VEEM Ltd
Annual Report 2019

Plain-text annual report

ANNUAL REPORT 2019 VEEM LTD ACN 008 944 009 CORPORATE INFORMATION ABN 51 008 944 009 Directors Brad Miocevich Mark Miocevich Ian Barsden Peter Torre Michael Bailey Non-Executive Chairman Managing Director Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director (appointed 17 July 2018) Joint Company Secretaries Tracy Caudwell Peter Torre Registered office 22 Baile Road Canning Vale WA 6155 Telephone: + 61 8 9455 9355 Facsimile: +61 8 9455 9333 Principal place of business 22 Baile Road Canning Vale WA 6155 Telephone: + 61 8 9455 9355 Facsimile: +61 8 9455 9333 Share registry Computershare Investor Services Pty Ltd Level 11 172 St Georges Terrace PERTH WA 6000 Telephone: +61 8 9323 2000 Facsimile: + 61 8 9323 2033 Solicitors Steinpreis Paganin Level 4 The Read Buildings 16 Milligan Street PERTH WA 6000 Telephone: +61 8 9321 4000 Facsimile: + 61 8 9321 4333 Bankers ANZ Banking Corporation Level 7 77 St Georges Terrace PERTH WA 6000 Telephone: +61 8 6298 3987 Auditors HLB Mann Judd Level 4, 130 Stirling Street PERTH WA 6000 Telephone: +61 8 9227 7500 Securities Exchange Listing VEEM Ltd shares are listed on the Australian Securities Exchange (ASX: VEE) 2 | V E E M LT D DIRECTORS' REPORTCONTENTS Corporate Information Chairman's Letter Directors’ Report Auditor’s Independence Declaration Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report 2 4 6 16 17 18 19 20 21 49 50 | 3 C H A I R M A N ' S L E T T E R CHAIRMAN'S LETTER I am pleased to present the annual report for our 51st year in business. NEW FACILITY OPENS Recently we took possession of our newest facility: a purpose-built, This year, we have invested strongly in marketing activities, particularly for the gyrostabilizers and we are seeing excellent results from this investment. Last financial year we relocated our demonstration vessel - a 64-foot, Viking 64’ Open Convertible sportfish boat, with an onboard VG120 VEEM Gyro and running VEEM interceptor propellers - to Europe. 4000 sqm factory which is fitted with a 25 tonne crane to enable assembly of the new VEEM Gryo VG1000SD. This new building will allow us to easily assemble and fully test all VEEM gyros – ensuring they are fully compliant with the very demanding requirements of the world’s leading boat builders. This will include full testing of what is currently our top of range product: the VG1000SD. Testing can be done with the gyrostabilizer actually in operation - at its full torque of 1000 Knm (1 Mega Newton Metre). The net rental cost of this new facility has been very modest, given that it now also houses equipment which was stored in several other, rented facilities -and hence that rental cost ceases. NEW VEEM ASSEMBLY & TESTING FACILITY – IMAGE WITH PERMISSION OF PHOTOGRAPHER: JANA MARIE PHOTOGRAPHY. MARKET ACCEPTANCE Our propellers are the number one choice for some of the world’s leading marine vessel builders. This status is only attained for products delivering the highest quality and performance. The very high quality of engineering in our propellers is echoed in our gyrostabilizers, as is our outstanding level of after-purchase service. Gyrostabilizers are a new technology in the market and we are already being recognised as leaders in this field. Damen Shipyards supported this view, with a purchase order signed for a VG1000SD Gyrostabilizer unit. Orders from the world’s leading superyacht builders were received soon after. VEEM VIKING DEMONSTRATION VESSEL Throughout the financial year 2019, we hosted representatives of the world’s leading shipyards aboard the Viking, to experience the gyrostabilizers in action. This resulted in a noticeable ‘shift’ in the market perception and acceptance of our gyrostabilizers. We have tested the gyrostabilizers in real conditions – such as a 4,500 nautical mile journey through some of the most challenging waters on Earth. Our team attended the world’s leading superyacht exhibitions, including the Canne and Monaco Yacht Shows MONACO YACHT SHOW – VEEM EXHIBITION STAND 4 | V E E M L I M I T E D C H A I R M A N ' S L E T T E R ESSENTIAL SUPERYACHT EQUIPMENT Approval for the technical veracity of our new, large- capacity marine gyrostabilizers and commercial acceptance was achieved in the 2019 year. Comments in leading industry journals this year indicate that a VEEM gyro is becoming ‘essential equipment’ for a superyacht. “The later decision to install a VEEM Gyro was crucial, it really makes the boat, offering exceptional stability in often challenging conditions,” said Captain Danny Bos. Propeller sales also rose during the year, as the market acceptance of our wider product range gains momentum. ANZAC BELL INSTALLATION The 6.5 tonne, Anzac Bell was installed into the Perth Bell Tower to mark the centenary of Anzac. We are immensely proud to have had the privilege of successfully completing the casting pour, at our foundry, which is the largest non-ferrous foundry in the southern hemisphere. The Perth public heard the bell ringing for the first time, on Remembrance Day 2019. This marked the culmination of a ten-year project involving dozens of skilled technicians and artisans, to produce this homage to our ANZAC heritage. DAME DESIGN AWARDS VEEM Gyro achieved a ‘special mention’ in the prestigious DAME Design Awards. The DAME Award encourages progression and innovation within the marine industry and is the world’s largest marine equipment competition of its kind. Based on the Award criteria of build quality, application of materials, functionality and overall design, the judges commented that: “the VG260SD is ‘beautifully engineered’ to work as a single installation for up to 250-tonne ships.“ BOARD STRENGTHENED In July 2018, Mr Mike Bailey joined our Board. Mr Bailey holds a Bachelor of Science with first class Honours and a Master’s Degree in Naval Architecture. He is a Chartered Engineer (UK), Member of the Royal Institution of Naval Architects and a former Member of the Royal Corps of Naval Constructors (1968-78). Mr Bailey is well known and respected within the marine and defence sectors and brings more than 30 years’ experience in contract negotiation and project management. VEEM TEAM STRENGTH Once again I am proud to work with a dedicated, skilled group of people who are the ‘VEEM Team’. I acknowledge again this year the many staff who have foregone personal time to travel on behalf of our company. Thank you to those staff and those affected by this additional sacrifice. THE ANZAC BELL Brad Miocevich Non-Executive Chairman C H A I R M A N ' S L E T T E R | 5 D I R E C TO R S ' R E P O RT DIRECTORS’ REPORT The Directors present their report together with the financial statements of the Company for the financial year ended 30 June 2019. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows. The names of Directors who held office during or since the end of the year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. DIRECTORS NON-EXECUTIVE CHAIRMAN Mr John Bradley Miocevich B.Comm FAICD Brad has been a Director of VEEM Ltd since 1983. Combining trade qualifications with a Commerce Degree in Finance and Banking, Brad has the unique skills suitable for the management of an engineering company. With a focus on strategic planning, he was a member of the team responsible for the acquisition of several companies over the 21 years including S&S Foundry & Engineering and Timcast Foundry and Engineering. Taking on the role of Director Marine Propulsion in 2000, he has been the driving force in creating VEEM’s now very successful international propeller business. Brad provided the vision for VEEM’s highly automated manufacturing processes making VEEM the benchmark of propeller manufacturing worldwide. Brad brings to the Board expertise in finance, manufacturing engineering and marketing along with practical knowledge of the Company and its markets. In the 3 years immediately before the end of the financial year, Brad has not served as a Director of any other listed company. MANAGING DIRECTOR Mr Mark David Miocevich B.App.Sc (Mech Eng) FIE Aust Mark has been a Director and senior manager of VEEM for over 30 years. Commencing as Production Director from 1983, he was then responsible for the implementation of the Quality Assurance systems until 1995. From 1995 until present he has been the Managing Director of VEEM and for a period during that time, the Managing Director of GA Perry and a Director of Thomassen Services Australia. He was responsible for the integration of Timcast Engineering into VEEM during 2002. He brings to the Board intimate knowledge of the Company, its systems and strategic plan. In the 3 years immediately before the end of the financial year, Mark has not served as a Director of any other listed company. 6 | V E E M L I M I T E D D I R E C TO R S ' R E P O RT NON-EXECUTIVE DIRECTOR Mr Ian Henry Barsden CA INDEPENDENT NON-EXECUTIVE DIRECTOR Appointed 17 July 2018 Mr Michael Robert Bailey MSc; CEng; MRINA Ian is a member of the Chartered Accountants Australia and New Zealand and is a former partner of a mid-tier accounting firm. Ian brings over 31 years’ experience in the accounting profession, advising and consulting to a wide variety of businesses and industries as to business structuring, taxation and financial management. Ian has provided advisory services to VEEM as a consultant since 1980. In the 3 years immediately before the end of the financial year, Ian has not served as a Director of any other listed company. INDEPENDENT NON-EXECUTIVE DIRECTOR/JOINT COMPANY SECRETARY Mr Peter Patrick Torre B.Bus (Accounting), CA, AGIA Peter was appointed Company Secretary of the Company in September 2016 and as a Director of the Company on 12 April 2018. He is a Chartered Accountant, a Chartered Secretary and a member of the Australian Institute of Company Directors. He was previously a partner of an internationally affiliated firm of Chartered Accountants. Peter is the Company Secretary of several ASX listed companies. Peter is the principal of Torre Corporate, a specialist corporate advisory firm providing corporate secretarial services to a range of listed companies. In the 3 years immediately before the end of the financial year, Peter has served as a Director of Mineral Commodities Ltd, Volt Power Group Limited and Zenith Energy Limited. Mike brings 45 years experience in areas of naval architecture, marine engineering, and project and company management. He has operated in the defence and offshore oil and gas sectors in Europe, Asia and Australia with multinational and private companies and as a consultant. Mike also held the Business Development role in VEEM Engineering in the 1990's. He has, since 2000, been instrumental in the establishment and operations of the highly successful Australian Marine Complex - Common User Facility. In the 3 years immediately before the end of the financial year, Mike has not served as a Director of any listed company. Mike has served as a Director of AMC Management (WA) Pty Ltd, Facility Manager of the Australian Marine Complex - Common User Facility. JOINT COMPANY SECRETARY Mrs Tracy Pauline Caudwell Cert.Bus.Stud, Assoc Dip Acct, B.Acct, AGIA Tracy joined VEEM in June 2005. Tracy has over 31 years experience in the finance field and is responsible for managing the administration, accounting and finance department providing the management team and Board of Directors with accurate Key Performance Indicators and financial performance. D I R E C TO R S ’ R E P O RT | 7 D I R E C TO R S ' R E P O RT INTERESTS IN THE SHARES OF THE COMPANY AND RELATED BODIES CORPORATE The following relevant interests in shares of the Company or a related body corporate were held by the Directors as at the date of this report. FULLY PAID ORDINARY SHARES Directors John Bradley Miocevich Mark David Miocevich (i) (i) Ian Henry Barsden Peter Patrick Torre Michael Robert Bailey Number 80,000,000 80,000,000 50,000 60,000 75,000 (i) Mr Brad Miocevich and Mr Mark Miocevich have a relevant interest in VEEM Corporation Pty Ltd ATF the Miocevich Family Trust which holds 80,000,000 fully paid ordinary shares in the Company. SHARES UNDER OPTION OR ISSUED ON EXERCISE OF OPTIONS At the date of this report there were no unissued ordinary shares or interests of the Company under option. PRINCIPAL ACTIVITIES The principal activities of the Company during the course of the year were: • Production of propulsion and stabilization systems; and • Manufacturing bespoke products and services for the marine, defence and mining industries. OVERVIEW The financial results of the Company for the 2019 financial year demonstrate another consistent performance from the Company’s operations. The results are underpinned by the Company’s core engineering services which will provide a consistent base for the years to come. The most pleasing outcome of the financial year, whilst not yet reflected in the Company’s financial performance, was the acceptance of the Company’s Gyrostabilizers by some of the World’s leading shipyards. This acceptance followed a strong marketing push throughout the year, with the relocation of the VEEM Viking vessel to Europe, to allow the representatives of the leading shipyards to see first-hand the VEEM Gyrostabilizer at work. The costs of this exercise were born in this financial year, and the benefits will flow in the years to come. VEEM'S NEW 4,000SQM ASSEMBLY FACILITY DESIGNED FOR VEEM GYRO. 8 | V E E M LT D The vindication of the performance of the VEEM Gyros by Damen Shipyards as announced immediately following the year end, sets the turning point in the drive to establish VEEM Gyros as the dominant player in the gyro stabilization market. This followed with news of VEEM Gyro orders by the world’s leading super yacht builders. These, along with further marketing efforts will see sales on VEEM Gyros significantly lift in the 2019 financial year and into the future. CORPORATE The Company’s governance framework was bolstered during the year with the appointment of an additional independent Non-executive Director to the Board of the Company. Mr Mike Bailey was appointed as a Director in July 2018. Mike, a naval architect, has extensive experience in managing highly-complex projects across the defence, oil and gas, and mining sectors. He is well respected in the industry. With this new appointment, the Board will continue to assess its governance framework to further comply with the ASX Corporate Governance Principles and Recommendations at the appropriate time. The Company maintained its dividend policy throughout the year with the payment of a final dividend for FY2018 and an interim FY2019 dividend. FINANCIAL AND OPERATING PERFORMANCE The Company is pleased to report the following key metrics for the financial year 2019: FY19 ($) FY18 ($) Operating Revenue 44,982,829 40,712,292 EBITDA 4,390,600 4,924,321 Statutory NPAT 2,230,796 2,756,918 EPS (cents) 1.72 2.12 The Company reported a Net Profit After Tax (NPAT) for the year of $2,230,796 (2018: $2,756,918) underpinned by revenue of $44,982,829 (2018: $40,712,292). Net assets increased to $31.1 million with a build up in inventory related to work in progress and stock for the increase in activity of production. Gyro inventories remained stable. As indicated at the half year, the result includes approximately $950,000 in marketing and travel costs mostly associated with the promotion of the Company’s Gyro range within the global ship building industry, including one-off costs associated with the Company’s test vessel. The Company also indicated that it expected to see an increase in sales across all aspects of the business in the second half and the Company is pleased to report a 20% increase in sales on December 2018 half year. Continued pressure on gross profit margins contributed to the lower profit as compared to 2018 due to the nature of the work undertaken, albeit with small gains made in the second half over that of December 2018 half year. The level of interest in the Company’s Gyro’s continues to grow. The deliveries of Gyros for FY2019 resulted in sales of $1.6m, lower than the earlier anticipated $2.8M, purely due to delays in shipments. GYRO MARKET ACCEPTANCE FY19 was focused around completing the design phase and establishing the VEEM Gyro range in the global market place. The VEEM test vessel, Powerplay, worked its way around Europe visiting many boat builders and demonstrating at boat shows such as Monaco and Cannes. It also spent time in the Netherlands, where the first order for the VG1000SD was won from Damen Ships. Further visits included the countries of Italy, Malta, Croatia and Spain where VEEM’s larger markets are. Powerplay was brought back to Perth in November 2018. During FY19 VEEM delivered $1.6m of VEEM Gyros. In addition VEEM holds orders in hand to be delivered in FY20 of $4.6m to date. VEEM is receiving an enquiry per working day for information or quotations for VEEM Gyros and it would appear that the market has accepted the new technology and order levels should continue to increase. FY19 has seen a swing within VEEM from a huge push in marketing to gain customer acceptance, to a focus on closing sales on enquiries received. The newly leased assembly hall of 4,000 sqm primarily designed for gyro assembly was handed over to VEEM on 1 July 2019. This new facility will enable the assembly and test of the entire VEEM gyro range including the range topping VG1000SD. The new facility will include the ability to fully test the VG1000SD operating at its full torque of 1,000Knm (1 Mega Newton Metre). Assembly and test of 100 units per year can be comfortably accommodated in this new building. The new facility will also house some of VEEM’s existing military contracts that involve service and storage, that were consolidated from other leased facilities around Canning Vale. PROPELLING FORWARD Propeller sales rose to $16m for 2019 ($14m: 2018) which is further indication that VEEM propellers are continuing to penetrate global markets with the VEEM and Conquest range of propellers. Conquest propellers were increased in range by diameter and blade area ratio to meet the needs of the replacement market. D I R E C TO R S ’ R E P O RT | 9 DIRECTORS' REPORTThe new VEEM shaft line software has been in test all year and we have won several shaft lines in Europe and Australia. Pricing expectations in the market have been met with a focus on shaft lines in the 75mm to 200mm diameter range which most closely matches VEEM’s propeller range. Designs were developed for the range of VEEM shaft line products and global sources of some components has commenced. This will be a focus for VEEM going forward. FY19 saw the development of the new VEEM Propeller Scanner which enables our dealer network to accurately measure all propellers and be able to prove to customers what level of superiority VEEM and Conquest propellers represents. This is a major marketing tool for VEEM and helps position VEEM as the industry authority on fixed pitch propellers. DEFENCE Defence work has been busy throughout the year primarily through the volume of stabilizer manufacturing for Austal Ships, one of VEEM’s important local clients. These items are exported and are expected to continue into the future. There have been additional contracts executed and some test manufacturing for prime subcontractors working on the new SEA 1000, 1180 and 5000 naval defence programs. These programs are gathering momentum and enquiry levels to gain the critical Australian manufacturing content are growing. VEEM expects to gain a substantial benefit from all of the programs in this space. Unusually, the Australian Submarine Corporation refit program has been delayed and the order for the next refit of Collins did not materialise during FY19 as expected, however is expected during FY20. VEEM is a regular recipient of substantial contracts for the submarine refit program. ANZAC BELL FY19 saw the installation of the ANZAC Bell with the first official sounding of the bell being on Remembrance Day 11th November at 11am. This was a big day for all Australians none less than the founding family of VEEM Ltd, the Miocevich family, as they lost a family loved one during the terrible time that was World War 1. Reports from the Whitechapel Bells Company are that the VEEM ANZAC Bell casting was the most accurate casting they had ever seen. Large accurate casting is a specialty of VEEM and has been honed by working with Austal Ships and the Australian Submarine Corporation, over many years, to meet their demanding manufacturing standards. 'ANZAC BELL', MANUFACTURED BY VEEM AND INSTALLED IN PERTH BELL TOWER TO MARK THE CENTENARY OF ANZAC OUTLOOK As indicated, VEEM Gyro sales will again rise in FY20 as further enquiries and orders increase. The Australian Submarine Corporation refit is expected to occur in FY20 along with the continual flow of work in the defence industry. VEEM’s underlying business will continue to produce consistent results with FY20 expected to see an improvement in the margins which were impacted during FY19. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Other than disclosed elsewhere in this report, there have been no significant changes in the state of affairs of the Company to the date of this report. SIGNIFICANT EVENTS AFTER BALANCE DATE Subsequent to the end of year an ordinary dividend of $474,500 franked to 27.5% has been declared. Other than the above, no matters or circumstances have arisen since the end of the financial year which have significantly affected or may significantly affect the operating of the Company, the results of those operations, or state of affairs of the Company in future financial years. 10 | V E E M LT D DIRECTORS' REPORTD I R E C TO R S ' R E P O RT LIKELY DEVELOPMENTS AND EXPECTED RESULTS The Company will continue with its strategy as set out in its Prospectus lodged with the ASX on 24 October 2016. The commercialisation of the Company’s Gyro Stabilizing will be a key priority during the 2020 financial year. ENVIRONMENTAL LEGISLATION The Company is not subject to any significant environmental legislation. DIVIDENDS Dividends paid to members during the financial year were as follows: • • A final ordinary dividend of $338,000 was paid on 28 September 2018. An interim ordinary dividend of $195,000 was paid on 26 April 2019. Since the end of the financial year the Directors have recommended the payment of a final fully franked ordinary dividend of $474,500 to be paid on or around 27 September 2019. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS The Company has agreed to indemnify all the Directors of the Company for any liabilities to another person (other than the Company or related body corporate) that may arise from their position as Directors of the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. planning, directing and controlling the major activities of the Company, directly or indirectly, including any Director (whether executive or otherwise) of the Company.. KEY MANAGEMENT PERSONNEL The Directors set out below were the only key management personnel of the Company during or since the end of the financial year. Directors John Bradley Miocevich Chairman (non-executive) Mark David Miocevich Managing Director Ian Henry Barsden Non-Executive Director Peter Patrick Torre Michael Robert Bailey Independent Non-Executive Director Independent Non-Executive Director (appointed 17 July 2018) Except as noted, the named persons held their current positions for the whole of the financial year and to the date of this report. REMUNERATION PHILOSOPHY The performance of the Company depends upon the quality of the Directors and executives. The philosophy of the Company in determining remuneration levels is to set competitive remuneration packages to attract and retain high calibre employees. REMUNERATION COMMITTEE The Company did not have a separate Remuneration and Nomination Committee during the year. The full Board fulfilled the role typically undertaken by a Remuneration Committee and was responsible for determining and reviewing compensation arrangements for the Directors. During the financial year the Company paid a premium in respect of a contract insuring the Directors and officers of the Company and its controlled entities against any liability incurred in the course of their duties to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Board assesses the appropriateness of the nature and amount of remuneration of Directors and executives on a periodic basis by reference to relevant employment market conditions with an overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. REMUNERATION REPORT This report, which forms part of the Directors’ report, outlines the remuneration arrangements in place for the key management personnel (“KMP”) of VEEM Ltd for the financial year ended 30 June 2019. The information provided in this remuneration report has been audited as required by Section 308(3C) of the Corporations Act 2001. The remuneration report details the remuneration arrangements for KMP who are defined as those persons having authority and responsibility for REMUNERATION STRUCTURE In accordance with best practice corporate governance, the structure of non-executive Director and executive remuneration is separate and distinct. USE OF REMUNERATION CONSULTANTS The Board has not used any independent remuneration consultants during the year ended 30 June 2019. D I R E C TO R S ’ R E P O RT | 11 D I R E C TO R S ' R E P O RT NON-EXECUTIVE DIRECTOR REMUNERATION FIXED REMUNERATION The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. The ASX Listing Rules specify that the aggregate remuneration of non-executive Directors shall be determined from time to time by a general meeting. The Constitution of the Company as at the time of listing in October 2016 provides that the aggregate remuneration of non-executive Directors be set at $400,000. The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst Directors is reviewed annually leading up to the Company’s Annual General Meeting. The Board considers advice from external shareholders as well as the fees paid to non-executive Directors of comparable companies when undertaking the annual review process. Fixed remuneration is reviewed annually by the Board. The process consists of a review of relevant comparative remuneration in the market and internally and, where appropriate, external advice on policies and practices. The Board has access to external, independent advice where necessary. Senior managers are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles and expense payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company. The fixed remuneration component is detailed in Key Management Personnel remuneration for the years ended 30 June 2019 and 30 June 2018 tables. 2019 ANNUAL GENERAL MEETING Each Director receives a fee for being a Director of the Company. Given there are no committees currently in place, no additional fees are paid. The Remuneration Report for the year ended 30 June 2018 was approved by in excess of 75% of shareholders at the Annual General Meeting. SENIOR MANAGER AND EXECUTIVE DIRECTOR REMUNERATION Remuneration consists of reasonable fixed remuneration only. PERFORMANCE ON SHAREHOLDER WEALTH In considering the Group’s performance and benefits for shareholder wealth, the Board have regarded the following indices in respect of the current and previous three financial years: EPS (cents per share) Dividends (cents per share) Net profit ($) Share price ($) 2019 1.72 0.41 2018 2.12 1.61 2017 3.21 3.08 2,230,796 2,756,918 3,848,750 0.53 0.47 0.64 EMPLOYMENT CONTRACTS Details of employment contracts with executive KMP: Agreement with M. Miocevich (date of commencement 1 September 2016) NAME TERM OF AGREEMENT AND TERMINATION PROVISIONS BASE SALARY INCLUDING SUPERANNUATION TERMINATION BENEFIT M. Miocevich This agreement has no set term. Termination of the agreement is 1 month’s notice by the Executive or 3 months’ notice by the Company and includes a 6 month restraint of trade. Base: $385,000 per annum plus $25,000 superannuation 3 Months salary Executive remuneration at this stage consists only of fixed remuneration which has been set at moderate levels for the Managing Director. This is cognisant of the stage of development as a listed company and as the Company moves to establish itself into new markets. The Company will continue to assess the executive remuneration and appropriately incentivise key management with variable remuneration aligned to shareholder wealth in the periods to come. 12 | V E E M LT D RELATIVE PROPORTIONS OF REMUNERATION OF KMP THAT ARE LINKED TO PERFORMANCE Fixed remuneration Remuneration linked to performance REMUNERATION OF KEY MANAGEMENT PERSONNEL Key Management Personnel remuneration for the years ended 30 June 2019 and 30 June 2018 SHORT-TERM EMPLOYEE BENEFITS POST- EMPLOYMENT BENEFITS LONG TERM BENEFITS SHARE BASED BENEFITS 30 June 2019 Salary & fee Bonus Non- monetary benefits Other Superannuation Long service leave Share options Directors $ Bradley Miocevich Mark Miocevich 111,696 391,268 Ian Barsden 55,848 Peter Torre 60,000 Michael Bailey 60,000 Total 678,812 $ - - - - - - $ - - - - - - $ $ 5,636 10,611 $ - - - - - 24,618 6,520 5,306 - - - - - 5,636 40,535 6,520 $ - - - - - - SHORT-TERM EMPLOYEE BENEFITS POST- EMPLOYMENT BENEFITS LONG TERM BENEFITS SHARE BASED BENEFITS Total $ $ 127,943 100% 422,406 100% 61,154 100% 60,000 100% 60,000 100% 731,503 30 June 2018 Salary & fee Bonus Non- monetary benefits Directors $ Bradley Miocevich Mark Miocevich 109,589 381,520 Ian Barsden 54,794 Peter Torre 38,266 Michael Bailey - Total 584,169 $ - - - - - - $ - - - - - - Other Superannuation $ $ 50,000 10,411 $ - - - - - 24,759 6,358 5,206 - - - - - 50,000 40,376 6,358 Total $ $ 170,000 100% 412,637 100% 60,000 100% 38,266 100% - - 680,903 $ - - - - - - RELATIVE PROPORTIONS OF REMUNERATION OF KMP THAT ARE LINKED TO PERFORMANCE Fixed remuneration Remuneration linked to performance Long service leave Share options $ - - - - - $ - - - - - No member of key management personnel appointed during the period received a payment as part of his or her consideration for agreeing to hold the position. No cash bonuses were granted during 2019 or 2018. D I R E C TO R S ’ R E P O RT | 13 DIRECTORS' REPORTD I R E C TO R S ' R E P O RT EMPLOYEE SHARE OPTION PLAN There were no employee share options granted as compensation in the current or prior financial year. FULLY PAID ORDINARY SHARES BALANCE AT BEGINNING OF YEAR GRANTED AS COMPEN SATION RECEIVED ON EXERCISE OF OPTIONS NET CHANGE OTHER BALANCE AT END OF YEAR BALANCE HELD NOMINALLY 30 June 2019 Directors $ Bradley Miocevich Mark Miocevich 80,000,0001 80,000,0001 Ian Barsden 50,000 Peter Torre 60,000 Michael Bailey - $ - - - - - $ - - - - - $ - - - - $ 80,000,0001 80,000,0001 50,000 60,000 75,000 75,000 $ - - - - - BALANCE AT BEGINNING OF YEAR GRANTED AS COMPEN SATION RECEIVED ON EXERCISE OF OPTIONS NET CHANGE OTHER BALANCE AT END OF YEAR BALANCE HELD NOMINALLY 30 June 2018 Directors $ Bradley Miocevich Mark Miocevich 80,000,0001 80,000,0001 Ian Barsden 50,000 Peter Torre Michael Bailey - - $ - - - - - $ - - - - - $ - - - $ 80,000,0001 80,000,0001 50,000 60,000 60,000 - - $ - - - - - 1. Mr Brad Miocevich and Mr Mark Miocevich have a relevant interest in VEEM Corporation Pty Ltd ATF the Miocevich Family Trust which holds 80,000,000 fully paid ordinary shares in the Company. The Company has entered into a lease agreement with Voyka Pty Ltd, an entity controlled by an entity related to Mr Mark Miocevich and Mr Brad Miocevich. The Company paid Voyka Pty Ltd monthly rent of $115,307 from July 2018 to March 2019 and $110,000 from April 2019 to June 2019 including GST, totalling $1,367,763 for the twelve months to June 2019. The rent is exclusive of any outgoings including rates, taxes, insurance premiums and maintenance costs. The lease was made on commercial terms. During the year, the Company extended this lease for a further ten years with rent charged at $110,000 a month including GST. During the year, the Company signed a new lease with Voyka Pty Ltd for new premises for a period of ten years with rent charged of $43,035 a month, including GST. END OF REMUNERATION REPORT 14 | V E E M LT D D I R E C TO R S ' R E P O RT DIRECTORS’ MEETINGS The number of meetings of Directors held during the year and the number of meetings attended by each Director were as follows: Number of meetings held: Number of meetings attended: John Bradley Miocevich Mark David Miocevich Ian Henry Barsden Peter Patrick Torre Michael Robert Bailey Meetings Held Eligible to Attend Meetings Attended 12 12 12 12 12 12 12 12 11 12 10 1. Mr Torre was present during all other meetings in his capacity as Joint Company Secretary. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. NON-AUDIT SERVICES Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in Note 20 to the financial statements. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services do not compromise the auditor’s independence as all non-audit services have been reviewed to ensure that they do not impact the impartiality and objectivity of the auditor and none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110: Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board. AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES Section 307C of the Corporations Act 2001 requires our auditors, HLB Mann Judd, to provide the Directors of the Company with Independence Declaration in relation to the audit of the annual report. This Independence Declaration is set out on page 12 and forms part of this Directors’ report for the year ended 30 June 2019. Signed in accordance with a resolution of the Directors. MARK DAVID MIOCEVICH Managing Director Perth, 29 August 2019 D I R E C TO R S ’ R E P O RT | 15 AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of VEEM Ltd for the year ended 30 June 2019, I declare that to the best of my knowledge and belief, there have been no contraventions of: a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) any applicable code of professional conduct in relation to the audit. Perth, Western Australia 29 August 2019 N G Neill Partner 16 | AU D I TO R ' S I N D E P E N D E N C E D E C L A R AT I O N Page 12 V E E M LT D STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2019 NOTES 2019 ($) 2018 ($) Continuing operations Revenue Other income Change in inventories of finished goods and work in progress Raw materials and consumables Employee benefits expense Depreciation and amortisation expense Repairs and maintenance expenses Occupancy expenses Borrowing costs expense Other expenses Profit before income tax expense Income tax expense 2 2 2 2 3 44,982,829 (18,861) 40,712,292 (352,517) 3,205,821 1,308,949 (19,179,742) (18,543,108) (1,752,992) (1,332,546) (2,388,051) (495,738) (2,335,742) (19,622,628) (11,737,682) (1,607,638) (829,951) (2,252,722) (436,889) (2,272,943) 2,141,870 2,908,271 88,926 (151,353) Net profit for the year 2,230,796 2,756,918 Other comprehensive income, net of income tax - - Total comprehensive income for the year 2,230,796 2,756,918 Basic earnings per share (cents per share) 5 1.72 2.12 The accompanying notes form part of these financial statements S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E | 17 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019 NOTES 2019 ($) 2018 ($) Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other assets Current tax assets Total current assets Non-current assets Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Provisions Total current liabilities Non-current liabilities Borrowings Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Retained earnings Total equity 7 8 9 10 3 11 3 12 13 14 15 14 3 2,874,087 6,857,362 304,708 8,873,661 11,038,548 13,352,264 1,004,793 538,515 892,605 1,016,048 22,313,305 24,439,286 12,944,012 14,313,086 1,574,170 12,730,774 27,248,956 49,562,261 1,036,683 11,922,950 27,272,719 51,712,005 6,767,045 1,798,075 1,022,878 6,709,914 5,259,379 1,176,569 9,587,998 13,145,862 7,415,705 1,384,555 8,111,442 978,494 8,800,260 9,089,936 18,388,258 22,235,798 31,174,003 29,476,207 16 5,140,616 5,140,616 26,033,387 24,335,591 31,174,003 29,476,207 The accompanying notes form part of these financial statements 18 | S TAT E M E N T O F F I N A N C I A L P O S I T I O N V E E M LT D STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019 Balance at 1 July 2017 Profit for the year Other comprehensive income, net of income tax Total comprehensive income for the year Dividend paid or provided for Balance as at 30 June 2018 Profit for the year Other comprehensive income, net of income tax Total comprehensive income for the year Dividend paid or provided for Balance as at 30 June 2019 NOTES ISSUED CAPITAL ($) RETAINED EARNINGS ($) TOTAL EQUITY ($) 5,140,616 23,665,173 28,805,789 - - - - 2,756,918 2,756,918 - - 2,756,918 2,756,918 (2,086,500) (2,086,500) 5,140,616 24,335,591 29,476,207 - - - - 2,230,796 2,230,796 - - 2,230,796 2,230,796 (533,000) (533,000) 5,140,616 26,033,387 31,174,003 6 6 The accompanying notes form part of these financial statements VG145SD GYRO RETROFITTED TO 34M MOTOR YACHT IN SAN DIEGO, USA S TAT E M E N T O F C H A N G E S I N E Q U I T Y | 19 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2019 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest paid Income tax refunds received/(paid) GST paid NOTES 2019 ($) 2018 ($) 50,168,613 42,720,344 (40,811,130) (41,830,494) (495,738) 435,033 (840,812) (408,412) (1,329,022) (597,379) Net cash inflow/(outflow) from operating activities 7 8,455,966 (1,444,963) Cash flows from investing activities Payments for property, plant and equipment Payments for intangible assets Proceeds from sale of property, plant and equipment (201,524) (881,902) 18,865 (739,780) (1,183,940) 27,309 Net cash (outflow) from investing activities (1,064,561) (1,896,411) Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Dividends paid 7 7 1,000,000 (4,659,577) 6,000,000 (1,120,438) (533,000) (2,086,500) Net cash (outflow)/inflow from financing activities (4,192,577) 2,793,062 Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of exchange rate fluctuations on cash held 3,198,828 (324,741) - Cash and cash equivalents at the end of the year 7 2,874,087 (548,312) 344,932 (121,361) (324,741) The accompanying notes form part of these financial statements 20 | V E E M LT D NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES A. BASIS OF PREPARATION These financial statements are general purpose financial statements, which have been prepared in accordance with the requirements of the Corporations Act 2001, Accounting Standards and Interpretations and comply with other requirements of the law. The accounting policies detailed below have been consistently applied to all of the years presented unless otherwise stated. For the purpose of preparing the financial statements, the Company is a for-profit entity. The financial statements have been prepared on a historical cost basis. Historical cost is based on the fair values of the consideration given in exchange for goods and services. The Company is a listed public Company, incorporated in Australia and operating in Australia selling into the domestic and global markets. The entity’s principal activities are described in the Directors’ Report. Going concern This report has been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlements of liabilities in the ordinary course of business. B. ADOPTION OF NEW AND REVISED STANDARDS Standards and Interpretations applicable to 30 June 2019 In the year ended 30 June 2019, the Directors have reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to the Company and effective for the reporting periods beginning on or after 1 July 2018. As a result of this review, the Directors have determined that there is no material impact of the new and revised Standards and Interpretations in issue and effective for the current annual reporting period and therefore no material change is necessary to Company accounting policies. AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement and makes changes to a number of areas including classification of financial instruments, measurements, impairment of financial assets and hedge accounting model. Financial instruments are classified as either held at amortised cost or fair value. Financial instruments are carried at amortised cost if the business model concept can be satisfied. All equity instruments are carried at fair value and the cost exemption under AASB 139 which was used where it was not possible to reliably measure the fair value of an unlisted entity has been removed. Equity instruments which are non-derivative and not held for trading may be designated as fair value through other comprehensive income (FVOCI). Previously classified available-for-sale investments, now carried at fair value are exempt from impairment testing and gains or loss on sale are no longer recognised in profit or loss. The AASB 9 impairment model is based on expected loss at day 1 rather than needing evidence of an incurred loss, this is likely to cause earlier recognition of bad dept expenses. Most financial instruments held at fair value are exempt from impairment testing. The Company has applied this standard at the date of initial application, being 1 July 2018 and has elected not to restate comparative information. Accordingly, the information presented for 30 June 2018 has not been restated, and follows the classification and measurement requirements of AASB 139. There is no material impact to profit or loss or net assets on the adoption of this new standard in the current or comparative years. Other than the above, there is no material impact of the new and revised Standards and Interpretations on the Company and therefore no material change is necessary to Company accounting policies. Early adoption of Standards On 1 July 2016, the Company early adopted AASB 15 “Revenue from Contracts with Customers” which is mandatory for years beginning on or after 1 January 2018. AASB 16 Leases AASB 16 replaces AASB 117 Leases. AASB 16 removes the classification of leases as either operating leases of finance leases-for the lessee – effectively treating all leases as finance leases. AASB 16 is applicable to annual reporting periods beginning on or after 1 July 2019. Impact on operating leases AASB 16 will change how the Company accounts for leases previously classified as operating leases under AASB 117, which were off-balance sheet. On initial application of AASB 16, for all leases (except as noted below), the Company will: • • Recognise right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of the future lease payments. Recognise depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit or loss. N OT E S TO T H E F I N A N C I A L S TAT E M E N T S | 21 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) • Separate the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated statement of cash flows. Lease incentives (e.g. rent-free period) will be recognised as part of the measurement of the right-of-use assets and lease liabilities whereas under AASB 117 they resulted in the recognition of a lease liability incentive, amortised as a reduction of rental expenses on a straight-line basis. Under AASB 16, right-of-use assets will be tested for impairment in accordance with AASB 136 Impairment of Assets. This will replace the previous requirement to recognise a provision for onerous lease contracts. For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as personal computers and office furniture), the Company will opt to recognise a lease expense on a straight-line basis as permitted by AASB 16. The Company has elected not to early adopt AASB 16 but has conducted a preliminary assessment of the impact of the new standard based on the facts and circumstances that existed at that date and have concluded that the initial application of AASB 16 will have the following impact on the Company’s leases as regards classification and measurement. As at 30 June 2019, the Company has non-cancellable operating lease commitments of $16,394,700 in respect of leases of premises. The preliminary assessment indicates at balance date the Company would have recognised a right-of-use asset of $9,230,734 and a corresponding lease liability of $9,283,749 in respect of all these leases. The impact on profit or loss would have been to decrease other occupancy expenses by $300,000, to increase depreciation by $236,685 and to increase interest expense by $116,330. Under AASB 117, all lease payments on operating leases are presented as part of cash flows from operating activities. The impact of the changes under AASB 16 would be to reduce the cash generated by operating activities by $300,000 and to increase net cash used in financing activities by the same amount. Impact on finance leases The main differences between AASB 16 and AASB 117 with respect to assets formerly held under a finance lease is the measurement of the residual value guarantees provided by the lessee to the lessor. AASB 16 requires that the Company recognises as part of its lease liability only the amount expected to be payable under a residual value guarantee, rather than the maximum amount guaranteed as required by AASB 117. On initial application the Company will present equipment previously included in property, plant and equipment within the line item for right-of use assets and the lease liability, previously presented within borrowing, will be presented in a separate line for lease liabilities. Based on an analysis of the Company’s finance leases as at 30 June 2019 on the basis of the facts and circumstances that exist at that date, the Directors of the Company have assessed that the impact of this change will not have an impact on the amounts recognised in the Company’s consolidated financial statements. C. STATEMENT OF COMPLIANCE The financial report was authorised for issue by the Board of VEEM Ltd on 30 August 2019. The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). D. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS The application of accounting policies requires the use of judgement, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions are recognised in the period in which the estimate is revised if it affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Except as described below, in preparing the full-year financial report, the significant judgement made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial report for the year ended 30 June 2018. Amortisation of product development Product development is amortised based on units of production as the Board has determined that this appropriately apportions the costs of development across the units produced to meet customer orders and building of inventory to meet future orders. Product development costs continue to be monitored to ensure there are any indicators that these costs may be impaired or whether the amortisation rate needs to be accelerated. 22 | V E E M LT D NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) are retranslated at the rate of exchange ruling at the balance date. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that sufficient future tax profits will be available to utilise those temporary differences. 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. Inventories Management estimates the net realisable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realisation of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices. Capitalisation of internally developed products Distinguishing the research and development phases of new products and determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. E. SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of VEEM Ltd. The Board has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions. The entity does not have any operational segments with discrete financial information. The Board of Directors review internal management reports on a monthly basis that are consistent with the information provided in the statement of profit or loss and other comprehensive income, statement of financial position and statement of cash flows. As a result no reconciliation is required because the information as presented is what is used by the Board to make strategic decisions. F. FOREIGN CURRENCY TRANSLATION Both the functional and presentation currency of VEEM Ltd is Australian dollars. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies All exchange differences in the financial report are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. G. REVENUE RECOGNITION Revenue from contracts with customers is measured at fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties. Contract liabilities are recognised where applicable in relation to sales. Point in time recognition - sale of goods – propulsion & stabilization Revenue is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied: • • • • • the Company has transferred to the buyer the significant risks and rewards of ownership of the goods; the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Company; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Over time recognition - Sale of goods and rendering of services - mining & industrial engineering, propulsion & stabilization, and defence In determining whether performance obligations are satisfied over time the Company considers the following: • • • Legal control is often retained by the customer; VEEM products and services are highly specialised and often do not have an alternate use; and Contracts are established with customers so that VEEM has an enforceable right to payment for performance completed to date, including profit margin. N OT E S TO T H E F I N A N C I A L S TAT E M E N T S | 23 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) Revenue is recognised by reference to the stage of completion of the performance obligation. The stage of completion of the performance obligation is determined as follows: • • • Contract income is recognised by reference to the total actual costs incurred at the end of the reporting period relative to the proportion of the total costs expected to be incurred over the life of the performance obligation; Servicing fees are recognised by reference to the proportion of the total cost of providing the service for the product sold; and Revenue from time and material contracts are recognised at the contractual rates as labour hours are delivered and direct expenses are incurred. Interest income Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Company and the amount of revenue can be reliably measured. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assets net carrying amount on initial recognition. H. GOVERNMENT GRANTS Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions. Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. I. BORROWING COSTS Borrowing costs are capitalised that are directly attributable to the acquisition, construction or production of qualifying assets where the borrowing cost is added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. J. LEASES Leases are classified as finance leases whenever the terms of the lease transfers substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are initially recognised at their fair value or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the general policy on borrowing costs, refer Note 1(i). Finance lease assets are depreciated on a straight line basis over the estimated useful life of the asset. Operating lease payments are recognised as an expense on a straight line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. K. INCOME TAX The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary difference and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Current tax assets and liabilities for the current and prior periods 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 by the balance date. Deferred income tax is provided on all temporary differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. 24 | V E E M LT D NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) Deferred income tax liabilities are recognised for all taxable temporary differences except: • • when the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, 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 income 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. The carrying amount of deferred income tax assets is reviewed at each balance 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 income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to 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 balance date. Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. L. OTHER TAXES Revenues, expenses and assets are recognised net of the amount of GST except: • when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. M. IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS The Company assesses at each balance date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets and the asset's value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash- generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit 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 pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease). An assessment is also made at each balance date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot 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 profit or loss unless N OT E S TO T H E F I N A N C I A L S TAT E M E N T S | 25 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. N. CASH AND CASH EQUIVALENTS Cash comprises cash at bank and in hand. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. O. TRADE AND OTHER RECEIVABLES Trade receivables are measured on initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method, less any allowance for impairment. Trade receivables are generally due for settlement within periods ranging from 15 days to 60 days. Impairment of trade receivables is continually reviewed and those that are considered to be uncollectible are written off by reducing the carrying amount directly. An allowance account is used when there is objective evidence that the Company will not be able to collect all amounts due according to the original contractual terms. Factors considered by the Company in making this determination include known significant financial difficulties of the debtor, review of financial information and significant delinquency in making contractual payments to the Company. The impairment allowance is set equal to the difference between the carrying amount of the receivable and the present value of estimated future cash flows, discounted at the original effective interest rate. Where receivables are short-term, discounting is not applied in determining the allowance. The amount of the impairment loss is recognised in the statement of profit or loss and other comprehensive income within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectable in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the statement of profit or loss and other comprehensive income. P. INVENTORIES (i) Raw material, stores and work in progress Raw materials, stores and work in progress are stated at the lower of cost and net realisable value. Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of stock mainly on the basis of average cost. (ii) Contract work in progress Contract work in progress is stated at cost plus attributable profit to date (based on percentage of completion of each contract) less progress billings. Cost includes all costs directly related to specific contracts and an allocation of overhead expenses incurred in connection with the Company’s contract operations. Where a loss on completion is indicated that loss is brought to account in the current year. 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. Q. FINANCIAL ASSETS Recognition and de-recognition Financial assets are recognised when the Company becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. Classification and initial measurement of financial assets Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with AASB 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable). For the purpose of subsequent measurement, financial assets, other than those designated and effective as hedging instruments, are classified into the following categories: • • • • amortised cost fair value through profit or loss (FVTPL) equity instruments at fair value through other comprehensive income (FVOCI) debt instruments at fair value through other comprehensive income (FVOCI). All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. 26 | V E E M LT D The fair values of financial assets in this category are determined by reference to active market transactions or using a valuation technique where no active market exists. Equity instruments at fair value through other comprehensive income (Equity FVOCI) Investments in equity instruments that are not held for trading are eligible for an irrevocable election at inception to be measured at FVOCI. Under Equity FVOCI, subsequent movements in fair value are recognised in other comprehensive income and are never reclassified to profit or loss. Dividends from these investments continue to be recorded as other income within the profit or loss unless the dividend clearly represents return of capital. This category includes unlisted equity securities that were previously classified as ‘available-for-sale’ under AASB 139. Any gains or losses recognised in other comprehensive income (OCI) are not recycled upon de-recognition of the asset. Debt instruments at fair value through other comprehensive income (Debt FVOCI) Financial assets with contractual cash flows representing solely payments of principal and interest and held within a business model of collecting the contractual cash flows and selling the assets are accounted for at debt FVOCI. The Company accounts for financial assets at FVOCI if the assets meet the following conditions: • • they are held under a business model whose objective it is to “hold to collect” the associated cash flows and sell financial assets; and the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) The classification is determined by both: • • the entity’s business model for managing the financial asset the contractual cash flow characteristics of the financial asset. All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. Subsequent measurement of financial assets Financial assets at amortised cost Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL): • • they are held within a business model whose objective is to hold the financial assets to collect its contractual cash flows the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Company’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments as well as listed bonds that were previously classified as held-to-maturity under IAS 39. Financial assets at fair value through profit or loss (FVTPL) Financial assets that are held within a different business model other than ‘hold to collect’ or ‘hold to collect and sell’ are categorised at fair value through profit and loss. Further, irrespective of business model financial assets whose contractual cash flows are not solely payments of principal and interest are accounted for at FVTPL. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements apply. The category also contains an equity investment. The Company accounts for the investment at FVTPL and did not make the irrevocable election to account for the investment in unlisted and listed equity securities at fair value through other comprehensive income (FVOCI). The fair value was determined in line with the requirements of AASB 9, which does not allow for measurement at cost. Assets in this category are measured at fair value with gains or losses recognised in profit or loss. N OT E S TO T H E F I N A N C I A L S TAT E M E N T S | 27 VEEM BESPOKE 1900MM DIAMETER, 5 BLADE VEEMSUPERYACHT SERIES PROPELLER NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) Any gains or losses recognised in other comprehensive income (OCI) will be recycled upon de-recognition of the asset. involvement is the amount of the transferred asset that the Company may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Company’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. R. DERECOGNITION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES Financial liabilities Financial assets A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is de-recognised when: • • • the rights to receive cash flows from the asset have expired; the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or the Company has transferred its rights to receive cash flows from the asset and either: - has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. - When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company’s continuing involvement in the asset. 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 received that the Company could be required to repay. When continuing involvement takes the form of a written and/or purchased option (including a cash- settled option or similar provision) on the transferred asset, the extent of the Company’s continuing 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 a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. S. IMPAIRMENT OF FINANCIAL ASSETS The Company assesses at each balance date whether a financial asset or Group of financial assets is impaired. Financial assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in profit or loss. The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an VEEM'S VG1000SD WILL BE INSTALLED ON BOARD DAMEN'S FCS 7011 73.6M HIGH SPEED CREW TRANSFER VESSEL 28 | V E E M LT D NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) individually assessed financial asset, whether significant or not, the asset is included in a Group of financial assets with similar credit risk characteristics and that Group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in profit or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Financial assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value (because its fair value cannot be reliably measured), or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for a similar financial asset. Such impairment loss shall not be reversed in subsequent periods. T. PROPERTY, PLANT AND EQUIPMENT Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows: Motor vehicles Plant and equipment Computer equipment 3-10 years 5-30 years 3-5 years The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. Impairment The carrying values of plant and equipment are reviewed for impairment at each balance date, with recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired. The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash- generating unit to which the asset belongs, unless the asset's value in use can be estimated to approximate fair value. An impairment exists when the carrying value of an asset or cash-generating unit exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount. For plant and equipment, impairment losses are recognised in the statement of profit or loss and other comprehensive income in the cost of sales line item. De-recognition and disposal An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised. U. INTANGIBLE ASSETS Intangible assets acquired separately Intangible assets acquired separately are recorded at cost less accumulated amortisation and impairment. Amortisation is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method is reviewed at the end of each annual reporting period, with any changes in these accounting estimates being accounted for on a prospective basis. Internally generated intangible assets Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period as incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: • • • • The technical feasibility of completing the intangible asset so that it will be available for use or sale; The intention to complete the intangible asset and use or sell it; The ability to use or sell the intangible asset; How the intangible asset will generate probable future economic benefits; N OT E S TO T H E F I N A N C I A L S TAT E M E N T S | 29 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) • • The availability of adequate technical, financial and other resources to complete development and to use or sell the intangible asset; and The ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately. The following useful lives are used in the calculation of amortisation: Patents Product Development Expenditure 10 – 20 years Units of production in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. Software 10 years X. PROVISIONS V. TRADE AND OTHER PAYABLES Trade payables and other payables are carried at amortised cost and represent liabilities for goods and services provided to the Company prior to the end of the financial year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services. Trade and other payables are presented as current liabilities unless payment is not due within 12 months. W. BORROWINGS Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised VEEM GYRO VG1000SD IS THE MOST ADVANCED AND POWERFUL STABILIZER AVAILABLE FOR LARGE SUPER YACHTS AND COMMERCIAL WORK BOATS. Provisions are recognised when the Company 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. Provisions are not recognised for future operating losses. When the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of profit or loss and other comprehensive income net of any reimbursement. Provisions are measured at the present value or management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as an interest expense. Onerous contracts Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Company has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract. 30 | V E E M LT D NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) Warranties Provisions for the expected cost of warranty obligations under local sale of goods legislation are recognised at the date of sale of the relevant products, at the Directors’ best estimate of the expenditure required to settle the Company’s obligation. Y. EMPLOYEE LEAVE BENEFITS Wages, salaries, annual leave and sick leave Liabilities accruing to employees in respect of wages and salaries, annual leave and sick leave expected to be settled within 12 months of the balance date are recognised in other payables in respect of employees’ services up to the balance date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non- accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. Liabilities accruing to employees in respect of wages and salaries, annual leave, long service leave and sick leave not expected to be settled within 12 months of the balance date are recognised in non-current liabilities in respect of employees’ services up to the balance date. They are measured as the present value of the estimated future outflows to be made by the Company. Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the balance date. Consideration is given to expected future wage and salary levels, experience of employee departures, and period of service. Expected future payments are discounted using market yields at the balance date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. Z. DIVIDENDS Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period. AA. EARNINGS PER SHARE Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share are calculated, where applicable, as net profit attributable to members of the parent, adjusted for: • • • costs of servicing equity (other than dividends) and preference share dividends; the after-tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. THE VEEM POWERPLAY DEMONSTRATION VESSEL IN EUROPE N OT E S TO T H E F I N A N C I A L S TAT E M E N T S | 31 NOTE 2: REVENUE AND EXPENSES Revenue from contracts with customers Sales revenue Revenue – point in time Revenue – over time Other revenue Government subsidies Apprentice subsidies Commissions received Scrap metal 2019 ($) 2018 ($) 2,582,573 1,064,595 42,358,999 39,632,923 18,415 4,000 945 17,897 - 5,030 557 9,187 44,982,829 40,712,292 During the year, the Company recognised revenue of $5,365,546 (2018: $9,425,468) in relation to the prior year’s work in progress. The Company has progress billings at 30 June 2019 of $7,417,879 (2018: $2,356,643). The Company has contract assets, being work in progress (recognised overtime) at 30 June 2019 of $6,723,472 (2018: $4,670,847). The Company will recognise revenue from contracts with customers based on the following performance: • • the completion of the contracted work-scope following factory acceptance testing in accordance with contract terms and conditions and when applicable, completion of contracted milestones and transfer of title generally based on: milestone 1 - material acquisition, and/or milestone 2 - completion of casting metal pour, and/or milestone 3 - factory acceptance testing (FAT) The majority of customer contracts are from the private sector and this accounts for approximately 80% of the revenue during FY18/19. Sales to quasi-government and government instrumentalities accounted for 13% (2018: 25%) and 16% (2018: 7%) respectively. The geographic distribution of sales for the FY18/19 was approximately 59% (2018: 68%) derived within Australia and the remaining 41% (2018: 32%) were derived predominantly from the USA, UK, Italy and NZ. Contracts are received and executed generally within 12 months and hence are considered short term contracts. Period contracts (those that extend greater than 1 year) with customers are executed by discrete purchase orders for required shipments and hence still fall within the definition for short term contracts. All sales are generated by direct contract with customers. Sales agents are utilised in Europe and USA to introduce enquiries and leads and contracts are then established direct with the buyer. Where distributors are utilised the entity purchases and contracts directly with VEEM Ltd. OTHER INCOME Foreign exchange gains/ (losses) (net) 2019 ($) (18,861) (18,861) 2018 ($) (352,517) (352,517) 32 | V E E M LT D NOTE 2: REVENUE AND EXPENSES (CONT’D) OTHER EXPENSES Insurance Advertising and marketing Travel Bank Charges Safety and first aid Motor vehicle expenses Accounting and secretarial Telephone expenses Employee related expenses Legal expenses Loss/(profit) on disposal property, plant and equipment Share registry expenses Other general expenses NOTE 3: INCOME TAX Income tax recognised in profit or loss The major components of tax expense are: 2019 ($) 280,332 946,608 232,855 144,809 68,620 89,094 137,360 49,403 172,060 1,254 4,804 22,930 185,613 2,335,742 2018 ($) 291,747 821,911 281,560 136,739 70,905 161,600 165,352 63,341 74,707 45,966 (13,788) 20,371 152,532 2,272,943 Current tax expense/(benefit) Deferred tax expense/(benefit) relating to the origination and reversal of temporary differences 2019 ($) 42,500 (131,426) 2018 ($) (60,457) 211,810 Total tax (benefit)/expense (88,926) 151,353 The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows: Accounting profit before income tax Income tax expense calculated at 27.5% Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: • Prior year overprovision of income tax • Effect of expenses that are not deductible in determining taxable profit • Effect of concessions – research and development Income tax (benefit)/expense reported in the statement of profit or loss and other comprehensive income 2019 ($) 2,141,870 589,014 2018 ($) 2,908,271 872,481 (664,040) (66,485) 13,861 (27,761) (88,926) 3,226 (657,869) 151,353 The tax rate used in the above reconciliation is the corporate tax rate of 27.5% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in this tax rate since the previous reporting period. N OT E S TO T H E F I N A N C I A L S TAT E M E N T S | 33 NOTE 3: INCOME TAX (CONT’D) CURRENT TAX RECEIVABLES COMPRISE: Income tax receivable/(payable) DEFERRED TAX ASSETS COMPRISE: Annual leave payable Provision for long service leave Accrued expenses Unrealised foreign exchange (gain) / loss Black hole expenditure and borrowing costs Unclaimed research and development concessions DEFERRED TAX LIABILITIES COMPRISE: Depreciable property, plant and equipment Patents Accrued revenue 2019 ($) 538,515 2018 ($) 1,016,048 2019 ($) 312,138 281,292 73,450 11,754 184,014 711,522 2018 ($) 312,912 352,971 59,850 3,469 307,481 - 1,574,170 1,036,683 2019 ($) 1,223,560 64,666 96,329 2018 ($) 894,844 83,650 - 1,384,555 978,494 VG120SD INSTALLED IN A SMALL ALUMINIUM SURVEY VESSEL OPERATING IN NORTH SEA. 34 | V E E M LT D NOTE 3: INCOME TAX (CONT’D) RECONCILIATION OF DEFERRED TAX ASSETS/ (LIABILITIES): 30 June 2019 Accrued expenses Annual leave payable OPENING BALANCE $ CHANGE IN TAX RATE $ CHARGED TO INCOME $ CLOSING BALANCE $ 59,850 (4,987) 18,587 73,450 312,912 (26,076) 25,302 312,138 Provision for long service leave 352,971 (29,414) (42,265) 281,292 Property, plant and equipment (894,844) 74,570 (403,286) (1,223,560) Unrealised foreign exchange (gain) / loss 3,469 (289) 8,574 11,754 Black hole expenditure and borrowing costs 307,481 (25,623) (97,844) 184,014 Patents (83,650) 6,971 12,013 (64,666) Unclaimed research and development concessions Accrued revenue - - - - 711,522 711,522 (96,329) (96,329) 58,189 (4,848) 136,274 189,615 30 June 2018 Accrued expenses Annual leave payable Provision for long service leave Property, plant and equipment OPENING BALANCE $ CHARGED TO INCOME $ CLOSING BALANCE $ 54,522 307,226 5,328 5,686 59,850 312,912 329,595 23,376 352,971 (676,523) (218,321) (894,844) Unrealised foreign exchange (gain) / loss (6,445) 9,914 3,469 Black hole expenditure and borrowing costs 346,373 (38,892) 307,481 Patents (84,749) 1,099 (83,650) 269,999 (211,810) 58,189 N OT E S TO T H E F I N A N C I A L S TAT E M E N T S | 35 NOTE 4: SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of VEEM Ltd. The Board has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions. The entity does not have any operational segments with discrete financial information. The Board of Directors review internal management reports on a monthly basis that are consistent with the information provided in the statement of profit or loss and other comprehensive income, statement of financial position and statement of cash flows. As a result no reconciliation is required because the information as presented is what is used by the Board to make strategic decisions. The Company has two customers where the revenue from those customers was in excess of 10% of the Company’s revenue. Customer A generated 15.4% (2018: 25.4%). Customer B generated 14.1% (2018: 7.4%) of the Company’s revenue for the year. The total sales revenue for VEEM Ltd for FY2019 was $44,941,572. This can be broken down into the following major sales categories. Engineering Services the mining and industrial engineering manufacture and service portion of the business and sales for FY2019 were $14,418,810. Propulsion and stabilization consists of the manufacture of new propellers, shaft lines, gyro stabilizers and fin stabilizers. The sales in this category were $24,206,692. Defence related sales for FY2019 totalled $13,233,331 with $6,917,259 of those sales being both within the defence and propulsion/ stabilization category. NOTE 5: EARNINGS PER SHARE Basic earnings per share Basic earnings per share There are no diluted earnings per share. Basic earnings per share 2019 2018 Cents per share Cents per share 1.72 2.12 The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share is as follows: Earnings Earnings from continuing operations 2,230,796 2,756,918 2019 ($) 2018 ($) Weighted average number of ordinary shares for the purpose of basic earnings per share 2019 Number 2018 Number 130,000,000 130,000,000 36 | V E E M LT D NOTE 6: DIVIDENDS Fully franked dividends paid Fully unfranked dividends paid Total dividends paid Balance of franking account at period end adjusted for franking credits arising from the payment of provision for income tax and dividends recognised as receivables, franking debits arising from payment of proposed dividends and franking credits that may be prevented from distribution in a subsequent financial year. The tax rate at which paid dividends have been franked is 27.5% (2018: 30%). NOTE 7: CASH AND CASH EQUIVALENTS Cash at bank Cash on hand 2019 ($) 533,000 - 2018 ($) 2,086,500 - 533,000 2,086,500 2019 ($) 1,193,530 2018 ($) 913,949 2019 ($) 2,873,287 800 2,874,087 2018 ($) 303,408 1,300 304,708 Cash at bank earns interest at floating rates based on daily bank deposit rates. Reconciliation to the Statement of Cash Flows: For the purposes of the statement of cash flows, cash and cash equivalents comprise cash on hand and at bank and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows: Cash and cash equivalents Bank overdraft (Note 14) 2019 ($) 2,874,087 - 2,874,087 2018 ($) 304,708 (629,449) (324,741) Non-cash financing and investing activities The Company purchased assets with a value of $131,985 which were financed through hire purchase. Cash balances not available for use All cash balances are available for use. N OT E S TO T H E F I N A N C I A L S TAT E M E N T S | 37 NOTE 7: CASH AND CASH EQUIVALENTS (CONT’D) Reconciliation of profit for the year to net cash flows from operating activities Net profit for the year Depreciation and amortisation expense (Profit)/loss on sale or disposal of non-current assets, property, plant & equipment Provision for employee leave benefits Foreign exchange loss (Increase)/decrease in assets: Trade and other receivables Inventories Increase/(decrease) in liabilities: Trade and other payables Current and deferred tax GST payable 2019 ($) 2,230,796 1,752,992 4,804 (153,691) 18,862 2018 ($) 2,756,918 1,607,638 (13,788) 77,920 352,517 1,926,625 2,313,716 (1,433,360) (4,923,121) 27,405 346,107 (11,650) 1,468,363 (1,177,669) (160,381) Net cash inflow/(outflow) from operating activities 8,455,966 (1,444,963) Changes in liabilities arising from financing activities BANK LOANS ($) HIRE PURCHASE LIABILITY ($) TOTAL ($) Balance as at 1 July 2017 3,500,000 4,242,946 7,742,946 Net cash from (used in) financing activities 6,000,000 (1,120,438) 4,879,562 Acquisition of plant and equipment by means of hire purchase - 118,864 118,864 Balance as at 30 June 2018 9,500,000 3,241,372 12,741,372 Net cash from (used in) financing activities (2,500,000) (1,159,577) (3,659,577) Acquisition of plant and equipment by means of hire purchase - 131,985 131,985 Balance as at 30 June 2019 7,000,000 2,213,780 9,213,780 NOTE 8: TRADE AND OTHER RECEIVABLES Trade receivables (i) GST recoverable Other receivables 2019 ($) 6,177,832 201,086 478,444 2018 ($) 8,596,812 178,572 98,277 6,857,362 8,873,661 i. the average credit period on sales of goods and rendering of services is 15-60 days 38 | V E E M LT D NOTE 8: TRADE AND OTHER RECEIVABLES (CONT’D) Aging of past due but not impaired 60 – 90 days 90 – 120 days Total 2019 ($) 679,805 497,943 1,177,748 2018 ($) 449,797 210,924 660,721 Expected credit losses The Company applies the AASB 9 simplified model of recognising lifetime expected credit losses for all trade receivables as these items do not have a significant financing component. In measuring the expected credit losses, the trade receivables have been assessed on a collective basis as they possess shared credit risk characteristics. They have been grouped based on the days past due and also according to the geographical location of customers. The expected loss rates are based on the payment profile for sales over the past 48 months before 30 June 2019 and 30 June 2018 respectively as well as the corresponding historical credit losses during that period. The historical rates are adjusted to reflect current and forwarding looking macroeconomic factors affecting the customer’s ability to settle the amount outstanding. Trade receivables are written off when there is no reasonable expectation of recovery. Failure to make payments within 180 days from the invoice date and failure to engage with the Company on alternative payment arrangement is considered indicators of no reasonable expectation of recovery. On the above basis, a provision for expected credit losses as at 30 June 2019 and 30 June 2018 is not required as it is not material to the financial statements. NOTE 9: INVENTORIES Work in progress – over time Work in progress – point in time Less: progress billings Goods for resale, raw materials and stores 2019 ($) 6,723,472 1,833,131 2018 ($) 4,670,847 1,151,358 (7,417,879) (2,356,643) 1,138,724 9,899,824 3,465,562 9,886,702 11,038,548 13,352,264 Inventory write-downs charged to cost of sales totalled $Nil (2018 $9,425,468). During the year, the Company recognised revenue of $5,365,546 (2018: $9,425,468) in relation to the prior years’ work in progress. Included in goods for resale, raw materials and stores inventories are inventories carried at net realisable value with a carrying value of $1,151,192 (2018 $7,754,225). The total impact to profit or loss of write downs to net realisable value is $85,022 (2018 $33,098). NOTE 10: OTHER ASSETS Prepayments Supplies paid in advance 2019 ($) 442,044 562,749 1,004,793 2018 ($) 391,637 500,968 892,605 N OT E S TO T H E F I N A N C I A L S TAT E M E N T S | 39 NOTE 11: PROPERTY, PLANT AND EQUIPMENT PLANT AND EQUIPMENT ($) MOTOR VEHICLES ($) CAPITAL WORK IN PROGRESS ($) COMPUTER EQUIPMENT ($) TOTAL ($) As at 30 June 2018 Cost 35,207,615 547,376 271,234 1,424,000 37,450,225 Accumulated depreciation (21,443,994) (459,734) - (1,233,411) (23,137,139) Closing carrying amount 13,763,621 87,642 271,234 190,589 14,313,086 Year ended 30 June 2019 Opening carrying amount 13,763,621 Additions Disposals Transfers 188,349 - 21,630 87,642 82,035 (5,713) 271,234 31,447 (17,945) - (173,099) 190,589 14,313,086 31,678 333,509 - - (23,658) (151,469) Depreciation charge (1,445,579) Closing carrying amount 12,528,021 (31,413) 132,551 - (50,464) (1,527,456) 111,637 171,803 12,944,012 As at 30 June 2019 Cost 35,416,129 595,057 111,637 1,455,678 37,578,501 Accumulated Depreciation (22,888,108) (462,506) - (1,283,875) (24,634,489) Carrying amount 12,528,021 132,551 111,637 171,803 12,944,012 NOTE 12: INTANGIBLE ASSETS OTHER INTELLECTUAL PROPERTY ($) PRODUCT DEVELOPMENT ($) As at 30 June 2018 Cost Accumulated amortisation Closing carrying amount Year ended 30 June 2019 Opening carrying amount Net additions Transfers Amortisation charge Closing carrying amount As at 30 June 2019 Cost Accumulated amortisation Carrying amount 677,554 (35,595) 641,959 641,959 31,378 154,800 (143,726) 684,411 863,732 (179,321) 684,411 TOTAL ($) 12,802,090 (879,140) 11,922,950 12,124,536 (843,545) 11,280,991 11,280,991 11,922,950 850,513 (3,331) (81,810) 12,046,363 881,891 151,469 (225,536) 12,730,774 12,971,718 (925,355) 12,046,363 13,835,450 (1,104,676) 12,730,774 No impairment loss was recognised in the 2019 financial year (2018: $Nil). 40 | V E E M LT D NOTE 13: TRADE AND OTHER PAYABLES (CURRENT) Trade payables (i) Annual leave payable GST Payable Other creditors 2019 ($) 4,862,946 1,135,046 317,175 451,878 2018 ($) 4,672,674 1,043,041 306,311 687,888 6,767,045 6,709,914 (i) Trade payables are non-interest bearing and are normally settled on 30-day terms. Information regarding the interest rate, foreign exchange and liquidity risk exposure is set out in Note 17. NOTE 14: BORROWINGS Current Bank overdraft (a) Commercial facility (a) Hire purchase liability Less: Unexpired charges Non-current Commercial facility (a) Hire purchase liability Less: Unexpired charges 2019 ($) 2018 ($) - 600,000 1,284,880 (86,805) 1,798,075 6,400,000 1,046,117 (30,412) 7,415,705 629,449 3,500,000 1,263,072 (133,142) 5,259,379 6,000,000 2,203,093 (91,651) 8,111,442 (a) The bank overdraft and commercial facility are secured by a registered first mortgage over the assets and undertakings of the Company. The Company has a Commercial Facility with a limit of $8,000,000. The Commercial Facility is repayable by 1 July 2021. $50,000 of principal is payable monthly for the first 18 calendar months of the Commercial Facility, thereafter $100,000 of principal is payable each calendar month with the remaining facility amount owing payable on the termination date. The loan facility is reduced by the principal component of each repayment. Interest at the base rate plus 1.75% per annum is charged monthly and a line fee of 0.75% per annum of the Facility Limit is payable quarterly in arrears. The interest rate is currently at 2.77% (June 2018: 3.56%). The facility is reviewed on an annual basis. At 30 June 2019, the Company had available $1,000,000 (2018: $1,596,150) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. The Company has an Overdraft Facility with a limit of $3,400,000. Interest at the base rate less 0.75% per annum is charged monthly. The facility is reviewed on an annual basis. At 30 June 2019, the Company had available $3,400,000 of undrawn overdraft facilities. In addition, there is an Electronic Payments Facility with a limit of $300,000. At 30 June 2019, the Company had available $300,000 under this facility. The Company complied with all banking covenants during the financial year. N OT E S TO T H E F I N A N C I A L S TAT E M E N T S | 41 NOTE 14: BORROWINGS (CONT’D) Financing facilities available At balance date, the following financing facilities had been negotiated and were available: Total facilities Overdraft Facility Commercial Facility Multi Option Facility Electronic Payments facility Commercial Card Facility Facilities used at balance date Overdraft Facility Commercial Facility Commercial Card Facility Facilities unused at balance date Overdraft Facility Commercial Facility Multi Option Facility Electronic Payments facility Commercial Card Facility Total facilities Facilities used at balance date Facilities unused at balance date 2019 ($) 2018 ($) 3,400,000 8,000,000 - - - 11,400,000 300,000 50,000 300,000 50,000 11,750,000 11,750,000 - 629,449 7,000,000 9,500,000 37,004 24,401 7,037,004 10,153,850 3,400,000 1,000,000 - 300,000 12,996 4,712,996 - - 1,270,551 300,000 25,599 1,596,150 7,037,004 4,712,996 10,153,850 1,596,150 11,750,000 11,750,000 The carrying value of plant and equipment held under hire purchase contracts at 30 June 2019 is $3,856,541 (2018: $3,957,223). Additions during the year include $131,985 (2017: $118,864 of plant and equipment held under hire purchase contracts). 42 | V E E M LT D NOTE 15: PROVISIONS Balance at beginning of year Net movements Balance at the end of year Current Non-current 2019 EMPLOYEE BENEFITS (i) $ 1,176,569 (153,691) 1,022,878 1,022,878 - 2018 EMPLOYEE BENEFITS (i) $ 1,098,649 77,920 1,176,569 1,176,569 - (i) The provision for employee benefits represents long service leave entitlements accrued. NOTE 16: ISSUED CAPITAL 2019 ($) 2018 ($) 130,000,000 (2018: 130,000,000) Ordinary shares issued and fully paid 5,140,616 5,140,616 Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. Movements in ordinary shares on issue Opening balance Closing balance Share options YEAR TO 30 JUNE 2019 YEAR TO 30 JUNE 2018 No. $ No. $ 130,000,000 5,140,616 130,000,000 5,140,616 130,000,000 5,140,616 130,000,000 5,140,616 The Company has a share-based payment Incentive Option Scheme which provides that the Board of the Company, from time to time, in its absolute discretion, make an offer to any Eligible Participant to apply for Options, upon the terms set out in the Incentive Option Plan and upon such additional terms and conditions as the Board determined. In exercising that discretion, the Board may have regard to the following (without limitation): (i) The Eligible Participant length of service with the Company (ii) The contribution made by the Eligible Participant to the Company (iii) The potential contribution of the Eligible Participant to the Company; or (iv) Any other matter the Board considers relevant. No options to subscribe for the Company's shares have been granted during the period. There are no options on issue at balance date. N OT E S TO T H E F I N A N C I A L S TAT E M E N T S | 43 NOTE 17: FINANCIAL INSTRUMENTS Capital risk management The Company manages its capital to ensure it will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Company consists of debt, cash and cash equivalents and equity attributable to equity holders of the Company, comprising issued capital and retained earnings. The Company is not subject to externally imposed capital requirements. Operating cash flows are used to maintain and expand operations, as well as to make routine expenditures such as tax, dividends and general administrative outgoings. Gearing levels are reviewed by the Board on a regular basis in line with its target gearing ratio, the cost of capital and the risks associated with each class of capital. Categories of financial instruments Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Borrowings – Bill Facility Borrowings – Bank overdraft Hire purchase liability 2019 ($) 2018 ($) 2,874,087 6,857,362 304,708 8,793,661 6,767,045 7,000,000 - 2,213,780 6,709,914 9,500,000 629,449 3,241,372 Financial risk management objectives The Company is exposed to market risk (including currency risk, fair value, risk and interest), credit risk, liquidity risk and cash flow interest rate risk. Foreign currency risk management The Company undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. This is managed by the Company’s operations having a natural hedge with materials purchased and sold at prices fixed at the prevailing rate. The Company therefore has limited exposure to US Dollar (USD), Euro (EUR), and Great British Pound (GBP) debtors and creditors currency fluctuations. CASH ($) RECEIVABLES ($) PAYABLE ($) USD 950,255 924,151 Impact of a 5% increase to profit or loss Impact of a 5% decrease to profit or loss EUR 445,271 206,547 Impact of a 5% increase to profit or loss Impact of a 5% decrease to profit or loss TOTAL ASSET /(LIABILITY) ($) 1,874,406 (93,720) 93,720 651,818 (32,591) 32,591 GBP 7,411 789,319 1,137,075 (340,345) Impact of a 5% increase to profit or loss Impact of a 5% decrease to profit or loss 44 | (90,587) 90,587 V E E M LT D NOTE 17: FINANCIAL INSTRUMENTS (CONT’D) The Company’s sensitivity to foreign exchange has not changed significantly from the prior year. The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and exchange rates. To negate some of this risk the Company has embarked on a global supply program the procurement of all appropriate goods that form part of its manufactured products. This includes but is not limited to the supply of sub components, individual parts consumable products used in production and stock items. The Company also manages market risk by keeping abreast of factors affecting its market on a continual basis. Business improvement practices continually evolve. Interest rate risk management The Company is exposed to interest rate risk as it borrows funds at both fixed and floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings The Company’s exposures to interest rate on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. Interest rate risk sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the balance date and the stipulated change taking place at the beginning of the financial year and held constant throughout the THE NEW VEEMSCAN 2000 WILL SCAN PROPELLERS UP TO 80 INCH. reporting period. A 50 basis point increase or decrease has been used when reporting interest rate risk which represents management’s assessment of the change in interest rates. At balance date, if interest rates had been 50 basis points higher or lower and all other variables were held constant, the Company’s net profit would increase by $4,401 and decrease by $4,401 (2018:$3,562). This is mainly attributable to the Company’s exposure to interest rates on its variable rate borrowings. The Company’s sensitivity to interest rates has increased during the current period mainly due to the increase in variable rate debt instruments. Credit risk management Credit risk refers to the risk the counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent of investment grade and above. This information is supplied by independent rating agencies where available and, if not available, the Company uses publicly available financial information and its own trading record to rate its major customers. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by management annually. The Company does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The carrying amount of financial assets recorded in the financial statements, net of any allowance for losses, represents the Company’s maximum exposure to credit risk without taking account of the value of any collateral obtained. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, who have built an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note 14 is a listing of additional undrawn facilities that the Company has at its disposal to further reduce liquidity risk. N OT E S TO T H E F I N A N C I A L S TAT E M E N T S | 45 NOTE 17: FINANCIAL INSTRUMENTS (CONT’D) The following table details the Company’s expected contractual maturity for its non-derivative financial liabilities. These have been drawn up based on undiscounted contractual maturities of the financial liabilities based on the earliest date the Company can be required to repay. The tables include both interest and principal cash flows. WEIGHTED AVERAGE INTEREST RATE 30 June 2019 Non-interest bearing – Trade and other payables Fixed interest rate – Hire purchase liabilities Variable interest rate – Bill facility and bank overdraft 1 year or less 1–5 years 5+ years % 4.4 2.77 $ 6,767,045 $ - 1,284,880 1,046,117 600,000 6,400,000 8,651,925 7,446,117 $ - - - - WEIGHTED AVERAGE INTEREST RATE 1 year or less 1–5 years 5+ years 30 June 2018 % $ Non-interest bearing - Trade and other payables 6,709,915 $ - Fixed interest rate – Hire purchase liabilities 4.4 1,263,072 2,203,093 Variable interest rate – Bill facility and bank overdraft 3.56 4,423,058 6,162,307 12,396,045 8,365,400 $ - - - - Fair value measurement The Directors consider that the carrying value of the financial assets and liabilities as recognised in the financial statements approximate their fair values. NOTE 18: COMMITMENTS AND CONTINGENCIES Operating lease commitments – Company as lessee The Company has commitments for operating leases. During the year, the Company extended the commercial lease on its premises for a further 10 years. The Company has the option to extend the lease beyond this term for another 15 years in increments of five year terms. During the year, the Company entered into a new commercial lease for additional premises for a 10 year period. The Company has the option to extend the lease beyond this term for another 15 years in increments of five year terms. At balance date, these premises were not yet available for use. Future minimum rentals payable under non-cancellable operating leases as at 30 June 2019 are as follows: (a) Operating lease commitments • within one year • after one year but not more than 5 years • longer than 5 years 2019 ($) 2018 ($) 1,669,470 6,677,880 8,047,350 1,165,273 - - 16,394,700 1,165,273 Hire purchase commitments - Company as lessee The Company has hire purchase contracts for various items of plant and machinery. These contracts have terms of renewal but no purchase options and escalation clauses. Renewals are at the option of the specific entity that holds the lease. 46 | V E E M LT D NOTE 18: COMMITMENTS AND CONTINGENCIES (CONT’D) Future minimum lease payments under hire purchase contracts together with the present value of the net minimum lease payments are as follows: (b) Hire purchase commitments payable - within one year - after one year but not more than five years - longer than five years Minimum hire purchase payments Less: Unexpired charges Present value of net minimum lease payments Represented by: Current Non-current Capital commitments 2019 ($) 2018 ($) 1,284,880 1,046,117 - 1,263,072 2,203,093 - 2,330,997 3,466,165 (117,217) 2,213,780 1,198,075 1,015,705 2,213,780 (224,793) 3,241,372 1,129,931 2,111,441 3,241,372 At 30 June 2019 the Company has no capital commitments (2018: $Nil). NOTE 19: RELATED PARTY DISCLOSURE The Company’s related parties include key management personnel and their related entities as described below. The aggregate compensation for Directors and other key management personnel of the Company are set out below: Short-term employee benefits Other long-term benefits 2019 ($) 684,448 47,055 731,503 2018 ($) 634,169 46,734 680,903 Key management personnel transactions The Company has entered into a lease agreement with Voyka Pty Ltd, an entity controlled and related to Mr Mark Miocevich and Mr Brad Miocevich. The Company paid Voyka Pty Ltd monthly rent of $115,307 from July 2018 to March 2019 and $110,000 from April 2019 to June 2019 including GST, totalling $1,367,763 for the twelve months to 30 June 2018. The rent is exclusive of any outgoings including rates, taxes, insurance premiums and maintenance costs. The lease was made on commercial terms. During the year, the Company extended this lease for a further ten years with rent charged of $110,000 a month, including GST. During the year, the Company signed a new lease with Voyka Pty Ltd for new premises for a period of ten years with rent charged of $43,035 a month, including GST. N OT E S TO T H E F I N A N C I A L S TAT E M E N T S | 47 NOTE 20: AUDITOR’S REMUNERATION The auditor of VEEM Limited is HLB Mann Judd. Audit or review of the financial statements Tax compliance services 2019 ($) 79,040 23,950 102,990 2018 ($) 89,500 31,700 121,200 NOTE 21: SUBSEQUENT EVENTS Subsequent to the end of year an ordinary dividend of $474,500 franked to 27.5% has been declared. Other than the above, no matters or circumstances have arisen since the end of the financial year which have significantly affected or may significantly affect the operating of the Company, the results of those operations, or state of affairs of the Company in future financial years. 48 | V E E M LT D VEEM'S FIRST UNIT OF THE VEEMSCAN2000 CURRENTLY IN AMERICA FOR AN INITIAL DISTRIBUTOR'S PRODUCT TESTING. DIRECTORS’ DECLARATION 1. In the opinion of the Directors of VEEM Limited (the ‘Company’): a. the accompanying financial statements and notes are in accordance with the Corporations Act 2001 including: i. ii. giving a true and fair view of the Company’s financial position as at 30 June 2019 and of its performance for the year then ended; and complying with Australian Accounting Standards, the Corporations Regulations 2001, professional reporting requirements and other mandatory requirements. b. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. c. the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board. 2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2019. This declaration is signed in accordance with a resolution of the board of Directors. MARK DAVID MIOCEVICH Managing Director Dated this 29 day of August 2019 AU D I TO R ’ S I N D E P E N D E N C E D E C L A R AT I O N C O M PA N Y S U M M A RY | 49 INDEPENDENT AUDITOR’S REPORT To the members of VEEM Ltd Report on the Audit of the Financial Report Opinion We have audited the financial report of VEEM Ltd (“the Company”) which comprises the statement of financial position as at 30 June 2019, the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Company is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the Company’s financial position as at 30 June 2019 and of its financial performance for the year then ended; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (“the Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How our audit addressed the key audit matter Carrying amount of the intangible asset (product development expenditure) Note 12 of the financial report The Company has an intangible asset in relation to capitalised expenditure on the development of gyroscopic stabilizers. Our procedures included but were not limited to the following: 50 | I N V E S T I GAT I N G AC C O U N TA N T S R E P O RT Page 45 (cid:3) V E E M LT D INDEPENDENT AUDITOR’S REPORT To the members of VEEM Ltd Report on the Audit of the Financial Report Opinion We have audited the financial report of VEEM Ltd (“the Company”) which comprises the statement of financial position as at 30 June 2019, the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Company is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the Company’s financial position as at 30 June 2019 and of its financial performance for the year then ended; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (“the Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How our audit addressed the key audit matter Carrying amount of the intangible asset (product development expenditure) Note 12 of the financial report The Company has an intangible asset in relation Our procedures included but were not limited to to capitalised expenditure on the development of the following: gyroscopic stabilizers. Key Audit Matter How our audit addressed the key audit matter Carrying amount of the intangible asset (product development expenditure) Note 12 of the financial report The development expenditure of $12.046 million is considered to be a key audit matter, given the size of the gyroscopic stabilizer market being relatively new and immature, as well as the specific criteria that have to be met for capitalisation. the balance, In addition, determining whether there is any indication of impairment requires management judgement and assumptions which are affected by future market or economic developments. Revenue recognition Note 2 of the financial report The Company has two distinct categories of revenue being revenue with performance obligations recognised at a point in time and revenue obligations recognised over time. performance with We focused on this area as a key audit matter due to the number and type of estimation events that may occur over the course of a contract life, leading to complex and judgemental revenue recognition and the direct impact on profit. - We assessed the recognition criteria for this intangible asset by challenging the key assumptions used and estimates made in capitalising development costs, including management’s assessment of the stage of the project in the development phase and the accuracy of costs included; - We considered management’s assessment of whether any indicators of impairment were present by understanding the for projects and business performing indicators of for impairment; - We assessed rationale reviews the adequacy of Company’s disclosures in report; and the the financial - We ensured management applied an appropriate amortisation method and amortisation period life intangible. finite this to Our procedures included but were not limited to the following: - We examined and tested the Company’s key controls over revenue and related work- in-progress; - We read and considered a sample of the Company’s key contracts to determine if we concurred with management’s assessment of performance obligations, the transaction price and any contract liabilities that may arise, the allocation of the transaction price, and when to recognise revenue, either at a point in time, or over time; For a sample of contracts designated for over time recognition, we assessed the methodology and accuracy of recognising profit at the stage of completion at balance date; - - We substantiated revenue transactions on a sample basis by agreeing the transaction to the customer’s contract, purchase order, sales invoice, delivery docket, customer certification report, and bank receipt, where relevant; - We tested the appropriateness of progress claims on a sample basis; and - We assessed Company’s disclosures report. the adequacy of in the financial the Page 45 (cid:3) P R O S P E C T U S I N V E S T I GAT I N G AC C O U N TA N T S R E P O RT | 51 Page 46 Information other than the financial report and auditor’s report thereon The Directors are responsible for the other information. The other information comprises the information included in the Company’s annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the ability of the Company to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: - - - - Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors. Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. 52 | I N V E S T I GAT I N G AC C O U N TA N T S R E P O RT V E E M LT D Page 47 Information other than the financial report and auditor’s report thereon The Directors are responsible for the other information. The other information comprises the information included in the Company’s annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the ability of the Company to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: - Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. - - - Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors. Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. - Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the remuneration report We have audited the Remuneration Report included within the Directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of VEEM Ltd for the year ended 30 June 2019 complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. HLB Mann Judd Chartered Accountants Perth, Western Australia 29 August 2019 Norman Neill Partner Page 47 Page 48 P R O S P E C T U S I N V E S T I GAT I N G AC C O U N TA N T S R E P O RT | 53 TWENTY LARGEST SHAREHOLDERS Additional information required by the Australian Securities Exchange Ltd Listing Rules and not disclosed elsewhere in this report. This information is current as at 21 September 2019. RANK NAME UNITS % OF UNITS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 15 17 18 19 20 VEEM CORPORATION PTY LTD 80,000,000 61.54 NATIONAL NOMINEES LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED UBS NOMINEES PTY LTD 11,143,860 9,853,353 8,661,207 3,417,473 CITICORP NOMINEES PTY LIMITED 2,595,000 BNP PARIBAS NOMS PTY LTD BNP PARIBAS NOMINEES PTY LTD ANACACIA CAPITAL CITICORP NOMINEES PTY LIMITED MR ALEXANDER PAUL CHANG ACRES HOLDINGS PTY LTD REDBROOK NOMINEES PTY LTD MR DAVID ANDREW SLOBOM + MRS LINDA JANE SLOBOM MISS AMY-JOY ABURN HARKEN MR GEORGE CHARLES RILEY BT PORTFOLIO SERVICES LIMITED TURNER FUTURE FUND PTY LIMITED CATHER PTY LTD MR PINO JOSEPH YOZZI + MRS EVELYN EDITH YOZZI 2,467,123 1,853,907 600,000 591,996 300,000 285,000 275,000 205,126 165,000 165,000 150,000 147,526 125,000 121,000 8.57 7.58 6.66 2.63 2.00 1.90 1.43 0.46 0.46 0.23 0.22 0.21 0.16 0.13 0.13 0.12 0.11 0.10 0.09 Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (TOTAL) Total Remaining Holders Balance 123,122,571 6,877,429 94.71 5.29 Distribution of equity security holders RANGE 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 Over Rounding Total TOTAL HOLDERS 52 121 60 155 25 UNITS 32,128 332,710 522,838 5,429,906 123,682,418 % OF ISSUED CAPITAL 0.02 0.26 0.40 4.18 95.14 0.01 413 130,000,000 100.00 54 | V E E M LT D MARKETABLE PARCELS Number of shareholders holding less than a marketable parcel of ordinary shares is 31. VOTING RIGHTS Every ordinary shareholder present in person or by proxy at meetings of shareholders shall have one vote for every share held. Option holders have the right to attend meetings but have no voting rights until the options are exercised. SUBSTANTIAL SHAREHOLDERS The following shareholders are considered substantial shareholders: VEEM Corporation Pty Ltd ATF The Miocevich Family Trust 61.54% of the issued ordinary shares OOF Holdings Limited 12.324% of the issued ordinary shares Celeste Funds Management Limited 5.72% of the issued ordinary shares RESTRICTED SECURITIES There are no restricted securities. SHARE BUY BACKS There is no current on market share buyback. CORPORATE GOVERNANCE STATEMENT The Company’s 2019 Corporate Governance Statement is available on the Company’s website at www.veem.com.au. | 55 22 Baile Rd, Canning Vale WA 6155 Telephone: +61 8 9455 9355 +61 8 9455 9333 Facsimile: Email: Website: veem@veem.com.au www.veem.com.au 

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