MaxiPARTS
Annual Report 2019

Plain-text annual report

Looking closer at the big picture ANNUAL REPORT 2019 M a x i T R A N S I n d u s t r i e s | A N N U A L R E P O R T 2 0 1 9 MaxiTRANS Industries Limited ACN 006 797 173 2019 Financial Highlights 9 2 3 0 4 3 0 4 3 9 0 4 2 5 3 3 . 6 8 . 8 7 . 0 1 1 . 0 1 8 . 4 2 3 5 . 3 5 . 3 0 15 16 17 18 2019 15 16 17 18 2019 15 16 17 18 2019 Revenue ($m) Underlying net profit after tax ($m) Ordinary dividends declared per share (cents) You’ll see a company that is much more than the sum of its parts Contents 2019 Highlights Who we are Chairman’s Report Managing Director’s Review Our Strategy Safety and People MaxiPARTS Australian Trailers International Board of Directors Executive Leadership Team Financial Report 1 2 4 5 6 8 10 12 14 16 17 18 2019 Highlights ANNUAL REPORT 2019 1 O u r P e o p l e & C o m m u n i t y O u r B u s i n e s s Total Recordable Injury Frequency Rate (TRIFR) From FY18 to current rolling 12 month TRIFR 48% Women in senior management roles 24.4% 2018 Employee Engagement Score 9% Programs & systems launched FY19 Revenue • Launched leadership development programs for all frontline Managers, as well as Executive and Senior Management Teams $352m • Management ERP system went live 2 October 2018 Capital Reallocation • Launched employee recognition program (recognising employees living the MaxiTRANS values) Sale of MTC and acquisition of Trout River Australia Manufacturing efficiency MaxiPARTS Revenue 7% in last 12 months 4.9% on PCP 2 MAxITRANS INDUSTRIES We are Australasia’s largest trailer equipment & support distribution network Our businesses regional footprint • One of the largest suppliers of truck and trailer parts to the road transport industry in Australia through the MaxiPARTS wholesale and retail network • Australia’s largest supplier of locally manufactured, high quality engineered road transport trailer solutions including trailer repairs, service and rental • A major player in the New Zealand road transport trailer industry Trailer Dealers MaxiPARTS Outlets Our purpose At MaxiTRANS, we are leading our industry to become safer and more efficient, so that our customers can better deliver the needs of a nation ANNUAL REPORT 2019 3 We are well positioned and ready for growth MaxiPARTS Business Trailers Business • A national store footprint in the • Strong brand heritage and right locations reputation • Technology enabled customer solutions • Scale benefits from being associated with the largest trailer manufacturer • Broadest range of products, national distribution and service capability • Innovation driving leadership in product safety and quality • Breadth of range and product expertise • Multiple manufacturing sites across two Australian states and NZ 36% FY19 Segment Revenue Contribution 51% FY19 Segment Profit Contribution 64% 49% Our values Send all our people home safely A balanced focus on customers and results Enable and empower people to achieve results Be honest, forthright and ethical in our dealings Encourage collaboration and deep seated accountability Become better every day in all that we do 4 MAxITRANS INDUSTRIES Chairman’s Report Dear Shareholder, Last year we talked of our focus on operations to improve efficiencies as well as establishing the safety of our people as a daily priority. We also set out the pillars of our strategy and developing a diverse organisation capable to carry us forward into the next phase. While our performance this year did not meet our expectations, we did make progress on these, which I will discuss a little later. Having experienced a difficult first half due to the implementation of the ERP System we expected a strong second half. However the weak economic conditions in our end markets resulted in a downturn in orders with an associated reduction in revenue. We regard the annual result overall as unacceptable. I feel it incumbent upon me to speak in more depth about the TRANSform project (new IT/ERP system). As you are aware, the core of the new ERP system has now been implemented but not without significant costs to the business, exacerbated by the amount of time, that was not foreseen, to complete its long overdue introduction. The final module will be delivered in FY20. The previous systems were at an end of life point and replacement was essential in order to mitigate significant risk to the business. However, once we embarked on this journey, it became clear that the trajectory could neither be adapted midway, nor its costs curtailed. We do remain bolstered by the fact that the new system has removed the existing risk to the business and has been a necessary step in delivering the benefits of our operational excellence strategy in the longer-term. As was the goal for FY19, manufacturing efficiency improved in both NZ and Ballarat plants and despite reducing volumes the Ballarat plant recorded excellent efficiencies in quarter 4 of the financial year. Perhaps even more pleasing was a 48% reduction in recordable injuries in the year, an example of our value of “sending our people home safely” in action. Notwithstanding, it has indeed been a challenging time, out of which we have found ourselves entering into weaker trading conditions with the drought, difficult financing environments, housing construction decline and reducing consumer confidence impacting both the Trailer and to a lesser extent the MaxiPARTS businesses . The decision not to pay an interim dividend was driven by a combination of heavy TRANSform Capital expenditure over the prior year and weaker trading due to a challenging economic environment. MaxiPARTS continues to grow in strength and demonstrates itself as a first class distribution asset representing 49% of Group underlying Net Profit Before Tax (NPBT) after corporate allocation. This growth goes some way in offsetting the softer order intake for new trailers being experienced during this downturn. Moreover, we can be further confident in relation to the introduction of Trout River Live Bottom Trailers into the group – expanding our portfolio of market leading brands and meeting our internal expectations since acquisition. As self-regulation increases within the infrastructure sector, it is resulting in greater demand for safer solutions, such as that provided by live bottom trailers. In summary, the directors acknowledge and accept that our shareholders will be disappointed with this year’s result. MaxiTRANS has experienced a challenging year and recognizes the pain this is causing our shareholders. In closing out the second half we have strengthened our balance sheet position and the manufacturing operations are now working well. Looking ahead, the end market for trailers and parts is challenging and we expect these external conditions to continue for some time to come, we will be in a much better position though to respond when conditions do change. We thank you for your ongoing support. We remain resolute and confident that we are correctly positioned to come through this period stronger and better prepared and look forward to an improving market. Robert H. Wylie Chairman We are also committed to weathering through the current environment as we have done so many times before and we maintain a level of focus to be ready to take advantage of positive market changes when they come as they undoubtedly will. The ability to be well positioned for economic recovery, in part lies with ensuring MaxiTRANS retains and develops our diverse skillbase, improving manufacturing technology and continually improving other processes to bring about further efficiencies. In spite of the current difficult climate, there are several positives about which we can be confident and together still deliver on our strategy of growth in existing markets. Managing Director’s Review ANNUAL REPORT 2019 5 as a result of an increase in working capital. This operating cash outflow as well as the $8.5m reduction in net debt and the continued investment in the group’s core IT transformation program have been funded through the sale and leaseback of the Richlands and New Zealand properties. Net debt/ equity at the end of FY19 was 26%, a continued improvement on prior year and when adjusted for the significant non-cash impairment is 22%, reflecting a significant improvement in the net debt position over FY18. The group’s financial position remains steady and we have headroom in our debt facilities, enabling the business to work through the current decline in the trailer and commercial parts markets. MaxiPARTS Parts Business The MaxiPARTS business experienced continued revenue and profit growth from ongoing success of its European after-market truck parts and North American after-market engine parts as well as growth in its large fleet customers supported by the continued success of the MaxiSTOCK customer inventory management system. MaxiPARTS continues to operate 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. 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 continued growth in profitability over the prior year. The Group has continued its approach to innovation during FY19 with the acquisition of Trout River Live Bottom Trailers in December 2018. The operations have integrated well into MaxiTRANS, meeting its business case objectives for the current financial year and continues the Group’s strategic intent to develop in existing markets and deliver ever safer, more efficient transport solutions. In October 2018, the Group launched the new ERP system across the manufacturing business. The Group expected an operational decline during the launch phase of the project, the operational impact continued into the third quarter of the year. I am pleased to report that, as we closed out the financial year, we have resolved these operational issues and are now delivering trailers at levels of approximately 90% on-time delivery. Traditionally a good long-run value which has occurred in parallel with excellent operating metrics for efficiency and lost time. Looking forward, the Group continues to deliver on its manufacturing strategy to mitigate the single point of reliance on the Ballarat manufacturing facility. A new Queensland manufacturing facility is currently under development that will see the next phase of capacity growth 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 Australian Trailer Business New Zealand The Australian trailer market has seen a decline throughout FY19, most significantly in the second half of the year, driven by the macro economic conditions across Australia affecting consumer confidence and therefore consumer spending across the economy. In reviewing the Australian trailer business’ performance through FY19, the combination of the overall market decline, a negative sales mix and no longer having the one-off effect of the Coles Supermarket order from FY18 has seen a revenue decline of 19% to $223.9m for FY19. The New Zealand business has continued its growth in FY19 with better labour efficiencies and the prior year warranty issues put behind it. This underlying business improvement was partially offset by softening market demand driven by some of its larger customers putting off their fleet replenishment in favour of other capital projects. The first full year of the Christchurch service facility has been a great success and assisted the New Zealand business to deliver a 125% year-on-year earnings growth. MaxiTRANS has continued to see outstanding results within Health Safety Environment (HSE) and wellbeing, with an all-time low total injury frequency rate of 21. This is a massive 48% decrease compared to last year and continues the trend of reductions in injuries since FY15. It is a fantastic achievement and is helping towards achieving our core value of ‘Send all our people home safely’. MaxiTRANS’ performance for the year ended 30th June 2019 reflects the effects of the depressed economic conditions throughout the Australian economy, the decline in housing construction and the drought, on both MaxiTRANS business segments. The Australian trailer market has seen a continued decline throughout the year resulting in trailer sales being 100 to 150 units below expectations. The Australian commercial vehicle spare parts market was between 5% and 10% below the like for like period in FY18, however the MaxiPARTS business has continued to grow both revenue and profit year-on- year through a number of initiatives ranging across product, customers and operational excellence. From a financial perspective, revenue decreased over the year, largely due to the Australian trailer sales business experiencing a combination of the one-off effect of the Coles contract in FY18, a negative mix effect and the aforementioned market slowdown. The MaxiPARTS business has actually continued its revenue growth year on year through the continued success of its European aftermarket truck parts and North American aftermarket engine parts as well as continued success in growing its large fleet customers. Operating cash outflow of $6.1m represented a $25.9m decline in cash generation over the prior year, 6 MAxITRANS INDUSTRIES Managing Director’s Review (Cont.) Outlook It is expected market conditions in the Australian trailer market will continue to be slow as consumer confidence and other macro-economic drivers remain soft and operators continue to age their fleets. This is likely to affect performance in both the Australian trailer business as well as the underlying MaxiPARTS parts business. Despite weaker underlying MaxiPARTS’ end markets, the organic growth initiatives planned should more than offset this over the full year. In the short term, order intake remains consistent, in the food and grocery sectors, benefiting our Maxi-CUBE products. Whilst the general freight and tipper order intake is lower than the last financial year. These product lines are directly affected by the broader economic conditions, the crop outlook and the timing of commencement of new housing and infrastructure projects. The significant investment in the new IT systems is substantially complete and 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 Group 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. Dean Jenkins Managing Director and CEO Our strategy to grow OUR STRATEGY VALUE ENABLERS • Partner with operators in the freight transport business to improve efficiency and effectiveness. Add value by reducing customers’ operating risks. ORGANISATIONAL DEVELOPMENT AND CORPORATE IMAGE G o a l s D r i v e r F Y 1 9 A c h i e v e m e n t s An organisation empowered to grow in The MaxiTRANS Way Build on industry leadership position focussing on safety, reliability & efficiency 1 Embed The MaxiTRANS Way • Launched tailored training programs designed to build leadership capability, founded on our core values and competencies • Launched employee recognition program • Send all our people home safely. 48% reduction in our Total Recordable Injury Frequency Rate (TRIFR) from FY18 to the current rolling 12 month TRIFR • 9% increase in employee engagement from 2017 • Increased collaboration through quarterly Executive and Senior Leadership workshops • Monthly site collaboration events ANNUAL REPORT 2019 7 VALUE GENERATORS VALUE CREATION OPERATIONAL EXCELLENCE G o a l D r i v e r s A c h i e v e m e n t s Drive efficiency and margin improvement 1 2 3 Implement ERP system and continuous improvement initiatives Implement common end to end business processes and quality management system Optimise supply chain efficiencies and footprint • ERP system went live in all MaxiTRANS Australian manufacturing sites in October 2018 • YOY savings at operating level in excess of $2m over NZ and Australia manufacturing • New warehouse in Ballarat optimises material flow • Material savings driving gross margin improvement GROWTH IN EXISTING MARKETS G o a l D r i v e r s A c h i e v e m e n t s Revenue growth; improved asset utilisation 1 2 3 Grow national market share in trailers Increase volume in parts business Grow share in service • Expand footprint: • Product additions • 3 new 24 hour Trout River • New products: Base model now approximately 19% of General Freight sales outstripping internal plans • Integrated MaxiTRANS / large fleet relationships driving volume increase breakdown vans launched successfully. • EBIT $500k up against PCP on same revenue Industry Leader • Trusted business partner • Safety & efficiency • Employer of choice Earnings & cash flow growth Improving return on capital 8 MAxITRANS INDUSTRIES Safety and People MaxiTRANS has continued to see outstanding results within Health Safety Environment (HSE) and wellbeing. Safety • This is a massive 48% reduction over prior year. MaxiTRANS has continued to see outstanding results within Health Safety Environment (HSE) and wellbeing, with an all-time low total injury frequency rate of 21. This is a massive 48% decrease compared to last year and continues the trend of reductions in injuries since FY15. It is a fantastic achievement and is helping towards achieving our core value of ‘Send all our people home safely’. To achieve this result we have focused on building systems, assessing risks, enhancing leadership and improving our culture to ensure sustainable change. Safety Leadership Training has been introduced amongst managers and supervisors, outlining responsibilities; driving cultural change and tips on how to be good safety leaders. We have implemented an Early Intervention Program to treat minor injuries and implemented stretching programs to reduce Musculoskeletal Disorders (MSD). MaxiTRANS has witnessed the culture of undertaking safety observations increase by 23% over FY18. Actively having conversations with teammates about safety and the emphasis on the importance of safety has helped bring about this systemic change and assisted to increasingly embed Safety into the business. People During this year, MaxiTRANS has introduced several people processes including recruitment, performance, talent and succession in order to hire more effectively, drive deep seated • All-time low total injury frequency rate of 21 which is helping towards achieving our core value of “Send all our people home safely”. • Our culture of undertaking safety observations has increased by 23% over FY18. • We have implemented an Early Intervention Program to treat minor injuries. • Pilot research project initiated to understand the culture of diversity within MaxiTRANS. among our senior leaders about the importance of diversity and what it means for MaxiTRANS. A pilot research project was also conducted amongst a small number of females in a variety of roles to understand their point of view about the culture at MaxiTRANS around diversity. The outcome of this research has highlighted the need for us to invest in further in-depth research to understand the business challenges around Diversity and in particular retention. The insights gleaned from the pilot research have formed the foundation of the first phase of initiatives to counter these challenges. All of these are in plan for FY19/20. accountability and to grow the right people in the business. MaxiTRANS has also invested and continues to invest heavily in Leadership programs across frontline, middle and senior leadership levels that will help elevate all leaders within the business by instilling tools and skills that will help these leaders drive a consistent integrated culture within MaxiTRANS. The outcome of this investment has seen MaxiTRANS increase employee engagement by 9% throughout 2018. Diversity and gender balance Our commitment to Diversity continues to stay strong despite the retention challenges we have encountered. We have maintained a 24.4% female presence amongst our senior Leadership team. We have held a number of educational sessions ANNUAL REPORT 2019 9 The focus on “sending our people home safely” has helped bring about systemic change across the business. Total Injury Frequency Rate 48% Women in Senior Management Roles 24.4% 2018 Employee Engagement Score 9% 10 MAxITRANS INDUSTRIES MaxiPARTS MaxiPARTS continues to grow and become a significant high quality distribution asset that’s helping drive our business forward. Despite a slowing market impacting our underlying business, especially in the second half of the year, MaxiPARTS has continued to grow both revenue and profit through a number of key initiatives ranging across product, customers and operational excellence areas. Product FY19 saw a continued growth of our Euro Truck and Bus range and our North American Engine Programs. Although these programs have resulted in new customers, a majority of the growth has been a result of introducing these new ranges to existing customers. • 20 locations nationally. • Portfolio includes trailer parts, after-market truck and engine parts/consumables. • Parts portfolio includes many leading brands, as well as specialty products, procured to meet customers’ specific needs. • Rejuvenation of portfolio has included higher-margin, value added products. • Euro Truck and bus range Customers 38% yoy growth • North American Engine program 54% yoy growth Both of these programs have seen strong growth in recent years, and we expect further growth in FY20 as we continue to expand our range and customer base. FY19 saw significant growth in our sales to large fleet customers with MaxiPARTS increasing its share of this segment. The MaxiSTOCK inventory management system continues to be a key part of our fleet solutions offering. Like the product initiative, we expect to see further growth in this area in FY20 with a number of discussions with some larger accounts currently in progress. Margin During FY19 we undertook a significant operational excellence program focused on improving margin. We are now seeing improving margin as a result of better control of discounting and targeted supply chain savings. A majority of these benefits only impacted during the second half of FY19, therefore we expect further improvements in FY20 as we not only obtain the full year effect of the work achieved to date, but also continue to realise further improvements. Outside of a potential additional site in NSW, we believe our site footprint is not only sufficient to cover the nation but is market leading, particularly given our ability to use the MaxiSTOCK inventory system to reduce the reliance on location for key customers. Having the right footprint means we can focus our attention on pushing more product through the exiting sites, allowing us to continue to grow gross profit at a higher rate than overhead costs. ANNUAL REPORT 2019 11 Revenue and profit growth are primarily due to a number of key initiatives including product, customers and operational excellence. FY19 MaxiPARTS Revenue $133.5m FY19 MaxiPARTS EBITDA* $11.2m * Excluding corporate cost allocation FY19 Revenue by State 23% NSW 29% VIC 10% SA 5% WA 2% NT 31% QLD 12 MAxITRANS INDUSTRIES Australian Trailers Despite a challenging macro-economic environment, MaxiTRANS is poised for growth and continues to be Australia’s largest road transport solutions provider. Weaker economic conditions throughout the Australian economy, particularly through H2, had an impact on trailer sales. The Australian trailer business has experienced a decrease in revenue over the year largely due to a combination of the one off Coles contract in FY18, a negative mix effect and a subsequent market slowdown. However, despite the lower volume in H2, gross margin grew by over 1% after taking account of the negative mix effect in the half. This was a direct result of product development and production system changes improving Ballarat plant cost to manufacture in the half. Direct labour efficiency FY19 versus FY18 improved by over 7%. The initial launch of the ERP system in October 2018, was indeed challenging. Despite the intention to slow the build rate at launch, the implementation was much more complex, requiring an extended hypercare period to support the business. This meant the transition did unfortunately continue for longer than anticipated. Whilst still in the early stages, the implementation of the new ERP system enables MaxiTRANS for the first time to not only vastly improve its understanding of key data within our business but also to accelerate improvements across the business over future years as our organisation grows with this system. Innovation The most recent addition to the MaxiTRANS family – Trout River Live Bottom Trailers joined the product portfolio in December 2018. The • Direct labour efficiency improved by 7% FY19. • Acquisition of Trout River – Leading manufacturer and supplier of live bottom trailers in Australia. • Acquisition is a key step in MaxiTRANS’ Growth in Existing Markets strategic initiative. acquisition forms part of our strategic intent to grow in existing markets and aligns with our commitment to deliver ever safer, more efficient transport solutions. Trout River trailers offer an alternative to standard chassis tippers and are ideally suited to work sites, where overhead obstacles are present or on uneven/unstable ground where vehicle roll over events present a higher risk. Being able to provide an increased offering to customers nationally is exciting and we look forward to building on the successes we have already achieved with Trout River. Customer Focus In June of this year, MaxiTRANS was pleased to announce the expansion of its dealership footprint with Graham Thomson Motors, (a subsidiary of MaxiTRANS’ oldest dealer Mildura Truck Centre) based in the Victorian regional town of Shepparton, joining as a full service dealer. The announcement was a further demonstration of the importance and value in which we hold our customers. It shows our commitment to build and develop a local support network for our customers so that they can rest assured they will receive the highest quality support when and where they need it. Moreover, MaxiAssist was launched in May this year. MaxiAssist provides two distinct avenues of support to our customer base. Firstly, is the capability to service customers on site at their premises. This reduces downtime and increases efficiency and when coupled with MaxiTRANS’ range of available fixed price service packages provides customers with piece of mind when investing in new capital assets for their business. The second, is the MaxiAssist 24/7 Roadside Assist support service, which provides around the clock access to MaxiTRANS’ national dealer network and authorised repairers to ensure we meet the demands of our customers, night and day. Overall, despite a challenging macro- economic environment, MaxiTRANS is poised for growth when the market improves. MaxiTRANS continue to be the largest road transport solutions provider in the market with the most diverse and comprehensive range of products and service capabilities designed to exceed the ever changing and increasing demands of road transport users. ANNUAL REPORT 2019 13 Acquisition of Trout River aligns with our commitment to deliver ever safer, more efficient transport solutions. FY19 Australian Revenue $223.9m FY19 Australian EBITDA $15.4m Product Revenue Contribution from new trailer sales 39% General Freight 34% Food & Grocery 27% Bulk Transport 14 MAxITRANS INDUSTRIES International Our operational excellence program and growth in our service work, resulted in improved profitability. New Zealand FY19 saw trailer volumes lower than normal with a number of larger customers deferring their traditional trailer replenishment cycle to allocate capital into other specific projects. However this was offset by the warranty issues impacting the prior years not recurring, and when combined with good improvements in labour efficiency from our operational excellence program and growth in our service work, resulted in improved profitability. The set up of our Christchurch service facility in December 2017 along with additional labour capacity in Auckland has allowed us to grow our service business by 125% year-on-year. We also have further plans in place that will allow this area to continue to grow. This growth will be achieved through further increases in labour capacity as well as an expansion of the services we offer through these facilities. At the end of FY19 we completed the second phase of our New Zealand operational excellence program. These 2 phases have seen • A revised quality inspection program implemented that has seen our right first time measure increase from 40% to 80% over the last 18 months. We have also seen a significant improvement in the quality of the final product delivered to the customers • Changes to the production planning process and sales to engineering cycle that has seen our on time delivery improve from an average 69% in FY18 to 88% over FY19. • Our NZ service business has grown by 125% year-on-year since 2017. • 5% year-on-year improvement in labour efficiency levels. • At the end of FY19 we completed the second phase of our New Zealand operational excellence program. • No adverse change in warranty assumptions since FY18. As reported during the year we sold our Auckland facility and negotiated a long term lease on the site. That lease includes MaxiTRANS holding a development option with the landlord that would see a new factory built on undeveloped land on the site. This new factory will allow us to create a small flow line manufacturing facility that will further improve labour efficiency in our production area. More importantly, it will allow us to use the current facility to further expand our service business in Auckland. Although we are still working through the timing of this development we currently expect this option to be executed during the FY20 year with the facility coming on line in FY21. • Improvements in labour efficiency of 5% year-on-year. In the last quarter of the financial year we launched our upgraded MaxiCUBE classic trailer to the market which includes significant improvements in both thermal efficiency and weight compared to the previous model. Feedback from customers with the initial units has been very positive with customers seeing the benefits from improved thermal efficiency through significantly lower operating costs of their refrigeration units. Further product development is in process and we have recently created a new dedicated Product Manager function within the New Zealand business. This new function will allow us to accelerate our product enhancement and development program as well as better leverage a number of recent initiatives released in the Australian business. ANNUAL REPORT 2019 15 During FY19, the second phase of New Zealand’s operational excellence program was completed. FY19 New Zealand Revenue FY19 New Zealand EBITDA Efficiency Levels FY19 $16.3m $0.8m 5% 16 MAxITRANS INDUSTRIES Board of Directors A C E B D F 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 Mary Verschuer (F) – Non-Executive Director Executive Leadership Team ANNUAL REPORT 2019 17 A C E B D F Tim Bradfield (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 Jerry Cade (F) – Head of IT & Group Supply Manager Dean Jenkins – Managing Director and CEO (pictured on page 5) 18 MaxiTRaNS iNduSTRieS Report of the directors and Financial Report For The Year Ended 30 June 2019 Contents Financial Summary Report of the directors auditor’s independence declaration directors’ declaration Consolidated Statement of Profit or Loss and Consolidated Statement of Comprehensive income Consolidated Statement of Financial Position Consolidated Statement of Changes in equity 19 20 36 37 38 39 40 Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements independent auditor’s Report australian Stock exchange additional information Corporate directory 42 43 78 83 85 MaxiTRANS Industries Limited aCN 006 797 173 and Controlled entities Financial Summary aNNuaL RePORT 2019 19 F2015 F2016 F2017 F2018 F2019 Revenue $’000 329,165 340,179 340,072 409,312 352,537 eBiTda (excluding significant items) eBiT (excluding significant items) NPBT (excluding significant items) (3) (3) (3) $’000 $’000 $’000 NPaT (excluding significant items) (3)(4) $’000 16,247 19,219 21,439 20,931 14,157 10,604 14,199 16,836 16,133 8,079 6,303 11,840 14,520 13,659 8,752 10,695 10,077 8,378 5,687 4,809 Significant items (net of tax) (1)(2)(6) $’000 (1,806) (3,517) – – (22,514) NPaT – attributable to equity holders Basic ePS (5) Ordinary dividends/share declared depreciation amortisation – leased assets amortisation – intangibles Capex additions Operating cash flow NTa Net assets interest bearing liabilities Finance costs Total bank debt Net debt/equity interest cover (excluding significant items) (9.57) 0.0 3,116 212 2,205 7,838 (6,098) 5,235 10,695 10,077 (17,704) 2.83 3 5.78 3.5 5.44 3.5 3,583 3,541 3,713 4,497 2.43 2 3,967 550 1,126 $’000 cents cents $’000 $’000 $’000 $’000 $’000 $’000 662 775 10,893 9,530 12,138 21,196 562 500 8,354 4,445 586 499 14,486 19,767 78,380 86,278 91,210 98,801 77,544 $’000 120,612 123,337 128,727 135,819 121,841 $’000 $’000 $’000 47,302 43,152 47,697 50,661 43,925 2,525 2,359 2,316 2,474 2,643 45,196 41,465 46,214 49,500 43,500 % 36% 26% 32% 30% times 4.2 5.75 7.27 8.62 26% 5.36 (1) Relates to impairment loss on aZMeB intangible assets of $2.58 million pre-tax (disclosed above net of tax). (2) Relates to the impairment loss on Lusty eMS and Hamelex White intangible assets of $4.398 million pre-tax and the closure cost of the Bundaberg facility of $0.626 million 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) includes both earnings from continued and discontinued operations. (6) Relates to impairment loss on TRaNSform eRP system of $18.82 million, MTC loss on sale of business $1.56 million, eRP system implementation expenses $1.30 million pre-tax, acquisition and disposal costs $0.53 million and restructuring (redundancy) costs $0.30 million. 20 MaxiTRaNS iNduSTRieS Report of the Directors For The Year Ended 30 June 2019 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 2019 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 Managing director since 1 March 2017) Ms Mary Verschuer (director since January 2019) 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 Nil dividends were declared at half year and full year. 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. 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 2019. Operating & Financial Review REVIEW OF OPERATIONS The Group operates two types of businesses: the Trailer Solutions business 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. The Group finalised the sale of its interest in Maxi-CuBe Tong Composites Co Ltd (“MTC”) in October 2018 at a loss of $1.6 million (inclusive of costs). This disposal aligned with the Company’s ongoing strategy in the Trailer Solutions business. in december 2018, the Group re-invested $5.9 million of the funds from the MTC disposal to acquire an 80% share of Trout River australia, a leading manufacturer and supplier of live bottom trailers in australia. in March, the Group completed the sale and leaseback of the Richlands manufacturing facility for $12.5 million and the auckland manufacturing and service facility for NZ$17.2 million (approx. $16.5 million). Both arrangements freed up capital for the remaining business, with proceeds used to pay down of debt and invest in the further development of the MaxiTRaNS facilities in both locations in line with our manufacturing strategy. Parts Business – MaxiPARTS 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 in 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 FY19, MaxiPaRTS operated 20 wholesale sites and retail stores. The MaxiPaRTS business experienced revenue and profit growth despite a slowing market. This growth was generated from the continued success of european aftermarket truck parts and North american aftermarket engine parts. The MaxiSTOCK customer inventory management system continued to be part of our fleet solutions offering and provided significant support to the growth of our large fleet customers, resulting in an increased share of this segment. MaxiPaRTS continues to operate as a key supplier to our manufacturing and service facilities, thus ensuring parts and component procurement is leveraging the Group’s full scale, procurement and logistics capability. Report of the Directors (Cont.) For The Year Ended 30 June 2019 Trailer Solutions Business The Trailer Solutions 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 customers. Australia The australian trailer market softened in FY19, especially in the second half of the year, led by a decline in consumer confidence across the australian economy. The Group’s diverse product portfolio assisted in maintaining its strong market leading position and, excluding the sales from the FY18 Coles contract, achieving flat year-on-year unit volumes. The revenue of the australian Trailer business has decreased year-on-year as a result of the Coles contract combined with a negative sales mix and declining market. despite the declining market in the second half, the Group has improved its gross margin by over 1% on a like for like basis. The investment in the new enterprise Resource Planning (eRP) system associated with Project TRaNSform, our substantial program to replace our ageing and end-of- life iT systems continued during the year. TRaNSform has now been deployed to the Manufacturing and Corporate offices. in line with the budget assumptions for FY19, short term inefficiencies were driven by the roll-out of the new eRP system within the Manufacturing operations, this lasted longer than expected. as we closed out FY19, the Group was seeing improvement in the underlying manufacturing operations, returning to a more normalised run-rate and an approximate 90% on-time delivery schedule of trailers. Over the next 3-5 years the Group expects to realise significant operating efficiencies from the new systems and processes. New Zealand The New Zealand underlying business performance improved year-on-year with better labour efficiencies and the FY18 warranty issues being put behind us. This was partially offset by a softening in trailer volumes with a number of our larger customers deferring their normal replenishment programs, instead allocating their capital investments to other projects. The service business grew by 125% in FY19 from additional labour capacity in our auckland facility coupled with a full year contribution from our Christchurch facility. aNNuaL RePORT 2019 21 FINANCIAL REVIEW Sales Total revenue decreased by 14% for the year to $352.5 million. The Parts business recorded a 4.9% external revenue increase to finish FY19 with revenue of $106.9 million and the Trailer business decreased external revenue by 19% to finish FY19 at $240.2 million. Profit With the decline in revenue for the year and the non-cash impairment of the TRaNSform eRP intangible asset of $26.9 million pre-tax (refer below), net loss after tax attributable to MaxiTRaNS equity holders was $17.7 million in FY19. underlying earnings declined year on year by 30% with underlying eBiTda of $14.2 million. The $38.0 million carrying value of the eRP asset has been impaired to its estimated recoverable value less amortisation and future costs required to complete the rollout of $11.2 million at 30 June 2019. it should be noted that: • The eRP system is in-use and the directors expect that it will continue to deliver on-going benefits to the business broadly in-line with previous expectations; • The impairment is non-cash and will not affect our existing debt covenants with the banks; • The write-down is a one-off event and does not affect future earnings; and • The Company is committed to the continued roll-out of the eRP across the remaining Sales, Service and Parts businesses and will continue to invest a further $3 million completing this in FY20. Cash Generation & Capital Management Operating cash flow was negative $6.1 million in FY19 which represents a reduction of $25.9 million from the cash generated in FY18. in addition to the aforementioned profit movement, the working capital has built up during FY19 resulting from increases in creditors and debtors with a marginal offset through a decrease in deferred revenue (i.e. customer deposits received in advance). Management have implemented processes in the second half of FY19 to bring down the working capital requirement on the business with a key focus on inventory which dropped by $3.2 million in the second half. 22 MaxiTRaNS iNduSTRieS Report of the Directors (Cont.) For The Year Ended 30 June 2019 during FY19, the Group disposed of the investment in China (MTC) for $6.2 million and two properties for $29.8 million pre-tax, allowing for the 80% investment in Trout River australia for $5.9 million as well as the partial repayment of the syndicated debt. Net debt at 30 June 2019 was reduced to $32 million from $40 million at 30 June 2018. This resulted in the Net debt to equity ratio at 30 June 2019 being reduced to 26%, down from 30% in FY18. Without the impairment of the eRP asset, the Net debt to equity ratio was reduced to 22%. External Financing Facilities 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 original facility has both three years and five-year maturities, has a number of covenant requirements and is secured against property owned by the Group. during FY19, the Group reduced the available facility to $61.75 million. This facility is sufficient to support the business in its current form. RISK MaxiTRaNS recognises that risk is inherent in its business and that effective risk management is essential to protecting the business value and delivering the ongoing performance of the business. 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. Operational Risks during FY19, the Group updated its risk management framework to address the latest requirements of global risk management standard iSO31000:2009. as part of this update, it developed a three-year risk management maturity roadmap and completed a comprehensive review of the risks across the Group. The Group identifies risk based on likelihood and materiality. By understanding and mitigating key risks, we can: • increase the likelihood of achieving our strategic goals and objectives; • improve our decision making and capital allocation; and • enhance corporate governance and regulatory compliance. The key operational risks identified are as follows: • Health and Safety of our people • Manufacturing process efficiency, iT systems, quality and delivery schedule; • Trailer sales pipeline management, pricing and retention of key customers; • MaxiPaRTS key customer retention and competitiveness; and • Finance and governance; management of working capital; an appropriate funding model; internal policies and procedures; changing regulatory environment and maintenance of proper licences to operate the business. Management report to the audit & Risk Management Committee on the ongoing status of activities in place to mitigate each of these risks. Foreign Exchange & Commodities Risk The Group has exposure to movements in the australian dollar against the united States dollar, the euro and the Chinese Yuan. The Trailer Solutions 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. depreciation of the australian dollar may: • 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. aNNuaL RePORT 2019 23 Report of the Directors (Cont.) For The Year Ended 30 June 2019 HEALTH & SAFETY OUTLOOK it is expected market conditions in the australian trailer market will continue to be slow as consumer confidence and other macro-economic drivers remain soft and operators continue to age their fleets. This is likely to affect performance in both the australian Trailer business as well as the MaxiPaRTS parts business. in the short term, order intake remains consistent, in the food and grocery sectors, benefiting our Maxi-CuBe products, whilst the general freight and tipper order intake is lower than the last financial year. These product lines are directly affected by the broader economic conditions, the crop outlook and the timing of commencement of new housing and infrastructure projects. The significant investment in the new iT systems is substantially complete and 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 Group 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. MaxiTRaNS has continued to see outstanding results within Health Safety environment (HSe) and wellbeing, with an all-time low total injury frequency rate of 21.This is a massive 48% decrease compared to last year and continues the trend of reductions in injuries since FY15. it is a commendable achievement and is helping towards achieving our core value of ‘Send all our people home safely’. The Board continues to see the safety of our people as a priority and currently monitors, and will continue to monitor, the Group’s health and safety performance on a monthly basis. STRATEGY 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 Group’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, which given the current market conditions will be deferred by 12 months; • 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 Group has committed to a significant investment in a business transformation program known as “Project TRaNSform”. The program has been rolled out in Corporate and Manufacturing and will be completed across the Sales, Service and Parts business in FY20, replacing a number of outdated legacy iT systems with a single enterprise resource planning (“eRP”) system and other integrated systems across the business. The eRP will allow the Group to streamline many business processes, thus creating operational efficiencies and as importantly mitigating business risk. 24 MaxiTRaNS iNduSTRieS Report of the Directors (Cont.) For The Year Ended 30 June 2019 Information of Directors Mr. Robert H. Wylie Chairman, independent Non-executive, (appointed 30 June 2016), age 69 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 47 Qualifications & experience: Managing director since 1 March 2017. Bachelor of engineering (aero) Honours and a Graduate of the australian institute of Company directors. 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: 287,000 ordinary shares beneficially held. Options over Ordinary Shares: Nil Mr James R. Curtis deputy Chairman, Non-executive, age 84 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: 25,547,972 ordinary shares beneficially held. Options over Ordinary Shares: Nil Report of the Directors (Cont.) For The Year Ended 30 June 2019 aNNuaL RePORT 2019 25 Mr. Joseph Rizzo independent Non-executive director, age 63 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 June 2014. Formerly Managing director of PaCCaR australia Pty Ltd with 35 years’ experience in the road transport equipment manufacturing industry. Mr Rizzo is a director of aMe Systems (Vic) Pty Ltd, an electrical solutions provider with manufacturing facilities in australia and asia. 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: 180,711 ordinary shares beneficially held. Options over Ordinary Shares: Nil Ms. Samantha Hogg independent Non-executive director, age 52 Qualifications & experience: Bachelor of Commerce (Melbourne university) and a Graduate of the australian institute of Company directors. appointed non-executive director april 2016. Currently the Chair of Tasmanian irrigation and TasRail and a director of Hydro Tasmania, australian Renewable energy agency and infrastructure australia. Ms Hogg 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 Ms. Mary Verschuer independent Non-executive director, age 58 Qualifications & experience: Master of Business administration (Macquarie university), Bachelor of applied Science (Chemistry) (uTS) and a Fellow of the australian institute of Company directors. appointed non-executive director January 2019. Currently the President of The infants’ Home, a provider of integrated early childhood education, family day care, early intervention and health services, and a Member of the advisory Board of TaFe NSW (Sydney Region). Ms Verschuer was previously a non-executive director of THC Global Group Limited and Nuplex industries Limited (now part of the allnex group), Ms Verschuer has over 25 years of global senior management experience across a range of industries, including leading the Minerals and Metals business for Schenck Process and the asian business for Finnish listed packaging business Huhtamaki. in those roles, Ms Verschuer had responsibility for manufacturing, supply chain and sales operations in diverse geographies and cultures. Special Responsibilities: Member of the audit and Risk Management Committee, Remuneration & Human Resources Committee and Nomination Committee. interest in Shares: 63,000 ordinary shares beneficially held. Options over Ordinary Shares: Nil 26 MaxiTRaNS iNduSTRieS Report of the Directors (Cont.) For The Year Ended 30 June 2019 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 eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended Robert Wylie James Curtis Joseph Rizzo Samantha Hogg Mary Verschuer dean Jenkins 16 16 16 16 9 16 16 15 15 16 9 16 4 4 4 4 2 4 4 4 3 4 2 4 3 3 3 3 2 3 3 3 3 3 2 3 1 1 1 1 – – 1 1 1 1 – – Report of the Directors (Cont.) For The Year Ended 30 June 2019 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, the Managing director and senior executives having regard to labour market trends in comparative companies. 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 area of responsibility’s’ performance; • The Group’s performance including the Group’s Return on invested Capital; and aNNuaL RePORT 2019 27 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, relevant area of responsibility and overall performance of the Group. a senior executive’s remuneration is also reviewed on promotion. Performance-linked remuneration 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 amount of incentives within each directors and The LTi is provided in the form of Performance Rights. senior executives 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 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 MaxiTRaNS Performance Rights Plan (‘PRP’) was approved by the shareholders at the annual General Meeting held on 15 October 2010. STI each year Goals are set for senior executives and executive directors. The goals generally include measures relating to the Group and the relevant area of responsibility. Goals and the respective weightings change year on year according to Company priorities, but they generally relate to Financials, People, Safety and Strategy. The Board reviews and approves goals annually. Whereas, the key financial performance objectives for the Managing director and the Chief Financial Officer are “net profit after tax” and cash flow, the key financial performance objectives for the other executives are “net profit after tax” and “earnings before interest and tax” compared to budgeted amounts. The non-financial objectives particularly those relating to strategy and associated measures vary by position. However, other non-financial objectives like safety and people are consistent across the group. 28 MaxiTRaNS iNduSTRieS Report of the Directors (Cont.) For The Year Ended 30 June 2019 all these objectives are created as part of our new Performance development Process whereby at the end of each financial year the individual is reviewed against the actual performance of the Group and of the relevant area of responsibility. The outcome of that review is calibrated across the group to ensure consistency and objectivity. Merit increases and STi payment eligibility are based on these calibrated performance outcomes. in line with the Group’s philosophy of rewarding employees for performance, STis based on the achievement of specific goals are available to select senior members of staff other senior than executives who have a role that has a significant impact on the achievement of the strategy. 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. Grants are calculated by using a face value allocation methodology – i.e. by reference to the volume weighted average MaxiTRaNS share price (“VWaP”). under this approach, the number of units is calculated as follows: Number of units = intended LTi Value/unit Value 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. 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 15. Net profit after tax and net profit before tax are considered as two of the financial performance targets in setting the STi. Employment agreements it is the Group’s policy that employment 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 employment 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 employment contract outlines the components of remuneration paid to the executive directors and senior executives but does not prescribe how remuneration levels are modified year to year. Remuneration levels are reviewed each year to take into account cost-of-living changes, any change in the scope of the role performed by the senior executive and any changes required to meet the principles of the remuneration policy including performance related objectives if applicable. Mr dean Jenkins, Managing director, has a contract of employment with the Company dated 1 March 2017. aNNuaL RePORT 2019 29 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 2019 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 employment 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 Tim Bradfield, Chief Financial Officer, has a contract of employment with the Company dated 6 March 2019. The contract can be terminated either by the Company or Mr Bradfield providing three months’ notice. The Company may make a payment in lieu of notice of three months, equal to base salary and superannuation. 30 MaxiTRaNS iNduSTRieS Report of the Directors (Cont.) For The Year Ended 30 June 2019 Directors’ and executive officers’ remuneration details of the nature and amount of each major element of remuneration of each director of the Company and other key management personnel of the Group: Primary Post Equity Other Total Salary & fees $ STI (i) $ Year Non- cash benefits $ Super $ PRs (ii) $ $ $ Proportion of rem performance related % Value of PRs as proportion of rem % DIRECTORS Non-executive Mr R Wylie Chairman Mr J Curtis Mr J Rizzo Ms S Hogg 2019 127,854 2018 127,854 2019 68,493 2018 68,493 2019 68,493 2018 68,493 2019 68,493 2018 68,493 Ms M Verschuer (iii) 2019 30,119 2018 – Executive Mr D Jenkins 2019 690,594 Managing director 2018 690,594 Mr M Brockhoff 2019 Former Managing director (iv) 2018 – – EXECUTIVES – – – – – – – – – – – – – – – – – – – – – – – 12,146 12,146 6,507 6,507 6,507 6,507 6,507 6,507 2,861 – – – – – – – – – – – – 140,000 0.0% – 140,000 0.0% – – – – – – – – 75,000 0.0% 75,000 0.0% 75,000 0.0% 75,000 0.0% 75,000 0.0% 75,000 0.0% 32,981 0.0% – 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 678 69,406 (3,862) 40,000 796,816 –0.5% –0.5% 150 75,132 36,460 100,274 902,610 4.0% – – – – 0.0% 4.0% 0.0% 85,251 726 23,199 – 109,176 78.1% 0.0% Mr C Richards (v) 2019 165,333 33,987 – 27,169 (38,449) 148,366 336,405 (1.3%) (11.4%) Former Chief Financial Officer and Company Secretary 2018 339,868 41,447 Mr T Bradfield (vi) 2019 113,974 Chief Financial Officer 2018 – Ms J De Martino (vii) 2019 138,930 Former Chief Financial Officer 2018 – – – – – Mr A McKenzie 2019 304,027 37,291 – – – – – 44,297 1,138 84,967 511,718 8.3% 10,828 – 1,468 13,198 – 124,802 0.0% – – 0.0% 2,074 155,670 0.0% 0.2% 0.0% 0.0% 0.0% – – – 0.0% 0.0% 34,515 (40,023) 22,000 357,811 (0.8%) (11.2%) Group General Manager – Sales and Marketing 2018 297,635 19,178 5,201 32,187 (27) 22,000 376,173 5.1% 0.0% – – – – – – Report of the Directors (Cont.) For The Year Ended 30 June 2019 aNNuaL RePORT 2019 31 Primary Post Equity Other Total Salary & fees $ STI (i) $ Year Non- cash benefits $ Super $ PRs (ii) $ $ $ Proportion of rem performance related % Value of PRs as proportion of rem % EXECUTIVES(continued) Mr P Loimaranta 2019 288,554 20,414 203 31,756 (38,755) 25,305 327,477 (5.6%) (11.8%) Group General Manager – international 2018 280,899 26,942 Mr A Roder 2019 – – – – 31,649 1,016 25,305 365,811 7.6% – – – – 0.0% 0.3% 0.0% Former Group General Manager –Manufacturing (viii) 2018 162,215 11,687 5,201 16,521 (15,169) 2,547 183,000 (1.9%) (8.3%) Mr T Negus 2019 372,603 73,059 – 42,338 13,302 – 501,302 17.2% 2.7% Group General Manager – Manufacturing (ix) 2018 183,117 – Mr J O’Brien (xi) 2019 238,557 46,880 General Manager – MaxiParts (x) 2018 233,348 28,484 – – – 17,396 – – 200,513 0.0% 0.0% 32,880 (6,660) 60,667 372,323 10.8% (1.8%) 27,939 6,660 32,265 328,696 10.7% 2.0% Notes in relation to table of directors’ and executive officers’ remuneration (i) 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. (ii) Performance rights (PRs) grants are calculated by using a face value allocation methodology, i.e. by reference to the volume weighted average MaxiTRaNS share price (“VWaP”) 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. 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 2016 and 2017 PR scheme will not be met. as a result, the total amount recognised for services received over the life of the PR scheme was reversed. (iii) Ms M Verschuer was appointed on the 24 January 2019. (iv) Mr M Brockhoff retired effective 31 July 2017. all PRs held by Mr Brockhoff at that time were cancelled. (v) Mr C Richards resigned effective 21 december 2018. all PRs held by Mr Richards at that time were cancelled. (vi) Mr T Bradfield was appointed on the 6 March 2019. (vii) Ms J de Martino was appointed on the 8 October 2019 and resigned effective 15 March 2019. all PRs held by Ms de Martino at that time were cancelled. (viii) Mr a Roder resigned on 12 January 2018. all PR’s held by Mr Roder at that time were cancelled. (ix) Mr T Negus was appointed on 1 January 2018. (x) 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. (xi) Mr J O’Brien has resigned effective 2 august 2019 (resignation accepted prior to 30 June 2019). all PR’s held by Mr O’Brien at that time were cancelled by 30 June 2019. 32 MaxiTRaNS iNduSTRieS Report of the Directors (Cont.) For The Year Ended 30 June 2019 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 Consolidated entity executives Mr T Negus Mr P Loimaranta Mr a McKenzie Mr J O’Brien(2) Ms J de Martino(1) PRs granted (no.) Grant date Fair value at grant date ($) Vesting date Expiry date 630,119 19-Oct-18 0.4391 30-Jun-21 01-Feb-26 257,089 19-Oct-18 0.4391 30-Jun-21 01-Feb-26 216,558 19-Oct-18 0.4391 30-Jun-21 01-Feb-26 224,994 19-Oct-18 0.4391 30-Jun-21 01-Feb-26 179,962 19-Oct-18 0.4391 30-Jun-21 01-Feb-26 234,594 19-Oct-18 0.4391 30-Jun-21 01-Feb-26 (1) On 15 March 2019, the date when Ms de Martino resigned, Ms de Martino’s PRs were cancelled. (2) Mr J O’Brien has resigned effective 2 august 2019 (resignation accepted prior to 30 June 2019). all PR’s held by Mr O’Brien at that time were cancelled by 30 June 2019. 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. For the 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. 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 Basic ePS(1) dividends declared dividends declared per share Share price 2019 2018 2017 2016 2015 ($17,704,121) $10,076,812 $10,694,940 $5,235,234 $4,496,951 (9.57¢) 5.44¢ 5.78¢ 2.83¢ 2.43¢ – $6,477,648 $6,477,648 $5,552,270 $3,701,513 0.0¢ 29.0¢ 3.50¢ 51.0¢ 3.50¢ 67.0¢ 3.00¢ 45.0¢ 2.00¢ 39.5¢ (1) includes both continued and discontinued earnings. aNNuaL RePORT 2019 33 Report of the Directors (Cont.) For The Year Ended 30 June 2019 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: 2019 Shares MaxiTRANS Industries Limited Directors: Mr d Jenkins Mr J Curtis Mr R Wylie Mr J Rizzo Ms M Verschuer Executives: Mr P Loimaranta Mr T Negus Held at 1 July 2018 Purchases Sales Held at 30 June 2019 287,000 25,547,972 121,904 90,711 258,553 – – – 90,000 63,000 – 50,000 – – – – – – – 287,000 25,547,972 121,904 180,711 63,000 258,553 50,000 Ms Hogg, Mr Bradfield, Mr McKenzie and Mr O’Brien do not hold any shares as at 30 June 2019. 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 – 287,000 25,547,972 21,364 90,711 260,716 – 100,540 – – – – – – 287,000 25,547,972 121,904 90,711 (2,163) 258,553 Ms Hogg, Mr Negus, Mr McKenzie and Mr O’Brien do not hold any shares as at 30 June 2018. end of Remuneration Report 34 MaxiTRaNS iNduSTRieS Report of the Directors (Cont.) For The Year Ended 30 June 2019 Audit and Risk Management Committee as at the date of this report, the Company had an audit and Risk Management Committee of the Board of directors that met four times during the year. The details of the functions and memberships of the committees of the Board are presented in the Corporate Governance Statement. Indemnity With the exception of the matters noted below, the Company has not, during or since the end of the financial year, in respect of any person who is or has been an officer or auditor of the Company or a related body corporate: (i) 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 (ii) 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 (2018: $58,852) 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 No options were granted to any of the directors or key management personnel 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. 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 “Financial Summary” on page 19. aNNuaL RePORT 2019 35 Report of the Directors (Cont.) For The Year Ended 30 June 2019 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 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 Proceedings on Behalf of Company Consolidated 2019 $ 2018 $ 456,212 292,830 18,836 188,254 475,048 481,084 53,940 10,015 63,955 86,849 9,554 96,403 539,003 577,487 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. 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 23rd day of august 2019 36 MaxiTRaNS iNduSTRieS Auditor’s Independence Declaration For The Year Ended 30 June 2019 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 2019 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Suzanne Bell Partner Melbourne 23 August 2019 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation.                     aNNuaL RePORT 2019 37 Directors’ Declaration For The Year Ended 30 June 2019 in the opinion of the directors of MaxiTRaNS industries Limited (“the Company”): (a) the consolidated financial statements and notes as set out on pages “FiNaNCiaL ReVieW” on page 21 to 62, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance for the financial year ended on that date; and (ii) complying with australian accounting Standards and the Corporations Regulations 2001. (b) there are reasonable grounds to believe that the Group 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 2019. 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 23rd day of august 2019 38 MaxiTRaNS iNduSTRieS Consolidated Statement of Profit or Loss and Consolidated Statement of Comprehensive Income For The Year Ended 30 June 2019 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Note 2(a) 2(a) 2(b) 9 7 21 3(a) 27 27 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 impairment loss on intangible assets Share of net profits of associates accounted for using the equity method (Loss)/Profit before income tax income tax benefit/(expense) (Loss)/Profit from continued operations Discontinued Operation (Loss)/Profit from discontinued operation, net of tax (Loss)/Profit on disposal of subsidiary, net of tax (Loss)/Profit for the year (Loss) attributable to: equity holders of the Company Non-controlling interests CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Loss)/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 Cashflow hedge reserve Items that will never be re-classified to profit or loss: Revaluation of land and buildings Related income tax Other comprehensive income for the year, net of tax Total comprehensive income for the year Total comprehensive income attributable to: equity holders of the Company Non-controlling interests Earnings/(Loss) 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/(Loss) per share from continued operations: Basic earnings per share (cents per share) diluted earnings per share (cents per share) Consolidated 2019 $’000 2018 $’000 329,915 17,187 5,616 (211,206) 48 202 (98,168) (3,014) (5,533) (2,643) (31,806) (26,882) 2,058 (24,226) 8,092 (16,134) (2) (1,568) (17,704) (17,704) – 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 (332) 10,011 10,077 (66) (17,704) 10,011 917 (342) 12,690 (3,807) 9,458 (8,246) (8,233) (13) (9.57) (9.57) (8.72) (8.72) 850 (35) 3,901 (1,136) 3,580 13,591 13,573 18 5.44 5.44 5.58 5.58 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. Consolidated Statement of Financial Position For The Year Ended 30 June 2019 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 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 Other Liabilities 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 aNNuaL RePORT 2019 39 Note 4 5 3(c) 6 7 3(b) 8 9 3(c) 10 9 3(b) 10 11 Consolidated 2019 $’000 11,925 42,381 59,267 768 – 3,779 2018 $’000 9,692 39,120 57,700 2,237 19,813 1,584 118,120 130,146 11,356 41,680 44,297 10,858 – 108,191 226,311 44,635 3,133 255 – 11,743 – 59,766 43,670 – 1,034 – 44,704 104,470 121,841 56,386 15,278 50,177 121,841 – 4,826 93,733 34,265 – 1,249 134,073 264,219 47,327 4,090 752 – 13,126 9,550 74,845 49,908 2,409 1,141 97 53,555 128,400 135,819 56,386 20,998 57,097 134,481 1,338 121,841 135,819 The consolidated statement of financial position is to be read in conjunction with the notes to the consolidated financial statements. 40 MaxiTRaNS iNduSTRieS Consolidated Statement of Changes in Equity For The Year Ended 30 June 2019 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Asset revaluation reserve1 $’000 Issued capital $’000 Retained earnings $’000 Non- controlling interest $’000 Other reserves2 $’000 Total $’000 Note Balance at 1 July 2018 56,386 17,886 57,097 1,338 3,112 135,819 Comprehensive income for the year Loss for the year Other comprehensive income Net exchange differences on translation of financial statements of foreign operations Revaluation of land and buildings Cashflow hedge reserve Total comprehensive income for the year Transactions with owners recorded directly in equity dividends to equity holders 13 Final dividend to previous minority shareholder de-recognition of subsidiary Total transactions with owners Transfer to retained earnings on disposal of property Share-based payment transactions Other 15 – – – – – – – – 8,883 – (17,704) – – – – – – – – (17,704) – (13) 930 917 – – – 8,883 (342) (342) – 8,883 (17,704) (13) 588 (8,246) – – – – – – – – – – (2,776) – – – – – – (2,776) – (1,325) (1,124) (2,449) – (2,776) (1,325) (1,124) (5,225) (13,805) 13,805 – – – (245) – – – – – (262) – (262) (245) Balance at 30 June 2019 56,386 12,964 50,177 – 2,314 121,841 1. asset revaluation reserve The asset revaluation reserve includes the revaluation increments arising from the revaluation of land and buildings. 2. Other reserves Other reserves comprise 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. aNNuaL RePORT 2019 41 Consolidated Statement of Changes in Equity (Cont.) For The Year Ended 30 June 2019 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Asset revaluation reserve1 $’000 Issued capital $’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 – – 10,077 (66) – 10,011 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 – – – – – – – – – – – 2,765 – – – – 85 – – 765 – (35) 850 2,765 (35) 2,765 10,077 19 730 13,591 – (6,478) – – – – – (12) (31) – 2 (6,519) – – – – (2) (2) – (6,478) – – 22 – (12) (31) 22 – 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 comprise 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. 42 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows For The Year Ended 30 June 2019 CONSOLIDATED STATEMENT OF CASH FLOWS 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 2019 $’000 2018 $’000 Note 409,839 450,322 (411,384) (422,870) 48 (2,594) (2,007) 58 (2,474) (5,269) Net cash (used in) /provided by operating activities 22 (6,098) 19,767 Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles dividends received Proceeds from disposal of subsidiary (net of cash and costs) acquisition of investment in associate Proceeds from sale of property, plant and equipment (7,867) (5,858) 1,408 6,141 (5,880) 29,835 (14,485) – 1,020 – (31) 130 Net cash provided by /(used in) investing activities 17,779 (13,366) 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 in cash Cash and cash equivalents at beginning of year *Less: cash held for sale Cash and cash equivalents at end of year 13 (7,719) 1,709 (662) (2,776) (9,448) 2,233 9,692 – 11,925 (3,349) 9,610 (230) (6,490) (459) 5,942 6,140 (2,390) 9,692 The consolidated statement of cash flows is to be read in conjunction with the notes to the consolidated financial statements. aNNuaL RePORT 2019 43 Notes to the Consolidated Financial Statements For The Year Ended 30 June 2019 1. STATEMENT OF SIGNIFICANT ACCOUNTING Accounting policies 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 2019 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 23 august 2019. The relevant australian accounting Standards and interpretations that became effective and that were early adopted by the Group since 30 June 2018 were: • aaSB 9 Financial instrument. Mandatory for years beginning on or after 1 January 2018. This standard replaces aaSB139. • aaSB 15 Revenue from Contracts with Customers. Mandatory for years beginning on or after 1 January 2018. it replaces existing revenue recognition guidance, including aaSB 118 Revenue, aaSB 111 Construction Contracts and aaSB interpretation 13 Customer Loyalty Programmes 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 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. 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 44 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 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 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 2019 in relation to all land and buildings. These were considered by the directors in establishing revaluation amounts. if an asset’s carrying amount is increased as a result of a revaluation, the increase is credited directly to equity under the heading of asset Revaluation Reserve. However, the increase is recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss. if an asset’s carrying amount is decreased as a result of a revaluation, the decrease is recognised in profit or loss. However, the decrease is debited directly to equity under the heading of asset Revaluation Reserve to the extent of any credit balance existing in the revaluation reserve in respect of that asset. Changes to an asset’s carrying amount are brought to account. 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. aNNuaL RePORT 2019 45 Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 (ii) Leased assets (ii) Research and development Leases for which the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. The plant and equipment acquired by way of a finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation. Lease payments are accounted for as described in accounting policy (v). (iii) Depreciation depreciation is charged to the consolidated profit and loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment 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: 2019 2018 expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the profit and loss as an expense as incurred. expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources to complete 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)). Buildings 25-40 years 25-40 years (iii) Brand names Plant and equipment 2-20 years 2-20 years Leased plant and equipment 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. 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. (iv) Intellectual Property 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 and indefinite life intangibles 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. 46 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 The estimated useful lives are reflected in the following rates in the current and comparative periods: 2019 2018 intellectual property 0-20 years 0-20 years Software 5-10 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. (g) Trade and other receivables The Group measures trade and other receivables are stated at their amortised cost less impairment losses (see accounting policy (i)) if both of the following conditions are met: • The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding if any such indication exists, the asset’s recoverable amount is estimated. 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. For trade and other receivables, the Group applies a simplified approach in calculating expected credit losses. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance at each reporting date, based on known issues on collectability of outstanding debt. (j) Calculation of recoverable amount 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. (h) Cash and cash equivalents (k) Reversals of impairment 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. 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. 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. Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 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. aNNuaL RePORT 2019 47 (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. (m) Employee benefits (i) Defined contribution superannuation funds (n) Provisions Obligations for contributions to defined contribution superannuation funds are recognised as an expense in the profit or loss as incurred. (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. 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. 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. 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. (p) Income tax income tax expense comprises current and deferred tax. income tax is recognised in the profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. in determining the amount of current and deferred tax, the Group takes into account the impact of uncertain tax positions. The Group believes that its accruals for tax liabilities are adequate for all open tax years. This assessment relies on estimates and assumptions and may involve judgements about future events. deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the 48 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 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. (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. (s) Revenue (i) Revenue from the sale of goods Revenue from the sale of goods is recognised upon the constructive delivery of goods to customers in accordance with transfer of control, 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. Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 (u) Trade and other payables Liabilities are recognised for amounts to be paid in the future for goods or services received. Trade accounts payable are normally settled within 60 days. (v) Expenses (i) Operating lease payments Payments made under operating leases are recognised in the profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in the profit or loss as an integral part of the total lease expense and spread over the lease term. (ii) Finance lease payments Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (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. derivatives are initially recognised at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value, and changes therein are recognised in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in OCi and accumulated in the hedging reserve. any ineffective portion of changes in the fair value of the derivative is recognised in the profit or loss. aNNuaL RePORT 2019 49 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. (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. 50 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 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. (ii) Capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board monitors the earnings per share and the levels of dividends to ordinary shareholders together with the net debt/equity ratio, which at 30 June 2019 was 28% (2018: 30%). 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. (i) Land and buildings The fair value of property is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing and knowledgeable buyer and seller in an arm’s length transaction after proper marketing. (ii) Derivatives The fair value of forward exchange contracts is based on their listed market price, if available. if a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract. The fair value of interest rate swaps is based on 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) 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. (z) Segment reporting (ab) Government grants From time to time the Group becomes eligible for government grants. These grants, which are related to assets are accounted for in accordance with aaSB 120 accounting for Government Grants and disclosure of Government assistance. The Group has elected to recognise government grants by reducing the carrying amount of the asset. 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. aNNuaL RePORT 2019 51 Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 2. NOTES TO THE STATEMENT OF PROFIT AND LOSS in the following table, revenue from customers (excluding revenue related to discontinued operations) is classified by major products and services lines and primary geographical market for the Groups Reportable segments (see Note 14). 2a. REVENUE Segment Trailer Solutions MaxiPARTS Segment Trailer Solutions MaxiPARTS 2019 Total 2018 Total Type of Good or Service Trailer Sales Trailer Repairs and other services 222,972 17,187 – – 222,972 276,041 17,187 14,907 – – 276,041 14,907 Sale of parts – 106,943 106,943 – 101,945 101,945 Total Group Revenue 240,159 106,943 347,102 290,948 101,945 392,893 Geographical Market australia NZ China 223,909 106,943 330,852 267,524 101,945 369,469 16,250 – – – 16,250 20,525 – – – – 20,525 – Total Group Revenue 240,159 106,943 347,102 288,049 101,945 389,994 2b. EXPENSES Employee and contract labour expenses: – employee expenses – contract labour expenses Total employee and contract labour expenses Consolidated 2019 $’000 2018 $’000 86,405 11,763 98,168 87,614 13,362 100,976 52 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 3. TAXATION (a) Income tax Reconciliation of tax (benefit)/expense Prima facie tax payable on (loss)/profit before tax for continued and discontinued operations at 30% (2018: 30%) add/(deduct) tax effect of: Research and development allowance Non-assessable expenditure associate equity accounted income under/(over) provision in prior year impact of tax rates in foreign jurisdictions Tax losses utilised Add/(deduct) Income tax attributable to discontinued operations Consolidated 2019 $’000 2018 $’000 (7,739) 4,097 (204) 629 (617) (52) (13) (97) (354) 1 (268) 73 (421) 140 27 – (449) 86 3,734 2,530 229 962 (72) 85 Income tax (benefit)/expense in consolidated statement of profit or loss (8,092) income tax (benefit)/expense attributable to (loss)/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) 2,027 200 (10,068) (252) 1 Income tax (benefit)/expense in consolidated statement of profit or loss (8,092) 3,734 (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 – 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) 4,702 5,049 390 499 218 10,858 (2,409) 10,068 3,199 – 10,858 4,857 (7,025) (1,488) 1,134 113 (2,409) (280) (712) (1,121) (296) (2,409) aNNuaL RePORT 2019 53 Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 (c) Current tax asset/(liability) The Group’s current tax asset of $768,032 (2018: $2,237,282) and current tax liability of nil (2018: nil) represents the amount of income taxes receivable/(payable) in respect of current and prior financial periods. 4. TRADE AND OTHER RECEIVABLES Consolidated 2019 Consolidated 2018 Gross $’000 Impairment $’000 Total $’000 Gross $’000 Impairment $’000 Total $’000 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 5. INVENTORIES 26,202 9,156 4,013 3,299 42,670 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 26,202 25,586 (142) 25,444 (10) (12) (577) (599) 9,146 4,001 2,722 8,856 1,981 3,305 42,071 39,728 (49) (33) (192) (416) 310 42,381 Consolidated 2019 $’000 1,671 40,925 4,431 14,057 (1,817) 59,267 8,807 1,948 3,113 39,312 (192) 39,120 2018 $’000 1,162 38,016 4,661 15,863 (2,002) 57,700 54 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 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 Subtotal plant and equipment Office equipment at cost accumulated depreciation Subtotal office equipment Leased property, plant and equipment accumulated depreciation Subtotal leased property, plant and equipment Capital work in progress* Total plant and equipment Total property, plant and equipment Consolidated 2019 $’000 24,300 – 2018 $’000 46,205 – 24,300 46,205 43,644 39,212 (30,067) (28,191) 13,577 11,022 11,021 10,025 (8,935) (8,367) 2,087 1,501 (787) 714 1,002 17,380 41,680 1,658 1,501 (575) 926 33,923 47,528 93,733 * The prior year comparative of PP&e includes $33 million relating to capital expenditure on the eRP system which has been reclassified to intangible assets in the current year. independent valuations/market assessments were obtained during 30 June 2019 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. aNNuaL RePORT 2019 55 Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 Reconciliations Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below: Land and buildings Carrying amount at the beginning of the financial year additions Fair value revaluation disposals depreciation Foreign currency movement Consolidated 2019 $’000 46,205 163 4,687 (27,012) (362) 619 2018 $’000 43,325 10 3,901 – (539) (492) Carrying amount at the end of the financial year 24,300 46,205 Plant and equipment Carrying amount at the beginning of the financial year additions Transfer to inventories Transfers from capital works in progress Transfer to assets held for sale disposals depreciation Foreign currency movement Carrying amount at the end of the financial year Office equipment 11,021 1,195 (449) 5,189 – (1,070) (2,196) (113) 13,577 13,782 1,757 – 1,071 (1,717) (1,279) (2,660) 67 11,021 Carrying amount at the beginning of the financial year 1,658 1,447 additions Transfers from capital works in progress Transfer to assets held for sale depreciation Foreign currency movement Carrying amount at the end of the financial year Leased property, plant and equipment Carrying amount at the beginning of the financial year additions Transfer to assets held for sale 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 Transfers to software/intangibles Transfers to property, plant and equipment Carrying amount at the end of the financial year 165 815 – (558) 7 2,087 926 – – – (212) 714 33,923 6,344 (33,261) (6,004) 1,002 903 – (191) (518) 17 1,658 6,298 495 (5,562) 281 (586) 926 23,674 11,324 – (1,075) 33,923 56 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 7. INTANGIBLES Software at cost impairment loss accumulated amortisation 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 additions impairment losses amortisation Carrying amount at the end of the financial year Goodwill Carrying amount at the beginning of the financial year 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 Carrying amount at the end of the financial year Consolidated 2019 40,077 (26,882) (1,995) 11,200 21,892 6,930 (691) 6,239 22,665 2018 958 – (192) 766 21,892 6,930 (691) 6,239 22,665 (17,699) (17,297) 4,966 891 (891) – 5,368 891 (891) – 44,297 34,265 766 33,261 5,858 (26,882) (1,803) 11,200 21,892 – 21,892 6,239 6,239 5,368 (402) 4,966 862 – – – (96) 766 24,645 (2,753) 21,892 6,239 6,239 5,771 (403) 5,368 Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 Cash Generating Unit (CGU) Trailers MaxiPaRTS Corporate aNNuaL RePORT 2019 57 Consolidated Other Intangibles Goodwill 2019 $’000 11,205 – 11,200 22,405 2018 $’000 11,607 – 766 2019 $’000 5,193 2018 $’000 5,193 16,699 16,699 – – 12,373 21,892 21,892 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 is based on expectations of future outcomes taking into account past experience, adjusted for anticipated revenue growth. Revenue growth was projected considering 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 2.0%. The growth rate used for years 2-5 is 2.1% which is based on recent australian Government GdP forecasts and the after-tax nominal discount rates used were 10.9% (2018: 10.6%). The company reviews the impairment of its intangibles on a regular basis. impairment would result from any adverse movement in discount rate or a decline in underlying business performance (eBiTda) potentially driven by a variety factors including a softening of the end market. The impairment review was conducted in accordance with aaSB 136. impairment was tested at the CGu level, being Trailer Solutions and MaxiParts. For assets that are not able to be sensibly split between the CGu, these were assessed at the Group level, namely the group eRP system held at $11.2 million as at year ended 30 June 2019 (2018: 33.62 million was held in Property, Plant and equipment as Capital Work in Progress). as at 30 June 2019, $26.9 million of intangible assets relating to capital expenditure accumulated for the eRP system was deemed to be impaired at the Consolidated Group level. The remaining value of the TRaNSform asset has been determined based on management’s estimate of the recoverable amount of an equivalent eRP system less the remaining expenditure to complete the implementation and already amortised amounts. The recoverable amount of the australian Trailers and MaxiParts CGu’s were found to be in excess of their respective carrying amounts. 8. TRADE AND OTHER PAYABLES Trade payables Other payables and accruals Total trade and other payables Consolidated 2019 35,821 8,814 44,635 2018 34,853 12,474 47,327 58 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 9. INTEREST BEARING LOANS AND BORROWINGS Current Lease liability Total current interest bearing liabilities Non-current Bank loans – secured Lease liability Total non–current interest bearing liabilities Bank loans are subject to a floating interest rate. interest rate swaps have been executed in respect of $15.3 million (2018: $28.5 million) of this debt in order to mitigate interest rate risk. Refer to note 26(b) for further details. 26(e) Finance costs: – interest on bank loans – Finance lease charges Total finance costs 10. PROVISIONS Current employee entitlements Warranty Other Total current provisions Non-current employee entitlements Other Total non-current provisions Aggregate employee entitlements liability Warranty and other provisions at 30 June 2019 is analysed as follows: Carrying amount at 1 July 2018 Provisions made during the year Provisions utilised/released during the year Foreign Currency exchange differences Carrying amount at 30 June 2019 Consolidated 2019 2018 255 255 43,500 170 43,670 2,565 78 2,643 8,630 2,943 170 752 752 49,500 408 49,908 2,236 92 2,328 9,166 3,960 – 11,743 13,126 1,034 – 1,034 9,664 1,066 75 1,141 10,232 Warranty $’000 Other $’000 3,960 1,775 (2,835) 43 2,943 170 170 Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 11. ISSUED CAPITAL Balance at 30 June 2018 Balance at 30 June 2019 Ordinary shares aNNuaL RePORT 2019 59 Number of Ordinary Shares Share Capital $’000 185,075,653 185,075,653 56,386 56,386 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 Weighted average number of shares Number of ordinary shares for basic earnings Per Share Number of Ordinary Shares for Diluted earnings per share Consolidated 2019 2018 (17,704) (17,704) (16,134) (1,570) (17,704) (17,704) (16,134) (1,570) 10,077 10,077 10,343 (266) 10,077 10,077 10,343 (266) (17,704) 10,077 2019 Number 2018 Number 185,075,653 185,075,653 185,075,653 185,075,653 60 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 13. DIVIDENDS Dividends paid 2019 interim – ordinary Total dividends paid 2018 interim – ordinary Final – ordinary Total dividends paid Dividends proposed Final – ordinary Cents Per Share Total Amount $’000 Date of Payment Tax Rate for Franking Credit Percent Franked 0.00 0.00 2.00 1.50 3.50 – – 3,702 2,776 6,478 30% 100% – – 13-apr-18 23-Oct-18 30% 30% 100% 100% 0.00 – – 30% 100% Dividend franking account Franking credits available to shareholders of MaxiTRaNS industries Limited for subsequent financial years The Company 2019 $’000 2018 $’000 26,759 24,574 There is Nil (2018: $1,189,772) impact on the dividend franking account for dividends proposed after the reporting date but not recognised as a liability. 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. The MaxiTrans Group reports on two Cash Generating units (CGu’s): Trailer Solutions and Parts. The Trailer Solutions business manufactures a diverse portfolio of trailers. The trailers are sold through our dealer network, comprising both owned dealerships and licensed dealerships, providing full solution including after sales service and parts to our customers. The Parts business sells trailer and truck parts at both a wholesale and retail level in australia. Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 aNNuaL RePORT 2019 61 Year Ended 30 June 2019 Business Segments Revenue Trailer Solutions $’000 Parts & components $’000 Corporate/ Eliminations $’000 Total continuing activities $’000 Discontinued operation $’000 Total $’000 external segment revenue 240,159 106,943 – 347,102 5,435 352,537 inter-segment revenue 344 26,531 (27,483) (608) 608 – Total segment revenue 240,503 133,474 (27,483) 346,494 6,043 352,537 Total Revenue Segment Result Segment earnings pre associate, interest and significant items Share of net profit of equity accounted investments interest income interest expense Segment net profit before tax (Excluding significant items) Significant items, before tax Gain/(loss) on disposal of subsidiary eRP system implementation expenses* impairment – intangible software Redundancy costs acquisition/disposal Transaction costs Segment net profit before tax (Including significant items) income tax expense Net profit after tax depreciation and amortisation Total Depreciation and amortisation Assets Segment assets 240,503 133,474 (27,483) 346,494 6,043 352,537 3,937 7,953 (5,662) 6,228 (52) 6,175 2,058 – – – – – – 48 (2,643) 2,058 48 (2,643) – – 49 2,058 48 (2,594) 5,995 7,953 (8,257) 5,691 (3) 5,687 – – – (39) (226) – – – – – – – (1,568) (1,568) (1,860) (1,860) (26,882) (26,882) (381) (420) (528) (754) – – – – (1,860) (26,882) (420) (754) 5,730 7,953 (37,909) (24,226) (1,571) (25,797) – 5,730 2,870 2,870 – 8,092 8,092 1 8,093 7,953 (29,817) (16,134) (1,570) (17,704) 700 700 1,963 1,963 5,533 5,533 245 245 5,778 5,778 116,484 62,226 – 178,710 unallocated corporate assets 47,601 47,601 Consolidated total assets 116,484 62,226 47,601 226,311 Liabilities Segment liabilities 32,568 16,595 – 49,163 unallocated corporate liabilities – – 55,307 55,307 Consolidated total liabilities 32,568 16,595 55,307 104,470 Capital expenditure unallocated capital expenditure Total capital expenditure 7,275 – 7,275 160 – 160 – 432 432 7,435 432 7,867 * non cash, non recurring – – – – – – (29) – (29) 178,710 47,601 226,311 49,163 55,307 104,470 7,406 432 7,838 62 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 Year Ended 30 June 2018 Business Segments Revenue Trailer Solutions $’000 Parts & components $’000 Corporate/ Eliminations $’000 Total continuing activities $’000 Discontinued operation $’000 Total $’000 external segment revenue 290,948 101,945 – 392,893 16,419 409,312 inter-segment revenue 7,553 25,477 (35,929) (2,899) 2,899 – Total segment revenue 298,501 127,422 (35,929) 389,994 19,318 409,312 Total Revenue Segment Result Segment earnings pre associate, interest and significant items Share of net profit of equity accounted investments interest income interest expense Segment net profit before tax (Excluding significant items) Significant items income tax expense Net profit after tax depreciation and amortisation Total Depreciation and amortisation Assets Segment assets 298,501 127,422 (35,929) 389,994 19,318 409,312 15,070 8,104 (8,230) 14,944 (419) 14,525 1,404 – – – – – – 58 1,404 58 (2,328) (2,328) – – – 1,404 58 (2,328) 16,474 8,104 (10,500) 14,078 (419) 13,659 – – 16,474 3,018 3,018 – – – (3,561) 8,104 (14,061) 854 854 201 201 – (3,561) 10,517 4,073 4,073 – (87) – (3,648) (506) 10,011 725 725 4,798 4,798 142,883 67,090 – 209,973 19,813 229,786 unallocated corporate assets – – 34,433 34,433 – 34,433 Consolidated total assets 142,883 67,090 34,433 244,406 19,813 264,219 Liabilities Segment liabilities 60,088 16,840 – 76,928 9,550 86,478 unallocated corporate liabilities – – 41,922 41,922 – 41,922 Consolidated total liabilities 60,088 16,840 41,922 118,850 9,550 128,400 Capital expenditure unallocated capital expenditure Total capital expenditure 3,088 – 3,088 358 – 358 – 3,446 10,715 10,715 10,715 14,161 325 – 325 3,771 10,715 14,486 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. aNNuaL RePORT 2019 63 Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 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 July 2018 – 30 June 2021 1 July 2017 –30 June 2020 19-Oct-18 2,240,646 582,419 1,658,227 30-Sep-17 1,819,520 1,819,520 – ROiC – 100% ROiC – 100% Base Return on invested Capital (ROiC) 3 year average rate of 6% 3 year average rate of 6% Target increase in ROiC average of 0.65% per annum (7.95% over 3 years) average of 0.65% per annum (7.95% over 3 years) Percentage increase in base ROiC required 32.5% 32.5% Minimum % of ROiC target that must be achieved for Performance Rights to vest 66.67% (i.e. average of 0.43% per annum) 66.67% (i.e. average of 0.43% per annum) Target ePS n/a n/a Minimum service requirement 3 years from grant date 3 years from grant date Details of PRs exercised: 2016/19 Plan 2017/20 Plan 2018/21 Plan Total PRs issued Total PRs forfeited Total PRs exercised Measurement of fair value 3,591,081 3,591,081 – 1,819,520 1,819,520 – 2,240,646 582,419 – 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 2019 43.91¢ 52.00¢ 2018 58.79¢ 67.00¢ expected volatility 40.00% 50.00% expected dividend yield Risk–free rate of return Liquidity discount 5.00% 2.06% 6.50% 2.00% n/a 15.00% 64 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 Expense/(income) recognised in profit and loss Share based payments expense recognised Share based payments reversed Total share based payment expense/(income) recognised as employee costs Consolidated 2019 $’000 255 (517) (262) 2018 $’000 352 (330) 22 during the period it was determined that the performance and service conditions of the 2016 and 2017 PR scheme will not be met. as a result, the total amount recognised for goods and services received over the life of the 2016 and 2017 scheme was reversed. in addition, where an employee has left the business their PR expense was reversed. The reversal amount is comprised of: 2016 PR scheme 2017 PR scheme 2018 PR scheme $’000 261 235 21 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 Executives • Mr J Curtis (deputy Chairman) • Mr C Richards (CFO) – resigned 21 december 2018 • Mr R Wylie (Chairman) • Ms J deMartino (CFO) – appointed 8 October 2018; • Mr J Rizzo • Ms S Hogg • Ms M Verschuer – appointed 24 January 2019 Executive directors • Mr d Jenkins (Managing director) resigned 6 March 2019 • Mr P Loimaranta (Group General Manager – international) • Mr a McKenzie (Group General Manager – Sales and Marketing) • Mr T Negus (Group General Manager – Manufacturing) • Mr J O’Brien (General Manager – MaxiParts) • Mr T Bradfield (CFO) – appointed 6 March 2019 aNNuaL RePORT 2019 65 Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 (a) Directors’ transactions in shares directors and their related entities acquired 203,000 (2018: 385,377) existing ordinary shares in MaxiTRaNS industries Limited during the year. (b) 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. (c) Transactions with associate during the year the Group derived revenue from the associate of $38,296,867 (2018: $40,488,567) for the sale of new units, parts and the provisions of services. amounts receivable from the associate at year-end total $2,734,456 (2018: $3,925,567). during the year the Group paid for services and parts from the associate totalling $2,422,069 (2018: $1,659,565). amounts owing at year-end total $117,789 (2018: $120,977). all dealings were in the ordinary course of business and on normal commercial terms and conditions. (d) 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 2019 $’000 2018 $’000 3,188,415 3,012,633 296,618 299,987 (114,446) 30,078 3,370,586 3,342,698 66 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 17. PARENT ENTITY as at 30 June 2019 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 Consolidated 2019 $’000 2018 $’000 (24,791) (3,427) – (24,791) (3,427) 38,445 79,618 1,400 44,900 34,718 52,047 114,440 2,393 51,892 62,548 56,385 56,386 352 (22,019) 34,718 609 5,553 62,548 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. aNNuaL RePORT 2019 67 Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 18. CONTROLLED ENTITIES Particulars in relation to controlled entities Country of Incorp. Class of Shares 2019 % 2018 % Interest Held The Company: MaxiTRaNS industries Limited Controlled entities of MaxiTRANS Industries Limited: MaxiTRaNS australia Pty Ltd –Transport Connection Pty Ltd Transtech Research Pty Ltd Trail Truck Parts Pty Ltd(i) MaxiTRaNS industries (N.Z.) Pty Ltd Peki Pty Ltd(i) ultraparts Pty Ltd(i) MaxiTRaNS Services Pty Ltd MaxiTRaNS Finance Pty Ltd(i) Lusty eMS Pty Ltd Hamelex White Pty Ltd(i) MaxiPaRTS Pty Ltd (formerly Colrain Pty Ltd) – Colrain Queensland Pty Ltd – Colrain (albury) Pty Ltd – Queensland diesel Spares Pty Ltd (formerly Colrain (Ballarat) Pty Ltd)(i) – Colrain Pty Ltd (formerly Colrain (Geelong) Pty Ltd)(i) – MaxiPaRTS (Qld) Pty Ltd (formerly Queensland diesel Spares Pty Ltd) MaxiTRaNS employee Share Plan Pty Ltd MaxiTRaNS (China) Limited(i) Yangzhou Maxi–CuBe Tong Composites Co Ltd(ii) aust. aust. aust. aust. aust. aust. aust. aust. aust. aust. aust. aust. aust. aust. aust. aust. 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 – 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 2 November 2018 the MaxiTRaNS industries Limited sold the 80% majority shareholding 19. ACQUISITION OF NON-CONTROLLING INTEREST ( NCI) The Group has nil reportable NCi for FY2019. 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. Consideration paid to NCi increase in equity attributable to owners of the Company 2019 $’000 – – 2018 $’000 31 31 68 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 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 2019 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 impairment loss on intangible assets Share of net profits of joint ventures accounted for using the equity method (Loss)/Profit before income tax income tax benefit Loss 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 Cashflow hedge reserve 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 Note Consolidated 2019 $’000 2018 $’000 325,137 362,979 6,270 2,433 (193,104) (217,833) 250 72 (96,063) (98,724) (3,015) (5,514) (2,643) (31,189) (26,883) 2,058 (24,696) 8,092 (16,604) 973 (342) 12,690 (3,807) 9,514 (7,090) (16,604) (7,090) (3,770) (4,055) (2,328) (26,938) – 1,404 13,240 (3,484) 9,756 429 (35) 3,901 (1,136) 3,159 12,915 9,756 12,915 Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 Consolidated statement of financial position aNNuaL RePORT 2019 69 Consolidated 2019 $’000 2018 $’000 Note 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 NC assets 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 11,925 38,520 57,673 768 3,801 9,691 35,539 55,470 2,237 1,567 112,687 104,504 11,356 2,903 41,523 42,719 10,858 – 109,359 222,046 4,826 7,193 93,617 32,686 265 1,249 139,836 244,340 45,050 47,855 255 – 11,558 56,863 753 – 12,857 61,465 43,670 49,908 – 1,034 – 44,704 101,567 120,479 56,386 15,278 48,815 2,741 1,141 97 53,887 115,352 128,988 56,386 19,175 53,427 120,479 128,988 70 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 21. INVESTMENT IN ASSOCIATES AND JOINT VENTURES 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. investment in associate Ownership 2019 % 36.67 2018 % 36.67 australasian Machinery Sales Pty Ltd Manufacturer and supplier of live bottom trailers. Joint Venture 80.00 – Revenues (100%) Net Profit after Tax 100% Share of Associate Profit Recognised 71,004 70,740 4,762 3,829 2,058 1,404 Total Assets 26,967 20,489 Total Liabilities 12,914 8,453 Net Assets as Reported by Associate 14,054 12,035 $’000 2019 2018 Commitments The share of the associate’s capital commitments contracted but not provided for or payable within one year was $nil at 30 June 2019 (2018: $nil). 22. NOTE TO THE CONSOLIDATED STATEMENT OF CASH FLOWS Reconciliation of cash flows from operating activities with operating profit/(loss) after tax (Loss)/Profit for the year Non-cash items in operating profit depreciation and amortisation of assets Gain on sale of property, plant and equipment disposal of discontinued operation impairment loss on intangibles assets Share of net profits of associates accounted for using the equity method 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 (used in)/provided by operating activities Consolidated 2019 $’000 2018 $’000 (17,704) 10,011 5,533 (1,748) 1,568 26,882 (2,058) (262) (2,725) (1,442) (1,034) (3,915) 1,283 (9,120) (1,356) (6,098) 4,798 73 – – (1,404) 22 (569) 61 2,739 3,161 (1,237) 741 1,371 19,767 aNNuaL RePORT 2019 71 Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 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 Total operating lease commitments Consolidated 2019 $’000 2018 $’000 6,232 12,855 17,740 36,827 4,244 8,011 1,671 13,926 The Group leases property under operating leases expiring from one to twenty-two 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 Consolidated 2019 $’000 7,028 – 7,028 2018 $’000 7,144 867 8,011 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 auditor 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 Consolidated 2019 $ 2018 $ 456,212 292,830 18,836 188,254 475,048 481,084 53,940 10,015 63,955 86,849 9,554 96,403 539,003 577,487 72 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 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 2019 $’000 15,255 28,670 43,925 2018 $’000 15,161 35,500 50,661 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 2019 $’000 (201) 201 2018 $’000 (218) 218 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 2019 $’000 2018 $’000 2019 $’000 2018 $’000 2019 $’000 2018 $’000 2019 $’000 2018 $’000 Buy uSd dollar 0.7020 0.7498 5,038 7,028 7,177 9,373 (12) 134 aNNuaL RePORT 2019 73 Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 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 uSd 10.0 cents decrease (d) Credit risk Consolidated 2019 $’000 (626) 626 2018 $’000 (699) 699 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 $2,625,945 (2018: $723,768) are held by Commonwealth Bank of australia (2018: Commonwealth Bank of australia and australian and New Zealand Banking Group Limited) on behalf of MaxiTRaNS australia Pty Ltd and MaxiPaRTS Pty Ltd. (e) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk by maintaining adequate cash reserves, committed banking facilities and reserve borrowing facilities and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group’s liquidity management policies include Board approval of all changes to debt facilities including the terms of fixed rate debt. The liquidity management policies ensure that the Group has a well-diversified portfolio of debt, in terms of maturity and source, which significantly reduces reliance on any one source of debt in any one particular year. Liquidity risk is managed by the Group based on net inflows and outflows from financial assets and financial liabilities. The following table summarises the maturities of the Group’s financial liabilities based on the remaining earliest contractual maturities, excluding net interest payable on borrowings. 30 June 2019 – Consolidated Carrying Amount $’000 6 months or Less $’000 Trade and other payables and accruals (44,635) (44,635) Borrowings (43,925) (255) 6–12 Months $’000 – – 1–2 Years $’000 – 2–5 Years $’000 – (170) (43,500) Effect of derivative instruments Forward exchange contracts – inflow – outflow 8,877 7,527 (8,889) (7,515) (88,572) (44,878) 1,350 (1,374) (24) – – – – (170) (43,500) 74 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 30 June 2018 – Consolidated Carrying Amount $’000 6 months or Less $’000 6–12 Months $’000 Trade and other payables and accruals (47,327) (47,327) – 1–2 Years $’000 – 2–5 Years $’000 – Borrowings (50,660) (630) (122) (22,245) (27,663) Effect of derivative instruments Forward exchange contracts – inflow – outflow Finance facilities 9,880 (9,746) 9,880 (9,746) – – – – – – (97,853) (47,823) (122) (22,245) (27,663) at year end, the Group had the following financing facilities in place with its bankers: Consolidated Loan facility Overdraft facility Multi-option facility Less borrowings included in liabilities Facility Amount Utilised Available 2019 $’000 2018 $’000 2019 $’000 2018 $’000 51,750 64,655 43,500 52,568 5,000 5,000 – 61,750 1,000 9,000 (4,655) 70,000 – 2,626 – 46,126 – 1,395 (3,068) 50,895 2019 $’000 8,250 5,000 2,374 – 15,624 2018 $’000 12,087 1,000 7,605 (1,587) 19,105 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 $24,300,370 as at 30 June 2019. Core australian and New Zealand loan facilities of $61.75 million mature as follows, subject to continuing compliance with the terms of the facilities: • $30.00 million in July 2021 • $21.75 million in June 2022 • $10.00 million in June 2020 The net cash used in financing activities excluding dividends paid (totalling –$6.735 million) as disclosed in the Statement of Cash Flows, consist of the movement in interest bearing loans and borrowings as per note 9. interest rates are a combination of fixed and variable. The terms and conditions of the bank facilities contain covenants in relation to gearing ratio, interest cover and leverage ratio. at half year, 31 december 2018, the Group breached its leverage ratio and accordingly the debt was classified as current at 31 december 2018. The Group’s Lenders provided a waiver of the 31 december 2018 covenant breach and varied the terms of the covenants. as at 30 June 2019, the Group satisfied the leverage ratio covenants with all debt being reported as non-current as at 30 June 2019. The Group’s forecast indicates that Group will comply will all covenants in the next 12 months. aNNuaL RePORT 2019 75 Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 (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 2019. • 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 2019 $’000 349 2018 $’000 41 – 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 2019 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 2018/19, including changes to the unobservable inputs. Opening balance as at 1 July 2018 Fair value revaluation additions disposals depreciation recognised in the statement of profit and loss exchange rate variance Closing balance as at 30 June 2019 Consolidated Land and Buildings 46,205 4,687 163 (27,012) (362) 619 24,300 76 MaxiTRaNS iNduSTRieS Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 27. DISCONTINUED OPERATION On 2 November 2018 MaxiTRaNS industries Limited sold its 80% share of Yangzhou Maxi-CuBe Tong Composites Co Ltd (MTC) which forms part of the Parts & Components segment. MTC was classified as held-for-sale as at 30 June 2018. 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 Loss on sale of discontinued operation Less: Non-Controlling interest Profit/Loss from discontinued operations, net of tax Basic earnings (loss) per share (cents per share) diluted earnings (loss) per share 2019 $’000 5,435 1 2018 $’000 19,317 178 (4,220) (15,862) (276) (245) (49) (649) (3) 1 (2) (1,568) – (1,570) (0.85) (0.85) (852) (725) (146) (2,329) (419) 87 (332) 0 66 (266) (0.14) (0.14) The loss from the discontinued operation of $2 thousand (2018: loss of $332 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 2019 $’000 (492) (29) (840) (1,361) 2018 $’000 1,652 (318) (389) 945 Consolidated Statement of Cash Flows (Cont.) For The Year Ended 30 June 2019 28. STANDARDS ISSUED BUT NOT YET EFFECTIVE a number of new standards are effective for annual reporting periods beginning after 1 July 2019 and earlier application is permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements. The following standards are expected to have an impact on the Group’s financial statements in the period of initial application. (a) AASB 16 Leases The Group is required to adopt aaSB 16 Leases from reporting periods commencing after 1 January 2019. aaSB 16 introduces a single, on-balance sheet lease accounting model for lessees. a lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low- value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases. (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 has chosen to measure the right-of-use assets at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the date of initial application. The Group plans to apply aaSB 16 initially on 1 July 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting aaSB 16 will be recognised as an adjustment to the opening balance assets and liabilities at 1 July 2019, with no restatement of comparative information. (ii) Leases in which the Group is a lessee The Group will recognise new assets and liabilities for its operating leases of rental properties, motor vehicle fleet and other equipment lease agreements. The nature of expenses related to those leases will now change because the Group will recognise a depreciation charge for the right-of-use assets and interest expense on lease liabilities. Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised. aNNuaL RePORT 2019 77 in additional, the Group will no longer recognise provisions for operating leases that it assesses to be onerous. instead, the Group will include the payments due under the lease in its lease liability. No significant impact is expected for the Group’s finance leases. Based on the information currently available the Group estimates that it will recognise additional right-of-use asset between $43.3 million to $51.2 million as at 1 July 2019. The Group does not expect the adoption of aaSB 16 to impact its ability to comply with the existing leverage covenants. (iii) Leases in which the Group is a lessor The Group is not required to make any adjustments for leases in which it is a lessor. (b) AASB 112 Income Taxes The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognises the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events. an entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with early application permitted. When an entity first applies those amendments, it applies them to the income tax consequences of dividends recognised on or after the beginning of the earliest comparative period. Since the Group’s current practice is in line with these amendments, the Group does not expect any effect on its consolidated financial statements. (c) AASB 123 Borrowing Costs The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete. an entity applies those amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies those amendments. an entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with early application permitted. Since the Group’s current practice is in line with these amendments, the Group does not expect any effect on its consolidated financial statements. 29. 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 2019. 78 MaxiTRaNS iNduSTRieS Independent Auditor’s Report For The Year Ended 30 June 2019 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 2019 and of its financial performance for the year ended on that date; and  complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises:  Consolidated statement of financial position as at 30 June 2019  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. 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. Independent Auditor’s Report (Cont.) For The Year Ended 30 June 2019 aNNuaL RePORT 2019 79 Key Audit Matters Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. This matter was addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter. Impairment of the ERP software ($26.9m) and recoverability of goodwill and other intangible assets ($44.3m) Refer to Note 7 Intangibles 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 the ERP software system (software), goodwill and other intangible assets for impairment, given the:  size of the balance (being 19.5% of total assets); and  market capitalisation of the Group being below the carrying amount of the net assets of the Group at year-end, increasing the possibility of software, goodwill and other intangible assets being impaired and increasing our audit effort in this area.   In relation to the carrying value of the software, goodwill and other intangible assets 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 experienced competitive market conditions in the current year and incurred a loss during the year;  discount rate - these are complicated in nature and vary according to the conditions and environment the specific CGU is subject to from time to time, and the model’s approach to incorporating risks into the cash flows or discount rates. In addition to the above, the Group recorded an impairment charge of $26.9m against the software. Our procedures included:  We considered the appropriateness of the value in use method applied by the Group to perform the annual test of software, 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 budget.  We assessed the accuracy of previous Group forecasts to inform our evaluation of forecasts incorporated in the models.  We challenged the forecast cash flows by comparing the financial year 2020 forecast cash flows to the historical actual growth in sales, gross profit and EBITDA. We used our knowledge of the Group, their past performance, business and customers.  We inspected post year-end management reporting accounts to compare actual performance to date against forecast for financial year 2020.  We considered the sensitivity of the models by varying key assumptions, such as financial year 2020 forecast cash flows, growth rates, terminal growth rates and discount rates, within a reasonably possible range, to identify 80 MaxiTRaNS iNduSTRieS Independent Auditor’s Report (Cont.) For The Year Ended 30 June 2019 We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. those CGUs at higher risk of impairment and to focus our further audit procedures.  We compared forecast growth rates and terminal 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 Group’s reconciliation of differences between the year-end market capitalisation and the carrying amount of the net assets by comparing the trading multiples from the models to trading multiples of comparable entities.  We recalculated the impairment charge for the software against the recorded amount disclosed.  We assessed the respective disclosures in the financial report using our understanding obtained from our testing and against the requirements of the accounting standards. 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 Independent Auditor’s Report (Cont.) For The Year Ended 30 June 2019 aNNuaL RePORT 2019 81 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. 82 MaxiTRaNS iNduSTRieS Independent Auditor’s Report (Cont.) For The Year Ended 30 June 2019 Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of MaxiTRANS Industries Limited for the year ended 30 June 2019, complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 10 to 16 of the Directors’ report for the year ended 30 June 2019. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Suzanne Bell Partner Melbourne 23 August 2019 ANNUAL REPORT 2019 83 Australian Stock Exchange Additional Information For The Year Ended 30 June 2019 For The Year Ended 30 June 2019 Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed elsewhere in this report. SHAREHOLDINGS Substantial shareholders The names of the substantial shareholders as at 31 July 2019 are: Transcap Pty Ltd and related parties HGT Investments Pty Ltd Spheria Asset Management Greig & Harrison Pty Ltd TelstraSuper Pty Ltd Voting rights Ordinary Shares 25,547,972 20,900,000 13,614,114 9,356,501 9,260,831 As at 31 July 2019, there were 3,327 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 2019, there were no unquoted options over unissued ordinary shares. Distribution of shareholders As at 31 July 2019 Range of Units Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and Over Rounding Total Ordinary Fully Paid Shares Total holders 402 834 596 1,293 202 3,327 84 MaxiTRaNS iNduSTRieS Australian Stock Exchange Additional Information (Cont.) For The Year Ended 30 June 2019 Shareholders with less than a marketable parcel as at 31 July 2019, there were 556 shareholders holding less than a marketable parcel of 1,725 ordinary shares ($0.29 on 31 July 2019) in the Company totalling 420,898 ordinary shares. On market buy-back There is no current on-market buy-back. Top Holders Name 1. HGT investments Pty Ltd 2. Transcap Pty Ltd 3. HSBC Custody Nominees (australia) Limited 4. J P Morgan Nominees australia Pty Limited 5. Citicorp Nominees Pty Limited 6. Toroa Pty Ltd 7. Transcap Ptt Ltd 8. Horrie Pty Ltd 9. de Bruin Securities Pty Ltd 10. debuscey Pty Ltd 11. John e Gill Trading Pty Limited 12. Mr eric dean Ross 13. John e Gill Operations Pty Ltd 14. BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd drp 15. James R Curtis 16. Hillmorton Custodians Pty Ltd 17. Mahata Pty Ltd 18. aJT Holdings Pty Ltd 19. Tanerka Pty Ltd 20. Mr Peter andrew Ronalds Units % of Units 21,000,000 14,940,739 11,204,527 10,362,987 9,352,677 4,286,241 2,994,810 2,165,000 2,129,773 1,797,056 1,571,933 1,406,540 1,391,657 1,352,164 1,328,439 1,311,000 1,222,392 1,200,000 1,102,620 919,132 11.35 8.07 5.81 5.60 4.69 2.32 1.62 1.17 1.15 0.97 0.85 0.76 0.75 0.73 0.72 0.71 0.66 0.65 0.60 0.50 Totals: Top 20 Holders Of Ordinary Fully Paid Shares (Total) Total Remaining Holders Balance 91,917,923 93,157,730 49.67 50.33 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. ANNUAL REPORT 2019 85 Corporate Directory Company Secretary Share Registry Stock Exchange Amanda Jones 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 The Company is listed on the Australian Securities Exchange. Other Information MaxiTRANS Industries Limited ACN 006 797 173 maxitrans.com 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 Street Melbourne VIC 3000 www.colliercreative.com.au #MAX0037 M a x i T R A N S I n d u s t r i e s | A N N U A L R E P O R T 2 0 1 9 maxitrans.com 

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