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10. Non-Financial Assets and Liabilities

ASC PTY LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -CONTINUED
For the year ended 30 June 2019

a. Deferred tax balances

Net position as presented in the statement of financial position

June 2019 $'000

June 2018 $'000

Net deferred tax

Deferred tax asset

15,951

18,223

Deferred tax liability

(1,140)

(1,165)

14,811

17,058

(i) Deferred tax assets

June 2019 $'000

June 2018 $'000

The balance comprises temporary differences attributable to:

Employee benefits

11,953

11,392

Property, plant and equipment

1,267

1,400

Project recognised profit

1,601

4,233

Sundry items

1,130

1,198

15,951

18,223

Movements

Property, plant and equipment $'000

Employee benefits $'000

Project recognised profit $'000

Sundry items $'000

Total $'000

At 1 July 2017

969

10,651

5,979

1,393

18,992

(Charged)/credited - to profit or loss

431

741

(1,746)

(195)

(769)

At 30 June 2018

1,400

11,392

4,233

1,198

18,223

(Charged)/credited - to profit or loss

(133)

561

(2,632)

(68)

(2,272)

At 30 June 2019

1,267

11,953

1,601

1,130

15,951

(ii) Deferred tax liabilities

June 2019 $'000

June 2018 $'000

The balance comprises temporary differences attributable to:

Net pension assets

228

233

Sundry items

912

932

1,140

1,165

Movements

Net pension assets $'000

Sundry items $'000

Total $'000

At 1 July 2017

122

1,038

1,160

Charged/(credited) - profit or loss

111

(106)

5

At 30 June 2018

233

932

1,165

Charged/(credited) - profit or loss

(5)

(20)

(25)

At 30 June 2019

228

912

1,140

(iii) Net Deferred tax

June 2019 $'000

June 2019 $'000

The net balance comprises temporary differences attributable to:

Employee benefits

11,953

11,392

Project recognised profit

1,601

4,233

Property, plant and equipment

1,267

1,400

Net pension asset

(228)

(233)

Sundry items

218

266

14,811

17,058

b. Inventories

June 2019 $'000

June 2019 $'000

Current assets

Raw materials and stores (at lower of cost or net realisable value)

112

287

Amounts recognised in profit or loss
Reversal of write-downs of inventories to net realisable value recognised during the year ended 30 June 2019amounted to $0.6 million (2018: $0.5 million write down).

c. Property, plant and equipment

June 2019 $'000

June 20198 $'000

Plant and equipment

Gross value

133,471

127,530

Accumulated depreciation

(101,730)

(87,295)

31,741

40,235

Asset under construction

Assets under construction

1,663

2,937

1,663

2,937

Total property, plant and equipment

33,404

43,172

Plant and equipment $'000

Assets under construction $'000

Total $'000

Year ended 30 June 2019

Opening net book amount

40,235

2,937

43,172

Additions

-

4,325

4,325

Transfers

5,958

(5,599)

359

Depreciation charge

(14,052)

-

(14,052)

Disposals

(400)

0

(400)

Closing net book amount

31,741

1,663

33,404

Year ended 30 June 2018

Opening net book amount

42,838

14,730

57,568

Additions

-

7,408

7,408

Transfers

5,891

(6,301)

(410)

Depreciation charge

(8,567)

-

(8,567)

Impairment loss

107

-

107

Disposals

-34

-12,900

-12,934

Closing net book amount

40,235

2,937

43,172

(i) Non-current assets pledged as security
Refer to note 16 for information on non-current assets pledged as security by the Group.

d. Unpaid share capital

The Company issued $55m in share capital to the shareholder in March 2017 as part of the separation of the ASC entities, discounted to current day value. This is to be received over 5 years.

June 2019 $'000

June 2018 $'000

Unpaid share capital

Current

11,000

11,000

Non current

21,671

31,668

32,671

42,668

e. Contract assets and liabilities

The Group has recognised the following assets and liabilities related to contract with customers

June 2019 $'000

June 2019 $'000

Contract assets

Collins Class Submarines

8,718

-

Maritime Services Group

1,118

-

9,836

-

The balance of contract assets represents amounts to be billed subsequent to revenue recognition. These amounts are billed as work in progress in accordance with agreed upon contractual terms at periodic intervals or upon achievement of contractual milestones.

June 2019 $'000

June 2018 $'000

Contract liabilities

Collins Class Submarines

51,932

41,815

Maritime Services Group

48,418

114,372

100,350

156,187

The balance of contract liabilities represent advances received, progress billings received in advance of the performance of contract activities and labour over recoveries.

f. Unsatisfied long term contracts

The following table shows unsatisfied performance obligations resulting from the following contracts.

June 2019 $'000

June 2018 $'000

Aggregate amount of transaction price that

are partially or fully unsatisfied as at 30 June.

Collins Class Submarines

519,481

-

Maritime Services Group

198,219

-

717,700

-

Management expects that 76% of the transaction price allocated to the unsatisfied contracts as at 30 June 2019 will be recognised as revenue during the next reporting period with the remaining 24% will be recognised beyond that.

g. Employee benefit obligations

(i) Superannuation plan
The consolidated entity contributes to the ASC Superannuation Fund (Fund) that provides for a combination of accumulation and defined benefits. Employees contribute to the Fund at various percentages of their gross income. The consolidated entity also contributes to the Fund at varying contribution rates depending on the category of fund membership of each member.

Members of the Fund are entitled to benefits on retirement, disability or death.

The trustee of the fund is Equity Trustees Limited. OneVue Super Member Administration Pty Ltd is the administrator of the fund.

The investment policies and strategies of the trustee of the Fund are to invest the assets of the Fund in a manner to ensure compliance with the Superannuation Industry (Supervision) Act and any other legislation. The trustee has formulated and given effect to an investment strategy that recognises the whole of the Fund's circumstances, including the risk and potential return of investments in relation to the Fund's investment objectives.

The investment strategy has regard to the diversification of the Fund's investments, the liquidity of its investments, its expected cash flow requirements and ability of the Fund to discharge its existing and prospective liabilities. The risk management policies of the Fund permits the investment in externally managed investment funds and prohibits direct investment in debt and equity securities and derivative instruments. For the defined benefit category of memberships, members are provided with a benefit upon their salary, years of service and accrual rate.

(ii) Defined benefit pension plans
The consolidated entity makes contributions to a defined benefit superannuation fund that provides defined benefits for employees on retirement. The fund provides defined benefits based on years of service and final average salary.

An actuarial assessment of the fund as at 30 June 2019 was carried out by David O'Keefe, Fellow of the Institute of Actuaries of Australia, of ALEA Actuarial Consulting Pty Limited in June 2019.

The actuary concluded that the assets of the defined benefit category of the fund are sufficient to meet all benefits payable in the event of the defined benefit category's termination, or the voluntary or compulsory termination of employment of each employee of the consolidated entity.

Statement of financial position amount
The amounts recognised in the statement of financial position and the movements in the net defined benefit obligation over the year as follows:

Present value of obligation $'000

Fair value of plan assets $'000

Net amount $'000

1 July 2017

(6,198)

6,605

407

Current service cost

(103)

0

(103)

Interest expense/(income)

(170)

0

(170)

Expected return on plan assets

0

211

211

Total amount recognised in profit or loss

(273)

211

(62)

Remeasurements

Experience (gains)/losses

36

(5)

31

Total amount recognised in other comprehensive income

36

(5)

31

Contributions:

Employers

0

244

244

Payments from plan:

Benefit payments

683

(683)

0

30 June 2018

(5,752)

6,372

620

1 July 2018

(5,752)

6,372

620

Current service cost

(130)

0

(130)

Interest expense/(income)

(119)

0

(119)

Expected return on plan assets

0

200

200

Total amount recognised in profit or loss

(249)

200

(49)

Remeasurements

(Gain)/loss from change in financial assumptions

(336)

0

(336)

Experience (gains)/losses

(28)

115

87

Total amount recognised in other comprehensive income

(364)

115

(249)

Contributions:

Employers

0

438

438

Payments from plan:

Benefit payments

1,024

(1,024)

0

30 June 2019

(5,341)

6,101

760

Contributions by the Company and its controlled entities to the defined benefits plan are based on 11% of all defined members' salaries for the year ended 30 June 2019. Actuarial assessments are made at no more than three yearly intervals. The last such full assessment was made as at 22 November 2018 and the next triennial review will be on 1 July 2021.

The objective of the funding is to ensure that the benefit entitlements of members and other beneficiaries are fully funded by the time they become payable. To achieve this objective, the actuary has adopted a method of funding benefits known as the aggregate funding method. The funding method seeks to have benefits funded by means of a total contribution which is expected to be a constant percentage of members' salaries over their working lifetimes.

Using the funding method described above and particular actuarial assumptions as to the plan's future performance (as detailed in the sections below), the actuary recommended in the actuarial review as at 30 June 2016 that a contribution needs to be made by the Company and its controlled entities to the Fund for employees who are members of the defined benefit plan. The recommendation of the actuary has been adopted by the Company and its controlled entities.

(iii) Post-employment benefits (pension and medical)
Significant estimate: actuarial assumptions and sensitivity
The significant actuarial assumptions were as follows:

2019 Australia %

2018 Australia %

Discount rate

2.10 %

3.30 %

Salary growth rate

4.00 %

4.00 %

Discount rate
Salary growth rate

The sensitivity of the defined benefit obligation to changes in the significant assumptions is:

Impact on defined benefit obligation

Change in assumption

Increase in assumption

Decrease in assumption

2019

2018

2019

2018

2019

2018

Discount rate

+ ( - ) 0.5%

+ ( - ) 0.5%

5,182,000

5,624,000

5,514,000

5,907,000

Future salary increase

+ ( - ) 0.5%

+ ( - ) 0.5%

5,509,000

5,905,000

5,185,000

5,624,000

Balance sheet amounts
The major categories of plan assets are as follows:

30 June 19

30-Jun-18

Quoted $'000

Un-quoted $'000

Total $'000

in %

Quoted $'000

Un-quoted $'000

Total $'000

in %

Equity instruments

2,654

-

2,654

43.50%

2,695

-

2,695

42.30%

Debt instruments

2,196

-

2,196

36.00%

2,383

-

2,383

37.40%

Property

390

-

390

6.40%

261

-

261

4.10%

Other securities

861

-

861

14.10%

1,033

-

1,033

16.20%

Total

6,101

-

6,101

100.00%

6,372

-

6,372

100.00%

Risk exposure
Through its defined benefit plan, the Group is exposed to a number of risks, the most significant of which are detailed below:

Asset volatility
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields. If plan assets under perform this yield, this will create a deficit. The plan holds a significant proportion of equities, which are expected to outperform corporate bonds in the long term while providing volatility and risk in the long term. To reduce the volatility within the investment strategy supporting the defined benefit assets, a 50/50 asset allocation (50% growth and 50% defensive assets) in the fund assets was introduced in 2015. KMPG's modelling indicated an investment return of 6-7% could be targeted using a 50/50 portfolio.

Changes in bond yields
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plan's bond holdings.

Inflation risks
The majority of the plans' defined benefit obligations are linked to salary inflation, and higher inflation will lead to higher liabilities. The majority of the plan's assets are either unaffected by or loosely correlated with inflation, meaning that an increase in inflation will also increase the deficit.

(iv) Defined benefit liability employer contributions
The weighted average duration of the defined benefit obligation is 6 years (2018: 6 years). The expected maturity analysis of discounted defined benefit obligations is as follows:

< 1 year $'000

1 - 2 years $'000

2 - 5 years $'000

Over 5 years $'000

Total $'000

30 June 19

Defined benefit obligation

-

4,028

470

626

5,124

30 June 18

Defined benefit obligation

-

4,735

537

721

5,993


(v) Amounts recognised in profit or loss
The amounts recognised in profit or loss are as follows:

June 2019 $'000

June 2018 $'000

Current service cost

130

103

Interest cost

119

170

Expected return on plan assets

(200)

(211)

Total included in employee benefits expense

49

62

Actual return on plan assets

315

206


(vi) Amounts recognised in other comprehensive income:

June 2019 $'000

June 2019 $'000

Actuarial (loss)/gain recognised in the year

(249)

31

Cumulative actuarial (losses) recognised in other comprehensive income

(3,328)

(3,079)

h. Provisions

June 2019

June 2019

Current $'000

Non-current $'000

Total $'000

Current $'000

Non-current $'000

Total $'000

Employee benefits

34,581

4,846

39,427

46,969

13,723

60,692

Terminations

-

-

-

136

-

136

Self insured workers compensation

1,676

1,754

3,430

2,646

7,444

10,090

36,257

6,600

42,857

49,751

21,167

70,918

(i) Information about individual provisions and significant estimates
Employee benefits, including on costs
The current portion includes all unconditional annual leave and long service leave entitlements including on costs where employees have completed the required period of service and also those where employees are entitled to prorata payments in certain circumstances.

The current portion includes the entire amount that the Group does not have an unconditional right to defer settlement.

The non-current portion represents the present value of the estimated future cash outflows of long service leave where there is no probability that the Group could have to pay out the provision within the next 12 months.

Self insured workers compensation
The consolidated entity is self insured for risks associated with workers' compensation for all staff in South Australia. A provision is raised when an incident occurs that may give rise to a workers' compensation claim. The curren \portion of the provision is expected to be settled in the next financial year. This estimate is based on historical claim information and any recent trends that may suggest future claims could differ from historical amounts.

The workers compensation provision of ASC Shipbuilding was transferred to Return to Work SA upon separation of ASC Shipbuilding from the ASC Group.


(ii) Movements in provisions
Movements in each class of provision during the financial year, other than employee benefits, are set out below:

2019

Termination $'000

Self insured workers compensation $'000

Total

Carrying amount at start of year

136

10,090

10,226

Provision made during the year

-

898

898

Provision used during the year

(136)

(1,992)

(2,128)

Liability transfer to Return to Work SA

-

(5,566)

(5,566)

Carrying amount at end of year

-

3,430

3,430

2018

Termination $'000

Self insured workers compensation $'000

Total

Carrying amount at start of year

-

7,650

7,650

Provision made during the year

136

5,086

5,222

Provision used during the year

-

(2,646)

(2,646)

Carrying amount at end of year

136

10,090

10,226

The current portion for employee benefits includes accrued annual leave and long service leave. For long service leave it covers all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances.

$34.6 million (2018: $47.0 million) is presented as current, since the Group does not have an unconditional right to defer settlement for those amounts.

However, based on past experience, the Group does not expect all employees to take the full amount of current accrued leave or require payment within the next 12 months.

June 2019 $'000

June 2018 $'000

Current leave obligations expected to be settled after 12 months

25,348

36,698

i. Recognised fair value measurements

(i) Fair value hierarchy
Disclosed fair values

The Group has a number of assets and liabilities which are not measured at fair value, but for which fair values are disclosed in the notes.

The carrying amounts of trade receivables, trade payables and interest and non-interest bearing liabilities are approximately their fair values.