Structural
Monitoring
Systems Plc
Company number 4834265
smsystems.com.au
Annual Report 2020
Corporate Directory
Board of Directors
Will Rouse
Executive Chairman
R. Michael Reveley
Executive Director
Terry Walsh
Non Executive Director
Stephen Forman
Non Executive Director
Officers
Toby Chandler
Chief Executive Officer
Sam Wright
Company Secretary
Coporate Office
Suite 116, 1 Kyle Way
Claremont WA 6010
+61 8 6161 7412
Tel:
Fax: +61 8 9467 6111
Email: sms@smsystems.com.au
United Kingdom Office & Registered Office
4 Elwick Road
Ashford
Kent TN23 1PF
United Kingdom
Canada Office
15/1925 Kirschner Road
Kelowna BC.
Canada V1Y 4N7
Share Registry
Computershare Investor Centre Pty Ltd
GPO Box 2975
Melbourne VIC 3001
Enquiries (within Australia) 1300 850 505
Enquiries (from Overseas) +61 3 9415 4000
www.investorcentre.com/contact
Stock Exchange Listing
Australian Securities Exchange
(Home Exchange: Perth, Western Australia)
Code: SMN
Structural Monitoring Systems Plc Website
www.smsystems.com.au
Structural Monitoring Systems Plc
Mailing Address
PO Box 661
Nedlands Western Australia 6909
Auditors
RSM UK Audit LLP
25 Farringdon Street, London EC4A 4AB
United Kingdom
1
Contents
Strategic Report
Directors’ Report
Statement of Profit or Loss and Other Comprehensive Income
Statement of Financial Position
Statement of Cash Flows
Statement of Changes In Equity
Notes to the Financial Statements
Independent Auditors' Report
Shareholder Information
Corporate Governance Statement (unaudited)
3
7
16
17
18
19
21
57
61
63
Important Notice
Structural Monitoring Systems Plc (the Company) is incorporated in the United Kingdom under the laws of England and
Wales. The Company is not subject to Chapters 6, 6A, 6B and 6C of the Australian Corporations Act 2001 dealing with
the acquisition of shares (including substantial holdings and takeovers).
2
Strategic Report
Review of operations
Structural Monitoring Systems Plc
Structural Monitoring Systems Plc (“SMS”, the “Group” or the “Company”), due to the outstanding performance of its
Canadian-based wholly-owned subsidiary Anodyne Electronics Manufacturing Corp (“AEM”), logged another very solid
year, recording total sales for the 2020 financial year of $19.095m, an increase of 17% over the prior year.
Cash generation through the year was very strong with a total year-end Group cash balance of $2.065 million, net of
borrowings (2019: $1.562 million).
For the first time since the acquisition of AEM in December 2017, the Group achieved a positive cashflow from operating
activities for the year, a remarkable achievement in such a short time. As a result, the Group has been able to expand
AEM operations and meet corporate overheads without resorting to equity markets.
The improvement in operating cashflows is due, in part, to the introduction of IFRS 16 Leases. From 1 July 2019 principal
lease payments made during the year amounting to $0.414m (2019: $0.367m profit and loss expense) are not included
in cashflows from operating activities. Principal lease payments are now included in cashflows from financing activities.
The Group is adequately funded to continue its current operations during these uncertain times and will continue to
demonstrate appropriate financial restraint. The Company’s Board and CEO have carefully reviewed the Group’s
cashflow outlook, in light of the timeframe remaining to the CVM™ commercialisation, and with due regard to the
constantly evolving COVID-19 situation. Commencing in the September 2019 quarter and throughout the remainder
of the year, as a matter of prudence, all SMS Board and Executive/senior staff moved to an equity-only compensation
structure. These will remain in place in until at least December 2020, to ensure that the cash burn at the corporate level
is limited to essential outgoings only (i.e. regulatory related expenses, ASX and audit fees, patent maintenance, and so
forth). With the assumption that there will be only limited disruption to AEM’s ongoing business operations, the Group
will continue to self-fund all core operational activities. The group has not received any government financial assistance
related to COVID-19.
During the year SMS appointed Stephen Forman as a non-executive director. Mr Forman brings significant experience
and expertise in capital markets to the Group and will be responsible for investor relations. A group financial controller
has also been added to the senior management team during the year.
Anodyne Electronics
Manufacturing Corporation
3
Strategic Report
Structural Monitoring Systems Plc
Anodyne Electronics Manufacturing Corporation (“AEM”)
As can be seen below the combined dedicated efforts of AEM staff and SMS Board and management has significantly
increased revenues, profitability and shareholder value in the two and a half years since acquisition through product
development, improved margins and business development.
QUARTERLY SALES
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$-
M ar-18
Jun-18
Sep-18
D ec-18
M ar-19
Jun-19
Sep-19
D ec-19
M ar-20
Jun-20
AEM Sales by quarter since December 2017 denominated in Canadian dollars.
QUARTERLY EBITDA
QUARTERLY EBITDA
$1,200,000
$1,200,000
$1,000,000
$1,000,000
$800,000
$800,000
$600,000
$600,000
$400,000
$400,000
$200,000
$200,000
$0
$0
M ar-1 8
M ar-1 8
M a y-1 8
M a y-1 8
Jul-1 8
Jul-1 8
S e p-1 8
S e p-1 8
N o v-1 8
N o v-1 8
Ja n-1 9
Ja n-1 9
M ar-1 9
M ar-1 9
M a y-1 9
M a y-1 9
Jul-1 9
Jul-1 9
S e p-1 9
S e p-1 9
N o v-1 9
N o v-1 9
Ja n-2 0
Ja n-2 0
M ar-2 0
M ar-2 0
M a y-2 0
M a y-2 0
AEM EBITDA by Quarter since December 2017 denominated in Canadian dollars.
Details of AEM EBIDTA can be found under Avionics/audio in note 3 Segment information.
Following the onset of the COVID-19 global pandemic, AEM was classified an “essential business” for the purpose
of continuing to support critical infrastructure in the aerospace industry, AEM management responded prudently by
moving to a split shift system, observed social distancing and even transitioned platform capacity to produce important
PPE to help supply critical shortages of face-shields for Canadian healthcare workers, hospitals and first responders.
Importantly, with these actions, AEM was able to maintain near-peak capacity production and continues to do so today.
Looking forward, AEM will continue to focus on the development of new-generation product solutions, primarily focused
on the global rotorcraft markets. R&D spend (currently circa-10% of sales) will thus rise to circa-13% of sales over
the upcoming financial year, as AEM continues to add to its pipeline of new products under development targeting
several of the largest global aerospace OEMs. The SMS Board and executive management continue to be optimistic in
regard to the significant growth opportunities these new product solutions will provide, particularly given the scale of the
addressable markets for these products globally. Directors and Management are constantly monitoring the COVID-19
situation and are not in a position at this stage to provide firm forecasts on the effects it may have on operations for
FY2021. Current visibility and realised activity levels, however, indicate that at this stage, in a similar vein to what
transpired through H1-2020, that core operations will be only minimally impacted, if at all, by ongoing developments
related to COVID-19. The SMS Board and management will continue to monitor the evolving global situation closely
and regularly.
4
Strategic Report
Structural Monitoring Systems Plc
Comparitive Vacuum Monitoring (CVM™) Commercialisation Update and Outlook
2ku Wi-Fi Program Specifics:
The Federal Aviation Administration (“FAA”) has now provided Delta Engineering (“DE”) with their Stage III response
to the issue paper, which sets the requirements for the final testing required for approval of the Supplemental Type
Certificate (“STC”). DE and Sandia National Laboratories (“Sandia”) are reviewing the response from the FAA and
do not see any major hurdles at this time. The FAA is currently reviewing the Test Plan to ensure it satisfies the IP.
Assuming no changes or amendments to the FAA Stage III IP response are sought, and the FAA provides an approved
Test Plan as expected shortly, SMS, DE and Sandia will begin the testing of CVM™ sensors in October.
Concurrently, the required pre-validation CVM™ installation on a Delta Air Lines (“Delta”) aircraft has been discussed in
detail (a requirement for STC approval), and the necessary production of CVM™ installation kits have been completed
and are ready to ship. SMS and Delta are working to determine an aircraft for the installation, and a final decision for the
selected aircraft is expected in the near term.
All necessary work requirements to date have proceeded as planned along the STC approval path for the 2ku Wi-Fi
system. Reiterating - the programme is on-schedule, and is currently well into Stage III, and Stage IV in parallel, while
a good amount of the Stage IV effort has already been submitted to the FAA.
Despite the present and ongoing challenges of an unprecedented global operating environment presented by COVID-19
which has impacted travel, supply chain and factory layout, SMS and the Company’s key strategic counterparties
remain well on-track to deliver a highly significant commercial milestone within the time parameters that have been
previously communicated, pending a reasonable (and expected) response time from the FAA. Your Company remains
committed to delivering a full STC-approval in Q4-2020 following which the emphasis will move to taking the technology
to market in 2021.
Financial review and key financial performance indicators and milestone assessment
At 30 June 2020, the Group had $2.065m cash at bank, net of borrowings (2019: $1.562m).
In this second full year of operations since the acquisition of AEM was completed in December 2017, the Group recorded
a loss for the financial year of $2.549m (2019: $4.027m). The decrease in loss was largely due to an increase in gross
profit of $2.510m for the year. The Group also recorded revenue during the year of $19.095m (2019: $16.380m), an
increase of 17% year on year. Key expenses during the year were consumables and raw materials used of $10.204m
(2019: $9.999m), employee costs of $5.277m (2019: $4.058m) and share based payments of $1.952m (2019:$2.031m).
The increase in consumables and raw materials has been driven by increased demand for AEM products. As a result of
the adoption of IFRS 16 Leases lease payments of $0.414m (2019: $0.367m) are no longer classed as operating cash
outflows improving EBITDA and operating cashflows as a result. Financial performance has improved as a result of
increasing sales and production of products utilising AEM IP with increased profit margins.
The Group EBITDA* for the financial year was ($0.991m) (2019: ($2.827m)). Normalised EBITDA for AEM (excluding
SMS operations) for the year ended 30 June 2020 was $4.178m (2019: $2.364m). Refer over page for explanation of
how EBITDA is calculated.
5
Strategic Report
Structural Monitoring Systems Plc
Financial review and key financial performance indicators and milestone assessment (continued)
Loss per share for the financial year was 2.19 cents per share (2019: Loss per share 3.51 cents).
At the reporting date the Group had net assets of $13.401m (2019: $12.378m). The Group had trade receivables of
$2.991m, inventory of $7.122m and intangible assets of $3.201m, including goodwill of $1.444m. At 30 June the Group
had trade and other payables of $1.504m (2019: $2.583m).
The key movements during the year were an increase in inventory of $0.962m to meet increased demand, together with
a decrease in trade receivables of $0.343m, an increase in cash of $0.254m and a decrease in trade and other payables
of $1,079m as well as a reduction in borrowings of $0.249m as the Group built on strong sales, improved cashflow and
the finalisation of an outstanding legal claim during the year. Tax payable at year end increased by $0.410m to $0.640m
as a result of increased profits recorded by AEM for the year.
The only movements in equity during the year were due to Directors and senior management electing to receive
compensation in the form of Performance Rights (PRs) for the year in order to preserve cash, other contractual share-
based compensation and subscriptions to CDIs made by staff through the Company’s Employee Incentive Plan.
*EBITDA, which is inclusive of FX gains/losses, is calculated by adding back interest costs, income tax, depreciation
and amortisation expenses and deducting interest revenue from loss after tax for the year of $2.549m (2019: $4.027m).
Refer to note 3: Segment information in the notes to the financial statements.
Principal Risks and Uncertainties
The principal risks and how they are managed are set out on page 15 of the Directors’ Report.
s172 Statement
The Board has a duty under s172 of the Companies Act 2006 to promote the success of the Company of the benefit of
its members as a whole. All decisions are made with this objective and the Board considers the long-term implications
of its actions.
The Group has a continuous stakeholder engagement programme in which both Executive and Non-Executive Directors
participate to ensure the Board is aware of stakeholder interests.
The Group believes its employees are its greatest asset and it seeks to establish policies that provide a working
environment that is safe, enjoyable and rewarding.
Critical to the success of the Group is its long-term relationship with our suppliers and customers, as well as our
shareholders. The Board believes the decisions it has made have been appropriated both to support these stakeholders
and to foster stronger, long-term relationships with them.
The Group is mindful of its role within its local communities and seeks to minimise the impact of its operations on the
environment and to be a good neighbour.
The reputation of the Group and its brand image are considered by the Board to be critical to its success. As such the
Board to be critical and workplace that demonstrate integrity and where all employees are encouraged to perform in
line with best business practices.
Overall, in considering and taking decisions the Board seeks to act in the best interests of the business and all its
stakeholders, treating all members fairly.
The Strategic Report was signed on behalf of the Board.
Will Rouse
Executive Chairman
30th September 2020
6
Directors’ Report
Structural Monitoring Systems Plc
Your directors submit their report for the year ended 30 June 2020.
Directors and officers were in office for this entire period unless otherwise stated.
Directors and Officers
Will Rouse (Executive Chairman)
Mr Rouse is an experienced businessman and finance executive focused on the acquisition and optimised growth of
specialised manufacturing-related businesses. In his last role, Will acquired Simcro Ltd (“Simcro”) in 2007, a New
Zealand-based export-manufacturer. Will sold his majority stake in Simcro in 2013 to The Riverside Company, a New
York private equity group, retaining a 20% shareholding. Simcro then acquired two further operating businesses in NZ
and Australia in 2015, with Will leading these acquisitions. Simcro was sold in 2018 to a global multinational. Mr Rouse
is a Chartered Accountant. He joined the Board of SMS primarily to oversee the acquisition and management of AEM.
His role expanded in 2019 to include chairing the Board and overseeing finance and audit.
R. Michael Reveley (Executive Director)
Mr Reveley served as a managing partner, chief executive and co-CIO of SEAL Capital Ltd, a Los Angeles-based hedge
fund specialising in global macro strategies designed to provide risk-adjusted absolute returns investing in an array of
global markets, under all market conditions. Before forming SEAL Capital, he was a founding partner and deputy CIO
at Seagate Global Advisors in Los Angeles, having earlier been director of the syndicate and derivatives group at SBC
Warburg in London and New York, vice-president of global derivatives for Swiss Bank Corporation and vice-president of
the global derivatives group at First Interstate Bank, where he co-managed a US$20bn derivatives portfolio.
Terry Walsh (Non-Executive Director)
Mr. Walsh is a highly experienced corporate counsel having led legal teams at such firms as Hancock Prospecting Pty
Ltd and Rio Tinto Limited (Perth). Mr. Walsh runs a private consultancy company, providing Board, commercial, business
development and corporate advisory services. He will provide a key oversight role for the Company’s corporate legal
affairs including contract negotiations, IP enforcement and maintenance, regulatory oversight and corporate compliance,
and any future civil interactions.
Admission: Supreme Court of Western Australia in February 1995.
Mr Walsh currently serves as a Non-Executive Director of Nanollose Limited. During the last 3 years Mr Walsh has also
been a Non-Executive Director of Hazer Group Limited.
Stephen Forman (Non-Executive Director, appointed 1 November 2019)
Mr Forman has over 25 years of demonstrated high-level equity capital markets experience in Australia and North
America, through roles in institutional equity sales and trading, investor relations and corporate advisory with major top-
tier global investment groups, including UBS and JP Morgan, the latter where Mr Forman worked for 15 years in various
senior positions.
Mr Forman’s current role as Managing Director with New York-based investment advisory and consulting firm, Union
Square Capital Advisors saw him successfully utilise his global network to assist companies with business development
and corporate communication strategies, and to diversify their share register with Australian and North American
investors. Mr Forman holds a B.Comm – Hons (Accounting & Finance) from UWA and is a CFA Charterholder.
7
Directors' Report
Structural Monitoring Systems Plc
Toby Chandler (Chief Executive Officer)
Mr Chandler is Co-Founder and Chief Investment Officer of SEAL Capital Ltd, a global macro hedge fund investing in
diverse global markets and financial instruments. Before forming SEAL Capital, Mr Chandler was a Partner and Portfolio
Manager with private equity and macro hedge fund, Seagate Global Advisors, Inc.
In prior roles, Mr Chandler was a Managing Director with Morgan Stanley Inc, New York, where he ran the Bank's
Specialist Hedge Fund Desk servicing key institutional counterparties in an array of financial products, and global
markets. Mr Chandler has also held several other senior bank positions including Managing Director and Head of Global
Fixed Income Distribution with HSBC Securities (USA) NA, New York; other previous Executive Director positions
with Morgan Stanley Inc and Morgan Stanley International Plc, London, as Head of Emerging Markets and Global
Fixed Income Distribution; and Vice President with Citigroup NA, New York and Citigroup Australia. He received his
B.Comm in Finance from the University of Western Australia and his Masters in Applied Finance and Investment from
the Securities Institute of Australia.
Sam Wright (Company Secretary)
Mr Wright is experienced in the administration of ASX listed companies, corporate governance and corporate finance.
He is a member of the Australian Institute of Company Directors, the Financial Services Institute of Australasia, and the
Chartered Secretaries of Australia.
Mr Wright is currently a Non-Executive Director and Company Secretary of ASX listed company, PharmAust Limited. He
is also Company Secretary for ASX listed companies, Buxton Resources Limited and Wide Open Agriculture Limited. Mr
Wright has also filled the role of Director and Company Secretary with a number of unlisted companies.
Mr Wright is the Managing Director of Perth-based corporate advisory firm, Straight Lines Consultancy, specialising
in the provision of corporate services to public companies. He has extensive experience in relation to public company
responsibilities, including ASX and ASIC compliance, control and implementation of corporate governance, statutory
financial reporting, and shareholder relations with both retail and institutional investors.
Principal Activities
During the financial year the principal continuing activities of the Group consisted of the design and manufacture of
electronic products and the provision of manufacturing services to the aviation industry.
Shareholder Meetings
Structural Monitoring Systems Plc held its Annual General Meeting of Shareholders at Level 4, 168 St George’s Terrace,
Perth, Western Australia on 12th December 2019 at 12.00pm ADST.
All resolutions that were put were unanimously passed on a show of hands.
8
Directors' Report
Structural Monitoring Systems Plc
Statement of Directors' Responsibilities
The directors are responsible for preparing the Strategic Report and Directors’ Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare group and company financial statements for each financial year. The
directors are required under the rules of the Australian Securities Exchange to prepare group and company financial
statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union
(“EU”).
The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position of the
group and the company and the financial performance of the group. The Companies Act 2006 provides in relation to
such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view
are references to their achieving a fair presentation.
Under company law the directors must not approve the financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group and the
company for that period.
In preparing the Group and Company financial statements, the directors are required to:
a.
b.
c.
d.
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether they have been prepared in accordance with IFRSs adopted by the EU;
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group
and the company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
group’s and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of
the group and the company and enable them to ensure that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the group and the company and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the
maintenance and integrity of the corporate and financial information included on the www.smsystems.com.au website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurasdictions.
Indemnity and Insurance of Officers
The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a
director or executive, for which they may be held personally liable, except where there is a lack of good faith.
During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of
the company. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.
Events Subsequent to the Balance Date
The impact of the Coronavirus (COVID-19) pandemic is ongoing and whilst it has had no major impact for the Group
to 30 June 2020, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The
situation is rapidly developing and is dependent on measures imposed by the Australian and Canadian governments and
other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic
stimulus that may be provided.
Other than the above no matters or circumstances have arisen since the end of the financial year which significantly
affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of
the Group in future financial years.
Results and Dividend
The operating loss, after income tax, for the year was $2.549m (2019: $4.027m). No dividends were proposed or paid
during the financial year.
9
Directors' Report
Share Captial
Structural Monitoring Systems Plc
The impact on share capital and share premium account of the share issues during the year, is disclosed in note 24 in
the notes to the financial statements.
Going Concern
The financial statements have been prepared on the going concern basis, which contemplates continuity of normal
business activities, the continued financial performance of AEM and the realisation of assets and discharge of liabilities
in the normal course of business, as well as the availability of an established operating loan facility of up to CAD$3
million. The facility, which is provided by AEM’s bankers, is long standing and is secured on receivables and inventory
and is subject to loan covenants. The Directors expect compliance with the covenants to continue to be met.
The directors have prepared forecasts in respect of future trading. Achievement of such forecasts would allow the entity
to manage well within its current funding facilities for the foreseeable future. In developing these forecasts, the Directors
have made assumptions and performed sensitivity analysis on variables such as revenues and employee costs based
upon their view of the current and future economic conditions that will prevail over the forecast period of 12 months from
the date of signing these financial statements. Directors have not made any assumptions regarding generation of new
revenue streams in the year ahead.
The Directors therefore continue to adopt the going concern basis of accounting in preparing the financial statements.
Directors Meetings
The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by
each of the directors of the Group during the financial year:
Director
W Rouse
R M Reveley
T Walsh
S Forman
Board meetings
Audit committee
Remuneration committee
A
2
2
2
2
B
2
2
2
2
A
-
-
-
-
B
-
-
-
-
A
-
-
-
-
B
-
-
-
-
A – Number of meetings attended
B – Number of meetings held during the time which the director held office during the year
In addition to formal directors’ meetings held during the year regular executive meetings were held on a monthly basis
throughout the year.
Research and Development
The Group actively reviews technical developments in its markets with a view to taking advantage of the opportunities
available to maintain and improve it’s competitive position. This action involves the design and development of structural
health monitoring systems applicable to the aviation industry.
Remuneration Report
This report, which forms part of the Directors’ Report, outlines the remuneration arrangements in place for the key
management personnel of Structural Monitoring Systems Plc for the financial year ended 30 June 2020. The remuneration
report details the remuneration arrangements for key management personnel who are defined as those persons having
authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly,
including any Director (whether executive or otherwise) of the Group.
Remuneration Policy
The Remuneration Committee of the Board of Directors of Structural Monitoring Systems Plc is responsible for
determining and reviewing compensation arrangements for the directors and executives. The Remuneration Committee
(or the Board of directors) assesses the appropriateness of the nature and amount of emoluments of such officers on a
periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum
stakeholder benefit from the retention of a high quality board and executive team. Such officers are given the opportunity
to receive their base emoluments in a variety of forms including cash and fringe benefits such as motor vehicles and
expense payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without
creating undue cost for the company.
10
Directors' Report
Remuneration Policy (continued)
Structural Monitoring Systems Plc
To assist in achieving these objectives, the Remuneration Committee links the nature and amount of executive directors’
and senior executives’ emoluments to the Company’s financial and operational performance. Executive directors and
employees have the opportunity to qualify for participation in the Company Employee Incentive Plan.
It is the Remuneration Committee’s policy that employment agreements shall be entered into with the Managing Director
and all other executives. The current employment agreement is consistent for all executives. The agreement has 3
months’ notice period and provides for payment of an amount of three months’ salary at the end of the three month
notice period. Any options or performance rights held lapse when the service period is completed.
Remuneration of Directors and Executives
Details of the nature and amount of each major element of remuneration of each director of the Group and each of the
Group executives who receive the highest remuneration are:
Salary & Fees
Post
Employment
Share-based payments*
Total
Performance
rights in lieu of
fees
Superannuation
Gain on
conversion of
performance
rights
Shares
$
$
$
$
$
Cash
$
-
-
26,256
20,369
142,588
217,053
102,486
57,823
-
218,662
-
-
2,494
-
-
46,625
738,612
2,494
22,250
-
-
-
33,375
55,625
-
-
-
-
-
-
164,838
217,053
131,236
78,192
252,037
843,356
30 June 2020
Directors
Will Rouse
R Michael Reveley
Terry Walsh (1)
Stephen Forman
Executives
Toby Chandler
Total
Salary & Fees
Post
Employment
Share-based payments*
Total
30 June 2019
Cash
Performance
rights in lieu of
fees
Gain on
conversion of
Superannuation performance
rights
Shares
$
$
$
$
$
$
Directors
R. Michael Reveley
Will Rouse
Terry Walsh (1)
Executives
Toby Chandler
Total
175,081
120,000
105,023
225,000
625,104
-
-
-
-
-
-
-
9,977
-
9,997
-
-
-
-
-
-
-
57,000
-
57,000
175,081
120,000
172,000
225,000
692,081
(1) Appointed 4 April 2018, includes $70,000 per annum including superannuation as legal counsel
Share-based payments relate to the gain of the directors/executive on the conversion of Performance Rights into shares.
See note 23 for details of the share-based payment charge for the year ended 30 June 2020 in respect of Performance
Rights.
11
Directors' Report
Structural Monitoring Systems Plc
Share transactions with Directors and exectives
514,859 Performance Rights were issued to directors in lieu of fees for the year to 30 June 2020. The table on page
14 shows the issue of 874,859 performance rights issued in the year, this includes 150,000 performance rights to Will
Rouse and 210,000 to Stephen Forman. The share price at the date of grant of the performance rights granted in lieu
of fees was $1.01.
At the 2019 AGM, 91% of the votes received supported the issued of the performance rights. The Company did not
receive any feedback at the AGM regarding its remuneration practices.
Service Agreements
Remuneration and other terms of employment for Directors and executives are formalised in service agreements.
Details of these agreements are as follows:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Will Rouse
Executive Chairman
8 November 2017
no fixed term
Base salary of AU$120,000, to be reviewed annually by the Remuneration
Committee.
R. Michael Reveley
Executive Director
28 February 2018
no fixed term
Base salary of US$125,000 to be reviewed annually by the Remuneration
Committee.
Terry Walsh
Non-Executive Director & General Counsel
4 April 2018
no fixed term
Base salary AU$115,000 inclusive of superannuation, to be reviewed annually
by the Remuneration Committee. A discretionary bonus of up to $100,000
payable in cash and/or shares of the company, related to demonstrable
achievement in performance of duties. The award of such bonus will be at
the sole discretion of the CEO and the Board of directors. Includes non-
compete clause and subject to termination notice of 1 month notice by the
director and 2 months notice by the company.
Stephen Forman
Non-Executive Director
31 October 2019
no fixed term
Base salary US$50,000 to be reviewed annually by the Remuneration
Committee. 60,000 $0.001 Performance Rights per annum, subject to
shareholder approval, and allotted after each AGM, once the requisite
approval has been confirmed. The Rights will have a 3 month vesting period
once paid, and then will be free to be converted into ordinary shares at any
time. Subject to termination notice of 1 month notice by the director and 2
months notice by the company.
12
Agreement commenced:
Term of agreement:
31 October 2019
no fixed term
Stephen Forman
Non-Executive Director
Name:
Title:
Details:
Name:
Toby Chandler
Directors' Report
Service agreements (continued)
Structural Monitoring Systems Plc
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Toby Chandler
Chief Executive Officer
12 December 2015
no fixed term
Base salary of AU$275,000 (increased from $225,000 on 1 October 2019) to
be reviewed annually by the Remuneration Committee.
Directors and executives have no entitlement to termination payments in the
event of removal for misconduct.
Shareholdings of Directors
Shares held in Structural Monitoring Systems Plc:
Balance at
beg of year
Shares held on
appointment/
resignation
date
Granted as
Remuneration
Exercise of
PRs
Net Change
Other
Balance at
end of year
No.
No.
No.
No.
No.
No.
30 June 2020
Directors
Will Rouse
R. Michael Reveley
Terry Walsh
Stephen Forman (1)
150,000
2,964,352
64,500
-
-
-
1,900,000
-
-
-
-
-
120,588
-
270,588
-
-
-
(310,001)
2,654,351
-
-
64,500
1,900,000
120,588
(310,001)
4,889,439
Total
3,178,852
1,900,000
Balance at
beg of year
Shares held on
appointment/
resignation
date
Granted as
Remuneration
Exercise of
PRs
Net Change
Other
Balance at
end of year
No.
No.
No.
No.
No.
No.
100,000
2,944,352
-
3,044,352
-
-
-
-
-
-
50,000
50,000
-
-
-
-
50,000
150,000
20,000
2,964,352
14,500
64,500
84,500
3,178,852
30 June 2019
Directors
Will Rouse
R. Michael Reveley
Terry Walsh (2)
Total
(1) Appointed 1 November 2019
(2) Appointed 4 April 2018
Performance Rights Holdings of Directors
Performance rights held over shares in Structural Monitoring Systems Plc:
13
Directors’ Report
Structural Monitoring Systems Plc
Performance Rights Holdings of Directors (continued)
Balance at
beg of year
Granted
during the
year
Exercised
during the
year
Forefeited
during the
year
Balance at end
of the
year
No.
No.
No.
No.
No.
625,000
600,000
-
-
-
150,000
1,225,00
150,000
-
-
-
-
-
-
-
-
625,000
600,000
150,000
1,375,000
30 June 2019
Directors
Will Rouse
R. Michael Reveley
Terry Walsh
(1) Appointed 1 November 2019
Additional information
The earnings of the Group for the 5 years to 30 June 2020 are summarised below:
Sales revenue
EBITDA
EBIT
Loss after income tax
2020
$000’
2019
$000’
2018
$000’
2017
$000’
2016
$000’
19,095
16,380
7,437
309
121
(991)
(2,827)
(3,651)
(1,380)
(2,665)
(2,043)
(3,488)
(3,966)
(1,444)
(2,665)
(2,072)
(3,626)
(3,895)
(1,380)
(2,643)
The factors that are considered to affect total shareholders return (“TSR”) are summarised below:
Share price at financial year end $
Total dividends declared
Basic earnings per share
This concludes the Remuneration Report
Information Given to Auditors
2020
$000’
2019
$000’
2018
$000’
2017
$000’
2016
$000’
0.43
0.65
0.88
1.45
1.87
-
-
-
-
-
(2.19)
(3.51)
(3.55)
(1.35)
(2.66)
Each of the directors has confirmed that so far as he is aware, there is no relevant audit information of which the Group's
auditors are unaware, and that he has taken all the steps that he ought to have taken as a director in order to make
himself aware of any relevant audit information and to establish that the Group's auditors are aware of that information.
Creditor Payment Policy
The Group’s policy during the year was to pay suppliers in accordance with agreed terms and this policy will continue for
the year ended 30 June 2021. The Group does not follow a specific code or standard in respect of such creditors. As at
30 June 2020, the Group’s trade creditors represented 42 days’ purchases (2019: 74 days).
14
Directors' Report
Financial instruments and risks
Structural Monitoring Systems Plc
The Board has overall responsibility for the determination of the Group's risk management objectives and policies and,
whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes
that ensure the effective implementation of the objectives and policies to the CEO. The Board receives monthly
reports from the finance function through which it reviews the effectiveness of the processes put in place and the
appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting
the Group's competitiveness and flexibility. Further details regarding these policies are set out below:
The Group is exposed through its operations to the following financial risks:
- credit risk;
- liquidity risk;
- foreign exchange risk
The Group is exposed to the usual credit risk associated with selling on credit and manages this through credit control
procedures. AEM receivables are reviewed each month as part of the routine monthly operating review conducted by
the Board. Further information is provided in note 25 in the notes to the financial statements.
As a result of operations in Canada, USA, Australia and United Kingdom the Group’s assets and liabilities can be
affected by movements in the CAD$/A$, USD$/A$ and UK£/A$ exchange rates.
The Group also has transactional currency exposures. Such exposure arises from sales or purchases by an operating
unit in currencies other than the unit’s functional currency.
The Group is exposed to foreign currency risk following the acquisition of a Canadian-based subsidiary and the risk
could increase in the future as international commercialisation of the Group’s technologies increase. There is currently
no form of currency hedging or risk strategy in place, but this policy will be reviewed and strategies implemented once
the review is complete.
Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter
difficulty in meeting its financial obligations as they fall due.
In order to maintain liquidity to ensure that sufficient funds are available for ongoing operations and future developments,
the Group monitors forecast cash inflows and outflows on a monthly basis. The Group has an established operating
loan facility for up to CAD$3 million to assist with day to day operating requirements.
Business risks and uncertainties
The Group has a reliance on one customer at the present time. The customer accounts for $9.389 million of revenues
totalling $19.095 million. The relationship with the customer is secured by a licence agreement and the Group is
diversifying its customer base.
The ongoing impact of the Coronavirus (COVID-19) pandemic is uncertain and, other than the cost of implementing
social distancing measures and moving to a spilt shift system, there was no other financial impact for the Group
during the year ended 30 June 2020. It is not practicable to estimate the potential impact, positive or negative, after
the reporting date. The pandemic may affect future travel, movement of labour and enforce supply chain constraints.
The Company continues to make progress towards the commercialisation of its comparitive vacuum monitoring
technology (CVM™). Further details can be found in the Strategic Report.
Future developments
The Directors have discussed the future developments for the AEM business and CVM™ technology within the
Strategic Report on pages 4/5, in accordance with Section 414C of the Companies Act 2016.
By order of the Board
Will Rouse
Executive Chairman
30th September 2020
15
Statement of Profit or Loss and Other
Comprehensive Income
For the Year Ended 30 June 2020
Note
Continuing operations
Revenue
Sales
Cost of sales
Gross profit
Other income
Loss on debt for equity swap
Depreciation and amortisation
Employee expenses
Impairment charges
Occupancy expenses
4
4
4
5
Research and development expenses
Sales and marketing
Share-based payment expense
23
Administrative expenses
Operating loss before finance costs
and tax
Finance income
Finance costs
Foreign exchange (losses)/gains
Income tax expense
Loss after finance costs and tax from
continuing operations
6
Structural Monitoring Systems Plc
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
19,095
(10,204)
8,891
73
(127)
(1,052)
(5,277)
-
(62)
(345)
(738)
16,380
(9,999)
6,381
32
-
(662)
12
-
12
73
(127)
(39)
(4,058)
(1,075)
-
(83)
(417)
(693)
(446)
(62)
-
(585)
95
(91)
4
-
-
-
(900)
(125)
(83)
(156)
(691)
(1,952)
(1,604)
(2,031)
(1,940)
(1,952)
(2,031)
(472)
(479)
(2,193)
(3,471)
(4,673)
(4,461)
3
(32)
150
(477)
10
(148)
(17)
(401)
-
(9)
(1)
-
-
-
-
-
(2,549)
(4,027)
(4,683)
(4,461)
Loss attributable to members of the parent
(2,549)
(4,027)
(4,683)
(4,461)
Other comprehensive income
Items that may be reclassified
subsequently to profit or loss:
Foreign currency translation
Total comprehensive income/(loss) for the year
Loss for the year attributable to owners of Structural
Monitoring Systems Plc
Earnings per share (cents per share)
Basic for loss from continuing operations
Diluted for loss from continuing operations
(273)
(273)
704
704
-
-
-
-
(2,822)
(3,323)
(4,683)
(4,461)
7
7
(2.19)
(2.19)
(3.51)
(3.51)
The accompanying notes form an integral part of the financial statements.
16
Statement of Financial Position
As at 30 June 2020
Structural Monitoring Systems Plc
Company number: 4834265
Assets
Non-current assets
Loans to subsidiaries
Plant and equipment
Right-of-use assets
Intangible assets and goodwill
Total non-current assets
Current assets
Trade receivables
Other receivables
Inventory
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Borrowings
Deposits
Lease liabilities
Tax payable
Total current liabilities
Non-current liabilities
Loans from subsidiaries
Lease liabilities
Deferred tax
Total non-current liabilities
Total liabilities
Net assets
Equity attributable to equity holders of the parent
Issued capital
Share premium reserve
Accumulated losses
Other reserves
Total equity
Consolidated
Parent
Note
2020
$000’
2019
$000’
2020
$000’
2019
$000’
14
11
12
13
8
9
10
15
16
17
18
19
14
19
6
24
24
24
-
342
163
3,201
3,706
-
11,397
11,819
540
-
3,684
4,224
5
-
-
-
-
11,402
11,819
2,991
3,334
363
7,122
2,545
361
6,160
2,291
13,021
12,146
3
116
184
-
303
-
17
-
-
17
16,727
16,370
11,705
11,836
1,504
2,583
245
291
480
43
208
640
729
-
-
230
-
43
75
-
-
-
-
-
2,875
3,542
363
291
-
54
397
451
-
-
450
450
921
19
-
940
3,326
3,992
1,303
305
-
-
305
596
13,401
12,378
10,402
11,240
31,946
31,932
31,946
31,932
35,967
35,106
35,967
35,106
(56,028)
(54,543)
(58,732)
(55,113)
1,516
(117)
1,221
(685)
13,401
12,378
10,402
11,240
The accompanying notes form an integral part of the financial statements.
Approved by the Board and authorised for issue on 30th September 2020
……………………………………….
W. Rouse, Executive Director
17
Statement of Cash Flows
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
Consolidated
Parent
Note
2020
$000’
2019
$000’
2020
$000’
2019
$000’
19,499
15,913
82
95
(19,041)
(17,580)
(1,507)
(2,173)
3
(119)
10
(148)
-
(10)
-
-
20(a)
342
(1,805)
(1,435)
(2,078)
(119)
(151)
-
-
223
(1,956)
(1,435)
(2,078)
Cashflows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Net cash provided by/(used in) operating
activities before tax paid
Income tax paid
Net cash provided by/(used in) operating
activities
Cashflows from investing activities
Payments for plant and equipment
Net cash provided by/(used in) investing
activities
Cashflows from financing activities
Loan from subsidiaries
Proceeds from issue of shares
Proceeds pending issue of shares
Issue costs
Repayment of lease liabilities
Net cash provided by financing activities
Net increase/(decrease) in cash held
Cash and cash equivalents at beginning of
year
Effect of foreign exchange on balances
Net cash and cash equivalents at end of year
20(b)
Cash and cash equivalents
Borrowings
Net cash and cash equivalents at end of year
The accompanying notes form an integral part of the financial statements.
(78)
(78)
(230)
(230)
-
-
-
-
-
887
43
(12)
(386)
532
-
209
-
(16)
-
592
887
43
(12)
(75)
1,885
209
-
(16)
-
192
1,510
2,078
668
(1,994)
1,562
3,251
(165)
2,065
2,545
(480)
2,065
305
1,562
2,291
(729)
1,562
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18
Statement of Changes in Equity
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
Consolidated
At 1 July 2018
Loss for the year
Foreign currency translation
Total comprehensive loss for the year
Transactions with owners:
Issue of performance rights to directors
and staff/consultants
Issue of shares to directors and staff/
consultants
Share issue costs
Total transactions with owners
Issued
capital
Accumulated
losses
Share
premium
reserve
Share-
based
payments
reserve
Foreign
currency
translation
reserve
Total
$000’
$000’
$000’
$000’
$000’
$000’
31,926
(51,474)
34,919
513
(2,407)
13,477
-
-
-
-
6
-
6
(4,027)
-
(4,027)
-
958
-
958
-
-
-
-
203
(16)
187
-
-
-
1,073
-
-
1,073
1,586
-
(4,027)
704
704
704
(3,323)
-
-
-
-
1,073
1,167
(16)
2,224
(1,703)
12,378
At 30 June 2019
31,932
(54,543)
35,106
At 1 July 2019
Loss for the year
Foreign currency translation
Total comprehensive loss for the year
Transactions with owners:
Issue of performance rights to directors
and staff/consultants
Issue of shares to directors and staff/
consultants
Conversion of performance rights to
shares
Share issue costs
Total transactions with owners
31,932
-
-
-
-
10
4
-
14
(54,543)
(2,549)
-
(2,549)
-
515
549
-
1,064
35,106
1,586
(1,703)
-
-
-
-
(273)
(273)
-
-
-
-
2,459
873
-
-
(553)
(12)
861
-
1,906
3,492
At 30 June 2020
31,946
(56,028)
35,967
12,378
(2,549)
(273)
(2,822)
2,459
1,398
-
(12)
3,845
-
-
-
-
-
(1,976)
13,401
19
Statement of Changes in Equity
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
Issued
capital
Accumulated
losses
Share
premium
reserve
Share-
based
payments
reserve
Foreign
currency
translation
reserve
Total
Parent
At 1 July 2018
Loss for the year
Total comprehensive loss for the year
Transactions with owners:
Issue of performance rights to
directors and staff
Issue of shares to directors and staff
Share issue costs
Total transactions with owners
$
31,926
-
-
-
6
-
6
$
(51,610)
(4,461)
(4,461)
-
958
-
958
$
$
$
34,919
513
(2,271)
-
-
-
203
(16)
187
-
-
1,073
-
-
1,073
-
-
-
-
-
-
$
13,477
(4,461)
(4,461)
1,073
1,167
(16)
2,224
At 30 June 2019
31,932
(55,113)
35,106
1,586
(2,271)
11,240
At 1 July 2019
Loss for the year
Total comprehensive loss for the year
Transactions with owners:
Issue of performance rights to
directors and staff
Issue of shares to directors and staff
Conversion of performance rights to
shares
Share issue costs
Total transactions with owners
31,932
-
-
-
10
4
-
14
(55,113)
(4,683)
(4,683)
-
515
549
-
1,064
35,106
1,586
(2,271)
-
-
-
-
-
2,459
873
-
-
(553)
(12)
861
-
1,906
-
-
-
-
-
-
-
11,240
(4,683)
(4,683)
2,459
1,398
-
(12)
3,845
At 30 June 2020
31,946
(58,732)
35,967
3,492
(2,271)
10,402
The accompanying notes form an integral part of the financial statements.
20
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
1.
Corporate information and authorisation of financial statements
The financial statements of Structural Monitoring Systems Plc for the year ended 30 June 2020 were authorised for issue in
accordance with a resolution of the directors on 30 September 2020 and the statements of financial position were signed on
the Board’s behalf by Will Rouse.
Structural Monitoring Systems Plc is a public limited company incorporated and domiciled in the United Kingdom. The
Company’s ordinary shares, when held as a Chess Depository Interest (CDI) and registered on the CDI register, are tradable
on the Australian Securities Exchange (ASX). Ordinary shares on the UK register cannot be traded on the Australian Securities
Exchange.
2.
(a)
Summary of significant accounting policies
Basis of preparation
The consolidated financial statements and those of the parent entity are presented in Australian dollars which is the Company’s
functional currency and are rounded to the nearest Australian dollar. The average AUD:GBP rate for the year was 0.5328
(2019: 0.5527) and the reporting date AUD:GBP spot rate was 0.5586 (2019: 0.5535). The average AUD:CAD rate for the year
was 0.9003 (2019: 0.9469) and the reporting date AUD:CAD spot rate was 0.9387 (2019: 0.9187). CAD is the presentational
currency of Anodyne Electronics Manufacturing Corp (AEM), a wholly-owned subsidiary of the Company.
(b)
Going concern
The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business
activities, the continued financial performance of AEM and the realisation of assets and discharge of liabilities in the normal
course of business as well as the availability of an established operating loan facility of up to CAD$3 million. The facility, which
is provided by AEM’s bankers, is long standing and is secured on receivables and inventory and is subject to loan covenants.
The Directors expect compliance with the covenants to continue to be met.
The directors have prepared forecasts in respect of future trading. Achievement of such forecasts would allow the entity to
manage well within its current funding facilities for the foreseeable future. In developing these forecasts, the Directors have
made assumptions and performed sensitivity analysis on variables such as revenues and employee costs based upon their
view of the current and future economic conditions that will prevail over the forecast period of 12 months from the date of
signing these financial statements. The Directors have not made any assumptions regarding generation of new revenue
streams in the year ahead.
The Directors therefore continue to adopt the going concern basis of accounting in preparing the financial statements.
(c)
Statement of compliance
The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
as adopted by the European Union as they apply to the financial statements of the Group for the year ended 30 June 2019
and are applied in accordance with the Companies Act 2006. The Group and the Company have not adopted any standards or
interpretations in advance of the required implementation dates. It is not expected that adoption of standards or interpretations
which have been issued by the International Accounting Standards Board but have not been adopted will have a material
impact on the financial statements for the year ended 30 June 2021. See note 2(d) for further consideration.
(d)
Accounting standards and Interpretations
The consolidated entity has adopted IFRS 16 Leases from 1 July 2019. The standard replaces IAS 17 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 recognised 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 recognised lease liabilities (included in finance costs). In the earlier periods of the
lease, the expenses associated with the lease under IFRS 16 will be higher when compared to lease expenses under IAS 17.
However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) 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.
At inception, the Group assesses whether a contract contains a lease. This assessment involves the exercise of judgement
about whether the Group obtains substantially all the economic benefits from the use of that asset, and whether the Group has
the right to direct the use of the asset.
21
Notes to the Financial Statements
For the Year Ended 30 June 2020
2.
(d)
Summary of significant accounting policies (continued)
Accounting standards and Interpretations (continued)
Structural Monitoring Systems Plc
Previously all the Group’s leases were accounted for as operating leases in accordance with IAS 17 Leases (see note
4 of the annual report and consolidated financial statements for the year ended 30 June 2019).
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified
as “operating leases” under the principles of IAS 17, Leases. These liabilities were measured at the present value of the
remaining lease payments, discounted using an incremental borrowing rate.
The standard permits either a full retrospective or a modified retrospective approach for the adoption. The Group has
adopted the standard using the modified retrospective approach, with the right-of-use asset being equal to the lease
liability at the transition date. Therefore, the cumulative impact of the adoption is recognised in retained earnings as of
July 2019 and the comparatives are not restated.
In applying IFRS 16 for the first time the Group has not applied any expedients. The impact of transition to IFRS 16 at
1 July 2019 is as follows:
Consolidated statement of financial position
$000’
Non-current assets
- right-of-use assets
Current liabilities
- lease liabilities
Non-current liabilities
- lease liabilities
618
361
257
618
When measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at 1 July 2019 of 9%.
Operating lease commitment at 30 June 2019 as disclosed in the Group’s consolidated
financial statements
Discounted using the incremental borrowing rate at 1 July 2019
Lease liabilities recognised at 1 July 2019
New Accounting Standards and Interpretations not yet mandatory or early adopted
1 July 2019
$000’
668
(50)
618
The Directors have also reviewed all of the new and revised Standards and Interpretations in issue not yet adopted for
the year ended 30 June 2020. As a result of this review the Directors have determined that there is no material impact
of the Standards and Interpretations in issue not yet adopted on the Group and, therefore, no change is necessary to
Group accounting policies.
(e)
Basis of consolidation
The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by Structural
Monitoring Systems Plc at the end of the reporting period. A controlled entity is any entity over which Structural Monitoring
Systems Plc 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.
Where controlled entities have entered or left the Group during the year, the financial performance of those entities is
included only for the period of the year that they were controlled.
In preparing the consolidated financial statements, all inter-group balances and transactions between entities in the
consolidated group have been eliminated in full on consolidation.
Non-controlling interests, being the equity in a subsidiary not attributable, directly or indirectly, to a parent, are reported
separately within the equity section of the consolidated statement of financial position and statement of comprehensive
income. The non-controlling interests in the net assets comprise their interests at the date of the original business
combination and their share of changes in equity since that date.
22
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
2.
Summary of significant accounting policies (continued)
Business Combinations
Business combinations occur where an acquirer obtains control over one or more businesses. A business combination
is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under
common control. The business combination will be accounted for from the date that control is attained, whereby the fair
value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject
to certain limited exemptions).
When measuring the consideration transferred in the business combination, any asset or liability resulting from a
contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration
classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent
consideration classified as an asset or liability is remeasured at the end of each reporting period to fair value, recognising
any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date.
All transaction costs incurred in relation to the business combination are expensed to the statement of profit or loss and
other comprehensive income. The acquisition of a business may result in the recognition of goodwill or a gain from a
bargain purchase.
(f)
Foreign currency translation
(i) Functional currency
Items included in the financial statements of each of the companies in the Group are measured using the currency of
the primary economic environment in which the entity operates (‘the functional currency’). The functional currency of
Structural Monitoring Systems Plc is Australian dollars and its presentation currency is Australian dollars. The functional
currency of its overseas subsidiary, Structural Monitoring Systems Limited, is Australian dollars and the functional
currency of its overseas subsidiary, Anodyne Electronics Manufacturing Corp is Canadian dollars.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and
from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in the statement of comprehensive income.
(iii) Group entities
The results and financial position of all the Company entities (none of which has the currency of a hyperinflationary
economy) that have a functional currency different from the presentation currency are translated into the presentation
currency as follows:
•
•
•
Assets and liabilities for each statement of financial position presented are translated at the closing rate at the
date of that statement of financial position;
Income and expenses for each statement of profit and loss and other comprehensive income are translated at
average exchange rates (unless this is not a reasonable approximation of the rates prevailing on the transaction
dates, in which case income and expenses aretranslated at the dates of the transactions); and
All resulting exchange differences are recognised as a separate component of equity and in other comprehensive
income.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities are taken to
foreign currency translation reserve.
When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share
of such exchange differences are recognised in the statement of comprehensive income, as part of the gain or loss on
sale where applicable.
23
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
2.
Summary of significant accounting policies (continued)
g)
Impairment of property, plant and equipment
At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an
indicator of impairment exists, the Group makes a formal estimate of the recoverable amount. Where the carrying amount
of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable
amount.
Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual
asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not
generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the
recoverable amount is determined for the cash-generating unit to which the asset belongs.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset.
(h)
Financial instruments
Financial assets and financial liabilities are recognised when the Group becomes party to the contractual provisions of
the instrument.
Financial assets
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and other short-term deposits held by the Group with
maturities of less than three months. For the purposes of the statement of cash flows, cash and cash equivalents consist
of cash and cash equivalents as defined above, net of outstanding bank overdrafts.
Trade, Group and other receivables
Trade, Group and other receivables are recorded initially at fair value and subsequently measured at amortised cost. This
results in their recognition at nominal value less an allowance for any doubtful debts. The allowance for doubtful debts
was recognised under an “incurred loss” model until 1 July 2018 and therefore it was dependent upon the existence
of an impairment event. From 1 July 2018, the allowance for doubtful debts is recognised based on management’s
expectation of losses without regard to whether an impairment trigger happened or not (an “expected credit loss” model).
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after
deducting all of its liabilities.
Trade, Group and other payables
Trade, Group and other payables are initially measured at fair value net of direct transaction costs and subsequently
measured at amortised cost.
Equity instruments
Equity instruments issued by the Group are recorded at fair value on initial recognition net of transaction costs.
Derecognition of financial assets (including write-offs) and financial liabilities
A financial asset (or part thereof) is derecognised when the contractual rights to cash flows expire or are settled, or
when the contractual rights to receive the cash flows of the financial asset and substantially all the risks and rewards
of ownership are transferred to another party. When there is no reasonable expectation of recovering a financial asset
it is derecognised (“written off”). The gain or loss on derecognition of financial assets measured at amortised cost is
recognised in profit or loss. A financial liability (or part thereof) is derecognised when the obligation specified in the
contract is discharged, cancelled or expires. Any difference between the carrying amount of a financial liability (or part
thereof) that is derecognised and the consideration paid is recognised in profit or loss.
24
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
2.
Summary of significant accounting policies (continued)
Impairment of financial assets
An impairment loss is recognised for the expected credit losses on financial assets when there is an increased
probability that the counterparty will be unable to settle an instrument’s contractual cash flows on the contractual due
dates, a reduction in the amounts expected to be recovered, or both. The probability of default and expected amounts
recoverable are assessed using reasonable and supportable past and forward-looking information that is available
without undue cost or effort. The expected credit loss is a probability-weighted amount determined from a range of
outcomes and takes into account the time value of money.
For trade receivables, material expected credit losses are measured by applying an expected loss rate to the gross
carrying amount. The expected loss rate comprises the risk of a default occurring and the expected cash flows
on default based on the aging of the receivable. The risk of a default occurring always takes into consideration all
possible default events over the expected life of those receivables (“the lifetime expected credit losses”). Different
provision rates and periods are used based on groupings of historic credit loss experience by product type, customer
type and location.
For intercompany loans that are repayable on demand, expected credit losses are based on the assumption that
repayment of the loan is demanded at the reporting date. If the subsidiary does not have sufficient accessible highly
liquid assets in order to repay the loan if demanded at the reporting date, an expected credit loss is calculated. This
is calculated based on the expected cash flows arising from the subsidiary, and weighted for probability likelihood of
variations in cash flows.
Definition of default
The loss allowance on all financial assets is measured by considering the probability of default.
Receivables are considered to be in default when the principal or any interest is significantly more than the associated
credit terms past due, based on an assessment of past payment practices and the likelihood of such overdue amounts
being recovered.
Write-off policy
Receivables are written off by the Group when there is no reasonable expectation of recovery, such as when the
counterparty is known to be going bankrupt, or into liquidation or administration. Receivables will also be written off
when the amount is more than materially past due.
(i)
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event,
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation.
Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the
reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense
relating to any provision is presented in the statement of comprehensive income net of any reimbursement.
If the effect of the time value of money is material, provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate,
the risks specific to the liability.
25
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
2.
Summary of significant accounting policies (continued)
(j)
Share-based payment transactions
The Group provides benefits to employees (including directors) in the form of share-based payment transactions,
whereby employees render services in exchange for rights over shares (‘equity-settled transactions’). The fair value of
options is determined using the Black-Scholes pricing model or using the trinomial option pricing model.
There is currently one plan in place to provide these benefits, the Employee Incentive Plan (EIP), which provides
benefits to directors and employees.
The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at
which they are granted.
In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to
the price of the shares of Structural Monitoring Systems Plc (‘market conditions’).
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in
which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled
to the award (‘vesting date’).
The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects the
extent to which the vesting period has expired. This opinion is formed based on the best available information at the
reporting date. No adjustment is made for the likelihood of market performance conditions being met as the effect of
these conditions is included in the determination of fair value at grant date.
(k)
Revenue
Revenue recognition – Repair services
Repairs meet the definition of a distinct service whereby the associated revenue is to be recognised at a point in time,
evidenced by the completion of the agreed upon service and delivery of the repaired parts/components to the customer.
The point in time criteria are met as the following transfers of control exist: (a) The entity has the present right to payment
for the asset; (b) the customer has the legal right to the asset; (c) the entity has transferred physical possession of
the asset; (d) the customer has the significant risks and rewards of ownership of the asset; and (e) the customer has
accepted the asset. Pricing is fixed and determinable pursuant to agreed upon pricing lists that establish stand-alone
selling prices.
Revenue recognition – Product sales (stock or customised parts)
Product sales meet the definition of a distinct service whereby the associated revenue is to be recognised at a point
in time, evidenced by the delivery of the products to the customer. The point in time criteria are met as the following
transfers of control exist: (a) The entity has the present right to payment for the asset; (b) the customer has the legal right
to the asset; (c) the entity has transferred physical possession of the asset; (d) the customer has the significant risks and
rewards of ownership of the asset; (e) the customer has accepted the asset. Pricing is fixed and determinable pursuant
to agreed upon pricing lists that establish stand-alone selling prices. There are no further performance obligations
associated with these sales.
At times, multiple services or goods are sold to customers, however, contracts detail out separate prices for each
different good or service purchased. As each service or good purchased has a standalone selling price in the negotiated
contract there is no need to allocate a purchase price across multiple deliverables. In addition, each contract includes
payment terms.
The Group recognises revenue on shipping for stock parts, customised product and customer product. When the
Group provides a service (prototyping) it generally recognises revenue when the prototype is shipped or as the service
is provided if there is no item to be shipped. The Group recognises revenue when it satisfies its performance obligation
under the contract (when the Group ships the product which is also when the customer obtains control over the product
or service).
26
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
2.
Summary of significant accounting policies (continued)
(l)
Inventories
Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value on‘a ‘first
in first out’ basis. Cost comprises of direct materials and delivery costs, direct labour, import duties and other taxes,
an appropriate proportion of variable and fixed overhead expenditure based on normal operating capacity, and, where
applicable, transfers from cash flow hedging reserves in equity. Costs of purchased inventory are determined after
deducting rebates and discounts received or receivable.
Stock in transit is stated at the lower of cost and net realisable value. Cost comprises of purchase and delivery costs,
net of rebates and discounts received or receivable.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion
and the estimated costs necessary to make the sale.
(m)
Property, plant and equipment
Plant and equipment and leasehold improvements are stated at historical cost less accumulated depreciation and
impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment
(excluding land) over their expected useful lives as follows:
Plant and equipment
Leasehold improvements
3 - 5 years
5 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting
date.
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to
the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or
loss.
(n)
Right-of-use assets
A right-of-use asset is recognised 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 group has elected not to recognise 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.
(o)
Intangible assets
Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value
at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Finite life intangible
assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in the
statement of profit and loss and other comprehensive income arising from the derecognition of intangible assets are
measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method
and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or
useful life are accounted for prospectively by changing the amortisation method or period.
27
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
2.
Summary of significant accounting policies (continued)
(o)
Intangible assets (continued)
Goodwill
Goodwill arises on the acquisition of a business. Goodwill is not amortised.
Research and development
Research costs are expensed in the period in which they are incurred. Development costs are capitalised when it is
probable that the project will be a success considering its commercial and technical feasibility; the consolidated entity
is able to use or sell the asset; the consolidated entity has sufficient resources; and intent to complete the development
and its costs can be measured reliably. Capitalised development costs are amortised on a straight-line basis over the
period of their expected benefit, being their finite life of 10 years.
Certifications
Significant costs associated with certifications are amortised on a straight line basis over the period of their expected
benefit, being the finite life of 5 years.
Licence agreement
Significant costs associated with a licence agreement are amortised on a straight line basis over the period of their
expected benefit, being their finite life of 5 years.
Technology
Significant costs associated with technological intellectual property are amortised on a straight line basis over the period
of their expected benefit, being their finite life of 10 years.
(p)
Impairment of non-financial assets
Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested
annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired.
Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying
amount exceeds its recoverable amount.
Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use is
the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the
asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped
together to form a cash-generating unit.
(q)
Income tax
The charge for taxation for the year is the tax payable on the profit or loss for the year based on the applicable income
tax rate for each jurisdiction and takes into account deferred tax. Deferred tax is the tax expected to be payable or
recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit or loss, and is accounted for using the balance sheet
method.
Deferred tax assets are only recognised to the extent that it is probable that future taxable profit will be available in the
foreseeable future against which the temporary differences can be utilised.
28
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
2.
Summary of significant accounting policies (continued)
(r)
Other taxes
Revenues, expenses and assets are recognised net of the amount of VAT/GST except:
Where the VAT/GST incurred on a purchase of goods and services is not recoverable from the taxation authority,
in which case the VAT/GST is recognised as part of the cost of acquisition of the asset or as part of the expense
item as applicable; and
receivables and payables are stated with the amount of VAT/GST included.
The net amount of VAT/GST recoverable from, or payable to, the taxation authority is included as part of receivables or
payables in the statement of financial position.
Cash flows are included in the statement of cash flows on a gross basis and the VAT/GST component of cash flows
arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are
classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of VAT/GST recoverable from, or payable to, the
taxation authority.
(s)
Borrowings
Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs.
They are subsequently measured at amortised cost using the effective interest method.
(t)
Lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised 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 Group’s incremental borrowing rate. Lease payments
comprise of fixed repayments 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 amortised 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.
(u)
Employee entitlements
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to
be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the
liabilities are settled.
Defined contribution superannuation expense
Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred.
29
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
2.
Summary of significant accounting policies (continued)
(v) Investments in subsidiary undertakings
Investments in subsidiary undertakings are accounted for at cost less, where appropriate, allowances for impairment.
(w)
Critical accounting estimates and judgements
The preparation of the consolidated financial statements requires management to make judgements, estimates and
assumptions concerning the future which impact the application of accounting policies and reported amounts of assets,
liabilities, income and expenses. The accounting estimates resulting from these judgements and assumptions seldom
equal the actual results but are based on historical experiences and future expectations.
i)
Share-based payment transaction:
The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity
instruments at the date at which they are granted. The fair value is determined using either a Black-Scholes or binomial
pricing models, using the assumptions detailed in note 23 Share-based payments in the notes to the financial statements.
ii)
Impairment resulting from acquisition of Anodyne Electronics Manufacturing (AEM)
Impairment of goodwill and intangible assets
An annual review is carried out (as set out in note 13) as to whether the current carrying value of goodwill is impaired.
Detailed calculations are performed based on (i) discounting expected pre-tax cash flows of the relevant cash generating
units and discounting these at an appropriate discount rate; and/or (ii) the comparison of carrying value to the net selling
price of the cash generating unit; the determination of these factors require the exercise of judgement.
iii)
Impairment of inter-company receivables
The Company has intercompany loans to its subsidiary companies which are repayable on demand. As the subsidiaries
did not have sufficient highly liquid resources to repay the loans at 30 June 2019, an expected credit loss provision is
calculated under IFRS 9.
For Structural Monitoring Systems Canada Corporation, the calculation is based upon the expectation that AEM will
trade profitably in the future and that this will allow it to repay the loans in time. Forecast cash flows under a range of
possible outcomes are assessed to derive a probability-weighted value for the loan based upon the time taken to repay
the outstanding amount in full. These calculations rely on management judgements as to the future cash flow forecasts
and the probability weightings assigned. Further details on the impairment provision are set out in note 14 in the notes
to the financial statememts.
(iv)
Coronavirus (COVID-19) pandemic
Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may
have, on the Group entity based on known information. The consideration extends to the nature of the products and
services offered, customers, supply chain, staffing and geographic regions in which the Group operates. Other than
as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial
statements or any significant uncertainties with respect to events or conditions which may impact the consolidated entity
unfavourably as at the reporting date or subsequently as a result of the Coronavirus (COVID-19) pandemic.
As at 30 June 2020, there are no other critical accounting estimates and judgements contained in the financial report.
30
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
3.
Segment information
The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board
of Directors (chief operating decision makers) in assessing performance and determining the allocation of resources.
The Group operates predominantly in two industries, being structural health monitoring (CVM™) and the design and
manufacture of avionics and audio systems. A third segment refers to the intellectual property (IP) held in another
subsidiary of the Parent (CVM™ IP). Company overheads are recorded in the Parent enity operating in the structural
health monitoring segment (CVM™).
Revenue to third parties by origin is Canada (for Avionics/audio) segment and Australia for (CVM™ segment). The
Parent Company is registered in the UK.
The following tables present revenue, expenditure and certain asset information regarding geographical segments for
the years ended 30 June 2020 and 30 June 2019:
Year ended 30 June 2020
Revenue
Sale of goods
Rendering of services
Total sales revenue
Other income
Interest revenue
FX gains/(losses)
Total segment revenue
Sales revenue by customer location
Australasia
Africa
Europe
Americas
Total sales revenue
Result
EBITDA*
Depreciation and amortisation
Interest revenue
Finance costs
Profit/(loss) before income tax expense
Income tax expense
Profit/(loss) for the year
Assets and liabilities
Segment assets - current
Segment assets - non current
CVMTM IP
Avionics/
audio
CVMTM
Total
$000’
$000’
$000’
$000’
-
-
-
73
3
(13)
63
-
-
-
-
-
(444)
-
3
(6)
(447)
-
(447)
821
-
821
17,183
1,900
19,083
-
-
164
19,247
42
57
1,892
17,092
19,083
12
-
12
-
-
(1)
11
-
-
-
12
12
17,195
1,900
19,095
73
3
150
19,321
42
57
1,892
17,104
19,095
4,178
(1,013)
(4,725)
(991)
(39)
(1,052)
-
(17)
3,148
(477)
2,671
10,909
3,702
14,611
-
(9)
3
(32)
(4,773)
(2,072)
-
(477)
(4,773)
(2,549)
1,291
4
1,295
13,021
3,706
16,727
31
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
3.
Segment information (continued)
Segment liabiities - current
Segment liabiities - non current
CVMTM IP Avionics/audio
2,434
78
CVMTM
364
Total
2,876
$000’
-
$000’
432
$000’
18
$000’
450
78
2,866
382
3,326
Other segment information
Capital expenditure
Depreciation
Amortisation
Year ended 30 June 2019
Revenue
Sale of goods
Rendering of services
Total sales revenue
Other income
Interest revenue
FX gains/losses
Total segment revenue
Sales revenue by customer location:
Australasia
Africa
Europe
Americas
Total sales revenue
Result
EBITDA*
Depreciation and amortisation
Interest revenue
Finance costs
Profit/(loss) before income tax expense
Income tax expense
Loss for the year
Assets and liabilities
Segment assets - current
Segment assets - non current
Segment liabilities - current
Segment liabilities - non current
Other segment information
Capital expenditure
Depreciation
Amortisation
-
-
-
-
-
-
32
10
40
82
-
-
-
-
-
(5,556)
(2)
10
(121)
(669)
-
(669)
1,063
3
1,066
475
-
475
-
1
-
3
78
6
591
422
7
15,027
1,258
16,285
-
-
(57)
16,228
215
4
1,459
14,607
16,285
2,364
(660)
-
(27)
1,677
(401)
1,276
10,505
4,221
14,726
2,776
450
3,226
230
259
402
-
39
-
95
-
95
-
-
-
1
78
6
630
422
1
15,122
1,258
16,380
32
10
(17)
95
16,405
-
-
-
95
95
215
4
1,459
14,702
16,380
(4,635)
(2,827)
-
-
-
(4,635)
-
(4,635)
578
-
578
291
-
291
-
-
-
(662)
10
(148)
(3,626)
(401)
(4,027)
12,146
4,224
16,370
3,542
450
3,992
230
260
402
32
*EBITDA is profit before income tax expense, depreciation, amortisation, finance income and finance costs
Notes to the Financial Statements
For the Year Ended 30 June 2020
3.
Segment information (continued)
Major customers
Structural Monitoring Systems Plc
During the year ended 30 June 2020 approximately $9.828m (2019: $8.2m) of the Group’s sales revenue was derived from
sales to a single US aircraft and parts company.
Revenue
In accordance with IFRS 15, the group’s revenue of $19.095m (2019: $16.380m) is made up of revenue from customers only
and does not include any other revenue. Goods and services are transferred at a point in time, not over time, as detailed in
the group’s revenue recognition policy.
The Group does not have any contract assets or contract liabilities at 30 June 2020 ($nil at 30 June 2019) as the group does
not fulfil any of its performance obligations in advance of invoicing to its customer or bill in advance for work performed. The
Group however does have contractual balances in the form of trade receivables.
The Group also does not have any contractual costs capitalised at 30 June 2020 ($nil at 30 June 2019) or have any outstanding
performance obligations at 30 June 2020 ($nil at 30 June 2019).
4.
Income and expenses
Income
Other income
Refunds
Sub-lease income
Finance income/(costs)
Foreign exchange gains/(losses)
Bank interest
Interest and finance charges payable on borrowings
Interest and finance charges payable on lease liabilities
Analysis of expenses by nature
Employee renumeration (see note 5)
Intangible assets
Amortisation of other intangible assets
Property, plant and equipment
Depreciation of plant and equipment
Depreciation of ROU assets
Total depreciation and amortisation
Operating leases
Consumables and raw materials used
Provision for obsolescence
Freight
Auditor’s remuneration (see note 29)
Impairment charges
Share-based payments expense (see note 23)
Research and develpment
Other costs of sales, distribution and administration
Consolidated
Parent
2020
2019
2020
2019
$000’
$000’
$000’
$000’
-
73
73
150
3
(2)
(30)
(121)
32
-
32
(17)
10
(148)
-
(155)
-
73
73
(1)
-
(2)
(7)
(10)
-
-
-
-
-
-
-
-
5,277
4,058
1,075
900
422
272
358
630
1,052
-
9,169
45
249
232
-
1,952
345
3,040
401
261
-
261
662
367
9,351
65
215
209
-
2,031
417
2,508
21,361
19,884
-
2
37
39
39
-
-
-
-
105
446
1,952
-
1,013
4,630
-
-
-
-
-
58
91
-
-
72
125
2,031
156
1,122
4,556
33
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
4.
Income and expenses (continued)
Impairment charges relate to loans to subsidiary undertakings which are written down to the net asset values of those
entities excluding the loans at the reporting date.
5.
Employees and directors
The average number of employees and directors employed by the Group during the year was:
Consolidated
Parent
2020
2019
2020
2019
$000’
$000’
$000’
$000’
Employee and directors’ numbers
Production
Research
Selling and distribution
Administration (including directors)
Employee remuneration
Wages and salaries
Social security costs
Defined contribution costs
Total employee costs
Share-based payments
Consolidated
Parent
2020
No.
2019
No.
2020
No.
2019
No.
72
19
14
17
122
70
17
13
11
111
-
-
4
7
11
-
-
5
4
9
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
4,624
3,501
1,075
404
249
5,277
1,952
7,159
332
225
4,058
2,032
6,090
-
-
1,075
1,952
2,958
890
-
10
900
2,032
2,932
Wages and salaries, include Directors’ fees and other employee costs amounting to $0.961m, were settled via the issue
of Performance Rights.
Directors remuneration
Directors’ fees, including superannuation, of $0.569m (2019: $0.410m) are included in employee expenses in the
Statement of Profit and Loss and Other Comprehensive Income. Directors’ share-based payments of $0.757m (2019:
$0.597m) are included in share-based payments in the Statement of Profit or Loss and other comprehensive income.
Refer to the Remuneration report in the Director’s report for further details. This also includes details of the highest paid
director.
34
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
6.
Income tax
The major components of income tax expense for
the years ended 30 June 2020 and 30 June 2019 are:
a) Income tax expense reported in Statement of Profit or Loss
and Other Comprehensive Income
Current tax expense
Deferred tax
Income tax expense reported in statement of
comprehensive income
A reconciliation of income tax expense/(benefit) applicable to
accounting loss before income tax at the statutory income tax
rate to income tax expense at the effective income tax rate for
the years ended 30 June 2020 and 30 June 2019 is as follows:
Accounting loss before tax from continuing operations at the
statutory income tax rate of 27.50%
(2019: 27.50%)
Expenses not assessable for income tax purposes
Deferred tax not recognised
Income tax expense reported in Statement of Profit or Loss
and Other Comprehensive Income
Deferred tax (assets)/liabilities
Deferred tax assets and liabilities are attributable to the following:
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
521
(44)
477
408
(8)
400
-
-
-
-
-
-
(2,072)
(3,627)
(4,683)
(4,461)
(570)
(9,997)
(1,288)
(1,227)
644
(551)
(477)
3,871
3,951
3,748
(3,274)
(2,663)
(2,521)
(400)
-
-
Accrued expenses
Tax losses
63
112
11,525
11,718
(25)
2,626
(3)
2,101
Deferred tax not recognised
(11,589)
(11,830)
(2,601)
(2,098)
Potential deferred tax assets attributable to tax losses have not been brought to account at 30 June 2020 because the
directors do not believe it is appropriate to regard realisation of the deferred tax assets as probable at this point in time.
These benefits will only be obtained if:
i. the Group derives future assessable income of a nature and of an amount sufficient to enable the benefit from
the deductions for the loss to be realised;
ii. the Group continues to comply with conditions for deductibility imposed by law; and
iii. no changes in legislation adversely affect the Group in realising the benefit from the deductions for the loss.
35
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
6.
Income tax (continued)
2020
Recognised deferred tax liabilities
Movement in deferred tax liabilities during the year:
Brought forward
Charge to Statement of Profit or Loss and Other
Comprehensive Income
Carried forward
2019
Recognised deferred tax liabilities
Movement in deferred tax liabilities during the year:
Brought forward
Charge/(credit) to Statement of Profit or Loss and Other
Comprehensive Income
Carried forward
7.
Earnings per share
Business
combination
Tax losses
Other timing
difference
$000’
$000’
$000’
Total
$000’
597
(44)
553
-
-
-
(147)
(9)
(156)
450
(53)
397
Business
combination
Tax losses
Other timing
difference
$000’
$000’
$000’
Total
$000’
708
(111)
597
(107)
107
-
(137)
(10)
(147)
464
(14)
450
Basic earnings per share amounts are calculated by dividing net loss for the year attributable to ordinary equity holders
of the parent by the weighted average number of ordinary shares outstanding during the year.
The number of options at 30 June 2020 was nil (2019: nil) and the number of performance rights at 30 June 2019 was
4,082,270 (2019: 3,075,000). Of those performance rights 1,007,270 were exercisable at 30 June 2020 but have been
excluded from the diluted earnings per share calculation on the basis they are anti-dilutive.
The following reflects the income and share data used in the total operations basic loss per share computations:
Net loss attributable to equity holders from continuing
operations
Consolidated
2020
$000’
2019
$000’
(2,549)
(4,027)
Weighted average number of ordinary shares for basic loss per
share
Weighted average number of ordinary shares for diluted loss
per share
Number of shares
Number of shares
116,500,559
114,886,601
116,500,559
114,866,601
36
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
8.
Current assets – Trade receivables
Trade receivables
9.
Current assets – Prepayments and other receivables
Prepayments
Bank guarantee
Other receivable
GST receivable
Deposits
Bank guarantee held in security for a premises lease
10.
Current assets - Inventory
Raw materials
Work in progress
Finished goods
Provision for obsolescence
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
2,991
3,334
2,991
3,334
3
3
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
134
222
66
90
30
43
66
-
65
8
19
-
89
-
8
-
-
9
-
-
-
8
363
361
116
17
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
3,988
1,089
2,204
(159)
7,122
3,496
1,335
1,443
(114)
6,160
-
-
184
-
184
-
-
-
-
-
37
Notes to the Financial Statements
For the Year Ended 30 June 2020
11.
Non-current assets – Property, plant and equipment
Consolidated
Balance at 1 July 2019
Additions
Depreciation expense
Effect of FX movement on balances
Balance at 30 June 2020
Balance at 1 July 2018
Additions
Depreciation expense
Effect of FX movement on balances
Balance at 30 June 2019
12.
Non-current assets – Right-of-use assets
Consolidated
Land and buildings – right-of-use
Less: Accumulated depreciation
Motor vehicle – right-of-use
Less: Accumulated depreciation
Structural Monitoring Systems Plc
Leasehold
improvements
Plant and
equipment
$000’
$000’
Total
$000’
92
12
(30)
(1)
73
113
2
(29)
6
92
448
75
(272)
18
269
424
228
(231)
27
448
540
87
(302)
17
342
537
230
(260)
33
540
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
454
(303)
151
17
(5)
12
163
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Group leases land and buildings for its offices and a manufacturing facility under agreements of between 6 months
and 15 months.
The Group also leases a motor vehicle under a 3 year agreement.
38
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
13.
Non-current assests – Intangible assets and goodwill (continued)
Goodwill Certifications
Licence
agreement
Technology
Total
$000’
$000’
$000’
$000’
$000’
1,387
-
88
1,475
1,013
(232)
57
838
92
(21)
5
76
1,361
(148)
82
1,295
3,853
(401)
232
3,684
Consolidated
Balance at 30 June 2018
Amortisation expense
Effect of FX on balances
Balance at 30 June 2019
Intangible assets
Certifications
AEM possesses distinct aircraft manufacturing and maintenance certifications, which are requisite to the sale and
maintenance of their products in key markets.
Licence agreement
AEM has a licence agreement in place with one of their key customers to be the producer and seller of certain aircraft
instruments. This has identifiable cash flows in the form of future sales to aircraft manufacturing and maintenance
providers who require these instruments.
Technology
AEM has developed proprietary aircraft parts and manufacturing technology which are expected to continue to yield
future sales. This intellectual property is seperable and identifiable to the extent that it could be licensed or acquired. In
addition, there are identifiable future benefits in the form of cash flows from the sale of the resulting products to
AEM customers.
Amortisation
The amortisation period applied to the intangible assets are as follows:
Certifications – 5 years, remaining amortisation period is 3.5 years
Licence agreement – 5 years, remaining amortisation period is 3.5 years
Technology – 10 years, remaining amortisation period is 8.5 years
Impairment testing
Goodwill of $1.444m acquired through business combinations has been allocated to the AEM cash generating unit
(2019: $1.402m).
The impairment test has been carried out using a discounted cash flow model covering a 5 year period. Cash flow
projections are based on a budget for 2020/2021 approved by management and extrapolated for a further 4 years using
a steady rate, together with a terminal value, approved by management. The principal assumptions made in determining
the recoverable amount of goodwill as at 30 June 2020 include revenue growth of 4-6% per annum from 2022, EBITDA
margin of 14% (2019: 14%) and a discount rate of 14.1% (2019: 16.3%).
If the revised estimated pre-tax discount rate applied to the discounted cash flows had been 10% less favourable in
management’s estimate the Group would need to reduce the carrying value of goodwill by $nil (2019: $nil).
If the EBITDA margin applied to the discounted cash flows had been 10% less favourable in management’s estimate the
effect on the Group would have been to reduce the carrying value of goodwill by $nil (2019: $nil).
The same reduction of $nil (2019: $nil) applies if revenues had been 10% less favourable.
Management believes that other reasonable changes in the key assumptions on which the recoverable amount of
AEM’s division’s goodwill is based would not cause the cash generating unit’s carrying amount to exceed its recoverable
amount.
39
Notes to the Financial Statements
For the Year Ended 30 June 2020
14.
Non-current assets/(liabilities) - Loans
Company
Year ended 30 June 2020
Cost
At 1 July 2019
Arising during the year
At 30 June 2020
Impairment
At 1 July 2019
Impairment charge
Net carrying amount at 30 June 2020
Year ended 30 June 2019
Cost
At 1 July 2018
Arising during the year
At 30 June 2019
Impairment
At 1 July 2018
Impairment charge
Net carrying amount at 30 June 2019
Company
Year ended 30 June 2020
Cost
At 1 July 2019
Received during the year
Net carrying amount at 30 June 2020
Year ended 30 June 2019
Cost
At 1 July 2018
Received during the year
Net carrying amount at 30 June 2019
Structural Monitoring Systems Plc
Loans to
subsidiary
undertakings
$000’
Total
$000’
22,990
24
23,014
22,990
24
23,014
(11,171)
(11,171)
(446)
(446)
(11,617)
(11,617)
11,397
11,397
24,571
(1,581)
22,990
(11,046)
(125)
(11,171)
11,819
24,571
(1,581)
22,990
(11,046)
(125)
(11,171)
11,819
Loans from
subsidiary
undertakings
Total
$000’
$000’
305
616
921
-
305
305
305
616
921
-
305
305
Loans to/from subsidiaries are unsecured, have no fixed date for repayment and attract no interest charge. As the
parent does not intend to call in the loans within the next 12 months the loans to subsidiaries are classified as non-
current assets.
40
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
14.
Non-current assets/liabilities - Loans (continued)
See Note 25 for further details on impairment of intercompany receivables. The consolidated financial statements include
the financial statements of the Company and the subsidiaries listed in the following table:
Structural Monitoring Systems Limited
Registered office:
Suite 116, 1 Kyle Way
Claremont WA 6010
Australia
Structural Health Monitoring Systems Canada Corp (SMSCC)
Registered office:
Unit 15, 1925 Kirschner Road
Kelowna BC Canada
Anodyne Electronics Manufacturing Corp (AEM)
Registered office:
Unit 15, 1925 Kirschner Road
Kelowna BC Canada
15.
Current liabilities – Trade and other payables
Trade payables
Taxes payable – HST, payroll tax
Accrued royalty fees plus interest
Other payables
Country of
Incorporation
Type of
equity
% Equity Interest
2020
2019
Australia
Ordinary
share
100
100
Canada
Ordinary
share
100
100
Canada
Ordinary
share
100
100
Consolidated
Parent
2020
$000’
2019
$000’
2020
2019
$000’
$000’
602
14
-
888
1,504
950
27
390
1,216
2,583
18
-
-
227
245
204
-
-
87
291
Trade payables are non-interest bearing and are normally settled within 30 day terms. Other payables are non-interest
bearing and have an average term of 42 days.
41
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
16.
Current liabilities - Borrowings
Credit card
Overdraft - secured
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
39
441
480
-
729
729
-
-
-
-
-
-
AEM has a secured overdraft facility with a banking institution. The facility has a limit of CAD$3million (2019:CAD$2million)
secured on trade receivables and inventory. The variable interest rate on the facility is 3.45%.
17.
Current liabilities - Deposits
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
Deposit held pending issue of shares
43
18.
Lease liabilities
Balance at 1 July 2019
Interest charged
Repayments during the year
Effect of foreign exchange on balances
Closing balance
Spilt between
Current
Non-current
19.
Current liabilities – Tax payable
Provision for income tax
-
-
-
-
-
-
-
-
-
43
-
Parent
2020
$000’
2019
$000’
168
7
(81)
-
94
75
19
94
-
-
-
-
-
-
-
-
Consolidated
2020
$000’
2019
$000’
618
35
(414)
23
262
208
54
262
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
640
230
-
-
42
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
20 (a). Reconciliation of the net loss after tax to the net cash flows from operations
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
Loss before tax for the year
(2,072)
(3,626)
(4,683)
(4,461)
Adjustments for:
Loss on debt for equity swap
Share based payments
Directors fees and other employee costs settled via
performance rights
Depreciation and amortisation
Impairment of investments in subsidiaries
Changes in assets and liabilities
Trade receivables
Prepayments and other receivables
Inventory
Trade and other payables
127
1,952
936
1,052
-
-
2,031
-
662
-
343
(2)
(962)
(1,032)
(467)
(76)
(1,450)
1,121
127
1,883
936
39
446
(3)
(99)
(184)
(33)
-
2,031
-
-
125
-
(17)
-
244
Net cash provided by/(used in) operating activities
342
(1,805)
(1,435)
(2,078)
20 (b). Cash and cash equivalents
Cash at bank
Cash on hand
Credit card
Overdraft
21.
Changes in liabilities arising from financing activities
Consolidated
Balance at 1 July 2019
Transition to IFRS 16 adjustment
Net cash used in fiancing activities
Acquisition of leases
FX movement
Balance at 30 June 2020
2,544
2,290
1
(39)
(441)
2,065
1
-
(729)
1,562
-
-
-
-
-
Lease
liabilitiy
$000’
-
-
-
-
-
618
(386)
17
13
262
43
20 (a). Reconciliation of the net loss after tax to the net cash flows from operations
22.
Employee benefits
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
(a) Employees incentive plan
On 11 December 2018 shareholders approved the Employee Incentive Plan (EIP) for the granting of non-transferable
shares or performance rights (PRs) to directors, employees and relevant contractors with more than six months’ service
at the grant date. The shares vest immediately and the PRs vest upon the satisfaction of the relevant performance
hurdles within 3 years of issue. Under the plan shares will be offered at a 12.5% discount to the lowest 5 day VWAP
(calculated by taking the lowest 5 daily share price VWAPs for that quarter – and taking the average). 2,105,157 shares
were issued to employees under the plan during the reporting period. Full details of issues during the year can be found
in note 23 Share-based payments.
(b) Pensions and other post-employment benefit plans
AEM maintains a defined contribution pension plan for its’ employees. AEM contributes 5% of salary to the Plan.
Employees must be employed with the company for 12 months before they are entitled to the benefit. There are
currently 78 employees participating in the plan. Contributions are paid monthly and recognised in the Statement of
comprehensive income totalling $0.404m (2019: $0.332m). Contributions of $0.044m (2019: $0.027m) are outstanding
at 30 June 2020.
23.
Share-based payments
The share-based payment expense for the year is as follows:
Issue of performance rights to directors and executives
Issue of shares to directors and executives
Issue of performance rights to other consultants
Issue of performance rights to eligible staff under EIP
Performance Rights - Directors
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
1,275
-
162
515
988
57
85
901
1,275
-
162
515
988
57
85
901
1,952
2,031
1,952
2,031
On 12 December 2019 shareholders approved the issue of 150,000 Performance Rights (PRs) as remuneration to Will
Rouse and the issue of 210,000 PRs as remuneration to Stephen Forman, both Directors of the Company, under the
Company Employee Incentive Plan (EIP).
All Director PRs are subject to continued services with the Company and tranches 4, 5 and 6 vest based on the
attainment of share price barriers within 2 years of the issue date. In the case of Steve Forman, PRs are subject to his
continued employment for two years from grant date. Tranches 8, 9 and 10 were granted to Stephen Forman in lieu
of directors’ fees. Tranche 7 is an annual award of 60,000 PRs to Steven Forman in accordance with his contract of
employment.The sole vesting condition for Will Rouse is continued employment as director to the respective vesting
dates, December 2019 to December 2020.
44
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
23.
Share-based payments (continued)
The following Director PRs were granted as remuneration during the year:
Director
W Rouse
S Forman
Fair value at grant date
($)
Total valuation over
vesting period ($)
Tranche
1
Tranche
2
Tranche
3
Tranche
4
Tranche
5
Tranche
6
Tranche
7
Tranche
8
Tranche
9
Tranche
10
50,000
50,000
50,000
-
-
-
-
-
-
-
-
-
- 50,000
50,000
50,000 60,000 14,328 21,490 21,490
1.009
1.009
1.009
0.695
0.529
0.41
1.009
1.009
1.009
1.009
50,450
50,450
27,543
9,589
7,299
5,657 60,540 14,457 21,683 21,683
The Black-Scholes pricing model was used in the valuations of performance rights issued during the year, except for
tranches 4, 5 and 6 which were measured using the trinomial option pricing model.
Volatility is determined by calculating the standard deviation of the closing price annualised over the period of time equal
to that of the term of the PR prior to grant date. It shows the range to which the share price will increase or decrease over
the term of the performance period.
Also on 12 December 2019 shareholders approved the issue of 514,859 PRs to directors in lieu of fees for the year to
30 June 2020. The fair value of the PRs granted to directors, executives and staff in lieu of fees was $0.520m. The loss
on swap of equity for debt of $0.127m was recorded through the statement of profit or loss and other comprehensive
income.
Performance Rights – Executive
On 18 November 2019 the Board granted 75,000 PRs to an executive under the EIP. The PRs have a fair value of
$0.070m determined by the closing share price on grant date.
The same executive was granted 318,933 PRs in lieu of fees for the period to 31 March 2020. The fair value of $0.219m
was determined by the closing share price on grant date.
Performance Rights - Consultants
On 18 November 2019 The Board granted the issue of 75,000 PRs to 2 consultants under the EIP. The PRs have a fair
value of $0.070m determined by the closing share price on grant date.
In addition to directors and executives, 2 other consultants elected to receive PRs in lieu of fees during the year. A total
of 333,074 PRs were issued and the fair value of $0.244m was determined by the closing share price on grant date.
The number of performance rights that were outstanding, their weighted average exercise price and their movement
during the year is as follows:
At 1 July 2019
Granted
Exercised
Forfeited
At 30 June 2020
Exercisable at 30 June 2020
Weighted ave ex price
2020
No.
2019
No.
2020
$
2019
$
3,075,000
2,625,000
2.75
1,722,447
(715,177)
-
450,000
-
-
-
-
-
2.71
3.00
-
-
4,082,270
3,075,000
2.07
2.75
1,007,270
-
- -
-
The contractual term remaining on performance rights outstanding at 30 June 2020 is 12 months (2019: 18 months).
45
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
23.
Share-based payments (continued)
The outstanding number of performance rights at 30 June 2020 and 30 June 2019 was as follows:
Exercise price $
Grant date
Expiry date
2020 No.
2019 No.
$0.001
$0.001
$0.001
$0.001
$2.00
$2.50
$3.00
$3.25
$3.50
$3.75
$2.00
$2.50
$3.00
$3.25
$3.50
$3.75
$2.00
$2.20
$2.50
$2.75
$3.00
$3.15
$3.25
$3.50
$3.75
$4.00
7 April 2020
7 April 2023
18 November 2019 18 November 2022
12 December 2019 12 December 2022
3 October 2019
3 October 2022
15 August 2018
15 August 2021
15 August 2018
15 August 2021
15 August 2018
15 August 2021
15 August 2018
15 August 2021
15 August 2018
15 August 2021
15 August 2018
15 August 2021
15 April 2018
15 April 2018
15 April 2018
15 April 2018
15 April 2018
15 April 2018
15 April 2021
15 April 2021
15 April 2021
15 April 2021
15 April 2021
15 April 2021
7 December 2017
7 December 2020
7 December 2017
7 December 2020
7 December 2017
7 December 2020
7 December 2017
7 December 2020
7 December 2017
7 December 2020
7 December 2017
7 December 2020
7 December 2017
7 December 2020
7 December 2017
7 December 2020
7 December 2017
7 December 2020
7 December 2017
7 December 2020
143,055
78,296
754,271
31,648
25,000
25,000
25,000
25,000
25,000
25,000
50,000
50,000
50,000
50,000
50,000
50,000
600,000
450,000
250,000
400,000
150,000
150,000
100,000
175,000
225,000
125,000
-
-
-
-
25,000
25,000
25,000
25,000
25,000
25,000
50,000
50,000
50,000
50,000
50,000
50,000
600,000
450,000
250,000
400,000
150,000
150,000
100,000
175,000
225,000
125,000
1,007,270 performance rights were issued during the year and are exercisable at 30 June at no cost.
Shares issued to eligible staff and consultants under EIP
4,082,270
3,075,000
No. issued
Grant date
Issue price
Share price
at grant date
Share-based
payment charge
291,347
597,499
1,216,311
2,105,157
$
$
$000’
19/8/2019
13/12/2019
21/4/2020
0.60
0.59
0.45
0.885
0.885
0.450
Details of the EIP are included in Note 22. Employee benefits
83
175
188
446
46
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
24.
Issued capital and reserves
Ordinary Shares
On issue 118,382,619,
(2019: 115,562,285) par value £0.005
Issued and fully paid
Total issued and fully paid
Movement in ordinary shares in issue
At 30 June 2018
Issued on 14 August 2018 – share-based payments
Issued on 6 March 2019 – share-based payments
Issued on 6 March 2019 – share-based payments
At 30 June 2019
Issued on 26 August 2019* – CDIs issued
Issued on 20 Dec 2019* – CDIs issued
Issued on 21 April 2020* – CDIs issued
Issued on 17 April 2020 – conversion of PRs
Consolidated Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
31,946
31,946
31,932
31,932
31,946
31,946
31,932
31,932
Shares on issue
(No.)
$000’
114,398,645
31,927
450,000
274,679
438,961
2
1
2
115,562,285 31,932
291,347
597,499
1,216,311
715,177
1
3
6
4
At 30 June 2020
118,382,619
31,946
*Chess depositary interests (CDIs) issued to employees at below market price.
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in
proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and
the company does not have a limited amount of authorised capital
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.
47
Ordinary Shares
On issue 118,382,619,
(2019: 115,562,285) par value £0.005
Issued and fully paid
Total issued and fully paid
31,946
31,946
31,932
31,932
31,946
31,946
31,932
31,932
Notes to the Financial Statements
For the Year Ended 30 June 2020
24.
Issued capital and reserves (continued)
Structural Monitoring Systems Plc
2020
$000’
2019
$000’
2020
$000’
2019
$000’
Share Premium Reserve
Share Premium Reserve
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
35,967
35,106
35,967
35,106
Movement in ordinary shares in issue
At 1 July 2018
Issued on 14 August 2018 – share-based payments
Issued on 7 March 2019 – share-based payments
Issued on 7 March 2019 – share-based payments
Share issue - costs
At 30 June 2019
Issued on 26 August 2019* – CDIs issued
Issued on 20 Dec 2019* – CDIs issued
Issued on 21 April 2020* – CDIs issued
Issued on 17 April 2020 – conversion of PRs
Share issue - costs
At 30 June 2020
*Chess depositary interests (CDIs) issued to employees at below market price.
Shares on issue
(No.)
$000’
114,398,645
34,919
450,000
274,679
438,961
-
-
203
-
(16)
115,562,285
35,106
291,347
597,499
1,216,311
715,177
-
175
351
347
-
(12)
118,382,619
35,967
Other Reserves
Foreign currency translation reserve
Share-based payment reserve
Share-based payment reserve
Outstanding at 30 June 2018
Grant of PRs – 29 December 2017
Grant of PRs – 7 August 2018
Expiry of options – 15 February 2019
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
(1,976)
3,492
(1,703)
1,586
(2,271)
3,492
(2,271)
1,586
Unlisted options
on issue*
Performance
rights on issue
(PRs)
No.
No .
$000’
1,829,136
2,625,000
-
-
(1,829,136)
-
450,000
-
513
956
117
-
Outstanding at 30 June 2019
* 1,829,136 options with an exercise price of $2.25 expired on 15 February 2019.
Grant of PRs – 29 December 2017
Grant of PRs – 7 August 2018
Grant of PRs – 4 October 2019
Grant of PRs – 18 November 2019
Grant of PRs – 12 December 2019
Grant of PRs – 2 April 2020
Conversion of PRs – 17 April 2020
Outstanding at 30 June 2020
-
-
-
-
-
-
-
-
-
3,075,000
1,586
-
-
120,986
317,340
874,859
409,262
(715,177)
4,082,270
959
106
114
407
679
194
(553)
3,492
48
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
24.
Issued capital and reserves (continued)
Nature and purpose of reserves
Share premium reserve
The share premium reserve is used to record increments in the value of share issues when the issue price per share is
greater than the par value. The par value of shares is currently £0.005 (2019: £0.005). Costs of the issues are written
off against the reserve.
Share-based payment reserve
The share-based payment reserve is used to record the value of equity benefits provided to employees and directors as
part of their remuneration, or to other parties in lieu of cash compensation.
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the
financial statements of the company.
Reserves classified on the face of the consolidated statement of financial position as retained earnings represent
accumulated earnings and are distributable. All the other reserves are non-distributable.
Accumulated losses
Reserves classified on the face of the consolidated statement of financial position as accumulated losses are distributable.
All other reserves are non-distributable.
25.
Financial risk management objective and policies
Financial risk management
Overview
The Company and Group have exposure to the following risks from their use of financial instruments:
o
o
o
Market risk, including foreign currency risk, price risk and interest rate risk
Credit and cashflow risk
Liquidity risk
This note presents information about the Company’s and Group’s exposure to each of the above risks, their objectives,
policies and processes for measuring and managing risk, and the management of capital.
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework.
49
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
25.
Financial risk management objective and policies (continued)
Risk management policies are established to identify and analyse the risks faced by the Company and Group, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems
are reviewed regularly to reflect changes in market conditions and the Company’s and Group’s activities.
The Board of Directors oversees how management monitors compliance with the Company’s and Group’s risk
management policies and procedures and reviews the adequacy of the risk management framework in relation to the
risks faced by the Company and Group.
The Company and the Group's principal financial instruments are cash, receivables, borrowings and payables. The
financial assets are categorised as loans and receivables measured at amortised cost and the financial liabilities are
categorised as other financial liabilities measured at amortised cost.
Interest rate risk
Interest rate risk is the risk that the value of a financial instrument or cash flows associated with the instrument will
fluctuate due to changes in market interest rates. Interest rate risk arises from fluctuations in interest bearing financial
assets and liabilities that the group uses.
Interest bearing assets comprise cash and cash equivalents which are considered to be short-term liquid assets. It is
the Group's policy to settle trade payables within the credit terms allowed and therefore not incur interest on overdue
balances.
Interest bearing liabilities include a bank overdraft facility secured on trade receivables. At the date of issue of this report
the facility has been repaid.
Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) equity and profit
or loss by the amounts shown below. The analysis is performed on the same basis as 2019.
Consolidated - 30 June 2020
Carrying value at
year end
100bp
increase
100bp
decrease
100bp
increase
100bp
decrease
Profit or loss
Equity
Cash and cash equivalents
Borrowings
Consolidated – 30 June 2019
Cash and cash equivalents
Borrowings
Credit and cash flow risk
$000’
2,545
(480)
2,291
(729)
$000’
26
(5)
21
23
(7)
16
$000’
(26)
5
(21)
(23)
7
(16)
$000’
26
(5)
21
23
(7)
16
$000’
(26)
5
(21)
(23)
7
(16)
Credit and cash flow risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument
fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers.
50
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
25.
Financial risk management objective and policies (continued)
The Group trades only with recognised, creditworthy third parties. In addition, receivable balances are monitored on an
ongoing basis with the result that the Group’s exposure to bad debts is not significant.
With respect to credit and cash flow risk arising from the other financial assets of the Group, which comprise cash
and cash equivalents, the Group’s exposure to credit and cash flow risk arises from default of the counter party, with a
maximum exposure equal to the carrying amount of these instruments. This risk is minimised by reviewing term deposit
accounts from time to time with approved banks of a sufficient Fitch Ratings credit rating of at least A-, Moody’s credit
rating of at least A2, and Standard & Poor’s credit rating of at least A-. The Group does not place funds on terms longer
than 30 days and has the facility to place the deposit funds with more than one bank. The Group does not hold collateral
as security for any of its’ receivables.
The Company has exposure to credit and cash flow risk arising from the making of loans to subsidiaries. The loans carry
no interest rate or date for repayment. Loans are impaired to the carrying value of the subsidiarys’ assets.
The Group and Company undertake the following procedures to determine whether there has been a significant
increase in the credit risk of its other receivables, including group balances, since their initial recognition. Where these
procedures identify a significant increase in credit risk, the loss allowance is measured based on the risk of a default
occurring over the expected life of the instrument rather than considering only the default events expected within 12
months of the year-end.
The Group and Company have not determined that credit risk has increased during the year in respect of the Group’s
trade receivables.
Exposure to credit and cash flow risk
The carrying amount of the Group’s financial assets and liabilities represents the maximum credit exposure. The Group’s
maximum exposure to credit and cash flow risk at the reporting date was:
Cash and cash equivalents
Trade receivables
Loans to subsidiaries
Consolidated
Parent
Carrying amount
Carrying amount
2020
$000’
2019
$000’
2020
$000’
2019
$000’
2,545
2,991
-
2,291
3,334
-
3
-
-
11,397 11,819
-
5,536
5,625
11,400
11,819
The Group’s maximum exposure to credit and cash flow risk for trade receivables and cash and cash equivalents at
the reporting date by geographic region was:
Europe
Americas
Australasia
Other
Consolidated
Parent
Carrying amount
Carrying amount
2020
$000’
2019
$000’
2020
$000’
2019
$000’
502
4,259
720
55
759
3,858
932
76
5,536
5,625
-
-
-
-
-
-
-
-
-
-
Trade receivables at 30 June 2020 represent 57 debtors days (2019: 74 debtor days).
There were no trade receivables impairment losses at 30 June 2020 (2019: $nil).
No expected credit loss provision in respect of trade receivables has been recognised on the basis this is immaterial.
The expected credit loss rate applied has been calculated based on historical recovery rates of low bad debt write offs.
This is also supported by strong post year end collection of cash.
51
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
25.
Financial risk management objective and policies (continued)
Impairment of company receivables from subsidiaries
The Company’s group receivables represent trading balances and loan amounts advanced to other group companies
with no fixed repayment dates. Under IFRS 9 the fair value of this intercompany receivable is repayable on demand to
the Company.
The Company was due the following amounts as at 30 June 2020 before the recognition of any impairment loss
provisions:
Gross
Impairment
Carrying value at 30 June 2020
SMS Ltd
SMSCC
$000’
$000’
Total
$000’
12,360
(11,617)
10,654
-
743
10,654
23,014
(11,617)
11,397
In respect of the balance due from Structural Monitoring Systems Limited (SMS Ltd), the Company did not have
sufficient liquid resources at 30 June 2020 to repay the loan in full. An impairment loss provision has been recognised
to the extent the carrying value at 30 June 2020 is covered by the recovery of net assets in the balance sheet of SMS
Ltd. This has been measured based on lifetime expected credit losses on the basis that credit risk has increased since
initial recognition.
In respect of the balance due from Structural Monitoring Systems Canada Corporation (SMSCC), the Company did not
have sufficient liquid resources at 30 June 2020 to repay the loan in full. However, on the basis that there has been no
significant increase in credit risk and the balance is expected to be recovered by the subsidiary’s trading, no impairment
loss provision has been recognised recognised on the basis that any impairment loss provision would be immaterial
(2019: $nil). This has been measured based on 12 month expected credit losses.
Credit risk
The measurement of impairment losses depends on whether the financial asset is ‘performing’, ‘underperforming’ or
‘non-performing’ based on the company’s assessment of increases in the credit risk of the financial asset since its initial
recognition and any events that have occurred before the year-end which have a detrimental impact on cash flows.
The financial asset moves from ‘performing’ to ‘underperforming’ when the increase in credit risk since initial recognition
becomes significant.
In assessing whether credit risk has increased significantly, the company compares the risk of default at the year-end
with the risk of a default when the investment was originally recognised using reasonable and supportable past and
forward-looking information that is available without undue cost.
The risk of a default occurring takes into consideration default events that are possible within 12 months of the year-
end (“the 12-month expected credit losses”) for ‘performing’ financial assets, and all possible default events over the
expected life of those receivables (“the lifetime expected credit losses”) for ‘underperforming’ financial assets.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s
approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet
its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to the Group’s reputation.
The following are the contractual maturities of financial liabilities:
Consolidated
30 June 2020
Trade and other payables
Borrowings
Lease liabilities
Carrying
amount
Contractual
cash flows
1 year or
less
More than 1
year
$000’
$000’
$000’
$000’
(1,490)
(1,490)
(1,490)
(480)
(305)
(480)
(305)
(480)
(249)
(2,275)
(2,275)
(2,219)
-
-
(56)
(56)
52
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
25.
Financial risk management objective and policies (continued)
Fair value of financial assets and liabilities
The carrying amount of financial assets and financial liabilities at amortised cost recorded by category is as follows:
Consolidated
Parent
Carrying amount
Carrying amount
2020
$000’
2019
$000’
2020
$000’
2019
$000’
Financial assets measured at amortised cost
Cash and cash equivalents
Trade receivables
Loans to subsidiary undertakings
Financial liabilities measured at amortised costs
Borrowings
Trade and other payables
Lease liabiities
Loans from subsidiary undertakings
Foreign currency risk
2,545
2,991
-
2,291
3,334
-
5,536
5,625
480
1,490
262
-
729
2,584
-
-
-
3
-
-
11,397
11,400
11,819
11,819
-
245
94
921
-
291
-
305
596
2,232
3,313
1,260
The Group undertakes sales and purchases that are denominated in foreign currency and is exposed to foreign currency
risk through foreign exchange rate fluctuations in the US dollar, Canadian dollar, the Euro and the British pound. The fair
value of the Group and Parent Company financial assets and liabilties are not materially different to their book values.
Exposure to currency risk
The Group’s exposure to foreign currency risk at reporting date was as follows, based on notional amounts:
30 June 2020
In AUD
Cash
Trade receivables
Trade and other payables
30 June 2019
In AUD
Cash
Trade receivables
Trade and other payables
AUD000’
255
3
(199)
59
CAD000’
243
USD000’
2,047
236
(544)
(65)
2,752
(685)
4,114
GBP000’
-
-
(62)
(62)
Total 000’
2,545
2,991
(1,490)
4,046
AUD000’
CAD000’
USD000’
GBP000’
Total 000’
667
-
(614)
53
182
236
(1,306)
(888)
1,442
3,098
(591)
3,949
-
-
(45)
(45)
2,291
3,334
(2,556)
3,069
53
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
25.
Financial risk management objective and policies (continued)
The Group had net assets denominated in foreign currencies of $3.987m as at 30 June 2020 (2019: net assets of
$3.016m). Based on this exposure, had the Australian dollar weakened by 10%/strengthened by 5% (2019: weakened
by 10%/strengthened by 5%) against these foreign currencies with all other variables held constant, the Group’s loss
before tax for the year would have been $0.170m higher/$0.085m lower (2019: $0.136m higher/$0.068m lower).
The Board regularly monitors the Group’s exposure to foreign exchange fluctuations.
The following significant exchange rates applied during the year:
AUD:CAD
AUD:USD
Capital risk management
Average rate
Reporting date spot rate
2020
2019
2020
2019
0.900
0.671
0.947
0.716
0.939
0.686
0.919
0.701
The Company and the Group’s objectives when managing capital are to safeguard the Company and the Group’s ability
to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to
maintain an optimal capital structure to reduce the cost of capital. The management of the Company and the Group’s
capital is performed by the Board.
Given the level of operations of the Group, the Board has a secured overdaft facility available with a credit limit of CAD$3
million. It has not made use of long term debt financing, but has instead chosen to raise additional capital by issuing
shares. The Board regularly monitors, liquidity, exchange rates, cash flow and financial assets and liabilities balances
by means of financial reports and cashflow forecasting.
None of the Group’s entities are subject to externally imposed capital requirements.
26.
Commitments and contingencies
During the year a claim for royalties was finalised by Structural Monitoring Systems Limited (“the Company”). The
Company had previously made a provision for finalisation of the claim. The amount paid including interest, was $367,652.
A further claim for royalties amounting to $435,064 including interest (2019: claim received $389,557 inc GST/interest)
has not been provided for based on the current status of the case where evidence is still not complete and therefore the
directors are satisfied the payment royalty claim is not probable at this stage of the proceedings.
At the reporting date there are no other changes to commitments or contingent liabilities.
The commitments of the Group are as follows:
Operating lease commitments
Land and buildings
Within one year
Later than one year but not later than 5 years
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
-
-
-
247
98
346
-
-
-
81
98
179
Following the adoption of IFRS 16 Leases on 1 July 2019 the Group has no operating lease commitments. Lease
liabilities are disclosed in note 19.
The Group’s subsidiary, Anodyne Electronics Manufacturing Corp (AEM), signed a new letter of intent in June 2020 for
a new office space to be built during FY2021.The company is not expected to take possession until FY2022. The lease
is for a period of ten years effective from when the premises are available to the company to commence improvement
works. The Group’s total commitment over a ten year period is CAD$6.851m.
54
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
27.
Related party disclosure
The consolidated financial statements include the financial statements of Structural Monitoring Systems Plc and the
subsidiaries listed in the following table.
Structural Monitoring Systems Ltd
Structural Monitoring Systems Canada Corp (SMSCC)
Anodyne Electronics Manufacturing Corp (AEM)
Country of
incorporation
% Equity interest
2020
2019
Australia
Canada
Canada
100
100
100
100
100
100
Structural Monitoring Systems Plc is the ultimate parent entity and is incorporated in the United Kingdom. The Company
carries on the business of developing the Group’s structural health monitoring technology.
Structural Monitoring Systems Limited is a subsidiary of the Group and is incorporated in Australia. It is the owner of the
intellectual property pertaining to the structural health monitoring technology.
SMSCC was incorporated on 24 October 2017.
Anodyne Electronics Manufacturing Corporation (AEM), was acquired by SMSCC on 8 December 2017 for a consideration
of $10,998,750.
Remuneration paid to the directors and executives, who are considered key management personnel, for the year is
disclosed in the remuneration report in the Directors’ Report.
The share-based payments charge for directors and executives for the year was $1.275m (2019: $0.988m).
The following are the amounts due to key management personnel at reporting date:
Due to executive – Toby Chandler
Due to director – Michael Reveley
Due to director – Will Rouse
Due to director – Terry Walsh
Due to director – Stephen Forman
28.
Events after the balance sheet date
2020
$000’
2019
$000’
69
-
-
-
-
56
44
30
29
-
The impact of the Coronavirus (COVID-19) pandemic is ongoing and whilst it has had no major financial impact for the
Group to 30 June 2020, it is not practicable to estimate the potential impact, positive or negative, after the reporting
date. The situation is rapidly developing and is dependent on measures imposed by the Australian and Canadian
governments and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions
and any economic stimulus that may be provided.
Other than the above no matters or circumstances have arisen since the end of the financial year which significantly
affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of
the Group in future financial years.
55
Notes to the Financial Statements
For the Year Ended 30 June 2020
Structural Monitoring Systems Plc
29.
Auditors’ remuneration
Details of the amounts paid to the auditor of the Company, RSM UK Audit LLP, and other auditors for audit and non-
audit services provided during the year are set out below.
Consolidated
Parent
2020
$000’
2019
$000’
2020
$000’
2019
$000’
Fees payable to RSM UK Audit LLP and its associates in
respect of both audit and non-audit services are as follows:
Audit services – statutory audit of parent and consolidated
accounts fees payable to the company’s auditor for the audit of
the companies annual accounts.
Audit of the accounts of subsidiaries
Other services
Audit-related assurance services
Taxation compliance services
Taxation advisory services
80
108
38
-
6
232
45
97
45
16
6
209
80
-
25
-
-
105
45
-
21
6
-
72
56
Independent auditor’s report to the members
of Structural Monitoring Systems Plc
Structural Monitoring Systems Plc
Opinion
We have audited the financial statements of Structural Monitoring Systems PLC (the ‘parent company’) and its subsidiaries
(the ‘group’) for the year ended 30 June 2020 which comprise of the group and parent company Statement of profit or
loss and other comprehensive income, group and parent company Statement of financial position, group and parent
company Statement of cash flows, group and parent company Statement of changes in equity and notes to the financial
statements, including a summary of significant accounting policies. The financial reporting framework that has been
applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the
European Union and, as regards the parent company financial statements, as applied in accordance with the provisions
of the Companies Act 2006.
In our opinion:
•
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs
as at 30 June 2020 and of the group’s and parent company’s loss for the year then ended;
the financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
•
•
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the
financial statements section of our report. We are independent of the group and parent company in accordance with
the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical
Standard as applied to SME listed entities and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you
where:
•
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not
appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast
significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis
of accounting for a period of at least twelve months from the date when the financial statements are authorised
for issue.
•
Summary of our audit approach
Key audit matters
Group
Impairment of goodwill and intangible assets
Valuation of inventory
•
•
Parent Company
We have not identified any additional key audit matters in respect of the company statement
financial statements.
Materiality
Group
•
•
Overall materiality: $139,000 (2019: $143,000)
Performance materiality: $104,000 (2019: $107,000)
Parent Company
•
•
Overall materiality: $69,000 (2019: $114,000)
Performance materiality: $51,700 (2019: $85,500)
Scope
Our audit procedures covered 100% of revenue, 100% of total assets and 100% of loss before
tax.
57
Independent auditor’s report to the members
of Structural Monitoring Systems Plc
Structural Monitoring Systems Plc
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
group and parent company financial statements of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on the
overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the group and parent company financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Impairment of goodwill and intangible assets
Key audit matter description
The Group acquired its subsidiary, Anodyne Electronics Manufacturing Corp, in the year ended 30 June 2018. The
recoverability of the goodwill and intangibles assets, of $3.7m at 30 June 2020, arising on this acquisition is dependent
on the individual cash-generating unit to which the goodwill and intangible assets are allocated generating sufficient
cash flows in the future. Due to the inherent uncertainty involved in forecasting future cash flows and the judgements
involved in selection of an appropriate discount rate, which are the basis of the assessment of recoverability, this is
considered a key audit matter. Refer to note 13 to the financial statements for the disclosures relating to the goodwill
and the related impairment calculations.
How the matter was addressed in the audit
Our audit procedures included reviewing management’s discounted cash flow model, testing and challenging the
judgements and assumptions used by management in their assessment of whether the cash-generating unit to which
goodwill is allocated is impaired and assessing management’s sensitivity analysis on the cash flow model. We have
assessed the inputs in determining the discount rate used to calculate the present value of projected future cash flows.
We have also assessed the validity of the model and challenged the valuation model and the basis of management’s
impairment considerations. We assessed management’s earnings assumptions in the model compared to current year
performance and forecasted performance for the next financial year. We have reviewed management’s sensitivity analysis
of key assumptions, including the revenue growth forecasts and the discount rate. We have further considered whether
the disclosures about the sensitivity of the outcome of the impairment assessment to changes in key assumptions were
adequate and properly reflected the risks inherent in the valuation of the cash-generating unit.
Key observations
Due to the amount of headroom in the calculation no material matters arose from our work in this area.
Valuation of inventory
Key audit matter description
As at 30 June 2020, the Group held inventories of $7.1m. As described in the Accounting Policies in note 2 to the
financial statements, inventories are carried at the lower of cost and net realisable value. Cost comprises of direct
materials and delivery costs, as well as an appropriate proportion of variable and fixed overhead expenditure based on
normal operating capacity. As a result, judgement is applied in determining the level of provisions required for obsolete
inventory and an appropriate apportionment of labour and overheads. We therefore consider this to be a key audit
matter.
How the matter was addressed in the audit
We have performed inventory price testing for a sample of material costs. As part of this testing, where the item sampled
was sold post year end, we have tested whether this has been at an amount in excess of cost.
We have also assessed the calculation of labour and overhead absorption during the year and whether the value of
labour and overhead costs included in inventory at 30 June 2020 is appropriate. Our work has included examining the
operating capacity utilisation during the year.
We have further held discussions with operations staff and assessed the aging of inventory at 30 June 2020, to test
whether the inventory provision recognised at 30 June 2020 is appropriate.
Key observations
Errors identified as a result of our work have been corrected by management.
58
Independent auditor’s report to the members
of Structural Monitoring Systems Plc
Structural Monitoring Systems Plc
Our application of materiality
When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing
and extent of our audit procedures. When evaluating whether the effects of misstatements, both individually and on the
financial statements as a whole, could reasonably influence the economic decisions of the users we take into account
the qualitative nature and the size of the misstatements. Based on our professional judgement, we determined materi-
ality as follows:
Group
Parent company
Overall materiality
$139,000 (2019: $143,000)
$69,000 (2019: $114,000)
Basis for determining overall
materiality
5% of adjusted results before tax
5% of adjusted results before tax
Rationale for benchmark
applied
Profit measure used for the trading
activities of the Group.
Profit measure used for the trading
activities of the Group.
Performance materiality
$104,000 (2019: $107,000)
$51,700 (2019: $85,500)
Basis for determining
performance materiality
Reporting of misstatements to
the Audit Committee
75% of overall materiality
75% of overall materiality
Misstatements in excess of $7,000 and
misstatements below that threshold that, in
our view, warranted reporting on qualitative
grounds.
Misstatements in excess of $3,450 and
misstatements below that threshold
that, in our view, warranted reporting on
qualitative grounds.
An overview of the scope of our audit
The group consists of 3 components, located in the United Kingdom, Australia and Canada.
The coverage achieved by our audit procedures was:
Full scope audit
Specific audit procedures
Total
Number of
components
Revenue
Total assets
Loss before tax
2
1
3
100%
0%
100%
95%
5%
100%
93%
7%
100%
Of the above, a full scope audit for one component was undertaken by component auditors.
Other information
The directors are responsible for the other information. The other information comprises the information included in
the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial
statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do
not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or
apparent material misstatements, we are required to determine whether there is a material misstatement in the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the Strategic Report and the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements; and
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal
requirements.
•
59
Group
Parent company
materiality
applied
Rationale for benchmark
Profit measure used for the trading
Profit measure used for the trading
activities of the Group.
activities of the Group.
Performance materiality
$104,000 (2019: $107,000)
$51,700 (2019: $85,500)
Basis for determining
performance materiality
75% of overall materiality
75% of overall materiality
Reporting of misstatements to
misstatements below that threshold that, in
misstatements below that threshold
the Audit Committee
our view, warranted reporting on qualitative
that, in our view, warranted reporting on
Misstatements in excess of $7,000 and
Misstatements in excess of $3,450 and
grounds.
qualitative grounds.
Full scope audit
Specific audit procedures
Total
Number of
components
Revenue
Total assets
Loss before tax
2
1
3
100%
0%
100%
95%
5%
100%
93%
7%
100%
Independent auditor’s report to the members
of Structural Monitoring Systems Plc
Structural Monitoring Systems Plc
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in
the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report.
Overall materiality
$139,000 (2019: $143,000)
$69,000 (2019: $114,000)
Basis for determining overall
5% of adjusted results before tax
5% of adjusted results before tax
•
•
•
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to
report to you if, in our opinion:
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 9 the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those
matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a
body, for our audit work, for this report, or for the opinions we have formed.
Paul Watts (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
25 Farringdon Street
London
EC4A 4AB
30 September 2020
60
Shareholder information
Structural Monitoring Systems Plc
Additional information required by the Australian Stock Exchange and not shown elsewhere in this report is as follows.
The information is current as at 21 September 2020.
(a)
Distribution of CDI securities
Structural Monitoring Systems Plc
Range of Units As Of 21/09/2020
Range
1 -1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,000 Over
Rounding
Total
Chess Depository Interest (Total)
Composition: CDI
Total holders
Units
% Units
306,501
2,419,875
3,220,600
26,047,863
87,538,581
556
857
410
809
163
2,795
0.26
2.02
2.69
21.79
73.23
0.01
100
Unmarketable Parcels
Minimum $ 500.00 parcel at $ 0.5200 per unit
962
403
153,698
Minimum Parcel Size
Holders
Units
(b)
Substantial shareholders
The names of substantial shareholders who have notified the Company in accordance with section 671B of the
Corporations Act 2001 are:
Holder
Drake Special Situations LLC
Number of Shares
23,862,500
61
Shareholder information (continued)
Structural Monitoring Systems Plc
Structural Monitoring Systems Plc
Chess Depository Interest (Total)
Top Holders (Grouped) As Of 21/09/2020
Rank
Name
Composition: CDI
Units
% Units
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC CUSTODY NOMINEES (AUSTRALIA LIMITED
26,637,676
22.28
BNP PARIBAS NOMINEES PTY PTD
4,378,491
MR PAUL COZZI
MR BRYANT JAMES MCLARTY
MR ROBERT GREGORY LOOBY
CITICORP NOMINEES PTY LIMITED
MR STEPHEN CAMPBELL FORMAN
STRAIGHT LINES CONSULTANCY PTY LTD
JP MORGAN NOMINEES AUSTRALIA PTY LIMITED
ROSHERVILLE PTY LTD
ANODYNE ELECTRONICS HOLDING CORP
LANDMARK CONSTRUCTION PTY LTD
STONY RISES PTY LTD
MR ROSS MALCOM SPENCER + MR CLINTON LEON SPENCER
MR DAVID MICHAEL BROWN
MR TONY ATHAS + MRS ANGELA ATHAS
AVANTEOS INVESTMENTS LIMITED <4358776 DEBRA A/C>
BRISPOT NOMINEES PTY LTD
KINETIC TRADE PTY LTD
LOOBY HOLDINGS PTY LTD
4,266,736
3,450,353
2,500,00
2,131,569
1,900,000
1,620,000
1,580,426
1,400,000
1,320,000
1,066,679
952,750
862,520
850,000
780,000
780,000
690,486
688,500
650,000
3.66
3.57
2.89
2.09
1.78
1.59
1.36
1.32
1.17
1.1
0.89
0.8
0.72
0.71
0.65
0.65
0.58
0.58
0.54
Totals: Top 20 holders of CHESS DEPOSITORY INTEREST (Total)
Total Remaining Holders Balance
58,505,186
61,028,234
48.94
51.06
62
Corporate governance statement (unaudited)
Structural Monitoring Systems Plc
The Company has established, and continues to refine and improve procedures to ensure a culture of good corporate
governance exists and is respected across the consolidated entity.
The Company has a written policy designed to ensure compliance with ASX Listing Rules and all other regulatory
requirements for disclosures. Additionally the Company has adopted a policy designed to ensure procedures to
implement the policy are suitable and effective.
The Board wishes to acknowledge that nothing has come to its attention that would lead it to conclude that its current
practices and procedures are not appropriate for an organisation of the size and maturity of the Company. The Corporate
Governance Policy and the Company’s corporate governance practices is set out on the Company’s web site at www.
smsystems.com.au.
Nomination matters
The following list identifies those directors and officers who are members of the Nomination Committee.
Name:
Michael Reveley (Chair)
Sam Wright
Toby Chandler
There were no meetings of the nomination committee.
Audit matters
The following list identifies those directors and officers who are members of the Audit Committee.
Name
Michael Reveley (Chair)
Sam Wright
Toby Chandler
No of meetings attended
-
-
-
Details of each director’s qualifications are set out in the Director’s Report.
All current members of the Audit Committee have relevant qualification in financial and accounting experience.
63
Corporate governance statement (unaudited)
(continued)
Structural Monitoring Systems Plc
Remuneration matters
Remuneration Policy
Details of remuneration, including the Company’s policy on remuneration, are contained in the Remuneration Report
which forms part of the Directors’ Report and the Notes to the Financial Statements.
Remuneration Committee Function
Name
Michael Reveley (Chair)
Sam Wright
Toby Chandler
Other
No of meetings attended
-
-
-
Skills, Experience, Expertise and term of office of each Director
A profile of each Director containing their skills, experience and expertise is set out in the Directors’ Report. There is no
set term of office for any Director.
Assurances to the Board
The Chief Executive Officer and the Chief Financial Officer have provided a declaration in accordance with section
295A of the Corporations Act and have assured the Board that such declaration is founded on a sound system of
risk management and internal control and that the system is operating effectively in all material respects in relation to
financial reporting risk.
Identification of Independent Directors and the Company’s Materiality Thresholds
In considering the independence of directors, the Board refers to its Policy on Assessing the Independence of Directors
(available on the Company’s website).
The Board has agreed on the following guidelines for assessing the materiality of matters, as set out in the Company’s
Board Charter (available on the Company’s website):
Balance sheet items are material if they have a value of more than 5% of pro-forma net asset.
•
Profit and loss items are material if they will have an impact on the current year operating result of 5% or more.
•
•
Items are also material if they impact on the reputation of the Company, involve a breach of legislation, are
outside the ordinary course of business, they could affect the Company’s rights to its assets, if accumulated they would
trigger the quantitative tests, involve a contingent liability that would have a probable effect of 5% or more on balance
sheet or profit and loss items, or they will have an effect on operations which is likely to result in an increase or decrease
in net income or dividend distribution of more than 5%.
•
Contracts will be considered material if they are outside the ordinary course of business, contain exceptionally
onerous provisions in the opinion of the Board, impact on income or distribution in excess of the quantitative tests, there
is a likelihood that either party will default, and the default may trigger any of the quantitative or qualitative tests, are
essential to the activities of the Company and cannot be replaced, or cannot be replaced without an increase in cost of
such a quantum, triggering any of the quantitative tests, contain or trigger change of control provisions, they are between
or for the benefit of related parties, or otherwise trigger the quantitative tests.
The directors of the Company are all considered to be independent.
Statement concerning availability of Independent Professional Advice
To assist directors with independent judgement, it is the Board’s Policy that if a director considers it necessary to obtain
independent professional advice to properly discharge the responsibility of their office as a director then, provided the
director first obtains approval for incurring such expense from the Chair, the Company will pay the reasonable expenses
associated with obtaining such advice.
Existence and Terms of any Schemes for Retirement Benefits for Non-Executive Directors
There are no termination or retirement benefits for non-executive directors (other than for superannuation).
64