DTI GROUP LTD — Interim / Quarterly Report 2018

Feb 25, 2018

APPENDIX 4D & HALF YEAR FINANCIAL STATEMENTS

DTI Group Ltd 31 December 2017

RESULTS FOR ANNOUNCEMENT TO THE MARKET

DTI Group Ltd

Appendix 4D Half year report Period ending 31 December 2017

Appendix 4D

Half year report

Period ending on 31 December 2017

Name of entity

Name of entity	Name of entity	Name of entity	Name of entity
DTI Group Ltd
ABN or equivalent company reference The information contained in this report relates to the following years: 15 069 091 Current half-year ended Previous half-year ended 31 December 2017 31 December 2016
15 069 091		Current half-year ended	31 December 2017
		Previous half-year ended	31 December 2016

Results for announcement to the market

	Revenue Profit/(losses) after tax attributable to members Profit/(losses) after tax attributable to owners of theparent	$000s Increased 51.0% To 8,227.1 Increased 96.3% To (5,334.7) Increased 96.3% To (5,334.7)	$000s Increased 51.0% To 8,227.1 Increased 96.3% To (5,334.7) Increased 96.3% To (5,334.7)
	Dividend payments	Amount per security	Franked amount per security
	Year ended 30 June 2017 Final dividend (cents per share)	-	-
	Half year ended 31 December 2017 Interim dividend (cents per share)	-	-
	Record date for determining entitlement to dividend	n/a
	Date the interim 2018 dividend is payable	n/a

DTI Group Ltd

Appendix 4D Half year report Period ending 31 December 2017

Net tangible assets	Current half year $	Previous half year $
Net tangible assets per ordinary security	$0.09	$0.14
Total interim dividend to be paid on all securities
	Current half year $	Previous half year $
Ordinary securities	nil	nil

The above information should be read in conjunction with the attached Half Year Report for the period ending 31 December 2017.

This report is based on accounts that have been reviewed.

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Raj Surendran Company Secretary

Date: 23 February 2018

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ASX announcement

23 February 2018

DTI Earnings Result – 1H FY18

Summary

• Revenue of $8.2 million (1H FY17: $5.4 million)

• EBITDA loss of $6.0 million (1H FY17: $(2.3) million)

• Underlying EBITDA loss of $3.5 million (1H FY17: $(1.3) million)

• NPAT loss of $5.3 million (1H FY17: $(2.7) million)

• Earnings adversely impacted by impairment charges against inventory, receivables and product development costs, lower than anticipated sales, ongoing costs associated with new product development and completion of prior period projects

• Continued contract wins increase contracted order book to record $37.4 million

• DTI has been lost time injury (“LTI”) free since 2015 and has a LTI frequency rate (“LTIFR”) of zero

Financial Performance

DTI Group Ltd (DTI) today announced its results for the half-year ended 31 December 2017. DTI recorded an EBITDA loss of $6.0 million (1H FY17: $2.3 million EBITDA loss) on revenue of $8.2 million (1H FY17: $5.4 million). Despite reporting higher revenue DTI continued to incur costs associated with closing out projects from prior periods. The earnings result was adversely impacted by impairment charges, lower than anticipated sales, ongoing costs associated with completing new product development and part reversal of 2017 R&D Grant receivable. Non-recurring impairment charges of $3.1 million relating to inventory, trade receivables and of development and project costs also contributed to the negative earnings result.

DTI reported an interim net loss after tax of $5.3 million for 1H FY18 compared to $2.7 million loss for the previous corresponding period.

Financial Position

DTI has negligible debt and recorded net cash at 31 December of $1.2 million. DTI recorded negative cash from operations of $0.9 million due to increased working capital associated with larger rail contracts and delays experienced in collection of receivables.

DTI Group Ltd | ABN 15 069 791 091 31 Affleck Rd | Perth Airport WA 6105 T +61 8 9479 1195 | F +61 8 9479 1190

www.dti.com.au

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ASX announcement

DTI has reduced the level of trade working capital supporting its revenue base, despite increased revenue.

Pipeline and Order Book

DTI enjoys a contracted order book in excess of $37.4 million, as at 31 December 2017, which has increased half-on-half since June 2015. During this period DTI has been successful in acquiring contracts in the rail sector to complement its already strong position in the bus sector.

DTI has an identified opportunity pipeline in excess of $383 million which is expected to be awarded over the next four to five years. The rail sector contributes in excess of 90 per cent of this pipeline with the balance in the bus and law enforcement sectors. Europe, Middle East and Africa (EMEA) is a strong geographic focus for the business with approximately 60 per cent of the opportunity pipeline sourced in this region.

Outlook

DTI is operating in a growth market underwritten by strong public and private sector demand with increased opportunities arising from changes in technology and development of new products. DTI has demonstrated its capacity to win key contracts and grow its recurring revenue base by leveraging its core technology platform. The ongoing investment in product development has positioned DTI strongly to convert identified opportunities into future revenue growth for the business.

For further information please contact Peter Tazewell, Chief Executive Officer on +61 8 9273 2905 or email peter.tazewell@dti.com.au

About DTI Group

DTI develops and provides world-leading surveillance and commuter communication systems technology and services to the mobile transit industry worldwide. Core technology development and system design activities are undertaken from the Company’s head office in Perth, Australia.

DTI Group Ltd | ABN 15 069 791 091 31 Affleck Rd | Perth Airport WA 6105 T +61 8 9479 1195 | F +61 8 9479 1190

www.dti.com.au

Half-Year Report 31 December 2017

D T I G R O U P L T D

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A B N 1 5 0 6 9 7 9 1 0 9 1

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2018 Half-Year Report

Contents

Directors’ Report ....................................................................................................................................... 3 Consolidated Statement of Profit or Loss and Other Comprehensive Income ................... 11 Consolidated Statement of Financial Position .............................................................................. 12 Consolidated Statement of Changes in Equity ............................................................................. 13 Consolidated Statement of Cash Flows .......................................................................................... 14 Notes to the Consolidated Financial Statements ......................................................................... 15 Directors’ Declaration ............................................................................................................................ 22 Auditor’s Report ...................................................................................................................................... 23 Auditor’s Independence Declaration ................................................................................................ 25 Corporate directory ................................................................................................................................ 26

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Directors’ Report

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The Directors of DTI Group Ltd (“DTI” or “Company”) present herewith the financial report of the Company and its subsidiaries (“Group”) for the half year ended 31 December 2017. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

Directors

The names and particulars of the Directors of the Company in office during or since the end of the half-year are:

Neil Goodey

Non-Executive Chairman

Peter Tazewell

Managing Director

Richard Johnson

Executive Director

Glyn Denison

Non-Executive Director

Chris Morris

Non-Executive Director

Jeremy King

Non-Executive Director

The abovenamed directors held office during and since the start of the half-year, except for:

• Mr Chris Morris – resigned 5 January 2018

Principal activities

The principal activities of the consolidated entity during the course of the half-year were the operation of surveillance and commuter communication solutions and managed services for the global transit industry:

Surveillance and Commuter Communication – specialised hardware systems, incorporating video, passenger information, audio, GPS tracking, communications and high-speed recording technology; supported by sophisticated device and data management software to provide comprehensive, fleet-wide, CCTV, communication and vehicle management solutions.

Managed services – back-end control room communications and infrastructure comprising wide-area urban surveillance, driver development and risk mitigation, video management, vehicle data analysis and monitoring, schedule adherence analysis, IT infrastructure, help desk, technical support and monitoring, and first line maintenance.

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Directors’ Report

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Financial Review

Shareholder returns

	31 December 2017	31 December 2016
Operating Revenue $	8,227,147	5,448,034
EBITDA $	(6,027,087)	(2,331,932)
EBIT $	(7,359,956)	(3,043,942)
Net loss after tax $	(5,334,724)	(2,718,201)
Basic loss per share cps	(4.28)	(2.85)

DTI has reported an after tax loss for the first half-year ended 31 December 2017 of $5,334,724 (31 December 2016: $2,718,201 loss). The loss per share of 4.28 cents was adversely impacted by a range of non-recurring expenses as set out below.

Revenue

DTI recorded first-half sales revenue of $8,227,147, which represents an increase of 51 per cent compared to the previous year’s first-half revenue of $5,448,034. The increased revenue performance is attributed to increased sales into the US bus market and on-going delivery into a number of long-term projects being executed by DTI.

DTI’s revenue is derived from three broad categories as set out below:

• Maintenance: ongoing maintenance services typically provided to a transit operator;

• Recurring: Ongoing sales of products and services to an operator that has installed DTI systems or vehicle manufacturer supplying vehicles to an operator; and

• Project: medium to long term projects where DTI is contracted to supply and/or install products and solutions to either a new-build vehicle fleet or as retro-fit to an existing fleet.

DTI’s revenue split in these three categories is set out below:

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DTI has recorded increases in each of these revenue categories as set out below:

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Directors’ Report

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While maintenance revenue has reduced as a proportion of total revenue, absolute revenue from maintenance activities has grown 12.6 per cent compared to H1 FY17. Similarly, recurring revenue has increased by 82.8 per cent compared to FY17 and project revenue by 55.6 per cent.

DTI recorded $2.8 million in recurring revenue and $1.4 million in maintenance revenue, collectively 50 per cent of total sales revenue. This growing recurring revenue base supports DTI’s ongoing investment in new products and services to support its customers.

Project revenue is the largest source of DTI’s revenue, and has increased significantly from $2.7 million to $4.2 million, the growth in maintenance and recurring revenue is indicative of the increased market penetration DTI is achieving with its product suite.

Underlying EBITDA

For the half-year period the consolidated entity achieved a statutory EBITDA loss of $6.0 million compared to the previous corresponding period EBITDA loss of $2.3 million. Included in the statutory EBITDA is nonrecurring costs of $3.1 million relating to impairments recorded on previously capitalised research and development expenditure, inventory and receivables. This asset impairment was reported to the market in November 2017 following a comprehensive review of DTI’s balance sheet, which focussed on asset recoverability and valuation.

	$
Statutory EBIT	(7,359,956)
Depreciation and amortisation	1,332,869
Reported EBITDA	(6,027,087)
Foreign exchange gain	(317,437)
Impairment of Development and Project Costs	571,904
Impairment of Inventory	2,010,820
Impairment of Trade Receivables	482,136
Underlying EBITDA	(3,279,664)

The resulting underlying EBITDA loss is $3.3 million compared to the previous corresponding period underlying EBITDA loss of $1.3 million.

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Directors’ Report

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The underlying EBITDA loss in 1H FY18 is primarily attributable to

• i) Below budget revenue due to project rescheduling - $4.0 million;

• ii) Ongoing unplanned project and product development work undertaken to meet client requirements as well as to ensure enhanced product competitiveness.

• iii) Reduced product margins (as reported at 30 June 2017) associated with below economic production quantities due to offtake delays;

• iv) Adjustment made to R&D Grant receivable - $0.4 million;

The directors consider that the investment in new product development will be realised over the medium term with the award of new projects resulting in increased revenue opportunities for the Company. As a project based business, DTI is subject to project delays and the directors consider that the additional development expenditure and margin loss will be recovered in subsequent periods.

During the period DTI undertook an organisational restructure designed to reduce fixed overheads. This restructure, which resulted in a 20 percent reduction of DTI’s workforce along with other cost management initiatives, is also expected to contribute to improved margins in the future.

Cash flow

During the period, DTI consumed $0.9 million cash in operations and invested $0.6 million in capitalised research and development expenditure, and plant and equipment as detailed in the chart below.

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Net working capital invested in the business has reduced since 30 June 2017 although it remains high. Considerable focus is placed on monetising inventory and receivables in a timely manner although the project based nature of the business requires significant up-front investment in long life projects.

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Directors’ Report

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DTI continues to support investment in research and development activities as it develops new products and services for the mass transit industry. $0.6 million of research and development expenditure was incurred during the period compared to $2.2 million in 1H FY17. The directors consider that future research and development expenditure will be at this lower level as DTI seeks to leverage revenue from past research and development investment.

During the period DTI financed a portion of its research and development claim in order to manage its cash flow. These borrowings were repaid during the period from the receipt of the research and development claim.

Financial Position

At 31 December 2017 DTI recorded net assets of $15.8 million, including $1.2 million in cash. The working capital metrics remain stable with current assets of $15.0 million and current liabilities of $5.1 million. DTI is focussed on improving this position through greater production efficiencies and cost reductions and rationalisation.

Following a review of the balance sheet conducted during the half year ended 31 December 2017 the Board determined to impair certain assets to the value of $3.1 million, as set out in the Earnings Section above. Carrying values have been aligned to net realisable value or recoverable amounts.

Working capital has stabilised as the Company consolidates and delivers on higher value contracts in the rail sector along with growing activities in EMEA. Due to the project based nature of DTI’s business increased working capital will be required as the Company increases revenue over time.

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Directors’ Report

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Review of principal business

Operational performance

DTI has again successfully increased its contracted order book at 31 December 2017 to $37.4 million, an increase of 25 per cent since 30 June 2017, and more than double the level at 31 December 2016. As set out in Chart 1 below, DTI has been successful in growing its contracted order book, half on half, since 2015. This growth in contracted orders continues to be achieved as a direct result of the investment made in the development of new and innovative products. DTI’s order book continues to be heavily weighted to the rail sector with approximately 90 per cent of booked work in this sector. Details of the development of DTI’s order book over time are set out below.

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Chart 1: Order Book

The Board is encouraged by the success achieved in winning this level of work in what is a highly competitive sector. In addition, the opportunity pipeline of identified significant opportunities has remained stable at $383.4 million. Of this amount, up to $50 million of contracts are likely to be decided within six months.

Similar to the contracted order book, the opportunity pipeline also shows a strong bias to the rail sector, as set out in Chart 2, with over 85 per cent of identified opportunities in this sector. This is largely attributable to the development of rail specific products (Train Data Recorder, Passenger Information Display, Dynamic Route Map, Passenger Emergency Intercom, Driver Display Unit, Public Address and Passenger Counting). The rail sector is dominated by a smaller number of very large value opportunities, which makes it a favourable market to enter for DTI.

The bus market continues to be highly relevant to DTI with a larger number of smaller value contracts. A significant portion of DTI’s recurring revenue base is sourced from the bus sector.

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Chart 2: Opportunity Pipeline by Transit Sector

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Directors’ Report

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DTI operates globally and its opportunity pipeline is categorised between Australasia; Europe, Middle East and Africa (“EMEA”); and Americas. Approximately 60 per cent of DTI’s opportunity pipeline is sourced from the EMEA region, as set out in Chart 3, with the balance equally shared between the Americas and Australasia.

With strong commitments to infrastructure spending by the governments of developed countries, DTI considers that there is significant potential for the Opportunity Pipeline to grow further.

DTI has successfully demonstrated its capacity to grow its revenues and order book from this opportunity pipeline.

Chart 3: Opportunity Pipeline by Region

DTI was successful in significantly increasing its contracted backlog from $29.9 million (30 June 2017) to $37.4 million, an increase of approximately 25 per cent. The key contracts (including LoI) in the contracted order book, which are detailed below, are expected to be delivered over the next 18 months with the exception of Alstom Ubunye in South Africa, which will be executed over a ten year period.

Project	Customer	Deliverable	%
			Completed
Sydney Metro North West	Alstom Transport	Passenger information, public address	50
Rail Link	India Limited	and CCTV systems
DART – Phase II	Dallas Area Rapid	Retrofit of CCTV system	0
	Transit Authority
London Underground	Alstom Transport	Retrofit of CCTV system	0
- Northern Line	UK Limited
Swiss Federal Railways	Alstom Transport	Installation of safety CCTV	18
(“SBB”)	SA (France)	surveillance system
Prasa	Alstom Ubunye	Passenger information systems	0
Oman Bus	Majees Technical	Passenger Information and CCTV	44
	Services	systems

A key to DTI’s success in growing its Order Book has been the ability to develop leading edge software and hardware solutions for customers from the Company’s Perth manufacturing base.

DTI is also investing in achieving key technical accreditations such as the International Railway Industry Standard (“IRIS”) Certification and the Environmental Testing Certification (ISO 17025) to complement its ISO 9001 accreditation.

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Directors’ Report

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Strategy and Outlook

DTI has been pursuing a strategy of developing surveillance, communication and passenger information products and solutions for the mass transit industry. DTI has been successful at entering new market sectors and enhancing its credentials with customers in key global markets through its innovative solutions.

DTI has a level of contracted revenue that will underpin revenue for the balance of FY18 and beyond. DTI has an identified opportunity pipeline of $383.4 million which relates to work that is expected to be awarded over the next five years, including $50 million expected to be decided in the next six months. The realisation of this opportunity pipeline is expected to provide a baseload of revenue for the Company from which it can continue to grow its market share and develop new products and solutions for its customers.

Auditor’s independence declaration

The auditor’s independence declaration, as required under section 307C of the Corporations Act 2001, is included on page 25 of the half-year report.

This Directors’ report is signed in accordance with a resolution of the Board of Directors made pursuant to section 306(3) of the Corporations Act 2001 .

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Peter Tazewell Managing Director 23 February 2018 Perth, Australia

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Financial Statements

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Consolidated Statement of Profit or Loss and Other Comprehensive Income for the half-year ended 31 December 2017

for the half-year ended 31 December 2017
Note	31 Dec 2017 $ 31 Dec 2016 $
Sales revenue Cost of goods sold Gross margin Operational overheads Impairment costs 2 Other income Corporate overheads Depreciation/amortisation Net interest and finance (loss)/gain Net loss before tax Tax benefit Net loss after tax Other comprehensive income Items that may be reclassified to profit or loss: Exchange differences Total other comprehensive income / (loss) Total comprehensive loss for the period Total comprehensive loss is attributable to: Owners of DTI Group Ltd Loss per share for loss attributable to the ordinary equity holders of the Company: Basic loss per share (cents per share) Diluted loss per share (cents per share)	8,227,147 5,448,034 (7,312,332) (4,832,994)
	914,815 615,040 (2,186,106) (974,406) (3,064,860) (500,040) - 823,017 (1,690,936) (2,295,543) (1,332,869) (712,010) (24,710) (30,171)
	(7,384,666) (3,074,113) 2,049,942 355,912
	(5,334,724) (2,718,201) 241,896 (79,843)
	241,896 (79,843)
	(5,092,828) (2,798,044)
	(5,092,828) (2,798,044)
	(4.28) (2.85) (4.28) (2.85)

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

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Financial Statements

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Consolidated Statement of Financial Position

as at 31 December 2017

as at 31 December 2017
Note	31 Dec 2017 $ 30 Jun 2017 $
Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets Non-current assets Other receivables Property, plant and equipment Intangible assets 3 Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Borrowings 4 Provisions Current tax liabilities Total current liabilities Non-current liabilities Borrowings Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity 5 Reserves Accumulated losses Total equity	1,216,762 3,139,852 6,977,931 11,814,282 6,660,284 8,000,144 194,024 234,272
	15,049,001 23,188,550
	– 285,195 1,260,606 996,688 4,557,307 5,607,876 205,362 –
	6,023,275 6,889,759
	21,072,276 30,078,309
	3,895,156 5,774,436 300,824 489,032 942,191 1,021,005 – 402,246
	5,138,171 7,686,719
	– 16,564 112,789 83,454 – 1,451,927
	112,789 1,551,945
	5,250,960 9,238,664
	15,821,316 20,839,645
	24,969,359 24,969,359 970,580 654,185 (10,118,623) (4,783,899)
	15,821,316 20,839,645

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

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Financial Statements

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Consolidated Statement of Changes in Equity

for the half-year ended 31 December 2017

	Contributed Equity $	Employee Share Plan Reserve Foreign Currency Translation Reserve $ $	Accumula- ted Losses $	Total $
At 1 July 2017 Loss for the period Other comprehensive loss Total comprehensive loss for the period Transactions with owners in their capacity as owners Shares issued to employees Issue of share capital At 31 December 2017 At 1 July 2016 Loss for the period Other comprehensive loss Total comprehensive loss for the period Transactions with owners in their capacity as owners Shares issued to employees Issue of share capital Capital raising costs At 31 December 2016
	24,969,359	202,373 451,812	(4,783,899)	20,839,645
	–	– –	(5,334,724)	(5,334,724)
	–	– 241,896	–	241,896
	–	– 241,896	(5,334,724)	(5,092,828)
	–	74,499 –	–	74,499
	–	– –	–	–
	24,969,359	276,872 693,708	(10,118,623)	15,821,316
	13,723,974	41,222 (135,364)	1,063,975	14,693,807
	–	– –	(2,718,201)	(2,718,201)
	–	– (79,843)	–	(79,843)
	–	– (79,843)	(2,718,201)	(2,798,044)
	–	85,400 –	–	85,400
	11,565,561	– –	–	11,565,561
	(320,176)	– –	–	(320,176)
	24,969,359	126,622 (215,207)	(1,654,226)	23,226,548

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

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Financial Statements

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Consolidated Statement of Cash Flows

for the half-year ended 31 December 2017

for the half-year ended 31 December 2017
Note	31 Dec 2017 $ 31 Dec 2016 $
Cash flows used in operating activities Receipts from customers Payments to suppliers and employees Interest received Research and development grant received Interest paid Tax paid Net cash outflow used in operating activities Cash flows used in investing activities Payments for plant and equipment Payments for intangible assets Net cash outflow used in investing activities Cash flows (used in)/from financing activities Proceeds from issues of shares Share issue expenses Proceeds from borrowings Repayment of borrowings Net cash (outflow) / inflow from financing activities Net (decrease) / increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effect of foreign exchange on opening balances Cash and cash equivalents at the end of the period	10,258,790 7,514,836 (13,839,087) (10,475,880) 1,635 8,108 2,690,218 2,440,024 (26,345) (38,279) (9,592) (335,072)
	(924,381) (886,263)
	(115,920) (287,633) (608,943) (2,199,418)
	(724,863) (2,487,051)
	– 11,565,561 – (320,176) 1,000,000 – (1,204,772) (92,596)
	(204,772) 11,152,789
	(1,854,016) 7,779,475 3,139,852 633,489 (69,074) 6,498
	1,216,762 8,419,462

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

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Notes to the Consolidated Financial Statements

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Note 1: Segment information

The CODM is the Chief Executive Officer (CEO) who monitors the operating results of the consolidated group and organises its business activities and product lines to serve the global mass transit industry. The performance of the consolidated group is evaluated based on Earnings before Interest, Taxes, Depreciation and Amortisation (“EBITDA”) which is measured in accordance with the Group’s accounting policies.

The following is an analysis of the Group’s revenue and results from continuing operations by reportable segment.

Segment Revenues and Results		31 Dec 2017 $	31 Dec 2016 $
Sales Revenue Cost of Goods Sold Gross Margin Gross Margin Impairment of Development and Project Costs Impairment of Inventory Impairment of Trade Receivables Other Income Operational Overheads Corporate Overheads EBITDA Depreciation/amortisation EBIT Net Interest and finance loss Net loss before tax Tax benefit Net loss after tax	(2,186,106) (1,690,936)	8,227,147 (7,312,332)	5,448,034 (4,832,994)
		914,815 11% (571,904) (2,010,820) (482,136) – (974,406) (3,877,042) (2,295,543)	615,040 11% (241,912) (258,128) – 823,017 (3,269,949)
		(6,027,087) (1,332,869)	(2,331,932) (712,010)
		(7,359,956) (24,710)	(3,043,942) (30,171)
		(7,384,666) 2,049,942	(3,074,113) 355,912
		(5,334,724)	(2,718,201)

Other Income at 31 December 2016 represents the part recognition of the R&D Grant receivable. DTI has chosen not to accrue the equivalent income at 31 December 2017 in the event DTI’s full year income exceeds the allowable qualifying threshold of $20 million in revenue for the financial year.

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Notes to the Consolidated Financial Statement

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Note 1: Segment information (cont’d)

Note 1: Segment information (cont’d)
Segment Assets and Liabilities	31 Dec 2017 $ 30 Jun 2017 $
Total Assets & Liabilities Consolidated total assets Consolidated total liabilities Geographical Assets Australia Others Geographical Liabilities Australia Others	21,072,276 30,078,309 5,250,960 9,238,664
	15,990,026 22,053,963 5,082,250 8,024,346
	21,072,276 30,078,309
	4,761,480 8,102,508 489,480 1,136,156
	5,250,960 9,238,664

Major customers

DTI supplies goods and services to a broad range of customers in the transit industry. During the reporting period, two (2017: two) major customers accounted for in excess of 33 per cent (2017: 25 per cent) of group revenue.

Note 2: Impairment Costs

	31 Dec 2017 $ 31 Dec 2016 $
Inventory Capitalised research and development Trade receivables	2,010,820 258,128 571,904 241,912 482,136 –
	3,064,860 500,040

DTI has undertaken a comprehensive review of its inventory, intangible assets and trade receivables during the period ended 31 December 2017. During the review, management has identified the followings:

• i) obsolete stock associated with components and spares held for legacy products;

• ii) slow moving stock held in support of maintenance and support agreements which does not have a commercially realisable value;

iii) products returned for repair where the repair costs are uneconomic compared to value of the product;

• iv) accelerated obsolescence of existing products attributed to future replacement by DTI’s new product range;

• v) impairment associated with obsolescence of intangibles assets (historical research & development projects); and

• vi) impairment of aged debtors where future recoverability is uncertain.

Accordingly, management estimated the impairment loss amounted to $3.1 million. Following the impairment loss recognised, the recoverable amount of the group’s assets was equal to the carrying amount.

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Notes to the Consolidated Financial Statements

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Note 3: Intangible assets

Note 3: Intangible assets
	Development Costs Goodwill Patents $ $ $
At 31 December 2017 Cost (gross carrying amount) Accumulated amortisation Impairment expense R&D grant income Net carrying amount Movements in carrying amounts Balance at 1 July 2017 Additions Amortisation expense (net) Impairment expense R&D grant income Net carrying amount At 30 June 2017 Cost (gross carrying amount) Accumulated amortisation Impairment expense R&D grant income Net carrying amount Movements in carrying amounts Balance at 1 July 2016 Additions Amortisation expense (net) Impairment expense R&D grant income Net carrying amount

(a) Development costs

Development costs are carried at cost less accumulated amortisation and accumulated impairment losses. The total amount of development costs of $13,409,793 has been subject to impairment testing. If an impairment indication arises, the recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying amount. The Board has determined to impair certain assets by $571,904 (2017: $261,456) to its fair value in relation to obsolete products which is not expected to generate any future cash flows.

(b) Goodwill

Goodwill has been externally acquired and is carried at cost less accumulated impairment losses. The goodwill arose on the acquisition of the remaining 50.5 per cent of Virtual Observer Pty Ltd on 28 June 2012 and represents the difference between the purchase price and the net liabilities.

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Notes to the Consolidated Financial Statements

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Note 3: Intangible assets (cont’d)

(c) Patents

Patents have been externally acquired and are carried at cost less accumulated impairment losses. This intangible asset has been assessed as having a useful life and is amortised using the straight line method over a period of 10 years. The patents have been granted for between fifteen and twenty years by the relevant government agency. If an impairment indication arises, the recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying amount.

(d) Impairment

Significant estimate: key assumptions used for value-in-use calculations

During the 2017 Financial Year DTI undertook an organisational restructure designed to establish an executive management team and allocate operational responsibilities within the functional areas of the business. As a result of this restructure, DTI now reports as a single Operating Segment. as opposed to three reportable segments in the prior year. Whilst the segments have been assessed and changes have been made, there is no perceived change to the cash generating units of the business.

For the purpose of impairment testing, intangibles are allocated to one cash-generating units (CGU). As a result of this restructure the CGU and aggregate carrying amounts were restructured to fall in line with the Group operations, cash-flow, management and reporting changes as disclosed above.

	31 Dec 2017 $ 30 Jun 2017 $
The aggregate carrying amounts allocated to one CGU is: Group Closing value
	5,817,913 6,889,759
	5,817,913 6,889,759

The recoverable amount of intangible assets has been determined using the value in use method. Value in use has been derived from calculating the discounted net cash flows expected to be derived from the asset. The cash flow for 2018 has been based on the half-year 2018 actual results and forecast for the remaining 2018 financial year, which is reasonable with a conservative approach used for budgeting by management. The cash flow for 2019 has been based on the 2018 budget which has been approved by the Board. Key assumptions underpinning the cash flow are: Revenue growth – year on year 10 per cent; Terminal value of 3 per cent; Average gross margins of 28 per cent and minimal capital expenditure.

The cash flows for 2020 to 2022 have been based on extrapolating 2019 by using an inflation/growth rate of 10 per cent. Cash flows have been estimated over five years, as beyond five years would be difficult to support and justify. The cash flows have excluded cash flow from financing activity (interest) and non-cash items (depreciation). A pre-tax discount factor of 13.36 per cent has been used.

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Notes to the Consolidated Financial Statements

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Note 3: Intangible assets (cont’d)

The estimated recoverable amount of the CGU exceeded its carrying amount by approximately $2.9 million. The following tables sets out the amount by which these key assumptions would need to changed individually for the estimated recoverable amount to be equal to the carrying amount of the Company’s intangible assets as well as a range of outcomes to the carrying amount based on certain sensitivities :

Assumptions	Change required for carrying amount to equal
	to recoverable amount
2019 Revenue	-3%
Revenue Growth	-0.86%
Gross Profit Margin	-0.9%
Discount Rate (post tax)	1.5%
Terminal Value Growth Rate	-1.8%

Assumptions	Sensitivity	Negative	Positive Impact
		Impact($m)	($m)
2019 Revenue	±2.0%	1.9	1.9
Revenue Growth	±0.5%	1.7	1.7
Gross Profit Margin	±0.5%	1.5	1.5
Discount Rate (post tax)	±0.5%	1.1	1.2
Terminal Value Growth Rate	±0.5%	0.9	1.0

Note 4: Borrowings

DTI is subject to financial covenants with its lender, Australia and New Zealand Banking Group Ltd (“ANZ”), including a Debt to EBITDA ratio. Due to the classification of project surety bonds as Debt, DTI incurred a technical breach at 31 December 2016 which continued as at 31 December 2017.

As a result of this breach, $17,167 of non-current liabilities has been reclassified as current liabilities. ANZ has advised that it will take no recovery action as a result of this technical breach, with the next review of the facility due by 31 March 2018.

Note 5: Contributed equity

Note 5: Contributed equity
	31 Dec 2017 No. 31 Dec 2017 $ 30 Jun 2017 No.	30 Jun 2017 $
Ordinary shares Balance at the beginning of financial period Issued of share capital Capital raising costs Balance at the end of the financial period	124,671,579 24,969,359 91,627,118 – – 33,044,461 – – –	13,723,974 11,565,561 (320,176)
	124,671,579 24,969,359 124,671,579	24,969,359

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

Ordinary shares have no par value and the Company does not have a limited amount of authorised capital

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Notes to the Consolidated Financial Statements

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Note 6: Contingent liabilities

There have been no changes in contingent liabilities or contingent assets since the end of the previous annual reporting period, 30 June 2017.

Note 7: Subsequent events

No matters or circumstance have arisen that have significantly affected, or may significantly affect, the operations of DTI, the results of those operations or the state of affairs of DTI in subsequent years that is not otherwise disclosed in this report.

Note 8: Fair value measurement of financial instruments

The carrying amount of financial assets and financial liabilities recorded in the financial statements represents their respective net fair values.

The estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methods. The estimates presented are not necessarily indicative of the amounts that will ultimately be realised by the Company upon maturity or disposal. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.

For cash and cash equivalents, current receivables, accounts payable, interest accrual and short-term debts, the carrying amounts approximate fair value, because of the short maturity of these instruments, and therefore fair value information is not included in the table below.

Note 9: Going Concern

The half-year financial statements have been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the ordinary course of business. The Group recorded a loss after tax of $5.3 million for the half year ended 31 December 2017 (31 December 2016: $2.7 million loss) and had operating cash outflows of $0.9 million (31 December 2016: $0.8 million). As at 31 December 2017, the Group’s cash and cash equivalents decreased from 30 June 2017 by $1.9 million to $1.2 million at 31 December 2017 (30 June 2017: $3.1 million) and its Trade working capital (excluding cash, provisions and borrowings) reduced by $1.5 million to $9.7 million (June 2017: $11.2 million).

Notwithstanding the above, the financial statements have been prepared on the basis that the entity is a going concern for the following reasons:

• The Group currently has sufficient cash resources to fund its requirements;

• The Group has $9.7 million of working capital which it can realise to fund future working capital requirements;

• The Group has put in measures and expect to return to profitability within the next twelve months; and

• Should DTI require further working capital to fund future projects, the directors expect the Group to be successful in securing the additional working capital through debt or equity issues, when and if required.

Therefore, the directors confirm that they have reviewed the Group’s financial position and are of the opinion that there are sufficient funds to meet the entity’s current working capital requirements and continue as a going concern as at the date of this report.”

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Notes to the Consolidated Financial Statements

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Note 10: Summary of significant accounting policies

This consolidated interim financial report for the half-year reporting period ended 31 December 2017 has been prepared in accordance with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act 2001 .

The financial report has been prepared on the basis of historical cost. Cost is based on the fair values of the consideration given in exchange for assets.

This consolidated interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 June 2017 together with public announcements and documents made by the Company during the interim reporting period in accordance with the continuous disclosure obligations of the Corporations Act 2001 and ASX Listing Rules.

DTI is a for-profit company, limited by shares, incorporated in Australia and its shares have been publicly traded on the Australian Securities Exchange since 9 December 2014.

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period.

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Directors’ Declaration

In the opinion of the directors of the Company:

• (a) The financial statements and notes as set out on pages 11 to 21 are in accordance with the Corporations Act 2001 and:

• (i) comply with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 and other mandatory professional reporting requirements.

• (ii) give a true and fair view of the consolidated entity's financial position as at 31 December 2017 and of its performance for the half-year ended on that date.

• (b) In the directors' opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of directors and is signed for and on behalf of the directors by:

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Peter Tazewell Managing Director

23 February 2018, Perth, Australia

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Tel: +61 8 6382 4600 38 Station Street Fax: +61 8 6382 4601 Subiaco, WA 6008 www.bdo.com.au PO Box 700 West Perth WA 6872 Australia

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INDEPENDENT AUDITOR’S REVIEW REPORT

To the members of DTI Group Limited

Report on the Half-Year Financial Report

Conclusion

We have reviewed the half-year financial report of DTI Group Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 31 December 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the halfyear then ended, and notes comprising a statement of accounting policies and other explanatory information, and the directors’ declaration.

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of the Group is not in accordance with the Corporations Act 2001 including:

• (i) Giving a true and fair view of the Group’s financial position as at 31 December 2017 and of its financial performance for the half-year ended on that date; and

• (ii) Complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

Directors’ responsibility for the Half-Year Financial Report

The directors of the company are responsible for the preparation of the half-year 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 half-year financial report that is free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity , in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including giving a true and fair view of the Group’s financial position as at 31 December 2017 and its financial performance for the half-year ended on that date and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 . As the auditor of the Group, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees.

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A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001 . We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Group, would be in the same terms if given to the directors as at the time of this auditor’s review report.

BDO Audit (WA) Pty Ltd

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Dean Just

Director

Perth, 23 February 2018

Tel: +61 8 6382 4600 38 Station Street Fax: +61 8 6382 4601 Subiaco, WA 6008 www.bdo.com.au PO Box 700 West Perth WA 6872 Australia

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DECLARATION OF INDEPENDENCE BY DEAN JUST TO THE DIRECTORS OF DTI GROUP LIMITED

As lead auditor for the review of DTI Group Limited for the half-year ended 31 December 2017, I declare that, to the best of my knowledge and belief, there have been:

1. No contraventions of the auditor independence requirements of the Corporations Act 2001 relation to the review; and

2. No contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of DTI Group Limited and the entities it controlled during the period.

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Dean Just Director

BDO Audit (WA) Pty Ltd

Perth, 23 February 2018

BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees.

Cor orate director p y

Directors	Neil Goodey	Non-Executive Chairman
	Peter Tazewell	Managing Director and Chief Executive Officer
	Richard Johnson	Executive Director
	Glyn Denison	Non-Executive Director
	Jeremy King	Non-Executive Director
Company Secretary	Raj Surendran
Registered and	31 Affleck Road
Principal Office	Perth Airport WA 6105
	Telephone: (08) 9479 1195
	Facsimile: (08) 9479 1190
	Website: www.dti.com.au
Auditor	BDO Audit (WA) Pty Ltd
	38 Station Street
	Subiaco WA 6008
Share Registrar	Computershare Investor	Services Pty Limited
	Yarra Falls
	452 Johnston Street
	Abbotsford Vic 3067
Bankers	Australia and New Zealand Banking Group Limited
	Allendale Square
	77 St Georges Terrace
	Perth WA 6000
Stock Exchange Listing	DTI Group Ltd shares	are listed on the Australian Securities Exchange
	(ASX code: DTI)

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