Annual Report 2018 PWR Holdings Limited Contents 2018 Highlights 1 Chairman’s Year in Review 2 Managing Director’s Report 4 Directors’ Report 7 Lead Auditors Independence Declaration 23 Consolidated Statement of Profit or Loss and Other Comprehensive Income 24 Consolidated Statement of Financial Position 25 Consolidated Statement of Changes in Equity 26 Consolidated Statement of Cash Flows 27 Notes to the Consolidated Financial Statements 28 Section A About this Report 28 Section B Business Performance 29 Section C Operating Assets and Liabilities 32 Section D Employee Benefits 36 Section E Taxation 38 Section F Capital Structure and Borrowings 40 Section G Group Structure 42 Section H Other Information 46 Section I Significant Accounting Policies 52 Directors’ Declaration 59 Independent Auditor’s Report 60 ASX Additional Information 64 Corporate Directory 66 2018 Highlights REVENUE NPAT $51.9m Increased by 7.8% $11.0m Increased by 18.5% EARNINGS PER SHARE DIVIDEND 11.0c Increased 18.5% 7.3cps Increased by 30.4% SERIOUS HARM INJURIES GLOBAL TEAM zero Significant injuries in FY18 238 Operating globally and selling in over 26 countries PWR Holdings Limited Annual Report 2018 1 Chairman’s Year in Review Teresa Handicott Solid growth through our key markets Your board continues to prioritise PWR’s strategy in every decision it makes and management is focussed on execution of the strategic action plan. Over the last year, the company has achieved significant goals under all of its four strategic pillars. Excellence in Motorsports New technology has been developed and deployed with customers. We are confident that this technology will deliver increased revenue over time. PWR now delivers electronic cooling into most motorsports categories including electric vehicles. Engineering Excellence PWR’s new centre of excellence, designated for research and development, F1 and specialty builds has been completed and is operational adjacent to the original manufacturing site at Ormeau. Our IP strategies are constantly reviewed to ensure appropriate protection and quality control. Significant research and investment is ongoing in next generation technology including 3D printing and CT scanning. Growth Ready Capability at every level of operations from the factory floor to senior management has been strengthened. The company has recently announced a $10M capital program which will support all four strategic pillars. C&R continues to be a priority. The newly commissioned furnace and second line provides capacity for growth, especially in OEM programs and the US aftermarket. It also provides the ability to access a lower tax regime and assists in managing currency risks. While the exit from non-core and underperforming businesses has affected C&R in FY18, it positions the Group to focus on capability in strategically important opportunities going forward such as OEM programs and the US aftermarket. DEAR SHAREHOLDERS 2018 has been a milestone year for PWR in many respects and on behalf of the Board, I am delighted to present to you PWR’s 2018 annual report. FY18 has delivered solid bottom line growth through our key markets while laying down the foundation for future growth. The Group delivered an 18.5% increase in statutory net profit after tax (NPAT) of $11m which is a record for PWR. Underlying NPAT was higher at $12.1 million after excluding one off items at C&R including the disposal and write down of assets held for sale, the payout of an underperforming distribution agreement and the reduction of net deferred tax balances following the lowering of the US federal corporate tax rate. Improved working capital management has resulted in a strong cash balance at 30 June 2018 of over $12m with nil net debt. Considering the results and continued balance sheet strength, the Board has declared a final dividend of 6.2 cents per share which is an increase of over 30% on the prior year final dividend of 4.7 cents per share. The full year dividend for FY18 increased to 7.3 cents per share, up from 5.6 cents per share in the prior year. 2 Annual Report 2018 PWR Holdings Limited Revenue Diversification The company’s strategy is to achieve significant revenue diversification over time. In FY18 contribution to revenue from OEM programs has increased and we are confident of ongoing OEM opportunities. Electronic cooling technologies are being developed by PWR and the company is pursuing opportunities in this growing market. The investment made in people, plant and equipment over the past 2 years has started to deliver the results we expected. We will continue to make these investments and the announcement of a $10 million capital expenditure plan is evidence of this. The investment in our key asset, our people, is ongoing. The past year has been successful and rewarding for staff, management and directors and the culture of the company and the attitude of all employees is evident in these results. I take this opportunity to thank all employees at PWR. On behalf of your Board, I would like to thank all shareholders for their continued support of PWR. Teresa Handicott Chairman The past year has been successful and rewarding for staff, management and directors and the culture of the company and the attitude of all employees is evident in these results. PWR Holdings Limited Annual Report 2018 3 Managing Director’s Report Kees Weel FY18 a year of records Revenue by Currency ‘000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 00 27.1% -19.2% 20.1% AUD GBP USD FY15 YTD FY16 YTD FY17 YTD FY18 YTD Conversion of source currency to Australian dollars based on average exchange rate for each year Although the transition at C&R has taken longer than we would have liked, it has been successfully completed and C&R are now focussed on the core business and in a position to grow their revenue. The full manufacturing production facilities commenced operation in February 2018 and with double the throughput capacity of Australian operations, provides a solid platform for future growth. At a consolidated Group level, revenue growth has been positively impacted by net foreign exchange movements with the exchange rates between the GBP and USD to the AUD being relatively stable during FY18. Motorsport has continued to be the major category and this is expected to continue until the OEM and emerging technology segments sales increase. This is expected to commence at the end of FY19 and FY20. The 2018 financial year has seen several records for PWR including: – – – – a record statutory net profit after tax of $11m; a record underlying net profit of $12.1m; a record cash on hand balance of $12m; and a record full year dividend of 7.3 cents per share. This performance has been due to three main factors: – – our customers who continue to push technological boundaries and choose us to be their preferred supplier for cooling products; the investment we have made (and continue to make) in staff, plant and machinery; and the outstanding performance of all staff across the entire company who have contributed significantly and whom I thank sincerely. – REVENUE Revenue for FY18 was up significantly in Europe (27%) and Australia (20%). This continued growth was offset by the reduction in revenue at C&R as the Group transitions C&R’s operations to a stand alone manufacturing facility and exits from non-core and underperforming operations. 4 Annual Report 2018 PWR Holdings Limited $4,027 7.8% (FY17 4.8%) $4,482 8.6% (FY17 11.3%) $9,530 18.4% (FY17 17.8%) $33,850 65.2% (FY17 66.1%) Motorsports Automotive Aftermarket Emerging Technologies OEM BUSINESS OPERATIONS Significant Items – C&R As a result of a review of C&R’s operations, several aspects of the business were identified as being non-core or underperforming. These were separately classified as “assets held for sale” in FY17. During FY18, these assets were either sold or written off resulting in a one-off loss of $855,000 ($633,000 after tax). In addition, a non-performing distribution agreement was terminated at a cost of $412,000 ($305,000 after tax). The US federal income tax rate changed during FY18 from 35% to 21% which resulted in a write down of the net deferred tax asset of $176,000. The installation, commissioning and commencement of the furnace and production line has been an important milestone providing several benefits including redundancy and additional throughput capacity. As noted previously, several significant items have been addressed at C&R ensuring they are well placed to evolve and adapt for the future. The transition to a stand alone manufacturing facility has been a substantial milestone which is a credit to the hard work done by the C&R team with support from Australia when required. PWR Australia and Europe PWR continues to supply the majority of motorsport categories with cooling technology and this continues to be our primary category as noted in the analysis above. The Australian and European operations have performed exceptionally well and their growth has compensated for the hiatus in the USA while C&R completed their transition. Cashflow Our working capital management has improved at 30 June 2018 which, combined with higher revenues, has resulted in a cash balance of over $12m at 30 June 2018 with nil net debt. We are conscious of the need to balance returning funds to shareholders and retaining funds to finance future growth plans and opportunities and believe we have achieved the optimal outcome for both shareholders and expected business requirements. Our EBITDA to cash conversion ratio was 101.8% based on statutory EBITDA. The largely non-cash impact of the C&R significant items taken to account in FY18 have distorted this but underlying EBITDA to cash conversion was still an impressive 96% which is an improvement over FY17. TECHNOLOGY DEVELOPMENTS The investment in expected growth as well as new equipment also introduces advanced technologies into our manufacturing processes to ensure our technology remains at the forefront and we are able to push the boundaries of our cooling solutions for both existing customers as well as potential new customers. To pick the most opportune time to introduce continually evolving technologies always has a degree of risk but we believe the time is right for us to commence this process. We are looking at doing this in conjunction with partners who are experts in their relevant fields which can also potentially lead to mutually beneficial outcomes and open new categories and additional revenue opportunities for PWR. These advanced manufacturing technologies include, but are not limited to, 3D printing, laser cutters and CT scanners. Our new innovative cooling products, which are complementary to our existing products, are currently being tested by specific customers and we expect to release these to our broader customer base in late FY19. PWR Holdings Limited Annual Report 2018 5 Managing Directors’ Report continued OEM PROGRAMMES The OEM programmes continue to be a focus primarily at C&R who now have the capability to implement these on an ongoing basis. We have increased our number of OEM programmes by 2 from FY17 taking our total to 5 at 30 June 2018. These programmes are and will continue to be important to our future growth especially at C&R. THE FUTURE Whilst we are satisfied with our past performance we are all focussed on the next 2 years during which we have an ambitious capital investment and business growth plan. As more power is being required from devices with smaller footprints, innovative cooling requirements will also increase. Advanced bespoke solutions are becoming more common and we believe we are well placed to provide these solutions. We continue to see opportunities particularly in motorsport and emerging technologies. In order to ensure we successfully deliver to both our customer expectations and our high standards, we continue to invest in people and our targeted recruitment program is ongoing. Staff numbers are now in excess of 235 globally and this is expected to increase progressively over FY19. The strategy to diversify our revenue streams continues and we expect to start seeing the results of this towards the end of FY19. Exchange rates will continue to affect results and this is inherent in the nature of our business considering the location of the majority of our customers and the location of our cost base. Thank you to customers, shareholders and staff for your continued support through FY18. Having now started FY19, I am looking forward to working together with PWR and C&R staff this next year and to exceed all our expectations. Kees Weel Managing Director 6 Annual Report 2018 PWR Holdings Limited Whilst we are satisfied with our past performance we are all focussed on the next 2 years during which we have an ambitious capital investment and business growth plan. Directors’ Report For the year ended 30 June 2018 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 2018 (“Reporting Period”) 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 Independent Chairman, Non-Executive Director Appointed NED 1 October 2015 Appointed Chairman 19 October 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 the Chairman 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 is a director of Bangarra Dance Theatre Limited, chairing its Remuneration Committee. She 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). She is a Senior Fellow of Finsia and a Graduate of the AICD. Teresa was previously a Member of the Council of the Queensland University of Technology (QUT), 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 2019 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 PWR Holdings Limited Annual Report 2018 7 Directors’ Report For the year ended 30 June 2018 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 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 Community Housing Ltd. 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) 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 2019 Nil Nil 8 Annual Report 2018 PWR Holdings Limited Directors’ Report For the year ended 30 June 2018 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 Board Meetings Audit and Risk Committee Meetings Nomination and Remuneration Committee Meetings Attended Held Attended Held Attended Held 12 11 12 12 12 12 12 12 – 4 4 4 – 4 4 4 – 2 2 2 – 2 2 2 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. 5. OPERATING AND FINANCIAL REVIEW Summary of financial results Statutory Profit and Loss Summary Revenue EBITDA1 EBITDA1 margin Net profit after tax (NPAT) Operating cash flow Earnings per share FY18 A$’000 51,889 16,336 31.5% 11,001 16,639 FY17 A$’000 FY17 to FY18 % 48,117 14,727 30.6% 9,280 13,529 +7.8% +10.9% +18.5% +22.9% +18.5% 11.00 cents 9.28 cents 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. Underlying Profit and Loss Summary The above statutory profit and loss includes the C&R deferred tax adjustment and several items arising from the restructuring and repositioning of the operations at C&R in the USA none of which are expected to reoccur. These items are as follows: – – – $0.85 million ($0.63m after tax) for the loss on sale and write down in the carrying value of assets held for sale in the USA the majority of which were disposed of in April 2018. $0.41 million ($0.3m after tax) for the termination of a distribution agreement. $0.18 million charge to income tax expense for the decrease in the net deferred tax balance in the USA, following the reduction in the USA federal corporate tax rate from 35% to 21%. PWR Holdings Limited Annual Report 2018 9 Directors’ Report For the year ended 30 June 2018 5. OPERATING AND FINANCIAL REVIEW (continued) A reconciliation of underlying EBITDA1 to the reported profit before tax in the consolidated statement of profit or loss and other comprehensive income is as follows: Profit for the period before tax Add: loss on sale and write down of assets held for sale Add: settlement of distribution agreement dispute Add: net finance costs Add: depreciation & amortisation Underlying EBITDA1 FY18 A$’000 FY17 A$’000 14,688 12,949 856 413 (18) 1,666 17,605 – – 305 1,473 14,727 1 Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”) is a non-IFRS term which has not been subject to audit or review but has been determined using information presented in the annual financial report. Incorporating the above items, underlying results are as follows: Underlying Profit and Loss Summary Underlying revenue Underlying EBITDA1 Underlying EBITDA1 margin Underlying net profit after tax Underlying operating cash flow Underlying earnings per share FY18 A$’000 FY17 A$’000 FY17 to FY18 51,889 17,605 33.9% 12,115 16,751 48,117 14,727 30.6% 9,280 13,529 12.11 cents 9.28 cents +7.8% +19.5% +30.5% +23.8% +30.5% Revenue The Group achieved overall revenue growth of 7.8% compared to the prior corresponding period. Organic revenue growth of 6.5% was supplemented by exchange rate movements of 1.3%. The above growth is after the decrease in C&R revenue of 19%, which was expected, as a result of the exit from non- core business operations and the restructuring of their operations. Compensating growth came from PWR Europe sales increasing by 27% and PWR Australia sales increasing 20% compared to the prior corresponding period. With reporting in Australian dollars, the exchange rate has had a lesser impact than previous years with the GB pound being 4.7% stronger at 30 June 2018 and the US dollar being 4.1% stronger compared to the prior period. However, average rates during the financial year saw a US dollar being 2.9% weaker but the pound 3.1% stronger. The net foreign exchange impact was a favourable effect on revenue for the year of $615,395. EBITDA The higher EBITDA in FY18 compared to the prior corresponding period was mainly due to: – Overall revenue growth at consistent margins; – Production and manufacturing costs increasing consistently with sales volume increases; and – Administration and overhead costs remaining at consistent levels supporting the higher revenue and margins generated. These costs also included non-recurring expenditure relating to the termination of a distribution agreement at C&R. Net profit after tax Net profit after tax of the Group for the year ended 30 June 2018 was $11.00 million (2017: $9.28 million), including the recognition of $1.1 million (after tax) of one-off expenses in relation to the changes to Federal corporate tax rates in the USA, the loss on sale and write down of the C&R non core non cooling business held for sale at 30 June 2017 and costs associated with the termination of a distribution agreement at C&R. 10 Annual Report 2018 PWR Holdings Limited Directors’ Report For the year ended 30 June 2018 5. OPERATING AND FINANCIAL REVIEW (continued) Operating cash flow The Group continued its strong cash conversion rate with FY18 operating cash flow of $16.6 million, a conversion of 101.8% from EBITDA. This high EBITDA to cash conversion is due to: – – Improved working capital management; and The flow on effect of the non-cash impact of the loss on sale and write down of assets held for sale at C&R. 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) FY18 FY17 57.6% 25.4% 17.0% 50.3% 37.5% 12.2% 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 $39.07 million (2017: $31.78 million), primarily arising from increased market penetration in the motorsports sector in the United Kingdom and Europe. The C&R segment generated external revenue of $12.82 million (2017: $16.34 million). This decrease was as a result of exiting non-core products and transitioning C&R to a stand alone manufacturing business unit. Review of principal businesses During the year ended 30 June 2018, in addition to the items outlined above, the Group: – Was selected as cooling assembly supplier for a further two niche OEM programs in Europe, with one commencing production during the year; – Continued other OEM development and prototype work; – Completion of the construction and commissioning of a new aluminium heat exchanger core production line at C&R in the USA, which has been operational from H2 FY18. This has increased overall production capacity, allowing longer run production programs as well as releasing production capacity at the existing Australian facility to focus on research and development, bespoke and specialised production and the domestic aftermarket; and – Completed the exit of the non-core business at C&R to increase available capacity and focus resources on supporting and developing our core business. Balance sheet management The balance sheet remains strong with cash of $12.1 million (2017: $9.06 million) and zero net debt. Working capital management has improved with the working capital cycle reducing from 150 days at 30 June 2017 to 122 days at 30 June 2018 contributing to a higher year end cash balance. Capital expenditure for the year was $5.2 million (FY17: $3.87 million) including $2.2 million (FY17: $1.92 million) for the C&R heat exchanger core production line. PWR Holdings Limited Annual Report 2018 11 Directors’ Report For the year ended 30 June 2018 5. OPERATING AND FINANCIAL REVIEW (continued) 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 Loss of critical supply inputs or infrastructure – – Loss of intellectual property protection – Reduction in product quality standards 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 2017 ordinary Interim 2018 ordinary Total amount Cents per share Total amount $ Date of payment 4.70 1.10 4,700,000 15 September 2017 1,100,000 5,800,000 6 April 2018 Declared after end of year The following dividend was declared by the Directors since the end of the financial year: Final 2018 ordinary dividend Total amount Cents per share Total amount $ Date of payment 6.20 6,200,000 14 September 2018 6,200,000 The financial effect of this dividend has not been brought to account in the consolidated financial statements for the year end 30 June 2018 and will be recognised in subsequent financial reports. There is no dividend re-investment plan in operation. 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. 12 Annual Report 2018 PWR Holdings Limited Directors’ Report For the year ended 30 June 2018 8. EVENTS SUBSEQUENT TO REPORTING DATE The Board declared a fully franked final 2018 ordinary dividend of 6.20 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 2018. 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. ROUNDING OF AMOUNTS The Company is of a kind referred to in ASIC Corporations Instrument 2016/191 issued by the Australian Securities and Investment Commission, relating to the “rounding off” of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that Instrument to the nearest thousand dollars unless otherwise stated. 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 23 and forms part of the directors’ report for the financial year ended 30 June 2018. 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 2018. 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 2018 or who were KMP during the financial year ended 30 June 2018, their roles and appointment/cessation dates. PWR Holdings Limited Annual Report 2018 13 Directors’ Report For the year ended 30 June 2018 16. REMUNERATION REPORT – AUDITED (continued) Key Management Personnel during the Reporting Period Name Role Non-Executive Directors Appointment Date/(Cessation Date) Teresa Handicott Chairman and Non-Executive Director 1 October 2015 (Non-Executive Director) 19 October 2017 (Chairman) Jeff Forbes Roland Dane Non-Executive Director Non-Executive Director 7 August 2015 1 March 2017 Executive Director and Senior Executives Kees Weel Stuart Smith Matthew Bryson Jim Ryder2 Andy Burton2 Former KMP Marshall Vann Adam Purss Chris Jaynes Managing Director 30 June 2003 Chief Financial Officer 13 November 2017 General Manager, Engineering 11 April 2006 General Manager, USA 10 January 2017 General Manager, Europe 1 July 2017 General Manager Chief Financial Officer General Manager, USA 1 January 2017 (6 February 2018) 23 February 2015 (10 November 2017) 25 January 2016 (31 July 2017) 2 Jim Ryder, General Manager USA and Andy Burton, General Manager Europe became KMP effective 1 January 2018 following an organisational restructure. Mr Burton was a consultant to the company prior to his appointment date. 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. 14 Annual Report 2018 PWR Holdings Limited Directors’ Report For the year ended 30 June 2018 16. REMUNERATION REPORT – AUDITED (CONTINUED) 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 D. Executive Director and Senior Executive Remuneration Timeframe Director Fees $ per annum 19 October 2017 to 30 June 2018 3 March 2017 to 19 October 2017 Reporting Period Reporting Period Reporting Period 150,000 150,000 95,000 20,000 20,000 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 the 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 increases to their fixed remuneration during the Reporting Period. 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 2018, the operation of the short term-incentive plan had a NPAT target, established by the Board at the commencement of the Reporting Period, to trigger its operation. The NPAT target for FY18 was achieved and short-term incentives were awarded to the Managing Director and senior executives as outlined below. PWR Holdings Limited Annual Report 2018 15 Directors’ Report For the year ended 30 June 2018 16. REMUNERATION REPORT – AUDITED (continued) Analysis of cash bonuses included in remuneration The Board awarded the Managing Director and senior executives the following cash bonuses for the Reporting Period: Employed at 30 June 2018 Position Max Potential Bonus % TFR Actual Bonus % TFR Kees Weel Stuart Smith(i) Matthew Bryson Jim Ryder(ii) Andrew Burton(iii) Managing Director Chief Financial Officer General Manager, Engineering General Manager, USA General Manager, Europe 50% 30% 30% 30% 20% 46% 28% 28% 22% 19% (i) Appointed 13 November 2017. (ii) Employed by C&R Racing Inc and remunerated in USD. The AUD equivalent is shown above. (iii) Employed by PWR Europe and remunerated in GBP. The AUD equivalent is shown above. Bonuses included in FY18 remuneration $ 175,816 50,233 75,350 21,834 22,842 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. A grant of Rights was made to the Senior Executives and Managing Director in the 2018 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. 16 Annual Report 2018 PWR Holdings Limited Directors’ Report For the year ended 30 June 2018 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 (2016 excludes IPO costs) Net profit after tax (2016 excludes IPO costs) Total dividends per share Change in share price Earnings per share Note 2018 $’000 $16,336 $11,001 2017 $’000 2016 $’000 $14,727 $16,903 $9,280 $8,735 7.30 cents 5.60 cents 4.40 cents 0.36 (0.43) 1.28 B5 11.00 cents 9.28 cents 9.31 cents 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 Stuart Smith Matthew Bryson Andrew Burton Jim Ryder Position Notice Period Managing Director 6 months Chief Financial Officer General Manager, Engineering General Manager, Europe General Manager, USA 3 months 3 months 3 months 3 months PWR Holdings Limited Annual Report 2018 17 Directors’ Report For the year ended 30 June 2018 : 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 i t u c e x e r o n e s d n a 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 f o s l i a t e D ) 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 % 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 $ - 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 - 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 – – – – – – – – – – 0 0 0 0 7 1 , 0 6 8 5 2 1 , 0 0 0 5 1 1 , 0 0 0 5 1 1 , 0 0 0 5 9 , 7 6 6 1 3 , – 7 6 6 6 6 1 , 0 0 0 0 8 3 , , 4 9 1 9 3 4 – – – – – – – – – – – – – – – – – – – – $ – – – – – – – – – – n o i t a i - n m r e T s t fi 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 e p u S s t fi e n e b $ l a t o T – – – 4 1 0 3 1 , 9 1 9 0 1 , 7 7 9 9 , 7 7 9 9 , – 6 8 9 6 5 1 , 1 4 9 4 1 1 , 3 2 0 5 0 1 , 3 2 0 5 0 1 , 0 0 0 5 9 , 7 6 6 1 3 , 0 6 4 4 1 , 7 0 2 2 5 1 , 1 9 9 2 2 , 6 5 3 5 3 , 9 0 0 7 5 3 , 8 3 8 3 0 4 , $ – – – – – – – – – – s t fi e n e b h s a c - n o N – – – – – – – – – – s t i f e n e b m r e t - t r o h S $ h s a C s u n o B $ s e e f h s a C & y r a l a s 6 8 9 6 5 1 , 1 4 9 4 1 1 , 3 2 0 5 0 1 , 3 2 0 5 0 1 , 0 0 0 5 9 , 7 6 6 1 3 , – 7 0 2 2 5 1 , r a e Y 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 9 0 0 7 5 3 , 8 3 8 3 0 4 , 8 1 0 2 7 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 ) i ( i t t o c d n a H a s e r e T 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 r o t c e r i D e v i t u c e x E - n o N ) i i ( e n a D d n a o R l s e b r o F f f e J ) i i i ( n r o h T b o B r e m r o F 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 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 ’ s r o t c e r i D 18 Annual Report 2018 PWR Holdings Limited Directors’ Report For the year ended 30 June 2018 % 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 . 2 4 3 3 5 . . 9 4 2 – – . 9 5 2 4 3 . . 2 6 1 . 3 4 2 – – – – 3 3 . – 5 3 . – – . 3 2 2 . 0 3 . 8 8 1 4 2 . - 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 $ 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 $ - 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 $ 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 ) 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 – – , 2 5 1 1 2 6 , 6 0 1 9 3 4 9 6 4 7 3 2 , 8 4 8 5 0 4 , , 3 9 3 6 9 2 5 4 9 0 4 1 , – – 8 5 3 6 3 , 7 9 3 3 2 , 3 6 8 8 , – 1 3 7 9 2 , 7 2 0 0 1 , 3 1 5 7 2 1 , 8 2 2 9 , – – – , 2 2 1 3 9 2 3 7 8 9 2 2 , , 5 7 1 4 4 1 1 2 0 7 2 2 , , 2 4 9 4 4 2 , 1 4 0 8 4 1 – – – – – – – 4 9 4 7 , 1 2 0 8 , – – 6 3 5 5 , 6 3 5 5 , 4 5 9 3 , 5 5 9 3 , – – – – – – – – – – , 4 4 0 2 2 9 1 , , 6 5 5 3 3 6 1 , , 4 4 0 2 0 3 2 , , 0 5 7 2 7 0 2 , 0 8 1 4 8 , 0 9 4 9 , 4 0 0 9 2 1 , 4 0 8 1 0 1 , 9 3 9 8 4 , 0 8 1 4 8 , 9 3 9 8 4 , 1 9 4 9 , 0 9 4 9 , 1 9 4 9 , 6 6 9 1 9 1 , 4 0 0 9 2 1 , 6 6 9 1 9 1 , 5 9 3 4 0 1 , 5 9 7 4 2 1 , , 1 5 7 9 3 1 – – 4 4 9 9 5 , – 0 6 0 9 6 , – 9 5 6 1 , 8 0 3 7 , 0 0 0 9 1 , 2 6 3 6 1 , 3 1 5 2 1 , – – – – – – – – – – – 0 5 2 3 3 , 0 5 2 3 3 , 5 1 6 4 1 , – 0 5 7 3 2 , 0 5 7 3 2 , 9 1 5 6 , – – – – , 8 0 0 6 4 5 3 2 9 6 7 3 , 1 9 9 3 1 2 , – , 3 1 4 8 4 3 , 1 6 6 8 5 2 6 2 4 4 3 1 , – 5 8 2 8 1 1 , – – 6 6 9 1 9 1 , 3 2 2 4 1 , 3 3 9 6 8 , – – – – – – – – 2 9 1 0 2 , 3 2 9 6 2 , 2 1 9 9 , 1 6 6 8 , 3 6 0 3 2 , – , 0 2 7 0 2 2 8 2 1 7 , 3 2 9 6 7 , 0 0 0 0 0 2 , 0 2 5 9 5 1 , 8 2 5 5 3 1 , , 6 6 5 7 9 5 1 , , 5 6 7 8 7 2 1 , , 5 7 5 4 5 9 1 , , 3 0 6 2 8 6 1 , – – 0 1 8 3 , 7 6 1 3 5 , 2 2 5 6 4 , 7 6 1 3 5 , 2 2 5 6 4 , 6 1 8 5 7 1 , – – – 3 3 2 0 5 , – 0 5 3 5 7 , 2 4 8 2 2 , – – 0 0 0 0 5 3 , 0 0 0 0 5 3 , 6 4 8 3 5 1 , 0 0 0 0 5 2 , 0 0 0 0 5 2 , 4 8 5 1 1 1 , 4 3 8 1 2 , 1 5 4 6 9 , – – – – – – – – , 5 7 0 6 4 3 – – , 5 7 0 6 4 3 – – – 3 3 9 6 8 , 3 2 9 6 7 , 2 9 5 3 1 2 , 0 0 0 0 0 2 , 0 2 5 9 5 1 , 8 1 7 1 3 1 , , 4 2 3 8 9 1 1 , , 3 4 2 2 3 2 1 , , 3 3 3 5 5 5 1 , , 1 8 0 6 3 6 1 , 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 d n a s r o t c e r i D e v i t u c e x E s e v i t u c e x e r o n e s i r e c i f f O l a i c n a n F i f e i h C n o s y r B w e h t t a M r o t c e r i D g n g a n a M i ) v i ( h t i m S t r a u t S l e e W s e e K t n e r r u C 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 e p o r u E , r e g a n a M l a r e n e G ) v ( n o t r u B w e r d n A A S U , r e g a n a M l a r e n e G ) v ( r e d y R m i J r e c i f f O g n i t a r e p O f e i h C A S U , r e g a n a M l a r e n e G r e c i f f O l a i c n a n F i f e i h C ) i i i v ( s s r u P m a d A ) i i v ( s e n y a J s i r h C ) x i ( n n a V l l a h s r a M r e g a n a M l a r e n e G ) i v ( s t r e b o R e l r a E r e m r o F 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 ’ s e v i t u c e x e r o n e s i n o i t a r e n u m e R n o i t a r e n u m e R P M K - l a t o T . n a m r i a h C s a 7 1 0 2 r e b o t c O 9 1 d n 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 , 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 . 7 1 0 2 h c r a M 1 d e t n o p p A i . 7 1 0 2 h c r a M 3 d e n g s e R i . 7 1 0 2 r e b m e v o N 3 1 d e t n o p p A i ) i ( ) i i ( ) i i i ( ) v i ( . e r u t c u r t s e r l i a n o i t a s n a g r o n a g n w o i l l o f 8 1 0 2 y r a u n a J 1 e v i t c e ff e P M K e m a c e b s e v i t u c e x E ) v ( . 6 1 0 2 r e b o t c O 8 2 d e n g s e R i ) i v ( . 7 1 0 2 y u l J 1 3 d e n g s e R i ) i i v ( . 7 1 0 2 r e b m e v o N 2 1 d e n g s e R i ) i i i v ( . 8 1 0 2 y r a u r b e F 6 d e n g s e R i ) x i ( PWR Holdings Limited Annual Report 2018 19 Directors’ Report For the year ended 30 June 2018 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 Executive Directors and Senior Executives Current Kees Weel Matthew Bryson Stuart Smith Jim Ryder Andy Burton Former Marshall Vann Adam Purss Shareholdings of KMP Opening Balance 1 July 2017 Shares acquired during the year Shares disposed of during the year Closing Balance 30 June 2018 Other 20,000 15,500 64,000 – 10,000 110,159 38,368,500(i) 4,209,000 – – – 405,000 13,330 – – – – 75,471 – – – – – – – – 20,000 25,500 174,159 – 38,368,500(i) (435,692) – 3,773,308 – – – – 10,000(ii) 10,000 – – 17,268(iii) 92,739 (405,000)(iii) (13,330)(iii) N/A N/A (i) 38,368,500 shares held by KPW Property Holdings Pty Ltd as trustee for the KPW Holdings Trust. At 30 June 2018 Kees Weel is a director of the trustee and beneficiary of the trust. These shares were released from escrow on 31 August 2017. (ii) Shares held prior to appointment. (iii) Shares held at dates of cessation or commencement as KMP. 20 Annual Report 2018 PWR Holdings Limited Directors’ Report For the year ended 30 June 2018 16. REMUNERATION REPORT – AUDITED (continued) I. Remuneration consultants The Board did not retain remuneration consultants during the Reporting Period. J. Voting and comments made as the Company’s 2017 Annual General Meeting The Company received more than 75% of “yes” votes on its remuneration report for the 2017 financial year. The Company did not receive any specific feedback at the 2017 AGM on its remuneration report. K. 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 included in the KMP remuneration report. 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 during the Reporting Period. Performance rights were forfeited during the Reporting Period resulting from resignations. Total Performance Rights issued and on issue at 30 June 2018 are as follows: Fair Value per Right at Grant Date Number of Rights granted TSR Component $ EPS Component $ Grant Date Vesting Date Expiry Date Kees Weel Managing Director Matthew Bryson General Manager, Engineering Stuart Smith Chief Financial Officer Jim Ryder General Manager, USA Total on issue to KMP Non KMP Total on issue at 30 June 2018 Forfeited during FY18 Adam Purss Chief Financial Officer Chris Jaynes General Manager, USA Marshall Vann General Manager Total forfeited in FY18 Description of Rights FY17 LTIP FY18 LTIP FY17 LTIP FY18 LTIP 64,958 – 27,839 37,330 FY18 LTIP 24,886 FY18 LTIP 25,909 180,922 29,330 210,252 FY17 LTIP 22,271 FY17 LTIP 20,807 FY18 LTIP 40,909 83,987 0.86 2.37 21/10/16 1/9/19 1/3/20 0.86 0.87 0.87 0.87 0.86 0.86 0.87 2.37 2.43 6/12/16 24/11/17 1/9/19 1/9/20 1/3/20 1/3/21 2.43 24/11/17 1/9/20 1/3/21 2.43 24/11/17 1/9/20 1/3/21 2.37 6/12/16 Forfeited 2.37 6/12/16 Forfeited 2.43 24/11/17 Forfeited – – – PWR Holdings Limited Annual Report 2018 21 Directors’ Report For the year ended 30 June 2018 16. REMUNERATION REPORT – AUDITED (continued) 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 Chairman Brisbane 23rd August 2018. Kees Weel Managing Director Brisbane 23rd August 2018. 22 Annual Report 2018 PWR Holdings Limited Lead Auditors Independence Declaration Under Section 307C of the Corporations Act 2001 For the year ended 30 June 2018 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 for the financial year ended 30 June 2018 there have been: i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii. no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Jason Adams Partner Brisbane 23 August 2018 20 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. PWR Holdings Limited Annual Report 2018 23 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2018 Revenue Other income Raw materials and consumables used Employee expenses Occupancy expenses Other expenses Loss on disposal of assets held for sale Note B2 B2 2018 $’000 51,889 665 (9,934) (20,746) (1,885) (2,937) (716) 2017 $’000 48,117 677 (10,067) (19,350) (1,665) (2,985) – Profit before depreciation, net finance costs and income tax 16,336 14,727 Depreciation and amortisation Profit before net finance costs and income tax 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 B4 E1 (1,666) 14,670 (1,473) 13,254 33 (15) 18 14,688 (3,687) 11,001 12 (317) (305) 12,949 (3,669) 9,280 237 11,238 (411) 8,869 Basic and diluted earnings per share B5 11.00 cents 9.28 cents The accompanying notes are an integral part of these financial statements. 24 Annual Report 2018 PWR Holdings Limited Consolidated Statement of Financial Position At 30 June 2018 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 Current tax liabilities 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 The accompanying notes are an integral part of these financial statements. Note 2018 $’000 2017 $’000 C1 C2 C3 C4 E2 C5 C6 C7 E2 C8 F1 D1 F1 D1 12,110 4,054 6,785 – – 1,734 24,683 11,573 14,102 2,114 27,789 52,472 3,397 155 1,624 278 115 9,064 3,444 7,281 1,061 900 501 22,251 7,890 14,129 2,023 24,042 46,293 2,921 290 1,421 – 114 5,569 4,746 328 100 428 5,997 46,475 474 112 586 5,332 40,961 F2 25,921 25,921 465 20,089 46,475 152 14,888 40,961 PWR Holdings Limited Annual Report 2018 25 Consolidated Statement of Changes in Equity For the year ended 30 June 2018 Note D3 F3 Balance at 1 July 2017 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 2018 Balance at 1 July 2016 Total comprehensive income for the year Profit for the year Other comprehensive income Total comprehensive income Transactions with owners, recorded directly in equity Employee based share payments Dividends paid F3 Foreign currency translation reserve $’000 Share based payments reserve Retained earnings $’000 Total equity $’000 103 49 14,888 40,961 Share Capital $’000 25,921 – – – – – – 25,921 25,921 – – – – – – 237 237 – – – 340 514 – (411) (411) – – – 103 – – – 76 – 76 11,001 11,001 – 237 11,001 11,238 – (5,800) (5,800) 76 (5,800) (5,724) 125 20,089 46,475 – – – – 49 – 49 49 10,288 36,723 9,280 – 19,568 9,280 (411) 8,869 – (4,680) (4,680) 49 (4,680) (4,631) 14,888 40,961 Total transactions with owners Balance at 30 June 2017 25,921 25,921 The accompanying notes are an integral part of these financial statements. 26 Annual Report 2018 PWR Holdings Limited Consolidated Statement of Cash Flows For the year ended 30 June 2018 Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operating activities Interest paid Income tax refund – prior year over payment 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 Dividends paid 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 C1 The accompanying notes are an integral part of these financial statements. Note 2018 $’000 2017 $’000 51,243 48,832 (34,604) (35,303) 16,639 13,529 C1 (27) 1,258 (3,858) 14,012 65 33 225 (5,199) (4,876) (5,800) (281) (6,081) 3,055 9,064 (9) 12,110 (48) – (4,536) 8,945 76 12 165 (3,872) (3,619) (4,680) (397) (5,077) 249 8,797 18 9,064 PWR Holdings Limited Annual Report 2018 27 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 (b) Functional and presentation currency These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency. (c) 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 Notes C3 (Inventories) and C7 (Intangible assets). A3 Significant accounting policies The accounting policies set out in Section I to the consolidated financial statements have been applied consistently to all periods presented in these consolidated financial statements. 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 2018 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, testing, production, validation and sale of customised 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 Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that instrument, amounts in the Financial Report and Directors’ Report have been rounded off to the nearest thousand dollars, unless otherwise stated. The financial statements were approved by the Board of Directors on 23 August 2018. 28 Annual Report 2018 PWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018 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 C&R Total External revenues Inter-segment revenues Segment revenue Operating EBITDA1 Significant Items (refer to Note B3) 2018 $’000 39,074 2,856 41,930 17,856 – 2017 $’000 31,776 4,903 36,680 12,929 – Depreciation and amortisation (993) (1,077) Segment profit/(loss) before interest and tax Capital expenditure 16,863 1,841 11,852 2,176 2018 $’000 12,815 379 13,194 (630) (1,269) (673) (2,572) 2,965 2017 $’000 16,341 395 16,736 1,669 – (396) 1,273 1,696 2018 $’000 51,889 3,235 55,124 17,226 (1,269) (1,666) 14,291 4,806 2017 $’000 48,117 5,299 53,416 14,727 – (1,473) 13,125 3,872 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) Consolidated profit before tax 2018 $’000 2017 $’000 55,124 (3,235) 51,889 53,416 (5,299) 48,117 14,291 13,125 379 18 131 (305) 14,688 12,949 PWR Holdings Limited Annual Report 2018 29 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 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 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 B3 Expenses 2018 2017 Revenues $’000 Non-current assets(i) $’000 Revenues $’000 Non-current assets(i) $’000 6,286 14,622 16,081 7,091 7,809 16,700 8,959 16 – – 51,889 25,675 5,398 17,811 9,300 7,146 8,462 48,117 18,518 3,473 28 – – 22,019 2018 $’000 2017 $’000 50,680 46,739 580 629 791 587 51,889 48,117 600 65 665 601 76 677 Significant items During the year, the Group disposed of non cooling components of the business at C&R in the USA. These disposed assets and other assets written down were presented as assets held for sale at 30 June 2017 (refer Note C4). This disposal and write down comprised: Loss on sale of assets disposed Write down of other assets Impact on profit before tax Income tax benefit Impact on profit after tax $’000 716 140 856 (223) 633 In addition, C&R settled a dispute with a distributor resulting in an expense of $412,693 being recognised in profit before tax ($305,393 after tax). This has been included in other expenses in the income statement. 30 Annual Report 2018 PWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION B BUSINESS PERFORMANCE (continued) Research and Development The Group recognised $8,127,787 (2017 : $7,070,580) as an expense in relation to its research and development activities. This is included in employee expenses, raw materials and consumables in the income statement. B4 Finance income and finance costs Interest income Finance income Interest expense Net foreign exchange gain/(loss) Finance costs Net finance income/(costs) B5 Earnings per share Basic and diluted earnings per share 2018 $’000 2017 $’000 33 33 (27) 12 (15) 18 12 12 (48) (269) (317) (305) 2018 2017 11.00 cents 9.28 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 $11,001,600 (2017: $9,280,000). Weighted average number of ordinary shares Issued ordinary shares at 1 July Weighted number of ordinary shares at 30 June 2018 No. 2017 No. 100,000,000 100,000,000 100,000,000 100,000,000 The impact of the performance rights issued by the Group during the year and in prior years was not material to the calculation of the Group’s diluted earnings per share. PWR Holdings Limited Annual Report 2018 31 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 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 Research & development tax credit Net foreign exchange loss/(gain) Loss on disposal of assets held for sale (Profit)/Loss on sale of property, plant and equipment Changes in: Trade and other receivables Inventories Trade and other payables Other assets 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) C3 Inventories Raw materials Work in progress Finished goods Consumables Allowance for inventory obsolescence 2018 $’000 12,107 3 12,110 2017 $’000 9,058 6 9,064 11,001 9,280 1,666 1,473 601 (12) 716 (11) (609) 495 476 (1,233) 215 707 14,012 4,051 3 4,054 3,330 812 3,658 42 (1,057) 6,785 – 269 – 10 712 (1,390) 254 64 439 (2,166) 8,945 3,440 4 3,444 3,008 589 3,978 303 (597) 7,281 The cost of inventories sold and recognised as an expense during the year end 30 June 2018 was $24,021,000 (2017: $24,653,000). 32 Annual Report 2018 PWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION C OPERATING ASSETS AND LIABILITIES (continued) C4 Assets held for sale In the prior year, part of the C&R segment was 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. The disposal concluded during the 2018 financial year (refer Note B3). The sale related to non-cooling components of the business. The assets disposed primarily related to inventory and property, plant and equipment. At 30 June 2018, 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 2018 $’000 – – – 1,241 444 49 1,734 18,640 (7,656) 10,984 375 (286) 89 500 11,573 2017 $’000 853 208 1,061 109 349 43 501 10,651 (5,980) 5,671 378 (243) 135 2,084 7,890 Assets under construction in the prior year related to the installation of a manufacturing line and furnace at C&R in the USA. This was completed and commissioned on 1 February 2018 when it became fully operational and was transferred from work in progress to fixed assets. PWR Holdings Limited Annual Report 2018 33 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 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: Plant and equipment $’000 Motor vehicles $’000 Under construction $’000 2018 Cost Opening balance Additions Transfers 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 2017 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 500 19,515 Total $’000 14,114 4,806 – (99) 694 6,224 (37) 1,666 89 7,942 11,573 Total $’000 11,195 3,872 (469) (414) (70) 2,085 – (1,585) – – – – – – – 500 147 1,938 – – – 2,085 14,114 – – – – – – 2,085 5,286 (305) 1,474 (206) (24) 6,224 7,890 11,651 4,769 1,585 (55) 690 18,640 5,981 (33) 1,623 85 7,656 10,984 378 37 – (44) 4 375 243 (4) 43 4 286 89 10,628 1,894 (393) (414) (64) 11,651 5,056 (280) 1,432 (206) (21) 5,981 5,670 420 40 (76) – (6) 378 230 (25) 42 – (3) 243 135 Plant and equipment $’000 Motor vehicles $’000 Under construction $’000 The plant and equipment balance as at 30 June 2018 includes assets with carrying amounts of $483,516 under finance lease (2017: $1,015,261). During the year, the Group did not acquire any assets under finance lease (2017: NIL). 34 Annual Report 2018 PWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION C OPERATING ASSETS AND LIABILITIES (continued) C7 Intangible assets Note Goodwill $’000 Trademarks $’000 Total $’000 2018 Cost Accumulated amortisation 2017 Cost Accumulated amortisation Reconciliations 2018 Carrying amount at beginning of year Amortisation Effect of movements in exchange rates Balance at the end of the year 2017 Carrying amount at beginning of year Amortisation Effect of movements in exchange rates Balance at the end of the year 3,117 10,985 14,102 – – – 3,117 10,985 14,102 3,144 10,985 14,129 – – – 3,144 10,985 14,129 3,144 10,985 14,129 – (27) – – – (27) 3,117 10,985 14,102 3,189 10,985 14,174 – (45) – – – (45) 3,144 10,985 14,129 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 C&R 2018 $’000 1,904 8,432 2017 $’000 1,931 8,432 10,336 10,363 2018 $’000 1,213 2,553 3,766 2017 $’000 1,213 2,553 3,766 For the purpose of impairment testing, 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 2019 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 as well as growth into the aftermarket. 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. PWR Holdings Limited Annual Report 2018 35 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION C OPERATING ASSETS AND LIABILITIES (continued) 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 Discount rate – pre tax Terminal value growth rate Revenue – compound annual growth rate C8 Trade and other payables Trade and other payables are carried at amortised cost. Trade payables Other payables SECTION D EMPLOYEE BENEFITS D1 Employee benefits Current Annual leave liability Long service leave liability Non-current Long service leave liability 2018 % 2017 % 16.4% 2.0% 2.0% 13.7% 2.0% 5.6% 2018 $’000 1,324 2,073 3,397 17.2% 2.0% 2.0% 15.9% 2.0% 11.8% 2017 $’000 1,185 1,736 2,921 2018 $’000 2017 $’000 1,269 355 1,624 1,139 282 1,421 100 112 During the year ended 30 June 2018, the Group contributed $932,853 (2017: $962,692) to defined contribution plans. These contributions are included in employee expenses in the statement of profit or loss and other comprehensive income. 36 Annual Report 2018 PWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION D EMPLOYEE BENEFITS (continued) 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 2018 $’000 1,955 129 125 84 9 2017 $’000 1,683 192 140 49 9 2,302 2,073 D3 Share based payments During the year the Board granted performance rights to employees under the terms of the Performance Rights Plan (the Plan) approved 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 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 2017 to 30 June 2020. 158,364 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. At 30 June 2018, 117,455 of these performance rights remain on issue. 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 $75,518 (2017 : $48,939) was recognised during the year and included in “employee expenses” in the statement of profit or loss and other comprehensive income. 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 2018 2017 TSR component EPS component TSR component EPS component $0.87 $2.20 Nil 40% 1.90% $2.43 $2.20 N/A N/A N/A $0.86 $2.48 Nil 40% 1.92% $2.37 $2.48 N/A N/A N/A 2.77 years 2.77 years 2.73 years 2.73 years 2.20% 2.20% 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. PWR Holdings Limited Annual Report 2018 37 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 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 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 2018 $’000 2017 $’000 3,923 (145) 3,778 (91) 3,687 11,001 3,687 14,688 4,074 (144) 3,930 (261) 3,669 9,280 3,670 12,950 Income tax using the Company’s domestic tax rate of 30% 4,406 3,885 Tax effect of R&D benefit Effect of tax rates in foreign jurisdictions Other (180) (216) (323) (181) (58) 23 3,687 3,669 38 Annual Report 2018 PWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION E TAXATION (continued) E2 Tax assets and liabilities Current tax assets and liabilities The current tax liability of $277,310 (2017: tax asset of $900,168) represents the amount of income tax payable/receivable in respect of current and prior periods to the relevant tax authority. Movement in deferred tax balances Net balance at 1 July $’000 Recognised in profit or loss $’000 Recognised in equity $’000 Exchange rate movements $’000 Net $’000 Deferred tax assets $’000 Deferred tax liabilities $’000 2018 Property, plant and equipment Employee benefits Accruals Inventories Unrealised foreign exchange Tax losses Capital raising costs Other items Net tax assets/ (liabilities) 2017 Property, plant and equipment Employee benefits Accruals Inventories Unrealised foreign exchange Tax losses Capital raising costs Other items Net tax assets/ (liabilities) (450) 662 63 770 – 362 681 (65) 2,023 – 286 273 323 (47) – 975 12 138 (67) (39) (352) (211) 838 (227) 11 91 (451) 375 (210) 448 47 362 (294) (80) 1,822 197 – – – – – – – – – – – – – – – – – – – – – – – – – – – 1 1 – (1) – – – 3 4 (312) 595 24 418 (211) 1,200 454 (54) – 595 24 499 – 1,200 454 177 (312) – – (81) (211) – – (231) 2,114 2,949 (835) (450) 662 63 770 – 362 681 (65) – 662 63 793 25 362 681 214 (450) – – (23) (25) – – (279) 2,023 2,800 (777) The Group’s tax losses recognised as a deferred tax asset arise from its US operations. Management considers that based on the Group’s plans for this business, it is probable that future taxable profits will be generated against which the tax losses can be recovered. PWR Holdings Limited Annual Report 2018 39 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION F CAPITAL STRUCTURE AND BORROWINGS F1 Loans and borrowings Current Finance lease liability Non-current Finance lease liability 2018 $’000 2017 $’000 155 290 328 474 Finance facilities The terms and conditions of the Group’s finance facilities at 30 June 2018 were as follows: Facility Trade finance Corporate credit card Finance lease Foreign currency advance facility Currency Nominal interest rate Maturity 2018 Facility limit $’000 Carrying amount $’000 2017 Facility limit $’000 Carrying amount $’000 AUD AUD USD AUD Variable Variable Variable – – – 500 50 100 5.4%-8.2% 2018-2020 5,000 – 2 38 483 500 50 – 5,000 USD LIBOR+ 2.2% 2020 4,000 – 4,000 – – – 764 – 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 Between one and five years Future minimum lease payments 2018 $’000 2017 $’000 Interest 2018 $’000 Present value of minimum lease payments 2017 $’000 2018 $’000 2017 $’000 172 344 516 317 506 823 17 16 33 27 32 59 155 328 483 290 474 764 The Group leases operating equipment used in the manufacturing process and motor vehicles under finance leases. 40 Annual Report 2018 PWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION F CAPITAL STRUCTURE AND BORROWINGS (continued) F2 Capital and reserves Share capital Ordinary shares Balance at beginning of year Balance at end of year 2018 No. of shares $’000 2017 No. of shares 100,000,000 25,921 100,000,000 100,000,000 25,921 100,000,000 $’000 25,921 25,921 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. F3 Dividends Dividends recognised by the Company are: 2018 Interim 2018 ordinary Final 2017 ordinary Total amount 2017 Interim 2017 ordinary Final 2016 ordinary Total amount Cents per share $ Total amount $ Franked/ unfranked Date of payment 1.10 1,100,000 Franked 7 April 2018 4.70 4,700,000 Franked 5,800,000 15 September 2017 0.90 3.78 900,000 Franked 7 April 2017 3,780,000 Franked 19 September 2016 4,680,000 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 1,132,457 996,471 2018 2017 At 30 June 2018, the franking credits of the Group were 6,269,317 (2017 : 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. PWR Holdings Limited Annual Report 2018 41 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 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 2018 $’000 2017 $’000 1,805 7,002 3,383 1,615 6,317 3,762 12,190 11,694 The Group leases its office and factory facilities under operating leases from non-related entities. During the financial year ended 30 June 2018 an amount of $1,885,328 was recognised as an expense in the income statement in respect of operating leases (2017: $1,503,920). Other commitments At 30 June 2018, the Group had agreed to purchase plant and equipment for $2.5 million (2017: $1.4 million) as part of its capital investment program announced on 26 April 2018. SECTION G GROUP STRUCTURE G1 Parent entity information As at and throughout the financial year ended 30 June 2018, 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 42 Annual Report 2018 PWR Holdings Limited 2018 $’000 5,445 5,445 21 27,678 27,699 203 – 203 2017 $’000 5,929 5,929 14 27,994 28,008 232 – 232 27,496 27,776 25,921 25,921 124 1,451 27,496 49 1,806 27,776 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION G GROUP STRUCTURE (continued) 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 2018. 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 Ownership interest Country of incorporation Australia Australia UK USA 2018 % 100 100 100 100 2017 % 100 100 100 100 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 Instrument 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 wound 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. PWR Holdings Limited Annual Report 2018 43 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION G GROUP STRUCTURE (continued) 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 2018 is set out below. Statement of profit or loss and other comprehensive income Revenue Other income Raw materials and consumables used Employee expenses Occupancy expenses Other expenses Profit before depreciation, net finance costs and income tax Depreciation and amortisation Profit before net finance costs and income tax 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 2018 $’000 36,955 876 2017 $’000 33,565 2,329 (5,997) (6,209) (14,280) (13,282) (1,212) (1,529) 14,813 (980) 13,833 810 (29) 781 14,614 (3,902) 10,712 10,712 (1,002) (1,678) 13,723 (1,064) 12,659 447 (550) (103) 12,556 (3,650) 8,906 8,906 44 Annual Report 2018 PWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018 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 Tax liabilities 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 2018 $’000 2017 $’000 10,380 5,812 4,363 – 1,195 21,750 5,917 10,985 7,687 1,944 1,425 27,958 49,708 1,942 155 1,549 467 81 4,194 328 100 428 4,622 45,086 7,333 4,964 4,182 981 448 17,908 5,602 10,985 6,429 1,944 1,143 26,103 44,011 1,850 290 1,338 – 75 3,553 474 112 586 4,139 39,872 25,921 25,921 394 18,771 45,086 49 13,902 39,872 PWR Holdings Limited Annual Report 2018 45 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 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 managing 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. 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 2018 $’000 12,110 4,054 16,164 2017 $’000 9,064 3,444 12,508 Cash and cash equivalents The Group held cash and cash equivalents of $12,110,095 at 30 June 2018 (2017: $9,063,782), 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 A 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. 46 Annual Report 2018 PWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018 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: Carrying amount 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 2018 $’000 1,084 2,091 879 4,054 3,228 801 22 3 4,054 – 4,054 2017 $’000 702 1,479 1,263 3,444 2,900 443 101 81 3,525 (81) 3,444 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. No impairment losses were recognised in respect of trade and other receivables during the year (2017: $80,740). 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 : (refer Note F1) – A$500,000 trade finance facility; – A$5,000,000 asset finance facility; – USD$4,000,000 foreign currency advance facility; – A$50,000 corporate credit card facility; and – USD$100,000 corporate credit card facility. PWR Holdings Limited Annual Report 2018 47 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 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. 2018 Trade and other payables Finance lease liabilities 2017 Trade and other payables Finance lease liabilities Carrying amount $’000 Note C8 F1 C8 F1 3,397 483 3,880 2,921 764 3,685 Total $’000 (3,397) (516) (3,913) (2,921) (822) (3,743) Contractual cash flows 12 months $’000 1-5 years $’000 (3,397) (172) (3,569) (2,921) (317) (3,238) – (344) (344) – (505) (505) 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. The Group uses derivative instruments to manage currency risk. Under the Group’s financial risk management policies, the Group may use derivative financial instruments to manage its foreign currency risks. There are no derivative financial instruments that were unsettled at year end (2017 : Nil). During the year ended 30 June 2018, the Group recognised $236,000 in realised losses on settled derivatives (2017 : Nil). This has been included in finance costs in the income statement. 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 2018 GBP 1,230 (280) AUD 470 (684) USD 1,076 (201) 30 June 2017 GBP 879 (80) AUD 438 (763) USD 1,160 (220) (214) 950 875 (325) 799 940 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 2017, albeit that the reasonably possible foreign exchange rate variances were different, as indicated below. 48 Annual Report 2018 PWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION H OTHER INFORMATION (continued) 30 June 2018 GBP (10% movement) USD (10% movement) 30 June 2017 GBP (10% movement) USD (10% movement) Profit or loss (net of tax) Equity (net of tax) Strengthening $’000 Weakening $’000 Strengthening $’000 Weakening $’000 108 76 86 78 (118) (83) (95) (86) 108 76 86 78 (118) (83) (95) (86) 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 2018 $’000 – (483) (483) 12,110 – 12,110 2017 $’000 – (764) (764) 9,064 – 9,064 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 2018 Variable rate instruments Cash flow sensitivity (net) 30 June 2017 Variable rate instruments Cash flow sensitivity (net) Profit or loss (net of tax) Equity (net of tax) 100bp increase $’000 100bp decrease $’000 100bp increase $’000 100bp decrease $’000 84 84 63 63 (84) (84) (63) (63) 84 84 63 63 (84) (84) (63) (63) Fair values The fair values of the Group’s financial assets and liabilities approximate their carrying amounts recognised in the statement of financial position. PWR Holdings Limited Annual Report 2018 49 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 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: Entity Transaction PWR Property Holdings Pty Ltd(i) Property rent Bayswater Road Radiators Pty Ltd(ii) Sales of goods Triple Eight Race Engineering Pty Ltd(iii) Sales of goods Transaction values during the year Balance outstanding Receivable/(Payable) 2018 $’000 2017 $’000 2018 $’000 2017 $’000 – 36 13 147 46 5 – 3 – – 4 1 (i) The Group leased its Australian head office and factory facilities from an entity associated with Kees Weel until 31 August 2016. (ii) Bayswater Road Radiators Pty Ltd is an entity associated with Kees Weel, which purchases goods from the Group. (iii) Triple Eight Race Engineering Pty Ltd is an entity associated with Roland Dane, which purchases goods from the Group. 2018 $ 2017 $ 142,500 142,500 14,157 13,546 – – 1,598 1,623 H3 Auditor 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 50 Annual Report 2018 PWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION H OTHER INFORMATION (continued) H4 Subsequent events The Board declared a fully franked final ordinary dividend of 6.20 cents per share. The financial effect of the 2018 declared final dividend has not been brought to account in the consolidated financial statements for the year ended 30 June 2018. 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 2018 and earlier adoption is permitted, however the Group has not early adopted the following new or amended standards in preparing these consolidated financial statements. 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’ (“ECL”) model for calculating impairment on financial assets and new general hedge accounting requirements. The Group has undertaken an impact assessment regarding the adoption of AASB 9. Given the Group does not hold complex financial instruments or long dated receivables, it does not expect any material impact on its financial statements on application on 1 July 2018. 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. The Group plans to adopt AASB 15 in its consolidated financial statements for the year ending 30 June 2019. 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 are disclosed in Note B2. The Group has completed an assessment of the application of AASB 15 and does not believe the new requirements will have a material impact on the financial results or the position of the Group on adoption on 1 July 2018. PWR Holdings Limited Annual Report 2018 51 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 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. Income tax Inventories SECTION I SIGNIFICANT ACCOUNTING POLICIES 1. Basis of consolidation 2. Foreign currency 3. Revenue 4. Employee benefits 5. Finance income and finance costs 6. 7. 8. Property, plant and equipment 9. Intangible assets and goodwill 10. Share capital 11. Impairment 12. Provisions 13. Leases 14. Financial instruments 15. Fair value measurement 52 Annual Report 2018 PWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) 1 Basis of consolidation Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 2 Foreign currency Transactions in foreign currencies are translated to the respective functional currencies of the Groups’ 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. 3 Revenue 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 on completion of the service. 4 Employee benefits 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. PWR Holdings Limited Annual Report 2018 53 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 5 Finance income and finance costs 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 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. Income Tax 6 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 a series of 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 as 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. 54 Annual Report 2018 PWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) Inventories 7 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. 8 Property, plant and equipment 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 2018 2017 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. 9 Intangible assets and goodwill 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. PWR Holdings Limited Annual Report 2018 55 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) 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. Research and development Research expenditure is recognised as an expense as incurred. Concessional tax benefits and incentives receivable are recognised as other income based on an estimate of the eligible research and development expenditure incurred during the financial year. Costs incurred on development projects are recognised as intangible assets only when it is probable that a project will, after assessment of its commercial and technical feasibility, be completed and generate future economic benefits and can be measured reliably. Impairment of 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. 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 are 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. 10 Share capital 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. 56 Annual Report 2018 PWR Holdings Limited Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) 11 Impairment For the purpose of impairment testing, 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 2019 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. 12 Provisions 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. 13 Leases 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. 14 Financial instruments Non-derivative financial liabilities 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. 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. 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. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. PWR Holdings Limited Annual Report 2018 57 Notes to the Consolidated Financial Statements For the year ended 30 June 2018 SECTION I SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 15 Fair value measurements The consolidated financial statements have been prepared on the historical cost basis except for any derivative financial instruments which are recognised at fair value. ‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk. 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. When one is available, the Group measures the fair value using the quoted price in an active market for that asset or liability. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. When an active market is not available, the Group uses observable market data as far as possible. Further information about the methods and assumptions made in determining fair values for measurement and/or disclosure purposes is included in the following notes: – Note I14 – financial instruments – Note D3 – share based payments 58 Annual Report 2018 PWR Holdings Limited Directors’ Declaration For the year ended 30 June 2018 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 24 to 59 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 2018 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 2018. 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 Brisbane 23rd August 2018 PWR Holdings Limited Annual Report 2018 59 Independent Auditor’s Report to the Members of PWR Holdings Limited For the year ended 30 June 2018 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 Holdings 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 2018 and of its financial performance for the year ended on that date; and • complying with the Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2018; • 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 or from time to time during the financial year. 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 intangible assets. Key Audit Matters are those matters that, in our professional judgement, 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. 60 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. 60 Annual Report 2018 PWR Holdings Limited Independent Auditor’s Report to the Members of PWR Holdings Limited For the year ended 30 June 2018 Valuation of goodwill and intangible assets ($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 27% of total assets). 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. 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 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. 61 PWR Holdings Limited Annual Report 2018 61 Independent Auditor’s Report to the Members of PWR Holdings Limited For the year ended 30 June 2018 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 Managing Director’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 the 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 and Company’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 and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our 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 the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf . This description forms part of our Auditor’s Report. 62 62 Annual Report 2018 PWR Holdings Limited Independent Auditor’s Report to the Members of PWR Holdings Limited For the year ended 30 June 2018 Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of PWR Holdings Limited for the year ended 30 June 2018 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 pages 13 to 22 of the Directors’ Report for the year ended 30 June 2018. 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 23 August 2018 63 PWR Holdings Limited Annual Report 2018 63 ASX Additional Information Shareholdings as at 15 August 2018 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 48 shareholders hold less than a marketable parcel of ordinary shares of 174 shares. TWENTY LARGEST SHAREHOLDERS Name 1 KPW Property Holdings Pty Ltd 2 HSBC Custody Nominees (Australia) Limited 3 Citicorp Nominees Pty Limited 4 J P Morgan Nominees Australia Limited 5 National Nominees Limited 6 Mamlec Pty Ltd 7 Merrill Lynch (Australia) Nominees Pty Limited 8 BNP Paribas Nominees Pty Ltd 9 BNP Paribas Noms Pty Ltd 10 BNP Paribas Noms (NZ) Ltd 11 UBS Nominees Pty Ltd 12 Bond Street Custodians Ltd 13 Neweconomy Com Au Nominees Pty Ltd 14 Wask Management Pty Ltd 15 Truebell Capital Pty Ltd 16 Ms Deslea Mary Sneddon 17 RT Developments Pty Ltd 18 Invia Custodian Pty Ltd 19 Anacacia Pty Ltd 20 Citicorp Nominees Pty Limited (DPSL A/C) Top 20 holders of ordinary fully paid shares Total remaining holders balance 64 Annual Report 2018 PWR Holdings Limited Number of Ordinary shares Number of Security Holders 174,354 4,057,156 5,653,970 9,040,695 81,073,825 309 1,316 746 428 25 100,000,000 2,824 Number of ordinary shares held Percentage of capital held % 38,368,500 38.37 9,756,347 8,030,358 6,460,701 4,642,151 3,773,308 1,659,879 1,419,836 1,267,565 993,773 985,078 632,923 482,650 364,575 360,000 299,191 250,000 238,975 218,511 204,707 9.76 8.03 6.46 4.64 3.77 1.66 1.42 1.27 0.99 0.99 0.63 0.48 0.36 0.36 0.30 0.25 0.24 0.22 0.20 80,409,028 19,590,972 80.41 19.59 ASX Additional Information Shareholdings as at 15 August 2018 SUBSTANTIAL SHAREHOLDERS The number of shares held by substantial shareholders and their associates are set out below: Shareholder KPW Property Holdings Pty Ltd IOOF Holdings Ltd Tribeca Investment Partners Pty Ltd RIGHTS The number of performance rights on issue are set out below: Number of rights holders Number of rights on issue 5 210,252 VOTING RIGHTS Ordinary shares Refer to Note F2 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. Number 38,368,500 9,642,056 6,504,256 PWR Holdings Limited Annual Report 2018 65 Corporate Directory PWR Holdings Limited ABN 85 105 326 850 OFFICES AND OFFICERS Directors Teresa Handicott Jeffrey Forbes Roland Dane Kees Weel Company Secretary Lisa Dalton Principal Registered Office PWR Holdings Limited 103 Lahrs Road Ormeau, 4208 Queensland Tel: +61 7 5547 1600 Locations of Share Registry Computershare Investor Services Pty Ltd Level 1 200 Mary Street Brisbane 4000 Queensland Tel: +61 7 3237 2100 66 Annual Report 2018 PWR Holdings Limited www.pwr.com.au PWR Holdings Limited 103 Lahrs Road, Ormeau, 4208 Queensland Phone: 07 5547 1600 www.pwr.com.au