2012 ANNUAL REPORT CONTENTS Commercial FOXTEL installation 4 — Chairman’s Report 6 — Managing Director’s Report 14 — Directors’ Report 18 — Remuneration Report 29 — Corporate Governance Statement 40 — Auditor’s Independence Declaration 41 — Financial Report 103 — Directors’ Declaration 106 — Shareholder Information 108 — Corporate Directory 2 BSA LIMITED ANNUAL REPORT 2012 10-20 Bond Street Sydney Triple ‘M’ completed the Mechanical Services refurbishment in 2011. Featured here: Chillers with variable speed drives. CHAIRMAN’S REPORT BSA DELIVERED SATISFACTORY RESULTS IN A DIFFICULT MARKET Ross Johnston Chairman On behalf of BSA Limited, I am pleased to report on our performance in what has been a challenging year for the industry, but during which we delivered satisfactory results. Your Company has sustained momentum despite the collapse of the Hastie Group in our largest market. BSA has demonstrated that it is a disciplined Company with a focus on profitable growth and maintenance of a strong balance sheet. BSA’s ongoing investment in workplace health/safety and environment is being rewarded with month on month reductions in lost time injuries and the introduction of an energy reduction program. REVENUE $492m REVENUE INCREASE 22% EBITDA $16.5m NET PROFIT AFTER TAX $5.8m Our Managing Director, Steve Nash, will provide a detailed review of our results; the key highlights are as follows: • • • • • • Revenue $492 million; EBITDA $16.5 million; Net profit after tax $5.8 million; Basic earnings per share of 2.57 cents; Operating cash flow $23.9 million; and Final dividend 1c per share. Additionally, we have achieved the following: • Re-organised our operations to better align with our target markets and growth strategy: - - Technical Maintenance Services and Technical Design and Construction Projects are now discreet Business Units to reflect the different dynamics of their respective market sectors, thereby optimising both revenue and earnings growth opportunities; and The rapid integration of BurkeAir (acquired August 2011) into the newly formed Technical Maintenance Services Business Unit. • • • Significant investment in the upgrade of our vehicle fleet; Preservation of a strong balance sheet with a closing net cash position of $9.5million; and A strong Technical Design and Construction Projects forward workload of $208 million. 4 BSA LIMITED ANNUAL REPORT 2012 Air Handling Units Consistent with BSA strategy, Group revenue increased over the past year by $89 million or 22% in our chosen market sectors. At the same time we have fully integrated all businesses, completed the implementation of our new ERP system, increased our focus on risk management, strengthened Company management and technical capability. Operating cash flow remained strong at $23.9 million compared to $28.4 million in 2011 and we have maintained our dividend to shareholders in a market that has been depressed for much of that time. The modest growth in our profit before tax reflects the challenging trading environment but we look forward to delivering an enhanced market share in all business units. Underlying this is a constant focus on risk management ensuring we deliver both to our customers and shareholders. The Board has resolved to review our dividend amount every period going forward. The final dividend for FY12 reflects the Board’s continuing confidence in the management and operations of BSA to deliver our growth strategy and the Board’s desire to share the benefits of that success with shareholders. The Board has reviewed our Group strategy through to FY16 and reaffirmed our commitment to maintaining growth, cash generation, safety and development of our staff, consistent shareholder returns and, ultimately growth in our share price. We finished the 2012 financial year with a good forward order book, sound balance sheet, stronger customer relationships, and a more diversified business portfolio which means we are well placed for the future. I would like to thank my fellow Directors for their contribution to BSA and support during the year. Despite FY12 being a challenging year our staff and executive team have again shown their commitment to our customers and shareholders; on behalf of the Board, thank you. Ross Johnston Chairman 17 August 2012 BSA LIMITED ANNUAL REPORT 2012 5 MANAGING DIRECTOR’S REPORT PORTFOLIO DIVERSIFICATION AND PRESERVATION OF BALANCE SHEET Steve Nash Managing Director ARE EQUALLY IMPORTANT ORGANISATION GOALS FINANCIAL AND OPERATIONAL RESULTS GROWTH STRATEGY Whilst FY12 was a challenging year for the industry, BSA has delivered a satisfactory result in a difficult market. The BSA Group revenue reached $492 million (2011:$403 million), resulting in earnings before interest, taxes, depreciation and amortisation (EBITDA) of $16.5 million (2011:$16.3 million). Operating cash flow was $23.9 million, with an improved net cash position of $9.5 million (2011:$8.7 million) at year end following the funding of the cash cost of the BurkeAir acquisition of $8.9 million in August 2011. BSA delivered basic earnings of 2.57 cents per share. The Directors have declared a 1.0 cent fully franked final dividend taking the total dividends for the year to 2.0 cents per share, fully franked. The final dividend will be paid on 4 October 2012 to shareholders on the register at 14 September 2012. The key platforms of BSA’s strategy are growth through portfolio diversification, strategic acquisitions and sound organic growth whilst maintaining a strong balance sheet. I can report that we successfully progressed our strategic plan as follows: • We have now fully integrated the BurkeAir acquisition into our newest Business Unit, Technical Maintenance Services (TMS) and during FY13 we expect to realise improved earnings as TMS consolidates its position in a market that offers strong growth opportunities, particularly in the resources sector; • • Across all business units the effective management of working capital remains an imperative and our strong net cash position is a testament to performance in this endeavour; Forward orders for the Technical Design and Construction Projects Business Unit stands at $208 million (2011 $240 million) with further opportunities in an improving pipeline of potential projects with BSA Group companies now being the major providers in this market; and • We have now fully implemented our contract extension with FOXTEL which underpins forward workload for BSA’s Technical Field Force Solutions and again delivers on our strategy of organic growth. Your Company has invested in systems, vehicles, facilities and a number of improved business continuity measures to ensure the respective business units are best positioned to continue growth in the coming years. 6 BSA LIMITED ANNUAL REPORT 2012 Fiona Stanley Hospital HEALTH, SAFETY, SECURITY, ENVIRONMENT AND QUALITY BSA is investing in the development of an Integrated Management System that will be internationally accredited for Health & Safety, Quality and Environment to better support our drive to best practice in each of these critical disciplines. I am pleased to report that lost time incidents (LTI) reduced each month throughout FY12 culminating in zero LTIs in June, thereby providing a sound foundation for further improvement in FY13. Energy reduction audits have been completed across BSA’s major facilities to identify energy saving opportunities with a project initiated to deliver a reduction of 235 tonnes of Co2 emissions through over 220,000 less kwh consumption at the Sydney Olympic Park Head Office, with further projects planned throughout the Group in the coming year. GENDER DIVERSITY AND COMMITMENT TO YOUTH BSA aims to provide a work environment that promotes diversity and allows each employee to reach their potential. We are committed to providing a workplace that is free from discrimination, harassment and bullying. At the same time, BSA advises that the significant majority of employment in the Technical Design and Construction Projects team as well as the Technical Field Force Solutions team consists of specific skill sets; and whilst BSA has a commitment to diversity to ensure the elimination of discrimination against people based on gender, ethnic group, country of birth, political or religious affiliation, health status and people with disabilities, the over-arching principle applied is that the most suitable person for any job is employed where there is a vacancy. Current staff summary of men and women: COMMUNITY SUPPORT We continued our five year partnership with not-for-profit foundation Youngcare, by investing in new apartments on the Gold Coast providing more age appropriate accommodation for young Australians with high-care needs, who would otherwise be living in aged care facilities or with their struggling families. BSA and its employees also contributed to a number of charity fundraisers including the 2011 FOXTEL Lap for the Murdoch Children’s Research Institute and the Oncology Children’s Foundation. Board Managers & senior staff Administration Skilled Staff Total Percentage of Employment Female 0% 9% 73% 11% 16% Male 100% 91% 27% 89% 84% Participating in the CEO Sleep out, for the third year in a row, BSA CFO Karl Nixon, slept overnight on the streets of Sydney raising much needed funds for homeless services provider St Vincent de Paul. BSA is also committed to recruiting, training and retaining talented future leaders, with apprentice and trainee employees making up 14% of our workforce. BSA LIMITED ANNUAL REPORT 2012 7 MANAGING DIRECTOR’S REPORT Condensed Water Pipe Work Plant Room Liverpool Hospital Air Ductwork installation TECHNICAL DESIGN AND CONSTRUCTION PROJECTS BUSINESS UNIT (FORMERLY KNOWN AS BUILDING SERVICES) FY12 has been very challenging for BSA’s Technical Design and Construction Projects Business Unit with a market experiencing lower than average volume and the impact of the Hastie Group collapse. BSA Group companies Triple ‘M’ and Allstaff Airconditioning (Allstaff) continue to be the major providers of heating ventilation and air conditioning (HVAC) services in the medical and health care market sectors with major contracts including: • • • • • • • • • • • • Fiona Stanley Hospital; Liverpool Hospital; St Andrews House; Queensland Institute of Medical Research; Orange Hospital; Lifehouse at Royal Prince Alfred Hospital; Charles Perkins Centre; Royal Women’s and Children’s Hospital, Canberra; Olivia Newton John Centre; CSL Biotherapies; Kinghorn Cancer Centre; and Hunter Medical Research Institute. Fiona Stanley Hospital in Perth is the largest HVAC contract awarded to date in Australia. Substantial construction works have continued during FY12 with over 75% of works completed on the main Clinical Services Building; and the commissioning phase on the main central energy plant now also 95% completed. Technical Design and Construction Projects has undertaken the following works in tertiary education, another market sector highly attractive to BSA: • Griffith University on the Gold Coast; • Monash University in Melbourne; and • Swinburne University, also in Melbourne. Many landmark commercial and retail facilities’ HVAC systems have also been provided by Allstaff and Triple ‘M’ including: • • Commercial: BHP Head Office in Perth, (known as City Square), a 45 level premium grade commercial building; 111 Eagle Street, Brisbane, a 44 level premium grade 6 star rated office tower; 60 Station Street, Sydney; and Greenway Offices, Canberra Retail: Ikea and Harvey Norman, Melbourne; Westfield Sydney Retail Centre; Highpoint, Melbourne; and Ikea, Sydney. Technical Design and Construction Projects continues to invest in Building Information Modelling with the appointment of additional specialist resources. Whilst in the first quarter of FY13, the New South Wales operations of Triple ‘M’ and Allstaff will be co-located to allow BSA to develop a centre of excellence for HVAC design, engineering and project management. 8 BSA LIMITED ANNUAL REPORT 2012 Fiona Stanley Hospital Triple ‘M’ is delivering mechanical services for this milestone project. Featured here: Central Energy Services Plant Room. BSA LIMITED ANNUAL REPORT 2012 9 MANAGING DIRECTOR’S REPORT Marine Satellite Antenna installation Quality Assurance Officer FOXTEL Satellite Dish installation TECHNICAL FIELD FORCE SOLUTIONS BUSINESS UNIT (FORMERLY CONTRACTING SOLUTIONS) Technical Field Force Solutions has now successfully implemented the new FOXTEL contract performance hurdles and has reached steady state. Technical Field Force Solutions enjoyed increased installations from FOXTEL’s recent AFL siren to siren ad free promotion and new customer installations and upgrades prior to the London Olympics. During FY12 BSA completed over 440,000 installations/upgrades/ service calls on behalf of FOXTEL in the Australian Capital Territory, New South Wales, Queensland, Victoria and Western Australia. The introduction of BSA’s Phase III Mobility Solution has revolutionised the way we communicate with our customers and the way our technicians communicate with BSA. Our solution uses the latest tablet technology to allow BSA to despatch work orders, provide technicians with site specific job safety analysis information and technical data to support installation, maintenance or upgrade works. In addition to services provided for FOXTEL, BSA provides services to one of Australia’s most substantial telecommunications providers, OPTUS, and we look forward to continuing our relationship into FY13 and beyond. BSA’s Registered Training Organisation, BSA Advanced Learning, had a strong year with continued growth. The unit trained over 1,200 students during FY12, facilitating the following courses: • • Diploma of Business Administration; Certificate II & IV in Front Line Management; • Workplace Health & Safety; and • Optic Fibre & Telecommunication and Digital Reception Training. 10 BSA LIMITED ANNUAL REPORT 2012 Subscription Television Services BSA fulfills installation and corrective maintenance orders on behalf of FOXTEL. Featured here: a Multiswitch installation. BSA LIMITED ANNUAL REPORT 2012 11 MANAGING DIRECTOR’S REPORT Chiller Control Panel interrogation Quality Assurance audit Mechanical Services Switch Board TECHNICAL MAINTENANCE SERVICES BUSINESS UNIT BSA created Technical Maintenance Services (TMS) on 1 January 2012. TMS was formed from the service maintenance units of Triple ‘M’, Allstaff and BurkeAir. The formation of this dedicated business unit allows the management of TMS to focus on the provision of HVAC and fire maintenance services which have a different dynamic to the Technical Design and Construction Projects Business Unit. TMS has now standardised processes in both the east and west coast operations. All technicians in the Eastern Region are now utilising our tablet mobility solution and the Western Region is on track to be implemented by September 2012. The acquisition and rapid integration of BurkeAir during Q1 FY12 provided BSA an opportunity to participate in the resources market sector. BurkeAir’s established presence and a very promising forward workload with some of Australia’s largest resources companies will underpin the further development of TMS in the future. BSA has made a significant investment in technology, vehicles, office and warehouse facilities to ensure TMS is regarded as a leading HVAC and fire services provider in Australia. Growth in TMS will be both organic and acquisitive and will provide BSA with a greater diversification in Group earnings as well as annuity based contracts. LOOKING FORWARD The outlook for the new financial year is challenging but BSA has invested well and positioned each business unit to continue to be well managed and progressive in their respective market segments, therefore maintaining growth momentum in the Group. As in previous years, BSA is fortunate to have many talented and committed staff and contractors; I would like to acknowledge that commitment and I look forward to their ongoing support in the year ahead. We will continue to ensure the strength of our balance sheet as this best positions BSA to optimise growth opportunities in future years. In addition to maintaining a strong balance sheet, BSA has commenced profit improvement programs to increase the quality of earnings during FY13 and beyond. The Company’s investment in the safety and wellbeing of our staff and contractors will also continue and in time we will achieve our aspiration of best practice and being an employer of choice. 12 BSA LIMITED ANNUAL REPORT 2012 Your Board continues to be very supportive and I must extend my thanks to the BSA Chairman and Directors for their guidance and assistance. Steve Nash Managing Director 17 August 2012 Technical Maintenance Services TMS specialises in Sustainable Upgrades. Featured Here: V12 Co-generation engine powered by Natural Gas. BSA LIMITED ANNUAL REPORT 2012 13 DIRECTORS’ REPORT THE BOARD OF DIRECTORS PRESENT THEIR REPORT A B C D E F THE BOARD OF DIRECTORS AS AT 30 JUNE 2012 The Directors of BSA Limited (the ‘Company’) present their report on the Company and its subsidiaries for the financial year end 30 June 2012. A - ROSS JOHNSTON CHAIRMAN (NON-EXECUTIVE) C - MAX COWLEY NON-EXECUTIVE DIRECTOR E - PAUL TEISSEIRE NON-EXECUTIVE DIRECTOR Mr Johnston is an extensively experienced executive in the facilities management and building services industries. Ross is the Chief Executive Officer of Regis Group and prior to joining Regis in late 2008, was the National General Manager, Property and Facilities and then the Chief Executive Officer, Spotless Australian Services, the Australian arm of Spotless Group Limited. Ross worked both internationally and domestically with Lend Lease for fifteen years. Mr Johnston has a focus on strategic development and brings his skills in building and repositioning major businesses to BSA. Ross joined the Board on 29 April 2008 and was appointed as Chairman from that date. B - STEPHEN NASH MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER Mr Nash’s roles over the last ten years have included Chief Executive Officer, Chief Operating Officer, and Executive General Manager. These have been in the building services and facilities management industries. Stephen has a strong background in business development, information systems and risk management. Steve was appointed as Managing Director on 17 January 2011. Mr Cowley is the principal of accounting firm E M Cowley & Co and has practised as principal for 47 years. He is a Director of WIN Corporation Pty Limited and a number of private companies. Max is a Director and Company Secretary of Birketu Pty Limited, BSA’s single largest shareholder and has been closely involved with the development of WIN Corporation Pty Limited, Australia’s largest regional broadcast network its commencement from and over the past thirty three years. His years of corporate and financial experience are extensive. Max was appointed to the Board of BSA Limited on 2 May 2006. D - MICHAEL GIVONI NON-EXECUTIVE DIRECTOR involved Mr Givoni is a Senior Executive at Spotless Group Limited. He is the Group General Manager in strategy, business Development, development and merger and acquisition development. Previous to his management career, Michael was a practising solicitor and a partner in a prominent corporate legal practice. Michael is also a Director of the Venture Bank Ltd, and a number of private companies. Michael was appointed as a non-executive Director on 23 March 2005. Mr Teisseire is a professional independent non- executive Director. He spent over 20 years in private practices as a corporate lawyer specialising in business and corporate law with a special interest in corporate governance. He is a non-executive Director of Drake Foodmarkets and Mesbon China Nylon Ltd. Within the last three years, Paul was also Chairman of Austin Exploration Limited, and until recently, a non-executive Director of Gunns Limited. Paul was appointed as a non-executive Director on 23 March 2005. F - MARK LOWE NON-EXECUTIVE DIRECTOR Mr Lowe was appointed as a Director of BSA Limited on 1 August 2007 upon completion of the acquisition of the Triple ‘M’ Group. Mark brings a wealth of knowledge to the Company from his 30 years’ experience in the installation and maintenance of Air Conditioning and Fire Protection Services. He is a Director of Construction Information Systems Limited (NATSPEC) and a former National President of the Air Conditioning Mechanical Contractors Association of Australia. Following his retirement from executive duties Mark was appointed a non-executive director 2 March 2012. 14 BSA LIMITED ANNUAL REPORT 2012 Plant Room at City Square DIRECTOR INDEPENDENCE ENVIRONMENTAL REGULATION AND PERFORMANCE The Board considers three of BSA’s directors independent as defined under the guidelines of the ASX Corporate Governance Council being: Ross Johnston, Paul Teisseire and Michael Givoni. The Company was not subject to any particular or significant environmental regulations of the Commonwealth, individual States or Territories during the financial year. CORPORATE GOVERNANCE The Company continued to follow best practice recommendations as set out by the ASX Corporate Governance Council. Where the Company has not followed best practice for any recommendation, explanation is given in the Corporate Governance section in this annual report. Further corporate governance information is available on the Company’s web site at www.bsa.com.au/corporate. In assessing the independence of directors, the Board follows the ASX guidelines as set out in the Corporate Governance Statement within this Annual Report. PERFORMANCE OF DIRECTORS In accordance with Principle 8(1) of the ASX Corporate Governance Principles and Recommendations the Board has conducted a review of the performance of its Directors and the Board’s function as a whole during the period. The evaluation of Directors was completed in accordance with the process established by the Board, led by the chairman of the Nomination and Remuneration Committee. COMPANY SECRETARY The following person held the position of company secretary at the end of the financial year: Mr Graham Seppelt - Mr Seppelt has had extensive experience as a contract accountant and in corporate advisory roles. He is currently company secretary for Legend Corporation Limited, Mesbon China Nylon Limited, Australian Zircon NL and UXA Resources Limited. BSA LIMITED ANNUAL REPORT 2012 15 DIRECTORS’ REPORT Plant Room at 111 Eagle Street INFORMATION ON DIRECTORS As at 30 June 2012, the following information is provided in relation to Directors: Director Special Responsibilities Ordinary Share Options Share Rights Ross Johnston Chairman Non-Executive Director Chairman of Board Member of Nomination and Remuneration Committee Member of Audit and Compliance Committee Stephen Nash Executive Director Managing Director Max Cowley Non-Executive Director 1,634,315 Nil Nil Nil Nil Chairman of Nomination and Remuneration Committee *58,333,195 Member of Audit and Compliance Committee Michael Givoni Non-Executive Director Member of Nomination and Remuneration Committee 230,000 Nil Member of Audit and Compliance Committee Paul Teisseire Non-Executive Director Member of Nomination and Remuneration Committee Chairman of Audit and Compliance Committee Mark Lowe Non-Executive Director 404,769 Nil Member of Nomination and Remuneration Committee 10,315,403 Nil Member of Audit and Compliance Committee 16 BSA LIMITED ANNUAL REPORT 2012 Air Handling Unit at the Olivia Newton John Cancer and Wellness Centre *Shares owned by Birketu Pty Ltd of which Max Cowley is a director. DIRECTORSHIPS HELD IN OTHER LISTED ENTITIES Period of Appointment Name of Company Position Held (Non-Executive or Executive Director) Paul Teisseire Appointed March 2008 Resigned 20th July 2012 Appointed June 2006 Resigned 7 February 2009 Gunns Ltd Non-Executive Director and Chairman of the Audit Committee Austin Exploration Ltd Non-Executive Chairman and Member of the Audit and Compliance Committee Appointed September 2007 Mesbon China Nylon Ltd Non-Executive Director Chairman of the Audit and Compliance Committee Michael Givoni Appointed 1 July 2002 The Venture Bank Limited Non-Executive Director BSA LIMITED ANNUAL REPORT 2012 17 The Board has established a remuneration committee which provides advice on remuneration and incentive policies and practices, as well as specific recommendations on remuneration packages and other terms of employment for Executive Directors, other Senior Executives and Non-Executive Directors. The Corporate Governance Statement provides further information on the role of this committee. The following table shows the gross revenue, profits and dividends for the last five years for the listed entity, as well as the share price at the end of the respective financial years. During this period, and despite the challenging market conditions, the Company has achieved an increase in revenue and maintained profits before significant items and tax each year, together with steady dividends to shareholders. The Board is of the opinion that the previously described remuneration policy contributes to maximising shareholder value creation. 2008 2009 2010 2011 2012 Revenue $243.9m $240.9m $330.9m $402.6m $491.8m Net profit before tax $11.7m $10.7m Net profit after tax Share price at start of year Share price at end of year Dividends paid Basic earnings per share Diluted earnings per share $8.0m $0.76 $0.32 5.2 c 4.41 c 4.40 c $7.7m $0.32 $0.14 1.75 c 4.01 c 3.98 c $8.1m $9.2m $0.14 $0.19 2.0 c 4.48 c 4.32 c $8.1m $8.6m $0.19 $0.20 2.0 c 4.02 c 3.86 c $8.2m $5.8m $0.20 $0.20 3.0 c 2.57 c 2.51 c Non-Executive Directors Fees and payments to Non-Executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. Non- Executive Directors’ fees and payments are reviewed annually by the Board. The Board has also considered the advice of independent remuneration consultants to ensure Non-Executive Directors’ fees and payments are appropriate and in line with the market. The Chairman’s fees are determined independently to the fees of Non-Executive Directors based on the Director’s experience and comparative roles in the external market. The Chairman is not present at any discussions relating to determination of his own remuneration. DIRECTORS’ REPORT REMUNERATION REPORT - AUDITED This remuneration report details the nature and amount of remuneration for each key management person of BSA Limited and for the executives receiving the highest remuneration. The Company’s policy for determining the nature and amount of emoluments of Board members and senior executives of the Company is as follows and is set out under the following main headings: A. Principles used to determine the nature and amount of remuneration B. Details of remuneration C. Service agreements D. Cash bonuses E. Share-based compensation The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. A PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives, the creation of value for shareholders and conforms to market practice for delivery of the reward. The Board ensures that the executive reward satisfies the following key criteria for good reward governance practices: • • • • • Competitiveness and reasonableness; Acceptability to shareholders; Performance linkage/alignment of executive compensation; Transparency; and Capital management. In consultation with external remuneration consultants, the Group has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the organisation. Alignment to shareholders’ interests: • • Has economic profit as a core component of plan design; Focuses on sustained growth in shareholder wealth, Consisting of dividends and growth in share price, and Delivering constant return on assets as well as focusing the Executive on key non-financial drivers of value; and • Attracts and retains high calibre executives. Alignment to program participants’ interests: • • • • Rewards capability and experience; Reflects competitive reward for contribution to growth in shareholder wealth; Provides a clear structure for earning rewards; and Provides recognition for contribution. The framework provides a mix of fixed and variable pay as well as a blend of short and long-term incentives. As executives gain seniority within the group, the balance of this mix shifts to a higher proportion of at risk rewards. 18 BSA LIMITED ANNUAL REPORT 2012 Directors fees Short term incentives The current base remuneration for Directors was last reviewed on 26 June 2012. Directors’ fees are inclusive of superannuation and include the requirement to sit on two or more Board committees for the duration of their tenure. A Director’s expected time commitment is between five to ten hours per month. Directors are reimbursed actual expenses or paid a per diem allowance for attendance at the monthly meetings. Non-Executive Directors’ fees are determined within an aggregate Directors’ fee pool limit, which is periodically recommended for approval by shareholders. The maximum currently stands at $600,000 per annum and was last approved by shareholders at the Annual General Meeting (AGM) on 26 November 2007. The following fees have applied: Base fees including superanuation Chairman Other Non-Executive Directors $152,600 $87,200 Retirement allowances for Directors Non-Executive Directors do not participate in any share or option incentive plan and there are no retirement schemes or retirement benefits other than statutory benefits for Non-Executive Directors. Executive Pay Executive remuneration packages include a bonus based on a combination of the Company achieving a pre-determined profit target and the operational pre-determined target being met. Using a profit target ensures variable reward is only available when value has been created for shareholders and when profit is consistent with the business plan. Each executive with operational responsibilities has a short-term incentive (STI) depending on the accountabilities of the role and impact on organisation and business unit performance. The maximum target bonus opportunity is 30% of base salary. For the year ended 30 June 2012, the targets linked to the STI plans were based on the Group and individual business objectives. The target achievement required performance in reducing operating cost, increasing revenue and overall increase in EBITDA. The Group targets are generic across the management team. The Nomination and Remuneration Committee is responsible for assessing whether the targets are met. Targets are set at the beginning of the year and are assessed semi-annually. Short term bonus payments are adjusted up or down in line with under or over achievement against target performance levels. Because short-term targets cover several operational areas of the business as well as the overall Company target, STI may be paid when operational targets are achieved although the Company’s overall target may not be met. The STI target annual payment is reviewed annually. The executive pay and reward framework has three components: Options • • • Base pay and benefits, including superannuation; Short-term performance incentives; and Long-term incentives through participation in the employee share scheme, employee option plan and performance rights plan. No options were exercised during the year ended 30 June 2012. No amounts are unpaid on any shares issued on the exercise of options. All options have expired as at 30 June 2012. The combination of these comprises the executive’s total remuneration. Employee share scheme Benefits Executives receive benefits including allowances. Retirement benefits All employees are eligible to participate in the Company’s default superannuation fund. With the change in legislation as at 1 July 2005, the employees can now exercise choice as to where their superannuation is paid. A scheme under which shares were issued by the Company to employees for no cash consideration was ratified by shareholders at the 2004 AGM. All permanent employees (including executive Directors) who were continuously employed by the consolidated entity for a period of at least one year were eligible to participate in the scheme. Employees could elect not to participate in the scheme. Under the scheme, eligible employees were offered $1,000 worth of fully-paid ordinary shares in BSA Limited for the Year Ended 30 June 2004 for no cash consideration. The market value of shares issued under the scheme, measured as the weighted average market price on the day of issue of the shares, was recognised in the statement of financial position as share capital and as part of employee benefit costs. Offers under the scheme are at the discretion of the Company. No offers were made to Directors of BSA Limited or other key management personnel of the Group during the year ended 30 June 2012. BSA LIMITED ANNUAL REPORT 2012 19 DIRECTORS’ REPORT Executives Securities Plan The establishment of the BSA Executive Securities Plan was approved by shareholders at the 2005 AGM. The plan was established as a mechanism to provide the Company’s key executives with a direct equity involvement and incentive in the Company which aligns them with the shareholders. The number of Securities to be offered and the time at which Securities may be offered from time to time to executives and the price and terms of payment, shall be determined by the Board in its discretion. The Board may at such times as it determines invite any executive to be a member of the plan. If an executive to whom an Invitation has been issued forwards to the Company a duly completed Loan Application and the Transfer Documents together with his acceptance, and where appropriate his Application for Shares, then the Company shall, in accordance with the terms of the Loan Agreement, lend to the executive such amount as the executive has applied for in the Loan Application. To achieve its corporate objectives, the Company needs to attract and retain its key staff. The Board believes that awards made to selected eligible employees under the proposed plan will: • • • • Provide an incentive for the creation of, and focus on, shareholder wealth; Enable the Company to recruit and retain the talented people needed to achieve the Company’s business objectives; Link the reward of key staff with the achievement of strategic goals and the performance of the Company; Ensure the remuneration packages of employees are consistent with market practice. As part of the Company’s strategy, the Board wishes to be in a position to offer rights to acquire Shares in the Company to selected eligible employees who, in the opinion of the Board, are able by virtue of their skill and their application in performing their allocated tasks within the Company, to improve shareholder wealth. The flexibility of the plan rules will enable the Board to design grants that best meet the particular circumstances. The maximum amount of any loan shall be the total subscription price for the Shares applied for. No interest is payable by the Borrower under the Loan Agreement. The Board is cognisant that long-term equity-based reward for key staff should be linked to the achievement by the Company of testing performance hurdles. An executive shall not sell, mortgage, charge, assign or otherwise dispose of or encumber any Shares before payment or repayment of any amount outstanding to the Company in respect thereof. Subject to the above restriction and to the terms of the Loan Agreement (if any) deemed to be entered into by the executive, an executive shall from the Date of Allotment, be the absolute beneficial owner of the Shares. Unless the Directors of the Company otherwise provide in the terms of any Invitation, all Plan Shares shall rank for dividends declared on or after the Date of Allotment and shall in all respects rank equally with and have the same rights and entitlements as all other fully paid ordinary shares of the Company. Offers under the scheme are at the discretion of the Company. No offers were made to Directors of BSA Limited or other key management personnel of the Group during the year ended 30 June 2012. Employee Performance Rights Plan At the AGM held on 25 November 2008, shareholders approved the introduction of the BSA Employee Performance Rights Plan. This new incentive plan is designed to increase the motivation of eligible key staff and to create a stronger link between increasing shareholder value and employee reward. Rights granted to certain plan participants in each grant will be at zero vesting value and will be subject to the following performance conditions as determined by the Board: (i) Service condition of two to three years; or (ii) The Company’s performance as measured by earnings per share (EPS), being the EPS for the relevant Measurement Period as determined by the Board having regard to the financial statements. Certain growth in EPS for the shares must be attained in respect of each Measurement Period and pro rata in respect of the initial Measurement Period and service condition of three years. The Company must achieve these performance conditions before the rights vest. Once rights have been exercised by an eligible employee (subject to performance conditions being met), the Company may make non-refundable contributions to the plan company to either fund the purchase of a new plan share, or to acquire on the ASX of an existing share and transfer to the participant of that share, to which the participant is entitled under the rights. The specific terms of a particular grant, including any performance conditions, will be contained in the invitation and associated documentation sent to the eligible employee. A right granted to a participant is not transferable and may not otherwise be dealt with, except with the Board’s approval, or by operation of law on death or legal incapacity. 20 BSA LIMITED ANNUAL REPORT 2012 Rights to acquire shares will not be exercisable until the end of the final measurement period, and until those rights have satisfied all vesting conditions and all performance hurdles established by the Board. This is subject to a number of exceptions (including death, cessation of employment, takeovers and schemes of arrangement). The rights will have a specified life determined by the Board. All grants of rights will have a life terminating five (5) years after the grant date or such other date as determined by the Board. The Board will prescribe the date when performance under the hurdle is measured for each tranche. On or after the end of the final measurement period and provided any performance hurdle prescribed by the Board has been achieved and, where applicable, to the extent it has been achieved, the plan participant may then acquire shares by exercising the rights. A right lapses if it is not exercised by the expiry date. There is no Board policy in relation to the person limiting exposure to risk in relation to the securities issued as part of the remuneration. B DETAILS OF REMUNERATION Details of the remuneration of the Directors, the key management personnel of the Group (as defined in AASB 124 Related Party Disclosures) and specified executives of BSA Limited and the BSA Limited Group are set out in the following tables. The key management personnel of the Group are the following: (i) Chairman - Non-Executive Director Ross Johnston (ii) Executive Director Stephen Nash (iii) Non-Executive Directors Max Cowley Paul Teisseire Michael Givoni Mark Lowe (iv) Chief Financial Officer Karl Nixon In addition, the following persons have been disclosed as they are amongst the five highest remunerated Group and/or Company executives and the Company Secretary: Brendan Foley Group General Manager Technical Field Force Solutions Brian Mayo Group General Manager Allstaff Airconditioning Frank Wiedermann General Manager Allstaff Airconditioning VIC Glenn McLachlan Group General Manager Technical Maintenance Services Younis Tehfe General Manager Triple ‘M’ WA Graham Seppelt Company Secretary The above named persons held current positions for the whole of the financial year and since the end of the financial year. BSA LIMITED ANNUAL REPORT 2012 21 DIRECTORS’ REPORT Key management personnel of the Group and other executives of the Company and the Group 2012 Name Non-Executive Directors Ross Johnston Paul Teisseire Michael Givoni Max Cowley Mark Lowe (Retired as Executive Director on 2 March 2012) Short-term Benefits Cash, Salary & Fees Interest unwind on loans Cash Bonus Post Employment Long-term Benefits Share-based payments Long service leave Termination benefits Superannuation Rights Rights Total Performance Related $ $ $ $ $ $ $ % $ % 140,000 80,000 80,000 80,000 - - - - - - - - 12,600 7,200 7,200 7,200 - - - - - - - - - - - - - - - - 152,600 87,200 87,200 87,200 - - - - 287,991 160,000 3,934 30,327 3,512 94,656 ( 54,197) ( 10.30) 526,223 20.11 Sub-total Non-Executive Directors 667,991 160,000 3,934 64,527 3,512 94,656 ( 54,197) 940,423 - - - Executive Directors Stephen Nash Chief Financial Officer 494,143 50,000 Karl Nixon 311,000 35,000 43,780 8,552 - 66,063 10.79 662,538 17.52 26,981 6,327 - 5,564 1.59 384,872 10.54 Company Secretary Graham Seppelt Other Group Executives Brendan Foley Brian Mayo *** Frank Wiedermann ** Glenn McLachlan * Younis Tehfe 40,000 - - - 305,702 25,000 34,334 27,513 12,310 233,313 50,000 249,500 20,000 272,141 50,000 - - - 244,034 50,000 7,868 51,850 50,000 18,465 20,655 4,657 3,742 4,463 3,667 - - - - - - - - 40,000 - ( 2,160) ( 0.57) 402,699 11,931 8,871 3.77 2.84 351,751 332,113 - - 345,069 29,222 9.57 355,446 5.67 14.2 6.0 14.5 14.1 Total compensation 2,817,824 440,000 46,136 303,771 47,230 94,656 65,294 3,814,911 * Included in Cash Bonus was a one time project cash bonus of $15,000 ** Qualified as one of the 5 highest remunerated Group Executives from 1 July 2011 *** Included was a $15,000 bonus paid for higher duties in the current year The amounts disclosed above in relation to cash bonuses include any under accrual of 2011 bonuses paid during 2012, where applicable 22 BSA LIMITED ANNUAL REPORT 2012 2011 Name Short-term Benefits Cash, Salary & Fees Interest unwind on loans Cash Bonus Post Employment Long-term Benefits Share-based payments Long service leave Termination benefits Superannuation Rights Rights Total Performance Related $ $ $ $ $ $ $ % $ % Non-Executive Directors Ross Johnston Paul Teisseire Michael Givoni Max Cowley 139,080 80,000 77,346 79,711 Sub-total Non-Executive Directors 376,137 Executive Directors Mark Foley (Retired 26 October 2010) Stephen Nash (Commenced 17 January 2011) 424,999 197,601 75,000 - - - - - - - - - - - - - 12,517 7,200 6,961 7,174 33,852 61,660 - - - - - - 7,600 3,434 Mark Lowe 372,036 100,000 3,561 17,867 29,288 - - - - - - - - - - - - - - 151,597 87,200 84,307 86,885 - 409,989 - - - - - - ( 34,667) ( 7.67) 451,992 ( 7.67) - - - - 283,634 26.44 41,983 7.43 564,735 25.14 Chief Financial Officer Karl Nixon Company Secretary Graham Seppelt Other Group Executives 289,684 60,000 40,000 - Robert Barkley ** 200,962 47,500 - - - 25,552 5,685 - 41,617 9.85 422,538 24.0 - - - - - 40,000 - 49,269 - 311,161 (123,167) ( 25.36) 485,725 ( 15.58) (Resigned 24 March 2011) Brendan Foley Lewis Kaerger (i) Younis Tehfe Brian Mayo 298,758 50,000 15,686 26,326 4,101 285,669 - - 244,034 79,838 3,560 221,506 73,023 - - 11,841 37,206 - 7,412 3,359 - - - - 41,617 9.53 436,488 72,445 20.23 358,114 22,387 13,352 6.07 3.83 369,073 348,446 11.5 - 21.6 21.0 Total compensation 2,951,386 485,361 22,807 271,173 53,279 311,161 75,567 4,170,734 ** Qualified as one of the 5 highest remunerated Group Executives from 1 July 2011 (i) Lewis Kaerger’s remuneration is paid to Kaerger Investments Pty Ltd, a Company in which Lewis Kaerger has a beneficial interest. Lewis Kaerger’s contract concluded on 30 September 2011. The amounts disclosed above in relation to cash bonuses include any under accrual of 2010 bonuses paid during 2011, where applicable. BSA LIMITED ANNUAL REPORT 2012 23 DIRECTORS’ REPORT Performance income as a proportion of total remuneration: C SERVICE AGREEMENTS The Executive Director and executives are paid performance based bonuses based on set monetary figures, rather than proportions of their salary. This has led to the proportions of remuneration related to performance varying between individuals. The remuneration committee has set these bonuses to encourage achievement of specific goals that have been given a high level of importance to the future growth and profitability of the consolidated Group. The Nomination and Remuneration Committee will review the performance bonuses to gauge their effectiveness against achievement of the set goals, and adjust future years’ incentives as they see fit, to ensure use of the most cost effective and efficient methods. On appointment to the Board, all Non-Executive Directors enter into a service agreement with the Company in the form of a letter of appointment. The letter summarises the Board policies and terms, including compensation, relevant to the office of Director. A copy of the letter can be found on the www.bsa.com.au website. Remuneration and other terms of employment for the Managing Director and the other key management personnel are also formalised in service agreements. Each of these agreements provide for the provision of performance-related cash bonuses, other benefits, car allowances, and participation, when eligible, in the BSA Limited Option Plan, Executive Securities Plan and the BSA Performance Rights Plan. Other major provisions of the agreements relating to remuneration are set out below. All contracts with executives may be terminated early by either party with three to six months notice. D CASH BONUSES The cash bonus granted to Mark Lowe was at the discretion of the Nomination and Remuneration Committee. The bonuses vested as per the below table during the financial year ended 30 June 2012. Key management personnel and executives are also entitled to a short-term cash incentive based on performance criteria described in section A to this Remuneration Report. Details of these short-term incentives recognised as remuneration, forfeited or available for vesting in future financial years is outlined below: Name Included in Remuneration % Vested in current year % Forfeited in current year Other key management personnel (Group) % Available for vesting in future years Maximum $ available for vesting in future years Minimum $ available for vesting in future years Stephen Nash Mark Lowe Karl Nixon Brendan Foley Brian Mayo Younis Tehfe Frank Wiedermann Glenn McLachlan 50,000 160,000 35,000 25,000 35,000 50,000 20,000 35,000 33 130 26 25 45 60 34 45 67 - 74 75 55 40 66 55 - - - - - - - - - - - - - - - - - - - - - - - - 24 BSA LIMITED ANNUAL REPORT 2012 E SHARE-BASED COMPENSATION Executives Securities Plan Set out below are summaries of Securities accepted under the plan: Grant Date Issue Price (cents) Consolidated and parent entity Balance at Start of the Year Granted During the Year Released from Escrow During the Year Balance in Escrow at End of the Year Number Number Number Number 12 Jan 2006 13 Oct 2006 19 Jul 2007 11 Sep 2007 13 Sep 2007 14 Dec 2007 10 Feb 2009 Total 0.24 0.23 0.63 0.68 0.68 0.68 0.10 4,000,000 700,000 1,600,000 150,000 400,000 400,000 1,700,000 8,950,000 - - - - - - - - 4,000,000 - - - 200,000 - - - 700,000 1,600,000 150,000 200,000 400,000 1,700,000 4,200,000 4,750,000 BSA LIMITED ANNUAL REPORT 2012 25 DIRECTORS’ REPORT Employee Performance Rights Plan Set out below are summaries of Rights issued under the plan: Name Grant Date Exercise Date Expiry Date Consolidated and parent entity Mark Lowe Karl Nixon Brian Mayo Younis Tehfe Mark Lowe Karl Nixon Brendan Foley Brian Mayo Younis Tehfe Lewis Kaerger * Lewis Kaerger * Mark Lowe Karl Nixon 10 Feb 2009 10 Feb 2012 10 Feb 2014 10 Feb 2009 10 Feb 2012 10 Feb 2014 10 Feb 2009 10 Feb 2012 10 Feb 2014 10 Feb 2009 10 Feb 2012 10 Feb 2014 29 Sep 2009 29 Sep 2012 29 Sep 2014 29 Sep 2009 29 Sep 2012 29 Sep 2014 29 Sep 2009 29 Sep 2012 29 Sep 2014 29 Sep 2009 29 Sep 2012 29 Sep 2014 29 Sep 2009 29 Sep 2012 29 Sep 2014 29 Sep 2009 29 Sep 2012 29 Sep 2014 30 Mar 2010 30 Mar 2012 30 Mar 2014 24 Aug 2010 24 Aug 2013 24 Aug 2015 24 Aug 2010 24 Aug 2013 24 Aug 2015 Brendan Foley 24 Aug 2010 24 Aug 2013 24 Aug 2015 Frank Wiedermann ** 24 Aug 2010 24 Aug 2013 24 Aug 2015 Brian Mayo Younis Tehfe Steve Nash Mark Lowe Karl Nixon Brendan Foley Brian Mayo 24 Aug 2010 24 Aug 2013 24 Aug 2015 24 Aug 2010 24 Aug 2013 24 Aug 2015 14 Nov 2011 14 Nov 2014 14 Nov 2016 14 Nov 2011 14 Nov 2014 14 Nov 2016 14 Nov 2011 14 Nov 2014 14 Nov 2016 14 Nov 2011 14 Nov 2014 14 Nov 2016 14 Nov 2011 14 Nov 2014 14 Nov 2016 Frank Wiedermann ** 14 Nov 2011 14 Nov 2014 14 Nov 2016 Younis Tehfe Total 14 Nov 2011 14 Nov 2014 14 Nov 2016 Issue Price $ Balance at Start of the Year Granted During the Year Vested and Exercised During the Year Cancelled During the Year Balance in Escrow at End of the Year Fair Value per right $ Aggregate Fair Value $ Number Number Number Number Number 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 458,000 454,000 115,000 115,000 458,000 454,000 454,000 78,967 78,967 1,000,000 1,000,000 458,000 454,000 454,000 72,000 61,000 200,000 - - - - - - - - - - - - - - - - - - - - - - - - 1,360,000 746,000 613,000 454,000 59,000 66,000 189,000 - - (458,000) (454,000) - - - 0.135 0.135 0.135 - - - 115,000 0.135 15,525 - - (458,000) - 0.160 - - - - - 454,000 0.160 72,640 454,000 0.160 72,640 78,967 0.160 12,635 78,967 0.160 12,635 (115,000) - - - - - - - (1,000,000) - (1,000,000) (458,000) - - - 0.160 0.225 0.195 - - - - - - - - - - - - - - - - - - - - - - 454,000 0.195 88,530 454,000 0.195 88,530 72,000 0.195 14,040 61,000 0.195 11,895 200,000 0.195 39,000 1,360,000 0.190 258,400 (746,000) - 0.190 - - - - - - 613,000 0.190 116,470 454,000 0.190 86,260 59,000 0.190 11,210 66,000 0.190 12,540 189,000 0.190 35,910 6,364,934 3,487,000 (1,115,000) (3,574,000) 5,162,934 948,860 * Lewis Kaerger has a beneficial interest. Lewis Kaerger’s contract concluded on 30 September 2011. ** Qualified as one of the 5 highest remunerated Group Executives from 1 July 2011 Rights are granted over ordinary shares and nil is payable on exercise. REMUNERATION CONSULTANTS During the year under review, the Board engaged Godfrey Remuneration Pty Ltd to make recommendations in relation to the remuneration of Non- Executive Directors and other specific Key Management Personnel and which company was paid $19,040 for that advice. The consulting arrangement was initiated by the Chairman of the Board and the Remuneration Committee. No other advice was sought from the remuneration consultant during the year. As no contact was made between the consultant and executive management, the Board is satisfied that the recommendations were free from undue influence by executives. 26 BSA LIMITED ANNUAL REPORT 2012 End of Audited Remuneration Report MEETINGS OF DIRECTORS The number of meetings of the Company’s Board of Directors and each Board committee held during the year ended 30 June 2012, and the number of meetings attended by each Director were: Board Meetings Audit and Compliance Committee Meetings Nomination and Remuneration Committee Meetings A 12 13 13 12 13 10 B 13 13 13 13 13 13 A 4 * 4 4 4 1 B 4 * 4 4 4 1 A 4 * 5 4 5 - B 5 * 5 5 5 - Ross Johnston Stephen Nash Max Cowley Michael Givoni Paul Teisseire Mark Lowe A B * Number of meetings attended Number of meetings held during the time the Director held office or was a member of the Committee during the year Not a member of the relevant committee, but invited to attend the Audit and Remuneration Committee meetings RETIREMENT, ELECTION AND CONTINUATION IN OFFICE OF DIRECTORS OPTIONS Directors are subject to retirement by rotation and election by shareholders at a general meeting. No Director other than the Managing Director, may remain on the Board for more than three years without re-election. Where a Director is appointed during the year, the Director will hold office until the next Annual General Meeting and then be eligible for election. As at the date of this report, there were no unissued ordinary shares of BSA Limited under option. During the year ended 30 June 2012, no ordinary shares of BSA Limited were issued on the exercise of options granted under the BSA Limited Employee Option Plan. No further shares have been issued since that date. No amounts are unpaid on any of the shares. Max Cowley and Mark Lowe are the Directors retiring by rotation who, being eligible, offer themselves for re-election. RIGHTS INDEMNIFYING OFFICERS OR AUDITORS During the year, the Company paid a premium for a contract insuring all directors, secretaries, executive officers and officers of the Company and of each related body corporate of the Company. The insurance does not provide cover for the independent auditors of the Company or of a related body corporate of the Company. In accordance with usual commercial practice, the insurance contract prohibits disclosure of details of the nature of the liabilities covered by the insurance, the limit of indemnity and the amount of the premium paid under the contract. No liability has arisen under this indemnity as at the date of this report. As at the date of this report, the unissued ordinary shares of BSA Limited under right are as follows: Grant Date Date of Expiry Exercise Price 10 Feb 2009 21 Feb 2014 29 Sep 2009 29 Sep 2014 24 Aug 2010 24 Aug 2015 14 Nov 2011 24 Nov 2016 $0.00 $0.00 $0.00 $0.00 Number under Right 115,000 1,195,934 1,489,500 3,218,000 6,018,434 During the year ended 30 June 2012, 1,290,500 ordinary shares of BSA Limited were issued on the exercise of rights granted under the BSA Limited Employee Performance Rights Plan. No further shares have been issued since that date. No amounts are unpaid on any of the shares. No person entitled to exercise the right had or has any right by virtue of the right to participate in any share issue of any other body corporate. BSA LIMITED ANNUAL REPORT 2012 27 DIRECTORS’ REPORT Closed Circuit Heat Rejection Unit designed to reduce water consumption at Ikea Tempe PROCEEDINGS ON BEHALF OF THE COMPANY AUDITORS’ REMUNERATION No person has applied to the court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened on behalf of the Company with leave of the court under section 237 of the Corporations Act 2001. NON AUDIT SERVICES The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company and/or Group are important. Details of the amounts paid or payable to the auditor (Deloitte Touche Tohmatsu) for audit and non-audit services during the year are set out below. The Board of Directors has considered the position and in accordance with the advice received from the audit committee, is satisfied that the provision of non-audit services by the auditor, as set out below did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • • All non-audit services have been reviewed by the audit committee to ensure they do not impact the impartiality and objectivity of the auditor; and None of the services undermine the general principles relating to auditor independence as set out in Professional Statement APES 110 Code of Ethics for Professional Accountants, including reviewing or auditing the auditors own work, acting in a management or a decision making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. Amounts paid/payable to Deloitte for: Auditing or reviewing the financial report Taxation services Other non-audit services 2012 $ 2011 $ 347,552 436,226 345,382 351,526 501,345 122,500 AUDITORS INDEPENDENCE DECLARATION The lead auditors’ independence declaration for the year ended 30 June 2012 as required under section 307c of the Corporations Act 2001 has been received and can be found on page 40 of this report. ROUNDING OF AMOUNTS The Company is an entity to which ASIC Class Order 98/100 applies. Accordingly, amounts in the financial statements and directors’ report have been rounded to the nearest thousand dollars. Signed in accordance with a resolution of the Board of Directors. Ross Johnston Chairman 17 August 2012 28 BSA LIMITED ANNUAL REPORT 2012 CORPORATE GOVERNANCE STATEMENT Allstaff delivered new and refurbished HVAC systems at Liverpool Hospital The Company, through its Board and executives, recognises the need to establish and maintain corporate governance policies and practices, which reflect the requirements of the market regulators and participants, and the expectations of members and others who deal with the Company. These policies and practices remain under constant review as the corporate governance environment and good practice evolve. PRINCIPLE 1 LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT This statement outlines the Company’s system of governance during the Financial Year and the extent of the Company’s compliance, as at the end of the Financial Year, by reference to the second edition of the ASX Corporate Governance Principles and Recommendations (with 2010 amendments) and to the Corporations Act 2001. As at the date of publication, the Company complies with the recommendations in all respects other than the requirement for the majority of the directors of the Company to be independent, the recommendation that there be two separate committees for remuneration and nomination, that the chair of those committees be independent, and that diversity targets be set in this financial year. Further, in undertaking a review of the Company’s current practices, the Company will implement during 2012/2013 a whistleblowing policy, and a diversity policy which will set out the diversity targets from which the Company will report against. This will all form part of a relaunch of the Company’s Code of Conduct. Corporate governance documentation including charters and relevant corporate policies and codes referred to in this statement can be found on the www.bsa.com.au website. 1.1 Functions of Board and Management The Board is responsible for overseeing the effective management and control of the Company. The Board is accountable to members, and seeks to ensure that the business and financial objectives of the Company are aligned with the expectations of members. The Board seeks to ensure that the operations of the Company are being effectively managed in a manner that is focussed on those business objectives, as well as conforming to regulatory and ethical requirements. The Board has reserved its authority over the following matters (with a power of delegation to a committee of the Board, the Managing Director or another nominated member of the executive management team): • Strategy and direction - - Setting policies regarding the Company’s overall strategic direction, and plans for each of the Company’s major business units, key business and financial objectives; Approving any significant acquisitions or disposals of assets, and significant expenditure. • Financial controls, compliance and risk management - - - Approving annual operating and capital expenditure budgets; Monitoring and approving financial statements and published reports, including the Directors’ report and the corporate governance statement; Approving any significant changes in accounting policies or procedures; BSA LIMITED ANNUAL REPORT 2012 29 CORPORATE GOVERNANCE STATEMENT - Reviewing the effectiveness of the internal control systems and risk management processes, and compliance with statutory and regulatory obligations which, if not complied with would have a material effect on the Company’s business. • Capital and debt structure Day-to-day management of the business and operations of the Company is delegated by the Board to management through the Managing Director, subject to the agreed authority limits. The Board has delegated, to management, responsibility for: • Strategy – development of strategies and the making of recommendations to the Board on such strategies; - Approving any changes to the Company’s debt and capital structure including any reductions in share capital, buy backs or issue of new securities. • Management – management and performance of the Company in accordance with the strategy, business plans and policies approved by the Board; • Appointments - - - - Appointing Directors to the Board, following A review by the Nomination and Remuneration Committee; Appointing and reviewing the performance of the Managing Director against objectives set by the Board; Approving the Boards of subsidiary companies; Appointing the Company Secretary. • Delegation of authority - - Approving any changes to the membership or charter of any committee of the Board; Determining the scope of authority delegated to the Managing Director, the Chief Financial Officer, or other executive management team members. • Policies - Approving significant policies for the Company including the Code of Conduct, security trading policies for Directors and senior executives, health and safety policies, risk management policies and continuous disclosure and communications policies. • Corporate governance matters - - - - Determining the independence of Non-Executive Directors; Taking into account the recommendations of the Nomination and Remuneration Committee in determining the remuneration of Non-Executive Directors; Determining the resolutions and documentation to be put to members in general meeting; Approving announcements and press releases concerning matters decided by the Board, including announcements relating to the operating performance of the Company. The Board has delegated a number of responsibilities to its Committees. The role and responsibilities of these Committees are explained later in this statement. Directors may attend any Committee meetings. The Board receives copies of the minutes of all the Committee meetings. • • • • Financial performance – developing the Company’s annual budget, managing day to day operational and capital expenditure, and ensuring that the financial reports present a true and fair view of the Company’s financial condition, and are in accordance with the relevant accounting standards; Risk management – establishing and maintaining effective risk management frameworks and internal control systems; Continuous disclosure – keeping the Board and the market fully informed about material developments; Selection of senior management – making recommendations for the appointment of senior management, determining terms of appointment, evaluating performance and development of senior management. 1.2 Process for Evaluating the Performance of Senior Executives The Company has an established process of objective setting and performance review of all staff. Senior Executives have defined objectives which are agreed at the commencement of each financial year. Their performance against these objectives is assessed annually, in addition to regular feedback during the performance period. The potential future development of the executive is discussed, together with any training required to assist in achieving the development objectives, and progression within the Company. In the case of the senior executives (including the Managing Director) an assessment of their performance is undertaken by the Nomination and Remuneration Committee and the Board. In addition to the induction program provided to new employees, new members of the executive management team undertake an induction program customised to their needs. This typically includes one on one meetings with every member of the executive management team, and visits to major sites. Senior executives and senior managers also participate in training sessions on key topics of relevance such as changes in corporate governance standards, and legislation and compliance. 1.3 Performance Evaluation During the Financial Year, each member of the executive management team, including the Managing Director, was subject to a performance review as described in 1.2 above. 30 BSA LIMITED ANNUAL REPORT 2012 PRINCIPLE 2 STRUCTURE THE BOARD TO ADD VALUE The membership of the Board is reviewed by the full Board, from time to time, having regard to the ongoing needs of the Company and the Company’s Constitution. It is the policy of the Board that its membership should reflect an appropriate balance between executives possessing extensive direct experience and expertise in the business activities of the Company, and non-executive members who bring to the Board a broad range of general commercial expertise, experience and qualifications. The Group’s objective is that the Board should be of a size and composition that is conducive to effective decision making, with the benefit of a variety of perspectives and skills and in the interests of the Company. The appointment of a new member to the Board is made after consultation with the Nomination and Remuneration Committee and the Board. New Directors are initially appointed by the full Board and must then submit themselves to election by members of the Company at the Annual General Meeting (AGM) following their appointment. On 2 March 2012 the Company announced that Mr Mark Lowe, who up until that date was an Executive Director, would assume the role of Non–Executive Director. Board renewal and succession planning is part of the Company’s overall governance program and the Company remains committed to a Board which includes a mix of non-executive members who have outstanding track records and reputations at the highest levels of business and commerce generally. The Company is currently undertaking a review of its practices on diversity. This will include an assessment of whether the applicable charters and policies require amendment to formalise the Company’s position on diversity. Further information on how the Company is currently addressing the issue of diversity is contained in section 3 of this statement. 2.1 Independent Directors The composition of the Board is set out in the table below: Name Position Independent Ross Johnston Chair/Non-Executive Director Stephen Nash Managing/Executive Director Max Cowley Non-Executive Director Michael Givoni Non-Executive Director Paul Teisseire Non-Executive Director Mark Lowe Non-Executive Director Yes No No Yes Yes No Biographies of the Directors are included in the section on the Board of Directors in this Annual Report. The Board currently has six members. Of these, three are independent Non-Executive Directors. These Directors are considered by the Board to be independent of management and free of any business or other relationship, or any other circumstance that could materially interfere with the exercise of objective, unfettered or independent judgement. 50% of Directors are independent. Therefore, a majority of the Directors on the Board are not independent. The Board considers that it should include significant representation by Directors who are capable and willing to make decisions which are in the best interests of members, free from interests and influences which conflict with that duty, and are also independent of management. The Board continually assesses the independence of each Director in accordance with the interests they have disclosed, and such other factors as the Board determines are appropriate. In making this determination, the Board is seeking to assess whether Directors are: • • • Independent of management; Free of any business or other relationship that could materially interfere or be perceived to materially interfere with their unfettered and independent judgement; and Capable of making decisions without bias and which are in the best interests of all members. A Non-Executive Director will not be regarded as an independent director if that Director: • Is a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company; • Within the last three years has been employed in an executive capacity by any member of the Company, or been a Director after ceasing to hold any such employment; • Within the last three years has been a partner or a senior management executive with audit responsibilities of a firm which has acted in the capacity of statutory auditor of any member of the Company; • Within the last three years has been a principal, employee or consultant of a material professional adviser to any member of the Company; • • • Is a principal, employee or associate of a material supplier to, or material customer of, any member of the Company; Has a material contractual relationship with any member of the Company other than as a Director of the Company; and Has any interest, or business, or other relationship, which could materially interfere with the Director’s ability to act in the best interests of the Company, and independently of management. As regards the Non-Executive Directors, applying the criteria set out in the Board Charter, the Board has made the following determinations: • Mr Max Cowley is not independent given that he is a director, and company secretary, of the major substantial shareholder in the Company. • Mr Mark Lowe is not independent (following his resignation as an executive in March 2012), given his long standing executive role with the Company. • Mr Stephen Nash is not independent given that his role is that of Managing Director, an executive director. • Mr Ross Johnston, Mr Michael Givoni and Mr Paul Teisseire are all considered to be independent directors. BSA LIMITED ANNUAL REPORT 2012 31 CORPORATE GOVERNANCE STATEMENT The Board, through the Nomination and Remuneration Committee has come to the conclusion that whilst 50% of the Board is independent, the balance of skills and experience required for Board members for the size and development of the Company is appropriate. The Board is confident that each Non-Executive Director brings independent judgment to bear on Board decisions. That conclusion was reached based on the Board’s knowledge of the significant contributions made by each Director to the business of the Board and its Committees. This includes the willingness of the Directors to debate issues openly and constructively and freely express their views and opinions on matters being considered by the Board, including on occasions where those views are contrary to those expressed by the Executive Directors and management. Each Non-Executive Director has signed a letter of appointment which, amongst other things, places an onus on each independent Director to promptly and fully disclose to the Board any matter or circumstance which may impact on their status as an independent Director, or the likely perception of their status, as an independent member of the Board. Where the Board concludes that a Director has lost their status as an independent Director, that determination will be advised to the market. The Nomination and Remuneration Committee’s Charter discloses a process for selection and appointment of new Directors and re- election of incumbent Directors. The role and responsibilities of the Nomination and Remuneration Committee are set out later in this statement. 2.2 Chair and Independence Council recommendations that listed companies should have an independent director as Chair, and that the roles of Chair and Chief Executive Officer should not held by the same person. Mr Ross Johnston is considered to be independent by the Board, having regard to the guidelines for independence. 2.3 Nomination and Remuneration Committee The Board has appointed a combined Nomination and Remuneration Committee, with the two distinct roles, having regard to the size and requirements of the Company. The objective of the Nomination and Remuneration Committee is to support and advise the Board in relation to the identification, selection, recommendation and appointment of, and the ongoing evaluation and review of the performance of the Board, the Directors and the Senior Executives. It is also responsible for the general remuneration, recruitment and termination policies and practices. The members of the Committee are set out in the Directors’ Report. The Board recognises the ASX’s recommendation that the Nomination and Remuneration Committee should be chaired by an independent director. Mr Max Cowley is not considered independent because he is a Director and Company Secretary of the major substantial shareholder in the Company. The reason for this departure is one of practicality. The Board considers that Mr Max Cowley has the most appropriate skills to undertake the role of chair of this Committee. The Committee met five times during the Financial Year, per the details set out in the Directors’ Report. The Executive Directors may be invited to attend Nomination and Remuneration Committee discussions. The functions undertaken by the Committee in discharging their responsibilities include: • • • • • Assessing the skills of current Board members against the collective skill set required by the Board to competently discharge the Board’s duties, having regard to the strategic direction of the Company; Regularly reviewing and making recommendations to the Board regarding the structure, size, diversity and composition (including the balance of skills, knowledge and experience) of the Board; and reviewing the effectiveness of the Board as a whole, and continually reviewing the leadership needs of the Company, both executive and non- executive; Identifying suitable candidates (executive and non- executive) to fill Board vacancies as and when they arise, and nominating candidates for approval of the Board; Annually reviewing the performance of the Board; and Ensuring the existence of proper succession planning processes and plans for the Board. No member of the Committee will participate in a review of their own performance or re-appointment. The Nomination and Remuneration Committee Charter, as approved by the Board, appears in the corporate governance section of the www.bsa.com.au website. Recommendations regarding future appointment of additional Directors will be made by the Nomination and Remuneration Committee, and considered by the Board, having regard to: • • • The assessment made on the skill set required to discharge the responsibilities of the Board, compared with the skills currently represented on the Board; The current strategic direction of the Company, and the consequent need to consider skills which may be required in the future; and The suitability of available candidates, identified in the context of a detailed description of the role and capabilities required, for a particular appointment. Recommendations made by the Nomination and Remuneration Committee will be considered by the Board, which retains an unfettered discretion on the appointment of a Director to fill a casual vacancy or act as an additional Director, prior to the formal election of that Director, by the members of the Company at a general meeting. Upon appointment, a new Director undertakes an induction program specifically designed to their needs, to assist in familiarising them with issues relating to the current business before the Board. New Board members are provided with the opportunity to experience the operations of the Company, and to meet and discuss all aspects of the Company’s operations with key members of executive management. As part of the induction program, access is provided to information in areas such as; operations, finance, treasury and risk management, to assist the new Board member as required. New Directors receive a letter of appointment which sets out the main terms and conditions on which each Director is appointed. The letter of appointment conforms to the Recommendations of the ASX Corporate Governance Council. 32 BSA LIMITED ANNUAL REPORT 2012 The letter of appointment also sets out a procedure in relation to independent professional advice, at the Company’s expense. Directors are able to take independent professional advice, and are required to make that advice available to the other directors. Directors are encouraged to direct any enquiries or requests for additional information to the Company Secretary, who will facilitate a response to the query and/or provide the Director with the requested information. On an ongoing basis, Directors are provided with periodic updates on legal and corporate developments, particularly those pertaining to matters relating to the responsibilities of boards and directors generally, health and safety, changes to the Corporations Act 2001, corporate governance principles, tax and accounting developments and other matters of interest. Management conducts regular briefing sessions to the Board and Board Committees on operational, financial, treasury, legal and tax issues of relevance to the Board. The Company Secretary is appointed and removed by the Board. The Company Secretary works with the Chair, the Board and the Board Committees on all governance related issues. All Directors have access to the Company Secretary for the purpose of obtaining information or advice. The Company Secretary may also retain the services of independent advisory bodies, if requested by the Board or Board Committees. The office of the Company Secretary is responsible for the systems and processes that enable the Board to perform its role, and also provides secretariat services for each of the Board Committees. The Committee agendas, paper and minutes are available to all members of the Board. PRINCIPLE 3 PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING 3.1 Code of Conduct Compliance Manual As part of the Company’s ongoing commitment to high standards of ethical conduct, the Company is developing a Compliance Manual which will provide detailed guidance to employees on the laws applicable in the jurisdiction in which they work, and the standards of conduct and the procedures to be adopted to comply with those laws. The Compliance Manual will be supplemented by seminars to help employees understand the legal requirements with which the Company must comply. The Compliance Manual will deal with issues such as: • Workplace health and safety; • • • • • • Australian Consumer Law; Employment; Privacy; Anti discrimination, equal opportunity and bullying; Environmental compliance; Corporations Act 2001 and ASX Listing Rules requirements; and • Complaints handling procedures. The Company has provided a number of such seminars to date. Company Values The Board undertakes ongoing self assessment and review of its performance, and of the performance of the Board Committees. The Board is committed to transparency in assessing the performance of the Board. The conduct of all Company employees is governed by a set of fundamental principles to which employees are expected to adhere to when dealing with other employees, clients, contractors, members and the community. These core values require Company employees, at all times, to conduct themselves having regard to the following: • • The Safety and wellbeing of our staff is non negotiable We will not harm our people Talented and committed People are the heart of our business: The retention and development of our staff is a business imperative; • We will conduct ourselves with the highest Integrity: Uphold integrity in everything we say and do; • • Teamwork is the foundation for success: Working as one across all business units to achieve success; Respect for our fellow workers is essential: Treat everyone as you would expect to be treated; • We will be Innovative and create our own future: We will continue to strive to evolve our people and our technology; • Our Reputation is paramount: We will ensure our decisions and behaviour enhances the reputation of BSA. BSA LIMITED ANNUAL REPORT 2012 33 CORPORATE GOVERNANCE STATEMENT In adhering to those values, the Company, and its employees, will achieve the following: • Creation of an environment that motivates and allows employees to contribute and develop; • Honest, just and fair management in all dealings; • Meeting the commitments of the Company; • • • • • Examination of ways to continually improve processes in a manner which adds value; Providing members with superior returns on a sustainable basis; Constantly seek new opportunities and pursue sound growth and earning opportunities; Conducting all activities in a safe and environmentally responsible manner; Contributing expertise and resources to promote positive interaction between all members of the community; and • Being a leading corporate citizen. Employee Code of Conduct Complaints are treated in a confidential manner. No action of any kind will be taken against an employee, adviser or contractor who, in good faith, makes an allegation against the Company, any employee, adviser or contractor, whether or not that complaint is confirmed by subsequent investigation. Whistleblower Policy Having regard to the above, the Company is in the process of implementing a whistleblowing policy which will form an integral part of the Company’s compliance program. The policy will be adopted to ensure that concerns regarding unethical, unlawful or improper conduct may be raised without fear of reprisal. Under the policy, the Company will appoint a Whistleblower Protection Officer. Employees will be encouraged to report any genuine matter, or behaviour, that they honestly believe contravenes the Code of Conduct, policies or the law. Such matters may include any actual or suspected: • • • Conduct or practices which are illegal; Corrupt activities; Theft or fraud; BSA’s core principles are supplemented by the Employee Code of Conduct which is provided to all employees at the time of joining the Company and which deals, in broad terms, with the following matters: • Misleading or deceptive conduct of any kind; or • Harm to public health or safety, or the health or safety of any employee. • • • • The high standards of personal conduct and ethical behaviour expected of all employees; The duty of employees to avoid conflicts of interest which may arise if the employee or any person or entity associated with that employee has a business arrangement or relationship with the Company outside their normal employment relationship; The duty of employees to maintain confidentiality with respect to the Company’s information and information provided by our contractors and clients; The duty of employees to avoid discrimination against any person; and • The Company’s policy prohibiting harassment in any form. The Employees Code of Conduct, which is provided to, and acknowledged by, all employees who join the Company, is reviewed on a regular basis to ensure it remains current and relevant. Compliance seminars to update senior management on changes to legal requirements and procedures are conducted on a regular basis, and all senior managers are required to pass this information on to their staff. Senior managers are required to attend and formally acknowledge their understanding and compliance. It is the responsibility of each Director and employee to understand the Company values, Code of Conduct, and other policies applicable to them; and to bring to the attention of senior management any conduct or activities which may be in breach of those policies, so that a proper investigation can be conducted. Serious breaches of these policies must be reported immediately to the Managing Director, the Chief Financial Officer, or the General Counsel, for investigation, in accordance with the Company’s policies. Where appropriate, the police or other regulatory authority will be informed. The Company will investigate all reported concerns appropriately and will, where applicable, provide feedback regarding the investigation’s outcome. The Company will take any necessary action in response to a report and where no action is taken, an explanation will be provided. Where appropriate, a third party may be engaged to assist in the investigation. It is contemplated that every six months a report will be provided to the Audit and Compliance Committee, summarising the whistleblower activities for the period. 3.2 Diversity As noted at 2 above, the Board is undertaking a review and assessment of its current practices, including how the Board and the Nomination and Remuneration Committee presently take into account the diversity criteria when identifying and assessing potential Director candidates and members of the senior management team. Where appropriate, the Board will amend Committee charters to expressly incorporate the diversity criteria into Board and Committee objectives and responsibilities. The Group values an inclusive culture where all people are able to succeed to the best of their ability. These principles also guide our employees’ conduct in all their dealings with stakeholders of the Company. Diversity is regarded as key factor in enabling the Company to attract the broadest range of talent in the market. Our commitment to diversity requires that we work to ensure an environment which is supportive of equality and access for all our staff to career opportunities, development, remuneration and benefits. 34 BSA LIMITED ANNUAL REPORT 2012 Women in BSA 3.3 Security Trading Policy The Company is committed to promoting knowledge and awareness of the legal, regulatory and governance requirements to which the Company and its employees are subject, including prohibitions against insider trading. All Directors and employees are subject to Corporations Act 2001 restrictions on buying, selling or subscribing for securities in the Company if they are in possession of price sensitive information which has not been published. Members of the Board, and certain employees within the Company who have been notified that this policy applies to them, are prohibited from trading in Company securities in certain defined black-out periods, which include periods leading up to an announcement of results. They are encouraged to first obtain written, or email, consent from the Managing Director or Chair before dealing. At any other time, any member of the Board dealing in the Company’s securities must notify the Company Secretary. A copy of the Security Trading Policy is available on the www.bsa. com.au website. A copy of the Company’s Security Trading Policy was lodged with the ASX and released to the market on 28 December 2010. The Company recognises that working towards gender diversity and equality is essential to attracting and retaining the best talent in our business. The Company is committed to developing and supporting women in BSA, with a particular focus in the next financial year towards professional networking in the different industries the business operates within. This will provide an avenue for mentoring and professional development directed at our female workforce. Currently, 16% of the Company’s total workforce is female, with 14% representation within the Senior Executive. Further disclosure in relation to the distribution of gender in the workforce is included in the Managing Director’s Report. Professional development is available for all employees, with additional emphasis and focus placed on leadership development throughout all levels of our talent pipeline. All employees are provided with opportunities to strengthen their leadership skills and capabilities, and enhance their potential for leadership positions in the future. The Company’s performance management and remuneration strategies provide an equitable and consistent approach to ensure that all employees are fairly rewarded for the value they create within their business area. The Company’s Parental Leave Policy aims to provide employees with sufficient options and choices to enable them to devote time and care to their new or adopted children without disadvantaging their career. Paid parental leave is available to employees based on a sliding scale of entitlement. Employees on parental leave are invited to attend relevant training programs, seminars or conferences to keep them up to date on developments within their area of business and help support their transition back to work. Cultural Diversity The Company is committed to maintaining and developing mutually beneficial and respectful indigenous partnerships with the industries within which the Company operates, by providing real opportunities in education, training, mentoring and employment to indigenous Australians. The Company continues to focus on enhancing diversity through a range of strategies at the Board and business levels, which in turn contribute significantly to the Company’s business and to achievement of the business values which we have established. BSA LIMITED ANNUAL REPORT 2012 35 CORPORATE GOVERNANCE STATEMENT PRINCIPLE 5 MAKE TIMELY AND BALANCED DISCLOSURE 5.1 Continuous Disclosure Policy The Company’s Continuous Disclosure Policy underlines the Company’s commitment to ensuring that the Company’s members, and the market, are provided with high quality, relevant and accurate information in a timely manner; and that investors are able to trade in Company securities in a market which is efficient, competitive and informed, as well as ensuring that market participants have an equal opportunity to review and assess information disclosed by the Company. The Company is also committed to complying with continuous disclosure obligations contained in the applicable ASX Listing Rules and the Corporations Act 2001. The Policy includes a vetting and authorisation process so that all disclosures are factual, do not omit material matters and are expressed in a clear and objective manner. The Policy also outlines how the Company identifies and distributes information to members and the market generally. The Continuous Disclosure Policy appears on the www.bsa.com.au website. PRINCIPLE 4 SAFEGUARD INTEGRITY IN FINANCIAL REPORTING 4.1 Audit and Compliance Committee Composition The Board has established an Audit and Compliance Committee to ensure that an effective internal control framework exists to safeguard the assets of the business, and to ensure the integrity and reliability of financial and management reporting systems. The composition of the Audit and Compliance Committee is as set out in the Directors’ Report. The Committee met four times during the Financial Year. All members of the Committee attended all of the meetings per the details set out in the Directors’ Report. Audit and Compliance Committee Charter The Audit and Compliance Committee operates under a charter to enable it to fulfil its corporate governance and monitoring responsibilities by: • • Reviewing the adequacy of, and, where necessary, questioning the action and judgment of management in relation to the Company’s half-yearly and annual financial reports prepared for release to members, the ASX, regulators and to the public; Reporting to the Board on the half-year and annual reports and financial statements of the Company; • Making recommendations regarding the appointment, remuneration, evaluation and removal of the Company’s external auditor and reviewing and reporting to the Board on the adequacy, scope and quality of the annual statutory audit and half-year audit review and on the integrity and reliability of the financial statements; • Monitoring and reviewing the effectiveness of the Company’s internal control environment; • Monitoring and reviewing the reliability of financial reporting; • Monitoring and reviewing the compliance of the Company with applicable laws and regulations; • Monitoring and reviewing the scope and the co-ordination of the external audit functions; and • Monitoring the adequacy and effectiveness of compliance systems in relation to the legal exposures of the Company. The Audit and Compliance Committee meets with external auditors at least twice each year (and more frequently if required), to review the adequacy of existing external audit arrangements and the scope of the audit. The external auditors have a direct line of communication at any time to either the Chair of the Audit and Compliance Committee or the Chair of the Board. The Audit and Compliance Committee reports to the Board after each Committee meeting and the minutes of each Audit and Compliance Committee meeting are included in the Board papers. The external auditors, the Managing Director and the Chief Financial Officer are invited to attend Audit and Compliance Committee meetings at the discretion of the Committee. A copy of the Audit and Compliance Committee charter is available on the www.bsa.com.au website. 36 BSA LIMITED ANNUAL REPORT 2012 PRINCIPLE 6 RESPECT THE RIGHTS OF MEMBERS 6.1 Communications with Members The Company is committed to providing all members with comprehensive, timely and equal access to information about its activities, to enable them to make informed investment decisions. The Company employs a wide range of communication approaches, including direct communications with members, and publication of all relevant company investor information on the www.bsa.com.au website. The Company uses its corporate website as a means of providing information to members, and the broader investment community. A section of this website is dedicated to BSA’s investors. Media releases, investor presentations and interim and full-year financial reports are available for review on the www.bsa.com.au website. These announcements, presentations and reports are placed on the website immediately after they have been released to the ASX. An archive of announcements, presentations and reports is retained on the www.bsa.com.au website. Also available for review on the www.bsa.com.au website are notices of members’ meetings, and explanatory documents issued by the Company in respect of those meetings. A copy of the Chair’s address to the AGM, the AGM presentation and the outcome of voting on the items of business are posted to the website following the AGM. Members are encouraged to attend the AGM held each year, and to use these opportunities to ask questions and vote on important matters affecting the Company, including the election of Directors, the receipt of annual financial statements and the advisory vote on the remuneration report. The external auditor attends the AGM and is available to answer questions. Members may appoint proxies electronically through the www.bsa.com.au website, or via mail. The Company encourages members to access the Annual Report online to assist with the Company’s commitment to the environment, as well as being more cost efficient. A printed copy of the Annual Report will only be sent to those members who have made an election to receive it. Otherwise members will be notified when the Annual Report is available to be accessed online at the www.bsa.com.au website. Members are also encouraged to provide the Company with their email addresses so that they can be notified when the Annual Report is available online and also to be kept updated on other member communications. The Company works closely with its share registrar to monitor and review the potential to increase the use of electronic means of communicating with its investors. The Communications Policy is available on the www.bsa.com.au website. PRINCIPLE 7 RECOGNISE AND MANAGE RISK 7.1 Risk oversight and management and internal control The entire Board is responsible for monitoring and reviewing the corporate policies for identifying and managing relevant risks associated with the business of the Company, and the adequacy of the Company’s practices and procedures in implementing those policies. This involves monitoring and reviewing: • • The Company’s policies regarding risk oversight and risk management; The appropriateness of the risk management and internal control systems adopted by the Company; • The Company’s continuing processes for: - - - - The identification of material workplace health and safety, financial, legal and operational risks associated with the conduct of the business of the Company; The maintenance of appropriate internal control systems designed to manage key risk areas; Assessing the above matters in conjunction with management and the external auditors; and Monitoring and reporting against compliance with the risk management policies. Operating a group of companies undertaking technical and building, including construction related, services inevitably involves risks of various kinds. Furthermore, operating a company which utilises a contractor base involves risks of a different nature, which need to be balanced with the Company’s business and management. The Company’s objective is to ensure that those business risks are identified and assessed and that, where it is practical and economical, steps are taken to mitigate the impact of any risk which may eventuate. The Company regards risk management as an essential element in its management processes with links to every aspect of the Company’s business including health and safety issues in respect of employees, clients, contractors and customers, the construction of sites, relationships with major clients, contractors, and suppliers. The Company’s approach to risk management involves: • • • • Pro-actively identifying risk; Properly assessing and making informed decisions on risk issues; Ensuring that sound risk mitigation and management plans are in place; and Reviewing, as part of its regular business processes, the operation and adequacy of its risk management systems and the assumptions which dictate those systems. Risk management is aimed at managing the level of risk within parameters which are acceptable to the Company, rather than seeking to eliminate all risks. The Company’s risk management systems promote the need for informed and measured decision making on risk issues based on a systematic approach to risk identification, assessment, control, and review and reporting. BSA LIMITED ANNUAL REPORT 2012 37 CORPORATE GOVERNANCE STATEMENT The Company is developing a risk profile which will operate as a general guide as to identification, assessment and management of the various risks inherent to the Company’s business, from a contractual perspective. 7.2 Management of material business risks The Board has delegated specific risk related responsibilities to the Managing Director, who, in turn, has delegated these responsibilities to management. Each Senior Executive and all managers are responsible for: • • • Assisting in the formulation of all aspects of the risk management process; Overseeing the implementation of the Company’s policies and procedures by ensuring that all phases of the process of identification, assessment, control, review and reporting are reflected appropriately in the business processes of the Company; and Implementing appropriate systems for confirming compliance with all relevant laws and other regulatory obligations are complied with. The Managing Director reports to the Board on the effectiveness of the Company’s management of its material risks. 7.3 Managing Director and Chief Financial Officer Assurance The Managing Director and the Chief Financial Officer are required to confirm in writing to the Board, every half year that in all material respects: • • • The financial statements present a true and fair view; and That this assertion is founded on a sound system of financial risk management and internal compliance and control which implements the policies adopted by the Board; and That the Company’s financial risk management and internal compliance and control systems are operating efficiently and effectively in all material respects in relation to financial reporting risks. This assurance has been given. PRINCIPLE 8 REMUNERATE FAIRLY AND RESPONSIBLY The Company’s remuneration policy is designed to attract and retain high calibre directors and senior executives capable of meeting the specific management needs of the Company. The Company’s current remuneration objectives and policies regarding determination of base pay, the short term variable bonus and long term equity linked incentives are explained in the Remuneration Report which forms part of the Directors’ Report. Details of the remuneration of all Directors, and the five Senior Executives receiving the highest remuneration within the Company are also set out in the Remuneration Report. 8.1 Nomination and Remuneration Committee As the Company has a combined Nomination and Remuneration Committee, the composition of the Nomination and Remuneration Committee is as set out in the Directors’ Report. The Board recognises the ASX’s recommendation that the Nomination and Remuneration Committee should be chaired by an independent chair and consist of a majority of independent directors. Mr Max Cowley is not considered independent because he is a director and company secretary of the major substantial shareholder in the Company. Mr Mark Lowe is not independent given his long standing executive role within the Company. The reason for this departure is one of practicality, as the Board considers that, of the current directors, Mr Max Cowley has the most appropriate skills to undertake the role of chair of this Committee. The Committee met five times during the financial year, as set out in the Directors’ Report. The objective of the Committee is to assist the Board in establishing remuneration policies and practices which: • • • Enable the Company to attract and retain executives and Directors who will create sustainable value and returns for members and other stakeholders; Fairly and responsibly reward executives and Directors, having regard to the performance of the Company, the executive and the market; and Comply with all relevant legislation and regulations including the ASX Listing Rules and the Corporations Act 2001. The Charter of the Nomination and Remuneration Committee may be viewed on the www.bsa.com.au website. 38 BSA LIMITED ANNUAL REPORT 2012 The responsibilities of the Committee include: Workplace Health, Safety and Environment The Company is committed to ensuring the safety and wellbeing of all employees, its clients, customers, and members of the public. To this end, the number one value of the Company is “The safety and wellbeing of our staff is non negotiable”. The Company provides ongoing training, across the organisation, with respect to its legal obligations; and specific training as to operational risks in the field. The Company places great emphasis on carrying out everything it does in a safe manner. The Company values the environment, and recognises the responsibility to protect our surroundings. Operations are managed in an environmentally responsible manner, with an undertaking to: • • • Operate in compliance with relevant local environmental legislation and regulations; Seek to reduce the energy consumption and waste produced per unit of output; Educate our employees, ensuring the requirements for environmental responsibility is integrated into work practices training; and • Monitor and report on environmental compliance through management to the Board. PRIVACY The Company is committed to respecting stakeholders’ rights to privacy and protecting personal information. The Company will treat all personal information with due care, and take reasonable steps to protect such information from loss, misuse, unauthorised access or disclosure. The Company’s Privacy Policy can be found on the www.bsa.com.au website. • • • • • • Determining and reviewing remuneration policies to apply to members of the Board and to executives within the Company; Determining the specific remuneration packages for Executive Directors (including base pay, incentive payments, equity linked plan participation and other contractual benefits); Reviewing contractual rights of termination for members of the senior executive team; Reviewing and approving the policy for participation by senior executives in equity-linked plans; Reviewing and approving management’s recommendations of the total proposed awards to be issued under each plan; and Administering the equity-linked plans as required in accordance with the rules of the plans. 8.2 Structure of Non-Executive Directors’ Remuneration Fees paid to Non-Executive Directors are determined by the Board, within the current maximum aggregate limit set by members of the Company. Current fees and salaries are fully disclosed in the Remuneration Report section of the Directors’ Report. Directors’ fees are reviewed annually by the Nomination and Remuneration Committee and by the Board taking into consideration the level of fees paid to non-executive directors by companies of a similar size and stature. Non-Executive Directors receive their fees in cash. The Non-Executive Directors do not participate in schemes designed for the remuneration of executives, nor do they receive options or bonus payments. The gross fee received by Non-Executive Directors is inclusive of any contribution that the Company is obliged to pay pursuant to the superannuation guarantee legislation. There are no retirement schemes or retirement benefits for Non-Executive Directors, other than statutory benefits for Non-Executive Directors. 8.3 Equity Linked Executive Remuneration The Company has a policy to preclude its Senior Executives from entering into transactions to limit their economic risk from investing in Company shares, options or rights where those entitlements are unvested. The Company makes Senior Executives aware of their obligations in relation to financial commitments against shares issued under the executive securities plan, and has requested that they take sufficient independent, professional advice in relation to their individual financial position. The Company does not provide advice. In addition to the Corporate Governance Principles and Recommendations, the Company considers that a commitment to workplace health and safety, and the environment, and to privacy is paramount to a good corporate governance programme. BSA LIMITED ANNUAL REPORT 2012 39 AUDITOR’S INDEPENDENCE DECLARATION Liability limited by a scheme approved under Professional Standards Legislation. 40 BSA LIMITED ANNUAL REPORT 2012 FINANCIAL REPORT BSA LIMITED ABN 50 088 412 748 42 — Consolidated Statement of Comprehensive Income 43 — Consolidated Statement of Financial Position 44 — Consolidated Statement of Changes in Equity 45 — Consolidated Statement of Cash Flows 46 — Notes to Financial Statements 103 — Directors’ Declaration 104 — Independent Auditor’s Report 106 — Shareholder Information BSA LIMITED ANNUAL REPORT 2012 41 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2012 Consolidated Revenue Investment revenue Other gains and losses Changes in inventories of finished goods and work in progress Subcontractor and raw materials used Employee benefits expense Depreciation expenses Amortisation expenses Occupancy expenses Finance costs Other expenses Profit before tax Income tax (expense)/benefit Profit for the year Other comprehensive income for the year, net of tax Gain/(loss) recognised on cash flow hedges Total comprehensive income for the year, net of tax Earnings per share for profit from continuing operations: Basic earnings per share Diluted earnings per share Note 2012 $’000 2011 $’000 5 6 7 8 8 8 8 9 491,764 402,574 764 18 22 (405,466) (42,426) (5,373) (2,266) (4,897) (1,462) (22,477) 8,201 (2,391) 5,810 11 5,821 788 40 (787) (324,652) (39,039) (4,073) (2,567) (4,050) (2,321) (17,833) 8,080 508 8,588 47 8,635 13 13 2.57 cents 2.51 cents 4.02 cents 3.86 cents The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 42 BSA LIMITED ANNUAL REPORT 2012 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012 Consolidated ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Tax assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Other financial assets Property, plant & equipment Deferred tax assets Goodwill Other intangible assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Borrowings Tax liabilities Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Borrowings Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued Capital Reserves Accumulated losses 2012 Profit Reserve TOTAL EQUITY The above Statement of Financial Position should be read in conjunction with the accompanying notes Note 14 15 16 9.3 15 20 17 9.4 18 19 23 24 9.3 25 24 25 26 27 27 (a) (b) 2012 $’000 24,734 79,194 3,000 - 106,928 1,279 4 15,501 1,443 55,045 8,913 82,185 2011 $’000 31,431 76,937 2,977 646 111,991 1,392 4 10,194 2,090 52,103 4,779 70,562 189,113 182,553 85,584 4,966 4,672 7,803 103,025 10,247 1,192 11,439 114,464 74,649 77,797 1,497 (8,177) 3,532 74,649 79,024 1,899 - 6,520 87,443 20,823 1,011 21,834 109,277 73,276 75,419 1,635 (3,778) - 73,276 BSA LIMITED ANNUAL REPORT 2012 43 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2012 Consolidated Balance at 1 July 2010 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Shares issued during period Share-based payment expense Dividends paid Balance at 30 June 2011 Profit for the year Transfer to 2012 Profit Reserve Other comprehensive income for the year Total comprehensive income for the year Shares issued during period Share-based payment expense Shares issued in satisfaction of performance conditions Dividends paid Balance at 30 June 2012 Issued capital Accumulated losses 2012 Profit Reserve Share-based payment reserve Cash flow hedge reserve $’000 $’000 $’000 $’000 $’000 73,708 - - - 1,711 - - 75,419 - - - - 2,378 - - - 77,797 (8,121) 8,588 - 8,588 - - (4,245) (3,778) 5,810 (3,532) - 2,278 - - - (6,677) (8,177) - - - - - - - - - 3,532 - 3,532 - - - - 3,532 1,601 - - - - 70 - 1,671 - - - - - 151 (300) - 1,522 (83) - 47 47 - - - (36) - - 11 11 - - - - (25) The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. Total $’000 67,105 8,588 47 8,635 1,711 70 (4,245) 73,276 5,810 11 5,821 2,378 151 (300) (6,677) 74,649 44 BSA LIMITED ANNUAL REPORT 2012 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2012 Consolidated Cash Flows From Operating Activities: Cash receipts from customers Payments to suppliers and employees Interest received Interest and other costs of finance paid Income tax received/(paid) Net cash generated by operating activities Cash Flows from Investing Activities: Proceeds from disposal of property, plant and equipment Net cash outflow on acquisition of subsidiary Payment for plant and equipment Net cash used in investing activities Cash Flows From Financing Activities: Payment for shares issued upon vesting Repayment of borrowings Repayment of executive loans Payment of finance lease liabilities Share issue costs paid Dividends paid to owners of the Company Net cash (used in)/generated by financing activities Net (decrease)/increase in cash Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. Note 30 (a) 32 (c) 14 2012 $’000 544,711 (521,710) 868 (1,648) 1,690 23,911 579 (8,734) (5,396) (13,551) (76) (10,000) 1,013 (3,170) (2) (4,822) (17,057) (6,697) 31,431 24,734 2011 $’000 434,972 (408,621) 326 (1,336) 3,091 28,432 257 (822) (4,436) (5,001) - (6,750) - (2,437) (8) (2,525) (11,720) 11,711 19,720 31,431 BSA LIMITED ANNUAL REPORT 2012 45 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 1 GENERAL INFORMATION BSA Limited (the Company) is a limited company incorporated in Australia. The addresses of its registered office and principal place of business are disclosed in the introduction to the annual report. The principal activities of the Company and its subsidiaries (the Group) are described in note 29. NOTE 2 APPLICATION OF NEW AND REVISED ACCOUNTING STANDARDS 2.1 Standards and Interpretations affecting amounts reported in the current period (and/or prior periods) The following new and revised Standards and Interpretations have been adopted in the current period and have affected the amounts reported in these financial statements. Details of other Standards and Interpretations adopted in these financial statements but that have had no effect on the amounts reported are set out in section 2.2. Standards affecting presentation and disclosure AASB 1054 ‘Australian Additional Disclosures’ and AASB 2011-1 ‘Amendments to Australian Accounting Standards arising from Trans- Tasman Convergence Project’ AASB 1054 sets out the Australian-specific disclosures for entities that have adopted Australian Accounting Standards. This Standard contains disclosure requirements that are in addition to IFRSs in areas such as compliance with Australian Accounting Standards, the nature of financial statements (general purpose or special purpose), audit fees, imputation (franking) credits and the reconciliation of net operating cash flow to profit (loss). AASB 2011-1 makes amendments to a range of Australian Accounting Standards and Interpretations for the purpose of closer alignment to IFRSs and harmonisation between Australian and New Zealand Standards. The Standard deletes various Australian-specific guidance and disclosures from other Standards (Australian-specific disclosures retained are now contained in AASB 1054), and aligns the wording used to that adopted in IFRSs. The application of AASB 1054 and AASB 2011-1 in the current year has resulted in the simplification of disclosures in regards to audit fees, franking credits and capital and other expenditure commitments as well as an additional disclosure on whether the Group is a for-profit or not-for-profit entity. Standards and Interpretations affecting the reported results of financial position There are no new and revised Standards and Interpretations adopted in these financial statements affecting the reporting results or financial position. 2.2 Standards and Interpretations adopted with no effect on financial statements The following new and revised Standards and Interpretations have also been adopted in these financial statements. Their adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions or arrangements. AASB 124 ‘Related Party Disclosures’ (revised December 2009) AASB 2009-12 ‘Amendments to Australian Accounting Standards’ AASB 124 (revised December 2009) has been revised on the following two aspects: (a) AASB 124 (revised December 2009) has changed the definition of a related party and (b) AASB 124 (revised December 2009) introduces a partial exemption from the disclosure requirements for government-related entities. The Company and its subsidiaries are not government-related entities. The application of the revised definition of related party set out in AASB 124 (revised December 2009) in the current year has resulted in the identification of related parties that were not identified as related parties under the previous Standard. The application of AASB 2009-12 makes amendments to AASB 8 ‘Operating Segments’ as a result of the issuance of AASB 124 ‘Related Party Disclosures’ (2009). The amendment to AASB 8 requires an entity to exercise judgement in assessing whether a government and entities known to be under the control of that government are considered a single customer for the purposes of certain operating segment disclosures. The Standard also makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations. The application of AASB 2009-12 has not had any material effect on amounts reported in the Group’s consolidated financial statements. AASB 2010-5 ‘Amendments to Australian Accounting Standards’ The Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations. The application of AASB 2010-5 has not had any material effect on amounts reported in the Group’s consolidated financial statements. 46 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 AASB 2010-6 ‘Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets’ The application of AASB 2010-6 makes amendments to AASB 7 ‘Financial Instruments – Disclosures’ to introduce additional disclosure requirements for transactions involving transfer of financial assets. These amendments are intended to provide greater transparency around risk exposures when a financial asset is transferred and derecognised but the transferor retains some level of continuing exposure in the asset. To date, the Group has not entered into any transfer arrangements of financial assets that are derecognised but with some level of continuing exposure in the asset. Therefore, the application of the amendments has not had any material effect on the disclosures made in the consolidated financial statements. 2.3 Standards and Interpretations in issue not yet adopted The Company is still in the process of identifying the impact of standards and interpretations in issue not yet adopted. Standard/Interpretation Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending AASB 9 ‘Financial Instruments’, AASB 200911 ‘Amendments to Australian Accounting Standards arising from AASB 9’ and AASB 2010-7 ‘Amendments to Australian Accounting Standards arising from AASB 9 (December 2010)’ 1 January 2013 30 June 2014 AASB 10 ‘Consolidated Financial Statements’ 1 January 2013 30 June 2014 AASB 11 ‘Joint Arrangements’ 1 January 2013 30 June 2014 AASB 12 ‘Disclosure of Interests in Other Entities’ 1 January 2013 30 June 2014 AASB 127 ‘Separate Financial Statements’ (2011) 1 January 2013 30 June 2014 AASB 13 ‘Fair Value Measurement’ and AASB 2011-8 ‘Amendments to Australian Accounting Standards arising from AASB 13’ 1 January 2013 30 June 2014 AASB 119 ‘Employee Benefits’ (2011) and AASB 2011-10 ‘Amendments to Australian Accounting Standards arising from AASB 119 (2011)’ 1 January 2013 30 June 2014 AASB 2010-8 ‘Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets’ 1 January 2013 30 June 2013 AASB 2011-4 ‘Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements’ 1 July 2013 30 June 2014 AASB 2011-7 ‘Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements standards’ 1 January 2013 30 June 2014 AASB 2011-9 ‘Amendments to Australian Accounting Standards – Presentation of Items of Other Comprehensive Income’ 1 July 2012 30 June 2013 BSA LIMITED ANNUAL REPORT 2012 47 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 2 APPLICATION OF NEW AND REVISED ACCOUNTING STANDARDS (CONTINUED) 2.3 Standards and Interpretations in issue not yet adopted At the date of authorisation of the financial statements, the following IASB Standards and IFRIC Interpretations were also in issue but not yet effective, although Australian equivalent Standards and Interpretations have not yet been issued. Standard/Interpretation Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) Mandatory Effective Date of IFRS 9 and Transition Disclosures (Amendments to IFRS 9 and IFRS 7) Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 January 2014 1 January 2013 1 January 2015 1 January 2015 1 January 2014 1 January 2016 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES 3.1 Statement of compliance These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and comply with other requirements of the law. The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing consolidated financial statements, the Company is a for-profit entity. Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the Company and the Group comply with International Financial Reporting Standards (‘IFRS’). The financial statements were authorised for issue by the directors on 17 August 2012. 3.2 Basis of preparation The consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. The Company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. 3.3 Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Income and expense of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under AASB 139 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or jointly controlled entity. 48 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 3.4 Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant Standards. Changes in the fair value of contingent consideration classified as equity are not recognised. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: • • • Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with AASB 112 Income Taxes and AASB 119 Employee Benefits respectively; Liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share- based payment arrangements of the acquiree are measured in accordance with AASB 2 ‘Share-based Payment’ at the acquisition date; and Assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 Noncurrent Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another Standard. Where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with AASB 139, or AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’, as appropriate, with the corresponding gain or loss being recognised in profit or loss. Where a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. Business combinations that took place prior to 1 July 2009 were accounted for in accordance with the previous version of AASB3. BSA LIMITED ANNUAL REPORT 2012 49 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.5 Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of the acquisition of the business (see 3.4 above) less accumulated impairment losses, if any. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. 3.6 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Any consideration deferred is treated as the provision of finance and is discounted at a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount initially recognised and the amount ultimately received is interest revenue. All revenue is stated net of the amount of goods and services tax (GST). 3.6.1 Sale of goods Revenue from the sale of goods is recognised when all the following conditions are satisfied: • • • • • The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; The amount of revenue can be measured reliably; It is probable that the economic benefits associated with the transaction will flow to the Group; and The costs incurred or to be incurred in respect of the transaction can be measured reliably. Specifically, revenue from the sale of goods is recognised when goods are delivered and legal title is passed. 3.6.2 Rendering of services Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract. The stage of completion of the contract is determined as follows: • • • Installation fees are recognised by reference to the stage of completion of the installation, determined as the proportion of the total time expected to install that has elapsed at the end of the reporting period; Servicing fees included in the price of products sold are recognised by reference to the proportion of the total cost of providing the servicing for the product sold; and Revenue from time and material contracts is recognised at the contractual rates as labour hours are delivered and direct expenses are incurred. The Group’s policy for recognition of revenue from construction contracts is described at 3.7 below. 3.6.3 Dividend and interest income Dividend revenue from investments is recognised when the shareholder’s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably). Interest revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition. 50 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 3.7 Construction contracts and Work in Progress Construction work in progress is valued at cost, plus profit recognised to date less any provision for anticipated future losses. Costs includes both variable and fixed costs relating to specific contracts, and those costs that are attributable to the contract activity in general and that can be allocated on a reasonable basis. 3.8 Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 3.8.1 The Group as lessee Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs (see 3.9 below). Contingent rentals are recognised as expenses in the periods in which they are incurred. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 3.9 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 3.10 Employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably. Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions. BSA LIMITED ANNUAL REPORT 2012 51 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.11 Share-based payments Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 31. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. The policy described above is applied to all equity-settled share-based payments that were granted after 7 November 2002 and vested after 1 January 2005. No amounts have been recognised in the financial statements in respect of other equity-settled shared-based payments. Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service. For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At the end of each reporting period until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognised in profit or loss for the year. 3.12 Taxation Income tax expense represents the sum of the tax currently payable and movement in deferred tax. 3.12.1 Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. 3.12.2 Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 52 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 3.12.3 Current and deferred tax for the year Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items that are recognised outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognised outside profit or loss, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is included in the accounting for the business combination. 3.13 Property, plant and equipment Fixtures and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is recognised so as to write off the cost less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. 3.14 Intangible assets 3.14.1 Intangible assets acquired separately Intangible assets acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. 3.14.2 Internally-generated intangible assets - research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: • • • • • • The technical feasibility of completing the intangible asset so that it will be available for use or sale; The intention to complete the intangible asset and use or sell it; The ability to use or sell the intangible asset; How the intangible asset will generate probable future economic benefits; The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and The ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. 3.14.3 Intangible assets acquired in a business combination Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. BSA LIMITED ANNUAL REPORT 2012 53 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.15 Impairment of tangible and intangible assets excluding goodwill At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash- generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. 3.16 Inventories Inventories are stated at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories by the method most appropriate to the particular class of inventory, with the majority being valued on the basis of weighted average cost. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. 3.17 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material). When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. 3.17.1 Restructurings A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity. 3.17.2 Warranties Provisions for the expected cost of warranty obligations under construction contracts are recognised at the Directors’ best estimate of the expenditure required to settle the Group’s obligation. 3.17.3 Contingent liabilities acquired in a business combination Contingent liabilities acquired in a business combination are initially measured at fair value at the date of acquisition. At the end of subsequent reporting periods, such contingent liabilities are measured at the higher of the amount that would be recognised in accordance with AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’ and the amount initially recognised less cumulative amortisation recognised in accordance with AASB 118 ‘Revenue’. 54 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 3.18 Financial assets Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. 3.18.1 Effective interest method The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. Income is recognised on an effective interest basis for debt instruments. 3.18.2 Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short- term receivables when the recognition of interest would be immaterial. 3.18.3 Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 30 days, as well as observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. 3.18.4 Reclassification of financial assets Reclassification of non-derivative financial assets is only permitted in rare circumstances and where the asset is no longer held for the purpose of selling in the short-term. In all cases, reclassifications of financial assets are limited to debt instruments. Reclassifications are accounted for at the fair value of the financial asset at the date of reclassification. 3.18.5 Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. BSA LIMITED ANNUAL REPORT 2012 55 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.19 Financial liabilities and equity instruments issued by the Group 3.19.1 Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. 3.19.2 Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. 3.19.3 Financial guarantee contract liabilities Financial guarantee contract liabilities are initially measured at their fair values and, if not designated as at FVTPL, are subsequently measured at the higher of: • • The amount of the obligation under the contract, as determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets; and The amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with the revenue recognition policies set out at 3.6 above. 3.20 Financial liabilities Financial liabilities are classified as ‘other financial liabilities’. 3.20.1 Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. 3.20.2 Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. 3.21 Derivative financial instruments The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including foreign exchange forward contracts and interest rate swaps. Further details of derivative financial instruments are disclosed in note 35. Derivatives are initially recognised at fair value at the date the derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. 3.21.1 Hedge accounting The Group designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges. At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item. 56 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 3.21.2 Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the ‘other gains and losses’ line item. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognised in profit or loss, in the same line of the statement of comprehensive income as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability. Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss accumulated in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss. 3.22 Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: i. ii. Where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or For receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified within operating cash flows. NOTE 4 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group’s accounting policies, which are described in note 3, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The 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 if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. 4.1 Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. 4.1.1 Contracts - estimates to complete Construction contracts are accounted for as per 3.7. Inherent in the assessment of profitability of each contract is the estimate to complete. This estimate requires the Directors to assess the conduct of the contract to date and the expected cost to complete the contract. 4.1.2 Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at 30 June 2012 was $55.0 million (30 June 2010: $52.1 million). BSA LIMITED ANNUAL REPORT 2012 57 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 5 REVENUE Consolidated The following is an analysis of the Group's revenue from continuing operations (excluding investment revenue - see note 6). Revenue from sale of goods Revenue from the rendering of services Contract revenue Total Revenue NOTE 6 INVESTMENT REVENUE Consolidated Interest revenue Bank deposits Other loans and receivables The following is an analysis of investment revenue earned on financial assets by category of asset. Loans and receivables (including cash and bank balances) NOTE 7 OTHER GAINS AND LOSSES Consolidated Continuing operations Gain on disposal of property, plant and equipment 58 BSA LIMITED ANNUAL REPORT 2012 2012 $’000 15,857 121,434 354,473 2011 $’000 12,673 127,529 262,372 491,764 402,574 2012 $’000 764 - 764 764 764 2012 $’000 18 18 2011 $’000 730 58 788 788 788 2011 $’000 40 40 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 8 PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS Consolidated Profit for the year from continuing operations has been arrived at after charging/(crediting): 8.1 Cost of sales 8.2 Finance costs Interest on bank overdrafts and loans Total finance costs 8.3 Depreciation and amortisation expense Depreciation of property, plant and equipment Amortisation of intangible assets Total depreciation and amortisation expense 8.4 Employee benefits expense Post employment benefits Superannuation* Share-based payments (see note 31(d)) Equity-settled share-based payments Other employee benefits Total employee benefits expense *Prior year comparative has been adjusted by $2,023,000 which was incorrectly included in the Other employee benefits line. 8.5 Impairment losses on financial assets 2012 $’000 2011 $’000 405,444 325,439 1,462 1,462 5,373 2,266 7,639 2,321 2,321 4,073 2,567 6,640 7,066 6,408 151 35,209 42,426 (425) (425) 70 32,561 39,039 308 308 BSA LIMITED ANNUAL REPORT 2012 59 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 9 INCOME TAXES Consolidated 9.1 Income tax recognised in profit or loss The expense for the year can be reconciled to the accounting profit as follows: Profit from continuing operations Income tax expense calculated at 30% Adjusted for: Non deductible expenses Research and development allowance Adjustments recognised in the current year in relation to the current tax of prior years: Research and development allowance Rights to future income adjustment due to change in legislation Other Income tax expense/(benefit) recognised in profit or loss The tax rate used for the 2011 and 2010 reconciliations above is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. 9.2 Income tax recognised directly in equity Current tax Share issue costs 9.3 Current tax assets and liabilities Current tax assets Tax refund receivable Current tax liabilities Income tax payable 60 BSA LIMITED ANNUAL REPORT 2012 (16) (16) - - 4,672 4,672 2012 $’000 2011 $’000 8,201 2,460 265 (150) 2,575 (1,749) 1,668 (103) (184) 2,391 8,080 2,424 46 (1,400) 1,070 (1,478) - (100) (1,578) (508) (15) (15) 646 646 - - NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 9.4 Deferred tax balances 2012 Opening balance Recognised in profit or loss Recognised in other comprehensive income Recognised as part of business combination Closing balance $’000 $’000 $’000 $’000 $’000 Temporary differences Finance leases Intangible asset adjustment Employee benefits Retirement benefit obligations Provisions Doubtful debts Other financial liabilities (20) (1,169) 2,590 142 124 423 - 2,090 (16) (1,505) 478 111 268 (15) - (647) - - - - - - - - - - - - - - - - (4) (2,674) 3,068 253 392 408 - 1,443 2011 Opening balance Recognised in profit or loss Recognised in other comprehensive income Recognised as part of business combination Closing balance $’000 $’000 $’000 $’000 $’000 Temporary differences Finance leases Intangible asset adjustment Employee benefits Retirement benefit obligations Provisions Doubtful debts Other financial liabilities (234) (1,399) 2,586 16 17 245 25 1,256 214 230 4 126 107 178 (25) 834 - - - - - - - - - - - - - - - - (20) (1,169) 2,590 142 124 423 - 2,090 Deferred tax balances are presented in the statement of financial position as follows: Deferred tax assets 30/06/2012 30/06/2011 $’000 1,443 1,443 $’000 2,090 2,090 BSA LIMITED ANNUAL REPORT 2012 61 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 9 INCOME TAXES (CONTINUED) 9.5 Tax consolidation Relevance of tax consolidation to the Group The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 1 August 2007 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is BSA Limited. The members of the tax-consolidated group are identified in note 20. 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 ‘separate taxpayer within group’ approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities and assets and deferred tax assets arising from un-used tax losses and relevant tax credits of the members of the tax-consolidated group are recognised by the Company (as head entity in the tax-consolidated group). Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable to or received by the Company and each member of the Group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group in accordance with the arrangement. NOTE 10 KEY MANAGEMENT PERSONNEL Consolidated (a) Compensation Short term employee benefits Post employment benefits Other long term benefits Termination benefits Share based payments 2012 $ 2011 $ 1,722,068 135,288 18,391 94,656 17,430 1,987,833 1,899,017 146,531 38,407 - 48,933 2,132,889 Further information regarding the identity of key management personnel and their compensation can be found in the Audited Remuneration Report contained in the Directors’ Report on pages 18 to 26 of this Annual Report. 62 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 11 AUDITORS’ REMUNERATION Consolidated Remuneration of the auditor of the Group for: - Auditing or reviewing the financial report - Taxation services - Other non-audit services 2012 $ 347,552 436,226 345,382 1,129,160 2011 $ 351,526 501,345 122,500 975,371 BSA LIMITED ANNUAL REPORT 2012 63 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 12 DIVIDENDS Consolidated (a) Ordinary shares Interim fully franked dividend of 1.0 (2011: 1.0) cent per fully paid ordinary share franked at the rate of 30% (2011: 30%) paid 13 April 2012 Final fully franked dividend of 2.0 (2011: 1.0) cents per fully paid ordinary share franked at the rate of 30% (2011: 30%) paid 4 October 2011 Total dividends provided for or paid (b) Dividends not recognised at year end In addition to the above dividends, since year end the Directors have recommended the payment of a final dividend of 1.0 cent per fully paid ordinary share, (2011: 2.0 cents) fully franked based on tax paid at 30% The aggregate amount of the proposed dividend expected to be paid for the year ended 30 June 2012, but not recognised as a liability at year end, is: (c) Franked credits 2012 $’000 2,278 4,399 6,677 2011 $’000 2,141 2,104 4,245 2,289 4,352 Franking account balance at 30 June 13,397 18,033 64 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 13 EARNINGS PER SHARE Consolidated Basic earnings per share Diluted earnings per share (a) Reconciliation of Earnings to Profit Profit Earnings used to calculate basic EPS and dilutive EPS 2012 Cents 2.57 2.51 $’000 5,810 5,810 2011 Cents 4.02 3.86 $’000 8,588 8,588 (b) Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS Number 225,653,329 Number 213,821,087 Weighted average number of options / rights outstanding 6,215,852 8,788,611 Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS 231,869,181 222,609,698 (c) Information concerning the classification of securities Options/Rights Options granted to employees under the BSA Limited Employee Option Plan and rights granted to employees under the BSA Limited Employees Performance Rights Plan are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The options/rights have not been included in the determination of basic earnings per share. Details relating to the options and rights are set out in note 31. NOTE 14 CASH AND CASH EQUIVALENTS Consolidated For the purposes of the consolidated statement of cash flows, cash and cash equivalents include cash on hand and in banks. Cash at bank and on hand 2012 $’000 24,734 24,734 2011 $’000 31,431 31,431 BSA LIMITED ANNUAL REPORT 2012 65 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 15 TRADE AND OTHER RECEIVABLES Consolidated CURRENT Trade receivables Allowance for doubtful debts Other receivables Executive Share Plan Receivables Amounts due from customers under construction contracts Allowance for doubtful debts (construction contracts) Contract Retentions Prepayments NON-CURRENT Term receivables Allowance for doubtful debts Note 34 (c) Executive Share Plan Receivables 34 (c) 2012 $’000 4,909 (361) 4,548 11,783 198 62,066 (799) 849 549 74,646 79,194 - - - 1,279 1,279 2011 $’000 10,205 (349) 9,856 10,116 1,160 55,516 (755) 52 992 67,081 76,937 - - - 1,392 1,392 Trade receivables Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost. The average credit period for the Group is 30 days. No interest is charged on overdue receivables. Allowances for doubtful debts are recognised against trade receivables greater than 60 days based on estimated irrecoverable amounts determined by reference to past default experience of the counterparty. Before accepting a new customer, the Group uses an external credit scoring system to assess the potential customer's credit quality and defines credit limits by customer. 66 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 Age analysis of trade receivables that are past due but not impaired at the reporting date Consolidated Trade receivables Not past due Past due [30] days Past due [30-60] days Past due [60-90] days Past due [>90] days Total Amounts due from customers under construction contracts Not past due Past due [30] days Past due [30-60] days Past due [60-90] days Past due [>90] days Total Amount Impaired $’000 2012 Amount not impaired $’000 7 255 19 - 80 361 - - - - 799 799 2,640 1,248 - 285 375 4,548 38,796 13,254 3,988 1,852 3,377 61,267 Total $’000 2,647 1,503 19 285 455 4,909 38,796 13,254 3,988 1,852 4,176 62,066 Amount Impaired $’000 2011 Amount not impaired $’000 5 - 30 32 282 349 - - 700 - 55 755 3,553 3,890 2,278 80 55 9,856 34,702 15,176 1,906 2,567 410 54,761 Total $’000 3,558 3,890 2,308 112 337 10,205 34,702 15,176 2,606 2,567 465 55,516 As at 30 June 2012, the Group had current trade receivables of $1,160,140 (2011: $1,104,248) that were impaired. The amounts relate to customers who had not responded to final request for payment notices, customers that BSA had requested external collection agencies to collect outstanding debts or customers who have disputed invoiced amounts. Analysis of Allowance Account Consolidated Opening Balance Transferred In from acquisition of subsidiary Provisions for doubtful receivables current Provisions for doubtful receivables non current Receivables written off during the year Reversal of amounts provided Closing balance NOTE 16 INVENTORIES Consolidated CURRENT Raw materials and stores Work in progress Finished goods 2012 $’000 1,104 481 1,160 - (16) (1,569) 1,160 2012 $’000 3,000 - - 3,000 2011 $’000 796 - 1,104 - (63) (733) 1,104 2011 $’000 2,615 339 23 2,977 BSA LIMITED ANNUAL REPORT 2012 67 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 17 PROPERTY, PLANT & EQUIPMENT Consolidated LAND AND BUILDINGS Freehold Land At cost Total Land BUILDINGS At cost Less accumulated depreciation Leasehold improvements At cost Less accumulated depreciation Total Land and Buildings PLANT AND EQUIPMENT At cost Less accumulated depreciation Hire purchase assets At Cost Less accumulated depreciation Total Owned Plant and Equipment Plant and Equipment under finance lease At cost Less accumulated depreciation Total Property, Plant and Equipment 68 BSA LIMITED ANNUAL REPORT 2012 2012 $’000 253 253 410 (6) 404 2,258 (1,168) 1,090 1,747 20,208 (12,818) 7,390 8,121 (3,237) 4,884 12,274 2,258 (778) 1,480 15,501 2011 $’000 - - - - - 1,558 (928) 630 630 15,950 (9,671) 6,279 2,056 (1,181) 875 7,154 4,469 (2,059) 2,410 10,194 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 Movements in Carrying Amounts Movements in the carrying amounts of each class of property, plant and equipment between the beginning and the end of the financial year Land $’000 Buildings $’000 Leasehold improvements Plant & equipment $’000 $’000 - - - - - - - - - - 928 630 - - 9,986 3,807 (329) 2,486 1,558 15,950 253 410 700 - - - - - - - - - 253 410 2,258 - - - - - - - - - - - - - - 6 - - 6 697 231 - - 928 240 - - 1,168 1,090 4,033 (1,240) 1,450 15 20,208 5,393 2,798 (268) 1,748 9,671 3,369 (824) 602 12,818 7,390 Plant & equipment under finance lease and hire purchase $’000 6,165 1,091 (165) (566) 6,525 4,396 (527) - (15) 10,379 2,138 1,045 (115) 172 3,240 1,758 (381) (602) 4,015 6,364 Total $’000 17,079 5,528 (494) 1,920 24,033 9,792 (1,767) 1,450 - 33,508 8,228 4,074 (383) 1,920 13,839 5,373 (1,205) - 18,007 15,501 Cost Balance as at 1 July 2010 Additions Disposals Transfers * Balance as at 30 June 2011 Additions Disposals Acquisitions through business combinations Transfers * Balance as at 30 June 2012 Accumulated depreciation and impairment Balance as at 1 July 2010 Additions Disposals Transfers * Balance as at 30 June 2011 Additions Disposals Transfers * Balance as at 30 June 2012 Net Book Value as at 30 June 2012 253 404 * Transfers between categories 17.1 The following useful lives are used in the calculation of depreciation: Buildings Leasehold improvements Plant and equipment Plant and equipment under finance lease 25 years 4 - 5 years 3 - 10 years 3 - 5 years 17.2 Assets held as security Fixed and floating charges over the whole of the Company assets has been pledged as security for bank loans. BSA LIMITED ANNUAL REPORT 2012 69 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 18 NON-CURRENT ASSETS - GOODWILL Consolidated Goodwill on consolidation Accumulated impairment losses at deemed cost Cost Balance at the beginning of year Additional amounts recognised from business combinations occurring during the year (note 32) Balance at end of year Accumulated impairment losses Balance at the beginning of year Impairment lossed recognised in the year Disposals Amortisation charge Impairment losses 2012 $’000 56,580 (1,535) 55,045 53,638 2,942 56,580 2011 $’000 53,638 (1,535) 52,103 52,895 743 53,638 (1,535) (1,535) - - - - - - Closing carrying value at 30 June 2012 (1,535) (1,535) Intangible assets, other than goodwill, have finite lives. The current amortisation for intangible asset is included under depreciation and amortisation expense per the income statement. Impairment Disclosures Goodwill has been allocated for impairment testing purposes to the following cash-generating units: CGU Technical Field Force Solutions Technical Design & Construction Projects Technical Maintenance Services Total 2012 $’000 11,490 34,885 8,670 55,045 2011 $’000 11,490 40,613 - 52,103 The recoverable amount of each cash-generating unit above is determined based on value-in-use calculations. Value-in-use is calculated based on the present value of cash flow projections over a five year period with the period extending beyond five years extrapolated using an estimated growth rate of 3% for Technical Field Force Solutions, 3% for Technical Design and Construction Projects and 4% for Technical Maintenance Services. The cash flows are discounted using the weighted average cost of capital at the end of the budget period. 70 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 The following assumptions were used in the value-in-use calculations: Technical Field Force Solutions 2012 2013 2014 2015 2016 2017 Term Year Technical Design & Construction Projects 2012 2013 2014 2015 2016 2017 Term Year Technical Maintenance Services 2012 2013 2014 2015 2016 2017 Term Year 2012 Growth Rate - (12.82%) 3.00% 3.00% 3.00% 3.00% 3.00% - (2.75%) 3.00% 3.00% 3.00% 3.00% 3.00% - 29.59% 4.00% 4.00% 4.00% 4.00% 4.00% 2012 Discount Rate - 11.70% 11.70% 11.70% 11.70% 11.70% 11.70% - 11.70% 11.70% 11.70% 11.70% 11.70% 11.70% - 11.70% 11.70% 11.70% 11.70% 11.70% 11.70% 2011 Growth Rate 7.11% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 18.48% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% - - - - - - - 2011 Discount Rate 11.70% 11.70% 11.70% 11.70% 11.70% 11.70% 11.70% 11.70% 11.70% 11.70% 11.70% 11.70% 11.70% 11.70% - - - - - - - For further details on estimates used in value-in-use calculations refer Note 3.5. Management has based the value-in-use calculations on budgets for each reporting segment. These budgets use historical weighted growth rates to project revenue. Costs are calculated taking into account historical gross margins as well as estimated weighted average inflation rates over the period which are consistent with inflation rates applicable to the locations in which the segments operate. Discount rates are post-tax (pre-tax 16.70%) and are adjusted to incorporate risks associated with a particular segment. Impact of possible changes to key assumptions Because the value-in-use amount of remaining goodwill far exceeds the deemed book cost of goodwill in the relevant CGU, management does not believe that any change in key assumptions would have any material effect on the recoverable amount of the goodwill. BSA LIMITED ANNUAL REPORT 2012 71 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 19 NON-CURRENT ASSETS - OTHER INTANGIBLE ASSETS Consolidated Cost Accumulated amortisation and impairment Cost Balance as at 1 July 2010 Acquisitions through business combinations Balance at 30 June 2011 Acquisitions through business combinations 2012 $’000 16,979 (8,066) 2011 $’000 10,579 (5,800) 8,913 4,779 Customer Relationships Order Backlog 6,900 - 6,900 - 3,600 79 3,679 6,400 Total 6,900 3,679 10,579 6,400 Balance at 30 June 2012 6,900 10,079 16,979 Accumulated amortisation and impairment Balance as at 1 July 2010 Amortisation expense Balance at 30 June 2011 Amortisation expense Balance at 30 June 2012 (2,237) (767) (3,004) (767) (3,771) (996) (1,800) (2,796) (1,499) (4,295) (3,233) (2,567) (5,800) (2,266) (8,066) The amortisation expense has been included in the line “depreciation and amortisation expense” in the statement of comprehensive income. The following useful lives are used in the calculation of amortisation. Customer relationships Order backlog 9 years 1 to 9.5 years 72 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 20 OTHER FINANCIAL ASSETS Consolidated (a) Shares in other corporations at cost Shares in subsidiaries Details of Group Companies Parent Entity: BSA Limited Ultimate Parent Entity: BSA Limited Controlled Entities: Mr Broadband Pty Limited Allstaff Airconditioning Holdings Pty Limited Allstaff Airconditioning (VIC) Pty Limited Allstaff Airconditioning (NSW) Pty Limited Allstaff Airconditioning (ACT) Pty Limited Complex Airconditioning Pty Limited Mr Antenna Pty Limited Satellite Receiving Systems (QLD) Pty Limited Mr Alarms Pty Limited MEC Services Pty Limited BSA Transmission Solutions Pty Limited 066 059 809 Pty Limited Triple M Group Pty Limited Triple M Mechanical Services Pty Limited Triple M Mechanical Services (Qld) Pty Limited Triple M Fire Pty Limited Triple M Mechanical Services (Administration) Pty Limited BSA Networks Pty Limited Burke Air Pty Limited 2012 $’000 4 4 2011 $’000 4 4 Country of incorporation Class of shares Percentage Owned (%) 2012 2011 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary - - 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 - (b) Acquisition of Subsidiaries On 1 August 2011, the Group acquired 100% of the issued capital of Burke Air Pty Limited. (c) Deed of Cross Guarantee: All Controlled Entities are parties to the Deed of Cross Guarantee, where relief is obtained from preparing individual financial reports under ASIC Class Order 98/1418, and are members of the Closed Group. Under the Deed, BSA Limited agrees to support the liabilities and obligations of the Controlled Entities. (d) Tax Consolidation Group All the controlled entities are part of the Tax Consolidation Group. BSA LIMITED ANNUAL REPORT 2012 73 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 21 AMOUNTS DUE FROM (TO) CUSTOMERS UNDER CONSTRUCTION CONTRACTS Consolidated Contracts in progress Construction costs incurred plus recognised profits less recognised losses to date Less: progress billings Represented by amounts due: - From customers under construction contracts (note 15) - To customers under construction contracts (note 23) 2012 $'000 354,473 (293,143) 61,330 62,066 (736) 61,330 2011 $'000 262,372 (221,116) 41,256 55,516 (14,260) 41,256 At 30 June 2012, retentions held by customers for contract work amounted to $848,650 (30 June 2011: $51,771). Advances received from customers for contract work amounted to $392,293 (30 June 2011 : Nil) 74 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 22 PARENT ENTITY DISCLOSURES (a) Financial Position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net Assets Equity Issued capital Retained earnings Reserves Share-based payments reserve Cash flow hedge reserve Total equity (b) Financial Performance (Loss)/Profit for the year Total (Loss)/Profit for the year Subsequent to year end, the subsidiary companies have declared a dividend payment to the parent of $25 million. 2012 $’000 35,704 77,605 113,309 60,791 7,991 68,782 44,527 77,797 (34,766) 1,522 (25) 44,528 (2,767) (2,767) 2011 $’000 46,056 65,716 111,772 39,865 20,173 60,038 51,734 75,419 (25,320) 1,671 (36) 51,734 6,866 6,866 BSA LIMITED ANNUAL REPORT 2012 75 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 23 TRADE AND OTHER PAYABLES Consolidated Trade payables Other payables Amounts due to customers under construction contracts (see note 21) Total Payables NOTE 24 BORROWINGS Consolidated CURRENT Secured liabilities at amortised cost: Hire purchase liabilities Lease liabilities Bank loans Total Borrowings NON-CURRENT Secured liabilities at amortised cost: Hire purchase liabilities Lease liabilities Bank loans Total Borrowings 2012 $’000 40,798 44,050 736 85,584 2012 $’000 1,815 276 2,875 4,966 2,660 1,212 6,375 10,247 Note (b) (b) (a) (b) (b) (a) 2011 $’000 35,774 28,990 14,260 79,024 2011 $’000 1,364 535 - 1,899 920 653 19,250 20,823 (a) The bank loans of the Group are secured by fixed and floating charges registered by mortgage debenture over assets and undertakings of the parent entity and its subsidiaries along with interlocking guarantees and indemnities for $62,505,000 between the parent entity and its subsidiaries. The covenants within the bank borrowings require minimum interest cover of 4.0 times, debt service cover to be greater than 1.75 times, maximum senior financial debt to be less than 1.75 times and total leverage ratio to be less than 3.5 times. There were no covenants breached during the financial year. 76 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 2012 $’000 24,734 79,194 3,000 - 106,928 1,279 4 15,501 1,443 55,045 8,913 82,185 2011 $’000 31,431 76,937 2,977 646 111,991 1,392 4 10,194 2,090 52,103 4,779 70,562 Consolidated Total financial assets pledged as security CURRENT Cash and cash equivalents Trade and other receivables Inventories Tax assets NON-CURRENT Trade and other receivables Other financial assets Property, plant & equipment Deferred tax assets Goodwill Other intangible assets (b) Lease liabilities and hire purchase liabilities are effectively secured as the rights to the assets recognised in the financial statements revert to the financier in the event of default. Actual interest rates for HP liabilities outstanding during the year ranged between 5.16% and 10.87%. Actual interest rates for lease liabilities outstanding during the year ranged between 6.74% and 9.46%. Actual interest rates for bank loans outstanding during the year ranged between 4.78% and 5.43%. 189,113 182,553 NOTE 25 PROVISIONS Consolidated Employee benefits Current Non-current Note (i) 2012 $’000 8,995 7,803 1,192 8,995 2011 $’000 7,531 6,520 1,011 7,531 (i) The provision for employee benefits represents annual leave and vested and non-vested long service leave entitlements accrued. BSA LIMITED ANNUAL REPORT 2012 77 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 26 ISSUED CAPITAL (a) Share capital Ordinary shares - fully paid (b) Movements in ordinary share capital Date Details 1 July 2010 Opening Balance 8 October 2010 Dividend Reinvestment Plan 15 April 2011 Dividend Reinvestment Plan Less: transaction costs arising on shares issued 1 July 2011 1 August 2011 Opening Balance Burke Air Acquisition 12 September 2011 Shares issued on settlement of rights conversion 4 October 2011 Dividend Reinvestment Plan 20 April 2012 Dividend Reinvestment Plan Less: transaction costs arising on shares issued 30 June 2012 Balance Note (c) (f) (f) (g) (f) (f) Number of Shares 210,431,523 3,627,167 3,537,200 - 217,595,890 1,363,635 1,000,000 7,830,573 1,071,104 - 228,861,202 Parent Entity 2012 Number of Shares 2011 Number of Shares 228,861,202 217,595,890 Issue Price $ 0.24 0.24 0.22 0.23 0.20 0.27 $’000 73,708 870 849 (8) 75,419 300 225 1,566 289 (2) 77,797 Changes to the Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore the Company does not have a limited amount of authorised capital and issued shares do not have a par value. (c) Ordinary Shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. The costs of raising the share capital in the year ended 30 June 2012 totalled $2,304 (2011: $19,223). Pursuant to the policy described in Note 3.19.2, the cost has been deducted from issued capital. (d) Options At 30 June 2012 no options were held over ordinary shares of the Company. Share options granted under the share option plan carry no rights to dividends and no voting rights. Further information relating to the BSA Limited Employee Option Plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out in Note 31. (e) Executive Securities Plan The Company has established an Executve Securities Plan as a mechanism to provide the Company's key Executives with a direct equity involvement and incentive in the Company which aligns them with the shareholders. (f) Dividend Reinvestment Plan The Company has established a dividend reinvestment plan under which holders of ordinary shares may elect to have all or part of their dividend entitlements satisfied by the issue of new ordinary shares rather than by being paid in cash. The Dividend Reinvestment Plan has been suspended for the final dividend for 30 June 2012. (g) Rights Information relating to the BSA Limited Performance Rights Plan, including details of rights issued, exercised and lapsed during the financial year and rights outstanding at the end of the financial year, is set out in Note 31. 78 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 27 RESERVES AND ACCUMULATED LOSSES Consolidated (a) Reserves Cash flow hedging reserve Share-based payments reserve Cash flow hedging reserve Opening balance Gain / (Loss) recognised on cash flow hedges Closing balance 2012 $’000 (25) 1,522 1,497 (36) 11 (25) 2011 $’000 (36) 1,671 1,635 (83) 47 (36) The cash flow hedging reserve represents the cumulative portion of gains and losses on hedging instruments deemed effective in cash flow hedges. The cumulative deferred gain or loss on the hedging instrument is reclassified to profit or loss only when the hedged transaction affects the profit or loss, or is included as a basis adjustment to the non- financial hedged item, consistent with the relevant accounting policy. Share-based payments reserve Opening balance Rights expense Shares issued in satisfaction of performance conditions Closing balance 1,671 151 (300) 1,522 1,601 70 - 1,671 The share-based payments reserve relates to share options and share rights granted to employees under the employee share option plan and the employee performance rights plan. Further information about share-based payments to employees is set out in note 31. The share-based payments reserve records items recognised as expenses on valuation of employee share options and rights. (b) Accumulated losses Movements in accumulated losses were as follows: Balance at beginning of year Net profit/(loss) for the year Dividends Transfer to 2012 Profit Reserve Balance at end of year (c) Dividends on equity instruments Recognised amounts Fully paid ordinary shares Interim dividend: Final dividend: Unrecognised amounts Fully paid ordinary shares Final dividend: (3,778) 5,810 (6,677) (3.532) (8,177) (8,121) 8,588 (4,245) - (3,778) Year ended 30/06/12 Year ended 30/06/11 Cents per share Total ‘000 Cents per share Total ‘000 1.00 2.00 2,278 4,399 1.00 1.00 2,141 2,104 1.00 2,289 2.00 4,352 On 16 August 2012 the Directors declared a fully franked dividend of 1.00 cent per share to the holders of fully paid ordinary shares in respect of the financial year ended 30 June 2012, to be paid to shareholders on 4 October 2012. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these consolidated financial statements. If approved, the dividend will be paid to all shareholders on the Register of Members on 14 September 2012. The total estimated dividend to be paid is $2,289 thousand. BSA LIMITED ANNUAL REPORT 2012 79 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 28 CAPITAL AND LEASING COMMITMENTS Consolidated Note 2012 $’000 2011 $’000 (i) Operating Lease Commitments The Group leases various offices and warehouses under non-cancellable operating leases expiring within one to five years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years (ii) Finance Lease Commitments 4,008 8,368 - 12,376 2,669 4,433 - 7,102 The Group leases various plant and equipment with a carrying amount of $1,480,000 (2011: $630,000) under finance leases expiring within one to four years. Under the terms of the leases, the Group has the option to acquire the leased assets after paying the residual amount on expiry of the leases. Commitments in relation to finance leases are payable as follows: Within one year Later than one year but not later than five years Later than five years Minimum lease payments Less future finance charges Total Lease Liability Represented by: Current liability Non-current liability 378 1,394 - 1,772 (284) 1,488 276 1,212 1,488 1,032 230 - 1,262 (74) 1,188 535 653 1,188 24 24 80 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 Consolidated (iii) Hire Purchase Commitments Note 2012 $’000 2011 $’000 The Group has purchased various plant and equipment with a carrying amount of $4,884,000 (2011: $2,655,000) under hire purchase agreements expiring within one to four years. Under the terms of the agreements, the Group has the option to acquire the assets after paying the residual amount on expiry of the agreements. Commitments in relation to hire purchase agreements are payable as follows: Within one year Later than one year but not later than five years Later than five years Minimum payments Less future finance charges Total Hire Purchase Liability Represented by: Current liability Non-current liability 2,128 2,821 - 4,949 (474) 4,475 1,815 2,660 4,475 1,473 972 - 2,445 (161) 2,284 1,364 920 2,284 24 24 BSA LIMITED ANNUAL REPORT 2012 81 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 29 SEGMENT INFORMATION (a) AASB 8 Operating Segments AASB 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. (b) Products and services from which reportable segments derive their revenues During the period the Group reorganised its reporting structure with the creation of the separate operating segment Technical Maintenance Services which provides ongoing maintenance services for heating, ventilation, air-conditioning and fire system customers. This operating segment has been created from the maintenance service operations of Building Services and includes the operations of Burke Air Pty Limited and has been structurally separated to focus on the growth and earnings opportunities in the technical maintenance services sector. As a result of this reorganisation, it is appropriate to report the results of operations in the following three reporting segments under which the Group is now controlled and managed: Technical Field Force Solutions (Formerly Contracting Solutions) Technical Field Force Solutions provides contracting services to the telecommunications, subscription television and communication industries. The contracting services include the delivery of bundled services over hybrid fibre coax network, the installation of subscription television, the installation of free to air television antennas and security systems. Technical Design and Construction Projects (Formerly Building Services) Technical Design and Construction Projects provides the design and installation of building services for commercial and industrial buildings including, mechanical services, air conditioning, heating and ventilation, refrigeration and fire services. Technical Maintenance Services (Formerly included in Building Services) Technical Maintenance Services provides the maintenance of building services for commercial and industrial buildings including: mechanical services, air-conditioning, heating and ventilation, refrigeration and fire services. (c) Segment revenues and results The following is an analysis of the Group’s revenue and results by reportable operating segments: Technical Field Force Solutions Technical Design and Construction Projects Technical Maintenance Services Other Corporate costs including acquisition, legal and advisory Finance costs Profit before tax Revenue Year Ended 30 Jun 12 $’000 137,314 283,307 71,434 491 492,546 30 Jun 11 $’000 140,202 262,560 - 640 403,402 Segment Profit Year Ended 30 Jun 12 $’000 30 Jun 11 $’000 5,694 5,506 4,884 - 16,084 (6,421) (1,462) 5,369 10,751 - - 16,120 (5,719) (2,321) 8,201 8,080 Segment revenue reported above represents revenue generated from external customers. There were no inter-segment sales in the current year (2011: Nil) The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 3. Segment profit represents the profit earned by each segment without allocation of central administration costs and Directors’ salaries, share of profits of associates, gain recognised on disposal of interest in former associate, investment income, gains and losses, finance costs and income tax expense. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. 82 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 Reclassification The comparitive numbers for 30 June 2011 for Segment Assets and Liabilities for the Technical Design and Construction and the Technical Maintenance Services segments are not available as they can not readily be separated from the previous Buidling Services segment and have all been included in the Technical Design and Construction Projects segment. (d) Segment assets and liabilities Segment assets Technical Field Force Solutions Technical Design and Construction Projects Technical Maintenance Services Consolidated assets Segment liabilities Technical Field Force Solutions Technical Design and Construction Projects Technical Maintenance Services Consolidated liabilities Year Ended 30 Jun 12 $’000 30 Jun 11 $’000 68,022 101,656 19,435 80,630 101,923 - 189,113 182,553 32,488 69,430 12,546 34,260 75,017 - 114,464 109,277 For the purposes of monitoring segment performance and allocating resources between segments: . . All assets are allocated to reportable segments. Goodwill is allocated to reportable segments as described in note 18. Assets used jointly by reportable segments are allocated on the basis of the revenues earned by individual reportable segments; and All liabilities are allocated to reportable segments. Liabilities for which reportable segments are jointly liable are allocated in proportion to segment assets. (e) Other segment information Continuing operations Technical Field Force Solutions Technical Design & Construction Projects Technical Maintenance Services Depreciation and amortisation Additions to non-current assets Year Ended Year Ended 30 Jun 12 $’000 30 Jun 11 $’000 30 Jun 12 $’000 30 Jun 11 $’000 2,338 3,244 2,057 7,639 1,911 4,729 - 6,640 4,721 3,218 1,853 9,792 2,898 2,630 - 5,528 BSA LIMITED ANNUAL REPORT 2012 83 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 29 SEGMENT INFORMATION (CONTINUED) (f) Geographical information The Group only operates in Australia. The Group’s revenue from continuing operations from external customers and information about its non-current assets by geographical location are detailed below. Revenue from external customers Year ended Non-current assets Year Eded 30 Jun 12 $’000 492,546 492,546 30 Jun 11 $’000 403,402 403,402 30 Jun 12 82,185 82,185 30 Jun 11 $’000 70,562 70,562 Australia (g) Information about major customers The Group has a number of customers to which it provides both products and services. The Group supplies a single external customer in the Technical Field Force Solutions segment and accounts for 19% (2011: 20%) of external revenue. The Group’s next most significant client is in the Technical Design and Construction Projects segment which accounts for 18% of external revenue (2011: 12%). NOTE 30 CASH FLOW INFORMATION FOR THE PERIOD Consolidated (a) Reconciliation of profit to net cash flows from operating activities for the year Profit for the year Depreciation Amortisation Share-based payment expense Net (profit) on sale of non-current assets Change in operating assets and liabilities Decrease/(increase) in trade receivables Decrease in inventories Decrease/(increase) in deferred tax asset (Increase)/decrease in other operating assets Increase in trade payables (Decrease)/increase in other operating liabilities Increase in provision for income taxes payable (Decrease) in provision for deffered taxes payable Increase in provisions Net cash generated by operating activities transactions 84 BSA LIMITED ANNUAL REPORT 2012 2012 $’000 5,810 5,373 2,266 151 (18) 3,771 100 1,044 (1,313) 2,741 (1,935) 4,992 (35) 964 23,911 2011 $’000 8,588 4,073 2,567 70 (39) (7,862) 787 (835) 2,243 5,475 9,762 3,417 - 186 28,432 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 Consolidated 2012 $’000 2011 $’000 (b) (i) (ii) Non-cash transactions During the year the consolidated entity acquired plant and equipment with an aggregate value of $4,396,000 (2011:$1,091,000) by means of finance leases and hire purchase commitments. These acquisitions are not reflected in the cash flow statement. During the year the consolidated entity paid a dividend and certain holders of ordinary shares elected to have all or part of their dividend entitlements satisfied by the issue of new ordinary shares rather than by being paid in cash. This amounted to $1,855,000 (2011: $1,719,000). (c) Credit Standby Arrangements with Banks Credit facility Amount utilised Unused credit facility The major facility is summarised as follows: Working Capital Facility (d) Loan facilities Loan facilities Amount utilised Unused loan facility The major facilities are summarised as follows: Acquisition Finance Loans 10,000 - 10,000 9,250 (9,250) - - - - 19,250 (19,250) - Loan 1 is for $5,000,000 and is fully drawn and has an expiry date of 31 July 2013. Interest rate is variable. The current interest rate is 6.11% (2011: 6.88%) Loan 2 is for $4,250,000 and is fully drawn and has an expiry date of 31 July 2013. Interest is paid on a fixed basis under an interest rate swap. The current interest rate is 7.325% (2011: 7.325%). The above rates include bank margin. Finance will be provided under the facility provided the Company and the consolidated entity have not breached any borrowing requirements and the required financial ratios are met. (e) Guarantees Guarantees to the value of $19,621,673 were utilised at 30 June 2012 (2011: $21,583,781) and are secured by fixed and floating charge to the bank over the assets of the Company together with guarantees in favour of the parent given by all controlled entities. (f) Surety Bonds Surety Bonds of which $18,355,202 were utilised at 30 June 2012 (2011: $24,138,612), are unsecured. BSA LIMITED ANNUAL REPORT 2012 85 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 31 SHARE-BASED PAYMENTS (a) Employee Option Plan The establishment of the BSA Limited Employee Option Plan was approved by shareholders at the 2004 AGM. Staff eligible to participate are those who are full time or permanent part-time employees of any company in the Group, including an Executive Director and Non-Executive Director of the Company and whom the Board of Directors has sole discretion to determine to be eligible to participate but does not include a person who has a relevant interest in greater than 5% of the issued ordinary share capital of the Company. The exercise price and exercise period applicable to any options to be offered under the Option Plan will, at or before the time of issuing an invitation to eligible employees to subscribe for options, be determined by the Board in its absolute discretion. Subject to any restrictions in the Listing Rules or the Corporations Act 2001, the Board may in its absolute discretion impose on the options such other terms as it considers appropriate. As soon as practicable after receipt of a valid notice of exercise of an option together with the exercise price the Company will allot the appropriate number of ordinary shares. Any shares issued on the exercise of the options granted pursuant to the resolution will be officially quoted and will rank equally with all other shares on issue in the Company and all the rights and entitlements of the holders in respect of those shares will be identical to the rights and entitlements of the holders of the currently issued shares in the Company. Options can only be exercised after three years if the employee remains in the employment of the Company and the option will then expire two years after this date. If the employee terminates their employment within the three years, the option is exercisable for twelve months from the date after termination. If the Company is subject to a takeover the option will vest and be exercisable for a period of three months. Options may not be transferred, though prior to issue a nominee may be advised for consideration by the Board. There were no options outstanding at 30 June 2012 (2011: Nil). Fair value of options granted There have been no options granted since 25 November 2004. 86 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (b) Employee Share Scheme A scheme under which shares were issued by the Company to employees for no cash consideration was ratified by shareholders at the 2004 AGM. All permanent employees (including Executive Directors) who were continuously employed by the consolidated entity for a period of at least one year were eligible to participate in the scheme. Employees could elect not to participate in the scheme. Under the scheme, eligible employees were offered $1,000 worth of fully-paid ordinary shares in BSA Limited for the Year Ended 30 June 2004 for no cash consideration. The market value of shares issued under the scheme, measured as the weighted average market price on the day of issue of the shares, was recognised in the balance sheet as share capital and as part of employee benefit cost. Offers under the scheme are at the discretion of the Company. No offers were made during year the ended 30 June 2012 (2011: Nil). Shares under the scheme may not be sold until the earlier of three years after issue or cessation of employment with the consolidated entity. In all other aspects the shares rank equally with other fully-paid ordinary shares on issue (see note 26(c)). The number of shares issued to participants in the scheme is the offered amount divided by the weighted average price at which the Company's shares are traded on the Australian Stock Exchange during the five trading days immediately before the date of the offer. (c) Executive Securities Plan The establishment of the BSA Executive Securities Plan was approved by shareholders at the 2005 AGM. The Plan was established as a mechanism to provide the Company's key executives with a direct equity involvement and incentive in the Company which aligns them with the shareholders. The number of Securities to be offered and the time at which Securities may be offered from time to time to executives and the price and terms of payment, shall be determined by the Board in its discretion. The Board may at such times as it determines invite any executive to be a member of the Plan. If an Executive to whom an invitation has been issued forwards to the Company a duly completed Loan Application and the Transfer Documents together with his acceptance, and where appropriate his Application for Shares, then the Company shall, in accordance with the terms of the Loan Agreement, lend to the executive such amount as the executive has applied for in the Loan Application. The maximum amount of any Loan shall be the total subscription price for the Shares applied for. No interest is payable by the Borrower under the Loan Agreement. An Executive shall not sell, mortgage, charge, assign or otherwise dispose of or encumber any Shares before payment or repayment of any amount outstanding to the Company in respect thereof. Subject to the above restriction and to the terms of the Loan Agreement (if any) deemed to be entered into by the Executive, an Executive shall from the Date of Allotment, be the absolute beneficial owner of the Shares. Unless the Directors of the Company otherwise provide in the terms of any Invitation, all Plan Shares shall rank for dividends declared on or after the Date of Allotment and shall in all respects rank equally with and have the same rights and entitlements as all other fully paid ordinary shares of the Company. Under the Loan Agreement, the borrower shall repay the balance outstanding of the Outstanding Principal when the borrower ceases to be an employee or Director of the Lender. BSA Limited has adopted the policy of having a rolling three year maturity date for all executives who do not have a termed employment contract. Set out below are summaries of Securities accepted under the plan: Consolidated and parent entity Grant Date Expiry Date Issue Price (cents) Balance at Start of the Year Granted During the Year Released from Escrow During the Year Balance in Escrow at End of the Year Number Number Number Number 12 Jan 2006 13 Oct 2006 19 Jul 2007 11 Sep 2007 13 Sep 2007 14 Dec 2007 10 Feb 2009 Total 0.24 0.23 0.63 0.68 0.68 0.68 0.10 4,000,000 700,000 1,600,000 150,000 400,000 400,000 1,700,000 8,950,000 - - - - - - - - 4,000,000 - - - 200,000 - - 4,200,000 - 700,000 1,600,000 150,000 200,000 400,000 1,700,000 4,750,000 BSA LIMITED ANNUAL REPORT 2012 87 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 31 SHARE-BASED PAYMENTS (CONTINUED) (d) Employee Performance Rights Plan The establishment of the BSA Employee Performance Rights Plan was approved by shareholders at the 2008 AGM. The Plan was established to reward selected eligible employees and to: • • • • • Provide an incentive for the creation of, and focus on, shareholder wealth; Enable the Company to recruit and retain the talented people needed to achieve the Company's business objectives; Link the reward of key staff with the achievement of strategic goals and the performance of the Company; Align the financial interests of participants in the Plan with those of Company shareholders; and Ensure the remuneration packages of employees are consistent with market practice. Securities may be offered under the Plan and the Board has discretion to determine who is offered the opportunity to participate. Generally, securities are subject to a holding restriction and cannot be traded unless certain performance conditions are met or as otherwise specified at the time of the relevant award after acquisition by the participant. Rights to acquire Shares will not be exercisable until the end of the final measurement period, and until those Rights have satisfied all vesting conditions and all performance hurdles established by the Board. This is subject to a number of exceptions (including death, cessation of employment, takeovers and schemes of arrangement). The Rights have a specified life determined by the Board. The initial grant of Rights (the Grant Date) will have a life terminating five years after the Grant Date or such other date as determined by the Board (the Expiry Date). Rights granted to certain participants in the initial grant will be at zero vesting value and will be subject to the following performance conditions as determined by the Board: i. ii. Service condition of two to three years; or The Company’s performance as measured by earnings per share (EPS) being the EPS for the relevant Measurement Period as determined by the Board having regard to the financial statements. Certain growth in EPS for the shares must be attained in respect of each Measurement Period and pro rata in respect of each Measurement Period and service condition of three years. The Board will prescribe the date when performance under the hurdle is measured for each tranche. On or after the end of the final measurement period and provided any performance hurdle prescribed by the Board has been achieved and, where applicable, to the extent it has been achieved, the Plan Participant may then acquire Shares by exercising the Rights. A Right lapses if it is not exercised by the Expiry Date. The Exercise Price (if any) will be an amount determined by the Board from time to time, fixed at the date of grant or determined by application of methodology approved by the Board. Once Rights have been exercised by an Eligible Employee (subject to certain Performance Conditions being met), the Company may make non-refundable contributions to the Plan Company to either: • • Fund the purchase of a new Plan Share; or The acquisition on the ASX of an existing share and transfer to the participant of that share, to which the Participant is entitled under the Rights. The Plan Company is Computershare Plan Co Pty Limited ACN 098 404 696 or any other company that the Board may approve from time to time. After Rights are exercised, the Plan Company will subscribe for new Shares or acquire Shares in the ordinary course of trading on the ASX for Participants, as directed from time to time by the Board. Consolidated and parent entity Grant Date Exercise Date Expiry Date Exercise Price (cents) Balance at Start of the Year Granted During the Year Exercised During the Year Cancelled During the Year Balance in Escrow at End of the Year Number Number Number Number Number 10 Feb 2009 10 Feb 2012 10 Feb 2014 29 Sep 2009 29 Sep 2012 29 Sep 2014 30 Mar 2010 30 Mar 2012 30 Mar 2014 24 Aug 2010 24 Aug 2013 24 Aug 2015 14 Nov 2011 14 Nov 2014 14 Nov 2016 - - - 1,317,500 2,653,934 1,000,000 1,947,500 - - - - (290,500) (1,000,000) (1,000,000) - - 3,964,000 (912,000) (458,000) - (458,000) (746,000) 115,000 1,195,934 - 1,489,500 3,218,000 Total 6,918,934 3,964,000 (2,290,500) (2,574,000) 6,018,434 88 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 32 BUSINESS COMBINATION (a) Summary of Acquisition On 1 August 2011, the Group acquired 100% of the issued capital of Burke Air Pty Limited. Burke Air Pty Limited provides air-conditioning, maintenance and installation services in Perth and the North West and the South West regions of Western Australia for a purchase consideration of $8,900,000 in cash and $300,000 of BSA shares (1,363,635 shares). (b) Details of the fair value of the assets and liabilities acquired and goodwill are as follows: Purchase consideration: Cash consideration Equity consideration Total purchase consideration Fair value of identifiable assets acquired (refer to (c) below) Goodwill (refer to (c) below and note 18) Identifiable intangible assets (refer note 19) $’000 9,200 8,900 300 9,200 ( 142) 2,942 6,400 9,200 Acquisition-related costs amounting to $166,000 have been excluded from the consideration transferred and have been recognised as an expense in the period, within the ‘other expenses’ line item in the statement of comprehensive income. BSA LIMITED ANNUAL REPORT 2012 89 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 32 BUSINESS COMBINATION (CONTINUED) (c) Assets and liabilities acquired Cash and cash equivalents Trade and other receivables Inventories Property, plant and equipment Trade and other payables Provision for deferred tax liability Net assets acquired Purchase consideration settled in cash Cash and cash equivalents in subsidiary Cash outflow on acquisition $’000 166 6,015 123 1,450 ( 5,976) ( 1,920) ( 142) 8,900 ( 166) 8,734 The above goodwill is attributable to Burke Air's strong position and competitive advantage in the building services market in Western Australia. None of the goodwill arising on this acquisition is expected to be deductible for tax purposes. No part of the operations of Burke Air have or will be disposed of as part of the business combination. From the date of acquisition, Burke Air has contributed $36,074,428 to the revenue and $1,770,906 to the profit for the year from continuing operations. If the acquisition had occurred on 1 July 2011, the revenue of the Group would have been $494,107,187 from continuing operations and profit for the year from continuing operations would have been $5,547,094. The Directors of the Group consider these 'pro-forma' numbers to represent an approximate measure of the performance of the combined Group on an annualised basis and to provide a reference point for comparison in future periods. Note 33 Events Occuring After the Balance Sheet Date No events requiring disclosure have occurred after the balance sheet date. 90 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 34 RELATED PARTY TRANSACTIONS Transactions between related parties are on normal commercial terms and conditions no more favourable than those to other parties unless otherwise stated. (a) Transactions with related parties: Consolidated Entity Rent was paid to The Day Street Unit Trust in which M Lowe, a director, has a beneficial interest Outstanding balances arising from purchases of services The following balances are outstanding at the reporting date in relation to transactions with related parties: Purchase of services Rent for premises from Director 2012 $ 112,000 2011 $ 192,000 96,000 - (b) Equity instrument disclosures relating to key management personnel (i) Rights holdings The numbers of rights over ordinary shares in the Company held during the financial year by each Director of BSA Limited and other key management personnel of the Group, including their personally related parties, are set out below. Balance at start of year Granted as Compensation Rights Exercised Net Change Other Balance at end of year Vested but not exercisable Vested and exercisable Rights vesting during year 2012 Steve Nash Mark Lowe Karl Nixon Brendan Foley Brian Mayo Younis Tehfe Frank Wiedermann ** - 1,360,000 1,374,000 1,362,000 908,000 254,967 393,967 72,000 746,000 613,000 454,000 59,000 189,000 66,000 - - - - ( 115,000) - - ( 2,120,000) ( 454,000) - - - - - 1,360,000 - 1,521,000 1,362,000 198,967 582,967 138,000 - Lewis Kaerger * 2,000,000 - ( 1,000,000) ( 1,000,000) 6,364,934 3,487,000 ( 1,115,000) ( 3,574,000) 5,162,934 * ** Lewis Kaerger’s contract concluded on 30 September 2011 Frank Wiedermann qualified as one of the five highest remunerated Group Executives from 1 July 2011 - - - - - - - - - - - - - - 115,000 - - 115,000 - - - - - - - - - 2011 Mark Foley Mark Lowe Karl Nixon Brendan Foley Brian Mayo Younis Tehfe Robert Barkley Lewis Kaerger Balance at start of year Granted as Compensation Rights Exercised Net Change Other Balance at end of year Vested but not exercisable Vested and exercisable Rights vesting during year 2,600,000 916,000 908,000 454,000 193,967 193,967 1,400,000 2,000,000 - 458,000 454,000 454,000 61,000 200,000 458,000 - 8,665,934 2,085,000 - - - - - - - - - ( 2,600,000) - - - - - ( 1,858,000) - 1,374,000 1,362,000 908,000 254,967 393,967 - - 2,000,000 ( 4,458,000) 6,292,934 - - - - - - - - - - - - - - - - - - - - - - - - - - - Further details of schemes can be found in the Directors' Report. BSA LIMITED ANNUAL REPORT 2012 91 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 34 RELATED PARTY TRANSACTIONS (CONTINUED) (ii) Share holdings The numbers of shares in the Company held during the year by each Director of BSA Limited and other key management personnel of the Group, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation. 2012 Directors of BSA Limited Ordinary Shares Ross Johnston Mark Lowe Paul Teisseire Michael Givoni Max Cowley ** Ordinary Shares - Escrowed Mark Lowe Other key management personnel of the Group Ordinary Shares Brendan Foley Brian Mayo Lewis Kaerger *** Ordinary Shares - Escrowed Brendan Foley Younis Tehfe Balance at the start of the year 1,818,634 10,115,403 263,921 150,000 53,130,178 200,000 252,617 18,700 - 1,700,000 200,000 67,849,453 Rights Exercised * Other changes during the year Balance at the end of the year Balance held nominally - - - - - - - 115,000 1,000,000 - - ( 184,319) - 140,848 80,000 5,203,017 - - ( 82,700) - - 1,115,000 5,156,846 1,634,315 10,115,403 404,769 230,000 - - - - 58,333,195 58,333,195 200,000 252,617 51,000 1,000,000 1,700,000 200,000 74,121,299 - - - - - 58,333,195 * Other changes during the year refers to shares purchased or sold during the financial year ** Shares owned by Birketu Pty Ltd of which Max Cowley is a director *** Lewis Kaerger’s contract concluded on 30 September 2011 92 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 2011 Directors of BSA Limited Ordinary Shares Ross Johnston Mark Foley (Retired 26 October 2010) Mark Lowe Paul Teisseire Michael Givoni Max Cowley ** Ordinary Shares - Escrowed Mark Foley Mark Lowe Other key management personnel of the Group Ordinary Shares Brendan Foley Brian Mayo Ordinary Shares - Escrowed Brendan Foley Younis Tehfe Balance at the start of the year 1,552,410 8,472,726 10,115,403 243,231 150,000 48,972,613 4,000,000 200,000 252,617 18,700 1,700,000 200,000 75,877,700 Options Exercised * Other changes during the year Balance at the end of the year Balance held nominally - - - - - - - - - - - - - 266,224 ( 834,807) - 20,690 - 1,818,634 7,637,919 10,115,403 263,921 150,000 - - - - 4,157,565 53,130,178 53,030,178 - - - - - - 4,000,000 200,000 252,617 18,700 1,700,000 200,000 - - - - - - 3,609,672 79,487,372 53,030,178 * Other changes during the year refers to shares purchased or sold during the financial year ** Shares owned by Birketu Pty Ltd of which Max Cowley is a director BSA LIMITED ANNUAL REPORT 2012 93 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (c) Executive Securities Plan - Loans Opening Balance $000 2,552 2,656 2,487 2,437 1,029 833 807 Balance at End of Year $000 Interest Charged $000 Interest Not Charged $000 Provision for Impairment $000 Number of Individuals 1,477 2,552 2,656 2,487 2,437 1,029 833 93 44 334 171 148 63 26 - - - - - - - - - - - - - - 11 13 13 13 13 6 1 2012 2011 2010 2009 2008 2007 2006 Individuals with loans above $100,000 in reporting period 2012 Opening Balance Interest Charged using effective interest rate method Balance at end of year Mark Foley * Brendan Foley Ray Larkin Leaston Paull Bryce Wood Peter Tripodi * Grant Backhouse * Mark Lowe Younis Tehfe $ 869,000 490,499 188,844 188,844 160,332 155,000 136,000 112,397 112,397 * Balance at year end stated at actual due to the terms of the loans $ - 32,853 12,659 12,708 10,738 - - 3,560 7,868 $ - 490,499 188,844 188,844 160,332 147,500 - 50,400 112,397 Highest Balance During Period $ 869,000 490,499 188,844 188,844 160,332 155,000 136,000 112,397 112,397 94 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 2011 Opening Balance Interest Charged using effective interest rate method Mark Foley * Brendan Foley Ray Larkin Leaston Paull Bryce Wood Peter Tripodi * Grant Backhouse Mark Lowe Younis Tehfe $ 816,000 548,013 210,616 210,536 179,178 160,000 125,576 125,684 125,684 * Balance at year end stated at actual due to the terms of the loans $ - 15,686 6,050 6,099 5,126 - - 3,560 3,560 Balance at end of year $ Highest Balance During Period $ 869,000 490,499 188,844 188,844 160,332 155,000 136,000 112,397 112,397 869,000 548,013 210,616 210,536 179,178 160,000 136,000 125,684 125,684 The above loan to Mark Foley represents an unsecured loan to purchase shares in BSA Limited which was passed at a meeting of members held on 12 December 2005. On 12 January 2006, 4,000,000 ordinary shares were issued at 24.4 cents per share. The loan was repaid on the 8 September 2011 and the shares were released from escrow. The remaining loans also represent unsecured loans to purchase shares in BSA Limited which was passed at a meeting of members held on 12 December 2005. The shares were issued between 13 October 2006 and 10 February 2009 at values ranging from 10.0 cents per share and 68.0 cents per share. The loans are repayable on the termination of each individual from the Company and do not bear interest. These loans have been booked into the accounts at net present value on a rolling three year basis. At the discretion of the Board, the above loan to Peter Tripodi was not repaid on termination. The outstanding principal is now due and payable. At the discretion of the Board, the above loan to Grant Backhouse was not repaid on termination, but has subsequently been repaid on the 31st August 2011 and the shares have been released from escrow. BSA LIMITED ANNUAL REPORT 2012 95 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 35 FINANCIAL INSTRUMENTS Fair value of financial instruments carried at amortised cost The Directors consider that the carrying amounts of financial assets and financial liabilities recognised at amortised cost in the financial statements approximate their fair values. Consolidated Financial Assets Cash and cash equivalents Loans and receivables Trade and other receivables Financial Assets at amortised cost Financial liabilities Financial liabilities held at amortised cost Trade and other payables Borrowings Financial Liabilities at amortised cost Note 36 Financial Risk Management (a) General objectives, policies and processes 2012 $’000 2011 $’000 24,734 31,431 80,473 78,329 105,207 109,760 85,584 15,213 79,024 22,722 100,797 101,746 In common with all other businesses, the Group is exposed to financial risks that arise. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. The principal financial instruments from which financial instrument risk arises are: - Trade receivables - Cash at bank - Bank overdrafts - Trade and other payables - Borrowings The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The Group’s risk management policies and objectives are therefore designed to minimise the potential impacts of these risks on the results of the Group where such impacts may be material. The Board receives monthly reports from the Finance Department through which it reviews the effectiveness of the processes put in place and the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below. 96 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (b) Credit Risk Credit risk is the risk that the other party to a financial instrument will fail to discharge their obligation resulting in the Group incurring a financial loss. This usually occurs when debtors fail to settle their obligations owing to the Group. Trade receivables consist of a large number of customers. The Group does not have significant credit risk exposure to any single counterparty or group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are related entities. Concentration of credit risk to the largest counterparty did not exceed 10% of gross monetary assets at balance date. Concentration of credit risk to any other counterparty did not exceed 7% of gross monetary assets at balance date. The maximum exposure to credit risk at balance date is as follows: Consolidated Cash and Receivables 2012 $’000 105,207 105,207 Included in loans and receivables, the most significant customer accounts for 9.4% of trade receivables at 30 June 2012. (2011:9.6%). The maximum exposure to credit risk at balance date by country is as follows: Consolidated Australia The maximum exposure to credit risk for cash and trade receivables at balance date by type of customer is as follows: Consolidated Technical Field Force Solutions Technical Design and Construction Projects Technical Maintenance Services 2012 $’000 105,207 105,207 2012 $’000 34,529 55,406 15,272 105,207 2011 $’000 109,760 109,760 2011 $’000 109,760 109,760 2011 $’000 44,524 65,236 - 109,760 The Group’s most significant customer, a Technical Design and Construction Projects customer, accounts for $6,001,700 of trade receivables at 30 June 2012. At 30 June 2011, the Group’s most significant customer was a Technical Field Force Solutions customer which accounted for $7,542,393. All major customers are credit worthy, as detailed above. The Group has a significant concentration of credit risk as all loans and lease liabilities are with the one financial institution. BSA LIMITED ANNUAL REPORT 2012 97 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 36 FINANCIAL RISK MANAGAMENT (CONTINUED) (c) Liquidity risk Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. The table below sets out details of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk. 2012 $’000 10,000 5,000 15,000 - 5,000 5,000 10,000 - 10,000 4,250 4,250 - 10,000 2011 $’000 - 15,000 15,000 - 15,000 15,000 - - - 4,250 4,250 - - Financing arrangements The following financing facilities were available at balance date: Consolidated Credit stand-by arrangements Total facilities: Working Capital Facility Product Swap Facility Used at balance date: Working Capital Facility Product Swap Facility Unused at balance date: Working Capital Facility Product Swap Facility Bank loans Total facilities: Used at balance date Unused at balance date Total unused credit facilities at balance date All facilities have an expiry date of 31 July 2013. 98 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 Maturity Analysis - Group The following table details the Group’s remaining contractual maturity for its financial liabilities with agreed repayment periods. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are at floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period. The contractual maturity is based on the earliest date on which the Group may be required to pay. The table below includes the weighted average effective interest rate and a reconciliation to the carrying amount in the statement of financial position as an example of summary quantitative data about exposure to interest rates at the end of the reporting period that an entity may provide internally to management personnel. Financial Liabilities 30 June 2012 Bank loans Trade creditors Other payables Finance lease liabilities TOTAL 30 June 2011 Bank loans Trade creditors Other payables Finance lease liabilities TOTAL Carrying Amount $’000 9,250 40,798 53,781 5,963 109,792 Carrying Amount $’000 19,250 35,774 48,787 3,472 107,283 Contractual Cash flows $’000 9,733 40,798 53,781 6,721 111,033 Contractual Cash flows $’000 20,720 35,774 48,787 3,708 108,989 < 6 mths $’000 1,374 40,798 52,589 1,253 96,014 < 6 mths $’000 490 35,774 48,787 1,253 86,304 6- 12 mths $’000 1-3 years $’000 1,952 6,407 - - 1,253 3,205 6- 12 mths $’000 490 - - 1,253 1,743 - - 4,215 10,622 1-3 years $’000 19,740 - - 1,202 20,942 > 3 years $’000 - - 1,192 - 1,192 > 3 years $’000 - - - - - The following table details the Group’s expected maturity for its non-derivative financial assets. The table has been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets. The inclusion of information on non-derivative financial assets is necessary in order to understand the Group’s liquidity risk management as the liquidity is managed on a net asset and liability basis. Financial Assets 30 June 2012 Trade debtors Other receivables TOTAL 30 June 2011 Trade debtors Other receivables TOTAL Carrying Amount $’000 4,548 75,925 80,473 Carrying Amount $’000 9,856 68,473 78,329 Contractual Cash flows $’000 4,909 77,132 82,041 Contractual Cash flows $’000 10,205 69,521 79,726 < 6 mths $’000 4,909 75,302 80,211 < 6 mths $’000 10,205 67,684 77,889 6- 12 mths $’000 - 3 3 6- 12 mths $’000 - 3 3 1-3 years $’000 - 143 143 1-3 years $’000 - 150 150 > 3 years $’000 - 1,684 1,684 > 3 years $’000 - 1,684 1,684 BSA LIMITED ANNUAL REPORT 2012 99 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 36 FINANCIAL RISK MANAGAMENT (CONTINUED) (d) Market Risk Interest rate risk The Group’s main interest rate risk arises from long term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, and by the use of interest rate swap contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies are applied. Sensitivity Analysis The sensitivity analyses below has been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 2% increase or decrease is used when reporting interest rate risk internally to key management personnel and represent management’s assessment of the reasonably possible change in interest rates. Consolidated 2012 Borrowings AUD Tax effect (30%) After tax increase/ (decrease) Carrying Amount AUD +2% of AUD IR -2% of AUD IR $’000 9,250 - 9,250 Profit $’000 185 (56) 129 Other Equity $’000 - - - Profit $’000 (185) 56 (129) Other Equity $’000 - - - The above analysis assumes all other variables remain constant. The same analysis was performed for the period ended 2011. Consolidated 2011 Borrowings AUD Tax effect (30%) After tax increase/ (decrease) Carrying Amount AUD +2% of AUD IR -2% of AUD IR $’000 19,250 - 19,250 Profit $’000 385 (116) 269 Other Equity $’000 - - - Profit $’000 (385) 116 (270) Other Equity $’000 - - - The above analysis assumes all other variables remain constant. The same analysis was performed for the period ended 2010. 100 BSA LIMITED ANNUAL REPORT 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 Interest rate swap contracts Under interest rate swap contracts, the Group agrees to exchange the difference between the fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of issued fixed rate debt and the cash flow exposures on the issued variable rate debt. The fair value of interest rate swaps at the end of the reporting period is determined by discounting the future cash flows using the curves at the end of the reporting period and the credit risk inherent in the contract, and is disclosed below. The average interest rate is based on the outstanding balances at the end of the reporting period. The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is the local interbank rate of Australia. The Group will settle the difference between the fixed and floating interest rate on a net basis. All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to reduce the Group's cash flow exposure resulting from variable interest rates on borrowings. The interest rate swaps and the interest payments on the loan occur simultaneously and the amount accumulated in equity is reclassified to profit or loss over the period that the floating rate interest payments on debt affect profit or loss. Interest rate swaps are regarded as a Level 2 financial instrument. Level 2 fair value measurements are those derived from inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). BSA LIMITED ANNUAL REPORT 2012 101 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 37 CAPITAL RISK MANAGEMENT The Group considers its capital to comprise its issued capital, share-base payment reserve, cash flow hedge reserve and accumulated losses. In managing its capital, the Group’s primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions. In order to achieve this objective, the Group seeks to maintain a gearing ratio that balances risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, either through altering its dividend policy, new share issues or the reduction of debt, the Group considers not only its short-term position but also its long-term operational and strategic objectives. It is the Group’s policy to review its gearing ratio to ensure adequate funds are available to meet its obligations. The Group’s gearing ratio at the balance sheet date is shown below: Consolidated Gearing ratios Net (cash) / debt Total equity Total Gearing Ratio 2012 (9,521) 74,649 (12.75%) 2011 (8,709) 73,276 (11.89%) Gearing levels have decreased due to improvements in working capital associated with Technical Design and Construction Projects and Technical Maintenance Services projects, resulting in greater net cash at year end. It is the Board's intention to monitor gearing levels going forward. There have been no other significant changes to the Group's capital management objectives, policies and processes in the year nor has there been any change in what the Group considers to be its capital. BSA Limited complied with all externally imposed capital requirements to which it is subject. NOTE 38 CONTINGENCIES Guarantees established in favour of National Australia Bank Limited and Swiss Re International SE for Guarantees issued to various clients for satisfactory contract performance, secured by cross guarantees from all wholly owned group members amounting to $37,976,875 (2011 - $45,722,393). During the normal course of business, entities within the Group incur normal contractors and product liability in relation to contracts which may include claims or litigation by or against the entities. Where the outcome is probable and can be reasonably quantified provision is made in these accounts. Although for many issues the ultimate outcome cannot be reliably determined, at the date of this report no material losses are expected. NOTE 39 CORPORATE INFORMATION The financial report of BSA Limited for the year ended 30 June 2012 was authorised for issue in accordance with a resolution of the Directors on 17 August 2012 and covers the consolidated entity consisting of BSA Limited and its subsidiaries as required by the Corporations Act 2001. BSA Limited is a company limited by shares incorporated in Australia and whose shares are publicly traded on the Australian stock exchange. The financial report is presented in Australian currency. The address of the registered office and principal place of business is: 7 Figtree Drive Sydney Olympic Park NSW 2127 102 BSA LIMITED ANNUAL REPORT 2012 DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2012 The Directors declare that: (a) (b) (c) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; in the Directors’ opinion, the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 3.1 to the financial statements; in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; and (d) the Directors have been given the declarations required by s.295A of the Corporations Act 2001 At the date of this declaration, the Company is within the class of companies affected by ASIC Class Order 98/1418. The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee. In the Directors’ opinion, there are reasonable grounds to believe that the Company and the companies to which the ASIC Class Order applies, as detailed in note 20 to the financial statements will, as a Group, be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee. Signed in accordance with a resolution of the Directors made pursuant to s.295(5) of the Corporations Act 2001. On behalf of the Directors. Ross Johnston Chairman 17 August 2012 BSA LIMITED ANNUAL REPORT 2012 103 INDEPENDENT AUDITOR’S REPORT Liability limited by a scheme approved under Professional Standards Legislation. 104 BSA LIMITED ANNUAL REPORT 2012 INDEPENDENT AUDITOR’S REPORT BSA LIMITED ANNUAL REPORT 2012 105 SHAREHOLDER INFORMATION THE SHAREHOLDER INFORMATION SET OUT BELOW WAS APPLICABLE AS AT 31 JULY 2012 A. DISTRIBUTION OF EQUITY SECURITIES Analysis of numbers of equity security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and above Number of Holders 168 657 431 1,165 264 2,685 Ordinary Shares 81,804 2,155,450 3,502,352 44,592,670 178,528,926 228,861,202 Number of Holders Number of Holders Performance Rights Options - - - - - - - - - - - - - - - 6 10 16 - - - 317,000 4,793,434 5,110,434 There were 326 (2011: 313) holders of less than a marketable parcel of ordinary shares. B. EQUITY SECURITY HOLDERS Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities are listed below: Name of Holder BIRKETU PTY LTD MR GREG MULLANE SETLOBE PTY LTDMR MARK FOLEY + MRS SHERRIN FOLEY RUMDAB PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED HAWKE & TUSK PTY LIMITED SAMLOWE PTY LTD EQUITAS NOMINEES PTY LIMITED <2874398 A/C> MR BRENDAN GERARD FOLEY CTSF PTY LTD TALOOMBI PTY LTD MR RYAN CHRISTOPHER HIPPS MR PETER JOHN STIRLING + MRS ROSALIND VERENA STIRLING MR PETER MCGAHON MR DAVID CAMPBELL CITICORP NOMINEES PTY LIMITED MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED BENOM PTY LIMITED KAERGER INVESTMENTS PTY LTD MS SUE ELIZABETH MCGREGOR STANBOX PTY LIMITED Top 20 Shareholders 106 BSA LIMITED ANNUAL REPORT 2012 Ordinary Shares Number Held Percentage of Issued Shares 58,333,195 25.49% 7,548,743 7,392,405 7,175,807 6,370,655 3,868,540 2,956,788 2,722,998 1,978,072 1,952,617 1,820,000 1,721,257 1,535,997 1,500,000 1,453,212 1,450,000 1,209,315 1,178,642 1,006,000 1,000,000 1,000,000 1,000,000 1,000,000 3.30% 3.23% 3.14% 2.78% 1.69% 1.29% 1.19% 0.86% 0.85% 0.80% 0.75% 0.67% 0.66% 0.63% 0.63% 0.53% 0.52% 0.44% 0.44% 0.44% 0.44% 0.44% 117,174,243 51.21% SHAREHOLDER INFORMATION Number Held 58,333,195 Percentage 25.49% C. SUBSTANTIAL SHAREHOLDERS Substantial shareholders in the Company are set out below: Ordinary Shares BIRKETU PTY LTD D. VOTING RIGHTS The voting rights attaching to each class of equity securities are set out below: (a) Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. (b) Option over an ordinary share No voting rights. (c) Rights over an ordinary share No voting rights. BSA LIMITED ANNUAL REPORT 2012 107 CORPORATE DIRECTORY BSA Limited - Corporate Registered Office (Sydney) 7 Figtree Drive Sydney Olympic Park NSW 2127 P F E W +61 2 8748 2400 +61 2 8748 2577 corporate@bsa.com.au www.bsa.com.au Share Registry Computershare Investor Services GPO Box 2975 Melbourne VIC 3001 Australia P P F 1300 85 05 05 +61 3 9415 4000 +61 3 9473 2500 Auditor Deloitte Touche Tohmatsu Level 10, 10 Smith Street Parramatta NSW 2150 Banker National Australia Bank 255 George Street Sydney NSW 2000 Technical Design and Construction Projects Head Office (Sydney) Level 3, Quad 2, 8 Parkview Drive Sydney Olympic Park NSW 2127 P F +61 2 9763 6200 +61 2 9763 6201 Technical Field Force Solutions Head Office (Sydney) 7 Figtree Drive Sydney Olympic Park NSW 2127 P F +61 2 8748 2400 +61 2 8748 2577 Technical Maintenance Services Head Office (Sydney) Level 3, Quad 2, 8 Parkview Drive Sydney Olympic Park NSW 2127 P F +61 2 9763 6200 +61 2 9763 6201 www.bsa.com.au