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2 O 1 7 A N N U A L R E P O R T
CORPORATE PROFILE
ORBITAL is an
innovative industrial
technology company.
ORBITAL invents and builds smart technology that delivers improved performance outcomes
for our clients in the aerospace, mining & industrial and consumer sectors.
ORBITAL operates on a global scale and is headquartered in Perth, Western Australia. From
a world class facility, ORBITAL’s innovation magic takes shape – from research and design to
development, manufacturing and implementation.
Delivering state-of-the-art products and services within the industrial technology sector is
what we do.
Orbital’s® UAVE business produces and supplies engine and propulsion systems for
unmanned aerial vehicles. REMSAFE offers a safety rated automated isolation system used
on materials handling and process plant.
CONTENTS
Director’s Report
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Changes in Equity
Statement of Financial Position
Statement of Cash Flows
Notes to the Financial Statements
Director’s Declaration
Independent Auditor’s Report
Shareholding Details
Corporate Information
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76
BC
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
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 and its subsidiaries for the year ended 30 June 2017 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.
18.
Operating and Financial Review
Directors
Directors’ Interests
Directors’ Meetings
Company Secretary
Principal Activities
Consolidated Result
Dividends
State of Affairs
Events Subsequent to Balance Sheet Date
Likely Developments and Expected Results
Share Options
Indemnification
Non-Audit Services
Corporate Governance Statement
Rounding Off
Lead Auditor’s Independence Declaration
Remuneration Report
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3
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5
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1
1
2017 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
1.
OPERATING AND FINANCIAL REVIEW
CHAIRMAN & CEO REPORT
John Welborn
Chairman
Non-executive Director
Todd Alder
Managing Director & Chief Executive Officer
Dear Shareholders,
On behalf of the Board of Directors, we present the annual report of Orbital Corporation (“Orbital”) for the year ended 30
June 2017.
OVERVIEW AND FINANCIAL RESULTS
The Company faced certain challenges over the past 12 months contributing to financial results below expectations.
Revenue of $14,370,000 (2016: $11,751,000) was impacted by interruptions to the UAVE build program and lower than
expected sales of REMSAFE hardware. The net loss after tax of $12,251,000 (2016: profit of $1,283,000) includes
REMSAFE goodwill impairment of $5,218,000 (2016: $nil).
The Company reports a strong balance sheet with cash, receivables and short-term investments of $23,754,000 and net
current assets of $19,892,000.
FY2017 MILESTONES
Despite the disappointing financial result the UAVE business achieved a number of key milestones during the financial year,
including the continued shipment of UAV engines to Insitu Inc. (a subsidiary of The Boeing Company), a second
$12,000,000 batch order, securing a Long Term Supply Agreement (LTA) worth up to $120,000,000 over a three year period
and a new $800,000 engineering contract for the development and further evolution of the N20 engine.
In light of the tough market conditions facing REMSAFE the Company removed $1,200,000 of operating costs from the
business and launched lower cost automated isolation systems in the new Gen 5 and Mobile product, generating an
increasingly positive and broader sales outlook.
MANAGEMENT AND BOARD TRANSITION
Mr John Poynton retired as a Non-Executive Director in April 2017 after two years on the Board, and Mr Terry Stinson’s role
has transitioned to Non-Executive Director as of 11 August 2017 after holding the dual Managing Director and CEO
positions with Orbital for the past nine years. Mr Steve Gallagher joined the Board as a Non-Executive Director in April 2017,
and Mr Todd Alder who after being appointed CFO & Company Secretary in December 2016 was appointed Managing
Director and CEO on 11 August 2017. Following the transition of Mr Alder to Managing Director and CEO was the
appointment of Ms Roulė Jones as CFO and Company Secretary.
FY2018 OUTLOOK
The outlook for Orbital remains positive given the significant UAVE opportunities and broader initiatives being investigated to
unlock value within the REMSAFE business.
The Chairman and Managing Director would like to thank the ongoing commitment of the Company’s shareholders and staff.
2
2
2017 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017 DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
1.
OPERATING AND FINANCIAL REVIEW
CHAIRMAN & CEO REPORT
John Welborn
Chairman
Non-executive Director
Todd Alder
Managing Director & Chief Executive Officer
Dear Shareholders,
June 2017.
OVERVIEW AND FINANCIAL RESULTS
The Company faced certain challenges over the past 12 months contributing to financial results below expectations.
Revenue of $14,370,000 (2016: $11,751,000) was impacted by interruptions to the UAVE build program and lower than
expected sales of REMSAFE hardware. The net loss after tax of $12,251,000 (2016: profit of $1,283,000) includes
REMSAFE goodwill impairment of $5,218,000 (2016: $nil).
The Company reports a strong balance sheet with cash, receivables and short-term investments of $23,754,000 and net
current assets of $19,892,000.
FY2017 MILESTONES
Despite the disappointing financial result the UAVE business achieved a number of key milestones during the financial year,
including the continued shipment of UAV engines to Insitu Inc. (a subsidiary of The Boeing Company), a second
$12,000,000 batch order, securing a Long Term Supply Agreement (LTA) worth up to $120,000,000 over a three year period
and a new $800,000 engineering contract for the development and further evolution of the N20 engine.
In light of the tough market conditions facing REMSAFE the Company removed $1,200,000 of operating costs from the
business and launched lower cost automated isolation systems in the new Gen 5 and Mobile product, generating an
increasingly positive and broader sales outlook.
MANAGEMENT AND BOARD TRANSITION
Mr John Poynton retired as a Non-Executive Director in April 2017 after two years on the Board, and Mr Terry Stinson’s role
has transitioned to Non-Executive Director as of 11 August 2017 after holding the dual Managing Director and CEO
positions with Orbital for the past nine years. Mr Steve Gallagher joined the Board as a Non-Executive Director in April 2017,
and Mr Todd Alder who after being appointed CFO & Company Secretary in December 2016 was appointed Managing
Director and CEO on 11 August 2017. Following the transition of Mr Alder to Managing Director and CEO was the
appointment of Ms Roulė Jones as CFO and Company Secretary.
FY2018 OUTLOOK
The outlook for Orbital remains positive given the significant UAVE opportunities and broader initiatives being investigated to
unlock value within the REMSAFE business.
The Chairman and Managing Director would like to thank the ongoing commitment of the Company’s shareholders and staff.
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
2.
DIRECTORS
The Directors of the Company at any time during or since the end of the financial year are:
Mr John Paul Welborn, B.Com, CA, MAICD, SA Fin
Chairman
Joined the Board in June 2014 and appointed as Chairman in March 2015. Mr Welborn is the Managing Director and Chief Executive
Officer of Resolute Mining Limited (ASX: RSG), an ASX listed gold producer with two operating gold mines in Africa and Australia, effective
1 July 2015.
Mr Welborn is a Chartered Accountant with a Bachelor of Commerce degree from the University of Western Australia and holds
memberships of the Institute of Chartered Accountants in Australia (ICAA), the Financial Services Institute of Australasia (FINSIA) and the
Australian Institute of Company Directors (AICD).
Mr Welborn is a former International Rugby Union Player with extensive experience in the resources sector as a senior executive and in
corporate management, finance and investment banking. He was the Head of Specialised Lending in Western Australia for Investec Bank
(Australia) Ltd and has more than 20 years of commercial experience in national and international professional services and management
consulting firms.
On behalf of the Board of Directors, we present the annual report of Orbital Corporation (“Orbital”) for the year ended 30
Mr Welborn has served on the Boards of a number of charitable organisations, and is a former Commissioner of Tourism Western Australia.
Mr Welborn has also served as a director of Resolute Mining Limited (appointed February 2015; ongoing), Equatorial Resources Limited
(appointed August 2010; ongoing), Prairie Mining Limited (appointed February 2009; resigned September 2015) and Noble Mineral
Resources Limited (appointed March 2013; resigned December 2013).
Mr Todd Alder, BEc (Acc), CPA, ACIS
Managing Director and Chief Executive Officer (Appointed 11 August 2017)
Joined Orbital as Chief Financial Officer and Company Secretary in December 2016 and appointed as Managing Director and Chief
Executive Officer in August 2017. Mr Alder is a highly experienced senior executive and an accomplished leader with a strong background
in financial and corporate services management in the mining, steel manufacturing and energy industries.
His previous role was Chief Financial Officer and Company Secretary at Toro Energy Limited where he was responsible for financial and
management accounting, company secretarial functions, investor relations and information technology. Mr Alder has also worked with
Capgemini Consulting (previously Ernst & Young) and Origin Energy Limited.
Mr Terry Dewayne Stinson, BBA (magna cum laude), FAICD (Resigned as Managing Director and Chief Executive Officer 11 August
2017)
Non-Executive Director
Joined the Board and appointed Chief Executive Officer in June 2008 and as Non-Executive Director in August 2017. Mr Stinson has over
35 years of international experience in engineering and technology commercialisation and management across the automotive, aerospace,
defence, maritime, industrial products, mining and manufacturing sectors. 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.
On 9 February 2017 Mr Stinson was appointed Chairman of advanced graphite and graphene materials specialist, Talga Resources (ASX:
TLG).
2
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3
2017 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017 DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
2.
DIRECTORS (CONTINUED)
Mr Steve Gallagher, B.E (Hons), B.Com, MAICD (Appointed Non-Executive Director 12 April 2017)
Non-Executive Director
Joined the Board in April 2017, Mr Gallagher is Principal of Agere Pty Ltd, an advisory and investment company drawing on his capability
and professional networks established over 30 years as a CEO and Director of global businesses.
Mr Gallagher held Director positions with HKEX Hang Seng listed CCRTT, ASX listed ERG Ltd and CEO/GM positions with Vix Technology
and global engineering powerhouse Siemens. Mr Gallagher has operated in various business sectors including Industrial Automation,
Building Technology and Power Systems, having spent 15 years living and working in Asia (China, Hong Kong and Singapore) and Europe
(Switzerland).
Mr Gallagher is currently a Non-Executive Director with Optal Ltd (an innovative global payment solutions company), Vix Technology Ltd
(an industry leader in transport ticketing, fare collection/payments), Ventura Bus Lines Pty Ltd (a leading public transport and charter bus
service provider in Australia) and Transact1 Pty Ltd (a financial services provider for cash management optimisation).
Mr John Hartley Poynton AO, BCOM, Hon D. Com, S F Fin, FAICD, FAIM (Resigned as Director 12 April 2017)
Non-Executive Director
Joined the Board in March 2015. Mr Poynton is a former Chairman of Azure Capital, a Director of the Future Fund Board of Guardians and
a Non-Executive Director of Crown Perth. He is also Chairman of Giving West and the Council of Christ Church Grammar School.
He has previously served as the Chairman, Deputy Chairman or Non-Executive Director of a number of ASX listed companies, Federal
Government Boards, education institutions and not for profit enterprises. Mr Poynton brings extensive corporate advisory, equity capital
markets and governance experience to Orbital’s Board.
Mr Poynton is a Life Member and Senior Fellow of the Financial Services Institute of Australasia (FINSIA), and a Fellow of the Australian
Institute of Company Directors (AICD) and Australian Institute of Management (AIM).
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
J P Welborn
T M Alder
T D Stinson
S Gallagher
J H Poynton
Total
Ordinary
Shares
679,103
-
1,672,621
-
-
Performance
Rights
-
-
500,000
-
-
2,351,724
500,000
4.
DIRECTORS’ MEETINGS
The number of Directors’ meetings and the number of meetings attended by each of the Directors of the Company during the financial year
are shown below.
Director
J P Welborn
T M Alder
T D Stinson
S Gallagher
J H Poynton
No. of
meetings
attended
No. of
meetings
held*
6
-
6
2
4
6
-
6
2
4
* Number of meetings held during the time the director held office during the year.
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2017 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017 DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
2.
DIRECTORS (CONTINUED)
Non-Executive Director
Joined the Board in April 2017, Mr Gallagher is Principal of Agere Pty Ltd, an advisory and investment company drawing on his capability
and professional networks established over 30 years as a CEO and Director of global businesses.
and global engineering powerhouse Siemens. Mr Gallagher has operated in various business sectors including Industrial Automation,
Building Technology and Power Systems, having spent 15 years living and working in Asia (China, Hong Kong and Singapore) and Europe
(Switzerland).
Mr Gallagher is currently a Non-Executive Director with Optal Ltd (an innovative global payment solutions company), Vix Technology Ltd
(an industry leader in transport ticketing, fare collection/payments), Ventura Bus Lines Pty Ltd (a leading public transport and charter bus
service provider in Australia) and Transact1 Pty Ltd (a financial services provider for cash management optimisation).
Mr John Hartley Poynton AO, BCOM, Hon D. Com, S F Fin, FAICD, FAIM (Resigned as Director 12 April 2017)
Non-Executive Director
Joined the Board in March 2015. Mr Poynton is a former Chairman of Azure Capital, a Director of the Future Fund Board of Guardians and
a Non-Executive Director of Crown Perth. He is also Chairman of Giving West and the Council of Christ Church Grammar School.
He has previously served as the Chairman, Deputy Chairman or Non-Executive Director of a number of ASX listed companies, Federal
Government Boards, education institutions and not for profit enterprises. Mr Poynton brings extensive corporate advisory, equity capital
markets and governance experience to Orbital’s Board.
Mr Poynton is a Life Member and Senior Fellow of the Financial Services Institute of Australasia (FINSIA), and a Fellow of the Australian
Institute of Company Directors (AICD) and Australian Institute of Management (AIM).
3.
DIRECTORS’ INTERESTS
of this report is as follows: -
The relevant interest of each Director in the share capital of the Company shown in the Register of Directors’ Shareholdings as at the date
Director
J P Welborn
T M Alder
T D Stinson
S Gallagher
J H Poynton
Total
Director
J P Welborn
T M Alder
T D Stinson
S Gallagher
J H Poynton
4.
DIRECTORS’ MEETINGS
are shown below.
Performance
Rights
Ordinary
Shares
679,103
-
-
-
2,351,724
500,000
No. of
meetings
attended
No. of
meetings
held*
6
-
6
2
4
-
-
-
-
6
-
6
2
4
* Number of meetings held during the time the director held office during the year.
Mr Steve Gallagher, B.E (Hons), B.Com, MAICD (Appointed Non-Executive Director 12 April 2017)
Ms Roulè Jones, B Com, BA, CA, PGDA (Appointed as Company Secretary 16 August 2017)
Joined Orbital as Financial Controller in February 2013 and appointed as Chief Financial Officer and Company Secretary in August 2017.
Ms Jones is a qualified Chartered Accountant with over 15 years’ experience across financial management, strategic planning, risk
management, audit and governance. Prior to joining Orbital, Ms Jones held senior financial management roles with Credit Suisse and Ernst
& Young in the United Kingdom and South Africa.
Mr Gallagher held Director positions with HKEX Hang Seng listed CCRTT, ASX listed ERG Ltd and CEO/GM positions with Vix Technology
Mr Todd Alder, BEc (Acc), CPA, ACIS (Resigned as Company Secretary 16 August 2017)
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
5.
COMPANY SECRETARY
Joined Orbital as Chief Financial Officer and Company Secretary in December 2016 and appointed as Managing Director and Chief
Executive Officer in August 2017. Mr Alder is a highly experienced senior executive and an accomplished leader with a strong background
in financial and corporate services management in the mining, steel manufacturing and energy industries.
Mr Ian G Veitch, B.Bus, GradDipACG, ACA, ACIS, AGIA (Resigned as Company Secretary 14 December 2016, resigned as Chief
Financial Officer 18 November 2016)
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 20 years’ experience in company secretarial, corporate and
financial accounting roles. Mr Veitch holds a Bachelor of Business degree, 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 the Governance Institute of Australia.
6.
PRINCIPAL ACTIVITIES
Orbital is an innovative industrial technology company. Orbital invents and builds smart technology that delivers improved performance
outcomes for our clients in the unmanned aerial vehicle, safety and productivity, engineering services and consumer sectors.
Orbital’s UAVE business produces and supplies engine and propulsion systems for unmanned aerial vehicles. Orbital has designed,
developed and also undertaken low volume production of an engine management system (EMS) and a next generation propulsion system
for Small Unmanned Aircraft Systems (SUAS) utilising Orbital’s FlexDITM technology.
REMSAFE offers a safety rated automated isolation system used on materials handling and process plant.
Changes in nature of activities
There were no significant changes in the nature of the activities of the Group during the year.
7.
CONSOLIDATED RESULT
The consolidated loss after income tax for the year attributable to the members of Orbital was $11,948,000 (2016: profit of $1,533,000).
1,672,621
500,000
8.
DIVIDENDS
No dividend has been paid or proposed in respect of the current financial year.
9.
STATE OF AFFAIRS
There were no other significant changes in the state of affairs of the Group during the financial year, other than as reported elsewhere in the
financial statements.
The number of Directors’ meetings and the number of meetings attended by each of the Directors of the Company during the financial year
10.
EVENTS SUBSEQUENT TO BALANCE SHEET DATE
There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a
material and unusual nature 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.
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2017 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017 DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
13.
INDEMNIFICATION
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.
Indemnification of auditors
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit
engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to
indemnify Ernst & Young during or since the financial year.
14.
NON-AUDIT SERVICES
In the reporting 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 reporting period by the auditor and in accordance with advice provided by
the management is satisfied that the provision of those non-audit services by the auditor during the reporting 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 Board 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 38 to the financial statements.
15.
CORPORATE GOVERNANCE STATEMENT
The Board of Directors of Orbital Corporation Limited is responsible for corporate governance. The Board has prepared the Corporate
Governance Statement in accordance with the third edition of the ASX Corporate Governance Council’s Principles and Recommendations
under which the Corporate Governance Statement may be made available on the Company’s website.
Accordingly, a copy of the Company’s Corporate Governance Statement is available on the Orbital website at www.orbitalcorp.com.au
under the About Us/Corporate Governance section.
16.
ROUNDING OFF
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated
24 March 2016, and in accordance with that Instrument, amounts in the financial report and Directors’ Report have been rounded off to the
nearest thousand dollars unless otherwise indicated.
6
6
2017 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017 To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit
engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to
indemnify Ernst & Young during or since the financial year.
As lead auditor for the audit of Orbital Corporation Limited for the financial year ended 30 June 2017, I
declare to the best of my knowledge and belief, there have been:
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
Auditor’s Independence Declaration to the Directors of Orbital
Corporation Limited
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Orbital Corporation Limited and the entities it controlled during the
financial year.
Ernst & Young
T G Dachs
Partner
29 August 2017
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
13.
INDEMNIFICATION
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.
Indemnification of auditors
14.
NON-AUDIT SERVICES
In the reporting 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 reporting period by the auditor and in accordance with advice provided by
the management is satisfied that the provision of those non-audit services by the auditor during the reporting 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 Board 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 38 to the financial statements.
15.
CORPORATE GOVERNANCE STATEMENT
The Board of Directors of Orbital Corporation Limited is responsible for corporate governance. The Board has prepared the Corporate
Governance Statement in accordance with the third edition of the ASX Corporate Governance Council’s Principles and Recommendations
under which the Corporate Governance Statement may be made available on the Company’s website.
Accordingly, a copy of the Company’s Corporate Governance Statement is available on the Orbital website at www.orbitalcorp.com.au
under the About Us/Corporate Governance section.
16.
ROUNDING OFF
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated
24 March 2016, and in accordance with that Instrument, amounts in the financial report and Directors’ Report have been rounded off to the
nearest thousand dollars unless otherwise indicated.
6
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
7
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2017 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
18.
REMUNERATION REPORT - AUDITED
Principles of compensation
This Remuneration Report for the year ended 30 June 2017 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 Group, directly or indirectly, including any director (whether executive or otherwise) of the parent
company.
The remuneration report is presented under the following sections:
18.1.
18.2.
18.3.
18.4.
18.5.
18.6.
18.7.
18.8.
18.9.
Individual Key Management Personnel Disclosures
Remuneration Overview
Remuneration Governance
Non-Executive Director Remuneration Arrangements
Executive Remuneration Arrangements
Company Performance and the Link to Remuneration
Executive Contractual Arrangements
Directors and Executive Officers’ Remuneration - Company and Group
Equity Instruments
18.1.
INDIVIDUAL KEY MANAGEMENT PERSONNEL DISCLOSURES
Details of KMP of the Group are set out below.
Key management personnel
Position
(i)
Directors
John P Welborn
Terry D Stinson
Steve Gallagher
John H Poynton
Executives
(ii)
Todd M Alder
Geoff P Cathcart
Michael C Lane
Roulė Jones
Ian G Veitch
Charis Law
Chairman (Non-Executive) (appointed Chairman 18 March 2015)
Non-Executive Director (Resigned as Chief Executive Officer and Managing
Director and appointed as Non-Executive Director 11 August 2017)
(Non-Executive) (became a KMP 12 April 2017)
(Non-Executive) (ceased being a KMP 12 April 2017)
Chief Financial Officer (became a KMP 14 December 2016) (appointed as Chief
Executive Officer and Managing Director 11 August 2017)
Chief Technical Officer
Chairman (Executive) – REMSAFE (appointed Chairman 13 October 2016)
Chief Financial Officer (became a KMP 16 August 2017)
Chief Financial Officer (ceased being a KMP 18 November 2016)
Chief Commercial Officer (ceased being a KMP 3 May 2017)
18.2.
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.
Executive members of the KMP may receive a short-term incentive (STI) approved by the Board as reward for exceptional performance in a
specific matter of importance. STI amounts of $31,600 were paid during the 2017 financial year (2016: $130,000).
Long-term incentive (LTI) awards consisting of performance rights that vest based on attainment of pre-determined performance goals are
awarded to selected executives. During the financial year, the Company introduced new performance milestones under the Performance
Rights Plan as part of its long-term incentive arrangements for the Managing Director and CEO, which were approved by shareholders on 7
November 2016. During the 2017 financial year, the performance hurdle set in October 2014 of increasing the market capitalisation of the
Company to over $60 million was achieved and 900,000 shares vested to three executives.
The remuneration of Non-Executive Directors of the Company consists only of Directors’ fees. Director fees were not reviewed or adjusted
during the 2017 financial year.
Remuneration report at 2016 AGM
The 2016 Remuneration Report received positive shareholder support at the 2016 AGM with a vote of 97% of votes cast in favour.
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18.
REMUNERATION REPORT - AUDITED
Principles of compensation
company.
18.1.
18.2.
18.3.
18.4.
18.5.
18.6.
18.7.
18.8.
18.9.
The remuneration report is presented under the following sections:
Individual Key Management Personnel Disclosures
Remuneration Overview
Remuneration Governance
Non-Executive Director Remuneration Arrangements
Executive Remuneration Arrangements
Company Performance and the Link to Remuneration
Executive Contractual Arrangements
Directors and Executive Officers’ Remuneration - Company and Group
Equity Instruments
18.1.
INDIVIDUAL KEY MANAGEMENT PERSONNEL DISCLOSURES
Details of KMP of the Group are set out below.
Key management personnel
Position
(i)
Directors
John P Welborn
Terry D Stinson
Steve Gallagher
John H Poynton
(ii)
Executives
Todd M Alder
Geoff P Cathcart
Michael C Lane
Roulė Jones
Ian G Veitch
Charis Law
Chairman (Non-Executive) (appointed Chairman 18 March 2015)
Non-Executive Director (Resigned as Chief Executive Officer and Managing
Director and appointed as Non-Executive Director 11 August 2017)
(Non-Executive) (became a KMP 12 April 2017)
(Non-Executive) (ceased being a KMP 12 April 2017)
Chief Financial Officer (became a KMP 14 December 2016) (appointed as Chief
Executive Officer and Managing Director 11 August 2017)
Chief Technical Officer
Chairman (Executive) – REMSAFE (appointed Chairman 13 October 2016)
Chief Financial Officer (became a KMP 16 August 2017)
Chief Financial Officer (ceased being a KMP 18 November 2016)
Chief Commercial Officer (ceased being a KMP 3 May 2017)
18.2.
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.
Executive members of the KMP may receive a short-term incentive (STI) approved by the Board as reward for exceptional performance in a
specific matter of importance. STI amounts of $31,600 were paid during the 2017 financial year (2016: $130,000).
Long-term incentive (LTI) awards consisting of performance rights that vest based on attainment of pre-determined performance goals are
awarded to selected executives. During the financial year, the Company introduced new performance milestones under the Performance
Rights Plan as part of its long-term incentive arrangements for the Managing Director and CEO, which were approved by shareholders on 7
November 2016. During the 2017 financial year, the performance hurdle set in October 2014 of increasing the market capitalisation of the
Company to over $60 million was achieved and 900,000 shares vested to three executives.
The remuneration of Non-Executive Directors of the Company consists only of Directors’ fees. Director fees were not reviewed or adjusted
during the 2017 financial year.
Remuneration report at 2016 AGM
The 2016 Remuneration Report received positive shareholder support at the 2016 AGM with a vote of 97% of votes cast in favour.
This Remuneration Report for the year ended 30 June 2017 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
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.
controlling the major activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent
To this end, key objectives of the Company’s reward framework are to ensure that remuneration practices:
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
18.2.
REMUNERATION OVERVIEW (CONTINUED)
Remuneration strategy
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 the Company’s market capitalisation.
Key changes to remuneration structure in 2017
There were no changes to the remuneration structure of Executives or Directors during the 2017 financial year.
18.3.
REMUNERATION GOVERNANCE
Board
The Board reviews and approves remuneration packages and policies applicable to Directors, the 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.
Remuneration approval process
The Board approves the remuneration arrangements of the CEO and executives and all awards made under the LTI plan. The Board also
sets the aggregate remuneration of Non-Executive Directors which is then subject to shareholder approval.
The Board approves, having regard to the recommendations made by the CEO, the STI bonus plan and any discretionary bonus payments.
Remuneration structure
In accordance with best practice corporate governance, the structure of Non-Executive Directors and Executive remuneration is separate
and distinct.
Services from remuneration consultants
From 1 July 2011, all proposed remuneration consultancy contracts (within the meaning of section 206K of the Corporations Act 2001) are
subject to prior approval by the Board or the Human Resources, Remuneration and Nomination Committee in accordance with the
Corporations Act 2001.
Did a remuneration consultant provide a
remuneration recommendation in relation to any
of the KMP for the financial year?
No remuneration recommendation was provided by a remuneration consultant for
the 2017 financial year.
18.4.
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 2017 AGM.
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18.4.
NON-EXECUTIVE DIRECTOR REMUNERATION ARRANGEMENTS (CONTINUED)
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
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 $120,000 (2016: $120,000) and the Non-Executive directors receive a base fee of $60,000
(2016: $120,000).
The remuneration of Non-Executive Directors for the year ended 30 June 2017 and 30 June 2016 is detailed in Section 18.8 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?
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.
Are Non-Executive Directors’ fees going to
increase in FY2018?
The Board has decided not to increase the Directors’ fees.
18.5.
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 remuneration mix for FY2017 comprised 82% fixed remuneration and 18% LTI. The LTI value is the total accounting expense
associated with the grant made during the financial year. Key Management Personnel’s remuneration mix for FY2017 ranged from 85-100%
fixed remuneration, 0-10% STI and 0-5% LTI opportunity.
In the 2017 financial year, the executive remuneration framework consisted of the following components:
Variable remuneration (STI and LTI)
Fixed remuneration
The table below illustrates the structure of Orbital’s executive remuneration arrangements:
Table 1 – Structure of remuneration arrangements
Vehicle
Purpose
Link to company performance
Remuneration
component
Fixed
compensation
•
•
Represented by total
fixed remuneration (TFR).
Comprises base salary,
superannuation
contributions and other
benefits.
STI component
(discretionary)
•
Paid in cash
LTI component
•
Awards are made in the
form of performance
rights.
•
•
•
•
Set with reference to role, market and
experience.
Executives are given the opportunity to
receive their fixed remuneration in a variety
of forms including cash and fringe benefits
such as motor vehicles. It is intended that
the manner of payment chosen will be
optimal for the recipient without creating
undue cost for the Group.
Rewards executives for their contribution to
achievement of Group outcomes.
Rewards executives for their contribution to
the creation of shareholder value over the
longer term through growth in the
Company’s market capitalisation.
•
•
•
No direct link to company
performance.
Discretionary award by the
Board to reward Executives
for exceptional performance
in a specific area of
importance.
Vesting of awards is
dependent on Orbital
Corporation Limited’s market
capitalisation.
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FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
18.4.
NON-EXECUTIVE DIRECTOR REMUNERATION ARRANGEMENTS (CONTINUED)
18.5.
EXECUTIVE REMUNERATION ARRANGEMENTS (CONTINUED)
On appointment to the Board, all Non-Executive Directors enter into a service agreement with the Company in the form of a letter of
Fixed compensation
appointment which details remuneration arrangements.
Fees
(2016: $120,000).
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 $120,000 (2016: $120,000) and the Non-Executive directors receive a base fee of $60,000
The remuneration of Non-Executive Directors for the year ended 30 June 2017 and 30 June 2016 is detailed in Section 18.8 of this report.
Are the Non-Executive Directors paid any
No. The Non-Executive Directors are not paid any short term incentives, long term
incentive or equity based payments or
incentives, equity based remuneration or termination/retirement benefits
termination/retirement benefits?
If Non-Executive Directors are paid
From time to time, Non-Executive Directors may be requested to provide additional Non-
additional fees, how are these additional
Executive Director related services. This could include sitting on a due diligence
fees calculated?
committee or undertaking a special project for the Group. During the year, no additional
fees were paid to any of the Non-Executive Directors.
Are Non-Executive Directors’ fees going to
The Board has decided not to increase the Directors’ fees.
18.5.
EXECUTIVE REMUNERATION ARRANGEMENTS
increase in FY2018?
Objective
positioning against the market.
Structure
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
The CEO’s remuneration mix for FY2017 comprised 82% fixed remuneration and 18% LTI. The LTI value is the total accounting expense
associated with the grant made during the financial year. Key Management Personnel’s remuneration mix for FY2017 ranged from 85-100%
fixed remuneration, 0-10% STI and 0-5% LTI opportunity.
In the 2017 financial year, the executive remuneration framework consisted of the following components:
Fixed remuneration
Variable remuneration (STI and LTI)
The table below illustrates the structure of Orbital’s executive remuneration arrangements:
Table 1 – Structure of remuneration arrangements
component
Fixed
compensation
•
•
Comprises base salary,
superannuation
contributions and other
benefits.
STI component
(discretionary)
•
Paid in cash
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.
LTI component
•
Awards are made in the
form of performance
rights.
Rewards executives for their contribution to
the creation of shareholder value over the
longer term through growth in the
Company’s market capitalisation.
•
•
•
•
•
•
•
Discretionary award by the
Board to reward Executives
for exceptional performance
in a specific area of
importance.
Vesting of awards is
dependent on Orbital
Corporation Limited’s market
capitalisation.
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 Board. 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 18.8.
Variable remuneration — short-term incentive (STI) (discretionary)
The table below contains a summary of the key features of the STI plan.
What is the STI?
When is the STI grant paid?
How does the Company’s STI
structure support achievement of
the Company’s strategy?
How are the performance conditions
of the STI determined?
What are the maximum possible
values of award under the STI plan?
What was the value of STI paid in
the financial year?
Is a portion of STI deferred?
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.
There are no pre-determined timeframes at which assessments for STI rewards are to be
undertaken.
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 LTI.
The Board has no pre-determined performance criteria against which the amount of a STI is
assessed.
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.
Discretionary STI cash bonuses of $31,600 were paid during the 2017 financial year.
Discretionary STI cash bonuses of $130,000 were paid during the 2016 financial year.
No discretionary STI cash bonuses relating to the 2017 or 2016 financial years will become
payable in future financial years.
Variable remuneration — long-term incentive (LTI)
LTI awards are made 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.
Remuneration
Vehicle
Purpose
Link to company performance
Performance Rights Plan
Represented by total
Set with reference to role, market and
No direct link to company
fixed remuneration (TFR).
experience.
performance.
The table below contains a summary of the key features of the Performance Rights Plan (PRP).
What is the PRP?
How does the PRP align the interests
of shareholders and executives?
How does the PRP support the
retention of executives?
The PRP 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.
The PRP links rewards for the executive KMP to the Company’s strategy to grow shareholder
value by increasing the Company’s market capitalisation. The Company’s market capitalisation on
the date of calling the AGM to approve the current PRP was $67.2 million. Vesting of shares only
occurs if Orbital increases its market capitalisation to $125 million and $200 million respectively.
Vesting of shares relating to the prior PRP (2015) occurred during the financial year as Orbital
increased its market capitalisation to $60 million. The Company’s market capitalisation on the date
of calling the AGM to approve the prior (2015) PRP was $9.4 million.
An objective of offering shares under the PRP 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 within the performance period.
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18.5.
EXECUTIVE REMUNERATION ARRANGEMENTS (CONTINUED)
Variable remuneration — long-term incentive (LTI) (continued)
What are the principal terms of the
issue made under the LTI `in
FY2017?
What are the principal terms of the
issue made under the LTI in FY2015?
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Grant date: 8 November 2016 (following the AGM at which the Terms of the plan were
approved by shareholders).
Life: 3 years.
Expiry date: 7 November 2019.
Market capitalisation on grant date:
Performance timeframes and targets:
$71.9 million.
o
o
Tranche 1: $125 million and a price of $1.50 per share for 30 consecutive days,
expiring 24 months from the date of issue
Tranche 2: $200 million and a price of $2.00 per share for 30 consecutive days,
expiring 36 months from the date of issue
Exercise Price: nil.
Fair value per right:
o
o
Tranche 1: 50.0 cents
Tranche 2: 42.0 cents
Grant date: 22 October 2014 (following the AGM at which the Terms of the plan were
approved by shareholders).
Life: 3 years.
Expiry date: 22 October 2017.
Market capitalisation on grant date:
Performance timeframes and targets:
$14.8 million.
o
o
o
Tranche 1: $20 million within 18 months
Tranche 2: $35 million within 24 months
Tranche 3: $60 million within 36 months
Exercise Price: nil.
Fair value per right:
o
o
o
Tranche 1: 23.1 cents
Tranche 2: 17.5 cents
Tranche 3: 15.3 cents
What are the performance conditions
for the vesting of LTIs?
How is the market price of the PRP
determined?
In what circumstances would the LTI
entitlements be forfeited?
What happens to LTI entitlements
upon a change of control in the
Group?
Do shares granted under the LTI
dilute existing shareholders’ equity?
Are the shares issued under the LTI
bought on market?
Does the executive obtain the benefit
of dividends paid on shares issued
under the LTI?
What other rights does the holder of
vested LTI shares have?
Does the Company have executive
share ownership guidelines?
Can executive KMP hedge to ensure
that they obtain a benefit from
unvested LTI’s?
How many LTI awards vested in the
financial year?
The performance conditions, which are based 100% on market capitalisation, apply to determine
the number of shares (if any) that vest to the Executives.
The fair value of the PRP related rights is calculated at the date of grant through utilisation of the
assumptions underlying at the grant date of 8 November 2016 (FY2017 PRP) and 22 October
2014 (FY2015 PRP) using the “Hoadley Barrier 1” trinomial option valuation model.
Where a participant ceases employment prior to the vesting of their award, the unvested shares
are forfeited unless the Board applies its discretion to allow vesting at or post cessation of
employment in appropriate circumstances.
In the event of a change of control of the Group, the performance period end date will generally be
brought forward to the date of the change of control and awards will vest.
The issue of shares can have a small dilutionary impact upon other shareholders. However, the
number of shares issued under the PRP 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.
No. The Company issues new shares for the PRP; it does not buy the shares on the market.
KMP are entitled to any dividends paid on vested shares. Unvested rights do not participate in
dividend payments or any other distributions to shareholders.
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.
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 2001 it
is an offence for them to hedge unvested grants made under the PRP.
900,000 Performance Rights in relation to Tranche 3 of the 2015 award vested in FY2017.
Is a portion of LTI deferred?
No. Vested Performance Rights are issued to KMP without restriction.
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2017 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017 DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
What are the principal terms of the
issue made under the LTI `in
FY2017?
Tranche 1: $125 million and a price of $1.50 per share for 30 consecutive days,
expiring 24 months from the date of issue
expiring 36 months from the date of issue
Tranche 2: $200 million and a price of $2.00 per share for 30 consecutive days,
What are the principal terms of the
Grant date: 22 October 2014 (following the AGM at which the Terms of the plan were
issue made under the LTI in FY2015?
approved by shareholders).
•
•
•
•
•
•
•
•
•
•
•
•
•
•
approved by shareholders).
Life: 3 years.
Expiry date: 7 November 2019.
Market capitalisation on grant date:
$71.9 million.
Performance timeframes and targets:
o
o
o
o
o
o
o
o
o
o
Exercise Price: nil.
Fair value per right:
Tranche 1: 50.0 cents
Tranche 2: 42.0 cents
Life: 3 years.
Expiry date: 22 October 2017.
Market capitalisation on grant date:
$14.8 million.
Performance timeframes and targets:
Tranche 1: $20 million within 18 months
Tranche 2: $35 million within 24 months
Tranche 3: $60 million within 36 months
Exercise Price: nil.
Fair value per right:
Tranche 1: 23.1 cents
Tranche 2: 17.5 cents
Tranche 3: 15.3 cents
What are the performance conditions
The performance conditions, which are based 100% on market capitalisation, apply to determine
for the vesting of LTIs?
the number of shares (if any) that vest to the Executives.
How is the market price of the PRP
The fair value of the PRP related rights is calculated at the date of grant through utilisation of the
determined?
assumptions underlying at the grant date of 8 November 2016 (FY2017 PRP) and 22 October
2014 (FY2015 PRP) using the “Hoadley Barrier 1” trinomial option valuation model.
In what circumstances would the LTI
Where a participant ceases employment prior to the vesting of their award, the unvested shares
entitlements be forfeited?
are forfeited unless the Board applies its discretion to allow vesting at or post cessation of
What happens to LTI entitlements
In the event of a change of control of the Group, the performance period end date will generally be
upon a change of control in the
brought forward to the date of the change of control and awards will vest.
18.5.
EXECUTIVE REMUNERATION ARRANGEMENTS (CONTINUED)
18.5.
EXECUTIVE REMUNERATION ARRANGEMENTS (CONTINUED)
Variable remuneration — long-term incentive (LTI) (continued)
LTI awards for 2017 financial year
Grant date: 8 November 2016 (following the AGM at which the Terms of the plan were
Shares were granted under the Employee Share Plan No.1 to a number of executives on 23 November 2016.
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
The Company introduced new performance milestones under the Performance Rights Plan as part of its long-term incentive arrangements
for the Managing Director and CEO, which were approved by shareholders on 7 November 2016.
Details in respect of the award are provided in Section 18.9.
18.6.
COMPANY PERFORMANCE AND THE LINK TO REMUNERATION
Performance linked compensation includes both short-term and long-term incentives and is designed to reward key management personnel
for meeting or exceeding their financial and personal objectives. The STI 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 Performance Rights Plan.
In considering the Group’s performance and benefits for shareholders wealth the Board 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 long-term incentives
The performance measure which drives LTI vesting in future years is the Company’s market capitalisation. The table below show the
closing share price and market capitalisation for the past five years (including the current period) to 30 June 2017.
Company performance for the current year and last 4 years is as follows:
Table 2 – Orbital five year performance linked to long-term incentives
2013
2014
2015
2016
2017
Closing share price ($)
Market capitalisation ($m)
Earnings per share (cents)
0.15
7.4
0.74
0.16
7.9
3.39
0.49
24.0
(9.83)
0.695
52.4
2.73
0.50
38.6
(15.55)
Group?
bought on market?
under the LTI?
employment in appropriate circumstances.
18.7.
EXECUTIVE CONTRACTUAL ARRANGEMENTS
The Performance Target for the third tranche of the FY2015 PRP was met during FY2017 and as a result 900,000 shares were issued.
Remuneration arrangements for KMP are formalised in employment agreements. Details of these contracts are provided below.
Do shares granted under the LTI
The issue of shares can have a small dilutionary impact upon other shareholders. However, the
dilute existing shareholders’ equity?
number of shares issued under the PRP in the five years preceding the offer must not exceed 5%
Chief Executive Officer
Are the shares issued under the LTI
No. The Company issues new shares for the PRP; it does not buy the shares on the market.
of the total shares on issue at the time an offer to a participant is made.
Mr Stinson was employed as Managing Director and CEO during the year, with Mr Alder transitioning into this role on 11 August 2017. Mr
Alder’s material terms of employment were announced to the ASX on 11 August 2017 (“Managing Director & CEO Succession”).
Does the executive obtain the benefit
KMP are entitled to any dividends paid on vested shares. Unvested rights do not participate in
of dividends paid on shares issued
dividend payments or any other distributions to shareholders.
What other rights does the holder of
The holder of the shares has the same rights as any other holder of shares. This includes voting
vested LTI shares have?
rights, a right to dividends, bonus shares and capital distributions.
Does the Company have executive
The Company does not have a formal policy requiring executives to own shares. However a
share ownership guidelines?
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.
Can executive KMP hedge to ensure
No. All executive KMP have been advised that under section 206J of the Corporations Act 2001 it
that they obtain a benefit from
is an offence for them to hedge unvested grants made under the PRP.
How many LTI awards vested in the
900,000 Performance Rights in relation to Tranche 3 of the 2015 award vested in FY2017.
unvested LTI’s?
financial year?
Is a portion of LTI deferred?
No. Vested Performance Rights are issued to KMP without restriction.
Under the terms of Mr Stinson’s Managing Director and CEO rolling contract as disclosed to the ASX on 14 September 2007:
►
►
Mr Stinson received fixed remuneration of $400,000 per annum.
Mr Stinson 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 3 – Summary of contractual provisions for the CEO
Employer initiated
termination
Termination for serious
misconduct
Employee-initiated
termination
Notice Period
Payment in lieu
of notice
Treatment of LTI on
termination
12 months
12 months
Board discretion
None
None
Unvested awards forfeited
3 months
3 months
Unvested awards forfeited
Termination payments
None
None
None
12
13
13
2017 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017 DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
18.7.
EXECUTIVE CONTRACTUAL ARRANGEMENTS (CONTINUED)
Other KMP
All other KMP have rolling contracts. Standard KMP termination provisions are as follows:
Table 4 – Summary of KMP termination provisions
Employer initiated
termination
Notice Period
Payment in lieu
of notice
Treatment of LTI on
termination
Termination payments
3 months
3 months
Board discretion
Pre-31 December 2014 KMP
4 weeks’ pay, plus 2 weeks’ pay for
each completed year of service, plus
for each completed year of service
beyond 10, an additional ½ weeks’
pay, plus a pro-rata payment for
each completed month of service in
The maximum
the
entitlement
is
limited to 65 weeks’ pay.
termination pay
final year.
to
Termination for
serious misconduct
Employee-initiated
termination
None
None
Unvested awards forfeited
3 months
3 months
Unvested awards forfeited
None
None
Post 31 December 2014 KMP
In accordance with Section 119 of
the Fair Work Act 2009 (Cwth).
14
14
2017 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017 DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
18.7.
EXECUTIVE CONTRACTUAL ARRANGEMENTS (CONTINUED)
Other KMP
termination
All other KMP have rolling contracts. Standard KMP termination provisions are as follows:
Table 4 – Summary of KMP termination provisions
Notice Period
Payment in lieu
Treatment of LTI on
Termination payments
Employer initiated
3 months
Board discretion
Pre-31 December 2014 KMP
of notice
3 months
termination
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1
5
14
2017 ANNUAL REPORT
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
18.8.
DIRECTORS’ AND EXECUTIVE OFFICERS’ REMUNERATION – COMPANY AND GROUP (CONTINUED)
Notes in relation to the table of Directors' and Executive officers remuneration
(a) Mr Gallagher became a Director on 12 April 2017
(b) Mr Poynton ceased as a Director on 12 April 2017
(c) Mr Alder became a KMP on 14 December 2016
(d) Mr Lane changed roles as CEO of REMSAFE to Executive Chairman on 13 October 2016
(e) Mr Veitch ceased as a KMP on 18 November 2016
(f)
(g)
(h)
Ms Law ceased as a KMP on 3 May 2017
The fair value of the Employee Share Plan #1 is based upon the market value (at offer date) of shares offered.
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 fair value of the Performance Rights was calculated at the date of grant through using the “Hoadley Barrier 1” trinomial option
valuation model and allocated to each reporting period evenly over the period from grant date to expected vesting date.
Table 6 – Summary of terms and conditions of 2017 performance rights
Grant Date
Life
Number
of
Rights
Granted
Number
of
Rights
Vested
Fair Value
Per Right
Target Market
Capitalisation
Market
Capitalisation
on Grant Date
Expected
Volatility
Risk Free
Interest
Rate
8-Nov-17
24 months
200,000
8-Nov-17
36 months
300,000
-
-
50.0 cents
$125m
$71.9m
65.00%
1.66%
42.0 cents
$200m
$71.9m
65.00%
1.70%
Table 7 – Summary of terms and conditions of 2015 performance rights
Grant Date
Life
Number
of
Rights
Granted
Number
of
Rights
Vested
Fair Value
Per Right
Target Market
Capitalisation
Market
Capitalisation
on Grant Date
Expected
Volatility
Risk Free
Interest
Rate
22-Oct-14
18 months
900,000
900,000
23.1 cents
$20m
$14.8m
80.00%
2.45%
22-Oct-14
24 months
900,000
900,000
17.5 cents
$35m
$14.8m
80.00%
2.45%
22-Oct-14
36 months
900,000
900,000
15.3 cents
$60m
$14.8m
80.00%
2.51%
16
16
2017 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017 DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
18.8.
DIRECTORS’ AND EXECUTIVE OFFICERS’ REMUNERATION – COMPANY AND GROUP (CONTINUED)
Notes in relation to the table of Directors' and Executive officers remuneration
(a) Mr Gallagher became a Director on 12 April 2017
(b) Mr Poynton ceased as a Director on 12 April 2017
(c) Mr Alder became a KMP on 14 December 2016
(e) Mr Veitch ceased as a KMP on 18 November 2016
Ms Law ceased as a KMP on 3 May 2017
(f)
(g)
(h)
The fair value of the Employee Share Plan #1 is based upon the market value (at offer date) of shares offered.
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 fair value of the Performance Rights was calculated at the date of grant through using the “Hoadley Barrier 1” trinomial option
valuation model and allocated to each reporting period evenly over the period from grant date to expected vesting date.
Table 6 – Summary of terms and conditions of 2017 performance rights
Grant Date
Life
Number
Number
Rights
Granted
Rights
Vested
of
of
Fair Value
Target Market
Per Right
Capitalisation
Market
Capitalisation
on Grant Date
Expected
Volatility
Risk Free
Interest
Rate
8-Nov-17
24 months
200,000
50.0 cents
$125m
$71.9m
65.00%
1.66%
8-Nov-17
36 months
300,000
42.0 cents
$200m
$71.9m
65.00%
1.70%
-
-
Table 7 – Summary of terms and conditions of 2015 performance rights
Grant Date
Life
Number
Number
Rights
Granted
Rights
Vested
of
of
Fair Value
Target Market
Per Right
Capitalisation
Market
Capitalisation
on Grant Date
Expected
Volatility
Risk Free
Interest
Rate
22-Oct-14
18 months
900,000
900,000
23.1 cents
$20m
$14.8m
80.00%
2.45%
22-Oct-14
24 months
900,000
900,000
17.5 cents
$35m
$14.8m
80.00%
2.45%
22-Oct-14
36 months
900,000
900,000
15.3 cents
$60m
$14.8m
80.00%
2.51%
(d) Mr Lane changed roles as CEO of REMSAFE to Executive Chairman on 13 October 2016
Table 8 – Summary of KMP executives interests in equity instruments
Details of the shares and rights offered under the LTI to each key management person during the reporting period are as shown below.
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
18.9.
EQUITY INSTRUMENTS
All shares refer to ordinary shares and rights of Orbital Corporation Limited.
Analysis of Shares and rights offered as Compensation
Employee Share Plan No. 1
Performance Rights Plan
Number
of
shares
issued
Share
Price
Value (a)
$
Number
of
Rights
Offered
Value of
Rights
Offered
(b)
$
Number
of
Rights
Vested
Number
of Rights
Forfeited
Number
of Rights
Expired
Number
of Rights
Cancelled
Executive Director
Mr TD Stinson
Other KMP
Mr TM Alder
Dr GP Cathcart
Mr MC Lane
Mr IG Veitch
Ms C Law
2017
2017
2017
2017
2017
2017
-
-
-
-
1,085
$0.9217
1,085
1,085
-
$0.9217
$0.9217
-
-
500,000
59,252
500,000
-
1,000
1,000
1,000
-
-
-
-
-
-
-
-
-
-
-
-
200,000
-
200,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(a)
The fair value of the employee Share Plan No. 1 based upon the market value (at offer date of 31 October 2016) of shares
offered. These awards are fully vested.
(b) Represents the fair value of rights offered on 8 November 2016 using the “Hoadley Barrier 1” trinomial option valuation model for
the Performance Rights.
Table 9 – Movement of KMP executives interests in LTI equity rights
Number Held
at 1-Jul-16
Number
Offered
Number
Forfeited
Number
Expired
Number
Cancelled
Number
Vested
Number Held
at 30-Jun-17
Number
Not
Exercisable
Executive Director
Mr TD Stinson
500,000
500,000
Other KMP
Mr TM Alder
-
Dr GP Cathcart
200,000
Mr MC Lane
-
Mr IG Veitch
200,000
Ms C Law
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(500,000)
500,000
500,000
-
-
-
-
-
-
(200,000)
-
(200,000)
-
-
-
-
-
-
-
-
-
-
-
16
17
17
2017 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017 DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
18.9.
EQUITY INSTRUMENTS (CONTINUED)
Table 10 – Movement of KMP interests in shares
Number Granted as
compensation
Number Held
at
1-Jul-16
Number of
Shares
Purchased
ESP #1
Vested PRP
Number of
Shares Sold
Number Held at
30-Jun-17
679,103
-
2,790,688
1,172,621
-
71,635
126,678
30,515
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,085
1,085
1,085
-
-
-
-
-
-
(2,790,688)
679,103
-
-
500,000
-
200,000
-
-
-
-
-
200,000
(231,600)
-
-
1,672,621
-
272,720
127,763
-
-
Non-Executive Directors
Mr JP Welborn
Mr S Gallagher
Mr JH Poynton
Executive Director
Mr TD Stinson
Other KMP
Mr TM Alder
Dr GP Cathcart
Mr MC Lane
Mr IG Veitch
Ms C Law
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.
End of Remuneration Report
Signed in accordance with a resolution of the Directors:
J P Welborn
Chairman
T M Alder
Managing Director & Chief Executive Officer
Dated at Perth, Western Australia this 29th day of August 2017.
18
18
2017 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017 DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
18.9.
EQUITY INSTRUMENTS (CONTINUED)
Table 10 – Movement of KMP interests in shares
Number Granted as
compensation
Number Held
Number of
at
Shares
1-Jul-16
Purchased
ESP #1
Vested PRP
Shares Sold
30-Jun-17
Number of
Number Held at
1,172,621
500,000
1,672,621
679,103
-
2,790,688
71,635
126,678
30,515
-
-
679,103
(2,790,688)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
200,000
1,085
1,085
1,085
200,000
(231,600)
272,720
127,763
-
-
-
-
-
Non-Executive Directors
Mr JP Welborn
Mr S Gallagher
Mr JH Poynton
Executive Director
Mr TD Stinson
Other KMP
Mr TM Alder
Dr GP Cathcart
Mr MC Lane
Mr IG Veitch
Ms C Law
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.
End of Remuneration Report
Signed in accordance with a resolution of the Directors:
J P Welborn
Chairman
T M Alder
Managing Director & Chief Executive Officer
Dated at Perth, Western Australia this 29th day of August 2017.
STATEMENT OF PROFIT OR LOSS
STATEMENT OF PROFIT OR LOSS
FOR THE YEAR ENDED 30 JUNE 2017
FOR THE YEAR ENDED 30 JUNE 2017
CONSOLIDATED
Continuing operations
Sale of goods
Engineering services income
Royalty and licence income
Other revenue
Total Revenue
Other income
Materials and consumables expenses
Employee benefits expenses
Depreciation and amortisation expenses
Engineering consumables and contractors expenses
Impairment of goodwill
Occupancy expenses
Travel and accommodation expenses
Communications and computing expenses
Patent expenses
Insurance expenses
Audit, compliance and listing expenses
Finance costs
Other expenses
Share of profit from associate
(Loss)/Profit before income tax from continuing operations
Notes
6
7
8(d)
8(a)
19
8(b)
8(c)
16(c)
2017
$'000
10,569
2,884
802
115
14,370
3,440
(3,394)
(13,102)
(579)
(1,170)
(5,218)
(1,385)
(403)
(503)
(513)
(529)
(440)
(540)
(2,311)
-
(12,277)
Income tax benefit/(expense)
9(a)
26
(Loss)/Profit for the year from continuing operations
Discontinued operations
Loss after tax for the year from discontinued operations
29
(Loss)/Profit for the year
Attributable to:
Equity holders of the Parent
Non-controlling interests
Earnings per share
10
Basic (loss)/profit for the year attributable to ordinary equity holders of the Parent
Diluted (loss)/profit for the year attributable to ordinary equity holders of the Parent
Earnings per share from continuing operations
Basic (loss)/profit for the year attributable to ordinary equity holders of the Parent
Diluted (loss)/profit for the year attributable to ordinary equity holders of the Parent
(12,251)
-
(12,251)
(11,948)
(303)
(12,251)
cents
(15.55)
(15.55)
(15.55)
(15.55)
2016
$'000
3,139
7,704
789
119
11,751
11,452
(1,143)
(9,770)
(560)
(4,627)
-
(1,321)
(224)
(473)
(360)
(564)
(621)
(1,419)
(951)
1,529
2,699
(1,416)
1,283
(68)
1,215
1,533
(318)
1,215
cents
2.73
2.73
2.85
2.85
The Statement of Profit or Loss is to be read in conjunction with the notes to the financial statements set out on pages 25 to 69.
18
19
19
2017 ANNUAL REPORT
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2016
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2017
CONSOLIDATED
Net (loss)/profit for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Share of foreign currency reserve of equity accounted investment
Foreign currency translation
Foreign currency translation reserve released on sale of investment in
associate
Other comprehensive loss for the period, net of tax
Total comprehensive loss for the year
Attributable to:
Equity holders of the Parent
Non-controlling interests
Total comprehensive loss for the year
2017
$'000
(12,251)
-
-
-
-
(12,251)
(11,948)
(303)
(12,251)
2016
$'000
1,215
290
1,417
(3,607)
(1,900)
(685)
(367)
(318)
(685)
The statement of comprehensive income is to be read in conjunction with the notes to the financial statements set out on pages
25 to 69.
20
20
2017 ANNUAL REPORT
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2017
CONSOLIDATED
Net (loss)/profit for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Share of foreign currency reserve of equity accounted investment
Foreign currency translation
associate
Foreign currency translation reserve released on sale of investment in
Other comprehensive loss for the period, net of tax
Total comprehensive loss for the year
Attributable to:
Equity holders of the Parent
Non-controlling interests
Total comprehensive loss for the year
2017
$'000
(12,251)
-
-
-
-
(12,251)
(11,948)
(303)
(12,251)
2016
$'000
1,215
290
1,417
(3,607)
(1,900)
(685)
(367)
(318)
(685)
The statement of comprehensive income is to be read in conjunction with the notes to the financial statements set out on pages
25 to 69.
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1
21
2017 ANNUAL REPORT
STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2017
STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2017
CONSOLIDATED
ASSETS
Current assets
Cash and cash equivalents
Other financial assets
Trade and other receivables
Inventories
Total current assets
Non-current assets
Deferred taxation asset
Plant and equipment
Intangibles and goodwill
Total non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade payables and other liabilities
Borrowings
Employee benefits
Government grants
Other provisions
Total current liabilities
Non-current liabilities
Long term borrowings
Employee benefits
Government grants
Other provisions
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Share capital
Reserves
Accumulated losses
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
Non-controlling interests
TOTAL EQUITY
Notes
11
12(a)
14
15
17
18
19
20
12(b)
22(a)
23
24(a)
12(b)
22(b)
23
24(b)
25
26(b)
26(a)
2017
$'000
17,131
2,634
6,465
3,280
29,510
5,507
1,497
-
7,004
36,514
6,498
860
1,558
225
477
9,618
7,242
36
299
136
7,713
17,331
19,183
31,106
992
(12,915)
19,183
-
19,183
2016
$'000
24,872
1,434
6,009
4,248
36,563
5,482
1,925
5,218
12,625
49,188
6,454
717
2,154
225
57
9,607
7,562
42
524
185
8,313
17,920
31,268
30,051
1,366
(967)
30,450
818
31,268
The statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 25 to
69.
22
22
2017 ANNUAL REPORT
ASSETS
Current assets
Cash and cash equivalents
Other financial assets
Trade and other receivables
Inventories
Total current assets
Non-current assets
Deferred taxation asset
Plant and equipment
Intangibles and goodwill
Total non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Borrowings
Employee benefits
Government grants
Other provisions
Total current liabilities
Non-current liabilities
Long term borrowings
Employee benefits
Government grants
Other provisions
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Share capital
Reserves
Accumulated losses
Non-controlling interests
TOTAL EQUITY
69.
Notes
12(a)
11
14
15
17
18
19
20
12(b)
22(a)
23
24(a)
12(b)
22(b)
23
24(b)
25
26(b)
26(a)
2017
$'000
17,131
2,634
6,465
3,280
29,510
5,507
1,497
-
7,004
36,514
6,498
860
1,558
225
477
9,618
7,242
36
299
136
7,713
17,331
19,183
31,106
992
(12,915)
19,183
-
19,183
CONSOLIDATED
2016
$'000
24,872
1,434
6,009
4,248
36,563
5,482
1,925
5,218
12,625
49,188
6,454
717
2,154
225
57
9,607
7,562
42
524
185
8,313
17,920
31,268
30,051
1,366
(967)
30,450
818
31,268
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
The statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 25 to
STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2017
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2017
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2017
Notes
CONSOLIDATED
2017
$'000
2016
$'000
Cash flows from Operating Activities
Cash receipts from customers
Cash paid to suppliers and employees
Interest received
Interest paid
Income taxes paid
13,155
(18,003)
115
(30)
(90)
Net cash used in operating activities
32
(4,853)
Trade payables and other liabilities
Cash associated with sale of disposal group
29
Cash flows from Investing Activities
Net proceeds from sale of share in investment
Purchase of financial instruments
Net proceeds from sale of property, plant & equipment
Purchase of property, plant & equipment
Investment in short term deposit
Acquisition of subsidiary
-
(2,465)
29
(170)
697
-
-
22,689
(27,618)
124
(188)
(88)
(5,081)
24,185
-
67
(284)
-
(66)
(850)
Net cash (used in)/provided by investing activities
(1,909)
23,052
Cash flows from Financing Activities
Repayment of borrowings
Net cash used in financing activities
Net decrease 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
(717)
(717)
(7,479)
24,872
(262)
(597)
(597)
17,374
7,499
(1)
Cash and cash equivalents at 30 June
32
17,131
24,872
Non-Cash Investing and Financing Activities
During the year ended 30 June 2017, there were non-cash financing activities of $nil (2016:$9,136,000 from the early redemption
of Convertible notes outstanding as at 29 February 2016). There were no non-cash investing activities for the year ended 30
June 2017 (2016: $nil).
Refer to note 5 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 on pages 25 to 69.
22
23
23
2017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
1.
2.
Reporting Entity
Basis of Preparation
(a) Statement of Compliance with IFRS
(b) Basis of Preparation
(c) Functional and Presentation Currency
(d) Use of Estimates and Judgements
3.
Significant accounting policies
(a)
New accounting standards and interpretations
(b) Basis of consolidation
(c) Foreign currency
(d) Financial instruments
Inventories
(e)
Plant and equipment
(f)
Intangibles and goodwill
(g)
Impairment
(h)
Share capital
(i)
Employee benefits
(j)
(k) Provisions - Warranties
(l) Revenue recognition
(m) Operating leases
(n) Finance expense
(o)
Income tax
(p) Operating segments
(q) Goods and services tax
(r) Earnings per share
(s) Government grants
(t)
(u)
Business combinations
Non-current assets held for sale and
discontinued operations
(v)
New standards and interpretations not yet
adopted
(w) Comparatives
Significant accounting judgements, estimates and
assumptions
Operating segments
Other revenue
Other income
Expenses
Income Tax
4.
5.
6.
7.
8.
9.
10.
Earnings per share
11.
Cash and cash equivalents
Page
25
25
25
25
25
25
25
25
26
27
27
28
28
29
29
30
30
31
31
32
32
32
33
33
33
33
33
34
34
37
38
39
42
42
42
43
44
44
12.
Financial assets and financial liabilities, financial
risk management objectives and policies
Page
44
13. Fair values
14. Trade and other receivables
15.
Inventories
16.
Investment in associate
17. Deferred tax assets and liabilities
18. Plant and equipment
19.
Intangibles and goodwill
20. Trade payables and other liabilities
21. Financing arrangements
22. Employee benefits
23. Government grants
24. Other provisions
25. Share capital
26. Retained profits and reserves
27.
Information about subsidiaries
28.
Information relating to Orbital Corporation Limited
29. Business combinations
30. Related party disclosures
31. Key management personnel
32. Notes to the statement of cash flows
33. Share based payments
34. Defined contribution superannuation fund
35. Commitments
36. Contingencies
37. Events subsequent to balance sheet date
38. Remuneration of auditors
49
50
50
51
51
53
53
55
55
55
56
56
57
58
59
61
61
62
62
66
66
68
68
69
69
69
24
24
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
1.
REPORTING ENTITY
The consolidated financial statements of Orbital Corporation Limited (“the Company” or “the Parent”) and its subsidiaries
(collectively, “the Group”) were authorised for issue by the Company's Directors on 29 August 2017. The Company is a
for-profit company limited by shares domiciled in Australia whose shares are publicly traded on the Australian Stock
Exchange ("ASX"). The registered office of the Group is 4 Whipple Street, Balcatta, Western Australia.
The Group is principally engaged in the provision of smart technology that delivers improved performance outcomes in
the unmanned aerial vehicle, safety and productivity and consumer sectors. Further information on the nature of the
operations and principal activities of the Group is provided in the Directors’ Report and note 5. Information on the Group’s
structure is provided in Note 27.
2.
(a)
BASIS OF PREPARATION
Statement of Compliance with IFRS
The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards
Board (AASB) and International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).
(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 AASB.
The consolidated financial statements have also been prepared on the historical cost basis, except for investment in
marketable securities which are measured at fair value.
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191, dated 24 March 2016, and in accordance with that Instrument, amounts in the financial report and Directors’
Report have been rounded off to the nearest thousand dollars unless otherwise indicated.
(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 entities within 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 4.
3.
(a)
SIGNIFICANT ACCOUNTING POLICIES
New Accounting Standards and Interpretations
The accounting policies adopted are consistent with those of the previous financial year. From 1 July 2016, the Group has
adopted all the standards and interpretations effective as at 1 July 2016. Adoption of these standards and interpretations
did not have a material
impact on the Group. The Group has not elected to early adopt any new standards or
amendments.
25
25
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
3.
(b)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basis of Consolidation
(i)
Subsidiaries
Subsidiaries are all those entities over which the Group has control.
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.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over the investee. Specifically, the Consolidated Entity
controls an investee if and only if the Group has:
·
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the
investee)
Exposure, or rights, to variable returns from its involvement with the investee, and
·
·
The ability to use its power over the investee to affect its returns
The contractual arrangement with the other vote holders of the investee
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant
facts and circumstances in assessing whether it has power over an investee, including:
·
·
·
The Group’s voting rights and potential voting rights
Rights arising from other contractual arrangements
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes
to one or more of the three elements of control. Assets, liabilities, income and expenses of a subsidiary acquired or
disposed of during the year are included in the consolidated financial statements from the date the Group gains control
until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the
Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into
line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows
relating to transactions between members of the Group are eliminated in full on consolidation.
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.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company.
(ii)
Associate
The Group accounts for investments in associates using the equity method of accounting in the consolidated financial
statements. An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor a
joint arrangement.
The Group generally deems they have significant influence if they have over 20% of the voting rights.
26
26
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
3.
(b)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 statement of profit or loss. Non-monetary assets and liabilities that are measured in terms of historical
cost in a foreign currency are translated using the exchange rate at the date of the transaction.
(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 statement of profit or loss 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
borrowings, and trade and other payables.
instruments comprise trade and other receivables, cash and cash equivalents,
loans and
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.
instrument is recognised if the Group becomes a party to the contractual provisions of the instrument.
A financial
Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial asset expires or if
the Group transfers the financial asset to another party without retaining either 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 11
Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand and short-term
deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value.
Other financial assets - refer note 12 (a)
Other financial assets comprise of term deposits with financial institutions with maturities between 90 days and 365 days
and Financial assets at fair value through profit and loss. Subsequent to initial recognition other term deposits are stated
at amortised cost. Financial assets at fair value through profit and loss are carried in the statement of financial position at
fair value with net changes in fair value represented as other expense (negative net changes in fair value) or other income
(positive net changes in fair value) in the statement of profit or loss.
27
27
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
3.
(d)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments (continued)
(i)
Non-derivative financial instruments (continued)
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.
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.
Long term borrowings - refer note 12 (b)
Included in current and non-current liabilities is an amount owing to the Government of Western Australia resulting from a
loan restructured in January 2010.
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 on initial recognition is accounted for as a government grant as disclosed in note 12(b).
(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.
(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 from the
date of its acquisition. Plant and equipment are depreciated at 6.67% to 33.3% per year.
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.
28
28
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
3.
(d)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments (continued)
(i)
Non-derivative financial instruments (continued)
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.
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.
Long term borrowings - refer note 12 (b)
loan restructured in January 2010.
Included in current and non-current liabilities is an amount owing to the Government of Western Australia resulting from a
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 on initial recognition is accounted for as a government grant as disclosed in note 12(b).
(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.
(ii)
Subsequent costs
(iii)
Depreciation and amortisation
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.
Items of plant and equipment are depreciated/amortised on a straight line basis over their estimated useful lives from the
date of its acquisition. Plant and equipment are depreciated at 6.67% to 33.3% per year.
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.
3.
(g)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 statement of profit or loss as an expense as incurred.
Expenditure on development activities, whereby research findings are applied to a plan or design for the production of
new or substantially improved products and processes,
the product or process is technically and
commercially feasible and the Group has sufficient resources to complete development.
is capitalised if
Expenditure on intangibles which may be capitalised includes the cost of materials and direct labour. Other development
expenditure is recognised in the statement of profit or loss as an expense as incurred. Capitalised expenditure is stated at
cost less accumulated amortisation and impairment losses. Amortisation is charged to the statement of profit or loss 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 (CGUs), or groups of CGUs, 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 CGU (group of CGUs) is less than the carrying amount, an impairment loss is
recognised. When goodwill forms part of a CGU (group of CGUs) 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.
Cost includes expenditures that are directly attributable to the acquisition of the asset.
(iv)
Customer contract based intangible assets
Customer contracts acquired as part of a business combination are recognised separately from goodwill. The cost of
the acquisition date. Following initial
customer contracts acquired in a business combination is their fair value at
recognition, customer contracts are carried at
losses.
Amortisation is calculated based on the timing of when the benefits are expected to be received from such contracts
which ranges from 6 months to 2 years.
fair value less accumulated amortisation and impairment
(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.
28
29
29
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
3.
(h)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment (continued)
(i)
Financial assets (continued)
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
If any such indication exists then the
each reporting date to determine whether there is any indication of impairment.
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
Impairment losses
independent from other assets and groups.
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.
Impairment losses are recognised in profit or loss.
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.
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 25
(i)
Issued capital
Share capital is recognised at the fair value of the consideration received.
(ii)
Treasury shares
Own equity instruments that are reacquired are recognised at cost and deducted from equity. No gain or loss is
recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.
(iii)
Dividends
Dividends are recognised as a liability in the period in which they are declared.
(iv)
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 22
The provisions for employee entitlements expected to be wholly 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 employee benefits 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.
30
30
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
3.
(h)
Impairment (continued)
(i)
Financial assets (continued)
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.
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 25
(i)
Issued capital
(ii)
Treasury shares
(iii)
Dividends
(iv)
Transaction costs
benefit.
(j)
Employee Benefits
(i) Short-term benefits - refer note 22
Share capital is recognised at the fair value of the consideration received.
Own equity instruments that are reacquired are recognised at cost and deducted from equity. No gain or loss is
recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.
Dividends are recognised as a liability in the period in which they are declared.
Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax
The provisions for employee entitlements expected to be wholly 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 employee benefits 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.
3.
(j)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Employee Benefits (continued)
(ii)
Long service leave - refer note 22
The provision for employee entitlements are measured at the present value of the estimated future cash outflow to be
made to the employees using the projected unit credit method. Liabilities expected to be wholly settled within one year
after the end of the period in which the employees render the related services are classified as short-term benefits and
are measured at the amount due to be paid.
The provision for long service leave is measured at the present value of benefits accumulated up to the end of the
reporting period. The liability is discounted using an appropriate discount rate. Management requires judgement to
determine key assumptions used in the calculation including future increases in salaries and wages, future on-cost rates
and future settlement dates of employees' departures.
(iii)
Defined Contribution Superannuation Fund - refer note 34
Obligations for contributions to the defined contribution superannuation fund are recognised as an expense in the
statement of profit or loss as incurred.
(iv)
Share-based payment transactions - refer note 33
Employees have been offered the right to take up shares in the Company under two plans:
(i) Employee Share Plan No.1 and; (ii) Executive Long Term Incentive Plan.
The cost of equity settled employee benefits is recognised in employee benefits expense, together with a corresponding
increase in equity, over the period in which the service and performance conditions are fulfilled.
Service and non-market performance conditions are not taken into account when determining the grant date fair value of
awards, but the likelihood of the condition being met is assessed as part of the Groups best estimate of the number of
shares that will vest. Market performance conditions are reflected within grant date fair value.
(k)
Provisions – refer note 24
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 and management’s judgement in respect of the expected performance of the product.
(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 engineering services is recognised by reference to the stage of completion. Stage of completion is
measured by reference to total labour hours incurred to date as a percentage of total estimated labour hours for each
contract. When the contract outcome cannot be measured reliably, revenue is recognised only to the extent that the
expenses incurred are eligible to be recovered.
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.
30
31
31
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
3.
(l)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 statement of profit or loss on a straight-line basis over the
term of the lease.
(n)
Finance Costs
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 9
(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
statement of profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially
enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
(ii)
Deferred income tax expense and liability
Deferred tax is provided using the full liability balance sheet 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 reporting date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related
tax benefit will be realised.
(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.
32
32
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
3.
(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.
Revenue is recognised when the Group’s right to receive the payment is established.
Payments made under operating leases are recognised in the statement of profit or loss on a straight-line basis over the
(v)
Dividends
(m)
Operating Leases
term of the lease.
(n)
Finance Costs
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 9
(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
statement of profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is
recognised in equity.
(ii)
Deferred income tax expense and liability
Deferred tax is provided using the full liability balance sheet 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 reporting date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related
tax benefit will be realised.
(iii)
Tax consolidation
Orbital Corporation Limited.
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
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
3.
(p)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Operating Segments – refer note 5
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.
(q)
Goods and Services Tax
Revenue, expenses and assets are recognised net of the amount of 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 (ATO) 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 10
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 23
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.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially
enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
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 statement of profit or loss 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 statement of profit or loss over the expected useful life of
the relevant asset by equal annual instalments.
(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.
32
33
33
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
3.
(t)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Business Combinations (continued)
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 a financial asset or financial
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. The Group has classified contingent consideration arising in the current period as equity. Refer note 4 for details of
accounting judgments considered for equity classification.
(u)
Assets held for sale and discontinued operations – refer note 29
The Group classifies non-current assets and disposal groups as held for sale if their carrying amount will be recovered
principally through sale rather than through continuing use. Such non-current assets and disposal groups classified as
held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the
incremental costs attributable to the sale excluding finance costs and income tax expense.
The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or
disposal group is available for immediate sale in its present condition. Actions required to complete the sale should
indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn.
Management must be committed to the sale expected to be completed within one year from the date of classification.
Plant and equipment are not depreciated once classified as held for sale. Assets and liabilities classified as held for sale
are presented separately as current items in the statement of financial position.
A disposal group qualifies as a discontinued operation if it is a component of an entity that either has been disposed of, or
is classified as held for sale, and:
·
·
Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical are of operations.
Represents a separate major line of business or geographical area of operations.
Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as
profit or loss after tax from discontinued operations in the statement of profit or loss.
Additional disclosures are provided in note 29. All other notes to the financial statements include amounts for continuing
operations, unless otherwise mentioned.
(v)
New standards and interpretations not yet effective
The following new and amended Standards and Interpretations which have been issued but are not yet effective have
been identified as those which may impact the entity in the period of initial application. Whilst these new and amended
Standards and Interpretations are available for early adoption at 30 June 2017, they have not been applied in preparing
this financial report.
The Group has made a preliminarily assessment of the impact of the new Accounting Standard AASB 15 Revenue from
Contracts with Customers . A preliminary assessment has been made by considering two main contracts of the Group
which comprises 74% of
the group. The Group has assessed that accounting for variable
consideration under AASB 15 will not have a material impact on the revenue recognition in relation to these key contracts
in future periods, rather revenue at the full transaction price will continue to be recognised when control passes to the
customer. The Group is still in the process of assessing the full impact of the application of AASB 15 on the Group’s
financial statements and at this stage, it is not practicable to provide a reasonable financial estimate of the effect until the
group completes the detailed review. As a result, the above preliminary assessment is subject to change.
the total revenue of
The AASB has issued a new Accounting Standard AASB 16 Leases which is effective for fiscal years, and interim periods
within those fiscal years, beginning after 1 January 2019; however, early adoption is permitted. This standard requires
entities that lease assets to recognise on the balance sheet the assets and liabilities for the rights and obligations created
by those leases. The Group’s current operating leases comprise only of real estate. We are currently assessing the
impact the new standard will have on our consolidated financial statements and related disclosures. Upon adoption of this
standard, we expect the Group's balance sheet to include a right of use asset and liability related to these operating lease
arrangements.
The Group is yet to make a decision in relation to a transition method for the adoption of the new Accounting Standards
AASB 15 and AASB 16.
34
34
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
3.
(v)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New standards and interpretations not yet effective (continued)
Reference
Title
Summary
Amendments to
Australian
Accounting
Standards–
Disclosure
Initiative:
amendments to
AASB 107
Amendments to
Australian
Accounting
Standards–
Further Annual
Improvements
2014-2016
Cycle
Financial
Instruments
AASB
2016-2
AASB
2017-2
AASB 9,
and
relevant
amending
standards
The amendments to AASB 107 statement of cash flows are part
of the IASB’s Disclosure Initiative and help users of financial
statements better understand changes in an entity’s debt. The
amendments require entities to provide disclosures about
changes in their liabilities arising from financing activities,
including both changes arising from cash flows and non-cash
changes (such as foreign exchange gains or losses).
This Standard clarifies the scope of AASB 12 Disclosure of
Interests in Other Entities by specifying that the disclosure
requirements apply to an entity’s interests in other entities that
are classified as held for sale or discontinued operations in
accordance with AASB 5 Non-current Assets Held for Sale and
Discontinued Operations.
AASB 9 replaces AASB 139 Financial Instruments: Recognition
and Measurement.
Except for certain trade receivables, an entity initially measures
a financial asset at its fair value plus, in the case of a financial
asset not at fair value through profit or loss, transaction costs.
Debt instruments are subsequently measured at fair value
through profit or loss (FVTPL), amortised cost, or fair value
through other comprehensive income (FVOCI), on the basis of
their contractual cash flows and the business model under which
the debt instruments are held.
There is a fair value option (FVO) that allows financial assets on
initial recognition to be designated as FVTPL if that eliminates or
significantly reduces an accounting mismatch.
Equity instruments are generally measured at FVTPL. However,
entities have an irrevocable option on an instrument-by-
instrument basis to present changes in the fair value of non-
trading instruments in other comprehensive income (OCI)
without subsequent reclassification to profit or loss.
For financial liabilities designated as FVTPL using the FVO, the
amount of change in the fair value of such financial liabilities that
is attributable to changes in credit risk must be presented in
OCI. The remainder of the change in fair value is presented in
profit or loss, unless presentation in OCI of the fair value change
in respect of the liability’s credit risk would create or enlarge an
accounting mismatch in profit or loss.
All other AASB 139 classification and measurement
requirements for financial liabilities have been carried forward
into AASB 9, including the embedded derivative separation rules
and the criteria for using the FVO.
The incurred credit loss model in AASB 139 has been replaced
with an expected credit loss model in AASB 9.
The requirements for hedge accounting have been amended to
more closely align hedge accounting with risk management,
establish a more principle-based approach to hedge accounting
and address inconsistencies in the hedge accounting model in
AASB 139.
The Group does not have any hedging relationships and
therefore does not expect to be impacted by AASB 9 hedge
accounting. The Group is currently still assessing the impact of
IFRS 9 classification and measurement on their financial assets.
The Group will apply the simplified approach for recognition of
impairment losses based on lifetime expected losses.
Application date
of standard*
1-Jan-17
Application date
for Group
1-Jul-17
1-Jan-17
1-Jul-17
1-Jan-18
1-Jul-18
35
35
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT Application date
of standard*
1-Jan-18
Application date
for Group
1-Jul-18
1-Jan-18
1-Jul-18
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
3.
(v)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New standards and interpretations not yet effective (continued)
Reference
Title
Summary
AASB
2016-5
Amendments to
Australian
Accounting
Standards–
Classification
and
Measurement of
Share-based
Payment
Transactions
This Standard amends AASB 2 Share-based Payment, clarifying
how to account for certain types of share-based payment
transactions. The amendments provide requirements on the
accounting for:
► The effects of vesting and non-vesting conditions on the
measurement of cash-settled share-based payments
► Share-based payment transactions with a net settlement
feature for withholding tax obligations
► A modification to the terms and conditions of a share-based
payment that changes the classification of the transaction from
cash-settled to equity-settled.
Revenue from
Contracts with
Customers
AASB 15,
and
relevant
amending
standards
AASB 15 replaces all existing revenue requirements in
Australian Accounting Standards (AASB 111 Construction
Contracts, AASB 118 Revenue, AASB Interpretation 13
Customer Loyalty Programmes, AASB Interpretation 15
Agreements for the Construction of Real Estate, AASB
Interpretation 18 Transfers of Assets from Customers and AASB
Interpretation 131 Revenue – Barter Transactions Involving
Advertising Services) and applies to all revenue arising from
contracts with customers, unless the contracts are in the scope
of other standards, such as AASB 117 (or AASB 16 Leases,
once applied).
The core principle of AASB 15 is that an entity recognises
revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which
an entity expects to be entitled in exchange for those goods or
services. An entity recognises revenue in accordance with the
core principle by applying the following steps:
► Step 1: Identify the contract(s) with a customer
► Step 2: Identify the performance obligations in the contract
► Step 3: Determine the transaction price
► Step 4: Allocate the transaction price to the performance
obligations in the contract
► Step 5: Recognise revenue when (or as) the entity satisfies a
performance obligation.
AASB
2014-10
Amendments to
Australian
Accounting
Standards– Sale
or Contribution
of Assets
between an
Investor and its
Associate or
Joint Venture
The amendments clarify that a full gain or loss is recognised
when a transfer to an associate or joint venture involves a
business as defined in AASB 3 Business Combinations. Any
gain or loss resulting from the sale or contribution of assets that
does not constitute a business, however, is recognised only to
the extent of unrelated investors’ interests in the associate or
joint venture.
AASB 2015-10 defers the mandatory effective date (application
date) of AASB 2014-10 so that the amendments are required to
be applied for annual reporting periods beginning on or after 1
January 2018 instead of 1 January 2016.
1-Jan-18
1-Jul-18
36
36
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New standards and interpretations not yet effective (continued)
Amendments to
This Standard amends AASB 2 Share-based Payment, clarifying
1-Jan-18
of standard*
for Group
1-Jul-18
Australian
Accounting
Standards–
accounting for:
how to account for certain types of share-based payment
transactions. The amendments provide requirements on the
Classification
► The effects of vesting and non-vesting conditions on the
and
measurement of cash-settled share-based payments
Measurement of
► Share-based payment transactions with a net settlement
Share-based
feature for withholding tax obligations
Payment
► A modification to the terms and conditions of a share-based
Transactions
payment that changes the classification of the transaction from
cash-settled to equity-settled.
AASB 15,
Revenue from
AASB 15 replaces all existing revenue requirements in
1-Jan-18
1-Jul-18
and
Contracts with
Australian Accounting Standards (AASB 111 Construction
relevant
Customers
Contracts, AASB 118 Revenue, AASB Interpretation 13
3.
(v)
AASB
2016-5
amending
standards
Customer Loyalty Programmes, AASB Interpretation 15
Agreements for the Construction of Real Estate, AASB
Interpretation 18 Transfers of Assets from Customers and AASB
Interpretation 131 Revenue – Barter Transactions Involving
Advertising Services) and applies to all revenue arising from
contracts with customers, unless the contracts are in the scope
of other standards, such as AASB 117 (or AASB 16 Leases,
once applied).
The core principle of AASB 15 is that an entity recognises
revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which
an entity expects to be entitled in exchange for those goods or
services. An entity recognises revenue in accordance with the
core principle by applying the following steps:
► Step 1: Identify the contract(s) with a customer
► Step 2: Identify the performance obligations in the contract
► Step 3: Determine the transaction price
► Step 4: Allocate the transaction price to the performance
obligations in the contract
performance obligation.
► Step 5: Recognise revenue when (or as) the entity satisfies a
AASB
2014-10
Amendments to
The amendments clarify that a full gain or loss is recognised
1-Jan-18
1-Jul-18
Australian
Accounting
when a transfer to an associate or joint venture involves a
business as defined in AASB 3 Business Combinations. Any
Standards– Sale
gain or loss resulting from the sale or contribution of assets that
or Contribution
does not constitute a business, however, is recognised only to
the extent of unrelated investors’ interests in the associate or
of Assets
between an
Investor and its
Associate or
Joint Venture
joint venture.
AASB 2015-10 defers the mandatory effective date (application
date) of AASB 2014-10 so that the amendments are required to
be applied for annual reporting periods beginning on or after 1
January 2018 instead of 1 January 2016.
Reference
Title
Summary
Application date
Application date
Reference
Title
Summary
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
3.
(v)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New standards and interpretations not yet effective (continued)
AASB
2017-1
Amendments to
Australian
Accounting
Standards–
Transfers of
Investments
Property, Annual
Improvements
2014-2016
Cycle and Other
Amendments
The amendments clarify certain requirements in:
► AASB 1 First-time Adoption of Australian Accounting
Standards – deletion of exemptions for first-time adopters and
addition of an exemption arising from AASB Interpretation 22
Foreign Currency Transactions and Advance Consideration
► AASB 12 Disclosure of Interests in Other Entities –
clarification of scope
► AASB 128 Investments in Associates and Joint Ventures –
measuring an associate or joint venture at fair value
► AASB 140 Investment Property – change in use.
AASB
Interpret-
ation
22
Foreign
Currency
Transactions
and Advance
Consideration
AASB 16
Leases
The Interpretation clarifies that in determining the spot exchange
rate to use on initial recognition of the related asset, expense or
income (or part of it) on the derecognition of a non-monetary
asset or non-monetary liability relating to advance consideration,
the date of the transaction is the date on which an entity initially
recognises the non-monetary asset or non-monetary liability
arising from the advance consideration. If there are multiple
payments or receipts in advance, then the entity must determine
a date of the transactions for each payment or receipt of
advance consideration.
AASB 16 requires lessees to account for all leases under a
single on-balance sheet model in a similar way to finance leases
under AASB 117 Leases. The standard includes two recognition
exemptions for lessees – leases of ’low-value’ assets (e.g.,
personal computers) and short-term leases (i.e., leases with a
lease term of 12 months or less). At the commencement date of
a lease, a lessee will recognise a liability to make lease
payments (i.e., the lease liability) and an asset representing the
right to use the underlying asset during the lease term (i.e., the
right-of-use asset).
Lessees will be required to separately recognise the interest
expense on the lease liability and the depreciation expense on
the right-of-use asset.
Lessees will be required to remeasure the lease liability upon the
occurrence of certain events (e.g., a change in the lease term, a
change in future lease payments resulting from a change in an
index or rate used to determine those payments). The lessee will
generally recognise the amount of the remeasurement of the
lease liability as an adjustment to the right-of-use asset.
Lessor accounting is substantially unchanged from today’s
accounting under AASB 117. Lessors will continue to classify all
leases using the same classification principle as in AASB 117
and distinguish between two types of leases: operating and
finance leases.
* Designates the beginning of the applicable annual reporting period unless otherwise stated.
(w)
Comparatives
Certain comparatives have been reclassified to conform with current year presentation.
Application date
of standard*
1-Jan-18
Application date
for Group
1-Jul-18
1-Jan-18
1-Jul-18
1-Jan-19
1-Jul-19
36
37
37
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
4.
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.
Significant accounting judgements
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 statement of profit or loss. Refer to note 17
for further information.
Impairment of goodwill and plant and equipment
is impaired at least on an annual basis. This requires an estimation of the
The Group determines whether goodwill
recoverable amount of the CGU, using a value in use discounted cash flow methodology, to which the goodwill
is
allocated. At 30 June 2017, the Group has determined that the recoverable amount for the REMSAFE CGU is less than
its carrying value, resulting in an impairment charge to the statement of profit or loss of $5,218,269. The recoverable
amount has been determined based on a value in use calculation using cash flow projections from financial budgets
approved by senior management. Refer to note 19 for further information.
Plant and equipment are tested whenever events or changes in circumstances indicate that the carrying value exceeds its
recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Refer
to note 18 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, how often the customers will actually use the product warranty, and the costs of
fulfilling the performance of the product warranty. Historical experience and current knowledge of the performance of
products have been used in determining this provision. The related carrying amounts are disclosed in note 24.
Contingent consideration - equity classification
In determining the equity classification of contingent consideration with respect to the Remsafe non-controlling interest
transaction, the Group made judgements in respect of the performance targets to be met by REMSAFE. The Group
deemed each performance target as non-cumulative, which may be paid in two different 12 month periods and resulting in
the issue of a fixed number of shares. If a target is not met, no additional shares will be issued. In this scenario, as each
of the targets are independent of one another, the arrangement can be regarded as being two distinct contingent
consideration arrangements that are assessed separately. As either zero or the requisite number of shares will be issued
if each target is met, the obligation in respect of each arrangement is classified as equity under AASB 132. Refer to note
26(c) for further information.
Revenue from rendering of services
Revenue from services rendered is recognised in the statement of profit or loss 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.
38
38
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
5.
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 as reported in 2017
Unmanned Aerial Vehicles
The Unmanned Aerial Vehicles segment is focused on the design, development and construction of engines and
propulsion systems for Unmanned Aerial Vehicles (UAV) based on Orbital’s unique FlexDITM technology for spark ignited
heavy fuel engine applications. The Small Unmanned Aerial System (SUAS) engines business was previously reported
as part of the System Sales segment. Due to the expansion of the business to include the broader UAV engines
business, the business is now reported as a stand-alone operating segment.
Safety & Productivity
REMSAFE has developed an electrical isolation system that provides a safety solution which delivers cost savings and
increases productivity. The patented isolation system enables plant operators to safely and promptly isolate fixed
equipment from its energy source,
increasing safety and delivering immediate cost
savings. REMSAFE products provide for the highest level of safety for high and low voltage electrical isolations.
thereby optimising production,
Engineering Services (previously Accelerator)
The Engineering Services segment leverages off the engineering expertise, facilities and experience to commercialise
innovative and patent protected technologies. Engineering Service contracts are predominantly complete at 30 June
2017, and therefore this business segment will not be reported subsequent to June 2017.
Consumer
The Consumer segment includes royalties and licences from licensees of Orbital technologies. Applications utilising
Orbital technologies include outboard engines, auto rickshaws and scooters, representing consumer products. The
royalties and licence business was previously reported as a stand-alone operating segment.
Finance costs - including adjustments on provisions due to discounting.
Corporate management and finance and administration overhead expenses.
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:
·
·
·
·
·
Research and development costs.
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
In presenting geographical
assets are based on the geographical location of the assets.
information revenue is based on the geographical location of customers and non-current
Major Customers
The Group has a number of customers to which it provides both products and services. The UAV supply is to one major
customer that accounted for 62% (2016: one customer 16%) of total external revenue. The Safety & Productivity segment
supplies to Australian and South African mining companies of which one customer accounted for 32% of total external
revenue (2016: 26%). No other customer accounts for more than 10% of revenue.
39
39
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
5. OPERATING SEGMENTS (CONTINUED)
(a) Operating segments
Unmanned Aerial
Vehicles
Safety &
Productivity
Consumer
Engineeering
Services
Consolidated
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
11,446
3,139
687
5,814
802
788
1,319
1,891
14,254
11,632
115
119
14,369
11,751
Segment Revenue -
external customers
Unallocated other revenue
Total Revenue
Segment result (i) & (ii)
2,148
277
(8,307)
(248)
312
399
1,067
6
(4,780)
434
Unallocated expenses - net (iii)
Change in fair value of investment
Finance costs
Gain on sale of share in equity accounted investment
Share of profit from equity accounted investment
Foreign currency translation reserve released on sale of share in equity accounted investment
Net (loss) / profit before related income tax
Income tax benefit/ (expense)
(Loss)/ Profit after tax from continuing operations
(6,352)
(5,313)
(568)
(576)
-
-
-
-
(1,419)
3,861
1,529
3,607
(12,277)
2,699
26
(1,416)
(12,251)
1,283
Unmanned Aerial
Vehicles
Safety &
Productivity
Consumer
Engineeering
Services
Consolidated
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
73
12
5,218
-
373
11
-
-
61
-
-
82
354
363
-
-
2
-
3
-
579
55
5,218
919
75
-
(78)
(225)
(225)
195
(303)
162
5,303
384
4
131
141
6,047
-
-
-
-
-
Non-cash (revenue) and expenses
Depreciation and amortisation
152
101
Equity settled employee
compensation
Impairment of Goodwill
Other non-cash (income)/
expenses
Segment non-cash
expenses
41
-
420
613
Equity settled employee compensation
Amortisation of non-interest bearing loans
Movement in deferred tax
Finance costs
Share of profit from associate
691
121
543
72
876
(1,529)
(3,607)
-
(132)
(2)
110
540
(25)
-
-
-
568
(49)
72
7,263
(2,967)
Foreign currency translation reserve released on sale of share in equity accounted investment
Fair value movement in quoted equity shares
Movement in provision for surplus lease space
Foreign exchange translation loss/ (gain)
Total non-cash expenses and (revenue)
(i) Research and Development (R&D) income and expenditure have been included within segment results. In the prior period R&D was
not allocated to segments. To be consistent with current year allocation of R&D to segments, comparatives have been reclassified to
conform with current year presentation.
(ii) Safety & Productivity includes Goodwill impairment of $5.218 million in REMSAFE.
(iii) Unallocated expenses (net) includes other income and corporate overheads which are not allocated to operating segments as they
are considered to support the Group as a whole.
40
40
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
5. OPERATING SEGMENTS (CONTINUED)
(a) Operating segments
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
5. OPERATING SEGMENTS (CONTINUED)
(a) Operating segments
Unmanned Aerial
Vehicles
Safety &
Productivity
Consumer
Engineeering
Services
Consolidated
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
8,938
8,259
1,157
7,236
7
290
1,140
1,615
11,242
17,400
17,131
24,872
737
5,507
1,897
1,434
5,482
-
36,514
49,188
Segment Assets
Unallocated assets
Cash
Other financial assets
Deferred tax asset
Investments
Consolidated Total Assets
Segment Liabilities
7,650
6,614
356
1,093
19
124
1,204
1,810
9,229
9,641
Unallocated liabilities
Borrowings
Consolidated Total Liabilities
Consolidated Net Assets
Segment acquisitions
of non-current assets
(b) Geographic information
8,102
8,279
17,331
17,920
19,183
31,268
140
161
30
123
-
-
-
-
170
284
Americas
Europe
Asia
Australia
Africa
Consolidated
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
Revenue – external
customers
12,161
3,829 20
57
629
1,486
1,221
4,294
223 1,966
14,254 11,632
Non-current assets
- -
-
-
-
- 7,004 12,625
- - 7,004 12,625
Unmanned Aerial
Safety &
Vehicles
Productivity
Consumer
Consolidated
Engineeering
Services
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
11,446
3,139
687
5,814
802
788
1,319
1,891
14,254
11,632
Segment result (i) & (ii)
2,148
277
(8,307)
(248)
312
399
1,067
6
(4,780)
434
Foreign currency translation reserve released on sale of share in equity accounted investment
Unmanned Aerial
Safety &
Vehicles
Productivity
Consumer
Consolidated
Engineeering
Services
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
2017
$'000
2016
$'000
73
12
5,218
-
61
-
-
373
11
-
-
82
354
363
-
-
2
-
3
-
579
55
5,218
(78)
(225)
(225)
195
(303)
162
5,303
384
4
131
141
6,047
-
-
-
-
-
Segment Revenue -
external customers
Unallocated other revenue
Total Revenue
Unallocated expenses - net (iii)
Change in fair value of investment
Finance costs
Gain on sale of share in equity accounted investment
Share of profit from equity accounted investment
Net (loss) / profit before related income tax
Income tax benefit/ (expense)
(Loss)/ Profit after tax from continuing operations
Non-cash (revenue) and expenses
Depreciation and amortisation
152
101
Equity settled employee
compensation
Impairment of Goodwill
Other non-cash (income)/
expenses
Segment non-cash
expenses
41
-
420
613
Equity settled employee compensation
Amortisation of non-interest bearing loans
Movement in deferred tax
Finance costs
Share of profit from associate
Fair value movement in quoted equity shares
Movement in provision for surplus lease space
Foreign exchange translation loss/ (gain)
Total non-cash expenses and (revenue)
115
119
14,369
11,751
(6,352)
(5,313)
(568)
(576)
-
-
-
-
(1,419)
3,861
1,529
3,607
(12,277)
2,699
26
(1,416)
(12,251)
1,283
919
75
-
691
121
543
72
876
(1,529)
(3,607)
-
(132)
(2)
110
540
(25)
-
-
-
568
(49)
72
7,263
(2,967)
Foreign currency translation reserve released on sale of share in equity accounted investment
(i) Research and Development (R&D) income and expenditure have been included within segment results. In the prior period R&D was
not allocated to segments. To be consistent with current year allocation of R&D to segments, comparatives have been reclassified to
conform with current year presentation.
(ii) Safety & Productivity includes Goodwill impairment of $5.218 million in REMSAFE.
(iii) Unallocated expenses (net) includes other income and corporate overheads which are not allocated to operating segments as they
are considered to support the Group as a whole.
40
41
41
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
6.
OTHER REVENUE
Interest revenue
7.
OTHER INCOME
Grant income
Rental income from sub-lease
Research and development (R&D) grant (a)
Others (b)
CONSOLIDATED
2017
$'000
115
225
437
2,728
50
3,440
2016
$'000
119
430
460
3,071
7,491
11,452
(a) In accordance with research and development tax legislation the Group is entitled to a refundable R&D tax offset
accounted for as a government grant.
(b) The previous year other income includes profit on sale of the Synerject investment, Automotive grant income and
realisation of the foreign currency translation reserve.
8.
(a)
EXPENSES
Employee benefits expenses
Salaries and wages
Contributions to defined contributions superannuation funds
Share based payments
Annual leave
Long service leave
Other associated personnel expenses
(b)
Finance costs
Non-cash interest expense WA Government Loan
Convertible note interest expense
(c)
Other expenses
Administration
Marketing & Investor relations
Warranty provision
Fair value movement in quoted equity shares
Net foreign exchange losses
Corporate advisory expenses
Other
(d)
Materials and consumables expenses
Raw materials and consumables
Change in inventories
10,943
913
165
(19)
146
954
13,102
540
-
540
298
418
420
568
72
444
91
2,311
2,426
968
3,394
7,616
913
196
87
189
769
9,770
543
876
1,419
116
182
-
-
542
-
111
951
5,001
(3,858)
1,143
(e)
Lease payments included in Statement of Profit or Loss
Minimum lease payments – operating lease
940
768
42
42
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
CONSOLIDATED
8.
EXPENSES (CONTINUED)
CONSOLIDATED
2017
$'000
2016
$'000
(f)
Research and development costs
R&D costs charged directly to the statement of profit or loss
1,912
1,986
9.
(a)
INCOME TAX
Recognised in the Statement of Profit or Loss
Current income tax
Current year expense
Adjustments in respect of current income tax of previous year
Deferred tax
Adjustments in respect of deferred tax of previous years
Benefits arising from previously unrecognised tax losses
Relating to originating and reversing temporary differences
Total income tax expense in statement of profit or loss
(b)
Numerical reconciliation between tax benefit and pre-tax net profit/(loss)
Profit/(loss) before tax from continuing operations
Loss before tax from discontinued operations
Profit/(loss) before income tax
Income tax using the statutory tax rates
- Effect of higher tax rates in the United States of America
- Non-deductible expenditure
- Non assessable income
- Deferred tax asset not recognised
- Prior year Research and Development non-deductible expenditure
- De-recognition of US tax losses
- Recognition of previously unrecognised Australian tax losses
- Net withholding tax (paid)/recouped
- Other
- United States of America Federal and State taxes
Income tax expense on pre-tax net profit/(loss)
(c)
Tax consolidation
-
-
(105)
131
-
26
(12,277)
-
(12,277)
3,683
-
(3,445)
855
(1,168)
-
-
131
-
-
(30)
26
(563)
(468)
-
-
(385)
(1,416)
2,699
(68)
2,631
(789)
(217)
(2,340)
2,394
(1,076)
(468)
(4,804)
5,376
1
697
(190)
(1,416)
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.
Orbital and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax
amounts. The Group has applied the ‘separate taxpayer within group’ approach by reference to the carrying amounts in the
separate financial statements of each entity and the tax values applying under tax consolidation.
In addition to its own current and deferred tax amounts, Orbital also recognises current tax liabilities (or assets) and the
deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax
consolidated Group.
The entities have entered into a tax funding arrangement under which the controlled entities fully compensate Orbital for
any current tax payable assumed and are compensated by Orbital for any current tax receivable and deferred tax assets
relating to unused tax losses or unused tax credits that are transferred to Orbital under the tax consolidation regime. The
funding amounts are determined by reference to the amounts recognised in the controlled entities’ financial statements.
The funding amounts are recognised as current intercompany receivables or payables.
42
43
(a) In accordance with research and development tax legislation the Group is entitled to a refundable R&D tax offset
accounted for as a government grant.
(b) The previous year other income includes profit on sale of the Synerject investment, Automotive grant income and
realisation of the foreign currency translation reserve.
6.
OTHER REVENUE
Interest revenue
7.
OTHER INCOME
Grant income
Rental income from sub-lease
Research and development (R&D) grant (a)
Others (b)
EXPENSES
8.
(a)
Employee benefits expenses
Contributions to defined contributions superannuation funds
Salaries and wages
Share based payments
Annual leave
Long service leave
Other associated personnel expenses
(b)
Finance costs
(c)
Other expenses
Non-cash interest expense WA Government Loan
Convertible note interest expense
Administration
Marketing & Investor relations
Warranty provision
Net foreign exchange losses
Corporate advisory expenses
Other
Fair value movement in quoted equity shares
(d)
Materials and consumables expenses
Raw materials and consumables
Change in inventories
2017
$'000
115
225
437
2,728
50
3,440
10,943
913
165
(19)
146
954
13,102
540
-
540
298
418
420
568
72
444
91
2,311
2,426
968
3,394
2016
$'000
119
430
460
3,071
7,491
11,452
7,616
913
196
87
189
769
9,770
543
876
1,419
116
182
-
-
-
542
111
951
5,001
(3,858)
1,143
(e)
Lease payments included in Statement of Profit or Loss
Minimum lease payments – operating lease
940
768
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
10.
EARNINGS PER SHARE
Basic earnings per share
The calculation of basic earnings per share at 30 June 2017 was based on loss attributable to ordinary shareholders of
$11,948,000 (2016: profit $1,533,000) and a weighted average number of ordinary shares outstanding during the financial
year ended 30 June 2017 of 76,811,878 shares (2016: 56,198,664 shares), calculated as follows:
(Loss)/ Profit attributable to ordinary equity holders of the Parent:
Continuing operations
Discontinued operations
(Loss)/ Profit attributable to ordinary equity holders of the
Parent for basic earnings
Weighted average number of ordinary shares
Weighted average number of ordinary shares at 30 June
Effect of potential dilutive ordinary shares
Weighted average number of potential dilutive ordinary shares at 30
June
Earnings per share
Basic earnings per share
Diluted earnings per share
CONSOLIDATED
2017
$
(11,948,000)
-
(11,948,000)
Number
76,811,878
-
76,811,878
2016
$
1,601,000
(68,000)
1,533,000
Number
56,198,664
-
56,198,664
Cents
Cents
(15.55)
2.73
(15.55)
2.73
Rights granted to employees (including Key Management Personnel) as described in note 33 are considered to be
contingently issuable potential ordinary shares. These potential ordinary shares have not been included in the
determination of basic earnings per share. Contingent consideration of 4,000,000 Orbital shares to be issued to the Lane
Trust for acquisition of the remaining 38.5% interest in REMSAFE has not been included in the diluted earnings per share
calculation as they are contingent on future events. In the previous year, 900,000 performance rights have not been
included in the diluted earnings per share calculation as they were contingent on future events.
11.
CASH AND CASH EQUIVALENTS
.
.
.
.
Cash at bank
Cash at bank – US dollars
Cash at bank – European currency units
At call deposits – financial institutions*
* The deposits are at call with an Australian Bank, earning an interest rate of 2%.
12.
OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES
(a)
Other financial assets
Financial assets at fair value through profit and loss
CONSOLIDATED
2017
$'000
3,838
12,290
3
1,000
17,131
2016
$'000
10,398
13,705
3
766
24,872
.
.
44
Investment in quoted equity shares
1,897
-
Short term deposits at amortised cost
Short term deposits
Total other financial assets
737
2,634
1,434
1,434
44
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
12.
OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
(a)
Other financial assets (continued)
Financial assets at fair value through profit and loss
Financial assets at fair value through profit and loss represents investment in equity shares of a listed company. The Group
holds a non-controlling interest in the entity. Fair value of these equity shares are determined by reference to published
price quotations in an active market.
Financial assets at fair value through profit and loss are carried in the statement of financial position at fair value with net
changes in fair value represented as other expense (negative net changes in fair value) or other income (positive net
changes in fair value) in the statement of profit or loss.
Short term deposits at amortised cost
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, its carrying value approximates fair value. Short term deposits are only
invested with a major financial institution to minimise the risk of default by counter parties.
The Group has pledged short term deposits of $72,000 (2016: $672,000) held as collateral for performance guarantees
under contractual arrangements related to customer agreements and $665,000 (2016: $1,430,000) held as collateral for the
financing facilities. Refer note 21 for further details on financing facility.
(b)
Other financial liabilities
Financial liabilities and borrowings
.
.
Current
Loans and advances - secured
Total current borrowings
Non-current
Loans and advances - secured
Total non-current borrowings
CONSOLIDATED
2017
$'000
860
860
7,242
7,242
2016
$'000
717
717
7,562
7,562
Loans and advances - secured
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. Amortisation for the year ended 30 June 2017 was
$540,000 (2016: $543,000). The carrying value as at 30 June 2017 is $8,102,000 (2016: $8,279,000), of which $860,000
relates to short term borrowings (2016: $717,000) and $7,242,000 relates to long term borrowings (2016: $7,562,000).
This loan facility is secured by way of a first ranking floating debenture over the whole of the assets and undertakings of the
Company.
45
45
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
12.
(c)
OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
Financial risk management objectives and policies
The Group's principal financial
equity shares, payables, and financial liabilities.
instruments comprise cash and short-term deposits, receivables, investment in quoted
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, liquidity risk and equity price 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 Group’s Board of Directors
reviews and approves all equity investment decisions and the equity portfolio is reviewed by the Group’s senior
management on a regular basis.
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 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
Short term deposits
CONSOLIDATED
2017
$'000
17,131
737
17,868
2016
$'000
24,872
1,434
26,306
The following sensitivity analysis is based on the interest rate risk exposures in existence at reporting date:
At 30 June 2017, 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:
46
46
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
12.
(c)
OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
Financial risk management objectives and policies
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
12.
(c)
OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
Financial risk management objectives and policies (continued)
The Group's principal financial
instruments comprise cash and short-term deposits, receivables, investment in quoted
equity shares, 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, liquidity risk and equity price 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 Group’s Board of Directors
reviews and approves all equity investment decisions and the equity portfolio is reviewed by the Group’s senior
management on a regular basis.
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 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
deposits with Australian banks.
The Group's exposure to market interest rates relates primarily to the Group's cash, cash equivalents on deposit and term
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
Short term deposits
The following sensitivity analysis is based on the interest rate risk exposures in existence at reporting date:
At 30 June 2017, 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:
CONSOLIDATED
2017
$'000
17,131
737
17,868
2016
$'000
24,872
1,434
26,306
46
Post tax profit/(loss)
Higher/(Lower)
2017
$'000
2016
$'000
Consolidated
+1% (100 basis points)
- 1% (100 basis points)
179
(178)
263
(263)
Foreign currency risk
Other comprehensive income
Higher/(Lower)
2017
$'000
-
-
2016
$'000
-
-
As a result of the large USD cash balance resulting from the sale of investment in Synerject LLC in the previous year, the
Group's Statement of Profit or Loss and Statement of Financial Position can be affected significantly by movements in the
US$/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 61% (2016: 27%) of the Group's sales from continuing operations are denominated in currencies other than
the functional currency of the operating entity making the sale, whilst approximately 14% (2016: 17%) of costs from
continuing operations are denominated in currencies other than the functional currency of the operating entity making the
expenditure.
In the current year, the Group did not enter into any forward foreign currency contracts. The Group does not hold foreign
currency positions for trading purposes.
At 30 June 2017, 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
2017
$'000
12,290
2,452
14,742
2016
$'000
13,705
1,274
14,979
11
106
At 30 June 2017, 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:
Post tax profit/(loss)
Higher/(Lower)
Other comprehensive income
Higher/(Lower)
Consolidated
AUD/USD +5%
AUD/USD -5%
2017
$'000
-701
775
2016
$'000
-708
783
2017
$'000
-
-
2016
$'000
-
-
47
47
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
12.
(c)
OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
Financial risk management objectives and policies (continued)
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and
from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other
financial instruments. Maximum exposure to credit risk equals to the carrying amount of these financial assets (as outlined
in each applicable note).
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, other than the research and development grant
receivable from the Australian Government. 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 external borrowings of the Group at 30 June 2017 consist of an interest free Western Australian Government loan of
$14,346,000 repayable in yearly instalments from May 2010 to May 2025.
The table below reflects all contractually fixed pay-offs, repayments and interest resulting from recognised financial
liabilities as of 30 June 2017. 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 2017. 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:
CONSOLIDATED
6 months or less
6-12 months
1-5 years
Over 5 years
Equity price risk
2017
$'000
6,498
860
5,540
4,447
17,345
2016
$'000
6,456
717
4,616
6,230
18,019
The Group’s listed equity securities are susceptible to market price risk arising from uncertainties about future values of the
investment securities. At the reporting date, the exposure to listed equity securities at fair value was $1,897,000 (2016:
$nil).
Had the quoted price of the investment in quoted equity shares listed on ASX held by Group been 5% higher/lower with all
other variables held constant the group's profit or loss would have been $95,000 higher/lower, arising as a result of an
increase/decrease in the fair value of equity instruments. Comparison of fair values to carrying amounts of these
investments have been provided in Note 13.
48
48
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
12.
(c)
Credit risk
Financial risk management objectives and policies (continued)
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and
from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other
financial instruments. Maximum exposure to credit risk equals to the carrying amount of these financial assets (as outlined
in each applicable note).
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, other than the research and development grant
receivable from the Australian Government. 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 external borrowings of the Group at 30 June 2017 consist of an interest free Western Australian Government loan of
$14,346,000 repayable in yearly instalments from May 2010 to May 2025.
The table below reflects all contractually fixed pay-offs, repayments and interest resulting from recognised financial
liabilities as of 30 June 2017. 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 2017. 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:
CONSOLIDATED
2017
$'000
6,498
860
5,540
4,447
17,345
2016
$'000
6,456
717
4,616
6,230
18,019
6 months or less
6-12 months
1-5 years
Over 5 years
Equity price risk
$nil).
OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
13.
FAIR VALUES
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
Comparison of fair values to carrying amounts by class of financial instrument, other than those where their carrying
amounts approximate fair value:
Financial Assets
Investment in quoted equity shares
Total
Financial Liabilities
Loans and advances - secured
Total
Carrying Amounts
2016
$'000
2017
$'000
1,897
1,897
-
-
Fair Value
2017
$'000
1,897
1,897
2016
$'000
-
-
8,102
8,102
8,279
8,279
6,586
6,586
6,520
6,520
The Group assessed that cash and short-term deposits, trade receivables, trade payables and other current liabilities
approximate their carrying amounts largely due to the short-term maturities of these instruments.
The following methods and assumptions were used to estimate the fair values of financial instruments:
• The fair values of the quoted equity shares are based on price quotations at the reporting date in active markets.
• The fair value of the Group’s secured loan is calculated by discounting the expected future cash flows at the ____
__prevailing market interest rate at reporting date 2017: 12% (2016: 12%).
The following table provide the fair value measurement hierarchy of the Group’s assets and liabilities:
As at 30 June 2017:
Fair value measurement using
Financial assets for which fair values are disclosed:
Investment in quoted equity shares
Financial liabilities for which fair values are disclosed:
Loans and advances - secured
Total
$’000
1,897
1,897
6,586
6,586
Quoted prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1)
$’000
(Level 2)
$’000
(Level 3)
$’000
1,897
1897
-
-
-
-
6,586
6,586
-
-
-
-
The following table provide the fair value measurement hierarchy of the Group’s assets and liabilities:
The Group’s listed equity securities are susceptible to market price risk arising from uncertainties about future values of the
investment securities. At the reporting date, the exposure to listed equity securities at fair value was $1,897,000 (2016:
As at 30 June 2016:
Had the quoted price of the investment in quoted equity shares listed on ASX held by Group been 5% higher/lower with all
other variables held constant the group's profit or loss would have been $95,000 higher/lower, arising as a result of an
increase/decrease in the fair value of equity instruments. Comparison of fair values to carrying amounts of these
investments have been provided in Note 13.
Financial liabilities for which fair values are disclosed:
Loans and advances - secured
Fair value measurement using
Quoted prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1)
$'000
(Level 2)
$'000
(Level 3)
$'000
-
-
6,520
6,520
-
-
Total
$'000
6,520
6,520
48
49
49
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
14.
TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Accrued royalties
Other receivables
Prepayments
.
.
.
.
.
(a)
Allowance for impairment loss
CONSOLIDATED
2017
$'000
2016
$'000
3,989
3,989
180
2,074
222
6,465
3,174
3,174
199
2,305
331
6,009
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. No impairment allowance has
been recognised by the Group at balance date (2016: $nil).
At 30 June, the ageing of trade receivables ($'000) is as follows:
Total
0-30 days
31-60 days
61-90 days
PDNI*
+91 days
PDNI*
+91 days
CI**
3,989
3,174
3,854
2,630
54
22
50
84
31
438
-
-
2017 Consolidated
2016 Consolidated
* Past due not impaired
** Considered impaired
Receivables past due but not considered impaired are $81,000 (2016:$522,000). Payment terms on these amounts have
not been re-negotiated. Management has been in contact with each relevant debtor and is satisfied that payments will be
received in full.
Other balances within trade and other receivables do not contain impaired assets and are not past due.
these other balances will be received when due.
It is expected that
(b)
Foreign exchange and interest rate risk
Detail regarding foreign exchange and interest rate risk exposure is disclosed in note 12.
15.
INVENTORIES
Raw materials (at cost)
Work in progress (at cost)
Finished goods (at lower of cost and net realisable value)
1,908
828
544
3,280
1,652
2,320
276
4,248
.
50
Inventory expense
Inventories recognised as an expense from continued operations for the year ended 30 June 2017 totalled $3,394,000
(2016: $1,143,000) for the Group (Refer to Note 8(d)). REMSAFE inventories of $14,000 were written-down to their net
realisable value of $nil at 30 June 2017.
50
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
CONSOLIDATED
16.
INVESTMENT IN ASSOCIATE
(a)
Interest in Synerject LLC
The Group sold its 30% share in Synerject on 31 October 2015 for US$17.8 million.
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.
Application centres in Europe, China, Taiwan and the United States provide on-site support of customer development and
production programs.
The Group accounted for the investment in Synerject using the equity method.
Other information for Synerject is as follows:
Country of incorporation:
Financial Year end:
USA
31-Dec
(b)
Movement in the carrying amount of the Group’s interest in Synerject
Beginning of year
Share of profits after tax
Share of reserves
Dividends received
Unrealised foreign exchange movements
Sale of interest
End of year
(c)
Results of Synerject
Share of Synerject’s net profit
17.
DEFERRED TAX ASSETS AND LIABILITIES
Recognised deferred tax assets and liabilities
CONSOLIDATED
2017
$'000
2016
$'000
-
-
-
-
-
-
-
17,826
1,529
(119)
-
1,051
(20,287)
-
-
1,529
Deferred tax assets and liabilities are attributable to the following:
Consolidated
Deferred Tax Assets
Deferred Tax Liabilities
Net
14.
TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Accrued royalties
Other receivables
Prepayments
(a)
Allowance for impairment loss
2017
$'000
2016
$'000
3,989
3,989
180
2,074
222
3,174
3,174
2,305
199
331
6,465
6,009
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. No impairment allowance has
been recognised by the Group at balance date (2016: $nil).
At 30 June, the ageing of trade receivables ($'000) is as follows:
Total
0-30 days
31-60 days
61-90 days
+91 days
+91 days
PDNI*
PDNI*
CI**
3,989
3,174
3,854
2,630
54
22
50
84
31
438
-
-
2017 Consolidated
2016 Consolidated
* Past due not impaired
** Considered impaired
received in full.
Receivables past due but not considered impaired are $81,000 (2016:$522,000). Payment terms on these amounts have
not been re-negotiated. Management has been in contact with each relevant debtor and is satisfied that payments will be
Other balances within trade and other receivables do not contain impaired assets and are not past due.
It is expected that
these other balances will be received when due.
(b)
Foreign exchange and interest rate risk
Detail regarding foreign exchange and interest rate risk exposure is disclosed in note 12.
.
.
.
.
.
.
15.
INVENTORIES
Raw materials (at cost)
Work in progress (at cost)
Inventory expense
Finished goods (at lower of cost and net realisable value)
1,908
828
544
3,280
1,652
2,320
276
4,248
Tax value of loss carry-forwards
recognised
Other net temporary differences (a)
2017
$’000
5,507
-
2016
$’000
5,376
106
Net deferred tax assets
5,507
5,482
-
-
-
-
-
-
2017
$’000
2016
$’000
2017
$’000
2016
$’000
5,376
106
5,507
5,482
5,507
-
Inventories recognised as an expense from continued operations for the year ended 30 June 2017 totalled $3,394,000
(2016: $1,143,000) for the Group (Refer to Note 8(d)). REMSAFE inventories of $14,000 were written-down to their net
realisable value of $nil at 30 June 2017.
The Group recognised A$5,507,000 (2016: A$5,376,000) of deferred tax assets after assessing the likelihood of offsetting
carried forward tax losses against future taxable profits. Management has assessed the deferred tax asset as recoverable
based on forecasted future taxable profits in the Group’s business plan. The Group’s business plan has been developed
using existing customer contracts for Unmanned Aerial Vehicles as the basis for forecasting future revenues and taxable
profits from the supply of high-value UAV Propulsion systems.
50
51
51
The Group has tax losses that arose in Australia of A$71,868,452 (2016: A$70,256,783) that are available indefinitely for
offsetting against future taxable profits of the companies in which the losses arose.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
17.
DEFERRED TAX ASSETS AND LIABILITIES (CONTINUED)
Under the tax laws of the United States of America (USA), 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 2017, the available tax carry forward losses of US$11,286,304 (2016: US$11,286,304) expire between the years
2018 and 2024. The Group has not recognised a deferred tax asset in relation to unused tax losses in the USA.
Movement in temporary differences during the comparative year
Tax value of loss carry-forwards recognised
Other net temporary differences
Net tax assets
Movement in temporary differences during the current year
Consolidated
Acquired
during the
year
$’000
Recog-
nised in
income
$’000
-
-
-
(245)
105
(140)
Balance
1-Jul-15
$’000
5,621
-
5,621
Balance
30-Jun-16
$’000
5,376
105
5,481
Consolidated
Balance
1-Jul-16
$’000
Acquired
during the
year
$’000
Recog-
nised in
income
$’000
Balance
30-Jun-17
$’000
Tax value of loss carry-forwards recognised
Other net temporary differences
Net tax assets
5,376
105
5,481
-
-
131
(105)
-
26
(a)
Other net temporary differences
Deferred tax assets
Annual leave
Long service leave
Revenue in advance
(b)
Unrecognised deferred tax assets
CONSOLIDATED
2017
$'000
-
-
-
-
5,507
-
5,507
2016
$'000
50
40
15
105
Deferred tax assets have not been recognised in respect of the following items:
Australia (net at 30%)
Tax losses
Capital loss on investment
Other net temporary differences
United States of America (net 34%)
Tax losses
16,054
1,934
2,282
20,270
5,167
5,167
15,701
1,934
2,186
19,821
5,167
5,167
52
52
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
17.
DEFERRED TAX ASSETS AND LIABILITIES (CONTINUED)
Under the tax laws of the United States of America (USA), 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 2017, the available tax carry forward losses of US$11,286,304 (2016: US$11,286,304) expire between the years
2018 and 2024. The Group has not recognised a deferred tax asset in relation to unused tax losses in the USA.
Movement in temporary differences during the comparative year
Tax value of loss carry-forwards recognised
Other net temporary differences
Net tax assets
Movement in temporary differences during the current year
Tax value of loss carry-forwards recognised
Other net temporary differences
Net tax assets
(a)
Other net temporary differences
Deferred tax assets
Annual leave
Long service leave
Revenue in advance
(b)
Unrecognised deferred tax assets
Australia (net at 30%)
Tax losses
Capital loss on investment
Other net temporary differences
United States of America (net 34%)
Tax losses
Deferred tax assets have not been recognised in respect of the following items:
Consolidated
Acquired
during the
year
$’000
Recog-
nised in
income
$’000
-
-
-
-
-
(245)
105
(140)
Recog-
nised in
income
$’000
131
(105)
Balance
1-Jul-15
$’000
5,621
-
5,621
5,376
105
5,481
Consolidated
Acquired
during the
year
$’000
Balance
1-Jul-16
$’000
-
26
CONSOLIDATED
2017
$'000
-
-
-
-
Balance
30-Jun-16
$’000
5,376
105
5,481
Balance
30-Jun-17
$’000
5,507
-
5,507
2016
$'000
50
40
15
105
16,054
1,934
2,282
20,270
5,167
5,167
15,701
1,934
2,186
19,821
5,167
5,167
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
18.
PLANT AND EQUIPMENT
.
Plant and equipment
Gross carrying amount at cost
Less: accumulated depreciation
Total plant and equipment – net book value
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
CONSOLIDATED
2017
$'000
2016
$'000
18,288
(16,791)
1,497
18,190
(16,265)
1,925
1,925
170
(19)
(579)
1,497
2,259
284
(48)
(570)
1,925
All plant and equipment of the Group are subject to floating charges under the loan facility with the Government of Western
Australia (see note 12 (b)).
19.
INTANGIBLES AND GOODWILL
Goodwill acquired in business combinations
Total intangibles and goodwill – net book value
-
-
5,218
5,218
Net carrying value
Goodwill acquired in business combinations
At cost
Less: allowance for impairment
Carrying amount at end of year
Customer contracts acquired in business combinations
At cost
Less: accumulated amortisation
Carrying amount at end of year
(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 customer contracts:
Carrying amount at beginning of year
Amortisation
Carrying amount at end of year
5,218
(5,218)
-
5,218
-
5,218
-
-
-
597
(597)
-
5,218
(5,218)
-
5,218
-
5,218
-
-
-
312
(312)
-
52
53
53
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
19.
INTANGIBLES AND GOODWILL (CONTINUED)
(b)
Description of the Group’s intangible assets and goodwill
Goodwill
Goodwill arose on the acquisition of REMSAFE Pty Ltd on 4 February 2015 ($5,218,000).
Customer contracts
Customer contracts were acquired as part of the REMSAFE acquisition and recognised separately from goodwill. The
customer contracts are carried at cost (fair value at the date of acquisition) less accumulated amortisation and impairment
losses. Following initial recognition, customer contracts are amortised based on the estimated timing of when the benefits
are expected to be received from such contracts.
(c)
Assessment of impairment
The Group performed its annual impairment test in June 2017. The Group considered the downturn in large-scale capital
expenditures within REMSAFE’s principal market of Western Australian Iron Ore as a primary indicator of impairment.
Impairment test for Goodwill
REMSAFE
The overall decline in capital expenditures within the Western Australian mining industry, in addition to ongoing economic
uncertainty, has lead to decreased demand in Remote Isolation Systems.
The recoverable amount for the REMSAFE CGU as at 30 June 2017 has been determined based on a value in use
calculation using cash flow projections from financial budgets approved by senior management covering a four year period.
The projected cash flows have been updated to reflect the decreased demand for products and services. The pre-tax
discount rate applied to cash flow projections is 16.41% (2016:15.98%) and cash flows beyond the four year period have
not been extrapolated. It was concluded the fair value less costs was lower than value in use. As a result of this analysis,
management has recognised an impairment charge of $5,218,269 in the current year against goodwill with a carrying
amount of $5,218,269. The impairment charge is recorded in the statement of profit or loss.
Key assumptions used in value in use calculations
(a) The calculation of value in use for the REMSAFE CGU is most sensitive to the following key assumptions:
•
•
Market share assumptions
Discount rates
(b) Basis for determining values assigned to key assumptions
Market share assumptions – The value in use model has been updated to reflect decreased demand for the REMSAFE
technology and therefore assumes lower growth rates in sales volumes compared to prior year projections. Market share
growth rates used within the model have primarily been restricted to existing customer’s demand for the REMSAFE
technology.
Management recognises that the speed of adoption of the REMSAFE technology in new markets may take a number of
years. The value assigned to the market share assumption have primarily been based on existing customers’ requirements.
Discount rates – The discount rate is based on the company’s weighted average cost of capital (WACC) and is adjusted for
risks specific to the cash generating unit to the extent these risks have not been incorporated into the cash flow estimate.
54
54
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
19.
INTANGIBLES AND GOODWILL (CONTINUED)
(b)
Description of the Group’s intangible assets and goodwill
Goodwill arose on the acquisition of REMSAFE Pty Ltd on 4 February 2015 ($5,218,000).
Goodwill
Customer contracts
Customer contracts were acquired as part of the REMSAFE acquisition and recognised separately from goodwill. The
customer contracts are carried at cost (fair value at the date of acquisition) less accumulated amortisation and impairment
losses. Following initial recognition, customer contracts are amortised based on the estimated timing of when the benefits
are expected to be received from such contracts.
The Group performed its annual impairment test in June 2017. The Group considered the downturn in large-scale capital
expenditures within REMSAFE’s principal market of Western Australian Iron Ore as a primary indicator of impairment.
(c)
Assessment of impairment
Impairment test for Goodwill
REMSAFE
The overall decline in capital expenditures within the Western Australian mining industry, in addition to ongoing economic
uncertainty, has lead to decreased demand in Remote Isolation Systems.
The recoverable amount for the REMSAFE CGU as at 30 June 2017 has been determined based on a value in use
calculation using cash flow projections from financial budgets approved by senior management covering a four year period.
The projected cash flows have been updated to reflect the decreased demand for products and services. The pre-tax
discount rate applied to cash flow projections is 16.41% (2016:15.98%) and cash flows beyond the four year period have
not been extrapolated. It was concluded the fair value less costs was lower than value in use. As a result of this analysis,
management has recognised an impairment charge of $5,218,269 in the current year against goodwill with a carrying
amount of $5,218,269. The impairment charge is recorded in the statement of profit or loss.
Key assumptions used in value in use calculations
(a) The calculation of value in use for the REMSAFE CGU is most sensitive to the following key assumptions:
•
•
Market share assumptions
Discount rates
(b) Basis for determining values assigned to key assumptions
Market share assumptions – The value in use model has been updated to reflect decreased demand for the REMSAFE
technology and therefore assumes lower growth rates in sales volumes compared to prior year projections. Market share
growth rates used within the model have primarily been restricted to existing customer’s demand for the REMSAFE
technology.
Management recognises that the speed of adoption of the REMSAFE technology in new markets may take a number of
years. The value assigned to the market share assumption have primarily been based on existing customers’ requirements.
Discount rates – The discount rate is based on the company’s weighted average cost of capital (WACC) and is adjusted for
risks specific to the cash generating unit to the extent these risks have not been incorporated into the cash flow estimate.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
20.
TRADE PAYABLES AND OTHER LIABILITIES
Current
Trade and other payables
Interest rate, foreign exchange and liquidity risk
.
(a)
CONSOLIDATED
2017
$'000
2016
$'000
6,498
6,454
Trade payables are non-interest bearing and are normally settled on 30-day terms. Information regarding foreign exchange
and liquidity risk exposure is set out in note 12.
21.
FINANCING ARRANGEMENTS
The consolidated entity has standby arrangements with HSBC and Bankwest to provide support facilities:
Total facilities available
Corporate credit card facility
Bank guarantee
Facilities utilised at balance date
Corporate credit card facility
Bank guarantee
Facilities not utilised at balance date
Corporate credit card facility
200
465
665
60
465
525
140
140
280
1,150
1,430
30
1,150
1,180
250
250
The Group has pledged short term deposits of $665,000 (2016: $1,430,000) held as collateral for the financing facilities.
A bank guarantee has been provided for the benefit of the landlords of the Balcatta premises.
22.
EMPLOYEE BENEFITS
(a)
Current
.
.
Annual leave
Long service leave
(b)
Non-Current
605
953
1,558
889
1,265
2,154
.
(c)
Long service leave
36
42
Aggregate liability for employee entitlements
1,594
2,196
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
3.50%
2.28%
10
3.50%
2.98%
10
62
81
54
55
55
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
CONSOLIDATED
2017
$'000
23.
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
225
299
524
2016
$'000
225
524
749
Movement in government grants
At 1 July
Released to the statement of profit or loss
At 30 June
749
(225)
524
974
(225)
749
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 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.
24.
OTHER PROVISIONS
(a)
Current
.
.
Warranties
Surplus lease space
(b)
Non-Current
.
Surplus lease space
(c)
Reconciliations
420
57
477
-
57
57
136
185
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
Surplus lease space – non-current
Carrying amount at beginning of year
Arising during the year
Reclassified to current
Carrying amount at end of year
-
420
-
420
57
(86)
86
57
100
-
(100)
-
141
(170)
86
57
185
37
(86)
136
233
38
(86)
185
56
56
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
CONSOLIDATED
24.
OTHER PROVISIONS (CONTINUED)
2017
$'000
(c)
Reconciliations (continued)
Movement in government grants
Released to the statement of profit or loss
At 1 July
At 30 June
749
(225)
524
974
(225)
749
Surplus lease space provision relates to certain unutilised office space under lease agreement ending in January 2021 and
accordingly will be utilised in the next four years. The provision takes account of rental income the Group would recover by
sub-letting the space. In the prior period, a sub-lease agreement was entered into and rental from the sub-lease agreement
is recognised in the statement of profit or loss in the line item “other income”.
The product warranty provision relates to sales of propulsion system assemblies for UAVs. In determining the level of
provision required for product warranties, the Group has made judgements in respect of the expected performance of the
product, how often the customers will actually use the product warranty, and the costs of fulfilling the performance of the
the performance of products have been used in
product warranty. Historical experience and current knowledge of
determining this provision. The movement in the provision is recognised in the statement of profit or loss in the line item
"Other Expenses”. Considering that this provision relates to a newly developed product, it is not possible to estimate the
expected timing of the warranty claims at this stage. However, based on the warranty terms, these costs will have been
incurred within two years from the date of sale.
23.
GOVERNMENT GRANTS
Current liabilities
Investment grant for construction of heavy duty engine testing facility
225
Non-current liabilities
Investment grant for construction of heavy duty engine testing facility
Total government grants deferred
299
524
2016
$'000
225
524
749
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 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.
25.
SHARE CAPITAL
Ordinary shares
Reconciliations of the carrying amounts for each class of provisions are set out below:
Movement in ordinary shares on issue
At 1 July 2015
Shares issued pursuant to employee share plan
Shares issued under performance rights plan
Convertible note interest elected to be paid in shares
Convertible notes converted during the period
At 30 June 2016
At 1 July 2016
Acquisition of remaining 38.5% interest in REMSAFE (note 26 (c))
Shares issued pursuant to employee share plan (note 33(b))
Shares issued under performance rights plan (note 33(c))
At 30 June 2017
.
CONSOLIDATED
2017
$'000
31,106
Number
48,979,099
95,646
900,000
1,359,352
24,000,000
75,334,097
75,334,097
1,000,000
61,785
900,000
77,295,882
2016
$'000
30,051
$'000
20,021
57
158
679
9,136
30,051
30,051
860
57
138
31,106
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.
On 13 October 2016 Orbital acquired the remaining 38.5% minority interest
consideration for 1,000,000 Orbital shares at an issue price of $0.86 per share.
in REMSAFE from the Lane Trust
in
On 1 March 2016, the Company gave notice to redeem all Convertible Notes outstanding as at 29 February 2016. As a
result, note holders exercised their right to convert and all 153 Notes outstanding at that date were converted to ordinary
shares. Prior to the early redemption at 29 February 2016, 39 Notes were converted in the 2016 financial year and 8 Notes
were converted in the 2015 financial year.
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
the business. Management defines capital as contributed
market confidence and to sustain future development of
shareholder equity.
56
57
57
.
.
.
.
.
24.
OTHER PROVISIONS
(a)
Current
Warranties
Surplus lease space
(b)
Non-Current
Surplus lease space
(c)
Reconciliations
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
Surplus lease space – non-current
Carrying amount at beginning of year
Arising during the year
Reclassified to current
Carrying amount at end of year
420
57
477
-
57
57
136
185
-
420
-
420
57
(86)
86
57
100
-
(100)
-
141
(170)
86
57
185
37
(86)
136
233
38
(86)
185
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
CONSOLIDATED
2017
$'000
2016
$'000
26.
(a)
.
ACCUMULATED LOSSES AND RESERVES
Movements in retained earnings were as follows:
Balance 1 July
Net (loss)/profit attributable to Equity holders of the Parent
Balance 30 June
(967)
(11,948)
(12,915)
(2,500)
1,533
(967)
(b)
Other reserves
Consolidated
Employee
Equity
Benefits
Reserve
Foreign
Currency
Transla-
tion
Reserve
Contin-
gent
Conside-
ration
Consoli-
dation
Reserve
Conver-
tible
Note
Reserve
Total
$’000
$’000
$’000
$’000
$’000
$’000
Balance 1 July 2015
Equity-settled transaction-employee
Other comprehensive (loss)/ income
Balance at 30 June 2016
1,807 1,900
- (670)
- -
(19) -
- (1,900) - -
- (670)
1,788 -
248 3,285
- (19)
- (1,900)
248 1,366
Balance 1 July 2016
Acquisition of non-controlling interests
Equity-settled transaction-employee
Other comprehensive income/ (loss)
Balance at 30 June 2017
1,788 -
- -
(29) -
- -
1,759 -
- (670)
3,440 (3,785)
- -
- -
3,440 (4,455)
248 1,366
(345)
- (29)
-
-
248 992
(c)
Nature and purpose of reserves
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 33 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.
Contingent Consideration
in
On 13 October 2016 Orbital acquired the remaining 38.5% minority interest
consideration for the issue of up to 5 million ordinary shares in Orbital at a deemed issue price of $0.86 per share. The
terms of sale provide incentive to achieve targeted future sales with consideration payable as follows:
• 1 million new fully paid ordinary shares in Orbital immediately on completion of the share sale;
• A further 2 million Orbital shares if Remsafe achieves $25m accumulated annual sales for any 12 month period; and
• A further 2 million Orbital shares if Remsafe achieves $40m accumulated annual sales for any 12 month period.
in Remsafe from the Lane Trust
Contingent consideration was measured with reference to the Orbital share price at 13 October 2016 and in consideration
for the probability that accumulated annual sales targets will be met, which was assessed at 100 per cent. Contingent
consideration is included in Level 2 of the fair value hierarchy.
The arrangement to pay contingent consideration of a further 4,000,000 Orbital shares has been classified as equity within
the consolidation reserve. Refer note 4 for details of accounting judgments considered for equity classification.
Condition
If Remsafe achieves $25m accumulated annual sales
for any 12 month period; and
If Remsafe achieves $40m accumulated annual sales
for any 12 month period.
No of Shares
Share price
Consideration
2,000,000
2,000,000
0.86
0.86
1,720,000
1,720,000
3,440,000
58
58
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
26.
(c)
27.
(a)
ACCUMULATED LOSSES AND RESERVES (CONTINUED)
Nature and purpose of reserves (continued)
Consolidation reserve
On 17 June 2015, the Group acquired an additional 7% interest in the voting shares of REMSAFE Pty Ltd increasing its
ownership to 61.5%. Cash consideration of $2,000,000 was paid for the additional shares issued by REMSAFE. The
adjustment to the non-controlling interest was treated as an equity transaction.
Convertible note reserve
Convertible note reserve represents the equity component of the $10,000,000 Convertible notes issued in the financial year
2016 . On issuance of Convertible notes the fair value of the liability component was classified as a financial liability and
subsequently measured at amortised cost (net of transaction costs). The remainder of the proceeds were allocated to the
conversion option that was recognised and included in equity. The portion of the transaction costs attributable to the
conversion right were deducted from equity.
INFORMATION ABOUT SUBSIDIARIES
Consolidated entity
Note
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
- Power Investment Funding Pty Ltd
- Kala Technologies Pty Ltd
- Orbital Share Plan Pty Ltd
- REMSAFE Pty Ltd
United States of America
- Orbital Holdings (USA) Inc.
- Orbital Fluid Technologies Inc.
- Orbital Engine Company (USA) Inc.
(a)
(a)
(a)
(a)
(a)
(a)
(b)
(c)
(a)
(d)
Class of
Shares
Consolidated Entity Interest
2016
%
2017
%
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
61.5
100
100
100
CONSOLIDATED
2017
$'000
2016
$'000
(967)
(11,948)
(12,915)
(2,500)
1,533
(967)
26.
(a)
ACCUMULATED LOSSES AND RESERVES
Movements in retained earnings were as follows:
Net (loss)/profit attributable to Equity holders of the Parent
Balance 1 July
.
Balance 30 June
(b)
Other reserves
Consolidated
Employee
Foreign
Equity
Currency
Contin-
gent
dation
Consoli-
Conver-
Total
Benefits
Reserve
Transla-
Conside-
Reserve
tion
Reserve
ration
tible
Note
Reserve
$’000
$’000
$’000
$’000
$’000
$’000
Balance 1 July 2015
1,807 1,900
- (670)
248 3,285
Equity-settled transaction-employee
(19) -
- -
- (19)
Other comprehensive (loss)/ income
- (1,900) - -
- (1,900)
Balance at 30 June 2016
1,788 -
- (670)
248 1,366
Balance 1 July 2016
1,788 -
- (670)
248 1,366
Acquisition of non-controlling interests
- -
3,440 (3,785)
(345)
Equity-settled transaction-employee
(29) -
- -
- (29)
Other comprehensive income/ (loss)
- -
- -
-
-
Balance at 30 June 2017
1,759 -
3,440 (4,455)
248 992
(c)
Nature and purpose of reserves
Employee equity benefits reserve
Foreign currency translation reserve
statements of foreign subsidiaries.
Contingent Consideration
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 33 for further details of these plans.
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial
On 13 October 2016 Orbital acquired the remaining 38.5% minority interest
in Remsafe from the Lane Trust
in
consideration for the issue of up to 5 million ordinary shares in Orbital at a deemed issue price of $0.86 per share. The
terms of sale provide incentive to achieve targeted future sales with consideration payable as follows:
• 1 million new fully paid ordinary shares in Orbital immediately on completion of the share sale;
• A further 2 million Orbital shares if Remsafe achieves $25m accumulated annual sales for any 12 month period; and
• A further 2 million Orbital shares if Remsafe achieves $40m accumulated annual sales for any 12 month period.
Contingent consideration was measured with reference to the Orbital share price at 13 October 2016 and in consideration
for the probability that accumulated annual sales targets will be met, which was assessed at 100 per cent. Contingent
consideration is included in Level 2 of the fair value hierarchy.
United Kingdom
- Orbital Engine Company (UK) Ltd
(a) Dormant for the years ended 30 June 2017 and 30 June 2016.
(b) Orbital Share Plan Pty Ltd was established on 22 September 2008 and acts as the trustee of the Orbital Executive xxx Long
Term Share Plans.
(c) On 13 October 2016 Orbital acquired the remaining 38.5% minority interest in REMSAFE Pty Ltd.
(d) Company was dissolved during the year ended 30 June 2017. There was no consequence to the Group from the xxx
dissolution of the subsidiary.
(e) The company is in the process of being dissolved.
Ord
100
100
(e)
The arrangement to pay contingent consideration of a further 4,000,000 Orbital shares has been classified as equity within
the consolidation reserve. Refer note 4 for details of accounting judgments considered for equity classification.
(b)
Material partly-owned subsidiary: REMSAFE Pty Ltd
Condition
No of Shares
Share price
Consideration
If Remsafe achieves $25m accumulated annual sales
for any 12 month period; and
If Remsafe achieves $40m accumulated annual sales
for any 12 month period.
2,000,000
2,000,000
0.86
0.86
1,720,000
1,720,000
3,440,000
58
The principal place of business of REMSAFE is in Balcatta, Western Australia.
On 13 October 2016 Orbital acquired the remaining 38.5% minority interest in REMSAFE, increasing its ownership interest
to 100%. Equity consideration of 1,000,000 Orbital shares was issued to the non-controlling shareholder, the Lane Trust, at
an issue price of $0.86 per share. The carrying value of the net assets of REMSAFE (excluding goodwill on the original
acquisition) was $2,682,000. Refer note 26(c) for further details.
59
59
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
27.
(b)
INFORMATION ABOUT SUBSIDIARIES (CONTINUED)
Material partly-owned subsidiary: REMSAFE Pty Ltd (continued)
Financial information of the subsidiary that have material non-controlling interest is provided below:
Proportion of equity interest held by non-controlling interest
Accumulated balance of material non-controlling interest
2017
(3 months)
Nil
$'000
-
Loss for the period allocated to material non-controlling interest
(303)
Summarised financial information for REMSAFE is provided below:
Summarised Statement of Profit or Loss for the period
Revenue
Research and development grant
Expenses
Loss before tax
Income tax expense
Loss for the year from continuing operations
Total Comprehensive loss
Attributable to non-controlling interests
Dividends paid to non-controlling interests
Summarised Statement of Financial Position as at 30 June
Assets
Current assets
Cash
Other financial assets
Trade and other receivables
Inventories
Non-current assets
Deferred taxation asset
Plant and equipment
Liabilities
Current liabilities
Trade payables and other liabilities
Employee benefits
Non-current liabilities
Other liabilities
Employee benefits
Total Equity
Attributable to:
Equity holders of the Parent
Non-controlling interest
199
-
(975)
(776)
(11)
(787)
(787)
(303)
-
2017
$'000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2016
(12 months)
38.50%
$'000
818
(318)
5,814
1,432
(7,325)
(79)
(747)
(826)
(826)
(318)
-
2016
$'000
1,469
769
1,696
18
106
131
4,189
615
284
1,151
17
2,067
2,122
1,305
818
60
60
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
27.
(b)
Material partly-owned subsidiary: REMSAFE Pty Ltd (continued)
Proportion of equity interest held by non-controlling interest
Accumulated balance of material non-controlling interest
Loss for the period allocated to material non-controlling interest
(303)
Summarised financial information for REMSAFE is provided below:
Summarised Statement of Profit or Loss for the period
Revenue
Research and development grant
Expenses
Loss before tax
Income tax expense
Loss for the year from continuing operations
Total Comprehensive loss
Attributable to non-controlling interests
Dividends paid to non-controlling interests
Summarised Statement of Financial Position as at 30 June
Assets
Current assets
Cash
Other financial assets
Trade and other receivables
Inventories
Non-current assets
Deferred taxation asset
Plant and equipment
Trade payables and other liabilities
Liabilities
Current liabilities
Employee benefits
Non-current liabilities
Other liabilities
Employee benefits
Total Equity
Attributable to:
Equity holders of the Parent
Non-controlling interest
2017
(3 months)
Nil
$'000
-
199
-
(975)
(776)
(11)
(787)
(787)
(303)
-
2017
$'000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2016
(12 months)
38.50%
$'000
818
(318)
5,814
1,432
(7,325)
(79)
(747)
(826)
(826)
(318)
-
2016
$'000
1,469
769
1,696
18
106
131
4,189
615
284
1,151
17
2,067
2,122
1,305
818
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
INFORMATION ABOUT SUBSIDIARIES (CONTINUED)
28.
INFORMATION RELATING TO ORBITAL CORPORATION LIMITED
Financial information of the subsidiary that have material non-controlling interest is provided below:
Summarised Statement of Financial Position as at 30 June
.
.
.
.
.
.
.
.
.
Current assets
Total assets
Current liabilities
Total liabilities
Issued capital
Accumulated (losses)/earnings
Employee equity benefits reserve
Total shareholders’ equity
(Loss)/profit of the parent entity
Total comprehensive (loss)/profit of the parent entity
29.
DISCONTINUED OPERATIONS
2017
$'000
3
36,513
860
8,102
31,106
(4,454)
1,759
28,411
(14,258)
(14,258)
2016
$'000
2
49,188
-
8,527
30,051
9,804
1,788
41,643
27,648
27,648
On 30 June 2015, the Group publicly announced the decision of its Board of Directors to exit the LPG businesses due to
the decline in the LPG market, the resulting lack of sustainable profitability and the recent changes in Orbital’s business
focus.
The Group completed the divestment of both the Sprint Gas Australia (“Sprint Gas”) business and the Orbital Autogas
Systems (“OAS”) business by 30 November 2015. The sale of the net assets of Sprint Gas and the sale of the OAS
inventory assets were combined to form a single co-ordinated plan to exit the loss-making LPG businesses with minimal
cost of closure to the Group. The Sprint Gas business divestment was executed through the sale of the net assets of
Sprint Gas to the non-controlling shareholder for no consideration. The OAS business divestment was executed through
the closure of the OAS operations and the transfer of the inventory of the OAS business to Sprint Gas at an agreed value of
$468,000, which is being settled through an 18 month payment arrangement. The net assets of Sprint Gas and the OAS
inventory were classified as a disposal group held for sale as at 30 June 2015. The results of both the Sprint Gas business
and the OAS business were reported as discontinued operations in the statement of profit or loss in the previous year.
The net assets of Sprint Gas were measured at the lower of its carrying amount and fair value less costs to sell and as a
result the net assets were impaired in full. The total impairment charge was recognised in the statement of profit or loss in
the previous year as part of the line item “Loss after tax for the year from discontinued operations”. The LPG businesses
were included in the Consumer operating segment until 30 June 2014.
(a)
The results of the LPG businesses for the year are presented below:
Revenue
Expenses
Operating income/(loss)
Finance costs
Impairment loss recognised on the remeasurement to fair value less cost to sell
Loss before tax from discontinued operations
Tax
Loss for the year from discontinued operations
2016
$'000
2,538
(2,536)
2
-
(70)
(68)
-
(68)
60
61
61
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
29.
(b)
DISCONTINUED OPERATIONS (CONTINUED)
The major classes of assets and liabilities of the LPG businesses classified as held for sale and fully written down
as at 30 June 2015 and disposed of on 30 November 2015 were as follows:
Assets
Plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Impairment
Liabilities
Employee benefits
Borrowings
Trade and other creditors
Fair value of disposal group
The net cash flows incurred by the LPG businesses are as follows:
Operating
Investing
Financing
Net cash (outflow)/inflow
2016
$'000
193
1,777
725
784
3,479
(2,542)
937
174
19
276
469
468
(120)
(35)
5
(150)
Earnings per share:
Basic, earnings for the year from discontinued operations (in cents)
Diluted, earnings for the year from discontinued operations (in cents)
(0.12)
(0.12)
30.
RELATED PARTY DISCLOSURES
(a)
Controlled Entities
Details of interest in controlled entities are set out in Note 27.
(b)
Other related parties
Transactions with related parties:
Agere Pty Ltd, a company of which Mr. Steve Gallagher is a Director, received $13,167 (2016: Nil) for Directors fees for his
service to the Company. A total of $5,000 remains due and payable as at 30 June 2017 (2016: Nil).
The Group made no purchases from Synerject LLC (2016: $32,000), an associate of the Company up to October 2015.
31.
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 JP Welborn
Mr TD Stinson (appointed 11 August 2017)
Mr S Gallagher (appointed 12 April 2017)
Mr JH Poynton (resigned 12 April 2017)
62
62
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
DISCONTINUED OPERATIONS (CONTINUED)
29.
(b)
The major classes of assets and liabilities of the LPG businesses classified as held for sale and fully written down
as at 30 June 2015 and disposed of on 30 November 2015 were as follows:
Assets
Plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Impairment
Liabilities
Employee benefits
Borrowings
Trade and other creditors
Fair value of disposal group
Operating
Investing
Financing
Net cash (outflow)/inflow
Earnings per share:
The net cash flows incurred by the LPG businesses are as follows:
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
31.
KEY MANAGEMENT PERSONNEL (CONTINUED)
Executive directors
Mr TM Alder (Managing Director & Chief Executive Officer) (commenced 11 August 2017)
Mr TD Stinson (Managing Director & Chief Executive Officer) (resigned 11 August 2017)
Executives
Dr GP Cathcart (Chief Technical Officer)
Mr MC Lane (Executive Chairman - REMSAFE) (changed roles as CEO of REMSAFE to Chairman on 13 October 2016)
Ms R Jones (Chief Financial Officer) (commenced 16 August 2017)
Mr TM Alder (Chief Financial Officer) (commenced 14 December 2016, resigned 11 August 2017)
Mr IG Veitch (Chief Financial Officer) (resigned 18 November 2016)
Ms C Law (Chief Commercial Officer) (resigned 3 May 2017)
Key management personnel compensation
The key management personnel compensation included in ‘employee benefits expense’ (see note 8) are as follows:
Short-term employee benefits
Post-employment benefits
Long-term employee benefits
Equity compensation benefits
2017
$
1,517,436
323,256
173,102
111,441
2,125,235
CONSOLIDATED
2016
$
1,489,804
127,617
26,825
141,932
1,786,178
1,777
3,479
(2,542)
2016
$'000
193
725
784
937
174
19
276
469
468
(120)
(35)
5
(150)
Basic, earnings for the year from discontinued operations (in cents)
Diluted, earnings for the year from discontinued operations (in cents)
(0.12)
(0.12)
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.
30.
RELATED PARTY DISCLOSURES
(a)
Controlled Entities
(b)
Other related parties
Transactions with related parties:
Details of interest in controlled entities are set out in Note 27.
Agere Pty Ltd, a company of which Mr. Steve Gallagher is a Director, received $13,167 (2016: Nil) for Directors fees for his
service to the Company. A total of $5,000 remains due and payable as at 30 June 2017 (2016: Nil).
The Group made no purchases from Synerject LLC (2016: $32,000), an associate of the Company up to October 2015.
31.
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 JP Welborn
Mr TD Stinson (appointed 11 August 2017)
Mr S Gallagher (appointed 12 April 2017)
Mr JH Poynton (resigned 12 April 2017)
62
63
63
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
31.
KEY MANAGEMENT PERSONNEL (CONTINUED)
Movement 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:
Number
Held at
1-Jul-16
Number Granted as
compensation
Number
Held at
Number
of Shares
Purchased
ESP #1 Vested PRP
Number of
Shares Sold
30-Jun-17
679,103
-
2,790,688
-
-
-
-
-
-
-
-
- (2,790,688)
679,103
-
- -
-
1,172,621
-
-
500,000
-
1,672,621
-
71,635
126,678
30,515
-
-
-
-
- -
-
- -
-
272,720
-
1,085 200,000
127,763
1,085
-
-
-
1,085 200,000 (231,600)
-
- -
-
Non-executive directors
Mr JP Welborn
Mr S Gallagher (a)
Mr JH Poynton (b)
Executive director
Mr TD Stinson
Other KMP
Mr TM Alder (c)
Dr GP Cathcart
Mr MC Lane
Mr IG Veitch (d)
Ms C Law (e)
(a) Mr Gallagher was appointed a KMP on 12 April 2017.
(b) Mr Poynton ceased as a KMP on 12 April 2017.
(c) Mr Alder was appointed as a KMP on 14 December 2016.
(d) Mr Veitch ceased as a KMP on 18 November 2016.
(e) Ms Law ceased as a KMP on 3 May 2017.
Number
Held at
1-Jul-15
Number Granted as
compensation
Number
Held at
Number
of Shares
Purchased
ESP #1 Vested PRP
Number of
Shares Sold
30-Jun-16
8,195
2,665,688
670,908
125,000
538,441
134,180
-
-
-
-
-
500,000
-
-
-
679,103
2,790,688
1,172,621
Non-executive directors
Mr JP Welborn
Mr JH Poynton
Executive director
Mr TD Stinson
Other KMP
Ms C Law (a)
Dr GP Cathcart
Mr IG Veitch
Mr MC Lane
(a) Ms Law was appointed as a KMP on 26 April 2016.
-
69,957
28,837
-
-
-
-
125,000
-
1,678
1,678
1,678
-
-
200,000 (200,000)
200,000 (200,000)
-
-
-
71,635
30,515
126,678
64
64
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
31.
KEY MANAGEMENT PERSONNEL (CONTINUED)
31.
KEY MANAGEMENT PERSONNEL (CONTINUED)
Movement in shares
Movement in LTI equity rights
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:
The movement during the reporting period in the number of LTI 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:
679,103
2,790,688
-
-
-
-
-
-
679,103
- -
- (2,790,688)
-
Other KMP
Held at
1-Jul-16
Offered
Forfeited
Expired Cancelled
Vested
Held at
30-Jun-17
Not
Exercisable
Number
Executive Director
Mr TD Stinson
500,000 500,000
-
-
- (500,000)
500,000
500,000
Mr TM Alder (a)
Dr GP Cathcart
Mr MC Lane
Mr IG Veitch (b)
Ms C Law (c)
(a) Mr Alder was appointed as a KMP on 14 December 2016.
-
200,000
-
200,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- (200,000)
-
-
- (200,000)
-
-
-
-
-
-
-
-
-
-
-
-
(b) Mr Veitch ceased as a KMP on 18 November 2016.
(c) Ms Law ceased as a KMP on 3 May 2017.
Held at
1-Jul-15
Offered
Forfeited
Expired Cancelled
Vested
Held at
30-Jun-16
Not
Exercisable
Number
Executive Director
Mr TD Stinson
1,000,000
-
-
-
- 500,000 500,000
500,000
Other KMP
Dr GP Cathcart
Mr MC Lane
Mr IG Veitch
Ms C Law (a)
(a) Ms Law was appointed as a KMP on 26 April 2016.
400,000
-
400,000
-
-
-
-
-
-
-
-
-
-
-
-
-
- 200,000 200,000
-
-
-
- 200,000 200,000
-
-
-
200,000
-
200,000
-
64
65
65
Number
Held at
Number Granted as
compensation
Number
Held at
1-Jul-16
ESP #1 Vested PRP
30-Jun-17
Number of
Shares Sold
Number
of Shares
Purchased
-
-
-
-
-
-
1,172,621
-
500,000
-
1,672,621
-
-
-
- -
71,635
126,678
30,515
1,085 200,000
1,085
-
-
1,085 200,000 (231,600)
- -
-
- -
272,720
127,763
-
-
Number
Held at
Number Granted as
compensation
Number
Held at
1-Jul-15
ESP #1 Vested PRP
30-Jun-16
Number of
Shares Sold
Number
of Shares
Purchased
8,195
670,908
2,665,688
125,000
-
-
-
-
538,441
134,180
500,000
1,172,621
69,957
28,837
-
-
-
-
-
125,000
-
-
1,678
1,678
1,678
200,000 (200,000)
71,635
200,000 (200,000)
30,515
-
126,678
679,103
2,790,688
-
-
-
-
-
-
-
-
-
-
-
(a) Mr Gallagher was appointed a KMP on 12 April 2017.
(b) Mr Poynton ceased as a KMP on 12 April 2017.
(c) Mr Alder was appointed as a KMP on 14 December 2016.
(d) Mr Veitch ceased as a KMP on 18 November 2016.
(e) Ms Law ceased as a KMP on 3 May 2017.
Non-executive directors
Mr JP Welborn
Mr S Gallagher (a)
Mr JH Poynton (b)
Executive director
Mr TD Stinson
Other KMP
Mr TM Alder (c)
Dr GP Cathcart
Mr MC Lane
Mr IG Veitch (d)
Ms C Law (e)
Non-executive directors
Mr JP Welborn
Mr JH Poynton
Executive director
Mr TD Stinson
Other KMP
Ms C Law (a)
Dr GP Cathcart
Mr IG Veitch
Mr MC Lane
(a) Ms Law was appointed as a KMP on 26 April 2016.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
Notes
CONSOLIDATED
32.
NOTES TO THE STATEMENT OF CASH FLOWS
Reconciliation of cash and cash equivalents
Cash and cash equivalents per statement of cash flows
Cash and cash equivalents per statement of financial position
Reconciliation of cash flows from operating activities
(Loss)/profit after income tax from continuing operations
Loss after income tax from discontinued operations
(Loss)/profit after income tax
Adjustments for:
Loss on sale of plant and equipment
Depreciation
Amortisation and Impairment of intangible assets
Amortisation of deferred revenue and government grants
Impairment, write-off of trade receivables
Impairment of disposal group
Amortisation of non-interest bearing loans
Amounts set aside to warranty and other provisions
Fair value movement in quoted equity shares
Profit on sale of interest in equity accounted investment
Share of net profit of equity accounted investment
Foreign currency translation reserve released on sale of equity
accounted investment
Convertible note finance costs
Employee compensation expense
Net foreign exchange gain/ (loss)
Net cash used in operating activities before changes in assets and
Changes in assets and liabilities during the year:
(Increase)/Decrease in receivables and prepayments
Decrease/(Increase) in inventories
(increase)/Decrease in deferred tax assets
Increase in payables
(Decrease)/Increase in employee provisions
2017
$'000
17,131
17,131
(12,251)
-
(12,251)
(9)
579
5,218
(225)
-
-
540
292
568
-
-
-
-
165
72
(5,051)
(998)
967
(25)
857
(603)
198
18
19
29
12(b)
8(c)
16
33(a)
2016
$'000
24,872
24,872
1,283
(68)
1,215
(19)
607
312
(225)
(1)
23
543
(232)
-
(3,861)
(1,529)
(3,607)
948
196
(2)
(5,632)
1,098
(3,331)
330
2,319
135
551
Net cash used in operating activities
(4,853)
(5,081)
33.
SHARE BASED PAYMENTS
(a)
Recognised share-based payment expenses
Expense arising from equity-settled share-based payment transactions
165
196
The share-based payments are described below.
66
66
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
Notes
CONSOLIDATED
33.
SHARE BASED PAYMENTS (CONTINUED)
32.
NOTES TO THE STATEMENT OF CASH FLOWS
Reconciliation of cash and cash equivalents
Cash and cash equivalents per statement of cash flows
Cash and cash equivalents per statement of financial position
Reconciliation of cash flows from operating activities
(Loss)/profit after income tax from continuing operations
Loss after income tax from discontinued operations
(Loss)/profit after income tax
Adjustments for:
Loss on sale of plant and equipment
Depreciation
Amortisation and Impairment of intangible assets
Amortisation of deferred revenue and government grants
Impairment, write-off of trade receivables
Impairment of disposal group
Amortisation of non-interest bearing loans
Amounts set aside to warranty and other provisions
Fair value movement in quoted equity shares
Profit on sale of interest in equity accounted investment
Share of net profit of equity accounted investment
Foreign currency translation reserve released on sale of equity
accounted investment
Convertible note finance costs
Employee compensation expense
Net foreign exchange gain/ (loss)
Changes in assets and liabilities during the year:
(Increase)/Decrease in receivables and prepayments
Decrease/(Increase) in inventories
(increase)/Decrease in deferred tax assets
Increase in payables
(Decrease)/Increase in employee provisions
2017
$'000
17,131
17,131
(12,251)
-
(12,251)
(9)
579
5,218
(225)
540
292
568
-
-
-
-
-
-
165
72
(998)
967
(25)
857
(603)
198
18
19
29
12(b)
8(c)
16
33(a)
2016
$'000
24,872
24,872
1,283
(68)
1,215
(225)
(232)
(3,861)
(1,529)
(3,607)
(19)
607
312
(1)
23
543
-
948
196
(2)
1,098
(3,331)
2,319
330
135
551
Net cash used in operating activities
(4,853)
(5,081)
33.
SHARE BASED PAYMENTS
(a)
Recognised share-based payment expenses
The share-based payments are described below.
Expense arising from equity-settled share-based payment transactions
165
196
(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 61,875 (2016: 95,646) shares issued under Plan No. 1 to eligible employees at a market value on
the day of issue of $56,917 (2016: $57,000).
(c)
Executive Long Term Incentive – 2017 Performance Rights Plan based on market capitalisation
The Company introduced new performance milestones under the Performance Rights Plan as part of its long-term incentive
arrangements for the Manging Director and CEO, which was approved by shareholders on 7 November 2016. Also refer to
section 18.5 Executive remuneration arrangements in Director's report.
Under the Performance Rights Plan, performance rights could 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) a performance hurdle is met over the periods specified by the Board; or
(b) the Board allows early exercise on cessation of employment (see “Cessation of employment” below); or
(c) it is determined by the Board in light of specific circumstances.
Net cash used in operating activities before changes in assets and
(5,051)
(5,632)
The performance conditions are 100% based on market capitalisation with the following performance timeframes and targets:
Tranche Performance Condition
1 Milestone: the Company having a market
capitalisation of $125 million & and share price of
$1.50 per share for a period of 30 consecutive
days.
2 Milestone: the Company having a market
capitalisation of $200 million and a share price of
$2.00 for a period of 30 consecutive calendar
days.
Fair
Value per
right
Expiry Date
Allocation
Mr T D Stinson
50.0
cents
24 months from the date of issue of the
Performance Rights
200,000
42.0
cents
36 months from the date of issue of the
Performance Rights
Total
300,000
500,000
During the year no rights under the plan vested. The total expense recognised during the period is $59,252 (2016: $nil)
(d)
Executive Long Term Incentive – 2015 Performance Rights Plan based on market capitalisation
Prior to the current Performance Rights Plan, the Company’s long term incentive arrangement for senior executives was
approved by shareholders on 21 October 2014 and included the same terms and conditions as the current Performance
Rights Plan specified above.
66
67
67
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
33.
SHARE BASED PAYMENTS (CONTINUED)
(d)
Executive Long Term Incentive – 2015 Performance Rights Plan based on market capitalisation (continued)
The prior year performance conditions were based on market capitalisation with the following performance timeframes and
targets:
Tranche Market Capitalisation
Fair
Value per
right
Expiry Date
Allocation
Mr T D
Stinson
Dr GP
Cathcart
Mr IG Veitch
1
2
3
$20 million
$35 million
$60 million
23.1
cents
18 months from the date of issue of
the Performance Rights
500,000
200,000
200,000
17.5
cents
24 months from the date of issue of
the Performance Rights
500,000
200,000
200,000
15.3
cents
36 months from the date of issue of
the Performance Rights
500,000
200,000
200,000
Total
1,500,000
600,000
600,000
During the year a total of 900,000 rights under the plan vested for 3 executives (2016: 900,000). The total expense recognised
during the period is $49,189 (2016: $138,932).
The performance rights granted were measured at fair value at the grant date 21 October 2014 using the “Hoadley Barrier 1”
trinomial option valuation model. Refer to section 18.8 and table 7 in Remuneration Reports for further details.
34.
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.
CONSOLIDATED
2017
$'000
35.
COMMITMENTS
Operating lease commitments – Group as lessee
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
899
2,498
-
3,397
2016
$'000
873
3,397
-
4,270
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. None of the leases include contingent
rentals.
During the financial year ended 30 June 2017, $940,000 was recognised as an expense in the statement of profit or loss in
respect of operating leases (2016: $768,000).
68
68
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
33.
SHARE BASED PAYMENTS (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
(d)
Executive Long Term Incentive – 2015 Performance Rights Plan based on market capitalisation (continued)
The prior year performance conditions were based on market capitalisation with the following performance timeframes and
35.
COMMITMENTS (CONTINUED)
Operating lease commitments – Group as lessor
CONSOLIDATED
2017
$'000
2016
$'000
The Group has entered into an operating sub lease for surplus capacity at its engineering premises for a period of 5 years with
options to extend for further periods. It includes a clause to enable upward revision of the rental charge on an annual basis
according to prevailing market conditions.
Future minimum rentals receivable under non-cancellable operating leases, are as follows:
- Not later than one year
- Later than one year but not later than five years
- Later than five years
331
225
-
556
321
556
-
877
36.
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.
CONSOLIDATED
2017
$'000
37.
EVENTS SUBSEQUENT TO BALANCE SHEET DATE
There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or
event of a material and unusual nature 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.
38.
REMUNERATION OF AUDITORS
The Auditors of the Group in 2017 and 2016 were Ernst & Young.
Amounts received or due and receivable by Ernst & Young for:
Audit services:
- Audit and review of financial reports – Australian reporting
Other services:
- R & D tax concession return preparation and review
Total received or due and receivable by Ernst & Young
CONSOLIDATED
2017
$
2016
$
105,000
97,850
110,095
215,095
43,262
141,112
68
69
69
Tranche Market Capitalisation
Expiry Date
Allocation
targets:
1
2
3
Value per
Fair
right
23.1
cents
17.5
cents
15.3
cents
$20 million
$35 million
$60 million
Mr T D
Stinson
Dr GP
Cathcart
Mr IG Veitch
18 months from the date of issue of
the Performance Rights
500,000
200,000
200,000
24 months from the date of issue of
the Performance Rights
500,000
200,000
200,000
36 months from the date of issue of
the Performance Rights
500,000
200,000
200,000
Total
1,500,000
600,000
600,000
During the year a total of 900,000 rights under the plan vested for 3 executives (2016: 900,000). The total expense recognised
during the period is $49,189 (2016: $138,932).
The performance rights granted were measured at fair value at the grant date 21 October 2014 using the “Hoadley Barrier 1”
trinomial option valuation model. Refer to section 18.8 and table 7 in Remuneration Reports for further details.
34.
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.
35.
COMMITMENTS
Operating lease commitments – Group as lessee
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
899
2,498
-
3,397
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. None of the leases include contingent
rentals.
During the financial year ended 30 June 2017, $940,000 was recognised as an expense in the statement of profit or loss in
respect of operating leases (2016: $768,000).
2016
$'000
873
3,397
-
4,270
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20172017 ANNUAL REPORT DIRECTOR’S DECLARATION
DIRECTOR'S DECLARATION
In accordance with a resolution of the Directors of Orbital Corporation Limited, I 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)
(ii)
Giving a true and fair view of the financial position of the Group as at 30 June 2017 and of their
performance, as represented by the results of their operations and their cash flows, for the year ended on
that date; and
Complying with Accounting Standards in Australia and the Corporations Act 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 2017.
On behalf of the Board,
JP Welborn
Chairman
TM Alder
Managing Director & Chief Executive Officer
Dated at Perth, Western Australia this 29th day of August 2017.
70
70
2017 ANNUAL REPORT DIRECTOR'S DECLARATION
In accordance with a resolution of the Directors of Orbital Corporation Limited, I 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:
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 audit of the financial report
(i)
Giving a true and fair view of the financial position of the Group as at 30 June 2017 and of their
performance, as represented by the results of their operations and their cash flows, for the year ended on
Opinion
that date; and
(ii)
Complying with Accounting Standards in Australia and the Corporations Act 2001 .
(b)
The financial statements and notes also comply with International Financial reporting Standards as disclosed in note
(c)
There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
We have audited the financial report of Orbital Corporation Limited (“the Company”) and its subsidiaries
(collectively “the Group”), which comprises the consolidated statement of financial position as at 30 June
2017, the consolidated statement of profit or loss, 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 to the financial statements, including a summary of significant accounting
policies, and the directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
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
a)
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017
and of its consolidated financial performance for the year ended on that date; and
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter
is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
70
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
71
71
2(a).
due and payable.
year 30 June 2017.
On behalf of the Board,
JP Welborn
Chairman
TM Alder
Managing Director & Chief Executive Officer
Dated at Perth, Western Australia this 29th day of August 2017.
2017 ANNUAL REPORT Impairment assessment of goodwill
Why significant
How our audit addressed the key audit matter
At 30 June 2017, the Group impaired goodwill of $5.218
million to nil on the consolidated statement of financial
position. Impairment of goodwill is significant to the extent
that the related impairment represents 43 per cent of the loss
from continuing operations.
Goodwill was attributed to the acquisition of REMSAFE Pty Ltd,
which was treated as a separate cash-generating unit ("CGU”).
The Group assesses goodwill for impairment annually. The
impairment test requires the Group to exercise judgment to
calculate the recoverable amount of the CGU. The Group
considers prospective financial information and external
market data.
Key assumptions and judgments are disclosed in Note 19 of
the financial report
Our procedures included the evaluation and assessment of the
assumptions and methodologies used by the Group in
calculating the recoverable amount of the CGU.
We involved our valuation specialists to evaluate the key
assumptions and methodologies used by the Group.
We compared the Group’s assumptions to our own
assessments and externally derived data for key inputs such as
cost inflation and discount rates.
We assessed the procedures of the Group as to the preparation
of prospective financial information, which was approved by
the Board of Directors of the Group.
We evaluated the historical reliability of prior period cash flow
forecasts including assessing this against the actual financial
performance of the Group for the year ended 30 June 2017.
We compared the projected discounted cash flows to the
carrying amount of the assets allocated to the CGU.
We assessed the adequacy of the disclosures related to testing
goodwill for impairment, as described in Note 19 to the
financial report.
Recoverability of deferred tax assets
Why significant
How our audit addressed the key audit matter
At 30 June 2017, the Group carried a deferred tax asset
attributed to Australian carry-forward tax losses of $5.507
million (2016: $5.482 million).
The Group assessed the deferred tax asset as recoverable for
the reasons set out in Note 17 of the financial report.
The recoverability of a deferred tax asset is significant as the
existence of unused tax losses is an indicator that future
taxable profits may not be available against which unused tax
losses may be utilised.
We compared the Group’s assumptions associated with market
data to our own assessments and externally derived data for
key inputs such as the long-term USD/AUD exchange rate and
cost inflation.
We performed a sensitivity analysis to assess the headroom of
the Group’s estimate of future taxable income against deferred
tax assets recognised on the consolidated statement of
financial position and to evaluate the implication of uncertainty
around future performance.
We assessed the adequacy of the disclosures related deferred
tax assets, as described in Note 17 to the financial report.
Contingent consideration
Why significant
How our audit addressed the key audit matter
On 13 October 2016, the Group acquired the remaining
38.50% minority interest in REMSAFE Pty Ltd for 1.000
million ordinary shares in the Group.
Contingent consideration of 4.000 million shares in the
Group will be payable, subject to the satisfaction of
performance hurdles as described in Note 26 to the
financial report.
At 30 June 2017, contingent consideration of $3.440
million (2016: Nil) was recognised to equity in the
consolidated statement of financial position.
The recognition of contingent consideration involves
judgment to determine whether the contingent
consideration should be recorded on the consolidated
statement of financial position as it involves estimation
of performance targets related to future sales.
We inspected the executed Shares Sale Agreement to
understand the terms of the contingent consideration
and performance targets related to future sales. We
evaluated the Group’s assessment of meeting these
performance targets.
We evaluated whether the terms of the contingent
consideration satisfied the definition of an equity
instrument in accordance with Australian Accounting
Standard - AASB 132 Financial Instruments:
Presentation.
We assessed the adequacy of the disclosures related to
contingent consideration, as described in Note 26 to
the financial report.
72
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72
2017 ANNUAL REPORT Impairment assessment of goodwill
Information other than the financial report and auditor’s report thereon
Why significant
How our audit addressed the key audit matter
At 30 June 2017, the Group impaired goodwill of $5.218
Our procedures included the evaluation and assessment of the
million to nil on the consolidated statement of financial
assumptions and methodologies used by the Group in
position. Impairment of goodwill is significant to the extent
calculating the recoverable amount of the CGU.
that the related impairment represents 43 per cent of the loss
from continuing operations.
We involved our valuation specialists to evaluate the key
assumptions and methodologies used by the Group.
Goodwill was attributed to the acquisition of REMSAFE Pty Ltd,
which was treated as a separate cash-generating unit ("CGU”).
We compared the Group’s assumptions to our own
assessments and externally derived data for key inputs such as
The Group assesses goodwill for impairment annually. The
cost inflation and discount rates.
impairment test requires the Group to exercise judgment to
calculate the recoverable amount of the CGU. The Group
considers prospective financial information and external
market data.
the financial report
Key assumptions and judgments are disclosed in Note 19 of
We assessed the procedures of the Group as to the preparation
of prospective financial information, which was approved by
the Board of Directors of the Group.
We evaluated the historical reliability of prior period cash flow
forecasts including assessing this against the actual financial
performance of the Group for the year ended 30 June 2017.
We compared the projected discounted cash flows to the
carrying amount of the assets allocated to the CGU.
We assessed the adequacy of the disclosures related to testing
goodwill for impairment, as described in Note 19 to the
financial report.
Recoverability of deferred tax assets
Why significant
How our audit addressed the key audit matter
At 30 June 2017, the Group carried a deferred tax asset
We compared the Group’s assumptions associated with market
attributed to Australian carry-forward tax losses of $5.507
data to our own assessments and externally derived data for
million (2016: $5.482 million).
key inputs such as the long-term USD/AUD exchange rate and
The Group assessed the deferred tax asset as recoverable for
the reasons set out in Note 17 of the financial report.
The recoverability of a deferred tax asset is significant as the
existence of unused tax losses is an indicator that future
taxable profits may not be available against which unused tax
losses may be utilised.
cost inflation.
We performed a sensitivity analysis to assess the headroom of
the Group’s estimate of future taxable income against deferred
tax assets recognised on the consolidated statement of
financial position and to evaluate the implication of uncertainty
around future performance.
We assessed the adequacy of the disclosures related deferred
tax assets, as described in Note 17 to the financial report.
Contingent consideration
Why significant
How our audit addressed the key audit matter
On 13 October 2016, the Group acquired the remaining
We inspected the executed Shares Sale Agreement to
38.50% minority interest in REMSAFE Pty Ltd for 1.000
understand the terms of the contingent consideration
million ordinary shares in the Group.
Contingent consideration of 4.000 million shares in the
Group will be payable, subject to the satisfaction of
performance targets.
and performance targets related to future sales. We
evaluated the Group’s assessment of meeting these
performance hurdles as described in Note 26 to the
We evaluated whether the terms of the contingent
financial report.
At 30 June 2017, contingent consideration of $3.440
million (2016: Nil) was recognised to equity in the
consolidated statement of financial position.
The recognition of contingent consideration involves
judgment to determine whether the contingent
consideration should be recorded on the consolidated
statement of financial position as it involves estimation
of performance targets related to future sales.
consideration satisfied the definition of an equity
instrument in accordance with Australian Accounting
Standard - AASB 132 Financial Instruments:
Presentation.
We assessed the adequacy of the disclosures related to
contingent consideration, as described in Note 26 to
the financial report.
The directors are responsible for the other information. The other information comprises the information
included in the Group’s 2017 Annual Report, but does not include the financial report and our auditor’s
report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial report or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors 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 control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
►
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
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73
2017 ANNUAL REPORT ►
►
►
►
►
Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as
a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
74
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
74
2017 ANNUAL REPORT ►
Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.
►
►
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as
a going concern.
►
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
►
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on the audit of the remuneration report
Opinion on the remuneration report
We have audited the Remuneration Report included in pages 8 to 18 of the directors' report for the year
ended 30 June 2017.
In our opinion, the Remuneration Report of Orbital Corporation Limited for the year ended 30 June 2017,
complies with section 300A of the Corporations Act 2001.
Responsibilities
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.
Ernst & Young
T G Dachs
Partner
Perth
29 August 2017
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A member firm of Ernst & Young Global Limited
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75
2017 ANNUAL REPORT SHAREHOLDING DETAILS
SHAREHOLDING DETAILS
Class of Shares and Voting Rights
As at 15 August 2017 there were 4,246 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)
b)
at meetings of members or class of members, each member entitled to vote may vote in person or by proxy or representative; and
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 14 August 2017
UIL Limited
(as notified 13 April 2017)
Commonwealth Bank of Australia
(as notified 10 January 2017)
Distribution of Shareholdings as at 14 August 2017
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001 and over
Number of shareholders
Total Shares on Issue
Number of shareholders holding less than a marketable parcel
Top 20 Shareholders as at 14 August 2017
NAME
1
2
3
3
4
5
6
7
8
9
10
11
12
13
14
15
15
16
17
18
18
19
20
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
ANNAPURNA PTY LTD
MORGAN STANLEY AUSTRALIA SECURITIES (NOMINEE) PTY LIMITED
DEBUSCEY PTY LTD
BIRKETU PTY LTD
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
MR JOSHUA LEIGH SWEETMAN
MR TERRY DEWAYNE STINSON
MR MICHAEL WILLIAM FORD & MRS NINA BETTE FORD
MR CRAIG GRAEME CHAPMAN
NATIONAL NOMINEES LIMITED
MR CHRISTOPHER IAN WALLIN & MS FIONA KAY MCLOUGHLIN & MRS SYLVIA FAY
MR JOHN PAUL WELBORN & MS CAROLINE ANNE WELBORN
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
MR SEAMUS CORNELIUS
TERRY STINSON
GWYNVILL TRADING PTY LTD
MR JOHN AYRES
MR LAWRENCE HULSE & MRS BARBARA ANN HULSE
C W JOHNSTON PTY LTD
TEXAS HOLDINGS PTY LTD
BOND STREET CUSTODIANS LIMITED
23,227,904
30.05%
7,729,118
9.99%
2,641
945
279
318
63
4,246
77,295,882
-
% OF
SHARES
33.63
12.07
3.36
3.36
2.39
2.07
1.96
1.71
1.52
1.29
1.29
1.05
0.89
0.88
0.76
0.65
0.65
0.52
0.46
0.45
0.45
0.45
0.43
NUMBER OF
SHARES HELD
25,993,830
9,330,271
2,600,000
2,600,000
1,850,000
1,600,000
1,512,996
1,325,000
1,172,621
1,000,122
1,000,000
812,015
689,200
679,103
586,886
500,000
500,000
403,500
356,667
350,000
350,000
349,728
335,000
Top 20 Shareholders Total
55,896,939
72.32
The 20 largest shareholders hold 72.32% of the ordinary shares of the Company (2016: 65.00%).
On-market share buy-back
There is no current on-market buy-back.
76
76
2017 ANNUAL REPORT CORPORATE INFORMATION
ABN 32 009 344 058
REGISTERED AND PRINCIPAL OFFICE
4 Whipple Street
Balcatta, Western Australia 6021
Australia
CONTACT DETAILS
Australia
Telephone: 61 (08) 9441 2311
Facsimile: 61 (08) 9441 2111
INTERNET ADDRESS
http://www.orbitalcorp.com.au
Email: AskUs@orbitalcorp.com.au
DIRECTORS
J.P. Welborn, Chairman
T.M. Alder, Managing Director and Chief Executive Officer
S. Gallagher
T.D. Stinson
COMPANY SECRETARY
R. Jones
SHARE REGISTRY
Link Market Services Limited
Level 4 Central Park
152 St Georges Terrace
Perth, Western Australia 6000
Telephone: 61 (08) 9211 6670
SHARE TRADING FACILITIES
Australian Stock Exchange Limited (Code “OEC”)
AUDITORS
Ernst & Young
The Ernst & Young Building
11 Mounts Bay Road
Perth, Western Australia 6000
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ORBITAL CORPORATION LIMITED ASX:OEC | ABN 32 009 344 058 (Incorporated in Western Australia)
4 Whipple Street, Balcatta, Western Australia 6021 | PO Box 901, Balcatta, Western Australia, 6914
P: +618 9441 2311 | F: +618 9441 2133 | E: AskUs@orbitalcorp.com.au | ORBITALCORP.COM.AU