27 August 2021
APPENDIX 4E
Preliminary Final Report for the year ended 30 June 2021
Reporting Period
The reporting period is for the year ended 30 June 2021 with the corresponding reporting period being
for the year ended 30 June 2020.
Results for announcement to the market
30 June 2021
A$'000
Revenue from continuing operations
Profit/(Loss) for the year
Down
Down
Profit/(Loss) after tax attributable to members Down
8%
716%
716%
To
To
To
31,202
(11,445)
(11,445)
Net tangible assets per share (cents)
0.56
12.53
30 June 2021
30 June 2020
Dividends
There is no proposal to pay dividends for the year ended 30 June 2021.
Audit
This report is based on accounts which have been audited.
Commentary on results for the period
The commentary on the results for the period is contained within the Annual Report and ASX
announcement accompanying the report.
Annual Meeting
The annual meeting is expected to be held as follows:
Place: City of Perth Library
573 Hay Street
Perth, Western Australia
Date: 16 November 2021
-ENDS-
CONTACTS
Announcement authorised by:
Todd Alder
CEO & Managing Director
Tel: +61 8 9441 2311
Email: contact@orbitalcorp.com.au
For further information, contact:
Ian Donabie
Communications Manager
Tel: +61 8 9441 2165
Email: idonabie@orbitalcorp.com.au
About Orbital UAV
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.
Forward-looking statements
This release includes forward-looking statements that involve risks and uncertainties. These forward-looking statements are
based upon management's expectations and beliefs concerning future events. Forward-looking statements are necessarily
subject to risks, uncertainties and other factors, many of which are outside the control of the Company that could cause actual
results to differ materially from such statements. Actual results and events may differ significantly from those projected in the
forward-looking statements as a result of a number of factors including, but not limited to, those detailed from time to time in the
Company’s Annual Reports. The Company makes no undertaking to subsequently update or revise the forward-looking
statements made in this release to reflect events or circumstances after the date of this release.
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CONTENTS
Directors’ Report
Auditor’s Independence Declaration
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
Directors’ declaration
Independent auditor’s report
Shareholding details
Corporate information
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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.
DIRECTORS’ REPORT
for the year ended 30 June 2021
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 2021 and the auditor's report thereon.
Reference
Contents of Directors’ Report
Page
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15.
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18.
Operating and Financial Review
Directors
Company Secretary
Directors’ Meetings
Principal Activities
Dividends
Events Subsequent to Balance Sheet Date
Proceedings on Behalf of Company
Likely Developments and Expected Results
Environmental Regulation and Performance
Directors’ Interests
Share Options
Auditor Independence and Non-Audit Services
Indemnification
Corporate Governance Statement
Rounding Off
Remuneration Report
Lead Auditor’s Independence Declaration
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1
2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021 DIRECTORS’ REPORT
for the year ended 30 June 2021
1. OPERATING AND FINANCIAL REVIEW
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 2021.
Overview
FY21 highlights
•
•
•
•
•
•
•
•
Delivery of $31.2M revenue
Operational EBITDA of $1.2M and Net Loss of $1.3M adjusted for one off items;
Renegotiated WA Government Loan to support near-term engine production line expansion;
New engine development program and supply agreement signed with Textron subsidiary Lycoming Engines;
Engine prototypes delivered to Textron-Lycoming and Orbital’s Singapore Defence customer;
Facility review by Minister for Defence Industry, Hon Melissa Price MP;
Named SME of the Year at the 2020 Australian Defence Industry Awards; and
Restructured for profitability in FY22.
Orbital achieved operating revenue of $31.2M in FY21, the lower end of the Company’s revised guidance of between $30M and $40M for
the period. Revenue was underpinned by two engine model production lines for key customer Insitu Inc., a wholly owned subsidiary of the
Boeing Company.
The Company’s strong first half performance (HY revenue: $19M, HY operational profit: $0.6M) was impacted in the second half by a reduction
in order volumes from Boeing-Insitu for one engine model production line. In addition, production of the third engine model under Orbital’s
Long Term Agreement (‘LTA’) with Boeing-Insitu was delayed due to additional customer requested design revisions.
In March 2021, Orbital further progressed its customer diversification strategy, signing an engine development and supply agreement with
Lycoming Engines, an unincorporated operating division of Avco Corporation, a subsidiary of Textron Inc. The new agreement includes a 12-
month engine development program, which will enable the integration of an Orbital-designed core engine, including proprietary fuel and engine
control systems, into Textron Systems’ Aerosonde program. Textron Systems Corporation is a subsidiary of Textron and a world leader in
unmanned aircraft systems (UAS).
Upon satisfactory completion of the engine development program, the Agreement transitions to an engine supply contract. The contract
represents a major expansion of Orbital’s business partnerships and future revenue opportunities.
WA Government Loan Deed of Variation
In early 2021 Orbital commenced renegotiations of its $10M WA Government Loan and received formal confirmation of a Deed of Variation
on 12 August 2021.
The restructured loan agreement includes an extended repayment schedule over the next four years and repayment offset options that are
contingent on the Company achieving operational milestones aligned with its increasing engine business in Western Australia over that period.
The repayment offset options provide the potential to forgive the entire value of the loan.
As loan negotiations were concluded after the 2021 financial year end, compliance with accounting standards required the full value of the WA
Government Loan to be recorded as a current liability.
This revised agreement restores balance sheet strength and supports the Company’s growth aspirations, specifically the near-term expansion
of engine production lines in Balcatta, Western Australia.
2
2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021 DIRECTORS’ REPORT
for the year ended 30 June 2021
In FY22, $4M of the $9.9M loan is expected to be offset due to achievement of operational milestones.
Financial results
The Company reported financial results for the year ended 30 June 2021, with revenue from continuing operations of $31,202,000 (2020:
$33,823,000) and a net loss after tax of $11,445,000 (2020: profit of $1,857,000).
Operational Net Loss of $1.3M has been adjusted for the following one off items:
US Asset Impairment of $2.5M. US facility remains operational and a critical part of Orbital’s long term growth objectives;
One off engine reworks of $2.4M and FY22 rework provision of $1.7M;
Restructure cost of $0.6M;
FX loss (net) of $1M on the conversion of USD intercompany loan to AUD;
•
•
•
•
• Write off US Deferred Tax Asset of $1.2M; and
• WA Government Loan additional interest expense of $0.6M.
The Company reports a balance sheet with cash and receivables of $7,705,000 (2020: $14,681,000) and net current assets of -$474,000
(2020: $11,851,000). The decrease in net current assets is the result of the full amount payable on the WA Government loan ($10M) being
triggered whilst the loan terms were under renegotiation. Despite the Deed of Variation being signed shortly after 30 June 2021, compliance
with the accounting standards requires the Company to recognise the full value of the WA Government loan as current liability at the close of
the financial year.
Net cash outflow from operating activities during the period was $1,559,000 (2020: net cash inflow $3,726,000).
Shareholder returns
Closing share price ($)1
2021
0.83
Market capitalisation ($m)
64.46
Basic EPS (cents) from operations
(14.74)
1 as at 30 June
Management transition
2020
0.75
58.2
2.40
2019
0.30
23.2
(7.63)
2018
0.36
27.9
2.87
2017
0.50
38.6
(15.55)
On 01 July 2020, Mr Martin Johnston BEng (Hons) was appointed Chief Operating Officer. Mr Johnston is a Chartered Engineer and
has more than 20 years’ experience in engineering, design, prototyping, testing and manufacturing. He is a Member of the Institute of
Mechanical Engineers.
Change in operations
The Company took action in the second half of FY22 to ensure it is structured appropriately and best positioned strategically to continue to
deliver on its long-term market opportunity. Orbital maintains operations in Australia and the United States and remains confident the
Company’s customer diversification strategy will generate additional engineering development programs.
COVID-19
Like many businesses in Australia, the USA and around the world, Orbital has closely monitored – and continues to monitor – the business
risks presented by the Coronavirus (COVID-19) pandemic. The physical wellbeing and mental health of all our people is a priority and the
Company implemented a COVID-19 Response Plan to minimise the risk of contracting and spreading the virus at its operations in Australia
and the USA.
Our ability to continue manufacturing at our operations and our product demand was not impacted directly by the COVID-19 pandemic. We
continued to deliver on our production commitments and strengthened our global supply chain where necessary.
Delivery of our products continued through our established logistics providers, and contingency plans were put in place should existing
channels of delivery be impacted.
The Company will continue to support the public health effort to minimise the spread of COVID-19.
Outlook
As geopolitical tensions rise, the intelligence, surveillance and reconnaissance capability that unmanned aircraft systems (‘UAS’) provide will
continue to be an integral and increasing part of modern defence forces. Defence spending globally remains high and market research
continues to predict significant growth in the UAS market over the coming decade.
The growing tactical UAS market remains Orbital UAV’s core focus. The Company continues to build long-term, strategic partnerships with
established global defence contractors in this sector, as well as making progress with newer players entering the market. The Company’s most
recent contract with Textron subsidiary Lycoming Engines represents a significant new revenue stream in the mid-term and the Company
continues to work to secure additional defence prime customers.
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2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021
DIRECTORS’ REPORT
for the year ended 30 June 2021
Orbital’s engines and associated technologies have accumulated hundreds of thousands of flight hours and with that comes a growing
reputation for capability, quality and reliability. The Company continues to leverage this reputation to build its pipeline of opportunities and
expand Orbital UAV’s customer base and market share.
Revenue in FY22 is expected to be in line with FY21 results and will continue to be underpinned by production revenue from the engine models
included in the Boeing-Insitu LTA. During FY22, the Company plans to have three engine production lines in operation under the Agreement.
Orbital’s LTA with Boeing-Insitu remains foundational to the Company’s near-term revenue growth.
Since the start of 2020, Orbital UAV’s customer diversification strategy has resulted in the Company’s customer portfolio expanding from
Boeing-Insitu to now include, Lycoming Engines, Northrop Grumman and one of Singapore’s largest defence companies. Orbital UAV is
working with all these leading tactical drone manufacturers on development programs for new engine products.
With a growing portfolio of global defence customers, Orbital UAV’s engine development programs represent significant long-term revenue
opportunities. The Company is targeting profitability on stable revenue in FY22 and expects revenue growth and profitability to accelerate in
FY23 with additional engine models entering production.
The Chairman and Managing Director would like to thank the ongoing commitment of the Company’s shareholders and staff.
2. DIRECTORS
The Directors of the Company at any time during or since the end of the financial year are:
Mr John Paul Welborn, BCom, FCA, FAIM, MAICD, MAusIMM, JP
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 Equatorial Resources Limited, an ASX listed (ASX: EQX) iron ore exploration and development company.
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 Equatorial Resources Limited (appointed August 2010) and a Non-Executive Director of Apollo Minerals
Ltd (appointed February 2021).
Mr Todd Alder, BEc (Acc), CPA, ACIS
Managing Director and Chief Executive Officer
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 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), Transact1 Pty Ltd (a financial services provider for cash management
optimisation and Littlepay Pty Ltd (transit payment processing service provider).
Mr Gallagher is also the chairman of the Company’s Audit and Risk Committee.
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2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021 DIRECTORS’ REPORT
for the year ended 30 June 2021
Mr Kyle Abbott, B.Com (Hons 1st), CA
Non-Executive Director
Joined the Board in 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.
Mr Abbott is also a member of the Company’s Audit and Risk Committee.
3.
COMPANY SECRETARY
Mr David Bonomini, B.Com, CPA
Mr David Bonomini was appointed as Chief Financial Officer and Company Secretary in February 2020. Mr Bonomini is a respected finance
executive with global experience leading governance, regulatory and commercial initiatives in high growth companies. He is a qualified CPA
and holds a Bachelor of Commerce degree. In his previous CFO roles with Compass Group Australia and KB Food Company, Mr Bonomini
was responsible for commercial, financial, tax and mergers and acquisitions during periods of significant expansion.
4.
DIRECTORS’ MEETINGS
The number of Directors’ meetings and the number of meetings attended by each of the Directors of the Company during the financial year
are shown below.
Director
J P Welborn
T M Alder
S Gallagher
K Abbott
Directors Meetings
Audit and Risk Committee Meetings
No. of meetings
attended
No. of meetings held1
No. of meetings
attended
No. of meetings held2
7
7
7
7
7
7
7
7
-
-
6
6
-
-
6
6
1 Number of meetings held during the time the Director held office during the year.
2 The Audit and Risk Committee was established in March 2019.
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.
The Company drives its UAV-focused strategy from its dedicated production facilities in WA, Australia and Oregon, USA. Our intellectual
property, know-how and industry experience, enable us to meet the long endurance and high reliability requirements of the rapidly evolving
UAV market.
Working with our international customers and supply chain, we continue to design, develop and manufacture world-leading propulsion system
solutions and associated technologies to meet the changing demands and increasing mission parameters of tactical UAVs.
6.
DIVIDENDS
No dividend has been paid or proposed in respect of the current financial year.
7.
EVENTS SUBSEQUENT TO BALANCE SHEET DATE
Other than the matter sets out below, in the interval between the end of the year and the date of this report there has not arisen 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:
• On 12 August 2021, a deed of variation was confirmed to the interest-free loan contract (as per Note D.1) to reschedule the loan repayments
over the next 4 years. The deed of variation provides the Company the option to offset repayment amounts if agreed operational milestones
are achieved.
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2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021
DIRECTORS’ REPORT
for the year ended 30 June 2021
8.
PROCEEDINGS ON BEHALF OF THE COMPANY
No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations
Act 01.
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 30 June
2021 is as follows:
Director
J P Welborn
T M Alder
S Gallagher
K Abbott
Total
Ordinary
Shares
850,000
372,333
100,000
30,000
Performance
Rights
-
1,361,650
-
-
1,352,333
1,361,650
12. SHARE OPTIONS
The Company has no unissued shares under option at the date of this report.
13. AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES
The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and
experience with the Company and/or the Group are important. For the year ended June 2021, the Group engaged with
PricewaterhouseCoopers in non-audit services that included Tax & other Corporate advisory services. Refer to Note F.6 in the Financial
Statements for summary of fees paid. The Board of Directors has considered the position and, in accordance with advice received from the
Audit Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors
imposed by the Corporations Act 2001.
14.
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, PricewaterhouseCoopers, 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 PricewaterhouseCoopers during or since the financial year.
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2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021 DIRECTORS’ REPORT
for the year ended 30 June 2021
15. 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.
16. ROUNDING OFF
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated 24 March
2016, and in accordance with that Instrument, amounts in the financial report and Directors’ Report have been rounded off to the nearest
thousand dollars unless otherwise indicated.
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2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021
DIRECTORS’ REPORT
for the year ended 30 June 2021
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 2021.
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 2021 are set out in Table 1.
Table 1 – KMP
Executive
Executive Director
Todd M Alder (Chief Executive Officer and Managing Director)
Non-Executive Directors
John P Welborn (Chairman)
Steve Gallagher (Chairman of the Audit & Risk Committee)
Kyle Abbott (Member of the Audit & Risk Committee)
Senior Executives
Geoff P Cathcart (Chief Technical Officer)
David Bonomini (Chief Financial Officer & Company Secretary)
Martin Johnston1 (Chief Operating Officer)
1 Mr. Johnston became a KMP on 1 July 2020
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)
2021
0.83
64.46
Basic EPS (cents) from operations
(14.74)
2020
0.75
58.2
2.40
2019
0.30
23.2
(7.63)
2018
0.36
27.9
2.87
2017
0.50
38.6
(15.55)
Short term incentives were paid in 2020 and 2018. No short term incentives were paid in 2021, 2019 and 2017.
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. No STI were accounted for during the year ended 30 June 2021 (2020: $194,508).
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 2018 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 (2018 LTI Plan).
During the 2021 financial year, the first tranche of 475,675 performance rights vested in full under the 2018 LTI Plan and the remaining 342,213
performance rights expired on 10 August 2020. No rights have vested under the 2020 LTI Plan.
The remuneration of Non-Executive Directors of the Company consists only of Directors’ fees. Director fees were not reviewed or adjusted
during the 2021 financial year.
Remuneration Report at 2020 AGM
The 2020 Remuneration Report received positive shareholder support at the 2020 AGM with more than 75% 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.
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2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021
DIRECTORS’ REPORT
for the year ended 30 June 2021
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 2021
There were no changes to the remuneration structure of executives or Directors during the 2021 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.
No consultants were engaged during the year ended 30 June 2021 (2020: nil).
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. STIs 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.
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2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021
DIRECTORS’ REPORT
for the year ended 30 June 2021
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 2021 was as follows:
CEO
Other executives
Fixed Remuneration (50%)
Target STI (20%)
Target LTI (30%)
Fixed Remuneration (69%)
Target STI (14%)
Target LTI (17%)
Fixed Remuneration
Variable Remuneration
The remuneration structure for the 2021 financial year is explained below:
Summary of executive KMP remuneration for the 2021 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 15.
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 provide a framework for delivering
sustainable value to the Group, its shareholders and customers. Minimum Group performance targets need to be achieved before STI is
eligible.
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:
CEO
Other Executives
Financial
Revenue
70%
0%
Non-financial
Group KPIs
30%
100%
Revenue is the measure against which management and the Board assess the short-term performance of the Group. If the revenue measure
is met, performance against non-financial KPIs are used to determine the STI that the executive is entitled to, as follows:
•
•
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.
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 Team. The Board approves the final STI award based on this assessment of performance.
10
10
2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021 DIRECTORS’ REPORT
for the year ended 30 June 2021
Actual STI performance for the year ending 30 June 2021
The following table outlines the proportion of the maximum STI earned in relation to the 2021 financial year. Please refer to Table 1 on page
15 for further details on the actual STI paid to KMPs for the year ended 30 June 2021.
Maximum STI opportunity
(Percentage of fixed remuneration)
Percentage of
maximum STI earned
Todd M Alder
Geoff P Cathcart
David Bonomini
Martin Johnston
Long-term incentive (“LTI”)
40%
20%
20%
20%
0%
0%
0%
0%
Under the LTI, 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.
2018 Performance Rights Plan – Long-term incentives
The Company introduced a 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:
Tranche
Performance
condition
Expiry
date
Grant date
(CEO LTIs)
Grant date
(Exec LTIs)
10 August
2020
27 October
2017
23 May
2018
Fair
value/right
(CEO LTIs)
Fair
value/right
(Exec LTIs)
36.5 cents
20.9 cents
Vesting
of rights
50 per
cent
10 August
2020
27 October
2017
23 May
2018
27.8 cents
13.8 cents
50 per
cent
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.
The allocation of performance rights to executives was as follows:
Executive
Title
Mr T.Alder
Mr G.Cathcart
Mr M Johnston
Mr D Bonomini
Total
Managing Director and CEO
Chief Technical Officer
Chief Operating Officer
Chief Financial Officer
Performance
rights issued
Tranche 1
Performance
rights issued
Tranche 2
340,000
116,284
60,091
19,391
535,766
255,000
87,213
0
0
342,213
Total
595,000
203,497
60,091
19,391
877,979
During the year, the first tranche of 535,766 performance rights vested in full. The remaining 342,213 performance rights expired on 10
August 2020.
11
11
2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021 DIRECTORS’ REPORT
for the year ended 30 June 2021
Performance Rights Plan – 2018 Share Acquisition Performance Rights (“2018 SAPR Plan”)
On 11 August 2017, the Group announced the appointment of Mr Todd 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 Alder acquired 372,333 shares in the Group resulting in a maximum entitlement of 647,250 SAPRs. 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 a 30-day VWAP of $0.62 tested over a three-year period and 100 per cent
of the SAPRs will vest if this performance milestone is achieved.
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
10 August 2020
23 May 2018
31.6 cents
647,250
647,250
The performance rights vested in full during the year.
2020 Performance Rights Plan – Long-term incentives
The Company introduced a new Performance Rights Plan (“2020 LTI Plan”) which was approved by shareholders on 24 November 2020.
Performance rights were issued to the Managing Director and CEO (“CEO LTIs”) and other executives (“Executive LTIs”) and employees
under the 2020 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:
Tranche
Performance
condition
Expiry
date
Grant date
(CEO LTIs)
Grant date
(Exec LTIs)
30
September
2023
04
December
2020
28 October
2020
Fair
value/right
(CEO LTIs)
Fair
value/right
(Exec LTIs)
98 cents
97 cents
Vesting
of rights
50 per
cent
1
2
The Company having a 90-day
VWAP of at least $1.50 per
share between 01 October
2020 and 30 September 2023.
The Company having a 60-day
VWAP of at least $2.50 per
share between 01 October
2020 and 30 September 2023.
30
September
2023
04
December
2020
28 October
2020
73 cents
76 cents
50 per
cent
The allocation of performance rights to KMPs was as follows:
Executive
Title
Performance rights
issued Tranche 1
Performance rights
issued Tranche 2
Mr T.Alder
Mr G.Cathcart
Mr D.Bonomini
Mr M.Johnston
Total
Managing Director and CEO
Chief Technical Officer
Chief Financial Officer
Chief Operating Officer
234,000
77,500
70,000
66,749
448,249
140,400
46,500
42,000
40,049
268,949
Total
374,400
124,000
112,000
106,798
717,198
12
2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021 DIRECTORS’ REPORT
for the year ended 30 June 2021
When is performance measured?
Performance rights may vest at any time during the three-year period to 30 September 2023, 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 under the 2020 LTI Plan for the year ended 30 June 2021.
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 $1.14 per share. The vesting of performance rights will only occur where the Company’s share price increases to $1.50 and
$2.50 per share as set out in the abovementioned tables.
Actual LTI performance for the year ending 30 June 2021
During the financial year, 475,675 performance rights vested under the 2018 LTI Plan and 647,250 performance rights vested under the
SAPR Plan (2020: nil). No rights vested under the 2020 LTI Plan or for any other earlier plans issued in previous financial years.
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. No Directors or KMPs participated in the share plan in 2021 (2020: Nil).
CONTRACTS FOR 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.
Fixed Remuneration
Contract Duration
Termination notice
period (Company)1, 2
Termination notice
period (Executive)
T Alder
G Cathcart 3
D Bonomini
M Johnston
$390,000
$290,000
$280,000
$290,000
Unlimited
Unlimited
Unlimited
Unlimited
3 months
3 months
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 Mr G Cathcart (Chief Technical 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
•
13
2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021 DIRECTORS’ REPORT
for the year ended 30 June 2021
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 2021
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 (2020: $120,000) and the Non-Executive Directors receive a base fee of $60,000 (2020:
$60,000).
The remuneration of Non-Executive Directors for the year ended 30 June 2021 and 30 June 2020 is detailed in Table 1 of this report on page
15.
The maximum annual aggregate fee pool limit is $400,000 and was approved by shareholders.
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
2021.
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.
14
14
2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021 DIRECTORS’ REPORT
for the year ended 30 June 2021
Statutory tables
Table 1 - Compensation of Non-Executive Directors and executive KMP's for the year ended 30 June 2021 and 2020
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
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
n
o
i
t
a
u
n
n
a
r
e
p
u
S
l
r
e
y
o
p
m
E
s
n
o
i
t
u
b
i
r
t
n
o
C
s
t
n
e
m
e
l
t
i
t
n
E
e
v
a
e
L
i
l
n
a
P
s
t
h
g
R
e
c
n
a
m
r
o
f
r
e
P
n
o
i
t
a
r
e
n
u
m
e
R
l
a
t
o
T
n
o
i
t
a
r
e
n
u
m
e
r
f
o
n
o
i
t
r
o
p
o
r
P
l
d
e
t
a
e
r
e
c
n
a
m
r
o
f
r
e
p
$
$
$
$
$
$
$
$
%
Non-executive Directors
J Welborn
2021
109,589
Chairman and Director (Non-executive)
2020
109,589
T Stinson (1)
2021
-
Director (Non-executive)
2020
21,781
S Gallagher
2021
60,000
Director (Non-executive)
2020
60,000
K Abbott
2021
60,000
Director (Non-executive)
2020
60,000
Total Consolidated, all non-executive
directors
Executive Director
T Alder
2021
229,589
2020
251,370
2021
366,958
-
-
-
-
-
-
-
-
-
-
-
Managing Director and Chief Executive
Officer
2020
319,034
136,000
Executive Key Management Personnel
109,589
10,411
109,589
10,411
-
-
21,781
2,681
60,000
60,000
60,000
60,000
-
-
-
-
229,589
10,411
251,370
13,092
-
-
-
-
-
-
-
-
-
-
120,000
120,000
-
24,462
60,000
60,000
60,000
60,000
240,000
300,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
366,958
21,694
12,382
84,356
475,442
16%
455,034
21,003
12,642
133,539
622,218
43%
-
-
-
-
-
-
-
-
-
-
-
-
G Cathcart (2)
2021
277,675
-
58,692
336,367
29,455
22,026
26,765
408,799
5%
Chief Technical Officer
2020
292,992
44,988
R Jones (3)
2021
-
Chief Financial Officer
2020
239,765
D Bonomini (4)
2021
258,306
-
-
-
Chief Financial Officer
2020
99,614
13,520
M Johnston (5)
2021
250,813
Chief Operating Officer
2020
-
Total Consolidated,
Executive Key
Management Personnel
2021
1,153,752
-
-
-
-
-
-
-
-
-
-
337,980
33,316
30,038
16,420
417,754
15%
-
-
239,765
21,403
-
-
-
-
12,355
273,523
258,306
21,694
7,875
23,064
306,798
-
5%
6%
113,134
8,078
10,117
131,329
-
-
250,813
21,694
13,111
21,993
303,663
6%
-
-
-
-
-
-
58,692
1,212,444
94,537
55,394
156,178
1,494,702
9%
2020
951,405
194,508
-
1,145,913
83,800
52,797
162,314
1,444,824
25%
1. Mr. Stinson retired as Non-Executive Director effective 18 November 2019.
2. Mr. Cathcart was seconded to the USA facility during the financial year ended June 2020 and 2021. Non-monetary benefits arose from the secondment.
3. Ms. Jones ceased as a KMP on 28 February 2020
4. Mr. Bonomini became a KMP on 10 February 2020
5. Mr. Johnston became a KMP on 01 July 2020
15
15
2021 ANNUAL REPORTDIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2021
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2021
DIRECTORS’ REPORT
for the year ended 30 June 2021
Table 2 – Summary of CEO and Executive
T Alder
Director and Chief Executive
Officer
G Cathcart
Chief Technical Officer
D Bonomini
Chief Financial Officer
M Johnston
Chief Operating Officer
T Alder
Director and Chief Executive
Officer
G Cathcart
Chief Technical Officer
D Bonomini
Chief Financial Officer
M Johnston
Chief Operating Officer
Type of equity
Grant date
Expiry date
Equity rights
23 May 2018
10 August 2020
Equity rights
27 October 2017
10 August 2020
Equity rights
27 October 2017
10 August 2020
Equity rights
23 May 2018
10 August 2020
Equity rights
23 May 2018
10 August 2020
Equity rights
23 May 2018
10 August 2020
Equity rights
23 May 2018
10 August 2020
Equity rights
23 May 2018
10 August 2020
Equity rights
23 May 2018
10 August 2020
Equity rights
04 December 2020
30 September 2023
Equity rights
04 December 2020
30 September 2023
Equity rights
28 October 2020
30 September 2023
Equity rights
28 October 2020
30 September 2023
Equity rights
28 October 2020
30 September 2023
Equity rights
28 October 2020
30 September 2023
Equity rights
28 October 2020
30 September 2023
Equity rights
28 October 2020
30 September 2023
Awarded
but not
vested
647,250
340,000
255,000
116,284
87,213
19,391
-
60,091
-
234,000
140,400
77,500
46,500
70,000
42,000
66,749
40,049
Vested
% of total
vested
Lapsed
647,250
100%
340,000
100%
-
-
-
255,000
116,284
100%
-
-
-
87,213
19,391
100%
-
-
60,091
100%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Fair
value
of
equity
($) 1
0.316
0.365
0.278
0.209
0.138
0.209
0.138
0.209
0.138
0.808
0.538
0.841
0.614
0.841
0.614
0.841
0.614
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 | trinomial valuation
model. For the assumptions used in the valuation of the rights, please refer to note F.2. 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
Table 3 – KMP share and equity holdings
Details of shares and rights help by KMP including their personally related entities for the 2020 financial year are as follows:
Type of equity
(1)
Opening
holding at
1 July 2020
Rights allocated in
2021
Rights vested in
2021
Net Changes
other
Closing
holding at
30 June 2021 (2)
Non-executive Directors
J Welborn
S Gallagher
K Abbott
Executive Directors
T Alder
Executives
G Cathcart
D Bonomini
M Johnston
Shares
Shares
Shares
850,000
100,000
30,000
Equity Rights
Shares
1,242,250
372,333
Equity Rights
Shares
Equity Rights
Shares
Equity Rights
Shares
203,497
272,720
-
-
-
-
-
-
-
374,400
-
124,000
-
112,000
-
106,798
-
-
-
-
-
-
-
850,000
100,000
30,000
987,250
(255,000)
-
-
1,361,650
372,333
116,284
(87,213)
-
19,391
-
60,091
-
-
-
-
-
-
240,284
272,720
131,391
-
166,889
-
16
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 1,183,016 rights vested but unexercised as at 30 June 2021
End of Remuneration Report
16
2021 ANNUAL REPORT
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2021
DIRECTORS’ REPORT
for the year ended 30 June 2021
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 27 August 2021
17
17
2021 ANNUAL REPORT AUDITOR’S INDEPENDENCE DECLARATION
Auditor’s Independence Declaration
As lead auditor for the audit of Orbital Corporation Limited for the year ended 30 June 2021, I declare
that 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
period.
Ben Gargett
Partner
PricewaterhouseCoopers
Perth
27 August 2021
PricewaterhouseCoopers, ABN 52 780 433 757
Brookfield Place, 125 St Georges Terrace, PERTH WA 6000, GPO Box D198, PERTH WA 6840
T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
18
2021 ANNUAL REPORT FINANCIAL STATEMENTS
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 year 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
B.2 Intangible assets
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
C.7 Leases
20
21
22
23
24
27
27
29
30
31
33
34
36
38
39
39
40
40
40
41
D. Debt and capital
D.1 Borrowings
D.2 Share capital
D.3 Reserves
E. Other assets and liabilities
E.1 Provisions
F. Other notes
F.1 Key management personnel compensation
F.2 Related parties
F.3 Share based payments
F.4 Subsidiaries
F.5 Parent entity information
F.6 Auditor remuneration
F.7 Events after the end of the reporting period
F.8 Other accounting policies
F.9 New accounting standards
Directors' declaration
Independent auditor's report
Shareholding details
Corporate information
42
42
43
44
45
45
46
48
48
49
49
49
49
50
51
58
59
19
19
2021 ANNUAL REPORT CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2021
for the year ended 30 June 2021
Continuing operations
Sale of goods
Engineering services revenue
Royalty and licence revenue
Interest revenue
Total revenue
Other income
Materials and consumables expenses
Employee benefits expenses
Depreciation expenses
Amortisation of intangibles
Engineering consumables and contractor expenses
Occupancy expenses
Travel and accommodation expenses
Communications and computing expenses
Patent expenses
Insurance expenses
Audit, compliance and listing expenses
Finance costs
Reversal of allowance for impairment of other receivables
Asset impairment expenses
Warranty expenses
Other expenses
Foreign exchange loss
Profit/(loss) before income tax from continuing operations
Income tax (expense)/benefit
Profit/(loss) for the year from continuing operations
Other comprehensive income
Items that will not be reclassified to profit or loss:
Exchange differences on translation of foreign operations
Total comprehensive profit/(loss) for the year
Attributable to:
Equity holders of the parent
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.2
A.4(b)
B.1, C.7
E.1
A.4(c)
A.5
A.6
A.6
A.6
A.6
2021
$'000
25,994
5,054
150
4
31,202
537
(14,837)
(11,797)
(1,576)
(303)
(725)
(723)
(227)
(1,074)
(414)
(1,251)
(473)
(1,508)
335
(2,514)
(2,083)
(1,972)
(1,034)
(10,437)
(1,008)
(11,445)
464
(10,981)
(10,981)
(10,981)
(14.74)
(14.74)
(14.74)
(14.74)
2020
$'000
31,989
1,617
176
41
33,823
5,079
(13,914)
(14,370)
(1,633)
(247)
(781)
(532)
(449)
(1,018)
(414)
(1,003)
(249)
(622)
206
-
216
(2,089)
(28)
1,975
(118)
1,857
3
1,860
1,860
1,860
2.40
2.35
2.40
2.35
20
20
2021 ANNUAL REPORT
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2021
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2021
ASSETS
Current assets
Cash and cash equivalents
Other financial assets
Trade and other receivables
Inventories
Prepayments
Finance lease receivable
Total current assets
Non-current assets
Intangibles
Deferred taxation asset
Plant and equipment
Right-of-use asset
Finance lease receivable
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade payables and other liabilities
Deferred revenue
Borrowings
Lease liabilities
Provisions
Total current liabilities
Non-current liabilities
Lease liabilities
Borrowings
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
B.2
A.5
B.1
C.7
C.5
C.6
D.1
C.7
E.1
C.7
D.1
E.1
D.2
D.3
2021
$'000
2020
$'000
3,116
585
4,004
12,767
245
334
21,051
1,981
4,070
1,647
857
180
8,735
29,786
1,742
4,285
9,986
982
4,530
8,749
585
5,347
9,380
375
332
24,768
898
5,423
4,150
2,062
542
13,075
37,843
4,482
1,321
3,756
1,131
2,227
21,525
12,917
847
-
72
919
22,444
7,342
31,265
3,035
(26,958)
7,342
1,898
4,854
72
6,824
19,741
18,102
31,220
2,395
(15,513)
18,102
21
21
2021 ANNUAL REPORT CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2021
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2021
)
s
e
s
s
o
l
l
d
e
t
a
u
m
u
c
c
A
(
$'000
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
$'000
l
a
t
i
p
a
c
e
r
a
h
S
D.2
$'000
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
$'000
y
t
i
u
q
e
l
a
t
o
T
$'000
31,220
(15,513)
2,424
(29)
18,102
-
-
-
45
(11,445)
-
(11,445)
-
31,265
(26,958)
-
-
-
176
2,600
-
464
464
-
435
(11,445)
464
(10,981)
221
7,342
31,178
(17,370)
2,203
(32)
15,979
-
-
-
42
1,857
-
1,857
-
31,220
(15,513)
-
-
-
221
2,424
-
3
3
-
1,857
3
1,860
263
(29)
18,102
Notes
At 1 July 2020
Loss for the year
Foreign currency translation
Total comprehensive profit for the year
Share based payments
At 30 June 2021
At 1 July 2019
Profit for the year
Foreign currency translation
Total comprehensive loss for the year
Share based payments
At 30 June 2020
The accompanying notes form part of the financial statements.
22
22
2021 ANNUAL REPORT
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2021
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2021
Notes
C.3
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Proceeds from legal settlement
Interest received
Interest paid
Net cash (used in)/from operating activities
Cash flows from investing activities
Proceeds from sale of subsidiary
Purchase of plant and equipment
Payments for intangible asset
Net cash used in investing activities
Cash flows from financing activities
Principal elements of lease payments
Proceeds from borrowings
Repayment of borrowings
Net cash used in financing activities
Net increase/(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
C.3
The accompanying notes form part of the financial statements.
2021
$'000
32,991
(34,498)
-
4
(187)
(1,690)
-
(735)
(1,386)
(2,121)
(1,070)
-
-
(1,070)
(4,881)
8,749
(752)
3,116
2020
$'000
34,257
(33,763)
3,255
41
(64)
3,726
200
(540)
(221)
(561)
(1,201)
2,276
(2,395)
(1,320)
1,845
7,487
(583)
8,749
23
23
2021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2021
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.
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.
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 27 August
2021.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 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.
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.
24
24
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2021
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 has 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. During 2021 the Group's strategy remained unchanged from 2020, the gearing ratio at 30 June 2021 was
136% (2020: 48%). Gearing ratio's are calculated by dividing net debt (as per note D.1) divided by total equity.
The below risks arise in the normal course of the Group's business. Risk information can be found in the following sections:
Section A Foreign currency risk
Page 26
Section C Liquidity risk
Page 37
Section C Interest Rate risk
Page 38
Section C Credit risk
Page 38
Section D Capital risk management Page 42
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 Key estimate/ judgement
A.5
B.1
Recoverability of deferred tax assets
Impairment of non-current assets
Page
32
35
Impact of COVID-19
As a defence industry supplier, Orbital UAV’s business has been largely shielded from the significant economic downturn driven by
the COVID-19 pandemic. The defence sector has remained resilient through the pandemic and demand for the Company’s products
remains positive.
Through proactive and ongoing risk mitigation, the Company has ensured its people remain safe and well during this period, and
operations in Australia and the USA have continued with minimal disruption.
The Company has continued to deliver on its production commitments and has been focused on managing and supporting its global
supply chain where necessary.
Distribution of our products continued through our established logistics providers.
Going Concern
The consolidated financial statements have been prepared on a going concern basis, which assumes the Group will continue its
operations and be able to meet its obligations as and when they become due and payable. This assumption is based on the Group’s
ability to meet its future cash flow requirements given the cash flow projection for the 30 June 2022 financial year, and existing cash
reserves held as at 30 June 2021.
The Directors assessed how the current events and conditions impact its operations and while the long-term strategy of the Group
remains unchanged, regular forecasting is performed on future expected cashflows. The Group has critically assessed cash flow
forecasts for the 12 months from the date of this report based on expected sales and related costs.
Furthermore, the Directors have also taken the following matters into consideration in forming the view that the Group is a going
concern:
- The Group has cash and trade receivables of $7.7 million as at 30 June 2021;
- The Group issued a revenue guidance for FY22
- Forecast sales are expected to remain over $30.0 million for FY22 and continue to increase in FY23 due to diversified customer
base
- Profitability is expected to be achieved and sufficient EBITDA to fund operating expenses and financing obligations over FY22 will
be generated
- The WA government loan contract was renegotiated to defer the repayments over the next 4 years. The Company also has the
option to offset the repayment amounts if it can achieve the determined operational milestones in certain circunstances.
25
25
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021A. CURRENT YEAR PERFORMANCE2021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
for the year ended 30 June 2021
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.
A.1
A.2
A.3
A.4
A.5
A.6
Current Year Performance
Operating segments
Revenue
Other income
Expenses
Taxes
Earnings per share
Page 27
Page 27
Page 29
Page 30
Page 31
Page 33
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. The Group holds bank accounts in foreign
denominated currencies which are converted to Australian dollars through rate orders for targeted exchange rates. The Group has
foreign currency hedging facilities available as part of its bank facilities. Currently the Group does not directly hedge against its foreign
currency exchange risk to a material extent.
Exposure
The Group’s exposure to USD at the reporting date for the years ended 30 June 2021 and 2020 are as follows:
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Trade and other payables
2021
A$'000
2020
A$'000
2,531
2,858
7,101
4,063
192
992
For the year ended 30 June 2021, revenue from external customers denominated in USD was A$27,160,000 (2020: A$29,102,000).
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
+10%
-10%
+10%
-10%
Increase / (Reduction) on
profit before taxes
(472)
577
(925)
1,130
2021
2020
26
26
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021A. CURRENT YEAR PERFORMANCE2021 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
for the year ended 30 June 2021
A.1 Operating segments
Identification of reportable segments
The Group has identified its operating segments based on the internal reports that are reviewed and used by the executive
management team (the chief operating decision makers) in assessing performance and in determining the allocation of resources.
Segment performance is evaluated based on Revenue and Earnings Before Interest and Tax ("EBIT") which is allocated to the
reportable segments according to the geographic location in which the item arose or relates to.
The geographical location of the segment assets is based on the physical location of the assets.
Segment information
Year ended 30 June 2021
Segment revenue
EBIT
Finance expenses
(Loss)/profit before income tax
Assets
Liabilities
Net assets
A.2 Revenue
Revenue
Total external revenue
Timing of revenue recognition
At a point in time
Over time
Australia
2021
$'000
26,905
(437)
(1,468)
(1,905)
$'000
25,129
19,362
5,767
Australia
2021
2020
$'000
28,228
2,854
(555)
2,299
2020
$'000
30,140
17,999
12,141
US
Consolidated
2021
$'000
4,297
(8,493)
(39)
(8,532)
2020
$'000
5,595
(257)
(67)
(324)
2021
$'000
31,202
(8,930)
(1,508)
(10,437)
2020
$'000
33,823
2,597
(622)
1,975
US
Consolidated
2021
$'000
4,657
3,082
1,575
2020
$'000
7,703
1,742
5,961
2021
$'000
29,786
22,444
7,342
2020
$'000
37,843
19,741
18,102
US
Consolidated
Australia
2021
$'000
26,905
26,905
2020
$'000
28,228
28,228
2021
$'000
4,297
4,297
2020
$'000
5,595
5,595
2021
$'000
31,202
31,202
21,851
5,054
26,905
27,017
1,211
28,228
4,297
-
4,297
5,189
406
5,595
26,148
5,054
31,202
2020
$'000
33,823
33,823
32,206
1,617
33,823
Revenues of approximately $26,462,000 (2020: $29,160,000 ) are derived from a single external customer.
Recognition and measurement
Revenue is recognised 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 specific recognition criteria described below must also be met before revenue is recognised:
27
27
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021A. CURRENT YEAR PERFORMANCE2021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
for the year ended 30 June 2021
A.2 Revenue (continued)
· Revenue from rendering of services
The Group's general terms and conditions with customers specify a right to payment for work completed, therefore performance
obligations are satisfied over time. Using the output method for revenue recognition, the Group recognises revenue based on an
appraisal of results achieved or percentage complete.
· Sale of goods
Revenue from the sale of goods is recognised on a per-unit basis as the goods are delivered to the customer premise which is deemed
to be the time when the performance obligation is performed. A receivable is recognised when the goods are delivered as this is the
point in time that the consideration is unconditional because only the passage of time is required before the payment is due.
· License and royalties
Revenue earned under licencing and royalty arrangements is recognised on a cash 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
· Interest revenue
Interest revenue 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.
Assets and liabilities related to contracts with customers
The Group has recognised the following assets and liabilities related to contracts with customers:
Contract Assets
Accrued revenue
Contract Liabilities
Deferred revenue
Refer to Note C.6 deferred revenue for a breakdown of deferred revenue recognised in the current year.
2021
$'000
844
2020
$'000
70
4,285
1,321
28
28
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021A. CURRENT YEAR PERFORMANCE2021 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
for the year ended 30 June 2021
A.3 Other income
Grant income
Rental income
Research and development grant
Legal settlement proceeds
Other
Recognition and measurement
· Grant income
2021
$'000
100
111
89
-
237
537
2020
$'000
75
71
437
4,470
54
5,107
Temporary cash flow boosts were provided by the government to support small and medium businesses and not-for-profit
organisations during the economic downturn associated with COVID-19. Eligible businesses who employ staff received between
$20,000 to $100,000 in cash flow boost amounts by lodging their activity statements up to the month or quarter of September 2020.
During third quarter of FY21, the Company received $100,000 in cash flow boost amounts from the government.
· Research and development grant
In accordance with research and development tax legislation the Group is entitled to a refundable R&D tax offset accounted for as
research and development grant. Government grants are recognised when it is probable 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 a reduction in 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.
· Legal settlement proceeds
On 26 February 2020 Orbital entered into a Settlement and Patent License Agreement (“Agreement”) with Daimler AG, Mercedes-Benz
USA LLC, Mercedes-Benz U.S. International, Inc. (collectively “Mercedes”), Robert Bosch GmbH and Robert Bosch LLC ( collectively
“Bosch”) in settlement of the patent litigation brought by Orbital against Mercedes and Bosch in the United States District Court Eastern
District of Michigan Southern Division Case Number 15-12398 (see ASX announcement 1 December 2014).
Under the Agreement:
(a) the Parties filed a stipulation of dismissal regarding all claims and counterclaims in the litigation, without making any admissions or
concessions concerning the factual or legal positions taken in the litigation; and
(b) Orbital granted Mercedes/Bosch a non-exclusive patent license and release in exchange for the payment to Orbital Fluid
Technologies Inc.
Amounts paid to Orbital Fluid Technologies Inc. were allocated in accordance with the protocols specified in the revenue sharing
agreements that Orbital had with its various partners in this litigation, including US law firm Pepper Hamilton.
· Other income
The other income in current year represents non-recurring IP sales.
29
29
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021A. CURRENT YEAR PERFORMANCE2021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
A. CURRENT YEAR PERFORMANCE
for the year ended 30 June 2021
A.4 Expenses
(a)
Employee benefits expense
(d) Materials and consumable expenses
2021
$'000
18,224
(3,387)
14,837
2020
$'000
16,596
(2,682)
13,914
Raw materials and consumables
Change in inventories
Recognition and measurement
· 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.
Salaries and wages
Defined contribution plans
Share based payments (Note F.3)
Annual and long service leave (Note E.1)
Other personnel costs
(b)
Finance costs
Interest expense
Loan modification loss
(c)
Other expenses
Administration
Legal fees - settlement proceeds
Marketing and investor relations
Corporate consulting services
Other
2021
$'000
9,105
1,049
241
255
1,147
2020
$'000
12,083
889
245
164
989
11,797
14,370
2021
$'000
890
618
1,508
2021
$'000
715
-
99
1,060
98
1,972
2020
$'000
622
-
622
2020
$'000
649
1,214
148
-
78
2,089
The Group incurred legal fees in the Settlement and Patent
License Agreement (“Agreement”) with Daimler AG, Mercedes-
Benz USA LLC, Mercedes-Benz U.S. International, Inc.
(collectively “Mercedes”), Robert Bosch GmbH and Robert
Bosch LLC ( collectively “Bosch”) in settlement of the patent
litigation brought by Orbital against Mercedes and Bosch in the
United States District Court Eastern District of Michigan
Southern Division Case Number 15-12398 (see ASX
announcement 1 December 2014). Refer note A.3 for further
detail.
30
30
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021A. CURRENT YEAR PERFORMANCE2021 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
A. CURRENT YEAR PERFORMANCE
for the year ended 30 June 2021
The Group has unused tax losses that arose in Australia, for
which no deferred tax assets have been recognised of
$33,040,509 (2020: $$39,532,875) and are available indefinitely
for offsetting against future taxable profits of the Group and its
controlled entities in which those losses arose. Since 2019, tax
loss testing has been undertaken in relation to Australian carried
forward tax losses, and that testing determined that approximately
$8,590,532 of previously carried forward losses have a high
probably of failing the relevant tests. We have therefore
conservatively reflected a reduction in the carried forward amount
of losses. As those losses were not previously recognised in the
deferred tax asset balance, no tax expense adjustments arise.
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 2021, the Group had unused
tax losses for which no deferred tax assets have been recognised
of US$18,361,000 (2020: US$12,331,000) of which
US$9,518,000 will expire by 2023.
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.
A.5 Taxes
The major components of the income tax benefit/(expense) for
the years ended 30 June 2021 and 2020 are:
Deferred income tax expense
Adjustments in respect of prior years
Total income tax benefit/(expense)
2021
$'000
(2,106)
1,098
(1,008)
2020
$'000
(118)
-
(118)
The reconciliation of the income tax benefits/(expenses) and
accounting profit multiplied by the Australian domestic tax rate
for the years ended 30 June 2021 and 2020 are:
Accounting (loss)/profit before tax from
continuing operations
Accounting (loss)/profit
before income tax
At Australia's statutory income tax rate of
26.0% (2020: 27.5%)
Adjustments in respect of the change in
statutory income tax rate
Difference in overseas tax rates
Non assessable income
Recognition of previously unrecognised tax
losses
Adjustments in respect of prior years
Deferred tax asset not recognised
Other
Non-deductible expenses
Income tax expense
Income tax expense reported in the
statement of profit or loss
2021
$'000
(10,437)
(10,437)
2,714
(77)
(427)
49
-
1,098
(3,943)
(1)
(421)
(1,008)
2020
$'000
1,975
1,975
(545)
-
(185)
120
1,398
(601)
-
(305)
(118)
(1,008)
(118)
Deferred tax balances comprise of the following deferred tax
assets/(deferred tax liabilities):
Inventory
Revenue received in advance
Plant and equipment
Provisions and accruals
Intangible asset
ROU leasing assets
ROU leasing liabilities
Foreign exchange gains/losses
Other
Tax losses
Net deferred tax asset
2021
$'000
31
925
(35)
1,336
(427)
(347)
361
580
235
1,409
4,070
2020
$'000
44
-
(170)
652
(247)
-
-
-
-
5,144
5,423
31
31
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021A. CURRENT YEAR PERFORMANCE2021 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
A. CURRENT YEAR PERFORMANCE
for the year ended 30 June 2021
A.5 Taxes (continued)
· 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 2021, the Group recognised $4,070,000 (2020:
$5,423,000) 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.
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.
32
32
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021A. CURRENT YEAR PERFORMANCE2021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS A. CURRENT YEAR PERFORMANCE
A. CURRENT YEAR PERFORMANCE
for the year ended 30 June 2021
Performance rights granted to key management personnel were
deemed potential ordinary shares. Refer to Notes F.3 for further
details.
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:
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:
Performance rights
2021
$'000
2020
$'000
Total
Loss/(profit) attributable to ordinary equity
holders of the Parent:
Continuing operations
Discontinued operations
Loss/(profit) attributable to
equity holders of the Parent for
basic earnings
Weighted average number of ordinary
shares for basic EPS
Weighted average number of ordinary
shares adjusted for the effect of dilution
(11,445)
-
1,857
-
(11,445)
1,857
2021
2020
Number
77,626,071
Number
77,524,513
77,626,071
79,082,042
Earnings per share
Basic (loss)/profit earnings per share
Diluted (loss)/profit earnings per share
Earnings per share from continuing operations
Basic (loss)/profit earnings per share
Diluted (loss)/profit earnings per share
Cents
(14.74)
(14.74)
Cents
(14.74)
(14.74)
Cents
2.40
2.35
Cents
2.40
2.35
2021
Number
2,230,420
2,230,420
33
33
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021A. CURRENT YEAR PERFORMANCE2021 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS B. GROWTH ASSETS
B. GROWTH ASSETS
for the year ended 30 June 2021
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.
B.1
B.2
Current Year Performance
Plant and equipment
Intangible assets
Page 34
Page 36
B.1 Plant and equipment
Plant and
equipment
Leasehold
improvements
Total
$’000
$’000
$’000
Gross carrying amount at cost
At 1 July 2019
Additions
Disposals
At 30 June 2020
Additions
Disposals
At 30 June 2021
Depreciation and impairment
At 1 July 2019
Depreciation charge
Disposals
At 30 June 2020
Depreciation
Impairment
Disposals
At 30 June 2021
Net book value
At 30 June 2021
At 30 June 2020
18,394
475
(408)
18,461
504
(5,664)
13,301
(16,103)
(623)
408
(16,318)
(607)
(651)
5,664
(11,912)
1,389
2,143
2,550
65
(20)
2,595
174
(187)
2,582
20,944
540
(428)
21,056
678
(5,851)
15,883
(325)
(282)
19
(588)
(260)
(1,475)
(1)
(2,324)
(16,428)
(905)
427
(16,906)
(867)
(2,126)
5,663
(14,236)
258
2,007
1,647
4,150
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 C.7 for lease disclosure and 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.
34
34
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS B. GROWTH ASSETS
B. GROWTH ASSETS
for the year ended 30 June 2021
B.1 Plant and equipment (continued)
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 three years, or the contract
period.
For the year ended 30 June 2021, a strategic decision was
made to cease production in the US and transition it to
Australia. As a result, the CGUs located in the US became idle
and not expected to generate any future cash flow in the short
term, the US assets were written down to nil value.
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.
35
35
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS B. GROWTH ASSETS
B. GROWTH ASSETS
for the year ended 30 June 2021
B.2 Intangible assets
Consolidated
Year ended 30 June 2021
Cost
Accumulated amortisation and impairment
R&D tax offset recognised
Net carrying amount
Movement
Net carrying amount at the beginning of the year
Additions
Amortisation for the year
Net carrying amount at the end of the year
Year ended 30 June 2020
Cost
Accumulated amortisation and impairment
R&D tax offset recognised
Net carrying amount
Movement
Net carrying amount at the beginning of the year
Additions
Amortisation for the year
Net carrying amount at the end of the year
Model 2019
Development
$'000
Model 2021
Development
$'000
2,611
(595)
(1,421)
595
898
-
(303)
595
2,611
(292)
(1,421)
898
924
221
(247)
898
1,386
-
-
1,386
-
1,386
-
1,386
-
-
-
-
-
-
-
-
Total
$'000
3,997
(595)
(1,421)
1,981
898
1,386
(303)
1,981
2,611
(292)
(1,421)
898
924
221
(247)
898
The intangible assets comprise of capitalised development costs for the advancement of the modular propulsion systems. The intangible
asset will be amortised using the straight-line method over a finite period of five years.
Recognition and measurement
Intangible assets are measured on initial recognition at cost. Following initial recognition; intangible assets are carried at cost less
amortisation, any impairment losses and research and development tax grants received. Intangible assets with finite useful lives are
amortised on a straight-line basis over their useful lives and tested for impairment whenever there is an indication that they may be impaired.
The amortisation period and method is reviewed at each financial year end.
Intangible asset
Internally generated intangible
Useful life
Finite (up to five years)
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
• the availability of resources to complete the asset
• 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 begins 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.
36
36
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS C. WORKING CAPITAL MANAGEMENT
C. WORKING CAPITAL MANAGEMENT
for the year ended 30 June 2021
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
C.7 Leases
Page 38
Page 39
Page 39
Page 40
Page 40
Page 40
Page 41
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 2021, the Group has a total of $3,116,000 of cash at its disposal (2020: $8,749,000) and a net
current asset position -$474,000 (2020: $11,851,000). The remaining contractual maturities of the Group's financial liabilities are:
At 30 June 2021
Borrowings 1
Trade payables and other liabilities
Lease liabilities
At 30 June 2020
Borrowings
Trade payables and other liabilities
Lease liabilities
Less than
3 months
$'000
3-12 months
1-5 years
$'000
$'000
Over 5 years Total contractual
cashflows
$'000
$'000
Carrying amount
(assets)/liabilities
$'000
9,986
1,742
297
12,025
-
-
893
893
-
-
775
775
-
-
-
-
-
4,482
262
4,744
3,756
6,230
- -
1,091 2,048
8,278
4,847
-
-
-
-
9,986
1,742
1,966
13,694
9,986
4,482
3,401
17,869
9,986
1,742
1,829
13,557
8,610
4,482
3,029
16,121
1 Refer to Note D.1 and F.7 for details.
37
37
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS C. WORKING CAPITAL MANAGEMENT
for the year ended 30 June 2021
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 2021 is as follows:
Cash and cash equivalents (Note C.3)
Short-term deposits (Note C.4)
2021
$'000
3,116
585
3,701
2020
$'000
8,749
585
9,334
A reasonable possible change in the interest rate (+0.5%/-0.5%) (2020: +0.5%/-0.5%)), with all variables held constant, would have
resulted in a change in post tax profit/(loss) of $16,000/($16,000) (2020: $44,000)/($44,000) 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). The significant concentration of credit risk within the Group relate to receivable balances from the Group's
major customer.
The maximum exposure to credit risk for the components of the statement of financial position at 30 June 2021 and 2020 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. Key individual customer
receivable balances are monitored on an ongoing basis. The significant concentrations of credit risk within the Group relate to
receivable balances from the Group's major customer and cash held with investment grade financial institutions.
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.
C.1 Inventories
Raw materials
Provision for obsolescence
Work in progress
Finished goods
2021
$'000
11,741
(123)
990
159
12,767
2020
$'000
7,965
(159)
1,574
-
9,380
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
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS C. WORKING CAPITAL MANAGEMENT
for the year ended 30 June 2021
C. WORKING CAPITAL MANAGEMENT
C.2 Trade and other receivables
C.3 Cash and cash equivalents
Trade receivables
Other receivables
Accrued revenue
Allowance for Impairment of other receivables (a)
2021
$'000
3,100
909
844
(849)
4,004
2020
$'000
5,307
1,183
70
(1,213)
5,347
(a) At 30 June 2021, the Group has $849,000 (2020:$1,213,000) as
a provision for impaired receivables. This amount represents
receivable from Avidsys Pty Ltd as consideration for the disposal of
REMSAFE Pty Ltd on 18 December 2017.
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.
The Group's payment terms on trade receivables range from 30 -
35 days. The credit risk of trade receivables neither past due nor
impaired was assessed as remote as historical default rates with
associated customers are negligible.
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
Trade receivables and contract assets are subject to the expected
credit loss model. The Group applies the AASB 9 simplified
approach to measuring expected credit losses which uses the
lifetime expected loss allowance for all trade receivable and
contract assets. The identified impairment loss was immaterial.
While cash and cash equivalents are also subject to the
impairment requirements of AASB 9, the identified impairment loss
was immaterial.
Cash at bank
2021
$'000
3,116
3,116
2020
$'000
8,749
8,749
The reconciliation of net profit/(loss) after tax to net cash flows from
operations for the years ended 30 June 2021 and 2020 is as follows:
(Loss)/profit after income tax from continuing
operations
(Loss)/profit after income tax
Depreciation & amortisation (Note B.1)
Impairment of asset
Government grants
Interest expense
Surplus lease space (Note E.1)
Warranties (Note E.1)
Employee benefits (Note E.1)
Provision for doubtful debt
Share based payment expense (Note F.3)
Net foreign exchange gain
Net cash (used in)/from operating activities
before changes in assets and liabilities
Changes in assets and liabilities during the year:
Decrease/(increase) in receivables and
prepayments
(Increase)/decrease in inventories
(Increase)/decrease in deferred tax assets
Increase/(decrease) in payables
2021
$'000
(11,445)
(11,445)
867
2,499
-
1,376
-
2,074
229
(63)
220
(496)
2020
$'000
1,857
1,857
1,153
-
(76)
333
(88)
(218)
163
(167)
264
33
(4,739)
3,254
2,346
2,324
(3,387)
1,354
2,736
3,049
(2,683)
118
713
472
Net cash (used in)/generated from operating
activities
(1,690)
3,726
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 trade and other receivables
approximates their fair value.
Fair value
The carrying amount of short-term deposits approximates
their fair value.
39
39
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS C. WORKING CAPITAL MANAGEMENT
C. WORKING CAPITAL MANAGEMENT
for the year ended 30 June 2021
C.4 Other financial assets
C.6 Deferred revenue
Deferred revenue includes revenue allocated to unsatisfied
performance obligations in engineering services contracts
with customers, unsatisfied performance obligations on sale
of goods to customers and long-term advances received from
customers.
A reconciliation of deferred revenue for the years ended 30
June 2021 and 2020 is as follows:
At 1 July
Deferred during the year
Released to the statement of profit or loss
At 30 June
2021
$'000
1,321
6,803
(3,839)
4,285
2020
$'000
2,911
9,622
(11,212)
1,321
Recognition and measurement
Deferred revenue is recognised as a liability when
consideration is received prior to performance obligations
being satisfied with a customer. The deferred revenue is
recognised as income over the periods that the performance
obligations are met.
Short term deposits
2021
$'000
585
585
2020
$'000
585
585
The Group has pledged short term deposits of $585,000 (2020:
$585,000) as collateral for financing facilities. 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.
C.5 Trade and other payables
Trade payables
Taxes payable
Other payables
2021
$'000
1,668
-
74
1,742
2020
$'000
4,280
11
191
4,482
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.
40
40
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS C. WORKING CAPITAL MANAGEMENT
for the year ended 30 June 2021
C. WORKING CAPITAL MANAGEMENT
C.7 Leases
The Group leases various premises. Lease terms are negotiated
on an individual basis and contain a range of different terms and
conditions.
Amounts recognised in the balance sheet
Set out below is a summary of the amounts disclosed in the
Consolidated Statement of Financial Position:
Assets and liabilities arising from a lease are initially measured on
a present value basis. Lease liabilities include the net present value
of variable lease payments that are based on index or a rate.
The recognised right-of-use assets relate to the amount of the initial
measurement of lease liability.
Right-of-use assets
Properties
Total
Lease Liabilities
A sub lease has been recognised as a Finance Lease Receivable
under AASB 16 Leases. This reduced the right-of-use asset on
adoption.
Current
Non Current
2021
2020
$'000
857
857
$'000
2,062
2,062
2021
2020
$'000
982
847
1,829
$'000
1,131
1,898
3,029
Lease payments are allocated between principal and finance cost.
The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. Payments
associated with short-term leases and leases of low-value assets
are recognised on a straight-line basis as an expense in profit or
loss. Short-term leases are leases with a lease term of 12 months
or less.
Amounts recognised in the statement of profit or loss
The statement of profit or loss shows the following amounts
relating to leases:
Depreciation charge of right-of-use assets
Impairment
Interest expense (included in finance cost)
2021
$'000
710
373
131
2020
$'000
728
-
146
The total cash outflow for leases in 2021 was $846,000 (2020:
$499,000).
Key estimate - Impairment of right-of-use assets
Refer to Note B.1 for key estimate of asset impairment.
41
41
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS D. DEBT AND CAPITAL
D. DEBT AND CAPITAL
for the year ended 30 June 2021
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
Borrowings
Share capital
Reserves
Page 42
Page 42
Page 43
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 debt.
D.1 Borrowings
Current
Non-current
2021
$'000
9,986
-
9,986
2020
$'000
3,756
4,854
8,610
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.
D.2 Share capital
Changes in borrowings arising from financing activities are as
follows:
Ordinary shares issued and fully paid
At 1 July
$'000
8,610
8,277
Cash flows
$'000
-
-
Finance
costs
$'000
1,376
333
At 30 June
$'000
9,986
8,610
2021
2020
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
• In early 2021 Orbital commenced renegotiations of its $9.9M
WA Government Loan, this was however not concluded at year
end. Refer to subsequent event note F.7 for further details.
The loan was reclassified as current borrowings under the loan
terms in place at year end.
As a result of the non-repayment of a portion of the loan in the
current year, loan terms were determined to be modified. This
did not constitute a substantial modification of the loan terms.
As a result of these changes, the amount of $618,000, being the
difference in the present value of the cash flows of the loans
calculated under the old and new terms, has been recognised in
the Consolidated statement of profit or loss and other
comprehensive income.
Movement in ordinary shares
At 1 July 2019
Employee Share plan number 1
At 30 June 2020
At 1 July 2020
Employee Share plan number 1
At 30 June 2021
2021
$'000
31,265
2020
$'000
31,220
Number
77,452,926
133,997
77,586,923
$000's
31,178
42
31,220
77,586,923
71,853
77,658,776
31,220
45
31,265
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. The Company
does not have authorised capital or par value in respect of its issued
shares.
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.
42
42
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS D. DEBT AND CAPITAL
D. DEBT AND CAPITAL
for the year ended 30 June 2021
D.3 Reserves
At 1 July 2019
Foreign currency translation
Rights issued pursuant to performance rights plan
At 30 June 2020
At 1 July 2020
Foreign currency translation
Rights issued pursuant to performance rights plan
At 30 June 2021
Nature and purpose of reserves
Employee
benefits
reserve
$000's
2,203
-
221
2,424
.
2,424
-
176
2,600
Foreign currency
translation reserve
$000's
(32)
3
-
(29)
(29)
464
-
435
Total
$000's
2,171
3
221
2,395
2,395
464
176
3,035
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.
43
43
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS E. OTHER ASSETS AND LIABILITIES
for the year ended 30 June 2021
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.
E.1
Other assets and liabilities
Provisions
Page 44
E.1 Provisions
s NC
At 1 July 2020
Arising during the year
Utilised
At 30 June 2021
Current
Non-current
At 1 July 2019
Arising during the year
Utilised
Expired
At 30 June 2020
Current
Non-current
Surplus lease
space
$000's
Warranties
$000's
Employee
benefits
$000's
-
-
-
-
-
-
-
88
-
(88)
-
-
-
521
2,083
(9)
2,595
2,595
-
2,595
738
380
-
(597)
521
521
-
521
1,778
942
(713)
2,007
1,935
72
2,007
1,614
666
(502)
-
1,778
1,706
72
1,778
Total
$000's
2,299
3,025
(722)
4,602
4,530
72
4,602
2,440
1,046
(590)
(597)
2,299
2,227
72
2,299
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 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.
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.
44
44
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS F. OTHER NOTES
for the year ended 30 June 2021
F. OTHER NOTES
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). This section includes Group structure information and other disclosures.
Other items
F.
F.1 Key management personnel compensation
F.2 Related parties
F.3 Share based payments
F.4 Subsidiaries
F.5 Parent entity information
F.6 Auditor remuneration
F.7 Events after the end of the reporting period
F.8 Other accounting policies
F.9 New accounting standards
45
45
46
48
48
49
49
49
49
F.1 Key management personnel compensation
Compensation of key management personnel of the Group
Short term employee benefits
Post-employment benefits
Long-term employee benefits
Share based payments
2021
$
1,442,033
104,948
55,394
156,178
2020
$
1,397,283
96,892
52,797
162,314
1,758,553
1,709,286
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.
F.2 Related parties
Group structure
Note F.4 provides information about the Group’s structure, including details of subsidiaries.
Transactions with directors
There were no transactions with directors during the year. Key management personnel compensation is disclosed in Note F.1.
No other director or key management personnel entered into a material contract with the Group from the end of the previous financial year.
45
45
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS F. OTHER NOTES
for the year ended 30 June 2021
F. OTHER ITEMS
F.3 Share based payments
Equity-settled share based payment
transactions
2021
$'000
241
241
2020
$'000
245
245
There were no cancellations or modifications to awards in
the 2021 or 2020 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 2021, 39,634 ordinary shares
(2020: 133,997 ordinary shares) were issued on 23
December 2020 at a market value on the date of issue of
$45,000 (2020: $42,000 ).
CEO Share Acquisition Performance Rights
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 the year ended 30 June 2018, 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 2021, 647,250 performance
rights issued under the plan vested. The share based
payment expense recognised for the year ended 30 June
2021 was $8,000 (2020: $68,000).
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 11-12
of the Directors' Report. During the year ended 30 June 2021, 846,016
performance rights issued under the plan vested. The share based payment
expense recognised for the year ended 30 June 2021 was $18,000 (2020:
$103,000).
2020 Executive LTI Plan and 2020 CEO LTI Plan
On 28 October 2020 and 04 December 2020, the Group issued 717,198
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 12 of
the Directors' Report. During the year ended 30 June 2021, no performance
rights issued under the plan vested. The share based payment expense
recognised for the year ended 30 June 2021 was $155,000.
Movements during the year
The following table illustrates the number of performance rights during the
year:
Outstanding at 1 July
Granted during the year
Lapsed during the year
Outstanding at 30 June
2021
Number
1,557,529
1,157,181
(484,290)
2,230,420
2020
Number
2,010,654
-
(453,125)
1,557,529
The weighted average remaining contractual life of performance rights
outstanding at 30 June 2021 was 2.25 years (2020: 0 years).
The following tables list the inputs into the models used for the plans for the
years ended June 30, 2018 and 2021 respectively:
2018
Executive
LTI Plan
23/05/2018
2018 CEO
LTI Plan
27/10/2017
CEO
SAPR's
23/05/2018
2020
Executive
LTI Plan
28/10/2020
2020 CEO
LTI Plan
4/12/2020
10/08/2020
10/08/2020
30/09/2023
$ 0.44 $ 0.54 $ 0.44 $ 1.19 $ 1.18
10/08/2020
30/09/2023
0.209
0.365
0.316
0.970
0.980
0.138
59%
1.98%
0.278
60%
1.95%
-
59%
1.98%
0.760
70%
0.12%
0.730
70%
0.13%
0 years
0 years
0 years 2.25 years 2.25 years
Monte
Carlo
Monte
Carlo
Monte
Carlo
Monte
Carlo
Monte
Carlo
Grant date
Expiry date
Share price at grant
Fair value ($/right) -
Tranche 1
Fair value ($/right) -
Tranche 2
Expected volatility
Risk-free interest rate
Remaining contractual
life
Model used
46
46
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS F. OTHER NOTES
for the year ended 30 June 2021
F. OTHER ITEMS
F.3 Share based payments (continued)
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.
47
47
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS F. OTHER NOTES
for the year ended 30 June 2021
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
Orbital Holdings (USA) Inc.
Orbital Fluid Technologies Inc.
Note
(b)
(c)
(a)
Class of
shares
Country of
incorporation
Ordinary
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
United States
United States
Orbital UAV USA, LLC
Ordinary
United States
Principal activities
2021
2020
% equity interest
Production &
Development
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Production &
Development
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
(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) The Production 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.
(c) The Development 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
Profit/(loss) of the parent
Total comprehensive profit/(loss) of the parent entity
2021
$'000
-
13,417
9,987
-
3,430
31,220
(30,451)
2,661
3,430
(12,966)
(12,966)
2020
$'000
2
24,768
-
8,610
16,160
31,220
(17,485)
2,425
16,160
1,357
1,357
48
48
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS F. OTHER NOTES
for the year ended 30 June 2021
F. OTHER ITEMS
F.6 Auditor remuneration
F.8 Other accounting policies
The auditor for the Group is PricewaterhouseCoopers
("PwC")
Goods and services tax
Amounts received or due and receivable for:
2021
$
2020
$
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.
Audit and review of the consolidated
financial statements
Tax compliance services
Other services
160,000 135,278
113,462 72,670
270,137
543,599 207,948
-
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.
F.7 Events after the end of the reporting period
Other than the matter sets out below, in the interval between
the end of the year and the date of this report there has not
arisen 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:
• The $9.9M WA Government Loan was under renegotiation
during the year (as per Note D.1) and the formal
confirmation of a Deed of Variation was received on 12
August 2021.
The restructured loan agreement includes an extended
repayment schedule over the next four years and repayment
offset options that are contingent on the Company achieving
operational milestones aligned with its increasing engine
business in Western Australia over that period. The
repayment offset options provide the potential to forgive the
entire value of the loan.
In FY22, $4M of the $9.9M loan is expected to be offset due
to achievement of operational milestones.
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.
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.
F.9 New accounting standards
New standards and interpretations
The Group has reviewed new standards and interpretations and none of the
new and amended accounting standards and interpretations will significantly
affect the Group's accounting policies, financial position or performance.
49
49
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20212021 ANNUAL REPORT 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 2021 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.
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.
(b)
(c)
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 2021.
On behalf of the Board,
JP Welborn
Chairman
TM Alder
Managing Director & Chief Executive Officer
Dated at Perth, Western Australia 27 August 2021
50
50
2021 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT
Independent auditor’s report
To the members of Orbital Corporation Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Orbital Corporation Limited (the Company) and its controlled
entities (together the Group) is in accordance with the Corporations Act 2001, including:
(a) giving a true and fair view of the Group's financial position as at 30 June 2021 and of its
financial performance for the year then ended
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
•
•
•
•
•
•
the consolidated statement of financial position as at 30 June 2021
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the consolidated statement of profit or loss and other comprehensive income for the year then
ended
the notes to the financial statements, which include significant accounting policies and other
explanatory information
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
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 & Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence
Standards) (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.
PricewaterhouseCoopers, ABN 52 780 433 757
Brookfield Place, 125 St Georges Terrace, PERTH WA 6000, GPO Box D198, PERTH WA 6840
T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
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2021 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
The Group specialises in designing and manufacturing unmanned aerial vehicle propulsion systems
for its customers. The Group has manufacturing operations in Australia and in the United States of
America. The accounting processes are structured around a Group finance function at its corporate
head office in Perth, where we predominantly performed our audit procedures.
Materiality
•
For the purpose of our audit we used overall Group materiality of $310,000, which represents
approximately 1% of the Group’s total Revenue.
• We applied this threshold, together with qualitative considerations, to determine the scope of our audit
and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on
the financial report as a whole.
• We chose Group Revenue because, in our view, it is the benchmark against which the performance of the
Group is most commonly measured.
• We utilised a 1% threshold based on our professional judgement, noting it is within the range of commonly
acceptable thresholds for entities of this nature.
Audit Scope
•
Our audit focused on where the Group made subjective judgements; for example, significant accounting
estimates involving assumptions and inherently uncertain future events.
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2021 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context. We communicated the key audit matters to the
Audit and Risk Committee.
Key audit matter
How our audit addressed the key audit
matter
Basis of preparation of financial report
(Notes to the Financial Statements – pg25)
As described in the financial report, the financial
statements have been prepared by the Group on a
going concern basis, which contemplates that the
Group will continue to meet its commitments, realise
its assets and settle its liabilities in the normal course
of business.
At year end, the Group’s current liabilities exceeded
its current assets by $0.5 million
Assessing the appropriateness of the Group’s basis of
preparation for the financial report was a key audit
matter due to its importance to the financial report as
a whole and the level of judgement involved in
assessing the operational status, future funding and
cash flows from sales in particular with respect to the
Group forecasting future cash flows for a period of at
least 12 months from the date of the financial report
(cash flow forecasts).
In assessing the appropriateness of the Group’s
going concern basis of preparation for the
financial report, we performed the following
procedures, amongst others:
•
•
•
evaluated the appropriateness of the Group's
assessment of its ability to continue as a
going concern, including whether the level of
detail in the assessment is appropriate given
the nature of the Group, the period covered
is at least 12 months from the date of our
auditor’s report and relevant information of
which we are aware as a result of the audit
has been included
enquired of management and the directors
as to their knowledge of events or conditions
that may cast significant doubt on the
Group's ability to continue as a going
concern, including the potential impact of
COVID-19 on the Group
evaluated selected data and assumptions in
the Group’s cash flow forecasts for at least 12
months from the date of signing the auditor’s
report, including comparing selected
elements, such as purchase orders from
customers, in the cash flow forecasts to
existing contracts and agreements
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2021 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT
Key audit matter
How our audit addressed the key audit
matter
•
•
•
•
evaluated the Deed of Variation to the
interest-free loan contract (as per Note D1)
received subsequent to year end
evaluated the Group’s plans for future
actions, including the renegotiation of the
Group’s borrowings
requested written representations from
management and the board of directors
regarding their plans for future action and
the feasibility of these plans
evaluated whether, in view of the
requirements of Australian Accounting
Standards, the financial report provides
adequate disclosures.
We performed the following procedures, amongst
others:
•
•
•
•
•
attended the inventory counts at Perth and
Hood River and traced our inventory count
samples to the Group’s inventory listings
assessed the application of inventory costing
methodologies and whether this was
consistent with Australian Accounting
Standards
compared a sample of inventory cost items to
third party invoices
on a sample basis, evaluated the direct labour
costs allocated to engines in inventory by
inspecting timesheets and agreeing the labour
cost to the payroll system
on a sample basis, recalculated the
mathematical accuracy of sub-assembly bill of
materials that comprise engines in inventory
Carrying value of Inventory
(Refer to note C1) $12.8 million
At 30 June 2021 the Group held inventory with a
carrying value of $12.8 million. This inventory
comprises parts, consumables and sub-assemblies of
engines which will be used in the construction of
engines by the Group. Inventory for the Group is held
in Perth, Australia and Hood River, USA.
We focused on this area due the significance of the
inventory balance to the Consolidated Statement of
Financial Position and the complexities associated
with the allocation of direct labour and direct material
costs due to the multiple stages of assembly in the
construction of the engines.
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2021 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT
Key audit matter
How our audit addressed the key audit
matter
•
•
assessed the adequacy of the provision for
obsolete stock, particularly in light of the
decision to cease production in the US
during the year
evaluated whether inventory was carried at
the lower of cost and net realisable value by
comparing costs per unit in inventory against
sale prices in customer contracts
Carrying value of US Operations and
deferred tax assets
(Refer to notes A5, B1 and C7)
We evaluated the Group’s assessment that there were
indicators of asset impairment at 30 June 2021 for its
US CGU.
The Group performed an assessment for impairment
indicators across its cash generating units (CGUs) as
required by Australian Accounting Standards.
We also performed the following procedures, amongst
other, on the Group’s impairment assessment:
During the year, the Group identified indicators of
impairment for US operations due to the restructuring
of the US operations and recorded an impairment
expense of $2.5 million.
The Group made a number of judgements, including
assessing whether it has access to carry forward tax
losses and its forecast taxable income in the US for the
period during which the carry forward tax losses are
available for use. As a result, deferred tax assets of
$1.3 million in the US were no longer deemed to be
probable of utilisation and were written off during the
year.
•
•
•
•
assessed whether the US CGU appropriately
included all directly attributable assets and
liabilities
evaluated the Group’s plan for its assets in
the US CGU
evaluated the Group’s assessment of future
cash flows for the US CGU, including
consideration of the most recent budget
approved by the directors
evaluated the adequacy of the disclosures
made in note B1 and C7 including those
regarding key assumptions used in the
impairment assessment, in light of the
requirements of Australian Accounting
Standards.
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2021 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT
Key audit matter
In light of the Group’s decision to cease
production in the US, assessing the
appropriateness of recognising the impairment
expense and the derecognition of deferred tax
assets was a key audit matter due to the level of
judgement applied by the Group in forecasting
future cash flows, future taxable income and the
probability of the carry forward tax losses being
utilised.
How our audit addressed the key audit
matter
With regards to the deferred tax assets on unused tax
losses, we performed the following procedures,
amongst others:
•
•
Obtained the calculation of forecast taxable
income for the US CGU to evaluate the
Group’s conclusion that it is not probable that
sufficient taxable profit will be available,
prior to the expiry of unused tax losses,
against which a deferred tax asset could be
recognised
evaluated the adequacy of the disclosures
made in Note A5 in light of the requirements
of Australian Accounting Standards.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report for the year ended 30 June 2021, but does not include the
financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
56
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2021 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT
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.
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 the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of
our auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 8 to 16 of the directors’ report for the year
ended 30 June 2021.
In our opinion, the remuneration report of Orbital Corporation Limited for the year ended 30 June
2021 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.
PricewaterhouseCoopers
Ben Gargett
Partner
Perth
27 August 2021
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57
2021 ANNUAL REPORT SHAREHOLDING DETAILS
SHAREHOLDING DETAILS
Class of Shares and Voting Rights
As at 16 August 2021 there were 5,040 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 2021
UIL Limited
(as notified 13 April 2017)
Mitsubishi UFJ Financial Group, Inc.
Comprising voting power of 100% in First Sentier Investors Holdings Pty Ltd; and
voting power of over 20% in Morgan Stanley Australia Securities
(as notified 6 May 2021)
23,627,904
30.33%
11,283,347
8,779,248
2,504,099
14.48%
Distribution of Shareholdings as at 16 August 2021
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 unmarketable parcels
Top 20 Shareholders as at 16 August 2021
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
ANNAPURNA PTY LTD
MORGAN STANLEY AUSTRALIA SECURITIES (NOMINEE) PTY LIMITED
DEBUSCEY PTY LTD
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
BIRKETU PTY LTD
BNP PARIBAS NOMINEES PTY LTD
MR MICHAEL WILLIAM FORD & MRS NINA BETTE FORD
MR CHRISTOPHER IAN WALLIN & MS FIONA KAY MCLOUGHLIN & MRS SYLVIA FAY BHATIA
MR JOHN PAUL WELBORN & MS CAROLINE ANNE WELBORN
BNP PARIBAS NOMS PTY LTD
BOND STREET CUSTODIANS LIMITED
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20 WEEWAC PTY LTD
BNP PARIBAS NOMINEES PTY LTD SIX SIS LTD
MR TODD MATHEW ALDER
MR JOHN AYRES
TEXAS HOLDINGS PTY LTD
FUNDING SECURITIES PTY LTD
MR DARRYL JAMES SMALLEY
2,788
1,407
412
403
52
5,062
77,899,027
-
% OF
SHARES
33.70
13.31
3.38
3.02
2.37
2.34
1.87
1.45
1.39
0.88
0.87
0.71
0.64
0.59
0.48
0.46
0.42
0.39
0.39
NUMBER OF
SHARES HELD
26,254,202
10,368,180
2,635,000
2,355,415
1,850,000
1,822,558
1,455,688
1,132,541
1,086,672
689,200
679,103
555,793
500,000
460,853
372,333
356,667
325,000
307,249
300,000
Top 20 Shareholders Total
53,506,454
68.69
The 20 largest shareholders hold 68.85% of the ordinary shares of the Company (2020: 68.58%).
On-market share buy-back
There is no current on-market buy-back.
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58
2021 ANNUAL REPORT CORPORATE INFORMATION
| @OrbitalCorpASX
| OrbitalUAV
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
Telephone: +1 541.716.5930
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
F.K. Abbott
COMPANY SECRETARY
D. Bonomini
SHARE REGISTRY
Link Market Services Limited
Level 12, QV1 Building
250 St Georges Terrace
Perth, Western Australia 6000
Telephone: 61 (08) 9211 6670
SHARE TRADING FACILITIES
Australian Stock Exchange Limited (Code “OEC”)
AUDITORS
PricewaterhouseCoopers
125 St Georges Terrace
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