cellnet
Annual Report 2012

Plain-text annual report

- Cellnet Group Limited and its consolidated entities Financial Report Contents Corporate information Directors’ report Statement of financial position Statement of comprehensive income Statement of changes in equity Statement of cash flows Notes to the financial statements 1 Corporate information 2 Significant accounting policies 3 Financial risk management objectives and policies 4 Segment information 5 Other revenue 6 Expenses 7 Income tax 8 Earnings per share 9 Current assets – cash and cash equivalents 10 Current assets – trade and other receivables 11 Current assets – inventories 12 Current assets income tax receivable 13 Non-current assets – property, plant and equipment 14 Current and non-current liabilities – trade and other payables 15 Current and non-current liabilities – provisions 16 Share-based payments 17 Financial instruments 18 Commitments 19 Financial guarantees 20 Share buy-back 21 Discontinued operation 22 Related party disclosure 23 Key management personnel 24 Subsequent events 25 Parent entity information 26 Contributed equity and reserves 27 Dividend paid and proposed 28 Auditors remuneration 29 Cash flow statement reconciliation 30 Investment in an associate 31 Business combination 32 Intangible assets Directors’ declaration Independent auditors’ report Corporate Governance Statement ASX Additional Information Page 3 4 19 20 21 22 23 23 38 41 42 42 43 45 45 45 46 46 47 48 48 48 50 51 51 51 52 53 53 54 54 55 56 57 57 58 58 59 60 61 63 65 2 Cellnet Group Limited and its consolidated entities Financial Report Corporate Information ABN 97 010 721 749 Directors A. Beard (Chairman) M. Brookman E. Kaplan Company Secretary C. Barnes Principal Registered Office Cellnet Group Limited 59-61 Qantas Drive Eagle Farm QLD 4009 Phone: 1300 CELLNET Fax: 1800 CELLNET Banker Westpac Bank Corporation 260 Queen Street Brisbane QLD 4000 Auditor Ernst & Young 111 Eagle Street Brisbane QLD 4000 Share Register Link Market Services Ltd Level 15 ANZ Building 324 Queen Street, Brisbane QLD 4000 Phone: +61 2 8280 7454 Securities Exchange The Company is listed on the Australian Securities Exchange. The Home exchange is Brisbane. 3 Cellnet Group Limited and its consolidated entities Financial Report Director’s Report Your Directors submit their report for the year ended 30 June 2012. Directors The names and details of the Company’s Directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Names, qualifications, experience and special responsibilities Alexander Beard, B.Com, MAICD, FCA (Non-executive Chairman –appointed Director 15 December 2006 and Chairman 20 August 2007) Mr. Beard is a Chartered Accountant and an experienced financier of growth companies as well as having gained considerable industry experience through his investee board roles. He is a fellow of the Institute of Chartered Accountants and a member of the Institute of Company Directors. Mr. Beard is an Executive Director of CVC Property Fund (ASX code: CJT), Non Executive Director of Mnet Group (ASX code: MNZ), Non Executive Director of Amadeus Energy Limited (ASX code: AMU), Executive Director of CVC Limited (ASX code: CVC), Non-Executive Director Villa World Group (ASX code: VLW). Mel Brookman (Non-Executive Director – appointed 4 June 1992) Mr Brookman was a co-founder of Cellnet in 1992. He has over 20 years experience in mobile phone and distribution industries. Previous Managing Director of the Company from 1999 to November 2002. Chairman of the Audit and Risk Management Committee. Mr. Brookman is a Non Executive Director of Mnet Group (ASX code: MNZ). Stuart Smith B.Com, MAICD, CA (Chief Executive Officer – appointed 30 January 2009, Managing Director appointed 28 October 2009. Resigned 25 July 2012) Mr Smith joined the company as Chief Financial Officer in February 2008. He is a Chartered Accountant with previous senior appointments which include Chief Financial Officer of AAPT Mobile (Cellular One). Member of Audit and Risk Management Committee. Elliot Kaplan B. Acc, CA (Non-Executive Director – appointed 25 July 2012) Mr Kaplan is a Chartered Accountant with extensive experience in senior financial and chief executive officer roles in both private and publicly listed companies. His experience, from both an investor and investee perspective spans a diverse range of industries including manufacturing, environmental, distribution and services. Mr Kaplan is Managing Director of CVC Private Equity Limited, Chairman and Non Executive Director of Pro-Pac Packaging Limited (ASX code: PPG), and former Non- Executive Director of Dolomatrix Limited (ASX code: DMX). Member of Audit and Risk Management Committee. As at the date of this report, the interest of the directors in the shares and options of Cellnet Group Limited were: Director A. Beard M. Brookman S. Smith (i) E. Kaplan (i) Resigned 25 July 2012. Number of ordinary shares Number of restricted shares Number of options - - - - - - 2,000,000 - - 400,000 900,000 - 4 Cellnet Group Limited and its consolidated entities Financial Report Directors Report (continued) Company Secretary Chris Barnes B. Acc, CPA (Company Secretary and Financial Controller – appointed 9 March 2011) Mr Barnes has been with the Company since 2006. He holds a Bachelor of Accounting Degree and is CPA qualified. Mr Barnes replaced Mr Mackenzie, who resigned as Company Secretary on 9 March 2011. Dividends Details Final dividends recommended Dividends paid in the year: Interim for the year Special for the year Final for 2011 shown as recommended in the 2011 financial report Special for 2011 shown as recommended in the 2011 financial report Principal Activities Cents $000 0.0 - 1.0 10.0 1.0 1.5 610 5,770 6,380 613 919 1,532 The principal activities during the year of the entities within the consolidated entity were: (cid:1) Wholesale distribution of flash memory, mobile phone accessories and CE equipment and accessories, and fulfilment services to the mobile telecommunications and retail industries in Australia and New Zealand. (cid:1) Sales and distribution of products on-line. The company advised on 8 June 2012 that it planned to exit the online business segment. This exit strategy is still in process at 30 June 2012 and as a result the online business segment has been treated as a discontinued operation for the 2012 financial year. Other than the online business segment being discontinued there has been no other material changes to the nature of these activities during the year. Operating and financial review The pre tax net profit from continuing operations represents a 19.4% increase compared to the prior year. This is an encouraging result given the generally challenging conditions that have been experienced by the retail sector which the company services. Revenue from continuing operations has decreased by $10.5 million (14.1%) compared with the prior year, however gross profit has remained generally consistent due to an improved product mix, and an increased third party logistic offering. In July 2011 the Board announced its intention to expand into the online retail business segment, with a product offering including both grocery and opportunistic products. This was viewed as an avenue for diversification and earnings growth, as it would provide both a new channel to market as well as leverage off the underutilised infrastructure available to the consolidated entity. After nearly a full year of operation, the Board viewed that not enough traction was gained in the online retail space to warrant the further investment required to achieve positive earnings. As a result on 8 June 2012 the Board announced that it would exit the online retail business segment and refocus its energies back to its profitable core business of retail distribution and third party logistics. 5 Cellnet Group Limited and its consolidated entities Financial Report Directors Report (continued) During the year the company acquired 100% of OYT Pty Ltd. The entities that were discontinued during the current year were OYT Pty Ltd, Cellnet Online Pty Ltd and Buyii Pty Ltd. During the year the consolidated entity embarked on a share holder return initiative which resulted in 22.5 cents distributed to shareholders by way of either fully franked dividend or equal capital return. This consumed approximately $13.2 million of cash reserves, however the remaining cash balance of continuing operations of approximately $4.6 million is viewed as being sufficient to fund any potential future acquisition opportunities as well as provide for future distributions to shareholders. The on market share buy-back program continued in 2012 with a further $0.85 million (2011: $4.1 million) being consumed by this initiative. Significant changes in the state of affairs There have been no acquisitions or disposals of business entities or operations in the current year apart from those outlined above. Significant events after balance date On 25 July 2012 CEO Stuart Smith resigned from all of his positions with the consolidated entity. Mr. Smith’s replacement as CEO is yet to be determined. His position on the Cellnet Board as an executive director was replaced by Mr. Elliot Kaplan who will act as a non executive director. Mr. Kaplan is a Chartered Accountant with extensive experience in both senior financial and chief executive officer roles. His experience, from both an investor and investee perspective spans a diverse range of industries including manufacturing, environmental, distribution and services. Mr. Kaplan is the Managing Director of CVC Private Equity Limited, and Chairman of Pro-Pac Packaging Limited. Other than as set out above, there are no other matters or circumstances that have arisen since the end of the financial year which significantly affected or may significantly affect the operations of Cellnet Group Limited, the results of those operations, or the state of affairs of Cellnet Group Limited in future financial years. Likely developments As explained above in respect of strategy and future performance, the consolidated entity is constantly reviewing the strategic value inherent in the business. In conjunction with this, the consolidated entity will continue to pursue its trading activities to further improve on operational aspects to produce the most beneficial long-term results for the shareholders of the Company. Indemnification and insurance of officers Indemnification The Company has agreed to indemnify the current and former Directors and some officers of its controlled entities for all liabilities to another person, other than the Company or a related body corporate that may arise from their position, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses. Insurance premiums Insurance premiums have been paid in respect of Directors’ and Officers’ Liability Insurance. The Directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of Directors’ and Officers’ liability insurance as such disclosure is prohibited under the terms of the contract. 6 Cellnet Group Limited and its consolidated entities Financial Report Directors Report (continued) Directors’ meetings The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended by each of the Directors of the Company during the financial year are: Number of meetings held: Number of meetings attended: A. Beard M. Brookman S. Smith Committee membership Board 8 8 7 8 Meetings of Committees Audit & Risk Mgmt 2 Remuneration 1 1 1 1 2 2 2 As at the date of this report the Company had an Audit and Risk Management Committee and a Remuneration Committee. Members acting on the committee of the Board during the year were: Audit and risk management M. Brookman (Chairman) A. Beard S. Smith (resigned 25 July 2012) E. Kaplan (appointed 25 Jul 2012) Remuneration M. Brookman (Chairman) A. Beard S. Smith (resigned 25 July 2012) E. Kaplan (appointed 25 Jul 2012) Non-audit services The following non-audit services were provided by the entity’s current auditor, Ernst & Young during the year. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Tax compliance services Rounding Consolidated 2012 $ 2011 $ 10,403 10,386 The Company is of a 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 and Directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. 7 Cellnet Group Limited and its consolidated entities Financial Report Directors Report (continued) Share options 2,000,000 shares were issued to S. Smith on 28 October 2009. The shares were issued for $0.35 each. It was accounted for as an option. The theoretical value of the options was calculated as being $0.1195 per option. For further terms and conditions refer to note 16 (b). In the current year, a total of 3,300,000 options were awarded to key management personnel (KMP). The options have a vesting period of two years. The fair value of these options is being expensed over the vesting period. None of these options have been exercised as at 30 June 2012. For further details, please refer to note 16(c). Auditor’s independence declaration The Auditor’s independence declaration is set out on page 13 and forms part of the Directors’ report for the financial year ended 30 June 2012. 8 Cellnet Group Limited and its consolidated entities Financial Report Auditors Independence Declaration 9 Cellnet Group Limited and its consolidated entities Financial Report Directors Report (continued) Remuneration Report (audited) This remuneration report for the year ended 30 June 2012 outlines the remuneration arrangements of the consolidated entity in accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations. This information has been audited as required by section 308 (3C) of the Act. The remuneration report details the remuneration arrangements for key management personnel (KMP) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the consolidated entity, directly or indirectly, including any director (whether executive or otherwise) receiving the highest remuneration. Remuneration report approval at FY11 AGM The FY11 remuneration report received positive shareholder support at the FY11 AGM with a vote of 97% in favour. For the purposes of this report, the term “executive” includes the Managing Director (MD), executive directors, senior executives, general managers and secretaries of the consolidated entity and the term “director” refers to non-executive directors only. The remuneration report is presented under the following sections: 1. Individual key management personnel disclosures 2. Remuneration at a glance 3. Board oversight of remuneration 4. Non-executive director remuneration arrangements 5. Executive remuneration arrangements and the link to company performance 6. Executive contractual arrangements 7. Additional statutory disclosures 1. Individual key management personnel disclosures Key management personnel (i) Directors A. Beard M. Brookman S. Smith (i) Resigned 25 July 2012 Chairman (non-executive) Director (non-executive) Managing Director and Joint Company Secretary (i) (ii) Executives D. Clarke J. Laun J. Phua M. Wallace C. Barnes B. Watts General Manager New Zealand Information Technology Manager General Manager Product Development & Supply Chain General Manager Retail Sales Financial Controller and Company Secretary Logistics Manager 2. Remuneration at a glance Remuneration levels for key management personnel are competitively set to attract and retain appropriately qualified and experienced executives. The Board as necessary obtains independent advice on the appropriateness of remuneration packages of the consolidated entity given trends in comparative companies both locally and internationally and the objectives of the Company’s remuneration strategy. 10 Cellnet Group Limited and its consolidated entities Financial Report Directors Report (continued) Remuneration Report (audited) 2. Remuneration at a glance (continued) Non-Executive Directors receive a fixed fee for their services. The remuneration structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The remuneration structures take into account: • • • the capability and experience of the key management personnel; the key management personnel’s ability to control performance; the consolidated entity’s performance including: - the consolidated entity’s earnings; and - the growth in share price and delivering of constant returns on shareholder wealth; the amount of incentives within each key management person's remuneration. • Remuneration packages include a mix of fixed and variable remuneration including short and long-term performance-based incentives. 3. Board oversight of remuneration Remuneration committee The remuneration committee is responsible for making recommendations to the board on the remuneration arrangements of non-executive directors and executives. The remuneration committee assesses the appropriateness of the nature and amount of remuneration of non-executive directors and executives on a periodic basis by reference to the relevant employment market conditions, with the overall objective of ensuring maximum stakeholder benefit from the retention of a high performing director and executive team. Remuneration strategy Cellnet Group Limited’s remuneration strategy is designed to attract, motivate and retain employees and non executive directors by identifying and rewarding high performers and recognising the contribution of each employee to the continued growth and success of the consolidated entity. To this end, key objectives of the Company’s reward framework are to ensure that remuneration practices: • • • are aligned to the consolidated entity’s business strategy offer competitive remuneration benchmarked against the external market provide strong linkage between individual and the performance and rewards of the consolidated entity Remuneration structure In accordance with best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct. 4. Non-executive director remuneration arrangements Total remuneration for all Non-Executive Directors, last voted upon by shareholders at the 1999 AGM, is not to exceed $300,000 per annum. The Chairman’s base fee is $54,500 per annum and Non-Executive Directors’ base fees are presently $50,000 per annum. Non-Executive Directors do not receive performance related remuneration. Directors’ fees cover all major Board activities and membership of the Audit and Risk Management Committee. 11 Cellnet Group Limited and its consolidated entities Financial Report Directors Report (continued) Remuneration Report (audited) 5. Executive remuneration arrangements and the link to company performance The processes adopted seek to consider performance across a wide spectrum of the business of the consolidated entity. As necessary, reliance is placed on external sources to provide analysis and advice to ensure the remuneration is competitive. Senior Executive remuneration is also reviewed upon promotion. 5.1 Fixed remuneration Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any fringe benefits tax charges related to employee benefits including motor vehicles) as well as employer contributions to superannuation funds. Remuneration levels are reviewed annually by the Board. 5.2 Variable remuneration – short term incentive (STI) and long term incentive (LTI) Performance linked remuneration includes both STI and LTI and is designed to reward key management personnel for meeting or exceeding their financial and personal objectives. The STI is an ‘at risk’ bonus provided in the form of cash. 5.3 STI bonus The consolidated entity operates an annual STI program that applies to executives and awards a cash bonus subject to the attainment of clearly defined consolidated entity, business unit and individual measures. Actual STI payments awarded to each executive depends on the extent to which specific targets set at the beginning of each six months are met. The targets consist of a number of key performance indicators (KPIs) covering financial and non-financial, corporate and individual measures of performance. A summary of these measures and weightings are set out below. Earnings per share Gross profit Non financial measures: • Implementation of key growth initiatives; • Customer service • Leadership/team contribution Managing Director General Manager Retail Sales Other KMP 100% - - - 100% - - - 100% These performance indicators were chosen as they represent the key drivers for the short term success of the business and provide a framework for delivering long-term value. On a biannual basis, after consideration of performance against KPI’s the Managing Director, in line with his responsibilities, determine the amount, if any, of the short term incentive to be paid to each KMP. On an annual basis, after consideration of the KPI’s, the board will determine the amount, if any, of the short term incentive to be paid to the Managing Director. At the end of the financial year the Board assesses the actual performance of the consolidated entity and individual against the KPI’s set at the beginning of the financial year. A percentage of the pre-determined maximum amount is awarded depending on results, between 0% and 100 % for reaching target performance for non-financial objectives, and uncapped beyond 100% in respect of financial performance objectives. No bonus is awarded where performance falls below the minimum. 12 Cellnet Group Limited and its consolidated entities Financial Report Directors Report (continued) Remuneration Report (audited) 5.3 STI bonus (continued) STI awards for 2011 and 2012 financial years For the 2012 financial year, a total payment of $278,985 was made which represents 94.8% of the total STI cash bonus previously accrued in that period which has vested to executives. This was paid in bi-annual instalments in both the 2012 and 2013 financial years. The forfeitures amounted to $15,174. For the 2011 financial year, a total payment of $180,684 was made which represents 88.1% of the total STI cash bonus previously accrued in that period which has vested to executives. This was paid in bi-annual instalments in both the 2011 and 2012 financial years. The forfeitures amounted to $33,044. 5.4 LTIs- Executive Share Option Plan Executive Share Option Plan The Board established an Executive Share Option Plan which is designed to provide incentives to the Executives of the consolidated entity. The plan was approved by shareholders at the Annual General Meeting held 18 December 2007. Under the plan the Board has the discretion to issue options to Executives as long as the issue does not result in the Executive owning or controlling the exercise of voting power attached to 5% or more of all shares then on issue. Each option is convertible to one ordinary share. The exercise price of the options is determined by the Board. The rules governing the operation of the plan may be amended, waived or modified, at any time by resolution of the Board provided there is no reduction of rights to Executives in the plan. If an amendment reduces the rights of Executives in the plan, it requires written consent of three-quarters of affected Executives. The plan may be terminated or suspended at any time by a resolution of the Board, provided the termination or suspension does not materially adversely affect the rights of persons holding shares issued under the plan at that time. There were a total of 3,300,000 options issued in the current year to directors and KMP (2011: nil). LTl Plan The Board established a Long Term Incentive Plan which is designed to provide incentives to the Executives of the consolidated entity. The plan was approved by shareholders at the Annual General Meeting held 18 December 2007. The purpose and rules of the plan are the same as the Executive Share Option Plan described above, except that there is no prohibition on issuing shares if it would result in an Executive owning (legally or beneficially) or controlling the exercise of voting power attached to 5% or more of all shares then on issue. No shares were issued in the current year (2011: nil). 5.5 STI structure The Board considers that the above performance-linked remuneration structure is appropriate at this time. It provides both short-term focus on operating performance and longer term focus on share price growth. Improving the performance of the operations was the main focus in setting the financial year 2012 short-term incentive. 13 Cellnet Group Limited and its consolidated entities Financial Report Directors Report (continued) Remuneration Report (audited) 5.6 Consequences of performance on shareholder wealth In considering the consolidated entity’s performance and benefits for shareholder wealth, the Board has regard to the following indices in respect of the current financial year and previous financial years. Details Net profit attributable to equity holders of the Company Dividends paid Reduction of share capital Change in share price Working capital days at year end Cash flow 2012 2011 2010 2009 2008 ($488,000) $7,912,000 $5,308,000 ($0.19) 63 ($15,211,000) $1,041,000 $699,000 - $0.09 46 ($708,000) $1,472,000 - - $0.05 46 $557,000 ($16,288,000) - - ($0.03) 18 $10,435,000 ($4,702,000) - - (0.65) 43.3* $14,105,000 * As disclosed in 2009 Annual Financial Report, the 2007 cash and trade receivables were corrected in the previous reporting period. This had an impact on the trade receivables which have been restated to reflect the correct position. 5.7 Other benefits During the current and prior year, there were no non-cash bonuses or benefits paid to key management personnel. 6. Executive contractual arrangements It is the consolidated entity’s policy that service contracts for key management personnel are unlimited in term but capable of termination as per the relevant period of notice and that the consolidated entity retains the right to terminate the contract immediately, by making payment that is commensurate with pay in lieu of notice. The service contract outlines the components of remuneration paid to the key management person but does not prescribe how remuneration levels are modified year to year. Remuneration levels are reviewed each year to take into account cost-of- living changes, any change in the scope of the role performed by the senior executive and any changes required to meet the principles of the remuneration policy. At 30 June 2012, Stuart Smith, the Managing Director, has a contract of employment dated 19 December 2007, which was subsequently amended with the change in positions. The Managing Directors’ termination provisions are as follows: Details Employer initiated termination Termination for serious misconduct Employee initiated termination Notice Period 12 months Payment in lieu of notice 12 months None None 12 months 12 months Treatment of STI on termination Pro-rated for time and performance Unvested awards forfeited Pro-rated for time and performance Treatment of LTI on termination Board discretion (i) Unvested awards forfeited Unvested awards forfeited subject to Board discretion. On the 25 July 2012 Stuart Smith, Managing Director submitted his resignation to the Board. His termination benefits were paid on that date and were as per the terms and conditions detailed above. The final payment to Mr smith totalled $275,000 which equated to 12 months of his normal salary at the date of his resignation. (i) On the date of his resignation Mr Smith held 2,000,000 shares and 900,000 options for which both were awarded under the employee long term incentive plan. As per the conditions of the long term incentive plan, since Mr Smith is no longer an employee of the consolidated entity the entitlement to both his shares and share options are currently at the discretion of the Board. 14 Cellnet Group Limited and its consolidated entities Financial Report Directors Report (continued) Remuneration Report (audited) 6. Executive contractual arrangements (continued) Standard KMP termination provisions apply to all members of the KMP. The standard KMP provisions are as follows: Details Employer initiated termination Termination for serious misconduct Employee initiated termination Notice Period 3 months Payment in lieu of notice 12 months None None 3 months 3 months Treatment of STI on termination Pro-rated for time and performance Unvested awards forfeited Pro-rated for time and performance 15 Cellnet Group Limited and its consolidated entities Financial Report Director’s Report (continued) Remuneration Report (Audited) (continued) 6.1 Directors’ and executive officers’ remuneration The remuneration report details the remuneration arrangements for key management personnel (KMP) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the consolidated entity, directly or indirectly, including any director (whether executive or otherwise). Remuneration of Directors and KMP are as follows: Short-term Salary & fees $ STI cash bonus $ Motor Vehicle allowances $ Non monetary benefits $ Year Non-executive Directors A. Beard S. Harrison (Resigned 31.07.10) M Brookman Total non-executive directors Executive Director S. Smith (Resigned 25.07.12) 2012 54,500 2011 54,500 2012 - 2011 4,167 2012 50,000 2011 50,000 2012 104,500 2011 108,667 - - - - - - - - 2012 285,046 27,500 2011 268,752 20,000 - - - - - - - - - - - - - - - - - - - - Post Employment Superannuation benefits $ - - - - - - - - 22,375 15,199 Long-term benefits Share –based payment % performance related Cash Incentives $ Long Service Leave $ - - - - - - - - - - - - - - - - - - - - Total $ 54,500 54,500 - 4,167 51,354 50,000 105,854 108,667 $ - - - - 1,354 - - - - - - - - - - - 82,703 79,661 417,624 383,612 6.63 5.21 16 Cellnet Group Limited and its consolidated entities Financial Report Director’s Report (continued) Remuneration Report (Audited) (continued) 6.1 Directors’ and five highest paid Executives officers, remuneration (continued) Other key management personnel D.Clark J. Laun J. Phua B. Watts M. Wallace E. Schillinger (Resigned on 31.10.11 ) C. Barnes Total executive and KMP Totals Year 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 Short-term Post Long-term benefits Share –based Salary & fees $ STI cash bonus $ Motor Vehicle allowances $ Non monetary benefits $ Employment Superannuation benefits $ Cash Incentives $ Long Service Leave $ payment $ Total $ % performance related 105,074 34,988 10,406 95,079 11,343 8,387 122,944 25,000 118,496 19,000 164,065 60,000 155,939 45,000 132,000 33,850 132,000 7,000 153,333 62,909 140,000 63,525 - - - - - - - - 35,000 9,738 5,000 105,000 21,409 15,000 124,624 25,000 112,916 23,750 - - 1,122,086 278,985 15,406 1,128,182 211,027 23,387 1,226,586 278,985 15,406 1,236,849 211,027 23,387 - - - - - - - - - - - - - - - - - - - - 13,579 13,864 20,188 16,182 14,926 12,915 16,953 15,752 4,476 11,826 13,916 11,681 106,413 97,419 106,413 97,419 - - - - - - - - - - - - - - - - - - - - 2,931 462 - - - - - - 12,187 - - - 15,118 462 15,118 462 1,354 - 1,354 - 1,354 - - - 1,354 - - - 1,354 - 89,473 79,661 90.827 79,661 151,822 114,809 165,808 151,821 245,607 217,121 180,776 151,915 234,549 219,277 66,401 153,235 164,894 148,347 1,627,481 1,540,137 1,733,335 1,648,804 23.25 9.88 15.20 12.51 24.56 20.73 18.72 4.61 26.98 28.97 14.67 13.97 15.29 16.01 17.25 13.70 16.20 12.80 17 Cellnet Group Limited and its consolidated entities Cellnet Group Limited and its consolidated entities Financial Report Director’s Report (continued) Director’s Report (continued) Remuneration report (Audited) (continued) Remuneration report (Audited) (continued) Additional statutory disclosures 7. Additional statutory disclosures This section sets out the additional disclosures required under the Corporations Act 2001. The table below This section sets out the additional disclosures required under the Corporations Act 2001 the share options granted to executives as remuneration during the current financial year. the share options granted to executives as remuneration during the current financial year. The table below discloses Options awarded and vested during the year Options awarded and vested during the year Options Options awarded awarded during the during the year year . No. Award date Fair value of option at award date ($) Vesting date No. v No. vested during year during year No. lapsed during year Executive Directors M Brookman S Smith Other key management personnel D Clark J Laun J Phua M Wallace C Barnes Year 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 400,000 400,000 - 900,000 900,000 - 21 Oct 2011 - 21 Oct 2011 - $0.02 - $0.02 - 21 Oct 2013 - 21 Oct 2013 - 400,000 400,000 - 400,000 400,000 - 400,000 400,000 - 400,000 400,000 - 400,000 400,000 - 21 Oct 2011 - 21 Oct 2011 - 21 Oct 2011 - 21 Oct 2011 - 21 Oct 2011 - $0.02 - $0.02 - $0.02 - $0.02 - $0.02 - 21 Oct 2013 - 21 Oct 2013 - 21 Oct 2013 - 21 Oct 2013 - 21 Oct 2013 - - - - - - - - - - - - - - - Value of options awarded, exercised and lapsed during the year Value of options awarded, exercised and lapsed during the year Value of Value of options options granted granted during the during the year year $ $8,000 $8,000 $18,000 $18,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 Value of options exercised during the year $ Value of options lapsed during the year $ - - - - - - - - - - - - - - Remuneration consisting of share options for the year % 2.6% 0.7% 0.9% 0.8% 0.6% 0.6% 0.8% M Brookman S Smith D Clark J Laun J Phua M Wallace C Barnes This report is made with a resolution of the Directors: This report is made with a resolution of the Directors: _____________________ Alexander Beard Chairman Signed at Brisbane on 17 August 2012 - - - - - - - - - - - - - - 18 Cellnet Group Limited and its consolidated entities Financial Report Statement of financial position As at 30 June 2012 Consolidated Note 2012 $000 2011 $000 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Assets classified as held for sale Total current assets Non-current assets Property, plant and equipment Deferred tax assets (net) Total non-current assets TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Provisions Liabilities directly associated with the assets classified as held for sale Total current liabilities Non-current liabilities Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY 9 10 11 12 21 13 7 14 15 21 15 26(a) 4,623 10,951 5,194 17 20,785 20,044 9,260 5,259 94 34,657 532 4 21,317 34,661 1,213 2,661 3,874 1,517 2,754 4,271 25,191 38,932 9,821 543 10,364 9,316 491 9,807 127 - 10,491 9,807 412 412 10,903 14,288 31,699 752 (18,163) 14,288 327 327 10,134 28,798 37,861 700 (9,763) 28,798 The above statement of financial position should be read in conjunction with the accompanying notes. 19 Cellnet Group Limited and its consolidated entities Financial Report Statement of comprehensive income For the year ended 30 June 2012 Continuing operations Sales of goods Rendering of services Other revenue Revenue Cost of sales Gross Profit Other income Distribution expenses Sales and marketing expenses Administrative expenses Bad debts (expenses)/recoveries Other expenses Profit from continuing operations before income tax Income tax expense Profit from continuing operations after income tax Discontinued operations Loss from discontinued operations after income tax Net profit / (loss) for the period Other comprehensive income Foreign currency translation Total comprehensive income for the period Earnings per share for profit from continuing operations attributable to the ordinary equity holders of the Company Basic earnings per share Diluted earnings per share Earnings per share for profit attributable to the ordinary equity holders of the Company Basic earnings per share Diluted earnings per share Consolidated Note 2012 $000 2011 $000 5 6(d) 61,633 1,662 847 64,142 (47,610) 16,532 72,534 1,116 1,019 74,669 (58,273) 16,396 5 943 - (2,609) (5,224) (7,739) (63) (506) 1,334 (93) 1,241 (2,551) (5,152) (7,069) 69 (576) 1,117 87 1,204 (1,729) (488) (163) 1,041 (39) (527) (149) 892 $0.02 $0.02 $0.02 $0.02 ($0.01) ($0.01) $0.02 $0.02 6(a) 7 21 8 8 8 8 The above statement of comprehensive income should be read in conjunction with the accompanying notes. 20 Cellnet Group Limited and its consolidated entities Financial Report Statement of changes in equity For the year ended 30 June 2012 Consolidated Share capital $000 Reserve for own shares $000 Foreign currency translation reserve $000 At 1 July 2011 37,861 (25) Loss for the period Foreign currency translation Total comprehensive income for the period Transactions with owners in their capacity as owners: Dividends paid Share buy-back Share based payments Share capital reduction Balance as at 30 June 2012 At 1 July 2010 Profit for the period Foreign currency translation Total comprehensive income for the period Transactions with owners in their capacity as owners: Dividends paid Share buy-back Share based payments Balance as at 30 June 2011 - - - - - (854) - (5,308) 31,699 41,993 - - - (4,132) - 37,861 - - - - - - - - (25) (25) - - - - - (25) 36 - (39) (39) - - - - - (3) 185 - (149) (149) - - - 36 The above statement of changes in equity should be read in conjunction with the accompanying notes. Share based payment reserve Accumulated losses Total equity $000 $000 $000 689 (9,763) 28,798 - - - - - - 91 - (488) - (488) (488) (39) (527) - (7,912) - - - - (7,912) (854) 91 (5,308) 780 (18,163) 14,288 609 (10,105) 32,657 - - - - 80 689 1,041 - 1,041 1,041 (149) 892 (699) - - (699) (4,132) 80 (9,763) 28,798 21 Cellnet Group Limited and its consolidated entities Financial Report Statement of cash flows For the year ended 30 June 2012 Consolidated Note 2012 $000 2011 $000 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Net income taxes received Net cash flows from operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Interest received Acquisition of property, plant and equipment Acquisition of subsidiary Net cash flows from/(used in) investing activities Cash flows from financing activities Share buy back Return of capital Dividend Net cash flows from/(used in) financing activities 5 13 20 26(a) 27(a) Net increase/(decrease) in cash and cash equivalents Net foreign exchange differences Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 9 The above statement of cash flows should be read in conjunction with the accompanying notes. 67,921 (69,234) 80 (1,233) 22 847 (223) (550) 96 (854) (5,308) (7,912) (14,074) (15,211) (25) 20,044 4,808 82,821 (79,498) - 3,323 - 1,019 (219) - 800 (4,132) - (699) (4,831) (708) (78) 20,830 20,044 22 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 1. Corporate Information Cellnet Group Limited (the ‘Company’) is a company limited by shares and incorporated in Australia. The consolidated financial report of the Company for the financial year ended 30 June 2012 comprises the Company and its subsidiaries (together referred to as the ‘consolidated entity’). The financial statements of the subsidiaries are prepared for the same reporting period as the parent company. The financial report was authorised for issue by the Directors on 17 August 2012. The nature of the operations and principal activities of the consolidated entity are described in the director’s report. 2. Significant accounting policies (a) Basis of preparation The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report is prepared on the historical cost basis and is presented in Australian dollars. The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 (updated by CO 05/641 effective 28 July 2005 and CO 06/51 effective 31 January 2006) and in accordance with that Class Order, amounts in the financial report and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. 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. Compliance with IFRS The financial report complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. (b) New Accounting Standards and Interpretations (i) Changes in accounting policy and disclosures The accounting policies adopted are consistent with those of the previous financial year except as follows: The Group has adopted the following new and amended Australian Accounting Standards and AASB interpretations as of 1 July 2011. ►AASB 124 Related Party Disclosures (amendment) effective 1 July 2011 ►AASB 1054 Australian Additional Disclosures effective 1 July 2011 ►Improvements to AASBs The adoption of the standards or interpretations is described below: AASB 124 Related Party Disclosures (amendment) The revised AASB 124 Related Party Disclosures (December 2009) simplifies the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition, including: (a) The definition now identifies a subsidiary and an associate with the same investor as related parties of each other. (b) Entities significantly influenced by one person and entities significantly influenced by a close member of the family of that person are no longer related parties of each other. (c) The definition now identifies that, whenever a person or entity has both joint control over a second entity and joint control or significant influence over a third party, the second and third entities are related to each other. A partial exemption is also provided from the disclosure requirements for government-related entities. Entities that are related by virtue of being controlled by the same government can provide reduced related party disclosures. 23 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (b) New Accounting Standards and Interpretations (continued) AASB 1054 Australian Additional Disclosures Australian Additional Disclosures This standard is a consequence of phase 1 of the joint Trans-Tasman Convergence project of the AASB and FRSB. This standard, with AASB 2011-1 relocates all Australian specific disclosures from other standards to one place and revises disclosures in the following areas; (a) Compliance with Australian Accounting Standards; (b) The statutory basis or reporting framework for financial statements; (c) Whether the entity is a for-profit or not-for-profit entity; (d) Whether the financial statements are general purpose or special purpose; (e) Audit fees; (f) Imputation credits. The adoption of this amendment has had minimal impact on the consolidated entity. Improvements to AASBs In May 2010, the AASB issued its third omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies, but no impact on the financial position or performance of the group. ►AASB 3 Business combinations – the measurement options available for non-controlling interest (NCI) were amended. Only components of NCI that constitute a present ownership interest that entitles their holder to a proportionate share of the entity’s net assets in the event of liquidation should be measured at either fair value or at the present ownership instruments’ proportionate share of the acquiree’s identifiable net assets. All other components are to be measured at their acquisition date fair values. ►The amendments to AASB 3 are effective for annual periods beginning on or after 1 July 2011. The consolidated entity adopted these as of 1 July 2011 and has changed its accounting policy accordingly as the amendment was issued to eliminate unintended consequences that may arise from the adoption of AASB 3. (ii) Accounting Standards and Interpretations issued but not yet effective Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the consolidated entity for the annual reporting period ending 30 June 2012, are outlined below: AASB 9 Financial Instruments AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB 2010-7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below. (a) Financial assets that are debt instruments will be classified based on (1) the objective of the entity’s business model for managing the financial assets; and (2) the characteristics of the contractual cash flows. (b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. 24 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (b) New Accounting Standards and Interpretations (continued) AASB 9 Financial Instruments (continued) (c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. (d) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: ► The change attributable to changes in credit risk are presented in other comprehensive income (OCI) The remaining change is presented in profit or loss ► If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7 and 2010-10. Impact on the consolidated financial report – minimal. Application date of standard 1 January 2013. Application date for the consolidated entity 1 July 2013. AASB 10 Consolidated Financial Statements AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation – Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority of voting rights may give control. Consequential amendments were also made to other standards via AASB 2011-7. Impact on the consolidated financial report – minimal. Application date of standard 1 January 2013. Application date for the consolidated entity 1 July 2013. AASB 11 Joint Arrangements AASB 11 replaces AASB 131 Interests in Joint Ventures and UIG-113 Jointly- controlled Entities – Non-monetary Contributions by Ventures. AASB 11 uses the principle of control in AASB 10 to define joint control, and therefore the determination of whether joint control exists may change. In addition it removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, accounting for a joint arrangement is dependent on the nature of the rights and obligations arising from the arrangement. Joint operations that give the venturers a right to the underlying assets and obligations themselves is accounted for by recognising the share of those assets and obligations. Joint ventures that give the venturers a right to the net assets is accounted for using the equity method. Consequential amendments were also made to other standards via AASB 2011-7 and amendments to AASB 128. Impact on the consolidated financial report – minimal. Application date of standard 1 January 2013. Application date for the consolidated entity 1 July 2013. AASB 12 Disclosure of Interests in Other Entities AASB 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structures entities. New disclosures have been introduced about the judgments made by management to determine whether control exists, and to require summarised information about joint arrangements, associates and structured entities and subsidiaries with non-controlling interests. Impact on the consolidated financial report – minimal. Application date of standard 1 January 2013. Application date for the consolidated entity 1 July 2013. 25 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (b) New Accounting Standards and Interpretations (continued) AASB 13 Fair Value Measurement AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Consequential amendments were also made to other standards via AASB 2011-8. Impact on the consolidated financial report – minimal. Application date of standard 1 January 2013. Application date for the consolidated entity 1 July 2013. Annual Improvements 2009–2011 Cycle Annual Improvements to IFRSs 2009–2011 Cycle This standard sets out amendments to International Financial Reporting Standards (IFRSs) and the related bases for conclusions and guidance made during the International Accounting Standards Board’s Annual Improvements process. These amendments have not yet been adopted by the AASB. The following items are addressed by this standard: IFRS 1 First-time Adoption of International Financial Reporting Standards Repeated application of IFRS 1 Borrowing costs IAS 1 Presentation of Financial Statements Clarification of the requirements for comparative information IAS 16 Property, Plant and Equipment Classification of servicing equipment IAS 32 Financial Instruments: Presentation Tax effect of distribution to holders of equity instruments IAS 34 Interim Financial Reporting Interim financial reporting and segment information for total assets and liabilities Impact on the consolidated financial report – minimal. Application date of standard 1 January 2013. Application date for the consolidated entity 1 July 2013. AASB 1053 Application of Tiers of Australian Accounting Standards This Standard establishes a differential financial reporting framework consisting of two Tiers of reporting requirements for preparing general purpose financial statements: (a) Tier 1: Australian Accounting Standards (b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements. The following entities apply Tier 1 requirements in preparing general purpose financial statements: (a) For-profit entities in the private sector that have public accountability (as defined in this Standard) (b) The Australian Government and State, Territory and Local Governments 26 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (b) New Accounting Standards and Interpretations (continued) AASB 1053 Application of Tiers of Australian Accounting Standards (continued) The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements: (a) For-profit private sector entities that do not have public accountability (b) All not-for-profit private sector entities (c) Public sector entities other than the Australian Government and State, Territory and Local Governments. Consequential amendments to other standards to implement the regime were introduced by AASB 2010-2, 2011-2, 2011-6, 2011-11 and 2012-1. Impact on the consolidated financial report – minimal. Application date of standard 1 July 2013. Application date for the consolidated entity 1 July 2013. AASB 2010-7 Amendments to Australian Accounting Standards [AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042] The requirements for classifying and measuring financial liabilities were added to AASB 9. The existing requirements for the classification of financial liabilities and the ability to use the fair value option have been retained. However, where the fair value option is used for financial liabilities the change in fair value is accounted for as follows: ► The change attributable to changes in credit risk are presented in other comprehensive income (OCI) ► The remaining change is presented in profit or loss. Application date of standard 1 January 2013. Impact on the consolidated financial report – minimal. Application date for the consolidated entity 1 July 2013. AASB 2010-8 Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets [AASB 112] These amendments address the determination of deferred tax on investment property measured at fair value and introduce a rebuttable presumption that deferred tax on investment property measured at fair value should be determined on the basis that the carrying amount will be recoverable through sale. The amendments also incorporate SIC-21 Income Taxes – Recovery of Revalued Non-Depreciable Assets into AASB 112. Impact on the consolidated financial report – minimal. Application date of standard 1 January 2012. Application date for the consolidated entity 1 July 2013. AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Other Comprehensive Income [AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049] This Standard requires entities to group items presented in other comprehensive income on the basis of whether they might be reclassified subsequently to profit or loss and those that will not. Impact on the consolidated financial report – minimal. Application date of standard 1 July 2012. Application date for the consolidated entity 1 July 2012. (c) Basis of consolidation The consolidated financial statements comprise the financial statements of Cellnet Group Ltd and its subsidiaries (as outlined in note 22 as at and for the period ended 30 June each year (the consolidated entity). Interests in associates are equity accounted and are not part of the consolidated entity. Subsidiaries are all those entities over which the consolidated entity has the power to govern the financial operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a Group controls another entity. 27 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (c) Basis of consolidation (continued) The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra group transactions have been eliminated in full. Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. (d) Foreign currency (i) Functional and presentation currency Both the functional and presentation currency of Cellnet Group Limited and its Australian subsidiaries are Australian dollars ($). The New Zealand subsidiary’s functional currency is New Zealand dollars which is translated to presentation currency. (ii) Transactions and balances Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance date are translated to Australian dollars at the foreign exchange rate ruling at reporting date. Foreign exchange differences arising on translation are recognised in net income. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. (iii) Financial statements of foreign operations The assets and liabilities of foreign operations are translated to Australian dollars at foreign exchange rates ruling at the balance date. The revenues and expenses of foreign operations are translated to Australian dollars at rates approximating the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity. (e) Property, plant and equipment (i) Owned assets Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation (see below) and impairment losses (see accounting policy (j)). Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. (ii) Leased assets Leases in terms of which the consolidated entity assumes substantially all the risks and rewards of ownership are classified as finance leases. (iii) Depreciation With the exception of freehold land depreciation is charged to net income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives in the current and comparative periods are as follows: Leasehold improvements Plant and equipment Leased plant and equipment 3⅓ - 40 years 2½ - 10 years 4- 5 years The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually. 28 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (e) Property, plant and equipment (continued) (iv) Derecognition An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Intangible assets (f) (i) Goodwill Business combinations Subsequent to 1 July 2009 Goodwill acquired in a business combination being the excess of the consideration transferred over the fair value of the group’s net identifiable net assets after measure at cost acquired and liabilities assumed. If this consideration transferred is lower than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised in net income. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. (ii) Other intangible assets Other intangible assets that are acquired by the consolidated entity are stated at cost less accumulated amortisation (see below) and impairment losses (see accounting policy (j)). (iii) Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. (iv) Amortisation Amortisation is charged to net income on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill and intangible assets with an indefinite useful life are systematically tested for impairment at each balance date. Other intangible assets are amortised from the date they are available for use over their estimated useful lives. (g) Trade and other receivables Trade, loans and other receivables are stated at their amortised cost less impairment losses. Collectability of trade receivables is reviewed on an ongoing basis at a customer level. Individual debts that are known to be uncollectable are written off when identified. An impairment provision is recognised when there is objective evidence that the consolidated entity will not be able to collect the receivable. Debts which are aged greater than 120 days or more are considered as objective evidence of impairment and a provision of 80% is recognised. For any debts that are passed onto the consolidated entities solicitors for collection a provision of 100% is recognised. (h) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Cost is calculated using the average cost method and includes direct and allocated costs incurred in acquiring the inventories and bringing them to their present location and condition. Provision is recognised when there is objective evidence that the consolidated entity will not be able to sell the inventory at normal reseller pricing. Amounts are provisioned as per below: Stock < 120 days Stock > 120 days Stock > 180 days Stock > 360 days Nil 50% Genuine product 50%, Non genuine product 75% 100% 29 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (i) Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise of cash at bank and in hand and short term deposits with a maturity of 60 days or less that are readily convertible to known amounts of cash and which are subject to insignificant risks of change in values. (j) Impairment The carrying amounts of the consolidated entity’s assets, other than inventories (see accounting policy (h)), trade and other receivables (see accounting policy (g)) and deferred tax assets (see accounting policy (r)), are reviewed at each balance date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated (see accounting policy (j) (i)). For goodwill, intangible assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance date. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in net income, unless an asset has previously been re-valued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through net income. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro-rata basis. (i) Calculation of recoverable amount The recoverable amount of assets (apart from receivables, inventory, and deferred tax) is the greater of their 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 an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset relates. Impairment losses, other than in respect of goodwill, are reversed when there is an indication that the impairment loss may no longer exist and there has been a change in the estimate used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (iii) Derecognition of financial assets and liabilities A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: • • the rights to receive cash flows from the asset have expired; or the consolidated entity retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party; or the consolidated entity has transferred its rights to receive cash flows from the asset and has either (a) transferred substantially all the risks and rewards of the asset, or (b) neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. • A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in net income. 30 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (k) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (l) Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value of the consideration received less related transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in net income over the period of the borrowings on an effective interest basis. (m) Provisions and employee leave benefits (i) Provisions Provisions are recognised when the consolidated entity has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the consolidated entity expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in net income net of any reimbursement. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance date using a discounted cash flow methodology. The risks specific to the provision are factored into the cash flows and as such a risk-free government bond rate relative to the expected life of the provision is used as a discount rate. If the effect of the time value of money is material, provisions are discounted using a current pre- tax rate that reflects the time value of money and the risks specific to the liability. (ii) Long-term service benefits The consolidated entity’s net obligation in respect of long-term service benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates, and is discounted using the rates attached to the Commonwealth Government bonds at the balance date which have maturity dates approximating the terms of the consolidated entity’s obligations. (iii) Wages, salaries, annual leave and sick leave Liabilities for employee benefits for wages, salaries and annual leave that are expected to be settled within 12 months of the reporting date represent present obligations resulting from employees’ services provided to reporting date, and are calculated using undiscounted amounts based on remuneration wage and salary rates that the consolidated entity expects to pay as at reporting date including related on-costs, such as workers remuneration insurance and payroll tax. Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. (n) Share based payment transactions The consolidated entity provides benefits to KMP in the form of share based payments, whereby the KMP renders services in exchange for shares. There is currently share based payment plans in place for the Managing Director and KMP. The cost of share based payments with KMP is measured by reference to the fair value of the equity instrument at the date at which they are granted (refer note 16 (b) and (c) for further details). 31 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (o) Trade and other payables Trade and other payables are stated at their amortised cost. Trade payables are non-interest bearing and are normally settled on average between 30 day and 45-day terms. They represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year that are unpaid and arise when the consolidated entity becomes obliged to make future payments in respect of the purchase of these goods and services. (p) Revenue Goods sold and services rendered Revenue from the sale of goods is recognised in net income when the significant risks and rewards of ownership have been transferred to the customer. This transfer generally occurs when the goods are delivered to the customer. Revenue from the provision of warehousing services to external parties is recognised as the service is provided. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, the costs incurred or to be incurred cannot be measured reliably, there is a risk of return of goods or there is continuing management involvement with the goods. Interest income is recognised in net income as it accrues, using the effective interest method. Dividend income is recognised in net income on the date the entity’s right to receive payments is established. The interest expense component of finance lease payments is recognised in net income using the effective interest method. (q) Expenses (i) Operating lease payments Payments made under operating leases are recognised in net income on a straight-line basis over the term of the lease. Lease incentives received are recognised in net income as an integral part of the total lease expense and spread over the lease term. (ii) Finance lease payments Finance leases, which transfer to the consolidated entity substantially all the risks and benefits incidental to ownership of the leased item are capitalised at the inception of the lease at fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in net income. (r) Income tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Deferred tax is provided using the statement of financial position method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for - initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 32 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (r) Income tax (continued) Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. Capital gains tax, if applicable, is provided for in establishing period income tax expense when an asset is sold. Tax consolidation The Company and its wholly-owned Australian resident entities have formed a tax-consolidated entity with effect from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated entity is Cellnet Group Limited. Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated entity are recognised in the separate financial statements of the members of the tax- consolidated entity using the ‘separate taxpayer’ within the consolidated entity’s approach. Deferred tax assets and deferred tax liabilities are measured by reference to the carrying amounts in the separate financial statements of each entity and the tax values applied under tax consolidation. Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses or unused tax credits of the subsidiaries are assumed by the head entity in the tax consolidated entity and are recognised as amounts payable / (receivable) to / (from) other entities in the tax-consolidated entity in conjunction with any tax funding arrangement amounts (refer below). Any difference between these amounts is recognised by the Company as an equity contribution or distribution. The Company recognises deferred tax assets arising from unused tax losses and unused tax credits of the tax-consolidated entity to the extent that it is probable that future taxable profits of the tax-consolidated entity will be available against which the asset can be utilised. Any subsequent period adjustments to deferred tax assets arising from unused tax losses and unused tax credits as a result of revised assessments of the probability of recoverability are recognised by the head entity only. Nature of tax funding arrangements The head entity, in conjunction with other members of the tax-consolidated entity, has entered into a tax funding arrangement which sets out the funding obligations of members of the tax-consolidated entity in respect of tax amounts. The tax funding arrangements require payments to / (from) the head entity equal to the current tax liability / (asset) assumed by the head entity and any tax-loss or tax credit related deferred tax asset assumed by the head entity, resulting in the head entity recognising an inter-entity payable / (receivable) equal in amount to the tax liability / (asset) assumed. The inter-entity payable / (receivable) is at call. Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s obligation to make payments for tax liabilities to the relevant tax authorities. (s) Goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position. 33 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (s) Goods and services tax (continued) Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (t) Accounting estimates and judgements Management discussed with the Audit and Risk Management Committee the development, selection and disclosure of the consolidated entity’s critical accounting policies and estimates and the application of these policies and estimates. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Impairment losses for trade receivables and stock on hand Note 10 contains information about the assumptions and their risk factors relating to trade receivable impairment losses and Note 6(d) contains information about the stock on hand impairments losses and changes in the way the estimate was calculated. Share based payments The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined with the assistance of an external valuer using a binomial model. The related assumptions are detailed in note 16. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise temporary differences and recognised tax losses. Significant judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits over the next three years together with future tax planning strategies. Where the consolidated entity has made a taxable loss in the current or preceding year, a tax asset is only recognised to the extent that there is convincing other evidence that sufficient taxable profit will be available against which the recognised unused tax losses can be utilised. (u) Non-current assets held for sale and discontinuing operations Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. In the statement of comprehensive income, income and expenses from discontinued operations are reported separately from income and expenses from continuing operations, down to the level of profit after taxes. (v) Earnings per share The consolidated entity presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares. Potential ordinary shares shall be treated as dilutive when their conversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations. 34 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (w) Operating segments An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entities chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. Operating segments have been identified based on the information provided to the chief operating decision maker – being the Managing Director. Note 4 contains information on reportable segments. (x) Investment in an associate The consolidated entity’s investment in its associate is accounted for using the equity method. An associate is an entity in which the consolidated entity has significant influence. Under the equity method, the investment in the associate is carried on the statement of financial position at cost plus post acquisition changes in the consolidated entity’s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The income statement reflects the consolidated entity’s share of the results of operations of the associate. When there has been a change recognised directly in the equity of the associate, the consolidated entity recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the consolidated entity and the associate are eliminated to the extent of the interest in the associate. The consolidated entity’s share of profit of an associate is shown on the face of the income statement. This is the profit attributable to equity holders of the associate and, therefore, is profit after tax and non-controlling interests in the subsidiaries of the associate. The financial statements of the associate are prepared for the same reporting period as the consolidated entity. When necessary, adjustments are made to bring the accounting policies in line with those of the consolidated entity. (y) Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non controlling interest in the acquiree. For each business combination the consolidated entity elects whether it measures the non- controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. When the consolidated entity acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable net assets acquired and liabilities assumed. If the consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the profit or loss. 35 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (y) Business combinations (continued) After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the consolidated entity’s cash generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash generating unit retained. (z) Interest in a joint venture The consolidated entity has an interest in a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entity. The agreement requires unanimous agreement for financial and operating decisions among the venturers. The consolidated entity recognises its interest in the joint venture using the equity accounting method. Under the equity method, the investment in the jointly controlled entity is carried on the statement of financial position at cost plus post acquisition changes in the consolidated entity’s share of net assets of the jointly controlled entity. Goodwill relating to the jointly controlled entity in the carrying amount of the investment is not amortised however it is tested for impairment. The income statement reflects the consolidated entity’s share of the results of operations of the jointly controlled entity. This is disclosed as part of discontinued operations. Where there has been a change recognised directly in the equity of the associate, the consolidated entity recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised gain and losses resulting from transactions between the consolidated entity and the jointly controlled entity are eliminated to the extent of the interest in the jointly controlled entity. The consolidated entity’s share of profit from the jointly controlled entity is shown on the face of the income statement but has been treated as discontinued operations for the 2012 financial year. This is the profit attributable to equity holders of the jointly controlled entity and, therefore, is profit after tax and non-controlling interests in the subsidiaries of a jointly controlled entity. The financial statements of the jointly controlled entity are prepared for the same reporting period as the consolidated entity. When necessary, adjustments are made to bring the accounting policies in line with those of the consolidated entity. After application of the equity method, the consolidated entity determines whether it is necessary to recognise an additional impairment loss on its investment in the jointly controlled entity. The consolidated entity determines at each reporting date whether there is any objective evidence that the investment in the jointly controlled entity is impaired. If this is the case the consolidated entity calculates the amount of impairment as the difference between the recoverable amount of the jointly controlled entity and its carrying value and recognises that amount in the share of profit of and jointly controlled entity in the income statement. This is classified as a discontinued operation for the 2012 financial year. (aa) Financial instruments – initial recognition and subsequent measurement (i) Financial assets Initial recognition and measurement Financial assets within the scope of AASB139 are classified as financial assets at fair value through the profit or loss, loans and receivables, held to maturity investments, available for sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The consolidated entity determines the classification of its financial assets at initial recognition. 36 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (aa) Financial instruments – initial recognition and subsequent measurement (continued) (i) Financial assets Initial recognition and measurement All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through the profit or loss. The consolidated entity’s financial assets include cash and short term deposits, trade and other receivables, and derivative financial instruments. (ii) Impairment of financial assets The consolidated entity assesses, at each reporting date, whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and when observable data indicates that there is a measureable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. (iii) Financial liabilities Initial recognition and measurement Financial liabilities within the scope of AASB 139 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge as appropriate. The consolidated entity determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair values plus, in the case of loans and borrowings, directly attributable transaction costs. The consolidated entity’s financial liabilities include trade and other payables. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. (iv) Fair value of financial instruments The fair value of financial instruments that are in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations, without any deductions for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include: ► Using recent arms length market transactions ► Using reference to current fair value of another instrument that is substantially the same ► Applying a discount cash flow analysis or other valuation models 37 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 3. Financial risk management objectives and policies The consolidated entity’s principal financial instruments comprise of receivables, payables, cash and short-term deposits. Risk exposures and responses The consolidated entity manages its exposure to key financial risks, including interest and currency risk in accordance with the consolidated entity’s financial risk management policy. The objective of this policy is to support the delivery of the consolidated entity’s financial targets whilst protecting future financial security. The consolidated entity enters into derivative transactions, principally forward currency contracts. The purpose is to manage the currency risks arising from the consolidated entity’s operations. The main risks arising from the consolidated entity’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The consolidated entity uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessment of market forecasts for interest rate and foreign exchange prices. Ageing analysis and monitoring of specific credit allowances are undertaken to manage credit risk. Liquidity risk is monitored through using future rolling cash flow forecasts. Primary responsibility for identification and control of financial risks rests with the Audit & Risk Management Committee under the authority of the Board. The Board reviews and agrees policies for managing each of the risks identified below, including the setting of limits for forward currency contracts, credit allowances and future cash flow forecast projections. Interest rate risk The consolidated entity’s exposure to market interest rates relates solely to the consolidated entities short-term cash deposits. The amount of cash is disclosed in note 9. At balance date, the consolidated entity had nil financial liabilities exposed to Australian and New Zealand variable interest rate risk. Financial assets Cash and cash equivalents Note 9 2012 $000 4,808 4,808 2011 $000 20,044 20,044 The consolidated entity constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative hedging positions and the mix of fixed and variable interest rates. The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date. At 30 June 2012, if interest rates had moved as illustrated in the table below, with all other variables held constant, post tax profit and other comprehensive income would have been affected as follows: Consolidated +1% (100 basis points) -0.5% (50 basis points) Post tax profit higher / (lower) Other comprehensive income higher / (lower) 2012 $000 43 (21) 2011 $000 177 (88) 2012 $000 - - 2011 $000 - - The movements in profit are due to higher / lower cash receipts from variable rate cash balances. The assumed reasonably possible interest rate movements are based on an economic forecaster’s expectations. 38 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 3. Financial risk management objectives and policies (continued) Foreign currency risk The consolidated entity is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than Australian dollars. The currencies giving rise to risk are primarily U.S dollars, Euros, and New Zealand dollars. The consolidated entity enters into forward foreign exchange contracts to hedge certain anticipated purchase commitments denominated in foreign currencies (principally U.S dollars). The terms of these commitments are no more than 45 days. It is the consolidated entity’s policy not to enter into forward contracts until a firm commitment is in place. The consolidated entity has a subsidiary based in New Zealand and all transactions for this subsidiary are denominated in New Zealand dollars. There is currently no hedge in place to mitigate the foreign currency risk for this subsidiary. Entering into forward foreign currency contracts minimises the risk of sharp fluctuations in foreign exchange rates and allows for better cash flow management in relation to paying international suppliers. At balance date, the consolidated entity had the following exposure to US$ foreign currency that is not designated in cash flow hedges: Financial assets Trade and other receivables Financial liabilities Trade and other payables Net exposure 2012 $000 2011 $000 1,684 1,684 (4,319) (4,319) (2,635) 950 950 (3,751) (3,751) (2,801) At 30 June 2012, had the Australian dollar moved, as illustrated in the table below, with all other variables held constant, post tax profit and other comprehensive income would have been affected as follows: Consolidated AUD / USD +10% (2010: +10%) AUD / USD -10% (2010: -10%) Post tax profit higher / (lower) Other comprehensive income higher / (lower) 2012 $000 2011 $000 2012 $000 2011 $000 282 (268) 221 (343) - - - - Significant assumptions: • The reasonably possible movement was calculated by taking the USD spot rate as at balance date, moving the spot rate by the reasonably possible movements and then re-converting the USD into AUD with the ‘new spot rate’. This methodology reflects the translation methodology undertaken by the consolidated entity. 39 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 3. Financial risk management objectives and policies (continued) Credit Risk Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. The credit risk on financial assets of the consolidated entity is the carrying amount, net of any impairment losses. The consolidated entity mitigates this risk by adopting procedures whereby they only deal with creditworthy customers. Where there is evidence of credit risk, an impairment loss is recognised. The consolidated entity also insures all debtors through trade finance insurance. The insurance excess payable by the consolidated entity for a claim on the insurance is 15% of the insured value or $10,000, whichever is greater. Liquidity risk Liquidity risk arises from the financial liabilities of the consolidated entity and the consolidated entity’s subsequent ability to meet their obligations to repay their financial liabilities as and when they fall due. The consolidated entities objective is to maintain a balance between continuity of at cash funding and short-term fixed cash deposits. The consolidated entity manages its liquidity risk by monitoring the total cash inflows and outflows expected on a daily basis. Cellnet Group Ltd has established comprehensive risk reporting covering its Australian and New Zealand operations that reflect expectations of management of the expected settlement of financial assets and liabilities. Maturity analysis of financial liabilities based on management’s expectation Consolidated: Liquid financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Net inflow Liquid financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Net inflow Note Total 6 months or less 2012 6 – 12 months 1 – 5 years More than 5 years 9 10, 21 14, 21 4,808 11,013 15,821 (9,933) (9,933) 5,888 4,808 10,844 15,652 (9,768) (9,768) 5,884 - - - - - - - 169 169 (165) (165) 4 - - - - - - Total 6 months or less 2011 6 – 12 months 1 – 5 years More than 5 years 9 10 14 20,044 9,260 29,304 (9,316) (9,316) 19,988 20,044 9,100 29,144 (9,156) (9,156) 19,988 - 107 107 (107) (107) - - 53 53 (53) (53) - - - - - - - 40 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 4. Operating segments Identification of reportable segments The consolidated entity has identified its operating segments based on the internal reports that are reviewed and used by the Managing Director (the chief operating decision maker) in assessing performance and in determining the allocation of resources. The operating segments are identified by management based on the manner in which products are sold, whether direct to retail customer or via on-line sales. Discrete financial information about each of these operating segments is reported to the Managing Director at least on a monthly basis. However, for the 2012 financial year the consolidated entity’s activities relate solely to retail sales as the Board announced on 8 June 2012 that it planned to exit from the online segment. Details relating to the online business segment are disclosed in note 21. Retail sales $000 Online sales $000 Unallocated items $000 Total $000 For the year ended 30 June 2011 Revenue Sales to external customers Other revenues from external customers Other revenue Total segment revenue 72,451 1,116 1,019 74,586 Segment net operating profit after tax 1,204 Discontinued operations after income tax Segment assets Segment liabilities Cash flow information Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities - 36,137 9,301 3,323 800 (4,831) 83 - - 83 - - 46 15 - - - - - - - - (163) 2,749 - - - - 72,534 1,116 1,019 74,669 1,204 (163) 38,932 9,316 3,323 800 (4,831) (i) Segment revenue reconciliation to the statement of comprehensive income Total segment revenue Other revenue from continuing activities Total revenue 2012 $000 61,633 2,509 64,142 2011 $000 72,534 2,135 74,669 Revenue from external customers by geographical location is detailed below. Revenue is attributable to geographic location based on the location of the customers. The company does not have external revenues from external customers that are attributable to any foreign country other than as shown. 41 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 4. Operating segments (continued) Australia New Zealand Total revenue 5. Other revenue Interest Net foreign currency gain Total other revenue 6. Expenses (a) Other expenses Depreciation Total depreciation and amortisation Net loss on disposal of property, plant and equipment Net foreign currency exchange loss Total other expenses (b) Employee benefits expense Wages and salaries Superannuation expense Share based payment expense Other employee benefits expense Total employee benefits expense (c) Lease payments included in net income Minimum lease payments – operating lease (d) Cost of sales Cost of goods sold Impairment of inventory included in cost of sales Total cost of sales 2012 $000 51,925 12,217 64,142 2011 $000 63,343 11,326 74,669 Consolidated 2012 $000 2011 $000 847 943 1,790 1,019 - 1,019 Consolidated 2012 $000 2011 $000 483 483 23 - 506 442 442 - 134 576 Consolidated 2012 $000 2011 $000 7,866 581 91 109 8,647 7,887 565 80 79 8,611 913 842 46,864 57,507 746 47,610 766 58,273 42 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 7. Income Tax (a) Income tax (expense)/benefit The major components of income tax are: Deferred income tax Relating to origination and reversal of temporary differences Total income tax (expense)/benefit reported in net income (b) Numerical reconciliation between aggregate tax expense recognised in net income and tax expense calculated per the statutory income tax rate A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the consolidated entity’s applicable income tax rate is as follows: Accounting profit / (loss) before tax from continuing operations Profit / (loss) before tax from discontinuing operations Total accounting profit before income tax At the parent entities statutory income tax rate 30% (2010: 30%) Adjustments is respect of current income tax of previous years Non-deductible expenses Entertainment (Recognition) / non-recognition of tax losses Previously unrecognised tax losses used to reduce deferred tax asset Aggregate income tax expense is attributable to: Continuing operations Discontinued operations Consolidated 2012 $000 2011 $000 (10) (10) 87 87 1,334 (1,812) (478) (143) 36 27 12 58 - (93) 83 1,117 (163) 954 286 - 24 7 - (230) 87 - 43 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 7. Income Tax (continued) (c) Recognised deferred tax assets and liabilities 2012 $000 Consolidated 2012 $000 2011 $000 2011 $000 Current income tax Deferred income tax Current income tax Deferred income tax Opening balance Charged to income / (expense) Payments/ (refunds) Closing balance Amounts recognised in the statement of financial position: Deferred tax asset Deferred tax liability 94 - (77) 17 - - - Deferred income tax at 30 June relates to the following: Deferred tax assets Property, plant and equipment Provisions and other Value of tax losses carried forward Net deferred tax asset Reflected in the statement of financial position as follows: Deferred tax liability– continuing operations Deferred tax asset – continuing operations Deferred tax asset – discontinued operations Deferred tax asset net (d) Tax losses 2,754 (10) - 2,744 2,833 (89) 2,744 - 668 2,076 2,744 (89) 2,750 83 2,744 98 - (4) 94 - - - 2,667 87 - 2,754 2,752 2 2,754 66 663 2,025 2,754 (2) 2,756 - 2,754 The consolidated entity has Australian tax losses for which no deferred tax asset is recognised on the statement of financial position of $18,526,716 (2011: $17,163,813) which are available indefinitely for offset against future gains subject to meeting the relevant statutory tests. The consolidated entity has recognised tax losses to the extent that forecasts suggest it is probable that sufficient taxable income will be earned to recoup the recognised losses. (e) Taxation of financial arrangements (TOFA) Legislation is in place which changes the tax treatment of financial arrangements including the tax treatment of hedging transactions. The consolidated entity has assessed the potential impact of these changes on its tax position. No impact has been recognised and no adjustments have been made to the deferred tax and income tax balances at 30 June 2012 (2011: $Nil) 44 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 8. Earnings per share The following reflects the income used in the basic and diluted earnings per share computations: (a) Earnings used in calculating earnings per share For basic earnings per share: Profit from continuing operations Profit / (loss) from discontinued operations Net profit attributable to ordinary equity holders For diluted earnings per share: Profit / from continuing operations Profit / (loss) from discontinued operations Net profit attributable to ordinary equity holders (b) Weighted average number of shares Weighted average number of shares (basic) at 30 June Weighted average number of shares adjusted for Consolidated 2012 $000 2011 $000 1,241 (1,729) (488) 1,241 (1,729) (488) 1,204 (163) 1,041 1,204 (163) 1,041 2012 000s 2011 000s 60,211 67,229 effect of dilution 60,211 67,229 Restricted shares are considered non-dilutive where the current share price is lower than the exercise price. 9. Current assets – cash and cash equivalents Cash at bank and in hand Short-term deposits Funds held by bank (note 19) Cash at bank and in hand relating to a discontinued operation (note 21) Consolidated 2012 $000 2011 $000 4,273 - 350 4,623 185 4,808 2,844 16,850 350 20,044 - 20,044 10. Current assets – trade and other receivables Trade receivables Allowances for impairment loss (a) Other receivables and prepayments Carrying amount of trade and other receivables 2012 $000 2011 $000 10,290 (87) 10,203 748 10,951 9,495 (624) 8,871 389 9,260 45 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 10. Current assets – trade and other receivables (continued) (a) Allowance for impairment loss Trade receivables are non-interest bearing and are generally on 30 day terms. Trade receivables are insured through a debtors’ insurance policy. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired and not recoverable within the terms of the insurance policy. Movements in the provision for impairment loss were as follows: At 1 July Charge for the year Amount recovered Amounts written off At 30 June Consolidated 2012 $000 2011 $000 624 (474) - (63) 87 782 (77) 69 (150) 624 At 30 June, the ageing analysis of trade receivables is as follows: Total $000 0-30 days $000 31-60 days $000 61-90 days PDNI* $000 + 91 days PDNI* $000 +91 days CI* $000 2012 Consolidated 10,290 8,061 1,067 2011 Consolidated 9,495 5,445 2,761 297 405 778 260 87 624 * Past due not impaired (PDNI) • * Considered impaired (CI) Receivables past due but not considered impaired are $1,075,000 (2011: $434,000). Payment terms on these amounts have not been re-negotiated however credit has been stopped until full payment is made. Each debtor has been directly contacted by debt recovery agents and the consolidated entity is satisfied that payment will be received in full. 11. Current assets – inventories Stock on hand Less: provision for obsolescence Total inventories at the lower of cost and net realisable value Consolidated 2012 $000 2011 $000 6,017 (823) 5,194 5,913 (654) 5,259 (a) Inventory expense Inventories recognised as an expense for the year ended 30 June 2012 totalled $42,785,000 (2011: $51,330,000). This expense has been included in the cost of sales line item as a cost of inventories. 12. Current assets – income tax receivable The current tax asset for the consolidated entity of $17,000 (2011: $94,000) represents the amount of income taxes recoverable in respect of prior periods and that arise from the payment of tax in excess of the amounts due to the relevant tax authority. 46 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 13. Non-current assets – property, plant and equipment Reconciliation of the carrying amounts at the beginning and end of the period. For the year ended 30 June 2012 At 1 July 2011 net of accumulated depreciation and impairment Additions Disposals Depreciation charge for the year At 30 June 2011 net of accumulated depreciation and impairment At 30 June 2012 Cost or fair value Accumulated depreciation and impairment Net carrying amount For the year ended 30 June 2011 At 1 July 2010 net of accumulated depreciation and impairment Additions Disposals Depreciation charge for the year At 30 June 2010 net of accumulated depreciation and impairment At 30 June 2011 Cost or fair value Accumulated depreciation and impairment Net carrying amount Consolidated Leasehold improvements $000 Plant & Equipment $000 Plant & Equipment under lease $000 Total $000 334 60 (32) (95) 267 1,176 163 (12) (386) 7 - - (2) 1,517 223 (44) (483) 941 5 1,213 812 9,062 2,135 12,009 (545) 267 (8,121) 941 (2,130) (10,796) 5 1,213 Consolidated Leasehold improvements $000 Plant & Equipment $000s Plant & Equipment under lease $000s Total $000 411 1 - (78) 334 1,369 218 (49) (362) 1,176 9 - - (2) 1,789 219 (49) (442) 7 1,517 816 9,014 2,135 11,986 (482) 334 (7,838) 1,176 (2,128) (10,469) 7 1,517 47 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 14. Current and non-current liabilities – trade and other payables Current Trade payables Other payables and accrued expenses Consolidated 2012 $000 2011 $000 6,532 3,289 9,821 6,722 2,594 9,316 For terms and conditions relating to trade payables refer to Note 2(o). 15. Current and non-current liabilities – provisions Current Provision for fringe benefits tax Liability for annual leave and employee provisions Total current employee benefits Non-Current Liability for long-service leave Total non-current employee benefits (a) Nature and timing of provisions Consolidated 2012 $000 2011 $000 24 519 543 412 412 1 490 491 327 327 Refer to Note 2(m) (i) for the relevant accounting policy and a discussion of the significant estimates and assumptions applied in the measurement of this provision. 16. Share based payments (a) Employee share bonus No employee bonus shares were issued to employees during the current year or prior year. (b) Long term incentive plan 2010 allocation 2,000,000 shares were issued to Stuart Smith 28 October 2009. The shares were issued for $0.35 each. It was accounted for as an option. The Black and Scholes methodology was used to value the options. The theoretical value of the options was calculated as being $0.1195 per option. Further terms and conditions were: • The risk free rate is 5.31% with a maturity date approximating that of the expiration period of the options; • The underlying security price used for the purposes of this valuation is $0.30, which is the closing price of the shares as at 28 October 2009; • The volatility of the Company’s shares is 60.00% (based on a 3 year historical volatility); and • The vesting period was determined to be the length of service, being three years. During the year the managing director received a capital return of $0.09 per share and dividends of $0.135 per share. As per the terms of the incentive plan all distributions received by the managing director were repaid to the company except $105,000 which is recognised as a receivable at 30 June 2012 (included in note 10). 48 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 16. Share based payments (continued) (b) Long term incentive plan (continued) Employee expenses Note Consolidated 2012 $000 2011 $000 Expense arising from 2,000,000 shares granted to Stuart Smith on 18 October 2009 Expense arising from 3,300,000 options issued to KMP on 21 October 2011 Total expense recognised in employee costs 6(b) 80 11 91 80 - 80 (c) Executive share option plan On 18 December 2007, shareholders of the Company approved an Executive share option plan that entitles Executives of the Company to purchase shares in the Company. Under the plan the Board has the discretion to issue options to Executives as long as the issue does not result in the Executive owning or controlling the exercise of voting power attached to 5% or more of all shares then on issue. Each option is convertible to one ordinary share. The exercise price of the options is determined by the Board. Upon the exercise of an option, each share issued will rank equally with other shares of the Company. The Company may offer to provide such financial assistance to a person in relation to an invitation to participate in the plan, as the Board may determine from time to time in its discretion. The rules governing the operation of the plan may be amended, waived or modified, at any time by resolution of the Board provided there is no reduction of rights to Executives in the plan. If an amendment reduces the rights of Executives in the plan, it requires written consent of three-quarters of affected Executives. The plan may be terminated or suspended at any time by a resolution of the Board, provided the termination or suspension does not materially adversely affect the rights of persons holding shares issued under the plan at that time. The options issued during the year are as follows: Directors S. Smith M. Brookman KMP D. Clark J. Laun J. Phua M. Wallace C. Barnes Total issued No. Options Issued 900,000 400,000 1,300,000 400,000 400,000 400,000 400,000 400,000 2,000,000 3,300,000 49 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 16. Share based payments (continued) (c) Executive share option plan (continued) The following summarises the details of the grant. Grant date First exercise date Last exercise date Exercise price* Exercise Conditions Lapse of options 21 October 2011 21 October 2013 21 October 2014 $ 0.45. Subject to the Plan Rules, an option cannot be exercised unless the Board acting reasonably are satisfied that the following conditions have been met: • • • The employee remains employed by the Company There is no outstanding breach of the terms of engagement with the Company No notice of termination of engagement has either been given by the employee or received from the Company. The options lapse in occurrence of the earlier of: • • Last exercise date; Board determination that the employee has committed an act that brings the Company into disrepute; Ceased employment other than due to a special circumstances; The option is surrendered. • • * The exercise price is subject to reduction as per the Plan Rules at a rate equal to the amount of share capital returned to share holders. Subsequent to the grant of the options an amount of $0.09 was returned to share holders by way of equal capital reduction. The new exercise price of the options issued in the 2012 financial year is $0.36. Movements in the year The following table illustrates the number of weighted average exercise price prices (WAEP) of, and movements in, share options during the year. 2012 Number of options 2012 WAEP $ - 3,300,000 - 3,300,000 - 0.36 - 0.36 Opening balance Granted during the year Options vested Outstanding as at 30 June 2012 17. Financial Instruments Recognised assets and liabilities Changes in the fair value of forward exchange contracts that economically hedge monetary assets and liabilities in foreign currencies are recognised in net income. Both the changes in fair value of the forward contracts and the foreign exchange gains and losses relating to the monetary items are recognised as part of financial income and expenses (see Note 5). 50 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 17. Financial Instruments (continued) Fair values The fair values together with the carrying amounts shown in the statement of financial position are as follows: Consolidated Note Cash and cash equivalents 9 Trade and other receivables 10, 21 Trade and other payables 14, 21 Carrying amount 2012 $000 Fair value 2012 $000 Carrying amount 2011 $000 Fair value 2011 $000 4,808 11,013 (9,933) 5,888 4,808 11,013 (9,933) 5,888 20,044 9,260 (9,316) 19,988 20,044 9,260 (9,316) 19,988 Estimation of fair values For receivables / payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. 18. Commitments Operating leases The consolidated entity has entered into commercial leases on office and warehouse facilities, and items of computer equipment. The leases typically run for a period of 1 to 7 years, with an option to renew the lease after that date. Lease payments generally comprise a base amount plus an incremental contingent rental which is based on movements in the Consumer Price Index. During the current year the lease on the Eagle Farm premises was renewed for a further five years. Future minimum rentals payable under non-cancellable operating leases at 30 June are payable as follows: Less than one year Between one and five years Consolidated 2012 $000 2011 $000 823 2,312 3,135 378 160 538 19. Financial guarantees The Directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. Contingent liabilities considered remote (i) The consolidated entity has provided bank guarantees in the normal course of business. Consolidated 2012 $000 2011 $000 350 350 350 350 20. Share buy-back The Company announced that it would commence an on-market share buy-back program on 12 October 2009. The share buy-back was initially for up to 10% of the issued capital of the Company. This was extended to buy back up to 20 million shares after approval from shareholders at the Annual General Meeting held 28 October 2009. For the year ended 30 June 2012, 3,579,643 shares were repurchased for a total cost of $854,000 (2011: 12,238,767 shares, $4,132,000). 51 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 21. Discontinued operation The company advised on the 8 June 2012 that it planned to exit the on-line business segment. This exit strategy is still in process at 30 June 2012 and as a result the online business segment has been treated as a discontinued operation in the 2012 financial year. The entity’s that are being discontinued are OYT Pty Ltd and Cellnet Online Pty Ltd. Other than the discontinuance of the online business segment there have been no other significant changes in the nature of these activities during the year. Results of the discontinued operations for the year are presented below: Consolidated 2012 $000 2011 $000 Results of discontinued operation Revenue Expenses Gross profit Share of losses from associate Impairment on investment in associate Loss on disposal of associate Impairment of inventory Impairment of intangible Other impairment Goodwill written off Depreciations Loss before tax Tax Loss for the period from a discontinued operation Major classes of assets and liabilities of the discontinued operation are presented below: Cash and cash equivalents Trade and other receivables Inventory Deferred tax assets Property, plant and equipment Assets attributable to held for sale Liabilities held for sale Liabilities attributable to held for sale Net assets attributable to held for sale Cash flows from discontinued operation Net cash from operating activities Net cash from (used in) discontinued operation 1,266 (2,074) (808) (131) (87) (260) (245) (110) (141) (12) (18) (1,812) 83 (1,729) - 185 62 184 83 18 532 (127) 405 185 185 - (163) (163) - - - - - - (163) - (163) - - - 4 - - - 4 - 4 (163) (163) 52 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 21. Discontinued operation (continued) Earnings per share: Basic, profit / (loss) for the year, from discontinued operation Diluted, profit / (loss) for the year from discontinued operation 22. Related party disclosure Consolidated 2012 2011 ($0.029) ($0.029) $0.003 $0.003 Subsidiaries The consolidated financial statements include the financial statements of Cellnet Group Ltd and the subsidiaries included in the following table: Name Cellnet Group Ltd (Parent) Cellnet Ltd Comms Plus Marketing Pty Ltd C&C Warehouse (Holdings) Pty Ltd VME Systems Pty Ltd Michael Hornsby & Associates Pty Ltd Regadget Pty Ltd OYT Pty Ltd * Cellnet Online Pty Ltd * Buyii Pty Ltd * * Entity’s represent discontinued operations 23. Key management personnel (a) Key management personnel remuneration Short-term employee benefits Post-employment benefits Long term benefits Share-based payment benefits Total compensation Country of incorporation % Equity interest 2012 2011 Australia New Zealand Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 100 100 90 100 100 25 100 100 100 100 100 100 - - - - Consolidated 2012 $000 1,416,477 106,413 15,118 89,473 1,627,481 2011 $000 1,362,595 97,419 462 79,661 1,540,137 (b) Recognition of directors shares On 28 October 2009, 2,000,000 restricted shares were granted to a Director, for details refer to note 16(b). (c) Shareholdings of key management personnel The movement during the reporting period in the number of ordinary shares in Cellnet Group Limited held directly, indirectly or Directors / KMP beneficially, by each key management person and their related parties, is as follows: Held at 1 July 2011 Other acquisitions / disposals Purchases Sales Held at 30 June 2012 M. Brookman S. Smith (i) (i) Resigned 25 July 2012 1,851,943 2,000,000 - - (1,851,943) - - - - 2,000,000 53 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 23. Key management personnel (continued) (c) Shareholdings of key management personnel (continued) Directors / KMP Held at 1 July 2010 Purchases Other acquisitions / disposals Sales Held at 30 June 2011 S. Harrison M. Brookman S. Smith M. Wallace - - - - (A) Received under Long Term Incentive Plan on 28 October 2009. 702,917 3,851,943 2,000,000 (A) 219 - - - - (702,917) (2,000,000) - (219) - 1,851,943 2,000,000 - 24. Subsequent events On the 25th July 2012 CEO Stuart Smith resigned from his position as CEO as well as all other positions held within the consolidated entity. Mr. Smith’s replacement as CEO is yet to be determined. His position on the board of directors was replaced by Mr. Elliot Kaplan who will act as a non executive director. Mr Kaplan is Managing Director of CVC Private Equity Limited, Chairman and Non Executive Director of Pro-Pac Packaging Limited (ASX code: PPG), and former Non-Executive Director of Dolomatrix Limited (ASX code: DMX). Mr. Kaplan is a Chartered Accountant with extensive experience in both senior financial and chief executive officer roles. His experience, from both an investor and investee perspective spans a diverse range of industries including manufacturing, environmental, distribution and services. 25. Parent entity information Current assets Total assets Current liabilities Total liabilities Issued capital Retained earnings Reserve for own shares Reserve for share based payment Total shareholder’s equity Profit of the parent entity after tax Total comprehensive income of the parent entity 2012 $000 2011 $000 16,218 17,761 8,828 9,241 31,699 (23,932) (26) 780 8,520 4,423 4,423 31,804 38,479 8,117 21,839 37,861 (21,884) (26) 689 16,640 (3,946) (3,946) The parent has not issued any guarantees in relation to the debts of its subsidiaries and has no contingent liabilities or contractual obligations as at 30 June 2012. 54 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 26. Contributed equity and reserves (a) Share Capital Ordinary shares on issue Share buy back On issue at 30 June Ordinary shares Issued and fully paid Consolidated 2012 No. of shares 2011 No. of shares 61,263,733 (3,579,643) 57,684,090 73,502,500 (12,238,767) 61,263,733 55,684,090 59,263,733 *Restricted shares are issued for legal purposes but not for accounting. Fully paid ordinary shares carry one vote per share and carry the right to dividends. Ordinary shares on issue Share buy back Capital reduction (i) Consolidated 2012 $000 2011 $000 37,861 (854) (5,308) 31,699 41,993 (4,132) - 37,861 (i) An equal reduction of share capital of $0.09 per share was approved by share holders at a general meeting held 16 January 2012. This equated to a total cash out flow of $5,488,000. This was subsequently reduced by $180,000 which was repaid by CEO as per the terms of his loan agreement with the company. (b) Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations where their functional currency is different to the presentation currency of the reporting entity. (c) Reserve for own shares The reserve for own shares represents the cost of shares held by an equity remuneration plan that the consolidated entity is required to include in the financial report. At 30 June 2012 the consolidated entity held 107,110 of the Company’s shares (2011: 107,110). This reserve will be reversed against share capital when the underlying shares are exercised under performance rights. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the consolidated entity’s own equity instruments. (d) Capital management When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. Management adjusts the capital structure to take advantage of favourable costs of capital or high returns on assets. As the market is constantly changing, management may change the amount of dividends to be paid to shareholders, return capital to shareholders, or issue new shares. Management monitors capital through the capital adequacy ratio (net assets/total assets). The target for the consolidated entity’s capital adequacy ratio is between 40% and 60%. The capital adequacy ratios based on continuing operations at 30 June 2012 and 2011 were as follows: 55 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 26. Contributed equity and reserves (continued) (d) Capital management (continued) Net Assets Total Assets Capital adequacy ratio 27. Dividends paid and proposed (a) Recognised amounts Declared and fully paid during the year: Dividends on ordinary shares: Interim dividend for 2011: 1.0¢ Final franked dividend for 2011: 1.0¢ Special franked dividend for 2011: 1.5¢ Interim franked dividend for 2012:1.0¢ Special franked dividend for 2012: 10.0¢ (b) Unrecognised amounts Final franked dividend (c) Franking credit balance Consolidated 2012 $000 2011 $000 14,288 25,191 56.7% 28,798 38,932 74.0% Consolidated 2012 $000 2011 $000 - 614 918 610 5,770 7,912 699 - - - - 699 - 1,532 The amount of franking credits available for the subsequent financial year are: Consolidated 2012 $000 2010 $000 Franking account balance as at the end of the financial year at 30% (2011:30%) 3,980 4,280 Franking credits that will arise from the payment of income tax payable as at the end of the financial year - - Franking debits that have arisen from the payment of dividends as at the end of the financial year The amount of franking credits available for future reporting periods: Impact on the franking account by dividends proposed or declared before the financial report was authorised for issue but not recognized as a distribution to equity holders during the period (3,394) 586 (300) 3,980 - 586 (657) 3,323 The above available amounts are based on the balance of the dividend franking account at year end adjusted for: (i) (ii) (iii) franking debits that will arise from the refund of the current tax receivable; franking debits that will arise from the payment of dividends recognised as a liability at the year end; franking credits that will arise from the receipt of dividends recognised as receivables by the tax consolidated entity at the year end; and (iv) franking credits that the entity may be prevented from distributing in subsequent years. 56 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 27. Dividends paid and proposed (continued) (c) Franking credit balance (continued) The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on the dividend franking account of dividends proposed after the balance date but not recognised as a liability is to reduce it by $0 (2011: $1,531,593). In accordance with the tax consolidation legislation, the Company as the head entity in the tax-consolidated entity has also assumed the benefit of nil (2011: nil) franking credits from its Australian wholly-owned subsidiaries during the year. 28. Auditor remuneration Consolidated 2012 2011 Amounts received or due and receivable by Ernst & Young (Australia & New Zealand) for: Audit or review of the financial report of the entity and any other entity in the consolidated entity 100,000 102,000 Other services in relation to the entity and any other entity in the consolidated entity • Tax compliance 29. Cash flow statement reconciliation Reconciliation of net profit after tax to net cash flows from operations: Net profit Adjustments for: Depreciation Write-down inventory Write-off bad debts Loss / (profit) on sale of property, plant & equipment Share based payments expense Foreign exchange (gain) / loss Changes in assets and liabilities: (Increase) / decrease in trade and other receivables (Increase) / decrease in inventories (Increase) / decrease in current tax assets (Increase) / decrease in deferred tax assets (Decrease) / increase in trade and other payables (Decrease) / increase in provisions Net cash from operating activities 10,403 110,403 10,386 112,386 Consolidated 2012 $000 2011 $000 (488) 1,041 501 649 (63) 108 91 (904) (1,009) (564) 77 10 319 40 (1,233) 442 766 (77) - 80 134 647 (681) 4 (87) 1,010 44 3,323 57 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 30. Investment in an associate The consolidated entity acquired a 30% interest in OYT Pty Ltd on 13 July 2011. OYT Pty Ltd is an online discount grocery retailer. OYT Pty Ltd is a private entity that is not listed on any public exchange. The following illustrates summarised financial information of the consolidated entity’s investment in OYT Pty Ltd: Opening balance Acquired during the year Share of losses from associate Impairment recognised on acquisition of non controlling interest Closing balance 2012 $000 - 500 (131) (347) 22 For disclosure relating to the acquisition of the remaining 70% refer to note 31. 31. Business combination Acquisition of OYT Pty. Ltd During the current year the consolidated entity acquired an interest in OYT Pty Ltd in two separate stages. On 13 Jul 2011 30% of the share capital in OYT Pty Ltd was acquired for a consideration of $500,000. The remaining 70% of share capital was acquired for a consideration of $51,000 on the 17 February 2012. The fair value of identifiable net assets acquired from OYT Pty Ltd on 17 February 2012 is illustrated in the table below. Assets Cash and cash equivalents Trade and other receivables Inventories Property, plant and equipment Intangibles Liabilities Trade and other payables Total identifiable net assets at fair value Goodwill arising on acquisition Fair value of the investment in OYT Pty Ltd 2012 $000 26 42 116 1 46 231 (146) 85 12 73 Fair value is comprised of purchase consideration of $51,000 and fair value of investment in associate (prior to business acquisition) $22,000. The table below details fair value of net assets as at 30 June 2012. Assets Cash and cash equivalent (Note 21) Inventories (Note 21) Inventories (Note 21) Liabilities Total identifiable net assets at fair value 2012 $000 14 18 1 33 - 33 58 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 31. Business combination (continued) On the same date, an impairment test was carried out as per AASB 139 on Cellnet Group Limited’s investment in OYT Pty Ltd. Consequently an impairment loss of $39,741 was recognised against the investment which effectively reduced its carrying amount from $73,000 to $33,000. OYT Pty Ltd contributed $146,000 from the date of acquisition (17 February 2012) to 30 June 2012 to the loss for the year of discontinued operations of the consolidated entity. If the acquisition had taken place at the beginning of the year, revenue from this discontinued operation would have been $1,824,000 and the loss for the year from discontinued operations for the consolidated entity would have been $2,121,000. 32. Intangible assets Opening balance Acquired Impairment expense (refer note 21) Consolidated 2012 $000 2011 $000 - 110 (110) - - - - - 59 Cellnet Group Limited and its consolidated entities Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements Director’s declaration In accordance with a resolution of the Directors of Cellnet Group Limited, I state that: In accordance with a resolution of the Directors of Cellnet Group Limited, I state that: In the opinion of the Directors: a) b) c) d) the financial statements and notes of the notes of the company are in accordance with the Corporations Act 2001 Corporations Act 2001, including: i) and of their performance for giving a true and fair view of the company’s financial position as at 30 June 2011 and of their performance for giving a true and fair view of the the year ended on that date; and the year ended on that date; and ii) complying with Australian Accounting Standards and Corporations Regulations 2 001; complying with Australian Accounting Standards and Corporations Regulations 2001; the financial statements and notes also comply with International Financial Reporting Standards as disclosed in the financial statements and notes also comply with International Financial Reporting Standards as disclosed in the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2(a); will be able to pay its debts as and when they become there are reasonable grounds to believe that the company will be able to pay its debts as and when they become there are reasonable grounds to believe that the due and payable; this declaration has been made after receiving the declarations required to be made to the directors in accordance this declaration has been made after receiving the declarations required to be made to the directors in accordance this declaration has been made after receiving the declarations required to be made to the directors in accordance for the financial year ending 30 June 2012. Corporations Act 2001 for the financial year ending 30 June 2012. with section 295A of the Corporations Act 2001 On behalf of the Board Alexander Beard Alexander Beard Chairman Brisbane 17August 2012 August 2012 60 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 61 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 62 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements Corporate governance statement Background Principles of Good Corporate Governance and Best Practice Recommendations” were published in March 2003, revised effective 1 January 2008 and the latest amendments issued under Corporate Governance Principles and Recommendations (2nd Edition) by the Australian Securities Exchange Limited’s Corporate Governance Council. The ASX Listing Rules require listed companies to include in their annual report a statement disclosing the extent to which they have not followed the Best Practice Recommendations during a reporting period and are also required to provide reasons for their non-compliance. In addition, specific corporate governance information must be included in the Corporate Governance Statement section or elsewhere in the Annual Report. Compliance Cellnet has reviewed its Corporate Governance Statement and this has been published on the Company website: http://www.cellnet.com.au/. The Company reports annually on its compliance with the Best Practice Recommendations. After the significant restructure the Company has completed and in recognition of the reduced scale of operations of the business, the Board has adopted and is in the process of executing a turnaround plan that focuses on future viable operations of the business. In the restructured operations, Cellnet has been unable to fully comply with the requirements of the Corporate Governance Principles and Recommendations and details below the areas where it is not currently compliant. The Board has indicated, however that it will return to full compliance with the best practice recommendations as soon as is practicable. ASX Principles and Recommendations Summary of the Company’s Position Principle 2 – Structure the board to add value Recommendation 2.1 A majority of the Board should be independent directors Recommendation 2.2 The Chair should be an independent Director The current scale of operations has determined the need for only a three person Board which comprises one executive director (who is the Managing Director) and two non- executive directors (none of whom are independent and includes the Chairman). The Board holds the view that notwithstanding these departures from the guidelines, the current Board has the required capabilities appropriate for the current operating environment, are able to ensure that corporate governance objectives are achieved and their operational performance is totally transparent. Recommendation 2.4 The Board should establish a nominations committee In line with the Board’s view on the composition and size of the Board having regard to its current strategies and requirements, there is no nominations committee however the full Board assumes the functions of such a committee as and when required. Recommendation 2.5 Disclose the process for evaluating the performance of the Board, its committees and individual Directors While there is no structured process in place, the Chairman is able to regularly measure performance through participation at meetings of Directors. Principle 4 – Safeguard integrity in financial reporting Recommendation 4.2 Structure of the Audit Committee The Company is unable to comply with this recommendation principally due to the current composition of the Board. Notwithstanding this departure, the audit and risk committee process operates in accordance with the audit and risk committee charter. 63 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements Principle 8 – Remunerate fairly and responsibly Recommendation 8.2 The should be structured so that it: - remuneration committee consists of a majority of independent directors by chaired is independent director has at least 3 members an - - Although there are 3 members of the committee, the Company is unable to comply with this recommendation in full principally due to the current composition of the Board. However, the Board assumes the functions of such a committee as and when required. While there is no structured process in place, the Chairman approves all equity participation schemes. Recommendation 8.4 Companies should provide information in respect of restrictions on entering into transactions which limit risk in of participating in unvested entitlements. Corporate Governance Principles and Recommendations (2nd edition) The ASX Corporate Governance Council announced on 30 June 2010 amendments to the current Corporate Governance Principles and Recommendations. Cellnet will recognise the impact of these changes in their Statement of Corporate Governance and report on them as required by no later than 30 June 2012. In respect of the gender diversity initiatives contained in these changes, Cellnet will facilitate the introduction of an appropriate policy during the year ending 30 June 2011 and monitor progress towards the achievement of appropriate gender diversity in the Company. As part of this process, the Board will ensure that the policy contains measureable objectives for gender diversity but in doing so will need to recognise the nature and size of the Cellnet business and ensure any policy objectives are realistic and achievable. 64 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements ASX Additional information As at 28 September 2012 Additional information required by the Australian Securities Exchange Limited Listing Rules and not disclosed elsewhere in this report is set out below. Shareholdings 20 largest shareholders Name CVC Ltd McNeil Nominees Pty Limited Hesley Consultants Limited Bywater Investments Limited Walter Stuart Macmillan Smith Ms Amaya Margaret Brookman Chemical Trustee Ltd Philadelphia Investments Pty Ltd Yardley Holdings Limited TUP Pty Ltd Engage Capital Pty Ltd Citicorp Nominees Pty Limited Carmant Pty Ltd Syvest Pty Ltd Mr Geoffrey Brian McDonald & Mrs Mary Louise McDonald Organisational Change Consultants Pty Ltd Mr David Paul Radonich Rowabit Pty Ltd Custodial Services Limited Cellnet ESP Pty Ltd Top 20 Holders All other holders All holders Ordinary shares held % of capital held 28,472,046 3,702,155 2,800,000 2,139,800 2,000,000 1,851,943 1,820,000 1,650,274 1,155,000 760,000 330,100 225,180 220,000 182,000 151,707 140,000 120,000 110,680 108,270 107,110 48,046,265 9,660,846 57,707,111 49.36% 6.42% 4.85% 3.71% 3.47% 3.21% 3.16% 2.86% 2.00% 1.32% 0.57% 0.39% 0.38% 0.32% 0.26% 0.24% 0.21% 0.19% 0.19% 0.19% 83.26% 16.74% 100.00% Substantial shareholders The number of shares held by substantial shareholders and their associates, as advised in substantial holder notices given to the Company, are set out below: Shareholder CVC Limited McNeil Nominees Pty. Ltd. Distribution of equity security holders Category 1 – 1000 1,001 – 5,000 5001 – 10,000 10,001 – 50,000 50,001 – 100,000 100,001 and over Shares per notice 28,472,046 3,702,155 Number of holders 99 731 246 173 28 21 1,298 The number of shareholders holding less than a marketable parcel of ordinary shares is 649. 65 This page has been left blank intentionally. This page has been left blank intentionally. Australia 59-61 Qantas Drive, Eagle Farm Queensland 4009 New Zealand 10a Orbit Drive, Rosedale North Shore City 0632 Phone: 1300 CELLNET (235 563) www.cellnet.com.au Phone: 0800 CELLNET (235 563) www.cellnet.co.nz 

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