Tempo Australia Limited
Annual Report 2018

Plain-text annual report

T E M P O A U S T R A L I A L I M I T E D 2 0 1 8 A N N U A L R E P O R T 20 18 A N N U A L R E P O R T T E M P O AU ST R A L I A L I M I T E D WE DELIVER TO OUR CUSTOMERS COST EFFECTIVE ASSET AVAILABILITY THROUGH SAFE, HIGH QUALITY SERVICES EXPERTISE. Contents Page Chairman’s Letter MD Review of Operations Board of Directors Directors’ Report Remuneration Report – Audited Auditor’s Independence Declaration Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Additional Information Required by ASX Corporate Directory 1 2 10 12 20 28 29 30 31 32 33 68 69 75 77 About this Report These Full Year Statutory Accounts (Report) is lodged with the Australian Securities and Investment Commission (ASIC) and ASX Limited and is a summary of Tempo Australia Limited’s (Tempo’s) operations, activities and financial position as at 31 December 2018. Any references in this report to ‘the year’ or ‘the reporting period’ relate to the financial year, which is 1 January 2018 to 31 December 2018 unless otherwise stated. All figures used in this report are Australian Dollars unless otherwise stated. Tempo Australia Limited (ABN 51 000 689 725) is the parent entity of Tempo group of companies. In this report references to ‘Tempo’, ‘TPP’ and ‘the Company’, and ‘we’, ‘us’ and ‘our’, refers to Tempo Australia Limited and its controlled entities, unless otherwise stated. To view the report online, visit www.tempoaust.com or alternatively contact Link Market Services Limited of QV1, Level 12 250 St Georges Terrace , Perth WA 6000, telephone 1300 554 474. We are currently maintaining assets at some of Australia’s busiest port facilities. CH A I R M A N ’S L E T T E R Dear Shareholder, 2018 has been a transformational year for Tempo Australia Limited. We have restructured our company from construction activities to long-term annuity style contracts in the maintenance services markets with a core focus in electrical and telecommunications contracting. We expect improved trading performance in 2019 from the solid work done in 2018. We have refreshed the team and secured new contracts that are in line with our new strategy, however we have much work to do to deliver in 2019. We safely delivered work with revenues of $42 million, 119% up on prior year and an underlying EBITDA loss of $2.2 million, whilst these results are disappointing, they represent a difficult transformational year the business has been through. Impacts to this year’s reported results are mainly from non-recurring items, such as $3.1 million impairment of goodwill for a labour hire acquisition made in prior years, a $1.7 million cost of restructuring/ estimating costs, and tax and other adjustments due to new legislation, which took effect in 2018. The business is supported by a loyal customer base in our target markets, with many of these relationships renewing multiyear contracts throughout 2018. We have a refreshed Board of experienced Directors, and a capable leadership team, with many years of experience and are focused on a future in markets where we believe we are competitive and that can support our growth. We remain confident that our new strategy will enable the business to position itself to build momentum in the services and telecommunications asset maintenance markets. During the year we have successfully integrated our new acquisition Comsite. The acquisition complements our already successful telecommunications business and we anticipate a strong contribution from Tempo Telecommunication Services in 2019. I would like to acknowledge the strong support our shareholders have provided to us this year and to the diligent work my fellow Directors have committed their time to. A special thanks to our employees and leadership team for their hard work and commitment through this transitional year. We are looking forward to working together to build a great services business. Guido Belgiorno-Nettis AM Chairman T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 1 S N O I T A R E P O F O W E I V E R D M Tempo Service Electrician’s - Stephen Howle and Craig Holman on site at Sydney Olympic Park. 2 Dear Shareholder, Our results for 2018 reflect the significant renewal that has been undertaken throughout the business. Throughout the period we renewed our strategy and invested in a highly skilled group of employees to support our growth. SAFETY STRATEGY Our safety focus continued throughout the year, and as a result we successfully maintained our Lost Time Injury Frequency Rate (LTIFR) at zero. However, our Total Recordable Injury Frequency Rate (TRIFR) increased on our 2017 results, this was directly impacted by our increased exposure hours across our electrical services, and contracts such as the CBH Throughput Project and the Karadoc Solar Farm Project. Our drive to improve our safety culture has progressed well, with key focus areas in leadership behaviours, risk awareness and personal responsibility. Further improvements are to be made on our critical risk awareness, the identification of hazards and the reduction of near misses in everything we do. As we improve our performance across all these areas, we will become more productive and cost effective. We have had success integrating and harmonising systems across HSE, finance, payroll and customer relationship management. This continued emphasis has resulted in improved business efficiencies. Our journey toward Zero Harm continues, with our core focus on ensuring everyone comes home safely every day. 2014 2015 2016 2017 2018 LTIFR 1 0 -1 TRIFR 7 5 5 4 3 2 1 We have spent time this year clearly redefining our new strategic direction, one which will achieve growth through sustainable core markets and drive the future of Tempo. Our new focus can also be clearly understood through our value proposition. “We deliver to our customers cost effective asset availability through safe, high quality services expertise.” “We keep you operating safely and reliably.” To deliver on this strategy we will focus on three core markets, which we firmly believe will deliver sustainable growth opportunities through long term annuity-based contracts. Our focus areas are: • Asset Management and Maintenance • Telecommunications • Projects The core values to deliver on this strategy are built upon the foundation of: • Zero Harm • People and culture • Unity, care and empathy • Service excellence By delivering every day on our value proposition, we will become the first choice for customers and grow value for our shareholders. “We deliver to our customers cost effective asset availability through safe, high quality services expertise” 2014 2015 2016 2017 2018 T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 3 M D R E V I E W O F O P E R A T I O N S OPERATIONS Throughout 2018 our focus centred on the full integration of the KP Electric business, now re-branded as Tempo Asset Management Services. The long-standing service offering of the business has been the provision of electrical contracting, primarily focused on preventative and repair services. The business has a diverse customer base ranging from national asset owners, ports, retailers and beyond. Current key clients include Woolworths Group, Port of Melbourne, Port of Fremantle, Sydney Olympic Park, Sydney Harbour Foreshore Authority, Flight Centre Travel Group and Virgin Australia. To deliver on our strategy, we will remain focused on long term electrical maintenance contracts, once established we will seek to expand in mechanical and facilities management services. We will seek to work with our existing customers to further add value through the integration of broader services offerings. The electrical market in Australia provides a substantial platform for us to expand upon. Through our established customer-base we seek to value add by undertaking capital works on asset upgrades and projects by leveraging on our project services capabilities. Our strategy to expand our service offering into the telecommunications sector continued throughout the period. In July 2018 we acquired Comsite services, the acquisition was an asset purchase of two core contracts held with Nokia. The business has been integrated and is now performing in line with expectations through its first year. The Tempo Telecommunication Services offering is centred around electrical work in network maintenance services, in an electrical contracting style. However, we have begun expanding our services in this market to include facilities maintenance services which we foresee to grow in demand. We believe this is a sustainable growth market for Tempo to pursue. With the rollout of 5G in Australia, we expect to leverage on our project services capabilities, assisting customers in a vertically integrated manner. Tempo Project Services offering includes electrical installation, commissioning and construction activities in the commercial and industrial markets. Tempo’s project services has a solid long- standing reputation specialising in the fibre optics installation and termination space, as well as the HV install market. Throughout the period we undertook the asset upgrade activities for CBH Group, Cooper & Oxley for Meth Aged Care Facility and Beon Energy Solutions for the Karadoc Solar Farm. Our existing asset management/maintenance customers have expansive multi-year capital works programs that we will look to support through this offering. We expect to capture organic growth opportunities each year. The Tempo Project Services offering is diverse, and can provide electrical, mechanical, civil, fibre optics and engineering services through to the delivery of projects such as the Enel Cohuna Solar Farm Project currently under construction in Cohuna, Victoria. Apprentice Electrician - James Shirkie on site at Meth Aged Care Facility. 4 We are currently working on multi-year capital works on behalf of our customers. INNOVATION We are continuously developing and applying advanced technologies within the industry. Our development of a custom drone (Genesis One), fitted with unique high definition visual imaging technology, is a perfect example as to how we’re seeking to deliver seamless integration of asset management services and technology. An example of this is our ability to support telecommunication customers with asset inspections using high definition visual imaging. Genesis One has been developed in-house to substantially lessen the need to undertake costly inspections at heights or in high-risk environments such as towers or buildings with restricted access. With military grade thermal and RF sensors which were designed and built by Tempo, and a drone that can provide a safe and stable aerial platform in most environments. People Profile – Andrew Tang Service Technician, Andrew Tang is responsible for scheduled and reactive maintenance, and minor project works for our Sydney customer- base. Andrew has been with the business since mid-2016, initially working exclusively on our Woolworths contract before moving into his current role supporting a range of commercial, industrial and telecommunication customers. “In this role every day is different. We do a lot of work on lighting and power installations, general fault finding, and switchboard inspections. Aside from the technical aspect, a key requirement of the role is the customer interface which I really enjoy. I think our job has similarities to that of a Doctor, we diagnose conditions and prescribe solutions to our customers.” said Andrew. “We often work in unfamiliar environments, or older buildings without electrical drawings which makes fault finding more challenging. In these instances, I get a real sense of achievement when we accurately identify the root cause of problems and provide solutions to our customers.” “Tempo has an established niche within the electrical industry, and I believe the company has a bright future. I look forward to developing within the business as it expands.” said Andrew. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 5 M D R E V I E W O F O P E R A T I O N S Service Electrician - Andrew Tang on site at Sydney Harbour Foreshore 6 GROUP RESULTS Revenue: $42M Revenue for the year was $42 million which represents a 119% increase on prior year, importantly to note most of our revenue was delivered from service contracts in sustainable annuity style contracts. Our EBITDA (Earnings Before Interest Depreciation and Amortisation) before impairments was a loss of $2.2 million or a loss of $0.6 million adjusting for non-recurring costs. Our NPAT (Net Profit After Tax) loss of -$5.6 million reported is the result of significant one-off, non-recurring restructuring: • • • -$3.1 million relates to the impairment of good will carried since 2012 associated with an acquisition made in that year of a labour hire company; -$1.1 million of the result is non-recurring restructuring and restaffing costs; and -$0.6 million are specific non-recurring estimating costs incurred in 2018 from resource construction no longer undertaken. The 2018 results were further affected by new tax regulations that resulted in adjustments of carried forward tax losses, R&D claims and credits resulting in a net taxation rate of only 5.9 per cent. We believe the great work done means we are now well placed to grow the company, this has been reflected through significant revenue growth, our contract wins throughout 2018 and new contracts for 2019, notwithstanding the disappointing result in 2018 for our shareholders and management. We appreciate our shareholders support during this very difficult year of transition for our company. We are focused on delivery and an improved outcome in 2019. 30,000 25,000 20,000 15,000 10,000 5,000 H1 2017 H2 2017 H1 2018 H2 2018 EBITDA less non-recurring items 2015 2016 2017 2018 6,000 4,000 2,000 0 (2,000) Cash used in operating activities H1 2017 H2 2017 H1 2018 H2 2018 (1,000) (2,000) (3,000) (4,000) (5,000) T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 7 M D R E V I E W O F O P E R A T I O N S E L E CT R I CA L I N D U ST RY AT A G L A N CE Key Statistics Snapshot Products and services segmentation (2018-19) 4.0% Other services 24.4% Electrical circuitry Installation 36.2% Maintenance and repair services 35.4% Electrical circuitry upgrade and renovation Total $19.9bn Major market segmentation (2018-19) 15.1% Mixed customers 15.2% Heavy industrial and engineering firms 35.1% Residential builders and households 34.6% Commercial and retail property developers and operators Total $19.9bn Total Enterprises 1.8% TAS 7.0% SA 11.1% WA 1.2% ACT 0.9% NT 32.0% NSW . . U A M O C D L R O W S B I I : E C R U O S 20.5% QLD 25.5% VIC 8 TARGET MARKETS OUTLOOK Our focus is to expand our electrical maintenance contracting offering throughout Australia. This market is supported by strong demand in downstream industrial markets and activities include the installation and maintenance of basic electrical circuitry, lights, power assets, facilities and instrumentation. All of which we have a long track record in delivering for our customers. Electrical service demand from the heavy industrial infrastructure market is a key area of focus for Tempo as the competitive landscape allows us to differentiate our service offering through high quality trade services delivery. Tempo has been successful in renewing its contracts in critical infrastructure at the Port of Melbourne. In combination with our Port of Fremantle work, we are developing a deep understanding and capacity in maintaining such assets. We look to expand this service in similar areas around Australia in 2019. Whilst the total number of contractors is high across Australia, companies like Tempo have diversified into telecommunications and cabling, renewable energy and electrical maintenance have grown steadily over the past year. FURTHER COST REDUCTIONS Throughout 2018 our management team has been renewed and we have reduced our overhead by some $2 million. Further cost reductions are available to us as we improve the efficiency of our businesses. As our teams grow and develop, we expect to benefit from greater overhead leverage than has been experienced in the past two years. In 2019 we turn our minds to how we procure materials, with the aim of consolidating our suppliers and improving our cost base. We have built a solid foundation upon which to grow. We shifted the business away from resources construction, our overhead has been designed for leverage, and we have developed a strategy that will enable the company to develop long term contracts with large Australian businesses. We refreshed our Board and leadership team to provide the business with the guidance and strategic support required. Importantly, we secured new works in our chosen markets. This early success supports the Company’s new strategic direction. Management acknowledges with this growth in revenue, working capital management will continue to be a focus. However, Tempo does face some head winds as we will see increased demand for skilled labour as resource company projects commence in 2019, and the competition for good people remains high. We believe that our customers will choose to work with Tempo for our commitment to safety, services expertise and reliability as we continue to deliver good value for money. We kindly thank our customers and shareholders for their ongoing support as we transition Tempo for further growth. Ian Lynass Managing Director and CEO People Profile – Luci Courtney Project Manager, Luci Courtney is responsible for ensuring our projects remain on schedule, within budget and without injury. Luci has been with the business for 5 ½ years, she began in a service coordinator role before transitioning into projects. Thriving in that role she stepped into a Project Manager position in 2018 and hasn’t looked back. “Our project works include electrical installations, fibre optics and telecommunications. We work in diverse sectors including commercial construction, solar farms, industrial and resources, I enjoy the variety as it means every project is different.” said Luci. “I act as the interface between our project team and our customer. I do a lot of the planning and organising to ensure we deliver on key milestones, I enjoy the role I play and love seeing it all come together.” “I’m excited about Tempo’s strategy as it’s a genuine value-add for our customers. We have already begun supporting our established asset management customers on capital works and asset upgrade projects, having established relationships with the customer and historical knowledge about the assets is a genuine advantage when it comes to managing projects.” said Luci. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 9 B OA R D O F D I R E CTO R S Guido Belgiorno-Nettis AM CHAIRMAN Guido is Managing Director of the private company, Transfield Holdings Pty Ltd, which changed business focus in 2001 from Engineering and Construction to private equity. Leading up to this change, Guido held several key positions within the Transfield Group, including Managing Director, CEO Transfield Engineering and Construction, and Project Development Director. In 2015 he founded Angophora Capital Pty Ltd. Guido is Chairman of the Australian Chamber Orchestra, and a Member of the Australian School of Business Advisory Council. He was named a Member of the Order of Australia in 2007 for service to the construction industry and the arts. He holds a Bachelor of Engineering from UNSW and an MBA from AGSM and is a fellow of Engineers Australia. 1 0 We are currently maintaining assets for two of Australia’s largest national telecommunications carriers. Ian Lynass David Iverach MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER NON-EXECUTIVE DIRECTOR Ian has over 25 years management experience in the maintenance services, defence, steel, petrochemical and mining industries. Before his appointment as Chief Executive Officer and Managing Director of Bis Industries Pty Ltd in 2009, he accumulated experience in a wide range of operational and leadership areas throughout these industries. Ian has held key leadership positions nationally and internationally holding the Managing Directors role for Brambles Industrial Services – Northern Hemisphere and then returning to Australia after successfully rebuilding the business, he held Executive Director roles in Bis Industries for Eastern and Western Australia. In 2012 Ian was a recipient of the CEO Magazine CEO of the Year Award – Logistics. In 2015 Ian co-founded GD Environmental Services in the United Kingdom, a Waste Recycling company until his return to Australia in 2017. Ian was appointed Chief Executive Officer of Tempo Australia in March 2018, and subsequently Managing Director in August 2018. He is also serving as a Non- Executive Director of WorkPac Group Pty Ltd and is Chairman of the Engineering and Construction advisory panel. Ian has held Board positions for Bis Industries Pty Ltd and is Managing Director of Silhouette Global Solutions a family owned consultancy business. Ian Widdicombe NON-EXECUTIVE DIRECTOR With over 30 years’ experience in the oil and gas industry with both operators and contractors in Australia, Europe and Asia, Ian has strong credentials in operational delivery and corporate oversight. Previously with Woodside, he held Vice President role in Projects, and in Subsea and Pipelines. During his tenure, Ian established and led the Karratha Life Extension Program and was Project Manager for the Angel Project. Prior to Woodside, he was Regional Manager Asia Pacific for DOF Subsea Group and Offshore Operations Manager for Clough. David has over 45 years’ experience at the executive level in the public and private sectors and has served on several boards. Combined with 25 years with Transfield, David provides unbeatable corporate governance leadership. David’s time at Transfield includes a broad range of strategic and operational positions. He played a leading role in the formation of several Transfield businesses and projects, including the formation of Transfield Services as a standalone business unit and the entry of Transfield into the renewable energy sector. Roles included Commercial Director of Transfield Construction, CEO Energy, CEO Investments and Project Director in the development phase of several large-scale infrastructure projects. Prior to joining Transfield in 1990, David was Director General of Transport in the NSW Government with oversight of rail, roads, ports, grain handling and public transport. David has degrees in chemical engineering and fuel technology including a PhD. “The Board of Directors are committed to establishing a high-performing business, with a focus on safety and customer delivery. ” T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 1 1 T R O P E R ’ S R O T C E R I D 1 2 The Directors’ present this report together with the financial report of the consolidated entity consisting of Tempo Australia Limited (Tempo) and the entities it controls, for the financial year ended 31 December 2018 and the auditor’s report thereon. PRINCIPAL ACTIVITIES During the year ended 31 December 2018 the Group generated revenues from asset management, maintenance and construction across the telecommunications, infrastructure, resources, power, industrial and commercial sectors. REVIEW OF OPERATIONS & RESULTS Tempo provides asset management, maintenance and construction across the telecommunications, infrastructure, resources, power, industrial and commercial sectors to protect and enhance clients’ investments. Throughout 2018 our focus centred on the full integration of the KP Electric business, now re-branded as Tempo Asset Management Services (TAMS). The long-standing service offering of the business has been the provision of electrical contracting, primarily focused on preventative and repair services. The business has a diverse customer base ranging from national asset owners, ports, retailers and beyond. Current key clients include Woolworths Group, Port of Melbourne, Port of Fremantle, Sydney Olympic Park, Sydney Harbour Foreshore Authority, Flight Centre Travel Group and Virgin Australia. The net loss after tax was $5,648,445. This result was impacted by impairments of $3,229,944 including goodwill attributable to a personnel hire business acquired in 2012, which management considers is no longer relevant to the strategic direction of Tempo.  Revenue and other income has more than doubled at $41,793,1870 compared to 2017, reflecting a full year contribution from the acquisition of KP Electric (Australia) Pty Ltd, six months of contribution from the acquisition of the Comsite Services business, and the contribution from the CBH Group throughput upgrade project. Net Assets value of $24,284,902 was reported for the full year, which represents a decline of approximately 19% compared to the previous year. The 2018 results were further significantly affected by new tax regulations that resulted in adjustments of carried forward tax losses and R&D claims and credits resulting in a net taxation rate of only 5.9%. At the year end, Tempo had a cash balance of $4,766,390. There was a reduction in cash over the course of the year, predominately as a result of payment of the prior-year deferred amounts relating to the acquisition of KP Electric (Australia) Pty Ltd, the acquisition of the Comsite Services business and the increase in working capital as a result of the increased activities. Our strategy is to remain focused on long term electrical maintenance contracts. Once established we will seek to expand in mechanical and facilities management services. The Group will work with existing customers to further add value through the integration of broader services offerings. We believe the great work done means we are now well underway to grow the company, this has been proven through significant revenue growth, our contract wins throughout 2018 and substantial new contracts for 2019, notwithstanding the disappointing result in 2018 for our shareholders and management. Management acknowledges with this growth in revenue, working capital management will continue to be a focus. Highlights of Tempo’s activities and operations for the year ended 31 December 2018 are presented as follows: The Group continued to enhance and fully integrate the nationally operated electrical service business, KP Electric (Australia) Pty Ltd, acquired in July 2017, contributing for the full year in 2018. Since the acquisition, the business has secured a number of new contracts and master service agreements with leading companies in addition to securing extensions with existing customers. The Group acquired the Comsite Services business, that focusses on telecommunications infrastructure support in regional NSW and QLD for major providers in Australia. Solid contributions are being made from this business which is being integrated with the KP Electric (Australia) Pty Ltd. During 2018, the Group commenced and successfully completed work on the CBH Throughput Upgrade to support the Structural, Mechanical and Piping, Electrical & Instrumentation (SMPE&I) activities. The Company maintained its operations in the industrial and commercial sectors (following the acquisition of Cablelogic in mid-2016). During 2018, the Group maintained its accreditations for its quality management system to ISO 9001, its environment management system to ISO 14001:2015 and its occupational health and safety certification to ISO AS/NZS4801:2001. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Apart from the matters noted in the review of operations, after balance date events and in the financial statements and accompanying notes attached, there were no other significant changes in the state of affairs. AFTER BALANCE DATE EVENTS On 27 February 2019 Tempo announced that it had signed a three-year contract with Woolworths Limited (Woolworths) to provide national electrical maintenance services estimated to be worth $20-25 million in revenue over an initial three-year term. Tempo also announced that it had executed the final contract with Enel Green Power Australia Pty Ltd, in relation to the 34mW Cohuna Solar Farm. The value of the works is $15.1 million over a twelve-month construction period. With growth in revenue, working capital management will continue to be a focus. LIKELY DEVELOPMENTS Throughout 2018 Tempo has restructured and reskilled the company to ensure that we are fully capable of focusing on our new strategy, to build upon our already successful long-term annuity contracting businesses while continuing to deliver specialist multidisciplinary maintenance and construction services to key clients in the resources, power and industrial and commercial sectors. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 1 3 D I R E C T O R S ' R E P O R T ENVIRONMENTAL REGULATION AND PERFORMANCE We take our commitment to the environment seriously. Everything we do revolves around our commitment to zero harm to our people and the environment and respecting the communities in which we operate. We identify and adhere to all relevant regulatory and contractual obligations that we are required to meet. During the year, Tempo maintained its accreditation of its environmental management system to ISO14001:2015. Based on the results of enquiries made, the directors are not aware of any material breaches of environmental legislation during the reporting period. DIVIDENDS PAID, RECOMMENDED AND DECLARED No dividends were paid, declared or recommended since the start of the financial year. INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND AUDITORS For the year ended 31 December 2018, Tempo had agreements to indemnify Directors and Officers of the Company against all liabilities to persons (other than the Company or related body corporate) which arise out of the performance of their normal duties as directors or executive officers unless the liability relates to conduct involving lack of good faith. The Company agreed to indemnify the Directors and Executive Officers against all costs and expenses incurred in defending an action that falls within the scope of the indemnity. The Directors’ and Officers’ liability insurance provides cover against costs and expenses involved in defending legal actions and any resulting payments arising from a liability to persons (other than the Company) incurred in their position as a Director or Executive Officer unless the conduct involves a wilful breach of duty or an improper use of inside information or position to gain advantage. The insurance policy does not allow specific disclosure of the nature of the liabilities insured against or the premium paid under the policy. The Company has agreed to indemnify its auditors, Ernst & Young, to the fullest extent permitted by applicable law and professional regulations as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. PROCEEDINGS ON BEHALF OF THE CONSOLIDATED ENTITY No person has applied for the leave of Court to bring proceedings on behalf of the consolidated entity. INFORMATION ON DIRECTORS AND COMPANY SECRETARY The directors of Tempo Australia Limited during the financial year and up to the date of this report are provided below, together with Company Secretary. DIRECTORS Mr Guido Belgiorno-Nettis AM – Non-Executive Chairperson BE Civil; MBA; FIEAust Appointment: Reappointed to the Board as Non-Executive Chairperson 10 December 2018 Resigned as Non-Executive Director 19 November 2018 Guido is Managing Director of the private company, Transfield Holdings Pty Ltd, which changed business focus in 2001 from Engineering and Construction to private equity. Leading up to this change, Guido held a number of key positions within the Transfield Group, including Managing Director, CEO Transfield Engineering and Construction, and Project Development Director. In 2015 he founded Angophora Capital Pty Ltd. Experience and Expertise: Guido is Chairperson of the Australian Chamber Orchestra, and a Member of the Australian School of Business Advisory Council. He was named a Member of the Order of Australia in 2007 for service to the construction industry and the arts. He holds a Bachelor of Engineering from UNSW and an MBA from AGSM and is a fellow of Engineers Australia. Guido is currently a member of the Group’s Nominations and Remuneration Committee; the Risk, HSE and Commercial Committee and the Audit & Compliance Committee. During his appointment as a Non-Executive Director, but prior to his appointment as Non-Executive Chairperson, Guido was the Chairperson of the Group’s Risk, HSE and Commercial Committee and a member of the Nominations and Remuneration Committee and the Audit & Compliance Committee. Directorships: Current directorships in other listed companies: None Directorships in listed companies in the last three years: None 1 4 Mr Ian Lynass – Chief Executive Officer (CEO) And Managing Director Appointment: Appointed as Chief Executive Officer 19 March 2018 Appointed Managing Director 28 June 2018 Ian has over 25 years management experience in the maintenance services, defence, steel, petrochemical and mining industries. Before his appointment as Chief Executive Officer and Managing Director of Bis Industries Pty Ltd in 2009, he accumulated experience in a wide range of operational and leadership areas throughout these industries. Experience and Expertise: Ian has held key leadership positions nationally and internationally holding the Managing Directors role for Brambles Industrial Services – Northern Hemisphere and then returning to Australia after successfully rebuilding the business, he held Executive Director roles in Bis Industries for Eastern and Western Australia. In 2012 Ian was a recipient of the CEO Magazine CEO of the Year Award – Logistics. In 2015 Ian co-founded GD Environmental Services in the United Kingdom, a Waste Recycling company until his return to Australia in 2017. Ian is also serving as a Non-Executive Director of WorkPac Group Pty Ltd and is Chairperson of the Engineering and Construction advisory panel. Ian has held Board positions for Bis Industries Pty Ltd and is Managing Director of Silhouette Global Solutions a family owned consultancy business. Directorships: Current directorships in other listed companies: None Directorships in listed companies in the last three years: None Mr David Iverach – Non-Executive Director BEng Chem (Hons), Post-graduate diploma in Fuel Technology, PHD in high temperature combustion and two years in the USA on a Harkness Fellowship at the Sloan School of Management at MIT as a Visiting Fellow in Economics and Innovation Appointed as Non-Executive Director 10 December 2018 Appointment: Initial appointment as alternate Non-Executive Director to Guido Belgiorno-Nettis 9 February 2017 – Resigned 21 March 2018 David has over 45 years experience at the executive level in the public and private sectors and has served on several boards. Combined with 25 years with Transfield, David provides unbeatable corporate governance leadership. Experience and Expertise: David’s time at Transfield includes a broad range of strategic and operational positions. He played a leading role in the formation of several Transfield businesses and projects, including the formation of Transfield Services as a standalone business unit and the entry of Transfield into the renewable energy sector. Roles included Commercial Director of Transfield Construction, CEO Energy, CEO Investments and Project Director in the development phase of several large-scale infrastructure projects. Prior to joining Transfield in 1990, David was Director General of Transport in the NSW Government with oversight of rail, roads, ports, grain handling and public transport. David is the current Chairperson of the Group’s Nominations and Remuneration Committee and the Risk, HSE and Commercial Committee and a member of the Audit & Compliance Committee. Directorships: Current directorships in other listed companies: None Directorships in listed companies in the last three years: None T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 1 5 D I R E C T O R S ' R E P O R T Mr Ian Widdicombe – Non-Executive Director BEng Civil Appointment: Appointed as Non-Executive Director 13 June 2017 With over 30 years experience in the oil and gas industry with both operators and contractors in Australia, Europe and Asia, Ian has strong credentials in operational delivery and corporate oversight. Previously with Woodside, he held Vice President role in Projects and in Subsea and Pipelines. During his tenure, he established and led the Karratha Life Extension Program and was project manager for the Angel Project. Prior to Woodside, Ian was Regional Manager Asia Pacific for DOF Subsea Group and Offshore Operations Manager for Clough. Experience and Expertise: Ian is a member of the Group’s Nominations and Remuneration Committee; the Risk, HSE and Commercial Committee and the Chairperson of the Audit & Compliance Committee. Directorships: Current directorships in other listed companies: None Directorships in listed companies in the last three years: None Mr Carmelo Bontempo – Former Non-Executive Chairperson Retired: 30 November 2018 Experience and Expertise: Carmelo has over 50 years experience across Australia in construction and maintenance activities in the resources, oil & gas, and industrial sectors. He was involved in major infrastructure projects including works with North West shelf gas, Alcoa, Shell’s Geelong oil refinery, Argyle Diamonds, BHP Billiton, and Woodside. He was one of the four founding partners of United Construction Holdings (today known as UGL Ltd), which floated in 1994. He was also the Managing Director of Monadelphous Group Limited during the company’s early restructuring period in the early 1990’s and a key advisor to numerous private and publicly listed companies in Australia. Prior to his retirement Mr Bontempo was the Chairperson of the Group’s Nominations and Remuneration Committee and the Risk, HSE and Commercial Committee and a member of the Audit & Compliance Committee. Directorships: Current directorships in other listed companies: None Directorships in listed companies in the last three years: None Mr Guido Bressani – Former Non-Executive Director Master’s degree Mech Eng, GAICD Resigned: 3 April 2018 Experience and Expertise: Guido Bressani is a senior executive with more than twenty years leadership, consulting and engineering experience in the resources and manufacturing industries worldwide. He is currently a leading consultant to clients in the resources sector, based in Houston, USA. Previously, Mr Bressani served as CEO of Italian manufacturing company, STF Group, during the start of their financial restructuring process in Italy, and as founding partner of a private equity backed start up in Houston, USA. He also led the successful sale of the marine construction division of Clough to Sapura and served as CEO for three years thereafter. Prior to joining Clough, Mr Bressani worked with international EPCI contractor Saipem with senior positions held in Europe, Middle East and South East Asia. He holds a Master’s Degree in Mechanical Engineering from the Politecnico of Milan. He is also a graduate member of the Australian Institute of Company Directors. Directorships: Current directorships in other listed companies: None Directorships in listed companies in the last three years: None 1 6 Mr Chris Cook – Former Alternate Director to Guido Belgiorno-Nettis AM B.Sci (Hon), MBA Resigned: 19 November 2018 Experience and Expertise: Chris is currently an Investment Executive Director for Angophora Capital and also serves as an investment advisor to Transfield Holdings. His experience extends from infrastructure development and delivery to investment management, including investment company management, capital raising and investor management. Chris has been involved in a number of Australia’s seawater desalination projects, solar thermal power station project development in Europe, USA and the Middle East and a submarine telecommunication cable project, the Australia Japan Cable. Chris has served on the Advisory Board of Novatec Solar GmbH and remains on the Operations Committee for the Sydney Harbour Tunnel and Investment Committee for Transfield Holdings. Directorships: Current directorships in other listed companies: None Directorships in listed companies in the last three years: None Mr Massimo Bergomi – Former Chief Executive Officer and Managing Director B.Eng. (Management and Production), Graduate of Harvard Business School’s Advanced Management Program Resigned: 19 March 2018 Massimo joined Tempo in January 2016 as Chief Executive Officer and on 31 March 2016 he additionally became Tempo’s Managing Director. A highly experienced and successful engineering and oil and gas industry executive, Massimo has held a number of high-profile senior leadership roles during his 20-year career. Experience and Expertise: Prior to joining Tempo, Massimo built a successful career with major Australian engineering and project services contractor, Clough Ltd, over a period of eight years. He was previously Managing Director Australia and PNG for Clough’s Oil & Gas and Mining & Minerals divisions. He has also held senior positions with Saipem and Maverick Tube Corporation in Milan, Houston, Jakarta and London. Massimo has a Bachelor of Engineering (Management and Production) from the Politecnico of Milan. He is also a graduate of the Harvard Business School’s Advanced Management Program. Directorships: Current directorships in other listed companies: None Directorships in listed companies in the last three years: None Mr Scott Macdonald – Company Secretary B.Eng. Mech (Hons), MBA, GAICD, GIA(Dip) Appointment: Appointment as Interim Executive Director 3 December 2018 Resigned as Interim Executive Director 10 December 2018 Experience and Expertise: Scott is a senior executive with over 30 years experience in the finance, commercial and M&A disciplines for CPB Contractors, BHP, Brambles, BIS Industries and Wesfarmers. Scott holds an MBA and BEng from UWA, a graduate diploma from the Governance Institute of Australia and graduated the Company Directors course with AICD. Directorships: Current directorships in other listed companies: None Directorships in listed companies in the last three years: None T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 1 7 D I R E C T O R S ' R E P O R T COMPANY SECRETARY Mr Scott Macdonald – Company Secretary B.Eng. Mech (Hons), MBA, GAICD, GIA(Dip) Appointment: Appointed as CFO and Company Secretary 15 June 2018 Experience and Expertise: Scott is a senior executive with over 30 years experience in the finance, commercial and M&A disciplines for CPB Contractors, BHP, Brambles, BIS Industries and Wesfarmers. Scott holds an MBA and BEng from UWA, a graduate diploma from the Governance Institute of Australia and graduated the Company Directors course with AICD. Mr Michael West – Former Company Secretary B.Com. (Finance and Economics), B.Eng. Mech (Hons 1), GAICD Resignation: 15 June 2018 Experience and Expertise: Michael is a senior executive with over 17 years experience working in financial, strategy and commercial roles in both ASX-listed and private companies in the construction, maintenance, engineering, energy, private equity and investment banking sectors. Michael joined Tempo in June 2014 as a Director, a position he held for 10 months. During this time, he was appointed as CFO and Company Secretary. He holds a Bachelor of Commerce and a Bachelor of Mechanical Engineering (Honours Class I) from Sydney University, and is a graduate of the Australian Institute of Company Directors. DIRECTORS’ MEETINGS The number of meetings of the Board of Directors and of each Board committee held during the financial year and the numbers of meetings attended by each director were: Directors’ Meetings Audit and Compliance Committee Eligible to Attend Attended Eligible to Attend Attended Guido Belgiorno-Nettis1 Ian Lynass2 David Iverach3 Ian Widdicombe Carmelo Bontempo4 Chris Cook5 Guido Bressani6 Massimo Bergomi7 Scott Macdonald8 9 4 1 9 8 6 2 2 - 8 4 1 8 8 6 1 2 - 2 1 - 2 2 - 1 - - 1 1 - 1 2 - 1 - - 1. Guido Belgiorno-Nettis resigned as Non-Executive Director on 19 November 2018 and was appointed Non-Executive Chairperson on 10 December 2018. 2. Ian Lynass was appointed to Chief Executive Officer on 19 March 2018 and was appointed Managing Director on 28 June 2018. 3. David Iverach retired as Alternate Non-Executive Director to Guido Belgiorno-Nettis on 21 March 2018 and was appointed Non-Executive Director on 10 December 2018. 4. Carmelo Bontempo retired from the Board on 30 November 2018. 5. Chris Cook commenced as Alternate Non-Executive Director to Guido Belgiorno-Nettis on 21 March 2018 and resigned as Alternate Non-Executive Director on 19 November 2018. 6. Guido Bressani resigned as Non-Executive Director on 3 April 2018. 7. Massimo Bergomi resigned as Chief Executive Officer and Managing Director on 19 March 2018. 8. Scott Macdonald commenced as Interim Executive Director on 3 December 2018 and resigned as Interim Executive Director on 10 December 2018. 1 8 Guido Belgiorno-Nettis1 Ian Lynass2 David Iverach3 Ian Widdicombe Carmelo Bontempo4 Chris Cook5 Guido Bressani6 Massimo Bergomi7 Scott Macdonald8 Nomination and Remuneration Committee Risk, HSE and Commercial Committee Eligible to Attend Attended Eligible to Attend Attended 1 - - 1 1 - - - - 1 - - 1 1 - - - - 1 - - 1 1 - - - - 1 - - 1 1 - - - - 1. Guido Belgiorno-Nettis resigned as Non-Executive Director on 19 November 2018 and was appointed Non-Executive Chairperson on 10 December 2018. 2. Ian Lynass was appointed to Chief Executive Officer on 19 March 2018 and was appointed Managing Director on 28 June 2018. 3. David Iverach retired as Alternate Non-Executive Director to Guido Belgiorno-Nettis on 21 March 2018 and was appointed Non-Executive Director on 10 December 2018. 4. Carmelo Bontempo retired from the Board on 30 November 2018. 5. Chris Cook commenced as Alternate Non-Executive Director to Guido Belgiorno-Nettis on 21 March 2018 and resigned as Alternate Non-Executive Director on 19 November 2018. 6. Guido Bressani resigned as Non-Executive Director on 3 April 2018. 7. Massimo Bergomi resigned as Chief Executive Officer and Managing Director on 19 March 2018. 8. Scott Macdonald commenced as Interim Executive Director on 3 December 2018 and resigned as Interim Executive Director on 10 December 2018. DIRECTORS’ INTERESTS IN SHARES AND RIGHTS OVER SHARES Current directors’ relevant interests in shares of Tempo Australia Limited or options over shares in the Company at the date of this report are detailed below. Guido Belgiorno-Nettis Ian Lynass David Iverach Ian Widdicombe TOTAL Ordinary Shares Rights over ordinary shares 44,847,660 - 914,000 500,000 - 200,000 - - 45,961,660 500,000 AUDITORS’ INDEPENDENCE DECLARATION A copy of the auditors’ independence declaration in relation to the audit for the financial year is provided within this financial report on page 28. NON-AUDIT SERVICES There were no non-audit services provided by the Group’s auditor, Ernst & Young during the year ended 31 December 2018 or 31 December 2017. SHARE OPTIONS Unissued shares As at the date of this report, there were no unissued ordinary shares under options. Shares issued as a result of the exercise of options During the financial year no options were exercised. ROUNDING The amounts contained in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) where noted ($’000) under the option available to the company under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Company is an entity to which this legislative instrument applies. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 1 9 R E M U N E R AT I O N R E P O RT – AU D I T E D No short-term incentives were granted and therefore awarded during the year. Given the recent profitability and cashflow of the Company, at the discretion of the Board, no STIP incentives were awarded during the year.  Given the small size of the company the Remuneration Committee is in the process of reviewing the STIP and metrics for KMP for the current year. Long-Term Incentive Plan (LTIP) A Long-Term Incentive Plan (LTIP) has also been developed which will grant eligible employees to options or performance rights in the Company. Any issue (at the discretion of the Board) under the LTIP would likely be subject to vesting over three years subject to continued, performance of the Total Shareholder Returns (TSR) of the Company versus the ASX300 over the vesting period and future earnings per share growth over the vesting period. The TSR or future earnings per share growth targets are chosen to embed shareholder interests directly into the remuneration structure. During the year 2,150,000 of rights were vested to the value of $413,308. Non-Executive Director Remuneration Non-executive directors receive fees and share-based remuneration. The Company determines the maximum amount for remuneration, including thresholds for share-based remuneration, for directors by resolution. ASX listing rules require the aggregate non-executive director’s remuneration be determined periodically by a general meeting. The most recent determination was at the Annual General Meeting held on 31 May 2016, where the shareholders approved an aggregate remuneration of $500,000. Issue of options to Directors is voted on by members at general meetings. Voting and comments made at the Company's 31 May 2018 Annual General Meeting ('AGM') At the last AGM held on 31 May 2018, 99.8% of the votes received supported the adoption of the remuneration report for the year ended 31 December 2017. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. REMUNERATION POLICIES The Board policy for determining the nature and amount of remuneration of directors and executives is agreed by the Board of Directors as a whole. The Board structures remuneration so that it rewards those who perform and is strongly aligned with the Company’s strategic direction and the creation of value to shareholders. The performance of the Company depends on the quality of its employees. To grow, the Company must attract, motivate and retain skilled employees, which includes the directors and executives of the Company. To this end, the Company utilises the principles of providing competitive rewards to attract and retain high calibre executives. In determining the remuneration levels of employees and executives, the Company takes into consideration the performance of the Group, operation, function and geographic regions as well as that of the individual. The Board obtains professional advice where necessary to ensure that the Company attracts and retains talented and motivated directors and employees who can enhance Company performance through their contributions and leadership. For executives, the Company provides a remuneration package that incorporates both fixed cash-based remuneration and variable remuneration consisting of short and long-term incentive opportunities, that may include, performance-based cash remuneration and share-based remuneration. Directors received fixed fees for their services. The contracts for service between the Company and specified directors and executives are on a continuing basis, the terms of which are not expected to change in the immediate future aside from normal negotiations on contracts as they approach their conclusion and the normal annual review processes. No remuneration consultants were engaged during the year. Short-Term Incentive Plan (STIP) For Key Management Personnel (KMP), a Short-Term Incentive Plan (STIP) has been developed which enables eligible members to a cash bonus, based on annual performance of the Company against a range of metrics and at the discretion of the Board. These targets include performance against financial metrics such as profitability, cash flow, costs, and order intake; leadership targets, such as engagement with workforce and leadership behaviour; operational metrics such as customer satisfaction, system development and governance; and Risk and HSE targets. 2 0 DIRECTORS’ COMPENSATION The directors during the year ended 31 December 2018 were: Guido Belgiorno-Nettis • Appointed as Non-Executive Chairperson 10 December 2018 Non-Executive Chairperson • Resigned as Non-Executive Director 19 November 2018 Ian Lynass Chief Executive Officer and Managing Director • Appointed Managing Director 28 June 2018 • Appointed Chief Executive Officer 19 March 2018 • Appointed 22 January 2018 as VP Strategy and Corporate Development David Iverach • Appointed as Non-Executive Director 10 December 2018 Non-Executive Director • Retired as Alternate Non-Executive Director to Guido Belgiorno-Nettis 21 March 2018 Ian Widdicombe Non-Executive Director • Appointed as Non-Executive Director 13 June 2017 Carmelo Bontempo Former Non-Executive Chairperson • Retired 30 November 2018 Non-Executive Director Chris Cook • Resigned as Alternate Non-Executive Director to Guido Belgiorno-Nettis 10 December 2018 • Appointed as Alternate Non-Executive Director to Guido Belgiorno-Nettis 21 March 2018 Guido Bressani Non-Executive Director • Resigned as Non-Executive Director 3 April 2018 Massimo Bergomi Chief Executive Officer and Managing Director • Resigned from the Board and ceased employment 19 March 2018 Scott Macdonald • Resigned as Interim Executive Director 10 December 2018 Chief Financial Officer and Company Secretary • Appointed as Interim Executive Director 3 December 2018 EXECUTIVES’ COMPENSATION Other key management personnel during the year ended 31 December 2018 were: Scott Macdonald Chief Financial Officer and Company Secretary • Appointed as Chief Financial Officer and Company Secretary 15 June 2018 Michael West • Resigned as Chief Financial Officer and Company Secretary and ceased employment Former Chief Financial Officer and Company Secretary with Tempo on 15 June 2018 T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 2 1 R E M U N E R A T I O N R E P O R T | A U D I T E D e c n a m r o f r e P l a t o T n o i t a n m r e T i d e t a e r l n o i t a r e n u m e r s t n e m y a p s t n e m y a p d e s a b - e r a h S s t fi e n e b m r e t - g n o L - t s o P t n e m y o p m e l m r e t - t r o h S s t fi e n e b % $ $ $ $ $ $ $ $ i s t h g R e c n a m r o f r e P s n o i t p O e r a h S e v a e l l a u n n A e v a e l e c i v r e s g n o L n o i t a u n n a r e p u S s e e F & y r a a S l % 0 % 0 % 8 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 8 8 % 6 1 % 9 2 % 0 % 0 % 0 % 2 7 % 0 % 0 % 0 % 0 % 0 % 0 4 - - 3 6 8 1 6 1 , 4 1 0 1 4 , 5 1 2 2 0 , 0 0 3 - 6 0 0 , 5 1 5 1 8 , 2 2 5 6 5 , 1 6 1 7 1 2 , 1 2 1 1 0 3 , 6 1 4 3 4 9 , 0 8 6 ) 4 1 4 , 4 5 1 ( 0 0 0 , 5 5 1 3 , 8 - 3 6 0 , 9 - - 2 0 0 , 5 3 9 9 6 , 6 3 0 4 8 , 0 3 4 8 3 3 , 8 7 3 0 2 , 5 9 7 - - - - - - - - - - - - - - - - - - - 1 3 1 , 6 8 1 - - - 0 5 2 , 6 5 1 1 8 3 , 2 4 3 3 4 9 , 1 0 4 , 1 - - - - - - - - - - - - 7 4 1 , 5 2 - - - - - - 2 0 1 , 6 6 8 9 6 , 4 6 1 - - 2 1 7 , 0 7 1 ) 6 7 0 , 8 6 2 ( 0 1 4 , 5 3 3 ) 7 2 8 , 6 7 1 ( - - - - - - - - - - - 7 6 4 , 1 3 2 1 2 , 6 0 1 ) 9 6 1 , 8 6 1 ( - - - 3 6 5 , 6 - - - - - - 2 4 2 , 4 4 1 ) 9 6 1 , 8 6 1 ( - - - - - - - 9 4 0 , 8 1 - - - 5 3 4 , 8 4 4 7 , 1 5 8 3 4 , 4 4 - - - - - - - - 5 4 0 , 2 2 4 1 1 , 4 1 2 5 5 , 8 5 3 7 2 , 0 0 1 - - - - - - - - - - - - - - - - - - 7 1 0 , 2 ) 7 1 0 , 2 ( - - 8 7 1 , 1 ) 8 7 1 , 1 ( 5 9 1 , 3 ) 5 9 1 , 3 ( - 5 7 - - 8 3 3 , 1 7 6 9 , 9 1 1 2 7 2 0 3 , 1 8 0 0 , 2 1 - 3 9 1 , 1 2 0 3 , 1 3 5 8 , 3 1 8 4 2 , 1 2 - 1 2 7 - - - - 7 3 0 , 3 7 5 1 , 5 1 2 3 8 , 9 1 3 8 5 , 4 5 5 5 , 3 6 2 8 7 , 2 5 - - 8 8 7 1 6 1 , 4 1 2 7 0 , 4 1 9 5 8 , 6 3 2 4 0 7 , 3 1 4 9 0 , 2 2 2 2 1 , 1 4 1 - 2 6 5 , 2 1 3 0 7 , 3 1 8 8 4 , 0 0 1 5 7 0 , 7 1 4 0 0 0 , 5 4 9 5 , 7 - 0 0 5 , 2 - - 5 6 9 , 1 3 1 0 5 , 2 1 1 4 0 0 , 5 2 2 5 5 7 , 3 7 5 8 1 , 7 3 6 2 6 7 , 7 0 8 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 6 o p m e t n o B o e m r a C l 7 i m o g r e B o m i s s a M 8 i n a s s e r B o d u G i 0 1 s a m o h T n a i r B 1 1 t s e W l e a h c M i 2 1 s b b H i l i e n a D 9 s t o o L p i l i h P P M K D N A S R O T C E R D L A T O T I 3 h c a r e v I d i v a D 2 s s a n y L n a I i 4 e b m o c d d W n a I i 5 l d a n o d c a M t t o c S 1 s i t t e N - o n r o g e B o d u G i l i 7 1 0 2 R E B M E C E D D N A 8 1 0 2 R E B M E C E D 1 3 D E D N E S R A E Y E H T R O F N O I T A R E N U M E R P M K D N A ’ S R O T C E R D I 2 2 . 8 1 0 2 r e b m e c e D 0 1 n o r o t c e r i D e v i t u c e x E m i r e t n I s a d r a o B e h t m o r f d e n g i s e r d n a r e b m e c e D 3 n o r o t c e r i D e v i t u c e x E m i r e t n I i d e t n o p p a s a w e H . 8 1 0 2 e n u J 5 1 n o y r a t e r c e S y n a p m o C d n a r e c fi f O l i i i a c n a n F f e h C d e t n o p p a i l s a w d a n o d c a M t t o c S . 8 1 0 2 e n u J 8 2 n o r o t c e r i i D g n g a n a M d e t n o p p a i s a w d n a 8 1 0 2 h c r a M 9 1 n o r e c fi f O e v i t u c e x E i f e h C o t d e t n o p p a i s a w d n a 8 1 0 2 y r a u n a J 2 2 f l o t n e m y o p m e d e c n e m m o c s s a n y L n a I . 8 1 0 2 r e b m e c e D 0 1 n o n o s r e p r i a h C e v i t u c e x E - n o N d e t n o p p a i s a w d n a 8 1 0 2 r e b m e v o N 9 1 n o r o t c e r i D e v i t u c e x E - n o N s a d e n g i s e r s i t t e N - o n r o g e B o d u G i l i . 8 1 0 2 r e b m e c e D 0 1 n o r o t c e r i D e v i t u c e x E - n o N d e t n o p p a i s a w d n a 8 1 0 2 h c r a M 1 2 n o s i t t e N - o n r o g e B o d u G o t i l i r o t c e r i D e v i t u c e x E - n o N e t a n r e t l A s a d e r i t e r h c a r e v I d i v a D . 7 1 0 2 e n u J 3 1 n o r o t c e r i D e v i t u c e x E - n o N s a d e n o i j i e b m o c d d W n a I i . 4 0 8 , 2 9 $ d e t i e f r o f d n a s t h g i r n i , 6 0 9 8 5 1 $ d e v i e c e r e H . 8 1 0 2 h c r a M 9 1 n o r o t c e r i i D g n g a n a M d n a r e c fi f O e v i t u c e x E i f e h C s a d e n g i s e r i m o g r e B o m i s s a M . s n o i t p o e r a h s s i h d e t i e f r o f d n a 8 1 0 2 r e b m e v o N 0 3 n o d r a o B e h t m o r f d e r i t e r o p m e t n o B o e m r a C l . 8 1 0 2 l i r p A 3 n o r o t c e r i D e v i t u c e x E - n o N s a d e n g i s e r i n a s s e r B o d u G i . 7 1 0 2 h c r a M 7 d e r i t e r s t o o L p i l i h P . 1 . 2 . 3 . 4 . 5 . 6 . 7 . 8 . 9 . 7 1 0 2 r e b m e v o N 4 2 d e r i t e r s a m o h T n a i r B . 0 1 . y c i l o p g n i t n u o c c a h t i w e n i l n i t fi e n e b m r e t - g n o l a s a e v a e l l a u n n a f o n o i t a c fi i s s a c e h t l r o f d e t a t s e r n e e b e v a h s e v i t a r a p m o c e h t t a h t e t o n e s a e P l . 7 1 0 2 y r a u r b e F 2 2 n o t n e m y o p m e d e s a e c l s b b H i l i e n a D . 2 1 . s t h g i r s i h d e t i e f r o f d n a 8 1 0 2 e n u J 5 1 n o y r a t e r c e S y n a p m o C d n a r e c fi f O l i i i a c n a n F f e h C s a d e n g i s e r t s e W l i e a h c M 1 1 . SHAREHOLDING OF KMP Shares held in Tempo Australia Limited. Balance 1 January 2018 Balance at appointment as KMP Issued on exercise of performance rights Net change other# Resignation/ Retirement of KMP* Balance 31 December 2018 Guido Belgiorno-Nettis1 38,000,000 Ian Lynass2 David Iverach3 Ian Widdicombe4 Scott Macdonald5 - - - - Carmelo Bontempo6 42,021,632 Chris Cook7 Guido Bressani8 212,791 858,361 Massimo Bergomi9 5,335,000 Michael West10 528,000 - 346,500 - - - - - - - - - - - - - - - - 2,000,000 - 6,847,660 567,500 - 200,000 50,000 - - - - - 44,847,660 914,000 - 200,000 50,000 250,000 (42,271,632) - - - - (212,791) (858,361) (7,335,000) (528,000) - - - - - TOTAL 86,955,784 346,500 2,000,000 7,915,160 (51,205,784) 46,011,660 # These movements represent on-market purchase of shares during the year by the respective KMPs. * This represents the balance of shares held by the KMP at date of their resignation Includes shares held directly, indirectly and beneficially by KMP. 1. Guido Belgiorno-Nettis resigned as a Non-Executive Director on 19 November 2018 and was appointed Non-Executive Chairperson on 10 December 2018. 2. Ian Lynass commenced employment of 22 January 2018 and was appointed to Chief Executive Officer on 19 March 2018 and was appointed Managing Director on 28 June 2018. Prior to his appointment Mr Lynass held 346,500 shares. Mr Lynass and his related parties have subsequently bought a further 567,500 shares on-market. 3. David Iverach retired as Alternate Non-Executive Director to Guido Belgiorno-Nettis on 21 March 2018 and was appointed Non-Executive Director on 10 December 2018. 4. Ian Widdicombe joined as Non-Executive Director on 13 June 2017. 5. Scott Macdonald was appointed Chief Financial Officer and Company Secretary on 15 June 2018. He was appointed Interim Executive Director on 3 December 2018 and resigned from the Board as Interim Executive Director on 10 December 2018.The shares acquired on-market were purchased after his appointment as Chief Financial Officer and Company Secretary. 6. Carmelo Bontempo retired from the Board on 30 November 2018 and forfeited his share options. The net change reflects that they were not a Director at period end. 7. Chris Cook commenced as Alternate Non-Executive Director to Guido Belgiorno-Nettis on 21 March 2018 and resigned as Alternate Non-Executive Director on 19 November 2018. 8. Guido Bressani resigned as Non-Executive Director on 3 April 2018. The net change reflects that he was not a Director at year-end. 9. Massimo Bergomi resigned as Chief Executive Officer and Managing Director on 19 March 2018. The net change reflects that he was not a Director at year-end. 10. Michael West resigned as Chief Financial Officer and Company Secretary on 15 June 2018. The net change above reflects that he was not a KMP at year-end. OPTION HOLDING OF KMP The table below discloses the number of share options granted, vested or lapsed during the year. Share options do not carry any voting or dividend rights, and can only be exercised once the vesting conditions have been met. Balance at the start of the year Granted as remuneration Options exercised Carmelo Bontempo1 2,000,000 TOTAL 2,000,000 - - No. forfeited during the year (2,000,000) (2,000,000) - - Balance at the end of the year Exercisable at end of the year Not exercisable at end of the year - - - - - - 1. Carmelo Bontempo retired from the Board on 30 November 2018 and forfeited his options. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 2 3 R E M U N E R A T I O N R E P O R T | A U D I T E D RIGHTS HOLDING OF KMP The number of rights over ordinary shares in the parent entity held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties is set out below. Balance at the start of the year Granted as remuneration Rights vested Rights forfeited Balance at the end of the year Vested at end of year Vested and exercisable at end of year Vested and exercisable at end of year Ian Lynass1 - 500,000 - - 500,000 Massimo Bergomi2 2,750,000 - (2,000,000) (750,000) Michael West3 2,000,000 600,000 - (2,600,000) - - TOTAL 4,750,000 1,100,000 (2,000,000) (3,350,000) 500,000 - - - - - - - - - - - - 1. Rights were granted at employment commencement and accordingly no ongoing performance conditions were set as this was issued as a sign on bonus. The performance rights granted are subject to continued employment over three years of service. 2. Rights vested/forfeited during the year based on achievement/non-achievement of hurdles. The vested performance rights were converted to ordinary shares during the year. 3. Rights granted during the year had no ongoing performance conditions as a retention mechanism however they were forfeited on resignation. OTHER TRANSACTIONS AND BALANCES WITH KMP AND THEIR RELATED PARTIES PURCHASES During the year the following purchases were made from entities related to key management personnel: • $34,400 from Angophora Capital Pty Ltd, of which Guido Belgiorno-Nettis is a Director. This amount had not been paid at 31 December 2018. • $9,091 from Bontempo Nominees Pty Ltd, of which Charlie Bontempo is a Director. The purchases from related parties related to consulting and project management services and are on 30-day terms with no interest penalties. Outstanding balances at year-end are unsecured and interest free and settlement occurs in cash. 2 4 f o e u a V l s n o i t p o d e s i c r e x e e h t g n i r u d # r a e y f o e u a V l s n o i t p o d e t n a r g e h t g n i r u d * r a e y ) $ ( . o N d e t i e f r o f r a e y g n i r u d d e t s e v . o N r a e y g n i r u d e t a d y r i p x E e s i c r e x E e c i r p e t a d g n i t s e V e u a v l r i a F n o i t p o r e p d r a w a t a ) $ ( e t a d e t a d d r a w A s n o i t p O d e d r a w a l a i c n a n F i . o N r a e y e h t g n i r u d d e t n a r g r a e y - - ) 0 0 0 , 0 0 0 , 2 ( - 9 1 0 2 e n u J 0 3 4 3 0 $ . 9 1 0 2 y a M 1 3 6 1 0 . 6 1 0 2 e n u J 9 0 0 0 , 0 0 0 , 2 6 1 0 2 o p m e t n o B o e m r a C l . t e m n e e b e v a h s n o i t i d n o c g n i t s e v I R A E Y E H T G N R U D D E S P A L D N A D E T S E V , I D E D R A W A S T H G R E C N A M R O F R E P e h t e c n o d e s i c r e x e e b y l n o n a c d n a , s t h g i r d n e d i v i d r o g n i t o v y n a y r r a c t o n o d s n o i t p o e r a h S . r a e y e h t g n i r u d d e s p a l r o d e t s e v , d e t n a r g s n o i t p o e r a h s f o r e b m u n e h t l l s e s o c s i d w o e b e b a t e h T l I R A E Y E H T G N R U D D E S P A L D N A D E T S E V , D E D R A W A S N O I T P O . r a e y e h t g n i r u d d e s p a l r o d e t s e v , d e t n a r g s t h g i r e c n a m r o f r e p f o r e b m u n e h t l l s e s o c s i d w o e b e b a t e h T l - - - 0 9 1 , 7 3 2 4 1 3 , 2 4 1 s t h g i r f o e u a V l g n i r u d d e t s e v # ) $ ( r a e y e h t - - - 0 0 0 , 5 9 ) $ ( s t h g i r f o e u a V l g n i r u d d e t n a r g * r a e y e h t 0 0 0 , 4 1 1 ) 0 0 0 , 0 0 6 ( ) 0 0 0 , 0 0 0 , 2 ( - - 3 3 0 2 r a M 6 2 0 2 0 2 n a J 1 1 3 0 2 n u J 0 1 8 1 0 2 c e D 1 2 - - 0 0 0 , 0 5 2 , 1 1 3 0 2 n u J 0 1 8 1 0 2 l u J 1 - 3 3 0 2 r a M 6 2 1 2 0 2 n a J 2 2 ) 0 0 0 , 0 5 7 ( 0 0 0 , 0 5 7 1 3 0 2 n u J 0 1 9 1 0 2 l u J 1 d e t i e f r o f . o N r a e y g n i r u d d e t s e v . o N r a e y g n i r u d e t a d y r i p x E e t a d g n i t s e V d r a w a t a t h g i r e t a d t n a r G r e p e u a v l r i a F ) $ ( e t a d s t h g R i d e d r a w a e h t g n i r u d . o N r a e y l a i c n a n F i r a e y d e t n a r g 9 1 0 . 2 2 0 . 2 2 0 . 2 2 0 . 9 1 0 . 8 1 0 2 h c r a M 2 2 0 0 0 , 0 0 5 6 1 0 2 e n u J 0 1 0 0 0 , 0 5 2 , 1 6 1 0 2 e n u J 0 1 0 0 0 , 0 0 5 , 1 6 1 0 2 e n u J 0 1 0 0 0 , 0 0 0 , 2 8 1 0 2 h c r a M 2 2 0 0 0 , 0 0 6 8 1 0 2 6 1 0 2 6 1 0 2 6 1 0 2 8 1 0 2 i m o g r e B o m i s s a M s s a n y L n a I t s e W l e a h c M i . e u a v l c i s n i r t n i e h t t a e s i c r e x e f o e m i t e h t i t a d e n m r e t e D . 2 B S A A r e p t n a r g f o e m i t e h t i t a d e n m r e t e D * # T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 2 5 R E M U N E R A T I O N R E P O R T | A U D I T E D ADDITIONAL INFORMATION The earnings of the consolidated entity for the five years to 31 December 2018 are summarised below: 2018 $ 2017 $ 2016 $ 2015 $ 2014 $ Revenue and other income (excluding interest income) 41,690,555 18,113,770 81,142,374 78,079,491 16,026,422 EBITDA EBIT (5,400,483) (1,793,556) 6,392,674 4,578,810 (1,859,910) (6,038,665) (2,396,666) 6,200,759 4,504,939 (1,935,510) (Loss)/Profit after income tax (5,648,445) (1,047,007) 5,454,698 6,739,995 (1,306,483) The factors that are considered to affect total shareholders return ('TSR') are summarised below Share price at financial year end ($) 0.145 0.240 0.230 0.120 0.050 Total dividends declared (cents per share) - - - - - Basic (loss)/earnings per share (cents per share) (2.344) (0.435) 2.713 3.449 (0.772) DIRECTOR AND KMP AGREEMENTS The company currently has service agreements with its non-executive directors. The agreements detailing the formal terms and conditions of the appointment, expected time commitment, procedure regarding conflicts of interest, performance appraisal, remuneration, superannuation and insurance arrangements. The Tempo Constitution governs the election and appointment of directors, rotation of elected directors, casual vacancies and eligibility for election. The terms and entitlements of non-executive directors are governed by normal employment law. The following summarises the key provisions of service agreements with executives: Name: Title: Guido Belgiorno-Nettis AM Non-Executive Chairperson Agreement Commenced: 10 December 2018 Details: Name: Title: $15,000 per annum inclusive of superannuation (if applicable) David Iverach Non-Executive Director Agreement Commenced: 10 December 2018 Details: Name: Title: $15,000 per annum inclusive of superannuation (if applicable) Ian Widdicombe Non-Executive Director Agreement Commenced: 13 June 2017 Details: $15,000 per annum inclusive of superannuation (if applicable) The company has non-fixed term employment contracts with its executives. The contracts detail the formal terms and conditions of the employment. Name: Title: Ian Lynass Managing Director and Chief Executive Officer Agreement Commenced: 22 January 2018 Terms of Agreement: Permanent full time Details: Base salary of $250,000 per annum plus superannuation. Three months termination notice by either party. The employee will receive a sign-on offer of 500,000 performance rights subject to being an employee for three years after commencement date (good leaver provisions to apply). 2 6 Name: Title: Scott Macdonald Chief Financial Officer and Company Secretary Agreement Commenced: 15 June 2018 Terms of Agreement: Permanent full time Details: Name: Title: Base salary of $275,000 per annum plus superannuation. Three (3) months termination notice by either party, bonus of up to 30% subject to the satisfaction of specified milestones and performance criteria (both individual and company). Entitled to participate in the company’s ESIRP subject to the satisfaction of specified milestones and performance criteria (both individual and company). Massimo Bergomi Chief Executive Officer and Managing Director (resigned 19 March 2018) Agreement Commenced: 11 January 2016 Terms of Agreement: Permanent full time Details: Name: Title: Base salary of $420,000 per annum including superannuation. Employment may be terminated by the Company with six months’ notice. Mr Bergomi may terminate by giving the Company three months’ notice. The Company can terminate the ESA by giving Mr Bergomi three months’ notice. Michael West Chief Financial Officer and Company Secretary (resigned 15 June 2018) Agreement Commenced: 26 September 2014 Terms of Agreement: Permanent full time Details: Base salary of $225,000 per annum plus superannuation. Three months termination notice requirement by either party, bonus of up to 30% subject to the satisfaction of specified milestones and performance criteria (both individual and company). Entitled to participate in the company’s ESIRP to the value up to 30% of base salary subject to the satisfaction of specified milestones and performance criteria (both individual and company). Signed in accordance with a resolution of the directors. Guido Belgiorno-Nettis AM Chairman Date: 29 March 2019 T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 2 7 AUDITOR’S INDEPENDENCE DECLARATION AU D I TO R’S I N D E P E N D E N CE D E CL A R AT I O N AUDITORS INDEPENDENCE DECLARATION 2 8 18 | P A G E CO NS O L I DAT E D STAT E M E N T O F CO M P R E H E NS I V E I N CO M E FOR THE YEAR ENDED 31 DECEMBER 2018 Consolidated entity Revenue from contracts with customers Other income Revenue and Other income Employee and director benefits Administration costs Occupancy costs Depreciation and amortisation Other expenses Project material costs Equipment and other subcontractor costs Listing and other statutory charges Interest and finance charges Other professional expenses Impairment expense Total expenses Note 4 4 6 12,13 5 13,14 2018 $’000 40,492 1,301 41,793 20,170 1,718 798 639 128 8,661 11,596 50 126 679 3,230 47,795 2017 $’000 18,114 1,521 19,635 12,717 715 529 471 382 3,900 2,079 57 262 788 - 21,900 Loss before income tax expense (6,002) (2,265) Income tax benefit Loss attributable to the members of the parent Other comprehensive income Total comprehensive loss Net loss attributable to members of the parent entity Loss per share Basic loss – cents per share Diluted loss – cents per share The accompanying notes form part of these financial statements. 7 21 21 354 (5,648) -  (5,648) (5,648) (2.3) (2.3) 1,218 (1,047) - (1,047) (1,047) (0.4) (0.4) T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 2 9                                                           CO NS O L I DAT E D STAT E M E N T O F F I N A N CI A L P OS I T I O N AS AT 31 DECEMBER 2018 Consolidated entity Note 2018 $’000 2017 $’000 Restated (Note 2.4) CURRENT ASSETS Cash and short-term deposits Trade and other receivables Contract assets Inventories Prepayments Total current assets NON-CURRENT ASSETS Plant and equipment Goodwill Intangible assets Deferred tax assets Total non-current assets Total assets CURRENT LIABILITIES Trade and other payables Interest bearing loans and borrowings Current tax liabilities Provisions Total current liabilities NON-CURRENT LIABILITIES Interest bearing loans and borrowings Contingent consideration Provisions Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Share based payment reserve Accumulated losses Total equity The accompanying notes form part of these financial statements. 3 0 8 9 10 11 12 13,14 13 7 16 17 7 18 17 18 19 19 4,766 5,411 2,723 402 394 13,696 2,312 9,230 466 5,318 17,326 31,022 3,831 1,326 - 679 5,836 843 - 58 901 6,737 24,285 80,341 1,580 (57,636) 24,285 11,017 5,658 763 400 1,089 18,927 1,539 11,793 504 4,831 18,667 37,594 2,879 164 209 1,236 4,488 25 3,054 112 3,191 7,679 29,915 79,893 2,010 (51,988) 29,915                         CO NS O L I DAT E D STAT E M E N T O F CH A N G E S I N E Q U I T Y FOR THE YEAR ENDED 31 DECEMBER 2018 Consolidated At 1 January 2017 Loss for the year Other comprehensive income Total comprehensive loss Share based payments Options exercised Reversal of un-vested options Treasury shares Acquisition of treasury shares Tax effect relating to share based payment Tax effect relating to share issue cost Contributed Equity Accumulated losses Share based payments reserve Total equity Note $’000 $’000 $’000 $’000 80,075 (50,941) 1,334 - - - - 505 - (7) (706) - 26 (1,047) - (1,047) - - - - - - - - - - 520 - (24) - - 180 - 30,468 (1,047) - (1,047) 520 505 (24) (7) (706) 180 26 At 31 December 2017 79,893 (51,988) 2,010 29,915 At 1 January 2018 Loss for the year Other comprehensive income Total comprehensive loss Share-based payments Reversal of un-vested options Acquisition of treasury shares Tax effect relating to share based payments Tax effect relating to share issue costs Other contributed equity on settlement of contingent consideration for acquisition of KP Electric 25 79,893 (51,988) 2,010 - - - - - (387) - (15) 850 (5,648) - (5,648) - - - - - - - - - 427 (776) - (81) - - 29,915 (5,648) - (5,648) 427 (776) (387) (81) (15) 850 At 31 December 2018 80,341 (57,636) 1,580 24,285 The accompanying notes form part of these financial statements. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 3 1                                           CO NS O L I DAT E D STAT E M E N T O F CAS H F LOWS FOR THE YEAR ENDED 31 DECEMBER 2018 CASH FLOW FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Income tax paid Interest and finance charges paid Interest received Consolidated Entity Note 2018 $’000 2017 $’000 43,001 (47,165) (209) (126) 103 20,461 (27,408) (211) (103) 393 Net cash used in operating activities 20 (4,396) (6,868) CASH FLOW FROM INVESTING ACTIVITIES Payment for acquisition of businesses (net of cash acquired) 25  (2,411) (6,660) Proceeds from sale of property, plant and equipment Intangibles Payments for property plant and equipment 740 - (689) 91 (112) (341) Net cash used in investing activities (2,360) (7,022) CASH FLOW FROM FINANCING ACTIVITIES Payment for acquisition of treasury shares Proceeds from issue of equity instruments Proceeds from borrowings Repayment of borrowings Net cash provided by / (used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Total cash and cash equivalents at the end of the year The accompanying notes form part of these financial statements. 19 19 17 17 (387) - 1,149 (257) 505 (728) 505 190 (771) (804) (6,251) (14,694) 11,017 4,766 25,711 11,017 3 2                                                                   N OT E S TO T H E CO NS O L I DAT E D F I N A N CI A L STAT E M E N TS FOR THE YEAR ENDED 31 DECEMBER 2018 1. Corporate information The consolidated financial statements of Tempo Australia Limited (the Company) and its subsidiaries (collectively, the Group) were authorised for issue in accordance with a resolution of the directors on 29 March 2019. Tempo Australia Limited is a for profit company limited by shares, incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange. The company’s registered office is Level 3, 1060 Hay Street, West Perth WA 6005 Australia. The nature of the operations and principal activities of the consolidated entity are described in the Directors’ Report. 2. Significant accounting policies 2.1. Basis of preparation The consolidated financial statements are general- purpose financial statements, which have been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB). The consolidated financial statements have been prepared on a historical cost basis, except for contingent consideration payable which is measured at fair value. The consolidated financial report is presented in Australian dollars and all values are rounded to the nearest thousand ($’000), except when otherwise indicated, under the option available to the company under ASIC Corporations (Rounding in Financial/Director’s Reports) Instrument 2016/191. The Company is an entity to which this legislative instrument applies. The accounting policies have been consistently applied to all the years presented, except for the impact of adopting of new accounting standards. During the year ended 31 December 2018 the Group adopted AASB 15 Revenue from contracts with customers and AASB 9 Financial instruments. The impact of the adoption of these new standards is discussed further in Note 2.4. Compliance with International Financial Reporting Standards (IFRS) The financial report also complies with the IFRS as issued by the International Accounting Standards Board (IASB). 2.2. Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2018. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has: • Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee) • Exposure, or rights, to variable returns from its involvement with the investee • The ability to use its power over the investee to affect its returns Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: The contractual arrangement(s) with the other vote holders of the investee • Rights arising from other contractual arrangements • The Group’s voting rights and potential voting rights The Group re-assesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of Other Comprehensive Income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non- controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 3 3 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 2.3. Summary of significant accounting policies • Expected to be realised or intended to be sold or a. Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as a liability that is a financial instrument and is measured at fair value with the changes in fair value recognised in the statement of profit or loss. Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained. b. Current versus non-current classifications The Group presents assets and liabilities in the statement of financial position based on a current/non-current classification. An asset is current when it is: 3 4 consumed in the normal operating cycle • Held primarily for the purpose of trading • Expected to be realised within twelve months after the reporting period or • Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period All other assets are classified as non-current. A liability is current when: • It is expected to be settled in the normal operating cycle • It is held primarily for the purpose of trading • It is due to be settled within twelve months after the reporting period or • There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non- current assets and liabilities. c. Revenue from contracts with customers Revenue from contracts with customers is recognised when goods and services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods and services. The Group has generally concluded that it is the principal in its revenue arrangements because it typically controls the goods and services before transferring them to the customer. Maintenance and construction electrical services The Group provides maintenance and construction electrical services. The Group assesses each contract to identify the performance obligations and transaction price within the contract. The total transaction price is allocated to performance obligations based on relative standalone selling prices. For those contracts where the customer simultaneously receives and consumes the goods and service provided by the Group; the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or work is performed on assets that have no alternative use to the Group and the Group has a right to payment for performance to date, revenue is recognised over time. Where the criteria to recognise revenue over time is not satisfied the group recognises revenue at a point in time. If the consideration in the contract includes a variable amount, typically for cost plus contracts or contracts with a schedule of rates, the Group estimates the amount of the consideration to which it is entitled in exchange for transferring the goods and services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant reversal of the cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Certain contracts are subject to claims which are enforceable under the contract. If the claim does not result in any additional goods or services, the transaction price is updated and the claim accounted for as variable consideration. Where appropriate, the Group applies the variable consideration allocation exception to allocate variable consideration to distinct services in a contract where the contract includes a series of distinct services that form a single performance obligation. For other contracts where the Group has a right to consideration in an amount that corresponds directly with the value to the customer of the Group’s performance completed to date, the Group utilised the practical expedient to recognise revenue in the amounts to which the Group has a right to invoice. In all other cases, in recognising revenue over time, the group applies an input method to measure the Group’s progress towards satisfying the performance obligation by comparing costs incurred to date, mainly labour and consumables, to the total expected costs. Project fulfilment costs Contract fulfilment costs are expensed as incurred except where they generate or enhance resources of the Group that will be used to satisfy future performance obligations in which case they are capitalised and amortised over the course of the contract. Contract assets A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group transfers goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration. If the Group’s right to an amount of consideration is unconditional (other than the passage of time), the contract asset is classified as a receivable. The disclosures of significant accounting judgements, estimates and assumptions relating to revenue from contracts with customers are provided in Note 3. d. Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset. When the Group receives grants of non-monetary assets, the asset and the grant are recorded at nominal amounts and released to profit or loss over the expected useful life of the asset, based on the pattern of consumption of the benefits of the underlying asset by equal annual instalments. e. Income Tax Current income tax Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred tax Deferred tax is provided using the full liability balance sheet method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary differences, except: • When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss • In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except: • When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss • In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 3 5 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S become probable that future taxable profits will allow the deferred tax asset to be recovered. been discounted to their present values in determining recoverable amounts. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity. Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognised subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it reflects new information obtained about facts and circumstances that exist at the acquisition date that, if known, would have affected the amount recognised at that date where recognised during the measurement period or recognised in profit or loss. The Group offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. Tax consolidated group Tempo Australia Limited and its wholly-owned Australian resident subsidiaries formed a tax consolidated group with effect from 1 July 2005. In addition to its own current and deferred tax amounts, Tempo Australia Limited also recognises the current tax liabilities (or assets) and deferred tax liabilities (or assets) arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. f. Property plant and equipment Plant and equipment is carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a re-valued asset. A formal assessment of the recoverable amount is made when impairment indicators are present. The carrying amount of plant and equipment is reviewed annually by the directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have 3 6 Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other repairs and maintenance are recognised as an expense in the statement of comprehensive income during the financial period in which they are incurred. Depreciation is provided on a straight-line basis and diminishing-value basis over the asset’s useful life to the consolidated entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of the unexpired period of the lease and the estimated useful lives of the improvements. The useful lives used are listed as below: Asset Class Furniture and fixtures Computer equipment Plant & Equipment Motor Vehicles Useful live 5 – 10 years 4 years 4 years 6 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income. When re-valued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. g. Leases The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset (or assets) and the arrangement conveys a right to use the asset (or assets), even if that asset is (or those assets are) not explicitly specified in an arrangement. Group as a lessee A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease. Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the statement of profit or loss. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. An operating lease is a lease other than a finance lease. Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term. h. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. i. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Refer to Note 13 for further details. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss in the depreciation and amortisation expense category. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. An intangible asset is derecognised upon disposal (i.e. at the date the recipient obtains control) or where no future economic benefits are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit and loss. Intangible assets have been recognised relating to the acquisition of customer contracts through business combinations. These assets have been measured at their fair value at the date of acquisition and are amortised using the straight-line method over periods of between 2.5 and 3 years. Research and development costs Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate: • The technical feasibility of completing the intangible asset so that the asset will be available for use or sale • Its intention to complete and its ability and intention to use or sell the asset • How the asset will generate future economic benefits • The availability of resources to complete the asset • The ability to measure reliably the expenditure during development Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete, and the asset is available for use. It is amortised over the period of expected future benefit. During the period of development, the asset is tested for impairment annually. j. Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. In 2018 the Group implemented AASB 9 Financial Instruments. Tempo has disclosed the current and prior year accounting policies as below. Pre 1 January 2018 accounting policy Initial recognition and measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the Company commits itself to either the purchase or sale of the asset. Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified “at fair value through profit or loss”, in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Financial instruments are subsequently measured at fair value, amortised cost using the effective interest method, or cost. Amortised cost is calculated as the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 3 7 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) over the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying amount with a consequential recognition of an income or expense item in profit or loss. The consolidated entity does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of Accounting Standards specifically applicable to financial instruments. i. Financial assets at fair value through profit and loss Financial assets are classified at “fair value through profit or loss” when they are held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying amount being included in profit or loss. ii. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial asset is derecognised. iii. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Group’s intention to hold these investments to maturity. They are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial asset is derecognised. iv. Available-for-sale investments Available-for-sale investments are non-derivative financial assets that are either not capable of being classified into other categories of financial assets due to their nature or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. They are subsequently measured at fair value with any re-measurements other than impairment losses and foreign exchange gains and losses recognised in other comprehensive income. When the financial asset is 3 8 derecognised, the cumulative gain or loss pertaining to that asset previously recognised in other comprehensive income is reclassified into profit or loss. Available-for-sale financial assets are classified as non-current assets when they are expected to be sold after 12 months from the end of the reporting period. All other available-for-sale financial assets are classified as current assets. v. Financial liabilities Non-derivative financial liabilities other than financial guarantees are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial liability is derecognised. Post 1 January 2018 accounting policy Financial Assets Initial recognition and measurement Financial assets are classified at initial recognition, and subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under AASB 15. Refer to the accounting policies in section (d) Revenue from contracts with customers. In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Subsequent measurement For purposes of subsequent measurement, financial assets are classified in four categories: • Financial assets at amortised cost (debt instruments) • Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) • Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) • Financial assets at fair value through profit or loss Financial assets at amortised cost (debt instruments) This is the only category of financial asset that the Group has. The Group measures financial assets at amortised cost if both of the following conditions are met: • The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows and • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group’s financial assets at amortised cost includes trade and other receivables. Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Group’s consolidated statement of financial position) when: • The rights to receive cash flows from the asset have expired or • The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Impairment of financial assets Further disclosures relating to impairment of financial assets are also provided in trade receivables including contract assets (Note 9). The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The Group may consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, and loans and borrowings. Subsequent measurements All financial liabilities are subsequently measured at amortised cost using the EIR method, unless they meet certain criteria to be classified at fair value through profit or loss in accordance with AASB 9. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 3 9 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S This category generally applies to interest-bearing loans and borrowings. For more information, refer to Note 17. The Group has not designated any financial liabilities as at fair value through profit or loss. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss. k. Inventories Inventories are valued at the lower of cost and net realisable value and are comprised entirely of consumables. Cost is determined on a weighted average basis of the direct costs of materials. Inventories determined to be obsolete or damaged are written down to net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. l. Impairments of non-financial assets Further disclosures relating to impairment of non-financial assets are also provided in the following notes: • Intangible assets Note 13 • Goodwill Note 14 The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value-in-use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. The impairment calculation is performed by the Group using a value-in-use model with discounted cash flows. The 4 0 Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a five year period. A long-term growth rate is calculated and applied to project future cash flows after the fifth year. Impairment losses of continuing operations are recognised in the statement of profit or loss in expense categories consistent with the function of the impaired asset. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss. Goodwill is tested for impairment annually in December and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. Intangible assets with indefinite useful lives are tested for impairment annually as at 31 December at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired. m. Cash and short-term deposits Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short- term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Group’s cash management. n. Treasury shares Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. o. 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. When 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 a provision is presented in the statement of profit or loss net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. p. Superannuation, annual leave and long service leave Superannuation The Group makes contributions as defined contributions. There is no defined benefit superannuation scheme operated by the Group. Long service leave and annual leave The Group does not expect its long service leave or annual leave benefits to be settled wholly within 12 months of each reporting date. The Group recognises a liability for long service leave and annual leave measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. q. Share based payments Some employees of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (equity- settled transactions). Equity-settled Transactions The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model, further details of which are given in Note 27. That cost is recognised in employee benefits expense (Note 6), together with a corresponding increase in equity (share-based payment reserves), over the period in which the service and, where applicable, the performance conditions are fulfilled (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in the statement of profit or loss for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions. No expense is recognised for awards that do not ultimately vest because non-market performance and/or service conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. When the terms of an equity-settled award are modified, the minimum expense recognised is the grant date fair value of the unmodified award, provided the original vesting terms of the award are met. An additional expense, measured as at the date of modification, is recognised for any modification that increases the total far value of the share-based payment transaction, or is otherwise beneficial to the employee. Where an award is cancelled by the entity or by the counterparty, any remaining element of the fair value of the award is expensed immediately through profit or loss. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (further details are given in Note 21). 2.4. Changes in accounting policies and disclosures New and amended accounting standards and interpretations The Group applied AASB 9 Financial Instruments (AASB 9) and AASB 15 Revenue from contracts with customers (AASB 15) for the first time during the current year. The nature and effect of the changes as a result of adoption of these new accounting standards are described below. Several other amendments and interpretations apply for the first time in 2018, but do not have a material impact on the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective. AASB 9 The Group has adopted AASB 9 as issued in July 2014 with the date of initial application being 1 January 2018. In accordance with the transitional provisions in AASB 9, comparative figures have not been restated. AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement (AASB 139), bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting. The accounting policies have been updated to reflect the application of AASB 9 for the period from 1 January 2018 (see Note 2.3(j)). T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 4 1 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Classification and measurement Under AASB 9, debt instruments are subsequently measured at fair value through profit or loss (FVPL), amortised cost, or fair value through other comprehensive income (FVOCI). The classification is based on two criteria: the Group’s business model for managing the assets; and whether the instruments’ contractual cash flows represent ‘solely payments of principal and interest’ on the principal amount outstanding (the ‘SPPI criterion’). The SPPI test is applied to the entire financial asset, even if it contains an embedded derivative. Consequently a derivative embedded in a debt instrument is not accounted for separately. At the date of initial application, existing financial assets and liabilities of the Group were assessed in terms of the requirements of AASB 9. The assessment was conducted on instruments that had not been derecognised as at 1 January 2018. In this regard, the Group has determined that the adoption of AASB 9 has impacted the classification of financial instruments at 1 January 2018 as follows: Class of financial instrument presented in the statement of financial position Original measurement category under AASB 139 (i.e. prior to 1 January 2018) New measurement category under AASB 9 (i.e. from 1 January 2018) Cash and cash equivalents Loans and receivables Trade and other receivables Loans and receivables Financial assets at amortised cost Financial assets at amortised cost Trade and other payables Financial liability at amortised cost Financial liability at amortised cost Contingent consideration Financial liability at fair value Financial liability at fair value Borrowings Financial liability at amortised cost Financial liability at amortised cost Carrying value under AASB 139 at 31 December 2017 Carrying value under AASB 9 at 1 January 2018 $’000 11,017 6,421 2,879 3,054 189 $’000 11,017 6,421 2,879 3,054 189 The change in classification has not resulted in any re-measurement adjustments at 1 January 2018. Impairment of financial assets In relation to the financial assets carried at amortised cost, AASB 9 requires an expected credit loss model to be applied as opposed to an incurred credit loss model under AASB 139. The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial asset. In particular, AASB 9 requires the Group to measure the loss allowance at an amount equal to lifetime expected credit loss (“ECL”) if the credit risk on the instrument has increased significantly since initial recognition. On the other hand, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group is required to measure the loss allowance for that financial instrument at an amount equal to the ECL within the next 12 months. As at 1 January 2018, the directors of the Company reviewed and assessed the Group’s existing financial assets for impairment using reasonable and supportable information. The result of the assessment is as follows: Items existing as at 1 January 2018 that are subject to the impairment provisions of AASB 9 Cash and cash equivalents Trade receivables, other receivables and contract assets Credit risk attributes Cumulative additional loss allowance recognised on 1 January 2018 All balances are assessed to have low credit risk as they are either on demand or have short term maturities and held with reputable institutions with high credit ratings. The Group applied the simplified approach and concluded that no additional loss allowance was required at 1 January 2018. $’000: - - 4 2 AASB 15 The Group has adopted AASB 15 as issued in May 2014 with the date of initial application being 1 January 2018. In accordance with the transitional provisions in AASB 15 the standard has been applied using the full retrospective approach. In this regard, the Group applied a practical expedient and did not restate any contracts that were completed at the beginning of the earliest period presented. AASB 15 supersedes AASB 118 Revenue (“AASB 118”), AASB 111 Construction Contracts and related Interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account for revenue arising from contracts with customers. Under AASB 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. Prior to the adoption of AASB 15, the Group accounted for revenue from the provision of services with reference to the stage of completion of the transaction at the end of the reporting period, when the contract could be measured reliably. The stage of completion was determined with reference to the cost of services performed to date as a percentage of total anticipated costs to be performed. Where the outcome could not be estimated reliably, revenue was only recognised to the extent that related expenditure was recoverable. For jobs involving goods, the Group recognises revenue on installation of the goods, when risk and reward of ownership of the goods transfer to the customer. In accordance with AASB 15, the Group is required to present a contract in the Statement of Financial Position as a contract asset or contract liability depending on the relationship between the Group’s performance and the customer’s payment. The Group is obliged to present any unconditional right to payment as a receivable. A contract asset is considered to be unconditional if the right to receive payment is only conditional on the passage of time. Under AASB 118, amounts due from customers were previously included in receivables. At 1 January 2017 and 1 January 2018, all revenue contracts were assessed, and it was determined that the adoption of AASB 15 had no significant impact on the Group other than the reclassification of contract assets net of impairment amounting to $320,000 at 1 January 2017 and $763,000 at 1 January 2018 from trade and other receivables. Standards and interpretations issued but not yet adopted Australian Accounting Standards and Interpretations that are issued, but are not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these new standards and interpretation, if applicable, when they become effective. AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard provides a new lessee accounting model which requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities. Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. AASB 16 contains disclosure requirements for lessees. The Group is continuing its work on the final expected impact of this standard. AASB Interpretation 23 Uncertainty over Income Tax Treatment The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of AASB 112 and does not apply to taxes or levies outside the scope of AASB 112, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following: • Whether an entity considers uncertain tax treatments separately • The assumptions an entity makes about the examination of tax treatments by taxation authorities • How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates • How an entity considers changes in facts and circumstances An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The interpretation is effective for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs are available. The Group will apply the interpretation from its effective date. The Group are in the process of assessing the impact of this interpretation. AASB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share- based Payment Transactions This Standard amends AASB 2 Share-based Payment, clarifying how to account for certain types of share- based payment transactions. The amendments provide requirements on the accounting for: • The effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments • Share-based payment transactions with a net settlement feature for withholding tax obligations • A modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled The Group is in the process of assessing the impact of this interpretation. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 4 3 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S AASB 2018-1 Amendments to Australian Accounting Standards – Annual Improvements 2015–2017 Cycle These improvements include: AASB 3 Business Combinations The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation. An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted. These amendments will apply on future business combinations of the Group. AASB 11 Joint Arrangements A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in AASB 3. The amendments clarify that the previously held interests in that joint operation are not remeasured. An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted. These amendments are currently not applicable to the Group but may apply to future transactions. AASB 112 Income Taxes The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognises the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events. An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with early application permitted. When an entity first applies those amendments, it applies them to the income tax consequences of dividends recognised on or after the beginning of the earliest comparative period. Since the Group’s current practice is in line with these amendments, the Group does not expect any effect on its consolidated financial statements. AASB 123 Borrowing Costs The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete. An entity applies those amendments to borrowing costs incurred on or after the beginning of the annual reporting 4 4 period in which the entity first applies those amendments. An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with early application permitted. Since the Group’s current practice is in line with these amendments, the Group does not expect any effect on its consolidated financial statements. AASB 2018-6 Definition of a Business (Amendments to AASB 3) The Standard amends the definition of a business in AASB 3 Business Combinations. The amendments clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. The Group are in the process of assessing the impact of this interpretation. AASB 2018-7 Definition of Material (Amendments to AASB 101 and AASB 108) This Standard amends AASB 101 Presentation of Financial Statements and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of ‘material’ across the standards and to clarify certain aspects of the definition. The amendments clarify that materiality will depend on the nature or magnitude of information. An entity will need to assess whether the information, either individually or in combination with other information, is material in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. Since the Group’s current practice is in line with these amendments, the Group does not expect any effect on its consolidated financial statements. 3. Significant accounting judgements, estimates and assumptions The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Other disclosures relating to the Group’s exposure to risks and uncertainties includes: • Financial instruments risk management and policies Note 17. • Sensitivity analyses disclosures Notes 14. Judgements In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements: Revenue from contracts with customers The Group applied the following judgements that significantly affect the determination of the amount and timing of revenue from contracts with customers: Determining the timing of electrical and telecommunications repairs and maintenance services The Group concluded that revenue for electrical and telecommunications repairs and maintenance services is to be recognised over time because the customer simultaneously receives and consumes the benefits provided by the Group. The fact that another entity would not need to re-perform work that the Group has provided to date demonstrates that the customer simultaneously receives and consumes the benefits of the Group’s performance as it performs. Determining the timing of construction and electrical project work The Group concluded that revenue for electrical project work and construction work is to be recognised over time. Factors that were considered include the act that the Group’s performance does not create an asset with an alternative use, the Group is entitled to payment for performance to date and the customer controls the asset as the entity creates or enhances it. The Group determined that the input method based on costs incurred to date compared to total expected costs is the best method in measuring progress because there is a direct relationship between the Group’s effort (i.e. costs incurred) and the transfer of services to the customer. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur. Revenue from contracts with customers - Variable consideration Certain contracts contain provisions for liquidated damages which would be considered variable consideration.  The group has applied judgement in not constraining revenue for this variable consideration on the basis that there is no history of significant reversals of revenue in relation to liquidated damages. Impairment of non-financial assets Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value-in- use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs of disposing of the asset. The value- in-use calculation is based on a discounted cash flow (DCF) model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the performance of the assets of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill and other intangibles with indefinite useful lives recognised by the Group. The key assumptions used to determine the recoverable amount for the different CGUs, including a sensitivity analysis, are disclosed and further explained in Note 15. Provision for expected credit losses of trade receivables and contract assets The Group uses a provision matrix to calculate ECLs for trade receivables and contract assets. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns (i.e., by geography, product type, customer type). The provision matrix is initially based on the Group’s historical observed default rates and adjusted for forward- looking information. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. The information about the ECLs on the Group’s trade receivables and contract assets is disclosed in Note 9. Taxes Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies. The Group has $11,407,000 (2017: $6,986,000) of tax losses carried forward. These losses relate to subsidiaries that have a history of losses, do not expire, and may be used to offset taxable income elsewhere in the Group. The Group has determined that its deferred tax assets is recoverable based on the expectation of future taxable income and has no unrecognised deferred tax assets. Further details on taxes are disclosed in Note 7. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 4 5 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 4. Revenue and other income Revenues from contracts with customers Interest revenue calculated using the effective interest method Other income Total revenue and other income Consolidated entity 2018 $’000 40,492 103 1,198 2017 $’000 18,114 393 1,128 41,793 19,635  Revenue from contracts with customers by type of customer Consolidated entity Government and infrastructure Commercial Education and aged care Resources Other 2018 $’000 11,540 24,689 1,789 2,120 354 2017 $’000 6,541 8,230 609 1,697 1,037 Total revenue from contracts with customers 40,492 18,114 The transaction price allocated to the remaining performance obligations as described in Note 2.3(c) (unsatisfied or partially unsatisfied as at 31 December) is as follows: Consolidated entity 2018 $’000 15,630 Consolidated entity 2018 $’000 110 - 18 128 2017 $’000 86 296 - 382 Within one year 5. Other expenses Candidate screening cost Movement in allowance for impairments Movement in allowance for expected credit losses Total other expenses 4 6     6. Employee and director expenses Salaries, wages and other payroll expenses Share based payments Other staff expenses Consolidated entity 2018 $’000 18,927 (349) 1,592 2017 $’000 11,775 520 422 Total employee and director expenses 20,170 12,717 Income tax 7. The major components of income tax expense for the years ended 31 December 2018 and 2017 are: Current income tax Current tax benefit Conversion of prior year balances to 27.5% tax rate Adjustments in respect of previous years Deferred income tax Temporary differences Adjustments in respect of previous years Conversion of prior year balances to 27.5% tax rate Income tax benefit reported in the income statement Contributed Equity Conversion of prior year balances to 27.5% tax rate Blackhole expenses Share-based payments reserve Conversion of prior year balances to 27.5% tax rate Employee share trust contributions Income tax (expense)/benefit reported in the equity statement Consolidated entity 2018 $’000 1,390 (344) - (527) (104) (61) 354 2017 $’000 2,033 - (4) (1,165) 354 - 1,218 Consolidated entity 2018 $’000 2017 $’000 (3) (12) (25) (56) (96) - 26 - 180 206 T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 4 7       N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Income tax (continued) 7. A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s application income tax rate is as follows: Accounting loss before income tax Tax at Australia’s statutory income tax rate of 27.5% (2017: 30%) Tax effect of amounts which are not deductible in calculating taxable income Conversion of prior year balances to 27.5% tax rate Other Adjustments in respect of previous years Income tax benefit at the effective tax rate of 6% (2017: 54%) Income tax benefit reported in the statement of comprehensive income Deferred income tax at 31 December relates to the following: Deferred tax assets Carried forward tax losses Research and development tax credits Accrued expenses Employee benefits Share based payment reserve Trade and other receivables Others Offset of deferred tax liabilities Net deferred tax assets Deferred tax liabilities Inventory Prepayment and receivables Plant and equipment Intangibles Works in progress Offset against deferred tax asset Net deferred tax liabilities Consolidated entity 2018 $’000 (6,002) 1,651 (888) (405) 101 (105) 354 354 2017 $’000 (2,265) 680 - - 184 354 1,218 1,218 Consolidated entity 2018 $’000 3,137 2,146 37 276 5 81 23 (387) 5,318 13 40 80 128 126 (387) - 2017 $’000 2,024 2,036 92 512 299 89 43 (264) 4,831 14 122 10 118 - (264) - In 2018 the Group disaggregated the carried forward tax losses and research and development tax credits to provide better visibility. 4 8     The Group has recognised a deferred tax asset on carried forward losses and unused tax credits on the basis that it expects sufficient future taxable income to be generated to utilise these carried forward losses and unused tax credits. In making this determination the group has considered the additional contracts entered into during the year as well as the pipeline of projects currently being negotiated with its customers. The movement of the current and deferred tax relates to the following: Consolidated Entity Deferred Income Tax 2018 $’000 4,831 354 305 (15) (81) (76) 5,318 5,318 5,318 Opening balance Income tax benefit recognised in profit and loss R&D income recognised as government grant Charged to equity Charged to reserves Additions through business combination Closing balance - Current Income Tax 2018 $’000 - - - - - - Amounts recognised on the consolidated statement of financial position Deferred tax asset Closing Balance 8. Cash and short-term deposits Cash at bank and on hand Short term deposits Cash and cash equivalents 9. Trade and other receivables CURRENT Trade receivables Allowance for impairments Allowance for expected credit losses Other receivables Current Income Tax 2017 $’000 - - - - - (209) (209) Deferred Income Tax 2017 $’000 2,828 1,218 594 135 - 56 4,831 4,831 4,831 Consolidated entity 2018 $’000 3,766 1,000 4,766 2017 $’000 2,856 8,161 11,017 Consolidated entity 2018 $’000 2017 $’000 Restated 4,944 5,431 - (63) 530 (58) - 285 Total current trade and other receivables 5,411 5,658 Trade receivables are non-interest bearing and are generally on terms of 14 to 60 days. The Group assessed the impact of the integration of the KP Electric business for a full financial year and the acquisition of Comsite Services for the 6 months and subsequently adjusted the gross carrying amount of the loss allowance. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 4 9           N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Trade and other receivables (continued) 9. Set out below is the movement in the allowance for expected credit losses of trade receivables: As at 1 January Provision for impairments Provision for expected credit losses (Note 17) Provision used during the period As at 31 December The information about the credit exposures are disclosed in Note 17. 10. Contract assets Contract assets Allowance for impairments Allowance for expected credit loss Total contract assets Set out below is the movement in the allowance for expected credit losses of contract assets: As at 1 January Provision for impairments Provision for expected credit losses (Note 17) Written off during the period Provision used during the period As at 31 December Consolidated entity 2018 $’000 58 - 5 - 63 2017 $’000 Restated - 58 - - 58 Consolidated entity 2018 $’000 2,774 - (51) 2,723 2017 $’000 Restated 1,001 (238) - 763 Consolidated entity 2018 $’000 238 - 18 (5) (200) 51 2017 $’000 Restated - 238 - - - 238 Contract assets are initially recognised for revenue earned from maintenance and constructions services where the receipt of consideration is conditional. Once unconditional the amounts recognised as contract assets are reclassified to trade receivables. Contract assets increased in 2018 due to increased volume from business acquisitions as well as more construction services projects. In 2018, $18,000 (2017 (Provision for impairment): $238,000) was recognised as provision for expected credit losses on contract assets. No revenue was recognised during the year (2017: Nil) for performance obligations satisfied in previous years. 5 0       11. Inventories Consumables Total inventories at the lower of cost and net realisable value 12. Plant and Equipment Furniture and fixtures – gross carrying value at cost Furniture and fixtures – accumulated depreciation Net book value furniture and fixtures Plant and equipment – gross carrying value at cost Plant and equipment – accumulated depreciation Net book value plant and equipment Computer equipment – gross carrying value at cost Computer equipment – accumulated depreciation Net book value computer equipment Motor vehicles – gross carrying value at cost Motor vehicles – accumulated depreciation Net book value motor vehicles Total gross carrying value at cost Total accumulated depreciation Total net book value Consolidated entity 2018 $’000 402 402 2017 $’000 400 400 Consolidated entity 2018 $’000 468 (123) 345 1,236 (117) 1,119 941 (525) 416 776 (344) 432 3,421 (1,109) 2,312 2017 $’000 202 (88) 114 256 (100) 156 834 (346) 488 918 (137) 781 2,210 (671) 1,539 T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 5 1     N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 12. Plant and equipment (continued) Reconciliation of the carrying amounts at the beginning and end of the current financial year: Furniture and fixtures Plant and equipment Computer equipment Balance at 1 January 2017 Additions Additions through business combinations [Note 25] Disposals Depreciation expense Balance at 31 December 2017 Additions Additions through business combinations [Note 25] Disposals Depreciation expense Balance at 31 December 2018 $’000 $’000 55 69 50 - (60) 114 329 - (63) (35) 345 49 21 134 - (48) 156 925 63 (8) (17) 1,119 $’000 500 98 44 - (154) 488 110 - (3) (179) 416 Motor vehicles $’000 288 153 570 (101) (129) 781 264 93 (500) (206) 432 Total $’000 892 341 798 (101) (391) 1,539 1,628 156 (574) (437) 2,312 The carrying value of plant and machinery held under finance leases contracts at 31 December 2018 was $890,000 (2017: $28,000). Additions during the year include $947,000 (2017: $8,000) of plant and equipment and motor vehicles under finance leases. Leased assets and assets under hire purchase contracts are pledged as security for the related finance lease liability. 13. Intangible assets and Goodwill Goodwill $’000 Customer Relationships Productivity Tool $’000 $’000 3,118 - 8,675 11,793 555 12,348 - - 473 473 275 748 - 112 - 112 - 112 Goodwill $’000 Customer Relationships Productivity Tool $’000 $’000 - - - - 3,118 3,118 - 81 81 202 - 283 - - - - 112 112 Total $’000 3,118 112 9,148 12,378 830 13,208 Total $’000 - 81 81 202 3,230 3,513 Cost  Balance at 1 January 2017 Additions – internally developed Acquisition of a subsidiary Balance at 31 December 2017 Acquisition of a subsidiary Balance at 31 December 2018 Amortisation and impairment At 1 January 2017 Amortisation Balance at 31 December 2017 Amortisation Impairment Balance at 31 December 2018 5 2   Net book value At 31 December 2018 At 31 December 2017 Goodwill $’000 9,230 11,793 Customer Relationships Productivity Tool $’000 466 392 $’000 - 112 Total $’000 9,696 12,297 Management assessed the costs recognised at 31 December 2017 in relation to the productivity tool and subsequently impaired them. 14. Goodwill impairments For impairment testing, goodwill acquired through business combinations is assessed for impairment within cash generating units (CGUs). As at 31 December 2017 it was determined that there were two CGUs, being (1) labour hire, construction and maintenance, and (2) KP Electric. Goodwill of $3,118,000 was allocated to the labour hire, construction and maintenance CGU as at 31 December 2017. This goodwill was previously recognised as part of a business combination where the Group acquired Industry Partners Pty Ltd and Immigration Partners Pty Ltd (subsequently Tempo Personnel Management Pty Ltd) on 26 June 2012. This acquisition sought to make its profits from labour hire activities. During the period management identified that the labour hire activities would not be continuing, and therefore these activities would be considered as a separate CGU to the remaining construction and maintenance CGU. The labour hire activities ceased during the 2018 year and management fully impaired the goodwill as a result of it being determined that the recoverable value of the CGU was nil. Following the impairment of goodwill, it was determined that the remaining CGUs would be aggregated for the purposes of testing the remaining Goodwill of $9,230,000 for impairment as all remaining CGU’s are interrelated within one operating segment. The recoverable amount of the aggregated CGU was determined based on a value-in-use calculation using cash flow projections from financial budgets approved by the Board. This budget was extrapolated to a five-year forecast based on the assumptions detailed below. The post-tax discount rate applied to cash flow projections is 11.50% (2017: 12.50%) and cash flows beyond the budget period were extrapolated using a 2.4% growth rate (2017: 5%) that is the same as the long-term average growth rate for the electrical services industry. As a result of this analysis, there is headroom of $2,263,000 and management did not identify any further impairment. Key assumptions used in value-in-use calculations and sensitivity to changes in assumptions The calculation of value-in-use is most sensitive to the following assumptions: • Gross margins • Discount rates • Growth rate estimates used to extrapolate cash flows beyond the forecast period Gross margins – Gross margins are based on value achieved during 2018 of 18.2%, with a budgeted uplift of 1.5% associated with the increased efficiency and higher margins generated from the Comsite acquisition. The gross margin used for cash flow periods beyond the budget period was kept at 19.7%. Decreased demand can lead to a decline in the gross margin. A decrease in the gross margin of 0.46% would result in impairment. Discount rates – Discount rates represent the current market assessment of the risks specific to the group of CGUs, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the industry weighted average cost of capital (WACC). The WACC considers both debt and equity. A rise in the post-tax discount rate to 12.83% (i.e. +1.33%) would result in impairment. Growth rate estimates – Rates are based on published industry research. A decrease to 1.1% in the long-term growth rate would result in impairment. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 5 3 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 15. Segment reporting Segment reporting The Group has identified its operating segment based on internal management reporting that is reviewed by the Board of Directors (chief operating decision makers) in assessing performance and determining the allocation of resources. It was concluded that the Group has one segment and the segment operates in only one geographical area, being Australia. Major customers The consolidated entity has a number of customers to which it provides services. The consolidated entity supplies a single external customer which accounts for 24% of external revenue (2017: 9%). The next most significant customer accounts for 9% (2017: 8%). 16. Trade and other payables Trade payables Other payables Total payables Consolidated entity 2018 $’000 2,068 1,763 3,831 2017 $’000 1,521 1,358 2,879 17. Financial liabilities 17.1. Financial liabilities: Interest-bearing loans and borrowing Consolidated entity Interest Rate % Maturity 2018 $’000 2017 $’000 Current interest-bearing loans and borrowings Obligations under finance leases (Note 22) 4.80% 2019 NAB Invoice Finance Facility ($10,000,000 Facility) 6.59% On Demand Total current interest-bearing loans and borrowings  Non-current interest-bearing loans and borrowings Obligations under finance leases (Note 22) 4.80% 2020-2022 Non-current interest-bearing loans and borrowings Total interest-bearing loans and borrowings 177 1,149 1,326 843 843 2,169 164 - 164 25 25 189 Tempo has a $10,000,000 Invoice Finance Facility with the National Australia Bank Limited (‘NAB’). This facility attracts a variable interest rate. At 31 December the effective rate was 4.80%. At 31 December 2018 $8,851,000 was unused (2017: $10,000,000). It is secured by a first ranking general security interest, a security interest registered pursuant to the Invoice Finance Facility Agreement and a Guarantee and Indemnity given by the Company. The Group has an asset finance leasing facility with NAB of $1,000,000. At 31 December 2018 the amount of the facility that was unused was $126,000. This facility wasn’t in place at 31 December 2017. Other finance leases in relation to financing of plant, vehicles and other equipment amount to $146,000 (2017: $189,000). All finance liabilities are repayable on demand except for finance leases. Refer to Note 22 for the relevant maturity profile of these finance leases. 5 4         17.2. Financial liabilities: Bank Guarantees and Surety Bonds The Group has surety bond facilities of $7 million (2017: $14.5 million). At 31 December 2018 bonds valued at $795,000 had been issued (2017: $20,000). The bond premium rate is 1.5% per annum on the face value of each bond. As at 31 December 2018 the Company had bank guarantees issued of $75,000 (2017: $227,000) which were secured by term deposits. Corresponding term deposits of $75, 000 (2017: $227,000) are recorded in other assets. 17.3. Fair values The carrying value of all current financial assets and liabilities approximates the fair value largely due to the short-term maturity of these instruments. Non-current financial liabilities are recognised at a discount value implicit in the finance leases (refer Note: 22). Set out below is a comparison of the carrying amounts and fair values of the Group’s financial instruments, other than those with carrying amounts that are reasonable approximations of fair values: Non-current interest-bearing loans and borrowings Obligations under finance leases (Note 22) Consolidated Entity 2018 2017 Carrying amount Fair value Carrying amount Fair value $’000 843 843 $’000 913 913 $’000 $’000 25 25 25 25 The fair value of obligations under finance leases is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. The valuation requires management to use unobservable inputs in the model, of which the significant unobservable inputs are disclosed in the tables below (level3 in the fair value hierarchy). Management regularly assesses a range of reasonably possible alternatives for those significant unobservable inputs and determines their impact on the total fair value. 17.4. Changes in liabilities arising from financing activities Consolidated Entity 1 January 2018 Cash flows New Leases Other 31 December 2018 Current interest-bearing loans and borrowings (excluding items listed below) Current obligations under finance leases Non-current obligations under finance leases 164 25 Total liabilities from financing activities 189 - 1,149 (257) - 892 - 186 902 - 1,149 84 (84) 177 843 1,088 - 2,169 Consolidated Entity 1 January 2017 Cash flows New Leases Other 31 December 2017 Current interest-bearing loans and borrowings (excluding items listed below) Current obligations under finance leases Non-current obligations under finance leases Total liabilities from financing activities - 690 45 735 - (736) - (736) - 190 - 190 - 20 (20) - - 164 25 189 The ‘Other’ column includes is the reclassification of non-current portion of interest-bearing loans and borrowings (finance leases) to current due to the passage of time. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 5 5   N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 17. Financial liabilities (continued) 17.5. Financial instruments risk management objectives and policies The Group’s principal liabilities comprise loans and borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the Group’s operations. The Group’s principal financial assets include trade receivables and cash and short-term deposits that derive directly from its operations. The Group has determined that there is no material market, credit, liquidity or interest risk in relation to the cash or other receivables held in deposits. The Group is exposed to market risk, credit risk and liquidity risk. Interest rate risks are not considered as significant. The Group’s senior management oversees the management of these risks under the policies approved by the Risk, HSE and Commercial Committee and the Board. Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market price. Market risk comprises three types of risk, interest rate risk, foreign currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include loans and borrowings, deposits and debt. The sensitivity analyses in the following sections relate to the position as at 31 December in 2018 and 2017. Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s long-term debt is secured with fixed interest rates. All long-term deposits have a fixed interest rates. As a result, the Board believes there is no material interest rate risk. Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Group’s has minimal to this risk profile. Other price risk The Group does not have any equity instruments or commodity risk exposure. Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with reputable banks and financial institutions. Credit quality of a customer is assessed prior to engagement. Outstanding customer receivables are regularly monitored. At 31 December 2018 the Group had 6 customers (2017: 8) that owed the Group more than $200,000 each and accounted for approximately 57% (2017: 62%) of all receivables. There were 3 customers (2017: 3) with balances over $500,000 accounting for 45% of all receivables (2017: 32%) of the total receivables balance. An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses (“ECL”). The provision rates are based on days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written-off if past due for more than one year and are not subject to enforcement activity. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 9. The Group does not hold collateral as security. The Group evaluates the concentration risk with respect to trade receivables as low, as its customers are located within several industries and operate in largely independent markets. 5 6 The customers are grouped into four different categories: Customer Type Listed public companies Government departments/agencies Not for profit organisations Commercial businesses Total trade receivables Consolidated Entity Risk Assessment Very Low Very Low Very Low Moderate 2018 $’000 3,718 764 135 327 4,944 2017 $’000 2,793 1,000 53 1,585 5,431 Historically the Group’s ECL has been extremely low. Impairment charges (under AASB 139) over the 5 years 2013 to 2017 inclusive averages to 0.023% of the total trade receivables per year. Set out below is the information about the credit risk exposure on the Groups trade receivables and contract assets using a provision matrix: 31 December 2018 Expected credit loss rate Total gross carrying amount Expected credit loss Total ECL provision 31 December 2017 Total gross carrying amount Trade receivables Other receivables Contract assets Specific Provision Total Liquidity Risk Contract assets $’000 1.84% 2,774 51 51 0-30 Days 31-60 Days 61-90 Days >90 Days Trade receivables $’000 0.25% 1,724 4 4 $’000 0.25% 1,579 4 4 $’000 2.00% 680 14 14 $’000 4.25% 961 41 41 0-30 Days 31-60 Days 61-90 Days >90 Days $’000 $’000 $’000 $’000 3,975 285 1,001 (296) 4,965 829 545 - - - - - - 829 545 82 - - - 82 Total $’000 1.48% 7,718 114 114 Total $’000 5,431 285 1,001 (296) 6,421 The Group monitors its risk of a shortage of funds using by utilising liquidity planning tools across a 15-month horizon. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of short-term borrowings and finance leases. The Group assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. The Group has access to a variety of sources of funding and the majority of the debt maturing within 12 months can be rolled over with existing lenders. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 5 7 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 18. Provisions Current provisions Employee benefits Other provisions Total current provisions Non - current provisions Employee benefits Total non - current provisions Total provisions Employee benefits Consolidated entity 2018 $’000 679 - 679 58 58 2017 $’000 1,193 43 1,236 112 112 737 1,348 Provision for employee benefits represents amounts accrued for annual leave, rostered days off, staff retentions and long service leave. Consolidated entity 2018 $’000 1,305 - 1,103 (1,671) 737 2017 $’000 2,600 654 1,253 (3,202) 1,305 Consolidated entity 2018 $’000 43 - (43) - 2017 $’000 2,677 1,069 (3,703) 43 Carrying amount at the beginning of period Additions through business combination Additional provision made Amounts used Total employee benefits provisions Other provisions Carrying amount at the beginning of period Additional provision made Amounts used Total other provisions 5 8                     19. Contributed entity Ordinary shares fully paid Treasury shares Other contributed equity Consolidated entity Note 19(a) 19(b) 19(c) 2018 $’000 79,491 - 850 2017 $’000 79,919 (26) - 80,341 79,893 Ordinary Shares Fully paid ordinary shares carry one vote per share and carry the right to dividends. Consolidated entity Consolidated entity 2018 2017 19(a) Movements in ordinary shares # of shares Balance as at the beginning of the year 240,804,581 Option exercised - proceeds received Deduct cost of treasury shares Tax effect relating to share issue cost - - - $’000 79,919 - (413) (15) # of shares 240,804,581 - - - $’000 80,094 505 (706) 26 Balance as at the end of the year 240,804,581 79,491 240,804,581 79,919 Treasury shares The share-based payments reserve is used to recognise the value of equity-settled share-based payments provided to employees, including key management personnel, as part of their remuneration. Refer to Note 27 for further details of the plan. 19(b) Movements in treasury shares # of shares $’000 # of shares $’000 Consolidated entity Consolidated entity 2018 2017 Balance as at the beginning of the year Acquisition of on-market shares Issue of shares under Employee Share Incentive Rights Plan Other Balance as at the end of the year 19(c) Other contributed equity (109,733) (2,040,267) 2,150,000 - - (26) (387) 413 - - (85,000) (3,524,733) 3,500,000 - (109,733) (19) (708) 706 (5) (26) Other contributed equity relates 3,863,636 ordinary shares that will be issued in July 2019 on settlement of contingent consideration for acquisition of KP Electric. Refer to Note 25 for further details. T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 5 9             N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 19. Contributed entity (continued) Share based payments reserve The share-based payments reserve is used to recognise the value of equity-settled share-based payments provided to employees, including key management personnel, as part of their remuneration. Refer to Note 27 for further details of the plan. Balance as at the beginning of the year Share-based payments Reversal of unvested options Tax effect relating to share-based payments Balance as at the end of the year Capital risk management 2018 $’000 2,010 427 (776) (81) 1,580 2017 $’000 1,334 520 (24) 180 2,010 For the purpose of the Group’s capital management, capital includes issued capital and all other equity reserves attributable to the equity holders of the parent. The primary objective of the Group’s capital management is to maximise the shareholder value. The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the consolidated entity may adjust the dividends paid to shareholders or issue new shares. The consolidated entity’s capital risk management policy remains unchanged from the Annual Report for the year ended 31 December 2017. 20. Cash flow reconciliation Reconciliation of the net loss after tax to the net cash flows from operating activities Net loss Non-operating cash items Depreciation Amortisation Impairment of intangible assets Interest expense on deferred consideration (Profit)/loss on sale of assets ESOP, option and performance rights expenses Gain on settlement of contingent consideration for KP Electric acquisition Changes in assets and liabilities Trade and other receivables Inventories Other assets Trade and other payables Provisions Deferred tax assets Net operating cash outflows 6 0 Consolidated entity 2018 $’000 2017 $’000 (5,648) (1,047) 437 201 3,230 - (165) (349) (555) (2,018) (2) 694 961 (605) (577) (4,396) 390 81 - 158 11 496 - 2,122 (66) (459) (2,016) (4,584) (1,954) (6,868)                 21. Loss per share (LPS) Basic LPS is calculated by dividing the loss for the year attributable to ordinary equity holders of the parent by the weighted average number of the ordinary shares outstanding during the year. There were no options outstanding at the end of 2018 (2017: 2,000,000). The following table reflects the loss and share data used in the basic EPS calculations: The following reflects the loss and share data used in the calculations of basic and diluted loss per share Net loss after tax Loss used in calculating basic and diluted loss per share Consolidated entity 2018 $’000 2017 $’000 (5,648) (5,648) (1,047) (1,047) Weighted average number of ordinary shares used in calculating basic loss per share 240,804,581 240,804,581 Effect of dilutive securities Share options Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share - - 240,804,581 240,804,581 There have been no transactions involving ordinary shares between the reporting date and date of completion of these financial statements. 22. Lease expenditure commitments Operating lease commitments The Group has entered into operating leases for property and motor vehicles, with lease terms between one and four years. The Group has the option, under some of its leases, to lease the assets for additional terms of one to three years. Future minimum rentals payable under non-cancellable operating leases as at 31 December are, as follows: Within one year After one year but not more than five years More than five years Aggregate lease expenditure contracted for at reporting date The entity had no capital commitments as at 31 December 2018 (2017: Nil) Consolidated entity 2018 $’000 761 726 - 1,487 2017 $’000 322 40 - 362 T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 6 1             N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 22. Lease expenditure commitments (continued) Finance lease commitments The group has finance leases for various items of plant and machinery. The Group’s obligations under finance leases are secured by the lessor’s title to the leased assets. Future minimum lease payments under finance leases and hire purchase contracts, together with the present value of the net minimum lease payments are, as follows: Consolidated entity 2018 2017 Present value of payments Minimum Payments Present value of payments $’000 177 843  - - - 1,020 $’000 166 25 - 207 (19) 189 $’000 164 25 - 189 - 189 Minimum Payments $’000 220 919 - 1,139 (119) 1,020 Within one year After one year but not more than five years More than five years Total minimum lease payments Less amounts representing finance charges Present value of minimum lease payments 23. Group information Information about subsidiaries The consolidated financial statements of the Group include: Tempo Resources Solutions Pty Ltd Tempo Engineering Pty Ltd Cablelogic Pty Ltd Tempo Construction & Maintenance Pty Ltd Tempo Personnel Management Pty Ltd Tempo Global Pty Ltd KP Electric (Australia) Pty Ltd Information about subsidiaries Consolidated entity Country of Incorporation Australia Australia Australia Australia Australia Australia Australia 2018 100% 100% 100% 100% 100% 100% 100% 2017 100% 100% 100% 100% 100% 100% 100% The immediate and ultimate holding company of the Group is Tempo Australia Ltd which is based and listed in Australia. 6 2       24. Related party disclosures Note 23 provides information about the Group’s structure, including details of the subsidiaries and the holding company. The following table provides the total amount of transactions that have been entered into with related parties for the relevant year. For the year ended 31 December 2017 there were no additional transactions with related parties. Bontempo Nominees Pty Ltd Angophora Capital Pty Ltd * This amount is classified as trade payables. Consolidated entity Purchases from related parties Amounts owed to related parties* $’000 $’000 10 38 - 38 The balances relate to consulting and project management services and are on 30-day terms with no interest penalties. Outstanding balances at year-end are unsecured and interest free and settlement occurs in cash. Compensation of key management personnel of the Group Short-term employee benefits Post-employment benefits Long-term benefits Termination benefits Share-based payment Total benefits Consolidated entity 2018 $’000 637 64 97 342 (345) 795 2017 $’000 807 53 62 - 480 1,402 T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 6 3   N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 25. Business combinations Acquisitions in 2018 On 1 July 2018, the Group acquired assets and liabilities from Comsite Services Pty Ltd (“Comsite”), a non-listed company based in Australia and specialising in end-to-end telecommunication maintenance services on mobile network infrastructure across regional NSW, ACT and Southern Queensland. The Group acquired Comsite because it enlarged the existing telecommunication maintenance services that was already offered to clients. The fair values of the identifiable assets and liabilities of the Comsite business as at the date of acquisition were: ASSETS Property, plant and equipment Customer relationship intangibles Total Assets LIABILITIES Borrowings and interest-bearing liabilities Deferred tax liability Total liabilities Total identifiable net assets at fair value Cash used to acquire business Goodwill arising on acquisition Final fair value $’000 157 275 432 148 76 224 208 763 555 The goodwill of $555,000 comprises the value of expected synergies arising from the acquisition, which is not separately recognised. The business purchase agreement also contained clauses, relating to future payments to the former owners of Comsite, based on business performance and the continued employment of the personnel. These payments were classified as remuneration for post-combination services and were therefore not classed as contingent consideration on the Business Combination. From the date of acquisition, Comsite contributed $1,678,000 of revenue and $560,000 of profits before tax from continuing operation of the Group. It was not possible to identify what the business would have contributed if it was acquired on 1 January 2018, due to the Group not having access to this financial information. In December 2018 a termination to the business purchase agreement was signed with the former owner of Comsite relinquishing their rights to future remuneration-based business performance. In January 2019 the former owner resigned from their employment with the Group. 6 4                     Acquisitions in 2017 On 24 July 2017, the Group entered into an agreement to acquire KP Electric (Australia) Pty Ltd (“KP Electric”), a leading national electrical services provider, for the cash consideration of $6,651,000 (net of cash acquired of $185,000) and contingent consideration of $2,895,000. The acquisition provides the Group with a stronger national presence. The accounting for this acquisition in the 31 December 2017 financial statements was provisional pending the finalisation of the fair values of the assets and liabilities acquired. The goodwill represents the business’s integrated national footprint, the assembled workforce and the expected synergies with the existing business. Details of the provisional fair value and final fair value are as follows: ASSETS Cash and cash equivalents Trade and other receivables Inventories Prepayments Property, plant and equipment Customer relationship intangibles Deferred tax assets Total Assets LIABILITIES Trade and other payables Borrowing Current tax payable Provisions (including employee benefits) Total liabilities Provisional fair value $’000 Final fair value $’000 175 2,480 696 36 798 473 128 185 2,570 241 36 798 473 55 4,786 4,358 2,048 2,221 73 420 823 20 404 657 3,364 3,302 Total identifiable net assets at fair value 1,422 1,056 Cash used to acquire business Contingent consideration arising on acquisition 6,836 2,895 6,836 2,895 Goodwill arising on acquisition 8,309 8,675 T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 6 5                           N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 25. Business combinations (continued) The changes to the provisional accounting for the business combination took place as a result of management finalising their review of the assets and liabilities acquired. The 2017 comparative information was restated to reflect the adjustment to the provisional amounts. From the date of the acquisition to 31 December 2017, the business contributed $8,163,000 of revenue and $626,000 of profits to the loss before tax for the year ended 31 December 2017. Had the acquisition occurred on 1 January 2017, the business would have contributed $16,663,000 of revenue and $1,569,000 of profits to the loss before tax for the year ended 31 December 2017. The contingent consideration related to an obligation for the Group to pay the former owners of KP Electric where earnings targets are met, up to a maximum of $3,350,000 undiscounted. The fair value of consideration was estimated by applying a probability weighted discounted cash flow model. The fair value measurement is based on inputs that are not observable in the open market which AASB 13: Fair Value Measurement refers to as Level 3 inputs. The key assumption was the probability of achieving the earnings targets which was assumed as 100%. In February 2018 an amendment was made to the share purchase agreement whereby the clauses relating to the contingent consideration were deleted and were instead agreed to be settled by way of a deferred cash consideration of $1,000,000, which was paid in July 2018, and $648,473, which was paid in December 2018, and the future issue of 3,863,636 ordinary shares in July 2019. The shares to be issued have been classified as part of contributed equity in the consolidated statement of financial position. As a result of these changes a gain of $555,000 was recorded in other income in the consolidated statement of comprehensive income. 26. Parent company information 2018 $’000 (2,592) (2,592) 31,908 51,064 40,420 40,906 2018 $’000 80,341 1,580 (71,763) 10,158 2017 $’000 (1,916) (1,916) 9,712 27,543 599 11,831 2017 $’000 83,167 1,716 (69,171) 15,712 Parent Entity Information Loss after income tax Total comprehensive loss Total current assets Total assets Total current liabilities Total liabilities Parent Entity Information Equity Contributed equity Share based payment reserve Accumulated losses Total equity Contingencies The parent entity had no contingent liabilities as at 31 December 2018 (2017: Nil). Capital Commitments The parent entity had no capital commitments as at 31 December 2018 (2017: Nil).   6 6                          27. Share based payments An Employee Share Incentive Right Plan (ESIRP) was established by the Company and approved by shareholders at the general meeting held in May 2013 and renewed at the general meeting held on 31 May 2016. Under the ESIRP the Company may grant options and/or performance rights over ordinary shares in the parent entity to certain employees of the Company. The options and/or performance rights are issued for nil consideration and are granted in accordance with guidelines established by the ESIRP. The expense recognised for employee services received during the year was $427,000 (2017: $520,104). Movements during the year The following tables illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options and performance rights during the year. Performance rights granted during the year (2017: Nil) are valued with reference to the share price at the grant date. Consolidated entity Consolidated entity 2018 2017 Options Outstanding at 1 January Granted during the year Exercised during the year # of options 2,000,000 - - WAEP $0.34 - - # of options 5,500,000 - (3,500,000) Forfeited during the year (2,000,000) $0.34 - Outstanding at 31 December - - 2,000,000 WAEP $0.22 - $0.14 - $0.34 Consolidated entity Consolidated entity 2018 2017 Performance rights # of shares WAEP # of shares WAEP Outstanding at 1 January Granted during the year Exercised during the year Forfeited during the year Outstanding at 31 December 4,945,000 4,700,000 (2,150,000) (6,995,000) 500,000 - - - - - 6,330,000 - - (1,385,000) 4,945,000 - - - - - 28. Auditors remuneration The auditor of Tempo Australia Limited is Ernst & Young Australia. Audit or review of the financial reports Ernst & Young Australia Total Consolidated entity 2018 $ 85,400 85,400 2017 $ 70,000 70,000 29. Subsequent events On 27 February 2019 Tempo announced that it had signed a three-year contract with Woolworths Limited (Woolworths) to provide national electrical maintenance services estimated to be worth $20-25 million in revenue over the initial three-year term. Tempo also announced that it had executed the final contract with Enel Green Power Australia Pty Ltd, in relation to the 34mW Cohuna Solar Farm. The value of the works is $15.1 million over a twelve-month construction period which commenced on 1 March 2019. 30. Contingencies The consolidated entity has no contingent assets or liabilities as at 31 December 2018 (2017: Nil). T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 6 7           D I R E CTO RS’ D E C L A R AT I O N FOR THE YEAR ENDED 31 DECEMBER 2018 The directors declare that the financial statements and notes are in accordance with the Corporations Act 2001 and: a. Comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; b. Give a true and fair view of the financial position of the consolidated entity as at 31 December 2018 and of its performance as represented by the results of their operations and its cash flows, for the year ended on that date; and c. Comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. In the opinion of the directors, there are reasonable grounds to believe the Company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. Guido Belgiorno-Nettis AM Chairman Perth Date: 29 March 2019 6 8 INDEPENDENT AUDITORS REPORT I N D E P E N D E N T INDEPENDENT AUDITOR’S REPORT AU D I TO R’S R E P O RT T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 6 9 75 | P A G E I N D E P E N D E N T A U D I T O R ’ S R E P O R T INDEPENDENT AUDITORS REPORT 7 0 76 | P A G E INDEPENDENT AUDITORS REPORT 77 | P A G E T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 7 1 I N D E P E N D E N T A U D I T O R ’ S R E P O R T INDEPENDENT AUDITORS REPORT 7 2 78 | P A G E INDEPENDENT AUDITORS REPORT 79 | P A G E T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 7 3 I N D E P E N D E N T A U D I T O R ’ S R E P O R T INDEPENDENT AUDITORS REPORT 7 4 80 | P A G E A D D I T I O N A L I N F O R M AT I O N R E Q U I R E D BY ASX CORPORATE GOVERNANCE STATEMENT The purpose of Tempo Australia Ltd (“Tempo”) is to deliver to clients in the resources, industrial and commercial sectors specialist multidisciplinary maintenance and construction services, which protect and enhance their investments, without ever compromising on our values. Whilst doing this the Board is committed to providing a satisfactory return to its shareholders and fulfilling its corporate governance obligations and responsibilities in the best interests of the company and its shareholders. Good governance enables Tempo to deliver this purpose whilst meeting the Board’s intent. The governance structures and processes are defined in Tempo’s Corporate Governance Statement which can be found at https://www.tempoaust.com/corporate. SHAREHOLDER INFORMATION The information below is current at 25 March 2019, and includes additional information required by the Australian Securities Exchange Limited which is not shown elsewhere in this report. SECURITIES EXCHANGE LISTING Quotation has been granted for all the ordinary shares of the company on all Member Exchanges of the Australian Securities Exchange Limited. DISTRIBUTION OF SHAREHOLDERS The number of shareholders, by size of holding, in each class of share is: Category (Size of holding) Number of ordinary shareholders Number of ordinary shares % of issued capital 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total 169 319 117 267 257 226,142,686 12,707,925 946,481 925,672 81,817 1,129 240,804,581 93.91 5.28 0.39 0.39 0.03 100 Non marketable securities totalling a number of 1,043,650 ordinary shares are held by 531 shareholders (2017: 340). There is no current on-market buy-back of securities. OPTIONS AND PERFORMANCE RIGHTS As at 29 March 2018 the Company had 500,000 performance rights over unissued ordinary shares in the Company held by one holder. VOTING RIGHTS On show of hands: one vote for each member on poll: one vote for each share held. SUBSTANTIAL SHAREHOLDERS The names of substantial shareholders disclosed in substantial holding notices given to the Company are: Name Angophora Capital Pty Ltd Bontempo Nominees Pty Ltd Lanyon Asset Management Pty Ltd Number of ordinary shares % of issued capital 44,847,660 42,271,632 15,440,460 18.62 17.45 6.41 T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 7 5 A D D I T I O N A L I N F O R M A T I O N R E Q U I R E D B Y A S X TOP 20 SHAREHOLDERS Rank Name Number of ordinary shares % of issued capital ANGOPHORA CAPITAL PTY LTD BONTEMPO NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED INGLEWOOD LODGE PTY LTD MR IVAN TANNER & MRS FELICITY TANNER NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED KAHLIA NOMINEES PTY LTD MISS SILVANA MASALKOVSKI MR PAUL SANTILLO VANAVO PTY LIMITED METANOMSKI INVESTMENTS PTY LTD MR ANTONIO SCAFFIDI & MRS MARIA SCAFFIDI CHEMCO SUPERANNUATION FUND PTY LTD MASSIMO BERGOMI SUPER RAB PTY LTD MISS VICTORIA ROSE BARTON MRS JENNIFER ANNE CASHION KENNY FAMILY SUPERANNUATION FUND PTY LTD SARGON CT PTY LTD Total Balance of register Grand total 44,847,660 41,702,632 27,093,422 11,274,992 10,000,000 7,750,000 5,925,030 4,780,111 4,000,000 3,477,086 3,050,000 2,150,000 2,100,000 2,030,000 2,000,000 2,000,000 1,500,000 1,305,000 1,256,656 1,200,000 1,180,000 18.62 17.32 11.25 4.68 4.15 3.22 2.46 1.99 1.66 1.44 1.27 0.89 0.87 0.84 0.83 0.83 0.62 0.54 0.52 0.50 0.49 180,622,589 60,181,992 240,804,581 75.01 24.99 100.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 15 16 17 18 19 20 7 6 CO R P O R AT E D I R E C TO RY DIRECTORS Guido Belgiorno-Nettis Chairman Ian Lynass Managing Director and Chief Executive Officer Ian Widdicombe Non-Executive Director David Iverach Non-Executive Director LEADERSHIP TEAM Scott Macdonald Chief Financial Officer and Company Secretary STOCK EXCHANGE LISTING The company’s shares are quoted on the Australian Stock Exchange under the code TPP. REGISTERED OFFICE PRINCIPAL PLACE OF BUSINESS POSTAL ADDRESS Level 3, 1060 Hay Street Level 3, 1060 Hay Street West Perth WA 6005 AUSTRALIA AUDITOR Ernst & Young West Perth WA 6005 +61 (8) 9460 1500 info@tempoaust.com www.tempoaust.com SHARE REGISTRY Link Market Services PO Box 588 West Perth WA 6872 AUSTRALIA SOLICITOR Steinepreis Paganin The Ernst & Young Building QV1, Level 12 Level 4, The Read Buildings 11 Mounts Bay Road 250 St Georges Terrace Perth WA 6000 +61 (8) 9429 2222 www.ey.com.au Perth WA 6000 +61 1300 554 474 16 Milligan Street Perth WA 6000 +61 (8) 9321 4000 www.linkmarketservices.com.au www.steinpag.com.au T E M P O A U S T R A L I A L I M I T E D A N N U A L R E P O R T 2 0 1 8 7 7 T E M P O A U S T R A L I A L I M I T E D 2 0 1 8 A N N U A L R E P O R T Tempo Australia Limited 1060 Hay Street West Perth WA 6005 +61 8 9460 1500 

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