2 O 1 8 A N N U A L R E P O R T
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CORPORATE
PROFILE
Orbital UAV provides integrated
propulsion systems and flight critical
components for tactical unmanned
aerial vehicles (UAVs). Our design
thinking and patented technology
enable us to meet the long endurance
and high reliability requirements of
the UAV market. We have offices in
Australia and the United States to
serve our prestigious client base.
CONTENTS
Director’s Report
Consolidated statement of profit or loss and other comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the financial statements
Directors’ declaration
Independent auditors report
Shareholding details
Corporate information
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DIRECTORS’ REPORT
for the year ended 30 June 2018
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 2018 and the auditors’ report thereon.
Reference
Contents of Directors’ Report
Page
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14.
15.
16.
17.
18.
Operating and Financial Review
Directors
Company Secretary
Directors’ Meetings
Principal Activities
Consolidated Result
Dividends
Events Subsequent to Balance Sheet Date
Likely Developments and Expected Results
Environmental regulation and performance
Directors’ Interests
Share Options
Indemnification
Corporate Governance Statement
Rounding Off
Lead Auditor’s Independence Declaration
Auditor independence and non-audit services
Remuneration Report
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1
2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 DIRECTORS’ REPORT
for the year ended 30 June 2018
1. OPERATING AND FINANCIAL REVIEW
Chairman and CEO Report
John Welborn
Chairman
Non-Executive Director
Todd Alder
Managing Director and Chief Executive Officer
Dear Shareholders,
On behalf of the Board of Directors (“the Board”), we are pleased to present the annual report of Orbital Corporation (“Orbital” or “the
Company”) and its subsidiaries (“the Group”) for the year ended 30 June 2018.
Overview and financial results
The Company reported strong financial results for the year ended 30 June 2018 with revenue from continuing operations of $21,000,000
(2017: $13,661,000) and profit before tax from continuing operations of $1,737,000 (2017: loss of $3,970,000). The company reported a net
profit after tax of $2,218,000 (2017: loss of $12,251,000).
The Company reports a strong balance sheet with cash and receivables of $24,178,000 (2017: $26,008,000) and net current assets of
$20,882,000 (2017: $19,892,000).
Net cash used in operating activities during the period was $8,778,000 (2017: $4,853,000).
Shareholder returns
Closing share price ($)1
Market capitalisation ($m)
2018
0.36
27.9
2017
0.50
38.6
Basic EPS (cents) from operations
2.87
(15.55)
2016
0.69
52.4
2.73
2015
0.49
24.0
(9.83)
2014
0.16
7.9
3.39
1 as at 30 June
2018 Milestones
Many of the key milestones achieved by the Company during the year ended 30 June 2018 reconfirmed our strategic focus on the tactical
unmanned aerial vehicle (UAV) market.
The successful divestment of the Company’s interest in REMSAFE for an unconditional cash consideration of $2,200,000 in December
2017 diverted previously allocated working capital towards near term UAV priorities. This included our new operational facility in Oregon,
USA and accelerated research and development. The new facility is now operational and will serve our key customer base, including Insitu
(Boeing) – one of the world’s leading suppliers of tactical UAVs into both military and commercial markets.
There were also significant milestones related to our ongoing partnership with Insitu. We successfully delivered all requested ScanEagle
N20 propulsion systems to the company, on time and on budget. We also achieved the performance milestones specified within the
$900,000 N20 propulsion system engineering contract – delivering the targeted power improvements and weight reduction enhancements
identified by Insitu.
These positive steps continue to cement Orbital as an emerging global leader in the supply of premium UAV propulsion systems.
Management and Board transition
Mr Terry Stinson’s role 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 Todd Alder, who after being appointed CFO and 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.
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2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 DIRECTORS’ REPORT
for the year ended 30 June 2018
On 1 May 2018, the Company appointed Mr Kyle Abbott to the Board. Mr Abbott is an experienced aerospace and defense industry
executive and brings considerable knowledge and contacts to the Board, as the Company seeks to grow and diversify its existing customer
relationships.
With these new appointments and transitions, Orbital has the leadership team to deliver on it its strategic objectives and vision of delivering
superiority in UAV propulsion systems and flight critical components.
Deferred Tax Asset
Consistent with previous periods, the Company has recognised a deferred tax asset of $5,505,000 as at 30 June 2018 (2017: $5,507,000),
(Refer to note A5 in the financial report). The recoverability of the deferred tax asset is dependent on the Company generating sufficient
future taxable income to realise the carried forward tax losses in each of the tax jurisdictions in which the Company operates.
The Board assessed that the deferred tax asset was recoverable based on forecasted taxable income included in its Business
Plan. Forecasted income included in Orbital’s Business Plan is founded on existing supply contracts plus maturing contract negotiations on
expanded revenue opportunities. Confidence in the Company’s ability to generate future taxable income is further supported by Orbital’s
improvement in year on year revenue from continuing operations from $13,661,000 (2017) to $21,000,000 (2018) and profit before tax from
continuing operations from a loss of $3,970,000 (2017) to a profit of $1,737,000 (2018). In addition the Board is of the view that the US
operating facility and product development programs further underpin the confidence of the income growth of the business.
2019 Outlook
The outlook for the Company remains positive, as we continue to target the growing tactical UAV market. We will build on our position as a
global leader in the supply of premium UAV propulsion systems and flight critical components by further developing our relationships with
our tier one customer base and identifying organic growth opportunities first and foremost. This includes the ongoing development of our
Engine Family – a range of propulsion systems, capable of being integrated across multiple UAV platforms.
Where acquisition opportunities arise they will be aligned to the Company’s core competencies of innovation and precision engine, fuel
system and integrated component design and manufacturing expertise.
Our new operational facility in the US will develop our client relationships and enhance our ability to meet their service requirements.
The Chairman and Managing Director would like to thank the ongoing commitment of the Company’s shareholders and staff.
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2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 DIRECTORS’ REPORT
for the year ended 30 June 2018
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 has served on the Boards of a number of charitable organisations, and is a
former Commissioner of Tourism Western Australia.
Mr Welborn also serves as a director of Resolute Mining Limited (appointed February 2015) and Equatorial Resources Limited (appointed
August 2010).
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’s experience includes successful start – ups, acquisitions and the implementation of lean
concept business transformations. Mr Alder is an accomplished leader focused on financial discipline, strategy alignment and operational
efficiency.
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, B.Bus Admin (magna cum laude), (Resigned as Managing Director and Chief Executive Officer 11 August
2017)
Non-Executive Director
Mr Stinson has over 30 years of executive leadership experience with innovation companies globally. He was formerly CEO and Managing Director
of Orbital Corporation Ltd before transitioning to the position of Non-Executive Director in 2017.
Mr Stinson was previously also a Vice President and General Manager at Siemens AG, responsible for overseeing an international business across
multiple sites, over 1,200 staff and delivering sales in excess of US$300 million p.a. He was also previously CEO and MD at Synerject, VP
Manufacturing OMC, Director Advanced R&D Product and Process Mercury Marine, division of Brunswick Corp, Project Engineer LT-5 Corvette
engine, and USA SME 1990 Young Engineer of the Year.
He has also held executive lead positions at various international ventures of Yamaha, Honda, Chrysler, Penske and others. Mr Stinson also
currently serves as Non-Executive Chairman of Carnegie Clean Energy and Non-Executive Chairman of Talga Resources Ltd.
Mr Steve Gallagher, B.E (Hons), B.Com, MAICD
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 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), Transact1 Pty Ltd (a financial services provider for cash management optimisation, Littlepay Pty Ltd (transit
payment processing service provider) and the Australian Sports Tech Co Pty Ltd (sports technology investment company).
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2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 DIRECTORS’ REPORT
for the year ended 30 June 2018
Mr Kyle Abbott, B.Com (Hons 1st), CA
Non-Executive Director (Appointed 1 May 2018)
Mr Abbott is an experienced aerospace and defense industry executive. Mr Abbott was Managing Director of Western Australian Specialty
Alloys (WASA) from 1996 to 2015. During this period WASA grew from a Western Australian specialised alloy manufacturer to become a
major supplier to the global aerospace industry, with key customers in the United States, the United Kingdom and Japan. In 2000, Mr Abbott
managed the successful sale of WASA to United States-based Precision Castparts Corporation (PCC), an S&P 500 company. PCC was
subsequently acquired by Berkshire Hathaway in 2015.
3. COMPANY SECRETARY
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 senior 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 Todd Alder, BEc (Acc), CPA, ACIS (Resigned as Company Secretary 16 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.
4. DIRECTOR 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
K Abbott
No. of meetings
attended
No. of meetings
held*
5
5
5
5
1
5
5
5
5
1
* Number of meetings held during the time the director held office during the year.
5. PRINCIPAL ACTIVITIES
Orbital’s focus is on the revolutionary design, proven manufacturing processes and rigorous testing to deliver superiority in UAV propulsion
systems and flight critical components. Through its technology and experience, the Company is capable of meeting the long endurance and
high reliability requirements of the rapidly evolving UAV market.
Our dedicated UAV production facility in Balcatta, Perth offers a world class design, development, production and refurbishment
environment. With the appropriate combination of academic qualifications and industry experience, concept and detailed designs,
prototyping and sourcing, and testing and validation are executed in-house by our dedicated team.
Change in operations
In December 2017, Orbital secured an exclusive lease over a purpose built facility in Hood River, Oregon, in the United States of America. The
facility is now operational and will expand Orbital’s existing UAV engine assembly and service capabilities – strengthening key client relationships
in the region.
The Company divested its non-core REMSAFE division, for an unconditional cash consideration of $2,200,000. The divestment provides additional
working capital and Management the opportunity to focus exclusively on the expanding UAV business. Orbital recognised a gain on sale of
discontinued operations of $1,106,000 recorded in the Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June
2018.
There were no other significant changes in the nature of activities of the Group during the year.
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2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 DIRECTORS’ REPORT
for the year ended 30 June 2018
6.
CONSOLIDATED RESULT
The consolidated earnings before interest and tax was $2,265,000 (2017 loss $3,430,000). The consolidated profit after income tax from continuing
operations for the year attributable to the members of Orbital was $1,735,000 (2017: loss of $3,869,000).
7.
DIVIDENDS
No dividend has been paid or proposed in respect of the current financial year.
8.
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.
9.
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.
10.
ENVIRONMENTAL REGULATION AND PERFORMANCE
The Directors do not believe that the Group has significant environmental obligations, the Group’s policy is to comply with any applicable
environmental regulations that are in force during the reporting period.
11. 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
K Abbott
Total
12.
SHARE OPTIONS
Ordinary
Shares
779,103
372,333
1,672,621
100,000
-
2,924,057
Performance
Rights
-
1,242,250
500,000
-
-
1,742,250
The Company has no unissued shares under option at the date of this report.
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6
2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 The consolidated earnings before interest and tax was $2,265,000 (2017 loss $3,430,000). The consolidated profit after income tax from continuing
operations for the year attributable to the members of Orbital was $1,735,000 (2017: loss of $3,869,000).
DIRECTORS’ REPORT
for the year ended 30 June 2018
6.
CONSOLIDATED RESULT
7.
DIVIDENDS
No dividend has been paid or proposed in respect of the current financial year.
8.
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.
9.
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.
10.
ENVIRONMENTAL REGULATION AND PERFORMANCE
DIRECTORS’ REPORT
for the year ended 30 June 2018
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. CORPORATE GOVERNANCE STATEMENT
The Board 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 which is
available on the Company’s website at www.orbitaluav.com under the About Us/Corporate Governance section.
The Directors do not believe that the Group has significant environmental obligations, the Group’s policy is to comply with any applicable
environmental regulations that are in force during the reporting period.
15. ROUNDING OFF
The relevant interest of each Director in the share capital of the Company shown in the Register of Directors’ Shareholdings as at the date
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.
11. DIRECTORS’ INTERESTS
of this report is as follows: -
Director
J P Welborn
T M Alder
T D Stinson
S Gallagher
K Abbott
Total
12.
SHARE OPTIONS
Ordinary
Shares
779,103
372,333
1,672,621
100,000
-
2,924,057
Performance
Rights
1,242,250
500,000
-
-
-
1,742,250
The Company has no unissued shares under option at the date of this report.
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2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 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
As lead auditor for the audit of Orbital Corporation Limited for the financial year ended 30 June 2018, I
declare to the best of my knowledge and belief, there have been:
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
27 September 2018
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
TD:KG:ORBITAL:011
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2018 ANNUAL REPORT
DIRECTORS’ REPORT
for the year ended 30 June 2018
17. AUDITOR INDEPENDENCE AND 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 F.7 to the financial statements.
In June 2017 the Board approved the extension of the lead partner rotation from five years to seven years in accordance with section
324DB of the Corporations Act 2001 and the Corporations Legislation Amendment (Audit Enhancement) Act 2012. The reasons why the
Board approved the extension included:
Mr Dachs, the Lead Audit Partner, has a detailed understanding of the Group’s business and strategies, its systems and controls
and this knowledge is considered to be valuable to the Board at this point in time.
The existing independence and service metrics in place with EY and Mr Dachs, are sufficient to ensure that auditor
independence would not be diminished in any way by such an extension.
Mr Dachs will continue to abide by the independence guidance provided in APES 110 ‘Code of Ethics for Professional
Accountants’ as issued by the Accounting Professional and Ethical Standards Board and EY’s own independence requirements.
The Board is of the view that Mr Dachs’ continued involvement with the Group as the Lead Audit Partner will not in any way
diminish the audit quality provided to the Group.
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2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 DIRECTORS’ REPORT
for the year ended 30 June 2018
REMUNERATION REPORT - AUDITED
KEY MANAGEMENT PERSONNEL AND SUMMARY OF ORBITAL’S FIVE-YEAR PERFORMANCE
Key management personnel (“KMP”)
This Remuneration Report outlines the remuneration in place and outcomes achieved for KMPs during the year ended 30 June 2018.
KMPs 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 names and positions of the individuals who were KMP during 2018 are set out in Table 1.
Table 1 – KMP
Executive
Executive Director
Todd M Alder (Chief Executive Officer and Managing Director) 1
Senior Executives
Geoff P Cathcart (Chief Technical Officer)
Roulė Jones (Chief Financial Officer) 2
Michael C Lane (Executive Chairman REMSAFE) 3
Non-executive directors
John P Welborn (Chairman)
Terry D Stinson 4
Steve Gallagher
Kyle Abbott 5
1. Mr Alder was promoted from Chief Financial Officer to Managing Director and Chief Executive Officer on 11 August 2017
2. Ms Jones became a KMP on 16 August 2017
3. Mr Lane ceased employment with REMSAFE on 6 October 2017
4. Mr Stinson changed roles form Managing Director and Chief Executive Officer to Non-Executive Director on 11 August 2017
5. Mr Abbott was appointed to the Board on 1 May 2018
Table 2 – Five-year performance
The table below outlines Orbital’s performance over the last five years against key metrics.
Closing share price ($)
Market capitalisation ($m)
Basic EPS (cents) from operations
2018
0.36
27.9
2.87
2017
0.50
38.6
(15.55)
2016
0.69
52.4
2.73
2015
0.49
24.0
(9.83)
2014
0.16
7.9
3.39
REMUNERATION OVERVIEW
The Group’s remuneration strategy is designed to attract, motivate and retain employees in a globally competitive market. The Board
structures remuneration so that it rewards those who perform, is valued by executives, and is strongly aligned to the company’s strategic
direction and the creation of returns to shareholders.
Total Fixed Remuneration (“TFR”) is determined by the scope of the executive’s role and their level of knowledge, skills and experience.
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 $133,431 were paid during the year ended 30 June 2018 (2017: $31,600).
Long-term incentives (“LTI”) consisting of performance rights that vest based on attainment of pre-determined performance goals are
awarded to selected executives. During the financial year, the Group 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 27 October 2017 and 23 May 2018. No rights vested during the 2018 financial year.
The remuneration of Non-Executive Directors of the Company consists only of Directors’ fees. Director fees were not reviewed or
adjusted during the 2018 financial year.
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2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 DIRECTORS’ REPORT
for the year ended 30 June 2018
Remuneration Report at 2017 AGM
The 2017 Remuneration Report received positive shareholder support at the 2017 AGM with a vote of 99 per cent of votes cast in favour.
Remuneration strategy
The Group’s remuneration strategy is designed to attract, motivate and retain employees and Non-Executive Directors by identifying and
rewarding high performers and recognising the contribution of each employee to the continued growth and success of the Group.
To this end, key objectives of the Company’s reward framework are to ensure that remuneration practices:
Are aligned to the Group’s business strategy;
Offer competitive remuneration, benchmarked against the external market;
Provide strong linkage between individual and Group performance and rewards; and
Align the interests of executives with shareholders through measuring the Company’s market capitalisation or share price.
Key changes to remuneration structure in 2018
There were no changes to the remuneration structure of executives or Directors during the 2018 financial year.
REMUNERATION GOVERNANCE
Board of Directors
The Board reviews and approves remuneration packages and policies applicable to Directors, the Company Secretary and the senior
executives of the Group.
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 Human Resources.
During the year ended 30 June 2018, the Group engaged CJ Ryan Holdings, an external remuneration consultant, to provide
remuneration recommendations regarding the remuneration payable to Todd Alder as part of his appointment to Managing Director and
Chief Executive Officer on 11 August 2017.
The Board is satisfied that the advice received by CJ Ryan Holdings is free from undue influence from Todd Alder to whom the
remuneration recommendations apply.
The remuneration recommendations were provided to the Board as an input into decision making only. The Board considered these
recommendations, along with other factors, in making its remuneration decisions.
The fees paid to CJ Ryan Holdings for the remuneration recommendations were $2,800. No other remuneration recommendations or
other advisory services were provided by CJ Ryan Holdings for the year ended 30 June 2018.
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2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 DIRECTORS’ REPORT
for the year ended 30 June 2018
CHIEF EXECUTIVE OFFICER AND EXECUTIVE KMP REMUNERATION
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
Orbital Corporation’s remuneration structure for the CEO and executive KMP is comprised of one component that is fixed, being Total
Fixed Remuneration (TFR), and two components that are variable, being short-term incentives (STI) and long-term incentives (LTI).
The STI is an annual “at risk” component of remuneration for executives. It is payable based on performance against key performance
indicators (KPIs) set at the beginning of the financial year. STI’s are structured to remunerate executives for achieving annual Company
targets and their own individual performance targets. The net amount of any STI after allowing for applicable taxation, is payable in
cash.
LTI targets are set as a percentage of fixed remuneration, converted to performance rights with vesting conditions subject to the
Company’s share price performance. Vesting of performance rights is subject to share price targets with the overall value exposed to
the upside or downside of the share price movement, therefore closely aligning with shareholder interests.
The proportion of fixed remuneration and variable remuneration (potential short term and long term incentives) established for each
executive is approved by the Board and for the year ended 30 June 2018 was as follows:
Fixed Remuneration
Variable Remuneration
CEO
Fixed Remuneration (59%)
Target STI (19%)
Target LTI (22%)
Other executives
Fixed Remuneration (94%)
Target STI (5%)
Target LTI (1%)
The remuneration structure for the 2018 financial year is explained below:
Summary of executive KMP remuneration for the 2018 financial year
Total Fixed Remuneration (“TFR”)
TFR consists of base compensation, which is calculated on a total cost basis and includes any fringe benefits tax 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 division 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 the Statutory Table on page 17.
Variable Annual Reward - Short-term incentive (“STI”)
Under the STI, all executives have the opportunity to earn an annual incentive award which is delivered in cash. The STI recognises and
rewards annual performance.
How is performance measured?
The STI performance measures were chosen as they reflect the core drivers of short-term performance and also provide a framework for
delivering sustainable value to the Group, its shareholders and customers.
Key performance indicators (“KPIs”) are measured covering financial and non-financial measures of performance. For each KPI, a target and
stretch objective is set. A summary of the measures and weightings are set out below:
Financial
Non-financial
Group EBIT
Group KPIs
70%
75%
30%
25%
CEO
Other executives
12
12
2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 DIRECTORS’ REPORT
for the year ended 30 June 2018
Earnings before interest and tax (“EBIT”) is the measure against which management and the Board assess the short-term performance of the
Group. Non-financial performance measures which enter into the calculation of the STI are:
Individual performance rating in respect of the quality of work performed in all essential areas of responsibility;
Individual cultural rating in respect of the extent to which demonstrated behavior aligns with the values of the Group;
Establishment of the American plant at Hood River, Oregon, within budget; and
Consolidation of strategically aligned merger and acquisition opportunities.
How much can executives earn?
The maximum STI for the Chief Executive Officer is 40 per cent of fixed remuneration. The maximum STI for other executives is 20 per cent of
fixed remuneration.
The minimum STI that may be awarded to the Chief Executive Officer and other executives is nil where the company performance factor is
zero.
When is it paid?
The STI award is determined after the end of the financial year following a review of performance over the year against the STI performance
measures by the Executive Leadership Team. The Board approves the final STI award based on this assessment of performance. The STI
awarded was settled in cash in full in August 2018.
Changes to the STI plan from 1 July 2017
A review of the Group’s incentive arrangements resulted in a change to the 2018 STI Plan. The intention of the change to the STI Plan was to
support business objectives and to ensure that the STI is aligned with the creation of shareholder value.
Actual STI performance for the year ending 30 June 2018
The following table outlines the proportion of the maximum STI earned in relation to the 2018 financial year. Please refer to Table 1 on Page 17
for further details on the actual STI paid to KMPs for the year ended 30 June 2018.
Todd M Alder
Geoff P Cathcart
Roulė Jones
Maximum STI opportunity
(Percentage of
fixed remuneration)
Percentage of
maximum STI earned
40%
20%
20%
75%
37%
25%
The proportion of the STI forfeited is derived by subtracting the actual percentage of the maximum received from the maximum STI opportunity.
The percentage of the STI forfeited was, on average, 53 per cent for the year ended 30 June 2018.
Long-term incentive (“LTI”)
Under the LTI for 2018, the grant of performance rights and share acquisition performance rights were made to executives to align
remuneration with the creation of shareholder value over the long-term.
How is it paid?
Executives are eligible to receive performance rights and share acquisition performance rights; that is, being the right to receive a given
number of ordinary shares in the Group if a nominated performance milestone is achieved.
Performance Rights Plan – 2018 Long Term Incentives
The Company introduced a new Performance Rights Plan (“2018 LTI Plan”) which was approved by shareholders on 27 October 2017.
Performance rights were issued to the Managing Director and CEO (“CEO LTIs”) and other executives (“Executive LTIs”) under the 2018 LTI
Plan in two tranches, with each tranche subject to a separate performance milestone linked to the volume weighted average share price
(“VWAP”) of the Company and tested over a three-year period as follows:
13
13
2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018
DIRECTORS’ REPORT
for the year ended 30 June 2018
Tranche
Performance
condition
Expiry
date
Grant
date
(CEO LTIs)
Grant
date
(Executive
LTIs)
Fair value/right
Fair value/right
(CEO LTIs)
(Executive
LTIs)
Vesting
of rights
1
2
The Company having a 60
day VWAP of at least $0.90
per share between 27
October 2017 and 10 August
2020.
The Company having a 60
day VWAP of at least $1.20
per share between 27
October 2017 and 10 August
2020.
10 August
2020
27 October
2017
23 May
2018
36.5 cents
20.9 cents
10 August
2020
27 October
2017
23 May
2018
27.8 cents
13.8 cents
50 per
cent
50 per
cent
The allocation of Performance Rights to executives was as follows:
Executive
Title
Mr T.Alder
Managing Director and CEO
Mr G.Cathcart
Chief Technical Officer
Ms R.Jones
Chief Financial Officer
Total
Performance
rights issued
Tranche 1
Performance
rights issued
Tranche 2
340,000
116,284
87,500
543,784
255,000
87,213
65,625
407,838
Total
595,000
203,497
153,125
951,622
Performance Rights Plan – 2018 Share Acquisition Performance Rights (“2018 SAPR Plan”)
On 11 August 2017,
the Group announced the appointment of Mr T.Alder as Managing Director and Chief Executive Officer. The
announcement also set out the material terms of his employment which included the grant of two Share Acquisition Performance Rights
(“SAPRs”) for each share acquired by Mr Alder during the period 11 August 2017 to 31 December 2017.
During the relevant period Mr T.Alder acquired 372,333 shares in the Group resulting in a maximum entitlement of 647,250 share acquisition
performance rights. The grant of the performance rights was approved by shareholders at an extraordinary general meeting held on 23 May
2018. The performance rights were issued under the terms of the Performance Rights Plan.
The SAPRs are subject to a share price performance milestone of $0.62 tested over a three-year period and 100 per cent of the SAPRs will
vest if this performance milestone is achieved. Any SAPRs that do not vest will lapse and are not restated.
Performance
condition
Expiry
date
Grant
date
Fair value/right
Total number of
rights granted
The Company having a 30 day VWAP equal to
or greater than $0.62 per share between 11
August 2017 and 10 August 2020.
Total
When is performance measured?
10 August 2020
23 May 2018
31.6 cents
647,250
647,250
Performance rights may vest at any time during the three year period to 10 August 2020, subject to the abovementioned performance
milestones. Performance rights lapse if the employment of the executive is terminated with cause, or by resignation, prior to vesting.
Performance rights may vest prior to the satisfaction of the vesting conditions upon a change of control event, or if the Board allows early
exercise on cessation of employment or in light of specific circumstances.
No performance rights vested for the year ended 30 June 2018 (2017: nil).
How is performance measured?
Awards are subject to the market capitalisation of the Group. The performance rights link the rewards payable to KMPs to the creation of
shareholder value by increasing the share price of the Company. The Company’s share price at the date of calling the AGM to approve the
CEO LTIs was $0.52 per share. The Company’s share price at the date of calling the EGM to approve the 2018 SAPR was $0.39 per share.
The vesting of performance rights will only occur where the Company’s share price increases to $0.62, $0.90 and $1.20 per share as set out in
the abovementioned tables.
14
14
2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 DIRECTORS’ REPORT
for the year ended 30 June 2018
Actual LTI performance for the year ending 30 June 2018
During the financial year, no rights vested under the 2018 LTI Plan, the SAPR Plan or for any earlier plans issued in previous financial years
(2017: 900,000 rights vested relating to market capitalisation targets met as approved at the 2014 AGM).
Performance Rights Plans approved in prior years
Mr. T. Stinson, the previous Managing Director and CEO of the Group, was issued 500,000 performance rights based on market capitalisation
and share price milestones to be met over a three-year period which was approved by shareholders on 8 November 2016.
Under this long-term incentive plan, performance rights only vest if the terms and conditions detailed below are satisfied.
Tranche
Performance condition
1
2
Total
The Company having a market capitalisation of $125 million and
share price of $1.50 per share for a period of 30 consecutive
days.
The Company having a market capitalisation of $200 million and
a share price of $2.00 per share for a period of 30 consecutive
days.
Expiry
Fair value per
right
Performance
rights issued
7 November 2018
50.0 cents
200,000
7 November 2019
42.0 cents
300,000
500,000
OTHER EQUITY PLANS
Orbital has a history of providing employees with the opportunity to participate in ownership of shares in the company using equity to support a
competitive base remuneration position.
Employee Share Plan
Eligible employees are 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. KMP’s participating in the issue of shares under Employee Share Plan No.1 for the year ended 30
June 2017 amounted to $3,000. No Directors participated in the share plan in 2018. Directors and other KMP did not participate in the issue of
shares under Employee Share Plan No.1 for the year ended 30 June 2018.
CONTRACTS FOR EXECUTIVE KMP
All KMP have a contract for employment. The table below contains a summary of the key contractual provisions of the contracts of employment
for the executive KMP.
Contract Duration
Termination notice period (Company) 1, 2
Termination notice period (Executive)
T Alder
G Cathcart
R Jones 3
Unlimited
Unlimited
Unlimited
3 months
3 months
3 months
3 months
3 months
3 months
1. Termination provisions – Orbital may choose to terminate the contract immediately by making a payment in lieu of notice equal to the fixed remuneration the
executive would have received during the ‘Company Notice Period’. In the event of termination for serious misconduct or other nominated circumstances,
executives are not entitled to this termination payment. Any payments made in the event of a termination of an executive contract will be consistent with the
Corporations Act 2001 (Cth).
2. On termination of employment, executives will be entitled to the payment of any fixed remuneration calculated up to the termination date and any leave entitlement
accrued up to the termination date. Unvested LTI awards are forfeited upon termination for serious misconduct or employee initiated termination and at Board
discretion if termination is initiated by the Company.
3. In the event of the Group terminating the employment of Ms R.Jones (Chief Financial Officer), other than by reason of serious misconduct or material breach of
service agreement, an equivalent of three months salaries is payable, in addition to:
two weeks’ salaries for each completed year of service to ten years of service
one half of a week of salaries for each year of service beyond ten years of service
As at 30 June 2018, Ms Jones has completed five years’ service for the Company.
15
15
2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 DIRECTORS’ REPORT
for the year ended 30 June 2018
NON-EXECUTIVE DIRECTORS REMUNERATION
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 2018 AGM.
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 (2017: $120,000) and the Non-Executive Directors receive a base fee of $60,000
(2017: $60,000).
The remuneration of Non-Executive Directors for the year ended 30 June 2018 and 30 June 2017 is detailed in Table 1 of this report on
page 17.
OTHER TRANSACTIONS WITH KMP AND THEIR RELATED PARTIES
There were no other transactions with KMPs and their related parties, such as purchases, sales and investments, for the year ended 30
June 2018.
REPORTING NOTES
Reporting in Australian dollars
In this report, the remuneration and benefits reported are in Australian dollars. This is consistent with the functional and presentational currency
of the Company.
16
16
2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 Statutory tables
Table 1 - Compensation of Non-Executive Directors and executive KMP's for the year ended 30 June 2018 and 2017
Short Term Benefits
Post-
Employment
Long-term
Benefits
Share Based Payments
Total
s
e
e
F
s
'
r
o
t
c
e
r
i
D
&
y
r
a
a
S
l
$
109,589
109,589
48,489
-
60,000
13,167
10,000
-
-
88,514
228,078
211,270
274,773
-
39,219
349,147
254,870
254,870
167,086
-
29,749
133,960
155,098
-
63,713
231,962
-
87,620
-
195,820
984,509
1,253,379
Non-executive Directors
J Welborn
Chairman and Director (Non-executive)
T Stinson (1)
Director (Non-executive)
S Gallagher (2)
Director (Non-executive)
K Abbott (3)
Director (Non-executive)
J Poynton (4)
Director (Non-executive)
Total Consolidated, all non-executive directors
Executive Director
T Alder (5)
Managing Director and Chief Executive Officer
T Stinson (1)
Managing Director and Chief Executive Officer
Executive Key Management Personnel
G Cathcart
Chief Technical Officer
R Jones (6)
Chief Financial Officer
T Alder (5)
Chief Financial Officer
T Stinson (1)
Corporate Advisor
M Lane (7)
Chairman - REMSAFE
I Veitch (8)
Chief Financial Officer
C Law (9)
Chief Commercial Officer
Total Consolidated, Executive Key Management
Personnel
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
s
e
s
u
n
o
B
h
s
a
C
$
-
-
-
-
-
-
-
-
-
-
-
-
y
r
a
t
e
n
o
m
-
n
o
N
$
l
a
t
o
T
l
r
e
y
o
p
m
E
s
n
o
i
t
u
b
i
r
t
n
o
C
n
o
i
t
a
u
n
n
a
r
e
p
u
S
$
$
s
t
i
f
e
n
e
B
n
o
i
t
a
n
m
r
e
T
i
s
t
n
e
m
e
l
t
i
t
n
E
e
v
a
e
L
$
s
n
a
P
l
e
r
a
h
S
e
e
y
o
p
m
E
l
n
a
P
l
i
s
t
h
g
R
e
c
n
a
m
r
o
f
r
e
P
$ (a)(b)
$ (c)
-
-
-
-
-
-
-
-
-
-
109,589
109,589
48,489
-
60,000
13,167
10,000
-
-
88,514
-
228,078
-
211,270
102,000
-
-
-
-
-
3,336
17,349
376,773
-
42,556
366,496
20,931
25,000
10,500
-
-
-
5,089
-
-
-
275,801
284,959
177,586
-
29,749
-
133,960
-
-
-
-
-
-
6,600
-
-
133,431
31,600
-
-
6,346
-
-
-
155,098
-
70,059
231,962
-
94,220
-
-
-
9,683
195,820
1,127,623
22,438 1,307,417
-
10,411
10,411
4,606
-
-
-
-
-
8,409
15,017
18,820
26,103
-
3,726
36,526
36,679
32,392
15,873
-
2,826
9,924
14,734
-
6,053
21,576
-
14,204
-
18,603
105,995
133,225
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,026
-
76,294
-
-
-
-
-
-
-
-
-
-
-
-
12,696
-
86,493
5,000
9,632
2,860
11,988
-
-
2,767
-
-
-
83,275
-
70,034
-
-
74,640 9,166
120,809
173,102
169,960
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,000
-
-
-
-
-
-
-
1,000
-
1,000
-
-
-
3,000
-
-
-
-
-
-
-
-
-
-
-
117,850
-
92,030
86,579
1,705
10,931
1,283
-
-
-
-
-
-
-
-
10,931
-
-
212,867
108,441
1. Mr Stinson changed roles form Managing Director and Chief Executive Officer to Corporate Advisor and Non-Executive Director on 11 August 2017
2. Mr Gallagher became a Director on 12 April 2017
3. Mr Abbott became a Director on 1 May 2018
4. Mr Poynton ceased as a Director on 12 April 2017
5. Mr Alder became a KMP on 14 December 2016 and changed roles from Chief Financial Officer to Managing Director and Chief Executive Officer on 11 August 2017
6. Ms Jones became a KMP on 16 August 2017
7. Mr Lane ceased as a KMP on 6 October 2017
8. Mr Veitch ceased as a KMP on 18 November 2016
9. Ms Law ceased as a KMP on 3 May 2017
n
o
i
t
a
r
e
n
u
m
e
R
l
a
t
o
T
$
120,000
120,000
53,096
-
60,000
13,167
10,000
-
-
96,923
243,096
230,090
533,422
-
224,804
494,601
323,817
332,142
206,730
-
32,575
146,651
169,832
-
76,112
356,839
-
266,683
-
298,229
1,567,294
1,895,145
f
o
n
o
i
t
r
o
p
o
r
P
n
o
i
t
a
r
e
n
u
m
e
r
l
d
e
t
a
e
r
e
c
n
a
m
r
o
f
r
e
p
%
-
-
-
-
-
-
-
-
-
-
-
41.2%
-
40.9%
17.5%
7.0%
10.8%
5.7%
-
-
-
-
-
-
-
-
6.6%
-
-
22.1%
7.4%
17
17
2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018
Table 2 - Summary of CEO and executive KMP's allocated, vested or lapsed equity
T Stinson 2
Director (Non-executive)
T Alder
Director and Chief Executive Officer
G Cathcart
Chief Technical Officer
R Jones
Chief Financial Officer
Type of equity
Grant date
Expiry date
Equity rights
Equity rights
Equity rights
Equity rights
Equity rights
Equity rights
Equity rights
Equity rights
Equity rights
8 November 2016
7 November 2018
8 November 2016
23 May 2018
27 October 2017
27 October 2017
23 May 2018
23 May 2018
23 May 2018
23 May 2018
7 November 2019
10 August 2020
10 August 2020
10 August 2020
10 August 2020
10 August 2020
10 August 2020
10 August 2020
Awarded
but not
vested
200,000
300,000
647,250
340,000
245,000
116,284
87,213
87,500
65,525
Vested in
2018
% of total
vested
Lapsed in
2018
Fair value
of equity
($) 1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.500
0.420
0.316
0.365
0.278
0.209
0.138
0.209
0.138
1. In accordance with AASB2 Share-based Payments, the fair value of variable pay rights as at the grant date has been determined by applying the Monte Carlo simulation model. For the assumptions used in the
valuation of the rights, please refer to note F.3. The amount included as remuneration is not related to or indicative of the benefit (if any) that individual executives may ultimately realise should these equity
instruments vest.
2. Mr Stinson was employed as Managing Director and CEO during the year, with Mr Alder transitioning into this role on 11 August 2017.
Table 3 - KMP share and equity holdings
Details of Shares and rights held by KMP including their personally related entities for the 2018 financial year are as follows:
Non-executive Directors
John P Welborn
Terry D Stinson (3)
Steve Gallagher
Kyle Abbott (4)
Executive Directors
Todd Alder (5)
Executives
Geoff P Cathcart
Roule Jones (6)
Michael C Lane (7)
Type of equity (1)
Shares
Equity Rights
Shares
Shares
Shares
Equity Rights
Shares
Equity Rights
Shares
Equity Rights
Shares
Equity Rights
Shares
Opening
holding at
1 July 2017
679,103
500,000
1,672,621
-
-
-
-
272,720
-
5,313
-
127,763
-
Rights allocated in
2018
Rights vested in
2018
Net Changes
other
Closing
holding at
30 June 2018 (2)
-
-
-
-
-
1,242,250
-
203,497
153,125
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100,000
-
-
100,000
-
-
372,333
-
-
-
-
-
-
779,103
500,000
1,672,621
100,000
-
1,242,250
372,333
203,497
272,720
153,125
5,313
-
127,763
1. Opening holding represents amounts carried forward in respect of KMP.
2. Closing equity rights holdings represent unvested rights held at the end of the reporting period. There were no rights vested but unexercised as at 30 June 2018.
3. Mr Stinson changed roles from Chief Executive Officer to Non-executive Director on 11 August 2017
4. Mr Abbott became a Director on 1 May 2018
5. Mr Alder changed roles from Chief Financial Officer to Managing Director and Chief Executive Officer on 11 August 2017
6. Ms Jones became a KMP on 16 August 2017
7. Mr Lane ceased as a KMP on 6 October 2017
18
18
2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018
DIRECTORS’ REPORT
for the year ended 30 June 2018
End of Remuneration Report.
Signed in accordance with a resolution of the Directors:
~
J P Welborn
Chairman
T M Alder
Managing Director and Chief Executive Officer
Dated at Perth, Western Australia this 27th day of September 2018.
19
19
2018 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2018 CONTENTS
CONTENTS
Financial statements
Consolidated statement of profit or loss and other
comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the financial statements
About these statements
A. Current performance
A.1 Operating segments
A.2 Revenue
A.3 Other income
A.4 Expenses
A.5 Taxes
A.6 Earnings per share (EPS)
B. Growth assets
B.1 Plant and equipment
C. Working capital management
C.1 Inventories
C.2 Trade and other receivables
C.3 Cash and cash equivalents
C.4 Other financial assets
C.5 Trade and other payables
C.6 Deferred revenue
D. Debt and capital
D.1 Long term borrowings
D.2 Share capital
D.3 Reserves
E. Other assets and liabilities
E.1 Provisions
E.2 Government grants
F. Other items
F.1 Commitments
F.2 Related parties
F.3 Share-based payments
F.4 Subsidiaries
F.5 Parent entity information
F.6 Discontinued operations
F.7 Auditor remuneration
F.8 Events after the end of the reporting period
F.9 Other accounting policies
F.10 Goodwill
F.11 New and amended accounting standards
Directors' declaration
Independent auditors report
Shareholding details
Corporate information
21
22
23
24
25
28
30
30
31
32
34
35
38
39
39
40
40
40
41
41
42
43
44
45
46
47
49
49
50
51
51
51
52
53
56
57
62
65
20
20
2018 ANNUAL REPORT CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
FOR THE YEAR ENDED 30 JUNE 2018
COMPREHENSIVE INCOME
for the year ended 30 June 2018
Continuing operations
Sale of goods
Engineering services income
Royalty and licence income
Interest revenue
Total revenue
Other income
Materials and consumables expenses
Employee benefits expenses
Depreciation and amortisation expenses
Engineering consumables and contractors expenses
Occupancy expenses
Travel and accommodation expenses
Communications and computing expenses
Patent expenses
Insurance expenses
Audit, compliance and listing expenses
Finance costs
Other expenses
Profit/(loss) before income tax from continuing operations
Income tax (expense)/benefit
Profit/(loss) for the year from continuing operations
Discontinued operations
Profit/(loss) after tax for the year from discontinued operations
Profit/(loss) for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Profit/(loss) for the year
Other comprehensive income
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Exchange differences on translation of foreign operations
Total comprehensive profit/(loss) for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive profit/(loss) for the year
Earnings per share
Basic profit/(loss) for the year attributable to ordinary equity holders of the parent (cents)
Diluted profit/(loss) for the year attributable to ordinary equity holders of the parent (cents)
Earnings per share from continuing operations
Basic profit/(loss) for the year attributable to ordinary equity holders of the parent (cents)
Diluted profit/(loss) for the year attributable to ordinary equity holders of the parent (cents)
The accompanying notes form part of the financial statements.
Notes
A.2
A.3
A.4(d)
A.4(a)
B.1
A.4(b)
A.4(c)
A.5
F.6
A.6
A.6
A.6
A.6
-
2018
$'000
17,535
2,635
623
207
21,000
1,826
(5,813)
(9,070)
(534)
(801)
(1,377)
(360)
(527)
(195)
(538)
(244)
(528)
(1,102)
1,737
(2)
1,735
483
2,218
2,218
2,218
9
2,227
2,227
-
2,227
2.87
2.87
2.24
2.24
2017
$'000
10,569
2,196
802
94
13,661
2,960
(3,389)
(10,373)
(523)
(579)
(1,294)
(335)
(429)
(360)
(472)
(425)
(540)
(1,872)
(3,970)
101
(3,869)
(8,382)
(12,251)
(11,948)
(303)
(12,251)
-
(12,251)
(11,948)
(303)
(12,251)
(15.55)
(15.55)
(5.04)
(5.04)
21
21
2018 ANNUAL REPORT
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2018
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2018
ASSETS
Current assets
Cash and cash equivalents
Other financial assets
Trade and other receivables
Prepayments
Inventories
Total current assets
Non-current assets
Deferred taxation asset
Plant and equipment
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade payables and other liabilities
Deferred revenue
Borrowings
Government grants
Provisions
Total current liabilities
Non-current liabilities
Trade payables and other liabilities
Borrowings
Government grants
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Accumulated losses
Total equity
The accompanying notes form part of the financial statements.
Notes
C.3
C.4
C.2
C.1
A.5
B.1
C.5
C.6
D.1
E.2
E.1
C.5
D.1
E.2
E.1
D.2
D.3
2018
$'000
9,926
585
13,667
548
2,154
26,880
5,505
2,216
7,721
34,601
1,535
943
1,032
225
2,090
5,826
173
6,738
74
128
7,113
12,939
21,663
2017
$'000
17,131
2,634
6,243
222
3,280
29,510
5,507
1,497
7,004
36,514
1,108
5,144
860
225
2,035
9,371
246
7,242
299
172
7,959
17,331
19,183
31,144
1,216
(10,697)
21,663
31,106
992
(12,915)
19,183
22
22
2018 ANNUAL REPORT CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2018
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2018
Notes
l
a
t
i
p
a
c
e
r
a
h
S
D.2
)
s
e
s
s
o
l
l
d
e
t
a
u
m
u
c
c
A
(
e
v
r
e
s
e
r
s
t
i
f
e
n
e
b
y
t
i
u
q
e
e
e
y
o
p
m
E
l
D.3
e
v
r
e
s
e
r
l
n
o
i
t
a
s
n
a
r
t
y
c
n
e
r
r
u
c
i
n
g
e
r
o
F
D.3
n
o
i
t
a
r
e
d
s
n
o
c
i
t
n
e
g
n
i
t
n
o
C
e
v
r
e
s
e
r
n
o
i
t
a
d
i
l
o
s
n
o
C
e
v
r
e
s
e
r
e
t
o
n
l
e
b
i
t
r
e
v
n
o
C
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
N
l
a
t
o
T
D.3
D.3
D.3
y
t
i
u
q
e
l
a
t
o
T
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
At 1 July 2017
Profit for the period
Foreign currency translation
Total comprehensive income for the period
Share based payments
At 30 June 2018
At 1 July 2016
Loss for the period
31,106
(12,915)
1,759
-
-
-
38
2,218
-
2,218
-
31,144
(10,697)
-
-
-
215
1,974
30,051
(967)
1,788
-
(11,948)
-
Total comprehensive loss for the period
30,051
(11,948)
1,788
Acquisition of non-controlling interests
Share based payments
At 30 June 2017
860
195
-
-
31,106
(12,915)
-
(29)
1,759
The accompanying notes form part of the financial statements.
-
-
9
9
-
9
-
-
-
-
-
-
3,440
(4,455)
248
19,183
-
-
-
-
-
-
-
-
-
-
-
-
2,218
9
2,227
253
3,440
(4,455)
248
21,663
-
-
-
-
-
-
19,183
2,218
9
2,227
253
21,663
248
30,450
818
31,268
-
(11,948)
(303)
(12,251)
-
-
-
(670)
-
(670)
3,440
(3,785)
-
-
248
18,502
-
-
515
166
3,440
(4,455)
248
19,183
515
(515)
-
-
19,017
-
166
19,183
23
23
2018 ANNUAL REPORT
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2018
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2018
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employers
Interest received
Interest paid
Income tax paid
Net cash used in operating activities
Cash flows from investing activities
Proceeds from/(purchase of) financial instruments
Proceeds from sale of plant and equipment
Proceeds from sale of subsidiary
Purchase of plant and equipment
Redemption of short term deposit
Net cash provided by/(used in) investing activities
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
Cash and cash equivalents at 30 June
The accompanying notes form part of the financial statements.
Notes
2018
$'000
13,380
(22,333)
207
(32)
-
2017
$'000
13,155
(18,003)
115
(30)
(90)
C.3
(8,778)
(4,853)
2,029
29
720
(1,303)
152
1,627
(860)
(860)
(8,011)
17,131
806
9,926
(2,465)
29
-
(170)
697
(1,909)
(717)
(717)
(7,479)
24,872
(262)
17,131
F.6
D.1
C.3
24
24
2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
About these statements
Orbital Corporation Ltd ("Orbital" or the "Group") is a for-profit
company limited by shares, incorporated and domiciled in
Australia. Its shares are publicly traded on the Australian
Stock Exchange ("ASX"). The registered office is 4 Whipple
Street, Balcatta, Western Australia.
The nature of the operations and principal activities of the
Group are described in the Directors Report and in the
segment information in Note A.1.
The financial statements were authorised for issue in
accordance with a resolution of the directors on 27th
September 2018.The Directors have the power to amend and
reissue the financial report.
Statement of compliance
The financial statements are general purpose financial
statements, which have been prepared in accordance with
the requirements of the Corporations Act 2001 (Cth),
Australian Accounting Standards and other authoritative
pronouncements of the Australian Accounting Standards
Board. The financial statements comply with International
Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board.
The Group applied for the first time new and amended
Accounting Standards and Interpretations which are effective
for annual periods beginning on or after 1 July 2017. The
Group has not early adopted any standards, interpretations or
amendments that have been issued but not yet effective. The
adoption of these standards, interpretations or amendments
has not significantly affected the Group's accounting policies,
financial position or performance.
Currency
The financial statements are presented in Australian dollars,
which is the functional currency of the Company and the
majority of its subsidiaries. Transactions are recorded in the
functional currency of the transacting entity using the spot
rate.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot rate
of exchange at the reporting date.
Differences arising on settlement or translation of monetary
items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange
rates at the dates of the initial transactions.
On consolidation, the assets and liabilities of foreign
operations are translated into Australian dollars at the rate of
exchange prevailing at the reporting date and their
statements of profit or loss are translated at exchange rates
prevailing at the dates of the transactions.
The exchange differences arising on translation for consolidation
are recognised in OCI. On disposal of a foreign operation, the
component of OCI relating to that particular foreign operation is
reclassified to profit or loss.
Rounding of amounts
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.
Basis of preparation
The consolidated financial statements have been prepared on
the historical cost basis, except for investment in marketable
securities which are measured at fair value.
The financial statements comprise the financial results of the
Group and its subsidiaries as at 30 June each year. Subsidiaries
are fully consolidated from the date of which control is obtained
by the Group and cease to be consolidated from the date at
which the Group ceases to have control.
The financial statements of subsidiaries are prepared for the
same reporting period as the parent company, using consistent
accounting policies. All intercompany balances and transactions,
including unrealised profits and losses arising from intra-group
transactions, have been eliminated in full.
Profit or loss and 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.
Comparative information has been reclassified where required
for consistency with the current year's presentation.
Other accounting policies
Significant and other accounting policies that summarise the
measurement basis used and are relevant to understanding the
financial statements are provided throughout the notes to the
financial statements.
Financial and capital risk management
The Board of Directors has overall responsibility for the
establishment and oversight of the Group's risk management
strategy, policy and key risk parameters. The Board of Directors
have oversight of the Group's internal control system and risk
management process.
The Group's management of financial and capital risks is aimed
at ensuring that available capital, funding and cash flows are
sufficient to meet the Group's financial commitments as and
when they fall due and maintain the capacity to fund its
committed project developments.
25
25
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2018
The below risks arise in the normal course of the Group's business. Risk information can be found in the following sections:
Section A
Section C
Section C
Section C
Section C
Section D
Foreign currency risk
Liquidity risk
Interest Rate risk
Credit risk
Equity price risk
Capital risk management
Page 27
Page 37
Page 38
Page 38
Page 38
Page 41
Key estimates and judgements
In applying the Group's accounting policies, management continually evaluates judgements, estimates and assumptions based on
experiences and other factors, including expectations of future events that may have an impact on the Group. Significant judgements,
estimates and assumptions made by management in the preparation of these financial statements are found in the following notes:
Note
A.2
A.5
B.1
D.3
E.1
E.1
Key estimate/ judgement
Recognition of engineering services revenue
Recoverability of deferred tax assets
Impairment of non-current assets
Classification of contingent consideration
Valuation of provision for warranties
Valuation of provision for long service leave
Page
30
32
35
42
44
44
26
26
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
for the year ended 30 June 2018
In this section
This section addresses financial performance of the Group for the reporting period including, where applicable, the accounting policies
applied and the key estimates and judgements made. The section also includes the tax position of the Group for and at the end of the
reporting period.
A. Current Performance
A.1
A.2
A.3
A.4
A.5
A.6
Operating segments
Revenue
Other income
Expenses
Taxes
Earnings per share
Page 28
Page 30
Page 30
Page 31
Page 32
Page 34
Key financial risks in this section
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate as a result of changes in foreign
exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates to the Group’s operating activities, in
which sales and purchases are denominated in foreign currencies.
The Group manages its exposure to foreign currency risk by regularly monitoring and performing sensitivity analysis on the Group's
financial position and performance as a result of movements in foreign exchange rates. Furthermore, the Group holds bank accounts
in foreign denominated currencies which are converted to Australian dollars through rate orders for targeted exchange rates.
Exposure
The Group’s exposure to USD at the reporting date for the years ended 30 June 2018 and 2017 are as follows:
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Trade and other payables
2018
USD
A$'000
9,660
11,190
2017
USD
A$'000
12,290
2,643
99
97
For the year ended 30 June 2018, revenue from external customers denominated in USD was A$18,035,000 (2017: A$10,283,000).
Sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in USD exchange rates, with all other variables held
constant. The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities. There is no
impact on changes in foreign currencies on other comprehensive income. The Group’s exposure to foreign currency changes for all
other currencies is not material.
The Group has used the observed range of actual historical rates for the preceding five year period, with a heavier weighting placed on
recently observed market data, in determining reasonably possible exchange movements as part of their sensitivity analysis. Past
movements in exchange rates are not necessarily indicative of future movements.
Change in
AUD/USD
rate
+5%
-5%
+5%
-5%
Increase /
(Reduction)
on profit
before taxes
(988)
1,092
(706)
781
2018
2017
27
27
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018A. CURRENT YEAR PERFORMANCE NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
A. CURRENT YEAR PERFORMANCE
for the year ended 30 June 2018
A.1 Operating segments
Basis for segmentation
For management purposes, the Group is organised into business divisions based on its products and services and has two reportable
segments, as follows:
· Program Delivery ("PD")
The Program Delivery segment is focussed on the manufacture, assembly and delivery of engines and propulsion systems for
unmanned aerial vehicles (UAV), and the continuous improvement of propulsion system and component part costs; product quality;
and timing of product delivery.
· Advanced Product Development ("APD")
The Advanced Product Development segment specialises in the development of new UAV propulsion systems and flight critical
components, including UAV engineering studies, engine mapping, maintenance certification and engineering technical support across
the Group.
No operating segments were aggregated to form the abovementioned reportable operating segments
The Executive Leadership Team is the Chief Operating Decision Maker (“CODM”) who monitor the operating results of the business
units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance
is evaluated based on profit or loss and is measured consistently with profit or loss in the consolidated financial statements. Other
income, finance costs and income taxes are managed on a Group basis and not allocated to operating segments.
There are no inter-segment revenues or transactions.
Change in segmentation
The business of REMSAFE Pty Ltd represented the entirety of the Group’s Safety and Productivity operating segment until 18
December 2017. With REMSAFE Pty Ltd being classified as a discontinued operation, the Safety and Productivity operating segment
is no longer presented in the segment disclosure. Refer to Note F.6 for further details.
During the period the Group changed the composition of its reportable segments to better align with the Group's strategic focus on the
tactical UAV market. The Group's strategic focus includes building on its position as a global leader in the supply of premium UAV
propulsion systems and flight critical components by further developing relationships with customers and identifying organic growth
opportunities. The prior year segments which included Unmanned Aerial Vehicles, Engineering Services and Consumer have been
restated to align with the new operating segments.
28
28
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
A. CURRENT YEAR PERFORMANCE
for the year ended 30 June 2018
Segment information
Year ended 30 June 2018
Segment revenue - external customers
Interest revenue
Total revenue
Research and development grant
Materials, engineering consumables & contractors
Employee benefits expenses
Depreciation and amortisation expenses
Occupancy expenses
Warranties (Note E.1)
Administration & other expenses
Segment result
Other income
Finance costs
Net profit/(loss) before income tax
Income tax (expense)/benefit
Profit/(loss) after tax from continuing operations
Profit/(loss) from discontinued operations
Profit/(loss) after tax
Geographical information
Revenue – external customers
Non-current operating assets
PD
2018
$'000
17,535
-
17,535
-
(5,783)
(3,218)
(60)
(340)
(449)
(508)
7,177
2017
$'000
10,568
-
10,568
-
(3,470)
(3,680)
(59)
(319)
(420)
(568)
2,051
APD
Unallocated
Consolidated
2018
$'000
2,652
-
2,652
10
(631)
(2,086)
(5)
(198)
-
(371)
(629)
2017
$'000
1,679
-
1,679
1,505
(378)
(2,386)
(5)
(186)
-
(415)
(187)
2018
$'000
606
207
814
18
(200)
(3,766)
(469)
(838)
-
(1,638)
(6,080)
2017
$'000
1,320
94
1,414
743
(120)
(4,307)
(459)
(788)
-
(1,869)
(5,386)
2018
$'000
20,793
207
21,000
28
(6,614)
(9,070)
(534)
(1,377)
(449)
(2,517)
467
1,798
(528)
1,737
(2)
1,735
483
2,218
2017
$'000
13,567
94
13,661
2,248
(3,968)
(10,373)
(523)
(1,294)
(420)
(2,852)
(3,521)
91
(540)
(3,970)
101
(3,869)
(8,382)
(12,251)
Australia
United States
Total
2017
$'000
2018
$'000
2017
$'000
1,669 1,388 19,124 12,179 20,793 13,567
1,210 1,497 1,006
2,216 1,497
2018
$'000
2018
$'000
2017
$'000
-
Revenue information above is based on the location of the customers. Non-current operating assets above is based on the physical
location of the asset.
Revenue from one key customer, being attributable to both reportable segments, amounted to $17,148,000 (2017: $9,278,000).
29
29
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
A. CURRENT YEAR PERFORMANCE
for the year ended 30 June 2018
A.2 Revenue
Recognition and measurement
Revenue is recognised to the extent that it is probable that
the economic benefits will flow to the Group and revenue may
be reliably measured. Revenue is measured at the fair value
of consideration received or receivable, taking into account
contractually defined terms of payment, excluding Goods and
Services Tax (“GST”).
The specific recognition criteria described below must also be
met before revenue is recognised:
· 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 costs incurred to date as a
percentage of total estimated costs 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.
HD Facility Grant Revenue
Deferred revenue represents cash payments received from
customers in accordance with contractual commitments prior
to the performance of the service. Refer to Note C.5 for futher
details.
Other income received
Key estimate
Recognition of engineering services revenue
Management estimates the total cost to complete each
contract used to derive the stage of completion of engineering
services recognised in the statement of profit or loss and
other comprehensive income.
· Sale of goods
Revenue from the sale of goods is recognised when the
significant risks and rewards of ownership of the goods have
passed to the buyer; ordinarily, on the delivery of the goods. A
liability for potential warranty claims is recognised at the time
the goods are sold. Refer to Note E.1 for further details.
· License and royalties
Revenue earned under licencing and royalty arrangements is
recognised on an accruals basis upon the delivery of an
engine meeting specified performance targets and using the
patented technologies of the Group.
Under the terms of the licence and royalty agreements,
licensees are not specifically obliged to commence
production and sale of engines using technology patented by
the Group. Licensees may terminate the agreements upon
notice to the Group. If a licensee were to terminate its
agreement with the Group, the licensee would forfeit the
licence and any technical disclosure fees paid through to the
date of termination.
· Interest revenue
Interest income is recorded using the effective interest rate
method ("EIR"). The EIR is the rate that exactly discounts the
estimated cash receipts over the expected life of the financial
instrument or a shorter period, where appropriate, to the net
carrying amount of the financial asset.
A.3 Other income
Grant income
Rental income
Research and development grant
Net foreign exchange gain
Gain on sale of quoted equity shares
Other
Recognition and measurement
2018
$'000
2017
$'000
225
428
28
998
132
15
1,826
225
437
2,248
-
-
50
2,960
Grant income, including research and development tax
incentives
Government grants are recognised where there is
reasonable assurance that the grant will be received and all
attached conditions will be complied with. When the grant
relates to an asset, it is recognised as income in equal
amounts over the expected useful life of the related asset.
When the grant relates to an expense item, it is recognised
as income on a systematic basis over the periods that the
related costs, for which it is intended to compensate, are
expensed.
Rental income
Rental income arising from operating leases on sub-leased
properties is accounted for on a straight-line basis across the
lease term.
30
30
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
A. CURRENT YEAR PERFORMANCE
for the year ended 30 June 2018
A.4 Expenses
(d) Materials and consumable expenses
Raw materials and consumables
Change in inventories
(e)
Research and development costs
Research and development costs
Recognition and measurement
2018
$'000
4,687
1,126
5,813
2017
$'000
2,439
950
3,389
2018
$'000
1,177 1,912
2017
$'000
· Defined contribution plans
Obligations for contributions to defined contribution
superannuation funds are recognised as an expense as
incurred.
The Group contributes to defined contribution plans for the
provision of benefits to Australian employees on retirement,
death or disability. Employee and employer contributions are
calculated on percentages of gross salaries and wages.
Apart from contributions required under law, there is no
legally enforceable right for the Group to contribute to a
superannuation plan.
(a)
Employee benefits expense
Salaries and wages
Defined contribution plans
Share based payments (Note F.3)
Annual and long service leave (Note E.1)
Other personnel costs
Personnel costs
2018
$'000
7,302
632
250
115
771
9,070
2017
$'000
8,772
709
153
90
649
10,373
Other personnel costs include payroll tax and workers
compensation of $440,000 (2017:$464,000) and recruitment
costs of $253,000 (2017:$100,000).
(b)
Finance costs
Interest expense (Note D.1)
(c)
Other expenses
Administration
Marketing and investor relations
Warranties (Note E.1)
Fair value movement in quoted equity
shares
Net foreign exchange losses
Corporate advisory expenses
Other
2018
$'000
528
528
2017
$'000
540
540
2018
$'000
2017
$'000
388
86
449
-
-
89
90
1,102
189
113
420
568
53
444
85
1,872
31
31
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018
NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
A. CURRENT YEAR PERFORMANCE
for the year ended 30 June 2018
A.5 Taxes
The major components of the income tax (expense)/benefit
for the years ended 30 June 2018 and 2017 are:
Deferred tax assets relate to the following:
Deferred tax
Adjustments in respect of deferred tax of
previous year
Net benefits arising from previously
unrecognised tax losses
Relating to the origination and reversal of
temporary differences
Total income tax (expense)/benefit
2018
$'000
2017
$'000
-
-
(105)
131
(2)
(2) 26
-
The reconciliation of the income tax benefits and accounting
profit multiplied by the Australian domestic tax rate for the
years ended 30 June 2018 and 2017 are:
Accounting profit/(loss) before tax from
continuing operations
Accounting profit/(loss) before tax from
discontinued operations
Accounting profit/(loss)
before income tax
At Australia's statutory income tax rate of
27.5% (2017: 30%)
Adjustments in respect of the change in
statutory income tax rate
Non assessable income
Recognition of previously unrecognised
tax losses
Deferred tax asset not recognised
Non-deductible expenses
Income tax paid in the United States of
America
Income tax (expense)/benefit
Income tax (expense)/benefit reported in
the statement of profit or loss
Income tax attributable to discontinued
operation
2018
$'000
1,737
2017
$'000
(3,970)
483
(8,307)
2,220
(12,277)
(611)
3,683
(459)
798
459
(116)
(73)
-
(2)
(2)
-
-
855
131
(1,168)
(3,445)
(30)
26
101
(75)
Inventory
Revenue received in advance
Property, plant, and equipment
Provisions and accruals
Other
Tax losses
Deferred tax assets not recognised
Net deferred tax asset
2018
$'000
62
259
66
614
(26)
24,019
(19,489)
5,505
2017
$'000
69
1,495
66
684
348
23,151
(20,306)
5,507
The Group has tax losses that arose in Australia of
A$76,765,000 (2017: A$71,868,000) that are available
indefinitely for offsetting against future taxable profits of the
Group and its controlled entities in which those losses arose.
Under the tax laws of the United States of America, unused
tax losses that cannot be fully utilised for tax purposes during
the current period may be carried forward into future periods,
subject to statutory limitations. At 30 June 2018, the Group
carried US$10,392,000 (2017: US$11,286,000) in unused tax
losses which expire between 2019 and 2023. The Group has
recognised a deferred tax asset in relation to unused tax
losses in the United States of America of $847,000 (2017:
nil).
Recognition and measurement
· Current income tax
Current income tax assets and liabilities are measured at the
amount expected to be recovered from or paid to the taxation
authorities. The tax rates and tax laws used to compute the
amount are those that are enacted at the reporting date in the
countries where the Group operates and generates taxable
income.
· Deferred tax
Deferred tax is provided for using the full liability method on
temporary differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting
purposes at the reporting date.
32
32
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
A. CURRENT YEAR PERFORMANCE
for the year ended 30
A.5 Taxes (cont.)
· Deferred tax
Deferred tax liabilities are recognised for all taxable
temporary differences, except:
• When the deferred tax liability arises from the initial
recognition of goodwill or an asset or liability in a transaction
that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable
profit or loss
• In respect of taxable temporary differences associated with
investments in subsidiaries, when the timing of the reversal of
the temporary differences can be controlled and it is probable
that the temporary differences will not reverse in the
foreseeable future.
Deferred tax assets are recognised for deductible temporary
differences to the extent that it is probable that taxable profit
will be available against which the deductible temporary
differences and carry forward of unused tax credits and
unused tax losses may be utilised, except:
• When the deferred tax asset relating to the deductible
temporary difference arises from the initial recognition of an
asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither
accounting profit or loss
• In respect of deductible temporary differences associated
with investments in subsidiaries, deferred tax assets are
recognised only to the extent that it is probable that the
temporary differences will reverse in the foreseeable future
and taxable profit will be available against which the
temporary differences may be utilised.
The carrying amount of deferred tax assets is reviewed at
each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available
or allow all or part of the deferred tax asset to be utilised.
Unrecognised deferred tax assets are re-assessed at each
reporting date and are recognised to the extent that it is
probable that future taxable profits will allow the deferred tax
asset to be recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset is
realised or the liability is settled, based on tax rates and tax
laws that have been enacted or substantively enacted at the
reporting date.
Key estimate: Recoverability of deferred tax assets
At 30 June 2018, the Group recognised $5,505,000 (2017:
A$5,507,000) of deferred tax assets after assessing the
likelihood of offsetting unused tax losses against future
taxable profits. The unused tax losses for which a deferred
tax asset is recognised relate to operations in Australia and
the United States of America.
The Board assessed that the deferred tax asset was
recoverable based on forecast taxable income included in the
Business Plan. Forecasted income included in Orbital’s
Business Plan is founded on existing supply contracts plus
maturing contract negotiations on expanded revenue
opportunities.
Offsetting deferred tax balances
Deferred tax assets and liabilities are offset only if there is a
legally enforceable right to offset current tax assets and
liabilities and when they relate to income taxes levied by the
same taxation authority on either the same taxable entity or
different taxable entities that the Group intends to settle its
current tax assets and liabilities on a net basis.
Tax consolidation
Orbital Corporation Limited and its 100 per cent 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 tax consolidated 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
were recognised in the financial statements in respect of this
agreement on the basis that the probability of default was
assessed as remote.
Orbital Corporation Limited and its controlled entities
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 amount
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 Corporation
Limited also recognised current tax liabilities (or assets) and
deferred tax assets arising from unused tax losses assumed
from its controlled entities in the tax consolidated group.
33
33
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
A. CURRENT YEAR PERFORMANCE
for the year ended 30
There have been no transactions involving ordinary shares or
potential ordinary shares between the reporting date and the
date of authorisation of the financial statements.
The number of potential ordinary shares not considered
dilutive and contingently issuable are as follows:
Performance rights (Note F.3)
Contingent consideration (Note D.3)
Total
2018
Number
2,354,373
4,000,000
6,354,373
To calculate the EPS for discontinued operations, the
weighted average number of ordinary shares for both basic
and diluted EPS is as per the table in this note. Refer to Note
F.6 for further details.
A.6 Earnings per share (EPS)
Basic EPS is calculated by dividing the profit for the year
attributable to ordinary equity holders of Orbital Corporation
Limited (“the Parent”) by the weighted average number of
ordinary shares outstanding during the year.
Diluted EPS is calculated by dividing the profit attributable to
ordinary equity holders of the Parent by the weighted average
number of ordinary shares outstanding during the year, plus
the weighted average number of ordinary shares that would
be issued on conversion of all dilutive potential ordinary
shares into ordinary shares.
The following table reflects the income and share data used
in the basic and diluted EPS computations:
Profit/(loss) attributable to ordinary equity
holders of the Parent:
Continuing operations
Discontinued operations
Profit/(loss) attributable to
equity holders of the Parent for
basic earnings
2018
$'000
2017
$'000
1,735
483
(3,869)
(8,079)
2,218
(11,948)
Performance rights granted to key management personnel
and contingent consideration arising from the acquisition of
the remaining 38.50 per cent interest in REMSAFE Pty Ltd
were deemed contingently issuable potential ordinary shares.
Refer to Notes F.3 and D.3 for further details. For the year
ended 30 June 2017, all contingently issuable ordinary
shares were anti-dilutive and excluded from the calculation of
diluted earnings per share.
Weighted average number of ordinary
shares for basic EPS
Weighted average number of ordinary
shares adjusted for the effect of
dilution
2018
Number
77,337,066
2017
Number
76,811,878
77,337,066
76,811,878
Earnings per share
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Cents
2.87
2.87
Cents
(15.55)
(15.55)
Earnings per share from continuing operations
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Cents
2.24
2.24
Cents
(5.04)
(5.04)
34
34
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS B. GROWTH ASSETS
B. GROWTH ASSETS
for the year ended 30 June 2018
In this section
This section addresses the strategic growth and assets position of the Group at the end of the reporting period including, where
applicable, the accounting policies applied and the key estimates and judgements made.
B.1 Plant and equipment
Gross carrying amount at cost
At 1 July 2016
Additions
Disposals
At 30 June 2017
Additions
Disposals
At 30 June 2018
Depreciation and impairment
At 1 July 2016
Depreciation charge for the year
Disposals
At 30 June 2017
Depreciation charge for the year
Disposals
At 30 June 2018
Net book value
At 30 June 2018
At 30 June 2017
Plant and
equipment
Leasehold
improvements
Total
$’000
$’000
$’000
17,814
143
(72)
17,885
274
(74)
18,085
(16,139)
(530)
52
(16,617)
(503)
45
(17,075)
377
27
-
404
1,029
-
1,433
(126)
(49)
-
(175)
(52)
-
(227)
18,191
170
(72)
18,289
1,303
(74)
19,518
(16,265)
(579)
52
(16,792)
(555)
45
(17,302)
1,010
1,268
1,206
229
2,216
1,497
Leasehold improvements at 30 June 2018 includes $1,000,000
(2017:nil) attributable to construction of the US facility, which was
not available for use at balance date.
Plant and equipment was pledged as security under the
Acknowledgement of Debt entered into with the Department of
Jobs, tourism, Science and Innovation and is subject to floating
charges. Refer to Note D.1 for further details.
Recognition and measurement
Plant and equipment is stated at cost, net of accumulated
depreciation and accumulated impairment losses, if any. Such
costs include the cost of replacing part of the plant and
equipment. When significant parts of plant and equipment are
required to be replaced at intervals, the Group depreciates those
parts separately based on their specific useful lives. Likewise,
when a major inspection is performed, its cost is recognised in
the carrying amount of the plant and equipment as a replacement
if the recognition criteria are satisfied. All other repairs and
maintenance costs are expensed as incurred to occupancy
expenses in the statement of profit or loss and other
comprehensive income.
An item of plant and equipment is derecognised upon
disposal or when no future economic benefits are
expected from its use or disposal. Any gain or loss arising
on the de-recognition of the asset, calculated as the
difference between the net disposal proceeds and the
carrying amount of the assets, is included in other income
or other expenses in the statement of profit or loss and
other comprehensive income when the asset is
derecognised.
Impairment of non-financial assets
The Group assesses, at each reporting date, whether
there is an indication that an asset may be impaired. If any
indication exists, or when annual impairment testing for an
asset is required, the Group estimates the recoverable
amount of the asset or cash generating unit (“CGU”). The
recoverable amount of the asset or the CGU is the higher
of its fair value less costs of disposal and its value in use.
The recoverable amount is determined for an individual
asset, unless the asset does not generate cash flows that
are largely independent of those from other assets or
groups of assets. When the carrying amount of an asset
or CGU exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable
amount.
Impairment losses of continuing operations are recognised
in the statement of profit or loss in expense categories
consistent with the function of the impaired asset.
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.
In determining fair value less costs of disposals, recent
market transactions are taken into account. If no such
transactions can be identified, an appropriate valuation
model is used. These calculations are corroborated by
valuation multiples, quoted share prices for publicly traded
companies or other available fair value indicators.
Key estimate - Impairment of non-current assets
The Group bases its impairment calculation on detailed
budgets and forecast calculations, which are prepared
separately for each of the Group’s CGUs to which the
individual assets are allocated. The budgets and forecast
calculations cover a period of five years. A long-term
growth rate is calculated and applied to projected future
cash flows after the fifth year.
35
35
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS B. GROWTH ASSETS
B. GROWTH ASSETS
for the year ended 30 June 2018
B.1 Plant and equipment (cont.)
· Depreciation
Depreciation is calculated on a straight-line basis over the estimated useful life as follows:
Plant and equipment: 3 to 15 years
Leasehold improvements: 3 to 15 years
The residual values, useful lives and methods of depreciation of plant and equipment are reviewed at each financial year-end and
adjusted prospectively, as appropriate.
36
36
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS C. WORKING CAPITAL MANAGEMENT
for the year ended 30 June 2018
C. WORKING CAPITAL MANAGEMENT
In this section
This section addresses inventories, trade and other receivables, cash, other financial assets and trade and other payables of the Group
at the end of the reporting period including, where applicable, the accounting policies applied and the key estimates and judgements
made.
C. Working Capital Management
C.1 Inventories
C.2 Trade and other receivables
C.3 Cash and cash equivalents
C.4 Other financial assets
C.5 Trade and other payables
C.6 Deferred revenue
Page 38
Page 39
Page 39
Page 40
Page 40
Page 40
Key financial and capital risks in this section
Liquidity risk management
Liquidity risk arises from the financial liabilities of the Group and the Group's subsequent ability to meet its obligations to repay financial
liabilities as and when they fall due. The liquidity position of the Group is managed to ensure sufficient liquid funds are available to meet
its financial commitments in a timely and cost effective manner.
The Group's liquidity position is managed by the Board of Directors who regularly review cash-flow forecasts prepared by management,
which includes the Group's short and long-term obligations, cash position and forecast liability position to maintain appropriate liquidity
levels. At 30 June 2018, the Group has a total of $9,926,000 of cash at its disposal (2017: $17,131,000) and a net current asset position
$20,417,000 (2017: $19,892,000). The remaining contractual maturities of the Group's financial liabilities are:
3-12 months
1-5 years
Over 5 years
At 30 June 2018
Borrowings (Note D.1)
Trade payables and other
liabilities (Note C.5)
At 30 June 2017
Borrowings (Note D.1)
Trade payables and other
liabilities (Note C.5)
On demand
$'000
Less than 3
months
$'000
-
-
-
-
-
-
1,304
1,304
-
6,214
6,214
$'000
1,032
58
1,090
860
38
898
$'000
6,647
173
6,820
5,540
246
5,786
1. Based on the maximum amount that may be called under a financial guarantee contract
Total
$'000
9,986
1,535
$'000
2,307
-
2,307
11,521
4,447
10,847
-
6,498
4,447
17,345
37
37
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018
NOTES TO THE FINANCIAL STATEMENTS C. WORKING CAPITAL MANAGEMENT
for the year ended 30 June 2018
C. WORKING CAPITAL MANAGEMENT
Interest rate risk management
Interest rate risk is the risk that the Group's financial position will fluctuate due to changes in the market interest rates.
The Group's exposure to market interest rates relates primarily to the Group's cash and term deposits with financial institutions. The
primary goal of the Group is to maximise returns on surplus cash, using deposits with maturities of 90 days or less. Management
continually monitors the returns on funds invested. The exposure to interest rate risk as at 30 June 2018 is as follows:
Cash and cash equivalents (Note C.3)
Short-term deposits (Note C.3)
Short-term deposits (Note C.4)
2018
$'000
9,926
-
585
10,511
2017
$'000
16,131
1,000
737
17,868
A reasonable possible change in the interest rate (+0.5%/-0.5% (2017: +1%/-1%)), with all variables held constant, would have resulted
in a change in post tax profit/(loss) of $51,000/($51,000) (2017: $179,000)/($179,000)) and no impact to other comprehensive income.
Credit risk management
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 and investing activities, including trade receivables and short-term
deposits with financial institutions. Maximum exposure to credit risk equals to the carrying amount of these financial assets (as outlined in
each applicable note). There are no significant concentrations of credit risk within the Group, other than receivable balances from the
Avidsys Group and Insitu Inc.
The maximum exposure to credit risk for the components of the statement of financial position at 30 June 2018 and 2017 is the carrying
amounts as illustrated in Note C.2.
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 cash
consideration receivable from Avidsys Group and trade receivables from a key customer and cash held with investment grade financial
institutions. Refer to Note F.6 , Note A.1 and Note C3, respectively.
The investment of surplus cash in short-term deposits is only invested with a major financial institution to minimise the risk of default of
counterparties.
Equity price risk
The Group’s listed equity securities are susceptible to market price risk arising from uncertainties about future values of the investment
securities. The Group manages this risk by the Board of Directors reviewing and approving all equity investment decisions made by the
Group. During the current period the Group disposed of its non-controlling interest in listed equity securities At reporting date, the
exposure to listed equity securities at fair value was nil (2017: $1,897,000). Refer to Note C.4 for further details.
C.1 Inventories
Raw materials
Provision for obsolescence
Work in progress
Finished goods
2018
$'000
1,841
(226)
489
50
2,154
2017
$'000
2,158
(250)
828
544
3,280
For the year ended 30 June 2018, no expense (2017: $14,000) was recognised to write-down inventories to their net realisable value.
Recognition and measurement
Inventories are carried at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and
condition are accounted for as follows:
• Raw materials: weighted average cost
• Finished goods and work in progress: weighted average cost of direct materials and direct manufacturing labour and a proportion of
manufacturing overhead costs
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling
expenses.
38
38
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS C. WORKING CAPITAL MANAGEMENT
for the year ended 30 June 2018
C. WORKING CAPITAL MANAGEMENT
C.2 Trade and other receivables
C.3 Cash and cash equivalents
Trade receivables
Accrued royalties
Other receivables
2018
$'000
12,097
64
1,506
13,667
2017
$'000
3,989
180
2,074
6,243
Cash at bank
Short-term deposits
2018
$'000
9,926
-
9,926
2017
$'000
16,131
1,000
17,131
The reconciliation of net profit after tax to net cash flows from
operations for the years ended 30 June 2018 and 2017 is as follows:
Other receivables includes $1,450,000 receivable from Avidsys
Pty Ltd as consideration for the disposal of REMSAFE Pty Ltd on
18 December 2017. Refer to Note F.6 for further details.
See the "Credit risk management" section on credit risk of trade
receivables, which explains how the Group manages and
measures the quality of trade receivables that are neither past
due nor impaired. At 30 June, the ageing of trade receivables is
as follows:
Neither past due nor
impaired
$'000
12,097
3,854
31-60
days
$'000
-
54
+61
days
$'000
-
81
Total
$'000
12,097
3,989
2018
2017
The Group's payment terms on trade receivables range from 30 -
35 days. No receivable at 30 June 2018 was considered impaired
(2017: nil). The credit risk of trade receivables neither past due
nor impaired was assessed as remote as historical default rates
with associated customers are neglible.
Recognition and measurement
Trade and other receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in an
active market.
Trade and other receivables are recognised on initial recognition
at fair value. Subsequent to initial recognition, trade receivables
are measured at amortised cost using the effective interest rate
method, less an allowance for uncollectible amounts.
Impairment
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.
Financial assets are tested for impairment on an individual basis.
Fair value
The carrying amount of trade and other receivables
approximates their fair value.
Profit/(loss) after income tax from continuing
operations
Profit/(loss) after income tax from discontinued
operations
Profit/(loss) after income tax
Loss on sale of plant and equipment
Depreciation
Impairment of goodwill (Note F.10)
Government grants (Note E.2)
Interest expense (Note D.1)
Surplus lease space (Note E.1)
Warranties (Note E.1)
Employee benefits (Note E.1)
(Gain)/loss on sale of quoted equity shares
Share based payment expense (Note F.3)
Net foreign exchange (gain)/loss
Net cash used in operating activities before
changes in assets and liabilities
2018
$'000
2017
$'000
1,735
(3,869)
483
(8,382)
2,218
(12,251)
-
555
-
(225)
528
(52)
350
(286)
(132)
253
(999)
(9)
579
5,218
(225)
540
(49)
420
(603)
568
166
72
2,211
(5,574)
Changes in assets and liabilities during the year:
Increase in receivables and prepayments
Decrease in inventories
Decrease/(increase) in deferred tax assets
(Decrease)/increase in payables
(8,464)
1,127
2
(3,654)
(10,989)
(998)
967
(25)
777
721
Net cash used in operating activities
(8,778)
(4,853)
Recognition and measurement
Cash and cash equivalents in the statement of financial
position comprise cash at bank and short-term deposits with an
original maturity of three months or less, which are subject to
an insignificant risk as to change in value.
Fair value
The carrying amount of short-term deposits approximates their
fair value.
39
39
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS C. WORKING CAPITAL MANAGEMENT
for the year ended 30 June 2018
C. WORKING CAPITAL MANAGEMENT
C.4 Other financial assets
C.5 Trade and other payables
Short term deposits
Investment in quoted equity shares
2018
$'000
585
-
585
2017
$'000
737
1,897
2,634
Trade payables
Lease liabilities
Tax payable
Other payables
For the year ended 30 June 2018, the Group sold its non-
controlling interest in quoted equity shares. The change in fair
value from 30 June 2017 to the date of disposal was $132,000
(2017: loss of $568,000), which was recognised to other income
(2017: other expenses) in the statement of profit or loss and
other comprehensive income.
The Group has pledged short term deposits of $585,000 (2017:
$665,000) as collateral for financing facilities and pledged nil
short-term deposits (2017: $72,000) as collateral for performance
guarantees under contractual arrangements related to customer
agreements. Refer to Note D.1 for details on long-term
borrowings.
Short-term deposits
Recognition and measurement
Short-term deposits represent term deposits with financial
institutions for periods greater than 90 days and less than 365
days earning interest at the respective interest rate at time of
lodgement. Short-term deposits are stated at amortised cost.
Fair value
The carrying amount of short-term deposits approximates their
fair value.
Investment in quoted equity shares
Recognition and measurement
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 expenses (negative net
changes fair value) or other income (positive net changes in fair
value) in the statement of profit or loss and other comprehensive
income.
Financial assets at fair value through profit or loss include
financial assets held for trading and financial assets designated
upon initial recognition at fair value through profit or loss.
Financial assets are classified as held for trading if they are
acquired for the purpose of selling or repurchasing in the near
term.
Fair value
The fair value of quoted equity shares was determined by
reference to published price quotations in an active market,
classified as Level 1 in the fair value hierarchy.
Deferred revenue
2018
$'000
1,080
246
45
337
1,708
2017
$'000
767
319
199
70
1,355
Total
$'000
1,080
767
At 30 June, the ageing of trade payables is as follows:
0-30
days
$'000
993
685
31-60
days
$'000
-
-
+61
days
$'000
87
82
2018
2017
Trade and other payables are non-interest bearing and
ordinarily settled on 30 day credit terms.
Recognition and measurement
Trade and other payables are financial liabilities recognised
when goods and services are received prior to the end of the
reporting period, irrespective of whether or not billed to the
Group. Trade and other payables are recognised on initial
recognition at fair value. Subsequent to initial recognition, trade
and other payables are measured at amortised cost.
Fair value
The carrying amount of trade and other payables approximates
their fair value.
C.6 Deferred revenue
Deferred revenue includes revenue allocated to unperformed
engineering services contracts with customers, unearned
income on sale of goods to customers and long-term advances
received from customers.
A reconciliation of deferred revenue for the years ended 30
June 2018 and 2017 is as follows:
At 1 July
Deferred during the year
Released to the statement of profit or loss
At 30 June
2018
$'000
5,144
522
(4,722)
943
2017
$'000
3,623
3,683
(2,162)
5,144
Recognition and measurement
Deferred revenue is recognised as a liability when
consideration is received prior to goods being provided or
services rendered. The deferred revenue is recognised as
income over the periods that the goods are provided or
services rendered.
40
40
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS D. DEBT AND CAPITAL
D. DEBT AND CAPITAL
for the year ended 30 June 2018
In this section
This section addresses the debt and capital position of the Group at the end of the reporting period including, where applicable, the
accounting policies applies and the key estimates and judgements made.
D.
D.1
D.2
D.3
Debt and capital
Long-term borrowings
Share capital
Reserves
Page 41
Page 41
Page 42
Key financial and capital risks in this section
Capital risk management
For the purposes of the Group's capital management, capital includes contributed shareholder equity. When managing capital,
management's objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and
benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital, provides a
strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. In order
to maintain or adjust the capital structure, the Group may issue new shares or sell assets to reduce debt.
D.1 Borrowings
Current
Non-current
2018
$'000
1,032
6,738
7,770
2017
$'000
860
7,242
8,102
Recognition and measurement
The interest-free loan was initially recognised at fair value and
subsequently stated at amortised cost using the effective interest
rate (“EIR”) method. The EIR is the rate that exactly discounts the
estimated future cash payments over the expected life of the loan or
a shorter period, where appropriate, to the net carrying amount of
the financial liability. The effective interest rate was 6.52 per cent.
Changes in borrowings arising from financing activities are as
follows:
D.2 Share capital
At 1 July
$'000
8,102
8,279
Cash flows
$'000
Interest
expense
$'000
At 30 June
$'000
(860)
(717)
528
540
7,770
8,102
2018
2017
On 25 January 2010, the Department of Jobs, Tourism,
Science and Innovation provided the Group with an interest-
free loan of $14,346,000 under the terms of a Deed
(Acknowledgment of Debt) (“the Deed”). The terms and
conditions attached to the Deed are as follows:
• The term of the loan was 25 January 2010 to 30 May 2025
• Repayments commenced on 25 May 2010 at $200,000 per
annum
• Accelerated repayments across the life of the loan increase to
a maximum repayment of $2,100,000 due on 30 May 2025
The interest-free loan was secured by way of a first ranking
floating debenture over the whole of the assets and
undertakings of the Group.
Fair value
The fair value of the Group's secured loan at 30 June 2018
was $6,516,000 (2017: $6,586,000). The fair value
measurement is classified as Level 3 on the fair value
hierarchy. The fair value of the secured loan was calculated by
discounting future cash flows at the prevailing market interest
rate at 30 June 2018 of 12.00% (2017: 12.00%).
Ordinary shares issued and fully paid
2018
$'000
31,144
2017
$'000
31,106
Movement in ordinary shares
At 1 July 2016
Acquisition of remaining 38.5% interest in
REMSAFE (Note D.3)
Shares issued pursuant to employee share plan
Shares issued pursuant to performance rights
plan
At 30 June 2017
Number
75,334,097
$000's
30,051
1,000,000
61,785
900,000
860
57
138
77,295,882
31,106
At 1 July 2017
Shares issued pursuant to employee share plan
At 30 June 2018
77,295,882
73,328
77,369,210
31,106
38
31,144
Recognition and measurement
Share capital is recognised at the fair value of the consideration
received. The cost of issuing shares is shown in the share capital as
a deduction, net of tax, from the proceeds. Own equity instruments
that are re-acquired 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.
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.
41
41
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018
NOTES TO THE FINANCIAL STATEMENTS D. DEBT AND CAPITAL
D. DEBT AND CAPITAL
for the year ended 30 June 2018
D.3 Reserves
Employee
benefits
reserve
$000's
1,788
-
(29)
1,759
1,759
-
215
1,974
Foreign
currency
translation
reserve
$000's
-
-
-
-
Contingent
consideration
$000's
-
3,440
-
3,440
Consolidation
reserve
$000's
(670)
(3,785)
-
(4,455)
Convertible notes
reserve
$000's
248
-
-
248
-
9
-
9
3,440
-
-
3,440
(4,455)
-
-
(4,455)
248
-
-
248
Total
$000's
1,366
(345)
(29)
992
992
9
215
1,216
At 1 July 2016
Acquisition of non-controlling interest
Rights issued pursuant to performance rights plan
At 30 June 2017
At 1 July 2017
Foreign currency translation
Rights issued pursuant to performance rights plan
At 30 June 2018
Nature and Purpose of reserves
Employee benefits reserve
The employee benefits reserve records the share-based payments provided to key management personnel as part of their long-term
incentive remuneration. Refer to Note F.3 for further details.
Contingent consideration
On 13 October 2016, the Group acquired the remaining 38.5 per cent minority interest in REMSAFE Pty Ltd from the Lane Trust in
consideration for the issue of ordinary shares in the Group. The terms of the sale provided for an incentive to achieve performance targets
linked to future accumulated annual sales with consideration payable as follows:
• 2,000,000 ordinary shares in the Group if REMSAFE achieves $25,000,000 accumulated annual sales for any 12 month period; and,
• 2,000,000 ordinary shares in the Group if REMSAFE achieves $40,000,000 accumulated annual sales for any 12 month period.
Contingent consideration was measured with reference to the Group’s share price on 13 October 2016 and considered the probability that
the accumulated annual sales targets would be met, which was assessed as 100 per cent.
The fair value measurement of the contingent consideration was classified as Level 2 on the fair value hierarchy.
Key judgement: Classification of contingent consideration
In determining the equity classification of contingent consideration with respect to the acquisition of the remaining minority interest in
REMSAFE Pty Ltd, the Group exercised its judgement. The Group determined that each performance target was non-cumulative, which
may be paid in two different twelve month periods and resulting in the issue of a fixed number of ordinary shares. If a performance target
is not met, no additional ordinary shares will be issued. In this scenario, as each of the performance targets are independent of one
another, the arrangement may 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 performance target is met, the obligation in respect of each
arrangement is classified to equity.
On 18 December 2017, the Group publicly announced the divestment of its 100 per cent interest in REMSAFE Pty Ltd to Avidsys Pty Ltd
(“Avidsys”) in support of the Group’s strategy to strengthen its position in the UAV market. Should the REMSAFE business satisfy one or
more of the abovementioned accumulated annual sales targets pertaining to the contingent consideration arrangement, Avidsys is obliged
to reimburse the Group for the value of the consideration transferred under the arrangement up to a maximum amount of $2,200,000. At
30 June 2018, the Group re-assessed the probability that the abovementioned accumulated annual sales targets would be met as nil. As
a result, no financial asset for contingent consideration receivable from Avidsys was recognised in these financial statements.
Contingent consideration receivable from Avidsys Pty Ltd is an available-for-sale financial asset. The fair value measurement is classified
as Level 3 in the fair value hierarchy.
Consolidation reserve
The consolidation reserve records the difference between the amount paid to acquire a non-controlling interest and the change in the
proportionate interest in net assets held by the non-controlling interest.
Convertible note reserve
The convertible note reserve records the equity component of the convertible notes issued in the 2016 financial year. The convertible
notes were extinguished in prior periods.
42
42
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS E. OTHER ASSETS AND LIABILITIES
for the year ended 30 June 2018
E. OTHER ASSETS AND LIABILITIES
In this section
This section addresses the other assets and liabilities position of the Group at the end of the reporting period including, where
applicable, the accounting policies applies and the key estimates and judgements made.
E. Other assets and liabilities
E.1 Provisions
E.2 Government grants
Page 43
Page 44
E.1 Provisions
At 1 July 2017
Arising during the year
Utilised
At 30 June 2018
Current
Non-current
At 1 July 2016
Arising during the year
Utilised
At 30 June 2017
Current
Non-current
Surplus
lease
space Warranties
$000's
$000's
Employee
benefits
$000's
193
34
(86)
141
57
84
141
242
37
(86)
193
57
136
193
420
449
(99)
770
770
-
770
-
420
-
420
420
-
420
1,593
115
(401)
1,307
1,263
44
1,307
2,196
90
(693)
1,593
1,558
36
1,593
Total
$000's
2,206
598
(586)
2,218
2,090
128
2,218
2,438
547
(779)
2,206
2,035
172
2,206
Recognition and measurement
Provisions are recognised when the Group has a present
obligation, legal or construction, as a result of a past event, it is
probable that an outflow of resources embodying benefits will
be required to settle an obligation and a reliable estimate can be
made of the amount of the obligation.
If the effect of the time value of money is material, provisions
are discounted using a pre-tax discount rate that reflects, where
appropriate, the risks specific to the liability. When discounting
is used, the increase in the provision due to the passage of time
is recognised as a finance cost.
Provision for surplus lease space
The Group recognised a provision for surplus lease space for
unused office space under an operating lease, expiring 17
February 2021. In addition the Group entered into a sublease
agreement for the unused office space, expiring 28 February
2019. Refer to Note F.1 for further details. The provision for
surplus lease space is calculated as the present value of the net
cost of fulfilling the lease arrangement.
Provision for warranties
The Group provides for a provision for warranties for
general repairs for two years after its propulsion system
assemblies ("PSA") are sold. The provision for warranties
represents the liability for potential warranty claims against
the Group and is recognised at the point in time when a
PSA is sold. The valuation of the provision for warranties is
based on the product of the estimated defect rate, the cost
of the PSA and the volume of PSAs sold. Estimates of the
provision for warranties are revised annually.
Key estimate
Valuation of the provision for warranties
Management exercises judgement in estimating the
expected defect rate for propulsion system assemblies
sold, which was benchmarked to the historical defect rate
of comparable products sold in prior periods. The expected
defect rate reflects the assumption that historical defect
rates on comparable products is indicative of future trends,
which may not necessarily be the actual outcome.
Employee benefits
The Group does not expect its long-service or annual leave
benefits to be settled wholly within twelve months of each
reporting date. These liabilities are measured at the
present value of the estimated future cash outflow to be
made to the employees using the projected unit credit
method. Expected future payments are discounted using
market yields at the reporting date on high quality
corporate bonds with terms to maturity and currencies that
match, as closely as possible, estimated future cash flows.
Other employee benefits 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.
Key estimate
Valuation of the provision for long-service leave
Management exercises judgement in calculating the
provision for long-service leave as to the expected future
salary and wage levels, future employee on-cost rates, the
experience of employee departures and periods of service.
43
43
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS E. OTHER ASSETS AND LIABILITIES
for the year ended 30 June 2018
E. OTHER ASSETS AND LIABILITIES
E.2 Government grants
At 1 July
Released to the statement of profit and loss
At 30 June
Current
Non-current
2018
$'000
524
(225)
299
225
74
2017
$'000
749
(225)
524
225
299
In June 2008, the Group received a $2,760,000 grant 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. There are no unfulfilled conditions or contingencies attached to the grants.
Recognition and measurement
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions
will be complied with. Government grants are recognised in other income in the statement of profit or loss and other
comprehensive income over the periods necessary to match them with the related costs which they are intended to compensate,
on a systematic basis. When a government grant relates to compensation for expenses or losses already incurred, or for the
purposes of giving immediate financial support to the entity with no future related costs, government grants are recognised as
income in the period in which it becomes receivable. When the grant relates to an asset, it is recognised as deferred revenue in
the statement of financial position and income is recognised in equal amounts over the expected useful life of the related asset.
44
44
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS F. OTHER ITEMS
for the year ended 30 June 2018
F. OTHER ITEMS
In this section
This section addresses information on other items which require disclosure to comply with Australian Accounting Standards and the
Corporations Act 2001 (Cth). However, these disclosures are not considered critical to understanding the financial performance or
position of the Group. This section includes group structure information and other disclosures.
F. Other items
F.1 Commitments
F.2 Related parties
F.3 Share-based payments
F.4 Subsidiaries
F.5 Parent entity information
F.6 Discontinued operations
F.7 Auditor remuneration
F.8 Events after the end of the reporting period
F.9 Other accounting policies
F.10 Goodwill
F.11 New and amended accounting standards
45
46
47
49
49
50
51
51
51
52
53
F.1 Commitments
Operating leases - Group as lessee
The Group has entered into operating leases for properties
as follows:
• A lease arrangement for the Balcatta, Australia, premises
for ten years ending 17 February 2021. The lease includes
two options to extend the lease term for two further periods
of five years each on 17 February 2021 and 17 February
2026, respectively. The lease arrangement contains an
escalation clause that allows for an increase in rent of 3.00
per cent per annum across the term of the lease
arrangement.
• A lease agreement for the Oregon, United States of
America premises for the five years ending 7 December
2022. The lease includes two options to extend the lease
term for two further periods of five years each on 7
December 2022 and 7 December 2027 respectively. The
lease arrangement contains an escalation clause that allows
for an increase in rent of 3.00 per cent per annum across
the term of the lease arrangement.
Other than already described, no operating lease
arrangements include contingent rentals, purchase options
or escalation clauses.
For the year ended 30 June 2018, $921,000 (2017: $940,000)
was recognised as an expense in occupancy expenses in the
statement of profit or loss and other comprehensive income.
Future minimum rentals payable under non-cancellable operating
leases at 30 June are as follows:
Within one year
After one year but not more than five years
More than five years
2018
$'000
1,110
2,366
1,012
4,488
2017
$'000
899
2,498
-
3,397
Recognition and measurement
The determination of whether an arrangement is or contains a
lease is based on the substance of the arrangement at the
inception of the lease. The arrangement is or contains a lease if
the fulfilment of the arrangement is contingent on the use of a
specific asset or assets and the arrangement conveys a right to
use the asset or assets, even if that asset is or those assets are
not explicitly specified in the arrangement.
An operating lease is a lease other than a finance lease.
Operating lease payments are recognised as an expense on a
straight-line basis over the lease term.
Operating leases – Group as lessor
The Group has entered into a sublease related to surplus
capacity at its Balcatta property for a period of five years. It
includes a clause to enable the upward revision of the rental
charge based on an annual base according to prevailing market
conditions.
For the year ended 30 June 2018, $428,000 (2017: $437,000)
was recognised as other income in the statement of profit or loss
and other comprehensive income. Future minimum rentals
receivable under non-cancellable operating leases at 30 June
are, as follows.
Within one year
After one year but not more than five years
More than five years
2018
$'000
202
-
-
202
2017
$'000
331
225
-
556
45
45
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS F. OTHER ITEMS
F. OTHER ITEMS
for the year ended 30 June 2018
F.1 Commitments (cont.)
Recognition and measurement
Operating lease rentals are recognised as other income on a straight-line basis over the lease term.
Commitments
At 30 June 2018, the Group had commitments of $694,000 (2017: Nil) related to the fit-out of the Oregon, United States of America,
leased premises.
Contingencies
At 30 June 2018, the Group was involved in a General Protections matter commenced by a terminated employee. The Group has
received advice from its external legal counsel that it is not probable that the action will succeed. The potential quantum of damages,
if any, have not been disclosed as it may prejudice the position of the Group. The Group does not believe that the matter against the
Group will be successful in a court of law.
F.2
Related parties
Group structure
Note F.4 provides information about the Group’s structure, including details of subsidiaries.
Transactions with key management personnel
Agere Pty Ltd, a company of which Mr. Steve Gallagher is a director, received $60,000 (2017: $13,167) in director's fees for his
service to the Group. At 30 June 2018, a total of $5,000 remains due and payable (2017: $5,000). Payment terms are 7 days.
No other director or key management personnel entered into a material contract with the Group from the end of the previous financial
year.
Compensation of key management personnel of the Group
Short term employee benefits
Post-employment benefits
Long-term employee benefits
Share based payments
2018
$
1,355,701
121,012
120,809
212,867
2017
$
1,517,435
323,256
173,102
111,441
1,810,390
2,125,234
The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key
management personnel. The compensation of key management personnel is included in the employee benefits expense in the
statement of profit or loss and other comprehensive income.
Refer to table 2 and table 3 of the Remuneration report for KMP share and equity holdings, including performance rights.
46
46
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS F. OTHER ITEMS
for the year ended 30 June 2018
F. OTHER ITEMS
F.3
Share based payments
Equity-settled share based payment
transactions
2018
$'000
250
250
2017
$'000
166
166
There were no cancellations or modifications to awards in
the 2018 or 2017 financial years. Share-based payment
plans are explained below:
Employee Share Plan No. 1
The Group provides benefits to its employees in the form of
share-based payments in which employees render services
for ordinary shares in the Group. Under the plan, each
eligible employee is offered fully paid ordinary shares to a
maximum value of $1,000 per annum.
For the year ended 30 June 2018, 73,328 ordinary shares
(2017: 61,785 ordinary shares) were issued on 7 December
2017 at a market value on the date of issue of $38,000
(2017: $57,000 ).
CEO SAPR's
On 11 August 2017, the Group announced the appointment
of Mr. Alder as the Managing Director and Chief Executive
Officer of the Group. The announcement set out the
material terms of his employment, which include the grant of
two performance rights for each share acquired by Mr. Alder
during the period from 11 August 2017 to 31 December
2017.
During this period, Mr. Alder acquired 372,333 ordinary
shares in the Group, resulting in a maximum entitlement of
647,250 share acquisition performance rights ("SAPR's").
The grant of the performance rights was approved by the
shareholders at an extraordinary general meeting on 23
May 2018.
The terms of the performance rights issued to Mr. Alder are
subject to a vesting condition of a 30-day volume weighted
average share price of $0.62 per ordinary share.
During the year ended 30 June 2018, no performance rights
issued under the plan vested. The share-based payment
expense recognised for the year ended 30 June 2018 was
$60,000 (2017: Nil).
2018 Executive LTI Plan and 2018 CEO LTI Plan
On 27 October 2017 and 23 May 2018, the Group issued
951,622 performance rights to key management personnel
as part of their long-term incentive plan. The terms of the
Performance Rights are set out on pages 10-11 of the
Director's Report. During the year ended 30 June 2018, no
performance rights issued under the plan vested. The share-
based payment expense recognised for the year ended 30
June 2018 was $63,000 (2017: Nil).
2017 CEO LTI Plan
The 2017 Performance Rights Plan related to Mr Terry Stinson
(the previous Managing Director and CEO) and was approved by
shareholders on 7 November 2016. Pages 12-13 of the Director's
report details the terms of the Performance Rights. During the
year no rights under the plan vested. The total expense
recognised during the period is $92,000 (2017: $59,000)
Movements during the year
The following table illustrates the number of performance rights
during the year:
Outstanding at 1 July
Granted during the year
Vested during the year
Outstanding at 30 June
2018
Number
500,000
1,854,373
-
2,354,373
2017
Number
900,000
500,000
(900,000)
500,000
The weighted average remaining contractual life of performance
rights outstanding at 30 June 2018 was 2 years (2017: 2.4 years).
The following tables list the inputs into the models used for the
four plans for the years ended June 30, 2017 and 2018,
respectively:
Grant date
Expiry date
Share price at grant
date
Fair value ($/right) -
Tranche 1
Fair value ($/right) -
Tranche 2
Expected volatility
Risk-free interest rate
Remaining
contractual life
Model used
2017
CEO LTI
Plan
2018
Executive
LTI Plan
CEO
SAPR's
7/11/2016 23/05/2018 27/10/2017 23/05/2018
2018 CEO
LTI Plan
7/09/2019 10/08/2020 10/08/2020 10/08/2020
$ 0.44 $ 0.54 $ 0.44
$ 0.93
0.500
0.209
0.365
0.316
0.420
70%
1.68%
0.138
59%
1.98%
0.278
60%
1.95%
-
59%
1.98%
1.19 years
2.12 years
2.12 years
2.12 years
Monte
Carlo
Monte
Carlo
Monte
Carlo
Monte
Carlo
47
47
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS F. OTHER ITEMS
F. OTHER ITEMS
for the year ended 30 June 2018
F.3
Share based payments (cont.)
The expected life of the performance rights is based on historical data and current expectations and is not necessarily indicative of
exercise patterns that may occur. The expected volatility of performance rights reflects the assumption that the historical volatility over
a period similar to the life of the performance rights is indicative of future trends, which may not necessarily be the actual outcome.
Recognition and measurement
Employees, including key management personnel, of the Group receive remuneration in the form of share-based payments, whereby
employees render services as consideration for equity instruments; that is, equity-settled transactions.
The cost of equity-settled transactions is determined using the fair value of the equity instrument at the date when the grant is made
using an appropriate valuation model.
The cost arising from share-based payments is recognised as an employee benefits expense, together with a corresponding increase
in equity over the period in which the service and, where applicable, the performance conditions, are fulfilled; that is, the vesting
period. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the
extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately
vest. The expense or credit in the statement of profit or loss and other comprehensive income represents the movement in the
cumulative expense recognised as at the beginning and end of that period.
Service and non-market performance conditions are not taken into account when determining the grant date fair value of the awards,
but the likelihood of the condition being met is assessed as part of the Group’s best estimate of the number of shares that will vest.
Market performance conditions are reflected within the grant date fair value.
48
48
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS F. OTHER ITEMS
for the year ended 30 June 2018
F. OTHER ITEMS
F.4
Subsidiaries
The ultimate parent company of the Group is Orbital Corporation Limited. The consolidated financial statements of the Group include:
Entity
Orbital Australia Pty Ltd
Orbital Australia Manufacturing Pty Ltd
OEC Pty Ltd
S T Management Pty Ltd
OFT Australia Pty Ltd
Investment Development Funding Pty Ltd
Power Investment Funding Pty Ltd
Kala Technologies Pty Ltd
Orbital Share Plan Pty Ltd
REMSAFE Pty Ltd
Orbital Holdings (USA) Inc.
Orbital Fluid Technologies Inc.
Note
(c)
(d)
(a)
(b)
Class of
shares
Country of
incorporation
Principal activities
2018
2017
% equity interest
Ordinary
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
United States
United States
Programme Delivery
("PD")
Advanced Product
Development ("APD")
100
100
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Safety and
Productivity
Dormant
Dormant
Programme Delivery
("PD")
Advanced Product
Development ("APD")
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Orbital UAV USA, LLC
Ordinary
United States
(a) Orbital Share Plan Pty Ltd was established on 22 September 2008 and acts as the trustee for Executive Long Incentive Performance Rights Plans.
(b) On 18 December 2017 Orbital divested its 100% interest in REMSAFE Pty Ltd. Refer to note F.6 for further details.
(c) The Program Delivery ("PD") segment is focussed on the manufacture, assembly and delivery of engines and propulsion systems for unmanned aerial vehicles, and
the continuous improvement of propulsion system and component part costs; product quality; and timing of product delivery.
(d) The Advanced Product Development ("APD") segment specialises in the development of new UAV propulsion systems and flight critical components, including
unmanned aerial vehicle engineering studies, engine mapping, maintenance certification and engineering technical support across the Group.
F.5
Parent entity information
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Issued capital
Accumulated losses
Employee benefits reserve
Total equity
Loss of the parent
Total comprehensive loss of the parent entity
2018
$'000
1,451
33,149
1,032
6,738
26,830
31,144
(6,288)
1,974
26,830
(1,834)
(1,834)
2017
$'000
3
36,510
860
7,242
28,411
31,106
(4,454)
1,759
28,411
(14,258)
(14,258)
49
49
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS F. OTHER ITEMS
F. OTHER ITEMS
for the year ended 30 June 2018
F.6 Discontinued operations
On 18 December 2017, the Group publicly announced the divestment of its 100 per cent interest in REMSAFE Pty Ltd to Avidsys Pty
Ltd (“Avidsys”) in support of the Group's strategy to strengthen its position in the UAV market.
Cash consideration of $2,200,000 received or receivable from Avidsys across three tranches was as follows:
• Of the first tranche payment, $720,000 has been received with $30,000 remaining receivable as at 30 June 2018.
• The second tranche payment of $750,000 is receivable on 18 December 2018.
• The third tranche payment of $700,000 is receivable on 18 June 2019.
The business of REMSAFE Pty Ltd represented the entirety of the Group’s Safety and Productivity operating segment until 18
December 2017. With REMSAFE Pty Ltd being classified as a discontinued operation, the Safety and Productivity operating segment
is no longer presented in the segment disclosure. Refer to Note A.1 for further details.
The result of REMSAFE Pty Ltd for the year is presented below:
Revenue
Expenses
Operating loss
Gain on disposal of discontinued operation
Profit/(loss) before tax from discontinued operation
Income tax expense
Profit/(loss) for the year from discontinued operation
Earnings per share (in cents)
Basic earnings/(loss) for the year from discontinued operations
Diluted earnings/(loss) for the year from discontinued operations
The major classes of assets and liabilities of REMSAFE Pty
Ltd disposed of on 18 December 2017 were as follows:
Assets
Trade and other receivables
Plant and equipment
Total assets
Net assets directly associated with
REMSAFE Pty Ltd
2018
$'000
754
29
783
783
The gain on sale of REMSAFE was calculated as follows:
Cash consideration
Less: Transaction costs
Less: Bad debts written off
Less: Net assets transferred to Avidsys
Gain on disposal of discontinued
operation
2018
$'000
2,200
(100)
(211)
(783)
1,106
The net cash flows incurred by REMSAFE Pty Ltd are as follows:
2018
$'000
(448)
181
-
(267)
2017
$'000
(1,789)
587
-
(1,202)
Operating
Investing
Financing
Net cash outflow
50
2018
$'000
517
(1,140)
(623)
1,106
483
-
483
2017
$'000
708
(9,015)
(8,307)
-
(8,307)
(75)
(8,382)
0.62
0.62
(10.91)
(10.91)
Recognition and measurement
A disposal group qualifies as a discontinued operation if it is
a component of an entity that either has been disposed of
and:
• represents a separate major line of business or
geographical area of operations
• is part of a single co-ordinated plan to dispose of a separate
major line of business or geographical are of operations; or
• is a subsidiary acquired exclusively with a view to resale
Discontinued operations are excluded from the results of
continuing operations and are presented as a single amount
in the consolidated statement of profit or loss and other
comprehensive income. All other disclosures in the financial
statements include amounts for continuing operations, unless
otherwise indicated.
50
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS F. OTHER ITEMS
F. OTHER ITEMS
for the year ended 30 June 2018
F.7 Auditor remuneration
The auditor of Orbital Corporation Limited is Ernst & Young
Australia ("EY").
2018
$
Amounts received or due and receivable by EY for:
2017
$
Audit and review of the consolidated
financial statements
Tax compliance services
127,000
28,500
155,500
105,000
110,095
215,095
Research and development
Research costs are expensed as incurred. Development
expenditures on individual projects are recognised as an
intangible asset when the Group can demonstrate:
• the technical feasibility of completing the intangible asset so that
the asset will be available for use or sale
• its intention to complete and its ability and intention to use or sell
the asset
• how the asset will generate future economic developments
F.8
Events after the end of the reporting period
• the availability of resources to complete the asset
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 Group, to affect
significantly the operations of the Group, the results of those
operations, or the state of affairs of the Group, in future
years.
F.9
Other accounting policies
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 consolidated
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.
Intangible assets
Patents
Patents, licences and technology development and
maintenance costs, not qualifying for capitalisation, are
expensed as incurred.
• the ability to measure reliably the expenditure incurred during
the development of the asset
Following initial recognition of the development expenditure as an
asset, the asset is carried at cost less any accumulated
amortisation and accumulated impairment losses. Amortisation of
the asset beings when the development is complete and the
asset is available for use. It is amortised over the period of
expected future benefit. During the period of development, the
asset is tested for impairment annually.
Fair value measurement
All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as a
whole:
► Level 1 — Quoted (unadjusted) market prices in active
markets for identical assets or liabilities
► Level 2 — Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly or
indirectly observable
► Level 3 — Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable
For assets and liabilities that are recognised in the financial
statements at fair value on a recurring basis, the Group
determines whether transfers have occurred between levels in
the hierarchy by re-assessing categorisation (based on the lowest
level input that is significant to the fair value measurement as a
whole) at the end of each reporting period.
51
51
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS F. OTHER ITEMS
F. OTHER ITEMS
for the year ended 30 June 2018
F.10
Goodwill
Goodwill arose from the acquisition of REMSAFE Pty Ltd on 4 February 2015:
Cost
Accumulated impairment
Net book value
At 1 July
Impairment charge for the year
At 30 June
2018
$'000
-
-
-
-
-
-
2017
$'000
5,218
(5,218)
-
5,218
(5,218)
-
In the prior period, the Group recognised an impairment loss against the carrying amount of goodwill for its full amount of $5,218,000
in relation to the Safety and Productivity cash generating unit (CGU). The impairment loss reflected the significant decline in capital
expenditure in the iron ore industry in Western Australia, combined with ongoing economic uncertainty, which led to decreased
demand for remote isolation systems.
On 18 December 2017, the Group publicly announced the divestment of its 100 per cent interest in REMSAFE Pty Ltd to Avidsys Pty
Ltd (“Avidsys”) in support of the Group's strategy to strengthen its position in the UAV market. Refer to Note F.6 for further details.
Recognition and measurement
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised
for non-controlling interests and any previous interest held over the net identifiable assets and liabilities assumed. After initial
recognition, goodwill is measured at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill
acquired in a business combination is, at acquisition date, allocated to each of the Group’s CGUs that are expected to benefit from
the synergies of the business combination.
Impairment of goodwill
Goodwill is tested for impairment annually as at 30 June and when circumstances indicate that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of each CGU, or group of CGUs, to which the goodwill
relates. Refer to Note B.1 for further details. When the recoverable amount of the CGU is less than its carrying amount, an
impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. The calculation of the
value in use of the Safety and Productivity CGU was most sensitive to the market share and discount rate assumptions. The basis of
determining the value assigned to key assumptions is outlined below:
Assumption
Calculation
method
Description
The recoverable amount of the Safety and Productivity CGU was determined on the basis of value in use (“VIU”) as at
30 June 2017.
VIU calculations use projected cash flows, including working capital movements and were based on financial
projections approved by the Board of Directors covering a four year period.
Projected cash flows were updated to reflect the decreased demand for remote isolation systems. Projected sales
volumes were lower compared to projections formulated in the 2016 financial year.
Growth rates used in the VIU calculation were restricted to existing customer demand for remote isolation systems.
The VIU calculation did not include terminal value earnings beyond the four year forecast period.
The pre-tax discount rate applied to projected cash flows was 16.41 per cent.
The pre-tax is based on the weighted average cost of capital (“WACC”) and was adjusted for the risks specific to the
cash generating unit to the extent these risks were not incorporated into the cash flow estimate.
52
Market
share
Terminal
value
earnings
Discount
rate
52
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS F. OTHER ITEMS
F. OTHER ITEMS
for the year ended 30 June 2018
F.11
New and amended accounting standards
(a) New and amended standards and interpretations issued but not yet effective
A number of new and amended standards and interpretations have been issued but are not yet effective and have not been adopted
by the Group as at the financial reporting date.
The Group has reviewed these standards and interpretations and with the exception of the items listed below, none of the new and
amended accounting standards and interpretations will significantly affect the Group's accounting policies, financial position or
performance.
Title
AASB 16
Leases
("AASB 16")
Application of new
standard
Periods beginning on or
after 1 January 2019
Periods beginning on or
after 1 January 2018
AASB 15
Revenue
from
contracts
with
customers
("AASB 15")
Summary
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 re-measure 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.
The planned date of adoption of AASB 16 is 1 July 2019.
The Group's current operating leases comprise only of real estate. Upon adoption of AASB
16, the Group's balance sheet is expected to include a right of use asset and liability related
to these operating lease arrangements. Information on the undiscounted amount of the
Group's operating lease commitments at 30 June 2018 under AASB 117 is disclosed at Note
F.1 Commitments. The transition method the Group intends to use is the modified
retrospective approach. Refer to F.1 for further information regarding the Group's lease
arrangements.
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.
The planned date of adoption of AASB 15 is 1 July 2018.
53
53
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS F. OTHER ITEMS
F. OTHER ITEMS
for the year ended 30 June 2018
F.11 New and amended accounting standards (cont.)
Application of new
standard
Periods beginning on or
after 1 January 2018
Title
AASB 15
Revenue
from
contracts
with
customers
("AASB 15")
Summary
The Group has reviewed the terms and conditions of its contracts with customers. Based on
the work performed to date, the Group does not expect that the adoption of AASB15 will have
a material impact on the business. Under sale of goods contracts, the Group has assessed
that accounting for variable consideration under AASB 15 will not have a material impact on
the revenue recognition in future periods, as revenue at the full transaction price will continue
to be recognised when control passes to the customer.
In relation to engineering services contracts, the services rendered under each stage are
highly interrelated and therefore treated as a single performance obligation. Orbital is entitled
to payment for work completed in the event an engineering services contract is discontinued,
and therefore performance obligations are satisfied over time with reference to the stage of
completion under the input method for revenue recognition.
The Group will implement the modified approach as its transition method for the adoption of
AASB 15. Practical expedients available to the Group include:
• Contracts commenced and completed in the same financial year will not be adjusted for the
impact of AASB 15;
• Licence and royalty revenue will continue to be recognised as and when customer sales of
patented technologies are made.
AASB 9
Financial
Instruments
("AASB 9")
Periods beginning on or
after 1 January 2018
AASB 9 Financial Instruments replaces AASB 139 Financial Instruments: Recognition and
Measurement. The Group will apply AASB 9 for the first time prospectively from 1 July 2018.
The impact of AASB 9 is assessed below:
Impairment of financial assets:
In relation to financial assets carried at amortised cost, AASB 9 requires an expected credit
loss model to be applied as opposed to an incurred credit loss model to be applied as
opposed to an incurred credit loss model under AASB 139. The expected credit loss model
requires the Group to account for expected credit losses and changes in those expected
credit losses at each reporting date to reflect changes in credit risk on initial recognition of the
financial asset. In particular, AASB 9 requires the Group to measure the loss allowance at an
amount equal to the lifetime expected credit loss ("ELC") if the credit risk on the instrument
has increased significantly since initial recognition. When the credit risk on the financial
instrument has not increased significantly since initial recognition, the Group is required to
measure the loss allowance for that financial instrument at an amount equal to the ELC within
the next 12 months.
The Group has not yet assessed the expected credit loss to be applied to financial assets
carried at amortised cost.
Hedging:
The Group does not apply hedge accounting.
Measurement and classification:
Under AASB 9, debt financial instruments are subsequently measured at fair value through
profit or loss, amortised cost or fair value through other comprehensive income. The
classification is based on two criteria: the Group's business model for managing the assets;
and whether the instruments' contractual cash flows represent "solely payments of principal
and interest" on the principal amounts outstanding (the "SPPI criterion"). The SPPI test is
applied to the entire financial asset, even if it contains an embedded derivative.
Consequently, a derivative embedded in a debt instrument is not accounted for separately.
54
54
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTES TO THE FINANCIAL STATEMENTS F. OTHER ITEMS
F. OTHER ITEMS
for the year ended 30 June 2018
F.11 New and amended accounting standards (cont.)
Application of new
standard
Periods beginning on or
after 1 January 2018
Title
AASB 9
Financial
Instruments
("AASB 9")
Summary
Existing financial assets and liabilities of the Group were assessed in terms of the
requirements of AASB 9. In this regard, the Group has determined that the adoption of AASB
9 will impact the classification of financial assets and liabilities as follows:
Class of financial
instrument presented in
the statement of
financial position
Cash and cash
equivalents
Trade and other
receivables
Original measurement
category under AASB 9 (i.e.
prior to 1 July 2018)
New measurement category
under AASB 9 (i.e. from 1 July
2018)
Loans and receivables
Financial assets at amortised cost
Loans and receivables
Financial assets at amortised cost
Available for sale financial
assets
Available for sale financial
assets
Financial assets will either be
designated as fair value through
other comprehensive income
(when held for strategic
investment reasons) or accounted
for as financial assets at fair value
through profit or loss
Other financial assets
Loans and receivables
Financial assets at amortised cost
Trade and other payables Financial liability at amortised
cost
Financial liability at amortised cost
Interest bearing loans and
borrowings
Financial liability at amortised
cost
Financial liability at amortised cost
The change in classification will not result in any re-measurement adjustments at 1 July 2018.
55
55
2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 DIRECTORS’ DECLARATION
DIRECTORS' 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 2018 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 2018.
On behalf of the Board,
JP Welborn
Chairman
TM Alder
Managing Director & Chief Executive Officer
Dated at Perth, Western Australia this 27th day of September 2018.
56
2018 ANNUAL REPORT 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
Qualified opinion
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
2018, the consolidated statement of comprehensive income, consolidated statement of changes in equity
and 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, except for the effect of the matters described in the Basis for Qualified Opinion of our
report, the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
including:
a)
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2018
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 qualified opinion
As detailed in Note A5 to the financial report, at 30 June 2018, the Group has recognised a deferred tax
asset amounting to $5.505 million. The recoverability of the deferred tax asset is dependent on the
Group generating sufficient future taxable income to realise the carried forward tax losses in each of the
tax jurisdictions in which the Group operates.
The Group’s ability to achieve the production volumes required to generate the future taxable income to
realise the carried forward tax losses relating to $2.619 million of the $5.505 million recorded as a
deferred tax asset at 30 June 2018 is dependent upon the significant expansion of sales volumes with the
Group’s major customer.
For our audit of the Group’s financial report for the year ended 30 June 2018, we have been unable to
obtain sufficient audit evidence to conclude that the deferred tax asset is fully recoverable. Had the
financial report been prepared on projected volumes expected under the existing long term contract, the
tax expense would have been increased by $2.619 million and the deferred tax asset, profit for the year
and shareholders’ equity would have each been reduced by $2.619 million.
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
TD:KG:ORBITAL:010
57
57
2018 ANNUAL REPORT We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our qualified 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. In addition to the matter described in the Basis for Qualified Opinion section, we
have determined the matters described below to be the key audit matters to be communicated in our
report. 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 qualified audit opinion on the
accompanying financial report.
Engineering services revenue
Why significant
How our audit addressed the key audit matter
For the year ended 30 June 2018, the Group
recognised $2.635 million in revenue from the
rendering of engineering services.
Revenue from engineering services is
recognised by reference to the stage of
completion. Stage of completion is measured
by reference to total costs incurred to date as a
percentage of total estimated costs for each
contract.
The measurement of revenue from engineering
services was considered a key audit matter due
to the judgement required to be exercised by
the Group in relation to the estimation of total
contract costs and the stage of completion of
the contract.
We evaluated the Group’s process to recognise contract revenues.
We assessed relevant IT controls related to the project management and
enterprise resource planning systems and the operating effectiveness of internal
review controls. Internal review controls represent reviews performed by
management to assess the reasonability of financial and non-financial
information.
Controls assessed included:
•
•
•
The automated calculation of the stage of completion in the project
management system
The calculation and transfer of actual contract costs to the project
management system
The periodic contract review performed by the Chief Technical Officer to
assess the stage of completion, actual contract costs incurred to date and
estimated total contract costs.
We assessed the qualifications, competence and objectivity of the Chief
Technical Officer.
For a sample of contracts, we performed the following procedures:
• We agreed total contract revenue to the original service contract and
approved variations or claims.
• We agreed actual contract costs incurred to date to source documentation,
such as timesheets.
• We considered the Groups’ historic ability to accurately forecast the stage of
completion by comparing the accuracy of prior period forecasts to actual
outcomes across the year ended 30 June 2018.
• We enquired of the technical specialists with direct oversight over the
contract portfolio to understand the performance and status of the
contracts at 30 June 2018.
We assessed the adequacy of the disclosures in relation to engineering services
revenue as set out in Note A.2 to the financial report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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2018 ANNUAL REPORT Sale of goods
Why significant
For the year ended 30 June 2018, the Group recognised
$17.535 million from the sale of goods.
Revenue from the sale of goods is recognised when the
significant risks and rewards of ownership of the goods have
passed to the buyer; ordinarily, on the delivery of the goods.
The timing of revenue recognition in relation to the sale of
goods was considered a key audit matter for the reason that
customers are billed in advance of the delivery of the goods.
How our audit addressed the key audit matter
Our audit procedures included the following:
• We inspected the terms of supply arrangements to confirm
when the significant risks and rewards of ownership in
relation to the sale of goods would pass to the customer.
• On a sample basis, we inspected customer invoices and
proof of deliveries made near 30 June 2018 to confirm
whether revenue was recognised in the correct accounting
period.
• On a sample basis, we sourced independent confirmation
from key customers to confirm trade receivables balances
at balance date.
• We assessed the adequacy of the disclosures in relation to
the sale of goods as set out in Note A.2 to the financial
report.
Information other than the financial report and auditor’s report thereon
The directors are responsible for the other information. The other information comprises the information
included in the Group’s 2018 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, with the exception of the Remuneration Report and
our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other information 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. Except for the matter referred to in the Basis for
Qualified Opinion section, 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 Group or to cease
operations, or have no realistic alternative but to do so.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
59
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2018 ANNUAL REPORT 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.
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 Group’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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
60
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2018 ANNUAL REPORT 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 10 to 18 of the directors' report for the year
ended 30 June 2018.
In our opinion, the Remuneration Report of Orbital Corporation Limited for the year ended 30 June 2018,
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
27 September 2018
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
61
61
2018 ANNUAL REPORT
SHAREHOLDING DETAILS
SHAREHOLDING DETAILS
Class of Shares and Voting Rights
As at 16 August 2018 there were 4,104 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 16 August 2018
UIL Limited
(as notified 13 April 2017)
Commonwealth Bank of Australia
(as notified 10 January 2017)
Distribution of Shareholdings as at 16 August 2018
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 16 August 2018
NAME
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
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
SWEET AS DEVELOPMENTS PTY LTD
NATIONAL NOMINEES LIMITED
MR TERRY STINSON
MR MICHAEL WILLIAM FORD & MRS NINA BETTE FORD
MR CRAIG GRAEME CHAPMAN
MR CHRISTOPHER IAN WALLIN & MS FIONA KAY MCLOUGHLIN & MRS SYLVIA FAY
BHATIA
MR JOHN PAUL WELBORN & MS CAROLINE ANNE WELBORN
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
RACT SUPER PTY LTD
NALLAC NOMINEES PTY LTD
MR TODD MATHEW ALDER
MR JOHN AYRES
MR NORMAN COLBURN MAYNE
SOLANGE SUPER PTY LTD
23,227,904
30.05%
7,729,118
9.99%
2,580
905
247
308
64
4,104
77,369,210
957,072
NUMBER OF
SHARES HELD
25,374,657
9,243,789
2,600,000
2,581,066
1,850,000
1,600,000
1,568,882
1,326,781
1,275,508
1,172,621
1,000,122
950,173
689,200
679,103
636,086
500,000
425,000
372,333
356,667
350,000
350,000
% OF
SHARES
33.21
12.10
3.40
3.38
2.42
2.09
2.05
1.74
1.67
1.53
1.31
1.24
0.90
0.89
0.83
0.65
0.56
0.49
0.47
0.46
0.46
Top 20 Shareholders Total
54,901,988
71.85
The 20 largest shareholders hold 71.85% of the ordinary shares of the Company (2017: 72.32%).
On-market share buy-back
There is no current on-market buy-back.
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2018 ANNUAL REPORT THIS PAGE IS INTENTIONALLY LEFT BLANK
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2018 ANNUAL REPORT THIS PAGE IS INTENTIONALLY LEFT BLANK
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2018 ANNUAL REPORT | @OrbitalCorpASX
| Orbital UAV
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
USA
Address: 210 Wasco Loop, Hood River, OR 97031, USA
Phone: +1 541.399.6994
INTERNET ADDRESS
http://www.orbitaluav.com
Email: contact@orbitalcorp.com.au
DIRECTORS
J.P. Welborn, Chairman
T.M. Alder, Managing Director and Chief Executive Officer
S.B. Gallagher
T.D. Stinson
F.K. Abbott
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
A: 4 Whipple Street Balcatta, Western Australia, 6021 | PO Box 901, Balcatta, Western Australia, 6914
P : +61 (08) 9441 2311 | F : +61 (08) 9441 2345 | E : contact@orbitalcorp.com.au | ORBITALUAV.COM