Rectifier Technologies
Annual Report 2018

Plain-text annual report

RECTIFIER TECHNOLOGIES LTD ABN: 82 058 010 692 ANNUAL REPORT 2018 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES COMPANY PARTICULARS BOARD OF DIRECTORS Mr. Ying Ming Wang Mr. Yanbin Wang Mr. Valentino Vescovi Mr. Nigel Machin SECRETARY Mr. Justyn Stedwell REGISTERED AND BUSINESS OFFICE Rectifier Technologies Ltd 24 Harker Street BURWOOD, VIC 3125 Telephone: Facsimile: + 61 3 9896 7550 + 61 3 9896 7566 MANUFACTURING FACILITY- MALAYSIA Rectifier Technologies (M) Sdn Bhd No. 5 & 7, Jalan Laman Setia 7/8 Taman Laman Setia 81550 GELANG PATAH, JOHOR MALAYSIA Telephone: + 60 7 522 6006 Facsimile: + 60 7 522 6060 SHARE REGISTRY Computershare Investor Services Pty Ltd 452 Johnston Street ABBOTSFORD, VIC 3067 Telephone: 1300 137 328 BANKERS ANZ Banking Group Limited 10 Main Street, Box hill MELBOURNE, VIC 3128 FINANCIERS Scottish Pacific Benchmark Group Level 2, 441 St Kilda Rd MELBOURNE, VIC 3004 AUDITORS Grant Thornton Audit Pty Ltd Collins Square, Tower 1 727 Collins Street MELBOURNE, VIC 3008 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES CONTENTS Chairman’s Report Directors’ Report Auditor’s Independence Declaration Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Cash Flows Statement of Changes in Equity Notes to the Financial Statements Directors’ Declaration Auditor’s Report Additional Information 1 3 13 14 15 16 17 18 55 56 60 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES CHAIRMAN’S REPORT Financial Results The total revenues increased by approximately 13% to $7.8 million from $6.9 million in the previous reporting period. The increase in revenues during the year to 30 June 2018 was due to the significant improvement in sales of some of our key products used in the industrial power supplies, particularly in the electric vehicle (EV) market; meanwhile sales in other market segments remained steady compared to previous reporting period. The EV market has contributed $1.5 million to sales in the current reporting period compared to $167K to sales in the previous reporting period (Note 22). The company expects sales from these products to continue improving in the 2019 financial year. The company reported a higher net profit before income tax amounting to $463K compared to a net profit before income tax of $258K in the previous reporting period. This was due to an increase in sales during the year. In the meantime, gross margins have remained similar to last year, despite our significant capital investment to upgrade our manufacturing facility in Malaysia and a better research and development team. The upgraded manufacturing facility increased our production capacity in 2019 financial year. Our continued expansion and investment in R&D give us a leading position in the industrial power industry. The company reported a net profit of $62K compared to a net loss of $35K as result of the adjustment for tax expense of $463K from the previous financial reporting period being restated (Note 1). Revenue from continuing operations (refer to note 3) Gross Profit Gross Margin % Profit/(loss) from continuing operations before tax Income Tax Benefit/(Expense) Income Tax Benefit/(Expense) adjustment Profit/(loss) from continuing operations after tax Net Profit/(Loss) ($'000') 2018 2017 7,835 4,064 57% 463 (401) - 62 62 6,881 3,688 59% 258 170 (463) (35) (35) Funding Our subsidiary in Malaysia obtained a loan from a director of the group amounting to $81,721 in the previous reporting period. The loan was repaid in full during the current financial period. On 6 Feburary 2017, Rectifier Technologies Malaysia obtained a loan amounting to MYR$5,460,000 from Public Bank Berhad to acquire a new manufacturing facility. The interest on the loan is variable and term of loan is 20 years. After monthly repayment, the carrying amount of the loan was MYR$5,288,987 at end of reporting period of 2018. 1 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES Outlook We continue to focus on R&D and in developing technology platforms for the evolving energy market, particularly the electric vehicle space. In the previous financial year, we released OEM power modules for EV charger market as well as our own EV DC Home Charger and OEM RT15 EV Start Kit products. Our fast and flexible approach to R&D has allowed us to exploit opportunities available in this sector, leading to significant commercial success. We currently work with various partners to deliver the best solutions to the market. We are currently developing technology platforms that will provide solutions to support the growth of EV products in Europe and in the USA which is expected to increase rapidly in the next 5 years. The group will continue to focus on R&D in order to overcome the technical challenges of developing new products. This investment is expected to improve quality and capacity across a number of our markets. 2 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES Your directors present their report on the company and its controlled entities for the financial year ended 30 June 2018. DIRECTORS’ REPORT Directors The names of directors in office at any time during or since the end of the year are: Mr. Ying Ming Wang Mr. Yanbin Wang Mr. Valentino Vescovi Mr. Nigel Machin Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. Company Secretary Mr. Justyn Stedwell was appointed as Company Secretary on 31 July 2014. He is a professional Company Secretary with over 10 years’ experience as a Company Secretary of ASX listed companies. Mr Stedwell holds Bachelor of Commerce from Monash University and a Graduate Diploma in Accounting from Deakin University. Principal Activities The principal activities of the consolidated entity during the financial year were the design and manufacture of high efficiency power rectifiers, and the production of electronic and specialised magnetic components. Operating Results The consolidated profit/(loss) of the Group after providing for income tax amounted to a profit of $62,442 compared to a loss of $34,900 in 2017. Review of Operations, Financial Position and Business Strategies Specific information on the review of operations, financial position and business strategies is stated in the Chairman’s Report. Likely Developments Information on likely developments in the operations of the consolidated entity and the expected results of those operations in future financial years is stated in the Chairman’s Report. Dividends Paid or Recommended No dividend was paid or recommended during the financial year. Significant Changes in State of Affairs There are no other significant changes in the state of affairs of the consolidated Group other than these referred to under the heading “Likely Developments”. Matters subsequent to the end of the financial year Rectifier Technologies Limited has received additional product purchase orders from Tritium Pty Ltd totalling 3.4 million USD for the supply of 35kW high-voltage and high-efficiency modular power supply units for DC electric vehicle charging. The orders are scheduled to be delivered before the end of March 2019 and are binding purchase orders. 3 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES Environmental Issues DIRECTORS’REPORT The consolidated entity’s operations are not subject to significant environmental regulation under the law of the Commonwealth or of a State. Information on Directors Mr. Ying Ming Wang Qualification Experience Interest in Shares and Options Mr. Yanbin Wang Qualifications Experience Interest in Shares and Options - - - - - - - - Director (Non-executive) Ph. D in Science Board Member since June 2006 224,643,616 Ordinary Shares of Rectifier Technologies Ltd Director and CEO Master of Law and Ph. D in International Relations Board Member since August 2010 70,000,000 Ordinary Shares of Rectifier Technologies Ltd Mr. Valentino Vescovi - Director (Non-executive) Qualifications Experience Interest in Shares and Options - - - Master of Science, Bachelor of Science Board member 2003-2010 and from 30 October 2012 37,821,196 Ordinary Shares, and 7,040,000 unlisted options exercisable at 2c each Mr. Nigel Machin - Director and Chief Power Engineer Qualifications Experience Interest in Shares and Options Audited Remuneration Report - - - Bachelor of Engineering Electrical Board member since 3 April 2017 22,010,000 Ordinary Shares, and 1,800,000 unlisted options exercisable at 2c each This report details the nature and amount of remuneration for each director of Rectifier Technologies Ltd and other key management personnel. The Remuneration Report is audited. Remuneration Policy The remuneration policy of Rectifier Technologies Ltd has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the consolidated entity’s financial results. The Board of Rectifier Technologies Ltd believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best executives and directors to run and manage the consolidated entity, as well as create goal congruence between directors, executives and shareholders. The Board’s policy for determining the nature and amount of remuneration for Board members and senior executives of the consolidated entity is as follows: The performance of executives is measured against criteria agreed annually with each executive and is based predominantly on the forecast growth of the consolidated entity’s profits and shareholders’ value. All bonuses and incentives must be linked to predetermined performance criteria. The Board has discretion in relation to approving incentives, bonuses and options. Any changes must be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth. Executives and Key management personnel are also entitled to participate in the share option arrangements. The executive directors and key management personnel receive a superannuation guarantee contribution required by the Government, which is currently 9.5%, and do not receive any other retirement benefits. Some individuals, however, have chosen to sacrifice part of their salary to increase payments towards superannuation. 4 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES DIRECTORS’ REPORT All remuneration paid to directors and executives is valued at the cost to the company and expensed. Should shares be given to directors or executives, they would be valued as the difference between the market price of those shares and the amount paid by the director or executive. Options are valued using an appropriate methodology. The Board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The Board determines payments to the non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Fees for non-executive directors are not linked to the performance of the consolidated entity. Performance Based Remuneration As part of each executive director and executive’s remuneration package there may be a performance-based component, consisting of key performance indicators (KPI’s). The intention of this program is to facilitate goal congruence between directors/executives with that of the business and shareholders. Where applicable, the KPI’s are set annually, with a certain level of consultation with directors/executives to ensure buy-in. The measures are specifically tailored to the areas each director/executive is involved in and has a level of control over. The KPI’s target areas the Board believes hold greater potential for Group expansion and profit, covering financial and non-financial as well as short-term and long-term goals. The level set for each KPI is based on budgeted figures for the Group and respective industry standards. Performance in relation to the KPI’s is assessed annually, with bonuses being awarded depending on the number and deemed difficulty of the KPI’s achieved. Following the assessment, the KPI’s are reviewed by the Board in light of the desired and actual outcomes, and their efficiency is assessed in relation to the Group’s goals and shareholder wealth, before the KPI’s are set for the following year. In determining whether or not a KPI has been achieved, Rectifier Technologies Ltd bases the assessment on audited figures, however, where the KPI involves comparison of individual performance within the Group, management reports which form the foundation for the Group audited results are used. Names and positions held of Directors and Key Management Personnel of the Group in office at any time during the financial year are: Directors Mr. Ying Ming Wang Mr. Yanbin Wang Chairman – Non-Executive Director – Executive and Chief Executive Officer Mr. Valentino Vescovi Director – Non-Executive Mr. Nigel Machin Director – Executive and Chief Power Engineer Other Key Management Personnel Mr. Paul Davis Operations Manager – Rectifier Technologies Pacific Pty Ltd Mr. Seong Bow Lee General Manager – Rectifier Technologies (M) Sdn Bhd Mr. Wang Yanbin and Mr Nigel Machin were executives of the parent entity in 2018. 5 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES DIRECTORS’ REPORT Key Management Personnel Compensation Consolidated Entity 2018 Short-term employee benefits Long-term employee benefits Post-employment benefits Share- based paymen t Cash salary and fees Cash bonus Non- monetary benefits Long Service Leave Super- annuation Retirement benefits Shares Total Name $ $ $ $ $ $ $ $ Parent Entity Directors Mr. Ying Ming Wang - - - Mr. Yanbin Wang (CEO) 297,137 24,455 32,636 Mr. Valentino Vescovi Vescovi Mr. Nigel Machin 156,975 6,000 - 13,398 Other Key Management Personnel Subsidiary Entities Mr. Paul Davis Mr. Seong Bow Lee 130,878 71,198 18,550 4,181 - - - 721 Total 662,188 60,584 33,357 11,341 - - - - - - 6,649 27,683 4,692 - 27,927 8,832 64,442 - - - - - - - - - - - - - - - 354,228 6,000 204,705 182,047 84,932 831,912 In 2018, 6.90% of Mr. Yanbin Wang’s remuneration, 6.55% of Mr. Nigel Machine’s remuneration, 4.92% of Mr. Seong Bow Lee’s remuneration and 10.19% of Mr. Paul Davis’ remuneration were performance based. The Cash bonus were approved upon payment on 28/02/2018. 2017 Short-term employee benefits Long-term employee benefits Post-employment benefits Share- based payment Cash salary and fees Cash bonus Non- monetary benefits Long Service Leave Super- annuation Retirement benefits Shares Total Name $ $ $ $ $ $ $ $ Parent Entity Directors Mr. Ying Ming Wang - - - Mr. Yanbin Wang (CEO) 269,073 23,054 30,290 Mr. Valentino Vescovi 3,500 - Mr. Nigel Machin 32,564 2,774 Other Key Management Personnel Subsidiary Entities Mr. Paul Davis Mr. Seong Bow Lee Total 121,440 65,314 491,891 15,900 4,903 46,631 - - - 703 - - - - - - 1,103 8,804 4,154 - 26,779 8,098 43,681 30,993 5,257 - - - - - - - - - 720,000 1,042,417 - - - - 3,500 45,245 168,273 79,018 720,000 1,338,453 30 million shares were issued to the current director/CEO Mr. Yanbin Wang at shares price of $0.004 which was $0.024 below to market price of $0.028 as approved by shareholders at AGM on 28 November 2016. The total discount expense of $720,000 was recorded as a shares issue expense presented in the remuneration of Mr. Yanbin Wang in 2017 financial year period. In 2017, 7.89% of Mr. Yanbin Wang’s remuneration, 7.85% of Mr. Nigel Machine’s remuneration, 6.98% of Mr. Seong Bow Lee’s remuneration and 11.85% of Mr. Paul Davis’ remuneration were performance based. Mr. Nigel Machin was appointed as a director on 3 April 2017 and his remuneration after this appointment is presented above. 6 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES DIRECTORS’ REPORT Key Management Personnel Compensation Consolidated Entity Options and Rights Holdings Number of share options of Rectifier Technologies Ltd held by Key Management Personnel in the parent and consolidated entity are as follows: 2018 Parent Entity Directors Mr. Ying Ming Wang Mr. Yanbin Wang Mr. Valentino Vescovi Mr. Nigel Machin Other Key Management Personnel of the Group Subsidiary Entities Mr. Paul Davis Mr. Seong Bow Lee Balance 1.7.17 Options Exercised Net Change Other Balance 30.6.18 Total Vested 30.6.18 Total Vested & Exercisable Total Vested & Unexercisable - - 7,040,000 1,800,000 - - - - - - - - - - - - - - - - - - - - - - 7,040,000 7,040,000 7,040,000 1,800,000 1,800,000 1,800,000 - - - - - - 8,840,000 8,840,000 8,840,000 - - - - - - - Total 8,840,000 Number of share options of Rectifier Technologies Ltd held by Key Management Personnel in the parent and consolidated entity are as follows: Balance 1.7.16 Options Exercised Net Change Other Balance 30.6.17 Total Vested 30.6.17 Total Vested & Exercisable Total Vested & Unexercisable 2017 Parent Entity Directors Mr. Ying Ming Wang Mr. Yanbin Wang - - Mr. Valentino Vescovi 7,040,000 Mr. Nigel Machin Other Key Management Personnel of the Group Subsidiary Entities Mr. Paul Davis Mr. Seong Bow Lee - - - Total 7,040,000 - - - - - - - - - - - - - - - - 7,040,000 7,040,000 7,040,000 1,800,000 1,800,000 1,800,000 1,800,000 - - - - - - - - 1,800,000 8,840,000 8,840,000 8,840,000 - - - - - - - 7 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES Key Management Personnel Compensation Consolidated Entity DIRECTORS’ REPORT Shareholdings 2018 Number of Shares held by Parent Entity Directors and Other Key Management Personnel in Rectifier Technologies Ltd. Balance 1.7.17 Received as Director Loan Repayment Received as Remuneration Employee Share Scheme Net Change Balance Other 30.6.18 224,643,616 70,000,000 37,821,196 22,010,000 5,000,000 2,767,550 362,242,362 - - - - - - - - - - - - - - - - - - - - - 224,643,616 70,000,000 37,821,196 22,010,000 5,000,000 2,767,550 362,242,362 Parent Entity Directors Mr. Ying Ming Wang Mr. Yanbin Wang Mr. Valentino Vescovi Mr. Nigel Machin Other Key Management Personnel of the Group Subsidiary Entities Mr. Paul Davis Mr. Seong Bow Lee Total 2017 Number of Shares held by Parent Entity Directors and Other Key Management Personnel in Rectifier Technologies Ltd. Parent Entity Directors Mr. Ying Ming Wang Mr. Yanbin Wang Mr. Valentino Vescovi Mr. Nigel Machin Other Key Management Personnel of the Group Subsidiary Entities Mr. Paul Davis Mr. Seong Bow Lee Total Balance 1.7.16 Received as Director Loan Repayment 224,643,616 40,000,000 37,821,196 - 5,000,000 2,767,550 310,232,362 - - - - - - - Received as Remuneration Employee Share Scheme - 30,000,000 - - - - Net Change Balance Other 30.6.17 - - - 224,643,616 70,000,000 37,821,196 22,010,000 22,010,000 - - 5,000,000 2,767,550 30,000,000 22,010,000 362,242,362 8 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES DIRECTORS’ REPORT Shares granted as remuneration There were no shares granted as remuneration in 2018. Remuneration Practices The company’s policy for determining the nature and amount of emoluments of board members and senior executives of the company is as follows: The remuneration structure for executive officers, including executive directors, is based on a number of factors, including length of service, particular experience of the individual concerned, and overall performance of the company or Group. The contracts for service between the company and specified directors and executives are on a continuing basis, the terms of which are not expected to change in the immediate future. Upon retirement specified directors and executives are paid employee benefit entitlements accrued to date of retirement. Any options issued as remuneration under the Company’s Share Option Plan not exercised before or on the date of termination lapse. The service contracts stipulate a range of one to three months resignation periods. The company may terminate an employment contract without cause by providing up to 3 months’ written notice or making payment in lieu of notice, based on the individual’s annual salary component together with an appropriate redundancy payment, depending on the individual contract terms. Termination payments are generally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct, the company can terminate employment at any time. Any options not exercised before or on the date of termination will lapse. The commentary above should be read in conjunction with the information provided in the Directors’ Report under Remuneration Policy. Company Performance, Shareholder Wealth and Directors’ and Executives’ Remuneration The remuneration policy has been tailored to increase goal congruence between shareholders and directors and executives. There have been two methods applied in achieving this aim, the first being a performance based bonus which is based on key performance indicators, and the second being the issue of options to the majority of directors and executives to encourage the alignment of personal and shareholder interests. The company believes this policy to be the most effective manner to increase shareholder wealth. The following table shows the gross revenue, profits and dividends for the last five years for the listed entity, as well as the share price at the end of the respective financial years. The lower profit in 2015 was as result of a once off warranty expense claim which diluted profit, and also that discontinued RTUK no longer contributed profit to the Group in 2015 as it had in 2014. The full year results for 2016 represented a significant improvement of the company’s operational performance and resulted from the increase in sales and product margin. The lower overall sales in the year to 30 June 2017 were due to the slowing down in sales of some of our key products used in the industrial market. Revenue increased to 7.8 million by approximately 13% in 2018 compared to 2017. The increase in revenue during the year to 30 June 2018 was due to the improving sales of some of our key products used in the industrial power supplies, particularly in the electric vehicle (EV) market. A net loss of $35K was due to the adjustment of tax expense from 2017 being recorded. The company has a profit of $62K in the 2018 and we expects the increase in sales to continue with new products expected to be released to the market which are expected to strengthen the company’s financial position and improve financial performance in the 2019. 2014 2015 2016 2017 2018 Revenue ($’000) (Including discontinued operation) Net Profit/(Loss) ($’000) Share Price at Year-end (cents) Change in Share Price (cents) Dividends Paid 8,039 576 0.3 0.2 - 6,602 128 0.7 0.5 - 8,459 1,685 2.9 2.2 - 6,881 (35) 1.7 1.2 - 7,835 62 2.6 0.9 - 9 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES Options Issued as Part of Remuneration DIRECTORS’ REPORT Options may be issued to executives as part of their remuneration. Such options are generally not issued based on performance criteria, but are issued to increase goal congruence between executives, directors and shareholders through the linkage between remuneration and increasing shareholder value. Employment Contracts of Directors and Senior Executives The employment conditions of the CEO and specified executives are formalised in contracts of employment and all contracts require 4 weeks notice, with no termination payments specified other than employee entitlements. END OF AUDITED REMUNERATION REPORT 10 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES Meetings of Directors During the financial year, 4 meetings of directors and 2 audit committee meetings were held. Attendances were: DIRECTORS’ REPORT DIRECTORS’ MEETINGS AUDIT COMMITTEE Number eligible to attend Number Attended Number eligible to attend Number Attended Mr. Ying Ming Wang Mr. Yanbin Wang Mr. Valentino Vescovi Mr. Nigel Machin Indemnifying Officers or Auditor 4 4 4 4 4 4 4 4 2 2 2 2 2 2 2 2 During the financial year the Company has paid premiums to insure each of the directors and officers against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director or officer of the Company and of any related body corporate, other than conduct involving a wilful breach of duty in relation to the Company. The amount of the premium was $7,700 for all directors and officers. The company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the company or of any related body corporate against a liability incurred as such an officer or an auditor. Options At the date of this report, the unissued ordinary shares of Rectifier Technologies Ltd under option are as follows: Grant Date Date of Expiry Exercise Price Number Under Option June 2003 November 2003 No expiry date No expiry date 2.0¢ per share 2.0¢ per share 13,280,000 8,360,000 21,640,000 No person entitled to exercise the option had or has any right by virtue of the option to participate in any share issue of another body corporate. Proceedings on Behalf of the Company No person has applied for leave of Court to bring proceedings on behalf of the Company or intervened in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Non-audit Services The board of directors, in accordance with advice from the audit committee, review the provision of non-audit services during the year to ensure that they are compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors satisfy themselves that the services do not compromise the external auditor’s independence for the following reasons: • • all non-audit services are reviewed and approved by the audit committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and the nature of the services provided do not compromise the general principles relating to auditor independence as set out in the Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board. Details of the amounts paid to the auditors of the Company, Grant Thornton Audit Pty Ltd, and its related practices for audit and non-audit services provided during the year are set out in Note 8 to the financial statements. 11 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES Auditors Independence Declaration DIRECTORS’ REPORT A copy of the auditors independence declaration as required under section 307C of the Corporations Act 2001 is set out on the following page. Signed in accordance with a resolution of the Board of Directors. ………………………………….. Mr. Yanbin Wang Director Melbourne Dated this 30th day of September 2018 12 For personal use only Collins Square, Tower 1 727 Collins Street Docklands Victoria 3008 Correspondence to: GPO Box 4736 Melbourne Victoria 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of Rectifier Technologies Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Rectifier Technologies Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. Grant Thornton Audit Pty Ltd Chartered Accountants S C Trivett Partner – Audit & Assurance Melbourne, 30 September 2018 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2018 Note Consolidated Entity Revenue Other income Changes in inventories of finished goods and work in progress Raw materials and consumables used Employee benefits expense Depreciation expense Finance costs Other expenses Profit before income tax expense Income tax benefit (expense) Profit from continuing operations after income tax Income tax expenses adjustment in prior year Net profit/(loss) after income tax attributable to owners of Rectifier Technologies Limlited Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation differences Total other comprehensive income for the year Total comprehensive income for the year Basic earnings per share (cents per share): Diluted earnings per share (cents per share): The accompanying notes form part of these financial statements 3 3 4 4 5 1 9 2018 $ - 7,342,107 492,603 (380,935) (1,774,514) (3,790,588) (129,925) (79,610) (1,215,842) 463,296 (400,853) 2017 $ (Restated) 6,345,249 535,199 81,183 (1,886,654) (3,754,089) (59,028) (18,745) (985,575) 257,540 170,363 62,442 427,903 - (462,803) 62,442 (34,900) 86,023 (31,064) 86,023 148,465 0.01 0.00 (31,064) (65,964) 0.00 0.00 14 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Current tax assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Deferred tax assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Interest bearing liabilities Provisions Current tax liability TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest bearing liabilities Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Accumulated losses TOTAL EQUITY The accompanying notes form part of these financial statements Note Consolidated Entity 2018 $ - 2017 $ (Restated) 10 11 12 14 5 15 16 18 16 18 2,183,902 1,450,155 2,738,970 327,464 6,700,491 2,745,679 140,713 2,886,392 9,586,883 2,628,269 1,464,129 2,068,876 50,752 6,212,026 2,153,731 260,772 2,414,503 8,626,529 1,843,158 1,471,762 74,320 354,822 474,637 64,919 392,170 50,715 2,746,937 1,979,566 1,719,010 55,552 1,774,562 4,521,499 1,673,026 57,018 1,730,044 3,709,610 5,065,384 4,916,919 19 39,816,575 125,250 39,816,575 39,227 (34,876,441) (34,938,883) 5,065,384 4,916,919 15 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2018 Note Consolidated Entity 2018 $ 2017 $ CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Finance costs Income taxes paid Net cash provided by operating activities 23 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Proceed from sale of property, plant and equipment Payment for registration of new company Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Repayment of borrowings Proceeds from borrowings Net cash provided by/(used in) financing activities Net increase in cash held Cash and cash equivalents at beginning of the year Effect of exchange rates on cash holdings in foreign currencies Cash and cash equivalents at end of the year 10 The accompanying notes form part of these financial statements 6,921,457 (6,889,527) 10,986 (61,561) (104,315) (122,960) 6,934,554 (5,617,961) 1,439 (17,487) (83,228) 1,217,317 (480,869) (1,861,025) 90 - - (177) (480,779) (1,861,202) - (31,632) 1,212 (30,420) (634,159) 2,628,269 189,792 2,183,902 155,200 (9,199) 1,603,822 1,749,823 1,105,938 1,635,415 (113,084) 2,628,269 16 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2018 Consolidated Entity $ $ $ $ Share Capital Accumulated Losses Foreign Currency Translation Reserve Total Balance at 1.7.2016 38,941,375 (34,903,983) 70,291 4,107,683 Total comprehensive income for the year - (34,900) (31,064) (65,964) Transactions with owners in their capacity as owners: Shares issued (Note 19) Balance at 30.06.2017 875,200 - - 875,200 39,816,575 (34,938,883) 39,227 4,916,919 Balance at 1.7.2017 39,816,575 (34,938,883) 39,227 4,916,919 Total comprehensive income for the year Transactions with owners in their capacity as owners: Shares issued (Note 19) Balance at 30.06.2018 - - 62,442 86,023 148,465 - - - 39,816,575 (34,876,441) 125,250 5,065,384 The accompanying notes form part of these financial statements. 17 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: Corporate information The financial statements of Rectifier Technologies Limited for the year ended 30 June 2018 were authorised for issue in accordance with a resolution of the directors on 28 September 2018 and covers the consolidated entity consisting of Rectifier Technologies Limited and its subsidiaries as required by the Corporations Act 2001. The financial report is presented in Australian dollars, unless otherwise noted. Rectifier Technologies Limited is a company limited by shares and incorporated in Australia, whose shares are publicly traded on the Australian Stock Exchange. The address of the registered office and principal place of business is 24 Harker Street, Burwood, Vic 3125, Australia. Correction of Prior Period Error In accounting for the receipt of the R&D receivable during the 2018 year it was noted that some adjustments in the current year have prior year effects. A restatement has been made to the affected accounts for the financial year ended 30 June 2017 as follows: Consolidated Statement of Financial Position (Extract) 30 June 2017 $ Adjustment $ Previous Amount $ Restated Amount Current tax assets 513,555 (462,803) 50,752 Net Assets 5,379,722 (462,803) 4,916,919 Consolidated Statement of Profit and Loss and Other Comprehensive Income (Extract) 30 June 2017 $ Adjustment $ Previous Amount $ Restated Amount Income tax benefit (expense) 170,363 (462,803) (292,440) Profit from continuing operations after income tax 427,903 (462,803) (34,900) Net profit after income tax attributable to owners of Rectifier 427,903 (462,803) (34,900) NOTE 2: Summary of significant accounting policies a. Basis of preparation The consolidated financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. Rectifier Technologies Limited is a for-profit entity for the purpose of preparing the financial statements. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the consolidated entity comply with International Financial Reporting Standards (IFRS). Historical cost convention These financial statements have been prepared under the historical cost basis, except for available-for-sale financial assets that have been measured at fair value. 18 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 2: Summary of significant accounting policies (Cont’d) b. Basis of Consolidation Subsidiaries The Group financial statements consolidate those of the Rectifier Technologies Limited and all of its subsidiaries as of 30 June 2018. Rectifier Technologies Limited controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of 30 June. All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-Group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. Subsidiaries are accounted for at cost by the parent entity and are included in the balances disclosed in note 26. c. Income Tax The income tax expense for the period is the tax payable on the current period's taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax base of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for all temporary differences, between carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, at the tax rates expected to apply when the assets are recovered or liabilities settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. Exceptions are made for certain temporary differences arising on initial recognition of an asset or a liability if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit. Deferred tax assets are only recognised for deductible temporary differences and unused tax losses if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amount and tax bases of investments in subsidiaries, associates and interests in joint ventures where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. c. Income Tax (Cont’d) Current and deferred tax balances relating to amounts recognised directly in other comprehensive income or directly in equity are also recognised in other comprehensive income or directly in equity, respectively. Tax Consolidation Rectifier Technologies Limited and its Australian wholly-owned subsidiaries have implemented the tax consolidation legislation for the whole of the financial year. Rectifier Technologies Limited is the head entity in the tax consolidated Group. The separate taxpayer within a Group approach has been used to allocate current income tax expense and deferred tax expense to wholly-owned subsidiaries that form part of the tax consolidated Group. Rectifier Technologies Limited has assumed all the current tax liabilities and the deferred tax assets arising from unused tax losses for the tax consolidated Group via intercompany receivables and payables because a tax funding arrangement has been in place for the whole financial year. The amounts receivable/payable under tax funding arrangements are due upon notification by the head entity, which is issued soon after the end of each financial year. Interim funding notices may also be issued by the head entity to its wholly-owned subsidiaries in order for the head entity to be able to pay tax instalments. These amounts are recognised as current intercompany receivables or payables (refer to note 24). 19 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 2: Summary of significant accounting policies (Cont’d) d. Inventories Raw materials, Work in Progress and Finished goods Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Costs are assigned on the basis of weighted average costs. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated selling cost of completion and selling expenses. e. Property, Plant and Equipment Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses. Land and Buildings Freehold land is not depreciated but is subject to impairment testing if there is any indication of impairment. Building are measured on the cost basis less depreciation and impairment losses. Historical costs include costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Plant and equipment Plant and equipment are measured on the cost basis less depreciation and impairment losses. Historical costs include costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including capitalised leased assets is depreciated on a straight line basis over their useful lives to the consolidated entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. e. Property, Plant and Equipment (Cont’d) The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Building Leasehold improvements Motor vehicles Plant and equipment Leased plant and equipment Depreciation Rate 2% 10% 20% 20-40% 20-33% The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of the reporting period. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in profit or loss. 20 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 2: Summary of significant accounting policies (Cont’d) f. Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases and capitalised at inception of the lease at the fair value of the leased property, or if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. Leases where the lessor retains substantially all the risks and rewards of ownership of the net asset are classified as operating leases. Payments made under operating leases (net of incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. Capital work-in-progress consists of property, plant and equipment for intended use as production facilities. The amount is stated at cost and includes capitalisation of interest incurred on borrowings related to property, plant and equipment under construction/installation until the property, plant and equipment are ready for their intended use. g. Intangibles Research and development Under AASB 138 Intangible Assets, costs associated with the research phase of the development of an asset must be expensed in the period as incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following are demonstrated: • • • • • the technical feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • the ability to measure reliably the expenditure attributable to the intangible asset during its development. Expenditure capitalised comprises cost of materials, services, direct labour and an appropriate portion of overheads. Other development costs are expensed when they are incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and any impairment losses and amortised over the period of expected future sales from the related projects. The carrying value of development costs is reviewed annually when the asset is not yet available for use, or when events or circumstances indicate that the carrying value may be impaired. h. Impairment of Assets At the end of each reporting period, the Group assesses whether there is any indication that individual assets have been impaired. Where impairment indicators exist, recoverable amount is determined and impairment losses are recognised in profit or loss where the asset's carrying value exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purpose of assessing value in use, the estimated future cash flows are discounted to their present value using a pre- tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where it is not possible to estimate recoverable amount for an individual asset, recoverable amount is determined for the cash-generating unit to which the asset belongs. 21 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 2: Summary of significant accounting policies (Cont’d) i. Investments and Other Financial Assets All investments and other financial assets are initially stated at cost, being the fair value of consideration given plus acquisition costs. Purchases and sales of investments are recognised on trade date which is the date on which the Group commits to purchase or sell the asset. Available-for-sale financial assets Available-for-sale financial assets comprise investments in listed and unlisted entities and any non-derivatives that are not classified as any other category of financial assets, and are classified as non-current assets (unless management intends to dispose of the investment within 12 months of the end of the reporting period). After initial recognition, these investments are measured at fair value with gains or losses recognised in other comprehensive income (available-for-sale investments revaluation reserve). Where there is a significant or prolonged decline in the fair value of an available for sale financial asset (which constitutes objective evidence of impairment) the full amount including any amount previously charged to other comprehensive income, is recognised in profit or loss. Purchases and sales of available for sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in other comprehensive income. On sale the amount held in available for sale reserves associated with that asset is recognised in profit or loss. Investments in subsidiaries, associates and joint venture entities are accounted for in the consolidated financial statements as described in note 1(b) and in the parent entity financial information at cost in accordance with the cost alternative permitted in separate financial statements under AASB 127 Consolidated and Separate Financial Statements. Reversals of impairment losses on equity instruments classified as available-for-sale cannot be reversed through profit or loss. Reversals of impairment losses on debt instruments classified as available-for-sale can be reversed through profit or loss where the reversal relates to an increase in the fair value of the debt instrument occurring after the impairment loss was recognised in profit or loss. The fair value of quoted investments is determined by reference to Stock Exchange quoted market bid prices at the close of business at the end of the reporting period. For investments where there is no quoted market price, fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net asset base of the investment. Loans and receivables Non-current loans and receivables include loans due from related parties repayable within 365 days of the end of reporting period. As these are non-interest bearing, fair value at initial recognition requires an adjustment to discount these loans using a market-rate of interest for a similar instrument with a similar credit rating. The discount is debited on initial recognition to the investment account. Impairment losses are measured as the difference between the investment's carrying amount and the present value of the estimated future cash flows, excluding future credit losses that have not been incurred. The cash flows are discounted at the investment's original effective interest rate. Impairment losses are recognised in profit or loss. j. Foreign Currency Transactions and Balances The functional and presentation currency of Rectifier Technologies Limited and its Australian subsidiaries is Australian dollars ($AUD). Foreign currency transactions are translated into the functional currency using the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the end of reporting period. Foreign exchange gains and losses resulting from settling foreign currency transactions, as well as from restating foreign currency denominated monetary assets and liabilities, are recognised in profit or loss, except when they are deferred in other comprehensive income as qualifying cash flow hedges or where they relate to differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when fair value was determined. 22 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 2: Summary of significant accounting policies (Cont’d) j. Foreign Currency Transactions and Balances (Cont’d) The functional currency of the overseas subsidiaries is the Malaysian ringgit, the US dollars and Singapore dollars. At the end of the reporting period, the assets and liabilities of these overseas subsidiaries are translated into the presentation currency of Rectifier Technologies Limited at the closing rate at the end of the reporting period and income and expenses are translated at the weighted average exchange rates for the year. All resulting exchange differences are recognised in other comprehensive income as a separate component of equity (foreign currency translation reserve). On disposal of a foreign entity, the cumulative exchange differences recognised in foreign currency translation reserves relating to that particular foreign operation are recognised in profit or loss. k. Employee Benefits Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to the end of the reporting period. Benefits accruing to employees in respect of wages and salaries, annual leave, long service leave and sick leave are recognised when it is probable that settlement will be required and the liability is capable of being measured reliably. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. Long Service Leave Liabilities for long service leave are recognised as part of 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 to the end of reporting period using the projected unit credit method. Consideration is given to expect future salaries and wages levels, experience of employee departures and periods of service. Expected future payments are discounted using high quality corporate bonds rates at the end of the reporting period with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. l. Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Where the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. m. Cash and Cash Equivalents For the purposes of the Statement of Cash Flows, cash and cash equivalents includes cash on hand and deposits held at call, net of any bank overdrafts. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash, which are not subject to insignificant risk of changes in value and have a maturity of three months or less at the date of acquisition. n. Trade receivables Trade receivables are recognised at original invoice amounts less an allowance for uncollectible amounts and have repayment terms between 30 and 90 days. Collectability of trade receivables is assessed on an ongoing basis. Debts which are known to be uncollectible are written off. An allowance is made for doubtful debts where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms. Objective evidence of impairment includes financial difficulties of the debtor, default payments or debts more than 90 days overdue. On confirmation that the trade receivable will not be collectible the gross carrying value of the asset is written off against the associated provision. From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and are not, in the view of the directors, sufficient to require the derecognition of the original instrument. Trade receivable are recognised gross of any debtor financing facility used. 23 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 2: Summary of significant accounting policies (Cont’d) o. Revenue Recognition Revenue is recognised at the fair value of consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and duties and taxes paid. Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have passed to the buyer and can be reliably measured. Risks and rewards are considered passed to buyer when goods have been delivered to the customer. Revenue from product licensing is recognised on the transfer of intellectual property in accordance with contractual obligations. Royalties are recognised on an accrual basis in accordance with the substance of the agreement. Dividends are recognised when the right to receive payment is established. Interest revenue is recognised as interest accrues using the effective interest method. The effective interest method uses the effective interest rate which is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial asset. All revenue is stated net of the amount of goods and services tax (GST). R&D rebates are recognised on an accrual basis as other income once the amount can be reliably estimated. p. Trade and other Payables Trade and other payables represent liabilities for goods and services provided to the Group prior to the year end and which are unpaid. These amounts are unsecured and have 30-60 day payment terms. q. Interest-bearing liabilities All loans and borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the loans and borrowings using the effective interest method. All borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. r. Borrowing Costs Borrowing costs incurred for the construction of a qualifying asset are capitalised during the period of time that it is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed when incurred. s. Goods and Services Tax (GST) Revenues, expenses are recognised net of GST except where GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. 24 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 2: Summary of significant accounting policies (Cont’d) t. New accounting standards and interpretations The following new accounting standards, amendments to standards and interpretations have been issued, but are not mandatory as at 30 June 2018. They may impact the Group in the period of initial application. They are available for early adoption, but have not been applied in preparing these financial statements: AASB 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace AASB139 'Financial Instruments: Recognition and Measurement'. AASB 9 introduces new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost, if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, which arise on specified dates and solely principal and interest. All other financial instrument assets are to be classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive income ('OCI'). For financial liabilities, the standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment will be measured under a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. The standard introduces additional new disclosures. The group has made a preliminary assessment of the changes and does not expect any material impact on the transactions and balances recognised in the financial statements when AASB 9 is first adopted for the year ending 30 June 2019. AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity's performance and the customer's payment. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgements made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. The group is yet to undertake a detailed assessment of AASB 15. However, based on the entity’s preliminary assessment, the standard is not expected to have a material impact on the transactions and balances recognised in the financial statements when its first adopted for the year ending 30 June 2019. 25 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 2: Summary of significant accounting policies (Cont’d) t. New accounting standards and interpretations (Cont’d) AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 'Leases' and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a 'right-of-use' asset will be capitalised in the statement of financial position, measured as the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a 'right-of-use' asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The entity is yet to undertake a detailed assessment of the impact of AASB 16. However, based on the entity’s preliminary assessment, the likely impact on the first time adoption of the Standard for the year ending 30 June 2020 includes: • • There will be a significant increase in lease assets and financial liabilities recognised on the balance sheet The reported equity will reduce as the carrying amount of lease assets will reduce more quickly than the carrying amount of lease liabilities • EBIT in the statement of profit or loss and other comprehensive income will be higher as the implicit interest in lease payments for former off balance sheet leases will be presented as part of finance costs rather than being included in operating expenses • Operating cash outflows will be lower and financing cash flows will be higher in the statement of cash flows as principal repayments on all lease liabilities will now be included in financing activities rather than operating activities. Interest can also be included within financing activities u. Fair values Fair values may be used for financial asset and liability measurement and as well as for sundry disclosures. Fair values for financial instruments traded in active markets are based on quoted market prices at the end of reporting period. The quoted market price for financial assets is the current bid price. The fair value of financial instruments that are not traded in an active market are determined using valuation techniques. Assumptions used are based on observable market prices and rates at the end of reporting period. The fair value of long-term debt instruments is determined using quoted market prices for similar instruments. Estimated discounted cash flows are used to determine fair value of the remaining financial instruments. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. v. Share capital Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The company’s ordinary shares are classified as equity instruments. Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. 26 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTE 2: NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 Summary of significant accounting policies (Cont’d) w. Share-based payments Share-based compensation benefits are provided to employees via the Rectifier Technologies Limited Employee Option Plan and an employee share scheme. The fair value of options granted under the Rectifier Technologies Limited Employee Option Plan is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is independently determined using the Monte-Carlo Simulation option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The fair value of the options granted is adjusted to reflect market vesting conditions, but excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to the original estimates, if any, is recognised in profit or loss with a corresponding adjustment to equity. Under the employee share scheme, shares issued to employees for no cash consideration vest immediately on grant date. On this date, the market value of the shares issued is recognised as an employee benefits expense with a corresponding increase in equity. x. Critical accounting judgements and key sources of estimation uncertainty The preparation of financial statements in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The consolidated entity makes certain judgements and assumptions concerning the future. These estimates and assumptions have an inherent risk in respect of estimates based on future events which could have a material impact on the assets and liabilities in the next financial year are outlined below: 1. Provision for stock obsolescence The Group calculates the provision for stock obsolescence based on slow-moving inventory on hand for more than 12 months. 2. R & D tax rebate The Group has recognised the R&D rebate relating to the 2018 year on an accrual basis. As the return has not yet been submitted, the Group has made an estimate of the likely refund amount based on past history of successful claims. 3. Taxation The Group has significant transactions between the Australian and Malaysian subsidiary and significant judgment involved in determining the transfer price of goods and services exchanged. Management believe the prices exchange are determined on a fair and reasonable basis and reflect an appropriate basis under the tax legislation of Australia and Malaysia. 4. Share-based payment transactions The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Monte Carlo Simulation model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity- settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. 27 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTE 2: NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 Summary of significant accounting policies (Cont’d) y. Earnings per Share Basic earnings per share Basic earnings per share is calculated by dividing the profit or loss attributable to members of Rectifier Technologies Limited, adjusted for the after-tax effect of preference dividends on preference shares classified as equity, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares during the year. The weighted average number of issued shares outstanding during the financial year does not include shares issued as part of the Employee Share Loan Plan that are treated as in-substance options. Diluted earnings per share Earnings used to calculate diluted earnings per share are calculated by adjusting the basic earnings by the after-tax effect of dividends and interest associated with dilutive potential ordinary shares. The weighted average number of shares used is adjusted for the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. 28 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 3: REVENUE AND OTHER INCOME Revenue - - - sale of goods interest received sundry income Other income - - R&D tax rebate R&D development NOTE 4: PROFIT FROM CONTINUING ACTIVITIES Profit before income tax has been determined after the following expenses: Cost of sales Finance costs: - other persons Total finance costs Depreciation of non-current assets: - - - plant and equipment leasehold improvements motor vehicle Total depreciation Consolidated Entity 2018 $ 2017 $ 7,155,895 6,245,098 11,291 174,921 1,513 98,638 7,342,107 6,345,249 492,603 - 492,603 458,535 76,664 535,199 Consolidated Entity 2018 $ 2017 $ 3,092,165 2,556,862 79,610 79,610 112,581 13 17,331 129,925 18,745 18,745 48,255 15 10,758 59,028 Rental expense on operating leases - minimum lease payments 120,834 162,900 Personnel Expenses - defined contributions superannuation 343,732 318,441 Research and development costs expensed 1,217,927 1,153,936 Profit/ (loss) on disposal of property, plant and equipment (834) (304) 29 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 5: INCOME TAX EXPENSE Current tax Deferred tax - temporary differences Deferred tax – tax losses Tax losses carried forward previously not brought to account Consolidated Entity 2018 $ 334,749 52,748 67,311 (53,955) 400,853 2017 $ (47,973) 83,431 112,689 (318,510) (170,363) Reconciliation of the effective tax rate The prima facie tax on profit before income tax is reconciled to the income tax expense as follows: Profit before income tax 463,296 257,540 Prima facie tax payable on profit/ (loss) before income tax at 27.5% (2017: 27.5%) - consolidated entity 127,406 70,823 Add: Tax effect of: - - - - - R&D expenditures Controlled foreign company attributed income Discount on shares Other non-allowable items Effect of change in tax rate Less Tax effect of: - - - - Other non-assessable items Foreign income tax offset R&D tax offset Effect of lower rates of tax on overseas income Tax effect of carry-forward tax losses not previously bought to account Income tax attributable to entity Reconciliation to continuing / discontinued operations Consolidated profit before income tax Less profit before tax relating to discontinued operations Profit before income tax from continuing operations Consolidated income tax expense Less income tax expense relating to discontinued operations Income tax expense from continuing operations 334,930 32,957 - 151,030 - 646,323 (145,694) (7,735) - (38,086) 454,808 (53,955) 400,853 463,296 - 463,296 437,351 71,871 198,000 56,109 23,074 857,228 (126,097) (59,308) (513,556) (10,120) 148,147 (318,510) (170,363) 257,540 - 257,540 400,853 (170,363) - - 400,853 (170,363) 30 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 5: INCOME TAX EXPENSE (Cont’d) Consolidated Entity 2018 $ 2017 $ Unrecognised deferred tax assets Unused capital losses for which no deferred tax asset recognised relating to the Australian entities in the tax consolidated group 18,409,594 18,409,594 Unused capital losses for which no deferred tax asset recognised relating to the overseas subsidiaries - - 18,409,594 18,409,594 Potential tax benefit at applicable tax rates 5,062,638 5,062,638 Deferred tax assets have not been recognised in the statement of financial position for the following items: Unused capital losses Unused tax losses Deductible temporary differences Potential tax benefit at applicable tax rates 18,409,594 18,409,594 - - - - 18,409,594 18,409,594 5,062,638 5,062,638 The capital losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of this item because it is not probable that future taxable profits will be available against which the group can utilise the benefits from these capital losses. 31 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 5: INCOME TAX EXPENSE (Cont’d) The following table regarding DTA during the current reporting period: Deferred Tax Assets Provision for stock obsolescence Accrued superannuation Accruals - Other Unrealised FX Loss Employee entitlements Blackhole expenditure Tax losses Property, plant and equipment Deferred tax movement 1 July 2017 $ Recognised in Profit & Loss $ 24,290 5,606 26,292 13,339 123,527 407 67,311 - 260,772 (290) (251) 2,786 (30,759) (10,674) (102) (67,311) (13,458) (120,059) 30 Jun 2018 $ 24,000 5,355 29,078 (17,420) 112,853 305 0 (13,458) 140,713 The Group has unused capital losses of $18,409,592. During the period, previously unrecognised tax losses of $196,201 have been brought to account by the Group. These represent amounts used to offset the current year taxable profit of the Group, as well as the budgeted Research and Development expenditure in FY18 which offsets against tax losses when claimed under the research and development tax incentive. NOTE 6: DIVIDENDS No dividends declared or paid during the year ended 30 June 2018. The amounts of franking credits available for subsequent reporting periods are: Opening balance of franking account Deferred debit that will arise from the receipt of the R&D tax offset Refund of prior year tax return Consolidated Entity 2018 $ 2017 $ (1,773,194) (1,257,659) (529,798) (462,805) (515,535) - Deferred debit balance of franking account at the end of the reporting period (2,765,797) (1,773,194) 32 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 7: KEY MANAGEMENT PERSONNEL a. Names and positions held of Parent Entity Directors and other Key Management Personnel in office at any time during the financial year are: Parent Entity Directors Mr. Ying Ming Wang Mr. Yanbin Wang Mr. Valentino Vescovi Chairman – Non-Executive Executive Director & Chief Executive Officer Director – Non-Executive Mr. Nigel Machin Executive Director & Chief Power Engineer Other Key Management Personnel Mr. Paul Davis Operations Manager – Rectifier Technologies Pacific Pty Ltd Mr. Seong Bow Lee General Manager – Rectifier Technologies (M) Sdn Bhd b. Key Management Personnel Compensation Short-term employee benefits Long-term employee benefits Post-employment benefits Share-based payments Consolidated Entity 2018 $ 2017 $ 756,129 11,341 64,442 - 569,515 5,257 43,681 720,000 831,912 1,338,453 30 million shares were issued to the current director/CEO Mr. Yanbin Wang at shares price of $0.004 which was $0.024 below to market price of $0.028 as approved by shareholders at AGM on 28 November 2016. The total discount expense of $720,000 was recorded as a share based payment expense in the 2017 financial year period. There were no shares-based payments in 2018 financial year. Transactions with Parent Entity Directors and other Key Management Personnel: Disclosures relating to other transactions and balances between the consolidated entity and parent entity directors and other key management personnel are set out in Note 24. NOTE 8: AUDITOR’S REMUNERATION Audit and review services Grant Thornton - Audit and review of financial reports Other audit firms (non Grant Thornton) – Audit and review of other entities in the Group Total remuneration for audit services Consolidated Entity 2018 $ 2017 $ 66,100 - 66,100 54,609 - 54,609 33 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 9: EARNINGS PER SHARE Consolidated Entity 2018 $ 2017 $ a. Reconciliation of earnings used to calculate earnings per share Profit/(Loss) from continuing operation attributable to the ordinary equity holders used in the calculation of basic and dilutive earnings per share 62,442 (34,900) b. Weighted average number of ordinary shares outstanding during the year used in calculation of basic earnings per share Adjustments for calculations of diluted earnings per share: 1,366,900,602 1,366,900,602 Options 21,640,000 21,881,096 Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 1,388,540, 602 1,388,781,698 NOTE 10: CASH AND CASH EQUIVALENTS Cash at bank Reconciliation of Cash Consolidated Entity 2018 $ 2017 $ 2,183,902 2,183,902 2,628,269 2,628,269 Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows: Cash 2,183,902 2,628,269 NOTE 11: TRADE AND OTHER RECEIVABLES CURRENT Trade debtors (a) Other debtors R&D tax incentives Prepayments Consolidated Entity 2018 $ 2017 $ 539,909 539,909 33,417 529,798 347,031 734,248 734,248 50,127 500,000 179,754 1,450,155 1,464,129 a. Included in debtors of $539,909 (2017: $734,248) are debts which have been assigned to financing companies in Australia. The company had received advances of $1,146 (2017: $2,358) against these debts which are included within the debtor financing facility disclosed in note 15 to the financial statements. 34 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 11: TRADE AND OTHER RECEIVABLES (Cont’d) Gross 2018 $ 372,346 156,830 10,733 539,909 Consolidated entity Gross 2017 $ Carrying Amount 2018 $ Carrying Amount 2017 $ 396,155 102,802 235,291 734,248 372,346 156,830 10,733 539,909 396,155 102,802 235,291 734,248 Not past due Past due 0-30 days Past due 31+ days 1. Ageing and impairment losses Payment terms on receivables past due but not considered impaired have not been re-negotiated. The Group has been in direct contact with the relevant customers and are reasonably satisfied that payment will be received in full. Based on past experience the Group believes that no impairment of receivables is required for balances which are past due. 2. The maximum exposure to credit risk for trade receivables at the end of reporting period by geographic region is as follows: Australia USA Malaysia Others Total 2018 $ 2017 $ 175,670 45,219 10,320 308,700 539,909 158,832 409,276 6,918 159,222 734,248 3. Past due analysis of trade receivables by geographic region is as follows: Consolidated Entity Not past due 2018 $ 2017 $ Past due 30 days 2017 2018 $ $ Past due 60 days 2017 2018 $ $ Total 2018 $ 2017 $ Australia USA Malaysia Others Total 81,703 30,464 8,670 251,509 372,346 124,225 245,166 3,155 23,609 396,155 92,651 14,754 1,651 47,774 31,817 - 1,681 69,304 1,316 - - 9,418 156,830 102,802 10,734 2,790 164,110 2,082 66,309 235,291 175,670 45,219 10,320 308,700 539,909 158,832 409,276 6,918 159,222 734,248 35 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 12: INVENTORIES Raw materials Work in progress Finished goods at cost Consolidated Entity 2018 $ 1,963,700 389,376 385,894 2017 $ 912,671 828,797 327,408 2,738,970 2,068,876 Inventories are recognised net of a provision for obsolescence of $181,382 (2017: $177,386). Inventory expense Change in inventories recognised as expense during the year ended 30 June 2018 amounted to $380,935 (2017: $81,183). The expense/ income has been included in ‘changes in inventories of finished goods and work in progress’ in the profit and loss. NOTE 13: SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following entities in accordance with the accounting policy described in note 2(b): Name Ultimate Parent Entity: Rectifier Technologies Ltd Subsidiaries of Rectifier Technologies Ltd: Protran Technologies Pty Ltd Rectifier Technologies Pacific Pty Ltd Rectifier Technologies Singapore Pte Ltd. ICERT Inc. Rectifier Technologies (M) Sdn Bhd ICERT (HK) Co. Ltd Country of Incorporation Class of share Percentage Owned 2018 (%) Australia Ordinary - Australia Australia Ordinary Ordinary Singapore Ordinary USA Malaysia Ordinary Ordinary Hong Kong Ordinary 100 100 100 100 100 100 2017 (%) - 100 100 - 100 100 100 Rectifier Technologies Singapore Pte Ltd. was incorporated on 25 October 2017. 36 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 14: PROPERTY, PLANT AND EQUIPMENT Consolidated Entity Land At cost Building At cost Accumulated depreciation Plant and equipment At cost Accumulated depreciation Leasehold improvements At cost Accumulated depreciation Motor Vehicle At Cost Accumulated depreciation 2018 $ 1,500,052 1,500,052 301,990 (5,033) 296,957 1,017,100 (107,548) 909,552 133 (13) 120 56,329 (17,331) 38,998 2017 $ 1,384,663 1,384,663 529,175 - 529,175 270,787 (48,255) 222,532 148 (15) 133 27,986 (10,758) 17,228 Total Property, Plant and Equipment 2,745,679 2,153,731 37 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 14: PROPERTY, PLANT AND EQUIPMENT (Cont’d) Movements in Carrying Amounts Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year. 2018 Land $ Building $ Plant and Equipment $ Leasehold Improvements $ Motor Vehicle $ Total $ Consolidated Entity: Balance at the beginning of year Additions – Motor vehicle Transferred to property, plant & equipment Additions - Other plant and equipment Disposals Depreciation/amortisation expense Net exchange differences on translation of foreign subsidiaries 529,175 1,384,663 - - - (238,660) - - - - (5,033) - 222,532 - 238,660 556,857 (925) (107,548) 115,389 11,475 (24) Carrying amount at the end of year 1,500,052 296,957 909,552 133 - - - - (13) - 120 17,228 2,153,731 34,388 34,388 - - 556,857 - - (925) (129,925) (17,331) 4,713 131,554 38,998 2,745,679 2017 Land Building $ $ Plant and Equipment $ Leasehold Improvements $ Motor Vehicle $ Total $ Consolidated Entity: Balance at the beginning of year Additions - Land Additions - Capital work-in-progress Additions - Other plant and equipment Disposals Depreciation/amortisation expense Net exchange differences on translation of foreign subsidiaries - 1,384,663 - - - - - - 529,175 - - - 180,184 148 - - - - (15) - - 49,160 (304) (48,255) 29,613 209,945 - 1,384,663 529,175 - 49,160 - - (304) (59,028) (10,758) Carrying amount at the end of year 1,384,663 529,175 222,532 - - 41,747 - 133 (1,627) 40,120 17,228 2,153,731 38 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 15: TRADE AND OTHER PAYABLES CURRENT Unsecured liabilities: Trade creditors Sundry creditors and accrued expenses Consolidated Entity 2018 $ 2017 $ 1,586,698 255,314 1,101,895 285,788 Loans – director related (current and former directors) (a) - 81,721 Secured liabilities: Debtor financing facility 1,842,012 1,469,404 1,146 1,146 2,358 2,358 1,843,158 1,471,762 a. At the end of financial year 2017, The Director Loan from current director of Rectifier Technologies Ltd, Mr. Yanbin Wang to Rectifier Technologies (M) Sdn Bhd. with closing balance as MYR$259,054(AUD$81,721). During financial year 2018, this loan was repaid in full. NOTE 16: INTEREST-BEARING LIABILITIES CURRENT Lease liability (secured) Borrowings - Rectifier Technologies (M) Sdn Bhd (secured) NON-CURRENT Lease liability (secured) Borrowings - Rectifier Technologies (M) Sdn Bhd (secured) Consolidated Entity 2018 $ 2017 $ 14,294 60,026 74,320 16,040 1,702,970 1,719,010 1,793,330 10,528 54,391 64,919 6,874 1,666,152 1,673,026 1,737,945 Lease liabilities and borrowings are secured over the assets to which they relate. On 6 Feb 2017, Rectifier Technologies (M) Sdn Bhd obtained a loan of MYR$5,460,000(AUD$1,629,851) from Public Bank Berhad to acquire two blocks of a semi-detached factory. The monthly repayment includes the payment of loan principle and interest. The first monthly instalment commenced on 1 May 2017, subsequent instalments are to be paid on or before the 1st of each calendar month and total repayments are 240 instalments in 240 months. The term of the loan is 20 years and loan interest is calculated using the Base Lending Rate (Variable Rate) less a discount of 2.20% at banks’ discretion from time to time. The terms and condition of loans are secured against the following: (a) Fixed charge over a freehold land and factory buildings of the company; and (b) Jointly and severally guaranteed by a Director of the Company. 39 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 17: MATURITY ANALYSIS 2018 Financial Liabilities Consolidated Entity: Trade creditors Other creditors Loans - directors Borrowings - Rectifier Technologies (M) Sdn Bhd Debtor financing facility Lease liability Total Contractual Amount < 6 mths 6 – 12 mths 1 – 3 years > 3 years 1,586,698 255,314 - 2,623,832 1,146 34,297 4,501,287 1,586,698 255,314 - 69,240 1,146 9,796 1,922,194 - - - 69,240 - 6,841 76,081 - - - 276,960 - 7,840 284,800 - - - 2,208,392 - 9,820 2,218,212 Rectifier Technologies (M) Sdn Bhd‘s term loan and lease repayment include principle and interest. 2017 Contractual Amount < 6 mths 6 – 12 mths 1 – 3 years > 3 years Financial Liabilities Consolidated Entity: Trade creditors Other creditors Loans - directors Borrowings - Rectifier Technologies (M) Sdn Bhd Debtor financing facility Lease liability Total NOTE 18: PROVISIONS CURRENT Employee entitlements NON-CURRENT Employee entitlements 1,101,895 285,788 81,721 2,596,976 2,358 17,401 4,086,139 1,101,895 285,788 - 65,527 2,358 4,976 1,460,544 - - 81,721 65,527 - 4,976 152,224 - - - 262,107 - 7,449 269,556 - - - 2,203,815 - - 2,203,815 Consolidated Entity 2018 $ 2017 $ 354,822 392,170 55,552 57,018 40 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 19: CONTRIBUTED EQUITY AND RESERVES a. Ordinary shares At the beginning of the reporting period Share based payment At reporting date At the beginning of reporting period Issue of shares At reporting date Consolidated Entity 2018 $ 2017 $ 39,816,575 38,941,375 - 875,200 39,816,575 39,816,575 Number Number 1,366,900,602 1,335,140,602 - 31,760,000 1,366,900,602 1,366,900,602 There were no new shares issued during 2018 financial year period. All shares issued at reporting date have been fully paid. Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. b. Nature and purpose of reserves The foreign currency translation reserve is used to record exchange differences on translation of foreign controlled subsidiaries. The reserve is recognised in profit or loss when the investment is disposed of. c. Options At 30 June 2018, there were 21,640,000 (2017: 21,640,000) options outstanding. d. Capital risk management The Group's and the Parent Entity's objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistently with others in the industry, the Group and the parent entity monitor capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the statement of financial position plus net debt. 41 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 19: CONTRIBUTED EQUITY AND RESERVES (Cont’d) The gearing ratios at 30 June 2018 were as follows: Consolidated Notes 2018 $ 2017 $ Total borrowings Less: cash and cash equivalents 15 & 16 1,794,476 1,822,024 10 (2,183,902) (2,628,269) Net cash Total Equity Total Capital Gearing Ratio NOTE 20: CAPITAL AND LEASING COMMITMENTS Operating Lease Commitments Non-cancellable operating leases contracted for but not capitalised in the financial statements Payable - - - not later than 1 year later than 1 year but not later than 5 years over 5 years (389,426) 5,065,384 4,675,958 (806,245) 4,916,919 4,110,674 -8% -20% 107,714 80,958 - 125,009 98,190 - 188,672 223,199 Operating leases relate to business and manufacturing facilities in Australia and Malaysia, with negotiable options to extend. The consolidated entity does not have options to purchase the leased assets at the expiry of the lease agreements. The lease on the Australian premises at Burwood expires on 4 March 2019. There is an option at the end of lease for extension from one to four years. For the years commencing after 30 June 2018 the following are the rental charges: 2019 2020 $78,554 $80,911 NOTE 21: CONTINGENT LIABILITIES There are no contingent liabilities at the end of the year. 42 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 22: SEGMENT INFORMATION Description of segments Operating segments have been determined on the basis of reports reviewed by the executive management committee. The executive management committee ("committee") is considered to be the chief operating decision maker of the Group. The committee considers the business from both a product and geographic perspective and assesses performance and allocates resources on this basis. The reportable segments are as follows: Electronic Components Under this segment, Rectifier Technologies Pacific Pty Ltd and Rectifier Technologies Malaysia Sdn Bhd which is based in Malaysia (operations transferred from Protran Technologies Pty Ltd during the year of 2014/2015) manufacture electronic components for a number of industries. Industrial Power Supplies (Electricity generation/distribution and Defence) Under this segment, Rectifier Technologies Pacific Pty Ltd and Rectifier Technologies Malaysia Sdn Bhd manufacture and distribute rectifiers, controllers, accessories and complete systems for the power generation, distribution industries and defence. Industrial Power Supplies (Transport and Telecommunication) Under this segment, Rectifier Technologies Pacific Pty Ltd and Rectifier Technologies Malaysia Sdn Bhd manufacture and distribute power supplies for the transport industries and telecommunications. Industrial Power Supplies (Electric vehicles) Under this segment, Rectifier Technologies Pacific Pty Ltd, Rectifier Technologies Singarpore Pte Ltd and Rectifier Technologies Malaysia Sdn Bhd manufacture and distribute electric vehicle charges, battery charges and power supplies for a number of industries. Information provided to the executive management committee Segment information provided to the executive management committee for the year ended 30 June 2018 is as follows: 43 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 22: SEGMENT INFORMATION (Cont’d) 2018 Electronic Components Industrial Power Supplies (E&D) Industrial Power Supplies (T&T) Industrial Power Supplies (EV) Total $ $ $ $ $ Total segment revenue Inter-segment revenue 268,977 6,604,402 1,223,719 2,626,854 10,723,952 (361) (1,819,033) (16,315) (1,096,283) (2,931,992) Segment revenue from external customers 268,616 4,785,369 1,207,404 1,530,571 7,791,960 EBITDA 54,474 970,447 244,855 310,392 1,580,168 Interest revenue Interest expense Depreciation and amortisation Income tax expense Segment Assets and Liabilities Segment assets Segment liabilities 244 (16,451) (19,693) (1,695) 1,634 (9,569) (40,069) (269,530) 901 (53,590) (66,209) (24,802) 206 - 2,985 (79,610) (3,955) (129,926) (48,951) (344,978) 430,126 7,662,648 1,933,375 2,450,852 12,477,001 280,423 4,995,702 1,260,473 1,597,845 8,134,443 Inter-segment revenue comprises sales between segments which are on arm's length terms. Segment revenues from external customers are measured in accordance with accounting policy 2(o). Management monitors segment performance based on EBITDA. This measure excludes non-recurring expenditure such as restructuring costs, impairments and share-based payments as well as interest revenue and interest expense and other items which are considered part of the corporate treasury function. 44 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 22: SEGMENT INFORMATION (Cont’d) Segment revenue reconciles to total revenue: Revenue from external customers Corporate head office sundry revenue Corporate head office interest received Total revenue from operations Reconciliation of EBITDA to profit before income tax from continuing operations: Total segment EBITDA - interest revenue - interest expense - depreciation and amortisation - corporate head office costs Profit before income tax from continuing operations Segment assets reconcile to total assets as follows: Segment assets Inter-segment eliminations Corporate head office - Cash Corporate head office - PPE Corporate head office - other receivables Corporate head office – deferred tax assets Total assets per statement of financial position Segment liabilities reconcile to total liabilities as follows: Segment liabilities Inter-segment eliminations Corporate head office - trade & other creditors Corporate head office - provisions Corporate head office - borrowings Total liabilities per statement of financial position 2018 $ 7,791,960 34,444 8,306 7,834,710 1,580,168 11,291 (79,610) (129,926) (918,627) 463,296 12,477,001 (4,525,761) 1,194,341 - 179,880 261,422 9,586,883 8,134,443 (3,689,170) 76,226 - - 4,521,499 45 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 22: SEGMENT INFORMATION (Cont’d) 2017 Electronic Components Industrial Power Supplies (E&D) Industrial Power Supplies (T&T) Industrial Power Supplies (EV) Total $ $ $ $ $ Total segment revenue Inter-segment revenue 349,241 (61,154) 6,003,275 (1,711,755) 2,354,215 (195,058) 217,761 8,924,492 (51,020) (2,018,987) Segment revenue from external customers 288,087 4,291,520 2,159,157 166,741 6,905,505 EBITDA 71,185 1,060,414 533,518 41,201 1,706,318 Interest revenue Interest expense Depreciation and amortisation 92 (1,489) (2,935) 1,265 (16,071) (51,705) 94 (1,185) (3,830) 7 - (521) 1,458 (18,745) (58,991) Income tax refund (expense) (11,283) (567,795) (42,256) (11,592) (632,926) Segment Assets and Liabilities Segment assets Segment liabilities 424,806 6,150,278 3,756,074 120,568 10,451,725 265,022 4,082,741 2,206,156 77,845 6,631,764 46 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 22: SEGMENT INFORMATION (Cont’d) Segment revenue reconciles to total revenue: Revenue from external customers Corporate head office sundry revenue Total revenue from operations Reconciliation of EBITDA to profit before income tax from continuing operations: Total segment EBITDA - interest expense - depreciation and amortisation - corporate head office costs Profit before income tax from continuing operations Segment assets reconcile to total assets as follows: Segment assets Inter-segment eliminations Corporate head office - Cash Corporate head office - PPE Corporate head office - other receivables Corporate head office – deferred tax assets Total assets per statement of financial position Segment liabilities reconcile to total liabilities as follows: Segment liabilities Inter-segment eliminations Corporate head office - trade & other creditors Corporate head office - provisions Corporate head office - borrowings Total liabilities per statement of financial position 2017 $ 6,905,505 (25,057) 6,880,448 1,706,318 (17,232) (59,028) (1,372,518) 257,540 10,451,725 (4,136,854) 1,688,617 - 623,041 - 8,626,529 6,631,764 (2,989,339) 67,185 - - 3,709,610 47 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 22: SEGMENT INFORMATION (Cont’d) Geographical Information Revenues and non-current assets by geographical location is as follows: Geographic location Australia Asia North America South America Europe Oceania Oceania Revenues from external customers of continuing operations 2018 $ 2017 $ Non-current assets* 2018 $ 2017 $ 3,938,091 1,744,965 858,690 60,244 530,283 23,623 2,459,726 1,577,832 2,002,355 144,490 53,326 7,369 108,459 2,637,220 84,635 2,069,096 - - - - - - - - 7,155,896 6,245,098 2,745,679 2,153,731 * Excludes financial instruments, deferred tax assets, post-employment benefit assets and rights arising under insurance contracts. Major customers - Revenue of $1,831,798 (2017: $1,719,707) was derived from a single Australia customer and revenue of $1,286,991 (2017: $1,107,536) was derived from a single Singapore customer, both of which are allocated to the “RTP - Industrial Power Supplies (E&D)” segment. These revenues each amount to more than 15% of the Group’s revenues from external customers. 48 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 23: CASH FLOW INFORMATION Consolidated Entity 2018 $ 2017 $ 62,442 (34,900) 129,925 (1,051) - (90,177) 18,509 (190,872) 101,283 (563,715) 155,477 294,033 (38,814) 59,028 (91,418) 720,000 49,566 304 132,391 (524,945) 13,009 614,869 198,074 81,339 (122,960) 1,217,317 a. Reconciliation of Cash Flow from Operations with Profit after Income Tax Profit after income tax Non-cash flows in loss from ordinary activities Depreciation Provision for stock obsolescence Share based payment expense Unrealised currency (gain)/loss Net loss/(gain) on sale/acquisition of assets Changes in assets & liabilities: Decrease/(increase) in trade debtors Decrease/(increase) in other debtors & prepayments Decrease/(increase) in inventories Increase/(decrease) in trade creditors/accruals Increase/(decrease) in income taxes payable Increase/(decrease) in provisions Cash flows from operations b. Credit Standby Arrangements The Group has no credit standby arrangements with banks other than debtor finance facility. NOTE 24: RELATED PARTY TRANSACTIONS a. Subsidiaries Interests in subsidiaries are set out in Note 13. b. Key management personnel Disclosures relating to key management personnel are set out in Note 7. On 26 April 2017, the current director of Rectifier Technologies Ltd, Mr. Yanbin Wang has lent MYR$300,000 to Rectifier Technologies (M) Sdn Bhd for the purpose of working capital. The loan is non-interest bearing and the term of the loan is 12 months. The first repayment was MYR$40,946 conducted on 15 June 2017 and balance of loan has been paid off in January 2018. Transactions between related parties are on normal commercial terms and conditions no more favourable to other parties unless otherwise stated. There is no requirement for transactions and balances between the entities within the consolidated Group to be disclosed. 49 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 25: FINANCIAL INSTRUMENTS RISK EXPOSURE AND MANAGEMENT Categories of Financial Instruments Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Amortised cost Consolidated Entity 2018 $ 2017 $ 2,183,902 573,326 2,757,228 3,636,488 3,636,488 2,628,269 784,375 3,412,644 3,209,706 3,209,706 In common with all other businesses, the Group and the Parent Entity are exposed to risks that arise from its use of financial instruments. This note describes the Group and the parent entity’s objectives, policies and processes from managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group and the Parent Entity’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. a. Principal financial instruments The principal financial instruments used by the Group and the parent entity, from which financial instrument risk arises, are as follows: • • • • • • trade and other receivables cash and cash equivalents lease liabilities trade and other payables bank loans loan from related parties b. General objectives, policies and processes The Board has overall responsibility for the determination of the Group and the parent entity’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group and the parent entity’s finance function. The Board receives monthly reports from the Chief Financial Officer through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting the Group and the parent entity’s competitiveness and flexibility. Further details regarding these policies are set out below: 50 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 25: FINANCIAL INSTRUMENTS RISK EXPOSURE AND MANAGEMENT (Cont’d) i. Credit risk Credit risk arises principally from the Group and the Parent Entity’s trade receivables. It is the risk that the counterparty fails to discharge its obligation in respect of the instrument. Prior to accepting new customers, a credit check is obtained from a reputable external source. Based on this information, credit limits and payment terms are established. Customers who subsequently fail to meet their credit terms are required to make purchases on a prepayments basis until creditworthiness can be re-established. The nature of the Group and the parent entity’s operations means that approximately 76% (2017: 88%) of its sales are made to 5 (2017:9) key customers in Australia, Malaysia and America. Whilst credit risk is mainly influenced by factors specific to these individual customers, the concentration of sales geographically is a contributory factor. Refer to note 11 for further information regarding the Group’s credit risk. ii. Liquidity risk Liquidity risk arises from the Group and the Parent Entity’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group and the parent entity will encounter difficulty in meeting its financial obligations as they fall due. The Group and the parent entity aim to have sufficient cash to allow it to meet its liabilities when they become due. The Group and the parent entity do not have any undrawn standby credit arrangements available. Refer to note 23(b). The Board receives cash flow projections monthly as well as information regarding cash balances. Refer to maturity analysis in note 17. iii. Market risk Market risk arises from the Group and the parent entity’s use of interest bearing and foreign currency financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) or other market factors (other price risk). iv. Interest rate risk The consolidated entity's exposure to interest rate risk, which is the risk that a financial instrument's value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows: Fixed Interest Rate Maturing Floating Interest Rate $ Within Year 1 to 5 Years Over 5 Years Non-interest-Bearing $ $ $ $ Total $ 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Financial Assets: Cash Receivables 2,183,902 2,628,269 - - Total Financial Assets 2,183,902 2,628,269 Financial Liabilities: Other current loans Trade and sundry creditors Director related loan - - - - - - --Borrowings 1,762,996 1,720,543 Debtor Financing Facility 1,146 2,358 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Lease liabilities - - 14,294 9,952 16,040 7,449 Total Financial Liabilities 1,764,142 1,722,901 14,294 9,952 16,040 7,449 - - - - - - - - - - - - - - - - - - - - - - 2,183,902 2,628,269 573,326 784,375 573,326 784,375 573,326 784,375 2,757,228 3,412,644 - - - - 1,842,012 1,387,683 1,842,012 1,387,683 - - - - 81,721 - 81,721 - - - 1,762,996 1,720,543 1,146 2,358 30,334 17,401 1,842,012 1,469,404 3,636,488 3,209,706 51 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 25: FINANCIAL INSTRUMENTS RISK EXPOSURE AND MANAGEMENT (Cont’d) The Group and the parent entity’s exposure to interest rate risk is limited to cash balances and the debtor financing facility, as these are at a floating rate. Interest rates on loan and lease liabilities are fixed. The Group’s profit and loss sensitivity and movement in the interest rates are as follows: Cash Debtor finance Amounts $2,183,902 ($1,146) v. Foreign currency risk +1% $21,839 ($12) -1% ($21,839) $12 The only currency where receivables are not denominated in their functional currency is US dollars (USD). Cash balances in USD are kept at levels only sufficient to pay the amounts owing. Since the local sales in Malaysia are made by foreign operations in their individual functional currencies, there is no direct foreign currency risk exposure involved. The Group and the parent entity’s exposure to foreign currency risk is primarily its exposure to trade receivables denominated in USD. The total exposure to foreign currency risk at 30 June 2018 was as follows: Receivables in USD totalled USD$327,494 and payables totalled USD$279,514. The Group and the parent entity’s profit and loss sensitivity and movement in the USD: AUD and GBP: AUD exchange rates are as follows: Consolidated +10% -10% +10% -10% USD USD/AUD USD/AUD GBP GBP/AUD GBP/AUD 2018 Trade Receivables Trade Payables Loans 327,494 279,514 - 40,233 34,338 - (49,173) (41,969) - - - - - - - - - - Consolidated +10% -10% +10% -10% USD USD/AUD USD/AUD GBP GBP/AUD GBP/AUD 2017 Trade Receivables Trade Payables Loans 435,045 84,821 - 51,363 10,014 - (62,777) (12,240) - - - - - - - - - - 52 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 25: FINANCIAL INSTRUMENTS RISK EXPOSURE AND MANAGEMENT (Cont’d) vi. Fair Values An analysis of financial assets and financial liabilities for the consolidated entity is shown below: Financial assets Cash Receivables Financial Liabilities Other loans 2018 2017 Carrying Amount Fair Value $ $ Carrying Amount $ Fair Value $ 2,183,902 2,183,902 2,628,269 2,628,269 573,326 573,326 784,375 784,375 2,757,228 2,757,228 3,412,644 3,412,644 - - 81,721 81,721 Trade and sundry creditors 1,842,012 1,842,012 1,387,683 1,387,683 Borrowings - Rectifier Technologies (M) Sdn Bhd 1,762,996 1,762,996 1,720,543 1,720,543 Debtor financing facility Lease liabilities 1,146 30,334 1,146 30,334 2,358 17,401 2,358 17,401 3,636,488 3,636,488 3,209,706 3,209,706 The fair value of the other loans has been calculated by adding the accrued interest to the original principal adjusted for relevant exchange rate movements where applicable. The fair value for the remaining financial liabilities and financial assets approximates their carrying value as they are short-term. NOTE 26: PARENT ENTITY FINANCIAL INFORMATION a. Summary Financial Information The individual financial statements for the parent entity show as follow: Statement of Financial Position Current Assets Total Assets Current Liabilities Total Liabilities Net Assets Shareholders’ Equity Accumulated Losses Total Equity Profit/(Loss) for the year Total Comprehensive Income/(Loss) 2018 $ 2017 $ 1,577,397 1,669,876 71,047 71,047 2,204,782 2,294,173 55,227 762,585 1,598,829 1,531,588 39,816,575 39,816,575 (38,216,746) (38,284,987) 1,598,829 1,531,588 67,241 67,241 (236,761) (236,761) 53 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 26: PARENT ENTITY FINANCIAL INFORMATION (Cont’d) b. Guarantees entered into by the parent entity The parent entity has not provided any financial guarantees except as disclosed in the notes to the financial statements. c. Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2018. d. Contractual commitments There were not contractual commitments for the parent entity as at 30 June 2018. NOTE 27: EVENTS SUBSEQUENT TO REPORTING DATE There has a subsequent event to the end of reporting period. Rectifier Technologies Limited has received additional product purchase orders from Tritium Pty Ltd totaling 3.4 million USD for the supply of 35kW high-voltage and high-efficiency modular power supply units for DC electric vehicle charging. The orders are scheduled to be delivered before the end of March 2019 and are binding purchase orders. NOTE 28: COMPANY DETAILS The registered office is: Rectifier Technologies Ltd 24 Harker Street, Burwood, VIC 3125 The principal places of business are: Rectifier Technologies Ltd 24 Harker Street, Burwood, VIC 3125 Rectifier Technologies (M) SDN. BHD No. 5 & 7, Jalan Laman Setia 7/8 Taman Laman Setia 81550 GELANG PATAH, JOHOR MALAYSIA 54 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES RECTIFIER TECHNOLOGIES RECTIFIER TECHNOLOGIES LTD Tel: +61 3 9896 7550 ACN 058 010 692 Fax: +61 3 9896 7566 24 Harker Street, Burwood Email: mail@rectifiertechnologies.com Vic 3125 AUSTRALIA Internet: www.rectifiertechnologies.com DECLARATION OF BY DIRECTORS The directors of the company declare that: 1. The financial statements, comprising the statement of profit or loss and other comprehensive income, statement of financial position, statement of cash flows, statement of changes in equity and accompanying notes, are in accordance with the Corporations Act 2001 and: a) Comply with Accounting Standards and the Corporations Regulations 2001; and b) Give a true and fair view of the financial position as at 30 June 2018 and of the performance for the year ended on that date of the consolidated entity. 2. The company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. 3. In the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. 4. The remuneration disclosures included on pages 4 to 10 of the directors’ report (as part of the audited Remuneration Report) for the year ended 30 June 2018, comply with Section 300 A of the Corporations Act 2001. 5. The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by: Mr. Yanbin Wang Director Rectifier Technologies Ltd 24 Harker Street Burwood VIC 3130 Dated the 30th day of September 2018 55 For personal use only Collins Square, Tower 1 727 Collins Street Melbourne Victoria 3008 Correspondence to: GPO Box 4736 Melbourne Victoria 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au Independent Auditor’s Report To the Members of Rectifier Technologies Limited Report on the audit of the financial report Opinion We have audited the financial report of Rectifier Technologies Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the 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, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the year ended on that date; and b complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. 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 auditor independence requirements of 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 also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. For personal use only Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Recognition of R&D tax incentive (Note 3 and 11) The Group receives a 43.5% refundable tax offset of eligible expenditure under the research and development (“R&D”) scheme if its turnover is less than $20 million per annum, provided it is not controlled by income tax exempt entities. A registration of R&D activities application is filed with AusIndustry in the following financial year, and based on this filing; the Group receives the incentive in cash. The Group engaged an R&D expert to perform a detailed review of the Group’s total R&D expenditure to determine the potential claim under the R&D tax incentive legislation. As at 30 June 2018, a receivable of $529,798 has been recorded. This represents the estimated claim for the period 1 July 2017 to 30 June 2018. This is a key audit matter due to the size of the receivable and the degree of judgement and interpretation of the R&D tax legislation required by management to assess the eligibility of the R&D expenditure under the scheme. Inventory Valuation (Note 12) As at 30 June 2018, the Group holds inventory with a carrying amount totalling $2,738,970 and is required to carry its inventory, at the lower of cost or net realisable value in accordance with Australian Accounting Standard AASB 102 Inventories. The determination of the valuation of inventory, requires significant judgement. The following factors add complexity or increase the likelihood of errors in the determination of the write down to lower of cost or net realisable value: 1. large inventory holdings of electronic components and slow inventory turnover on certain lines indicate that there may be obsolete stock on hand; and 2. the methodology of estimating inventory to be considered for write-down involves significant management judgment, including predictions about market conditions and future sales of certain lines. This is a key audit matter due to the materiality of inventory balance and the level of management judgement required in determining the value of inventory. Our procedures included, amongst others:  obtaining and documenting, through discussions with management, an understanding of the process to estimate the claim;  evaluating the competence, capabilities and objectivity of management's expert;  reviewing and testing the R&D estimate by: - evaluating the methodology used by management's expert for consistency with the R&D tax offset rules; - performing testing on a sample of R&D expenses to - supporting documents to assess eligibility and accuracy of amounts recorded in the general ledger; and considering the nature of expenses against the eligibility criteria of the R&D tax incentive scheme to assess whether the expense included in the estimate were likely to meet the eligibility criteria.  comparing the nature of the R&D expenditure included in the current year to the prior year claim;  comparing the eligible expenditure used in the receivable calculation to expenditure recorded in the general ledger;  considering the entity’s history of successful claims;  inspecting copies of relevant correspondence with AusIndustry and the Australian Taxation Office related to the claims; and  assessing the adequacy of the relevant disclosures in the financial statements. Our procedures included, amongst others:  understanding and documenting management's process of calculating the inventory value and evaluating the group’s compliance with the requirements of AASB 102 Inventories;  performing testing on a sample of inventory items to assess the cost basis and net realisable value of inventories and: for inventory sold in the last 12 months or post year end, tracing to sales invoice and agreeing that the selling price exceeded the item’s cost; for items not sold in the last 12 months, considering whether the value of these items were adjusted for inventory obsolescence; - -  analysing any inventory items with no movement in the last 12 months and considering whether they should be considered for write-down and assessing their saleability in future;  considering whether any other factors might indicate the inventory items would require a write-down to net realisable value, such as any discontinued lines; and  assessing the adequacy of the related disclosures in the financial statements. For personal use only Information other than the financial report and auditor’s report thereon The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, 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. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors 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 objectives are 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 the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and 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. For personal use only Report on the remuneration report Opinion on the remuneration report We have audited the Remuneration Report included in pages 4 to 10 of the Directors’ report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Rectifier Technologies Limited, for the year ended 30 June 2018 complies with section 300A of the Corporations Act 2001. Responsibilities 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 responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Grant Thornton Audit Pty Ltd Chartered Accountants S C Trivett Partner – Audit & Assurance Melbourne, 30 September 2018 For personal use only RECTIFIER TECHNOLOGIES LTD & CONTROLLED ENTITIES The following additional information is required by the Australian Stock Exchange Ltd in respect of listed public companies only. ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES 1. Shareholding a. Category (size of Holding) Distribution of Shareholders Number 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 9,999,999,999 Ordinary 274 321 146 505 334 1,580 The number of shareholdings held in less than marketable parcels is 847. The names of the substantial shareholders listed in the holding company’s register as at 30th of June 2018 are: b. c. Shareholder Number Ordinary 224,643,616 150,000,000 125,068,336 Pudu Investments (Aust) Pty Ltd Yung Shing Winter Storms Ltd Voting Rights d. The voting rights attached to each class of equity security are as follows: Ordinary shares - Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. e. 20 Largest Shareholders - Ordinary Shares Name Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 1.PUDU INVESTMENT (AUSTRALIA) PTY LTD 2.YUNG SHING 3.WINTER STORMS LTD 4.ATLANTICA INVESTMENTS PTY LTD 5.MR LEI LI 6.MS ZHU FURONG 7.MR WEIGUO XIE 8.MR MAKRAM HANNA + MRS RITA HANNA 9.FINLINK LLC 10.VALENTINO FRANCESCO VESCOVI + GLENDA JILL VESCOV 11.J P MORGAN NOMINEES AUSTRALIA LIMITED 11.YANBIN WANG 12.BOND STREET CUSTODIANS MT< JL-I53966 A/C> 13.GENISTA COURT PTY LTD 14.NICHOLAS YEOH 15.MR NIGEL MACHIN 16.MR PETER HIONG HUO HII 17.TOPAZ INVESTMENTS PTE LTD 18.MR MAKRAM HANNA 19.MR RAYMOND ROCKMAN + MR ANTHONY ROCKMAN Totals: Top 20 holders of ORDINARY SHARES 224,643,616 150,000,000 125,068,336 90,000,000 68,460,000 65,349,662 53,122,867 40,001,292 40,000,000 37,821,196 30,262,545 30,000,000 25,999,605 23,225,000 21,000,000 20,000,000 17,383,975 13,837,650 12,000,279 9,677,106 1,097,853,129 16.43 10.97 9.15 6.58 5.01 4.78 3.89 2.93 2.93 2.77 2.21 2.19 1.90 1.70 1.54 1.46 1.27 1.01 0.88 0.71 80.31 The following additional information is required by the Australian Stock Exchange Ltd in respect of listed public companies only. 2. The name of the Company Secretary is Justyn Stedwell. 3. The address of the principal registered office in Australia is 24 Harker Street, Burwood, Victoria. Telephone 03 9896 7550 Registers of securities are held at the following address: 4. Computershare Investor Services Pty Ltd 452 Johnston Street, Abbotsford, VIC 3067 Stock Exchange Listing 5. Quotation has been granted for all the ordinary shares of the Company on all Member Exchanges of the Australian Stock Exchange Limited and the Home Exchange is Melbourne. Unquoted Securities A total of 21,640,000 (2017: 21,640,000) options over unissued shares are on issue. 7. Nil Restricted Securities 8. On market buy-back There is no current on market buy back. 60 For personal use only 

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