PTB Group Limited
Annual Report 2016

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PO Box 90 PINKENBA QLD 4008 22 Orient Avenue PINKENBA QLD 4008 t 61 7 3637 7000 f 61 7 3260 1180 P T B G R O U P L I M I T E D A N N U A L R E P O R T 3 0 J u n e 2 0 1 6 ANNUAL REPORT 30 June 2016 ABN 99 098 390 991 Corporate Directory and Information Directors Harvey Parker, Chairman Craig Baker, Managing Director and CEO Steve Ferris, Executive Director Stephen Smith, Executive Director Andrew Kemp, Non-executive Director Antony Sormann, Non-executive Director Company Secretary Daniel Zgrajewski Registered Office and Principal Administrative Office 22 Orient Avenue PINKENBA QLD 4008 Mailing Address PO Box 90 PINKENBA QLD 4008 Telephone: +61 7 3637 7000 Facsimile: +61 7 3260 1180 Share Registry Link Market Services Level 15, 324 Queen Street BRISBANE QLD 4000 Telephone: 1300 554 474 Facsimile: +61 7 3228 4999 Bankers Commonwealth Bank Business and Private Banking Level 21, 180 Ann Street Brisbane QLD 4000 Solicitors Talbot Sayer Lawyers Level 11, Brisbane Club Tower Post Office Square 241 Adelaide Street Brisbane QLD 4000 Auditor Hall Chadwick Qld Audit Level 19, 144 Edward Street Brisbane QLD 4000 Stock Exchange Listing The Company is listed on the Australian Securities Exchange ASX Code: PTB Internet address www.pacificturbine.com.au ANNUAL REPORT 30 June 2016 Annual Report for the year ended 30 June 2016 Table of Contents Corporate Directory and Information Inside Cover Chairman and Managing Director’s Review Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement Financial Statements and Notes Directors’ Declaration Independent Auditor’s Report Shareholder Information Company Statistics 2 7 19 20 31 86 87 89 90 This financial report covers PTB Group Limited a consolidated entity consisting of PTB Group Limited and its controlled entities. The financial report is presented in the Australian currency. PTB Group Limited is a public company limited by shares, incorporated and domiciled in Australia. 1 A N N U A L R E P O R T 2 0 1 6 I P T B G R O U P L M I T E D A N D C O N T R O L L E D E N T I T I E S 2 Chairman and Managing Director’s Review for the year ended 30 June 2016 1. Results 2016 net profit after tax for the Group is $2.567 million (2015: $1.963 million). Basic earnings per share are 6.08 cents (2015: 5.33 cents). Net tangible assets per share (NTA) are $0.70 (2015: $0.73). An interim fully franked dividend of 5 cents per share was paid in the year ended 30 June 2016 (2015: 5 cents per share). An analysis of the operational earnings is set out below and on the following pages. 2. The 2016 Year in Review A summary of the divisional contributions for the year is as follows: PTB Business IAP Business Emerald Assets Pacific Turbine USA Corporate Overheads Profit/(Loss) excluding FX and Write-downs Actual 2016 $’000 2,932 2,332 131 83 (1,285) 4,193 Actual 2015 $’000 2,579 (2,073) 3,966 - (863) 3,609 Actual 2014 $’000 3,339 575 533 - Actual 2013 $’000 4,099 280 (42) - (993) (1,275) 3,354 3,062 Foreign Exchange (FX) Write-downs (525) (629) (203) (618) - (290) (19,058) (1,859) Profit/(Loss) before Income Tax Expense 3,668 2,690 (15,907) 585 It was a very good year for PTB Group with the core improvement trading businesses driving an overall in results. This is particularly pleasing as the IAP and Emerald Assets businesses have historically relied on large trading deals to deliver positive results. The PTB Business had another solid year contributing $2.932 million to the Group result. The consistent results for this business are driven by long-term engine maintenance contracts with ongoing productivity improvements delivering the improved outcomes. The IAP Business returned a net profit before tax of $2.332 million. The improved result for this business was driven by: ■■ ■■ ■■ ■■ Increased aircraft lease revenue Improved sales margins Reduced staff and overhead costs Insurance payout from prior year incident This business is expected to continue to deliver positive results into the future. The Emerald Assets Business had a steady year with a net profit before tax of $0.131 million. This result was in line with expected returns from the aircraft managed by this business. Future returns for this business are forecast to reduce due to an acceleration of the depreciations rates for the ATP aircraft that this business operates. Pacific Turbine USA is a new business that operates with a similar business model to the PTB Business but is focused on the North American market. The development of this business is a key strategy for the Group. Pacific Turbine USA has returned a small profit from its first few months of operation. Profits will continue to grow as production levels and the customer base are established. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Chairman and Managing Director’s Review for the year ended 30 June 2016 (Continued) 3 3. Overview of Group Businesses PTB (Brisbane) business PTB is an aircraft engine business concentrating on the PT6 and TPE331 engines. The business sells engines, engine maintenance services and spare parts to a range of customers around the world. The business operates out of a purpose built facility at Pinkenba, near the Brisbane Airport. PTB’s engine management programs (PTB-EMProgram) are the main driver of its success and consistent returns. Under these programs, PTB provides a comprehensive engine management service in return for consistent monthly payments. These plans provide PTB with consistent cash flows and a continuous flow of engine sales, parts sales and workshop jobs. With the established production plan that contract customers provide, the business can extract maximum value from any opportunist bulk parts buys or engine opportunities that may arise. The small PT6A engine is the cornerstone of the PTB engine business. The focus on the PT6A engine has allowed PTB to build specialist knowledge and significantly reduce the whole of life costs of operating and maintaining these engines. The TPE331 engine is also a significant contributor to Brisbane’s profitability but it is a mature engine with a slowly declining operator base. PTB has a number of TPE331 engine management contracts, which assist the business to maintain profitability in line with the declining operator base. There continues to be organic growth opportunities for the PT6A Brisbane shop and the Group continues to invest in plant, people and processes that improve efficiencies and profitability. Our engine overhaul shops are primarily geared to produce engines for our contract customers. The business also searches out one-off trading opportunities in engines, aircraft and parts. These deals have led to significant profits in past years and are expected to continue to contribute into the future. IAP Businesss IAP is predominantly an aircraft spare parts business. The business operates out of a large warehouse in Warriewood, New South Wales. The business sells a large variety of airframe parts, aircraft engines and engine repair and overhaul services from its own vast stockholding and a comprehensive supplier network. The structure of the IAP Business was reviewed during the 2014-15 year and as a result, the administration and accounting functions were merged with the head office in Brisbane. This change has led to a significant reduction in overhead costs with no impact on sales. The IAP business is split into three divisions: Engines, Airframe Parts and Leasing. The Engine division is currently focused on the Rolls Royce Dart engines and there has been a steady flow of work with solid margins since Rolls Royce announced that it was discontinuing its support of this engine type. The knowledge in the engine division enables them to work across a number of turbine engine types and this knowledge will be valuable in evaluating future engine and product line opportunities. The Airframe division has focused on Fokker, SAAB and British Aerospace airframes. It also has a major role in supporting the lease customers of Emerald and IAP. The airframe segment will continue to extract returns from the sell down of the existing stock, while maintaining an appropriate level of stock to support lease customers. The business owns and leases three BAe Jetstream aircraft and owns two Fairchild Metro aircraft that are available for sale or lease. Emerald Assets Business The Emerald Assets business owns one ATP aircraft that is leased to a long-term customer. A second ATP was sold to the same customer on credit terms in 2014 and the business earns interest while also providing maintenance services for that aircraft. Proceeds from these contracts are used to pay down a significant amount of debt each year. Pacific Turbine USA Business Pacific Turbine USA is a new aircraft engine business that commenced trading in the second half of this year. The business is based around a similar model to the PTB business but is focused on the North American market. This business has a strategic supply agreement with a business in the USA that supplies the engine repair and overhaul services required to support customers in North America. The development of this business is a key strategy for the Group as it has the potential to provide a significant boost to the Group’s overall results. ANNUAL REPORT 2016 PTB GROUP LIMITED AND CONTROLLED ENTITIES 4 Chairman and Managing Director’s Review for the year ended 30 June 2016 (Continued) 4. Commentary on Operations for the Year PTB Business Performance The PTB business generated a profit before tax and foreign exchange losses of $2.932 million. The consistent results for the business are driven by the long-term engine maintenance contracts. The PT6 Workshop had a very good year with margins $1.1m ahead of the prior year. Productivity continued to improve throughout the year as the business came to grips with the additional requirements of the CASR Part 145 regulations for approved maintenance organisations. The results were also boosted by a number of high margin jobs for non-contract customers. The TPE331 Workshop had a reasonable year with margins slightly down compared to prior years but lower labour costs leading to an improved overall result. Engine sales had a reasonable year. While engine sales to non-contract customers were down on the prior year, the team was able to source a number of higher margin external jobs for the workshops. Parts sales to non-contract customers were $0.111 million higher than the previous year due to improved sales to wholesale customers. Despite the improvement, this business is still not delivering the expected results and further improvements will be expected in 2017. Parts sales to contract customers were slightly higher than the prior year. This business manages parts requirements for a range of contract customers. The business also leverages this relationship to gain additional sales of parts not covered by the contracts. Engine rental income for the year was slightly higher than the prior year. About half of the current rental engine pool is made up of engines on long-term leases to customers, with the remainder of the engines available for short-term rental to support contract and non-contract customers. Future opportunities in this area will be dependent on the availability of capital and/or the availability of surplus engines from production. IAP Business performance The IAP Business finished the year with a profit before tax and foreign exchange losses of $2.332 million. There were improvements across all of the core business areas as well as a couple of one-off items that further boosted the result. Margins from the core airframe parts and engine sales businesses were $0.501 million higher than the prior year with the airframe parts sales business showing the greatest improvement. These core businesses are expected to continue to produce consistent returns with a reduced dependence on one-off deals. Aircraft rentals were $0.322 million higher than the prior year due to the remainder of the Jetstreams returning to service at the start of the financial year. One of these aircraft was then sold late in the financial year with the net gain on disposal further contributing to the IAP result. The business still owns two Metro aircraft that are currently available for sale or lease. IAP also received a payout from insurers that related to damage to an aircraft a number of years ago. There had been no provision taken up for this, so it has provided a boost to the results in the 2016 year. Overhead costs were significantly lower than the prior year following the merger of the accounting and finance functions for the Group towards the end of the 2015 year. Emerald Assets The Emerald Assets business returned a profit before tax and foreign exchange gains of $0.131 million. Emerald owns one ATP that is on a long-term lease. The business also sold a second ATP to the same customer on credit terms in 2014. Emerald receives interest revenue and manages a maintenance contract for this aircraft. For the next few years the Emerald Assets business will continue to make close to break-even results from the lease, interest and the ATP maintenance contract. Funds will primarily be used to pay down debt. Pacific Turbine USA Profit before tax and foreign exchange losses for the new business are $0.075 million. The business started trading separately in February 2016 and is progressing well. Engines produced under the supply agreement with the USA shop have provided good financial outcomes and have helped to validate the concept. Costs to date have been kept to a minimum through the use of existing resources in the PTB business. Additional sales and administrative staff will be required as the business grows. The current focus for the business is sourcing the funding required to build up a stock of engines that can be either sold or used in the development of maintenance contracts. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Chairman and Managing Director’s Review for the year ended 30 June 2016 (Continued) 5 Corporate Overheads The Group’s corporate overheads were $1.285 million (2015: $0.863 million). The increase is due to the reallocation of administration and finance costs for the Group from the individual businesses to Corporate Overheads. 5. Debt and Equity Finance The Group has met all of its loan repayments and the CBA’s covenant requirements during the year. The Group refinanced one fixed interest rate US dollar loan with the CBA during the 2016 financial year. The Group also financed the annual insurance costs similarly to prior years. Total debt as at June 2016 has reduced to $13.687 million (2015: $15.675 million) with the weighted average interest rate also dropping to 5.62% (2015: 5.77%). Net debt is $11.705 million (2015: $11.875 million). The Group placed $0.700 million of shares to sophisticated investors in June 2016. The proceeds from this placement were used to pay the cash portion of the June 2016 dividend. This allowed the funds generated from operating activities to be used for growth initiatives including the Pacific Turbine USA business. 6. Statement of Financial Position and Net Assets The net asset position as at June 2016 has increased to $37.686 million (2015: $35.101 million). Included in net assets are: PTB Business Land and buildings Other fixed assets Spare parts Engines Work in progress Net maintenance contract receivables/(payables) Pacific Turbine USA Spare parts Engines Work in progress 2016 $’000 2015 $’000 3,157 3,184 627 617 5,065 6,283 8,936 9,278 2,966 2,815 3,093 (975) 413 1,284 762 - - - Net maintenance contract receivables are the net balance of all current engine maintenance contracts. A positive balance is generated where the PTB business has supplied more than the average volume of parts, mainly engines. This balance is carried forward and either reduced over time or becomes payable by the customer at the end of the contract. There is also a significant future tax asset balance related to carry forward tax losses for the Group. These assets are offset by borrowings, including bank overdrafts, of $13.687 million (2015:$15.675million). 7. Cash Flows 2016 $’000 2015 $’000 There was a net decrease in cash during 2016 of $1.372 million, compared to an increase of $3.594 million in 2015. The broad sources and applications of funds are set out below: Emerald Assets Business Aircraft assets 3,517 3,979 Extended credit receivables 1,704 2,789 IAP Business Land and buildings Aircraft Other fixed assets 3,758 3,813 5,114 5,878 37 57 Spare parts inventory 6,062 6,029 Sources Operating (excluding above average spend on maintenance contracts) Above average spend on maintenance contracts Net Operating Sale of Jetstream Aircraft Share placement 2016 $’000 5,739 (4,068) 1,671 1,043 700 ANNUAL REPORT 2016 PTB GROUP LIMITED AND CONTROLLED ENTITIES 6 Chairman and Managing Director’s Review for the year ended 30 June 2016 (Continued) Applications Capital spend (mainly aircraft & engines) Net Loan Repayments Dividend – cash portion Net Movement in Cash 2016 $’000 2,020 2,084 682 (1,372) As included in 5. above, there has been a significant movement in the net balance of maintenance contracts in the PTB Business. This has had a negative impact on current year cash flows as the business has supplied a much greater value of engines and parts to the contracts than the average expected over the term of the contracts. Improvements in operating performance across the Group have helped to offset the impact of this peak demand that is expected to reverse over the next two to three years. The business will continue to focus on improving cash generated from operating activities with the surplus used to fund growth in the Pacific Turbine USA business and pay dividends. The Group has continued to pay down loans during the year with all repayment and covenant requirements met. 8. PTB Group’s Outlook The current year results demonstrate the significant improvements that have been made in the core businesses of the Group. As a result of this, along with the greatly reduced debt level, the business has now switched its focus to growth opportunities. The Group will continue to drive progressive improvements in PTB and IAP, while extracting the maximum benefits from Emerald. The proceeds will be used to fund growth initiatives including the Pacific Turbine USA business. The business is also committed to paying consistent dividends. predominantly be used to pay down debt. For the next 12 months PTB Group will be focusing on: ■■ ■■ Building capacity in the Pacific Turbine USA business, including the buildup of engines for sale; Sourcing funding to achieve full production for Pacific Turbine USA; ■■ Developing the customer base and selling maintenance contracts for the Pacific Turbine USA business; ■■ Ongoing productivity improvements for the PTB PT6A repair and overhaul facility; ■■ Developing new management programs for PTB; (or renewing) engine ■■ ■■ ■■ ■■ Continuing to promote profitability in IAP by managing costs and focusing on sales; Focusing on turning inventory into cash across the Group; Deploying remaining idle aircraft through sale or lease; Developing funding opportunities for growth initiatives including Pacific Turbine USA and the funding of aircraft and engines. Harvey Parker Chairman The PTB business is expected to continue to make consistent profits from the existing maintenance contracts, while taking advantage of higher margin non- contract sales and one-off trading opportunities. Craig Baker Managing Director The IAP business is now in a much improved position and is generating surplus cash flows that can be used to support the growth initiatives for the Group. The Emerald business should return close to break-even results from the remaining ATP lease, hire purchase interest and maintenance contract. Excess funds will be ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Directors’ Report for the year ended 30 June 2016 7 Your Directors present the financial report of PTB Group Limited and its controlled entities (“the Group”) for the year ended 30 June 2016. Directors The following persons were Directors in office at any time during or since the end of the year: Name H Parker CL Baker RS Ferris Position Director (non-executive), Chairman Managing Director (Group) Director (executive) APS Kemp Director (non-executive) NFJ Bolton A Sormann SG Smith Director (non-executive) – resigned 18 November 2015 Director (non-executive) – appointed 2 December 2015 Director (executive) – appointed 23 May 2016 Principal Activities The principal activities of the Group during the financial year were the provision of the following services in relation to aviation assets: ■■ ■■ ■■ ■■ A specialist Pratt & Whitney PT6A and Honeywell TPE331 turbine engine repair and overhaul business based at Brisbane, Australia; Trading operations in Australia and internationally in aircraft airframes, turbine engines, and related parts; The provision of finance for aircraft and turbine engines sold to customers; and The lease, rental, or hire of aircraft and turbine engines to customers. There have been no significant changes in the nature of these activities during the year not otherwise disclosed in this report. Review of Operations Background The Company performed: ■■ ■■ ■■ Specialist turbine engine repair and overhaul based at Brisbane, Australia; Trading operations in Australia and internationally in aircraft turbine engines and related parts; and The provision of finance for PT6A and TPE331 turbine engines for customers. The Company listed on the Stock Exchange of Newcastle Ltd (NSX) in March 2005. In September 2006 it acquired IAP Group for $13.8 million. IAP Group is a Sydney based niche aviation asset management company providing aircraft inventory support, encompassing: ■■ ■■ Global supply of aviation parts; and Global aircraft and engine financing and sales. Its business operations were highly complementary to PTB Group’s business. Steve Ferris, the founder of IAP Group, took approximately 80 per cent of the consideration as PTB Group shares and now holds approximately 22 per cent of the expanded Group. In October 2006 the Company announced it had acquired the aircraft and associated parts of the UK companies, Emerald Airways Ltd and Emerald Airways Engineering Ltd, for approximately $16.25 million. In December 2006 the Company moved from the NSX to the ASX. In conjunction with this move the Company issued 2.5 million shares at $2 each to raise $5 million. This followed capital raisings totalling $7.9 million earlier in the period to fund part of the IAP Group and Emerald assets acquisitions. In June 2007 a USD 40 million financing and rental fund was created with debt provided by an Australian financial institution. The purpose of the fund was to acquire and refurbish a diverse array of aviation assets for resale or lease. By this time, PTB Emerald had also refurbished and delivered one of the ATP and three of the HS748 freighters to European customers. A brief summary of the years ended June 2008 to June 2015 as the Company dealt with the global financial crisis and its aftermath is set out below: PTB Group Limited (“PTB”) was established in 2001, when it was incorporated to acquire the Brisbane assets of Pacific Turbine Pty Ltd ACN: 079 166 653. It focused on providing services in relation to the Pratt & Whitney PT6A and Honeywell TPE331 light turbine engines. FY 2008: ■■ Global financial crisis; ■■ Decision made to sell aircraft rather than use the rental fund and Delay in settlement by a Middle Eastern customer on two of the LFD ATP aircraft ANNUAL REPORT 2016 PTB GROUP LIMITED AND CONTROLLED ENTITIES 8 Directors’ Report for the year ended 30 June 2016 (Continued) impacted on the interest and holding costs of the Emerald project. FY 2009: The sale of the two LFD ATP aircraft did not proceed as the customer defaulted; ■■ Debt of $4.5 million paid down; and ■■ ■■ ■■ ■■ ■■ ■■ ■■ The effect of the financial crisis continued to impact on global passenger and freight activity, creating a fall in aircraft values, the inability to source financing, and significant oversupply of aircraft which leasing opportunities; limited sale and The Group was forced to renegotiate the $14.7 million Emerald loan to an amortising facility over four years at a more expensive interest rate; The facility was moved to AUD at request of the Financier causing a $2.4 million currency loss; The USD $40 million facility was lapsed as the Group was unable to secure profitable projects within its risk profile; As part of the strategic consolidation of its operations, the Company settled on the Belmont Land resulting in a profit of $1.9m (booked in the 2008 year); subsidiary Aeropelican Air Services an RPT operator based at Newcastle Airport was sold; the $4.5 million Unsecured Note facility was rolled over; and, a purpose built workshop and office complex in Brisbane was completed; and the existing ANZ financing facilities were extended; Prior to the 2009 year end, the two LFD ATP aircraft were also sold to an Indonesian freight operator on an extended credit type of arrangement; and ■■ Decision made to reduce the scope of the UK refurbishment facility. FY 2010: ■■ ■■ PTB engine maintenance contracts expanded; and Continued strengthening of Australian dollar. FY 2011: ■■ ■■ Substantial increase in operating performance of PTB Division; Good IAP Division result with one-off trading events contributing strongly; ■■ Refinanced $4.6 million of Note finance by $4 million CBA Bank facility. FY 2012: ■■ ■■ ■■ Good operational progress made with the PTB Business and progress made in refocussing the IAP Business; Cash flow from operations up to $5.4 million; and $3.5 million of debt paid down and $8.4 million of debt converted to USD to better match with USD receivables. FY 2013: ■■ ■■ ■■ ■■ ■■ PTB Business signed a 5 year extension to the engine maintenance contract with its largest customer; Improved operating results from core businesses across the Group; Sale of ATP aircraft to existing customer. Accounting loss offset by cash benefit; $4.1 million of debt paid down; and Fully franked 5.1 cent per share dividend paid. FY 2014: ■■ Emerald financier debt refinanced by CBA leading to a profit on settlement of approximately $3.6 million; ■■ MD 90 project in Indonesia (purchase of aircraft for part-out and sale) was settled, financed on a profit share basis by an international aviation group; ■■ One of the Metro aircraft leased into South Korea; fourth J32 aircraft deployed with NSW RPT operator; ■■ ■■ ■■ ■■ $19.8 million write-down of assets in IAP and Emerald; Rationalisation of aircraft assets in Emerald with four sold, one broken down into parts and one placed on lease; Focus on building PT6 overhaul capacity to service contracts; $1.6 million of debt paid down. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Directors’ Report for the year ended 30 June 2016 (Continued) 9 FY 2015: ■■ ■■ ■■ ATP aircraft written-off following incident in Indonesia. Cash payout received from lessee’s insurer with net cash and accounting gain. IAP overhead Administration functions merged with PTB. review with Finance and Additional requirements from CASA Part 145 impact PTB Workshop productivity and net results. These issues were mostly resolved by the end of the financial year. A detailed discussion and analysis of the 2016 year’s performance has been provided in the Chairman and Managing Director’s Review included in this annual report. Operating Results The consolidated net profit after tax was $2.567 million (2015: $1.963 million profit). Financial Position The net assets of the Group are $37.686 million as at 30 June 2016 (2015: $35.101 million). Dividends A fully franked dividend of 5 cents per share was declared and paid for the 30 June 2016 financial year (2015: 5 cents per share). Franking Credits Franking credits available for subsequent financial years based on a tax rate of 30 per cent are $9.336 million (2015: $10.236 million). Significant Changes in State of Affairs There were no significant changes in the state of affairs of the Group not otherwise disclosed in this report. After Balance Date Events No matters or circumstances have arisen since the end of the financial year which have significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future. Future Developments, Prospects and Business Strategies Over recent years the Group has focused on improving the profitability of its core businesses through rationalising underperforming assets and building on long-term, mutually beneficial relationships with customers. While the core business improvement strategies continue, the Group is now shifting its focus towards growth opportunities. The primary growth strategy is the development of the engine business in America through Pacific Turbine USA. The plan is to sell PT6 engines, parts and management programs similar to the PTB business. The strategic relationship with the established engine shop in the USA has allowed the new business to commence operations very quickly with no fixed capital requirements and greatly reduced risk. The main requirement for this business is working capital to pay for the overhaul and repair services and to purchase parts required to build engines. The Group is investigating various funding options to allow the business to reach full production capacity. The aim is to produce a stock of engines for sale/rental/lease or for use in the development of engine management programs. Other than as detailed in the Chairman and Managing Director’s Review, the Directors have excluded from this report any further information on the likely developments in the operations of the Group and the expected results of those operations in future financial years, as the Directors have reasonable grounds to believe that it would be likely to result in unreasonable prejudice to the Group. Environmental Issues The Group operates from Brisbane and Sydney (including Bankstown Airport) in Australia. It is required to meet Brisbane Airport Corporation environment regulations and the Commonwealth’s Airports (Environment Protection) Regulations 1997. The Group also has administration and warehouse facilities in a number of locations subject to relevant legislation. There have been no non-compliances to date while the Group has operated from these various locations. Information on Current Directors Harvey Parker Dip P.A, B.A. MBA (Melb) (Non- Executive Chairman) Harvey Parker was born in 1943 and has had a distinguished career spanning several industries. He has experience in the aviation industry as Managing Director of New Zealand Post and the Airpost Joint Venture. Presently he is the Chairman and also serves on the audit and remuneration committees of the Company. He was formerly Chairman of Jumbuck Entertainment Limited (resigned October 2014), Chairman of Australian Natural Proteins Ltd (resigned October 2013) and Chairman of DWS Limited (resigned February 2014). He has held no other Director positions with listed companies in the last three years. ANNUAL REPORT 2016 PTB GROUP LIMITED AND CONTROLLED ENTITIES 10 Directors’ Report for the year ended 30 June 2016 (Continued) Craig Baker CA, BCA (Managing Director – Group) Antony Sormann BEcon/LLB, GDipAppFinInv (Non-Executive Director) Craig Baker was born in 1946 in New Zealand. He has had extensive experience in the aviation industry and is a qualified accountant having been involved in aviation businesses as a General Manager, Director and Finance Manager for over 35 years. Craig’s duties involve the overall management of the Group. He has held no Director positions with other listed companies in the last three years. Royston Stephen (Steve) Ferris B.Sc (Executive Director) Steve Ferris was born in the UK in 1960. He graduated from Bristol University in 1981 with a Bachelor of Science. He incorporated the IAP Group in 1987 and has grown the company in a successful manner by utilising his vast knowledge of the aviation industry. Steve is based in Sydney and is a consultant to PTB Group Limited. He has held no Director positions with other listed companies in the last three years. Andrew Kemp B.Com, CA (Non-Executive Director) Andrew graduated in Commerce from the University of Melbourne and is a Chartered Accountant. After working for KPMG and Littlewoods Chartered Accountants in Melbourne and Sydney, he joined AIFC, the merchant banking affiliate of the ANZ Banking Group, in Sydney in 1978. From 1979 until 1985, Andrew was Queensland Manager of AIFC. Andrew joined the North Queensland based Coutts Group as General Manager early in 1985, and continued with this group until January 1987 when he formed Huntington Group. Since 1980, Andrew has been involved in a range of listings, acquisitions and divestments. He has structured and implemented the ASX listing of eleven companies. He has also advised clients on a wide range of investments and divestments over the last 25 years. Andrew is currently a Director of Silver Chef Limited (from April 2005). He was a director of G8 Education Limited (March 2011 to March 2015) and Trojan Equity Limited (May 2005 to March 2013). Andrew is a member of the audit and remuneration committees of the Company. Antony Sormann was appointed as a Non-Executive Director on 2 December 2015. Antony is an Executive Director of Keybridge Capital Limited, a significant shareholder of PTB Group Limited, and has over 18 years of experience in investment banking including nine years as a Director of SLM Corporate and six years working in the investment banking division of NM Rothschild & Sons (Australia) Limited, of which two years were as an executive in the Rothschild Group’s New York office. He holds bachelor degrees in law and economics from Monash University and a Graduate Diploma of Applied Finance and Investments from the Securities Institute of Australia. Antony is currently also a Non-Executive Director of Molopo Energy Limited. Stephen Garry Smith (Executive Director) Stephen Smith was appointed as an Executive Director on 23 May 2016. Stephen was a founding shareholder and Director of PTB Group Limited and has fulfilled a number of key roles within the company including Commercial Sales Manager and Director of Sales and Marketing. Through these roles, Stephen has been a key contributor to the strategic direction and growth of the company. Prior to his involvement with the company, Stephen had significant experience in the aviation industry as both a helicopter and fixed wing operator. Stephen has held no Director positions with other listed companies in the last three years. Company Secretary Daniel Zgrajewski was appointed as the Chief Financial Officer and Company Secretary effective from 27 November 2013. Daniel holds a Bachelor of Business from Queensland University of Technology and is a Certified Practicing Accountant. Daniel has over 20 years of experience in finance and has worked in a number of roles in commercialised segments of Brisbane City Council. These roles included Commercial Accountant for Brisbane CityWorks and Principal Financial Accountant for Brisbane Water. Audit & Risk Management Committee Chairman Russell Cole B.Com, FCA is the independent Chairman of the Audit and Risk Management Committee. Russell graduated from the University of Queensland with a Bachelor of Commerce and is a Chartered Accountant and Registered Company Auditor. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Directors’ Report for the year ended 30 June 2016 (Continued) 11 Russell has over 25 years’ experience in public practice as a Chartered Accountant specialising in the corporate in audit, risk sector with significant experience management and corporate governance. He has spent 15 years as an audit & assurance partner of national accounting firms with a particular focus on emerging listed companies. Remuneration Report (Audited) The remuneration report is set out under the following main headings: A Key management personnel B Principles used to determine the nature and amount of remuneration C Details of remuneration D Service contracts E Share-based payment compensation F Additional information The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. A. Key management personnel The directors and other key management personnel of the consolidated entity during or since the end of the financial year were: Non-executive directors Mr H Parker Chairman, Non-executive director Mr A P S Kemp Non-executive director Mr N F J Bolton Mr A Sormann Non-executive director - resigned 18 November 2015 Non-executive director from 2 December 2015 Executive officers Mr C L Baker Executive Director Mr R S Ferris Executive Director Mr SG Smith Executive Director from 23 May 2016 Mr D Zgrajewski Company Secretary and CFO Except as noted, the named persons held their current position for the whole of the financial year and since the end of the financial year. B. Principles used to determine the nature and amount of remuneration Non-executive Directors Non-executive Directors are to be paid out of Company funds as remuneration for their services, such sum as accrues on a daily basis as the Company determines to be divided among them as agreed, or failing agreement, equally. The maximum aggregate amount which has been approved by shareholders for payment to non- executive Directors is $100,000 per annum. Directors’ remuneration for their services as Directors is by a fixed sum and not a commission or a percentage of profits or operating revenue. It may not be increased except at a general meeting in which particulars of the proposed increase have been provided in the notice convening the meeting of shareholders. There is provision for Directors who devote special attention to the business of the Company or who perform services which are regarded as being outside the scope of their ordinary duties as Directors, or who at the request of the Board engage in any journey on Company business, to be paid extra remuneration determined by the Board. Directors are also entitled to their reasonable travel, in accommodation and other expenses attending Company or Board meetings, or meetings of any committee engaged in the Company’s business. Any Director may be paid a retirement benefit as determined by the Board, consistent with the Corporations Act 2001 and the ASX Listing Rules. incurred Executive and Key Management Pay The remuneration committee is responsible for advising the Board on remuneration and issues relevant to remuneration policies and practices including those of senior management and executive Directors. The committee has responsibility for reviewing and evaluating market practices and trends in relation to remuneration, recommending remuneration policies, overseeing the performance and making recommendations on remuneration of members of senior management and executive Directors. Remuneration in each case is taken as including not only monetary payments (salaries), but all other non- monetary emoluments and benefits, retirement benefits, superannuation and incentive programs. In each case the committee refers to the general market and industry practice (as far as directly relevant benchmarks can be identified for comparative purposes) and the need to attract and retain high caliber personnel. Compensation in the form of cash bonuses for ANNUAL REPORT 2016 PTB GROUP LIMITED AND CONTROLLED ENTITIES 12 Directors’ Report for the year ended 30 June 2016 (Continued) Executive Directors during the financial year (2015: Nil). Other Executives and Key Management Personnel Other Executives and key management personnel’s pay and reward framework includes base pay and short-term incentives. There are no fixed performance criteria for the cash bonuses. After the end of the financial year the remuneration committee assesses the performance of individuals and, where appropriate, approves discretionary cash bonuses to be paid to the individuals. Cash bonuses are paid following approval by the remuneration committee. Long-term incentives to Executives and Employees In order to provide a long-term incentive to the executives and employees of the Company, an Employee Share Option Scheme (“the Scheme”) is in place. The incentive provided by the scheme will be of material benefit to the Company in encouraging the commitment and continuity of service of the recipients. By providing executives and employees with a personal financial interest in the Company, the Company will be able to attract and retain Executive Directors, key Executives and employees in a highly competitive market. This is expected to result in future benefits accruing to the shareholders of the Company. The establishment of the Scheme was approved by shareholders on 3 June 2005. All staff are eligible to participate in the scheme, including Executive Directors (since they take part in the management of the Company). As advised in the following “Section E Share-Based Payment Compensation” no options were issued under the scheme during the year (2015: Nil). Company Performance, Shareholder Wealth and Directors’ and Executive Remuneration The base salaries for the executives are substantially in accordance with the market for executives of similar levels. executives and key management personnel is designed to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive and key management reward with achievement of strategic objectives and creation of value for shareholders in terms of return on equity, and conforms to market practice for delivery of reward. The Board ensures that executive and key management reward satisfies the following key criteria for good reward governance practices: ■■ ■■ ■■ ■■ ■■ Competitiveness and reasonableness; Acceptability to shareholders; Performance alignment of compensation; Transparency; and Capital management. Executive Directors The Executive Directors’ pay and reward framework has the following components: ■■ ■■ Base pay and benefits, including superannuation; and Short-term performance incentives. Base pay: Structured as a total employment cost package which may be delivered as a combination of cash and prescribed non-financial benefits at the Executive Director’s discretion. Base pay is reviewed annually and benchmarked against inflation. Superannuation: Executive Directors’ base pay includes statutory and salary sacrificed superannuation contributions. incentives: Short-term performance Cash bonus incentives are based on pre-determined after tax return on equity and operational targets based on the criteria detailed above, as set by the remuneration committee. The bonuses are paid in October each year. The pre- determined targets ensure that variable reward is only available when value has been created for shareholders, and when profit and operational objectives are consistent with the business plan. Each Executive Director has a target short-term incentive opportunity depending on the accountabilities of the role and impact on the organisation or business unit performance. The maximum target bonus opportunity is 33 per cent of base pay. As advised in the following “Section C. Details of Remuneration”, no short term incentives were paid to ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Directors’ Report for the year ended 30 June 2016 (Continued) C. Details of Remuneration 13 The remuneration for each Director and other key management personnel of the Company and the Group was as follows: Short - term benefits Post - employment Other Total Share- based payment Cash salary and fees $ Cash bonus $ Non- monetary benefits Super- annuation Long- term benefits* Termination Benefits Options $ $ $ $ $ $ 33,000 - - - - - 33,000 - 292,358 - - 30,751 2,789 - - 325,898 38,648 - - - - - - 38,648 163,987 - - 15,633 (11,376) 21,800 - - - - - - 168,244 - - 21,800 12,347 - - - - - - 12,347 8,385 - - - - - - 8,385 2016 Year Directors H Parker (Non-Executive Director) CL Baker (Managing Director - Group) SG Smith (Executive Director – 23/05/16 to 30/06/16) RS Ferris ( Executive Director) APS Kemp (Non- Executive Director) A Sorrmann (Non- executive Director – 2/12/15 to 30/06/16) NFJ Bolton (Non- Executive Director – 1/07/15 to 18/11/15) Total Directors 570,525 - - 46,384 (8,587) - - 608,322 Other Key Management Personnel D Zgrajewski (Company Secretary and CFO) 183,835 3,000 - 23,672 - - - 210,507 Total Other Key Management Personnel 183,835 3,000 - 23,672 - - - 210,507 2015 Year Directors H Parker (Non-Executive Director) CL Baker (Managing Director - Group) RS Ferris (Managing Director - IAP) APS Kemp (Non-Executive Director) NFJ Bolton (Non-Executive Director – 11/11/14 to 30/06/15) 33,000 - - - - - - 33,000 284,071 - - 31,424 16,091 - - 331,586 357,270 - - 34,386 24,570 - - 416,226 21,800 - - - - - - 21,800 13,827 - - - - - - 13,827 Total Directors 709,968 - - 65,810 40,661 - - 816,439 Other Key Management Personnel D Zgrajewski (Company Secretary and CFO) 177,879 4,000 Total Other Key Management Personnel 177,879 4,000 * Comprising accrued long service leave - - 17,254 17,254 - - - - - 199,133 - 199,133 ANNUAL REPORT 2016 PTB GROUP LIMITED AND CONTROLLED ENTITIES 14 Directors’ Report for the year ended 30 June 2016 (Continued) There were no other executives in the current or prior year. All Directors and other key management personnel are employed by PTB Group Limited except for Mr. R. S Ferris and Mr. S G Smith who are consultants to PTB Group Limited. Cash bonuses were paid during the current and prior year to non-key management personnel. No specific service or performance criteria were used to determine the amount of the bonuses. D. Service Contracts Major provisions of service agreements with Executive Directors and other key management personnel as at 30 June 2016 are set out below: C L Baker (Managing Director – Group) ■■ ■■ ■■ Term of agreement – 1 January 2016 to 31 December 2016; Base annual salary – $328,080 excluding superannuation; and Notice period – Termination by three months’ notice in writing by either party other than for gross misconduct. R S Ferris (Executive Director – Consultant) ■■ ■■ ■■ Commencement date of consultancy agreement - 1 January 2016; Service fee – $1,455 per day; and Notice period – Termination by 24 hours’ notice in writing by either party other than for gross misconduct. D Zgrajewski (Company Secretary and Chief Financial Officer) ■■ ■■ ■■ Term of agreement – Three years commencing 22 November 2013; Base annual salary – $190,000 excluding superannuation; and Notice period – Termination by three months’ notice in writing by either party other than for gross misconduct. No other key management personnel are subject to service agreements. E. Share-based Payment Compensation remuneration options were granted to key No management personnel, exercised or lapsed during this or the prior financial year. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Directors’ Report for the year ended 30 June 2016 (Continued) F. Additional Information 15 The number of shares in the company held during the financial year by each Director of PTB Group Limited and other key management personnel of the Group, including their personally related parties, are set out below. There were no shares granted during the current or previous year as compensation. Balance at the start of the year Issued as purchase consideration Received during the year on the exercise of options Other changes (on-market purchases & DRP) Balance at date of appointment / resignation Balance at the end of the year Number Number Number Number Number Number 2016 Directors H Parker CL Baker RS Ferris SG Smith APS Kemp NFJ Bolton A Sormann 409,171 2,833,527 9,221,049 - 828,222 8,343,802 - - - - - - - - - - - - - 56,830 393,547 - - - - 466,001 3,227,074 9,221,049 183,517 2,209,317 2,392,834 115,035 - 943,257 - 8,343,802 N/A 1,158,862 8,343,802 9,502,664 Other Key management personnel of the Group D Zgrajewski 50,077 2015 Directors H Parker CL Baker RS Ferris APS Kemp NFJ Bolton 343,175 2,356,505 7,733,783 649,635 - - - - - - - Other Key management personnel of the Group - 6,956 65,996 477,022 1,487,266 178,587 - - - - - - - - - - 57,033 409,171 2,833,527 9,221,049 828,222 1,345,775 6,998,027 8,343,802 D Zgrajewski - - - 50,077 - 50,077 Loans to key management personnel There were no loans to Directors of PTB Group Limited or other key management personnel of the Group during the current or previous reporting period. Other transactions with key management personnel (KMP) and/or their related parties During 2015, Steve Ferris advanced funds to IAP to fund the purchase of a package of parts. The loan was repaid in full during the year ended 30 June 2016. There was no interest payable on this advance. The balance outstanding as at 30 June 2016 for this advance was nil (2015: $270,615). ANNUAL REPORT 2016 PTB GROUP LIMITED AND CONTROLLED ENTITIES 16 Directors’ Report for the year ended 30 June 2016 (Continued) All transactions were under normal commercial terms and conditions, unless otherwise stated. No bad or doubtful debts expense has been, or is likely to occur, from transactions with related parties. A Director, Mr. R S Ferris, is the sole shareholder and sole director of IAP Engineering Pty Ltd (Engineering) and he is also a shareholder of Horizon Airlines Engineering Pty Ltd (Horizon). During the year IAP sold parts to Horizon and Horizon provided aircraft maintenance services to IAP on normal commercial terms. During the period 1 January 2016 to 30 June 2016 Mr. Ferris provided consultancy services to IAP through Engineering and IAP rented out part of the hangar at Bankstown Airport to Engineering on normal commercial terms. Mr. R S Ferris was the major shareholder of Skyforce Aviation Pty Ltd (Skyforce) which was placed in liquidation on 19 January 2015. There were no transactions between Skyforce and IAP during 2016. During 2015 IAP sold parts and provided aircraft maintenance services to Skyforce and Skyforce provided aircraft maintenance services to IAP. The parts sold and services provided were invoiced at market rates. Aggregate amounts of each of the above types of other transactions with key management personnel of the Group are as follows: Amounts invoiced by IAP to Engineering Rental for hangar, airport parking fees and other costs Amounts invoiced by Engineering to IAP Consultancy services rendered by Mr. Ferris Amounts invoiced by IAP to Horizon Sale of parts to Horizon Amounts invoiced by Horizon to IAP 2016 2015 $ 47,393 33,465 21,388 $ - - - Provision of aircraft maintenance services to IAP 11,818 13,473 Amounts invoiced by IAP to Skyforce Sale of parts to Skyforce Amounts invoiced by Skyforce to IAP Provision of aircraft maintenance services to IAP Interest paid on Director’s loan - - - 80,808 132,812 205,272 Aggregate amounts receivable/payable arising from the above types of transactions with key management personnel of the Group: – current borrowings – non-current borrowings - 270,615 - - There were no other transactions conducted between the Group and KMP or their related parties, other than those disclosed above relating to equity, compensation and loans, that were conducted other than in accordance with normal employee, customer or supplier relationships on terms no more favourable than those expected under arm’s length dealings with unrelated persons. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Directors’ Report for the year ended 30 June 2016 (Continued) 17 Details of remuneration: cash bonuses and options Indemnification and Insurance of Directors, Officers and Auditors Any grant of options and cash bonuses are discretionary. No options or bonuses were granted during the year. Share-based compensation: options There were no options granted during the year. As at 30 June 2016 there are no options on issue. Share Options Shares Issued on Exercise of Options There were no options outstanding as at the commencement of the financial year and no options were issued during the year ending 30 June 2016. No options were issued subsequent to year end. Shares Under Option During or since the end of the financial year, the Company has not given any indemnity or entered into any agreement to indemnify, or paid or agreed to pay insurance premiums in relation to an officer or auditor, except as detailed below. The Company has Directors and Officers insurance in place for all Directors and officers of the Company. This insurance insures any person who is or has been an officer of the Company against certain liabilities in respect of their duties as an officer of the Company, and any other payments arising from or in connection with such proceedings, other than where such liabilities arise from conduct involving a willful breach of duty. The policy prohibits disclosure of details of the cover and the amount of the premium paid. At the date of this report, PTB Group Limited has no unissued ordinary shares under option. Proceedings on Behalf of the Company Loans to Directors and Executives There are no loans to Directors and executives. Meetings of Directors No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Attendances by each Director during the financial year were as follows: 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 2001. Number of Meetings Held While a Director Number of Meetings Attended Non-Audit Services Full Board H Parker CL Baker APS Kemp RS Ferris NFJ Bolton A Sormann SG Smith Remuneration Committee H Parker APS Kemp NFJ Bolton Audit and Risk Management Committee H Parker APS Kemp 13 13 13 13 5 7 2 2 2 - 4 4 13 13 13 13 5 7 2 2 2 - 4 4 The Company may decide to employ the auditor on assignments additional to statutory audit duties where the auditor’s expertise and experience with the Company are important. The Board of Directors has considered the position and, in accordance with the advice received from the audit committee is satisfied that the provision of non-audit services, if any, during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. During the year no non-audit service fees were paid or payable for services provided by the auditor of the company (2015: Nil). The lead auditor’s independence declaration is set out on page 19 and forms part of the Directors’ Report for the year ended 30 June 2016. Hall Chadwick Qld Audit continues in office in accordance with Section 327 of the Corporations Act 2001. ANNUAL REPORT 2016 PTB GROUP LIMITED AND CONTROLLED ENTITIES 18 Directors’ Report for the year ended 30 June 2016 (Continued) Rounding of Amounts The Company is of a kind referred to in legislative instrument 2016/191, relating to the “rounding off” of amounts in the Directors’ report. Amounts in the Directors’ report have been rounded off in accordance with that legislative instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. This report is made in accordance with a resolution of the Directors. H Parker Chairman Brisbane 23 August 2016 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Auditor’s Independence Declaration for the year ended 30 June 2016 19 Level 19/144 Edward St Brisbane Queesnland 4000 GPO Box 389 Brisbane Queesnland 4001 07 3221 2416 Telephone 07 3221 8341 Facsimile hallchadwickassociation.com.au Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 to the directors of PTB Group Limited I declare that, to the best of my knowledge and belief during the year ended 30 June 2016 there have been no contraventions of: (i) the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Geoffrey Stephens Director HALL CHADWICK QLD AUDIT Dated this 23rd day of August 2016 ANNUAL REPORT 2016 PTB GROUP LIMITED AND CONTROLLED ENTITIES 20 Corporate Governance Statement for the year ended 30 June 2016 Corporate Governance describes the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled within corporations. It encompasses the mechanisms by which companies, and those in control, are held to account. Good corporate governance promotes investor confidence which is crucial to the ability of the group to compete for capital. The ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations 3rd Edition recommends eight core corporate governance principles for entities listed on the ASX that, in the Council’s view are likely to achieve good governance outcomes and meet the reasonable expectations of most investors in most situations. The Recommendations are not mandatory and do not seek to prescribe the corporate governance practices that a listed entity must adopt. Under Listing Rule 4.10.3 PTB is required to provide a statement disclosing the extent to which it has followed the Recommendations. Where a Recommendation has not been followed, this fact must be disclosed together with the reasons for the departure. This PTB Group Corporate Governance Statement is structured with reference to the Council’s Principles and Recommendations. Principle 1: Lay solid foundations for management and oversight. A listed entity should establish and disclose the respective roles and responsibilities of its board and management and how their performance is monitored and evaluated. Recommendation 1.1 A listed entity should disclose: Complies: YES (a) the respective roles and responsibilities of its board and management; and (b) those matters expressly reserved to the board and those delegated to management. Recommendation 1.2 A listed entity should: Complies: YES (a) undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a director; and (b) provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director. Recommendation 1.3 Complies: YES A listed entity should have a written agreement with each director and senior executive setting out the terms of their appointment. Recommendation 1.4 Complies: YES The company secretary of a listed entity should be accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board. Recommendation 1.5 A listed entity should: Complies: NO (a) have a diversity policy which includes requirements for the board or a relevant committee of the board to set measurable objectives for achieving gender diversity and to assess annually both the objectives and the entity’s progress in achieving them; (b) disclose that policy or a summary of it; and (c) disclose as at the end of each reporting period the measurable objectives for achieving gender diversity set by the board or a relevant committee of the board in accordance with the entity’s diversity policy and its progress towards achieving them, and either: (1) the respective proportions of men and women on the board, in senior executive positions and across the whole organisation (including how the entity has defined “senior executive” for these purposes); or (2) if the entity is a “relevant employer” under the Workplace Gender Equality Act, the entity’s most recent “Gender Equality Indicators”, as defined in and published under that Act. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Corporate Governance Statement for the year ended 30 June 2016 (Continued) 21 Recommendation 1.6 A listed entity should: Complies: YES (a) have and disclose a process for periodically evaluating the performance of the board, its committees and individual directors; and (b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. risk management and internal compliance and control, codes of ethics and conduct, and legal and statutory compliance; (e) Monitoring senior management’s performance and implementation of strategy; (f) Approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestures; and (g) Approving and monitoring financial and other reporting and the operation of committees. Recommendation 1.7 A listed entity should: Complies: YES Responsibilities of the Managing Director and Senior Management The Managing Director and other senior executives are responsible for: (a) have and disclose a process for periodically its senior evaluating the performance of executives; and (b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. Responsibility of the Board Responsibility for the Company’s corporate governance rests with the Board. The Board’s guiding principle in meeting this responsibility is to act honestly, conscientiously and fairly, in accordance with the law, in the interests of PTB Group’s shareholders (with a view to building sustainable value for them) and those of employees and other stakeholders. The Board’s broad function is to: a) Chart strategy and set financial targets for the Company; b) Monitor the implementation and execution of strategy and performance against financial targets; and c) Appoint and oversee the performance of executive management and generally to take and fulfil an effective leadership role in relation to the Company. Power and authority in certain areas is specifically reserved to the Board – consistent with its function as outlined above. These areas include: (a) Composition of the Board itself including the appointment and removal of Directors; (b) Oversight of its the Company strategy, operational performance, controls and accountability systems; including a) Developing corporate strategy, performance targets, budgets, and business and operational plans for review and ratification by the Board; b) Developing, implementing, and maintaining appropriate policies, procedures, and practices for the management and control of the business; and c) Execution of the overall corporate strategy and business plans, and the day to day management of operations. Board Charter and Policy The Board has adopted a charter which will be kept under review and amended from time to time as the Board may consider appropriate to give formal recognition to the matters outlined above. The last amendment was in June 2015. This charter sets out various other matters that are important for effective corporate governance including the following: a) A detailed definition of ‘independence’; b) A framework for the identification of candidates for appointment to the Board and their selection; c) A framework for individual performance review and evaluation; d) Proper training to be made available to Directors both at the time of their appointment and on an on-going basis; e) Basic procedures for meetings of the Board and its committees: frequency, agenda, minutes and private discussion of management issues among non-executive Directors; (c) Appointment and removal of senior executives and the Company Secretary; f) Ethical standards and values: formalised in a (d) Reviewing, ratifying, and monitoring systems of detailed code of ethics and values; ANNUAL REPORT 2016 PTB GROUP LIMITED AND CONTROLLED ENTITIES 22 Corporate Governance Statement for the year ended 30 June 2016 (Continued) g) Dealings in securities: as per the Group’s Securities Trading Policy last updated on 22 December 2010 that is lodged with the ASX; and h) Communications with shareholders and the market. Appointment of Board Members When a vacancy exists, through whatever cause, or where the Board considers that it would benefit from the services of a new member with particular skills, the Board considers a panel of candidates identified and selected by the Board having regard to: a) what may be appropriate for the Company and the Group; b) the skills, expertise and experience of the candidates; c) the mix of those skills, expertise and experience with those of the existing Directors; and d) the perceived compatibility of the candidates with the Group and with the existing Directors Potential candidates to be appointed as Directors are considered by the Board with advice from an external consultant as considered by the Board to be appropriate. The Board then appoints the most suitable candidates who (assuming that they consent to act as Directors) continue in office only until the next AGM and are then eligible for re-election but are not taken into account in determining the number of Directors to retire by rotation at the AGM. Security holders are provided with all material information in the company’s possession relevant to a decision on whether or not to elect or re- elect a director The terms and conditions of the appointment of all new members of the Board must be specified in a letter of appointment. Diversity Policy The Board aims to create a corporate culture that embraces diversity by applying transparent merit based principles to recruitment, training and promotion opportunities. It supports employment flexibility and employee career development and recognises the importance of creating an environment that is conducive to the appointment of suitably qualified employees, management and Board candidates who will maximise the achievement of the corporate goals. recommendations issued by ASX Best practice recommend a separate disclosure of measurable objectives for measuring gender diversity and the proportion of women employees in the whole organisation, in senior positions and on the Board. The Board is of the view that given the size of the Company and of the Board, it is considered that setting diversity targets and measurement systems are not appropriate and hence PTB Group does not fully comply with this guideline. Board and Committee Evaluation Process The performance of the Board, its committees, and individual Directors is evaluated annually by the Chairman in accordance with the Company’s Corporate Governance Charter. This review includes the mix and experience and skills represented, the effectiveness of Board processes, and the performance and contribution of individual members in terms of the execution of the required Board functions as described above, for the relevant year. Members of the Board whose performance is unsatisfactory are asked to retire. The Charter is available on the Company’s website. It is considered that an informal annual evaluation of the performance of the Board, its committees and the Directors by the Chairman is appropriate given the size and complexity of the business. Service Agreements with Senior Management and Company Secretary Senior Management Evaluation Process The terms of appointment of senior management are documented in a service agreement. Key details of service agreements with key management personnel are detailed in the remuneration report forming part of the Directors’ report in the annual report. The terms of appointment of the company secretary are documented in a service agreement including that the company secretary is accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board. The process for evaluating the performance of senior management includes a process of annual appraisals measuring performance against goals and key performance indicators including contributions to the overall outcomes of the business. Performance evaluations have taken place in accordance with the process disclosed. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Corporate Governance Statement for the year ended 30 June 2016 (Continued) 23 Principle 2: Structure the board to add value. A listed entity should have a board of an appropriate size, composition, skills and commitment to enable it to discharge its duties effectively. Recommendation 2.1 The board of a listed entity should: Complies: YES (a) have a nomination committee which: (1) has at least three members, a majority of whom are independent directors; and (2) is chaired by an independent director, and disclose: (3) the charter of the committee; (4) the members of the committee; and Recommendation 2.3 A listed entity should disclose: Complies: YES (a) the names of the directors considered by the board to be independent directors (b) if a director has an interest, position, association or relationship of the type described in Box 2.3 but the board is of the opinion that it does not compromise the independence of the director, the nature of the interest, position, association or relationship in question and an explanation of why the board is of that opinion; and (c) the length of service of each director. Recommendation 2.4 Complies: NO A majority of the board of a listed entity should be independent directors. (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or Recommendation 2.5 Complies: YES The chair of the board of a listed entity should be an independent director and, in particular, should not be the same person as the CEO of the entity. (b) if it does not have a nomination committee, disclose that fact and the processes it employs to address board succession issues and to ensure that the board has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively. Recommendation 2.6 Complies: YES A listed entity should have a program for inducting new directors and provide appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their role as directors effectively. Recommendation 2.2 Complies: YES A listed entity should have and disclose a board skills matrix setting out the mix of skills and diversity that the board currently has or is looking to achieve in its membership. Nominations Committee recommendations issued by ASX Best practice recommend a separate Nominations Committee to assist the Board and report to it on selection and appointment issues and practices including those for senior management and non-executive Directors. Given the size of the Company and of the Board the separate Nominations Committee has not been continued and the responsibility for this function now rests with the Board . ANNUAL REPORT 2016 PTB GROUP LIMITED AND CONTROLLED ENTITIES 24 Corporate Governance Statement for the year ended 30 June 2016 (Continued) Composition of the Board The Board performs its role and function in accordance with the following principles: a) The Board should comprise at least three and no more than 10 Directors; b) The Board must comprise of members with a broad range of experience, expertise, skills and contacts relevant to the Company and its business; c) At least half of the Board should be non-executive Directors independent from management; and d) The Chairman of the Board should be one of the independent non-executive Directors. At 30 June 2016 the Board comprised six members including H Parker (appointed 10/10/2001), an independent non-executive Chairman, APS Kemp (appointed 25/08/2006) an independent non- executive Director, A Sormann (appointed 2/12/2015) a non-executive director and C Baker (appointed 9/10/2001), RS Ferris (appointed 21/09/2006) and SG Smith (appointed 23/05/16) who are executive Directors. The Board is of the view that the current composition of the Board is adequate to ensure the best interests of shareholders given the size and nature of the Company’s operations. In addition, the Chairman has the deciding vote at any meetings where a vote is initially tied. Independence of Board Members The Board has adopted the following definition of an Independent Director: An independent Director is a Director who is not a member of management (a non executive Director) and who: a) is not a substantial shareholder of the Company or an officer of, or otherwise associated, directly or indirectly, with a substantial shareholder of the Company; b) has not, within the last three years, been employed in an executive capacity by the Company or another Group member, or been a Director after ceasing to hold any such employment; c) is not a principal of a professional advisor to the Company or another Group member, or an employee materially associated with the service provided, except in circumstances where the advisor might be considered to be independent notwithstanding their position as a professional advisor due to the fact that fees payable by the Company to the advisor’s firm represent an insignificant component of its overall revenue; d) is not a significant supplier or customer of the Company or another Group member, or an officer of or otherwise associated, directly or indirectly, with a significant supplier or customer; e) has no significant contractual relationship with the Company or another Group member other than as a Director; f) is free from any interest and any business or other relationship, which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Company; and g) has not served on the Board for a period which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Company. The Board regularly assesses the independence of each Director in the light of the interests disclosed by them. The independence of Directors is disclosed in the annual report. Where the independence of a Director is lost, this will be immediately disclosed to the market. Of the six Company Directors, Harvey Parker and Andrew Kemp are independent non-executive Directors. Together the Directors have a broad range of experience, expertise, skills, qualifications and contacts relevant to the business of the Company. The Board composition does not comply with recommendation 2.4 of the ASX Corporate Governance Guidelines as the majority of Directors are not independent Directors. The Board has adopted the following measures to ensure that independent judgement is achieved and maintained in respect of its decision-making processes: ■■ The Chairman is an independent non-executive Director; ■■ Directors are entitled to seek independent professional advice at the Company’s expense, subject to the approval of the Chairman; ■■ Directors having a conflict of interest in relation to a particular item of business must absent themselves from the Board meeting before commencement of discussion on the topic; and Non-executive Directors confer on a needs basis without management in attendance. ■■ ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Corporate Governance Statement for the year ended 30 June 2016 (Continued) 25 The size and complexity of the business does not warrant additional Directors at the present time. Best practice commitment Board Skills Matrix A Board skills matrix has been adopted by the board of PTB Group Limited (PTB) to ensure the board maintains an appropriate mix of skills, knowledge, experience, personal attributes and other criteria appropriate for the governance of the Group. The PTB Board is a skills-based board comprising directors who collectively have the skills, knowledge and experience to effectively govern and direct the organisation including governance skills, industry skills and personal attributes. The Board skills matrix is reviewed and assessed annually as part of the board evaluation process. Individual board member skills are updated annually as part of the director evaluation process. A summary of skills, experience and special responsibilities of each director is disclosed in the Directors’ Report included in the annual report. Induction of New Directors, Training and Advice Directors are provided with relevant information in relation to the Company and the Group before accepting appointment, and also with a relevant induction package on accepting appointment, in each case appropriate for them to discharge their responsibilities in office. Directors are provided with access to continuing education in relation to the Group extending to its business, the industry in which it operates, and generally information required by them to discharge the responsibilities of their office. Each Director has the right to seek independent legal or other professional advice at the Company’s expense. Prior approval from the Chairman is required but may not be unreasonably withheld or delayed. Principle 3: Act ethically and responsibly A listed entity should act ethically and responsibly Recommendation 3.1 A listed entity should: Complies: YES (a) have a code of conduct for its directors, senior executives and employees; and (b) disclose that code or a summary of it. The Company is committed to achieving and maintaining the highest standards of conduct and has undertaken various initiatives that are designed to achieve this objective. The PTB Group’s Corporate Governance Charter is intended to ‘institutionalise’ good corporate governance and, generally, to build a culture of best practice both in the Company’s own internal practices and in its dealings with others. The Charter is available on the Company’s website. The following are a tangible demonstration of the Company’s corporate governance commitment: Independent professional advice With the prior approval of the Chairman, which may not be unreasonably withheld or delayed, each Director has the right to seek independent legal and other professional advice concerning any aspect of the Company’s operations or undertakings in order to fulfil their duties and responsibilities as Directors. Any costs incurred are borne by the Company. Code of conduct for transactions in securities The Company has developed and adopted a Securities Trading Policy (lodged with the ASX) to regulate dealings in securities by Directors, senior management, employees and their associates. This is designed to ensure fair and transparent trading in accordance with both the law and best practice. Charter The Board has adopted a Code of Ethics in its Corporate Governance Charter that sets out the principles and standards with which all Group officers and employees are expected to comply in the performance of their respective functions. Officers and employees are expected to: ■■ ■■ ■■ ■■ ■■ Comply with the law; Act honestly and with integrity; Reduce the opportunity for situations to arise which result in divided loyalties or conflicts of interest; Use PTB Group’s assets responsibly and in the best interests of its shareholders; and Be responsible and accountable for their actions. Senior management immediately investigates possible failures to comply with the principles of ethical and responsible conduct, employing the use of third party expertise where necessary. The appropriate level of disciplinary action is applied where departures from these principles are confirmed. ANNUAL REPORT 2016 PTB GROUP LIMITED AND CONTROLLED ENTITIES 26 Corporate Governance Statement for the year ended 30 June 2016 (Continued) Principle 4: Safeguard integrity in corporate reporting Recommendation 4.3 Complies: YES A listed entity should have formal and rigorous processes that independently verify and safeguard the integrity of its corporate reporting. A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available to answer questions from security holders relevant to the audit. Complies: No, 4.1(a) (1) and 4.1(a) (2) not complied with) Recommendation 4.1 The board of a listed entity should: (a) have an audit committee which: (1) has at least three members, all of whom are non-executive directors and a majority of whom are independent directors; and (2) is chaired by an independent director, who is not the chair of the board, and disclose: Audit and Risk Management Committee (‘ARM Committee’) The purpose of this Committee is to advise on the establishment and maintenance of a framework of internal control and appropriate ethical standards for the management of the Company. Its current members are Russell Cole (Independent External Chairman of ARM Committee), Harvey Parker (Independent Non- Executive Director) and Andrew Kemp (Independent Non-Executive Director). The Committee performs a variety of functions relevant to risk management and internal and external reporting and reports to the Board following each meeting. Other matters for which the Committee is responsible include the following: (3) the charter of the committee; a) Board and committee structure to facilitate a (4) the relevant qualifications and experience of the members of the committee; and (5) in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have an audit committee, disclose that fact and the processes it employs that independently verify and the integrity of its corporate reporting, including the processes for the appointment and removal of the external auditor and the rotation of the audit engagement partner. safeguard Recommendation 4.2 Complies: YES The board of a listed entity should, before it approves the entity’s financial statements for a financial period, receive from its CEO and CFO a declaration that, in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. proper review function by the Board; b) Internal control framework including management information systems; c) Corporate risk assessment and compliance with internal controls; d) Management processes supporting external reporting; e) Review of financial statements and other financial information distributed externally; f) Review of the effectiveness of the audit function; g) Review of the performance and independence of the external auditors; h) Review of the external audit function to ensure prompt remedial action by management, where appropriate, in relation to any deficiency in, or breakdown of, controls; i) Assessing the adequacy of external reporting for the needs of shareholders; j) Overseeing business continuity planning and risk mitigation arrangements. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Corporate Governance Statement for the year ended 30 June 2016 (Continued) 27 Meetings are held four times each year. A broad agenda is laid down for each regular meeting according to an annual cycle. The Committee invites the external auditors to attend each of its meetings. PTB Group’s Managing Director and Chief Financial Officer report in writing to the ARM Committee that: ■■ ■■ ■■ the The Company’s financial reports are complete and present a true and fair view, in all material financial condition and respects, of operational results of the Company and Group, and are in accordance with relevant accounting standards; The above statement is founded on a sound system of internal compliance and control which implements the policies adopted by the Board; and The Company’s risk management and internal compliance and control framework is operating efficiently and effectively in all material respects. risk management and While recommendation 4.1 requires all members to be non-executive directors, the chairman of the ARM Committee is not a director of the company but has been appointed because of his specialist expertise in financial reporting, governance and audit related matters and for his independence. The Charter is available on the Company’s website and the names, qualifications, and the number of meetings attended has been disclosed in the Directors’ Report included in the annual report. The Company’s auditor attends the AGM of the Company and is available to answer questions in relation to the audit of the financial report. Continuous Disclosure Obligations in accordance with the Documented procedures Corporate Governance Charter are in place to identify matters that are likely to have a material effect on the price of the Company’s securities and to ensure those matters are notified to the ASX in accordance with the Company’s Listing Rule disclosure requirements. The Managing Director and Chief Financial Officer are responsible for monitoring the Company’s activities in light of its continuous disclosure policy. The Company’s continuous disclosure obligations are also reviewed as a standing item on the agenda for each regular meeting of the Board. Each Director is required at every such meeting to confirm details of any matter within their knowledge that might require disclosure to the market. is responsible The Company Secretary for all communications with the ASX. All communications with external stakeholders in respect of sensitive company information are subject to the relevant safeguarding and confidentiality procedures. These communications are undertaken light of continuous disclosure requirements of the ASX and the broad principles of ensuring the market is fully informed of price sensitive information. in Principle 6: Respect the rights of security holders A listed entity should respect the rights of its security holders by providing them with appropriate information and facilities to allow them to exercise those rights effectively. Recommendation 6.1 Complies: YES Principle 5: Make timely and balanced disclosure A listed entity should provide information about itself and its governance to investors via its website. A listed entity should make timely and balanced disclosure of all matters concerning it that a reasonable person would expect to have a material effect on the price or value of its securities. Recommendation 5.1 A listed entity should: Complies: YES (a) have a written policy for complying with its continuous disclosure obligations under the Listing Rules; and (b) disclose that policy or a summary of it. Recommendation 6.2 Complies: YES A listed entity should design and implement an investor relations program to facilitate effective two-way communication with investors. Recommendation 6.3 Complies: YES A listed entity should disclose the policies and processes it has in place to facilitate and encourage participation at meetings of security holders. ANNUAL REPORT 2016 PTB GROUP LIMITED AND CONTROLLED ENTITIES Corporate Governance Statement for the year ended 30 June 2016 (Continued) 28 Recommendation 6.4 Complies: YES A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically. Shareholder Communications The Board recognises the importance of this principle and strives to communicate with shareholders both regularly and clearly, both by electronic means and using more traditional communication methods. Company information, news, announcements, reporting results and main corporate governance documents are available on the Company’s website. Shareholders are encouraged to attend and participate at general meetings and are given an opportunity to put forward questions they would like addressed at annual general meetings. The Company’s auditors will always attend the annual general meeting and will be available to answer shareholders’ questions. Principle 7: Recognise and manage risk A listed entity should establish a sound risk management framework and periodically review the effectiveness of that framework. Complies: NO 7.1(a) (1) & 7.1(a) (2) not complied with. Refer disclosure under Rec- ommenda- tion (4) Recommendation 7.1 The board of a listed entity should: (a) have a committee or committees to oversee risk, each of which: (1) has at least three members, a majority of whom are independent directors; and (2) is chaired by an independent director, and disclose: (3) the charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (6) if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the processes it employs for overseeing the entity’s risk management framework. Recommendation 7.2 The board or a committee of the board should: Complies: YES (a) review the entity’s risk management framework at least annually to satisfy itself that it continues to be sound; and (b) disclose, in relation to each reporting period, whether such a review has taken place. Recommendation 7.3 A listed entity should disclose: Complies: YES (a) if it has an internal audit function, how the function is structured and what role it performs; or (b) if it does not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes. Recommendation 7.4 Complies: YES A listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks. Risk Management The Board is responsible for oversight of the Group’s risk management and control framework. The ARM Committee assists the Board in fulfilling its responsibilities in this regard by reviewing the financial and reporting aspects of the Group’s risk management and control framework. The Group has implemented a policy framework included in the Corporate Governance Charter, designed to ensure that the Group’s risks are identified and that controls are adequate, in place, and functioning effectively. incorporates the maintenance of This framework comprehensive policies, procedures and guidelines that encompass the Group’s activities. It addresses areas such as, occupational health and safety, environmental management, trade practices, IT disaster recovery and business continuity planning. Responsibility for control ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 29 Recommendation 8.1 Complies: NO 8.1(a)(1) not com- plied with The board of a listed entity should: (a) have a remuneration committee which: (1) has at least three members, a majority of whom are independent directors; and (2) is chaired by an independent director, and disclose: (3) the charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate and not excessive. Recommendation 8.2 Complies: YES A listed entity should separately disclose its policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and other senior executives. Recommendation 8.3 Complies: YES A listed entity which has an equity-based remuneration scheme should: (a) have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and (b) disclose that policy or a summary of it. Corporate Governance Statement for the year ended 30 June 2016 (Continued) and risk management is delegated to the appropriate level of management within the Group with the Managing Director and Chief Financial Officer having ultimate responsibility to the Board for the Group’s risk management and internal control activities. Arrangements put in place by the Board to monitor risk management include: ■■ ■■ ■■ ■■ Regular monthly reporting to the Board in respect of operations and the financial position of the Group; Reports by the Chairman of the ARM Committee and circulation to the Board of the minutes of each meeting held by the ARM Committee; Presentations made to the Board throughout the year by appropriate members of the Group’s management independent advisers, where necessary) on the nature of particular risks and details of the measures which are either in place or can be adopted to manage or mitigate the risk; and Any Director may request that operational and project audits be undertaken by management. (and/or team The risk management framework included in the Audit and Risk Management Committee Charter is available on the Company’s website and is reviewed at least annually. The last review was in June 2016. Internal Audit importance The company currently does not have an internal audit function. Considerable is placed on maintaining a strong control environment both financially and operationally. The audit committee and the board continue to monitor the need for an internal audit function as the business grows and through the independent expertise on the audit committee in conjunction with reporting from external auditors and industry certification audits which regularly evaluate the effectiveness of its risk management and internal control processes. Economic, Sustainability Risks Environmental and Social The group is not subject to any material exposure to economic, environmental and social sustainability risks. Principle 8: Remunerate fairly and responsibly A listed entity should pay director remuneration sufficient to attract and retain high quality directors and design its executive remuneration to attract, retain and motivate high quality senior executives and to align their interests with the creation of value for security holders. ANNUAL REPORT 2016 PTB GROUP LIMITED AND CONTROLLED ENTITIES 30 Corporate Governance Statement for the year ended 30 June 2016 (Continued) Remuneration Committee The purpose of this Committee is to assist the Board and report to it on remuneration and issues relevant to remuneration policies and practices including those for senior management and non-executive Directors. These policies are included in the Company’s Corporate Governance Charter. Its current members are Harvey Parker (Chairman) and Andrew Kemp. Harvey Parker and Andrew Kemp are independent Directors and its composition does not fully comply with the recommendations in 8.1 of the ASX Corporate Governance Guidelines as it has less than three members. The Board believes these matters are acceptable given the size of the Company, the nature of its business and the commercial experience of the members. Among the functions performed by the Committee are the following: a) Review and evaluation of market practices and trends on remuneration matters; b) Recommendations to the Board in relation to the Company’s remuneration policies and procedures; the performance of senior c) Oversight of management and non-executive Directors; and d) Recommendations to the Board in relation to the remuneration of senior management and non- executive Directors. The Company’s polices relating to Non-Executive Directors’ and Executive Directors and Senior Executives’ remuneration are set out in the annual report. It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality Board and executive team by remunerating Directors and key executives fairly Equity-Based Remuneration Scheme The Company does not currently operate an equity- based remuneration scheme. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Consolidated Statement Of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2016 31 Revenue Total Revenue Note 2 2016 $’000 2015 $’000 43,170 43,170 35,996 35,996 Changes in inventories of finished goods and work in progress 327 2,296 Raw materials and consumables used and finished goods purchased for sale (28,085) (24,603) Employee benefits expense Depreciation and amortisation Repairs and maintenance Bad and doubtful debts Finance costs Net foreign exchange gain/(loss) Net gain/(loss) on sale of property, plant and equipment Impairment of aircraft Other expenses Total expenses Profit/(Loss) before income tax expense Income tax (expense)/benefit Profit/(Loss) for the year attributable to the owners of the parent entity Other comprehensive income net of tax Total comprehensive income/(loss) for the year attributable to the owners of the parent entity Basic earnings per share Diluted earnings per share (5,608) (2,030) (92) 569 (1,013) (525) 200 - (3,245) (39,502) 3,668 (1,101) 2,567 - (6,161) (1,445) (52) (1,518) (1,286) (629) 4,060 (286) (3,682) (33,306) 2,690 (727) 1,963 - 2,567 1,963 Cents 6.08 6.08 Cents 5.33 5.33 3 4 20 20 The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 32 Consolidated Statement Of Financial Position as at 30 June 2016 Current Assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total Current Assets Non-Current Assets Trade and other receivables Property, plant and equipment Deferred tax assets Intangible assets Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Borrowings Current tax liabilities Provisions Other current liabilities Total Current Liabilities Non-Current Liabilities Borrowings Deferred tax liabilities Provisions Other non-current liabilities Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued Capital Reserves Retained earnings Total Equity Note 19(a) 5 6 8 5 9 10 11 12 13 7 15 16 13 14 15 16 17 18 2016 $’000 2015 $’000 1,982 7,707 21,440 212 31,341 2,779 20,260 4,918 4,334 32,291 63,632 6,328 1,798 - 713 1,217 10,056 11,889 3,438 449 114 15,890 25,946 37,686 3,800 5,616 21,113 444 30,973 1,955 20,820 4,970 4,334 32,079 63,052 6,249 3,535 - 849 1,447 12,080 12,412 2,388 509 562 15,871 27,951 35,101 33,896 13,956 (10,166) 37,686 31,778 13,956 (10,633) 35,101 The consolidated statement of financial position should be read in conjunction with the accompanying notes. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Consolidated Statement Of Changes in Equity for the year ended 30 June 2016 33 Issued Capital Reserves Note Share Capital Other Equity Securities Total Issued Capital Dividend Appropriation Reserve Retained Earnings Total Equity $’000 $’000 $’000 $’000 $’000 $’000 Balance at 1 July 2014 30,184 183 30,367 13,956 (10,767) 33,556 Total comprehensive income: Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners and other transfers Contributions of equity net of transaction cost Transfer to reserves Dividend recognised for the year - - - 17 18 27 1,411 - - - - - - - - - - - 1,411 - - - - - - - - 1,963 1,963 - - 1,963 1,963 - - 1,411 - (1,829) (1,829) Balance at 30 June 2015 31,595 183 31,778 13,956 (10,633) 35,101 Balance at 1 July 2015 31,595 183 31,778 13,956 (10,633) 35,101 Total comprehensive income: Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners and other transfers Contributions of equity net of transaction cost Transfer to reserves Dividend recognised for the year - - - 17 18 27 2,118 - - - - - - - - - - - 2,118 - - - - - - - - 2,567 2,567 - - 2,567 2,567 - - 2,118 - (2,100) (2,100) Balance at 30 June 2016 33,713 183 33,896 13,956 (10,166) 37,686 The consolidated statement of changes in equity should be read in conjunction with the accompanying notes. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 34 Consolidated Statement Of Cashflows for the year ended 30 June 2016 2016 Note $’000 2015 $’000 Cash Flow From Operating Activities Cash receipts from customers Cash payments to suppliers and employees Interest received Finance costs Income tax (paid)/ refund Net cash provided by operating activities 19(b) Cash Flow From Investing Activities Payments for property, plant and equipment Proceeds on disposal of property, plant and equipment Net cash (used in)/ provided by investing activities Cash Flow From Financing Activities Proceeds from borrowings Proceeds from issue of shares Repayment of borrowings Repayment of lease liabilities Payment of dividends 40,514 36,997 (38,022) (34,813) 192 (1,013) - 1,671 285 (1,286) - 1,183 (2,020) (4,268) 1,043 (977) 8,469 4,201 178 700 (2,262) - 3,257 - (4,595) (34) 27 (682) (418) Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents held Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 19(a) 2,066 (1,372) 3,354 1,982 (1,790) 3,594 (240) 3,354 The consolidated statement of cash flows should be read in conjunction with the accompanying notes. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 35 1. Summary of Significant Accounting Policies (b) Principles of consolidation The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes the financial statements for PTB Group Limited as the consolidated entity consisting of PTB Group Limited and its subsidiaries. (a) Basis of preparation These general purpose financial statements have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board and International Financial Reporting Standards as issued by the International Accounting Standards Board. This Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless stated otherwise. Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non- current assets, financial assets and financial liabilities. The Financial Statements were authorised by the Board of Directors for issue on 23 August 2016. Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through the statement of profit or loss and other comprehensive income, and certain classes of property, plant and equipment. Critical accounting estimates The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 1(ad). The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of PTB Group Limited (“company” or “parent entity”) as at 30 June 2016 and the results of all subsidiaries for the year then ended. PTB Group Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity. The parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. For details of the subsidiaries refer note 28. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de- consolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group (refer note 1(i)). Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (c) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Directors. (d) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘functional currency’). The consolidated financial statements are presented in Australian dollars, which is PTB Group Limited’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 36 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 1. Summary of Significant Accounting Policies(continued) (d) Foreign currency translation (continued) denominated in foreign currencies are recognised in the statement of profit or loss and other comprehensive income, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges, or are attributable to part of the net investment in a foreign operation. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences on non-monetary assets and liabilities such as equities held at fair value through the statement of profit or loss and other comprehensive income are recognised in the statement as part of the fair value gain or loss. Translation differences on non- monetary financial assets such as equities classified as available-for-sale financial assets are included in the fair value reserve in equity. (iii) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: ■■ ■■ ■■ Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position; Income and expenses for each statement of profit or loss and other comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and All resulting exchange differences are recognised in the Consolidated Statement of Profit or Loss. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are recognised in the statement of profit or loss and other comprehensive income statement, as part of the gain or loss on sale where applicable. (e) Revenue recognition is measured at the fair value of the Revenue consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates, and amounts collected on behalf of third parties. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. Revenue is recognised for the major business activities as follows: ■■ ■■ ■■ ■■ ■■ Revenue from the sale of goods is recognised when persuasive evidence exists that the significant risks and rewards of ownership of the goods have passed to the buyer, the consideration can be measured reliably and collectability is probable. Risks and rewards are considered passed to the buyer at time of delivery to the customer or where an executed sales agreement, or an arrangement exists, indicating there has been a transfer of the risks and rewards to the customer, the goods are complete and available to be dispatched; Revenue from repairs is recognised at the time the service is performed; Revenue from the sale of goods and provision of services under maintenance contracts is recognised in accordance with the stage of completion method unless the outcome of the contract cannot be reliably estimated. When the outcome of the contract cannot be reliably estimated, contract costs are recognised as an expense as incurred, and where it is probable that costs will be recovered, revenue is recognised to the extent of costs incurred; Interest on extended credit receivables (under hire purchase agreements) recognised progressively by the Group over the hire purchase term to achieve a constant periodic rate of return on the carrying amount of the receivable (being the Group’s net investment in the hire purchase arrangement); recognised on a basis Rental representative of the time pattern in which the benefit of use derived from the asset is diminished. For engines rental, income is recognised based on an hourly rate and hours of usage. For aircraft rental, income is recognised on a straight-line basis over the lease term; income is is ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 37 (f) Unearned revenue Tax consolidation legislation includes amounts received in Unearned revenue advance from customers. Such amounts are recorded as revenue in the statement of profit or loss and other comprehensive income when the above revenue recognition criteria are met. (g) Income tax The income tax expense for the year is the tax payable on the current year’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. the implemented PTB Group Limited and its wholly-owned Australian controlled entities have tax consolidation legislation effective 1 July 2008. The head entity, PTB Group Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a standalone taxpayer in its own right. In addition to its own current and deferred tax amounts, PTB Group Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from, or payable to, other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. PTB Group limited may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current intercompany receivables or payables. (h) Leased assets Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity respectively. As lessor Amounts due from lessees under finance leases are recorded as receivables. Finance lease receivables are initially recognised at amounts equal to the net investment in the lease. Finance lease payments receivable are allocated between interest revenue and reduction of the lease receivable over the term of the lease in order to reflect a constant periodic rate of return on the net investment outstanding in respect of the lease. For operating leases, the leased asset (rental engines and aircraft) is classified as a non-current asset and depreciated in accordance with the depreciation policy set out in note 1(p). Rental income from operating leases is recognised as set out in note 1(e). ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 38 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 1. Summary of Significant Accounting Policies (continued) (h) Leased assets (continued) As lessee Assets held under finance leases are initially recognised at their fair value or, if lower, at amounts equal to present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation, net of finance charges. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged income, unless they are directly directly against attributable to qualifying assets, in which case they are capitalised in accordance with the consolidated entity’s general policy on borrowing costs. Refer to note 1(t). Finance leased assets are amortised on a diminishing value basis over the estimated useful life of the asset. Refer note 1(p). Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. (i) Business combinations The acquisition method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, equity liabilities instruments incurred or assumed at the date of exchange. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. issued or Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree, and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit and loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. (j) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (cash generating units). (k) Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. (l) Trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are due for settlement in 30 to 90 days. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 39 Collectability of receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the provision is recognised in the statement of profit or loss and other comprehensive income. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. (m) Inventories Loans and receivables are initially recognised at fair value plus transaction costs and subsequently carried at amortised cost using the effective interest method. The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. Losses are recognised in the statement of profit or loss and other comprehensive income and reflected in an allowance account. When an event occurring after the impairment was recognised causes the amount of the impairment loss to decrease the decrease in impairment loss is reversed through the statement of profit or loss and other comprehensive income. When the Directors are of the view that collection is no longer possible and the recovery action has ceased the amount in the allowance account is offset against the loan or receivable. Raw materials, work in progress, and finished goods Fair value estimation Inventories are stated at the lower of cost and net realisable value. Costs are assigned to individual items of stock by specific identification. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Inventories are classified as non-current assets if the asset is expected to be realised in a period greater than twelve months from balance date. (n) Other financial assets loans and The Group classifies its financial assets in the following categories: financial assets at fair value through the statement of profit or loss and other comprehensive receivables, held-to-maturity income, investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date. The Group has no financial assets at fair value through investments or profit and available-for-sale financial assets. loss, held-to-maturity Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance date which are classified as non-current assets. Loans and receivables are included in trade and other receivables in the statement of financial position. The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price. The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Quoted market prices or dealer quotes for similar instruments are used for long- term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. (o) Leasehold improvements The cost of improvements to or on leasehold properties is amortised over the unexpired period of the lease or the estimated useful life of the improvement to the Group, whichever is the shorter. Refer note 1(p). ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 40 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 1. Summary of Significant Accounting Policies (continued) (p) Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of profit or loss and other comprehensive income during the financial period in which they are incurred. Increases in the carrying amounts arising on revaluation of land and buildings are credited, net of tax, in other comprehensive income and to the revaluation reserve in shareholders’ equity. Decreases that reverse previous increases of the same asset are first recognised in other comprehensive income to the extent of the remaining surplus attributable to the asset, all other decreases are to profit or loss. Land is not depreciated. Depreciation on other assets is generally calculated on a straight-line (SL) or diminishing value (DV) basis so as to allocate the cost, net of residual values, of each item of property, plant and equipment (excluding land and rental engines) over its estimated useful life to the Group. For rental engines, depreciation is based on the estimated operating hours. The line item in the statement of profit or loss and other comprehensive income in which the depreciation and amortisation of property, plant and equipment is included is ‘depreciation and amortisation’. The estimated useful lives are as follows: Class Buildings Leasehold improvements Leasehold improvements - leased Plant and equipment Plant and equipment – leased Rental engines Airframes Life 40 years 5 years 6 years 3 - 10 years 6 - 8 years Basis SL SL SL DV DV 5,500 - 7,000 hours Actual hours as a proportion of estimated total operating hours 6-10 years SL Certain items of plant and equipment, primarily rental engines, are required to be overhauled on a regular basis. This is managed as part of an ongoing major cyclical maintenance program. The costs of this maintenance are charged as expenses as incurred, except where they relate to the replacement of a component of an asset, in which case the costs are capitalised and depreciated in accordance with the above. The carrying amount of the replaced part is de-recognised. Other routine operating maintenance, repair and minor renewal costs are also charged as expenses as incurred. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1 (j)). Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the statement of profit or loss and other comprehensive income. When re-valued assets are sold, it is Group policy to transfer the amounts included in revaluation reserves in respect of those assets to retained earnings. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 41 (q) Intangibles Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of the acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised. Instead it is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to the cash generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash- generating units that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segments (note 26).. Computer software incurred in acquiring software and Costs licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. Costs capitalised include external direct costs of materials and service, direct payroll and payroll related costs of employees’ time spent on the project. Computer software has a finite life and is carried at cost less any accumulated amortisation and any impairment losses. Computer software is amortised on a straight-line basis over its estimated useful life. The line item in the statement of profit or loss and other comprehensive income in which the amortisation of computer software is included is ‘depreciation and amortisation’ expense. (r) Trade and other payables Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost. These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. (s) Borrowings paid on the establishment of loan facilities, which are not an incremental cost relating to the actual draw- down of the facility, are recognised as prepayments and amortised on a straight-line basis over the term of the facility. Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in ‘other income’ or ‘other expense’. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance date (t) Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. The amount of borrowing costs capitalised is determined as the actual borrowing costs incurred as funds are borrowed specifically for the purpose of obtaining a qualifying asset. (u) Derivatives and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: ■■ ■■ ■■ Hedges of the fair value of recognised assets and liabilities or a firm commitment (fair value hedges); Hedges of the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges); or Hedges of a net investment in a foreign operation (net investment hedges). Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of profit or loss and other comprehensive income over the period of the borrowings using the effective interest method. Fees At the inception of the hedging transaction the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 42 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) loss and other comprehensive income within ‘finance costs’. The gain or loss relating to the effective portion of forward foreign exchange contracts hedging export sales is recognised in the statement of profit or loss and other comprehensive income within ‘sales’. However when the forecast transaction that is hedged results in the recognition of a non-financial asset the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in the statement of profit or loss and other comprehensive income as costs of goods sold in the case of inventory, or as depreciation in the case of property, plant and equipment. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the statement of comprehensive income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the statement of profit or loss and other comprehensive income. Net investment hedges Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedges is recognised in other comprehensive income and accumulated reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in the statement of profit or loss and other comprehensive income, within ‘other income’ or ‘other expense’. Gains or losses accumulated in equity are included in the statement of comprehensive income when the foreign operation is partially disposed of or sold. Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the statement of profit or loss and other comprehensive income and are included in ‘other income’ or ‘other expenses’. 1. Summary of Significant Accounting Policies (continued) (u) Derivatives and hedging activities (continued) be highly effective in offsetting changes in fair values or cash flows of hedged items. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months. If the remaining maturity of the hedged item is less than 12 months it is classified as a current asset or liability. Trading derivatives are classified as a current asset or liability. Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the statement of profit or loss and other comprehensive income, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognised in the statement of profit or loss and other comprehensive income within ‘finance costs’, together with changes in the fair value of the hedged fixed rate borrowings attributable to interest rate risk. The gain or loss relating to the ineffective portion is recognised in the statement of profit or loss and other comprehensive income within ‘other income’ or ‘other expenses’. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to the statement of comprehensive income over the period to maturity using a recalculated effective interest rate. Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the statement of profit or loss and other comprehensive income and in the hedging reserve in equity. The gain or loss relating to the ineffective portion is recognised immediately in the statement of profit or loss and other comprehensive income within ‘other income’ or ‘other expense’. Amounts accumulated in equity are recycled in the statement of profit or loss and other comprehensive income in the periods when the hedged item affects profit or loss. The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the statement of profit or ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 43 (v) Employee benefits Share-based payments Wages and salaries, annual leave and sick leave including non- Liabilities for wages and salaries, monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in the employee benefits provision in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave and accumulating sick leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. Long service leave The liability for long service leave is recognised in the employee benefits provision and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Superannuation The Group makes contributions to defined contribution superannuation funds. Contributions are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. Termination benefits When applicable, the Group recognises a liability and expense for termination benefits at the earlier of; (a) the date when the Group can no longer withdraw the offer for termination benefits; and (b) when the Group recognises costs for restructuring pursuant to AASB137: Provisions, Contingent Liabilities and Contingent Assets and the costs include termination benefits. In either case, unless the number of employees affected is known, the obligation for termination benefits is measured on the basis of the number of employees expected to be affected. Termination benefits that are expected to be settled wholly before 12 months after the annual reporting period in which the benefits are recognised at the (undiscounted) amounts expected to be paid. All other termination benefits are accounted for on the same basis as other long term employee benefits. Share based compensation benefits are provided to employees via the PTB Group Limited Employee Share Option Scheme as detailed in note 22. The fair value of options granted under the PTB Group Limited Employee Share Option Scheme is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is determined using a Binomial option pricing model that takes into account the exercise price, the term of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The fair value of the options granted excludes the impact of any non market vesting conditions (for example, profitability and sales growth targets and performance and service criteria). Non market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. Profit sharing and bonus plans The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. Bonus payments are discretionary and subject to Board approval (w) Provisions Provisions for service warranties and make good obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 44 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 1. Summary of Significant Accounting Policies (continued) (ab) Rounding of amounts (x) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from proceeds. (y) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the year but not distributed at balance date. (z) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year, adjusted for bonus elements in ordinary shares issued during the year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. (aa) Goods and services tax The company is of a kind referred to in legislative instrument 2016/191 relating to the “rounding off” of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that legislative instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. (ac) General PTB Group Limited is a public company limited by shares, incorporated and domiciled in Australia. Listed below is the registered office, principal place of business, and its principal administrative office: 22 Orient Avenue Pinkenba QLD 4008 (ad) Critical accounting estimates and judgements The Group evaluates estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the company. Key estimates and judgements impacting the financial statements are as follows: Impairment impairment The Group tests six monthly whether goodwill has suffered any in accordance with the accounting policy stated in note 1(j). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions. Refer to note 11 for details of these assumptions and the potential impact of changes to the assumptions. Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: Long Service Leave (LSL) ■■ ■■ Where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; receivables and payables which are For recognised inclusive of GST. The net amounts of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables; or Cash flows are presented on a gross basis and the GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. ■■ The Group estimates the pattern of LSL taken based on history and utilises management’s judgement in determining the cash flow estimates of payments of LSL. These estimates are then utilised to determine the NPV of these expected LSL payments and the adequacy of the provision. Hire Purchase Receivables judgement in assessing the Management applies recoverability of its hire purchase receivables The Group assesses both the current payment performance and operational knowledge of the debtor’s business operation as the Group is in regular contact with the debtor as it is responsible for undertaking scheduled ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 45 engine maintenance and is a supplier of spare parts for the aircraft under lease to the LT HP debtors maintenance department. (af) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2016 reporting periods and have not been early adopted by the Group. The following new standards are to be applied in future periods. (i) AASB 9 Financial instruments (application date 1 January 2018). This standard makes significant changes to the way financial assets are classified for the purpose of determining their measurement basis and also to the amounts relating to fair value changes, which are to be taken directly to equity. This standard also makes significant changes to hedge accounting requirements and disclosures. (ii) AASB 15 Revenue from Contracts with Customers (application date 1 January 2018). Establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. (iii) AASB 16 Leases (application date 1 January 2019). This standard sets out the principles for the recognition, measurement, presentation and disclosure of leases.by lessees and lessors (ae) Fair value of assets and liabilities The Group measures some of its assets and liabilities at fair value on either a recurring or non-recurring basis, depending on the requirements of the applicable Accounting Standard. Fair value is the price the Group would receive to sell an asset or would have to pay to transfer a liability in an orderly (i.e. unforced) transaction between independent, knowledgeable and willing market participants at the measurement date. As fair value is a market based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to the characteristics of the specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible the use of the observable market data. To the extent possible, the market information is extracted from either the principal market for the asset or liability (i.e. the market with the greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the entity at the end of the reporting period (i.e. the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs). For non-financial assets, the fair value measurement also takes into account a market participants ability to use the asset in its highest and best use or to sell it to another market participant that would use the asset in its highest and best use. The fair value of liabilities and the entity’s own equity instruments (excluding those related to share-based payment arrangements) may be valued, where there is no observable market price in relation to the transfer of such financial instrument, by reference to observable market information where such instruments are held as assets. Where this information is not available, other valuation techniques are adopted and, where significant, are detailed in the respective note to the financial statements. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 46 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 2. Revenue Sales revenue Sale of goods Services Rental of engines/aircraft - Minimum lease payments - Contingent rentals Other revenue Interest - Extended credit receivables (hire purchase agreements) - Other Other Total revenue 3. Profit/(Loss) before income tax expense Profit/(Loss) before income tax expense includes the following specific items: Depreciation - Buildings - Plant and equipment - Rental engines/aircraft - Leasehold improvements Amortisation - Leased engines/aircraft Operating lease rentals – minimum lease payments - Premises - Equipment and software Impairment losses / (write back) - Trade debtors - Aircraft Superannuation expense 2016 $’000 2015 $’000 32,507 6,304 1,781 1,599 42,191 162 30 787 28,802 4,875 921 1,028 35,626 282 2 86 43,170 35,996 122 129 1,771 8 - 77 66 (569) - 478 117 137 1,105 8 78 124 62 1,518 286 506 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 47 4. Income Tax Expense (a) Income tax expense Current tax Deferred tax arising from origination or reversal of temporary differences Under/(over) provided in prior years (b) Numerical reconciliation of income tax expense to prima facie tax Profit/(loss) before income tax expense Tax at the Australian tax rate of 30% (2015: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: - Sundry items Under/(over) provided in prior years Income tax expense/(benefit) 5. Trade and Other Receivables Current Trade receivables Provision for impairment Maintenance contract receivables Extended credit receivables Provision for impairment – extended credit receivables Other receivables Non-Current Extended credit receivables Maintenance contract receivables Impaired trade receivables 2016 $’000 2015 $’000 - 1,101 - 1,101 3,668 1,100 1 1,101 - 1,101 - 809 (82) 727 2,690 807 2 809 (82) 727 2016 $’000 2015 $’000 6,201 (956) 5,245 1,924 538 - - 5,829 (1,525) 4,304 176 1,136 - - 7,707 5,616 1,166 1,613 2,779 1,653 302 1,955 As at 30 June 2016 current trade receivables of the Group with a nominal value of $956,465 (2015: $1,525,465) were impaired. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 48 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 5. Trade and Other Receivables (continued) The ageing of trade receivables is as follows: Current 30+ Days 60+ Days 90+ Days Total Group – 2016 Trade receivables Impaired trade receivables Unimpaired receivables Group – 2015 Trade receivables Impaired trade receivables Unimpaired receivables Past due but not impaired 1,995 (12) 1,983 2,427 - 2,427 905 (10) 895 890 (7) 883 741 (432) 309 729 (386) 343 2.560 (502) 2,058 6,201 (956) 5,245 1,783 (1,132) 651 5,829 (1,525) 4,304 As at 30 June 2016, unimpaired trade receivables greater than 30 days represent amounts past due but not impaired. Based on the credit history of these other classes, it is expected that these amounts will be received. The Group holds retention of title over goods sold until cash is received. Movements in the provision for impairment of receivables are as follows: At 1 July Provision for impairment written back / (recognised) during the year Receivables written off during the year as uncollectable At 30 June Maintenance contract receivables 2016 $’000 2015 $’000 (1,525) 569 - (956) (1,171) (1,504) 1,150 (1,525) Maintenance contract receivables are generally unsecured. The relevant agreements require fixed monthly payments over the term of the contracts which are generally up to 5 years. Extended credit receivables Extended credit receivables represent amounts owed by customers for engines and aircraft sold to those customers. The amounts owed by customers are secured under hire purchase agreements between the Group and the customer. The amounts are repayable by the customers by monthly instalments of principal and fixed interest over periods of 1 to 5 years. Furthermore, the agreements do not include any contingent rentals. The receivables are secured as the rights to the engine and/or aircraft revert to the Group in event of default. The engines and aircraft are maintained and insured by the customers and at the end of the term of the agreement are expected to be retained by the customers. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 49 5. Trade and Other Receivables (continued) Payments in relation to the extended credit receivables are receivable as follows: Within one year Later than one year but not later than five years Later than five years Minimum hire purchase payments receivable Future finance revenue Within one year Later than one year but not later than five years Later than five years Total extended credit receivables Representing receivables: Current Non-current 2016 $’000 2015 $’000 655 1,261 - 1,916 (116) (96) - (212) 1,704 538 1,166 1,704 1,290 1,859 - 3,149 (153) (207) - (360) 2,789 1,136 1,653 2,789 Refer note 30 for information on amounts receivable from controlled entities. Risk exposure Information concerning the exposure to credit risk, foreign exchange and interest rate risk is set out in note 25. 6. Inventories Current Work in progress – at cost Finished goods – at cost 3,729 17,711 21,440 2,815 18,298 21,113 Finished goods include aircraft, engines and parts held for sale. Work in progress includes engines and aircraft undergoing reconditioning in preparation for sale as well as incomplete repair jobs. 7. Tax balances – Current Current tax liabilities 8. Other Assets Current Prepayments Deposits - - 205 7 212 436 8 444 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 50 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 9. Property, Plant and Equipment Rental arrangements – aircraft and engines The Group rents aircraft and engines under two general arrangements: ■■ ■■ Contingent rentals - rented to customers under agreements with rentals payable monthly and no fixed term. As such, the agreements are cancellable. The rent is calculated on the basis of an hourly rate and hours of usage. There are no minimum hours of usage or minimum lease payments set out in the relevant agreements. As such, in accordance with AASB 117 “Leases” the rental income comprises of contingent rentals not minimum lease payments. Accordingly, there are no fixed lease commitments receivable; and Set or minimum rentals - the operating leases relate to aircraft and/or engines leased to third parties with lease terms of between 3-7 years. The monthly rental payments are either set or per hour of usage with minimum hours per annum. In addition, a contingent rental may be receivable based upon hours of usage. The lessee may have an option to purchase the aircraft/engine at the expiry of the lease period. However, the final purchase price is determined on a case by case basis in negotiation between the Group and the lessee. Minimum lease payments in relation to aircraft and engine operating leases are receivable as follows: No later than one year Later than one year but not later than five years Non-current assets pledged as security Refer note 13 for information on non-current assets pledged as security. 2016 $’000 2015 $’000 1,498 2,046 3,544 1,781 3,182 4,963 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 51 9. Property, Plant and Equipment (continued) Leasehold Land & Buildings Improvements Owned Owned Under Lease Plant & Equipment Owned Under Lease Rental Engines/ Aircraft Owned Under Lease Assets Under Construction Owned Under Lease Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Year ended 30 June 2015 Opening net book value Additions Transfers 1 Disposals Impairment 2 Depreciation/ amortisation Closing net book value At 30 June 2015 Cost Accumulated depreciation Net book value Year ended 30 June 2016 Opening net book value Additions Transfers 1 Disposals Impairment Depreciation/ amortisation Closing net book value At 30 June 2016 Cost Accumulated depreciation - 13,433 1,841 50 50 22,992 681 129 - - - 6,895 42 186 - - - (117) 6,964 - - - - (8) 34 - - - - - - - - 3,271 1 - 1,221 (847) - (3,491) (917) - (286) - (137) - (1,105) (78) 673 - 13,043 6 - - - - - - 3,593 374 - (4,408) - (286) - (1,445) 56 50 20,820 56 - 56 56 - 50 - - - 50 30,304 - (9,484) 50 20,820 50 20,820 - 1,640 (50) - - 674 (844) - - (2,030) 106 - 20,260 106 - 106 - 30,621 - (10,361) - 20,260 - - - - - - - - - - - - - 7,733 93 - 1,623 22 20,727 (769) (59) 6,964 34 6,964 34 48 - - - (122) 6,890 - - - - (8) 26 - - - - - - - - - (950) (22) (7,684) 673 - 13,043 673 120 - (1) - - 13,043 - 1,472 - - - 674 (843) - (129) - (1,771) 663 - 12,575 7,782 93 - 1,759 - 20,881 (892) (67) - (1,096) - (8,306) Net book value 6,890 26 - 663 - 12,575 1 2 Represents transfer of engine cores and aircraft frames from inventory. Represents a provision for write-down of idle aircraft in IAP. Carrying value was determined to be in excess of the net realisable value. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 52 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 10. Deferred Tax Assets The balance comprises temporary differences attributable to: Tax losses Accruals Employee benefits Doubtful debts Other Total deferred tax assets 2016 $’000 2015 $’000 3,475 3,099 31 247 287 878 4,918 27 284 458 1,102 4,970 Movements Tax losses Accruals Employee benefits Doubtful debts Other Total $’000 $’000 $’000 $’000 $’000 $’000 At 1 July 2014 4,116 60 276 351 1,063 5,866 (Charged)/credited to statement of profit or loss and other comprehensive income At 30 June 2015 (Charged)/credited to statement of profit or loss and other comprehensive income At 30 June 2016 (1,017) (33) 8 107 39 (896) 3,099 376 3,475 27 4 31 284 458 1,102 4,970 (37) (171) (224) (52) 247 287 878 4,918 A deferred tax asset of $4.918 million (2015: $4.97 million) has been recognised at 30 June 2016.This includes $3.475 million attributable to prior years’ income tax losses carried forward (2015: $3.099 million). Based on management forecast of expected future taxable profits and the reversal of the temporary differences, it is considered probable that these deferred tax assets will be recovered in the future. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 53 11. Intangible Assets Goodwill - cost Total Goodwill Impairment tests for goodwill 2016 $’000 2015 $’000 4,334 4,334 4,334 4,334 Goodwill is allocated to the IAP operations as a single cash-generating unit (CGU) which is included in the IAP business segment. The recoverable amount of the CGU is determined based on value in use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period and include a terminal value adjusted for the perpetual growth rate. Key assumptions used for value-in-use calculations The calculations utilise a pre-tax risk adjusted discount rate of 12.6% (2015: 11.7%) based on the Group’s weighted average cost of capital of 8.9% (2015: 8.2%). A perpetual growth rate beyond the forecast period of 3% (2015: 3%) has been used. Management determined budgeted cash flows based on past performance and Directors’ best estimates over a five year period. Impact of possible changes in key assumptions The Directors consider that there is no reasonably possible change in key assumptions which management has based its determination of IAP’s recoverable amount which would cause the carrying amount of IAP’s CGU to exceed its recoverable amount. 12. Trade and Other Payables 2016 $’000 2015 $’000 Trade payables and accruals 6,328 6,249 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 54 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 13. Borrowings Current Secured Bank overdraft Bank loans Unsecured Other loans – related parties Non-Current Secured Bank loans Unsecured Other loans – related parties 2016 $’000 2015 $’000 - 1,798 1,798 - 1,798 446 2,818 3,264 271 3,535 11,889 11,889 12,412 12,412 - - 11,889 12,412 Information concerning the effective interest rates is set out in note 25. Bank Overdraft, Bank Loans and Bills Payable The bank overdraft and bank loans including bills payable are secured by way of a registered company charge over the whole of the assets and undertakings of the parent entity and that of its subsidiaries PTB Emerald Pty Ltd and IAP Group Australia Pty Ltd of $37.371 million (2015: $34.786 million). Included in the above are bank loans and finance leases in the subsidiaries that are secured by the relevant aviation assets included in plant and equipment and inventory of the relevant subsidiary. In addition the Group has complied with the requirement that, while there is money owed to the lender, no return of capital, dividends or payments can be made to ordinary shareholders in PTB or related parties without the bank’s approval. Lease Liabilities Lease liabilities and finance company loans are effectively secured as the rights to the leased assets revert to the lessor in the event of default. Other Loans – Related Parties Refer to section F of the Remuneration Report for information on other loans from related parties. Effective Interest Rates Information concerning the effective interest rates is set out in note 25. Finance Facilities Information concerning available facilities including used and unused portion of the finance facilities is set out in note 25. Assets Pledged as Security All assets of the Group are pledged as security for the facilities as noted above. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 55 14. Deferred Tax Liabilities The balance comprises temporary differences attributable to: Property, plant and equipment Inventory Other Total deferred tax liabilities Movements 2016 $’000 2015 $’000 2,133 12 1,293 3,438 2,098 12 278 2,388 Property, plant and equipment Inventory Other Total $’000 $’000 $’000 $’000 At 1 July 2014 Charged/(credited) to statement of profit & loss and other comprehensive income At 30 June 2015 Charged/(credited) to statement of profit or loss and other comprehensive income At 30 June 2016 2,267 (169) 2,098 35 2,133 12 - 12 - 12 279 (1) 278 1,015 1,293 2,558 (170) 2,388 1,050 3,438 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 56 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 15. Provisions Current Employee benefits Non-Current Employee benefits Remediation provisions Movements in Provisions 2016 $’000 2015 $’000 713 713 109 340 449 849 849 98 411 509 Employee Benefits Remediation Provisions Total $’000 $’000 $’000 Balance 1 July 2014 921 - 921 Provisions made during the year Provisions used during the year Balance at 30 June 2015 Provisions made during the year Provisions used during the year Balance at 30 June 2016 (a) Remediation Provisions 457 (431) 947 440 (565) 822 411 - 411 - (71) 340 868 (431) 1,358 440 (636) 1,162 Provision is made for the estimated expenditure required to restore the leasehold premises to an acceptable standard at the end of the lease term. (b) Amounts not expected to be settled within the next 12 months The current provision for employee benefits includes accrued annual leave, vesting sick leave and long service leave. For long service leave it covers all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. All of these amounts 2016: $313,000 (2015: $388,000) are presented as current, since the group does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 57 16. Other Liabilities Current Deferred revenue Deposits in advance Non-Current Deferred revenue Deferred revenue relates to maintenance contract revenue received in advance. 17. Contributed Equity Share capital 47,891,495 ordinary shares fully paid (2015: 42,007,656 ordinary shares fully paid) Other equity securities Value of conversion rights (net of tax) 2016 $’000 2015 $’000 191 1,026 1,217 908 539 1,447 114 562 2016 $’000 2015 $’000 33,713 31,595 183 183 33,896 31,778 Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the parent does not have authorised capital nor par value in respect of its issued shares. All shares rank equally with regards to the Company’s residual assets. The holders of ordinary shares are entitled to one vote per share at meetings of the Company. Movements in ordinary share capital No. of Shares $’000 Closing balance 30 June 2014 36,581,727 30,184 Share issues 2015 Closing balance 30 June 2015 Share issues 2016 - under dividend reinvestment plan refer note 27 - share placement Closing balance 30 June 2016 Options 5,425,929 42,007,656 1,411 31,595 3,939,393 1,944,446 1,418 700 47,891,495 33,713 As at balance date there are no outstanding options to purchase ordinary shares in the parent entity. All options previously outstanding expired without being exercised in the year ended 30 June 2011. An employee share option scheme was approved by shareholders on 3 June 2005. Refer to note 22 for details. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 58 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 17. Contributed Equity (continued) Capital Risk Management The Group’s and the parent entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns to shareholders, benefits to other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. The group defines capital as its equity and net debt. There has been no change to capital risk management policies during the year. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Board of Directors monitors the return on capital, which the Group defines as net profit after tax divided by average shareholders’ equity. 18. Reserves Dividend Appropriation Reserve Movements Reserve balance 1 July Transfer from retained earnings Reserve balance 30 June 2016 $’000 2015 $’000 13,956 13,956 13,956 13,956 - - 13,956 13,956 The dividend appropriation reserve is used to record the retained earnings which can be used for future dividend payments. A fully franked dividend of 5 cents per share (2015: 5 cents per share) was paid directly from retained earnings. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 59 19. Cash Flow Information (a) Reconciliation of Cash and Cash Equivalents Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows: Cash and cash equivalents assets – cash at bank and on hand Bank overdraft (note 13) 2016 $’000 2015 $’000 1,982 - 1,982 3,800 (446) 3,354 (b) Reconciliation of Net Cash Flow from Operating Activities to Profit/(Loss) for the Year Profit/(loss) for the year Depreciation and amortisation Impairment of aircraft (Gain)/loss on disposal of property, plant and equipment Movement in impairment of trade receivables Unrealised foreign currency movements Changes in operating assets and liabilities Increase)/decrease in: Trade and other receivables Inventories * Deferred tax assets Other assets Increase/(decrease) in: Trade payables, accruals, and other liabilities Employee benefits Current tax liabilities Deferred tax liabilities Net cash flow from operating activities * Net of transfers to/from property, plant and equipment 2016 $’000 2015 $’000 2,567 2,030 - (200) (569) (254) (1,821) (1,002) 52 232 (218) (196) - 1,050 1,671 1,963 1,445 286 4060 354 (413) 1,538 (2,670) 896 (215) 966 437 - (170) 1,183 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 60 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 20. Earnings Per Share Basic earnings per share Diluted earnings per share Earnings used to calculate basic and diluted earnings per share - (loss)/profit after tax for the year Weighted average number of ordinary shares used in calculating basic earnings per share Effect of dilutive securities: - Director and employee share options 2016 cents 2015 cents 6.08 6.08 5.33 5.33 $’000 $’000 2,567 1,963 Number Number 42,251,568 36,804,710 - - Weighted average number of ordinary shares and potential ordinary shares used in calculating diluted earnings per share 42,251,568 36,804,710 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 61 21. Key Management Personnel Disclosures Directors The following persons were Directors of PTB Group Limited during the financial year: Chairman – non-executive H Parker Executive Directors CL Baker, Managing Director (Group) RS Ferris, SG Smith, (appointed 23 May 2016) Non-executive Directors APS Kemp NFJ Bolton (resigned 18 November 2015) A Sormann (appointed 2 December 2015) Other key management personnel The following person also had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the financial year: Name Position Employer D Zgrajewski Company Secretary and CFO PTB Group Limited Key management personnel compensation Short-term employee benefits Post-employment benefits Other long-term benefits 2016 $ 2015 $ 757,360 891,847 70,056 (8,587) 83,064 40,661 818,829 1,015,572 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 62 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 21. Key Management Personnel Disclosures (continued) Short-term employee benefits These amounts include fees and benefits paid to the non-executive directors as well as all salary, paid leave benefits and fringe benefits awarded to executive directors and other KMP. Post-employment benefits These amounts represent superannuation contributions made during the year. Other long-term benefits These amounts represent long service leave benefits accrued during the year. Further information in relation to the KMP disclosures can be found in the remuneration report contained in the Directors’ report. 22. Share-based Payments Employee Share Option Scheme The establishment of the Employee Share Option Scheme was approved by shareholders on 3 June 2005. All staff are eligible to participate in the scheme, including executive Directors. Options are granted under the scheme for no consideration. The exercise price will be the amount specified by the remuneration committee at the time of issue. The exercise period is the period specified by the remuneration committee at the time of issue. Options under the plan may not exceed 5% of the total number of issued shares of the company at the date of issue. Options lapse if prior to or during the exercise period the employee is terminated or resigns. If a person dies, becomes disabled, or is made redundant prior to the exercise period the option lapses. If a person dies, becomes disabled, or is made redundant during the exercise period special rules apply that allow options to be exercised. Options granted under the scheme carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share for cash. Amounts received on the exercise of options are recognised as share capital. There were no options granted or exercised during the financial year and no options were outstanding at the current or prior financial year end. 23. Remuneration of Auditors During the year the following fees were paid or payable for services provided by the auditor of the parent entity: 2016 2015 $ $ Audit Services – Hall Chadwick Qld Audit Audit or review of the financial reports 133,000 130,000 Total remuneration for audit services 133,000 130,000 There was no other remuneration paid to related practices of the auditor, or other non-related audit firms. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 63 24. Commitments (a) Operating leases Commitments in relation to non-cancellable operating leases contracted for at the reporting date but not recognised as liabilities are payable as follows: - Within one year - Later than one year but not later than five years - Later than five years 2016 $’000 2015 $’000 121 202 - 323 181 534 - 715 Operating leases mainly comprise leases of equipment and premises in Australia (Bankstown, Sydney). These leases are under normal commercial terms and conditions including rentals, in certain cases, being subject to periodic review for market and/or CPI increases as well as options for renewal. (b) Remuneration commitments Commitments for payment of salaries and other remuneration under long-term employment contracts in in place at the reporting date but not recognised as liabilities payable: Less than one year Greater than one year but not later than five years (c) Capital commitments Capital expenditure contracted for at balance date. 239 - 239 499 71 570 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 64 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 25. Financial Risk Management and Other Financial Instrument Disclosures Financial Risk Management The Group’s activities expose it to a variety of financial risks; market risk (including foreign exchange risk, price risk, and cash flow and fair value interest rate risk), credit risk, and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Risk management is carried out by management under policies approved by the Board of Directors. Management identifies, evaluates and addresses financial risks and uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, and ageing analysis for credit risk. The Board provides principles for overall risk management, as well as policies covering specific areas, such as mitigating foreign exchange, interest rate and credit risks, use of derivative financial instruments and investing excess liquidity. (a) Market risk (i) Foreign exchange risk Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. The Group operates internationally and is exposed to foreign exchange risk primarily arising from sale and purchase transactions denominated in US dollars and UK pounds. The risk is measured using sensitivity analysis and cash flow forecasting. Where derivatives are used they are exclusively used for hedging purposes to minimise foreign exchange risk on relevant transactions and the Group does not speculate on foreign currency. The Group manages this risk through matching, to the extent possible, of US dollar denominated receivables and payables. All transactions which are exposed to foreign exchange risk are authorised by senior management. The Group’s exposure to foreign currency risk at the reporting date was as follows: Cash and cash equivalents Trade and other receivables Other assets Forward exchange contracts Trade and other payables Borrowings Other liabilities 30-Jun-16 30-Jun-15 USD GBP USD GBP $’000 £’000 $’000 £’000 1,095 5,499 201 - (4,115) (6,523) (551) 9 1 - - 2,719 6,090 181 - (3) (4,136) - - (7,815) (182) 7 2 - - - - - ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 65 25. Financial Risk Management and Other Financial Instrument Disclosures (continued) (a) Market risk (continued) Group sensitivity Based on the financial instruments held at 30 June 2016, had the Australian dollar weakened/strengthened by 10% against the USD dollar, with all other variables held constant, the Group’s post tax position for the year would have been $461,000 lower/$377,000 higher (2015: profit $320,000 lower/$262,000 higher), mainly as a result of foreign exchange gains and losses on translation of US dollar denominated financial instruments as detailed in the above table. Equity would have been $461,000 lower/$377,000 higher (2015: $320,000 lower/$262,000 higher) had the Australian dollar weakened/strengthened by 10% against the US dollar due to the reasons noted above. It is worth noting that the company undertakes the majority of its sales and purchases in US dollars. Therefore, the majority of profit is generated in US dollars, with the reported AUD profit positively impacted by any weakening of the Australian dollar. As per above, the Group’s exposure to other foreign exchange movements is not material. (ii) Price risk The Group is not directly exposed to material equity securities price risk or commodity price risk. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 66 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 25. Financial Risk Management and Other Financial Instrument Disclosures (continued) (a) Market risk (continued) (iii) Cash flow and fair value interest rate risk The Group has significant interest bearing liabilities, as detailed below. The majority of these liabilities bear fixed interest rates. The fair value interest rate risk is not hedged. However, as noted above, the fixed interest rate bank loans are generally used to fund extended credit receivables. Loans from financial institutions are used to purchase and refurbish aviation assets. Although the fair value interest rate risk is not hedged, where possible the loans are matched against receivables in currencies that match the interest rate risk. Variable rate debt (primarily the bank overdraft) is also not hedged. The Group’s exposure to interest rate risk and the effective weighted average interest rate for each class of financial assets and financial liabilities is set out in the following table: Fixed Interest Rate Maturing Effective Weighted Average Interest Rate Floating Interest Rate 1 year or less 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Non- Interest Bearing Total % $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 2016 Financial assets Cash and cash equivalents Trade and other receivables Extended credit receivables 0.00% 1,978 - - - - - - - - 8.00% - 538 583 583 Total financial assets 1,978 538 583 583 Financial liabilities Trade and other payables Bank overdraft Bank Loans Bills payable Insurance Loan Related party loans - - - - - - - 5.22% - 1,742 4,252 5.94% 3,450 - 4,188 3.93% - - - 56 - - - Total financial liabilities 3,450 1,798 8,440 - - - - - - - - - - - - - - - - - - - - - - 4 1,982 - 8,782 8,782 - - 1,704 - - 8,786 12,468 - - - - - - - - 6,328 6,328 - - - - - - - - - 5,994 - 7,638 - - 56 - 6,328 20,016 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 67 25. Financial Risk Management and Other Financial Instrument Disclosures (continued) (a) Market risk (continued) Fixed Interest Rate Maturing Effective Weighted Average Interest Rate Floating Interest Rate 1 year or less 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Non- Interest Bearing Total % $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 2015 Financial assets Cash and cash equivalents Trade and other receivables Extended credit receivables 0.00% 3,796 - - - - - - - - - - 6.12% - 482 522 566 565 - - - - 4 3,800 - 4,782 4,782 - 654 2,789 Total financial assets 3,796 482 522 566 565 - - 5,440 11,371 Financial liabilities Trade and other payables Bank overdraft Bank loans Bills payable Insurance Loan Related party loans - - 4.20% 5.60% 446 - - - - - - - 2,761 991 3,784 6.03% 3,450 3.93% - - - - 56 - - 4,188 - - - - Total financial liabilities 3,896 2,817 991 7,972 There are no other interest bearing financial assets and liabilities. Group sensitivity - - - - - - - - - - - - - - - 6,249 6,249 - - - - - - - 446 - 7,536 - 7,638 - 271 56 271 6,520 22,196 As the majority of the interest rates are fixed, at 30 June 2016 if interest rates had changed by -/+100 basis points from year-end rates with all other variables held constant, post tax profit and equity for the year would not be materially impacted (2015: immaterial). Net Fair Values The net fair values of financial assets and financial liabilities approximate their carrying values. Derivative Financial Instruments The Group does not normally use derivative financial instruments except as noted above. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 68 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 25. Financial Risk Management and Other Financial Instrument Disclosures (continued) (b) Credit risk The Group trades only with recognised, creditworthy third parties. The main credit risk arises from receivables balances. These balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not considered significant by the Directors. Management review the credit rating of each customer, taking into account any previous trading history with the Group, its financial position, and external credit reports where appropriate. Individual risk limits are set based on internal ratings and compliance is regularly monitored by management. The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to the financial statements. The Group does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments at balance date except as follows: ■■ ■■ The Group’s customers are involved in the airline passenger and freight operation industry; There are a number of individually significant receivables. For example at 30 June 2016 the largest 10 debtors made up approximately 84% (2015: 71%) of total receivables. The largest debtor is a long term customer in the Maldives and includes trade receivables and maintenance contract receivables. This customer accounts for 28% (2015: 9%) of total receivables. ■■ The receivables are concentrated in six main geographical areas. Refer to note 26 for further information. At balance date cash was held with the Commonwealth Bank of Australia. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 69 25. Financial Risk Management and Other Financial Instrument Disclosures (continued) (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group also ensures that adequate unutilised borrowing facilities and cash reserves are maintained. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, unsecured notes, finance leases and finance company loans. Finance Facilities Available facilities Bank overdraft Bank loans - chattel mortgage - other Bills payable - multi option Related party facilities Amounts utilised Bank overdraft Bank loans - chattel mortgage - other Bills payable - multi option Related party facilities Unused facilities Bank overdraft Bank loans - other Consolidated 2016 $’000 2015 $’000 674 33 6,088 7,638 - 654 188 7,486 7,638 271 14,433 16,237 - 33 6,017 7,638 - 446 188 7,404 7,638 271 13,688 15,947 674 71 745 208 82 290 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 70 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 25. Financial Risk Management and Other Financial Instrument Disclosures (continued) (c) Liquidity risk (continued) Maturities of financial liabilities The tables below analyse the Group’s financial liabilities and net and gross settled derivative financial instruments into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. 1 year or less 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 Group 2016 Non-derivatives Non-interest bearing Variable rate Fixed rate Total financial liabilities Group 2015 Non-derivatives 6,328 - 1,798 8,126 - 3,450 8,439 11,889 - - - - - - - - - - - - - - - - 6,328 3,450 10,237 20,015 Non-interest bearing 6,520 - - - - - - 3,450 - - 991 991 7,972 11,422 - - - 6,520 3,896 11,780 - - - - 22,196 Variable rate Fixed rate Total financial liabilities 446 2,817 9,783 Bank overdraft The bank overdraft facilities are subject to annual review and may be drawn at any time. The interest rate is variable and is based on prevailing market rates. Bank loans The chattel mortgage loans are repayable by monthly instalments of principal and fixed interest over a period of 2 to 4 years from each draw down date Related party loans No interest is payable on the related party loan of $Nil (2015: $271,000). . Bills payable The multi-option facility includes variable rate commercial bills of $3,450,000 (2015: $3,450,000) at a weighted average interest rate of 5.14% (2015: 5.34%). For each drawing of a bill, a rate is quoted by the bank at the time of draw down. The bills have terms between one and two years from draw down date. Maturities of financial liabilities The previous tables analyse the Group’s financial liabilities, net and gross settled derivative financial instruments into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 71 26. Segment Information The Group has four reportable segments: ■■ ■■ ■■ ■■ PTB: Covering the operations of the holding company PTB Group Limited specialising in PT6 and TPE331 Turboprop engines. The business repairs, sells, hires and leases PT6 and TPE331 engines, maintains under contract related engines, and trades in related engine and airframe parts. Pacific Turbine USA: This is a new segment for the 2016 financial year. This covers the operations of Pacific Turbine USA Pty Ltd specialising in PT6 Turboprop engines. The business repairs, sells, hires and leases PT6 engines, maintains under contract related engines, and trades in related engine parts. IAP: Covering the operations of the IAP Group Australia Pty Ltd trading in aircraft, jet aircraft engines, airframes and related parts. This business is an aircraft owner and leases aircraft to airline operators under both operating and finance leases. Emerald: Covers the operation of PTB (Emerald) Pty Ltd the owner of the aircraft acquired from Emerald Airways UK which are leased to airline operators under both operating and finance leases. Geographical Segments (Secondary Reporting) The Group’s management and operations are based in Brisbane and Sydney, Australia. Its customers, however, are located in six main geographical markets – Australia/PNG/New Zealand, Pacific Islands, America, Asia, Africa, and Europe. Segment assets include rental engines and aircraft which are attributed either to the geographic market in which the customer who rents the engine or aircraft at year-end is based or, for non-rented engines and aircraft, where they are physically located. The following tables outline the distribution of the Group’s sales, adjusted EBITDA, assets and liabilities by those geographical markets by business segment. . . ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 72 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 26. Segment Information (continued) Australia PNG & NZ Pacific America North & South Asia Africa Europe Unallocated Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 2016 (i) Revenue PTB Total Segment Revenue 10,417 5,694 2,557 17,216 Inter-segment Revenue (3,174) - - - Revenue from external customers 7,243 5,694 2,557 17,216 Pacific Turbine USA Total Segment Revenue Inter-segment Revenue Revenue from external customers Emerald Total Segment Revenue Inter-segment Revenue Revenue from external customers IAP 417 (417) - - - - - - - - - - 89 - 89 - - - - - - 907 - 907 7 - 7 - - - - - - 97 - 97 7 - 7 - - - Total Segment Revenue 2,352 1,165 1,735 2,681 237 1,241 Inter-segment Revenue (58) - - - - - Revenue from external customers 2,294 1,165 1,735 2,681 237 1,241 - 35,988 - (3,174) - 32,814 - - - - - - - - - - 513 (417) 96 907 - 907 9,411 (58) 9,353 - Unallocated Total Unallocated Revenue Total revenue from external customers (ii) Adjusted EBITDA - - - - - - 9,537 6,859 4,381 20,804 244 1,345 - 43,170 PTB Pacific Turbine USA Emerald IAP Unallocated 539 384 172 1,160 - - - - 80 - - 500 830 458 683 1,055 - - - - Adjusted EBITDA 1,369 842 935 2,715 1 - - 93 - 94 7 6 - 489 - 502 - - - - - - 2,263 86 500 3,608 - 6,457 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 73 26. Segment Information (continued) 2016 Australia PNG & NZ Pacific America North & South Asia Africa Europe Unallocated Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 (iii) Segment Disclosure Items Depreciation & Amortisation PTB Pacific Turbine USA Emerald IAP Total 442 - - 840 1,282 5 - - 337 342 - - - - - - - 406 - 406 Unrealised (Gain)/Loss on Foreign Currency PTB Pacific Turbine USA Emerald IAP Total - - - - - (40) (18) (122) - - 37 (3) 10 - - (309) 55 85 47 (346) - - - - - - - - 8 8 - - - - - (1) 1 - 40 40 - - - - - 447 - 406 1,177 2,030 - (181) - - - - 11 (309) 225 (254) ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 74 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 26. Segment Information (continued) 2016 Australia PNG & NZ Pacific America North & South Asia Africa Europe Unallocated Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Capital Expenditure PTB Pacific Turbine USA Emerald IAP Total 666 - - 974 1,640 - - - - - - - - - - - - - - - - - - - - Total Segment Assets PTB 26,312 2,767 456 3,372 194 Pacific Turbine USA Emerald IAP Unallocated Total 22 267 - - 2,505 - 400 4,821 14,725 1,353 78 1,331 - - - - - - 59 - 41,326 4,120 3,439 9,524 253 Total Assets Includes Non-current Assets (other than financial assets and deferred tax) PTB 12,592 587 Pacific Turbine USA Emerald IAP Total - - - - 7,732 1,178 20,324 1,765 - 1,001 - - - 4,283 - - - 5,284 Total Segment Liabilities PTB 2,410 152 3,688 Pacific Turbine USA Emerald IAP Total - - 759 3,169 - - 109 261 18 - 330 627 (213) 125 4,770 725 530 - - - - - - - 34 - 34 - - - - - - - 7 45 - 52 - - - - - 1 - - 56 57 - - - - - 666 - - 974 1,640 19,575 52,676 (2,147) 380 (8,372) (2,877) (9,056) 8,535 - - - 58,714 19,575 33,755 (2,147) (2,147) (8,372) (4,089) (9,056) (146) - 27,373 - - - - - 6,269 330 448 1,774 8,821 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 75 26. Segment Information (continued) Australia PNG & NZ Pacific America North & South Asia Africa Europe Unallocated Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 2015 (i) Revenue PTB Total Segment Revenue 5,138 3,925 4,862 13,566 Inter-segment Revenue (23) - - - Revenue from external customers 5,115 3,925 4,862 13,566 27 - 27 178 - 178 424 - 424 78 - 78 (19) - (19) 898 - 898 - - - - - - - - - 794 - 794 1,663 (340) 1,323 498 1,576 2,751 - - - 498 1,576 2,751 - - - - - - 6,438 4,423 6,438 17,111 629 957 - 35,996 415 422 523 1,459 - - - 4,050 (150) (61) (193) (337) 3 162 (52) 8 (19) (110) Adjusted EBITDA 265 361 330 5,172 113 (121) Emerald Total Segment Revenue Inter-segment Revenue Revenue from external customers IAP Total Segment Revenue Inter-segment Revenue Revenue from external customers Unallocated Total Unallocated Revenue Total revenue from external customers (ii) Adjusted EBITDA PTB Emerald IAP Unallocated - 27,596 - (23) - 27,573 - - - - - - - 953 - 953 7,810 (340) 7,470 - - - - - 2,830 4,193 (903) 6,120 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 76 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 26. Segment Information (continued) 2015 Australia PNG & NZ Pacific America North & South Asia Africa Europe Unallocated Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 (iii) Segment Disclosure Items Depreciation & Amortisation PTB Emerald IAP Total Impairment of Goodwill PTB Total Impairment of Assets PTB Emerald IAP Total 438 - 584 1,022 - - 120 120 - - - - 286 286 - - - - - - Unrealised (Gain)/Loss on Foreign Currency - - - - - - - - - - 228 - 228 - - - - - - - - - - - - - - - - PTB Emerald IAP Total - - - - 105 - (5) 100 130 364 - (122) (16) 114 (28) 214 1 (5) (4) (8) - 75 - 75 - - - - - - 2 - (9) (7) - - - - - - - - - - - - - - 438 303 704 1,445 - - - - 286 286 602 (127) (62) 413 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 77 26. Segment Information (continued) 2015 Australia PNG & NZ Pacific America North & South Asia Africa Europe Unallocated Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Capital Expenditure PTB Emerald IAP Total 961 - 764 1,725 - - - - - - - - - - - - - - - - - 1,868 - 1,868 - - - - 961 1,868 764 3,593 Total Segment Assets PTB Emerald IAP Unallocated Total 27,340 725 710 2,784 2,116 - - 6,173 14,135 2,071 148 806 - - - - 265 654 112 - 43,591 2,796 858 9,763 1,031 Total assets includes: Non-current Assets (other than financial assets and deferred tax) PTB Emerald IAP Total 12,038 - 67 - 7,733 2,015 19,771 2,082 - - - - 80 5,176 - 5,256 Total Segment Liabilities PTB Emerald IAP Total 2,073 986 3,209 1,116 10 1,105 - 81 652 87 (25) 196 3,188 1,067 3,948 1,287 - - - - 11 33 - 44 - 13 30 - 43 - - - - 1 - 81 82 20,257 52,081 (10,904) (1,948) (9,353) 7,949 - - - 58,082 20,257 32,442 (10,904) (5,728) (9,353) 395 - 27,109 - - - - 7,396 670 1,550 9,616 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 78 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 26. Segment Information (continued) Other segment information (i) Segment revenue Sales between segments are carried out at cost and are eliminated on consolidation. The revenue from external parties reported to the Board is measured in a manner consistent with that in the income statement. Revenues from external customers of PTB are derived from repairing, selling, leasing and maintaining PT6 and TPE331 turbo prop aircraft engines under contract and trading in related engine and airframe parts. For IAP revenue is derived from trading in aircraft, jet aircraft engines, airframes and related parts as well as leasing aircraft under operating and finance leases. Emerald’s revenue is interest income from finance leases and revenue from operating leases and sale of aircraft. A breakdown of revenue and results is provided in the preceding tables. Total Segment revenue Intersegment eliminations Interest revenue 2016 $’000 2015 $’000 46,819 (3,649) - 36,359 (363) - Total revenue from continuing operations (note 2) 43,170 35,996 The Group is domiciled in Australia. The amount of its revenue from external customers in Australia is $9.537 million (2015: $6.438 million) and the total revenue from external customers in other countries is $33.633 million (2015: $29.558 million). Segment revenues are allocated based on the country in which the customer is located. (ii) Adjusted EBITDA The Board assesses the performance of the operating segments based on a measure of adjusted EBITDA. This measurement basis excludes the effects of non recurring expenditure from the operating segments such as, unrealised gains / (losses) on foreign currency movements, impairments of aircraft, inventory and extended credit receivables. Interest income and interest income on long term HP receivables is allocated to segments whereas finance costs and depreciation and amortisation expenses are not allocated to segments. A reconciliation of adjusted EBITDA to operating profit before income tax is provided as follows: Adjusted EBITDA Unrealised gain/(loss) on foreign Currency Impairment of aircraft Depreciation and amortisation Finance Costs Profit/(Loss) before income tax from continuing operations 2016 $’000 2015 $’000 6,457 254 - (2,030) (1,013) 3,668 6,120 (413) (286) (1,445) (1,286) 2,690 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 79 26. Segment Information (continued) (iii) Segment assets The amounts provided to the Board with respect to total assets are measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset. Reportable segments’ assets are reconciled to total assets as follows: Segment Assets Unallocated: Deferred tax assets Total assets as per the statement of financial position 2016 $’000 2015 $’000 58,714 58,082 4,918 63,632 4,970 63,052 The total of non current assets other than financial instruments and deferred tax assets located in Australia is $20.324 million (2015: $19.771 million), and the total of these non current assets located in other countries is $7.049 million (2015: $7.338 million). Segment assets are allocated to countries based on where the assets are located. (iv) Segment liabilities The amounts provided to the board with respect to total liabilities are measured in a manner consistent with that of the financial statements. These liabilities are allocated based on the operations of the segment. The group’s borrowings and derivative financial instruments are not considered to be segment liabilities but rather managed by the treasury function. Reportable segments’ liabilities are reconciled to total liabilities as follows: Segment Liabilities Unallocated: Deferred tax liabilities Current borrowings Non-current borrowings Total liabilities as per the statement of financial position 2016 $’000 2015 $’000 8,821 9,616 3,438 1,798 11,889 25,946 2,388 3,535 12,412 27,951 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 80 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 27. Dividends 2016 $’000 2015 $’000 Dividends paid during the year Interim dividend for 30 June 2016 of 5 cents per share (2015: 5 cents per share) fully franked (at 30%) paid on 24 June 2016 2,100 1,829 Dividends paid in cash or satisfied by the issue of shares under dividend reinvestment scheme during the year were as follows: Paid in cash Satisfied by the issue of shares 682 1,418 2,100 418 1,411 1,829 Consolidated Parent Entity 2016 $’000 2015 $’000 2016 $’000 2015 $’000 Franking credits Franking credits available for subsequent financial years based on a tax rate of 30% (2015: 30%) 9,336 10,236 9,336 10,236 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: a) franking credits that will arise from the payment of the amount of the provision for income tax; b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries were paid as dividends. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 81 28. Subsidiaries Name Country of Incorporation 2016 2015 Equity Holding 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% PTB Finance Limited (1) Pacific Turbine USA Pty Ltd (1) (9) Pacific Turbine, Inc (2) PTB (Emerald) Pty Ltd (3) Australia Australia USA Australia Aircraft Maintenance Services Ltd (4) United Kingdom IAP Group Australia Pty Ltd (5) International Air Parts UK Limited (6) PTB Emerald Limited (7) 748 Cargo Pty Ltd (8) Australia United Kingdom United Kingdom Australia (1) Incorporated 14 October 2005 (2) Incorporated 29 September 2005 (3) Incorporated 4 October 2006 (4) Incorporated 6 November 2006 (5) Purchased as part of business combination on 21 September 2006. Aeropelican Air Services disposed 30 September 2008. (6) Incorporated 18 October 2006 (7) Incorporated 13 October 2006 (8) Incorporated 21 June 2007 (Previously PTB Asset Management Pty Lt) (9) Change of name on 1 February 2016 (Previously PTB Rentals Australia Pty Ltd) All subsidiaries are 100% owned by PTB Group Limited which is incorporated in Australia. All share capital consists of ordinary shares in each company and the proportion of ownership interest is equal to the proportion of voting power held. All subsidiaries were established by the parent except for those acquired as part of the business combination in prior years. There are no significant restrictions over the Group’s ability to access these assets, and settle liabilities, of the Group. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 82 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 29. Deed of Cross Guarantee On 29 June 2007, PTB Group Limited and all of its subsidiaries, excluding PTB Finance Limited and Pacific Turbine Inc, entered into an arrangement as parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly owned entities have been relieved from the requirements to prepare a financial report and Directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission. (a) Consolidated statement of profit & loss and other comprehensive income and summary of movements in consolidated retained earnings PTB Group Limited and its subsidiaries, excluding PTB Finance Limited and Pacific Turbine Inc, represent a ‘Closed Group’ for the purposes of the Class Order, and as there are no other parties to the Deed of Cross Guarantee that are controlled by PTB Group Limited, they also represent the ‘Extended Closed Group’. Set out below is a consolidated statement of profit & loss and other comprehensive income and a summary of movements in consolidated retained profits for the year ended 30 June 2016 of the Closed Group: Revenue Total Revenue 2016 $’000 2015 $’000 43,170 43,170 35,996 35,996 Changes in inventories of finished goods and work in progress 327 2,296 Raw materials and consumables used and finished goods purchased for sale (28,085) (24,603) Employee benefits expense Depreciation and amortisation Repairs and maintenance Bad and doubtful debts Finance costs Net foreign exchange loss Net gain / (loss) on sale of property, plant and equipment Impairment of aircraft Other expenses Total expenses Profit/(Loss) before income tax expense Income tax expense Profit/(Loss) for the year Statement of Comprehensive Income Profit/(Loss) for the year Other comprehensive income net of tax (5,608) (2,030) (92) 569 (1,013) (525) 200 - (6,161) (1,445) (52) (1,518) (1,286) (629) 4,060 (286) (3,245) (3,682) (39,502) (33,306) 3,668 (1,101) 2,567 2,567 - 2,690 (727) 1,963 1,963 - Total comprehensive income for the year attributable to the owners of the parent entity 2,567 1,963 Summary of movements in consolidated retained profits/(losses) Retained (losses)/profits at the beginning of the financial year (10,759) (10,893) Transfer to dividend appropriation reserve Profit/(loss) for the year Dividend paid during the year - 2,567 (2,100) - 1,963 (1,829) Retained (losses)/profits at the end of the financial year (10,292) (10,759) ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 83 29. Deed of Cross Guarantee (continued) (b) Consolidated Statement of Financial Position Set out below is a consolidated statement of financial position as at 30 June 2016 of the Closed Group: Current Assets Cash and cash equivalents Trade and other receivables Inventories Current tax assets Other current assets Total Current Assets Non-Current Assets Trade and other receivables Inventories Other financial assets Property, plant and equipment Deferred tax assets Intangible assets Other non-current assets Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Borrowings Current tax liabilities Provisions Other current liabilities Total Current Liabilities Non Current Liabilities Borrowings Deferred tax liabilities Provisions Other non-current liabilities Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Reserves Retained earnings Total Equity 2016 $’000 2015 $’000 1,982 7,707 3,800 5,616 21,440 21,113 - 212 - 444 31,341 30,973 2,465 - 265 1,641 - 265 20,260 20,820 4,918 4,334 - 32,242 63,583 6,328 1,798 - 713 1,217 10,056 11,889 3,438 449 114 15,890 25,946 37,637 33,973 13,956 4,970 4,334 - 32,030 63,003 6,249 3,535 - 849 1,447 12,080 12,412 2,388 509 562 15,871 27,951 35,052 31,855 13,956 (10,292) (10,759) 37,637 35,052 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 84 Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 30. Related Party Balances and Transactions a) Parent entity and subsidiaries The ultimate parent entity of the Group is PTB Group Limited. Interests in subsidiaries are set out in note 28. b) Key management personnel Disclosures relating to key management personnel are set out in the Directors’ Report and note 21. c) Other Transactions with Subsidiaries The following transactions occurred with subsidiaries: Parent Entity Revenue - sale of engines Revenue - sale of goods and services Revenue - engine rentals Revenue - dividend Purchase of engines Purchase of goods and services Rent and property related expenses Parent Entity 2016 $ 2015 $ 1,947,455 - 1,226,438 35,714 - - 350,503 201,404 - - - - - 168,281 In addition to the above sales, the parent has also provided, free of charge, other administrative and accounting assistance to the subsidiaries. d) Outstanding balances of Loans to Subsidiaries Loans to subsidiaries 19,258,991 19,939,917 The loans are non-interest bearing, unsecured, at call and repayable in cash. e) Outstanding balances arising from sales/purchases of goods and services Trade and extended credit receivables Trade payables - - - - No provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense has been recognised in respect of bad or doubtful debts due from related parties. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes to the Financial Statements for the year ended 30 June 2016 (Continued) 85 31. Parent Entity Financial Information a) Summary financial information Statement of Financial Position Current assets Total Assets Current liabilities Total Liabilities Shareholder’s equity Issued Capital Reserves Retained earnings Profit or loss for the year Total comprehensive income b) Guarantees entered into by the parent entity Carrying amount included in current liabilities 32. Events after the Balance Date 2016 $’000 2015 $’000 18,921 19,639 66,122 65,513 6,501 7,187 16,660 17,025 33,973 11,856 3,633 49,462 31,855 12,127 4,506 48,488 956 956 - - 911 911 - - No matters or circumstances have arisen since the end of the financial year which have significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future years. 33. Contingent liabilities The Group had the following bank guarantees as at 30 June: Favouree Bank Date Bankstown Airport Limited CBA 27/03/2007 2016 $’000 2015 $’000 18 18 18 18 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 86 Directors’ Declaration for the year ended 30 June 2016 The Directors of the Company declare that: (a) the attached financial statements and notes, as set out on pages 31 to 85 are in accordance with the Corporations Act 2001 and: (i) comply with Australian Accounting Standards and the Corporations Regulations 2001; and (ii) give a true and fair view of the financial position as at 30 June 2016 and of the performance for the year ended on that date of the consolidated entity; (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and (c) at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identified in note 29 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 29; and (d) the financial statements also comply with International Financial Reporting Standards as disclosed in note 1. The Directors have been given the declarations by the Managing Director and Chief Financial Officer for the financial year ended 30 June 2016 required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. H Parker Chairman Brisbane 23 August 2016 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Independent Auditor’s Report for the year ended 30 June 2016 87 Level 19/144 Edward St Brisbane Queesnland 4000 GPO Box 389 Brisbane Queesnland 4001 07 3221 2416 Telephone 07 3221 8341 Facsimile hallchadwickassociation.com.au Independent Auditor’s Report To the members of PTB Group Limited Report on the Financial Statements We have audited the accompanying financial report of PTB Group Limited, which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors Responsibility for the Financial Statements 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 is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards (IFRS). Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 88 Independent Auditor’s Report for the year ended 30 June 2016 (Continued) Auditor’s Opinion In our opinion: a. the financial report of PTB Group Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2016 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included on pages 11 to 15 of the directors’ report for the year ended 30 June 2016. 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. Auditor’s Opinion In our opinion the Remuneration Report of PTB Group Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. Geoffrey Stephens Director Williams Hall Chadwick Dated this 23rd day of August 2016 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Shareholders’ Information for the year ended 30 June 2016 89 The shareholder applicable as at 9 August 2016. information set out below was (c) The names of the substantial shareholders (including related entities) listed in the company’s register are: (a) Distribution of Shareholders: Category (size of Holding) 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Class of equity security Ordinary Shares Options 26 107 54 121 41 349 Keybridge Capital RS Ferris Asir & Nek Private Limited CL Baker SG Smith (d) Voting Rights - - - - - - Number of Ordinary Shares Held Percentage % 9,502,664 9,221,049 5,179,970 3,227,074 2,392,834 19.84% 19.25% 10.82% 6.74% 5.00% (b) The number of ordinary shareholdings held in less than marketable parcels is 29. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Options carry no voting rights. (e) 20 Largest Shareholders — Ordinary Shares (Quoted): Number of Ordinary Fully Paid Shares Held Percentage % KEYBRIDGE CAPITAL LIMITED MR ROYSTON STEPHEN FERRIS ASIR & NEK PRIVATE LIMITED BAKER SUPERANNUATION PTY LTD MILTON YANNIS MR STEPHEN GARRY SMITH & MRS JUDITH ANN FLINTOFT ROCKET SCIENCE PTY LTD ROSS GEORGE YANNIS MARGARET HILLS GRAEME HILLS JUDITH FLINTOFT HUGH JONES MR GEORGE YANNIS & MRS THELMA YANNIS DAVID FAMILY SUPERANNUATION FUND PTY LTD MS CECILIA HAMILTON CROAKER MR EDWARD JAMES DALLY & MRS SELINA DALLY HARVEY PARKER LONGRO PTY LTD MRS SUSAN DEBORAH MARTIN-BAKER HUNTINGTON GROUP PTY LIMITED 9,502,664 9,221,049 5,179,970 2,492,696 1,581,837 1,504,834 1,231,945 1,192,756 1,055,288 1,022,066 888,000 851,182 734,184 530,548 481,621 475,653 466,001 459,544 433,599 422,499 39,727,936 19.84% 19.25% 10.82% 5.20% 3.30% 3.14% 2.57% 2.49% 2.20% 2.13% 1.85% 1.78% 1.53% 1.11% 1.01% 0.99% 0.97% 0.96% 0.91% 0.88% 82.95% Unquoted equity securities Number on issue Number of holders Options issued under the PTB Group Ltd Share Option Scheme to take up ordinary shares - - ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 90 Company Statistics for the year ended 30 June 2016 Revenue ($’000) +-Net profit/(loss) ($’000) Net Assets ($’000) Cash Flow from Operating Activities ($’000) Ordinary Shares fully paid (‘000) Return on average shareholders’ funds (%) Share price at year-end ($) NTA backing per Share (Cents) Dividend paid (Cents) per share in respect of each financial year Average AUD/USD exchange rate 2016 2015 2014 2013 2012 43,170 2,567 37,686 1,671 35,996 1,963 35,101 1,183 34,732 (11,137) 33,556 3,215 27,704 368 44,693 6,496 32,275 1,375 45,575 5,413 47,891 42,008 36,582 36,582 32,225 7.21 0.42 70 5 4.92 0.30 73 5 (28.47) 0.29 80 Nil 0.82 0.40 110 5.1 3.13 0.23 125 Nil $0.73 $0.84 $0.92 $1.03 $1.03 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Notes: 91 ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES 92 Notes: ANNUAL REPORT 2016PTB GROUP LIMITED AND CONTROLLED ENTITIES Corporate Directory and Information Directors Harvey Parker, Chairman Craig Baker, Managing Director and CEO Steve Ferris, Executive Director Stephen Smith, Executive Director Andrew Kemp, Non-executive Director Antony Sormann, Non-executive Director Company Secretary Daniel Zgrajewski Registered Office and Principal Administrative Office 22 Orient Avenue PINKENBA QLD 4008 Mailing Address PO Box 90 PINKENBA QLD 4008 Telephone: +61 7 3637 7000 Facsimile: +61 7 3260 1180 Share Registry Link Market Services Level 15, 324 Queen Street BRISBANE QLD 4000 Telephone: 1300 554 474 Facsimile: +61 7 3228 4999 Bankers Commonwealth Bank Business and Private Banking Level 21, 180 Ann Street Brisbane QLD 4000 Solicitors Talbot Sayer Lawyers Level 11, Brisbane Club Tower Post Office Square 241 Adelaide Street Brisbane QLD 4000 Auditor Hall Chadwick Qld Audit Level 19, 144 Edward Street Brisbane QLD 4000 Stock Exchange Listing The Company is listed on the Australian Securities Exchange ASX Code: PTB Internet address www.pacificturbine.com.au ANNUAL REPORT 30 June 2016 PO Box 90 PINKENBA QLD 4008 22 Orient Avenue PINKENBA QLD 4008 t 61 7 3637 7000 f 61 7 3260 1180 P T B G R O U P L I M I T E D A N N U A L R E P O R T 3 0 J u n e 2 0 1 6 ANNUAL REPORT 30 June 2016 ABN 99 098 390 991

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