KORVEST LTD

Appendix 4E

Korvest Ltd ABN 20 007 698 106

Preliminary Final Report Financial Year Ended 30 June 2017

Results for announcement to the market:


Results for announcement to the market:	$A’000
Revenues from ordinary activities Profit from ordinary activities after tax attributable to members Net profit for the period attributable to members Earnings per share	Down 18.6% to 44,731 Down 266.1% to (1,578) Down 266.1% to (1,578) Down 261.8% to (14.4¢)
Dividends	Amount per security	Franked amount per security
Final dividend (#) - current reporting period - previous corresponding period 3.0¢ 10.0¢ 3.0¢ 10.0¢ Interim dividend - current reporting period - previous corresponding period 10.0¢ 10.0¢ 10.0¢ 10.0¢ Special dividend - current reporting period - previous corresponding period - - - - # Final dividend proposed in respect of the current reporting period. The financial effect of this dividend will be recognised in the next reporting period. The Dividend Reinvestment Plan is suspended for the final dividend.	3.0¢ 10.0¢	3.0¢ 10.0¢
	10.0¢ 10.0¢	10.0¢ 10.0¢
	- -	- -
Record date for determining entitlements to the dividend	25 August 2017
Brief explanation of any of the figures reported above and short details of any bonus or cash issue or other item(s) of importance not previously released to the market: Refer attached press release. This report is based on financial statements that have been audited. The audit report is includedinthe 30 June2017 financial report.

This financial report is the preliminary final report provided to the Australian Stock Exchange under listing rule 4.3C.

Annual Report

Korvest Ltd and controlled entities (ABN 20 007 698 106)

30 June 2017

DIRECTORS’ REPORT .......................................................................................................................................................................................... 3 REMUNERATION REPORT – AUDITED ............................................................................................................................................................ 8 5 YEAR SUMMARY ...........................................................................................................................................................................................20 FINANCIAL STATEMENTS ................................................................................................................................................................................21 ASX ADDITIONAL INFORMATION .................................................................................................................................................................68

Korvest Ltd

Directors’ report

The directors present their report together with the consolidated financial statements of the Group comprising of Korvest Ltd (‘the Company’) and its subsidiaries for the financial year ended 30 June 2017 and the auditor’s report thereon.

DIRECTORS

The directors of the Company at any time during or since the end of the financial year are:

*Name, qualifications and*	*Age*	*Experience, special responsibilities and other*
*independence status*		*directorships*
Graeme Billings	61	Appointed Chairman 18 September 2014
BCom FCA MAICD		A Director since May 2013
Chairman		Mr Billings retired from PricewaterhouseCoopers in
		2011 after 34 years where he was a senior partner in
		the Assurance practice
		Director G.U.D. Holdings Limited
		Director Clover Corporation Limited
		Chairman Azure Healthcare Ltd
		Director DomaCom Ltd
		Director Escala Partners Ltd
Alexander Kachellek	64	A Director since June 2007
BSc.CEng MIET FAICD		Mr Kachellek has experience in a number of industries
Managing Director		including Data Communications and Automotive, Lean
		Operations Consultancy and Manufacturing
		Director Austmine Ltd
Gerard Hutchinson	49	A Director since November 2014
MBA, MBL, MSc(IS), BEc, MA		Chairman of Audit Committee
(Research), FCA, FAICD, FAIM		Former Managing Director AusGroup Limited
Independent Non-Executive
Director
Gary Francis	62	A Director since February 2014
BSc. Hon. (Civil), MAICD		Chairman of Remuneration Committee
Independent Non-Executive		Mr Francis has worked in the construction industry at
Director		Senior Manager or Director level in Australia and Asia
		Director ZKP Group Ltd
		Director CTL Australia Group Ltd
Andrew Stobart	62	Appointed 1 August 2016
B. Eng (Hons), Grad Dip Bus Admin,		Executive Chairman Nexans Olex Australia & New
GAICD		Zealand
Independent Non-Executive
Director
Steven McGregor	45	Company Secretary since April 2008
BA (Acc), CA, AGIA, ACIS		Appointed as Finance Director 1 January 2009
Finance Director
Former Director
Peter Brodribb	72	A Director since 1984
F.I.E (Aust)		Appointed Non-Executive Director in January 2005
Non-Independent Non-Executive		after retiring from the position of Managing Director
Director		that he had held since 1984
		Retired 28 July 2016

Korvest Ltd

Directors’ Report

For the year ended 30 June 2017

COMPANY SECRETARY

Mr Steven J W McGregor CA, AGIA, ACIS, BA(Acc) was appointed to the position of company secretary in April 2008. Mr McGregor previously held the role of chief operating officer and company secretary with an unlisted public company for seven years.

RETIREMENT AND RE-ELECTIONS

In accordance with the Constitution, Gary Francis and Steven McGregor retire from the Board at the forthcoming Annual General Meeting on 27 October 2017. Both are eligible for re-election at that meeting and offer themselves accordingly.

DIRECTORS’ MEETINGS

The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the directors of the Company during the financial year are:

of the directors of the Company during the financial year are:	of the directors of the Company during the financial year are:	of the directors of the Company during the financial year are:	of the directors of the Company during the financial year are:
*Director* *Board* *Audit* *Committee* *Remuneration* *Committee*
A Mr A Kachellek 14 Mr S McGregor 14 Mr G Billings 14 Mr G Francis 14 Mr G Hutchinson 14 Mr A Stobart 12 Mr P Brodribb 1	B A 14 - 14 - 14 4 14 4 14 4 13 2 1 1	B A - - - - 4 2 4 2 4 2 3 2 1 -	B - - 2 2 2 2 -

A = Number of Board meetings attended

B = Total Number of Board meetings available for attendance

FINANCIAL RESULTS

The revenue from trading activities for the year under review was $44.7m, down 18.6% on the previous year. The Group incurred a loss after tax of $1.6m compared to a profit after tax of $1.0m in the previous year.

The FY17 result was adversely impacted by the lack of significant project work. In addition, margins have reduced as a result of surplus capacity in the cable support market as well as rising steel, zinc costs and energy costs.

Korvest Ltd

Directors’ Report

For the year ended 30 June 2017

DIVIDENDS

The directors announced a fully franked dividend of 3.0 cents per share compared to 10.0 cents per share last year and 10.0 cents at the half year. The Dividend Reinvestment Plan (DRP) will be suspended for the final dividend. The dividend will be paid on 8 September 2017 with a record date of 25 August 2017.

A summary of dividends paid or declared by the Company to members since the end of the previous financial year were:

Cents per share Declared and paid during the year 2017 Interim 2017 ordinary 10.0 Final 2016 ordinary 10.0 Total amount	Total amount $’000 Franked/ unfranked Date of payment 1,098 Fully franked 10 March 2017 1,094 Fully franked 9 September 2016 2,192

Franked dividends declared and paid during the year were franked at the rate of 30 per cent.

Declared after end of year

After the reporting date the following dividends were proposed by the directors. The dividends have not been provided for and there are no income tax consequences to the Company.

Final ordinary 3.0 Total amount	333 Fully franked 8 September 2017 333

The financial effect of these dividends has not been brought to account in the financial statements for the year ended 30 June 2017 and will be recognised in subsequent financial reports.

	*Note*	Total
		amount
		$’000
Dividends have been dealt with in the financial
report as:
Dividends	19	2,192
Dividends – subsequent to 30 June 2017	19	333

STRATEGY AND FUTURE PERFORMANCE

Korvest’s businesses service a number of major markets including infrastructure, commercial, utilities, mining, food processing, oil & gas, power stations, health and industrial. During the year Korvest took a lower cost approach to the pursuit of opportunities in South East Asia than had been the case for the past few years. This was achieved by the removal of the resources dedicated to that region.

The focus of the business is now primarily on the domestic market which has been soft in overall terms since the end of the mining construction boom. Pricing pressures have impacted margins in recent years and as a consequence Korvest is focusing on investment in new production processes with a view to reducing the cost of production as well as improving manufacturing efficiency to underpin customer service. All aspects of the supply chain are being closely examined to ensure that Korvest’s product costs remain competitive.

Korvest has a long history of paying franked dividends. The target dividend payout ratio range is 65-90% of after tax profits. Despite the current year loss a final dividend was declared as the Board recognises the benefit to shareholders in maximising the distribution of the Company’s franking credits.

Korvest Ltd

Directors’ Report

For the year ended 30 June 2017

PRINCIPAL ACTIVITIES AND REVIEW OF OPERATIONS

The principal continuing activities of the Group consist of hot dip galvanising, sheet metal fabrication, manufacture of cable and pipe support systems and fittings, design and assembly of access systems for large mobile equipment and sale, repair and rental of high torque tools.

The Group is comprised of the Industrial Products Group which includes the EzyStrut, Power Step and Titan Technologies and the Production Group which includes the Korvest Galvanisers business.

Industrial Products

In the Industrial Products group the EzyStrut cable and pipe support business supplies products for major infrastructure developments and also supplies products to contractors for small industrial developments. During FY17 there was no significant project work undertaken. Day-to-day work and small projects did show some signs of recovery with revenue from these sources improving in 2H FY17. However, margins in the business declined due to rising input costs and competitive pricing due to the surplus capacity in the market. The regions that had not benefited over recent years from LNG work did show improvement in FY17 with the NSW market the most improved.

Power Step designs and assembles access systems for large mobile equipment. Titan Technologies supplies specialised tools in the form of torque wrenches, hydraulic pumps and related accessories. The combined performance of the businesses improved in FY17 primarily as a result of a large order supplied by Power Step in the first half. Late in the year the cost base of these businesses was reduced further with the closure of the WA site and the centralisation of some administrative functions to head office.

Production

In the Production group the Galvanising business volumes improved for the first time since FY14. External tonnes improved as some larger South Australian customers secured sizable projects. Some new business was also secured which contributed to the improved result.

Over the full year the volume of internal work processed for EzyStrut diminished, however there was a marked improvement in the second half volumes.

Like many other manufacturing businesses Korvest experienced significant increases in energy costs during the year as new contracts became effective for the second half. The impact was an i ncrease in energy costs of $120k in the second half compared to the first. The majority of this increase is allocated to the Production segment.

Risk

The Board and Management periodically review and update risk reviews that identify and assess the risks faced by the business and the controls that are in place to mitigate those risks. General Managers report to the board monthly on any changes to the risk profile of their business unit. There have been few if any changes to the risk environment faced by Korvest over the past year.

Operational risks relate principally to continuity of supply and continuity of production. To ensure continuity of supply Ko rvest monitors the performance of key suppliers and establishes more than one supply source for key products. For many bought in finished goods the ability for the product to also be manufactured in-house mitigates the risk.

Korvest’s in-house engineering and maintenance department is responsible for preventative maintenance programmes to ensure that a high level of plant reliability and low down time. FY17 again showed the value of this in-house resource as the plant down time was again extremely low.

Financial risks faced by the business are typical of those faced by most businesses and centre around management of working capital. In particular trade receivables and inventory levels are constantly reviewed and performance is monitored with key performance indicators on an ongoing basis.

SIGNIFICANT CHANGES

In the opinion of the directors there were no significant changes in the state of affairs of the Group that occurred during the financial year under review.

Korvest Ltd

Directors’ Report

For the year ended 30 June 2017

EVENTS SUBSEQUENT TO REPORTING DATE

At the date of this report there is no matter or circumstance that has arisen since 30 June 2017, that has significantly affected, or may significantly affect:

(i) the operations of the Group;
(ii) the results of those operations; or
(iii)the state of affairs of the Group;

in the financial years subsequent to 30 June 2017.

LIKELY DEVELOPMENTS

The key focus for the next financial year will be to improve the performance in the domestic market by lowering the cost of manufacture and improving the overall supply chain and overseas sourcing. Investment in improved machinery in the Kilburn factory will improve the production rate and labour usage associated with production of some major product lines.

Korvest’s in-house engineering and design team will continue to drive product innovation.

Working capital management will play a key role in the year with an emphasis on inventory reduction. This process has already begun with a number of initiatives in place to optimise the holdings of inventory at the various Korvest locations.

Further information about likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result i n unreasonable prejudice to the Group.

DIRECTORS AND OFFICERS INSURANCE

Since the end of the previous financial year the Company has paid insurance premiums in respect of directors’ and officers’ liability and legal expenses insurance contracts, for current and former directors and officers of the Company and related entities. The insurance premiums relate to:

a) costs and expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and whatever their outcome; and
b) other liabilities that may arise from their position, with the exception of conduct involving a wilful breach of duty or improper use of information or position to gain a personal advantage.

The premiums were paid in respect of all of the directors and officers of the Company. The directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the directors’ and officers’ liability and legal expenses insurance contracts, as such disclosure is prohibited under the terms of the contract.

Korvest Ltd

REMUNERATION REPORT – Audited

For the year ended 30 June 2017

Principles of compensation

Remuneration is referred to as compensation throughout this report.

Key Management Personnel (KMP) have authority and responsibility for planning, directing and controlling the activities of the Group, including directors of the Company and other executives. KMP comprise the directors and senior executives of the Group.

Compensation levels for KMP are competitively set to attract and retain appropriately qualified and experienced directors and executives.

The compensation structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The compensation structures take into account:

(a) the capability and experience of the KMP;
(b) the KMP’s ability to control performance; and
(c) the Group’s performance including the Group’s earnings.

Fixed compensation

Fixed compensation consists of base compensation (which is calculated on a total cost basis ), as well as employer contributions to superannuation funds.

Compensation levels are reviewed annually by the remuneration committee.

Performance linked compensation

Performance linked compensation includes both short-term and long-term incentives, and is designed to reward KMP for meeting or exceeding their financial and personal objectives. The short-term incentive (STI) is an ‘at risk’ cash bonus, while the long-term incentive (LTI) is provided as performance rights under the rules of the Korvest Performance Rights Plan.

Consequences of performance on shareholder wealth

In considering the Group’s performance and benefits for shareholder wealth, the remuneration committee have regard to the indices set out in the 5 Year Summary on page 20.

Short-term incentive bonus

The key performance indicators (KPIs) for the KMP are set annually. The KPIs include measures relating to financial and operating performance, safety, strategy and risk measures.

The KPIs are chosen to directly align the individual’s reward to the KPIs of the Group and to its strategy and performance. The non-financial objectives vary with position and responsibility and include measures such as achieving strategic outcomes, safety and environmental performance. The financial objectives relate to earnings before interest and tax (EBIT) for various parts of the business depending on the KMP.

The table below summarises the nature and weighting of the KPIs included in the STIs.

Managing Director	Other KMP *
International growth (50%)	Financial performance
Financial performance (30%)	Process improvement
Group reorganisation (10%)	Working Capital
Cost reduction (10%)	Strategy implementation
	Group reorganisation
	Cost reductions

Each KMP have different KPIs and weightings. Some individual’s STI structures do not include all KPI categories listed.

Korvest Ltd

Remuneration Report

For the year ended 30 June 2017

Long-term incentive bonus

Performance rights are issued under the Korvest Performance Rights Plan to employees (including KMP) as determined by the remuneration committee. Performance rights become vested performance rights if the Group achieves its performance hurdles. If rights become vested performance rights and do not lapse, the holder is able to acquire ordinary shares in the Company for no cash payment.

For performance rights issued during the year two performance hurdles were applied. Half of the rights issued will be tested against each of the two performance hurdles. The first performance hurdle relates to growth in basic earnings per share (EPS). EPS performance is measured in total over a three year period. The performance hurdle is tested once at the completion of the three year vesting period. The % growth is based on a base EPS which was calculated as the average of the statutory EPS for the prior three years. For the most recent issue of Performance Rights the table below sets out the % of rights that vest depending on the level of EPS growth achieved.

Compound annual EPSgrowth over 3yr vesting period	% of rights that vest
Less than 5%	Nil
5%	25%
Between 5% - 15%	Pro rata between 25% – 100%
15% or greater	100%

The EPS objective was chosen because it is a good indicator of the Group’s earnings growth and is aligned to shareholder wealth objectives.

The second performance hurdle relates to Relative Total Shareholder Return (RTSR). The RTSR is a ranking of Korvest’s total shareholder return compared to a comparative group of 20 companies over the three year performance period. Total shareholder return is calculated as the growth in share price plus dividends and any capital returns to shareholders to produce the total return to each shareholder expressed as a percentage. The comparator group of companies was selected by the Board as a group that has a spread and size of operations similar to Korvest and also are impacted by economic and cyclical factors in a manner similar to Korvest.

At the end of the three year performance period Korvest’s performance will be assessed against the comparator group and the % of rights that will vest will be determined in accordance with the following table.

Korvest’s TSR against TSR of the Comparator Group	% of rights that vest
Below the 51stpercentile	Nil
At the 51stpercentile	50%
Above the 51stpercentile but below the 75thpercentile	Between 50% and 100% using a straight line
	analysis
At or above the 75thpercentile	100%

Notwithstanding Korvest performance relative to the comparator group, no performance rights will vest if Korvest’s TSR over the performance period if less than zero.

The Company’s securities trading policy prohibits those that are granted share-based payments as part of their remuneration from entering into other arrangements that limit their exposure to losses that would result from share price decreases. Entering into such arrangements has been prohibited by law since 1 July 2011.

Service contracts

It is the Group’s policy that service contracts for all KMP are unlimited in term but capable of termination by providing 1 to 6 months’ notice depending on the KMP, and that the Group retains the right to terminate the contract immediately by making payment in lieu of notice. The Group has entered into a service contract with each executive KMP.

On termination of employment the KMP are also entitled to receive their statutory entitlements and accrued annual leave and long service leave, as well as any entitlement to incentive payments and superannuation benefits.

Korvest Ltd

Remuneration Report

For the year ended 30 June 2017

Services from remuneration consultants

No remuneration consultants were used during the year.

Non-executive directors

Non-executive directors receive a fixed fee. The total remuneration for all non-executive directors was last voted upon by shareholders at the AGM held on 25 October 2013 and is not to exceed $450,000.

The current base fees became effective on 1 July 2016 and are:

Chairman	$125,454
Director	$62,727

The Chairman of a Board Committee receives a further $10,455 p.a.

Superannuation is added to these fees where appropriate.

Non-executive directors do not receive performance-related compensation.

Korvest Ltd

Remuneration Report

For the year ended 30 June 2017

Directors and Executive Remuneration

Details of the nature and amount of each major element of remuneration of each director of the Company, and other KMP of the Group are:

Name		Short Term	Post employment	Other long term – Long Service leave $ *	Share based payments Shares $	Share based payments Options & Rights $	Total $	Proportion of remuneration performance related %
		Salary & Fees $ Bonus $	Superannuation benefits $
*Directors*
G Billings	2017	125,454 -	11,918	-	-	-	137,372	-
Non-executive(Chairman)	2016	123,600 -	11,742	-	-	-	135,342	-
G Francis	2017	80,136 -	-	-	-	-	80,136	-
Non-executive(Director)	2016	78,948 -	-	-	-	-	78,948	-
G Hutchinson	2017	73,182 -	6,952	-	-	-	80,134
Non-executive(Director)	2016	72,100 -	6,849	-	-	-	78,949	-
A Stobart (appointed 1 August 2016)	2017	57,500 -	5,462	-	-	-	62,962	-
Non-executive(Director)	2016	- -	-	-	-	-	-	-
A Kachellek	2017	313,635 -	35,733	11,877	-	4,575	365,820	1.3
Executive(Managing Director)	2016	309,000 62,502	30,874	6,794	-	-	409,170	15.3
S McGregor	2017	277,800 -	26,581	10,265	-	4,275	318,921	1.3
Executive(Finance Director)	2016	272,950 2,000	26,903	6,140	-	-	307,993	0.6
P Brodribb (retired 28 July 2016)	2017	5,227 -	497	-	-	-	5,724	-
Non-executive(Director)	2016	61,800 -	5,871	-	-	-	67,671	-

This represents the accounting expense relating to the change in the provision for long service leave. It does not represent cash payments or statutory obligations.

The proportion of performance related remuneration is bonuses and share based payments divided by total remuneration.

Korvest Ltd

Remuneration Report

For the year ended 30 June 2017

Name		Short Term	Post employment	Termination Payment	Other long term – Long Service leave $ *	Share based payments Shares $	Share based payments Options & Rights $	Total $	Proportion of remuneration performance related %
		Salary & Fees $ Bonus $	Superannuation benefits $
*Executives/ other KMP*
C Hartwig	2017	270,903 -	34,533	-	(1,898)	998	3,450	307,986	1.1
Executive General Manager	2016	261,900 59,700	31,970	-	13,585	998	-	368,153	16.2
G Christie (became KMP 18
January 2016)	2017	180,000 -	19,361	-	15,712	998	1,875	217,946	0.9
General Manager Operations	2016	61,880 23,800	5,879	-	3,005	499	-	95,063	25.0
P Assaf	2017	216,300 -	20,549	-	4,670	998	-	242,517	-
General Manager Power Step & Titan Technologies	2016	216,300 -	20,549	-	2,639	998	-	240,486	-
Former Executive
S Evans (ceased 18 January 2016)	2017	- -	-	-	-	-	-	-	-
General Manager Galvanising	2016	114,031 -	16,365	115,646	(28,083)	499	-	218,458	-

This represents the accounting expense relating to the change in the provision for long service leave. It does not represent cash payments or statutory obligations.

The proportion of performance related remuneration is bonuses and share based payments divided by total remuneration.

Korvest Ltd

Remuneration Report

For the year ended 30 June 2017

Options and rights over equity instruments granted as compensation during the reporting period

Details on performance rights that were granted as compensation to each KMP during the reporting period are as follows:

	Number of performance rights granted during the year	Grant date	Fair value per right at grant date ($)	Expiry date
*Directors* A Kachellek S McGregor	30,500 28,500	17 Nov 2016 17 Nov 2016	$1.74/$0.90 $1.74/$0.90	30 June 2019 30 June 2019
*Executives* C Hartwig G Christie	23,000 12,500	17 Nov 2016 17 Nov 2016	$1.74/$0.90 $1.74/$0.90	30 June 2019 30 June 2019

Half of the performance rights issued to each KMP will be tested against an EPS hurdle with the other half being tested against a Relative Total Shareholder Return (RTSR) hurdle. The fair value of the EPS hurdle rights is $1.74. The fair value of the RTSR hurdle rights is $0.90.

All performance rights have a nil exercise price.

All performance rights expire on the earlier of their expiry date or termination of the i ndividual’s employment. The performance rights are exercisable for one year after the conclusion of the vesting period. In addition to the continuing employment service condition, the ability to exercise performance rights is conditional on the Group achieving performance hurdles. Details of the performance criteria are included in the long-term incentives discussion on page 9.

No equity-settled share-based payment transaction terms (including performance rights granted as compensation to KMP) have been altered or modified by the Group during the reporting period or the prior period.

Exercise of options granted as compensation

No shares were issued on the exercise of performance rights previously granted as compensation during the reporting period.

Korvest Ltd

Remuneration Report

For the year ended 30 June 2017

Analysis of options and rights over equity instruments granted as compensation

Details of vesting profiles of the options granted as remuneration to each director and key executive of the Company are detailed below:

	Options / Rights	Granted
	Number	Date	% vested in current year	% forfeited or lapsed in current year	Year in which grant vests
*Directors*
A Kachellek	24,000	Nov 14	-%	100%	30 Jun 17
	36,400	Nov 15	-%	-%	30 Jun 18
	30,500	Nov 16	-%	-%	30 Jun 19
S McGregor	19,000	Nov 14	-%	100%	30 Jun 17
	28,800	Nov 15	-%	-%	30 Jun 18
	28,500	Nov 16	-%	-%	30 Jun 19
*Executives*
C Hartwig	10,000*	Mar 09	-%	-%	30 Jun 11
	14,000	Nov 14	-%	100%	30 Jun 17
	21,200	Nov 15	-%	-%	30 Jun 18
	23,000	Nov 16	-%	-%	30 Jun 19
G Christie	5,000	Nov 14	-%	100%	30 Jun 17
	5,000	Nov 15	-%	-%	30 Jun 18
	12,500	Nov 16	-%	-%	30 Jun 19
P Assaf	5,000	Nov 14	-%	-%	30 Jun 17

- These options were issued under the previous Korvest Ltd Executive Share Plan. They vested during the year ended 30 June 2011 and were exercised in January 2011. Restricted ordinary shares were issued at an exercise price of $3.79 per share. Under the terms of the previous Korvest Ltd Executive Share Plan upon exercise of the options the individual must pay the exercise price over a maximum term of 20 years. Dividends, after deduction of an amount intended for the participant’s tax, are applied in payment of the exercise price. The arrangement to pay the exercise price over 20 years is interest free and without personal recourse to the participants (recourse is limited to the shares themselves). As a result of these arrangements, under Australian Accounting standards, the instruments are treated as options until such time as the associated non-recourse loan is fully repaid. The shares remain restricted until such time as the loan is fully paid.

Korvest Ltd

Remuneration Report

For the year ended 30 June 2017

Analysis of movements in options and rights granted as compensation

The movement during the reporting period, by value, of options over ordinary shares in the Company held by each company director and KMP are detailed below.

	Value of Rights/Options	Value of Rights/Options
	Granted inyear$ (A)	Exercised inyear$ (B)
*Directors* A Kachellek S McGregor	40,260 37,620	- -
*Executives* C Hartwig G Christie	30,360 16,500	- -

(A) The value of performance rights granted in the year is the fair value of the options calculated at grant date using the Black Scholes option-pricing model for the EPS hurdle performance rights and a Monte Carlo simulation for the RTSR hurdle performance rights. The total value of the options granted is included in the table above. This amount will be allocated to remuneration over the vesting period (i.e. in years 1 July 2016 to 30 June 2019) subject to meeting the associated performance conditions.
(B) The value of the options exercised during the year is calculated as the market price of shares as at the close of trading on the date the options were exercised after deducting the price to exercise the option.

Further details regarding options granted to executives under the Executive Share Pla n are in Note 10 to the financial statements.

Korvest Ltd

Remuneration Report

For the year ended 30 June 2017

Options and rights over equity instruments

The movement during the reporting period in the number of options over ordinary shares in Korvest Ltd held, directly, indirectly or beneficially, by each KMP, including their related parties, is as follows:

	Held at 1 July 2016 IFRS	Granted as compen- sation	Exercised	Lapsed	Held at 30 June 2017 IFRS	Held at 30 June 2017 ASX	Vested during the year
*Directors*
A Kachellek	60,400	30,500	-	(24,000)	66,900	66,900	-
S McGregor	47,800	28,500	-	(19,000)	57,300	57,300	-
*Executives*
C Hartwig	45,200	23,000	-	(14,000)	54,200	44,200	-
G Christie	10,000	12,500	-	(5,000)	17,500	17,500	-
P Assaf	5,000	-	-	(5,000)	-	-	-

No options held by KMP are vested but not exercisable.

	Held at 1 July 2015 IFRS	Granted as compen- sation	Exercised	Lapsed	Held at 30 June 2016 IFRS	Held at 30 June 2016 ASX	Vested during the year
*Directors*
A Kachellek	48,000	36,400	-	(24,000)	60,400	60,400	-
S McGregor	38,000	28,800	-	(19,000)	47,800	47,800	-
*Executives*
C Hartwig	37,000	21,200	-	(13,000)	45,200	35,200	-
S Evans	18,000	18,400	-	(36,400)	-	-	-
G Christie *	N/A	N/A	-	-	10,000	10,000	-
P Assaf	10,000	-	-	(5,000)	5,000	5,000	-

No options held by KMP are vested but not exercisable.

Holding has been noted as N/A where the person was not a member of KMP at that date. Transactions have only been recorded where they occurred whilst the person was a member of KMP.

Korvest Ltd

Remuneration Report

For the year ended 30 June 2017

Movements in shares

The movement during the reporting period in the number of ordinary shares in Korvest Ltd held, directly, indirectly or beneficially, by each KMP, including their related parties, is as follows:

			Allocated under			Shares held subject
	Held at	Purchases	Employee/	Allocated	Held at 30	to
	1 July 2016		Exec share plan	under DRP	June 2017	non-recourse loans
*Directors*
G Billings	642	-	-	25	667	-
P Brodribb *	26,755	-	-	N/A	N/A	-
S McGregor	30,769	-	-	1,235	32,004	-
A Kachellek	56,335	-	-	775	57,110	-
G Francis	6,029	-	-	242	6,271	-
G Hutchinson	500	-	-	-	500	-
A Stobart *	N/A	500	-	-	500	-
*Executives*
C Hartwig	12,844	-	393	523	13,760	10,000
G Christie	1,271	-	393	-	1,664	-
P Assaf	759	-	393	-	1,152	-

No shares were granted to KMP during the reporting period as compensation other than those provided under the employee share plan on the same terms and conditions as for all employees.

			Allocated under			Shares held subject
	Held at	Purchases	Employee/	Allocated	Held at 30	to
	1 July 2015		Exec share plan	under DRP	June 2016	non-recourse loans
*Directors*
G Billings	590	-	-	52	642	-
P Brodribb	24,559	-	-	2,196	26,755	-
S McGregor	28,243	-	-	2,526	30,769	-
A Kachellek	53,408	-	-	2,927	56,335	-
G Francis	5,534	-	-	495	6,029	-
G Hutchinson	500	-	-	-	500	-
*Executives*
C Hartwig	11,437	-	378	1,029	12,844	10,000
S Evans *	4,704	-	154	27	N/A	-
G Christie *	N/A	-	224	-	1,271	-
P Assaf	381	-	378	-	759	-

No shares were granted to KMP during the reporting period as compensation other than those provided under the employee share plan on the same terms and conditions as for all employees.

Shareholding has been noted as N/A where the person was not a member of KMP at that date. Purchase and sale transactions have only been recorded where they occurred whilst the person was a member of KMP.

Korvest Ltd

Remuneration Report

For the year ended 30 June 2017

Analysis of bonuses included in remuneration

Executive bonuses are paid on the achievement of specified performance targets. Those targets vary for each executive and are aligned to each executive’s role and responsibilities. The targets relate to financial, operational, strategic and safety measures.

Details of the vesting profile of the short-term incentive cash bonuses awarded as remuneration to each director of the Company, and to other key management personnel are detailed below.

		Short-term	incentive bonus
KMP	Maximum	Included in	% vested in year	% forfeited in year
	possible STI	remuneration $		(B)
		(A)
A Kachellek	141,136	-	-	100
S McGregor	41,670	-	-	100
C Hartwig	113,779	-	-	100
G Christie	20,000	-	-	100
P Assaf	43,260	-	-	100

(A) Amounts included in remuneration for the financial year represent the amount related to the financial year based on the achievement of specified performance criteria. No STI bonuses vested during the year.

(B) The amounts forfeited are due to the performance criteria not being met in relation to the current financial year.

DIRECTORS’ INTERESTS

The relevant interest of each director over the shares and rights over such instruments issued by the Company and other related bodies corporate as notified by the directors to the Australian Securities Exchange in accordance with S250G(1) of the Corporations Act 2001, at the date of this report is as follows:

	Korvest Ltd	Korvest Ltd
	Ordinary Shares	Performance Rights
		Unvested
A Kachellek	54,513	90,900
G Billings	667	-
S McGregor	32,004	76,300
G Francis	6,271	-
G Hutchinson	500	-
A Stobart	500	-

NON-AUDIT SERVICES

During the year KPMG, the Group’s auditor, has performed certain other services in addition to their statutory duties. The Board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the Audit Committee, is satisfied that the provision of these services did not compromise the auditor’s independence requirements of the Corporations Act 2001 for the following reasons:

all non-audit services were subject to the corporate governance procedures adopted by the Group; and
the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risk and rewards.

For details of non-audit services fees charged refer to Note 5 to the financial statements.

LEAD AUDITOR’S INDEPENDENCE DECLARATION

The lead auditor’s independence declaration is set out on page 65 and forms part of the Directors’ report for the financial year ended 30 June 2017.

Korvest Ltd

Remuneration Report

For the year ended 30 June 2017

ROUNDING OFF

The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that Instrument, amounts in the Financial report and Directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated.

CORPORATE GOVERNANCE

The Company’s Corporate Governance Statement can be found on the Korvest website at http://www.korvest.com.au/assets/downloads/Korvest-Corporate-Governance-2017.pdf

Signed at Adelaide this Thursday 27[th ] of July 2017 in accordance with a resolution of the directors.

==> picture [121 x 54] intentionally omitted <==

G. A. BILLINGS, Director

==> picture [145 x 39] intentionally omitted <==

A. H. W. KACHELLEK, Director

Korvest Ltd

5 Year Summary

Sales revenue ($'000) Profit / (Loss) after tax ($'000) Depreciation/Amortisation ($'000) Cash flow from operations ($'000) Profit / (Loss) from ordinary activities - As % of Shareholders’ Equity - As % of Sales Revenue Dividend - Total amount paid ($'000) - Per issued share - Times covered by profit from ordinary activities Earnings per share Number of employees Shareholders - Number at year end Net assets per issued ordinary share Net tangible assets per issued ordinary share Share price as at 30 June	2017 2016 2015 2014 2013 44,731 54,981 63,025 73,756 61,723
	(1,578) 950 1,455 5,603 3,825
	1,710 1,716 1,642 1,774 1,652
	(384) 7,432 5,115 4,228 7,524
	(5.4%) 2.9% 4.4% 15.1% 10.8% (3.5%) 1.7% 2.3% 7.6% 6.2%
	2,192 2,328 5,032 12,830 4,863 20.0c 22.0c 48.0c 146.0c 56.0c - 0.4 0.3 0.4 0.8 (14.4c) 8.9c 13.9c 64.1c 44.0c 171 193 225 242 217 1,813 1,882 2,029 2,034 1,627 $2.63 $2.97 $3.13 $3.501 $4.01 $2.63 $2.97 $3.13 $3.332 $3.77 $2.36 $2.19 $3.55 $5.60 $5.80

1 Net assets per issued ordinary share figure was impacted by the issue of 1,607,000 new shares in June 2014 in relation to the Special dividend and Dividend Reinvestment Plan. Had these not been issued, the figure would have b een $4.14.

2 Net tangible assets per issued ordinary share figure was impacted by the issue of 1,607,000 new shares in June 2014 in relation to Special dividend and Dividend Reinvestment Plan. Had these not been issued, the figure would have been $3.94.

Korvest Ltd

Financial Statements

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME................................................22
CONSOLIDATED STATEMENT OF FINANCIAL POSITION................................................................................................................23
CONSOLIDATED STATEMENT OF CASH FLOWS...............................................................................................................................24
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY.................................................................................................................25
NOTES TO THE FINANCIAL STATEMENTS .........................................................................................................................................26
BASIS OF PREPARATION..........................................................................................................................................................................26
RESULTS FOR THE YEAR .......................................................................................................................................................................29
1. REVENUE AND OTHER INCOME.................................................................................................................................................29
2. EXPENSES................................................................................................................................................................................29
3. NET FINANCE INCOME..............................................................................................................................................................31
4. EARNINGS PER SHARE..............................................................................................................................................................31
5. AUDITOR’S REMUNERATION.....................................................................................................................................................32
6. SEGMENTREPORTING..............................................................................................................................................................32
WORKING CAPITAL ...............................................................................................................................................................................34
7. TRADE AND OTHER RECEIVABLES...............................................................................................................................................34
8. INVENTORIES...........................................................................................................................................................................35
9. TRADE AND OTHER PAYABLES...................................................................................................................................................36
10. EMPLOYEE BENEFITS................................................................................................................................................................36
11. PROVISIONS............................................................................................................................................................................40
TANGIBLE AND INTANGIBLE ASSETS.................................................................................................................................................41
12. INTANGIBLE ASSETS..................................................................................................................................................................41
13. TANGIBLE ASSETS.....................................................................................................................................................................42
14. IMPAIRMENT TESTING..............................................................................................................................................................45
15. COMMITMENTS FOR EXPENDITURE...........................................................................................................................................46
CAPITAL STRUCTURE ............................................................................................................................................................................47
16. CASH AND CASH EQUIVALENTS/ (BANK OVERDRAFT) ................................................................................................................47
17. FINANCIAL INSTRUMENTS.........................................................................................................................................................48
18. CAPITAL AND RESERVES............................................................................................................................................................52
19. DIVIDENDS..............................................................................................................................................................................53
TAXATION ...............................................................................................................................................................................................55
20. CURRENT AND DEFERRED TAXES...............................................................................................................................................55
BUSINESS COMBINATIONS .................................................................................................................................................................58
21. INVESTMENT IN SUBSIDIARIES...................................................................................................................................................58
OTHER NOTES ........................................................................................................................................................................................60
22. KEY MANAGEMENT PERSONNEL................................................................................................................................................60
23. PARENT ENTITY DISCLOSURES...................................................................................................................................................61
24. SUBSEQUENT EVENTS...............................................................................................................................................................61
ASX ADDITIONAL INFORMATION ......................................................................................................................................................68
SHAREHOLDINGS(AS AT XXJULY2017) ..................................................................................................................................................68
VOTING RIGHTS......................................................................................................................................................................................68
TWENTY LARGEST SHAREHOLDERS...........................................................................................................................................................69
OFFICES AND OFFICERS...........................................................................................................................................................................69

Korvest Ltd

Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2017

*Note* Continuing operations Sales revenue 1 Other income 1 Expenses, excluding net finance costs 2 Profit / (Loss) before financing costs Finance income 3 Finance expenses 3 Net finance income Profit / (Loss) before income tax Income tax expense 20 Profit / (Loss) from continuing operations Profit / (Loss) for the year Other comprehensive income Revaluation of property, plant and equipment Related tax Total comprehensive income for the period Attributable to: Equity holders of the Company Total comprehensive income for the period Earnings per share attributable to the ordinary equity holders of the Company: Basic earnings per share from continuing operations 4 Diluted earnings per share from continuing operations 4	2017 2016 $’000 $’000 44,731 54,981 - 10
	44,731 54,991 (47,022) (53,688)
	(2,291) 1,303
	54 42 - (3)
	54 39
	(2,237) 1,342 659 (392)
	(1,578) 950
	(1,578) 950
	214 - (64) -
	(1,428) 950
	(1,428) 950
	(1,428) 950
	Cents Cents (14.4) 8.9
	(14.4) 8.9

The notes on pages 26 to 61 are an integral part of these consolidated financial statements.

Korvest Ltd

Consolidated statement of financial position

As at 30 June 2017

*Note* Assets Cash and cash equivalents 16 Investment 16 Trade and other receivables 7 Inventories 8 Tax receivable Total current assets Property, plant and equipment 13 Intangible assets 12 Deferred tax asset 20 Total non-current assets Total assets Liabilities Trade and other payables 9 Employee benefits 10 Provisions 11 Total current liabilities Employee benefits 10 Deferred tax liability 20 Provisions 11 Total non-current liabilities Total liabilities Net assets Equity Issued capital 18 Reserves 18 Retained earnings Total equity attributable to equity holders of the Company Total equity	2017 $’000 2016 $’000 1,694 5,088 275 - 9,498 8,238 10,733 11,492 107 971
	22,307 25,789
	13,725 14,631 8 17 82 -
	13,815 14,648
	36,122 40,437
	3,950 4,224 2,216 2,340 38 26
	6,204 6,590
	319 372 - 513 433 433
	752 1,318
	6,956 7,908
	29,166 32,529
	14,039 13,798 16,705 18,731 (1,578) -
	29,166 32,529
	29,166 32,529

The notes on pages 26 to 61 are an integral part of these consolidated financial statements.

Consolidated statement of cash flows

For the year ended 30 June 2017

Note Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Interest received 3 Income tax refunds (taxes paid) Net cash from operating activities 16 Cash flows from investing activities Proceeds from sale of property, plant and equipment and assets held for sale Investments and term deposits Acquisition of property, plant and equipment and intangible assets 12,13 Net cash from investing activities Cash flows from financing activities Transaction costs related to issue of share capital Dividends paid Net cash from financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at 1 July Cash and cash equivalents / (bank overdrafts) at 30 June 16	2017 $’000	2016 $’000 65,592 (57,576)

	47,863
	(49,165)
	(1,302)	8,016 39 (623)
	54
	864
	(384)	7,432
		47 - (481)

	10
	(275)
	(745)
	(1,010)	(434)
		(5) (1,405)

	(5)
	(1,995)
	(2,000)	(1,410)
		5,588 (500)
	(3,394)
	5,088
	1,694	5,088

The notes on pages 26 to 61 are an integral part of these consolidated financial statements.

Korvest Ltd

Consolidated statement of changes in equity

For the year ended 30 June 2017

In thousands of AUD Balance at 1 July 2016 Total comprehensive income for the year Loss Other comprehensive income Total comprehensive income for the year Transactions with owners of the Company recognised directly in equity Contributions by and distributions to owners of the Company Shares issued under the Share Plans Issue of ordinary shares Dividends to shareholders Total contributions by and distributions to owners of the Company Balance at 30 June 2017 Balance at 1 July 2015 Total comprehensive income for the year Profit Total comprehensive income for the year Transactions with owners of the Company recognised directly in equity Contributions by and distributions to owners of the Company Shares issued under the Share Plans Issue of ordinary shares Dividends to shareholders Total contributions by and distributions to owners of the Company Transfer to profits reserve Balance at 30 June 2016	Share capital $’000 Equity compensation reserve $’000 Asset revaluation reserve $’000 Profits reserve $’000 Retained earnings $’000	Total $’000
	13,798 211 3,585 14,935 -	32,529

	- - - - (1,578)	(1,578)
	- - 150 - -	150
	- - 150 (1,578)	(1,428)


	56 16 - - -	72
	185 - - - -	185
	- - - (2,192) -	(2,192)
	241 16 - (2,192) -	(1,935)
	14,039 227 3,735 12,743 (1,578)	29,166
	12,833 211 3,585 16,313 -	32,942
	- - - - 950	950
	- - - - 950	950
	60 - - - - 905 - - - - - - - (2,328) -	60 905 (2,328)
	965 - - (2,328) -	(1,363)
	- - - 950 (950)	-
	13,798 211 3,585 14,935 -	32,529

The notes on pages 26 to 61 are an integral part of these consolidated financial statements.

Korvest Ltd

Notes to the financial statements

Basis of preparation

Reporting entity

Korvest Ltd (the ‘Company’) is a company domiciled in Australia. The address of the Company’s registered office is 580 Prospect Road, Kilburn SA 5084. The consolidated financial statements of the Company as at and for the year ended 30 June 2017 comprise the Company and its subsidiaries (together referred to as the ‘Group’ and individually as ‘Group entities’). The Group is a for-profit entity and is primarily involved in manufacturing businesses as detailed in the Segment Reporting (Note 6).

Basis of accounting

Statement of compliance

The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board (IASB).

The consolidated financial statements were approved by the Board of Directors on 27th July 2017.

Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for land and buildings, which are measured at fair value.

Functional and presentation currency

These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency.

Use of estimates and judgements

The preparation of the consolidated financial statements in conformity with AASBs and IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes:

Note 7 – Trade and other receivables
Note 8 – Inventories
Note 11 – Provisions
Note 13 – Tangible assets

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

Foreign currency

Foreign currency transactions

Transactions in foreign currencies are translated to the functional currencies of the Group at exchange rates at the dates of transactions.

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary assets and liabilities that are measured based on historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

Foreign currency differences are generally recognised in profit or loss.

New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 July 2017, and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt thes e standards early, and continues to assess the impact on the entity.

New	or amended standard	Summary of requirements	Possible impact on consolidated
			financial statements
IFRS	9_Financial Instruments_	IFRS 9, published in July 2014, replaces the
		existing guidance in IAS 39 Financial	The standard is not expected to have a
		instruments: Recognition and Measurement.	significant impact on the Group’s
		IFRS 9 includes revised guidance on the	consolidated financial statements.
		classification and measurement of financial
		instruments, including a new expected credit
		loss model for calculating impairment on
		financial assets, and the new general hedge
		accounting requirements. It also carries
		forward the guidance on recognition and
		derecognition of financial instruments from
		IAS 39.
		IFRS 9 is effective for annual reporting periods
		beginning on or after 1 January 2018, with
		early adoption permitted.
IFRS	15_Revenue from Contracts_	IFRS 15 establishes a comprehensive	The Group is assessing the potential
with	Customers	framework for determining whether, how	impact on its consolidated financial
		much, and when revenue is recognised. It	statements resulting from application
		replaces existing revenue recognition	of IFRS 15.
		guidance, including IAS 18_Revenue_, IAS 11
		Construction contracts_and IFRIC 13_Customer
		Loyalty Programmes.
		IFRS 15 is effective for annual reporting
		periods beginning on or after 1 January 2018,
		with early adoption permitted.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

New or amended standard Summary of requirements

IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. AASB 16 substantially carries forward the lessor accounting requirements in IFRS 117 Leases.

IFRS 16 Leases

Possible impact on consolidated financial statements

The Group is assessing the potential impact on its consolidated financial statements resulting from application of IFRS 16.

IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

Results for the Year

This section focuses on the Group’s performance. Disclosures in this section include analysis of the Group’s profit before tax by reference to the activities performed by the Group and analysis of key revenues and operating costs, segmental information, net finance costs and earnings per share.

Underlying earnings before interest, tax (“EBIT”) and before exceptional items remain the Group’s key profit indicator. This reflects how the business is managed and how the Directors assess the performance of the Group.

1. Revenue and other income

Accounting policies

Sale of goods

Revenue from the sale of goods in the ordinary course of business is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of the revenue can be measured reliably. Transfer of risks and rewards vary according to the terms of individual sale contracts. Transfer usually occurs when the product is received by the customer or upon completion when the customer requests delayed delivery.

Good and services tax

Revenues are recognised net of amount of goods and services tax (GST).

Sales revenue Sales of goods Other income Profit on sale of fixed assets	2017 2016 $’000 $‘000 44,731 54,981
	44,731 54,981
	- 10
	- 10

2. Expenses

Accounting policies

Depreciation

Items of property, plant and equipment are depreciated from the date that they are installed and are ready for use, or in respect of internally constructed assets, from the date that the asset is completed and ready for use.

Depreciation is calculated to write off the carrying value of property, plant and equipment less the estimated residual values using the straight-line basis over their estimated useful lives. Depreciation is generally recognised in profit or loss, unless the amount is included in the carrying amount of another asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obta in ownership by the end of the lease term. Land is not depreciated.

The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows:

	Buildings	40 years
	Plant and equipment	3-12 years

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

2. Expenses (continued)

Amortisation

Except for goodwill, intangible assets are amortised on a straight-line basis in profit or loss over their estimated useful lives, from the date that they are available for use.

The estimated useful life of patents and trademarks for the current and comparative years is 5 years.

Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

Good and services tax

Expenses are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the expense.

Expenses by nature

*Expenses by nature*
*Note* Cost of goods sold Sales, marketing and warehousing expenses Administration expenses Distribution expenses Other expenses Profit / (Loss) before income tax has been arrived at after charging / (crediting) the following expenses: Depreciation and amortisation: Depreciation of buildings 13 Depreciation of plant and equipment 13 Amortisation 12 Employee benefits: Wages and salaries Other associated personnel expenses Contributions to defined contribution superannuation funds Expense relating to annual and long service leave Termination benefits Employee share bonus plan expense Other: Bad debts written off 7 Change in allowance for impairment of receivables 7 Loss on disposal of property, plant and equipment Research and development expense	2017 2016 $’000 $‘000 29,919 34,037 11,275 12,585 2,242 3,494 3,498 3,572 88 -
	47,022 53,688
	39 39 1,659 1,659 12 18 12,425 13,330 1,883 2,099 1,113 1,314 1,080 1,052 160 624 51 61 73 247 (88) (50) 88 - 29 4

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

3. Net finance income

Accounting policies

Finance income

Finance income comprises interest income on funds invested. Interest income is recognised as i t accrues, using the effective interest rate method.

Finance costs

Finance costs are comprised of interest expense on borrowings. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

Interest income on bank deposits held Interest expense from bank overdrafts Net financing income	2017 2016 $’000 $‘000 54 42 - (3)
	54 39

4. Earnings per share

The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

Basic and diluted earnings per share

The calculation of basic earnings per share at 30 June 2017 was based on the net loss attributable to ordinary shareholders of $1,577,891 (2016: Profit $949,674) and a weighted average number of ordinary shares outstanding during the financial year ended 30 June 2017 of 10,992,738 (2016: 10,719,520). The calculation of diluted earnings per share at 30 June 2017 was based on the loss attributable to ordinary shareholders of $1,577,891 (2016: Profit $949,674) and a weighted average number of ordinary shares outstanding during the financial year ended 30 June 2017 of 10,992,738 (2016: 10,719,520).

Weighted average number of ordinary shares (basic)

*Weighted average number of ordinary shares (basic)*
Issued ordinary shares at 1 July Effect of shares issued during year Weighted average number of ordinary shares at 30 June *Weighted average number of ordinary shares (diluted)* Weighted average number of ordinary shares (basic) Effect of Executive Share Plan Weighted average number of ordinary shares at 30 June *Basic and diluted earnings per share* Basic earnings per share from continuing operations Diluted earnings per share from continuing operations	2017 2016 Shares ’000 Shares ‘000 10,940 10,507 53 213
	10,993 10,720
	10,993 10,720 - -
	10,993 10,720
	2017 2016 Cents per share Cents per share (14.4) 8.9 (14.4) 8.9

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

5. Auditor’s remuneration

Auditor’s remuneration
Audit services: Auditors of the Group (KPMG Australia) – audit and review of financial statements Other services: Auditors of the Group (KPMG Australia) – other taxation, consulting and due diligence services	2017 2016 $ $ 93,970 87,350
	93,970 87,350
	7,585 191,557
	7,585 191,557

6. Segment Reporting

Segment results that are reported to the Group’s Managing Director (the chief operating decision maker) include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses, and income tax assets and liabilities.

Business segments

The Group has two reportable segments. The business is organised based on products and services. The following summary describes the operations in each of the Company’s reportable segments.

Industrial Products

Industrial Products segment includes the manufacture of electrical and cable support systems, steel fabrication and access systems. It also includes the sale, hire and repair of high torque tools. It includes the businesses trading under the EzyStrut, Power Step and Titan Technologies names.

Production

Production segment represents the Korvest Galvanising business, which provides hot dip galvanising services.

Both reportable segments consist of the aggregation of a number of operating segments in accordance with AASB 8 Operating Segments.

Geographical segments

The Group operates in Australia.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

6. Segment reporting (continued)

Customers

There was no individually significant customer that would represent more than 10% of total revenues in the current financial year. Last year one customer of the Group’s Industrial Products segment represented $13,910,000 of the Group’s total revenues.

Information regarding the operations of each reportable segment is included below in the manner reported to the chief operating decision maker as defined in AASB 8. Performance is measured based on segment profit before tax (PBT). Intersegment transactions are not recorded as revenue. Instead a cost allocation relating to the transactions is made based on negotiated rates.

Business segments	Industrial Products	Industrial Products	Production		Total
	2017	2016	2017	2016	2017	2016
	$’000	$’000	$’000	$’000	$’000	$’000
Sales revenue	40,269	50,701	4,462	4,280	44,731	54,981
Depreciation and amortisation	1,041	1,143	278	278	1,319	1,421
Reportable segment profit /
(loss) before tax	(1,633)	2,989	(301)	(48)	(1,934)	2,941
Reportable segment assets	20,984	21,470	3,720	3,519	24,704	24,990
Capital expenditure	465	182	222	102	687	284

Reconciliation of reportable segment profit, assets and other material items

Profit / (Loss) Total profit / (loss) for reportable segments Unallocated amounts – other corporate expenses (net of corporate income) Profit / (Loss) before income tax Assets Total assets for reportable segments Land and buildings Cash and cash equivalents Other unallocated amounts Total assets Capital expenditure Capital expenditure for reportable segments Other corporate capital expenditure Total capital expenditure Other material items Depreciation and amortisation for reportable segments Unallocated amounts – corporate depreciation Total	2017 2016 $’000 $‘000 (1,934) 2,941 (303) (1,599)
	(2,237) 1,342
	24,704 24,990 7,382 7,207 1,969 5,088 2,067 3,152
	36,122 40,437
	687 284 58 197
	745 481
	1,319 1,421 391 295
	1,710 1,716

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

Working Capital

Working capital represents the assets and liabilities the Group generates through its trading activity. The Group therefore defines working capital as inventory, trade and other receivables, trade and other payables and provisions.

Careful management of working capital ensures that the Group can meet its trading and financing obligations within its ordinary operating cycle.

This section provides further information regarding working capital management and analysis of the elements of working capital.

7. Trade and other receivables

Accounting policies

Trade receivables

Trade receivables are non-derivative financial instruments that are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method, less any identified impairment losses.

The fair values of trade and other receivables are estimated as the present value of future cash flows, discounted at the market rate of interest at the measurement date. Short-term receivables with no stated interest rate are measured at the original invoice amount if the effect of discounting is immaterial. Fair value is determi ned at initial recognition and, for disclosure purposes, at each annual reporting date.

Goods and services tax

Trade receivables are recognised inclusive of the amount of goods and services tax (GST) which is payable to taxation authorities. The net amount of GST payable to the taxation authority is included as part of receivables or payables.

Current Trade receivables Less: Allowance for impairment Net trade receivables Other receivables and prepayments	2017 2016 $’000 $‘000 9,860 8,594 (582) (567)
	9,278 8,027
	220 211
	9,498 8,238

Impairment

Debtors are assessed at each reporting date to determine whether there is any objective evidence that they are impaired. An allowance for impairment is recognised if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that the loss event(s) had an impact on the estimated future cash flows of the asset that can be estimated reliably.

Objective evidence that financial assets are impaired includes default or delinquency by a debtor or indications that a debtor will enter administration.

Movement in allowance for impairment Balance at 1 July Amounts written off against allowance Impairment loss recognised Balance at 30 June	2017 2016 $’000 $‘000 (567) (627) 73 247 (88) (187)
	(582) (567)

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

7. Trade and other receivables (continued)

The impairment loss at 30 June 2017 relates to a number of customers where an assessment has been made that the amounts are likely to be uncollectable.

The Group sells to a variety of customers including wholesalers and end users and does not have a concentration of credit risk in any one sector.

Based on the Group’s monitoring of customer credit risk, the Group believes that, except as indicated above, no impairment allowance is necessary in respect of trade receivables not past due.

The ageing of the trade receivables at the reporting date that were not impaired was as follows :

Gross amounts Not past due nor impaired Past due 0-30 days Past due 31-90 days More than 91 days	2017 2016 $’000 $‘000 6,299 5,499 2,829 2,054 150 474 - -
	9,278 8,027

8. Inventories

Accounting policies

Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on average cost and includes expenditure incurred in acquiring the inventories, production and conversion costs, and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, les s the estimated costs of completion and estimated costs necessary to make the sale.

The fair value of inventories acquired in a business combination is determined based on its estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.

Goods and services tax

Non-financial assets such as inventories are recognised net of amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from taxation authority, it is recognised as part of the cost of acquisition of the asset.

Current Raw materials and consumables Work in progress Finished goods	2017 2016 $’000 $‘000 2,142 2,045 441 222 8,150 9,225
	10,733 11,492

Finished goods are shown net of an impairment provision amounting to $1,409,000 (2016: $1,449,000) arising from the likely inability to sell a product range at or equal to the cost of inventory.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

9. Trade and other payables

Accounting policies

Payables

Trade and other accounts payable are non-derivative financial instruments measured at cost.

Goods and services tax

Trade payables are recognised inclusive of the amount of goods and services tax (GST) which is recoverable from taxation authorities. The net amount of GST recoverable from the taxation authority is included as part of receivables or payables.

Current Trade payables and accrued expenses Non-trade payables and accrued expenses	2017 2016 $’000 $‘000 2,226 2,074 1,724 2,150
	3,950 4,224

10. Employee benefits

Accounting policies

Short-term benefits

Short-term employee benefit obligations are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Long-term benefits

The Group’s net obligation in respect of long-term service benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates, including related on-costs and expected settlement dates, and is discounted using the rates attached to high quality corporate bonds at the reporting date which have maturity dates approximating to the terms of the Company’s obligations.

Current Liability for annual leave Liability for long service leave Non-current Liability for long service leave Total employee benefits	2017 2016 $’000 $‘000 940 1,018 1,276 1,322
	2,216 2,340
	319 372
	2,535 2,712

Accrued wages and salaries are included in accrued expenses in note 9.

Defined contribution superannuation funds

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution superannuation funds are recognised as an employee benefit expense in profit or loss in the periods during which related services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

10. Employee benefits (continued)

Share based payments

The grant-date fair value of share-based payment awards granted to employees is recognised as an employee expense with a corresponding increase in equity over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

The fair value of the performance rights with only non-market performance conditions is measured using the BlackScholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility of the Company’s share prices, adjusted for changes expected due to publicly available information), weighted average expected life of the instruments, expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.

The fair value of performance rights with market related performance conditions is measured using a Monte Carlo simulation.

Employee Share Bonus Plan

The Employee Share Bonus Plan allows Group employees to receive shares of the Company. Shares are allotted to employees who have served a qualifying period. Up to $1,000 per year in shares is allotted to each qualifying employee. The fair value of shares issued is recognised as an employee expense with a corresponding increase in equity. The fair value of the shares granted is measured using a present value method.

Executive Share Plan

The Executive Share Plan and the Performance Rights Plan allow Group employees to receive shares of the Company. The fair value of options or rights granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options/right.

Executive Share Plan (ESP) – discontinued

In March 2005, the Group established a share option plan that entitled selected senior executives to acquire shares in the entity subject to the successful achievement of performance targets related to improvements in total shareholder returns over a two-year option period. The plan was discontinued in 2010 with no new issues made under the plan since that time. The plan remains in operation for those employees granted options under that plan prior to 2010.

The options were exercisable if the total shareholder return (measured as share price growth plus dividends paid) over a two-year period from the grant date exceeded ten per cent plus CPI per annum. The shares issued pursuant to these options are financed by an interest free loan from the Company repayable within twenty years from the proceeds of dividends declared by the Company. These loans are of a non-recourse nature. For accounting purposes these 20-year loans are treated as part of the options to purchase shares, until the loan is extinguished at which point the shares are recognised.

The options were offered only to selected senior executives. Details of the options are below:

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

10. Employee benefits (continued)

Korvest Performance Rights Plan (KPRP)

In August 2011 the Company established a performance rights plan to replace the ESP. In November 2011 the first performance rights were granted under the plan and further issues have been granted annually sinc e. The plan is designed to provide long term incentives to eligible senior employees of the Group and entitles them to acquire shares in the Company, subject to the successful achievement of performance hurdles . For issues made between November 2011 and November 2015 only one performance hurdle related to earnings per share (EPS) was used. For the November 2016 issue a second hurdle related to Relative Total Shareholder Return (RTSR) was introduced.

Under the plan, eligible employees are offered Performance Rights, which enables the employee to acquire one fully paid ordinary share in the Company for no monetary consideration, once the Performance Rights vest. The conditions attached to the Performance Rights are measured over the three year period commencing at the beginning of the financial year in which the Performance Rights are granted. If the performance conditions at the end of the three year period are met, in whole or in part, all or the relevant percentage of the Performance Rights will vest.

Grant date Plan March 2005 ESP March 2009 ESP November 2015 KPRP November 2016 KPRP Total share options / performance rights	Number of options / rights initially granted Number outstanding at balance date AASBs Number outstanding at balance date ASX
	60,000 15,000 -
	85,000 10,000 -
	142,400 104,000 104,000
	117,000 104,500 104,500
	404,400 233,500 208,500

Options subject to a non-recourse loan for the purchase of shares are not recognised as exercised by International Financial Reporting Standards, until the loan is extinguished at which point the shares are recognised.

Measurement of fair values

The fair value of the rights granted through the KPRP with an EPS hurdle was measured based on the Black-Scholes formula. The fair value of the rights granted through the KPRP from 2016 with an RTSR hurdle was measured using a Monte Carlo simulation. Expected volatility is estimated by considering historic share price volatility over the twelve months prior to grant date.

The inputs used in the measurement of the fair value at grant date of the KPRP were as follows:

	2017		2016
	RTSR hurdle	EPS Hurdle
Fair value at grant date	$0.90	$1.74	$2.29
Share price at grant date	$2.00	$2.00	$3.05
Exercise price	-	-	-
Share price volatility	29.4%	29.4%	28.0%
Dividend yield	6.0%	6.0%	9.51%
Risk free interest rate	1.9%	1.9%	2.90%
Life of options	3 yrs	3 yrs	3 yrs
Advised restriction period (after vesting)	2 yrs	2 yrs	2 yrs

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

10. Employee benefits (continued)

Reconciliation of outstanding share options/rights

Grant date Exercise date Expiry date Exer- cise price 2017 Previous plan Mar 05 Jan 07 Jan 27 $4.36 Mar 09 Jan 11 Jan 31 $3.79 Weighted average exercise price Current plan Nov 14 Jul 17 Jun 17 - Nov 15 Jul 18 Jun 18 - Nov 16 Jul 19 Jun 19 - Weighted average exercise price 2016 Previous plan Mar 05 Jan 07 Jan 27 $4.36 Mar 09 Jan 11 Jan 31 $3.79 Weighted average exercise price Current plan Nov 13 Jul 16 Jun 16 - Nov 14 Jul 17 Jun 17 - Nov 15 Jul 18 Jun 18 - Weighted average exercise price	Number of options /rights at beginning of year Rights granted Lapsed Forf- eited Exer- cised Number of options at end of year on issue Exercis able at 30 June


	15,000 - - - - 15,000 -
	10,000 - - - - 10,000 -
	25,000 - - - - 25,000 -
	$4.13 $4.13

	85,000 - (77,000) (8,000) - - -
	114,000 - - (10,000) - 104,000 -
	- 117,000 - (12,500) - 104,500
	199,000 117,000 (77,000) (30,500) - 208,500 -
	$Nil $Nil $Nil $Nil $Nil
	15,000 - - - - 15,000 - 10,000 - - - - 10,000 -
	25,000 - - - - 25,000
	$4.13 $4.13 79,500 - (70,500) (9,000) - - - 99,000 - - (14,000) - 85,000 - - 142,400 - (28,400) - 114,000 -
	178,500 142,400 (70,500) (51,400) - 199,000 -
	$Nil $Nil $Nil $Nil $Nil $Nil $Nil

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

11. Provisions

Accounting policies

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting risk adjusted future expected cash flows at a pre-tax discount rate that reflects the time value of money. The unwinding of the discount is recognised as a finance cost.

Warranties

A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. Power Step assemblies are sold with a warranty period of 12 months from installation date or 18 months from invoice date, whichever occurs first. The provision is based on estimates made from historical warranty data associated with similar products. The entire warranty provision has been treated as current.

Site restoration and safety

A provision of $433,000 (2016: $433,000) is held in respect of the Company’s obligation to rectify potential environmental damage at the main site premises in Kilburn. The provision is reassessed annually and is based on an estimate of the current day cost to rectify the site. It has been assumed that the rectification would occur in 15 years (2016: 15 years). Provisions are determined by discounting risk adjusted future expected cas h flows at a pre-tax discount rate that reflects the time value of money. A discount rate of 3.0% (2016: 3.0%) and an inflation rate of 2.0% (2016: 2.0%) have been used for the calculation at 30 June 2017.

Current Warranties Non-current Site restoration	2017 2016 $’000 $‘000 38 26 433 433
	471 459

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

Tangible and intangible assets

The following section shows the physical tangible and non-physical intangible assets used by the Group to operate the business, generating revenues and profits. Intangible assets include patents, trademarks and goodwill.

This section explains the accounting policies applied and specific judgments and estimates made by the Directors in arriving at the net book value of these assets.

12. Intangible assets

Accounting policies

Goodwill

Goodwill that arises upon the acquisition of subsidiaries is presented with intangible assets.

Goodwill is measured at cost less accumulated impairment losses.

Other intangible assets

Other intangible assets that are required by the Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses.

Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific assets to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.

Cost Balance at 1 July 2015 Acquisitions Balance at 30 June 2016 Balance at 1 July 2016 Acquisitions Balance at 30 June 2017 Accumulated amortisation and impairment losses Balance at 1 July 2015 Amortisation for the year Balance at 30 June 2016 Balance at 1 July 2016 Amortisation for the year Balance at 30 June 2017 Carrying amounts At 1 July 2015 At 30 June 2016 At 30 June 2017	Patents & Trademarks $’000 59 10
	69

	69
	3
	72
	34 18
	52

	52
	12
	64
	25
	17
	8

Amortisation is recognised as an expense in Note 2.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

13. Tangible assets

Accounting policies

Recognition and measurement

Items of plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Land and buildings is measured at fair value.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the following:

The cost of materials and direct labour;
Any costs directly attributable to bringing the assets to a working condition for their intended use;
When the Group has an obligation to remove the assets or restore the site, as estimate of the costs of dismantling and removing the items and restoring the site on which they are located; and
Capitalised borrowing costs.

Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Any gain or loss on disposal of an item of property, plant and equipment (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss.

Fair value measurement

The fair value of property, plant and equipment recognised as a result of a business combination is the estimated amount for which a property could be exchanged on the date of acquisition between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably. The fair value of items of plant, equipment, fixtures and fittings is based on the market approach and cost approaches using quoted market prices for similar items when available and depreciated replacement cost when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence. Land and buildings are valued by an independent valuer every three years. In the intervening years between independent valuations the directors make an assessment of the value of the land and buildings having regard for the most recent independent valuation.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

13. Tangible assets (continued)

Subsequent expenditure

Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Group. On-going repairs and maintenance are expensed as incurred.

Cost Balance at 1 July 2015 Acquisitions Disposals Transfer of equipment to inventory Balance at 30 June 2016 Balance at 1 July 2016 Acquisitions Revaluation Disposals and write-offs Transfer of equipment to inventory Balance at 30 June 2017 Accumulated depreciation and impairment losses Balance at 1 July 2015 Depreciation charge for the year Disposals Transfer of equipment to inventory Balance at 30 June 2016 Balance at 1 July 2016 Depreciation charge for the year Revaluation Disposals Transfer of equipment to inventory Balance at 30 June 2017 Carrying amounts At 1 July 2015 At 30 June 2016 At 30 June 2017	Land & Buildings (fair value) Plant & Equipment (cost) $’000 $’000 7,282 19,964 - 471 - (226) - (14)	Total $’000 27,246 471 (226) (14)
	7,282 20,195	27,477

	7,282 20,195	27,477
	- 742	742
	100 -	100
	- (390)	(390)
	- (15)	(15)
	7,382 20,532	27,914
	36 11,303 39 1,659 - (189) - (2)	11,339 1,698 (189) (2)
	75 12,771	12,846

	75 12,771	12,846
	39 1,659	1,698
	(114) -	(114)
	- (237)	(237)
	- (4)	(4)
	- 14,189	14,189
	7,246 8,661	15,907
	7,207 7,424	14,631
	7,382 6,343	13,725

Depreciation is recognised as an expense in Note 2.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

13. Tangible assets (continued)

Fair value hierarchy of land and buildings

At least every three years the directors obtain an independent valuation to support the fair value of Land and Buildings. This valuation is used by the directors as a guide in determining the directors’ valuation for the Land and Buildings. An independent valuation of Land and Buildings was carried out in March 2017 by Mr Mark Klenke, AAPI MRICS FFIN of AON Valuation Services on the basis of the open market value of the properties concerned in their highest and best use and was used as a reference for director’s valuation as at 30 June 2017.

The carrying amount of the Land and Buildings at cost at 30 June 2017 if not revalued would be $1,109,869 (2016:$1,163,449).

The following table shows a reconciliation from the opening balances to the closing balances for Land and Buildings being based on Level 3 fair values:

Balance at 1 July 2015 Acquisitions Depreciation charge for the year Balance at 30 June 2016 Balance at 1 July 2016 Revaluation Depreciation charge for the year Balance at 30 June 2017	$’000 7,246 - (39)
	7,207

	7,207
	214
	(39)
	7,382

Valuation technique and significant unobservable inputs

The following table shows the valuation technique used in measuring the fair value of Land and Buildings, as well as the significant unobservable inputs used.

significant unobservable inputs used.
		Inter-relationship between key
		unobservable inputs and fair value
Valuation technique	Significant unobservable inputs	measurement
Capitalised income approach: the	Market yield - 9.25%	The	estimated market value would
valuation model applies a yield to the	Potential rental rate - $53/m2	increase if:
property’s value to assess its value	Land value for vacant land - $150/m2		Market yields were higher
less any required capital expenditure.			Potential rental return was
The yield applied to the potential			higher
rental return from the property is			Land value was higher
based on recent sales and has been
calculated by dividing the estimated
rental return from comparable sales
to derive a fair market sales price.
Capitalised value has been increased
by value of a vacant land as the
property has below average site
coverage indicating further capacity
for development.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

14. Impairment testing

Accounting policies

The carrying amounts of the Group’s tangible and intangible assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment. An impairment loss is recognised if the carrying amount of an asset or cash-generating unit (CGU) exceeds its recoverable amount.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. 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 or CGU. For impairment testing assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Subject to an operating segment ceiling test, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amount of the other assets in the CGU (group of CGUs) on a pro rata basis.

Any impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amounts does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Results

Neither assets or CGU’s were tested for impairment as there were no impairment indicators at 30 June 2017 or 30 June 2016.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

15. Commitments for expenditure

Operating leases

Operating lease payments are recognised as an expense on a straight-line basis over the lease term. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Leases as lessee

At the end of the reporting period, the future minimum lease payments under non-cancellable operating leases are payable as follows:

payable as follows:
Less than one year Between one and five years More than five years	2017 2016 $’000 $‘000 801 987 974 1,832 - -
	1,775 2,819

The Group leases a number of warehouse and factory facilities under operating leases. The leases typically run for a period of five years, with an option to renew the lease after that date. Lease payments are increased periodically to reflect market rentals. None of the leases includes contingent rentals. Rentals are increased by CPI or similar each year.

During the financial year ended 30 June 2017, $893,204 was recognised as an expense in the Statement of profit and loss and comprehensive income in respect of operating leases (2016: $930,154).

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

Capital Structure

This section outlines how the Group manages its capital structure, including its balance sheet liquidity and access to capital markets.

The directors determine the appropriate capital structure of the Group, specifically how much is realised from shareholders and how much is borrowed from the financial institutions to finance the Group’s activities now and in the future.

16. Cash and cash equivalents / (Bank overdraft)

Accounting policies

Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value and are used by the Company in the management of its short-term commitments.

Investments and term deposits comprise deposits with maturities greater than three months at acquisition date.

Goods and services tax

Cash flows are included in the Statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.

Cash in hand Bank balances Call deposits Cash and cash equivalents in the statement of cash flows Investments and term deposits	2017 2016 $’000 $‘000 1 1 1,156 317 537 4,770
	1,694 5,088
	275 -

Reconciliation of cash flows from operating activities

Cash flows from operating activities (Loss) / Profit for the period Adjustment for: Depreciation and amortisation Impairment of trade receivables Impairment of inventories Increase in provision for site rectification Disposal of property, plant and equipment including transfer to inventory and write-offs Equity-settled share-based payment expense Changes in: Trade and other receivables Inventories Trade and other payables Deferred tax Income taxes payable Provisions and employee benefits Net cash from operating activities	2017 2016 $’000 $‘000 (1,578) 950 1,710 1,716 88 196 (40) 558 - 100 154 2 72 60
	406 3,582
	(1,343) 5,151 800 1,561 (287) (2,142) (659) 462 864 (697) (165) (485)
	(384) 7,432

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

17. Financial instruments

Accounting policies

A number of the Group’s accounting policies and disclosures require measurement of fair values, for both financial and non-financial assets and liabilities.

The Group applies IFRS 13 Fair Value Measurement, which establishes a single framework for measuring fair value and making disclosures about fair value measurements when such measurements are required or permitted by other IFRSs. It unifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It replaces and expands the disclosure requirements about fair value measurements in other IFRSs. As a result, the Group has applied additional disclosures in this regard within Notes 7 and 17.

The Group has an established control framework with respect to the measurement of fair values. The Finance Director has overall responsibility for all significant fair value measurements, including Level 3 fair values.

The Finance Director regularly reviews significant unobservable inputs and valuation adjustments. If third party information is used to measure fair values, the Finance Director assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of AASB, including the level in the fair value hierarchy in which such valuations should be classified.

Significant valuation issues are reported to the Audit Committee.

When measuring the fair value of an asset or liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on inputs used in the valuation techniques as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices)
Level 3: inputs for asset or liability that are not based on observable market data (unobservable inputs).

If inputs used to measure fair value of an asset or liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Non-derivative financial assets

The Group initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initi ally on the trade date, which is the date that the Group becomes a party to the contractual provision of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or if it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settl e them on a net basis or to realise the asset and settle the liability simultaneously.

The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through the profit or loss, held to maturity financial assets, loans and receivables and available-for-sale financial assets.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

17. Financial instruments (continued)

Non-derivative financial liabilities

The Group initially recognises financial liabilities on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest rate method.

Other financial liabilities comprise loans and other borrowings, bank overdrafts, and trade and other payables.

Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the statement of cash flows.

Other non-derivative financial liabilities are measured at fair value, at initial recognition and for disclosure purposes, at each annual reporting date. Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the measurement date. For finance leases the market rate of interest is determined by reference to similar lease agreements.

Financial risk management

Overview

The Group has exposure to the following risks from their use of financial instruments:

credit risk;
liquidity risk; and
market risk.

The board of directors has overall responsibility for the establishment and oversight of the risk mana gement framework.

Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. The Audit Committee oversees how management monitors compliance with the risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers.

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date is summarised below:

	2017	2016
	$’000	$‘000
Cash, cash equivalents and Investments	1,969	5,088
Trade and other receivables	9,498	8,238

Cash and cash equivalents

The cash, cash equivalents and investments are held with major Australian banks.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

17. Financial instruments (continued)

Trade and other receivables

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk, particularly in the current deteriorating economic circumstances.

There is an established credit policy under which each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings and trade references when applicable and available. Purchase limits are established for each customer, which represent the maximum open amount without requiring further approval. These limits are subject to on-going review. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only on a prepayment basis.

Goods are sold subject to retention of title clauses, so that in the event of non-payment the Group may have a secured claim. The Group otherwise does not require collateral in respect of trade and other receivables.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.

The maximum exposure to credit risk for trade and other receivables at the end of the reporting period by geographic region was as follows:

Carrying values Australia South East Asia Other	2017 2016 $’000 $‘000 9,377 7,905 81 203 40 130
	9,498 8,238

At 30 June 2017, the Group’s most significant customer, located in Australia, accounted for $1,588,100 of the trade and other receivables carrying amount (2016: $1,739,600).

Impairment losses

The ageing of the trade and other receivables at the reporting date that were not impaired is set out in note 7.

Gross Not past due nor impaired Past due 0-30 days Past due 31-90 days More than 91 days	2017 2016 $’000 $‘000 6,519 5,710 2,829 2,054 150 474 - -
	9,498 8,238

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

17. Financial instruments (continued)

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group monitors the level of expected cash inflows on trade and other receivables together with expected cash outflows on trade and other payables.

The following are the remaining contractual maturities at the end of the reporting period of financial liabilities, including estimated interest payments. The amounts disclosed are the contractual undiscounted cash flows (inflows shown as positive, outflows as negative).

2017	2016 6 – 12 mnths Carrying amount Contractual cash flows $’000 $’000 $’000	6 mths or less 6 – 12 mnths $’000 $’000
Carrying amount Contractual cash flows 6 mths or less
$’000 $’000 $’000
	- 4,224 (4,224)	(4,224) -
3,950 (3,950) (3,950)
3,950 (3,950) (3,950)	- 4,224 (4,224)	(4,224) -

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Currency risk

The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the Australian dollar (AUD). The currency in which these transactions primarily are denominated is US dollars (USD).

Exposure to currency risk

The Group did not have any material exposure to foreign currency risk and as a result movements in the Australian dollar against other currencies will not have a material impact on the Group’s profit or equity.

Interest rate risk

The Group is not currently exposed in any material way to interest rate risk. The risk is limited to the re-pricing of short term deposits utilised for surplus funds. Such deposits generally re-price approximately every 30 days.

Exposure to interest rate risk

Movements in interest rates will not have a material impact on the Group’s profit or equity.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

17. Financial instruments (continued)

Other market price risk

The Group has no material financial instrument exposure to other market price risk as it is not exposed to either commodity price risk or equity securities price risk. The Group does not enter into commodity contracts other than to meet the Group’s expected usage requirements.

Capital management

The Group’s objectives when managing capital (net debt and equity) are to safeguard its ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

During the year the Group was not subject to externally imposed capital requirements.

There were no changes in the Group’s approach to capital management during the year.

Accounting classifications and fair values

The carrying amounts of the Group’s financial assets and liabilities are considered to be a reasonable approximation of their fair values.

18. Capital and reserves

Accounting policies

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

Asset revaluation reserve

The revaluation reserve relates to land and buildings measured at fair value in accordance with Australian Accounting Standards.

Profits reserve

The profits reserve represents current year and accumulated profits transferred to a reserve to preserve the characteristic as a profit and not appropriate against prior year accumulated losses. Such profits are available to enable payment of franked dividends in the future.

Equity compensation reserve

The Equity compensation reserve represents the accumulated expense recognised for share-based payments granted by the Company to date. This reserve will be reversed against share capital or retained earnings when the underlying shares vest in the employee. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

18. Capital and reserves (continued)

Share capital

*Share capital*
Ordinary shares On issue at 1 July Issued under the Employee Share Bonus Plan Issued under Dividend Reinvestment Plan On issue at 30 June – fully paid	2017 2016 Shares ’000 Shares ‘000 10,940 10,507 57 59 76 373
	11,073 10,940

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets.

19. Dividends

Accounting policies

Dividends paid are classified as distribution of profit consistent with the balance sheet classification of the related debt or equity instrument.

Recognised amounts

*Recognised amounts*
Cents per share	Total amount $’000 Percentage franked Tax rate Date of payment
2017
Interim 2017 ordinary 10.0	1,098 100% 30% 10 March 2017
Final 2016 ordinary 10.0	1,094 100% 30% 9 September 2016
Total amount	2,192
2016 Interim 2016 ordinary 10.0 Final 2015 ordinary 12.0 Total amount	1,066 100% 30% 11 March 2016 1,262 100% 30% 4 September 2015 2,328

Unrecognised amounts

After the balance sheet date the following dividends were proposed by the directors. The dividends have not been provided.

			Cents	Total amount	Percentage	Tax		Date of
			per share	$’000	franked	rate		payment
2017
Final	2017	ordinary	3.0	333	100%	30%	8	September 2017

The financial effect of these dividends have not been brought to account in the financial statements for the financial year ended 30 June 2017 and will be recognised in subsequent financial reports.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

19. Dividends (continued)

Dividend franking account

30% franking credits available to shareholders of Korvest Ltd for subsequent financial years	2017 2016 $’000 $‘000 7,761 9,567

The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:

(a) franking credits that will arise from the payment of the current tax liabilities;
(b) franking debits that will arise from the payment of dividends recognised as a liability at the year -end;
(c) franking credits that will arise from the receipt of dividends recognised as receivables by the tax consolidated group at the year-end; and
(d) franking credits that the entity may be prevented from distributing in subsequent years .

The ability to utilise the franking credits is dependent upon being able to declare dividends. The impact on the dividend franking account of dividends proposed after the reporting date but not recognised as a liability is to reduce it by $ 142,688 (2016: reduce by $469,918).

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

Taxation

This section outlines the tax accounting policies, current and deferred tax impacts, a reconciliation of profit before tax to the tax charge and the movement in deferred tax assets and liabilities.

20. Current and deferred taxes

Accounting policies

Tax expense comprises current and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

Current tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends.

Deferred tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss
temporary differences related to investments in subsidiaries, associates and jointly controlled entities to the extent that the group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future
taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and a ssets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Tax consolidation

The Company and the wholly owned Australian subsidiaries set out in Note 21 are part of a tax-consolidated group with Korvest Ltd as the head entity. The implementation date of the tax consolidation system for the tax-consolidated group was 1 March 2013.

Current tax expense (income), deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are allocated to the Company and recognised using a ‘group allocation’ approach. Deferred tax assets and deferred tax liabilities are measured by reference to the carrying amounts of the assets and liabilities in the Company’s balance sheet and their tax values applying under tax consolidation.

Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of a member of the tax consolidation group are assumed by the head entity of the tax-consolidated group and are recognised as amounts payable (receivable) to other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts. Any difference between these amounts is recognised by the member of the tax consolidated group as an equity contribution from or distribution to the head entity.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

20. Current and deferred taxes (continued)

Income tax recognised in the income statement

Current tax expense Current year Adjustments for prior year Deferred tax expense Origination and reversal of temporary differences - relating to current year - relating to prior year Total income tax expense in Statement if profit and loss and comprehensive income	2017 2016 $’000 $‘000 (701) 291 - (361)
	(701) (70) 42 103 - 359
	42 462 (659) 392

Numerical reconciliation between tax expense and pre-tax net profit

(Loss) / Profit before tax Income tax using the domestic corporation tax rate of 30% (2016:30%) Adjustments relating to prior years Non-deductible expenses Income tax expense on pre-tax net profit	2017 2016 $’000 $‘000 (2,237) 1,342
	(671) 403 - (3) 12 (8)
	(659) 392

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

Property, plant and equipment Inventories Provisions / accruals Other items Tax loss carried forward Tax (assets) / liabilities Set off of tax Net tax (assets) / liabilities	Assets Liabilities Net 2017 2016 2017 2016 2017 2016 ‘000 ‘000 ‘000 ‘000 ‘000 ‘000 - - 1,960 1,932 1,960 1,932 (423) (435) 470 471 47 36 (945) (995) - - (945) (995) (194) (212) 2 2 (192) (210) (952) (250) - - (952) (250)
	(2,514) (1,892) 2,432 2,405 (82) 513 2,432 1,892 (2,432) (1,892) - -
	(82) - - 513 (82) 513

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

20. Current and deferred taxes (continued)

Movement in deferred tax balances during the year

Property, plant and equipment Inventories Provisions / accruals Other items Tax loss carried forward Property, plant and equipment Inventories Provisions / accruals Other items Tax loss carried forward	Balance 30 June 16 Recognised in profit Recognised directly in equity	Balance 30 June 2017
	$’000 $’000 $’000	$’000
	(1,932) 36 (64)	(1,960)
	(36) (11) -	(47)
	995 (50) -	945
	210 (18) -	192
	250 702 -	952
	(513) 659 (64)	82
	Balance 30 June 15 Recognised in profit Relating to current year Adjustment relating to prior year $’000 $’000 $’000 (1,552) (32) (348) (184) 148 - 1,119 (124) - 316 (95) (11) 250 - -	Balance 30 June 16 $’000 (1,932) (36) 995 210 250
	(51) (103) (359)	(513)

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

Business Combinations

This section outlines the Group’s structure and changes thereto.

21. Investment in subsidiaries

Accounting policies

Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date – i.e. when control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable.

The Group measures goodwill at acquisition date as:

The fair value of the consideration transferred; plus
The recognised amount of any non-controlling interests in the acquiree; plus
If the business combination is achieved in stages , the fair value of the existing equi ty interest in the acquiree; less
The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

Any contingent consideration payable is recognised at fair value at the acquisition date. If contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss.

The fair value of contingent consideration arising in a business combination is calculated using the income approach based on the expected payment amounts and their associated probabilities (i.e. proba bility-weighted). Since the contingent consideration is long-term in nature, it is discounted to present value.

There were no business combinations in the current or prior years.

Basis of consolidation

These financial statements are the financial statements for all the entities that comprise the Group, being the Company and its subsidiaries as defined in Accounting Standard AASB10 Consolidated financial statements.

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its investment with the entity and has the ability affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra -group transactions, are eliminated in preparing the consolidated financial statements.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

21. Investments in subsidiaries (continued)

Group entities

*Group entities*
	Country of Incorporation	Ownership interest
		2017	2016
		%	%
Parent entity
Korvest Ltd	Australia
Subsidiaries
Power Step (Australia) Pty Ltd	Australia	100	100
Power Step (Chile) SpA	Chile	100	100
Titan Technologies (SE Asia) Pty Ltd	Australia	100	100
EzyStrut Pte. Ltd	Singapore	100	100

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

Other Notes

22. Key management personnel

The following were key management personnel of the Company at any time during the reporting period and unless otherwise indicated were key management personnel for the entire period:

Non-executive Directors

Graeme Billings (Chairman)
Peter Brodribb (Retired 28 July 2016)
Gary Francis
Gerard Hutchinson
Andrew Stobart (Appointed 1 August 2016)

Executive Directors

Alexander Kachellek (Managing Director)
Steven McGregor (Finance Director and Company Secretary)

Executives

Chris Hartwig (Executive General Manager, Sales & Marketing)
Gavin Christie (General Manager, Operations) – became a member of KMP on 18 January 2016
Paul Assaf (General Manager, Power Step & Titan Technologies)
Steven Evans (General Manager, Korvest Galvanisers) – ceased as a member of KMP on 18 January 2016

Key management personnel compensation policy

Apart from the details disclosed in this note, no director has entered into a material contract with the Company since the end of the previous financial year and there were no material contracts involving directors’ interes ts existing at year-end.

Key management personnel compensation

The key management personnel compensation comprised:

Short-term employee benefits Post-employment benefits Termination payments Long term benefits Share based payments	2017 2016 $ $ 1,600,137 1,720,511 161,586 157,002 - 115,646 40,626 4,080 17,170 2,995
	1,819,519 2,000,234

Individual directors and executives compensation disclosures

Information regarding individual directors’ and executives’ compensation and some equity instrument disclosure as permitted by Corporations Regulations 2M.3 is provided in the remuneration report section of the Directors’ report.

Apart from the details disclosed in this note, no director has entered into a material contract with the Company since the end of the previous year and there were no material contracts involving directors’ interests existing at year -end.

Korvest Ltd

Notes to the financial statements

For the year ended 30 June 2017

22. Key management personnel - (continued)

Other key management personnel transactions with the Group

From time to time, key management personnel of the Group, or their related entities, may purchase goods from the Group. These purchases are on the same terms and conditions as those entered into by other Group employees or customers and are trivial or domestic in nature.

23. Parent entity disclosures

As at, and throughout, the financial year ending 30 June 2017 the parent entity of the Group was Korvest Ltd.

Result of parent entity Profit / (Loss) for the period Other comprehensive income Total comprehensive income for the period Financial position of parent entity at year end Current Assets Total Assets Current Liabilities Total liabilities Share capital Reserves Retained earnings Total Equity	2017 2016 $’000 $’000 (1,617) 233 150 -
	(1,467) 233
	21,361 25,338
	35,598 42,208 5,400 6,349
	6,318 9,525 14,039 13,798 16,858 18,885 (1,617) -
	29,280 32,683

Guarantees entered into by the Company

Bank guarantees given by the Company in favour of customers amounted to $156,468 (2016: $66,109).

Contingent liabilities of the Company

The Company does not have any contingent liabilities other than the guarantees disclosed above.

Parent entity capital commitments for acquisition of property, plant and equipment

At 30 June 2017, the Company had contractual commitments for the acquisition of property, plant and equipment of $214,000 (2016: $nil).

24. Subsequent events

There has not arisen between the end of the year and the date of this report any item, transaction or event of a material nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group in subsequent financial periods.

Korvest Ltd

Directors’ declaration

For the year ended 30 June 2017

In the opinion of the Directors of Korvest Ltd (the Company):
(a) the consolidated financial statements and notes that are set out on pages 22 to 61 and the Remuneration report in the Directors’ report, set out on pages 8 to 18, are in accordance with the Corporations Act 2001 , including:
- (i) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its performance for the financial year ended on that date; and
- (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(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.
The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2017.
The Directors draw attention to the Basis of preparation note on page 26, which includes a statement of compliance with International Financial Reporting Standards.

Dated at Adelaide this 27th July 2017

Signed in accordance with resolution of directors:

==> picture [122 x 54] intentionally omitted <==

Graeme Billings Director

==> picture [83 x 61] intentionally omitted <==

Independent Auditor’s Report

To the shareholders of Korvest Ltd

Report on the audit of the Financial Report

Opinion

We have audited the Financial Report of Korvest Ltd (the Company).

In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including:

giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.

The Financial Report comprises:

Consolidated statement of financial position as at 30 June 2017
Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended
Notes including a summary of significant accounting policies
Directors’ Declaration.

The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year.

Basis for opinion

We conducted our audit in accordance with Australian Auditing Standards . We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

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 Group in accordance with 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 fulfilled our other ethical responsibilities in accordance with the Code.

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Liability limited by a scheme approved under Professional Standards Legislation.

==> picture [59 x 43] intentionally omitted <==

Key Audit Matters

The Key Audit Matter we identified is:

Valuation of inventories

Key Audit Matters are those matters that, in our professional judgment, 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.

Valuation of inventories ($10.7m)

Refer to Note 8 to the Financial Report.

The key audit matter

How the matter was addressed in our audit

The valuation of inventories is a key audit matter because of its highly specialised nature which results in the Group holding various inventory types that can be unique to the equipment they are manufactured for. This adds complexity to our evaluation of the Group’s assessment of obsolescence and net realisable value (NRV) of inventories.

We particularly focused on those estimates listed below which significantly impact the valuation:

Expected selling price of inventory.
Ageing of aged inventory.
Future inventory usage estimates.

In assessing this key audit matter, we used senior team members who understand the Group’s business, industry and the relevant economic environment.

Our procedures included:

We tested the controls relevant to management’s valuation of inventories, including authorisation of key inputs such as inventory cost, expected selling price of inventory and inventory purchased and sold during the year.
We analysed the future selling price and resulting gross margin for each product to identify evidence of negative gross margin and compared this to the inventory obsolescence provision.
We obtained management’s calculation for the inventory obsolescence provision, including the ageing of inventory, and considered it against the Group’s accounting policies, historic sales trends, analysis of slow moving inventory and future usage estimates.

==> picture [59 x 43] intentionally omitted <==

Other Information

Other Information is financial and non-financial information in Korvest’s annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information.

The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ Report, the Remuneration Report included within the Directors’ Report and the ASX Additional Information. There were no reports expected to be made available to us after the date of the Auditor's Report.

Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.

In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we 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.

We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report.

Responsibilities of the Directors for the Financial Report

The Directors are responsible for:

preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error
assessing the Group’s ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the Financial Report

Our objective is:

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. They 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.

A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar2.pdf.

==> picture [59 x 43] intentionally omitted <==

This description forms part of our Auditor’s Report.

Report on the Remuneration Report

Opinion

In our opinion, the Remuneration Report of Korvest Ltd for the year ended 30 June 2017 complies with Section 300A of the Corporations Act 2001 .

Directors’ 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 responsibilities

We have audited the Remuneration Report included in the Directors’ report for the year ended 30 June 2017.

Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards .

KPMG

Scott Fleming Partner

Adelaide 27 July 2017

==> picture [90 x 67] intentionally omitted <==

Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001

To the Directors of Korvest Limited

I declare that, to the best of my knowledge and belief, in relation to the audit of Korvest Limited for the financial year ended 30 June 2017 there have been:

i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
ii. no contraventions of any applicable code of professional conduct in relation to the audit

KPMG

Scott Fleming Partner

Adelaide

27 July 2017

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Liability limited by a scheme approved under

Professional Standards Legislation.

Korvest Ltd

ASX Additional information

Additional information required by the Australian Securities Exchange Limited Listing Rules and not disclosed elsewhere in this report is set out below.

Shareholdings (as at 25 July 2017)

Substantial shareholders

The number of shares held by substantial shareholders and their associates are set out below:

Shareholder		Number
Colonial First State Asset Management (Australia) Limited	10.37%	1,150,462
Perpetual Limited	8.98%	997,060
Donald Cant Pty Ltd	5.51%	611,759
Voting rights
*Ordinary shares*

Refer to note 18 in the financial statements.

Options

Refer to note 10 in the financial statements.

Distribution of equity security holders

Category	NUMBER OF EQUITY SECURITY HOLDERS
	Total Holders Units % Issued Capital
1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over	790 298,700 2.69 701 1,775,204 16.00 173 1,279,101 11.53 138 3,399,453 30.63 9 4,345,514 39.15
	1,811 11,097,972 100

The number of shareholders holding less than a marketable parcel of ordinary shares is 203.

Securities Exchange

The Company is listed on the Australian Securities Exchange. The Home exchange is Adelaide.

Other information

Korvest Ltd, incorporated and domiciled in Australia, is a publicly listed company limited by shares.

On Market Buy Back

There is no current on-market buy back.

Korvest Ltd

ASX Additional information

For the year ended 30 June 2017

Twenty largest shareholders

Twenty largest shareholders
Name	Number of ordinary Shares held Percentage of capital held
Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited Donald Cant Pty Ltd J P Morgan Nominees Australia Limited De Bruin Securities Pty Ltd Brazil Farming Pty Ltd Ace Property Holdings Pty Ltd Angueline Capital Pty Limited Brazil Farming Pty Ltd National Nominees Limited Creative Living (Qld) Pty Ltd South Hong Nominees Pty Ltd Allegro Two Super Fund Pty Ltd Rathvale Pty Limited Gotterdamerung Pty Limited M&R Byrne & Associates Pty Ltd Mrs Helen Elizabeth Rollinson Mr David Philip Rickards + Mrs Kerry Anne Rickards Mr William Francis Cannon Ms Nina Tschernykow	1,179,789 10.63 999,713 9.01 611,759 5.51 514,003 4.63 348,638 3.14 237,058 2.14 180,000 1.62 150,000 1.35 124,554 1.12 96,689 0.87 90,000 0.81 90,000 0.81 89,626 0.81 89,358 0.81 84,327 0.76 82,122 0.74 66,633 0.60 65,000 0.59 64,213 0.58 60,720 0.55
	5,224,202 47.08

Offices and officers

Company Secretary

Steven John William McGregor BA(Acc), CA, AGIA, ACIS

Principal Registered Office

Korvest Ltd 580 Prospect Road Kilburn, South Australia, 5084 Ph: (08) 8360 4500 Fax: (08) 8360 4599

Locations of Share Registry

Adelaide

Computershare Investor Services Pty Ltd Level 5 115 Grenfell Street Adelaide, South Australia, 5000

Ph: 1300 556 161 (within Australia) or +61 3 9415 4000 (outside Australia)

AI assistant

KORVEST LTD — Annual Report 2017

65199_rns_2017-07-26_d7f3c749-0b7e-4b36-9bb6-c4169eced2e9.pdf

Appendix 4E

Korvest Ltd ABN 20 007 698 106

Preliminary Final Report Financial Year Ended 30 June 2017

Results for announcement to the market:

Annual Report

Table of Contents

Directors’ report

DIRECTORS

Directors’ Report

For the year ended 30 June 2017

COMPANY SECRETARY

RETIREMENT AND RE-ELECTIONS

DIRECTORS’ MEETINGS

FINANCIAL RESULTS

Directors’ Report

For the year ended 30 June 2017

DIVIDENDS

Declared after end of year

STRATEGY AND FUTURE PERFORMANCE

Directors’ Report

For the year ended 30 June 2017

PRINCIPAL ACTIVITIES AND REVIEW OF OPERATIONS

Industrial Products

Production

Risk

SIGNIFICANT CHANGES

Directors’ Report

For the year ended 30 June 2017

EVENTS SUBSEQUENT TO REPORTING DATE

LIKELY DEVELOPMENTS

DIRECTORS AND OFFICERS INSURANCE

REMUNERATION REPORT – Audited

Principles of compensation

Fixed compensation

Performance linked compensation

Consequences of performance on shareholder wealth

Short-term incentive bonus

Remuneration Report

For the year ended 30 June 2017

Long-term incentive bonus

Service contracts

Remuneration Report

Services from remuneration consultants

Non-executive directors

Remuneration Report

For the year ended 30 June 2017

Directors and Executive Remuneration

Remuneration Report

For the year ended 30 June 2017

Remuneration Report

For the year ended 30 June 2017

Options and rights over equity instruments granted as compensation during the reporting period

Exercise of options granted as compensation

Remuneration Report

For the year ended 30 June 2017

Analysis of options and rights over equity instruments granted as compensation

Remuneration Report

For the year ended 30 June 2017

Analysis of movements in options and rights granted as compensation

Remuneration Report

For the year ended 30 June 2017

Options and rights over equity instruments

Remuneration Report

For the year ended 30 June 2017

Movements in shares

Remuneration Report

For the year ended 30 June 2017

Analysis of bonuses included in remuneration

DIRECTORS’ INTERESTS

NON-AUDIT SERVICES

LEAD AUDITOR’S INDEPENDENCE DECLARATION

Remuneration Report

For the year ended 30 June 2017

ROUNDING OFF

CORPORATE GOVERNANCE

5 Year Summary

Financial Statements

KORVEST LTD Annual Report 2017