E R U T U E F H R T Y W A I T F O 3 W H 1 0 T 2 R O P E L R A U N N A CORPORATE DIRECTORY CONTENTS KEY MESSAGES Directors Mr Tony Quick Non-Executive Chairman Mr Philippe Marie Odouard Managing Director Mr Nigel Ian Ampherlaw Non-Executive Director Mr Peter Chapman Cook Non-Executive Director Mr Bruce Griffiths Non-Executive Director Mr Mark Bernard Jenkins Non-Executive Director Air Marshal Errol John McCormack (Ret’d) AO Non-Executive Director Mr David Singleton Non-Executive Director Company Secretary Mr Jaime Pinto Principal Office 361 Milperra Road Bankstown Airport NSW 2200 Australia T +61 2 9774 0300 F +61 2 9771 0256 E info@quickstep.com.au www.quickstep.com.au Registered Office Level 2, 160 Pitt Street Sydney, NSW 2000 Australia Auditors KPMG Chartered Accountants 10 Shelley Street Sydney, NSW 2000 Australia Solicitors Clifford Chance Level 7, 190 St Georges Terrace Perth, WA 6000 Australia Patent Attorney Watermark Building 1, Binary Centre Level 3, 3 Richardson Place North Ryde, NSW 2113 Australia Share Registry Security Transfer Registrars Pty Ltd 770 Canning Highway Applecross, WA 6153 Australia Stock Exchange Australian Securities Exchange Limited Exchange Centre 20 Bridge Street Sydney, NSW 2000 Australia ASX Code: QHL Milestones Chairman’s Report Managing Directors’ Report Resin Spray Transfer Automotive Opportunity 4 6 8 10 12 Aerospace and Defence Capability 13 Financial Report – Directors’ Report 15 16 – Corporate Governance Statement 35 – Consolidated Statement of Comprehensive Income – Consolidated Statement of Financial Position – Consolidated Statement of Change in Equity – Consolidated Statement of Cash Flows – Notes to and forming part of the Financial Statements – Directors’ Declaration – Auditor’s Independence Declaration – Independent Auditor’s Report Shareholder Information 40 41 42 44 45 84 85 86 88 To listen live to the Managing Directors’ Report during Quickstep’s AGM at 3.15pm on 21 November 2013 and to replay thereafter, go to http://www.brr.com.au/event/117237 Join over 1,500 Quickstep followers and receive our ASX releases. info@quickstep.com.au www.quickstep.com.au facebook.com/quickstep.technologies twitter.com/QuickstepTech Commenced delivery of aerospace parts from Bankstown and achieved $6.8 million in sales and revenue for the year Continued strong growth expected in FY2014 Firm order book now more than $30 million The only Australian listed company with direct exposure to the fast-growing carbon- fibre market 2 2 Quickstep Holdings Limited. Annual Report 2013 Quickstep Holdings Limited. Annual Report 2013 3 3 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 MILESTONES Successful transition from Coogee to Bankstown whist maintaining the build- up in JSF parts delivery Significant orders received for Joint Strike Fighter carbon- fibre composite parts from the world’s largest military aerospace program First Quickstep Process sale to leading satellite launcher part manufacturer for the production of large carbon-fibre composite shielding, and taking Quickstep into the space market Delivered the first flying part for the Joint Strike Fighter manufactured at Quickstep’s state-of-the-art facility at Bankstown Airport Secured largest purchase order to date, valued at $12 million, for Lockheed Martin C – 130J carbon-fibre composite wing flaps contract Completed all qualification tasks for Lockheed Martin’s engineering testing program, receiving ‘qualified producer status’ in July 2013 Achieved technical success developing Quickstep’s resin spray transfer (RST) technology for high-volume, low-cost automotive production and enabling spectacular finish Quickstep continued to lead a joint development project with Audi and supported by the German government to manufacture carbon-fibre composite parts for the automotive industry 4 4 Quickstep Holdings Limited. Annual Report 2013 Quickstep Holdings Limited. Annual Report 2013 5 5 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 CHAIRMAN’S REPORT “Quickstep is a company which looks to the future, and we are today the only ASX-listed company with direct exposure to the multibillion dollar global advanced carbon-fibre composites market” FY2013 was a year of outstanding achievement for Quickstep, as we consolidated the progress of the previous year and achieved new and significant successes. We moved our operations from Perth to Sydney, achieved the necessary qualifications and secured purchase orders related to prestigious aerospace and defence contracts. Furthermore we demonstrated the commercial potential of our patented technology. Quickstep is a company which looks to the future, and we are today the only ASX- listed company with direct exposure to the multibillion dollar global advanced carbon- fibre composites market. Transport and other industries are changing as the increasing cost of fuel and taxes on carbon dioxide emissions drive a shift towards the use of strong lightweight composites. Our specialist skills and technologies provide us with a substantial market opportunity as we seek to consolidate a position in the global supply chains of both aerospace and defence and automotive markets. The aerospace and defence industry is valued at more than US$700 billion annually, and Quickstep is delighted to have as its flagship contract the Joint Strike Fighter program which is the world’s largest military aerospace program. We have also been selected, against international competition, to supply C-130J carbon-fibre composite wing flaps to Lockheed Martin. We continued to meet qualification and delivery milestones for these programs during the year. Legislation is forcing manufacturers to meet new emission standards. Lightening vehicles is a critical way to achieve this, and carbon- fibre composite materials are destined to play a major role. More than 80 million new vehicles were delivered worldwide in 2012, and carbon-fibre passenger cars will be launched this year. Our initial marketing of Quickstep’s patented resin spray transfer (RST) technology to automotive manufacturers has been very well received. RST provides a carbon-fibre composite solution capable of manufacturing parts at low cost, high speed, and importantly, it enables the finish the most demanding automotive companies require. Your company, therefore, has excellent prospects for rapid growth as we continue to pursue our commercialisation strategies. In order to fund our path of substantial growth, we raised more than $12.7 million net after balance date. This included a $5.6 million institutional placement in August/September 2013 and we were pleased by strong shareholder support for our subsequent share purchase plan which raised $7.1 million. This ensures a strong cash position for your company as it continues its sales expansion in the world’s major markets. Having taken over as chairman in February 2013, I would like to thank Mark Jenkins for his previous six years as chairman. While Mark Jenkins continues as an independent non-executive director of the company, two long serving directors – Deryck Graham Jnr and Dale Brosius – retired as directors, and I would also like to thank them for their services. We continued renewal of the board and welcomed Bruce Griffiths as a non-executive director of the company, following his highly successful career with Futuris Automotive, and in July 2013 Nigel Ampherlaw, an experienced director and chartered accountant, also joined Quickstep’s board. Following the retirement of David Wills, all of the board would like to thank David for his 3 years of contribution to the Company. In my first year as chairman, I would like to recognise the ongoing support of our shareholders, customers and my colleagues on the board. I also thank Philippe Odouard, our Managing Director, the executive team and all Quickstep staff for their hard work and dedication. Your company has bright prospects to increase sales in the year ahead. We have innovative technologies, skilled staff, and a strong track record of delivery. Today, Quickstep is Australia’s largest independent high grade carbon-fibre composites company. We have demonstrated capacity to win competitive long-term defence sector contracts, and a tremendous opportunity to license our patented RST technology to the automotive market. I am confident that the strength of the team will enable Quickstep to successfully pursue growth in FY2014. TONY QUICK Chairman 6 6 Quickstep Holdings Limited. Annual Report 2013 Quickstep Holdings Limited. Annual Report 2013 7 7 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 MANAGING DIRECTOR’S REPORT I am pleased to report that this year Quickstep has continued to grow and make substantial progress towards becoming a leading supplier of carbon- fibre composite parts and processes for Aerospace and Automotive. We achieved a five-fold increase in sales revenue to $2.6 million in FY 2013, compared to $0.5 million in the previous year. We also generated a combined sales and revenue of $6.8 million for the year 2012/13. This demonstrated the strength of our increasing sales momentum from major military aerospace manufacturing contracts. Operating cash receipts for FY2013 were $16.4 million compared to $0.9 million in FY2012, indicating the company’s strong focus on cash flow as well as sound cash management. Our sales momentum is accelerating, and based on contracts secured before the end of August 2013, our firm order book now stands in excess of $30 million, mostly to be delivered before the end of December 2014. We continued to demonstrate strong progress against our strategy by focusing on two revenue-generating components: – Winning and delivering manufacturing contracts using traditional manufacturing technologies, such as autoclaves, and “next generation” technologies, such as our patented Quickstep Process; – Licensing the Quickstep Process and associated technologies, such as our resin spray transfer (RST) system, to the aerospace, defence and automotive industries. 8 8 Quickstep Holdings Limited. Annual Report 2013 Quickstep’s aerospace and defence contracts ramp up A highlight of the year was the on-time delivery of our first Joint Strike Fighter parts to our principal F-35 partner, Northrop Grumman, from our new facility at Bankstown Airport. This program is ramping up, with 140 JSF aircraft complete or under construction. Our JSF agreements are expected to generate up to $700 million over the next 20 years. During the year, we transferred production from our Western Australian plant to Sydney and closed the Perth facility. Purchase orders steadily increased and firm orders covering all three groups of parts were approximately $7 million when Quickstep delivered its 100th carbon-fibre composite manufactured part in July 2013. We received our first Lockheed Martin C-130J Super Hercules production purchase order, valued at $12 million, in September 2012. This covered the manufacture and delivery of the first sets of carbon-fibre wing flaps for 24 aircraft. Subsequently, we completed all qualification tasks and received qualified producer status in July 2013, which paved the way for delivery of parts to begin. This contract, won against international competition, is expected to generate revenue of between $75 million – $100 million over the next five years, and deliveries are expected to begin during FY2014. Commercialising Quickstep’s technologies Quickstep is also focused on developing licensing opportunities in the global automotive sector, where we aim to drive revenue through the use of our resins, licensing fees and sale of plant to component manufacturers. In FY2013 we finalised development of new technologies which are poised to revolutionise the industry. The Quickstep Process is an innovative system that uses a liquid to cure carbon- fibre parts much faster than traditional autoclave methods. When used with our RST technology, we can produce carbon- fibre composite parts straight out of the mould enabling spectacular finishes – ideal for the high-volume, high- technology automotive industry. Development of this technology was partially funded by a $2.6 million government grant. Quickstep’s RST offers a quantum leap forward in manufacturing strong, lightweight carbon-fibre car parts that can dramatically reduce finishing time, making advanced composites a competitive replacement for metal automotive body parts. We have demonstrated our products and a compelling business case to a number of automotive manufacturers, and negotiations are continuing. We are also continuing to lead the PRESCHE joint development project to manufacture larger series of carbon-fibre composite parts for the automotive industry. This project with Audi is supported by the German government and aims to reduce the production costs of existing processes by approximately one-third using Quickstep’s carbon-fibre technology. First Quickstep Process sale We were delighted to announce our first sale of the Quickstep Process in July 2013 to the Russian company, ORPE Technologiya, which will produce large carbon-fibre shield for satellite launching using our technology. This contract is valued at €4.2 million (AUD $6 million), opening up the satellite and a number of new markets to Quickstep. Importantly, it demonstrates our capability to produce large parts cured in a single shot. In the past year, we have been working to demonstrate how our technology can be used to build wing skins with integrated stiffeners for commercial aircraft. This further application could open up the commercial aircraft market for Quickstep, as the next generation of aeroplanes will transition from using aluminium to primary carbon-fibre parts. Outlook We anticipate strong sales growth as production for both the Joint Strike Fighter and C-130J Hercules programs increase, and expect sales to exceed $15 million in FY2014, a six time increase compared to last year. Based on our firm order book and scheduled delivery dates, Quickstep expects to become cash flow positive during FY2015. With our recent success in raising over $12.7 million of equity on the market, we have a strong cash basis to deliver this aggressive continuing growth. Our performance for the Joint Strike Fighter program has earned Quickstep a positive reputation for high quality and delivery. We continue to bid for new aerospace and defence work, and we are well positioned to capitalise on opportunities. Quickstep’s resin spray technology offers a unique technology for the automotive sector, and we believe we have significant commercial opportunities to licence RST and sell plants and associated services. I would like to thank our existing shareholders for their confidence in the future of the company and their support during the SPP. I would like to welcome our new shareholders, from Australia and more and more from overseas who invested in Quickstep through the placement or the market. In closing, I would like to acknowledge the hard work and dedication of our strong team of executives and staff that manage the company’s rapid expansion and commissioning of manufacturing plants, delivering this massive growth in a short period of time. Yours sincerely, PHILIPPE ODOUARD Managing Director Quickstep Holdings Limited. Annual Report 2013 9 9 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 QUICKSTEP’S RST Quickstep’s mini-plant automates production using the company’s breakthrough Quickstep Process and resin spray transfer (RST) technology to make carbon-fibre components in minutes. Bespoke configurations enable tailoring for automotive or aerospace and defence purposes and for manufacturing small or large sized parts. The Quickstep Process transfers heat 25 times faster than the autoclave to mould carbon-fibre composites more efficiently. This high-speed system facilitates mass production and reduces capital costs. The spectacular finish supported by Quickstep’s RST technology is a carbon- fibre industry first, eliminating the need for labour-intensive bogging and sanding. 10 10 Quickstep Holdings Limited. Annual Report 2013 Quickstep Holdings Limited. Annual Report 2013 11 11 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 QUICKSTEP’S AUTOMOTIVE OPPORTUNITY QUICKSTEP’S AEROSPACE AND DEFENCE CAPABILITY of the sector’s leading organisations including Airbus, BAE Systems, EADS, Eurocopter, Lockheed Martin, Northrop Grumman and Sikorsky. As Australia’s largest independent carbon- fibre composites manufacturer, we have a tremendous opportunity to consolidate our position in the growing global supply chain. Quickstep has contracts in place with several of the world’s largest and most recognised aerospace companies. We entered the global defence sector in 2009 with a cornerstone agreement to supply centre fuselage carbon-fibre components for the F-35 Lightning II Joint Strike Fighter program, which is the world’s largest military contract. Nine nations – Australia, the United States, United Kingdom, Italy, the Netherlands, Turkey, Canada, Denmark, and Norway – partnered to develop the JSF, and Israel and Singapore have agreed to join the program as security cooperation participants. Quickstep will manufacture 21 different parts for the JSF program for Northrop Grumman over the next twenty years. This work represents a significant proportion of our current forward order book, and Quickstep has earned a positive reputation for on-time performance through this flagship contract. We have, therefore, a strong opportunity to establish a position in the global aerospace and defence supply chain, supported by the Australian government’s defence industry participation program. Military contracts have very high barriers to entry and our high value added specialised focus ensures protection from competition in low-labour cost countries. We have already capitalised on this performance by winning, against global competition, a contract to manufacture wing flaps for Lockheed Martin’s C-130J military transport aircraft. Fifteen countries have already selected the C-130J to meet their airlift requirements. Quickstep services these large-scale, long-term contracts through our new state-of- the-art carbon-fibre composites facility at Bankstown Airport, which also has capacity for expansion. Quickstep is actively bidding for further contracts with a number of other potential clients. Our aerospace and defence partners to date include some We entered the global defence sector in 2009 with a cornerstone agreement to supply centre fuselage carbon-fibre components for the F-35 Lightning II Joint Strike Fighter program, which is the world’s largest military contract. Quickstep is focused on developing licensing opportunities for its technologies in the global automotive sector. Over the decade the demand for carbon-fibre is expected to increase tenfold and the automotive sector is expected to become one of the largest users of carbon-fibre composite technology. The industry’s shift to composites is being driven by legislation in Europe and the United States to reduce carbon dioxide emissions. Carbon-fibre can halve the weight of components compared to steel, and is just as strong. We believe that our resin spray transfer (RST) technology is poised to revolutionise the industry. It allows strong components to be made in minutes and at very low cost compared to traditional, more capital intensive methods. In fact, RST meets the industry’s ‘holy grail’ of producing carbon-fibre parts at low cost, high speed and with a spectacular finish. Until RST, no composite solution met all three objectives. Its capacity to mass-produce car parts with a high-quality finish direct from the mould is a powerful leap forward compared to prior carbon- fibre processes. Quickstep has embarked on a program to provide demonstration parts and business cases to leading global automotive manufacturers. This has been well received and luxury ‘supercar’ manufacturers have proven the value of RST in their extreme environmental ageing tests. Negotiations are continuing, and we are also pursuing large-volume production tests in cooperation with industrial partners in Germany, including Audi. Our development facilities in Australia, Germany and the USA, place us at the forefront of carbon-fibre technology. Additionally, we have commissioned our first production plant using the patented Quickstep Process technology. This plant, located at Bankstown Airport, fully automates production of lightweight carbon-fibre composite car panels. These plants can be replicated and sold as separate units, with specialised resins and services also providing revenue for Quickstep. More than 80 million new vehicles were produced worldwide in 2012, indicating a significant automotive industry market for Quickstep. Carbon-fibre can halve the weight of components compared to steel, and is just as strong. 12 12 Quickstep Holdings Limited. Annual Report 2013 Quickstep Holdings Limited. Annual Report 2013 13 13 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 FINANCIAL REPORT FOR THE YEAR END 30 JUNE 2013 14 14 Quickstep Holdings Limited. Annual Report 2013 Quickstep Holdings Limited. Annual Report 2013 15 15 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 DIRECTOR’S REPORT DIRECTOR’S REPORT D I R E C T O R S ’ R E P O R T D I R E C T O R S ’ R E P O R T The Directors present their report together with the financial statements of the Group, being Quickstep Holdings Limited (the “Company”) and its subsidiaries, for the financial year ended 30 June 2013 and the auditor’s report thereon. 1. Directors The Directors of the Company at any time during or since the end of the financial year were: Mr Tony Quick, MA (Cantab) Independent Non Executive Chairman - appointed 14 February 2013 Mr Tony Quick, aged 57, is also Chair of the Defence Materials Technology Centre which is a Defence funded Co-operative Research Centre. He is also the TCF Supplier Advocate in the Department of Industry, and an Adjunct Professor at RMIT University. After graduating from Cambridge University, Mr Quick spent most of his career in International Business Development, Program and Business Management. He joined an Aerospace composites business in 1988 and in 1993 he joined Westland Helicopters in England where he held senior international business development and program management roles. In 2001 he set up GKN Aerospace Engineering Services Pty Ltd in Australia to service global demand for engineering services, he was the Director and General Manager until 2009. The company provided design services to the F-35 Joint Strike Fighter program for Lockheed Martin and Northrop Grumman. Its parent company, GKN Aerospace, is one of the world’s largest independent first-tier composite suppliers to the global aerospace industry. Mr Quick was the Director of the Defence Industry Innovation Centre, Enterprise Connect from 2009 to 2011. Mr Philippe Marie Odouard, M.Sc (Bus) Managing Director and CEO - appointed 13 October 2008 Mr Philippe Odouard, aged 58, was appointed Chief Executive Officer and Managing Director in October 2008. He has significant management experience within the global aerospace and defence sectors, both of which are primary target markets for Quickstep's technology. Prior to joining Quickstep, Mr Odouard held a dual role with Thiess Pty Ltd - one of Australia's largest infrastructure and services contractors - as Senior Manager of Strategy and Business Development: Defence, and Project Director for the $3 billion Melbourne desalination plant. Mr Odouard has also held a number of senior management roles with profit and loss responsibility within Thomson-CSF (now Thales Group) - a world leader in information systems for the aerospace, defence and security markets. During this time Mr Odouard was responsible for managing large contracts with innovative developments as well as technology transfers in both Australia and Europe. He negotiated and managed long term contracts with major global aerospace and defence groups including several worth in excess of $1 billion. Significantly, Mr Odouard managed the Minehunter project, which at the time was the largest user of composites in Australia. In addition, he negotiated and managed significant contracts with Eurocopter when they sold the all- composite Tiger helicopter to the Australian Defence Force. Mr Nigel Ian Ampherlaw, B.Com, FCA, MAICD Independent Non Executive Director - appointed 8 July 2013 Mr Nigel Ampherlaw, aged 58, joined the Quickstep Board in July 2013 and is chairman of the Audit, Risk and Compliance Committee. He was a Partner of PricewaterhouseCoopers for 22 years where he held a number of leadership positions, including heading the financial services audit, business advisory services and consulting businesses. He also held a number of senior client Lead Partner roles. Mr Ampherlaw has extensive experience in Risk Management, technology, consulting and auditing in Australia and the Asia-Pacific region. Mr Ampherlaw's current corporate Directorships include a Non-Executive Directorship with Credit Union Australia, where he is Chair of the Risk and Technology Committees and a member of the Audit and Strategy Committees; and a Non-Executive Director of the Australia Red Cross Blood Service, where he is a member of the Finance and Audit Committee and of the Risk Committee. Mr Ampherlaw has also been a member of the Grameen Foundation Australia charity Board since 2012. Mr Dale Edwin Brosius, B. Sc. (Chem. Eng.), MBA Executive Director and President Quickstep Composite LLC - appointed 13 August 2004, resigned as director 14 February 2013. Dale remains as an Executive of the Group. Mr Dale Brosius, aged 55 - as President of Quickstep Composites LLC, the Company’s USA subsidiary in Dayton, Ohio, is responsible for the commercial development of the Company’s technology in the Americas. He brings extensive practical experience in the composites field, having led composites-oriented businesses in the USA, with a strong emphasis on materials. He is based near Indianapolis, Indiana. Mr Brosius spent eight years with Dow Chemical, in manufacturing and commercial development roles, with a focus on automotive composites. He then spent twelve years in various commercial and general management roles at Fiberite and Cytec Fiberite, gaining considerable exposure to advanced composites processes and applications in aerospace, sporting goods, and industrial markets. In 1999 Mr Brosius created a successful consulting business serving manufacturers of composite materials, equipment and parts manufacturers worldwide. During this time he obtained a thorough understanding of the global market and developed numerous relationships at the original equipment manufacturer (OEM) and supplier levels. Mr Brosius is active in leadership levels in key composites professional associations and is the author of over forty published articles in the field. In 1979 Mr Brosius graduated with a Bachelor of Science in Chemical Engineering from Texas A&M University, and in 1990 earned his MBA from the University of Phoenix. Mr Peter Chapman Cook, MPharm., PhC, CChem, FMonash, FRMIT, MPS, MRACI, MAICD. Independent Non Executive Director - appointed 14 July 2005 Mr Peter Cook, aged 66, is the Chairman of the Remuneration, Nomination and Diversity Committee and has extensive business experience, both within Australia and overseas. Prior to his most recent Executive appointment as Managing Director and Chief Executive Officer of Biota Holdings Limited, Mr Cook had held the positions of Managing Director and Chief Executive Officer of Orbital Corporation Limited, Chief Executive Officer of Faulding Hospital Pharmaceuticals, President of Ansell’s Protective Products Division, Deputy Managing Director of Invetech and Director of Research and Development for Nicholas Kiwi. Mr Cook has had extensive experience in the commercialisation of innovation, both in new and established markets. Mr Cook also has considerable experience in mergers and acquisitions, particularly with technology-based companies, and has a strong manufacturing background. Mr Cook has had a wide exposure of international commercial experience in Europe, USA and Asia, where he has both lived and worked. He holds a Masters Degree in Pharmacy, post graduate qualifications in Management from RMIT University and is a Fellow of Monash University. Mr Deryck Fletcher Gow Graham, Dip. Co. Dir. Executive Director (not classified as Independent) - appointed 16 June 2001, resigned as director and Executive 14 February 2013 Mr Deryck Graham, aged 52, has over 25 years’ experience in senior management, administration and marketing positions. His experience includes five years as Managing Director of an ASX listed Company that designed, developed, manufactured and distributed hardware and software products for the broadcasting and entertainment industries. He has been a director of Eagle Aircraft Australia Limited, where he held the role of Marketing Director. Since 1986, Mr Graham has been involved in the composites and aerospace industries. Mr Graham is also a founder and adviser to emerging technology companies in the mining, civil engineering, software development and marine industries. Mr Graham assisted Quickstep on corporate communication and marketing strategy in addition to his role as Director. Mr Graham holds a Diploma of Company Directors from the Australian Institute of Company Directors. 16 5 6 17 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK DIRECTOR’S REPORT DIRECTOR’S REPORT D I R E C T O R S ’ R E P O R T D I R E C T O R S ’ R E P O R T Mr Bruce Griffiths, OAM Independent Non Executive Director - appointed 14 February 2013 Mr David Patrick Alexander Singleton, BSc (Hons) Independent Non Executive Director - appointed 11 October 2010 Mr Bruce Griffiths OAM, aged 63, is a member of the Remuneration, Nomination and Diversity Committee. Bruce has had a successful and extensive career, spanning more than 40 years, in the manufacturing industry. He has held a number of senior Executive roles within the industry and has a long history in working with Government. Bruce was recently awarded the Order of Australia Medal for services to the automotive manufacturing industry and to the community. Current appointments include: Rail Supplier Advocate since 2009, Board Member - Industry Capability Network Limited (ICNL), Director - Air International Thermal Systems, Chairman - Sail Melbourne ISAF Sailing World Cup. Previous appointments include: Chairman - Futuris Automotive Group (2007-2012), Managing Director - Futuris Automotive Group (1992 -2007), Chairman - Air International Thermal Systems (2008-2011), Board Member - AutoCRC (Advanced Automotive Technology Ltd) (Inception -2012), Vice President of the Federation of Automotive Products Manufacturers (FAPM) (1990-2012). Member - Automotive Industry Innovation Council, Advisory Board Member - Enterprise Connect Mr Griffiths’ honours include: Order of Australia Medal – 2013, Centenary Medal for Services to the Development of the Auto Industry Policy, Victorian Manufacturing Hall of Fame for services to the Manufacturing Industry. Mr Mark Bernard Jenkins, B. Comm., Grad. Dip. Bus. Independent Non Executive Director - appointed as director 14 July 2005; appointed as Chairman 13 March 2007. Resigned as Chairman 14 February 2013 Mr Mark Jenkins, aged 49, is a member of the Audit, Risk and Compliance Committee. Mark has over 20 years consulting, operational/financial management and business development experience in professional services firms (chartered accountants), investment banking, government agencies and public companies. Initially qualifying as a Chartered Accountant in Australia, his career includes two extended periods in London and has involved successful and extensive investment, commercial, financial and government dealings in Australia, Asia, the United States of America and Europe. Mr Jenkins has also been involved as an advisor and investor in early stage technology companies, taking them through the initial funding and commercialisation stages. Mr Jenkins holds a Bachelor Degree in Commerce from the University of Western Australia and a Graduate Diploma in Business from Curtin University. He has also been involved in numerous professional development programs, including Cranfield University in England. Air Marshal Errol John McCormack (Ret’d), AO Independent Non Executive Director - appointed 11 August 2010 Air Marshal Errol McCormack, aged 72, is a member of the Audit, Risk and Compliance Committee. Errol has extensive experience as a Senior Commander in the Royal Australian Air Force. Errol McCormack served in the Royal Australian Air Force for 39 years, retiring in 2001 as Chief of Air Force with the rank of Air Marshal. During his period of service he commanded at unit, wing and command level, held staff positions in capability development, operations and educational posts and attended both RAAF and Joint Services Staff Colleges. His overseas postings included flying tours in Vietnam, Thailand, Malaysia and Singapore, an exchange tour with the US Air Force flying the RF4C, Air Attaché Washington and Commander Integrated Air Defence System in the Five Power Defence Agreement between Malaysia, Singapore, UK, New Zealand and Australia. Since his retirement from the RAAF he has established a company providing consultancy services for multi- national companies working with the Australian Department of Defence. He is also Non-Executive Chairman of Chemring Australia Pty Ltd, a countermeasures and pyrotechnic manufacturing company based in Victoria, and consults for Chemring Group PLC and General Electric Military Engines. His pro-bono work includes Chairman of the Board of the Sir Richard Williams Foundation, an independent think- tank supporting development of Australian military aviation policy. He is a member of the Royal Aeronautical Society and the Australian Institute of Company Directors. Mr David Singleton, aged 53, is a member of the Audit, Risk and Compliance Committee and the Remuneration, Nomination and Diversity Committee. David worked for 19 years for BAE Systems (formerly British Aerospace) in a variety of roles. He was the Group Head of Strategy, Mergers and Acquisitions for BAE Systems based in London. Prior to that, Mr Singleton spent three successful years as the Chief Executive Officer of Alenia Marconi Systems (a BAE Systems European Joint Venture) and was based in Rome, Italy. Mr Singleton has served as a member of the National Defence Industries Council in the UK, and as a Board member and Vice-President of Defence for Intellect. Mr Singleton became the Chief Executive Officer and Managing Director of Poseidon Nickel in July 2007. He was the Chief Executive Officer and Managing Director of Clough Limited between August 2003 and January 2007. He is a Non-Executive Director of Austal Ships based in Perth WA and also Deputy Chair of Council to Methodist Ladies College in Perth. Mr. Singleton has a degree in Mechanical Engineering from University College London. Mr David Edward Wills, B Comm., FCA Independent Non Executive Director - appointed 26 November 2010, retired 5 July 2013 Mr David Wills, aged 65, was Chairman of the Audit, Risk and Compliance Committee until his recent retirement. David is a Chartered Accountant, having been a Partner in PricewaterhouseCoopers (and its predecessor firm Coopers & Lybrand) for 25 years. He was Deputy Chairman of the firm from 2000 to 2004, Managing Partner of the Sydney office from 1997 until 2003 and Chairman of the firm’s manufacturing practice from 1995 - 1997. Mr Wills’ major area of practice throughout all of his career was as an audit partner and his client base included many large manufacturing companies, both publicly listed in Australia and subsidiaries of US based companies. In addition to audit, Mr Wills was experienced in mergers and acquisitions and special investigations of companies. Mr Wills is now (or has been) a director of the following publicly listed companies: Washington H Soul Pattinson Limited (since 2006); Clover Corporation Limited (from 2004 to July 2013); and Souls Private Equity Limited (since 2005); In addition, Mr Wills is Chairman of Sir David Martin Foundation, a charity that raises funds to support youth programs undertaken by Mission Australia. Mr Wills graduated from the University of New South Wales with a Bachelor of Commerce in 1970 and qualified as a Chartered Accountant in 1972. 2. Company Secretary Mr. Jaime Pinto, B.Com, CA. - appointed 20 November 2012 Mr Pinto, aged 42, is a Chartered Accountant with over 20 years experience in both professional practise and commerce. He has held senior finance roles in organisations of varying size and complexity, including small private businesses, large national groups and ASX listed entities. He is currently the Company Secretary of a number of ASX-listed and unlisted companies in the manufacturing, investing, real estate and advisory industries. Mr Pinto holds a Bachelor Degree in Commerce from the University of NSW, and is a member of The Institute of Chartered Accountants Australia. Mr Phillip James MacLeod, B. Bus., ASA. MAICD - resigned 20 November 2012 Mr MacLeod, aged 48, was appointed to the position of Company Secretary on 13 November 2009. Mr MacLeod has over 20 years commercial experience and has held the position of Company Secretary with listed companies since 1995. Mr MacLeod has provided corporate, management and accounting services to domestic and international public companies involved in the technology, resources, healthcare and property industries. Mr MacLeod holds a Bachelor Degree in Business from Edith Cowan University and is an associate member of CPA Australia having qualified as a CPA. 18 7 8 19 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK DIRECTOR’S REPORT D I R E C T O R S ’ R E P O R T 3. Directors’ Meetings The number of Directors’ meetings (including meetings of committees of Directors) and the number of meetings attended by each of the Directors of the Company during the financial year are: Audit, Risk and Compliance Committee Meetings Remuneration, Nomination and Diversity Committee Meetings A B A B Board Meetings B A 6 12 - 7 12 7 6 12 12 12 12 6 12 - 4 9 7 6 11 11 10 10 - - - - - - - - 3 3 3 - - - - - - - - 3 3 3 - - - - 5 - 1 - - 5 5 - - - 5 - 1 - - 3 5 Director Mr T Quick Mr P M Odouard Mr N Ampherlaw Mr D E Brosius Mr P C Cook Mr D F G Graham Mr B Griffiths Mr M B Jenkins Mr E J McCormack Mr D Singleton Mr D E Wills A – Number of meetings held during the time the director held office during the year B – Number of meetings attended 4. Principal Activities During the financial year, the principal activities of the Group consisted of: delivery of the first twelve months of production parts to Northrop Grumman for the Joint Strike Fighter Project including those manufactured at the new Bankstown manufacturing facility; building the capability and capacity of the organisation in advance of the start of production of C-130J wing flaps for Lockheed Martin; working closely with potential customers through the international network of Quickstep ‘Centres of Excellence’ to qualify the Quickstep Process as a viable and effective alternative to traditional autoclave- based composite manufacturing techniques; further expansion of the Group’s existing portfolio of international research and development alliances and partnerships with major aerospace, industrial and automotive groups and their tier one suppliers; and coordination of a cohesive strategic plan for the Group’s global research & development initiatives; DIRECTOR’S REPORT D I R E C T O R S ’ R E P O R T 8. Events Subsequent to Reporting Date Since the end of the financial year the Group: delivered its 100th manufactured carbon-fibre composite part for its F-35 Lightning II Joint Strike Fighter contract with global aerospace company Northrop Grumman Corporation Completed all qualification tasks required by Lockheed Martin's materials and process technical engineering testing program for manufacture of C130J wing flaps Secured a EUR 4.2m contract to provide leading Russian aircraft composites manufacturer, ORPE Technologiya, with its Quickstep Process to manufacture large carbon-fibre composite components Advanced its patented Resin Spray Transfer (RST) technology with a key European automotive manufacturer targeted at lightweight strong vehicle parts to be produced at relatively high speed and low cost with a high quality finish Raised $6.1m (before costs) through two placements of fully paid ordinary shares to institutional and sophisticated investors Raised $7.2m (before costs) through a share purchase plan with existing investors Received additional purchase orders to the value of $2.6m for non-recurring work relating to existing aerospace agreements 9. Likely Developments Strategies, Prospects and Risk by Division Manufacturing Strategic Objective Prospects Risks Achieve sales revenue from new and existing manufacturing contracts Program schedules indicate a significant increase in sales for the 2014 financial year Steep ramp up over a short period, mitigated by strong management team Begin delivery of C-130J ships sets Start delivery of C-130J during 2013/14 Control of labour hours and material costs to proposed levels Achieve budget performance Sign new manufacturing agreements to deliver more manufacturing hours A number of bids are being negotiated as present Manage the transition of the work from Boeing and the design authority from Boeing to Lockheed Martin, mitigated by employing a number of professionals and staff from Boeing as they close down their site in Bankstown Risk mitigated by strong management team and systems Introduce new work in addition to a fast ramp up on the 2 existing contracts, mitigated by the end of the non recurring phase of Northrop Grumman’s work 5. Results The Group incurred a loss after tax of $16,985,894 for the year ended 30 June 2013 (2012: loss of $11,801,601). Quickstep Systems 6. Operating Review A review of operations and activities for the financial year is set out in the Managing Director’s Review. 7. Dividends No dividend has been declared or paid by the Company to the date of this report. Strategic Objective Prospects Risks Fully demonstrate RST cell capability by producing motor vehicle parts capable of sale Develop real parts for manufacture Finalise all related technologies to the parts (Tools, faster machine...) Manufacture and deliver first motor vehicle part to an Original Equipment Manufacturer (OEM) Sign a contract with OEM to produce such part New technology needs to be accepted, risk mitigated by a growing team of automotive specialist on the technical and sales areas. 20 9 10 21 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK DIRECTOR’S REPORT D I R E C T O R S ’ R E P O R T 10. Directors’ Interests The relevant interest of each Director in the shares, rights and options at the date of this report unless otherwise indicated is as follows: Director Shares Options Rights Mr T Quick Mr P M Odouard Mr. N. Ampherlaw(5) Mr D E Brosius(6) Mr P C Cook (2) Mr D F G Graham (1) Mr B Griffiths Mr M B Jenkins Mr E McCormack(3) Mr D Singleton Mr D E Wills(4) - - 2,134,205 3,563,073 275,000 600,000 220,758 26,039,341 - - 369,315 - 460,107 - - - - - - - - - - - - - - - - - - - - 1. 2. 3. 4. 5. 6. The registered holder of the shares is Decta Holdings Pty Ltd, the trustee for a discretionary trust of which Mr Graham is a potential beneficiary. Mr Graham resigned as Director on 14 February 2013. The interest disclosed is at the date of cessation as Director. The registered holder of the shares is Bond Street Custodians Limited as custodian for the Lloyds Wharf Superannuation Fund, of which Mr Cook is a trustee. The registered holder of the shares is Aviops Pty Ltd, of which Mr McCormack is a director. The registered holder of the shares is Jammit Pty Ltd, of which Mr Wills is a director. Mr Wills retired as a Director on 5 July 2013. The interest disclosed is at the date of cessation as Director. The registered holder of the shares is NIJS Fund which is a superannuation fund of which Mr Ampherlaw is a trustee and member. The registered holder of the shares resigned as Director on 14 February 2013. The interest disclosed is at the date of cessation as Director. 11. Share Options and Rights During the financial year 987,739 options were granted under the Quickstep Employee Incentive Plan (EIP) to the CEO, Mr Philippe Odouard, as part of his remuneration with vesting based on future conditions. No options granted in prior years were exercised during the year ending 30 June 2013. No other options have been granted during or since the end of the financial year. During the financial year, the Company granted 255,363 in rights to Michelle Withers for no consideration over unissued ordinary shares in the Company as part of her remuneration. No other key management personnel were granted any rights during the financial year. DIRECTOR’S REPORT D I R E C T O R S ’ R E P O R T Unissued shares under options and rights At the date of this report, unissued ordinary shares of the Company under options and rights are: Employee Earliest Possible Vesting Date Expiry Date Exercise Price Options Mr P Odouard Mr P Odouard Mr P Odouard Mr P Odouard Rights Mr S Godbille Mr S Godbille Mr J Johnson Mr J Johnson Mr A Vihersaari Mr B Pillay Total 1/7/2012 1/7/2013 31/8/2014 31/08/2015 12/7/2013 31/12/2013 1/7/2013 31/12/2013 1/7/2013 31/12/2013 30/03/2017 26/11/2017 23/11/2018 22/11/2019 12/7/2013 31/12/2013 1/7/2013 31/12/2013 1/7/2013 31/12/2013 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Number of Shares 1,397,624 471,337 706,373 987,739 267,605 764,818 471,698 688,337 250,000 312,620 6,318,151 These options and rights do not entitle the holders to participate in any share issue of the Company or any other body corporate. Shares issued on exercise of options and rights During the prior financial year, the Company issued ordinary shares as a result of the exercise of rights as follows (there were no amounts unpaid on the shares issued): Number of Shares 769,131 Amount paid on each Share $0.00 No ordinary shares were issued as a result of exercise of options. 12. Indemnification and Insurance of Officers Except as indicated below, the Group has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer of the Group or of any related body corporate against a liability incurred as an officer. Indemnification The Group has indemnified the Directors (as named in this Report) and all Executive officers of the Group and of any related body corporate against any liability incurred as a Director, Secretary or Executive officer to the maximum extent permitted by the Corporations Act 2001. Insurance Premiums The Group has paid a premium in respect of a directors’ and officers’ liability insurance policy, insuring the Directors of the Company, the Company Secretary and all executive officers of the Company and Group against a liability incurred as such a Director, Secretary or executive officer to the extent permitted by the Corporations Act 2001. The Directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the directors’ and officers’ liability and legal expenses’ insurance contracts; as such disclosure is prohibited under the terms of the contract. 13. Non-audit Services During the financial year, KPMG, the Group’s auditor, has not performed any additional services to their statutory duties. 22 11 12 23 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK DIRECTOR’S REPORT DIRECTOR’S REPORT D I R E C T O R S ’ R E P O R T 14. Lead Auditor’s Independence Declaration The lead auditor’s independence declaration as required under Section 307C of the Corporations Act 2001, which forms part of this Directors’ Report for the financial year ended 30 June 2013, is set out on page 73 15. REMUNERATION REPORT - AUDITED The remuneration report is set out under the following main headings: A: B: C: D: E: Principles of compensation Service agreements Details of remuneration Share-based compensation Analysis of bonuses in remuneration Remuneration is referred to as compensation throughout this report. A. Principles of compensation Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Group, including Directors of the Company. Key management personnel comprise the Directors of the Company and Executives for the Group. The report includes details relating to: Non Executive Directors Mr T Quick Chair of Board (appointed 14th February 2013) D I R E C T O R S ’ R E P O R T The Board has established a Remuneration, Nomination and Diversity (RN&D) Committee which assists the Board in formulating policies on and in determining: the remuneration packages of Executive Directors, Non-Executive Directors and senior Executives; and cash bonuses and equity based incentive plans, including appropriate performance hurdles, total payments proposed and plan eligibility criteria. If necessary, the RND Committee obtains independent advice on the appropriateness of remuneration packages given trends in comparable companies and in accordance with the objectives of the Group. The Corporate Governance Statement provides further information on the role of this committee. Compensation levels for key management personnel of the Group are competitively set to attract and retain appropriately qualified and experienced directors and executives. The remuneration structures are designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. Compensation packages include a mix of fixed compensation, short-term incentives and equity-based compensation as well as employer contributions to superannuation funds. Shares and options may only be issued to directors subject to approval by shareholders in a general meeting. The Group does not have any scheme relating to retirement benefits for its key management personnel other than contributions defined under its statutory obligations. Fixed compensation Fixed compensation consists of base compensation (which is calculated on a total cost basis), as well as employer contributions to superannuation funds. Compensation levels are reviewed annually through a process that considers current labour market rates, individual achievement of objectives and overall performance of the Group. Compensation is also reviewed in the event of promotion or significant change in responsibilities. Mr N I Ampherlaw Chair of Audit Risk and Compliance Committee (appointed 8th July 2013) Performance linked compensation Mr P Cook Mr B Griffiths Mr M Jenkins Chair of Remuneration, Nomination and Diversity Committee (appointed 14th February 2013) (resigned as Chair of Board 14th February 2013) Air Marshal (R’td) E McCormack Mr D Singleton Mr D Wills Executive Directors Mr P Odouard Mr D Brosius Mr D Graham (Jnr) Executives and Officers Mr J Pinto M P Macleod Mr J Johnson Mr S Godbille Mr P Robertson Mr M Schramko Mr P Salvati Ms T Swinley Dr J Schlimbach Mr A Vihersaari Ms M Withers Chair of Audit Risk and Compliance Committee (retired 5th July 2013) Managing Director and Chief Executive Officer President Quickstep Composite LLC (resigned as Director 14th February 2013) Business Development Manager – Australia (resigned 14th February 2013) Company Secretary (appointed 20th November 2012) Company Secretary (resigned 20th November 2012) Vice President of Commercial and Admin Vice President of Quickstep Systems Vice President of Finance (appointed 19th October 2012) Vice President of Manufacturing and Operations Quality Manager (until 1st October 2012) Vice President of Human Resources (appointed 3rd December 2012) Joint CEO, Quickstep GmbH Vice President of Global Business Development Vice President of Human Resources (resigned 21st December 2012) Performance linked compensation includes both short and long term incentives and is designed to reward key management personnel for meeting or exceeding their financial and personal objectives. Each individual’s performance linked compensation is capped as a percentage uplift of fixed compensation. Other than as disclosed in this report, there have been no performance-linked payments made by the Group to key management personnel. (i) Short-term incentives Certain key management personnel receive short-term incentives (STI), in cash, based on achievement of key performance indicators (KPIs). Each year, the RN&D Committee considers the appropriate targets and KPIs and the alignment of the individuals rewards to the Group’s performance. These targets may include measures related to the annual financial performance of the Group or specified parts of the group and are measured against actual outcomes. The RN&D Committee is responsible for assessing whether the KPIs meet the criteria set out at the beginning of the year. No bonus is awarded where performance fall below the minimum level of performance. The RN&D Committee recommends the total incentive to be paid to the individuals for approval by the Board. (ii) Equity-based compensation (long-term incentives) (ii.a) Employee Incentive Plan Long-term incentives may be provided to key management personnel via the Quickstep Employee Incentive Plan (EIP) (refer to note 34 to the financial statements). The incentives are provided as options over ordinary shares of the Company and the plan is open to eligible employees of the Group. The incentives include performance targets related to Total Shareholder Return and are measured against actual share price performance over a period of 3 years. The incentives are considered to promote alignment of management and shareholder interests, continuity of employment and to encourage superior performance. (ii.b) Share based payments Certain key management personnel received long-term incentives (LTI) as share based payments based on achievement of certain short term key performance indicators (KPIs) in respect of current year performance. The RN&D Committee considers the appropriate targets and KPIs and the individual’s contribution to the Group’s performance. These targets may include measures related to the annual financial performance of the Group or specified parts of the Group and are measured against actual outcomes. 24 13 14 25 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK DIRECTOR’S REPORT D I R E C T O R S ’ R E P O R T (ii.c) Other Equity-based compensation Other incentives may be provided to key management personnel as rights over ordinary shares of the Company. These rights have been provided as; loyalty bonuses as an incentive for continuity of employment; and Executive performance and retention bonuses (EPRB) for performance against objectives relating to the Company’s relocation objectives and continuity of employment such as the transfer of manufacturing to NSW. The RN&D Committee considers that the above performance linked compensation structure is generating the desired outcomes. The benefits of such incentives for shareholder’s wealth creation may not directly align with the Company’s current market performance, particularly during its current investment and developmental stage, and considers market performance is not representative of the achievements of the Group. Factors such as the attraction and retention of key staff, securing long term contracts and commercialisation and development of technology will provide longer term shareholder wealth. Non Executive Directors’ fees Total remuneration for all Non Executive Directors, last voted upon by shareholders at the 2010 Annual General Meeting, is not to exceed $600,000 per annum. Fees are set with reference to fees paid to Non Executive directors of comparable companies. Directors are entitled to receive a fee which covers all main Board activities and membership of committees. In 2011 a fee for Chairmanship of a committee of $5,000 p.a. was introduced. The table below indicates the maximum annual fees based on directors responsibilities at the date of this report. Non- Executive directors do not receive performance related compensation. Non Executive Directors T Quick N Ampherlaw (apt. 08/07/2013) P Cook B Griffiths M Jenkins E McCormack D Singleton Fees 126,000 60,000 60,000 60,000 60,000 84,000 60,000 Committee Chairmanship N/A 5,000 5,000 N/A N/A N/A N/A DIRECTOR’S REPORT D I R E C T O R S ’ R E P O R T B. Service agreements Key management personnel have entered into service agreements. These employment contracts outline the components of compensation paid to the key management personnel and are reviewed on an annual basis. Mr P M Odouard Initial Agreement Date 13 October 2008 Duration Notice Period Termination Benefits Open 6 months 12 months annual salary and pro-rated annual bonus (at Board’s discretion) STI (1) % of salary LTI (2) % of salary Other Benefits (4)(5) 25 50(3) 588,235 rights(4) Mr D E Brosius 1 September 2005 Open 3 months 6 months of annual salary 20 (5) - - package; Any cash bonus due but not paid; and Pro rated current year cash bonus (in accordance with contract). Mr S Godbille 10 June 2010 Open 3 months 3 months of annual salary 12.5 12.5 Mr J Johnson 1 April 2011 Open 3 months package; and Pro-rated annual bonus (at Board’s discretion). 6 months of annual salary package; and Pro rated annual bonus (at Board’s discretion) Dr J Schlimbach 1 Jan 2012 Mr A J Vihersaari 1 July 2011 Ms Tracy Swinley (from December 3, 2012) 26 November 2012 Fixed term Fixed term Open 3 months n/a 1 month 3 months Mr M Schramko 25 July 2011 Open 3 months Mr Paul Robertson (from October 19, 2012) 19 October 2012 Open 3 months n/a 3 months of annual salary package; and Pro-rated annual bonus (at Board’s discretion). 3 months of annual salary package; and Pro-rated annual bonus (at Board’s discretion). 3 months of annual salary package; and Pro-rated annual bonus (at Board’s discretion). 267,605 rights(4) 764,818 rights (4) 471,698 rights(4) 688,337 rights (4) - 250,000 rights(4) - - - 20 20 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 (1) (2) (3) (4) (5) STI (Short Term Incentive) is determined on performance against key performance indicators (KPIs) set and reviewed by the RN&D Committee or the Board as appropriate. Percent (%) of salary refers to the maximum amount payable (as per service agreement). The KPIs include company financial objectives, such as order intake, profit and cash flow, and personal objectives including control of responsibility centre expenditure and functional outcomes aligned to the annual strategic plan. LTI (Long Term Incentive) is determined on performance against key performance indicators (KPIs) set and reviewed by the RN&D Committee or the Board as appropriate. LTI determined on performance against total shareholder’s return. Retention single bonus based on continuity of service, payable in shares. Maximum US$30,000 26 15 16 27 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK DIRECTOR’S REPORT DIRECTOR’S REPORT s t n e m y a P d e s a b - e r a h S - g n o L r e h t O m r e T t s o P t n e m y o p m E l l a t o T $ & s n o i t p O s t h g i r $ s e r a h S $ - m r e T n o i t a n i s t i f e n e B $ $ - r e p u S n o i t a u n n a y v e L e e t n a r a u G $ l a t o T - n o N y r a t e n o M s t i f e n e b $ m r e T t r o h S h s a c I T S ) 3 ( s u n o b $ / y r a l a S $ s e e f r a e Y : e r a r a e y e h t r o f p u o r G e h t f o l e n n o s r e p t n e m e g a n a m y e k r e h t o d n a y n a p m o C e h t f o r o t c e r i d h c a e f o n o i t a r e n u m e r e h t f o l t n e m e e r o a m h c a e j f o t n u o m a d n a e r u t a n e h t f o s l i a t e D n o i t a r e n u m e r f o s l i a t e D . C T R O P E R ’ S R O T C E R I D 28 s n o i t p o f o e u l a V n o i t r o p o r p s a n o i t a r e n u m e r f o % f o n o i t r o p o r P n o i t a r e n u m e r e c n a m r o f r e p d e t a l e r % % 8 . 7 2 % 2 . 0 1 % 7 . 3 3 % 5 . 2 2 - - - - - - - - - - - - - - - - - - - - - % ) 2 . 3 ( - - - - - ` - - - - - 6 2 4 , 8 0 5 0 2 6 , 2 2 4 0 0 5 , 2 5 - 0 0 0 , 0 6 8 1 4 , 0 6 0 0 0 , 5 5 0 5 2 , 1 7 2 1 7 , 3 2 - 0 0 0 , 2 0 1 0 0 2 , 7 2 1 7 9 9 , 3 8 0 2 3 , 4 8 0 0 0 , 0 6 9 2 2 , 0 6 8 4 2 , 1 6 0 9 1 , 0 5 - - - - - - - - - - - - - - - - 0 4 3 , 1 4 1 5 1 1 , 3 4 - - - - - - - - - - - - - - - - - - s n o i t p o f o e u l a V n o i t r o p o r p s a n o i t a r e n u m e r f o % f o n o i t r o p o r P n o i t a r e n u m e r e c n a m r o f r e p d e t a l e r % l a t o T $ & s n o i t p O s t h g i r $ s e r a h S $ s t n e m y a P d e s a b - e r a h S - - - - - - - - - - - - - - - - - - - - - % 6 . 0 1 % 7 . 3 1 % 3 . 5 % 5 . 7 3 % 1 . 1 3 % 9 . 6 2 % 3 . 0 3 - - - - - 1 0 8 , 1 5 4 7 9 , 8 2 2 4 0 4 , 0 0 2 0 5 8 , 2 6 3 8 2 2 , 3 1 3 9 2 2 , 9 7 3 8 7 3 , 0 6 4 - 0 0 5 , 7 1 0 0 0 , 2 4 0 0 0 , 2 3 % 2 . 4 1 2 4 9 , 1 3 1 - ) % 1 . 4 1 ( % 2 . 4 1 % 7 . 9 % 0 . 2 1 % 4 . 7 % 3 . 4 1 - 8 3 4 , 3 3 4 3 9 , 3 5 1 6 9 4 , 9 7 1 9 8 2 , 1 7 1 9 7 7 , 9 2 2 6 9 9 , 9 1 2 - - - - 7 4 5 , 6 1 1 0 1 0 , 6 6 6 5 4 , 8 1 1 7 0 7 , 3 8 - - - - - - - - - - - - - - - - 6 5 5 , 8 4 6 6 , 5 1 ) 5 0 5 , 1 1 ( 9 0 9 , 7 2 - - - - - 5 7 3 , 9 ) 8 7 3 , 2 ( 8 3 9 , 0 1 6 4 6 , 7 5 6 4 , 0 1 5 4 5 , 8 8 6 7 , 5 1 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6 3 4 , 1 3 8 3 1 , 1 3 - - - - - - - - - - 6 3 9 , 6 2 6 9 , 6 5 5 9 , 4 3 7 9 , 4 7 5 0 , 5 4 4 1 , 4 7 1 0 5 6 , 5 3 3 7 6 3 , 8 4 3 0 0 5 , 2 5 - 0 0 0 , 0 6 8 1 4 , 0 6 0 0 0 , 5 5 0 5 2 , 1 7 2 1 7 , 3 2 - 0 0 0 , 2 0 1 0 0 2 , 7 2 1 1 6 0 , 7 7 8 5 3 , 7 7 5 4 0 , 5 5 6 5 2 , 5 5 1 9 1 , 6 5 6 4 0 , 6 4 - - - - - - - - - - - - - - - - - - 1 5 8 , 1 5 6 1 5 , 6 9 2 2 1 0 2 2 3 9 , 9 2 8 1 7 , 5 0 3 3 1 0 2 ) 2 & 1 ( d r a u o d O M P r M s r o t c e r i D e v i t u c e x E - - - - - - - - - - - - - - - 0 0 5 , 2 5 - 0 0 0 , 0 6 8 1 4 , 0 6 0 0 0 , 5 5 ) 0 5 2 , 2 ( 0 0 5 , 3 7 - 2 1 7 , 3 2 0 0 0 , 2 0 1 3 1 0 2 0 0 2 , 7 2 1 2 1 0 2 1 6 0 , 7 7 8 5 3 , 7 7 5 4 0 , 5 5 6 5 2 , 5 5 1 9 1 , 6 5 6 4 0 , 6 4 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 ) 3 1 / 2 0 / 4 1 d e t i n o p p a ( i k c u Q T r M e v i t u c e x E - n o N m a h a r G G F D r M k o o C C P r M ) 3 1 / 2 0 / 4 1 d e n o p p a ( t i s h t i f f i r G B r M O A k c a m r o C c M J E l a h s r a M r i A i s n k n e J B M r M ) 3 1 / / 7 5 d e r i t e r ( s l l i W E D r M l t n o e g n S D i r M - g n o L r e h t O m r e T t s o P t n e m y o p m E l m r e T t r o h S - m r e T n o i t a n i s t i f e n e B $ $ - r e p u S n o i t a u n n a y v e L e e t n a r a u G $ l a t o T - n o N y r a t e n o M s t i f e n e b $ h s a c I T S ) 3 ( s u n o b $ / y r a l a S $ s e e f - - - - - - - - - - - - - - - - - - - - - - 8 5 4 , 3 4 0 3 , 8 5 9 8 , 9 1 7 3 9 , 8 1 6 8 8 , 2 2 4 7 6 , 8 2 - - - - - 6 4 3 , 9 0 5 1 , 3 4 0 9 , 0 1 - - 4 8 5 , 8 1 1 6 5 , 5 1 8 1 - 3 4 3 , 8 4 0 7 6 , 0 2 2 4 0 4 , 0 0 2 2 5 8 , 7 1 2 7 1 6 , 2 1 2 2 9 3 , 9 4 2 8 8 0 , 0 2 3 - 0 0 5 , 7 1 0 0 0 , 2 4 0 0 0 , 2 3 - 1 2 2 , 3 1 1 6 6 6 , 2 3 2 9 0 , 2 3 1 0 5 8 , 1 7 1 4 2 8 , 0 6 1 0 5 6 , 2 0 2 7 6 6 , 8 8 1 - - - - 6 1 5 , 5 7 2 8 , 2 4 2 1 1 , 6 9 0 4 , 1 3 9 4 1 , 3 8 1 3 1 0 2 i s u s o r B E D r M - - - - - - - - - - - - - - - - - 5 5 6 , 0 1 9 4 7 , 9 8 1 2 1 0 2 0 4 9 , 0 1 2 1 9 , 6 0 2 3 1 0 2 4 6 6 , 5 1 3 5 9 , 6 9 1 2 1 0 2 e l l i b d o G S r M ) 0 0 9 , 4 ( 2 9 2 , 4 5 2 3 1 0 2 ) 2 ( n o s n h o J F J r M 9 0 9 , 7 2 9 7 1 , 2 9 2 2 1 0 2 - - - - - 0 0 5 , 7 1 0 0 0 , 2 4 0 0 0 , 2 3 3 1 0 2 2 1 0 2 3 1 0 2 2 1 0 2 ) 2 1 / 1 1 / 0 2 d e n g s e r ( i d o e L c a M J P r M ) 2 1 / 1 1 / 0 2 d e n o p p a ( t i o t i n P J r M 5 7 3 , 9 6 4 8 , 3 0 1 3 1 0 2 ) 2 1 / 0 1 / 9 1 d e c n e m m o c ( n o s t r e b o R P r M - - ) 4 3 3 , 2 ( 0 0 0 , 5 3 2 1 0 2 3 1 0 2 8 3 9 , 0 1 4 5 1 , 1 2 1 2 1 0 2 9 5 7 , 9 1 9 0 , 2 6 1 3 1 0 2 1 1 0 , 0 1 3 1 8 , 0 5 1 2 1 0 2 ) 2 1 / 0 1 / 1 l i t n u ( i t l a v a S P r M h c a b m i l h c S J r D 8 6 7 , 5 1 9 9 8 , 2 7 1 2 1 0 2 3 6 5 , 8 7 8 0 , 4 9 1 3 1 0 2 ) 1 1 / 7 / 5 2 d e c n e m m o c ( o k m a r h c S M r M 29 T R O P E R ’ S R O T C E R I D r a e Y 3 1 0 2 2 1 0 2 ) 1 1 / 8 / 2 1 d e n g s e r ( i l s e k c e B W r M s e v i t u c e x E Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK DIRECTOR’S REPORT DIRECTOR’S REPORT - - - - - - % 3 . 0 1 5 1 9 , 9 8 - % 2 . 0 1 % 6 . 2 2 % 2 . 9 % 7 . 0 3 - 1 2 9 , 9 6 1 5 4 1 , 1 0 2 5 3 3 , 7 8 1 1 4 0 , 5 4 2 - - 7 1 0 , 5 1 3 9 2 , 6 2 3 3 7 , 3 2 5 3 5 , 5 4 - 5 2 6 , 4 ) 6 0 9 ( 7 1 2 , 8 ) 9 7 1 , 3 ( 9 9 7 , 4 1 - - - - - 0 2 1 , 1 8 - - - - - - - - - 0 6 6 , 6 5 5 0 , 8 0 2 1 , 5 1 - 0 3 6 , 8 7 0 1 8 , 5 5 1 5 3 6 , 6 6 1 6 0 6 , 7 7 7 8 5 , 9 6 1 - - - - - - s n o i t p o f o e u l a V n o i t r o p o r p s a n o i t a r e n u m e r f o % f o n o i t r o p o r P n o i t a r e n u m e r e c n a m r o f r e p d e t a l e r % l a t o T $ & s n o i t p O s t h g i r $ s e r a h S $ - m r e T n o i t a n i s t i f e n e B $ $ - r e p u S n o i t a u n n a y v e L e e t n a r a u G $ l a t o T - n o N y r a t e n o M s t i f e n e b $ h s a c I T S ) 3 ( s u n o b $ / y r a l a S $ s e e f s t n e m y a P d e s a b - e r a h S - g n o L r e h t O m r e T t s o P t n e m y o p m E l m r e T t r o h S - - 5 2 6 , 4 5 0 0 , 4 7 9 9 7 , 4 1 8 8 7 , 4 5 1 2 1 0 2 8 0 9 , 0 1 7 2 7 , 5 5 1 2 1 0 2 6 8 1 , 3 4 2 6 , 2 5 1 3 1 0 2 ) 2 ( i r a a s r e h V A i r M ) 4 9 2 , 3 ( 0 0 9 , 0 8 3 1 0 2 ) 2 1 / 2 1 / 1 2 d e n g s e r ( i ) 2 ( s r e h t i W M s M : n o i t a r e n u m e r f o l e b a t e h t o t n o i t a e r l n i s e t o N r a e Y 3 1 0 2 2 1 0 2 ) 2 1 / 2 1 / 3 d e c n e m m o c ( s e v i t u c e x E l i y e n w S T s M T R O P E R ’ S R O T C E R I D 30 . r a e y l i a c n a n i f r o i r p e h t g n i r u d i d a p s t n u o m a l a u t c a r o f I T S d e u r c c a e h t o t s t n e m t s u d a s u p l j s u n o b h s a c d e u r c c a n a f o d e s i r p m o c s i ) I T S ( e v i t n e c n I m r e T t r o h S e h T ) 3 ( 9 1 D I R E C T O R S ’ R E P O R T D. Share based compensation (i)Shares Retention incentives accrued in the prior year have been settled through share based payments during the year, valued at the market value on the day of issue: No of Shares granted and vested 83,745 50,955 50,724 73,728 68,133 327,285 Mr S Godbille Mr P Salvati Dr J Schlimbach Mr M Schramko Ms M Withers Total Fair Value Total Fair Value ($) $0.168 $0.168 $0.168 $0.168 $0.168 ($) 14,069 8,560 8,522 12,386 11,447 54,984 Long term incentives accrued in the current year of $95,804 are expected to be settled through share based payments during the next financial year, valued at the market value on the day of issue. (ii)Options During 2013, Mr Odouard accepted an offer of 987,739 (2012: 706,373) options from the Quickstep Employee Incentive Plan (EIP) in accordance with the resolutions passed at the 2012 Annual General Meeting. The number of options granted was calculated with reference to the volume weighted average of the ASX quoted price for QHL shares at 31 August 2012 being 16.95 cents (Prior year: 22.79 cents). The options will vest if certain performance hurdles relating to an increase in share value are achieved at the prescribed testing dates. Such a performance hurdle is chosen to align the performance objectives of key Executives with those of the Company’s shareholders. The fair value of the options, as calculated under the accounting standards, (refer note 34), takes into account a range of assumptions including the likelihood of the options vesting and the projected share price at the time of vesting (see below). The fair value of options granted in 2013 is $123,467 (2012:$122,203). No options granted during 2013 vested, were exercised or lapsed. The expense recorded in the financial statements of $141,340 (2012: $139,110) is the portion of the current offer and all prior offers attributable to the current financial year as required by accounting standards. No options vested or were exercised in the current year (2012: nil). Unvested options at 30/6/2013 are as follows: Earliest possible vesting date No. of options granted Fair value per option at grant date Total fair value ($) ($) Tranche 3 - 30/06/2011 Tranche 4 - 30/06/2012 2010 Year – 30/06/2013 2011 Year – 31/8/2014 2012 Year – 31/8/2015 925,926 $0.3150 291,667 471,698 $0.2700 127,358 471,337 $0.3620 170,624 706,373 $0.1730 122,203 987,739 $0.1250 123,467 Total 3,563,073 835,319 All of the above options have an exercise price of $nil and an expiry date of 4 years after their earliest possible vesting date. 20 31 e u s s i f o y a d e h t n o e u a v l t e k r a m e h t t a d e u a v l , r a e y e h t g n i r u d s t n e m y a p d e s a b e r a h s h g u o r h t d e l t t e s n e e b e v a h r a e y r o i r p e h t n i s e v i t n e c n i r e h t O : e d u c n l i s t n e m y a p d e s a b e r a h S ) 1 ( ) 2 ( s t n e m y a p d e s a b e r a h s h g u o r h t d e l t t e s e b o t r a e y t n e r r u c e h t o t g n i t a e r l s e v i t n e c n I m r e T g n o L d e t a m i t s e f o l a u r c c A s e v i t n e c n I m r e T g n o L s a d e u s s i s e r a h S s t n e m t s u d a j l a u r c c A ) B R P E ( s e s u n o b n o i t n e t e r d n a e c n a m r o f r e p e v i t u c e x E . i i i s e s u n o b y t l a y o L . i i : f o r a e y t n e r r u c e h t o t ) P E I ( s n o i t p O . i l t e b a u b i r t t a n o i t r o p e h T . a . b . c . d Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK DIRECTOR’S REPORT D I R E C T O R S ’ R E P O R T Details of the vesting profile of the options granted in this and prior years are detailed below. Number of options granted Grant date % vested in this year % forfeited in this year (1) Financial years in which grant vests Directors Mr P Odouard Mr P Odouard Mr P Odouard Mr P Odouard Mr P Odouard 925,926 471,698 471,337 706,373 987,739 30/03/2010 30/03/2010 26/11/2010 23/11/2011 22/11/2012 0 0 0 0 0 0 0 0 0 0 2013 2013 2014 2015 2016 (1) The % forfeited in the year represents the reduction from the maximum number of options available to vest due to performance criteria not being achieved. Exercise of options granted as compensation During the reporting period no shares were issued on the exercise of options previously granted as compensation. No options lapsed. (iii)Rights to shares (iii.a) Executive Performance and Retention Bonus Mr Godbille, Mr Johnson and Ms Withers were granted, as compensation during the previous reporting period, rights to shares offered through a performance and retention bonus scheme. The rights vest on 31 December 2013 upon performance of criteria related to the Company’s relocation objectives and are conditional upon continued employment. Ms Withers resigned from the company on 21 December 2013 and as a consequence, her entitlements under the retention bonus scheme have lapsed. Refer to the table below for further details. The rights have a $nil exercise price and have no expiry date. During the 2013 Financial Year, Ms Withers’ rights were forfeited due to termination of employment (2012: nil). The rights have been valued at fair value based on a Monte Carlo simulation (refer note 34) at the issue date. An expense of $169,244 (2012:$96,046) has been included in the financial statements as the portion of the current offer attributable to the current financial year as required by accounting standards. Number of rights granted during 2012 Grant date Fair value at grant date ($) Expensed ($) Number vested during the year Executives Mr S Godbille Mr J Johnson Mrs M Withers Total 764,818 688,337 434,847 1,888,002 10/02/12 10/02/12 10/02/12 190,400 171,360 108,254 100,719 90,647 (22,122) 169,244 0 0 0 DIRECTOR’S REPORT D I R E C T O R S ’ R E P O R T (iii.b) Loyalty Bonus Rights have been issued to a number of key management personnel in prior years as retention incentives. The rights vest in two tranches provided the employee remains employed with the Group. 1/3 vest 2 years from the date granted, 2/3 vest 3 years from the date granted. The rights are valued at market value of the Group’s share on the date of grant of the rights. An expense of $104,509 (2012:$135,502) has been included in the financial statements as the portion of the offer attributable to the current financial year as required by accounting standards. 769,131 rights vested (2012: 680,235 vested) during the period. The value disclosed is the portion of the fair value of the options recognised in the reporting period. (iii.c) Vesting profile of Rights Details of the vesting profile of the rights to shares granted as remuneration to each key management person of the Group are detailed below. Number of rights granted Grant date No of rights vested in year (2) No of rights forfeited in year(1) Executives Mr S Godbille Mr J Johnson Mr A Vihersaari Ms M Withers (2) (3) (2) (3) (2) (2) (2) (1) 267,605 764,818 471,698 688,337 250,000 276,000 255,363 434,847 12/07/2010 10/02/2012 01/04/2011 10/02/2012 01/07/2010 01/10/2009 06/07/2012 10/02/2012 89,202 - 157,233 - 83,333 184,000 255,363 - - - - - - - - 434,847 % vested in year 33.33% - 33.33% - 33.33% 66.67% 100.00% - Market Value of rights vested(2) $ 23,193 - 41,667 - 22,499 58,880 40,858 - Financial years in which grant vests 2013 & 2014 2014 2013 & 2014 2014 2013 & 2014 2012 & 2013 2013 2014 (1) (2) Rights were forfeited due to termination of employment. Rights vest in two tranches provided the employee remains with the group. 1/3 vest 2 years from the date granted, 2/3 vest 3 years from the grant date. During the year 769,131 rights were exercised at $nil consideration. The market value of the rights exercised was $187,097. (3) Rights vest subject to performance conditions. (iv) Modification of terms of equity-settled share-based payment transactions No terms of equity-settled share-based payment transactions (including options and rights granted as compensation to a key management person) have been altered or modified by the issuing entity during the reporting period or the prior period. 32 21 22 33 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK DIRECTOR’S REPORT CORPORATE GOVERNANCE STATEMENT D I R E C T O R S ’ R E P O R T C O R P O R A T E G O V E R N A N C E S T A T E M E N T E. Analysis of bonuses included in remuneration Details of the vesting profile of the short-term incentive cash bonuses awarded as remuneration to each director of the Company and each of the named Company Executives and relevant Group Executives and other key management personnel of the Group are detailed below: Short-term incentive bonus 2013 Included in remuneration $ (1) % vested in year % forfeited in year (2) Directors Mr P Odouard Executives Mr D Brosius Mr S Godbille Mr J Johnson Mr P Robertson Dr J Schlimbach Mr M Schramko Ms T Swinley Mr A Vihersaari 29,932 39.16% 60.84% 31,409 10,940 (4,900) 9,375 9,759 8,563 4,625 3,186 87.39% 43.89% - 50.00% 83.85% 35.90% 20.00% 22.45% 12.61% 56.11% 100.00% 50.00% 16.15% 64.10% 80.00% 77.55% (1) Amounts included in remuneration for the financial year represent the amount that vested in the financial year based on achievement of Group and/or personal goals and satisfaction criteria. No amounts vest in future financial years in respect of the bonus schemes for the 2013 year. The amounts included in remuneration for the current reporting period include adjustments to the 2012 bonus paid during the current reporting period compared to the bonus accrual made in the prior reporting period. (2) The amounts forfeited are due to the Group performance, personal performance or service criteria not being met in relation to the current financial year. Dated at Sydney, New South Wales this 30 day of September 2013. Signed in accordance with a resolution of the Directors: P M Odouard Managing Director This statement outlines the main corporate governance practices in place throughout the financial year, which comply with the ASX Corporate Governance Council recommendations, unless otherwise stated. 1. Board of directors Role of the Board The Board’s Charter identifies its key objectives as: increasing shareholder value; safeguarding shareholders’ rights and interests; and ensuring that the Company is properly managed. The Board is responsible for: guiding the development of an appropriate culture and values for the Group through the establishment and review of Codes of Conduct and policies and procedures to enforce ethical behaviour and provide guidance on appropriate work methods; monitoring financial performance, including approval of the annual and half-year financial statements and liaison with the Company’s auditors; appointment of, and assessment of the performance of, the Chief Executive Officer; monitoring managerial performance; ensuring that an appropriate set of internal controls is implemented so that significant risks facing the Company and its controlled entities have been identified; reporting to shareholders and regulatory authorities; and making all decisions outside the scope of powers and authorities otherwise delegated. Day-to-day management of the Group’s affairs and the implementation of the corporate strategy and policy initiatives are delegated by the Board to the Managing Director and senior Executives. Board Processes To assist in the execution of its responsibilities, the Board has established a number of Board committees including an Audit, Risk and Compliance Committee and a Remuneration, Nomination and Diversity Committee. These committees have written mandates and operating procedures, which are reviewed on a regular basis. The Board has also established a framework for the management of the Group including a system of internal control, a business risk management process and the establishment of appropriate ethical standards. The full Board currently hold 9 scheduled meetings each year, including strategy meetings, plus additional meetings at such other times as are necessary to address any specific significant matters that may arise. The agenda for meetings is prepared in conjunction with the Chairperson, Chief Executive Officer and Company Secretary. Standing items include the Chief Executive Officer’s report, financial reports, strategic matters, governance and compliance. Submissions are circulated in advance. Executives are regularly involved in Board discussions and directors have other opportunities, including visits to business operations, for contact with a wider group of employees. Director and Executive education The Group has a formal process to educate new directors about the nature of the business, current issues, the corporate strategy and the expectations of the Group concerning performance of directors. Directors also have the opportunity to visit Group facilities and meet with management to gain a better understanding of business operations. Directors are given access to continuing education opportunities to update and enhance their skills and knowledge. The Group also has a formal process to educate new senior Executives upon taking such positions. The induction program includes reviewing the Group’s structure, strategy, operations, financial position and risk management policies. It also familiarises the individual with the respective rights, duties, responsibilities and roles of the individual and the Board. 34 23 24 35 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK CORPORATE GOVERNANCE STATEMENT CORPORATE GOVERNANCE STATEMENT C O R P O R A T E G O V E R N A N C E S T A T E M E N T C O R P O R A T E G O V E R N A N C E S T A T E M E N T Independent professional advice and access to Company information Each director has the right of access to all relevant Company information and to the Company’s Executives and, subject to prior consultation with the Chairperson, may seek independent professional advice from a suitably qualified adviser at the Group’s expense. The director must consult with an advisor suitably qualified in the relevant field, and obtain the Chairperson’s approval of the fee payable for the advice before proceeding with the consultation. A copy of the advice received by the director is made available to all other members of the Board. Composition of the Board During the prior financial year, the Board composition changed to comprise seven Non-Executive directors, one of whom is the Chairperson, and one Executive director. The Company’s Constitution provides that the number of directors shall not be less than three and not more than nine. There is no requirement for any shareholding qualification. The Board considers the mix of skills and the diversity of Board members when assessing the composition of the Board. The Board assesses existing and potential directors’ skills to ensure they have appropriate industry experience in the Group’s operating segments. The Board, through its Remuneration, Nomination and Diversity (RN&D) Committee, is responsible for establishing criteria for Board membership, reviewing Board membership and identifying and nominating directors. Board membership is regularly reviewed to ensure the Board has an appropriate mix of qualifications, skills and experience. Directors appointed by the Board hold office only until the next Annual General Meeting and are then eligible for re-appointment. Directors, (other than the Managing Director) are eligible for re-appointment by shareholders, no later than the third anniversary following their last appointment. Subject to the requirements of the Corporations Act, there is no maximum period of service as a director. The Managing Director may be appointed for any period and on any terms the Directors, through its RN&D Committee, identify as appropriate, although they shall be guided by current market practices and rates. 2. Remuneration, Nomination and Diversity Committee The RN&D Committee is comprised of three Non-Executive Directors, and meets at least twice per year. The function of the RN&D Committee is to assist the Board in formulating policies on and in determining: the remuneration packages of Executive directors, Non-Executive directors and senior Executives; cash bonuses and equity based incentive plans, including appropriate performance hurdles and total payments proposed; the size and composition of the Board; the selection of new directors and senior Executives; the evaluation methods used in determining the performance of directors and senior Executives; and a corporate culture of ethnic, gender, religious and social diversity. The RN&D Committee is chaired by Mr Peter Cook. Attendance at RN&D Committee meetings held during the financial year is disclosed in the Directors’ Meetings section of the Directors Report. 3. Audit, Risk and Compliance Committee The Audit, Risk and Compliance (AR&C) Committee is comprised of four independent non-Executive directors, and meets at least twice per year. Its key roles are to: monitor the integrity of the financial statements of the Group; review significant financial reporting judgements; recommend to the Board the appointment of external auditors and in particular the scope of the audit, level of fees and their independence; and oversee the establishment, implementation and review of the Group’s risk management systems The AR&C Committee was chaired by Mr David Wills for the year ended 30 June 2013. Since balance date, Mr David Wills retired as Director and Chairman of the AR&C Committee, and has been replaced by Mr Nigel Ampherlaw. 4. Risk Management Oversight of the risk management system The AR&C Committee oversees the establishment, implementation and review of the Group’s risk management systems which have been established by management for assessing, monitoring and managing operational, financial reporting and compliance risks. The Chief Executive Officer and the Vice President of Finance have provided assurance, in writing to the Committee and the Board, that the financial reporting risk management and associated compliance and controls have been assessed and found to be operating effectively. The operational and other risk management compliance and controls have also been assessed and found to be operating effectively. Risk profile Management provide a risk profile on a regular basis to the AR&C Committee that outlines the material business risks to the Company. Risk reporting includes the status of risks through integrated risk management programs aimed at ensuring risks are identified, assessed and appropriately managed. The AR&C Committee reports the status of material business risks to the Board on a regular basis. Further details of the Company’s risk management policy and internal compliance and control system are available on the Company’s website. Each business operational unit is responsible and accountable for implementing and managing the standards required by the program. Material business risks for the Company may arise from such matters as actions by competitors, government policy changes, the impact of exchange rate movements on the price of raw materials and sales, difficulties in sourcing raw materials, environment, occupational health and safety, property, financial reporting, and the purchase, development and use of information systems. Risk management and compliance control The Group strives to ensure that its products are of the highest standard. Towards this aim it has undertaken a program to achieve AS/NZS ISO 9002 accreditation for each of its business segments. The Board is responsible for the overall internal control framework, but recognises that no cost-effective internal control system will preclude all errors and irregularities. The Board’s policy on internal control comprises the Company’s internal compliance and control systems, including: Operating unit controls – Operating units confirm compliance with financial controls and procedures including information systems controls detailed in procedures manuals; Functional speciality reporting – Key areas subject to regular reporting to the Board include treasury and derivatives operations, environmental, legal matters; and Investment appraisal – Guidelines for capital expenditure include annual budgets, detailed appraisal and review procedures, levels of authority and due diligence requirements where businesses are being acquired or divested. Comprehensive practices have been established to ensure: capital expenditure and revenue commitments above a certain size obtain prior Board approval; financial exposures are controlled, including the use of derivatives. Further details of the Company’s policies relating to interest rate management, forward exchange rate management and credit risk management are included in note 29 to the financial statements; occupational health and safety standards and management systems are monitored and reviewed to achieve high standards of performance and compliance with regulations; business transactions are properly authorised and executed; the quality and integrity of personnel (see below); and financial reporting accuracy and compliance with the financial reporting regulatory framework (see below). 36 25 26 37 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK CORPORATE GOVERNANCE STATEMENT CORPORATE GOVERNANCE STATEMENT C O R P O R A T E G O V E R N A N C E S T A T E M E N T Quality and integrity of personnel CORPORATE GOVERNANCE STATEMENT 6. Communication with shareholders Written confirmation of compliance with policies in the Ethical Standards Manual is obtained from all operating units. Formal appraisals are conducted at least annually for all employees. Training and development and appropriate remuneration and incentives with regular performance reviews create an environment of cooperation and constructive dialogue with employees and senior management. A formal succession plan is also in place to ensure competent and knowledgeable employees fill senior positions when retirements or resignations occur. The Board encourages participation of shareholders at the Annual General Meeting. In addition, Quickstep proactively provides additional information with its quarterly reports to the ASX and periodically produces Shareholder newsletters to update on the latest developments and results for the Group. Further information can be found on Quickstep Holdings Limited official website www.quickstep.com.au. Financial reporting 7. Diversity The Chief Executive Officer and the Vice President of Finance have provided assurance in writing to the Board that the Company’s financial reports are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board. Monthly actual results are reported against budgets approved by the Directors and revised forecasts for the year are prepared regularly. Appropriate risk management strategies and procedures are developed to mitigate any identified risks to the business. The procedures include identifying the context, registering, analysing, evaluating, treating, monitoring and escalating the identified risks accordingly. Environmental regulation The Group’s activities to date have not been subject to any particular and significant environmental regulation under Laws of either the Commonwealth or a State or Territory. The Company has adopted policies requiring compliance with environmental laws. The Directors are not aware of any material breach of these laws. 5. Ethical standards All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Group. Every employee has a nominated supervisor to whom they may refer any issues arising from their employment supplemented by a Whistleblower policy. Conflict of interest Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. The Board has developed procedures to assist directors to disclose potential conflicts of interest. Where the Board believes that a significant conflict exists for a Director on a Board matter, the Director concerned does not receive the relevant Board papers and is not present at the meeting whilst the item is considered. Details of Director related entity transactions with the Company and the Group are set out in note 32 to the financial statements. Code of conduct An Employee Code of Conduct has been developed and applies to all directors, managers, employees and contractors. The code specifies the standards of behaviour and the following principles embody the Code: To act with integrity and professionalism in the performance of duties and be scrupulous in the proper use of the Group’s information, funds, equipment and facilities; To edify the Company and colleagues when dealing with customers, visitors, suppliers and shareholders; To exercise fairness, equity, proper courtesy, consideration and sensitivity in all dealings in the course of carrying out duties; To avoid real, apparent or perceived conflicts of interest; and To increase shareholder value within an appropriate framework to safeguard the rights and interests of the Company’s shareholders and the financial community. Trading in general company securities by directors and employees A security Trading Policy has been established and is published on the Company web site. It requires that directors, officers and employees who wish to trade in Company securities must have regard to the statutory provisions of the Corporations Act 2001 dealing with insider trading. Furthermore, directors and officers are required to observe Blackout Periods in accordance with ASX rulings and to notify the Chairman prior to undertaking transactions at any other time. The Company has established and disclosed on its website its Diversity Policy. The Board is committed to appointing employees, directors and other officers based on merit, free from positive or negative bias on any ground including ethnicity, gender, religion or social background, recognising the security obligations of Quickstep’s business activities. The Board is still developing comprehensive processes and procedures to support this policy, and measurable objectives to assess its effectiveness. The Board has therefore determined that the most appropriate initial measurable objectives addressing gender diversity will be those that ensure Quickstep implements appropriate workplace policies and practices, including but not limited to the recruitment and retention of employees and Board members. The following table outlines the measureable objectives the Company will initially focus on to achieve gender diversity: Objective Develop and promote a Diversity Policy that promotes a corporate culture of diversity recruitment documents, processes, and Update partners to ensure the Company always appeals to, and targets, a diverse pool of potential employees Update internal policies and procedures to reflect flexible work culture Progress achieved to date Policy developed, displayed on corporate website Performing review of existing recruitment documents and RN&D policies and procedures Performing review of current policies. The Group’s current gender representation at Board, key management and employee level is as follows: Gender representation Female (%) Male (%) Female (%) Male (%) 30 June 2013 30 June 2012 Board representation Key management personnel representation Other employee representation Total Officers and Employees Director Performance Evaluation 0% 11% 17% 14% 100% 89% 83% 86% 0% 13% 20% 16% 100% 87% 80% 84% The performance of the Board and the various committees is formally reviewed annually by the full Board. The performance of each director is continually monitored by the Chairman and the other directors and is reviewed by each director with the Chairman. The performance of the Chairman is reviewed by the other directors and the results discussed with the Chairman by a nominated director. Director’s Disclosure Obligations This policy is included in the Code of Conduct to ensure trading in the Company’s securities is conducted on a fair basis. Quickstep directors are obliged (subject to specific exceptions) to advise the ASX of any information that a reasonable person would expect to have material effect on the price or value of the Company’s issued securities. Independent Professional Advice Individual directors have the right, in connection with their duties and responsibilities as directors, to seek independent professional advice at the Company’s expense. With the exception of expenses for legal advice in relation to a director’s rights and duties, the engagement of outside advisors is subject to prior approval of the Chairman, which will not be unreasonably withheld. ASX Guidelines on Corporate Governance Pursuant to ASX Listing Rule 4.10.3, the directors believe that the Company has followed the best practice recommendations set by the ASX Corporate Governance Council. 38 27 28 39 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME C O N S O L I D AT E D S T AT E M E N T O F P R O F I T O R L O S S A N D O T H E R C O M P R E H E N S I V E I N C O M E F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2013 C O N S O L I D AT E D S T AT E M E N T O F F I N A N C I AL P O S I T I O N A S A T 3 0 J U N E 2 0 1 3 Revenue Cost of sales Gross profit Government grant income Other income Operational expenses Marketing expenses Corporate and administrative expenses Research and development expenses Other expenses Loss from operating activities Financial income Financial expense Net financing income/(cost) Loss before income tax Income tax benefit Loss for the period Other comprehensive loss, net of income tax Items that may be reclassified subsequently to profit or loss: Foreign currency translation difference for foreign operations Effective portion of changes in fair value of cash flow hedges Other comprehensive income for the period, net of income tax Note 2013 $ 2012 $ 5 5 5 6 8 8 2,562,621 503,168 (2,722,373) (1,502,637) (159,752) (999,469) 3,710,624 4,257,448 517,557 393,532 (8,581,401) (7,130,207) (860,211) (1,072,049) (5,748,934) (5,882,128) (3,770,178) (2,968,978) (1,228,556) (261,596) (16,120,851) (13,663,447) 355,157 2,072,655 (1,220,200) (210,809) (865,043) 1,861,846 (16,985,894) (11,801,601) - - (16,985,894) (11,801,601) 162,102 - 162,102 (70,601) 71,065 464 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other financial assets Other current assets Assets held for sale TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Intangible assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Deferred income Loans and borrowings Employee benefits TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Trade and other payables Deferred income Loans and borrowings Employee benefits Note i) ii) 2013 $ 2012 $ 12 13 14 15 16 17 18 19 21 22 23 25 21 22 23 25 1,393,320 4,564,303 1,650,674 390,400 387,430 1,878,000 3,000,672 4,915,978 418,591 690,400 326,301 - 10,264,127 9,351,942 13,799,229 65,422 16,491,346 230,776 13,864,651 16,722,122 24,128,778 26,074,064 2,569,237 2,795,014 1,696,785 261,289 3,352,297 - 10,700 292,961 7,322,325 3,655,958 654,118 6,086,391 9,773,722 26,668 561,365 - 5,241,938 - TOTAL NON-CURRENT LIABILITIES 16,540,899 5,803,303 TOTAL LIABILITIES 23,863,224 9,459,261 Total comprehensive loss for the period (16,823,792) (11,801,137) NET ASSETS 265,554 16,614,803 Loss attributable to: Owners of the Company Total comprehensive loss attributable to: Owners of the Company Earnings per share (16,985,894) (11,801,601) (16,823,792) (11,801,137) Basic loss (cents/share) for Quickstep Holdings Ltd Diluted loss (cents/share) for Quickstep Holdings Ltd 11 11 (5.25) (5.25) (3.96) (3.96) The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the accompanying notes. EQUITY Share capital Reserves Accumulated losses TOTAL EQUITY 26 27 28 74,754,828 2,959,344 (77,448,618) 74,754,828 2,322,699 (60,462,724) 265,554 16,614,803 The consolidated statement of financial position is to be read in conjunction with the accompanying notes. 40 29 30 41 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2013 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2012 i s e t o n g n y n a p m o c c a e h t h t i w n o i t c n u n o c n j i d a e r e b o t s i y t i u q e n i 1 3 s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e h T - 2 0 1 , 2 6 1 - - ) 4 9 8 , 5 8 9 , 6 1 ( ) 4 9 8 , 5 8 9 , 6 1 ( - - - ) 2 9 7 , 3 2 8 , 6 1 ( ) 4 9 8 , 5 8 9 , 6 1 ( - $ $ s e s s o l $ e v r e s e r s t n e m y a p y t i u q e l a t o T d e t a l u m u c c A d e s a b e r a h S 3 0 8 , 4 1 6 , 6 1 ) 4 2 7 , 2 6 4 , 0 6 ( 6 5 9 , 3 1 6 , 2 3 4 5 , 4 7 4 3 4 5 , 4 7 4 4 5 5 , 5 6 2 - - 3 4 5 , 4 7 4 3 4 5 , 4 7 4 ) 8 1 6 , 8 4 4 , 7 7 ( 9 9 4 , 8 8 0 , 3 i g n g d e H e v r e s e R e v r e s e r n o i t a l s n a r T l a t i p a c e r a h S e t o N $ - - - - - - - - - - 2 0 1 , 2 6 1 2 0 1 , 2 6 1 - - - - - - - - $ $ ) 7 5 2 , 1 9 2 ( 8 2 8 , 4 5 7 , 4 7 8 2 7 2 7 2 e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i e v i s n e h e r p m o c r e h t O d o i r e p e h t r o f s s o L d o i r e p f o e u a v l r i a f n i s e g n a h c f o n o i t r o p e v i t c e f f E e c n e r e f f i d n o i t l a s n a r t y c n e r r u c i n g e r o F s e g d e h w o l f h s a c e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T d o i r e p d e d r o c e r , s r e n w o h t i w s n o i t c a s n a r T y t i u q e n i y l t c e r i d o t i s n o i t u b i r t s d d n a y b s n o i t u b i r t n o C s r e n w o l 2 1 0 2 y u J 1 t a s a e c n a a B l 7 2 s t n e m y a p n o i t c a s n a r t d e s a b e r a h S s r e n w o h t i w s n o i t c a s n a r t l a t o T ) 5 5 1 , 9 2 1 ( 8 2 8 , 4 5 7 , 4 7 3 1 0 2 e n u J 0 3 t a e c n a l a B I Y T U Q E N I S E G N A H C F O T N E M E T A T S D E T A D L O S N O C I 3 1 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F 42 $ $ s e s s o l $ e v r e s e r s t n e m y a p y t i u q e l a t o T d e t a l u m u c c A d e s a b e r a h S $ $ $ e v r e s e r i g n g d e H e v r e s e r n o i t a l s n a r T l a t i p a c e r a h S e t o N 8 8 6 , 9 2 9 , 9 1 ) 3 2 1 , 1 6 6 , 8 4 ( 7 3 6 , 7 2 0 , 2 ) 5 6 0 , 1 7 ( ) 6 5 6 , 0 2 2 ( 5 9 8 , 4 5 8 , 6 6 l 1 1 0 2 y u J 1 t a s a e c n a a B l I Y T U Q E N I S E G N A H C F O T N E M E T A T S D E T A D L O S N O C I 2 1 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F ) 1 0 6 , 0 7 ( 5 6 0 , 1 7 - - ) 1 0 6 , 1 0 8 , 1 1 ( ) 1 0 6 , 1 0 8 , 1 1 ( - - - 5 6 0 , 1 7 - - - - ) 1 0 6 , 0 7 ( ) 7 3 1 , 1 0 8 , 1 1 ( ) 1 0 6 , 1 0 8 , 1 1 ( - 5 6 0 , 1 7 ) 1 0 6 , 0 7 ( - - - - - 8 8 4 , 7 3 9 0 0 0 , 0 2 5 , 7 ) 5 5 5 , 7 5 5 ( 9 1 3 , 6 8 5 2 5 2 , 6 8 4 , 8 - - - - - - - - 9 1 3 , 6 8 5 9 1 3 , 6 8 5 3 0 8 , 4 1 6 , 6 1 ) 4 2 7 , 2 6 4 , 0 6 ( 6 5 9 , 3 1 6 , 2 - - - - - - i s e t o n g n y n a p m o c c a e h t h t i w n o i t c n u n o c n j i - - - - - 8 8 4 , 7 3 9 0 0 0 , 0 2 5 , 7 ) 5 5 5 , 7 5 5 ( 3 3 9 , 9 9 8 , 7 8 2 7 2 7 2 6 2 6 2 6 2 7 2 d o i r e p e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i e v i s n e h e r p m o c r e h t O d o i r e p e h t r o f s s o L f o e u a v l r i a f n i s e g n a h c f o n o i t r o p e v i t c e f f E e c n e r e f f i d n o i t l a s n a r t y c n e r r u c i n g e r o F s e g d e h w o l f h s a c d o i r e p e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T d e d r o c e r , s r e n w o h t i w s n o i t c a s n a r T y t i u q e n i y l t c e r i d o t i s n o i t u b i r t s d d n a y b s n o i t u b i r t n o C t s e o n f o i n o s r e v n o c e h t n o s e r a h s f o e u s s I s r e n w o s t n e m y a p n o i t c a s n a r t d e s a b e r a h S s r e n w o h t i w s n o i t c a s n a r t l a t o T s e r a h s i y r a n d r o f o e u s s I s t s o c g n s a r i i e r a h S d a e r e b o t s i y t i u q e n i 2 3 s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e h T ) 7 5 2 , 1 9 2 ( 8 2 8 , 4 5 7 , 4 7 2 1 0 2 e n u J 0 3 t a e c n a l a B 43 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2013 C O N S O L I D AT E D S T AT E M E N T O F C AS H F L O W S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 Note 2013 $ 2012 $ 1. (a) Significant accounting policies Reporting entity Cash flows from operating activities Cash receipts in the course of operations Interest received Interest paid Research and development tax incentive and government grants Cash payments in the course of operations 10,732,977 95,829 (140,868) 489,172 392,192 (211,604) 4,763,093 (18,495,694) 392,778 (16,332,179) Net cash used in operating activities 31 (3,044,663) (15,269,641) Cash flows from investing activities Acquisition of plant and equipment Receipts from (Investment in) term deposit Government grants Net cash used in investing activities Cash flows from financing activities Proceeds from issues of shares Payment of transaction costs Proceeds from convertible loans Repayment of convertible note Proceeds from borrowings Repayment of borrowings Payment of borrowing costs Finance lease payments (4,006,642) 300,000 - (10,180,301) - 3,000,000 (3,706,642) (7,180,301) - - - - 8,353,192 (2,822,835) (340,835) (39,441) 7,520,000 (557,509) 468,456 (604,017) 6,106,048 - (871,400) (17,645) Net cash from financing activities 5,150,081 12,043,933 Net (decrease) / increase in cash and cash equivalents Effects of exchange rate changes on cash held in foreign currencies (1,601,224) (10,406,009) (6,128) 464 Quickstep Holdings Limited (“the Company”) is a company domiciled in Australia. The consolidated financial statements of the Company as at and for the year ended 30 June 2013 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group Entities”). The Group is a for-profit entity and is primarily involved in the manufacture of composite components for the aerospace industry, and continuing research and development in composite manufacturing processes. (b) Basis of preparation Statement of compliance The consolidated financial statements are general purpose financial statements, which have been prepared in accordance with the Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements of the Group comply with the International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB). The consolidated financial statements were authorised for issue by the Board of Directors on 30 September 2013. Basis of measurement The financial statements are prepared on the historical cost basis except for financial liabilities measured at fair value through the profit and loss (refer note 24) and derivative financial instruments measured at fair value. These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency. Use of estimates and judgements The preparation of financial statements in conformity with AASBs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes: Note 1 (d) – Financial position and going concern; Note 17 – Recoverable amount of assets held for sale; Note 18 – Recoverable amount of property, plant and equipment; Note 21 – Royalties payable; and Note 34 – Share-based payments Cash and cash equivalents at 1 July 3,000,672 13,406,217 (c) Significant accounting policies Cash and cash equivalents at 30 June 12 1,393,320 3,000,672 The consolidated statement of cash flows is to be read in conjunction with the accompanying notes. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by all entities in the Group. (d) Going concern The Group has incurred a loss after tax for the year ended 30 June 2013 of $16,985,894 (2012: loss after tax of $11,801,601). The loss reflects a combination of the ongoing commercialisation of the operations of the Group and a number of one off costs associated with the relocation of the business from Western Australia to New South Wales. To fund these activities the Group has fully drawn its existing loan facilities and has received a customer payment of $8,881,405 in advance of manufacture and delivery of product, which has been recognised as deferred income in the statement of financial position. Management and the Directors expect that during the 2014 and 2015 financial years the level of production required to satisfy orders placed for the JSF project and to fulfil advance paid orders under the C-130J contract will increase. As a consequence the level of working capital required will also increase. Subsequent to year end the Group successfully raised $6.1 million (before costs) from the placement of shares to institutional and sophisticated investors, and an additional $7.2 million (before costs) through a share purchase plan offered to eligible investors, raising a total of $12.7 million net of transaction costs. 44 33 34 45 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 The financial report has been prepared on the basis of going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities will occur in the normal course of business. The projected build up of working capital arising from increasing customer orders will require further funding until the Group becomes cash flow positive (which, assuming research and development expenditure remains consistent with current development expenditure, is currently expected to occur during the financial year ending 30 June 2015). Until then, the ability of the Group to continue as a going concern in the ordinary course of business and to achieve its business growth strategies and objectives is dependent upon the ability of the Group to do a sufficient combination of the following things to enable its commitments to be met: raising debt funding; receiving further advance payments from customers reducing cash outflows through cost control measures; and reducing the Group’s expenditure on research and development. The Directors are of the view that reducing expenditure on research and development would not be in the best interests of long term wealth creation for shareholders. Consequently, the Directors would prefer to use a combination of the other measures listed above to manage its working capital requirements if possible, none of which are committed at the date of this report. The Directors consider that there are reasonable grounds to expect that the Group will be able to meet its commitments through the measures listed above, and accordingly have prepared the financial report on a going concern basis in the belief that the Group will realise its assets and settle its liabilities and commitments in the normal course of business. However, should the Group not be successful in the matters discussed above, there is some uncertainty as to whether the Group would be able to continue as a going concern. (e) Basis of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Quickstep Holdings Limited (“Company” or “parent entity”) as at 30 June 2013 and the results of all subsidiaries for the year then ended. Quickstep Holdings Limited and its subsidiaries together are referred to in the financial statements as the consolidated entity or the Group. A subsidiary is any entity controlled by the Company. Control exists where the Company has the power, directly or indirectly, to govern the financial and operating policies of another entity so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control is transferred to the Group, and de- consolidated from the date that control ceases. Intra-group balances, and any recognised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Associates and jointly controlled entities (equity accounted investees) Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Associates and jointly controlled entities are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to zero and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. (f) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Australian dollars at the foreign exchange rate at that date. Foreign exchange differences arising on translation are recognised in profit and loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Australian dollars at exchange rates at the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to Australian dollars at exchange rates at the dates of the transactions.Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve (translation reserve) in equity. When a foreign operation is disposed of, in part or in full, the relevant amount in the FCTR is transferred to the statement of comprehensive income. Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognised directly in equity in the FCTR. (g) (i) Financial instruments Non-derivative financial assets The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset of liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group has the following non-derivative financial assets: held-to-maturity financial assets, and loans and receivables. Held-to-maturity financial assets If the Group has the positive intent and ability to hold debt securities to maturity, then such financial assets are classified as held-to-maturity. Held-to-maturity financial assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition held-to-maturity financial assets are measured at amortised cost using the effective interest method, less any impairment losses. Any sale or reclassification of a more than insignificant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Group from classifying investment securities as held-to-maturity for the current and the following two financial years. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables comprise cash and cash equivalents and trade and other receivables including service concession receivables. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and on hand and short-term deposits with an original maturity of three months or less. For the purposes of the cash flow statement, cash consists of cash and short-term deposits as defined above, net of outstanding bank overdrafts. (ii) Non-derivative financial liabilities All financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. 46 35 36 47 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 The Group has the following non-derivative financial liabilities recorded at amortised cost: Separable embedded derivatives Trade and other payables Royalties payable (refer note 21). Loans and borrowings, including a secured loan facility from the ANZ Bank of $10 million plus capitalised interest of $3.3 million, and secured loan from Macquarie Bank for the R&D factoring facility. (iii) Share Capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. Dividends Dividends are recognised as a liability in the period in which they are declared. (iv) Compound financial instruments The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition. Interest, dividends, losses and gains relating to the financial liability are recognised in profit or loss. Distributions to the equity holders are recognised against equity, net of any tax benefit. (v) Derivative financial instruments, including hedge accounting Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. On initial designation of the derivative as the hedging instrument, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125 percent. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss. Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes therein are accounted for as described below. Cash flow hedges Changes in the fair value of a derivative hedging instrument designated as a cash flow hedge are recognised in other comprehensive income to the extent that the hedge is effective and presented in the hedging reserve in equity. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income and presented in the hedging reserve in equity remains there until the forecast transaction affects profit or loss. When the hedged item is a non-financial asset, the amount recognised in other comprehensive income is transferred to the carrying amount of the asset when the asset is recognised. If the forecast transaction is no longer expected to occur, then the balance in other comprehensive income is recognised immediately in profit or loss. In other cases the amount recognised in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit or loss. Changes in the fair value of separable embedded derivatives are recognised immediately in profit or loss.Other non- trading derivatives When a derivative financial instrument is not held for trading, and is not designated in a qualifying hedge relationship, all changes in its fair value are recognised immediately in profit or loss. (h) Property, plant and equipment Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling the items and restoring the site on which they are located and capitalised borrowing costs. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and is recognised net within other income/other expense in profit or loss. Government grants that compensate the Group for the cost of an asset are recognised as a deduction in arriving at the carrying value of the asset. Depreciation Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of the asset, that component is depreciated separately. Depreciation is recognised in profit and loss on a reducing balance basis over the estimated useful lives of each component of an item of property plant and equipment. The depreciation rates used for each class of depreciable asset for the current and prior years are: Class of depreciable asset Plant and factory equipment Office equipment (i) (i) Intangible assets Research and development Depreciation rate 6.67% to 37.50% 6.67% to 50.00 % Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the statement of comprehensive income as an expense as incurred. Development activities involve a plan or design of new or substantially improved products and processes. Development expenditure is only capitalised if development costs can be measured reliably, the product or process is technically or commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overheads costs that are directly attributable to preparing the asset for its intended use and capitalised borrowing costs. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. (ii) Other Intangible Assets Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses. (iii) Amortisation Amortisation is based on the cost of an asset less its residual value. Amortisation is recognised in profit and loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives in the current and comparative periods are as follows: Licences, patents and rights to technology 10 years Royalty buy-back Capitalised development costs Software 10 years 5 – 10 years 2 ½ years 48 37 38 49 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 (j) Leased assets Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and the leased assets are not recognised on the Group’s statement of financial position. (k) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first in first out principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. (l) (i) Impairment Non-Derivative Financial assets A financial asset not carried at fair value through profit and loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event has a negative effect on the estimated future cash flows of that asset that can be measured reliably. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in profit or loss. (ii) Non-financial assets The carrying amounts of the Group’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives or are not yet available for use, the recoverable amount (the value in use of the asset in the cash generating unit (CGU) to which it relates) is estimated each year at the same time. An impairment loss is recognised if the carrying amount of an asset exceeds its estimated recoverable amount. Impairment losses are recognised in the statement of comprehensive income unless the asset has previously been revalued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through the statement of comprehensive income. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. An impairment write down to goodwill may not be reversed in future years. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (m) Employee entitlements Wages, salaries, annual leave and non-monetary benefits Liabilities for employee benefits for wages, salaries, annual leave and other entitlements represent present obligations resulting from employees’ services provided to reporting date, and are calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at reporting date including related on-costs, such as, workers compensation insurance and payroll tax. Provisions made in respect of other employee entitlements which are not expected to be settled within 12 months (such as long service leave) are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to the reporting date. Share-based payment transactions An expense is recognised for all equity-based remuneration and other transactions, including shares, rights and options issued to employees and directors. The fair value of equity instruments granted is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The amount recognised is adjusted to reflect the actual number of shares and options that vest, except for those that fail to vest due to market conditions not being met. The fair value of equity instruments granted is measured using a generally accepted valuation model, taking into account the terms and conditions upon which the equity instruments were granted. The fair value of shares, options and rights granted is measured based on relevant market prices at the grant date. (n) Revenue Revenue from sale of goods is recognised in the profit and loss when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of consideration is probable, the associated costs and possible return of the goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. Revenue from the rendering of a service is recognised in the income statement in proportion to the stage of completion of the transaction at balance sheet date. The stage of completion is assessed by reference to analysis of work performed. To the extent to which amounts are received in advance of the provision of the related services, the amounts are recorded as unearned income and credited to the statement of comprehensive income as earned. Licence fee revenue is recognised on an accruals basis when the Group has the right to receive payment under the relevant agreement and has performed its obligations. (o) Government grants Government grants that compensate the Group for expenses incurred are recognised initially as deferred income where there is a reasonable assurance that the grant will be received and all grant conditions will be met and are recognised in profit or loss as other income on a systematic basis in the same periods in which the expenses are recognised. Grants that compensate the Group for the cost of an asset are recognised as a deduction in arriving at the carrying value of the asset. (p) Lease payments Payments made under operating leases are recognised in the statement of comprehensive income on a straight- line basis over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. 50 39 40 51 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 Determining whether an arrangement contains a lease At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Group the right to control the use of the underlying asset. (q) Finance income and finance costs Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets and fair value gains on financial assets at fair value through profit and loss. Interest income is recognised as it accrues in profit and loss, using the effective interest method. Finance costs comprise interest expense on borrowings calculated using the effective interest method, dividend income, transaction costs, unwinding discounting of provisions and foreign exchange gains and losses. The interest expense component of finance lease payments is recognised in the profit and loss using the effective interest method. (r) Income tax Income tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in profit and loss except to the extent that it related to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantially enacted at reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also included any tax liability arising from the declaration of dividends. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, nor differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Quickstep Holdings Limited and its subsidiaries have unused tax losses. However, no deferred tax balances have been recognised, as it is considered that asset recognition criteria have not been met at this time. (s) Goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (t) Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options and rights granted and convertible notes and convertible loans on issue. (u) Segment reporting Determination and presentation of operating segments An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are regularly reviewed by the Group’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Company’s headquarters), head office expenses, and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. (v) New standards and interpretations not yet adopted The Group has adopted all new and amended Australian Accounting Standards and Australian Accounting Standards Board (AASB) interpretations that are mandatory for the current reporting period and relevant to the Group. Adoption of these standards and interpretations has not resulted in any material changes to the Group’s financial statements. New accounting standards Several new accounting standards have been published that are not mandatory for this reporting period and have not yet been adopted by the Group. AASB 9 Financial Instruments (2010); AASB10 Consolidated Financial Statements; AASB 11 Joint Arrangements; AASB 12 Disclosure of Interests in Other Entities; AASB 13 Fair Value Measurement; AASB 119 Employee Benefits revised; and AASB 128 Investments in Associates and joint Ventures The impact of these changes are still being fully assessed, however, initial assessments indicate that there will be no significant impact on the Group’s financial statements. 2. Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. (a) Trade and other receivables The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes. (b) Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. In respect of the liability component of convertible notes and loans, the market rate of interest is determined by reference to similar liabilities that do not have a conversion option. For finance leases the market rate of interest is determined by reference to similar lease agreements. 52 41 42 53 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 (c) Share-based payment transactions (c) Liquidity risk The fair value of the Employee Incentive Plan (EIP) is measured using Monte Carlo Simulation. The fair value of the share rights is measured using the Black-Scholes formula. Measurement inputs include share price on measurement date, the exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for expected changes expected due to publicly available information), expected term of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). In the case of the EIP, market performance conditions attaching to the grant are taken into account in the Monte Carlo Simulation in determining fair value. Service and non-market performance conditions attached to the EIP transactions are not taken into account in determining fair value. (d) Derivatives The fair value of forward exchange contracts is based on their quoted market price, if available. If a quoted market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity for the contract using a risk-free interest rate. 3. (a) Financial risk management Overview The Group has exposure to the following risks from their use of financial instruments: credit risk; liquidity risk; and market risk. This note presents information about the Group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout these financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework and is responsible for developing and monitoring risk management policies. Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Group’s Audit, Risk and Compliance Committee oversees how management monitors compliance with the Group’s risk management policies and formally documented procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. (b) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and cash balances and deposits. Trade and other receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers other characteristics including the demographics of the Group’s customer base, the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk. Geographically, other than in Australia for amounts due from the Australian Taxation Office, there is no concentration of credit risk. Goods are generally sold subject to retention of title clauses, so that in the event of non-payment the Group may have a secured claim. The Group does not require collateral in respect of trade and other receivables. Cash balances and deposits The Group limits its exposure to credit risk by only investing in liquid securities and only with counterparties that have a credit rating of at least A+ from Standard & Poor’s. Given these high credit ratings, management has assessed the risk that counterparties fail to meet their obligations as low. As at the reporting date, no financial assets are neither past due or impaired. Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquid assets to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Typically, the Group ensures that it has sufficient cash or funds otherwise reasonably available to it from fundraising activities to meet expected operational expenses, including the servicing of financial obligations; this excludes the potential impact of circumstances that cannot reasonably be predicted. Further details are set out in Note 1(d). (d) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Interest rate risk The Group is exposed to interest rate risk predominantly on cash balances and deposits. Given the relatively short investment horizon for these, management has not found it necessary to establish a policy on managing the exposure of interest rate risk. The Group has entered into a variable rate secured loan agreement for a period of 10 years. The facility includes an allowance to defer interest payments up to $3,333,333 over the first 5 years of the loan and interest will be accrued on deferred amount. Interest is re-set on a monthly basis in accordance with the 30 days bank bill rate. The facility includes an interest rate cap which limits the bank bill rate component of the variable rate to a maximum of 5.03%. This limit will ensure that the interest to be capitalised will not exceed the capitalisation limit. Currency risk The Group is exposed to currency risk on sales, purchases and cash holdings that are denominated in a currency other than the respective functional currencies of Group entities, primarily the Australian dollar (AUD), Euro (EUR) and US Dollar (USD). The currencies in which these transactions primarily are denominated are AUD, EUR and USD. In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances. The Group’s investment in its German and USA subsidiaries are not hedged as the currency positions are considered to be long-term in nature. (e) Capital management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so as to maintain a strong capital base sufficient to maintain future development in accordance with the business strategy. In order to maintain or adjust the capital structure, the Group may return capital to shareholders or issue new shares. The Group’s focus has been to raise sufficient funds through equity and borrowings so as to fund its working capital and commercialisation of technology requirements. There were no changes in the Group’s approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. Fair Value Hierarchy As at the reporting date, all financial instruments held by Quickstep Holdings Limited are considered level 1 in the fair value hierarchy. Quickstep Holdings Limited’s financial instruments are primarily made up of cash and cash equivalents and trade receivables, to which there is active market to ascertain its value. During the year, there have been no transfers from levels in the fair value hierarchy. 54 43 44 55 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 4. Operating Segments Major Customers The Group has two operating segments, Manufacturing and Quickstep Systems. This has changed from the previous year to exclude Research & Development (R&D) as an operating segment. Instead, R&D becomes a support function of the two operating segments. The following summary describes the operations in each of the Group’s reportable segments: Manufacturing - Targeting manufacturing contracts utilising a range of manufacturing solutions including traditional manufacturing technologies such as autoclaves and ‘next generation’ technologies such as the patented “Quickstep Process”. Quickstep Systems - Licensing our “Quickstep Process” technology to Original Equipment Manufacturers (OEM’s) and their suppliers, and providing them with Quickstep machines and support services. The amount earned by the manufacturing segment is attributable to the following customers: Northrop Grumman ISS Int, Inc Lockheed Martin Aeronautics $1,283,665 $ 939,032 Geographical information The Manufacturing and Quickstep Systems segments are managed at Quickstep’s head office in Australia. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. Manufacturing Quickstep Systems Total 2013 2,225,997 1,982,433 2012 130,068 - 2013 336,624 2,245,748 2012 373,100 4,650,980 2013 2,562,621 4,228,181 2012 503,168 4,650,980 2,908,176 2,225,082 372,358 273,980 3,280,534 2,499,062 960,807 184,610 224,948 - 1,185,755 184,610 (7,598,330) (6,451,746) (2,604,877) (1,741,150) (10,203,207) (8,192,896) 17,381,123 17,135,012 5,097,790 5,101,709 22,478,912 22,236,721 20,913,124 7,123,044 1,177,744 1,357,297 20,090,868 8,480,341 3,160,200 9,073,926 321,924 105,285 3,482,124 9,179,211 External revenues Other income Depreciation, amortisation and impairment Interest expense Reportable segment profit/(loss) before income tax Reportable segment assets Reportable segment liabilities Reportable Capital Expenditure Reconciliation of reportable segment loss Total loss for reportable segments Unallocated amount: other corporate expenses Consolidated loss before income tax Reconciliation of reportable segment assets Total assets for reportable segments Unallocated amount: other corporate assets Consolidated total assets Reconciliation of reportable segment liabilities Total liabilities for reportable segments Unallocated amount: other corporate liabilities Consolidated total liabilities Consolidated 2013 $ 2012 $ (10,203,207) (6,782,687) (16,985,894) (8,192,896) (3,608,705) (11,801,601) 22,478,912 1,649,866 24,128,778 22,236,721 3,837,343 26,074,064 22,090,868 1,772,356 23,863,224 8,480,341 978,920 9,459,261 Australia Germany United States of America Total 5. Revenue and Income Sales Total revenue from operating actives Government grant income R & D tax incentive Climate ready grant SADI program grant Other government grant income Total government grant income Other Income Profit on foreign exchange transactions Profit on sale of assets Other income Total other income 2013 $ Revenue 3,300 53,972 2,505,349 Non-current assets 13,233,270 544,855 86,526 2012 $ Revenue - 103,739 399,429 Non-current assets 16,188,012 425,360 108,750 2,562,621 13,864,651 503,168 16,722,122 Consolidated 2013 $ 2012 $ 2,562,621 2,562,621 503,168 503,168 3,310,882 (1,451) 128,695 272,498 3,710,624 3,267,459 670,821 170,413 148,755 4,257,448 - 1,200 516,357 517,557 120,993 30,490 242,049 393,532 56 45 46 57 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 Note Consolidated 2013 $ 2012 $ 6. Other expenses Amortisation of intangibles Loss on disposal of assets Impairment of assets held for sale 7. Personnel expenses Wages and salaries Defined contribution plan expense Other associated personnel expenses Increase/(decrease) in liability for annual leave Expense of share based payments 8. Finance income and expense Recognised in profit and loss Interest income Change in fair value of derivatives at fair value through profit or loss Change in fair value of deferred income through profit or loss Realised foreign currency gains Finance income Finance lease interest paid Convertible loan costs Borrowing cost Other Interest expense on liabilities measured at amortised cost Finance expense 19 17 34 24 209,060 11,785 1,007,711 1,228,556 6,949,944 599,779 987,249 107,029 474,543 9,118,544 83,445 - 201,460 70,252 355,157 (3,003) - (3,227) (28,215) (1,185,755) (1,220,200) 261,596 - - 261,596 6,013,199 470,899 812,032 (23,618) 490,321 7,762,833 325,675 1,746,980 - - 2,072,655 (4,450) (15,436) (10,312) (3,748) (176,863) (210,809) Net finance income/ (expense) (865,043) 1,861,846 Recognised in other comprehensive income Foreign currency translation differences for foreign operations Effective portion of changes in fair value of cash flow hedges Finance income recognised in other comprehensive income, net of tax Attributable to: Owner of the Company Finance income recognised in other comprehensive income, net of tax 9. (a) Income tax Income tax benefit The major components of income tax benefit are: Current income tax benefit Adjustments in respect of current income tax of previous years Income statement tax benefit reported the consolidated in income 162,102 - 162,102 162,102 162,102 (70,601) 71,065 464 464 464 - - - - - - N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 (b) Numerical reconciliation between tax benefit and pre-tax net loss A reconciliation between tax benefit and the product of accounting loss before income tax multiplied by the Group’s applicable income tax rate is as follows: Loss before tax from continuing operations At the statutory income tax rate of 30% Expenditure not allowable for income tax purposes Effect of different tax rate for overseas subsidiaries Income not assessable Deferred tax asset not brought to account Income tax benefit (c) Tax losses not brought to account Consolidated 2013 $ 2012 $ (16,985,894) (11,801,601) (5,095,768) 2,719,443 28,981 (1,060,499) 3,407,843 - (3,540,480) 1,916,529 11,650 1,612,301 - The tax effect of unused tax losses for which no deferred tax asset has been recognised. 54,997,902 39,046,886 (d) Temporary differences not brought to account Deferred tax assets/(liabilities): Prepayments Other provisions Borrowing costs Deductible capital raising costs and black hole expenditure Property, plant and equipment Intangibles Deferred tax assets relating to temporary differences not recognised (3,213) 964,532 43,535 221,000 927,123 207,754 - 1,134,346 45,600 163,962 558,314 443,386 (2,360,731) (2,345,608) - - The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable at this time that future taxable profit will be available against which the Group can utilise such benefits. (e) Tax consolidation legislation Quickstep Holdings Limited and its 100% owned Australian resident subsidiaries have formed a tax consolidated group effective from 1 July 2010. (f) R&D tax offset incentive An R&D tax offset incentive of $3,310,882 (2012: $3,267,459) has been recorded as a receivable as at 30 June 2013 based on eligible expenditure incurred during the year of tax. This amount has been recorded as a government grant (refer Note 5). 10. Auditor’s remuneration Amounts received or due and receivable by the auditor for: Audit services KPMG – current year KPMG – under/(over) accrual from prior year 171,100 100,667 271,767 128,000 70,000 198,000 58 47 48 59 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 14. Inventories Raw materials and consumables Work in progress Consolidated 2013 $ 2012 $ 1,404,184 246,490 1,650,674 347,427 71,164 418,591 Inventories of $1,557,009 have been pledged as collateral against a secured bank loan (refer to Note 23). 15. Other financial assets Held-to-maturity investments 390,400 690,400 Held-to-maturity investments comprises of an interest bearing deposit which matures in May 2014. 16. Other current assets Prepayments Other 17. Assets held for sale Consolidated 2013 $ 2012 $ 359,425 28,005 387,430 302,959 23,342 326,301 During the de-commissioning of the North Coogee, WA site, it was determined that a number of high value items of capital equipment had become surplus to the needs of the Company. As a consequence, management have committed to selling the surplus assets and they are presented as assets held for sale. The fair value less costs to sell of these assets at 30 June 2013 is $1,878,000, after recognition of a $1,007,711 impairment. N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 11. Loss per share The calculation of basic loss per share at 30 June 2013 was based on the loss attributable to ordinary shareholders of $16,985,894 (2012:$11,801,601) and a weighted average number (W.A.N.) of ordinary shares outstanding during the financial year ended 30 June 2013 of 323,412,485 (2012:297,979,266) calculated as follows: Issued ordinary shares 1 July Effect of shares issued Effect of conversion of notes Effect of shares issued on exercise of rights and to Executives as remuneration Effect of share options exercised Issued ordinary shares at 30 June 2013 2012 Note 26 Actual No. W.A.N. Actual No. W.A.N. 322,748,630 - - 322,748,630 - - 270,038,762 47,000,000 4,689,810 270,038,762 23,693,151 3,623,998 1,096,415 663,855 1,020,058 623,355 26 323,845,045 323,412,485 322,748,630 297,979,266 Potential ordinary shares on issue are not considered to be dilutive and therefore the diluted loss per share equals the basic loss per share. Weighted average number of ordinary shares (basic) Basic loss cents per share 12. Cash and cash equivalents Cash at bank and on hand Short-term bank deposits 2013 $ 323,412,485 2012 $ 297,979,266 (5.25) (3.96) Consolidated 2013 $ 2012 $ 1,393,320 - 1,393,320 1,000,672 2,000,000 3,000,672 Cash and cash equivalents of $309,633 have been pledged as collateral against a secured bank loan (refer to Note 23). 13. Trade and other receivables Current Trade receivables Other receivables: R&D tax incentive and government grants receivable (i) GST and VAT receivable Accrued interest Other 1,087,096 497,800 3,395,130 38,521 2,237 41,319 4,564,303 3,906,594 401,265 14,717 95,602 4,915,978 (i) The R&D Tax Incentive Receivable of $3,310,882 have been pledged as security against a short term facility agreement (refer to Note 23). 60 49 50 61 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013 18. Property, plant & equipment 19. Intangible assets Consolidated Plant & Equipment Assets Under Construction $ $ Office Furniture & Equipment $ Total $ Costs Balance at 1 July 2011 11,198,333 5,345,851 667,571 17,211,755 Additions Disposals Transfers Government Grant deducted in arriving at the carrying value of assets (3,000,000) Effect of movements in exchange rates (33,443) - - 5,278,477 3,719,356 181,378 9,179,211 (1,658,564) - (137,595) (1,796,159) 7,403,900 (7,403,900) - - - (3,000,000) (24,318) (57,761) Balance at 30 June 2012 19,188,703 1,661,307 687,036 21,537,046 Balance at 1 July 2012 19,188,703 1,661,307 687,036 21,537,046 Additions Disposals Transfers 870,742 2,376,201 235,181 3,482,124 (257,896) - (215,823) (473,719) 2,132,319 (2,587,199) 454,880 - Assets Held For Sale (4,687,840) - - (4,687,840) Effect of movements in exchange rates 186,398 1,960 148,721 337,079 Balance at 30 June 2013 (i) 17,432,426 1,452,269 1,309,995 20,194,690 Accumulated depreciation and impairment losses Balance at 1 July 2011 Depreciation for the year Disposals Transfers Effect of movements in exchange rates Balance at 30 June 2012 Balance at 1 July 2012 Depreciation for the year Disposals Transfers Assets Held For Sale Effect of movements in exchange rates Balance at 30 June 2013 Carrying Amounts At 1 July 2011 At 30 June 2012 At 1 July 2012 3,869,474 2,220,967 (1,623,408) 235,802 (8,664) 4,694,171 4,694,171 2,874,587 (225,255) - (1,802,129) 133,018 5,674,392 235,802 337,032 4,442,308 - - 156,270 2,377,237 (132,482) (1,755,890) (235,802) - - - - - - - - - - - (9,291) (17,955) 351,529 5,045,700 351,529 5,045,700 351,440 3,226,027 (93,843) (319,098) - - - (1,802,129) 111,943 244,961 721,069 6,395,461 7,328,859 5,110,049 330,539 12,769,447 14,494,532 1,661,307 335,507 16,491,346 14,494,532 1,661,307 335,507 16,491,346 At 30 June 2013 1,452,269 (i) Refer to Note 23 for details of fixed and floating charges over certain of the above assets 11,758,034 588,926 13,799,229 Patents & Rights $ Royalty Buy-Back $ Computer Software Total $ Costs Balance at 1 July 2011 649,027 94,419 739,398 1,482,844 Additions Disposals 5,307 (7,426) - - - - 5,307 (7,426) Balance at 30 June 2012 646,908 94,419 739,398 1,480,725 Costs Balance at 1 July 2012 646,908 94,419 739,398 1,480,725 Additions Disposals Effect of movement in exchange rates - - - - - - 44,730 44,730 (101,573) (101,573) 6,448 6,448 Balance at 30 June 2013 646,908 94,419 689,003 1,430,330 Accumulated amortisation and impairment losses Balance at 1 July 2011 Amortisation for the year Disposals Effect of movement in exchange rates 603,884 75,539 307,195 986,618 30,607 8,655 222,334 261,596 - - - - - - 1,735 1,735 Balance at 30 June 2012 634,491 84,194 531,264 1,249,949 Balance at 1 July 2012 Amortisation for the year Disposals Effect of movement in exchange rates 634,491 84,194 531,264 1,249,949 12,417 10,225 186,418 209,060 - - - - (98,974) (98,974) 4,873 4,873 Balance at 30 June 2013 646,908 94,419 623,581 1,364,908 Carrying amounts At 1 July 2011 At 30 June 2012 At 1 July 2012 At 30 June 2013 45,143 18,880 432,203 496,226 12,417 10,225 208,134 230,776 12,417 10,225 208,134 230,776 - - 65,422 65,422 62 51 52 63 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 20. Group entities Country of incorporation Entity interest 2013 Entity interest 2012 Parent entity Quickstep Holdings Limited Controlled entities Quickstep Technologies Pty Ltd Quickstep Operations Pty Ltd Quickstep GmbH Quickstep Composites LLC Quickstep Australia Pty Ltd Commercial Aerospace Composites Pty Ltd Australia Australia Australia Germany USA Australia Australia 21. Trade and other payables Current Unsecured trade payables Sundry payables and accrued expenses Royalties payable (i) Non-current Royalties payable (i) 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Consolidated 2013 $ 2012 $ 738,837 1,460,178 370,222 2,569,237 1,387,109 1,482,637 482,551 3,352,297 654,118 654,118 561,365 561,365 (i) On 21 July 2005, a Heads of Agreement was executed between Quickstep Holdings Limited (QHL), Quickstep Technologies Pty Ltd (QTPL) and VCAMM Limited which agreed the value of services provided by VCAMM to the Group during the period 1 July 2003 to 30 June 2005 and which formalised arrangements that existed before 30 June 2005 between the parties. The agreed consideration for services provided was $1,790,000, which was satisfied by the grant of 2,160,000 ordinary fully paid shares in QHL (issued at $0.25 per share), with the balance of $1,250,000 to be paid to VCAMM on a quarterly basis from total cash revenues received by QTPL on a percentage basis (varying from 4% to 7% of QTPL’s cash revenues for the period), subject to a maximum annual repayment of $650,000. The discount rate that has been used to calculate the royalties payable is 3.31%. 22. Deferred income Current Deferred Income Non-current Deferred Income 2,795,014 2,795,014 6,086,391 6,086,391 - - - - The amounts reported as deferred income refer to amounts received as a 77.10% prepayment of the first 24 ship sets of C-130J wing flaps to be sold to Lockheed Martin in 2014. 23. Loans and borrowings Current Finance lease liability Short term facility agreement Prepaid borrowing cost Non-current Secured bank loan Capitalised interest Prepaid borrowing cost Finance lease liability Consolidated 2013 $ 2012 $ 6,821 1,750,405 (60,441) 1,696,785 10,000,000 600,156 (842,540) 16,106 9,773,722 10,700 - - 10,700 6,106,048 131,825 (997,857) 1,922 5,241,938 Term and debt repayment schedule Terms and conditions of outstanding loans were as follows: 2013 2012 Effective interest rate % Year of maturity Maximum Facility Value Carrying amount Maximum Facility Value Carrying amount bank 9.286 2021 10,000,000 10,000,000 10,000,000 6,106,048 9.286 2021 3,333,333 600,156 3,333,333 131,825 Secured loan Capitalised Interest Short term facility agreement 19.897 2013 2,400,000 1,750,405 - - Finance liabilities lease 12.990 2014 n/a 22,927 n/a 12,622 Secured Bank Loan On 1 November 2011 Quickstep Technologies Pty Ltd, a subsidiary Company of the Group, executed an Export Finance Facility Agreement with Australian and New Zealand Banking Group Limited (ANZ) (Financier) and Export Finance and Insurance Corporation (EFIC)(Guarantor) to fund certain capital expenditure. The Agreement provides for a loan facility of up to $10,000,000 plus capitalised interest of up to $3,333,333. At 30 June 2013 the facility had been fully drawn to $10,000,000 together with capitalised interest of $600,156. Interest is to be capitalised for the first five years of the facility after which it is payable half yearly in arrears. Loan repayments commence in the fifth year of the facility, with the final repayment due in year 10. The interest rate on the facility comprises a variable base rate, a fixed margin payable to the Financier and a fixed guarantee fee payable to the Guarantor. Unused limit fees are payable to both the Financier and the Guarantor on the undrawn principle balance. The facility includes an interest rate cap which limits the maximum rate applicable to the base rate for the duration of the capitalisation period to 5.03%. This cap ensures that the interest accruing on the facility remains within the capitalised interest limit. The cost of the cap ($680,400) has been recorded as prepaid borrowing cost and is recognised in the profit and loss through the effective interest rate method. EFIC has agreed to guarantee certain of the subsidiary’s obligations under the facility. The subsidiary has provided EFIC with a fixed and floating charge over its assets and undertakings. The carrying value of total assets pledged as collateral at 30 June 2013 is $17,649,676 which represents the cash and cash equivalents, plant and equipment, inventory and other assets owned by Quickstep Technologies Pty Ltd. 64 53 54 65 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 24. Financial liabilities at fair value through profit and loss On 24 April 2011 the Group executed a Funding Agreement subject to conditions precedent with La Jolla Cove Investors Inc (La Jolla); a US private equity firm, for the issue of US$15,000,000 of convertible notes. The Agreement included an initial issue of a convertible note for US$ 7,500,000 (initial note) with an option at the Group’s discretion, to subsequently issue another convertible note of US$7,500,000 (Subsequent Note). On 12 May 2011 the conditions precedent were satisfied and the Group issued the initial Note with the issue price of US$7,500,000 to La Jolla. The Group elected to account for these instruments at fair value through the profit and loss. In December 2011 the Group executed a termination agreement, under which the balance of the convertible notes at 20 December 2011, of $604,016 was repaid. There were no termination costs. On termination, the resulting net decrease in fair value of the financial instrument, $1,746,980, was recognised through the profit and loss as finance income. Valuation The fair value of the convertible notes has been determined using a Monte Carlo simulation. Reconciliation of Fair Value Measurement Balance 1 July Convertible note drawdown’s Convertible notes repaid Conversion to Equity Gain / Loss recognised through Profit and Loss Balance 30 June Consolidated 2013 $ 2012 $ - - - - - - 2,820,000 468,456 (603,988) (937,488) (1,746,980) - Under this agreement, Quickstep Technologies Pty Ltd (Chargor) has agreed to the following restrictions on title on any of the assets under which EFIC (Chargee) has a fixed charge over. Without the consent of the Chargee, the Chargor may not: dispose of the Secured Property; or lease or license the Secured Property or any interest in it, or deal with any existing lease or licence; or part with possession of the Secured Property; or waive any of the Chargor’s rights or release any person from its obligations in connection with the Secured Property; or deal in any other way with the Secured Property or any interest in it, or allow any interest in it to arise or be varied. Quickstep Holdings Limited has entered into a subordination agreement which subordinates certain intercompany debts due to it from Quickstep Technologies Pty Ltd to the amounts due under the Export Finance Facility. The face value of this subordinated intercompany debt at 30 June 2013 is $72,737,544 and its carrying value net of impairment is $33,357,874. Short Term Facility Agreement On 29 October 2012 Quickstep Holdings Ltd executed a Facility Agreement which provides for a loan facility of up to $2,400,000 and is secured against the Australian Taxation Office R&D Tax Offset receivable (note 13). The Interest Rate of the facility comprises of a rate being equal to the greater of: The aggregate of: o o BBR on the first day of the Interest Period; and 9% per annum; or 12.50% per annum A commitment fee is also payable on the undrawn balance of the facility at a flat rate of 5% per annum. As at 30 June 2013 the undrawn facility balance is $649,595. Both the Interest and Commitment fees are payable monthly in arrears. As at 30 June 2013 the face value of the Facility was $1,750,405. Finance lease liabilities Future minimum lease payments $ 2013 8,426 17,555 25,981 Interest $ 2013 1,605 1,449 3,054 Present value of minimum lease payments $ 2013 6,821 16,106 22,927 Future minimum lease payments $ 2012 11,717 1,953 Interest $ 2012 1,017 31 Present value of minimum lease payments $ 2012 10,700 1922 13,670 1,048 12,622 Less than one year Between one and five years 66 55 56 67 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 Key term/Note component/Clause Description Number of notes 2 Face value of each US$7,500,000 Coupon / Interest Rate Fixed rate of 3.00% p.a. payable monthly in arrears, calculated on the unconverted principal amount. Initial Note The initial payment of US$400,000 for Note 1 Interest is payable in Ordinary shares at Quickstep’s election The remaining US$7,100,000 of Note 1 is to be received in monthly payments: of not less than US$500,000; and not more than US$1,000,000 (or such higher amount as Quickstep agrees in writing). Subsequent Note – Note 2) The form of and terms of the Subsequent Note, the purchase of the Subsequent Note, and the payment of the US$7,500,000 for the Subsequent Note, are subject to the same terms and conditions of this Agreement applicable to the Initial Note Term / Maturity Date Each note has a term of 4 years from the date of initial drawdown Conversion Option At the investors option, a note may be converted into ordinary shares at the Conversion Price, either in whole or in part,, Conversion Option Quickstep has the option to force conversion of the outstanding principal amount into ordinary shares. This election can be made in the six months prior to maturity of the note Conversion price The number of shares to be issued on conversion is calculated as: US$ face value x exchange rate / Conversion Price The Conversion Price is the lesser of: AU$0.90 (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalisations or the like); or 80% of the average VWAP1 of Quickstep’s shares during the 10 days prior to conversion Cash settlement option If the investor elects to convert the notes, when the VWAP is below AU$0.28 then Quickstep has the right to prepay that portion of the note If Quickstep makes the election to prepay the cash amount, then the investor has the right to withdraw the conversion notice. There are certain circumstances in which Quickstep may be required to settle / redeem the notes for cash. Contingent Settlement Provisions / Cash Settlement 25. Employee benefits Current Liability for annual leave Other employee benefits Non-current Liability for long service leave 26. Share capital Issued capital (i) 323,845,045 (2012: 322,748,630) fully paid ordinary shares The following movements in issued capital occurred during the year: Consolidated 2013 $ 2012 $ 261,289 - 261,289 26,668 26,668 154,259 138,702 292,961 - - 74,754,828 74,754,828 Note 2013 No. of shares $ 2012 No. of shares $ Balance at the beginning of the year 322,748,630 74,754,828 270,038,762 66,854,895 Shares issued for cash (a) Shares issued on exercise of options (ii) Shares issued on conversion of notes Shares issued on exercise of rights (b) Shares issued to Executives as remuneration (b) Shares issued under share purchase plan Share issue and capital raising costs 24 - - - 769,130 327,285 - - - - - - - - - 47,000,000 - 4,689,810 680,235 339,823 7,520,000 - 937,488 - - - - - (557,555) Balance at the end of the year 323,845,045 74,754,828 322,748,630 74,754,828 (a) (b) Last financial year the Company issued 47,000,000 shares at an issue price of 16 cents to raise $7,520,000. During the year, the Company issued 1,096,415 (2012: 1,020,058) shares pursuant to share-based payment arrangements with certain key management personnel. The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets. 68 57 58 69 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 (ii) Options Options granted during the year During the financial year, the Company granted options as follows. Expiry Date Exercise Price Number of Options 22 November 2019 23 November 2018 $0.00 $0.00 2013 987,739 - 2012 - 706,373 Unissued shares under option At 30 June 2013, unissued ordinary shares of the Company under option are: Expiry Date Exercise Price Number of Options 30 March 2017 26 November 2017 23 November 2018 22 November 2019 $0.00 $0.00 $0.00 $0.00 2013 1,397,624 471,337 706,373 987,739 2012 1,397,624 471,337 706,373 - These options do not entitle the holders to participate in any share issue of the Company or any other body corporate. Exercise of options No options were exercised during this or last financial year. Lapse of options During the current and prior financial years, no options lapsed. (iii) Rights At 30 June 2013, unissued ordinary shares of the Company under rights totalled 2,425,310 (2012: 3,373,924). The rights are issued pursuant to: Executive services agreements which vest at various times in the future according to years of service completed; and an Executive performance and retention bonus scheme which vest on 31 December 2013 upon performance of criteria related to the Company’s relocation objectives and are conditional upon continued employment The exercise price of the rights is nil and the rights are forfeited if employment is terminated prior to the vesting date (Refer to Note 34). During the year, 769,130 shares (2012: 680,235 shares) were issued as a result of the exercise of rights. A total of 434,847 rights (2012: nil) were forfeited in the current year on the termination of employment of employees. N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 27. Reserves Share based payments reserve Balance at the beginning of the year Grant of rights to shares to key management personnel Grant of options to key management personnel Issue of shares to key management personnel Balance at the end of the year Consolidated 2013 $ 2012 $ 2,613,956 278,219 141,340 54,984 3,088,499 2,027,637 379,958 139,110 67,251 2,613,956 This reserve is used to record the fair value of options over ordinary shares and rights to ordinary shares granted as consideration for services provided. Foreign currency translation reserve Balance at the beginning of the year Foreign currency translation differences Balance at the end of the year (291,257) 162,102 (129,155) (220,656) (70,601) (291,257) The foreign currency translation reserve comprises foreign currency differences arising from the translation of the financial statements of foreign operations. Hedging reserve Balance at the beginning of the year Effective portion of changes in fair value of cash flow hedges Balance at the end of the year - - - (71,065) 71,065 - The hedging reserve comprises difference arising from the translation of foreign currency hedges, being the variation between the original hedge exchange rate and the revaluation rate on balance date. Total reserves 28. Accumulated losses Accumulated losses at the beginning of the year Loss for the year Accumulated losses at the end of the year 2,959,344 2,322,699 (60,462,724) (16,985,894) (77,448,618) (48,661,123) (11,801,601) (60,462,724) 70 59 60 71 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 29. Financial instruments Credit risk Exposure to credit risk The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum exposure to credit risk at the reporting date was: Cash and cash equivalents Held-to-maturity financial assets Trade and other receivables Consolidated 2013 $ 1,393,320 390,400 4,564,303 2012 $ 3,000,672 690,400 4,915,978 6,348,023 8,607,050 As at 30 June 2013, no financial asset was considered past due (2012: nil). As at 30 June 2013, no financial asset was considered impaired (2012: nil). The Group’s maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was: Australia Germany USA Liquidity risk 2013 $ 3,441,686 38,686 1,083,931 4,564,303 2012 $ 4,468,799 225,708 221,471 4,915,978 The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: 30 June 2013 Carrying amount Contractual Cash Flows 6 months or less 6-12 months 1-2 years 2-5 years 5 years+ VCAMM royalties payable Trade and other payables Finance lease liabilities 1,024,340 (1,043,749) (183,989) (183,989) (675,771) 2,199,015 (2,199,015) (2,199,015) - - - - 22,927 (25,982) (4,213) (4,213) (8,427) (9,129) - - - Secured Bank Loan 9,757,616 (15,978,577) (150,000) (150,000) (300,000) (6,177,885) (9,200,693) Short Term Facility Agreement 30 June 2012 VCAMM royalties payable Trade and other payables Finance lease liabilities 1,689,964 (1,878,455) (1,878,455) - - - - 14,693,862 (21,125,778) (4,415,672) (338,202) (984,198) (6,187,014) (9,200,693) 1,043,916 (1,065,629) (239,692) (239,692) (586,245) 2,869,746 (2,869,746) (2,869,746) - - 12,622 (12,622) (5,177) (5,523) (1,922) - - - - - - Secured Bank Loan 5,240,016 (10,687,961) (97,526) (100,770) (211,744) (1,739,939) (8,537,982) 9,166,300 (14,635,958) (3,212,141) (345,985) (799,911) (1,739,939) (8,537,982) N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 Currency risk Exposure to currency risk The Group’s exposure to foreign currency risk at balance date was as follows, based on notional amounts: 2013 Cash Trade payables Receivables 2012 Cash Trade payables Receivables USD 186,904 (80,538) 20,531 126,897 USD 54,590 (55,961) 125,822 124,451 EUR 621,601 (24,249) 54,462 651,814 EUR 25,203 (152,516) 225,708 98,395 The following significant exchange rates applied during the year: Average Rate 2013 1.0270 0.7936 2012 1.0314 0.7705 Reporting Date Spot Rate 2013 2012 0.9275 0.7095 1.0191 0.8092 AUD v USD AUD v EUR Sensitivity analysis A 10 percent movement of the Australian dollar against the following currencies at 30 June would have increased (decreased) profit or loss and equity on balances denominated in foreign currencies by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2012. 2013 2012 (Increase)/decrease consolidated loss (Increase)/decrease consolidated loss +10% $ (38,146) (32,042) (70,188) -10% $ 46,623 39,162 85,785 2013 (Increase)/decrease consolidated Equity +10% $ -10% $ (118,127) (235,335) 144,378 287,632 (353,462) 432,010 +10% $ (12,445) (9,839) (22,284) -10% $ 12,445 9,839 22,284 2012 (Increase)/decrease consolidated Equity +10% $ -10% $ - - - - - - USD EUR USD EUR 72 61 62 73 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 Interest rate risk Profile At the reporting date the interest rate profile of the Group’s interest-bearing financial assets/(liabilities) was: Fair values The carrying amounts of financial assets and liabilities approximate fair value. Fixed rate instruments Held-to-maturity term deposits Finance lease liabilities Variable rate instruments Cash and cash equivalents Secured bank loan Short term facility agreement Consolidated 2013 $ 390,400 (22,927) 367,473 2012 $ 690,400 (12,622) 677,778 1,393,320 3,000,672 (10,600,156) (6,237,873) (1,750,405) 10,957,241 - (3,237,201) Cash includes funds held in short term deposits during the year, which earned a weighted average interest rate of 3.19% (2012: 5.33%). The interest rates applicable to the Group’s finance leases are 12.99% (2012: 12.99%). Financial assets held-to-maturity includes a security deposit for $390,400 with an interest rate of 4.1%, which matures on 10 November 2013. (i) (ii) The secured loan balance (inclusive of capitalised interest) incurs a variable rate of interest, inclusive of a base rate plus margin. The Group has purchased an interest rate cap which limits the base rate for the first five years of the loan to 5.03%. The base rate plus margin of this facility was 4.43% at 30 June 2013. The secured loan balance (inclusive of capitalised interest) incurs a rate of interest of the higher of 12.5% or the aggregate of the BBR on the first day of the interest period and 9% per annum. The base rate plus margin of this facility was 12.5% at 30 June 2013. All other material financial assets and liabilities are non-interest bearing. Fair value sensitivity analysis for fixed rate instruments The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect profit or loss. Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased (decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2012. Effect in AUD 30 June 2013 Variable rate instruments Cash flow sensitivity (net) 30 June 2012 Variable rate instruments Cash flow sensitivity (net) (Increase)/decrease Consolidated loss 100 bp increase 100 bp decrease (13,933) (13,933) (32,372) (32,372) 13,933 13,933 32,372 32,372 30. Capital and other commitments Operating lease commitments Non-cancellable operating lease contracted for but not capitalised in the financial statements Payable - - - less than 1 year between 1 and 5 years more than 5 years Consolidated 2013 $ 2012 $ 998,662 7,685,481 8,852,388 17,536,531 759,895 3,024,358 2,269,206 6,053,459 The Company's operating lease commitments comprise of three property leases. The first lease relates to premises at North Coogee, WA. It is a non-cancellable lease with a five year term with provision for rent reviews on an annual basis. Subsequent to reporting date, this lease was re-assigned to an unrelated third party. The second lease relates to premises at Bankstown, NSW. It is a non-cancellable lease with a ten year term with two options to renew for five years each. This lease contains provision for rent reviews on an annual basis. The third lease relates to premises at Bankstown, NSW. It was entered into subsequent to reporting date, and is non-cancellable with a ten year term with two options to renew for five years each. It contains provision for rent reviews on an annual basis. Capital commitments The Group’s commitments in respect of plant and equipment contracted for but not provided for are set out below: Payable - less than 1 year 31. Cash flow information Reconciliation of cash flows from operating activities to loss after income tax: Loss for the year Adjustments for: - - - - - - - - Amortisation of intangibles Depreciation Share based payment expense Forex revaluation reserve Finance costs Impairment Present value on deferred income Change in fair value of derivatives at fair value through profit and loss Operating loss before changes in working capital (Increase)/decrease in trade & other receivables (Increase)/decrease in inventories (Increase)/decrease in other current assets Increase/(decrease) in trade and other payables Increase/(decrease) in employee benefits Increase/(decrease) in deferred income Increase in prepaid interest Net cash used in operating activities 19 18 27 27 8 17 8 24 588,401 588,401 799,935 799,935 (16,985,894) (11,801,601) 209,060 3,226,027 474,543 162,102 1,185,755 1,007,711 201,460 261,596 2,377,238 586,319 - 176,863 - - - (1,746,980) (10,519,236) 351,675 (1,232,083) (61,129) (228,101) (5,004) 8,881,405 (232,190) (10,146,565) (4,119,265) (219,535) (192,517) (461,198) 40,887 - (171,448) (3,044,663) (15,269,641) 74 63 64 75 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 Note Consolidated 2013 $ 2012 $ Equity holdings Options and rights over shares 32. Related parties Key management personnel compensation The key management personnel compensation included in “personnel expenses” in note 7 is as follows: Short-term employee benefits Post-employment benefits Share based payments Termination Benefit 2,387,006 145,265 435,873 81,120 3,040,264 2,427,150 139,871 368,420 - 2,935,441 Individual Directors and Executives compensation (key management personnel remuneration) disclosures Information regarding individual Directors’ and Executives’ compensation and some equity instruments disclosures as required by Corporations Regulations 2M.3.03 is provided in the Remuneration Report section of the Directors’ Report. Apart from the details disclosed in the Remuneration Report and below, no Director has entered into a material contract with the Company or the Group since the end of the previous financial year. Key management personnel transactions Mr D Graham, a previous key management person of the Group, held positions in other entities that resulted in him having control or significant influence over the financial or operating policies of those entities. During the comparative financial year, the entities transacted with the Company or its subsidiaries. The terms and conditions of those transactions were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to unrelated entities on an arm’s length basis. The aggregate amounts recognised during the year relating to key management personnel and their related parties were as follows: Director Mr D Graham Note (i) (ii) Transaction value 2013 $ - - 2012 $ 24,000 50,000 (i) A company associated with Mr Graham, Offshore Marine Pty Ltd, provided prototype design services, patent portfolio management and development program coordination. (ii) A company associated with Mr Graham, Quickboat Holdings Pty Ltd, purchased 100% of the share capital of QuickBoats Pty Ltd on 5 April 2012 for a consideration of $50,000 paid in full at that time. At the time of the sale, QuickBoats Pty Ltd had net assets of $24,942. Associated with the sale, the Group has entered into an agreement to supply technical services to Quickboat Holdings Pty Ltd in return for ongoing fees amounting to $100 per unit up to $500,000 and then $50 per unit for a further $1,000,000 capped at $1.5 million and subject to the intellectual property remaining in good stead. No services were provided during the period. (i) Rights 2013 Directors Mr P M Odouard Executives Mr S Godbille Mr J Johnson Mr A Vihersaari Ms M Withers The movements during the year in the number of options and rights over ordinary shares in Quickstep Holdings Limited held directly, indirectly or beneficially by each key management persons, including their personally-related entities, are as follows: Held at 1 July Granted as Compensation Exercised Other changes Held at 30 June Vested during the year Vested and exercisable at 30 June - - - - - - 1,032,423 1,160,035 250,000 618,847 3,061,305 - - - 255,363 255,363 (89,202) (1) (157,233) (1) (83,333) (1) (439,363) (1) (769,131) - - - (434,847) (2) (434,847) 943,221 1,002,802 166,667 - 2,112,690 89,202 157,233 83,333 439,363 769,131 (1) Share price at date of exercise $0.168 (2) Shares were forfeited due to cessation of employment 2012 Directors Mr P M Odouard 588,235 - (588,235) (3) Executives Mr S Godbille Mr J Johnson Mr A Vihersaari Ms M Withers 267,605 471,698 250,000 276,000 1,853,538 (3) Share price at date of exercise $0.185 764,818 688,337 - 434,847 1,888,002 - - - (92,000) (3) (680,235) - - - - - - - 588,235 1,032,423 1,160,035 250,000 618,847 3,061,305 - - - 92,000 680,235 - - - - - - - - - - - - (ii) Options 2013 Directors Mr P M Odouard 2012 Directors Mr P M Odouard Held at 1 July Granted as compen- sation 2,575,334 987,739 1,868,961 706,373 Exercised Other changes Held at 30 June Vested during the year Vested and exercisable at 30 June - - - - 3,563,073 2,575,334 - - - - 76 65 66 77 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 Shares The movements during the year in the number of ordinary shares held, directly, indirectly or beneficially by each key management person, including their personally-related entities, are as follows: Held at 1 July Purchases Disposals Received on exercise or options / rights Issued as compensation Held at 30 June 2013 Directors Mr T Quick (c) Mr P M Odouard Mr N Ampherlaw (a) Mr P C Cook Mr D F G Graham (e) Mr B Griffiths (c) Mr M Jenkins Mr E J McCormack Mr D Wills (b) Executives Mr D E Brosius Mr S Godbille Mr J F Johnson Mr J Schlimbach Mr M Schramko Mr A Vihersaari Ms M Withers (d) 2012 Directors Mr P M Odouard Mr D E Brosius Mr P C Cook Mr D F G Graham(e) Mr E J McCormack Mr D Wills(b) Executives Mr S Godbille Mr J F Johnson Mr J Schlimbach Ms M Withers(d) Mr A Vihersaari - 2,134,205 - 145,758 26,039,341 - - 294,315 460,107 600,000 67,992 252,943 36,342 - 35,203 158,773 1,545,970 600,000 145,758 26,039,341 50,250 210,106 - 71,250 - - - - - - - - - - - - - - - - - - - - - - - 244,065 250,001 - 48,180 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 89,202 157,233 - - 83,333 439,363 588,235 - - - - - - - - 92,000 - - - - - - - - - - - 83,745 - 50,724 73,728 - 68,133 - - - - - - 67,992 133,513 36,342 66,773 35,203 - 2,134,205 - 145,758 26,039,341 - - 294,315 460,107 600,000 240,939 410,176 87,066 73,728 118,536 666,269 2,134,205 600,000 145,758 26,039,341 294,315 460,107 67,992 252,943 36,342 158,773 35,203 a b c d e Commenced as a Director 8 July 2013, after year end. Shareholding at 30 June 2013 excluded. Ceased being a Director 5 July 2013, after year end. Relevant interest noted is interest as at date of retirement. Commenced as a Director 14 February 2013, and has held nil relevant interest in QHL shares during the term of his appointment to date. Ceased being an Executive on 21 December 2012. Relevant interest noted is interest as at date employment ceased. Ceased being a Director 14 February 2013. Relevant interest noted is interest as at date of retirement. 33. Equity accounted investments On 1 May 2008 the Group acquired a 20 percent investment in QuickPipes Pty Ltd for the amount of $2. This investee was established as an incorporated joint venture in conjunction with Vortex Pipes Ltd to research and develop a composite pipe for industrial applications. At reporting date, Quickstep has no financial obligations or liabilities under the joint venture agreement. N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 34. Share based payments Options Quickstep Employee Incentive Plan The Company has established the Quickstep Employee Incentive Plan (EIP). Under the EIP, the Board may grant options to selected Quickstep employees on such terms as it determines appropriate. Participation in the EIP is open to all employees of the Group, with the Board determining those employees eligible to participate in each grant under the EIP. Each option is a conditional right to one Quickstep ordinary share, subject to the satisfaction of the applicable performance conditions and payment of the exercise price (if any). The EIP provides sufficient flexibility for the Board to grant short-term or long-term incentives to eligible employees. That is, the performance conditions set by the Board may apply over the period of time the Board determines appropriate in the circumstances. It is currently intended that the “short-term” grants under the EIP will be in the form of an equity retention incentive, with the applicable performance condition based on the key performance indicators set under the Company’s short term incentive program, and that the “long term” grants will be subject to performance criteria based on achieving total shareholder return targets over a three year period. In general, the options will not vest until the performance criteria specified by the Board at the time of the If the performance grant have been achieved and provided the participant remains a Group employee. criteria are not satisfied at the end of the applicable performance period the options will lapse. The options may lapse in other circumstances provided for in the EIP rules, including forfeiture where the employee engages in dishonest or fraudulent conduct, where there is a change in control and where the employee ceases employment. Subject to the rules and the terms of grant, options will lapse on the seventh anniversary of their grant date. At 30 June 2013, the Group’s CEO is the only employee to be granted options pursuant to the EIP. The number and weighted average exercise prices (WAEP) of options issued under the EIP are as follows: Employee Incentive Plan Outstanding at 1 July Granted during the period Outstanding at the end of the year Exercisable at the end of the year 2013 Number 2,575,334 987,739 3,563,073 - 2013 WAEP $0.00 $0.00 $0.00 $0.00 2012 Number 1,868,961 706,373 2,575,334 - 2012 WAEP $0.00 $0.00 $0.00 $0.00 The options granted from the EIP are subject to performance conditions based on achieving pre-set In accumulated absolute Total Shareholder Return (TSR) targets over the applicable performance period. summary, TSR combines share price appreciation over a period and dividends paid during that period to show the total return to shareholders over that period. For the purposes of the performance conditions attached to the options, TSR will be calculated as the 45 day volume weighted average price (VWAP) of Quickstep shares as at a test date (30 June or 31 August). The options vest on the day after the test date. This calculation has been adopted bearing in mind Quickstep’s market capitalisation and to ensure the performance hurdle and testing process remain appropriate in all the circumstances. All options are subject to a three year performance condition from their grant date. The specific TSR targets for each Tranche are set out below. If the Threshold hurdle of TSR is achieved at a test date, 25% of the Options in the tranche will vest. Target hurdle of TSR is achieved at a test date in any given year, 50% of Options in the tranche will vest. the Stretch hurdle of TSR is achieved at a test date in any given year 100% of Options in the tranche will vest. After the initial vesting period, re-testing of the performance conditions occurs annually. Re-testing will occur over the longer performance period and against the higher TSR hurdle. If the If 78 67 68 79 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 Grant Earliest vesting date TSR Hurdle VWAP as at Tranche 3 01/07/11 30 June 2011 Tranche 4 01/07/12 30 June 2012 2010 Year 1/7/2013 30 June 2013 2011 Year 1/9/2014 31 Aug 2014 2012 Year 31/08/15 31 Aug 2015 % Annual Growth (TP) % Vesting Initial value Threshold Target Stretch 5 8 12 25 50 100 $0.165 $0.188 $0.204 $0.227 $0.250 $0.290 $0.315 $0.352 $0.326 $0.378 $0.410 $0.458 $0.228 $0.264 $0.287 $0.320 $0.169 $0.196 $0.214 $0.239 If the employee ceases employment with the Group due to death, disability, bona fide redundancy or any other reason which may meet with the approval of the Board, the Board may determine that any unvested options he holds will vest as at his date of cessation, having regard to such factors as the Board considers relevant, including pro rata performance against the performance condition over the period from the grant date to the date of cessation. If they cease employment in these circumstances and hold vested options they may exercise those options within the 12 month period following his date of cessation (or, the remaining period until the expiry of the options, if less than 12 months). If they cease employment for any other reason any unvested options they hold will lapse on the date of cessation unless the Board determines otherwise, and any vested options must be exercised within three months. Details of the fair value of unvested options granted are set out below Grant Tranche 3 Tranche 4 2010 Year 2011 Year 2012 Year Total No. of options 925,926 471,698 471,337 706,373 987,739 3,563,073 Fair value per option at the grant date $ 0.3150 0.2700 0.3620 0.1730 0.1250 Total fair value $ 291,667 127,358 170,624 122,203 123,467 835,319 During 2013, an expense of $141,340 (2012:$139,100) has been included in the financial statements as the portion of the attributable to the current financial year as required by accounting standards. A Monte-Carlo simulation has been used to value Tranche 3 and 4 and the 2010 year, 2011 year and 2012 year grants that had a future vesting condition at the grant date of the options. Assumptions used in the valuation of the options in Tranche 3, 4 and 2010 year, 2011 year and 2012 year at grant date included: Tranche Grant date First testing date Expiry date Share price at grant date Exercise price Expected life (years) Volatility Risk free interest rate Dividend yield 3 4 2010 Year 2011 Year 2012 Year 30/03/2010 30/06/2011 30/03/2017 30/03/2010 30/06/2012 30/03/2017 26/11/2010 30/06/2013 26/11/2017 23/11/2011 31/8/2014 23/11/2018 22/11/2012 31/8/2015 23/11/2019 $0.41 Nil 2.9 75% 5.07 0% $0.21 Nil 3.1 75% 3.08% 0% $0.17 Nil 3.0 55% 2.68% 0% $0.35 Nil 1.3 80% 4.66% 0% $0.35 Nil 2.3 80% 5.01% 0% 69 80 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 Rights Executive Performance and Retention Bonus During the previous year the Company has granted rights over 2,200,621 shares with a fair value of $547,840 through an Executive performance and retention bonus scheme. The rights vest on 31 December 2013 upon performance of criteria related to the Company’s relocation objectives and are conditional upon continued employment. In the event that the share price of the Company at the exercise date is below $0.18, the number of shares to be issued will be increased by the percentage variation of the share price from $0.18. The rights have been valued at fair value based on a Monte Carlo simulation at the issue date. An expense of $210,413 (2012:$111,950) has been included in the financial statements as the portion of the current offer attributable to the current financial year as required by accounting standards. A Monte-Carlo model was utilised to value the rights per dollar issued. The key assumptions utilised were as follows: Input / assumption Valuation/Grant Date Maturity Date Share price at grant date Volatility Risk free rate Dividend yield Trigger price Issue price Loyalty Bonus Value 10 February 2012 31 December 2013 $0.17 70% 3.55% Nil $0.18 $0.2092 Rights have been issued to a number of key management personnel in prior years as long term retention incentives. The rights vest in two tranches provided the employee remains employed with the Group. 1/3 vest 2 years from the date granted, 2/3 vest 3 years from the date granted The rights are valued at the market value of the Group’s share on the date of issue of the rights. An expense of $104,509 (2012: $135,502) has been included in the financial statements as the portion of the offer, attributable to the current financial year as required by accounting standards. 769,131 rights vested (2012: 680,253 rights vested) during the period. Performance rights issued were as follows: 2013 Number 2012 Number Vesting conditions Loyalty bonus Performance rights on issue July 1 1,173,303 1,853,538 Performance rights terminated - - Performance rights exercised (769,131) (680,235) Performance rights granted Performance rights on issue 30 June 255,363 659,535 - 1,173,303 Vest in two tranches provided the employee remains with the Group. 1/3 vest 2 years from the date granted, 2/3 vest 3 years from the date granted Executive performance and retention bonus Vest on 31/12/2013 provided the employee remains with the Group and achieves defined performance objectives. Performance rights on issue July 1 2,200,621 - Performance rights granted - 2,200,621 Performance rights forfeited Performance rights on issue 30 June (434,847) 1,765,774 - 2,200,621 70 81 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 Shares The Company issued 327,285 shares as long term incentives accrued for in the prior year (refer Note 32). The fair value of shares granted is determined as the quoted price on the ASX of the shares of the Company on the day of the grant. Incentives accrued for in the current year of $101,307 are expected to be settled through share based payments during the next financial year. Employee Expenses The expense recorded in the financial report for the portion attributable to the current financial year as required by accounting standards is: N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T AT E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 36. Subsequent events Since the end of the financial year the Group: Raised $6.1 million through the placement of fully paid ordinary shares to institutional and sophisticated investors; and Raised $7.2 million through a share purchase plan with all eligible investors. Combined equity raising net of costs since balance date totalled $12.7 million. Other than the matters referred to above, there have been no events subsequent to balance date which would have a material effect on the Group’s financial statements as at 30 June 2013. Employee expenses Shares Share rights granted Options 35. Parent entity Consolidated 2013 $ 2012 $ 101,307 231,896 141,340 474,543 103,759 247,452 139,110 490,321 Company 2013 $ 2012 $ As at, and throughout, the financial year ending 30 June 2013 the parent company of the Group was Quickstep Holdings Limited. Results of the parent entity Profit/(Loss) for the period Other comprehensive income Financial position of the parent entity at year end Current assets Total assets Current liabilities Total liabilities Total equity of the parent entity comprising of: Share capital Share based payments reserve Accumulated losses Total equity (16,985,894) 162,102 (16,823,792) (11,801,601) 464 (11,801,137) 3,869,695 35,541,672 6,703,537 20,192,457 2,358,178 2,358,178 3,577,654 3,577,654 74,754,828 2,959,344 (77,448,618) 265,554 74,754,828 2,613,956 (60,753,981) 16,614,803 82 71 72 83 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013 DIRECTOR’S DECLARATION AUDITOR’S INDEPENDENCE DECLARATION D I R E C T O R S ’ D E C L A R A T I O N F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 3 In the opinion of the directors of Quickstep Holdings Limited: 1. (a) the consolidated financial statements and notes and Remuneration Report in the Directors’ Report, set out on pages 29 to 72 and pages 5 to 23 respectively, are in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Group’s financial position as at 30 June 2013 and their performance, for the financial year ended on that date; and complying with Australian Accounting Standards Interpretations) and the Corporations Regulations 2001; (including the Australian Accounting (b) the financial statements comply with International Financial Reporting Standards as described in Note 1 (b). 2. During 2014 and 2015 financial years the level of production required to satisfy orders placed for the JSF project and to fulfil advance paid orders under the C-130J contract is expected to increase. As a consequence the level of working capital required will also increase. The projected build-up of working capital arising from increasing customer orders will require further funding through debt raisings or advanced payments from customers. As these facilities have not been finalised at the date of this report, there is some uncertainty as to whether the Group will be able to arrange these working capital facilities and pay debts as and when they become due and payable. Further information can be found in Note 1(d) of the Financial Statements. 3. The directors have been given the declarations required by s.295A of the Corporations Act 2001 for the financial year ended 30 June 2013 Dated at Sydney, New South Wales this 30 day of September 2013. Signed in accordance with a resolution of the Directors: P M Odouard Managing Director 84 73 85 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT 86 87 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK SHAREHOLDER INFORMATION SHAREHOLDER INFORMATION S H A R E H O L D E R I N F O R M AT I O N S H A R E H O L D E R I N F O R M AT I O N DETAILS OF SHARES AND OPTIONS AS AT 24 SEPTEMBER 2013 DETAILS OF SHARES AND OPTIONS AS AT 24 SEPTEMBER 2013 Voting rights The voting rights attaching to ordinary shares are: On a show of hands every member present in person or by proxy shall have one vote and upon a poll each share shall have one vote. Options do not carry any voting rights. Substantial shareholders The names of substantial shareholders in the Company and the number of shares to which each substantial shareholder and their associates have a relevant interest are set out below: Substantial Shareholder No. of Shares % Washington H Soul Pattinson and Company Limited Decta Holdings Pty Ltd 68,172,570 26,039,341 17.71% 6.76% On-Market buy back There is no current on-market buy back. Distribution schedules Distribution of each class of security as at 24 September 2013: Ordinary fully paid shares 1 1,001 5,001 10,001 100,000 Range - - - - - Total 1,000 5,000 10,000 100,000 Over Holders 401 902 764 2,488 526 5,081 Options exerciseable at $0.00 on or before 31 August 2015 (unlisted) 1 1,001 5,001 10,001 100,000 Range - - - - - Total 1,000 5,000 10,000 100,000 Over Holders - - - - 1 1 Options exerciseable at $0.00 on or before 30 March 2017 (unlisted) 1 1,001 5,001 10,001 100,000 Range - - - - - Total 1,000 5,000 10,000 100,000 Over Holders - - - - 1 1 77 88 Units 141,676 2,862,353 6,438,136 95,242,746 280,300,134 384,985,045 Units - - - - 987,739 987,739 Units - - - - 1,397,624 1,397,624 % 0.04 0.74 1.67 24.74 72.81 100.00 % - - - - 100.00 100.00 % - - - - 100.00 100.00 Options exerciseable at $0.00 on or before 25 November 2017 (unlisted) 1 1,001 5,001 10,001 100,000 Range - - - - - Total 1,000 5,000 10,000 100,000 Over Holders - - - - 1 1 Options exerciseable at $0.00 on or before 25 November 2018 (unlisted) 1 1,001 5,001 10,001 100,000 Range - - - - - Total 1,000 5,000 10,000 100,000 Over Unmarketable parcels Holders - - - - 1 1 Units - - - - 471,337 471,337 Units - - - - 706,373 706,373 % - - - - 100.00 100.00 % - - - - 100.00 100.00 Holdings less than a marketable parcel of ordinary shares (being 2,326 shares at $0.215 per share): Holders 693 Top Holders Units 646,976 The 20 largest registered holders of each class of quoted security as at 24 September 2013 were: Name Washington H Soul Pattinson and Company Limited Decta Holdings Pty Ltd WSF Pty LtdRomadak Pty Ltd State One Holdings Pty Ltd National Nom Ltd HSBC Custody Nominees (Australia) Limited State One Stockbroking Pty Ltd Best Holdings Pty Ltd Yarraandoo Pty Ltd Philippe Odouard Sols Super Pty Ltd 15. 16. 17. 18. 19. 20. Code Nominees Pty Ltd Equilibrium Pensions Limited Citicorp Nominees Pty Ltd Graham Brown Pty Ltd Patel Pradip Farjoy Pty Ltd No. Of Shares % 68,172,570 17.71% 26,039,341 11,151,021 8,454,130 4,870,977 4,750,000 3,163,476 3,090,641 2,728,846 2,271,576 2,134,205 2,109,567 2,077,692 2,000,000 1,890,000 1,836,000 1,681,203 1,590,000 1,520,000 1,500,000 6.76% 2.90% 2.20% 1.27% 1.23% 0.82% 0.80% 0.71% 0.59% 0.55% 0.55% 0.54% 0.52% 0.49% 0.48% 0.44% 0.41% 0.39% 0.39% 153,031,245 39.75% 78 89 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK 90 Disclaimer: Many of the images used throughout this Annual Report are meant as representative examples of the markets being pursued by Quickstep. Unless otherwise indicated, Quickstep has not licensed any technology to the manufacturer of products shown in this Annual Report. tangelocreative/ QSP5023 2013 91 Quickstep Holdings Limited. Annual Report 2013Quickstep Holdings Limited. Annual Report 2013THIS PAGE IS DELIBERATELY BLANK Principal Address Quickstep Holdings Limited 361 Milperra Road Bankstown Airport NSW 2200 Australia T +61 2 9774 0300 F +61 2 9771 0256 Registered Office Quickstep Holdings Limited Level 2, 160 Pitt Street Sydney, NSW 2000 Australia T +61 2 9210 7000 F +61 2 9210 7099 E info@quickstep.com.au www.quickstep.com.au