PWR Holdings Limited ABN 85 105 326 850 ANNUAL REPORT 2017 PWR Holdings Limited 2017 Annual Report CONTENTS Shareholder Information 2 Chairman’s Letter 3 Managing Director’s Report 4 Directors’ Report 8 Lead Auditors Independence Declaration 24 Consolidated Statement of Profit or Loss and Other Comprehensive Income 25 Consolidated Statement of Financial Position 26 Consolidated Statement of Changes in Equity 27 Consolidated Statement of Cash Flows 28 Notes to the Consolidated Financial Statements 29 Directors’ Declaration 58 Independent Auditor’s Report 59 ASX Additional Information 63 PWR Holdings Limited ABN 85 105 326 850 (PWR, Company, Group, we, our) was listed on the Australian Securities Exchange on 18 November 2015. This review is for the year ended 30 June 2017 with comparison against the previous corresponding period ended 30 June 2016 (previous year or previous period). All reference to $ is a reference to Australian dollars unless otherwise stated. Individual items totals and percentages are rounded to the nearest approximate number or decimal. Some totals may not add down the page due to rounding. 1 The refreshed PWR logo on the front cover reflects that PWR is an advanced cooling technology company. Our cooling technology is used in most motorsports series around the world including Formula 1®, NASCARTM and World Rally Championship as well as the automotive aftermarket in Australia and USA. We supply bespoke cooling technology in emerging markets such as electric vehicles and battery cooling. Our technology sets us apart from our competition and provides clear growth opportunities. 2 PWR Holdings Limited 2017 Annual Report SHAREHOLDER INFORMATION DATE EVENT 5 September 2017 Record date for 2017 final dividend 4 September 2017 Ex-dividend date for 2017 final dividend 15 September 2017 Payment of 2017 final dividend 20 October 2017 2017 Annual General Meeting 31 December 2017 2018 Half year-end 23 February 2018* 2018 Half year results and investor presentation 06 April 2018* Proposed record date of 2018 interim dividend 30 June 2018 2018 Full year-end 24 August 2017* 2018 Annual results and investor presentation PRINCIPAL REGISTERED OFFICE PWR HOLDINGS LIMITED 103 Lahrs Road Ormeau, 4208 Queensland LOCATION OF SHARE REGISTRY COMPUTERSHARE INVESTOR SERVICES PTY LTD 117 Victoria Street West End, 4101 Queensland 2017 ANNUAL GENERAL MEETING The details of the 2017 Annual General Meeting for PWR Holdings Limited are: 10am (Brisbane time) on Friday 20 October 2017 OFFICES OF CORRS CHAMBERS WESTGARTH Level 42 One One One Eagle 111 Eagle Street Brisbane QLD 4000 * Indicative only, subject to change. CHAIRMAN’S LETTER 3 FY2017 has delivered solid revenue growth1 in PWR’s key motorsports markets whilst laying down the base for future growth and expansion through the building of a second aluminium heat exchanger core production line at our USA subsidiary in Indianapolis. We are confident that PWR is well placed to continue its revenue growth for future years which will convert into growing profitability. On behalf of the Board, I am pleased to present to you, PWR’s 2017 Annual Report. In its first full financial year as a listed company, PWR has increased its revenue, primarily from PWR’s key motorsports market and has established a strategic platform for future growth. PWR expanded its production capability at its Indianapolis factory and has made significant investments in the development of next generation cooling technology and in the capability of its engineering and production people and plant. Just prior to listing, PWR acquired C&R Racing Inc., based in Indianapolis. In FY 2017 as part of its technology and growth strategy, PWR installed a new aluminium heat exchanger core production line at C&R, which was commissioned in mid-August 2017. Ramping up production at C&R by installing the core production line was a strategic decision aimed at reducing equipment risk at the PWR Brisbane facility in Australia, and enabling PWR Brisbane to focus on next generation cooling cores. Increasing the production capability in Indianapolis to deliver Original Equipment Manufacturer (OEM) programs, also reduces PWR’s USD currency risk. The Net Profit After Tax for FY2017 of $9.3 million was driven by a very strong second half aligned to the seasonal activity in the motorsports industry, but has continued to be affected by unfavourable exchange rates. PWR has maintained its strong balance sheet with zero net debt and $9 million in cash at 30 June 2017, which has enabled the Board to increase the dividend payout ratio to 60% of full year NPAT. The Board has declared a final dividend for FY2017 of 4.7 cents per share, taking the full year dividend up to 5.6 cents per share. PWR’s staff worldwide have worked hard to deliver value to shareholders. The Board acknowledges PWR’s strong leadership and its DNA of Passion, Winning and Results. Thank you to our passionate employees. Bob Thorn retired as Chairman during the year due to a change in personal circumstances. I would like to acknowledge his contribution to the listing process and to our evolution into a listed company. Roland Dane joined the Board in March 2017; his industry knowledge and business acumen has already made a significant contribution to the PWR Board. You will see a refreshed PWR logo on the front cover. Whilst embodying the familiar PWR ellipse that is recognised around the world as a sign of cooling excellence, it now incorporates the tagline of Advanced Cooling Technology. At its heart, PWR is a business based on innovative and leading edge technology and manufacturing capability. It is important that PWR’s brand reflects this position. PWR is also focused on actively protecting its intellectual property rights in its technology and processes. On behalf of the Board, I would like to thank you, our shareholders, for your ongoing support of the PWR business. _______________________________ Teresa Handicott Chairman 1 Constant currency organic revenue growth 4 PWR Holdings Limited 2017 Annual Report MANAGING DIRECTOR’S REPORT OVERVIEW We are pleased to report that PWR has delivered a solid result for FY2017, reporting NPAT of $9.3 million. This result was driven by a combination of strong organic growth in the Great British Pound (GBP) denominated sales of over 27% through increased penetration into many of our key markets. The key driver of PWR’s long term revenue and earnings has been consistently strong growth in UK and European motorsports sales, with FY2017 being no exception. Revenue by Currency 30,000 25,000 20,000 15,000 10,000 5,000 0 27.7% -0.7% 3.5% AUD FY15 GBP FY16 USD FY17 Conversion of source currency to Australian dollars based on average exchange rate for each year FY17 category sales analysis1 3.9% (FY16 3.5%) 2.9% (FY16 4.1%) 4.8% (FY16 3.3%) 4.6% (FY16 3.7%) 17.8% (FY16 19.0%) 66.1% (FY16 66.4%) Motorsports Automotive Aftermarket Emerging Technologies Industrial OEM Other 1 Additional sales categories reported compared to FY16 FINANCIALS The FY2017 NPAT of $9.3 million represents a decrease of 13.8% from the Pro Forma 2016 NPAT of $10.8 million which excludes costs incurred in the Group’s IPO in 20151, however it is higher than the Statutory FY2016 NPAT of $8.7 million. PWR achieved revenue of $48.1 million, which is up by 1.6% on FY2016 despite the appreciation of AUD against GBP of 20.9% and against the United States dollar (USD) of 3.4% on average compared to FY2016. The revenue bridge below shows the organic revenue growth from FY2016 to FY2017 in underlying currencies being 12.8% but with this growth being offset by a negative 9.4% impact from the movement between AUD and the underlying currencies over the same period. Consolidated Revenue Bridge FY16 to FY172,3,4 6,075 (4,441) (865) 47,348 12.8% (9.4%) (1.8%) 48,117 55,000 50,000 45,000 40,000 35,000 30,000 FY16 Revenue Constant Currency Organic Growth FX Impact Exited Business Line FY17 Revenue Australian costs of production increased to deliver the GBP sales growth resulting in Group EBITDA5 reducing from $16.9 million in FY2016 to $14.7 million in FY2017. To put it simply, the exchange rate movements meant that we had to do more work to produce the same amount of AUD equivalent sales. 1 2 3 4 5 Pro Forma adjustments in FY16 relate to IPO costs ($2.7 million before tax) and interest costs ($0.2 million before tax) associated with bank facilities repaid from IPO proceeds Constant currency organic revenue growth is FY17 sales less FY16 sales at average FY17 exchange rates FX impact is FY16 sales adjusted for exchange rate movement from FY16 to FY17 Exited business line – refer discussion in PWR Australia and Europe section Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”) is a non-IFRS term which has not been subject to audit or review but has been determined using information presented in the Group’s financial report. MANAGING DIRECTOR’S REPORT continued PWR AUSTRALIA AND EUROPE PWR has been supplying motorsports with cooling technology since 1998. In FY2017 motorsports represented 66% of Group revenue with strong organic growth in our key UK/Europe markets. Our exposure in top level motorsports series such as Formula 1®, NASCARTM, WRC, Formula E, SuperGT (Japan) and Supercars keeps pushing the development of our cooling technology. Motorsport Revenue by Category 21.3% (FY16 16.7%) 4.1% (FY16 6.6%) 3.7% (FY16 5.2%) 5.8% (FY16 4.6%) 19.6% (FY16 21.7%) 45.5% (FY16 45.2%) F1 NASCAR WRC LMP GT Other Our growth in motorsports comes from new customers using PWR, increasing number of cooling requirements of existing customers, increasing take-up of PWR products by existing customers and customers moving to higher technology solutions. Our motorsports relationships with auto manufacturers such as Audi, Hyundai, Ferrari, Porsche, Toyota, and VW provide exposure of PWR technology and manufacturing capability to a wide range of influencers. During the year, PWR discontinued supply to a high volume, lower margin customer in USA as part of aligning our resources to the best net outcome. This has freed up significant furnace time at the PWR Australian production facility with minimal impact on EBITDA. The PWR business model has focussed on low volume, high technology and higher margin products. The addition of the new aluminium heat exchanger core production facility at C&R will allow PWR to use its Australian facilities to maintain its focus in this area. 5 C&R The acquisition of C&R in 2015 was to provide PWR with a better footprint and traction in USA markets. This is slowly proving itself evidenced by OEM contracts that C&R have been nominated on as supplier of cooling parts. Management has been reshaping the C&R business to deliver profitable growth. In FY2017 management has: 1. 2. 3. 4. Reviewed and decided to divest the C&R business at Mooresville, which is primarily the rental of drivetrain and other non-cooling related motorsports products; Discontinued supplying two customers from C&R Indianapolis for non-cooling products. These products consumed significant time from our CNC machines which will now be redirected to cooling related work such as billet tanking; Built a new aluminium heat exchanger core production line at Indianapolis. This is to increase our overall production capacity plus to allow C&R to focus on higher volume production runs such as some of the niche OEM programs we have announced; and Increased management strength through the appointment of Jim Ryder as General Manager USA. Jim has a strong history in motorsports cooling as well as considerable OEM experience. Whilst the proposed divestment of C&R Mooresville based business plus discontinued lines will reduce revenue at C&R by approximately US$1.7 million per annum moving forward, the forecast reduction in EBITDA is limited at US$0.2 million. This will align our resources into more profitable cooling opportunities in motorsports, OEM programs and emerging technologies consistent with PWR’s concentration on cooling technology and its trading margin capability. OEM PROGRAMS* PWR has been selected as a cooling assembly supplier on two OEM programs in North America which will contribute significant revenue in future years. PWR has also received nomination for an OEM program in UK/Europe. Additionally PWR is in the prototyping or development phase with other programs that may develop into supply programs. The strong engineering relationships that PWR have with many automotive manufacturers through motorsports and other advanced cooling projects provides PWR with opportunities in niche OEM programs. * Future revenue from OEM programs is dependent on many factors such as success of the vehicle sales, timing of production, specification changes and order rate of product from the manufacturer. 6 PWR Holdings Limited 2017 Annual Report MANAGING DIRECTOR’S REPORT continued RESOURCES FY2017 has been a year of investment into resources for the Group. We have increased our engineering and production headcount by 19.6%. We have increased the capacity of our machine shops with two new CNC machines, primarily to deal with the increased business from providing billet tanks as part of our technology offering. The new C&R core production line also expands our production capacity. The Group is committed to ensuring it has sufficient resources to take advantage of future opportunities which is part of our being “resource ready” philosophy. CASH FLOW The Group generated cash from operating activities for FY2017 of $13.5 million which is reflected in our year end cash position of $9 million. The Group has consistently shown strong cash generation with the conversion of EBITDA to operating cash being over 90%. OUTLOOK We see continuing growth in UK/Europe motorsports sales including opportunities in MotoGP and Formula E over the coming year plus have specific OEM programs coming on line over the next few years. Aftermarket sales in USA should benefit from having the core production localised at C&R. Electric vehicles in the emerging technology sector are evolving into a market where the combination of PWR’s R&D capacity, flexible manufacturing and testing capability suits demand for low run production. PWR is continuing to develop its cooling technologies and expects to be able to introduce its next generation cooling cores during the coming year. The continuing imbalance between our GBP revenue to AUD production costs means exchange rate volatility will continue to affect results. PWR continues to be presented with new opportunities and we believe that these will continue to drive revenue and profit growth into the future. 7 FINANCIAL REPORT For the year ended 30 June 2017 Directors’ Report 8 Lead Auditors Independence Declaration 24 Consolidated Statement of Profit or Loss and Other Comprehensive Income 25 Consolidated Statement of Financial Position 26 Consolidated Statement of Changes in Equity 27 Consolidated Statement of Cash Flows 28 Notes to the Consolidated Financial Statements 29 Section A: About this Report 29 Section B: Business Performance 30 Section C: Operating Assets and Liabilities 33 Section D: Employee Benefits 39 Section E: Taxation 41 Section F: Capital Structure and Borrowings 44 Section G: Group Structure 48 Section H: Other Information 51 Directors’ Declaration 58 Independent Auditor’s Report to the Members of PWR Holdings Limited 59 ASX Additional Information 63 8 PWR Holdings Limited 2017 Annual Report DIRECTORS’ REPORT For the year ended 30 June 2017 The Directors present their report together with the financial report of PWR Holdings Limited (the “Company”) and its controlled entities (the “Group”) for the year ended 30 June 2017 and the auditor’s report thereon. 1. DIRECTORS The Directors of the Company at any time during or since the end of the financial year are: Director Teresa Handicott Interim Independent Chairman, Non-Executive Director Appointed NED 1 October 2015 Appointed Interim Chairman 3 March 2017 Chairman of Nomination and Remuneration Committee Member of Audit and Risk Committee Experience Teresa spent over 30 years practicing as a corporate lawyer, specialising in mergers and acquisitions, capital markets and corporate governance. She was a partner of national law firm Corrs Chambers Westgarth for 22 years, including seven years as a member of its National Board and four years as National Chairman prior to her retirement from the partnership in June 2015. Teresa is a director of ASX listed company Downer EDI Limited and of LGE Holding Company Pty Ltd, trading as Peak Services, a subsidiary of The Local Government Association of Queensland (LGAQ), which is responsible for the LGAQ’s commercial operations. Teresa serves on the Queensland University of Technology (QUT) Council, chairing the Audit and Risk Committee and is a member of the Investment and Borrowings Committee. She is a director of Bangarra Dance Theatre Limited, chairing its Remuneration Committee. Teresa is a Divisional Councillor of the Queensland Division of the Australian Institute of Company Directors (AICD) and a member of the AICD’s National Law Committee. She sits on the Sunshine Coast Council’s Economic Futures Board and is a Member of Chief Executive Women (CEW) where she serves on the Scholarship Committee, is a Senior Fellow of Finsia and a Graduate of the AICD. Teresa was previously a Member of the Takeovers Panel, Associate Member of the Australian Competition and Consumer Commission (ACCC), Member of the Finsia Queensland Regional Council, Director of CS Energy Limited, Principal Law Lecturer for the Securities Institute of Australia (now Finsia) and Tutor in Corporate Governance for the AICD Directors Course. Year of next scheduled re-election 2017 Current directorships of listed entities Downer EDI Limited (appointed 24 June 2016, effective 21 September 2016) Directorships of listed entities over last 3 years Nil DIRECTORS’ REPORT For the year ended 30 June 2017 1. DIRECTORS (CONTINUED) Director Jeffrey Forbes Independent, Non-Executive Director Appointed 7 August 2015 Chairman of Audit and Risk Committee Member of Nomination and Remuneration Committee 9 Experience Jeff has 35 years’ experience in senior finance and management roles with extensive mergers and acquisitions experience. Jeff retired in March 2013 as Chief Financial Officer, Executive Director and Company Secretary of Cardno, an ASX-listed engineering consultancy company. Prior to joining Cardno, Jeff was Chief Financial Officer and Executive Director at Highlands Pacific and has previously held senior finance roles in the resources sector. Jeff holds a Bachelor of Commerce from the University of Newcastle and is a Graduate of the Australian Institute of Company Directors. Jeff is a Non-Executive Director of Cardno and Chairman of Herron Todd White Australia and Herron Todd White Consolidated. Jeff also sits on the board of not-for-profit Horizon Housing Group and the AFSL company, Australian Affordable Housing. Year of next scheduled re-election 2018 Current directorships of listed entities Cardno Limited (appointed 27 January 2016) Directorships of listed entities over last 3 years CMI Limited (10 April 2014 to 29 February 2016) Kees Weel Managing Director and Chief Executive Officer Appointed 30 June 2003 Affinity Education Group Limited (6 November 2013 to 15 December 2015) Exoma Energy Limited (1 July 2014 to 27 February 2015) Talon Petroleum Limited (4 April 2013 to 3 November 2014) Kees has in excess of 30 years of experience in the automotive cooling industry. He is a key relationship and business development manager for top tier local and overseas customers. Kees also actively leads the product development management team. Kees was a team principal of PWR Racing V8 Super Car Team 1998-2007 and was a board member for Tega V8 Supercars in 2007. Year of next scheduled re-election Not applicable Current directorships of listed entities Directorships of listed entities over last 3 years Nil Nil Roland Dane Independent, Non-Executive Director Appointed 1 March 2017 Member of Audit and Risk Committee Roland has extensive automotive business experience in the UK and Australia. Roland was the founder of the Park Lane (UK) vehicle acquisition business in the UK some 30 years ago. He is an owner of the highly successful Triple Eight Race Engineering which has won 8 out of the last 10 Supercars championships. Member of Nomination and Remuneration Committee Year of next scheduled re-election Current directorships of listed entities Directorships of listed entities over last 3 years 2017 Nil Nil 10 PWR Holdings Limited 2017 Annual Report DIRECTORS’ REPORT For the year ended 30 June 2017 1. DIRECTORS (CONTINUED) Former Director Robert (Bob) Thorn Independent Chairman, Non-Executive Director Appointed 7 August 2015 Resigned 3 March 2017 Member of Audit and Risk Committee Member of Nomination and Remuneration Committee Experience Bob brought considerable board and senior management experience to PWR following his nine years as Managing Director of Super Retail Group. He was previously General Manager at Lincraft, and held senior roles at other major retailers including nine years with David Jones. Bob has also been the Chairman of MotorCycle Holdings, Cutting Edge, and a Director at WOW Sight and Sound, Babies Galore, and Unity Water. Bob is a Non-Executive Director of Myer, a position he has held since February 2014. 2. COMPANY SECRETARY Lisa Dalton (B.App.Sc., M.App.Sc., LLB (Hons), FAICD, FCIS) was appointed as Company Secretary on 7 August 2015. Lisa is an experienced governance professional having been company secretary of a number of listed and unlisted companies over the past 17 years. 3. DIRECTORS’ MEETINGS The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended by each of the Directors of the Company during the financial year are: Director Kees Weel Jeffrey Forbes Teresa Handicott Roland Dane Bob Thorn (resigned 3 March 2017) Board Meetings Audit and Risk Committee Meetings Nomination and Remuneration Committee Meetings Attended Held Attended Held Attended Held 12 12 12 4 8 12 12 12 4 8 – 4 4 1 3 – 4 4 1 3 – 4 4 1 3 – 4 4 1 3 4. PRINCIPAL ACTIVITIES The Company’s registered office and principal place of business is 103 Lahrs Road, Ormeau, Queensland 4208. The principal activities of the Group during the year were the design, engineering, production, testing, validation and sales of customised aluminium cooling products and solutions to the motorsports, automotive original equipment manufacturing (“OEM”), automotive aftermarket and emerging technologies sectors for domestic and international markets. Other than items outlined in the Operating and Financial review, there were no significant changes in the nature of the activities of the Group during the year. DIRECTORS’ REPORT For the year ended 30 June 2017 5. OPERATING AND FINANCIAL REVIEW Summary of financial results Profit and loss summary Revenue EBITDA1 (FY16 excluding IPO costs) EBITDA margin ( FY16 excluding IPO costs) Net profit after tax (FY16 including IPO costs) Operating cash flow Earnings per share 11 FY17 A$’000 FY16 A$’000 FY16 to FY17 % 48,117 14,728 30.6% 9,280 13,529 47,348 16,903 35.7% 8,735 16,599 9.28 cents 9.31 cents + 1.6% - 12.9% + 6.2% - 18.5% 1 Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”) is a non-IFRS term which has not been subject to audit or review but has been determined using information presented in the annual financial report. Revenue The Group achieved overall revenue growth of 1.6% compared to the prior corresponding period. Organic revenue growth of 11.0% was offset by unfavourable movements in exchange rates due to the strengthening of the AUD. Organic revenue growth comprised increases in GBP sales of 27.7% and AUD sales of 3.5% compared to the prior corresponding period. USD sales declined by 0.7% following the decision to focus on supporting and developing higher margin business. EBITDA The lower EBITDA and EBITDA margin in FY17 compared to the prior corresponding period was mainly due to: – – The flow on effect of the stronger AUD, particularly in relation to GBP; 14.0% increase in employee costs to achieve FY17 organic revenue growth of 11.0% and developing capacity to deliver on future growth opportunities. Underlying this increase was a 14.4% increase in average global headcount from the prior corresponding period, including 19.6% growth in average engineering and production headcount; and – Growth in general and administration costs of $0.80 million reflecting, in part, a full year of public company costs and additional marketing spend to promote the PWR and C&R brands. Net profit after tax Net profit after tax of the Group for the year ended 30 June 2017 was $9.28 million (2016: $8.74 million, including the recognition of $2.67 million ($1.87 million after tax) of one-off expenses in relation to the initial public offering of the Company). Operating cash flow The Group continued its strong cash conversion with FY17 operating cash flow of $13.53 million, a conversion of 91.9% from EBITDA. Operating cash flow was lower than the prior corresponding period due to: – $1.39 million increase in inventories during the year (including inventories classified as assets held for sale) as the Group invested in raw materials and heat exchanger cores manufactured by PWR and held in stock at C&R to ensure sufficient inventory to achieve expected growth in demand; and The flow on effect of revenue and EBITDA impacts outlined above. – 12 PWR Holdings Limited 2017 Annual Report DIRECTORS’ REPORT For the year ended 30 June 2017 5. OPERATING AND FINANCIAL REVIEW (CONTINUED) Foreign currency The Group is exposed to movements in foreign exchange rates, with consolidated revenue generated in various currencies as outlined below: British pounds (GBP) US dollars (USD) Australian dollars (AUD) FY17 % 50.3 37.5 12.2 FY16 % 48.6 39.8 11.6 Review of operating segments The Group has two operating segments, PWR Performance Products which comprises its Australian and European operations, and C&R which comprises its USA operations. The PWR Performance Products segment generated external revenue of $31.78 million (2016: $30.73 million), primarily arising from increased market penetration in the motorsports sector in the United Kingdom and Europe, however unfavourable movement in average GBP exchange rates offset the majority of these revenue gains. The C&R segment generated external revenue of $16.34 million (2016: $16.62 million), with organic growth of 1.7% offset by 3.4% unfavourable movement in average USD exchange rates. Review of principal businesses During the year ended 30 June 2017, in addition to the items outlined above, the Group: – Was selected as cooling assembly supplier for two OEM programs in North America, with one commencing production during the year; – Received nomination as cooling assembly supplier for a niche OEM program in Europe; – Continued other OEM development and prototype work; – Commenced the construction of a new aluminium heat exchanger core production line at C&R in the USA, which will be operational in Q2 FY18, to increase overall production capacity, focus on longer run production programs and release production capacity at the existing Australian facility to focus on research and development, bespoke production and the domestic aftermarket; – Established a US$4.0 million bank facility to assist with the financing of the new aluminium heat exchanger core production line; and – Moved to exit lower margin, non-cooling business to focus resources on supporting and developing higher margin business. As a result, $0.85 million of inventories and $0.21 million of property, plant and equipment were reclassified to assets held for sale at 30 June 2017. DIRECTORS’ REPORT For the year ended 30 June 2017 13 5. OPERATING AND FINANCIAL REVIEW (CONTINUED) Balance sheet management The balance sheet remains strong with cash of $9.06 million (30 June 2016: $8.80 million) and a zero net debt position. Working capital increased during the year as the Group invested in raw materials and heat exchanger cores manufactured by PWR and held in stock at C&R to ensure sufficient inventory to achieve expected growth in demand. Capital expenditure for the year was $3.87 million (FY16: $2.41 million) including $1.92 million for the C&R heat exchanger core production line. Business risks PWR recognises the importance of and is committed to the identification, monitoring and management of material risks associated with its activities. The following information sets out the material risks of PWR which are kept under review and actively managed within PWR’s risk management framework. These are not in any particular order. Strategic Operational Loss of key management personnel – – Damage to or dilution of PWR brand or market position – – – Loss of critical supply inputs or infrastructure Loss of intellectual property rights Loss of data security and integrity Financial – Currency volatility Significant changes in the state of affairs Other than as outlined in the operating and financial review, there were no significant changes in the nature of the activities of the Group during the year. 6. DIVIDENDS Dividends paid or declared by the Company to members since the end of the previous financial year were: Declared and paid during the year Final 2016 ordinary Interim 2017 ordinary Total amount Cents per share Total amount $ Date of payment 3.78 0.90 3,780,000 19 September 2016 900,000 4,680,000 7 April 2017 Declared after end of year The following dividends were declared by the Directors since the end of the financial year: Final 2017 ordinary Total amount Cents per share Total amount $ Date of payment 4.70 4,700,000 15 September 2017 4,700,000 The financial effect of this dividend has not been brought to account in the consolidated financial statements for the year end 30 June 2017 and will be recognised in subsequent financial reports. There is no Dividend Re-investment plan in operation. 14 PWR Holdings Limited 2017 Annual Report DIRECTORS’ REPORT For the year ended 30 June 2017 7. LIKELY DEVELOPMENTS The Group will continue its strategy of increasing profitability and market share within existing markets and pursue opportunities in emerging markets during the next financial year. Further information about likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Group. 8. EVENTS SUBSEQUENT TO REPORTING DATE The Board declared a fully franked final dividend of 4.70 cents per share. The financial effect of this dividend has not been brought to account in the consolidated financial statements for the year ended 30 June 2017. Other than the matter noted above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. 9. DEED OF CROSS GUARANTEE Pursuant to ASIC Corporations (wholly owned Companies) Instrument 2016/785, wholly owned subsidiaries, PWR Performance Products Pty Ltd and PWR IP Pty Ltd, are relieved from the Corporations Act 2001 requirements for the preparation, audit and lodgement of financial reports, and Directors’ reports. In accordance with the Class Order, the Company and each of the subsidiaries entered into a Deed of Cross Guarantee, with the effect of the Deed being that the Company guarantees to each creditor, payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. 10. ENVIRONMENTAL REGULATION The Group is not subject to any significant environmental regulations. 11. INDEMNIFICATION AND INSURANCE OF OFFICERS The Group has indemnified the Directors and Executives for costs incurred, in their capacity as a Director or Executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Group paid insurance premiums in respect of a contract to insure the Directors and Executives of the Group against a liability to the extent permitted by the Corporations Act 2001. The insurance contract prohibits disclosure of the nature of liability and the amount of the premium. 12. PROCEEDINGS ON BEHALF OF THE COMPANY 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. 13. NON-AUDIT SERVICES During the year KPMG, the Group’s auditor, has not performed any services other than the audit and review of the financial statements. 14. LEAD AUDITOR’S INDEPENDENCE DECLARATION The lead auditor’s independence declaration is set out on page 24 and forms part of the directors’ report for the financial year ended 30 June 2017. 15. DIRECTORS INTERESTS Details of the Directors’ interests in the securities of the Company are disclosed in the remuneration report. At the date of this report their holdings do not differ from the amount held at 30 June 2017. DIRECTORS’ REPORT For the year ended 30 June 2017 15 16. REMUNERATION REPORT – AUDITED The information provided in this Remuneration Report has been prepared in accordance with section 300A of the Corporations Act 2001 (Cth). A. Key Management Personnel The remuneration report outlines remuneration for those people considered to be Key Management Personnel (KMP) of the Group during the Reporting Period. KMP are persons having authority and responsibility for planning, directing and controlling the activities of the Group. KMP consist of: – Non-Executive Directors; and – Executive Directors and certain senior executives. The table below summarises details of KMP of the Group that were KMP on 30 June 2017 or who were KMP during the financial year ended 30 June 2017, their roles and appointment/cessation dates. Key Management Personnel during the Reporting Period Name Role Appointment Date/(Cessation Date) Non-Executive Directors Teresa Handicott Interim Chairman and Non-Executive Director 1 October 2015 (Non-Executive Director) 3 March 2017 (Interim Chairman) Jeff Forbes Roland Dane Non-Executive Director Non-Executive Director 7 August 2015 1 March 2017 Executive Director and Senior Executives Kees Weel Marshall Vann Matthew Bryson Adam Purss Chris Jaynes Former KMP Earle Roberts Bob Thorn Managing Director General Manager General Manager, Engineering Chief Financial Officer General Manager, USA 30 June 2003 1 January 2017 11 April 2006 23 February 2015 25 January 2016/(31 July 2017) Chief Operating Officer 19 April 2016/(28 October 2016) Chairman, Non-Executive Director 7 August 2015/(3 March 2017) 16 PWR Holdings Limited 2017 Annual Report DIRECTORS’ REPORT For the year ended 30 June 2017 16. REMUNERATION REPORT – AUDITED (CONTINUED) B. Remuneration Governance The following shows the Board’s framework to establish and review remuneration for KMP and employees of the Group: Board Approves the overall remuneration framework and policy, ensuring it is fair, transparent and aligned with long term outcomes Nomination and Remuneration Committee (“NRC”) NRC is delegated to review and make recommendations to the Board on remuneration policies for non-executive directors, senior executives and all employees including incentive arrangements and awards. The NRC can appoint remuneration consultants and other external advisors to provide independent advice Managing Director Provides all relevant information to the NRC to facilitate the NRC making recommendations to the Board on remuneration decisions C. Non-Executive Director Remuneration C1. Policy A copy of the remuneration policy for Non-Executive Directors is available on the Group’s website. The Board’s Non-Executive Director remuneration policy is to: – Provide a clear fee arrangement that avoids potential conflicts of interest associated with performance incentives, – Remunerate Directors at market rates for their commitment and responsibilities, and – Obtain independent external remuneration advice when required. Non-Executive Directors receive remuneration for undertaking their role. They do not participate in the Group’s incentive plans or receive any variable remuneration. Non-Executive Directors are not entitled to retirement payments. The aggregate Non-Executive Director remuneration cap approved by shareholders in 2016 is $750,000 per annum (inclusive of superannuation contributions). The Board determines the distribution of Non-Executive Director fees within the approved remuneration cap. C2. Remuneration of Non-Executive Directors during Reporting Period The following table sets out the annual Board and Committee fees (inclusive of superannuation) for Non-Executive Directors during the reporting period. Upon the appointment of the Interim Chairman on 3 March 2017, the Board undertook a remuneration benchmarking exercise and reduced the annual fee for the Chairman’s role by $100,000 to $150,000 per annum. Role Chairman Interim Chairman Non-Executive Director Audit and Risk Committee Chairman Nomination and Remuneration Committee Chairman Timeframe Director Fees $ per annum 1 July 2016 to 3 March 2017 3 March 2017 to 30 June 2017 Reporting Period Reporting Period Reporting Period 250,000 150,000 95,000 20,000 20,000 DIRECTORS’ REPORT For the year ended 30 June 2017 17 16. REMUNERATION REPORT – AUDITED (CONTINUED) D. Executive Director and Senior Executive Remuneration D1. Remuneration policy for senior executives The Board’s policy for determining the nature and amount of remuneration for the Managing Director and other senior executives is: – Provide for both fixed and performance based remuneration, – Provide a remuneration package based on an annual review of employment market conditions, the Group’s performance and individual performance, and – Obtain independent external remuneration advice when required. The remuneration framework for senior executives comprises two elements: 1. Fixed remuneration; and 2. “At risk” or performance linked remuneration. D1.1 Fixed remuneration Fixed remuneration is a function of size and complexity of the role, individual responsibilities, experience, skills and market pay levels. This consists of cash salary, salary sacrifice items, employer superannuation, annual leave provisions and any fringe benefits tax charges related to employee benefits. Superannuation is paid at the relevant statutory contribution limit. The opportunity to salary sacrifice superannuation benefits on a tax-compliant basis is available upon request. The Board determines an appropriate level of fixed remuneration for the senior executives with recommendations from the Nomination and Remuneration Committee. Fixed remuneration is reviewed annually following performance reviews at the end of the financial year and takes into account role and accountabilities, relevant market benchmarks and attraction, retention and motivation of executives in the context of the talent market. The Managing Director and senior executives did not receive remuneration increases to their fixed remuneration during the Reporting Period or from 1 July 2017. D1.2 Performance linked remuneration Short-term incentive plan The Managing Director and senior executives are eligible to participate in the Group’s short-term incentive plan. Under the plan, participants have an opportunity to receive an annual cash bonus calculated as a percentage of their total fixed remuneration (“TFR”) and conditional on the achievement of short-term financial and non-financial performance measures at a corporate and individual level. For the year ended 30 June 2017, the operation of the short term-incentive plan had an EBITDA target, established by the Board at the commencement of the Reporting Period to trigger its operation. The EBITDA target was not achieved and no short-term incentives were awarded to the Managing Director or senior executives. The Board retains an overarching discretion to award an annual bonus. In exercising that discretion they have regard to the remuneration policy, market conditions and Group performance. 18 PWR Holdings Limited 2017 Annual Report DIRECTORS’ REPORT For the year ended 30 June 2017 16. REMUNERATION REPORT – AUDITED (CONTINUED) Analysis of cash bonuses included in remuneration The Board did not award the Managing Director or the senior executives a cash bonus for the Reporting Period: Employed at 30 June 2017 Position Max Potential Bonus % TFR Actual Bonus % TFR Bonuses included in FY17 remuneration $ Kees Weel Marshall Vann Matthew Bryson Adam Purss Chris Jaynes (i) Managing Director General Manager General Manager, Engineering Chief Financial Officer General Manager, USA 50% 30% 30% 30% 30% – – – – – – – – – – (i) Employed by C&R Racing Inc and remunerated in USD. Long-term incentive plan Shareholders approved the implementation of a long-term incentive plan (“LTIP”) at the 2016 Annual General Meeting (“AGM”). The LTIP is an equity-based incentive designed to provide participants with the incentive to deliver growth in shareholder value. Senior Executives receive performance rights (“Rights”) on an annual basis under the Performance Rights Plan, subject to the approval of the Board. The Managing Director is entitled to receive Performance Rights on an annual basis under the Performance Rights Plan, subject to approval of shareholders. One grant of Rights was made to the Senior Executives and Managing Director in the 2017 financial year following approval of Shareholders at the 2016 AGM. Rights convert to ordinary shares in the Company on a one-for-one basis at the end of the three-year performance period depending on the extent to which performance hurdles are achieved and service conditions met. The performance hurdles are the achievement of Total Shareholder Return (“TSR”) ranking criteria relative to the TSR of constituents of the S&P/ASX300 (excluding mining and exploration entities) and growth in annual Earnings Per Share (“EPS”) relative to a target set by the Board. Participants must remain continually employed with the Company until the date of vesting. Vesting on each tranche is as follows: TSR Ranking (50%) EPS Growth (50%) The percentage of Performance Rights linked to TSR will be 50%. TSR is calculated by an independent third party, comparing the TSR percentile rank that the Company holds relative to all S&P ASX 300 constituent companies (excluding Energy sector (oil, gas and coal)) for the relevant 3-year Performance Period. The percentage of the Performance Rights linked to the EPS hurdle will be 50%. Vesting is determined by the growth in EPS from the financial year immediately prior to the start of the Performance Period (base year) to the end of the third year of the Performance Period, measured against specific EPS targets outlined below. TSR Ranking Vesting outcome EPS Vesting outcome TSR is 50% or less Nil vesting EPS growth is 4% or less Nil vesting TSR is more than 50% but less than 75% Rateable vesting between 20% and 99% EPS growth is more than 4% but less than 12% Rateable vesting between 50% and 99% TSR is 75% or more 100% vesting EPS growth is 12% or more 100% vesting Rights that do not vest at the end of the three-year period lapse, unless the Board in its discretion determines otherwise. Upon cessation of employment prior to the vesting date, Rights will be forfeited and lapse. Rights do not entitle holders to dividends that are declared during the vesting period. The Board believes that performance hurdles, in combination, serve to align the interests of the individual senior executives with the interests of the Company’s shareholders. DIRECTORS’ REPORT For the year ended 30 June 2017 19 16. REMUNERATION REPORT – AUDITED (CONTINUED) E. Company performance and remuneration outcomes The various components of the way the Group remunerates key management personnel have been structured to support the Group’s strategy and business objectives which in turn are designed to generate shareholder wealth. When setting targets and determining the quantum of the remuneration increases and the proportion of fixed and performance linked remuneration components, the Board refers to remuneration benchmarking reports provided by independent sources and remuneration consultants from time to time. The at risk component (short-term incentive plan and long-term incentive plan) of the remuneration structure intends to reward achievement against Group and individual performance measures over one year and three-year timeframes, respectively. The table below summarises the Group’s performance in recent financial years: EBITDA (excluding IPO costs) Net profit after tax Total dividends per share Change in share price Earnings per share Note 2017 $ 2016 $ 2015 $ 14,727,640 16,903,003 13,024,518 9,280,143 8,735,466 8,909,175 5.60 cents 4.40 cents (0.43) 1.28 $13.78 N/A B5 9.28 cents 9.31 cents 10.90 cents PWR Holdings Limited listed on the ASX on 18 November 2015. F. Contract duration and termination requirements The Company has contracts of employment with no fixed tenure requirements with the Managing Director and senior executives. The notice period for each is outlined in the table below. Termination with notice may be initiated by either party. The contracts contain customary clauses dealing with immediate termination for gross misconduct, confidentiality and post-employment restraint of trade provisions. Name Executive Director Kees Weel Senior Executives Marshall Vann Matthew Bryson Adam Purss Chris Jaynes Position Notice Period Managing Director 6 months General Manager General Manager, Engineering Chief Financial Officer General Manager, USA 3 months 3 months 3 months 3 months 20 PWR Holdings Limited 2017 Annual Report DIRECTORS’ REPORT For the year ended 30 June 2017 % f o n o i t - u m e r - r o p o r P n o i t a r e n - r o f r e p e c n a m d e t a l e r – – – – – – – – $ l a t o T 0 0 0 5 1 1 , 3 3 8 5 9 , 0 6 8 5 2 1 , – 7 6 6 , 1 3 0 5 2 6 8 , 7 6 6 6 6 1 , 7 6 1 , 9 2 2 4 9 1 , 9 3 4 0 5 2 , 1 1 4 - e r a h S d e s a b s t n e m y a p m r e t - g n o L s t i f e n e b t s o P s t fi e n e B t n e m y o p m E l $ – – – – – – – – – – $ – – – – – – – – – – $ – – – – – – – – – – - r o f r e P e c n a m s t h g i r g n o L e v a e l e c i v r e s - i m r e T n o i t a n s t fi e n e b $ r e p u S s t fi e n e b $ l a t o T – – 7 7 9 9 , 4 1 3 8 , 9 1 9 0 1 , 3 8 4 7 , 0 6 4 4 1 , 7 6 2 6 1 , 6 5 3 5 3 , 4 6 0 2 3 , 9 1 5 7 8 , 1 4 9 4 1 1 , 3 2 0 5 0 1 , – 7 6 7 8 7 , 7 6 6 , 1 3 7 0 2 2 5 1 , 0 0 9 2 1 2 , , 8 3 8 3 0 4 6 8 1 , 9 7 3 $ – – – – – – – – – – $ – – – – – – – – – – s t fi e n e b h s a c - n o N h s a C s u n o B s t i f e n e b m r e t - t r o h S $ s e e f h s a C & y r a l a s 9 1 5 7 8 , 1 4 9 4 1 1 , 3 2 0 5 0 1 , – 7 6 7 8 7 , 7 6 6 , 1 3 7 0 2 2 5 1 , 0 0 9 2 1 2 , , 8 3 8 3 0 4 6 8 1 , 9 7 3 r a e Y 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 r o t c e r i D e v i t u c e x E - n o N , n a m r i a h C ’ s r o t c e r i D e v i t u c e x E - n o N - l a t o T n o i t a r e n u m e R r o t c e r i D e v i t u c e x E - n o N ) i i i ( e n a D d n a o R l ) v i ( n r o h T b o B r e m r o F s r o t c e r i D e v i t u c e x e - n o N r o t c e r i D e v i t u c e x E - n o N i ) i i ( t t o c d n a H a s e r e T ) i ( s e b r o F f f e J t n e r r u C r o t c e r i D e v i t u c e x E - n o N n a m r i a h C m i r e t n I f o s l i a t e D e m a N : e r a d o i r e P g n i t r o p e R e h t r o f p u o r G e h t f o e v i t u c e x e r o n e s d n a i r o t c e r i D h c a e f o n o i t a r e n u m e r j l f o t n e m e e r o a m h c a e f o t n u o m a d n a e r u t a n e h t ) D E U N I T N O C ( D E T I D U A – T R O P E R N O I T A R E N U M E R . 6 1 n o i t a r e n u m e R l e n n o s r e P t n e m e g a n a M y e K . G DIRECTORS’ REPORT For the year ended 30 June 2017 % f o n o i t - u m e r - r o p o r P n o i t a r e n - r o f r e p e c n a m d e t a l e r – – 3 5 . 1 . 4 1 4 3 . . 2 8 5 3 . . 7 8 3 3 . 1 . 0 2 – . 4 9 1 – – – – $ l a t o T $ - r o f r e P e c n a m s t h g i r $ g n o L e v a e l e c i v r e s – 6 0 1 , 9 3 4 , 6 2 2 3 3 4 0 4 0 8 4 1 , – – – 7 9 3 3 2 , , 3 9 3 6 9 2 7 2 0 0 1 , 0 7 0 , 1 3 3 , 1 2 0 7 2 2 2 0 1 , 5 4 2 , 4 7 8 9 2 2 2 6 6 7 9 , – 2 1 2 0 7 , 3 5 1 , 3 9 2 , 0 6 7 3 6 2 – 7 0 1 , 1 0 3 – – – – – – – – – 1 2 0 8 , 4 9 4 7 , 9 3 1 , 2 4 7 , 1 – , 7 8 5 3 3 6 , 1 9 3 9 8 4 , , 1 8 7 2 7 0 2 , 9 3 9 8 4 , , 9 8 3 3 5 1 , 2 – – – 6 3 5 5 , 7 9 4 5 , 5 5 9 3 , 1 9 2 4 1 , – – – – – – – – – 2 2 6 3 , 1 9 4 9 , 1 9 4 9 , 0 1 4 3 2 , 0 1 4 3 2 , $ – – – – – – – – – – - i m r e T n o i t a n s t fi e n e b – – – – – 6 9 9 , 1 9 1 6 9 9 , 1 9 1 5 9 3 4 0 1 , , 6 6 7 8 7 2 , 1 2 2 5 6 4 , – – 6 9 9 , 1 9 1 4 5 1 , 8 9 , 1 5 7 9 3 1 , 8 1 2 0 3 1 , 4 0 6 2 8 6 , 1 2 2 5 6 4 , – , 5 7 5 0 2 6 , 1 6 2 8 7 6 , 4 9 7 2 4 1 , , 1 6 7 9 9 9 , 1 6 2 8 7 6 , 4 9 7 2 4 1 , 1 4 1 , 9 8 7 , 1 0 5 2 3 3 , 9 9 3 9 2 , 3 1 5 2 1 , – 0 5 7 3 2 , 9 3 6 2 2 , 0 0 0 9 1 , 0 0 0 9 1 , 1 4 7 9 5 6 , 1 – 3 2 2 4 1 , 8 8 5 4 , 0 0 0 0 0 2 , – 3 2 9 6 7 3 , 0 3 3 8 9 3 , 7 2 5 5 3 1 , – , 1 6 6 8 5 2 0 4 1 , 4 9 2 3 2 9 6 2 , 3 6 9 5 1 , 0 1 8 3 , – 1 6 6 8 , 6 1 6 7 2 , 2 0 1 , 6 2 2 , 1 2 7 0 2 2 1 2 9 6 9 , – 3 3 9 6 8 , 4 2 6 5 6 , 5 5 8 4 , 8 2 1 , 7 3 0 6 2 , – – 5 1 7 3 , 2 1 8 0 2 , 6 2 3 9 3 2 , 7 5 5 8 , – 5 7 9 – – 2 3 1 , 0 0 3 7 1 5 4 , – – – – 3 1 2 , 1 6 – – 1 0 1 , 7 2 7 4 2 , 1 2 0 2 6 9 1 , – 3 1 6 3 1 , – – – – – – 4 5 1 , 1 2 3 8 1 7 , 1 3 1 0 0 0 0 5 3 , 0 0 0 0 5 2 , 3 2 4 9 3 2 , 0 0 0 0 0 2 , 0 0 0 0 0 2 , 2 9 5 3 1 2 , 8 9 6 4 7 , – – 3 3 9 6 8 , 6 9 2 8 4 , , 9 6 7 0 3 2 , 5 1 6 5 9 2 , 3 4 2 2 3 2 , 1 , 5 5 9 9 0 4 , 1 , 1 8 0 6 3 6 , 1 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 $ r e p u S s t fi e n e b $ l a t o T $ s t fi e n e b h s a c - n o N $ h s a C s u n o B $ s e e f h s a C & y r a l a s r a e Y i r o n e s d n a s r o t c e r i D e v i t u c e x E e m a N g n i r e e n g n E i , r e g a n a M l a r e n e G s s r u P m a d A r o t c e r i D g n g a n a M i r e g a n a M l a r e n e G n o s y r B w e h t t a M ) v ( n n a V l l a h s r a M s e v i t u c e x e l e e W s e e K t n e r r u C r e c i f f O l i i a c n a n F f e h C i n o i t a r e n u m e R ’ s e v i t u c e x e r o n e s i d n a ’ s r o t c e r i D e v i t u c e x E - l a t o T A S U , r e g a n a M l a r e n e G ) i v ( s e n y a J s i r h C ) i i v ( s t r e b o R e l r a E r e m r o F r e c i f f O g n i t a r e p O i f e h C A S U , r e g a n a M l a r e n e G r e g a n a M n o i t c u d o r P ) x i ( n e s l u a P s i r h C ) i i i v ( l e e W l u a P n o i t a r e n u m e R P M K - l a t o T - e r a h S d e s a b s t n e m y a p m r e t - g n o L s t i f e n e b t s o P s t fi e n e B t n e m y o p m E l s t i f e n e b m r e t - t r o h S ) D E U N I T N O C ( D E T I D U A – T R O P E R N O I T A R E N U M E R . 6 1 21 . l n a p e v i t n e c n i m r e t t r o h s e h t n i i e t a p c i t r a p t o n d d n e s l u a P s i r h C i . e t a r e g n a h c x e l a u n n a e g a r e v a e h t g n i s u D U A o t d e t r e v n o c n e e b s a h n o i t a r e n u m e R . D S U n i d e t a r e n u m e r s a w d n a 6 1 0 2 y r a u n a J 5 2 o t 5 1 0 2 h c r a M 7 2 m o r f A S U r e g a n a M l a r e n e G s a w n e s l u a P s i r h C ) x i ( e h t n i d e d u c n l i t o n e r a s e e f g n i t l u s n o c e s e h T . s s e c o r p O P I e h t h t i w e c n a t s i s s a s i h r o f i s e b r o F ff e J o t d a p e r e w 0 0 5 7 1 $ f o s e e f g n i t l u s n o c , , r o t c e r i D s a t n e m t n o p p a i s i h o t r o i r P . 5 1 0 2 t s u g u A 7 d e t n o p p A i ) i ( . e v o b a s t n u o m a . n a m r i a h C m i r e t n I s a 7 1 0 2 h c r a M 3 d n a r o t c e r i D e v i t u c e x E - n o N s a 5 1 0 2 r e b o t c O 1 d e t n o p p A i ) i i ( s e e f g n i t l u s n o c e s e h T . s s e c o r p O P I e h t h t i w e c n a t s i s s a i s i h r o f n r o h T b o B o t d a p e r e w 3 3 8 0 2 $ f o s e e f g n i t l u s n o c , , r o t c e r i D s a t n e m t n o p p a i s i h o t r o i r P . 7 1 0 2 h c r a M 3 d e n g i s e r , 5 1 0 2 t s u g u A 7 d e t n o p p A i . 7 1 0 2 h c r a M 1 d e t n o p p A i ) i i i ( ) v i ( . e v o b a s t n u o m a e h t n i d e d u c n l i t o n e r a . 7 1 0 2 y r a u n a J 1 d e t n o p p A i ) v ( s e n y a J s i r h C . e t a r e g n a h c x e l a u n n a e g a r e v a e h t g n i s u D U A o t d e t r e v n o c n e e b s a h n o i t a r e n u m e R . D S U n i d e t a r e n u m e r s i d n a 6 1 0 2 y r a u n a J 5 2 n o A S U , r e g a n a M l a r e n e G d e t n o p p a i s a w s e n y a J s i r h C ) i v ( . l n a p e v i t n e c n i m r e t t r o h s e h t n i i e t a p c i t r a p t o n d d i l e e W l u a P . 6 1 0 2 e n u J 1 m o r f P M K d e r e d i s n o c r e g n o l o N . 5 1 0 2 t s u g u A 7 r o t c e r i D e v i t u c e x E s a d e n g i s e R ) i i i v ( . 6 1 0 2 r e b o t c O 8 2 n o t n e m y o p m e d e s a e c l , 6 1 0 2 l i r p A 9 1 d e t n o p p A i ) i i v ( . 7 1 0 2 y u J l 1 3 n o d e n g i s e r 22 PWR Holdings Limited 2017 Annual Report DIRECTORS’ REPORT For the year ended 30 June 2017 16. REMUNERATION REPORT – AUDITED (CONTINUED) H. Share holdings of Key Management Personnel The movement during the year in the number of ordinary shares in PWR Holdings Limited held, directly, indirectly or beneficially, by each member of the Key Management Personnel, including their related parties, is as follows: Name Non-executive Directors Current Jeff Forbes Teresa Handicott Roland Dane Former Bob Thorn Executive Directors and Senior Executives Current Kees Weel Marshall Vann Matthew Bryson Adam Purss Chris Jaynes Former Earle Roberts Shareholdings of KMP Opening Balance 1 July 2016 Shares acquired during the year Shares disposed of during the year Closing Balance 30 June 2017 Other 20,000 13,500 N/A 400,000 38,368,500(i) – – – – – N/A 105,000 4,209,000 13,330 – 21,800 – – – – – – – – – – – – – – – – 64,000(ii) 20,000 13,500 64,000 (400,000)(iii) N/A – 38,368,500(i) 300,000(ii) 405,000 – 4,209,000(iv) – – 13,330 – (21,800)(iii) N/A (i) 38,368,500 shares held by KPW Property Holdings Pty Ltd as trustee for the KPW Holdings Trust. At 30 June 2017 Kees Weel is a director of the trustee and beneficiary of the trust. Shares subject to escrow until 31 August 2017. (ii) Shares held prior to appointment as KMP. (iii) Shares held at dates of cessation as KMP. (iv) Shares subject to escrow until 31 August 2017. DIRECTORS’ REPORT For the year ended 30 June 2017 23 16. REMUNERATION REPORT – AUDITED (CONTINUED) I. Options over equity instruments granted as remuneration Details of performance rights over ordinary shares in the Company that were granted as remuneration to members of KMP during the Reporting Period are shown in the table below. There were no alterations to the terms and conditions of performance rights granted as remuneration to KMP since their grant date. No performance rights vested and no performance rights were forfeited during the Reporting Period. Description of Rights Number of Rights Granted in FY17 Fair Value per Right at Grant Date TSR Component $ EPS Component $ % of Remuneration Granted as Rights during the Reporting Period Grant Date Vesting Date FY17 LTIP 64,958 0.86 2.37 21 Oct 2016 1 Sep 2019 5.3% FY17 LTIP 27,839 FY17 LTIP 22,271 FY17 LTIP 20,807 135,874 0.86 0.86 0.86 2.37 6 Dec 2016 1 Sep 2019 2.37 6 Dec 2016 1 Sep 2019 2.37 6 Dec 2016 1 Sep 2019 3.4% 3.5% 3.3% Kees Weel Managing Director Matthew Bryson General Manager, Engineering Adam Purss Chief Financial Officer Chris Jaynes General Manager, USA Total J. Remuneration consultants The Board did not retain remuneration consultants during the Reporting Period. K. Voting and comments made as the Company’s 2016 Annual General Meeting The Company received more than 75% of “yes” votes on its remuneration report for the 2016 financial year. The Company did not receive any specific feedback at the 2016 AGM on its remuneration report. L. Key management personnel transactions KMP, or their related parties, may hold positions in other entities that result in them having control, or joint control, over the financial or operating policies of those entities. These entities may transact with the Group. The terms and conditions of the transactions with KMP and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non- key management personnel related entities on an arms length basis. From time to time, directors of the Group, or their related entities, may purchase goods from the Group. These purchases are on the same terms and conditions as those entered into by other Group employees or customers, and are trivial or domestic in nature. This report is made with a resolution of the directors: _______________________________ ______________________________ Teresa Handicott Interim Chairman Dated at Brisbane, this 24th day of August 2017. Kees Weel Managing Director Dated at Brisbane, this 24th day of August 2017. 24 PWR Holdings Limited 2017 Annual Report LEAD AUDITORS INDEPENDENCE DECLARATION For the year ended 30 June 2017 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the directors of PWR Holdings Limited I declare that, to the best of my knowledge and belief, in relation to the audit of PWR Holdings Limited for the year ended 30 June 2017 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Jason Adams Partner Brisbane 24 August 2017 18 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 30 June 2017 Revenue Other income Raw materials and consumables used Changes in inventories of finished goods and work in progress Employee expenses Depreciation and amortisation Occupancy expenses Initial public offering costs Other expenses Results from operating activities Finance income Finance costs Net finance income/(costs) Profit before income tax Income tax expense Profit for the year attributable to equity holders of the parent Other comprehensive income Items that are or may be reclassified to profit or loss: Exchange differences on translating foreign operations Total comprehensive income for the year 25 Note B2 B2 2017 $ 2016 $ 48,117,463 47,347,604 677,175 81,155 (10,462,091) (10,796,591) 394,517 930,454 (19,350,105) (16,976,877) (1,473,311) (1,198,326) (1,664,775) (1,553,364) B3 – (2,665,936) (2,984,544) (2,129,378) 13,254,329 13,038,741 12,012 16,531 (316,746) (595,283) B4 (304,734) (578,752) 12,949,595 12,459,989 E1 (3,669,452) (3,724,523) 9,280,143 8,735,466 (410,998) 28,997 8,869,145 8,764,463 Basic and diluted earnings per share B5 9.28 cents 9.31 cents The accompanying notes are an integral part of these financial statements. 26 PWR Holdings Limited 2017 Annual Report CONSOLIDATED STATEMENT OF FINANCIAL POSITION At 30 June 2017 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Assets held for sale Current tax assets Other assets Total current assets Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Loans and borrowings Employee benefits Provisions Current tax liabilities Total current liabilities Non-current liabilities Loans and borrowings Employee benefits Total non-current liabilities Total liabilities Net assets EQUITY Issued capital Reserves Retained earnings Total equity The accompanying notes are an integral part of these financial statements. Note 2017 $ 2016 $ C1 C2 C3 C4 E2 C5 C6 C7 E2 C8 F1 D1 C9 E2 F1 D1 F2 F2 9,063,782 8,796,805 3,444,586 4,089,710 7,280,829 6,743,778 1,061,177 900,168 500,762 – – 631,403 22,251,304 20,261,696 7,890,294 5,909,144 14,129,058 14,174,350 2,022,508 1,821,995 24,041,860 21,905,489 46,293,164 42,167,185 2,920,829 2,662,196 289,832 1,420,656 114,367 396,621 969,807 119,009 – 408,648 4,745,684 4,556,281 473,808 112,090 763,641 123,765 585,898 887,406 5,331,582 5,443,687 40,961,582 36,723,498 25,920,826 25,920,826 152,006 514,065 14,888,750 10,288,607 40,961,582 36,723,498 27 Retained earnings $ Total equity $ 10,288,607 36,723,498 9,280,143 9,280,143 – (410,998) 9,280,143 8,869,145 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2017 Foreign currency translation reserve $ Share Capital $ Share based payments reserve Note Balance at 1 July 2016 25,920,826 514,065 – – – – – (410,998) (410,998) Total comprehensive income for the year Profit for the year Other comprehensive income Total comprehensive income Transactions with owners, recorded directly in equity Employee share-based payments Dividends paid Total transactions with owners Balance at 30 June 2017 D3 F3 – – – – – – – – – 48,939 – 48,939 – (4,680,000) (4,680,000) 48,939 (4,680,000) (4,631,061) 25,920,826 103,067 48,939 14,888,750 40,961,582 Balance at 1 July 2015 2,553,251 485,068 Total comprehensive income for the year Profit for the year Other comprehensive income Total comprehensive income Transactions with owners, recorded directly in equity Share issued during the year Dividends paid Total transactions with owners Balance at 30 June 2016 – – – – 28,997 28,997 F2 F3 23,367,575 – 23,367,575 – – – 25,920,826 514,065 The accompanying notes are an integral part of these financial statements. – – – – – – – – 2,173,141 5,211,460 8,735,466 8,735,466 – 28,997 8,735,466 8,764,463 – 23,367,575 (620,000) (620,000) (620,000) 22,747,575 10,288,607 36,723,498 28 PWR Holdings Limited 2017 Annual Report CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2017 Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operating activities Interest paid Income tax paid Net cash from operating activities Cash flows from investing activities Government grant income received Interest received Proceeds from sale of property, plant and equipment Payments for property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Payments for costs of initial public offering Dividends paid Repayment of borrowings Payment of finance lease liabilities Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 July Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 30 June The accompanying notes are an integral part of these financial statements. Note 2017 $ 2016 $ 48,832,471 47,887,825 (35,303,212) (31,288,555) 13,529,259 16,599,270 (47,768) (316,235) (4,536,762) (3,787,377) C1 8,944,729 12,495,658 75,860 12,012 165,655 81,155 16,531 51,718 (3,872,307) (1,271,513) (3,618,780) (1,122,109) – – 24,150,000 (3,783,685) (4,680,000) (620,000) – (22,451,143) (396,621) (901,163) (5,076,621) (3,605,991) 249,328 7,767,558 8,796,805 1,005,861 17,649 23,386 C1 9,063,782 8,796,805 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 29 SECTION A: ABOUT THIS REPORT A1 Reporting entity PWR Holdings Limited (the “Company”) is a Company domiciled in Australia. The consolidated financial statements of the Company as at and for the year ended 30 June 2017 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group Entities”). The Group is involved in the design, engineering, production, testing, validation and sales of customised aluminium cooling products and solutions to the motorsports, automotive original equipment manufacturing, automotive aftermarket and emerging technologies sectors for domestic and international markets. The Company’s registered office and principal place of business is 103 Lahrs Road, Ormeau, Queensland 4208. The Group is a for-profit entity for the purposes of preparing these financial statements. A2 Basis of preparation (a) Statement of compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB). The financial statements were approved by the Board of Directors on 24 August 2017. (b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for any derivative financial instruments which are recognised at fair value. (c) Functional and presentation currency These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency. (d) Use of estimates and judgements The preparation of consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about carrying values of the entities within the Group. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Information about critical judgements, estimates and assumptions in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the following notes: – Note C3 – Inventories – Note C7 – Intangible assets – Note C9 – Provisions Section E – Taxation – A3 Significant accounting policies The accounting policies set out in the individual notes to the consolidated financial statements have been applied consistently to all periods presented in these consolidated financial statements. A4 Foreign currency transactions and operations Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition are translated to the functional currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to the functional currency at exchange rates at the dates of the transactions. Foreign currency translation differences are recognised in other comprehensive income and presented in the foreign currency translation reserve in equity. 30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION A: ABOUT THIS REPORT (CONTINUED) A5 Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at reporting date. Derivative financial instruments Fair value, which is determined for recognition and disclosure purposes, is calculated based on valuation techniques using observable market inputs. SECTION B: BUSINESS PERFORMANCE B1 Operating segments The Group determines its operating segments based on information presented to the Managing Director being the chief operating decision maker, with operating segments based on the Group’s operating divisions. Intersegment pricing is determined based on cost plus margin. PWR Performance Products 2017 $ 2016 $ C&R Racing 2017 $ 2016 $ Total 2017 $ 2016 $ External revenues 31,775,704 30,726,192 16,341,759 16,621,412 48,117,463 47,347,604 Inter-segment revenues 4,903,727 4,510,909 395,125 359,262 5,298,852 4,870,171 Segment revenue Operating EBITDA1 36,679,431 35,237,101 16,736,884 16,980,674 53,416,315 52,217,775 12,929,273 15,687,196 1,668,779 1,590,246 14,598,052 17,277,442 Depreciation and amortisation 1,077,184 821,083 396,127 377,243 1,473,311 1,198,326 Segment profit/(loss) before interest and tax 11,852,089 14,866,113 1,272,652 1,213,003 13,124,741 16,079,116 Capital expenditure 2,176,079 1,972,565 1,696,228 440,868 3,872,307 2,413,433 1 Operating EBITDA is the segment’s profit from operations before interest, taxation, depreciation and amortisation. Reconciliation of reportable segment profit or loss Revenues Total revenue for reportable segments Elimination of inter-segment revenue Consolidated revenue Profit before tax Profit before tax for reportable segments Elimination of inter-segment profit Net finance income/(costs) Unallocated corporate expenses – IPO costs Consolidated profit before tax 2017 $ 2016 $ 53,416,315 52,217,775 (5,298,852) (4,870,171) 48,117,463 47,347,604 13,124,741 16,079,116 129,588 (374,439) (304,734) (578,752) – (2,665,936) 12,949,595 12,459,989 PWR Holdings Limited 2017 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 31 SECTION B: BUSINESS PERFORMANCE (CONTINUED) Geographic information The Group operates manufacturing facilities and/or sales offices in Australia, the UK and the USA, and sells its products to customers in various countries throughout the world. The information below is an analysis of the Group’s revenue on the basis of the location of the Group’s customers. Australia USA UK Italy Germany France Switzerland Finland Austria Japan Other countries (i) Excluding deferred tax assets. B2 Revenue and other income Revenue Sales of goods Rendering of services Other revenue Other income R&D tax incentive Government grant Recognition and measurement 2017 2016 Revenues $ Non-current assets(i) $ Revenues $ Non-current assets (i) $ 5,398,034 18,518,329 5,082,377 17,430,603 17,810,478 3,472,703 18,652,236 2,619,466 9,300,031 28,320 10,452,855 33,425 7,146,202 3,066,011 1,627,827 1,296,131 1,085,393 675,132 443,405 268,819 – – – – – – – – 6,669,487 4,006,646 988,756 427,076 176,049 93,779 216,187 582,156 – – – – – – – – 48,117,463 22,019,352 47,347,604 20,083,494 2017 $ 2016 $ 46,739,236 46,016,960 790,815 587,412 711,937 618,707 48,117,463 47,347,604 601,315 75,860 677,175 – 81,155 81,155 Sale of goods Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns and trade discounts. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. Rendering of services Revenue from rendering of services is recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date. 32 PWR Holdings Limited 2017 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION B: BUSINESS PERFORMANCE (CONTINUED) B3 Expenses Significant items During the prior year, the Company incurred $3.8 million before tax in one-off costs in relation to the initial public offering undertaken by the Company, of which $1.1 million was allocated to equity and $2.7 million was recorded as an expense. These non- recurring expenses are included in “Initial Public Offering Expenses” in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. B4 Finance income and expense Interest income Finance income Interest expense Net foreign exchange loss Finance costs Net finance costs 2017 $ 12,012 12,012 2016 $ 16,531 16,531 (47,768) (316,235) (268,978) (279,048) (316,746) (595,283) (304,734) (578,752) Recognition and measurement Finance income comprises interest income on funds invested and changes in the fair value of derivative financial instruments at fair value through profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Finance costs comprise interest expense on borrowings and changes in the fair value of derivative financial instruments at fair value through profit or loss. Interest expense is recognised as it accrues using the effective interest method. Foreign currency gains and losses on monetary assets and liabilities are reported on a net basis as either finance income or finance costs depending on whether foreign currency movements are in a net gain or net loss position. B5 Earnings per share Basic and diluted earnings per share 2017 2016 9.28 cents 9.31 cents Profit attributable to ordinary shareholders The calculation of both basic and diluted earnings per share was based on profit attributable to equity holders of the Company of $9,280,143 (2016: $8,735,466). Weighted average number of ordinary shares Issued ordinary shares at 1 July Effect of initial public offering on 18 November 2015 Weighted number of ordinary shares at 30 June 2017 No. 2016 No. 100,000,000 83,900,000 – 9,968,767 100,000,000 93,868,767 The impact of the performance rights issued by the Group during the year was not material to the calculation of the Group’s diluted earnings per share. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION C: OPERATING ASSETS AND LIABILITIES C1 Cash and cash equivalents Bank balances Cash on hand Cash and cash equivalents in the statement of cash flows Reconciliation of cash flows from operating activities Cash flows from operating activities Profit for the year Adjustments for: Depreciation and amortisation Net foreign exchange loss/(gain) Initial public offering costs classified as financing activities (Profit)/Loss on sale of property, plant and equipment Changes in: Trade and other receivables Inventories Other assets Trade and other payables Employee benefits Tax balances Net cash from operating activities C2 Trade and other receivables Trade receivables Trade receivables due from related parties (refer Note H2) 33 2017 $ 2016 $ 9,058,322 8,757,445 5,460 39,360 9,063,782 8,796,805 9,280,143 8,735,466 1,473,311 1,198,326 268,978 279,048 – 2,665,936 9,621 (40,856) 711,668 224,907 (1,390,313) (1,637,034) 64,098 253,992 439,174 780,312 831,985 109,013 (2,165,943) (651,445) 8,944,729 12,495,658 3,440,427 4,078,002 4,159 11,708 3,444,586 4,089,710 Recognition and measurement Trade and other receivables are initially recognised as fair value and subsequently measured at amortised cost less provision for doubtful debts. Trade receivables are due for settlement no more than 30-60 days from the date of recognition. C3 Inventories Raw materials Work in progress Finished goods Consumables Allowance for inventory obsolescence 2017 $ 2016 $ 3,007,675 2,014,449 588,623 595,679 3,978,442 4,899,453 303,174 191,627 (597,085) (957,430) 7,280,829 6,743,778 34 PWR Holdings Limited 2017 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION C: OPERATING ASSETS AND LIABILITIES (CONTINUED) Recognition and measurement Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first in first out principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories sold and recognised as an expense during the year ended 30 June 2017 was $24,653,073 (2016: $22,156,338). C4 Assets held for sale Part of the C&R segment is presented as assets held for sale following the commitment of the Group’s management to sell certain assets related to its operation located at North Carolina, USA. Efforts to sell the assets were well progressed at year end, with the transaction expected to conclude during the 2018 financial year. The sale related to non-cooling components of the business, with the Group intending to focus resources on supporting and developing higher margin, cooling related business. At 30 June 2017, the carrying value of assets held for sale was: Inventories Property, plant and equipment C5 Other assets Prepayments Deposits Other assets C6 Property, plant and equipment Plant and equipment – at cost Accumulated depreciation Motor vehicles – at cost Accumulated depreciation Under construction 2017 $ 2016 $ 853,262 207,915 1,061,177 109,257 348,399 43,106 – – – 319,122 167,609 144,672 500,762 631,403 11,650,924 10,628,238 (5,980,094) (5,055,810) 5,670,830 5,572,428 377,840 419,860 (243,278) (229,662) 134,562 2,084,902 190,198 146,518 7,890,294 5,909,144 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION C: OPERATING ASSETS AND LIABILITIES (CONTINUED) Reconciliations Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below: 2017 Cost Opening balance Additions Disposals Transferred to assets held for sale Effect of movements in exchange rates Closing balance Accumulated depreciation Opening balance Disposals Depreciation Transferred to assets held for sale Effect of movements in exchange rates Closing balance Net carrying amount 2016 Cost Opening balance Additions Disposals Effect of movements in exchange rates Closing balance Accumulated depreciation Opening balance Disposals Depreciation Effect of movements in exchange rates Closing balance Net carrying amount Plant and equipment Motor vehicles Under construction Total 10,628,238 419,860 146,518 11,194,616 1,893,620 40,303 1,938,384 3,872,307 (393,342) (75,970) (413,573) (64,019) – (6,353) – – – (469,312) (413,573) (70,372) 11,650,924 377,840 2,084,902 14,113,666 5,055,810 229,662 (279,654) (25,684) 1,431,424 41,887 (205,658) – (21,828) (2,587) 5,980,094 243,278 – – – – – – 5,285,472 (305,338) 1,473,311 (205,658) (24,415) 6,223,372 5,670,830 134,562 2,084,902 7,890,294 Plant and equipment Motor vehicles Under construction Total 8,428,985 449,389 19,025 8,897,399 2,285,940 – 127,493 2,413,433 (89,600) (28,981) 2,913 (548) – – (118,581) 2,365 10,628,238 419,860 146,518 11,194,616 (3,978,333) (191,541) 32,611 16,528 (1,136,339) (61,987) 26,251 7,338 5,055,810 229,662 – – – – – (4,169,874) 49,139 (1,198,326) 33,589 5,285,472 5,572,428 190,198 146,518 5,909,144 The plant and equipment balance as at 30 June 2017 includes assets with carrying amounts of $1,015,261 under finance lease (2016: $1,937,418). During the year, the Group did not acquire any assets under finance lease (2016: $1,138,910). 36 PWR Holdings Limited 2017 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION C: OPERATING ASSETS AND LIABILITIES (CONTINUED) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, and the costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Cost also may include transfers from other comprehensive income of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within other income in profit or loss. Subsequent costs Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group. Ongoing repairs and maintenance are expensed as incurred. Depreciation Depreciation is calculated to write off the cost of property, plant and equipment less their estimated residual values using the straight-line and/or diminishing value basis over their estimated useful lives, and is generally recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. The estimated useful lives are as follows: – Plant and equipment – Motor vehicles 2017 2016 2-7 years 2-7 years 4-6 years 4-6 years Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION C: OPERATING ASSETS AND LIABILITIES (CONTINUED) C7 Intangible assets 2017 Cost Accumulated amortisation 2016 Cost Accumulated amortisation Reconciliations 2017 Carrying amount at beginning of year Amortisation Effect of movements in exchange rates Balance at the end of the year 2016 Carrying amount at beginning of year Amortisation Effect of movements in exchange rates Balance at the end of the year Recognition and measurement 37 Note Goodwill Trademarks Total 3,143,692 10,985,366 14,129,058 – – – 3,143,692 10,985,366 14,129,058 3,188,984 10,985,366 14,174,350 – – – 3,188,984 10,985,366 14,174,350 3,188,984 10,985,366 14,174,350 – (45,292) – – – (45,292) 3,143,692 10,985,366 12,129,058 3,140,525 10,985,366 14,125,891 – 48,459 – – – 48,459 3,188,984 10,985,366 14,174,350 Goodwill Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. At the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination’s synergies. Goodwill is not amortised. Trademarks Separately acquired trademarks are measured initially at cost of acquisition. Trademarks acquired in a business combination are recognised at fair value at the acquisition date. Fair value is determined using the relief from royalty method. The Group’s trademarks are subsequently carried at cost less impairment losses and are not amortised as they are considered to have an indefinite useful life. Impairment Non-financial assets The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. Goodwill and trademarks with an indefinite life are tested annually for impairment. 38 PWR Holdings Limited 2017 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION C: OPERATING ASSETS AND LIABILITIES (CONTINUED) An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that largely independent of the cash inflows of other assets or CGU. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Impairment For the purpose of impairment testing, goodwill and trademarks are allocated to the Group’s cash generating units (CGUs) as follows: Goodwill Trademarks PWR Performance Products 2017 $ 2016 $ C&R Racing 2017 $ 2016 $ 1,931,000 1,931,000 1,212,692 1,257,984 8,432,116 8,432,116 2,553,250 2,553,250 10,363,116 10,363,116 3,765,942 3,811,234 The recoverable amount of each CGU was based on its value in use, determined by discounting the future cash flows to be generated from the continuing use of each CGU. The carrying amount of each CGU was determined to be less than its recoverable amount and accordingly, no impairment loss was recognised. Value in use is calculated based on the present value of the cash flow projections over a five year period and include a terminal value at the end of year five. The cash flow projections over the five year period are based on the Group’s budget for 2018 and growth over the forecast periods based on the Group’s business plans and management’s assessment of the impacts of underlying economic conditions, past performance and other factors on each CGU’s financial performance. For the C&R CGU, the cashflow projections include management’s estimate of the expected growth from C&R’s involvement in OEM programs as a cooling assembly supplier. The long term growth rate used in calculating the terminal value is based on long term inflation estimates for the country and industry in which each CGU operates. The cash flows are discounted to their present value using a pre-tax discount rate based on a weighted average cost of capital adjusted for country and industry specific risks associated with each CGU. Key assumptions used in the estimation of value in use were: PWR Performance Products Discount rate – pre tax Terminal value growth rate Revenue – compound annual growth rate C&R Racing Discount rate – pre tax Terminal value growth rate Revenue – compound annual growth rate 2017 % 2016 % 17.2% 2.0% 2.0% 15.9% 2.0% 11.8% 16.5% 2.0% 5.0% 15.5% 2.0% 2.0% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION C: OPERATING ASSETS AND LIABILITIES (CONTINUED) C8 Trade and other payables Trade and other payables are carried at amortised cost. Trade payables Other payables Recognition and measurement Trade and other payables are carried at amortised cost. Information about the Group’s exposure to currency and liquidity risk is disclosed in Note H1. C9 Provisions Warranties Carrying amount at beginning of year Provisions made during the year Provisions used during the year Provisions reversed during the year Effect of movements in exchange rates Balance at the end of the year Recognition and measurement 39 2017 $ 2016 $ 1,185,232 940,174 1,735,597 1,722,022 2,920,829 2,662,196 119,009 – – (3,140) (1,502) 99,688 17,693 – – 1,628 114,367 119,009 Warranties A provision for warranties is recognised when the underlying products are sold, based on historical warranty data and a weighting of possible outcomes against their assumed possibilities. Provision for warranties relates to products sold during the current and prior financial years. The provision is based on estimates made from historical warranty data. The Group expects to settle the majority of the liability over the next year. SECTION D: EMPLOYEE BENEFITS D1 Employee benefits Current Annual leave liability Long service leave liability Non-current Long service leave liability 1,138,689 281,967 1,420,656 744,724 225,083 969,807 112,090 123,765 During the year ended 30 June 2017, the Group contributed $962,692 (2016: $711,406) to defined contribution plans. These contributions are included in employee expenses in the statement of profit or loss and other comprehensive income. 40 PWR Holdings Limited 2017 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION D: EMPLOYEE BENEFITS (CONTINUED) Recognition and measurement Short-term employee benefits Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past services provided by the employee and the obligation can be estimated reliably. Long-term employee benefits The Group’s net obligation in respect of long-term employee benefits is the amount of future benefits that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Re-measurements are recognised in profit or loss in the period in which they arise. Share based payment transactions The grant-date fair value of share-based payment awards granted to employees is recognised as an expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. Termination benefits Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting date, then they are discounted. Defined contribution funds Obligations for contributions to defined contribution plans are expensed as the related service is provided. D2 Key management personnel compensation Key management personnel compensation comprised the following: Short-term employee benefits Termination benefits Post-employment benefits Share based payments Other long term benefits 2017 $ 2016 $ 1,682,604 1,999,761 191,996 139,751 48,939 9,491 – 130,218 – 23,410 2,072,781 2,153,389 D3 Share based payments During the year the Board approved the grant of performance rights to employees under the terms of the Performance Rights Plan (the Plan) following approval at the Company’s Annual General Meeting on 21 October 2016. Under the Plan, the Board may issue employees conditional performance rights for no consideration. Subject to the achievement of vesting conditions, the performance rights entitle the employee to receive ordinary shares in the Company at no cost. Vesting of the performance rights approved during the half year is subject to meeting a 3 year service condition and achievement of performance hurdles (based on either an EPS growth target or total shareholder return (TSR) ranking). The performance period for the rights issued is from 1 July 2016 to 30 June 2019. 135,875 performance rights were issued to key management personnel during the year with 50% subject to the EPS performance hurdle and 50% subject to the TSR performance hurdle. 135,875 performance rights remain on issue at 30 June 2017. In accordance with the Group’s accounting policy, the grant date fair values of the rights issued will be recognised as an expense over the vesting period. An expense of $48,939 was recognised during the year and included in “employee expenses” in the statement of profit or loss and other comprehensive income. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 41 SECTION D: EMPLOYEE BENEFITS (CONTINUED) Measurement of fair values The fair value of the TSR component of the performance rights has been measured using a Monte Carlo simulation. The fair value of the EPS component of the performance rights has been measured using the Black Scholes formula. The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payments were as follows: Fair value at grant date Share price at grant date Exercise price Expected volatility Risk free rate Expected life Expected dividends TSR component EPS component $0.86 $2.48 Nil 40.0% 1.92% $2.37 $2.48 N/A N/A N/A 2.73 years 2.73 years 1.62% 1.62% Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price prior to the grant date. SECTION E: TAXATION E1 Income tax expense Current tax expense Current period (over)/under provision in prior period Deferred tax expense Origination and reversal of temporary differences Over provision in prior period Total income tax expense Numerical reconciliation between tax expense and pre-tax accounting profit Profit for the period Total income tax expense Profit excluding income tax Income tax using the Company’s domestic tax rate of 30% Research and development expenses Effect of tax rates in foreign jurisdictions Other 2017 $ 2016 $ 4,074,792 4,585,616 (143,808) – 3,930,984 4,585,616 (196,403) (861,093) (65,129) – (261,532) (861,093) 3,669,452 3,724,523 9,280,143 8,735,466 3,669,452 3,724,523 12,949,595 12,459,989 3,884,879 3,737,997 (180,395) (50,000) (58,326) (43,296) 23,294 79,822 3,669,452 3,724,523 42 PWR Holdings Limited 2017 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION E: TAXATION (CONTINUED) Recognition and measurement Income tax on the profit or loss for the year comprises current and deferred tax. Current and deferred tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, or in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance date, and any adjustments to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: initial recognition of goodwill, the initial recognition of assets and liabilities that affect neither accounting nor taxable profit, and difference relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve series judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. E2 Tax assets and liabilities Current tax assets and liabilities The current tax asset of $900,168 (2016: liability of $408,648) represents the amount of income tax receivable/payable in respect of current and prior periods to the relevant tax authority. 43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION E: TAXATION (CONTINUED) Movement in deferred tax balances Net balance at 1 July $ Recognised in profit or loss $ Recognised in equity $ Exchange rate movements $ Net $ Deferred tax assets $ Deferred tax liabilities $ 2017 Property, plant and equipment – (451,182) Employee benefits 285,377 375,043 Accruals Inventories Unrealised foreign exchange Tax losses 273,329 (210,898) 322,932 448,251 (46,786) 47,553 – 361,806 Capital raising costs 975,149 (294,086) Other items Net tax assets/ (liabilities) 2016 Property, plant and equipment Employee benefits Accruals Inventories Unrealised foreign exchange 11,994 (80,084) 1,821,995 196,403 (86,549) 86,549 318,885 150,222 282,566 (19,238) 135,439 44,331 (70,070) 23,284 Tax losses 94,672 (94,672) – – – – – – – – – – – – – – – Capital raising costs – 639,825 335,324 (33,581) 45,575 – Other items Net tax assets/ (liabilities) 719 1,176 569 (1,262) (450,463) – (450,463) 661,596 63,000 769,921 661,596 63,000 – – 793,490 (23,569) (200) 567 25,241 (24,674) – – 361,806 681,063 361,806 681,063 – – 3,108 (64,982) 213,844 (278,826) 4,110 2,022,508 2,800,040 777,532 – – (14,270) 285,377 (12,332) 273,329 (3,965) 322,932 – 285,377 273,329 322,932 – – – – – – (46,786) – – – – – – – (46,786) – 975,149 975,149 11,994 11,994 656,145 861,093 335,324 (30,567) 1,821,995 1,868,781 (46,786) 44 PWR Holdings Limited 2017 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION F: CAPITAL STRUCTURE AND BORROWINGS F1 Loans and borrowings Current Finance lease liability Non-current Finance lease liability 2017 $ 2016 $ 289,832 396,621 473,808 763,641 During the prior year, the Group repaid in full its domestic foreign currency debt facilities of £7.2 million (A$13.8 million) and US$4.9 million (A$6.5 million). The repayment was funded by the proceeds of the initial public offering undertaken by the Company during the prior year. Finance facilities The terms and conditions of the Group’s finance facilities are as follows: Facility Trade finance Corporate credit card Finance lease Foreign currency advance facility Currency Nominal interest rate Maturity 2017 Facility limit $ Carrying amount $ 2016 Facility limit $ Carrying amount $ AUD AUD AUD Variable Variable – – 500,000 50,000 – – 500,000 50,000 – – 5.4%–8.2% 2017–2020 5,000,000 763,640 5,000,000 1,160,262 USD LIBOR+ 2.2% 2020 4,000,000 – – – Finance facilities are secured by charges over the Group’s assets. Under the terms of the agreements, the Company and several of its wholly owned subsidiaries jointly and severally guarantee and indemnify the lender in relation to the borrower’s obligations. Finance leases Finance lease liabilities are payable as follows: Less than one year Future minimum lease payments 2017 $ 2016 $ 317,018 440,337 Between one and five years 505,938 822,956 More than five years – – Interest 2017 $ 27,186 32,130 – Present value of minimum lease payments 2016 $ 43,716 59,315 – 2017 $ 289,832 473,808 – 2016 $ 396,621 763,641 – 822,956 1,263,293 59,316 103,031 763,640 1,160,262 The Group leases operating equipment used in the manufacturing process and motor vehicles under finance leases. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 45 SECTION F: CAPITAL STRUCTURE AND BORROWINGS (CONTINUED) Recognition and measurement Non-derivative financial liabilities The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest rate method. Interest-bearing loans and liabilities are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Derivative financial instruments The Group may use derivative financial instruments to manage its foreign currency exposures. Embedded derivatives are separated from the host contract and accounted for separately if certain criteria are met. Derivatives are recognised initially at fair value, any directly attributable transaction costs are recognised in profit or loss as they are incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognised in profit or loss. F2 Capital and reserves Share capital Ordinary shares Balance at beginning of year Share subdivision (i) Issued for initial public offering (ii) Transaction costs recognised during the year, net of tax 2017 No. of shares 2016 No. of shares $ $ 100,000,000 25,920,826 1,000,000 2,553,251 – – – – – – 82,900,000 – 16,100,000 24,150,000 – (782,425) Balance at end of year 100,000,000 25,920,826 100,000,000 25,920,826 (i) Share subdivision In October 2015, the Company subdivided its shares, with the existing 1,000,000 shares split into 83,900,000 shares. Initial public offering (ii) In October 2015, the Company issued a prospectus or the purposes of an initial public offering of 54.5 million shares at an offer price of $1.50 per share, comprising the sell down of 38.4 million existing shares by existing shareholders and the issue of 16.1 million new shares. As a result: – – – The Company listed on the Australian Securities Exchange (ASX code PWH) on 18 November 2015, raising $24.2 million; The Group repaid debt of £7.2 million (A$13.8 million) and US$4.9 million (A$6.5 million); The Company incurred $3.8 million before tax in costs in relation to the transaction, of which $1.1 million was allocated to equity and $2.7 million was recorded as an expense. 46 PWR Holdings Limited 2017 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION F: CAPITAL STRUCTURE AND BORROWINGS (CONTINUED) Capital management The Board aims to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the capital base as well as the level of dividends to ordinary shareholders. There were no changes in the Group’s approach to capital management during the year. Recognition and measurement Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares are recognised as a deduction from equity, net of any related income tax benefit. The Company does not have authorised capital or par value in respect of its issued shares. All shares are fully paid. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. Foreign currency translation reserve The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations, as well as the effective portion of any foreign currency differences arising from hedges of a net investment in a foreign operation. Share based payments reserve The share based payments reserve comprises the grant-date fair value of share-based payment awards granted to employees. F3 Dividends Dividends recognised in the current year by the Company are: 2017 Interim 2017 ordinary Total amount 2016 Final 2016 ordinary Total amount Cents per share $ Total amount $ Franked/ unfranked Date of payment 0.90 900,000 Franked 7 April 2017 900,000 3.78 3,780,000 Franked 19 September 2016 3,780,000 Franked dividends declared or paid during the year were franked at the tax rate of 30 percent. Dividend franking account 30 percent franking credits available to shareholders of PWR Holdings Limited 2017 2016 996,471 832,804 At 30 June 2017, the franking credits of the Group were 5,980,860. The ability to utilise the franking credits is dependent upon the ability to declare dividends. Recognition and measurement Dividends are recognised as a liability in the period in which they are declared. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION F: CAPITAL STRUCTURE AND BORROWINGS (CONTINUED) F4 Commitments Operating leases Non-cancellable operating leases are payable as follows: Less than one year Between one and five years More than five years 47 2017 $ 2016 $ 1,615,509 1,443,038 6,316,753 5,892,379 3,762,296 4,896,929 11,694,558 12,232,346 The Group leases its office and factory facilities under operating leases from related parties (refer Note H2) as well as from non- related entities. During the financial year ended 30 June 2017 $1,503,920 was recognised as an expense in the income statement in respect of operating leases (2016: $1,404,746). Recognition and measurement Leased assets Assets held by the Group under leases that transfer to the Group substantially all the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset. Assets held under other leases are classified as operating leases and are not recognised in the Group’s statement of financial position. Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Other commitments At 30 June 2017, the Group had agreed to purchase plant and equipment for $1,415,658 (2016: $764,280). 48 PWR Holdings Limited 2017 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION G: GROUP STRUCTURE G1 Parent entity information As at and throughout the financial year ended 30 June 2017, the parent and ultimate parent entity of the Group was PWR Holdings Limited. Statement of profit or loss and other comprehensive income Profit/(Loss) after income tax Total comprehensive income Statement of financial position Total current assets Total non-current assets Total assets Total current liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity 2017 $ 5,929,294 5,929,294 2016 $ 617,316 617,316 14,342 68,363 27,994,185 26,672,630 28,008,527 26,740,993 232,568 263,267 – – 232,568 263,267 27,775,959 26,477,726 25,920,826 25,920,826 48,939 – 1,806,194 556,900 27,775,959 26,477,726 Contingent liabilities The parent entity is party to a cross guarantee and indemnity in relation to the Group’s borrowing arrangements, refer Note F1. The parent had no other contingent liabilities at 30 June 2017. Capital commitments The parent entity had no capital commitments for property, plant and equipment at 30 June 2017. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in the notes. G2 Controlled entities The following entities are subsidiaries of the parent entity, the results of which are included in the consolidated financial statements of the Group. PWR Performance Products Pty Ltd PWR IP Pty Ltd PWR Europe Limited C&R Racing Inc Country of incorporation Australia Australia UK USA Ownership interest 2017 % 100 100 100 100 2016 % 100 100 100 100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 49 SECTION G: GROUP STRUCTURE (CONTINUED) G3 Deed of cross guarantee Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, the wholly owned subsidiaries listed below are relieved from the Corporations Act 2001 requirements for the preparation, audit and lodgement of financial reports, and Directors’ reports. It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed is that the Company guarantees to each creditor, payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Act, the Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is would up. The subsidiaries subject to the Deed are: PWR Performance Products Pty Ltd PWR IP Pty Ltd All subsidiaries became a party to the Deed on 18 May 2017. A consolidated statement of comprehensive income and consolidated statement of financial position, comprising the Company and controlled entities which are a party to the Deed, after eliminating all transactions between parties to the Deed of Cross Guarantee, for the year ended 30 June 2017 is set out below. As the deed was only entered into during the year ended 30 June 2017, no comparative information has been presented. Statement of profit or loss and other comprehensive income Revenue Other income Raw materials and consumables used Changes in inventories of finished goods and work in progress Employee expenses Depreciation and amortisation Occupancy expenses Other expenses Results from operating activities Finance income Finance costs Net finance income/(costs) Profit before income tax Income tax expense Profit for the year attributable to equity holders of the parent Total comprehensive income for the year 2017 $ 33,565,093 2,329,159 (6,444,681) 235,873 (13,282,241) (1,064,401) (1,001,807) (1,677,801) 12,659,194 446,745 (550,342) (103,597) 12,555,597 (3,649,962) 8,905,635 8,905,635 50 PWR Holdings Limited 2017 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION G: GROUP STRUCTURE (CONTINUED) Statement of financial position Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Current tax assets Other assets Total current assets Non-current assets Property, plant and equipment Intangible assets Related party loans Investments in subsidiaries Deferred tax assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Loans and borrowings Employee benefits Provisions Total current liabilities Non-current liabilities Loans and borrowings Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity 2017 $ 7,332,741 4,963,507 4,182,339 981,289 447,920 17,907,796 5,601,962 10,985,366 6,428,795 1,943,619 1,143,376 26,103,118 44,010,914 1,850,305 289,832 1,337,724 75,057 3,552,918 473,808 112,090 585,898 4,138,816 39,872,098 25,920,826 48,939 13,902,333 39,872,098 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 51 SECTION H: OTHER INFORMATION H1 Financial risk management The Group has exposure to the following risks arising from financial instruments: credit risk – – liquidity risk – market risk The note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and management risk, and the Group’s management of capital. Risk management framework The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management activities are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management activities are reviewed to reflect changes in market conditions and the Group’s operations. The Group aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry and country in which customers operate. Further details of concentration of revenue are included in Note B1. Management assesses each new customer for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the end of the reporting period was as follows. Cash and cash equivalents Trade and other receivables Note C1 C2 Carrying amount 2017 $ 2016 $ 9,063,782 8,796,805 3,444,586 4,089,710 12,508,368 12,886,515 Cash and cash equivalents The Group held cash and cash equivalents of $9,063,782 at 30 June 2017 (2016: $8,796,805), which represents its maximum credit exposure on these assets. The cash and cash equivalents are held with bank and financial institution counterparties, which are rated AA- to AA+, based on independent rating agency ratings. Trade and other receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group’s customer base, including the default risk of the country in which customers operate, as these factors may have an influence on credit risk. 52 PWR Holdings Limited 2017 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION H: OTHER INFORMATION (CONTINUED) Exposure to credit risk The maximum exposure to credit risk for trade and other receivables at the end of the reporting period by geographic region was as follows. Australia UK USA The ageing of the Group’s trade and other receivables at the end of the reporting date was as follows: Not past due Past due 1-30 days Past due 31-60 days Past due > 61 days Provision for impairment Carrying amount 2017 $ 2016 $ 701,948 1,135,783 1,479,048 1,620,964 1,263,590 1,332,963 3,444,586 4,089,710 2,899,843 3,136,387 442,837 101,776 80,870 771,742 157,088 24,493 3,525,326 4,089,710 (80,740) – 3,444,586 4,089,710 Management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historic payment behaviour and analysis of customer credit risk. Impairment losses of $80,740 were recognised in respect of trade and other receivables during the year (2016: nil). Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. In addition, the Group maintains the following lines of credit, see Note F1: – A$500,000 trade finance facility; – A$5,000,000 asset finance facility; – US$4,000,000 foreign currency advance facility; and – A$50,000 corporate credit card facility. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 53 SECTION H: OTHER INFORMATION (CONTINUED) The following are the remaining contractual maturities at the end of the reporting period of financial liabilities, including estimated interest payments. 2017 Trade and other payables Finance lease liabilities 2016 Trade and other payables Finance lease liabilities Carrying amount $ Note Total $ 12 months $ 1-5 years $ More than 5 years $ Contractual cash flows C8 F1 C8 F1 2,920,829 (2,920,829) (2,920,829) – 763,640 (822,956) (317,018) (505,938) 3,684,469 (3,742,785) (3,237,847) (505,938) 2,662,196 (2,662,196) (2,662,196) – 1,160,262 (1,263,293) (440,337) (822,956) 3,822,458 (3,925,489) (3,102,533) (822,956) – – – – – – Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Currency risk The Group is exposed to currency risk on its financial assets and liabilities arising from sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities, being the Australian dollar (AUD), Pound Sterling (GBP) and US dollar (USD). The currencies in which these transactions are denominated are primarily AUD, GBP and USD. Exposure to currency risk A summary of quantitative data about the Group’s exposure to currency risk on financial assets and liabilities at year end is as follows: Trade receivables Trade payables Net statement of financial position exposure Note C2 C8 30 June 2017 GBP AUD USD AUD 30 June 2016 GBP USD 437,661 878,551 1,160,494 518,034 914,775 1,410,291 (762,843) (79,715) (219,528) (336,161) (177,850) (94,307) (325,182) 798,836 940,966 181,873 736,925 1,315,984 Sensitivity analysis A strengthening (weakening) of the GBP or USD against the AUD at 30 June would have affected the measurement of financial instruments denominated in a foreign currency and increased or (decreased) equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. The analysis is performed on the same basis for 2016, albeit that the reasonably possible foreign exchange rate variances were different, as indicated below. 54 PWR Holdings Limited 2017 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION H: OTHER INFORMATION (CONTINUED) 30 June 2017 GBP (10% movement) USD (10% movement) 30 June 2016 GBP (10% movement) USD (10% movement) Profit or loss (net of tax) Equity (net of tax) Strengthening $ Weakening $ Strengthening $ Weakening $ 86,074 78,397 (94,681) (86,237) 86,074 78,397 (94,681) (86,237) 84,909 113,737 (93,400) (125,111) 84,909 113,737 (93,400) (125,111) Interest rate risk At the end of the reporting period the interest rate profile of the Group’s interest-bearing financial instruments as reported to the management of the Group was as follows. Fixed rate instruments Financial assets Financial liabilities Variable rate instruments Financial assets Financial liabilities Nominal amount 2017 $ – 2016 $ – (763,640) (1,160,262) (763,640) (1,160,262) 9,063,782 8,796,805 – – 9,063,782 8,796,805 Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the end of reporting period would have increased or (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. 30 June 2017 Variable rate instruments Cash flow sensitivity (net) 30 June 2016 Variable rate instruments Cash flow sensitivity (net) Profit or loss (net of tax) Equity (net of tax) 100bp increase $ 100bp decrease $ 100bp increase $ 100bp decrease $ 63,446 63,446 (63,446) (63,446) 63,446 63,446 (63,446) (63,446) 62,499 62,499 (62,499) (62,499) 62,499 62,499 (62,499) (62,499) Fair values The fair values of the Group’s financial assets and liabilities approximate their carrying amounts recognised in the statement of financial position. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 55 SECTION H: OTHER INFORMATION (CONTINUED) H2 Related party information Certain key management personnel, or their related parties, hold positions in other entities that result in them having control, joint control or significant influence over the financial or operating policies of these entities. A number of these entities transacted with the Group during the year. The terms and conditions of the transactions with key management personnel and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis. The aggregate value of transactions and outstanding balances relating to key management personnel and entities over which they have control, joint control or significant influence were as follows: Transaction values during year Balance outstanding Receivable/(Payable) Entity PWR Property Holdings Pty Ltd(i) Redback Radiators Pty Ltd(ii) Transaction Property rent Sales of goods Innotherm Pty Ltd(iii) Purchase of products Sales of goods Administrative services 2017 $ 2016 $ 2017 $ 147,092 878,757 – – – – 14,239 69,207 640 8,000 44,847 260,462 104,340 – – – – – – – 2016 $ – – – 704 – – – – Bayswater Road Radiators Pty Ltd(iv) Sales of goods 46,331 Paulsen Properties LLC(v) JG Parker Properties LLC(v) Property rent Property rent – – 4,159 11,004 Triple Eight Race Engineering Pty Ltd(vi) Sales of goods 4,784 – 1,419 (i) The Group leased its Australian head office and factory facilities from an entity associated with Kees Weel until 31 August 2016. (ii) Redback Radiators Pty Ltd is an entity that was associated with Kees Weel until 18 May 2016, which purchases goods and/or assets from the Group and sells products to the Group. (iii) Innotherm Pty Ltd is an entity that was associated with Kees Weel until 16 February 2016, which purchases goods from the Group. The Group provided administrative services to Innotherm Pty Ltd. (iv) Bayswater Road Radiators Pty Ltd is an entity associated with Kees Weel, which purchases goods from the Group. (v) The Group leases its USA office and factory facilities from entities associated with Chris Paulsen, who was KMP until 25 January 2016. (vi) Triple Eight Race Engineering is an entity associated with Roland Dane, which purchases goods from the Group. H3 Auditors’ Remuneration Audit services Auditors of the Group KPMG Audit of financial reports Accountability GB Audit of financial reports Other services Auditors of the Group KPMG Accountability GB Taxation Services 2017 $ 2016 $ 142,500 135,969 13,546 16,273 – – 1,623 1,633 56 PWR Holdings Limited 2017 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 SECTION H: OTHER INFORMATION (CONTINUED) H4 Subsequent events The Board declared a fully franked final dividend of 4.70 cents per share. The financial effect of the 2017 declared final dividend has not been brought to account in the consolidated financial statements for the year ended 30 June 2017. Other than the matter noted above, there has not arisen in the interval since the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Group, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. H5 New accounting standards New standards and interpretations not yet adopted A number of new standards and amendments to standards are effective for annual periods beginning after 1 July 2016 and earlier adoption is permitted, however the Group has not early adopted the following new or amended standards in preparing these consolidated financial statements. Disclosure Initiative (Amendments to AASB 107) The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. The amendments are effective for annual periods beginning on or after 1 January 2017, with early adoption permitted. To satisfy the new disclosure requirements, the Group intends to present a reconciliation between the opening and closing balances for liabilities with changes arising from financing activities. AASB 15 Revenue from Contracts with Customers AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 18 Revenue. AASB 15 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. Under AASB 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. The Group recognises revenue from the following sources: Sale of manufactured products; Sale of manufactured tooling fixtures which are used in the process of manufacturing products; – – – Provision of wind tunnel testing services; and – Recovery of freight and sale of scrap raw material. The Group’s current accounting policies for the recognition and measurement of revenue is disclosed in Note B2. The Group has completed an initial assessment of the application pf AASB 15 to these arrangements and is currently performing a more detailed assessment on areas identified as potentially being impacted. The Group expects to disclose additional quantitative information before it adopts AASB 15. The Group plans to adopt AASB 15 in its consolidated financial statements for the year ending 30 June 2019, using the retrospective approach. As a result, the Group will apply all of the requirements of AASB 15 to each comparative period presented and adjust its consolidated financial statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2017 57 SECTION H: OTHER INFORMATION (CONTINUED) AASB 16 Leases AASB 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. Lessor accounting remain similar to the current standard, ie. lessors continue to classify leases as finance or operating leases. The standard is effective for annual period beginning on or after 1 January 2019. Early adoption is permitted for entities that apply AASB 15 Revenue from Contracts with Customers at or before the date of initial application of AASB 16. The Group plans to apply AASB 16 initially in its financial statements for the year ending 30 June 2020. The Group has started an initial assessment of the potential impact on its consolidated financial statements, with the most significant impact identified so far being that the Group will recognise new assets and liabilities for its operating leases of factory and office facilities. In addition, the nature of expenses related to those leases will now change as AASB 16 replaces the straight- line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. The Group has not yet decided whether it will use the optional exemptions. No significant impact is expected for the Group’s finance leases. The Group has not yet quantified the impact on its reported assets and liabilities of adoption of AASB 16. The quantitative effect will depend on, inter alia, the transition method chosen, the extent to which the Group uses the practical expedients and recognition exemptions, and any additional leases that the Group enters into. The Group expects to disclose its transition approach and quantitative information before adoption. AASB 9 Financial Instruments AASB 9 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. The Group plans to apply AASB 9 initially in its financial statements for the year ending 30 June 2019. AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement and includes revised guidance on the classification and measurement of financial instruments, a new ‘expected credit loss model’ for calculating impairment on financial assets and new general hedge accounting requirements. The actual impact of adopting AASB 9 on the Group’s consolidated financial statements is not known and cannot be reliably estimated because it will be dependent on the financial instruments that the Group holds, if any, and economic conditions at the time as well as accounting elections and judgements that it will make in the future. The new standard will require the Group to revise its accounting processes and internal controls related to reporting financial instruments and these changes are not yet complete. 58 PWR Holdings Limited 2017 Annual Report DIRECTORS’ DECLARATION For the year ended 30 June 2017 DIRECTORS’ DECLARATION 1. In the opinion of the directors of PWR Holdings Limited (the “Company”): (a) the consolidated financial statements and notes that are set out on pages 25 to 57 and the Remuneration report in section 16 in the Directors’ report, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; (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. 2. 3. 4. There are reasonable grounds to believe that the Company and the group entities identified in Note G3 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those group entities pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2017. The directors draw attention to Note A2 to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards. Signed in accordance with a resolution of directors. ______________________________ Kees Weel Director Dated at Brisbane, this 24th day of August 2017. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PWR HOLDINGS LIMITED For the year ended 30 June 2017 59 Independent Auditor’s Report To the shareholders of PWR Holdings Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of PWR Holding Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2017; • Consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended; • Notes including a summary of significant accounting policies; and • Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year end and from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters The Key Audit Matter we identified was the valuation of goodwill and intangibles. Key Audit Matters are those matters that, in our professional judgment, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. (cid:24)(cid:26) (cid:46)(cid:51)(cid:48)(cid:42)(cid:15) (cid:68)(cid:81) (cid:36)(cid:88)(cid:86)(cid:87)(cid:85)(cid:68)(cid:79)(cid:76)(cid:68)(cid:81) (cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83) (cid:68)(cid:81)(cid:71) (cid:68) (cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:73)(cid:76)(cid:85)(cid:80) (cid:82)(cid:73) (cid:87)(cid:75)(cid:72) (cid:46)(cid:51)(cid:48)(cid:42) (cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78) (cid:82)(cid:73) (cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87) (cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85) (cid:73)(cid:76)(cid:85)(cid:80)(cid:86) (cid:68)(cid:73)(cid:73)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71) (cid:90)(cid:76)(cid:87)(cid:75) (cid:46)(cid:51)(cid:48)(cid:42) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79) (cid:38)(cid:82)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72) (cid:11)(cid:179)(cid:46)(cid:51)(cid:48)(cid:42) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:180)(cid:12)(cid:15) (cid:68) (cid:54)(cid:90)(cid:76)(cid:86)(cid:86) (cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:17) (cid:47)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92) (cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71) (cid:69)(cid:92) (cid:68) (cid:86)(cid:70)(cid:75)(cid:72)(cid:80)(cid:72) (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85) (cid:51)(cid:85)(cid:82)(cid:73)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81) (cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86) (cid:47)(cid:72)(cid:74)(cid:76)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17) 60 PWR Holdings Limited 2017 Annual Report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PWR HOLDINGS LIMITED For the year ended 30 June 2017 Valuation of goodwill and intangibles ($14.1 million) Refer to Note C7 to the financial report The key audit matter How the matter was addressed in our audit A key audit matter for us was the Group’s annual testing of goodwill and intangible assets for impairment given the size of the balance (being 30% of total assets). Our procedures included: • We considered the appropriateness of the value in use method applied by the Group to perform the annual impairment testing against the requirements of the accounting standards. We focused on the significant forward-looking assumptions the Group applied in their value in use models, including forecast cash flows, growth rates and discount rates. The Group uses complex models in performing their annual impairment testing. These models use forward looking assumptions based on the Group’s budgeting and business plans and a range of other internal and external sources as inputs to the assumptions. Complex modelling using forward-looking assumptions tend to be prone to greater risk for potential bias, error and inconsistent application. These conditions necessitate additional scrutiny by us, in particular to address the objectivity of sources used for assumptions, and their consistent application. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. • We assessed the integrity of the value in use models used, including the accuracy of the underlying calculation formulas. • We considered the Group’s determination of their CGUs based on our understanding of the Group’s operations and how independent cash inflows were generated, against the requirements of the accounting standards. • We compared the forecast cash flows contained in the value in use model to Board approved budgets and the Group’s business plans. • We assessed the accuracy of previous Group forecasts to inform our evaluation of forecasts incorporated in the models. • We considered the sensitivity of the models by varying key assumptions, such as forecast growth rates, terminal growth rates and discount rates, within a reasonably possible range, to identify those CGUs at higher risk of impairment and to focus our further procedures. • We challenged the Group’s significant forecast cash flow and growth assumptions using our knowledge of the Group, their past performance and our understanding of factors impacting the business and customers in which the CGUs operate in. • Working with our valuation specialists, we independently developed a discount rate range considered comparable using publicly available market data for comparable entities, adjusted by risk factors specific to the CGU and the industry it operates in. • We assessed the disclosures in the financial report using our understanding obtained from our testing and the requirements of the accounting standards. (cid:24)8 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PWR HOLDINGS LIMITED For the year ended 30 June 2017 61 Other Information Other Information is financial and non-financial information in PWR Holdings Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ Report and ASX Additional Information. The Chairman’s Letter and Chief Executive Officer’s Report are expected to be included in the Annual Report, and made available to us after the date of the Auditor's Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and • assessing the Group’s ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this Financial Report. A further description of our responsibilities for the Audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar2.pdf. This description forms part of our Auditor’s Report. (cid:24)(cid:28) 62 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PWR HOLDINGS LIMITED For the year ended 30 June 2017 Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of PWR Holdings Limited for the year ended 30 June 2017, complies with Section 300A of the Corporations Act 2001. 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 responsibilities We have audited the Remuneration Report included in Section 16 of the Director’s Report described as audited for the year ended 30 June 2017. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Jason Adams Partner Brisbane 24 August 2017 PWR Holdings Limited 2017 Annual Report ASX ADDITIONAL INFORMATION Shareholdings as at 10 August 2017 DISTRIBUTION OF EQUITY SECURITY HOLDERS Category 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over The number of shareholders holding less than a marketable parcel of ordinary shares is 57. TWENTY LARGEST SHAREHOLDERS Name 1 KPW Property Holdings Pty Ltd 2 HSBC Custody Nominees (Australia) Limited 3 National Nominees Limited 4 Citicorp Nominees Pty Limited 5 J P Morgan Nominees Australia Limited 6 MAMLEC Pty Ltd 7 Merrill Lynch (Australia) Nominees Pty Limited 8 BNP Paribas Nominees Pty Ltd 9 UBS Nominees Pty Ltd 10 Citicorp Nominees Pty Limited 11 BNP Paribas Noms Pty Ltd 12 Bond Street Custodians Limited 13 Ms Deslea Mary Sneddon 14 RT Developments Pty Ltd 15 Truebell Capital Pty Ltd 16 Dr David John Ritchie + Dr Gillian Joan Ritchie 17 Wask Management Pty Ltd 18 Hampton Pty Ltd 19 Anacacia Pty Ltd 20 Citicorp Nominees Pty Limited Top 20 holders of ordinary fully paid shares Total remaining holders balance 63 Number of Ordinary shares Number of Security Holders 164,745 4,367,407 5,866,070 10,092,323 79,509,455 100,000,000 269 1,410 782 465 26 2,952 Number of ordinary shares held Percentage of capital held % 38,368,500 38.37 8,234,278 6,452,641 4,957,985 4,310,216 4,209,000 2,861,837 2,282,812 1,705,818 1,503,280 847,511 512,923 405,000 400,000 360,000 300,000 275,516 250,000 218,511 191,955 8.23 6.45 4.96 4.31 4.21 2.86 2.28 1.71 1.50 0.85 0.51 0.41 0.40 0.36 0.30 0.28 0.25 0.22 0.19 78,647,783 21,352,217 78.65 21.35 64 PWR Holdings Limited 2017 Annual Report ASX ADDITIONAL INFORMATION Shareholdings as at 10 August 2017 SUBSTANTIAL SHAREHOLDERS The number of shares held by substantial shareholders and their associates are set out below: Shareholder PWR Holdings Limited1 KPW Property Holdings Pty Ltd Number 42,577,500 38,368,500 1. Relevant interest in own Shares as a result of voluntary escrow deeds with shareholders which gives it the power to control the exercise of the power to dispose of those securities. RIGHTS The number of performance rights on issue are set out below: Number of rights holders Number of rights on issue 4 135,875 VOTING RIGHTS Ordinary shares Refer to Note F1 in the financial statements Securities Exchange The Company is listed on the Australian Securities Exchange. The Home exchange is Sydney. Other information PWR Holdings Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. On-market buy-back There is no current on-market buy-back. Offices and officers Directors Kees Weel Jeffrey Forbes Teresa Handicott Roland Dane Company Secretary Lisa Dalton Principal Registered Office PWR Holdings Limited 103 Lahrs Road Ormeau, 4208 Queensland Locations of Share Registry Computershare Investor Services Pty Ltd 117 Victoria Street West End, 4101 Queensland 65 www.pwr.com.au PWR HOLDINGS LIMITED 103 LAHRS ROAD, ORMEAU, 4208 QUEENSLAND Phone: 07 5547 1600 www.pwr.com.au