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10. Non-Financial Assets and Liabilities

a. Property, plant and equipment

Property, plant and equipment - Part I

June
2020
$'000

June
2019
$'000

Plant and equipment

Cost

136,232

136,287

Accumulated depreciation

-113,636

-104,546

22,596

31,741

Asset under construction

Assets under construction

3,756

1,663

3,756

1,663

Total property, plant and equipment

26,352

33,404

Property, plant and equipment - Part II

Plant and equipment
$'000

Assets under construction
$'000

Total
$'000

Year ended 30 June 2020

Opening net book amount

31,741

1,663

33,404

Additions

197

4,756

4,953

Transfers

2,683

-2,663

20

Depreciation charge

-11,348

-

-11,348

Disposals

-677

-

-677

Closing net book amount

22,596

3,756

26,352

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

-

-400

Closing net book amount

31,741

1,663

33,404

(i) Non-current assets pledged as security

Refer to note 13 for information on non-current assets pledged as security by the Group.

b. Right-of-use assets

Right-of-use assets - Part I

June
2020
$'000

1 July
2019
$'000

Land

Gross value

29,086

-

Accumulated depreciation

-1,855

-

27,231

-

Buildings

Gross value

122,037

-

Accumulated depreciation

-12,869

-

109,168

-

Other plant and equipment

Gross value

1,729

-

Accumulated depreciation

-633

-

1,066

-

Total right-of-use assets

137,465

-

Right-of-use assets - Part II

Land

Buildings

Other plant and equipment

Total

$'000

$'000

$'000

$'000

Year ended 30 June 2020

Opening net book amount

-

-

-

-

Implementation of AASB 116

28,955

118,999

1,729

149,683

Additions

-

-

-

-

Remeasurement

131

3,038

-

3,169

Depreciation charge

-1,855

-12,869

-663

-15,387

Closing net book amount

27,231

109,168

1,066

137,465

As per note 1(a)(ii), the Group implemented AASB 116 effective 1 July 2019. The Group leases various property, plant and equipment in South and Western Australia.

c. 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.

Unpaid share capital

June
2020
$'000

June
2019
$'000

Unpaid share capital

Current

11,000

11,000

Non current

10,971

21,671

21,971

32,671

d. 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 based upon their salary, years of service and accrual rate

(ii) Defined benefit pension plan

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 2020 was carried out by David O'Keefe, Fellow of the Institute of Actuaries of Australia, of ALEA Actuarial Consulting Pty Limited in June 2020.

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:

Statement of financial position amount

Present value of obligation
$'000

Fair value of plan assets
$'000

Net amount
$'000

1 July 2018

-5,752

6,372

620

Current service cost

-130

-

-130

Interest (expense)/income

-119

-

-119

Expected return on plan assets

-

200

200

Total amount recognised in profit or loss

-249

200

-49

Remeasurements

Gain/(loss) from change in financial assumptions

-336

-

-336

Experience gains/(losses)

-28

115

87

Total amount recognised in other comprehensive income

-364

115

-249

Contributions:

Employers

-

438

438

Payments from plan:

Benefit payments

1,024

-1,024

-

30 June 2019

-5,341

6,101

760

1 July 2019

-5,341

6,101

760

Current service cost

-75

-

-75

Interest (expense)/income

-96

-

-96

Expected return on plan assets

-

123

123

Total amount recognised in profit or loss

-171

123

-48

Remeasurements

Gain/(loss) from change in financial assumptions

-223

-

-223

Experience gains/(losses)

-27

-263

-290

Total amount recognised in other comprehensive income

-250

-263

-513

Contributions:

Employers

-

133

133

Payments from plan:

Benefit payments

642

-642

-

30 June 2020

-5,120

5,452

332

Contributions by the Company and its controlled entities to the defined benefits plan are based on 9.5% of all defined members' salaries for the year ended 30 June 2020. 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 22 November 2018 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:

Post-employment benefits

2020

2019

Australia

Australia

Discount rate

1.3%

2.1%

Salary growth rate

4.0%

4.0%

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

2020

2019

2020

2019

2020

2019

Discount rate

+ ( - ) 0.5%

+ ( - ) 0.5%

4,979,000

5,182,000

5,268,000

5,514,000

Future salary increase

+ ( - ) 0.5%

+ ( - ) 0.5%

5,264,000

5,509,000

4,981,000

5,185,000

Balance sheet amounts

The major categories of plan assets are as follows:

Balance sheet amounts

30 June 2020

30 June 2019

Quoted
$'000

Un-
quoted
$'000

Total
$'000

in %

Quoted
$'000

Un-quoted
$'000

Total
$'000

in %

Equity instruments

2,372

-

2,372

43.5%

2,654

-

2,654

43.5%

Debt instruments

1,963

-

1,963

36.0%

2,196

-

2,196

36.0%

Property

349

-

349

6.4%

390

-

390

6.4%

Other securities

768

-

768

14.1%

861

-

861

14.1%

Total

5,452

-

5,452

100.0%

6,101

-

6,101

100.0%

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 underperform 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 contributions

The weighted average duration of the defined benefit obligation is 5 years (2019: 6 years). The expected maturity analysis of discounted defined benefit obligations is as follows:

Defined benefit

Less than
a year
$'000

Between
1 - 2 years
$'000

Between
2 - 5 years
$'000

Over 5 years
$'000

Total
$'000

30 June 2020

Defined benefit obligation

-

4,049

325

249

4,623

30 June 2019

Defined benefit obligation

-

4,028

470

626

5,124

(v) Amounts recognised in profit or loss

The amounts recognised in profit or loss are as follows:

Amounts recognised in profit or loss

June
2020
$'000

June
2019
$'000

Current service cost

75

130

Interest cost

96

119

Expected return on plan assets

-123

-200

Total included in employee benefits expense

48

49

Actual return on plan assets

-140

315

(vi) Amounts recognised in other comprehensive income

Amounts recognised in other comprehensive income

June
2020
$'000

June
2019
$'000

Actuarial (loss) recognised in the year

-513

-249

Cumulative actuarial (losses) recognised in other comprehensive income

-3,841

-3,328

e. Provisions

Provisions

June
2020

June
2019

Current
$'000

Non-
current
$'000

Total
$'000

Current
$'000

Non-
current
$'000

Total
$'000

Employee benefits

45,826

4,632

50,458

34,581

4,846

39,427

Self insured workers compensation

1,465

1,789

3,254

1,676

1,754

3,430

47,291

6,421

53,712

36,257

6,600

42,857

(i) Information about individual provisions and significant estimates

Employee benefits, including on costs

The current portion includes all unconditional additional leave, 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 pro-rata 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 current 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 in December 2018.

(ii) Movement in provision

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

Movement in provision

2020

Self insured workers compensation
$'000

Total
$'000

Carrying amount at start of year

3,430

3,430

Provision made during the year

2,011

2,011

Provision used during the year

-2,187

-2,187

Carrying amount at end of year

3,254

3,254

2019

Carrying amount at start of year

10,090

10,226

Provision made during the year

898

898

Provision used during the year

-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

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.

Leave obligations

June
2020
$'000

June
2019
$'000

Current leave obligations expected to be settled after 12 months

30,836

25,348

f. 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.