cellnet
Annual Report 2013

Plain-text annual report

Australia | 59-61 Qantas Drive | Eagle Farm | QLD | 4009 1300 CELLNET (235 563) | www.cellnet.com.au New Zealand | 10a Orbit Drive | Rosedale | Auckland | 0632 0800 CELLNET (235 563) | www.cellnet.co.nz 2012 2013 AnnualReport 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 Operating segments 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 liabilities – trade and other payables 15 Current and non-current liabilities – provisions 16 Share-based payments 17 Financial instruments 18 Commitments and contingencies 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 Dividends paid and proposed 28 Auditors remuneration 29 Cash flow statement reconciliation 30 Business combination 31 Intangible assets 32 Interest bearing loans and borrowings Directors’ declaration Independent auditors’ report Corporate Governance Statement ASX Additional Information Page 3 4 20 21 22 23 24 24 24 38 42 43 43 44 46 47 47 48 48 49 50 50 51 53 54 54 54 55 56 57 58 58 59 60 61 62 62 65 65 66 67 69 72 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: 1300 554 474 Solicitors Thomsons Lawyers Level 16 Waterford Place 1 Eagle Street, Brisbane QLD 4000 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 Directors’ Report Your Directors submit their report for the year ended 30 June 2013. 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), Executive Director of CVC Limited (ASX code: CVC), Non-Executive Director of Villa World Group (ASX code: VLW). He held a prior role as Non Executive Director of Lonestar Resources (ASX code: LNR) from which he resigned 29 March 2013. Mel Brookman (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. Member of Audit and Risk Management Committee. Mr. Brookman held a prior role as a Non Executive Director of Mnet Group (ASX code: MNZ) from which he resigned on 27 May 2013. Elliott 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). Chairman of the Audit and Risk Management Committee. 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. 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 (ii) (i) Resigned 25 July 2012 (ii) Appointed 25 July 2012 Number of ordinary shares Number of restricted shares Number of options - - - - - - - - - 400,000 - - 4 Cellnet Group Limited and its consolidated entities Financial Report Directors’ Report (continued) Company Secretary Chris Barnes B. Acc, CPA (Company Secretary and General Manager – 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. Mr. Barnes was the Financial Controller for the Company prior to his appointment as a General Manager on 1 February 2013. Dividends No dividends were declared and paid in the current year. Principal activities The principal activities during the year of the entities within the consolidated entity were: - 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. The Company completed the sale of its online business segment comprising of OYT Pty Ltd, Buyii Pty Ltd, Cellnet Online Pty Ltd in the current year at a profit of $38,000. Three fully owned subsidiaries namely Comms Plus Marketing Pty Ltd, VME Systems Pty Ltd, Michael Hornsby and Associates Pty Ltd were deregistered on 12 June 2013. These companies have been dormant and the deregistration does not affect the nature of the Company’s principal activities. Other than the divestment from online business segment, there has been no material change to the nature of these activities during the year. Operating and financial review The 2013 year has been a year of refocus and consolidation for Cellnet. Without the distractions of non-core activities which have negatively impacted the business in recent years, the management team has been able to dedicate its energies to reshaping the core retail distribution business into one which provides existing and new customers with quality products and services in the most efficient manner. Key customer acquisitions were made throughout the year which contributed to a strong rise in revenues. Sales from continuing operations of the consolidated entity for the period totalled $74.8 million (2012: $61.6 million). This increase of $13.2 million or 21.4% is encouraging given the soft retail conditions. Management implemented a company-wide restructure in the second half of the financial year. The non-recurring costs associated with the implementation of this restructure totalled approximately $380,000. The benefits accruing from the restructuring are forecast to materialise in the 2014 financial year. The business generated a pre tax net profit from continuing operations of $911,000 compared with $1,334,000 from the prior corresponding period. This result is very encouraging considering the pre-tax profit achieved in 2012 included increased interest revenue of $801,000. If the interest revenue is excluded, real business operational earnings from the prior period would have amounted to $533,000. In March 2013 the consolidated entity acquired the business of Stuff Products Pty Ltd, a synergistic Brisbane based distributor of mobile phone and tablet fashion accessories. 5 Cellnet Group Limited and its consolidated entities Financial Report Directors’ Report (continued) Following the company wide restructure implemented in the second half of the 2013 financial year the company now has a cost base that is both sustainable and adequate to support the anticipated sales growth and to generate acceptable levels of profitability. Significant changes in the state of affairs During the year the consolidated entity acquired the business of Stuff Products Pty Ltd. Apart from this acquisition there has been no other significant changes in the state of affairs of the consolidated entity. Significant events after balance date There have been no matters or circumstances that have arisen since the end of the financial year which have 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 years. Likely developments In respect of future 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. Share options In the current year, no options (2012: 3,300,000) were awarded to key management personnel (KMP). The existing 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 had been exercised as at 30 June 2013. For further details, please refer to note 16(c). Indemnification and insurance of officers Indemnification The Company has agreed to indemnify the current and former Directors and Company Secretaries 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 E. Kaplan Committee membership Board 10 10 10 1 9 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 E. Kaplan (appointed 25 Jul 2012) (Chairman) M. Brookman A. Beard S. Smith (resigned 25 July 2012) Remuneration M. Brookman (Chairman) A. Beard S. Smith (resigned 25 July 2012) E. Kaplan (appointed 25 July 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 Consolidated 2013 $ 2012 $ 11,008 10,403 7 Cellnet Group Limited and its consolidated entities Financial Report Directors’ Report (continued) Rounding 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. Auditor’s independence declaration The Auditor’s independence declaration is set out on page 9 and forms part of the Directors’ report for the financial year ended 30 June 2013. 8 Cellnet Group Limited and its consolidated entities Financial Report Directors’ Report (continued) 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 2013 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) of the parent. Remuneration report approval at FY12 AGM The FY12 remuneration report received positive shareholder support at the FY12 AGM with a vote of 98% in favour. For the purposes of this report, the term “executive” includes the 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 E. Kaplan (ii) Executives Chairman (Non-Executive) Director (Executive) Managing Director and Joint Company Secretary – resigned 25 July 2012 Director (Non-Executive) - appointed 25 July 2012 C. Barnes D. Clark J. Phua C. Kingshott M. Wallace General Manager and Company Secretary - appointed 9 March 2011 General Manager - New Zealand General Manager Product Development & Supply Chain – resigned 26 July 2012 Director of Business Development - appointed 19 July 2013 General Manager Retail Sales – resigned 18 March 2013 10 Cellnet Group Limited and its consolidated entities Financial Report Directors’ Report (continued) Remuneration Report (audited) (continued) 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. 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 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; provides strong linkage between the 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. 11 Cellnet Group Limited and its consolidated entities Financial Report Directors’ Report (continued) Remuneration Report (audited) (continued) 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. 5. Executive remuneration arrangements and the link to company performance 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 (KPI’s) 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; and • Customer service; and • Leadership/team contribution General Manager General Manager 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 bi-annual basis, after consideration of performance against KPI’s the General Manager, in line with his responsibilities, determines 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 General Manager. 12 Cellnet Group Limited and its consolidated entities Financial Report Directors’ Report (continued) Remuneration Report (audited) (continued) 5.3 STI bonus (continued) 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. The following table outlines the proportion of maximum STI that was earned and forfeited on relation to the 2013 financial year. Name C. Barnes D. Clark C. Kingshott (Appointed on 19.03.2013) J. Phua (resigned 26.07.2012) M. Wallace (Resigned on 18.03.2013) Proportion of maximum STI earned in FY13 Proportion of maximum STI forfeited in FY13 100% 100% N/A 0% 75% 0% 0% N/A 0% 25% STI awards for 2012 and 2013 financial years For the 2013 financial year, a total payment of $90,706 was made which represents 86.3% 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 2013 and 2014 financial years. The forfeitures amounted to $14,468. 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. 5.4 LTIs 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 on 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 option 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 no options issued in the current year to either directors or KMP (2012: 3,300,000). 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 on 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 (2012: nil). 13 Cellnet Group Limited and its consolidated entities Financial Report Directors’ Report (continued) Remuneration Report (audited) (continued) 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 2013 short-term incentive. 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 2013 2012 2011 2010 2009 $962,000 - - - 78 ($2,639,000) ($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 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. 14 Cellnet Group Limited and its consolidated entities Financial Report Directors’ Report (continued) Remuneration Report (audited) (continued) 6. Executive contractual arrangements (continued) 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. Under the terms of issue, Mr Smith is required to forfeit the shares by transferring them to the company. Mr Smith has agreed to the forfeiture of options and cancellation of these shares under the terms and conditions and has no outstanding liability to the Company. The cancellation was effected by an ordinary resolution of shareholders passed on 20 November 2012 under section 258D of Corporations Acts 2001. 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 3 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 Payment applicable to outgoing executives: - Julian Phua, General Manager Product Development and Supply Chain resigned from his position on 26 July 2012. Mr Phua received a final payment of $70,194 which is equated to 3 months and 8 weeks of his salary at the date of his resignation. - Michael Wallace, General Manager Sales resigned from his position on 18 March 2013. Mr Wallace received a final payment of $40,000 which equated to 3 months of his normal salary at the date of his resignation. 15 Cellnet Group Limited and its consolidated entities Financial Report Directors’ 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 $ Non-executive Directors A. Beard (i) M. Brookman (iii) (Appointed 25.07.12) E. Kaplan (ii) (Appointed 25.07.12) Total non-executive directors Executive Director M. Brookman (iii) (Appointed 25.07.12) S. Smith (Resigned 25.07.12) Year 2013 2012 2013 - - - 2012 50,000 2013 2012 2013 - - - 2012 50,000 2013 252,083 2012 - 2013 20,802 - - - - - - - - - - - 2012 285,046 27,500 - - - - - - - - - - - - - - - - - - - - - - - - Post Employment Superannuation benefits $ - - - - - - - - - - 4,693 22,375 Long-term benefits Share –based payment % performance related Cash Incentives $ Long Service Leave $ - - - - - - - - - - - - - - - - - - - - - - - - Termination/ Resignation payments $ - - - - - - - - - - $ - - - 1,354 - - - 1,354 2,095 - (212,332) 275,000 82,703 - Total $ - - - - - - 51,354 2.64 - - - - - - 51,354 2.64 254,178 - 88,163 417,624 0.82 - (240.84) 26.39 i During the financial year the Company paid management fees to CVC Managers Pty Limited totalling $54,500 in relation to director’s services performed by Mr A Beard. ii During the financial year the Company paid management fees to CVC Managers Pty Limited totalling $50,000 in relation to director’s services performed by Mr E Kaplan. iii Mr Brookman was appointed as an executive director 25 July 2012. Prior to this date and for the 2013 financial year he acted as a non executive director. For the 2012 financial year Mr Brookman acted as a non executive director. 16 Cellnet Group Limited and its consolidated entities Financial Report Directors’ Report (continued) Remuneration Report (audited) (continued) 6.1 Directors’ and executives officers, remuneration (continued) Short-term Post Employment Long-term benefits Salary & fees $ STI cash bonus $ Motor Vehicle allowances $ Non monetary benefits $ Superannuation benefits $ Cash Incentives $ Long Service Leave $ Share –based payment $ Termination/ /Retention payments $ Other KMP C. Barnes D. Clark J. Laun # C. Kingshott (Appointed on 19.03.13) J. Phua (Resigned on 26.07.12) B. Watts # (Resigned on 30.06.13) M. Wallace (Resigned on 18.03.13) E. Schillinger (Resigned on 31.10.11 ) Total executive and KMP Totals Year 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 # Do not qualify as KMP for the 2013 financial year. 156,475 12,500 124,624 25,000 - - 121,091 32,674 105,074 34,988 12,253 10,406 - - 122,944 25,000 68,700 - 11,275 - - - 164,065 60,000 - - 132,000 33,850 137,248 45,532 153,333 62,909 - - - - - - - - - - - - - 35,000 9,738 5,000 767,674 90,706 12,253 1,122,086 278,985 15,406 767,674 90,706 12,253 1,172,086 278,985 15,406 - - - - - - - - - - - - - - - - - - - - 16,175 13,916 3,113 - - 13,579 - - 6,674 20,188 - 14,926 17,078 16,953 - 4,476 47,733 106,413 47,733 106,413 - - - - - - - - - - - - - - - - - - - - - - - - - 2,931 - - - - - - 24,152 - - 12,187 24,152 15,118 24,152 15,118 % performance related 7.79 15.98 17.58 23.94 - 15.89 - - - 24.98 - 18.72 17.24 27.40 - 14.67 Total $ 187,245 164,894 197,774 151,822 - 165,808 68,700 - 88,143 245,607 - 180,776 264,010 234,549 - 66,401 2,095 1,354 2,095 1,354 - 1,354 - - - 1,354 - - - 1,354 - - - - 26,548 - - - - - 70,194 - - - 40,000 - - - (206,047) 411,742 1,148,213 (10.05) 89,473 - 1,627,481 22.64 (206,047) 411,742 1,148,213 (10.05) 90,827 - 1,678,835 22.03 17 Cellnet Group Limited and its consolidated entities Financial Report Directors’ Report (continued) Remuneration report (audited) (continued) 7. Additional statutory disclosures This section sets out the additional disclosures required under the Corporations Act 2001. The table below discloses the share options granted to executives as remuneration during the current financial year as well as the number of options that vested or lapsed during the year. Share options do not carry any voting or dividend rights and can be exercised once the vesting conditions have been met until their expiry date. Options awarded and vested during the year Executive Directors M Brookman S Smith Other key management personnel C Barnes D Clark J Laun # J Phua M Wallace Year 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Options awarded during the year No. Award date Fair value of option at award date ($) Exercise price ($) Expiry date Vesting date No. vested during year No. lapsed during year - 400,000 - 900,000 - 21 Oct 2011 - 21 Oct 2011 - $0.02 - $0.02 - 21 Oct 2013 - 21 Oct 2013 - 0.36 - 0.36 - 21 Oct 2014 - 21 Oct 2014 - 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 - 0.36 - 0.36 - 0.36 - 0.36 - - - 21 Oct 2014 - 21 Oct 2014 - 21 Oct 2014 - 21 Oct 2014 - - - - - - - - - - - - - - - - - - 900,0001 - - - - - - - 400,0001 - 400,0001 - 1. Lapses represent forfeitures on resignation. # Does not qualify as KMP for the 2013 financial year. 18 Cellnet Group Limited and its consolidated entities Cellnet Group Limited and its consolidated entities Financial Report Report (continued) Directors’ Report (continued) udited) (continued) Remuneration report (audited) (continued) 7. Additional statutory disclosures (continued) 7. Additional statutory disclosures (continued) Value of options lapsed by forfeiture lapsed by forfeiture during the year Value of options lapsed by forfeiture during the year $ - 18,0001 - - - 8,0001 8,0001 - - - - - - - Remuneration Remuneration consisting of share options for the year % 0.82 (240.84) 1.12 1.05 1.25 - - Value of Value of options options granted granted during the during the year year $ Value of options exercised during the year $ M Brookman S Smith C Barnes D Clark J Laun J Phua M Wallace - - - - - - - 1. Lapses represent forfeiture on resignation. forfeiture on resignation. 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 20 August 2013 August 2013 19 Cellnet Group Limited and its consolidated entities Financial Report Statement of financial position As at 30 June 2013 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) Intangible assets Total non-current assets TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Provisions Interest-bearing loans and borrowings 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 Consolidated Note 2013 $000 2012 $000 9 10 11 12 21 13 7(c) 31 14 15 32 21 15 2,141 11,932 8,991 4 23,068 - 23,068 858 2,855 150 3,863 4,623 10,951 5,194 17 20,785 532 21,317 1,213 2,661 - 3,874 26,931 25,191 10,592 406 474 11,472 9,821 543 - 10,364 - 11,472 127 10,491 467 467 11,939 14,992 412 412 10,903 14,288 26(a) 26(b) 31,699 494 (17,201) 14,992 31,699 752 (18,163) 14,288 The above statement of financial position should be read in conjunction with the accompanying notes. 20 Cellnet Group Limited and its consolidated entities Financial Report Statement of comprehensive income For the year ended 30 June 2013 Continuing operations Sales of goods Rendering of services Revenue Cost of sales Gross Profit Other income Administrative expenses Bad debts expenses Distribution expenses Financial costs Net redundancy costs Other expenses Sales and marketing 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 Items that may be reclassified subsequently to profit or loss 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 2013 $000 2012 $000 74,840 1,631 76,471 (59,565) 16,906 61,633 1,662 63,295 (47,610) 16,532 6(d) 5 355 1,790 6(a) 7(b) 21 (7,839) (64) (3,098) (3) (380) (383) (4,583) 911 180 1,091 (7,739) (63) (2,609) - - (506) (5,224) 1,334 (93) 1,241 (129) 962 (1,729) (488) (54) 908 (39) (527) 8 8 8 8 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 ($0.01) ($0.01) The above statement of comprehensive income should be read in conjunction with the accompanying notes. 21 Cellnet Group Limited and its consolidated entities Financial Report Statement of changes in equity Share capital Reserve for own shares Foreign Currency translation reserve Share based payment reserve Accumulated losses Total equity $000 $000 $000 $000 $000 $000 At 1 July 2012 31,699 (25) 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 Share capital reduction Balance as at 30 June 2013 At 1 July 2011 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 - - - - - - - - 31,699 37,861 - - - - - (854) - (5,308) - - - - - - - - (25) (25) - - - - - - - - (3) - (54) (54) - - - - - (57) 36 - (39) (39) - - - - - 780 (18,163) 14,288 - - - - - - (204) - 962 - 962 962 (54) 908 - - - - - - - - (204) - 576 (17,201) 14,992 689 (9,763) 28,798 - - - - - - 91 - (488) - (488) (488) (39) (527) - (7,912) - - - - (7,912) (854) 91 (5,308) 31,699 (25) (3) 780 (18,163) 14,288 The above statement of changes in equity should be read in conjunction with the accompanying notes. 22 Cellnet Group Limited and its consolidated entities Financial Report Statement of cash flows For the year ended 30 June 2013 Consolidated Note 2013 $000 2012 $000 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest paid Net income taxes received Net cash flows used in operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Interest received Purchase of property, plant and equipment Acquisition of subsidiary Acquisition of assets through a business combination Net inflow from sale of discontinued operation, net of cash disposed Net cash flows from/(used in) investing activities Cash flows from financing activities Share buy back Return of capital Dividend Net cash flows used in financing activities Net 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 5 13 30 21 20 26(a) 27(a) 9 The above statement of cash flows should be read in conjunction with the accompanying notes. 79,460 (81,868) (3) - (2,411) - 46 (29) - (300) 55 (228) - - - - (2,639) (28) 4,808 2,141 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 23 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 2013 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 20 August 2013. 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 the Corporations Act 2001, Australian Accounting Standards and other authoritative requirements of 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 2012. ►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] 1 July 2012. 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) (ii) Accounting standards and interpretations issued but not yet effective The interpretation of the standards is described 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. Impact on the consolidated financial report – minimal. Application date of standard 1 January 2015. Application date for the consolidated entity 1 July 2015. 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. 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 uses the principle of control in AASB 10 to define joint control and removes the option to choose to account for jointly controlled entities using the proportionate consolidation method or the equity method. 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. Impact on the consolidated financial report – minimal. Application date of standard 1 January 2013. Application date for the consolidated entity 1 July 2013. 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. 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) (ii) Accounting standards and interpretations issued but not yet effective (continued) AASB 119 Employee benefits The main change introduced by this standard is to revise the accounting for defined benefit plans. The amendment removes the options for accounting for the liability, and requires that the liabilities arising from such plans is recognised in full with actuarial gains and losses being recognised in other comprehensive income. Impact on the consolidated financial report – minimal. Application date of standard 1 January 2013. Application date for the consolidated entity 1 July 2013. AASB 2012-2 Amendments to Australian Accounting Standards - Disclosures - offsetting financial assets and financial liabilities AASB 2012-2 principally amends AASB 7 Financial Instruments: Disclosures to require disclosure of information that will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity's recognised financial assets and recognised financial liabilities, on the entity's financial position. Impact on the consolidated financial report – minimal. Application date of standard 1 January 2013. Application date for the consolidated entity 1 July 2013. AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009- 2011 Cycle AASB 2012-5 makes amendments resulting from the 2009-2011 Annual Improvements Cycle. Impact on the consolidated financial report – minimal. Application date of standard 1 January 2013. Application date for the consolidated entity 1 July 2013. AASB 2012-9 Amendment to AASB 1048 arising from the withdrawal of Australian Interpretation 1039 AASB 2012-9 amends AASB 1048 Interpretation of Standards to evidence the withdrawal of Australian Interpretation 1039 Substantive Enactment of Major Tax Bills in Australia. Impact on the consolidated financial report – minimal. Application date of standard 1 January 2013. Application date for the consolidated entity 1 July 2013. AASB 2012-10 Amendments to Australian Accounting Standards – Transition Guidance and Other Amendments AASB 2012-10 amends the following standards: ► AASB 10 Consolidation and related standards. ► AASB 10 and related standards to defer the mandatory application by not-for-profit entities to annual reporting periods beginning on or after 1 January 2014. ► Various editorial amendments to a range of Australian Accounting Standards and to Interpretation 12 Service Concession Arrangements, to reflect changes made to the text of IFRSs by the IASB. Impact on the consolidated financial report – minimal. Application date of standard 1 January 2013. Application date for the consolidated entity 1 July 2013. 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) (ii) Accounting standards and interpretations issued but not yet effective (continued) AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements [AASB 124] This amendment deletes from AASB 124 individual key management personnel disclosure requirements for disclosing entities that are not companies. Impact on the consolidated financial report – minimal. Application date of standard 1 July 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. Impact on the consolidated financial report – minimal. Application date of standard 1 July 2013. Application date for the consolidated entity 1 July 2013. (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. 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. 27 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (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 the 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. (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. 28 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) Intangible assets (f) (i) Goodwill Business combinations Subsequent to 1 July 2009 Goodwill acquired in a business combination is initially measured at cost of the business combination being the excess of the consideration transferred over the fair value of the group’s net identifiable net assets 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. (ii) 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. 30 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (j) Impairment (continued) (ii) Derecognition of financial assets (continued) 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. (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. 31 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (m) Provisions and employee benefits (continued) (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. (iv) Contingent consideration Contingent consideration, resulting from business combinations, is valued at fair value at the acquisition date as part of the business combination. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability will be recognised in accordance with AASB 139 either in profit or loss or as a change to other comprehensive income. (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 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). (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. 32 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (q) Expenses (continued) (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. 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. 33 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (r) Income tax (continued) 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. 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. 34 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (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. 35 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 General Manager. 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. 36 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (y) Business combinations (continued) 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. 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) 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. 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. 37 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 2. Significant accounting policies (continued) (z) Financial instruments – initial recognition and subsequent measurement (continued) (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. (v) Borrowing costs All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. 3. Financial risk management objectives and policies The consolidated entity’s principal financial instruments comprise of receivables, payables, cash and short-term deposits and interest bearing loans. 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. 38 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 3. Financial risk management objectives and policies (continued) Interest rate risk The consolidated entity’s exposure to market interest rates relates solely to the consolidated entities short-term cash deposits and interest bearing loans and borrowings as disclosed in note 9 and 32. Financial assets Cash and cash equivalents Interest bearing loans and borrowings Note 9 32 2013 $000 2012 $000 2,141 474 2,615 4,808 - 4,808 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 2013, 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) 2013 $000 2012 $000 2013 $000 2012 $000 13 (6) 43 (21) - - - - The movements in profit are due to higher / lower cash receipts from variable rate cash balances. The assumed reasonably possible interest rate movements are based on an economic forecaster’s expectations. Foreign currency risk The consolidated entity is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than Australian dollars. The currencies giving rise to risk are primarily U.S dollars, Euros, and New Zealand dollars. The consolidated entity enters into forward foreign exchange contracts to hedge certain anticipated purchase commitments denominated in foreign currencies (principally U.S dollars). The terms of these commitments are no more than 45 days. It is the consolidated entity’s policy not to enter into forward contracts until a firm commitment is in place. The consolidated entity has a subsidiary based in New Zealand and all transactions for this subsidiary are denominated in New Zealand dollars. There is currently no hedge in place to mitigate the foreign currency risk for this subsidiary. 39 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 3. Financial risk management objectives and policies (continued) Entering into forward foreign currency contracts minimises the risk of sharp fluctuations in foreign exchange rates and allows for better cash flow management in relation to paying international suppliers. At balance date, the consolidated entity had the following exposure to US$ foreign currency that is not designated as cash flow hedges: Financial assets Trade and other receivables Financial liabilities Trade and other payables Net exposure 2013 $000 2012 $000 1,801 1,801 (3,027) (3,027) (1,226) 1,684 1,684 (4,319) (4,319) (2,635) At 30 June 2013, 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: Post tax profit higher / (lower) 2013 $000 2012 $000 Other comprehensive income higher / (lower) 2013 $000 2012 $000 179 (761) 282 (268) - - - - Consolidated AUD / USD +10% (2012: +10%) AUD / USD -10% (2012: -10%) 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. 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 $5,000, whichever is greater. 40 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 3. Financial risk management objectives and policies (continued) 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. 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 Contingent consideration Interest bearing loans and borrowings 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 2013 6 – 12 months 1 – 5 years More than 5 years 9 10 14 15 32 2,141 11,932 14,073 2,141 11,932 14,073 (10,592) (100) (10,592) (100) (474) (474) (11,166) (11,166) 2,907 2,907 - - - - - - - - - - - - - - - - - - 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 - - - - - - 41 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 General Manager (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 General Manager at least on a monthly basis. However, for the 2013 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. (i) Segment revenue reconciliation to the statement of comprehensive income. Total segment revenue Other revenue from continuing activities Total revenue 2013 $000 74,840 1,631 76,471 2012 $000 61,633 1,662 63,295 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. Australia New Zealand Total revenue 2013 $000 57,851 18,620 76,471 2012 $000 51,078 12,217 63,295 (ii) Segment non-current assets reconciliation to the statement of financial position. Australia New Zealand Total non-current assets 2013 $000 2012 $000 3,779 84 3,863 3,761 113 3,874 Non-current assets for this purpose consist of property, plant and equipment, intangible assets and deferred tax assets. 42 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 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 Total other expenses (b) Employee benefits expense Wages and salaries Superannuation expense Reversal of 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 Consolidated 2013 $000 2012 $000 46 309 355 847 943 1,790 Consolidated 2013 $000 2012 $000 379 379 4 383 483 483 23 506 Consolidated 2013 $000 2012 $000 8,450 550 (204) 27 8,823 7,866 581 91 109 8,647 Consolidated 2013 $000 2012 $000 921 913 Consolidated 2013 $000 2012 $000 58,251 46,864 1,314 59,565 746 47,610 43 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 Consolidated 2013 $000 2012 $000 98 98 (10) (10) (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% (2012: 30%) Adjustments in respect of current income tax of previous years Non-deductible expenses Entertainment Effect of lower tax rate in New Zealand (Recognition) / non-recognition of tax losses Losses used to reduce deferred tax asset Aggregate income tax expense is attributable to: Continuing operations Discontinued operations 911 (47) 864 1,334 (1,812) (478) (259) (143) 239 61 9 8 - 40 180 (82) 98 36 27 12 - 58 - (93) 83 (10) 44 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 2013 $000 Consolidated 2013 $000 2012 $000 Current income tax Deferred income tax Current income tax Opening balance Charged to income / (expense) Charged to equity Acquisition/Disposal Payments/ (refunds) Closing balance Amounts recognised in the statement of financial position: Deferred tax asset Deferred tax liability 17 (13) - - 4 - - - 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 Deferred tax asset – continuing operations Deferred tax asset – discontinued operations Deferred tax asset net 2,744 111 - - - 2,855 2,913 (58) 2,855 - 819 2,036 2,855 (58) 2,913 - 2,855 2012 $000 Deferred income tax 94 - 2,754 (10) (77) 17 - 2,744 - - - 2,833 (89) 2,744 - 668 2,076 2,744 (89) 2,750 83 2,744 As at 30 June 2013, the Company has a deferred tax asset relating to timing differences and tax losses arising from prior years totalling $2,855,000 (2012: $2,744,000). Management has recognised deferred tax asset on the basis that achievement of profit before tax within the next 3-5 years are probable. Accordingly, a deferred tax asset relating to unused tax losses of between $2,000,000 and $3,000,000 is considered appropriate. 45 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 7. Income Tax (continued) (d) Tax losses The consolidated entity has Australian tax losses for which no deferred tax asset is recognised on the statement of financial position of $18,296,519 (2012: $18,526,716) 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 2013 (2012: $Nil). 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 Loss from discontinued operations Net profit attributable to ordinary equity holders For diluted earnings per share: Profit / from continuing operations 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 2013 $000 2012 $000 1,091 (129) 962 1,091 (129) 962 1,241 (1,729) (488) 1,241 (1,729) (488) Consolidated 2013 000s 2012 000s 56,462 60,211 effect of dilution 56,462 60,211 Restricted shares are considered non-dilutive where the current share price is lower than the exercise price. 46 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 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 2013 $000 2012 $000 1,791 - 350 2,141 - 2,141 4,273 - 350 4,623 185 4,808 Cash at banks earns interest at floating rates based on daily bank deposit rates. Funds held by banks represent monies pledged to fulfil financial guarantee collateral requirements. 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 (a) Allowance for impairment loss Consolidated 2013 $000 2012 $000 10,572 (92) 10,480 1,452 11,932 10,290 (87) 10,203 748 10,951 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 2013 $000 2012 $000 87 69 - (64) 92 624 (474) - (63) 87 47 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 10. Current assets – trade and other receivables (continued) At 30 June, the ageing analysis of trade receivables is as follows: Total 0-30 days 31-60 days $000 $000 $000 11,932 10,290 9,258 8,061 940 1,067 61-90 days PDNI* $000 + 91 days PDNI* $000 +91 days CI* $000 245 297 1,397 778 92 87 2013 Consolidated 2012 Consolidated * Past due not impaired (PDNI) * Considered impaired (CI) Receivables past due but not considered impaired are $1,642,000 (2012: $1,075,000). 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. Note 2(g) details how the Company manages and measures credit quality of trade receivables that are neither past due nor impaired. 11. Current assets – inventories Stock on hand Less: provision for obsolescence Total inventories at the lower of cost and net realisable value Consolidated 2013 $000 2012 $000 10,648 (1,657) 8,991 6,017 (823) 5,194 (a) Inventory expense Inventories recognised in the cost of sales during the year ended 30 June 2013 totalled $50,971,000 (2012: $42,785,000). 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 $4,000 (2012: $17,000) 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. 48 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 2013 At 1 July 2012 net of accumulated depreciation and impairment Additions Write-offs Depreciation charge for the year At 30 June 2013 net of accumulated depreciation and impairment At 30 June 2013 Cost or fair value Accumulated depreciation and impairment Net carrying amount 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 2012 net of accumulated depreciation and impairment At 30 June 2012 Cost or fair value Accumulated depreciation and impairment Net carrying amount Consolidated Leasehold improvements $000 Plant & Equipment $000 Plant & Equipment under lease $000 Total $000 267 - - (80) 187 941 29 (5) (297) 668 5 - - (2) 3 1,213 29 (5) (379) 858 728 8,887 2,135 11,750 (541) 187 (8,219) 668 (2,132) (10,892) 3 858 Consolidated Leasehold improvements $000 Plant & Equipment $000 Plant & Equipment under lease $000 Total $000 334 60 (32) (95) 267 1,176 163 (12) (386) 941 7 - - (2) 5 1,517 223 (44) (483) 1,213 812 9,062 2,135 12,009 (545) 267 (8,121) 941 (2,130) (10,796) 5 1,213 49 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 14. Current liabilities – trade and other payables Current Trade payables Other payables and accrued expenses Consolidated 2013 $000 2012 $000 7,493 3,099 10,592 6,532 3,289 9,821 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 (1) Liability for annual leave and employee provisions Non-Current Liability for long-service leave Provision for contingent consideration (1) (1) See the table below for movement during the year. Consolidated 2013 $000 2012 $000 (2) 408 406 367 100 467 24 519 543 412 - 412 Consolidated Provision for fringe benefit tax $000 Provision for contingent consideration $000 At 1 July 2012 Acquisition through business combination (Note 31) Arising during the year Utilised At 30 June 2013 24 - (15) (11) (2) - 100 100 (a) Nature and timing of provisions 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. 50 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 16. Share based payments (a) Employee share bonus No employee bonus shares were issued to employees during the current year or prior year. 2010 allocation 2,000,000 shares were issued to Stuart Smith on 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. Under the terms of issue, Mr Smith is required to forfeit his Plan Shares by transferring them to the Company if the Loan becomes repayable. On 25 July 2012, Mr Smith resigned as Chief Executive Officer and Executive Director of Cellnet Group Limited and the Loan became repayable. Mr Smith agreed to the forfeiture and cancellation of those shares under their terms and conditions of issue and has no outstanding liability to the Company. In order to give effect to the forfeiture, these shares were required to be cancelled by an ordinary resolution of shareholders under section 258D of the Corporations Act 2001. This resolution was approved by shareholders at the annual general meeting held 19 November 2013. (b) Long term incentive plan Employee expenses Note Consolidated 2013 $000 2012 $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) (212) 8 (204) 80 11 91 (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. 51 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 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: 2013 No. Options Issued 2012 No. Options Issued Directors S. Smith M. Brookman KMP D. Clark J. Laun J. Phua M. Wallace C. Barnes Total issued - - - - - - - - - - 900,000 400,000 1,300,000 400,000 400,000 400,000 400,000 400,000 2,000,000 3,300,000 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. 52 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) 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. Opening balance Granted during the year Options vested Options lapsed Outstanding as at 30 June 2013 Number of options 3,300,000 - - (1,700,000) 1,600,000 2013 WAEP $ 2012 Number of options 2012 WAEP $ 0.36 0.36 0.36 - 3,300,000 - - 3,300,000 - 0.36 - - 0.36 The following table lists the inputs to the model used for the share based payments plan. Dividend yield (%) Expected volatility (%) Risk free interest rate (%) Expected life (years) Weighted average share price ($) Model used 2012 30.00 65.00 3.90 2.00 0.25 Trinomial Lattice The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends which may not necessarily be the actual outcome. 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). Fair values The fair values together with the carrying amounts shown in the statement of financial position are as follows: Consolidated Cash and cash equivalents Trade and other receivables Trade and other payables Note 9 10, 21 14, 21 Carrying amount 2013 $000 Fair value 2013 $000 Carrying amount 2012 $000 Fair value 2012 $000 2,141 11,932 (10,592) 3,481 2,141 11,932 (10,592) 3,481 4,808 11,013 (9,933) 5,888 4,808 11,013 (9,933) 5,888 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. 53 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 18. Commitments and contingencies Commitments 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. 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 2013 $000 2012 $000 842 1,737 2,579 823 2,312 3,135 Contingencies Recovery of an alleged outstanding debt relating to a freight consultancy agreement from 2006 has been commenced against the company. The company intends to vigorously defend the claim and pursue recovery of any costs associated with this action. 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 The consolidated entity has provided bank guarantees in the normal course of business. 20. Share buy-back Consolidated 2013 $000 2012 $000 350 350 350 350 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 2013, no shares were repurchased (2012: 3,579,643 shares, $854,000). 54 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 21. Discontinued operation The company advised that on 8 June 2012 that it planned to exit the online business segment. The Company completed the sale of OYT Pty Ltd, Buyii Pty Ltd, Cellnet Online Pty Ltd on 1 October 2012, 3 October 2012 and 9 April 2013 respectively for a total consideration of $112,000. The net cash flows of $55,000 generated by the sale are in the Statement of cash flows as part of the cash flows from investing activities. Results of the discontinued operations for the year are presented below: 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 Depreciation Gain on disposal of discontinued operation Loss before tax Tax Consolidated 2013 $000 2012 $000 561 (641) (80) - - - - - - - (4) 38 (46) (83) 1,266 (2,074) (808) (131) (87) (260) (245) (110) (141) (12) (18) - (1,812) 83 Loss for the period from a discontinued operation (129) (1,729) 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 - - - - - - - - 185 62 184 83 18 532 (127) 405 55 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 21. Discontinued operation (continued) Cash inflow on sale of discontinued operation Consideration received Net cash disposed of with the discontinued operation Net cash inflow Cash flows from discontinued operation Net cash from operating activities Net cash from (used in) discontinued operation 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 2013 $000 2012 $000 112 (57) 55 - - - - - 185 185 Consolidated 2013 2012 ($0.002) ($0.002) ($0.029) ($0.029) 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 * Country of incorporation Australia New Zealand Australia Australia Australia Australia Australia Australia Australia Australia % Equity interest 2013 2012 100 100 - 100 - - 90 100 100 - 100 100 100 100 100 100 90 100 100 25 * Entity’s represent discontinued operations of which the businesses were sold in the current year. # These companies were deregistered in the current year. 56 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 22. Related party disclosure (continued) The following table provides the total amount of transactions which have been entered into with related parties during the twelve month periods ending 30 June 2013 and 30 June 2012. Sales to related parties Services from related parties $000 $000 Amounts owed by related parties $000 Amounts owed to related parties $000 Entity with significant influence over the consolidated entity: CVC Ltd 2013 2012 - - 55 32 - - - - Entity with significant influence over the consolidated entity CVC Ltd holds 51.11% (2012: 49.34%) of the ordinary shares in Cellnet Group Limited. Terms and conditions of transactions with related parties The sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. Transactions with entity with significant influence over the group. A CVC Ltd’s consultant was engaged on a work placement basis to provide business advice to Cellnet Group Limited. The engagement was for the period 1 July 2013 to 31 October 2013. 23. Key management personnel (a) Key management personnel remuneration Short-term employee benefits Post-employment benefits Long term benefits Termination / retention benefits Share-based payment benefits Total compensation Consolidated 2013 $000 2012 $000 870 48 24 412 (206) 1,148 1,416 106 15 - 90 1,627 (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). 57 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 The movement during the reporting period in the number of ordinary shares in Cellnet Group Limited held directly, indirectly or beneficially, by each key management person and their related parties, is as follows: Directors / KMP Held at 1 July 2012 Purchases Other acquisitions / disposals Sales Held at 30 June 2013 S. Smith (i) (i) Resigned 25 July 2012 Directors / KMP M. Brookman S. Smith (A) 2,000,000 - (2,000,000) - - Held at 1 July 2011 1,851,943 2,000,000 Purchases Other acquisitions / disposals Sales Held at 30 June 2012 - - (1,851,943) - - - - 2,000,000 (A) Received under Long Term Incentive Plan on 28 October 2009. 24. Subsequent events There has been no subsequent event after the balance date. 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 2013 $000 2012 $000 17,979 21,590 9,525 9,992 31,699 (20,650) (26) 575 11,598 2,796 2,796 16,218 18,238 8,828 9,241 31,699 (23,455) (26) 797 8,997 4,900 4,900 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 2013. 58 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 Directors restricted shares cancelled Share buy back On issue at 30 June Ordinary shares Issued and fully paid Consolidated 2013 No. of shares 2012 No. of shares 57,684,090 (2,000,000) - 55,684,090 61,263,733 - (3,579,643) 57,684,090 55,684,090 57,684,090 Fully paid ordinary shares carry one vote per share and carry the right to receive a dividend. Ordinary shares on issue Share buy back Capital reduction (i) Consolidated 2013 $000 2012 $000 31,699 - - 31,699 37,861 (854) (5,308) 31,699 (i) An equal reduction of share capital totalling $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) Reserves Translation reserve Reserve for own shares Share based payment Consolidated 2013 $000 2012 $000 (57) (25) 576 494 (3) (25) 780 752 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. 59 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 26. Contributed equity and reserve (continued) (b) Reserves (continued) 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 2013 the consolidated entity held 107,110 of the Company’s shares (2012: 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. Share based payment The share based payment reserve is used to recognise the value of equity-settled share based payments to KMP. (c) 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 2013 and 2012 were as follows: 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: 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¢ Consolidated 2013 $000 2012 $000 14,992 26,925 55.7% 14,288 25,191 56.7% Consolidated 2013 $000 2012 $000 - - - - - 614 918 610 5,770 7,912 60 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 27. Dividends paid and proposed (continued) (b) Franking credit balance The amount of franking credits available for the subsequent financial year are: Franking account balance as at the end of the financial year at 30% (2012:30%) 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 Consolidated 2013 $000 2012 $000 586 3,980 - - 586 - (3,394) 586 - 586 - 586 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. 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 (2012: Nil). 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 (2012: nil) franking credits from its Australian wholly-owned subsidiaries during the year. 28. Auditors remuneration 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 Other services in relation to the entity and any other entity in the consolidated entity: • Tax compliance Consolidated 2013 $ 2012 $ 101,553 100,000 11,008 112,561 10,403 110,403 61 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 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 on sale of property, plant & equipment Gain on sale of intellectual property 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 used in operating activities 30. Business combination Consolidated 2013 $000 2012 $000 962 (488) 379 1,314 (64) - (50) (204) (309) (913) (5,026) 13 (118) 1,128 477 (2,411) 501 649 (63) 108 - 91 (904) (1,009) (564) 77 10 319 40 (1,233) Acquisition of Stuff Products Pty Ltd On 28 March 2013 the consolidated entity entered into a purchase agreement whereby it acquired the business of Stuff Products Pty Ltd, a synergistic Brisbane based distributor of mobile phone and tablet fashion accessories for a consideration of $300,000. The Stuff Products transaction represented an opportunity for the consolidated entity to gain access to new fashion centric brands that could be offered to both new and existing customers. 62 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 30. Business combination (continued) Fair value recognised on acquisition date The fair values of the identifiable assets and liabilities of Stuff Products Pty Ltd at the date of acquisition were recognised on a provisional basis and were as follows: Assets Inventories Liabilities Contingent Consideration 15 Total Identifiable net assets at fair value Identifiable intangibles arising on acquisition 31 Purchase consideration transferred Cash flow on acquisition Cash paid Net cash flow on acquisition Fair value recognised on acquisition $000 250 250 (100) (100) 150 150 300 (300) (300) From the date of the Stuff Products transaction, the business has contributed revenues of $305,000 and profit before tax of $45,000. If the combination had been in place at the beginning of the year, revenues from continuing operations would have been $77,985,000 and profit before tax of $1,191,000. Contingent consideration As part of the purchase agreement, a contingent consideration of $100,000 is payable to the seller should the company achieve a profit contribution of $300,000. This condition is effective over a specified period ending on 27 September 2013. At the acquisition date, a fair value of the contingent consideration was estimated to be $100,000. This was based on management’s opinion that there was a 100% probability of the conditions being met. This opinion remains unchanged on the balance date. As such contingent consideration is recognised at a fair value of $100,000 at 30 June 2013. Identifiable intangibles of $150,000 comprises the value of supplier contracts, customer relationships and expected synergies arising from the acquisition that is anticipated to result from combining the operations of the acquiree and the acquirer that do not qualify for separate recognition. 63 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 30. Business combination (continued) Fair value on acquisition 30 June 2013 The table below details the fair value of net assets as at 30 June 2013. Assets Inventories Identifiable intangible Liabilities Contingent Consideration Total identifiable net assets at fair value 2013 $000 250 150 400 (100) 300 Sale and write off of OYT Pty Ltd In the last financial year the consolidated entity acquired an interest in OYT Pty Ltd in two separate stages. On 13 July 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. On 31 December 2012, the consolidated entity wrote-off the OYT Pty Ltd net assets totalling $54,000 subsequent to the sale of its trading name for $20,000. The table below details the comparative fair value of net assets as at 30 June 2013. Assets Cash and cash equivalent (Note 21) Inventories (Note 21) Inventories (Note 21) Liabilities Total identifiable net assets at fair value 2013 $000 2012 $000 - - - - - - 14 18 1 33 - 33 64 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements 31. Intangible assets Opening balance Addition: Continuing operations - identifiable intangibles (Note 30) Discontinued operations - system development (Note 21) Impairment: Discontinued operations - system development (Note 21) Closing balance Consolidated 2013 $000 2012 $000 - - 150 - - 150 - 110 (110) - Addition during the year The asset recognised during the year relates to identifiable intangibles arising through a business combination. 32. Interest bearing loans and borrowings Business finance Interest Rate Maturity % 5.76 2 August 2013 2013 $000 474 474 2012 $000 - - $3,000,000 Business finance This facility consists of three individual facilities, namely surrendered bills of lading, trade finance-imports and special documentary import letters of credit. The combined limit of $3,000,000 applies across these individual facilities. As at 30 June 2013, the company has drawn down $474,000 under its trade finance – imports facility. This loan is matures at 2 August 2013 at which time the amount repayable is $476,000. 65 Cellnet Group Limited and its consolidated entities Cellnet Group Limited and its consolidated entities Financial Report declaration Directors’ declaration 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 and notes of the company are in accordance with the Corporations Act 2001 Corporations Act 2001, including: i) giving a true and fair view of the company’s financial position as at 30 June 201 giving a true and fair view of the the year ended on that date; and the year ended on that date; and financial position as at 30 June 2011 and of their performance for complying with Australian Accounting Standards and Corporations Regulations 2001; ii) complying with Australian Accounting Standards and Corporations Regulations 2001; complying with Australian Accounting Standards and Corporations Regulations 2001; 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 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; er 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 aft Corporations Act 2001 for the financial year ending 30 June 201 with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2013. On behalf of the Board Alexander Beard Alexander Beard Chairman Brisbane 20 August 2013 66 Cellnet Group Limited and its consolidated entities Financial Report 67 Cellnet Group Limited and its consolidated entities Financial Report 68 Cellnet Group Limited and its consolidated entities Financial Report Corporate Governance statement Background Principles of Good Corporate Governance and Best Practice Recommendations” were published in March 2003, revised effective 1 January 2008 and 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. latest amendments the 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 Recommendations Principles and 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 independent Director should be an 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. the Recommendation 2.5 Disclose for evaluating the performance of the Board, its committees and individual Directors process While there is no structured process in place, the Chairman is able to regularly measure performance through participation at meetings of Directors. 69 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements Corporate Governance statement (continued) The Company has adopted a formal diversity policy which has been uploaded onto its website http://www.cellnet.com.au/. No measurable objectives has been set by the Board due to the Company’s size and because the operation and development of the diversity policy was relatively new and being integrated with existing employment and equal opportunity practices. It is Board policy to review this policy as part of its annual compliance review and to assess and report on diversity at the end of each financial year. a Principle 3 – Promote ethical and responsible decision-making Recommendation 3.2 should Companies establish policy concerning diversity and disclose the policy or a that policy. summary of The policy should include requirements for the board to establish measurable for achieving objectives gender diversity the for board to assess annually the objectives and both achieving progress them. in Company position is the same as that for Recommendation 3.2. Company position is the same as that for Recommendation 3.2. Recommendation 3.3 should Companies disclose in each annual the measurable report objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them. Recommendation 3.5 Companies should provide the information indicated in the guide to reporting on Principle 3. Principle 4 – Safeguard integrity in financial reporting Recommendation 4.2 Structure of Committee the Audit 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. Principle 8 – Remunerate fairly and responsibly Recommendation 8.2 remuneration The committee be should structured so that it: consists - majority independent directors a of of 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. 70 Cellnet Group Limited and its consolidated entities Financial Report Notes to the financial statements Corporate Governance statement (continued) - - is chaired by an independent director has at members least 3 . Recommendation 8.4 Companies should provide information in respect of restrictions on entering into transactions which limit risk in of participating in unvested entitlements While there is no structured process in place, the Chairman approves all equity participation schemes. 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. Diversity at Cellnet Group Limited The Company promotes a diverse workplace by aiming to ensure that all employees and applicants for employment are fairly considered according to their skills, qualifications and abilities. In respect of the gender diversity initiatives contained in these changes, the Company has adopted a formal diversity policy as disclosed to ASX on 22 October 2012. This policy can be found in the Company’s website http://www.cellnet.com.au/. The Company will monitor the progress towards the achievement of appropriate gender diversity. 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 Company’s business and ensure any policy objectives are realistic and achievable. The proportion of women employees in the whole organisation, women in senior executive positions and women on the Board as at 30 June 2013 are disclosed below Gender Female Male % Female Total 34 55 38 Senior Management - 3 - Board - 3 - 71 Cellnet Group Limited and its consolidated entities Financial Report ASX Additional information- As at 1 October 2013 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 Ms Amaya Margaret Brookman Chemical Trustee Ltd Philadelphia Investments Pty Ltd TUP Pty Ltd Carmant Pty Ltd Kailva Pty Ltd Citicorp Nominees Pty Limited Syvest Pty Ltd Grootemaat Super Pty Ltd Henry Family Superannuation Fund P/L Mr David Scicluna & Mr Anthony Scicluna Mr Geoffrey Brian McDonald & Mrs Mary Louise McDonald Ronald Bruce Knight & John Graham Cameron ABS Nominees Limited Organisational Change Consultants Pty Ltd Epic Trustees Limited Top 20 Holders All other holders All holders Ordinary shares held % of capital held 29,519,904 3,702,155 2,800,000 2,139,800 1,851,943 1,820,000 1,650,274 800,000 220,000 200,000 194,180 182,000 172,901 172,900 155,043 151,707 141,811 141,212 140,000 124,900 46,280,730 9,426,381 55,707,111 52.99% 6.65% 5.03% 3.84% 3.32% 3.27% 2.96% 1.44% 0.39% 0.36% 0.35% 0.33% 0.31% 0.31% 0.28% 0.27% 0.25% 0.25% 0.25% 0.22% 83.08% 16.92% 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 29,519,904 3,702,155 Number of holders 98 692 231 151 29 25 1,226 The number of shareholders holding less than a marketable parcel of ordinary shares is 574. 72 Australia | 59-61 Qantas Drive | Eagle Farm | QLD | 4009 1300 CELLNET (235 563) | www.cellnet.com.au New Zealand | 10a Orbit Drive | Rosedale | Auckland | 0632 0800 CELLNET (235 563) | www.cellnet.co.nz 2012 2013 AnnualReport 

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