Quickstep Holdings Limited Annual Report 2018

Plain-text annual report

PROMISSES PROMISES delivered ANNUAL REPORT 2018 CONTENTS QUICKSTEP ANNUAL REPORT 2018 01. Promises to Shareholders 02. Chair’s Report 04. CEO and Managing Director’s Review 08. Review of operations 10. Our People 12. Our Leadership Team 14. Board of Directors 16. Directors report 24. remuneration Report 32. Financial Report 71. Shareholder Information 73. Corporate Directory $59.0m Sales revenue up 13.7% 45% JSF contract revenue up by $0.9m $4.7m EBIT for H2 FY2018 EBITDA improvement 5% GROSS MARGIN PERCENTAGE UP in H2 v’s H1 5 yr contract extension C-130J Approved supplier status with Boeing and Airbus $3.5m New OneQuickstep annual cost savings business with Boeing and Chemring 1st industrial use of Qure with Micro-X LEAN programs having an impact single R&D CENTRE OF EXCELLENCE Collaborations with General Atomics and Triumph Group Successful front fender demonstration project Sales and Manufacturing Agreement with The ATR Group QUICKSTEP.COM.AU PROMISES TO SHAREHOLDERS 01 our Promises to Shareholders – delivered. Simplify management and Board structure Realign R&D and reduced costs in FY2018 Close Germany/Consolidate at Geelong Cease non-core programs Cost savings of $3.5m versus FY2017 Improve Gross Margin Increased investment in business development Lean programs at Bankstown and Geelong Further develop Qure and QPS solutions Grow sales by >10% in FY2018 Secure new customers and contracts Establish partnership opportunities Positive in H2 FY2018 02 QUICKSTEP ANNUAL REPORT 2018 CHAIR’S REPORT chair’s report FY2018 was a signiﬁ cant year for Quickstep with the achievement of net proﬁ t in the second half of the year for the ﬁ rst time in the history of the company and the securing of additional future work to drive continued revenue growth. In FY2018, we have delivered as we promised at last year’s Annual General Meeting, on the following: 14% increase in annual sales revenue EBIT Positive EBIT for the second half of FY18 COSTS Cost savings and efficiency improvements Securing new business for the future QUICKSTEP.COM.AU 03 Profitability and Growth – As Promised. FINANCIAL PERFORMANCE Our financial results for FY2018 reflect the success of the OneQuickstep change program, combined with JSF program volume growth, which has resulted in sales revenue increasing 14% from $51.9 million in FY2017 to $59.0 million in FY2018. OneQuickstep continues to realign our company for growth and profitability, evidenced through $0.9 million EBIT and positive net profit after tax in the second half of FY2018. Costs were reduced by $3.5 million in FY2018 through initiatives including closure of our German operations, consolidation of our R&D operations at Geelong and ceasing non-core programs. Lean enterprise programs have commenced at both our Bankstown and Geelong sites, increasing eff iciency and productivity, and our second half gross margin was 5% higher than the first half. Earnings before interest, tax and research and development costs (EBIT before R&D) were $2.4 million for FY2018, compared to an operating loss before R&D of $0.2 million in FY2017. Our operating cash flow for the second half was $3.6 million, compared to a cash outflow of $4.3 million in the first half, reflecting the $3.2 million improvement in EBITDA in the second half compared to the first half and our improved working capital management. Our full year net loss improved to a loss of $2.9 million for FY2018, from a net loss of $6.7 million in FY2017, despite a non-cash $0.5 million decrease in gains from the revaluation of share options included in net finance costs. We expect that these improvements in EBIT and cashflow will continue in FY2019 and beyond. BUSINESS IMPROVEMENT AND GROWTH FY2018 saw a substantial change in the senior management team at Quickstep, under the leadership of Mark Burgess, our CEO and Managing Director. Mark has implemented a much leaner, but highly capable and focused leadership team, with extensive aerospace, defence and broader manufacturing and automotive experience. This team has the skills, experience and capabilities to further accelerate our growth and profitability in an eff ective and sustainable manner. In FY2018, Quickstep secured two new export programs with Boeing Defense, became an approved supplier for Boeing opening opportunities across the Boeing Company, and for Airbus Australia Pacific. We are also a member of the General Atomics-led Team Reaper Australia partnership which is tendering for Australian Remotely Piloted Aircraft systems business. In July 2018 we announced that we had secured a new project to produce carbon fibre composite housings for an F-35 counter- measure flare for Chemring Australia, further expanding our advanced manufacturing capability. We also announced we have signed a letter of intent to work jointly on future projects with Triumph Aerospace Structures, a major Tier One aerostructures supplier in the US market. We have also recently signed a Memorandum of Understanding (MoU) with Lockheed Martin for a Long Term Flexible Contract (LTFC) associated with the ongoing supply of C-130J/LM-100J wing flaps for an additional five-years, covering the period 2020 to 2024. We have an existing contract with Lockheed Martin to provide wing flaps for the C-130J/ 2019, and LM-100J aircraft through to end-2019, and ue our this contract extension will continue our hip with successful supply chain relationship with Lockheed Martin. In FY2018 we also completed a successful manufacturing trial using our patented Qure technology to produce demonstration automotive front fenders for a European luxury car manufacturer and we entered into a sales and manufacturing agreement with The ATR Group, a leading Italian supplier of advanced manufacturing composite components for the aerospace and automotive sectors. CLOSING REMARKS In closing, I would like to recognise the ongoing support of our shareholders, customers and suppliers and my fellow Board members. I would also like to acknowledge the departure of three Directors, Air Marshal Errol McCormack (Ret’d) AO, Peter Cook and Nigel Ampherlaw, in November 2017. I sincerely thank Errol, Peter and Nigel for the support and the hard work they provided during their tenure on the Quickstep Board. Finally, I would also like to thank Mark Burgess, the executive management team and all of our staff at Quickstep, for their hard work and dedication throughout FY2018. We have had an extremely encouraging year in FY2018 and have a positive outlook for the year ahead. Quickstep remains focused on delivering our secured aerospace and defence programs, on target R&D to accelerate growth, and on further improvement and change through our OneQuickstep initiative. Our strong order book, patented technologies and operational competitiveness will provide us with the opportunity to accelerate our international growth and provide all our stakeholders with a long-term sustainable business. TONY QUICK Chair 04 QUICKSTEP ANNUAL REPORT 2018 CEO and MANAGING DIRECTOR’S REPORT I am extremely pleased to deliver this report to you, following my ﬁ rst full year in the role as the CEO and Managing Director of Quickstep. In FY2018 we implemented a range of signiﬁ cant improvement initiatives under the OneQuickstep banner to shift the business towards long-term proﬁ tability and accelerated growth, with the aim of delivering real and sustainable value to all our stakeholders. Initiatives undertaken include: > Focused R&D > Lean Manufacturing > New contracts and customer diversiﬁ cation > Tiered Growth Plan QUICKSTEP.COM.AU 05 CEO & MANAGING DIRECTOR’S REPORT OneQuickstep – Improvement, Growth and Margin Expansion LEAN MANUFACTURING Continually improving our advanced manufacturing capability is a central element of Quickstep’s overall strategy. We have placed ourselves at the forefront of available technology by pursuing and winning highly complex, close-tolerance work and commissioning ‘state-of-the-art’ advanced manufacturing equipment in Bankstown and Geelong. During FY2018 we commenced the implementation of lean manufacturing systems and practices internally at each of our manufacturing facilities and across all business processes and customer programs. We are focusing on production rate improvement, process eff iciency, automation, one piece material flow, continuous improvement and cost competitiveness. We have invested over $35 million since 2012 on installed capital base and we can now undertake a complete range of advanced manufacturing operations internally including: > CNC (Computer numerical control) ply cutting & laser-guided material lay-up > Autoclave and Out-of-Autoclave curing of composites > Range of sophisticated NDT (non- destructive testing) processes > PMM (Precision Milling Machine) cells and robotic trimming > Robotic/Automated drilling and riveting > Complex assembly and painting > Laboratory testing of materials/components We are focused on further enhancing our advanced manufacturing facilities through the adoption of digital manufacturing and Industry 4.0 techniques and practices to deliver a fully integrated and world-class advanced manufacturing capability to our customers. BUSINESS GROWTH During FY2018 we continued to work with existing and new customers on development proposals for new business opportunities, resulting in: BOEING DEFENSE We secured two new contracts from Boeing Defense for F-15 and F-18 components. These contracts add a new tier 1 customer, new aircraft platforms and part families to our customer portfolio. We also achieved Approved Supplier status with Boeing in FY2018, which will open significant future business opportunities across the Boeing Company. GENERAL ATOMICS We are partnering with General Atomics in the ‘Team Reaper’ tender for Remotely Piloted Aircraft (RPA) systems. This partnership is progressing well and may lead to additional project opportunities with General Atomics in the near-term. LOCKHEED MARTIN We recently announced that we have signed a Memorandum of Understanding (MoU) for a Long Term Flexible Contract (LTFC) associated with the ongoing supply of C-130J/LM-100J wing flaps for an additional five-years, covering the period 2020 to 2024. We have an existing contract with Lockheed Martin to provide these wing flaps through to end-2019, and this contract extension will continue this successful supply chain relationship. AIRBUS We secured Approved Supplier status with Airbus Australia Pacific allowing us to formally quote for new business. I am immensely proud of what has been achieved in FY2018 and genuinely excited about the outlook for the business over the next five years. Over the past twelve months we have put in place a number of the key building-blocks that will provide us with the op opportunity to accelerate our global growth an and provide all of our shareholders with lon long-term sustainable returns. ONEQUICKSTEP ONON Th Throughout FY2018 we have progressively introduced and ramped-up the OneQuickstep int pr program, which focuses on having a unified an and progressive culture across the entire Quickstep business. OneQuickstep is our Qu va value system and it drives our business cu culture through: > > Aligned Company Strategy > > Shared Vision and Mission > > High Performance Culture > > Operational Excellence > > Standardised Systems/Processes > > Leadership and Teamwork FY FY2018 has seen substantial changes to the business through our OneQuickstep th ini initiatives and we have made significant im improvements and gains. We achieved cost sa savings of $3.5 million in FY2018, with our gr gross margin improving by five percentage po points in the second half compared to the first ha half. We achieved positive EBIT in the second ha half, as we promised. FO FOCUSED R&D We closed our German operations in FY2017 We an and have relocated all of our R&D and pr process development activities into our Ge Geelong operation at Deakin University’s Wa Waurn Ponds campus. This global centre of ex excellence in Geelong also supports a range of of activities for our Bankstown facility. We fu further commercialised the Qure process and its its capability has been increased to higher sp specifications (equivalent to Autoclave for aeaeaeaeaeaeaeaeaeeaa aerospace applications). We now have an up upgraded Qure cell that is fully operational at ou our Geelong site. We did all of this by being foc focused, while reducing our R&D spend ye year-on-year by $1.8 million. 06 QUICKSTEP ANNUAL REPORT 2018 has achieved a cost saving of OneQuickstep $3.5m Over the next three years we expect to benefit from increasing JSF production and higher margins. Our enhanced business development activities and healthy project pipeline have us well positioned for future profitable growth. Throughout FY2019, Quickstep will continue to be focused on high value, expanding global markets while strengthening our position as Australia’s leading independent carbon fibre composites manufacturer. CLOSING REMARKS In closing, I would like to sincerely thank all of our shareholders, customers and partners for their ongoing support and confidence in Quickstep. We have a great company, with a unique value proposition, and this is now being seen and recognised by all our stakeholders and potential customers. I would like to take this opportunity to welcome Alan Tilley, our new Chief Financial Off icer (CFO) to the Quickstep leadership team and thank our outgoing CFO, Andrew Crane, for his eff ort and support over his two and a half years with us. I would also like to welcome Gary Robinson as our Executive General Manager, Operations. Gary is a qualified aeronautical engineer with extensive operations experience to the leadership team. Gary joined us on a permanent basis in September 2018. Finally, I would like to acknowledge the support and dedication of our Board of Directors, our leadership team and, in particular, all our dedicated employees – without you we would not be the great company we are today, your eff orts are greatly appreciated. MARK BURGESS CEO and Managing Director CEO and Managing Director U.S. MARKET We appointed a senior Business Development leader in FY2018, based in Texas. This will allow for more regular and deeper engagement with existing and potential new U.S. customers. CHEMRING We have secured U.S. and Australian government funding to produce composite housings for an F-35 Lightning II countermeasure flare for a new customer, Chemring Australia. We will be commissioning an advanced new manufacturing cell at Bankstown during FY2019, extending our capability to support the F-35 Program and other defence and aerospace projects. TRIUMPH We signed a Letter of Intent for future collaboration with Triumph Group (US), a global leader in manufacturing and overhauling aerospace structures, systems, and components. Quickstep and Triumph have already identified future collaboration opportunities in Australia and the U.S. ATR GROUP We signed a Manufacturing Partnership Agreement with ATR Group, a leading Italian company that designs, prototypes and manufactures structural parts and components in advanced composite materials for the automotive and aerospace sectors. FRONT FENDER PROJECT We completed a successful manufacturing trial using our patented Qure technology to produce advanced prototype automotive front fenders for a European luxury car manufacturer. This activity will be progressed further in FY2019. GROWING CORE BUSINESS Our strong delivery and quality performance in FY2018 to Lockheed Martin, Northrop Grumman and BAE Systems/Marand, has also resulted in discussions and current proposals on a number of new supply opportunities with these customers. OUTLOOK FOR FY2019 FY2019 will be another significant year for Quickstep: a year of continued volume expansion, product development and the further acceleration of our growth plans. We will be targeting our research and development (R&D) expenditure in FY2019 on commercialisation of our patented Qure process and exploitation of the Quickstep Production System (QPS) in the aerospace, defence and other advanced manufacturing sectors, such as automotive and medical devices. We anticipate that the business will continue to improve in FY2019 as our JSF deliveries ramp up towards peak production volumes. We expect that our revenue will grow by more than 20% in FY2019 and our gross margins will continue to improve as we benefit from economies of scale and increasing eff iciencies from our lean manufacturing activities. We therefore expect to deliver positive EBIT and positive operating cash flow for FY2019. Quickstep has significant growth potential through securing composite manufacturing contracts, primarily in the aerospace sector, using our advanced manufacturing technologies to provide customers with product and process solutions. We will continue to focus on winning new customers and contracts in FY2019, and supporting growth through partnerships to build scale. We plan to further accelerate our business development activities in FY2019 to win additional business, through our tiered growth strategy: > Core Defence Aerospace: Increasing revenue and diversifying our customer base within the Defence/Aerospace sector utilising our existing Bankstown facilities, while expanding our core capabilities > Aerospace Qure/Advanced Manufacturing Deployment: Strategic growth within the Aerospace and other sectors, using our Qure process and innovative technology solutions to attract new business opportunities > Step-change Growth: Step change to Commercial Aerospace supply. Securing of large global programs and/ or inorganic growth across the wider defence, commercial aerospace and automotive industries QUICKSTEP.COM.AU 07 CEO & MANAGING DIRECTOR’S REPORT $35m Invested on installed capital base since 2012 08 QUICKSTEP ANNUAL REPORT 2018 REVIEW OF OPERATIONS review of operations Aerospace Production Ramps Up and Will Continue to Grow Quickstep currently has two advanced manufacturing facilities in Australia: Bankstown, NSW: Hosts our corporate headquarters and a 16,000 sqm state of the art aerospace composite manufacturing plant at Bankstown Airport in south-west Sydney. This advanced manufacturing facility positions Quickstep as Australia’s largest independent advanced composite manufacturer, capable of almost all facets of aerospace and defence composite manufacturing contract work. Geelong, Victoria: In Geelong we have a dedicated R&D team and fully-equipped low volume production facilities, located at Deakin University’s Waurn Ponds campus, focused on developing and delivering composite manufacturing solutions. R&D capabilities on site include: Design Engineering, Materials Development and Testing; Process Engineering and Automation; Tooling Design and; Program Management and implementation. Deakin University and the Carbon Cluster both provide enviable depth to a broad R&D capability. TEXAS, USA: In FY2018, Quickstep established a representative ofﬁ ce in Texas, in the USA, to support future growth in the North American market. This will allow more regular and deeper engagement with existing and potential USA customers and, progressively, enable the localisation of supply chain and quality management, as well as potential manufacturing partnerships. EUROPE: During FY2018 we also established a European Sales and Manufacturing Agreement with The ATR Group in Italy. The collaboration will focus on developing sales and parts manufacturing opportunities with customers in both the automotive and aerospace sectors, aligned with Quickstep’s growth strategy. Emphasis will be on the commercialisation of our out-of-autoclave process technology Qure and QPS for the manufacturing of advanced composite components and assemblies in the European market. QUICKSTEP.COM.AU 09 Geelong Operations Bankstown Operations The Geelong facility underwent a number of significant changes in FY2018, as a result of focusing our overall R&D spend, ceasing some non-core activities that no longer fit our long-term growth plans and centralising all of our R&D and technology development activities for the Quickstep group at the Geelong site. A lean enterprise program was also commenced at the Geelong site in FY2018. A number of advanced manufacturing projects were undertaken in FY2018 at our Geelong facility, involving the application of our advanced composites solutions and the industrialisation of our patented ‘Qure’ process technology. These advanced manufacturing projects included: > Micro-X: Production is continuing for the manufacturing of a carbon fibre chassis for a portable x-ray device. This program uses the Qure process and the device is being sold in export markets. Volumes at present are low, but are anticipated to increase in the future > Front Fender: Development and demonstration of an advanced production solution, using Qure, for a complex engineered part for a European luxury vehicle manufacturer. This process will improve production rates and has multi-segment applicability. It is anticipated that further work will occur on this project in FY2019 > QPS: Further development of the Quickstep Production so System (QPS), a complete material-to-finished part solution adva vanced comp s for the manufacturing of advanced composite parts > Chemring: Development of an advanced manufacturing facturin ment of an advan evelo uce carbon fibre u S, to produ housing cell, using QPS, to produce carbon fibre composite housings asure flare for Chem asure flare for Ch m mring Australia. m 35 counter-mea for an F-35 counter-measure flare for Chemring Australia. be industrialise ed by Geelong in FY2 2019 for d by Geelong in FY2 This will be industrialised by Geelong in FY2019 for B Bankstown site. ementation at the B implementation at the Bankstown site. In FY2018, Quickstep accelerated the implementation of an advanced lean production system at Bankstown, focused on rate improvement, process eff iciency, automation and one piece material flow. Manufacturing practices and operational eff iciency were improved significantly during FY2018 at the Bankstown facility through a number of important initiatives including: > Robotic drilling and fastening fully commissioned on the C-130J line, replacing manual operations > Upgrading of autoclave control systems, resulting in more eff icient cure cycles and improved quality > Re-layout of the JSF and C-130J productions lines to improve material and workflow > Scrap reduction through pareto analysis and continuous improvement processes > Lean manufacturing training and the expansion of our internal Continuous Improvement Program (CIP), including the appointment of a full-time CIP Manager > Training and development programs to improve workforce skills and capabilities , including leadership training and composites training for new operators by TAFE NSW Revenue from Quickstep’s Joint Strike Fighter (JSF) F-35 aircraft contracts for FY2018 was up 45% from FY2017 as deliveries accelerated. JSF revenues are expected to increase by more than 40% in FY2019, in line with the growing F-35 production schedule which has delivered 310 JSF aircraft to date. C-130J wing flaps production continued at the long-term rate of two ship-sets per month and, during August, Quickstep secured a contract extension for production of these parts for a further five-year period from 2020 to 2024. QLD NSW VIC $59.0m Total Revenue up 14% 10 QUICKSTEP ANNUAL REPORT 2018 Jean England | C130 Composite Team Leader “I’ve put forward four successful candidates for our Employee Referral Program because Quickstep is a great company to work for. My candidates are in all their 20s. They have a future here if they want, all the way to Management plus it’s great to pass on our knowledge for when the older employees retire.” our people We continue to focus on building Quickstep as an ‘Employer of Choice’, providing our employees with career opportunities across a wide and varied range of disciplines, our Employee Referral Program is testament to this. OneQuickstep has established and reinforced that we are a values based organisation and we are continuing to build a work culture and workplace environment that attracts and retains talented individuals that can work together collaboratively to achieve great outcomes. We focus on supporting well-being and ﬂ exibility through our policies and practices such as purchasing additional annual leave, transition to retirement, ﬂ exibility, domestic violence support and paid parental leave. We challenge and develop our people through professional development programs and our partnership with TAFE NSW allows us to continue to grow the capability of our workforce, to be ready and able to expand and meet the needs of existing and new programs and customers. It is truly an exciting time to be part of Quickstep. Andy Miller | Product Engineer “ The R&D team has applied our patented Qure technology to process the complex 3D geometry of a composite automotive fender, demonstrating improved part quality, while reducing curing times and capital infrastructure costs compared to equivalent autoclave production parts.” Michael Baker | Industrial & Manufacturing Engineer “ As Process Engineering Lead, my role is to effectively manage our team of Manufacturing and Industrial Engineers across all existing and incoming programs on the Bankstown site to ensure we meet safety, quality and cost requirements and achieve the best possible outcomes for the business.” QUICKSTEP.COM.AU 11 OUR PEOPLE Chris Little | Purchasing Specialist “I’m excited to be working for an Australian business leading the way in carbon composite manufacture and solutions as part of great team of people full of energy and knowledge with different skill sets to grow and learn from.” Serena Liu | Technical Planner “ As a graduate engineer, I never thought I would be able to work at the forefront of advanced composites technology, this early on in my career. Being able to contribute to one of the world’s most innovative and technological advancements while working alongside experts in the industry, is providing me with invaluable experience.” Steve Osborne Business Development Director USA “This year saw the establishment of Quickstep USA Inc. in Houston, Texas. This is an important step in strengthening our key US industry relationships and this investment should be instrumental in securing Quickstep signiﬁ cant opportunities in the near future.” Kamini Patel | Quality Engineer “ As a Quality Engineer, with OneQuickstep vision, I am proud to be an integral part of the Continuous Improvement activity in the business.” 12 QUICKSTEP ANNUAL REPORT 2018 our leadership Team Gary Robinson Executive General Manager Operations Jacque Courtney-Pitman Chief Human Resources Officer “ It’s an exciting time to be joining the team at Quickstep as we move from the establishment phase into streamlined, lean production and further develop our capabilities in new product introduction” “ The dedication and focus to achieve OneQuickstep is very rewarding. Our leaders are taking charge of driving, supporting and delivering great results through our people in safety, productivity and building Quickstep as an employer of choice.” QUICKSTEP.COM.AU 13 OUR LEADERSHIP TEAM Alan Tilley Chief Financial Officer Mark Burgess Chief Executive Officer “ Quickstep has started to deliver proﬁ t and operating cash ﬂ ow and the outlook for the coming year is for this to continue. This is a great platform for growth and provides conﬁ dence that the company can win proﬁ table new business opportunities.” “ FY18 was a year of successful transition for the business and one which we are all proud of. During FY19 we will build a solid platform for growth and sustained proﬁ tability over the coming years. Quickstep is a truly exciting advanced manufacturing business with an incredible outlook.” Ross Mahon Chief Business Development & Technology Officer “ Over the past 12 months we have built a solid foundation through One Quickstep, QPS, technology development and day to day business performance that is receiving positive customer recognition and feedback. Quickstep is continuing to implement new technology and systems that provide a strong point of competitive differentiation and will enable us to rapidly accelerate our future growth and position Quickstep as a leading global provider of advanced composite solutions” 14 QUICKSTEP ANNUAL REPORT 2018 BOARD OF DIRECTORS QUICKSTEP.COM.AU 15 Board of Directors The Quickstep Board underwent some change in FY2018 and now consists of four Directors, led by Tony Quick, as Chair. Our strong and experienced Board has extensive aerospace and automotive manufacturing experience and is well credentialled to lead and guide the business towards accelerated growth and improved proﬁ tability. TONY QUICK, CHAIRMAN MARK BURGESS, CEO & MANAGING DIRECTOR JAMES DOUGLAS, NON-EXECUTIVE DIRECTOR BRUCE GRIFFITHS OAM, NON-EXECUTIVE DIRECTOR JAIME PINTO, COMPANY SECRETARY 16 QUICKSTEP ANNUAL REPORT 2018 Directors’ Report Directors’ Report The Directors present their report on the consolidated entity consisting of Quickstep Holdings Limited and the entities it controlled at the end of, or during, the year ended 30 June 2018. Throughout the report, the consolidated entity is referred to as the “Group” or “Quickstep”. Directors The following persons were Directors of Quickstep Holdings Limited during the whole of the financial year and up to the date of this report: Mr. T H J Quick Mr. M H Burgess Mr. J C Douglas Mr. B A Griffiths The following persons were Directors of Quickstep Holdings Limited, from 1 July 2017 to 28 November 2017 when they retired at the 2017 Annual General Meeting: Mr. N I Ampherlaw Mr. P C Cook Air Marshal E J McCormack (Ret’d) Principal Activities During the year the principal continuing activities of the Group consisted of: (cid:120) (cid:120) (cid:120) production of parts for Northrop Grumman for the Joint Strike Fighter Project production of C-130J wing flaps for Lockheed Martin production of parts for Joint Strike Fighter vertical tails for BAE Systems and Marand Precision Engineering (cid:120) manufacturing and development of parts using Qure technology (cid:120) continued development of technologies for scaled volume production Dividends No dividends have been paid during the financial year. The Directors do not recommend that a dividend be paid in respect of the financial year (2017 $Nil). Review of Operations Total sales for the year ended 30 June 2018 were $59.0 million (FY17 $51.9 million) representing a 13.7% increase year on year. The increase is attributable to volume growth in the Joint Strike Fighter (JSF) program marginally above plan and consistent with the continuing ramp up of the program towards full production. Total JSF revenue was $38.6 million (FY17 $26.7 million) being a 45% lift on prior year. Revenue from the C – 130 contract of $18.8 million was slightly ahead of plan and marginally down on previous year reflecting the mature nature of this revenue stream. The ongoing ramp up in JSF volumes is the principal driver behind FY18 H2 revenue of $31.2 million being 12% or $3.4 million more than FY18 H1. Quickstep remains on track to deliver higher JSF volumes over the next two years with JSF revenue expected to increase further in FY19. The operating loss for FY18 of $1.3 million is an improvement of $4.4 million on the prior year including a gross profit improvement of $1.6 million, reduction in spend on research and development of $1.8 million and $1.0 million less spend on corporate and other costs. This improvement reflects actions taken in H1 as part of the OneQuickstep initiative including Lean programs, more focussed R&D and a drive to reduce corporate costs and improve operational efficiency. The actions taken as part of OneQuickstep early in FY18 have helped deliver an operating profit of $0.9 million in H2 compared to a $2.2 million loss in the first half. QUICKSTEP.COM.AU 17 Directors’ Report Directors’ Report Review of Operations The FY18 net loss of $2.9 million is an improvement of $3.8 million on the prior year comprising the $4.4 million operating loss reduction noted above partially offset by a $0.6 million decrease in gains from share option revaluation, a non cash item. Cash from operating activities for FY18 was $(0.7million), compared to $0.1 million in FY17 with the working capital balances as at 30 June 2018 representing a more sustainable position and funding JSF volume growth. EBITDA has materially improved between FY17 and FY18 from $(3.5 million) to $1.2 million as a consequence of the lift in revenues, lean initiatives and drive to reduce costs. Positive operating cash flow for H2 of $3.6 million is a material improvement on the H1 operating cash outflow $(4.3 million). Total loans outstanding as at 30 June 2018 are $13.6 million, a decrease of $2.0 million from December 2017 reflecting improved profitability and cash flows from operations. To fund the working capital requirements of the further lift in JSF volumes in FY19, an increase of $4 million in the short term working capital facility has been secured. Significant Changes in the State of Affairs There have been no significant changes in the state of affairs of the Group during the financial year. Events Since the end of the Financial Year No matter or circumstance has arisen since 30 June 2018 that has significantly affected the Group’s operations, results or state of affairs, or may do so in future years. Shares under Options Unissued ordinary shares of Quickstep Holdings Limited under option at the date of this report are as follows Date Options granted 9 January 2015 Expiry Date 31 December 2018 Issue Price of Shares $0.1625 Number Under Option 25,000,000 No option holder has any right under the options to participate in any other share issue of the Company or any controlled entities. No options were granted during the year, and no options granted in prior years were exercised during the year ending 30 June 2018. No other options have been granted since the end of the financial year. 18 QUICKSTEP ANNUAL REPORT 2018 Directors’ Report Directors’ Report Information on Directors The following information is current as at the date of this report Mr. Tony H J Quick, MA (Cantab) Chair Independent Non-Executive Director - appointed 14 February 2013 Mr. Quick joined Quickstep following a highly successful career in the aerospace and defence industries. 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 October 2000 he left Westland to emigrate to Australia and, in 2001, set up GKN Aerospace Engineering Services Pty Ltd to service global demand for engineering services. The Company’s parent, GKN Aerospace, was one of the world’s largest independent first-tier suppliers to the integrated metal and composite assemblies for global aviation aerostructures and engine products. GKN Aerospace Engineering Services Pty Ltd provided design services to the F-35 Joint Strike Fighter program for Lockheed Martin and Northrop Grumman and grew to employ more than 240 aerospace engineering staff in Australia. He was a Director and General Manager of that company until 2009. Mr. Quick was the Director of the Defence Industry Innovation Centre, Enterprise Connect from 2009 to 2011. industry providing Chair of the board Chair of the Defence Materials Technology Centre. Ordinary shares in Quickstep Holdings Limited 746,162 Mr. Mark H Burgess CEO and Managing Director - appointed 18 May 2017 Mr Burgess joined Quickstep in May 2017 bringing with him over 20 years’ experience in the global aerospace and defence industry, where his successful delivery of profitable growth and complex projects in advanced technology businesses has led to significant employer, customer and industry recognition. Mr Burgess has held leadership roles of increasing responsibility across Europe, USA, the Middle East and Asia Pacific. After a long career with BAE Systems covering sales, contracts, project and general management he joined Honeywell in 2013 as Vice President Honeywell Aerospace, Asia Pacific. During his four years at Honeywell, he was responsible for driving sustained profitable growth across a defence, space and commercial helicopter portfolio. Mr Burgess has extensive experience of governance and stakeholder management, working with public, private and not-for-profit sectors. He has managed several successful post acquisition integration projects and has held numerous board positions on subsidiaries and international joint ventures. He holds a degree in Politics and Economics from the University of Hull and has completed several post graduate studies in business and operations management. Chief Executive Officer Ordinary shares in Quickstep Holdings Limited 289,500 Experience and expertise Special responsibilities Other current Directorships Interests in shares and options Experience and expertise Special responsibilities Interests in shares and options QUICKSTEP.COM.AU 19 Directors’ Report Directors’ Report Information on Directors Mr. James C Douglas, LLB, BSc Independent Non-Executive Director - appointed 19 December 2016 Mr. Douglas is Chair of Australian automotive wheels manufacturer Carbon Revolution and a founder of investment firm Newmarket Capital, a strategic investor in the carbon fibre manufacturing sector. He is also an Investment Director at Acorn Capital. James has over 20 years of global investment banking and financial industry experience and has held former roles as Global Head of Consumer Products at Merrill Lynch, Head of Consumer Products – Americas at UBS and Head of Global Banking Australia & New Zealand at Citi. He holds a LLB and BSc from the University of Melbourne. Chair of the Audit, Risk and Compliance Committee from 29 November 2017. Chair of Carbon Revolution. Director of Newmarket Capital. Ordinary shares in Quickstep Holdings Limited Rights to shares in Quickstep Holdings Limited (one third share of Newmarket) 980,401 8,333,333 Mr. Bruce A Griffiths, OAM Independent Non-Executive Director - appointed 14 February 2013 Mr. Griffiths 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 awarded the Order of Australia Medal for services to the automotive manufacturing industry and to the community. Previous appointments include: Rail Supplier Advocate from 2009 to 2014, Chair - Futuris Automotive Group (2007-2012), Managing Director - Futuris Automotive Group (1992 -2007), Chair - 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, Chair - Sail Melbourne ISAF Sailing World Cup. Mr. Griffiths’ honors 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. Chair of the Remuneration, Nomination and Diversity Committee from 29 November 2017. Current appointments include: Board Member - Industry Capability Network Limited (ICNL), Director - Carbon Revolution Pty Limited Ordinary shares in Quickstep Holdings Limited 1,833,167 Mr. Nigel I Ampherlaw B Com, FCA, MAICD Independent Non-Executive Director – retired 28 November 2017 Mr. Ampherlaw 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. He has extensive experience in Risk Management, technology, consulting and auditing in Australia and the Asia-Pacific region. Chair of the Audit, Risk and Compliance Committee until 28 November 2017. Directorships included a Non-Executive Director of Credit Union Australia where he is Chairman elect, and member of the Strategy Committee; Elanor Investor Group where he is Chair of the Audit and Risk Committee and a member of the Remuneration and Nominations Committee; 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. He has also been a member of the Grameen Foundation Australia Charity Board since 2012. Ordinary shares in Quickstep Holdings Limited as at 28 November 2017 500,000 Experience and expertise Special responsibilities Other current Directorships Interests in shares and options Experience and expertise Special responsibilities Other current Directorships Interests in shares and options Experience and expertise Special responsibilities Other Directorships as at 28 November 2017 Interests in shares and options 20 QUICKSTEP ANNUAL REPORT 2018 Directors’ Report Directors’ Report Information on Directors Mr. Peter C Cook, MPharm, CChem, FMonash, FRMIT, MPS, MRACI, MAICD Independent non-executive Director- retired 28 November 2017 Mr. Cook’s most recent Executive appointment was as Managing Director and CEO of Biota Holdings Limited. Mr. Cook has also 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. 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. Chair of the Remuneration, Nomination and Diversity Committee until 28 November 2017 Chair, Pharmaceutical Science Advisory Group (Monash University), Chair, Monash Institute of Pharmaceutical Science’s Foundation and Director Myostin Therapeutics. Ordinary shares in Quickstep Holdings Limited as at 28 November 2017 1,590,685 Air Marshal Errol J McCormack (Ret’d) AO Independent Non-Executive Director – retired 28 November 2017 Mr. McCormack has extensive experience as a Senior Commander in the Royal Australian Air Force. Mr. 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. His pro-bono work includes Deputy Chair of the Board of the Sir Richard Williams Foundation, an independent think-tank supporting development of Australian military aviation policy. Member of the Audit, Risk and Compliance Committee and the Remuneration, Nomination and Diversity Committee until 28 November 2017. Non-Executive Chairman of Chemring Australia Pty Ltd. Ordinary shares in Quickstep Holdings Limited as at 28 November 2017 590,319 Mr. Jaime Pinto, B.Com, CA, AIGA Company Secretary - appointed 20 November 2012 Mr. Pinto is a Chartered Accountant with over 20 years’ experience in both professional practice 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. Mr. Pinto holds a Bachelor Degree in Commerce from the University of NSW, is a member of The Institute of Chartered Accountants Australia, and an Associate Member of Governance Institute. He is currently the Company Secretary of a number of ASX-listed and unlisted companies in the manufacturing, investing, real estate and advisory industries Ordinary shares in Quickstep Holdings Limited 90,000 Experience and expertise Special responsibilities Other Directorships as at 28 Nov 17 Interests in shares and options Experience and expertise Special responsibilities Other Directorships as at 28 Nov 2017 Interests in shares and options Experience and expertise Other current roles Interests in shares and options QUICKSTEP.COM.AU 21 Directors’ Report Directors’ Report Board Structure & Director Independence The Company continually monitors the structure and performance of the Board to ensure it is of an appropriate size, composition and skill to lead the Company and meet its current governance and strategic needs. The Chair manages the Board to achieve responsive and effective business outcomes with highly committed Directors. Quickstep has a Remuneration, Nomination and Diversity Committee (RND Committee), whose responsibilities include the development and on-going review of Board competencies, structure, performance and renewal. Both the RND Committee Charter and “Policy and Procedure for Selection and Appointment of Directors” are accessible from the Company’s website as follows. http://www.quickstep.com.au/files/files/359_QHL_RND_Committee_Charter_-_September_2014.pdf http://www.quickstep.com.au/files/files/366_QHL_Selection_and_Appointment_of_Directors_Policy_V1_ -_02102014.pdf The Policy and Procedure for Selection and Appointment of Directors includes a matrix of skills that are considered necessary within the non-executive Director group to facilitate an effective and efficient Board. The RND Committee periodically reviews both this matrix and the Directors’ actual skills mix to ensure they satisfy the current and immediately foreseeable needs of the Company. The Board maintains a varied level of tenure amongst its Directors, which is seen as essential for its effective functioning given the significant growth and change experienced by Quickstep in recent years. This has resulted in both an influx of fresh ideas and the retention of sufficient Quickstep specific understanding to optimise strategic and operational changes. As the business evolves this is continually reviewed. The Board is committed to a majority of its Directors being independent to ensure the Board acts in the best interests of the entity itself, its security holders and stakeholders generally. Director independence is assessed on a regular basis, and all Directors are required to advise the Board of any actual or potential conflicts of interest as they arise, with any such conflicts tabled at Board meetings. In assessing independence the Board considers a number of factors which include, but are not limited to, the “Factors relevant to assessing the independence of a Director” listed in Recommendation 2.3 of the Corporate Governance Principles and Recommendations 3rd Edition established by the ASX Corporate Governance Council (‘the ASX Principles and Recommendations”). Directors’ Meetings The numbers of meetings of the Company's board of Directors and of each board committee held during the financial year ended 30 June 2018, and the numbers of meetings attended by each Director were: Director Board Meetings Audit, Risk and Compliance Committee Meetings Remuneration, Nomination and Diversity Committee Meetings Mr. T H J Quick Mr. M H Burgess Mr. J C Douglas Mr. B A Griffiths Mr. N I Ampherlaw Mr. P C Cook Air Marshal E J McCormack (Ret’d) Held 23 22 23 23 8 8 8 Attended 23 22 23 20 7 8 8 Held 2 - 5 2 3 - 3 Attended 2 - 5 2 3 - 2 Held 1 - 1 4 - 3 3 Attended 1 - 1 4 - 3 3 22 QUICKSTEP ANNUAL REPORT 2018 Directors’ Report Directors’ Report Insurance of Officers and Indemnities Except as indicated below, the Group has not otherwise, during or since the end of 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. Insurance During the financial year, Quickstep Holdings Limited 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 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 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. Indemnities 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. Non-Audit Services During the financial year, KPMG, the Group’s auditor, has performed certain other services in addition to the audit and review of the financial statements. The Board of Directors has considered the position and, in accordance with advice received from the Audit Risk and Compliance Committee, are satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons- all non-audit services have been reviewed by the audit and risk committee to ensure they do not impact the impartiality and objectivity of the auditor, and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. Details of the amounts paid to the auditor of the Group, KPMG, for non-audit services provided during the year are set out below: Other Services Grant – Assurances Accounting and tax services Total Non-Audit Fee 2018 $ 5,000 24,040 29,040 2017 $ 23,200 - 23,200 QUICKSTEP.COM.AU 23 Directors’ Report Directors’ Report Auditor’s Independence Declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page (cid:23)(cid:22). Rounding of Amounts The Company is a kind referred to in ASIC Legislative Instrument 2016/191, relating to the “rounding off” of amounts in the Directors’ report and financial statements. Amounts in the Directors’ report and financial statements have been rounded off to the nearest thousand dollars, or in certain cases, to the nearest dollar. Corporate Governance Statement Quickstep’s Corporate Governance Statement can be found on the Company’s website at the following address: http://www.quickstep.com.au/Investors-Media/Corporate-Governance This report is made in accordance with a resolution of Directors on 28 August 2018. M H Burgess Director Sydney, New South Wales 24 QUICKSTEP ANNUAL REPORT 2018 remuneration Report – Audited Remuneration Report – Audited The Directors present the Quickstep Holdings Limited 2018 remuneration report, outlining key aspects of the Group’s remuneration policy and framework, and remuneration awarded this year. The report is structured as follows: 1. 2. 3. 4. 5. Principles of Compensation Details of Remuneration Share Based Compensation Analysis of Bonuses included in Remuneration Key Management Personnel Related Transactions 1. Principles of Compensation Key Management Personnel (KMP) comprise the Directors of the company and the senior leadership team. KMP have authority and responsibility for planning, directing and controlling the activities of the Group. The report includes details relating to: Executive Director Mr. M H Burgess Non-Executive Directors Mr. T H J Quick Mr. J C Douglas Mr. B A Griffiths Mr. N I Ampherlaw Mr. P C Cook Chief Executive Officer and Managing Director Chair Chair of Audit, Risk and Compliance Committee from 29 November 2017 Chair of Remuneration, Nomination and Diversity Committee from 29 November 2017 Chair of Audit, Risk and Compliance Committee retired 28 November 2017 Chair of Remuneration, Nomination and Diversity Committee retired 28 November 2017 Air Marshal E J McCormack (Ret’d) Retired 28 November 2017 Other Key Management Personnel Mr. J Pinto Ms. J E Courtney-Pitman Mr. R L Mahon Mr. A J Tilley Mr. A R Crane Mr. K J Boyle Company Secretary Chief Human Resources Officer Chief Business Development and Technical Officer Chief Financial Officer from 25 June 2018 Chief Financial Officer until 24 June 2018 Chief Operating Officer until 20 April 2018 The Board has established a Remuneration, Nomination and Diversity (RN&D) Committee which assists the Board in formulating policies on and in determining: (cid:120) (cid:120) The remuneration packages of executive directors, non-executive directors and other key management personnel, and Cash bonuses and equity based incentive plans, including appropriate performance hurdles, total payments proposed and plan eligibility criteria. If necessary, the RN&D Committee obtains independent advice on the appropriateness of remuneration packages given trends in comparable companies and in accordance with the objectives of the Group. Further http://www.quickstep.com.au/Investors-Media/Corporate-Governance. information on the role of the committee in the charter available at is contained Quickstep has also developed an Executive Remuneration Policy and a Director Remuneration Policy that are available on the Company’s website at http://www.quickstep.com.au/Investors-Media/Corporate- Governance. Compensation levels for KMP of the Group are competitively set to attract and retain appropriately qualified and experienced directors and executives. The remuneration structures are designed to reward the achievement of strategic objectives and achieve the broader outcome of value creation for shareholders. Compensation packages include a mix of fixed compensation, short-term cash incentives and equity-based incentives. Shares, options or rights may only be issued to Directors subject to approval by shareholders in a general meeting. QUICKSTEP.COM.AU 25 remuneration Report – Audited Remuneration Report – Audited 1. Principles of Compensation The Group does not have any scheme relating to retirement benefits for its KMP other than contributions defined under its statutory obligations. The Company’s policy is to provide executives with a competitive fixed compensation comparable to the median paid by like sized companies undertaking similar work and offers additional short and long term incentives to allow the executive to achieve top quartile compensation, if all performance hurdles are met. All incentives are capped. The Company’s policy is to provide non-executive Directors with a fixed fee comparable to the median of that paid by similar sized ASX listed companies operating in similar fields. Non-executive Directors are not eligible for participation in any of the Company’s incentive schemes. Fixed compensation Fixed compensation consists of base compensation, as well as statutory employer contributions to superannuation. Compensation levels are reviewed annually through a process that considers current labour market rates, the individual's contribution and overall performance of the Group. Compensation is also reviewed in the event of promotion or significant change in responsibilities. Performance linked compensation Performance linked compensation includes both short and long term incentives and is designed to reward key management personnel, excluding non-executive Directors, for meeting or exceeding the Company's business and their 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. Short Term Incentive - Cash and equity settled short term incentive Certain KMP receive short-term incentives (STI) in cash and/or shares on achievement of key performance indicators (KPIs). Each year, the RN&D Committee considers the appropriate KPIs and associated targets to align individual rewards to the Group’s performance. These targets include measures related to the annual performance of the Group and specific measures related to the activities of individual KMPs. In FY18, nine Corporate KPIs were used, including four financial KPIs (weighting 35%), two KPIs relating to people and safety (weighting 15%), two growth and technology focused KPIs (weighting 20%) and one project and operational KPI (weighting 30%). The weighting of corporate KPIs used in the determination of an executive’s STI ranged from 70% for functional specialists to 100% for the Chief Executive Officer and Chief Financial Officer. The RN&D Committee is responsible for assessing whether the Corporate KPIs have been achieved and meet the criteria set out at the beginning of the year. Each year a limited number of corporate KPIs are designated as threshold metrics, with no STI payable to any executive if these are not achieved. In FY18 there was one financial threshold metric. Actual performance is then assessed against both a target outcome and a stretch outcome. Where performance falls below the target outcome no payment is made against that KPI and where performance exceeds the stretch outcome the maximum stretch is payable. Where performance falls between target and stretch outcomes an appropriate proportion of the KPI is payable. When the target is achieved 50% of the weighting for the KPIs is payable. When both the target and stretch outcomes are achieved 100% of the weighting for the KPIs are payable. After determining the overall achievement of KPIs based on the above review process and hurdle, the RN&D Committee has recommended that a STI is payable in respect of FY18. 26 QUICKSTEP ANNUAL REPORT 2018 remuneration Report – Audited Remuneration Report – Audited 1. Principles of Compensation Long Term Incentive - Quickstep Incentive Rights Plan (IRP) In November 2013 the Company established the Quickstep Incentive Rights Plan (IRP). The IRP was designed to facilitate the Company moving towards best practice remuneration structures for executives, and offers under the IRP have been made to a number of executives since its introduction. The terms of the IRP were most recently approved by shareholders at the 2015 AGM. The IRP authorises the granting of Rights to executives of the Company, in the form of Performance Rights (PRs) and/ or Deferred Rights (DRs) and/or Restricted Rights - (RRs) (together, Rights). These Rights represent an entitlement on vesting to fully paid ordinary shares in the issued capital of the Company (Shares) and cash with the total value of cash and shares being equal to the value of vested Rights (number of vested Rights x market value of a Share). PRs may vest if Performance Conditions are satisfied. DRs may vest if service conditions are satisfied. There were no RRs granted in FY18 and none arose from PRs or DRs. The Board has the discretion to set the terms and conditions on which it will offer PRs under the IRP, including the performance conditions and modification of the terms and conditions as appropriate to ensuring the IRP operates as intended. All PRs offered will be subject to performance conditions which are intended to be challenging. The PRs are subject to a performance condition based on achieving a relative Total Shareholder Return (TSR) equivalent to or in excess of the ASX All Ordinaries Accumulation Index (AOAI) over the performance period. The AOAI is an index of total shareholder return achieved by ASX listed companies which combines both share price movement and dividends paid during the performance period (assuming that they are reinvested into shares). As a general rule, Quickstep uses a performance period of three (3) years with an anniversary date of 1 September each year. For vesting to occur the Company's TSR (share price movement plus dividends) over the performance period must be positive (i.e. if shareholders have not gained then PRs will not vest) relative to the AOAI. If the Company's TSR is positive but the AOAI movement is negative over the performance period then vesting, if any, will be at the discretion of the Board (i.e. only applies if the Company has outperformed a general fall in the market by protecting against a similar fall in the Company's share price). If the Company's TSR is positive and the movement in the AOAI is also positive then the following vesting scales will apply to all tranches: Performance Level Below Threshold Threshold Target Stretch and Above Company’s TSR Relative to AOAI Movement of the Performance Period < Increase in the AOAI = Increase in the AOAI > 100% of AOAI increase & < 110% of AOAI increase 110% of AOAI increase > 110% of AOAI increase & < 120% of AOAI increase 120% of AOAI increase Vesting % 0% 25% Pro-rata 50% Pro-rata 100% For PRs issued to executives, testing of the TSR hurdle will occur on the third anniversary of the commencement of the performance period and then semi-annually until the rights lapse or the fifth anniversary of the commencement of the performance period. Once a right has vested it may not become unvested based on performance at a subsequent test date. If at a test date some rights have previously vested and the Company’s performance at the test date is higher than at previous test dates then additional rights will vest. Such vesting will apply on the basis that the total number of rights that have vested from a tranche (previous and current vesting) is equal to the number that would have vested at the current test date had no vesting occurred earlier. QUICKSTEP.COM.AU 27 remuneration Report – Audited Remuneration Report – Audited 1. Principles of Compensation Long Term Incentive - Quickstep Incentive Rights Plan (IRP) Upon the satisfaction of the performance conditions, the value of PRs granted under the IRP will be evaluated. The Board has discretion to vary vesting if it considers it to be appropriate to do so given the circumstances that prevailed over the performance period. This provision aims to address situations where vesting may otherwise be inconsistent with shareholder expectations. The IRP contains provisions concerning the treatment of vested and unvested rights in the event that a participant ceases employment. Unless the Board determines otherwise, if a participant ceases employment in other than special circumstances (death, total and permanent disablement, retrenchment, redundancy, permanent retirement from full-time work with the consent of the Board or other circumstances determined by the Board), all unvested rights held by the participant will lapse. Unless the Board determines otherwise, if a participant ceases employment under special circumstances, rights that were granted to the participant during the financial year in which the termination occurred will be lapsed in the same proportion as the remainder of the financial year bears to the full year. All remaining rights for which performance conditions have not been satisfied as at the date of cessation of employment will then remain "on foot", subject to the original performance conditions. Non-Executive Directors’ Fees Remuneration for all non-executive directors was approved at a board meeting on 19 October 2017 – pending the retirement and non-replacement of three members. It was resolved that, despite an additional workload for the continuing non-executive Directors, and considering Company profitability, there would be no increase in any fees and the committee membership fee was removed. 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 Director Fees Committee Fees Mr. T H J Quick Mr. J C Douglas Mr. B A Griffiths $126,000 $60,000 $60,000 n/a $10,000 $10,000 Consequences of Performance on Shareholder Wealth In considering the Group’s performance and benefits for shareholder wealth, the RN&D committee gives regard to the following indices in respect of the current financial year and the previous four financial years. 2018 2017 2016 2015 2014 Loss aattributable to owners of the company ($000) Dividends paid Operating income ($000) Change in share price Return oon capital employed (2,891) $nil 59,036 (22.7%) (9.4%) (6,662) $nil 51,915 (25.4%) (33.3%) (5,785) $nil 50,128 (18.2%) (8.6%) (3,937) $nil 39,511 (12.4%) (6.1%) (11,181) $nil 12,001 35.7% (66.4%) Loss amounts have been calculated in accordance with Australian Accounting Standards (AASBs). Return on capital employed is calculated as Profit before interest and tax (EBIT) divided by total assets less current liabilities. 28 QUICKSTEP ANNUAL REPORT 2018 remuneration Report – Audited Remuneration Report – Audited 1. Principles of Compensation Service Agreements Name Initial agreement date Duration Notice period (3) Termination benefits Mr. M H Burgess 8 May 17 Open NES Ms. J E Courtney-Pitman 30 Mar 16 Open NES Mr. R L Mahon 11 Jan 17 Open NES Mr. A J Tilley 25 June 18 Open NES Mr. A R Crane 24 Sept 15 24 June 18 NES Mr. K J Boyle 23 Mar 16 20 April 18 NES 12 months annual TFR; and pro-rated annual bonus (at Board's discretion). If due to change of control, 100% of annual TFR is paid immediately plus pro-rated annual bonus 3 months of TFR and pro- rated annual bonus (at Board's discretion) 3 months of TFR and pro- rated annual bonus (at Board's discretion) 3 months of TFR and pro- rated annual bonus (at Board's discretion) 3 months of TFR and pro- rated annual bonus (at Board's discretion) 3 months of TFR and pro- rated annual bonus (at Board's discretion) STI cap as a % of TFR (1) LTI cap as a % of TFR (2) 50 50 20 20 40 30 20 20 20 40 30 20 (1) Short Term Incentive (STI) is determined on performance against KPIs set and reviewed by the RN&D Committee or the Board as appropriate. The STI cap refers to the maximum amount payable in cash other than Mr. M H Burgess, whose STI is payable in a combination of cash and shares), as a percentage of Total Fixed Remuneration (TFR). The KPIs include company financial objectives, such as sales, profit and cashflow, and other growth, operational and people objectives including new contracts, technology development, project delivery and functional outcomes aligned to the annual business plan. (2) Long Term Incentive (LTI) is determined on the Group's performance against relative Total Shareholder Return and is tested at multiple dates. The LTI cap refers to the maximum amount payable in shares as a percentage of TFR. This is the measure currently used in the IRP applicable to FY18. (3) NES refers to the National Employment Standard in the Fair Work Act (2009). Under section (3) (ss117- 118) an employee is entitled to a minimum notice period depending on length of service and age. (4) In FY19, for all KMP, the LTI cap has increased to 40% of the TFR and the STI cap has increased to 40% of the TFR. The STI cap will be payable in a combination of cash and shares weighted 50/50 on the outcome. QUICKSTEP.COM.AU 29 remuneration Report – Audited Remuneration Report – Audited 2. Details of Remuneration The following tables detail the remuneration received by KMP of the Group for the current and previous financial year. Name Salary / Fees $ STI (2) $ Discretionary Payment (6) $ 2018 SGC $ Termination $ LTI Rights (1) $ Total $ Executive Directors Mr. M H Burgess Non-Executive Directors Mr. T H J Quick Mr. J C Douglas Mr. B A Griffiths Mr. N I Ampherlaw Mr. P C Cook Air Marshal E J McCormack (Ret’d) Other KMPs Mr. J Pinto Ms. J E Courtney-Pitman Mr. R L Mahon Mr. A J Tilley (3) Mr. A R Crane (4) Mr. K J Boyle (4) 479,951 148,500 126,000 61,163 66,250 29,167 26,637 32,915 60,000 228,182 299,951 - 329,951 216,682 - - - - - - - 6,779 27,440 - 20,718 (1,926) - - - - - - - - - - - - - Executive Directors Mr. M H Burgess (5) Mr. D J Marino Non-Executive Directors Mr. T H J Quick Mr. N I Ampherlaw Mr. P C Cook Mr. B A Griffiths Air Marshal E J McCormack (Ret’d) Mr. J C Douglas Other KMPs Mr. J Pinto Mr. A R Crane Ms. J E Courtney-Pitman Mr. K J Boyle Mr. R L Mahon (5) 2017 73,289 488,426 - 99,171 - 125,000 126,000 69,463 63,825 61,500 78,870 57,249 60,000 335,045 238,136 249,397 142,990 - - - - - - - - - - - - - 41,652 26,198 25,594 11,971 - 75,000 20,000 20,000 - 20,049 - 5,811 - - 2,530 3,127 - 20,049 20,049 - 20,049 20,049 4,904 19,616 - 537 6,175 - 7,630 5,251 - 19,616 16,933 19,616 9,808 - - - - - - - 99,503 748,003 - - - - - - 126,000 66,974 66,250 29,167 29,167 36,042 60,000 279,291 364,582 - 518,835 300,913 - - 24,281 - 17,142 - - - - 148,117 (9,723) 75,831 - - - - - - - - - - - - - - 335,110 78,193 1,067,323 - - - - - - - 16,960 8,494 8,072 2,637 126,000 70,000 70,000 61,500 86,500 62,500 60,000 488,273 309,761 322,679 167,406 (cid:9)(cid:18)(cid:10) (cid:9)(cid:19)(cid:10) (cid:9)(cid:20)(cid:10) (cid:9)(cid:21)(cid:10) (cid:9)(cid:22)(cid:10) (cid:9)(cid:23)(cid:10) LTI rights include the accounting expense attributable to the current year under the IRP. STI is comprised of an accrued current year cash bonus plus adjustment for amounts accrued in FY17 which(cid:1) were not paid. This adjustment results in a negative expense in the above table in relation to KMPs’ for whom(cid:1) the prior year accrual exceeded the current year accrual, except for Mr. M H Burgess whose STI is payable 50% cash and 50% shares and who was not entitled to a bonus in FY17. Mr. A J Tilley commenced employment on 25 June 2018 and remuneration for the period of employment in(cid:1) FY18 was considered Immaterial. Mr. K J Boyle ceased as a KMP on 20 April 2018 and Mr. A C Crane ceased as a KMP on 24 June 2018. For personnel that commenced employment during FY17 these figures represent the period from start date to(cid:1) the end of FY17 – refer Services Agreement on page (cid:19)(cid:25). The RN&D Committee recommended and the Board approved a discretionary payment to select KMP in FY17.(cid:1) This reflected a level of activity beyond standard requirements to deliver key projects in line with or ahead of(cid:1) agreed timelines. 30 QUICKSTEP ANNUAL REPORT 2018 remuneration Report – Audited Remuneration Report – Audited 3. Share Based Compensation Long term Incentive - Quickstep Incentive Rights Plan (IRP) At 30 June 2018 executives have accrued performance rights pursuant to the IRP. Movements in IRP rights during the year are set out below: KMP Tranche refer Note Grant date FV per right at grant date (a) First testing date Balance at 30 June 2017 Number Granted during the year (b) Number Lapsed during the year Number Balance at 30 June 2018 Number Fair Value at grant date $ Cum vesting level Mr. M H Burgess CEO 1 01/12/17 $0.047 31/08/18 Mr. M H Burgess CEO 2 01/12/17 $0.089 31/08/19 Mr. M H Burgess CEO 1 01/12/17 $0.051 31/08/18 Mr. M H Burgess CEO 2 01/12/17 $0.089 31/08/19 Mr. M H Burgess FY18 01/12/17 $0.069 31/08/20 - - - - - 412,376 412,376 825,248 825,248 - - - - 412,376 $19,382 412,376 $36,701 825,248 $42,087 825,248 $73,447 1,237,624 - 1,237,624 $85,396 Mr. A R Crane Mr. A R Crane Mr. A R Crane FY16 01/06/16 $0.085 31/08/18 446,970 FY17 01/03/17 $0.072 31/08/19 906,610 - - - - 446,970 $37,992 906,610 $65,276 FY18 01/12/17 $0.069 31/08/20 - 1,039,604 - 1,039,604 $71,732 Ms. J E Courtney-Pitman FY16 01/06/16 $0.085 31/08/18 123,737 Ms. J E Courtney-Pitman FY17 01/03/17 $0.072 31/08/19 431,719 - - Ms. J E Courtney-Pitman FY18 01/12/17 $0.069 31/08/20 - 495,050 - - - 123,737 $10,518 431,719 $31,084 495,050 $34,158 Mr. K J Boyle Mr. K J Boyle Mr. K J Boyle FY16 01/06/16 $0.085 31/08/18 131,313 FY17 01/03/17 $0.072 31/08/19 457,622 - - (131,313) (457,622) FY18 01/12/17 $0.069 31/0820 - 554,455 (554,455) - - - $11,162 $32,949 $38,257 Mr. R L Mahon FY17 01/03/17 $0.072 31/08/19 276,300 - Mr. R L Mahon FY18 01/12/17 $0.069 31/08/20 - 633,663 - - 276,300 $19,894 633,663 $43,723 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% (a) The fair value of rights granted was calculated using a Monte Carlo simulation analysis. Refer to Note E.4, for the model’s key assumptions. (b) The fair value of rights granted in the year is $512,792 (2017 $304,622). The total value of the rights is allocated to remuneration over the vesting period. Modification of terms of equity-settled share-based payment transactions No terms of equity-settled share-based payment transactions (including 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. QUICKSTEP.COM.AU 31 remuneration Report – Audited Remuneration Report – Audited 4. 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 other key management personnel of the Group are detailed below: KMP Executive DDirector Mr. M H Burgess Other KKMP Ms. J E Courtney-Pitman Mr. R L Mahon Mr. A R Crane Mr. K J Boyle Included in remuneration(1) % vested in year (2) % lapsed in year (2) $148,500 59% $(8,675) $27,440 $36,172 $(1,926) 66% 62% 59% 42% 41% 34% 38% 41% 68% (1) Bonuses included in remuneration comprise of an accrued current year cash bonus plus adjustment for amounts accrued in FY17 which were not paid. This adjustment results in a negative expense in the above table for whom the prior year accrual exceeded the current year accrual, except for Mr. M H Burgess whose bonus is payable 50% cash and 50% shares and who was not entitled to a bonus in FY17. (2) The amounts lapsed are due to the Group performance, personal performance or service criteria not being met in relation to the current financial year. 5. Key Management Personnel Related Transactions Mr. J C Douglas is a non-executive Director of the Group and is also a Director of Newmarket Management Pty Ltd and Associates (Newmarket). Therefore at 30 June 2018 the Newmarket options are considered to be held by a related party. 32 QUICKSTEP ANNUAL REPORT 2018 financial statments Financial Statements Financial statements Consolidated Statement of Profit or Loss and other Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Page (cid:20)(cid:20) (cid:20)(cid:21) (cid:20)(cid:22) (cid:20)(cid:23) Notes to the Consolidated Financial Statements A. About this Report B. Business Performance B.1 Key Performance Measures B.2 Segment Reporting B.3 Loss per Share B.4 Notes to Statement of Cash Flows B.5 Income Tax Expense C. Capital and Financial Risk Management C.1 Loans and Borrowings C.2 Finance Income and Finance Costs C.3 Financial Instruments C.4 Financial Risk Management C.5 Share Capital C.6 Capital and other Commitments D. Operating Assets and Liabilities D.1 Trade and other Receivables D.2 Inventories D.3 Deferred Revenue D.4 Property, Plant and Equipment E. Employee Benefits Employee Benefit Obligation E.1 E.2 Employee Benefit Expense E.3 Related Party Transactions E.4 Quickstep Incentive Rights Plan (IRP) E.5 Equity Settled Short Term Incentive F. Other Disclosures F.1 Group Entities F.2 Parent Entity Financial Information F.3 Deed of Cross Guarantee F.4 Auditors’ Remuneration F.5 Subsequent Events F.6 New Accounting Standards Directors’ Declaration Lead Auditor’s Independence Declaration Independent Auditor’s Report to the Members (cid:20)(cid:24) (cid:21)(cid:17) (cid:21)(cid:18) (cid:21)(cid:18) (cid:21)(cid:19) (cid:21)(cid:19) (cid:21)(cid:21) (cid:21)(cid:23) (cid:21)(cid:23) (cid:21)(cid:24) (cid:22)(cid:18) (cid:22)(cid:19) (cid:22)(cid:20) (cid:22)(cid:20) (cid:22)(cid:21) (cid:22)(cid:21) (cid:22)(cid:23) (cid:22)(cid:23) (cid:22)(cid:24) (cid:22)(cid:25) (cid:22)(cid:26) (cid:23)(cid:17) (cid:23)(cid:17) (cid:23)(cid:18) (cid:23)(cid:19) (cid:23)(cid:19) (cid:23)(cid:19) (cid:23)(cid:21) (cid:23)(cid:22) (cid:23)(cid:23) QUICKSTEP.COM.AU 33 Consolidated Statement of Profit or Loss and other Comprehensive Income for the year ended 30 June 2018 Consolidated Statement of Profit or Loss and other Comprehensive Income for the year ended 30 June 2018 Revenue Cost of sales of goods Gross profit Grants received Research and development expenses Corporate and administrative expenses Other expenses Loss from operating activities Finance income Finance expenses Net finance costs Loss before income tax Income tax benefit Loss for the year Other comprehensive income/ (loss) net of income tax Item that may be reclassified to profit or loss Cash flow hedges Exchange difference on translation of a foreign operation Other comprehensive income for the period, net of income tax Notes 2018 $000 2017 $000 59,036 (49,707) 9,329 51,915 (44,175) 7,740 498 532 (3,716) (7,430) - (1,319) 150 (1,722) (1,572) (5,492) (7,919) (561) (5,700) 606 (1,568) (962) C.2 C.2 (2,891) (6,662) B.5 - - (2,891) (6,662) 239 (36) 203 - 68 68 Total comprehensive (loss) for the year (2,688) (6,594) Loss per share: Basic loss per share Diluted loss per share B.3 Cents (0.51) (0.51) Cents (1.18) (1.18) The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 34 QUICKSTEP ANNUAL REPORT 2018 Consolidated Balance Sheet as at 30 June 2018 Consolidated Balance Sheet as at 30 June 2018 Consolidated balance sheet ASSETS Current assets Cash and cash equivalents Derivative financial instruments Term deposits Trade and other receivables Prepayment and other assets Inventories Total current assets Non-current assets Property, plant and equipment Intangibles Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Loans and borrowings Deferred revenue Employee benefit obligations Total current liabilities Non-current liabilities Loans and borrowings Deferred revenue Employee benefit obligations Total non-current liabilities Total liabilities Net assets EQUITY Share capital Reserves Accumulated losses Total equity Notes 2018 $000 2017 $000 B.4 C.3 C.4 D.1 D.2 D.4 C.1 D.3 E.1 C.1 D.3 E.1 C 5 2,862 239 810 4,451 556 10,015 18,933 13,237 20 13,257 32,190 8,963 5,658 2,394 1,179 18,194 7,900 - 310 8,210 26,404 5,786 3,722 - 718 6,292 635 10,599 21,966 14,753 61 14,814 36,780 10,346 3,763 4,220 1,138 19,467 8,240 682 210 9,132 28,599 8,181 109,118 4,573 109,118 4,077 (107,905) (105,014) 5,786 8,181 The consolidated balance sheet should be read in conjunction with the accompanying notes. QUICKSTEP.COM.AU 35 Consolidated Statement of Changes in Equity for the year ended 30 June 2018 Consolidated Statement of Changes in Equity for the year ended 30 June 2018 2018 Balance at 1 July 2017 Loss for the period Other comprehensive (loss)/ income Foreign currency translation difference for foreign operations Effective portion of changes in fair value of cash flow hedges, net of tax Total comprehensive (loss)/ income for the period Transactions with owners of the company: Share based payments expenses Share capital $000 109,118 - - - - - Foreign currency translation reserve $000 Cash flow hedges reserve $000 Share based payments $000 Accumulated losses $000 Total equity $000 4,312 (105,014) (2,891) 8,181 (2,891) (235) - (36) - (36) - - - 239 239 - - - - - - (36) 239 (2,891) (2,688) - - 293 - 293 Balance at 30 June 2018 109,118 (271) 239 4,605 (107,905) 5,786 2017 Balance at 1 July 2016 Loss for the period Other comprehensive income: Foreign currency translation difference for foreign operations Total comprehensive (loss)/ income for the period Transactions with owners of the company: Share based payments expenses 109,118 (303) - - - - - 68 68 - Balance at 30 June 2017 109,118 (235) - - - - - - 3,769 - - - (98,352) (6,662) 14,232 (6,662) - 68 (6,662) (6,594) 543 - 543 4,312 (105,014) 8,181 The consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 36 QUICKSTEP ANNUAL REPORT 2018 Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows for the year ended 30 June 2018 for the year ended 30 June 2018 Cash flows from operating activities Cash receipts in course of operations Interest received Interest paid Government and industry grants Cash payments in the course of operations Net cash (used in) /from operating activities Cash flows from investing activities Acquisition costs of plant and equipment and intangible assets Proceeds from government grant for capital Receipts from /(investment in) restricted cash and term deposit Net cash (used in) investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Payment of borrowing costs Finance lease payments Net cash (used in) / from financing activities Net (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of period B. 4 Notes 2018 $000 2017 $000 58,448 50,515 24 (358) 498 31 (74) 532 (59,295) (50,910) B. 4 (683) 94 (1,165) (4,437) 141 (92) 467 245 (1,116) (3,725) 6,000 (4,715) (310) - 975 (824) 3,722 (36) 2,862 1,500 (1,250) (542) (1) (293) (3,924) 7,578 68 3,722 The consolidated statement of cash flows should be read in conjunction with the accompanying notes. QUICKSTEP.COM.AU 37 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 A. About this Report Introduction This is the financial report of Quickstep Holdings Limited (the “Company”) and its controlled entities (the “Group”). The Company is domiciled in Australia and the Group is a for-profit entity. The Group is at the forefront of advanced composites manufacturing and technology development and is the largest independent aerospace-grade advanced composite manufacturer in Australia, currently partnering with some of the world’s largest aerospace/defence organisations. What’s new this year? This year we have reviewed the content and structure of the financial report looking for opportunities to make it less complex and more relevant to our users. This included: (cid:120) (cid:120) Eliminating immaterial disclosures that may undermine the usefulness of the financial report by obscuring important information; Reorganising the notes to the financial statements into sections to assist users in understanding the Group’s performance; (cid:120) Moving the significant accounting policies to where the related accounting balance of financial statement matter is discussed, and Improving the presentation of certain notes. (cid:120) The purpose of these changes is to provide users with a clearer understanding of what drives the financial performance and position of the Group, whilst still complying with the provisions of the Corporations Act 2001. Materiality Information is only included in the financial report to the extent that it has been considered material and relevant to the understanding of the financial statements. Factors that influence if a disclosure is material and relevant, include whether: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) the dollar amount is significant in size (quantitative factor) the dollar amount is significant by nature (qualitative factor) the Group’s results cannot be understood without the specific disclosure (qualitative factor) it is critical to allow a user to understand the impact of significant changes in the Group’s business during the period; and it relates to an aspect of the Group’s operations that is important to its future performance. Statement of Compliance These general purpose financial statements have been prepared in accordance with the Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. The consolidated financial statements of the Group also comply with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The consolidated financial statements were authorised for issue by the Board of Directors on 28 August 2018. 38 QUICKSTEP ANNUAL REPORT 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 A. About this Report Basis of Preparation The financial statements have been prepared on the historical cost basis. These consolidated financial statements are presented in Australian dollars, which is the Group’s functional currency. Rounding of Amounts The Company is of a kind referred to in Class Order 2016/191 issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the financial statements and Directors’ report. Amounts in the financial statements and Directors’ report have therefore been rounded off to the nearest thousand dollars, or in certain cases, to the nearest dollar. Accounting Estimates and Judgements The preparation of financial statements in conformity with AASBs requires management to make judgements, estimates and assumptions about future events. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies are described below: Going concern The Group has incurred a loss after tax for the year ended 30 June 2018 of $2,891,000 (2017 $6,662,000). The Group has net assets of $5,786,000 (2017 $8,181,000) and net current assets of $739,000 (2017 $2,499,000). Current loans and borrowings are $5,658,000 (2017 $3,763,000). Operating cash outflow for the year was $683,000 including R&D investment of $3,716,000. The full year loss after tax of $2,891,000 is $3,771,000 lower than the prior year and profitability has improved over the course of the year ended 2018 resulting in a net profit after tax of $38,000 for the six month period ended 30 June 2018. This can be attributed to the impact of OneQuickstep savings, the lean manufacturing program and an increase in volumes on the JSF program. Operating cash outflow for the year of $683,000 includes EBITDA of $1,183,000 and a working capital increase of $537,000 with reductions in trade debtors and inventory offset by a normalisation of the trade payables balance. Cash generation and profits are forecast to improve further into FY19. Additional working capital funding was secured with Efic during the year to support further JSF volume growth in FY19 resulting in an increase in the short term facility from A$3,000,000 to A$7,000,000. The existing cash and current borrowing position of the Group and the need to further support growth requirements, uncertainty associated with foreign exchange rate fluctuations on US$ denominated sales, partially mitigated by the recent implementation of forward contracts, and commercialisation of new technology results in future cash flow of the Group being partially dependent on a combination of the following solutions: (cid:120) (cid:120) (cid:120) ongoing cost control; delivering further manufacturing efficiencies for existing programs; and extension of the Efic short term working capital facility after 30 June 2019 or alternative sources of longer term debt funding. The going concern basis presumes that the above operational and funding solutions, as deemed appropriate by the Directors, will be achieved and that the realisation of assets and settlement of liabilities will occur in the normal course of business. Notwithstanding the confidence of the Directors, if the combined effect of the above solutions should not be wholly successful there is a material uncertainty as to whether the Group would continue as a going concern. The Directors consider that there is a basis to expect the Group will be able to meet its commitments due to the above measures, the improved financial performance during FY18 and additional working capital funding available and accordingly, the financial report has been prepared on the basis of a going concern. QUICKSTEP.COM.AU 39 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 A. About this Report Significant Accounting Policies The accounting policies have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by all entities in the Group. Other significant accounting policies are contained in the notes to the consolidated financial statements to which they relate. 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 2018 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 parent entity. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group, and de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Foreign currency translation Transactions, assets and liabilities denominated in foreign currencies are translated into Australian dollars at reporting date using the following exchange rates: Foreign currency amount Applicable exchange rate Transactions Date of transaction Monetary assets and liabilities Reporting date Foreign exchange gains and losses resulting from translation are recognized in the Income Statement, except for qualifying cash flow hedges which are deferred to equity. On consolidation, the assets, liabilities, income and expenses of foreign operations are translated into Australian dollars using the following applicable exchange rates: Foreign currency amount Applicable exchange rate Income and expenses Average monthly rate Assets and liabilities Equity and reserves Reporting date Historical date Foreign currency differences resulting from translation are recognized in other comprehensive income, and presented in the foreign currency translation reserve in equity. When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign currency translation reserve is transferred to the statement of comprehensive income. 40 QUICKSTEP ANNUAL REPORT 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 B. Business Performance This section provides the information that is most relevant to understanding the financial performance of the Group during the financial year and, where relevant, the accounting policies applied and the critical judgements and estimates made. B.1 B.2 B.3 B.4 B.5 Key Performance Measures Segment Reporting Loss per Share Notes to Statement of Cash Flows Income Tax Expense B.1 Key Performance Measures The key performance measures for the year were: Revenue EBITDA EBIT before research and development costs EBIT Net loss Recognition and Measurement 2018 $000 59,036 1,183 2,397 (1,319) (2,891) 2017 $000 51,915 (3,477) (208) (5,700) (6,662) Revenue Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and rebates. 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. 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. Research and development expenses 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. Government grants Grants from the government that compensate the Group for expenses incurred are recognised in the profit and loss when funds are received and the Group has complied with all grant conditions. QUICKSTEP.COM.AU 41 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 B. Business Performance B.2 Segment Reporting The Company is managed as a whole and is considered to have a single operating segment. There is no further division of the Company or internal segment reporting used by the Directors when making strategic decisions or resource allocation decisions. Geographical Information 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. Revenue: United States of America Australia Other Total Non-current assets: United States of America Australia Other Total Major Customers 2018 $000 50,850 8,186 - 59,036 - 13,257 - 13,257 2017 $000 43,228 5,012 3,675 51,915 - 14,566 248 14,814 Approximately 86.1% (2017 83.3%) of revenue for the Group is attributable to the following customers (cid:120) Northrop Grumman ISS Int. Inc (cid:120) Lockheed Martin Aeronautics Co Loss per Share B.3 The calculation of basic loss per share is based on the loss attributable to ordinary shareholders and a weighted- average number (WAN) of ordinary shares outstanding. Loss attributable to ordinary shareholders Weighted average number of ordinary shares: Shares at 1 July Shares issued under share based payments arrangements Shares at 30 June Basic loss cents per share 2018 $ 2017 $ 2,891,000 6,662,000 2018 Number 2017 Number 562,880,792 562,474,143 - 64,618 562,880,792 562,538,761 (0.51) (1.18) Potential ordinary shares on issue are not considered to be dilutive as the Company is in a loss position and therefore the diluted loss per share equals the basic loss per share. 42 QUICKSTEP ANNUAL REPORT 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 B.4 Notes to Statement of Cash Flows Cash and Cash Equivalents Cash at bank and in hand Reconciliation of Net Profit to Net Cash Provided by Operating Activities Loss for the period Adjustments for: Amortisation of intangibles Depreciation and grant amortisation Bad debt write-off Share based payment expense Loss on disposal of non-current assets Net foreign currency losses Change in fair value of share option liability Change in operating assets and liabilities: (Increase)/decrease in trade and other receivables Decrease in inventories (Increase)/decrease in other current assets Increase/(decrease) in trade and other payables Increase in employee benefits Increase/(decrease) in deferred revenue Decrease in prepaid interest Net cash (used in) /from operating activities B.5 Income Tax Expenses Reconciliation of Income Tax Expense Numerical reconciliation of income tax expense to prima facie tax payable is as follows: Loss from continuing operations Tax benefit at the Australian tax rate of 30.0% (2017 - 30.0%) Expenditure not allowable for income tax purposes Effect of different tax rate for overseas subsidiaries Income not assessable Other Deferred tax asset not brought to account Prior year adjustment Income tax expense Current tax Deferred tax 2018 $000 2,862 2017 $000 3,722 2018 $000 2017 $000 (2,891) (6,662) 24 2,478 - 293 79 505 (125) 1,841 584 79 (1,888) 141 (2,508) 705 (683) 29 2,210 345 543 - 546 (575) (1,402) 1,307 (152) 2,604 199 154 948 94 2018 $000 2017 $000 (2,891) (6,662) (867) 90 156 (38) - 921 (262) - - - (1,999) 100 213 (173) 21 1,258 580 - - - QUICKSTEP.COM.AU 43 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 B. Business Performance Income Tax Expenses B.5 Tax Losses not brought to Account The gross amount of unused tax losses for which no deferred tax asset has been recognised Temporary Differences not brought to Account Deferred tax assets/(liabilities): Other provisions Borrowing costs Deductible capital raising costs Property, plant and equipment Intangibles Deferred tax assets relating to temporary differences not recognised 2018 $000 71,947 2017 $000 68,623 2018 $000 2017 $000 722 38 144 2,067 208 3,179 646 9 251 1,804 208 2,918 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 the Group considers it prudent to defer recognition until the Group generates taxable income. Tax Consolidation Legislation Quickstep Holdings Limited and its 100% owned Australian resident subsidiaries have formed a tax consolidated Group effective from 1 July 2010. Recognition and Measurement 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. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. 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. 44 QUICKSTEP ANNUAL REPORT 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 C. Capital and Financial Risk Management This section provides information relating to the Group’s capital structure and its exposure to financial risks, how they affect the Group’s financial position and performance and how the risks are managed. C.1 C.2 C.3 C.4 C.5 C.6 Loans and Borrowings Finance Income and Finance Costs Financial Instruments Financial Risk Management Share Capital Capital and other Commitments C.1 Loans and Borrowings 2018 Non- current $000 5,914 1,986 - 7,900 - - Current $000 2,121 353 184 2,658 3,000 - Total $000 Current $000 8,035 2,339 184 10,558 3,000 - 1,750 291 97 2,138 1,500 125 3,763 2017 Non- current $000 6,500 1,740 - 8,240 - - 8,240 Total $000 8,250 2,031 97 10,378 1,500 125 12,003 5,658 7,900 13,558 Effective interest rate Year of maturity 7.27 7.27 8.85 2021 2021 2019 2018 Maximum facility value $000 10,000 3,333 7,000 2017 Maximum facility value $000 10,000 3,333 3,000 Secured bank loan Capitalised interest facility Accrued borrowing cost Secured bank loan carrying amount Short term facility-Efic Newmarket share options at fair value Term and Debt Repayment Schedule Secured bank loan Capitalised Interest Short term facility - Efic 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 $3,333,000. Loan repayments commenced on 30 April 2016, with the final repayment due in October 2021. No further draw down of this facility can be made as the availability period has passed. Interest will be capitalised until the maximum facility value of $3,333,000 is reached. At 30 June 2018 the interest facility has been drawn to $2,339,000 (2017 $2,031,000). The Company has paid in this financial year an amount of $35,000 (2017 $208,000). 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 principal balance. QUICKSTEP.COM.AU 45 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 C. Capital and Financial Risk Management Loans and Borrowings C.1 Secured Bank Loan 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, refer Note C.6. Under this agreement, Quickstep Technologies Pty Ltd (Chargor) has agreed to the following restrictions on title on any of the assets over which Efic (Chargee) has a fixed charge. Without the consent of the Chargee, the Chargor may not: dispose of the Secured Property, lease or license the Secured Property or any interest in it, or deal with any existing lease or licence, part with possession of the Secured Property, (cid:120) (cid:120) (cid:120) (cid:120) waive any of the Chargor’s rights or release any person from its obligations in connection with the Secured (cid:120) 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. Short term facility – Efic Quickstep Holdings Limited executed an Export Contract Loan (ECL) agreement with Efic on 28 June, 2017 and a variation deed dated 25 June 2018. This revolving loan facility is limited to $7,000,000 (2017 $3,000,000) and each drawing under the facility will be due for repayment within 10 months of the drawdown date. The facility is in place to support additional working capital requirements related to growth of JSF deliveries and is available to be drawn up to 28 June 2019. The interest rate on the facility is a variable rate calculated as the sum of the base rate plus a margin of 5.85%, payable to Efic quarterly on funds drawn. Loan establishment fees of $40,000 were paid during FY18 and have been recognised through the profit and loss as finance expense (Note C.2). A commitment fee of 1.5%pa accrues from the date of the agreement and is payable to Efic quarterly. Recognition and Measurement 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 QUICKSTEP ANNUAL REPORT 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 C. Capital and Financial Risk Management C.2 Finance Income and Finance Costs Finance income Interest income Change in fair value of share option liability Finance income Finance costs Interest expense on liabilities measured at amortised cost Foreign currency losses Other expenses Finance costs Net finance costs Recognition and Measurement Finance income and finance costs 2018 $000 2017 $000 25 125 150 (1,063) (505) (154) (1,722) (1,572) 31 575 606 (947) (546) (75) (1,568) (962) Finance income comprises interest income on funds invested (including available-for-sale financial assets). 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, 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. C.3 Financial Instruments Current assets 2018 $000 2017 $000 Forward foreign exchange contracts – cash flow hedges 239 - Recognition and Measurement Fair Value Measurement When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in Other Comprehensive Income and accumulated in the cash flow hedge reserve. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit and loss. The Group uses forward foreign exchange contracts to hedge its currency exposure risk in relation to sales in US dollars – all hedges have a maturity date less than 1 year from reporting date. Valuation of Financial Measurement – cash flow hedges Foreign currency forward contracts are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. QUICKSTEP.COM.AU 47 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 C. Capital and Financial Risk Management Financial Risk Management C.4 Overview The Group has exposure to the following risks from its use of financial instruments: (cid:120) Credit risk; (cid:120) (cid:120) Market risk. Liquidity risk, and This note presents information about the Group’s exposure to each of the above risks, its objectives, policies and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout these financial statements. The Company’s 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. 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. The carrying amount of the Group’s financial assets represents the maximum credit exposure. Trade 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 default risk of the industry and country in which customers operate, as these factors may have an influence on 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, financial assets are neither past due or impaired. 48 QUICKSTEP ANNUAL REPORT 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 C. Capital and Financial Risk Management C.4 Financial Risk Management Exposure to credit risk The Group’s maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was: Australia Europe United States of America Liquidity Risk 2018 $000 1,608 - 2,843 4,451 2017 $000 1,286 940 4,066 6,292 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. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: Contractual maturities of financial liabilities At 30 June 2018 Trade and other payables Secured bank loan Short term facility At 30 June 2017 Trade and other payables Secured bank loan Short term facility Carrying amount $000 Contractual Cash flows $000 Less than 6 months $000 6 – 12 months $000 Between 1 and 2 years $000 Between 2 and 5 years $000 8,963 10,558 3,000 22,521 10,346 10,378 1,500 22,349 (8,963) (11,113) (3,136) (23,212) (10,346) (12,226) (1,618) (24,190) (8,963) (750) (598) (10,311) (10,346) (1,039) (59) (11,444) - (1,725) (2,538) (4,263) - (1,331) (1,559) (2,890) - - (3,450) (5,188) - - (3,450) (5,188) - - (2,953) (6,903) - - (2,953) (6,903) QUICKSTEP.COM.AU 49 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 C. Capital and Financial Risk Management C.4 Financial Risk Management 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 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 $3,333,000 with interest to be accrued on any deferred amount. The applicable interest rate is re-set on a monthly basis in accordance with the 30 days bank bill rate. The Group is exposed to interest rate risk pre-dominantly on cash balances and deposits and loans and borrowings. 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. Profile At the reporting date the interest rate profile of the Group’s interest-bearing financial assets/ (liabilities) was: Fixed rate instruments Held-to-maturity term deposits Variable rate instruments Cash and cash equivalents Secured bank loan Short term facility agreement – Efic 2018 $000 2017 $000 810 718 2,862 (10,374) (3,000) (10,512) 3,722 (10,281) (1,500) (8,059) As at the end of the reporting period, the Group had the following instruments outstanding: Held-to maturity term deposits Amount $274,000 $324,000 $120,000 $91,500 Interest rate 2.25% 2.25% 2.25% 2.20% Maturity date 4 October 2018 4 October 2018 4 October 2018 4 October 2018 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 as FY17. Variable rate instruments - increase by 100 basis points Variable rate instruments - decrease by 100 basis points 2018 $000 (105) 105 2017 $000 (81) 81 50 QUICKSTEP ANNUAL REPORT 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 C. Capital and Financial Risk Management C.4 Financial Risk 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), Great Britain Pounds (GBP) 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 subsidiary is not hedged as the currency positions are considered to be long- term in nature. The Group's exposure to foreign currency risk at the end of the reporting period was as follows: Receivables Cash Trade payables 2018 USD 000 2018 EUR 000 2018 GBP000 2017 USD 000 2017 EUR 000 2,101 403 (2,870) (366) - - (85) (85) - - (30) (30) 3,115 1,075 (3,321) 869 631 74 (59) 646 The following significant exchange rates applied have been applied: AUD v USD AUD v EUR AUD v GBP Average rate 2018 0.7732 0.6506 0.5765 2017 0.7530 0.6903 0.5788 Year-end spot rate 2017 2018 0.7391 0.6344 0.5634 0.7662 0.6718 0.5912 Sensitivity analysis A 10 percent movement of the Australian dollar against the following currencies at 30 June would have affected the movement of financial instruments denominated in a foreign currency and effected profit and loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. The analysis is performed on the same basis as FY17. Index US/AUD exchange rate - increase (10%) US/AUD exchange rate - decrease 10% GBP/AUD exchange rate - increase (10%) GBP/AUD exchange rate - decrease 10% EUR/AUD exchange rate - increase (10%) EUR/AUD exchange rate - decrease 10% Fair Value Hierarchy Profit or loss 2018 $000 45 (55) 5 (6) 12 (15) (14) 2017 $000 103 (126) 11 (13) 11 (13) (25) Equity, net of tax 2017 $000 2018 $000 (67) 82 (5) 6 791 (967) (165) (103) 126 625 (768) 625 (768) (120) Financial assets and liabilities, including foreign currency hedges and the Newmarket options are considered level 2 in the fair value hierarchy. The carrying value of financial assets and liabilities carried at amortised costs, approximate their fair value. During the year, there have been no transfers between levels in the fair value hierarchy. QUICKSTEP.COM.AU 51 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 C. Capital and Financial Risk Management C.5 Share Capital Capital Management The Group’s objectives are to safeguard the Group’s ability to continue as a going concern and 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, aerospace growth and commercialisation of technology requirements. There were no changes in the Group’s approach to capital management during the year. Movements in Share Capital 2018 Shares 2017 Shares 2018 $000 2017 $000 Opening balance 562,880,792 562,474,143 109,118 109,118 Shares issued under share based payments arrangements - 406,649 - - Closing balance 562,880,792 562,880,792 109,118 109,118 During the year, the Company issued Nil (2017 406,649) shares pursuant to share-based payment arrangements with certain key management personnel. 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. The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid. Options Movements in unissued shares under option: Opening balance Options lapsed Closing balance 2018 No of options 2017 No of options 25,000,000 25,000,000 - - 25,000,000 25,000,000 These options do not entitle the holders to participate in any share issue of the Company or any other body corporate. Mr. J C Douglas is a non-executive Director of the Group and is also a Director of Newmarket. Therefore at 30 June 2018, the Newmarket Options are considered to be held by a related party. Newmarket Share Options at Fair Value Newmarket Financing Management Pty Ltd and Associates (Newmarket) holds 25,000,000 (2017 25,000,000) options to acquire ordinary shares in Quickstep. These options expire on 31 December 2018. These options were revalued at 30 June 2018 to a fair value of 0 (zero) cents (2017 0.5 cents) per share or $NIL (2017 $125,000). The gain of $125,000 (2017 $575,000) has been recognised through the income statement as finance income, refer Note C.2 A Binomial Tree model was used to value these options per dollar issued. The model key assumptions were as follows: Expiry date Share price at valuation date Exercise price Contractual life Risk free interest rate Volatility of QHL Dividend Yield 31 December 2018 $0.075 $0.1625 0.5 Years 1.89% 40% 0% 52 QUICKSTEP ANNUAL REPORT 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 C. Capital and Financial Risk Management C.6 Capital and other commitments Capital Commitments Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows: Property, plant and equipment 2018 $000 796 2017 $000 784 Other Commitments – Pledged as Collateral against 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 subsidiary has provided Efic with a fixed and floating charge over the following: Cash and cash equivalents Trade and other receivables Inventories Property, Plant and equipment 2018 $000 1,954 4,335 9,935 12,448 2017 $000 1,634 5,914 9,791 13,485 Under this agreement, Quickstep Technologies Pty Ltd (Chargor) has agreed to the following restrictions on title on any of the assets over which Efic (Chargee) has a fixed charge. Without the consent of the Chargee, the Chargor may not: (cid:120) (cid:120) (cid:120) (cid:120) waive any of the Chargor’s rights or release any person from its obligations in connection with the dispose of the Secured Property, lease or license the Secured Property or any interest in it, or deal with any existing lease or licence, part with possession of the Secured Property, (cid:120) 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. Non-Cancellable Operating Leases The Group leases various premises and IT equipment under non-cancellable operating leases. The leases have varying terms, escalation and renewal rights. On renewal, the terms of the leases are negotiated. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Less than one year Between one and five years More than five years 2018 $000 2017 $000 2,424 6,192 - 8,616 2,253 7,847 - 10,100 The operating lease expense for the year ended 30 June 2018 was $2,424,000 (2017 $2,597,000). Recognition and Measurement Leases Payments made under operating leases are recognised in the statement of profit and loss and other comprehensive income on a straight-line basis over the term of the lease. QUICKSTEP.COM.AU 53 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 D. Operating Assets and Liabilities This section provides information relating to the operating assets and liabilities of the Group. Quickstep has a strong focus on maintaining a strong balance sheet through continued focus on cash conversion. The Group’s strategy also considers expenditure, growth and acquisition requirements. D.1 Trade and Other Receivables D.2 Inventories D.3 Deferred Revenue D.4 Property, Plant and Equipment D.1 Trade and Other Receivables Current assets Trade receivables Other receivables All trade receivables are current. Recognition and Measurement 2018 $000 3,971 480 4,451 2017 $000 4,756 1,536 6,292 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 de-recognises 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. D.2 Inventories Current assets Raw materials and consumables Work in progress Finished goods Recognition and Measurement 2018 $000 4,919 4,261 835 10,015 2017 $000 6,136 3,920 543 10,599 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. 54 QUICKSTEP ANNUAL REPORT 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 D. Operating Assets and Liabilities D.3 Deferred Revenue Current Non-current 2018 $000 2,394 - 2,394 2017 $000 4,220 682 4,902 The amounts reported as 2018 deferred revenue include: (cid:120) (cid:120) Lockheed Martin Aeronautics Co - a 30% advance payment for long lead time materials for C-130J wing flaps, income will be recognised by September 2018. Lockheed Martin Aeronautics Co - amount received in advance to support the robotic drill project, income will be recognised by November 2018. D.4 Property, Plant and Equipment Plant and equipment $000 Assets under construction $000 Office furniture & equipment $000 2018 Opening net book amount Additions Government grant received Transfers from assets under construction Disposals Amortisation of grant Depreciation charge Closing net book amount Cost Accumulated depreciation 2017 Opening net book amount Additions Government grant received Transfers from assets under construction Effect of movements in exchange rates Amortisation of grant Depreciation charge Closing net book amount Cost Accumulated depreciation 13,847 - (141) 1,285 (37) 488 (2,922) 12,520 32,156 (19,636) 9,670 174 (467) 6,558 (1) 341 (2,428) 13,847 31,648 (17,801) 782 1,165 - (1,373) - - - 574 574 - 3,144 4,198 - (6,560) - - - 782 782 - Total $000 14,753 1,165 (141) - (62) 488 (2,966) 13,237 33,455 124 - - 88 (25) - (44) 143 725 (582) (20,218) 244 1 - 2 - - (123) 124 987 (863) 13,058 4,373 (467) - (1) 341 (2,551) 14,753 33,417 (18,664) QUICKSTEP.COM.AU 55 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 D. Operating Assets and Liabilities D.4 Property, Plant and Equipment Recognition and Measurement 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 Asset Plant and factory equipment Office equipment Depreciation Rate 6.67% to 37.50% 6.67% to 50.00% Impairment 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. 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. 56 QUICKSTEP ANNUAL REPORT 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 E. Employee Benefits This section provides a breakdown of the various programs Quickstep uses to reward and recognise employees and Key Management Personnel (KMP). Quickstep believes that these programs reinforce the value of ownership and incentives and drive performance both individually and collectively to deliver better returns to shareholders. E.1 Employee Benefit Obligations E.2 Related Party Transactions E.3 Employee Benefit Expense E.4 Quickstep Incentive Rights Plan (IRP) E.5 Equity Settled Short Term Incentive E.1 Employee Benefit Obligations Employee benefit obligation - Annual leave (current) - Long service leave (non-current) Recognition and Measurement 2018 $000 1,179 310 1,489 2017 $000 1,138 210 1,348 Long service leave The liabilities for long service leave are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. They are therefore recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of high quality corporate bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss. E.2 Employee Benefit Expense Wages and salaries Defined contribution plan expense Increase in leave liabilities Share based payments expense 2018 $000 20,001 1,588 141 293 22,023 2017 $000 19,050 1,536 199 543 21,328 QUICKSTEP.COM.AU 57 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 E. Employee Benefits E.2 Employee Benefit Expense Recognition and Measurement Wages and salaries Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months after the end of the period in which the employees render the related service, are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. 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. E.3 Related Party Transactions Key Management Personnel Compensation The key management personnel compensation included in “Employee benefit expense” in note E.2 is as follows: Short-term employee benefits Share-based payments Termination benefits The total value of the rights is allocated to remuneration over the vesting period. 2018 $000 2,273 279 76 2,625 2017 $000 2,599 371 - 2,970 58 QUICKSTEP ANNUAL REPORT 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 E. Employee Benefits E.4 Quickstep Incentive Rights Plan (IRP) During the 2014 financial year the Company established the Quickstep Incentive Rights Plan (IRP).The IRP was designed to facilitate the Company moving towards best practice remuneration structures for executives. In 2015 the Board adopted Revised Rules for the IRP to ensure the IRP continued to reflect market practice and remained appropriate for the Company. These Revised Rules were approved by shareholders at the Company’s 2015 Annual General Meeting. The IRP authorises the granting of Rights to executives of the Company, in the form of Performance Rights (PRs) and/or Deferred Rights (DRs) (together, Rights). These rights represent an entitlement on vesting to fully paid ordinary shares in the issued capital of the Company (Shares) and cash with the total value of cash and Shares being equal to the value of vested Rights (number of vested Rights x market value of a Share). PRs may vest if Performance Conditions are satisfied. DRs may vest if service conditions are satisfied. Further details regarding the IRP are set out in the Remuneration Report. During 2018 an expense of $293,000 (2017 $543,000), refer Note B.4 has been recognised in the financial statements in respect of the portion of the fair value of rights attributable to the current financial year as required by accounting standards. A Monte-Carlo model was used to value the rights. The model's key assumptions were as follows: In Relation to CEO Performance Rights Tranche Grant date First testing date Expiry date Share price at grant date Expected life (years) Risk free factor Volatility of QHL Volatility of AOAI Dividend yield CEO Transition 1 01/12/17 31/08/18 31/08/18 $0.089 0.7 1.66% 40% 12% 0% CEO Transition 2 01/12/17 31/08/19 31/08/19 $0.089 1.7 1.76% 40% 12% 0% In Relation to Performance Rights Tranche Grant date First testing date Expiry date Share price at grant date Expected life (years) Risk free factor Volatility of QHL Volatility of AOAI Dividend yield 3 16/02/15 31/08/17 31/08/19 $0.20 2.9 1.86% 55% 12% 0% FY15 31/08/14 31/08/17 31/08/19 $0.185 3.3 2.69% 55% 12% 0% FY15(a) 19/02/15 31/08/17 31/08/19 $0.20 2.9 1.83% 55% 12% 0% FY16 01/06/16 31/08/18 31/08/20 $0.14 2.7 1.65% 45% 15% 0% FY17 01/03/17 31/08/19 31/08/21 $0.105 2.9 1.97% 40% 13% 0% FY18 01/12/17 31/08/20 31/08/22 $0.89 3.1 1.93% 40% 12% 0% QUICKSTEP.COM.AU 59 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 E. Employee Benefits E.4 Quickstep Incentive Rights Plan (IRP) Rights Movements in unissued shares under rights: Opening balance Granted during the year Rights vested Rights forfeited/lapsed Closing balance The rights are issued pursuant to: 2018 No of rights 2017 No of rights 11,059,693 5,773,667 7,419,773 6,116,592 - (1,692,590) (415,283) (415,283) 16,786,876 11,059,693 (cid:120) Executive services agreements, which rights vest at various times in the future according to years of service completed. (cid:120) Offers under the Incentive Rights Plan (IRP), which vests at various future dates upon satisfaction of (cid:120) performance conditions and service criteria. The exercise price of the rights is Nil and the rights are lapsed if employment is terminated prior to the vesting date. E.5 Equity Settled Short Term Incentive Certain executives are eligible to receive short term incentives (STI) in cash and/or shares based on achievement of key performance indicators (KPIs). Each year the RN&D Committee considers the appropriate targets and KPIs and the alignment of individual rewards to the Group's performance. These targets may include measures related to the annual performance of the Group and/or specified parts of the Group and are measured against actual outcomes. The number of shares issued to executives is based on the accrued equity settled STI value divided by the weighted average share price on the date the shares are granted. In FY18 Nil (2017 Nil) shares were issued to employees. 60 QUICKSTEP ANNUAL REPORT 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 F. Other Disclosures This section provides details on other required disclosures relating to the Group to comply with the accounting standards and other pronouncements. F.1 Group Entities F.2 Parent Entity Financial Information F.3 Deed Of Cross Guarantee F.4 Auditors’ Remuneration Subsequent Events F.5 F.6 New Accounting Standards F.1 Group Entities Name of entity Parent entity Quickstep Holdings Limited Controlled entities Quickstep Technologies Pty Limited * Quickstep Systems Pty Limited * Quickstep GmbH Quickstep Automotive Pty Limited * Quickstep Aerospace Pty Limited * Quickstep USA Inc. Country of Incorporation Ownership Interest 2017 2018 % % Australia Australia Australia Germany Australia Australia USA 100 100 100 100 100 100 100 100 100 100 100 - Quickstep USA Inc was incorporated 30 April 2018. There have been no transactions in FY18. * Companies entered into deed of cross guarantee with Quickstep Holdings Limited. F.2 Parent Entity Financial Information As at, and throughout, the financial year ending 30 June 2018 the parent entity of the Group was Quickstep Holdings Limited. Results of the parent entity (Loss) /profit for the year Total Comprehensive income Financial position of the parent entity at year end Total assets Total liabilities Net assets / (liabilities) Total equity of the parent entity comprises Share capital Reserves Accumulated losses Total equity 2018 $000 2017 $000 21 530 1,073 1,100 5,031 (4,259) 772 2,854 (2,612) 242 109,118 5,276 (113,622) 772 109,118 4,767 (113,643) 242 QUICKSTEP.COM.AU 61 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 F. Other Disclosures Deed of Cross Guarantee F.3 Under the terms of ASIC Corporations (Wholly owned Companies) Instrument 2016/785, certain wholly owned controlled entities have been granted relief from the requirement to prepare audited financial reports. Quickstep Holdings Limited has entered into an approved deed of indemnity for the cross- guarantee of liabilities with those controlled entities in Note F.1. The following consolidated Statement of Comprehensive Income and Balance Sheet comprise Quickstep Holdings Limited and its controlled entities which are party to the Deed of Cross Guarantee (refer Note F.1.), after eliminating all transactions between parties to the Deed. Statement of Profit and Loss and other Comprehensive Income Revenue Loss before income tax Income tax benefit Loss for the year Other comprehensive income net of income tax Items that might be reclassified to profit or loss Cash flow hedges Total comprehensive (loss) for the year Balance Sheet ASSETS Current assets Cash and cash equivalents Derivative financial instruments Term deposits Trade and other receivables Prepayment and other assets Inventories Total current assets Non-current assets Property, plant and equipment Intangibles Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Loans and borrowings Deferred revenue Employee benefit obligations Total current liabilities Non-current liabilities Loans and borrowings Employee benefit obligations Total non-current liabilities Total liabilities Net assets EQUITY Share capital Reserves Accumulated losses Total equity 2018 $000 59,036 (8,318) - (8,318) 239 (8,079) 2,862 239 810 4,423 533 10,015 18,882 13,237 20 13,257 32,139 7,619 5,658 2,394 1,179 16,850 7,900 310 8,210 25,060 7,079 109,118 5,515 (107,554) 7,079 62 QUICKSTEP ANNUAL REPORT 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 F. Other Disclosures Auditor’s Remuneration F.4 Amounts received or due and receivable by the auditor KPMG for: Audit services Other services Grant assurance Accounting and tax services Total non-audit fee 2018 $ 2017 $ 209,500 205,000 5,000 24,040 29,040 238,540 23,200 - 23,200 228,200 Subsequent Events F.5 There have been no matters or circumstances that have arisen since 30 June 2018 up to the date of this report that would significantly affect: (cid:120) (cid:120) (cid:120) the operations of the Consolidated Entity; the results of those operations; and the state of affairs of the Consolidated Entity. F.5 New Accounting Standards AASB 15 Revenue Recognition AASB 15, which becomes mandatory for the Group from 1 July 2018, will replace AASB 118 which covers revenue arising from the sale of goods and the rendering of services and AASB 111 which covers construction contracts. AASB 15 is based on the principle that revenue is recognised when control of a good or service transfers to a customer. This new standard permits either a full retrospective or a modified retrospective approach for the adoption. The Group will apply the cumulative effect method as at the initial date of application being 1 July 2018. The Group has completed an impact assessment of adopting this standard and identified the key difference between the Group’s current accounting policy and treatment under AASB 15 is that from 1 July 2018 revenue will be recognized over the performance period (i.e. period of manufacture) instead of at a point in time (i.e. dispatch of goods). Based on this assessment the estimate impact for the year ended 30 June 2018 would be an increase of revenue of $ 6.7 million and increase in costs of goods sold of $5.2 million and have a net impact on the Income Statement of approximately $1.5 million. The Group expects to make an adjustment to increase opening retained earnings by $1.5 million as at 1 July 2018. QUICKSTEP.COM.AU 63 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 Notes to the Consolidated Financial Statements for the year ended 30 June 2018 F. Other Disclosures F.5 New Accounting Standards AASB 9 Financial Instruments AASB 9 ‘Financial Instruments’ replaces the existing guidance in AASB 139 ‘Financial Instruments: Recognition and Measurement’. It includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and de- recognition of financial instruments from AASB 139. AASB 9 is not mandatory until 1 July 2018 for the Group Management has completed a review of the potential impact on its financial statements resulting from the application of AASB 9 and determined there is no material impact. The Group will adopt AASB 9 for the year ended 30 June 2019. AASB 16 Leases AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and financial leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change. The standard will affect primarily the accounting for the Group’s operating leases. Refer to Note C.6. for details of the Group non-cancellable lease commitments. However, the Group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the Group’s loss and classification of cash flows. Some of the commitments may be covered by the exception for short-term and low-value leases and some commitments may relate to arrangements that will not qualify as leases under AASB 16. This standard permits either a full retrospective or a modified retrospective approach for the adoption. The standard is effective for the first interim period within annual reporting periods beginning after 1 January 2019. The Group has decided to adopt AASB 16 in FY20. 64 QUICKSTEP ANNUAL REPORT 2018 Directors’ Declaration for the year ended 30 June 2018 Directors’ Declaration for the year ended 30 June 2018 In the Directors' opinion: (cid:9)(cid:66)(cid:10) the consolidated financial statements and notes set out on pages (cid:20)(cid:20) to (cid:23)(cid:20) and the Remuneration(cid:1) report on pages (cid:19)(cid:21) to (cid:20)(cid:18) in the Directors’ report, are in accordance with the Corporations Act 2001,(cid:1) including: (cid:74)(cid:15) (cid:74)(cid:74)(cid:15) complying with Australian Accounting Standards and the Corporations Regulations 2001;(cid:1) and giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its(cid:1) performance for the year ended on that date; and (cid:9)(cid:67)(cid:10) there are reasonable grounds to believe that the Company will be able to pay its debts as and(cid:1) when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2018. The directors confirm that the financial statements comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. There are reasonable grounds to believe that the Company and the group entities identified in Note F.1 will be able to meet any obligations or liabilities to which they are, or may become, subject to by virtue of the Deed of Cross Guarantee between the Company and those Group entities pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785. This declaration is made in accordance with a resolution of Directors. Mr. M H Burgess Director 28 August 2018 Sydney, New South Wales QUICKSTEP.COM.AU 65 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Quickstep Holdings Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Quickstep Holding Ltd for the financial year ended 30 June 2018 there have been: i. ii. No contraventions(cid:3)of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and No contraventions of any applicable code of professional conduct in relation to the audit(cid:17) (cid:60)(cid:87)(cid:68)(cid:890)(cid:47)(cid:69)(cid:47)(cid:890)(cid:1004)(cid:1005)(cid:3) (cid:94)(cid:47)(cid:39)(cid:890)(cid:1004)(cid:1005)(cid:3) (cid:87)(cid:4)(cid:90)(cid:890)(cid:69)(cid:4)(cid:68)(cid:890)(cid:1004)(cid:1005)(cid:3) (cid:87)(cid:4)(cid:90)(cid:890)(cid:87)(cid:75)(cid:94)(cid:890)(cid:1004)(cid:1005)(cid:3) (cid:87)(cid:4)(cid:90)(cid:890)(cid:24)(cid:4)(cid:100)(cid:890)(cid:1004)(cid:1005)(cid:3) (cid:87)(cid:4)(cid:90)(cid:890)(cid:18)(cid:47)(cid:100)(cid:890)(cid:1004)(cid:1005)(cid:3) KPMG Charmaine Hopkins Partner Sydney, 28 August 2018 (cid:46)(cid:51)(cid:48)(cid:42)(cid:15)(cid:3)(cid:68)(cid:81)(cid:3)(cid:36)(cid:88)(cid:86)(cid:87)(cid:85)(cid:68)(cid:79)(cid:76)(cid:68)(cid:81)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:85)(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:46)(cid:51)(cid:48)(cid:42)(cid:3) (cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:85)(cid:80)(cid:86)(cid:3)(cid:68)(cid:73)(cid:73)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:46)(cid:51)(cid:48)(cid:42)(cid:3) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:11)(cid:179)(cid:46)(cid:51)(cid:48)(cid:42)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:3)(cid:54)(cid:90)(cid:76)(cid:86)(cid:86)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3) (cid:47)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:68)(cid:3)(cid:86)(cid:70)(cid:75)(cid:72)(cid:80)(cid:72)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3) (cid:51)(cid:85)(cid:82)(cid:73)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:47)(cid:72)(cid:74)(cid:76)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3) 66 QUICKSTEP ANNUAL REPORT 2018 Independent Auditor’s Report To the shareholders of Quickstep Holdings Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Quickstep Holdings Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: (cid:120) (cid:120) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: (cid:120) Consolidated Balance Sheet as at 30 June 2018; (cid:120) Consolidated Statement of Profit or Loss and other Comprehensive Income, Consolidated Statement of Changes in Equity, and Consolidated Statement of Cash Flows for the year then ended; (cid:120) Notes including a summary of significant accounting policies; and (cid:120) Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. (cid:46)(cid:51)(cid:48)(cid:42)(cid:15)(cid:3)(cid:68)(cid:81)(cid:3)(cid:36)(cid:88)(cid:86)(cid:87)(cid:85)(cid:68)(cid:79)(cid:76)(cid:68)(cid:81)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:85)(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:46)(cid:51)(cid:48)(cid:42)(cid:3) (cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:85)(cid:80)(cid:86)(cid:3)(cid:68)(cid:73)(cid:73)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:46)(cid:51)(cid:48)(cid:42)(cid:3) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:11)(cid:179)(cid:46)(cid:51)(cid:48)(cid:42)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:3)(cid:54)(cid:90)(cid:76)(cid:86)(cid:86)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3) (cid:47)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:68)(cid:3)(cid:86)(cid:70)(cid:75)(cid:72)(cid:80)(cid:72)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3) (cid:51)(cid:85)(cid:82)(cid:73)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:47)(cid:72)(cid:74)(cid:76)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3) QUICKSTEP.COM.AU 67 Material uncertainty related to going concern We draw attention to Note A “Going Concern” in the financial report. The conditions disclosed in Note A, indicate a material uncertainty exists that may cast doubt on the Group’s ability to continue as a going concern and, therefore, whether it will realise its assets and discharge its liabilities in the normal course of business, and at the amounts stated in the financial report. Our opinion is not modified in respect of this matter. In concluding there is a material uncertainty related to going concern we evaluated the extent of uncertainty regarding events or conditions casting significant doubt in the Group’s assessment of going concern. This included: (cid:120) Evaluating the underlying data used by management to derive forecast cash flows. We specifically considered the consistency of the underlying data with budgets and forecasts approved by the Directors and tested by us. We also considered the consistency of the underlying data with our understanding of the Group’s intentions, as outlined in Directors minutes. (cid:120) Analysing the potential impact of reasonably possible changes in projected cash flows and their timing, to the projected periodic cash positions. Assessing the resultant impact on the ability of the Group to pay debts as and when they fall due and continue as a going concern. The specific areas we focused on were informed from our test results of the accuracy of previous Group cash flow projections and sensitivity analysis on key cash flow projection assumptions; (cid:120) Assessing the planned levels of operating and capital expenditures for consistency of relationships and trends to the Group’s historical results, results since year end, and our understanding of the business, industry and economic conditions of the Group. We have also considered the ability of the Group to defer or cancel forecast uncommitted capital and research and development expenditure; (cid:120) Assessed significant non-routine forecast cash outflows by inspecting associated third party correspondence to consider the impact of possible changes on the quantum and timing of amounts to be paid on the cashflow projections; (cid:120) Assessed the Group’s forecast of advance payments from customers. We checked assumptions of quantum and timing to customer correspondence and signed customer contracts, to assess their accuracy to the cashflow projections; (cid:120) Reading correspondence and agreements with existing financiers to understand and assess the variation to existing debt facilities. (cid:120) We evaluated the Group’s going concern disclosures in the financial report by comparing them to our understanding of the matter, the events or conditions incorporated into the cash flow projection assessment, the Group’s plans to address those events or conditions, and accounting standard requirements. 68 QUICKSTEP ANNUAL REPORT 2018 Key Audit Matters Key Audit Matters are those matters that, in our professional judgment, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matter described below to be the Key Audit Matter. Revenue recognition ($59.0m) Refer to Note B.1 to the Financial Report The key audit matter How the matter was addressed in our audit The Group generates revenue through sale of goods. The Group also receives payments in advance of sale which results in deferred revenue being recognised. We focused on this as a key audit matter due to the significance of the quantum of revenue recognised combined with the large volume of transactions. This necessitated additional audit effort across the transactions. Our procedures included: (cid:120) We evaluated the Group’s process for revenue recognition and deferral of advanced payments in accordance with the accounting standards; (cid:120) We tested a statistical sample of revenue transactions recognised during the year and checked recognition against underlying invoices to customers, customer signed dispatch dockets or evidence of delivery and the Group’s revenue recognition policy; (cid:120) We selected a sample of pre and post year end revenue transactions and checked the timing of revenue recognition against underlying invoices to customers, customer signed dispatch dockets or evidence of delivery and the Group’s revenue recognition policy; (cid:120) We selected a sample of post year end credit notes to assess the recognition of revenue in the appropriate period; and (cid:120) We selected a sample of advanced payment receipts from customers to check the deferral of revenue in accordance with the Group’s revenue recognition policy. QUICKSTEP.COM.AU 69 Other Information Other Information is financial and non-financial information in Quickstep Holdings Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinions. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: (cid:120) preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 (cid:120) (cid:120) implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error assessing the Group’s ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: (cid:120) (cid:120) to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. 70 QUICKSTEP ANNUAL REPORT 2018 Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Quickstep Holdings Limited for the year ended 30 June 2018, complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in page 24 to 31 of the Directors’ report for the year ended 30 June 2018. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Charmaine Hopkins Partner Sydney 28 August 2018 QUICKSTEP.COM.AU 71 Shareholder Information for the year ended 30 June 2018 Shareholder Information for the year ended 30 June 2018 The shareholder information set out below was applicable as at 31 July 2018. A. Voting rights The voting rights attaching to each class of equity securities are set out below: (a) 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. (b) Options do not carry any voting rights. B. Substantial holders Substantial holders in the Company are set out below: C. On Market buy back There is no current on-market buy back. D. Distribution schedules Distribution of each class of security as at 31 July 2018: Ordinary fully paid shares Range Holders Units 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - Over Total 459 860 830 2,650 759 5,558 103,017 2,823,027 6,756,165 104,673,056 448,525,527 562,880,792 % 0.02 0.50 1.20 18.60 79.68 Options exercisable at the lesser of $0.25 or 25% above the issue price of any equity capital raising up to $10M undertaken prior to 31 December 2018 (unlisted). Range Holders 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - Over Total E. Unmarketable parcels - - - - 1 1 Units - - - - 25,000,000 25,000,000 % - - - - 100.00 100.00 Holdings less than a marketable parcel of ordinary shares (being $500 parcel at $0.0890 per share): Holders 1,389 Units 3,296,659 72 QUICKSTEP ANNUAL REPORT 2018 Shareholder Information for the year ended 30 June 2018 Shareholder Information for the year ended 30 June 2018 D. Top holders The 20 largest registered holders of each class of quoted security as at 31 July 2018 were: Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Holder Name Washington H Soul Pattinson And Company Limited Deakin University State One Stockbroking Pty Ltd Farjoy P Romsup PL Code Nom PL Decta Holdings Pty Ltd WSF Pty Ltd HSBC Custody Nominees (Australia) Limited Hobson Cove PL Best Holding Pty Ltd Petia Super Pty Ltd Yarraandoo Pty Ltd Sols Super Pty Ltd Exwere Investments Pty Ltd Bond Street Custodians Limited BNP Paribas Nominees Pty Ltd Mr Richard Cornelis Peetera Total Securities 89,419,161 33,333,333 16,214,017 13,680,981 8,812,430 7,207,580 6,788,904 6,305,793 4,470,854 4,000,000 3,500,000 3,065,661 3,058,920 3,048,688 2,959,933 2,748,830 2,400,000 2,149,464 2,134,839 2,120,000 217,419,518 % 15.89 5.92 2.88 2.43 1.57 1.28 1.21 1.12 0.79 0.71 0.62 0.54 0.54 0.54 0.53 0.49 0.43 0.38 0.38 0.38 38.63 QUICKSTEP.COM.AU 73 Corporate Directory DIRECTORS Mr. T H J Quick Mr. M H Burgess Mr. J C Douglas Mr. B A Griff iths SECRETARY Mr. J Pinto Chair CEO and Managing Director Non-Executive Director Non-Executive Director PRINCIPAL OFFICE 361 Milperra Road Bankstown Airport New South Wales 2200 Australia Telephone: +61 2 9774 0300 Internet: www.quickstep.com.au Email: info@quickstep.com.au REGISTERED OFFICE Level 2 160 Pitt Street Sydney New South Wales 2000 AUDITOR KPMG Chartered Accountants Tower 3 300 Barangaroo Avenue Sydney New South Wales 2000 SHARE REGISTRY Computershare Investor Services Pty Ltd 452 Johnston Street Abbotsford Victoria 3067 STOCK EXCHANGE Australian Securities Exchange Limited Exchange Centre 20 Bridge Street Sydney New South Wales 2000 ASX CODE QHL WWW. 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