A N N U A L R E P O R T 2 0 1 8 Specialised Offshore Fleet Marine Logistics Support Technical Expertise We own and operate a specialised, high specification fleet of 28 core vessels with an average age of approximately 6 years Our vessel service offering is supported by two strategically located onshore facilities in South East Asia Strong project management capability delivering innovative and fit for purpose marine solutions World Class Safety Performance Total Recordable Case Frequency (“TRCF”) of 0.28 in FY2018 (rate per million hours worked) Middle East Dubai East & West Africa Malaysia Batam Singapore South East Asia Contents Overview About Us Chairman’s Address Managing Director’s Report Operating & Financial Review Financial Position Risks Operations Vessel Operations Health, Safety, Environment & Quality Our People Our Community Governance Board of Directors Corporate Governance Directors’ Report Auditor’s Independence Declaration Providing vessel solutions and marine expertise to the offshore oil and gas industry. Dampier Fremantle Australia/ New Zealand Audit Report Directors’ Declaration 2018 Financial Report Shareholder Information Additional Securities Exchange Information Key Office Onshore Facility About the cover 3 4 6 10 14 16 20 22 23 24 26 31 45 46 51 52 91 The Multipurpose Support Vessel MMA Prestige is one of MMA’s flagship vessels and has operated successfully in South East Asia and the Middle East since delivery from MMA’s Batam Shipyard in 2016. The MMA Prestige has been designed and constructed to provide customers the opportunity for faster, more efficient and cost-effective project mobilisation times. MMA Prestige offers superior ultra-deep water lift capabilities and has been designed with on-board systems and infrastructure to be on location longer with minimised external support, and maximum shipboard facilities for productive offshore work. MMA Offshore Limited 1 Overview Operating & Financial Review Governance 2018 Financial Report Worl d Class Assets and E xper tise . A b o u t U s MMA Offshore is one of the larg es t p rov ider s o f mar ine services to the offshore o il and gas indus try in the As ia P acific regi on. C ore F le et 4 12 7 5 AHT 8 yrs average age AHTS 8 yrs average age PSV 5 yrs average age MPSV/IMR 4 yrs average age MMA’s combination of quality offshore vessels, technical marine expertise and strategically located onshore facilities enables it to provide innovative, fit for purpose vessel solutions to the offshore oil and gas industry. This includes collaborating with clients on specialised vessel designs, vessel conversions and modification projects to meet their unique project requirements. MMA also has a strong capability in project managing larger marine logistics projects, supplementing its owned fleet with chartered vessels as required. MMA can leverage its land based facilities in South East Asia as staging and preparation facilities to service these projects. MMA prides itself on the quality, safety and reliability of its operations which are critical to success in the offshore industry. Onshore Facilities Supporting vessel operations are MMA’s two onshore facilities in South East Asia. Singapore Onshore Support Facility MMA’s Singapore Facility includes a 2.5 hectare site with 130 meters of water frontage, making it an ideal facility for vessel modification projects, mobilisation and demobilisation scopes and as a staging area for offshore projects. Batam Shipyard Facility MMA’s Batam Shipyard includes an 18.1 hectare yard site, fabrication and construction areas and warehouse storage facilities. The facility was previously used to build customised offshore support vessels and is now used as a multi-user storage, staging and project preparation facility. Offshore Vessels MMA currently owns and operates a fleet of 28 high quality offshore vessels with an average age of approximately 6 years. The owned fleet is supported by chartered vessels as required. Our key regions of operation include Australia/New Zealand, South East Asia, the Middle East and Africa. MMA’s fleet is capable of undertaking a range of offshore marine and subsea services including: • Offtake support; • Supply operations – drilling and production; • Construction support; • Seismic and survey support; • Tug and barge operations; • Anchor handling and towing; • Accommodation support; • Dive and ROV support; • Subsea installation support; and • Subsea inspection, maintenance and repair. 2 Annual Report 2018 MMA Offshore Limited 3 Overview Operating & Financial Review Governance 2018 Financial Report C h a i r m a n ’s A d d r e s s MMA has streamlined its busi ness and s trengt hened it s balance s heet to p osition the Company for an im prov ement in mar ke t co ndit ions Whilst we continue to feel the impact of the prolonged downturn in the offshore vessel market, the broader oil and gas market has improved over the course of FY2018 with the oil price recovering and holding over US$70 per barrel (Brent) for the past six months. The outlook for the oil price appears to be more positive with industry experts now predicting a tightening in the supply-demand balance with limited spare production capacity in the market. Notwithstanding this, we can expect the oil market to remain volatile and be subjected to ongoing supply and demand fluctuations. The outlook for LNG has also improved with increased demand expected over the coming years, particularly from China. The improved oil price, in conjunction with significant reductions in operating costs has begun to translate to oil company earnings, with the majors recently reporting large profit increases. In addition, project FIDs are expected to increase significantly in 2018 and 2019, as previously deferred projects are sanctioned in an effort to replace depleting reserves. This bodes well for an increase in vessel activity over time. On the supply side, the vessel market remains oversupplied, however there is increasing consensus that a large number of vessels which have been laid up during the downturn may not return to service due to prohibitive reactivation costs and a reluctance by oil companies to contract vessels which have been out of service for long periods of time. These circumstances should reduce some of the supply overhang. MMA has had a focused strategy over the past three years to manage its cash flow and debt obligations and to position the Company for a return to more normal trading conditions. As part of our ongoing cost reduction programme, we have significantly reduced our direct operating costs and overheads with corporate and vessel overheads reduced by 50% since FY2015. A key part of our strategy was the disposal of assets which were considered to not be core to the business going forward. This included the Company’s Australian Supply Base assets which were sold for $52.8 million in the previous financial year. In addition, we reviewed our fleet and sold 36 of our smaller, older and more commoditised vessels realising cash of approximately $100 million. The proceeds from these asset sales were predominantly used to reduce debt, improving our gearing and reducing our interest costs. The sales programme has also stemmed the ongoing operating losses and cash drain from these underutilised vessels, an estimated cumulative saving of $20 million. Following the strategic repositioning of the fleet, MMA is now focused on the more complex and higher margin sectors of the industry where it can leverage its marine expertise to generate higher returns on its assets. The core fleet now comprises 28 high quality vessels with an average age of approximately six years, young by industry standards. We have been diligent in maintaining our vessels to a high standard during the downturn which will position these vessels well to compete for contracts as market activity increases. In addition to the asset sales mentioned above, MMA further strengthened its balance sheet in December 2017 through an equity raising under which the Company raised $97 million (before costs) and concurrently secured valuable amendments to the terms of the Company’s debt facilities. These amendments included an extension of the term of the facilities by two years through to September 2021, amended covenants including a covenant holiday until June 2019, a reduced interest rate and revised amortisation profile. The equity raising was oversubscribed and the funds raised at a very modest discount to the share price at the time which was pleasing. MMA now has an improved cash buffer and a stronger platform to take advantage of future opportunities. Notwithstanding the strengthened balance sheet, MMA’s net debt as a multiple of its current earnings remains well above our target level. A key focus is to improve the returns on our assets to acceptable levels which will in turn improve our debt metrics. Returns should improve through increased utilisation and rates as the market normalises. However, we are not relying solely on this to drive improved returns on our assets. We are also focused on boosting returns through providing additional services to clients, chartering in additional vessels, managing large logistics projects and increasing our presence in the subsea vessel market. Whilst we have made progress on these initiatives in FY18 we plan to accelerate these efforts in the current year as we strive to improve financial performance as quickly as possible. Fundamental to our success is our operational excellence and service delivery to clients. MMA has a strong reputation as a quality operator with a unique skill in delivering innovative marine solutions to our clients. This has translated into a number of very significant contract wins over the past three years in a highly competitive market. Safety is core to our operations and pleasingly MMA maintained its excellent safety performance in FY2018 with a total recordable case frequency of 0.28 per million hours worked. This truly is a world class safety performance and significantly better than the marine industry average of 1.8. We expect market conditions in terms of vessel utilisation to improve during the course of FY2019. It will, however, take time for higher utilisation to translate into higher day rates. We are targeting a cash flow neutral position for the business in FY2019 while we continue to position the Company to take advantage of improved market conditions and opportunities as they emerge. I would like to conclude by thanking my fellow Board members for their valuable contribution and stewardship of the business over what continues to be a challenging time for our industry. I would like to welcome our newest Board member, Mr Peter Kennan, who joined the Board in September 2017. Peter is the Managing Partner and CIO of Black Crane Capital, MMA’s largest shareholder and we welcome his valuable expertise to the Board of Directors. I would also like to pay tribute to Mr Tony Howarth AO, who retired from the Board in November 2017. Tony made a tremendous contribution to MMA during his 16 years on the Board, 11 of which he served as Chairman. We are very lucky to have an excellent team of people at MMA. I would like to acknowledge our Managing Director, Mr Jeff Weber and all management and staff for their ongoing dedication and commitment to MMA. Finally, I would like to thank you, our shareholders for your ongoing support of the Company. Andrew Edwards Chairman 4 Annual Report 2018 MMA Offshore Limited 5 Overview Operating & Financial Review Governance 2018 Financial Report M a n a g i n g D i r e c t o r ’s R e p o r t MMA h as strategi cal ly reposi ti on ed it s bu sin ess and i s now well placed to benef i t f rom a re cove ry in market conditions. Financial summary Operating summary Strategy Market conditions for the FY2018 saw an improvement in Strategic repositioning of the $200.4m Revenue $18.5m EBITDA $(13.4)m EBIT(1) $(36.3)m Normalised NPAT(1) $(2.3)m Operating Cashflow 60.7% Gearing $69.6m Cash at Bank $0.38 NTA per Share Financial result in line with expectations (EBITDA of $18.5m including Slipway loss of $2.3m) Utilisation 56% (FY17 52%) Rates at historic lows Slipway operation ceased in Jun-18 Maintained our world class safety performance Strengthened the Balance Sheet through $97m equity raising and debt amendments Secured a number of significant contracts during the year Signed 3 year contract for MMA Pinnacle commencing Q2 FY2019 Strategically repositioned the fleet Focused on higher margin and more complex market segments Focused on operating scale in key geographic regions Building our subsea capability Leveraging our onshore assets and experience in project logistics Focused on achieving economic returns on our assets and improving our debt metrics Outlook Market conditions for offshore vessels remain challenging but the market is improving Expect higher utilisation through the course of FY2019 with only modest improvement in day rates this financial year Goal to be cash flow neutral in FY2019 1 EBIT and Normalised NPAT exclude a reversal of prior period impairment charges of $8.4m. MMA’s Financial Report complies with Australian Accounting Standards and International Financial Reporting Standards (“IFRS”). The pre-impairment reported EBIT and NPAT are unaudited but are derived from audited accounts by removing the impact of the impairment reversal from the reported IFRS audited results. MMA believes the non- IFRS disclosures reflect a more meaningful measure of the Company’s underlying performance. offshore vessel market continued EBITDA and utilisation over the fleet completed to be challenging during FY2018 previous financial year Revenue for the year was $200.4 million, down 9.6% on FY2017. EBITDA was up 2% at $18.5 million, including a $2.3 million loss from Dampier Slipway which ceased operations in June 2018. Excluding this loss, the business produced an EBITDA of $20.8 million up 15.6% on the previous year. Australian operations contributed revenue of $142.2 million during FY2018, down slightly on the $148.8 million generated in FY2017. Revenue from international operations was $58.2 million, down from $72.9 million in FY2017. Average utilisation for the year was 56% up from 52% in FY2017. Second half utilisation was stronger at 65% (1H 47%) as a number of our non-core vessels were disposed of. The sale of these vessels reduced the drag on utilisation and also improved our margins as holding costs were eliminated. Excluding vessels held for sale, utilisation for the core fleet was 69%. MMA’s strategic repositioning of its fleet through its non-core vessel sales programme has been very successful, saving cash and reducing MMA’s exposure to vessels which are not expected to generate a satisfactory return on assets over time. Nine vessels were sold during the FY2018 financial year for a total of approximately A$27 million with a further vessel sold in July 2018 for A$5.1 million. Since FY2016, MMA has disposed of 36 vessels for a total of approximately $100 million. The programme has resulted in the elimination of cumulative cash operating losses on these vessels of approximately $20 million from date of sale through to 30 June 2018. In addition, there have been substantial savings in interest costs and docking costs. The majority of vessels sold have been older tonnage not relevant to the future market, or more commoditised vessels which we anticipate will be the slowest market to recover. The sales programme has freed up operational capacity to focus on higher margin and more complex sectors of the industry where MMA can leverage its marine expertise to generate better returns. although the signs of a recovery continue to be positive The broader oil and gas market has improved with the oil price increasing 60% since the beginning of the financial year. As a result of the downturn over the past few years, there has been significant underinvestment by oil and gas companies in the replacement of depleting reserves. We are starting to see some signs of this changing with Rystad Energy recently predicting that project FIDs will rise significantly in 2018 and 2019 as previously deferred projects are sanctioned. Seismic and subsea companies are also reporting increases in activity, all of which are early indicators of an increase in vessel activity over time. Offshore maintenance expenditure, which has been deferred during the downturn should also increase as conditions improve, increasing demand in the IMR market. Whilst the broader oil and gas market is improving, this has yet to translate to the offshore vessel sector due to the lag between investment decisions by oil companies and an increase in vessel demand. However, the indicators are positive and we do appear to be at the bottom of the cycle with utilisation, rates and asset values appearing to have stabilised over the past 12 months. 6 Annual Report 2018 MMA Offshore Limited 7 Overview Operating & Financial Review Governance 2018 Financial Report Under the amendments to MMA’s debt facilities which were agreed in November 2017, the Company committed to $30 million in amortisation from vessel sales by 31 December 2018. As at the date of this report, the full $30 million target has been met. The vessel sales programme is almost complete with two vessels remaining on the sales list with one of these currently under a sales contract. Ongoing cost reduction programme has resulted in a significantly reduced cost base MMA has taken significant steps to sustainably reduce its cost base over the past three years with corporate and vessel overheads down 50% since FY2015. There has also been a major focus on reducing our direct costs through retendering key expense items and ongoing supplier renegotiations. MMA continues to review all aspects of its business for improvements and efficiencies. As mentioned previously the non-core vessel sales programme has been a major initiative to reduce holding costs on underutilised vessels. MMA also actively manages costs on its vessels between contracts to minimise operating costs. The decision to close the Dampier Slipway on 30 June 2018, which posted a loss of $2.3 million for FY18, will reduce costs in FY2019. Unfortunately the volume of activity in the region made it no longer sustainable to have an in-house vessel maintenance facility in Australia. MMA continues to focus on reducing costs in all areas of the business whilst maintaining high safety and operating standards which are essential to success in the offshore oil and gas industry. Strengthened Balance Sheet World class safety performance Our people are key to Refined strategy focused on core Market Outlook our success vessel operations At MMA we understand that our people are critical to our success. The last four years have been very challenging for MMA from a people perspective as market conditions necessitated a significant reduction in our workforce. I would like to acknowledge all those who contributed to MMA over the years who are no longer with the Company. I would like to thank my Senior Management Team who have shown strong leadership and commitment and all MMA staff for their valuable contribution to the business over what has been a difficult time. We had a number of changes to the Board of Directors during the year. I would like to pay special tribute to Tony Howarth our former Chairman who retired in November 2017 after 16 years on the Board. I would also like to formally acknowledge our new Chairman Andrew Edwards who has seamlessly transitioned into the role. I would also like to welcome our most recent appointment to the Board, Mr Peter Kennan who joined the Board during the year. Peter is the representative of a major shareholder, Black Crane Capital and brings a wealth of investment and corporate finance skills to the Company. I would like to take this opportunity to thank the Board of Directors for their valuable guidance and stewardship. MMA has strategically repositioned its business over the past 2 years with the sale of its Australian supply base assets and non-core vessels. MMA’s strategy is now focused on a core fleet of 28 high quality vessels targeting more specialised and complex projects where MMA can leverage its marine expertise to extract the most value from its assets. The owned fleet will be supplemented by chartered vessels as required to boost earnings. MMA has a strong project management capability and will continue to leverage this expertise to project manage larger marine logistics projects. MMA’s land based facilities in South East Asia provide additional capability and resources to mobilise and deliver these types of projects. MMA is also focused on building its subsea capability focusing on the light construction, inspection maintenance and repair and dive support sectors of the market. MMA currently has 5 vessels working in this sector and is seeking to grow its fleet and internal capability to meet expected increased demand. Regionally, we continue to focus on maintaining operating scale in our key regions of Australia/New Zealand, the Middle East and South East Asia, with operations in Africa on the back of long term contracts. Market sentiment continues to be positive around a recovery in market conditions for offshore vessels. We are already starting to see improved conditions in the broader oil and gas market and early signs of a recovery in oil and gas investment including increased FIDs, seismic and subsea orders. Unfortunately there is a lag between investment decisions by oil and gas companies and an increase in vessel demand so we expect market conditions to remain challenging in FY2019. The oversupply of offshore vessels in the market is still an issue, although we anticipate that a large proportion of the global cold stacked fleet will not return to service which will eliminate some of the supply overhang. MMA currently has 18 of its 28 core vessels under contract with the remaining vessels operating in the spot market. As at 30 June 2018, MMA had 41% of total vessel days contracted for FY2019 (58% for the PSV fleet, 51% for the MPSV/IMR fleet and 30% for the AHT/AHTS fleet). We expect utilisation to increase across the course of FY2019 with only modest improvement in day rates this financial year. Jeff Weber Managing Director MMA continues to improve its safety performance. MMA’s Total Recordable Case Frequency (“TRCF”) for FY2018 was 0.28 per million hours worked, the Company’s best ever performance and significantly better than the marine industry average. MMA continues to strive for ‘A Perfect Day Every Day’, that is a day free of recordable injuries or illness and material incidents. In FY2018, we achieved 339 Perfect Days across the organisation, up from 310 perfect days in FY2017. We continue to strive for our target of 365 perfect days, a target we believe is achievable. We also completed a comprehensive review of our Target 365 Critical Controls during the year, to ensure that they remain relevant to our changing business. Safety is a critical focus area for MMA and we will continue to drive improvements in safety across the organisation. In December 2017, MMA completed a balance sheet recapitalisation, raising $97m in equity combined with amendments to the Company’s debt facilities. The equity component was fully underwritten and comprised a $22.4 million institutional placement and a $74.6 million 1 for 1, pro-rata, accelerated, non-renounceable entitlement offer. The proceeds of the equity raising were used to repay, in part, $30 million of debt and provide an improved cash buffer and stronger capital structure for the Company. As part of the recapitalisation, MMA’s existing lenders agreed to a number of important amendments to the Company’s debt facilities including: • An extension of the term to 30 September 2021; • A reduction in the interest rate and removal of the payment in kind (PIK) interest; • Amended covenants including a covenant holiday until 30 June 2019; and • A revised amortisation profile with scheduled amortisation commencing in June 2020 including a cash sweep above $70 million. Full details of the equity raising and debt facility amendments can be found in the Equity Raising Investor Presentation, dated 16 November 2017, which can be found on the Company’s website. Following the equity raising and debt amendments, MMA’s cash at bank as at 30 June 2018 was $69.6 million and Net Debt (Interest Bearing Liabilities less Cash at Bank) was $199.0 million. Gearing (Net debt / Equity) has reduced from 115.2% as at 30 June 2017 to 60.7% as at 30 June 2018. MMA reviewed the carrying value of its fleet as at 31 December 2017, in line with accounting standards, which resulted in a small reversal of the previous impairment charge of $8.4m. No further adjustments to the carrying value of MMA’s assets were required on 30 June 2018. 8 Annual Report 2018 MMA Offshore Limited 9 Overview Operating & Financial Review Governance 2018 Financial Report F i n a n c i a l R e p o r t MMA’s focus during FY2018 w as on st reng thening the balance s heet and m aximisi ng EBITDA. Ne t P ro fit/(Loss) After Tax 1 $(36.3)m $39.9m $22.1m 14 15 16 17 18 $(16.4)m $(36.3)m $(66.8)m 1 From Continuing Operations (Pre-impairment charge) EBITDA $18.5m $193.1 $72.1 $57.5 $18.0 $18.5 14 15 16 17 18 Financially FY2018 was focused on two key areas: firstly, strengthening the Balance Sheet through the capital raising, debt amendments and asset sales and secondly, maximising earnings before interest, tax and depreciation (EBITDA) through utilisation and cost rationalisation in the current challenging market conditions. The capital raising has delivered stability to the balance sheet, giving our customers surety that we are a genuine long-term partner and providing sufficient cash runway to capitalise on opportunities during the recovery. Impairment Reversal The Company reported a net loss after tax for the 2018 financial year of $(27.9) million. This included a reversal of non- cash impairment charges of $8.4 million against the carrying value. In accordance with Australian Accounting Standards, the Company assessed the recoverable amount of its vessel assets as at 31 December 2017 and again at 30 June 2018. EBITDA was $18.5 million which included a ($2.3) million EBITDA loss from the Company’s Slipway operations. The Slipway ceased operations on 30 June 2018. Adjusting for the Slipway loss, underlying EBITDA for the year was $20.8m. A recapitalisation of the Company occurred in December 2017 with net funds of $92.4 million raised to strengthen the balance sheet and position the Company for a recovery in market conditions. Of the net $92.4 million, $30.0 million was used to pay down debt. An independent valuation of the fleet was undertaken which indicated that market values appear to have stabilised over the past 12 months. This assessment resulted in a reduction to the enbloc discount, which is applied to the vessel valuation, from 20.0% to 17.5% as at December 2017. This reduction along with foreign exchange movements and depreciation resulted in a write back of previous vessel impairments to the value of $8.4m. 10 Annual Report 2018 MMA Offshore Limited 11 Underlying EBI TDA wa s $2 0.8 M up 11 % on the pri o r yea r Overview Operating & Financial Review Governance 2018 Financial Report Ope ra ting Cashflow $(2.3)m Capital Expe nd itu re $9.2 m Interest Bearing L iab ilities 1 $26 9m C ash At B an k $ 69 .6m N TA Pe r Sh are $ 0.3 8 $185.4m $247.2m $448.0m $448.5m $120.2m $159.3m $54.4m $68.0m $(6.1)m $(2.3)m $31.9m $9.2m $398.7m $324.2m $269.0m $174.8m $124.5m $2.10 $1.95 $1.70 $69.6m $49.7m $28.8m $0.69 $0.38 41.6% 37.1% G earing 60.7% 115.2% 55.0% 60.7% 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 1 (excluding unamortised fees) Cashflow Capital Expenditure Debt Management Balance Sheet Dividends In addition to the capital raising, the Company received net proceeds of $25.3 million during the year from asset sales which included the sale of nine non-core vessels in the fleet during FY2018. A further $6.0 million of funds from prior year sales, which were on balance sheet at 30 June 2017, were also remitted to the banking syndicate over the year. Total repayment of borrowings during the year including the funds from the capital raising was $61.3 million. Cash flow from operations for the 2018 financial year was negative $(2.3) million after meeting interest and cash costs on the Company’s debt facilities of $(16.9) million. Capital expenditure for the year of $9.2 million represented sustaining capital expenditure only. Sustaining capital expenditure is required to maintain the Company’s vessels as well as its licence to operate to generate income. No growth capital expenditure was incurred during the financial year due to the prevailing market conditions and availability of assets to charter in, limiting the need for MMA to deploy capital to secure contracts in the short term. In December 2017, MMA undertook a recapitalisation of the Company, raising $97m in equity before costs, $30m of which was used to repay debt. As part of the recapitalisation MMA secured the following key amendments to the Company’s existing debt facilities: • A facility extension to 30 Sept 2021; • Reduced interest rate including the removal of payment in kind (PIK) interest; • Amended covenants including a covenant holiday to 30 June 2019; No dividends have been declared for the 2018 financial year. • A revised amortisation profile with scheduled amortisation commencing in June 2020 including a cash sweep above $70 million. The Company has the ongoing support of its Banking Syndicate who continue to work with the Company during these challenging trading conditions. The Company continues to have a strong asset base comprising its core fleet of high quality vessels with an average age of just over six years. At 30 June 2018, the Company reported Total Assets of $639.8 million, Net Assets of $328.3 million and a NTA backing of $0.38 per share. At 30 June 2018 the Company had cash reserves totalling $69.6 million. The Company’s gearing ratio (net debt to equity) at 30 June 2018 following the impairment reversal for the year decreased to 60.7%, compared to 115.2% the previous year. MMA st rengthened its bal anc e sh ee t du rin g th e yea r through a $97M equity rais ing and amendments t o th e com pan y’s d ebt f ac ilities 12 Annual Report 2018 MMA Offshore Limited 13 Overview Operating & Financial Review Governance 2018 Financial Report R i s k s Effectively ident ifyi ng and mana ging ris k i s cr itical to MMA’s success. MMA operates an enterprise risk management framework aligned to ISO 31000:2018, the international standard for risk management. This section describes (in no order of significance) the material risks that have been identified and are being managed in order for the Company to deliver on its objectives. It is not intended to be all encompassing, nor are any of the assumptions intended to be taken as a statement of fact. These risks can be affected by a variety of factors which can, in turn, impact the Company’s performance. Dependence on level of activity in the offshore oil and gas industry The Company is dependent on the level of activity in the offshore oil and gas industry, particularly in the areas where the Company currently operates (including Australia, New Zealand, South East Asia, the Middle East and Africa). The level of activity in the offshore oil and gas industry may vary and be affected by, amongst other things, prevailing or predicted future oil and gas prices. A number of other factors also affect the offshore oil and gas industry, including economic growth, energy demand, the cost and availability of other energy sources and changes in energy technology and regulation. There can be no assurance that the current levels of offshore oil and gas activity will be maintained or increased in the future or that oil and gas companies will not further reduce their offshore activities and capital expenditure. Any prolonged period of low offshore oil and gas activity (such as that which is currently being experienced) will have an adverse effect on MMA’s business. The Company aims to mitigate the impact of lower offshore oil and gas activity by differentiating itself through innovation and operational excellence, by diversifying our contract portfolio across exploration, construction, production and maintenance/repair and by diversifying our geographic footprint across a number of key regional areas. Any decreases in industry activity or a lack of recovery in industry activity may also increase the risk of the Company failing to comply with the covenants associated with its Banking Facilities. In addition to the controls listed above, MMA seeks to manage this risk through proactively engaging with its lenders and through ongoing monitoring and review of the Company’s Balance Sheet strategy. Competition, vessel oversupply and fleet composition misalignment with market demand Demand for MMA’s vessels is also affected by the number of vessels available in the market and the competitive landscape. In the current market, there is an oversupply of vessels and a corresponding misalignment with demand. This has led to an increase in competition which adversely impacts vessel utilisation, rates and contract terms, thereby impacting MMA’s earnings and profitability. MMA seeks to manage this risk by having a clear strategic plan including an ongoing review of its asset mix and capability to meet market demand. To this end, MMA has disposed of a number of non-core vessels from the fleet which are commoditised in nature to focus on more technically sophisticated vessels where MMA can utilise its marine expertise to extract the most value out of both its own assets and those assets bareboat chartered from third party owners. MMA also has an active lay-up programme to minimise holding costs for vessels between contracts. These laid-up vessels are either cold or warm stacked predominantly at our land based facilities in Batam and Singapore to minimise costs. MMA’s strategic plan to manage this risk also focuses on regional strategies to position itself in the most advantageous areas to operate (both in terms of demand and clients). MMA’s strategy is to differentiate itself from its competitors through operational excellence, proactive and innovative solutions, long-term customer relationships and responsive account management - whilst remaining competitive on price. Operational risks The Company’s operations are subject to various risks inherent in servicing the offshore oil and gas industry. Our international operations broaden our risk exposure in terms of both opportunities and threats. Operational risks include (but are not limited to): Geopolitical, government and regulatory factors • Health and safety incidents; • • Loss of key customers/contracts; Failure by customers to pay for services contracted and/or performed; • Redeployment costs of assets that are unable to be used in their current geography for a period of time; • Equipment damage, technical failures or human error; • Industrial unrest; • Capsizing, sinking, grounding, collisions, fires and explosions, piracy, vessel seizures or arrests and acts of terrorism; • Environmental pollution/ contamination and other related accidents; • Regulatory and legislative non- compliance; Fraud and theft; Increases in input costs; Loss of key personnel; and • • • • Contractual assumptions of risk. Potential consequences associated with these risks include the loss of human life or serious injury, pollution, environmental damage, significant damage to or loss of assets and equipment, business disruption, client dissatisfaction, loss of contracts, damage to our reputation and legal and regulatory action, including fines. This could expose MMA to significant liabilities, a loss of utilisation, revenue and/or the incurrence of additional costs and therefore may have a materially adverse impact on the Company’s financial position and profitability. We employ a number of well executed controls to manage these risks, including, but not limited to, appropriate insurance coverage, hazard and risk management processes, quality audits, planned maintenance programmes, compliance programmes, tender and contract management processes, access to in-house and external legal expertise, industrial relations strategies, emergency preparedness and contingency plans, preferred supplier and subcontractor processes, counterparty risk assessments and a host of engineering and operational controls. Our international operations are subject to challenging geopolitical climates to varying degrees. Changes in the geopolitical climate in our market areas, such as the outbreak or resolution of war, nationalisation of a customer’s oil and gas project and changes to industry related legislation, protectionist measures and economic sanctions, may open up more advantageous areas to operate or could require us to discontinue operating in that area, leading to corresponding impacts on vessel and service utilisation. MMA may face restrictions on its ability to win work in certain countries due to changing cabotage regulations and/or may be required to form joint ventures in some countries in order to access the local offshore oil and gas markets. Joint ventures may introduce a higher level of operational, financial and counterparty risk. MMA’s strategic plan considers such risks and operationally we risk assess market areas and clients regularly to limit negative and optimise positive impacts. Industry news, experienced personnel and industry relationships are leveraged to ensure we base our decisions on up to date geopolitical and market information. Contingency plans for fast emerging geopolitical risks are used to limit business disruption. Foreign exchange The majority of MMA’s revenues are paid in either Australian or US Dollars and the Company’s operating costs are primarily denominated in a combination of Australian, Singaporean and US Dollars, providing a natural hedge for our activities. MMA also has a combination of Australian Dollar and US Dollar debt. Adverse movements in these currencies may result in a negative impact on MMA’s earnings. MMA’s treasury policy and contract management processes further mitigate this risk. The Board also considers from time to time whether to manage currency fluctuation risk through appropriate hedging. 14 Annual Report 2018 MMA Offshore Limited 15 Overview Operating & Financial Review Governance 2018 Financial Report O p e r a t i o n s Operational Highlights Overall Fleet Utilisation 56% (1H 48%; 2H 65%) Core fleet Utilisation 69% (1H 63%; 2H 74%) Rates remain at historically low levels Strong utilisation in Australia particularly in 2H 3 key projects during the year including: ConocoPhillips – support for drilling and shutdown operations (4 vessels) Technip: Greater Enfield Pipehaul Project (2 vessels) Subsea 7: Greater Western Flank Tug and Barge Project (6 vessels) Ongoing production support contracts for 6 vessels (options recently exercised for Strait and Sound) MMA Privilege continues on full time contract in Côte d’Ivoire Signed key 3 year contract for MMA Pinnacle with iTech/Subsea 7 (commencing October 18) Extended key contracts in Middle East to 30 June 19 (3 Vessels) Ongoing spot work across SEA and Middle East MMA Pinnacle and MMA Prestige impacted by Q3 seasonality Vess e ls Historical Performance 76% 140 120 100 80 60 40 35.2 20 0 85% 120.7 76% 65% 78.4 60% 58% 65% 53% 50% 48% 54.2 58.1 6.7 7.5 17.3 11.4 13.8 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18 Vessel EBITDA Overall Fleet Utilisation 100% 80% 60% 40% 20% 0% Australia/New Zealand MMA’s Australian operations performed relatively well with a number of significant contracts boosting activity in the second half. Second half utilisation for the Australian fleet was 81%, a level that we have not seen for some time. In January 2018, MMA commenced a contract with Technip for the provision of two platform supply vessels (“PSVs”), the MMA Leveque and the MMA Valour, for a pipehaul project at Woodside’s Greater Enfield project off Exmouth in Western Australia. The scope of work included the transportation of line pipe from the Exmouth Gulf to the Greater Enfield Field from the Pipe Carrier Vessel ‘Global 1201’. MMA also supplied a vessel to carry cargo from Vietnam to Dampier for the project. The project completed successfully in May 2018. In March 2018, MMA commenced a 10 month contract with ConocoPhillips for a multi-vessel marine spread to support drilling and shutdown operations at the Bayu-Undan gas field in the Timor Sea. Two PSVs, the MMA Leeuwin and MMA Responder (a PSV specifically chartered in for the project) are contracted to provide supply support services for the duration of the drilling campaign. In addition to the PSVs a number of anchor handling tug supply vessels (AHTSs) are supporting shut down, rig moves and additional supply scopes. This is an important project for MMA and will provide utilisation for these vessels through to the second half of FY2019. Fl ee t B rea kd o wn ( % o f Boo k Value) 37% 34% 29% AHT/AHTS (16) PSV (7) MPSV (5) R eg ion al Fleet Breakdo wn (Jun-18) 5 1 8 15 Australia* SEA Africa Middle East South East Asia We are seeing a reasonable amount of activity in Brunei and Malaysia and our two large AHTS vessels, the Jaya Majestic and Sea Hawk 1, were active in those markets on a number of projects during the year achieving utilisation of over 60%. The MMA Almighty, a smaller AHTS, completed its long term production support with Ophir in Thailand early in the financial year and spent most of the remainder of the year idle. The contract was retendered and awarded at less than cash breakeven rates, an indication of the competitive nature of the South East Asian market for these more commoditised vessels. Our IMR vessels, the MMA Pinnacle and Prestige, are building a solid reputation in the IMR and dive support market, completing a number of short term work scopes across all of our operating regions during the first half. The South East Asian monsoon impacted demand towards the end of the calendar year with both vessels idle from the latter half of December and through most of the third quarter. Utilisation for the first half for these two vessels was 75% dropping to 52% in the second half. The lower utilisation in the second half had a significant impact on our financial result as the holding costs on these vessels are relatively high. As mentioned previously, the MMA Pinnacle has secured a three year contract with iTech/Subsea 7, commencing in Oct 2018, which will secure a baseload of utilisation for that vessel over the contract period. During the year, MMA was also contracted by Subsea7 for the provision, management and operation of tug and barge support vessels to transport project materials and equipment for Woodside’s Greater Western Flank-2 Subsea Installation Project. The vessel spread includes a combination of owned and sub-contracted vessels including two of MMA’s 8,000bhp AHTSs, the MMA Coral and MMA Crystal, in addition to two smaller chartered in tugs and 2 chartered cargo barges. MMA managed and carried out the required mobilisation for the barges at its onshore facility in Batam, Indonesia. The project commenced in June 2018 and is expected to continue through to September 2018. In addition to the project work described above, MMA’s long term production support contracts in Australia continue to provide full utilisation for a number of our vessels. The MMA Brewster, MMA Plover, MMA Inscription, MMA Sound, MMA Strait and MMA Cove all experienced close to full utilisation during the year. There has also been a slight uptick in the amount of seismic work in the region with the MMA Searcher, which was relocated to New Zealand, completing seismic work for Shell and Schlumberger. The vessel has since returned to Australia to continue operations as a seismic support vessel. The MMA Vantage was also mobilised to support the seismic market and has been active during the year conducting a number of scopes in Australia for Polarcus and other clients. MMA currently has 15 vessels working in Australia / New Zealand. 16 Annual Report 2018 MMA Offshore Limited 17 Overview Operating & Financial Review Governance 2018 Financial Report MMA secured a numbe r o f sign ifi ca nt contracts during the year inclu ding a 3 yea r contract f or the MMA Pinnacle South East Asia (continued) Middle East Africa The remainder of the international spot fleet had low utilisation of approximately 30%, excluding vessels held for sale, reflective of the ongoing difficult market conditions. Tendering activity has increased somewhat in recent months with both volume of tenders and quality of counterparties improving. We are also starting to see the impact of long term laid up vessels on market availability, with some owners’ vessels being disqualified from tender awards due to lack of maintenance and compliance standards. We anticipate that a large proportion of long term laid up vessels will never return to the market due to the significant costs associated with bringing them back to acceptable operating standards. MMA has been diligent in maintaining its vessels throughout the downturn to ensure that they are available for work as and when required. At this stage it is difficult to say when market conditions will improve, although the region is set for a number of FIDs which should increase activity over time. MMA currently has 8 vessels working in South East Asia. The MMA Centurion and MMA Chieftain continued their long term contracts for a client in Saudi Arabia achieving full utilisation during the year. A third vessel, the MMA Concordia went back on hire on this contract during the second half following an extended period off hire due to technical difficulties. Pleasingly, these contracts have been extended for a further year and will run through to Jun-19 with a further 1 year option. The MMA Pride and MMA Cavalier are currently positioned in the Middle East and are working the spot market. These vessels are also mobilised to other regions for specific contracts, for example the Pride has recently been mobilised to Brunei for a 90 day contract. We are currently seeing strong tendering activity out of the Middle East region although competition remains intense. The Middle East requires a high level of technical and operational expertise and is well suited to MMA’s skillset. As such, MMA is focused on growing our presence in this region. The MMA Privilege, a large multipurpose maintenance vessel, is currently on a long term maintenance support contract in Côte d’Ivoire in West Africa. The vessel has been operating in Côte d’Ivoire since it was delivered from MMA’s Batam shipyard in 2016. MMA secured a further one year contract for the vessel in April 2018. MMA currently does not have any vessels operating in the West African spot market due to the current market conditions but we will transfer vessels into this market on the back of long term contracts. Whilst market activity in West Africa remains subdued, the longer term prospects for East Africa remain promising with a number of LNG projects flagged for development. In June 2017, ENI sanctioned its Coral South FLNG project in offshore Mozambique. Key EPC contracts have been awarded and the project is targeting first gas in 2022. A final investment decision is also expected on Anadarko’s Mozambique LNG Project in 2019. East Africa is an emerging region with significant gas discoveries and MMA will seek to leverage its experience in frontier LNG developments in Australia to support these projects. FY 18 U ti lisa t ion ( exc lu din g vesse ls he ld f or sa le ) AHT/AHTS PSV MPSV/IMR Overall Fleet 56% 70% 63% 76% 84% 80% 68% 71% 70% 63% 74% 69% Global Avg ~50% 1H18 2H18 FY18 FY 19 C ont ra ct ed U t ili sat ion (D a ys un d er c o nt ra c t) AHT/AHTS 11% 30% 41% PSV 58% 58% MPSV/IMR 51% 6% 57% Total Core Fleet 41% 7% 48% Already Contracted Highly Probable 18 Annual Report 2018 MMA Offshore Limited 19 Overview Operating & Financial Review Governance 2018 Financial Report H e a l t h , S a f e t y, E n v i r o n m e n t & Q u a l i t y Total Re co rdable Case Frequ ency (per mi llion hours) 3.3 IMCA Average 1.8 1.2 0.95 0.36 0.28 14 15 16 17 18 MMA TRCF MMA 3 Yr Avg In 2018 MMA ma inta ined a wo rld c las s HS EQ per f o rm ance. At MMA Offshore, the health and safety of our employees, contractors, visitors and clients is fundamental to the way we do business. Our operations are underpinned by our Target 365 Culture, our relentless commitment to the systematic management of health and safety and the environment in which we operate in. In FY2018 MMA maintained a world class HSEQ performance. MMA’s Total Recordable Case Frequency “TRCF” for the year was 0.28, per million hours worked, our best ever performance, a 70% improvement on 2017 and a 91% improvement over the past five years. This is world class health and safety performance compared to our industry peers with the IMCA average for 2017 at 1.8 per million hours worked. MMA continues to strive for ‘A Perfect Day Every Day’, that is a day free of recordable injuries or illness and material incidents; our “Target 365”. MMA tracks the number of ‘Perfect Days’ across its global operations with our target being 365 perfect days each year. In FY2018, MMA achieved a level of 93% Perfect Days across the whole organisation, an 8% improvement on the previous reporting period. MMA continues to encourage an open reporting culture and is now including measures relating to asset reliability in its Target 365 reporting. As part of our continuous improvement culture, we have implemented a number of initiatives during the year, including: • A comprehensive internal assurance programme targeted at verifying that sufficient controls are in place to prevent incidents and maintain our licence to operate; • Continued to embed and completed a comprehensive review of our Target 365 Critical Controls. We will roll out an updated set of Target 365 Critical Control’s in FY2019, which have been benchmarked against industry standards; and • Undertaking our largest ever review of our management systems. In FY2019, we will complete a significant change to our systems to ensure efficient and effective global operations. MMA continues to be active in industry HSEQ forums by openly sharing lessons learned and through active involvement in events and forums across our global operations. MMA contributed to the International Marine Contractors Association (“IMCA”) Global HSSE Committee as the representative for the Asia Pacific region and is an active member of Safer Together WA/NT in Australia. Environment MMA remains committed to achieving the highest standard of environmental performance across all of its business activities. MMA completed a programme of environmental monitoring and reporting during FY2018, in compliance with our onshore environmental licences. Quality During FY2018, MMA attained global accreditation to the revised ISO 9001:2015 Standard and maintained ISO 14001:2015 and OSHAS 18001:2007 internationally. MMA continues to improve its systems and processes to ensure that they reduce risk and are operationally efficient. In FY2019, we will complete a significant project to align management systems to new industry frameworks. CRITICAL CONTROLS LIVE A PERFECT DAY EVERY DAY DO IT THE RIGHT WAY 20 Annual Report 2018 MMA Offshore Limited 21 Overview Operating & Financial Review Governance 2018 Financial Report O u r P e o p l e MMA’s strength li es i n i ts abi li ty t o att r act and ret ain the bes t pe ople in t he bus ines s O u r C o m m u n i t y At MMA we strive to provide a diverse, high performance workplace built on trust, cooperation and mutual respect. The key to our success is our ability to attract and retain the best people in the business. This is in part due to a strong culture that unites our people across business groups, countries and vessels, as well as the professional development opportunities that come with a career at MMA. MMA’s workforce planning principles continue to be based on a dynamic model that plans for the right person, to be in the right job, with the right skills, at the right time. In 2017, we finalised new Enterprise Agreements covering our Australian marine personnel for a period of four years. The agreements have now been in operation for over a year and will continue to provide certainty to our clients and employees through to 2021. Additionally, FY2018 saw the continued refinement of MMA’s resource planning and utilisation analysis tools, which has enabled the business to optimise the scheduling of our offshore employees. 342 Australia Top Ten Employee Nationalities Training and Development MMA is committed to the development of our people through performance feedback, internal development opportunities and training programmes. MMA continues to focus on providing our people with the right skills so that they can perform their roles safely and competently. During FY2018, MMA redesigned and renewed its focus on our Performance Management framework with the aim of further embedding a high performance culture within the business. We have continued with the commitment to providing in-house training activities during the year, with several new training programmes developed to meet specific needs or risks within the business. Throughout the year, 820 employees completed 7,014 individual training programmes. Of these, 80% were developed in-house using MMA’s online learning environment and 859 were verification of competencies completed by our crew onboard a vessel. MMA also resumed its cadet training programme during the year emphasising its commitment to developing the next generation of ocean going seafarers in Australia. Four Deck and Engineering Officer Graduates commenced with MMA during the past twelve months, with each of these undertaking on-shore study at the Australian Maritime College in Launceston Tasmania. Russian F ederation Timo r Leste Myanmar Thailand Ukraine Singap ore Malays ia 5 5 13 14 25 58 81 Philipp ines 85 Ind ones ia 123 Aligned closely to their study, each Graduate is gaining valuable sea time experience on vessels from our Australian based fleet. Diversity As a business with a global focus, MMA aims to have a workforce that best represents the communities in which we do business. MMA’s employees are made up of 22 different nationalities, with 519 of our people coming from non-English speaking backgrounds. Employment opportunities for Timor Leste citizens have increased in line with the company’s increased operational presence in the region. Increasing the employment opportunities for Indigenous Australians continues to be a focus as well as providing opportunities for women in non- traditional seafaring roles. In terms of gender diversity, the percentage of women holding senior management positions within the company for FY2018 was as follows: • Board of Directors - 20% • Executive Management - 20% • Senior Management - 26.8% % Of Wome n Employed 42.8 39.4 28.2 26.8 20.0 20.0 20.0 16.7 17 18 17 18 17 18 17 18 Ind ia 156 Total Organisation Board of Directors Executive Management Senior Management MMA is committed to makin g a po s itive con tr ibutio n to the commun iti es i n whi ch we operate. To support its community engagement goals MMA is committed to: • Investing in local community projects that have a positive and sustainable benefit; • Seeking business opportunities with local suppliers and subcontractors; • Striving to be good corporate citizens, conducting business in an ethical manner; • Developing long term relationships with local indigenous communities in order to increase indigenous participation in our workforce and promote opportunities for training and development; and • Creating and maintaining cross cultural awareness throughout the business MMA strives to enhance community participation through the procurement of local goods and services as well as through the promotion of opportunities for training and development. MMA also continues its participation in locally-based industry network groups to enhance its interaction with local stakeholders. Procurement Supporting local contractors and vendors (including indigenous businesses) is a key priority for MMA. Where practical, MMA aims to procure at least 80% of its operational spend through localised supply and service agreements. We also actively look for ways to develop new capabilities in the communities in which we operate. Typically, we identify opportunities where local providers have the ability to directly service MMA’s requirements and where this is not possible, we work with counterparties to develop these offerings. In FY2018 MMA continued to engage with Aboriginal and Torres Strait Islander (“ATSI”) enterprises to support its operations offshore Australia. The range of products and services supplied by ATSI businesses includes waste management services, office supplies, personal protective equipment, lifting and rigging equipment and consumables, victualling supplies, facilities maintenance, graphic design, and payroll and recruitment services. Employment As a business with a global focus, MMA aims to have a workforce that best represents the communities in which we operate. MMA has a number of targeted employment opportunities and programmes in place including a Timor- Leste Local Content Strategy and an ATSI traineeship programme. MMA’s operations increased in the Timor Sea during FY2018, as a result of its contract to support operations at ConocoPhillips’ Bayu-Undan project. Through its activities in this region, MMA is committed to providing a marine career pathway for Timorese nationals. Two STCW-rated cadets have graduated from the Akademi Laut Malaysia Seafarer Program. An additional five Timorese cadets have been recruited and will undertake their study during 2018/19. These graduates will then have the opportunity to enter our international fleet to gain valuable sea time as well as have access to ongoing positions within the fleet. MMA’s ATSI Traineeship programme is providing marine careers to ATSI people in Northern Australia. With a growing number of vessels operating from Darwin, ATSI communities are a key stakeholder in our operations. In the last 12 months, one ATSI trainee has successfully completed a Certificate III in Maritime Operations (Integrated Rating) at South Metropolitan TAFE. This trainee has progressed to sea time in order to gain eligibility for an Integrated Rating Certificate of Proficiency. An additional ATSI trainee has commenced the on-shore study component of the traineeship. Sponsorship As part of MMA’s ongoing Target 365 rewards programme, business units contributed donations to a range of charities during FY2018 including Motor Neuron Disease Australia, The Starlight Children’s Foundation, Red Nose, The Royal Flying Doctor Service and a range of fundraisers through Everyday Hero. MMA recognises that supporting community endeavours, either in kind or monetarily, is a responsibility we have to the communities in which we operate. We look forward to continuing our corporate citizenship in FY2019. 22 Annual Report 2018 MMA Offshore Limited 23 B o a r d o f D i r e c t o r s Mr Hugh Andrew Jon (Andrew) Mr Jeffrey Andrew Weber Ms Eva Alexandra (Eve) Howell Mr Chiang Gnee Heng Mr Peter Kennan Mr Anthony (Tony) John Howarth AO Edwards Chairman – Appointed 27 October 2017 Andrew was appointed as a Director of the Company on 18 December 2009 and as Chairman of the Company on 27 October 2017. Andrew currently serves as Non- Executive Chairman of MACA Limited and a Non-Executive Director of Nido Petroleum (delisted 26 June 2017). Andrew is a former Managing Partner of PriceWaterhouseCoopers’ Perth Office (PwC), a former National Vice President of the Securities Institute of Australia (now the Financial Services Institute of Australasia) and a former President of the Western Australian division of that Institute. He is a Fellow of the Australian Institute of Company Directors, a Fellow of Chartered Accountants Australia and New Zealand and has served as a State Councillor of that organisation. Andrew graduated from the University of Western Australia with a Bachelor of Commerce degree. Andrew is a member of both the Company’s Audit and Risk Committee and the Company’s Nomination and Remuneration Committee. Managing Director – Appointed 31 December 2002 Non-Executive Director – Appointed 27 February 2012 Non-Executive Director – Appointed 5 July 2012 Non-Executive Director – Appointed 22 September 2017 Jeff began his career as a Marine Engineer with BHP Transport. He went on to complete a degree in this field in 1993 and in 1994 graduated with a Master’s in Engineering and Technology Management from the University of Queensland. During his 19 years with BHP, Jeff gained comprehensive project management experience and helped develop new business for BHP Transport in Australia and South East Asia. He also managed a major initiative with BHP’s steel division, reviewing its logistics arrangements and developing processes to improve services and reduce costs. In 1998, Jeff joined Riverside Marine in Queensland and helped expand its operations Australia wide. This included forming a joint venture company with Wijsmuller International Towage BV, RiverWijs and negotiating with Woodside Petroleum to take over that company’s harbour towage operation in Dampier, Western Australia. Jeff is also a Non- Executive Director of Maritime Super Pty Ltd, a superannuation fund dedicated to employees in the maritime industry. As Managing Director of MMA, Jeff is responsible for the financial and operational performance of all of the Company’s business lines. Eve has over 40 years of experience in the Australian and international oil and gas industry in a number of technical and managerial roles. Eve is currently a Non-Executive Director of Buru Energy Ltd. She is also a Senior Adviser to African Geopolitics, a socio-political advisory group helping enterprises work successfully in Africa. Eve was an Executive Vice President for Woodside Energy Ltd for over five years, initially as the executive in charge of the North West Shelf Project (Australia’s largest petroleum resource project). In addition to her Woodside role, she was also CEO of the North West Shelf Venture (BP, BHP, Chevron, Shell, Woodside and Mitsubishi/Mitsui) from 2006 to 2010. In her final eighteen months with Woodside, she served as the Executive Vice President for Health, Safety & Security for all Woodside’s activities worldwide. Prior to Woodside, she held the position of Managing Director at Apache Energy Ltd. Eve has previously served on a number of Boards, including Downer EDI Ltd, Tangiers Petroleum Ltd, the Fremantle Port Authority, the Australian Petroleum Production & Exploration Association and was a Board member and President of the Australian Mines and Metals Association. Eve holds a Bachelor of Science (with Honours in Geology and Mathematics) from the University of London and an MBA from Edinburgh Business School and is a graduate of the Australian Institute of Company Directors. Eve is Chair of the Company’s Audit and Risk Committee and a member of the Company’s Nomination and Remuneration Committee. Peter is currently Managing Partner and CIO of Black Crane Capital. He has 23 years of corporate finance experience across a diverse range of sectors and transactions with Black Crane and previously with UBS Asia and Australia. The Black Crane Asia Opportunities Fund, managed by Black Crane Capital, is a major shareholder of MMA. Peter established Black Crane in 2009. Prior to that, he was the Head of Asian Industrials Group for UBS Asia, a corporate finance sector team covering energy, infrastructure, resources, consumer/retail and general industrial companies. Peter was also the Head of Telecoms and Media sector team for UBS Australia specialising in M&A, advising on many large, complex transactions. Prior to UBS, Peter spent seven years with BP in a variety of engineering and commercial roles. Peter graduated from Monash University with a Bachelor of Engineering (Honours). He also has completed a Graduate Diploma in Applied Corporate Finance with the Securities Institute of Australia. Peter is a member of both the Company’s Audit and Risk Committee and the Company’s Nomination and Remuneration Committee. Chiang Gnee graduated as a Marine Engineer in July 1977 from the University of Newcastle Upon Tyne (UK) and spent almost 30 years working in Singapore government linked companies and in various industries including shipyards, ordnance equipment manufacturing, aircraft engine component manufacturing, amusement and lifestyle businesses and environment management. In June 1989, Chiang Gnee attended the Sloan School of Management at MIT (USA) and graduated with a Masters in Management in July 1990. He was formerly the CEO of Sembawang Shipyard for 10 years and CEO of Sembcorp Environment Management Pte Ltd for two years until August 2007. Chiang Gnee was also formerly the Executive Director of the Singapore Maritime Institute (SMI) which focuses on the development of the Singapore maritime industry through research. Chiang Gnee was engaged in workplace health and safety management until 31 March 2018 and in vocational technical education in Singapore. He was Chairman of the Singapore Workplace Safety and Health Council and Deputy Chairman of the Institute of Technical Education (ITE) Board of Governors until 30 June 2018. Chiang Gnee is also a Director of MMA Offshore Asia Pte Ltd (Singapore) and all of its subsidiaries/related companies in Singapore, Malaysia and Indonesia. In addition, Chiang Gnee is Chair of the Company’s Nomination and Remuneration Committee. Former Chairman / Non-Executive Director – Appointed 5 July 2001 – Retired 30 November 2017 Tony was appointed as a Director of the Company on 5 July 2001 and as Chairman of the Company on 1 August 2006. Tony stood down as Chairman of the Company on 27 October 2017 and retired as a Director of the Company on 30 November 2017. Tony is a Life Fellow of the Financial Services Institute of Australasia, a Fellow of the AICD and has more than 30 years’ experience in the banking and finance industry. He has held several senior management positions during his career, including Managing Director of Challenge Bank Limited and Chief Executive Officer of Hartley’s Limited. Tony is currently a Non-Executive Director of Wesfarmers Limited, Alinta Energy Pty Limited and BWP Management Limited (the responsible entity for the BWP Trust). Tony was previously Chairman of Home Building Society Limited, Deputy Chairman of Bank of Queensland Limited and a director of AWB Limited. He is also the former Chairman of St John of God Health Care Inc. and the former Chairman of the West Australian Rugby Union Inc. He is an Adjunct Professor (Financial Management) at The University of Western Australia Business School and a former member of The University of Western Australia Business School Advisory Board. 24 Annual Report 2018 MMA Offshore Limited 25 2018 Financial ReportOverviewOperating & Financial ReviewGovernance ASX Listing Rule 4.10.3 requires companies to disclose the extent to which they have complied with the 3rd Edition ASX Principles and the reason for any departure from the 3rd Edition ASX Principles. 1.7 A listed entity should: C o r p o r a t e G o v e r n a n c e Corporate Governance The Board of Directors (“Board”) of MMA Offshore Limited (“Company” or “MMA”) is responsible for the corporate governance of the consolidated entity. The Board is a strong advocate of good corporate governance. Compliance with Australian Corporate Governance Standards The Board believes that the Company follows the 3rd edition of the Corporate Governance Principles and Recommendations (“3rd Edition ASX Principles”) set by the ASX Corporate Governance Council, or where it does not, has sound reasons for not doing so as explained in the Company’s Corporate Governance Statement. Access to Corporate Governance Statement The Company’s Corporate Governance Statement which outlines the Company’s corporate governance policies and practices for the year ended 30 June 2018, can be found on the Company’s website at www.mmaoffshore.com/investor-centre/corporate- governance. The Company’s Corporate Governance Statement is current as at 20 September 2018 and has been approved by the Board. ASX Corporate Governance Council Recommendations Checklist The table below lists each of the 3rd Edition ASX Principles and the Company’s assessment of its compliance with these for the year ended 30 June 2018. The Company’s Corporate Governance Statement sets out in greater detail the Company’s assessment of its compliance with the 3rd Edition ASX Principles. 3rd Edition ASX Corporate Governance Principles and Recommendations Comply Principle 1: Lay solid foundations for management and oversight 1.1 A listed entity should disclose: (a) the respective roles and responsibilities of its board and management; and (b) those matters expressly reserved to the board and those delegated to management. 1.2 A listed entity should: (a) undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election as a director; and (b) provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director. 1.3 A listed entity should have a written agreement with each director and senior executive setting out the terms of their appointment. Yes Yes Yes Yes Yes 1.4 The company secretary of a listed entity should be accountable directly to the board, through the Yes chair, on all matters to do with the proper functioning of the board. 3rd Edition ASX Corporate Governance Principles and Recommendations Comply 1.5 A listed entity should: (a) have a diversity policy which includes requirements for the board or a relevant committee of Yes the board to set measurable objectives for achieving gender diversity and to assess annually both the objectives and the entity’s progress in achieving them; (b) disclose that policy or a summary of it; and (c) disclose as at the end of each reporting period the measurable objectives for achieving gender diversity set by the board or a relevant committee of the board in accordance with the entity’s diversity policy and its progress towards achieving them, and either: Yes Yes (1) the respective proportions of men and women on the board, in senior executive positions Yes and across the whole organisation (including how the entity has defined “senior executive” for these purposes); or (2) if the entity is a “relevant employer” under the Workplace Gender Equality Act, the entity’s Yes most recent “Gender Equality Indicators”, as defined in and published under that Act. 1.6 A listed entity should: (a) have and disclose a process for periodically evaluating the performance of the board, its committees and individual directors; and (b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. (a) have and disclose a process for periodically evaluating the performance of its senior executives; and (b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. Principle 2: Structure the Board to add value 2.1 The board of a listed entity should: (a) have a nomination committee which: (1) has at least three members, a majority of whom are independent directors; and (2) is chaired by an independent director, and disclose: (3) the charter of the committee; (4) the members of the committee; and. (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a nomination committee, disclose that fact and the processes it employs N/A to address board succession issues and to ensure that the board has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively. Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 26 Annual Report 2018 MMA Offshore Limited 27 2018 Financial ReportOverviewOperating & Financial ReviewGovernance 3rd Edition ASX Corporate Governance Principles and Recommendations 2.2 A listed entity should have and disclose a board skills matrix setting out the mix of skills and diversity that the board currently has or is looking to achieve in its membership. Comply Yes 2.3 A listed entity should disclose: (a) the names of the directors considered by the board to be independent directors; (b) if a director has an interest, position, association or relationship of the type described in Box 2.3 (Factors relevant to assessing the independence of a director) but the board is of the opinion that it does not compromise the independence of the director, the nature of the interest, position, association or relationship in question and an explanation of why the board is of that opinion; and. (c) the length of service of each director. 2.4 2.5 A majority of the board of a listed entity should be independent directors. The chair of the board of a listed entity should be an independent director and, in particular, should not be the same person as the CEO of the entity. 2.6 A listed entity should have a programme for inducting new directors and provide appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their role as directors effectively. Principle 3: Act Ethically and Responsibly 3.1 A listed entity should: (a) have a code of conduct for its directors, senior executives and employees; and (b) disclose that code or a summary of it. Principle 4: Safeguard Integrity in Corporate Reporting 4.1 The board of a listed entity should: (a) have an audit committee which: (1) has a least three members, all of whom are non-executive directors and a majority of whom are independent directors; and (2) is chaired by an independent director who is not the chair of the board, and disclose: (3) the charter of the committee; (4) the relevant qualifications and experience of the members of committee; and (5) in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes, but a brief period of non- compliance during the reporting period Yes, but a brief period of non- compliance during the reporting period Yes Yes Yes (b) if it does not have an audit committee, disclose that fact and the processes it employs that N/A independently verify and safeguard the integrity of its corporate reporting, including the processes for the appointment and removal of the external auditor and the rotation of the audit engagement partner. 3rd Edition ASX Corporate Governance Principles and Recommendations 4.2 The board of a listed entity should, before it approves the entity’s financial statements for a financial period, receive from its CEO and CFO a declaration that, in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. Comply Yes 4.3 A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available to answer questions from security holders relevant to the audit. Principle 5: Make timely and balanced disclosure 5.1 A listed entity should: (a) have a written policy for complying with its continuous disclosure obligations under the Listing Rules; and (b) disclose that policy or a summary of it. Principle 6: Respect the rights of shareholders 6.1 6.2 6.3 6.4 A listed entity should provide information about itself and its governance to investors via its website. A listed entity should design and implement an investor relations programme to facilitate effective two-way communications with investors. A listed entity should disclose the policies and procedures it has in place to facilitate and encourage participation at meetings of security holders. A listed entity should give security holders the option to receive communication from and send communications to, the entity and its security registry electronically. Principle 7: Recognise and manage risk 7.1 The board of a listed entity should: (a) have a committee or committees to oversee risk, each of which: (1) has at least three members, a majority of whom are independent directors; and; (2) is chaired by an independent director, and disclose: (3) the charter of the committee; (4) the members of the committee; and; (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or Yes Yes Yes Yes Yes Yes Yes Yes Yes, but a brief period of non- compliance during the reporting period Yes, but a brief period of non- compliance during the reporting period Yes Yes Yes (b) if it does not have a risk committee or committees that satisfy (a) above, disclose that fact N/A and the processes it employs for overseeing the entity’s risk management framework. 28 Annual Report 2018 MMA Offshore Limited 29 2018 Financial ReportOverviewOperating & Financial ReviewGovernance 3rd Edition ASX Corporate Governance Principles and Recommendations Comply 7.2 The board or a committee of the board should: D i r e c t o r s ’ R e p o r t (a) review the entity’s risk management framework at least annually to satisfy itself that it continues to be sound; and (b) disclose, in relation to each reporting period, whether such a review has taken place. 7.3 A listed entity should disclose: (a) if it has an internal audit function, how the function is structured and what role it performs; or (b) if it does not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes. 7.4 A listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks, and if it does, how it manages or intends to manage those risks. Principle 8: Remunerate fairly and responsibly 8.1 The board of a listed entity should: (a) have a remuneration committee which: (1) has at least three members, a majority of whom are independent directors; and (2) is chaired by an independent director, and disclose: (3) the charter of the committee; (4) the members of the committee; and; (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or Yes Yes Yes N/A Yes Yes Yes Yes Yes Yes Yes (b) if it does not have a remuneration committee, disclose that fact and the processes it employs N/A for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate and not excessive. 8.2 A listed entity should separately disclose its policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and other senior executives. Yes The Directors of MMA Offshore Limited (“Company” or “MMA”) present their Directors’ Report (including the Remuneration Report) together with the Financial Statements of the consolidated entity, being the Company and its controlled entities, for the financial year ended 30 June 2018. Directors During the financial year, as part of the Board renewal program: • Mr Peter Kennan was appointed as a Non-Executive Director of the Company on 22 September 2017; • Mr Andrew Edwards assumed the role of Chairman from Mr Tony Howarth on 27 October 2017; and • Mr Tony Howarth retired as a Non-Executive Director of the Company on 30 November 2017. The names and particulars of the Company’s Directors in office during or since the end of the financial year are set out on pages 24 to 25 (including their qualifications, experience and special responsibilities). With the exception of Mr Tony Howarth (who retired as a director on 30 November 2017) and Mr Peter Kennan (who was appointed as a director on 22 September 2017), the Directors of the Company held office during the whole of the financial year and since the end of the financial year. Directorships of Other Listed Companies Directorships of other listed companies held by the Directors in the three years immediately before and since the end of the financial year are as follows: Name Company Period of Directorship Mr A Edwards Nido Petroleum Limited (delisted 26 June 2017) Since December 2009 Mr A Howarth(1) Wesfarmers Limited MACA Limited BWP Management Limited Since October 2010 Since July 2007 Since October 2012 8.3 A listed entity which has an equity-based remuneration scheme should: Ms E Howell Downer EDI Limited January 2012 – November 2017 (a) have a policy on whether participants are permitted to enter into transactions (whether Yes through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and (1) Mr A Howarth retired as a Director on 30 November 2017 Buru Energy Limited Since July 2014 (b) disclose that policy or a summary of it. Yes Directors’ Shareholdings The following table sets out each current Director’s relevant interest in the securities of the Company as at the date of this report: Name Mr A Edwards Mr J Weber Ms E Howell Mr C G Heng Mr P Kennan(1) Fully paid ordinary shares direct Fully paid ordinary shares indirect Performance rights direct - - - 200,000 - 231,360 3,815,916 247,058 - 77,419,000 - - - - - (1) Mr P Kennan was appointed as a Director on 22 September 2017 The Directors do not have any interests in shares, options or rights of any related body corporate of the Company as at the date of this report. 30 Annual Report 2018 MMA Offshore Limited 31 2018 Financial ReportOverviewOperating & Financial ReviewGovernance Remuneration of Key Management Personnel Dividends Information about the remuneration of key management personnel is set out in the Remuneration Report section of this Directors’ Report on pages 35 to 44. Rights Granted to Directors and Senior Management During the financial year, no performance rights were granted to either the Managing Director or any key management personnel as part of their remuneration. Company Secretary Dylan Darbyshire-Roberts, solicitor, held the position of Company Secretary of the Company at the end of the financial year. Dylan joined the Company in May 2007 in the role of Commercial Manager and was appointed as Company Secretary of MMA Offshore Limited on 19 August 2008. Previously, he was a Senior Associate with the law firm DLA Piper where he practised in the areas of insurance, corporate and marine law. After obtaining a Bachelor of Commerce degree (1995) and a LLB degree (1997) at the University of Natal (PMB), Dylan qualified as a Solicitor in South Africa, New South Wales and Western Australia. Dylan has worked in a legal capacity in all of these jurisdictions as well as the UK over the past 20 years. He holds a Graduate Diploma of Applied Corporate Governance and is a Fellow of the Institute of Chartered Secretaries and Administrators and the Governance Institute of Australia. Principal Activities The principal activities and operations of the consolidated entity during the financial year were the provision of marine logistics and marine services to the offshore oil and gas industry. During the financial year, the Company completed an equity raise and amendments to its debt facilities. Details of these are contained in notes 3.8 and 4.1 to the financial statements. Other than as previously referred to in the annual report, there were no other significant changes in the nature of the activities of the consolidated entity during the financial year. Review of Operations A review of the operations of the consolidated entity during the financial year and the results of those operations are set out in the Chairman’s Address and the Managing Director’s Report on pages 4 - 9. Changes in State of Affairs The Chairman’s Address and the Managing Director’s Report (on pages 4 - 9) sets out a number of matters which have had a significant effect on the state of affairs of the consolidated entity. Other than those matters, there was no significant change in the state of affairs of the consolidated entity. Subsequent Events There has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. Future Developments In general terms, the Chairman’s Address and the Managing Director’s Report (on pages 4 - 9) gives an indication of likely developments and the expected results of those operations. Environmental Regulations The Company continues to conduct its operations within the parameters of the Department of Environmental and Conservation Licence and Ministerial requirements. There were no known breaches of licence conditions for the year ended 30 June 2018. In respect of the financial year ended 30 June 2017, as detailed in the Directors’ Report for that financial year, the Directors suspended the payment of dividends (both interim and final) in order to retain cash to support business operations until market conditions improve. This position remains the same in respect of the financial year ended 30 June 2018. Accordingly, no interim or final dividend has been recommended, declared or paid for the 2018 financial year. Unissued Shares under Rights As at the date of this report, there are no unissued shares under rights. Shares Issued on Vesting of Rights No shares were issued during or since the end of the financial year as a result of the vesting of rights. Insurance and Indemnification of Directors and Officers During the financial year, the Company paid a premium in respect of a contract insuring the Directors of the Company, the Company Secretary and all Executive Officers of the Company and of any related body corporate against a liability incurred in acting in their capacity as a Director, Company Secretary or Executive Officer of the Company to the extent permitted by the Corporations Act 2001 (Cth). The relevant contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company’s Constitution requires the Company, so far as permitted under applicable law and to the extent the person is not otherwise indemnified, to indemnify each officer of the Company and its wholly owned subsidiaries, and may indemnify its auditors, against a liability incurred as such by an officer or auditor to any person (other than the Company or a related body corporate) including a liability incurred as a result of appointment or nomination by the Company or subsidiary as trustee or as an officer of another corporation, unless the liability arises out of conduct involving a lack of good faith. The Company has entered into Deeds of Indemnity, Insurance and Access with each of the Directors of the Company and its wholly owned subsidiaries in terms of the indemnity provided under the Company’s Constitution. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against any liability incurred in acting in their capacity as such an officer of the Company. No indemnity payment has been made under any of the documents referred to above during or since the end of the financial year. Indemnification of Auditors The Company’s auditor is Deloitte. The Company has agreed with Deloitte, as part of its terms of engagement, to indemnify Deloitte against certain liabilities to third parties arising from the audit engagement. The indemnity does not extend to any liability resulting from the wilful misconduct or fraudulent act or omission by Deloitte. During the financial year: • The Company has not paid, or agreed to pay, any premium in relation to any insurance for Deloitte or a body corporate related to Deloitte. • No indemnity payment has been made under any of the documents referred to above during or since the end of the financial year. • There were no officers of the Company who were former partners or directors of Deloitte, whilst Deloitte conducted audits of the Company. 32 Annual Report 2018 MMA Offshore Limited 33 2018 Financial ReportOverviewOperating & Financial ReviewGovernance Directors’ Meetings Remuneration Report The following table sets out the number of Directors’ meetings (including meetings of Committees of Directors) held during the financial year and the number of meetings attended by each Director (while they were a Director or Committee member). During the financial year, 9 Board meetings, 4 Audit and Risk Committee meetings and 3 Nomination and Remuneration Committee meetings were held. Name Mr A Edwards Mr A Howarth(1) Mr J Weber Ms E Howell Mr CG Heng Mr P Kennan(2) Board of Directors Audit and Risk Committee Nomination and Remuneration Committee Held Attended Held Attended Held Attended 9 6 9 9 9 6 9 6 9 9 9 6 4 2 4 4 4 2 4 2 4 4 4 2 3 1 3 3 3 2 3 1 3 3 3 2 (1) Mr A Howarth retired as a Director on 30 November 2017. (2) Mr P Kennan was appointed as a Director on 22 September 2017 Proceedings on Behalf of the Company This Remuneration Report, which forms part of the Directors’ Report, outlines the remuneration of the Company’s key management personnel for the financial year ended 30 June 2018. The Company’s ‘key management personnel’ are those persons who have authority and responsibility for planning, directing and controlling the activities of the consolidated entity, either directly or indirectly, including any Director (whether executive or otherwise) of the consolidated entity. The prescribed details for each person covered by this Remuneration Report are detailed below under the following headings: • Key Management Personnel; • Remuneration Policy; • Relationship between the Remuneration Policy and Company Performance; • Remuneration of Key Management Personnel; and • Key Terms of Employment Contracts. Key Management Personnel The Directors and other key management personnel of the consolidated entity during and since the end of the financial year were: No proceedings have been brought on behalf of the Company, nor has any application been made in respect of the Company, under section 237 of the Corporations Act 2001 (Cth). Executive Director Mr J Weber (Managing Director) Non-Audit Services Details of the amounts paid or payable to the external auditor for non-audit services provided during the year are outlined in note 5.5 to the Financial Statements. During the year, the Company paid Deloitte the sum of $300,497 for the provision of non-audit services (being extensive debt restructuring advice) and the sum of $600,258 for the provision of audit services. The Directors are satisfied that the provision of non-audit services during the year by the external auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 (Cth). The Directors are of the opinion that the services as disclosed in note 5.5 to the Financial Statements do not compromise the external auditor’s independence, based on advice received from the Audit and Risk Committee, for the following reasons: • All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • None of the services undermine the general principles relating to auditor independence as set out in APES 110 ‘Code of Ethics for Professional Accountants’ issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing economic risks and rewards. Auditor’s Independence Declaration The Auditor’s Independence Declaration is included on page 45 of this Annual Report. Rounding Off of Amounts The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument, amounts in the Directors’ Report and the Financial Statements are rounded off to the nearest thousand dollars, unless otherwise indicated. Non-Executive Directors Mr A Edwards (Chairman)(1) Mr A Howarth (former Chairman) – retired(2) Ms E Howell Mr CG Heng Mr P Kennan(3) Other Key Management Personnel Current KMP Mr D Ross (Chief Operating Officer) Mr D Cavanagh (Chief Financial Officer)(4) Mr D Roberts (General Manager Legal/Company Secretary) Ms L Buckey (General Manager Corporate Development) Mr D Thomas (General Manager People and Safety)(5) Former KMP Mr P Raynor (former Chief Financial Officer)(6) Mr M Gillett (former General Manager Human Resources)(7) (1) Appointed as Chairman on 27 October 2017 (2) Retired on 30 November 2017 (3) Appointed on 22 September 2017 (4) Appointed on 4 December 2017 (5) Appointed to the position of General Manager People and Safety on 22 March 2018 (6) Ceased employment on 21 December 2017 (7) Ceased employment on 22 March 2018 Apart from Mr A Edwards, Mr A Howarth, Mr P Kennan, Mr D Cavanagh, Mr D Thomas, Mr P Raynor and Mr M Gillett (who only held their respective positions for part of the financial year), the above named persons held their current position for the whole of the financial year and since the end of the financial year. 34 Annual Report 2018 MMA Offshore Limited 35 2018 Financial ReportOverviewOperating & Financial ReviewGovernance Remuneration Policy The Nomination and Remuneration Committee is delegated responsibility by the Board for reviewing the remuneration packages of all Directors and key management personnel on an annual basis and making recommendations to the Board in this regard. The specific responsibilities of the Nomination and Remuneration Committee are set out in the Committee’s Charter, which can be found on the Corporate Governance page of our website at www.mmaoffshore.com/investor-centre/corporate-governance. Remuneration packages are typically reviewed and determined with due regard to current market rates and are benchmarked against comparable industry salaries and are adjusted to reflect changes in the performance of the Company. Given current financial constraints, the Nomination and Remuneration Committee carried out an internal review of the remuneration packages of the Managing Director and non-director key management personnel for the 2018 financial year, without engaging the services of an independent remuneration consultant. The Board is satisfied that the remuneration recommendations made by the Nomination and Remuneration Committee were free from undue influence by any member of the key management personnel to whom the recommendations relate. Key Remuneration Outcomes Having regard to the overall performance of the Company during the 2018 financial year and current market conditions, the key remuneration outcomes for the Company’s key management personnel in 2018 were as follows: Fixed Annual Remuneration (FAR) • The Managing Director, Chief Financial Officer (former) and Chief Operating Officer accepted a 10% decrease in FAR for the 2018 financial year. • The other Senior Management of the Company did not receive any increase in FAR for the 2018 financial year. Short-term Incentive (STI) • The Board exercised its discretion to suspend the STI component in relation to the Managing Director and other key management personnel for the 2018 financial year. Long-term Incentive (LTI) • The Board exercised its discretion to suspend the LTI component in relation to the Managing Director and other key management personnel for the 2018 financial year. Remuneration Report 2017 MMA Offshore Limited’s Remuneration Report for the 2017 financial year was adopted at the Annual General Meeting on 19 December 2017 with a clear majority of 396,521,717 votes in favour of the motion (representing 77% of the votes received). Non-Executive Directors’ Remuneration Non-Executive Directors’ fees are determined within an aggregate Directors’ fee pool which is periodically recommended for approval by shareholders. The maximum fees payable to Non-Executive Directors are currently $950,000 per annum in aggregate (as approved by shareholders at the Company’s AGM on 22 November 2012). Non-Executive Directors are paid fixed fees for their services in accordance with the Company’s Constitution. Fees paid to Non- Executive Directors are set at levels which reflect both the responsibilities of, and time commitments required from each Non- Executive Director to discharge their duties. Non-Executive Directors’ fees are reviewed annually by the Board to ensure they are appropriate for the duties performed, including Board committee duties, and are in line with the market. Non-Executive Directors do not receive performance-based remuneration. Other than statutory superannuation, Directors are not entitled to retirement allowances. For the 2018 financial year, there was a general 10% decrease in Non-Executive Directors’ fees, with the Chairman agreeing to a 27% decrease in fees for the 2018 financial year. In addition, following a review by the Nomination and Remuneration Committee, there has been no increase in Non-Executive Directors’ fees for the 2019 financial year. Other Key Management Personnel Remuneration of the Managing Director and other executive key management personnel generally comprises both a fixed component and an incentive or “at-risk” component, which is designed to remunerate key management personnel for increasing shareholder value and for achieving financial targets and business strategies set by the Board. The remuneration of the Managing Director and other key management personnel has the following three components: No. 1 Remuneration Component Details Fixed Annual Remuneration (FAR) • Comprising base salary and superannuation. • In setting FAR, consideration is given to current market rates and industry benchmarking against appropriate comparator groups (including the median market rates within the sector and industry peers), Company performance and individual performance. • As previously reported, the Managing Director, Chief Financial Officer (former) and Chief Operating Officer accepted a 10% decrease in FAR for the 2018 financial year. The other Senior Management of the Company did not receive any increase in FAR for the 2018 financial year. • Given the performance of the Company and current market conditions, the Board has determined that for the 2019 financial year: (a) The Managing Director, Chief Financial Officer (current) and Chief Operating Officer will not receive any increase in FAR; and (b) The other key management personnel will receive a general increase in FAR of 2.9% - with some additional realignment for those key management personnel whose roles changed. 2 Short-term Incentive (STI) • An annual “at-risk” cash component designed to reward performance against the achievement of key performance indicators (KPIs) set by the Board. • The invitation to participate in the STI is at the absolute discretion of the Board and is subject to such conditions which the Board may prescribe from time to time. • As previously reported, given the performance of the Company and current market conditions, the Board exercised its discretion to suspend the STI component for the 2018 financial year. • Once again, the Board has exercised its discretion to suspend the STI component for the 2019 financial year (subject always to the Board’s discretion to reinstate the STI component if the Company’s performance or market conditions change). 3 Long-term Incentive (LTI) • The Company grants rights over its ordinary shares under the LTI. • The vesting of these rights is based on the achievement of stipulated performance criteria targets over a 3 year period. • The LTI also aims to align executives’ long-term interests with those of shareholders and to retain executives. • Given the performance of the Company and current market conditions, the Board exercised its discretion to suspend the LTI component for the 2018 financial year. • The Board has exercised its discretion to reinstate the LTI component for the 2019 financial year. The Board is currently developing a new LTI plan. It is anticipated that the new LTI Plan – which will have a 3 year performance period (expiring 1 July 2021) – will include performance hurdles relating to Relative TSR (50% weighting), Net Debt to EBITDA ratio (25% weighting) and Debt Refinancing (25% weighting) targets. The new LTI Plan for the Managing Director will be presented for shareholder approval at the Company’s 2018 AGM. The Board considers that the reinstatement of the LTI Plan and the selection of these performance hurdles is appropriate in the current circumstances to achieve its business turnaround strategy, to retain key management personnel within the Company and to achieve the strategic objectives of the Company. 36 Annual Report 2018 MMA Offshore Limited 37 2018 Financial ReportOverviewOperating & Financial ReviewGovernance Allocation of Executive Remuneration between Fixed and Variable Remuneration Remuneration of Key Management Personnel The allocation of total executive remuneration between fixed and variable remuneration for the 2018 financial year is as follows: Managing Director Other Executives (Maximum) 2% 2% 98% 98% In this Annual Report, remuneration outcomes are presented based on the requirements of accounting standards (which has the benefit of being readily comparable with other companies) rather than the actual “take-home” pay received by executive key management personnel (being cash, other benefits and the value of equity vesting during the relevant financial year). An example of this includes LTI awards which are recognised and accounted for over the performance period (3 years) based on their assessed value when originally granted to the executive. This may be significantly different to their value, if and when the incentive vests to that executive. The following tables disclose: (A) The actual remuneration of the Directors and other key management personnel of the Company for the 2018 financial year (i.e. the actual “take-home” pay received by key management personnel for the 2018 financial year); and (B) The statutory presentation of the remuneration of the Directors and other key management personnel of the Company for the 2018 financial year and for the previous financial year based on the requirements of accounting standards. FAR LTI FAR LTI (A) Key Management Personnel Remuneration (Actual) Relationship between the Remuneration Policy and Company Performance 2018 Short-term employee benefits Post-employment benefits The table below summarises information about the Company’s earnings for the 2018 financial year and the Company’s earnings and movements in shareholder wealth for the five years to 30 June 2018, which is a key factor in the Board’s decision to suspend both the STI and LTI remuneration components for the 2018 financial year. Revenue Net profit/(loss) before tax Net profit/(loss) after tax Share price at start of the year Share price at end of the year Interim dividend(1) Final dividend(1) Basic earnings per share Diluted earnings per share 30 June 2018 $’000 30 June 2017 $’000 30 June 2016 $’000 30 June 2015 $’000 30 June 2014 $’000 200,444 256,396 481,123 (27,376)(3) (379,791)(3) (155,262)(3) (27,909) (378,032) (143,962) $0.15 $0.25 0cps 0cps $0.31 $0.15 0cps 0cps $0.54 $0.31 0cps 0cps 796,666 (48,219) (51,291) $2.06 $0.54 4.0cps 1.5cps 594,597 77,112 53,884 $3.52 $2.06 5.5cps 7.0cps (4.11cps) (93.86cps)(4) (38.64 cps) (13.91 cps) 18.78cps (4.11cps) (93.86cps)(4) (38.64 cps) (13.91 cps) 18.76cps 3 year compound annual TSR(2) (21%) (49%) (46%) (32%) (9%) (1 ) Franked to 100% at 30% corporate income tax rate. (2) TSR comprises share price growth and dividends. (3) This includes a non-cash impairment reversal of $8.4 million against the carrying value of the Company’s assets as at 30 June 2018 [2017: $312 million impairment charge and 2016: $139 million impairment charge]. Salary & fees $ Cash bonus $ Non- monetary(2) Superannuation Termination $ $ $ Annual/Long Service Leave Payout $ Rights(3) $ Directors Mr A Howarth(1) Mr A Edwards Mr J Weber Mr P Kennan(1) Ms E Howell Mr CG Heng Senior Management Mr D Ross Mr P Raynor(1) Mr D Cavanagh(1) Mr D Roberts Mr M Gillett(1) Ms L Buckey(4) Mr D Thomas Total 70,271 143,116 847,747 71,399 100,569 99,457 504,999 238,828 192,083 310,633 247,359 201,379 296,892 3,324,732 - - - - - - - - - - - - - - 19 - 1,237 - - - 48,925 2,608 - 3,929 120 - - 56,838 6,676 13,596 25,000 - 9,554 5,648 17,308 12,212 12,067 20,049 14,651 19,131 20,049 175,941 - - - - - - - - - - 216,011 - - 216,011 - - - 247,421 - - 67,321 - - 314,742 (B) Key Management Personnel Remuneration (Statutory Presentation) Short-term employee benefits Post-employment benefits (4) The calculations of the 30 June 2017 basic and diluted earnings per share have been retrospectively adjusted to reflect the impact of the capital 2018 raising during this reporting period. Salary & fees $ Cash bonus $ Non- monetary(2) Superannuation Termination $ $ $ Directors Mr A Howarth(1) Mr A Edwards Mr J Weber Mr P Kennan(1) Ms E Howell Mr CG Heng Senior Management Mr D Ross Mr P Raynor(1) Mr D Cavanagh(1) Mr D Roberts Mr M Gillett(1) Ms L Buckey(4) Mr D Thomas Total 70,271 143,116 847,747 71,399 100,569 99,457 504,999 238,828 192,083 310,633 247,359 201,379 296,892 3,324,732 - - - - - - - - - - - - - - 19 - 1,237 - - - 48,925 2,608 - 3,929 120 - - 56,838 6,676 13,596 25,000 - 9,554 5,648 17,308 12,212 12,067 20,049 14,651 19,131 20,049 175,941 - - - - - - - - - - 216,011 - - 216,011 38 Annual Report 2018 Long Service Leave $ - - 14,546 - - - 8,705 4,137 - 5,512 3,972 11,867 15,848 64,587 Share based payments Total $ 76,966 156,712 873,984 71,399 110,123 105,105 571,232 501,069 204,150 334,611 545,462 220,510 316,941 4,088,264 Total $ 76,966 156,712 907,177 71,399 110,123 105,105 - - - - - - - - - - - - - - Share based payments Rights(3) $ - - 18,647 - - - 8,775 4,183 - 1,477 1,073 1,274 1,423 588,712 261,968 204,150 341,600 483,186 233,651 334,212 36,852 3,874,961 MMA Offshore Limited 39 2018 Financial ReportOverviewOperating & Financial ReviewGovernance Total 3,873,057 11,300 231,100 302,342 55,220 394,657 4,867,676 Series Number issued Grant date Expiry date (1) These salaries & fees are only for part of the financial year as Mr A Howarth retired from the Company on 30 November 2017, Mr P Kennan was (1) 22 Oct 2014 (a) 1,052,625 22 Oct 2014 1 Jul 2017 Short-term employee benefits Post-employment benefits Salary & fees $ Cash bonus $ Non- monetary(2) Superannuation $ $ Termination $ Long Service Leave $ 2017 Directors Mr A Howarth Mr A Edwards Mr J Weber Mr M Bradley(1) Ms E Howell Mr CG Heng Senior Management Mr D Ross Mr P Raynor Mr D Lofthouse(1) Mr D Roberts Mr M Gillett Ms L Buckey(4) Mr D Thomas 227,164 111,600 926,456 45,928 107,485 104,987 535,495 540,110 144,920 308,980 308,980 214,061 296,892 1,628 - 2,158 - - - 2,198 2,002 816 2,497 - - - 19,616 10,602 34,231 4,363 10,211 6,174 29,615 25,000 12,826 19,616 19,616 19,616 19,616 - - - - - - - - 302,342 - - - - - - - - - - - - - - - - - - Share based payments Total Rights(3) $ $ - - 248,407 122,202 16,012 120,440 1,099,297 - - - 88,480 88,480 23,326 19,327 19,327 16,662 18,615 50,291 117,696 111,161 665,207 665,011 485,224 355,897 355,559 256,601 335,123 9,419 9,419 994 5,477 7,636 6,263 - appointed as a director on 22 September 2017, Mr D Cavanagh commenced employment with the Company on 4 December 2017, Mr P Raynor ceased employment with the Company on 21 December 2017, Mr M Gillett ceased employment with the Company on 22 March 2018 and Mr D Lofthouse ceased employment with the Company on 15 November 2016. (2) These non-monetary benefits comprise the provision of housing, relocation costs, fuel, travel and other benefits, as applicable. (3) The value of the rights granted to key management personnel as part of their remuneration is calculated as at the grant date using the binomial pricing model. The amounts disclosed as part of remuneration for the financial year have been determined by allocating the grant date value on a straight-line basis over the period from the grant date to the vesting date (i.e. 3 years). (4) Ms Buckey is employed on a part-time basis. The table below sets out the relative proportions of the elements of statutory remuneration of key management personnel that are linked to performance: Fixed Remuneration Remuneration linked to Performance 2017 100% 100% 100% 100% 100% 89% 87% - 87% 95% 95% 94% 94% 2018 2017 0% 0% 0% 0% 0% 2% 2% 0% 2% 1% 0% 0% 0% 0% 0% 0% 0% 0% 11% 13% - 13% 5% 5% 6% 6% Non-Executive Directors Mr A Edwards Mr A Howarth(1) Ms E Howell Mr CG Heng Mr P Kennan(2) Executive Directors Mr J Weber Senior Management Mr D Ross Mr D Cavanagh(3) Mr P Raynor(4) Mr D Roberts Mr M Gillett(5) Ms L Buckey Mr D Thomas 2018 100% 100% 100% 100% 100% 98% 98% 100% 98% 99% 100% 100% 100% (1) Retired on 30 November 2017 (2) Appointed on 22 September 2017 (3) Appointed on 4 December 2017 (4) Ceased employment on 21 December 2017 (5) Ceased employment on 22 March 2018 40 Annual Report 2018 No key management personnel appointed during the period received a payment as part of his or her consideration for agreeing to hold the position. Bonus and Share-based payments granted as compensation for the current financial year STI (Cash Bonuses) As noted above, having regard to the overall performance of the Company and current market conditions, the Board has, in relation to the Managing Director and other key management personnel, exercised its discretion to: • Suspend the STI component for the 2018 financial year; and • Once again, suspend the STI component for the 2019 financial year (subject to the Board’s discretion to reinstate the STI component if the Company’s performance or market conditions change). LTI (Performance Rights/Share Based Payments) During the financial year: • No performance rights were granted to either the Managing Director or the other key management personnel; • No share-based payments were granted as compensation to either the Managing Director or the other key management personnel; and • No performance rights granted to either the Managing Director or the other key management personnel as part of their compensation in previous financial years vested. During the financial year, the following rights schemes were in existence: (2) 1 Dec 2014 (a) (3) 1 Dec 2014 (a) 11,382 1 Dec 2014 1 Jul 2017 430,075 18 Nov 2014 1 Jul 2017 (4) 10 Feb 2016 (b) 2,001,432 18 Nov 2015 1 Jul 2020 (5) 10 Feb 2016 (b) 8,037,836 7 Dec 2015 1 Jul 2020 (6) 7 Jun 2016 (b) 220,284 18 Apr 2016 1 Jul 2020 Exercise price $ Fair value at grant date $ 0.00 0.00 0.00 0.00 0.00 0.00 1.09 1.09 0.75 0.02 0.02 0.02 Vesting date 1 Jul 2017 1 Jul 2017 1 Jul 2017 1 Jul 2018 1 Jul 2018 1 Jul 2018 (a) In accordance with the terms of the Mermaid Marine Australia Limited Performance Rights Plan – 2014 (issued by the Board on 22 October 2014 and 1 December 2014) and the Mermaid Marine Australia Limited Managing Director’s Performance Rights Plan – 2014 (as approved by the shareholders at the Company’s Annual General Meeting on 18 November 2014) the number of performance rights which vested on 1 July 2017 depended on growth in the Earnings per Share of MMA Offshore Limited and the total shareholder return of the Company relative to a selected peer group of companies as set out in note 24 of the Financial Statements. These performance hurdles have not been met. As such, all of these performance rights have lapsed in accordance with the terms of the relevant plan rules. (b) In accordance with the terms of the MMA Offshore Limited Performance Rights Plan – 2015 (issued by the Board on 7 December 2015 and 18 April 2016) and the MMA Offshore Limited Managing Director’s Performance Rights Plan – 2015 (as approved by the shareholders at the Company’s Annual General Meeting on 18 November 2015) the number of performance rights which vested on 1 July 2018 depended on the Company achieving the specified share price target(s) for MMA Offshore Limited and the total shareholder return of the Company relative to a selected peer group of companies as set out in note 24 of the Financial Statements. These performance hurdles have not been met. As such, all of these performance rights have lapsed in accordance with the terms of the relevant plan rules. There has been no alteration of the terms and conditions of the above share-based payment arrangements since the grant date. MMA Offshore Limited 41 2018 Financial ReportOverviewOperating & Financial ReviewGovernance The following table summarises the number of performance rights that lapsed during the financial year, in relation to performance rights granted to key management personnel as part of their remuneration: Details of the performance rights held by executive key management personnel are as follows: Mr P Kennan(1) 38,709,500 Name Mr J Weber Mr D Ross Mr P Raynor Mr D Roberts Mr M Gillett Ms L Buckey Mr D Thomas Financial year in which rights were granted No. of rights lapsed during the current year 2014 2014 2014 2014 2014 2014 2014 430,075 202,388 202,388 55,476 55,476 47,825 42,548 Key Management Personnel Equity Holdings Details of the fully paid ordinary shares of the Company held by key management personnel are as follows: Balance at 1 July 2017 Granted as compensation Received on vesting of Performance Rights Net other change Balance at 30 June 2018 Balance held nominally 2018 Mr A Edwards Mr J Weber Ms E Howell Mr CG Heng Mr D Ross Mr D Cavanagh(2) Mr D Roberts Ms L Buckey Mr D Thomas 2017 Mr A Edwards Mr J Weber Ms E Howell Mr CG Heng Mr D Ross Mr D Roberts Ms L Buckey Mr D Thomas 115,680 1,907,958 123,529 100,000 765,785 21,000 - 1,475 - - - - - - - - - - - - - - - - - - - - - 115,680 231,360 1,907,958 3,815,916 - - 38,709,500 77,419,000 77,419,000 123,529 100,000 765,785 - - 247,058 200,000 1,531,570 21,000 - 1,475 - - - - - - - - Balance at 1 July 2016 Granted as compensation Received on vesting of Performance Rights Net other change Balance at 30 June 2017 Balance held nominally 115,680 1,907,958 123,529 - 765,785 - 1,475 - - - - - - - - - - - - 100,000 - - - - - - - - - 115,680 1,907,958 123,529 100,000 765,785 - 1,475 - - - - - - - - - Balance at 1 July 2017 Granted as compensation Vested Net other change (lapsed) Balance at 30 June 2018 Vested but not exercisable Rights vested during year Mr D Cavanagh(1) - 2,431,507 1,144,238 1,144,238 307,602 307,602 265,175 296,259 2018 Executives Mr J Weber Mr D Ross Mr P Raynor Mr D Roberts Mr M Gillett Ms L Buckey Mr D Thomas 2017 Executives Mr J Weber Mr D Ross Mr P Raynor Mr D Roberts Mr M Gillett Ms L Buckey Mr D Thomas - - - - - - - - - - - - - - - - (430,075) 2,001,432 (202,388) 941,850 - 941,850 252,126 252,126 217,350 242,828 - (202,388) (55,476) (55,476) (47,825) (53,431) Net other change (lapsed) - - - - - - - - - - - - - - - - Balance at 1 July 2016 Granted as compensation Vested Balance at 30 June 2017 Vested but not exercisable Rights vested during year 2,943,329 1,395,131 1,395,131 375,403 375,403 300,244 338,807 - - - - - - - - - - - - - - (511,822) 2,431,507 (250,893) 1,144,238 (250,893) 1,144,238 (67,801) (67,801) (35,069) (42,548) 307,602 307,602 265,175 296,259 - - - - - - - - - - - - - - (1) Appointed on 4 December 2017 During the financial year, no performance rights vested in favour of the Managing Director or other key management personnel. In addition, all performance rights held by executive key management personnel as at 30 June 2018 have since lapsed in accordance with the terms or the 2015 Performance Rights Plan Rules. Further details of the share based payment arrangements during the 2018 and 2017 financial years are contained in note 5.2 of the Financial Statements. Loans to Key Management Personnel The Company has provided a member of its key management personnel with a short-term loan. This loan is unsecured. The following table outlines aggregate amounts in respect of loans made to key management personnel of the Group. Balance as at 1 July 2017 24,732 Interest charged 870 Allowance for doubtful receivables Balance as at 30 June 2018 Number of key management personnel - 25,602 1 (1) Appointed on 22 September 2017 (2) Appointed on 4 December 2017 42 Annual Report 2018 MMA Offshore Limited 43 2018 Financial ReportOverviewOperating & Financial ReviewGovernance Share Trading Restrictions The Company’s Share Trading Policy requires key management personnel proposing to enter into arrangements that limit the economic risk of a vested holding in the Company’s securities to first obtain approval from the Chairman of the Board (for directors), approval of the Chairman of the Audit and Risk Committee (for the Chairman of the Board), and approval from the Managing Director (for other executives), and subsequently provide details of the dealing within five business days of the dealing taking place. Any breach of the Share Trading Policy is taken very seriously by the Company and is subject to disciplinary action, including possible termination of a person’s employment or appointment. A copy of the Company’s Share Trading Policy can be found on the Corporate Governance page of our website at www.mmaoffshore.com/investor-centre/corporate-governance. Key Terms of Employment Contracts As at the date of this report, the Managing Director and other executive key management personnel are all employed by the Company under an employment contract, none of which are of fixed-term duration. These employment contracts may be terminated by either party giving the required notice and subject to termination payments as detailed in the table below: Name Mr J Weber Mr D Ross Mr D Cavanagh Mr D Roberts Ms L Buckey Mr D Thomas Termination notice period Termination benefits payable 6 months 6 months 12 weeks 6 weeks 30 days 12 weeks Yes(1) Yes(1) Yes(2) No No No (1) If the employee is made redundant as a result of a material diminution in the nature and level of responsibilities or functions of the employee’s position including, without limitation, through a change in control of the Company, the employee will be entitled to a payment being the lesser of either: • 1.5 times the Fixed Annual Remuneration in the relevant year (excluding any short-term incentives or long-term incentives); or • The maximum amount that may be paid to the employee under the Corporations Act and ASX Listing Rules without prior shareholder approval. (2) If the employee is made redundant as a result of a material diminution in the nature and level of responsibilities or functions of the employee’s position including, without limitation, through a change in control of the Company, the employee will be entitled to a payment equal to 0.5 times the Fixed Annual Remuneration in the relevant year (excluding any short-term incentives or long-term incentives). A u d i t o r ’s I n d e p e n d e n c e D e c l a r a t i o n Deloitte Touche Tohmatsu ABN 74 490 121 060 Tower 2 Brookfield Place 123 St Georges Terrace Perth WA 6000 GPO Box A46 Deloitte Touche Tohmatsu Perth WA 6837 Australia ABN 74 490 121 060 The Board of Directors MMA Offshore Limited 1 Mews Road Fremantle WA 6160 The Board of Directors 20 September 2018 MMA Offshore Limited 1 Mews Road Fremantle WA 6160 Dear Board Members Tel: +61 8 9365 7000 Tower 2 Fax: +61 8 9365 7001 Brookfield Place www.deloitte.com.au 123 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia Tel: +61 8 9365 7000 Fax: +61 8 9365 7001 www.deloitte.com.au 20 September 2018 Auditor’s Independence Declaration to MMA Offshore Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of MMA Offshore Limited. Dear Board Members Auditor’s Independence Declaration to MMA Offshore Limited As lead audit partner for the audit of the financial report of MMA Offshore Limited for the year ended 30 June 2018, I declare that to the best of my knowledge and belief, there have been no contraventions of: In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of MMA Offshore Limited. • the auditor independence requirements of the Corporations Act 2001 in relation to the audit any applicable code of professional conduct in relation to the audit. As lead audit partner for the audit of the financial report of MMA Offshore Limited for the year • ended 30 June 2018, I declare that to the best of my knowledge and belief, there have been no contraventions of: Yours faithfully Under these employment contracts, the remuneration package for: • The Managing Director and Chief Operating Officer consists of an annual base salary and a short-term incentive component and a long-term incentive component at the discretion of the Nomination and Remuneration Committee and the Board; and • • the auditor independence requirements of the Corporations Act 2001 in relation to the audit any applicable code of professional conduct in relation to the audit. • Other executive key management personnel consists of an annual base salary and statutory superannuation contributions. Participation in the Company’s incentive schemes is at the discretion of the Board. DELOITTE TOUCHE TOHMATSU Yours faithfully This Directors’ Report is signed in accordance with a resolution of Directors made pursuant to section 298(2) of the Corporations Act 2001 (Cth). On behalf of the Directors, Andrew Edwards Chairman Fremantle, 20 September 2018 44 Annual Report 2018 John Sibenaler DELOITTE TOUCHE TOHMATSU Partner Chartered Accountants Perth, 20 September 2018 John Sibenaler Partner Chartered Accountants Perth, 20 September 2018 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited Liability limited by a scheme approved under Professional Standards Legislation. MMA Offshore Limited 45 Member of Deloitte Touche Tohmatsu Limited 2018 Financial ReportOverviewOperating & Financial ReviewGovernance A u d i t R e p o r t Independent Auditor’s Report to the Independent Auditor’s Report to the members of MMA Offshore Limited members of MMA Offshore Limited Report on the Audit of the Financial Report Report on the Audit of the Financial Report Opinion Deloitte Touche Tohmatsu ABN 74 490 121 060 Deloitte Touche Tohmatsu ABN 74 490 121 060 Tower 2 Brookfield Place Tower 2 123 St Georges Terrace Brookfield Place Perth WA 6000 123 St Georges Terrace GPO Box A46 Perth WA 6000 Perth WA 6837 Australia GPO Box A46 Perth WA 6837 Australia Tel: +61 8 9365 7000 Fax: +61 8 9365 7001 Tel: +61 8 9365 7000 www.deloitte.com.au Fax: +61 8 9365 7001 www.deloitte.com.au Opinion We have audited the financial report of MMA Offshore Limited (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30 June 2018, We have audited the financial report of MMA Offshore Limited (the “Company”) and its subsidiaries the consolidated statement of profit or loss and other comprehensive income, the consolidated (the “Group”) which comprises the consolidated statement of financial position as at 30 June 2018, statement of changes in equity and the consolidated statement of cash flows for the year then the consolidated statement of profit or loss and other comprehensive income, the consolidated ended, and notes to the financial statements, including a summary of significant accounting policies statement of changes in equity and the consolidated statement of cash flows for the year then and other explanatory information, and the directors’ declaration. ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and complying with Australian Accounting Standards and the Corporations Regulations 2001. (i) (ii) (ii) Basis for Opinion complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Report section of our report. We are independent of the Group in accordance with the auditor those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial independence requirements of the Corporations Act 2001 and the ethical requirements of the Report section of our report. We are independent of the Group in accordance with the auditor Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional independence requirements of the Corporations Act 2001 and the ethical requirements of the Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional fulfilled our other ethical responsibilities in accordance with the Code. Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the We confirm that the independence declaration required by the Corporations Act 2001, which has been time of this auditor’s report. given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters 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 for the current period. These matters were addressed in the context Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited Liability limited by a scheme approved under Professional Standards Legislation. 46 Annual Report 2018 Member of Deloitte Touche Tohmatsu Limited of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter value of value of the Vessel Cash Carrying Key Audit Matter Generating Unit the Vessel Cash Carrying As disclosed in Note 3.6, the assessment of Generating Unit the recoverable amount of the Vessels Cash Generating Unit (“Vessel CGU”) As disclosed in Note 3.6, the assessment of requires management to exercise the recoverable amount of the Vessels judgement and has been based on a Fair Cash Generating Unit (“Vessel CGU”) Value Less Cost of Disposal (“FVLCOD”) requires management to exercise approach. judgement and has been based on a Fair Value Less Cost of Disposal (“FVLCOD”) The Group appointed external valuers to approach. perform a valuation of the Vessel CGU. The Group appointed external valuers to Key assumptions used in assessing perform a valuation of the Vessel CGU. recoverable amount include current and forecast economic conditions including Key assumptions used in assessing potential movements in the market as a recoverable amount include current and consequence of commodity prices and the forecast economic conditions including application of an ‘en bloc’ discount to the potential movements in the market as a vessel fleet. consequence of commodity prices and the application of an ‘en bloc’ discount to the vessel fleet. Recoverability of trade receivables As disclosed in Note 3.2, the carrying value Recoverability of trade receivables of trade receivables is $61.6 million, net of an allowance for doubtful debts of $2.6 As disclosed in Note 3.2, the carrying value million of trade receivables is $61.6 million, net of an allowance for doubtful debts of $2.6 Significant judgment is required in assessing million the recoverability of trade receivables. This includes assessing the credit risk of trade Significant judgment is required in assessing receivables which have been outstanding the recoverability of trade receivables. This for a period longer than average payment includes assessing the credit risk of trade terms. receivables which have been outstanding for a period longer than average payment terms. How the scope of our audit responded to the Key Audit Matter Our procedures included, but were not limited to: How the scope of our audit responded to the Key Audit Matter Understanding the process management Our procedures included, but were not limited to: undertakes to evaluate the recoverability of the Vessel CGU; Understanding the process management Assessing management’s determination of the undertakes to evaluate the recoverability of Vessel CGU based on our understanding of the Vessel CGU; the nature of the Group’s business and the Assessing management’s determination of the economic environment in which the segments Vessel CGU based on our understanding of operate; the nature of the Group’s business and the economic environment in which the segments the external valuers; operate; Assessing the objectivity and competence of Evaluating the external valuations obtained by Assessing the objectivity and competence of Comparing actual sales prices, including ‘en the Group by assessing the valuation the external valuers; methodology adopted and the assumptions Evaluating the external valuations obtained by used; the Group by assessing the valuation Comparing actual sales prices, including ‘en methodology adopted and the assumptions bloc’ discounts, of vessels during and post the used; reporting period to evaluate the reasonableness of the valuation; and bloc’ discounts, of vessels during and post the Assessing the appropriateness of the reporting period to evaluate the disclosures in Note 3.6 to the financial reasonableness of the valuation; and statements. Assessing the appropriateness of the disclosures in Note 3.6 to the financial statements. Our procedures included, but were not limited to: Understanding the process management Our procedures included, but were not limited to: undertakes to evaluate the recoverability of trade receivables; Understanding the process management Assessing the recoverability of a sample of undertakes to evaluate the recoverability of trade receivables by reviewing cash received trade receivables; subsequent to year end; Assessing the recoverability of a sample of Reviewing other evidence including customer trade receivables by reviewing cash received correspondence and holding discussions with subsequent to year end; management to challenge their knowledge of Reviewing other evidence including customer future conditions that may impact expected correspondence and holding discussions with customer receipts; and management to challenge their knowledge of Assessing the appropriateness of the future conditions that may impact expected disclosures in Note 3.2 to the financial customer receipts; and statements. Assessing the appropriateness of the disclosures in Note 3.2 to the financial statements. MMA Offshore Limited 47 2018 Financial ReportOverviewOperating & Financial ReviewGovernance Other Information The directors are responsible for the other information. The other information comprises the of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not information included in the annual report, but does not include the financial report and our auditor’s provide a separate opinion on these matters. report thereon. Key Audit Matter Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. How the scope of our audit responded to the Key Audit Matter Our procedures included, but were not limited to: the Vessel Cash value of Carrying Generating Unit In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial undertakes to evaluate the recoverability of report or our knowledge obtained in the audit or otherwise appears to be materially misstated. the Vessel CGU; Understanding the process management As disclosed in Note 3.6, the assessment of the recoverable amount of the Vessels Cash Generating Unit (“Vessel CGU”) requires management to exercise judgement and has been based on a Fair Value Less Cost of Disposal (“FVLCOD”) approach. Responsibilities of the Directors for the Financial Report Assessing management’s determination of the Vessel CGU based on our understanding of the nature of the Group’s business and the economic environment in which the segments operate; If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regard. Assessing the objectivity and competence of The Group appointed external valuers to perform a valuation of the Vessel CGU. The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. the Group by assessing the valuation methodology adopted and the assumptions used; Evaluating the external valuations obtained by the external valuers; Key assumptions used in assessing recoverable amount include current and forecast economic conditions including potential movements in the market as a consequence of commodity prices and the application of an ‘en bloc’ discount to the vessel fleet. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. bloc’ discounts, of vessels during and post the reporting period to evaluate the reasonableness of the valuation; and Assessing the appropriateness of the disclosures in Note 3.6 to the financial Auditor’s Responsibilities for the Audit of the Financial Report statements. Comparing actual sales prices, including ‘en Recoverability of trade receivables Our procedures included, but were not limited to: Our objectives are 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 the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and 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 this financial report. As disclosed in Note 3.2, the carrying value of trade receivables is $61.6 million, net of an allowance for doubtful debts of $2.6 million undertakes to evaluate the recoverability of trade receivables; Assessing the recoverability of a sample of Understanding the process management As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Significant judgment is required in assessing the recoverability of trade receivables. This includes assessing the credit risk of trade receivables which have been outstanding for a period longer than average payment terms. trade receivables by reviewing cash received subsequent to year end; Reviewing other evidence including customer correspondence and holding discussions with management to challenge their knowledge of future conditions that may impact expected customer receipts; and Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud Assessing the appropriateness of the disclosures in Note 3.2 to the financial statements. may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not Obtain an understanding of internal control relevant to the audit in order to design audit provide a separate opinion on these matters. procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Key Audit Matter How the scope of our audit responded to the Key Audit Matter Our procedures included, but were not limited to: Evaluate the appropriateness of accounting policies used and the reasonableness of accounting the Vessel Cash estimates and related disclosures made by the directors. Carrying Generating Unit value of Understanding the process management As disclosed in Note 3.6, the assessment of the recoverable amount of the Vessels Cash Generating Unit (“Vessel CGU”) requires management to exercise judgement and has been based on a Fair Value Less Cost of Disposal (“FVLCOD”) approach. Conclude on the appropriateness of the director’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Assessing management’s determination of the Vessel CGU based on our understanding of the nature of the Group’s business and the economic environment in which the segments operate; undertakes to evaluate the recoverability of the Vessel CGU; Assessing the objectivity and competence of the external valuers; The Group appointed external valuers to perform a valuation of the Vessel CGU. the Group by assessing the valuation methodology adopted and the assumptions used; Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Evaluating the external valuations obtained by Key assumptions used in assessing recoverable amount include current and Obtain sufficient appropriate audit evidence regarding the financial information of the entities or forecast economic conditions including business activities within the Group to express an opinion on the financial report. We are potential movements in the market as a responsible for the direction, supervision and performance of the Group’s audit. We remain solely consequence of commodity prices and the responsible for our audit opinion. application of an ‘en bloc’ discount to the vessel fleet. bloc’ discounts, of vessels during and post the reporting period to evaluate the reasonableness of the valuation; and Assessing the appropriateness of the disclosures in Note 3.6 to the financial statements. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Comparing actual sales prices, including ‘en Recoverability of trade receivables Our procedures included, but were not limited to: We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. undertakes to evaluate the recoverability of trade receivables; As disclosed in Note 3.2, the carrying value of trade receivables is $61.6 million, net of an allowance for doubtful debts of $2.6 million Understanding the process management Assessing the recoverability of a sample of From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Significant judgment is required in assessing the recoverability of trade receivables. This includes assessing the credit risk of trade receivables which have been outstanding for a period longer than average payment terms. Reviewing other evidence including customer correspondence and holding discussions with management to challenge their knowledge of future conditions that may impact expected customer receipts; and trade receivables by reviewing cash received subsequent to year end; Assessing the appropriateness of the disclosures in Note 3.2 to the financial statements. 48 Annual Report 2018 MMA Offshore Limited 49 2018 Financial ReportOverviewOperating & Financial ReviewGovernance Overview Operating & Financial Review Governance 2018 Financial Report Report on the Remuneration Report Opinion on the Remuneration Report Report on the Remuneration Report We have audited the Remuneration Report included in pages 39 to 43 of the Director’s Report for the Opinion on the Remuneration Report year ended 30 June 2018. We have audited the Remuneration Report included in pages 39 to 43 of the Director’s Report for the In our opinion, the Remuneration Report of MMA Offshore Limited, for the year ended 30 June 2018, year ended 30 June 2018. complies with section 300A of the Corporations Act 2001. In our opinion, the Remuneration Report of MMA Offshore Limited, for the year ended 30 June 2018, Responsibilities complies with section 300A of the Corporations Act 2001. The directors of the Company are responsible for the preparation and presentation of the Responsibilities Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance The directors of the Company are responsible for the preparation and presentation of the with Australian Auditing Standards. Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU John Sibenaler Partner Chartered Accountants John Sibenaler Perth, 20 September 2018 Partner Chartered Accountants Perth, 20 September 2018 D i r e c t o r s ’ D e c l a r a t i o n The Directors declare that: (a) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; (b) in the Directors’ opinion, the attached Financial Statements are in compliance with International Financial Reporting Standards, as stated in note 1.1 to the Financial Statements; (c) in the Directors’ opinion, the attached Financial Statements and notes thereto are in accordance with the Corporations Act 2001 (Cth), including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; and (d) the Directors have been given the declarations required by section 295A of the Corporations Act 2001 (Cth). At the date of this declaration, the Company is within the class of companies affected by ASIC Class Order 98/1418. The nature of the deed of cross guarantee is such that each company, which is party to the deed, guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee. In the Directors’ opinion, there are reasonable grounds to believe that the Company and the companies to which the ASIC Class Order applies, as detailed in note 5.6 to the Financial Statements will, as a Group, be able to meet any obligations or liabilities to which they are, or may become, liable for by virtue of the deed of cross guarantee. Signed in accordance with a resolution of the Directors made pursuant to section 295(5) of the Corporations Act 2001 (Cth). On behalf of the Directors, Andrew Edwards Chairman Fremantle, 20 September 2018 50 Annual Report 2018 MMA Offshore Limited 51 F i n a n c i a l R e p o r t 2 0 1 8 Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements 1. General Notes 1.1 1.2 1.3 1.4 1.5 Statement of Compliance Basis of Preparation Basis of Consolidation New Accounting Standards Critical Accounting Judgements and Key Sources of Estimation Uncertainty 2. Financial Performance 2.1 2.2 2.3 2.4 2.5 2.6 Segment Information Other Income and Expenses Discontinued Operations Income Taxes Earnings per Share Dividends Provided for or Paid 3. Assets and Liabilities 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 Cash Trade and Other Receivables Inventories Assets Classified as Held for Sale Property, Plant and Equipment Impairment of Non-current Assets Trade and Other Payables Borrowings Provisions 3.10 Deferred Tax Balances 4. Capital Structure 4.1 4.2 4.3 Issued Capital Reserves Capital Risk Management 5. Other Notes 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 Commitments for Expenditure Share Based Payments Key Management Personnel Compensation Related Party Transactions Remuneration of Auditors Subsidiaries Parent Company Information Financial Instruments Events After the Reporting Period Additional Securities Exchange Information 53 54 55 56 57 57 57 57 58 59 60 60 62 63 64 65 65 66 66 67 68 68 69 70 72 73 74 75 77 77 77 78 79 79 81 82 83 83 84 86 86 90 91 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2018 Continuing Operations Revenue Investment income Other gains/(losses) Vessel expenses Administration expenses Impairment reversal/(charge) Finance costs Loss before tax from continuing operations Income tax (expense)/benefit Loss for the Year from continuing operations Discontinued Operations Loss from discontinued operations Loss for the Year Other Comprehensive Income, net of tax Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations Gain/(loss) on hedge of net investment in a foreign operation Other comprehensive income for the year, net of tax Total Comprehensive Loss for the Year Loss attributable to owners of the Company Total comprehensive loss attributable to owners of the Company Note 2.1 2.2 2.1 2.4 2.3 2018 $’000 2017 $’000 200,444 221,766 463 87 (206,484) (7,092) 8,407 (23,201) (27,376) (533) 133 (14,960) (241,636) (7,377) (287,542) (26,444) (356,060) 1,729 (27,909) (354,331) - (23,701) (27,909) (378,032) 13,302 (6,087) 7,215 (6,906) 7,142 236 (20,694) (377,796) (27,909) (20,694) (378,032) (377,796) Earnings/(loss) per share From continuing operations Basic From continuing and discontinued operations Basic Cents Per Share Cents Per Share 2.5 2.5 (4.11) (87.97) (4.11) (93.86) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. 52 Annual Report 2018 MMA Offshore Limited 53 OverviewOperating & Financial ReviewGovernance2018 Financial Report Consolidated Statement of Financial Position As at 30 June 2018 Consolidated Statement of Changes in Equity For the year ended 30 June 2018 Current Assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Assets classified as held for sale Total Current Assets Non-Current Assets Property, plant and equipment Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Unearned revenue Borrowings Provisions Current tax liabilities Customer deposits Total Current Liabilities Non-Current Liabilities Trade payables Borrowings Provisions Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Accumulated losses Total Equity Note 2018 $’000 2017 $’000 3.1 3.2 3.3 3.4 3.5 3.7 3.8 3.9 3.8 3.9 4.1 4.2 69,648 61,641 1,615 1,062 9,397 143,363 496,421 496,421 639,784 32,309 375 1,739 10,665 1,186 - 46,274 5,020 259,933 262 265,215 311,489 328,295 28,757 65,317 3,032 1,254 35,944 134,304 498,386 498,386 632,690 37,386 66 5 10,208 2,607 2,000 52,272 8,597 314,447 885 323,929 376,201 256,489 654,735 121,454 561,275 115,199 (447,894) (419,985) 328,295 256,489 Year Ended 30 June 2018 Balance at 1 July 2017 Employee Equity Settled Benefits Reserve Issued Capital Foreign Currency Translation Reserve Retained Earnings/ (Accumulated Losses) Hedging Reserve $’000 $’000 $’000 $’000 $’000 Total $’000 561,275 1,114 (51,203) 165,288 (419,985) 256,489 Comprehensive income/(loss) for the year: Loss for the year Other comprehensive income/(loss) for the year Total Comprehensive Income/(Loss) for the Year - - - Issue of shares under institutional placement 22,385 Issue of shares under institutional entitlement offer 15,605 Issue of shares under retail entitlement offer Share issue costs Transfer to share capital Recognition of share based payments 59,010 (4,558) 1,018 (1,018) - 58 - - - - - - - - - (27,909) (27,909) (6,087) 13,302 - 7,215 (6,087) 13,302 (27,909) (20,694) - - - - - - - - - - - - - - - - - - 22,385 15,605 59,010 (4,558) - 58 Balance at 30 June 2018 654,735 154 (57,290) 178,590 (447,894) 328,295 Year Ended 30 June 2017 Balance at 1 July 2016 Comprehensive income/(loss) for the year: Loss for the year Other comprehensive income/(loss) for the year Total Comprehensive Income/(Loss) for the Year Employee Equity Settled Benefits Reserve Issued Capital Foreign Currency Translation Reserve Retained Earnings/ (Accumulated Losses) Hedging Reserve $’000 $’000 $’000 $’000 $’000 Total $’000 556,566 5,704 (58,345) 172,194 (41,953) 634,166 - - - - - - - 7,142 7,142 - (378,032) (378,032) (6,906) (6,906) - 236 (378,032) (377,796) Transfer to share capital Recognition of share based payments Related income tax benefit Balance at 30 June 2017 4,709 (4,709) - - 285 (166) - - - - - - - - - - 285 (166) 561,275 1,114 (51,203) 165,288 (419,985) 256,489 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 54 Annual Report 2018 MMA Offshore Limited 55 OverviewOperating & Financial ReviewGovernance2018 Financial Report Operating & Financial Review Consolidated Statement of Cash Flows For the year ended 30 June 2018 Cash Flows from Operating Activities Receipts from customers Interest received Payments to suppliers and employees Income tax (paid)/received Interest and other costs of finance paid Net Cash Used in Operating Activities Cash Flows from Investing Activities Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Proceeds from sale of investment Dividends received Net Cash Provided by Investing Activities Cash Flows from Financing Activities Proceeds from issue of shares Payment of share issue costs Repayment of borrowings Financing fees on borrowings Net Cash provided by/(Used in) Financing Activities Note 2018 $’000 2017 $’000 205,157 244,195 463 133 (189,324) (236,413) 3.1 3.8 3.8 (1,754) (16,880) (2,338) (9,194) 25,288 - - 16,094 97,000 (4,558) (61,298) (4,003) 27,141 6,638 (20,647) (6,094) (28,033) 75,536 425 9,063 56,991 - - (67,326) (3,723) (71,049) Net increase/(decrease) in cash and cash equivalents 40,897 (20,152) Cash and cash equivalents at the beginning of the financial year 28,757 49,725 Effects of exchange rate changes on the balance of cash held in foreign currencies (6) (816) Cash and Cash Equivalents at the End of the Financial Year 69,648 28,757 Notes to the Financial Statements For the year ended 30 June 2018 1. General Notes MMA Offshore Limited (MMA or the Company) is a listed public company incorporated in Australia. Its shares are traded on the Australian Securities Exchange. 1.1 Statement of Compliance These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards (AASB’s) and other authoritative pronouncements of the Australian Accounting Standards Board. The financial statements comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The accounting policies are consistent with those applied in previous reporting periods. The Financial Statements were authorised for issue by the Directors on [20] September 2018. 1.2 Basis of Preparation The financial statements have been prepared on the basis of historical cost, except for certain assets which have been impaired and financial instruments that are measured at fair values. Historical cost is generally based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. Transactions in foreign currencies are recognised at the rates of exchange prevailing at the dates of the transactions. Monetary items denominated in foreign currencies at reporting date are translated at the exchange rate prevailing at that date. Exchange differences are recognised in profit or loss in the period in which they arise except for certain hedging transactions as described in note 4.2. For the purposes of preparing the financial statements, the Company is a for-profit entity. The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with this Corporations Instrument, amounts in the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated. 1.3 Basis of Consolidation The financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved when the Company: • has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the Consolidated Statement of Profit or Loss and Other Comprehensive Income from the date the Company gains control until the date when the Company ceases to control the subsidiary. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 56 Annual Report 2018 MMA Offshore Limited 57 OverviewGovernance2018 Financial Report Notes to the Financial Statements For the year ended 30 June 2018 1. General Notes (continued) 1.5 Critical Accounting Judgements and Key Sources of Estimation Uncertainty In the application of the Group’s accounting policies, the Directors are required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Critical judgements in applying accounting policies The following critical judgement has been made by the Directors in the process of applying the Group’s accounting policies. Allowance for doubtful debts – refer note 3.2 Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Useful lives of property, plant and equipment – refer note 3.5 Impairment of property, plant and equipment – refer note 3.6 Governance Notes to the Financial Statements For the year ended 30 June 2018 1. General Notes (continued) 1.4 New Accounting Standards Adoption of New and Revised Accounting Standards and Interpretations In the current year, the Group has applied the following new and amended AASBs that are mandatorily effective for an accounting period that begins on or after 1 July 2017: AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107 The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes. In the year ended 30 June 2018, the Directors have reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to the Company and effective for the current annual reporting period. As a result of this review the Directors have determined that there is no material impact of the new and revised Standards and Interpretations on the Company, and therefore, no material change is necessary to the Group accounting policies. Standards and Interpretations issued but not yet effective At the date of authorisation of the Financial Statements, the Standards and Interpretations listed below relevant to the Group’s operations, were issued but not yet effective: AASB 15 Revenue from Contracts with Customers (effective from 1 July 2018) AASB 15 establishes a single comprehensive model to use in accounting for revenue arising from contracts with customers. The core principal of AASB 15 is that revenue is recognised as the promised goods or services are provided to customers in an amount that reflects the consideration expected to be received in exchange for those goods or services. The standard introduces a five-step process for applying this principle which includes guidance in respect of identifying the performance obligations under the contract, allocation of the revenue across those performance obligations and recognising the revenue as those performance obligations are satisfied. The Group plans to adopt the new standard from 1 July 2018 using the modified transitional approach where any adjustment on initial recognition is recognised in retained earnings at 1 July 2018 without adjustment to comparatives. It will only be applied to contracts that remain in place at that date. The Group’s revenue is mainly derived from the time charter of vessels. The supply of each vessel is considered to be a single performance obligation provided over time for a contracted day rate. Apart from providing more extensive disclosures on the Group’s revenue transactions the application of AASB 15 will not have an impact on the financial position or financial performance of the Group. AASB 9 Financial Instruments (effective from 1 July 2018) In relation to the impairment of financial assets, AASB 9 requires an expected credit loss model as opposed to an incurred credit loss model under AASB 139. The expected credit loss model requires an entity to account for expected credit losses and changes in expected losses to reflect changes in credit risk since initial recognition. It is no longer necessary for a credit event to have occurred before credit losses are recognised. In general, the directors anticipate that the application of the expected credit loss model will result in earlier recognition of any credit losses. However, given the credit risk management approach on our current customers and receivables we do not anticipate this having a significant impact on the financial position or financial performance of the Group. AASB 16 Leases (effective from 1 July 2019) AASB 16 introduces a new model for the accounting for lessees which will require the recognition of assets and liabilities for all leases. The standard removes the current distinction of between operating and finance leases and is replaced by a model where a right of use asset and a corresponding liability are recognised for all leases except for short term leases and leases of low value assets. The right of use asset will be depreciated over the lease term and the lease liability will be adjusted for lease payments and interest charged. The impact on the financial performance of the company will be to reduce administration expenses with a related increase in finance costs. A preliminary assessment of the Group’s leases at 30 June 2018 has indicated that some existing non cancellable operating leases, for example office leases, would qualify as leases under the new standard resulting in recognition of right of use assets and corresponding liabilities. Due to the potential changing nature of these agreements we have not yet quantified the potential impact of applying the new standard. 58 Annual Report 2018 MMA Offshore Limited 59 OverviewOperating & Financial Review2018 Financial Report 2. Financial Performance 2.1 Segment Information An operating segment is a component of a group that engages in business activities from which it may earn revenue and incur expenses and whose operating results are regularly reviewed by the chief operating decision maker (The Board of Directors) for the purposes of resource allocation and assessment of segment performance. For the current reporting period the Group had one reportable segment in continuing operations being its Vessel operations. The Group’s previously reportable Supply Base and Slipway segments were sold during the prior reporting period and were classified as discontinued operations (see note 2.3). Information regarding the Vessel operating segment is presented below. The accounting policies of the reportable segment are the same as the Group’s accounting policies. Segment revenues and results The following is an analysis of the Group’s revenue and results by reportable segment: Revenue from external customers Impairment reversal/(charge) Profit/(loss) after impairment 2018 $’000 2017 $’000 2018 $’000 2017 $’000 2018 $’000 2017 $’000 Continuing Operations Vessels 200,444 221,766 8,407 (287,542) 2,367 (307,412) Investment income Other gains/(losses) Administration expenses Finance costs Loss from continuing operations before income tax 463 87 133 (14,960) (7,092) (7,377) (23,201) (26,444) (27,376) (356,060) Segment profit/(loss) represents the profit/(loss) earned by the Vessel segment without allocation of investment revenue, other gains and losses, administration costs, finance costs and income tax expense. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract. The stage of completion of the contract is determined progressively at contractual rates as service hours are delivered and direct expenses incurred. Segment Assets The following is an analysis of the Group’s assets by reportable segment: Vessel segment assets(i) Unallocated assets Total continuing assets Assets relating to discontinued operations(ii) Total 2018 $’000 566,129 73,655 639,784 - 639,784 2017 $’000 582,002 41,742 623,744 8,946 632,690 (i) Vessel segment assets include vessels held for sale (see note 3.4) (ii) Trade receivables outstanding at 30 June 2017 related to Supply Base and Slipway. For the purposes of monitoring segment performance and allocating resources between segments, all assets are allocated to reportable segments other than cash and central administration assets. 2. Financial Performance (continued) 2.1 Segment Information (continued) Other segment information Vessel assets Unallocated assets Total Depreciation and amortisation Additions to non-current assets 2018 $’000 2017 $’000 31,300 44,708 603 833 31,903 45,541 2018 $’000 9,108 86 9,194 2017 $’000 31,010 49 31,059 Impairment reversals/(charges) from continuing operations In addition to the depreciation charges reported above, the Group also recognised impairment reversals/(charges) (see note 3.6) in respect of vessels as set out below: Vessels held for continuing operations Vessels held for sale Total Geographical information 2018 $’000 8,236 171 8,407 2017 $’000 (158,089) (129,453) (287,542) The Group is based in two principal geographical areas – Australia (country of domicile) and Singapore, however the fleet is traded around the world as a single fleet and moves between all geographical areas. During the year, the Group operated vessels in a number of countries outside Australia. The Group’s revenue from continuing operations from external customers by location of operations and information about its non-current assets by location of assets are detailed in the following table: Location Australia Other Total Revenue from external customers Non-current assets 2018 $’000 2017 $’000 2018 $’000 2017 $’000 142,155 148,804 58,289 72,962 200,444 221,766 183,478 312,943 496,421 187,018 311,368 498,386 Information about major customers for continuing operations Included in revenues arising from vessel services are revenues of approximately $28.8 million (2017: $30.5 million) which arose from sales to the Group’s largest customer, revenues of approximately $25.9 million (2017: $28.7 million) which arose from sales to the Group’s second largest customer and revenues of approximately $22.1 million (2017: $26.5 million) which arose from sales to the Group’s third largest customer. 60 Annual Report 2018 MMA Offshore Limited 61 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 2. Financial Performance (continued) 2. Financial Performance (continued) 2018 $’000 2017 $’000 2.3 Discontinued Operations 2.2 Other Income and Expenses Profit/(loss) for the year has been arrived at after recognising the following specific amounts Other gains and losses: Net foreign exchange losses Loss on disposal of property, plant and equipment Profit/(Loss) on disposal of assets held for sale Total Depreciation: Leasehold buildings and improvements Vessels at cost Plant and equipment Plant and equipment – hire purchase Total Impairment charges: (272) (160) 519 87 90 30,910 903 - 31,903 (271) (11,423) (3,266) (14,960) 261 43,548 1,678 54 45,541 Impairment charge recognised on trade receivables Impairment reversal/(charge) recognised on vessel cash generating unit 1,251 8,407 8,631 (287,542) Employee benefits: Post-employment benefits: Defined contribution plans Share based payments: Equity settled share based payments Other employee benefits Total 7,765 9,675 56 95,504 103,325 285 99,193 109,153 Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions. A discontinued operation is a component of the Group that has been disposed of or is classified as held for sale and represents a major segment(s) of the business and is part of a single coordinated plan to dispose of such a line of business. Information regarding the results of the discontinued operations presented separately in the Statement of Profit or Loss and Other Comprehensive Income is presented below. Discontinued operations for the year ended 30 June 2017: Dampier Supply Base and Slipway businesses On 15 June 2017, the Group disposed of the Dampier Supply Base and Slipway businesses. Investment in Toll Mermaid Logistics Broome Pty Ltd (TMLB) On 28 April 2017 the Group disposed of its investment in TMLB. Analysis of profit/(loss) for the year from discontinued operations The combined results of the discontinued operations included in the profit/(loss) for the year are set out below. Profit/(Loss) for the period of discontinued operations Revenue Share of profit from jointly controlled entity Total revenue Expenses Loss on sale of discontinued operations Impairment charge on measurement to fair value Loss before tax Attributable income tax expense Loss for the period from discontinued operations Cash flows from discontinued operations Net cash inflows from operating activities Net cash inflows from investing activities Net cash outflows from financing activities Net cash inflows 2018 $’000 - - - - - - - - - 8,946 - - 8,946 2017 $’000 34,630 522 35,152 (33,365) (842) (24,646) (23,701) - (23,701) 92 50,355 (861) 49,586 62 Annual Report 2018 MMA Offshore Limited 63 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 2. Financial Performance (continued) 2. Financial Performance (continued) 2.4 Income Taxes Income tax recognised in profit or loss Tax expense/(benefit) comprises: Current tax expense in respect of the current year Deferred tax benefit in respect of the current year Adjustment recognised in the current year in relation to tax provisions of prior years Total income tax expense/(benefit) The income tax expense/(benefit) for the year can be reconciled to accounting loss as follows: Loss from operations Income tax benefit calculated at 30% Effect of revenue that is exempt from taxation Effect of expenses that are not deductible in determining taxable profit Effect of tax deductible items not included in accounting profit Effect of foreign income taxable in Australia Effect of unused tax losses and temporary differences not recognised as deferred tax assets Effect of different tax rates of subsidiaries operating in other jurisdictions Adjustment recognised in the current year in relation to tax provisions of prior years Total income tax expense/(benefit) 2018 $’000 2017 $’000 596 - (63) 533 1,063 (3,160) 368 (1,729) (27,376) (8,213) (356,060) (106,818) (73) 3,186 (273) - 5,881 88 596 (63) 533 (226) 75,842 (461) 570 25,230 3,766 (2,097) 368 (1,729) The tax rate used for the 2018 and 2017 reconciliations above is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from profit as reported in the Consolidated Statement of Profit or Loss and Other Comprehensive Income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. 2.5 Earnings per Share The earnings used in the calculation of basic earnings per share are as follows: Loss for the year used in the calculation of basic earnings per share from continuing operations Loss from discontinued operations Loss for the year used in the calculation of basic earnings per share 2018 $’000 (27,909) - (27,909) 2018 No.’000 2017 $’000 (354,331) (23,701) (378,032) 2017 No.’000 Weighted average number of ordinary shares used in the calculation of basic earnings per share 678,468 402,771 The calculations of the comparative basic earnings per share have been retrospectively adjusted to reflect the impact of the capital raising during this reporting period. 2.6 Dividends Provided for or Paid No dividends have been provided for or paid during the current year. Adjusted franking account balance 2018 $’000 47,589 2017 $’000 47,589 64 Annual Report 2018 MMA Offshore Limited 65 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 3. Assets and Liabilities 3.1 Cash Reconciliation of cash and cash equivalents Cash balances include $nil (2017: $10.2 million) held in Escrow under the terms of the Group’s Syndicated Loan Facility. For the purposes of the Statement of Cash Flows, cash and cash equivalents includes cash on hand and in banks. Cash and cash equivalents Reconciliation of loss for the year to net cash flows from operating activities Loss for the year Depreciation of non-current assets Impairment (reversal)/charge of non-current assets Amortisation of borrowing costs Loss on sale of property, plant and equipment Loss on sale of assets held for sale Loss on sale of discontinued operation Unrealised foreign exchange gain Allowance for doubtful debts Bad debts Equity settled share based payment Share of jointly controlled entity profit Change in net assets and liabilities: (Increase)/decrease in trade and other receivables Decrease in prepayments Decrease in inventories Increase/(decrease) in current tax balances Decrease in provisions Decrease in trade and other payables Increase/(decrease) in unearned revenue Decrease in deferred tax liabilities Net cash flows from operating activities 2018 $’000 69,648 (27,909) 31,903 (8,407) 3,354 160 (519) - 263 (15,435) 16,691 56 - 4,448 199 1,433 (1,221) (72) (7,549) 267 - (2,338) 2017 $’000 28,757 (378,032) 47,933 312,188 3,900 11,423 3,266 842 (71) 8,474 157 285 (522) (8,482) 2,085 1,172 8,043 (4,566) (7,343) (3,713) (3,133) (6,094) 3. Assets and Liabilities (continued) 3.2 Trade and Other Receivables Trade receivables Allowance for doubtful debts Other receivables Total 2018 $’000 57,602 (2,624) 6,663 61,641 2017 $’000 76,834 (21,240) 9,723 65,317 The average credit period on rendering of services is 30 days. An allowance has been made for estimated irrecoverable trade receivable amounts arising from the past rendering of services. Of the trade receivables balance at the end of the year, $13.8 million (2017: $16.1 million) is outstanding from the Group’s largest debtor and $7.4 million (2017: $6.8 million) from the Group’s second largest debtor. Trade receivables disclosed above include amounts (see below for aged analysis) that are past due at the end of the reporting period but against which the Group has not recognised an allowance for doubtful receivables because there has not been a significant change in credit quality and the amounts are still considered recoverable. The carrying amount of trade receivables is reduced by the impairment loss through the use of an allowance account when collection is considered at risk. When a trade receivable is subsequently considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. Ageing of receivables past due but not impaired: 31-60 days 61-90 days Over 90 days Total 2018 $’000 5,548 2,744 15,071 23,363 2017 $’000 1,932 4,680 13,744 20,356 The Group holds valid bank guarantees to the value of $6.7 million over receivables in the Over 90 days category. Movement in the allowance for doubtful debts Balance at the beginning of the year Impairment losses recognised on receivables Amounts written off as uncollectable Impairment losses reversed Foreign exchange translation Balance at the end of the year Significant Accounting Judgement 21,240 1,251 (16,691) (3,735) 559 2,624 13,456 8,788 (157) - (847) 21,240 In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. In making their judgement on the appropriateness of the allowance for doubtful debts they have considered the outcomes of regular meetings with customers, ongoing contractual arrangements and regularity of receipts from the customers. Accordingly, the Directors believe that there is no further credit provision required in excess of the allowance for doubtful debts. Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. 66 Annual Report 2018 MMA Offshore Limited 67 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 3. Assets and Liabilities (continued) 3.3 Inventories Fuel – at cost Consumables Work in progress Total 2018 $’000 1,289 326 - 1,615 2017 $’000 2,501 511 20 3,032 Inventories are stated at the lower of cost or net realisable value. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. 3.4 Assets Classified as Held for Sale Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount or fair value less costs to sell. An impairment loss is recognised for any initial write-down of the asset to fair value less costs to sell. Information regarding the assets held for sale in the Statement of Financial Position is presented below. At 31 December 2016, the Group resolved to dispose of a number of non-core vessels within the fleet. At 30 June 2018, the carrying value of the vessels not yet sold was $9.4 million (2017: $35.9million). 3. Assets and Liabilities (continued) 3.5 Property, Plant and Equipment Leasehold Buildings and Improvements at cost $’000 Vessels at cost $’000 Plant and Equipment at cost $’000 Plant and Equipment – Hire Purchase at cost $’000 Fixed Assets under Construction at cost $’000 Total $’000 155,363 1,243,937 32,763 11,195 111,645 1,554,903 194 12,162 (964) (73,088) - 134,202 106 (106) 160 569 (690) (135) 18,834 31,865 - (74,848) (134,227) - Gross carrying amount: Balance at 1 July 2016 Additions Disposals Transfers Reclassification of assets held for sale (140,363) (349,852) (16,625) (10,426) - (517,266) Net currency exchange differences (284) 48,399 (242) (513) 3,748 51,108 Balance at 1 July 2017 13,946 1,015,760 16,056 Additions Disposals Net currency exchange differences 109 (46) (13) 8,977 (87,981) 16,001 108 (131) 432 Balance at 30 June 2018 13,996 952,757 16,465 - - - - - - - - - - 1,045,762 9,194 (88,158) 16,420 983,218 Accumulated depreciation: Balance at 1 July 2016 Disposals Impairment charge Depreciation expense Transfers (93,319) (462,912) (18,520) (6,940) (17,430) (599,121) 291 45,256 (21,457) (275,126) (1,738) (43,549) - (27,616) 72 (3,494) (2,311) (125) Reclassification of assets held for sale 105,683 292,472 12,318 Net currency exchange differences (1,981) (51,468) 148 Balance at 1 July 2017 (12,521) (522,943) (11,912) Disposals Impairment reversal Depreciation expense Net currency exchange differences 44 - 87,981 8,236 (90) (30,910) (186) (3,331) 3 - (903) (265) Balance at 30 June 2018 (12,753) (460,967) (13,077) Net book value: As at 30 June 2017 As at 30 June 2018 1,425 1,243 492,817 491,790 4,144 3,388 431 - 46,050 (1,256) (10,855) (312,188) (335) 101 7,913 86 - (47,933) 27,640 - - 418,386 645 (52,570) - - - - - - - - - - - - - - - - (547,376) 88,028 8,236 (31,903) (3,782) (486,797) 498,386 496,421 Leasehold buildings and improvements, vessels, plant and equipment and equipment under finance lease are stated at cost less, where applicable, accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributed to the acquisition of the item. Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives. Leasehold buildings and improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight-line method. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. 68 Annual Report 2018 MMA Offshore Limited 69 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 3. Assets and Liabilities (continued) 3. Assets and Liabilities (continued) 3.5 Property, Plant and Equipment (continued) The gain or loss arising on disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit and loss. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each annual reporting period. The following rates are used in the calculation of depreciation: Leasehold buildings and improvements Vessels Vessel refits Plant and equipment 2% - 39% straight-line 4% - 8.33% straight-line 20% - 40% straight-line 5% - 100% straight-line Key source of estimation uncertainty The Group reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period. At the end of this reporting period, the Directors have determined that there was no adjustment required to the Group’s property, plant and equipment’s useful lives. 3.6 Impairment of non-current assets The Group performs a review of non-current asset values at each reporting period and whenever events occur or changes in circumstances indicate that the carrying amount of an asset group may be impaired. Market conditions are monitored for indications of impairment for all of the Group’s operating assets and where such indications are identified, a formal impairment assessment is performed. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately. When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash- generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. Key source of estimation uncertainty Determining whether assets are impaired requires an estimate of the recoverable value of the assets. In order to determine the recoverable value of the assets in the current year, a Fair Value less Cost of Disposal (FVLCOD) approach was used (2017: FVLCOD approach). The FVLCOD method requires an estimate of the current market value of the assets and the costs that would be associated with a disposal of the assets. In estimating the current market value of the assets, the Group engaged experienced and qualified valuers to perform valuations. The Group performs its impairment testing annually on 30 June each year. In addition, market conditions are monitored for indications of impairment for all of the Group’s operating assets. Where an indication of impairment is identified, a formal impairment assessment is performed. We note an assessment of impairment was performed at 31 December 2017, resulting in an impairment reversal of $8.4 million. The Group has identified the following indicators of impairment at 30 June 2018: • the carrying amount of the net assets of the Group is greater than the Company’s market capitalisation; and • market conditions in both Australia and internationally have continued to be challenging as the impact of lower oil prices is felt across the offshore support industry. As a result, the Group assessed the recoverable amounts of the Vessels Cash-Generating Unit (‘CGU’). The Supply Base and Slipway CGU’s were classified as Held for Sale as at 31 December 2016 resulting in the recognition of an impairment at that date as disclosed below. These assets were subsequently disposed of on 15 June 2017. 3.6 Impairment of non-current assets (continued) Impairment testing The Group has evaluated whether the recoverable amount of each CGU exceeds its carrying amount. The recoverable amount is determined to be the higher of its fair value less costs of disposal (“FVLCOD”) or its value in use. In all instances, the FVLCOD method was used for the purpose of impairment testing on 30 June 2018. Impairment reversals/(charges) recognised The following information relates to impairment reversals/(charges) included in profit or loss: Segment/CGU Vessels Supply Base Slipway Total Class of asset Method Property, Plant & Equipment FVLCOD Property, Plant & Equipment FVLCOD Property, Plant & Equipment FVLCOD Impairment reversal/(charge) 2018 $’000 8,407 - - 8,407 2017 $’000 (287,542) (22,315) (2,331) (312,188) The impairment reversal/(charge) recognised for Vessels is reflected as part of the Group’s continuing operations (note 2.2) while the impairment charge for Supply Base and Slipway CGUs are reflected in discontinued operations (note 2.3). The inputs used in deriving the recoverable amount of each CGU is categorised in accordance within the following levels of the fair value hierarchy: CGU Vessels Continuing operations Held for sale Level 3(i) $’000 496,421 9,397 Recoverable Amount $’000 496,421 9,397 (i) Level 3 inputs are unobservable inputs used to measure fair value. In our calculations the inputs used are based on both observable and unobservable market data prepared by an independent valuation consultant together with internally determined valuations. Due to the unobservable market data and internal valuation components of the valuations, the inputs are considered Level 3. Vessels The oil and gas sector has been through one of its worst periods in history over the past three and a half years. However, sector sentiment has improved significantly around a recovery in oil and gas markets with key industry commentators indicating that the market may have bottomed. We expect the recovery to be volatile and the timing is still uncertain. The oil markets are rebalancing and demand remains strong whilst supply is tighter as a result of production cuts. Sentiment around the offshore support vessel markets has become more positive with increasing tendering activity in a number of regions and work scopes. In addition, a proportion of the global cold stacked vessels are not expected to return to service eliminating some of the supply overhang. As disclosed in note 3.4, a group of non-core vessels in the fleet were classified as being held for sale as at 31 December 2016. This classification has resulted in two separate fair value assessments for the fleet, being those core vessels used for continuing operations and those non-core vessels that are held for sale. 70 Annual Report 2018 MMA Offshore Limited 71 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 3. Assets and Liabilities (continued) 3.6 Impairment of non-current assets (continued) Continuing Operations The recoverable amount of the core vessels was determined using a market based approach, reflecting the value which could be expected to be realised through the disposal of the vessels, in an orderly market, on an “as is where is” basis between a willing buyer and willing seller. An independent valuation of the fleet was undertaken by a specialist marine valuation consultancy and shipbroking company. In preparing their valuation report, some of the factors they considered include the current market conditions in which the vessels operate, a review of recent market sales of similar vessels, consideration of the specification and earnings potential of each vessel and the inherent value and replacement cost of each vessel. A key input into the recoverable amount of the CGU was the application of a discount to the independent vessel valuation to reflect the amount which would be achieved if the fleet was disposed of in one single transaction. In the June 2017 impairment assessment, the company used a discount of 20%. Given the stabilisation of the market, where we are in the cycle and taking into account the independent valuers assessment of the fleet, the Board have applied a discount of 17.5% to the value for the fleet which reflects recoverable value. The following factors were taken into account in determining this value: • The stable rising trend in oil prices during the 2018 financial year • An increase in project and development commitments by the oil and gas majors • • Increasing tender opportunities in the market Increasing activity in the vessel sales market • Acknowledging the increased activity in the industry is still at an early stage in the market cycle and there is uncertainty about the extent and timing of recovery • Acknowledging the impact of the significant vessel tonnage in the industry A 2.5% increase or decrease in the ‘en bloc discount rate would result in a corresponding $15 million increase or decrease in the impairment reversal or charge. Another key input was the estimated costs of disposal. The Company has adopted a selling cost equal to 2% of the sale value of each vessel based on actual selling costs of between 1.5% and 2.5% for previous vessel sales. Inputs in determining the classification level within the fair value hierarchy are reassessed at each reporting period as part of the impairment process. The inputs used within calculations are assessed and discussed internally to determine the extent to which they can be compared to observable market information and classified accordingly. Held for Sale The recoverable amount of the non-core vessels was determined using a market based approach, reflecting the value which could be expected to be realised through an accelerated sale program. In assessing the fair value of these non-core vessels the Company has taken into consideration the following factors: • actual sales of the non-core vessels that have been completed to date • current sale contracts and negotiations on the remaining non-core vessels • market sales evidence for similar vessels over the past 6 months The price that would be expected to be received in these circumstances for these non-core vessels would be less than if sold in an orderly transaction with no time restrictions to complete the sale. A 5% increase or decrease of expected sale proceeds would result in corresponding $0.5 million decrease or increase in the fair value for these non-core vessels. 3.7 Trade and Other Payables Trade payables Other payables and accruals Goods and services tax payable Total 2018 $’000 5,017 26,379 913 32,309 2017 $’000 7,826 24,390 5,170 37,386 The average credit period on purchases of all goods is 30 days. The Group monitors payments to ensure that all payables are paid within the credit time frame. 3. Assets and Liabilities (continued) 3.8 Borrowings Secured – at amortised cost Current Hire purchase liability(i) Bank loans(ii) Unamortised loan fees(iii) Total Non-Current Hire purchase liability(i) Bank loans(ii) Unamortised loan fees(iii) Total 2018 $’000 2017 $’000 6 3,992 (2,259) 1,739 4 265,009 (5,080) 259,933 5 - - 5 8 324,209 (9,770) 314,447 Summary of borrowing arrangements: (i) (ii) The hire purchase liabilities are fixed interest rate debt with repayment periods not exceeding 3 years. The current weighted average interest rate on the hire purchase liabilities is 2.9% (2017: 2.9%). In conjunction with the capital raising that occurred during this reporting period, the Group was able to renegotiate the terms of its Syndicated Debt Facility with its existing lenders. The key amendments to the Facility included: • Extending the term for a further 2 years from maturity on 30 September 2019 to 30 September 2021 • Reducing the interest rate • Agreeing certain amendments and holidays to specified covenants • Cash sweep of excess cash above $70.0 million from 30 June 2020, 31 December 2020 and 30 June 2021 • Agreeing to a revised amortisation profile The revised amortisation profile includes: • A payment of $30.0 million by 31 December 2017 which was linked with the capital raising and was paid • $5.0 million by 30 June 2020 • $7.5 million by 31 December 2020 • $7.5 million by 30 June 2021 • The balance is to be repaid on maturity at 30 September 2021 In addition, proceeds from the sale of non-core vessels will continue to be applied against the outstanding amount with $30.0 million to be repaid by 31 December 2018. Any shortfall is to be funded from the Group’s cash reserves. This obligation has now been met as a result of the successful completion of vessel sales, with $26.0 million repaid prior to 30 June 2018 and a further $5.1 million repaid in July 2018. The facility is fully secured by fixed and floating charges given by controlled entities within the Group, registered ship mortgages over a number of vessels owned by certain entities and real property mortgages. The current weighted average interest rate on the bank loans is 6.08% (2017: 7.6%). (iii) The unamortised loan fees are in relation to the Syndicated Facility Agreement. Other financial liabilities including borrowings are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition. The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid or payable is recognised in the profit and loss. 72 Annual Report 2018 MMA Offshore Limited 73 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 3. Assets and Liabilities (continued) 3. Assets and Liabilities (continued) 3.8 Borrowings (continued) Available borrowing facilities Secured loan facilities with various maturity dates through to 2021 and which may be extended by mutual agreement: Amount used Amount unused Total Secured bank overdraft: Amount used Amount unused Total 2018 $’000 2017 $’000 269,001 324,209 - - 269,001 324,209 - - - - 4,000 4,000 Reconciliation of liabilities arising from financing activities: The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non cash changes. 2018 Balance at 1 July 2017 Financing cashflows Non-cash foreign exchange movement Other changes Balance at 30 June 2018 2017 Balance at 1 July 2016 Financing cashflows Non-cash foreign exchange movement Other changes Balance at 30 June 2017 Hire purchase liability $’000 13 (3) - - 10 923 (921) - 11 13 Bank loans Unamortised loan fees $’000 324,209 (61,295) 6,087 - 269,001 397,755 (66,405) (7,141) - $’000 (9,770) (4,003) - 6,434 (7,339) (6,853) (3,723) - 806 Total $’000 314,452 (65,301) 6,087 6,434 261,672 391,825 (71,049) (7,141) 817 324,209 (9,770) 314,452 3.9 Provisions Current Employee benefits – annual leave Employee benefits – long service leave Restructuring costs – shipbuilding operations Total Non-current 2018 $’000 6,352 4,313 - 2017 $’000 6,553 3,507 148 10,665 10,208 Employee benefits – long service leave 262 885 A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave in the period the related service is performed. Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. 3.9 Provisions (continued) Liabilities recognised in respect of long-term employee benefits are measured at the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. A restructuring provision is recognised when the Group has developed a detailed formal plan for restructuring and has raised a valid expectation with those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity. 3.10 Deferred Tax Balances Deferred tax assets/(liabilities) arise from the following: 2018 Gross deferred tax liabilities: Property, plant and equipment Inventory Receivables Other Gross deferred tax assets: Provisions Employee share trust Unused tax losses and credits Other Total 2017 Gross deferred tax liabilities: Property, plant and equipment Inventory Receivables Other Gross deferred tax assets: Provisions Employee share trust Unearned revenue Unused tax losses and credits Other Total Opening Balance Recognised in Profit or Loss Recognised in Equity $’000 $’000 $’000 Closing Balance $’000 (4,543) (8,371) (120) (13,034) (460) (668) 44 (5,627) 636 301 4,390 300 5,627 - (11,098) (903) (674) (104) (12,779) 684 382 104 7,995 521 9,686 (3,093) 277 580 (135) (7,649) (466) 21 8,204 (110) 7,649 - 6,219 443 6 148 6,816 (48) 85 (104) (3,368) (221) (3,656) 3,160 - - - (183) (88) (91) (120) (13,396) - (322) 442 - 120 - 170 - 13,036 190 13,396 - 336 (4,543) - - - (460) (668) 44 336 (5,627) - (166) - (237) - (403) (67) 636 301 - 4,390 300 5,627 - 74 Annual Report 2018 MMA Offshore Limited 75 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 3. Assets and Liabilities (continued) 3.10 Deferred Tax Balances (continued) 4. Capital Structure 4.1 Issued Capital Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period(s) in which the liability is settled or the asset is realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Unrecognised deferred tax assets Deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax assets have been recognised are attributable to the following: Tax losses (revenue in nature) Tax losses (capital in nature) Deductible temporary differences 2018 $’000 2017 $’000 64,603 19,320 5,668 39,371 19,313 10,116 The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Nature of tax funding arrangements and tax sharing agreements Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax sharing agreement with the head entity. Under the terms of the tax funding arrangement, MMA Offshore Ltd and each of the entities in the tax-consolidated group has agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. Such amounts are reflected in amounts receivable from or payable to other entities in the tax-consolidated group. The tax sharing agreement entered into between members of the tax-consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if any entity should leave the tax consolidated group. The effect of the tax sharing agreement is that each member’s liability for tax payable by the tax consolidated group is limited to the amount payable to the head entity under the tax funding arrangement. Fully Paid Ordinary Shares Balance at beginning of financial year Issue of shares under institutional placement Issue of shares under institutional entitlement offer Issue of shares under retail entitlement offer Share issue costs Transfer employee equity settled benefits reserve 2018 No.’000 373,077 111,923 78,027 295,050 - - 2018 $’000 561,275 22,385 15,605 59,010 (4,558) 1,018 2017 No.’000 373,077 2017 $’000 556,566 - - - - - - - - - 4,709 Balance at end of financial year 858,077 654,735 373,077 561,275 Fully paid ordinary shares carry one vote per share and carry the right to dividends. Share Rights As at 30 June 2018, executives and employees held rights over 9,555,660 ordinary shares (2017: 10,923,881) in aggregate (see note 5.2). All remaining share rights lapsed in July 2018. Share rights granted under the employee share rights plans carry no right to dividends and no voting rights. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. 4.2 Reserves Employee equity settled benefits Hedging Foreign currency translation Balance at end of financial year 2018 $’000 154 (57,290) 178,590 121,454 2017 $’000 1,114 (51,203) 165,288 115,199 The employee equity settled benefits reserve arises on the grant of share rights to executives and employees under the Company’s share rights plans. Amounts are transferred out of the reserve and into issued capital when the rights vest or expire. The hedging reserve is used to record gains and losses on hedges designated as cash flow hedges including hedges of net investments in a foreign operation. Gains and losses accumulated in the hedge reserve are taken to the profit or loss when the hedged transaction impacts the profit or loss, or is included as an adjustment to the initial carrying amount of the hedged item. For a net investment in a foreign operation any gains and losses are taken to profit and loss on disposal of the foreign operation. The foreign currency translation reserve represents exchange differences relating to the translation from the functional currencies of the Group’s foreign controlled entities into Australian Dollars. The assets and liabilities of the Group’s foreign operations are translated into Australian Dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognised through other comprehensive income and recognised in equity. On the disposal of the foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation), all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss. 76 Annual Report 2018 MMA Offshore Limited 77 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 4. Capital Structure (continued) 4.3 Capital Risk Management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns, while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from 2017. The capital structure of the Group consists of net debt (borrowings as detailed in note 3.8 offset by cash at bank balances) and equity of the Group (comprising issued capital and reserves as detailed in notes 4.1 and 4.2 and accumulated losses). The Group is not subject to any externally imposed capital requirements other than normal banking requirements. Based on recommendations of management and the Board, the Group will balance its overall capital structure through new share issues as well as the establishment of new borrowing facilities or repayment of existing facilities. The Group uses its gearing ratio (measured as net debt to equity) to manage its capital. The ratio is monitored on a monthly basis by the Board and management. Gearing Ratio The gearing ratio at the end of the reporting period was as follows: Debt(i) Cash and cash equivalents Net debt Equity(ii) Gearing ratio (i) (ii) Debt is defined as long and short-term borrowings, as detailed in note 3.8. Equity includes all capital and reserves of the Group that are managed as capital. 2018 $’000 261,672 (69,648) 192,024 328,295 58% 2017 $’000 314,452 (28,757) 285,695 256,489 111% 5. Other Notes 5.1 Commitments for Expenditure Capital expenditure commitments Plant and Equipment Vessels Total 2018 $’000 - 749 749 2017 $’000 339 1,149 1,488 Finance lease liabilities Not later than 1 year Later than 1 year and not later than 5 years Minimum future payments Less future finance charges Present value of minimum lease payments Included in the Financial Statements as: Borrowings – current (note 3.8) Borrowings – non-current (note 3.8) Total Minimum Lease Payments Present Value of Minimum Lease Payments 2018 $’000 2017 $’000 2018 $’000 2017 $’000 7 5 12 (2) 10 6 10 16 (3) 13 6 4 10 - 10 6 4 10 5 8 13 - 13 5 8 13 Finance leases relate to various equipment with lease terms of up to 5 years. The Group has options to purchase the equipment for a nominated amount at the conclusion of the lease agreements. Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the Statement of Financial Position as a finance lease obligation. Lease payments are apportioned between finance costs and reduction of the lease obligations so as to achieve a constant rate of interest on the remaining balance of the liability. Finance costs are recognised immediately in profit or loss. 78 Annual Report 2018 MMA Offshore Limited 79 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 5. Other Notes (continued) 5.1 Commitments for Expenditure (continued) Operating leases Payments recognised as an expense: Minimum lease payment Non-cancellable operating lease commitments: Not later than 1 year Later than 1 year and not later than 5 years Total non-cancellable operating lease commitments Aggregate operating lease commitments comprise: Office rental commitments(i) Onshore facility rental commitments(ii) Vessel charter fee commitments(iii) Other(iv) Total (i) 2018 $’000 2017 $’000 6,230 14,848 3,828 3,350 7,178 3,661 1,476 1,066 975 7,178 3,345 5,483 8,828 4,363 3,969 - 496 8,828 Office rental commitments: The Group has a lease on the head office premises at Fremantle, Australia which expires on 4 August 2020, with an option to extend for a further 5-year term. The Group also has a 2-year lease agreement in place for the Singapore office expiring on 31 January 2020. (ii) Onshore facility rental commitments: The Group has a rental commitment for the lease of the Singapore Onshore Facility for a term expiring on 15 April 2021. (iii) Vessel charter commitments: As of 30 June 2018, the Company had three vessels (2017: Nil) under bare boat charter agreement. Vessel charter commitments represent charter fee payments to be made to the owners of these vessels. (iv) Other lease commitments: The Group has leases over a number of residential properties and various items of machinery and equipment. These leases are all on commercial terms for periods up to 5 years. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 5. Other Notes (continued) 5.2 Share Based Payments Share rights incentive plans The Group has established ownership based compensation plans whereby executives and employees of the Group have been issued rights over ordinary shares of MMA Offshore Limited. Upon exercise, each share right, converts into one ordinary share of MMA Offshore Limited. No amounts are paid or are payable by the recipient on receipt of the rights. The rights carry no entitlement to dividends and no voting rights. Holders of rights do not have the entitlement, by virtue of the right, to participate in any share issue of the Company. The rights may be exercised at any time from their vesting date to the date of their expiry. The rights are not quoted on the ASX. The following share based payment arrangements were in existence during the current reporting period: Series Number issued Grant Date Expiry Date (1) Issued 22 October 2014 1,052,625 22 Oct 2014 1 Jul 2017 (2) Issued 1 December 2014 11,382 1 Dec 2014 1 Jul 2017 (3) Issued 1 December 2014 430,075 18 Nov 2014 1 Jul 2017 (4) Issued 10 February 2016 2,001,432 18 Nov 2015 1 Jul 2020 (5) Issued 10 February 2016 8,037,836 7 Dec 2015 1 Jul 2020 (6) Issued 7 June 2016 220,284 18 Apr 2015 1 Jul 2020 Exercise price $ Fair Value at Grant date $ 0.00 0.00 0.00 0.00 0.00 0.00 1.09 1.09 0.75 0.02 0.02 0.02 None of the Performance Criteria for rights issued during the 2015 financial year as part of Series 1, 2 and 3 were met. As such, all the rights have lapsed in accordance with the terms of the Plan rules. Performance Rights issued during the 2016 financial year as part of Series 4, 5 and 6 to executives and employees are subject to achievement of a number of vesting targets. 50% of the rights are subject to achieving a share price target and the remaining 50% are subject to the Company’s Total Shareholder Return percentile ranking relative to a selected Peer Group over the 3-year vesting period. At 30 June 2018 none of the performance criteria for these rights had been met and they will lapse in accordance with the terms of the Plan rules. Please refer to the Remuneration Report on pages 35 to 44 for further details of Performance Rights issued to executives and employees. Fair value of share rights granted during the year There were no share rights granted during the year. Equity settled share based payments to employees are measured at fair value of the equity instrument at grant date. The fair value determined at the grant date of the equity settled share based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with corresponding adjustment to the employee equity settled benefits reserve. 80 Annual Report 2018 MMA Offshore Limited 81 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 5. Other Notes (continued) 5.2 Share Based Payments (continued) Movement in share rights during the period The following reconciles the outstanding share rights at the beginning and end of the financial year: 2018 2017 Employee Share Right Plans Weighted average exercise price $ Number of rights Balance at the beginning of the financial year 10,923,881 Forfeited during the financial year Expired during the financial year Balance at the end of the financial year Exercisable at end of the financial year - (1,368,221) 9,555,660 - 0.00 0.00 0.00 0.00 0.00 Weighted average exercise price $ 0.00 0.00 0.00 0.00 0.00 Number of rights 13,718,778 (815,406) (1,979,491) 10,923,881 - Share rights outstanding at the end of the year The following share rights were outstanding at the end of the financial year: Series (4) (5) (6) Total Issued 10 February 2016 Issued 10 February 2016 Issued 7 June 2016 Number 2,001,432 7,333,944 220,284 9,555,660 Exercise price $ 0.00 0.00 0.00 0.00 Expiry Date 1 Jul 2020 1 Jul 2020 1 Jul 2020 5.3 Key Management Personnel Compensation Please refer to the Remuneration Report for details of key management personnel. The aggregate compensation made to the Directors and other key management personnel of the Company and the Group is set out below: Short-term employee benefits Post-employment benefits Other long-term benefits Termination benefits Share based payments Total 2018 $ 2017 $ 3,381,570 3,884,357 175,939 64,587 216,011 36,852 231,100 55,220 302,342 394,657 3,874,959 4,867,676 5. Other Notes (continued) 5.4 Related Party Transactions The immediate parent and ultimate controlling party of the Group is MMA Offshore Limited. Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. Trading transactions During the year, the Group entities did not enter into any trading transactions with related parties that are not members of the Group: Jointly controlled entity Sale of Goods Purchase of Goods 2018 $ - 2017 $ 44,809 2018 $ - 2017 $ 8,770 There were no outstanding balances due from related parties that are not members of the Group (2017: Nil). Loans to related parties The Group provided a member of its key management personnel with a short term loan during the prior year. The outstanding balance at the end of the year was $25,602 (2017: $24,732). Other related party transactions Other transactions that occurred during the financial year between entities in the wholly owned Group were the charter of vessels. These are all provided at commercial rates. 5.5 Remuneration of Auditors Auditor of the Parent Entity Audit or review of the financial report Advice relating to debt restructure Advice relating to equity raising Total Network firms of the Parent Entity auditor Audit or review of the financial report Taxation compliance services Total 2018 $ 2017 $ 280,750 242,920 18,500 542,170 319,508 39,077 358,585 313,076 344,978 - 658,054 285,822 62,780 348,602 The auditor of MMA Offshore Limited is Deloitte Touche Tohmatsu (“Deloitte”). Following a detailed review by the Audit and Risk Committee of the nature of the non-audit services provided by the external auditor during the year, the Board has determined that the services provided, and the amount paid for those services, are compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 (Cth) and that the auditor’s independence has not been compromised. 82 Annual Report 2018 MMA Offshore Limited 83 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 5. Other Notes (continued) 5.6 Subsidiaries The Group’s material subsidiaries at the end of the reporting period are as follows: Parent Entity MMA Offshore Limited Subsidiaries MMA Offshore Vessel Operations Pty Ltd MMA Offshore Charters Pty Ltd MMA Offshore Supply Base Pty Ltd MMA Offshore Asia Pte Ltd MMA Offshore Logistics Pty Ltd MMA Offshore Vessel Holdings Pte Ltd MMA Offshore Malaysia Sdn Bhd MMA Offshore Shipyard and Engineering Services Pte Ltd Airia Jaya Marine (S) Pte Ltd MMA Offshore Asia Vessel Operations Pte Ltd JSE Offshore Shipping Pte Ltd JSE Offshore (Labuan) Pte Ltd Concord Offshore (Labuan) Ltd PT Jaya Asiatic Shipyard Note Country of Incorporation Ownership Interest 2018 % Ownership Interest 2017 % (i) Australia (ii) (iii) (ii) (iii) (ii) (iii) (ii) (iii) (ii) Australia Australia Australia Singapore Australia Singapore Malaysia Singapore Singapore Singapore Singapore Malaysia Malaysia Indonesia 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 (i) MMA Offshore Limited is the head entity within the tax consolidated group. (ii) These companies are members of the tax consolidated group. (iii) Pursuant to ASIC Class Order 98/1418, relief has been granted to these wholly owned controlled entities from the Corporations Law requirements for preparation, audit and lodgement of the financial report. As a condition of the Class Order, MMA Offshore Limited and the controlled entities entered into a Deed of Cross Guarantee on 15 February 2012. The consolidated statements of comprehensive income and financial position of entities which are party to the deed of cross guarantee are as follows: Statement of Comprehensive Income Continuing Operations Revenue Investment income Dividend income Other income/(losses) Vessel expenses Administrative expenses Impairment charge Finance costs Loss before income tax expense from continuing operations Income tax benefit/(expense) Loss for the year from continuing operations Discontinued Operations Loss from discontinued operations Loss for the Year Total Comprehensive Income/(Loss) for the year 2018 $’000 2017 $’000 142,938 3,715 - (5,525) (131,804) (7,091) 87,736 (23,100) 66,869 - 150,341 2,759 9,063 3,906 (146,544) (7,377) (453,437) (26,450) (467,739) (368) 66,869 (468,107) - 66,869 66,869 (23,701) (491,808) (491,808) 5. Other Notes (continued) 5.6 Subsidiaries (continued) Statement of Financial Position Current Assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Assets classified as held for sale Total Current Assets Non-Current Assets Other financial assets Property, plant and equipment Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Unearned revenue Borrowings Provisions Total Current Liabilities Non-Current Liabilities Other payables Borrowings Provisions Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Retained earnings/(accumulated losses) Total Equity Retained earnings/(accumulated losses) Retained earnings at beginning of the financial year Net profit/(loss) Retained earnings/(accumulated losses) at end of the financial year 2018 $’000 2017 $’000 58,469 36,473 611 491 - 24,944 38,831 1,535 717 857 96,044 66,884 420,923 109,303 530,226 626,270 39,307 375 1,734 10,064 51,480 5,875 259,928 262 266,065 317,545 308,725 335,537 112,932 448,469 515,353 39,285 - - 9,447 48,732 1,901 314,452 885 317,238 365,970 149,383 654,735 127 561,275 1,114 (346,137) (413,006) 308,725 149,383 (413,006) 66,869 (346,137) 78,802 (491,808) (413,006) 84 Annual Report 2018 MMA Offshore Limited 85 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 5. Other Notes (continued) 5.7 Parent Company Information The accounting policies of the parent entity, which have been applied in determining the financial information shown below, are the same as those applied in the Consolidated Financial Statements. 5. Other Notes (continued) 5.8 Financial Instruments (continued) Market risk Financial Position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net Assets Equity Issued capital Retained earnings/(accumulated losses) Profit reserve - 2016(i) Employee equity settled benefits reserve Total Equity Financial Performance Loss for the year Other comprehensive gain Total comprehensive gain/(loss) Guarantees provided under the deed of cross guarantee 2018 $’000 2017 $’000 57,706 542,311 600,017 5,018 266,705 271,723 328,294 17,352 563,601 580,953 4,982 319,482 324,464 256,489 654,748 561,289 (440,716) (420,079) 114,122 140 328,294 114,122 1,157 256,489 (20,637) (420,079) - (20,637) 45,822 - (420,079) 41,506 (i) A profit reserve was created in the prior year and represents an appropriation of amounts from retained earnings for the payment of future dividends. 5.8 Financial Instruments Categories of financial instruments Financial assets Cash and cash equivalents Loans and receivables Financial liabilities 2018 $’000 69,648 61,641 2017 $’000 28,757 65,317 Payables and borrowings at amortised cost 299,001 360,435 Financial risk management objectives The Group’s treasury function includes the management of the Group’s financial assets and commitments including ensuring adequate procedures and controls are in place to manage financial risks. These risks include market risk (including currency and interest rate risk) credit risk and liquidity risk. A Treasury Policy has been approved by the Board and provides guidelines for conducting treasury activities. Compliance with this Policy is monitored through internal audit procedures and subsequent reporting to the Audit and Risk Committee. The Group seeks to minimise the effects of these risks, by using, where considered appropriate, derivative financial instruments to hedge these risk exposures. The allowable financial derivatives and conditions for their use are documented in the Treasury Policy. 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 of changes in foreign currency exchange rates and interest rates. Where required, the Group can enter into a range of derivative financial instruments to manage its exposure to these risks. At a Group level, these market risks are managed through sensitivity analysis. There is no change in the manner in which these risks are managed and measured in the current year. Foreign currency risk management The Group undertakes transactions denominated in foreign currencies. Consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts, when it is considered appropriate. The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the end of the financial year are as follows: US Dollars Singapore Dollars Euro Other Liabilities Assets 2018 $’000 25,724 3,076 445 561 2017 $’000 17,061 3,518 643 975 2018 $’000 48,652 2,682 12 2,192 2017 $’000 41,844 2,335 877 1,224 Foreign currency sensitivity analysis The Group is mainly exposed to US Dollars (USD), Singapore Dollars (SGD) and Euro (EUR). The following table details the Group’s sensitivity to a 10% increase and decrease in the Australian Dollar against the relevant foreign currencies. The 10% sensitivity represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit or equity where the Australian dollar strengthens 10% against the relevant currency. For a 10% weakening of the Australian Dollar against the relevant currency, there would be an equal and opposite impact on the profit or equity. US Dollar Impact Singapore Dollar Impact Euro Impact Profit or Loss Equity(i) 2018 $’000 (394) 12 2 2017 $’000 (788) 1 (17) 2018 $’000 (1,691) 24 37 2017 $’000 (1,465) 107 (5) (i) The current and comparative year USD impact relates to the translation from the functional currencies of the Group’s foreign entities into Australian Dollars. The Group’s profit and loss sensitivity to foreign currency has decreased at the end of the current period due to lower net USD denominated assets. 86 Annual Report 2018 MMA Offshore Limited 87 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 5. Other Notes (continued) 5.8 Financial Instruments (continued) Interest rate risk management 5. Other Notes (continued) 5.8 Financial Instruments (continued) Liquidity and interest risk tables The Group is exposed to interest rate risk because it borrows funds primarily at floating interest rates. The risk is managed by the Group by the use of interest rate swap contracts when considered appropriate. Hedging activities are evaluated regularly to align with interest rate views ensuring the most cost-effective hedging strategies are applied, if required. The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. Interest rate sensitivity analysis The sensitivity analysis below has been determined based on the exposure to interest rates at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. At reporting date, if interest rates had been 100 basis points higher / lower and all other variables were held constant, the impact on the net profit of the Group would be as follows: • Net profit would decrease / increase by $2,690,012 (2017: decrease / increase by $3,242,085). This is attributable to the Group’s exposure to interest rates on its variable borrowings. The Group’s sensitivity to interest rates has decreased during the current year due to the decrease in the carrying value of the variable rate debt instruments as a result of the principal repayments made during the year. Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a policy of only dealing with credit worthy counterparties. The Group’s exposures to its counterparties are continuously monitored by management. Where appropriate, the Group obtains guarantees from customers. Cash terms, advance payments or letters of credit are required from customers of lower credit standing. Trade receivables consist of a large number of customers spread across the offshore oil and gas exploration, development and production industries and across diverse geographical areas. Ongoing credit evaluation is performed on the financial condition of trade receivables. Apart from the largest, second and third largest trade receivables (refer note 3.2), the Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are related entities. The credit risk on the three largest receivables is managed through regular meetings with the customers, on-going contractual arrangements and regular receipts for the balances outstanding. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The carrying amount of financial assets recognised in the financial statements, which is net of impairment losses, represents the Group’s maximum exposure to credit risk. Liquidity risk management The Group manages liquidity risk by maintaining adequate cash reserves and borrowing facilities, continuously monitoring forecast and actual cash flows and managing credit terms with customers and suppliers. The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are at floating rate, the undiscounted amount is derived from current interest rates at the end of the reporting period. Weighted average effective interest rate % Less than 1 month $’000 1-3 months $’000 3 months to 1 year $’000 1-5 years $’000 Total $’000 30 June 2018 Non-interest bearing Hire purchase liability Variable interest rate instruments Total 30 June 2017 Non-interest bearing Hire purchase liability Variable interest rate instruments Total - 2.90 6.08 - 2.90 7.60 19,886 1 1,390 21,277 37,386 1 2,899 40,286 1,891 1 2,735 4,627 - 1 4,124 4,125 859 5 12,239 13,103 - 4 18,457 18,461 14,693 37,329 5 310,039 324,737 8,597 10 355,106 363,713 12 326,403 363,744 45,983 16 380,586 426,585 The following table details the Group’s expected maturity for its non-derivative financial assets. The table has been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets. Weighted average effective interest rate % Less than 1 month $’000 1-3 months $’000 3 months to 1 year $’000 1-5 years $’000 Total $’000 30 June 2018 Non-interest bearing Variable interest rate instruments Total 30 June 2017 Non-interest bearing Variable interest rate instruments Total - 2.20 - 1.06 24,960 69,775 94,735 23,354 28,782 52,136 6,658 29,423 - - 6,658 29,423 8,430 27,084 - - 8,430 27,084 600 - 600 6,449 - 6,449 61,641 69,775 131,416 65,317 28,782 94,099 88 Annual Report 2018 MMA Offshore Limited 89 Notes to the Financial Statements For the year ended 30 June 2018Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report 5. Other Notes (continued) 5.8 Financial Instruments (continued) Fair value of financial instruments The Directors consider that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values. The fair values of financial assets and financial liabilities are determined as follows: • The fair values of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices. • The fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis. 5.9 Events After the Reporting Period There has not been any matter or circumstance that occurred subsequent to the end of the financial year that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. Additional Securities Exchange Information For the year ended 30 June 2018 Ordinary Share Capital (as at 14 September 2018) 858,077,084 fully paid ordinary shares are held by 7,112 individual shareholders. All issued ordinary shares carry one vote per share. Substantial shareholders Black Crane Asia Opportunities Fund Halom Investments Pte Ltd Paradice Investment Management Pty Ltd Tribeca Investment Partners Pty Ltd Eley Griffiths Group Pty Ltd TIGA Trading Pty Ltd Thorney Opportunities Ltd First Samuel Limited Distribution of Holders of Ordinary Shares (as at 31 August 2018) Size of Holding 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total Number of Shares % of Issued Capital 77,418,996 67,481,946 62,537,998 51,523,200 48,370,356 46,806,956 46,806,956 45,466,875 9.02 7.86 7.29 6.00 5.64 5.45 5.45 5.30 Number of ordinary shareholders 1,556 1,932 1,108 2,148 361 7,105 Twenty Largest Shareholders (as at 14 September 2018) Number of Shares % of Issued Capital 1 2 3 4 5 6 J P Morgan Nominees Australia Limited HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited National Nominees Limited UBS Nominees Pty Ltd BNP Paribas Nominees Pty Ltd7 Warbont Nominees Pty Ltd 8 Evelin Investments Pty Limited 9 Mr Hong Keong Chiu + Ms Yok Kee Khoo 10 Argo Investments Limited 11 Zakher Marine Intl Inc 12 Bond Street Custodians Limited 13 BNP Paribas Noms Pty Ltd 14 Hishenk Pty Ltd 15 Zero Nominees Pty Ltd 16 Ms Jennifer Ann Weber + Mr Jeffrey Andrew Weber 17 Neweconomy Com Au Nominees Pty Limited <900 ACCOUNT> 18 Mr Ross Alexander Macpherson 19 Mrs Elizabeth Aprieska 20 Mr Mark Francis Bradley Total 156,803,021 141,780,152 126,228,272 89,372,678 34,969,417 31,064,273 12,255,550 9,160,000 8,830,149 6,000,000 5,847,378 5,549,663 5,378,627 5,100,000 5,000,000 3,815,916 3,411,543 2,999,000 2,889,106 2,823,819 18.27 16.52 14.71 10.42 4.08 3.62 1.43 1.07 1.03 0.70 0.68 0.65 0.63 0.59 0.58 0.44 0.40 0.35 0.34 0.33 659,278,564 76.83 90 Annual Report 2018 MMA Offshore Limited 91 Notes to the Financial Statements For the year ended 30 June 2018OverviewOperating & Financial ReviewGovernance2018 Financial Report Overview Operating & Financial Review Governance 2018 Financial Report Additional Securities Exchange Information For the year ended 30 June 2018 (continued) Unmarketable Parcels (as at 31 August 2018) The number of holders holding less than a marketable parcel of the Company’s shares is as follows: Minimum Parcel Size Number of ordinary shareholders Number of shares 2,174 2,302 1,759,339 Voting Rights All ordinary shares carry one vote per share without restriction. Unquoted Options As at the date of this report, there are no unissued shares under rights. Shareholder Enquiries Shareholders can obtain information about their shareholding by contacting the Company’s share registry: Computershare Investor Services Pty Ltd GPO Box 2975 Melbourne Victoria 3000 Australia Enquiries: (within Australia) (outside Australia) 61 3 9415 4000 Facsimile: 61 3 9473 2500 web.queries@computershare.com.au www.computershare.com.au 1300 850 505 Change of Address Shareholders should notify the share registry immediately if there is a change to their registered address. Securities Exchange Listing Shares in MMA Offshore Limited are listed on the Australian Securities Exchange. Publications The Annual Report is the main source of information for shareholders. 92 Annual Report 2018 C o r p o r a t e D i r e c t o r y Directors Andrew Edwards Chairman Jeffrey Weber Managing Director Peter Kennan Non-Executive Director Eve Howell Non-Executive Director Chiang Gnee Heng Non-Executive Director Company Secretary Auditors Solicitors Dylan Darbyshire-Roberts Registered Office Endeavour Shed, 1 Mews Road FREMANTLE WA 6160 Tel: +61 8 9431 7431 Fax: +61 8 9431 7432 www.mmaoffshore.com Deloitte Touche Tohmatsu Chartered Accountants Brookfield Place, Tower 2 123 St Georges Terrace PERTH WA 6000 Tel: +61 8 9365 7000 Fax: +61 8 9365 7001 Ashurst Brookfield Place, Tower 2 123 St Georges Terrace PERTH WA 6000 Tel: +61 8 9366 8000 Fax: +61 8 9366 8111 OverviewOperating & Financial ReviewGovernance2018 Financial Report mmaoffshore.com I n s i g h t C o m m u n i c a t i o n & D e s i g n