ABN 32 009 344 058
ANNUAL REPORT
30 JUNE 2012
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2012
The Directors present their report together with the financial report of Orbital Corporation Limited (the Company or Orbital)
and of the Group, being the Company, its subsidiaries and the Group’s interest in its associate for the year ended 30 June
2012 and the auditors’ report thereon.
Reference
Contents of Directors’ Report
Page
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
Directors
Company Secretary
Principal Activities
Consolidated Result
Directors’ Meetings
Directors’ Interests
Operating and Financial Review
Dividends
State of Affairs
Events Subsequent to Balance Date
Likely Developments and Expected Results
Share Options
Indemnification and Insurance of Officers
Non-Audit Services
Rounding Off
Lead Auditor’s Independence Declaration
Remuneration Report
2
3
3
3
3
3
4
9
9
9
9
9
9
9
9
10
11
1
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2012
1.
DIRECTORS
The Directors of the Company at any time during or since the end of the financial year are:
Mr William Peter Day, LLB (Hons), MBA, FCPA, FCA, FAICD
Chairman, Independent Non-Executive Director
Joined the Board and appointed Chairman in August 2007. Mr Day retired as Chief Financial Officer of the global packaging
group Amcor in 2007. He has a diversified background in finance and general management in mining, manufacturing, food
and financial services industries.
He has held senior executive and director positions with Bonlac Foods, Rio Tinto, CRA and Comalco including Chief Financial
Officer at Commonwealth Aluminum Corporation (USA) and Managing Director, CRA Business Services in Australia. He is a
former Chairman of the Australian Accounting Standards Board, and was Deputy Chairman of the Australian Securities &
Investments Commission.
Mr Day is a member of the Company’s Audit Committee and the Company’s Human Resources, Remuneration and Nomination
Committee.
Mr Day is a non-executive director of Ansell Limited (appointed 20 August 2007), SAI Global Limited (appointed 15 August
2008) and Centro Retail Australia Limited (appointed 01 October 2009). He is also involved in a number of public interest
activities.
Mr Terry Dewayne Stinson, BBA (magna cum laude), FAICD
Managing Director and Chief Executive Officer
Joined the Board and appointed Chief Executive Officer in June 2008. Mr Stinson has been a senior executive with Siemens,
Europe’s largest engineering conglomerate, with direct responsibility for sales in excess of US$300 million per annum in their
Gasoline Systems, Fuel Systems and Fuel Components operations in the United States, Germany, Italy, China and support in
many others. Mr Stinson has also served as a representative Director for Siemens on the Synerject Board.
Prior to that, he held the position of VP Manufacturing for Outboard Marine Corporation, a privately held US$1 billion
multinational outboard marine propulsion and boat company, was CEO of Synerject LLC and held various executive positions
with Mercury Marine in R&D, engineering, manufacturing and others.
Mr Stinson was appointed a Member of the Australian Industry Innovation Council (AIIC) in 2009, is a member of the
Sustainable Energy Association, is Chairman of Sprint Gas (Aust) Pty Ltd and a Non-executive Board Member of Australia
Liquid Petroleum Gas Association (ALPGA).
Dr Mervyn Thomas Jones, B.E(Hons), Ph.D, DipBusStuds, CEng (UK), FIChemE (UK), FAICD, MIoD (NZ)
Independent Non-Executive Director
Joined the Board in March 2008. Dr Jones has more than 40 years experience as a consulting engineer and as a senior
executive. He has specific expertise in the development and management of organic business growth in the Asia Pacific
region, as well as acquisition experience in both Australia and China.
Dr Jones chairs the Company’s Audit Committee (since 28 February 2011) and is also a member of the Company’s Human
Resources, Remuneration and Nomination Committee (Chairman until 28 February 2011).
Dr Vijoleta Braach-Maksvytis, BSc (Hons), Ph.D, MAICD
Independent Non-Executive Director
Joined the Board in March 2008. Dr Braach-Maksvytis is an innovation strategist with more than 20 years experience in
organisational change, formation of cross-sectoral and global partnerships, the commercialisation of technology, and
intellectual property strategy. Previous roles include Head of the Office of the Chief Scientist of Australia, Science Executive
and Director Global Development for CSIRO, and most recently, Deputy Vice Chancellor Innovation and Development at the
University of Melbourne, and is currently an advisor in the area of social innovation.
Dr Braach-Maksvytis pioneered nanotechnology in Australia and holds over 20 patents in the field. Dr Braach-Maksvytis was a
Member of the Australian Federal Government’s Green Car Innovation Fund Committee and on the advisory board of the
Intellectual Property Research Institute of Australia, and is a member of a number of other public interest boards.
Dr Braach-Maksvytis chairs the Company’s Human Resources, Remuneration and Nomination Committee (since 28 February
2011) and is also a member of the Company’s Audit Committee.
Dr Braach-Maksvytis is also a non-executive director of AWE Limited (appointed 7 October 2010).
2
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2012
2.
COMPANY SECRETARY
Mr Ian G Veitch, B.Bus, GradDipACG, ACA, ACIS, ACSA. Mr Veitch joined Orbital in 2006 and was appointed to the position of
Company Secretary on 1 July 2009. He has over 18 years experience in company secretarial, corporate and financial
accounting roles. Mr Veitch holds a Bachelor of Business degree and is a Chartered Accountant and Chartered Secretary. Mr
Veitch is a Member of the Institute of Chartered Accountants in Australia, a Member of the Institute of Chartered Secretaries
and Administrators, and an Associate of Chartered Secretaries Australia.
3.
PRINCIPAL ACTIVITIES
Orbital imports, manufactures and assembles an automotive LPG fuel system for Ford Australia’s EcoLPi Falcon range of
vehicles and also imports, assembles and distributes an extensive range of LPG systems for aftermarket LPG installers and
mechanical workshops around Australia.
Orbital is an international developer of innovative technical solutions for a cleaner world. Orbital provides innovation, design,
product development and operational improvement services to the world’s producers, suppliers, regulators and end users of
engines and engine management systems for applications in motorcycles, marine and recreational vehicles, automobiles,
trucks, and most recently in small unmanned aircraft systems (SUAS).
There were no significant changes in the nature of the activities of the Group during the year, albeit that the proportion of
total revenue provided by system sales has increased significantly.
4.
CONSOLIDATED RESULT
The consolidated loss after income tax for the year attributable to the members of Orbital was $3,053,202 (2011:$1,763,084
profit)
5.
DIRECTORS’ MEETINGS
The number of Directors’ meetings (including meetings of the committees of Directors) and the number of meetings attended
by each of the Directors of the Company during the financial year are shown below.
Director
Directors' Meetings
Audit Committee Meetings
Human Resources,
Remuneration & Nomination
Committee Meetings
No. of
meetings
attended
No. of
meetings
held*
No. of
meetings
attended
No. of
meetings
held*
No. of
meetings
attended
No. of
meetings
held*
W P Day
T D Stinson
M T Jones
13
12
13
13
13
13
4
-
4
4
-
4
V Braach-Maksvytis
4
* number of meetings held during the time the director held office during the year.
13
13
4
1
-
1
1
1
-
1
1
6.
DIRECTORS’ INTERESTS
The relevant interest of each Director in the share capital of the Company shown in the Register of Directors’ Shareholdings
as at the date of this report is as follows: -
Director
W P Day
T D Stinson
M T Jones
V Braach-Maksvytis
Ordinary
Shares
ELTSP Rights
Performance
Rights
10,000
-
-
392,690
1,960,000
1,150,000
18,000
-
-
-
-
-
420,690
1,960,000
1,150,000
3
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2012
7.
OPERATING AND FINANCIAL REVIEW
Total revenue and loss after tax for the year ended 30 June 2012 was $22,361,000 and $3,053,000 respectively (2011: total
revenue $16,638,000 and profit after tax of $1,763,000) as shown below:-.
System Sales
- Segment revenue
- Segment result
Consulting Services
- Segment revenue
- Segment result
Royalties & licences
- Segment revenue
- Segment result
Total Revenue
Total Segment result
Synerject
- Revenue (100%)(1)
127,548
121,673
June 2012
June 2011
US$’000
US$’000
- Equity accounted profit
Unallocated other income
Unallocated other expenses
Foreign exchange gain
Finance costs (net)
Research and development
Business development costs*
Gain on sale of property*
Write-off capitalised development costs*
Provision for slow moving inventory*
Terminations costs*
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
June 2012
$’000
June 2011
$’000
14,020
380
7,131
(2,259)
967
463
22,118
(1,416)
5,847
(757)
9,492
161
1,081
610
16,420
14
3,480
3,233
545
959
(4,470)
(2,809)
120
(449)
(954)
-
-
-
-
(113)
(3,257)
204
79
(353)
(1,158)
(205)
4,237
(1,065)
(942)
(417)
1,573
190
(3,053)
1,763
Underlying profit/(loss) (excluding items highlighted*)
(2,940)
155
(1) As reported by Synerject LLC.
The non-IFRS information above has not been audited, but has been extracted from Orbital’s annual financial report which
has been audited by the external auditors. This information has been presented to assist in making appropriate comparisons
with prior periods and to assess the operating performance of the business.
Detailed comments on Orbital’s four business streams are as follows:
4
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2012
7.
OPERATING AND FINANCIAL REVIEW (continued)
System Sales
Segment revenue
Segment result before impairment
Write-off of capitalised development costs
Provision for slow moving inventory
Segment result
June 2012
June 2011
$'000
$'000
14,020
380
-
-
380
5,847
(757)
(1,065)
(942)
(2,764)
Development and supply of engine management systems, engines and engine parts is the cornerstone of Orbital’s growth
strategy. This will initially supplement and eventually replace Orbital’s traditional revenue streams of engineering consulting
services and royalties.
Growth to date has been underpinned by demand for alternative fuel systems. The demand overseas for alternative fuels is
growing rapidly with increasing infrastructure installation and investment being made in both USA and Europe. The drivers
are threefold; reduced greenhouse gas emissions, reduced fuel cost to the vehicle operator and fuel security.
Orbital’s initiatives in the alternative fuels market are in several key areas: Liquid LPG systems, LPG system aftermarket
distribution and the development of Dual Fuel LNG (Liquid Natural Gas) for heavy duty transport.
Revenues for the year were $14,020,000, a 140% increase on the previous year, reflecting the release of Ford Australia’s
EcoLPi vehicles during the financial year and a full year’s trading (post acquisition) from Sprint Gas Australia. Contribution to
the group improved from a loss of $2,764,000 last year to a $380,000 profit this year.
Orbital Autogas Systems (OAS) developed, and is the supplier to Ford Australia of Liquid LPG systems for the Ford EcoLPi
Falcon range of passenger cars and utilities. The Ford EcoLPi Falcon offers performance of a big family car with fuel running
cost better than many mid/small sized cars. In November 2011, the EcoLPi Falcon was awarded “Best Large Car Under
$60,000” by the peak motoring body the Australian Automobile Association in conjunction with the seven major state and
territory motorists' clubs.
Sprint Gas Australia (SGA) is a major nationwide distributor of LPG systems for the aftermarket. SGA offers a wide range of
systems from the older generation “vapouriser” systems through to sequential injection systems and the Orbital Liquid LPG
systems.
Despite the very subdued LPG systems market at present, both OAS and SGA are managing their business to the market
demand, and in general, increasing market share. Orbital is well positioned for any upturn in the LPG market as it is
becoming, through OAS and SGA, a major player in the Australian LPG system supply market.
A key product developed this year by Orbital Consulting Services was the Unmanned Aircraft Systems (UAS) engine supplied
to AAI, a Textron Inc (NYSE: TXT) company, in USA for use in their Aerosonde® 4.7 Unmanned Aerial Vehicle (UAV). The
engine uses Orbital’s FlexDITM technology enabling spark ignition of military specification kerosene fuels and has been
designed to be a lightweight and compact package which enables the end-user increased payload and/or range opportunities.
The “One-Fuel” policy being adopted by the military for both safety and ease of logistics replaces the use of conventional
petrol (or gasoline) fuels used in the past for this application. Orbital has been contracted to supply engines up to a value of
approximately $4,700,000 throughout 2012. Dedicated facilities have been commissioned at Orbital’s Perth facility to
support this program and supply commenced in August 2012. It is expected that this initial product will lead to an expansion
of supply and services in this field, including engine supply, engine management systems (EMS) supply, and engine
refurbishment, along with further engine design and development opportunities.
Orbital, in conjunction with Toll Resources Group, has continued a fleet test utilising Orbital’s LNG system with Toll’s heavy
duty trucks plying long haul routes in Western Australia. In addition to achieving up to 80% substitution of diesel with LNG
(on an energy basis) offering the end user significant fuel cost savings, the Orbital system, due to advanced EMS features,
enables full power capability. Whist further development, validation and commercialisation is required to complete this
system there is growth potential for LNG systems as a product suitable for an expanded engine range.
5
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2012
7.
OPERATING AND FINANCIAL REVIEW (continued)
Synerject
Revenue (100%)
Profit after tax (100%)
Operating cash flow, after capex (100%)
Orbital equity accounted share
June 2012
June 2011
US$'000
US$'000
127,548
121,673
8,045
3,242
7,315
8,517
A$’000
A$’000
3,480
3,233
Equity accounted investment in Synerject
13,696
11,406
Synerject, Orbital’s 42:58% Partnership with Continental AG, is a key supplier of EMS to
the non-automotive market. Original equipment products using Synerject’s engine
management systems range from the high performance motorcycle/recreational vehicles
to the high volume scooter and small engine applications. Application centres in Asia,
Europe and the United States provide on-site support of customer development and
production programs.
Synerject continues to develop new products and new markets to expand on their
product offering beyond their original markets of EMS for recreational marine product
and scooters. Synerject’s markets today include a range of EMS for top end
motorcycles, ATV’s (All Terrain Vehicles), snowmobiles, marine outboard engines and
scooters through to systems specifically designed for small engines such as those used
in the Lawn and Garden market. Synerject is expanding its presence in India and other
countries where there
low end
motorcycle/scooters products which are a major part of these countries’ transport
structure.
increasing demand
for EMS
in the
is an
Synerject’s market and product expansion has enabled Synerject to achieve revenue
growth consistently over the last 4 years despite the severe contractions in the
recreational market during and following the global financial crisis. Whilst the
recreational market has somewhat improved, it is still being influenced by the current
financial situation in the key USA and European markets, highlighting the success and
importance of Synerject’s expanded/diversified product strategy.
Tight cost control and careful investment by management has resulted in continually
improved profit after tax during this period.
Increased revenue and tight cost control has resulted in a record profit after tax of
US$8,045,000 (A$7,847,000) for Synerject an improvement of 10% over the previous
corresponding period.
Synerject generated US$3,242,000 positive cash flow and paid dividends to shareholders
(Orbital share A$1,544,000). At 30 June 2012, Synerject held cash of US$4,271,000
and borrowings of US$2,654,000 (June 2011: net cash of US$2,291,000).
6
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2012
7.
OPERATING AND FINANCIAL REVIEW (continued)
Consulting Services
Segment revenue
Segment result
June 2012
June 2011
$'000
$'000
7,131
(2,259)
9,492
161
Orbital Consulting Services (OCS) provides engineering consulting services in engine design, development and supply of
combustion systems, fuel and engine management systems, along with engine and vehicle testing and certification. Orbital
provides fuel economy and emission solutions to a wide variety of engine and vehicle applications, from 150 tonne trucks
through to small industrial engines.
OCS revenue for the year was $7,131,000 down 25% compared to last year. As anticipated and noted in February 2012 the
strong Australian dollar and reduced customer demand severely impacted consulting work awarded by OCS’s traditional
European, USA and Asian customers in the 2nd half year.
During this period the OCS group controlled costs and key resources were redeployed on continuing R&D projects, and to
ensure that Orbital’s prospective UAS business was secured.
In addition to supporting the development of the UAS engine for AAI, OCS is testing a Dual Fuel LNG substitution system
currently being supplied at low volume to support an expanded fleet trial underway with Toll Resource Group. The system
has accumulated approximately 2 million kilometres. As previously noted, there is a growing interest in this system,
however further development and commercialisation is required to achieve a mature production ready system.
Efforts to offer services and products to the mining/resource industry in Western Australia are starting to show results with
potential new work programs under discussion. Orbital’s Perth based facility is ideally located to provide support services to
this industry, and to act as a base for LNG system conversions and large engine overhaul.
Throughout the year, Orbital’s engineering group have provided research and development support across the Orbital group.
This is a key service made available to the group, ranging from technical support of existing products and customers through
to analysis and design of potential future product offerings.
At 30 June 2012, the OCS order book stood at approximately $1,000,000 (30 June 2011 $3,900,000).
Royalties and Licences
Segment revenue
Segment result
June 2012
June 2011
$'000
$'000
967
463
1,081
610
Orbital earns royalties from product using its FlexDITM systems and technology. The royalty bearing products today are in the
marine and the scooter/motorcycle markets.
FlexDITM product volumes reduced marginally compared to the same period last year. This, together with the strong
Australian Dollar, has resulted in an 11% reduction in revenue for the year.
7
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2012
7.
OPERATING AND FINANCIAL REVIEW (continued)
Other
Unallocated other expenses increased by $1,661,000 to $4,470,000. Occupancy expenses increased by $340,000 due to the
sale and leaseback of the engineering facility in Perth, a bad debt was written off ($429,000), $391,000 was provided for
surplus lease space and in the prior corresponding period a bonus provision was reversed resulting in a credit to the income
statement of $407,000.
Cash Flow
Operating cash flow
Synerject dividend
Sale of Balcatta property
Acquisition of Sprint Gas
Other Capex and Development costs (net)
Financing cash flow
Movement in Cash/Term Deposits
Cash and term deposits
Bank Loan
Net
June 2012
June 2011
$'000
$'000
(4,245)
(1,792)
1,544
(2,701)
-
-
(647)
1,642
(1,706)
5,170
2,500
2,670
1,208
(584)
8,557
(1,780)
(1,074)
(1,848)
3,271
6,874
648
6,226
Net cash used in operations (including the Synerject dividend of $1,544,000) was $2,701,000 (2011: $584,000) reflecting
the decreased consulting revenue in the 2nd half year. Notwithstanding the 35% increase in revenue and despite $1,137,000
increase in inventory, total working capital was managed tightly generating $379,000. Operating cash flow in the 2nd half year
was positive ($323,000) as the business reacted to the tough operating conditions.
During the year $1,852,000 was drawn from a loan facility and at 30 June 2012 Orbital had cash (including short term
deposits) of $5,170,000 and borrowings of $2,500,000.
Outlook
It is anticipated that the system supply business will provide further revenue growth in the year ending 30 June 2013. UAS
engine supply to AAI commenced in August 2012 and although EcoLPi volumes are below original expectations, OAS will
support a full year supply to Ford. The LPG aftermarket continues to be extremely soft; however synergies between OAS and
Sprint Gas will provide improved product distribution channels and business efficiencies.
Synerject continues to grow and it is anticipated that this growth will provide another improved result next financial year.
Synerject is expected to continue to generate cash and pay regular dividends.
As noted above, the OCS international business is affected by the strong Australian dollar. The international and domestic
OCS markets are weak and as a result the order book continues to be lower than historical levels. It is anticipated that OCS
revenue will be lower than previous years and this business will generate a loss next year. The OCS division will however
continue to focus on generating new product supply opportunities particularly in the prospective UAS market and other
applications utilising FlexDITM technology.
Orbital will continue to concentrate on cash management and manage costs appropriately to minimise overheads while
protecting resources for future growth. Despite the expected outlook for the OCS business, Orbital’s strategic switch to a
system supply business is delivering growth and diversification. Orbital is targeting a return to profits in the financial year
ending 30 June 2013.
8
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2012
8.
DIVIDENDS
No dividend has been paid or proposed in respect of the current financial year.
9.
STATE OF AFFAIRS
There were no other significant changes in the state of affairs of the Group during the financial year, other than as reported
elsewhere in the financial statements.
10.
EVENTS SUBSEQUENT TO BALANCE DATE
There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or
event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the
operations of the Group, the results of those operations, or the state of affairs of the Group, in future years.
11.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
Information as to the likely developments in the operations of the Group is set out in the review of operations above. Further
information as to the likely developments in the operations of the Group and the expected results of those operations in
subsequent financial years has not been included in this report because to include such information would be likely to result in
unreasonable prejudice to the Group.
12.
SHARE OPTIONS
The Company has no unissued shares under option at the date of this report.
13.
INDEMNIFICATION AND INSURANCE OF OFFICERS
To the extent permitted by law, the Company indemnifies every officer of the Company against any liability incurred by that
person:
(a)
(b)
in his or her capacity as an officer of the Company; and
to a person other than the Company or a related body corporate of the Company
unless the liability arises out of conduct on the part of the officer which involves a lack of good faith.
During the year the Company paid a premium in respect of a contract insuring all Directors, Officers and employees of the
Company (and/or any subsidiary companies of which it holds greater than 50% of the voting shares) against liabilities that
may arise from their positions within the Company and its controlled entities, except where the liabilities arise out of conduct
involving a lack of good faith. The Directors have not included details of the nature of the liabilities covered or the amount of
the premium paid in respect of the insurance contract as disclosure is prohibited under the terms of the contract.
14.
NON-AUDIT SERVICES
During the year Ernst & Young, the Company’s auditor, has performed certain other services in addition to their statutory
duties.
The Board has considered the non-audit services provided during the year by the auditor and in accordance with advice
provided by resolution of the Audit Committee is satisfied that the provision of those non-audit services by the auditor during
the year is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for
the following reasons:
all non-audit services were subject to the corporate governance procedures adopted by the Company and have been
reviewed by the Audit Committee to ensure that they do not impact the integrity and objectivity of the auditor;
the non-audit services do not undermine the general principles relating to auditor independence as set out in
Professional Statement F1 Professional Independence, as they did not involve 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 risks and rewards.
Details of the amounts paid to the auditor of the Company, Ernst & Young, and its related practices for audit and non-audit
services provided during the year are shown in note 42 to the financial statements.
15.
ROUNDING OFF
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order,
amounts in the financial report and Directors’ Report have been rounded off to the nearest thousand dollars unless otherwise
indicated.
9
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2012
16.
LEAD AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT
2001
The directors received the following declaration from the auditor of Orbital Corporation Limited.
Auditor's Independence Declaration to the Directors of Orbital Corporation
Limited
In relation to our audit of the consolidated financial report of Orbital Corporation Limited and its controlled entities for the
financial year ended 30 June 2012, to the best of my knowledge and belief, there have been no contraventions of the auditor
independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.
Ernst & Young
G Lotter
Partner
Perth
21 September 2012
10
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2012
17.
REMUNERATION REPORT - AUDITED
Principles of compensation
This Remuneration Report for the year ended 30 June 2012 outlines the director and executive remuneration arrangements of
the Company and the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the
purposes of this report Key Management Personnel (KMP) are defined as those persons having authority and responsibility for
planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any
director (whether executive or otherwise) of the parent company, and the senior executives of the Group and Company.
The remuneration report is presented under the following sections:
Individual key management personnel disclosures
17.1.
17.2. Remuneration at a glance
17.3. Remuneration governance
17.4. Non-executive director remuneration arrangements
17.5. Executive remuneration arrangements
17.6. Company performance and the link to remuneration
17.7. Executive contractual arrangements
17.8. Directors and executive officers’ remuneration - company and group
17.9. Equity instruments
17.1. INDIVIDUAL KEY MANAGEMENT PERSONNEL DISCLOSURES
Details of KMP of the Group are set out below.
Key management personnel
(i) Directors
W Peter Day Chairman (Non-executive)
Mervyn T Jones (Non-executive)
Vijoleta Braach-Maksvytis (Non-executive)
Terry D Stinson (Executive)
(ii) Executives
Keith A Halliwell – Chief Financial Officer
Geoff P Cathcart – Director, Consulting Services & Engineering
17.2. REMUNERATION AT A GLANCE
Orbital’s remuneration strategy is designed to attract, motivate and retain employees and non-executive directors by
identifying and rewarding high performers and recognising the contribution of each employee to the growth and success of
the Group.
Members of the KMP may receive a discretionary bonus (short-term incentive (STI)) approved by the Board as reward for
exceptional performance in a specific matter of importance. No STI amounts were paid or became payable during the 2012
financial year.
Members of KMP may receive a medium-term incentive (MTI) bonus based on targets for 1) Profit after tax, 2) Operating
Cash Flow, and 3) Pro-rata Consolidated Sales. During the 2012 financial year, the performance hurdles for the MTI were not
met and no MTIs were paid or became payable.
Long-term incentive (LTI) awards consisting of shares that vest based on attainment of pre-determined performance goals
are awarded to selected executives. For the 2012 financial year, the Company used relative total shareholder return and
earnings per share as the performance measures for the share awards. During the 2012 financial year, the performance
hurdles for the 2009 grant of shares were not met and no shares vested.
The remuneration of non-executive directors of the Company consists only of directors’ fees and committee fees. Director
fees and committee fees were reviewed and adjusted during the year.
Remuneration strategy
Orbital’s remuneration strategy is designed to attract, motivate and retain employees and non-executive directors by
identifying and rewarding high performers and recognising the contribution of each employee to the continued growth and
success of the Group.
Are aligned to the Group’s business strategy;
To this end, key objectives of the Company’s reward framework are to ensure that remuneration practices:
Offer competitive remuneration benchmarked against the external market;
Provide strong linkage between individual and Group performance and rewards; and
Align the interests of executives with shareholders through measuring total shareholder return (TSR) and earnings per
share (EPS).
11
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2012
17.3. REMUNERATION GOVERNANCE
Human Resources, Remuneration and Nomination Committee
The Human Resources, Remuneration and Nomination Committee reviews and makes recommendations to the Board on
remuneration packages and policies applicable to directors, secretary and senior executives of the Company.
Data is obtained from independent surveys to ensure that compensation throughout the Group is set at market rates having
regard to experience and performance. In this regard, formal performance appraisals are conducted at least annually for all
employees. Compensation packages may include a mix of fixed compensation, performance-based compensation and equity-
based compensation.
The Human Resources, Remuneration and Nomination Committee comprises three independent non-executive directors.
Further information on the committee’s role, responsibilities and membership can be seen at www.orbitalcorp.com.au.
Remuneration approval process
The Board approves the remuneration arrangements of the CEO and executives and all awards made under the long-term
incentive (LTI) plan, following recommendations from the Human Resources, Remuneration and Nomination Committee. The
Board also sets the aggregate remuneration of non-executive directors which is then subject to shareholder approval.
The Human Resources, Remuneration and Nomination Committee approves, having regard to the recommendations made by
the CEO, the short-term incentive (STI) bonus plan and the medium-term incentive (MTI) bonus plan.
Remuneration structure
In accordance with best practice corporate governance, the structure of non-executive directors and executive remuneration
is separate and distinct.
Services from remuneration consultants
From 1 July 2011, all proposed remuneration consultancy contracts (within the meaning of section 206K of the Corporations
Act 2001) are subject to prior approval by the Board or the Human Resources, Remuneration and Nomination Committee in
accordance with the Corporations Act 2001.
During the year ended 30 June 2012, no remuneration consultancy contracts were entered into by the Company and
accordingly there are no disclosures required under section 300A(1)(h) of the Corporations Act 2001.
17.4. NON-EXECUTIVE DIRECTOR REMUNERATION ARRANGEMENTS
Remuneration policy
The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain
directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders.
The amount of aggregate remuneration sought to be approved by shareholders and the fee structure is reviewed against fees
paid to non-executive directors of comparable companies. The Board considers advice from external consultants when
undertaking the review process.
The Company’s constitution and the ASX listing rules specify that the non-executive directors’ fee pool shall be determined
from time to time by a general meeting. The latest determination was at the 2001 annual general meeting (AGM) held on 25
October 2001 when shareholders approved an aggregate fee pool of $400,000 per year.
The Board will not seek any increase for the non-executive director pool at the 2012 AGM.
Structure
The remuneration of non-executive directors consists of directors’ fees and committee fees. Non-executive directors do not
receive retirement benefits, nor do they participate in any incentive programs.
The Chairman of the Board receives a fee of $109,200 which also covers membership of Committees of the Board. The
Chairman sacrificed a portion of his fee in the 2011 financial year. Each non-executive director receives a base fee of
$57,200 for being a director of the Group. An additional fee of $3,700 is also paid for each Board committee on which a non-
executive director sits or $8,300 if the director is the Chairman of a Board committee. The payment of additional fees for
serving on a committee recognises the additional time commitment required by non-executive directors who serve on
committees.
The remuneration of non-executive directors for the year ended 30 June 2012 and 30 June 2011 is detailed in Section 17.8 of
this report.
12
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2012
17.5. EXECUTIVE REMUNERATION ARRANGEMENTS
Remuneration levels and mix
The Group aims to reward executives with a level and mix of remuneration commensurate with their position and
responsibilities within the Group and aligned with market practice. The Group undertakes an annual remuneration review to
determine the total remuneration positioning against the market.
The CEO’s target remuneration mix for FY2012 comprised 60% fixed remuneration, 20% target MTI opportunity and 20% LTI
opportunity. The LTI value is the total accounting expense associated with the grant made during the financial year. Key
Management Personnel’s target remuneration mix for FY2012 was 69% fixed remuneration, 17% target MTI opportunity and
14% LTI opportunity.
Structure
In the 2012 financial year, the executive remuneration framework consisted of the following components:
► Fixed remuneration
► Variable remuneration (STI, MTI and LTI)
The table below illustrates the structure of Orbital’s executive remuneration arrangements:
Remuneration
component
Fixed compensation
Purpose
Vehicle
Link to company performance
No link to company performance.
Represented by
total fixed
remuneration
(TFR).
Comprises base
salary,
Superannuation
contributions and
other benefits.
Set with reference to role,
market and experience.
Executives are given the
opportunity to receive their
fixed remuneration in a variety
of forms including cash and
fringe benefits such as motor
vehicles. It is intended that the
manner of payment chosen will
be optimal for the recipient
without creating undue cost for
the Group.
STI component
Paid in cash
Rewards executives for their
Discretionary award by the Board
contribution to achievement of
Group outcomes.
MTI component
Paid in cash.
Rewards executives for their
Awards are made
in the form of
shares or
performance rights.
contribution to achievement of
Group outcomes.
Rewards executives for their
contribution to the creation of
shareholder value over the
longer term.
LTI component
Fixed compensation
to reward executives for
exceptional performance in a
specific area of importance.
Profit after tax.
Pro-rata Consolidated Sales.
Operating Cash Flows.
Vesting of awards is dependent on
Orbital Corporation Limited’s TSR
performance relative to a peer
group and its Earnings Per Share.
Fixed compensation consists of base compensation (which is calculated on a total cost basis and includes any FBT charges
related to employee benefits including motor vehicles), as well as employer contributions to superannuation funds.
Executive contracts of employment do not include any guaranteed base pay increases. TFR is reviewed annually by the
remuneration committee. The process consists of a review of company, business unit and individual performance, relevant
comparative remuneration internally and externally and, where appropriate, external advice independent of management.
The fixed component of executives’ remuneration is detailed in Section 17.8.
Variable remuneration — short-term incentive (STI)
KMP may from time-to-time receive a discretionary cash bonus approved by the Board as a retrospective reward for
exceptional performance in a specific matter of importance. The Board has no pre-determined performance criteria against
which the amount of a STI is assessed. Consequently, there are no pre-determined maximum possible values of award under
the STI scheme.
STI awards for 2011 and 2012 financial years
No discretionary STI cash bonuses were paid during the 2011 or 2012 financial years. No discretionary STI cash bonuses
relating to the 2011 or 2012 financial years will become payable in future financial years.
Variable remuneration — medium-term incentive (MTI)
The medium term incentive was established in 2009 to incentivise executives to achieve stretch key performance indicators
(KPI’s). The MTI plan is a target based plan rather than a time based plan.
13
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2012
17.5. EXECUTIVE REMUNERATION ARRANGEMENTS (continued)
Variable remuneration — medium-term incentive (MTI) (continued)
Executive directors and senior executives may receive MTI bonuses based on the achievement of key performance indicators
(“KPI’s”) related to the performance of the Group over the medium term (one to three financial years). The three KPI’s
chosen by the Human Resource, Remuneration and Nomination Committee in August 2009 relate to 1) Profit after tax, 2)
Operating Cash Flow, and 3) Pro-rata Consolidated Sales. These three measures are chosen as they directly align the
individual’s reward to the Group’s strategy and performance.
The KPI’s are summarised as follows:
Key Performance Indicator
Financial measure:
Profit after tax
Operating Cash Flow
Pro-rata Consolidated Sales
Proportion of MTI
award KPI applies
to
Minimum KPI
$’000
Stretch KPI
$’000
33%
33%
33%
100
100
100,000
9,000
2,700
150,000
Bonuses can only be paid if Orbital generates a profit after tax and also generates positive operating cash flow (before
working capital movements). Abnormal one-off items influencing the KPIs may be excluded at the discretion of the Human
Resources, Remuneration and Nomination Committee. No bonus will be paid unless the Board is satisfied that Orbital has
sufficient cash reserves.
Bonuses are awarded when a target is achieved which is higher than that which has already been achieved and rewarded.
The MTI earned accumulates over time as targets are achieved with any incremental MTI earned paid annually.
The total potential MTI available is set at a level so as to provide sufficient incentive to executives to achieve the operational
targets and such that the cost to the Group is reasonable in the circumstances.
The annual MTI payments for executives are subject to the approval of the Human Resources, Remuneration and Nomination
Committee on an annual basis, after consideration of performance against KPIs. This process usually occurs within three
months after the reporting date. Payments are made as a cash bonus in the following reporting period.
MTI awards for 2011 and 2012 financial years
The Human Resources, Remuneration and Nomination Committee has considered the MTI bonus for the 2012 financial year.
The MTI cash bonus available for the 2012 financial year is $nil. This amount has been determined on the basis that 1) the
Group’s Profit after tax (after removing once-off items) target for the year ended 30 June 2012 has not been met 2) Positive
Operating Cash Flows for the year ended 30 June 2012 were not achieved, and 3) the Consolidated Pro-rata Sales of the
Group have not reached the minimum threshold of $100,000,000.
Estimates of the minimum and maximum possible value of the award over time is as follows:
Name
Terry Stinson
Keith Halliwell
Geoff Cathcart
Position
Chief Executive Officer
Chief Financial Officer
Director, Consulting Services and Engineering
Amount
(Min – Max)
0 - $655,200
0 - $390,680
0 - $295,500
The maximum bonus is only payable if the stretch targets on all three of the KPI’s are achieved. No bonus is awarded where
performance falls below minimum thresholds.
Variable remuneration — long-term incentives (LTI)
LTI awards are made annually to executives in order to align remuneration with the creation of shareholder value over the
long-term. As such, LTI awards are only made to executives and other key talent who have an impact on the Group's
performance against the relevant long-term performance measure.
Employee Share Plan No.1
Senior executives (together with all other eligible employees) are each offered shares in the Company, at no cost to the
employees, to the value of $1,000 per annum under the terms of the Company’s Employee Share Plan. There are no
performance conditions, because the plan is designed to align the interests of participating employees with those of
shareholders. Directors do not participate in Share Plan No.1.
Executive Long Term Share Plan
Executives may also be offered rights in the Company’s Executive Long Term Share Plan under which offered shares will vest
for no consideration subject to the satisfaction of performance conditions over a 3 year period or subject to Board discretion
for other qualifying reasons. The performance conditions, which are based 50% on the relative ranking of the Total
Shareholder Return (“TSR”) of the Company to a group of selected peers, and 50% on Earnings Per Share (EPS), apply to
determine the number of shares (if any) that vest to the Executives.
14
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2012
17.5. EXECUTIVE REMUNERATION ARRANGEMENTS (continued)
Variable remuneration — long-term incentives (LTI) (continued)
TSR is the percentage increase in a company’s share price plus reinvested dividends over a given period and reflects the
increase in value delivered to shareholders over that period. The peer group to which the Company’s TSR will be compared
will comprise the 50 smallest companies, other than resource companies and property and investment trust companies,
within the S&P / ASX 300 Index. These companies have a similar market capitalisation to the Company. The TSR performance
criterion was chosen as it is widely accepted as one of the best indicators of shareholder wealth creation as it includes share
price growth, dividends and other capital adjustments. In addition, this criterion provides a readily obtained objective means
of measuring the Group’s performance against its peer group.
The Company’s TSR ranking at the end of the Performance Period, when compared to the TSR of the peer group will
determine the percentage of shares originally offered which will vest to the Executive.
The following table sets out the relevant percentages of shares offered which will vest based on various percentile rankings of
the Company:
Company Performance
(TSR Ranking)
Up to the 50th percentile
% of offered shares
issued to each executive
0%
At or above the 50th percentile but below the 75th percentile
50% to 99% (on a straight line basis)
At or above the 75th percentile but below the 90th percentile
At or above the 90th percentile
100%
125%
No shares will vest under the FY2010, FY2011 and FY2012 offers unless the Company’s TSR is at or above the 50th percentile
or the EPS for the years ending 30 June 2013 and 30 June 2014 is at or above 11 and 15 cents per share, respectively.
TSR Performance targets under the LTI offered in FY2009 were not met in FY2012 and as a result nil (2011: nil) shares were
issued to KMPs.
At the Company’s Annual General Meeting in October 2011, shareholders approved the above plan in relation to the ongoing
remuneration of the Executive Director.
Performance Rights Plan
The Company also introduced a Performance Rights Plan in 2009 as part of the employment contact of Mr T D Stinson. The
Performance Rights Plan was approved by shareholders in October 2008. The Board has no present intention to utilise the
Performance Rights Plan for any other senior executives.
Under the Performance Rights Plan, performance rights will only be issued if the terms and conditions detailed below are
satisfied.
A performance right is a right to acquire one fully paid ordinary share in the Company. Until they are exercised, performance
rights:
(a)
do not give the holder a legal or beneficial interest in shares of the Company; and
(b)
do not enable participating executives to receive dividends, rights on winding up, voting rights or other shareholder
benefits.
Performance rights issued under the Performance Rights Plan will be exercisable if:
(a)
(b)
(c)
a performance hurdle is met over the periods specified by the Board; or
the Board allows early exercise on cessation of employment; or
it is determined by the Board in light of specific circumstances.
The terms and conditions of the offer of Performance Rights made during the year ended 30 June 2009 are as follows:
(a) Mr T D Stinson will be awarded 1,150,000 performance rights;
(b)
the grant of performance rights will be in seven tranches, each tranche with a different specified share price target as
set out below:
Tranche
Number of
performance
rights
Share price
target
1
2
3
4
5
6
7
200,000
200,000
200,000
200,000
125,000
125,000
100,000
$2.50
$5.00
$7.50
$10.00
$20.00
$30.00
$50.00
15
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2012
17.5. EXECUTIVE REMUNERATION ARRANGEMENTS (continued)
Variable remuneration — long-term incentives (LTI) (continued)
The target share prices were chosen as they directly align the director’s reward with group strategy.
(c)
the acquisition price and exercise price of the performance rights will be nil.
(d) Mr T D Stinson will only be permitted to exercise a performance right if:
the Company attains the specified share price target (see table above) within eight years from the date of grant
of the performance right; and
the specified share price target is also achieved at the end of two years from the date the target is first
achieved (“Vesting Date”) based on the Company’s average closing share price over a 90 day period up to
and including the Vesting Date;
(e)
If the specified share price target is either not achieved within eight years from the date of grant, or if so achieved,
not also achieved at the end of the Vesting Date, the performance right will lapse.
No performance rights were granted during the year ended 30 June 2012.
Termination and change of control provisions
Where a participant ceases employment prior to the vesting of their award, the unvested shares are forfeited unless the
Board applies its discretion to allow vesting at or post cessation of employment in appropriate circumstances.
In the event of a change of control of the Group, the performance period end date will generally be brought forward to the
date of the change of control and awards will vest subject to performance over this shortened period, subject to ultimate
Board discretion.
LTI awards for 2012 financial year
Shares were granted under the Employee Share Plan No.1 to a number of executives on 15 December 2011. No Shares were
granted under the Executive Long Term Share Plan or the Performance Rights Plan during the 2012 financial year.
Details in respect of the award are provided in Section 17.9.
17.6. COMPANY PERFORMANCE AND THE LINK TO REMUNERATION
Performance linked compensation includes both medium-term and long-term incentives and is designed to reward key
management personnel for meeting or exceeding their financial and personal objectives. The MTI is an “at risk” bonus
provided in the form of cash, while the LTI is provided as ordinary shares of Orbital Corporation Limited under the rules of the
various Share Plans.
In considering the Group’s performance and benefits for shareholders wealth the Human Resources, Remuneration and
Nomination Committee has regard to the following indices in respect of the current financial year and the previous four
financial years.
Company performance and its link to medium-term incentives
Profit after tax, Pro-rata Consolidated Sales and Operating Cash Flows are considered in setting the MTI as they are
considered important medium term performance targets.
Company performance for the current year, the last 4 years and KPI targets are as follows:
2008
$’000
469
73
59,875
2009
$’000
(2,451)
(856)
63,867
2010
$’000
4,516
(4,372)
61,081
2011
$’000
1,763
(584)
68,148
2012 Minimum KPI
$’000
$’000
positive
(3,053)
positive
(2,701)
100,000
74,371
Profit/(Loss) after tax
Operating Cash Flow
Pro-rata Consolidated Sales
Operating Cash Flow (before
working capital movements)*
* A positive operating cash flow (before working capital movements) must be achieved as a pre-condition for
the payment of any MTI.
Not applicable
positive
(3,080)
(2,934)
(2,372)
(833)
901
Stretch KPI
$’000
9,000
2,700
150,000
Company performance and its link to long-term incentives
The performance measure which drives LTI vesting is the Company’s TSR performance relative to the companies within its
peer group and earnings per share (EPS). The table below show the performance of the Group as measured by the Group's
total shareholder return (TSR) to the median of the TSR for peer group and also the Group’s earnings per share for the past
five years (including the current period) to 30 June 2012. The earnings per share values in the table below have been
adjusted to reflect the share consolidation undertaken during the reporting period.
16
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2012
17.6. COMPANY PERFORMANCE AND THE LINK TO REMUNERATION (continued)
Company performance and its link to long-term incentives (continued)
Company performance for the current year and last 4 years is as follows:
2008
2009
2014
Minimum Minimum
50th
TSR ranking (percentile)
15.00
Earnings per share (cents)
Closing share price ($)
-
* The Company did not measure its TSR ranking in 2011 or 2012 as the Board determined that Orbital’s TSR would be below
the median TSR of the peer group.
** Share prices were adjusted for 10:1 share consolidation that occurred in October 2010.
70th
(5.10)
0.75**
56th
9.39
0.25**
76th
1.00
1.10**
*
(6.28)
0.22
50th
11.00
-
*
3.65
0.25
2011
2013
2010
2012
As a result of the Company’s performance over the last five years, LTIs offered during 2005, 2006 and 2007 were fully vested
in financial year 2008 and partially vested in financial years 2009 and 2010 respectively. The performance target for the LTIs
offered in 2008 and 2009 were not met during the financial years 2011 and 2012 and as such no shares vested.
17.7. EXECUTIVE CONTRACTUAL ARRANGEMENTS
Remuneration arrangements for KMP are formalised in employment agreements. Details of these contracts are provided
below.
The CEO, Mr. Stinson, is employed under a rolling contract.
Under the terms of the present contract as disclosed to the ASX on 14 September 2007:
► The CEO receives fixed remuneration of $364,000 per annum
► The CEO’s target MTI opportunity per annum is 20% of annual TEC and his maximum MTI opportunity per annum is 60%
of TEC
► The CEO is eligible to participate in Orbital Corporation Limited’s LTI plan on terms determined by the Board, subject to
receiving any required or appropriate shareholder approval
The CEO’s termination provisions are as follows:
Notice
Period
Employer initiated
termination
12 months
Payment
in lieu of
notice
12 months
Termination for
serious misconduct
Employee-initiated
termination
None
None
3 months
3 months
Treatment of
MTI on
termination
Pro-rated for
time and
performance
Unvested
awards forfeited
Unvested
awards forfeited
Other KMP
All other KMP have rolling contracts.
Standard KMP termination provisions are as follows:
Treatment of LTI
on termination
Termination payments
Board discretion
None
Unvested awards
forfeited
Unvested awards
forfeited subject to
Board discretion
None
None
Employer initiated
termination
Notice
Period
1 months
Payment
in lieu of
notice
1 months
Treatment of
MTI on
termination
Pro-rated for
time and
performance
Treatment of LTI
on termination
Board discretion
Termination for
serious misconduct
Employee-initiated
termination
None
None
1 months
1 months
Unvested
awards forfeited
Unvested
awards forfeited
Unvested awards
forfeited
Unvested awards
forfeited subject to
Board discretion
Payments applicable to outgoing executives
Termination payments
4 weeks pay, plus 2 weeks
pay for each completed year
of service, plus for each
completed year of service
beyond 10, an additional 1/2
weeks pay, plus a pro-rata
payment for each completed
month of service in the final
year. The maximum
entitlement to termination pay
is limited to 65 weeks pay.
None
None
There were no changes to the KMP of the Group for the year ended 30 June 2012 or subsequent to 30 June 2012.
17
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2012
17.8. DIRECTORS’ AND EXECUTIVE OFFICERS’ REMUNERATION - COMPANY AND GROUP
Details of the nature and amount of each major element of remuneration of the Company and the Group’s Key Management Personnel are:
Non-executive Directors
W Peter Day
Chairman (Non-executive)
Mervyn T Jones
Director (Non-executive)
Vijoleta Braach-Maksvytis
Director (Non-executive)
J Grahame Young (e)
Director (Non-executive)
Total Consolidated, all non-executive
directors
Executive Director
Terry D Stinson
Director and Chief Executive Officer
Other Key Management Personnel
Keith A Halliwell
Chief Financial Officer
Geoff P Cathcart
Director, Consulting Services & Engineering
B Anthony Fitzgerald (g)
Director, Orbital Autogas Systems
Total Consolidated, Executive Director
and Key Management Personnel
Year
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
Short Term
Post
Employment
Share Based Payments
Salary and
Director’
Fees
$
Cash
Bonuses
$ (a)
Employer
Superannuation
Contributions
Employee
Share Plans
$
$ (b)(c)
Total
$
Performance
Rights Plan
$ (d)
Termination
Payments
$
Total
$
Proportion of
remuneration
performance
related
% (f)
100,183
63,075
63,486
60,827
63,486
57,955
-
41,949
227,155
223,806
-
-
-
-
-
-
-
-
-
-
100,183
63,075
63,486
60,827
63,486
57,955
-
41,949
227,155
223,806
9,017
5,676
5,714
5,475
5,714
5,216
-
3,775
20,445
20,142
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
333,945
-
333,945
40,073
105,525
49,283
322,892
(140,000)
182,892
36,144
113,800
49,283
266,719
-
266,719
256,694
(79,884)
176,810
200,816
-
200,816
196,340
(59,850)
136,490
-
-
-
30,231
28,757
24,098
18,841
-
54,922
59,542
41,332
42,427
-
230,593
(73,781)
156,812
27,671
(41,647)
801,480
-
801,480
94,402
201,779
1,006,519
(353,515)
653,004
111,413
174,122
-
-
-
-
-
-
49,283
49,283
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
109,200
68,751
69,200
66,302
69,200
63,171
-
45,724
247,600
243,948
528,826
382,119
351,872
265,109
266,246
197,758
-
288,241
431,077
-
1,146,944
288,241
1,276,063
-
-
-
-
-
-
-
-
-
-
29.3%
31.2%
15.6%
17.3%
15.5%
16.5%
-
-8.2%
17.6%
10.7%
18
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2012
17.8. DIRECTORS’ AND EXECUTIVE OFFICERS’ REMUNERATION COMPANY AND GROUP (continued)
Notes in relation to the table of directors' and executive officers remuneration
(a) Bonuses are those paid or accrued as payable in relation to the year reported. For the 2010 financial year, 100% of
the MTI cash bonus of $353,515 as previously accrued in that period vested to executives, however all participants in
the MTI scheme voluntarily and irrevocably waived their right to their MTI cash bonuses. The Group recorded a
reversal of the MTI cash bonus of $353,515 during the 2011 financial year.
(b) The fair value of the Employee Share Plan #1 is based upon the market value (at offer date) of shares offered.
(c)
The fair value of the Executive Long Term Share plan ("ELTSP") is calculated at the date of grant through utilisation of
the assumptions underlying the Black-Scholes methodology to produce a Monte-Carlo simulation model and is
allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the
portion of the fair value of the rights recognised in this reporting period. In valuing the rights the market based
hurdles that must be met before the executive long term share plan rights vest in the holder have been taken into
account.
The following factors and assumptions were used in determining the fair value of TSR related rights issued under the
ELTSP on grant date:
TSR related rights
Grant Date*
Life
Expiry
Date
Fair
Value per
right
Exercise
Price
Market
price of
shares on
grant date
Expected
volatility
Risk free
interest rate
31-Aug-09
3 years
31-Aug-12
38 cents
31-Aug-10
3 years
31-Aug-13
33 cents
31-Aug-11
3 years
31-Aug-14
25 cents
nil
nil
nil
55 cents
65.00%
34 cents
60.00%
35 cents
110.00%
5.03%
4.27%
3.79%
* The grant date of the TSR related rights for the Managing Director was 26 October 2011.
The following factors and assumptions were used in determining the fair value of EPS related rights offered under the
ELTSP on grant date:
EPS related rights
Grant Date*
Life
Expiry
Date
Fair
Value per
right
Exercise
Price
31-Aug-09
3 years 31-Aug-12
55 cents
31-Aug-10
3 years 31-Aug-13
34 cents
31-Aug-11
3 years 31-Aug-14
35 cents
nil
nil
nil
Market
price of
shares on
grant date
55 cents
34 cents
35 cents
* The grant date of the EPS related rights for the Managing Director was 26 October 2011.
The fair value of the EPS related rights is equal to the market price of shares on the grant date.
(d)
The fair value of the Performance Rights is calculated at the date of grant through utilisation of the assumptions
underlying the Black-Scholes methodology to produce a Monte-Carlo simulation model and allocated to each reporting
period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value of
the performance rights recognised in this reporting period. In valuing the performance rights the hurdles that must be
met before the executive long term share plan shares vest in the holder have been taken into account.
Grant Date
Life
Fair
Value per
right
Target
price
Market
price of
shares on
grant date
Expected
volatility
Risk free
interest rate
31-Aug-08
10 years
47 cents
$2.50
79 cents
55.00%
31-Aug-08
10 years
35 cents
$5.00
79 cents
55.00%
31-Aug-08
10 years
28 cents
$7.50
79 cents
55.00%
31-Aug-08
10 years
23 cents
$10.00
79 cents
55.00%
31-Aug-08
10 years
13 cents
$20.00
79 cents
55.00%
31-Aug-08
10 years
9 cents
$30.00
79 cents
55.00%
31-Aug-08
10 years
5 cents
$50.00
79 cents
55.00%
5.75%
5.75%
5.75%
5.75%
5.75%
5.75%
5.75%
(e) Mr J Grahame Young retired from the Board on 28 February 2011.
(f)
The reversal of the cash bonus has been excluded from the calculation of proportion of remuneration performance
related.
(g) Mr Fitzgerald ceased to be a KMP on 30 June 2011.
19
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2012
17.9. EQUITY INSTRUMENTS
All shares refer to ordinary shares and rights of Orbital Corporation Limited.
Analysis of Shares Offered as Compensation
Details of the shares and rights offered under the LTI to each key management person during the reporting period are as
shown below. Please refer to footnote (b) below for the terms and conditions relating to the granting of the rights offered
under the Executive Long Term Share Plan.
Employee Share Plan No. 1
Executive Long Term Share Plan
Number
of shares
issued
Share
Price
Value (a)
$
Number of
Number
Rights
Granted/
(Forfeited)
Value
(b)
$
of
Rights
Vested
Executive Director
T D Stinson
Executives
K A Halliwell
G P Cathcart
B A Fitzgerald
2012
2011
2012
2011
2012
2011
2012
-
-
-
-
-
770,000
231,000
-
-
665,000
222,775
-
2,633
$0.3798
1,000
410,000 123,000
-
3,369
$0.2968
1,000
337,567 113,085
-
2,633
$0.3798
1,000
310,000
93,000
-
3,369
$0.2968
1,000
252,700
84,655
-
-
-
-
-
-
-
2011
3,369
$0.2968
1,000
(316,000)
-
-
(a)
(b)
The fair value of the employee share plan No. 1 based upon the market value (at offer date of 31 October 2011 and
31 October 2010 respectively) of shares offered. These awards are fully vested.
Represents the fair value of rights offered on 31 August 2011 and 31 August 2010 respectively using a Monte-Carlo
simulation model. The vesting of the shares offered on 31 August 2011 is subject to the achievement of two
performance conditions; a) 50% related to the Total Shareholder Return (“TSR”) of the Company compared to a
peer group of selected companies over a three year period, and b) 50% related to the Group achieving earnings in
excess of 15 cents per share for the year ending 30 June 2014. The vesting of the shares offered on 31 August
2010 is subject to the achievement of two performance conditions; a) 50% related to the Total Shareholder Return
(“TSR”) of the Company compared to a peer group of selected companies over a three year period, and b) 50%
related to the Group achieving earnings in excess of 11 cents per share for the year ending 30 June 2013.
Performance conditions were met not in respect of shares offered in August 2008 and shares in relation to that offer
expired at the expiration of the performance period during the 2012 financial year.
(c)
No performance rights vested during the years ended 30 June 2012 or 30 June 2011.
End of Remuneration Report
Signed in accordance with a resolution of the Directors:
W P DAY
Director
T D STINSON
Managing Director
Dated at Perth, Western Australia this 21st day of September 2012.
20
CORPORATE GOVERNANCE STATEMENT
1. CORPORATE GOVERNANCE AT ORBITAL
The Board of Directors of Orbital Corporation Limited is
responsible for the corporate governance of the Group.
The Board guides and monitors the business and affairs of
the Group on behalf of the shareholders by whom they are
elected and to whom they are accountable. This
statement reports on Orbital’s key governance principles
and practices. These principles and practices are
reviewed regularly and revised as appropriate to reflect
changes
in corporate
law and developments
in
governance.
The Company, as a listed entity, must comply with the
Corporations Act 2001 (Cwth) (Corporations Act), the
Australian Securities Exchange (ASX) Listing Rules (ASX
Listing Rules) and other Australian and international laws.
The ASX Listing Rules requires the Company to report on
the extent to which it has followed the Corporate
Governance Recommendations contained in the ASX
Corporate Governance Council’s (ASXCGC) second edition
and
of
Recommendations with 2010 Amendments.
Orbital
believes that, throughout the 2012 financial year and to
the date of this report, it has complied with all the
ASXCGC Recommendations.
Governance
Corporate
Principles
its
Information on Orbital’s corporate governance framework
is also provided in the Corporate Governance section of
Orbital’s website (www.orbitalcorp.com.au)
2. BOARD OF DIRECTORS
2.1 Role of the Board
ASXCGC Recommendations 1.1, 1.3
The Board’s primary role is to protect and enhance long-
term shareholder value by providing strategic guidance to
the Group and effective oversight of management.
To fulfil this role, the Board is responsible for the overall
corporate governance of the Group including formulating
its strategic direction, approving and monitoring capital
expenditure, setting remuneration, appointing, removing
and creating succession policies for directors and senior
executives, establishing and monitoring the achievement
of management’s goals and ensuring the integrity of
internal control and management information systems.
It is also responsible for approving and monitoring
financial and other reporting. A copy of the Board’s
Charter is available in the Corporate Governance section
of Orbital’s website.
The Board has delegated responsibility for operation and
administration of the Group to the Chief Executive Officer
Responsibilities are
and executive management.
delineated by formal authority delegations.
The Board conducts an annual review of its processes to
ensure that it is able to carry out its functions in the most
effective manner.
2.2 Composition of the Board
ASXCGC Recommendations 2.1, 2.2, 2.3, 2.6
The names and qualifications of the directors of the
Company in office at the date of this Report are detailed in
the Directors’ Report on page 2.
The composition of the Board is determined using the
following principles:
A minimum of three directors, with a broad range of
expertise;
An independent non-executive director as Chairman;
A majority of independent non-executive directors;
and
The role of Chief Executive Officer (CEO) and
Chairman should not be exercised by the same
individual.
An independent director is a non-executive director who:
is not a substantial shareholder of the Company or an
officer of, or otherwise associated directly with, a
substantial shareholder of the Company;
within the last three years has not been employed in
an executive capacity by the Company or another
group member, or been a director after ceasing to
hold any such employment;
within the last three years has not been a principal of
a professional adviser or a consultant to the Company
or another group member, or an employee materially
associated with the service provided;
is not a material* supplier or customer of the
Company or other group member, or an officer of or
otherwise associated directly or indirectly with a
material supplier or customer;
has no material* contractual relationship with the
Company or another group member other than as a
director of the Company;
has not served on the board for a period which could,
or could reasonably be perceived to, materially
interfere with the director’s ability to act in the best
interests of the Company; and
is free from any interest and any business or other
relationship which could, or could reasonably be
perceived to, materially interfere with the director’s
ability to act in the best interests of the Company.
*No non-executive director is a supplier to or
customer of the Group, nor does any non-executive
Director have a contractual relationship with the
Group (other than as a director of the Company) and
therefore the Board has not had to consider any
materiality threshold.
2.3 Conflicts of Interest
In accordance with the Corporations Act 2001 and the
Company's constitution, directors must keep the Board
advised, on an ongoing basis, of any interest that could
potentially conflict with those of the Company. Where the
Board believes that a significant conflict exists the director
concerned must not be present at the meeting whilst the
item is considered or vote on the matter. The Board has
procedures in place to assist directors to disclose potential
conflicts of interest.
2.4 Board Succession Planning
ASXCGC Recommendation 2.6
The Board manages its succession planning with the
assistance of the Human Resources, Remuneration and
Nomination Committee. The Committee annually reviews
the size, composition and diversity of the Board and the
mix of existing and desired competencies across members
and reports its conclusions to the Board. In conducting
the review a skills matrix is used to enable the Committee
to assess the skills and experience of each director and
the combined capabilities of the Board.
Recognising the
importance of Board renewal, the
Committee takes each director’s tenure into consideration
in its succession planning.
21
CORPORATE GOVERNANCE STATEMENT
2.5 Directors’ Retirement and Re-election
2.9 Directors’ Remuneration
ASXCGC Recommendation 2.6
Non-executive directors must retire at the third AGM
following their election or most recent re-election. At
least one non-executive director must stand for election at
each AGM. Any director appointed to fill a vacancy since
the date of the previous AGM must submit themselves to
shareholders for election at the next AGM.
Board support for a director’s re-election is not automatic
and is subject to satisfactory director performance.
2.6 Directors’ Appointment, Induction Training and
Continuing Education
their appointment,
All new directors are required to sign and return a letter of
appointment which sets out the key terms and conditions
of
including duties, rights and
responsibilities, the time commitment envisaged and the
Board’s expectations regarding their involvement with
committee work.
As part of the induction process, new directors are
provided with detailed information about the nature of the
Group’s business, current issues, Group strategy, financial
matters, policies and procedures and are given the
opportunity to meet with management to obtain an insight
into the Group’s business operations.
All directors are expected to maintain the skills required to
discharge their obligations to the Company. Directors are
encouraged
professional
education including industry seminars and approved
education courses.
to undertake
continuing
Details of remuneration paid to directors (executive and
non-executive) are set out in the Remuneration Report on
pages 11 to 20. The Remuneration Report also contains
information on the Company’s policy for determining the
nature and amount of remuneration for directors and
senior executives and the relationship between the policy
and company performance.
Shareholders will be invited to consider and approve the
Remuneration Report at the 2012 AGM.
2.10 Board Meetings
The full Board currently holds six scheduled meetings each
year, plus strategy meetings and any extraordinary
meetings at such other times as may be necessary to
address any specific significant matters that may arise.
The agenda for meetings is prepared in conjunction with
the Chairman, Managing Director and Company Secretary.
Standing items include the managing director’s report,
financial reports, strategic matters, governance and
compliance. Submissions are circulated in advance.
Executives are regularly involved in board discussions and
directors have other opportunities, including visits to
operations, for contact with a wider group of employees.
2.11 Company Secretary
Details of the Company Secretary are set out on page 3 of
the Directors’ Report. The appointment and removal of a
Company Secretary is a matter for decision by the Board.
The Company Secretary is responsible for ensuring that
Board procedures are complied with and that governance
matters are addressed.
2.7 Board Access to Independent Professional
Advice and Company Information
3. COMMITTEES OF THE BOARD
ASXCGC Recommendation 2.6
3.1 Board Committees, Membership and Charters
Each director has the right of access to all relevant
Company information and to the Group’s executives and,
subject to prior consultation with the Chairman, may seek
independent professional advice from a suitably qualified
adviser at the Group’s expense. The director must consult
with an advisor suitably qualified in the relevant field, and
obtain the Chairman’s approval of the fee payable for the
advice before proceeding with the consultation. A copy of
the advice received by the director is made available to all
other members of the board.
2.8 Review of Board Performance
ASXCGC Recommendations 2.5, 2.6
The Human Resources, Remuneration and Nomination
Committee is responsible for determining the process for
evaluating Board performance. Evaluations are conducted
by way of questionnaires appropriate in scope and content
to effectively review:
the performance of the Board and each of its
committees against
their
respective charters; and
the individual performance of the Chairman and each
director.
requirements of
the
The performance of each director retiring at the next AGM
is taken into account by the Board in determining whether
or not the Board should support the re-election of the
director.
ASXCGC Recommendations 2.4, 2.6, 4.1, 4.2, 4.3, 4.4,
8.1, 8.3,
To assist in the execution of its responsibilities, the Board
has established a number of Board Committees including
an Audit Committee and a Human Resources,
Remuneration and Nomination Committee. These
committees have written mandates and operating
procedures, which are reviewed on a regular basis. The
effectiveness of each committee
is also constantly
monitored. The Board has also established a framework
for the management of the Group including a system of
internal control and the establishment of appropriate
ethical standards.
3.2 Audit Committee
ASXCGC Recommendations 4.1, 4.2, 4.3, 4.4
The role of the Audit Committee is to give the Board of
Directors additional assurance regarding the quality and
reliability of financial information prepared for use by the
Board in determining accounting policies for inclusion in
the financial report. The Committee has a documented
charter, approved by the Board. A copy of the Audit
in the Corporate
Committee’s Charter
Governance section of Orbital’s website. All members of
the Committee must be independent, non-executive
directors.
is available
Members of the Audit Committee during the year were Dr
M T Jones (Chairman), Mr W P Day and Dr V Braach-
Maksvytis. The external auditors, Chief Executive Officer,
22
CORPORATE GOVERNANCE STATEMENT
Chief Financial Officer, Company Secretary and other
financial and accounting staff are invited to Audit
Committee meetings at the discretion of the Committee.
The Chief Executive Officer and Chief Financial Officer
declared in writing to the Board that the Company’s
financial reports for the year ended 30 June 2012 present
a true and fair view, in all material respects, of the
Company’s financial condition and operational results and
are in accordance with relevant accounting standards. This
statement is required annually.
The responsibilities of the Audit Committee include,
liaising with the external auditors and ensuring that the
annual and half-year statutory audits/reviews are
conducted in an effective manner; reviewing and ensuring
management implement appropriate and prompt remedial
identified; monitoring
action
compliance with Australian and international taxation
requirements;
the Australian and United States
corporations laws and ASX Listing Rules; and improving
the quality of the accounting function.
for any deficiencies
The Audit Committee reviews the performance of the
external auditors on an annual basis and meets with them
to discuss audit planning matters, statutory reporting and
as required for any special reviews or investigations
deemed necessary by the Board. The Audit Committee
also assesses whether non-audit services provided by the
external auditor are consistent with maintaining the
external auditor’s independence and provides advice to
the Board whether the provision of such services by the
external auditor is compatible with the general standard of
independence of auditors imposed by the Corporations
Act. The Audit Committee charter provides for rotation of
the external audit partner every five years.
3.3 Human Resources, Remuneration and
Nomination Committee
ASXCGC Recommendations 2.4, 2.6, 8.1, 8.2
to
The role of the Human Resources, Remuneration and
review and make
is
Nomination Committee
recommendations to the Board on the remuneration
packages and policies applicable to the Chief Executive
Officer, senior executives and directors. It also plays a
role in evaluation of the performance of the Chief
Executive Officer and management succession planning.
This role also includes responsibility for employee share
schemes,
packages,
superannuation entitlements, fringe benefits policies and
professional indemnity and liability insurance policies.
From time-to-time, the Remuneration Committee obtains
independent
of
remuneration packages, given trends in comparative
companies both locally and internationally.
appropriateness
performance
incentive
advice
the
on
The Committee also oversees the appointment and
induction process for directors. It reviews the composition
of the Board and makes recommendations on the
appropriate skill mix, personal qualities, expertise and
diversity. When a vacancy exists or there is a need for
particular skills, the Committee, in consultation with the
Board, determines the selection criteria based on the skills
deemed necessary. Potential candidates are identified by
the Committee with advice from an external consultant,
where appropriate. The Board then appoints the most
suitable candidate who must stand for election at the next
The Nomination
general meeting of shareholders.
Committee
the selection,
responsible
appointment and succession planning process of the
Company’s Chief Executive Officer.
is also
for
Members of the Human Resources, Remuneration and
Nomination Committee during the year were Dr V Braach-
Maksvytis (Chairman), Mr W P Day and Dr M T Jones.
The Human Resources, Remuneration and Nomination
Committee meet as and when required. The Committee
has a documented charter, approved by the Board. A copy
of the Human Resources, Remuneration and Nomination
Committee’s Charter
in the Corporate
Governance section of Orbital’s website.
is available
The performance of all Directors is reviewed by the
Chairman each year. Directors whose performance is
unsatisfactory are asked to retire.
4 SHAREHOLDERS
4.1 Shareholder Communication
ASXCGC Recommendations 6.1, 6.2
Directors recognise that shareholders, as the ultimate
owners of the Company, are entitled to receive timely and
relevant high quality information about their investment.
Similarly, prospective new investors are entitled to be able
to make informed investment decisions when considering
the purchase of shares.
Information is communicated to shareholders as follows:
The disclosure of full and timely information about
Orbital’s activities in accordance with the disclosure
requirements contained in the ASX Listing Rules and
the Corporations Act;
All information released to the market to be placed on
the Company’s website promptly following release;
The annual financial report is distributed to all
shareholders (and to American Depositary Receipt
(ADR) holders) on request
in accordance with
Corporation Act requirements and includes relevant
information about the operations of the Group during
the year, changes in the state of affairs of the Group
and details of future developments, in addition to
other disclosures required by the Corporations Act
and US Securities Law; and
The half-yearly report contains summarised financial
information and a review of the operations of the
Group during the period. The half-year financial
report
the
requirements of Accounting Standards and the
Corporations Act and is lodged with Australian and
United States regulatory bodies and stock exchanges.
Financial reports are sent to any shareholder or ADR
holder who requests them.
in accordance with
is prepared
The Board encourages participation of shareholders at the
Annual General Meeting to ensure a high level of
accountability and identification with the Group's strategy
and goals. Important
issues are presented to the
shareholders as single resolutions. The Company’s
external auditor is requested to attend annual general
meetings to answer any questions concerning the audit
and the content of the auditor’s report.
Shareholders are requested to vote on the appointment of
Directors, aggregate remuneration of non-executive
directors, the granting of shares to Directors and changes
to the Constitution. A copy of the Constitution is available
to any shareholder who requests it.
23
CORPORATE GOVERNANCE STATEMENT
4.2 Continuous Disclosure and Market
Communications
ASXCGC Recommendations 5.1, 5.2
The Board of Directors aims to ensure that shareholders
are informed of all major developments affecting the
Group's state of affairs. The Board has adopted a policy to
identify matters that may have a material effect on the
price of the Company’s securities and to notify the ASX as
required.
This policy on Release of Price Sensitive Information is
overseen and coordinated by the Company Secretary. All
directors, officers and members of the Company’s
management committee are required to forward details of
any potentially price sensitive information to the Company
Secretary, who is also to be made aware, in advance, of
proposed information disclosures (including information to
be presented at private briefings) to enable consideration
of the continuous disclosure requirements. Proposed
announcements are to be approved by the Managing
Director and either the Chairman or Company Secretary
prior to release to the ASX. The Company Secretary is
responsible for all communications with the ASX.
The Company’s policy on Release of Price Sensitive
Information and
its policy on communication with
shareholders are available in the Corporate Governance
Section of Orbital’s website.
5. PROMOTING RESPONSIBLE AND ETHICAL
BEHAVIOUR
5.1 Code of Conduct and Whistleblower Policy
ASXCGC Recommendations 3.1, 3.5
All Directors, managers and employees are expected to
act with the utmost integrity and objectivity, striving at all
times to enhance the reputation and performance of the
Group. Every employee has a nominated supervisor to
whom they may refer any issues arising from their
employment. The Board has approved a Code of Conduct,
applicable to all Directors and employees of the Group,
providing for the conduct of business in accordance with
the highest ethical standards and sound corporate
governance. The Code also incorporates the Company’s
policy on trading in the Company’s securities. A Code of
Ethics, relating to Accounting Practice and Financial
Reporting, has also been adopted by the Board and
applies specifically to the Chief Executive Officer, Chief
Financial Officer and senior finance officers of the
Company who influence financial performance. The Code
of Ethics is complementary to the Code of Conduct, copies
of both of which are available
in the Corporate
Governance section of Orbital’s website.
5.2 Securities Ownership and Dealing
The Company's policy with respect to Directors and
Officers dealing in the Company's shares or options states
that:
Directors and Officers are prohibited from dealing in
the Company's securities at any time when they
possess information which, if publicly disclosed, would
be likely to affect the market price of the Company's
securities;
Directors and Officers are prohibited from short term
trading in the Company's securities;
Directors must obtain the written approval of the
transactions
Chairman before undertaking any
involving the Company's securities; and
Directors and Officers are prohibited from undertaking
transactions in the Company's securities during the
period from one month prior to the proposed release
of the Company's annual or half-year result until two
days after that release.
A copy of the Securities Trading Policy is available in the
Corporate Governance section of Orbital’s website.
6. RISK MANAGEMENT
6.1 Approach to Risk Management and Internal
Control
ASXCGC Recommendations 7.1, 7.4
for
risks
compliance
The Board oversees the establishment, implementation
and review of the Company’s risk management systems,
which have been established by management
for
assessing, monitoring and managing operational, financial
reporting and
the Group.
Responsibility for establishing and maintaining effective
risk management
senior
strategies
management, accountable to the Chief Executive Officer
and the Audit Committee of the Board. The Audit
Committee reviews the risk management and internal
control structure implemented by management so as to
obtain reasonable assurance that the Group’s assets are
safeguarded and that reliable
financial records are
maintained. Operational and other compliance risk
management has also been reviewed and found to be
operating efficiently and effectively. A copy of the
Company’s risk management policy is available in the
Corporate Governance section of Orbital’s website.
rests with
that may be developed, delays
Risks to the Group arise from matters such as competitive
technologies
in
government regulation, reduction in development and
testing expenditure by the Company’s customers, the
impact of exchange rate movements, environmental
issues, occupational safety and health and financial
reporting.
6.2 Internal Control Framework
ASXCGC Recommendations 7.2, 7.4
The Board recognises that no cost effective internal
control system will preclude all errors and irregularities.
The system is based upon written procedures, policies and
guidelines, an organisational structure that provides an
appropriate division of responsibility, and the careful
selection and training of qualified personnel.
Established practices ensure:
Capital expenditure commitments are subject to
authority level approval procedures;
Financial exposures are controlled by the use of
forward exchange contracts, where appropriate;
Occupational safety and health issues are monitored
by a safety committee;
Financial reporting accuracy and compliance with
regulatory requirements; and
Compliance with environmental regulation.
Where risks, such as natural disasters, cannot be
adequately mitigated using internal controls, those risks
are
insurance
through
third parties
coverage to the extent considered appropriate.
transferred
to
24
CORPORATE GOVERNANCE STATEMENT
6.3 Chief Executive Officer and Chief Financial
Officer Assurance
ASXCGC Recommendations 7.3, 7.4
The Chief Executive Officer and Chief Financial Officer
have declared, in writing to the Board, that the Company’s
financial reports are founded on a sound system of risk
management and internal compliance and control which
implements the policies adopted by the Board, and that
they have evaluated the effectiveness of the company’s
financial disclosure controls and procedures and have
concluded
they are operating efficiently and
effectively.
that
Monthly financial results are reported against budgets
approved by the directors and revised forecasts for the
year are prepared regularly.
6.4 Environmental Regulation
The Group holds a number of permits, licences and
registrations for environmental regulation under both
Australian Commonwealth and State legislation. These
permits, licences and registrations are primarily for the
storage of fuels and chemicals and the disposal of waste
and are reviewed by the Group on an on-going basis. The
directors are not aware of any material breaches during
the period covered by this report.
7. EXTERNAL AUDITOR RELATIONSHIP
ASXCGC Recommendation 4.4
The Audit Committee oversees the terms of engagement
of Orbital’s external auditor. The Audit Committee
ensures that the audit approach covers all financial
statement areas where there is a risk of material
misstatement and that audit activities are carried out
throughout the Orbital Group in the most effective,
efficient and comprehensive manner.
The Committee has the responsibility for the appointment,
compensation and oversight of the external Auditor and to
ensure that the external Auditor meets the required
standards for Auditor Independence. In monitoring Auditor
Independence the Committee will have regard to any
legislative or regulatory requirements, and the following
principles:
It is mandatory that the Audit Partner responsible for
the Audit be rotated at least every five years. At least
two years must expire before the Audit Partner can
again be involved in the Audit of the Group.
The Committee monitors the number of former
employees of the external Auditor who were involved
in auditing the company, currently employed in senior
financial positions in the company, and assesses
whether this impairs or appears to impair the
Auditor’s judgment or independence in respect of the
company. An individual auditor who was engaged by
the external Auditor and participated
the
company’s audit shall be precluded from employment
as Chief Executive Officer or Chief Financial Officer of
the company for a period of twelve months from the
time of the audit.
in
Consider whether taken as a whole, the various
relationships between the company and the external
Auditor and the economic importance of the company
(in terms of fees paid to the external Auditor for the
Audit as well as fees paid to the external Auditor for
the provision of non-audit services) to the external
Auditor impair or appear to impair the Auditor’s
judgment or independence in respect of the company.
The company shall not engage its external Auditor for
certain non-audit services (including book-keeping,
financial
information systems design, valuations,
actuarial services, internal audit outsourcing, human
resources and unrelated legal/expert services). Any
proposal to grant the external Auditor non-prohibited
non-audit services will be referred to the Chairman of
the Audit Committee by management prior to
granting the work.
The Chairman of the Committee will meet (at least
annually) with the external Auditors without the
presence of management
8. DIVERSITY
ASXCGC Recommendations 3.2, 3.3, 3.4, 3.5
8.1 Diversity Policy
The Company respects and values the competitive
advantage of diversity, and the benefit of its integration
throughout
the
Company's perspective, improve corporate performance,
increase shareholder value, and enhance the probability of
achievement of the Company's objectives.
the Company,
to enrich
in order
Diversity constitutes people at relevant levels within the
Company (including board, senior executive, management
and otherwise) with a diverse blend of skills, experiences,
perspectives, styles and attributes gained from life's
journey, including on account of their culture, gender, age
or otherwise.
The Company is committed to employing and retaining the
best technical and non-technical staff based on their
capacity to perform well for the Company.
A copy of the Diversity Policy is available in the Corporate
Governance section of Orbital’s website.
8.2 Measurable Objectives —Diversity
The Board has not set any measurable objectives for
gender diversity as it is satisfied that current employment,
advancement and reward decisions regarding staff within
the Company are made irrespective of race, religion,
gender, age, or any other irrelevant point of difference,
therefore no measureable objectives have been put in
place at this time to specifically change or increase gender
diversity.
8.3 Workforce gender profile at 30 June 2012
Proportion of women in total organisation:
13%
Proportion of women in senior executive positions:
0%
Proportion of women on the board:
25%
25
CORPORATE GOVERNANCE STATEMENT
9. ASX CORPORATE GOVERNANCE COUNCIL RECOMMENDATIONS CHECKLIST
The table below summarises the Group’s compliance with the ASX Corporate Governance Council’s Recommendations.
Recommendation
Comply
Yes / No
Reference
Principle 1 - Lay solid foundations for management and oversight
1.1
1.2
1.3
Companies should establish the functions reserved to the board
and those delegated to senior executives and disclose those
functions.
Yes
2.1
Companies should disclose the process for evaluating the
performance of senior executives.
Yes
Remuneration Report
Companies should provide the information indicated in the guide
to reporting on Principle 1.
Yes
2.1, 2.8, Remuneration Report
Principle 2 - Structure the board to add value
2.1
A majority of the board should be independent directors.
2.2
The chair should be an independent director.
2.3
The roles of chair and chief executive officer should not be
exercised by the same individual.
2.4
The board should establish a nomination committee.
Yes
Yes
Yes
Yes
Yes
2.2
2.2
2.2
3.1, 3.3
2.8
Companies should disclose the process for evaluating the
performance of the board, its committees and individual directors.
2.5
2.6
Companies should provide the information indicated in the guide
to reporting on Principle 2.
Yes
2.2, 2.4, 2.5, 2.7, 2.8, 3.1, 3.3
Principle 3 - Promote ethical and responsible decision-making
3.1
Companies should establish a code of conduct and disclose the
code or a summary of the code as to:
Yes
5.1
The practices necessary to maintain confidence in the
company's integrity.
The practices necessary to take into account their legal
obligations and the reasonable expectations of their
stakeholders.
The responsibility and accountability of individuals for
reporting and investigating reports of unethical practices.
3.2
3.3
3.4
Companies should establish a policy concerning diversity and
disclose the policy or a summary of that policy. The policy should
include requirements for the board to establish measurable
objectives for achieving gender diversity for the board to assess
annually both the objectives and progress in achieving them.
Companies should disclose in each annual report the measurable
objectives for achieving gender diversity set by the board in
accordance with the diversity policy and progress towards
achieving them.
Companies should disclose in each annual report the proportion of
women employees in the whole organisation, women in senior
executive positions and women on the board.
Yes
8.1
No
Yes
8.2
8.3
3.5
Companies should provide the information indicated in the guide
to reporting on Principle 3.
Yes
5.1, 8.1, 8.2, 8.3
Principle 4 - Safeguard integrity in financial reporting
4.1
The board should establish an audit committee.
4.2
The audit committee should be structured so that it:
Consists only of non-executive directors.
Consists of a majority of independent directors.
Is chaired by an independent chair, who is not chair of the
board.
Yes
Yes
3.1, 3.2
3.1, 3.2
26
CORPORATE GOVERNANCE STATEMENT
Recommendation
Has at least three members.
Comply
Yes / No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
4.3
The audit committee should have a formal charter.
4.4
Companies should provide the information indicated in the guide
to reporting on Principle 4.
Principle 5 - Make timely and balanced disclosure
5.1
Companies should establish written policies designed to ensure
compliance with ASX listing rule disclosure requirements and to
ensure accountability at a senior executive level for that
compliance and disclose those policies or a summary of those
policies.
5.2
Companies should provide the information indicated in the guide
to reporting on Principle 5.
Principle 6 - Respect the rights of shareholders
6.1
Companies should design a communications policy for promoting
effective communication with shareholders and encouraging their
participation at general meetings and disclose their policy or a
summary of that policy.
6.2
Companies should provide the information indicated in the guide
to reporting on Principle 6.
Principle 7 - Recognise and manage risk
7.1
7.2
7.3
Companies should establish policies for the oversight and
management of material business risks and disclose a summary
of those policies.
The board should require management to design and implement
the risk management and internal control system to manage the
company's material business risks and report to it on whether
those risks are being managed effectively. The board should
disclose that management has reported to it as to the
effectiveness of the company's management of its material
business risks.
The board should disclose whether it has received assurance from
the chief executive officer [or equivalent] and the chief financial
officer [or equivalent] that the declaration provided in accordance
with section 295A of the Corporations Act is founded on a sound
system of risk management and internal control and that the
system is operating effectively in all material respects in relation
to financial reporting risks.
Reference
3.1, 3.2
3.1, 3.2, 7
4.2
4.2
4.1
4.1
6.1
6.2
Yes
6.3
7.4
Companies should provide the information indicated in the guide
to reporting on Principle 7.
Yes
6.1, 6.2, 6.3
Principle 8 – Remunerate fairly and responsibly
8.1
The board should establish a remuneration committee.
8.2
The remuneration committee should be structured so that it:
consists of a majority of independent directors.
is chaired by an independent chair.
has at least three members.
8.3
Companies should clearly distinguish the structure of
nonexecutive directors' remuneration from that of executive
directors and senior executives.
Yes
Yes
3.1
3.3
Yes
2.9, Remuneration Report
8.4
Companies should provide the information indicated in the guide
to reporting on Principle 8.
Yes
3.1
27
INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2012
Sale of goods
Consulting services income
Licence and royalty income
Other revenue
Total Revenue
Other income
Cost of goods sold
Employee benefits expenses
Depreciation and amortisation
Engineering consumables and contractors
Occupancy expenses
Travel and accommodation
Communications and computing
Patent costs
Insurance costs
Audit, compliance and listing costs
Finance costs
Other expenses
Share of profit from associate
(Loss)/profit before income tax
Income tax benefit
(Loss)/profit for the year attributable to the members of the parent
entity
Earnings/(loss) per share:
Basic earnings/(loss) per share (in cents)
Diluted earnings/(loss) per share (in cents)
NOTE
CONSOLIDATED
2012
$'000
2011
$'000
14,020
7,131
967
243
22,361
1,325
(8,305)
5,847
9,492
1,081
218
16,638
6,110
(4,484)
(11,481)
(10,494)
(991)
(2,272)
(1,734)
(432)
(783)
(322)
(663)
(569)
(692)
(1,174)
(1,954)
(1,165)
(634)
(593)
(300)
(441)
(704)
(688)
(2,179)
(1,777)
7
8
9(d)
9(a)
9(b)
9(c)
16
3,480
(3,257)
10(a)
204
(3,053)
3,233
1,573
190
1,763
11
11
(6.28)
(6.28)
3.65
3.65
The income statement is to be read in conjunction with the notes to the financial statements set out on pages 33 to 81.
28
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2012
Net (loss)/profit for the year
Other comprehensive income/(loss)
Share of foreign currency reserve of equity accounted investment
Foreign currency translation
Other comprehensive income/(loss) for the year, net of tax
CONSOLIDATED
2012
$'000
2011
$'000
(3,053)
1,763
(199)
830
631
343
(3,758)
(3,415)
Total comprehensive loss for the year
(2,422)
(1,652)
Total comprehensive loss for the year attributable to owners of the parent
(2,422)
(1,652)
The statement of comprehensive income is to be read in conjunction with the notes to the financial statements set out on
pages 33 to 81.
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2012
At 1 July 2010
Profit for period
Other comprehensive loss
Total comprehensive income/(loss) for the period
Transactions with owners in their capacity as
owners
Share based payments
Share
Capital
Retained
Profits
Employee
Equity
Benefits
Reserve
Foreign
Currency
Translation
Reserve
Total
$'000
$'000
$'000
$'000
$'000
19,261
1,292
1,017
(770)
20,800
-
-
-
1,763
-
1,763
-
-
-
-
(3,415)
1,763
(3,415)
(3,415)
(1,652)
84
-
250
-
334
Balance at 30 June 2011
19,345
3,055
1,267
(4,185)
19,482
At 1 July 2011
19,345
3,055
1,267
(4,185)
19,482
Loss for period
Other comprehensive income
Total comprehensive (loss)/income for the period
Transactions with owners in their capacity as
owners
Share based payments
Balance at 30 June 2012
-
-
-
(3,053)
-
(3,053)
-
-
-
-
631
(3,053)
631
631
(2,422)
91
19,436
-
2
280
-
371
1,547
(3,554)
17,431
The statement of changes in equity is to be read in conjunction with the notes to the financial statements set out on pages 33
to 81.
29
STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012
Assets
Current assets
Cash and cash equivalents
Other financial assets
Trade and other receivables
Inventories
Total Current Assets
Non-Current Assets
Investment in associate
Deferred tax assets
Property, plant & equipment
Intangibles and goodwill
Total Non-Current Assets
Total Assets
Liabilities
Current liabilities
Trade payables and other liabilities
Borrowings
Employee benefits
Deferred revenue
Government grants
Other provisions
Total Current Liabilities
Non-current liabilities
Borrowings
Long term borrowings
Employee benefits
Government grants
Contingent consideration
Other provisions
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Share capital
Reserves
Retained profits
Total Equity
NOTE
CONSOLIDATED
2012
$'000
2011
$'000
12
13
14
15
16
17
18
19
20
21
23
24
27
25
21
26
23
27
28
25
29
30
30
3,799
1,371
4,168
5,197
14,535
13,696
5,767
3,949
2,257
25,669
40,204
4,841
2,864
2,117
316
225
526
10,889
59
7,650
119
1,424
2,296
336
11,884
22,773
17,431
3,440
3,434
6,841
4,060
17,775
11,406
5,057
4,134
2,402
22,999
40,774
5,004
936
2,354
316
225
195
9,030
-
7,489
132
1,649
2,688
304
12,262
21,292
19,482
19,436
(2,007)
2
19,345
(2,918)
3,055
17,431
19,482
The statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 33
to 81.
30
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2012
Cash Flows from Operating Activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash used in operations
Interest received
Interest paid
Income taxes paid
Net cash used in operating activities
Cash Flows from Investing Activities
Dividends received from associate
Net proceeds from sale of property, plant & equipment
Acquisition of plant & equipment
Costs incurred on development of intangibles
Acquisition of subsidiary
Redemption/(acquisition) of short term deposits
Net cash provided by investing activities
Cash Flows from Financing Activities
Proceeds from borrowings
Repayment of borrowings
Net cash provided by/(used in) financing activities
NOTE
CONSOLIDATED
2012
$'000
2011
$'000
35
38
25,209
(29,233)
(4,024)
243
(250)
(214)
(4,245)
1,544
49
(696)
-
-
2,063
2,960
1,930
(288)
1,642
17,070
(18,742)
(1,672)
218
(104)
(234)
(1,792)
1,208
8,557
(481)
(593)
(1,780)
(3,434)
3,477
-
(1,848)
(1,848)
Net increase/(decrease) in cash and cash equivalents
357
(163)
Cash and cash equivalents at 1 July
Effects of exchange rate fluctuations on the balances of cash held in foreign
currencies
3,440
3,608
2
(5)
Cash and cash equivalents at 30 June
12
3,799
3,440
Non-Cash Investing and Financing Activities
There were no non-cash investing or financing activities for the years ended 30 June 2011 and 2012.
Refer to note 6 for details of non-cash operating items.
The statement of cash flows is to be read in conjunction with the notes to the financial statements set out in pages 33 to 81.
31
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
1.
2.
Reporting Entity
Basis of Preparation
(a) Statement of Compliance with
IFRS
(b) Basis of Preparation
(c)
Functional and Presentation
Currency
Page
33
33
33
33
33
13.
Other financial assets
14.
Trade and other receivables
15.
Inventories
16.
Investment in associate
17.
Deferred tax assets and liabilities
(d) Use of Estimates and Judgements 33
18.
Plant and equipment
3.
Significant accounting policies
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
New accounting standards and
interpretations
Basis of consolidation
Foreign currency
Financial instruments
Inventories
Plant and equipment
Intangibles and goodwill
Impairment
Share capital
Employee benefits
(k)
Provisions – Warranties
(l)
Revenue recognition
(m) Operating leases
(n)
(o)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
Finance expense
Income tax
Operating segments
Goods and services tax
Earnings per share
Government grants
Business combinations
New standards and
interpretations not yet adopted
Comparatives
Financial risk management
objectives and policies
Significant accounting judgements,
estimates and assumptions
Operating segments
Other revenue
Other income
Expenses
4.
5.
6.
7.
8.
9.
10.
Income Tax
11.
Earnings per share
12.
Cash and cash equivalents
34
34
34
35
35
36
36
37
38
38
38
39
39
40
40
40
41
41
41
41
42
42
47
48
51
53
56
56
56
57
58
58
19.
Intangibles and goodwill
20.
Trade payables and other liabilities
21.
Borrowings
22.
Financing arrangements
23.
Employee benefits
24.
Deferred revenue
25.
Other provisions
26.
Long term borrowings
27.
Government grants
28.
Contingent consideration
29.
Share capital
30.
Retained profits and reserves
31.
Consolidated entity
32
Information relating to Orbital
Corporation Limited
33.
Related party disclosures
34.
Key management personnel
35.
Notes to the statement of cash
flows
36.
Share based payment plans
37.
Defined contribution
superannuation fund
38.
Business combination
39.
Commitments
40.
Contingencies
41.
Events after the balance sheet date
42.
Remuneration of auditors
Page
58
59
60
60
61
63
63
65
66
66
67
67
68
69
69
70
70
71
72
72
73
73
76
76
79
79
80
81
81
81
32
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
1.
REPORTING ENTITY
Orbital Corporation Limited (the "Company") is a company domiciled in Australia. The address of the Company’s
registered office is 4 Whipple Street, Balcatta, Western Australia. The consolidated financial report of the Company
for the year ended 30 June 2012 comprises the Company and its subsidiaries (together referred to as the "Group").
Orbital Corporation Limited is a for-profit entity and the Group operates in a number of industries (see the Directors’
Report)
The consolidated financial report was authorised for issue by the directors on 21 September 2012.
2.
BASIS OF PREPARATION
(a)
Statement of Compliance with IFRS
The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards
Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards
Board.
(b)
Basis of Preparation
The consolidated financial statements have been prepared on the historical cost basis, except for contingent
consideration which is measured at fair value.
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that
Class Order, all financial information presented in Australian dollars has been rounded to the nearest thousand
unless otherwise stated.
Going Concern
The Group incurred a net loss after tax for the year ended 30 June 2012 of $3,053,000 (2011: Profit of $1,763,000)
and experienced net cash outflows from operating activities of $4,245,000 (2011: $1,792,000). At 30 June 2012,
the Group had net current assets of $3,646,000 (2011: $8,745,000). The cash and term deposit position of the
Group at 30 June 2012 was $5,170,000.
This report has been prepared on the going concern basis, which contemplates the continuity of normal business
activity and the realisation of assets and settlement of liabilities in the normal course of business. In forming this
view, the directors have taken into consideration the following:
Management’s strategies to improve sales and profits, while carefully controlling discretionary spending;
The unaudited net current assets and cash and term deposit position at 31 August 2012 are $3,021,000 and
$5,270,000 respectively;
The company is listed on the Australian Securities Exchange, and has access to the Australian equity markets.
Accordingly, management considers it maintains a reasonable expectation of being able to raise funding from
the market if and when required; and
If required, the Group could contemplate a sale of non-current assets.
The Directors believe the company can meet all its liabilities as and when they fall due.
Should the Group not achieve the matters set out above, there is significant uncertainty whether the Group will
continue as a going concern and therefore whether it will realise its assets and extinguish its liabilities in the normal
course of business and at the amounts stated in the financial report. The financial report does not include any
adjustments to assets and liabilities that may be necessary if the Group is unable to continue as a going concern.
Functional and Presentation Currency
(c)
These consolidated financial statements are presented in Australian dollars, which is the Company’s functional
currency and the functional currency of the majority of the Group.
(d)
Use of Estimates and Judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that
affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates.
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.
Judgements made by management in the application of Australian Accounting Standards that have a significant
effect on the financial report and estimates with a significant risk of material adjustment in the next year are
discussed in note 5.
33
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
3.
SIGNIFICANT ACCOUNTING POLICIES
(a)
New Accounting Standards and Interpretations
The accounting policies adopted are consistent with those of the previous financial year. From 1 July 2011, the
Group has adopted all the standards and interpretations mandatory for annual periods beginning on or after 1 July
2011. Adoption of these standards and interpretations did not have any effect on the financial position or
performance of the Group. The Group has not elected to early adopt any new standards or amendments.
(b)
Basis of Consolidation
(i) Subsidiaries
Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies
so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether a group controls another entity.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using
consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances and
transactions, income and expenses and profit and losses resulting from intragroup transactions have been eliminated
in full.
Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be
consolidated from the date on which control is transferred out of the Group.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. The acquisition method of
accounting involves recognising at acquisition date, separately from goodwill, the identifiable assets acquired, the
liabilities assumed and any non-controlling interest in the acquiree. The identifiable assets acquired and the liabilities
assumed are measured at their acquisition date fair values.
The difference between the above items and the fair value of the consideration (including the fair value of any pre-
existing investment in the acquiree) is goodwill or a discount on acquisition.
A change in the ownership interest of a subsidiary that does not result in a loss of control, is accounted for as an
equity transaction.
If the Group loses control over a subsidiary, it
Derecognises the assets (including goodwill) and liabilities of the subsidiary.
Derecognises the carrying amount of any non-controlling interest.
Derecognises the cumulative translation differences, recorded in equity.
Recognises the fair value of the consideration received.
Recognises the fair value of any investment retained.
Recognises any surplus or deficit in profit or loss.
Reclassifies the parent's share of components previously recognised in other comprehensive income to profit or
loss.
(ii) Associate
The Group’s investment in its associate is accounted for using the equity method of accounting in the consolidated
financial statements. The associate is an entity over which the Group has significant influence and that is neither a
subsidiary nor a joint venture.
The Group generally deems they have significant influence if they have over 20% of the voting rights.
Under the equity method, investments in associates are carried in the consolidated statement of financial position at
cost plus post-acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to an
associate is included in the carrying amount of the investment and is not amortised. After application of the equity
method, the Group determines whether it is necessary to recognise any impairment loss with respect to the Group’s
net investment in associates.
The Group’s share of its associates’ post-acquisition profit or losses is recognised in the income statement, and its
share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition
movements are adjusted against the carrying amount of the investment. Dividends received from the associate
reduce the carrying amount of the investment.
When the Group’s share of losses in the associate equals or exceeds its interest in the associate, including any
unsecured long-term receivables or loans, the Group does not recognise further losses, unless it has incurred
obligations or made payments on behalf of the associate.
The associate’s accounting policies conform to those used by the Group for like transactions and events in similar
circumstances.
34
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(b)
Basis of Consolidation (continued)
(iii) Transactions Eliminated on Consolidation
Intra-group balances, and any unrealised gains and losses or income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from
transactions with associates are eliminated to the extent of the Group’s interest in the entity with adjustments made
to the investment in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to
the extent that there is no evidence of impairment. Gains and losses are recognised as the contributed assets are
consumed or sold or, if not consumed or sold, when the Group’s interest in such entities is disposed of.
(c)
Foreign Currency
(i) Foreign currency transactions
Transactions in foreign currencies are converted to the respective functional currencies of Group entities at exchange
rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the
reporting date (except those representing the Group’s net investment in subsidiaries and its associate – see below)
are retranslated to the functional currency at the exchange rate at that date. Foreign exchange differences arising on
translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
(ii) Financial statements of foreign operations
The assets and liabilities of foreign operations are translated to Australian dollars at exchange rates ruling at the
reporting date. The revenues and expenses of foreign operations are translated to Australian dollars at rates
approximating the exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on
retranslation are recognised directly in a separate component of equity described as ‘foreign currency translation
reserve’.
(iii) Net investment in foreign operations
Exchange differences arising from the translation of balances representing the net investment in foreign operations
are taken to the foreign currency translation reserve. They are released into the income statement upon disposal.
(d)
Financial Instruments
(i) Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and
borrowings, and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value
through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative
financial instruments are measured as described below.
A financial instrument is recognised if the Group becomes party to the contractual provisions of the instrument.
Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial asset expire or
if the Group transfers the financial asset to another party without retaining control or substantially all risks and
rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the
date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group’s
obligations specified in the contract expire or are discharged or cancelled.
Cash and cash equivalents - refer note 12
Cash and cash equivalents comprise cash balances, at call deposits and bank-endorsed bills of exchange at
discounted value.
Other financial assets - refer note 13
Other financial assets comprise term deposits with financial institutions with maturities between 90 days and 365
days. Subsequent to initial recognition other financial assets are stated at amortised cost.
Trade and other receivables - refer note 14
Subsequent to initial recognition, trade receivables are stated at their amortised cost, less impairment losses.
Normal settlement terms are 30 to 60 days. The collectability of debts is assessed at balance date and specific
allowance is made for any doubtful accounts. Individual debts that are known to be uncollectible are written off
when identified. An impairment allowance is recognised when there is objective evidence that the Group will not be
able to collect the receivable. Financial difficulties of the debtor, default payments or debts more than 60 days
overdue are considered objective evidence of impairment. The amount of the impairment loss is the receivable
carrying amount compared to the present value of estimated future cash flows, discounted at the original effective
interest rate.
35
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(d)
Financial Instruments (continued)
(i) Non-derivative financial instruments (continued)
Trade and other payables - refer note 20
Liabilities are recognised for amounts due to be paid in the future for goods or services received. Subsequent to
initial recognition, trade and other payables are stated at their amortised cost.
Trade payables are non-interest bearing and are normally settled on 30-day terms.
Borrowings - refer note 21
Included in current liabilities is an amount owing under a business bank bill loan facility utilised for working capital.
The loan facility provides loans of no fixed duration with interest payable monthly. The loans are initially recognised
at the fair value of consideration received plus transaction costs and subsequently stated at amortised cost with any
difference between cost and repayment value being recognised in the income statement over the period of the
borrowings on an effective interest basis.
Long term borrowings - refer note 26
Included in non-current liabilities is an amount owing to the Government of Western Australia resulting from a loan
of $14,346,164 restructured in January 2010. The loan is interest-free with annual repayments commencing in May
2010 and concluding in May 2025.
The non-interest bearing loan from the Government of Western Australia was recognised initially at fair value and
subsequently stated at amortised cost using the effective interest method. The difference between the fair value and
face value of the loan is accounted for as a government grant as disclosed in note 26.
Contingent consideration - refer note 28
Included in non-current liabilities is an amount owing to the owners of the non-controlling interest in Sprint Gas
(Aust) Pty Ltd. The contingent consideration was recognised initially at fair value and subsequently at fair value
through profit and loss.
(ii) Derivative financial instruments
The Group may use derivative financial instruments to hedge its exposure to foreign exchange fluctuations and
interest rate movements. In accordance with its treasury policy, the Group entity does not hold the derivative
financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are
accounted for as trading instruments.
Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative
financial instruments are stated at fair value. Changes in the fair value of the derivative financial instrument that
are not designated as cash flow hedging instruments are recognised in profit or loss.
Cash flow hedges
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised
directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair
value are recognised in profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or
exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in
equity remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the
amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases
the amount recognised in equity is transferred to profit or loss in the same period that the hedged item affects profit
or loss.
(e)
Inventories - refer note 15
Inventories are carried at the lower of cost and net realisable value. Inventory is valued at average cost and
includes expenditure incurred in acquiring the inventories and bringing them to their present location and condition.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and selling expenses.
(f)
Plant and Equipment - refer note 18
(i) Recognition and measurement
Items of plant and equipment are stated at cost less accumulated depreciation and impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset.
36
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(f)
Plant and Equipment - refer note 18 (continued)
(ii) Subsequent costs
The cost of replacing part of an item of plant and equipment is recognised in the carrying amount of the item if it is
probable that the future economic benefits embodied within the part will flow to the Group and its cost can be
measured reliably. The costs of day-to-day servicing of property, plant and equipment are recognised in profit or
loss as incurred.
(iii) Depreciation and Amortisation
Items of plant and equipment are depreciated/amortised on a straight line basis over their estimated useful lives.
The depreciation rates used in the current and comparative period for each class of asset are as follows: Plant and
Equipment 6.67% to 33.3%. Assets are depreciated or amortised from the date of acquisition.
The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually.
(iv) Asset Sales
The net profit or loss from asset sales are included as other income or expenses of the Group. The profit or loss on
disposal of assets is brought to account at the date that an unconditional contract of sale is signed. The profit or loss
on disposal is calculated as the difference between the carrying amount of the asset at the time of disposal and the
net proceeds on disposal.
(g)
Intangibles and goodwill - refer note 19
(i) Research and Development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and
understanding, is recognised in the income statement as an expense as incurred.
Expenditure on development activities, whereby research findings are applied to a plan or design for the production
of new or substantially improved products and processes, is capitalised if the product or process is technically and
commercially feasible and the Group has sufficient resources to complete development.
Expenditure on intangibles which may be capitalised includes the cost of materials and direct labour. Other
development expenditure is recognised in the income statement as an expense as incurred. Capitalised expenditure
is stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the income
statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite.
(ii) Patents, Licences and Technologies
Patents, licences and technology development and maintenance costs, not qualifying for capitalisation, are expensed
as incurred.
(iii) Goodwill
Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business
combination over the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and
contingent liabilities.
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date,
allocated to each of the Group's cash-generating units, or groups of cash-generating units, that are expected to
benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are
assigned to those units or groups of units.
Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-
generating units), to which the goodwill relates.
When the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying
amount, an impairment loss is recognised. When goodwill forms part of a cash-generating unit (group of cash-
generating units) and an operation within that unit is disposed of, the goodwill associated with the operation
disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the
operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed of
and the portion of the cash-generating unit retained. Impairment losses recognised for goodwill are not subsequently
reversed.
37
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(h)
Impairment
(i) Financial assets
A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a
negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between
its carrying amount, and the present value of the estimated future cash flows discounted at the original effective
interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its
current fair value.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial
assets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available-for-sale
financial asset recognised previously in equity is transferred to profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment
loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are
debt securities, the reversal is recognised in profit or loss. For available-for-sale financial assets that are equity
securities, the reversal is recognised directly in equity.
(ii) Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are
reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication
exists then the asset’s recoverable amount is estimated.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its
recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that
largely are independent from other assets and groups. Impairment losses are recognised in profit or loss.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of
any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of
units) on a pro rata basis.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less
costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to
the asset.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised
in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer
exists. An impairment loss is reversed if there has been a change in estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had
been recognised.
(ii) Goodwill
Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-
generating units), to which the goodwill relates.
(i)
Share Capital - refer note 29
(i) Issued Capital
Share capital is recognised at the fair value of the consideration received.
(ii) Dividends
Dividends are recognised as a liability in the period in which they are declared.
(iii) Transaction Costs
Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income
tax benefit.
(j)
Employee Benefits
(i) Short-term benefits - refer note 23
The provisions for employee entitlements to wages, salaries and annual leave due to be settled within 12 months of
year end represent present obligations resulting from employees’ services provided up to the balance date,
calculated at undiscounted amounts based on wage and salary rates that the Group expects to pay as at the
reporting date including related on-costs, such as workers’ compensation and payroll tax. Expenses for non-
accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable.
38
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(j)
Employee Benefits (continued)
(ii) Long Service Leave - refer note 23
The provision for employee entitlements to long service leave represents the present value of the estimated future
cash outflows to be made resulting from employees’ services provided up to balance sheet date.
The provision is calculated using estimated future increases in wage and salary rates including related on-costs and
expected settlement dates based on the Group’s experience with staff departures and is discounted using the rates
attached to national government securities at balance sheet date, which most closely match the terms of maturity of
the related liabilities.
(iii) Defined Contribution Superannuation Fund - refer note 37
Obligations for contributions to the defined contribution superannuation fund are recognised as an expense in the
income statement as incurred.
(iv) Share-based payment transactions - refer note 36
Employees have been offered the right to take up shares in the Company under three plans (i) the Employee Share
Plan No.1 provides $1,000 of shares per annum and is subject to qualification by length of service, (ii) the Executive
Long Term Share Plan (“ELTSP”) is subject to qualification by length of service and achievement of corporate
performance targets related to returns to shareholders, and (iii) the Performance Rights Plan is subject to
qualification by length of service and achievement of share price targets.
The fair value of rights granted to employees is recognised as an employee benefit expense with a corresponding
increase in equity. The fair value of the shares granted under the Employee Share Plan No.1 is based on the market
price of the shares on the date of issue. The fair value of the ELTSP is measured at grant date taking into account
market performance conditions only, and spread over the vesting period during which the employees become
unconditionally entitled to the performance–based shares. The fair value of the shares granted is measured using a
Monte-Carlo simulation model. The amount recognised as an expense is adjusted to reflect the actual number of
shares that vest except where forfeiture is only due to market conditions that are not met. The fair value of the
Performance Rights is measured at grant date taking into account the share price targets and spread over the
expected life of the rights.
(k)
Provisions – Warranties - refer note 25
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that
can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to the liability.
Provision for warranty is recognised when the underlying products are sold. The provision is based on historical
claim data.
(l)
Revenue Recognition
Revenues are recognised and measured at the fair value of the consideration received net of the amount of goods
and services tax (GST). Exchanges of goods or services of the same nature and value without any cash
consideration are not recognised as revenues.
(i) Revenue from Rendering of Services
Revenue from services rendered is recognised in the income statement in proportion to the stage of completion of
the transaction at the reporting date. The stage of completion is assessed by reference to the extent of work
performed. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration
due.
Revenue received in advance represents cash payments received from customers in accordance with contractual
commitments prior to the performance of the service.
(ii) Sale of goods
Revenue from the sale of goods is recognised when there is persuasive evidence, usually in the form of an executed
sales agreement at the time of delivery of the goods to customer, indicating that there has been a transfer of risks
and rewards to the customer, no further work or processing is required, the quantity and quality of the goods has
been determined, the price is fixed and generally title has passed.
39
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(l)
Revenue Recognition (continued)
(iii) Licence and royalties
Revenue earned under various licence, royalty and other agreements is recognised on an accrual basis upon the
satisfactory completion of contracted technical specifications. Additional revenue may be earned after a fixed time
interval or after delivery of a prototype engine and/or hardware meeting specified performance targets, provided the
licence agreements are not terminated. Under the terms of the licence agreements, licensees are not specifically
obliged to commence production and sale of engines using Orbital Technology and may terminate the agreements
upon notice to Orbital. If a licensee were to terminate its licence agreement with Orbital, the licensee would forfeit
the licence and any technical disclosure fees paid through to the date of termination. Revenue under royalty
agreements is recognised when such amounts become due and payable.
(iv) Interest Revenue
Revenue is recognised as interest accrues using the effective interest method.
(v) Dividends
Revenue is recognised when the Group’s right to receive the payment is established.
(m)
Operating Leases
Payments made under operating leases are recognised in the income statement on a straight-line basis over the
term of the lease.
(n)
Finance Expense
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (i.e. an asset
that necessarily takes a substantial period of time to get ready for its intended use or sale) are capitalised as part of
the cost of that asset. All other borrowing costs are expensed in the period they occur.
Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
(o)
Income Tax - refer note 10
(i) Current income tax expense and liability
Income tax on the profit or loss for the year presented comprises current and deferred tax. Income tax is recognised
in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially
enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
(ii) Deferred income tax expense and liability
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable
that the related tax benefit will be realised.
(iii) Tax Consolidation
The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect
from 1 July 2002 and are therefore taxed as a single entity from that date. The head entity within the tax-
consolidated group is Orbital Corporation Limited.
40
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(p)
Operating Segments - refer note 6
An operating segment is a component of an entity that engages in business activities from which it may earn
revenues and incur expenses (including revenues and expenses relating to transactions with other components of
the same entity), whose operating results are regularly reviewed by the entity's executive management team (the
chief operating decision maker) to make decisions about resources to be allocated to the segment and assess its
performance and for which discrete financial information is available. Management will also consider other factors in
determining operating segments such as the existence of a line manager and the level of segment information
presented to the executive management team.
The group aggregates two or more operating segments when they have similar economic characteristics, and the
segments are similar in each of the following respects:
Nature of the products and services,
Nature of the production processes,
Type or class of customer for the products and services,
Methods used to distribute the products or provide the services, and if applicable
Nature of the regulatory environment.
Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However,
an operating segment that does not meet the quantitative criteria is still reported separately where information
about the segment would be useful to users of the financial statements.
Information about other business activities and operating segments that are below the quantitative criteria are
combined and disclosed in a separate category for “all other segments”.
(q)
Goods and Services Tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the
amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is
recognised as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amounts of GST included. The net amount of GST recoverable from,
or payable to, the Australian Taxation Office is included as a current asset or liability in the statement of financial
position.
Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising
from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating
cash flows.
(r)
Earnings Per Share – refer note 11
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated
by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number
of ordinary shares outstanding during the period.
Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted
average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.
(s)
Government Grants – refer note 27
Government grants are recognised in the Statement of Financial Position as a liability when the grant is received.
Government grants are recognised as income over the periods necessary to match them with the related costs which
they are intended to compensate, on a systematic basis. Government grants received on compensation for expenses
and losses already incurred or for the purpose of giving immediate financial support are recognised immediately in
profit and loss for the period.
When the grant relates to a discount on services to be rendered in the future, the fair value is credited to deferred
revenue and is released to the income statement over the periods that the discounted services are rendered.
When the grant relates to an asset (investment grants relating to the construction of a heavy duty engine test
facility), the fair value is credited to deferred income and is released to the income statement over the expected
useful life of the relevant asset by equal annual instalments.
41
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(t)
Business Combinations – refer note 38
Business combinations are accounted for using the acquisition method. The consideration transferred in a business
combination shall be measured at fair value, which shall be calculated as the sum of the acquisition date fair values
of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and
the equity issued by the acquirer, and the amount of any non-controlling interest in the acquiree. For each business
combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the
proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred, and
included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating
or accounting policies and other pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held
equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will
be recognised in accordance with AASB 139 either in profit or loss or as a change to other comprehensive income. If
the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity
(u)
New standards and interpretations not yet effective
The following standards, amendments to standards and interpretations have been identified as those which may
impact the entity in the period of initial application. They are available for early adoption at 30 June 2012, but have
not been applied in preparing this financial report:
42
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(u)
New standards and interpretations not yet effective (continued)
Reference
Title
Summary
AASB 9
(IFRS 9)
Financial
Instruments
AASB 2009-11
Amendments to
Australian
Accounting
Standards
arising from
AASB 9 (IFRS 9)
AASB 9 (IFRS 9) includes requirements for
the classification and measurement of
financial assets resulting from the first part
of Phase 1 of the IASB’s project to replace
IAS 39 Financial Instruments: Recognition
and Measurement (AASB 139 Financial
Instruments: Recognition and Measurement)
(IAS 39).
These requirements improve and simplify
the approach for classification and
measurement of financial assets compared
with the requirements of AASB 139(IAS 39).
The main changes from AASB 139 (IAS 39)
are described below.
(a) Financial assets are classified based on
(1) the objective of the entity’s
business model for managing the
financial assets; (2) the characteristics
of the contractual cash flows. This
replaces the numerous categories of
financial assets in AASB 139 (IAS 39),
each of which had its own classification
criteria.
(b) AASB 9 (IFRS 9) allows an irrevocable
election on initial recognition to
present gains and losses on
investments in equity instruments that
are not held for trading in other
comprehensive income. Dividends in
respect of these investments that are a
return on investment can be
recognised in profit or loss and there is
no impairment or recycling on disposal
of the instrument.
(c) Financial assets can be designated and
measured at fair value through profit
or loss at initial recognition if doing so
eliminates or significantly reduces a
measurement or recognition
inconsistency that would arise from
measuring assets or liabilities, or
recognising the gains and losses on
them, on different bases.
► These amendments arise from the
issuance of AASB 9 Financial Instruments
(IFRS 9) that sets out requirements for
the classification and measurement of
financial assets. The requirements in
AASB 9 (IFRS 9) form part of the first
phase of the International Accounting
Standards Board’s project to replace
AASB 139 Financial Instruments:
Recognition and Measurement. (IAS 39)
► This Standard shall be applied when AASB
9 (IFRS 9) is applied.
Application
date of
standard*
1 January
2013**
Application
date for
Group*
1 July 2013
1 January
2013**
1 July 2013
43
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(u)
New standards and interpretations not yet effective (continued)
Reference
Title
Summary
AASB 2010-7
Amendments to
Australian
Accounting
Standards
arising from
AASB 9
(December
2010) (IFRS 9)
The requirements for classifying and
measuring financial liabilities were added to
AASB 9 (IFRS 9). The existing requirements
for the classification of financial liabilities
and the ability to use the fair value option
have been retained. However, where the fair
value option is used for financial liabilities
the change in fair value is accounted for as
follows:
► The change attributable to changes in
credit risk are presented in other
comprehensive income (OCI)
► The remaining change is presented in
profit or loss
If this approach creates or enlarges an
accounting mismatch in the profit or loss,
the effect of the changes in credit risk are
also presented in profit or loss.
Application
date of
standard*
1 January
2013**
Application
date for
Group*
1 July 2013
AASB 2011-2
AASB 10
(IFRS 10)
Amendments to
Australian
Accounting
Standards
arising from the
Trans-Tasman
Convergence
project –
Reduced
disclosure
regime
[AASB 101,
AASB 1054]
Consolidated
Financial
Statements
This Standard makes amendments to the
application of the revised disclosures to Tier
2 entities, that are applying AASB 1053.
1 July 2013
1 July 2013
1 January
2013
1 July 2013
AASB 10 (IFRS 10) establishes a new control
model that applies to all entities. It replaces
parts of AASB 127 (IAS 27) Consolidated
and Separate Financial Statements dealing
with the accounting for consolidated
financial statements and SIC-12
Consolidation – Special Purpose Entities.
The new control model broadens the
situations when an entity is considered to be
controlled by another entity and includes
new guidance for applying the model to
specific situations, including when acting as
a manager may give control, the impact of
potential voting rights and when holding less
than a majority voting rights may give
control.
44
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(u)
New standards and interpretations not yet effective (continued)
Reference
Title
Summary
AASB 11
(IFRS 11)
Joint Arrangements AASB 11 (IFRS 11) replaces AASB 131 (IAS
31) Interests in Joint Ventures and
Interpretation 113 (SIC-13) Jointly-
controlled Entities – Non-monetary
Contributions by Ventures. AASB 11 (IFRS
11) uses the principle of control in AASB 10
(IFRS 10) to define joint control, and
therefore the determination of whether joint
control exists may change. In addition
AASB 11 (IFRS 11) removes the option to
account for jointly controlled entities (JCEs)
using proportionate consolidation. Instead,
accounting for a joint arrangement is
dependent on the nature of the rights and
obligations arising from the arrangement.
Joint operations that give the venturers a
right to the underlying assets and
obligations themselves is accounted for by
recognising the share of those assets and
obligations. Joint ventures that give the
venturers a right to the net assets is
accounted for using the equity method.
AASB 12 (IFRS 12) includes all disclosures
relating to an entity’s interests in
subsidiaries, joint arrangements, associates
and structures entities. New disclosures
have been introduced about the
judgements made by management to
determine whether control exists, and to
require summarised information about
associates and subsidiaries with non-
controlling interests.
AASB 13 (IFRS 13) establishes a single
source of guidance under AASB (IFRS) for
determining the fair value of assets and
liabilities. AASB 13 (IFRS 13) does not
change when an entity is required to use
fair value, but rather, provides guidance on
how to determine fair value under AASB
(IFRS) when fair value is required or
permitted by AASB (IFRS). Application of
this definition may result in different fair
values being determined for the relevant
assets.
AASB 13 (IFRS 13) also expands the
disclosure requirements for all assets or
liabilities carried at fair value. This includes
information about the assumptions made
and the qualitative impact of those
assumptions on the fair value determined.
This Standard makes amendments to
several Australian Accounting Standards
and Interpretations arising from the
issuance of the consolidation and joint
arrangements Standards.
Application
date of
standard*
1 January
2013
Application
date for
Group*
1 July 2013
1 January
2013
1 July 2013
1 January
2013
1 July 2013
1 January
2013
1 July 2013
45
AASB 12
(IFRS 12)
Disclosure of
Interests in Other
Entities
AASB 13
(IFRS 13)
Fair Value
Measurement
AASB 2011-7
Amendments to
Australian
Accounting
Standards arising
from the
Consolidation and
Joint Arrangements
Standards
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(u)
New standards and interpretations not yet effective (continued)
Reference
Title
Summary
AASB 2011-8
Amendments to
Australian Accounting
Standards arising from
AASB 13 (IFRS 13)
This Standard makes amendments to several
Accounting Standards and Interpretations.
These amendments principally arise from the
issuance of AASB 13 (IFRS 13)
AASB 119
(IAS 19)
Employee Benefits
(revised)
AASB 2011-
10
AASB 2011-4
AASB 2011-9
Amendments to
Australian Accounting
Standards arising
from AASB 119
(September 2011)
(IAS 19)
Amendments to
Australian Accounting
Standards to Remove
Individual Key
Management
Personnel Disclosure
Requirements [AASB
124]
Amendments to
Australian Accounting
Standards –
Presentation of Items
of Other
Comprehensive AASB
101 (IAS 1)
Application
date of
standard*
Application
date for
Group*
1 January
2013
1 July 2013
1 January
2013
1 July 2013
1 January
2013
1 July 2013
The revised Standard requires the immediate
recognition of defined benefit costs, improves
the presentation and disclosure requirements
for defined benefit plans and requires the
recognition of short-term and other long-
term employee benefits to be based on the
expected timing of settlement rather than
employee entitlement. These revisions will
require retrospective application.
This Standard makes amendments to several
Australian Accounting Standards and
Interpretations. These amendments
principally arise from amendments to the
revised employee benefits Standard.
This Standard removes the requirements to
include individual key management personnel
disclosures in the notes to and forming part
of the Financial Report.
1 July 2013
1 July 2013
This Standard amends the presentation of
components of other comprehensive income
including presenting separately those items
that will be reclassified to profit or loss in
the future and those that would not.
Amendments will be applied retrospectively.
1 July 2012
1 July 2012
46
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(u)
New standards and interpretations not yet effective (continued)
Reference
Title
Summary
AASB 2012-5
Annual
Improvements
2009–2011
Cycle
This standard sets out amendments to
various Standards and the related bases for
conclusions and guidance.
The following items are addressed by this
standard:
Application
date of
standard*
1 January
2013
Application
date for
Group*
1 July 2013
AASB 1 (IFRS 1) First-time Adoption of
International Financial Reporting Standards
Repeated application of AASB 1 (IFRS
1)
Borrowing costs
AASB 101 (IAS 1) Presentation of Financial
Statements
Clarification of the requirements for
comparative information
AASB 116 (IAS 16) Property, Plant and
Equipment
Classification of servicing equipment
AASB 132 (IAS 32) Financial Instruments:
Presentation
Tax effect of distribution to holders of
equity instruments
AASB 134 (IAS 34) Interim Financial
Reporting
Interim financial reporting and
segment information for total assets
and liabilities
* Designates the beginning of the applicable annual reporting period unless otherwise stated.
**
AASB ED 215 Mandatory effective date of IFRS 9 proposes to defer the mandatory effective date of AASB 9 (IFRS
9) from annual periods beginning 1 January 2013 to annual periods beginning on or after 1 January 2015, with
early application permitted. At the time of preparation, finalisation of ED 215 is still pending by the AASB.
However, the IASB has deferred the mandatory effective date of AASB 9 (IFRS 9) to annual periods beginning on
or after 1 January 2015, with early application permitted.
The directors have not determined the impact of the above new and amended accounting standards and
interpretations.
(v)
Comparatives
Certain comparatives have been reclassified to conform with current year presentation.
47
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
4.
FINANCIAL RISK MANAGEMENTS OBJECTIVES AND POLICIES
The Group's principal financial instruments comprise cash and short-term deposits, receivables, payables, and
financial liabilities.
The Group manages its exposure to key financial risks, including interest rate and currency risk in accordance with
the Group's financial risk management policy. The objective of the policy is to support the delivery of the Group's
financial targets whilst protecting future financial security.
The Group from time-to-time enters into derivative transactions, principally forward currency contracts. The purpose
is to manage the currency risks arising from the Group's operations and its sources of revenue. The main risks
arising from the Group's financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity
risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. These
include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts
for interest and foreign exchange rates. Ageing analyses and monitoring of specific credit allowances are undertaken
to manage credit risk, liquidity risk is monitored through the development of future rolling cash flow forecasts.
The Board reviews and agrees policies for managing each of these risks as summarised below.
Primary responsibility for identification and control of financial risks rests with the Audit Committee under the
authority of the Board. The Board reviews and agrees policies for managing each of the risks identified below,
including the setting of limits for hedging cover of foreign currency and interest rate risk, credit allowances, and
future cash flow forecast projections.
Risk Exposures and Responses
Interest rate risk
The Group's exposure to market interest rates relates primarily to the Group's cash, cash equivalents on deposit and
term deposits with Australian banks.
The primary goal of the Group is to maximize returns on surplus cash, using deposits with maturities of less than 90
days. Management continually monitors the returns on funds invested. The Group also has a term deposit of
greater than 90 days and less than 365 days that has been pledged as security to the Group’s bankers for a finance
facility.
At balance date, the Group had the following mix of financial assets and financial liabilities exposed to Australian
variable interest rate risk that are not designated in cash flow hedges:
Financial assets
Cash and cash equivalents
Financial liabilities
Interest bearing liabilities
Contingent consideration
CONSOLIDATED
2012
$'000
2011
$'000
3,799
3,440
2,577
2,296
4,873
648
2,688
3,336
The following sensitivity analysis is based on the interest rate risk exposures in existence at reporting date:
At 30 June 2012, if interest rates had moved, as illustrated in the table below, with all other variables
held constant, post tax profit and other comprehensive income would have been affected as follows:
Post tax profit/(loss)
Higher/(Lower)
Other comprehensive income
Higher/(Lower)
2012
$'000
2011
$'000
2012
$'000
2011
$'000
Consolidated
+1% (100 basis points)
-.5% (50 basis points)
11
(5)
8
(4)
-
-
-
-
The movements in profit are due to higher/lower interest revenue from variable rate cash balances. The sensitivity is
the same in 2012 as in 2011 because the only balances affected by interest rates are cash and interest-bearing loan
balances.
48
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
4.
FINANCIAL RISK MANAGEMENTS OBJECTIVES AND POLICIES (CONTINUED)
Foreign currency risk
As a result of the investment in Synerject LLC, an associate, the Group's income statement and statement of
financial position can be affected significantly by movements in the US$/A$ exchange rates.
The Group also has transactional currency exposures. Such exposure arises from sales or purchases by an operating
entity in currencies other than the functional currency.
Approximately 6% (FY2011: 20%) of the Group's sales are denominated in currencies other than the functional
currency of the operating entity making the sale, whilst approximately 28% (FY2011: 14%) of costs are
denominated in currencies other than the functional currency of the operating entity making the expenditure.
With respect to assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is
kept to an acceptable level by buying or selling forward foreign currency contracts at spot rates when incurred. The
Group does not hold foreign currency positions for trading purposes.
At 30 June 2012, the Group had the following exposure to US$ foreign currency that is not designated in
cash flow hedges:
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Trade and other payables
CONSOLIDATED
2012
$'000
2011
$'000
42
-
42
68
120
188
216
139
At 30 June 2012, the Group had the following exposure to European Currency Units that is not
designated in cash flow hedges:
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Trade and other payables
26
36
62
12
13
23
36
130
The following sensitivity is based on the foreign currency risk exposures in existence at reporting date:
At 30 June 2012, had the Australian Dollar moved, as illustrated in the table below, with all other
variables held constant, post tax profit and other comprehensive income would have been affected as
follows:
Consolidated
AUD/USD/EURO +10%
AUD/USD/EURO -5%
Post Tax profit/(loss)
Other comprehensive income
Higher/(Lower)
2012
$'000
2011
$'000
Higher/(Lower)
2012
$'000
2011
$'000
12
(6)
4
(2)
-
-
-
-
The movements in profit in 2012 are more sensitive than in 2011 due to the higher level of net US Dollar liabilities
and the net Euro financial assets position at balance date.
49
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
4.
FINANCIAL RISK MANAGEMENTS OBJECTIVES AND POLICIES (CONTINUED)
Credit risk
Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents and trade and
other receivables. The Group's exposure to credit risk arises from potential default of the counter party, with a
maximum exposure equal to the carrying amount of these financial assets (as outlined in each applicable note).
The Group does not hold any credit derivatives to offset its credit exposure, however the Group does hold receivable
insurance where appropriate.
It is the Group's policy that all customers who wish to trade on credit terms are subject to credit verification
procedures including an assessment of their independent credit rating, financial position, past experience and
industry reputation. Risk limits are set for each individual customer in accordance with parameters set by
management. These risk limits are regularly monitored.
In addition, receivable balances are monitored on an ongoing basis.
There are no significant concentrations of credit risk within the Group and financial instruments are only invested
with a major financial institution to minimise the risk of default of counterparties. An ageing of receivables is
included in note 14.
Liquidity risk
The Group has established a finance facility with its bankers. The Group does not have any other bank overdrafts,
bank loans, preference shares or committed available credit lines at 30 June 2012.
The only external borrowings of the Group are the finance facility repayable on demand and the interest free
Western Australian Government loan of $14,346,164 repayable in yearly instalments from May 2010 to May 2025.
The Group has recognised a contingent consideration liability of $2,701,000 payable in November 2013 to the
owners of the non-controlling interest in Sprint Gas (Aust) Pty Ltd.
The table below reflects all contractually fixed pay-offs, repayments and interest resulting from recognised financial
liabilities as of 30 June 2012. For all obligations the respective undiscounted cash flows for the respective upcoming
fiscal years are presented. Cash flows for financial liabilities without fixed amount or timing are based on the
conditions existing at 30 June 2012. The Group’s approach to managing liquidity is to ensure, as far as is possible,
that it will always have sufficient liquidity to meet its liabilities when due and payable without incurring unacceptable
losses or risks.
The remaining contractual maturities of the Group's financial liabilities are:
2011
$'000
2012
$'000
6 months or less
6-12 months
1-5 years
Over 5 years
5,482
355
4,986
10,846
21,669
4,101
288
5,329
11,763
21,481
Fair value
The methods for estimating fair value are outlined in the relevant notes to the financial statements.
The Group’s contingent consideration liability belongs to level 3 fair value hierarchy, where the inputs for the
valuation of the liability are not based on observable market data (unobservable inputs)(Level 3).
The following table shows a reconciliation of the movement in the fair value of the financial instruments categorised
within Level 3 between the beginning and the end of the reporting period.
At 1 July
Recognised during the year
Released to the income statement
At 30 June
2,688
-
(392)
2,296
-
2,688
-
2,688
A gain of $392,000 was recognised in the income statement during the current year due to a change in the fair value
of the contingent consideration. The fair value of the contingent consideration payable was calculated with reference
to the estimated future value of the Sprint Gas business, which is based on an estimated average EBITDA multiple.
The undiscounted value is discounted at the present value using a market discount rate. During the year
management revised the market discount rate from 9.8% to 7.8% and the estimated average EBITDA by reference
to the actual results of the business since acquisition and the latest forecasts of future results for the business. This
reduced the fair value of the contingent consideration and resulted in a fair value gain of $392,000, which has been
reflected in the profit and loss account. If the business was to perform 20% better or 20% worse than forecast the
estimated fair value of the contingent consideration would increase by $376,000/decrease by $376,000 respectively.
50
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
5.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts in the financial statements. Management continually evaluates its judgements and
estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its
judgements and estimates on historical experience and on other various factors it believes to be reasonable under
the circumstances, the result of which form the basis of the carrying values of the assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under different assumptions
and conditions.
Management has identified the following critical accounting policies for which significant judgements, estimates and
assumptions are made. Actual results may differ from these estimates under different assumptions and conditions
and may materially affect financial results or the financial position reported in future periods.
Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial
statements.
(a)
Significant accounting judgements
Impairment of non-financial assets other than goodwill
The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group
and to the particular asset that may lead to impairment. These include product and manufacturing performance,
technology, economic and political environments and future product expectations. If an impairment trigger exists
the recoverable amount of the asset is determined. Given the current uncertain economic environment management
considered that the indicators of impairment were significant enough and as such these assets have been tested for
impairment in this financial period. Value in use models, based on approved budgets and forecasts, have been used
to assess impairments of each cash generating unit.
Capitalised development costs
Development costs are only capitalised when it can be demonstrated that the technical feasibility of completing the
intangible asset is valid so that the asset will be available for use or sale. During the comparative period the Group
identified an impairment trigger in relation to the capitalised development costs for the aftermarket LPI kits and
recognised an allowance for impairment of $1,065,000.
Consolidation of Sprint Gas (Aust) Pty Ltd
On 27 May 2011, Orbital Autogas Systems Pty Ltd acquired 55% of the voting shares of Sprint Gas (Aust) Pty Ltd, a
new company incorporated to acquire the operating business of Sprint Gas, an Australian business specializing in the
importation and wholesaling of LPG Fuel systems. Concurrently with the entering into of the Business Acquisition
Agreement, the Group entered into a Subscription and Shareholders Agreement with the owners of the 45% non-
controlling interest in Sprint Gas (Aust) Pty Ltd. As part of the Subscription and Shareholders Agreement Put and
Call options were issued over the remaining 45% non-controlling interest. Management has determined that the Put
and Call options, exercisable after 30 months, are in nature a forward contract and in substance represent
contingent consideration. The Group has accounted for the business combination as though it acquired a 100%
interest and has recognised a financial liability to the non-controlling shareholders equal to the fair value of the
underlying obligations under the Put and Call option (Contingent consideration liability).
(b)
Significant accounting estimates and assumptions
Taxation
Judgement is required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on
the Statement of Financial Position. Deferred tax assets, including those arising from unrecouped tax losses, capital
losses and temporary differences, are recognised only where it is considered more likely than not that they will be
recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions about the
generation of future taxable profits and repatriation of retained earnings depend on management's estimates of
future cash flows. These depend on estimates of future production and sales volumes, operating costs, capital
expenditure, dividends and other capital management transactions. Judgements are also required about the
application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence
there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred
tax assets and deferred tax liabilities recognised on the Statement of Financial Position and the amount of other tax
losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of
recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge
to the income statement.
51
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
5.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (continued)
(b)
Significant accounting estimates and assumptions (continued)
Share-based payment transactions
The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the
equity instruments at the date at which they are granted. The fair value of shares granted under the Employee
Share Plan No.1 is the market value on the date of issue. The fair value of the Executive Long Term Share Plan
rights is determined by an external valuer using a monte-carlo simulation model, with the assumptions detailed in
note 36. The fair value of the performance rights is determined by an external valuer using a monte-carlo
simulation model, with assumptions detailed in note 36. The accounting estimates and assumptions relating to
equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within
the next annual reporting period but may impact expenses and equity.
Impairment of goodwill and intangibles with indefinite useful lives
The Group determines whether goodwill and intangibles with indefinite useful lives are impaired at least on an
annual basis. This requires an estimation of the recoverable amount of the cash-generating units, using a value in
use discounted cash flow methodology, to which the goodwill and intangibles with indefinite useful lives are
allocated. No impairment loss has been recognised in the current year in respect of goodwill.
Product warranty
In determining the level of provision required for product warranties the Group has made judgements in respect of
the expected performance of the product, number of customers who will actually use the product warranty and how
often, and the costs of fulfilling the performance of the product warranty. Historical experience and current
knowledge of the performance of products has been used in determining this provision. The related carrying
amounts are disclosed in note 25.
Estimation of useful lives of assets
The estimation of the useful lives of assets has been based on historical experience as well as manufacturers'
warranties (for plant and equipment). In addition, the condition of the assets is assessed at least once per year and
considered against the remaining useful life. Adjustments to useful lives are made when considered necessary.
Revenue from rendering of services
Revenue from services rendered is recognised in the income statement in proportion to the stage of completion of
the transaction at the reporting date. The stage of completion is assessed by reference to the extent of work
performed. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration
due.
Recognition of contingent consideration
The Group has measured the value of the contingent consideration liability by reference to the fair values of the
underlying obligations under the Put and Call options that give rise to the liability. In determining the fair values of
underlying obligations under the Put and Call options the Group has made judgements in respect of the expected
earnings before interest, depreciation and amortisation expected to be generated by the business during the
calculation period.
52
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
6.
OPERATING SEGMENTS
Identification of reportable segments
The group has identified its operating segments based on the internal reports that are reviewed and used by the
executive management team (the chief operating decision makers) in assessing performance and in determining the
allocation of resources.
The operating segments are identified by management based on the manner in which the product is sold, whether
retail or wholesale, and the nature of the services provided, the identity of service line manager and country of
origin. Discrete financial information about each of these operating businesses is reported to the executive
management team on at least a monthly basis.
The reportable segments are based on the similarity of the products produced and sold and/or the services provided,
as these are the sources of the Group’s major risks and have the most effect on the rates of return.
Types of products and services
System sales (sale of goods)
The system sales businesses provide LPG fuel systems to an Australian automobile manufacturer, LPG retrofit
installers and also operate spare parts businesses for LPG fuel systems.
Consulting services (consultancy)
The consulting services business provides consultancy services to original equipment manufacturers, engine
manufacturers and government departments. The engineering services provided include research, design,
development, calibration, improvement, production support, performance testing, emissions testing and certification.
Royalties and licences (intellectual property rights)
The royalties and licences business receives revenue from licensees of Orbital technologies. Applications utilising
Orbital technologies include outboard engines, autorickshaws and scooters.
Accounting policies
The following items and associated assets and liabilities are not allocated to operating segments as they are not
considered part of the core operations of any segment:
Corporate management and finance and administration overhead expenses.
Share of profit from equity accounted investment.
Finance costs - including adjustments on provisions due to discounting.
Cash and cash equivalents.
Borrowings.
Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected
to be used for more than one period.
Inter-segment pricing is determined on an arm’s length basis.
Geographical information
The system sales segment is managed on an Australian basis. The consulting services and royalties and licences
segments are managed on a worldwide basis.
In presenting geographical information revenue is based on the geographical location of customers and non-current
assets are based on the geographical location of the assets.
Revenue is derived predominantly from the sale of LPG fuel systems, the provision of consulting services and the
sale of intellectual property rights to Orbital’s OCP technology. The consolidated entity operates predominantly in the
automotive, marine, motorcycle and unmanned aircraft system engine markets.
Major customers
The Group has a number of customers to which it provides both products and services. The system sales segment
supplies an Australian automobile manufacturer with LPG fuel systems that accounted for 25.0% of external revenue
(2011: 12.7%). The next most significant customer which accounted for 18.8% (2011: 12.2%) of external revenue
was in the consulting services segment. No other customer accounts for more than 10% of revenue.
53
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
6.
OPERATING SEGMENTS (continued)
(a) Operating segments
System sales
Consulting
services
Royalties and
Consolidated
licences (i)
Segment Revenue - external
customers
Unallocated other revenue
Total Revenue
2012
$'000
2011
$'000
2012
$'000
2011
$'000
2012
2011
$'000
$'000
2012
$'000
2011
$'000
14,020
5,847
7,131
9,492
967
1,081
22,118
16,420
243
218
22,361
16,638
380
(2,764) (2,259)
161
463
610
(1,416)
(1,993)
Segment result
Research & development
Unallocated expenses - net (ii)
Gain on sale of property, plant and equipment
Finance costs
Share of profit from associate
Net profit/(loss) before related income tax
Income tax benefit
(954)
(1,158)
(3,675)
(2,581)
-
(692)
3,480
4,760
(688)
3,233
(3,257)
1,573
204
190
(3,053)
1,763
Royalties and
Consolidated
licences
Profit /(loss) after tax attributable to members
System sales
Consulting
services
2012
$'000
2011
$'000
2012
$'000
2011
$'000
2012
2011
$'000
$'000
2012
$'000
2011
$'000
Non-cash (revenue) and expenses
Depreciation and amortisation
Equity settled employee compensation
458
26
488
9
Other non-cash (income)/expenses
(262)
1,990
Segment non-cash expenses
222
2,487
533
111
245
889
686
122
(216)
592
-
1
-
1
-
1
-
1
Equity settled employee compensation
Amortisation of non-interest bearing loans
Gain on sale of property, plant & equipment
Share of profit from associate
Movement in provision for surplus lease space
Foreign exchange translation gain
Total non-cash (revenue) and expenses
991
138
1,174
132
(17)
1,774
1,112
3,080
233
507
202
614
-
(4,760)
(3,480)
(3,233)
177
(120)
372
(79)
(1,571)
(3,804)
(i) Royalties and licences costs include direct patent costs.
(ii) Unallocated expenses (net) include corporate management and finance and administration overhead expenses net
of unallocated other income.
54
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
6.
OPERATING SEGMENTS (CONTINUED)
(a) Operating segments
System sales
Consulting
services
Royalties and
Consolidated
licences
2012
$'000
2011
$'000
2012
$'000
2011
2012
2011
2012
$'000
$'000
$'000
$'000
2011
$'000
Segment Assets
9,921
9,482
5,387
7,619
263
336
15,571
17,437
Unallocated assets
Cash
Other financial assets
Investment in associate
Deferred tax assets
Consolidated Total Assets
Segment Liabilities
Unallocated liabilities
Long term borrowings
Consolidated Total Liabilities
Consolidated Net Assets
3,799
3,440
1,371
13,696
3,434
11,406
5,767
5,057
40,204
40,774
6,567
5,672
8,111
7,766
99
77
14,777
13,515
7,996
7,777
22,773
21,292
17,431
19,482
Segment acquisitions of non current
assets
271
857
425
217
-
-
696
1,074
Acquisitions of non-current assets represent acquisitions of plant and equipment of $696,000 (2011: $1,074,000)
(b) Geographic information
Americas
Europe
Asia
Australia
Consolidated
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
Revenue - external
customers
5,231
3,473
492
889
619
1,917 15,776
10,141 22,118
16,420
Non-current assets
19,135
16,122
-
-
-
-
6,534
6,877 25,669
22,999
55
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
7.
OTHER REVENUE
Interest revenue
8.
OTHER INCOME
Gain on sale of property, plant and equipment
Automotive grant income (a)
Net foreign exchange gains
Grant income
Fair value movement in contingent consideration
CONSOLIDATED
2012
$'000
2011
$'000
243
218
15
545
120
253
392
4,760
680
79
591
-
1,325
6,110
(a) The Group received Automotive Transformation Scheme (ATS) credits from the Federal Government for qualifying
research and development activities and accounts for these as government grants.
9.
EXPENSES
(a)
Employee benefits expense
Salaries and wages
Contributions to defined contributions superannuation funds
Share based payments
(Decrease)/Increase in liability for annual leave
(Decrease)/Increase in liability for long service leave
Termination costs
Other associated personnel expenses
(b)
Finance costs
Interest on borrowings
Non-cash interest expense WA Government Loan
(c)
Other expenses
Administration
Marketing
Investor relations
Freight & courier
Motor vehicle expenses
Impairment of receivables
Allowance for warranty
Write-off previously capitalised development expenditure
Other
(d)
Cost of goods sold
Raw materials and consumables purchased
Inventory write-downs (Note 15)
Change in inventories
9,529
984
371
(54)
(108)
113
646
11,481
185
507
692
363
282
59
195
73
429
191
-
587
2,179
9,442
-
(1,137)
8,305
8,249
892
334
18
19
418
564
10,494
74
614
688
145
73
28
81
8
43
91
1,065
243
1,777
3,182
942
360
4,484
(e)
Lease payments included in income statement
Minimum lease payments - operating lease
1,004
490
(f)
Research and development costs
Research and development costs charged directly to the income statement:
- Green Car Innovation Fund project
- Other research & development
-
954
954
963
195
1,158
56
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
10.
INCOME TAX
(a)
Recognised in the income statement
Current income tax
Current year expense
Deferred tax
Relating to originating and reversing temporary differences
Benefit on recognition of tax losses
Total income tax benefit in income statement
(b)
Numerical reconciliation between tax benefit and pre-tax net
(loss)/profit
CONSOLIDATED
2012
$'000
2011
$'000
(252)
(342)
(13)
469
456
204
-
532
532
190
(Loss)/profit before tax
(3,257)
1,573
Income tax using the statutory tax rates
- Non deductible expenditure
- Non assessable items
- Deferred tax assets (not recognised)/not brought to account in prior
years now recognised
- Net withholding tax recouped/(paid)
- United States of America Federal and State taxes
Income tax benefit on pre-tax net profit
977
(274)
118
(330)
8
(295)
204
(472)
(711)
706
922
(70)
(185)
190
(c)
Tax consolidation
Members of the tax consolidated group and the tax sharing arrangement
Orbital Corporation Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated group
with effect from 1 July 2002. Orbital Corporation Limited is the head entity of the tax consolidated group. Members
of the group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities
between the entities should the head entity default on its tax payment obligations. No amounts have been
recognised in the financial statements in respect of this agreement on the basis that the possibility of default is
remote.
57
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
11.
EARNINGS PER SHARE
Basic earnings per share
The calculation of basic earnings per share at 30 June 2012 was based on the loss attributable to ordinary
shareholders of $3,053,202 (2011: profit $1,763,084) and a weighted average number of ordinary shares
outstanding during the financial year ended 30 June 2012 of 48,612,706 shares (2011: 48,325,837 shares),
calculated as follows:
Profit/(Loss) attributable to ordinary shareholders
(3,053,202)
2012
$
2011
$
1,763,084
CONSOLIDATED
Weighted average number of ordinary shares
Number
Number
Weighted average number of ordinary shares at 30 June
Effect of potential dilutive ordinary shares
48,612,706
-
48,325,837
-
Weighted average number of potential dilutive ordinary shares
at 30 June
48,612,706
48,325,837
Earnings/(loss) per share
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Cents
Cents
(6.28)
(6.28)
3.65
3.65
Rights granted to employees (including Key Management Personnel) as described in note 36 are considered to be
potential ordinary shares. These potential ordinary shares have not been included in the determination of basic
earnings per share. In the current year, no potential shares which are issuable under the ELTSP have been included
in the diluted earnings per share calculation. The 4,227,300 rights granted under the ELTSP and the 1,150,000
performance rights have not been included in the diluted earnings per share calculation as they are contingent on
future performance.
12.
CASH AND CASH EQUIVALENTS
Cash at bank
Cash at bank - US dollars
Cash at bank - European currency units
At call deposits - financial institutions
13.
OTHER FINANCIAL ASSETS
CONSOLIDATED
2012
$'000
2011
$'000
503
42
26
3,228
3,799
1,181
68
13
2,178
3,440
Short term deposits - financial institutions
1,371
3,434
Short term deposits represents term deposits with financial institutions for periods greater than 90 days and less
than 365 days earning interest at the respective term deposit rates at time of lodgement.
Due to the short term nature of the deposits carrying value approximates fair value. Short term deposits are only
invested with a major financial institution to minimise the risk of default of counterparties.
Short term deposits are held as collateral for the interest bearing loan with Westpac Banking Corporation, refer note
21 for further details.
58
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
14.
TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Allowance for impairment loss (a)
Accrued royalties
Taxation instalments
Other receivables
Prepayments
(a)
Allowance for impairment loss
CONSOLIDATED
2012
$'000
2011
$'000
3,572
(5)
3,567
264
-
48
289
4,168
6,284
(154)
6,130
288
48
117
258
6,841
Trade receivables are non-interest bearing and are generally on 30-60 day terms. An allowance for impairment loss
is recognised when there is objective evidence that an individual trade receivable is impaired. An impairment
allowance account of $5,000 (2011: $154,000) has been recognised by the Group at balance date. Movement in this
allowance account has been included in the other expenses item.
Movements in the allowance for impairment loss were as follows:
At 1 July
Charge for the year
Amounts written off
At 30 June
(154)
(429)
578
(5)
(116)
(43)
5
(154)
At 30 June, the ageing analysis of trade receivables is as follows:
Total
0-30
days
31-60
days
61-90
days
PDNI*
+91
days
PDNI*
+91
days
CI*
2012 Consolidated
3,572
2,288
1,074
202
3
5
2011 Consolidated
6,284
4,484
1,097
267
282
154
Receivables past due but not considered impaired are $205,000 (2011:$549,000). Payment terms on these
amounts have not been re-negotiated. Management has been in contact with each relevant debtor and is satisfied
that payment will be received in full.
Other balances within trade and other receivables do not contain impaired assets and are not past due. It is
expected that these other balances will be received when due.
(b)
Fair value and credit risk
Due to the short term nature of these receivables, their carrying value is assumed to approximate fair value.
The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security.
(c)
Foreign exchange and interest rate risk
Detail regarding foreign exchange and interest rate risk exposure is disclosed in note 4.
59
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
15.
INVENTORIES
Materials and production supplies - at lower of cost and net realisable value
5,197
4,060
CONSOLIDATED
2012
$'000
2011
$'000
(a)
Inventory expense
Inventories recognised as an expense for the year ended 30 June 2012 totalled $8,305,000 (2011: $4,484,000) for
the Group (Refer to Note 9(d)).
Inventory write-downs recognised as an expense totalled $nil (2011: $942,000) for the Group.
16.
INVESTMENT IN ASSOCIATE
(a)
Interest in Synerject LLC
The Group holds a 42% share of Synerject LLC. The investment is recognised and disclosed as an investment in an
associate.
The principal activities of Synerject LLC are the marketing, sale and manufacture, including research and
development in the area of engine management systems and components in the marine, recreational, motorcycle
and utility markets.
The Group accounts for the investment in Synerject using the equity method. Synerject’s USGAAP reported results
are converted to IFRS for accounting for the Group’s share of Synerject’s net profit and net assets recognised.
Other information for Synerject is as follows:
Country of incorporation:
Financial Year end:
30 June Ownership:
USA
31 December
2012: 42%; 2011: 42%
Revenues (100%)
Profit (100%)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Revenues (100%)
Profit (100%)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
2012
US$’000
2011
US$’000
127,548
8,045
121,673
7,315
45,789
12,880
27,936
2,654
28,079
45,427
12,058
29,562
3,463
24,460
2012
A$'000
2011
A$'000
124,413
7,847
123,163
7,405
44,931
12,639
27,412
2,604
27,554
42,301
11,228
27,528
3,224
22,777
Share of Synerject’s net profit recognised
3,480
3,233
Share of Synerject’s net assets equity accounted
13,696
11,406
60
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
16.
INVESTMENT IN ASSOCIATE (continued)
(b)
Movement in the carrying amount of the Group’s interest in Synerject
Beginning of year
Share of profits after tax
Share of reserves
Dividends received
Unrealised foreign exchange movements
End of year
(c)
Results of Synerject
Share of Synerject's profit before income tax
Share of income tax benefit/(expense)
Share of Synerject's net profit
Adjustments:
- dissimilar accounting treatment with respect to intangibles
(d)
Commitments
Share of Synerject's capital commitments contracted but not provided for
or payable:
Within one year
One year or later and no later than five years
Later than 5 years
17.
DEFERRED TAX ASSETS AND LIABILITIES
CONSOLIDATED
2012
$'000
2011
$'000
11,406
3,480
(199)
(1,544)
553
13,696
3,254
42
3,296
184
3,480
11,534
3,233
343
(1,208)
(2,496)
11,406
3,181
(71)
3,110
123
3,233
376
1,090
257
1,723
292
1,014
467
1,773
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Consolidated
Deferred Tax Assets
Deferred Tax
Liabilities
Net
2012
$'000
2011
$'000
2012
$'000
2011
$'000
2012
$'000
2011
$'000
Tax value of loss carry-forwards
recognised
5,439
4,716
-
-
5,439
4,716
Other net temporary differences (a)
Net tax assets
2,130
7,569
2,400
7,116
(1,802)
(1,802)
(2,059)
(2,059)
328
5,767
341
5,057
Under the tax laws of the United States, tax losses that cannot be fully utilised for tax purposes during the current
year may be carried forward, subject to some statutory limitations, to reduce taxable income in future years. At 30
June 2012, the available tax carry forward losses of US$31,679,109 (2011: US$37,618,064) expire between the
years 2012 and 2024.
61
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
17.
DEFERRED TAX ASSETS AND LIABILITIES (continued)
Movement in temporary differences during the year
Balance
1-Jul-10
$'000
Acquired
during the
year
$'000
Consolidated
Recognised
in income
Recognised in
equity (b)
Balance 30-
Jun-11
$'000
$'000
$'000
5,215
-
5,215
-
341
341
532
-
532
(1,031)
-
(1,031)
4,716
341
5,057
Balance
1-Jul-11
$'000
Acquired
during the
year
$'000
Consolidated
Recognised
in income
Recognised in
equity (b)
Balance 30-
Jun-12
$'000
$'000
$'000
4,716
341
5,057
-
-
-
469
(13)
456
254
-
254
5,439
328
5,767
Tax value of loss carry-
forwards recognised
Other temporary differences
Net tax assets
Tax value of loss carry-
forwards recognised
Other temporary differences
Net tax assets
(a)
Other net temporary differences
Deferred tax assets
Annual leave
Long service leave
Staff bonus
Revenue in advance
Inventory provision
Other
Deferred tax liabilities
Government loan
Other
Net temporary differences
CONSOLIDATED
2012
$'000
2011
$'000
293
378
-
1,150
309
-
2,130
339
407
15
1,122
419
98
2,400
(1,627)
(175)
(1,802)
(1,851)
(208)
(2,059)
328
341
(b)
The amounts recognised through equity represent the foreign exchange differences arising on the translation of the
foreign subsidiary.
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following
items:
Australia (net at 30%)
Tax losses
Timing difference from provision for capital loss on investment
Other net temporary differences
United States of America (net at 34%)
Tax losses
Other net temporary differences
19,821
1,934
621
22,376
5,130
2,949
8,079
17,907
1,934
233
20,074
7,194
3,339
10,533
62
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
18.
PLANT AND EQUIPMENT
Plant and equipment
At cost
Less: accumulated depreciation
CONSOLIDATED
2012
$'000
2011
$'000
17,797
(13,848)
21,693
(17,559)
Total plant and equipment - net book value
3,949
4,134
Reconciliations
Reconciliations of the carrying amounts for plant and equipment is set out
below:
Plant and equipment
Carrying amount at beginning of year
Additions
Acquired in business combination
Disposals
Depreciation
Carrying amount at end of year
Total
Carrying amount at beginning of year
Carrying amount at end of year
4,134
696
-
(35)
(846)
3,949
4,134
3,949
4,900
481
468
(839)
(876)
4,134
7,911
4,134
All plant and equipment of the Group is subject to floating charges from the Group’s banker (see note 22) and from
the Government of Western Australia (see note 26).
Finance leases
The carrying value of plant and equipment held under finance leases and hire purchase contracts at 30 June 2012
was $77,000 (2011: $nil). Additions during the year include $78,000 (2011: $nil) of plant and equipment under
finance leases and hire purchase contracts. Leased assets and assets under hire purchase contracts are pledged as
security for the related finance lease and hire purchase liabilities.
19.
INTANGIBLES AND GOODWILL
Net carrying value
Goodwill acquired in business combinations
At cost
Capitalised development expenditure
At cost
Less: accumulated amortisation and impairment
Less: allowance for impairment/write-off
1,965
1,965
826
(534)
-
292
1,891
(389)
(1,065)
437
Total intangibles and goodwill - net book value
2,257
2,402
63
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
19.
INTANGIBLES AND GOODWILL (continued)
CONSOLIDATED
2012
$'000
2011
$'000
(a)
Reconciliation of carrying amounts at the beginning and end of the period
Reconciliations of the carrying amounts for goodwill
Carrying amount at beginning of year
Goodwill arising from acquisition of Sprint Gas business (note 38)
Carrying amount at end of year
1,965
-
1,965
363
1,602
1,965
Reconciliations of the carrying amounts for capitalised development expenditure
Carrying amount at beginning of year
Additions
Write-off of previously capitalised development expenditure
Amortisation
Carrying amount at end of year
(b) Description of the Group’s intangible assets and goodwill
437
-
-
(145)
292
1,162
593
(1,065)
(253)
437
Goodwill
The goodwill arose on the acquisitions of Boral Alternative Fuel Systems on 26 June 2008 ($363,000) and Sprint Gas
(Aust) Pty Ltd on 27 May 2011 ($1,602,000).
After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated
impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or whenever
there is an indication of impairment.
Capitalised development expenditure
Expenditure on development activities relating to next generation LPG fuel systems for the Ford EcoLPI Falcon have
been capitalised. The EcoLPI range of Falcon vehicles were launched by Ford Australia in July 2011.
(c)
Impairment losses recognised
An impairment loss of $1,065,000 on previously capitalised development expenditure was recognised for continuing
operations in the 2011 financial year (2012: $nil). The impaired development expenditure related to the
development of LPG fuel systems for aftermarket conversions. The impairment loss was recognised as a result of
the contraction of the Australian LPG retrofit market, which led to a significant decrease in the number of vehicles
being converted to LPG during the reporting period and to lower than expected penetration of our Liquid LPG product
into this contracting market. The assessment of recoverable amount was based on a value in use model using a
discount rate of 18.4% and was determined at the cash-generating unit level. The impairment loss was recognised
in the income statement in the line item “other expenses”.
(d)
Impairment tests for goodwill and intangibles
(i) Description of the cash generating units and other relevant information
Goodwill acquired through business combinations have been allocated to and are tested at the level of their
respective cash generating units, each of which is a cash generating unit within the same reportable segment (refer
to note 6), for impairment testing as follows:
► Orbital Autogas Systems cash generating unit
► Sprint Gas cash generating unit
Orbital Autogas Systems cash generating unit
The recoverable amount of the Orbital Autogas Systems cash generating unit has been determined based on a value
in use calculation using cash flow projections as at 30 June 2012 based on financial budgets approved by
management covering a three-year period.
The pre-tax, risk-adjusted discount rate applied to these cash flow projections is 18.0% (2011: 18.4%).
Sprint Gas cash generating unit
The recoverable amount of the Sprint Gas cash generating unit has been determined based on a value in use
calculation using cash flow projections as at 30 June 2012 based on financial budgets approved by management
covering a three-year period.
The pre-tax, risk-adjusted discount rate applied to these cash flow projections is 18.0% (2011: 18.4%).
64
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
19.
INTANGIBLES AND GOODWILL (continued)
(d)
Impairment tests for goodwill and intangibles (continued)
(ii) Carrying amount of goodwill and intangible assets allocated to each of the cash generating units
The carrying amounts of goodwill and intangible assets allocated to the Orbital Autogas Systems segment and to the
Sprint Gas segment are shown below:
Carrying amount of goodwill
Carrying amount of capitalised development
expenditure
Orbital Autogas
Systems
Sprint Gas
Total
2012
$'000
363
2011
$'000
2012
$'000
2011
$'000
2012
$'000
363
1,602
1,602
1,965
2011
$'000
1,965
292
437
-
-
292
437
(iii) Key assumptions used in value in use calculations for the Orbital Autogas Systems and Sprint Gas units,
respectively, for 30 June 2012 and 30 June 2011
The calculations of value in use for the Orbital Autogas Systems and Sprint Gas cash generating units are most
sensitive to the following assumptions:
► Revenue
► Gross margins
► Discount rates
Revenues – revenues for the Orbital Autogas Systems unit are based on expected volumes of production of the
Ford EcoLPI Falcon by its largest customer, Ford Australia, over the budget period and for the Sprint Gas unit are
based on values achieved in the current year and management estimates for the budget period.
Gross margins — gross margins are based on the average values achieved in the years preceding the start of the
budget period.
Discount rates — discount rates reflect management's estimate of the time value of money and the risks specific
to each unit that are not already reflected in the cash flows. In determining appropriate discount rates for each unit,
regard has been given to the external borrowing rate of the entity as a whole.
(iv) Sensitivity to changes in assumptions
Orbital Autogas Systems sales unit
With regard to the assessment of the value in use of the Orbital Autogas Systems sales unit, management believe
that no reasonably possible change in any of the above key assumptions would cause the carrying value of the unit
to materially exceed its recoverable amount.
Sprint Gas sales unit
With regard to the assessment of the value in use of the Sprint Gas sales unit, management believe that no
reasonably possible change in any of the above key assumptions would cause the carrying value of the unit to
materially exceed its recoverable amount.
20.
TRADE PAYABLES AND OTHER LIABILITIES
Current
Trade creditors and accruals
Revenues received in advance
(a)
Fair value
CONSOLIDATED
2012
$'000
2011
$'000
2,973
1,868
4,841
3,453
1,551
5,004
Due to the short term nature of trade payables and other liabilities, their carrying value is assumed to approximate
their fair value.
(b)
Interest rate, foreign exchange and liquidity risk
Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 4.
65
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
21.
BORROWINGS
Current
Obligations under hire purchase contracts
Current portion of long term borrowings (see note 26)
Loans and advances – secured (a)
Non-current
Obligations under hire purchase contracts
CONSOLIDATED
2012
$'000
2011
$'000
18
346
2,500
2,864
-
288
648
936
59
-
(a)
(b)
Security
A first ranking mortgage debenture with fixed and floating charges over the whole of the assets has been granted to
the Company’s banker for the establishment of the credit facilities totalling $3,205,000 (2011: $3,365,000).
Maturity
Obligations under hire purchase contracts mature in 2014 and 2015. The secured loans and advances can be repaid
and redrawn at any time up to 28 March 2014.
(c)
Interest
Interest calculations on the hire purchase contracts are based on fixed interest rates applicable at the date of
drawdown and payable monthly. The average interest rate on hire purchase contracts at reporting date is 7.35%
(2011: not applicable). Interest calculations on the secured loans and advances are based on variable interest rates
payable monthly. The average interest rate on secured loans and advances at reporting date is 7.35% (2011:
8.49%)
(d)
(e)
Fair value
Due to the short term nature of these loans, their carrying value is assumed to approximate their fair value.
Interest rate, foreign exchange and liquidity risk
Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 4.
22.
FINANCING ARRANGEMENTS
Note
The consolidated entity has standby arrangements with Westpac Banking
Corporation to provide support facilities:
Total facilities available
Forward exchange contracts facility
Bank Bill Business Loan/Trade finance facility
Corporate credit card facility
Bank guarantee
Facilities utilised at balance date
Forward exchange contracts facility
Bank Bill Business Loan/Trade finance facility
Corporate credit card facility
Bank guarantee
Facilities not utilised at balance date
Forward exchange contracts facility
Bank Bill Business Loan/Trade finance facility
Corporate credit card facility
Bank guarantee
21
-
2,500
200
505
3,205
-
2,500
25
505
3,030
-
-
175
-
175
200
2,500
200
465
3,365
-
648
34
465
1,147
200
1,852
166
-
2,218
A first ranking mortgage debenture with fixed and floating charges over the whole of the assets has been granted to
the Company’s banker for the establishment of the credit facilities and forward exchange contracts totalling
$3,205,000 (2011: $3,365,000).
The Company has also provided the Company’s banker with security over a short term deposit of $1,365,000 (2011:
$3,365,000) held by the Company’s banker as cash collateral for the financing facilities.
The bank guarantee has been provided for the benefit of the landlords of the Balcatta and Brisbane premises.
66
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
23.
EMPLOYEE BENEFITS
(a)
Current
(b)
Non-Current
CONSOLIDATED
2012
$'000
2011
$'000
2,117
2,354
119
132
(c)
Aggregate Liability for employee entitlements
2,236
2,486
The present value of employee entitlements not expected to be settled
within twelve months of balance date have been calculated using the
following weighted averages:
Assumed rate of increase in wage and salary rates
Discount rate at 30 June
Settlement term (years)
Number of employees
Number of employees at year end
4.0%
3.0%
10
4.0%
5.1%
10
108
118
24.
DEFERRED REVENUE
(a)
Current
Deferred revenue for operation of heavy duty engine testing facility
316
316
(b)
Movement in deferred revenue
At 1 July
Transferred from government grants (see note 27)
Released to the income statement
At 30 June
316
-
-
316
316
-
-
316
In June 2008 the Group received funding of $2,760,000 from the Commonwealth of Australia through the Alternative
Fuels Conversion Program administered by the Department of the Environment, Water, Heritage and the Arts
towards the construction of a heavy duty engine test facility. The terms of the Grant included providing the
Commonwealth with preferential access to the facility at a discount to the commercial rate. This discount to
commercial rates of $512,000 has been transferred from government grants (see note 27) and recorded as deferred
revenue.
The deferred revenue will be recognised as income over the periods in which the Commonwealth utilises the Heavy
Duty Engine Testing Facility at discounted rates.
67
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
25.
OTHER PROVISIONS
(a)
Current
Warranties
Surplus lease space
Other
(b)
Non-Current
Surplus lease space
(c)
Reconciliations
Reconciliations of the carrying amounts for each class of provisions are set
out below:
Warranties - current
Carrying amount at beginning of year
Arising during the year
Utilised
Carrying amount at end of year
Surplus lease space - current
Carrying amount at beginning of year
Utilised
Reclassified from non-current
Carrying amount at end of year
Other provisions - current
Carrying amount at beginning of year
Arising during the year
Utilised
Carrying amount at end of year
Surplus lease space - non-current
Carrying amount at beginning of year
Arising during the year
Reclassified to current
Carrying amount at end of year
CONSOLIDATED
2012
$'000
2011
$'000
279
182
65
526
88
37
70
195
336
304
88
191
-
279
37
(214)
359
182
70
65
(70)
65
304
391
(359)
336
119
91
(122)
88
-
(13)
50
37
54
70
(54)
70
-
354
(50)
304
The product warranty provision relates to sales of LPG fuel systems and also the sale of small unmanned aircraft
engines. In determining the level of provision required for product warranties the Group has made judgements in
respect of the expected performance of the product, number of customers who will actually use the product warranty
and how often, and the costs of fulfilling the performance of the product warranty. Historical experience and current
knowledge of the performance of products has been used in determining this provision.
Surplus lease space provision relates to certain unutilised office space. The provision takes account of estimated
rental income Orbital is able to recover by sub-letting the space.
68
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
26.
LONG TERM BORROWINGS
Non-Current
Loans and advances - secured
CONSOLIDATED
2012
$'000
2011
$'000
7,650
7,489
The Government of Western Australia had previously provided the company with a fully utilised loan facility of
$19,000,000 under the terms of a "Development Agreement". During the 2010 year Orbital reached agreement with
the WA Government through the Department of Commerce for the Restructure of the Non-Interest Bearing Loan.
Under the agreed restructure the original loan has been terminated and replaced by a new loan of $14,346,000 with
the following terms and conditions.
Term – 2010 to 2025.
Repayments - Commencing May 2010 at $200,000 per annum.
Repayments - Increasing annually to a maximum of $2,100,000 per annum in 2023.
Interest free.
The restructured loan’s net fair value at 27 January 2010 utilising a market interest rate of 6.52% was $7,558,000
which compares to the carrying value of the old loan of $15,253,000 at that date. In accordance with the
Accounting Standards, the benefit of the interest free government loan amounting to $7,695,000 was accounted for
as a government grant.
This loan facility is secured by way of a second ranking floating debenture over the whole of the assets and
undertakings of the Company.
The non-interest bearing loan from the Government of Western Australia was initially recognised at fair value and
subsequently stated at amortised cost with any difference between cost and repayment value being recognised in
the income statement over the period of the borrowings on an effective interest basis. During the 2011 year Orbital
made an additional loan repayment to the Government of Western Australia of $200,000.
The fair value of the loan 2012: $7,605,365 (2011:$7,423,513) is calculated by discounting the expected future
cash flows at the prevailing market interest rate at reporting date 2011: 7.35% (2011: 7.23%)
27.
GOVERNMENT GRANTS
Current liabilities
Investment grant for construction of heavy duty engine testing facility
Non-current liabilities
Investment grant for construction of heavy duty engine testing facility
Total government grants deferred
Movement in government grants
At 1 July
Released to the income statement
At 30 June
225
225
1,424
1,649
1,649
1,874
1,874
(225)
1,649
2,099
(225)
1,874
In June 2008 the Group received funding of $2,760,000 from the Commonwealth of Australia through the Alternative
Fuels Conversion Program administered by the Department of the Environment, Water, Heritage and the Arts
towards the construction of a heavy duty engine test facility. The Group will fund the maintenance and operation of
the facility until at least financial year 2014/2015 and provide the Commonwealth with preferential access to the
facility.
The terms of the Grant included providing the Commonwealth with preferential access to the facility at a discount to
the commercial rate. This discount to commercial rates of $512,000 has been transferred to deferred revenue (see
note 24) and recorded as deferred revenue.
The government grant will be recognised as income over the periods and in the proportions in which depreciation on
the heavy duty engine test facility is charged.
69
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
28.
CONTINGENT CONSIDERATION
CONSOLIDATED
2012
$'000
2011
$'000
Non-current liabilities
Contingent consideration for business acquisition
2,296
2,688
On 27 May 2011, Orbital Autogas Systems Pty Ltd acquired 55% of the voting shares of Sprint Gas (Aust) Pty Ltd, a
new company incorporated to acquire the operating business of Sprint Gas, an Australian business specialising in the
importation and wholesaling of LPG Fuel systems.
Concurrently with the entering into of the Business Acquisition Agreement, the Group entered into a Subscription
and Shareholders Agreement with the owners of the 45% non-controlling interest in Sprint Gas (Aust) Pty Ltd. As
part of the Subscription and Shareholders Agreement Put and Call options were issued over the remaining 45% non-
controlling interest. The Put and Call options, exercisable after 30 months, are in nature a forward contract and
therefore a present ownership interest is granted. The Group has accounted for the business combination as though
it acquired a 100% interest and has recognised a financial liability to the non-controlling shareholders equal to the
fair value of the underlying obligations under the Put and Call options (contingent consideration liability).
The underlying obligations under the Put and Call options that gives rise to the contingent consideration liability were
initially recognised at fair value and subsequently are carried at fair value through the profit and loss.
A gain of $392,000 was recognised in the income statement during the current year due to a change in the fair value
of the contingent consideration. The fair value of the contingent consideration payable was calculated with reference
to the estimated future value of the Sprint Gas business, which is based on an estimated average EBITDA multiple.
The undiscounted value is discounted at the present value using a market discount rate.
During the year management revisited the market discount rate from 9.8% to 7.8% and the estimated average
EBITDA by reference to the actual results of the business since acquisition and the latest forecasts of future results
for the business. This reduced the fair value of the contingent consideration and resulted in a fair value gain of
$392,000, which has been reflected in the profit and loss account. If the business was to perform 20% better or
20% worse than forecast the estimated fair value of the contingent consideration would increase by
$376,000/decrease by $376,000 respectively.
Movement in contingent consideration
At 1 July
Recognised during the year
Released to the income statement
At 30 June
2,688
-
(392)
2,296
-
2,688
-
2,688
A gain of $392,000 was recognised in the income statement during the current year due to a change in the fair value
of the contingent consideration.
29.
SHARE CAPITAL
Ordinary shares
Movement in ordinary shares on issue
At 1 July 2010
Shares issued pursuant to Share Consolidation
Shares issued pursuant to employee share plans
At 30 June 2011
Shares issued pursuant to employee share plans
At 30 June 2012
19,436
19,345
Number
$'000
48,197,394
1,494
283,670
48,482,558
239,919
48,722,477
19,261
-
84
19,345
91
19,436
Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one
vote per share at shareholders’ meetings.
In the event of winding up of the Company, ordinary shareholders rank after creditors and are fully entitled to any
proceeds of liquidation.
70
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
29.
SHARE CAPITAL (continued)
(a)
Capital management
When managing capital, management's objective is to ensure the entity continues as a going concern as well as to
maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a
capital structure that ensures the lowest cost of capital, provides a strong capital base so as to maintain investor,
creditor and market confidence and to sustain future development of the business.
Management defines capital as contributed shareholder equity and has no current plans to change the share capital.
(b)
Share Consolidation
On 28 October, 2010 the shareholders in Annual General Meeting approved the consolidation of ordinary shares on
the basis that every ten ordinary shares be consolidated into one ordinary share, and where this consolidation
results in a fraction of a share being held by a shareholder, the directors of the Company be authorised to round that
fraction up to the nearest whole share. The share consolidation became effective on 28 October, 2010.
30.
RETAINED PROFITS AND RESERVES
(a)
Movements in retained earnings were as follows:
Balance 1 July
Net profit/(loss)
Balance 30 June
(b)
Other reserves
Consolidated
Balance 1 July 2010
Equity-settled transaction-employee shares
Other comprehensive income
Balance at 30 June 2011
Balance 1 July 2011
Equity-settled transaction-employee shares
Other comprehensive income
Balance at 30 June 2012
(c)
Nature and purpose of reserves
CONSOLIDATED
2012
$'000
2011
$'000
3,055
(3,053)
1,292
1,763
2
3,055
Employee
Equity
Benefits
Reserve
$'000
Foreign
Currency
Translation
Reserve
$'000
Total
$'000
1,017
250
-
1,267
1,267
280
-
1,547
(770)
-
(3,415)
(4,185)
247
250
(3,415)
(2,918)
(4,185)
-
631
(3,554)
(2,918)
280
631
(2,007)
Employee equity benefits reserve
The employee equity benefits reserve is used to record the value of share based payments provided to employees,
including KMP’s, as part of their remuneration. Refer to note 36 for further details of these plans.
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the
financial statements of foreign subsidiaries.
71
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
31.
CONSOLIDATED ENTITY
Note
Class of
Shares
Consolidated Entity
Interest
2012
%
2011
%
Ultimate Parent Entity
- Orbital Corporation Limited
Controlled Entities, incorporated and carrying on business in:
Australia
- Orbital Australia Pty Ltd
- Orbital Australia Manufacturing Pty Ltd
- OEC Pty Ltd
- S T Management Pty Ltd
- OFT Australia Pty Ltd
- Investment Development Funding Pty Ltd
- Power Investment Funding Pty Ltd
- Orbital Environmental Pty Ltd
- Orbital Share Plan Pty Ltd
- Orbital Autogas Systems Pty Ltd
- Sprint Gas (Aust) Pty Ltd
United States of America
- Orbital Holdings (USA) Inc.
- Orbital Fluid Technologies Inc.
- Orbital Engine Company (USA) Inc.
United Kingdom
- Orbital Engine Company (UK) Ltd
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
Ord
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Ord
100
100
(a)
(a)
(a)
(a)
(a)
(a)
(b)
(c)
(a)
(a)
(a)
(a) Dormant for the years ended 30 June 2012 and 30 June 2011.
(b) Orbital Share Plan Pty Ltd was established on 22 September 2008 and acts as the trustee of the Orbital
Executive Long Term Share Plans.
(c) Refer to note 38 for further discussion.
32.
INFORMATION RELATING TO ORBITAL CORPORATION LIMITED
Current assets
Total assets
Current liabilities
Total liabilities
Issued capital
Accumulated losses
Employee equity benefits reserve
Total shareholders' equity
Loss of the parent entity
Total comprehensive loss of the parent entity
Guarantee
2012
$'000
2011
$'000
3
39,998
4
38,645
-
22,567
-
19,163
19,436
(3,552)
1,547
17,431
19,345
(1,130)
1,267
19,482
(2,422)
(2,422)
(1,652)
(1,652)
Orbital Corporation Limited has provided a guarantee to Westpac Banking Corporation for all liabilities and
obligations of Orbital Australia Pty Ltd. See note 22 for details of Orbital Australia Pty Ltd's outstanding
liabilities to Westpac Banking Corporation.
72
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
33.
RELATED PARTY DISCLOSURES
(a)
Identity of related parties
The Group has a relationship with its subsidiaries (see note 31), with its investment accounted for using the equity
method (see note 16), and with its key management personnel (refer to disclosures for key management personnel,
see note 34).
(b)
Controlled Entities
Details of interest in controlled entities are set out in Note 31.
(c)
Other Related Parties
Details of dealings with other related parties, being joint venture entity Synerject LLC, are set out below:
(i)
Receivables and Payables
The aggregate amounts receivable from/payable to Synerject LLC by the Group at balance date are:
Receivables
Current
Payables
Current
(ii)
Transactions
CONSOLIDATED
2012
$'000
2011
$'000
-
-
63
7
During the year the Group provided engineering services to Synerject LLC of $nil (2011: $nil) and purchased goods
and services to the value of $178,000 (2011: $140,000) from Synerject LLC. All transactions are in the ordinary
course of business and on normal commercial terms and conditions.
34
KEY MANAGEMENT PERSONNEL
The following were key management personnel of the Group at any time during the reporting period and unless
otherwise indicated were key management personnel for the entire period:
Non-executive directors
Mr WP Day (Chairman)
Dr MT Jones
Dr V Braach-Maksvytis
Executive directors
Mr TD Stinson (Managing Director & Chief Executive Officer)
Executives
Mr KA Halliwell (Chief Financial Officer)
Dr GP Cathcart (Director of Engineering & Operations)
Key management personnel compensation
The key management personnel compensation included in ‘employee benefits expense’ (see note 9) are as follows:
Short-term employee benefits
Post-employment benefits
Equity compensation benefits
Termination benefits
CONSOLIDATED
2012
$
1,028,635
114,847
251,062
-
2011
$
876,810
131,555
223,405
288,241
1,394,544
1,520,011
73
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
34
KEY MANAGEMENT PERSONNEL (continued)
Individual directors and executives compensation disclosures
No director has entered into a material contract with the Group since the end of the previous financial year and there
were no material contracts involving directors’ interests at year-end.
Loans to key management personnel and their related parties.
The Group has not made any loans to key management personnel or their related parties since the end of the
previous financial year and there were no loans to any key management personnel or their related parties at year-
end.
Movements in shares
The movement during the reporting period in the number of ordinary shares in Orbital Corporation Limited held,
directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:
Held at
Granted as compensation
Held at
1-Jul-11
Purchases
ESP #1
ELTSP
Sales
Other(a)
30-Jun-12
Non-executive directors
Mr WP Day
10,000
-
-
-
-
-
10,000
Dr V Braach-Maksvytis
-
-
-
-
-
-
-
Dr MT Jones
18,000
-
-
-
-
-
18,000
Executive director
Mr TD Stinson (c)
375,690
17,000
-
-
-
-
392,690
Executives
Mr KA Halliwell
Dr GP Cathcart
177,605
-
2,633
-
-
-
51,462
-
2,633
-
-
-
180,238
54,095
Mr BA Fitzgerald
106,613
-
-
-
-
(106,613)
-
Held at
Granted as compensation
Held at
1-Jul-10
Purchases
ESP #1
ELTSP
Sales
Other(a)(b)
30-Jun-11
Non-executive directors
Mr WP Day
Mr JG Young
10,000
-
-
-
-
-
10,000
74,854
-
-
-
-
(74,854)
-
Dr V Braach-Maksvytis
-
-
-
-
-
-
-
Dr MT Jones
18,000
-
-
-
-
-
18,000
Executive director
Mr TD Stinson
230,088
145,602
-
-
-
-
375,690
Executives
Mr KA Halliwell
Dr GP Cathcart
136,734
37,500
3,369
-
-
2
177,605
48,091
-
3,369
-
-
2
51,462
Mr BA Fitzgerald
103,242
-
3,369
-
-
2
106,613
(a) Represents shareholdings at the time that Mr J G Young ceased to be a Director and Mr Fitzgerald ceased to be
a KMP.
(b) Represents the rounding of shareholdings as a result of the share consolidation.
(c) Mr Stinson’s shareholding of 392,690 is represented by 6,618 ADRs and 286,802 ordinary shares.
74
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
34
KEY MANAGEMENT PERSONNEL (continued)
Movements in ELTSP rights
The movement during the reporting period in the number of ELTSP rights to ordinary shares in Orbital Corporation
Limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is
as follows:
Executive director
Mr TD Stinson
Executives
Mr KA Halliwell
Dr GP Cathcart
Executive director
Held at
1-Jul-11
Offered
Forfeited
Vested
Expired
30-Jun-12
Held at
1,320,000
770,000
674,067
492,200
410,000
310,000
-
-
-
-
(130,000)
1,960,000
-
-
(70,000)
1,014,067
(40,000)
762,200
Held at
1-Jul-10
Offered
Forfeited
Vested
Expired
30-Jun-11
Held at
Mr TD Stinson
655,000
665,000
-
-
-
1,320,000
Executives
Mr KA Halliwell
Dr GP Cathcart
363,500
337,567
-
-
(27,000)
674,067
256,500
252,700
-
-
(17,000)
492,200
Mr BA Fitzgerald
333,000
311,600
(627,600)
-
(17,000)
-
Movements in performance rights
The movement during the reporting period in the number of performance rights to ordinary shares in Orbital
Corporation Limited held, directly, indirectly or beneficially, by each key management person, including their related
parties, is as follows:
Executive director
Mr TD Stinson
Executive director
Mr TD Stinson
Held at
1-Jul-11
Offered
Forfeited
Vested
Expired
30-Jun-12
Held at
1,150,000
-
-
-
-
1,150,000
Held at
1-Jul-10
Offered
Forfeited
Vested
Expired
30-Jun-11
Held at
1,150,000
-
-
-
-
1,150,000
75
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
35.
NOTES TO THE STATEMENT OF CASH FLOWS
Reconciliation of cash flows from operating activities
Profit/(loss) after income tax
Adjustments for:
Profit on sale of property, plant and equipment
Depreciation
Amortisation
Amortisation of deferred revenue and government grants
Impairment, write-off of trade receivables
Movement in fair value of financial liability
Impairment of capitalised development costs
Inventory write-down
Amortisation of non-interest bearing loans
Amounts set aside to warranty and other provisions
Share of net profit of equity accounted investment
Employee compensation expense
Net foreign exchange gains
NOTE
CONSOLIDATED
2012
$'000
2011
$'000
(3,053)
1,763
8
18
19
19
(15)
846
145
(225)
429
(392)
-
-
507
363
(4,760)
930
253
(225)
38
-
1,065
942
613
318
16
(3,480)
(3,233)
36(a)
371
(120)
334
(79)
Net cash used in operating activities before changes in assets and liabilities
(4,624)
(2,041)
Changes in assets and liabilities during the year:
(Increase)/decrease in receivables
(Increase)/decrease in inventories
Increase in deferred tax assets
(Decrease)/increase in payables
Decrease in employee provisions
Net cash used in operating activities
36.
SHARE BASED PAYMENT PLANS
(a)
Recognised share-based payment expenses
2,262
(1,137)
(456)
(40)
(250)
(621)
360
(532)
1,629
(587)
379
249
(4,245)
(1,792)
Expense arising from equity-settled share-based payment transactions
371
334
The share-based payment plans are described below. Entitlements to shares are based 50% of Total Shareholder
Return and 50% on Earnings Per Share.
76
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
36.
SHARE BASED PAYMENT PLANS (continued)
(b)
Employee share Plan No. 1
Under Employee Share Plan No. 1 each eligible employee is offered fully paid ordinary shares to the value of $1,000
per annum.
During the year there were 239,919 (2011: 283,670) shares issued under Plan No. 1 to eligible employees at a
market value on the day of issue of $91,097 (2011: $84,193).
(c)
Executive Long Term Share Plan (“ELTSP”)
Executives may also be offered shares in the Company’s Executive Long Term Share Plan under which offered shares
will be granted subject to the satisfaction of performance conditions over a 3 year period or subject to Board
discretion for other qualifying reasons.
The number of shares that the executive actually receives depends on two performance hurdles, as set out below:
(a)
50% of the shares offered will vest depending on the performance of the Company relative to a group of
selected peers (being the 50 smallest companies by market capitalisation (other than resource companies
and property and investment trust companies) within the S&P / ASX 300 Index). The peer group is ranked
in terms of Total Shareholder Return (“TSR”). TSR is the percentage increase in a company’s share price
plus reinvested dividends over a three year period commencing on 1 September 2011 and ending on 31
August 2014 (“Performance Period”).
The following table sets out the relevant percentages of an executive’s Personal Allotment which will vest
at the conclusion of the Performance Period based on the TSR ranking of the Company relative to the peer
group:
Company Performance (TSR Ranking)
Up to the 50th percentile
At or above the 50th percentile but below the 75th percentile
At or above the 75th percentile but below the 90th percentile
At or above the 90th percentile
% of Personal Allotment issued to
each executive
0%
50% to 99% (on a straight-line
basis).
100%
125%
No shares will vest unless the Company’s TSR is at or above the 50th percentile. In 2012 nil (2011: nil)
rights vested in accordance with the terms of the plan.
(b)
50% of the shares offered will vest if the Company achieves earnings in excess of 15 cents per share for
the year ending 30 June 2014.
At the Company’s Annual General Meeting in October 2011, shareholders approved the above plan in relation to the
ongoing remuneration of Executive Directors and senior executives.
During the year, a total of 1,687,500 rights under the plan were offered to 5 executives (2011: 1,730,900 rights
offered to 6 executives).
Summary of rights granted under the ELTSP
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Vested during the year and shares issued
Expired during the year
2012
No.
2,849,800
1,687,500
-
-
(310,000)
2011
No.
1,855,000
1,730,900
(642,600)
-
(93,500)
Outstanding at the end of the year
4,227,300
2,849,800
The outstanding balance as at 30 June 2012 is represented by:
1,120,500 rights with an average fair value at grant date of $0.465 that will potentially vest in August 2012;
1,419,300 rights with an average fair value at grant date of $0.335 that will potentially vest in August 2013;
1,687,500 rights with an average fair value at grant date of $0.300 that will potentially vest in August 2014.
77
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
36.
SHARE BASED PAYMENT PLANS (continued)
Fair value of rights on grant date
The following factors and assumptions were used in determining the fair value of TSR related rights offered under
the ELTSP on grant date:
TSR related rights
Grant Date*
31-Aug-09
31-Aug-10
31-Aug-11
Life
Expiry
Date
3 years 31-Aug-12
3 years 31-Aug-13
3 years 31-Aug-14
Fair
Value per
right
38 cents
33 cents
25 cents
Exercise
Price
nil
nil
nil
Market
price of
shares on
grant date
55 cents
34 cents
35 cents
Expected
volatility
65.00%
60.00%
110.00%
Risk free
interest rate
5.03%
4.27%
3.79%
* The grant date of the TSR related rights for the Managing Director was 26 October 2011.
The following factors and assumptions were used in determining the fair value of EPS related rights offered under
the ELTSP on grant date:
EPS related rights
Grant Date
31-Aug-09
31-Aug-10
31-Aug-11
Life
Expiry
Date
3 years 31-Aug-12
3 years 31-Aug-13
3 years 31-Aug-14
Fair
Value per
right
55 cents
34 cents
35 cents
Exercise
Price
nil
nil
nil
Market
price of
shares on
grant date
55 cents
34 cents
35 cents
* The grant date of the EPS related rights for the Managing Director was 26 October 2011.
The fair value of the EPS related rights is equal to the market price of shares on the grant date.
(d)
Performance Rights Plan
The Company also introduced a Performance Rights Plan as part of its long-term incentive arrangements for senior
executives, which was approved by shareholders in October 2009.
Under the Performance Rights Plan, performance rights will only be issued if the terms and conditions detailed below
are satisfied.
A performance right is a right to acquire one fully paid ordinary share in the Company. Until they are exercised,
performance rights:
(a)
(b)
do not give the holder a legal or beneficial interest in shares of the Company; and
do not enable participating executives to receive dividends, rights on winding up, voting rights or other
shareholder benefits.
Performance rights issued under the Performance Rights Plan will be exercisable if:
(a)
(b)
(c)
a performance hurdle is met over the periods specified by the Board; or
the Board allows early exercise on cessation of employment (see “Cessation of employment” below); or
it is determined by the Board in light of specific circumstances.
The terms and conditions of the offer of Performance Rights made during the year ended 30 June 2009 are as
follows:
(a)
Mr T D Stinson will be awarded 1,150,000 performance rights;
78
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
36.
SHARE BASED PAYMENT PLANS (continued)
(d)
Performance Rights Plan (continued)
(b)
the grant of performance rights will be in seven tranches, each tranche with a different specified share price
target as set out below:
Tranche
Number of
performance
rights
Share price
target
$
Fair Value at
grant date
$
1
2
3
4
5
6
7
200,000
200,000
200,000
200,000
125,000
125,000
100,000
$2.50
$5.00
$7.50
$10.00
$20.00
$30.00
$50.00
94,000
70,000
56,000
46,000
16,250
11,250
5,000
(c)
(d)
the acquisition price and exercise price of the performance rights will be nil.
Mr T D Stinson will only be permitted to exercise a performance right if:
the Company attains the specified share price target (see table above) within eight years from the
date of grant of the performance right; and
the specified share price target is also achieved at the end of two years from the date the target is
first achieved (“Vesting Date”) based on the Company’s average closing share price over a 90 day
period up to and including the Vesting Date;
(e)
If the specified share price target is either not achieved within eight years from the date of grant, or if so
achieved, not also achieved at the end of the Vesting Date, the performance right will lapse.
No performance rights were granted during the years ended 30 June 2012 or 30 June 2011.
37.
DEFINED CONTRIBUTION SUPERANNUATION FUND
The Group contributes to a defined contribution plan for the provision of benefits to Australian employees on
retirement, death or disability. Employee and employer contributions are based on various percentages of gross
salaries and wages. Apart from the contributions required under superannuation legislation, there is no legally
enforceable obligation on the Company or its controlled entities to contribute to the superannuation plan.
38.
BUSINESS COMBINATION
Acquisition of Sprint Gas Business
On 27 May 2011, Orbital Autogas Systems Pty Ltd acquired 55% of the voting shares of Sprint Gas (Aust) Pty Ltd, a
new company incorporated to acquire the operating business of Sprint Gas, an Australian business specialising in the
importation and wholesaling of LPG Fuel systems. The consideration transferred was $2,000,000 cash as payment
in full for 2,200,000 ordinary shares in the new company, Sprint Gas (Aust) Pty Ltd.
Concurrently with the entering into of the Business Acquisition Agreement, the Group entered into a Subscription
and Shareholders Agreement with the owners of the 45% non-controlling interest in Sprint Gas (Aust) Pty Ltd. As
part of the Subscription and Shareholders Agreement Put and Call options were issued over the remaining 45% non-
controlling interest. The Put and Call options, exercisable after 30 months, are in nature a forward contract and in
substance represent contingent consideration. The Group has accounted for the business combination as though it
acquired a 100% interest and has recognised a financial liability to the non-controlling shareholders equal to the fair
value of the underlying obligations under the Put and Call options (Contingent consideration liability).
The option that gives rise to the contingent consideration liability is classified as a financial liability at fair value
through profit and loss.
The acquisition of Sprint Gas significantly broadens the Group’s wholesaling and distribution activities in the area of
alternative fuels and positions the Group as a leader in the Australian LPG market.
79
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
38.
BUSINESS COMBINATION (continued)
Acquisition of Sprint Gas Business (continued)
The fair values of the identifiable assets and liabilities of Sprint Gas (Aust) Pty Ltd as of the date of acquisition were
as follows:
Cash and cash equivalents
Trade and other receivables
Inventories
Plant and equipment
Deferred tax asset
Trade and other payables
Employee benefits
Relocation provision
Provisional fair value of identifiable net assets
Goodwill arising on acquisition
Acquisition date fair value consideration transferred
Provisional fair
value at
acquisition date
as reported in
30 June 2011
financial
statements
$'000
Final fair value at
acquisition date
as reported in
30 June 2012
financial
statements
$'000
420
1,319
1,968
468
242
4,417
(835)
(197)
(70)
(1,102)
3,315
1,373
4,688
420
1,319
1,640
468
341
4,188
(835)
(197)
(70)
(1,102)
3,086
1,602
4,688
The increase of $229,000 to the provisional goodwill figure reported in the 30 June 2011 financial statements was
due to the re-measurement of the fair value of inventory acquired. During the 12-month period post acquisition, the
Group revisited the assumptions used to determine the fair value of inventory and reduced the balance by $328,000,
to more accurately reflect the value of inventory at the date of acquisition. As a result of the adjustment the Group
recognised a corresponding deferred tax asset of $99,000. These changes were retrospectively applied to the 30
June 2011 comparative balances.
For details of the movement in the contingent consideration liability refer to note 28.
39.
COMMITMENTS
(a)
Operating leases
Non-cancellable future operating lease rentals not provided for in the
financial statements and payable:
- Not later than one year
- Later than one year but not later than five years
- later than five years
CONSOLIDATED
2012
$'000
2011
$'000
1,191
3,983
3,399
8,573
1,022
3,536
4,273
8,831
The Group leases premises and plant & equipment under operating leases. The lease for the engineering premises
is for a period of 10 years with options to extend for two further periods of five years each. Leases for warehousing
premises typically run for a period of 5 years. The plant & equipment leases typically run for a period of 5 years and
the lease payments are fixed. None of the leases include contingent rentals.
During the financial year ended 30 June 2012, $1,004,000 was recognised as an expense in the income statement in
respect of operating leases (2011:$490,000).
(b)
Finance leases and hire purchase commitments
Future minimum lease payments under finance leases and hire purchase
contracts are as follows:
- Not later than one year
- Later than one year but not later than five years
23
63
86
-
-
-
80
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
39.
COMMITMENTS (continued)
(c)
Other
In June 2008 the Group received funding of $2,760,000 from the Commonwealth of Australia through the Alternative
Fuels Conversion Program administered by the Department of the Environment, Water, Heritage and the Arts
towards the construction of a heavy duty engine test facility.
The Group will fund the maintenance and operation of the facility until at least financial year 2014/2015 and provide
the Commonwealth with preferential access to the facility, as follows:
Operational commitment to the running of the heavy duty engine testing
facility not provided for in the financial statements and payable:
- Not later than one year
- Later than one year but not later than five years
CONSOLIDATED
2012
$'000
2011
$'000
391
291
682
391
682
1,073
40.
CONTINGENCIES
The details and estimated maximum amounts of contingent liabilities that may become payable are set out below.
The directors are not aware of any circumstance or information that would lead them to believe that these liabilities
will crystallise.
In the event of the Company terminating the employment of the Chief Executive Officer (other than by reason of
serious misconduct or material breach of his service agreement), an equivalent of 12 months remuneration is
payable to the CEO. In the event of the Company terminating the employment of a KMP (other than by reason of
serious misconduct or material breach of their service agreement), an equivalent of 4 weeks pay, plus 2 weeks pay
for each completed year of service, plus for each completed year of service beyond 10, an additional 1/2 weeks pay,
plus a pro-rata payment for each completed month of service in the final year is payable to the KMP. The maximum
entitlement to termination pay is limited to 65 weeks pay. There are no other contingent liabilities for termination
benefits under the service agreements with Directors or other persons who take part in the management of any
entity within the Group.
41.
EVENTS AFTER THE BALANCE SHEET DATE
There has not arisen in the interval between the end of the financial year and the date of this report any item,
transaction or event of a material and unusual nature that is likely, in the opinion of the Directors of the Company,
to significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group
in subsequent financial years.
42.
REMUNERATION OF AUDITORS
Amounts received or due and receivable for audit services by:
Auditors of the Company
- Audit and review of financial reports – Australian Reporting
- Audit and review of financial reports – USA Reporting
Amounts received or due and receivable for taxation services by:
Auditors of the Company
Amounts received or due and receivable for other services by:
Auditors of the Company
Total auditors' remuneration
The Auditors of the Group in 2012 and 2011 were Ernst & Young.
CONSOLIDATED
2012
$
2011
$
223,780
112,000
235,900
112,000
-
10,000
16,910
5,150
352,690
363,050
81
DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2012
In accordance with a resolution of the directors of Orbital Corporation Limited, we state that:
1.
In the opinion of the Directors:
(a)
the financial statements and notes and the additional disclosures included in the Directors’ Report
designated as audited, of the Group are in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the financial position of the Group as at 30 June 2012 and of their
performance, as represented by the results of their operations and their cash flows, for the year
ended on that date; and
(ii)
complying with Accounting Standards in Australia and the Corporations Regulations 2001.
(b)
(c)
the financial statements and notes also comply with International Financial Reporting Standards as
disclosed in note 2(a).
subject to the achievement of the matters disclosed in note 2(b), there are reasonable grounds to believe
that the Company will be able to pay its debts as and when they become due and payable.
2.
This declaration has been made after receiving the declarations required to be made to the Directors in accordance
with Section 295A of the Corporations Act 2001, from the chief executive officer and chief financial officer for the
financial year 30 June 2012.
On behalf of the Board:
W P DAY
Chairman
T D STINSON
Managing Director
Dated at Perth, Western Australia this 21st day of September 2012
82
Independent auditor's report to the members of Orbital Corporation
Limited
Report on the financial report
We have audited the accompanying financial report of Orbital Corporation Limited, which comprises the
consolidated statement of financial position as at 30 June 2012, the consolidated income statement, the
consolidated statement of comprehensive income, the consolidated statement of changes in equity and
the consolidated statement of cash flows for the year then ended, notes comprising a summary of
significant accounting policies and other explanatory information, and the directors' declaration of the
consolidated entity comprising the company and the entities it controlled at the year's end or from time to
time during the financial year.
Directors' responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal controls as the directors determine are necessary to enable the preparation of the financial
report that is free from material misstatement, whether due to fraud or error. In Note 2(a), the directors
also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that
the financial statements comply with International Financial Reporting Standards.
Auditor's responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our
audit in accordance with Australian Auditing Standards. Those standards require that we comply with
relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain
reasonable assurance about whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial report. The procedures selected depend on the auditor's judgment, including the assessment
of the risks of material misstatement of the financial report, whether due to fraud or error. In making
those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair
presentation of the financial report in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's
internal controls. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by the directors, as well as evaluating the overall
presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Independence
In conducting our audit we have complied with the independence requirements of the Corporations Act
2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a
copy of which is included in the directors’ report.
GL:KE:ORBITAL:112
Liability limited by a scheme approved
under Professional Standards Legislation
Opinion
In our opinion:
a.
the financial report of Orbital Corporation Limited is in accordance with the Corporations Act 2001,
including:
i
ii
giving a true and fair view of the consolidated entity's financial position as at 30 June 2012 and
of its performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001; and
b.
the financial report also complies with International Financial Reporting Standards as disclosed in
Note 2(a).
Report on the remuneration report
We have audited the Remuneration Report included in pages 11-20 of the directors' report for the year
ended 30 June 2012. The directors of the company are responsible for the preparation and presentation
of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Opinion
In our opinion, the Remuneration Report of Orbital Corporation Limited for the year ended 30 June 2012,
complies with section 300A of the Corporations Act 2001.
Material Uncertainty Regarding Continuation as a Going Concern
Without qualifying our opinion, we draw attention to Note 2(b). As a result of the matters discussed, there
is material uncertainty whether the consolidated entity will continue as a going concern, and therefore
whether they will realise their assets and extinguish their liabilities in the normal course of business and at
the amounts stated in the financial report. The financial report does not include any adjustments relating
to the recoverability and classification of recorded asset amounts or to the amounts and classification of
liabilities that might be necessary should the consolidated entity not continue as a going concern.
Ernst & Young
G Lotter
Partner
Perth
21 September 2012
GL:KE:ORBITAL:112
SHAREHOLDING DETAILS
Shareholding Details
Class of Shares and Voting Rights
As at 31 August 2012 there were 4,917 shareholders of the ordinary shares of the Company. The voting rights attaching to
the ordinary shares, set out in Article 8 of the Company’s Constitution, subject to any rights or restrictions for the time being
attached to any class or classes of shares, are:-
a) at meetings of members or class of members, each member entitled to vote may vote in person or by proxy or
representative; and
b) on a show of hands every person present who is a member has one vote, and on a poll every person present in
person or by proxy or representative has one vote for each ordinary share held.
Substantial Shareholders and Holdings as at 31 August 2012
SG Hiscock & Company Ltd
(as notified on 13 July 2011)
4,755,400
9.80%
Distribution of Shareholdings as at 31 August 2012
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001 and over
2,992
1,161
353
360
51
4,917
Total Shares on Issue
48,722,477
Number of shareholders holding less than a marketable parcel
3,611
Top 20 Shareholders as at 31 August 2012
NAME
NUMBER OF
SHARES HELD
% OF
SHARES
1 National Nominees Limited*
2 Verido Holdings Pty Ltd
3 Mr RN Sweetman & Mrs BA Sweetman
4 Bond Street Custodians Limited
5 Annapurna Pty Limited
6 Equity Trustees Limited SGH Tiger A/C
7 Mr CI Wallin & Ms FK Wallin
8 Morgan Stanley Australia Securities (Nominee) Pty Ltd
9 ABN Amro Clearing Sydney Nominees Pty Ltd
10 Interstate Investments Pty Ltd
11 Twokind Pty Ltd
12 Mr S Cornelius
13 Papl Ebsco Pty Ltd
14 Ms BL Gallisath
15 Mr MW Ford & Mrs NB Ford
16 Equity Trustees Limited SGH PI Smaller Co's Fund
17 Mr TD Stinson
18 Citicorp Nominees Pty Ltd
19 Pra Trading Pty Ltd
20 Mr J Ayres
14,008,378
1,566,500
1,165,497
1,044,350
1,000,000
792,901
689,200
661,860
654,832
625,356
575,000
553,000
487,747
441,930
427,122
417,145
392,690
380,214
360,000
356,667
26,600,389
28.75%
3.22%
2.39%
2.14%
2.05%
1.63%
1.41%
1.36%
1.34%
1.28%
1.18%
1.13%
1.00%
0.91%
0.88%
0.86%
0.81%
0.78%
0.74%
0.73%
54.59%
The twenty largest shareholders hold 54.59% of the ordinary shares of the Company.
* Denotes The Bank of New York Mellon nominee company for United States American Depository Receipts. This nominee
company is the main representative body for Orbital's US shareholders.
On-market buy-back
There is no current on-market buy-back.
85
OFFICES AND OFFICERS
REGISTERED AND PRINCIPAL OFFICE
4 Whipple Street
Balcatta, Western Australia 6021
CONTACT DETAILS
Australia: -
Telephone: 61 (08) 9441 2311
Facsimile: 61 (08) 9441 2111
INTERNET ADDRESS
http://www.orbitalcorp.com.au
Email: info@orbitalcorp.com.au
DIRECTORS
Peter Day – Chairman
Terry Stinson – Chief Executive Officer
Mervyn Jones
Vijoleta Braach-Maksvytis
COMPANY SECRETARY
Ian Veitch
SHARE REGISTRY
Computershare Investor Services Pty Ltd
Level 2, 45 St Georges Terrace
Perth, Western Australia, 6000
Telephone: 61 (08) 9323 2000
Facsimile: 61 (08) 9323 2033
ADR FACILITY
The Bank of New York Mellon
101 Barclay Street
New York, NY, 10286
United States of America
Telephone: 1 (212) 815 2218
Facsimile: 1 (212) 571 3050
SHARE TRADING FACILITIES
Australian Stock Exchange Limited (Code “OEC”)
NYSE Amex (Code: “OBT”)
AUDITORS
Ernst & Young
The Ernst & Young Building
11 Mounts Bay Road
Perth, Western Australia, 6000
86