TIMAH RESOURCES LIMITED — Annual Report 2016

Aug 29, 2016

Timah Resources Limited ABN 69 123 981 537 and Controlled Entity Financial report for the year ended 30 June 2016

APPENDIX 4E – PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2016

Results for Announcement to the Market

	2016	2015
Key Information	RM’000	RM’000	% Change
Revenue from ordinary activities	26,306	18,692	40.7
(Loss)/Profit after tax from ordinary	(14,582)	198	(7364)
activities attributable to members
Net profit attributable to members	(14,582)	198	(7364)
Net Tangible Assets per Share
		2016	2015
		RM/share	RM/share
Net tangible assets per share		0.16	0.09

Control Gained or Lost over Entities in the Year

On 16[th] September 2015, the company acquired 100% of the issued capital of Mistral Engineering Sdn Bhd (MISTRAL). MISTRAL contributed RM2,402,605 of profit to the Group’s consolidated profit from ordinary activities during the period.

Dividend Reinvestment Plan

There was no dividend reinvestment plan in effect during the financial year.

Review of Operations

During the period, the Company was actively engaged in the acquisition of Mistral Engineering Sdn. Bhd (“Mistral”), a biogas renewable energy company with a plant in Sandakan, Sabah, Malaysia. The acquisition was successfully completed on 16[th] September 2015 with Mistral becoming a wholly owned subsidiary of the Company. Simultaneously with the acquisition, the Company was delisted from the NSX and admitted to the official list of the ASX.

Mistral has been actively upgrading its biogas power plant for connection to the grid under the Malaysian Biogas Feed-in Tariff scheme. At the date of this report, the construction and upgrading of the biogas power plant has been completed. Mistral is now performing all necessary testing on the biogas power plant to achieve commissioning for grid connection.

After taking into account the lower than expected carbon emission reductions and the rising emission reduction monitoring costs coupled with the EU’s (European Union) lack of interest in purchasing emission reductions, Mistral mutually terminated its Emission Reductions Purchase Agreement with NE Climate (‘NE’) in consideration of a compensation payment of RM2,000,001 from NE.

Additional revenue was derived during the period from the sales of sludge oil skimmed from the Palm Oil Mill Effluent.

1

Although the Group achieved a consolidated profit from ordinary activities of RM 3,266,322 during the period, the goodwill impaired as a result of the reverse acquisition of Timah has resulted in an overall loss of RM 14,582,282 during the period.

Status of Audit

The 30 June 2016 financial statements and accompanying notes for Timah Resources Limited are in the process of being audited and are not subject to any disputes or qualifications.

2

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 June 2016

Note Revenue 2 Cost of sales Gross profit Other income 2 Administrative expenses Finance costs Impairment of goodwill Loss before income tax Income tax (expense)/benefit (Loss)/Profit for the period Other comprehensive income: Exchange differences on translation of foreign operations Total comprehensive income for the period Earnings per share – basic earnings per share (cents) – diluted earnings per share (cents)	Consolidated Group 2016 2015 RM’000 RM’000 20,070 18,271 (19,896) (17,928) 174 343 6,236 421 (652) (152) (1,238) (809) (17,849) -
	(13,329) (197) (1,253) 395
	(14,582) 198 (102) -
	(14,683) 198
	(17.73) 0.25 (17.73) 0.25

3

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016

Note ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Other assets Inventories TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Property, plant and equipment Deferred tax assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Borrowings TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Trade and other payables Borrowings Deferred tax liabilities TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital 3 Foreign currency translation reserve Retained earnings TOTAL EQUITY	Consolidated Group 2016 2015 RM’000 RM’000 8,479 739 1,224 43 92 428 30 9
	9,825 1,219
	39,741 25,352 499 517 - 913
	40,240 26,782
	50,065 28,001
	905 721 1,650 1,650
	2,555 2,371
	22,670 7,528 9,087 10,737 341 -
	32,098 18,265
	34,653 20,636
	15,412 7,365
	31,981 9,250 (102) - (16,467) (1,885)
	15,412 7,365

4

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016

Consolidated Group Balance at 1 July 2014 Comprehensive income Profit for the period Transactions with owners, in their capacity as owners, and other transfers Shares issued during the period Balance at 30 June 2015 Balance at 1 July 2015 Comprehensive income Loss for the period Foreign exchange translation difference Transactions with owners, in their capacity as owners, and other transfers Shares issued during the period Equity raising costs Balance at 30 June 2016	Ordinary Share Capital Retained Earnings Foreign Currency Translation Reserve Total RM’000 RM’000 RM’000 RM’000 250 (2,083) - (1,833) - 198 - 198 9,000 - - 9,000
	9,250 (1,885) - 7,365
	9,250 (1,885) - 7,365 - (14,582) - (14,582) - - (102) (102) 22,861 - - 22,861 (130) (130)
	31,981 (16,467) (102) 15,412

5

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016

30 JUNE 2016
CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Finance costs Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of non-current assets Payment for construction assets Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Repayment of borrowings Proceeds from issue of shares Equity raising costs Advances from / (repayment to) holding company Net cash provided by financing activities Net increase in cash held Cash and cash equivalents at beginning of period Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of period	Consolidated Group 2016 2015 RM’000 RM’000 3,556 2,403 (3,019) (1,861) 100 13 (1,238) (809)
	(601)	(254)
	- (11,599)	(2,673) -
	(11,599)	(2,673)
	(1,650) 6,490 (130) 15,143	(1,664) 9,000 - (3,769)
	19,853	3,567
	7,653 739 87	640 99 -
	8,479	739

6

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of Preparation

These general purpose financial statements have been prepared in accordance with the Corporations Act 2001 , Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board and International Financial Reporting Standards as issued by the International Accounting Standards Board. The Group a for-profit entity for financial reporting purposes under Australian Accounting Standards. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless otherwise stated.

Except for cash flow information, the financial statements have been prepared on an accrual basis and are based on historical cost, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities.

b. Accounting Policies

The Group has adopted the following accounting policies upon the acquisition of Mistral. These accounting policies are in addition to those applied in the most recent annual financial statements of Timah.

i) Functional and Presentation Currency

The functional currency of each of the group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Malaysian Ringgit which is the parent entity’s functional and presentation currency.

ii) Principles of Consolidation

The consolidated financial statements incorporate all of the assets, liabilities and results of the parent and its subsidiary. A subsidiary is an entity the parent controls. The parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group.

Equity interests in a subsidiary not attributable, directly or indirectly, to the Group are presented as “non-controlling interests”. The Group initially recognises non-controlling interests that are present ownership interests in subsidiaries and are entitled to a proportionate share of the subsidiary’s net assets on liquidation at either fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net assets. Subsequent to initial recognition, noncontrolling interests are attributed their share of profit or loss and each component of other comprehensive income. Non-controlling interests are shown separately within the equity section of the statement of financial position and statement of comprehensive income.

7

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The consolidated financial statements have been prepared using reverse acquisition accounting. In reverse acquisition accounting, the cost of the business combination is deemed to have been incurred by the legal subsidiary Mistral (the acquirer for accounting purposes) in the form of equity instruments issued to the owners of the legal parent, Timah (the acquire for accounting purposes).

iii) Property, Plant and Equipment

All items of property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Such cost includes the cost of replacing parts of the property, plant and equipment and borrowings costs for long-term construction projects if the recognition criteria are met.

Subsequent to recognition, property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred.

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:

Buildings and infrastructure	5% - 7%
Heavy equipment, plant and machinery	6%	-
	10%
Furniture, fittings and equipment	10%

Assets under construction are not depreciated as these assets are not yet available for use.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

The residual value, useful life and depreciation method are reviewed at each financial year-end, and adjusted prospectively, if appropriate.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the profit or loss when the asset is derecognised.

iv) Impairment of Non-Financial Assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when an annual impairment assessment for an asset is required, the Group makes an estimate of the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units (“CGU”)).

8

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In assessing value in use, the estimated future cash flows expected to be generated by the asset 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. Where the carrying amount of an asset exceeds its recoverable amount, the asset is written down to its recoverable amount.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised previously. Such reversal is recognised in profit or loss unless the asset is measured at revalued amount, in which case the reversal is treated as a revaluation increase.

v) Loans and Borrowings

Loans and borrowings and payables are recognised initially at net of directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.

This category generally applies to interest-bearing loans and borrowings.

vi) Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of consideration received or receivable.

Revenue from the sale of electricity is recognised upon transfer of significant risks and rewards of ownership to the buyer. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.

vii) Service Concession Agreements

Mistral and Sabah Electricity Sdn. Bhd. (“SESB”) entered into a Renewable Energy Power Purchase Agreement on 1 April 2015 (“REPPA”) to design, construct, own, operate and maintain a Renewable Energy Power Plant (“the Facilities”), to sell and deliver electrical energy to SESB under the Feed-In Tariff Program.

In accordance to the terms of the REPPA, SESB agrees to purchase the Annual Baseline Energy generate from the Facilities at a fixed tariff of 16 years from the commercial operation date.

9

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue

The Group recognises revenue from the construction of the Facilities in accordance with its accounting policy for construction contracts set out in Note 1 (h) below. Where the Group performs more than one service under the arrangement, consideration received or receivable is allocated to the components by reference to the relative fair values of the services delivered, when the amounts are separately identified.

Financial Assets

The Group recognises the consideration received or receivable as a financial asset to the extent that it has an unconditional right to receive cash or another financial asset for the construction services.

viii) Construction contracts

Where the outcome of a construction contract can be reliably estimated, contract revenue and contract costs are recognised as revenue expenses respectively by using the stage of completion method. The stage of completion is measured by reference to the proportion of contract costs incurred for work performed to date to the estimated total contract costs.

Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that are likely to be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.

When it is possible that total contract costs will exceed total contract revenues, the expected loss is recognised as an expense immediately.

Contract revenue comprises the initial amount of revenue agreed in the contract and variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenues and they are capable of being reliably measured.

When the total of costs incurred on construction contracts plus recognised profits (less recognised losses) exceeds progress billings, the balance is classified as amounts due from customers on contracts. When progress billings exceed costs incurred plus, recognised profits (less recognised losses), the balance is classified as amounts due to customers on contracts.

ix) Foreign Currency Transactions and Balances

Transaction and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences arising on the translation of monetary items are recognised in the profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge.

Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the gain or loss is directly recognised in other comprehensive income, otherwise the exchange difference is recognised in the statement of profit or loss.

10

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Group Companies

The financial results and position of foreign operations, whose functional currency is different from the Group’s presentation currency, are translated as follows:

• assets and liabilities are translated at exchange rates prevailing at the end of the reporting period;

• income and expenses are translated at average exchange rates for the period; and

• retained earnings are translated at the exchange rates prevailing at the date of the transaction.

Exchange differences arising on translation of foreign operations with functional currencies other than Australian dollars are recognised in other comprehensive income and included in the foreign currency translation reserve in the statement of financial position. The cumulative amount of these differences is reclassified into profit or loss in the period in which the operation is disposed of.

NOTE 2: REVENUE

E 2: REVENUE	E 2: REVENUE
Consolidated Group
	2016	2015
	RM’000	RM’000
Revenue:
Sales of renewable energy	2,358	2,403
Construction of services	17,713	15,868
concession facilities
Other Income:
Sales of sludge oil	1,198	-
Interest income	1,815	421
Compensation for Emission
Reductions Purchase	1,899	-
Agreement termination
Debt forgiveness	1,322	-
Other income	1	-
	26,306	18,692
E 3: ISSUED CAPITAL
	No.	RM’000
Opening balance at 1 July 2015	80,252,626	9,250
Consideration shares issued for the acquisition of Mistral	85,500,000	16,371
	165,752,626	25,621
Less: Share consolidation 2:1	(82,876,306)	-
	82,876,320	25,621
Share issued during ASX IPO	10,605,000	6,490
Less: Costs directly attributable to the issue of ordinary	-	(130)
shares
Closing balance at 30 June 2016	93,481,320	31,981

NOTE 3: ISSUED CAPITAL

11

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016

NOTE 4: BUSINESS COMBINATION

On 16th September 2015, the Company acquired 100% of the issued capital of Mistral, a biogas renewable energy company incorporated in Malaysia. The acquisition provides existing shareholders of the Company the opportunity to participate in the business opportunities of Mistral.

The acquisition is part of the Group’s overall strategy to venture into the renewable energy business.

The acquisition was achieved by issuing 85,500,000 ordinary shares in the Company to the existing shareholders of Mistral, a 2:1 share consolidation and an Initial Public Offer (IPO) listing on the ASX. The existing shareholders of Mistral subscribed 10,000,000 consolidated ordinary shares in the IPO.

Upon completion, the previous shareholders of the Company hold 38.49% whilst the shareholders of Mistral hold 61.51%. For accounting purposes the acquisition is accounted for as a reverse acquisition resulting in a goodwill of RM 17,849,000 which was fully impaired during the period.

Purchase Consideration Less: Fair value at acquisition date: Fixed assets Other receivables Cash and cash equivalents Trade and other payables Fair value of net assets acquired Goodwill Purchase Consideration	RM’000 16,371 1 27 6,569 (8,075) (1,478) 17,849 16,371

The acquisition resulted in a goodwill of MYR17,848,604 which has been written off in the period ended 30 June 2016 as disclosed in the prospectus. Goodwill represents the value of having an ASX listing status with all the capital raising avenues available.

Acquisition costs of RM999,449 have been expensed. Capital raising costs of MYR129,286 associated with the acquisition and the IPO have been deducted from the amount of capital raised.

NOTE 5: OPERATING SEGMENTS

The Group operates in a single segment being renewable energy generation in two geographical segments.

(i) Segment Performance Year Ended 30.6.2016 Revenue Debt forgiveness Total Segment Revenue Inter-Segment Elimination Total Group Revenue Segment Net (Loss)/Profit before tax	Australia Malaysia Total RM’000 RM’000 RM’000 87 24,896 24,983 1,323 - 1,323
	1,410 24,896 26,306 - - -
	1,410 24,896 26,306
	(16,985) 2,403 (14,582)

12

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016

NOTE 5: OPERATING SEGMENTS (CONTINUED)

Year Ended 30.6.2015 Revenue Total Segment Revenue Inter-Segment Elimination Total Group Revenue Segment Net Profit before tax (ii) Segment Assets As at 30.6.2016 Total Group Assets As at 30.06.2015 Total Group Assets (iii) Segment Liabilities As at 30.6.2016 Total Liabilities As at 30.06.2015 Total Liabilities		Australia Malaysia Total RM’000 RM’000 RM’000 - 18,692 18,692
		- 18,692 18,692 - - -
		- 18,692 18,692
		- 198 198
		6,041 44,024 50,065
		- 28,001 28,001
		396 34,256 34,652
		- 20,636 20,636

NOTE 6: EVENTS AFTER BALANCE SHEET DATE

There have been no other subsequent events that would have a material impact on the financial report for the year ended 30 June 2016.

13