Queste Communications Ltd
Annual Report 2016

Plain-text annual report

A.B.N 58 081 688 164 2016 ANNUAL REPORT 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 CONTENTS CORPORATE DIRECTORY Company Update 2 BOARD Directors’ Report Remuneration Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Comprehensive Income 3 12 18 19 Farooq Khan (Chairman and Managing Director) (Executive Director) (Non-Executive Director) Victor Ho Yaqoob Khan COMPANY SECRETARY Victor Ho Consolidated Statement of Financial 20 Level 2 Position 23 Ventnor Avenue West Perth, Western Australia 6005 PRINCIPAL & REGISTERED OFFICE Consolidated Statement of 21 Changes in Equity Consolidated Statement of Cash Flows 22 Notes to the Consolidated Financial 23 Telephone: Facsimile: Email: Website: (08) 9214 9777 (08) 9214 9701 info@queste.com.au www.queste.com.au Statements Directors’ Declaration Independent Audit Report Additional ASX Information AUDITORS Rothsay Auditing Chartered Accountants Level 1, Lincoln House 4 Ventnor Avenue West Perth, Western Australia 6005 Telephone: Website: (08) 9486 7094 www.rothsayresources.com.au 48 49 51 Queste’s 2016 Corporate Governance Statement can be found at the following URL on the Company’s website: http://www.queste.com.au/corporate-governance STOCK EXCHANGE Australian Securities Exchange Perth, Western Australia ASX CODE QUE SHARE REGISTRY Main Office Advanced Share Registry Services 110 Stirling Highway Nedlands, Western Australia 6009 Telephone: Facsimile: Email: Investor Web: (08) 9389 8033 (08) 9262 3723 admin@advancedshare.com.au www.advancedshare.com.au Visit www.queste.com.au for: Market Announcements  Financial Reports  Corporate Governance  Forms  Email subscription  Sydney Office Suite 8H, 325 Pitt Street Sydney, New South Wales 2000 Telephone: (02) 8096 3502 Victoria: Queensland: Telephone: (03) 9018 7102 Telephone: (07) 3103 3838 ANNUAL REPORT | 1 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 COMPANY UPDATE SMALL HOLDING (UNMARKETABLE PARCEL) SHARE SALE FACILITY On 6 October 2016, the Company initiated a ‘Small Holding (Unmarketable Parcel) Share Sale Facility’1 in respect of small parcel shareholdings (also sometimes referred to as ‘unmarketable parcels’) valued at $500 or less. Based on the Company’s then last sale share price on the ASX of 5.2 cents (as at the Record Date of 5 October 2016), a small holding under this facility constituted 9,615 or fewer shares. The Company’s share register had 77 (out of 239) shareholders holding a small holding and these holders held, in aggregate, 276,065 shares or 1.04% of the Company’s total issued share capital (of 26,578,358 shares). The Company’s Constitution2 provides a mechanism by which the Board may, with the agreement of the relevant shareholder, aggregate small holdings and sell them on the shareholders' behalf thereby possibly achieving a higher price for the shares than would have been possible had they been sold as individual small parcels. This initiative allows for the full gross proceeds to be realised by shareholders of such small parcels without any associated brokerage or selling costs (which will be borne by the Company). This initiative will benefit the Company in terms of savings in maintenance costs in relation to share registry fees and also printing, mail-out and postage costs. Furthermore, for some shareholders, the costs of selling their small holdings may result in a proportionally high transaction cost compared to the gross proceeds of sale. Those small holding shareholders as at the Record Date (5 October 2016) have until 5:00pm Perth time on Wednesday, 23 November 2016 (the Due Date) to lodge a Share Retention Form to retain their shareholding in the Company. The Company will aggregate the small holdings of affected shareholders who have not lodged a Share Retention Form by the Due Date and dispose of them as soon as practicable after that date, having regard to the liquidity of the Company’s shares on ASX and market conditions. The aggregated small holdings will be sold on-market with the Company bearing all brokerage and selling costs. Once completed, affected small holders will receive a formal Sale Notice advising of the sale details along with a proceeds cheque for their respective pro-rata share of the gross proceeds of sale (with payment sent to a shareholder’s last recorded address) after all small holdings have been sold. Any tax consequences from the sale will be the respective shareholder’s responsibility. The Company refers to its ASX market announcement entitled “Small Holding (Unmarketable Parcel) Share Sale Facility” dated 6 October 2016 for further details in relation to this capital management initiative. 28 October 2016 1 Refer Queste’s ASX announcement dated 6 October 2016: Small Holding (Unmarketable Parcel) Share Sale Facility 2 Clause 152 of the Company’s Constitution ANNUAL REPORT | 2 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 DIRECTORS’ REPORT The Directors present their report on Queste Communications Ltd ABN 58 081 688 164 (Company or QUE) and its controlled entities (Queste or the Consolidated Entity) for the financial year ended 30 June 2016 (Balance Date). QUE is a public company limited by shares that is incorporated and domiciled in Western Australia and has been listed on the Australian Securities Exchange (ASX) since November 1998. (ASX Code: QUE) Queste’s results incorporate the results of controlled entity, ASX-listed investment company, Orion Equities Limited ABN 77 000 742 843 (Orion or OEQ). The Company has a 59.86% (9,367,653 shares) shareholding interest in Orion (30 June 2015: 59.06% (9,367,653 shares)). PRINCIPAL ACTIVITIES The principal activity of the Company during the financial year was the management of its assets. The principal activities of controlled entity, Orion, during the financial year were the management of its investments, including investments in listed and unlisted securities, real estate held for development and resale, and an olive grove operation. OPERATING RESULTS CONSOLIDATED ENTITY Total revenues Total expenses Loss before tax Income tax benefit Loss for the year Net loss attributable to non-controlling interest Loss after tax attributable to owners of the Company Basic and diluted loss per share (cents) LOSS PER SHARE CONSOLIDATED ENTITY Basic and diluted loss per share (cents) Weighted average number of fully paid ordinary shares in the Company outstanding during the year used in the calculation of basic and diluted earnings per share 2016 $ 220,289 (1,117,019) (896,730) - (896,730) 198,360 (698,370) (2.35) 2015 $ 328,312 (1,473,724) (1,145,412) 89,501 (1,055,911) 311,722 (744,189) (2.52) 2016 (2.35) 2015 (2.52) 29,693,976 29,502,441 The Company’s 5,770,000 (2015: 9,000,000) partly paid ordinary shares, to the extent that they have been paid (1.5225 cents per share) have been included in the determination of the basic loss per share. DIVIDENDS No dividends have been paid or declared during the financial year. ANNUAL REPORT | 3 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 DIRECTORS’ REPORT FINANCIAL POSITION CONSOLIDATED ENTITY Cash Current investments - equities Investments in Associate entity Property held for resale Receivables Deferred tax assets Other assets Total Assets Tax liabilities (current and deferred) Other payables and liabilities Net Assets Issued capital Reserves Non-controlling interest Accumulated losses Total Equity CAPITAL MANAGEMENT Securities on Issue 2016 $ 191,039 729,027 3,545,665 1,350,000 64,119 116,782 2,041,544 8,038,176 (116,782) (259,013) 7,662,381 6,149,888 3,270,684 3,011,476 (4,769,667) 7,662,381 2015 $ 269,805 1,523,346 3,705,212 1,350,000 70,291 216,374 2,084,669 9,219,697 (216,374) (278,967) 8,724,356 6,268,445 3,200,408 3,298,709 (4,043,206) 8,724,356 At the Balance Date, the Company has the following securities on issue: (a) (b) 26,578,358 listed fully paid ordinary shares (2015: 28,817,316 fully paid ordinary shares); and 5,770,000 unlisted partly paid ordinary shares3; each paid to 1.5225 cents with 18.4775 cents per partly paid ordinary share outstanding (representing the equivalent of 439,241 voting shares4) (2015: 9,000,000 unlisted partly paid ordinary shares representing the equivalent of 685,125 voting shares), making a total of 27,017,599 voting shares on issue (2015: 29,502,441 voting shares). Save for the conversion of party paid shares (the subject of calls made by the Company as outlined below), there were no securities issued or granted by the Company during or since the financial year. Call and Conversion of Partly Paid Shares5 On 3 December 2015, there was a conversion of 900,000 partly paid shares into fully paid shares upon payment of a call made by the Company in relation to 100% of the outstanding balance (being $0.184775 each or $166,298 in total) due and payable in respect of these 900,000 partly paid shares.6 3 The terms of issue of the partly paid shares are disclosed in the Prospectus for the initial public offering of shares in the Company dated 6 August 1998 and also more recently, in the Company’s Share Buy-Back Offer Booklet dated 24 March 2016 and released on ASX on 31 March 2016 4 Each partly paid share is treated for voting purposes as being a proportion of a fully paid share, equal to the proportion to which it has been paid up - 1.5225 cents per share, representing 7.61% of the $0.20 issue price 5 The terms of issue of the partly paid shares are disclosed in the Prospectus for the initial public offering of shares in the Company dated 6 August 1998 and also more recently, in the Company’s Share Buy-Back Offer Booklet dated 24 March 2016 and released on ASX on 31 March 2016 6 Refer Queste’s ASX announcement dated 11 December 2015: Appendix 3B – Application for Quotation of Additional Securities ANNUAL REPORT | 4 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 DIRECTORS’ REPORT On 30 June 2016, there was a conversion of 81,959 partly paid shares into fully paid shares upon payment of a call made by the Company in relation to 100% of the outstanding balance (being $0.184775 each or $15,143 in total) due and payable in respect of these 81,959 partly paid shares7 - this call and conversion was at the limit of the “3% creep in 6 months” exemption in Item 9 of section 611 of the Corporations Act. Off-Market Equal Access Share Buy-Back Back At the Company’s general meeting held on 17 March 2016, shareholders approved an equal access scheme share buy-back of up to 100% of each shareholder’s shares in the Company (Buy-Back), subject to a maximum cost to the Company of $300,000 (Buy-Back Cap).8 By way of background:      Queste, as part of a capital management programme for the benefit of shareholders, initiated an on- market share buy-back in 2012/20139. This initiative met with little success and no shares were bought- back, primarily due to the lack of liquidity in trading of Queste shares, based upon the application of ASX Listing Rule 7.29 - this rule prescribes that an on-market buy-back may occur only if transactions in a company’s shares were recorded on ASX on at least 5 days in the previous 3 months. Queste reviewed the on-market share buy-back initiative and the liquidity issue and identified an equal access buy-back scheme as an alternative capital management initiative to allow shareholders an opportunity to realise their investment in the Company in an otherwise relatively illiquid market for Queste shares. At the Company’s 2013 annual general meeting (AGM) held on 28 November 2013, shareholders approved an equal access scheme share buy-back of up to 100% of each shareholder’s shares in the Company, subject to a maximum cost to the Company of $330,000.10 On 17 December 2013, a Share Buy-Back Offer Booklet11 was despatched to eligible shareholders. Under this buy-back (which closed on 21 January 201412):   587,563 fully paid shares were bought back for 10 cents per share, at a cost of $58,757; and 10,000,000 partly paid shares were bought back for 0.5 of a cent per share, at a cost of $50,000, with the total cost of the buy-back being $108,757. It was noted at this time that Queste may consider undertaking further/annual equal access scheme share buy-backs depending on the Company’s financial position and the liquidity of trading in Queste Shares on ASX at the relevant time. There continues to be a lack of liquidity in trading of Queste shares and after a review of the Company’s financial position, Queste determined to seek shareholder approval to conduct another equal access scheme off-market share buy-back (the Buy-Back referred to above). Queste believed that it was in the best interests of shareholders for the proposed Buy-Back to be put to shareholders for approval and that it was appropriate to allow shareholders an opportunity to realise their investment in the Company in an otherwise relatively illiquid market for Queste shares at a price (in respect of the fully paid ordinary shares) at a premium to the current and recent Queste share price on ASX. The proposed Buy-Back would also be a cost-effective mechanism for shareholders to dispose of their interests as there would be no brokerage costs associated with tendering acceptances into the Buy- Back. 7 Refer Queste’s ASX announcement dated 5 July 2016: Appendix 3B – Application for Quotation of Additional Securities 8 Refer Queste’s Information Memorandum (including the Notice of General Meeting, Explanatory Statement and Independent Expert’s Report) dated 27 January 2016 and released on ASX on 12 February 2016 and Queste’s ASX announcement dated 17 March 2016: Results of 2016 General Meeting 9 Refer Queste’s ASX announcements dated 17 April 2012: Appendix 3C - Announcement of Buy-Back Notice and dated 1 May 2013: Appendix 3F Final Share Buy-Back Notice. 10 Refer Queste’s Information Memorandum (including the Notice of Annual General Meeting, Explanatory Statement and Independent Expert’s Report) dated 23 October 2013 and released on ASX on 30 October 2013 and Queste’s ASX announcement dated 28 November 2013: Results of 2013 Annual General Meeting. 11 Refer Queste’s Share Buy-Back Offer Booklet dated 11 December 2013 and released on ASX on 17 December 2013 12 Refer Queste’s ASX announcement dated 22 January 2014: Results of Equal Access Buy-Back and Appendix 3F – Final Share Buy-Back Notice ANNUAL REPORT | 5 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 DIRECTORS’ REPORT The record date for determining entitlements to participate in the Buy-Back was 24 March 2016 and on 31 March 2016, a Share Buy-Back Offer Booklet was despatched to eligible shareholders. The Buy-Back was open to all shareholders on an equal basis. Participation by shareholders was entirely voluntary, in whole or in part, in relation to their shareholding in the Company. As the Buy-Back Price was set below the net tangible asset (NTA) backing of Queste, the NTA backing of the Company has increased after completion of the Buy-Back. This benefits remaining shareholders or those shareholders that only accepted the Company’s offer to buy back a portion of their shares. Please refer to Queste’s Information Memorandum3 and Share Buy-Back Offer Booklet13 for further details on the Buy-Back. Under the Buy-Back (which closed on 26 May 2016): (a) the Company received acceptances totalling in excess of the Buy-Back Cap of $300,000 and a proportionate scale-back had to be applied by reference to the value of the Buy-Back consideration in respect of acceptances received (Scale-Back)14. (b) After the Scale-Back:   3,220,914 fully paid ordinary shares have been bought back for 9 cents per share, at a cost of ~$289,882; and 2,248,044 partly-paid ordinary shares have been bought back for 0.45 of a cent per share, at a cost of ~$10,116, with the total cost of the Buy-Back being ~$299,998.15 Queste may consider undertaking further/annual equal access scheme share buy-backs depending on the Company’s financial position and the liquidity of trading in Queste shares on ASX shares at the relevant time. REVIEW OF OPERATIONS 1. Orion Equities Limited (OEQ) 1.1. Current Status of Investment in Orion Orion Equities Limited is an ASX-listed investment entity (ASX Code: OEQ). The Company holds 9,367,653 shares in Orion, being 59.86% of its issued ordinary share capital (2015: 9,367,653 shares and 58.90%). Orion has been recognised as a controlled entity and included as part of the Queste’s results since 1 July 2002. Queste shareholders are advised to refer to the 30 June 2016 Full Year Report and monthly NTA disclosures lodged by Orion for further information about the status and affairs of the company. Information concerning Orion may be viewed from its website: www.orionequities.com.au Orion’s market announcements may also be viewed from the ASX website (www.asx.com.au) under ASX code “OEQ”. Sections 1.2 to 1.4 below contain information extracted from Orion’s public statements. 13 Refer Queste’s Share Buy-Back Offer Booklet dated 24 March 2016 and released on ASX on 31 March 2016 14 Refer Queste’s ASX announcement dated 26 May 2016: Close of Equal Access Scheme Share Buy-Back Offer and also refer Section 2.3.3 (on page 7) of the Share Buy-Back Offer Booklet 15 Refer Queste’s ASX announcements dated 30 May 2016: Results of Completion of Equal Access Share Buy-Back and dated 30 May 2016: ASX Appendix 3F – Final Share Buy-Back Notice ANNUAL REPORT | 6 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 DIRECTORS’ REPORT 1.2. Orion’s Portfolio Details as at 30 June 2016 Asset Weighting Australian equities Agribusiness 16 Property held for development and resale Net tax liabilities (current-year and deferred tax assets/liabilities) Net cash/other assets and provisions TOTAL % of Net Assets 2016 55% 27% 18% - <1% 100% 2015 58% 25% 17% - <1% 100% Major Holdings in Securities Portfolio Equities Bentley Capital Limited Strike Resources Limited CBG Australian Equities Fund (Wholesale) (CBG Fund) Other ASX listed securities TOTAL Fair Value $’million % of Net Assets ASX Code Industry Sector Exposures 2.77 0.40 0.27 0.06 36.91% 5.33% 3.55% BEL SRK N/A Diversified Financials Materials Diversified 0.75% Various Various 3.50 46.54% 1.3. Orion’s On-Market Share Buy-Backs During the financial year, Orion bought back 211,300 shares on-market at a total cost of $46,686 and at an average buy-back cost (including brokerage) of $0.221 per share, pursuant to an on-market share buy- back announced on 5 June 201517. 1.4. Orion’s Assets (a) Bentley Capital Limited (ASX Code: BEL) Bentley Capital Limited (Bentley) is a listed investment company with a current exposure to Australian equities. Orion holds 27.20% (20,513,783 shares) of Bentley’s issued ordinary share capital with Queste holding 1.72% (1,300,000 shares) of Bentley’s issued ordinary share capital (2015: Orion held 20,513,783 shares (27.42%) and Queste held 1,740,625 shares (2.33%)). Bentley’s asset weighting as at 30 June 2016 was 89% Australian equities (2015: 95.2%), 3.7% intangible assets (2015: 3.9%) and 7.3% net cash/other assets (2015: 0.9%). Bentley had net assets of $16.29 million as at 30 June 2016 (2015: $16.43 million) and incurred an after- tax net profit of $0.526 million for the financial year (2015: after-tax net loss of $0.267 million). Bentley paid two 0.50 cent fully franked dividends that were distributed in September 2015 and March 2016 at a total cost of $0.749 million (2015 distributions: a 0.95 cent and a 0.50 cent fully franked dividends, totaling $1.111 million). Orion received $205,138 distributions from Bentley during the financial year (2015: $307,707). Queste received $17,406 distributions from Bentley during the financial year (2015: $26,108). 16 Agribusiness net assets include olive grove land, olive trees, buildings and plant and equipment. 17 Refer Orion’s ASX announcements dated 5 June 2015: Appendix 3C – Announcement of Buy-Back and 31 May 2016: Appendix 3F - Final Share Buy-Back Notice ANNUAL REPORT | 7 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 DIRECTORS’ REPORT Subsequent to 30 June 2016, Bentley announced its intention to pay a fully-franked dividend of 0.50 cent per share. Orion’s and Queste’s entitlement from the fully franked dividend is expected to be $102,569 and $6,500 respectively. Bentley has a long distribution track record, as illustrated below: Rate per share 0.50 cent 0.50 cent 0.50 cent 0.55 cent 0.95 cent One cent One cent One cent One cent One cent 5.0 cents 2.4 cents One cent Nature Dividend Dividend Dividend Dividend Dividend Dividend Return of capital Return of capital Return of capital Return of capital Return of capital Dividend (Special) Dividend Queste’s Entitlement $6,500 $8,703 $8,703 $9,573 $16,535 $17,406 $17,406 $17,406 $17,406 $17,406 $87,031 $41,775 $17,406 Orion’s Entitlement $102,569 $102,569 $102,569 $112,826 $194,881 $205,138 $205,138 $205,138 $205,138 $205,138 $1,025,689 $492,331 $205,138 Payment Date 29 September 2016 18 March 2016 25 September 2015 20 March 2015 26 September 2014 21 March 2014 12 December 2013 18 April 2013 30 November 2012 19 April 2012 14 October 2011 26 September 2011 26 September 2011 Note: Bentley has paid a distribution to shareholders every year (save on 4 occasions in its 31 year history) since its admission to ASX in 1986. Refer to Bentley’s website for full distribution history Shareholders are advised to refer to the 30 June 2016 Full Year Report and monthly NTA disclosures lodged by Bentley for further information about the status and affairs of the company. Information concerning Bentley may be viewed from its website: www.bel.com.au. Bentley’s market announcements may also be viewed from the ASX website (www.asx.com.au) under ASX code “BEL”. (b) Strike Resources Limited (ASX Code: SRK) Strike Resources Limited (Strike) owns the high grade Apurimac Magnetite Iron Ore Project and Cusco Magnetite Iron Ore Project in Peru and retains cash reserves of ~$7 million (as at 30 June 2016). Strike has announced that it has examined a range of new strategies for the company in light of the on-going poor outlook for the iron ore sector – for further information, refer to Strike’s 2016 Full Year Report.18 On 2 September 2015, Bentley successfully closed its off-market 5.5 cent per share cash takeover bid19 for Strike with acceptances received totaling 52,553,493 Strike shares (36.16%20), making Bentley the largest shareholder. Orion accepted into the Strike bid in respect of 6,690,802 Strike shares and received the bid consideration of $367,994 on 14 September 2015. Orion retains 10,000,000 Strike shares (6.88%) (30 June 2015: 16,690,802 shares (11.48%)). Inclusive of Bentley’s relevant interest in Strike (above), Orion has a relevant interest in 62,553,493 Strike shares (43.041%21). Information concerning Strike may be viewed from its website: www.strikeresources.com.au Strike’s market announcements may also be viewed from the ASX website (www.asx.com.au) under ASX code “SRK”. 18 Refer Strike’s 2016 Full Year Report released on ASX on 31 August 2016 19 Refer Bentley’s ASX Announcement dated 31 July 2015: Despatch of Bidders Statement to Holders of Strike Resources Limited 20 Refer Bentley’s ASX announcement dated 31 August 2015: Notice of Change in Interests of Substantial Holder in Strike 21 Refer Orion’s Change in Substantial Holding Notice dated 4 September 2016 ANNUAL REPORT | 8 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 DIRECTORS’ REPORT (c) Other Assets Orion also owns:   a 143 hectare commercial olive grove operation (currently on care and maintenance) with approximately 64,500, 17 year old olive tree plantings located in Gingin, Western Australian; and a property held for redevelopment or sale but currently rented out located in Mandurah, Western Australia. 2. Queste’s Other Assets In addition to the investment in controlled entity, Orion, Queste has: (a) (b) (c) a direct share investment in Associate entity, Bentley, being 1,300,000 shares (or 1.72% of Bentley’s issued ordinary share capital) (2015: 1,740,625 shares and 2.33%); other investments of $6,582 (2015: $361,227); and a cash holding of $112,251 (2015: $128,998). The Company notes that it lodges Monthly and Quarterly Cash Flow Reports on ASX, which may be may be viewed and downloaded from the Company’s website: www.queste.com.au or the ASX website (www.asx.com.au) under ASX Code: “QUE”. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the Consolidated Entity that occurred during the financial year not otherwise disclosed in this Directors’ Report or the Consolidated Financial Statements. FUTURE DEVELOPMENTS The Consolidated Entity intends to continue its investment activities in future years. The results of these investment activities depend upon the performance of the underlying companies and securities in which the Consolidated Entity invests. The investments’ performances depend on many economic factors and also industry and company specific issues. In the opinion of the Directors, it is not possible or appropriate to make a prediction on the future course of markets, the performance of the Consolidated Entity’s investments or the forecast of the likely results of the Consolidated Entity’s activities. ENVIRONMENTAL REGULATION The Consolidated Entity is not subject to any particular or significant environmental regulation under Australian Commonwealth or State legislation. ANNUAL REPORT | 9 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 DIRECTORS’ REPORT DIRECTORS Information concerning Directors in office during or since the financial year: Farooq Khan Executive Chairman and Managing Director Appointed 10 March 1998 Qualifications BJuris, LLB (Western Australia) Experience Mr Khan is a qualified lawyer having previously practised principally in the field of corporate law. Mr Khan has extensive experience in the securities industry, capital markets and the executive management of ASX-listed companies. In particular, Mr Khan has guided the establishment and growth of a number of public listed companies in the investment, mining and financial services sectors. He has considerable experience in the fields of capital raisings, mergers and acquisitions and investments. Relevant interest in shares 5,344,872 shares22 Other current directorships in listed entities (1) (2) Executive Chairman of Bentley Capital Limited (ASX:BEL) (since 2 December 2003) Executive Chairman of Orion Equities Limited (ASX:OEQ) (since 23 October 2006) (3) Chairman (appointed 18 December 2015) of Strike Resources Limited (ASX:SRK) (Director since 1 October 2015) Former directorships in other listed entities in past 3 years None Victor P. H. Ho Executive Director and Company Secretary Appointed Executive Director since 3 April 2013; Company Secretary since 30 August 2000 Qualifications BCom, LLB (Western Australia), CTA Experience Mr Ho has been in Executive roles with a number of ASX listed companies across the investments, resources and technology sectors over the past 15+ years. Mr Ho is a Chartered Tax Adviser (CTA) and previously had 9 years’ experience in the taxation profession with the Australian Tax Office (ATO) and in a specialist tax law firm. Mr Ho has been actively involved in the structuring and execution of a number of corporate, M&A and international joint venture (in South America, Indonesia and the Middle East) transactions, capital raisings and capital management initiatives and has extensive experience in public company administration, corporations’ law and stock exchange compliance and investor/shareholder relations. Relevant interest in shares 17,500 shares23 Other current positions held in listed entities (1) (2) Executive Director and Company Secretary of Orion Equities Limited (ASX:OEQ) (Secretary since 2 August 2000 and Director since 4 July 2003) Director and Company Secretary of Strike Resources Limited (ASX:SRK) (Director since 24 January 2014 and Company Secretary since 1 October 2015) (3) Company Secretary of Bentley Capital Limited (ASX:BEL) (since 5 February 2004) Company Secretary of Alara Resources Limited (ASX:AUQ) (4 April 2007 to 31 August 2015) Former positions in other listed entities in past 3 years 22 Refer Farooq Khan’s Change of Director’s Interest Notice dated 7 June 2016 23 Refer Victor Ho’s Initial Director’s Interest Notice dated 3 April 2013 ANNUAL REPORT | 10 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 DIRECTORS’ REPORT Yaqoob Khan Non-Executive Director Appointed 10 March 1998 Qualifications BCom (Western Australia), Master of Science in Industrial Administration (Carnegie Mellon) Experience After working for several years in the Australian Taxation Office, Mr Khan completed his postgraduate Masters degree and commenced work as a senior executive responsible for product marketing, costing systems and production management. Mr Khan has been an integral member of the team responsible for the pre-IPO structuring and IPO promotion of a number of ASX floats and has been involved in the management of such companies. Mr Khan brings considerable international experience in key aspects of corporate finance and the strategic analysis of listed investments. Relevant interest in shares 68,345 shares24 Other current directorships in listed entities Non-Executive Director of Orion Equities Limited (ASX:OEQ) (since 5 November 1999). Former directorships in other listed entities in past 3 years None At the Balance Date, Yaqoob Khan is a resident overseas. At the Company’s 2015 AGM25:  Yaqoob Khan retired as a Director (by rotation) pursuant to the Company’s Constitution and was re- elected a Director at that AGM. DIRECTORS' MEETINGS The following table sets out the numbers of meetings of the Company's Directors held during the financial year (including Directors’ circulatory resolutions), and the numbers of meetings attended by each Director of the Company: Name of Director Meetings Attended Maximum Possible Meetings Farooq Khan Yaqoob Khan Victor Ho 12 12 12 12 12 12 There were no meetings of committees of the Board of the Company. Board Committees During the financial year and as at the date of this Directors’ Report, the Company did not have separate designated Audit or Remuneration Committees. In the opinion of the Directors, in view of the size of the Board and nature and scale of the Queste’s activities, matters typically dealt with by an Audit or Remuneration Committee are dealt with by the full Board. 24 Refer Yaqoob Khan’s Change of Director’s Interest Notice dated 6 September 2011 25 Refer Queste’s ASX announcement dated 12 November 2015: Results of 2015 Annual General Meeting ANNUAL REPORT | 11 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 REMUNERATION REPORT This Remuneration Report details the nature and amount of remuneration for each Director and Company Executive (being a company secretary or senior manager) (Key Management Personnel) of Queste. The information provided under headings (1) to (5) below has been audited for compliance with section 300A of the Corporations Act 2001 (Cth) as required under section 308(3C). (1) Remuneration Policy The Board determines the remuneration structure of all Key Management Personnel having regard to the Company’s strategic objectives, scale and scope of operations and other relevant factors, including experience and qualifications, length of service, the duties and accountability of Key Management Personnel, the frequency of Board meetings, market practice (including available data concerning remuneration paid by other listed companies and in particular, companies of comparable size and nature) and the objective of maintaining a balanced Board which has appropriate expertise and experience, at a reasonable cost to the Company. Corporate Governance Principles: The Company’s Corporate Governance Statement (CGS) also addresses matters pertaining to the Board, Senior Management and Remuneration. The latest version of the CGS may be downloaded from the Company’s website: http://queste.com.au/corporate-governance Fixed Cash Short Term Employment Benefits: The Key Management Personnel of the Company are paid a fixed amount per annum plus applicable employer superannuation contributions. The Non- Executive Directors of the Company are paid a maximum aggregate base remuneration of $75,00024 per annum inclusive of minimum employer superannuation contributions where applicable, to be divided as the Board determines appropriate. The Board has determined the following fixed cash remuneration for current Key Management Personnel during the year as follows: (1) Mr Farooq Khan (Executive Chairman and Managing Director) - a base salary of $31,250 (previously voluntarily reduced from $62,500 to $31,250 (with effect on 1 April 2016) and from $125,000 to $62,500 (with effect on 1 April 2013) to assist the Company in reducing its corporate overheads) per annum plus employer superannuation contributions. (2) Mr Victor Ho (Executive Director and Company Secretary) - a base salary of $22,500 (previously voluntarily reduced from $45,000 to $22,500 (with effect on 1 April 2016) to assist the Company in reducing its corporate overheads) per annum plus employer superannuation contributions. Mr Ho also agreed to join the Board as an Executive Director on 3 April 2013 at no further cost to the Company; and (3) Mr Yaqoob Khan (Non-Executive Director) - a base fee of $15,000 per annum. Key Management Personnel can also opt to “salary sacrifice” their cash fees/salary and have them paid wholly or partly as further employer superannuation contributions or benefits exempt from fringe benefits tax. Special Exertions and Reimbursements: Pursuant to the Company’s Constitution, each Director is entitled to receive: (a) (b) Payment for reimbursement of all travelling, hotel and other expenses reasonably incurred by a Director for the purpose of attending meetings of the Board or otherwise in and about the business of the Company; and In respect of Non-Executive Directors, payment for the performance of extra services or the making of special exertions for the benefit of the Company (at the request of and with the concurrence of the Board). Short-Term Benefits: The Company does not have any short-term incentive (STI) cash bonus schemes (or equivalent) in place for Key Management Personnel. 24 As approved by shareholders at the Annual General Meeting held on 30 November 1999; refer Queste’s ASX announcement dated 30 November 1999: Results of Annual General Meeting of Shareholders ANNUAL REPORT | 12 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 REMUNERATION REPORT Long-Term Benefits: Other than early termination benefits disclosed in ‘Employment Agreement’ below, Key Management Personnel have no right to termination payments save for payment of accrued unused annual and long service leave (where applicable) (other than Non-Executive Directors). Equity Based Benefits: The Company does not presently have any equity (shares or options) based remuneration arrangements for any personnel pursuant to any executive or employee share or option plan or otherwise. Post-Employment Benefits: The Company does not presently provide retirement benefits to Key Management Personnel. The Company notes that shareholder approval is required where a Company proposes to make a “termination payment” (for example, a payment in lieu of notice, a payment for a post-employment restraint and payments made as a result of the automatic or accelerated vesting of share based payments) in excess of one year’s “base salary” (defined as the average base salary over the previous 3 years) to a director or any person who holds a managerial or executive office. Performance-Related Benefits and Financial Performance of Company: The Company does not presently provide short- or long-term incentive/performance based benefits related to the Company’s performance to Key Management Personnel, including payment of cash bonuses. The current remuneration of Key Management Personnel is fixed, is not dependent on the satisfaction of a performance condition and is unrelated to the Company’s performance. The Board does not believe that it is appropriate at this time to implement an equity-based benefit scheme or a performance related/variable component to Key Management Personnel remuneration or remuneration generally linked to the Company’s performance but reserves the right to implement these remuneration measures if appropriate in the future (subject to prior shareholder approval where applicable). In considering the Company's performance and its effects on shareholder wealth, Directors have had regard to the data set out below for the latest financial year and the previous four financial years. 2016 2015 2014 2013 2012 Loss Before Income Tax ($) (896,730) (1,055,911) (1,209,082) (3,453,436) (5,366,862) Basic Earnings/(Loss) per Share (cents) (2.35) (2.52) (5.24) (6.73) (9.85) Dividends Paid ($) VWAP Share Price on ASX for financial year ($) Closing Bid Share Price at 30 June ($) - 0.07 0.05 - 0.00 0.06 - 0.14 0.14 - 0.09 0.09 - 0.11 0.10 (2) Employment Agreement Details of the material terms of an employment agreement entered by the Company with a Key Management Personnel are as follows: Key Management Personnel and Position(s) Held Victor Ho Company Secretary (since 30 August 2000) Executive Director (since 3 April 2013) Relevant Date(s) Base Salary/Fees per annum Other Material Terms 25 January 2000 (date of employment agreement) 2009/2010 (date of effect of current remuneration) $45,000  The agreement has no fixed term or fixed rolling plus employer superannuation contributions (currently 9.5% of base salary) terms of service.  Standard annual leave (20 days) and personal/sick leave (10 days paid) entitlements plus entitlement to long service leave of 60 days after 7 years of service with an additional 5 days after each year of service thereafter.  One month’s notice of termination by the Company or employee. Immediate termination without notice if employee commits any serious act of misconduct. ANNUAL REPORT | 13 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 REMUNERATION REPORT The Company does not presently have formal service agreements or employment agreements with any other Key Management Personnel. (3) Details of Remuneration of Key Management Personnel Details of the nature and amount of each element of remuneration of each Key Management Personnel of the Company paid or payable by the Consolidated Entity during the financial year are as follows: Paid by the Company (Queste) to its Key Management Personnel 2016 Performance related Short-term Benefits Post- Employment Benefits Other Long- term Benefits Key Management Person Executive Directors: Farooq Khan Victor Ho Non-Executive Director: Yaqoob Khan % - - - Cash, salary and commissions $ Non-cash benefit $ Superannuation $ 51,562 38,074 15,000 - - - 5,149 3,741 - Long service leave $ 2,644 - - 2015 Performance related Short-term Benefits Post- Employment Benefits Other Long- term Benefits Key Management Person Executive Directors: Farooq Khan Victor Ho Non-Executive Director: Yaqoob Khan % - - - Cash, salary and commissions $ Non-cash benefit $ Superannuation $ 60,577 45,000 15,000 - - - 5,800 4,275 - Long service leave $ 481 - - Equity Based Shares & Options $ - - - Equity Based Shares & Options $ - - - Total $ 59,355 41,815 15,000 Total $ 66,858 49,275 15,000 Paid by Orion to Key Management Personnel (who are also KMP of Queste) 2016 Short-term Benefits Post- Employment Benefits Other Long-term Benefits Key Management Personnel Performance related % Cash, salary and commissions $ Non-cash benefit $ Superannuation $ Executive Directors: Farooq Khan Victor Ho Non-Executive Director: Yaqoob Khan 2015 - - - 206,618 78,562 25,000 - - - 19,629 7,481 - Short-term Benefits Post- Employment Benefits Other Long-term Benefits Key Management Personnel Performance related % Cash, salary and commissions $ Non-cash benefit $ Superannuation $ Executive Directors: Farooq Khan Victor Ho Non-Executive Director: Yaqoob Khan - - - 238,101 68,750 29,000* - - - 22,802 13,375 - Long service leave $ 1,923 - - Long service leave $ - - - Equity Based Shares & Options $ Total $ - - - 226,247 86,043 25,000 Equity Based Shares & Options $ Total $ - - - 262,826 82,125 29,000 * Includes fees received for the performance of extra services or the making of special exertions at the request of the Board and for the purposes of the Company. ANNUAL REPORT | 14 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 REMUNERATION REPORT Victor Ho is also Company Secretary of Queste and Orion. The tables above may be aggregated to arrive at the aggregate amount of each element of remuneration of each Key Management Personnel paid or payable by the Queste and Orion during the financial year. (4) Other Benefits Provided to Key Management Personnel No Key Management Personnel has during or since the end of the financial year, received or become entitled to receive a benefit, other than a remuneration benefit as disclosed above, by reason of a contract made by the Company or a related entity with the Director or with a firm of which he is a member, or with a Company in which he has a substantial interest. (5) Engagement of Remuneration Consultants The Company has not engaged any remuneration consultants to provide remuneration recommendations in relation to Key Management Personnel during the year. The Board has established a policy for engaging external Key Management Personnel remuneration consultants which includes, inter alia, that the Non-Executive Directors on the Remuneration Committee be responsible for approving all engagements of and executing contracts to engage remuneration consultants and for receiving remuneration recommendations from remuneration consultants regarding Key Management Personnel. Furthermore, the Company has a policy that remuneration advice provided by remuneration consultants be quarantined from Management where applicable. (6) Shares held by Key Management Personnel The number of ordinary shares in the Company held by Key Management Personnel is set below: Key Management Personnel Executive Directors: Farooq Khan Victor Ho Non-Executive Director: Yaqoob Khan Balance at 30 June 2015 Additions Received as part of remuneration Disposals Balance at 30 June 2016 6,168,044 17,500 68,345 - - - - - - (555,072)25 - 5,612,972 17,500 - 68,345 Note: The disclosures of shareholdings above are in accordance with the accounting standards which require disclosure of shares held directly, indirectly or beneficially by each key management person, a close member of the family of that person, or an entity over which either of these persons have, directly or indirectly, control, joint control or significant influence (as defined under Accounting Standard AASB 124 Related Party Disclosures). (7) Voting and Comments on the Remuneration Report at the 2015 AGM At the Company’s most recent (2015) AGM, a resolution to adopt the prior year (2015) Remuneration Report was put to the vote and passed unanimously on a show of hands with the proxies received also indicating majority 86.15%) support in favour of adopting the Remuneration Report.26 No comments were made on the Remuneration Report that was considered at the AGM. This concludes the audited Remuneration Report. 25 Refer Farooq Khan’s Change of Director’s Interest Notice dated 7 June 2016 26 Refer Queste’s ASX announcement dated 12 November 2015: Results of 2015 Annual General Meeting ANNUAL REPORT | 15 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 DIRECTORS’ REPORT DIRECTORS’ AND OFFICERS’ INSURANCE The Company and Orion each insure Directors and Officers against liability they may incur in respect of any wrongful acts or omissions made by them in such capacity (to the extent permitted by the Corporations Act 2001 (Cth)) (D&O Policy). Details of the amount of the premium paid in respect of the insurance policies are not disclosed as such disclosure is prohibited under the terms of the contract. DIRECTORS DEEDS In addition to the rights of indemnity provided under the Company’s Constitution (to the extent permitted by the Corporations Act 2001 (Cth)), the Company has also entered into a deed with each of the Directors and the Company Secretary (Officer) to regulate certain matters between the Company and each Officer, both during the time the Officer holds office and after the Officer ceases to be an officer of the Company, including the following matters: (a) (b) The Company’s obligation to indemnify an Officer for liabilities or legal costs incurred as an officer of the Company (to the extent permitted by the Corporations Act 2001 (Cth)); and Subject to the terms of the deed and the Corporations Act 2001 (Cth), the Company may advance monies to the Officer to meet any costs or expenses of the Officer incurred in circumstances relating to the indemnities provided under the deed and prior to the outcome of any legal proceedings brought against the Officer. LEGAL PROCEEDINGS ON BEHALF OF CONSOLIDATED ENTITY No person has applied for leave of a court to bring proceedings on behalf of the Consolidated Entity or intervene in any proceedings to which the Consolidated Entity is a party for the purpose of taking responsibility on behalf of the Consolidated Entity for all or any part of such proceedings. The Consolidated Entity was not a party to any such proceedings during and since the financial year. AUDITORS The Company has changed its Auditors from BDO to Rothsay Auditing (a firm of Chartered Accountants with offices in Perth and Sydney), with effect on 12 February 2016.27 The transition of Auditors occurred as part of a review of the Company’s corporate administration costs – Rothsay was selected after considering proposals received from BDO and a number of other audit firms. Rothsay will hold office as Auditor until the next annual general meeting of the Company, at which time shareholder approval will be sought for their re-appointment and continuation as Auditor. Details of the amounts paid or payable to the Auditors for audit and non-audit services (tax services) provided during the financial year are set out below: Auditor Consolidated Entity Non-Audit Services Audit & Review Fees $ $ - Total $ Audit & Review Fees $ 36,000 14,000 Rothsay Auditing BDO Audit (WA) Pty Ltd BDO Corporate Finance (WA) Pty Ltd 36,000 - - 3,451 3,451 12,565 12,565 - - 27 Refer Queste’s ASX announcement dated 12 February 2016: Change of Auditors Company Non-Audit Services $ - - Total $ 14,000 - 12,565 12,565 ANNUAL REPORT | 16 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 DIRECTORS’ REPORT The Board is satisfied that the provision of non-audit services by the auditor during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 (Cth). The Board is satisfied that the nature of the non-audit services disclosed above did not compromise the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants: Professional Independence, including reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. Rothsay Auditing continues in office in accordance with section 327B of the Corporations Act 2001 (Cth). AUDITORS’ INDEPENDENCE DECLARATION A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 (Cth) forms part of this Directors Report and is set out on page 18. This relates to the Auditor’s Independent Review Report, where the Auditors state that they have issued an independence declaration. EVENTS SUBSEQUENT TO BALANCE DATE The Directors are not aware of any other matters or circumstances at the date of this Directors’ Report, other than those referred to in this Directors’ Report (in particular, in Review of Operations) or the financial statements or notes thereto (in particular Note 27, that have significantly affected or may significantly affect the operations, the results of operations or the state of affairs of the Company in subsequent financial years. Signed for and on behalf of the Directors in accordance with a resolution of the Board. Farooq Khan Chairman 31 August 2016 Victor Ho Company Secretary ANNUAL REPORT | 17  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 30 June 2016 Note 2 3 5 Revenue Other Share of net profit of Associate entity Net gain on financial assets at fair value through profit or loss Reversal of Impairment - olive grove assets Other revenue Total revenue Expenses Net loss on financial assets at fair value through profit or loss Share of net loss of Associate entity Olive grove operation expenses Land operation expenses Personnel expenses Occupancy expenses Corporate expenses Finance expenses Administration expenses Loss before income tax Income tax expense Loss for the year Other comprehensive income Revaluation of assets, net of tax Total comprehensive loss for the year Loss attributable to: Owners of Queste Communications Ltd Non-controlling interest Total comprehensive income for the year is attributable to: Owners of Queste Communications Ltd Non-controlling interest 2016 $ 55,604 163,526 - - 1,159 220,289 (78,076) - (60,763) (15,156) (655,039) (56,666) (53,815) (4,180) (193,324) (896,730) 2015 $ 80,289 - 142,374 101,296 4,353 328,312 - (80,044) (71,808) (147,217) (792,986) (69,339) (51,561) (4,381) (256,388) (1,145,412) - (896,730) 89,501 (1,055,911) - (896,730) 208,836 (847,075) (698,370) (198,360) (896,730) (744,189) (311,722) (1,055,911) (698,370) (198,360) (896,730) (535,353) (311,722) (847,075) Basic and diluted loss per share (cents) attributable to the ordinary equity holders of the Company 6 (2.35) (2.52) The accompanying notes form part of these consolidated financial statements ANNUAL REPORT | 19  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 30 June 2016 Current assets Cash and cash equivalents Financial assets at fair value through profit or loss Receivables Other current assets Total current assets Non current assets Receivables Property held for development or resale Investment in Associate entity Property, plant and equipment Olive trees Deferred tax asset Total non current assets Total assets Current liabilities Payables Provisions Total current liabilities Non current liabilities Deferred tax liability Total non current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Parent interest Non-controlling interest Total equity Note 7 8 11 11 12 22 13 14 5 15 16 2016 $ 191,039 729,027 42,345 7,865 2015 $ 269,805 1,523,346 13,171 8,417 970,276 1,814,739 21,774 1,350,000 3,545,665 1,968,179 65,500 116,782 57,120 1,350,000 3,705,212 2,010,752 65,500 216,374 7,067,900 7,404,958 8,038,176 9,219,697 151,617 107,396 161,957 117,010 259,013 278,967 5 116,782 216,374 116,782 216,374 375,795 495,341 7,662,381 8,724,356 6,149,888 3,270,684 (4,769,667) 4,650,905 6,268,445 3,200,408 (4,057,596) 5,411,257 3,011,476 3,313,099 7,662,381 8,724,356 17 18 19 The accompanying notes form part of these consolidated financial statements ANNUAL REPORT | 20  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 30 June 2016 Issued capital $ Reserves $ Accumulated losses $ Non- controlling interest $ Total $ Balance at 1 July 2014 6,268,445 3,106,232 (3,313,407) 3,520,654 9,581,924 Loss for the year Other comprehensive income Total comprehensive loss for the year Transactions with owners in their capacity as owners: Transactions with non-controlling interest - - - - 208,836 208,836 (744,189) - (311,722) - (744,189) (311,722) (1,055,911) 208,836 (847,075) - (114,660) - 104,167 (10,493) Balance at 30 June 2015 6,268,445 3,200,408 (4,057,596) 3,313,099 8,724,356 Balance at 1 July 2015 6,268,445 3,200,408 (4,057,596) 3,313,099 8,724,356 Loss for the year Profit reserve transfer Other comprehensive income Total comprehensive loss for the year Transactions with owners in their capacity as owners: Transactions with non-controlling interest Share buy back Partly paid shares - - - - - 13,701 - (698,370) (13,701) - (198,360) - - (896,730) - - 13,701 (712,071) (198,360) (896,730) - (299,998) 181,441 56,575 - - - - - (103,263) - - (46,688) (299,998) 181,441 Balance at 30 June 2016 6,149,888 3,270,684 (4,769,667) 3,011,476 7,662,381 The accompanying notes form part of these consolidated financial statements ANNUAL REPORT | 21  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 30 June 2016 Cash flows from operating activities Receipts from customers Dividends received Interest received Payments to suppliers and employees Interest paid Sale of financial assets at fair value through profit or loss Purchase of financial assets at fair value through profit or loss Net cash used in continuing operations Note 2016 $ 2015 $ 46,491 227,047 5,769 (1,003,389) (48) 973,442 (156,671) 65,736 340,754 11,968 (1,201,380) (140) 509,824 (718,376) 92,641 (991,614) Net cash (used in)/provided by discontinued operations - 9,369 Net cash used in operating activities 92,641 (982,245) Cash flows from investing activities Proceeds from sale of olive oil operations Purchase of plant and equipment - (6,164) 101,994 (9,068) Net cash provided by/(used in) investing activities (6,164) 92,926 Cash flows from financing activities Queste off-market share buy-back Proceeds from calls on partly paid shares Orion on-market share buy-back Net cash used in financing activities (299,998) 181,441 (46,686) - - (10,495) (165,243) (10,495) Net increase /(decrease) in cash held (78,766) (899,814) Cash and cash equivalents at beginning of financial year 269,805 1,169,619 Cash and cash equivalents at end of financial year 7 191,039 269,805 The accompanying notes form part of these consolidated financial statements ANNUAL REPORT | 22 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 1. ABOUT THIS REPORT 1.1 Background financial report covers This financial statement of the consolidated entity consisting of Queste Communications Ltd, its subsidiary and investment in its associate (the Consolidated Entity or Queste). The financial report is presented in the Australian currency. the consolidated Queste Communications Ltd (the Company) is a company limited by shares, incorporated in Western Australia, Australia and whose shares are publicly traded on the Australian Securities Exchange (ASX). These financial statements have been prepared on a streamlined basis where key information is grouped together for ease of understanding and readability. The notes include information which is required to understand the financial statements and is material and relevant to the operations, financial position and performance of the Consolidated Entity. Information is considered material and relevant if, for example: (a) (b) (c) (d) the amount in question is significant because of its size or nature; (e) it is important for understanding the results of the Consolidated Entity; it helps to explain the impact of significant changes in the Consolidated Entity’s business – for example, acquisitions; or it relates to an aspect of the Consolidated Entity’s future important operations performance. that its to is The notes are organised into the following sections: (a) line Key Performance: Provides a breakdown of the key individual of comprehensive income that the Directors consider most relevant to understanding performance and shareholder returns for the year: statement items the in Notes 2 3 4 5 6 Revenue Expenses Segment information Income tax Loss per share (b) Financial Risk Management: Provides information about the Consolidated Entity’s exposure and management of various financial risks and explains how these affect the Consolidated Entity’s financial position and performance: Notes 7 8 9 10 Cash and cash equivalents Financial assets at fair value through profit or loss Financial risk management Fair value measurement of financial instruments (c) Other Assets and Liabilities: Provides information on other balance sheet assets and liabilities that do not materially affect performance or give rise to material financial risk: Notes 11 12 13 14 15 16 Receivables Property held for resale Property, plant and equipment Olive trees Payables Provisions (d) Capital Structure: This section outlines how the Consolidated Entity manages its capital structure and related financing costs, as well as capital adequacy and reserves. It also provides details on the dividends paid by the Company: Notes 17 18 19 Issued capital Reserves Non-controlling interest Consolidated Entity Structure: Provides details and disclosures relating to the parent entity of the Consolidated Entity, controlled entities, investments in associates and any acquisitions and/or disposals of businesses in the year. Disclosure on related parties is also provided in the section: Notes 20 21 22 23 Parent entity information Investment in controlled entity Investment in associate entity Related party transactions (f) Other: Provides information on items which require disclosure to comply with Australian Accounting Standards and other regulatory pronouncements however, in understanding the financial performance or position of the Consolidated Entity: considered significant are not Notes 24 25 26 27 Auditors' remuneration Commitments Contingencies Events occurring after the reporting period Significant and other accounting policies that summarise the measurement basis used and presentation policies and are relevant to an understanding of the financial statements are provided throughout the notes to the financial statements. ANNUAL REPORT | 23 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 1.2. Basis of preparation 1.6. Impairment of Assets These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, the Australian other authoritative pronouncements of Accounting Accounting Board, Interpretations and the Corporations Act 2001 (Cth), as appropriate for for-profit entities. Standards Australia Compliance with IFRS The consolidated financial statements of the Consolidated Entity also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Reporting Basis and Conventions The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, and financial assets and financial liabilities for which the fair value basis of accounting has been applied. 1.3. Principles of Consolidation The consolidated financial statements incorporate the assets and liabilities of the subsidiary of Queste Communications Ltd as at 30 June 2016 and the results of its subsidiary for the year then ended. Queste Communications Ltd and its subsidiary are referred to in this financial statement as the Consolidated Entity. The controlled entity has a June financial year-end. All inter- company balances and transactions between entities in the Consolidated Entity, including any unrealised profits or losses, have been eliminated on consolidation. 1.4. Comparative Figures Certain comparative figures have been adjusted to conform to changes in presentation for the current financial year. 1.5. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the Statement of Financial Position are shown inclusive of GST. Cash flows are presented in the Statement of Cash Flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. At each reporting date, the Consolidated Entity reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the profit or loss. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. Where it is not possible to estimate the recoverable amount of an individual asset, the Consolidated Entity estimates the recoverable amount of the cash- generating unit to which the asset belongs. ANNUAL REPORT | 24 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 1.7. Summary of Accounting Standards Issued but not yet Effective The following new Accounting Standards and Interpretations (which have been released but not yet adopted) have no material impact on the Consolidated Entity’s financial statements or the associated notes therein. Application date Annual reporting periods beginning on or after 1 January 2018 AASB reference AASB 9 Title and Affected Standard(s) Financial Instruments Nature of Change Classification and measurement AASB 9 amendments the classification and measurement of financial assets:  Financial assets will either be measured at amortised cost, fair value through other comprehensive income (FVTOCI) or fair value through profit or loss (FVTPL).  Financial assets are measured at amortised cost or FVTOCI if certain restrictive conditions are met. All other financial assets are measured at FVTPL.  All investments in equity instruments will be measured at fair value. For those investments in equity instruments that are not held for trading, there is an irrevocable election to present gains and losses in OCI. Dividends will be recognised in profit or loss The following requirements have generally been carried forward unchanged from AASB 139 Financial Instruments: Recognition and Measurement into AASB 9:  Classification and measurement of financial liabilities, and  Derecognition liabilities. requirements for financial assets and However, AASB 9 requires that gains or losses on financial liabilities measured at fair value are recognised in profit or loss, except that the effects of changes in the liability’s credit risk are recognised in other comprehensive income. Impairment The new impairment model in AASB 9 is now based on an ‘expected loss’ model rather than an ‘incurred loss’ model. A complex three stage model applies to debt instruments at amortised cost or at fair value through other comprehensive income for recognising impairment losses. A simplified impairment model applies to trade receivables and lease receivables with maturities that are less than 12 months. For trade receivables and lease receivables with maturity longer than 12 months, entities have a choice of applying the complex three stage model or the simplified model. Non-urgent but necessary changes to standards Annual periods beginning on or after 1 January 2016 AASB 2015- 1 Amendments to Australian Accounting Standards - Annual Improvements to Australian Accounting Standards 2012- 2014 Cycle ANNUAL REPORT | 25 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 1.7. Summary of Accounting Standards Issued but not yet Effective (continued) AASB reference AASB 2014-9 Title and Affected Standard(s) Amendments to Australian Accounting Standards - Equity Method in Separate Financial Statements AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture IFRS 15 Revenue from contracts with customers Nature of Change Currently, investments in subsidiaries, associates and joint ventures are accounted for in separate financial statements at cost or at fair value under AASB 139/AASB 9. These amendments provide an additional option to account for these investments using the equity method as described in AASB 128 Investments in Associates and Joint Ventures. Application date Annual periods beginning on or after 1 January 2016 Annual periods beginning on or after 1 January 2018 AASB 2014-10 amends AASB 10 Consolidated Financial Statements and AASB 128 to address an inconsistency between the requirements in AASB 10 and those in AASB in dealing with the sale or 128 (August 2011), contribution of assets between an investor and its associate or joint venture. The amendments require:  A full gain or loss to be recognised when a transaction involves a business (whether it is housed in a subsidiary or not) A partial gain or loss to be recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. An entity will recognise revenue to depict the transfer of promised good or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This means that revenue will be recognised when control of goods or services is transferred, rather than on transfer of risks and rewards as is currently the case under IAS 18 Revenue. Annual reporting periods beginning on or after 1 January 2018 AASB 16 Leases The key features of AASB 16 are as follows: Lessee accounting  Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Annual reporting periods beginning on or after 1 January 2019  A lessee measures right-of-use assets similarly to liabilities other non-financial assets and similarly to other financial liabilities. lease includes  Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. non-cancellable AASB 16 contains disclosure requirements for lessees. ANNUAL REPORT | 26  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 2. REVENUE The Consolidated Entity's operating loss before income tax includes the following items of revenue: Revenue Rental revenue Dividend revenue Interest revenue Other Share of net profit of Associate entity Net gain on financial assets at fair value through profit or loss Reversal of impairment - olive grove assets Other revenue 2016 $ 44,200 5,635 5,769 55,604 163,526 - - 1,159 220,289 2015 $ 44,200 24,121 11,968 80,289 - 142,374 101,296 4,353 328,312 Accounting policy Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Consolidated Entity and the revenue can be reliably measured. All revenue is stated net of the amount of Goods and Services Tax (GST) except where the amount of GST incurred is not recoverable from the Australian Tax Office. The following specific recognition criteria must also be met before revenue is recognised: (a) Sale of financial assets, goods and other assets Revenue from the sale of financial assets, goods or other assets is recognised when the Consolidated Entity has passed control of the financial assets, goods or other assets to the buyer. (b) Interest revenue Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. (c) Dividend revenue Dividend revenue is recognised when the right Consolidated Entity brings dividend revenue to account on the applicable ex-dividend entitlement date to receive a dividend has been established. The (d) Other revenues Other revenues are recognised on a receipts basis. 3. EXPENSES The Consolidated Entity's operating loss before income tax includes the following items of expenses: Net loss on financial assets at fair value through profit or loss Share of net loss of Associate entity Olive grove operations Depreciation of olive grove assets Other expenses Land operations Impairment loss on property held for development or resale Other expenses Salaries, fees and employee benefits Occupancy expenses Finance expenses Corporate expenses ASX fees Share registry Other corporate expenses 2016 $ 78,076 - 41,071 19,692 - 15,156 655,039 56,666 4,180 34,166 13,423 6,226 2015 $ - 80,044 51,602 20,206 140,000 7,217 792,986 69,339 4,381 34,308 12,673 4,580 ANNUAL REPORT | 27  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 3. EXPENSES (continued) Administration expenses Professional fees Audit fees Legal fees Depreciation Other administration expenses 4. SEGMENT INFORMATION 2016 Segment revenues Revenue Other Total segment revenues Personnel expenses Finance expenses Administration expenses Depreciation expenses Other expenses Total segment profit/(loss) Investments $ 55,604 163,526 219,130 - - - - 94,375 124,755 2016 $ 2015 $ 35,532 34,800 24,954 7,666 90,372 1,117,019 51,561 68,823 42,747 9,785 83,472 1,473,724 Total $ 55,604 164,685 220,289 655,039 4,811 138,422 48,738 270,009 (896,730) 191,039 729,027 1,350,000 3,545,665 1,968,179 254,266 8,038,176 - 1,159 1,159 655,039 4,897 130,347 7,667 163,931 (960,722) 187,922 - - - 26,820 188,127 402,869 Olive grove $ Corporate $ - - - - (86) 8,075 41,071 11,703 (60,763) Segment assets Cash and cash equivalents Financial assets Property held for development or resale Investment in associate Property, plant and equipment Other assets Total segment assets - 729,027 1,350,000 3,545,665 - - 5,624,692 3,117 - - - 1,941,359 66,139 2,010,615 2015 Segment revenues Revenue Other Total segment revenues Personnel expenses Finance expenses Administration expenses Depreciation expenses Other expenses Total segment profit/(loss) 80,289 142,374 222,663 - - - - 236,999 (14,336) - 101,296 101,296 2,811 313 3,508 51,602 13,574 29,488 4,353 - 4,353 84,642 243,670 328,312 792,986 4,572 186,057 13,431 167,871 (1,160,564) 795,797 4,885 189,565 65,033 418,444 (1,145,412) Segment assets Cash and cash equivalents Financial assets Property held for development or resale Investment in associate Property, plant and equipment Other assets Total segment assets - 1,523,346 1,350,000 3,705,212 - - 6,578,558 5,632 - - - 1,982,430 67,785 2,055,847 264,173 - - - 28,321 292,798 585,292 269,805 1,523,346 1,350,000 3,705,212 2,010,751 360,583 9,219,697 ANNUAL REPORT | 28  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 4. SEGMENT INFORMATION (continued) Accounting policy The operating segments are reported in a manner consistent with the internal reporting provided to the "Chief Operating Decision Maker" (CODM). The Consolidated Entity's CODM is the Board of Directors who are responsible for allocating resources and assessing performance of the operating segments. The Board has considered the business and geographical perspectives of the operating results and determined that the Consolidated Entity operates only within Australia, with the main segments being Investments and Olive Grove. Corporate items are mainly comprised of corporate assets, office expenses and income tax assets and liabilities. Description of segments (a) Investments comprise of equity investments of companies listed on the Australian Securities Exchange (ASX) and liquid financial assets; (b) Olive grove is in relation to the olive grove farm in Gingin; (c) Corporate items are mainly comprised of corporate assets, office expenses and income tax assets and liabilities. Liabilities Liabilities are not reported to the CODM by segment. All liabilities are assessed at a consolidated entity level. 5. INCOME TAX The components of tax expense comprise: Current tax Deferred tax (a) The prima facie tax on operating loss before income tax is reconciled to the income tax as follows: Prima facie tax payable on operating loss before income tax at 28.5% (2015: 30%) Adjust tax effect of: Other assessable income Non-deductible expenses Share of net (profit)/loss of Associate entity Current year tax losses not brought to account Income tax attributable to entity (b) Deferred tax assets Employee benefits & accruals Fair value losses Deferred tax liabilities Fair value gains Other (i) Movements - deferred tax assets At 1 July 2014 Credited/(charged) to the profit and loss At 30 June 2015 At 1 July 2015 Credited/(charged) to the profit and loss At 30 June 2016 2016 $ - - - 2015 $ - (89,501) (89,501) (255,568) (343,624) 92,699 11,432 (46,605) 198,042 - 43,515 73,267 116,782 116,782 - 116,782 Fair value losses $ 38,205 124,279 162,484 143,876 13,300 24,013 72,934 (89,501) 53,890 162,484 216,374 216,374 - 216,374 Total $ 98,657 117,717 216,374 216,374 (99,592) 116,782 Employee benefits $ 60,452 (6,562) 53,890 53,890 (10,375) 43,515 162,484 (89,217) 73,267 ANNUAL REPORT | 29  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 5. INCOME TAX EXPENSE (continued) (ii) Movements - deferred tax liabilities At 1 July 2014 Charged/(Credited) to the profit and loss Charged to equity At 30 June 2015 At 1 July 2015 Charged/(Credited) to the profit and loss At 30 June 2016 Fair value gains $ 97,631 29,242 89,501 216,374 216,374 (99,592) 116,782 (iii) Deferred tax recognised directly in Other Comprehensive Income Revaluations of land & intangible assets Unrecognised deferred tax balances Unrecognised deferred tax asset - revenue losses Unrecognised deferred tax asset - capital losses Unrecognised deferred tax asset - timing differences Other $ 1,026 (1,026) - - - - - - Total $ 98,657 28,216 89,501 216,374 216,374 (99,592) 116,782 (89,501) 3,888,490 35,241 1,399,976 5,323,707 3,580,204 35,241 1,249,845 4,865,290 Critical accounting judgement and estimate The above deferred tax assets have not been recognised in respect of the above items because it is not probable that future taxable profit will be available against which the Consolidated Entity can utilise the benefits. Revenue and capital tax losses are subject to relevant statutory tests. Accounting policy The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the notional income tax rate for each taxing jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses (if applicable). Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each taxing jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The amount of deferred tax assets benefits brought to account or which may be realised in the future, is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the Consolidated Entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. ANNUAL REPORT | 30  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 5. INCOME TAX EXPENSE (continued) Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised directly in other comprehensive income or equity are also recognised directly in other comprehensive income or equity. 6. LOSS PER SHARE Basic and diluted loss per share (cents) 2016 2015 (2.35) (2.52) The following represents the loss and weighted average number of shares used in the loss per share calculations: Loss after income tax attributable to Owners of Queste Communications Ltd ($) Weighted average number of ordinary shares (698,370) Number of shares (744,189) 29,693,976 29,502,441 Accounting policy Basic earnings/loss per share is determined by dividing the operating result after income tax by the weighted average number of ordinary shares on issue during the financial period. Diluted earnings/loss per share adjusts the figures used in the determination of basic earnings/loss per share by taking into account amounts unpaid on ordinary shares and any reduction in earnings/loss per share that will probably arise from the exercise of options outstanding during the financial period. Under AASB 133 (Earnings per Share) potential ordinary shares such as partly paid shares will only be treated as dilutive when their conversion to ordinary shares would increase the loss per share. Diluted loss per share is not calculated as it does not increase the loss per share. 7. CASH AND CASH EQUIVALENTS Cash at bank 2016 $ 191,039 2015 $ 269,805 Accounting policy Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts (if any) are shown within short-term borrowings in current liabilities on the Statement of Financial Position. ANNUAL REPORT | 31  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 7. CASH AND CASH EQUIVALENTS (continued) Reconciliation of operating loss after income tax to net cash used in operating activities Loss after income tax Add non-cash items: Depreciation Write off of plant and equipment Net loss/(gain) on financial assets at fair value through profit or loss Loss on land held for development or resale Reversal of Impairment - olive grove assets Share of net (profit)/loss of Associate entity Changes in assets and liabilities: Financial assets at fair value through profit or loss Receivables Other current assets Investment in Associate entity Payables Provisions Deferred tax 8. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Listed securities at fair value Unlisted managed fund at fair value 2016 $ 2015 $ (896,730) (1,055,911) 48,737 - 78,076 - - (163,526) 716,242 6,172 552 323,073 (10,340) (9,615) - 92,641 61,388 3,645 (120,761) 140,000 (101,296) 80,044 (230,165) 2,940 (2,293) 333,815 (3,804) (346) (89,501) (982,245) 462,777 266,250 729,027 1,001,185 522,161 1,523,346 Accounting policy Financial instruments are initially measured at cost on trade date, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition, financial assets at fair value through profit and loss acquired principally for the purpose of selling in the short term or if so designated by management and within the requirements of AASB 139 (Recognition and Measurement of Financial Instruments) will recognise its realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the Statement of Profit or Loss and Other Comprehensive Income in the period in which they arise. The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the balance sheet date which is the current bid price. The fair value of the unlisted managed fund is determined from unit price information provided by investment manager. The Consolidated Entity’s investment portfolio is accounted for as a “financial assets at fair value through profit and loss” and is carried at fair value. 9. FINANCIAL RISK MANAGEMENT The Consolidated Entity's financial consist of deposits with banks, accounts receivable and payable, investments in listed securities, and other unlisted securities. The principal activity of the Consolidated Entity is the management of these investments - "financial assets at fair value" (refer Note 8). The Consolidated Entity's investments are subject to market (which includes interest rate and price risk), credit and liquidity risks. instruments The Board of Directors is responsible for framework (which includes risk management) but no cost-effective internal control system will preclude all errors and irregularities. The system is based, in part, on the appointment of suitably qualified management personnel. The effectiveness of the system is continually reviewed by management and at least annually by the Board. internal control the overall ANNUAL REPORT | 32  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 9. FINANCIAL RISK MANAGEMENT (continued) The financial receivables and payables of the Consolidated Entity in the table below are due or payable within 30 days. The financial investments are held for trading and are realised at the discretion of the Board of Directors. The Consolidated Entity holds the following financial assets and liabilities: Cash and cash equivalents Financial assets at fair value through profit or loss Receivables Payables Net financial assets (a) Market risk Note 7 8 11 15 2016 $ 191,039 729,027 42,345 962,411 (151,617) 810,794 2015 $ 269,805 1,523,346 13,171 1,806,322 (161,957) 1,644,365 Market risk is the risk that the fair value and/or future cash flows from a financial instrument will fluctuate as a result of changes in market factors. Market risk comprises of price risk from fluctuations in the fair value of equities and interest rate risk from fluctuations in market interest rates. (i) Price risk The Consolidated Entity is exposed to equity securities price risk. This arises from investments held by the Consolidated Entity and classified in the Statement of Financial Position at fair value through profit or loss. The Consolidated Entity is not exposed to commodity price risk, save where this has an indirect impact via market risk and equity securities price risk. instrument will fluctuate as a result of changes in market prices, whether The value of a financial those changes are caused by factors specific to the individual instrument or its issuer or factors affecting all instruments in the market. By its nature as an investment company, the Consolidated Entity will always be subject to market risk as it invests its capital in securities that are not risk free - the market price of these securities can and will fluctuate. The Consolidated Entity does not manage this risk through entering into derivative contracts, futures, options or swaps. Equity price risk is minimised through ensuring that accordance with Board established mandate limits and investment strategies. investment activities are undertaken in The Consolidated Entity has performed a sensitivity analysis on its exposure to market price risk at balance date. The analysis demonstrates the effect on the current year results and equity which could result from a change in these risks. The ASX All Ordinaries Accumulation Index was utilised as the benchmark for the unlisted and listed share investments which are financial assets available-for- sale or at fair value through profit or loss. ASX All Ordinaries Accumulation Index Increase 15% Decrease 15% (ii) Interest rate risk Impact on post-tax profit Impact on other components components of equity 2016 $ 29,562 (29,562) 2015 $ 154,669 (154,669) 2016 $ 29,562 (29,562) 2015 $ 154,669 (154,669) Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The Consolidated Entity's exposure to market risk for changes in interest rates relate primarily to investments held in interest bearing instruments. The average interest rate for the year for the table below is 1.35% (2015: 1.85%). The revenue exposure is immaterial in terms of the possible impact on profit or loss or total equity. ANNUAL REPORT | 33  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 9. FINANCIAL RISK MANAGEMENT (continued) (a) Market risk (continued) (ii) Interest rate risk (continued) Cash at bank and in hand (b) Credit risk 2016 $ 191,039 2015 $ 269,805 Credit risk refers to the risk that a counterparty under a financial instrument will default (in whole or in part) on its contractual obligations resulting in financial loss to the Consolidated Entity. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, including outstanding risk are minimised primarily by receivables and committed transactions. Concentrations of credit undertaking appropriate due diligence on potential investments, carrying out all market transactions through approved brokers, settling non-market transactions with the involvement of suitably qualified legal and accounting personnel (both internal and external), and obtaining sufficient collateral or other security (where appropriate) as a means of mitigating the risk of financial loss from defaults. The Consolidated Entity's business activities do not necessitate the requirement for collateral as a means of mitigating the risk of financial loss from defaults. The credit quality of the financial assets are neither past due nor impaired and can be assessed by reference to external credit ratings (if available with Standard & Poor's) or to historical information about counterparty default rates. The maximum exposure to credit risk at reporting date is the carrying amount of the financial assets as summarised below: Cash and cash equivalents AA- A- Receivables (due within 30 days) No external credit rating available 2016 $ 150,287 38,857 189,144 2015 $ 265,536 4,269 269,805 42,345 13,171 The Consolidated Entity measures credit risk on a fair value basis. The carrying amount of financial assets recorded in the financial statements, net any provision for losses, represents the Consolidated Entity's maximum exposure to credit risk. (c) Liquidity risk Liquidity risk is the risk that the Consolidated Entity will encounter difficulty in meeting obligations associated with financial liabilities. The Consolidated Entity has no borrowings. The Consolidated Entity's non-cash investments can be realised to meet trade and other payables arising in the normal course of business. The financial liabilities disclosed in the above table have a maturity obligation of not more than 30 days. 10. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS Fair value hierarchy AASB 13 (Fair Value Measurement) requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: (i) (ii) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and (iii) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). ANNUAL REPORT | 34  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 10. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS (continued) 2016 Financial assets at fair value through profit or loss: Listed securities at fair value Unlisted managed fund at fair value Land at independent valuation Olive trees Total Level 1 $ 462,777 - - - Level 2 $ - 266,250 - - 462,777 266,250 Level 3 $ Total $ - - 1,741,664 65,500 1,807,164 462,777 266,250 1,741,664 65,500 2,536,191 2015 Financial assets at fair value through profit or loss: Listed securities at fair value Unlisted managed fund at fair value Land at independent valuation Olive trees Total 1,001,185 - - - - 522,161 - - 1,001,185 522,161 - - 1,741,664 65,500 1,807,164 1,001,185 522,161 1,741,664 65,500 3,330,510 There have been no transfers between the levels of the fair value hierarchy during the financial year. Accounting policy The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or instruments traded in active markets (such as publicly for disclosure purposes. The fair value of financial traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the Balance Date. The quoted market price used for financial assets held by the Consolidated Entity is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price. The fair value of financial instruments that are not traded in an active market (for example over-the-counter derivatives) is determined using valuation techniques, limited to recent arm’s length transactions, reference to similar instruments and option pricing models. The Consolidated Entity may use a variety of methods and makes assumptions that are based on market conditions existing at each Balance Date. Other techniques, such as estimated discounted cash flows, are used to determine fair value for other financial instruments. including but not The nominal value less estimated credit adjustments of trade receivables and payables are assumed to liabilities for disclosure purposes is estimated by approximate their fair values. The fair value of financial discounting the future contractual cash flows at the current market interest rate that is available to the Consolidated Entity for similar financial instruments. The Consolidated Entity’s investment portfolio (comprising listed and unlisted securities) is accounted for as “financial assets at fair value through profit and loss” and is carried at fair value based on the quoted last bid prices at the reporting date (refer Note 8). (a) Valuation techniques The fair value of the listed securities traded in active markets is based on closing bid prices at the end of the reporting period. These investments are included in Level 1. The fair value of any assets that are not traded in an active market are determined using certain valuation techniques. The valuation techniques maximise the use of observable market data where it is available, or independent valuation and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. ANNUAL REPORT | 35  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 10. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS (continued) (a) Valuation techniques (continued) The fair value of the unlisted managed fund investment is valued at the audited unit price published by the investment manager and as such this financial instrument is included in Level 2. At Level 3, the land and intangible assets (water licence) were valued by an independent qualified valuer (a Certified Practising Valuer and Associate Member of the Australian Property Institute) as at 30 June 2015. These assets have been valued based on similar assets, location and market conditions or Direct Comparison or Comparative Sales Approach. The land value per hectare based on rural land sold in the location provided a rate which included ground water licence. A 4% change would increase or general decrease the land's fair value by approximately $69,500. There has been no unusual circumstances that may affect the value of the trees. At Level 3 the olive trees' value was assessed as at 30 June 2016 by the Directors. The fair value of the trees is at the Orion Directors' valuation having regard to, amongst other matters, replacement cost and the trees commercial production qualities. The significant unobservable input is the replacement cost of 17 year old fruiting trees. There are no age limits to the commercial viability of an olive grove. A 1% change in the replacement cost would result in an increase or decrease by $3,500. There has been no unusual circumstances that may affect the value of the property. (b) Level 3 assets At 1 July 2014 Addition/(Disposal) At 30 June 2015 Revaluation At 30 June 2016 (c) Fair values of other financial assets and liabilities Cash and cash equivalents Receivables Payables Land $ 1,342,030 399,634 1,741,664 - Olive trees $ 65,500 - 65,500 - Total $ 1,407,530 399,634 1,807,164 - 1,741,664 65,500 1,807,164 2016 $ 191,039 42,345 233,384 (151,617) 81,767 2015 $ 269,805 13,171 282,976 (161,957) 121,019 Due to their short-term nature, the carrying amounts of cash, current receivables and current payables is assumed to approximate their fair value. 11. RECEIVABLES Current Deposit GST receivable Other receivables Receivable from related parties Non current Bonds and guarantees 2016 $ 27,500 8,647 4,207 1,991 42,345 2015 $ - 6,303 4,495 2,373 13,171 21,774 57,120 Accounting policy Receivables are recorded at amounts due less any provision for doubtful debts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when considered non-recoverable. ANNUAL REPORT | 36  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 11. RECEIVABLES (continued) Risk exposure The Consolidated Entity’s exposure to credit and interest rate risks is discussed in Note 9. Impaired trade receivables None of the Consolidated Entity's receivables are impaired or past due. 12. PROPERTY HELD FOR RESALE Property held for development or resale Revaluation of property 2016 $ 3,797,339 (2,447,339) 1,350,000 2015 $ 3,797,339 (2,447,339) 1,350,000 Critical accounting judgement and estimate Property held for development or resale was last valued by an independent qualified valuer (a Certified Practising Valuer and Associate Member of the Australian Property Institute) as at 30 June 2015. The Orion Directors have maintained this carrying value as at 30 June 2016 and are of the view that the property is not impaired. Accounting policy Property held for resale is valued at the lower of cost and net realisable value. Cost includes the cost of acquisition, development, borrowing costs and holding costs until completion of development. Finance costs and holding charges incurred after development are expensed. Profits are brought to account on the signing of an unconditional contract of sale. 13. PROPERTY, PLANT AND EQUIPMENT 2016 Freehold land Buildings Plant and equipment 2015 Freehold land Buildings Plant and equipment Movements in carrying amounts At 1 July 2014 Revaluation Additions Disposal/ Write-offs Depreciation expense At 30 June 2015 Freehold land $ 1,342,030 399,634 - - - 1,741,664 Cost $ 1,117,889 124,867 1,386,810 2,629,566 1,117,889 124,867 1,380,646 2,623,402 Buildings $ 67,667 - 6,992 - (5,600) 69,059 Accumulated Revaluation Depreciation $ $ 623,775 - - 623,775 623,775 - - 623,775 - (60,988) (1,224,174) (1,285,162) - (55,808) (1,180,617) (1,236,425) Plant and equipment $ 253,393 - 2,076 (221) (55,219) 200,029 Leasehold improvement $ 3,993 - - (3,424) (569) - At 1 July 2015 Additions Disposal/ Write-offs Depreciation expense At 30 June 2016 1,741,664 69,059 - - - - - (5,180) 1,741,664 63,879 200,029 6,164 - (43,557) 162,636 - - - - - Total $ 1,741,664 63,879 162,636 1,968,179 1,741,664 69,059 200,029 2,010,752 Total $ 1,667,083 399,634 9,068 (3,645) (61,388) 2,010,752 2,010,752 6,164 - (48,737) 1,968,179 Critical accounting judgement and estimate Land was valued by an independent qualified valuer (a Certified Practising Valuer and Associate Member of the Australian Property Institute) as at 30 June 2015. The Orion Directors have maintained this carrying value as at 30 June 2016 and are of the view that the Land is not impaired. ANNUAL REPORT | 37  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 13. PROPERTY, PLANT AND EQUIPMENT (continued) Accounting policy All plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Increases in the carrying amounts arising on revaluation of land are Freehold land is not depreciated. recognised, net of tax, in other comprehensive income and accumulated in reserves in equity. To the extent that the increase reverses a decrease previously recognised in profit or loss, the increase is first recognised in profit or loss. Decreases that reverse previous increases of the same asset are first recognised in other comprehensive income to the extent of the remaining surplus attributable to the asset; all other decreases are charged to profit or loss. It is shown at fair value, based on periodic valuations by external, independent valuers. The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present value in determining the recoverable amount. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Consolidated Entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Statement of Profit or Loss and Other Comprehensive Income during the financial period in which they are incurred. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each Balance Date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the profit or loss. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. The depreciation rates used for each class of depreciable asset are: Class of Fixed Asset Buildings Plant and Equipment Rate 7.50% 5-75% Method Diminishing Value Diminishing Value 14. OLIVE TREES Olive trees - at cost Revaluation 2016 $ 300,000 (234,500) 65,500 2015 $ 300,000 (234,500) 65,500 Critical accounting judgement and estimate There are approximately 64,500 17 year old olive trees on Orion's 143 hectare Olive Grove located in Gingin, Western Australia. The fair value of the trees is at Orion Directors' valuation having regard to, amongst other matters, replacement cost and the trees commercial production qualities. Accounting policy Biological assets are initially, and subsequent to initial recognition, measured at their fair value less any estimated point-of-sale costs. Gains or losses arising on initial or subsequent recognition are accounted for via the profit or loss for the period in which the gain or loss arises. Agricultural produce harvested from the biological assets is measured at its fair value less estimated point-of-sale costs at the point of harvest. ANNUAL REPORT | 38  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 15. PAYABLES Current Trade payables Dividend payable GST payable Other payables and accrued expenses 2016 $ 67,787 - 10,880 72,950 151,617 2015 $ 26,427 28,302 17,100 90,128 161,957 Accounting policy These amounts represent liabilities for goods and services provided to the Consolidated Entity prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Risk exposure The Consolidated Entity’s exposure to risks arising from current payables is set out in Note 10. 16. PROVISIONS Current Employee benefits - annual leave Employee benefits - long service leave 2016 $ 2015 $ 12,752 94,644 107,396 19,316 97,694 117,010 Accounting policy Short-term obligations Provision is made for the Consolidated Entity’s liability for employee benefits arising from services rendered by employees to the Balance Date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year from the Balance Date have been measured at the present value of the estimated future cash outflows to be made for those benefits. Employer superannuation contributions are made by the Consolidated Entity in accordance with statutory obligations and are charged as an expense when incurred. Other long-term employee benefit obligations The liability for long-service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. (a) Amounts not expected to be settled within 12 months The provision for annual leave and long service leave is presented as current since the Consolidated Entity does not have an unconditional right to defer settlement for any of these employee benefits. Long service leave covers all unconditional entitlements where employees have completed the required period of service and also where employees are entitled to pro-rata payments in certain circumstances. Based on past experience, the employees have never taken the full amount of long service leave or require payment within the next 12 months. The following amounts reflect leave that is not expected to be taken or paid within the next 12 months: Leave obligations expected to be settled after 12 months 2016 $ 94,644 2015 $ 97,694 ANNUAL REPORT | 39  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 17. ISSUED CAPITAL Fully paid ordinary shares Partly paid ordinary shares 2016 Number 26,578,358 5,770,000 2015 Number 28,817,316 9,000,000 2016 $ 5,935,679 214,209 6,149,888 2015 $ 6,029,170 239,275 6,268,445 Accounting policy Ordinary shares are classified as equity. Fully paid ordinary shares carry one vote per share and the right to dividends. At any meeting, each shareholder present in person or by proxy, attorney, or representative has one vote for each fully paid ordinary share held either upon a show of hands or by a poll. Holders of partly paid ordinary shares have a fraction of a vote for each partly paid share held, with the fractional vote of each share being equivalent to the proportion of the total amount paid and payable (excluding amounts credited) that has actually been paid (not credited) for each share. Amounts paid in advance of a call are ignored when calculating proportions. The holder of a partly paid ordinary share is not entitled to vote at a meeting in respect of those shares on which calls are outstanding. The profits of the Consolidated Entity, which the Directors may from time to time determine to distribute to shareholders by way of dividends, will be divisible amongst the shareholders in proportion to the amounts paid on the shares. An amount paid in advance of a call is not to be included as an amount paid on a share for the purposes of calculating an entitlement to dividends. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business, are included in the cost of the acquisition as part of the purchase consideration. Movement in fully paid ordinary shares At 1 July 2014 At 30 June 2015 Date of issue At 1 July 2015 Issue of shares Equal access share buy-back - refer (a) Issue of shares 11-Dec-15 27-May-16 30-Jun-16 At 30 June 2016 Movement in partly paid ordinary shares At 1 July 2014 At 30 June 2015 At 1 July 2015 Call on partly paid shares - refer (b) Partly paid shares converted (b) Equal access share buy-back - refer (a) Call on partly paid shares - refer (b) Partly paid shares converted (b) At 30 June 2016 11-Dec-15 27-May-16 30-Jun-16 Number of shares 28,817,316 28,817,316 28,817,316 900,000 (3,220,914) 81,956 26,578,358 9,000,000 9,000,000 9,000,000 - (900,000) (2,248,044) - (81,956) 5,770,000 Issue price $ 0.20 0.09 0.20 0.20 0.20 $ 6,029,170 6,029,170 6,029,170 180,000 (289,882) 16,391 5,935,679 239,275 239,275 239,275 166,298 (180,000) (10,116) 15,143 (16,391) 214,209 ANNUAL REPORT | 40  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 17. ISSUED CAPITAL (continued) (a) Equal access share buy-back On 26 May 2016, the Company's Off-Market Equal Access Share Buy-Back (approved by shareholders at the General Meeting held on 17 March 2016) (Buy-Back) closed with the following shares being bought- back and cancelled: (i) (ii) 3,220,914 fully paid ordinary shares were bought back for 9 cents per share at a cost of $289,882; 2,248,044 partly paid ordinary shares were bought back for 0.45 cent per share at a total cost of $10,116, with the total cost of the Buy-Back being $299,998. (b) Call on partly paid ordinary shares The Company made a call on partly paid shares in relation to 100% of the outstanding balance, which has been converted to fully paid shares upon payment as follows: (i) On 3 December 2015, there was a call for balance of payment of 900,000 partly paid shares amounting to $166,298. On 16 June 2016, there was a call for balance of payment of 81,956 partly paid shares amounting to $15,143. (ii) (d) Capital risk management The Company's objectives when managing its capital are to safeguard its ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain a capital structure balancing the interests of all shareholders. The Board will consider capital management initiatives as is appropriate and in the best interests of the Company and shareholders from time to time, including undertaking capital raisings, share Buy-backs, capital reductions and the payment of dividends. The Consolidated Entity has no external borrowings. The Consolidated Entity's non-cash investments can be realised to meet accounts payable arising in the normal course of business. 18. RESERVES Option premium reserve Asset revaluation reserve Revaluations of freehold land Deferred tax on revaluations Non-controlling interest Other reserve Dilution movement Non-controlling Interest Profits reserve 2016 $ 2,138,012 2015 $ 2,138,012 623,775 (187,132) (175,267) 261,376 1,071,663 (214,068) 857,595 623,775 (187,132) (178,749) 257,894 949,247 (144,745) 804,502 13,701 - 3,270,684 3,200,408 The Asset Revaluation Reserve relates to the revaluation of Orion's Olive Grove Land (Note 13), as assessed by an independent qualified valuer (a Certified Practising Valuer and Associate Member of the Australian Property Institute) as at 30 June 2015. ANNUAL REPORT | 41  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 18. RESERVES (continued) Other Reserve relates to the gain the Company generated from increasing its shareholding interest in Orion by 0.76% (30 June 2015: 6.48%) as a consequence of Orion cancelling a total of 211,300 (2015: 1,953,861) shares bought-back pursuant to an on-market share buy-back at a cost of $46,686 (2015: $519,293). This reserve is also used to record the differences which may arise as a result of transactions with non-controlling interests that do not result in a loss of control. Profits Reserve increase will arise when the Company or its subsidiaries generates a net profit (after tax) for a relevant financial period (i.e. half year or full year) which the Board determines to credit to the company’s Profits Reserve. Dividends may be paid out of (and debited from) the company’s Profits Reserve, from time to time. 19. NON-CONTROLLING INTEREST Issued capital Asset revaluation reserve Other reserve Accumulated losses 2016 $ 7,549,512 175,267 214,068 (4,927,371) 3,011,476 2015 $ 7,718,615 178,749 144,745 (4,729,010) 3,313,099 The non-controlling interest is a 40.14% (2015: 40.94%) equity holding in Orion Equities Limited (not held by the Company). Accounting policy The Consolidated Entity treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Consolidated Entity. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve (refer Note 18) within equity attributable to owners of Queste Communications Ltd. 20. PARENT ENTITY INFORMATION The following information provided relates to the Company, Queste Communications Ltd, as at 30 June 2016. Statement of profit or loss and other comprehensive income Loss for the year Other comprehensive income Total comprehensive loss for the year Statement of financial position Current assets Non current assets Total assets Current liabilities Total liabilities Net assets Issued capital Option premium reserve Accumulated losses Equity 2016 $ (334,732) - 2015 $ (1,502,709) - (334,732) (1,502,709) 130,030 2,225,061 2,355,091 500,663 2,312,344 2,813,007 118,391 118,391 123,017 123,017 2,236,700 2,689,990 6,149,888 2,138,012 (6,051,200) 2,236,700 6,268,445 2,138,012 (5,716,467) 2,689,990 ANNUAL REPORT | 42  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 21. INVESTMENT IN CONTROLLED ENTITY The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiary with non-controlling interest: Ownership Interest Parent Non-Controlling Interest Incorporated Orion Equities Limited (ASX:OEQ) Australia 2016 59.86% 2015 59.06% 2016 40.14% 2015 40.94% information of the subsidiary with non-controlling interests that are material to the The Company's interest in Orion increased during the financial year as a consequence of Orion cancelling 211,300 shares bought-back pursuant to on-market share buy-backs. Summarised financial consolidated entity are set out below: Summarised statement of profit or loss and other comprehensive income Revenue Expenses Loss before income tax expense Income tax expense Loss for the year from continuing operations Loss for the year from discontinuing operations Loss after income tax expense Other comprehensive income Total comprehensive loss for the year 2015 $ 303,057 (1,062,948) (759,891) 89,501 (670,390) 2016 $ 198,781 (742,734) (543,953) (670,390) 208,837 (461,553) (543,953) (543,953) (543,953) - - - - Summarised Statement of Financial Position Current assets Non-current assets Total Assets Current liabilities Non-current liabilities Total Liabilities Net Assets Statement of cash flows Net cash from operating activities Net cash used in investing activities Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Other financial information Profit/(Loss) attributable to non-controlling interest Accumulated non-controlling interest at the end of the year Lease commitments Not longer than one year Longer than one year but not longer than five years Note 25 826,409 6,933,370 7,759,779 1,313,988 7,114,399 8,428,387 140,535 116,782 257,317 155,862 179,424 335,286 7,502,462 8,093,101 (14,226) (1,107) (46,686) (62,019) (544,856) 94,468 (1,045) (451,433) (198,360) 3,011,476 (311,722) 3,313,099 32,083 - 32,083 56,035 32,083 88,118 ANNUAL REPORT | 43  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 21. INVESTMENT IN CONTROLLED ENTITY (continued) Accounting policy Subsidiaries are all entities (including structured entities) over which the Consolidated Entity has control. The Consolidated Entity 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 to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. Subsidiaries are fully consolidated from the date on which control is transferred to the Consolidated Entity. They are de-consolidated from the date that control ceases. The controlled entity has a June financial year-end. All including any unrealised profits or losses, have been eliminated on consolidation. inter-company balances and transactions between entities in the Consolidated Entity, Changes in Ownership Interests When the Consolidated Entity ceases to have control, any retained interest in the entity is re-measured to its fair value with the change in carrying amount recognised in profit or loss. The fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Consolidated Entity has directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. 22. INVESTMENT IN ASSOCIATE ENTITY Bentley Capital Limited (ASX:BEL) Ownership Interest 2016 28.93% 2015 29.75% Carrying Amount 2016 $ 3,545,665 2015 $ 3,705,212 Accounting policy Associates are all entities over which the Consolidated Entity has significant influence but not control or joint control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates in the consolidated financial statements are accounted for using the equity method of accounting. On initial recognition investment in associates are recognised at cost, for investments which were classified as fair value through profit or loss, any gains or losses previously recognised are reversed through profit or loss. Under this method, the Consolidated Entity’s share of the post-acquisition profits or losses of associates are recognised in the consolidated Statement of Profit or Loss and Other Comprehensive Income, and its share of post-acquisition movements in reserves is recognised in other comprehensive income. The cumulative post- acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the Company’s Statement of Profit or Loss and Other Comprehensive Income, while in the consolidated financial statements they reduce the carrying amount of the investment. When the Consolidated Entity’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured long-term receivables, the Consolidated Entity does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Consolidated Entity and its associates are eliminated to the extent of the Consolidated Entity’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Consolidated Entity. The associated entity has a June financial year-end. Changes in ownership interests If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. ANNUAL REPORT | 44  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 22. INVESTMENT IN ASSOCIATE ENTITY (continued) Movements in carrying amounts Opening balance Sale of BEL shares Share of net profit/(loss) after tax Dividends received Closing balance 2016 $ 3,705,212 (100,529) 163,526 (222,544) 2015 $ 4,119,071 - (80,044) (333,815) 3,545,665 3,705,212 Fair value of listed investment in Associate 2,944,861 2,893,073 Net asset value of investment 4,712,038 4,887,071 Summarised statement of profit or loss and other comprehensive income Revenue Expenses Profit/(Loss) before income tax Income tax expense Profit/(Loss) after income tax Other comprehensive income Total comprehensive income 3,258,497 (2,732,417) 526,080 - 2,398,085 (2,665,385) (267,300) - 526,080 (267,300) - - 526,080 (267,300) Summarised statement of financial position Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Lease commitments Not longer than one year Longer than one year but not longer than five years 23. RELATED PARTY TRANSACTIONS (a) Transactions with Related Parties 13,159,280 3,430,001 16,589,281 6,565,383 10,524,117 17,089,500 291,725 9,835 301,560 304,394 358,969 663,363 16,287,721 16,426,137 32,083 - 32,083 56,035 32,083 88,118 The Company has control of Orion Equities Limited (Orion) as it holds 59.86% (9,367,653 shares) of Orion's issued capital (2015: 59.06% and 9,367,653 shares). During the year there were transactions between the Company, Orion and Associate Entity, Bentley Capital Limited (ASX:BEL), pursuant to shared office and administration expense arrangements. There were no outstanding amounts at the reporting date. Bentley Capital Limited Dividends Received 2016 $ 17,406 2015 $ 26,108 ANNUAL REPORT | 45  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 23. RELATED PARTY TRANSACTIONS (continued) (b) Transactions with key management personnel (KMP) Refer to the Remuneration Report contained in the Directors' Report for details of the remuneration paid or payable to each member of the Consolidated Entity's KMP for the year ended 30 June 2016. The total remuneration paid to KMP of the Consolidated Entity during the year is as follows: Directors Short-term employment benefits Post-employment benefits 2016 $ 417,460 36,000 453,460 2015 $ 502,680 2,404 505,084 During the year, the Consolidated Entity received $44,200 rental income from a KMP/close family member of a KMP (the KMP being Orion and Queste Director, Farooq Khan), pursuant to a standard form residential tenancy agreement in respect of Orion's Property Held for Resale (2015: $44,200). The rental is in respect of a fixed term of 12 months (to 31 May) with the monthly rental being $3,683. 24. AUDITORS' REMUNERATION During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and other non-related audit firms: Rothsay Auditing Audit and Review of Financial Statements BDO Audit (WA) Pty Ltd Audit and review of financial statements Taxation services BDO Corporate Finance (WA) Pty Ltd Other services 2016 $ 36,000 550 2,901 12,565 52,016 2015 $ - 59,612 6,569 - 66,181 The Company changed its Auditors from BDO Audit (WA) Pty Ltd to Rothsay Auditing with effect on 12 February 2016. 25. COMMITMENTS Not longer than one year Longer than one year but not longer than five years 2016 $ 61,250 - 61,250 2015 $ 106,976 61,250 168,226 On or about 19 May 2015, the Consolidated Entity renewed its non-cancellable operating lease agreement for shared office accommodation. The lease commitment is the Consolidated Entity's share of the lease costs and includes all outgoings (inclusive of GST). The lease is for a further 18 month term expiring on or about 30 January 2017. Accounting policy Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the profit or loss on a straight-line basis over the period of the lease. ANNUAL REPORT | 46  30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2016 26. CONTINGENCIES (a) Directors' Deeds The Company has entered into Deeds of Indemnity with each of its Directors indemnifying them against liability incurred in discharging their duties as Directors/Officers of the Consolidated Entity. At the end of the financial period, no claims have been made under any such indemnities and accordingly, it is not possible to quantify the potential financial obligation of the Consolidated Entity under these indemnities. (b) Tenement Royalties The Consolidated Entity is entitled to receive a royalty of 2% of gross revenues (exclusive of GST) from any commercial exploitation of any minerals from the Paulsens East (Iron Ore) Project tenement (currently a Retention Licence RL 47/7) in Western Australia currently held by Strike Resources Limited (ASX:SRK). 27. EVENTS OCCURRING AFTER THE REPORTING PERIOD (a) Associate entity, Bentley Capital Limited (ASX:BEL), has announced its intention to pay a fully-franked dividend of 0.50 cent per share in September 2016. The Company’s entitlement to such dividend would be $6,500. Orion's entitlement to such dividend would be $102,569. No other matter or circumstance has arisen since the end of the financial year that significantly affected, or may significantly affect, the operations of the Consolidated Entity, the results of those operations, or the state of affairs of the Consolidated Entity in future financial years. ANNUAL REPORT | 47 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 DIRECTORS’ DECLARATION The Directors of the Company declare that: (1) The financial statements, Consolidated Statement of Profit or Loss and Other Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Cash Flows, Consolidated Statement of Changes in Equity, and accompanying notes as set out on pages 19 to 47 are in accordance with the Corporations Act 2001 (Cth) and: (a) (b) comply with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting; and give a true and fair view of the Consolidated Entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; (2) (3) In the Directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; The Directors have been given the declarations required by section 295A of the Corporations Act 2001 (Cth) by the Executive Chairman/Managing Director (the person who, in the opinion of the Directors, performs the Chief Executive Officer function) and Company Secretary (the person who, in the opinion of the Directors, performs the Chief Financial Officer function); and (4) The Company has included in the notes to the Financial Statements an explicit and unreserved statement of compliance with the International Financial Reporting Standards. This declaration is made in accordance with a resolution of the Directors made pursuant to section 295(5) of the Corporations Act 2001 (Cth). Farooq Khan Chairman 31 August 2016 Victor Ho Company Secretary ANNUAL REPORT | 48 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 ADDITIONAL ASX INFORMATION as at 26 October 2016 CORPORATE GOVERNANCE STATEMENT The Company has adopted the Corporate Governance Principles and Recommendations (3rd Edition, March 2014) issued by the ASX Corporate Governance Council in respect of the financial year ended 30 June 2016. Pursuant to ASX Listing Rule 4.10.3, the Company’s 2016 Corporate Governance Statement (dated on or about 28 October 2016) and ASX Appendix 4G (Key to Disclosures of Corporate Governance Principles and Recommendations) can be Internet website: http://queste.com.au/corporate-governance following URL on the Company’s found at the DISTRIBUTION OF LISTED ORDINARY FULLY PAID SHARES Spread of Holdings Number of Holders Number of Units % of Total Issue Capital 1 1,001 5,001 10,001 100,001 Total - - - - - 1,000 5,000 10,000 100,000 and over UNMARKETABLE PARCELS 10 48 61 95 25 239 7,224 133,162 555,408 2,680,988 23,201,576 26,578,358 0.027% 0.501% 2.090% 10.087% 87.295% 100.00% Spread of Holdings Number of Holders Number of Shares % of Total Issued Capital 1 9,615 - - 9,615 over TOTAL 77 162 239 276,065 26,302,293 26,578,358 1.039% 98.961% 100.00% An unmarketable parcel is considered, for the purposes of the above table, to be a shareholding of 9,615 shares or less, being a value of $500 or less in total, based upon the Company’s last sale price on ASX as at 26 October of $0.052 per share. DISTRIBUTION OF UNLISTED PARTLY PAID ORDINARY SHARES Name Chi Tung Investments Ltd No. of Partly Paid Shares % Voting Power 5,770,000 1.626% These 5,770,000 ordinary shares were issued at a price of 20 cents per share and have been partly paid to 1.5225 cent each and have an outstanding amount payable of 18.4775 cents per share. These shares carry voting rights proportional to the amount paid up per share. This is equivalent to 439,241 total voting shares. ANNUAL REPORT | 51 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 ADDITIONAL ASX INFORMATION as at 26 October 2016 SUBSTANTIAL SHAREHOLDERS Substantial Shareholders Registered Shareholder Registered Fully Paid Shareholding Registered Partly Paid Shareholding Azhar Chaudhri, Renmuir Holdings Limited and Chi Tung Investments Ltd1 Bell IXL Investments Limited and associates3 Farooq Khan and associates4 RENMUIR HOLDINGS LTD CHI TUNG INVESTMENTS LTD 3,277,780 3,031,956 MR AZHAR CHAUDHRI 1,436,001 CHI TUNG INVESTMENTS LTD CLEOD PTY LTD 1,985,684 BELL IXL INVESTMENTS LIMITED CELLANTE SECURITIES PTY LIMITED ISLAND AUSTRALIA PTY LTD 1,878,223 1,483,422 3,668,577 FAROOQ KHAN 1,676,295 Manar Nominees Pty Ltd and Zelwar Superannuation Pty Ltd5 MANAR NOMINEES PTY LTD ZELWER SUPERANNUATION PTY LTD 1,617,910 130,405 Total Voting Shares %Voting Power6 8,184,978 30.295% Voting Shares 3,277,780 3,031,956 1,436,001 - - - 5,770,000 439,2412 - - - - - - - 1,985,684 1,878,223 1,483,422 3,668,577 1,676,295 1,617,910 130,405 5,347,329 19.792% 5,344,872 19.783% 1,748,315 6.471% Notes: (1) (2) (3) (4) (5) (6) (7) Based on the substantial shareholding notice filed by Azhar Chaudhri and associates dated 30 June 2016 Voting shares attributable to 5,770,000 partly paid ordinary shares (issued at a price of 20 cents per share) which have been partly paid to 1.5225 cents each Based on the substantial shareholding notice filed by Bell IXL Investments Limited dated 28 January 2014 (updated to reflect current registered shareholdings and percentage voting power) Based on the Change of Interests of Substantial Holder notice filed by Farooq Khan and associates dated 20 November 2014 (updated to reflect current registered shareholdings and percentage voting power) Based on the substantial shareholding notice filed by Manar Nominees Pty Ltd dated 29 December 2003 (updated to reflect current registered shareholdings and percentage voting power) Total Voting Power is equivalent to the total number of fully paid ordinary shares on issue (26,578,358) plus the equivalent voting shares associated with the partly paid shares on issue based on the amount paid up per partly paid share (439,241), being a total of 27,017,599 voting shares. Movements of less than 1% in voting power are not required to be disclosed to ASX via an updated substantial shareholding notice and accordingly, there may be variances between the shareholdings recorded in the table above and the most recent substantial shareholding notices lodged on ASX. Current registered shareholdings have been disclosed (where applicable). ANNUAL REPORT | 52 30 JUNE 2016 QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 ADDITIONAL ASX INFORMATION as at 26 October 2016 TOP 20 ORDINARY FULLY PAID SHAREHOLDERS Rank Shareholder 1 2 3 4 5 6 7 8 9 RENMUIR HOLDINGS LTD CHI TUNG INVESTMENTS LTD MR AZHAR CHAUDHRI CLEOD PTY LTD BELL IXL INVESTMENTS LIMITED CELLANTE SECURITIES PTY LIMITED ISLAND AUSTRALIA PTY LTD FAROOQ KHAN MANAR NOMINEES ZELWER SUPERANNUATION PTY LTD COWOSO CAPITAL PTY LTD MS ROSANNA DE CAMPO GLENVIEW SERVICES PTY LTD MR DONALD GORDON MACKENZIE & MRS GWENNETH EDNA MACKENZIE GIBSON KILLER PTY LTD 10 MR AYUB KHAN 11 MRS AFIA KHAN 12 MR SIMON KENNETH CATO ROSEMONT ASSET PTY LTD 13 14 GM & AM LEAVER INVESTMENTS PTY LTD TOMATO 2 PTY LTD 15 MR JOHN CHENG-HSIANG YANG & MS PING MOK 16 MR ANTHONY NEALE KILLER & MRS SANDRA MARIE KILLER 17 MR EUGENE RODRIGUEZ 18 MRS MARY THERESE CAMILLERI 19 MRS LINDA ANN OATES 20 RIALC PTY LIMITED Total Shares Held Total Shares % Issued Capital % Voting Power* 3,277,780 3,031,956 1,436,001 Sub-total 1,985,684 1,878,223 1,483,422 Sub-total 3,668,577 1,676,295 Sub-total 1,617,910 130,405 Sub-total 0 0 0 7,745,737 0 0 0 5,347,329 0 0 5,344,872 0 0 1,748,315 29.143% 28.669% 20.119% 19.792% 20.110% 19.783% 6.578% 6.471% 830,834 3.126% 3.075% 268,100 1.009% 0.992% 250,000 0.941% 0.925% 249,975 0.941% 0.925% 220,000 0.828% 0.814% 215,000 0.809% 0.796% 215,000 0.809% 0.796% 118,000 75,000 Sub-total 0 0 193,000 0.726% 0.714% 191,400 0.720% 0.708% 185,019 0.696% 0.685% 136,125 0.512% 0.504% 130,000 0.489% 0.481% 110,000 0.414% 0.407% 100,000 0.376% 0.370% 100,000 0.376% 0.370% 93,148 0.350% 0.345% 23,673,854 89.072% 87.622% * Total Voting Power is equivalent to the total number of fully paid ordinary shares on issue (26,578,358) plus the equivalent voting shares associated with the partly paid shares on issue based on the amount paid up per partly paid share (439,241), being a total of 27,017,599 voting shares ANNUAL REPORT | 53 ASX Code: QUE QUESTE COMMUNICATIONS LTD A.B.N. 58 081 688 164 PRINCIPAL & REGISTERED OFFICE: Level 2 23 Ventnor Avenue West Perth, Western Australia 6005 T | (08) 9214 9777 F | (08) 9214 9701 E | info@queste.com.au W | www.queste.com.au SHARE REGISTRY: Advanced Share Registry Services Western Australia – Main Office 110 Stirling Highway Nedlands, Western Australia 6009 PO Box 1156, Nedlands, Western Australia 6909 T | (08) 9389 8033 F | (08) 9262 3723 E | admin@advancedshare.com.au W | www.advancedshare.com.au New South Wales – Branch Office Suite 8H, 325 Pitt Street Sydney, New South Wales 2000 PO Box Q1736, Queen Victoria Building New South Wales 1230 T | (02) 8096 3502 T | (03) 9018 7102 T | (07) 3103 3838 Victoria Queensland 

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