ANNUAL REPORT
2020
2020
www.secosgroup.com.au
SECOS GROUP LIMITED
AND ITS CONTROLLED ENTITIES
(ABN 89 064 755 237)
(ASX: SES)
ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020
CONTENTS
CORPORATE DIRECTORY ................................................................................................................ 4
CONTENTS
CHAIRMAN’S REPORT ...................................................................................................................... 5
DIRECTORS’ REPORT ...................................................................................................................... 6
AUDITOR’S INDEPENDENCE DECLARATION ................................................................................ 20
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ........................... 21
STATEMENT OF FINANCIAL POSITION ......................................................................................... 22
STATEMENT OF CHANGES IN EQUITY ......................................................................................... 23
STATEMENT OF CASH FLOWS ...................................................................................................... 24
NOTES TO THE FINANCIAL STATEMENTS .................................................................................... 25
DIRECTORS’ DECLARATION .......................................................................................................... 50
INDEPENDENT AUDITOR’S REPORT ............................................................................................. 51
SHAREHOLDERS’ INFORMATION .................................................................................................. 55
3
CORPORATE DIRECTORY
CORPORATE DIRECTORY
DIRECTORS:
Mr. Richard Tegoni (Executive Chairman)
Mr. Stephen Walters (Executive Director)
Mr. Donald Haller Jr. (Non-Executive Director)
Mr. David Wake (Non-Executive Director)
Mr. Jim Walsh (Non-Executive Director)
COMPANY SECRETARY:
Mr. Edmond Tern
REGISTERED OFFICE:
SHARE REGISTRY:
Level 3, 302 Burwood Road
Hawthorn, VIC 3122
Telephone: +61 3 8566 6800
Email: info@secosgroup.com.au
Advanced Share Registry Limited
110 Stirling Highway,
NEDLANDS, W.A. 6009
Telephone: +61 8 9389 8033
Email: admin@advancedshare.com.au
BANKERS:
AUDITORS:
LAWYERS:
SECURITIES EXCHANGE:
Bank of Melbourne
Level 8, 530 Collins Street,
MELBOURNE, VIC 3000
William Buck
Level 20, 181 William Street,
MELBOURNE, VIC 3000
Telephone: +61 3 9824 8555
CBW Partners
Level 1, 159 Dorcas Street,
South Melbourne, VIC 3205
Australian Securities Exchange
Level 45
South Tower, Rialto
525 Collins Street
MELBOURNE, VIC 3000
ASX Code: SES
WEBSITE:
CORPORATE
GOVERNANCE
STATEMENT:
Corporate: www.secosgroup.com.au
E-commerce: www.cardiabioproducts.com; www.myeocbag,com.au
The Corporate Governance statement can be found on Investors page at
www.secosgroup.com.au
4
CHAIRMAN’S REPORT
CHAIRMAN’S REPORT
Dear fellow Shareholders,
On behalf of the Board of SECOS Group Ltd (ASX: SES), I am pleased to present our Annual Report for the year
ending 30 June 2020.
2020 saw the continued unprecedented shift in government and community attitudes to address the world’s plastic
waste crisis. While some conventional plastic manufacturing incumbents remain wedded to petrochemical supply
chains, many others accept that “recycling” alone can no longer be promoted as the environmental fix-all it has
been made out to be over the decades. With less than 10% of all plastics being recycled worldwide the shift to
remove the most damaging plastics from waste streams or to replace them with environmentally sustainable
solutions such as compostable technology has become a key focus for government and global brands alike.
Over the last few years your board has focused entirely on positioning SECOS as the leading developer and
producer of compostable technology to replace single use plastics. I am pleased to confirm that after executing
on a long list of improvement initiatives the Company is now in a very strong position to take advantage of the
growth opportunities that lay ahead with major contract wins already being achieved in 2021
The financial performance improvements for 2020 delivered a 71.6% improvement in NPAT or FY20 ($1.2m) vs
FY19 ($4.2m); gross margins nearly doubled with FY20 at 17.5% vs FY19 at 9.4%, fixed overheads (before lease
accounting adjustments) dropped by 22.2%; operating cash outflow is $0.6m for the year (after reclassifying
$0.6m of rental expenses as financing activities as per new accounting standard). This compares to restated
FY19 operating cash outflow of $2.4m which is quite an achievement. The significant turnaround in financial
performance for the full year was complemented by a positive EBITDA in the second half and cash flow positive
result in the final quarter of 2020. The company also finished the year with negligible debt and over $2.9m surplus
cash in the bank as at 30 June 2020.
During the year, the company focused on developing new resin grades and improved technology in film and
product applications resulting in a substantial customer pipeline across all categories of resin, film and finished
products. SECOS is currently supplying over 14 countries and working with hundreds of plastic converters and
major brands across a range of industries. Joint product trials progressed well during the year which has
established a strong growth platform for 2021. Already this year, major success has been achieved in feminine
hygiene products, pet waste bags, and further growth in council led organic waste business.
On behalf of the board, I would like to congratulate everyone in the SECOS team responsible for achieving these
excellent results and for the strong support from shareholders and our key stakeholders. We believe the company
is now well positioned for growth and to take advantage of the shift to bioplastics with the year ahead expected
to be very positive.
Richard Tegoni
Executive Chairman
5
DIRECTORS’ REPORT
DIRECTORS’ REPORT
The Directors present their report on the consolidated entity consisting of SECOS Group Limited (“SECOS” or the
“Company”) and the entities it controlled (“the Group”) at the end of, or during, the year ended 30 June 2020.
DIRECTORS
The following persons were Directors of SECOS during the financial year and up to the date of this report, unless
otherwise stated:
Richard Tegoni (Executive Chairman)
Stephen Walters (Executive Director)
Donald Haller Jr. (Non-Executive Director)
David Wake (Non-Executive Director)
Jim Walsh (Non-Executive Director)
COMPANY SECRETARY
The Company Secretary is Edmond Tern who is also the Chief Financial Officer of SECOS.
PRINCIPAL ACTIVITIES
SECOS Group Limited (ASX: SES) is a leading developer and manufacturer of sustainable packaging materials.
Headquartered in Melbourne, Australia, SECOS supplies its proprietary biodegradable and compostable resins,
packaging products and high-quality cast films to a blue-chip global customer base. SECOS Group is integrated
from resin production, into film (cast and blown) production and can develop bespoke compostable solutions for a
large range of applications.
SECOS holds a strong patent portfolio and the global trend toward sustainable packaging is fueling the Company’s
growth.
The Company’s headquarters and Global Application Development Centre are based in Melbourne, Australia.
SECOS has a Product Development Centre and manufacturing plant for resins and finished products in China and
resins plant in Malaysia. The Company also has manufacturing plants for high quality cast films in Malaysia as well
as manufacturing partners for film, bag making, and other applications in Malaysia, Mexico, and the United States.
SECOS has sales offices in Australia, Malaysia, China, Mexico and USA, with a network of leading distributors
across the Americas, Europe, Asia, the Middle East, Africa, and India.
OPERATING RESULTS
The consolidated loss for the year attributable to the members of the Group:
Loss for the year after income tax
Net Loss attributable to members of the Company
2020
$
(1,186,003)
(1,186,003)
2019
$
(4,169,981)
(4,169,981)
DIVIDENDS
The Directors do not recommend the payment of a dividend and no dividends have been paid or declared since
the end of the last financial year.
6
DIRECTORS’ REPORT
REVIEW OF OPERATIONS
SECOS’ Business Transformation Program sees SECOS finish FY19/20 in a strong position ready to capture
current and future growth opportunities.
At the close of FY19/20, SECOS has a strong cash position with $2.9 million cash on hand. This was backed up
by a further reduction in company debt year on year (YOY) of 53.1% to $0.7 million.
SECOS’ operational performance was further improved by positive EBITDA results in the second half of FY19/20
and positive NPAT in the last quarter emphasizing improved margins and continuing discipline on overheads (which
fell by a further 22.2% compared to the same period last year).
The Business Transformation Program has extracted significant value for the business and has established a solid
foundation for it to now leverage additional sales opportunities some of which have already been announced in the
new financial year.
Sales growth continues in our Compostable Biopolymer range with 20% year on year growth recorded. SECOS
Group traditional film business continued to improve its performance initially through better volumes in first half of
FY19/20 and significantly improved margins throughout FY20.
Compostable Resins, Films and Bags continue to record double digit growth with the largest segment compostable
bags continuing to grow strongly as a consequence of strong demand from councils rolling out of replenishing
household food organics garden organics (FOGO) programs as well as expanding demand for dog waste bags.
Biopolymer Sales by quarter
D
U
A
s
d
n
a
s
u
o
h
T
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Bio Resin
Bio Bag
Bio Film
SECOS remains committed to the Australian Council initiatives to divert food waste from landfill to organic waste
stations. SECOS promotes Compostable Kitchen Tidy Bags to Councils which are used to facilitate Council food
waste diversion programs. These programs have the benefits of redirecting food waste from land fill to organic
waste treatment which creates fertile mulch, which in turn mitigates green gas emissions as well as Council land
fill costs.
SECOS is also committed to replacing single use plastics with more sustainable compostable solutions within the
consumer and food packaging industry. Sales demand continues to be supported by film converter and significant
brand-owner enquiries.
7
DIRECTORS’ REPORT
REVIEW OF OPERATIONS (continued)
FINANCIAL HIGHLIGHTS
Revenue
Gross Margin %
NPAT
Current assets
Current liabilities
Current ratio
Debt
Equity
Total assets
Debt/equity
Debt/assets
FY20
FY19
% change
21,038,608
20,851,647
of which, Biopolymer was
9.4%
17.5%
(4,169,981)
(1,186,003)
9,243,677
9,107,264
3,627,9351
3,358,376
2.8
2.5
1,432,065
672,075
9,994,735
11,375,302
14,563,802
15,753,690
14.3%
5.9%
9.8%
4.3%
0.9%
20.0%
85.7%
71.6%
-1.5%
8.0%
-8.8%
-53.1%
13.8%
8.2%
-58.8%
-56.6%
Overall revenue reported a nominal growth of 0.9%. Biopolymer recorded an encouraging 20.0% growth
overshadowed by covid-19 interruption in the last quarter of the year. Cost discipline, manufacturing efficiencies
and product mix had contributed to improved margin.
The Group closed off the year with the balance sheet in good shape with key financial statistics summarized in the
table above.
OPERATIONAL ASSETS
During the financial year SECOS:
•
•
•
•
Installed additional film and bag production capacity at its plant in China to cater for expanding compostable
bag segments,
Installed additional equipment in cast line operation in Malaysia which increased efficiency of production,
Increased asset utilization and efficiency of use in China compostable compound operation, and
Installed Courier Bag production capacity.
SECOS is in the process of increasing its small compostable and bio-resin bag production capacity in line with
increasing demand we see in various retail markets.
A product efficiency program to enhance performance and reduce formulation costs continues to yield positive
results.
SALES ACTIVITIES
Double Digit Sales Growth
Biopolymer Sales were up 20% YOY with compostable film sales growing rapidly as a consequence of new hygiene
film sales into Diaper manufacturers. Compostable Biopolymer sales for Council and Pet Waste Bag applications
continue to grow strongly.
•
1 Included $548,188 current lease liability due to change in accounting standards (AASB 16 Lease Accounting)
8
DIRECTORS’ REPORT
REVIEW OF OPERATIONS (continued)
Expansion in Sales Territories where SECOS is active
Significant contract wins for new Australian council business were added during the year with six new city councils
secured in the last two quarters of 2020.
The number of Australian city councils proposing to adopt FOGO waste programs continues to expand.
SECOS has launched the MyEcoPet and MyEcoBag brands to support branded retail sales initiatives in the USA
and Australia.
OUTLOOK
Further strong growth in biopolymer resin and film sales is expected in view of significant opportunities and the
Company’s available manufacturing capacity.
SECOS has progressed negotiations for a strategic supply agreement with Jewett-Cameron (USA) Inc which will
enhance sales demand and plant capacity utilization for the production of compostable dog waste bags (recently
announced to the market).
Research and Development activities added to our proprietary bio-resin formulations which in turn expanded the
compostable film applications and compostable certifications under which SECOS Biopolymer resin and film can
be sold.
SECOS is working on developing compostable film for hygiene and medical applications utilizing its Malaysian
cast-line assets with trial work yielding results that suggest the running rate is close to meeting commercial levels.
COVID-19
The impact of the Coronavirus (COVID-19) pandemic is ongoing. While the financial impact on the Group up to 30
June 2020 had been negligible, it is not practicable to estimate the potential impact after the reporting date. The
situation is dependent on measures imposed by governments in various jurisdictions in which the Group operates.
No other matter or circumstance has arisen since 30 June 2020 that has significantly affected or may significantly
affect the Group’s operations in future financial years.
9
DIRECTORS’ REPORT
CORPORATE
Capital Raising
During the year, SECOS raised $1.6 million via placement issue pursuant to ASX Listing Rule 7.1 and 7.1A
placement capacity.
The funds raised provided working capital to expand biopolymer capacity in Malaysia and China following a
sustained period of strong growth demand for the Company’s proprietary biopolymer resin.
Convertible Notes
No new notes were issued during the year. Post balance date, the remaining 350,000 convertible notes were
converted to equity on 10-July-2020.
SIGNIFICANT CHANGES IN STATE OF AFFAIRS
No significant changes in the state of affairs of the Group occurred during the year.
EVENTS AFTER THE REPORTING DATE
On 7 July 2020, the Company issued 1,459,159 fully paid ordinary shares to Mr. Richard Tegoni and Mr. Donald
Haller Jr, Mr. David Wake, Mr. Jim Walsh as payment of director’s fees in lieu of cash for the quarter ending 30
June 2020 and to two marketing consultants for consultancy fees. The directors share issue was approved by
shareholders in the Annual General Meeting held on 22 November 2019. The shares were issued at an issue price
of $0.057/share. The share issue price had been determined based on volume weighted average sale price of
SECOS shares for the June 2020 Quarter.
On 10 July 2020, the Company issued 7,458,346 fully paid ordinary shares to convertible note holders pursuant to
Convertible Notes Deed of 27 November 2017. The shares were issued at an issue price of $0.0469/share.
Consequently, there are no outstanding convertible notes left in the accounts.
On 26 August 2020, the Company issued 3,166,666 fully paid ordinary shares to option holders per Options expiring
16 May 2021. The shares were issued at an issue price of $0.06/share pursuant to option deed.
FUTURE DEVELOPMENTS
SECOS will continue to focus on its principal business activities with its sustainable packaging strategy and waste
management solutions.
ENVIRONMENTAL REGULATIONS
The Group’s operations are not subject to any significant environmental regulations under the law of the
Commonwealth or the States.
10
INFORMATION ON DIRECTORS
Richard Tegoni
Executive Chairman
DIRECTORS’ REPORT
Experience and qualifications
Special Responsibilities
Joined the Board as a Non-Executive Director on 21 December 2012.
Richard was nominated as Non-Executive Chairman on 18 October
2013 before being appointed as Executive Chairman effective 16
September 2014.
Richard has held executive positions with various large private and
public companies with a strong background in Finance and Banking,
Sales and Marketing.
Richard has an MBA (AGSM) and Diploma in Financial Markets
(SIA).
Chairman of the Board of directors
Corporate Strategy and Capital Raisings
19,611,386 Ordinary Shares
Interest in Shares and Options
Directorships held in Other Listed Entities Has not held a directorship in any other listed entity over the last 3
Stephen Walters
Executive Director
years
Experience and qualifications
Joined the Board on 21 April 2015. Steve is a veteran in the flexible
packaging industry having held senior management positions with
Orica Limited (formerly ICI Australia). Steve was instrumental in the
integration of the Stellar and Cardia business.
Steve has a B. Bus (Marketing).
Responsible for the sales management of the Group.
30,054,639 Ordinary Shares
Special Responsibilities
Interest in Shares and Options
Directorships held in Other Listed Entities Has not held a directorship in any other listed entity over the last 3
years
11
DIRECTORS’ REPORT
INFORMATION ON DIRECTORS (continued)
Donald Haller Jr.
Non-Executive Director
Experience and qualifications
Special Responsibilities
Interest in Shares and Options
Directorships held in other Listed Entities
Appointed 1 September 2016. Don has a distinguished background
in accounting as a former partner of a major international accounting
firm in the USA before venturing into management consulting as a
leading professional consultant.
Non-Executive Director
37,548,775 Ordinary Shares
Has not held a directorship in any other listed entity over the last 3
years.
David Wake
Non-Executive Director
Experience and qualifications
Special Responsibilities
Interest in Shares and Options
Directorships held in other Listed Entities
Appointed 16 July 2018. David held a number of positions in the US
at Imperial Chemical Industries’ (ICI) multi-billion-dollar specialty
chemical subsidiary, National Starch and Chemical Co, including
Finance Director for the Specialty Synthetic Polymer division, Senior
Director of Financial Planning and Reporting, and ultimately Vice
President Finance in the company’s New Jersey head office.
David was Chief Financial Officer of polymer banknote company
Securency.
David has a B. Ec. from Monash University
Non-Executive Director
4,681,042 Ordinary Shares
Has not held a directorship in any other listed entity over the last 3
years.
Jim Walsh
Non-Executive Director
Experience and qualifications
Special Responsibilities
Interest in Shares and Options
Directorships held in other Listed Entities
Appointed 16 November 2018. Previous executive roles include
Finance Director at carpet manufacturer Godfrey Hirst Australia Pty
Ltd for 10 years, and most recently five years in a similar role at
specialist mechanical services company A.G. Coombs Group Pty
Ltd. Jim is a Fellow of Chartered Accountants Australia and New
Zealand with B.Com, MBA, FCA, GAICD. He is a chairman and non-
executive director of several unlisted organisations including:
Non-Executive Chairman of GMHBA Ltd
Non- Executive Director of A.G. Coombs Group Pty Ltd
Non-Executive Chairman of KM Property Funds Ltd
Non-Executive Director
3,285,122 Ordinary Shares
Has not held a directorship in any other listed entity over the last 3
years.
12
DIRECTORS’ MEETINGS
The number of meetings of the Company’s Board of Directors and the Audit and Compliance Committee held
during the year ended 30 June 2020 and the number of meetings attended by each Director.
DIRECTORS’ REPORT
Director
R Tegoni
S Walters
D Haller Jr
D Wake
J Walsh
Board Meetings
Audit and Compliance Committee
Number eligible to
attend
Number attended
Number eligible to
attend
Number attended
12
12
12
12
12
12
12
12
12
12
2
2
2
2
2
2
2
2
2
2
13
REMUNERATION REPORT
REMUNERATION REPORT (AUDITED)
Remuneration Policy
The Group's policy for determining the nature and amount of remuneration of board members and senior
executives of the Group is as follows:
• The remuneration structure for executive officers, including executive directors, is based on a number of factors,
including length of service and particular experience of the individual concerned.
• All key management personnel receive a base salary and superannuation and/or equivalent.
• Remuneration consultants have not been used in assessing and calculating Director and Key Management
personnel remuneration in the year.
Upon retirement, key management personnel are paid employee benefit entitlements accrued to the date of
retirement. Termination payments are generally not payable on resignation or dismissal for serious misconduct.
Termination payments cannot exceed more than 1 year’s base salary as required by Corporations Act 2001.
All remuneration paid to key management personnel is valued at the cost to the Company and expensed.
The Board’s policy is to remunerate non-executive directors at market rates for time, commitment and
responsibilities. The Board collectively determines payments to the non-executive directors and reviews their
remuneration annually, based on market practice, and duties and accountability.
ASX listing rules require the aggregate non-executive directors’ remuneration be determined periodically by a
general meeting. The most recent determination was at the General Meeting held on 22 November 2019, where
the shareholders approved an aggregate remuneration of $300,000.
The resolution to adopt the remuneration report for the year ended 30 June 2019 was passed at the 2019 Annual
General Meeting (“AGM”), which occurred on 22 November 2019.
Relationship between share price and Company Performance
The remuneration policy has been tailored to increase goal congruence between shareholders, directors and
executives.
The following table shows the gross revenue and profits for the last 5 years for the listed entity, as well as the
share prices at the end of the respective financial years.
Revenue
Net Profit/(loss)
2019
$
2018
$
2017
$
2016
$
2015
$
20,851,647
23,638,055
22,364,976
20,954,668
24,039,849
(4,169,981)
(3,107,886)
(2,949,170)
(4,958,162)
(4,279,803)
Share price at year-end (cents)
4.2
8.1
7.7
8.9
13.7
14
REMUNERATION REPORT (continued)
The key management personnel of the Group consisted of the following persons:
REMUNERATION REPORT
Group Key
Management
Personnel
Position held as at 30
June 2020 and any
change during the
year
Contract Details
(Duration and
Termination)
Proportions
of
remuneration
package not
related to
performance
at 30 June
2020
Proportions
of
remuneration
package not
related to
performance
at 30 June
2019
Richard Tegoni
Executive Chairman
Letter of appointment
100%
100%
Executive Directors
Stephen Walters Executive Director
Executive Service
Agreement
3 months’ termination
notice period
Non-Executive Directors
100%
100%
Donald Haller Jr
Non-Executive Director
Letter of appointment
David Wake
Non-Executive Director
Letter of appointment
Jim Walsh
Non-Executive Director
Letter of appointment
100%
100%
100%
100%
100%
100%
Executive Management
Ian Stacey
Chief Executive Officer
Edmond Tern
Chief Financial Officer
and Company
Secretary
Executive Service
Agreement
3 months’ termination
notice period
Executive Service
Agreement
3 months’ termination
notice period
100%
100%
100%
100%
Terms of employment require that the relevant group entity provide the contracted person with a minimum period
of notice (one to three months) prior to termination of contract. Similarly, a contracted person has to provide
minimum period notice (one to three months) prior to the termination of their contract. In the instance of serious
misconduct, the Company can terminate employment at any time.
15
REMUNERATION REPORT
REMUNERATION REPORT (continued)
Name
Fin
Year
Short
Term
Benefits
Salary, fees
and leave
$
Post-
employment
Benefits
Pension
and
Superannu
ation
$
Long
Term
Benefits
LSL
$
Non-Executive Directors
Share-
based
Payments Termination
Benefits
Shares
Issue
Total
$
$
$
D Haller Jr
D Haller Jr
D Wake2
D Wake
J Walsh3
J Walsh
R Tegoni
R Tegoni
S Walters
S Walters
T Haines 4
T Haines
E Tern
E Tern
I Stacey5
I Stacey
Total
Total
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
-
35,000
-
15,000
-
-
-
70,000
104,133
148,874
-
119,972
194,324
186,000
181,579
120,000
480,036
694,846
-
-
-
-
-
-
-
-
-
-
-
-
Executive Directors
-
-
12,461
13,427
-
5,655
-
-
1,164
-
-
-
Key Management Personnel
18,145
17,670
18,076
5,700
48,681
42,453
3,888
-
876
-
5,928
-
50,000
15,000
40,000
23,333
40,000
25,000
120,000
50,000
-
-
-
-
-
-
30,000
-
280,000
113,333
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50,000
50,000
40,000
38,333
40,000
25,000
120,000
120,000
117,758
162,302
-
125,627
216,357
203,670
230,530
125,700
814,645
850,632
Share based payments are shares issued in lieu of cash remuneration, not based on performance.
Effective December 2018, in order to preserve the Company’s cash the Board of Directors resolved to accept
shares in lieu of cash for directors’ fee. This was approved by shareholders at the Annual General Meeting held
on 22 November 2019.
•
2 Appointed in July 2018
3 Appointed in November 2018
4 Resigned in November 2018
5 Appointed in December 2018
16
REMUNERATION REPORT
REMUNERATION REPORT (continued)
Cash Bonuses, Performance-related Bonuses
There was no performance related remuneration paid during the year.
Options Issued as part of remuneration for the year ended 30 June 2020
No options were issued as part of remuneration during the year.
a. Option Holdings
Number of Options Held by Key Management Personnel (Direct and Indirect Interest)
No option held by KMP as at 30-June-2020.
b. Share Holdings (Direct and Indirect)
Opening
Balance
1 July 2019
15,278,903
30,054,639
28,595,909
2,666,666
470,902
1,556,452
2,131,945
Received as
Compensation
On market
transaction
2,347,483
1,985,000
-
1,140,009
889,376
939,220
719,425
-
-
7,812,857
1,125,000
1,875,000
675,000
-
Change as a
result of
resignation
-
-
-
-
-
-
-
Closing
Balance
30 June 2020
19,611,386
30,054,639
37,548,775
4,681,042
3,285,122
2,950,877
2,131,945
R Tegoni
S Walters
D Haller Jr
D Wake
J Walsh
I Stacey
E Tern
This concludes the remuneration report, which has been audited.
17
DIRECTORS’ REPORT
OPTIONS
The Group has unlisted Options which were attached to Placement Shares on 15 May 2019 with the following
Terms and Conditions:
Options are unlisted securities.
The options held by the option holder are exercisable in whole or in part at any time before expiry date of 16 May
2021. Options not exercised before the expiry date will automatically lapse.
Each Option is exercisable at a price of A$0.06 per option.
Each Share allotted as a result of the exercise of an Option will rank in all respects pari passu with the existing
Shares in the Company on issue at the date of allotment. The Company will make application for official quotation
on ASX of new shares allotted on exercise of the options.
Options do not have any voting rights at general meetings of the Company.
Subject to the Constitution of the Company and the Corporations Act, the Options will be freely transferable. There
are no participating entitlements inherent in the options to participate in new issues of capital, which may be
offered to shareholders during the currency of the Options. Prior to any new pro rata issue of securities to
shareholders, holders of Options will be notified by the Company before the record date (to determine entitlements
to the issue), to exercise Options.
In the event of any reconstruction (including a consolidation, sub-division, reduction or return) of the issued capital
of the Company, all rights of holders of Options will be changed to the extent necessary to comply with the Listing
Rules at the time of the reorganisation.
Shares issued pursuant to the exercise of Options will be issued not more than 14 days after the Notice of
Exercise.
9,517,875 options were outstanding as at the date of this report.
INDEMNIFICATION AND INSURANCE OF DIRECTORS and OFFICERS
The Company has agreed to indemnify all the current Directors and Officers of the Company and of its controlled
entities against all liabilities to another person (other than the Company or a related body corporate) that may
arise from their position as Directors and Officers of the Company and its controlled entities, except where the
liability arises out of conduct involving a lack of good faith. The Company agrees to meet the full amount of any
such liabilities, including costs and expenses.
The Company has paid an annual premium to insure the Directors and Officers against liabilities incurred in their
respective capacities. Under the policy, details of the premium are confidential.
INDEMNITY AND INSURANCE OF AUDITOR
The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor
of the company or any related entity against a liability incurred by the auditor.
During the financial year, the company has not paid a premium in respect of a contract to insure the auditor of the
company or any related entity.
18
PROCEEDINGS ON BEHALF OF THE COMPANY
No person has applied for leave of court to bring proceedings on behalf of the Company, or to intervene in any
proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company
for all or part of those proceedings.
DIRECTORS’ REPORT
NON-AUDIT SERVICES
No non-audit services were undertaken by the auditors during the period.
AUDITOR’S INDEPENDENCE DECLARATION
The lead Auditor's Independence Declaration for the year ended 30 June 2020 is attached to the Directors’ Report.
This report of the Directors incorporating the Remuneration Report is signed in accordance with a Resolution of
the Board of Directors.
Richard Tegoni
Executive Chairman
28 August 2020
Victoria, Australia
19
AUDITOR’S INDEPENDENCE DECLARATION
AUDITOR’S INDEPENDENCE DECLARATION
20
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2020
FINANCIAL STATEMENTS
Sales
Cost of sales
Gross profit
Other Income
Employment related expense
Marketing and distribution expenses
Administration expense
Legal and compliance
Occupancy costs
Depreciation expense
Finance costs
Loss before income tax
Income tax expense
Loss for the year after tax
Other comprehensive income
Item that may be reclassified to the profit or loss in
subsequent periods (net of tax)
Foreign currency translation differences for foreign
operations
Total comprehensive loss for the year
Loss per share
Basic / diluted loss per share
The accompanying notes form part of these financial statements.
Notes
3
3
5
2020
$
21,038,608
(17,350,253)
3,688,355
2019
$
20,851,647
(18,918,844)
1,932,803
2,279
126,491
(2,408,555)
(565,468)
(288,452)
(336,935)
(146,357)
(827,410)
(303,460)
(1,186,003)
-
(1,186,003)
(2,987,460)
(806,096)
(632,617)
(623,751)
(655,730)
(91,835)
(358,635)
(4,096,831)
(73,150)
(4,169,981)
(324,109)
259,626
(1,510,112)
(3,910,354)
0.3 cents
1.5 cents
21
FINANCIAL STATEMENTS
2020
$
2,878,827
3,245,454
2,449,616
533,367
9,107,264
23,297
1,830,503
1,187,622
3,605,004
6,646,426
2019
$
2,874,945
3,545,371
2,439,596
383,765
9,243,677
19,587
1,768,193
-
3,532,345
5,320,125
15,753,690
14,563,802
1,539,525
672,075
868,147
548,188
3,627,935
-
55,319
695,134
750,453
2,279,477
300,000
778,899
-
3,358,376
1,132,065
78,626
-
1,210,691
4,378,388
4,569,067
11,375,302
9,994,735
29,065,503
(371,852)
(17,318,349)
11,375,302
26,159,423
(47,743)
(16,116,945)
9,994,735
STATEMENT OF FINANCIAL POSITION
As at 30 June 2020
Notes
Current Assets
Cash at bank
Trade and other receivables
Inventories
Prepayments
Total Current Assets
Non-Current Assets
Other assets
Property, plant and Equipment
Right-of-use asset
Intangible assets
Total Non-Current Assets
Total Assets
Current Liabilities
Trade and other payables
Borrowings
Short term provisions
Lease Liability
Total Current Liabilities
Non-Current Liabilities
Borrowings
Long term provisions
Lease Liability
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Issued Capital
Reserves
Accumulated Losses
Total Equity
9
10
11
12
14
15
16
17
13
16
18
13
19
20
The accompanying notes form part of these financial statements.
22
STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2020
FINANCIAL STATEMENTS
Issued Capital
Accumulated
Losses
$
$
Foreign
Currency
Translation
Reserve
$
Asset
Revaluation
reserve
Total Equity
$
$
Balance at
01 July 2019
Adjustments due to change of
accounting policy (note 1)
Balance of 01 July 2019
restated
Loss for the Year
Other Comprehensive income
for the year
Total comprehensive
income / (loss)
for the year
Shares issued during the year
net of costs
Balance at
30 June 2020
26,159,423
(16,116,945)
(47,743)
-
(15,401)
-
26,159,423
(16,132,346)
(47,743)
-
-
-
(1,186,003)
-
-
(324,109)
(1,186,003)
(324,109)
2,906,080
-
-
29,065,503
(17,318,349)
(371,852)
-
-
-
-
-
-
-
-
9,994,735
(15,401)
9,979,334
(1,186,003)
(324,109)
(1,510,112)
2,906,080
11,375,302
Issued Capital
Accumulated
Losses
$
$
Foreign
Currency
Translation
Reserve
$
Asset
Revaluation
reserve
Total Equity
$
$
19,478,284
(13,708,284)
(297,917)
1,751,867
7,223,950
(4,169,981)
-
9,452
250,174
(4,160,529)
250,174
-
-
-
(4,169,981)
259,626
(3,910,354)
1,751,867
6,681,139
-
26,159,423
(16,116,945)
(47,743)
-
-
(1,751,867)
-
-
-
6,681,139
9,994,735
-
-
-
-
Balance at
01 July 2018
Loss for the Year
Other Comprehensive income
for the year
Total comprehensive
income / (loss)
for the year
Retirement of asset
revaluation reserve upon
disposal and settlement of
Land and Buildings.
Shares issued during the year
net of costs
Balance at
30 June 2019
The accompanying notes form part of these financial statements
23
STATEMENT OF CASH FLOWS
For the year ended 30 June 2020
Cash Flows from Operating Activities
Receipts from customers
Payments to suppliers and employees
Finance Costs
Net Cash Outflow from Operating Activities
Cash Flows from Investing Activities
Purchase of plant and equipment
Proceeds from sale of land and building
Net Cash Outflow from Investing Activities
Cash Flows from Financing Activities
Proceeds from issues of ordinary shares (net of costs)
(Repayments of) / proceeds from borrowings
Repayments of leases
Net Cash Inflow from Financing Activities
Net increase in cash and cash equivalents Held
Cash and cash equivalents at the beginning of the
financial year
Cash and Cash Equivalents at the end of the financial
year
FINANCIAL STATEMENTS
Notes
2020
$
2019
$
23,155,046
(23,504,246)
(301,180)
(650,380)
22,770,727
(25,535,778)
(358,635)
(3,123,686)
26
(493,330)
-
(493,330)
1,630,557
-
(482,964)
1,147,593
3,883
2,874,944
(748,460)
3,232,000
2,483,540
3,727,571
(2,150,345)
-
1,577,226
937,078
1,937,866
2,878,827
2,874,944
The accompanying notes form part of these financial statements.
24
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
These general-purpose financial statements have been prepared in accordance with Australian Accounting
Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the
Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with
International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB').
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of SECOS Group
Limited ('company' or 'parent entity') as at 30 June 2020 and the results of all subsidiaries for the year then ended.
SECOS Group Limited and its subsidiaries together are referred to in these financial statements as the '‘Group’.
SECOS Group Limited is a listed public company, incorporated and domiciled in Australia. The Company is a
for-profit entity for accounting purposes.
The Financial statements were authorized for issue on 28 August 2020 by the Board of Directors.
REPORTING BASIS AND CONVENTIONS
These financial statements have been prepared on an accruals basis and are based on historical costs. Except
for new accounting standards as stated below, the financial statements have been prepared in accordance with
the same accounting policies adopted in the Group’s last annual financial statements for the year ended 30 June
2019.
At this time the Directors are of the opinion that no asset is likely to be realized for an amount less than the amount
at which it is recorded in the Financial Report.
a. New Accounting Standards and interpretations issued in the period.
AASB 16 Leases
The Group has adopted AASB 16 from 1 July 2019. The standard replaces AASB 117 'Leases' and for lessees
eliminates the classifications of operating leases and finance leases. Except for short-term leases and leases of
low-value assets, right-of-use assets and corresponding lease liabilities are recognized in the statement of
financial position. Straight-line operating lease expense recognition is replaced with a depreciation charge for the
right-of-use assets (included in operating costs) and an interest expense on the recognized lease liabilities
(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 Amortization) results improve as the operating expense is now replaced by interest
expense and depreciation in profit or loss. For classification within the statement of cash flows, the interest portion
is disclosed in operating activities and the principal portion of the lease payments are separately disclosed in
financing activities. For lessor accounting, the standard does not substantially change how a lessor accounts for
leases.
25
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impact of adoption
AASB 16 was adopted using the modified retrospective approach and as such the comparatives have not been
restated. The impact of adoption on opening accumulated losses as at 1 July 2019 was as follows:
NOTES TO FINANCIAL STATEMENTS
Operating lease commitments as at 30 June 2019 (AASB 117)
Finance lease commitments as at 30 June 2019 (AASB 117)
Operating lease commitments discount based on the weighted average incremental
borrowing rate of 6% (AASB 16)
Short-term leases not recognized as a Right-of-use asset (AASB 16)
Low-value assets leases not recognized as a right-of-use asset (AASB 16)
Accumulated depreciation as at 1 July 2019 (AASB 16)
Right-of-use assets (AASB 16)
Lease liabilities - current (AASB 16)
Lease liabilities - non-current (AASB 16)
Tax effect on the above adjustments
Increase in accumulated losses as at 1 July 2019
$
2,135,681
37,064
(444,957)
-
-
(285,882)
1,712,386
(469,228)
(1,258,560)
-
15,401
Right-of-use assets
A right-of-use asset is recognized at the commencement date of a lease. The right-of-use asset is measured at
cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments
made at or before the commencement date net of any lease incentives received, any initial direct costs incurred,
and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling
and removing the underlying asset, and restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated
useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain ownership of the
leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets
are subject to impairment or adjusted for any remeasurement of lease liabilities.
The consolidated entity has elected not to recognize a right-of-use asset and corresponding lease liability for
short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these
assets are expensed to profit or loss as incurred.
Lease liabilities
A lease liability is recognized at the commencement date of a lease. The lease liability is initially recognized at
the present value of the lease payments to be made over the term of the lease, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily determined, the consolidated entity's incremental borrowing
rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments
that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price
of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated
termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the
period in which they are incurred.
Lease liabilities are measured at amortized cost using the effective interest method. The carrying amounts are
remeasured if there is a change in the following: future lease payments arising from a change in an index or a
rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease
liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the
carrying amount of the right-of-use asset is fully written down.
Impact on Statement of Cash Flows
Lease payments of $577,422 for the year ended 30 June 2020 allocated to the lease liability is recognized in cash
flows from financing activities.
26
NOTES TO FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
b. Principles of Consolidation
Subsidiaries are all those entities over which the consolidated entity has control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the
ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated
from the date that control ceases.
Intercompany transactions, balances and unrealized gains on transactions between entities in the Group are
eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of the impairment of
the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the consolidated entity.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership
interest, without the loss of control, is accounted for as an equity transaction, where the difference between the
consideration transferred and the book value of the share of the non-controlling interest acquired is recognized
directly in equity attributable to the parent.
Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or
loss and other comprehensive income, statement of financial position and statement of changes in equity of the
consolidated entity. Losses incurred by the consolidated entity are attributed to the non-controlling interest in full,
even if that results in a deficit balance.
Where the Group loses control over a subsidiary, it derecognizes the assets including goodwill, liabilities and non-
controlling interest in the subsidiary together with any cumulative translation differences recognized in equity. The
consolidated entity recognizes the fair value of the consideration received and the fair value of any investment
retained together with any gain or loss in profit or loss. A list of controlled entities is contained in Note 22 to the
financial statements.
c. Goodwill
Goodwill arises on the acquisition of a business. Goodwill is not amortized. Instead, goodwill is tested annually
for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired and is
carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and
are not subsequently reversed.
Goodwill is allocated to the Group's cash-generating units or groups of cash-generating units, representing the
lowest level at which goodwill is monitored not larger than an operating segment. Gains and losses on the disposal
of an entity include the carrying amount of goodwill related to the entity disposed of. Changes in the ownership
interests in a subsidiary that do not result in a change in control are accounted for as equity transactions and do
not affect the carrying values of goodwill.
27
NOTES TO FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
d. Income Tax
The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or
disallowed items. It is calculated using tax rates that have been enacted or are substantially enacted at the end
of the reporting period.
Deferred tax is accounted for using the liability method in respect of temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax
will be recognized from the initial recognition of an asset or liability, excluding a business combination, where
there is no effect on accounting or taxable profit or loss.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realized to
items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.
Deferred income tax assets are recognized to the extent that it is probable that future tax profits will be available
against which deductible temporary differences can be utilized.
The amount of benefits brought to account or which may be realized in the future is based on the assumption that
no adverse change will occur in income taxation legislation and the anticipation that the Group will derive sufficient
future assessable income to enable the benefit to be realized and comply with the conditions of deductibility
imposed by the law.
e. Inventories
Inventories are measured at the lower of cost and net realizable 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.
f. Plant and Equipment
Plant and equipment are measured on the cost basis less accumulated depreciation and accumulated impairment
losses.
Subsequent costs are included in the asset's carrying amount or recognized 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 the statement of profit or
loss and other comprehensive income during the financial period in which they are incurred.
Depreciation
The depreciable amount of all fixed assets is depreciated on a straight-line basis over their useful lives to the
Group commencing from the time the asset is held ready for use.
The depreciation rates used for each class of depreciable assets are:
Class of Fixed Asset
Plant and Machinery
Office Equipment and Motor Vehicles
Leasehold Improvements
Depreciation Rate
10% to 33%
7.5% to 40%
2.50%
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each 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 the statement profit or loss and other comprehensive income.
28
NOTES TO FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
g. Fair Value Measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure
purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date; and assumes that the transaction
will take place either: in the principle market; or in the absence of a principal market, in the most advantageous
market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming they act in their economic best interest. For non-financial assets, the fair value measurement is based
on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient
data are available to measure fair value, are used, maximizing the use of relevant observable inputs and
minimizing the use of unobservable inputs.
The Group is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy,
based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted
prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly; and Level 3: Unobservable inputs for the asset or liability.
Considerable judgement is required to determine what is significant to fair value and therefore which category the
asset or liability is placed in can be subjective.
The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These
include discounted cash flow analysis or the use of observable inputs that require significant adjustments based
on unobservable inputs.
h. Financial Instruments
Investments and other financial liabilities are initially measured at fair value. Transaction costs are included as part
of the initial measurement, except for the financial assets at fair value through the profit and loss. Such assets are
subsequently measured at either amortised cost or fair value depending on their classification.
Financial assets or liabilities are derecognised when the right to receive cash flows have expired or have been
transferred and the Group has transferred substantially all the risks and rewards of ownership. When there is no
reasonable expectation of recovering part or all of a financial asset the carrying value is written off.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on financial assets which are either measured at
amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends
upon the Group’s assessment at the end of each reporting period as to whether the financial instrument's credit risk
has increased significantly since initial recognition, based on reasonable and supportable information that is
available, without undue cost or effort to obtain.
Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month
expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses
that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become
credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on
the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured based on
the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the
original effective interest rate.
29
NOTES TO FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairments of Non-Financial Assets
i.
At the end of each reporting period, the group reviews the carrying values of its tangible and intangible assets to
determine whether there is any indication that those assets have been impaired. If such an indication exists, the
recoverable amount of the asset being the higher of the asset's fair value less costs to sell and value in use, is
compared to the assets carrying value. Any excess of the assets carrying value over its recoverable amount is
expensed to the statement of profit or loss.
Impairment testing is performed annually for goodwill and intangible assets with indefinite lives.
Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the
recoverable amount of the cash-generating unit to which the asset belongs.
j. Foreign Currency Transactions and Balances
Functional and presentation currency
The functional currency of each of the group’s entities is measured using the currency of the primary economic
environment in which that entity operates. The consolidated financial statements are presented in Australian
dollars which is the parent entity’s functional and presentation currency.
Transaction and balances
Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the
date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-
monetary items measured at historical cost continue to be carried at the exchange rate at the date of the
transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair
values were determined.
Exchange differences arising on the translation of monetary items are recognized in the statement of profit or loss
and other comprehensive income.
Exchange differences arising on the translation of non-monetary items are recognized directly in other
comprehensive income to the extent that the gain or loss is directly recognized in other comprehensive income;
otherwise the exchange difference is recognized in the statement of profit or loss and other comprehensive
income.
Group companies
The financial results and position of foreign operations whose functional currency is different from the group’s
presentation currency are translated as follows:
- Assets and liabilities are translated at year-end exchange rates prevailing at the end of reporting period.
Income and expenses are translated at average exchange rates for the period. The average rate is only
-
used where the rate approximates the rate at the date of transaction.
Exchange differences arising on translation of foreign operations are transferred directly to the group’s foreign
currency translation reserve in the statement of financial position. These differences are recognized in the
statement of profit or loss and other comprehensive income in the period in which the operation is disposed.
k. Borrowings
Loans and borrowings are initially recognized at the fair value of the consideration received, net of transaction
costs. They are subsequently measured at amortised cost using the effective interest method.
l. Finance costs
Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are
expensed in the period in which they are incurred.
30
NOTES TO FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
m. Employee Benefits
Short-term employee benefits
Liabilities for wages and salaries, including, annual leave and long service leave expected to be wholly settled
within 12 months of the reporting date are recognized in current liabilities in respect of employees' services up to
the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.
Other long-term employee benefits
The liability for annual leave and long service leave not expected to be wholly settled within 12 months of the
reporting date are recognized in non-current liabilities, provided there is an unconditional right to defer settlement
of the liability. The liability is measured as the present value of expected future payments to be made in respect
of services provided by employees up to the reporting date using the projected unit credit method. Consideration
is given to expected future wage and salary levels, experience of employee departures and periods of service.
Expected future payments are discounted using market yields at the reporting date on high quality corporate
bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.
n. Provisions
Provisions are recognized 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.
Provisions are measurable using the best estimate of the amounts required to settle the obligation at the end of
the reporting period.
o. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term,
highly liquid investments with original maturities of three months or less that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows
presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within
borrowings in current liabilities on the statement of financial position.
p. Revenue
Revenue from contracts with customers
Revenue is recognized at an amount that reflects the consideration to which the Group is expected to be entitled
in exchange for transferring goods or services to a customer. For each contract with a customer, the Group
identifies the contract with a customer; identifies the performance obligations in the contract; determine the
transaction price, which takes into account estimates of variable consideration and the time value of money;
allocates the transaction price on the basis of the relative stand-alone selling price of each distinct good or service
to be delivered; and recognize revenue when each performance obligation is satisfied in a manner that depicts
the transfer to the customer of the goods or services promised.
Variable consideration with the transaction price, if any, reflects concessions provided to the customer such as
discounts, rebates and refunds, any potential adds-ons or bonuses from the customer and any other contingent
events. Such estimates are determined using either the “expected value” or “most likely amount” method. The
measurement of variable consideration is subject to a constraining principle whereby revenue will only be
recognized to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue
will not occur. The measurement constraint continues until the uncertainty associated with the variable
consideration is subsequently resolved. Amounts received that are subject to the constraining principle are initially
recognized as deferred revenue in the form of a separate liability.
Sale of goods
Revenue from the sale of goods is recognized at the point in time when the customer obtains control of the goods,
which is generally the time of delivery.
31
NOTES TO FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Other revenue
Other revenue is recognized when it is received or when the right to receive payment is established.
q. Goods and Services Tax (GST) and other similar taxes
Revenues, expenses and assets are recognized net of the amount of associated GST, unless the GST incurred
is not recoverable from the tax authority. In this case, it is recognized as part of the cost of the acquisition of the
asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of
GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the
statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax
authority.
r. Loss per share
Basic loss per share
Basic loss per share is calculated by dividing the loss attributable to the owners of SECOS Group Limited,
excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary
shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the
financial year
Diluted loss per share
Diluted loss per share adjusts the figures used in the determination of basic loss per share to take into account
the after-income tax effect of interest and other financing costs associated with dilutive potential ordinary shares
and the weighted average number of shares assumed to have been issued for no consideration in relation to
dilutive potential ordinary shares.
s. Critical Accounting Estimates, Judgements and Assumptions
The preparation of the financial statements requires management to make judgements, estimates and
assumptions that affect the reported amounts in the financial statements. Management continually evaluates its
judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses.
Management bases its judgements, estimates and assumptions on historical experience and on other various
factors, including expectations of future events, management believes to be reasonable under the circumstances.
The resulting accounting judgements and estimates will seldom equal the related actual results. Judgements,
estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities (refer to the respective notes) within the next financial year are discussed below.
Expected credit loss for impairment of receivables
The provision for impairment of receivables assessment requires a degree of estimation and judgement. The level
of expected credit loss is assessed by taking into account the recent sales experience, the ageing of receivables,
historical collection rates and specific knowledge of the individual debtor’s financial position.
Provision for impairment of inventories
The provision for impairment of inventories assessment requires a degree of estimation and judgement. The level
of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and
other factors that affect inventory obsolescence. No provision for impairment has been recorded during the year.
Estimation of useful lives of assets
The Group determines the estimated useful lives and related depreciation and amortization charges for its
property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a
result of technical innovations or some other event. The depreciation and amortization charge will increase where
the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have
been abandoned or sold will be written off or written down.
32
NOTES TO FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Goodwill and other indefinite life intangible assets
The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether
goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the
accounting policy stated in note 1.
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount,
which is the higher of its fair value less costs of disposal. The fair value less costs of disposal calculation is based
on available fund, conducted at arm’s length, for similar assets or observable market prices less incremental costs
of disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from
the budget for the next five years and do not include restructuring activities that the Group is not yet committed to
or significant future investments that will enhance the performance of the assets of the CGU being tested. The
recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-
inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill and
other intangibles with indefinite useful lives recognized by the Group. The key assumptions used to determine the
recoverable amount for the different CGUs, including a sensitivity analysis, are disclosed and further explained in
Note 14.
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible temporary differences and/or tax losses only if the consolidated
entity considers it is probable that future taxable amounts will be available to utilise those temporary differences
and losses. No deferred tax assets were recognised as at 30 June 2020.
t. New Accounting Standards and interpretations issued not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet
mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2020. The
Group’s assessment of the impact of these new or amended Accounting Standards and Interpretations, most
relevant to the Group, are set out below.
Conceptual Framework for Financial Reporting (Conceptual Framework)
The revised Conceptual Framework is applicable to annual reporting periods beginning on or after 1 January 2020
and early adoption is permitted. The Conceptual Framework contains new definition and recognition criteria as
well as new guidance on measurement that affects several Accounting Standards. Where the Group has relied
on the existing framework in determining its accounting policies for transactions, events or conditions that are not
otherwise dealt with under the Australian Accounting Standards, the Group may need to review such policies
under the revised framework. At this time, the application of the Conceptual Framework is not expected to have
a material impact on the Group’s financial statements.
33
NOTE 2
PARENT ENTITY
NOTES TO FINANCIAL STATEMENTS
2020
$
2019
$
The following information has been extracted from the books and records of the parent (“SECOS Group Limited”)
and has been prepared in accordance with Australian Accounting Standards.
STATEMENT OF FINANCIAL POSITION
ASSETS
Current assets
Non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Non-current liabilities
TOTAL LIABILITIES
EQUITY
Issued capital
Accumulated losses
TOTAL EQUITY
STATEMENT OF COMPREHENSIVE INCOME
Loss for the year after tax
Total comprehensive income
297,973
32,162,055
32,460,028
1,383,945
10,489
1,394,434
1,042,734
35,470,627
36,513,361
1,439,847
1,137,268
2,577,115
78,134,022
(47,068,428)
31,065,594
75,227,942
(41,291,696)
33,936,246
(2,067,740)
(2,067,740)
(2,423,424)
(2,423,424)
Guarantees
SECOS Group Limited has provided guarantees to third parties in relation to the performance and obligations of
controlled entities in respect to finance facilities. The guarantees are for the terms of the facilities. No amount
outstanding as at 30 June 2020 (2019: $2,024,982).
Contingent liabilities
SECOS Group Limited had no contingent liabilities as at 30 June 2020. (2019: NIL).
Contractual commitments
At 30 June 2020, SECOS Group Limited had not entered into any contractual commitments for the acquisition of
property, plant and equipment (2019: NIL).
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in
Note 1, except for investments in subsidiaries that are accounted for at cost, less any impairment, in the parent
entity.
NOTE 3
REVENUE
Revenue
Sales revenue
Total sales revenue
Other Income
Gains on disposal of assets
Total other income
Note
25
2020
$
2019
$
21,038,608
21,038,608
20,851,647
20,851,647
2,279
2,279
126,491
126,491
34
NOTE 4
LOSS FOR THE YEAR
The Loss before income tax includes the following items of expenses:
Research, development, and patent costs
Superannuation expense
Depreciation of right-of-use assets
Finance cost for leases
NOTE 5
INCOME TAX
NOTES TO FINANCIAL STATEMENTS
2020
$
155,494
102,493
523,263
94,360
2019
$
268,489
97,187
-
-
The directors estimate the potential deferred income tax assets in respect of tax losses not brought to account is:
2019
$
10,175,862
2020
$
9,328,279
Tax losses carried forward
The Group has carried forward tax losses (prior year did not include overseas subsidiaries’ credits) that can be
offset against taxable profit at each tax jurisdiction (China, Australia and Malaysia). This is subject to probable
future taxable profit and in accordance to each tax jurisdiction.
Deferred tax assets have not been brought to accounts at this stage.
NOTE 6
KEY MANAGEMENT PERSONNEL COMPENSATION
Names and positions held of Group and parent entity key management personnel in office at any time during the
financial year are included in the “Remuneration Report”.
Key management personnel remuneration details have been included in the Remuneration Report section of the
Directors Report.
Short-term employee benefits
Post-employment benefits
Long-term employee benefits
Share based payment
NOTE 7
REMUNERATION OF AUDITORS
Remuneration of the auditor of the parent entity for
- auditing or reviewing the financial statements
Remuneration of other auditors of subsidiaries for:
- auditing or reviewing the financial statements of subsidiaries
35
2020
$
480,036
48,681
5,928
280,000
814,645
2019
$
694,846
42,453
-
113,333
850,632
2020
$
2019
$
77,850
68,000
10,192
88,042
8,112
76,112
NOTE 8
LOSS PER SHARE
Loss used to calculate basic/diluted EPS
Weighted average number of ordinary shares used in the
calculation of basic and diluted loss per share
Loss per share 6
NOTE 9
TRADE AND OTHER RECEIVABLES
Current
Trade Receivables
Less: expected credit loss
Other receivables
Trade and other receivables
NOTES TO FINANCIAL STATEMENTS
2020
$1,186,003
2019
$4,169,981
Number
Number
394,804,785
273,173,351
0.3 cents
1.5 cents
2020
$
3,168,351
(47,842)
3,120,509
124,945
3,245,454
3,245,454
2019
$
3,699,119
(153,748)
3,545,371
-
3,545,371
3,545,371
Expected credit loss of Receivables
Current trade receivables are non-interest bearing and are generally on 30-day terms.
The Company recognizes a loss allowance for expected credit losses (‘ECL’) on financial assets excluding
investments that are measured at FVTOCI. The amount of expected credit losses is updated at each reporting
date to reflect changes in credit risk since initial recognition of the respective financial instrument. The expected
credit losses on these financial assets are estimated using a provision matrix based on the Company’s historical
credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an
assessment of both the current as well as the forecast direction of conditions at the reporting date, including time
value of money where appropriate. The Company recognizes lifetime ECL when there has been a significant
increase in credit risk since initial recognition. However, if the credit risk on the financial instrument has not
increased significantly since initial recognition, the Company measures the loss allowance for that financial
instrument at an amount equal to 12
month ECL. Lifetime ECL represents the expected credit losses that will
month ECL
result from all possible default events over the expected life of a financial instrument. In contrast, 12
represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that
are possible within 12 months after the reporting date. The amount of the impairment loss will be recognized in
the Statement of Comprehensive Income within other expenses. An expected credit loss for impairment is
recognized when there is objective evidence that an individual trade receivable is impaired. These amounts have
been disclosed as a separate line item in the statement of profit or loss and other comprehensive income.
Receivables are impaired if aged more than 365 days.
‑
‑
On the above basis, the Directors have deemed necessary to impair trade receivables by $47,842 (2019:
$153,748) at the reporting date.
•
6 Not including unlisted options due to the anti-dilutive effect.
36
NOTES TO FINANCIAL STATEMENTS
NOTE 9
TRADE AND OTHER RECEIVABLES (continued)
Movement in the expected credit loss for receivables is as follows:
2020
Group
Current Trade and Other Receivables
Opening
Balance
$
153,748
Charge for
the Year
$
-
Amounts
Write- off/back
$
105,906
Closing
Balance
$
47,842
2019
Group
Current Trade and Other Receivables
Opening
Balance
$
75,261
Charge for
the Year
$
78,487
Amounts
Write- off/back
$
-
Closing
Balance
$
153,748
2020
2019
Trade
Receivables
3,120,509
3,545,371
Impaired
<30
31-60
61-90
>90
(47,842)
(153,748)
1,518,414
1,740,129
618,869
1,037,674
575,331
440,311
455,737
481,005
Neither the Group nor parent entity holds any financial assets with terms that have been renegotiated, but which
would otherwise be past due or impaired.
Collateral Pledged
No security over trade receivables has been provided as at 30 June 2020. Refer to Note 16 for further details.
NOTE 10
INVENTORIES
Current
Raw materials including work in progress
Finished goods
TOTAL
Inventories are held at the lower of cost or net realizable value
2020
$
1,247,232
1,202,384
2,449,616
2019
$
1,302,757
1,136,839
2,439,596
37
NOTE 11
PLANT AND EQUIPMENT
Leasehold Improvements
At cost
Accumulated depreciation
Plant, Machinery and Equipment
At cost
Accumulated depreciation
Total Cost of Assets
Total Accumulated Depreciation
Written down value of assets
Movement in Carrying Amounts
NOTES TO FINANCIAL STATEMENTS
2020
$
108,938
(74,700)
34,238
12,838,917
(11,042,652)
1,796,265
12,947,855
(11,117,352)
1,830,503
2019
$
108,938
(13,238)
95,700
13,539,040
(11,866,547)
1,672,493
13,647,978
(11,879,784)
1,768,193
Reconciliations of the carrying amounts of plant and equipment at the beginning and end of the current and
previous financial year are set out below.
2020
Balance at 1 July 2019
Additions/(Disposals)
Depreciation Expenses
Leasehold
Improvements
$
Plant, Machinery and
Equipment
$
95,700
-
(61,462)
1,672,493
541,322
(242,685)
Total
$
1,768,193
541,322
(304,147)
Exchange Rate Variations
-
(174,865)
(174,865)
Balance at 30 June 2020
34,238
1,796,265
1,830,503
2019
Balance at 1 July 2018
Additions/(Disposals)
Depreciation Expenses
Exchange Rate Variations
Balance at 30 June 2019
Leasehold
Improvements
$
Plant, Machinery and
Equipment
$
832,419
648,224
(89,240)
281,090
Total
$
869,019
709,919
(91,835)
281,090
1,672,493
1,768,193
36,600
61,695
(2,595)
-
95,700
38
Note 12
NON-CURRENT ASSETS - RIGHT-OF-USE ASSETS
NOTES TO FINANCIAL STATEMENTS
Land and buildings - Right-of-use
Less: Accumulated amortization
Total Land and buildings
Total right-of-use assets
2020
$
1,712,386
(524,764)
1,187,622
1,187,622
2019
$
-
-
-
-
Additions to the right-of-use assets were $1,712,386 due to adoption of AASB 16 Leases. The consolidated entity
leases land and buildings for its offices, factories and warehouses under agreements of between three to five
years with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms
of the leases are renegotiated.
Note 13
LEASE LIABILITY
Lease liability – current
Lease liability – non-current
Lease liability
2020
$
548,188
695,134
1,243,322
2019
$
-
-
-
39
NOTE 14
INTANGIBLE ASSETS
Goodwill
Product Development
Less: amortization
Net carrying value
NOTES TO FINANCIAL STATEMENTS
2020
$
2019
$
3,532,345
3,532,345
90,824
(18,165)
3,605,004
-
-
3,532,345
Impairment Disclosures
The Group first recognised Goodwill on its balance sheet following the acquisition of Stellar Film Group in April
2015.
Per AASB 138, $72,659 related to product development incurred prior to commercialization of new products were
captured in Balance Sheet as intangible assets.
Since then and as required by AASB 136 regulatory guidelines, the Group has undertaken annual impairment
tests for its single cash-generating unit (“CGU”) being the manufacture and distribution of polyethylene films and
the renewable resource based resins and finished products.
The Group has determined the recoverable amount of the Group’s goodwill by a Value-in-Use calculation using
a discounted cash flow (“DCF”) model. Value-in-use is calculated based on the present value of cash flow
projections for the next five years. The cash flows are discounted using an estimated discount rate based on
Capital Asset Pricing Model.
Management has based the value-in-use calculations on five-year budget forecasts of the group. Revenue has
been projected on the below mentioned assumptions. Costs are calculated taking into account historical gross
margins as well as estimated weighted inflation rates over the period which is consistent with inflation rates
applicable to the locations in which the unit operates. Discount rates are pre-tax and reflect risks associated with
the distribution division.
The following assumptions were used in the value-in-use-calculations:
a.
Revenue is premised on a “zero based budget” approach whereby each customer, or potential customer,
has been specifically assessed having regard to current indications of demand, customer contacts or as assessed
by the relevant sales managers. 5.0% growth year on year is forecasted for year 2 to year 5. Terminal growth
post year 5 of the forecast period has been estimated at 2.5%.
Long term contracts typically include expenditure “rise and fall” clauses. Accordingly, Revenue is forecast to alter
in line with relevant changes to the Company’s direct manufacturing costs.
b.
c.
geographic region.
Projected cash flows have been discounted using discount rate of 15% (2019: 15%).
Gross profit margins are forecast to be in a range of 17%-19% dependent upon product and each
Based on the above assumptions, the recoverable amount of the cash generating unit has been determined to
exceed its carrying amount as at 30 June 2020 and accordingly; no impairment loss has been recognized.
No reasonably possible change in any of the aforesaid assumptions materially impacting the above analysis would
result in an impairment charge.
40
NOTE 15
TRADE AND OTHER PAYABLES
NOTES TO FINANCIAL STATEMENTS
Current
Trade Payables
Sundry payables
NOTE 16
BORROWINGS
Current
Unsecured Liabilities
Unsecured Loan (Shareholder)7
Convertible Notes 8
Unsecured Loans 9
Total Current borrowings
Non-Current
Unsecured Liabilities
Convertible Notes
Total Non-Current Borrowings
Total borrowings
NOTE 17
SHORT TERM PROVISIONS
Employee benefits
Other provisions
2020
$
1,008,934
530,591
1,539,525
2019
$
1,940,305
339,172
2,279,477
2020
$
2019
$
300,000
350,000
22,075
672,075
672,075
300,000
-
-
300,000
300,000
-
-
672,075
1,132,065
1,132,065
1,432,065
2020
$
307,519
560,628
868,147
2019
$
331,997
446,902
778,899
•
7 Unsecured loan at 10% annual interest. Loan is repayable on demand by 4-weeks’ notice period.
8 Convertible notes subject to a minimum price of $0.04 per share and a maximum price of $0.12 per share, each
convertible Note will convert into shares at the lower of the price that is equivalent to 85% VWAP of SECOS
Shares over the 10 trading days immediately preceding the date the Conversion Notice is received OR the price
of any equity capital raising that occurred in the 2 month period prior to the date the Conversion Notice is received.
These have since been converted to equity on 10-July-2020.
9 Unsecured covid-19 related loan from US government.
41
NOTE 18
LONG TERM PROVISIONS
Employee benefits
Other provisions
NOTE 19
ISSUED CAPITAL
a)
Share Capital
Ordinary - fully paid shares
b)
Movements in Ordinary Share Capital
Date
01-Jul-19 Balance
3-Jul-19 Director shares in lieu of cash
16-Aug-19 Convertible notes converted
30-Aug-19 Convertible notes converted
10-Sep-19 Convertible notes converted
10-Oct-19 Director shares in lieu of cash
25-Oct-19 Exercise options
20-Nov-19 Exercise options
26-Nov-19 Placement with options, related party
23-Dec-19 Options exercised
7-Jan-20 Director shares in lieu of cash
31-Mar-20 Placement 2020.03
31-Mar-20 Placement 2020.03, director related
3-Apr-20 Director shares in lieu of cash
30-Jun-20 Balance
c)
Options
Unlisted Options
NOTES TO FINANCIAL STATEMENTS
2020
$
10,489
44,830
55,319
2019
$
5,203
73,423
78,626
2020
$29,065,503
2019
$26,159,423
$/share
Amount ($)
Number of
Shares
359,193,077
389,689
7,094,575
13,352,431
1,851,852
4,122,601
1,000,000
833,334
8,652,107
5,410,750
703,035
14,924,858
-
$0.093
$0.075
$0.041
$0.054
$0.049
$0.060
$0.060
$0.007
$0.060
$0.089
$0.050
Subject to shareholders’
approval10
$0.076
820,208
418,348,517
26,159,423
$16,250
$283,783
$550,000
$100,000
$200,490
$60,000
$50,000
$63,869
$324,645
$62,500
$746,243
$385,800
$62,500
29,065,503
2020
Number
12,684,541
2019
Number
15,892,875
The unlisted Options were attached to Placement Shares on 15 May 2019 with the following Terms and
Conditions:
•
10 Directors invested $385,800 along with sophisticated investors on 31-March-2020. 7,716,000 new shares to be
issued at $0.05 per share are subject to shareholders’ approval at next Annual General Meeting.
42
NOTES TO FINANCIAL STATEMENTS
NOTE 19
ISSUED CAPITAL (continued)
Options are unlisted securities.
The options held by the option holder are exercisable in whole or in part at any time before expiry date of 16 May
2021. Options not exercised before the expiry date will automatically lapse.
Each Option is exercisable at a price of A$0.06 per option.
Each Share allotted as a result of the exercise of an Option will rank in all respects pari passu with the existing
Shares in the Company on issue at the date of allotment. The Company will make application for official quotation
on ASX of new shares allotted on exercise of the options.
Options do not have any voting rights at general meetings of the Company.
Subject to the Constitution of the Company and the Corporations Act, the Options will be freely transferable. There
are no participating entitlements inherent in the options to participate in new issues of capital, which may be
offered to shareholders during the currency of the Options. Prior to any new pro rata issue of securities to
shareholders, holders of Options will be notified by the Company before the record date (to determine entitlements
to the issue), to exercise Options.
In the event of any reconstruction (including a consolidation, sub-division, reduction or return) of the issued capital
of the Company, all rights of holders of Options will be changed to the extent necessary to comply with the Listing
Rules at the time of the reorganisation.
Shares issued pursuant to the exercise of Options will be issued not more than 14 days after the Notice of
Exercise.
Ordinary Shares
d)
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in
proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary
shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled
to one vote.
Ordinary Shares have no par value, and the company does not have a limited amount of authorised share capital.
Capital Management
e)
Management controls the capital of the Group in order to maintain sufficient liquidity to cover the Group’s working
capital requirements, to meet any new investment opportunities as they arise and to safeguard the Group’s ability
to continue as a going concern.
The Group’s debt and capital include ordinary share capital and financial liabilities supported by financial assets.
Management effectively manages the Group’s capital by regularly monitoring its current and expected liquidity
requirements and by assessing the Group’s financial risks, rather than using debt/equity ratio analyses. The
Group’s capital structure is adjusted in response to the changes in liquidity requirements and financial risks. These
responses include the management of debt levels and share issues.
There are no externally imposed capital requirements other than Australian Stock Exchange (ASX) listing rule 7.1
and 7.1A placement capacity. As at 30 June 2020, available placement capacity were circa 110 million new
shares.
There have been no changes in the strategy adopted by management to control the capital of the Group since
the prior year.
43
NOTE 20
RESERVES
Nature and purpose of Reserves is foreign currency translation reserve records exchange differences arising on
translation of a foreign controlled subsidiary as described in Note 1(j).
NOTES TO FINANCIAL STATEMENTS
NOTE 21
SHARE BASED PAYMENTS
In July 2019, the Company issued 389,689 fully paid ordinary shares to directors, Mr. Tegoni and Mr. Haller as
payment of their respective director fee for the quarter ending 30 June 2019. The shares were issued at an issue
price of $0.093/share, had been determined based on the volume weighted average sale price of SECOS share
for June 2019 Quarter.
In October 2019, the Company issued 4,122,601 fully paid ordinary shares to directors, Mr. Tegoni, Mr. Haller,
Mr. Wake and Mr. Walsh as payment of their respective director fee for the period between December 2018 and
September 2019 and prior. The shares were issued at an issue price of $0.049/share. The share issue price had
been determined based on volume weighted average sale price of SECOS shares for September 2019 Quarter.
In January 2020, the Company issued 703,035 fully paid ordinary shares to directors, Mr. Tegoni, Mr. Haller, Mr.
Wake and Mr. Walsh as payment of their respective director fee for the quarter ending 31 December 2019. The
shares were issued at an issue price of $0.089/share. The share issue price had been determined based on
volume weighted average sale price of SECOS shares for the December 2019 Quarter.
In April 2020, the Company issued 820,208 fully paid ordinary shares to directors, Mr. Tegoni, Mr. Haller, Mr.
Wake and Mr. Walsh as payment of their respective director fee for the quarter ending 31 March 2020. The shares
were issued at an issue price of $0.076/share. The share issue price had been determined based on volume
weighted average sale price of SECOS shares for the March 2020 Quarter.
The issue of these shares to Directors was approved by shareholders at the Annual General Meeting held on 22
November 2019.
NOTE 22
CONTROLLED ENTITIES
Controlled Entities Consolidated
Name
Stellar Films (Malaysia) Sdn Bhd
CO2 Starch Pty Ltd
Secos Americas LLC
Country of
Incorporation
Malaysia
Australia
USA
Cardia Bioplastics (Australia) Pty Ltd
Australia
Principal activities
Manufacturing
Research
Sales and
marketing
Sales and
marketing
Equity Holding (%)
2019
100%
2020
100%
100%
100%
100%
100%
100%
100%
Cardia Bioplastics (Malaysia) Sdn Bhd
100% owned by Cardia Bioplastics (Australia)
Pty Ltd
Tristano Pty Ltd
100% owned by Cardia Bioplastics (Australia)
Pty Ltd
Biograde (Hong Kong) Pty Ltd
100% owned by Cardia Bioplastics (Australia)
Pty Ltd
Biograde (Nanjing) Pty Ltd
100% owned by Biograde (Hong Kong) Pty Ltd
Malaysia
Manufacturing
100%
100%
Australia
Research
100%
100%
Hong Kong
Holding company
100%
100%
China
Manufacturing
100%
100%
44
NOTE 23
CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Estimates of the potential financial effect of contingent liabilities that may become payable:
NOTES TO FINANCIAL STATEMENTS
Bank Guarantees
The parent entity provided guarantees to third parties in relation to the
performance and obligations of controlled entities in respect lease
obligations.
There were no contingent assets as at 30 June 2020 (2019: NIL).
2020
$
50,713
-
2019
$
50,713
-
50,713
50,713
NOTE 25
OPERATING SEGMENTS
Identification of reportable operating segment
The management view the business as a single operating segment being the manufacture and distribution of
polyethylene films, and the renewable resource-based resins and finished products.
Operationally, Chief Executive Officer and Chief Financial Officer oversee the previously separate Cardia and
Stellar business. The Group now share common R&D resources actively promoting the films and renewable
recourses part of the business. There is now one warehouse location in each region housing films, resins and
biodegradable finished goods.
The management team prepares internal reports with multi-dimensional view with emphasis on group
consolidated results that are viewed and used by the Board of Directors in assessing the performance and in
determining the allocation of resources. The information is reported monthly.
Sales Revenue by geographical region
(external customers)
Oceanic
Asia
Americas
Europe
Africa
Total Revenue
2020
$
3,682,281
14,148,774
1,311,399
1,257,307
638,847
21,038,608
2019
$
3,323,420
14,032,910
3,121,66411
-
-
20,851,647
Major customers
The Group has a number of customers to whom it provides products. The Group has supplied a single external
customer in the manufacturing segment who accounted for 23.1% (2019: 27.7%) of external revenue.
Assets by geographical region
The location of segment assets (non-current) by geographical location
of assets is disclosed below:
Australia
Asia
Total Assets
2020
$
2019
$
55,769
1,774,735
1,830,504
120,504
1,647,689
1,768,193
•
11 Included Europe and Africa
45
NOTE 26
CASH FLOW INFORMATION
Reconciliation of Cash Flow from Operations with Profit
after Income Tax
Profit/(Loss) for the year after tax
Non-Cash Items
Depreciation and Amortization
Issue of shares in lieu of cash
Unrealized foreign currency differences
Financing costs paid during the year
Movements in assets and liabilities
Decrease/(increase) in inventories
Decrease/(increase) in receivables and other assets
(Decrease)/increase in payables
R&D capitalized
Net cash outflow from operating activities
NOTES TO FINANCIAL STATEMENTS
2020
$
2019
$
(1,186,003)
(4,169,981)
827,410
341,740
(50,460)
(67,313)
(10,020)
150,316
(650,704)
(72,659)
(650,380)
91,835
65,000
(19,625)
358,635
(3,674,136)
572,984
831,275
-
(926,961)
(3,123,686)
NOTE 27
EVENTS AFTER THE REPORTING DATE
On 7 July 2020, the Company issued 1,459,159 fully paid ordinary shares to Mr. Richard Tegoni and Mr. Donald
Haller Jr, Mr. David Wake, Mr. Jim Walsh as payment of director’s fees in lieu of cash for the quarter ending 30
June 2020 and to two marketing consultants for consultancy fees. The directors share issue was approved by
shareholders in the Annual General Meeting held on 22 November 2019. The shares were issued at an issue
price of $0.057/share. The share issue price had been determined based on volume weighted average sale price
of SECOS shares for the June 2020 Quarter.
On 10 July 2020, the Company issued 7,458,346 fully paid ordinary shares to convertible note holders pursuant
to Convertible Notes Deed of 27 November 2017. The shares were issued at an issue price of $0.060/share.
Consequently, there are no outstanding convertible notes left in the accounts.
On 26 August 2020, the Company issued 3,166,666 fully paid ordinary shares to option holders per Options
expiring 16 May 2021. The shares were issued at an issue price of $0.06/share pursuant to option deed.
NOTE 28
RELATED PARTIES
Parent Entity
SECOS Group Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in Note 22.
Key management personnel
Disclosures relating to key management personnel are set out in Note 6 and the remuneration report in the
directors’ report.
46
NOTES TO FINANCIAL STATEMENTS
NOTE 29
FINANCIAL INSTRUMENTS
Financial risk management objectives
The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price
risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on
the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial
performance of the consolidated entity.
Specific Financial Risk Exposures and Management
The main risks the Group is exposed to through its financial instruments are credit risk, liquidity risk and market
risk consisting of interest rate risk and foreign currency risk.
Credit risk
Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of
contract obligations that could lead to a financial loss to the Group.
Credit risk is managed through the negotiation of payment terms with customers such as advance payment on
order or payments through letter of credits, title retention clauses over goods, ensuring to the extent possible, that
customers and counterparties to transactions are of sound credit worthiness and monitoring the financial stability
of significant customers and counterparties. Such monitoring is used in assessing receivables for impairment.
The maximum exposure to credit risk by class of recognized financial assets at the end of the reporting period is
equivalent to the carrying amount of those financial assets (net of any provisions) as presented in the statement
of financial position.
The Group has no significant concentration of credit risk with any single counterparty or group of counterparties.
Trade and other receivables that are neither past due nor impaired are considered to be of high credit quality.
Aggregate of such amounts are as detailed in Note 9.
Credit risk arising on cash balances is not material.
Liquidity risk
Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or meeting its
obligations related to financial liabilities. The Group manages liquidity risk by maintaining a reputable credit profile,
managing credit risk related to financial assets, monitoring forecasted cash flows and ensuring that new funding
facilities are in place either in the form of the issuing of new securities or establishing borrowing facilities. Unused
borrowing facilities at the reporting date are disclosed under Note 16.
47
NOTE 29
FINANCIAL INSTRUMENTS (continued)
A summary of the entity’s financial assets and liabilities is shown in the table below;
NOTES TO FINANCIAL STATEMENTS
Year ended 30 June 2020
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Trade and other payables
Borrowings
Lease Liability
Net maturity
Year ended 30 June 2019
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Trade and other payables
Borrowings
Net maturity
<6 months 6-12 months
$
$
1-5 years
$
Total
$
2,878,827
3,245,454
6,124,281
1,539,525
672,075
548,188
2,759,788
3,364,494
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,878,827
3,245,454
6,124,281
1,539,525
672,075
548,188
2,759,788
3,364,494
<6 months 6-12 months
$
$
1-5 years
$
Total
$
2,874,945
3,545,371
6,420,316
2,279,477
300,000
2,579,477
3,840,839
-
-
-
-
-
-
-
-
-
-
-
1,132,065
1,132,065
(1,132,065)
2,874,945
3,545,371
6,420,316
2,279,477
1,432,065
3,711,542
2,708,774
Fair Value of financial instruments
Unless otherwise stated, the carrying amount of financial instruments reflect their fair value.
Market risks
There is no material exposure for the Group.
Interest Rate Risk
There is no material exposure for the Group.
Interest rate risk sensitivity analysis
An official increase/decrease in interest rates of 2% has no adverse/favorable effect on profit before tax of $0
(2019: $45,000) per annum. The Group has total borrowings of $0.7 million as at 30 June 2020 at fixed interest
rate of 10.0% (2019: $1.4 million).
48
NOTES TO FINANCIAL STATEMENTS
NOTE 29
FINANCIAL INSTRUMENTS (continued)
Foreign Currency Risk
The consolidated entity undertakes certain transactions denominated in foreign currency and is exposed to foreign
currency risk through foreign exchange rate fluctuations.
As the Group’s significant purchase and sales transactions are in US Dollars, any fluctuations in US Dollars may
impact on the Group’s financial assets. The risk is measured using sensitivity analysis and cash flow forecasting.
For payments in all other foreign currencies, the Group has established that its exposure to foreign currency risk
is not material at this stage.
The carrying amount of the Group’s foreign currency (US Dollars) denominated financial assets and financial
liabilities at the reporting date were as follows:
Financial Assets
Financial Liabilities
2020
$
241,097
22,075
2019
$
803,923
183,709
The Group has performed a sensitivity analysis relating to its net exposure to foreign currency risk at the end of
reporting period. This sensitivity analysis demonstrates the effect on the current year results and equity which
could result from a change in these risks.
Foreign Currency Risk Sensitivity Analysis
At 30 June 2020, the effect on profit and equity as a result of changes in the value of the Australian Dollar to the
US Dollar with all other variables remaining constant is as follows:
Change in Profit and Equity
- movement in AUD to USD by 7.0%
2020
$
2019
$
+/- 31,796
+/- 46,000
Foreign Currency Translation Reserves (“FCTR”)
The foreign currency translation reserve records exchange differences arising on translation of a foreign controlled
subsidiary as described in Note 1(j). At 30 June 2020, all balance sheet items in foreign currencies are translated
to local currency at closing exchange rate and this is further translated to Australian dollar. Upon consolidation of
the entities, the impact is captured in reserves line in equity section.
49
DIRECTORS’ DECLARATION
DIRECTORS’ DECLARATION
1. The Directors declare that the financial statements and notes; and remuneration disclosures that are
detailed within the Remuneration Report in the Directors’ Report, are in accordance with the Corporations
Act 2001 and:
a.
b.
c.
comply with Accounting Standards, the Corporations Regulations 2001; and
give a true and fair view of the financial position as at 30 June 2020 and of the performance for the
year ended on that date of the company and Group.
the financial report also complies with International Financial Reporting Standards as disclosed in
Note 1.
2. The Managing Director and Chief Financial Officer have each declared that:
a.
b.
c.
the financial records of the company for the financial year have been properly maintained in
accordance with section 286 of the Corporations Act 2001;
the financial statements and notes for the financial year comply with the Accounting Standards; and
the financial statements and notes for the financial year give a true and fair view.
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.
This declaration is made in accordance with a resolution of the Directors.
Richard Tegoni
Executive Chairman
Victoria, Australia
Date: 28 August 2020
50
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
51
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
52
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
53
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
54
SHAREHOLDERS’ INFORMATION
SHAREHOLDERS’ INFORMATION
The shareholder information set out below was applicable as at 14 August 2020
(A)
DISTRIBUTION OF EQUITY SECURITIES
Analysis of numbers of equity security holders by size of holding:
Ordinary Shares
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Number of Holders
302
382
268
607
271
1,830
There were 1,830 holders of less than a marketable parcel of ordinary shares.
(B)
EQUITY SECURITY HOLDERS
The names of the twenty largest holders of quoted equity securities are listed below:
Fully Paid Ordinary Shares
Number Held
BELGRAVIA STRATEGIC EQUITIES PTY LTD
R&K EDWARDS INVESTMENTS LLC
DONALD HALLER JR.
STELLAR DEVELOPMENTS PTY LTD
RICHARD TEGONI
NATIONAL NOMINEES LIMITED
STEPHEN WALTERS
BRENDAN O'SULLIVAN
KIRZY and INSYNC
GOBBLE PTY LTD
GANSPRUSE PTY LTD
ADVANCE PUBLICITY PTY LTD
J L COLMAN
DAVID WAKE
FEMALE PTY LTD
MARK DEUTSCH
ROBERT DEUTSCH
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
GARY T HEDRICK
SCOTCH INVESTMENTS PTY LTD
TOTAL
56,309,074
50,152,950
37,768,846
20,716,906
20,139,556
10,881,468
9,337,733
8,834,487
8,678,217
8,303,346
7,595,891
6,474,963
5,432,713
4,857,109
4,750,718
4,741,575
4,741,575
4,225,371
3,726,606
3,450,000
281,119,104
Percentage of
Issued Shares
%
13.2
11.7
8.8
4.9
4.7
2.6
2.2
2.1
2.0
1.9
1.8
1.5
1.3
1.1
1.1
1.1
1.1
1.0
0.9
0.8
65.8
55
(C)
SUBSTANTIAL SHAREHOLDERS
The names of the substantial shareholders listed in the holding company’s register as at 14 August 2020 are:
SHAREHOLDERS’ INFORMATION
BELGRAVIA STRATEGIC EQUITIES PTY LTD
R&K EDWARDS INVESTMENTS LLC
DONALD HALLER JR
Number of
Ordinary
Shares Held
56,309,074
50,152,950
37,768,846
Percentage of
Issued Shares
%
13.2
11.7
8.8
(D)
VOTING RIGHTS
The voting rights attaching to each class of equity security are set out below:
Ordinary Shares:
On a show of hands every member present at a meeting in person or by proxy shall have
one vote and upon a poll each share shall have one vote.
56
Level 3, 302 Burwood Rd, Hawthorn, Victoria 3122 Australia
FREE CALL: 1300 735 473 E: info@secosgroup.com.au