferred revenue (i.e. customer deposits received in advance). It is expected that working capital will remain at these levels whilst the current trailer build rates are maintained. During FY17, MaxiTRANS entered into debt facilities totalling $70 million through a syndicated facility with the Commonwealth Bank of Australia and HSBC Bank. The facility is used to fund ongoing business requirements and facilitate the funding of future growth opportunities. The facility has both three years and five year maturities, has a number of covenant requirements and is secured against property owned by the Group. These facilities are sufficient to support the business in its current form. In addition, MTC has a three year RMB 20 million facility with ANZ Banking Group in China and has an additional uncommitted facility of RMB 5 million. It is expected this facility will be repaid as a part of a sale of the business. Dividends The total dividend to shareholders relating to the financial year ending 30 June 2018 will be 3.5 cents per share and will be fully franked. The total ordinary dividend of 3.5 cents per share is consistent with the prior year and represents a 64% payout ratio of FY18 net profit after tax attributable to MXI shareholders. RISK 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. REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018MaxiTRANS Industries | Annual Report 2018 21 Operational Risks Foreign Exchange & Commodities Risk The Group has identified the following operational risks as “very high”: •• The Trailer business, which contributed 71% of Group revenue and 69% of business segment 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 trailers and expanding customer fleets. The Group has sought to mitigate this risk by: •• ensuring that its products are of consistently high quality; •• expanding into other adjacent markets; The Group has exposure to movements in the Australian dollar against the United States dollar, the Euro and the Chinese Yuan. 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 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. •• expanding the Parts business to provide more stable, Depreciation of the Australian dollar may: recurring income; and •• expanding into international markets. •• The risk of greater competition from offshore competitors selling imported trailers in the Australian market resulting in a potential loss of market share. The Group has sought to mitigate this risk by: •• ensuring that product quality remains high thereby protecting its brands; •• product innovation to provide better solutions to customers; •• investigating low cost country sourcing opportunities to maintain margins; •• reducing the manufacturing cost base through efficiencies to maintain margins; •• minimising lead times to delivery; and •• expand the service footprint to provide after-sales support. •• 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; •• 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. HEALTH & SAFETY The Company is actively engaged in 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 equip and empower management to drive improvements in health and safety through the deployment of a comprehensive Health, Safety, Environment and Quality System. Since FY15, the program has yielded a 46% improvement in safety performance. The Board currently monitors, and will continue to monitor, the Group’s health and safety performance on a monthly basis. REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 201822 MaxiTRANS Industries | Annual Report 2018 STRATEGY OUTLOOK MaxiTRANS has undertaken a refresh of its corporate strategy. The strategy focuses on the following pathways that will drive superior shareholder returns: •• Operational excellence that will ensure the Company’s systems and processes deliver high quality, cost effective products and services; •• Leveraging its market leading position to optimise growth opportunities in the markets in which it operates; •• Leveraging its expertise to diversify into new markets; •• Develop a comprehensive organisation development model to continue to recruit, develop and retain the best people; and •• Ensure our corporate image accurately reflects its market-leading position. Business Transformation Program The Company has committed to a significant investment in a business transformation program known as “Project TRANSform”. The program will replace a number of outdated legacy IT systems with a single enterprise resource planning (“ERP”) system and other integrated systems across the business. This will allow the Company to streamline many business processes, thus creating operational efficiencies and mitigating business risk. During FY18, the new ERP system continued to be developed and will be deployed across the business during FY19. It is expected market conditions in the Australian trailer market will continue to improve as operators upgrade their ageing fleets and most key economic drivers remain positive. This will benefit both the Australian trailer business as well as the MaxiPARTS parts business. In the short term, order intake remains strong, particularly in both the general freight and the food and grocery sectors, benefitting our Freighter and Maxi-CUBE products. Whilst the tipper order intake is lower than the last financial year, it is still somewhat dependent on the crop outlook and the timing of commencement of new infrastructure projects. With the New Zealand warranty issues now largely dealt with and the further establishment of the Christchurch service facility, it is expected this business will return to profitability in the next financial year. The significant investment in the new IT systems is expected to be completed over the next financial year. This will be a key enabler to driving operational efficiency through the business resulting in strong operating cashflow in future years. The Company continues to execute upon its corporate strategy to not only improve the operational efficiency in our current business but also to pursue growth opportunities in our existing markets, looking to identify new market opportunities, all with the aim of improving shareholder returns. Underlying this will be a continued focus on improving our safety performance to not only ensure we send our people home safely but that MaxiTRANS’ products design also send our customer’s people home safely. REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018MaxiTRANS Industries | Annual Report 2018 23 Information of Directors Mr. Robert H. Wylie Chairman, Independent Non-Executive, (appointed 30 June 2016), Age 68 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 the Nomination Committee. Member of the Audit & Risk Management Committee and Remuneration & Human Resources Committee. Interest in Shares: 121,904 ordinary shares beneficially held. Options over Ordinary Shares: Nil Mr. Dean S Jenkins Managing Director, Executive, Age 46 Qualifications & Experience: Appointed Managing Director on 1 March 2017. Most recently Chief Operating Officer & Executive Director of the Weir Group PLC, one of the world’s leading engineering businesses. Prior to the Weir Group, Mr Jenkins was CEO of UGL Rail from 2008 to 2010, Australia’s largest supplier and maintainer of rolling stock. He also spent 11 years in senior leadership roles with QANTAS, culminating in the role of Group General Manager – Engineering, Material and Logistics. Interest in Shares: 202,000 ordinary shares beneficially held. Options over Ordinary Shares: Nil REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 24 MaxiTRANS Industries | Annual Report 2018 Mr. James R. Curtis Deputy Chairman, Non-Executive, Age 83 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 Audit & Risk Management Committee, Remuneration & Human Resources Committee and Nomination Committee. Interest in Shares: 24,943,030 ordinary shares beneficially held. Options over Ordinary Shares: Nil Mr. Joseph Rizzo Independent Non-Executive Director, Age 62 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 35 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: Chairman of the Remuneration & Human Resources Committee and Member of the Audit & Risk Management Committee and Nomination Committee. Interest in Shares: 50,000 ordinary shares beneficially held. Options over Ordinary Shares: Nil Ms. Samantha Hogg Independent Non-Executive Director, Age 51 Qualifications & Experience: Currently the Chairperson of Tasmanian Irrigation and TasRail and a director of Hydro Tasmania and Australian Renewable Energy agency and has previously held senior executive finance roles at the Transurban Group, Vale Inco and WMC Resources. Special Responsibilities: Chairperson of the Audit and Risk Management Committee and Member of the Remuneration & Human Resources Committee and Nomination Committee. Interest in Shares: Nil ordinary shares beneficially held. Options over Ordinary Shares: Nil REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 25 Company Secretaries Alison Groves LLB.(Hons), BEc, FGIA, FCIS Appointed to the position of Company Secretary on 20 July 2018. Mr. Campbell R. Richards B. Bus. (Acc), CA Appointed to the position of Company Secretary in June 2013. Resigned on 20 July 2018. Mr. Albert Retief B. Bus. (Acc), CA Appointed to the position of Assistant Company Secretary in May 2016. Details of attendances by directors at Board and committee meetings during the year are as follows: Directors’ Meetings Audit & Risk Management Committee Remuneration & Human Resources Committee Nomination Committee Number Number eligible attended to attend Number Number eligible attended to attend Number Number eligible attended to attend Number Number eligible attended to attend Robert Wylie James Curtis Joseph Rizzo Samantha Hogg Dean Jenkins 13 13 13 13 13 13 12 12 12 13 5 5 5 5 5 5 4 5 5 5 3 3 3 3 3 3 2 3 3 3 – – – – – – – – – – REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 26 MaxiTRANS Industries | Annual Report 2018 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: •• The capability and experience of the directors and senior executives; •• The directors’ and senior executives’ ability to control the relevant segment/s’ performance; •• The Group’s performance including the Group’s Return on Invested Capital; and percentage of total remuneration) between STI and LTI components to average 20% and 20% respectively. In the case of the Managing Director, the mix of performance linked remuneration (as a percentage of total remuneration) between STI and LTI components is 15% and 25% respectively. The Directors are of the view that the remuneration structure supports alignment between the Group and shareholders. Each of the components of total remuneration for executive directors and senior management are described in more detail below. 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. •• The amount of incentives within each director’s and senior executive’s remuneration. Performance-linked remuneration 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: •• the structure of executive director and senior management remuneration includes a mix of fixed and performance-linked components; •• the mix of total remuneration between fixed and performance-linked components to average 60% and 40% respectively; •• the performance-linked component of total remuneration comprises a Short Term Incentive (‘STI’) scheme and a Long Term Incentive (‘LTI’) scheme; and •• the mix of performance-linked remuneration (as a Performance linked remuneration includes both STIs and LTIs 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. REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018MaxiTRANS Industries | Annual Report 2018 27 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 has regard to the indices highlighted in the table on page 31. Net profit after tax and net profit before tax are considered as two 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. Except in the case of the Managing Director and Chief Financial Officer where the key financial performance objectives are “net profit after tax,” the key financial performance objective for other executives is “net profit before tax” compared to budgeted amounts. All executives also have other financial performance objectives relating to working capital improvement. 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, STIs based on the achievement of KPIs are 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. The Board has set a long term incentive target for management to achieve an increase in the Group’s Return on Invested Capital (‘ROIC’). 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. REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018Services of remuneration consultant In keeping with the above policies, the Remuneration Committee engaged Mercer as remuneration consultant to review the amount of senior executive remuneration during the year. Mercer was paid $31,000 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. 28 MaxiTRANS Industries | Annual Report 2018 Mr Dean Jenkins, Managing Director, has a contract of employment with the Company dated 1 March 2017. 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 Jenkins 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, Chief Financial Officer, 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 an 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. REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018MaxiTRANS Industries | Annual Report 2018 29 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 (iv) Total Super $ PRs (iii) $ 25,000 35,000 6,507 6,507 – 2,001 17,007 27,697 6,507 6,507 – – – – – – – – – – $ – – – – – – – – – – Proportion of remuneration performance related Value of PRs as proportion of remuneration $ % % 140,000 140,000 75,000 75,000 – 23,065 75,000 75,000 75,000 75,000 – – – – – – – – – – – – – – – – – – – – Salary & fees (i) Year $ STI (ii) $ DIRECTORS Non-executive Mr R Wylie Chairman Mr J Curtis 2018 115,000 2017 105,000 2018 68,493 2017 68,493 Mr G Lord (v) 2018 – Non-cash benefits $ – – – – – – – – – – 150 – 726 – – – – – – – – – – – – 2017 21,064 2018 57,393 2017 47,303 2018 68,493 2017 68,493 2018 697,380 2017 248,003 Mr J Rizzo Ms S Hogg Executive Mr D Jenkins (vi) Managing Director Mr M Brockhoff (vii) Former Managing Director EXECUTIVES Mr C Richards Chief Financial Officer and Company Secretary Mr A Wibberley (viii) Former Group General Manager – Manufacturing Mr P Buttler (ix) Former General Manager – Ballarat MaxiTRANS Australia Pty Ltd Mr A McKenzie Group General Manager – Sales and Marketing 2018 – 85,251 75,132 36,460 100,274 909,396 4.0% 4.0% 23,135 23,199 – – 13,333 284,471 – 71,781 180,957 47.1% – – 2017 655,497 – 29,652 68,094 (112,152) 61,199 702,290 (16.0%) (16.0%) 2018 346,433 41,447 2017 332,924 2018 – 2017 84,323 2018 – 2017 1,550 – – – – – 44,297 1,138 113,393 546,709 363,330 7.8% (0.3%) 0.2% (0.3%) – – – 31,500 (1,094) – – – – – – – 1,963 18,615 (54,230) 96,210 146,880 (36.9%) (36.9%) – – – – – – – – 6,042 (43,336) 62,596 26,851 (161.4%) (161.4%) 2018 305,711 19,178 2017 295,408 – 5,201 3,278 32,187 (27) 22,000 384,250 30,365 35,346 22,000 386,398 5.0% 9.1% – 9.1% REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018Mr P Loimaranta Group General Manager – International Mr C Wallace (x) Former General Manager – Vic Branch MaxiTRANS Australia Pty Ltd Mr A Roder (xi) Former Group General Manager – Manufacturing Mr T Negus (xii) Group General Manager – Manufacturing Mr J O’Brien (xiii) General Manager – MaxiParts Pty Ltd 30 MaxiTRANS Industries | Annual Report 2018 Primary Post Equity Other (iv) Total Salary & fees (i) Year $ STI (ii) $ EXECUTIVES (continued) Super $ PRs (iii) $ Proportion of remuneration performance related Value of PRs as proportion of remuneration $ $ % % 2018 286,906 26,942 2017 280,430 2018 – 2017 162,289 – – – 31,649 1,016 31,359 377,872 28,439 (1,070) 34,446 342,245 7.4% (0.3%) 0.3% (0.3%) – – – – – – 19,412 22,190 (32,434) 171,141 342,598 (9.5%) (9.5%) Non-cash benefits $ – – – 2018 152,593 11,687 5,201 16,521 (15,169) 2,547 173,379 293,532 (2.0%) 5.2% (8.7%) 5.2% 2017 255,055 2018 190,064 2017 – – – – 2018 248,771 28,484 2017 – – – – – – – 23,316 15,160 17,396 – – – – – – 207,461 – – – 27,939 6,660 37,017 348,872 10.1% – – – – – – – 1.9% – (i) (ii) Notes in relation to table of directors’ and executive officers' remuneration Includes the accrual of short-term statutory entitlements. 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 2018 financial year using the criteria set out in the Remuneration Report. The amounts were determined after performance reviews were completed. (iii) The fair value of performance rights (PRs) 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 PRs, market conditions have been taken into account. Further details in respect of PRs are contained on the following page of the Remuneration Report. Details of PRs vested during the period are contained in Note 15 – Share Based Payments. During the period it was determined that the performance and service conditions of the 2014 PR scheme will not be met. As a result, the total amount recognised for services received over the life of the 2014 PR scheme was reversed. Includes the accrual of long-term statutory entitlements. (iv) (v) Mr G Lord retired effective 21 October 2016. (vi) Mr D Jenkins was appointed on 1 March 2017. (vii) Mr M Brockhoff retired effective 31 July 2017. All PRs held by Mr Brockhoff at that time were cancelled. (viii) Mr A Wibberley resigned effective 28 October 2016. All PRs held by Mr Wibberley at that time were cancelled. (ix) Mr P Buttler resigned effective 1 July 2016. All PRs held by Mr Buttler at that time were cancelled. (x) Mr C Wallace was made redundant on 19 April 2017. All PRs held by Mr Wallace at that time were cancelled. (xi) Mr A Roder resigned on 12 January 2018. All PR’s held by Mr Roder at that time were cancelled. (xii) Mr T Negus was appointed on 1 January 2018. (xiii) Mr J O’Brien was appointed to the role of General Manager – MaxiParts on 1 November 2017. From 1 July 2017 to the date of Mr O’Brien’s appointment, he was Acting General Manager – MaxiParts. REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018MaxiTRANS Industries | Annual Report 2018 31 Analysis of share-based payments granted as remuneration Details of the vesting profile of the PRs 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 D Jenkins Company executives Mr C Richards Consolidated entity executives Mr A Roder(1) Mr P Loimaranta Mr A McKenzie Mr J O’Brien PRs granted (no.) Grant date Fair value at grant date ($) Vesting date Expiry date 462,193 31 Aug. 2017 0.5879 31 Aug. 2020 31 Aug. 2024 229,344 31 Aug. 2017 0.5879 31 Aug. 2020 31 Aug. 2024 203,287 206,628 215,691 172,551 31 Aug. 2017 31 Aug. 2017 31 Aug. 2017 31 Aug. 2017 0.5879 0.5879 0.5879 0.5879 31 Aug. 2020 31 Aug. 2024 31 Aug. 2020 31 Aug. 2024 31 Aug. 2020 31 Aug. 2024 31 Aug. 2020 31 Aug. 2024 (1) On 12 January 2018, the date when Mr Roder resigned, Mr Roder’s PRs were cancelled. Subject to the terms of the Performance Rights Plan, all PRs expire on the earlier of their expiry date or termination of the individual's employment. In order for PRs to vest, holders must continue to be in the employment of the Group until vesting date. The PRs vest three years after the date they were issued, subject to the satisfaction of performance hurdles. PRs may only be exercised during a four year period after they have vested. Details of the performance criteria are included in the discussion on LTIs. The estimated maximum value of PRs 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 PRs. CONSOLIDATED RESULTS AND SHAREHOLDER RETURNS Net profit/(loss) attributable to equity holders of the parent 2018 2017 2016 2015 2014 $10,076,812 $10,694,940 $5,235,234 $4,496,951 $17,074,194 Basic EPS(1) 5.44¢ 5.78¢ 2.83¢ 2.43¢ 9.26¢ Dividends declared $6,477,648 $6,477,648 $5,552,270 $3,701,513 $11,104,542 Dividends declared per share Share price 3.50¢ 51.0¢ 3.50¢ 67.0¢ 3.00¢ 45.0¢ 2.00¢ 39.5¢ 6.00¢ 97.0¢ (1) Includes both continued and discontinued earnings. REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 201832 MaxiTRANS Industries | Annual Report 2018 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: 2018 Shares MaxiTRANS Industries Limited Directors: Mr D Jenkins Mr J Curtis Mr R Wylie Mr J Rizzo Executives: Mr P Loimaranta Held at 1 July 2017 Purchases Sales Held at 30 June 2018 – 202,000 24,943,030 21,364 50,000 260,716 – 100,540 – – – – – – 202,000 24,943,030 121,904 50,000 (2,163) 258,553 Ms Hogg, Mr Negus, Mr Richards, Mr McKenzie and Mr O’Brien do not hold any shares as at 30 June 2018. 2017 Shares MaxiTRANS Industries Limited Directors: Mr M Brockhoff (retired 1 March 2017) Mr J Curtis Mr G Lord (retired 21 October 2016) Mr R Wylie Mr J Rizzo Executives: Mr P Loimaranta Mr A Wibberley (resigned 28 October 2016) Held at 1 July 2016 3,090,172 24,943,030 1,049,604 21,364 50,000 260,716 176,507 Purchases Sales Held at 30 June 2017 – – – – – – – (3,090,172)(1) – – 24,943,030 (1,049,604)(1) – – – (176,507(1)) – 21,364 50,000 260,716 – Ms Hogg, Mr Jenkins, Mr Richards, Mr McKenzie and Mr Roder do not hold any shares as at 30 June 2017. (1) Represent shareholding on the date of retirement/resignation. End of Remuneration Report REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018MaxiTRANS Industries | Annual Report 2018 33 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 five 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 $58,852 (2017: $41,852) in respect of directors’ and officers’ liability insurance contracts. Clause 101 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 seven 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. REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 201834 MaxiTRANS Industries | Annual Report 2018 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: •• 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 •• 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 35. 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 and advisory) Overseas KPMG Firms: – auditing and reviewing financial statements – other services (taxation, advisory and due diligence) Total Proceedings on Behalf of Company Consolidated 2018 $ 2017 $ 292,830 188,254 306,967 166,219 481,084 473,186 86,849 9,554 96,403 82,219 12,605 94,824 577,487 568,010 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. REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 35 Rounding of Accounts The parent entity has applied the relief available to it in ASIC Corporations (Rounding in Financial/Directors Reports) Instruments 2016/191 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. Robert H Wylie, Director Mr. Dean Stuart Jenkins, Director Dated this 24th day of August 2018 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 of MaxiTRANS Industries Limited for the financial year ended 30 June 2018 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Melbourne 24 August 2018 Suzanne Bell Partner KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. REPORT OF THE DIRECTORS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 36 MaxiTRANS Industries | Annual Report 2018 DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2018 In the opinion of the directors of MaxiTRANS Industries Limited (“the Company”): (a) the consolidated financial statements and notes as set out on pages 37 to 80, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (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 18 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 (2016/785). The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2018. The directors draw attention to 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. Robert H Wylie, Director Mr. Dean Stuart Jenkins, Director Dated this 24th day of August 2018 MaxiTRANS Industries | Annual Report 2018 37 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2018 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Continued Operations Sale of goods Rendering of services Changes in inventories of finished goods and work in progress Raw materials and consumables used Interest income Other income – sale of assets Employee and contract labour expenses Warranty expenses Depreciation and amortisation expenses Finance costs Other expenses Share of net profits of associates accounted for using the equity method Profit before income tax Income tax expense Profit from continued operations Discontinued Operation Consolidated Note 2018 $’000 375,087 14,907 2,578 (241,132) 58 72 (100,976) (3,770) (4,073) (2,328) (27,750) 1,404 14,077 (3,734) 10,343 2 9 21 3(a) Restated 2017^ $’000 305,523 14,767 5,581 (194,419) 86 161 (85,316) (1,796) (3,895) (2,127) (25,863) 884 13,586 (3,227) 10,359 Profit/(loss) from discontinued operation, net of tax 28 (332) 686 Profit for the year Profit attributable to: Equity holders of the Company Non-controlling interests 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) Earnings per share from continued operations: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 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-classified to profit or loss: Revaluation of land and buildings Related tax 12 12 12 12 6 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 10,011 11,045 10,077 (66) 10,695 350 5.44 5.44 5.58 5.58 5.78 5.78 5.60 5.60 10,011 11,045 850 (35) 3,901 (1,136) 3,580 13,591 13,573 18 (1,609) 114 3,557 (1,041) 1,021 12,066 11,782 284 ^ In accordance with AASB 5 Non-current Assets Held for sale and Discontinued Operations prior year comparatives have been restated to be consistent with disclosures for 30 June 2018. Refer to Note 27 Disposal Group held for sale. 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. 38 MaxiTRANS Industries | Annual Report 2018 CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30 JUNE 2018 Current Assets Cash and cash equivalents Trade and other receivables Inventories Current tax assets Assets held for sale Other Total Current Assets Non-Current Assets Investment in associate Property, plant and equipment Intangible assets Deferred tax assets Other Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Deferred Revenue Interest bearing loans and borrowings Current tax liability Provisions Liabilities held for sale 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 Consolidated Note 4 5 3(c) 27 6 7 3(b) 8 9 3(c) 10 27 9 3(b) 10 2018 $’000 9,692 39,120 57,700 2,237 19,813 1,584 2017 $’000 6,140 45,208 60,368 1,209 – 1,562 130,146 114,487 4,826 93,733 34,265 – 1,249 4,442 88,526 37,517 472 1,135 134,073 132,092 264,219 246,579 47,327 4,090 752 – 13,126 9,550 74,845 49,908 2,409 1,141 97 53,555 52,600 3,086 2,563 118 12,421 – 70,788 45,134 752 1,144 34 47,064 128,400 117,852 135,819 128,727 11 56,386 20,998 57,097 56,386 17,481 53,539 134,481 127,406 1,338 1,321 135,819 128,727 The consolidated statement of financial position is to be read in conjunction with the notes to the consolidated financial statements. MaxiTRANS Industries | Annual Report 2018 39 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2018 Issued capital $’000 Asset revaluation reserve1 $’000 Retained earnings $’000 Non- controlling interest $’000 Other reserves2 $’000 Total $’000 Note Balance at 1 July 2017 56,386 15,121 53,539 1,321 2,360 128,727 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 Final dividend to previous minority shareholder Final payment for 20% minority share purchased on 30 June 2017 Share-based payment transactions Other sundry movements Total transactions with owners 13 19 15 – – – – – – – – – – – – 10,077 (66) – 10,011 – 2,765 – – – – 2,765 10,077 – – – – – – (6,478) (12) (31) – 2 (6,519) 85 – – 19 – – – – (2) (2) 765 – (35) 850 2,765 (35) 730 13,591 – – – 22 – 22 (6,478) (12) (31) 22 – (6,499) Balance at 30 June 2018 56,386 17,886 57,097 1,338 3,112 135,819 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. 40 MaxiTRANS Industries | Annual Report 2018 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONT.) FOR THE YEAR ENDED 30 JUNE 2018 Issued capital $’000 Asset revaluation reserve1 $’000 Retained earnings $’000 Non- controlling interest $’000 Other reserves2 $’000 Total $’000 Note Balance at 1 July 2016 56,386 12,605 48,337 1,971 4,038 123,337 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 Purchase of 20% minority share Share-based payment transactions Other sundry movements Total transactions with owners 13 19 15 – – – – – – – – – – – 10,695 350 – 11,045 – 2,516 – – – – (66) (1,543) (1,609) – – – 114 2,516 114 2,516 10,695 284 (1,429) 12,066 – – – – – (5,553) 60 – – (336) (596) – (2) – – (249) – (5,889) (536) (249) (2) (5,493) (934) (249) (6,676) Balance at 30 June 2017 56,386 15,121 53,539 1,321 2,360 128,727 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. MaxiTRANS Industries | Annual Report 2018 41 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2018 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest and other costs of finance paid Income tax paid Consolidated Note 2018 $’000 2017 $’000 450,322 (422,870) 58 (2,474) (5,269) 381,950 (374,000) 86 (2,316) (1,275) Net cash provided by operating activities 22 19,767 4,445 Cash flows from investing activities Payments for property, plant and equipment Acquisition of non-controlling interest Dividends received Proceeds from sale of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Repayment of borrowings Proceeds from borrowings Payment of finance lease liabilities Dividends paid Net cash used in financing activities Net increase/(decrease) in cash Cash and cash equivalents at beginning of year *Less: cash held for sale Cash and cash equivalents at end of year (14,485) (31) 1,020 130 (13,366) (8,194) (536) 629 309 (7,792) (3,349) 9,610 (230) (6,490) (36,000) 40,749 (204) (5,889) (459) (1,344) 5,942 6,140 (2,390) 9,692 (4,691) 10,831 – 6,140 13 27 * In accordance with AASB 5 Non-current Assets held for sale and Discontinued Operations prior year comparatives have not been restated for the impact of the Disposal Group held for sale. Refer to Note 27 Disposal Group held for sale. The consolidated statement of cash flows is to be read in conjunction with the notes to the consolidated financial statements. 42 MaxiTRANS Industries | Annual Report 2018 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 2018 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. The financial report contains comparative information that has been adjusted to align with the presentation of the current period, where necessary. 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 Corporations (Rounding in Financial/Directors Reports) Instruments 2016/191 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 24 August 2018. The relevant Australian Accounting Standards and Interpretations that became effective and that were early adopted by the Group since 30 June 2017 were: •• AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised losses (mandatory for years beginning on or after 1 January 2017) •• AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure initiative: Amendments to AASB 107 (mandatory for years beginning on or after 1 January 2017) •• AASB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions. •• AASB 2017-2 Amendments to Australian Accounting Standards – Further Annual Improvements 2014-2016 Cycle (mandatory for years beginning on or after 1 January 2017) Accounting policies 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. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 43 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 price. (d) Property, plant and equipment (i) Owned assets Land and buildings 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. Fair value of land and buildings is assessed at each reporting period. Independent valuations were obtained during the financial year ending 30 June 2018 in relation to all land and buildings. 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. NCI are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The Group’s interests in equity-accounted investees comprise interests in associates. Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Interests in associates are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of profit or loss and OCI of equity-accounted investees, until the date on which significant influence 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 an associate. Unrealised gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the associate. (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 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 44 MaxiTRANS Industries | Annual Report 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) present value of the minimum lease payments at inception of the lease, less accumulated depreciation. These were considered by the directors in establishing revaluation amounts. Lease payments are accounted for as described in accounting policy (v). 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. (ii) Leased assets 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 (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 when it’s ready for use. Land is not depreciated. The estimated useful lives are reflected in the following rates in the current and comparative periods: Buildings Plant and equipment Leased plant and equipment 2018 2017 25-40 years 25-40 years 2-20 years 2-20 years 3.33-10 years 3.33-10 years 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 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 45 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 the 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) Brand names Brand names acquired by the Group have indefinite useful lives and are measured at cost less accumulated impairment. They are tested annually for impairment, or more frequently if events or circumstances indicate that they might be impaired. Intellectual property Software 2018 2017 0-20 years 0-20 years 10 years 10 years 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 highly probable 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. (iv) Intellectual Property (g) Trade and other receivables Intellectual property acquired by the Group with definite useful lives are measured at cost less accumulated impairment. They are tested annually for impairment, or more frequently if events or circumstances indicate that they might be impaired. (v) Other intangible assets Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. (vi) 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: 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. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 46 MaxiTRANS Industries | Annual Report 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 post-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. An impairment loss in respect of goodwill is not reversed. (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 $6,437,490 (2017: $5,166,573) 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. The fair value of performance rights granted is recognised as an employee expense with a corresponding increase in equity recorded over the vesting period. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 47 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (p) Income tax 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. (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 statement of financial position 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. (o) Warranties 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. 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. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 48 MaxiTRANS Industries | Annual Report 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (s) Revenue (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. (r) Earnings per share 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. (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 completed. (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. (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. Receivables and payables are stated with the amount of GST included. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 49 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. (x) Accounting estimates and judgements Management discussed with the Board 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 The Group assesses whether goodwill and intangibles with indefinite useful lives are impaired at least annually in accordance with accounting policy (i). 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. 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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. (iii) Finance costs 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. (w) Derivative financial instruments 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 50 MaxiTRANS Industries | Annual Report 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (ii) Capital management (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. 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. There have not been any changes to the objectives, policies and procedures for managing risk during the current year or in the prior year. 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 2018 was 31% (2017: 32%). 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. (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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 51 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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 independent valuations. 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. (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 grants relate to assets, and have been presented in the statement of financial position deducting the grant value from the cost of the asset in arriving at the asset carrying amount. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 52 MaxiTRANS Industries | Annual Report 2018 2. PROFIT FROM ORDINARY ACTIVITIES Employee and contract labour expenses: – employee expenses – contract labour expenses Total employee and contract labour expenses Net (income)/expenses from movements in provision for: – employee entitlements – warranty – other Net (income)/expense resulting from movements in provisions Rental expense on operating leases Research and development expenditure expensed as incurred Crediting as income: Net gain on disposal of: – property, plant and equipment 3. TAXATION (a) Income tax Reconciliation of tax expense Prima facie tax payable on profit before tax for continued and discontinued operations at 30% (2017: 30%) Add/(deduct) tax effect of: Research and development allowance Non-assessable expenditure/(income) Associate equity accounted income Under/(over) provision in prior year Impact of tax rates in foreign jurisdictions Add/(deduct) Income tax attributable to discontinued operations Consolidated 2018 $’000 Restated 2017 $’000 87,614 13,362 100,976 75,544 9,772 85,316 458 960 (1,037) 381 (178) 120 244 186 6,282 6,455 684 682 73 161 4,097 4,356 (268) 73 (421) 140 27 (449) 86 (295) (28) (265) (245) (48) (881) (248) Income tax expense in consolidated statement of profit or loss 3,734 3,227 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 53 3. TAXATION (continued) Income tax expense attributable to profit from continuing operations is made up of: Current tax expense Prior year under/(over) provision Deferred tax expense – origination and reversal of temporary difference – prior year under/(over) – deferred differences Exclude discontinued operation current tax benefit/(expense) Consolidated 2018 $’000 2,530 229 962 (72) 85 Restated 2017 $’000 2,947 (206) 773 (39) (248) Income tax expense in consolidated statement of profit or loss 3,734 3,227 (b) Deferred tax assets/(deferred tax liabilities) The deferred tax assets/(deferred tax liabilities) are made up of the following estimated tax benefits/(cost): – Provisions and accrued employee benefits – Property, plant and equipment – Leases – Intangible assets – Inventory – Other Net deferred tax asset/(liability) Balance at beginning of year Recognised in profit or loss Recognised in equity Transfer to assets held for sale Net deferred tax asset/(liability) (c) Current tax asset/(liability) 4,857 (7,025) (1,488) 1,134 113 (2,409) (280) (712) (1,121) (296) (2,409) 5,414 (5,596) – (972) 968 (94) (280) 1,334 (734) (880) – (280) 27 The Group’s current tax asset of $2,237,282 (2017: $1,209,051) and current tax liability of nil (2016: $118,499) represents the amount of income taxes receivable/(payable) in respect of current and prior financial periods. 4. TRADE AND OTHER RECEIVABLES Trade debtors Not past due Past due 0 – 30 days Past due 31 – 60 days Past due over 61 days Trade receivables Other receivables Total trade and other receivables Consolidated 2018 Consolidated 2017 Gross $’000 Impairment $’000 Total $’000 Gross $’000 Impairment $’000 Total $’000 25,586 8,856 1,981 3,305 39,728 (142) (49) (33) (192) 25,444 8,807 1,948 3,113 29,526 9,139 2,316 3,620 (166) (69) (23) (49) 29,360 9,070 2,293 3,571 (416) 39,312 44,601 (307) 44,294 (192) 39,120 914 45,208 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 54 MaxiTRANS Industries | Annual Report 2018 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 decrease to net realisable value Total inventories 6. PROPERTY, PLANT AND EQUIPMENT Land and buildings at fair value Accumulated depreciation Total land and buildings Plant and Equipment Plant and equipment at cost Accumulated depreciation Office equipment at cost Accumulated depreciation Leased property, plant and equipment Accumulated depreciation Capital work in progress Total plant and equipment Total property, plant and equipment Consolidated 2018 $’000 2017 $’000 1,162 38,016 4,661 15,863 (2,002) 57,700 3,044 35,242 6,913 18,358 (3,189) 60,368 46,205 – 46,205 43,526 (201) 43,325 39,212 (28,191) 41,828 (28,046) 11,021 13,782 10,025 (8,367) 1,658 1,501 (575) 926 33,923 47,528 93,733 9,522 (8,075) 1,447 7,990 (1,692) 6,298 23,674 45,201 88,526 Independent valuations/market assessments were obtained during 30 June 2018 in relation to all land and buildings held at that time, for use by the directors in assessing land and buildings at fair value. Refer to Note 26(e) for details of security over land and buildings. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 55 6. PROPERTY, PLANT AND EQUIPMENT (continued) Reconciliations Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below: Consolidated Land and buildings Carrying amount at the beginning of the financial year Additions Fair value revaluation 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 Transfer from inventories Transfers from/(to) leased plant and equipment Transfers from capital works in progress Transfer to Assets held for sale 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 Transfer from plant & equipment Transfer to Assets held for sale Transfer from leased plant and equipment Disposals Depreciation Other sundry movements Carrying amount at the end of the financial year Leased property, plant and equipment Carrying amount at the beginning of the financial year Additions Transfers to plant and equipment Transfer to Assets held for sale Disposals Other sundry movements Amortisation Carrying amount at the end of the financial year Capital works in progress Carrying amount at the beginning of the financial year Additions Transfer to Assets held for sale Transfers to software Transfers to property, plant and equipment Carrying amount at the end of the financial year 2018 $’000 43,325 10 3,901 – (539) (492) 46,205 13,782 1,757 – (7) 1,071 (1,717) (1,279) (2,660) 74 11,021 1,447 903 – 7 (191) – (2) (518) 12 1,658 6,298 495 – (5,562) – 281 (586) 926 23,674 11,324 (4) – (1,071) 33,923 2017 $’000 40,284 – 3,557 – (524) 8 43,325 10,768 1,496 3,784 15 91 – (135) (2,133) (104) 13,782 1,984 362 8 – – 2 (13) (884) (12) 1,447 7,176 116 (17) _ – (415) (562) 6,298 18,351 6,380 – (958) (99) 23,674 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 56 MaxiTRANS Industries | Annual Report 2018 7. INTANGIBLE ASSETS Software at cost Accumulated depreciation 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: Software Carrying amount at the beginning of the financial year Transfers from capital work in progress Depreciation Carrying amount at the end of the financial year Goodwill Carrying amount at the beginning of the financial year Impairment losses Less goodwill classified as held for sale 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 Impairment Losses Carrying amount at the end of the financial year Consolidated 2018 $’000 2017 $’000 958 (192) 766 958 (96) 862 21,892 24,645 6,930 (691) 6,239 6,930 (691) 6,239 22,665 (17,297) 22,665 (16,894) 5,368 5,771 891 (891) – 891 (891) – 34,265 37,517 862 – (96) 766 24,645 – (2,753) 21,892 6,239 6,239 5,771 (403) – 5,368 – 958 (96) 862 24,645 – – 24,645 6,239 6,239 6,175 (404) – 5,771 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 57 CGU Australian Trailers MaxiPARTS Yangzhou Maxi–CUBE Tong Composites (China) MaxiTRANS New Zealand Consolidated Other Intangibles Allocation Goodwill Allocation 2018 $’000 12,373 – – – 12,373 2017 $’000 12,872 – – – 12,872 2018 $’000 5,193 16,699 – – 21,892 2017 $’000 5,193 16,699 2,753 – 24,645 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 and are subsequently reviewed by the Board. Budgeted EBITDA was based on expectations of future outcomes taking into account past experience, adjusted for anticipated revenue growth. Revenue growth was projected taking into account 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% – 2.5%. The growth rate used for years 2-5 is 2.5% – 2.7% which is based on recent Australian Government GDP forecasts and the after-tax nominal discount rates used were 10.6% – 11.6% (2017: 8.8% – 9.8%). The recoverable amount of the Australian Trailers and MaxiParts CGU’s were found to be in excess of their respective carrying values. As the China CGU was classified as held for sale at 30 June 2018, its allocated goodwill was tested for impairment by comparing the estimated amount to be received from the sale to the current carrying value of net assets. The MaxiTrans New Zealand non-current assets were also not tested for impairment as there was no indicator for impairment during the period. 8. TRADE AND OTHER PAYABLES Trade payables Other payables and accruals Total trade and other payables Consolidated 2018 $’000 2017 $’000 34,853 12,474 47,327 39,776 12,824 52,600 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 58 MaxiTRANS Industries | Annual Report 2018 9. INTEREST BEARING LOANS AND BORROWINGS Current Bank loans – secured Lease liability Total current interest bearing liabilities Non-current Bank loans – secured Lease liability Total non–current interest bearing liabilities Consolidated 2018 $’000 – 752 752 49,500 408 49,908 2017 $’000 1,729 834 2,563 44,485 649 45,134 26 26 Bank loans are subject to a floating interest rate. Interest rate swaps have been executed in respect of $28.5m (2017: $20.0m) of this debt in order to mitigate interest rate risk. Refer to note 26(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 Other Total non-current provisions 2,236 92 2,328 2,029 98 2,127 9,166 3,960 9,420 3,001 13,126 12,421 1,066 75 1,141 1,092 52 1,144 Aggregate employee entitlements liability 10,232 10,512 Warranty and other provisions at 30 June 2018 is analysed as follows: Carrying amount at 1 July 2017 Provisions made during the year Provisions written back during the year Payments made during the year Foreign Currency Exchange differences Carrying amount at 30 June 2018 Warranty $’000 3,001 3,370 (61) (2,316) (34) 3,960 Other $’000 52 23 – – – 75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 59 Number of Ordinary Shares Share Capital $’000 185,075,653 185,075,653 56,386 56,386 11. ISSUED CAPITAL Balance at 30 June 2017 Balance at 30 June 2018 Ordinary shares Subject to the Constitution of the Company, holders of ordinary shares are entitled to vote as follows: •• Every shareholder may vote; •• On a show of hands every shareholder has one vote; •• On a poll every shareholder has one vote for each fully paid share. The company does not have authorised capital or par value in respect of its issued shares. 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. 12. EARNINGS PER SHARE Basic earnings per share Earnings reconciliation Net profit attributable to equity holders of the Company Basic earnings From continuing operations From discontinued operations Diluted Earnings From continuing operations From discontinued operations Consolidated 2018 – $’000 2017 – $’000 10,077 10,077 10,343 (266) 10,077 10,077 10,343 (266) 10,077 10,695 10,695 10,359 336 10,695 10,695 10,359 336 10,695 2018 – Number 2017 – Number Weighted average number of shares Number of ordinary shares for basic Earnings Per Share Effect of shares issued during the year Number of Ordinary Shares for Diluted earnings per share 185,075,653 – 185,075,653 185,075,653 – 185,075,653 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 60 MaxiTRANS Industries | Annual Report 2018 13. DIVIDENDS Dividends paid 2018 Interim – ordinary Total dividends paid 2017 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 2.00 1.50 3.50 3,702 3,702 3,702 2,776 6,478 13 April 2018 30% 100% 3 April 2017 3 October 2017 30% 30% 100% 100% Final – ordinary 1.50 2,776 12 October 2018 30% 100% The above dividend was determined after the end of the financial year and will be paid on 12 October 2018. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2018 and will be recognised in subsequent financial statements. Dividend franking account Franking credits available to shareholders of MaxiTRANS Industries Limited for subsequent financial years The Company 2018 $’000 2017 $’000 24,574 22,657 The ability to utilise the franking credits is dependent upon the ability to declare dividends. The impact on the dividend franking account of dividends proposed after the reporting date but not recognised as a liability is to reduce it by $1,189,772 (2017: $1,189,772). 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 corporate assets and expenses. Total finance costs of the Group are included in unallocated corporate costs. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 61 14. SEGMENT INFORMATION (continued) Year ended 30 June 2018 Business Segments Trailer Solutions Parts & Discontinued Eliminations Consolidated Components Operations $’000 $’000 $’000 $’000 $’000 Revenue External segment revenue Inter–segment revenue 290,948 7,553 101,945 25,477 16,419 2,899 – (35,929) 409,312 – Total segment revenue 298,501 127,422 19,318 (35,929) 409,312 Unallocated sundry revenue Total revenue – 409,312 Segment net profit before tax 18,846 8,827 (419) – 27,254 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 3,018 854 725 142,883 67,090 19,813 60,088 16,840 9,550 3,088 358 325 1,404 (14,999) 13,659 (3,648) 10,011 4,597 201 4,798 229,786 34,815 264,601 86,478 42,304 128,782 3,771 10,715 14,486 – – – – (i) Capital expenditure includes the acquisition of leased assets NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 62 MaxiTRANS Industries | Annual Report 2018 14. SEGMENT INFORMATION (continued) Year ended 30 June 2017 Business Segments Revenue External segment revenue Inter–segment revenue Total segment revenue Unallocated sundry revenue Total revenue Trailer Solutions Parts & Discontinued Eliminations Consolidated Components Operations $’000 $’000 $’000 $’000 $’000 230,905 880 91,136 11,900 231,785 103,036 17,674 2,108 19,782 – (14,888) 340,072 – – 340,072 – 340,072 Segment net profit before tax 16,848 5,958 935 – 23,740 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 884 (10,104) 14,520 (3,475) 11,045 2,632 1,033 708 – 4,373 147,998 57,023 18,628 53,865 17,854 9,434 1,691 540 168 230 4,603 223,649 19,845 243,493 81,153 33,613 114,766 2,399 5,955 8,354 – – – (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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 63 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 (‘PRs’) which upon vesting can be converted into a specified number of ordinary shares in the Company. The terms and conditions relating to PRs currently on issue are as follows: Period Grant date Total PRs issued Total PRs forfeited Total PRs remaining on issue Vesting conditions 1,819,520 – 1,819,520 ROIC – 100% 1 July 2017 – 30 June 2020 1 July 2016– 30 June 2019 30 September 2017 30 September 2016 3,591,081 1,977,014 1,614,067 ROIC – 50% EPS – 50% 6.17% (year ended 30 June 2016) Base Return on Invested Capital (ROIC) 3 year average rate of 6% Target increase in ROIC Average of 0.65% per annum (7.95% over 3 years) Average of 1.75% per annum (5.25% over 3 years) Percentage increase in base ROIC required 32.5% 85% Minimum % of ROIC target that must be achieved for Performance Rights to vest 66.67% (i.e. average of 0.43% per annum) 70% (i.e. average of 1.22% per annum) Target EPS Basic EPS – 9.82¢ Growth over 2014 EPS at 9.26c given that 2015 &2016 EPS was impacted by non-recurring costs Minimum service requirement 3 years from grant date 3 years from grant date Details of PRs exercised: 2015/18 Plan 2016/19 Plan Total PRs issued Total PRs forfeited Total PRs exercised Measurement of fair value 4,985,370 4,985,370 – 3,591,081 1,977,014 – 2017/20 Plan 1,819,520 – – The fair value of PRs 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. PRs 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 PRs on issue are as follows: Fair value at grant date Share price at grant date Expected volatility Expected dividend yield Risk–free rate of return Liquidity discount 2018 58.79¢ 67.00¢ 50.00% 6.5% 2.00% 15.00% 2017 45.99¢ 61.00¢ 50.00% 6 – 7% 2.30% 15.00% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 64 MaxiTRANS Industries | Annual Report 2018 15. SHARE BASED PAYMENTS (continued) Expense/(income) recognised in profit and loss Consolidated Share based payments expense recognised Share based payments reversed Total share based payment expense/(income) recognised as employee costs 2018 $’000 352 (330) 22 2017 $’000 503 (752) (249) During the period it was determined that the performance and service conditions of the 2015 PR scheme will not be met. As a result, the total amount recognised for goods and services received over the life of the 2015 scheme was reversed. In addition where an employee has left the business their PR expense was reversed. The reversal amount is comprised of: 2015 PR scheme 2016 PR scheme 2017 PR scheme $’000 276 48 6 16. RELATED PARTY DISCLOSURES (a) Director and other key management personnel disclosures 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 J Curtis (Deputy Chairman) – Mr R Wylie (Chairman) – Mr J Rizzo – Ms S Hogg Executive directors – Mr M Brockhoff (Former Managing Director – retired on 1 July 2017) – Mr D Jenkins (Managing Director) Executives – Mr C Richards (CFO) – Mr A Roder (Group General Manager – Manufacturing) – resigned 12 January 2018 – Mr P Loimaranta (Group General Manager – International) – Mr A McKenzie (Group General Manager – Sales and Marketing) – – Mr T Negus (Group General Manager – Manufacturing) – appointed 1 January 2018 Mr J O’Brien (General Manager – MaxiParts) – appointed 1 November 2017 (b) Directors’ transactions in shares Directors and their related entities acquired 302,540 (2017: Nil) existing ordinary shares in MaxiTRANS Industries Limited during the year. (c) Director and other key management personnel transactions 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 65 (d) Transactions with associate During the year the Group derived revenue from the associate of $40,488,567 (2017: $26,708,172) for the sale of new units, parts and the provisions of services. Amounts receivable from the associate at year end total $3,925,567 (2017: $1,479,408). During the year the Group paid for services and parts from the associate totalling $1,659,565 (2017: $1,260,496). Amounts owing at year end total $120,977 (2017: $45,511). 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/(expense) Consolidated 2018 2017 3,176,337 323,940 (6,382) 3,147,072 329,407 (193,811) 3,493,895 3,282,668 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 66 MaxiTRANS Industries | Annual Report 2018 17. PARENT ENTITY As at 30 June 2018 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 2018 $’000 2017 $’000 (3,427) – (3,427) 52,047 114,440 2,393 51,892 (785) – (785) 64,832 116,263 1,076 43,833 62,548 72,430 56,386 609 5,553 62,548 56,386 586 15,458 72,430 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 67 18. CONTROLLED ENTITIES Particulars in relation to controlled entities Country of Incorp. Class of Shares Interest Held 2018 % 2017 % The Company: MaxiTRANS Industries Limited Controlled entities of MaxiTRANS Industries Limited: MaxiTRANS Australia Pty Ltd – Transport Connection Pty Ltd (ii) 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 Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Aust. Spares Pty Ltd) MaxiTRANS Employee Share Plan Pty Ltd MaxiTRANS (China) Limited (i) Yangzhou Maxi–CUBE Tong Composites Co Ltd Aust. Aust. Hong Kong China Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. Ord. 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 (i) Dormant entity (ii) As at 30 June 2017 MaxiTRANS Australia Pty Ltd purchased the remaining 20% minority shareholding 19. ACQUISITION OF NCI In June 2017, the Group acquired the additional 20% interest in Transport Connection Pty Ltd for $536,405 in cash, increasing its ownership from 80% to 100%. A final payment of $31,201 was paid in 2018 following the finalisation of the 30 June 2017 financial report of Transport Connection Pty Ltd. The carrying amount of Transport Connection Pty Ltd net assets in the Group’s consolidated financial statements on the date of the acquisition was $2,982,252. The Group recognised a decrease in NCI of $596,450 and an increase in retained earnings attributable to the owners of the Company of $60,045. Carrying amount of NCI acquired ($2,982,252 x 20%) Consideration paid to NCI Increase in equity attributable to owners of the Company 2018 $’000 – 31 31 2017 $’000 596 536 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 68 MaxiTRANS Industries | Annual Report 2018 20. DEED OF CROSS GUARANTEE 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 (2016/785) 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 2018 is set out as follows: Consolidated statement of comprehensive income Total revenue Changes in inventories of finished goods and work in progress Raw materials and consumables used Other income Employee expenses Warranty expenses Depreciation and amortisation expenses 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 reclassified 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 Consolidated 2018 $’000 2017 $’000 362,979 285,214 2,433 3,847 (217,833) (162,586) 72 161 (98,724) (82,695) (3,770) (4,055) (2,328) (1,796) (3,875) (2,127) (26,938) (24,963) 1,404 13,240 (3,484) 9,756 429 (35) 3,901 (1,136) 3,159 12,915 884 12,064 (2,770) 9,294 (1,275) 114 3,557 (1,041) 1,355 10,649 9,756 9,294 12,915 10,649 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 69 Consolidated 2018 $’000 9,691 35,539 55,470 2,237 1,567 104,504 4,826 7,193 93,617 32,686 265 1,249 2017 $’000 4,695 31,889 56,610 1,209 1,310 95,713 4,442 7,162 77,988 33,183 215 1,133 139,836 124,123 244,340 219,836 47,855 753 – 12,857 61,465 49,908 2,741 1,141 97 53,887 42,512 834 – 11,438 54,784 43,406 701 1,144 35 45,286 115,352 100,070 128,988 119,766 56,386 19,175 53,427 56,386 15,215 47,302 128,988 119,766 20. DEED OF CROSS GUARANTEE (continued) Consolidated statement of financial position 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 Investments in controlled entities Property, plant and 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 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 70 MaxiTRANS Industries | Annual Report 2018 21. INVESTMENT IN ASSOCIATE 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 2018 % 36.67 2017 % 36.67 $’000 2018 2017 Revenues (100%) 70,740 56,210 Net Profit after Tax (100%) 3,829 2,411 Share of Associate Profit Recognised Total Assets Total Liabilities Net Assets as Reported by Associate 1,404 884 20,489 18,041 8,453 7,052 12,035 10,988 Commitments The share of the associate’s capital commitments contracted but not provided for or payable within one year was $nil at 30 June 2018 (2017: $nil). 22. NOTE TO THE CONSOLIDATED STATEMENT OF CASH FLOWS Reconciliation of cash flows from operating activities with operating profit/(loss) after tax Profit for the year Non cash items in operating profit Depreciation/amortisation of assets Profit on sale of fixed assets Share of associates profit Share based payments expense Change in assets and 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 Consolidated 2018 $’000 2017 $’000 10,011 11,045 4,798 73 (1,404) 22 (569) 61 2,739 3,161 (1,237) 741 1,371 19,767 4,603 (161) (884) (249) (4,735) 35 (11,426) 4,331 1,633 517 (264) 4,445 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 71 23. 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 Consolidated 2018 $’000 4,244 8,011 1,671 2017 $’000 4,426 9,890 1,636 Total operating lease commitments 13,926 15,952 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 24. CONTINGENT LIABILITIES 7,144 867 8,011 13,180 3,580 16,760 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. 25. REMUNERATION OF AUDITOR Remuneration of the auditor of the Company for: $ $ KPMG Australia: – auditing and reviewing the financial statements – other services (taxation and advisory) Overseas KPMG Firms: – auditing and reviewing financial statements – other services (taxation, advisory and due diligence) Total auditor remuneration 292,830 188,254 306,967 166,219 481,084 473,186 86,849 9,554 96,403 82,219 12,605 94,824 577,487 568,010 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 72 MaxiTRANS Industries | Annual Report 2018 26. FINANCIAL INSTRUMENTS (a) Risk management framework/policies The Group’s 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 Consolidated 2018 $’000 15,161 35,500 50,661 2017 $’000 21,483 26,214 47,697 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 (218) 218 (140) 140 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 2018 $’000 2017 $’000 2018 $’000 2017 $’000 2018 $’000 2017 $’000 2018 $’000 2017 $’000 Buy USD Dollar 0.7498 0.7505 7,028 5,132 9,373 6,839 134 (149) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 73 26. 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 been affected as follows: USD 10.0 cents increase (d) Credit risk Consolidated 2018 $’000 2017 $’000 (699) (652) 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 credit worthy 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 $723,768 (2017: $1,296,594) are held by Australia and New Zealand Banking Group Limited and Westpac Banking Corporation on behalf of MaxiTRANS Australia Pty Ltd and MaxiPARTS Pty Ltd. MaxiTRANS Industries Limited guarantees the loan facility MTC (China) has with HSBC Bank. Refer to (e) below for details of the MTC (China) loan facility. (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 liabilities based on the remaining earliest contractual maturities, excluding net interest payable on borrowings. 30 June 2018 – Consolidated 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 (47,327) (50,660) (47,327) (630) – (122) – (22,245) – (27,663) Effect of derivative instruments Forward exchange contracts – inflow – outflow 9,880 (9,746) 9,880 (9,746) – – – – – – (97,853) (47,823) (122) (22,245) (27,663) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 74 MaxiTRANS Industries | Annual Report 2018 26. FINANCIAL INSTRUMENTS (continued) 30 June 2017 – Consolidated 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 (52,600) (47,697) (52,600) (1,099) – (1,464) – (1,970) – (43,164) Effect of derivative instruments Forward exchange contracts – inflow – outflow Finance facilities 6,774 (6,923) 6,774 (6,923) – – – – – – (100,446) (53,848) (1,464) (1,970) (43,164) At year end, the Group had the following financing facilities in place with its bankers: Consolidated Facility Amount Utilised Available 2018 $’000 2017 $’000 2018 $’000 2017 $’000 2018 $’000 2017 $’000 Loan facility Overdraft facility Multi-option facility Less borrowings included in liabilities 64,655 1,000 9,000 (4,655) 64,801 1,000 9,000 – 52,568 – 1,395 (3,068) 46,214 – 4,273 – 12,087 1,000 7,605 (1,587) 18,587 1,000 4,727 – 70,000 74,801 50,895 50,487 19,105 24,314 On 29 June 2017, the Group refinanced its financing facilities. Commonwealth Bank of Australia and HSBC Bank are the Group’s new banking partners. The loan, overdraft and other facilities are fully secured by a registered mortgage over certain land and buildings of the controlled entities with a fair value of $46,205,051 as at 30 June 2018. Core Australian and New Zealand loan facilities of $70.0m mature as follows, subject to continuing compliance with the terms of the facilities: – $40.0m in June 2020 – $30.0m in June 2022 The net cash used in financing activities excluding dividends paid (totalling $6.031m) as disclosed in the Statement of Cash Flows, consist of the movement in Interest bearing loans and borrowings as per note 9 ($2.963m) plus the borrowings held for sale per note 27 ($3.068m). Interest rates are a combination of fixed and variable. The MTC (China) core loan facility is a 3 year facility of RMB 15.0m and is with HSBC Bank in China. 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 2018 and 2017 financial years. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 75 26. FINANCIAL INSTRUMENTS (CONTINUED) (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. 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 2018. •• Level 1 is based on quoted prices in active markets for identical items; •• Level 2 is based on quoted prices or other observable market data not included in level 1; •• 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 Consolidated 2018 $’000 41 – 2017 $’000 – 193 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 and assessments against current market prices have been performed at 30 June 2018 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 2017/18, including changes to the unobservable inputs. Opening balance as at 1 July 2017 Fair value revaluation Additions Depreciation recognised in the statement of profit and loss Exchange rate variance Closing balance as at 30 June 2018 Consolidated Land and Buildings $’000 43,325 3,901 10 (539) (492) 46,205 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 76 MaxiTRANS Industries | Annual Report 2018 27. DISPOSAL GROUP HELD FOR SALE In June 2018, management committed to a plan to sell MaxiTRANS Industries Limited’s 80% share of Yangzhou Maxi-CUBE Tong Composites Co Ltd (MTC) which forms part of the Parts & Components segment. Accordingly, MTC is presented as a disposal group held for sale at 30 June 2018. Efforts to sell the disposal group have started and a sale is highly probable in FY19. (a) Impairment losses relating to the disposal group The estimated amount to be received from the sale is expected to be higher than the current carrying value of MTC’s net assets and as such no write-downs of the disposal group has been recognised. (b) Assets and liabilities of disposal group held for sale At 30 June 2018, the disposal group was stated at fair value less costs to sell and comprised the following assets and liabilities. Property, plant and equipment Inventories Trade and other receivables Cash at bank Deferred tax asset Goodwill Other assets Assets held for sale Trade and other payables Bank Loans Provisions Other liabilities Liabilities held for sale (c) Cumulative income or expenses included in OCI There are no cumulative income or expenses included in OCI relating to the disposal group. $’000 7,470 1,513 4,417 2,390 296 2,753 974 19,813 5,213 3,068 739 530 9,550 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 77 28. DISCONTINUED OPERATION In June 2018, management committed to a plan to sell MaxiTRANS Industries Limited’s 80% share of Yangzhou Maxi-CUBE Tong Composites Co Ltd (MTC) which forms part of the Parts & Components segment. MTC was not previously classified as held-for-sale or as a discontinued operation. The comparative consolidated statement of profit or loss and OCI has been restated to show the discontinued operation separately from continuing operations. (a) Results of Discontinued Operation Sale of goods Changes in inventories of finished goods and work in progress Raw materials and consumables used Employee and contract labour expenses Depreciation and amortisation expenses Finance costs Other expenses Profit/(loss) from discontinued operation before tax Income tax expense Profit/(loss) from discontinued operation Less: Non Controlling Interest Profit/(loss) attributable to equity holders Basic earnings (loss) per share (cents per share) Diluted earnings (loss) per share 2018 $’000 19,317 178 (15,862) (852) (725) (146) (2,329) (419) 87 (332) 66 (266) (0.14) (0.14) 2017 $’000 19,782 178 (14,927) (792) (708) (189) (2,410) 934 (248) 686 (137) 549 0.30 0.30 The loss from the discontinued operation of $332 thousand (2017: profit of $686 thousand) is 80% attributable to the owners of the Company. (b) Cash flows from (used in) Discontinued Operation Net cash used in operating activities Net cash from investing activities Net cash used in financing activities Net cash flows for the year 2018 $’000 1,652 (318) (389) 945 2017 $’000 – – – – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 78 MaxiTRANS Industries | Annual Report 2018 29. STANDARDS ISSUED BUT NOT YET EFFECTIVE A number of new standards are effective for annual reporting periods beginning after 1 January 2018 and earlier application is permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements. The following standards are expected to have an impact on the Group’s financial statements in the period of initial application. (a) Estimated impact of the adoption of AASB 9 and AASB 15 The Group is required to adopt AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from reporting periods commencing after 1 January 2018. The Group has assessed the estimated impact that the initial application of AASB 9 and AASB 15 will have on its consolidated financial statements. The estimated impact of the adoption of these standards on the Group’s equity as at 1 July 2018 is based on assessments undertaken to date and is summarised below. Estimated Estimated adjustments adjustments due to adoption of AASB 15 due to adoption of AASB 9 As reported at 30 June 2018 Estimated adjusted opening balance 1 July 2018 Retained earnings 57,172 77 (33) 57,216 The total estimated adjustment (net of tax) to the opening balance of the Group’s equity at 1 July 2018 is $44 thousand. The principal components of the estimated adjustment are as follows: •• An increase of $77 thousand in retained earnings due to the write back of impairment losses on financial assets. •• An decrease of $33 thousand due to deferred recognition of revenue from sales contracts with extended warranty. (b) AASB 9 Financial Instruments AASB 9 Financial Instruments sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces AASB 139 Financial Instruments: Recognition and Measurement. (i) Classification – Financial assets AASB 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. AASB 9 contains three principal classification categories for financial assets: measured at amortised cost, FVOCI and FVTPL. The standard eliminates the existing AASB 139 categories of held to maturity, loans and receivables and available for sale. Based on its assessment, the Group does not believe that the new classification requirements will have a material impact on its accounting for trade receivables and loans that are managed on a fair value basis. (ii) Impairment – Financial assets AASB 9 replaces the ‘incurred loss’ model in AASB 139 with a forward-looking ‘expected credit loss’ (ECL) model. This will require considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. The new impairment model will apply to financial assets measured at amortised cost or FVOCI, except for investments in equity instruments, and to contract assets. Under AASB 9, loss allowances will be measured on either of the following bases: •• 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and •• lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 MaxiTRANS Industries | Annual Report 2018 79 29. STANDARDS ISSUED BUT NOT YET EFFECTIVE (continued) Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly since initial recognition and 12-month ECL measurement applies if it has not. An entity may determine that a financial asset’s credit risk has not increased significantly if the asset has low credit risk at the reporting date. However, lifetime ECL measurement always applies for trade receivables and contract assets without a significant financing component; the Group has chosen to apply this policy also for trade receivables and contract assets with a significant financing component. Based on AASB 9’s impairment methodology, the Group has estimated that application of AASB 9 impairment requirements at 1 July 2018 does not result in a significant impact. (iii) Classification – Financial liabilities AASB 9 largely retains the existing requirements in AASB 139 for the classification of financial liabilities. However, under AASB 139 all fair value changes of liabilities designated as at FVTPL are recognised in profit or loss, whereas under AASB 9 these fair value changes are generally presented as follows: •• the amount of change in the fair value that is attributable to changes in the credit risk of the liability is presented in OCI; and •• the remaining amount of change in the fair value is presented in profit or loss. The Group has not designated any financial liabilities at FVTPL and it has no current intention to do so. The Group’s assessment did not indicate any material impact regarding the classification of financial liabilities at 1 July 2018. (iv) Hedge accounting When initially applying AASB 9, the Group may choose as its accounting policy to continue to apply the hedge accounting requirements of AASB 139 instead of the requirements in AASB 9. The Group has chosen to apply the new requirements of AASB 9. AASB 9 requires the Group to ensure that hedge accounting relationships are aligned with the Group’s risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. AASB 9 also introduces new requirements on rebalancing hedge relationships and prohibiting voluntary discontinuation of hedge accounting. Under the new model, it is possible that more risk management strategies, particularly those involving hedging a risk component (other than foreign currency risk) of a non-financial item, will be likely to qualify for hedge accounting. The Group does not currently undertake hedges of such risk components. Under AASB 139, for all cash flow hedges, the amounts accumulated in the cash flow hedge reserve are reclassified to profit or loss as a reclassification adjustment in the same period as the hedged expected cash flows affect profit or loss. However, under AASB 9, for cash flow hedges of foreign currency risk associated with forecast non-financial asset purchases, the amounts accumulated in the cash flow hedge reserve and the cost of hedging reserve will instead be included directly in the initial cost of the non-financial asset when it is recognised. The Group does not currently have cash flow hedges of foreign currency risk. The types of hedge accounting relationships that the Group currently designates meet the requirements of AASB 9 and are aligned with the entity’s risk management strategy and objective. (v) Transition Changes in accounting policies resulting from the adoption of AASB 9 will generally be applied retrospectively, except as described below. •• The Group will take advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of AASB 9 will generally be recognised in retained earnings and reserves as at 1 July 2018. •• The new hedge accounting requirements should generally be applied prospectively. (c) AASB 15 Revenue from Contracts with Customers AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111 Construction Contracts and AASB Interpretation 13 Customer Loyalty Programmes. (i) Sales of goods For the sale of goods and services, revenue is currently recognised when the goods are delivered to the customers’ premises or collected at the Company premises, which is taken to be the point in time at which the customer accepts the goods and the related risks and rewards of ownership NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018 80 MaxiTRANS Industries | Annual Report 2018 transfer. Revenue is recognised at this point provided that the revenue and costs can be measured reliably, the recovery of the consideration is probable and there is no continuing management involvement with the goods. Therefore, the cumulative effect of adopting AASB 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 July 2019, with no restatement of comparative information. When applying the modified retrospective approach to leases previously classified as operating leases under AASB 117, the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. The Group is assessing the potential impact of using these practical expedients. The Group is not required to make any adjustments for leases in which it is a lessor except where it is an intermediate lessor in a sub-lease. 30. EVENTS SUBSEQUENT TO BALANCE DATE 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 2018. This will result in revenue, and some associated costs, for these contracts being recognised earlier than at present – i.e. before the goods are delivered to the customers’ premises or collected at the Company’s premises. (ii) Transition The Group plans to adopt AASB 15 using the cumulative effect method, with the effect of initially applying this standard recognised at the date of initial application (i.e. 1 July 2018). As a result, the Group will not apply the requirements of AASB 15 to the comparative period presented. (d) AASB 16 Leases AASB 16 removes the lease classification test for lessees and requires all the leases (including operating leases) to be brought onto the balance sheet. The definition of a lease is also amended and is now the new on/off balance sheet test for lessees. AASB 16 is effective for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted where AASB 15 Revenue from Contracts with Customers is adopted at the same time. The Group is assessing the potential impact on its financial statements resulting from the application of AASB 16. (i) Transition As a lessee, the Group can either apply the standard using a: • retrospective approach; or • modified retrospective approach with optional practical expedients. The lessee applies the election consistently to all of its leases. The Group plans to apply AASB 16 initially on 1 July 2019, using the modified retrospective approach. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)FOR THE YEAR ENDED 30 JUNE 2018MaxiTRANS Industries | Annual Report 2018 81 INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED 30 JUNE 2018 Independent Auditor’s Report To the shareholders of MaxiTRANS Industries Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of MaxiTRANS Industries Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial performance for the year ended on that date; and The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2018 • 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 then ended • Notes including a summary of significant accounting policies • Directors' Declaration. • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Group consists of the Company and the entities it controlled at the year end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. 82 MaxiTRANS Industries | Annual Report 2018 INDEPENDENT AUDITOR’S REPORT (CONT.) FOR THE YEAR ENDED 30 JUNE 2018 Key Audit Matters The Key Audit Matters we identified are: • Recoverability of goodwill and other intangible assets • Warranty provision Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Recoverability of goodwill and other intangible assets (AUD $34.3m) Refer to Note 7 Intangible assets The key audit matter How the matter was addressed in our audit A key audit matter for us was the Group’s annual testing of goodwill and other intangible assets for impairment, given the size of the balance and market capitalisation being below the carrying amount of the net assets at year-end, increasing the possibility of goodwill and intangible assets being impaired. This further increased our audit effort in this area. We focused on the significant forward-looking assumptions the Group applied in their value in use models, including: • forecast cash flows, growth rates and terminal growth rates – the Group has forecasted significant growth in the business, therefore increasing the risk of inaccurate forecasts. • discount rate - these are complicated in nature and vary according to the conditions and environment the specific Cash Generating Unit (CGU) is subject to from time to time, and the model’s approach to incorporating risks into the cash flows or discount rates. We involved valuation specialists to supplement our senior audit team Our procedures included: • We considered the appropriateness of the value in use method applied by the Group to perform the annual test of goodwill and other intangible assets for impairment against the requirements of the accounting standards. • We assessed the integrity of the value in use models used, including the accuracy of the underlying calculation formulas. • We compared the forecast cash flows contained in the value in use models to Board approved forecasts. • We assessed the accuracy of previous Group forecasts to inform our evaluation of forecasts incorporated in the models. • We compared historical actual growth in sales, expenses, gross profit, and EBITDA to financial year 2019 budgeted cash flows to assess reasonableness of those cash flows. • Where applicable, we inspected post year-end management reporting accounts to compare actual performance to date against budget for financial year 2019. • We considered the sensitivity of the models by varying key assumptions, such as financial year 2019 forecast cash flows, growth rates, terminal growth rates and discount rates, within a reasonably possible range, to identify those CGUs at higher risk of impairment and to focus our further procedures. MaxiTRANS Industries | Annual Report 2018 83 INDEPENDENT AUDITOR’S REPORT (CONT.) FOR THE YEAR ENDED 30 JUNE 2018 members in assessing this key audit matter. • We compared forecast growth rates to published studies of industry trends and expectations. We used our knowledge of the Group, their past performance, business and customers, and our industry experience. • Working with our valuation specialists we independently developed a discount rate range considered comparable using publicly available market data for comparable entities, adjusted by risk factors specific to the Group and the industry it operates in. • We compared the trading multiples from comparable companies to the multiples from the Group’s value-in- use models. • We assessed the disclosures in the financial report against the requirements of the accounting standards. Warranty provision (AUD $4.0m) Refer to Note 10 Provisions The key audit matter How the matter was addressed in our audit The warranty provision was considered a key audit matter due to the estimation uncertainty inherent in the Group’s key assumptions applied, specifically relating to: • The product portfolio, where each product has different design and quality attributes; • The different products having different warrantable periods and different expected rectification costs; • The inherent unpredictability of future failures resulting in claims under warranty; and • The increased warranty claims in the current year that were not anticipated by one of the subsidiaries of the Group, increasing the risk of inaccurate forecasting of claims. The key assumptions used in the determination of the warranty provision are: Our procedures included: • Through inquiries with senior management, we obtained an understanding of the product portfolio, each product’s warrantable period and history of failure rates, and the key assumptions used in the determination of the warranty provision; • Assessing the accuracy of the Group’s previous provision for warranty claims by comparing the prior year provision against actual claims settled during the current period to inform our evaluation of the current period estimate; • Checking the mathematical accuracy of the general warranty provision model; • Testing the warranty period used in the determination of the provision by inspecting the warranty terms as set out on the company website; • To test the accuracy of the historical cost to repair products, which is data used in the Group’s provision determination, we selected a sample of warranty claims from the Group’s claim reports and compared the product type, repair cost, and build year to source documentation; • To test the accuracy of the number of units repaired, which is also data used in the Group’s provision 84 MaxiTRANS Industries | Annual Report 2018 INDEPENDENT AUDITOR’S REPORT (CONT.) FOR THE YEAR ENDED 30 JUNE 2018 • The historical claim rate being the indicator of future claim rate; • Each product’s historical repair cost being the indicator of future repair cost. determination, we compared the number of units repaired to the number of units repaired per the Group’s claim reports; • Performing a comparison of the Group’s actual claim rate for the years ended 30 June 2017 and 30 June 2018 to the forecasted claim rate for those respective years to assess the accuracy of the Group’s forecasting of the future claim rate and the reasonableness of using history as the indicator of future claim rates; • Performing a comparison of the Group’s actual warranty costs to repair trailers for the years ended 30 June 2017 and 30 June 2018 to the forecasted repair cost for those respective years to assess the accuracy of the Group’s forecasting of the estimated cost to repair future units and the reasonableness of using history as the indicator of future repair cost; • Assessing the warranty provision methodology against the requirements of the accounting standards; • • In relation to increased warranty claims in the current year for one of the subsidiaries of the Group, inquiring with management to understand the specific warranty issues stemming from trailers built over a specific period that were sold to certain customers. Inspecting external transportation authority reports identifying the number of units registered by those customers referred to above, and assessing the completeness of the Group’s provision by comparing the number of units provided for to the number of units as per the external report. • To test the reasonableness of the specific provision for the affected subsidiary, we selected a sample of warranty claims in the current year, compared the repair cost to source documentation, and compared to the Group’s forecasted cost included in the provision. MaxiTRANS Industries | Annual Report 2018 85 INDEPENDENT AUDITOR’S REPORT (CONT.) FOR THE YEAR ENDED 30 JUNE 2018 Other Information Other Information is financial and non-financial information in MaxiTRANS Industries Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error • assessing the Group and Company's ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and • to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. 86 MaxiTRANS Industries | Annual Report 2018 INDEPENDENT AUDITOR’S REPORT (CONT.) FOR THE YEAR ENDED 30 JUNE 2018 Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of MaxiTRANS Industries Limited for the year ended 30 June 2018, complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 26 to 32 of the Directors’ report for the year ended 30 June 2018. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Suzanne Bell Partner Melbourne 24 August 2018 MaxiTRANS Industries | Annual Report 2018 87 AUSTRALIAN STOCK EXCHANGE ADDITIONAL INFORMATION FOR THE YEAR ENDED 30 JUNE 2018 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 2018 Category – No of Shares No of Shareholders 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over 431 926 656 1,403 220 3,636 Shareholders with less than a marketable parcel As at 31 July 2018, there were 308 shareholders holding less than a marketable parcel of 885 ordinary shares ($0.565 on 31 July 2018) in the Company totalling 109,241 ordinary shares. On market buy-back There is no current on-market buy-back. SHAREHOLDINGS Substantial shareholders The names of the substantial shareholders as at 31 July 2018 are: Ordinary Shares Transcap Pty Ltd and related parties HGT Investments Pty Ltd Pinnacle Investment Management Group Limited and its susidiaries Greg & Harrison Voting rights 24,943,030 20,250,000 9,551,557 9,356,501 As at 31 July 2018, there were 3,636 holders of ordinary shares of the Company. 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 2018, there were no unquoted options over unissued ordinary shares. 88 MaxiTRANS Industries | Annual Report 2018 AUSTRALIAN STOCK EXCHANGE ADDITIONAL INFORMATION (CONT.) FOR THE YEAR ENDED 30 JUNE 2018 TWENTY LARGEST SHAREHOLDERS – ORDINARY SHARES AS AT 31 JULY 2018 Name 1. HGT INVESTMENTS PTY LTD 2. TRANSCAP PTY LTD 3. CITICORP NOMINEES PTY LIMITED 4. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 5. J P MORGAN NOMINEES AUSTRALIA LIMITED 6. TOROA PTY LTD 7. TRANSCAP PTT LTD 8. HORRIE PTY LTD 9. DE BRUIN SECURITIES PTY LTD 10. JOHN E GILL TRADING PTY LIMITED 11. MR ERIC DEAN ROSS 12. JOHN E GILL OPERATIONS PTY LTD 13. JAMES R CURTIS 14. HILLMORTON CUSTODIANS PTY LTD 15. BNP PARIBAS NOMINEES PTY LTD 16. MAHATA PTY LTD 17. TANERKA PTY LTD 18. BNP PARIBAS NOMS PTY LTD 19. DEBUSCEY PTY LTD 20. BELGRAVIA STRATEGIC EQUITIES PTY LTD Total ordinary fully paid shares – top 20 holders Total remaining holders balance Units % of Units 20,250,000 14,940,739 9,579,308 9,364,187 6,817,484 4,286,241 2,994,810 2,165,000 2,129,773 1,571,933 1,406,540 1,391,657 1,328,439 1,311,000 1,273,930 1,222,392 1,102,620 921,453 897,056 855,000 10.94 8.07 5.18 5.06 3.68 2.32 1.62 1.17 1.15 0.85 0.76 0.75 0.72 0.71 0.69 0.66 0.60 0.50 0.48 0.46 82,701,875 102,373,778 44.69 55.31 MaxiTRANS Industries | Annual Report 2018 89 CORPORATE DIRECTORY Company Secretary Alison Groves 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 Tel 1300 850 505 (within Australia) Tel +61 3 9415 4000 (outside Australia) Auditor KPMG Tower Two Collins Square 727 Collins St Melbourne VIC 3000 Stock Exchange The Company is listed on the Australian Securities Exchange. Other Information MaxiTRANS Industries Limited ACN 006 797 173 maxitrans.com VALUES According to what we each have learned from life experiences, we develop personal values that act as guiding principles to help us live and work together. At MaxiTRANS this is no different, which is why we have created our own set of values that guide us in everything that we do. These values help our MaxiTRANS team align thinking & behaviour to create a culture that performs. We call this the MaxiTRANS Way. Those values are: SEND ALL OUR PEOPLE HOME SAFELY A BALANCED FOCUS ON CUSTOMERS AND RESULTS ENABLE AND EMPOWER PEOPLE TO ACHIEVE RESULTS ENCOURAGE COLLABORATION AND DEEP SEATED ACCOUNTABILITY BE HONEST, FORTHRIGHT AND ETHICAL IN OUR DEALINGS BECOME BETTER EVERY DAY IN ALL THAT WE DO maxitrans.com OUR

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