ORBITAL CORPORATION LIMITED
APPENDIX 4E
Preliminary Final Report
Company Details
Name of Entity:
ABN:
Year Ended (Current Year):
Year Ended (Prior Year):
Orbital Corporation Limited
32 009 344 058
30 June 2013
30 June 2012
Results for announcement to the market
A$'000
A$'000
Total revenue
UP
4,338
19%
to
26,699
Statutory net profit from ordinary activities after
tax attributable to members
Statutory net profit attributable to members
UP
UP
3,417
N/A
to
364
3,417
N/A
to
364
Underlying net profit from ordinary activities after
tax attributable to members
UP
4,702
N/A
to
1,370
Net tangible assets per share (cents)
2013
2012
39.22
31.14
Dividends
There is no proposal to pay dividends for the year ended 30 June 2013
Commentary on results for the period
The Commentary on the results for the period is contained in the press release dated 26 August 2013
accompanying this statement.
Annual Meeting
The annual meeting will be held as follows:
Place:
Rydges Hotel
Corner Hay and King Streets
Perth
Western Australia
Date:
Tuesday 22 October 2013
Time:
10.00am
Approximate date the annual report will be available: 18 September 2013
Audit
This report is based on accounts which have been audited. (see attached Annual Report)
ABN 32 009 344 058
ANNUAL REPORT
30 JUNE 2013
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2013
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
2013 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.
Operating and Financial Review
Directors
Directors’ Interests
Directors’ Meetings
Company Secretary
Principal Activities
Consolidated Result
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
8
9
9
9
9
9
9
10
10
10
10
10
10
11
11
12
1
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2013
1.
OPERATING AND FINANCIAL REVIEW
SUMMARY OF BUSINESSES
Over recent years the Company has undertaken a transition from a Consultancy and Intellectual Property business to a more
diversified group with the acquisition of two LPG fuel system businesses in June 2008 and May 2011 and the creation of a
new business that supplies Engine Management Systems (EMS) and engines for Small Unmanned Aerial Systems (SUAS).
The Company has developed to four main revenue streams: system sales, the traditional consulting business, royalty
revenues and dividends from Synerject. The most significant growth over the past year has been in system sales.
The Consulting Services business provides engineering and testing facility services to domestic customers and advanced
engineering services for international customers based in USA, China, India, Japan and Europe. The Company is planning to
expand consulting services in the growing Indian market through a proposed Joint Venture with UCAL Corporation in India.
Orbital is a niche player in the consulting market with a very small market share.
The Company develops and sells systems to domestic and international markets. Domestically, the Company is the supplier of
a Liquid Phase Injection (LPi) LPG fuel system to Ford Motor Company of Australia for use in their EcoLPi range of Falcon
passenger cars and utilities. The Company is also an importer and wholesaler of LPG fuel systems for the Australian retrofit
market, with the LPG related businesses holding an estimated combined domestic market share of more than 40%. The new
SUAS business is international and has applied Orbital’s patented FlexDITM engine management system to heavy fuel
applications in the SUAS market and holds more than 90% market share for heavy fuel applications.
The Company holds an investment in Synerject LLC, the world’s largest independent supplier of non-automotive engine
management systems (EMS). Synerject operates engineering facilities in Europe, North America and China and also has
production facilities in North America and China. Synerject supplies EMS to customers in the marine, low-end 2 and 3
wheeler, recreational and utility markets. Synerject’s customers are located in North America, Europe, Japan, China and
South-East Asia.
FINANCIAL REVIEW
Total revenue and profit after tax for the year ended 30 June 2013 was $26,699,000 and $364,000 respectively (2012: total
revenue $22,361,000 and loss after tax of $3,053,000).
There are a number of items impacting the profit after tax that are not associated with the normal operations of the Group.
This information has been set out below to enable users of this report to make appropriate comparisons with prior periods
and to assess the underlying operating performance of the business.
Statutory Profit/(loss) after tax
Deduct income items
Gain on sale of share of Synerject
Change in fair value of contingent consideration
Add-back expense items
Taxation expense relating to the gain on sale of share of Synerject
Goodwill impairment
Terminations costs
Underlying profit/(loss) after tax
2013
$’000
2012
$’000
364
(3,053)
(1,702)
(1,410)
-
(392)
1,590
1,965
563
1,370
-
-
113
(3,332)
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.
2
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2013
1.
OPERATING AND FINANCIAL REVIEW (continued)
FINANCIAL REVIEW (continued)
The financial performance of the Company has significantly improved from a loss of $3,053,000 last year to a profit of
$364,000 this year, primarily due to the combined benefits of increased system sales and tighter cost control. The result was
achieved despite significant expenses for goodwill impairment and termination costs incurred in restructuring the operations
of the Group. On an operating basis, we made an underlying profit of $1,370,000. With the changes made over the year,
the business is now on a better base to achieve sustainable profits in the future.
The Company recognised a gain on the change in fair value of the contingent consideration liability in respect of the Sprint
Gas acquisition of $1,410,000.
The Company’s net assets increased by 12%, compared with the previous year. This increase is largely attributable to the
translation of the foreign subsidiary and the current year’s profit after tax. Trade receivables have increased by $545,000,
inventories have decreased by $2,039,000 and trade payables have also decreased by $2,105,000. Trade receivables for the
final deliveries on the second SUAS production order were outstanding at the end of the period. Inventory and trade
payables have been managed in line with the activity levels of the LPG businesses.
The Company sold a portion of its investment in Synerject during the year for US$6,000,000. The proceeds of the sale were
utilised to invest into working capital for the SUAS business, retire bank debt and fund the restructuring of the businesses
with the balance retained to alleviate the Company’s liquidity concerns from the previous year.
Net cash used in operations (including the Synerject dividend of $1,485,000) was $232,000 (2012: $2,701,000) reflecting a
significant improvement in the operating performance of the Group.
Orbital will continue to concentrate on cash management and manage costs appropriately to minimise overheads while
protecting key resources necessary to create opportunities for future growth.
The Company’s investment in Synerject is accounted for using the equity method of accounting and as such it does not
include Orbital’s share of Synerject’s revenue in its Income Statement. To assist in making appropriate comparisons of the
relative size of each of the Group’s income streams graphical representations of sales, including the pro-rata shares of
Synerject sales, have been included in the Segment review which follows. The non-IFRS graphical representations of sales
have not been audited.
SEGMENT REVIEW
System Sales
SUAS is an exciting new
business and Orbital is
positioned as the market leader
for SUAS fuel systems and
engines capable of operating on
heavy fuels
SALES $m
2013 KEY PERFORMANCE
HIGHLIGHTS
► Delivery of initial production
engines and EMS for AAI.
► Delivery of additional production
engines to the SUAS market.
► OAS and SGA gain market share,
albeit in a declining LPG market.
METRICS
Segment
Revenue
Segment
Result
SIGNIFICANT CHANGES
► Australian manufacture and
supply of SUAS Engines and
Engine Management Systems.
► Decrease in Australian LPG
market drove restructuring to
adjust cost base.
►
Introduction of award winning
LPG system for Toyota hybrid
taxi applications.
FUTURE OBJECTIVES
► Develop next generation SUAS
engine.
2013
$’000
2012
$’000
23,424
14,020
2,163
380
► Structure LPG businesses for
sustainable profitability.
Plan for expansion of SUAS
business internationally.
►
3
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2013
1.
OPERATING AND FINANCIAL REVIEW (continued)
SEGMENT REVIEW (continued)
SYSTEM SALES (continued)
Summary of Segment
A key product sold this year by Orbital was the Small Unmanned Aircraft Systems (SUAS) engine supplied to AAI Corporation
(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 supplied engines, engine management systems and
spare parts worth over $12,000,000 throughout the financial year. Dedicated facilities were commissioned at Orbital’s Perth
facility to support this program and supply commenced in August 2012. Ongoing responsibility for the manufacture of
engines for use by AAI is being transitioned to a US based company in line with AAI’s original intent for engine supply,
however Orbital is still responsible for the supply of the patented FlexDITM EMS. This significant advancement in the use of
heavy fuels in SUAS has generated further engine design and development opportunities.
Orbital Autogas Systems (OAS) developed, and is the supplier of Liquid LPG systems to Ford Motor Company of Australia 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. OAS sells this system into the aftermarket under the brand
name “Liquid”.
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.
Highlights
Revenues for the year were $23,424,000, a 67% increase on the previous year, reflecting the production and supply of SUAS
engines, SUAS engine management systems and sales of SUAS spare parts. The significant increase in revenue from SUAS
was partially offset by reductions in revenue from both of the LPG related businesses. Contribution to the group improved
from a profit of $380,000 last year to a $2,163,000 profit this year.
Business Model
Development and supply of high value systems, starting with 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 in niche markets. Revenues from LPG systems have been overtaken by revenue from SUAS utilising heavy fuel
instead of gasoline.
Internationally the demand 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. Unfortunately, we are not experiencing the same interest in Australia with a decreasing
fleet of vehicles operating on LPG, LNG for heavy transport not being embraced by the transport operators at the rates
previously forecast and minimal investment in place for CNG distribution for passenger car/light commercial vehicles.
Australia is expected to follow the US and European growth in alternative fuel applications, however the timing is difficult to
predict.
Outlook
As announced on 31 July 2013, Orbital was awarded a contract for the design, development and validation of a next
generation production engine for a USA based customer that is one of the largest in the SUAS market. The development
program will be conducted through 2013 and 2014 and if successful will lead to higher volume production of SUAS engines in
2015. The Unmanned Aerial Vehicle (UAV) market is projected to double in the next decade and with Orbital’s unique
FlexDITM technology, this is projected to be a significant growth area for the Company.
Responsibility for the production of SUAS engines for AAI is being transitioned to a non-Orbital US based company. Revenues
from SUAS will thus be significantly lower in the next financial year as we move from being a supplier of complete engines to
a supplier of engine management systems, fuel system components and spare parts.
Due to the subdued LPG systems market at present, both OAS and SGA have undertaken restructures to manage their
businesses to the market demand, and in general, have managed to increase market share; albeit in a contracting market.
Orbital is well positioned for any upturn in the LPG market and is currently the largest player in Australia. The LPG market is
influenced by the price differential between LPG and petrol. The lower Australian dollar and increasing petrol prices may
ignite more interest in LPG conversions and there will potentially be more interest towards the end of the financial year when
the Federal Government withdraws the LPG Vehicle Rebate scheme incentive of $1,000 for aftermarket systems.
4
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2013
1.
OPERATING AND FINANCIAL REVIEW (continued)
SEGMENT REVIEW (continued)
Synerject
Synerject has continued its
diversification into new products
and new markets
2013 KEY PERFORMANCE
HIGHLIGHTS
►
7.64% growth in Revenue.
SALES $m (pro-rata share)
►
7.61% growth in Profit after Tax.
SIGNIFICANT CHANGES
► Change of ownership
percentage from 42% to 30%
to generate US$6,000,000 in
cash.
METRICS
Revenue (100%)
Profit after tax
(100%)
Share of profit
Investment in
Synerject
FUTURE OBJECTIVES
►
Expansion of low end 2 & 3
wheeler EMS markets targeting
India, China & Asia.
Expansion of utility market
with new line of low cost EMS
products.
► Continued growth while
maintaining profitability.
2013
US$’000
137,287
2012
US$’000
127,548
►
8,275
8,045
A$’000
3,220
A$’000
3,480
12,468
13,696
Summary of Segment
Synerject, Orbital’s 30:70 (previously 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 Europe,
China, Taiwan and the United States provide on-site support of customer development and production programs.
Highlights
Tight cost control and careful investment by Synerject management has resulted in improved profit after tax during this
period.
Synerject’s market and product expansion has enabled that company to achieve revenue growth consistently over the last 5
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.
Synerject generated US$9,119,000 positive cash flow and paid dividends to shareholders (Orbital share A$1,485,000). At 30
June 2013, Synerject held cash of US$7,138,000 and borrowings of US$nil (June 2012: net cash of US$1,617,000).
Business Model
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 is an increasing demand for EMS in the low end motorcycle/scooters products which are a
major part of these countries’ transport structure.
Outlook
The outlook for Synerject is for continued growth firstly in the marine and recreational segment and in the low-end 2 & 3
wheeler and utility markets in future years.
5
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2013
1.
OPERATING AND FINANCIAL REVIEW (continued)
SEGMENT REVIEW (continued)
Consulting Services
The Company’s diversification
strategy continues to deliver a
reduced reliance on consulting
services
SALES $m
2013 KEY PERFORMANCE
HIGHLIGHTS
► Significant developments in new
and advanced SUAS EMS
products.
► Broadening domestic customer
base, less reliance in
international customers.
► New customer programs in the
field of advanced DI CNG
injection.
METRICS
Segment
Revenue
Segment
Result
2013
$’000
2012
$’000
2,057
7,131
(2,206)
(2,259)
SIGNIFICANT CHANGES
►
Focused on SUAS engine and
EMS development and
production in FY13.
► Restructuring to adjust cost
base to reduced market.
► Refocus of resources on
incubation and development of
new products.
FUTURE OBJECTIVES
► Maintain core engine and EMS
technical capability.
► Reduce but maintain Perth-
based development, testing
and certification facilities.
► Continue consulting as the
incubator for new product
development focusing on high
value customer projects.
Summary of Segment
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.
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 2013, the OCS order book stood at approximately
$1,100,000 (30 June 2012 $1,000,000).
Highlights
OCS revenue for the year was $2,057,000 down 71% compared to last year.
During this reporting period the OCS group redeployed key resources to the SUAS activities and on continuing research and
development projects. A significant proportion of the loss in the OCS group can be attributed to the costs incurred to support
the launch of, and provision of technical support to, our new SUAS engine business.
Business Model
The business model for the OCS group is based around the provision of consulting services in three main areas: 1) integration
of Orbital technology; 2) advanced engineering aimed at design, development and validation of new technology; and 3) the
operation of engine and fuel testing and certification facilities.
Outlook
The OCS group will continue its transition to becoming an engineering centre supporting the rest of the Orbital group, whilst
still providing a base level of advanced engineering and testing facilities to support the overhead of maintaining our world-
class capabilities.
As announced on 16 August 2013, Orbital had been awarded an Automotive New Markets Program grant of $933,000 for the
development of a new Electronic Control Unit (ECU) for use in SUAS applications. The development activities will be
performed by the OCS group through the next financial year.
6
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2013
1.
OPERATING AND FINANCIAL REVIEW (continued)
SEGMENT REVIEW (continued)
Royalties and Licences
Volumes of two-stroke outboard
engines that utilise Orbital’s
technology to improve
performance and reduce
emissions have shown signs of
recovery
2013 KEY PERFORMANCE
HIGHLIGHTS
►
Large FlexDITM Outboard market
expanded year on year.
►
Traditional intellectual property
markets stable.
SALES $m
METRICS
Segment
Revenue
Segment
Result
2013
$’000
2012
$’000
1,007
967
517
463
SIGNIFICANT CHANGES
►
►
Focus on key patent
applications in Dual Fuel LNG
and SUAS EMS.
Less focus on general
intellectual property
development and patent
generation.
FUTURE OBJECTIVES
► Royalty revenues from new
►
SUAS business expansion.
Expand SUAS Engine and EMS
portfolio, especially in the area
of heavy fuel.
► Key patent work to protect
investment in Orbital’s new
products and systems.
Summary of Segment
Orbital earns royalties from product using its FlexDITM systems and technology. The royalty bearing products today are in the
marine, scooter/motorcycle and SUAS markets.
Total FlexDITM product volumes reduced marginally compared to the same period last year, however larger horsepower
engines that attract a higher royalty improved. This, together with the addition of royalties from SUAS has resulted in a 4%
increase in revenue for the year.
Highlights
The larger horsepower outboard engines have maintained their popularity and have actually achieved a fourth consecutive
year of increased volumes. Total marine volumes overall were slightly higher than last financial year.
Business Model
Orbital has maintained a portfolio of patents to protect the intellectual property invested in the development of our FlexDITM
technology.
Orbital has licenced a number of Original Equipment Manufacturers (OEM) and component manufacturers to utilise Orbital’s
technology. At present there are 16 authorised users; 3 of which are currently in production with our technology.
The business model for Orbital is transitioning away from an expectation that OEMs will pay large licence fees and ongoing
royalties to gain access to our technology to a model were Orbital is the systems integrator and provider of products and
systems that incorporate our technology and utilise our engineering expertise.
Outlook
Orbital will continue to receive royalties from its existing licenced two-stroke outboard engine manufacturers for a number of
years still to come, however it must be noted that when production of the current models of two-stroke engines cease they
are not likely to be replaced by new models incorporating our FlexDITM technology. The two-stroke engine outboards remain
popular today especially the light-weight portability of the small horsepower engines and the power/weight ratios in the
performance engine category.
7
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2013
2.
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.
During the past three years, Mr Day has also served as a director of Ansell Limited (appointed 20 August 2007; ongoing), SAI
Global Limited (appointed 15 August 2008; ongoing) and Federation Centres Limited (appointed 01 October 2009; ongoing).
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 Gas Energy
Australia (GEA).
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 and is also a member of the Company’s Human Resources, Remuneration
and Nomination Committee.
During the past three years, Dr Jones has also served as a director of Pacific Environment Limited (appointed 3 July 2009;
resigned 2 July 2012)
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 and is also a
member of the Company’s Audit Committee.
During the past three years, Dr Braach-Maksvytis has also served as a director of AWE Limited (appointed 7 October 2010;
ongoing).
8
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2013
3.
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
2,535,000
1,150,000
18,000
-
-
-
-
-
Total
420,690
2,535,000
1,150,000
4.
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.
Directors' Meetings
Audit Committee Meetings
No. of
meetings
attended
No. of
meetings
held*
No. of
meetings
attended
No. of
meetings
held*
Human Resources,
Remuneration & Nomination
Committee Meetings
No. of
No. of
meetings
meetings
held*
attended
10
10
10
9
10
10
10
10
5
-
5
4
5
-
5
5
4
-
4
4
4
-
4
4
Director
W P Day
T D Stinson
M T Jones
V Braach-Maksvytis
* number of meetings held during the time the director held office during the year.
5.
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, and subsequently
appointed to the position of Chief Financial Officer on 11 February 2013. 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 is also a 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.
6.
PRINCIPAL ACTIVITIES
Orbital has designed, developed and also undertaken low volume production of an engine and engine management system
(EMS) for small unmanned aircraft systems (SUAS) utilising Orbital’s FlexDITM technology.
Orbital imports, manufactures and assembles an automotive LPG fuel system for Ford Motor Company of Australia’s EcoLPi
range of Falcon passenger cars and utilities 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 SUAS’s.
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.
7.
CONSOLIDATED RESULT
The consolidated profit after income tax for the year attributable to the members of Orbital was $364,000 (2012:$3,053,000
loss)
8.
DIVIDENDS
No dividend has been paid or proposed in respect of the current financial year.
9
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2013
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
On 31 July 2013, Orbital announced that it had been awarded a contract for the design, development and validation of a next
generation production engine for a USA based customer that is one of the largest in the SUAS market. The development
program will be conducted through 2013 and 2014 and if successful will lead to higher volume production of SUAS engines in
2015.
On 16 August 2013, Orbital announced that it had been awarded an Automotive New Markets Program grant of $933,000 for
the development of a new Electronic Control Unit (ECU) for use in SUAS applications. The development activities will be
performed by the Consulting Services group through the next financial year.
Other than the matters above, 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 operating and financial review
above.
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
In the comparative period, Ernst & Young, the Company’s auditor, performed certain other services in addition to their
statutory duties.
The Board considered the non-audit services provided during the comparative period 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 comparative period was 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 41 to the financial statements.
10
DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2013
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.
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 financial report of Orbital Corporation Limited and its controlled entities for the financial year
ended 30 June 2013, 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
T G Dachs
Partner
Perth
23 August 2013
11
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2013
17. REMUNERATION REPORT - AUDITED
Principles of compensation
This Remuneration Report for the year ended 30 June 2013 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:
17.1. Individual key management personnel disclosures
17.2. Remuneration overview
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
The format of this remuneration report has been modified from previous years to improve the readability and to facilitate
shareholder understanding. In particular, a “question and answer” format has been adopted. This provides a mechanism by
which the company can answer questions which have been asked previously by shareholders and other stakeholders.
17.1. INDIVIDUAL KEY MANAGEMENT PERSONNEL DISCLOSURES
Details of KMP of the Group are set out below.
Key management personnel
Position
(i) Directors
W Peter Day
Mervyn T Jones
Vijoleta Braach-Maksvytis
Terry D Stinson
(ii) Executives
Geoff P Cathcart
Ian G Veitch
Keith A Halliwell
Chairman (Non-executive)
(Non-executive)
(Non-executive)
Managing Director and Chief Executive Officer (Executive)
Chief Technical Officer
Chief Financial Officer (appointed 11 February 2013)
Chief Financial Officer (ceased being a KMP 8 February 2013)
17.2. REMUNERATION OVERVIEW
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 2013
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 2013 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 2013 financial year, the Company used earnings per share as the performance
measure for the share awards. During the 2013 financial year, the performance hurdles for the 2010 grant of shares which
were based on relative total shareholder return and earnings per share 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.
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DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2013
17.2. REMUNERATION OVERVIEW (continued)
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.
To this end, key objectives of the Company’s reward framework are to ensure that remuneration practices:
Are aligned to the Group’s business strategy;
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).
Key changes to remuneration structure in 2013
The key changes made to remuneration structure in 2013 related to the performance conditions of the long-term incentives
(LTI) offered in FY2013 and the structure of non-executive directors fees.
The performance conditions for the LTI are based 100% on earnings per share. In previous years, the performance
conditions for the LTIs were based 50% on total shareholder return and 50% on earnings per share.
Additionally, the number of shares granted is broken into four bands as shown in the table below. In previous years, the
number of shares granted was based on a single target.
Table 1 – Vesting schedule for the EPS tested LTI awarded for the performance year 2013
Company Performance
(Earnings per share)
Under 5 cents
At or above 5 cents but below 7 cents
At or above 7 cents but below 9 cents
At or above 9 cents
% of offered shares
issued to each executive
0%
25% to 50% (on a straight line basis)
50% to 100% (on a straight line basis)
100%
At the Company’s Annual General Meeting in November 2012, shareholders approved the above plan in relation to the
ongoing remuneration of the Executive Director.
The structure of non-executive director’s fees was changed during the financial year to be based solely on an all-inclusive
directors’ fee with the dis-continuation of separate fees for chairing and membership of Board committees. Given the size of
the Group and the number of non-executive directors, each non-executive director is a member of each Board committee.
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, company 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.
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DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2013
17.3. REMUNERATION GOVERNANCE (continued)
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.
Did a remuneration consultant
provide a remuneration
recommendation in relation to
any of the KMP for the financial
year?
What was the remuneration
consultant paid by the Company
for remuneration related
services?
Did the remuneration consultant
provide any other advice to the
Company?
What arrangement did the
Company make to ensure that
the making of the remuneration
recommendation would be free
from undue influence by the
KMP?
Is the Board satisfied that the
remuneration recommendation
was free from any such undue
influence? What are the reasons
for the Board being so satisfied?
Korn Ferry International provided remuneration recommendations and remuneration
related advice to the Company in relation to the review of non-executive Director fees
which took effect from 1 January 2013.
Korn Ferry International was paid a total of $11,000.
Korn Ferry International did not provide any other advice to the Company during the
financial year.
The Company implemented a protocol to govern the procedure for procuring advise
relating to KMO remuneration. The protocol contained a summary of the process for the
engagement of remuneration consultants, the provision of information to the
remuneration consultant, and the communication of remuneration recommendations.
Yes, the Board is so satisfied. The reasons are as follows:
The protocol with respect to the procurement of remuneration related advice was
adhered to, including with respect to engagement of the remuneration consultant,
the provision of information to the remuneration consultant and the communication
of the remuneration recommendations.
At appropriate times, the remuneration consultant provided written confirmation that
it had not been subject to any undue influence.
The Chairman of the Board met with the remuneration consultant in the absence of
the other non-executive Directors. There were no concerns raised by the
remuneration consultant with respect to any undue influence being exerted by the
non-executive Directors.
The Chairman of the Board did not observe any evidence that undue influence had
been applied.
17.4. NON-EXECUTIVE DIRECTOR REMUNERATION ARRANGEMENTS
Objective
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.
Structure
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 2013 AGM.
On appointment to the Board, all non-executive Directors enter into a service agreement with the Company in the form of a
letter of appointment which details remuneration arrangements.
Fees
During the year, the remuneration of non-executive directors was restructured to consist solely of an all-inclusive directors’
fee with the removal of separate fees for membership of the Board’s. 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 $88,000 (effective 1 January 2013) (2012:$109,200). Each non-executive
director receives a base fee of $69,200 (2012: $69,200) for being a director of the Group.
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DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2013
17.4. NON-EXECUTIVE DIRECTOR REMUNERATION ARRANGEMENTS (continued)
Fees (continued)
The remuneration of non-executive directors for the year ended 30 June 2013 and 30 June 2012 is detailed in Section 17.8 of
this report.
Are the non-executive directors
paid any incentive or equity
based payments or
termination/retirement
benefits?
If non-executive directors are
paid additional fees, how are
these additional fees calculated?
Are non-executive Directors’
fees going to increase in 2013?
No. The non-executive Directors are not paid any short term incentives, long term
incentives, equity based remuneration or termination/retirement benefits
From time to time, non-executive Directors may be requested to provide additional non-
executive director related services. This could include sitting on a due diligence
committee or undertaking a special project for the Group. During the year, no additional
fees were paid to any of the non-executive Directors.
No. The Board has decided to maintain the directors’ fees at the current levels.
17.5. EXECUTIVE REMUNERATION ARRANGEMENTS
Objective
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.
Structure
The CEO’s target remuneration mix for FY2013 comprised 46% fixed remuneration, 27% target MTI opportunity and 27% 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 FY2013 was 55% - 62% fixed remuneration, 19% - 25% target MTI
opportunity and 19% - 20% LTI opportunity.
In the 2013 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:
Table 2 – Structure of remuneration arrangements
Remuneration
component
Vehicle
Purpose
Link to company performance
Fixed compensation
Represented by
total fixed
remuneration
(TFR).
Comprises base
salary,
Superannuation
contributions and
other benefits.
STI component
Paid in cash
MTI component
Paid in cash.
LTI component
Awards are made
in the form of
shares or
performance rights.
Set with reference to role,
market and experience.
No direct link to company
performance.
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.
Rewards executives for their
contribution to achievement of
Group outcomes.
Discretionary award by the Board
to reward executives for
exceptional performance in a
specific area of importance.
Rewards executives for their
contribution to achievement of
Group outcomes.
Profit after tax.
Pro-rata Consolidated Sales.
Operating Cash Flows.
Rewards executives for their
contribution to the creation of
shareholder value over the
longer term.
Vesting of awards is dependent on
Orbital Corporation Limited’s TSR
performance relative to a peer
group and its Earnings Per Share.
15
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2013
17.5. EXECUTIVE REMUNERATION ARRANGEMENTS (continued)
Fixed compensation
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
Human Resources, Remuneration and Nomination 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)
The table below contains a summary of the key features of the STI plan.
What is the STI?
Executive directors and senior executives 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.
When is the STI grant paid?
There are no pre-determined timeframes at which assessments for STI rewards are to be
undertaken.
How does the Company’s STI
structure support achievement
of the Company’s strategy?
The STI rewards executives for their contribution to the achievement of Group outcomes
in areas of significant importance not addressed by the pre-determined performance
criteria of the MTI and LTI.
How are the performance
conditions of the STI
determined?
The Board has no pre-determined performance criteria against which the amount of a STI
is assessed.
What are the maximum possible
values of award under the STI
plan?
There are no pre-determined maximum possible values of award under the STI scheme.
In assessing the value of an STI award to be granted the Board will give consideration to
the contribution of the action being rewarded to the success of the Group.
What was the value of STI paid
in the financial year?
Is a portion of STI deferred?
No discretionary STI cash bonuses were paid during the 2013 or 2012 financial years.
No discretionary STI cash bonuses relating to the 2013 or 2012 financial years will
become payable in future financial years.
Variable remuneration — medium-term incentive (MTI)
The MTI plan 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.
The table below contains a summary of the key features of the MTI plan.
What is the MTI?
When is the MTI grant paid?
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 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.
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.
MTI 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.
How are the performance
conditions of the MTI
determined?
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.
How does the Company’s MTI
structure support achievement
of the Company’s strategy?
These three measures were chosen as they directly align the individual’s reward to the
Group’s strategy and performance. The objective of the Group is to grow the business in
a profitable and cash flow positive manner.
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DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2013
17.5. EXECUTIVE REMUNERATION ARRANGEMENTS (continued)
Variable remuneration — medium-term incentive (MTI) (continued)
What are the performance
conditions under the MTI for
KMP in 2013?
The MTI performance hurdles (and weighting %) for 2013 were:
KPI
Proportion of
MTI award KPI
applies to
Minimum KPI
Stretch KPI
$’000
$’000
Profit after tax
Operating Cash Flow
Pro-rata Consolidated Sales
33%
33%
33%
100
100
4,000
2,500
80,000
100,000
How are actual results
measured against the
performance hurdles?
For each performance hurdle there are three targets ‘Base’, ‘Budget’ and ‘Stretch’. ‘Base’
is the minimum target to trigger a MTI payment for that hurdle. The amounts paid for
each hurdle varies between 10%-20% of TFR for ‘Base’ and 30%-60% of TFR for
‘Stretch’. Where achievement is below ‘Base’ no payment is made.
What are the ranges of possible
values of award under the MTI
plan?
Name
Position
Terry Stinson
Chief Executive Officer
Geoff Cathcart
Chief Technical Officer
Ian Veitch
Chief Financial Officer
Amount
(Min – Max)
0 - $655,200
0 - $339,800
0 - $199,000
What was the value of MTI paid
in the financial year?
Is a portion of MTI deferred?
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.
The Human Resources, Remuneration and Nomination Committee has considered the MTI
bonus for the 2013 financial year. The MTI cash bonus available for the 2013 financial
year is $nil. This amount has been determined on the basis that 1) Despite the Group’s
Profit after tax (after removing once-off items) target for the year ended 30 June 2013
having been met, the Group did not generate a positive cash flow (before working capital
movements) 2) Positive Operating Cash Flows for the year ended 30 June 2013 were not
achieved, and 3) the Consolidated Pro-rata Sales of the Group have not reached the
minimum threshold of $90,000,000.
No. At this stage, the Board does not consider it appropriate to defer a portion of the
MTI. This is because the performance criteria are objective (profit after tax, operating
cash flow and pro-rata consolidated sales) and obtained from the audited results of the
Group.
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 Employee Share Plan No.1.
Executive Long Term Share Plan
The table below contains a summary of the key features of the Executive Long Term Share plan (ELTSP).
What is the ELTSP?
The ELTSP is a performance based 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.
How does the ELTSP align the
interests of shareholders and
executives?
The ELTSP links rewards for the executive KMP to the Company’s strategy to grow
shareholder value by increasing the Group’s earnings per share. Vesting of shares only
occurs if Orbital generates earnings per share of at least 5 cents per share. The higher
the earnings per share result the higher the number of shares that will vest.
How does the ELTSP support
the retention of executives?
An objective of offering shares under the ELTSP is to promote retention. At any one
time, an executive KMP will have unvested rights. If an executive resigns they would
forfeit the benefits of those unvested rewards. This provides a valuable incentive to stay
with the Company so long as the shares are seen by the executive KMP as likely to vest
at the end of the performance period.
17
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2013
17.5. EXECUTIVE REMUNERATION ARRANGEMENTS (continued)
Variable remuneration — long-term incentives (LTI) (continued)
What are the principal terms of
the issue made under the LTI in
2013?
What are the performance
conditions for the vesting of
ELTSP shares?
How is the market price of the
ELTSP determined?
Grant date: 31 August 2012 (Managing Director grant date: 7 November 2012 being
the date of the AGM at which his participation in the plan was approved by
shareholders).
Life: 3 years.
Expiry date: 31 August 2015.
Exercise Price: nil.
Fair value per right: 20 cents (Managing Director: 19 cents).
Market price of shares on grant date: 20 cents (Managing Director: 19 cents).
Measure of performance is earnings per share for the year ended 30 June 2015. See
Table 3 for the vesting schedule.
Vested shares are held in trust by the trustee for a period of ten years, or until the
cessation of employment.
The performance conditions, which are based 100% on Earnings Per Share (EPS)
(performance year 2013) or 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) (performance years 2011 and 2012), apply to determine the number of
shares (if any) that vest to the Executives.
See tables 3 and 4 below for the vesting schedules for EPS tested and TSR tested LTI
awards.
The fair value of the EPS related rights is equal to the market price of shares on the grant
date. The fair value of the TSR related 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 is allocated to each reporting period evenly over the
period from grant date to vesting date.
In what circumstances would
the LTI entitlements be
forfeited?
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.
What happens to LTI
entitlements upon a change of
control in the Group?
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.
Do shares granted under the
LTI dilute existing shareholders’
equity?
The issue of shares can have a small dilutionary impact upon other shareholders.
However, the number of shares issued under the ELTSP in the five years preceding the
offer must not exceed 5% of the total shares on issue at the time an offer to a participant
is made.
Are the shares issued under the
LTI bought on market?
No. the company issues new shares for the ELTSP, it does not buy the shares on the
market.
Does the executive obtain the
benefit of dividends paid on
shares issued under the LTI?
KMP are entitled to any dividends paid on vested shares subject to the ten year
restriction on trading. Unvested rights do not participate in dividend payments or any
other distributions to shareholders.
What other rights does the
holder of vested LTI shares
have?
Subject to the conditions and restrictions attaching to the shares, the holder of the
shares has the same rights as any other holder of shares. This includes voting rights, a
right to dividends, bonus shares and capital distributions.
Does the Company have
executive share ownership
guidelines?
Can executive KMP hedge to
ensure that they obtain a
benefit from unvested LTI’s?
The Company does not have a formal policy requiring executives to own shares.
However a significant component of each executive’s remuneration consists of grants
under an employee share plan. Hence, at any given time, after an executive has been
with the Company for more than three years, the executive typically has three unvested
equity grants which are subject to performance conditions. As at the date of this report,
all executives who have been with the company for longer than three years have shares
in the Company which have fully vested or been acquired on market.
No. All executive KMP have been advised that under section 206J of the Corporations Act
it is an offence for them to hedge unvested grants made under the ELTSP.
How many LTI awards vested in
the financial year?
TSR Performance targets under the LTI offered in FY2010 were not met in FY2013 and as
a result nil (2012: nil) shares were issued to KMPs.
Is a portion of LTI deferred?
Granted ELTSP shares are subject to a three year performance period. Vested ELSTP
shares are subject to restrictions on trading for a period of ten years.
18
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2013
17.5. EXECUTIVE REMUNERATION ARRANGEMENTS (continued)
Variable remuneration — long-term incentives (LTI) (continued)
The following table sets out the relevant percentages of shares offered which will vest based on various percentile rankings of
the Company:
Table 3 – Vesting schedule for the EPS tested LTI awarded for the performance years 2013
Company Performance
(Earnings per share)
Under 5 cents
At or above 5 cents but below 7 cents
At or above 7 cents but below 9 cents
At or above 9 cents
% of offered shares
issued to each executive
0%
25% to 50% (on a straight line basis)
50% to 100% (on a straight line basis)
100%
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 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:
Table 4 – Vesting schedule for the TSR tested LTI awarded for the performance years 2011 and 2012
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 FY2011, FY2012 and FY2013 offers unless the Company’s TSR is at or above the 50th percentile
or the EPS for the years ending 30 June 2013, 30 June 2014 and 30 June 2015 is at or above 11, 15 and 5 cents per share,
respectively.
TSR Performance targets under the LTI offered in FY2010 were not met in FY2013 and as a result nil (2012: nil) shares were
issued to KMPs.
At the Company’s Annual General Meeting in November 2012, shareholders approved the terms and conditions of the
Executive Long Term Share Plan and also approved the issue of shares to the Managing Directors under that plan.
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.
19
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2013
17.5. EXECUTIVE REMUNERATION ARRANGEMENTS (continued)
Variable remuneration — long-term incentives (LTI) (continued)
Performance Rights Plan (continued)
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:
Table 5 – Vesting schedule for the performance rights plan
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
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 2013.
LTI awards for 2013 financial year
Shares were granted under the Employee Share Plan No.1 to a number of executives on 29 November 2012. No Shares were
granted under the Executive Long Term Share Plan or the Performance Rights Plan during the 2013 financial year.
Details in respect of the award are provided in Section 17.9.
20
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2013
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:
Table 6 – Orbital five year performance linked to medium-term incentives
2009
$’000
2010
$’000
2011
$’000
2012
$’000
2013 Minimum KPI
$’000
$’000
Stretch KPI
$’000
Statutory Profit/(Loss) after tax
(2,451)
4,516
1,763
(3,053)
364
Operating Cash Flow
(856)
(4,372)
(584)
(2,701)
(232)
positive
positive
4,000
2,500
Pro-rata Consolidated Sales
63,867
61,081
68,148
74,371
77,078
80,000
100,000
Operating Cash Flow (before
working capital movements)*
(2,372)
(2,934)
(833)
(3,080)
(746)
positive
Not applicable
* A positive operating cash flow (before working capital movements) must be achieved as a pre-condition for
the payment of any MTI.
Company performance and its link to long-term incentives
The performance measure which drives LTI vesting is the Company’s TSR performance relative to the companies within its
peer group and earnings per share (EPS). The table below show the performance of the Group as measured by the Group's
total shareholder return (TSR) to the median of the TSR for peer group and also the Group’s earnings per share for the past
five years (including the current period) to 30 June 2013. The earnings per share values in the table below have been
adjusted to reflect the share consolidation undertaken in October 2010.
Company performance for the current year and last 4 years is as follows:
Table 7 – Orbital five year performance linked to long-term incentives
2009
2010
2011
2012
2013
2015
Minimum Minimum
2014
TSR ranking (percentile)
Earnings per share (cents)
70th
(5.10)
56th
9.39
Closing share price ($)
0.75**
0.25**
*
3.65
0.25
*
(6.28)
0.22
18th
0.74
0.15
50th
15.00
-
50th
9.00
-
* 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.
As a result of the Company’s performance over the last five years, LTIs offered during 2006 and 2007 were partially vested in
financial years 2009 and 2010 respectively. The performance target for the LTIs offered in 2008, 2009 and 2010 were not
met during the financial years 2011, 2012 and 2013 and as such no shares vested.
21
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2013
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 Total Employment Costs (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:
Table 8 – Summary of contractual provisions for the CEO
Notice
Period
Payment
in lieu of
notice
Treatment of
MTI on
termination
Treatment of LTI
on termination
Termination payments
Employer initiated
termination
12 months
12 months
Pro-rated for
time and
performance
Board discretion
None
Termination for
serious misconduct
Employee-initiated
termination
None
None
Unvested
awards forfeited
Unvested awards
forfeited
3 months
3 months
Unvested
awards forfeited
Unvested awards
forfeited subject to
Board discretion
None
None
Other KMP
All other KMP have rolling contracts.
Standard KMP termination provisions are as follows:
Table 9 – Summary of KMP termination provisions
Notice
Period
Payment
in lieu of
notice
Treatment of
MTI on
termination
Treatment of LTI
on termination
Termination payments
Employer initiated
termination
3 months
3 months
Pro-rated for
time and
performance
Board discretion
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.
Termination for
serious misconduct
Employee-initiated
termination
None
None
Unvested
awards forfeited
Unvested awards
forfeited
3 months
3 months
Unvested
awards forfeited
Unvested awards
forfeited subject to
Board discretion
None
None
Payments applicable to outgoing executives
The following arrangements applied to outgoing executives in office during the 2013 financial year:
Mr Halliwell resigned from his position as Chief Financial Officer effective 8 February, 2013.
In accordance with:
his contract of employment, Mr Halliwell received a payment for his unused entitlements to annual leave and long
service leave.
the terms of the MTI plan, Mr Halliwell forfeited any entitlement to a MTI.
the terms of the ELTSP, Mr Halliwell forfeited 1,347,566 unvested ELTSP rights.
Mr Halliwell did not receive any other form of termination payment, discretionary bonus or enter into any contractual or
other arrangements to provide post termination consultancy services.
.
22
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2013
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:
Table 10 – Compensation of KMP for the years ended 30 June 2013 and 2012
Non-executive Directors
W Peter Day
Chairman (Non-executive)
Mervyn T Jones
Director (Non-executive)
Vijoleta Braach-Maksvytis
Director (Non-executive)
Total Consolidated, all non-executive
directors
Executive Director
Terry D Stinson
Director and Chief Executive Officer
Other Key Management Personnel
Geoff P Cathcart
Chief Technical Officer
Ian G Veitch (d)
Chief Financial Officer
Keith A Halliwell (e)
Chief Financial Officer
Total Consolidated, Executive Director
and Key Management Personnel
Year
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
Short Term
Post
Employment
Share Based Payments
Salary and
Director’
Fees
$
Cash
Bonuses
$
Employer
Superannuation
Contributions
Employee
Share Plans
$
$ (a)(b)
Total
$
Performance
Rights Plan
$ (c)
Total
$
Proportion of
remuneration
performance
related
%
90,459
100,183
63,486
63,486
63,486
63,486
217,431
227,155
333,945
333,945
213,525
200,816
77,964
-
168,814
266,719
794,248
801,480
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
90,459
100,183
63,486
63,486
63,486
63,486
217,431
227,155
333,945
333,945
213,525
200,816
77,964
-
168,814
266,719
794,248
801,480
8,141
9,017
5,714
5,714
5,714
5,714
19,569
20,445
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
98,600
109,200
69,200
69,200
69,200
69,200
237,000
247,600
-
-
-
-
-
-
-
40,073
82,867
49,283
506,168
40,073
105,525
49,283
528,826
25,623
24,098
6,870
-
33,774
41,332
6,266
-
18,058
(65,175)
30,231
90,624
54,922
57,732
-
-
-
-
-
-
272,922
266,246
91,100
-
121,697
351,872
49,283
991,887
94,402
201,779
49,283
1,146,944
26.1%
29.3%
12.4%
15.5%
6.9%
-
(53.6)%
15.6%
10.8%
21.9%
23
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2013
17.8. DIRECTORS’ AND EXECUTIVE OFFICERS’ REMUNERATION COMPANY AND GROUP (continued)
Notes in relation to the table of directors' and executive officers remuneration
(a) The fair value of the Employee Share Plan #1 is based upon the market value (at offer date) of shares offered.
(b)
The fair value of the TSR related Executive Long Term Share plan ("ELTSP") 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 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:
Table 11 – Summary of terms and conditions of unvested 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-10
3 years
31-Aug-13
33 cents
31-Aug-11*
3 years
31-Aug-14
25 cents
nil
nil
34 cents
60.00%
35 cents
110.00%
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:
Table 12 – Summary of terms and conditions of unvested EPS related rights
Grant Date
Life
Expiry
Date
Fair
Value per
right
Exercise
Price
31-Aug-10
3 years 31-Aug-13
34 cents
31-Aug-11*
3 years 31-Aug-14
35 cents
31-Aug-12*
3 years 31-Aug-15
20 cents
nil
nil
nil
Market
price of
shares on
grant date
34 cents
35 cents
20 cents
* The grant dates of the EPS related rights for the Managing Director were 26 October 2011 and 7 November 2012
respectively..
The fair value of the EPS related rights is equal to the market price of shares on the grant date.
(c)
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.
Table 13 – Summary of terms and conditions of unvested performance rights
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%
(d) Mr Veitch became a KMP on 11 February 2013
(e) Mr Halliwell ceased to be a KMP on 8 February 2013.
24
DIRECTORS’ REPORT
REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2013
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.
Table 14 – Summary of KMP executives interests in LTI equity rights
Employee Share Plan No. 1
Executive Long Term Share Plan
Number
of shares
issued
Share
Price
Value (a)
$
Number
of Rights
Offered
Value of
Rights
Offered (b)
$
Number
of Rights
Vested
Number of
Expired or
Forfeited
(c)
Executive Director
T D Stinson
Executives
G P Cathcart
I G Veitch
K A Halliwell (d)
2013
2012
2013
2012
2013
2012
2013
2012
-
-
-
-
-
-
1,100,000
770,000
220,000
231,000
-
(525,000)
-
(130,000)
7,468
$0.1339
1,000
450,000
2,633
$0.3798
1,000
310,000
7,468
$0.1339
1,000
2,633
$0.3798
1,000
7,468
$0.1339
1,000
330,000
92,500
600,000
2,633
$0.3798
1,000
410,000
90,000
93,000
66,000
27,751
120,000
123,000
-
(199,500)
-
(40,000)
-
(60,000)
-
-
(15,000)
(1,614,067)
-
(70,000)
(a)
(b)
The fair value of the employee share plan No. 1 based upon the market value (at offer date of 31 October 2012 and
31 October 2011 respectively) of shares offered. These awards are fully vested.
Represents the fair value of rights offered on 31 August 2012 and 31 August 2011 respectively using a Monte-Carlo
simulation model for the TSR related rights (31 August 2011 offer) and the market price on the grant date for EPS
related right (31 August 2011 and 31 August 2012 offers). The vesting of the shares offered on 31 August 2012 is
subject to the Group achieving earnings in excess of 5 cents per share for the year ending 30 June 2015. 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. Performance conditions were met not in respect of shares offered in August
2009 and shares in relation to that offer expired at the expiration of the performance period during the 2013
financial year.
(c)
The vpage 25alue of the Executive Long Term Share Plan rights expired or forfeited during the period was $nil on the
date of expiry or forfeiture.
(d)
Represents 266,500 rights expired and 1,347,567 rights forfeited by Mr Halliwell on his resignation.
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 23rd day of August 2013.
25
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
corporate
law and developments
in
governance.
in
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 2013 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 8.
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 to 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.
26
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.
continuing
undertake
to
2.7 Board Access to Independent Professional
Advice and Company Information
ASXCGC Recommendation 2.6
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.
27
Details of remuneration paid to directors (executive and
non-executive) are set out in the Remuneration Report on
pages 12 to 25. 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 2013 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. Board papers are distributed to directors in
advance of any director’s meeting to ensure that there is
sufficient time for the directors to digest the content of
the papers and prepare for the meeting. 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 9 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.
3. COMMITTEES OF THE BOARD
3.1 Board Committees, Membership and Charters
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
Committee’s Charter
the Corporate
Governance section of Orbital’s website. All members of
the Committee must be independent, non-executive
directors.
is available
in
CORPORATE GOVERNANCE STATEMENT
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,
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 2013 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
action
identified; monitoring
compliance with Australian and international taxation
the Australian and United States
requirements;
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
Nomination Committee
review and make
is
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
packages,
schemes,
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 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 general meeting of
shareholders. The Human Resources, Remuneration and
Nomination Committee
the
selection, appointment and succession planning process of
the Company’s Chief Executive Officer.
is also responsible
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
the Corporate
Governance section of Orbital’s website.
is available
in
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.
28
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 Codes 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
29
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 Group’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
insurance
through
third parties
are
coverage to the extent considered appropriate.
transferred
to
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 2013
Proportion of women in total organisation:
16%
Proportion of women in senior executive positions:
0%
Proportion of women on the board:
25%
30
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.
31
Yes
Yes
3.1, 3.2
3.1, 3.2
Reference
3.1, 3.2
3.1, 3.2, 7
4.2
4.2
4.1
4.1
6.1
6.2
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.
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
32
INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2013
NOTE
CONSOLIDATED
2013
$'000
2012
$'000
Sale of goods
Consulting services income
Licence and royalty income
Other revenue
Total Revenue
Other income
Materials and consumables
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
Profit / (loss) before income tax
Income tax (expense) / benefit
Profit / (Loss) 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)
23,424
2,057
1,007
211
26,699
3,889
(10,428)
(11,210)
(959)
(688)
(1,814)
(407)
(621)
(308)
(690)
(516)
(687)
14,020
7,131
967
243
22,361
1,325
(8,116)
(11,670)
(991)
(2,272)
(1,734)
(432)
(783)
(322)
(663)
(569)
(692)
(3,386)
(2,179)
7
8
9(d)
9(a)
9(b)
9(c)
16
3,220
2,094
3,480
(3,257)
204
10(a)
(1,730)
364
(3,053)
11
11
0.74
0.74
(6.28)
(6.28)
The income statement is to be read in conjunction with the notes to the financial statements set out on pages 38 to 86.
33
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2013
Net profit/(loss) for the year
Other comprehensive income/(loss)
Items that may be reclassified to profit or loss in subsequent
periods:
Share of foreign currency reserve of equity accounted investment
Foreign currency translation reserve released on sale of share in equity
accounted investment
Foreign currency translation
Other comprehensive income for the year, net of tax
CONSOLIDATED
2013
$'000
2012
$'000
364
(3,053)
35
(199)
(18)
1,505
1,522
-
830
631
Total comprehensive income/(loss) for the year
1,886
(2,422)
Total comprehensive income/(loss) for the year attributable to owners of the
parent
1,886
(2,422)
The statement of comprehensive income is to be read in conjunction with the notes to the financial statements set out on
pages 38 to 86.
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2013
Share
Capital
Retained
Profits
Employee
Equity
Benefits
Reserve
Foreign
Currency
Translation
Reserve
Total
$'000
$'000
$'000
$'000
$'000
At 1 July 2011
19,345
3,055
1,267
(4,185)
19,482
Loss for period
Other comprehensive income
Total comprehensive income/(loss) for the period
Transactions with owners in their capacity as
owners
Share based payments
Balance at 30 June 2012
At 1 July 2012
Profit for the period
Other comprehensive income
Total comprehensive income/(loss) for the period
Transactions with owners in their capacity as
owners
Share based payments
-
-
-
(3,053)
-
(3,053)
-
-
-
-
631
(3,053)
631
631
(2,422)
91
19,436
19,436
-
-
-
-
2
2
364
-
364
280
-
371
1,547
(3,554)
17,431
1,547
(3,554)
17,431
-
-
-
-
1,522
364
1,522
1,522
1,886
82
-
98
-
180
Balance at 30 June 2013
19,518
366
1,645
(2,032)
19,497
The statement of changes in equity is to be read in conjunction with the notes to the financial statements set out on pages 38
to 86.
34
STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2013
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
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
Contingent consideration
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
2013
$'000
2012
$'000
12
13
14
15
16
17
18
19
20
21
23
24
27
28
25
21
26
23
27
28
25
29
30
30
6,902
705
4,713
3,158
15,478
12,468
4,656
3,383
146
20,653
36,131
2,801
432
1,837
316
225
886
795
7,292
42
7,757
55
1,199
-
289
9,342
16,634
19,497
3,799
1,371
4,168
5,197
14,535
13,696
5,767
3,949
2,257
25,669
40,204
4,906
2,864
2,117
316
225
-
461
10,889
59
7,650
119
1,424
2,296
336
11,884
22,773
17,431
19,518
(387)
366
19,436
(2,007)
2
19,497
17,431
The statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 38
to 86.
35
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2013
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
Proceeds from sale of share in investment
Net proceeds from sale of plant & equipment
Acquisition of plant & equipment
Redemption of short term deposits
Net cash provided by investing activities
Cash Flows from Financing Activities
Proceeds from borrowings
Repayment of borrowings
Net cash (used in) /provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 July
Effects of exchange rate fluctuations on the balances of cash held in foreign
currencies
NOTE
CONSOLIDATED
2013
$'000
2012
$'000
35
29,524
(30,920)
(1,396)
211
(206)
(326)
(1,717)
1,485
5,777
9
(253)
666
7,684
-
(2,864)
(2,864)
25,209
(29,233)
(4,024)
243
(250)
(214)
(4,245)
1,544
-
49
(696)
2,063
2,960
1,930
(288)
1,642
3,103
357
3,799
3,440
-
2
Cash and cash equivalents at 30 June
12
6,902
3,799
Non-Cash Investing and Financing Activities
There were no non-cash investing or financing activities for the years ended 30 June 2012 and 2013.
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 38 to
86.
36
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
1.
2.
Reporting Entity
Basis of Preparation
(a) Statement of Compliance with
IFRS
(b) Basis of Preparation
(c)
Functional and Presentation
Currency
Page
38
38
38
38
38
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 38
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
39
39
39
40
40
41
41
42
43
43
43
44
44
45
45
45
46
46
46
46
47
47
52
53
56
58
61
61
61
62
63
63
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.
Commitments
39.
Contingencies
40.
Events after the balance sheet date
41.
Remuneration of auditors
37
Page
63
64
65
65
66
68
68
71
71
72
72
73
73
74
75
75
76
76
77
78
78
79
81
81
84
85
86
86
86
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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 2013 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 and Note 6)
The consolidated financial report was authorised for issue by the directors on 23 August 2013.
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 financial report is a general purpose financial report, which has been prepared in accordance with the
requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative
pronouncements of the Australian Accounting Standards Board.
The consolidated financial statements have also 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
dollars unless otherwise stated.
(c)
Functional and Presentation Currency
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.
38
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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 2012, the
Group has adopted all the standards and interpretations mandatory for annual periods beginning on or after 1 July
2012. 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.
39
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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, applying the step by step method,
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’. They are released into the income statement upon disposal.
(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.
(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.
40
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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 for obligations under hire purchase contracts. The hire purchase contracts
are capitalised at commencement of the contract at the present value of the minimum hire purchase payments. Hire
purchase payments are apportioned between finance charges and reduction of the hire purchase liability. Finance
charges are recognised in finance costs in the income statement.
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 $14,346,000 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 weighted average cost
and includes expenditure incurred in acquiring the inventories and bringing them to their present location and
condition, which for finished goods and work in progress includes cost of direct materials and direct manufacturing
labour.
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.
41
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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 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.
42
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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.
43
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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 based on a Total
Shareholder Return (“TSR”) basis is measured using a Monte-Carlo simulation model. The fair value of the shares
granted based on an Earnings Per Share (“EPS”) basis are based on the market price of the shares on the date of
issue. 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 - 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.
44
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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.
45
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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.
46
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(t)
Business Combinations
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 2013, but have
not been applied in preparing this financial report:
47
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
Application
date of
standard*
1 January
2015
Application
date for
Group*
1 July 2015
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(u)
New standards and interpretations not yet effective (continued)
Reference
Title
Summary
AASB 9
(IFRS 9)
Financial
Instruments
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.
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.
(c)
AASB 2009-11
Amendments to
Australian
Accounting
Standards
arising from
AASB 9 (IFRS 9)
► 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.
1 January
2015
1 July 2015
48
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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:
Application
date of
standard*
1 January
2015
Application
date for
Group*
1 July 2015
AASB 10
(IFRS 10)
Consolidated
Financial
Statements
► 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.
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.
1 January
2013
1 July 2013
49
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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
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
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.
50
AASB 12
(IFRS 12)
Disclosure of
Interests in Other
Entities
AASB 13
(IFRS 13)
Fair Value
Measurement
AASB 2011-7
(IFRS 10 &
IFRS 11)
Amendments to
Australian
Accounting
Standards arising
from the
Consolidation and
Joint Arrangements
Standards
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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)
Application
date of
standard*
Application
date for
Group*
1 January
2013
1 July 2013
AASB 119
(IAS 19)
Employee Benefits
(revised)
AASB 2011-
10
AASB 2011-4
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]
The revised Standard 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.
1 January
2013
1 July 2013
1 January
2013
1 July 2013
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
51
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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.
The adoption of the standards and interpretations effective from 1 July 2013 will have no impact on the financial
position or performance of the Group.
The directors have not yet determined the impact of new and amended accounting standards and interpretations
applicable 1 July 2015.
(v)
Comparatives
Certain comparatives have been reclassified to conform with current year presentation.
52
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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 financial
arrangements.
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
2013
$'000
2012
$'000
6,902
3,799
-
886
886
2,500
2,296
4,796
The following sensitivity analysis is based on the interest rate risk exposures in existence at reporting date:
At 30 June 2013, 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)
2013
$'000
2012
$'000
Other comprehensive income
Higher/(Lower)
2013
$'000
2012
$'000
Consolidated
+1% (100 basis points)
-.5% (50 basis points)
60
(30)
11
(5)
-
-
-
-
The movements in profit are due to higher/lower interest revenue from variable rate cash balances. The sensitivity is
performed on the same basis as 2012.
53
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
4.
FINANCIAL RISK MANAGEMENTS OBJECTIVES AND POLICIES (CONTINUED)
Foreign currency risk
As a result of the investment in Synerject LLC, an associate, the Group's income statement and statement of
financial position can be affected significantly by movements in the US$/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 5% (FY2012: 6%) of the Group's sales are denominated in currencies other than the functional
currency of the operating entity making the sale, whilst approximately 18% (FY2012: 28%) 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 2013, 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
2013
$'000
2012
$'000
13
403
416
42
-
42
588
216
At 30 June 2013, 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
4
-
4
46
26
36
62
12
The following sensitivity is based on the foreign currency risk exposures in existence at reporting date:
At 30 June 2013, 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)
Higher/(Lower)
2013
$'000
20
(11)
2012
$'000
2013
$'000
2012
$'000
12
(6)
-
-
-
-
The movements in profit in 2013 are more sensitive than in 2012 due to the higher level of net US Dollar and Euro
liabilities position at balance date.
54
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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 only external borrowings of the Group is the interest free Western Australian Government loan of $14,346,000
repayable in yearly instalments from May 2010 to May 2025.
The Group has recognised a contingent consideration liability of $886,000 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 2013. 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 2013. 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:
6 months or less
6-12 months
1-5 years
Over 5 years
2013
$'000
2,794
1,309
2,714
9,986
16,803
2012
$'000
5,482
355
4,986
10,846
21,669
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
2,296
-
(1,410)
886
2,688
-
(392)
2,296
A gain of $1,410,000 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 to its present value using a market discount rate of 6.77% (2012:
7.8 %). During the year management 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 $1,410,000, 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 $162,000/decrease by $162,000 respectively.
55
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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
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. The cash flows are derived from budgets approved by
management and do not include restructuring activities that the Group is not yet committed to or significant future
investments that will enhance the asset’s performance of the cash generating unit being tested. The recoverable
amount is most sensitive to gross sales and gross margins used in the value in use models. The key assumptions
used to determine the recoverable amount for the different CGUs, including a sensitivity analysis, are disclosed and
further explained in Note 19.
As a result of these assessments, the Company has impaired the goodwill previously recognised on the acquisitions
of Orbital Autogas Systems and Sprint Gas. Refer to note 19 for more information.
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.
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.
56
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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 TSR related 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. Refer to Note 15 for further information.
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.
Other Provisions
The other provisions account includes a provision for restoration obligations relating to SUAS engines sold during the
year. In determining the level of provision required for restoration obligations the Group has made judgements in
respect of the expected expenditures required to fulfil the obligation.
57
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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. The segment also includes the supply of
Small Unmanned Aerial System (SUAS) engines, component parts and engine management systems since August
2012.
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 for the LPG business and on an American basis for the
SUAS supply. 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 SUAS engines, 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 aviation, 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 SUAS supply is to one
major customer that accounted for 45% (2012: 19%) of external revenue. The system sales segment supplies an
Australian automobile manufacturer with LPG fuel systems that accounted for 18% of external revenue (2012:
25%). No other customer accounts for more than 10% of revenue.
58
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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
Segment result
Research & development
Unallocated expenses - net (ii)
Gain on sale of plant and equipment
Finance costs
Share of profit from associate
Gain on sale of share in associate
2013
$'000
2012
$'000
2013
$'000
2012
$'000
2013
$'000
2012
$'000
2013
$'000
2012
$'000
23,424
14,020
2,057
7,131
1,007
967
26,488
22,118
211
243
26,699
22,361
2,163
380
(2,206)
(2,259)
517
463
474
(1,416)
(1,094)
(954)
(1,524)
(3,675)
3
(687)
3,220
1,702
-
(692)
3,480
-
2,094
(3,257)
(1,730)
204
364
(3,053)
Royalties and
Consolidated
licences
Net profit/(loss) before related income tax
Income tax (expense)/benefit
Profit /(loss) after tax attributable to members
System sales
Consulting
services
2013
$'000
2012
$'000
2013
$'000
2012
$'000
2013
$'000
2012
$'000
2013
$'000
2012
$'000
Non-cash (revenue) and expenses
Depreciation and amortisation
Equity settled employee compensation
498
29
458
26
461
60
Other non-cash (income)/expenses
1,064
(262)
(225)
Segment non-cash expenses
1,591
222
296
533
111
245
889
-
1
-
1
-
1
-
1
Equity settled employee compensation
Amortisation of non-interest bearing loans
Share of profit from associate
Movement in provision for surplus lease space
Foreign exchange translation gain
Total non-cash (revenue) and expenses
959
90
839
991
138
(17)
1,888
1,112
90
521
233
507
(3,220)
(3,480)
(47)
(122)
177
(120)
(890)
(1,571)
(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.
59
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
6.
OPERATING SEGMENTS (CONTINUED)
(a) Operating segments
System sales
Consulting
services
Royalties and
Consolidated
licences
2013
$'000
2012
$'000
2013
$'000
2012
$'000
2013
$'000
2012
$'000
2013
$'000
2012
$'000
Segment Assets
7,650
9,921
3,442
5,387
308
263
11,400
15,571
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
6,902
705
12,468
4,656
3,799
1,371
13,696
5,767
36,131
40,204
3,120
6,567
4,270
8,111
1,072
99
8,462
14,777
8,172
7,996
16,634
22,773
19,497
17,431
Segment acquisitions of non-current
assets
40
271
213
425
-
-
253
696
Acquisitions of non-current assets represent acquisitions of plant and equipment of $253,000 (2012: $696,000).
(b) Geographic information
Americas
Europe
Asia
Australia
Consolidated
2013
$'000
2012
$'000
2013
$'000
2012
$'000
2013
$'000
2012
$'000
2013
$'000
2012
$'000
2013
$'000
2012
$'000
Revenue - external
customers
14,008
5,231
68
492
276
619 12,136
15,776 26,488
22,118
Non-current assets
17,124
19,135
-
-
-
-
3,529
6,534 20,653
25,669
60
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
7.
OTHER REVENUE
Interest revenue
8.
OTHER INCOME
Gain on sale of plant and equipment
Gain on sale of share in equity accounted investment
Automotive grant income (a)
Net foreign exchange gains
Grant income
Fair value movement in contingent consideration (note 28)
CONSOLIDATED
2013
$'000
2012
$'000
211
243
3
1,702
323
122
329
1,410
3,889
15
-
545
120
253
392
1,325
(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 in liability for annual leave
Decrease 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
Goodwill impairment
Other
(d)
Materials and consumables
Raw materials and consumables purchased
Write back inventory impairment
Change in inventories
9,169
815
180
(38)
(53)
563
574
11,210
9,718
984
371
(54)
(108)
113
646
11,670
166
521
687
324
262
30
90
69
175
387
1,965
84
3,386
185
507
692
363
282
59
195
73
429
191
-
587
2,179
8,603
(214)
2,039
10,428
9,253
-
(1,137)
8,116
(e)
Lease payments included in income statement
Minimum lease payments - operating lease
1,066
1,044
(f)
Research and development costs
Research and development costs charged directly to the income statement
1,094
954
61
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
10.
INCOME TAX
(a)
Recognised in the income statement
Current income tax
Current year expense
Deferred tax
Relating to originating and reversing temporary differences
(Expense)/Benefit on recognition / (de-recognition) of tax losses
Total income tax (expense)/ benefit in income statement
(b)
Numerical reconciliation between tax benefit and pre-tax net
profit/(loss)
CONSOLIDATED
2013
$'000
2012
$'000
(90)
(252)
(729)
(911)
(1,640)
(1,730)
(13)
469
456
204
Profit/(loss) before tax
2,094
(3,257)
Income tax using the statutory tax rates
- Non deductible expenditure
- Non assessable items
- Deferred tax assets recognised in prior years now recognised
- Net withholding tax recouped/(paid)
- United States of America Federal and State taxes
Income tax (expense)/benefit on pre-tax net profit
(628)
(355)
-
(503)
(22)
(222)
(1,730)
977
(274)
118
(330)
8
(295)
204
(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.
62
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
11.
EARNINGS PER SHARE
Basic earnings per share
The calculation of basic earnings per share at 30 June 2013 was based on profit attributable to ordinary shareholders
of $364,000 (2012: loss $3,053,000) and a weighted average number of ordinary shares outstanding during the
financial year ended 30 June 2013 of 49,079,683 shares (2012: 48,612,706 shares), calculated as follows:
Profit/(Loss) attributable to ordinary shareholders
CONSOLIDATED
2013
$
364,000
2012
$
(3,053,000)
Weighted average number of ordinary shares
Number
Number
Weighted average number of ordinary shares at 30 June
Effect of potential dilutive ordinary shares
49,079,683
-
48,612,706
-
Weighted average number of potential dilutive ordinary shares
at 30 June
49,079,683
48,612,706
Earnings/(loss) per share
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Cents
0.74
0.74
Cents
(6.28)
(6.28)
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. The 4,046,200 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 events.
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
2013
$'000
2012
$'000
760
13
4
6,125
6,902
503
42
26
3,228
3,799
Short term deposits - financial institutions
705
1,371
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 financial arrangements provided by Westpac Banking Corporation,
refer note 21 for further details.
63
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
14.
TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Allowance for impairment loss (a)
Accrued royalties
Other receivables
Prepayments
(a)
Allowance for impairment loss
CONSOLIDATED
2013
$'000
2012
$'000
4,246
(180)
4,066
299
73
275
4,713
3,572
(5)
3,567
264
48
289
4,168
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 $180,000 (2012: $5,000) 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
(5)
(175)
-
(180)
(154)
(429)
578
(5)
At 30 June, the ageing analysis of trade receivables is as follows:
Total
0-30
days
31-60
days
2013 Consolidated
4,246
2,576
1,347
2012 Consolidated
3,572
2,288
1,074
61-90
days
PDNI*
+91
days
PDNI*
+91
days
CI*
108
202
35
3
180
5
Receivables past due but not considered impaired are $143,000 (2012:$205,000). 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.
Included with the considered impaired category is a customer that went into administration during the reporting
period, and subsequent to the end of the reporting period has been placed into liquidation. The Group carries credit
insurance and has lodged a claim under the debtor insurance policy to recover the amount owed by this debtor. At
the date of the report the Group has not received confirmation from the insurer as to whether it will accept the claim
and if it does how much of the claim will be settled.
(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. Where
possible, credit risk is mitigated through the purchase of credit insurance. The credit insurance policy held by the
Group is limited to Australian-based customers.
(c)
Foreign exchange and interest rate risk
Detail regarding foreign exchange and interest rate risk exposure is disclosed in note 4.
64
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
15.
INVENTORIES
Materials and production supplies - at lower of cost and net realisable value
3,158
5,197
CONSOLIDATED
2013
$'000
2012
$'000
(a)
Inventory expense
Inventories recognised as an expense for the year ended 30 June 2013 totalled $10,428,000 (2012: $8,116,000) for
the Group (Refer to Note 9(d)). This is recognised in materials and consumables.
16.
INVESTMENT IN ASSOCIATE
(a)
Interest in Synerject LLC
The Group holds a 30% (2012: 42%) share of Synerject LLC. The investment is recognised and disclosed as an
investment in an associate.
The principal activities of Synerject LLC are the marketing, sale and manufacture, including research and
development in the area of engine management systems and components in the marine, recreational, motorcycle
and utility markets.
The Group accounts for the investment in Synerject using the equity method.
The Group sold 12% of its share in Synerject effective 1 March 2013. The dividend distribution rate changed from
45% to 55% of audited profits.
Other information for Synerject is as follows:
Country of incorporation:
Financial Year end:
30 June Ownership:
USA
31 December
2013: 30%; 2012: 42%
Summarised financial information relating to Synerject at
30 June 2013 is as follows:
Revenues (100%)
Profit (100%)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Revenues (100%)
Profit (100%)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
2013
US$’000
2012
US$’000
137,287
8,275
127,548
8,045
49,858
11,510
28,424
-
32,944
2013
A$'000
45,789
12,880
27,936
2,654
28,079
2012
A$'000
133,665
8,057
124,413
7,847
53,755
12,410
30,645
-
33,520
44,931
12,639
27,412
2,604
27,554
Share of Synerject’s net profit recognised
3,220
3,480
Share of Synerject’s net assets equity accounted
12,468
13,696
65
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
16.
INVESTMENT IN ASSOCIATE (continued)
(b)
Movement in the carrying amount of the Group’s interest in Synerject
Beginning of year
Sale of interest
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 (expense)/benefit
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
2013
$'000
2012
$'000
13,696
(4,086)
3,220
35
(1,485)
1,088
12,468
3,126
(72)
3,054
166
3,220
288
699
78
1,065
11,406
-
3,480
(199)
(1,544)
553
13,696
3,254
42
3,296
184
3,480
376
1,090
257
1,723
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Consolidated
Deferred Tax Assets
Deferred Tax
Liabilities
Net
2013
$'000
2012
$'000
2013
$'000
2012
$'000
2013
$'000
2012
$'000
Tax value of loss carry-forwards
recognised
4,656
5,439
-
-
4,656
5,439
Other net temporary differences (a)
Net tax assets
682
5,338
1,624
7,063
(682)
(682)
(1,296)
(1,296)
-
4,656
328
5,767
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 2013, the available tax carry forward losses of US$25,517,641 (2012: US$31,679,109) expire between the
years 2014 and 2024.
66
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
17.
DEFERRED TAX ASSETS AND LIABILITIES (continued)
Movement in temporary differences during the year
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
Balance
1-Jul-11
$'000
4,716
341
5,057
Balance
1-Jul-12
$'000
5,439
328
5,767
Consolidated
Acquired
during the
year
$'000
-
-
-
Recognised
in income
$'000
469
(13)
456
Recognised
in equity
(b)
$'000
254
-
254
Balance
30-Jun-12
$'000
5,439
328
5,767
Consolidated
Acquired
during the
year
$'000
-
-
-
Recognised
in income
$'000
(1,312)
(328)
(1,640)
Recognised
in equity
(b)
$'000
529
-
529
Balance
30-Jun-13
$'000
4,656
-
4,656
(a)
Other net temporary differences
Deferred tax assets
Annual leave
Long service leave
Staff bonus
Revenue in advance
Inventory provision
Deferred tax liabilities
Unrealised foreign exchange gain on inter-company loan
Other
Net temporary differences
CONSOLIDATED
2013
$'000
2012
$'000
545
17
5
115
-
682
293
378
-
594
309
1,574
(534)
(148)
(682)
(1,071)
(175)
(1,246)
-
328
(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
20,533
1,934
2,029
24,496
4,699
775
5,474
19,821
1,934
621
22,376
5,130
2,949
8,079
67
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
18.
PLANT AND EQUIPMENT
Plant and equipment
At cost
Less: accumulated depreciation
CONSOLIDATED
2013
$'000
2012
$'000
18,044
(14,661)
17,797
(13,848)
Total plant and equipment - net book value
3,383
3,949
Reconciliations
Reconciliations of the carrying amounts for plant and equipment is set out
below:
Plant and equipment
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Carrying amount at end of year
Total
Carrying amount at beginning of year
Carrying amount at end of year
3,949
253
(6)
(813)
3,383
3,949
3,383
4,134
696
(35)
(846)
3,949
4,134
3,949
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 2013
was $59,000 (2012: $77,000). No additions to plant and equipment under finance leases were made during the
year (2012: $78,000). 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
Goodwill acquired in business combinations
Capitalised development expenditure
Total intangibles and goodwill - net book value
Net carrying value
Goodwill acquired in business combinations
At cost
Less: allowance for impairment
Capitalised development expenditure
At cost
Less: accumulated amortisation and impairment
-
146
146
1,965
292
2,257
1,965
(1,965)
-
1,965
-
1,965
826
(680)
146
826
(534)
292
68
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
19.
INTANGIBLES AND GOODWILL (continued)
(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
Impairment charge
Carrying amount at end of year
Reconciliations of the carrying amounts for capitalised development expenditure
Carrying amount at beginning of year
Amortisation
Carrying amount at end of year
(b)
Description of the Group’s intangible assets and goodwill
CONSOLIDATED
2013
$'000
2012
$'000
1,965
(1,965)
-
292
(146)
146
1,965
-
1,965
437
(145)
292
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 charge of $1,965,000 on goodwill was recognised for continuing operations in the 2013 financial year
(2012: $nil). The impairment charge 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. Management
also considered the announcement by Ford Motor Company of Australia that it will cease the manufacture of vehicles
in Australia in 2016 when considering the impairment of Orbital Autogas System’s goodwill. The assessment of
recoverable amount was based on value in use models using a discount rate of 18% and was determined at the
cash-generating unit level. The impairment charge 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 2013 based on financial budgets approved by
management covering a three-year period The projected cash flows have been updated to reflect the decreased
demand for LPG fuel systems. The pre-tax, risk-adjusted discount rate applied to these cash flow projections is
18.0% (2012: 18.0%). It was concluded that the fair value less cost to sell did not exceed the value in use. As a
result of this analysis, management has recognised an impairment charge of $363,000 against goodwill previously
carried of $363,000.
69
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
19.
INTANGIBLES AND GOODWILL (continued)
(d)
Impairment tests for goodwill and intangibles (continued)
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 2013 based on financial budgets approved by management
covering a three-year period. The projected cash flows have been updated to reflect the decreased demand for LPG
fuel systems. The pre-tax, risk-adjusted discount rate applied to these cash flow projections is 18.0% (2012:
18.0%) and cash flows beyond the three-year period are extrapolated to five years using a 4% growth rate and a
terminal value of 3.5 times the fifth year’s cash flow projection. The growth rate and terminal value used are
appropriate for a business in Sprint Gas’s industry. It was concluded that the fair value less cost to sell did not
exceed the value in use. As a result of this analysis, management has recognised an impairment charge of
$1,602,000 against goodwill previously carried of $1,602,000.
(ii) Carrying amount of goodwill allocated to each of the cash generating units
The carrying amounts of goodwill allocated to the Orbital Autogas Systems segment and to the Sprint Gas segment
are shown below:
Carrying amount of goodwill
Orbital Autogas
Systems
Sprint Gas
Total
2013
$'000
-
2012
$'000
363
2013
$'000
-
2012
$'000
1,602
2013
$'000
-
2012
$'000
1,965
(iii) Key assumptions used in value in use calculations for the Orbital Autogas Systems and Sprint Gas units,
respectively, for 30 June 2013 and 30 June 2012
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 remaining after the
impairment of the goodwill, management believe that reasonably possible changes in any of the above key
assumptions like a reduction in revenue of 5% would cause the recoverable amount of the unit to fall short of its
carrying value by approximately $294,000. However, management is confident that the revenue will be achieved
due to the historic revenues achieved by the unit.
Sprint Gas sales unit
With regard to the assessment of the value in use of the Sprint Gas sales unit remaining after the impairment of the
goodwill, management believe that reasonably possible changes in any of the above key assumptions like a
reduction in revenue of 5% would cause the recoverable amount of the unit to fall short of its carrying value by
approximately $371,000. However, management is confident that the revenues will be achieved due to the historic
revenues achieved by the unit.
70
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
20.
TRADE PAYABLES AND OTHER LIABILITIES
Current
Trade creditors and accruals
Revenues received in advance
(a)
Fair value
CONSOLIDATED
2013
$'000
2012
$'000
2,785
16
2,801
3,038
1,868
4,906
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.
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
17
415
-
432
18
346
2,500
2,864
42
59
(a)
(b)
(c)
(d)
(e)
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 $735,000 (2012: $3,205,000).
Maturity
Obligations under hire purchase contracts mature in 2014 and 2015.
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%
(2012: 7.35%). 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 N/A (2012: 7.35%).
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.
71
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
22.
FINANCING ARRANGEMENTS
Note
The consolidated entity has standby arrangements with Westpac Banking
Corporation to provide support facilities:
CONSOLIDATED
2013
$'000
2012
$'000
Total facilities available
Bank Bill Business Loan
Corporate credit card facility
Bank guarantee
Facilities utilised at balance date
Bank Bill Business Loan
Corporate credit card facility
Bank guarantee
Facilities not utilised at balance date
Bank Bill Business Loan
Corporate credit card facility
Bank guarantee
21
-
230
505
735
-
26
505
531
-
204
-
204
2,500
200
505
3,205
2,500
25
505
3,030
-
175
-
175
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 $735,000 (2012: $3,205,000).
The Company has also provided the Company’s banker with security over short term deposits of $705,000 (2012:
$1,365,000) 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, Melbourne and Brisbane
premises.
23.
EMPLOYEE BENEFITS
(a)
Current
Annual leave
Long service leave
(b)
Non-Current
Long service leave
765
1,072
1,837
1,012
1,105
2,117
55
119
(c)
Aggregate Liability for employee entitlements
1,892
2,236
The present value of employee entitlements 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%
3.1%
10
4.0%
3.0%
10
87
108
72
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
CONSOLIDATED
2013
$'000
2012
$'000
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
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 for a period of five years
from the date of commissioning of the facility.
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.
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
73
111
182
502
795
229
182
50
461
289
336
229
1
(119)
111
182
(182)
182
182
50
452
-
502
88
141
-
229
37
(214)
359
182
70
50
(70)
50
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
25.
OTHER PROVISIONS (continued)
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
2013
$'000
2012
$'000
336
135
(182)
289
304
391
(359)
336
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 likely to recover by sub-letting the space.
The other provisions account includes a provision for restoration obligations relating to SUAS engines sold during the
year. In determining the level of provision required for restoration obligations the Group has made judgements in
respect of the expected expenditures required to fulfil the obligation. Management is of the view that the restoration
obligation will be completed during the first half of the 2014 financial year.
26.
LONG TERM BORROWINGS
Non-Current
Loans and advances - secured
7,757
7,650
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 utilising a market interest rate of 6.52% was $7,558,000 on initial recognition.
Subsequent to initial recognition the loan is carried at amortised cost.
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 fair value of the loan 2013: $8,127,486 (2012:$7,605,365) is calculated by discounting the expected future
cash flows at the prevailing market interest rate at reporting date 2013: 6.77% (2012: 7.35%).
74
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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
CONSOLIDATED
2013
$'000
2012
$'000
225
225
1,199
1,424
1,424
1,649
1,649
(225)
1,424
1,874
(225)
1,649
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 was 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.
28.
CONTINGENT CONSIDERATION
Current liabilities
Contingent consideration for business acquisition
Non-current liabilities
Contingent consideration for business acquisition
886
-
-
2,296
On 27 May 2011, Orbital Autogas Systems Pty Ltd acquired 55% of the voting shares of Sprint Gas (Aust) Pty Ltd, a
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 obligation under the Put and Call options that gives rise to the contingent consideration liability was
initially recognised at fair value and subsequently carried at fair value through the profit and loss.
A gain of $1,410,000 (2012: $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 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 $1,410,000 (2012: $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 $162,000/decrease by $162,000 respectively.
75
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
28.
CONTINGENT CONSIDERATION (continued)
Movement in contingent consideration
At 1 July
Released to the income statement
At 30 June
CONSOLIDATED
2013
$'000
2012
$'000
2,296
(1,410)
886
2,688
(392)
2,296
A gain of $1,410,000 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 2011
Shares issued pursuant to employee share plans
At 30 June 2012
Shares issued pursuant to employee share plans
At 30 June 2013
19,518
19,436
Number
$'000
48,482,558
239,919
48,722,477
612,114
49,334,591
19,345
91
19,436
82
19,518
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.
(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.
30.
RETAINED PROFITS AND RESERVES
(a)
Movements in retained earnings were as follows:
Balance 1 July
Net profit/(loss)
Balance 30 June
CONSOLIDATED
2013
$'000
2012
$'000
2
364
366
3,055
(3,053)
2
76
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
30.
RETAINED PROFITS AND RESERVES (continued)
(b)
Other reserves
Consolidated
Balance 1 July 2011
Equity-settled transaction-employee shares
Other comprehensive income
Balance at 30 June 2012
Balance 1 July 2012
Equity-settled transaction-employee shares
Other comprehensive income
Balance at 30 June 2013
(c)
Nature and purpose of reserves
Employee
Equity
Benefits
Reserve
$'000
Foreign
Currency
Translation
Reserve
$'000
Total
$'000
1,267
280
-
1,547
1,547
98
-
1,645
(4,185)
-
631
(3,554)
(2,918)
280
631
(2,007)
(3,554)
-
1,522
(2,032)
(2,007)
98
1,522
(387)
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.
31.
CONSOLIDATED ENTITY
Note
Class of
Shares
Consolidated Entity
Interest
2013
%
2012
%
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
- Kala Technologies Pty Ltd (previously 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)
(a)
(a)
(a)
(a) Dormant for the years ended 30 June 2013 and 30 June 2012.
(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.
77
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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
2013
$'000
2012
$'000
3
36,131
3
39,998
-
27,332
-
22,567
19,518
(12,364)
1,645
8,799
19,436
(3,552)
1,547
17,431
(8,812)
(8,812)
(2,422)
(2,422)
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.
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
2013
$'000
2012
$'000
3
-
-
63
During the year the Group purchased goods and services to the value of $148,000 (2012: $178,000) from Synerject
LLC. All transactions are in the ordinary course of business and on normal commercial terms and conditions. The
Group received dividends of $1,484,854 (2012:$1,543,686) from Synerject LLC.
78
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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
Dr GP Cathcart (Chief Technical Officer)
Mr IG Veitch (Chief Financial Officer) became KMP on 11 February 2013
Mr KA Halliwell (Chief Financial Officer) ceased to be KMP on 8 February 2013
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
CONSOLIDATED
2013
$
2012
$
1,011,679
1,028,635
110,193
107,015
114,847
251,062
1,228,887
1,394,544
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-12
Purchases
ESP #1
ELTSP
Sales
Other(a)
30-Jun-13
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 (b)
392,690
-
-
-
-
-
392,690
Executives
Dr GP Cathcart
Mr IG Veitch
Mr KA Halliwell
54,095
-
7,468
-
-
-
-
-
-
-
-
20,443
180,238
-
7,468
-
-
(187,706)
61,563
20,443
-
79
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
34.
KEY MANAGEMENT PERSONNEL (continued)
Movements in shares (continued)
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 (b)
375,690
17,000
-
-
-
-
392,690
Executives
Dr GP Cathcart
Mr KA Halliwell
51,462
-
2,633
-
-
177,605
-
2,633
-
-
-
-
54,095
180,238
(a) Represents shareholdings at the time that Mr KA Halliwell ceased to be a KMP and Mr IG Veitch became a KMP.
(b) Mr Stinson’s shareholding of 392,690 is represented by 6,618 ADRs and 286,802 ordinary shares.
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:
Held at
1-Jul-12
Offered
Forfeited
Vested
Expired
Other (a)
Held at
30-Jun-13
Executive director
Mr TD Stinson
1,960,000
1,100,000
Executives
Dr GP Cathcart
762,200
450,000
-
-
Mr IG Veitch
Mr KA Halliwell
-
-
-
-
(525,000)
-
2,535,000
-
-
(199,500)
-
1,012,700
-
498,500
498,500
1,014,067
600,000
(1,347,567)
-
(266,500)
-
-
Held at
1-Jul-11
Executive director
Offered
Forfeited
Vested
Expired
Other
Held at
30-Jun-12
Mr TD Stinson
1,320,000
770,000
-
-
(130,000)
-
1,960,000
Executives
Dr GP Cathcart
Mr KA Halliwell
492,200
310,000
-
-
(40,000)
-
762,200
674,067
410,000
-
-
(70,000)
-
1,014,067
(a) Represents ELTSP rights holding at the date that Mr IG Veitch became a KMP.
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:
Held at
1-Jul-12
Offered
Forfeited
Vested
Expired
Held at
30-Jun-13
Executive director
Mr TD Stinson
1,150,000
-
-
-
-
1,150,000
Held at
1-Jul-11
Offered
Forfeited
Vested
Expired
Held at
30-Jun-12
Executive director
Mr TD Stinson
1,150,000
-
-
-
-
1,150,000
No performance rights were vested at 30 June 2013 (2012: nil).
80
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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 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 goodwill
Amortisation of non-interest bearing loans
Amounts set aside to warranty and other provisions
Share of net profit of equity accounted investment
Profit on sale of share in equity accounted investment
Employee compensation expense
Net foreign exchange gains
NOTE
CONSOLIDATED
2013
$'000
2012
$'000
364
(3,053)
8
18
19
28
19
9(b)
16
8
36(a)
(3)
813
146
(225)
175
(1,410)
1,965
521
287
(3,220)
(1,702)
180
(122)
(15)
846
145
(225)
429
(392)
-
507
298
(3,480)
-
371
(120)
Net cash used in operating activities before changes in assets and liabilities
(2,231)
(4,689)
Changes in assets and liabilities during the year:
(Increase)/decrease in receivables
Decrease/(increase) in inventories
Decrease/(increase) in deferred tax assets
(Decrease)/increase in payables
(Decrease) in employee provisions
(713)
2,039
1,640
(2,108)
(344)
514
2,262
(1,137)
(456)
25
(250)
444
Net cash used in operating activities
(1,717)
(4,245)
36.
SHARE BASED PAYMENT PLANS
(a)
Recognised share-based payment expenses
Expense arising from equity-settled share-based payment transactions
180
371
The share-based payment plans are described below.
81
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
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 612,114 (2012: 239,919) shares issued under Plan No. 1 to eligible employees at a
market value on the day of issue of $82,000 (2012: $91,000).
(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 performance conditions for the LTI offered in 2013 are based 100% on earnings per share.
Additionally, the number of shares granted is broken into four bands as shown in the table below.
Vesting schedule for the EPS tested LTI awarded for the performance year 2013
Company Performance
(Earnings per share)
Under 5 cents
At or above 5 cents but below 7 cents
At or above 7 cents but below 9 cents
At or above 9 cents
% of offered shares
issued to each executive
0%
25% to 50% (on a straight line basis)
50% to 100% (on a straight line basis)
100%
At the Company’s Annual General Meeting in November 2012, shareholders approved the above plan in relation to
the ongoing remuneration of Executive Directors and senior executives.
During the year, a total of 2,480,000 rights under the plan were offered to 4 executives (2012: 1,687,500 rights
offered to 5 executives).
The performance conditions for the LTI offered in 2012 were based on two performance hurdles, as et 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:
Vesting schedule for the TSR tested LTI awarded for the performance year 2012
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
% of Personal Allotment issued to
each executive
0%
50% to 99% (on a straight-line
basis).
100%
At or above the 90th percentile
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.
82
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
36.
SHARE BASED PAYMENT PLANS (continued)
(c)
Executive Long Term Share Plan (“ELTSP”) (continued)
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
2013
No.
4,227,300
2,480,000
(1,610,100)
-
(1,051,000)
2012
No.
2,849,800
1,687,500
-
-
(310,000)
Outstanding at the end of the year
4,046,200
4,227,300
The outstanding balance as at 30 June 2013 is represented by:
993,700 rights with an average fair value at grant date of $0.335 that will potentially vest in August 2013;
1,172,500 rights with an average fair value at grant date of $0.300 that will potentially vest in August 2014;
1,880,000 rights with an average fair value at grant date of $0.200 that will potentially vest in August 2015.
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-10
31-Aug-11*
Life
Expiry
Date
3 years 31-Aug-13
3 years 31-Aug-14
Fair
Value per
right
33 cents
25 cents
Exercise
Price
nil
nil
Market
price of
shares on
grant date
34 cents
35 cents
Expected
volatility
60.00%
110.00%
Risk free
interest rate
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-10
31-Aug-11*
31-Aug-12*
Life
Expiry
Date
3 years 31-Aug-13
3 years 31-Aug-14
3 years 31-Aug-15
Fair
Value per
right
34 cents
35 cents
20 cents
Exercise
Price
nil
nil
nil
Market
price of
shares on
grant date
34 cents
35 cents
20 cents
* The grant dates of the EPS related rights for the Managing Director were 26 October 2011 and 7 November 2012,
respectively.
The fair value of the EPS related rights is equal to the market price of shares on the grant date.
83
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
36.
SHARE BASED PAYMENT PLANS (continued)
(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;
(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 2013 or 30 June 2012.
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.
84
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
38.
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
2013
$'000
2012
$'000
1,214
3,855
2,501
7,570
1,191
3,983
3,399
8,573
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. None of the leases include contingent rentals.
During the financial year ended 30 June 2013, $1,066,256 was recognised as an expense in the income statement in
respect of operating leases (2012:$1,044,469).
(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
(c)
Other
20
43
63
23
63
86
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:
- Later than one year but not later than five years
291
-
291
391
291
682
85
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
39.
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 3 months 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.
40.
EVENTS AFTER THE BALANCE SHEET DATE
On 31 July 2013, Orbital announced that it had been awarded a contract for the design, development and validation
of a next generation production engine for a USA based customer that is one of the largest in the SUAS market. The
development program will be conducted through 2013 and 2014 and if successful will lead to higher volume
production of SUAS engines in 2015.
On 16 August 2013, Orbital announced that it had been awarded an Automotive New Markets Program grant of
$933,000 for the development of a new Electronic Control Unit (ECU) for use in SUAS applications. The development
activities will be performed by the Consulting Services group through the next financial year.
Other than the matters above, 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.
41.
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 other services by:
Auditors of the Company
Total auditors' remuneration
The Auditors of the Group in 2013 and 2012 were Ernst & Young.
CONSOLIDATED
2013
$
2012
$
225,600
112,500
223,780
112,000
-
16,910
338,100
352,690
86
DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2013
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 2013 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).
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 2013.
On behalf of the Board:
W P DAY
Chairman
T D STINSON
Managing Director
Dated at Perth, Western Australia this 23rd day of August 2013
87
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
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 2013, 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. We confirm that the Auditor’s Independence Declaration
would be in the same terms if given to the directors as at the time of this auditor’s report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
TD:DJ:Orbital:019
Page 2
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 2013
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 12 to 25 of the directors' report for the year
ended 30 June 2013. 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 2013,
complies with section 300A of the Corporations Act 2001.
Ernst & Young
T G Dachs
Partner
Perth
23 August 2013
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
TD;DJ:Orbital:019
SHAREHOLDING DETAILS
Class of Shares and Voting Rights
As at 31 July 2013 there were 4,758 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 July 2013
SG Hiscock & Company Ltd
(as notified on 01 August 2013)
4,760,107
9.65%
Distribution of Shareholdings as at 31 July 2013
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001 and over
Number of shareholders
2,925
1,088
320
376
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4,758
Total Shares on Issue
49,334,591
Number of shareholders holding less than a marketable parcel
3,607
Top 20 Shareholders as at 31 July 2013
NAME
NUMBER OF
SHARES HELD
% OF
SHARES
1 National Nominees Limited*
2 Citicorp Nominees 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 Twokind Pty Ltd
10 Sino West Assets Limited
11 Papl Ebsco Pty Ltd
12 Mr PA Mc Carthy & Mrs MH Mc Carthy
13 Mr JL Sweetman
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 Mr J Ayres
19 Pra Trading Pty Ltd
20 Texas Holdings Pty Ltd
13,625,156
3,329,389
1,284,187
1,044,350
1,000,000
792,901
689,200
661,860
575,000
524,485
487,747
484,000
462,283
441,930
427,122
417,145
392,690
356,667
350,000
349,728
27.62%
6.75%
2.60%
2.12%
2.03%
1.61%
1.40%
1.34%
1.17%
1.06%
0.99%
0.98%
0.94%
0.90%
0.87%
0.85%
0.80%
0.72%
0.71%
0.71%
Top 20 Shareholders Total
27,695,840
56.14%
The twenty largest shareholders hold 56.14% 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.
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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
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