2016 ANNUAL REPORT
About us
AJ Lucas is a leading provider of pipelines, specialist infrastructure,
construction and drilling services to the energy, water and wastewater,
resources and public infrastructure sectors. We are the largest supplier
of drilling and gas management services to Australia’s coal industry, and
a proven developer of unconventional hydrocarbon assets. This year we
reached significant milestones with the approval to drill, frac and flow test
wells at our jointly held licences in the UK. Read more >
CONTENTS
01 Our 3 Areas
02 Letter from the Chairman
05 Oil & Gas
08 Engineering & Construction
10 Drilling
12 Health, Safety, Environment & Quality
14 Financial Reports
81 Corporate Directory
2 AJ LUCAS GROUP LIMITED
2016 ANNUAL REPORT
Our 3 Areas
O P E R AT I N G B U S I N E S S U N I T S
I N V E S T M E N T
Drilling Services
(LDS)
Engineering &
Construction (LEC)
Oil & Gas
The major drilling
provider to the coal,
CSG coal mine degassing
and exploration drilling
sectors in Australia
Provides engineering and
construction services to
the coal, energy, water
and wastewater and
public utilities sectors
Leverages drilling expertise
to source early stage shale
gas and oil opportunities
and then prove up the
relevant reserves
Delivering intelligent and practical solutions to support
a sustainable Australia.
Largest acreage position in
Europe outside of majors
A focused provider of
surface to inseam (SIS)
coal mine gas extraction
and well field services
A strong pipeline
contractor with
complementary
infrastructure construction
capability including
Horizontal Directional
Drilling
Focused on unlocking
value in the untapped
unconventional oil and
gas resources of the UK
and Europe
0101
Letter from the
Chairman
“During the year a number of
capital management initiatives were
implemented as part of a funding
strategy developed to support the Group
over the medium term and maximise
potential returns to shareholders”
I am pleased to present my report as Chairman of your company.
Yet again, it has been a trying year for the two streams of
our business. For our UK shale gas investment the year was
predominantly consumed with prosecuting an appeal against the
decision of the Lancashire County Council to reject our application
to test the Bowland asset. In our Drilling and Pipeline operations in
Australia, the subdued activity in the markets in which we operate
has meant that the focus was on retaining our valuable client base
and continuing our focus on strong operating cost control and right
sizing the business to match prospective market demand for our
services. That said, the Australian businesses performed well with
underlying EBITDA increasing by 54.8% to $14.5 million, despite
a 13.5% decline in revenue to $125 million, primarily as a result of
the above initiatives. This performance ranked ahead of our peers
and demonstrates the quality of management and the regard in
which we are held with our core customers.
As part of the initiative to right size our cost base and to simplify
the management structure the board implemented a change in
senior management concurrent with the departure of Russell
Eggers as CEO whereby the three core business streams of Drilling,
Engineering and Construction and the UK Shale Gas investment
report directly to the Board.
During the period your Board implemented a funding strategy by
way of an equity raising and debt package that provided funds to
settle remaining legacy issues, provide working capital headroom
for our Australian businesses and meet the Groups planned
investment requirements in UK shale exploration activities over
the medium term.
Funding strategy
A number of capital management initiatives were implemented as
part of a funding strategy developed to support the Group over the
medium term and maximise potential returns to shareholders.
The entitlement offer completed in April 2016 successfully
raised $21 million. This was followed by the launch of the
new US$45 million senior secured loan note facility, of which
US$20 million remains undrawn. In addition, Kerogen, the
major shareholder and debt provider to the Group, agreed to
restructure and extend the maturity of its existing debt facilities to
December 2019.
Together, these initiatives have substantially improved liquidity,
reduced current principal repayment obligations and materially
reduced immediate debt servicing requirements with a
significant portion of servicing costs able to be deferred until
maturity in 2019. Additionally, the funding has allowed AJ Lucas
to settle in full the long standing liability to the Australian
Taxation Office, provided means to settle the final material
outstanding legal matter, and has provided working capital to the
Australian Businesses.
Most importantly, however these initiatives underpin AJ Lucas’
share of the funding to complete the two well program in the
Bowland Basin.
As previously announced the Company intends to recapitalise the
business with a further entitlement offer, the proceeds of which
will be used to repay at least $US25 million of the Kerogen facility.
UK Shale Gas
It was pleasing to have announced on 7 October that final planning
consent had been received from the UK Government to drill and
hydraulically stimulate up to four horizontal wells to test the
flow of gas at Cuadrilla’s Preston New Road exploration site in
Lancashire, UK. The UK Secretary of State for Communities and
Local Government (SOS) also advised he is minded to grant consent
for a similar application at the Roseacre Wood exploration site
pending further consultation on highway conditions. Once planning
02 AJ LUCAS GROUP LIMITED
2016 ANNUAL REPORT
“This [decision] is a watershed for
AJ Lucas and allows us to finally test the
flow of gas from the highly prospective
Bowland exploration licence ahead
of commercialism”
conditions have been discharged and the site constructed at
Preston New Road, drilling is expected to commence in the second
quarter of calendar year 2017 with an initial two wells drilled,
hydraulically fractured and ready to flow test by Q1 of calendar
year 2018.
This is a watershed for AJ Lucas and allows us to finally test the
flow of gas from the highly prospective Bowland exploration
licence ahead of commercialisation. Confirmation of flow will
result in Bowland becoming the largest onshore gas field in the
UK and a world-class resource. It is encouraging to see that the
UK Government supports moving forward with onshore shale
gas exploration as a means to provide an indigenous energy
source for the UK and reduce its reliance on imports. Our
operator Cuadrilla Resources has put together a programme to
undertake this exploration efficiently and safely with extensive
community consultation. It will indeed be a world-class exploration
programme and a precursor to an exciting and important
development for the UK economy and our Company.
A J Lucas recently completed a capital raising which along with
balance sheet repair and working capital headroom will fund the
company’s share of the drilling and testing program. The Bowland
license is also subject to a carry from Centrica Plc (Centrica),
the UK’s premier gas distribution company. Centrica will fund
£30.6 million of the cost of drilling and testing these initial
exploration wells and a further £46.7 million on appraisal and
development following performance criteria being met in testing
the upcoming wells.
In addition to this positive progress with respect to our UK assets,
Cuadrilla, in which the Company has a 45% interest, was awarded
18 additional tenements in the 14th Round of grants by the UK
government. Whilst these are exciting and prospective assets for
the company, no significant investment in their development is
planned before calendar year 2018.
Australian operations
The Australian operations, comprising the Group’s Drilling
division (“LDS”) and Engineering and Construction division
(“LEC”), performed above expectations under challenging
market conditions.
While revenue reduced by $4m, LDS’ underlying EBITDA improved
by $5.2m as a result of various productivity initiatives and exiting
some contracts that destroyed value. With limited signs of a
pick up in activity in the Coal sector, and the conclusion of a
key contract in the 4th quarter the division’s priority will be on
business development opportunities and controlling costs. To
this end the division has already embarked on new services for
the commercial gas extraction industry. This business has rebuilt
its reputation as a quality service provider with a fundamental
commitment to safety that will stand it in good stead in the
competitive market ahead.
The completion of the 300km Eastern Goldfields Pipeline project in
Western Australia and the award of the pipeline looping contract
as part of APA Group’s Northern Interconnect Expansion project
with our joint venture partner Spiecapag Australia Pty Limited,
contributed significantly to the LEC result for the year. While the
division’s underlying EBITDA was lower than the prior year, as a
result of lower revenues, it was pleasing to note that underlying
EBITDA margin increased to 15.1%.
03
LETTER FROM THE CHAIRMAN (continued)
The division will continue with its business model to partner
on tenders for major cross country pipeline projects, as well as
in it’s own right for small scale infrastructure works. The year
ahead will be challenging with little pipeline activity expected
however the division has undertaken considerable restructuring to
accommodate what is expected to be a quieter year.
coming year we intend to undertake a further entitlement offer to
further reduced our debt as detailed in our ASX announcement on
23 June 2016.
The Australian operations continue to operate in a difficult
environment with a leaner workforce positioning the business well
to take advantage of opportunities as they arise.
I would like to extend my appreciation to our staff for their
dedication and commitment in a trying environment. It is the
exceptional service they provide to our customers, in a safe and
efficient manner, that has underpinned the performance of the
Australian operations. On my part I am grateful to the Board
for their energies and experience in guiding management and
stepping up to the plate when required.
Phil Arnall
Chairman
People and Safety
It is pleasing to note that your company’s outstanding safety
performance has continued during the year under review. There
has not been a Lost Time Injury since December 2013. While the
Total Recordable Injury Frequency Rate (TRIFR) of 5.8 was a slight
increase on the prior year, it continued to be at the leading edge of
safety performance in the industry we operate in.
Safety is at the forefront of everything AJ Lucas does. The
recognition and mitigation of risk is a primary priority of
management with health and safety KPI’s embedded in all
strategic and project plans. Senior management continually review
performance, implement corrective actions where deficiencies are
identified and regularly report on performance to the Board.
This commitment and the outstanding performance in keeping
our staff safe is valued highly by our existing and potential
customers and holds us in good stead to continue winning work
with top tier customers.
In summary, your company is looking forward to progressing its
strategic world class investments in UK shale gas. The Group’s
share of funding for the two well program has been secured and
substantial improvements made to the Group’s liquidity. During the
04 AJ LUCAS GROUP LIMITED
2016 ANNUAL REPORT
Oil & Gas
Cuadrilla welcomes the decision by the Secretary of State for
Department for Communities and Local Government Sajid
Javid to grant planning consent for its applications to drill,
hydraulically fracture and test the flow of gas from up to four
exploration wells at its Preston New Road site in Lancashire.
Regarding a similar application for a proposed site at Roseacre
Wood, where the Secretary of State is minded to grant following
further consultation on highway conditions, Cuadrilla looks
forward to demonstrating that it will meet these requirements.
We are very confident that our operations will be safe and
responsible and the and the comprehensive site monitoring
programmes planned by ourselves, by regulators and
by independent academic institutions will in due course
conclusivley demonstrate this. Throughout our operations
communication and engagement with the local community
will remain a priority for us.
We have now accepted the award of further onshore
exploration licences issued by the UK Oil and Gas Authority.
These licences total approximatley 1,274km2 in area, and are
located in Yorkshire. Whilst our current operational focus
remains primarily in Lancashire, we will be undertaking
desktop studies for this new exploration acreage. This will
give us a very detailed understanding of the geology deep
underneath the licence areas, helping to assess where future
exploration sites can subsequently be located.
The year ahead will be a pivotal and exciting one for
Cuadrilla. Assessing the commercial viability of shale gas
production in the UK is a national imperative, as reliance
on imported gas to heat our homes, fuel our Industry and
generate electricity continues to rapidly grow. We are very
pleased that we can now start operations to make production
of UK shale gas a reality. I look forward to shareing positive
progress with regard to those operations.
Francis Egan
Cuadrilla CEO
Cuadrilla rig at Anna Road
05
Oil & Gas
Along with our partners, we hold
a preeminent position in the
developing UK shale gas market.
Business highlights
Bowland license (AJL’s effective beneficial interest of
46.85%) is the most advance shale gas asset in Europe
— Over 1000m thickness of shale and
associated lithologies
— Very close to pipeline infrastructure
— Partnership with Centrica Plc (owns British Gas
a residential and business energy and service
provider in UK)
Cuadrilla has been awarded 18 exploration licenses
under the UK government’s 14th round of grants during
the year, totalling approximately 1,274km2 in area.
Energy company Engie holds 30% of 7 of these licenses.
Globally, shale gas is expected to grow by 5.6% p.a. with
the share of shale gas in total production increasing
from just over 10% in 2014 to nearly a quarter by 2035.1
UK shale gas industry is important to restoring the UK’s
energy security
— UK domestic supplies are declining2
— Norway, a major supplier to the UK, also has
declining supplies2
— UK is increasingly a net importer of gas3
1 BP Energy Outlook 2016 edition;
2 BP Statistical Review of World Energy, 2015;
3 UKCS Oil and Gas Production Projections, DECC, 2015
06 AJ LUCAS GROUP LIMITED
2016 ANNUAL REPORT
Cuadrilla rig at Anna Road
Financials and other key data
Year ended 30 June
2013A
2014A
2015A
2016A
Cuadrilla
AJL interest
Carrying value ($m)
Direct exploration asset
Carrying value ($m)
43.7% 45.0% 45.0% 45.1%
106.2
104.0
95.8
87.6
6.3
10.8
16.5
18.3
Total carrying
value ($m)
102.1
98.3
120.5
124.5
Investment locations
Cuadrilla
Bowland Prospect
Bolney
Prospect
Does not include additional licences awarded to Cuadrilla
under the 14th round.
07
Engineering &
Construction
Lucas Engineering and Construction
is an industry leader in the delivery
of projects for major pipelines
and facilities for gas, water and
petroleum products, horizontal
directional drilling (HDD) and civil
construction for the water and
power industry.
Business highlights
More than 12 months Lost time injury (LTI) and medical
treatment incident (MTI) free
In excess of 1,000,000 man hours MTI and LTI free in our
Spiecapag Lucas Joint Venture
Excellent performance on the construction of APA’s
Eastern Goldfields Pipeline
Successful completion to date of part of the Victorian
Northern Interconnect expansion gas pipeline project
Completion of a number of smaller scale infrastructure
projects in electrical and fuel distribution networks
Spiecapag Lucas Joint Venture was awarded the 2015
APGA Environment Award for its Front Foot Package –
Fauna Management on APA’s Goldfield Pipeline
08 AJ LUCAS GROUP LIMITED
2016 ANNUAL REPORT
Safety focus – from beginning to end
Pipelines
The safety of our people is management’s primary concern and
focus. With a goal of zero incidents with respect to personnel
and the environment our result indicates that our approach of
talking safety, thinking safety, acting safely and continuously
removing risks from the business is paying dividends. As at the
end of September we have been free of recordable injuries across
Engineering and Construction for more than 12 months and have
exceeded more than 1,000,000 man hours medical treatment
incident (MTI) and lost time injury (LTI) free in our joint venture
with partner Spiecapag. This achievement has been recognised
with the awarding of runner-up for the 2016 IPLOCA Health and
Safety Award sponsored by Chevron for commitment in this field.
Partnering Approach
Our Engineering and Construction business continues to approach
opportunities in the market from the perspective of a partner
looking to exceed our customers’ expectations through the use
of innovative and flexible contracting practices. We feel the
traditional approach to contracting, with a narrow focus on project
“mechanics” and typically a legalistic and win – lose relationship, is
value destroying and in our view obsolete.
Our Engineering and Construction business provides a flexible
approach to the customer’s project requirements and works in
collaboration at the front end of the process. It allows for upfront
planning and optimisation of the project details, and we believe it
facilitates and optimises the project’s value for all parties. In our
experience it provides a better result than the traditional rigid
form of contracting. Our successful execution and delivery of the
Jemena QGP looping project and APA’s Eastern Goldfields project is
a testament to the success of this approach.
Industry Leader
As a niche-focused specialist engineering and infrastructure
construction business, along with our safety, our emphasis
is quality. Quality in service execution that is integral in all
interactions with staff and customers. Quality that causes us
to be the first choice for clients and employees. Reflecting our
leading position in the market we participate in the Australian
Gas and Pipeline Association and contribute to industry research
through several cooperative research centres. Participation in
these organisation allows us to voice our views with respect to
the interests of pipeline owners, operators and constructors while
looking to assist in the commercialisation of innovative advances in
the industry body of knowledge
The company continues to be renowned for its pipeline expertise
and construction of related infrastructure works. The company has
successfully completed the Eastern Goldfields Pipeline project in
Western Australia in partnership with Spiecapag Australia during
the first quarter of the year. The project involved approximately
300km of pipeline being trenched and laid in the remote eastern
goldfields of Western Australia.
Also during the year the Company, in conjunction with its JV
partner Spiecapag Australia, began construction of the Victorian
Northern Interconnect Expansion pipeline, joining existing
Victorian and New South Wales gas pipelines. The company had
completed approximately 93km of pipeline with the remaining
72km or so to be completed during the second half of the 2016
calendar year.
Horizontal Directional Drilling (HDD)
Lucas remains a leader in horizontal directional drilling requiring
the installation of pipeline and conduits under urban environment
or natural obstacles such as river and harbours. Lucas was
amongst the first to recognise the application of this technology to
gas drainage from coal mines (particularly underground long wall
mining) and then to commercial gas capture and production.
Lucas has successfully completed many large scale HDD projects
throughout Australia, New Zealand and South East Asia. The
Company remains a significant competitor in serving the
energy, water resources and public utility reactors for complex
HDD projects.
Civil Works
The Company’s construction capability continues to be in demand
for small scale civil works. The company’s highly accredited
management systems, quality assurance procedures and strong
OH&S record has been instrumental in the award and successful
completion of such contracts. Works carried out during the year
include the completion of several electricity substations and
water pumping stations throughout New South Wales. We have
also continued our role as a participant in the Operations and
Maintenance phase of the Southern Seawater Desalination Plant in
Western Australia.
09
Drilling
In prevailing market conditions our
Drilling business has won new work,
maintained its strong safety culture
and, through its proven delivery
cabability and multi disciplined
service offering, positioned itself
well for the future.
Business highlights
Best in class safety performance
• No lost time injuries (LTIs) again in 2016
•
•
•
Total recordable injury frequency rate (TRIFR) of 4.9
Successfully engaged with all major coal producers
on the east coast
Continue to be sought out by customers looking for
innovative drilling solutions.
10 AJ LUCAS GROUP LIMITED
2016 ANNUAL REPORT
Lucas Drilling Services
Lucas Drilling Services (“LDS”) again achieved it’s safety targets for
the year and has renewed and won new business in its core service
offering to the Coal sector, and has re-entered the commercial gas
extraction market, on the eastern seaboard. All this was achieved
during difficult market conditions throughout the year.
LDS has continued to carve out its niche in the market providing
experience, equipment and innovation to deliver successful
customer focused project execution. It’s drilling service offering
covers the entire mine drilling requirement from exploration and
production drilling, through to well services and engineering
services for well design, and remains unmatched by any other
specialist drilling company in Australia.
With Coal prices remaining relatively subdued for most of the year
exploration expenditure by coal producers remained significantly
down in line with previous years. However, production volumes
from our customers remained relatively static throughout the year
which translated to ongoing demand for Lucas’ directional drilling
expertise and service offering.
In the challenging market conditions, Lucas believes its customers
want certainty, stability, a proven project delivery history with on
time and on budget delivery and a safety culture that translates
to zero incidents, and a name that is trusted by the market. We
believe this is what LDS is to its customers.
Lucas Drilling Services management is focussed on ensuring all
those key elements that contribute to the sustainability of our
business and are equally balanced through:
• Ongoing development of safety culture;
• Ongoing focus on cost management and control;
• Continued tuning of lean project and plant management
systems;
• Effective resource utilisation of technical and project
management experience; and
• Focussed strategic growth initiatives into new markets.
Lucas Drilling Services management are extremely experienced
in business and technical operations across its chosen sectors
allowing for the creation of a core competency unique to AJ Lucas,
proven over many years and unmatched by our competition. Lucas
Drilling Services management remains focussed on those core
competencies being:
• Solving the surface and sub-surface drilling problems of our
targeted customers base no matter how large or small;
• Engineering cost efficient solutions for all those highly
technical vertical and horizontal boreholes; and
• Providing a value adding offering, aligning the AJ Lucas
Group’s capability to the customers challenges.
Focusing on what has been a proven recipe for Lucas Drilling
Services over many years, has allowed us to increase market
share in our core market in recent times. As such, Lucas Drilling
Services has established itself as a preferred drilling services
provider to five top tier major coal producers. LSD has re-entered
the commercial gas extraction market. Due to it’s existing rig
capability for this market together with an historical proven
experience in contracting methods of working in this sector, LDS
expects to be very competitive. Based on this, we believe LDS has a
solid platform for strategic growth opportunities.
Our objective is to work with our existing customers to do more on
their leases – become more involved upstream and downstream of
the borehole – whether it be engineering, planning, civil works or
even construction. Lucas Drilling Services has enjoyed long term
customer relationships casting back 20+ years and a AJ Lucas
Group project CV unmatched by its competitors.
11
Health, safety,
environment & quality
AJ Lucas vision is “injury free every day”. To achieve this
AJ Lucas recognises it must maintain a proactive approach to
health and safety; provide visible leadership at all levels, have in
place effective management systems that reflect the operating
environment and community standards relevant to AJ Lucas
service delivery as well as ensure the right culture is embedded
in the organisation. AJ Lucas has many years experience in the
energy sector and draws on that experience in the development of
systems that can deliver its HSE objectives. AJ Lucas management
systems are certified by Bureau VERITAS to comply with the
requirements of ISO9001, ISO14001, OHSAS18001 and AS/
NZS4801. AJ Lucas works closely with a number of external
parties, including the certifying body, to continuously improve
its systems. Behavioural specialists are regularly engaged to
assist in the development of leadership skills and team building
programs. This approach had delivered significant performance
improvements over the past five years placing AJ Lucas ahead of
industry averages in terms of recordable injury rates, currently
4.9, down from 7 in 2013-14. Most importantly, conformance with
AJ Lucas and client management systems, implementation and
monitoring of risk reduction measures and observed behaviours
continue to meet or exceed management expectations.
AJ Lucas project management plans define systems and processes
to manage all aspects of the work. Subordinate documents
including Safety, Emergency and Environmental Management
Plans draw on relevant elements of the AJ Lucas system, to
capture critical information arising from project risk assessments
and establish a platform to maintain risk at acceptable levels,
comply with community standards and conform with client
site management systems. These plans identify roles and
responsibilities of AJ Lucas personnel, hazards/aspects and
control measures unique to the work, as well as define how works
shall be conducted.
leadership role for the achievement of AJ Lucas HSEQ objectives.
The committee membership includes the most senior people from
operations and support functions across the AJ Lucas business.
Evidence of engagement and commitment by line management
is tracked and performance reviewed at the quarterly HSEQ
Leadership Meetings. Consultative processes are integrated into all
levels of the organization, each with communications lines to the
HSEQ Leadership Committee.
A risk management framework aligned with ISO31000 supports
attainment of AJ Lucas business objectives. Comprehensive risk
management processes underpin AJ Lucas activity in all aspects of
its operations and governance. Our people are formally trained in
hazard identification and risk management at levels appropriate
to their roles and responsibilities. Their skills are maintained
through daily application of those processes. Well established
consultative and communication processes ensure risk is well
understood and communicated across the business. AJ Lucas
constantly monitors integration of its risk management framework
across all of its operations. A targeted observation program
provides valuable feedback on integration of and compliance with
measures designed to ensure identified fatal hazards are properly
managed. There is a significant amount of focus applied to
communication and management of these fatal hazards within key
processes such as induction, project planning and execution and
performance monitoring. Examples of processes which support
application of AJ Lucas risk based approach to service delivery
include: detailed project planning, hazard and incident reporting
and continual improvement, personal risk management programs
such as Stop, Look, Assess and Manage (SLAM), Work Method
Statements for routine work and tasks with which significant risk is
associated, plant management, hazardous chemicals, permitting
systems, change management, site inspections/auditing, training,
procurement including supplier assessments.
Established health and safety KPIs are embedded in all project
plans, are monitored and performance is evaluated on a monthly
basis. Annual analysis of incident and audit data combined
with output from management review of system performance
and effectiveness provide the foundation for development of
improvement initiatives. A HSEQ Leadership Committee provides a
AJ Lucas views monitoring and continuous improvement processes
as the keys to ongoing success and as a consequence is about
to begin implementation of a comprehensive HSE Information
management system that will provide access to a broader range
of real time indicators as well as add further transparency and
accountability to the corrective and improvement processes.
12 AJ LUCAS GROUP LIMITED
2016 ANNUAL REPORT
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
2.88
2.30
0.37
0
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
NSW Coal Surface
QLD Coal Surface
Pipelines (Australian Industry)
AJ Lucas
Fig 1 – Lost time injury frequency rate (LTIFR) – Industry Sector
(Note: NSW Coal, QLD Coal & Pipelines 2015-16 data not available at
the present time.)
25
20
15
10
5
0
15.30
6.81
5.12
4.11
5.8
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
NSW Coal Surface
QLD Coal Surface
AJ Lucas
Pipelines (Australian Industry)
Fig 2 – Total recordable injury frequency rate (TRIFR) – Industry
Sector (Note: NSW Coal, QLD Coal & Pipelines 2015-16 data not
available at the present time.)
Risk Management
AJ Lucas is committed to providing a safe and
productive workplace and delivering solutions
that exceed its customers’ expectations. AJ Lucas
recognises that this may only be achieved through
effective and responsible management of risk.
AJ Lucas’ risk objectives are to promote a risk aware
culture that encourages all employees and suppliers to
take responsibility for risk and to implement effective
systems to assess and reduce strategic, operational,
governance and financial risks to acceptable levels.
AJ Lucas’ risk management system is designed to
achieve these objectives.
AJ Lucas is committed to ensuring necessary
resources are available to implement and maintain the
risk management system.
The HSEQ Committee reviews system performance
on an annual basis and more frequently when
circumstances change. The AJ Lucas Risk Management
procedure clearly identifies roles, responsibilities/
accountabilities and how risk management is
integrated into AJ Lucas processes. It establishes
a framework which encompasses a continuous
improvement process for identifying, contextualising,
analysing, communicating, resourcing and monitoring
and reviewing risk.
A project risk assessment is completed and a Project
Risk Register is maintained. The Project Risk Register
is a key reference point for development, review and
maintenance of the Workplace Health and Safety
(WHS) and environmental management plans.
AJ Lucas hazard identification and WHS Risk
Management procedures establishes processes
designed to facilitate the application of risk
management tools at operational levels of the
business, development of safe methods of work as
well as identification, capture and management of
improvements and further risk reduction measures.
All AJ Lucas personnel are trained in the aspects
of these procedures relevant to their role and
responsibilities including, but not limited to,
application of tools such as risk assessments, risk
registers and hazard reports.
13
FINANCIAL REPORT
Financial Report
CONTENTS
15 Directors’ Report
33 Auditor’s Independence Declaration
34 Consolidated Statement of Comprehensive Income
35 Consolidated Statement of Financial Position
36 Consolidated Statement of Changes in Equity
37 Consolidated Statement of Cash Flows
38 Notes to the Consolidated Financial Statements
76 Directors’ Declaration
77 Independent Auditor’s Report
79 Australian Securities Exchange Additional Information
81 Corporate Directory
14 AJ LUCAS GROUP LIMITED
2016 ANNUAL REPORT
The Board of Directors of AJ Lucas Group Limited (the Company) present their report
together with the consolidated financial report of AJ Lucas Group Limited, being
the Company, its controlled entities, interests in associates and jointly controlled
entities (the Group), for the financial year ended 30 June 2016 and the auditor’s
report thereon.
Directors
The directors of the Company at any time during the financial
year and up to the date of this report and their terms of office are
as follows.
NAME
APPOINTMENTS
Phillip Arnall
Independent Non-Executive Chairman since
3 June 2014
Interim CEO and Executive Chairman
28 January 2014 to 3 June 2014
Independent Non-Executive Chairman
29 November 2013 to 28 January 2014
Independent Non-Executive Director
10 August 2010 to 29 November 2013
Russell Eggers
CEO and Executive Director
3 June 2014 to 29 February 2016
John O’Neill
Independent Non-Executive Director since
23 June 2015
Julian Ball
Non-Executive Director since 2 August 2013
Ian Meares
Independent Non-Executive Director
since 3 June 2014
Andrew Purcell Independent Non-Executive Director
since 3 June 2014
Details of the current members of the Board, including their
experience, qualifications and special responsibilities are set
out below.
Phillip Arnall
B Com
Mr Arnall has had a distinguished thirty year career in the mining
and steel industries including senior executive responsibility at
Australian National Industries Ltd and Tubemakers of Australia
Limited. Mr Arnall was a Non-Executive director of Bradken Limited
until November 2015 when he was appointed Chairman. He was
previously a director and Chairman of Ludowici Limited 2006-2012
and Chairman of Capral Limited from 2010 to 2011 Mr Arnall is a
member of both the Audit and Risk, and the Human Resources and
Nominations Committees.
John O’Neill
B Bus; FCA; FAICD
Mr O’Neill has over 25 years of experience in the upstream oil and
gas industry, and was formally Executive Chairman of Pangaea
Resources, Australia’s most successful private unconventional oil
and gas company. In addition, he was previously Chief Executive
Officer of the Australian Petroleum Fund, which held a portfolio of
exploration and producing oil and gas assets and a pipeline.
Mr O’Neill also has extensive experience in accounting and finance,
having commenced his career as a chartered accountant with
Coopers & Lybrand (now known as PriceWaterhouseCoopers)
and Ernst & Whinney (now known as Ernst & Young) in Sydney
and London. Mr O’Neill joined the Board on 23 June 2015 and was
appointed a member of the Audit and Risk Committee on that date,
and was appointed Chairman of the Audit and Risk Committee on
24 July 2015.
Julian Ball
BA; FCA
Mr Ball is a Managing Director of Kerogen Capital (Asia) Limited,
based in Hong Kong, with more than 25 years of experience in
investment banking and private equity.
Mr Ball trained as a chartered accountant at Ernst & Young in
London before relocating to Hong Kong. He worked for many years
as an investment banker at JP Morgan primarily covering the
energy and natural resources sectors prior to working in private
equity. Mr Ball is a member of the Audit and Risk and Human
Resources and Nominations Committees.
Ian Meares
B Eng (Hons); MEngSc; MBA; MAICD
Mr Meares has many years of experience in the global civil
infrastructure, mining and energy industries. He brings a deep
knowledge of the management and control of complex engineering
projects as well as a wide network of industry contacts.
Previous roles include Executive Director, Engineering and
Infrastructure, with Brookfield Multiplex where he had
responsibility for the delivery of large scale infrastructure projects
throughout Australia, responsibility for Mine Infrastructure
Delivery at Leighton Contractors, Group Manager Business
Development at Clough Limited and Managing Director of Bechtel
Australia. Mr Meares is Chairman of the Company’s Human
Resources and Nominations Committee.
Andrew Purcell
B Eng; MBA
Mr Purcell founded Teknix Capital in Hong Kong over 10 years
ago, a company specialising in the development and management
of projects in emerging markets across the heavy engineering,
petrochemical, resources and infrastructure sectors. Prior to this,
Mr Purcell spent 12 years working in investment banking across
the region for Macquarie Bank then Credit Suisse. Mr Purcell also
has significant experience as a public company director, both in
Australia and across Asia.
Mr Purcell was chairman of the Audit and Risk Committee until
24 July 2015, and has continued to be a member of the committee
since. He is currently also Chairman of MEO Australia Ltd.
15
DIRECTORS’ REPORT COMPANY SECRETARY
Mr Swierkowski B Com, CA, MBA (Exec) joined the company in June 2013, and was appointed to the position of Company Secretary
on 23 June 2015. Prior to this he has held both senior finance and company secretarial positions in listed companies across mining,
investments and facilities management.
DIRECTORS’ MEETINGS
The number of directors’ meetings (including meetings of committees of directors) held during the financial year, during the period of each
director’s tenure, and number of such meetings attended by each director is:
Board of Directors
Attended
Held
Audit and Risk
Committee
Human Resources
and Nomintions
Committee
Held
Attended
Held
Attended
15
15
15
15
11
15
15
13
15
15
11
14
4
4
–
4
–
4
4
4
–
4
–
4
5
5
5
–
–
–
5
5
5
–
–
–
From left: Andrew Purcell, Julian Ball, John O’Neill, Ian Meares
and Phillip Arnall.
Phillip Arnall
Julian Ball
Ian Meares
Andrew Purcell
Russell Eggers
John O’Neill
16
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT DIRECTORS’ REPORT PRINCIPAL ACTIVITIES
AJ Lucas Group is an investor in the exploration, appraisal
and commercialisation of oil and gas prospects. It also has
operating units specialising in infrastructure, engineering and
construction, and mining services focussed on the energy, water
and wastewater, and resources sectors. As a result the Group is
structured into three principal operating segments:
OIL AND GAS: Commercialisation of unconventional and
conventional hydrocarbons in Europe.
DRILLING: Drilling services to the coal industries for the
degasification of coal mines and associated services and the
commercial extraction of gas.
ENGINEERING & CONSTRUCTION (E&C): Pipelines and associated
construction and civil services. The Group is a significant market
participant in the installation of cross country pipes including the
use of horizontal directional drilling techniques.
enhancement and protection of shareholder value. Accordingly, the
Group adopted the 3rd Edition of the ASX Corporate Governance
Principles and Recommendations, in 1 July 2014.
The Board believes that a company’s corporate governance
policies should be tailored to account for the size, complexity
and structure of the company and the risks associated with the
company’s operations. The ASX Corporate Governance Council
concurs with this view and allows companies to explain deviations
from the Council’s recommendations. Areas where the Group has
deviated from the Council’s recommendations at any time during
the financial year are discussed below, however the Board believes
the areas of non-conformance do not impact on the Group’s ability
to operate with the highest standards of Corporate Governance.
Any major change in the Group’s operations will result in a review
of the Group’s Corporate Governance policies.
This statement outlines the main corporate governance practices
of the Group. Unless otherwise stated, these practices were in
place for the entire year.
STRATEGY
The Group has a successful track record in its oil and gas
investments with exceptional historical returns from its
investments in the Gloucester and Surat Basins. This strategy
continues with the current investment in UK shale gas exploration
activities through the Group’s direct investment in a number of
UK licences and as a joint venture partner in Cuadrilla Resources
Holdings Limited (“Cuadrilla”), an unlisted UK Company with
interests in the UK and Europe. The current strategic focus for
this unit is to achieve a successful drill, fracture and flowtest of
the Bowland acreage of which the Company holds and effective
46.85% interest.
With respect to the Australian Engineering and Construction
division that provides specialist engineering and drilling services
principally to the energy, resources and water industries, the
focus is to be the pre-eminent installer of cross country oil
and gas pipelines by utilising considerable in house skills in
contracting, operations and safety systems and in partnership
with our international pipeline installer Spiecapag. This is to be
achieved through the application of a highly skilled workforce in
combination with specialist equipment, thus allowing the provision
of innovative, cost saving solutions. It is an imperative that the
provision of these services and solutions occur within excellent
safety, quality and information systems so as to ensure the
minimum impact to people, assets and the environment.
The Lucas Drilling Unit is a leader in horizontal directional drilling,
with a long history of successful project delivery. This expertise has
been leveraged through directional drilling to degas coal mines
from the surface, increasing safety and productivity and lowering
cost. The downturn in the coal market has required a relentless
focus by this group on the provision of these services and the
extension of our skills into CSG extraction and gathering services.
CORPORATE GOVERNANCE STATEMENT
The Board of directors (“The Board”) is responsible for the
corporate governance of the Group. The Board considers strong
Corporate Governance to be core to ensuring the creation, the
FOUNDATIONS FOR MANAGEMENT
AND OVERSIGHT
Roles and Responsibilities
The directors of the Company are accountable to shareholders
for the proper management of the business and affairs of
the Company. The key responsibilities of the Board include
the following:
•
contributing to and approving the corporate strategy for AJL;
• monitoring the organisation’s performance and achievement
of its corporate strategy;
•
•
approving and monitoring the progress of significant corporate
projects, including acquisitions or divestments;
reviewing and approving the annual business plan and
financial budget;
• monitoring financial performance, including preparation of
financial reports and liaison with the auditors;
•
•
•
appointment and performance assessment of the
executive Directors;
ensuring that significant risks have been identified and
appropriate controls put in place;
overseeing legal compliance and reporting requirements of
the law; and
• monitoring capital requirements and initiating capital raisings.
The Board’s responsibilities are documented in a written Board
Charter which is available in the shareholder information section
of the Company’s website. The Board charter details the functions
reserved to the Board, the roles and responsibilities of the
Chairman and the responsibilities delegated to management and
executive directors. The Board Charter also gives the Directors
the right to seek independent professional advice, at the Group’s
expense, on matters relevant to carrying out their duties.
The Company Secretary is appointed by the Board with the roles
responsibilities detailed in a contract of service of employment.
The Company Secretary is accountable directly to the Board,
through the Chairman, on all matters to do with the proper
17
DIRECTORS’ REPORT While the Board is committed to achieving gender diversity it is of
the view that imposed targets, in particular considering the current
tough market conditions, would not be of benefit and could result
in hiring decisions that are contrary to the ultimate goal of ‘best
fit’ for purpose. As such, the Group’s Diversity Policy does not at
this time require the Company to set measureable objectives for
achieving gender diversity.
The number of men and women on the Board, in senior
management and other positions as reported in the Group’s 2015
and 2016 Gender Equality Report is shown below:
Level
Board
Executive leadership personnel
Other employees
TOTAL
Level
Board
Executive leadership personnel
Other employees
TOTAL
2016
Female
Male
Total
5
3
265
273
Male
6
3
256
265
–
1
26
27
5
4
291
300
2015
Female
Total
–
1
29
30
6
4
285
295
The Company has a maternity leave scheme where a permanent
employee who has been with the company for over 24 months
can access paid maternity leave following the birth of a child.
The Group has in place various other programs to foster career
development including training sessions for line managers,
sponsoring attendance at executive management training courses,
implementation of flexible work place practices, and development
and implementation of HR policies and practices to drive workforce
participation rates of key diversity segments. The Human Resources
and Nominations Committee will monitor the effectiveness of these
various initiatives to meet the Group’s diversity plan including
supporting women’s progress into senior management positions.
functioning of the Board. Each Director is able to communicate
directly with the Company Secretary and vice versa.
Appointment and Re-Election of Directors
Through periodic reviews of the Board composition and
succession planning, the Board seeks to ensure that the skills,
knowledge, experience, independence and diversity of the Board
are appropriate for the present and future requirements of the
Group. The Human Resources and Nominations Committee actively
seeks to identify, and recommends to the Board for appointment,
directors whose skills and attributes complement and enhance
the effective operation of the Board. Following the resignation of
the Managing Director, Mr Russell Eggers, in February 2016 the
Board determined that the skills and attributes of the existing
Directors were sufficient for the effective performance and
functioning of the Board at this stage. The resignation followed the
appointment of Mr John O’Neill as an independent Non-Executive
Director in June 2015, and the more significant Board refresh
in the 2013 /2014 financial year which saw the retirement of
3 independent non executive directors and the executive chairman
and the appointment of three new non executive Directors, two of
whom were independent.
Background checks are conducted prior to appointing any new
Director, and external consultants are engaged to assist with the
selection process as necessary. In addition, each Board Member
has the opportunity to meet with the nominated director.
Directors submitting themselves for re-election at a general
meeting are reviewed by the Board. The constitution requires
one third of all directors, excluding the managing director, to
retire from office at each AGM and can present themselves for
re-election. No Director can hold office for more than 3 years
without presenting for re-election, and any Director appointed
by the Directors during the year is required to also present for
election at the first AGM following their initial appointment. All
information relevant to a decision on whether or not to elect or
re-elect a Director is included in the Notice of AGM.
Review of Performance
The Board continually assesses its performance, the performance
of its committees and individual Directors through a structured
annual review process. The Board may at times engage the
assistance of external consultants to facilitate formal Board
performance reviews.
Where appropriate, the performance of the CEO or the senior
executives is reviewed annually by the Human Resources and
Nominations Committee.
Diversity
AJ Lucas is committed to a diverse and inclusive workplace which
supports business objectives, delivers competitive advantages and
benefits shareholders and customers. The Group is committed to
ensuring all employees are treated fairly, equally and with respect
no matter what their race, ethnicity, gender, sexual orientation,
socio-economic status, culture, age, physical ability, education,
skill levels, family status, religious, political and other beliefs and
work styles. A copy of the Group’s Diversity Policy is available in
the shareholder information section of the Company’s website.
18
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT DIRECTORS’ REPORT STRUCTURING THE BOARD TO ADD VALUE
duties and offered external training opportunities on an “as
required” basis.
Composition of the Board
The constitution of the Company requires between three and
ten directors. Currently there are five directors, all of whom are
non-executive and four are also independent.
The table below sets out the independence status of each director
as at the date of this annual report.
Director
Status
Phillip Arnall
Chairman and Independent Non-Executive Director
John O’Neill
Independent Non-Executive Director
Andrew Purcell Independent Non-Executive Director
Ian Meares
Independent Non-Executive Director
Julian Ball
Non-Executive Director
The Director’s skills and experience, and the period of
their appointments with the Company are disclosed in the
Directors Report.
Skills Matrix
While recognizing that each director will not necessarily have
experience in each of the following areas, the Board seeks to
ensure that its membership includes an appropriate mix of skills
and experience. A summary of the directors’ skills and experience
as relevant to the Group as at the end of the Reporting Period is
set out below:
Phil
Arnall
John
O’Neill
Julian
Ball
Ian
Meares
Andrew
Purcell
Executive
leadership
Strategy & risk
management
Financial acumen
Health & safety
Former CEO
Mining services
Oil & gas
✔
✔
✔
✔
✔
✔
Induction Program
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
The Company has induction procedures in place to allow new
directors to participate fully and actively in Board decision making
at the earliest opportunity. A checklist of information has been
prepared for incoming Directors, while Board members are
also provided comprehensive information on a regular basis by
the Executive Leadership Team so that they can discharge their
Director responsibilities effectively. The Company Secretary
coordinates the timely completion and dispatch of such material to
the Board.
Directors are encouraged, and are given the opportunity, to
broaden their knowledge of the Group’s business by visiting offices
in different locations and engaging with management. They are
encouraged to remain abreast of developments impacting their
ETHICAL AND RESPONSIBLE DECISION MAKING
The Company has a code of conduct to guide the directors and
key executives. It includes disclosure of conflicts of interest and
use of information not otherwise publicly known or available. Any
director with an interest in matters being considered by the Board
must take no part in decisions relating to those matters.
The Directors’ Code of Conduct is available in the shareholder
information section of the Company’s website as is the employee
Code of Conduct. These codes address the practices necessary to
maintain confidence in the Company’s integrity, to take account
of legal obligations and expectations of stakeholders and the
responsibility and accountability for reporting and investigating
unethical practices.
The Group operates a zero-tolerance approach to all forms of
bribery and corruption, whether direct or indirect. As such the
Group has an Anti-Bribery and Corruption policy, also available in
the shareholder information section of the Company’s website. The
policy prevents:
• making or acceptance of facilitation payments or kickbacks of
any kind;
•
payments to trade unions or their officials;
• Any donations to political parties or charitable donations, for
the purpose of gaining commercial advantage; and
•
the giving or receipt of any gifts or hospitality if it could in
anyway be intended, or reasonably interpreted, as a reward or
encouragement for a favour or preferential treatment.
Human Resources and Nominations Committee
At the beginning of the financial year the Human Resources
Committee was re-named the Human Resources and Nominations
Committee with its responsibilities expanded as documented in
a revised Human Resources and Nominations Committee Charter
which is available in the shareholder information section on the
Company’s website.
The Human Resources and Nominations Committee consists of
three members as follows.
Committee
member
Ian Meares
Status
Committee Chairman and
Independent Non-Executive Director
Phillip Arnall
Independent Non-Executive Director
Julian Ball
Non-Executive Director
INTEGRITY IN FINANCIAL REPORTING
The Board has established an Audit and Risk Committee which
provides assistance to the Board in fulfilling its corporate
governance and oversight responsibilities in relation to the
Company’s financial reporting, internal control systems, risk
management systems, regulatory compliance and external
audit. The Audit and Risk Committee is governed by the Audit
19
DIRECTORS’ REPORT and Risk Committee Charter which is available in the shareholder
information section of the Company’s website.
The Committee must have at least three members, all of whom
are non-executive directors and the majority of whom are
independent. The Committee must be chaired by an independent
chair, who is not chair of the board. At least one member must
have financial expertise and some members shall have an
understanding of the industry in which the Company operates.
Members of the Audit and Risk Committee as at the date of
this report and throughout the financial year are set out in the
following table. Their qualifications and experience are set out in
the Directors’ Report.
Committee
member
John O’Neill
Status
Committee Chairman and Independent
Non-Executive Director
Phillip Arnall
Independent Non-Executive Director
Andrew Purcell
Independent Non-Executive Director
Julian Ball
Non-Executive Director
The principal roles of the Committee are to:
•
assess whether the accounting methods and statutory
reporting applied by management are consistent and
comply with accounting standards and applicable laws
and regulations;
• make recommendations on the appointment of the external
auditors, assess their performance and independence
and ensure that management responds to audit findings
and recommendations;
•
•
discuss the adequacy and effectiveness of the Company’s
internal control systems and policies to assess and
manage business risks, its legal and regulatory compliance
programmes; and
ensure effective monitoring of the Company’s compliance with
its codes of conduct and Board policy statements.
The Audit and Risk Committee meets with the external auditors at
least twice a year. The Committee is authorised to seek information
from any employee or external party and obtain legal or other
professional advice.
The Committee co-operates with its external auditors in
the selection, appointment and rotation of external audit
engagement partners.
COMMUNICATION WITH SECURITY HOLDERS
The Board keeps shareholders informed of all material
information relating to the Company by communicating to
shareholders through:
•
•
continuous disclosure reporting to the ASX;
its annual reports; and
• media releases and other investor relations publications on the
Group’s website.
All company announcements lodged with the ASX are available
in the shareholder information section of the Company’s website.
Shareholders have the option to receive communications from,
and send communications to, the Company’s Share Registry
electronically, including the annual report and the notice of annual
general meeting. Additionally shareholders and potential investors
are able to post questions to the company through the Company’s
website or by telephone. The Board and senior management
endeavour to respond to queries from shareholders and analysts
for information in relation to the Group provided the information
requested is not price sensitive or is already publicly available.
The Company provides the Notice of AGM to all shareholders and
makes it available on the Company’s website. The AGM is the key
forum for two-way communication between the Company and its
shareholders. At the meeting, the Chairman encourages questions
and comments from shareholders and seeks to ensure that
shareholders are given ample opportunity to participate. Further,
the Company’s external auditor attends the annual general
meeting and is available to answer shareholder questions about
the conduct of the audit and the preparation and content of the
auditor’s report.
RISK IDENTIFICATION AND MANAGEMENT
The Board is committed to embedding risk management practices
to support the achievement of business objectives. As such the
Board has established the Audit and Risk Committee which is
responsible for reviewing and overseeing the risk management
strategy of the Group and for ensuring it has an appropriate
corporate governance structure. The Audit and Risk Committee
discusses with management and the External Auditors, at
least annually:
•
•
•
Internal controls systems;
Policies and procedures to assess, monitor, and
manage business, economic, environmental and social
sustainability risks;
Insurance program having regard to the insurable risks and
the cost of this cover; and
TIMELY AND BALANCED DISCLOSURE
•
Legal and regulatory compliance programs.
The Company has established policies and procedures designed
to ensure compliance with ASX listing rules, continuous disclosure
requirements and accountability for compliance at a senior level so
that investors have equal and timely access to material information
that in the opinion of the Board is likely to have an impact on an
investment decision in the company or impact on the Company’s
share price.
The Company has a Continuous Disclosure and Communications
Policy, a copy of which is in the shareholder information section of
its website.
20
A risk register is maintained and reported to the Audit and Risk
Committee periodically and at least annually, detailing likelihood
and severity of risks occurring. Management undertakes a review
of its insurable risks each year in order to fully consider potential
impacts and how they are financed in terms of limits and scope
under the Group’s insurance program.
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT DIRECTORS’ REPORT
Further details of the structure, membership and responsibilities of the Audit and Risk Committee are provided under the “Integrity in
Financial Reporting” heading in this Corporate Governance Statement.
Within this framework, management has designed and implemented a risk management and internal control system to manage material
business risks. The Chairman, Chief Financial Officer and the rest of the Executive Leadership team provide representation to the Audit
and Risk Committee and the Board that the risk management system is operating effectively in all material respects in relation to financial
reporting risks.
The Company has, in accordance with the Australian Standard on risk management AS/NZS ISO 31000:2009, developed a risk statement
and underlying procedures for the key risk areas of People, Environment, Business and Reputation. The Company has had a number of
external audits of particular types of risk during the year. A copy of the risk statement and the risk management policy are available in the
shareholder information section of the Company’s website.
The Group does not currently have an independent internal audit function, the Board being of the view that the size and complexity of the
company does not warrant such a function. The Group’s operations and facilities are however subjected to regular audits, performed by a
mix of internal safety and auditing experts, and external consultants, under an annual program of Health, Safety, Environment and Quality
audits. In addition, the Audit and Risk Committee engages external consultants to review areas of the business as it sees fit, with a number
of these performed during the year.
The Group’s material exposures to risk, and how the Group responds and manages these risks is detailed below.
Material Risk
External Risks
Risk Management Approach
Risks may arise from the flow through of
commodity demand or pricing from major
markets into our customer base as well as foreign
exchange, regulatory and political events that may
impact the long term sustainability of our customer’s
business model.
The broadening of our portfolio of businesses, commodity and geographical
exposure is our major strategy to reduce the effect of volatility introduced by
these external risks. A key component of this strategy is the focus on increasing
our exposure to infrastructure development in the engineering and construction
business, to “non-discretionary” mining services and the development of our
unconventional energy opportunities.
Business Risks
Risks include the inherent risk of identifying and
proving reserves in our unconventional assets.
Financial Risks
Volatility in commodity markets may adversely
impact future cash flows and as such our credit
rating and ability to source capital from financial
markets. In addition our commercial counterparties
may as a result of adverse market conditions fail to
meet their commercial obligations.
Operational Risks
Cost pressures and reduced productivity could
negatively impact both operating margins and our
market competitiveness. Similarly a significant
adverse and unexpected natural or operational
event could impact operations in a materially
negative manner, as could a breach in IT and other
security processes.
As a result of the latest round of refinancing, the Company has dedicated
financial reserves to apply to the Shale Gas project in the UK. It is also heartened
by the policy commitment by the UK Government on establishing sovereign
energy sources.
Again, the restructuring of the Company’s Balance Sheet during the year has
mitigated this risk. We seek to continuously improve our credit rating and use
our broadening portfolio, cash flow and key financial ratio analysis to monitor
potential volatility in this area. Similarly all customers and key suppliers are
subject to credit limits and review processes before services are established.
We seek to maintain adequate operating margins across our business by
monitoring in absolute and relative terms the performance of all assets against
both internal and external commercial benchmarks. Our concentrated effort to
reduce costs and hence maintain competiveness and margin has yielded tangible
results in reducing our controllable costs. This includes initiatives to standardise
processes and control systems across the Group.
The Lucas Management System (LMS) is an integrated process by which we
manage this standardised approach.
Through the regular application of our risk management procedures we identify
the potential for significant and or unexpected risks and implement the controls
appropriate to remove or mitigate them.
Business continuity plans are developed for all our IT systems such that the
integrity of our systems allows us to recover from a “disaster event” with little
impact on the daily operations.
21
DIRECTORS’ REPORT Material Risk
Sustainability Risks
Risk Management Approach
Injuring employees, damaging the environment or
having material regulatory or governance failures
may put at risk our social licence to operate or
significantly impact our reputation such that
customers and / or capital markets may shun us.
The LMS puts in place a significant set of requirements to ensure the safe
operation of our assets and equipment. Inclusive in this are the control and
governance requirements required of good finance and accounting procedures.
Sound environmental A broad range of policies and procedures outline both
expected and required actions and behaviours of management and staff.
Maintenance of a safe working environment is a principal accountability of all
levels of management.
The Board holds itself to account against the standards outlined in the ASX
Corporate Governance Principles and Recommendations 3rd edition as an
example of good governance and reporting procedures and requirements.
REMUNERATION
Trading in Company Securities
The Remuneration Committee was renamed the Human Resources
and Nominations Committee with its responsibilities broadened
during the year. The Committee reviews the remuneration of the
non-executive and executive directors, and senior officers.
Members of the Human Resources and Nominations Committee as
at the date of this report and throughout the financial year are set
out in the following table. Their qualifications and experience are
set out in the Directors’ Report.
Name
Position at date of report
Ian Meares
(Chairman)
Independent non-executive director
Phillip Arnall
Independent non-executive director
Julian Ball
Non-executive director
The Human Resources and Nominations Committee Charter is
available in the shareholder section of the Company’s website. The
number of meetings and who attended those meeting throughout
the year is disclosed in the Directors report.
The remuneration of the non-executive directors is based on the
recommendations of independent remuneration consultants and
while there is no formal charter for remuneration, the Board seeks
independent advice as required. The Company’s non-executive
directors receive fees for acting as a director of the Company.
Additional fees are payable for being a member of a Board
committee or representing the Group in specific matters from time
to time.
Executive directors and senior executives are remunerated based
on a fixed wage plus incentive payments. The policies and practices
for remuneration of executive directors and Key Management
Personnel is disclosed in the remuneration report in the Company’s
Annual Report.
The Company does not have a written policy dealing with
executives entering into transactions that limit risk on unvested
equity, however there are no unvested equity outstanding to staff
at balance date. The Directors will consider such a policy as part of
any future options or rights issuance.
The Company has in place a Securities Trading Policy which
restricts the times and circumstances in which directors, senior
executives and certain employees may buy or sell shares in the
Company. These persons are required to seek approval from the
Company Secretary prior to trading.
Directors must also advise the Company, which advises the
ASX on their behalf, of any transactions conducted by them in
the Company’s securities within five business days after the
transaction occurs.
The Securities Trading Policy is available in the shareholder
information section of the Company’s website.
REVIEW AND RESULTS OF OPERATIONS
OVERVIEW OF THE GROUP
Market conditions in the coal mining sector remained subdued
during the year with no indication of any material improvement
in the near term. Whilst trading conditions remained challenging,
customer volumes were relatively consistent in this sector
with repeat business won apart from the cessation of a major
gas extraction contracts with coal companies during the last
quarter due to completion of projects. In addition to relatively
static customer volumes, there were some changes in demand
for service requirements during the period with the Group
undertaking new services for the commercial gas extraction
industry. The Group experienced a reduction in activity in the
cross country pipeline sector with one major project undertaken in
partnership with Spiecapag Australia during the year as well as an
ongoing competitive engineering and construction market which
had an impact on the Group’s trading performance. Consolidated
revenue for the year was $125.5 million, down 13.5% on last year.
With these subdued market and trading conditions, the focus again
remained on overhead reduction and productivity initiatives with
substantial restructuring occurring. This helped contribute to an
improved underlying EBITDA of $14.5 million, up $5.2 million or
54.8% on last year. The Group remains well positioned should a
market recovery occur.
22
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT DIRECTORS’ REPORT The following table summarises the results for the year:
Total revenue
Underlying EBITDA
Reported EBITDA
EBIT
Loss before tax
Net loss for the year
Total assets
Net assets
2016
Year
$’000
2016
2nd half
$’000
2016
1st half
$’000
2015
Year
$’000
2015/16
Change
%
125,478
69,077
56,401
145,028
(13.5%)
14,556
6,126
(2,449)
(5,577)
8,430
3,128
9,405
54.8%
5,274
(146.4%)
(17,350)
(11,821)
(5,529)
(20,936)
(19,485)
(1,540)
(17,945)
(45,216)
(19,485)
(1,540)
(17,945)
(45,216)
17.1%
56.9%
56.9%
229,136
229,136
214,655
231,268
(0.9%)
86,790
86,790
67,991
79,493
9.2%
Basic loss per share (cents)
6.7
0.5
6.7
16.9
60.3%
A reconciliation of the reported EBITDA to the underlying EBITDA is shown in the following table:
Drilling
$’000
E&C
$’000
Oil & Gas
$’000
Corporate
$’000
2016
$’000
2015
$’000
Reconciliation:
Consolidated loss before income tax
(315)
3,724
(9,571)
(13,323)
(19,485)
(45,216)
Impairment of plant and equipment
Depreciation and amortisation
Finance costs
Finance income
Reported EBITDA
–
–
11,700
3,176
–
–
–
–
–
–
–
–
–
25
2,407
(272)
–
14,901
2,407
5,900
20,310
26,247
(272)
(1,967)
11,385
6,900
(9,571)
(11,163)
(2,449)
5,274
Share of (profit) / loss of equity accounted investees
Exploration asset revenue
Share of overhead – UK investments
Settlement of legal disputes
Recovery of receivable from equity accounted investees
Redundancy costs
Net (profit) / loss on sales of assets
Corporate advisory fees
Share based payments expense
Other (income) / expense
Underlying EBITDA
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,385
6,900
6,751
–
2,820
–
–
–
–
–
–
–
–
–
6,751
(1,324)
(522)
(522)
(3,025)
–
7,445
(525)
503
102
(117)
27
521
2,820
7,445
(525)
503
102
(117)
27
521
262
3,676
(804)
2,413
(143)
2,043
171
862
(3,729)
14,556
9,405
The non-IFRS financial information presented in this document has not been audited or reviewed in accordance with Australian
Auditing Standards.
Allocation of overheads that can be directly attributed to an individual business segment were re-assessed during the period. This
has resulted in changes to the overhead allocations between Corporate, drilling, E&C and Oil & Gas. The historical segment results
have been restated to be comparable with the revised allocations as required by AASB 8 Operating Segments.
23
DIRECTORS’ REPORT DIVISIONAL PERFORMANCE
Contributions from the business divisions were as follows:
2016
Drilling
Engineering and construction
Oil and gas
2015
Drilling
Engineering and construction
Oil and gas
Oil and Gas
The Oil & Gas division encompasses the Group’s investments in the
United Kingdom and Europe held both directly by the Group and
indirectly through our 45.08% shareholding in Cuadrilla. Details of
the interests held are shown at Note 18 of the financial statements
and comprise the Bowland, Elswick and Bolney prospects located
onshore in the United Kingdom. Cuadrilla is the operator of these
tenements on behalf of the respective joint venture partners.
The main focus for the Group has been on its Bowland tenements,
which Cuadrilla estimates may hold 330 trillion cubic feet of gas in
place and in which the Group has an effective 46.85% interest. To
date the Bowland joint venture has shot 100 km2 of 3D seismic and
drilled 3 wells to assess the prospectivity of the tenements. The
Bowland Basin, where these tenements are located, is very close
to pipeline infrastructure thereby enabling the timely and cost
efficient commercialisation of gas from these tenements.
Preston New Road site and Roseacre Wood site Appeals
The Bowland JV (“the JV”) proposes to drill and hydraulically
stimulate 2 lateral wells to test the flow rate of gas at each of the
sites known as Preston New Road and Roseacre Wood. In 2015
Cuadrilla submitted planning applications to Lancashire County
Council (“LCC”) to develop the two sites with each supported by a
comprehensive environmental impact assessment study. Cuadrilla
has received all necessary environmental and health and safety
permits to drill, hydraulically stimulate, and test the flow rate of
gas at each of the two sites.
In June 2015 LCC declined to approve the planning applications
for the test wells at Preston New Road, despite a positive
recommendation by the Council’s Planning Officers and legal
advice from LCC’s Queen’s Council that a decision not to approve
the wells would likely be overturned on appeal. LCC also declined
to approve the planning applications for the wells at the Roseacre
Wood site. As a result Cuadrilla, on behalf of the JV, appealed the
LCC’s decision with the Secretary of State for Communities and
Local Government (SOS).
As part of the appeal process an inspector was appointed by the
SOS to hold a public inquiry and to prepare a detailed report with
a recommendation to the SOS. The public inquiry was held in
Blackpool, Lancashire earlier in 2016 and the inspector’s report
was sent to the SOS on 4 July 2016. The Directors look forward to
24
Revenue
$’000
Underlying
EBITDA
$’000
Margin %
$’000
79,633
45,845
–
83,545
61,483
11,385
6,900
–
6,222
8,034
–
(255)
14.3%
15.1%
N/A
7.4%
13.1%
N/A
a favourable decision by the SOS, expected by 6th October 2016.
Cuadrilla, as the operator of the licences, is preparing to
commence operations as soon as a decision is made to drill,
hydraulically stimulate and test the flow rate of the two wells.
Grange Hill site Appeal
In November 2015, Cuadrilla lodged a separate appeal with the SOS
against the decision of the LCC’s development control committee
to refuse planning permission to: retain the existing site compound
and access track, install seismic and pressure monitors within the
existing well; undertake seismic and pressure monitoring; plugging
and abandonment of the existing exploratory well and restoration
of the Grange Hill exploration site. The appeal was allowed and
planning permission granted for a three-year term subject to the
conditions set out by the SOS.
Bowland Farm-in and Licence Interest Renegotiations
In June 2013 Centrica Plc, the United Kingdom’s leading supplier
of gas entered into an agreement to acquire a 25% interest in the
Bowland and Elswick tenements in return for a cash payment of
£40 million and a further £60 million to be spent in the Bowland
JV’ as a farm-in commitment. Centrica was also required to pay
an additional £60 million following certain commercial milestones
being met.
In August 2015 the Centrica agreement was renegotiated in line
with prevailing market conditions. Under the revised farm-in
agreement the balance of the £60 million farm-in commitment
(£30.6 million) is to be deferred and spent on exploration and
development on behalf of the JV once planning approval for either
of the exploration sites at Preston New Road or Roseacre Wood
is obtained. Each joint venture partner will fund their share of JV
expenditure to the date of the approval of the wells. The additional
£60 million milestone payment has been adjusted to £46.7 million
to be paid by Centrica on behalf of the JV for further exploration
and development work following certain commercial milestones
being met.
Concurrent with the revision of the Centrica farm-in terms, Lucas
agreed to increase its interest in the Bowland JV by 5.00% to
23.75% and Cuadrilla had reduced its interest from 56.25% to
51.25% whilst maintaining majority ownership and operatorship.
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT DIRECTORS’ REPORT The Company’s share of the Centrica farm-in commitment together with the funding committed by the new senior loan note facility is
expected to adequately fund the financial obligations for drilling and hydraulic stimulation of the 2 Bowland wells.
14th Round Licence Awards
During the year Cuadrilla was successful in its application for 18 exploration licenses in Yorkshire as part of the 14th round of onshore
oil and gas licenses offered by the United Kingdom government. These licences are grouped into 8 blocks, with each block covering
approximately 100 km2 in size. Four of the blocks will be held by Cuadrilla 100% with the other 4 held as a joint venture with GDF Suez E&P
UK Ltd (a subsidiary of the ENGIE Group) and with Cuadrilla as operator owning 70% and GDF Suez 30%. The work program for initial period
will include desktop studies and the acquisition and reprocessing of seismic, and consequently the financial obligation of the Group in these
early years will be minimal.
UK Shale Wealth Fund
In November 2015, the United Kingdom government reaffirmed its support for the development of the shale gas industry by announcing
in the Chancellor’s Autumn Statement, plans for a Shale Wealth Fund, whereby up to 10% of taxes arising from shale gas development
would be used to the benefit of people who live in areas that host shale gas development. In August 2016, the new Prime Minster, Theresa
May, announced a further proposal that those people who live near sites used for shale gas exploration be given cash payments directly to
benefit them from such shale gas developments. The Directors see these as two very positive developments.
A more detailed synopsis of the Company’s oil and gas investments can be found on the Lucas website.
Drilling
The results of the drilling division are summarised as follows:
Revenue
Underlying EBITDA
EBITDA margin
2016
Year
$’000
2016
2nd half
$’000
2016
1st half
$’000
2015
Year
$’000
2015/16
Change
%
79,633
41,573
38,060
83,545
(4.7%)
11,385
14.3%
6,335
15.2%
5,050
13.3%
6,222
7.4%
83.0%
Continued difficult market conditions in the mining and materials sector contributed to Lucas’ revenue for the year of $79.6 million down
4.7% on last year. The Company has embarked on new services for the commercial gas extraction industry and demonstrated a continued
market confidence in the Group’s drilling services, particularly around highly technical projects concerning gas drainage and extraction.
The conclusion of a key contract in the 4th quarter has been partly replaced by these initiatives.
The underlying EBITDA margin improved by 6.9% partly as a result of measures previously and more recently taken to reduce costs and
re-focus on the Group’s core strength of directional drilling as well as re-enter the commercial gas extraction market. This is particularly
pleasing when viewed in the context of a market place that until recently has been experiencing depressed coal prices and where a
number of Australian coal mining assets are up for sale. The performance this year reflects the value our customers place on the Group’s
experience. The Group’s proven delivery capability and multi-disciplined technical based service offering positions the Group well to grow
when the market starts to recover.
Engineering & Construction
The Engineering & Construction division reported a lower result than in the prior year as shown in the following table:
Revenue
Underlying EBITDA
EBITDA margin
2016
Year
$’000
2016
2nd half
$’000
2016
1st half
$’000
2015
Year
$’000
2015/16
Change
%
45,845
27,504
18,341
61,483
(25.4%)
6,900
15.1%
1,576
5.7%
5,324
29.0%
8,034
13.1%
(14.1%)
Engineering & Construction revenue decreased by 25.4% to $45.9 million, reflecting the completion of the Eastern Goldfields Pipeline in
Western Australia in partnership with Spiecapag Australia during the early part of the year and only one new additional major cross country
pipeline contract undertaken during the year. The focus towards smaller non joint venture engineering and construction projects, whilst
valuable contributors, were insufficient to replace this revenue loss.
The underlying EBITDA margin of 15.1% was an improvement on the comparative period of 13.1%, reflecting the positive impact of a
restructure of the division, greater focus on the division’s core skill capability of pipeline construction and well managed joint venture
projects from a continued emphasis on project execution and cost control.
25
DIRECTORS’ REPORT
noteholders have the right to require AJ Lucas to repay the notes
within 12 months of the first tranche being drawn down.
In conjunction with the senior secured loan note facility, the
Company renegotiated a restructure and extension of its existing
facility with Kerogen. The restructuring agreement with Kerogen
provides for an extension on its debt to December 2019 the facility
structured into two tranches, and for early repayment under
certain circumstances, including early repayment of the senior
secured loan note facility. The restructuring agreement requires
that AJ Lucas raise a minimum of US$30 million of new equity,
via a pro rata entitlements offer, the proceeds of which will be
used in part to repay a minimum of US$25 million of the Kerogen
Tranche 1 facility. The entitlements offer must occur within three
months following a successful UK appeal for the Bowland appraisal
sites or within 9 months of the refinancing, whichever is the
earlier. Kerogen has agreed to participate for its full pro rata full
entitlement, as well to as provide sub-underwriting support should
the Company choose to accept, in aggregate of not less than
US$25 million.
Gross interest bearing loans and borrowings have increased by
$26.9 million to $105.7 million predominantly as a result of the
new senior loan note facility for $30.2 million, a reduction in
the interest bearing portion of the ATO debt of $5.3 million and
a net increase in the Kerogen facility of $2.0 million. Interest is
charged at 18% of the drawn amount under the senior loan note
facility, with 12% payable quarterly in arrears and the remaining
6% accruing until termination of the facility. Under the Kerogen
refinanced facility, interest is initially charged at 20% on the first
tranche of US$26.2 million, increasing to 21% from June 2018
and interest is initially charged at 16% on the second tranche of
US$30.0 million, increasing to 18% from June 2018. As a result of
the arrangements there was a benefit of $17.6m recognised as a
reduction to finance costs during the year.
The Group’s liquidity has marginally deteriorated largely due
to the inclusion of Kerogen’s current interest bearing liability
of $34.5 million. The current ratio has gone from 1.07:1 last
year to 0.93:1 at 30 June 2016. It is expected that following a
successful UK appeal of the Lancashire County Council decision
to refuse planning consent and execution of the entitlements
offer of a minimum US$30 million and repayment of a minimum
US$25 million of the Kerogen Tranche 1 facility, this current ratio
will improve significantly.
Cash, cash equivalents and cash in trust are $22.5 million at
30 June 2016. Of this $4.7 million represents the Group’s share
of joint venture cash balances (these cash balances are available
to be utilised within the joint venture until such time as the Joint
Venture resolves to distribute the cash to joint venture partners),
$15.6 million represents cash drawn under the senior loan notes
facility that remains committed but un-utilised at balance date
and is available to be utilised in accordance with the senior loan
note facility primarily for the purpose of furthering the Group’s
investments in the Bowland tenement, settlement of a legacy legal
dispute which has been provided for at balance date and general
working capital purposes. Cash used in operations during the year
was $24.6 million primarily as a result of payments made to the
ATO of $21.7 million, which included the final settlement of the
remaining ATO liability.
OUTLOOK
The company expects to progress the appraisal of its oil and gas
investments despite recent setbacks on planning approvals in the
UK. The UK Joint Venture has appealed the Lancashire County
Council decision to refuse it planning consent and now awaits
the decision of the Secretary of State for Communities and Local
Government on or before 6th October 2016.
The drilling market showed limited signs of picking up during
the year, in line with the subdued coal sector. Lucas’ drilling
business has been successful during the year in winning repeat
business and some new tenders for large customers however
with global demand for coal remaining constant on cyclically
low prices, exports are expected to remain flat and no sign of
a recovery for exploration drilling services despite recent coal
price increases. Lucas’ drilling business however re-entered the
commercial gas extraction industry in the latter part of the year
and remains cautiously optimistic about sustainable opportunities
going forward.
The Engineering and Construction division continues to tender
in partnership with Spiecapag Australia for major cross country
pipeline projects and is short listed for the few major projects
on offer. The company’s expertise in pipeline and directional
drilling work continues to be recognised in the market. The
division will tender for small scale infrastructure works within its
capability matrix.
REVIEW OF FINANCIAL CONDITION
During the year the company undertook a $21.1 million accelerated
non-renounceable rights issue in March 2016 to provide funds
for the partial repayment of amounts due and payable under the
Kerogen Investments No.1 (HK) Limited (“Kerogen”) senior secured
facility and to provide funds for short term general working
capital purposes, including ongoing funding of the Company’s UK
investments and scheduled payments to the ATO.
In June 2016 the company entered into a new US$ 45 million three
year senior secured loan note facility with entities managed by
OCP (Asia) Hong Kong Limited with the facility to be drawn in
two tranches. The first tranche for US$25 million was drawn in
June 2016 and used in part to discharge outstanding liabilities
with the ATO which had weighed on the Group’s balance sheet for
more than 5 years, to provide the capacity to settle in full the final
material outstanding legal matter relating to a four year dispute
on a civil contract and to fund working capital requirements.
The ATO debt of $30.5 million was settled in full, including a
partial remission of interest, in exchange for AJ Lucas prepaying
A$12.9 million in cash and the partial forgoing of carried forward
tax losses.
The second tranche of US$20 million secures funding to advance
the aforementioned Lancashire exploration assets. Drawdown
of the second tranche will occur following a successful appeal
against Lancashire County’s decisions to reject applications to
drill, stimulate and test the flow of gas at either the Preston New
Road or Roseacre Wood appraisal sites in which AJ Lucas has a
46.85% interest. As mentioned above a decision on the appeals
is currently expected on or before 6th October 2016. In the event
that a successful appeal is not announced within one year, the
26
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT DIRECTORS’ REPORT IMPACT OF LEGISLATION AND OTHER
EXTERNAL REQUIREMENTS
OTHER DISCLOSURES
There were no changes in environmental or other legislative
requirements during the year that significantly impacted the
results or operations of the Group.
DIVIDENDS
UNISSUED SHARES UNDER OPTIONS
All options were granted in previous financial years. There were
no options exercised, and 15,869,356 options lapsed, during the
financial year. At the date of this report, unissued shares of the
Company under rights and options are:
Expiry date
Exercise price
Number of shares
No dividends have been declared by the Company since the end of
the previous year.
22 December 2016
$1.97
1,000,000
3,750,000 former CEO options expired on 7 December 2015.
ENVIRONMENTAL REGULATIONS &
NATIVE TITLE
DIRECTORS’ SHAREHOLDINGS AND
OTHER INTERESTS
Lucas is committed to meeting stringent environmental and
land use regulations, including native title issues, are an
important element of our work. Lucas is committed to identifying
environmental risks and engineering solutions to avoid, minimise
or mitigate them. The Group works closely with all levels of
government, landholders, and other bodies to ensure its activities
have minimal or no effect on land use and areas of environmental
and cultural importance. One of the key benefits of directional
drilling is its ability to avoid or substantially mitigate environmental
impact. Group policy requires all operations to be conducted in a
manner that will preserve and protect the environment.
The directors are not aware of any significant environmental
incidents, or breaches of environmental regulations during or since
the end of the financial year.
SIGNIFICANT CHANGES IN THE STATE
OF AFFAIRS
The significant changes in the state of affairs of the Group both
during the financial year and subsequent to balance date are
as described in this report and the financial statements and
notes thereto.
EVENTS SUBSEQUENT TO
REPORTING DATE
There are no items, transactions or events of a material or unusual
nature that have arisen in the interval between the end of the
financial year and the date of this report, likely in the opinion of the
directors of the company, to affect significantly the operations of
the Group, the results of those operations, or the state of affairs of
the Group, in future financial years.
The relevant interest of each person who held the position of
director during the year, and their director-related entities, in
the shares and options over shares issued by the Company, as
notified by the directors to the Australian Securities Exchange in
accordance with Section 205G(1) of the Corporations Act 2001, at
the date of this report are:
Ordinary shares
Options
Current Directors
Phillip Arnall
175,000
John O’Neill
10,317,940
Andrew Purcell
54,898
Former Directors
Russell Eggers
79,828
–
–
–
–
Russell Eggers resigned as Director on 29 February 2016 having
notified the Australian Securities Exchange of his interest on
that date.
INDEMNIFICATION AND INSURANCE OF
OFFICERS AND AUDITORS
INDEMNIFICATION
The Company has agreed to indemnify all directors and officers
of the Company against all liabilities including expenses to
another person or entity (other than the Company or a related
body corporate) that may arise from their position as directors
or officers of the Group, except where the liability arises out of
conduct involving a lack of good faith.
To the extent permitted by law, the Company has agreed to
indemnify its auditors, Ernst and Young Australia, as part of the
terms of its audit engagement agreement against claims by third
parties arising from the audit (for an unspecified amount). No
payment has been made to indemnify Ernst and Young during or
since the financial year.
27
DIRECTORS’ REPORT INSURANCE PREMIUMS
REMUNERATION REPORT – AUDITED
The Directors present the Remuneration Report (“the report”)
for the Company and its controlled entities for the year ended
30 June 2016. The report forms part of the Directors’ Report
and has been audited in accordance with section 300A of the
Corporations Act 2001. The report outlines the remuneration
policy for key management personnel comprising
1. The Non-executive directors (NEDs)
2. Executive directors and senior executives (the Executives)
Key management personnel have authority and responsibility for
planning, directing and controlling the activities of the Company
and the Group.
NON-EXECUTIVE DIRECTORS’ REMUNERATION
The Board’s policy for setting fees for non-executive directors
is to position them around the middle of market practice for
comparable non-executive director roles in companies listed
on the Australian Securities Exchange (ASX). Non-executive
directors do not receive performance related remuneration and
are not provided with retirement benefit apart from statutory
superannuation. Options and other forms of equity are not
provided for non-executive directors.
Total remuneration for all non-executive directors, last voted upon
at the 2013 Annual General Meeting, is not to exceed $750,000 per
annum. The remuneration for each other non-executive director is
currently $90,000 per annum.
The remuneration for the Chairman was increased effective
1 July 2016 to $225,000 to reflect the ongoing additional time
commitment required as a result of the resignation of the
Chief Executive Officer. Prior to the increase the Chairman’s
remuneration was $135,000 per annum.
In addition, $5,000 per annum is paid to directors for serving on
any committee of the Board. Where directors perform consulting
services to the Group outside of their director duties, additional
fees are paid based on commercial terms and are disclosed as
related party transactions in Note 33 of the financial report.
Since the end of the previous financial year, the Company has paid
premiums in respect of Directors’ and Officers’ liability and legal
expenses insurance contracts for the year ending 31 May 2017.
NON-AUDIT SERVICES
During the year, Ernst and Young, the Company’s auditor, has
performed certain other services in addition to the audit and
review of the financial statements.
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 and Risk Committee, is satisfied
that the provision of those non-audit services during the year
by the auditor is compatible with, and did not compromise, the
auditor 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 Company and have
been reviewed by the Audit and Risk Committee to ensure they
do not impact the integrity and objectivity of the auditor; 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
Company, acting as an advocate for the Company or jointly
sharing risks and rewards.
Payments to the auditor of the Company and its related practices
for non-audit services provided during the year, as set out in
Note 9 of the consolidated financial statements, amounted to
$174,337 (2015 $247,010).
LEAD AUDITOR’S INDEPENDENCE
DECLARATION
The Lead auditor’s independence declaration is set out on page 33
and forms part of the Directors’ Report for the financial year ended
30 June 2016.
ROUNDING OFF
The Company is of a kind referred to in ASIC 98/100 dated
10 July 1998 and, in accordance with that Class Order, amounts
in the Directors’ Report and the consolidated financial report
are rounded off to the nearest thousand dollars, unless
otherwise stated.
28
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT DIRECTORS’ REPORT The following table presents details of the remuneration of each non-executive director.
Non-executive director
Phillip Arnall
Phillip Arnall
Julian Ball
Julian Ball
Ian Meares
Ian Meares
Andrew Purcell
Andrew Purcell
John O'Neill
John O'Neill (1)
(1) John O’Neill was appointed to the Board on 23 June 2015.
EXECUTIVE REMUNERATION
Policy
The key principle of the Company’s remuneration policy for key
management personnel is to set remuneration at a level that will
attract and retain appropriately skilled and motivated executives,
including executive directors, and motivate and reward them to
achieve strategic objectives and improve business results. The
Remuneration Committee obtains independent advice from time
to time on the appropriateness of remuneration packages given
trends in comparative companies and the objectives of the Group’s
remuneration strategy.
The overriding philosophy of the remuneration structure is to
reward employees for increasing shareholder value. This is
achieved by providing a fixed remuneration component, together
with performance-based incentives.
AJ Lucas aims to set fixed annual remuneration at market
median levels for jobs of comparable size and responsibility using
established job evaluation methods and to provide incentives to
enable top performers to be remunerated at the upper end of the
market range, subject always to the performance of the Group.
The aim of the incentive plans is to drive performance to
successfully implement annual business plans and increase
shareholder value.
Fixed remuneration
Fixed remuneration consists of base remuneration which is
calculated on a total cost basis and includes any allowances
and fringe benefit tax charges related to employee benefits
including motor vehicles as well as employer contributions to
superannuation funds.
Board fees
including
superannuation
$
Committee
fees including
superannuation
$
135,000
135,000
90,000
90,000
90,000
90,000
90,000
90,000
90,000
–
10,000
10,000
10,000
10,000
5,000
5,000
5,000
5,000
5,000
–
Year
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Total
$
145,000
145,000
100,000
100,000
95,000
95,000
95,000
95,000
95,000
–
Remuneration levels are reviewed annually through a process that
considers individual and segment performance of the Group. This
process includes consultation with external consultants and review
of external databases to benchmark remuneration levels with
comparable companies.
Performance linked compensation
Performance linked remuneration may include both short-term
and long-term incentives and is designed to reward key
management personnel for meeting or exceeding their financial
and personal objectives.
The short-term incentive (STI) is an ‘at risk’ bonus generally
provided in the form of cash. Executives have the ability to earn
an STI of up to 60% of their fixed annual remuneration, based on
achievement certain criteria. The criteria include a mix of:
1. Corporate performance targets, measured mainly in
reference to a mix of Group and Divisional underlying EBITDA
performance depending on the employee’s role;
2. Corporate sustainability and safety performance; and
3.
Individual key performance indicators.
All remaining options outstanding under a previous long-term
incentive (LTI) plan expired in December 2015.
Management rights and options plan
The management rights and options plan was available to
employees and other persons at the discretion of the Board.
Nominated persons were granted options to acquire shares in
the Company. The exercise of options was subject to vesting
conditions being met. There are no options outstanding at the date
of this report.
29
DIRECTORS’ REPORT Relationship of remuneration to Company performance
In considering the Group’s performance and benefits for shareholder wealth, the Remuneration Committee has had regard to the following
indices in respect of the current financial year and the previous four financial years.
Year ended 30 June
Total revenue ($'000)
Underlying EBITDA
2016
2015
2014
2013
2012
125,478
145,028
227,894
294,791
504,276
14,556
9,405
204
3,332
3,501
Net loss after tax attributable to members ($'000)
(19,485)
(45,216)
(91,693)
(126,996)
(110,237)
Loss per share (cents)
Dividend per share (cents)
Share price at balance date
Share price appreciation/(depreciation)
STI to KMP in relation to the year’s performance ($’000)
(6.7)
(16.9)
(34.6)
(97.6)
(133.2)
–
$0.18
(54%)
482
–
$0.39
(58%)
54
–
$0.93
(23%)
–
–
$1.20
13%
–
–
$1.06
(21%)
–
During the year the non-executive directors approved a bonus to key staff in recognition of the improved business performance in the 2015
financial year. The total amount of the bonus to key management personnel was $54,000 and was paid in cash during the year.
The further improvement in business performance, as measured by underlying EBITDA, in the 2016 financial year has exceeded the annual
targets set under the Groups STI plan. Additionally, individual key performance indicators have been achieved triggering an STI benefit to
certain management staff. These benefits have been provided for at balance date in the financial report, with payment to be made in the
2017 financial year. Amounts accrued to key management personnel, based on the financial results achieved, totals $482,000. Both these
bonuses have been included in the table of Executive directors’ and officers’ remuneration table below.
The Group has in the past provided loans to key management personnel. All such loans were made at commercial rates and therefore do
not represent a benefit to the recipient or attract fringe benefit tax. No loans were made at any time during the year and no loans remain
outstanding to any key management personnel.
30
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT DIRECTORS’ REPORT n %
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DIRECTORS’ REPORT
Service agreements
All key management personnel are employed under contract which outlines components of remuneration but does not prescribe how
remunerations levels are modified year to year. The Board has the ability to provide discretionary benefits which may fall outside existing
incentive programs under the terms of these contracts, for example, in relation to major projects. Remuneration levels are reviewed every
year to take into account cost of living changes, any change in the scope of the role performed, any changes required to meet the principles
of the remuneration policy and the Group’s performance.
The service contracts are unlimited in term. All contracts can be terminated without notice by the Company with compensation, if any,
payable to the employee in accordance with the law or by negotiated agreement.
External remuneration consultant advice
During the financial year, an external consultant benchmarked the Group’s key management personnel remuneration. Given the results of
the external consultants benchmarking exercise, and the Group’s financial performance.
Options over equity instruments granted as compensation
No options over ordinary shares in the Company were granted as compensation to key management person during the reporting period. All
options outstanding to key management personnel at the beginning of the financial year lapsed during the reporting period.
The movement during the reporting period, by number of options over ordinary shares in the Company held, directly, indirectly or
beneficially, by each key management person, including their related parties is as follows:
2016
Executives
Brett Tredinnick
Analysis of movements in shares
Held at
30 June
2016
Vested and
exercisable
at 30 June
2016
Held at
1 July 2015
Lapsed
–
250,000
250,000
–
–
The movement during the reporting period in the number of ordinary shares of the Company held directly, indirectly or beneficially by each
key management person, including their related parties, is as follows:
2016
Directors
Phillip Arnall
Russell Eggers
Andrew Purcell
John O'Neill
Executives
Brett Tredinnick
John Stuart-Robertson
Held at
1 July 2015 Purchased
Pro rata
rights
issue (1)
Net other
changes (2)
Held at
30 June
2016
100,000
–
75,000
–
175,000
9,800
70,028
–
(79,828)
–
28,514
5,000
21,384
–
54,898
7,503,957
345,722
33,972
–
–
–
–
2,813,983
– 10,317,940
–
–
–
–
345,722
33,972
(1) Pro rata rights issue represents entitlement shares subscribed for under the 3 for 8 accelerated non-renounceable entitlement offer announced by the Company on
17 March 2016.
(2) Russell Eggers resigned from the office of Director effective 29 February 2016, having lodged his final Directors Interest notification with the Australian Stock
Exchange, advising of his shareholding of 79,828 shares at that date.
Signed in accordance with a resolution of the directors pursuant to s.298 (2) of the Corporations Act 2001.
Phillip Arnall,
Chairman
Dated at Sydney, this 19th day of August 2016
32
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT DIRECTORS’ REPORT
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Auditor’s Independence Declaration to the Directors of AJ Lucas
Group Limited
As lead auditor for the audit of AJ Lucas Group Limited for the financial year ended 30 June 2016, I
declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of AJ Lucas Group Limited and the entities it controlled during the
financial year.
Ernst & Young
Ryan Fisk
Partner
19 August 2016
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
33
AUDITOR’S INDEPENDENCE DECLARATION
Consolidated statement
of comprehensive income
for the year ended 30 June 2016
Revenue
Total revenue
Other income
Operating costs of Australian operations
Central and corporate costs
Depreciation, amortisation and impairment
Non operating expenses
Results from operations
Net finance costs
Share of profit / (loss) of equity accounted investees
Loss before income tax
Income tax expense
Loss for the period
Other comprehensive income
Items that may be reclassified subsequently to profit and loss
Exchange differences on translation of foreign operations
Total items that may be reclassified subsequently to profit and loss
Other comprehensive income for the period
Total comprehensive loss for the period
Total comprehensive loss attributable to owners of the Company
Earnings per share:
Basic (loss)/earnings per share (cents)
Diluted (loss)/earnings per share (cents)
The accompanying notes are an integral part of these consolidated financial statements.
Note
2016
$’000
2015
$’000
6
125,478
145,028
125,478
145,028
522
3,025
(104,746)
(127,051)
(6,176)
(8,317)
(14,901)
(26,210)
(10,776)
(8,735)
(10,599)
(22,260)
(2,135)
(24,280)
(6,751)
1,324
(19,485)
(45,216)
–
–
(19,485)
(45,216)
8
8
7
17
10
4,392
4,392
17,056
17,056
4,392
17,056
(15,093)
(28,160)
(15,093)
(28,160)
11
11
(6.7)
(6.7)
(16.9)
(16.9)
3434
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT FINANCIAL STATEMENTS
Consolidated statement
of financial position
as at 30 June 2016
Current assets
Cash and cash equivalents
Cash in trust
Trade and other receivables
Inventories
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Exploration assets
Investments in equity accounted investees
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Current tax liabilities
Derivative liabilities
Employee benefits
Total current liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Non-current tax liabilities
Employee benefits
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Share capital
Reserves
Accumulated losses
Total equity
The accompanying notes are an integral part of these consolidated financial statements.
Note
2016
$’000
2015
$’000
12
12
13
14
15
16
18
17
20
21
22
23
25
21
22
25
6,866
15,634
25,754
16,047
1,288
15,955
–
26,866
13,445
1,269
65,589
57,535
39,024
18,314
53,193
16,543
106,209
103,997
163,547
173,733
229,136
231,268
30,923
34,743
–
–
37,408
3,927
8,247
31
4,759
4,159
70,425
53,772
70,984
–
937
74,937
22,234
832
71,921
98,003
142,346
151,775
86,790
79,493
26
362,034
339,670
33,625
29,207
(308,869)
(289,384)
86,790
79,493
3535
FINANCIAL STATEMENTS
Consolidated statement
of changes in equity
for the year ended 30 June 2016
Balance 1 July 2015
Total comprehensive income
Loss for the period
Other comprehensive income
Foreign currency translation differences
Total comprehensive income/(loss)
Transactions with owners recorded directly
in equity
Issue of ordinary shares, net of transaction costs
Share based payment transactions
Total contributions by and distributions to owners
Share
capital
$’000
Translation
reserve
$’000
Option
reserve
$’000
Employee
equity
benefits
reserve
$’000
Accumulated
losses
$’000
Total
equity
$’000
339,670
24,563
637
4,007
(289,384)
79,493
–
–
–
–
4,392
4,392
22,364
–
22,364
–
–
–
–
–
–
–
–
–
–
–
–
–
26
26
(19,485)
(19,485)
–
4,392
(19,485)
(15,093)
–
–
–
22,364
26
22,390
Balance 30 June 2016
362,034
28,955
637
4,033
(308,869)
86,790
Balance 1 July 2014
Total comprehensive income
Loss for the period
Other comprehensive income
Foreign currency translation differences
Total comprehensive income/(loss)
Transactions with owners recorded directly
in equity
Share based payment transactions
Total contributions by and distributions to owners
339,670
7,507
637
3,836
(244,168)
107,482
–
–
–
–
–
–
17,056
17,056
–
–
–
–
–
–
–
–
–
–
171
171
(45,216)
(45,216)
–
17,056
(45,216)
(28,160)
–
–
171
171
Balance 30 June 2015
339,670
24,563
637
4,007
(289,384)
79,493
The accompanying notes are an integral part of these consolidated financial statements.
3636
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT FINANCIAL STATEMENTS
Consolidated statement
of cash flows
for the year ended 30 June 2016
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash used in operations
Interest received
Income taxes paid
Interest and other costs of finance paid
Net cash used in operating activities
Cash flows from investing activities
Recovery of receivables from equity accounted investees
Proceeds from sale of plant and equipment
Acquisition of plant and equipment
Payments for interest in exploration assets
Payments for equity accounted investees
Net cash from / (used in) investing activities
Cash flows from financing activities
Corporate advisory fees
Payment of finance lease liabilities
Proceeds from borrowings
Transaction costs on borrowings
Proceeds from issue of shares
Transaction costs on share issue
Net cash from financing activities
Net increase / (decrease) in cash and cash equivalents
Net foreign exchange difference
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
The accompanying notes are an integral part of these consolidated financial statements.
Note
2016
$’000
2015
$’000
135,121
169,516
(138,201)
(169,963)
(3,080)
241
(21,742)
(13)
(447)
233
(5,914)
(6,780)
32(b)
(24,594)
(12,908)
525
136
(969)
(856)
(5,480)
(6,644)
(1,547)
(93)
32,459
(2,420)
10,314
(1,068)
37,645
6,407
138
15,955
32(a)
22,500
804
834
(1,095)
(500)
–
43
(379)
(51)
–
–
–
–
(430)
(13,295)
–
29,250
15,955
3737
FINANCIAL STATEMENTS
1. REPORTING ENTITY
AJ Lucas Group Limited (the ‘Company’) is a company domiciled
in Australia. The address of the Company’s registered office is
1 Elizabeth Plaza, North Sydney, NSW, 2060. The consolidated
financial statements of the Company as at and for the financial
year ended 30 June 2016 comprise the Company and its
subsidiaries (together referred to as the ‘Group’ and individually
referred to as ‘Group entities’).
AJ Lucas is a for-profit diversified infrastructure, construction and
mining services group specialising in providing services to the
energy, water and wastewater, resources and property sectors.
It also holds investments in unconventional and conventional
hydrocarbons in Europe and Australia.
2. BASIS OF PREPARATION
(A) STATEMENT OF COMPLIANCE
The consolidated financial statements are general purpose
financial statements which have been prepared in accordance with
Australian Accounting Standards (‘AASBs’) including Australian
interpretations adopted by the Australian Accounting Standards
Board (‘AASB’) and the Corporations Act 2001. The consolidated
financial statements comply with International Financial Reporting
Standards (IFRSs) and interpretations adopted by the International
Accounting Standards Board (IASB). The consolidated financial
statements were authorised for issue by the Board of Directors on
19 August 2016.
(B) BASIS OF MEASUREMENT
The consolidated financial statements have been prepared on the
historical cost basis except for the following:
•
•
derivative financial instruments are measured at fair
value; and
liabilities for cash-settled share-based payment arrangements
are measured at fair value.
The methods used to measure material fair values are discussed in
note 5.
(C) GOING CONCERN
The consolidated financial statements have been prepared on a
going concern basis, which assumes that the Group will be able to
continue trading, realise its assets and discharge its liabilities in
the ordinary course of business, for a period of at least 12 months
from the date that these financial statements are approved.
The directors note the following events and conditions which have
been considered in assessing the appropriateness of the going
concern assumption:
•
The Group generated a loss after tax for the period of
$19.5 million primarily as a result of non-cash depreciation and
amortisation charges of $14.9 million, non-operating expenses
of $10.8 million, net finance costs of $2.1 million and share of
loss of equity accounted investee of $6.7 million;
3838
•
•
•
•
•
•
The Group achieving a 54.8% improvement in underlying
EBITDA of $14.6 million;
The Group has a current asset deficiency of $4.8 million.
The Group used net cash of $24.6 million in its operating
activities during the year primarily as a result of payments
made to the ATO of $21.7 million, which included the final
settlement of the remaining ATO liability. The Group had
cash, cash equivalents and cash in trust of $22.5 million at
balance date;
The Group’s core markets in Australia have remained
depressed throughout the period. The Group’s near term
future financial performance will be driven by demand for
its drilling, engineering and construction services, which in
turn will be impacted by various factors which are outside
its control. As such, forecasting carries an inherent degree
of uncertainty;
The Group re-entering the market to lease rigs for the drilling
for commercial gas extraction;
The company has a 46.85% in an oil and gas tenement located
in Bowland UK. The Lancashire County Council (“LCC”) has
declined approval to drill 2 exploration wells in the tenement,
despite Council’s planning officers recommending approval
and Council’s Queens Council advising Council that they would
likely lose any appeal for the approval. Cuadrilla, on behalf of
the joint venture has lodged an appeal against LCC’s decision.
If approval is not received by June 2017 the company may be
required to repay its senior secured loan notes and the related
party loans as disclosed in Note 21; and
•
The ongoing exposure to contingent liabilities as disclosed in
Note 30.
In assessing the appropriateness of using the going
concern assumption, the directors have had regard to the
following matters:
•
•
•
•
•
The ability of the Group to raise additional debt and/or equity,
as demonstrated during the year through the accelerated non
renounceable entitlement offer launched in March 2016 and
the debt refinancing completed in June 2016;
The amount of cash in trust at balance date, as described in
note 12;
The reasonableness of the profitability and cash flow forecasts
of the Group, which have been prepared by management
on the basis of past experience, guidance and commentary
provided by customers and competitors together with
macroeconomic indicators;
The arrangement summarised at Note 18 under which Centrica
Plc (“Centrica”) has provided certain commitments to fund
exploration expenditure in respect of the Bowland and
Elswick prospects;
The arrangements summarised at Note 21 under which the
second tranche US$20 million of senior term loan notes may
be drawn to support the Australian Businesses and fund
future investment requirements in respect of the Bowland and
Elswick prospects, subject to certain conditions; and, whereby
a minimum of US$ 30 million in new equity will be raised
through an entitlements offer and a minimum of US$25 million
of Tranche1 of the Kerogen facility is to be repaid;
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS •
•
The continuing support of Kerogen Investments No. 1 (HK)
Limited (“Kerogen”), both as a substantial debtholder and
shareholder of the Company;
The implied value of the Group’s investment in both Cuadrilla
and also its direct holding in the Bowland and Elswick
prospects, as evidenced by the partial sale of the Group’s
direct and indirect interests in the Prospects to Centrica in
June 2013;
• Announcements made by the United Kingdom Government in
support of the shale gas industry to provide the indigenous
security of supply of energy in the United Kingdom; and
•
The ability of the Group to determine the extent and timing of
its future contributions to Cuadrilla;
In light of the above, if the entity is unable to continue as a going
concern, it may be required to realise its assets and extinguish its
liabilities other than in the normal course of business at amounts
different from those stated in the statement of financial position.
(D) FUNCTIONAL AND PRESENTATION
CURRENCY
The consolidated financial statements are presented in Australian
dollars which is the Company’s functional currency. The Company
is of a kind referred to in ASIC Class Order 98/100 dated
10 July 1998 and in accordance with that Class Order, all financial
information presented in Australian dollars has been rounded off
to the nearest thousand dollars, unless otherwise stated.
(E) USE OF ESTIMATES AND JUDGMENTS
The preparation of the consolidated financial statements
in conformity with AASBs requires management to make
judgements, estimates and assumptions that affect the application
of accounting policies and the reported amount 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 significant areas of estimation uncertainty
and critical judgements in applying accounting policies that
have the most significant effect on the amount recognised
in the consolidated financial statements are described in the
following notes:
• Note 3(f) – Estimation of percentage completion in relation to
revenue recognition
• Note 14 – Inventories;
• Note 19 – Recognition of deferred tax asset;
• Note 27 – Valuation of financial instruments; and
• Note 30 – Contingencies.
• Note 17 – Carrying value of equity accounted investments
(F) CHANGES IN ACCOUNTING POLICIES
The accounting policies set out below have been applied
consistently to all periods presented in these consolidated
financial statements, and have been applied consistently by all
Group entities.
During the financial year ended 30 June 2016, the Group
voluntarily change the presentation of the consolidated statement
of comprehensive income. Materials, Sub-contractor costs,
employee expenses and plant and other construction costs have
been presented together as either Operating Costs of Australia
Operations or Central and administration costs. The Group has
determined that presentation of is financial information in this
manner will enhance the readability of the financial statements for
its users.
3. SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF CONSOLIDATION
Business combinations
Business combinations are accounted for using the acquisition
method as at the acquisition date, which is the date on which
control is transferred to the Group. The consideration transferred
in the acquisition is measured at fair value, as are the identifiable
net assets acquired. The excess of consideration transferred over
the fair value of net assets acquired is recognised as goodwill and
is tested annually for impairment. 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.
The consideration transferred does not include amounts related
to the settlement of pre-existing relationships. Such amounts are
generally recognised in profit or loss.
Any contingent consideration payable is recognised at fair value at
the acquisition date. If the 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.
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 involvement with the entity and has the ability
to affect those returns through its power over the entity. Power
is determined in relation to rights that give the Group the current
ability to direct the activities that significantly affect returns from
the Group’s investment. In assessing control, the Group takes into
consideration potential voting rights that currently are exercisable.
The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases.
• Note 18 – Carrying value of exploration assets
Investments in equity accounted investees
The Group’s interest in equity accounted investees comprise
interests in joint ventures and an associate.
3939
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Associates are those entities in which the Group has significant
influence, but not control or joint control, over the financial and
operating policies. Jointly ventures are those entities over whose
activities the Group has joint control, whereby the Group has rights
to the net assets of the arrangement, rather than rights to its
assets and obligations for its liabilities.
Investments in associates and joint ventures are accounted for
using the equity method and are initially recognised at cost, which
includes transaction costs. Subsequent to initial recognition, the
consolidated financial statements include the
Group’s share of the profit or loss and other comprehensive
income of equity accounted investees, after adjustments to align
the accounting policies with those of the Group, from the date that
significant influence or joint control commences until the date that
significant influence or joint control ceases. A partial redemption of
equity interests is accounted for as a reduction in the investment
value equal to the cash redemption.
When the Group’s share of losses exceeds its interest in an equity
accounted investee, the carrying amount of that interest, including
any long-term investments that form part thereof, is reduced to
zero, and the recognition of further losses is discontinued except to
the extent that the Group has an obligation or has made payments
on behalf of the investee.
Joint operations
An operation is a joint arrangement whereby the parties that
jointly control the arrangement have rights to the assets, and
obligations for the liabilities, relating to the arrangement. The
consolidated financial statements include the Group’s share of
assets and liabilities held jointly and the Group’s share of expenses
incurred and income earned jointly.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised
income and expenses, are eliminated in preparing the
consolidated financial statements. Unrealised gains arising from
transactions with equity accounted investees are eliminated
against the investment to the extent of the Group’s interest in
the investee. Unrealised losses are eliminated in the same way as
unrealised gains, but only to the extent that there is no evidence
of impairment.
(B) FOREIGN CURRENCY
Foreign currency transactions
Transactions in foreign currencies are translated to the respective
functional currencies of the Group’s entities at exchange rates at
the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies
at the reporting date are translated to the functional currency at
the exchange rate at reporting date.
Non-monetary assets and liabilities denominated in foreign
currencies that are measured at fair value are retranslated to
the functional currency at the exchange rate at the date that
the fair value was determined. Non-monetary items in a foreign
4040
currency that are measured in terms of historical cost are not
retranslated. Foreign currency differences arising on retranslation
are recognised in profit or loss, except for differences arising
on the retranslation of available-for-sale equity instruments
or qualifying cash flow hedges, which are recognised in other
comprehensive income.
Foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on acquisition, are
translated to Australian dollars at exchange rates at the reporting
date. The income and expenses of foreign operations are
translated to Australian dollars at exchange rates at the dates of
the transactions.
Foreign currency differences are recognised in other
comprehensive income, and presented in the foreign currency
translation reserve (translation reserve) in equity. When a foreign
operation is disposed of such that control, significant influence
or joint control is lost, the cumulative amount in the translation
reserve related to that foreign operation is reclassified to profit
or loss as part of the gain or loss on disposal. When the Group
disposes of only part of its interest in a subsidiary that includes a
foreign operation while retaining control, the relevant proportion
of the cumulative amount is reattributed to non-controlling
interests. When the Group disposes of only part of an associate or
joint venture while retaining significant influence or joint control,
the relevant proportion of the cumulative amount is reclassified to
profit or loss.
When the settlement of a monetary item receivable from or
payable to a foreign operation is neither planned nor likely in the
foreseeable future, foreign exchange gains and losses arising
from such a monetary item are considered to form part of a net
investment in a foreign operation and are recognised in other
comprehensive income, and are presented in the translation
reserve in equity.
(C) FINANCIAL INSTRUMENTS
The Group classifies non-derivative financial assets into the
following categories: financial assets at fair value through profit
and loss, held to maturity financial assets, loans and receivables
and available for sale financial assets.
Non-derivative financial assets and financial liabilities
– recognition and de-recognition
The Group initially recognises loans and receivables and debt
securities on the date that they are originated. All other financial
assets and financial liabilities are recognised initially on the
trade date.
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows on the financial asset in
a transaction in which substantially all the risks and
rewards of ownership of the financial asset are transferred. Any
interest in transferred financial assets that is created or retained
by the Group is recognised as a separate asset or liability.
The Group derecognises a financial liabilities when its contractual
obligations are discharged, cancelled or expire.
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 settle on a net basis or to realise the asset and
settle the liability simultaneously.
Non-derivative financial assets and financial liabilities
– measurement
Loans and receivables
Loans and receivables are financial assets with fixed or
determinable payments that are not quoted in an active market.
They comprise trade and other receivables.
Leased assets
Leases where the Group assumes substantially all the risks and
rewards of ownership are classified as finance leases. Upon initial
recognition, the leased asset is measured at an amount equal to
the lower of its fair value and the present value of the minimum
lease payments. Subsequent to initial recognition, the asset is
accounted for in accordance with the accounting policy applicable
to that asset.
Other leases are operating leases and are not recognised on the
Group’s statement of financial position.
Lease payments
Such assets are recognised initially 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 impairment losses.
Payments made under operating leases are recognised in profit
or loss on a straight-line basis over the term of the lease. Lease
incentives received are recognised as an integral part of the total
lease expense, over the term of the lease.
Cash and cash equivalents
Comprise cash balances and call deposits with original maturities
of three months or less.
Cash in trust
Comprises cash balances held in trust under the terms of the
senior term loan notes.
Non-derivative financial liabilities
The Group classifies non-derivative financial liabilities into the
other financial liabilities category. Other financial liabilities
comprise loans and borrowings, bank overdrafts and trade and
other payables. Such financial liabilities are recognised initially
at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition, these financial liabilities are
measured at amortised cost using the effective interest method.
Derivative financial instruments, including hedge accounting
The Group may from time to time hold derivative financial
instruments. Embedded derivatives are separated from the host
contract and accounted for separately if certain criteria are met.
Derivatives are recognised initially at fair value; attributable
transaction costs are recognised in profit or loss as incurred.
Subsequent to initial recognition, derivatives are measured at
fair value and changes therein are generally recognised in profit
and loss.
(D) SHARE CAPITAL
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares and share options are
recognised as a deduction from equity, net of any tax effects.
Dividends are recognised as a liability in the period in which they
are declared.
(E) LEASES
At inception of an arrangement, the Group determines whether the
arrangement is or contains a lease.
Minimum lease payments made under finance leases are
apportioned between the finance expense and the reduction of
the outstanding liability. The finance expense is allocated to each
period during the lease term so as to produce a constant periodic
rate of interest on the remaining balance of the liability.
(F) REVENUE
Services rendered
Revenue from services rendered is recognised in profit or loss in
proportion to the stage of completion of the transaction at the
reporting date. The stage of completion is assessed by reference to
surveys of work performed.
Construction contracts
Contract revenue includes the initial amount agreed in the
contract plus any variations in contract work, claims and incentive
payments to the extent that it is probable that they will result in
revenue and can be measured reliably. As soon as the outcome
of a construction contract can be estimated reliably, contract
revenue is recognised in profit or loss in proportion to the stage
of completion of the contract. Contract expenses are recognised
as incurred unless they create an asset related to future
contract activity.
The stage of completion is assessed by reference to surveys of
work performed. When the outcome of a construction contract
cannot be estimated reliably, contract revenue is recognised
only to the extent of contract costs incurred that are likely to
be recoverable. An expected loss on a contract is recognised
immediately in the profit or loss.
(G) FINANCE INCOME AND FINANCE COSTS
Finance income comprises interest income on funds invested and
gains on hedging instruments that are recognised in profit or loss.
Interest income is recognised as it accrues in profit or loss, using
the effective interest method.
Finance costs comprise interest expense on borrowings, unwinding
of the discount on provisions and deferred consideration, foreign
currency losses and losses on financial instruments. Borrowing
costs that are not directly attributable to the acquisition,
4141
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
construction or production of a qualifying asset are recognised in
profit or loss using the effective interest method.
Foreign currency gains and losses are reported on a net basis.
(H) INCOME TAX
Income tax expense comprises current and deferred tax. Income
tax is 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
substantially enacted at the reporting date, and any adjustment
to tax payable in respect of previous years. Current tax unpaid at
the end of the year is recognised as an income tax liability. Also
included in income tax liability is outstanding current tax liabilities
in relation to prior periods where contractually agreed payment
plans have been put in place.
Deferred tax
Deferred tax is recognised in respect of deductible 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 the following
temporary differences:
•
•
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;
relating to investments in subsidiaries and associates and joint
arrangements to the extent that it is probable that they will
not reverse in the foreseeable future; and
•
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, based
on the laws that have been enacted or substantively enacted
by the reporting date. Deferred tax assets and liabilities are
offset if there is a legally enforceable right to offset current tax
liabilities and assets, and they relate to income 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 only to the extent that it is
probable that future taxable profits will be available against which
the temporary difference 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 its wholly owned Australian resident entities are
part of a tax-consolidated group. As a consequence, all members
of the tax consolidated group are taxed as a single entity. The head
entity within the tax-consolidated group is AJ Lucas Group Limited.
4242
Current tax expense/income, deferred tax liabilities and deferred
tax assets arising from temporary differences of the members of
the tax-consolidated group are recognised in the separate financial
statements of the members of the tax-consolidated group using
the group allocation approach.
Any current tax liabilities (or assets) and deferred tax assets
arising from unused tax losses of the subsidiaries are assumed by
the head entity in the tax-consolidated group and are recognised
by the Company as amounts payable (receivable) to/(from) other
entities in the tax-consolidated group in conjunction with any
tax funding arrangement amounts (refer below). Any difference
between these amounts is recognised by the Company as an equity
contribution or distribution.
The Company recognises deferred tax assets arising from unused
tax losses of the tax-consolidated group to the extent that it is
probable that future taxable profits of the tax-consolidated group
will be available against which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising
from unused tax losses as a result of revised assessments of the
probability of recoverability is recognised by the head entity only.
Nature of tax funding arrangements and tax
sharing arrangements
The head entity, in conjunction with other members of the
tax-consolidated group, has entered into a tax funding
arrangement which sets out the funding obligations of members
of the tax-consolidated group in respect of tax amounts. The tax
funding arrangements require payments to/from the head entity
equal to the current tax liability/(asset) assumed by the head entity
and any tax-loss deferred tax asset assumed by the head entity,
resulting in the head entity recognising an inter-entity receivables/
(payables) equal in amount to the tax liability/(asset) assumed. The
inter-entity receivables/(payables) are at call.
Contributions to fund the current tax liabilities are payable as
per the tax funding arrangement and reflect the timing of the
head entity’s obligation to make payments for tax liabilities to the
relevant tax authorities.
The head entity in conjunction with other members of the
tax-consolidated group, has also entered into a tax sharing
agreement. The tax sharing agreement provides for the
determination of the allocation of income tax liabilities
between the entities should the head entity default on its tax
payment obligations.
(I) EARNINGS PER SHARE
The Group 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
rights and options granted to employees and the options over the
Company’s ordinary shares.
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (J) SEGMENT REPORTING
An operating segment is a component of the Group that engages
in business activities from which it may earn revenues and
incur expenses, including revenues and expenses that relate
to transactions with any of the Group’s other components. All
operating segment operating results are regularly reviewed by
the Group’s Executive Leadership Team (“ELT”) to make decisions
about resources to be allocated to the segment and assess its
performance, and for which discrete financial information is
available. The ELT is the primary decision making body responsible
for the day to day management of the business and comprises
the Groups Executive General Managers, the Human Resources
Executive, Chief Financial Officer and is chaired by the Chairman of
the Board.
Segment results that are reported to the ELT 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.
(K) CONSTRUCTION WORK IN PROGRESS
Construction work in progress represents the gross unbilled
amount expected to be collected from customers for contract work
performed to date. It is measured at cost plus profit recognised to
date less progress billings and recognised losses. Cost includes all
expenditure related directly to specific projects and an allocation
of fixed and variable overheads incurred in the Group’s contract
activities based on normal operating capacity.
Construction work in progress is presented as part of inventories
in the statement of financial position for all contracts where
costs incurred plus recognised profits exceed progress billings.
If progress billings exceed costs incurred plus recognised profits,
then the difference is presented as deferred income in the
statement of financial position.
(L)
INVENTORIES
Inventories are valued at the lower of cost and net realisable value.
Cost incurred in bringing each product to its present location and
condition are included in the cost of inventory. Net realisable value
is the estimated selling price in the ordinary course of business.
(M) PROPERTY, PLANT AND EQUIPMENT
Recognition and measurement
Items of property, plant and equipment are measured at cost less
accumulated depreciation and impairment losses.
Cost includes cost of materials and direct labour, the costs of
dismantling and removing the items and restoring the site on which
they are located and any other costs attributable to bringing the
assets to a working condition for their intended use. Cost may also
include transfers from other comprehensive income of any gain or
loss on qualifying cash flow hedges of foreign currency purchases
of property, plant and equipment. In respect of borrowing costs
relating to qualifying assets, the Group capitalises borrowing costs
directly attributable to the acquisition, construction or production
of a qualifying asset as part of the cost of that asset. 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.
Sale of non-current assets
The net gain or loss on disposal is included in profit or loss at
the date control of the asset passes to the buyer, usually when
an unconditional contract for sale is signed. The gain or loss on
disposal is calculated as the difference between the carrying
amount of the asset at the time of disposal and the net proceeds
on disposal (including incidental costs).
Subsequent costs
The cost of replacing part of an item of property, plant and
equipment is capitalised in the carrying amount of the item if it is
probable that the future economic benefits embodied within the
part will flow to the Group and its cost can be measured reliably.
The costs of the day-to-day servicing of property, plant and
equipment are recognised in profit or loss as incurred.
Depreciation
Depreciation is calculated to write off the cost of items of property,
plant and equipment, less their estimated residual value, using the
straight line method over the estimated useful life. Leased assets
are depreciated over the shorter of the lease term and their useful
lives unless it is reasonably certain that the Group will obtain
ownership by the end of the lease term. Depreciation is recognised
in the profit and loss.
Estimated useful lives for the current and comparative periods are
as follows:
Leasehold improvements
Buildings
Plant and equipment
Leased plant and equipment
Enterprise Development
Years
5
20-40
3-15
3-15
6
The residual value, useful life and depreciation method applied to
an asset are adjusted if appropriate at least annually.
(N) INTANGIBLE ASSETS
Other intangible assets
Other intangible assets that are acquired by the Group are
measured at cost less accumulated amortisation and accumulated
impairment losses.
Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is
capitalised only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other
expenditure is recognised in profit or loss as incurred.
4343
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
(O) EXPLORATION AND EVALUATION ASSETS
Exploration and evaluation costs, including the costs of acquiring
licences, are capitalised as exploration and evaluation assets on
an area of interest basis. Costs incurred before the Group has
obtained legal rights to explore an area are recognised in profit
or loss.
Exploration and evaluation assets are only recognised if the rights
of the area of interest are current and either:
•
•
the expenditures are expected to be recouped through
successful development and exploitation of the area of
interest; or
activities in the area of interest have not at the reporting date,
reached a stage which permits a reasonable assessment of the
existence or otherwise of economically recoverable reserves
and active and significant operations in, or in relation to, the
area of interest are continuing.
Exploration and evaluation assets are assessed for impairment
if sufficient data exists to determine technical feasibility and
commercial viability, and facts and circumstances suggest that
the carrying amount exceeds the recoverable amount. For the
purposes of impairment testing, exploration and evaluation assets
are allocated to cash-generating units to which the exploration
activity relates. The cash generating unit shall not be larger than
the area of interest.
In applying the exploration and evaluation asset recognition policy,
and in determining recoverable amount management are required
to make certain estimates and assumptions as to future events
and circumstances, in particular whether an economically viable
extraction operation can be established. Any such estimates and
assumptions may change as new information becomes available.
Where the Group is party to a farm-in arrangement any proceeds
or non-cancellable expenditure funded by the purchaser is
recognised as disposal proceeds. The non-cancellable expenditure
to be funded by the purchaser is recognised as a receivable carry
asset within exploration assets in accordance with the Group’s
interest percentage. The assets disposed per the terms of the
farm-in arrangement are treated as costs of disposal, alongside
any other costs incurred, with the net profit or loss recognised in
the income statement as incurred.
The cancellable portion of deferred consideration, and
consideration contingent on a future event is disclosed as a
contingent asset and is not recognised by the Group until it has
actually been incurred or becomes non-cancellable, at which
point, additional profit will be recognised in the profit and loss for
these amounts.
(P)
IMPAIRMENT
Financial assets (including receivables)
A financial asset not carried at fair value through profit or loss is
assessed at each reporting date to determine whether there is
objective evidence that it is impaired. A financial asset is impaired
if objective evidence indicates that a loss event has occurred after
the initial recognition of the asset, and that the loss event had a
4444
negative effect on the estimated future cash flows of that asset
that can be estimated reliably.
Objective evidence that financial assets (including equity
securities) are impaired can include default or delinquency by a
debtor, restructuring of an amount due to the Group on terms that
the Group would not consider otherwise, indications that a debtor
or issuer will enter bankruptcy, or the disappearance of an active
market for a security. In addition, for an investment in an equity
security, a significant or prolonged decline in its fair value below its
cost is objective evidence of impairment.
The Group considers evidence of impairment for receivables at
both a specific asset and collective level. All individually significant
receivables are assessed for specific impairment. All individually
significant receivables found not to be specifically impaired are
then collectively assessed for any impairment that has been
incurred but not yet identified. Receivables that are not individually
significant are collectively assessed for impairment by grouping
together receivables with similar risk characteristics.
In assessing collective impairment, the Group uses historical
trends of the probability of default, timing of recoveries and the
amount of loss incurred, adjusted for management’s judgement as
to whether current economic and credit conditions are such that
the actual losses are likely to be greater or less than suggested by
historical trends.
An impairment loss in respect of a financial asset measured at
amortised cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows
discounted at the asset’s original effective interest rate. Losses are
recognised as profit or loss and reflected in an allowance account
against receivables. Interest on the impaired asset continues
to be recognised through the unwinding of the discount. When
a subsequent event causes the amount of impairment loss to
decrease, the decrease in impairment loss is reversed through
profit or loss.
Non-financial assets
The carrying amounts of the Group’s non-financial assets (other
than inventories, construction work in progress and deferred tax
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.
The recoverable amount of an asset or cash-generating unit 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 post-tax discount rate
that reflects current market assessments of the time value of
money and the risks specific to the asset.
For the purpose of impairment testing, assets are grouped
together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of
the cash inflows of other assets or Group’s of assets (“the cash
generating unit” or “CGU”). The Group’s corporate assets do not
generate separate cash inflows. If there is an indication that a
corporate asset may be impaired, then the recoverable amount is
determined for the CGU to which the corporate asset belongs.
An impairment loss is recognised if the carrying amount of an
asset or its CGU exceeds its recoverable amount. Impairment
losses are recognised in profit or loss. Impairment losses
recognised in respect of CGUs are allocated first to reduce the
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS carrying amount of any goodwill allocated to the units and then to
reduce the carrying amount of the other assets in the unit (group
of units) on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In
respect of other assets, impairment losses recognised in prior
periods are assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment
loss is reversed if there has been a change in the estimates used
to determine the recoverable amount. An impairment loss is
reversed only to the extent that the asset’s carrying amount does
not exceed the carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment loss had
been recognised.
Goodwill that forms part of the carrying amount of an investment
in an associate is not recognised separately, and therefore is not
tested for impairment separately. Instead, the entire amount of
the investment in an associate is tested for impairment as a single
asset when there is objective evidence that the investment in an
associate may be impaired.
(Q) NON-CURRENT ASSETS HELD FOR SALE
Non-current assets, or disposal Group’s comprising assets and
liabilities, that are expected to be recovered primarily through sale
rather than through continuing use, are classified as held for sale.
Immediately before classification as held for sale, the assets, or
components of a disposal group, are remeasured in accordance
with the Group’s accounting policies. Thereafter the assets,
or disposal group, are measured at the lower of their carrying
amount and fair value less cost to sell. Impairment losses on initial
classification as held for sale and subsequent gains or losses on
re-measurement are recognised in profit or loss. Gains are not
recognised in excess of any cumulative impairment loss.
(R) EMPLOYEE BENEFITS
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 plans are recognised as an employee benefit expense
in profit or loss in the periods during which services are rendered
by employees.
Other long-term employee benefits
The Group’s net obligation in respect of long-term employee
benefits is the amount of future benefit that employees have
earned in return for their service in the current and prior periods
and related on costs. Benefits are discounted to determine their
present value, using the yield at the reporting date on government
bonds that have maturity dates approximating the terms of
the Group’s obligations. The calculation is performed using
the projected unit credit method. Any actuarial gains or losses
are recognised in the income statement in the period in which
they arise.
Termination benefits
Termination benefits are recognised as an expense when the
Group is demonstrably committed, without realistic possibility
of withdrawal, to a formal detailed plan to either terminate
employment before the normal retirement date, or to provide
termination benefits as a result of an offer made to encourage
voluntary redundancy. Termination benefits for voluntary
redundancies are recognised as an expense if the Group has made
an offer of voluntary redundancy, it is probable that the offer will
be accepted, and the number of acceptances can be estimated
reliably. If benefits are payable more than 12 months after the
reporting period, then they are discounted to their present value.
Short-term benefits
Short-term employee benefit obligations are measured on an
undiscounted basis and are expensed as the related service is
provided. A liability is recognised for the amount expected to be
paid under short-term cash bonus or profit-sharing plans 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.
Share-based payment transactions
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 in which 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
vesting 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.
(S) PROVISIONS
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 the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. The unwinding
of the discount is recognised as finance cost.
Onerous contracts
A provision for onerous contracts is measured at the present value
of the lower of the expected cost of terminating the contract and
the expected net cost of continuing with the contract.
4545
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4. NEW STANDARDS AND
INTERPRETATIONS NOT YET ADOPTED
about the assumptions made in determining fair values is disclosed
in the notes specific to that asset or liability.
The following accounting standards, amendments to accounting
standards and interpretations have been identified as those
which may impact the Group in the period of initial adoption.
They were available for early adoption for the Group’s annual
reporting period beginning 1 July 2015, but have not been applied
in preparing this financial report.
AASB 9 FINANCIAL INSTRUMENTS
AASB 9 Financial Instruments replaces the existing guidance in
AASB 139 Financial Instruments: Recognition and measurement.
AASB 9 includes revised guidance on the classification and
measurement of financial instruments, including a new expected
credit loss model for calculating impairment of financial assets and
the new general ledger hedge accounting requirements. It also
carries forward the guidance and recognition and derecognition
of financial instruments from AASB 139. AASB 9 is effective
for annual reporting periods on or after 1 July 2018, with early
adoption permitted. The impact of this standard has yet to be
quantified by the Group.
PROPERTY, PLANT AND EQUIPMENT
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 replacement cost when appropriate. Current
replacement cost estimates reflect adjustment for physical
deterioration as well as functional and economic obsolescence.
INVENTORIES
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.
AASB 15 REVENUE FROM CONTRACTS
TRADE AND OTHER RECEIVABLES
AASB 15 Revenue from Contracts with Customers establishes a
comprehensive framework for determining whether, how much
and when revenue is recognised. It replaces existing revenue
recognition guidance, including AASB 118 Revenue, AASB 111
Construction Contracts and associated interpretations. The new
standard will be applicable for the Group for the reporting period
commencing 1 July 2018, with early adoption permitted. The
impact of this standard has yet to be quantified by the Group.
AASB 16 LEASES
AASB 16 Leases requires the recognition of a right of use asset and
a lease liability for all leases with a term of more than 12 months.
The assets and liability will initially be measured on a present
value of future cash flows basis. Currently the company only
recognises a lease liability and asset in relation to finance leases,
while lease payments in relation to operating leases are expensed
on a straight line basis. The new standard will be effective from
1 July 2019. The impact of this standard has yet to be quantified by
the Group.
There are also other amendments and revisions to accounting
standards that have not been early adopted. These changes are not
expected to result in any material changes to the Group’s financial
performance or financial position.
5. DETERMINATION OF FAIR VALUES
A number of the Group’s accounting policies and disclosures
require the determination of fair value, for both financial
and non-financial assets and liabilities. Fair values have been
determined for measurement and / or disclosure purposes based
on the following methods. When applicable, further information
The fair value of trade and other receivables, excluding
construction work in progress, is estimated as the present value of
future cash flows, discounted at the market rate of interest at the
reporting date.
DERIVATIVES
The fair value of interest rate swaps is based on broker quotes.
Those quotes are tested for reasonableness by discounting
estimated future cash flows based on the terms and maturity
of each contract and using market interest rates for a similar
instrument at the measurement date. Fair values reflect the
credit risk of the instrument and include adjustments to take
account of the credit risk of the Group entity and counterparty
when appropriate. Further disclosures relating to the fair value
of derivatives with reference to Level 2 inputs are disclosed in
Note 27.
NON-DERIVATIVE FINANCIAL LIABILITIES
Fair value, which is determined for disclosure purposes, is
calculated based on the present value of future principal and
interest cash flows, discounted at the market rate of interest at the
reporting date. For finance leases, the market rate of interest is
determined by reference to similar lease agreements.
SHARE-BASED PAYMENT TRANSACTIONS
The fair value of employee stock options are measured using
the Monte Carlo pricing model. Measurement inputs include
share price on measurement date, exercise price of the
instrument, expected volatility (based on an evaluation of the
Company’s historic volatility, particularly over the historic period
commensurate with the expected term), expected term of the
4646
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS There are varying levels of integration between the Drilling and
Engineering & Construction reportable segments. The accounting
policies of the reportable segments are the same as described in
Note 3.
Information regarding the results of each reportable segment
is included below. Performance is assessed based on segment
earnings before interest, income tax, depreciation and
amortisation (EBITDA) and segment profit before interest and
income tax. Inter-segment pricing is determined on an arm’s
length basis.
During the period, management reassessed the allocation of
overheads that can be directly attributed to an individual business
segment. This has resulted in changes to the overhead allocations
between Corporate, drilling, E&C and Oil & Gas. The historical
segment results for the financial year ended 30 June 2015 have
been restated to be comparable with the revised allocations as
required by AASB 8 Operating Segments.
instruments (based on historical experience and general option
holder behaviour), 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.
6. OPERATING SEGMENTS
The Group has three reportable segments, as described below,
which are the Group’s strategic divisions. The strategic divisions
offer different products and services, and are managed separately
because they require different technology and marketing
strategies. For each of the strategic divisions, the ELT reviews
internal management reports on at least a monthly basis. The
following summary describes the operations in each of the Group’s
reportable segments:
Drilling
Drilling services to the coal industries for
degasification of coal mines and associated
services and commercial extraction of gas.
Engineering &
construction
(E&C)
Pipelines and associated construction and civil
services. The Group is also the market leader in
the installation of pipes including using horizontal
directional drilling techniques.
Oil & gas
Commercialisation of unconventional and
conventional hydrocarbons in Europe and
Australia.
4747
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6.
OPERATING SEGMENTS (continued)
June 2016
Reportable segment revenue
Drilling
$’000
E&C
$’000
Oil & Gas
$’000
Reportable
Segments
$’000
Corporate/
unallocated
$’000
Eliminations
$’000
Total
$’000
Revenue – services rendered
79,633
–
Revenue – construction contracts
–
45,845
Inter-segment revenue (1)
6,014
5,046
Total consolidated revenue
85,647
50,891
–
–
–
–
79,633
45,845
11,060
136,538
–
–
–
–
–
–
79,633
45,845
(11,060)
–
(11,060)
125,478
EBITDA
11,385
6,900
(9,571)
8,714
(11,163)
Depreciation, amortisation and impairment
(11,700)
(3,176)
Finance income
Finance cost
–
–
–
–
–
–
–
(14,876)
–
–
(25)
272
(2,407)
Reportable segment profit / (loss)
(315)
3,724
(9,571)
(6,162)
(13,323)
–
–
–
–
–
(2,449)
(14,901)
272
(2,407)
(19,485)
June 2015
Reportable segment revenue
Drilling
$’000
E&C
$’000
Oil & Gas
$’000
Reportable
Segments
$’000
Corporate/
unallocated
$’000
Eliminations
$’000
Total
$’000
Revenue – services rendered
83,545
–
Revenue – construction contracts
–
61,483
Inter-segment revenue(1)
6,343
–
Total consolidated revenue
89,888
61,483
–
–
–
–
83,545
61,483
6,343
151,371
–
–
–
–
–
–
83,545
61,483
(6,343)
–
(6,343)
145,028
EBITDA
4,004
6,719
4,071
14,794
(9,520)
Depreciation, amortisation and
impairment
Finance income
Finance cost
(16,247)
(3,032)
–
–
–
–
–
–
–
(19,279)
(6,931)
–
–
1,967
(26,247)
Reportable segment profit / (loss)
(12,243)
3,687
4,071
(4,485)
(40,731)
–
–
–
–
–
5,274
(26,210)
1,967
(26,247)
(45,216)
(1) Inter-segment revenue represents internal charges for services performed between different business units and recharges to joint operations, which are eliminated
on consolidation to the extent of the Groups interest.
4848
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS –
–
–
–
–
(6,751)
106,209
969
525
Total
$’000
June 2016
Segment assets
Segment liabilities
Drilling
$’000
E&C
$’000
Oil & Gas
$’000
Reportable
Segments
$’000
Corporate/
unallocated
$’000
Total
$’000
60,257
27,590
125,038
212,885
16,251
229,136
(7,988)
(13,482)
(5,028)
(26,498)
(115,848)
(142,346)
Depreciation and amortisation
(11,700)
(3,176)
–
(14,876)
(25)
(14,901)
Share of loss of equity accounted investees
Equity accounted investments
Capital expenditure
Recovery of receivables from equity
accounted investees
–
–
792
–
–
–
115
–
(6,751)
(6,751)
106,209
106,209
907
–
–
62
–
525
June 2015
Segment assets
Segment liabilities
Drilling
$’000
E&C
$’000
Oil & Gas
$’000
Reportable
Segments
$’000
Corporate/
unallocated
$’000
68,663
34,710
125,356
228,729
2,539
231,268
(31,736)
(12,604)
(5,039)
(49,379)
(102,396)
(151,775)
Depreciation and amortisation
(15,461)
(3,032)
–
(18,493)
(1,817)
(20,310)
Share of profit of equity accounted investees
Equity accounted investments
Capital expenditure
Impairment of plant and equipment
Recovery of receivables from equity
accounted investees
GEOGRAPHICAL INFORMATION
–
–
1,051
(786)
–
–
36
–
–
804
1,324
1,324
103,997
103,997
1,087
–
–
8
1,324
103,997
1,095
(786)
(5,114)
(5,900)
804
–
804
Geographical revenue and assets are based on the respective geographical location of customers and assets.
Australia
Europe
Asia/Pacific
7. FINANCE INCOME AND FINANCE COSTS
Interest income
Net change in fair value of derivative liability
Finance income
Interest expense
Remission of interest
Amortisation of options and fees on debt facilities
Net foreign exchange loss
Finance costs
Net finance costs recognised in profit and loss
Revenues
Non-current assets
2016
$’000
2015
$’000
2016
$’000
2015
$’000
124,989
144,848
39,024
53,193
–
489
–
180
124,523
120,540
–
–
125,478
145,028
163,547
173,733
2016
$’000
241
31
272
2015
$’000
233
1,734
1,967
(16,604)
(14,762)
17,663
(1,422)
–
(915)
(2,044)
(10,570)
(2,407)
(26,247)
(2,135)
(24,280)
4949
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. OTHER EXPENSES
Loss before income tax has been arrived at after charging the following items:
Depreciation and amortisation of property, plant and equipment
Impairment of plant and equipment
Total depreciation, amortisation and impairment
UK investment overhead costs
Settlement of historical legal disputes
Recovery of receivable from equity accounted investees
Redundancy costs
Net (profit) / loss on sales of assets
Corporate advisory fees
Share based payment expense
Other (income) / expense
Total non-operating costs
9. AUDITOR’S REMUNERATION
Audit services
Auditors of the Company — EY Australia and other network firms
Audit and review of financial reports
Other professional services
Other professional services related to tax advisory services.
2016
$’000
14,901
–
2015
$’000
20,310
5,900
14,901
26,210
2,820
7,445
(525)
503
102
(117)
27
521
517
3,676
(804)
2,413
(143)
2,043
171
862
10,776
8,735
2016
$’000
2015
$’000
293
174
467
280
247
527
5050
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10. INCOME TAX
Recognised in profit or loss
Current tax benefit
Current year
Tax losses (utilised) / not recognised and temporary differences derecognised in current year
Deferred tax expense recognised in profit or loss
Origination and reversal of temporary differences
Prior year adjustment
Prior year tax losses not recognised
Total income tax expense / (benefit) in profit or loss
Numerical reconciliation between tax benefit and pre-tax net profit/(loss)
Accounting loss before income tax
Prima facie income tax benefit calculated at 30%
Adjustment for:
Equity settled share based payments
Equity accounted (gain)/loss
Non-deductible expenses
Non-deductible option expense
Effect of tax rate in foreign jurisdictions
Non-deductible finance cost
Impairment expenses
Fair value – derivative option (gain)/loss non-assessable
Prior year tax losses not recognised
Current year tax losses not recognised
Current year temporary differences not recognised
Income tax over-provided in prior year
Income tax expense / (benefit) attributable to operating loss
2016
$’000
2015
$’000
(4,149)
(8,883)
(596)
(4,745)
12,813
3,930
4,745
(3,930)
(336)
336
–
199
(199)
–
(19,485)
(45,216)
(5,846)
(13,565)
–
–
1,927
(1,126)
241
435
173
3,278
–
(9)
336
4,546
(4,745)
336
–
74
326
(785)
2,124
659
(520)
(199)
8,883
3,930
(200)
–
5151
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. EARNINGS PER SHARE
BASIC EARNINGS PER SHARE
The calculation of basic earnings per share at 30 June 2016 was based on the loss after tax attributable to ordinary shareholders of 2016
$19,485,000 (2015: loss after tax $45,216,000) and a weighted average number of ordinary shares outstanding of 290,031,908 (2015:
267,383,816) calculated as follows:
Weighted average number of ordinary shares (basic)
Issued ordinary shares at 1 July
Accelerated rights offer
Entitlement shares
Weighted average number of ordinary shares (basic) at 30 June
DILUTED EARNINGS PER SHARE
2016
Number
2015
Number
267,383,816
267,383,816
22,459,518
188,574
–
–
290,031,908 267,383,816
There were no dilutive potential ordinary shares outstanding at 30 June 2016 or 30 June 2015, therefore no adjustments have been made
to basic earnings per share to arrive at diluted earnings per share. At 30 June 2016, 1,000,000 rights and options were excluded from the
diluted weighted average number of ordinary shares calculation as their effect would have been anti-dilutive.
12. CASH AND CASH EQUIVALENTS
Bank balances
Share of Joint Venture cash
Total cash and cash equivalents
Cash in trust
Total cash in trust
Share of Joint Venture cash
2016
$’000
2,197
4,669
6,866
15,634
15,634
2015
$’000
11,541
4,414
15,955
–
–
Represents the Groups share of joint operation cash balances. These cash balances are available to be utilised within the joint venture until
such time as the Joint venture resolves to distribute the cash to joint venture partners.
Cash in trust
Represents cash drawn under the senior loan notes facility disclosed in note 21 that remains un-utilised at balance date. These cash
balances are available to be utilised in accordance with the senior loan note facility primarily for the purpose of furthering the Groups
investments in the Bowland tenement, working capital requirements and settlement of a legacy legal dispute which has been provided for
at balance date (see note 18 for further information on Bowland).
13. TRADE AND OTHER RECEIVABLES
Current
Trade receivables (net of impairment losses)
Other receivables
Total
2016
$’000
2015
$’000
25,754
–
24,952
1,914
25,754
26,866
No new impairment provisions were recognised against trade receivables and other receivables at 30 June 2016 or 30 June 2015.
5252
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14. INVENTORIES
Materials and consumables
Construction work in progress
Total inventories
15. OTHER ASSETS
Prepayments
2016
$’000
2,582
13,465
2015
$’000
3,629
9,816
16,047
13,445
2016
$’000
2015
$’000
1,288
1,269
16. PROPERTY, PLANT AND EQUIPMENT
30 June 2016
At cost
Accumulated depreciation/amortisation/impairment
Carrying amount at 30 Jun 2016
30 June 2015
At cost
Accumulated depreciation/amortisation/impairment
Carrying amount at 30 Jun 2015
RECONCILIATIONS
Leasehold
improvements
$’000
Land &
buildings
$’000
Plant &
equipment
$’000
Enterprise
development
$’000
Total
$’000
7
(7)
–
7
(6)
1
3,912
143,253
11,315
158,487
(792)
(107,400)
(11,264)
(119,463)
3,120
35,853
51
39,024
3,977
142,889
11,254
158,127
(707)
(92,967)
(11,254)
(104,934)
3,270
49,922
–
53,193
Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below:
Carrying amount at 1 July 2015
Additions
Disposals
Impairment
Depreciation and amortisation
Carrying amount at 30 June 2016
Leasehold
improvements
$’000
Land &
buildings
$’000
Plant &
equipment
$’000
Enterprise
development
$’000
1
–
–
–
(1)
–
3,270
49,922
–
(40)
–
907
(197)
–
(110)
(14,779)
3,120
35,853
–
62
–
–
(11)
51
Total
$’000
53,193
969
(237)
–
(14,901)
39,024
5353
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Total
$’000
79,074
1,095
(766)
16. PROPERTY, PLANT AND EQUIPMENT (continued)
Leasehold
improvements
$’000
Land &
buildings
$’000
Plant &
equipment
$’000
Enterprise
development
$’000
Carrying amount at 1 July 2014
Additions
Disposals
Impairment
Depreciation and amortisation
Carrying amount at 30 June 2015
2
–
–
–
(1)
1
3,315
68,985
6,772
65
–
–
938
(766)
(786)
92
–
(5,114)
(5,900)
(110)
(18,449)
(1,750)
(20,310)
3,270
49,922
–
53,193
An independent expert was engaged to perform an independent valuation of the Group’s plant and equipment as at 30 June 2016. No
impairment charge was recognised as a result of this process. An impairment charge of $5.9m was recognised in the prior year based
on management’s assessment of recoverable amount reflecting the reduced demand for the Group’s drilling services and the value of
enterprise development to the Group.
17. INVESTMENTS IN EQUITY ACCOUNTED INVESTEES
Balance at 1 July
Purchase of additional ownership interest
Foreign currency translation movement recognised in equity
Share of equity accounted profits / (losses) during the year
Balance at 30 June
2016
$’000
2015
$’000
103,997
87,573
5,480
3,483
(6,751)
–
15,100
1,324
106,209
103,997
The Group’s share of loss of equity accounted investees is $6,751,000 (2015 share of profit: $1,324,000). During both the current and the
prior year, the Group did not receive dividends from any of its investments in equity accounted investees.
At 30 June 2016 balance date, the liabilities of Marais-Lucas Technologies Pty Limited exceeded its assets. As a result the Group investment
in Marais-Lucas Technologies Pty Limited is fully impaired. The Group does not have any obligation to settle the liabilities of the investee.
The following summarises the changes in the Group’s ownership interest in associates:
Cuadrilla Resources Holdings Limited (associate)
45.08%
45.08%
106,209
103,997
Marais-Lucas Technologies Pty Limited (joint controlled entity)
50.00%
50.00%
–
–
106,209
103,997
Ownership
Carrying value
2016
%
2015
%
2016
$’000
2015
$’000
5454
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Summary financial information for the equity accounted investees, not adjusted for the percentage ownership held by the Group, is
as follows:
Current assets
Non-currant assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Income
Expenses
Loss
18. EXPLORATION ASSETS
Cost
Bowland exploration asset
Elswick exploration asset
Bolney exploration asset
2016
Cuadrilla
Resources
Holdings
Ltd
$’000
Marais-
Lucas
Technologies
Pty Ltd
$’000
2015
Cuadrilla
Resources
Holdings
Ltd
$’000
Marais-
Lucas
Technologies
Pty Ltd
$’000
Total
$’000
Total
$’000
6,977
239,790
246,767
3,547
7,619
631
250
881
6,344
–
7,608
10,944
1,246
12,190
240,040
237,660
400
238,060
247,648
248,604
1,646
250,250
9,891
7,619
5,386
7,666
6,939
–
12,325
7,666
11,166
6,344
17,510
13,052
6,939
19,991
2,148
–
2,148
3,767
–
3,767
(17,124)
(103)
(17,227)
(9,890)
(384)
(10,275)
(14,976)
(103)
(15,079)
(6,123)
(384)
(6,508)
2016
$’000
2015
$’000
9,884
5,201
3,229
8,734
4,688
3,122
18,314
16,543
The exploration assets comprise the Group’s equity interest (“direct interest”) in the above prospects and represents expenditure incurred.
The Group is beneficially entitled to an additional interest (“indirect interest”) in these prospects through its shareholding in the equity
accounted associate, Cuadrilla Resources Holding Limited (“Cuadrilla”) as shown below:
Beneficial interest
Bowland tenement
Elswick tenement
Bolney tenement
Indirect
Interest
%
Direct
Interest
%
2016
%
2015
%
23.10
22.63
33.81
23.75
22.06
25.00
46.85
44.69
58.81
44.06
41.89
58.75
The indirect interest comprises Cuadrilla’s equity interest in the respective prospect multiplied by the Group’s equity interest in Cuadrilla as
shown in Note 17.
Relinquishment requirements
Exploration licenses contain conditions relating to achieving certain milestones on agreed deadlines. Where milestones are not achieved
within agreed deadlines, the terms of the license may require partial relinquishment of the license area or be withdrawn. Applications can
be made to alter or extend exploration license conditions.
Future Expenditure on the Bowland and Elswick tenements
In June 2013 the existing owners, Cuadrilla and the Group, each sold 25% of their interest in the Bowland and Elswick prospects to Centrica
Plc (“Centrica”). Consideration for the interest included a farm-in arrangement and consideration that was contingent upon certain
appraisal and operational milestones being achieved.
In August 2015 a revised arrangement was agreed between Centrica, Cuadrilla and the Company with respect to the outstanding farm
in arrangement (Carry) and Contingent Consideration. The remaining portion of Centrica’s farm in funding is £30.6 million has been
5555
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18.
EXPLORATION ASSETS (continued)
deferred until planning approval for either of the exploration sites at Preston New Road or Roseacre Wood is obtained. In the interim, until
determination of the planning appeal, the Bowland Joint Venture partners will fund Cuadrilla’s operations in proportion to their respective
equity interests. The contingent consideration payable by Centrica of £60 million was renegotiated into a £46.7 million Contingent farm
in (“Carry”) to be applied against various appraisal and development activities. The Contingent Carry is subject to the same appraisal and
operational milestones previously agreed in respect of the original Contingent Consideration.
Concurrently, the Company agreed to increase its interest in the Bowland Joint Venture by 5.00% from 18.75% to 23.75% and Cuadrilla to
would reduce its interest from 56.25% to 51.25% whilst maintaining majority ownership and operatorship. Correspondingly, the Company’s
entitlement to the Carry and Contingent Carry has been reduced proportionately.
Cuadrilla has submitted appeals in respect of Lancashire County Council’s Development Control Committee’s decisions to refuse planning
consent for the exploration sites at Preston New Road and Roseacre Wood. A public hearing was held with the Planning Inspector having
issued her recommendation to the Secretary of State for Communities and Local Government, who will determine the appeal.
Monument prospect
In 2009 and 2010 the Company acquired from a 10% net profit interest (“NPI”) over certain oil and gas leasehold interests in East Texas
totalling $87 million. The NPI was fully impaired by the Company in the year of acquisition. The Company is concluding a review as to
whether there is any value recoverable either from the NPI or the monies paid for the NPI.
19. DEFERRED TAX ASSETS AND LIABILITIES
RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities are attributable to the following:
Consolidated
Inventories
Equity accounted investments
Property, plant and equipment
Provisions for employee benefits
Trade creditors
Share raising costs
Other creditors and accruals
Unrealised foreign exchange differences
Deferred tax asset write down
Tax assets/(liabilities)
Set off of tax
Net assets/(liabilities)
Tax Assets
Tax Liabilities
Net
2016
$’000
2015
$’000
2016
$’000
2015
$’000
2016
$’000
2015
$’000
–
–
–
–
(774)
(2,613)
(1,104)
(2,613)
(774)
(2,613)
(1,104)
(2,613)
11,088
10,553
1,823
89
1,055
1,401
227
1,561
361
1,305
4,049
2,051
(12,296)
(16,163)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,088
10,553
1,823
89
1,055
1,401
227
1,561
361
1,305
4,049
2,051
(12,296)
(16,163)
3,387
(3,387)
–
3,717
(3,717)
–
(3,387)
(3,717)
3,387
–
3,717
–
–
–
–
–
–
–
5656
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Movement in temporary differences during the year:
2016
Inventories
Equity accounted investments
Property, plant and equipment
Provisions for employee benefits
Trade creditors
Share raising costs
Other creditors and accruals
Unrealised foreign exchange differences
Deferred tax asset written off
2015
Inventories
Equity accounted investments
Property, plant and equipment
Doubtful debts impairment recognised
Provisions for employee benefits
Trade creditors
Share raising costs
Other creditors and accruals
Unrealised foreign exchange differences
Deferred tax asset written off
Balance
01 Jul 2015
$’000
Recognised
directly in
equity
$’000
Recognised
in profit
or loss
$’000
Balance
30 Jun 2016
$’000
(1,104)
(2,613)
10,553
1,561
361
1,305
4,049
2,051
(16,163)
–
–
–
–
–
–
–
–
–
–
–
330
–
535
262
(272)
(250)
(2,648)
(1,824)
(774)
(2,613)
11,088
1,823
89
1,055
1,401
227
3,867
(12,296)
–
–
Balance
01 Jul 2014
$’000
Recognised
directly in
equity
$’000
Recognised
in profit
or loss
$’000
Balance
30 Jun 2015
$’000
(1,238)
(2,613)
7,990
462
1,703
423
1,688
1,530
4,097
(14,042)
–
–
–
–
–
–
–
–
–
–
–
–
134
–
(1,104)
(2,613)
2,563
10,553
(462)
(142)
(62)
(383)
2,519
(2,046)
–
1,561
361
1,305
4,049
2,051
(2,121)
(16,163)
–
–
UNRECOGNISED DEFERRED TAX ASSETS
As at 30 June 2016, the Group had not recognised deferred tax assets of $42,428,374 (2015: $51,811,249) in relation to income tax losses.
During the period the Company agreed to forgo the right to certain carry forward tax losses as part of its settlement with the tax office,
which also included the remission of interest.
20. TRADE AND OTHER PAYABLES
Current
Trade payables
2016
$’000
9,908
21,015
30,923
2015
$’000
10,199
27,209
37,408
5757
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21. INTEREST-BEARING LOANS AND BORROWINGS
Current
Lease liabilities
Senior term loan notes
Loans from related party
Non-current
Lease liabilities
Senior term loan notes
Other borrowings
Loans from related party
2016
$’000
2015
$’000
90
101
34,552
34,743
37
30,121
–
40,826
164
–
3,763
3,927
56
–
5,269
69,612
70,984
74,937
(A) LOANS AND BORROWING TERMS AND MATURITIES
Senior term loan notes
In June 2016 the Company launched the issue of US$45 million of fully underwritten senior secured loan notes. The loan notes are secured
by a first ranking fixed and floating security interest over the Company and each of its operating and investment subsidiaries.
At balance date US$20 million remains available to be drawn following either a resumption of the Centrica farm-in that was deferred as
disclosed in Note 18, or the grant of satisfactory planning permission in relation to at least one of Preston New Road or Roseacre Wood
(“Successful Appeal”). Funds drawn are placed in trust bank deposits to be utilised in accordance with the senior loan note facility; primarily
for the purpose of furthering the Group’s investments in the Bowland licence as well as the settlement of a legacy legal dispute which has
been provided for at balance date (see note 18 for further information on Bowland).
Interest is charged at 18% of the drawn amount, with 12% payable quarterly in arrears and 6% accruing until termination or repayment
of the facility. The loan notes terminate in June 2019, but can be terminated by note holders and become payable in the event that a
Successful Appeal is not announced by June 2017.
As part consideration of the facility, the Company has agreed to issue a total of 20 million ordinary shares to note holders in two tranches.
The first tranche of 11 million ordinary shares was issued on launch date as disclosed in Note 26, with the second tranche to be issued at the
time of draw-down of the remaining $20 million. The costs of the shares, together with other prepaid transaction costs incurred are being
amortised over the life of the loan notes.
Loans from related party
Concurrent to the launch of the senior term loan notes, the Company’s major shareholder, Kerogen Investments No.1 (HK) Limited
(“Kerogen”) agreed to extend and restructure its existing facility. The term of the Kerogen facility has been extended to December 2019,
with interest payable able to be deferred until maturity at the discretion of the Company. In addition, Kerogen has agreed that its debt be
subordinated with its fixed and floating security now ranking behind the senior term loan notes. Interest charged on the facility is as follows
and compounds quarterly if unpaid:
Principal
Interest rate
Tranch 1
US$26.2m
20% initially
Tranche 2
US$30m
16% initially
increasing to 21% from June 2018
increasing to 18% from June 2018
Additional transaction costs, including restructure fees payable to Kerogen, are amortised over the expected term of the loan facility.
A condition of the restructured facility is that a minimum of a US$25 million of tranche1 is to be repaid within the earlier of March 2017
or 3 months following a Successful Appeal. The repayment is to be financed by an equity issue to raise a minimum of US$30 million
to be conducted via an entitlements offer. Kerogen has agreed to participate for its full pro rata full entitlement, as well to as provide
sub-underwriting support should the Company choose to accept, in aggregate of not less than US$25 million.
5858
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other borrowings
Relates to an interest bearing PAYG liability with the Australian Taxation Office (ATO) that formed part of the payment arrangement
described in Note 22 Income Tax Liabilities. This liability was fully extinguished during the year.
(B) FINANCING FACILITIES
(i) The Group has access to the following lines of credit
Other borrowings
Lease liabilities
Senior term loan notes
Loans from related party
Total facilities utilised at balance date:
Other borrowings
Lease liabilities
Senior term loan notes
Loans from related party
Total facilities not utilised at balance date:
Senior term loan notes
Loans from related party
Total facilities not utilised at balance data
(ii) The Group has access to the following Bond and facilities provided by surety entities
Bond facilities in aggregate
Amount utilised
Unused bond facilities
Bank indemnity guarantee
Amount utilised
Unused facilities
2016
$’000
2015
$’000
–
127
57,154
75,378
5,269
220
–
75,375
132,659
80,864
–
127
30,222
75,378
5,269
220
–
73,375
105,727
78,864
26,932
–
26,932
–
2,000
2,000
3,500
4,209
(3,500)
(4,209)
–
10,566
(10,566)
–
–
104
(104)
–
5959
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21.
INTEREST-BEARNING LOANS AND BORROWINGS (continued)
(C) FINANCING LEASE LIABILITIES
Finance lease liabilities
Payments
Within one year
Between one and five years
Less: interest
Within one year
Between one and five years
Total lease liabilities
Lease liabilities provided for in the financial statements:
Current
Non-current
Total lease liabilities
22. INCOME TAX LIABILITIES
2016
$’000
2015
$’000
96
40
136
(6)
(3)
(9)
127
90
37
127
169
58
227
(5)
(2)
(7)
220
164
56
220
The tax liability was fully extinguished during the current financial period. It represented income tax obligations from prior years covered
by a deferred instalment arrangement with the Australian Taxation Office (ATO).
Income tax payable
Current Liabilities
Interest Bearing – Other borrowings
Income Tax liabilities
Non Current Liabilities
Total Tax Liabilities
23. DERIVATIVE LIABILITY
2016
$’000
–
–
–
–
–
–
2015
$’000
8,247
8,247
5,269
22,234
27,503
35,750
The options outstanding at 30 June 2015 representing the derivative liability expired during the year. The derivative liability represented
the fair value of these options, which were granted over ordinary shares in the Company as a condition of a finance facility provided to the
Company in December 2011. The movement in the fair value of these options during the year was as follows:
2016
2015
Number of
Options
11,159,356
(11,159,356)
–
–
Carrying
amount
$’000
Number of
Options
Carrying
amount
$’000
31
11,159,356
(31)
–
–
–
– 11,159,356
1,765
–
(1,734)
31
As at 1 July
Expiry of options
Change in valuation
As at 30 June
6060
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
24. OPERATING LEASES
OPERATING LEASE COMMITMENTS – GROUP AS LESSEE
The Group has entered into commercial leases on certain facilities, motor vehicles, office equipment and project based equipment. The
Group has the option, under some of its leases, to lease the additional assets for additional terms. Future minimum rentals payable under
non-cancellable operating leases are as follows:
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
2016
$’000
2015
$’000
611
609
978
273
1,220
1,251
During the financial year, $915,000 (2015: $1,503,000) was recognised as an expense in the profit and loss in respect of the
operating leases.
25. EMPLOYEE BENEFITS
Provision for employee benefits, including on-costs:
Current
Non-current
SUPERANNUATION PLANS
2016
$’000
2015
$’000
4,759
937
5,696
4,159
832
4,991
Benefits provided under the superannuation funds to which the Group contributes are based on accumulated contributions and earnings
for each employee in accordance with the Superannuation Guarantee Charge legislation. The amount recognised as an expense for the
financial year was $3,289,000 (2015: $3,409,000).
26. CAPITAL AND RESERVES
Reconciliation of movement in capital and reserves attributable to equity holders of the parent follows.
SHARE CAPITAL – ORDINARY SHARES
Details of the share placements, entitlements, exercise of options and associated costs recognised directly in equity are as follows:
2016
On issue at 1 July 2015
April 2016 placement
June 2016 placement
Entitlement offer
Transaction costs incurred
On issue at 30 June 2016
2015
On issue at 1 July 2014
On issue at 30 June 2015
Issue Price
Per Share $
No. of Shares
$’000
267,383,816
339,670
0.21
100,268,337
21,056
1,955,012
11,503,000
N/A
0.21
N/A
–
2,376
(1,068)
381,110,165
362,034
No. of Shares
$’000
267,383,816
339,670
267,383,816 339,670
6161
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
26.
CAPITAL AND RESERVES (continued)
The entitlement shares were allotted under a 3 for 8 pro rata accelerated entitlement offer at an issue price of $0.21. The pro rata
entitlements not subscribed were underwritten, with certain sub-underwriters, excluding Kerogen, entitled to a bonus share for each
6 shares allocated under the underwriting arrangements. These bonus shares were issued under a placement in April 2016.
Kerogen’s subscription under the entitlement offer and sub-underwriting arrangement was satisfied by the conversion of interest due and
payable under the Kerogen senior debt facility of $13,011,727, with the remainder of Kerogen’s subscription paid in cash.
Separately shares were issued in June 2016 to satisfy obligations under the Senior Term Loan Notes (Note 21) and as part consideration for
corporate advisory work in relation to the facility.
Holders of ordinary shares are entitled to receive dividends and, in the event of a winding up of the Company, to any proceeds of liquidation
after all creditors and other stockholders have been paid in full.
On a show of hands, every holder of ordinary shares present at a shareholder meeting in person or by proxy is entitled to one vote and
upon a poll, each share is entitled to one vote.
NATURE AND PURPOSE OF RESERVES
Employee equity benefits reserve
The employee equity benefits reserve represents the expense associated with equity-settled compensation under the employee
management rights incentive plans.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign
operations into Australian dollars.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the present value of cash flow hedging instruments
relating to hedged transactions that have not yet occurred.
OPTIONS
Allottee
Number
Grant date
Expiry date
Exercise price
Former
Chief
Executive
Officer
Perpetual
Nominees
Kerogen Management
3,750,000
1,000,000
11,159,356
960,000
5-Sep-12
22-Dec-11
22-Dec-11
29-Nov-12
Expired
22-Dec-16
Expired
Expired
$1.97
The fair value of options was calculated using a Monte Carlo simulation. The Perpetual Nominees options have been fully expensed in
prior periods.
DIVIDENDS
No dividends in respect of the 2016 or 2015 financial years have been declared or paid.
DIVIDEND FRANKING ACCOUNT
The balance of franking credits available to shareholders of the Company as at 30 June 2016 $47,445,516 (2015: $69,637,549).
6262
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
27. FINANCIAL INSTRUMENTS
OVERVIEW
The Group’s activities expose it to the following risks from their use of financial instruments:
•
•
Credit risk;
Liquidity risk;
• Market risk (including currency and interest rate risks); and
• Operational risk.
RISK MANAGEMENT FRAMEWORK
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board has
established the Audit and Risk Committee, which is responsible for developing and monitoring risk management policies. The committee
reports regularly to the Board of Directors on its activities.
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. Risk management policies and systems are reviewed regularly to reflect changes in market
conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a
disciplined and constructive control environment in which all employees understand their roles and obligations.
The Audit and Risk Committee oversees how management monitors compliance with the Group’s 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 the counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from customers.
Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Group’s customer base
consists of principally major corporations and State and local governments. The demographics of the Group’s customer base, including the
default risk of the industry and location in which the customers operate, has less of an influence on credit risk.
New customers are analysed individually for creditworthiness, taking into account credit ratings where available, financial position, past
experience and other factors. This includes all major contracts and tenders approved by the Tender Review Committee.
In monitoring customer credit risk, customers are grouped by operating segment, then by their receivable ageing profile. Ongoing
monitoring of receivable balances minimises exposure to bad debts.
A provision for impairment is recognised when there is objective evidence that an individual trade receivable is impaired.
Investments
The Group limits its exposure to credit risk by only investing in liquid securities of short maturity issued by a reputable party or in readily
marketable securities listed on a recognisable securities exchange. Given these investment criteria, management does not expect any
counterparty to fail to meet its obligations.
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 was:
Trade and other receivables
Bank balances
Maximum exposure to credit risk for loans and receivables at the reporting date by business segment was:
2016
$’000
25,754
22,500
48,254
2015
$’000
26,866
15,955
42,821
6363
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27.
FINANCIAL INSTRUMENTS (continued)
Drilling
Engineering and construction
Oil and gas
Unallocated
Impairment
The ageing of the Group’s trade and other receivables at the reporting date was:
Not past due
Past due up to 30 days
Past due 31 to 120 days
Past due 121 days to one year
Past due more than one year
2016
$’000
12,250
13,442
4
58
2015
$’000
6,598
17,850
273
2,145
25,754
28,866
Gross
2016
$’000
Impairment
2016
$’000
Gross
2015
$’000
Impairment
2015
$’000
24,891
–
863
–
–
25,754
–
–
–
–
–
–
25,910
52
595
309
1,122
27,988
–
–
–
–
(1,122)
(1,122)
The impairment allowance is related to specific customers, identified as being in trading difficulties, or where specific debts are in dispute.
The impairment allowance does not include debts past due relating to customers with a good credit history or where payments of amounts
due under a contract for such customers are delayed due to works in dispute and previous experience indicated that the amount will be
paid in due course.
When the Group is satisfied that no recovery of the amount owing is possible, the amounts considered irrecoverable are written off directly
against the financial asset.
LIQUIDITY RISK
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Liquidity is managed to ensure, as
far as possible, that sufficient funds are available to meet liabilities when they fall due, under both normal and
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of
netting arrangements:
2016
Non-derivative financial liabilities
Trade and other payables
Senior term loan notes
Loans from related party
Lease liabilities
Carrying
amount
$’000
Total
$’000
6 months
or less
$’000
6-12 months
$’000
1-2 years
$’000
2-5 years
$’000
More than
5 years
$’000
Total
30,923
(30,923)
(30,923)
–
–
–
30,222
(51,845)
(2,020)
(2,020)
(4,040)
(43,765)
75,378
(121,059)
–
(34,581)
(643)
(85,835)
127
(135)
(54)
(42)
(39)
–
136,650
(203,962)
(32,997)
(36,643)
(4,722)
(129,600)
–
–
–
–
–
6464
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2015
Non-derivative financial liabilities
Trade and other payables
Loans from related party
Lease liabilities
Other borrowings
Income tax liability
Derivative financial liabilities
Carrying
amount
$’000
Total
$’000
6 months
or less
$’000
6-12 months
$’000
1-2 years
$’000
2-5 years
$’000
More than
5 years
$’000
Total
37,408
(37,408)
(37,408)
–
–
73,375
(92,087)
(8,285)
(5,108)
(78,694)
220
(227)
5,269
(8,419)
(136)
–
(34)
–
(57)
–
–
–
–
–
–
–
(4,219)
(4,200)
30,481
(37,500)
(4,125)
(4,122)
(8,253)
(21,000)
–
–
Derivative liability
31
(31)
(31)
–
–
–
146,784
(175,672)
(49,985)
(9,264)
(87,004)
(25,219)
(4,200)
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 operates internationally and is exposed to currency risk on purchases and borrowings that are denominated in a currency other
than the respective functional currencies of Group entities, primarily with respect to the US dollar.
The Group’s foreign currency exposure primarily relates to borrowings, and trust bank deposits denominated in US dollars. This net US
dollar borrowing position is substantially offset by the Group’s investment in its equity accounted investee, Cuadrilla Resource Holdings
Limited, whose functional currency is US dollars, and the directly owned exploration assets held through subsidiaries whose functional
currency is US dollars. However, while exchange gains or losses on borrowings are accounted for through the profit and loss account,
translation gains or losses on the Cuadrilla investment and exploration assets are recorded through the translation reserve in equity
until sold.
The Group’s exposure to foreign currency risk at balance date was as follows, based on notional amounts in Australian dollars
(in thousands):
In thousands of AUD
Cash balances
Trade and other receivables
Trade payables
Interest-bearing liabilities
Net Financial Instrument exposure
Value of investment in Cuadrilla Resource Holdings Limited
Value of Exploration assets
Net balance sheet exposure
2016
USD
$’000
5,844
–
2015
USD
$’000
2,663
273
(4,815)
(5,039)
(105,600)
(72,875)
(104,571)
(74,978)
106,209
103,996
18,314
19,952
16,543
45,561
At 30 June balance date, had the Australian dollar weakened/strengthened by 10% against the respective foreign currencies with all other
variables held constant, the impact on Group post-tax loss and equity would have been:
AUD/USD
Post-tax loss (higher) / lower
Net equity higher / (lower)
10% strengthened
10% weakened
2016
2015
2016
2015
0.8169
0.8448
0.6683
0.6912
9,506
6,816
(11,619)
(1,814)
(4,142)
2,217
(8,331)
5,062
6565
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
27.
FINANCIAL INSTRUMENTS (continued)
The following significant exchange rates applied during the year:
USD
INTEREST RATE RISK
Average Rate
Reporting date spot rate
2016
2015
2016
2015
0.7316
0.8343
0.7426
0.7680
The Group’s main interest rate risk arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow interest
rate risk. Borrowings at fixed rates expose the Group to fair value interest rate risk. The majority of the Group’s borrowings are at fixed
rates. The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, therefore a change in
interest rates at the reporting date would not affect profit or loss for the Group.
Interest rate exposure is detailed as follows:
Fixed rate instruments
Financial liabilities
Variable rate instruments
Financial assets
Financial liabilities
2016
$’000
2015
$’000
(105,727)
(73,595)
(105,727)
(73,595)
22,500
–
15,955
(5,269)
22,500
10,686
At reporting date, the Group did not have any variable interest rate borrowings. Variable interest rate borrowings in the prior year were
represented by other borrowings, incurred a weighted average interest rate of 9.56% but were repaid during the current year.
FAIR VALUES
Fair values versus carrying amounts
The fair values of financial assets and liabilities, together with the carrying amounts shown in the consolidated statement of financial
position, are as follows:
Carrying
Amount
$’000
Fair value
$’000
22,500
22,500
25,754
25,754
(30,923)
(30,923)
(127)
(127)
(30,222)
(33,817)
(75,378)
(76,567)
(88,396)
(93,180)
2016
Bank balances
Trade and other receivables
Trade and other payables
Lease Liabilities
Senior term loan notes (1)
Loans from related party (1)
6666
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2015
Bank balances
Trade and other receivables
Trade and other payables
Lease Liabilities
Other borrowings
Loans from related party
Derivative liability
Carrying
Amount
$’000
Fair value
$’000
15,955
15,955
26,866
26,866
(37,408)
(37,408)
(220)
(220)
(5,269)
(5,269)
(73,375)
(73,375)
(31)
(31)
(73,482)
(73,482)
(1) The terms and conditions of the Senior term loan notes and loans from related party were negotiated in June 2016 following a competitive process in which a
number of term sheets were received from various parties. However in accordance with accounting standards the loans are accounted for using the amortised costs
basis under which certain prepaid transactions costs are recognised as an offset to the carrying amount of the liability and are amortised over the life of the loan. As
such the carrying value differs from the fair value.
Management have assessed that the fair values of cash and short-term deposits, trade receivables, trade payables and other current
liabilities approximate their carrying amounts largely due to the short term maturities of these assets and liabilities.
The fair value of the financial assets and liabilities is included at the amount which could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. The fair value of assets and liabilities are derived with reference to Note 5.
Fair value hierarchy
Management have analysed the financial instruments carried at fair value, by valuation method (as discussed in Note 5). The different levels
have been defined as follows:
•
•
Level 1: quotes prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
•
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
In order to determine the fair value of derivative financial liabilities, management used a valuation technique (as discussed in Note 5) in
which all significant inputs were based on observable market data.
The following methods and assumptions were used in estimating the fair values of financial instruments:
•
Loans and borrowings, and finance leases – present value of future principal and interest cash flow, discounted at the market rate of
interest at the reporting date; and
•
Trade and other receivables and payables – carrying amount equals fair value.
Capital management
The Board policy is to maintain a capital base so as to provide sufficient financial strength and flexibility to conduct its business and
progress it’s investments in UK shale gas whilst maximising shareholder returns. The Board therefore seeks to have a moderate level of
indebtedness to leverage return on capital having regard to the Company’s cash flow and the ability to service these borrowings.
The Group’s debt to adjusted capital ratio at the end of the reporting period was as follows:
Total liabilities
Less: cash and cash equivalents
Net debt
Total equity
Net debt to equity ratio at 30 June
2016
$’000
2015
$’000
142,346
151,775
(6,865)
(15,955)
135,481
135,820
86,790
79,493
1.56
1.71
6767
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
28. INTERESTS IN JOINT OPERATIONS
All joint operations above are domiciled in Australia.
Principal activities
Principal place of business
Southern SeaWater
Alliance
Construction
and operation of
desalination plant
Level 2, 1 Adelaide
Terrace,
East Perth 6004
VSL Australia – AJ Lucas
Operations Joint Venture
Construction of water
related infrastructure
6 Pioneer Avenue,
Thornleigh 2120
AJ Lucas – Spiecapag
Project 1
Construction of gas
infrastructure
AJ Lucas – Spiecapag
Project 2
Construction of gas
infrastructure
AJ Lucas – Spiecapag
Project 3
Construction of gas
infrastructure
616 Boundary Road,
Richlands 4077
616 Boundary Road,
Richlands 4077
616 Boundary Road,
Richlands 4077
Participation interest
Contribution to
operating results
2016
%
2015
%
2016
$’000
2015
$’000
19
50
50
40
40
19
50
50
40
–
1,972
1,174
–
267
1,081
3,274
5,512
3,769
1,100
–
Included in the assets and liabilities of the Group are the following assets and liabilities employed in the joint operations:
2016
$’000
2015
$’000
4,669
2,021
2,356
4
4,293
8,608
–
9
9,050
12,910
5,937
5,937
8,176
8,176
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Construction work in progress
Other
Total assets
Liabilities
Current liabilities
Trade and other payables
Total liabilities
6868
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 29. CONSOLIDATED ENTITIES
The financial statements at 30 June 2016 include the following controlled entities. The financial years of all the controlled entities are the
same as that of the parent entity.
Ownership interest
Country of
incorporation
2016
%
2015
%
Parent entity
AJ Lucas Group Limited
Controlled entities
Australian Water Engineering Pty Limited
AJ Lucas Operations Pty Limited
AJ Lucas Plant & Equipment Pty Limited
AJ Lucas Drilling Pty Limited
Lucas Shared Services Pty Limited
AJ Lucas Testing Pty Limited
Lucas Operations (WA) Pty Limited
Lucas Engineering and Construction Pty Limited
AJ Lucas Joint Ventures Pty Limited
AJ Lucas (Hong Kong) Limited
Lucas Drilling Pty Limited
Subsidiaries of Lucas Drilling Pty Limited
Mitchell Drilling Corporation Pty Limited
Lucas Contract Drilling Pty Limited
Subsidiary of Lucas Contract Drilling Pty Limited
McDermott Drilling Pty Limited
Jaceco Drilling Pty Limited
Geosearch Drilling Service Pty Limited
257 Clarence Street Pty Limited
Lucas SARL
Lucas Energy (Holdings) Pty Limited
Subsidiaries of Lucas Energy (Holdings) Pty Limited
Lucas (Arawn) Pty Limited
Lucas Energy (WA) Pty Limited
Lucas Power Holdings Pty Limited
Lucas Cuadrilla Pty Limited
Lucas Holdings (Bowland) Limited
Subsidiaries of Lucas Holdings (Bowland) Limited
Lucas Bowland (UK) Limited
Lucas Bowland (No. 2) Limited
Elswick Power Limited
Lucas Holdings (Bolney) Limited
Subsidiaries of Lucas Holdings (Bolney) Limited
Lucas Bolney Limited
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Hong Kong
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Caledonia
Australia
Australia
Australia
Australia
Australia
England
England
England
England
England
England
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
6969
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30. CONTINGENCIES AND COMMITMENTS
CONTINGENCIES
The directors are of the opinion that provisions are not required in respect of the following matters, as it is not probable that a future
sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.
(i) Under various joint operations (see note 28), the relevant AJ Lucas Group company is jointly and severally liable for all the liabilities
incurred by the joint operation. As at 30 June 2016, the assets of the joint operation were sufficient to meet such liabilities. The
liabilities of the joint ventures not included in the consolidated financial statements amounted to $12,573,000 (2015 $12,268,000).
(ii) During the normal course of business, entities within the Group may incur contractor’s liability in relation to their performance
obligations for specific contracts. Such liability includes the potential costs to carry out further works and/or litigation by or against
those Group entities. Provision is made for the potential costs of carrying out further works based on known claims and previous
claims history, and for legal costs where litigation has been commenced. While the ultimate outcome of these claims cannot be reliably
determined at the date of this report, based on previous experience, amounts specifically provided, and the circumstances of specific
claims outstanding, no additional costs are anticipated. Certain claims and counterclaims are outstanding but not detailed on the basis
that further disclosure may seriously prejudice the Group’s position in regards to these matters.
(iii) Under the terms of the Class Order described in note 34, the Company has entered into approved deeds of indemnity for the cross-
guarantee of liabilities with participating Australian subsidiary companies.
(iv) Under a purchase agreement for the Group’s interest in the Elswick tenement, the company has a further contingent liability to pay the
seller US$1,900,000 ($2,473,958) provided the buyer of the Bowland interest does not exercise its options as disclosed in note 18.
COMMITMENTS
At 30 June 2016, the Group had no commitments contracted but not provided for and payable within one year (2015: nil) for the purchase of
new plant and equipment.
31. PARENT ENTITY DISCLOSURES
As at 30 June 2016 and 2015, and throughout the financial years then ended, the parent entity of the Group was AJ Lucas Group
Results of the parent entity
Loss for the year
Total loss for the year
Financial position of the parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprises:
Share capital
Employee equity benefit reserve
Accumulated losses
Total equity
Parent entity commitments and contingencies
2016
$’000
2015
$’000
(15,091)
(39,317)
(15,091)
(39,317)
15,634
–
193,294
183,733
35,557
12,379
106,504
104,241
362,031
339,670
4,670
4,643
(279,911)
(264,820)
86,790
79,493
The parent entity has guaranteed, to various unrelated parties, the performance of various subsidiaries in relation to various contracts. In
the event of default, the parent entity undertakes to meet the contractual obligations of the relevant subsidiary.
PARENT ENTITY GUARANTEES IN RESPECT OF DEBTS OF ITS SUBSIDIARIES
The Company has entered into a Deed of Cross Guarantee, as disclosed in note 34, with the effect that the Company guarantees debts in
respect of its subsidiaries, and the subsidiaries may provide financial assistance to the Company.
7070
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES
(a) Reconciliation of cash
For the purposes of the consolidated statement of cash flows, cash includes cash at bank, cash on hand and
bank overdrafts.
Cash and cash equivalents
Cash in trust
Total cash
(b) Reconciliation of cash flows from operating activities
Loss for the year
Adjustments for:
Interest on capitalised leases
Interest payable settled through equity raising
Accrued interest capitalised into borrowings
Increase / (decrease) in accrued interest
(Profit) / loss on sale of non-current assets
Share based payment expense
Loss on foreign currency loans
Exchange rate changes on the balance of cash held in foreign currencies
Fair value adjustment in derivative liability
Share of profit of equity accounted investees
Revenue recognised on farm-in
Impairment of property, plant and equipment
Recovery of receivable from equity accounted investees
Corporate advisory fees
Decommissioning liability on exploration assets
Depreciation and amortisation
Amortisation of borrowing costs (included in interest-bearing liabilities)
Commitment fees paid
2016
$’000
2015
$’000
6,866
15,955
15,634
22,500
–
15,955
(19,485)
(45,216)
13
11,441
2,524
(6,923)
102
27
50
–
3,616
1,776
(143)
171
2,085
10,570
(138)
(31)
6,751
(227)
–
(525)
1,547
(307)
14,901
1,422
–
–
(1,734)
(1,324)
(3,025)
5,900
(804)
379
(1,500)
20,310
915
(610)
Operating loss before changes in working capital and provisions
13,177
(10,669)
Change in receivables
Change in other current assets
Change in inventories
Change in payables
Change in provisions for employee benefits
Change in tax balances
Net cash used in operating activities
1,112
(19)
(2,602)
(6,486)
705
(30,481)
(8,051)
117
16,185
(7,647)
(429)
(2,414)
(24,594)
(12,908)
(c) Non-cash financing and investment activities
Kerogen’s subscription under the entitlement offer, as disclosed in note 26, and sub-underwriting arrangement was satisfied partly in cash
and the conversion of interest due and payable under the Kerogen senior debt facility of $13,012,000. The amount converted is not show in
the cash flow statements.
As a result of the extension and restructure of the related party loans, as described in Note 21, US$1,868,000 interest that was due and
payable under the previous facility was capitalised into the principal balance under the restructured facility.
During the year the company issued advisor shares, as disclosed in an Appendix 3B lodged with the Australian Stock Exchange on
24 June 2016. These shares were issued in part satisfaction of advisory fees incurred. The amount satisfied by the shares issued was
$105,000 and is not presented in the cash flow statements.
7171
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES (continued)
(d) Financing arrangements
Refer to Note 21.
33. RELATED PARTIES
ENTITY WITH CONTROL
Kerogen Investments No. 1 Limited (Kerogen) participated in the accelerated entitlement offer announced by the company on
17 March 2016, by subscribing for its pro rata entitlement and providing sub underwriting support. In total $13,811,727 was raised from
Kerogen, of which $13,011,727 was settled by the conversion of interest due and payable under the Kerogen senior debt facility.
Kerogen has provided financing facilities throughout the year as described in note 21. Interest and borrowing costs incurred on those loans
totaled $13,486,000 (2015: $11,837,000) with $1,173,000 (2015: $6,573,000) being paid in cash. Balances outstanding at balance date are
disclosed in Note 21.
Julian Ball is a representative of Kerogen and a Director of the Company.
KEY MANAGEMENT PERSONNEL COMPENSATION
The key management personnel compensation comprised:
Short-term employee benefits
Other long-term benefits
Post-employment benefits
Termination benefits
Share based payments
2016
$’000
2015
$’000
2,517,488
2,272,221
9,351
77,704
259,000
27,269
78,238
–
1,333
11,891
2,864,876 2,389,619
Information regarding individual director and executives compensation disclosures and some equity instrument disclosure, as required by
the Corporations Act chapter 2M, is provided in the Remuneration Report section of the Director’s Report.
Apart from the details disclosed in this note, no director has entered into a material contract with the Group since the end of the previous
financial year and there were no material contracts involving directors’ interests existing at year end.
KEY MANAGEMENT PERSONNEL TRANSACTIONS WITH THE COMPANY OR ITS CONTROLLED ENTITIES
A number of key management persons, or their related parties, hold or held positions in other entities that result in them having control or
significant influence over the financial or operating policies of those entities. A number of these entities transacted with the Company or
its subsidiaries in the reporting period. The terms and conditions of the transactions with management persons and their related parties
were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to unrelated
entities on an arm’s length basis.
Services were provided through the contracting entity. Such services were provided in the ordinary course of business and on normal terms
and conditions in all instances. The amount payable for these services is included in the amounts disclosed in the Remuneration Report.
7272
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The aggregate amounts recognised during the year relating to key management personnel and their related parties, were as follows:
Key Management person
Contracting entity
Transaction
2016
$’000
2015
$’000
Phillip Arnall
Julian Ball
Ian Meares (1)
Andrew Purcell (2)
Felix Ventures Pty Ltd
Non-Executive director services
145,000
145,000
Kerogen Capital Limited
Non-Executive director services
100,000
100,000
Autonome Pty Ltd
Autonome Pty Ltd
Lawndale Group
Lawndale Group
Non-Executive director services
95,000
95,000
Other consulting services
–
42,000
Non-Executive director services
95,000
95,000
Other consulting services
84,098
68,875
(1) In 2015 Ian Meares provided the company with consulting advice in addition to his director’s duties, and was remunerated on commercial terms.
(2) See below for further details of transactions with Lawndale Group.
Transactions with Lawndale Group
The company entered into an agreement with Lawndale Group, a company controlled by Andrew Purcell, for the provision of project
management and consulting services which were considered to be arm’s length and below market rates. During the year $84,098
(2015: $68,875) was paid to Lawndale Group for these services.
In the 2015 financial year the company entered into a separate agreement with Lawndale Group, to purchase three Petroleum Exploration
Licences (the PEL’s) in New South Wales as well as an interest in drilling and exploration equipment for $2.5 million, which Mr Purcell had
agreed to purchase from Dart Energy Limited. Under the agreement if the Group decided by 31 December 2015 that it did not want to
proceed with the purchase in which has Kerogen would acquire the PEL’s. The Group has paid a deposit of $500,000 directly to Dart Energy
Limited. As part of the agreement Mr Purcell has committed to providing certain geological advice at his cost for a period up to 3 years, in
order to continue to maintain and develop the licenses.
In September 2015 the Company reviewed its investment in the PEL’s and decided that these were not in the strategic interest of the Group
at the time. As such the company has informed Lawndale and Kerogen that it would not be taking up the interest in the PEL’s and that under
the agreement the PEL’s should be transferred to Kerogen in full satisfaction of the loan.
The purchase was funded by a loan facility provided by Kerogen No.1 Limited as disclosed in note 21.
OTHER RELATED PARTIES
The Group has a related party relationship with its subsidiaries (see note 29) and joint operations (see note 28). These entities trade with
each other from time to time on normal commercial terms. No interest is payable on inter-company balances.
7373
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 34. DEED OF CROSS GUARANTEE
On 16 June 2008, several of the entities in the Group entered into a Deed of Cross Guarantee. Pursuant to ASIC Class Order 98/1418 (as
amended) dated 13 August 1998, the Group’s wholly owned subsidiaries entering into the Deed are relieved from the Corporations Act 2001
requirements to prepare, have audited and lodge financial reports, and directors’ reports.
The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any
of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Act, the
Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar
guarantees in the event that the Company is wound up.
The subsidiaries subject to the Deed are:
Name of entity
AJ Lucas Operations Pty Limited
Jaceco Drilling Pty Limited
Lucas Engineering & Construction Pty Limited
Geosearch Drilling Service Pty Limited
AJ Lucas Plant & Equipment Pty Limited
Lucas Energy Holdings Pty Limited
AJ Lucas Drilling Pty Limited
Lucas Shared Services Pty Limited
AJ Lucas Testing Pty Limited
Lucas Operations (WA) Pty Limited
AJ Lucas Joint Ventures Pty Limited
Lucas Drilling Pty Limited
Lucas Energy (WA) Pty Limited
Lucas (Arawn) Pty Limited
Lucas Power Holdings Pty Limited
Mitchell Drilling Corporation Pty Limited
McDermott Drilling Pty Limited
Lucas Contract Drilling Pty Limited
A consolidated summarised statement of comprehensive income and consolidated statement of financial position, comprising the Company
and controlled entities which are a party to the Deed, after eliminating all transactions between parties to the Deed of Cross Guarantee, at
30 June 2016 are set out on the following page:
SUMMARISED STATEMENT OF COMPREHENSIVE INCOME
Loss before income tax
Income tax expense
Loss after tax
Accumulated losses at the beginning of the year
Accumulated losses at end of the year
2016
$’000
2015
$’000
(10,605)
(49,422)
–
–
(10,605)
(49,422)
(297,909)
(248,487)
(308,514)
(297,909)
7474
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SUMMARISED STATEMENT OF FINANCIAL POSITION
CURRENT ASSETS
Cash and cash equivalents
Cash in trust
Trade and other receivables
Inventories
Other assets
Total Current Assets
NON-CURRENT ASSETS
Trade and Other Receivables
Property, plant and equipment
Total Non-Current assets
Total Assets
CURRENT LIABILITIES
Trade and other payables
Interest bearing loans and borrowings
Income tax liabilities
Derivative liabilities
Employee benefits
Total Current Liabilities
NON-CURRENT LIABILITIES
Interest bearing loans and borrowings
Income tax liability
Employee benefits
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Share capital
Reserves
Retained earnings
Total Equity
2016
$’000
2015
$’000
6,841
15,634
25,749
16,047
1,288
11,902
–
26,593
13,424
1,269
65,559
53,188
90,886
39,024
84,328
53,193
129,910
137,521
195,469
190,709
25,860
34,743
–
–
4,759
29,936
3,927
8,247
31
4,159
65,362
46,300
70,979
–
937
74,937
22,235
832
71,916
98,004
137,278
144,304
58,191
46,405
362,034
339,670
4,671
4,644
(308,514)
(297,909)
58,191
46,405
35. EVENTS SUBSEQUENT TO BALANCE DATE
There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a
material or unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the
results of those operations, or the state of affairs of the Group, in future financial years.
7575
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Directors’ Declaration
1
In the opinion of the directors of AJ Lucas Group Limited (the Company):
(a) the consolidated financial statements and notes, that are contained in pages 34 to 75 and the Remuneration Report included in the
Directors’ Report, set out on pages 28 to 32, 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 2016 and of its performance for the financial year
ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) 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.
2 There are reasonable grounds to believe that the Company and the group entities identified in note 29 will be able to meet any
obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company
and those group entities pursuant to ASIC Class Order 98/1418.
3 The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chairman and Chief
Financial Officer, for the financial year ended 30 June 2016.
4 The directors draw attention to note 2(A) to the consolidated financial statements, which includes a statement of compliance with
International Financial Reporting Standards.
Signed in accordance with a resolution of the directors:
Phillip Arnall,
Chairman
Dated at Sydney, this 19th day of August 2016
7676
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT DIRECTORS’ DECLARATION Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Independent auditor's report to the members of AJ Lucas Group
Limited
Report on the financial report
We have audited the accompanying financial report of AJ Lucas Group Limited, which comprises
the consolidated statement of financial position as at 30 June 2016, the consolidated statement of
comprehensive income, the consolidated statement of changes in equity and the consolidated
statement of cash flows for the year then ended, notes comprising a summary of significant
accounting policies and other explanatory information, and the directors' declaration of the
consolidated entity comprising the company and the entities it controlled at the year's end or from
time to time during the financial year.
Directors' responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act
2001 and for such internal controls as the directors determine are necessary to enable the
preparation of the financial report that is free from material misstatement, whether due to fraud or
error. In Note 2(a), the directors also state, in accordance with Accounting Standard AASB 101
Presentation of Financial Statements, that the financial statements comply with International
Financial Reporting Standards.
Auditor's responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we
comply with relevant ethical requirements relating to audit engagements and plan and perform the
audit to obtain reasonable assurance about whether the financial report is free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor's judgment,
including the assessment of the risks of material misstatement of the financial report, whether due
to fraud or error. In making those risk assessments, the auditor considers internal controls relevant
to the entity's preparation and fair presentation of the financial report in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made
by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
Independence
In conducting our audit we have complied with the independence requirements of the Corporations
Act 2001. We have given to the directors of the company a written Auditor’s Independence
Declaration, a copy of which is included in the directors’ report.
7777
INDEPENDENT AUDITOR’S REPORT
Opinion
In our opinion:
a.
the financial report of AJ Lucas Group Limited is in accordance with the Corporations Act
2001, including:
i
ii
giving a true and fair view of the consolidated entity's financial position as at 30 June
2016 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations
2001; and
b.
the financial report also complies with International Financial Reporting Standards as
disclosed in Note 2(a).
Emphasis of matter regarding continuation as a going concern
Without qualifying our opinion, we draw attention to Note 2C in the financial report that notes that
the Company entered into financing arrangements during the year to fund its operations and future
develop exploration tenements. The timing of the repayment of the initial tranche drawn down and
the ability to draw additional tranches is contingent on the successful outcome of the appeal in
respect of Lancashire County Council’s refusal to provide planning consent for the exploration sites
at Preston New Road and Roseacre Wood, which is expected by 6 October 2016. Given the
uncertainty of the outcome of the appeal and the consequential impact of an adverse finding, as
outlined in Note 2C, there is an uncertainty that may cast doubt about the entity’s ability to
continue as a going concern, and therefore, the Group may be unable to realise its assets and
discharge its liabilities in the normal course of business without the ongoing financial support of its
financiers, or by securing alternative finance or equity.
Report on the remuneration report
We have audited the Remuneration Report included on pages 19 to 23 of the directors' report for
the year ended 30 June 2016. 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 responsibility is to express an opinion on the Remuneration Report, based on our
audit conducted in accordance with Australian Auditing Standards.
28 to 32
Opinion
In our opinion, the Remuneration Report of AJ Lucas Group Limited for the year ended 30 June
2016, complies with section 300A of the Corporations Act 2001.
Ernst & Young
Ryan Fisk
Partner
Sydney
19 August 2016
7878
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT
Australian Securities
Exchange Additional
Information
DISTRIBUTION OF ORDINARY SHARES (AS AT 31 AUGUST 2016)
Securities held
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Ordinary shares
Perpetual
Nominees
options
637
827
309
462
97
2,332
–
–
–
–
2
2
7979
ADDITIONAL INFORMATION TWENTY LARGEST ORDINARY SHAREHOLDERS
Name
Kerogen Investments No. 1 (HK) Limited
Mr Paul Fudge
HSBC Custody Nominees (Australia) Limited - A/C 3
Amalgamated Dairies Investments N0 2 Limited
HSBC Custody Nominees (Australia) Limited - A/C 2
CS Fourth Nominees PTY Limited
Toolebuc Investments PTY LTD
Morgan Stanley Australia Securities (NOMINEE) PTY Limited
Brispot Nominees PTY LTD
Amalgamated Dairies Limited
Citicorp Nominees PTY Limited
Milson Investments PTY Limited
HSBC Custody Nominees (AUSTRALIA) Limited-GSCO ECA
HSBC Custody Nominees (AUSTRALIA) Limited
J P Morgan Nominees Australia Limited
ADEMSA PTY LTD
Forsyth Barr Custodians LTD
ABN AMRO Clearing Sydney Nominees PTY LTD
Mr Ross Alexander Macpherson
Ingrid Miriam Seton
SUBSTANTIAL SHAREHOLDERS
Name
Kerogen Investments No. 1(HK) Limited
Mr Paul Fudge
UNQUOTED EQUITY SECURITIES
Perpetual Nominees Options
Perpetual Nominees Options
Number of
ordinary
shares held
% of Issued
shares
207,443,134
46,115,863
14,116,521
11,990,000
9,734,954
8,431,244
6,333,442
5,879,058
5,510,299
5,129,348
4,284,598
3,723,248
3,588,444
2,235,798
2,061,368
1,933,417
1,312,938
1,093,145
962,500
860,603
54.43
12.11
3.70
3.15
2.55
2.21
1.66
1.54
1.45
1.35
1.12
0.98
0.94
0.59
0.54
0.51
0.34
0.29
0.25
0.23
342,739,922
89.94
Number of
ordinary
shares held
% of issued
shares
207,443,134
46,115,863
54.43
12.11
No. of Options
% of that
class of
options
Perpetual Nominees Limited as custodian for TTPE 07 No. 3 Limited
496,665
50.0
Perpetual Nominees Limited as custodian for Goldman Sachs Australia Private Equity (A Units) Pty
Limited as trustee for the Goldman Sachs Trans-Tasman Private Equity Fund 07 Trust D
TOTAL
VOTING RIGHTS
Ordinary shares – Refer to note 26 of the financial statements.
Options – These are no voting rights attached to the options.
503,335
1,000,000
50.0
100.0
8080
AJ LUCAS GROUP LIMITED 2016 ANNUAL REPORTAJ LUCAS GROUP LIMITED 2016 ANNUAL REPORT ADDITIONAL INFORMATION CORPORATE DIRECTORY
Directory
COMPANY SECRETARY
Marcin Swierkowski – BA Com, CA, MBA (exec)
CHIEF FINANCIAL OFFICER
Austen Perrin
Registered office:
1 Elizabeth Plaza
NORTH SYDNEY NSW 2060
Tel +61 2 9490 4000
Fax +61 2 9490 4200
SHARE REGISTRY
Computershare Investor Services Pty Limited
Level 5, 115 Grenfell Street
ADELAIDE SA 5000
GPO Box 1903
ADELAIDE SA 5001
Enquiries within Australia:
Enquiries outside Australia: +61 3 9615 5970
Email: web.queries@computershare.com.au
Website: www.computershare.com
1300 556 161
STOCK EXCHANGE
The Company is listed on the Australian Securities Exchange with
the code ‘AJL’. The Home Exchange is Sydney.
AUDITORS
Ernst & Young
200 George Street
SYDNEY NSW 2000
QUALITY CERTIFIERS (AS/NZS ISO 9001:2008)
Bureau Veritas Australia Pty Limited
AUSTRALIAN BUSINESS NUMBER
12 060 309 104
OTHER INFORMATION
AJ Lucas Group Limited, incorporated and domiciled in Australia, is
a publicly listed company limited by shares.
8181
www.lucas.com.au