Cleanaway
Annual Report 2016

Plain-text annual report

Annual Report 2016 Making a sustainable future possible CLEANAWAY WASTE MANAGEMENT LIMITED ABN: 74 101 155 220 Contents SECTION 1: OVERVIEW Meet the new Cleanaway 2016 Snapshot Chairman’s Report Chief Executive Officer’s Report 2 4 6 8 SECTION 2: BUSINESS REVIEW Liquids and Industrial Services Report 14 16 Our People 18 Safety 20 Environment 22 Part of the Community SECTION 3: CORPORATE INFORMATION SECTION 4: FINANCIAL REPORT Financial Statements Directors' Report 39 40 SECTION 5: OTHER INFORMATION Other Information 119 Solids – Collections Report Solids – Post Collections Report 10 12 Board of Directors Senior Executive Team Corporate Governance 24 26 28 Whether it’s turning food waste into a nutrient rich soil enhancer; finding innovative and bespoke recycling solutions to help businesses achieve their sustainability goals; or the delivery of tried and true kerbside waste and recycling collection services – if there’s anything that we can do to help, we’ll be there. ... making a sustainable future possible. 1 Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEW1Meet the new Cleanaway A new chapter for Australia’s leader in waste and recycling. On 1 February 2016, we launched our new, unifying brand. With this came a name change, to Cleanaway Waste Management Limited, and a single minded mission to make a sustainable future possible. Our new brand signifies more than just a refreshed look. It represents a major evolution for our business, our customers and our shareholders. It has allowed us to provide a greater and more consistent range of total waste management, industrial and environmental services, supported by our market leading innovation and service. Importantly, it also reflects our strengthened commitment to make a sustainable future possible for all Australians. We know Australians are increasingly focussed on living sustainably. As a result, we’re constantly on the lookout for new ways to recycle and better manage our waste. With more than 50 years’ experience and the largest operating footprint across Australia, we play a big part in helping hundreds of communities to more sustainably manage their waste. You can now see our fresh new brand worn proudly by our team and displayed across hundreds of our physical assets, with more sites, vehicles and bins being rebranded each week. The full rollout of our brand across our entire network is on track for completion by 30 June 2018. 2 Cleanaway launches its first mobile app Sustainability at your fingertips. Making the decision to recycle should never be difficult. In August 2016, we launched our first mobile app, making it easier for residents to better manage their household recycling and waste, including information on how to minimise the waste they generate. The new app can be downloaded for free from the App Store on iTunes or the Google Play Store, and allows users to find information about their local waste collection services, including when their bins need to be put out, when their recycling and green waste is due for collection, and what can and can’t be recycled. The app’s key features include: • A direct link to local council websites, providing information on – General waste, recycling and green bin collections; – Hard waste collection arrangements; – Where to find local transfer and recycling stations; and – Local council contact details. • The ability for users to book a skip directly from the app 1. • Educational programs and information on sustainable waste management. • Emergency spills information. • A direct email link for users to provide feedback on our products and services. 1 Where services are locally available. 3 OVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEW12016 snapshot Cleanaway is Australia’s leading total waste management, industrial and environmental services company with operations around the country. Financial highlights Revenue ($ millions) Continuing Operations EBITDA 1 ($ millions) Continuing Operations EPS 1 (cents) Dividend (cents) $1,455.1m $281.3m 4.0¢ 1.7¢ 2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016 Statutory results Underlying results $1,455.1 million revenue u5% $281.3 million EBITDA u22% $256.9 million EBITDA u96% $122.6 million EBIT u26% $96.1 million EBIT u2564% $63.3 million NPAT 2 u39% $44.8 million NPAT 2 u290% 4.0 ¢/share eps u38% 1.7 ¢/share dividend u13% 2.8 ¢/share eps u287% 1 Underlying financial results. 2 Attributable to ordinary equity holders. 4 Operations at a glance 4,224 employees 2,959 vehicles 179 sites Australia-wide coverage In the community +66 community organisations supported +$580,000 invested in Australian communities +1,480 education programs held nationally Waste to resource highlights +145m kWh +85,000t +65,000t ~130,000ML of renewable energy generated of organic liquid waste re‑used as nutrient of biosolid waste re‑used as nutrient of oil collected for re‑processing ~230,000t of paper and cardboard recycled ~11,000t of plastic packaging recycled ~22,000t of steel recycled ~120m m3 of landfill gas captured 5 Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEW1Chairman’s Report It is with great pride that I present to you what will be my final report on Cleanaway Waste Management Limited as Chairman of your Company. As shareholders may be aware, we announced in February 2016 that I will be retiring as Chairman and as a Director of the Company before the 2016 Annual General Meeting. During the past seven years as a Director and the last three as Chairman, I have seen the Company make significant progress towards its mission of making a sustainable future possible. I am very proud of the accomplishments we have achieved over recent years. In the late 2000s the Company had little or no growth strategy and our debt levels were too high. It was imperative that the Board took action to not only establish a sound financial footing for the Company but also put in place strategies to grow the Company. Shortly after my appointment as Chairman in 2013, the Board instigated a detailed business and operational review to achieve these objectives. The strategy formulated from this review acted as the catalyst for the numerous actions we have implemented over the past three years. It resulted in the sale or closure of a number of underperforming businesses and the sale of the Commercial Vehicles and New Zealand businesses, which dramatically reduced our debt levels and established the strong balance sheet that you see today. We have also implemented a number of actions to secure the long term future of the Company and its operations, including a renewed focus on our health and safety environment, the acquisition of the Melbourne Regional Landfill, the overhaul of our fleet management system, restructuring our sales teams to improve their effectiveness and the review of our landfill remediation provisions. These initiatives have made your Company the market leader in the Australian waste management industry and well positioned for continued and sustained growth. In all my time at the Company, the appointment of Vik Bansal as the Chief Executive Officer last year is a major highlight. His leadership skills are exemplary and the vision he has communicated to the Board to take your Company forward is both realistic and achievable. I and the Board have the utmost confidence in Vik’s ability to grow Cleanaway. Vik is ably supported by an experienced management team that has the leadership credentials to execute the growth plan. It is therefore pleasing that I report that our financial results for FY2016 are a considerable improvement over those achieved last year. Total revenues increased 5.1% to $1,455.1 million, driven by increased revenues from our Solids Collections and Solids Post Collections businesses. However, our Liquids and Industrial Services businesses continued to face difficult trading conditions and reported revenues 8.7% below those achieved last year. A statutory profit after tax attributable to ordinary shareholders of $44.8 million was achieved compared to a statutory loss of $23.6 million last year. This statutory profit after tax was impacted by a number of significant items totalling $18.5 million mainly attributable to restructuring costs and the costs of the rebranding of the Company. 6 "During the past seven years as a Director and the last three as Chairman, I have seen the Company make significant progress towards its mission of making a sustainable future possible." MARTIN HUDSON CHAIRMAN Excluding these significant items, which in the Board’s view should be excluded to more closely align the results with the operational performance of the Company, underlying net profit after tax attributable to ordinary equity holders was $63.3 million, an increase of 38.5% on last year. Our balance sheet remains strong with all debt ratios well within banking covenant requirements, an average debt maturity at 30 June 2016 of 3.5 years and $251.3 million of headroom under our banking facilities. Based upon the financial strength of the Company and our confidence in its future growth, the Board have declared a fully franked final dividend of 0.9 cents per share, payable on 7 October 2016. Combined with the 0.8 cents per share paid in April 2016, the total dividends declared in respect of FY2016 was 1.7 cents per share, a 13.3% increase on the dividends declared last year. A key focus of the Board and management team over recent years has been improving the health and safety of our employees and contractors. Over the past three years our total recordable injury frequency rate has reduced by 29% and pleasingly, in the past year that momentum continued with a reduction of almost 12%. I cannot overstate the importance that we place across all the operations of the Company on the creation of a zero harm environment. After I have stepped down as Chairman, Mark Chellew will take on the role. I am pleased to be able to pass the Chairmanship onto someone of Mark’s experience and calibre following his more than 30 years’ experience in industrial markets both in Australia and overseas. I am confident that he will work closely with the Board and management team to implement the strategies and plans we have in place to take Cleanaway from a good company to a great company. I am leaving the Company in good hands and would like to sincerely thank all the Cleanaway employees, my fellow Board members and you, our shareholders, for the support you have given me over the past several years and I wish everyone continued success into the future. Martin Hudson CHAIRMAN 7 Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEW1Chief Executive Officer’s Report I am pleased to report to shareholders that we have made encouraging progress in our good to great journey over the past year. After commencing as Chief Executive Officer and Managing Director of Cleanaway in August 2015, I had the privilege of visiting many of our sites and meeting our people. Their commitment and passion was inspiring, and it provided comfort that my focus is going to be on creating a clear path forward and ensuring the capability matches the strategy. Cleanaway is the largest waste management company in Australia. We have a Company with a strong brand, good market share, extensive footprint of prized assets across the country and an integrated waste management offering supported by a team of very good people. It was critical that we build a Company that was fit for purpose and well positioned for future growth. Let me start my update with what I consider to be one of our most important responsibilities – the safety of all employees, contractors, customers and the communities we serve. I am pleased to report that in FY2016 we reduced our long term injury frequency rate by almost 12%. Whilst this is commendable, our primary responsibility of aspiring to Goal Zero has not and will not ever diminish. We remain committed to Zero by Choice versus Zero by Chance. One of my first actions as CEO was to understand our value chain, i.e. where and how we create value versus where we add value. Out of that came our Value Operating Model. We then re-evaluated and refreshed our three year strategic plan to align with the value model and presented it to the Board in October 2015 which was subsequently approved. There are a clear set of actions now underway which flow from our revised strategic plan. We also needed to align our people and the organisation on a common platform. The first and most publicly visible change was to bring the business together under a new name – Cleanaway Waste Management Limited, and a single reinvigorated brand – Cleanaway. We defined our Mission Statement, or the reason why we exist: to make a sustainable future possible – for all our stakeholders. 8 We also articulated a clear vision of who we are aspiring to be, and reinforced the role of our values as something which guides our behaviour every day. We developed our five strategic pillars, or our Five C’s, and commenced the process of building capabilities and supporting actions behind each of them. Our Five C’s are: 1. Customer for Growth 2. Continuous Improvement for Cost 3. Capital for Cash 4. Clarity for Alignment 5. Competitive Advantage for Excellence We knew our cost structure was unsustainable; it was therefore important that we transitioned to a ‘fit for purpose’ organisational structure. It was important that our organisation structure matched with our Value Operating Model. This work has led to increased clarity and accountability within the Company. All of the above formed the foundation of our operating way – “Our Cleanaway Way”, which links and aligns: • Why we exist, reflecting our purpose and mission; • How we can leverage our assets to drive value; and • What we do to ensure discipline, consistency, efficiency and repeatability. Along with our single brand, this is the glue which binds the Company together as one and is a critical component as we develop a truly sustainable business. During this past year we have undertaken a number of initiatives that support and drive our journey from good to great: • CUSTOMER: The acceleration of growth initiatives, including refined sales structures, and the addition of the Save Desk and Telesales functions. Additional investment in the marketing and pricing teams was needed to support the seven business units. • COST: The establishment of a fit for purpose structure which saw our organisational structure aligned to support our strategy and ‘go to market’ model. This fit for purpose structure also contributed directly to a major cost out program. An ambitious target of $30 million annualised cost reduction was established and we are confident it will be in place by 30 June 2017. • CAPITAL: Increased capital discipline as we control capital spending in line with depreciation and amortisation. In FY2015, capital expenditure was 130% of depreciation and amortisation, which is well above industry benchmarks. In FY2016 we saw a significant reduction to 95%. In addition, our rectification and remediation cash flows are carefully monitored and managed. • CLARITY: The establishment of clear measures, operating rhythms and consistent standards have reinforced stability and accountability. This approach enables all leaders and their teams to perform optimally, and ensures they are held accountable for their respective financial, operational and customer service metrics. • COMPETITIVE ADVANTAGE: As a large fleet owner and large operating asset owner, including landfills, it is paramount that we run them as efficiently as possible and that they are properly utilised. We formed national teams for each of the above to drive best in class performance, removing a fragmented and siloed approach. It is worthwhile remembering that both are highly capital intensive and we must run them in a single, optimised way. It has been pleasing to see that during a year of a major RESET, our employee engagement survey showed significant improvement, both in participation and overall engagement, against the last survey in 2014. Against a backdrop of muted economic activity in Australia, we have started to see the benefits of our actions manifest in an improved operational performance across all our businesses. Compared to the previous corresponding period: • Solids – Collections reported increases in underlying revenue, EBITDA and EBIT of 3.0%, 8.4% and 5.8% respectively. • Solids – Post Collections reported increases in underlying revenue, EBITDA and EBIT of 47.6%, 47.0% and 55.0% respectively. • Liquids and Industrial Services reported a decrease in underlying revenues of 8.7%, however increased underlying EBITDA and EBIT by 3.0% and 14.2% respectively. • The net costs of running our corporate functions at the EBIT level declined 20.4%. Additional detail on the results of our performance for the 2016 financial year are covered in subsequent pages of the annual report. Finally, I would like to thank our Chairman, Martin Hudson, and the Board for the support given to me since my appointment. In closing, this has been a very busy year at Cleanaway and I would like to acknowledge the efforts of the more than 4,000 people who make Cleanaway the company that it is. Their commitment to ensuring that our customer is serviced and all waste material processed in an environmentally friendly manner is paramount to our success, making a sustainable future possible and continuing our journey from good to great. Vik Bansal CHIEF EXECUTIVE OFFICER AND MANAGING DIRECTOR 9 Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEW1Net external revenue ($ millions) $778.1m EBITDA ($ millions) $149.8m 4 . 3 7 1 . 4 8 7 . 4 6 7 . 5 7 1H 2015 2H 2015 1H 2016 2H 2016 EBITDA EBITDA margin EBIT margin Solids – Collections Report Cleanaway’s scale and reach takes us into all corners of Australia. We are proud to have one of the largest Solid Waste Collections fleets on the road which services over 90 councils, more than 100,000 commercial and industrial customers, and hundreds of thousands of households all over Australia. Over FY2016, we saw a 3% improvement in Solids Collections’ revenue, with a pleasing 3.5% improvement in revenue for the second half of FY2016 when compared with the corresponding period in the previous year. We are also beginning to see volume growth across most collection categories compared to last year. We are starting to see a number of our growth focussed initiatives converting into increased revenues: • Our Telesales and Save Desk functions are now fully operational and there are early indications of improvements in our customer churn figures with new business gained now exceeding our churn rate. • Our pricing analytics and discipline continues to improve, however further work and continued focus will be required into FY2017 and beyond. • Sales productivity continues to remain an opportunity for Cleanaway nationally – and will also remain a focus into FY2017, along with operational improvements and a continued focus on customer service – all seen as the keys to our future growth. Our profitability has also improved over the year with an 8.4% increase in EBITDA to $149.8 million and a pleasing improvement in our EBITDA margin to 19.3% compared to 18.3% last year. These improvements have been driven by the varied and numerous revenue and cost initiatives implemented over the past 12 months and will continue into the year ahead. Resource Recovery not only supports the delivery of our mission to make a sustainable future possible but is also seen as an area of potential opportunity and growth. We have made significant infrastructure investments in this area over FY2016, and it will remain a focus for Cleanaway into the future. Net external revenue EBITDA EBITDA margin EBIT EBIT margin Represents underlying results. $ million $ million % $ million % FY16 778.1 149.8 19.3 85.7 11.0 FY15 755.8 138.2 18.3 81.0 10.7 FY16 V FY15 3.0% 8.4% 5.8% 10 Investing in Resource Recovery and Recycling More capacity and more recycling options in Hemmant, Queensland. Our new Recycling and Resource Recovery Centre in Hemmant is an important way we’re helping shape the region’s recycling future. Replacing a 4,400m2 facility, which has serviced the region since 1992, the new 6,000m2 centre has the capacity to process 75,000 tonnes of recyclables per year – a 50% increase on the old facility. But scale isn’t the only improvement. The new, drive‑through facility also supports the Cleanaway Harvest Service, making it easier for businesses to recycle packaging waste – such as plastic shrink wrap, cardboard and polystyrene – helping us achieve market competitive commodity rates for a wide range of recoverable products. Having this capability in close proximity to the Port of Brisbane provides easy access to export markets, and should mean big things for the future. PROCESS HIGHLIGHTS: RECYCLABLES MATERIAL RECOVERY RESOURCE RECOVERY RECYCLABLE COMMODITIES COMMODITIES TRADING 11 BUSINESSREVIEW2OVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEWNet external revenue ($ millions) $117.6m EBITDA ($ millions) $87.9m 4 . 3 4 5 . 4 4 0 . 7 3 8 . 2 2 1H 2015 2H 2015 1H 2016 2H 2016 EBITDA EBITDA margin EBIT margin Solids – Post Collections Report With one of Australia's strongest Post Collections asset bases, made up of a nationwide network of landfill assets and transfer stations, Cleanaway is a leader in the safe and sustainable management of waste. Cleanaway owns and operates engineered landfill assets in every mainland state of Australia. Through our expanding gas collection infrastructure, we are now collecting around 120 million m3 of landfill gas, which is converted into more than 145 million kWh of renewable energy; enough to power more than 36,000 homes. In 2017, the current biogas plant at our Melbourne Regional Landfill (MRL) will be expanded to allow us to double the amount of electricity we are generating from the site. This approach ensures that nothing goes to ‘waste’, and that even the residual waste, which can’t be recycled or recovered, can still be used as a resource – another way we are working hard to make a sustainable future possible. Our Post Collections’ revenues and earnings have both shown strong growth over FY2016 with net external revenues and EBITDA growing 35.3% and 47.0% respectively. Whilst MRL has been a strong contributor, we have also seen increased volumes across most of our landfills. As our older landfill assets in Clayton, Victoria approach closure during 2017, we anticipate an improved profit performance from our Post Collections business in FY2018. Volumes which would have previously gone to Clayton will be transferred to the much more efficient and highly engineered MRL site. Further plans are also in place to expand our transfer station facilities in Sydney and Melbourne. Gross external revenue Less levies and carbon tax Net external revenue EBITDA EBITDA margin EBIT EBIT margin $ million $ million $ million $ million % $ million % Represents underlying results. FY16 252.0 (134.4) 117.6 87.9 74.7 27.9 23.7 FY16 V FY15 47.6% (60.4)% 35.3% 47.0% 55.0% FY15 170.7 (83.8) 86.9 59.8 68.8 18.0 20.7 12 Sustainability in action Turning residual waste into energy through innovation. Each week we collect thousands of tonnes of residual waste from homes and businesses around Australia, and we’re working hard to make sure we use it to its full potential. In FY2016, we collected around 120 million cubic meters of landfill gas, enough to create more than 145 million kilowatt hours of renewable energy and power more than 36,000 homes for a year.  This is a significant step toward our mission of making a sustainable future possible, and something we’re immensely proud of. Now, it’s making a great business story too. PROCESS HIGHLIGHTS: RESIDUALS/ GENERAL WASTE TRANSFER STATION LANDFILL GAS ELECTRICITY GENERATION 13 BUSINESSREVIEW2OVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEWNet external revenue ($ millions) $407.0m EBITDA ($ millions) $57.5m 8 . 1 3 7 . 0 3 8 . 6 2 0 . 4 2 1H 2015 2H 2015 1H 2016 2H 2016 EBITDA EBITDA margin EBIT margin Liquids and Industrial Services Report Cleanaway is Australia’s largest hydrocarbons recycling business and a leader in the overall liquids and industrial services market. We collect and recycle 130 million litres of used mineral oil each year offsetting Australia’s annual requirements for oil by 900,000 barrels. We also process over 600 million litres of liquid waste each year, and provide a wide range of environmentally focussed industrial services around the country. FY2016 saw external revenue in the Liquids and Industrial Services (LIS) business decrease by 8.7% however, EBITDA increased 3.0% when compared to the same period for the previous year. A major restructuring was undertaken across LIS ahead of expected revenue challenges during the year, which included the merging of the Liquids businesses, rationalising sites across the country and the removal of management layers, reducing the cost base and increasing earnings. Volatility in international oil prices continue to impact revenues, with the selling price of base and fuel oil down significantly when compared with the previous corresponding period. Processing volumes of hazardous liquids have declined due to continued weakness in the manufacturing and industrial sectors. The processing volumes of non-hazardous liquids has increased, however due to competitive pressures in the sector, we have seen the average pricing levels down on previous years. The Industrial Services market also faces difficult trading conditions, particularly in the mining, industrial and oil and gas sectors which remained subdued, however recent contract wins will see improved results in FY2017. Net external revenue EBITDA EBITDA margin EBIT EBIT margin Represents underlying results. $ million $ million % $ million % FY16 407.0 57.5 14.1 33.0 8.1 FY15 445.9 55.8 12.5 28.9 6.5 FY16 V FY15 (8.7)% 3.0% 14.2% 14 Paintback® A world first initiative that does what it says on the tin. In April 2016 we were proud to support the launch of a world first initiative. Created by the Australian paint manufacturing industry to reduce the volume of waste paint which ends up in landfill, Paintback® aims to collect more than 45,000 tonnes of waste paint over the next five years. Not only will Paintback® see waste paint diverted from landfill, but it will also maximise the value of the recyclable materials. A growing network of Cleanaway and Council drop off points in every state and territory mean it’s easier for professionals and DIY painters to do the right thing and responsibly dispose of waste paint. Using specialist machinery, we then extract the paint, allowing the containers to be recycled, as well as maximising beneficial reuse through best‑practice processing of both water and oil based paints. PROCESS HIGHLIGHTS: LIQUID AND HAZARDOUS WASTE TREATMENT SOLVENTS WATER RECYCLABLE COMMODITIES 15 BUSINESSREVIEW2OVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEWOur People Great policies, plans and strategies mean little without great people to implement them. In FY2016, we created a strong operating model, underpinned by our vision, values, strategic pillars and organisational fit for purpose structure. These elements, coming together as Our Cleanaway Way, create clarity of purpose and strong, measurable alignment and focus. Bringing our people along on the journey is critical to our ultimate success, and has been a focus over this past year. Our Cleanaway Way has brought rigour and discipline, as well as clarity across the business about why and how we do what we do each day. Employee engagement Our 2016 company-wide employee engagement survey has shown a 15% improvement on 2014’s score. The results showed that our people are strongly engaged with our values, and have more clarity about the future direction of the business as well as the part they play in our success. This clarity has enabled improved alignment, evident in our employees feeling like they’re on the same page as their managers, with high scores relating to senior leadership and engagement. There are already a number of programs in place to build on this positive momentum into FY2017. Diversity and inclusion By daring to think and act differently, we’re actively making a difference to inclusion and diversity in the workplace. Beyond gender, age, background and race, we believe it’s just as important to have a diversity of thought and perspective within the business, if we are to become a truly representative workplace. Through FY2017 and beyond we’re driving inclusivity programs, including: • Building our understanding of current diversity within our workforce; • Education and training on cultural awareness; • Creating a better understanding amongst employees of conscious and unconscious bias; • Providing mentoring opportunities within our workforce to drive all aspects of our diversity measures; and • The creation and launch of our first Reconciliation Action Plan. Reconciliation Action Plan We’re currently drafting our first Reconciliation Action Plan. Its launch in late 2016 will be a positive step forward and a focus for coming years – both in our commitment to diversity and toward fostering reconciliation within the broader Australian community. 16 Not your average pioneer It takes a great amount of courage to leave a steady job to pursue something more fulfilling, let alone when you’re a mother of three teenage children. But that’s precisely what Cass did after seeing an old, unhappy version of herself in a former colleague. “I thought, I don’t want to do this for the rest of my career. If I don’t do something now, I’ll never do it.” After tossing up a number of options in hospitality, it was Cass’ husband, Noel, a side lift driver at Cleanaway, who provided the inspiration and suggested she apply for her Heavy Rigid driving licence. “I giggled at first, but then I thought, I can do this.” Before she knew it, Cass had booked lessons, sat the test and passed. Now, there are two Cleanaway side lift drivers in the Hughes household and Cass couldn’t be happier. Cass is passionate about driving for Cleanaway, and the role that she plays with our customers, providing an essential service to our communities. She also has some advice for anyone else looking for a career change later in life. “If you are not happy, at some point you have to take responsibility. It is up to you to make a change and think outside the box. It might be hard, you might think no one will give you a chance, but keep going. Fear of change is nowhere near as scary as putting up with a job you’re not happy with.” 17 BUSINESSREVIEW2OVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEWTotal recordable injury frequency rate 8.9 TRIFR t11.9% from 2015 Safety Striving to GOAL ZERO The safety of our team and the community in which we operate comes first, last and everything in between. Creating an injury free workplace is at the heart of every decision we make. We track our progress towards an injury free workplace through improvement in our total recordable injury frequency rate (TRIFR), which has reduced by 66% over the last five years. Our year on year TRIFR improved by 11.9% from 2015, which is encouraging as we continue to strive towards GOAL ZERO. This has been supported by a continued improvement across our suite of leading performance indicators. At Cleanaway, our safety focusses on four key pillars: 1. Safe behaviours; 2. Fit for purpose equipment; 3. Safe systems of work; and 4. A controlled work environment. Underpinned by a consistently visible demonstration of our commitment to safety excellence, increasingly standardised ways of working, and a capable and engaged workforce, we firmly believe that we can achieve GOAL ZERO. During FY2016 we implemented a number of new processes to ensure agile, enterprise learning from incidents and significant near misses. The renewed focus on understanding and embedding lessons learnt into the way we work will help us to not only manage risk but importantly avoid repeat incidents in the future. We are committed to fostering a strong safety culture and improving safety leadership across the business – where our people keep their safety, and that of their workmates, front of mind always. We will keep striving until we reach GOAL ZERO 26.6 e t a r y c n e u q e r f y r u n j i e l b a d r o c e r l a t o T 30 25 20 15 10 5 0 16.7 12.6 10.1 8.9 2012 2013 2014 2015 2016 Note – comparative periods have been adjusted to exclude divested businesses. Numbers restated from those originally published to ensure comparability over time. 18 Our partnerships Helping Australian businesses achieve their sustainability goals. We believe that environmental sustainability and business have a beautiful future together. Cleanaway’s waste audits deliver critical insight into the nature of waste generated by businesses, which helps us create tailored solutions to divert more waste from landfill and ensure we recover and recycle more valuable commodities. This, in turn, helps our customers meet their sustainability targets and is another way we’re working hard to make a sustainable future possible. Cleanaway’s waste audit program helps our customers identify: • Disposal errors which can lead to high contamination rates and low recycling rates. • Valuable commodities which can be recovered, creating potential revenue streams. • Opportunities for new resource recovery and recycling streams. • Operational processes that cause stock loss and carry large opportunity costs. • Poor stock management practices that cause product damage and unnecessary wastage. Our waste audits not only help customers better understand their waste, providing them the knowledge to help improve their sustainability outcomes, they also produce unique insights which can lead to operational business improvements driving increased profit. A win for all. 19 BUSINESSREVIEW2OVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEWRenewable Energy Generated (million kilowatt hours) +145m kWh Greenhouse Gas Emissions (tonnes CO2-e) 559,000t Environment Minimising our impact Supporting a sustainable environment. Just as we help our customers manage their environmental impacts, we also carefully manage our own. We recognise that the collection, transport, treatment and disposal of waste has the potential to cause environmental impact. We believe that we can make a sustainable future possible, and that’s why we work hard to minimise our impact on the air, water, land and the communities in which we operate. We are focussed on building on the knowledge gained and the successes achieved, as well as investing in new techniques, technologies and other innovations. So we’re not just following best practice, but redefining it year on year. Sustainable landfill management Our modern, highly engineered landfills are the product of sophisticated design, and provide a safe and effective way to dispose of waste material. They help ensure we don’t leave unacceptable legacy issues for future generations to manage. They are designed and operated to ensure that regulatory requirements are met or exceeded, and to minimise concern from our neighbours and the surrounding communities. Monitoring the ongoing safe operation of our landfills is a daily occurrence. Over FY2016 we made significant investments in gas collection and monitoring infrastructure, as well as leachate management and stormwater retention. We installed more than 100 new landfill gas monitoring bores, and have plans for a further 70 to be installed this year. The design of our modern landfills also maximises the potential for the capture of valuable energy resources in the form of landfill gas. Harnessing the naturally produced landfill gas, we generated over 145 million kWh of renewable energy in FY2016, which is enough to power more than 36,000 homes. We will continue to invest in landfill-gas-to-energy projects. As an expert in the collection of landfill gas, we continue to look for new opportunities to harness and maximise the value of this natural resource. Tackling greenhouse gas emissions Greenhouse gas emissions remain an important issue for the community, as well as for our customers. We continue to work to proactively manage greenhouse gas emissions, through best in class management of landfill gas and by working with our customers and the wider community to create awareness in managing waste impacts. Our Scope 1 and Scope 2 greenhouse gas emissions for FY2016 were approximately 559,000 tonnes CO2-e, which represents an increase of 14% from the prior year. This increase is attributed to the full year effects of the acquisition of the Melbourne Regional Landfill. Excluding the effects of the Melbourne Regional Landfill, underlying greenhouse gas emissions reduced by 2%. Ongoing management of these emissions is being targeted through continued investment in gas collection and monitoring infrastructure. 20 Albury Organics Positive reinforcement brings positive results. Albury City Council and neighbouring shires recently shifted the focus of their kerbside collections from landfill to recovery, by reducing general waste pickups to a fortnightly service, and introducing a weekly organics collection. Since launching in April 2015, we have collected an impressive 22,000 tonnes of organic waste from homes and businesses throughout the region. Even more impressive are the recovery rates, which have seen 84% of organic waste and commingled recycling diverted from landfill, with organic contamination rates averaging 1.3%. As well as collecting the waste, we are also responsible for converting the organic waste into compost. We have partnered with a local facility to date, but will this year lodge a development application for our own local composting facility. The new facility will incorporate Gore™ Cover composting technology, which simulates enclosed composting on an affordable, mass scale. PROCESS HIGHLIGHTS: ORGANIC AND GREEN WASTE RESOURCE RECOVERY COMPOST FERTILIZER AND SOIL CROPS AND GARDENS 21 BUSINESSREVIEW2OVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEWPart of the Community Proud supporters of Australian communities. Great neighbours help build great communities. That’s why we’re committed to building strong, trusted relationships with the communities in which we operate. In FY2016, we held more than 60 Community Information Sessions at various locations around the country. We believe in making a sustainable future possible – and we know that the next generation are the ones who will help us. That’s why we are passionate about educating schools about better waste management and recycling practices. During FY2016, we ran more than 1,480 school education sessions, engaging more than 38,100 students. We have a proud history of supporting Australian communities – from small, regional sporting clubs and festivals, to national community organisations and charities. During FY2016, we invested over $580,000 in Australian communities, supporting more than 66 community groups across Australia. Camp Quality Supporting those who support others. Proving that laughter is indeed the best medicine, in 2016 our Melbourne head office took on the challenge of raising funds for Camp Quality. Over the course of three weeks, and a number of different activities, the team worked together to raise funds to support Camp Quality’s travelling puppet show for primary schools which answers all the difficult questions kids have about cancer, dispels common myths and teaches students how to be supportive and understanding of kids living with cancer – preventing bullying and exclusion. This continues a proud tradition within Cleanaway of supporting those who work hard to support others – including Starlight Foundation; Beyond Blue; Movember; National Breast Cancer Foundation; and many other local charities and community organisations. Community Information Sessions +60 School Education Sessions +1,480 Students Engaged +38,100 Investment in Australian Communities +$580,000 Community Organisations Supported +66 22 Cleaning up Australia A new partnership for a sustainable future. After years of joining in with the rest of the nation on Clean Up Australia Day, we’ve made it official and signed a multi‑year, national partnership with Clean Up Australia. As a year‑round advocate for sustainability and conservation, we’re thrilled to officially be a part of a program that has made such a massive contribution to the way Australians think about the environment. First launched in 1989 as an initiative to clean up Sydney Harbour, Clean Up Australia Day and year round events now attract close to one million active volunteers who remove the equivalent of 16,000 ute loads of rubbish from nearly 8,000 locations every year. 23 BUSINESSREVIEW2OVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEWBoard of Directors Martin Hudson CHAIRMAN OF THE BOARD Independent Non-Executive Director since 14 September 2009 and appointed Chairman in March 2013. Non-Executive Director of CNPR Limited (appointed December 2011). Former Non-Executive Director of NM Superannuation Pty Ltd (the Trustee of Axa Asia Pacific Holdings Limited’s public superannuation funds) and AMP Superannuation Ltd – the Trustee of AMP’s public superannuation fund (April 2012 to June 2014). Significant board and commercial experience in risk management, executive leadership, governance and strategic direction derived from varying roles at Foster’s Group Limited (Senior Vice President Commercial Affairs and Chief Legal Counsel), Southcorp Limited (Company Secretary and Chief General Counsel), Pacific Dunlop Group of Companies (as General Counsel) and for over 20 years, as a partner of national law firm Herbert Smith Freehills. Holds tertiary qualifications in Law. Member of the Australian Institute of Company Directors. Martin will retire as Chairman before the 2016 Annual General Meeting. Mark Chellew DEPUTY CHAIRMAN, CHAIRMAN OF THE HEALTH, SAFETY AND ENVIRONMENT COMMITTEE MEMBER OF THE REMUNERATION AND NOMINATION COMMITTEE Independent Non-Executive Director since 1 March 2013 and was appointed Deputy Chairman on 19 February 2016. Executive Chairman of Manufacturing Australia Limited (appointed March 2015). Former Managing Director and Chief Executive Officer of Adelaide Brighton Limited (retired May 2014). Mark has over 30 years of experience in the building materials and related industries, including roles such as Managing Director of Blue Circle Cement in the United Kingdom and senior management positions within the CSR group of companies in Australia and the United Kingdom. Holds a Bachelor of Science (Ceramic Engineering), Masters of Engineering (Mechanical Engineering) and Graduate Diploma in Management. Vik Bansal CHIEF EXECUTIVE OFFICER AND MANAGING DIRECTOR Appointed to his current role on 3 August 2015 and made an Executive Director on 20 August 2015. Over 20 years’ experience in a range of executive roles in Australia, Asia and the United States and a proven track record of leading organisations through business growth, transition and improvement. Previously, President and Chief Operating Officer for Valmont Industries Inc., a US$3.3 billion NYSE listed engineering and manufacturing company. Prior to that, he held senior roles with OneSteel Ltd and Eaton Corporation in Australia. Holds a Bachelor of Electrical Engineering with Honours and an MBA. Vik has completed the Advanced Management Program from INSEAD and is a Fellow of the Australian Institute of Company Directors and a Fellow of the Institute of Engineers Australia. Ray Smith CHAIRMAN OF THE AUDIT AND RISK COMMITTEE MEMBER OF THE REMUNERATION AND NOMINATION COMMITTEE Independent Non-Executive Director since 1 April 2011. Non-Executive Director of K&S Corporation Ltd (appointed February 2008). Former Non-Executive Director of Crowe Horwath Australasia Limited (resigned January 2015) and Warrnambool Cheese and Butter Factory Company Holdings Limited (resigned May 2014). Trustee of the Melbourne and Olympic Parks Trust (appointed 2008). Significant corporate and financial experience in the areas of strategy, acquisitions, treasury and capital raisings, and was Chief Financial Officer of Smorgon Steel Group for 11 years. Holds tertiary qualifications in Commerce. Fellow of CPA Australia and Fellow of the Australian Institute of Company Directors. 24 Emma Stein MEMBER OF THE AUDIT AND RISK COMMITTEE MEMBER OF THE HEALTH, SAFETY AND ENVIRONMENT COMMITTEE Independent Non-Executive Director since 1 August 2011. Non-Executive Director of DUET Group (appointed June 2004), Programmed Maintenance Services Ltd (appointed June 2010) and Alumina Limited (appointed February 2011). Former Non-Executive Director of Clough Limited (resigned December 2013). Significant corporate experience within industrial markets and was the UK Managing Director for French utility Gaz de France’s energy retailing operations. Holds tertiary qualifications in Science and a Masters of Business Administration (MBA). Honorary Fellow of the University of Western Sydney. Fellow of the Australian Institute of Company Directors. Terry Sinclair MEMBER OF THE AUDIT AND RISK COMMITTEE MEMBER OF THE REMUNERATION AND NOMINATION COMMITTEE Independent Non-Executive Director since 1 April 2012. Chairman of Marrakech Road Pty Limited and Director of irexchange/Netget Holdings Limited. Former Managing Director of Service Stream Limited (resigned May 2014), Chairman of AUX Investments (jointly owned by Qantas and Australia Post), Director of Sai Cheng Logistics (China), Director of Asia Pacific Alliance (HK), Head of Corporate Development at Australia Post. A member of various advisory boards for private equity ventures in e-commerce and technology/infrastructure. Terry has significant experience across Industrial, Resources and Consumer Services sectors including 20 years in senior management roles in BHP (Minerals, Steel and Transport/Logistics). Holds a Masters of Business Administration (MBA), a Graduate Diploma in Management and tertiary qualifications in Mining, including Surveying. Mike Harding CHAIRMAN OF THE REMUNERATION AND NOMINATION COMMITTEE MEMBER OF THE HEALTH, SAFETY AND ENVIRONMENT COMMITTEE Independent Non-Executive Director since 1 March 2013. Chairman of Lynas Corporation Ltd (appointed January 2015) and Downer EDI Limited (appointed November 2010). Former Chairman of Roc Oil Company Limited (resigned December 2014) and Non-Executive Director of Santos Limited (resigned May 2014). Significant experience within industrial businesses, having previously held management positions around the world with British Petroleum (BP), including President and General Manager of BP Exploration Australia. Holds a Masters in Science, majoring in Mechanical Engineering. Philippe Etienne MEMBER OF THE AUDIT AND RISK COMMITTEE MEMBER OF THE HEALTH, SAFETY AND ENVIRONMENT COMMITTEE Independent Non-Executive Director since 29 May 2014. Non-Executive Director of Lynas Corporation Limited (appointed January 2015). Former Managing Director and Chief Executive Officer of Innovia Security Pty Ltd (retired September 2014) and Non-Executive Director of Sedgman Limited (February 2015 to November 2015). Previously held a range of other senior executive positions with Orica in Australia, the USA and Germany including strategy and planning and responsibility for synergy delivery of large scale acquisitions. Holds a Bachelor of Science in Physiology and Pharmacology and a Master of Business Administration (MBA). Graduate of the Australian Institute of Company Directors and has completed post-graduate qualifications in marketing. 25 Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEW3Senior Executive Team Vik Bansal CHIEF EXECUTIVE OFFICER AND MANAGING DIRECTOR Appointed to his current role on 3 August 2015 and made an Executive Director on 20 August 2015. Over 20 years’ experience in a range of executive roles in Australia, Asia and the United States and a proven track record of leading organisations through business growth, transition and improvement. Previously, President and Chief Operating Officer for Valmont Industries Inc., a US$3.3 billion NYSE listed engineering and manufacturing company. Prior to that, he held senior roles with OneSteel Ltd and Eaton Corporation in Australia. Holds a Bachelor of Electrical Engineering with Honours and an MBA. Vik has completed the Advanced Management Program from INSEAD and is a Fellow of the Australian Institute of Company Directors and a Fellow of the Institute of Engineers Australia. Brendan Gill CHIEF FINANCIAL OFFICER Brendan joined Cleanaway in September 2014. Brendan has more than 30 years of experience as a finance professional, mainly in the mining, steel and energy sectors. His career included 26 years at BHP Billiton in finance, including as Vice President Finance Carbon Steel, CFO for both the Stainless Steel Materials and Nickel businesses and Global Lead Risk Management and Audit. Since leaving BHP Billiton, Brendan has held CFO roles, most recently as CFO for Inova Resources (previously named Ivanhoe Australia). Brendan has a Bachelor of Business, and is a member of CPA Australia. Dan Last GENERAL COUNSEL AND COMPANY SECRETARY Dan joined Cleanaway as General Counsel and Company Secretary in March 2014. Dan is an experienced General Counsel and Company Secretary with over 15 years’ experience in law firms and senior in-house legal roles. Prior to joining Cleanaway, Dan was the General Counsel and Company Secretary of Foster’s Group Limited. He has also worked in top tier law firms in Australia and overseas. Dan has a Bachelor of Laws (Hons), a Bachelor of Commerce, is a Fellow of the Governance Institute of Australia, and a member of the Australian Institute of Company Directors. 26 Mark Crawford EXECUTIVE GENERAL MANAGER, ENTERPRISE SERVICES Mark joined Cleanaway as Executive General Manager, Enterprise Services in February 2014. Mark has more than 10 years operational experience gained in senior and executive roles. He has worked across Australia and Asia Pacific to integrate complex business models and has extensive transformation experience across all business disciplines. Prior to joining Cleanaway, Mark held a number of General Management roles at Australia Post, most recently as General Manager for the International business. Mark holds qualifications in Information Technology. David Aardsma EXECUTIVE GENERAL MANAGER, SALES AND MARKETING David joined Cleanaway as Executive General Manager, Sales and Marketing in January 2015. David is a highly experienced sales and marketing executive with over 40 years’ experience in the US waste management industry and a proven track record of building, transforming and motivating world-class sales and marketing teams. Prior to joining Cleanaway he held the position of Chief Sales and Marketing Officer at Waste Management Inc., responsible for overseeing the company’s sales, marketing, pricing and customer service efforts. Johanna Birgersson EXECUTIVE GENERAL MANAGER, HUMAN RESOURCES Johanna joined Cleanaway in May 2014 and was appointed Executive General Manager, Human Resources in December 2015. Johanna has more than 10 years human resources experience gained in senior and executive roles. Prior to joining Cleanaway, Johanna was the Director People and Culture of TSC Group Holdings. She has also worked across a number of industry sectors including fire and electronic security, HVAC and refrigeration, and hospitality. Johanna has a Bachelor of Arts and holds Post Graduate qualifications in Employee Relations and Human Resources Management from the University of Melbourne. 27 Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEW3Cleanaway Waste Management Limited (Cleanaway or the Company) believes that high standards of corporate governance are critical to the achievement of business objectives and, in turn, the creation and protection of shareholders’ interests, through effective oversight, risk management and transparency. The Board of Cleanaway has adopted a range of charters and policies, which enshrine high standards of corporate governance across the Company’s operations. Copies of Board and Committee charters and key policies and documents supporting Cleanaway’s corporate governance practices are available online at http://www.cleanaway.com.au/for-investors/ corporate-governance/.These documents are regularly reviewed by the Board in conjunction with Management to ensure that they continue to reflect any changes in governance practices and the law. This Corporate Governance Statement was approved by the Board on 18 August 2016 and outlines Cleanaway’s key corporate governance practices and related charters and policies as at 30 June 2016 and are consistent with the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations – 3rd Edition. Principle 1: Lay solid foundations for management and oversight The Cleanaway Board is responsible for the overall stewardship, strategic direction, governance and performance of the Company. The Board operates under a Charter, which sets out its role, powers and responsibilities. The Board’s objectives are to: • oversee and monitor the strategic direction of Cleanaway and provide effective oversight of its management and business activities; • optimise Cleanaway’s performance so as to create and build sustainable value for shareholders within a framework of appropriate risk assessment and management; and • seek to ensure Cleanaway acts in accordance with its legal and other obligations. The key responsibilities of the Board in support of these objectives as set out in the Charter are as follows: • oversight of Cleanaway, including its control and accountability systems, that seek to ensure the creation and protection of shareholder value; • monitoring of Cleanaway’s financial position and its ability to meet its debts and other obligations as they fall due; • promulgating clear standards of ethical behaviour required of Directors, Senior Executives and employees, and encouraging observance of those standards; • reviewing, ratifying and monitoring systems of risk management, internal compliance and control, codes of conduct and legal compliance; • ensuring that an appropriate health, safety and environment framework is in place to support safe workplace practices and to comply with Cleanaway’s environmental obligations; • contributing to the development of, and final approval of, management’s corporate strategy and performance objectives; and • monitoring the implementation of the strategic plans and performance objectives of Cleanaway, and assessing Cleanaway’s performance against these. Key functions reserved to the Board as set out in the Charter are as follows: • adopting an annual budget for the financial performance of Cleanaway and monitoring performance against it; • approving material capital expenditures, acquisitions and divestments and other material transactions; • approving the Chief Executive Officer’s (CEO) terms of engagement, and where required, his termination benefits; • reviewing the remuneration and incentive framework for senior management and all Cleanaway employees; • approving Cleanaway’s annual report and financial report upon recommendations from the Audit and Risk Committee, and in accordance with the Corporations Act, ASX Listing Rules and any other applicable regulations; • approving capital management matters, including Cleanaway’s dividend policy and authorising payment of dividends; • ensuring proper and timely financial and governance reporting to shareholders and other stakeholders; • reviewing on a continuing basis: – – recruitment, retention and termination policies and procedures for senior management; and executive succession planning (in particular the office of CEO); • reviewing, at least annually, diversity and inclusion policy, diversity targets, initiatives and progress toward their achievement; and • monitoring and overseeing the management of shareholder and stakeholder relations. 28 Corporate GovernanceThe Board has delegated the responsibility of day-to-day management and the performance of Cleanaway and the development and implementation of Board-endorsed strategy to the CEO and Management. This delegation is formally reflected in, and governed by, delegated authority limits, which are regularly reviewed and endorsed by the Board. Appointment of Directors and Executive Committee members Cleanaway carefully considers the character, experience, education and skill set, as well as interests and associations, of each potential candidate for appointment to the Board and conducts appropriate checks to verify the suitability of the candidate prior to their appointment as a Director. Cleanaway has appropriate procedures in place to ensure that material information relevant to a decision to elect or re-elect a Director is disclosed in the notice of meeting provided to shareholders. In addition to being set out in the Charter, the roles and responsibilities of Directors are formalised in the letter of appointment, which each Director is required to sign to confirm their appointment. Each letter of appointment specifies the term of appointment, time commitment envisaged, expectations in relation to committee work or any other special duties attaching to the position, reporting lines, remuneration arrangements, disclosure obligations in relation to personal interests, confidentiality obligations, insurance and indemnity entitlements and details of the Company’s key governance policies. Each member of the Executive Committee enters into a service contract with the Company, which sets out the material terms of their employment, including a description of position and duties, reporting lines, remuneration arrangements and termination rights and entitlements. Details of contractual entitlements of Executive Committee members who are Key Management Personnel are summarised in the Remuneration Report of the Annual Report. Company Secretary The Company Secretary is responsible for ensuring that Board policies and procedures are complied with and that governance matters are addressed. The Company Secretary is accountable to the Board, through the Chairperson, on all matters to do with the proper function of the Board. Each Director is entitled to access the advice and services of the Company Secretary. The appointment and removal of a Company Secretary is a matter reserved for decision by the Board. Diversity and Inclusion Cleanaway has a workforce made up of people with diverse values, backgrounds, skills, experiences and needs. Diversity at Cleanaway encompasses differences in gender, ethnicity, language, age, sexual orientation, religious beliefs, political beliefs, socio-economic status, physical and mental ability, experience and education. Cleanaway values this diversity, and recognises the benefits that it brings to our Company, customers and other key stakeholders. Cleanaway’s Diversity and Inclusion Policy Statement, which can be found at http://www.cleanaway.com.au/for- investors/corporate-governance/ and the supporting processes are aimed at creating a culture where our employees understand that each individual is unique and that managing diversity makes us more flexible, productive, creative and competitive. Under this Policy, the Board is responsible for establishing measurable objectives for achieving diversity within Cleanaway and assessing the progress in achieving these objectives. During the year, the Board has reviewed the Company’s progress in achieving the objectives set for the financial year 30 June 2016. Performance against these objectives for the period 1 July 2015 – 30 June 2016 is set out below: TARGETS FOR 30 JUNE 2016 Increase overall female representation to 21% Increase females in management roles to 22% Increase females in operational roles to 4.5% In addition: AS AT 30 JUNE 2016 19% 20% 4.4% AS AT 30 JUNE 2015 20% 20% 4.0% • One of our seven Non-executive Directors is female (14% representation). • One of our six senior executive members (comprising of the Executive Team) is female (17% representation). The significant cost down and reduced recruitment activities during the 2016 financial year in comparison to previous year has provided fewer opportunities to impact on our diversity and inclusion performance. 29 Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEW3Whilst gender has been the key target since 2012, Cleanaway recognises that the span of diversity and inclusion is far broader. Accordingly, in the current financial year there will be a range of diversity initiatives which target indigenous engagement and further focus on age and gender inclusion. Further details about our diversity initiatives are set out on page 16 of this Annual Report. Cleanaway has completed a workplace profile report as required by the Workplace Gender Equality Act 2012 (WGEA) for 2016. A copy of the Company’s WGEA report for 2016 is available online at http://www.cleanaway.com.au/careers/ Performance Evaluation The Board considers that reviewing its performance is essential to good governance. Under its Charter, the Board is responsible for undertaking regular reviews of its own performance and that of the Board Committees and individual Directors. The review process is designed to help optimise performance by providing a mechanism to raise and resolve issues, and to provide recommendations to assist the Board, Board Committees and individual Directors to enhance their effectiveness. The Board’s performance is externally and internally evaluated from time to time. An internal evaluation of the performance of Board members and Committees was undertaken during the course of the year. The Board is responsible for evaluating the performance of the CEO on an annual basis, assessed against Cleanaway’s financial performance, business transformation, management development, and enhanced safety and sustainability performance. A performance review of the CEO was conducted in relation to his performance for the 2016 financial year. Evaluation details are set out in the Remuneration Report. The CEO conducts performance reviews of the Executive Committee member on an annual basis and reports on their performance to the Remuneration and Nomination Committee. Cleanaway has a performance management system that includes a scorecard of individual performance measures and standards. The system includes processes for the setting of objectives and the annual assessment of performance against objectives. The performance of the Executive Committee members was reviewed by the CEO in accordance with the performance management system in June 2016. Principle 2: Structure the Board to add value Cleanaway’s constitution calls for at least three but not more than 10 Directors. As at 30 June 2016, the Board comprised of seven independent Non-Executive Directors, and one Executive Director (the CEO). As announced in February 2016, Martin Hudson will retire as Chairman and as a Director of the Company before the 2016 Annual General Meeting and Mark Chellew will succeed Mr Hudson as Chairman. Profiles of current Directors outlining their appointment dates, qualifications, directorships of other listed companies (including those held at any time in the three years immediately before the end of the financial year), experience and expertise are set out on pages 24 to 25 of this Annual Report. Director Independence The Board comprises a majority of independent Non-Executive Directors. The Charter states that a Non-Executive Director is independent if he or she is not a member of management and is free of any interest, position, association or relationship that might influence, or reasonably be perceived to influence, in a material respect, his or her capacity to bring independent judgement to bear on issues before the Board and to act in the best interests of Cleanaway and its shareholders generally. When determining the independent status of a Non-Executive Director, the Board will take into account the factors relevant to assessing the independence of a director as specified by the ASX Corporate Governance Council, including whether that Director: • • • • is a substantial shareholder of Cleanaway or an officer of, or otherwise associated directly with, a substantial shareholder of Cleanaway; is or has been employed in an executive capacity by the Cleanaway Group, and there has not been a period of at least three years between ceasing such employment and serving on the Board; is or has within the last three years been a Partner, Director or senior employee of a provider of material professional services to the Cleanaway Group; is or has been within the last three years in a material business relationship (for example, as a supplier or customer) with the Cleanaway Group, or an officer of, or otherwise associated with, someone with such a relationship; • has a material contractual relationship with Cleanaway other than as a Director; • has close family ties with any person who falls within any of the categories described above; or • has been a Director of Cleanaway for such a period that his or her independence may have been compromised. 30 Corporate GovernanceWhether or not a material relationship exists is determined on a case-by-case basis, giving consideration to the nature of the relationship and the specific circumstances of the Director. Materiality is considered from the perspective of the Company, the Director, and the person or entity with which the Director has a relationship. The Board reviews the independence of Directors before they are appointed, on an annual basis, and at any other time where the circumstances of a Director changes such as to require reassessment. The Board has reviewed the independence of each of the Directors in office and has determined that all Non-Executive Directors are independent. Certain Non-Executive Directors hold directorships in companies with which Cleanaway has commercial relationships. Details of these other directorships are set out on pages 24 to 25 of this Annual Report. The independent status of each Director standing for re-election is identified in the notice of Annual General Meeting. If the Board’s assessment of a Director’s independence changes, the change is disclosed to the market. Conflicts of Interest Directors are required to keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of Cleanaway. A Director who has an actual or potential conflict of interest or a material personal interest in a matter is required to declare that potential or actual conflict of interest to the Board. If the Board determines that there is a material conflict of interest, the Board may require the relevant director to: • not receive the relevant papers; • not be present at the meeting while the matter is considered; and • not participate in any decision on the matter. The Board may resolve to permit a Director to have an involvement in a matter involving a potential or actual conflict of interest. In such instances, the Board will minute full details of the basis of the determination and the nature of the conflict, including a formal resolution concerning the matter. Chair of the Board The Board Charter requires an independent Non-Executive Director to hold the position of Chairperson, unless the Board otherwise resolves. The Chairman, Martin Hudson, is an independent Non-Executive Director and will retire as Chairman and as a Director of the Company before the 2016 Annual General Meeting. Mark Chellew, currently an independent Non-Executive Director of the Company, will succeed Mr Hudson as Chairman. The Chairman’s responsibilities are set out in the Board Charter. The roles of the Chairman and CEO are not exercised by the same person. The Chairman attends Board Committee meetings in an ex-officio capacity. Board Committees Under the Company’s Constitution and as set out in the Charter, the Board may delegate any of its powers and responsibilities to a committee of the Board to assist it to effectively and efficiently discharge its responsibilities. The Board has established the following Committees: • Audit and Risk Committee; • Remuneration and Nomination Committee; and • Health, Safety and Environment Committee. The Charter of each Committee sets out their respective duties and responsibilities and is available online at http://www.cleanaway.com.au/for-investors/corporate-governance/ Details of individual Director’s memberships of Committees are provided in the Director biographies on pages 24 to 25 of this Annual Report. All Directors are entitled to attend meetings of the Committees where there is no conflict of interest. Papers considered by the Committees, and minutes of each Committee meeting, are provided to all Directors. The proceedings of each Committee meeting are reported at the next Board meeting by the relevant Committee Chair. 31 Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEW3Independent Advice The Board, an individual Director, and each of the Committees has the authority to seek any information it requires from any employee or external party, including the Internal and External Auditors. After consultation with the Chairman, a Director may take such independent legal, financial or other advice as they consider necessary to fulfil their duties, at the expense of the Company. The Chairman may determine that any external advice received by an individual Director be circulated to the other Directors. Induction Cleanaway’s Director Induction Program is designed to enable new Directors to gain an understanding of, among other things, the Company’s culture and values and its financial, strategic, operational and risk management position. New Directors are given an induction briefing by the Company Secretary and Chairman and an induction pack containing information about the Company, Board and Committee Charters and Company policies and procedures. New Directors also meet with the Executive Committee to gain an insight into the Company’s business operations and the corporate structure. Non-Executive Directors are encouraged and given the opportunity to broaden their knowledge of the business by receiving regular briefings on Cleanaway’s operations from Management and the Executive Committee, undertaking site visits in different locations and receiving presentations from external parties in a range of fields. Directors’ attendance at Board and Committee meetings The number of Board and Committee meetings held and attendances by Directors at these meetings during the financial year are set out on page 46 of this Annual Report. The Non-Executive Directors meet without the presence of management during the course of regular Board meetings, and on other occasions as required outside regular Board meetings. Remuneration and Nomination Committee The Remuneration and Nomination Committee assists the Board in its oversight of Cleanaway’s: • • remuneration and incentive strategy and arrangements; recruitment, retention and succession planning for the Board; • corporate culture and engagement; and • diversity and inclusion strategy. The Committee consisted of the following independent Non-Executive Directors: R M Harding (Chairman) R M Smith T A Sinclair M P Chellew The Committee met four times during the financial year. Details of the number of meetings held and attendances are set out on page 46 of this Annual Report. The Committee’s key responsibilities and functions for nomination matters are as set out in the Remuneration and Nomination Committee Charter and include, among other things: • determining the appropriate size and composition of the Board (including skills, knowledge, diversity and experience) and making recommendations to the Board with regard to any appropriate changes; • setting a formal and transparent procedure for selecting new Non-Executive Directors for appointment to the Board; • making recommendations to the Board on the appointment, re-election and removal of Directors and appointment and removal of key executives; • developing and implementing Board and CEO succession plans; • developing strategies to address Board diversity; and • ensuring there is an appropriate induction program in place for new Non-Executive Directors, as well as ongoing training and education programs for the Board to ensure that all Directors are provided with adequate information regarding the operation of the business, the industry and their legal responsibilities and duties. The Committee Charter is reviewed annually and a copy is available online at http://www.cleanaway.com.au/for-investors/ corporate-governance/ 32 Corporate GovernanceBoard Composition When reviewing the composition of the Board and making recommendations to the Board regarding the appointment of Directors, the Remuneration and Nomination Committee aims to ensure that the Board continues to include Directors with an appropriate balance of skills, experience, expertise and diversity to efficiently and effectively discharge its responsibilities and govern the Company. Collectively, the Board has a diverse range of skills and experience relevant and adequate for the efficient and effective management of the business. Board members, including some who are also directors of other ASX-listed companies, together have a combination of experience in the following areas: • industrial services and logistics; • corporate strategy; • accounting; • mergers and acquisitions; • • risk management; law, governance and regulation; • health, safety and environment; and • other board and management experience. Biographies of current Directors, including details of their qualifications, tenure in office and independent status, are set out on pages 24 to 25 of this Annual Report. The Board considers its current membership represents an appropriate mix of skills and experience to enable the Board to continue to effectively discharge its responsibilities and deliver the Company’s strategy and corporate objectives. Principle 3: Promote ethical and responsible decision making Code of Conduct Cleanaway recognises that its reputation is an essential element to its continued success and that its reputation is directly attributable to the ethical behaviour of those who represent it. Cleanaway has developed a Corporate Code of Conduct (the Code) which sets out certain basic principles that all Directors, employees, contractors and consultants are expected to follow in all dealings related to Cleanaway, to ensure that Cleanaway’s business is conducted in accordance with the laws and regulations of all areas in which it operates. The Code is fully endorsed by the Board and is annually reviewed and updated as necessary to ensure it reflects the highest standards of behaviour and professionalism and the practices necessary to maintain confidence in Cleanaway’s integrity. Any breach of the Code is considered a serious matter which may result in disciplinary action, including termination of employment. A copy of the Code is available online at http://www.cleanaway.com.au/for-investors/corporate-governance/ Supporting the Corporate Code of Conduct are the Whistleblower Policy, Anti-Bribery and Corruption Policy, and Conflict of Interest Policy, which further sets out the Company’s commitment to high standards of conduct and ethical behaviour in all areas of business activity. Employees who are aware of any serious misconduct or unethical behaviour that contravenes the Corporate Code of Conduct, any Company policies or the law, are encouraged to report this to their Manager or make a report under the independent whistleblower service, FairCall. The Policy provides that all reports will be investigated in an appropriate manner and that feedback on the outcome of the investigation will be provided to the person making the report where appropriate. The Anti-Bribery and Corruption Policy provides guidance to employees on how to recognise and deal with instances of potential or actual bribery and corruption. The Policy also sets out circumstances where it is not appropriate to exchange gifts or hospitality with business partners and the threshold for offering or accepting of gifts or hospitality. Proposed donations and sponsorships must be approved in accordance with the Company’s Delegated Authority Limits Policy. To ensure all business transactions are managed in a transparent manner that promotes confidence in the integrity, legitimacy, impartiality and fairness of decision-making processes within Cleanaway, all personnel employed by or acting on behalf of Cleanaway, are required to disclose their private interests in activities if their private interests have the potential of influencing the performance of their duties and responsibilities while they are still employed by the Company. The Company’s Conflict of Interest Policy provides comprehensive guidance to help employees manage any potential conflicts of interest. 33 Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEW3In addition, Cleanaway’s Securities Trading Policy reinforces the Corporations Act 2001 restrictions in relation to insider trading and prohibits Directors, Executives and other employees from dealing in Cleanaway securities at any time if that person is in possession of price sensitive information that has not been made publicly available. Directors, Executives and other employees are prohibited from engaging in short-term or speculative trading in Cleanaway securities and trading in derivatives in respect of Cleanaway securities, including performance rights issued under Cleanaway incentives schemes. This includes entering into any hedging arrangements or acquiring financial products (such as equity swaps, caps and collars or other hedging products) over unvested performance rights which have the effect of reducing or limiting exposure to risks associated with the market value of Cleanaway securities. The Policy also applies to parties related to the Directors, Executives and employees of the Company. No Director, Executive or employee may directly or indirectly enter into any margin loan facility against Cleanaway securities unless prior written consent of the Chairman of the Board is obtained (in the case of employees, this applies only to the extent their margin loan is considered material). In addition to sending annual reminders to employees regarding the above policies, these policies are also available on the Company’s intranet and website. Principle 4: Safeguard integrity in financial reporting Audit and Risk Committee In relation to audit matters, the Audit and Risk Committee assists the Board to independently verify and safeguard the integrity of Cleanaway’s financial reporting, review and evaluate all material capital management, financing and treasury risk management proposals and provide oversight of Cleanaway’s risk management framework. The Committee consists of all independent Non-Executive Directors as follows: R M Smith (Chairman) T A Sinclair E R Stein P G Etienne The Committee has appropriate financial expertise and all members are financially literate and have an appropriate understanding of the industries in which Cleanaway operates. Details of each Committee member’s experience and qualifications are set out in pages 24 and 25 of the Annual Report. The Committee met four times during the financial year. Details of the number of meetings held and attendances during the financial year are set out on page 46 of this Annual Report. The Chairman of the Board is not permitted to Chair this Committee. The Committee’s responsibilities and functions, as set out in the Audit and Risk Committee’s Charter, include (among other things): • review financial reports (including the annual report and related regulatory filings) to be issued by the Company prior to recommending them to the Board for approval and release to the market, to ensure their integrity and compliance with statutory and contractual requirements; • assess the management processes supporting external reporting; • • review and approve the audit plan of the External Auditors, monitor their progress against that plan, and ensure that the annual statutory audit and half-year review are conducted in an effective manner; review and approve the internal audit plan, ensuring that an appropriate program of internal audit activity is undertaken each year, and monitor the progress of the Internal Auditor against that plan; • on an annual basis, assess the performance and independence of the External and Internal Auditors; • make recommendations for the appointment or removal of the External and the Internal Auditors; • assess and monitor risk management and internal control systems (including the Group’s risk management framework) to ensure that material risks are identified, monitored and appropriately managed at levels determined to be acceptable by the Board; and • review and monitor the compliance with key Company policies (including Securities Trading Policy, Continuous Disclosure Policy, Delegated Authority Levels Policy, Anti-Bribery and Corruption Policy, and the Treasury Policy). The Committee, or any individual member, has the authority to seek any information it requires from any employee or external party, including the Internal and External Auditors. The Committee meets with the Internal and External Auditors without Management present on a regular basis. The Committee Charter is reviewed annually and a copy is available online at http://www.cleanaway.com.au/for-investors/ corporate-governance/ 34 Corporate GovernanceAssurance from CEO and CFO regarding financial statements In accordance with sections 295A of the Corporations Act 2001 (Cth), the CEO and Chief Financial Officer (CFO) have provided a written statement to the Board declaring that, in their opinion: • • the Company’s financial statements and notes thereto comply with accounting standards, and present a true and fair view of the Company’s and consolidated entity’s financial position and performance; the Company’s financial records for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; and also states that: • the financial statements and notes thereto are in accordance with the Corporations Act 2001; and • as at the date of the written statement there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The written assurance from the CEO and CFO confirms to the Board that the declarations and statements above regarding the integrity of the financial statements is founded on a sound system of risk management and internal control and that such system was operating effectively and efficiently in all material respects in relation to financial reporting risks. External Auditor Ernst & Young were appointed as the Company’s External Auditors in November 2009. The proposed rotation of the lead External Audit partner in respect to the 2016 financial year audit was completed in November 2015, following the conclusion of the Company’s 2015 Annual General Meeting. All non-audit services to be undertaken by the External Auditor require the prior approval of the Chairman of the Audit and Risk Committee. Ernst & Young’s independence declaration to the Board for the financial year ended 30 June 2016 forms part of the Directors’ Report and is set out on page 63 of this Annual Report. The External Auditor attends the Company’s Annual General meeting to answer questions which shareholders may have about the conduct of the external audit for the relevant financial year, the preparation and content of the Audit Report, the accounting policies adopted by the Company and the independence of the External Auditor in relation to the conduct of the External Audit. Shareholders attending the Annual General Meeting are made aware that they may ask such questions of the External Auditor and are provided an opportunity to submit written questions prior to the meeting. Principle 5: Make timely and balanced disclosure Cleanaway is committed to complying with its continuous disclosure obligations under the ASX Listing Rules. Cleanaway has adopted a Continuous Disclosure Policy which sets out the procedures and requirements expected of Directors, executives and all employees of the Company, to ensure compliance with its continuous disclosure obligations under the ASX Listing Rules and the Corporations Act 2001. A copy of the Continuous Disclosure Policy is available online at http://www.cleanaway.com.au/for-investors/corporate-governance/ Principle 6: Respect the rights of shareholders The Company has established a Shareholder Communications Policy, which outlines how we engage and communicate with our investors and shareholders. A copy of the Policy is available online at http://www.cleanaway.com.au/for-investors/ corporate-governance/ Shareholders attending the Annual General Meeting are made aware that they may ask questions and are provided an opportunity to submit written questions prior to the meeting. Principle 7: Recognise and manage risk The Board recognises that effective risk management processes are essential to the Company achieving its business objectives and to the Board meeting its corporate governance responsibilities. Audit and Risk Committee In relation to risk oversight, the function of the Audit and Risk Committee is, among other things, to assist the Board to: • ensure Cleanaway’s risk management framework is effective, and capable of identifying and assessing areas of potential material risk, as well as monitoring and managing identified material risks; • monitor material changes to Cleanaway’s risk profile; and • assess and monitor risk management and internal control systems to ensure that material risks are reduced to or managed at levels determined to be acceptable by the Board. 35 Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEW3Further details regarding the Audit and Risk Committee, its membership and the number of meetings held during the financial year are set out on pages 34 and 46 of this Annual Report. Health, Safety and Environment Committee Cleanaway recognises the importance of health, safety and environmental (HSE) issues and is committed to a Zero Harm philosophy. The Health, Safety and Environment Committee assists the Board in its oversight of Cleanaway’s strategies, systems, policies and practices in respect of HSE matters, and compliance with its legal and regulatory obligations. The Committee consisted of the following independent Non-Executive Directors: M P Chellew (Chairman) E R Stein R M Harding P G Etienne The Committee met four times during the financial year. Details of the number of meetings held and attendances during the financial year are set out on page 46 of this Annual Report. The Chairperson of the Committee must be an independent Non-Executive Director and must not be the same person as the Chairperson of the Board. The Committee’s key responsibilities and functions, as set out in the Health, Safety and Environment Committee Charter, include: • understanding Cleanaway’s operations and hazards and risks associates with those operations; • overseeing Cleanaway’s HSE framework; • monitoring compliance with, reviewing and recommending to the Board changes to, Company HSE policies; • considering the Cleanaway’s HSE performance and issues, assessed by reference to agreed targets and measures, including the impact on employees, third parties and reputation of the Group; • ensuring that appropriate actions are being taken in respect of health, safety and environment incidents, hazards and risks; • • reviewing Cleanaway’s performance in relation to HSE matters as determined in internal audit reviews; and reviewing reports which are prepared and lodged by the Company in compliance with its statutory obligations concerning the environment. The Committee Charter is reviewed annually and a copy is available online at http://www.cleanaway.com.au/for-investors/ corporate-governance/ Approach to Risk Management The Board has adopted a Risk Management, Compliance and Assurance Policy that sets out Cleanaway’s commitment to proactive enterprise risk management and compliance. The policy is supplemented by an Enterprise Risk Management Framework that seeks to embed risk management processes into Cleanaway’s business activities. Cleanaway also has detailed control procedures in place which cover management accounting, financial reporting, maintenance of financial records, project appraisal, environment, health and safety, IT security, compliance and other risk management issues. In addition to maintaining appropriate insurance, numerous risk management controls are embedded in the Company’s risk management and reporting systems. These include: • risk management systems and internal controls seeking to ensure that financial reporting risks are appropriately managed; • policies regarding the maintenance of written financial records in accordance with section 286 of the Corporations Act 2001; • guidelines and limits for approval of all expenditure inclusive of capital expenditure and investments; • policies and procedures for the management of financial risk and treasury operations, including hedging exposure to foreign currencies and interest rates; • annual budgeting and monthly reporting systems for all divisions which enable monitoring of progress against performance targets, evaluation of trends and variances to be acted upon; • preparation and ongoing review of five-year strategic plans for all divisions; • health and safety programs and targets; and • diligence procedures for acquisitions. 36 Corporate GovernanceManagement reports to the Audit and Risk Committee on a regular basis regarding Enterprise Risk Management compliance, the results of internal audit reviews, and the effectiveness of Cleanaway’s management of its material business risks. The Audit and Risk Committee also reviewed Cleanaway’s Risk Management, Compliance and Assurance Policy and Enterprise Risk Management Framework during the financial year and concluded that the Company’s risk management processes continue to be sound and that risks are identified, monitored and appropriately managed at levels determined to be acceptable by the Board. A copy of the Risk Management, Compliance and Assurance Policy is available online at http://www.cleanaway.com.au/ for-investors/corporate-governance/ Internal Audit Cleanaway has a dedicated Risk and Assurance team responsible for evaluating, reporting on and refining risk management processes within Cleanaway and for managing the internal audit function across the Company’s operations. Cleanaway has adopted a co-sourced approach to internal auditing with the Cleanaway Internal Audit team and KPMG jointly performing the internal audit function in accordance with the annual internal audit plan. KPMG were appointed to assist in the performance of the internal audit function in 2010. The internal audit function is independent of the External Auditor, and the Head of Audit and Risk reports to the Audit and Risk Committee. The Audit and Risk Committee approves the annual internal audit plan and regularly meets with KPMG without Management present. Sustainability Risks Cleanaway identifies and manages material exposures to economic, environmental and social sustainability risks in a manner consistent with its Risk Management, Compliance and Assurance Policy and Risk Management Framework. Information about key sustainability risks which have the potential to materially impact Cleanaway’s ability to execute and achieve its business strategies, and the broad approach Cleanaway takes to mitigate these risks is set out below. These risks are not listed in order of significance, nor should they be taken to be a complete or exhaustive list of the risks and uncertainties associated with Cleanaway. Economic Conditions Cleanaway provides its services and products to individuals, companies and government across a range of economic sectors in Australia including manufacturing, industrial, construction and resources sectors. Changes in the state of the economy and the sectors of the economy to which the Company is exposed may have an adverse impact on the demand and pricing for Cleanaway’s services and products and the Company’s operating and financial performance. To the extent possible, the Company manages these risks by incorporating a consideration of economic conditions and future expectations into its corporate and financial plans and forecast. Financial Risks Cleanaway is exposed to a variety of financial risks, including credit risk and adverse movements in interest rates and foreign currency exchange rates. These risks may have an adverse effect on the Company’s operating and financial performance. Information on how Cleanaway manages these risks is included in the Notes to the Financial Statements which is on set out on pages 98 to 101 of this Annual Report. Health and Safety Cleanaway’s operations involve risks to both property and personnel. A health and safety incident may lead to serious injury or death, which may result in reputational damage and adverse operating impacts with consequential effects to Cleanaway’s financial performance and position. Cleanaway manages these risks by developing and implementing appropriate strategies, systems, policies and procedures in respect of operational health and safety matters to ensure compliance with legal and regulatory obligations. 37 Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONFINANCIAL REPORTOTHER INFORMATIONBUSINESSREVIEW3Regulatory Environment Cleanaway’s operations are subject to a variety of federal, state and local laws and regulations in Australia. These laws and regulations, and permits and licences granted by the relevant regulators, establish various standards about the types of operations that can be undertaken and the manner in which they are undertaken. Regulatory requirements which have impacted historical results include state-based waste levies, carbon tax, environmental regulation and planning regulations. Changes in regulatory requirements or failure to comply with conditions of permits and licences could adversely affect Cleanaway’s ability to continue operations on a site and in turn the Company’s financial performance. Cleanaway manages these risks by developing and implementing appropriate systems, policies and procedures to ensure compliance with applicable regulatory requirements. Furthermore, to the extent possible, the Company incorporates consideration of changes in regulatory requirements into its corporate and financial plans and forecasts. Attract and Retain Key Management Cleanaway’s operations are dependent upon the continued performance, efforts, abilities and expertise of its key management personnel. The loss of services of such personnel may have an adverse effect on the operations of Cleanaway as the Company may be unable to recruit suitable replacements within a short timeframe. Cleanaway has in place human resource strategies and remuneration and employment policies to attract, retain and motivate key management personnel and align the interests of key personnel with those of shareholders. Operational Risk A prolonged and unplanned interruption to Cleanaway’s operations could significantly impact the Company’s financial performance. Cleanaway is exposed to a variety of operational risks, including risk of site loss or damage, environmental and climatic events, industrial disputes and systems security breaches. Cleanaway has a range of controls and strategies in place to manage such risks, including site business continuity and crisis management plans, inspection and maintenance procedures, compliance programs, training, site and business interruption insurance and systems security testing and improvements. Principle 8: Remunerate fairly and responsibly Remuneration and Nomination Committee In relation to remuneration and human resources matters, the Remuneration and Nomination Committee is responsible for assisting the Board to, among other things: • provide oversight of Cleanaway’s overall human resources strategy (including remuneration and compensation plans); and • support management to achieve the Company’s strategy and corporate objectives by developing the capability and engagement of Cleanaway’s employees. The Committee does this by ensuring Cleanaway has in place appropriate human resources strategies and remuneration and employment policies that are consistent with best practices and business requirements, and that Cleanaway adopts and complies with remuneration and employment policies that: • attract, retain and motivate high calibre executives so as to ensure the sustainable success of Cleanaway for the benefit of all stakeholders; • are consistent with the human resource needs of Cleanaway; • motivate management to pursue the long-term growth and success of Cleanaway within an appropriate control framework; and • demonstrate a clear relationship between Executive performance and remuneration. The Committee also oversees Cleanaway’s Diversity and Inclusion Policy, diversity practices, strategy and targets, including remuneration by gender. The Committee Charter is reviewed annually and a copy is available online at http://www.cleanaway.com.au/for-investors/ corporate-governance/ The Committee met four times during the financial year. Further details regarding its membership, and the number of meetings held and attendances during the financial year are set out on pages 32 and 46 of this Annual Report. Remuneration Report The Remuneration Report, which has been included in the Directors’ Report, provides information on Cleanaway’s remuneration policies and payment details for Non-Executive Directors and Key Management Personnel. 38 Corporate GovernanceContents of Financial Statements Directors’ Report Remuneration Report Auditor’s Independence Declaration Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report 40 48 63 64 65 66 67 68 69 116 117 Notes to the Consolidated Financial Statements Information about the Group and basis of preparation Statement of compliance 1. Corporate information 2. 3. Basis of preparation 4. Critical accounting estimates and judgements Information about our financial performance 5. Segment reporting 6. Revenue 7. Other income 8. Net finance costs 9. Income tax 10. Earnings per share Information about working capital 11. Cash and cash equivalents 12. Trade and other receivables 13. Inventories 14. Trade and other payables Other information about our financial position 20. Property, plant and equipment 21. Intangible assets 22. Equity accounted investments 23. Employee benefit liabilities 24. Provisions 25. Other liabilities Information about our group structure 26. Business combinations 27. Subsidiaries 28. Deed of cross guarantee 29. Parent entity Information about financial risks and unrecognised items 30. Derivative financial instruments 31. Financial risk management 32. Contingent liabilities 33. Commitments Information about our capital structure Other information 15. Borrowings 16. Issued capital 17. Reserves 18. Dividends and distributions 19. Capital management 34. Share-based payments 35. Auditor’s remuneration 36. Events occurring after the reporting date 37. Related party transactions Accounting policies 38. Significant accounting policies 39. New standards adopted 40. New standards and interpretations not yet adopted Cleanaway Waste Management Limited 2016 ANNUAL REPORT 39 OVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4Directors’ Report The Directors present their Report (including the Remuneration Report) together with the Consolidated Financial Statements of the Group, consisting of Cleanaway Waste Management Limited (the Company) and its controlled entities (Cleanaway or the Group), for the financial year ended 30 June 2016 and the Auditor’s Report thereon. On 1 February 2016, the Company changed its name from Transpacific Industries Group Ltd to Cleanaway Waste Management Limited, following shareholders’ approval obtained at the Annual General Meeting held on 30 October 2015. Directors The names of Directors of the Company at any time during or since the end of the financial year are set out below. Directors were in office for this entire period unless otherwise stated. M M Hudson M P Chellew V Bansal R M Smith E R Stein T A Sinclair R M Harding P G Etienne Non-Executive Director, Chairman Non-Executive Director, Deputy Chairman (Appointed as Deputy Chairman on 19 February 2016) Executive Director and Chief Executive Officer (Appointed as Executive Director 20 August 2015) Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director The office of Company Secretary is held by D J F Last, LLB (Hons), B.Com, FGIA, GAICD. Particulars of Directors’ qualifications, experience and special responsibilities can be found on pages 24 to 25. Principal activities During the financial year the principal continuing activities of Cleanaway were:  Commercial and industrial, municipal and residential collection services for all types of solid waste streams, including general waste, recyclables, construction and demolition waste and medical and washroom services;  Ownership and management of waste transfer stations, resource recovery and recycling facilities, secure product destruction, quarantine treatment operations and landfills;  Sale of recovered paper, cardboard, metals and plastics to the domestic and international marketplace;  Collection, treatment, processing and recycling of liquid and hazardous waste, including industrial waste, grease trap waste, oily waters and used mineral and cooking oils in packaged and bulk forms;  Industrial solutions including industrial cleaning, vacuum tanker loading, site remediation, sludge management, parts washing, concrete remediation, CCTV, corrosion protection and emergency response services;  Refining and recycling of used mineral oils to produce fuel oils and base oils; and  Generation and sale of electricity produced utilising landfill gas. There were no significant changes in the nature of the Group’s principal activities that occurred during the year. Dividends and distributions The Company declared a fully franked dividend on ordinary shares for the financial year ended 30 June 2016 of 1.7 cents per share, being an interim dividend of 0.8 cents per share and final dividend of 0.9 cents per share. The record date of the final dividend is 21 September 2016 with payment to be made 7 October 2016. The financial effect of the final dividend has not been brought to account in the Financial Statements for the year ended 30 June 2016 and will be recognised in a subsequent Financial Report. Details of distributions in respect of the financial year are as follows: RECOGNISED (PAID AMOUNTS) Fully paid ordinary shares Final dividend for 2015: 0.8c per share (2014: 1.5c per share) Interim dividend for 2016: 0.8c per share (2015: 0.7c per share) Step-up preference securities Distribution for 2015: $3.05 per share (fully franked at 30% tax rate) Total dividends and distribution paid 2016 $’M 12.6 12.7 – 25.3 2015 $’M 23.7 11.1 7.6 42.4 40 40 Directors’ Report Directors’ Report The Directors present their Report (including the Remuneration Report) together with the Consolidated Financial Statements of the Group, consisting of Cleanaway Waste Management Limited (the Company) and its controlled entities (Cleanaway or the Group), for the financial year ended 30 June 2016 and the Auditor’s Report thereon. On 1 February 2016, the Company changed its name from Transpacific Industries Group Ltd to Cleanaway Waste Management Limited, following shareholders’ approval obtained at the Annual General Meeting held on 30 October 2015. The names of Directors of the Company at any time during or since the end of the financial year are set out below. Directors were in office for this entire period unless otherwise stated. Non-Executive Director, Chairman Non-Executive Director, Deputy Chairman (Appointed as Deputy Chairman on 19 February 2016) Executive Director and Chief Executive Officer (Appointed as Executive Director 20 August 2015) Directors M M Hudson M P Chellew V Bansal R M Smith E R Stein T A Sinclair R M Harding P G Etienne Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director The office of Company Secretary is held by D J F Last, LLB (Hons), B.Com, FGIA, GAICD. Particulars of Directors’ qualifications, experience and special responsibilities can be found on pages 24 to 25. Principal activities During the financial year the principal continuing activities of Cleanaway were:  Commercial and industrial, municipal and residential collection services for all types of solid waste streams, including general waste, recyclables, construction and demolition waste and medical and washroom services;  Ownership and management of waste transfer stations, resource recovery and recycling facilities, secure product destruction, quarantine treatment operations and landfills;  Sale of recovered paper, cardboard, metals and plastics to the domestic and international marketplace;  Collection, treatment, processing and recycling of liquid and hazardous waste, including industrial waste, grease trap waste, oily waters and used mineral and cooking oils in packaged and bulk forms;  Industrial solutions including industrial cleaning, vacuum tanker loading, site remediation, sludge management, parts washing, concrete remediation, CCTV, corrosion protection and emergency response services;  Refining and recycling of used mineral oils to produce fuel oils and base oils; and  Generation and sale of electricity produced utilising landfill gas. There were no significant changes in the nature of the Group’s principal activities that occurred during the year. Dividends and distributions The Company declared a fully franked dividend on ordinary shares for the financial year ended 30 June 2016 of 1.7 cents per share, being an interim dividend of 0.8 cents per share and final dividend of 0.9 cents per share. The record date of the final dividend is 21 September 2016 with payment to be made 7 October 2016. The financial effect of the final dividend has not been brought to account in the Financial Statements for the year ended 30 June 2016 and will be recognised in a subsequent Directors’ Report Review of results Financial Results The Group’s statutory profit after income tax for the year ended 30 June 2016 was $43.1 million (2015: loss of $15.4 million). The Group’s underlying profit after income tax (attributable to ordinary equity holders) for the year ended 30 June 2016 of $63.3 million was up by 38.5% on the prior year (2015: $45.7 million). During the year the Group has implemented a wide number and variety of initiatives targeted at improving operating margins and overall profitability. The streamlining and simplification of the organisational and operating structure which were designed to achieve a fit for purpose organisation as well as a restructure of the sales function were major contributors to the improved Group results. Details of the operating segments and a summary of the segment and Group’s results for the financial year are set out below. Operating review The Group comprises two operating segments being Solids and Liquids & Industrial Services. Unallocated balances include the Group’s share of profits from equity accounted investments and corporate balances. A description of the operating segments and a summary of the associated segment results for the year are set out below: Solids Core business Collections Commercial and industrial (C&I), municipal and residential collection services for all types of solid waste streams, including general waste, recyclables, construction and demolition waste and medical and washroom services as well as resource recovery and recycling facilities, commodities trading and secure product destruction and quarantine treatment operations. Post Collections Ownership and management of waste transfer stations and landfills, including the generation and sale of electricity produced utilising landfill gas. Financial metrics Total revenue for the Solids segment increased by 11.7% to $1,058.4 million. Underlying EBITDA increased by 20.0% to $237.7 million. The Collections business reported both increased external revenues and earnings for the period. External revenue increased by 3.0% and underlying EBITDA by 8.4% compared to the previous corresponding period. The Post Collections business reported both increased external revenues and earnings for the period. External revenue increased 47.6% and underlying EBITDA 47.0% compared to the previous corresponding period. Performance Collections Details of distributions in respect of the financial year are as follows: Financial Report. RECOGNISED (PAID AMOUNTS) Fully paid ordinary shares Final dividend for 2015: 0.8c per share (2014: 1.5c per share) Interim dividend for 2016: 0.8c per share (2015: 0.7c per share) Step-up preference securities Distribution for 2015: $3.05 per share (fully franked at 30% tax rate) Total dividends and distribution paid 2016 $’M 12.6 12.7 – 25.3 2015 $’M 23.7 11.1 7.6 42.4 Market review and priorities Overall volumes and margins have increased compared to the previous corresponding period. The growth initiatives which are being implemented across the business contributed to increased revenues during the year. Post Collections The Post Collections business recorded strong revenue and EBITDA growth during the year. Landfill volumes increased compared to prior year. The Melbourne Regional Landfill was the major driver of the increased revenues and earnings for the business and continues to perform in line with expectations. Market conditions for the Solids operating segment has remained consistent with the prior year. The market conditions for the 2017 financial year are not expected to vary materially from the 2016 financial year. Solids’ main priorities in the 2017 financial year will revolve around continued focus on revenue growth, reducing customer churn and increasing market share through customer service and pricing, achieving operational improvements and deriving value from increased resource recovery, as well as the planned bio gas expansion at the Melbourne Regional Landfill. 40 41 41 Directors’ ReportCleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Directors’ Report Operating review (continued) Liquids and Industrial Services Core business Liquids and Industrial Services is a leading operator in the areas of:  Liquids & Hazardous Waste – collection, treatment, processing, refining and recycling of liquid and hazardous waste, including hydrocarbons, for disposal or re-sale.  Industrial Services – services include plant and asset maintenance capabilities, high pressure cleaning, vacuum loading, hydro excavation/non-destructive digging, site remediation, sludge management, concrete remediation, CCTV, corrosion protection and emergency response services. Financial metrics Total revenue decreased by 8.3% to $436.6 million, as a result of continued weak market conditions and low oil prices. Underlying EBITDA increased by 3.0% from $55.8 million to $57.5 million. Performance Liquid volumes, particularly in the hazardous liquids area, declined and continue to reflect weakness in the industrial and manufacturing sectors of the Australian economy. Non-hazardous liquid volumes were higher however average prices were lower than prior year. Waste oil collections volumes declined during the period with selling prices of both base and fuel oil down significantly compared to the previous corresponding period due to continuing volatility in global oil prices. The Industrial Services segment was flat as activity in the mining and resource processing sectors remain soft on the back of lower commodity prices. The improvement in underlying earnings and margins is the result of significant restructuring activities and improvements in cost management. Market review and priorities Market conditions for Liquids and Industrial Services remained difficult over the 2016 financial year as the demand for services from the manufacturing and industrial sectors remained weak. The market conditions for the 2017 financial year are not expected to vary materially from the 2016 financial year. Liquids and Industrial Services’ main priorities in the 2017 financial year will be to maintain tight cost control and key contracts. 42 42 Directors’ Report Directors’ Report Operating review (continued) Liquids and Industrial Services Core business Liquids and Industrial Services is a leading operator in the areas of:  Liquids & Hazardous Waste – collection, treatment, processing, refining and recycling of liquid and hazardous waste, including hydrocarbons, for disposal or re-sale.  Industrial Services – services include plant and asset maintenance capabilities, high pressure cleaning, vacuum loading, hydro excavation/non-destructive digging, site remediation, sludge management, concrete remediation, CCTV, corrosion protection and emergency Financial metrics Total revenue decreased by 8.3% to $436.6 million, as a result of continued weak market conditions and low oil prices. Underlying EBITDA increased by 3.0% from $55.8 million response services. to $57.5 million. Performance Liquid volumes, particularly in the hazardous liquids area, declined and continue to reflect weakness in the industrial and manufacturing sectors of the Australian economy. Non-hazardous liquid volumes were higher however average prices were lower than prior year. Waste oil collections volumes declined during the period with selling prices of both base and fuel oil down significantly compared to the previous corresponding period due to continuing volatility in global oil prices. The Industrial Services segment was flat as activity in the mining and resource processing sectors remain soft on the back of lower commodity prices. The improvement in underlying earnings and margins is the result of significant restructuring activities and improvements in cost management. Market review and Market conditions for Liquids and Industrial Services remained difficult over the 2016 financial priorities year as the demand for services from the manufacturing and industrial sectors remained weak. The market conditions for the 2017 financial year are not expected to vary materially from the 2016 financial year. Liquids and Industrial Services’ main priorities in the 2017 financial year will be to maintain tight cost control and key contracts. Directors’ Report Operating review (continued) Group results Solids Liquids and Industrial Services Equity accounted investments Waste management Corporate EBITDA 3 Depreciation and amortisation EBIT 4 Net finance costs Profit/(loss) before income tax Income tax (expense)/benefit Profit/(loss) from continuing operations Profit for the period from discontinued operations Profit/(loss) after income tax Attributable to: Ordinary equity holders Non-controlling interest Step-up preference security holders STATUTORY 1 2016 $’M 226.2 50.9 1.3 278.4 (21.5) 256.9 (160.8) 96.1 (34.5) 61.6 (18.5) 2015 $’M 187.1 (27.3) 1.4 161.2 (30.3) 130.9 (134.8) (3.9) (27.1) (31.0) 7.4 UNDERLYING ADJUSTMENTS 2 UNDERLYING 1 2016 $’M 11.5 6.6 – 18.1 6.3 24.4 2.1 26.5 – 26.5 (8.0) 2015 $’M 10.9 83.1 – 94.0 6.4 100.4 1.0 101.4 (0.9) 100.5 (23.0) 2016 $’M 237.7 57.5 1.3 296.5 (15.2) 281.3 (158.7) 122.6 (34.5) 88.1 (26.5) 2015 $’M 198.0 55.8 1.4 255.2 (23.9) 231.3 (133.8) 97.5 (28.0) 69.5 (15.6) 43.1 (23.6) 18.5 77.5 61.6 53.9 – 43.1 44.8 (1.7) – 43.1 8.2 (15.4) (23.6) 0.6 7.6 (15.4) – 18.5 18.5 – – 18.5 (8.2) 69.3 69.3 – – 69.3 – 61.6 63.3 (1.7) – 61.6 – 53.9 45.7 0.6 7.6 53.9 1 The use of the term ‘Statutory’ refers to IFRS financial information and ‘Underlying’ refers to non-IFRS financial information. Underlying earnings are categorised as non-IFRS financial information and therefore have been presented in compliance with ASIC Regulatory Guide 230 – Disclosing non-IFRS information. Underlying adjustments have been considered in relation to their size and nature, and have been adjusted from the Statutory information, for disclosure purposes, to assist readers to better understand the financial performance of the underlying business in each reporting period. These adjustments include transactions or costs that on their own or in combination with a number of similar transactions contribute more than five percent of profit/(loss) after tax. Underlying adjustments are assessed on a consistent basis year-on-year and include both favourable and unfavourable items. The exclusion of these items provides a result which, in the Directors’ view, is more closely aligned with the ongoing operations of the Group. The non-IFRS financial information is unaudited. 2 Details of adjustments from Statutory to Underlying financial information are set out on page 44. 3 4 EBITDA represents earnings before interest, income tax, and depreciation and amortisation expense. EBIT represents earnings before interest and income tax expense. 42 43 43 Directors’ ReportCleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Directors’ Report Operating review (continued) The following table reconciles profit/(loss) from continuing and discontinued operations after income tax (attributable to ordinary equity holders) to underlying profit after income tax (attributable to ordinary equity holders): Profit/(loss) from continuing and discontinued operations after income tax (attributable to ordinary equity holders) Underlying adjustments to EBITDA: Costs associated with restructuring Costs associated with rebranding Costs associated with the fleet grounding Impairment of assets Net proceeds from disposal of investments and costs of acquisitions Other costs Total underlying adjustments to EBITDA Underlying adjustments to EBIT: Depreciation and amortisation Total underlying adjustments to EBIT Underlying adjustments to net finance costs: Net change in derivative financial instrument and US denominated borrowing Total underlying adjustments to net finance costs Underlying adjustments to income tax: Tax impacts of underlying adjustments to EBITDA and finance costs Total underlying adjustments to income tax Gain on sale of NZ business after items transferred from reserves and income tax Profit for the period from discontinued operations Underlying profit after income tax (attributable to ordinary equity holders) NOTES 2016 $’M 2015 $’M 44.8 (23.6) 1 2 3 4 5 6 7 21.1 3.6 – – – (0.3) 24.4 2.1 2.1 – – (8.0) (8.0) – – – – 15.5 77.5 5.8 1.6 100.4 1.0 1.0 (0.9) (0.9) (23.0) (23.0) (8.2) (8.2) 63.3 45.7 1 2 3 4 5 6 7 Relates to costs associated with organisational restructure (as announced by the CEO at the Annual General Meeting held on 30 October 2015) to achieve a fit for purpose organisation under a revised operating model. Organisational restructure costs include the costs of actual and planned redundancies which meet the requirements of AASB 137 Provisions, Contingent Liabilities and Contingent Assets. In addition, restructuring costs include costs associated with ceased projects and site closures resulting from a comprehensive operational review as part of the organisational structure and operating model revision. Relates to costs incurred during the period to rebrand the Group to ‘Cleanaway’ (effective 1 February 2016) and reflect only part of a program of spend to be incurred through to 30 June 2018 when the rebranding project is anticipated to conclude. Relates to costs associated with the grounding of the Group’s fleet. Relates to impairment of plant and equipment and intangible assets. Refer to note 21 in the Consolidated Financial Statements. Relates to the net realised gain or loss on disposal of investments, sale of properties and assets and acquisition costs. The current period amount relates to accelerated depreciation associated with the site closures referred to it note 1 above. The prior period amount relates to costs associated with the fleet grounding. Relates to net changes in the mark-to-market valuation of derivative financial instruments and the re-measurement of the related US denominated borrowing to the spot rate at period end. 44 44 Directors’ Report Directors’ Report Operating review (continued) The following table reconciles profit/(loss) from continuing and discontinued operations after income tax (attributable to ordinary equity holders) to underlying profit after income tax (attributable to ordinary equity holders): Profit/(loss) from continuing and discontinued operations after income tax (attributable to ordinary equity holders) NOTES 2016 $’M 2015 $’M 44.8 (23.6) Net proceeds from disposal of investments and costs of acquisitions Underlying adjustments to EBITDA: Costs associated with restructuring Costs associated with rebranding Costs associated with the fleet grounding Impairment of assets Other costs Total underlying adjustments to EBITDA Underlying adjustments to EBIT: Depreciation and amortisation Total underlying adjustments to EBIT Underlying adjustments to net finance costs: Net change in derivative financial instrument and US denominated borrowing Total underlying adjustments to net finance costs Underlying adjustments to income tax: Tax impacts of underlying adjustments to EBITDA and finance costs Total underlying adjustments to income tax Gain on sale of NZ business after items transferred from reserves and income tax Profit for the period from discontinued operations Underlying profit after income tax (attributable to ordinary equity holders) 1 2 3 4 5 6 7 21.1 3.6 – – – (0.3) 24.4 2.1 2.1 – – – – (8.0) (8.0) – – 15.5 77.5 5.8 1.6 100.4 1.0 1.0 (0.9) (0.9) (23.0) (23.0) (8.2) (8.2) 63.3 45.7 1 Relates to costs associated with organisational restructure (as announced by the CEO at the Annual General Meeting held on 30 October 2015) to achieve a fit for purpose organisation under a revised operating model. Organisational restructure costs include the costs of actual and planned redundancies which meet the requirements of AASB 137 Provisions, Contingent Liabilities and Contingent Assets. In addition, restructuring costs include costs associated with ceased projects and site closures resulting from a comprehensive operational review as part of the organisational structure and operating model revision. 2 Relates to costs incurred during the period to rebrand the Group to ‘Cleanaway’ (effective 1 February 2016) and reflect only part of a program of spend to be incurred through to 30 June 2018 when the rebranding project is anticipated to conclude. Relates to costs associated with the grounding of the Group’s fleet. Relates to impairment of plant and equipment and intangible assets. Refer to note 21 in the Consolidated Financial Statements. Relates to the net realised gain or loss on disposal of investments, sale of properties and assets and acquisition costs. 3 4 5 6 The current period amount relates to accelerated depreciation associated with the site closures referred to it note 1 above. The prior period amount relates 7 Relates to net changes in the mark-to-market valuation of derivative financial instruments and the re-measurement of the related US denominated to costs associated with the fleet grounding. borrowing to the spot rate at period end. Directors’ Report Operating review (continued) Principal risks The material business risks that could adversely impact the Group’s financial prospects in future periods are economic growth and the regulatory environment. Economic growth Regulatory environment The state of the economy and the sectors of the economy to which the Group is exposed materially impacts future prospects. Factors which have impacted results in recent periods include increases and decreases in GDP and CPI, increases and decreases in the manufacturing, industrials and construction industries and resource sector activity. The regulatory environment materially impacts future prospects. Regulatory requirements which have impacted historical results include state-based waste levies, carbon tax, environmental regulations and planning regulations. Regulatory requirements, including environmental regulations impacting waste management activities, have increased over time and could potentially increase in the future. The Group manages these risks in accordance with ASX Principle 7: Recognise and manage risk as set out in the Corporate Governance Statement. Financial position review Operating cash flow increased 8.2% (2015: decrease of 21.2%) to $190.7 million (2015: $176.2 million). The Group’s net assets have increased from $1,754.7 million to $1,781.5 million. At balance date the Group had total syndicated debt facilities of $600.0 million (2015: $600.0 million), US Private Placement Notes of US$48.0 million (2015: US$48.0 million) and an uncommitted bank guarantee facility of $60.0 million (2015: $40.0 million). Significant changes in the state of affairs Other than matters mentioned in this Report, no other significant changes in the state of affairs of the Group occurred during the financial year under review. Events subsequent to reporting date On 1 July 2016 the Group acquired the assets and business of Waste 2 Resources Group for $8.5 million. The Waste 2 Resources Group provides waste collection and recovery services in South East Queensland. The initial accounting for the business combination is incomplete at the time the Group’s financial statements were authorised for issue, and accordingly details of the financial effect of the business combination have not been disclosed. On 25 July 2016 the Group acquired the non-controlling interest in Cleanaway Refiners Pty Ltd (formerly Transpacific Refiners Pty Ltd) for $2.5 million. Prior to the acquisition the Group held a 50% controlling interest in this entity. Given that the Group already controlled this entity prior to this acquisition, the transaction does not represent a business combination and will be accounted for in equity as a transaction between equity holders. Likely developments and expected results of operations The Group will continue to pursue strategies aimed at improving the profitability, return on capital employed and market position of its principal activities during the next financial year. Disclosures of information regarding the likely developments in the operations of the Group and the expected results of those operations in future financial years have been included in the Operating Review section of this Report. Environmental regulation The Group’s operations are subject to significant environmental regulation and the Group holds environmental licences for its sites. The Group is committed to achieving the highest standards of environmental performance. There were no material breaches of environmental statutory requirements and no material prosecutions during the year. Aggregate fines paid during the year to the date of signing this Annual Report were $47,102 (2015: $110,473). The Group is registered under the National Greenhouse and Energy Reporting Act 2007, under which it is required to report energy consumption and greenhouse gas emissions for its Australian facilities. 44 45 45 Directors’ ReportCleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Directors’ Report Indemnification of auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement, against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the end of the financial year. Directors’ meetings The number of Directors’ meetings and Committee meetings, and the number of meetings attended by each of the Directors who was a member of the Board and the relevant Committee, during the financial year were: BOARD MEETINGS AUDIT AND RISK COMMITTEE HEALTH, SAFETY AND ENVIRONMENT COMMITTEE REMUNERATION AND NOMINATION COMMITTEE MEETINGS HELD WHILE A DIRECTOR NUMBER ATTENDED MEETINGS HELD WHILE A DIRECTOR NUMBER ATTENDED MEETINGS HELD WHILE A DIRECTOR NUMBER ATTENDED MEETINGS HELD WHILE A DIRECTOR NUMBER ATTENDED Directors M M Hudson 1 M P Chellew 2 V Bansal R M Smith 3 E R Stein T A Sinclair R M Harding 4 P G Etienne 8 8 8 8 8 8 8 8 8 7 8 8 8 8 8 8 – – – 4 4 4 – 4 – – – 4 3 3 – 4 – 4 – – 4 – 4 4 – 4 – – 3 – 3 4 – 4 – 4 – 4 4 – – 4 – 4 – 3 3 – 1 Chairman of the Board. 2 Deputy Chairman of the Board and Chairman of Health, Safety and Environment Committee. 3 Chairman of Audit and Risk Committee. 4 Chairman of Remuneration and Nomination Committee. Directors’ interests The relevant interest of each Director in the shares and performance rights over such instruments issued by Cleanaway Waste Management Limited, as notified by the Directors to the Australian Securities Exchange in accordance with section 205G(1) of the Corporations Act 2001, as at 30 June 2016 is as follows: Directors M M Hudson M P Chellew V Bansal R M Smith E R Stein T A Sinclair R M Harding P G Etienne ORDINARY SHARES PERFORMANCE RIGHTS 75,258 25,000 – 65,715 66,549 38,789 12,644 13,737 – – 3,167,167 – – – – – Shares under option During the financial year ended 30 June 2016 and up to the date of this Report, no options were granted over unissued shares. As at the date of this Report there are no unissued ordinary shares of the Company under option. Details of performance rights granted under the short term incentive and long term incentive offers in the 2016 and 2015 financial year are set out in the Remuneration Report. Total performance rights outstanding as at 30 June 2016 are 10,747,370 (2015: 14,015,315). Performance rights outstanding at the date of this report are 9,873,287. Shares issued on the exercise of performance rights During the financial year ended 30 June 2016 and up to the date of this report, the Company issued 1,245,350 shares as a result of the exercise of performance rights that vested during the year. During the financial year ended 30 June 2015 and up to the date of the 2015 report, the Company issued 696,239 ordinary shares as a result of the exercise of performance rights that vested on 30 June 2015. 46 46 Directors’ Report Directors’ Report Directors’ Report Indemnification of auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement, against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the end of the financial year. Directors’ meetings The number of Directors’ meetings and Committee meetings, and the number of meetings attended by each of the Directors who was a member of the Board and the relevant Committee, during the financial year were: BOARD MEETINGS AUDIT AND RISK COMMITTEE HEALTH, SAFETY AND REMUNERATION AND ENVIRONMENT COMMITTEE NOMINATION COMMITTEE MEETINGS HELD WHILE A DIRECTOR NUMBER ATTENDED MEETINGS HELD WHILE A DIRECTOR NUMBER ATTENDED MEETINGS HELD WHILE A DIRECTOR NUMBER ATTENDED MEETINGS HELD WHILE A DIRECTOR NUMBER ATTENDED Directors M M Hudson 1 M P Chellew 2 V Bansal R M Smith 3 E R Stein T A Sinclair R M Harding 4 P G Etienne 8 8 8 8 8 8 8 8 8 7 8 8 8 8 8 8 – – – 4 4 4 – 4 – – – 4 3 3 – 4 – 4 – – 4 – 4 4 – 4 – – 3 – 3 4 – 4 – 4 – 4 4 – 1 Chairman of the Board. 2 Deputy Chairman of the Board and Chairman of Health, Safety and Environment Committee. 3 Chairman of Audit and Risk Committee. 4 Chairman of Remuneration and Nomination Committee. Directors’ interests The relevant interest of each Director in the shares and performance rights over such instruments issued by Cleanaway Waste Management Limited, as notified by the Directors to the Australian Securities Exchange in accordance with section 205G(1) of the Corporations Act 2001, as at 30 June 2016 is as follows: – 4 – 4 – 3 3 – – – – – – – – ORDINARY PERFORMANCE SHARES RIGHTS – 3,167,167 75,258 25,000 65,715 66,549 38,789 12,644 13,737 Directors M M Hudson M P Chellew V Bansal R M Smith E R Stein T A Sinclair R M Harding P G Etienne Shares under option During the financial year ended 30 June 2016 and up to the date of this Report, no options were granted over unissued shares. As at the date of this Report there are no unissued ordinary shares of the Company under option. Details of performance rights granted under the short term incentive and long term incentive offers in the 2016 and 2015 financial year are set out in the Remuneration Report. Total performance rights outstanding as at 30 June 2016 are 10,747,370 (2015: 14,015,315). Performance rights outstanding at the date of this report are 9,873,287. Shares issued on the exercise of performance rights During the financial year ended 30 June 2016 and up to the date of this report, the Company issued 1,245,350 shares as a result of the exercise of performance rights that vested during the year. During the financial year ended 30 June 2015 and up to the date of the 2015 report, the Company issued 696,239 ordinary shares as a result of the exercise of performance rights that vested on 30 June 2015. Directors’ and officers’ insurance During the financial year, the Company paid insurance premiums to insure the Directors and Officers of the Company. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the Directors and Officers in their capacity as Directors and Officers of entities in the Group, and any other payments arising from liabilities incurred by the Directors and Officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the Directors and Officers or the improper use by the Directors and Officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. Disclosure of the premium paid is not permitted under the terms of the insurance contract. Non-audit services The Company may decide to employ the auditors on assignments additional to their statutory audit duties where the auditors’ expertise and experience with the Company and/or the Group are important. No non-audit services were provided during the year ended 30 June 2016. During the year ended 30 June 2015, non-audit services included due diligence services and other advisory services. Details of the amounts paid or payable to the auditor and its related practices for audit and non-audit services are set out below. Audit services Audit related services Non-audit services Due diligence services Other advisory services Total 2016 $ 1,435,270 9,000 2015 $ 1,547,365 104,467 – – 1,444,270 197,142 165,510 2,014,484 A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is set out on page 63. Rounding of amounts The Company is of a kind referred to in ASIC Legislative Instrument 2016/191 issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that Legislative Instrument to the nearest hundred thousand dollars or, in certain cases, to the nearest dollar. This Report, including the Remuneration Report set out on pages 48 to 62, is made in accordance with a resolution of the Board. M M Hudson Non-Executive Director and Chairman V Bansal Chief Executive Officer and Managing Director Melbourne, 19 August 2016 46 47 47 Directors’ ReportCleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Remuneration Report (Audited) Introduction The Directors of Cleanaway Waste Management Limited present the Company’s Remuneration Report (Report) which forms part of the Directors’ Report for the financial year ended 30 June 2016. This Report outlines the remuneration arrangements for Key Management Personnel (KMP) of the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. The information in this Report has been audited as required by section 308(3C) of the Corporations Act 2001. Contents The Report contains the following sections: 1. Key management personnel 2. Governance and role of the board 3. Non-Executive Directors’ remuneration 4. Executive reward strategy and framework 5. Executive key management personnel – reward outcomes 6. Executive key management personnel – contract terms 7. Executive key management personnel – additional remuneration tables 8. Shareholdings and other related party transactions 1. 1. Key management personnel Key management personnel PAGE 48 49 49 51 52 59 60 62 For the purposes of this Report, KMP are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any Director (whether Executive or otherwise) of the Company. Consistent with last year’s Report, this includes the Non-Executive Directors, Chief Executive Officer (CEO) & Managing Director, Chief Financial Officer (CFO) and Executive General Manager – Sales & Marketing. Key changes during the year were:  The appointment of Mr Bansal as CEO & Managing Director;  The departure of Mr Perko as the Managing Director of the Solids business; and  The departure of Mr Roderick as the Managing Director of the Liquids and Industrial Services business. The KMP disclosed in this Report for the year ended 30 June 2016 are detailed in the following table: NAME TITLE PERIOD KMP (IF LESS THAN FULL YEAR) NON-EXECUTIVE DIRECTORS M M Hudson M P Chellew R M Smith E R Stein T A Sinclair R M Harding P G Etienne EXECUTIVES V Bansal D A Aardsma B J Gill FORMER EXECUTIVES J Perko A G Roderick Chairman and Non-Executive Director Deputy Chairman and Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer (CEO) & Managing Director Executive General Manager – Sales & Marketing Chief Financial Officer (CFO) 1 From 3 August 2015 Managing Director Solids Managing Director Liquids and Industrial Services Until 11 September 2015 Until 31 March 2016 1 Mr Gill was also acting CEO from 26 June 2015 to 3 August 2015. 48 48 Remuneration Report (Audited) Remuneration Report (Audited) Remuneration Report (Audited) Introduction The Directors of Cleanaway Waste Management Limited present the Company’s Remuneration Report (Report) which forms part of the Directors’ Report for the financial year ended 30 June 2016. This Report outlines the remuneration arrangements for Key Management Personnel (KMP) of the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. The information in this Report has been audited as required by section 308(3C) of the Corporations Act 2001. Contents The Report contains the following sections: 1. Key management personnel 2. Governance and role of the board 3. Non-Executive Directors’ remuneration 4. Executive reward strategy and framework 5. Executive key management personnel – reward outcomes 6. Executive key management personnel – contract terms 7. Executive key management personnel – additional remuneration tables 8. Shareholdings and other related party transactions 1. Key management personnel PAGE 48 49 49 51 52 59 60 62 For the purposes of this Report, KMP are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any Director (whether Executive or otherwise) of the Company. Consistent with last year’s Report, this includes the Non-Executive Directors, Chief Executive Officer (CEO) & Managing Director, Chief Financial Officer (CFO) and Executive General Manager – Sales & Marketing. Key changes during the year were:  The appointment of Mr Bansal as CEO & Managing Director;  The departure of Mr Perko as the Managing Director of the Solids business; and  The departure of Mr Roderick as the Managing Director of the Liquids and Industrial Services business. The KMP disclosed in this Report for the year ended 30 June 2016 are detailed in the following table: Chairman and Non-Executive Director Deputy Chairman and Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director NAME TITLE NON-EXECUTIVE DIRECTORS M M Hudson M P Chellew R M Smith E R Stein T A Sinclair R M Harding P G Etienne EXECUTIVES V Bansal D A Aardsma B J Gill FORMER EXECUTIVES J Perko A G Roderick Chief Executive Officer (CEO) & Managing Director From 3 August 2015 Executive General Manager – Sales & Marketing Chief Financial Officer (CFO) 1 Managing Director Solids Managing Director Liquids and Industrial Services Until 11 September 2015 Until 31 March 2016 2. Governance and role of the board 2. Governance and role of the board 2A. Remuneration and nomination committee The Remuneration and Nomination Committee (Committee) assists the Board in its oversight of the Group’s: remuneration and incentives strategy and arrangements; recruitment, retention and succession plans for the Board and Executive management team; corporate culture and engagement; and diversity and inclusion strategy. The Committee’s charter is available online at: http://www.cleanaway.com.au/for-investors/corporate-governance/ The Committee is comprised entirely of independent Non-Executive Directors: Mike Harding (Chairman), Ray Smith, Terry Sinclair and Mark Chellew. Other Non-Executive Directors, who are not Committee members, are entitled to attend meetings as observers. The CEO and other Executives are invited to attend Committee meetings as required, however they do not participate in decisions concerning their own arrangements. 2B. Engagement of remuneration consultants Under the Committee’s charter, the Committee, or any individual member, has the authority, with the Chairperson’s consent, to seek any information it requires from any employee or external party. In accordance with the Corporations Act 2001, any engagement of a remuneration consultant to provide a remuneration recommendation in respect of KMP must be approved and received by the Committee. The remuneration recommendation must be accompanied by a declaration from the remuneration consultant that it was free from undue influence of KMP. For the year ended 30 June 2016, the Committee did not receive any remuneration recommendation as defined in the Corporations Act 2001 from remuneration consultants in relation to KMP. Since 1 July 2016, the Committee has engaged 3 degrees consulting Pty Ltd to provide information and advice regarding the Company’s short term and long term incentive plans, CEO remuneration and Non-Executive Director fees. 3. Non-Executive Directors’ remuneration 3. Non-Executive Directors’ remuneration 3A. Current Non-Executive Director fees The remuneration received by Non-Executive Directors for the years ended 30 June 2016 and 30 June 2015 is set out in the following table: PERIOD KMP (IF LESS THAN FULL YEAR) NON-EXECUTIVE DIRECTORS M M Hudson M P Chellew R M Smith E R Stein T A Sinclair R M Harding P G Etienne Total FINANCIAL YEAR SALARY AND FEES $ SUPERANNUATION BENEFITS 1 $ 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 280,692 251,712 132,724 132,722 141,878 141,875 114,418 114,415 114,418 114,415 132,724 132,722 114,418 114,415 1,031,272 1,002,276 19,308 23,913 12,609 12,609 13,478 13,478 10,869 10,869 10,869 10,869 12,609 12,609 10,869 10,869 90,611 95,216 TOTAL $ 300,000 275,625 145,333 145,331 155,356 155,353 125,287 125,284 125,287 125,284 145,333 145,331 125,287 125,284 1,121,883 1,097,492 1 Mr Gill was also acting CEO from 26 June 2015 to 3 August 2015. 1 For comparative purposes, 2015 amounts have been restated to exclude a quarterly superannuation contribution relating to 2014 which was previously incorrectly included. 48 49 49 Remuneration Report (Audited)Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Remuneration Report (Audited) 3. Non-Executive Directors’ remuneration (continued) 3. Non-Executive Directors’ remuneration (continued) 3B. Aggregate fee limit The current aggregate amount of remuneration that can be paid to Non-Executive Directors of $1,200,000 was approved by shareholders at the Company’s 2010 Annual General Meeting. For the year ended 30 June 2016, the aggregate remuneration paid to all Non-Executive Directors was $1,121,883. This represents an increase of 2.2% compared with FY2015 and reflects the increase in the Chairman’s fee to $300,000 effective 1 July 2015 which brought the Chairman’s fee in line with peer companies and recognised the increased effort required of the role of Chairman. Fee structure 3C. Aside from the 0.25% Superannuation Guarantee increases effective 1 July 2013 and 1 July 2014 respectively, the base Non-Executive Director fee and Committee Chairman fees have not increased since 2010. The fee structure (inclusive of superannuation) for the year ended 30 June 2016 is detailed in the following table: Chairman Non-Executive Director BOARD $ 300,000 125,287 AUDIT AND RISK COMMITTEE $ 30,069 – HEALTH, SAFETY AND ENVIRONMENT COMMITTEE $ 20,046 – REMUNERATION AND NOMINATION COMMITTEE $ 20,046 – As a result of a review of Non-Executive Director fees, the Board have approved, with effect from 1 July 2016, a 2.5% increase in the Non-Executive Director fee and the introduction of a Committee membership fee of $5,000 for each Committee membership. Note, the Chairman’s fee and the fees for chairing a Board committee remain unchanged. In introducing this change, the Board took into consideration a number of factors including: the reduced size of the Board as a result of Mr Hudson’s retirement, the intent that fees are in line with peer companies (having regard to market capitalisation, industry sector and key competitors) and to provide adequate recompense for the additional time commitment of Committee membership. The fee structure (inclusive of superannuation) from 1 July 2016 is detailed in the following table: Chairman Non-Executive Director BOARD $ 300,000 128,419 AUDIT AND RISK COMMITTEE $ 30,069 5,000 HEALTH, SAFETY AND ENVIRONMENT COMMITTEE $ 20,046 5,000 REMUNERATION AND NOMINATION COMMITTEE $ 20,046 5,000 50 50 Remuneration Report (Audited) Remuneration Report (Audited) Remuneration Report (Audited) 3. Non-Executive Directors’ remuneration (continued) 4. Executive reward strategy and framework 4. Executive reward strategy and framework 3B. Aggregate fee limit The current aggregate amount of remuneration that can be paid to Non-Executive Directors of $1,200,000 was approved by shareholders at the Company’s 2010 Annual General Meeting. For the year ended 30 June 2016, the aggregate remuneration paid to all Non-Executive Directors was $1,121,883. This represents an increase of 2.2% compared with FY2015 and reflects the increase in the Chairman’s fee to $300,000 effective 1 July 2015 which brought the Chairman’s fee in line with peer companies and recognised the increased effort required of the role of Chairman. 3C. Fee structure Aside from the 0.25% Superannuation Guarantee increases effective 1 July 2013 and 1 July 2014 respectively, the base Non-Executive Director fee and Committee Chairman fees have not increased since 2010. The fee structure (inclusive of superannuation) for the year ended 30 June 2016 is detailed in the following table: Chairman Non-Executive Director BOARD RISK COMMITTEE AUDIT AND HEALTH, SAFETY AND REMUNERATION AND ENVIRONMENT COMMITTEE NOMINATION COMMITTEE $ 300,000 125,287 30,069 20,046 20,046 $ – $ – $ – As a result of a review of Non-Executive Director fees, the Board have approved, with effect from 1 July 2016, a 2.5% increase in the Non-Executive Director fee and the introduction of a Committee membership fee of $5,000 for each Committee membership. Note, the Chairman’s fee and the fees for chairing a Board committee remain unchanged. In introducing this change, the Board took into consideration a number of factors including: the reduced size of the Board as a result of Mr Hudson’s retirement, the intent that fees are in line with peer companies (having regard to market capitalisation, industry sector and key competitors) and to provide adequate recompense for the additional time commitment of Committee membership. The fee structure (inclusive of superannuation) from 1 July 2016 is detailed in the following table: Chairman Non-Executive Director BOARD RISK COMMITTEE AUDIT AND HEALTH, SAFETY AND REMUNERATION AND ENVIRONMENT COMMITTEE NOMINATION COMMITTEE $ 300,000 128,419 $ 30,069 5,000 $ 20,046 5,000 $ 20,046 5,000 4A. Strategy and framework The Group’s remuneration strategy is designed to attract, retain and motivate high calibre Executives to ensure the sustainable success of the Group for the benefit of all stakeholders. The Board ensures that executive remuneration satisfies the following key criteria for good remuneration governance practices:  Aligned to the Group’s business strategy;  Competitive and reasonable as benchmarked against the external market;  Performance linked to individual and financial performance; and  Aligned to shareholder value. The Board, upon the recommendation of the Remuneration and Nomination Committee, has developed and adopted a structure driven by these key criteria which comprises a mix of fixed and variable remuneration components. In undertaking a review of the Company’s short term incentive plan, it became apparent that when STI deferral was introduced, both the quantum and time period of deferral selected were in excess of market peers and accordingly the STI deferral structure was a de-motivator for Executives. As a result of the review, the Board determined that, while STI deferral would be retained, it would be appropriate to reduce both the deferral quantum and period for the CEO (from 50% and two years) and other Executive KMP (from 33% and one year) to 20% and one year for both. The Board considers that this change will ensure that the Company’s remuneration framework will remain market competitive for talent – in terms of both the motivation and reward of the current management team and attraction of future talent. 4B. Remuneration elements and mix For the year ended 30 June 2016, the total remuneration packages for Executive KMP (with the exception of Mr Aardsma) consist of the following elements: TOTAL FIXED REMUNERATION (TFR) SHORT TERM INCENTIVE (STI) LONG TERM INCENTIVE (LTI) Annual fixed remuneration, including superannuation and other non-monetary benefits CEO: Target STI of 75% of TFR and a stretch of 150% of TFR. Other Executive KMP: Target STI of 50% of TFR and a stretch of 100% of TFR. CEO: Target LTI of 75% of TFR and a stretch of 150% of TFR. Other Executive KMP: Target LTI of 25% of TFR and a stretch of 50% of TFR. 80% payable as cash; and 20% allocated as performance rights with vesting deferred for 1 year. Allocated as performance rights with vesting linked to relative TSR and ROIC over a 3 year performance period. See section 5 for further detail on each of the elements listed above. 4C. Shareholding guideline From 1 July 2015, the CEO and Executive team are encouraged to build and maintain a shareholding in the Company equivalent to:  CEO – 100% of annual total fixed remuneration (TFR); and  Executive Team – 50% of annual TFR. It is expected that this shareholding will be accumulated within five years from 1 July 2015, or the initial appointment date to an Executive role, whichever is later. The number of performance rights and ordinary shares in the Company held by each Executive KMP is set out in Tables 7A, 7B and 8A. 50 51 51 Remuneration Report (Audited)Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Remuneration Report (Audited) 5. Executive key management personnel – reward outcomes 5. Executive key management personnel – reward outcomes 5A. Remuneration received The remuneration received or receivable by Executive KMP for the years ended 30 June 2016 and 30 June 2015 is set out in the following table: FINANCIAL YEAR SALARY AND FEES $ OTHER CASH $ NON- MONETARY BENEFITS $ SHARE- BASED PAYMENTS 1 $ STI CASH $ POST EMPLOY- MENT BENEFITS $ TERMINATION PAY $ TOTAL $ PERFOR- MANCE RELATED B J Gill EXECUTIVE KEY MANAGEMENT PERSONNEL V Bansal 2 D A Aardsma 3 2016 1,082,300 2016 2015 2016 2015 648,537 260,000 498,439 86,507 607,066 438,148 FORMER EXECUTIVE KEY MANAGEMENT PERSONNEL J Perko 4 164,539 752,820 486,882 707,561 – A G Roderick 5 R C Boucher Jr 6 S G Cummins Total – 956,150 573,600 – – 214,800 – – 60,090 668,895 17,699 – 99,391 – – 26,826 – – 165,162 19,308 1,034 49,194 14,300 – 2,785,134 – 1,581,528 611,772 – – 1,006,336 502,676 – 36,909 (191,812) 40,019 373,704 – – 2016 – – 2015 4,544 (194,431) 14,481 – 2016 4,443 453,641 18,783 – 2015 – – 2016 – 2015 1,506,068 500,000 2015 8,853 – 203,867 2016 2,989,324 260,000 1,744,550 211,221 447,814 51,488 – 114,667 642,267 41,936 2015 4,106,903 586,507 – – (234,272) 10,287 32,800 9,545 – – – – – – – 668,861 9,636 – – 1,166,543 980,337 – 1,184,428 10,287 – 30,315 2,069,183 598,954 586,947 668,861 6,373,258 629,269 6,121,549 58% 36% 0% 38% 10% 0% 32% 0% 38% 0% 24% 0% 1 Share-based payments consist of performance rights. The fair value of the performance rights is measured at the date of grant using Monte Carlo simulation and the Black Scholes model and is allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the performance rights recognised as an expense in each reporting period, net of any reversals for forfeited performance rights or changes in the probability of performance rights vesting. Performance rights include the expense relating to the deferred share component of STI. 2 Non-monetary benefits comprise costs associated with Mr Bansal’s accommodation in Melbourne and personal travel between Sydney and Melbourne. Share-based payments comprise the expense relating to the one-off allocation of 328,947 performance rights to the value of $250,000, as disclosed in the prior year, the FY2016 LTI allocation, and the deferred share component of FY2016 STI. 3 Other cash comprises Mr Aardsma’s international service premium reflecting the expatriate nature of his assignment. Non-monetary benefits comprise costs associated with Mr Aardsma’s relocation from the USA, personal travel between Australia and the USA, health insurance, tax preparation and car parking. 4 KMP until 11 September 2015. Non-monetary benefits comprises costs associated with Mr Perko’s personal travel between Australia and the USA and health insurance. No termination pay provided. 5 KMP until 31 March 2016. Non-monetary benefits comprise costs associated with provision of a fuel card and e-tag. Termination pay represents payment in lieu of notice. 6 KMP until 26 June 2015. During the year ended 30 June 2016, the Company paid PwC $10,287 for the preparation of Mr Boucher’s Australian and US tax returns. An explanation of the key remuneration elements (TFR, STI and LTI) as well as FY2016 outcomes is provided in the following sections. 52 52 Remuneration Report (Audited) Remuneration Report (Audited) Remuneration Report (Audited) 5. Executive key management personnel – reward outcomes 5. Executive key management personnel – reward outcomes (continued) 5. Executive key management personnel – reward outcomes (c) 5A. Remuneration received in the following table: The remuneration received or receivable by Executive KMP for the years ended 30 June 2016 and 30 June 2015 is set out FINANCIAL YEAR SALARY AND FEES $ OTHER CASH $ NON- STI MONETARY SHARE- BASED CASH BENEFITS PAYMENTS 1 BENEFITS POST EMPLOY- $ $ MENT TERMINATION PAY $ TOTAL PERFOR- MANCE $ RELATED EXECUTIVE KEY MANAGEMENT PERSONNEL V Bansal 2 D A Aardsma 3 2016 1,082,300 – 956,150 60,090 668,895 17,699 648,537 260,000 573,600 498,439 86,507 99,391 26,826 – 214,800 – 165,162 19,308 1,034 49,194 14,300 FORMER EXECUTIVE KEY MANAGEMENT PERSONNEL B J Gill J Perko 4 A G Roderick 5 R C Boucher Jr 6 2016 2015 2016 2015 2016 2015 2016 2015 2016 607,066 438,148 164,539 752,820 486,882 707,561 – $ – – – – $ – – – – – – – – – – – – – – – – – – – – – – 36,909 (191,812) 40,019 373,704 4,544 (194,431) 14,481 668,861 980,337 4,443 453,641 18,783 – 1,184,428 – 10,287 30,315 2,069,183 10,287 32,800 2015 1,506,068 500,000 S G Cummins 2015 203,867 9,545 (234,272) 8,853 598,954 586,947 Total 2016 2,989,324 260,000 1,744,550 211,221 447,814 51,488 668,861 6,373,258 2015 4,106,903 586,507 – 114,667 642,267 41,936 629,269 6,121,549 – 2,785,134 – 1,581,528 – 611,772 – 1,006,336 – 502,676 – 9,636 – 1,166,543 58% 36% 0% 38% 10% 0% 32% 0% 38% 0% 24% 0% 1 Share-based payments consist of performance rights. The fair value of the performance rights is measured at the date of grant using Monte Carlo simulation and the Black Scholes model and is allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the performance rights recognised as an expense in each reporting period, net of any reversals for forfeited performance rights or changes in the probability of performance rights vesting. Performance rights include the expense relating to the deferred share component of STI. 2 Non-monetary benefits comprise costs associated with Mr Bansal’s accommodation in Melbourne and personal travel between Sydney and Melbourne. Share-based payments comprise the expense relating to the one-off allocation of 328,947 performance rights to the value of $250,000, as disclosed in the prior year, the FY2016 LTI allocation, and the deferred share component of FY2016 STI. 3 Other cash comprises Mr Aardsma’s international service premium reflecting the expatriate nature of his assignment. Non-monetary benefits comprise costs associated with Mr Aardsma’s relocation from the USA, personal travel between Australia and the USA, health insurance, tax preparation and car parking. 4 KMP until 11 September 2015. Non-monetary benefits comprises costs associated with Mr Perko’s personal travel between Australia and the USA and health insurance. No termination pay provided. 5 KMP until 31 March 2016. Non-monetary benefits comprise costs associated with provision of a fuel card and e-tag. Termination pay represents payment 6 KMP until 26 June 2015. During the year ended 30 June 2016, the Company paid PwC $10,287 for the preparation of Mr Boucher’s Australian and US An explanation of the key remuneration elements (TFR, STI and LTI) as well as FY2016 outcomes is provided in the in lieu of notice. tax returns. following sections. 5B. Total fixed remuneration TFR consists of base salary plus statutory superannuation contributions and other non-monetary benefits such as car parking. Executives receive a fixed remuneration package which is reviewed annually by the Committee and the Board taking into consideration the following factors:  Company and individual performance;  The responsibilities of the role;  The qualifications and experience of the incumbent; and  Benchmark market data including those companies with which the Company competes for talent. There are no guaranteed base pay increases included in any Executive KMP contract. FY2016 total fixed remuneration outcomes As previously disclosed, Mr Bansal commenced with the Company on 3 August 2015 with a TFR of $1,200,000. For the year ended 30 June 2016, reflecting his appointment during the year, the fixed remuneration package of Mr Bansal has not increased. Similarly, reflecting the fixed term nature of his contract, the fixed remuneration package of Mr Aardsma has not increased since his appointment on 15 January 2015. For the year ended 30 June 2016, Mr Gill received a total increase in TFR of 3.6% from $600,000 to $621,688. The majority of this increase related to Mr Gill’s annual salary review outcome of 2.5% effective 1 October 2015 and was consistent with the increases provided to other Executives and staff. The remainder of the increase related to adjustments to his TFR as part of the Company’s superannuation arrangements and transition to employee paid parking. As previously disclosed, for the period Mr Gill was in the role of Acting CEO, he received a monthly allowance of $8,000 in order to provide temporary and partial compensation for his additional responsibilities and duties. Reflecting his appointment in the Acting CEO role from 26 June 2015 to 3 August 2015, Mr Gill received a total payment of $9,477. FY2016 short term incentive 5C. For the year ended 30 June 2016, the CEO, some but not all of the other Executive KMP, other senior executives and eligible employees participated in the Cleanaway Short Term Incentive (STI) Plan. Executive KMP who did not participate in the FY2016 STI were: Mr Perko – departure and Mr Roderick – redundancy. As outlined in section 4B:  the CEO has a target STI opportunity of 75% of TFR and a maximum STI opportunity of 150% of TFR (being two times target); and  other Executive KMP have a target STI opportunity of 50% of TFR and a maximum STI opportunity of 100% of TFR. Note, Mr Gill’s opportunity remained unchanged for the period he was in the role of Acting CEO. For the year ended 30 June 2016, in order to align their maximum STI opportunity as a percentage of target with that of the CEO (i.e. two times target), the maximum STI opportunity for other Executive KMP was increased from 93.75% to 100% of TFR. Mr Aardsma, participated in the FY2016 STI on a pro-rata basis from 1 January 2016. Prior to that, for calendar year 2015, Mr Aardsma participated in an Annual Assignment Achievement Bonus plan with a target opportunity of $300,000 and a maximum opportunity of $600,000. Any payment under this plan was subject to Mr Aardsma’s achievement of growth transformation milestones as agreed with the CEO and was payable entirely in cash. The transition to the FY2016 STI plan was made to better align Mr Aardsma’s financial metrics and reward outcomes with the CEO and other Executive KMP. Any STI remains payable entirely in cash. 52 53 53 Remuneration Report (Audited)Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Remuneration Report (Audited) 5. Executive key management personnel – reward outcomes (continued) 5. Executive key management personnel – reward outcomes (c) The FY2016 STI plan was revised in order to focus participants on the financial, health, safety and environment and, if applicable, employee engagement metrics that are key to the sustainable success of Cleanaway. The details of the FY2016 Plan are summarised in the following table. Performance period 1 July 2015 – 30 June 2016 Gateway  Payments under the FY2016 STI plan are subject to the achievement of Cleanaway’s FY2016 Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) target.  The Board considers EBITDA to be an appropriate performance measure as it aligns with Cleanaway’s focus on generating cash flow from the existing asset base and financial results that management can influence. Significant extraordinary events are included as a discretionary item for the Board to consider.  Financial metrics – 80% weighting  Health, Safety and Environment metrics – 20% weighting  Employee Engagement modifier – which has the potential to reduce the STI payment by 10% Key Performance Metrics upon which any FY2016 STI payment is based Financial metrics  The three financial metrics and their respective weightings are:  Group EBITDA – 30% weighting  Group Net Revenue – 20% weighting. Included as it reflects growth in our business.  Group Net Profit After Tax Return on Invested Capital (NPAT ROIC) – 30% weighting. Included as it is aligns with Cleanaway’s focus on improving the returns from the net assets employed in our business.  Each financial metric has a threshold, target and stretch level of performance which is based on the Company’s FY2016 budget and with STI outcomes as follows:  Below threshold – 0%  At threshold – 75% of on-target STI opportunity  At target – 100% of on-target STI opportunity  At stretch – 200% of on-target STI opportunity Health, Safety & Environment metrics  Payments under the Health, Safety & Environment (HSE) metrics are subject to gateway conditions that:   there are no work-related deaths (applicable to the Health & Safety metric); and there are no significant rated environmental incidents (applicable to the Environmental metric).  The two HSE metrics and their respective weightings are:  Group Total Recordable Injury Frequency Rate (TRIFR) – 15% weighting. Included as it measures the outcome of our injury prevention strategies and programs.  Group Environmental Incidents – 5% weighting. Included as it measures the outcome effectiveness of our environmental risk management strategies and programs. Employee Engagement modifier  Each HSE metric has a threshold, target and stretch level of performance with STI outcomes as per the financial metrics schedule above.  A participant’s final STI payment will be reduced by 10% if the Group’s Employee Engagement is below target. 54 54 Remuneration Report (Audited) 5. Executive key management personnel – reward outcomes (c) The FY2016 STI plan was revised in order to focus participants on the financial, health, safety and environment and, if applicable, employee engagement metrics that are key to the sustainable success of Cleanaway. The details of the FY2016 Plan are summarised in the following table. Performance period 1 July 2015 – 30 June 2016 Gateway  Payments under the FY2016 STI plan are subject to the achievement of Cleanaway’s FY2016 Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) target.  The Board considers EBITDA to be an appropriate performance measure as it aligns with Cleanaway’s focus on generating cash flow from the existing asset base and financial results that management can influence. Significant extraordinary events are included as a discretionary item for the Board to consider. Key Performance  Financial metrics – 80% weighting Metrics upon which any FY2016 STI payment is based by 10%  Health, Safety and Environment metrics – 20% weighting  Employee Engagement modifier – which has the potential to reduce the STI payment Financial metrics  The three financial metrics and their respective weightings are: Health, Safety & Environment metrics conditions that:  Payments under the Health, Safety & Environment (HSE) metrics are subject to gateway  Group EBITDA – 30% weighting  Group Net Revenue – 20% weighting. Included as it reflects growth in our business.  Group Net Profit After Tax Return on Invested Capital (NPAT ROIC) – 30% weighting. Included as it is aligns with Cleanaway’s focus on improving the returns from the net assets employed in our business.  Each financial metric has a threshold, target and stretch level of performance which is based on the Company’s FY2016 budget and with STI outcomes as follows:  Below threshold – 0%  At threshold – 75% of on-target STI opportunity  At target – 100% of on-target STI opportunity  At stretch – 200% of on-target STI opportunity   there are no work-related deaths (applicable to the Health & Safety metric); and there are no significant rated environmental incidents (applicable to the Environmental metric).  The two HSE metrics and their respective weightings are:  Group Total Recordable Injury Frequency Rate (TRIFR) – 15% weighting. Included as it measures the outcome of our injury prevention strategies and programs.  Group Environmental Incidents – 5% weighting. Included as it measures the outcome effectiveness of our environmental risk management strategies and programs.  Each HSE metric has a threshold, target and stretch level of performance with STI outcomes as per the financial metrics schedule above. Employee Engagement  A participant’s final STI payment will be reduced by 10% if the Group’s Employee modifier Engagement is below target. Remuneration Report (Audited) Remuneration Report (Audited) 5. Executive key management personnel – reward outcomes (continued) 5. Executive key management personnel – reward outcomes (c) FY2016 short term incentive outcomes The progress Cleanaway has achieved in its operational business performance for the year ended 30 June 2016 is reflected in its improved financial, TRIFR and environmental and employee engagement outcomes. The STI payments received or receivable by Executive KMP for the year ended 30 June 2016 reflect these financial and non-financial results and are summarised in the following table: EXECUTIVE KEY MANAGEMENT PERSONNEL 2016 V Bansal D A Aardsma 3 2016 2015 2016 2015 B J Gill TOTAL STI $ 1,195,200 573,600 – 268,500 – FORMER EXECUTIVE KEY MANAGEMENT PERSONNEL 4 J Perko CASH COMPONENT 1 $ DEFERRED SHARE COMPONENT 1 $ PERCENTAGE OF TARGET STI OPPORTUNITY 2 PERCENTAGE OF MAXIMUM STI OPPORTUNITY 2 956,150 573,600 – 214,800 – 239,050 – – 53,700 – 146.0% 127.5% – 86.4% – A G Roderick R C Boucher S G Cummins 2016 2015 2016 2015 2016 2015 2015 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 73.0% 63.7% – 43.2% – – – – – – – – 1 As summarised in section 4B, for the CEO and other Executive KMP (with the exception of Mr Aardsma) 80% of any STI is payable as cash and 20% is payable as performance rights with vesting deferred for one year; for Mr Aardsma 100% of any STI is payable as cash. 2 Calculated based on total STI as a percentage of the pro-rata target and maximum STI opportunities respectively. 3 Calculated including Mr Aardsma’s CY2015 Annual Assignment Achievement Bonus and pro-rata participation in the FY2016 STI plan from 1 January 2016. 4 As a result of their departures during the year, Mr Perko and Mr Roderick forfeited their participation in the FY2016 STI. Mr Boucher was not a KMP during the year and did not participate in the FY2016 STI. 5D. Prior short term incentive awards As a result of Mr Perko’s departure, he forfeited the 66,275 performance rights allocated to him in relation to the FY2014 STI. Mr Perko did not receive an FY2015 STI payment or participate in the FY2016 STI. As Mr Roderick’s departure was due to his role being made redundant, the Board exercised its discretion to treat him as a ‘good leaver’ with respect to his deferred FY2014 STI payment. As a result, he retained the 43,736 performance rights allocated to him in relation to the FY2014 STI – these performance rights vested and became exercisable on 30 June 2016. Mr Roderick did not receive a FY2015 STI payment and was not eligible for a FY2016 STI payment. FY2016 long term incentive 5E. Offers under the Cleanaway Long Term Incentive (LTI) Plan are made on an annual basis. For the year ended 30 June 2016, an LTI offer was made to Mr Bansal following shareholder approval at the Company’s 2015 AGM as well as to other senior executives including Mr Gill. Other Executive KMP did not receive an FY2016 LTI offer for the following reasons: Mr Perko – departure; Mr Roderick – redundancy; and Mr Aardsma – does not participate given his fixed term contract. The details of the FY2016 LTI offer are summarised in the table on the next page. The details of previous LTI offers that remain outstanding as at 30 June 2016 are summarised in section 5F. For all LTI offers, the number of performance rights offered at target is calculated by dividing a participant’s LTI opportunity by Cleanaway’s volume weighted average share price. As outlined in section 4B:  the CEO has a target LTI opportunity of 75% of TFR and a maximum LTI opportunity of 150% of TFR (being two times target); and  other Executive KMP have a target LTI opportunity of 25% of TFR and a maximum LTI opportunity of 50% of TFR. The number of performance rights granted to each Executive KMP for the year ended 30 June 2016 is outlined in section 7A. The number of performance rights each Executive KMP has on issue as at 30 June 2016 is outlined in section 7B. 54 55 55 Remuneration Report (Audited)Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Remuneration Report (Audited) 5. Executive key management personnel – reward outcomes (continued) 5. Executive key management personnel – reward outcomes (c) For all LTI offers, where a participant ceases employment prior to the end of the performance period, the performance rights are forfeited unless the Board applies its discretion. The Board also has discretion to determine the extent of vesting in the event of a change of control, or where a participant dies, becomes permanently disabled, retires or is made redundant. During the year ended 30 June 2016, no such discretion was exercised. The structure of the FY2016 LTI is summarised as follows: Performance period 3 years: 1 July 2015 – 30 June 2018 Overview Performance rights, vesting of which is subject to:  Relative Total Shareholder Return (50%): The Board considers relative TSR to be an appropriate performance measure for CEO and other Executive KMP reward as it focuses on the extent to which shareholder returns are generated relative to the performance of Industrial companies of similar size. Relative TSR is calculated as the total return (being income and capital gain) of the Company over the performance period compared with a peer group of companies (being the constituents of the S&P/ASX200 Industrial Sector Index).  Return On Invested Capital (50%): The Board considers ROIC to be an appropriate performance measure for CEO and other Executive KMP reward as it focuses on managing both the financial returns and the invested capital base used to generate those returns. ROIC is calculated for each year of the performance period, as underlying net profit after tax divided by invested capital. Relative Total Shareholder Return (TSR) Ranking against the constituents of the S&P/ASX200 Industrial Sector Index:  Below 50th percentile – 0% vesting  50th percentile – 50% vesting  50th to 75th percentile – straight line vesting between 50% and 100%  75th percentile and above – 100% vesting Average Return On Invested Capital (ROIC) to be achieved:  Below 4.6% – 0% vesting  4.6% – 20% vesting  4.6% to 5.6% – straight line vesting between 20% and 50%  5.6% to 7.6% – straight line vesting between 50% and 100%  7.6% and above – 100% vesting Relative TSR performance standard (measured over 3 years: 1 July 2015 to 30 June 2018) ROIC performance standard (measured over 3 years: 1 July 2015 to 30 June 2018) Vesting date 14 days after the release of the FY2018 results Grant date fair value for accounting purposes As a share-based payment, the performance rights were valued for accounting and reporting purposes using Monte Carlo simulation and the Black Scholes Model. Fair value of grant to CEO:  Relative TSR tranche: $0.32  ROIC tranche: $0.63 Fair value of grant to other Executive KMP:  Relative TSR tranche: $0.42  ROIC tranche: $0.72 Issued: 5,646,390, all of which remain on issue as at 30 June 2016 Number of performance rights issued and number remaining on issue as at 30 June 2016 56 56 Remuneration Report (Audited) Remuneration Report (Audited) Remuneration Report (Audited) 5. Executive key management personnel – reward outcomes (c) 5. Executive key management personnel – reward outcomes (continued) 5. Executive key management personnel – reward outcomes (c) Prior long term incentive awards 5F. The following table outlines the terms of the outstanding LTI offers made from FY2013 to FY2015: FY2013 LTI AWARD FY2014 LTI AWARD FY2015 LTI AWARD Performance period 4 years: 1 July 2012 to 30 June 2016 4 years: 1 July 2013 to 30 June 2017 Up to 4 years: 1 July 2014 to 30 June 2018 1 Overview Relative TSR performance standards EPS / ROIC performance standards Performance rights, vesting of which is subject to:  Relative TSR (50%)  Earnings Per Share (50%) Performance rights, vesting of which is subject to:  Relative TSR (25%)  Return on Invested Capital (25%)  Strategic Initiatives (50%) TSR Ranking against the constituents of the S&P /ASX200 Industrial Sector Index:  Below 50th percentile – 0% vesting  50th percentile – 50% vesting  50th to 75th percentile – straight line vesting between 50% and 100%  75th percentile and above – 100% vesting EPS in final year of performance period:  Below 10 cents per share – 0% vesting  10 cents per share – 50% vesting  10 to 12.8 cents per share – straight line vesting between 50% and 75%  12.8 to 14.0 cents per share – straight line vesting between 75% and 100% Average ROIC:  Below 4.29% – 0% vesting  4.29% – 20% vesting  4.29% to 5.29% – straight line vesting between 20% and 50%  5.29% to 7.29% – straight line vesting between 50% and 100%  14.0 cents per share and above – 100% vesting  7.29% and above – 100% vesting ROIC performance Average Return On Invested Capital (ROIC) to be achieved: Strategic Initiatives Not applicable Not applicable Vesting date 14 days after the release of the FY2016 results 14 days after the release of the FY2017 results The first Strategic Initiative applied to the former CEO only. As disclosed in last year’s Report it was satisfied with the successful completion of the Melbourne Regional Landfill acquisition. The details of the remaining Strategic Initiatives have not been disclosed as they relate to significant strategic objectives, and disclosure would be prejudicial to the Company’s interests. The nature of these targets will be disclosed following completion of the performance period. 14 days after the release of the FY2017 and FY2018 results Grant date fair value for accounting purposes 2 Relative TSR tranche: $0.49 Relative TSR tranche: $0.93 EPS tranche: $0.75 EPS tranche: $1.18 Relative TSR tranche: $0.17 ROIC & Strategic tranches: $0.68 Number of awards remaining on issue as at 30 June 2016 786,366 1,480,949 1,912,388 1 A three year performance period applies to the relative TSR and ROIC performance measures of the FY2015 LTI; the strategic initiatives are assessed over four years. 2 As a share-based payment, the portion of the performance rights relating to market based conditions were valued for accounting and reporting purposes using the Monte Carlo simulation method and the portion relating to EPS or ROIC using the Black Scholes Model. 56 57 57 For all LTI offers, where a participant ceases employment prior to the end of the performance period, the performance rights are forfeited unless the Board applies its discretion. The Board also has discretion to determine the extent of vesting in the event of a change of control, or where a participant dies, becomes permanently disabled, retires or is made redundant. During the year ended 30 June 2016, no such discretion was exercised. The structure of the FY2016 LTI is summarised as follows: Performance period 3 years: 1 July 2015 – 30 June 2018 Overview Performance rights, vesting of which is subject to:  Relative Total Shareholder Return (50%): The Board considers relative TSR to be an appropriate performance measure for CEO and other Executive KMP reward as it focuses on the extent to which shareholder returns are generated relative to the performance of Industrial companies of similar size. Relative TSR is calculated as the total return (being income and capital gain) of the Company over the performance period compared with a peer group of companies (being the constituents of the S&P/ASX200 Industrial Sector Index).  Return On Invested Capital (50%): The Board considers ROIC to be an appropriate performance measure for CEO and other Executive KMP reward as it focuses on managing both the financial returns and the invested capital base used to generate those returns. ROIC is calculated for each year of the performance period, as underlying net profit after tax divided by invested capital. Relative TSR Relative Total Shareholder Return (TSR) Ranking against the constituents of the S&P/ASX200 performance standard Industrial Sector Index: (measured over 3 years: 1 July 2015 to 30 June 2018)  Below 50th percentile – 0% vesting  50th percentile – 50% vesting  50th to 75th percentile – straight line vesting between 50% and 100%  75th percentile and above – 100% vesting standard (measured over 3 years: 1 July 2015 to 30 June 2018)  Below 4.6% – 0% vesting  4.6% – 20% vesting  4.6% to 5.6% – straight line vesting between 20% and 50%  5.6% to 7.6% – straight line vesting between 50% and 100%  7.6% and above – 100% vesting Vesting date 14 days after the release of the FY2018 results Grant date fair value As a share-based payment, the performance rights were valued for accounting and reporting for accounting purposes purposes using Monte Carlo simulation and the Black Scholes Model. Fair value of grant to CEO:  Relative TSR tranche: $0.32  ROIC tranche: $0.63 Fair value of grant to other Executive KMP:  Relative TSR tranche: $0.42  ROIC tranche: $0.72 Number of performance Issued: 5,646,390, all of which remain on issue as at 30 June 2016 rights issued and number remaining on issue as at 30 June 2016 Remuneration Report (Audited)Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Remuneration Report (Audited) 5. Executive key management personnel – reward outcomes (continued) 5. Executive key management personnel – reward outcomes (c) Prior year long term incentive outcomes Of the outstanding LTI awards, only the FY2013 award was formally tested during FY2016. Based on the Company’s relative TSR and EPS performance over the performance period (from 1 July 2012 to 30 June 2016), the offer will vest partially – with the relative TSR tranche vesting at 53.4% and the EPS tranche lapsing in full. Current Executive KMP None of the current Executive KMP participated in the FY2013 LTI. Former Executive KMP As a result of Mr Perko’s departure, he forfeited the 1,237,160 performance rights allocated to him in relation to the FY2014 and FY2015 LTI. Mr Perko did not participate in the FY2016 LTI given his departure prior to the grant. As a result of Mr Roderick’s departure, he forfeited the 1,520,011 performance rights allocated to him in relation to the FY2013, FY2014 and FY2015 LTIs. Mr Roderick did not participate in the FY2016 LTI given his departure prior to the grant. 58 58 Remuneration Report (Audited) Remuneration Report (Audited) Remuneration Report (Audited) 5. Executive key management personnel – reward outcomes (c) 6. Executive key management personnel – contract terms 6. Executive key management personnel – contract terms Prior year long term incentive outcomes Of the outstanding LTI awards, only the FY2013 award was formally tested during FY2016. Based on the Company’s relative TSR and EPS performance over the performance period (from 1 July 2012 to 30 June 2016), the offer will vest partially – with the relative TSR tranche vesting at 53.4% and the EPS tranche lapsing in full. 6A. CEO and Executive KMP (with the exception of Mr Aardsma) The CEO (Mr Bansal) and other Executive KMP (with the exception of Mr Aardsma) are employed on the basis of an Executive Service Agreement (Agreement). These Agreements contain a range of terms and conditions including remuneration and other benefits, notice periods and termination benefits. The key contract terms are as follows: None of the current Executive KMP participated in the FY2013 LTI. Current Executive KMP Former Executive KMP As a result of Mr Perko’s departure, he forfeited the 1,237,160 performance rights allocated to him in relation to the FY2014 and FY2015 LTI. Mr Perko did not participate in the FY2016 LTI given his departure prior to the grant. As a result of Mr Roderick’s departure, he forfeited the 1,520,011 performance rights allocated to him in relation to the FY2013, FY2014 and FY2015 LTIs. Mr Roderick did not participate in the FY2016 LTI given his departure prior to the grant.  Contract term: no fixed term.  Notice period: 12 months (resignation or termination without cause).  Redundancy: 12 months’ notice. Any payment in lieu of notice and/or redundancy is not to exceed average annual base salary as defined by the Corporations Act 2001 over the previous three years. The Company may terminate Agreements immediately for cause, in which case the Executive is not entitled to any payment in lieu of notice or contractual compensation. The Agreements also provide for an Executive’s participation in the STI and LTI plans subject to Board approval of their eligibility and in accordance with the terms and conditions of the respective plans. In addition, Mr Bansal is entitled to relocation support, with the Company covering the costs associated with Mr Bansal relocating from Sydney to Melbourne including: flights to Melbourne; temporary accommodation until the end of CY2016; personal and household item removal cost and insurance; and a set-up allowance of $10,000 gross. The cost to the Group in providing this support to Mr Bansal for the year ended 30 June 2016 is summarised in section 5A. 6B. Other Executive KMP (Mr Aardsma) Mr Aardsma is employed on the basis of a fixed term Agreement. Mr Aardsma’s Agreement provides for:  Contract term: two years, with the option for Cleanaway and Mr Aardsma to mutually agree to extend the Agreement  for a further one year. International assignment assistance: support for Mr Aardsma and his family in moving from the United States to Australia. This support includes an international service premium and motor vehicle allowance, coverage of costs associated with moving personal and household items, health care coverage and tax advice for the duration of his appointment, and flights to and from the USA annually. The cost to the Group in providing this assistance to Mr Aardsma for the year ended 30 June 2016 is summarised in section 5A.  Annual Bonus: opportunity to earn an Annual Assignment Achievement Bonus (Bonus) of $300,000 at target ($600,000 at maximum) in lieu of participation in the Company’s STI and LTI plans. Note, as outlined in section 5C, for the year ended 30 June 2016, Mr Aardsma, participated in the FY2016 STI on a pro-rata basis from 1 January 2016. Prior to that, for calendar year 2015, Mr Aardsma participated in the Bonus plan. There is no Bonus plan for CY2016. The outcomes under both the CY2015 Bonus plan and pro-rata FY2016 STI are also detailed in section 5C. 6C. Additional remuneration As a result of Mr Perko’s departure, he forfeited the 1,184,210 performance rights allocated to him in relation to the retention arrangement entered into at the beginning of the year ended 30 June 2016 and disclosed in last year’s Report. At the time of a new CEO coming on-board, the arrangement with Mr Perko was intended to secure his services during the transformation of the Company. 58 59 59 Remuneration Report (Audited)Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Remuneration Report (Audited) 7. 7. Executive key management personnel – additional remuneration tables Executive key management personnel – additional remuneration tables 7A. Performance rights granted and movement during the year The aggregate number of performance rights in the Company that were granted as compensation, exercised or lapsed in relation to each Executive KMP for the year ended 30 June 2016 is set out in the following table: YEAR ENDED 30 JUNE 2016 BALANCE AT 1 JULY 2015 NUMBER RIGHTS GRANTED DURING THE YEAR 1 NUMBER EXECUTIVE KEY MANAGEMENT PERSONNEL V Bansal D A Aardsma B J Gill – – 671,140 3,167,167 – 490,134 FORMER EXECUTIVE KEY MANAGEMENT PERSONNEL J Perko 4 A G Roderick 1,303,435 1,974,273 1,184,210 – VALUE OF RIGHTS GRANTED DURING THE YEAR 2 $ 1,589,312 – 277,416 RIGHTS EXERCISED DURING THE YEAR NUMBER VALUE OF RIGHTS EXERCISED DURING THE YEAR 3 $ LAPSED/ CANCELLED DURING THE YEAR NUMBER BALANCE AT 30 JUNE 2016 NUMBER MAXIMUM TOTAL YET TO VEST NUMBER – – – – – – – – – 3,167,167 – 1,161,274 3,167,167 – 1,161,274 900,000 – – (205,263) – (134,447) (2,487,645) (1,725,274) – 43,736 – – 1 2 Performance rights were granted to the CEO under the LTIP – 2016 Offer on 30 October 2015 and Deferred Equity Plan – Sign-on Award on 20 August 2015 and to other Executive KMP under the LTIP – 2016 Offer on 17 March 2016. The fair value of performance rights granted to the CEO calculated using Monte Carlo simulation and the Black Scholes Model, is $0.32 to $0.63 per Performance Right under the LTIP – 2016 Offer and $0.72 per Performance Right under the Sign-on Award. The fair value of performance rights granted to other Executive KMP calculated using Monte Carlo simulation method and the Black Scholes Model, is $0.42 to $0.72 per Performance Right under the LTIP – 2016 Offer. 3 Calculated per Performance Right as the market value of Cleanaway shares on the date of exercise. 4 As a result of Mr Perko’s departure, he forfeited the 1,184,210 performance rights allocated to him in relation to the retention arrangement entered into at the beginning of the year ended 30 June 2016 and disclosed in last year’s Report. 7B. Performance rights as at 30 June 2016 The number of performance rights included in the balance at 30 June 2016 for the Executive KMP is set out in the following table: ISSUED 2013 LTI 2014 STI 2014 LTI 2015 LTI 2016 OTHER 2016 LTI BALANCE AT 30 JUNE 2016 EXECUTIVE KEY MANAGEMENT PERSONNEL V Bansal 1 – – D A Aardsma – B Gill – – – FORMER EXECUTIVE KEY MANAGEMENT PERSONNEL J Perko A G Roderick – – – 43,736 – – – – – – – 671,140 328,947 2,838,220 3,167,167 – 490,134 1,161,274 – – – – – – – – – – 43,736 – 43,736 VESTED & EXERCISABLE AT THE END OF THE YEAR – – – 1 As disclosed in last year’s Report, on joining Cleanaway, Mr Bansal received a one-off allocation of 328,947 performance rights with vesting subject to a two-year service condition. No terms of performance rights transactions have been altered by the Company during the reporting period. The Board has not previously exercised its discretion to allow the early vesting of any performance rights under any of the incentive plans. 60 60 Remuneration Report (Audited) Remuneration Report (Audited) Remuneration Report (Audited) 7. Executive key management personnel – additional remuneration tables 7. 7. Executive key management personnel – additional remuneration tables (c) Executive key management personnel – additional remuneration tables (continued) 7C. Securities trading policy The Company prohibits Executives from entering into any hedging arrangements or acquiring financial products (such as equity swaps, caps and collars or other hedging products) over unvested performance rights which have the effect of reducing or limiting exposure to risks associated with the market value of the Company’s securities. No Directors or Executive KMP may directly or indirectly enter into any margin loan facility against the Company’s securities unless the prior written consent of the Chairman of the Board is obtained. 7D. Company performance Over recent years, Cleanaway has been addressing a number of operational, transformational and strategic challenges. This is reflected in the financial performance summarised for key metrics below. Importantly, for remuneration purposes, the Board takes a more holistic view of performance than the metrics summarised below. These are described in more detail in section 5 of this Report. FY2012 FY2013 FY2014 FY2015 FY2016 Profit/(Loss) attributable to ordinary equity holders – $’M EPS – cents Underlying EPS – cents Dividends per share – cents Shares on issue – number Share price at 30 June Change in share price 12.5 0.9 4.3 – 1,578,209,025 $0.73 ($0.09) (218.7) 1 (13.9) 4.4 – 1,578,563,490 $0.80 $0.07 11.5 2 0.7 5.8 1.5 1,579,323,967 $1.01 $0.21 (23.6) 3 (1.5) 2.9 1.5 1,579,914,690 $0.77 ($0.24) 44.8 4 2.8 4.0 1.7 1,586,344,605 $0.80 $0.03 1 2 3 4 Includes underlying adjustments of $286.6 million after tax. Includes underlying adjustments of $80.5 million after tax. Includes underlying adjustments of $69.3 million after tax. Includes underlying adjustments of $18.5 million after tax. 7A. Performance rights granted and movement during the year The aggregate number of performance rights in the Company that were granted as compensation, exercised or lapsed in relation to each Executive KMP for the year ended 30 June 2016 is set out in the following table: BALANCE AT DURING THE DURING THE DURING THE DURING THE DURING THE BALANCE AT RIGHTS GRANTED YEAR 1 NUMBER VALUE OF RIGHTS GRANTED RIGHTS EXERCISED YEAR 2 $ YEAR NUMBER VALUE OF RIGHTS EXERCISED YEAR 3 LAPSED/ CANCELLED YEAR 30 JUNE 2016 NUMBER NUMBER MAXIMUM TOTAL YET TO VEST NUMBER YEAR ENDED 30 JUNE 2016 1 JULY 2015 NUMBER EXECUTIVE KEY MANAGEMENT PERSONNEL V Bansal D A Aardsma B J Gill – – 3,167,167 1,589,312 – 671,140 490,134 277,416 FORMER EXECUTIVE KEY MANAGEMENT PERSONNEL J Perko 4 1,303,435 1,184,210 900,000 – – $ – – – – (2,487,645) – – – – – – – 3,167,167 3,167,167 1,161,274 1,161,274 A G Roderick 1,974,273 – (205,263) (134,447) (1,725,274) 43,736 1 Performance rights were granted to the CEO under the LTIP – 2016 Offer on 30 October 2015 and Deferred Equity Plan – Sign-on Award on 20 August 2015 and to other Executive KMP under the LTIP – 2016 Offer on 17 March 2016. 2 The fair value of performance rights granted to the CEO calculated using Monte Carlo simulation and the Black Scholes Model, is $0.32 to $0.63 per Performance Right under the LTIP – 2016 Offer and $0.72 per Performance Right under the Sign-on Award. The fair value of performance rights granted to other Executive KMP calculated using Monte Carlo simulation method and the Black Scholes Model, is $0.42 to $0.72 per Performance Right under the LTIP – 2016 Offer. 3 Calculated per Performance Right as the market value of Cleanaway shares on the date of exercise. 4 As a result of Mr Perko’s departure, he forfeited the 1,184,210 performance rights allocated to him in relation to the retention arrangement entered into at the beginning of the year ended 30 June 2016 and disclosed in last year’s Report. 7B. Performance rights as at 30 June 2016 The number of performance rights included in the balance at 30 June 2016 for the Executive KMP is set out in the following table: ISSUED V Bansal 1 D A Aardsma B Gill J Perko A G Roderick EXECUTIVE KEY MANAGEMENT PERSONNEL FORMER EXECUTIVE KEY MANAGEMENT PERSONNEL 2013 LTI 2014 STI 2014 LTI 2015 LTI 2016 OTHER 2016 BALANCE AT AT THE END LTI 30 JUNE 2016 OF THE YEAR VESTED & EXERCISABLE – – – – – – – – – 43,736 – – – – – – – – – 328,947 2,838,220 3,167,167 671,140 490,134 1,161,274 – – – – – – – 43,736 43,736 1 As disclosed in last year’s Report, on joining Cleanaway, Mr Bansal received a one-off allocation of 328,947 performance rights with vesting subject to a two-year service condition. No terms of performance rights transactions have been altered by the Company during the reporting period. The Board has not previously exercised its discretion to allow the early vesting of any performance rights under any of the incentive plans. – – – – – – – – – – – 60 61 61 Remuneration Report (Audited)Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Remuneration Report (Audited) 8. Shareholdings and other related party transactions 8. Shareholdings and other related party transactions 8A. Shareholdings The movement for the year ended 30 June 2016 in the number of ordinary shares in the Company held, directly or indirectly or beneficially, by each KMP, including their related parties, is detailed in the following table: NAME NON-EXECUTIVE DIRECTOR M M Hudson M P Chellew R M Smith E R Stein 1 T A Sinclair R M Harding P G Etienne EXECUTIVE KEY MANAGEMENT PERSONNEL V Bansal D A Aardsma B J Gill FORMER EXECUTIVE KEY MANAGEMENT PERSONNEL J Perko 2 A G Roderick 3 BALANCE AT THE START OF THE YEAR RECEIVED DURING THE YEAR ON THE EXERCISE OF RIGHTS OTHER CHANGES DURING THE YEAR BALANCE AT THE END OF THE YEAR 75,258 25,000 65,715 66,549 38,789 12,644 13,737 – – – – – – – – – – – – – 128,755 – – 205,263 – – – – – – – – 280,000 – – – 75,258 25,000 65,715 66,549 38,789 12,644 13,737 – 280,000 – 128,755 205,263 1 2 3 The number of ordinary shares disclosed as the balance at the start of the year includes 12,976 shares held in a custodian account not previously disclosed. Balance reflects holdings on date of departure being 11 September 2015. Balance reflects holdings on date of departure being 31 March 2016. Loans to Executive key management personnel 8B. There were no loans to Executive KMP made during the period and no outstanding balances at reporting date. 8C. Other transactions and balances with Executive key management personnel and their related parties Some of the Directors hold, or have previously held, positions in companies with which Cleanaway has commercial relationships which are based on normal terms and conditions on an arm’s length basis. Those positions and companies can be found on pages 24 to 25 and include Programmed Maintenance Services Limited, Downer EDI and K&S Corporation. Transactions with these entities are not considered related party transactions where the relationship is limited to common Non-Executive Directorship including any Chairperson roles. The Board has assessed all of the relationships between the Group and companies in which Directors hold or held positions and has concluded that in all cases the relationships do not interfere with the Directors’ exercise of objective, unfettered or independent judgement or their ability to act in the best interest of the Group. Transactions during the year that amounted to related party transaction are limited to transactions with NGT Marketing. Mr Martin Hudson, a Non-Executive Director and Chairman of the Group, holds a beneficial interest in NGT Marketing. During the year the Group provided waste collections services to NGT Marketing for which it earned revenues on normal commercial terms. The value of these services were not material at $2,466 only. 62 62 Remuneration Report (Audited) Remuneration Report (Audited) 8. Shareholdings and other related party transactions 8A. Shareholdings The movement for the year ended 30 June 2016 in the number of ordinary shares in the Company held, directly or indirectly or beneficially, by each KMP, including their related parties, is detailed in the following table: BALANCE AT THE START RECEIVED DURING THE YEAR ON THE OF THE YEAR EXERCISE OF RIGHTS OTHER CHANGES DURING THE YEAR BALANCE AT THE END OF THE YEAR NAME NON-EXECUTIVE DIRECTOR M M Hudson M P Chellew R M Smith E R Stein 1 T A Sinclair R M Harding P G Etienne V Bansal D A Aardsma B J Gill J Perko 2 A G Roderick 3 1 2 3 EXECUTIVE KEY MANAGEMENT PERSONNEL FORMER EXECUTIVE KEY MANAGEMENT PERSONNEL 75,258 25,000 65,715 66,549 38,789 12,644 13,737 – – – – 128,755 205,263 – – – – – – – – – – – – – – – – – – – – – – 75,258 25,000 65,715 66,549 38,789 12,644 13,737 – – 128,755 205,263 280,000 280,000 The number of ordinary shares disclosed as the balance at the start of the year includes 12,976 shares held in a custodian account not previously disclosed. Balance reflects holdings on date of departure being 11 September 2015. Balance reflects holdings on date of departure being 31 March 2016. 8B. Loans to Executive key management personnel There were no loans to Executive KMP made during the period and no outstanding balances at reporting date. 8C. Other transactions and balances with Executive key management personnel and their related parties Some of the Directors hold, or have previously held, positions in companies with which Cleanaway has commercial relationships which are based on normal terms and conditions on an arm’s length basis. Those positions and companies can be found on pages 24 to 25 and include Programmed Maintenance Services Limited, Downer EDI and K&S Corporation. Transactions with these entities are not considered related party transactions where the relationship is limited to common Non-Executive Directorship including any Chairperson roles. The Board has assessed all of the relationships between the Group and companies in which Directors hold or held positions and has concluded that in all cases the relationships do not interfere with the Directors’ exercise of objective, unfettered or independent judgement or their ability to act in the best interest of the Group. Transactions during the year that amounted to related party transaction are limited to transactions with NGT Marketing. Mr Martin Hudson, a Non-Executive Director and Chairman of the Group, holds a beneficial interest in NGT Marketing. During the year the Group provided waste collections services to NGT Marketing for which it earned revenues on normal commercial terms. The value of these services were not material at $2,466 only. Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Auditor’s Independence Declaration to the Directors of Cleanaway Waste Management Limited (Formerly Transpacific Industries Group Ltd) As lead auditor for the audit of Cleanaway Waste Management Limited for the financial year ended 30 June 2016, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Cleanaway Waste Management Limited and the entities it controlled during the financial year. Ernst & Young Brett Croft Partner 19 August 2016 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 62 63 Auditor’s Independence DeclarationCleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Consolidated Income Statement For the year ended 30 June 2016 Continuing operations Revenue Other income Share of profits from equity accounted investments Raw materials and inventory Waste disposal and collection Employee expenses Depreciation and amortisation Repairs and maintenance Fuel expenses Leasing charges Freight expenses Impairment of assets Change in fair value of land and buildings Other expenses Profit/(loss) from operations Net finance costs Profit/(loss) before income tax Income tax (expense)/benefit Profit/(loss) from continuing operations after income tax Discontinued operations Profit for the year from discontinued operations Profit/(loss) after income tax Attributable to: Ordinary equity holders Non-controlling interest Step-up preference security holders Profit/(loss) after income tax NOTES 6 7 8 9 2016 $’M 2015 $’M 1,455.1 1.6 1.3 (67.5) (311.2) (565.9) (160.8) (85.5) (37.6) (27.4) (16.5) – (0.2) (89.3) 96.1 (34.5) 61.6 (18.5) 43.1 – 43.1 44.8 (1.7) – 43.1 1,384.9 4.1 1.4 (70.8) (269.3) (552.6) (134.8) (95.1) (46.8) (31.5) (17.9) (77.5) (0.5) (97.5) (3.9) (27.1) (31.0) 7.4 (23.6) 8.2 (15.4) (23.6) 0.6 7.6 (15.4) The above Consolidated Income Statement should be read in conjunction with the accompanying notes. 64 64 Consolidated Income StatementFor the year ended 30 June 2016 Consolidated Income Statement For the year ended 30 June 2016 Consolidated Statement of Comprehensive Income For the year ended 30 June 2016 Share of profits from equity accounted investments Continuing operations Revenue Other income Raw materials and inventory Waste disposal and collection Employee expenses Depreciation and amortisation Repairs and maintenance Fuel expenses Leasing charges Freight expenses Impairment of assets Change in fair value of land and buildings Other expenses Profit/(loss) from operations Net finance costs Profit/(loss) before income tax Income tax (expense)/benefit Profit/(loss) from continuing operations after income tax Discontinued operations Profit for the year from discontinued operations Profit/(loss) after income tax Attributable to: Ordinary equity holders Non-controlling interest Step-up preference security holders Profit/(loss) after income tax 2016 $’M 2015 $’M 1,455.1 1,384.9 NOTES 6 7 1.6 1.3 (67.5) (311.2) (565.9) (160.8) (85.5) (37.6) (27.4) (16.5) – (0.2) (89.3) 96.1 (34.5) 61.6 (18.5) 43.1 – 43.1 44.8 (1.7) – 43.1 4.1 1.4 (70.8) (269.3) (552.6) (134.8) (95.1) (46.8) (31.5) (17.9) (77.5) (0.5) (97.5) (3.9) (27.1) (31.0) 7.4 (23.6) 8.2 (15.4) (23.6) 0.6 7.6 (15.4) 8 9 The above Consolidated Income Statement should be read in conjunction with the accompanying notes. NOTES Profit/(loss) after income tax Other comprehensive income Revaluation of land and buildings Net comprehensive income recognised directly in equity Total comprehensive income/(loss) for the year Attributable to: Ordinary equity holders Non-controlling interest Step-up preference security holders Total comprehensive income/(loss) for the year Earnings/(loss) per share attributable to the ordinary equity holders of the Company: Basic earnings per share (cents) Diluted earnings per share (cents) 10 10 Earnings/(loss) per share attributable to the ordinary equity holders of the Company from continuing operations: Basic earnings per share (cents) Diluted earnings per share (cents) 2016 $’M 43.1 3.1 3.1 46.2 47.9 (1.7) – 46.2 2.8 2.8 2.8 2.8 2015 $’M (15.4) 1.4 1.4 (14.0) (22.2) 0.6 7.6 (14.0) (1.5) (1.5) (2.0) (2.0) The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 64 65 65 Consolidated Statement of Comprehensive IncomeFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Consolidated Balance Sheet As at 30 June 2016 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Derivative financial instruments Assets held for sale Other assets Total current assets Non-current assets Property, plant and equipment Intangible assets Equity accounted investments Net deferred tax assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Income tax payable Borrowings Employee benefits Provisions Other liabilities Total current liabilities Non-current liabilities Borrowings Employee benefits Provisions Other liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Parent entity interest Non-controlling interest Total equity NOTES 2016 $’M 2015 $’M 11 12 13 30 20 21 22 9 14 15 23 24 25 15 23 24 25 16 17 48.3 224.3 16.7 – 10.9 8.8 14.3 323.3 897.1 1,544.0 11.1 134.3 2,586.5 2,909.8 178.8 10.7 0.8 39.9 59.8 23.2 313.2 358.6 8.4 341.5 106.6 815.1 1,128.3 1,781.5 2,076.4 43.3 (344.8) 1,774.9 6.6 1,781.5 37.0 227.1 16.8 4.7 8.6 6.6 10.7 311.5 860.4 1,539.7 12.2 145.9 2,558.2 2,869.7 178.8 – 0.7 43.2 75.5 30.4 328.6 351.0 8.5 336.1 90.8 786.4 1,115.0 1,754.7 2,072.1 38.6 (364.3) 1,746.4 8.3 1,754.7 The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes. 66 66 Consolidated Balance SheetAs at 30 June 2016 Consolidated Balance Sheet As at 30 June 2016 Consolidated Statement of Changes in Equity For the year ended 30 June 2016 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Derivative financial instruments Assets held for sale Other assets Total current assets Non-current assets Property, plant and equipment Intangible assets Equity accounted investments Net deferred tax assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Income tax payable Borrowings Employee benefits Provisions Other liabilities Total current liabilities Non-current liabilities Borrowings Employee benefits Provisions Other liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Parent entity interest Non-controlling interest Total equity Total non-current liabilities 11 12 13 30 20 21 22 9 14 15 23 24 25 15 23 24 25 16 17 37.0 227.1 16.8 4.7 8.6 6.6 10.7 311.5 860.4 1,539.7 12.2 145.9 2,558.2 2,869.7 – 0.7 43.2 75.5 30.4 351.0 8.5 336.1 90.8 786.4 48.3 224.3 16.7 – 10.9 8.8 14.3 323.3 897.1 1,544.0 11.1 134.3 2,586.5 2,909.8 10.7 0.8 39.9 59.8 23.2 358.6 8.4 341.5 106.6 815.1 178.8 178.8 313.2 328.6 1,128.3 1,781.5 1,115.0 1,754.7 2,076.4 43.3 (344.8) 1,774.9 6.6 2,072.1 38.6 (364.3) 1,746.4 8.3 1,781.5 1,754.7 The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes. NOTES 2016 $’M 2015 $’M PARENT ENTITY INTEREST At 1 July 2015 Profit/(loss) for period Other comprehensive income Total comprehensive income for the year Share-based payments Dividends paid Balance at 30 June 2016 At 1 July 2014 (Loss)/profit for period Other comprehensive income Total comprehensive income for the year Share-based payments Reduction in non-controlling interest Dividends paid Distribution to step-up preference security holders Redemption of step-up preference securities Transfer to retained earnings Balance at 30 June 2015 ORDINARY SHARES $’M 2,072.1 – – – – 4.3 2,076.4 2,071.8 – – – 0.3 – – – RESERVES $’M 38.6 – 3.1 3.1 1.6 – 43.3 33.9 – 1.4 1.4 2.7 – – – RETAINED EARNINGS $’M (364.3) 44.8 – 44.8 – (25.3) (344.8) (305.3) (23.6) – (23.6) – – (34.8) TOTAL $’M 1,746.4 44.8 3.1 47.9 1.6 (21.0) 1,774.9 1,800.4 (23.6) 1.4 (22.2) 3.0 – (34.8) NON- CONTROLLING INTEREST $’M 8.3 (1.7) – STEP-UP PREFERENCE SECURITIES $’M – – – TOTAL EQUITY $’M 1,754.7 43.1 3.1 46.2 1.6 (21.0) 1,781.5 – – – – 249.8 7.6 – 2,058.7 (15.4) 1.4 7.6 – – – (14.0) 3.0 (0.8) (34.8) (1.7) – – 6.6 8.5 0.6 – 0.6 – (0.8) – – – – (7.6) (7.6) – – 2,072.1 – 0.6 38.6 – (0.6) (364.3) – – 1,746.4 – – 8.3 (249.8) – – (249.8) – 1,754.7 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 66 67 67 Consolidated Statement of Changes in EquityFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Consolidated Statement of Cash Flows For the year ended 30 June 2016 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest paid Income taxes refunded/(paid) Net cash from operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangible assets Payments for purchase of businesses Proceeds from disposal of investments Proceeds from disposal of property, plant and equipment Dividends received from equity accounted investments Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Payment of debt and equity raising costs Payment of dividends to ordinary equity holders Repayment of loans to related parties Distribution to step-up preference security holders Redemption of step-up preference securities Net cash used in financing activities NOTES 2016 $’M 2015 $’M 1,602.2 (1,398.0) 0.7 (21.6) 7.4 190.7 1,518.6 (1,323.8) 2.2 (11.9) (8.9) 176.2 11 (141.9) (11.6) (16.1) – 4.2 2.6 (162.8) 21.0 (16.0) (0.6) (21.0) – – – (16.6) 11.3 37.0 48.3 (173.7) (2.2) (163.7) 8.4 7.2 1.4 (322.6) 320.0 (30.0) (2.8) (34.8) (1.5) (7.6) (250.0) (6.7) (153.1) 190.1 37.0 Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 11 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 68 68 Consolidated Statement of Cash FlowsFor the year ended 30 June 2016 Consolidated Statement of Cash Flows For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest paid Income taxes refunded/(paid) Net cash from operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangible assets Payments for purchase of businesses Proceeds from disposal of investments Proceeds from disposal of property, plant and equipment Dividends received from equity accounted investments Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Payment of debt and equity raising costs Payment of dividends to ordinary equity holders Repayment of loans to related parties Distribution to step-up preference security holders Redemption of step-up preference securities Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year NOTES 2016 $’M 2015 $’M 1,602.2 (1,398.0) 1,518.6 (1,323.8) 0.7 (21.6) 7.4 190.7 (141.9) (11.6) (16.1) – 4.2 2.6 21.0 (16.0) (0.6) (21.0) – – – (16.6) 11.3 37.0 48.3 2.2 (11.9) (8.9) 176.2 (173.7) (2.2) (163.7) 8.4 7.2 1.4 320.0 (30.0) (2.8) (34.8) (1.5) (7.6) (250.0) (6.7) (153.1) 190.1 37.0 11 11 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 1. 1. Corporate information Corporate information Cleanaway Waste Management Limited and its subsidiaries (the Group) is a group domiciled and incorporated in Australia. The Consolidated Financial Report of Cleanaway Waste Management Limited consists of the Consolidated Financial Statements of the Group and the Group’s interest in associates and jointly controlled entities. The Consolidated Financial Statements of the Group for the year ended 30 June 2016 were authorised for issue in accordance with a resolution of the Directors on 19 August 2016. 2. Statement of compliance 2. Statement of compliance The Consolidated Financial Report is a general purpose financial report which has been prepared on a going concern basis and in accordance with the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The Financial Report also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. (162.8) (322.6) 3. Basis of preparation 3. Basis of preparation The Financial Report has been prepared on the basis of historical cost, except for the revaluation of certain non-current assets (non-landfill land and buildings) and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. The Financial Report is presented in Australian dollars and all values are rounded to the nearest hundred thousand dollar, except when otherwise indicated. This presentation is consistent with the requirements of Legislative Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the financial statements. Comparative Information The classification of certain balance sheet items has been modified to better reflect the underlying nature of the items. Comparative amounts have been restated accordingly for consistency. The comparative balance sheet has also been restated for the impact of the final adjustments to the purchase price allocation for Melbourne Regional Landfill. Refer to note 26 for further detail. In order to present comparable segment information, the prior period segment note has been restated to reflect a revised inter-segment sales split. Refer to note 5 for further detail. 4. Critical accounting estimates and judgements 4. Critical accounting estimates and judgements The preparation of the Financial Report requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. Actual results may vary from these estimates under different assumptions and conditions. Significant accounting estimates and judgements in the Consolidated Financial Report are: Recoverable amount of property, plant and equipment and intangible assets (a) Each asset or cash generating unit (CGU) is evaluated every reporting period to determine whether there are any indications of impairment or reversal of previously recognised impairment losses. If any such indication exists, a formal estimate of recoverable amount is performed and where the carrying amount exceeds the recoverable amount an impairment loss is recognised. Goodwill and other intangible assets with an indefinite life are tested for impairment on an annual basis, irrespective of whether there is an indication of impairment. The recoverable amount of each CGU is determined based on value-in-use calculations which require the use of estimates and assumptions. The calculations use cash flow projections based on forecasts approved by management. The discounted cash flows of the CGUs, other than those associated with landfill assets, are determined using three year forecasted cash flows and a terminal value calculation. These cash flows include estimates and assumptions related to revenue growth, capital expenditure, terminal value growth rates, oil prices (in relation to oil recycling activities) and expense profile. 68 69 69 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 4. Critical accounting estimates and judgements (continued) 4. Critical accounting estimates and judgements (continued) Cash flows from the landfill assets include estimates and assumptions in relation to: waste volumes over the life of the landfill, cell development capital expenditure, waste mix, revenue and growth, expense profile, and value and timing of land sales. These estimates and assumptions are subject to risk and uncertainty; such that there is a possibility that changes in circumstances will alter these projections, which may impact the recoverable amount of the assets. In such circumstances some or all of the assets may be impaired or a previous impairment charge reversed. Any potential impact arising from an impairment or reversal of an impairment would be recorded in the Consolidated Income Statement. Further details on the Group’s impairment assessment and policy are disclosed in note 21 and note 38(e). Landfill asset depreciation (b) Landfill assets comprise the acquisition of landfill land, airspace, cell development costs, site infrastructure and landfill site improvement costs, and remediation assets. Landfill airspace, cell development costs and remediation assets are depreciated on a usage basis. This depreciation method requires significant estimation of compaction rates, airspace and future costs. Therefore changes in these estimates will cause changes in depreciation rates. The depreciation rates are calculated based on the most up to date accounting estimates and applied prospectively. Further details on the Group’s landfill asset accounting policy are disclosed in note 38(k). Provision for landfill remediation and rectification (c) The Group’s remediation and rectification provisions are calculated based on the present value of the future cash outflows expected to be incurred to remediate landfills which will include the costs of capping the landfill site, remediation and rectification costs and post-closure monitoring activities. The measurement of the provisions requires significant estimates and assumptions such as: discount rate, inflation rate, assessing the requirements of the Environment Protection Authority (EPA) or other government authorities, the timing, extent and costs of activity required and the area of the landfill to be remediated or rectified, which is determined by volumetric aerial surveys. These uncertainties may result in future actual expenditure differing from the amounts currently provided. The provisions for remediation and rectification for each landfill site are periodically reviewed and updated based on the facts and circumstances available at the time. Changes to the estimated future costs for remediating open sites, still accepting waste, are recognised in the balance sheet by adjusting both the remediation asset and provision. For closed sites, changes to the estimated costs are recognised in the income statement. Changes to estimated costs related to rectification provisions are recognised in the Consolidated Income Statement. Further details on the Group’s landfill remediation accounting policy are disclosed in note 38(o). Taxation (d) Deferred tax assets, including those arising from tax losses not recouped, capital losses and temporary differences, are recognised in the Consolidated Balance Sheet, only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Management considers that it is probable that future taxable profits will be available to utilise those temporary differences. 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 profits. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the Consolidated Balance Sheet and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the Consolidated Income Statement. Further details on the Group’s taxation accounting policy are disclosed in note 38(d). 70 70 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 4. Critical accounting estimates and judgements (continued) 5. Segment reporting 5. Segment reporting Cash flows from the landfill assets include estimates and assumptions in relation to: waste volumes over the life of the landfill, cell development capital expenditure, waste mix, revenue and growth, expense profile, and value and timing of land sales. These estimates and assumptions are subject to risk and uncertainty; such that there is a possibility that changes in circumstances will alter these projections, which may impact the recoverable amount of the assets. In such circumstances some or all of the assets may be impaired or a previous impairment charge reversed. Any potential impact arising from an impairment or reversal of an impairment would be recorded in the Consolidated Income Statement. Further details on the Group’s impairment assessment and policy are disclosed in note 21 and note 38(e). (b) Landfill asset depreciation Landfill assets comprise the acquisition of landfill land, airspace, cell development costs, site infrastructure and landfill site improvement costs, and remediation assets. Landfill airspace, cell development costs and remediation assets are depreciated on a usage basis. This depreciation method requires significant estimation of compaction rates, airspace and future costs. Therefore changes in these estimates will cause changes in depreciation rates. The depreciation rates are calculated based on the most up to date accounting estimates and applied prospectively. Further details on the Group’s landfill asset accounting policy are disclosed in note 38(k). (c) Provision for landfill remediation and rectification The Group’s remediation and rectification provisions are calculated based on the present value of the future cash outflows expected to be incurred to remediate landfills which will include the costs of capping the landfill site, remediation and rectification costs and post-closure monitoring activities. The measurement of the provisions requires significant estimates and assumptions such as: discount rate, inflation rate, assessing the requirements of the Environment Protection Authority (EPA) or other government authorities, the timing, extent and costs of activity required and the area of the landfill to be remediated or rectified, which is determined by volumetric aerial surveys. These uncertainties may result in future actual expenditure differing from the amounts currently provided. The provisions for remediation and rectification for each landfill site are periodically reviewed and updated based on the facts and circumstances available at the time. Changes to the estimated future costs for remediating open sites, still accepting waste, are recognised in the balance sheet by adjusting both the remediation asset and provision. For closed sites, changes to the estimated costs are recognised in the income statement. Changes to estimated costs related to rectification provisions are recognised in the Consolidated Income Statement. Further details on the Group’s landfill remediation accounting policy are disclosed in note 38(o). (d) Taxation Deferred tax assets, including those arising from tax losses not recouped, capital losses and temporary differences, are recognised in the Consolidated Balance Sheet, only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Management considers that it is probable that future taxable profits will be available to utilise those temporary differences. 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 profits. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the Consolidated Balance Sheet and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the Consolidated Income Statement. Further details on the Group’s taxation accounting policy are disclosed in note 38(d). The Group has identified its operating segments on the basis of how the Chief Operating Decision Maker reviews internal reports about components of the Group in order to assess the performance and allocation of resources to a particular segment. Information reported to the Group’s Chief Executive Officer (Chief Operating Decision Maker) for the purpose of performance assessment and resource allocation is specifically focused on the following segments:  Solids Comprises the collection, treatment, recycle and disposal of all types of solid waste streams, including general waste, recyclables, construction and demolition waste and medical and washroom services. Solids owns and manages waste transfer stations, resource recovery and recycling facilities, secure product destruction, quarantine treatment operations and landfills and participates in commodities trading of recovered paper, cardboard, metals and plastics to the domestic and international marketplace. Solids also generate and sell electricity produced utilising landfill gas.  Liquids and Industrial Services Comprises the collection, treatment, processing and recycling of liquid and hazardous waste, including industrial waste, grease trap waste, oily waters and used mineral and cooking oils in packaged and bulk forms for resale, disposal and to produce fuel oils and base oils, as well as services including industrial cleaning, vacuum tanker loading, site remediation, sludge management, parts washing, concrete remediation, CCTV, corrosion protection and emergency response services. Unallocated balances include the Group’s share of profits from equity accounted investments and corporate balances. Corporate balances relate to shared services functions that are not directly attributable to an identifiable segment. These functions include management, finance, legal, information technology, marketing, and human resources that provide support to the other segments identified above. No operating segments have been aggregated to form the reportable segments. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. The Group has the following allocation policies:  Sales between segments are on normal commercial terms; and  Corporate charges are allocated where possible based on estimated usage of Corporate resources. Segment assets and liabilities have not been disclosed as these are not provided to the Chief Operating Decision Maker. This information is provided at a Group level only. Finance income and expenses and fair value gains and losses on financial assets are not allocated to individual segments as the underlying instruments are managed on a group basis. Current taxes, deferred taxes and certain financial assets and liabilities are not allocated to those segments as they are also managed on a group basis. Inter-segment revenues are eliminated on consolidation. 70 71 71 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 5. Segment reporting (continued) 5. Segment reporting (continued) 2016 Revenue Sales of goods and services PSO benefits 1 Other revenue Inter-segment sales Total revenue Underlying EBITDA Costs associated with restructuring Costs associated with rebranding Other underlying adjustments Depreciation in underlying adjustments Depreciation and amortisation EBIT Net finance costs Profit before income tax Income tax expense Profit after income tax Capital expenditure: Property, plant and equipment Intangible assets 1 Product Stewardship for Oil benefits. OPERATING SEGMENTS UNALLOCATED LIQUIDS AND INDUSTRIAL SERVICES $’M EQUITY ACCOUNTED INVESTMENTS $’M SOLIDS $’M CORPORATE $’M ELIMINATIONS $’M GROUP $’M 1,030.1 – 15.8 12.5 1,058.4 237.7 (11.8) – 0.3 (2.1) (124.1) 100.0 392.9 14.1 1.8 27.8 436.6 57.5 (5.7) (0.9) – – (24.5) 26.4 – – – – – 1.3 – – – – – 1.3 – – 0.4 – 0.4 (15.2) (3.6) (2.7) – – (10.1) (31.6) – – – (40.3) (40.3) – – – – – – – 1,423.0 14.1 18.0 – 1,455.1 281.3 (21.1) (3.6) 0.3 (2.1) (158.7) 96.1 (34.5) 61.6 (18.5) 43.1 100.6 – 34.4 – – – 6.9 11.6 – – 141.9 11.6 72 72 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 OPERATING SEGMENTS UNALLOCATED LIQUIDS AND INDUSTRIAL SERVICES $’M EQUITY ACCOUNTED INVESTMENTS $’M SOLIDS $’M CORPORATE ELIMINATIONS $’M $’M GROUP $’M 5. Segment reporting (continued) Sales of goods and services 1,030.1 392.9 2016 Revenue PSO benefits 1 Other revenue Inter-segment sales Total revenue Underlying EBITDA Costs associated with restructuring Costs associated with rebranding Other underlying adjustments Depreciation in underlying adjustments Depreciation and amortisation EBIT Net finance costs Profit before income tax Income tax expense Profit after income tax Capital expenditure: 1,058.4 436.6 – 15.8 12.5 237.7 (11.8) – 0.3 (2.1) (124.1) 100.0 14.1 1.8 27.8 57.5 (5.7) (0.9) – – (24.5) 26.4 Property, plant and equipment Intangible assets 100.6 – 34.4 – 1 Product Stewardship for Oil benefits. 1.3 1.3 – – – – – – – – – – – – 0.4 0.4 (15.2) (3.6) (2.7) – – – – – (10.1) (31.6) 6.9 11.6 (40.3) (40.3) – – – – – – – – – – – – 1,423.0 14.1 18.0 – 1,455.1 281.3 (21.1) (3.6) 0.3 (2.1) (158.7) 96.1 (34.5) 61.6 (18.5) 43.1 141.9 11.6 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 5. Segment reporting (continued) 5. Segment reporting (continued) OPERATING SEGMENTS UNALLOCATED 2015 Revenue Sales of goods and services PSO benefits Other revenue Inter-segment sales 1 Total revenue Underlying EBITDA Costs associated with fleet grounding Impairment of assets Net loss on disposal of investments, site closures and acquisition costs Other underlying adjustments Depreciation in underlying adjustments Depreciation and amortisation EBIT Net finance costs Loss before income tax Income tax benefit Loss from continuing operations after income tax Net profit from discontinued operations after income tax Loss from continuing and discontinued operations after income tax Capital expenditure: Property, plant and equipment Intangible assets LIQUIDS AND INDUSTRIAL SERVICES $’M EQUITY ACCOUNTED INVESTMENTS $’M CORPORATE $’M ELIMINATIONS $’M GROUP $’M SOLIDS $’M 926.5 – 8.1 12.6 947.2 198.0 (6.6) – (4.3) – (0.6) (99.0) 87.5 430.6 15.3 1.5 28.5 475.9 55.8 (5.6) (77.5) – – (0.4) (26.9) (54.6) – – – – – 1.4 – – – – – – 1.4 1.0 – 1.9 – 2.9 (23.9) (3.3) – (1.5) (1.6) – (7.9) (38.2) – – – (41.1) (41.1) – – – – – – – – – – 1,358.1 15.3 11.5 – 1,384.9 231.3 (15.5) (77.5) (5.8) (1.6) (1.0) (133.8) (3.9) (27.1) (31.0) 7.4 (23.6) 8.2 (15.4) 173.7 2.2 111.5 – 41.9 – – – 20.3 2.2 1 Inter-segment sales have been restated from $79.4 million to $12.6 million for Solids and from $90.5 million to $28.5 million for Liquids and Industrial Services. The corresponding elimination to present Group revenue decreased from $169.9 million to $41.1 million. This restatement is due to the elimination of ‘intra-segment’ sales of $128.8 million where sales occur within the respective segments and is consistent with the current period presentation. 72 73 73 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 6. Revenue 6. Revenue Sale of goods and services Product Stewardship for Oil (PSO) benefits Other revenue Refer to note 38(a) for the Group’s accounting policy on revenue. 7. Other income 7. Other income Gain on disposal of property, plant and equipment Gain on disposal of investments Net foreign currency exchange (losses)/gains 8. Net finance costs 8. Net finance costs Finance costs Interest on borrowings Amortisation of capitalised transaction costs Unwind of discount on provisions and other liabilities Foreign currency exchange loss on USPP borrowings Change in fair value of derivative instruments related to USPP borrowings Finance income Interest revenue Net finance costs Refer to note 38(c) for the Group’s accounting policy on finance costs. 2016 $’M 1,423.0 14.1 18.0 1,455.1 2015 $’M 1,358.1 15.3 11.5 1,384.9 2016 $’M 1.4 0.3 (0.1) 1.6 2016 $’M (19.9) (1.3) (14.0) (2.3) 2.3 (35.2) 0.7 0.7 (34.5) 2015 $’M 1.0 3.0 0.1 4.1 2015 $’M (15.3) (1.1) (13.8) (11.6) 12.5 (29.3) 2.2 2.2 (27.1) 74 74 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 6. Revenue Sale of goods and services Product Stewardship for Oil (PSO) benefits Other revenue Refer to note 38(a) for the Group’s accounting policy on revenue. 7. Other income Gain on disposal of property, plant and equipment Gain on disposal of investments Net foreign currency exchange (losses)/gains 8. Net finance costs Finance costs Interest on borrowings Amortisation of capitalised transaction costs Unwind of discount on provisions and other liabilities Foreign currency exchange loss on USPP borrowings Change in fair value of derivative instruments related to USPP borrowings Finance income Interest revenue Net finance costs 1,423.0 1,358.1 1,455.1 1,384.9 2016 $’M 14.1 18.0 2016 $’M 1.4 0.3 (0.1) 1.6 2016 $’M (19.9) (1.3) (14.0) (2.3) 2.3 (35.2) 0.7 0.7 2015 $’M 15.3 11.5 2015 $’M 1.0 3.0 0.1 4.1 2015 $’M (15.3) (1.1) (13.8) (11.6) 12.5 (29.3) 2.2 2.2 Refer to note 38(c) for the Group’s accounting policy on finance costs. (34.5) (27.1) 9. 9. Income tax Income tax (a) Amounts recognised in the Consolidated Income Statement Current tax expense/(benefit) Current year Adjustments in respect of prior years Deferred tax expense/(benefit) Origination and reversal of temporary differences Adjustments in respect of prior years Income tax expense/(benefit) 2016 $’M 2015 $’M 10.2 (2.7) 7.5 8.0 3.0 11.0 18.5 3.0 (1.4) 1.6 (6.4) (2.6) (9.0) (7.4) (b) Amounts recognised directly in equity Deferred income tax expense on items charged directly to equity for the year totalled $1.1 million (2015: $0.3 million), which relate to the tax effect of items recognised in the asset revaluation reserve of $1.4 million expense (2015: $0.3 million) and the employee equity benefits reserve of $0.3 million benefit (2015: $Nil). (c) Reconciliation between tax expense and pre-tax net profit at the statutory rate Profit/(loss) before tax From continuing operations From discontinued operations Income tax using the corporation tax rate of 30% (2015: 30%) Increase/(decrease) in income tax expense due to: Share of profits from equity accounted investments Non-deductible expenses Impairment write downs of assets Adjustments in respect of prior years Research and development tax credits Employee share plan expenses Gain on sale of New Zealand business Utilisation of previously unrecognised capital tax losses Other Income tax expense/(benefit) Comprises: Income tax expense/(benefit) from continuing operations Income tax expense/(benefit) from discontinued operations Income tax expense/(benefit) 2016 $’M 61.6 – 61.6 18.5 (0.4) 0.4 – 0.3 (2.0) 1.4 – – 0.3 18.5 18.5 – 18.5 2015 $’M (31.0) 8.2 (22.8) (6.8) (0.4) 0.4 10.2 (4.0) (2.0) (1.2) (3.5) (0.9) 0.8 (7.4) (7.4) – (7.4) 74 75 75 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 9. 9. Income tax (continued) Income tax (continued) (d) Deferred tax Deferred tax in the Consolidated Balance Sheet relates to the following: 2016 Deferred tax assets PP&E Employee benefits Provisions Other Deferred tax liabilities Intangible assets Other Net deferred tax assets 2015 Deferred tax assets PP&E Employee benefits Provisions Tax losses Other Deferred tax liabilities Intangible assets Other Net deferred tax assets RECOGNISED IN PROFIT OR LOSS $’M RECOGNISED IN OTHER COMPREHENSIVE INCOME $’M OPENING BALANCE $’M RECOGNISED DIRECTLY IN EQUITY $’M ACQUIRED IN BUSINESS COMBINATION $’M OTHER $’M CLOSING BALANCE $’M 61.2 15.2 128.1 8.2 (47.3) (19.5) 145.9 (9.2) 1.9 (5.0) (2.2) 3.4 0.1 (11.0) (1.4) – – – – – (1.4) – – – 0.3 – – 0.3 – – – – – – – – – – 0.5 – – 0.5 50.6 17.1 123.1 6.8 (43.9) (19.4) 134.3 RECOGNISED IN PROFIT OR LOSS $’M RECOGNISED IN OTHER COMPREHENSIVE INCOME $’M OPENING BALANCE $’M RECOGNISED DIRECTLY IN EQUITY $’M ACQUIRED IN BUSINESS COMBINATION $’M OTHER $’M CLOSING BALANCE $’M 42.1 14.8 115.3 16.1 4.9 – (18.3) 174.9 19.4 0.4 3.0 (16.1) 3.3 0.2 (1.2) 9.0 (0.3) – – – – – – (0.3) – – – – – – – – – – 9.8 – – (47.5) – (37.7) – – – – – – – – 61.2 15.2 128.1 – 8.2 (47.3) (19.5) 145.9 76 76 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 9. Income tax (continued) (d) Deferred tax Deferred tax in the Consolidated Balance Sheet relates to the following: 2016 PP&E Deferred tax assets Employee benefits Provisions Other Deferred tax liabilities Intangible assets Other Deferred tax assets Employee benefits 2015 PP&E Provisions Tax losses Other Deferred tax liabilities Intangible assets Other Net deferred tax assets OPENING BALANCE $’M 61.2 15.2 128.1 8.2 (47.3) (19.5) 145.9 42.1 14.8 115.3 16.1 4.9 – (18.3) 174.9 LOSS $’M (9.2) 1.9 (5.0) (2.2) 3.4 0.1 19.4 0.4 3.0 (16.1) 3.3 0.2 (1.2) 9.0 RECOGNISED IN PROFIT OR COMPREHENSIVE RECOGNISED IN OTHER INCOME $’M (1.4) RECOGNISED DIRECTLY IN ACQUIRED IN BUSINESS EQUITY COMBINATION $’M $’M OTHER $’M CLOSING BALANCE $’M – – – – – – – – – – – (0.3) 0.3 – – – – – – – – – – – – – – – – – – – – – – – 9.8 (47.5) – 0.5 – – – – – 0.5 – – – – – – – – 50.6 17.1 123.1 6.8 (43.9) (19.4) 134.3 61.2 15.2 128.1 – 8.2 (47.3) (19.5) 145.9 (0.3) – (37.7) Net deferred tax assets (11.0) (1.4) 0.3 RECOGNISED IN PROFIT OR COMPREHENSIVE RECOGNISED IN OTHER LOSS $’M INCOME $’M OPENING BALANCE $’M RECOGNISED DIRECTLY IN ACQUIRED IN BUSINESS EQUITY COMBINATION $’M $’M OTHER $’M CLOSING BALANCE $’M 10. Earnings per share 10. Earnings per share From continuing and discontinuing operations Basic earnings per share (cents) Diluted earnings per share (cents) From discontinued operations Basic earnings per share (cents) Diluted earnings per share (cents) (i) Basic earnings per share 2016 2.8 2.8 – – 2015 (1.5) (1.5) 0.5 0.5 Basic earnings per share is calculated by dividing the net profit after income tax attributable to ordinary equity holders of the Group by the weighted average number of ordinary shares outstanding during the financial year. Reconciliation of earnings used as the numerator in calculating basic earnings per share: Profit/(loss) from continuing operations Profit from discontinued operations Net loss/(profit) attributable to non-controlling interests Distribution to step-up preference security holders Profit/(loss) from continuing and discontinued operations after tax attributable to ordinary equity holders Reconciliation of weighted average number of ordinary shares: 2016 $’M 43.1 – 1.7 – 44.8 2015 $’M (23.6) 8.2 (0.6) (7.6) (23.6) Issued ordinary shares at 1 July Effect of shares issued under dividend reinvestment plan Effect of shares issued under employee incentive plans Effect of shares issued under employee contract Weighted average number of ordinary shares used as the denominator in calculating earnings per share 2016 1,579,914,690 2,777,898 546,917 – 2015 1,579,323,967 – 330,220 68,388 1,583,239,505 1,579,722,575 (ii) Diluted earnings per share Diluted earnings per share adjusts basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Dilutive potential ordinary shares are limited to performance rights issued under the Group’s long term and short term incentive plans. Refer note 34 for details. The dilutive effect of the performance rights on basic earnings per share reported above is not material. 76 77 77 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 11. Cash and cash equivalents 11. Cash and cash equivalents (a) Composition of cash and cash equivalents Cash at bank and on hand Short-term deposits Refer to note 38(g) for the Group’s accounting policy on cash and cash equivalents. 2016 $’M 48.3 – 48.3 (b) Reconciliation of profit after income tax to net cash flows from operating activities 2016 $’M 43.1 Profit/(loss) from continuing and discontinuing operations after income tax Adjustments for: Income tax expense/(benefit) Net finance costs Share of profits from equity accounted investments Depreciation and amortisation expense Share-based payments expense Impairment of assets Change in fair value of non-landfill land and buildings Change in fair value of derivatives and underlying US denominated borrowings Net gain on disposal of property, plant and equipment Net gain on sale of business Other non-cash items Net cash flow from operating activities before changes in assets and liabilities Changes in assets and liabilities adjusted for effects of purchase of controlled entities during the financial period: (Increase)/decrease in receivables (Increase)/decrease in other assets (Increase)/decrease in inventories Increase/(decrease) in payables Increase/(decrease) in employee benefits Increase/(decrease) in other liabilities Increase/(decrease) in other provisions Cash generated from operating activities Net interest paid Income taxes refunded/(paid) Net cash from operating activities 18.5 34.5 (1.3) 160.8 1.3 – 0.2 – (1.7) – 1.6 257.0 2.8 (3.7) (0.6) 1.5 (3.8) (3.3) (45.7) 204.2 (20.9) 7.4 190.7 2015 $’M 36.9 0.1 37.0 2015 $’M (15.4) (7.4) 27.1 (1.4) 134.8 2.7 77.5 0.5 (0.9) (1.0) (12.8) 1.6 205.3 7.9 4.3 (0.6) (12.3) 5.9 (0.6) (15.1) 194.8 (9.7) (8.9) 176.2 78 78 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Profit/(loss) from continuing and discontinuing operations after income tax Adjustments for: Income tax expense/(benefit) Net finance costs Share of profits from equity accounted investments Depreciation and amortisation expense Share-based payments expense Impairment of assets Change in fair value of non-landfill land and buildings Change in fair value of derivatives and underlying US denominated borrowings Net gain on disposal of property, plant and equipment Net gain on sale of business Other non-cash items Net cash flow from operating activities before changes in assets and liabilities Changes in assets and liabilities adjusted for effects of purchase of controlled entities during the financial period: (Increase)/decrease in receivables (Increase)/decrease in other assets (Increase)/decrease in inventories Increase/(decrease) in payables Increase/(decrease) in employee benefits Increase/(decrease) in other liabilities Increase/(decrease) in other provisions Cash generated from operating activities Net interest paid Income taxes refunded/(paid) Net cash from operating activities 160.8 134.8 2016 $’M 48.3 – 48.3 2016 $’M 43.1 18.5 34.5 (1.3) 1.3 – 0.2 – (1.7) – 1.6 257.0 2.8 (3.7) (0.6) 1.5 (3.8) (3.3) (45.7) 204.2 (20.9) 7.4 190.7 2015 $’M 36.9 0.1 37.0 2015 $’M (15.4) (7.4) 27.1 (1.4) 2.7 77.5 0.5 (0.9) (1.0) (12.8) 1.6 205.3 7.9 4.3 (0.6) (12.3) 5.9 (0.6) (15.1) 194.8 (9.7) (8.9) 176.2 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 11. Cash and cash equivalents (a) Composition of cash and cash equivalents Cash at bank and on hand Short-term deposits 12. Trade and other receivables 12. Trade and other receivables Trade receivables Provision for doubtful debts Other receivables Refer to note 38(g) for the Group’s accounting policy on cash and cash equivalents. (b) Reconciliation of profit after income tax to net cash flows from operating activities Refer to note 38(h) for the Group’s accounting policy on trade and other receivables. The ageing of the Group’s trade receivables at the reporting date was: Not past due Past due 0-30 days Past due 31-120 days Past due 121 days or more The movement in the provision for doubtful debts during the year was as follows: Opening balance Impairment recognised Utilisation of provision Closing balance 2016 $’M 225.7 (7.8) 217.9 6.4 224.3 2016 $’M 157.5 42.0 15.3 10.9 225.7 2016 $’M 6.5 4.4 (3.1) 7.8 2015 $’M 225.9 (6.5) 219.4 7.7 227.1 2015 $’M 131.9 61.5 25.4 7.1 225.9 2015 $’M 2.8 4.9 (1.2) 6.5 No single customer’s annual revenue is greater than 2.6% (2015: 3.1%) of the Group’s total revenue. Trade and other receivables that are neither past due or impaired are considered to be of a high credit quality. 13. 13. Inventories Inventories Raw materials and consumables – at cost 1 Work in progress – at cost Finished goods – at cost 2016 $’M 10.5 – 6.2 16.7 2015 $’M 10.4 0.4 6.0 16.8 1 Prior year balance has been restated to correct the purchase price allocation of the MRL acquisition. Refer to note 26 for details of the adjustment. Refer to note 38(i) for the Group’s accounting policy on inventories. 14. Trade and other payables 14. Trade and other payables Trade payables Other payables and accruals Refer to note 38(m) for the Group’s accounting policy on trade and other payables. 2016 $’M 85.5 93.3 178.8 2015 $’M 81.3 97.5 178.8 78 79 79 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 15. Borrowings 15. Borrowings Unsecured Loans from related parties Other Total current Unsecured Bank loans US Private Placement Notes Other Total non-current Total borrowings 2016 $’M 0.5 0.3 0.8 293.9 64.7 – 358.6 359.4 2015 $’M 0.5 0.2 0.7 288.2 62.5 0.3 351.0 351.7 Bank loans are net of capitalised transaction costs of $1.1 million (2015: $1.8 million). Refer to note 38(n) for the Group’s accounting policy on borrowings. Financing facilities The facility limits and maturity profile of the Group’s main financing facilities are as follows: FACILITY Syndicated Facility Agreement US Private Placement Notes (USPP) Uncommitted bank guarantee facility Facility A Facility B Facility C working capital tranche 4 year revolver 5 year revolver 10 year tenure AMOUNT $135 million $130 million $335 million US$48 million $60 million MATURITY 1 July 2017 1 July 2019 1 July 2020 17 December 2017 31 December 2016 The USPP Notes have been swapped to AUD fixed rate debt to mitigate the foreign currency risk arising from these borrowings. Refer to note 30 for information on the derivative financial instrument. The USPP facility was fully drawn down at reporting date. The headroom available in the Group’s facilities at 30 June 2016 is summarised below: Syndicated Facility Agreement US Private Placement Notes (USPP) Bank guarantee facilities 1 Facility A 1 Facility B 2 Facility C 2 AVAILABLE $’M 135.0 130.0 335.0 64.7 61.6 726.3 UTILISED $’M (58.0) (130.0) (165.0) (64.7) (57.3) (475.0) NOT UTILISED $’M 77.0 – 170.0 – 4.3 251.3 1 2 These facilities include $115.3 million (2015: $114.4 million) in guarantees and letters of credit which are not included in the Consolidated Balance Sheet. These facilities represent the amount drawn down as ‘bank loans’ excluding the capitalised transaction costs of $1.1 million (2015: $1.8 million). The headroom available in the Group’s facilities at 30 June 2015 is summarised below: Syndicated Facility Agreement US Private Placement Notes (USPP) Bank guarantee facilities Facility A Facility B Facility C AVAILABLE $’M 135.0 130.0 335.0 62.5 40.0 702.5 UTILISED $’M (81.0) (125.0) (165.0) (62.5) (35.5) (469.0) NOT UTILISED $’M 54.0 5.0 170.0 – 4.5 233.5 80 80 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 15. Borrowings Unsecured Loans from related parties Other Total current Unsecured Bank loans US Private Placement Notes Other Total non-current Total borrowings accounting policy on borrowings. Financing facilities Bank loans are net of capitalised transaction costs of $1.1 million (2015: $1.8 million). Refer to note 38(n) for the Group’s The facility limits and maturity profile of the Group’s main financing facilities are as follows: FACILITY Syndicated Facility Agreement working capital tranche Facility A Facility B Facility C 4 year revolver 5 year revolver 10 year tenure AMOUNT $135 million $130 million $335 million MATURITY 1 July 2017 1 July 2019 1 July 2020 US$48 million 17 December 2017 $60 million 31 December 2016 US Private Placement Notes (USPP) Uncommitted bank guarantee facility The USPP Notes have been swapped to AUD fixed rate debt to mitigate the foreign currency risk arising from these borrowings. Refer to note 30 for information on the derivative financial instrument. The USPP facility was fully drawn down at reporting date. The headroom available in the Group’s facilities at 30 June 2016 is summarised below: AVAILABLE NOT UTILISED Syndicated Facility Agreement US Private Placement Notes (USPP) Bank guarantee facilities 1 Facility A 1 Facility B 2 Facility C 2 Syndicated Facility Agreement US Private Placement Notes (USPP) Bank guarantee facilities Facility A Facility B Facility C $’M 135.0 130.0 335.0 64.7 61.6 726.3 $’M 135.0 130.0 335.0 62.5 40.0 702.5 UTILISED $’M (58.0) (130.0) (165.0) (64.7) (57.3) (475.0) UTILISED $’M (81.0) (125.0) (165.0) (62.5) (35.5) (469.0) $’M 77.0 170.0 – – 4.3 251.3 $’M 54.0 5.0 170.0 – 4.5 233.5 1 2 These facilities include $115.3 million (2015: $114.4 million) in guarantees and letters of credit which are not included in the Consolidated Balance Sheet. These facilities represent the amount drawn down as ‘bank loans’ excluding the capitalised transaction costs of $1.1 million (2015: $1.8 million). The headroom available in the Group’s facilities at 30 June 2015 is summarised below: AVAILABLE NOT UTILISED 2016 $’M 0.5 0.3 0.8 293.9 64.7 – 358.6 359.4 2015 $’M 0.5 0.2 0.7 288.2 62.5 0.3 351.0 351.7 16. 16. Issued capital Issued capital Issued and paid up capital is recognised at the fair value of the consideration received by the Company. Any transaction costs incurred by the Company arising on the issue of capital are recognised directly in equity as a reduction of the share capital received. Ordinary shares participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. Ordinary shares have no par value. Opening balance Issue of shares under dividend reinvestment plan Issue of shares under employee incentive plan Issue of shares under employment contract Closing balance 2016 2015 NUMBER OF SHARES 1,579,914,690 5,776,895 653,020 – 1,586,344,605 $’M 2,072.1 4.3 – – 2,076.4 NUMBER OF SHARES 1,579,323,967 – 375,538 215,185 1,579,914,690 $’M 2,071.8 – – 0.3 2,072.1 17. Reserves 17. Reserves Asset revaluation reserve Employee equity benefits reserve 2016 $’M 34.9 8.4 43.3 2015 $’M 31.8 6.8 38.6 (a) Asset revaluation reserve The asset revaluation reserve is used to record revaluations of non-landfill land and buildings. Refer to note 38(k) for further details on the Group’s non-landfill land and buildings valuation policy. Opening balance Revaluation of land and buildings (net of tax) Transferred to retained earnings Closing balance 2016 $’M 31.8 3.1 – 34.9 2015 $’M 29.8 1.4 0.6 31.8 Employee equity benefits reserve (b) The employee equity benefits reserve is used to record the value of equity benefits provided to employees as part of their remuneration. Refer to note 34 for further details on these share-based payment plans. Opening balance Share-based payment expense (net of tax) Closing balance 2016 $’M 6.8 1.6 8.4 2015 $’M 4.1 2.7 6.8 80 81 81 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 18. Dividends and distributions 18. Dividends and distributions The Company declared a fully franked dividend on ordinary shares for the financial year ended 30 June 2016 of 1.7 cents per share, being an interim dividend of 0.8 cents per share and final dividend of 0.9 cents per share. The record date of the final dividend is 21 September 2016 with payment to be made on 7 October 2016. Details of distributions in respect of the financial year are as follows: Dividends paid/payable during the period Final dividend relating to prior period Interim dividend relating to current period Step-up preference securities Distribution for 2015 (fully franked at 30% tax rate) Dividends determined in respect of the period Interim dividend relating to current period Final dividend relating to current period Dividends paid/payable during the period Final dividend relating to prior period Interim dividend relating to current period Step-up preference securities Distribution for 2015 (fully franked at 30% tax rate) Dividends determined in respect of the period Interim dividend relating to current period Final dividend relating to current period Franking credit balance 2016 $’M 12.6 12.7 – 25.3 12.7 14.3 27.0 2015 $’M 23.7 11.1 7.6 42.4 11.1 12.6 23.7 2016 CENTS PER SHARE 2015 CENTS PER SHARE 0.8 0.8 – 1.6 0.8 0.9 1.7 1.5 0.7 305.0 307.2 0.7 0.8 1.5 The available amounts are based on the balance of the franking account at year end, adjusted for: (a) Franking credits that will arise from the payment of current tax liabilities; (b) Franking debits that will arise from the payment of franked or partially franked dividends recognised as a liability at the year end; and (c) Franking credits that will arise from the receipt of dividends recognised as receivables by the Tax Consolidated Group at the year end. 30% franking credits available for subsequent financial years 1 1 The payment of the final 2016 dividend determined after 30 June 2016 will reduce the franking account by $6.1 million. 2016 $’M 12.8 2015 $M 19.9 82 82 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 18. Dividends and distributions 19. Capital management 19. Capital management When managing capital, management’s objective is to ensure that the Group uses a mix of funding options, with the objectives of optimising returns to equity holders and prudent risk management. The facility limits and maturity profile of the Group’s main financing facilities are contained in note 15. The capital structure of the Group comprises debt, which includes borrowings, cash and cash equivalents and equity attributable to equity holders of the parent, such equity comprising issued capital, reserves and retained earnings as disclosed in the Consolidated Balance Sheet. The Group is subject to and complies with externally imposed capital requirements. The gearing ratio of the Group at reporting date was as follows: Current borrowings Non-current borrowings Less cash and cash equivalents Net debt Total equity Gearing ratio 1 1 The gearing ratio is calculated as Net debt divided by Net debt plus Total equity. 2016 $’M 0.8 358.6 (48.3) 311.1 1,781.5 14.9% 2015 $’M 0.7 351.0 (37.0) 314.7 1,754.7 15.2% The Company declared a fully franked dividend on ordinary shares for the financial year ended 30 June 2016 of 1.7 cents per share, being an interim dividend of 0.8 cents per share and final dividend of 0.9 cents per share. The record date of the final dividend is 21 September 2016 with payment to be made on 7 October 2016. Details of distributions in respect of the financial year are as follows: Dividends paid/payable during the period Final dividend relating to prior period Interim dividend relating to current period Step-up preference securities Distribution for 2015 (fully franked at 30% tax rate) Dividends determined in respect of the period Interim dividend relating to current period Final dividend relating to current period Dividends paid/payable during the period Final dividend relating to prior period Interim dividend relating to current period Step-up preference securities Distribution for 2015 (fully franked at 30% tax rate) Dividends determined in respect of the period Interim dividend relating to current period Final dividend relating to current period 2016 $’M 12.6 12.7 – 25.3 12.7 14.3 27.0 0.8 0.8 – 1.6 0.8 0.9 1.7 2015 $’M 23.7 11.1 7.6 42.4 11.1 12.6 23.7 1.5 0.7 305.0 307.2 0.7 0.8 1.5 2016 CENTS PER SHARE 2015 CENTS PER SHARE Franking credit balance year end; and at the year end. The available amounts are based on the balance of the franking account at year end, adjusted for: (a) Franking credits that will arise from the payment of current tax liabilities; (b) Franking debits that will arise from the payment of franked or partially franked dividends recognised as a liability at the (c) Franking credits that will arise from the receipt of dividends recognised as receivables by the Tax Consolidated Group 30% franking credits available for subsequent financial years 1 1 The payment of the final 2016 dividend determined after 30 June 2016 will reduce the franking account by $6.1 million. 2016 $’M 12.8 2015 $M 19.9 82 83 83 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 20. Property, plant and equipment 20. Property, plant and equipment 2016 Opening net book value Additions Acquisitions of businesses Net movement in landfill assets Disposals Transfer of assets Transfer to assets held for sale Revaluations Project and site closures Depreciation Closing net book value Cost or fair value Accumulated depreciation Net book value 2015 Opening net book value Additions 2 Acquisitions of businesses Net movement in landfill asset Disposals Transfer of assets 2 Revaluations Impairment of assets Depreciation Closing net book value Cost or fair value Accumulated depreciation Net book value NON-LANDFILL LAND AND BUILDINGS $’M 153.9 – – – (0.5) 4.7 – 4.5 (0.4) (2.0) 160.2 164.7 (4.5) 160.2 NON-LANDFILL LAND AND BUILDINGS $’M 148.6 – – – – 7.7 0.7 – (3.1) 153.9 159.1 (5.2) 153.9 LANDFILL ASSETS $’M 142.6 – – 28.9 – 70.8 – – – (43.7) 198.6 476.5 (277.9) 198.6 LANDFILL ASSETS $’M 127.6 – 13.1 24.7 – 11.2 – – (34.0) 142.6 376.3 (233.7) 142.6 LEASEHOLD IMPROVEMENTS $’M 32.8 – – – – 3.2 – – – (4.0) 32.0 38.4 (6.4) 32.0 LEASEHOLD IMPROVEMENTS $’M 6.7 – – – (0.1) 27.7 – – (1.5) 32.8 35.4 (2.6) 32.8 PLANT AND EQUIPMENT $’M 441.8 – – – (2.0) 106.4 – – – (99.0) 447.2 1,362.8 (915.6) 447.2 CAPITAL WORK IN PROGRESS $’M 89.3 164.1 0.2 – – (187.7) (2.2) – (4.6) – 59.1 59.1 – 59.1 PLANT AND EQUIPMENT $’M 428.8 – 14.2 – (5.0) 140.1 – (43.4) (92.9) 441.8 1,343.5 (901.7) 441.8 CAPITAL WORK IN PROGRESS 1 $’M 110.3 183.7 – – – (204.7) – – – 89.3 89.3 – 89.3 TOTAL $’M 860.4 164.1 0.2 28.9 (2.5) (2.6) (2.2) 4.5 (5.0) (148.7) 897.1 2,101.5 (1,204.4) 897.1 TOTAL $’M 822.0 183.7 27.3 24.7 (5.1) (18.0) 0.7 (43.4) (131.5) 860.4 2,003.6 (1,143.2) 860.4 1 2 The 2015 capital work in progress balance has been adjusted to reflect $2.2 million of additions which have been transferred to intangibles. The additions and transfer of assets rows have been restated to reflect that all additions are initially recognised as capital work in progress and then transferred to the appropriate property, plant and equipment category once the asset is ready for use. 84 84 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 20. Property, plant and equipment 20. Property, plant and equipment (continued) 20. Property, plant and equipment (continued) LANDFILL LEASEHOLD PLANT AND CAPITAL WORK ASSETS IMPROVEMENTS EQUIPMENT IN PROGRESS 2016 Additions Opening net book value Acquisitions of businesses Net movement in landfill assets Disposals Transfer of assets Transfer to assets held for sale Revaluations Project and site closures Depreciation Closing net book value Cost or fair value Accumulated depreciation Net book value 2015 Opening net book value Additions 2 Acquisitions of businesses Net movement in landfill asset Disposals Transfer of assets 2 Revaluations Impairment of assets Depreciation Closing net book value Cost or fair value Accumulated depreciation Net book value NON-LANDFILL LAND AND BUILDINGS $’M 153.9 – – – (0.5) 4.7 – 4.5 (0.4) (2.0) 160.2 164.7 (4.5) 160.2 – – – – 7.7 0.7 – (3.1) 153.9 159.1 (5.2) 153.9 NON-LANDFILL LAND AND BUILDINGS $’M 148.6 $’M 142.6 28.9 70.8 – – – – – – (43.7) 198.6 476.5 (277.9) 198.6 $’M 127.6 – 13.1 24.7 11.2 – – – (34.0) 142.6 376.3 (233.7) 142.6 $’M 32.8 – – – – – – – 3.2 (4.0) 32.0 38.4 (6.4) 32.0 $’M 6.7 – – – (0.1) 27.7 – – (1.5) 32.8 35.4 (2.6) 32.8 $’M 441.8 (2.0) 106.4 – – – – – – (99.0) 447.2 1,362.8 (915.6) 447.2 $’M 428.8 – 14.2 – (5.0) 140.1 – (43.4) (92.9) 441.8 1,343.5 (901.7) 441.8 – (1,204.4) 59.1 897.1 $’M 89.3 164.1 0.2 (187.7) (2.2) – – – – (4.6) 59.1 59.1 (204.7) $’M 110.3 183.7 – – – – – – 89.3 89.3 – 89.3 TOTAL $’M 860.4 164.1 0.2 28.9 (2.5) (2.6) (2.2) 4.5 (5.0) (148.7) 897.1 2,101.5 TOTAL $’M 822.0 183.7 27.3 24.7 (5.1) (18.0) 0.7 (43.4) (131.5) 860.4 2,003.6 (1,143.2) 860.4 LANDFILL LEASEHOLD ASSETS IMPROVEMENTS PLANT AND CAPITAL WORK EQUIPMENT IN PROGRESS 1 1 2 The 2015 capital work in progress balance has been adjusted to reflect $2.2 million of additions which have been transferred to intangibles. The additions and transfer of assets rows have been restated to reflect that all additions are initially recognised as capital work in progress and then transferred to the appropriate property, plant and equipment category once the asset is ready for use. Accounting for landfill assets The Group is responsible for a total of 17 landfills (2015: 17 landfills). Of the 17 landfills, nine are closed. Those that are open are expected to close between 2017 and 2070. The Group’s remediation provisions are based on an average 30 year post-closure period. It is the Group’s policy at time of development or acquisition of a landfill and at each reporting date to: (a) Capitalise the cost of cell development to landfill assets; (b) Capitalise the cost of purchased landfill assets; (c) Depreciate the capitalised landfill assets over the useful life of the landfill asset or site; and (d) Recognise income generated from the landfill assets in the reporting period earned. Refer to note 38(k) for further details on the Group’s accounting policy on landfill assets. Valuations of non-landfill land and buildings Non-landfill land and buildings are shown at fair value in the Consolidated Balance Sheet, based on periodic valuations by external independent valuers, less subsequent depreciation of buildings. The current valuation selection process ensures that each property is valued at least every three years. Land and buildings are combined for the purposes of determining fair value as this is how management view its property and associated value. The fair values are reviewed at the end of each reporting period to ensure that the carrying value of land and buildings is not materially different to their fair values. Any revaluation increment (net of tax) is credited to the asset revaluation reserve included in the equity section of the Consolidated Balance Sheet. Any revaluation decrement directly offsetting a previous increment in the same asset is directly offset against the surplus in the asset revaluation reserve, otherwise it is charged to the Consolidated Income Statement. The following table shows an analysis of the fair values of land and buildings recognised in the Consolidated Balance Sheet by level of the fair value hierarchy: 2016 Residential Regional industrial Metropolitan industrial Total 2015 Residential Regional industrial Metropolitan industrial Total LEVEL 1 $’M – – – – – – – – LEVEL 2 $’M 1.7 – – 1.7 1.7 – – 1.7 LEVEL 3 $’M – 44.2 112.5 156.7 – 40.0 108.9 148.9 TOTAL 1 $’M 1.7 44.2 112.5 158.4 1.7 40.0 108.9 150.6 AMOUNT EXPENSED $’M – (0.2) – (0.2) – (0.5) – (0.5) 1 The amounts in this table are based on the most recent valuation for each property and does not take into account subsequent accumulated depreciation recognised. Amounts taken to the Consolidated Income Statement are shown in change in fair value of land and buildings. There were no transfers between levels during the year. Level 2 valuations are based on a direct comparison approach whereby a property’s fair value is estimated based on comparable transactions and are then adjusted to take into account any differences in the assets. The unit of comparison applied by the Group is the price per square metre (sqm). 84 85 85 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 20. Property, plant and equipment (continued) 20. Property, plant and equipment (continued) The following table presents the details of the valuation approaches used under Level 3: Regional industrial Metropolitan industrial VALUATION TECHNIQUE Summation Capitalisation Direct comparison Summation Capitalisation Direct comparison KEY UNOBSERVABLE INPUTS Price per square metre Depreciation replacement cost Capitalisation rate Leased income per square metre Price per square metre Price per square metre Depreciation replacement cost Capitalisation rate Leased income per square metre Price per square metre RANGE 2016 $5-250 $207-1019 9.75% $125 $60-1401 $15-360 $35-671 7%-10% $40-94 $70-1831 RANGE 2015 $60-250 $0-1500 9.25% $75-130 $70-525 $15-285 $0-1500 7.25%-10% $95-225 $300-1725 Under the summation method a property’s fair value is estimated based on comparable transactions for the land on a price per square metre basis together with an estimate of the cost to replace any buildings or structures on site less depreciation. Under the income capitalisation method, a property’s fair value is estimated based on the normalised net operating lease income generated by the property, which is divided by the capitalisation rate (discounted by a rate of return). Significant increases/(decreases) in any of the significant unobservable inputs, in isolation, under the direct comparison, summation or capitalisation methods would result in a significantly higher/(lower) fair value measurement. If non-landfill land and buildings were measured using the cost model, the carrying amounts would be as follows: Land Cost Buildings Cost Accumulated depreciation Closing net book value 21. 21. Intangible assets Intangible assets 2016 $’M 2015 $’M 82.2 82.3 71.1 (21.4) 49.7 68.5 (20.0) 48.5 Opening net book value Additions 1 Acquisitions of businesses 2 Disposals Transfers from PPE Impairment of intangible assets Amortisation Net book value Cost Accumulated amortisation Net book value GOODWILL 2016 $’M 1,195.5 – 0.4 – – – – 1,195.9 1,195.9 – 1,195.9 2015 $’M 1,190.6 – 39.0 – – (34.1) – 1,195.5 1,195.5 – 1,195.5 OTHER INTANGIBLES TOTAL 2016 $’M 344.2 15.9 0.2 (1.7) 1.6 – (12.1) 348.1 407.8 (59.7) 348.1 2015 $’M 81.4 4.9 261.2 – – – (3.3) 344.2 391.8 (47.6) 344.2 2016 $’M 1,539.7 15.9 0.6 (1.7) 1.6 – (12.1) 1,544.0 1,603.7 (59.7) 1,544.0 2015 $’M 1,272.0 4.9 300.2 – – (34.1) (3.3) 1,539.7 1,587.3 (47.6) 1,539.7 1 2 The 2015 additions for other intangibles have been adjusted to reflect $2.2 million of additions which have been transferred from property, plant and equipment and $0.5 million of carbon credit unit additions which have been transferred from other assets. Finalisation of the purchase price allocation of the MRL acquisition resulted in a consequential reduction in goodwill. 86 86 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 20. Property, plant and equipment (continued) 21. 21. Intangible assets (continued) Intangible assets (continued) The following table presents the details of the valuation approaches used under Level 3: Regional industrial VALUATION TECHNIQUE Summation KEY UNOBSERVABLE INPUTS Price per square metre Depreciation replacement cost Capitalisation Capitalisation rate Leased income per square metre Direct comparison Price per square metre Metropolitan Summation Price per square metre industrial Depreciation replacement cost Capitalisation Capitalisation rate Leased income per square metre Direct comparison Price per square metre RANGE 2016 $5-250 $207-1019 9.75% $125 $60-1401 $15-360 $35-671 7%-10% $40-94 $70-1831 RANGE 2015 $60-250 $0-1500 9.25% $75-130 $70-525 $15-285 $0-1500 7.25%-10% $95-225 $300-1725 Under the summation method a property’s fair value is estimated based on comparable transactions for the land on a price per square metre basis together with an estimate of the cost to replace any buildings or structures on site less depreciation. Under the income capitalisation method, a property’s fair value is estimated based on the normalised net operating lease income generated by the property, which is divided by the capitalisation rate (discounted by a rate of return). Significant increases/(decreases) in any of the significant unobservable inputs, in isolation, under the direct comparison, summation or capitalisation methods would result in a significantly higher/(lower) fair value measurement. If non-landfill land and buildings were measured using the cost model, the carrying amounts would be as follows: 2016 $’M 2015 $’M 82.2 82.3 71.1 (21.4) 49.7 68.5 (20.0) 48.5 Land Cost Buildings Cost Accumulated depreciation Closing net book value 21. Intangible assets Opening net book value 1,195.5 1,190.6 1,539.7 1,272.0 Acquisitions of businesses 2 0.4 39.0 Impairment of intangible assets (34.1) Additions 1 Disposals Transfers from PPE Amortisation Net book value Cost Accumulated amortisation Net book value GOODWILL 2016 $’M 2015 $’M OTHER INTANGIBLES TOTAL 2016 $’M 2016 $’M 344.2 15.9 0.2 (1.7) 1.6 – (12.1) 348.1 407.8 (59.7) 348.1 2015 $’M 81.4 4.9 261.2 – – – (3.3) 344.2 391.8 (47.6) 344.2 15.9 0.6 (1.7) 1.6 – (12.1) 1,544.0 1,603.7 (59.7) 1,544.0 2015 $’M 4.9 300.2 – – (34.1) (3.3) 1,539.7 1,587.3 (47.6) 1,539.7 – – – – – – – – – – – 1,195.9 1,195.9 1,195.5 1,195.5 1,195.9 1,195.5 1 The 2015 additions for other intangibles have been adjusted to reflect $2.2 million of additions which have been transferred from property, plant and equipment and $0.5 million of carbon credit unit additions which have been transferred from other assets. 2 Finalisation of the purchase price allocation of the MRL acquisition resulted in a consequential reduction in goodwill. Intangible assets are monitored at an operating segment level for the Solids business (formerly Cleanaway) and at a cash-generating unit (CGU) level for the Liquids and Industrial Services business. CGUs for the Liquids and Industrial Services business consists of:  Liquids & Hazardous Waste, excluding Hydrocarbons (formerly Technical Services);  Hydrocarbons; and  Industrial Services (formerly EMR). The carrying amount of goodwill and intangible assets allocated to the operating segment or CGUs is as follows: 2016 Goodwill 1 Brand names Other intangible assets Total 2015 Goodwill Brand names Other intangible assets Total LIQUIDS & HAZARDOUS WASTE $’M 58.4 – 1.0 59.4 INDUSTRIAL SERVICES $’M 47.9 – – 47.9 CORPORATE $’M – – 10.1 10.1 TOTAL $’M 1,195.9 78.6 269.5 1,544.0 70.0 – 0.2 70.2 36.3 – – 36.3 – – 2.2 2.2 1,195.5 78.6 265.6 1,539.7 SOLIDS $’M 1,089.6 78.6 258.4 1,426.6 1,089.2 78.6 263.2 1,431.0 1 The goodwill allocation across the Liquids and Industrial Services business has been revised in 2016 to reflect the impact of organisational restructures. At 30 June 2016, other intangible assets include the Melbourne Regional Landfill asset of $242.2 million (2015: $245.8 million) and customer contracts of $5.2 million (2015: $11.8 million). The increase in goodwill and other intangibles in 2015 was due to the acquisition of the Melbourne Regional Landfill, Dimeo Waste Services and Riverland businesses during the 2015 financial year. Refer to note 26. Annual impairment testing After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill and brand names are not amortised but are subject to impairment testing. In accordance with the Group’s accounting policies, the Group performs its impairment testing annually at 30 June. Goodwill and non-current assets are however reviewed at each reporting period to determine whether there is an indicator of impairment. Where an indicator of impairment exists, a formal review is undertaken to estimate the recoverable amount of related assets. Results of impairment testing Based on impairment testing performed, the recoverable amounts of each CGU exceed the carrying amounts at 30 June 2016. The results of the impairment testing are summarised in the table below: Intangible assets Property, plant and equipment Total impairment HYDROCARBONS TOTAL 2016 $’M – – – 2015 $’M 34.1 43.4 77.5 2016 $’M – – – 2015 $’M 34.1 43.4 77.5 Impairment in the prior period related to the Hydrocarbons CGU. The Hydrocarbons CGU refines and recycles used mineral oils to produce fuel oils and base oils. In the prior period the CGU was experiencing increased collection costs and low sales price indices for fuel and base oils, which led to a significant decline in results for the Hydrocarbon business. Despite continued price weakness and volatility during the financial year ended 30 June 2016, there is no need for further impairment at 30 June 2016, particularly given the benefits of the Cost Reduction Program and associated capital spend management referred to later in this note. Whilst there are a range of possible outcomes, the current modelling shows headroom of $52.5 million. Until a sustainable level of earnings exists to demonstrate the modelled cash flows will be achieved, the Directors believe that it is too early to reverse the impairment. 86 87 87 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 21. Intangible assets (continued) 21. Intangible assets (continued) Key assumptions used for annual impairment testing The recoverable amounts of the operating segment or CGUs have been based on value-in-use calculations using three year forecasted cash flows. These calculations use cash flow projections based on actual operating results, the 2017 budget approved by the Board and the latest three year strategic plan adjusted for known developments and changes in information since the plan was formulated. The terminal growth and discount rate assumptions used in the 30 June 2015 impairment testing were reviewed and have been determined to remain valid for the 30 June 2016 testing. The terminal value growth rate has been based on published long-term growth rates. The discount rate has been based on an industry Weighted Average Cost of Capital (WACC) with cash flow projections being adjusted for CGU specific risks. Forecast revenue, EBITDA and capital spend assumptions used in the 30 June 2015 impairment testing have been adjusted for known and anticipated future operational changes and additional potential risk identified since 30 June 2015. These changes are reflected in the summary of key assumptions table below. Based on these key assumptions the recoverable amount of each CGU continues to exceed the carrying amounts at 30 June 2016. The table below provides a summary of the key assumptions used in the impairment testing at 30 June 2016 and the corresponding percentages for 30 June 2015: ASSUMPTIONS Revenue growth 1,2 EBITDA growth 1,2 Capital spend rate 3 Terminal value growth rate Post-tax discount rate Pre-tax discount rate SOLIDS LIQUIDS & HAZARDOUS WASTE JUNE 2016 3.7% 5.7% 10.1% 3.0% 7.7% 11.0% JUNE 2015 6.3% 8.5% 10.5% 3.0% 7.7% 11.0% JUNE 2016 2.6% 5.8% 5.2% 2.0% 7.7% 11.0% JUNE 2015 4.0% 24.3% 7.8% 2.0% 7.7% 11.0% HYDROCARBONS INDUSTRIAL SERVICES JUNE 2016 1.3% 6.4% 6.8% 2.0% 7.7% 11.0% JUNE 2015 2.8% 4.7% 8.5% 2.0% 7.7% 11.0% JUNE 2016 3.8% 18.0% 4.3% 2.0% 7.7% 11.0% JUNE 2015 0.2% 11.4% 5.7% 2.0% 7.7% 11.0% 1 The Melbourne Regional Landfill (MRL), acquired on 28 February 2015, has now been fully transitioned into the existing business and is therefore not separately identified. 2 Growth rates have been calculated with 30 June 2016 revenue and underlying normalised EBITDA as a base. Reflects capital spend as a percentage of revenue, calculated as the three year average of forecast spend. 3 Revenue growth assumptions Solids’ forecast revenue growth is based on expected volume and price growth considering business as usual with the growth transformation program, implemented across major markets in order to increase sales revenue, now fully embedded in the business. Growth rates have been determined with reference to external sources including the Reserve Bank of Australia GDP growth and CPI forecast, industry reports and industry specific forecasts that are closely linked to waste generation. The forecast revenue growth as at 30 June 2016 has been adjusted given a reduction in actual and forecast CPI and significant organisational changes since August 2015. Organisational changes include a comprehensive Cost Reduction Program which has impacted all activities of the Group and has been a high priority of management accompanied by a new operating model for the business. Liquid & Hazardous Waste, Hydrocarbons and Industrial Services forecast revenue growth considers GDP and CPI, adjusted for management’s best estimate of growth achievable in the current economic and competitive environment. Industrial Services’ forecast revenue growth includes the benefit of recent major contract wins. EBITDA growth assumptions EBITDA growth is primarily the result of changes in the revenue growth assumptions outlined above, together with the continued benefits of the Cost Reduction Program implemented partway through the 2016 financial year. Controls are in place to ensure that costs remain at the lower levels currently achieved. The Liquid & Hazardous Waste CGU reflects a decrease in the EBITDA growth from 30 June 2015 as a significant portion of the cost reductions have been achieved in the 2016 financial year resulting in a lower forward-looking EBITDA growth rate. The Industrial Services CGU reflects an increase in the EBITDA growth from 30 June 2015 due to major contract wins, benefits from the removal of divisional overhead structures as part of the cost reduction initiatives and the coinciding review of overhead allocations. 88 88 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 21. Intangible assets (continued) 21. Intangible assets (continued) 21. Intangible assets (continued) Key assumptions used for annual impairment testing Capital spend assumptions The recoverable amounts of the operating segment or CGUs have been based on value-in-use calculations using three year forecasted cash flows. These calculations use cash flow projections based on actual operating results, the 2017 budget approved by the Board and the latest three year strategic plan adjusted for known developments and changes in information Capital spend incorporates consideration of industry benchmarks but also reflects the continued focus on managing capital spend as part of the overall Cost Reduction and Capital Efficiency Program. The Solids segment is the most capital intensive part of the business and Industrial Services CGU is the least as its primary source of revenue is technical labour services. since the plan was formulated. The terminal growth and discount rate assumptions used in the 30 June 2015 impairment testing were reviewed and have been determined to remain valid for the 30 June 2016 testing. The terminal value growth rate has been based on published long-term growth rates. The discount rate has been based on an industry Weighted Average Cost of Capital (WACC) with cash flow projections being adjusted for CGU specific risks. Forecast revenue, EBITDA and capital spend assumptions used in the 30 June 2015 impairment testing have been adjusted for known and anticipated future operational changes and additional potential risk identified since 30 June 2015. These changes are reflected in the summary of key assumptions table below. Based on these key assumptions the recoverable amount of each CGU continues to exceed the carrying amounts at 30 June 2016. The table below provides a summary of the key assumptions used in the impairment testing at 30 June 2016 and the corresponding percentages for 30 June 2015: LIQUIDS & HAZARDOUS SOLIDS WASTE HYDROCARBONS INDUSTRIAL SERVICES JUNE 2016 3.7% 5.7% 3.0% 7.7% JUNE 2015 6.3% 8.5% 3.0% 7.7% 10.1% 10.5% JUNE 2016 2.6% 5.8% 5.2% 2.0% 7.7% JUNE 2015 4.0% 24.3% 7.8% 2.0% 7.7% JUNE 2016 1.3% 6.4% 6.8% 2.0% 7.7% JUNE 2015 2.8% 4.7% 8.5% 2.0% 7.7% JUNE 2016 3.8% 18.0% 4.3% 2.0% 7.7% JUNE 2015 0.2% 11.4% 5.7% 2.0% 7.7% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% ASSUMPTIONS Revenue growth 1,2 EBITDA growth 1,2 Capital spend rate 3 Terminal value growth rate Post-tax discount rate Pre-tax discount rate not separately identified. 1 The Melbourne Regional Landfill (MRL), acquired on 28 February 2015, has now been fully transitioned into the existing business and is therefore 2 Growth rates have been calculated with 30 June 2016 revenue and underlying normalised EBITDA as a base. 3 Reflects capital spend as a percentage of revenue, calculated as the three year average of forecast spend. Revenue growth assumptions Solids’ forecast revenue growth is based on expected volume and price growth considering business as usual with the growth transformation program, implemented across major markets in order to increase sales revenue, now fully embedded in the business. Growth rates have been determined with reference to external sources including the Reserve Bank of Australia GDP growth and CPI forecast, industry reports and industry specific forecasts that are closely linked to waste generation. The forecast revenue growth as at 30 June 2016 has been adjusted given a reduction in actual and forecast CPI and significant organisational changes since August 2015. Organisational changes include a comprehensive Cost Reduction Program which has impacted all activities of the Group and has been a high priority of management accompanied by a new operating model for the business. Liquid & Hazardous Waste, Hydrocarbons and Industrial Services forecast revenue growth considers GDP and CPI, adjusted for management’s best estimate of growth achievable in the current economic and competitive environment. Industrial Services’ forecast revenue growth includes the benefit of recent major contract wins. EBITDA growth assumptions EBITDA growth is primarily the result of changes in the revenue growth assumptions outlined above, together with the continued benefits of the Cost Reduction Program implemented partway through the 2016 financial year. Controls are in place to ensure that costs remain at the lower levels currently achieved. The Liquid & Hazardous Waste CGU reflects a decrease in the EBITDA growth from 30 June 2015 as a significant portion of the cost reductions have been achieved in the 2016 financial year resulting in a lower forward-looking EBITDA growth rate. The Industrial Services CGU reflects an increase in the EBITDA growth from 30 June 2015 due to major contract wins, benefits from the removal of divisional overhead structures as part of the cost reduction initiatives and the coinciding review of overhead allocations. Impact of possible changes in key assumptions Any variation in the key assumptions used to determine recoverable amount would result in a change to the estimated recoverable amount. If variations in assumptions had a negative impact on recoverable amount it could indicate a requirement for some impairment of non-current assets. If variations in assumptions had a positive impact on recoverable amount it could indicate a requirement for a reversal of previously impaired non-current assets, with the exception of goodwill. Estimated reasonably possible changes (absolute numbers) in the key assumptions would have the following approximate impact on impairment of each CGU as at 30 June 2016: Decrease in CAGR% – Revenue Decrease in CAGR% – EBITDA Increase in capital spend rate Decrease in terminal value growth rate Increase in post-tax discount rate REASONABLY POSSIBLE CHANGE 1% to 2% 2% to 3% 0.5% to 1% 1% 0.3% to 1% SOLIDS $’M Nil – (201.9) Nil Nil – (6.3) Nil Nil – (62.9) LIQUIDS & HAZARDOUS WASTE $’M Nil – (9.2) Nil Nil Nil Nil HYDROCARBONS $’M Nil Nil Nil Nil Nil INDUSTRIAL SERVICES $’M Nil Nil Nil Nil Nil Whilst the table above outlines management’s best estimates of key assumptions and reasonably possible changes in these, changes in the level of business activity may also materially impact the determination of recoverable amount. Should the macroeconomic factors that are specific to the Australian domestic market change, this could impact the level of activity in the market as well as competition and thereby affect the Group’s revenue and cost initiatives. If conditions change unfavourably, changes in recoverable amount estimates may arise. Each of the sensitivities above assumes that the specific assumption moves in isolation, whilst all other assumptions are held constant. In reality, a change in one of the aforementioned assumptions may accompany a change in another assumption. Action is also usually taken to respond to adverse changes in economic assumptions that may mitigate the impact of any such change. Modelling incorporating the assumptions identified in the key assumptions table provides that the recoverable amount exceeds the carrying amount (headroom) as outlined below. The recoverable amount of the operating segment or CGUs would equal its carrying amount if the key assumptions were to change as follows: Headroom $’M Decrease in CAGR% – Revenue 1 Decrease in CAGR% – EBITDA 1 Increase in capital spend rate 1 Decrease in terminal value growth rate 1,2 Increase in post-tax discount rate 1 LIQUIDS & HAZARDOUS WASTE $’M 66.3 1.7% 8.0% 1.6% 3.5% 3.1% HYDROCARBONS $’M 52.5 8.0% 7.6% 1.4% 4.6% 3.9% SOLIDS $’M 317.7 1.2% 3.1% 1.0% 1.3% 0.8% INDUSTRIAL SERVICES $’M 52.6 3.1% 8.0% 1.1% 2.7% 2.4% 1 2 Percentage changes presented above represents the absolute change in the assumption value (for example post-tax discount rate increasing by 0.8% from 7.7% to 8.5%). Liquids & Hazardous Waste, Hydrocarbons and Industrial Services terminal value would reflect negative value as it is currently modelled at 2%. Refer to note 38(l) for further details on the Group’s intangible assets accounting policy. 88 89 89 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 22. Equity accounted investments 22. Equity accounted investments The Group holds a 50% interest in the following equity accounted investments but does not have control. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Group does not have power over these entities either through management control or voting rights. OWNERSHIP INTEREST REPORTING DATE 2016 % 2015 % 50 50 50 50 50 50 50 50 NAME OF ENTITY Solids: Wonthaggi Recyclers Pty Ltd Earthpower Technologies Sydney Pty Ltd COUNTRY Australia Australia 30 June 30 June Liquids and Industrial Services: Total Waste Management Pty Ltd Western Resource Recovery Pty Ltd Australia Australia 31 December 31 December Share of equity accounted investments’ balance sheet Total assets Total liabilities Net assets as reported by equity accounted investments Share of net assets equity accounted Share of equity accounted investments’ revenue and profit Revenues (100%) Expenses Profit before income tax (100%) Share of profit before income tax Share of income tax expense Share of net profit recognised CARRYING VALUE OF INVESTMENT 2016 $’M 0.5 – 4.6 6.0 11.1 2016 $’M 29.0 (6.8) 22.2 11.1 2016 $’M 40.9 (37.6) 3.3 1.7 (0.4) 1.3 2015 $’M 0.5 0.4 4.5 6.8 12.2 2015 $’M 30.5 (6.1) 24.4 12.2 2015 $’M 43.6 (39.7) 3.9 1.9 (0.5) 1.4 Impairment losses and commitments During the year the equity accounted investments were tested for impairment and no adjustments were made as a result (2015: $Nil). As at the reporting date the Group had no contractual obligation to provide funding for capital commitments of equity accounted investments (2015: $Nil). 90 90 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 22. Equity accounted investments 23. Employee benefit liabilities 23. Employee benefit liabilities The Group holds a 50% interest in the following equity accounted investments but does not have control. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Group does not have power over these entities either through management control or voting rights. OWNERSHIP INTEREST REPORTING DATE 2016 % 2015 % CARRYING VALUE OF INVESTMENT NAME OF ENTITY Solids: COUNTRY Australia Australia Wonthaggi Recyclers Pty Ltd Earthpower Technologies Sydney Pty Ltd 30 June 30 June Liquids and Industrial Services: Total Waste Management Pty Ltd Western Resource Recovery Pty Ltd Australia 31 December Australia 31 December 50 50 50 50 50 50 50 50 Share of equity accounted investments’ balance sheet Total assets Total liabilities Net assets as reported by equity accounted investments Share of net assets equity accounted Share of equity accounted investments’ revenue and profit Revenues (100%) Expenses Profit before income tax (100%) Share of profit before income tax Share of income tax expense Share of net profit recognised Impairment losses and commitments During the year the equity accounted investments were tested for impairment and no adjustments were made as a result (2015: $Nil). As at the reporting date the Group had no contractual obligation to provide funding for capital commitments of equity accounted investments (2015: $Nil). 2016 $’M 0.5 – 4.6 6.0 11.1 2016 $’M 29.0 (6.8) 22.2 11.1 2016 $’M 40.9 (37.6) 3.3 1.7 (0.4) 1.3 2015 $’M 0.5 0.4 4.5 6.8 12.2 2015 $’M 30.5 (6.1) 24.4 12.2 2015 $’M 43.6 (39.7) 3.9 1.9 (0.5) 1.4 Current Annual leave Long service leave Other Total current employee benefit liabilities Non-current Long service leave Total non-current employee benefit liabilities Refer to note 38(q) for the Group’s accounting policy on employee benefits. 24. Provisions 24. Provisions Current Rectification provisions Remediation provisions Other Total current provisions Non-current Rectification provisions Remediation provisions Other Total non-current provisions 2016 $’M 22.6 11.8 5.5 39.9 8.4 8.4 2016 $’M 14.7 31.5 13.6 59.8 39.8 288.1 13.6 341.5 2015 $’M 22.6 16.6 4.0 43.2 8.5 8.5 2015 $’M 27.6 31.0 16.9 75.5 42.8 284.1 9.2 336.1 Included in other provisions is an amount of $12.8 million (2015: $12.8 million) in relation to workers compensation self-insurance of the Group under the Comcare scheme. The workers compensation self-insurance provision is reassessed annually based on actuarial advice. The table below provides a roll forward of the rectification and remediation provisions: Opening balance Provisions made Provisions used or reversed Provisions acquired Unwinding of discount Change in discount rate Change in assumptions 1 Rectification and remediation work Closing balance RECTIFICATION REMEDIATION OTHER TOTAL 2016 $’M 70.4 – – – 1.3 – – (17.2) 54.5 2015 $’M 69.2 3.0 – – 2.6 1.3 1.0 (6.7) 70.4 2016 $’M 315.1 20.3 – – 6.9 – 8.2 (30.9) 319.6 2015 $’M 278.5 – – 32.6 11.2 23.6 (22.6) (8.2) 315.1 2016 $’M 26.1 10.1 (9.0) – – – – – 27.2 2015 $’M 26.2 7.8 (7.9) – – – – – 26.1 2016 $’M 411.6 30.4 (9.0) – 8.2 – 8.2 (48.1) 401.3 2015 $’M 373.9 10.8 (7.9) 32.6 13.8 24.9 (21.6) (14.9) 411.6 1 The change in assumptions represents changes in environmental guidelines and cost estimates. The provision for remediation has been estimated using current expected costs and techniques applicable to the operation of each landfill and the disturbed area. These costs have been adjusted for the future value of the expected costs at the time of works being required. These costs have then been discounted to estimate the required provision at a rate of 2.81% (2015: 2.81%). Refer to note 38(o) for a summary of the accounting policy for provisions for landfill remediation and rectification. 90 91 91 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 25. Other liabilities 25. Other liabilities Current Deferred settlement liabilities resulting from business combinations Landfill creation liability Deferred revenue Other liabilities Total current other liabilities Non-current Deferred settlement liabilities resulting from business combinations Landfill creation liability Other liabilities Total non-current other liabilities 26. Business combinations 26. Business combinations 2016 $’M 4.9 12.1 1.6 4.6 23.2 75.0 28.4 3.2 106.6 2015 $’M 13.2 15.9 1.3 – 30.4 76.3 3.3 11.2 90.8 Year ended 30 June 2016 There were no significant business combinations during the year ended 30 June 2016. Year ended 30 June 2015 Melbourne Regional Landfill (MRL) As reported in the 30 June 2015 Annual Report, the Group acquired the MRL business, including existing licences and permits, from Boral Ltd on 28 February 2015. The MRL site is the largest in the Melbourne area and is a key infrastructure asset for the Cleanaway business providing operating efficiencies, volume growth and synergies through internalisation. At 30 June 2015 provisionally determined fair values were reported. Subsequent to 30 June 2015, final fair values for the business combination were determined. Comparative amounts for 30 June 2015 have been restated in this financial report for final determined fair values and a misstatement relating to inventory. 92 92 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 25. Other liabilities Current Landfill creation liability Deferred revenue Other liabilities Total current other liabilities Non-current Landfill creation liability Other liabilities Total non-current other liabilities Deferred settlement liabilities resulting from business combinations Deferred settlement liabilities resulting from business combinations 2016 $’M 4.9 12.1 1.6 4.6 23.2 75.0 28.4 3.2 106.6 2015 $’M 13.2 15.9 1.3 – 30.4 76.3 3.3 11.2 90.8 26. Business combinations Year ended 30 June 2016 There were no significant business combinations during the year ended 30 June 2016. Year ended 30 June 2015 Melbourne Regional Landfill (MRL) As reported in the 30 June 2015 Annual Report, the Group acquired the MRL business, including existing licences and permits, from Boral Ltd on 28 February 2015. The MRL site is the largest in the Melbourne area and is a key infrastructure asset for the Cleanaway business providing operating efficiencies, volume growth and synergies through internalisation. At 30 June 2015 provisionally determined fair values were reported. Subsequent to 30 June 2015, final fair values for the business combination were determined. Comparative amounts for 30 June 2015 have been restated in this financial report for final determined fair values and a misstatement relating to inventory. 26. Business combinations (continued) 26. Business combinations (continued) The restated aggregated fair value of the identifiable assets and liabilities at the date of acquisition were: FAIR VALUE RECOGNISED ON ACQUISITION Assets Trade receivables Inventory 1 Property, plant and equipment Intangible assets 1 Liabilities Trade payables Employee entitlements Deferred tax liability 2 Remediation provision Total identifiable net assets at fair value Goodwill arising on acquisition 2 Purchase consideration transferred PROVISIONAL FAIR VALUE REPORTED AT 30 JUNE 2015 $’M 9.4 8.2 26.7 255.0 299.3 (20.0) (0.1) (66.7) (32.6) (119.4) 179.9 66.7 246.6 ADJUSTMENTS TO PROVISIONAL FAIR VALUE AND MISSTATEMENT $’M – (2.7) – 2.7 – – – 30.0 – 30.0 30.0 (30.0) – FINAL FAIR VALUE $’M 9.4 5.5 26.7 257.7 299.3 (20.0) (0.1) (36.7) (32.6) (89.4) 209.9 36.7 246.6 1 Half year reporting at 31 December 2015 identified that final fair values had been determined. Subsequent to release of the half year financial report it was identified that inventory fair values included inventory owned by the acquiree which contractually did not form part of the acquisition. This has been corrected by restating each of the affected financial statement line items and, as a result, the 30 June 2015 comparative balance sheet. 2 A comprehensive review of the tax implications of the transaction resulted in a change in the provisional tax position adopted. As a result, the deferred tax liability has decreased by $30.0 million with a consequential reduction in goodwill within the provisional accounting period. From the date of acquisition to 30 June 2015, the MRL business contributed $31.5 million of revenue and $3.9 million to profit before tax from continuing operations of the Group. If the business combination had taken place at the beginning of the year, revenue from continuing operations would have been $89.8 million and profit before tax from continuing operations for the Group would have been $20.5 million for the year ended 30 June 2015. The intangible assets identified as part of the acquisition included customer contracts and landfill assets, including leasehold land, licences and agreements, airspace and support. Landfill assets have a finite useful life as they relate to the available land, licences and airspace acquired which is separately identifiable from goodwill. Customer contracts have been fair valued at $8.7 million based on the expected cash flows under the existing contracted term discounted back to present value. The remaining intangible landfill asset has been fair valued based on the expected cash flows over the life of the landfill discounted back to present value. Each of these intangibles will be amortised over the life of the asset. The deferred tax liability of $36.7 million mainly comprises the tax effect of the accelerated depreciation for tax purposes of tangible and intangible assets. Entries to account for this deferred tax liability are taken to goodwill. Goodwill is allocated entirely to the Solids segment. A deferred consideration liability of $89.9 million was recognised at the acquisition date resulting from transaction payments for site preparation and operation under the agreement to be paid to Boral over the life of the landfill. These transactions have been estimated using a discounted cash flow method at a long term borrowing rate of 7%. PURCHASE CONSIDERATION Cash paid Deferred settlement Total consideration Analysis of cash flows on acquisition: Cash paid Transaction costs of the acquisition (included in cash flows from operating activities) Net cash flow on acquisition Transaction costs of the acquisition are included in other expenses in the Consolidated Income Statement. $’M 156.7 89.9 246.6 156.7 8.7 165.4 92 93 93 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 26. Business combinations (continued) 26. Business combinations (continued) Dimeo Waste Services On 1 May 2015, the Group acquired the Dimeo Waste Services business, a leading C&I waste collection business in the Sydney CBD and surrounding areas. From the date of acquisition to 30 June 2015, the Dimeo business contributed $0.5 million of revenue and $0.1 million to profit before tax from continuing operations of the Group. If the business combination had taken place at the beginning of the year, revenue from continuing operations would have been $6.5 million and profit before tax from continuing operations for the Group would have been $0.8 million for the year ended 30 June 2015. The aggregated fair value of the identifiable assets and liabilities as at the date of acquisition were: FAIR VALUE RECOGNISED ON ACQUISITION Assets Property, plant and equipment Intangibles Liabilities Deferred tax liability Total identifiable net assets at fair value Goodwill arising on acquisition Purchase consideration transferred $’M 1.1 3.7 4.8 (1.1) (1.1) 3.7 2.0 5.7 The intangible assets identified as part of the acquisition included customer contracts and goodwill. Customer contracts have been fair valued at $3.7 million based on the expected cash flows under the existing contracted term discounted back to present value. Customer contracts will be amortised over the life of the asset. The deferred tax liability of $1.1 million mainly comprises the tax effect of the accelerated depreciation for tax purposes of tangible and intangible assets. Entries to account for this deferred tax liability are taken to goodwill. Goodwill is allocated entirely to the Solids segment. PURCHASE CONSIDERATION Cash paid Deferred settlement Total consideration Analysis of cash flows on acquisition: Cash paid Transaction costs of the acquisition (included in cash flows from operating activities) Net cash flow on acquisition Transaction costs of the acquisition are included in other expenses in the Consolidated Income Statement. $’M 4.5 1.2 5.7 4.5 – 4.5 94 94 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 On 1 May 2015, the Group acquired the Dimeo Waste Services business, a leading C&I waste collection business in the Sydney CBD and surrounding areas. From the date of acquisition to 30 June 2015, the Dimeo business contributed $0.5 million of revenue and $0.1 million to profit before tax from continuing operations of the Group. If the business combination had taken place at the beginning of the year, revenue from continuing operations would have been $6.5 million and profit before tax from continuing operations for the Group would have been $0.8 million for the year ended 30 June 2015. The aggregated fair value of the identifiable assets and liabilities as at the date of acquisition were: FAIR VALUE RECOGNISED ON ACQUISITION Property, plant and equipment Assets Intangibles Liabilities Deferred tax liability Total identifiable net assets at fair value Goodwill arising on acquisition Purchase consideration transferred entirely to the Solids segment. PURCHASE CONSIDERATION Cash paid Deferred settlement Total consideration The intangible assets identified as part of the acquisition included customer contracts and goodwill. Customer contracts have been fair valued at $3.7 million based on the expected cash flows under the existing contracted term discounted back to present value. Customer contracts will be amortised over the life of the asset. The deferred tax liability of $1.1 million mainly comprises the tax effect of the accelerated depreciation for tax purposes of tangible and intangible assets. Entries to account for this deferred tax liability are taken to goodwill. Goodwill is allocated Analysis of cash flows on acquisition: Cash paid Net cash flow on acquisition Transaction costs of the acquisition (included in cash flows from operating activities) Transaction costs of the acquisition are included in other expenses in the Consolidated Income Statement. $’M 1.1 3.7 4.8 (1.1) (1.1) 3.7 2.0 5.7 $’M 4.5 1.2 5.7 4.5 – 4.5 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 26. Business combinations (continued) 27. Subsidiaries 27. Subsidiaries Dimeo Waste Services The Group’s principal subsidiaries at 30 June 2016 are set out below. EFFECTIVE INTEREST 3 Cleanaway Waste Management Limited – Parent (formerly Transpacific Industries Group Ltd) Transpacific Co Pty Ltd 2 Transpacific Resources Pty Ltd 2 Environmental Recovery Services Pty Ltd 2 ERS Australia Pty Ltd 2 Cleanaway Operations Pty Ltd 2 (formerly Transpacific Industries Pty Ltd) Cleanaway Organics Pty Ltd 2 (formerly Transpacific Organics Pty Ltd) Mann Waste Management Pty Ltd 2 Nationwide Oil Pty Ltd 2 NQ Resource Recovery Pty Ltd 2 Olmway Pty Ltd 1 Transpacific Biofuels Pty Ltd 1 Transpacific Environmental Services Pty Ltd 2 Cleanaway Refiners Pty Ltd 1 (formerly Transpacific Refiners Pty Ltd) Cleanaway Superior Pak Pty Ltd 2 (formerly Transpacific Superior Pak Pty Ltd) Transwaste Technologies (1) Pty Ltd Transwaste Technologies Pty Ltd 2 Transpacific Baxter Pty Ltd 2 Baxter Business Pty Ltd 2 Cleanaway Pty Ltd 2 (formerly Transpacific Cleanaway Pty Ltd) Enviroguard Pty Ltd 2 Cleanaway Hygiene Pty Ltd 2 (formerly Transpacific Cleanaway Hygiene Pty Ltd) Cleanaway Recycling Pty Ltd (formerly Transpacific Recycling Pty Ltd) Cleanaway Landfill Holdings Pty Ltd 2 (formerly Transpacific Landfill Holdings Pty Ltd) Landfill Land Holdings Pty Ltd 2 Landfill Operations Pty Ltd 2 Western Landfill Pty Ltd 2 Cleanaway Industrial Solutions Pty Ltd 2 (formerly Transpacific Industrial Solutions Pty Ltd) Cleanaway Solid Waste Pty Ltd 2 (formerly Transpacific Waste Management Pty Ltd) Rubus Holdings Pty Ltd 2 Rubus Intermediate One Pty Ltd 2 Rubus Intermediate Two Pty Ltd 2 Transpacific Cleanaway Holdings Pty Ltd 2 Cleanaway Resource Recycling Pty Ltd 2 (formerly Transpacific Resource Recycling Pty Ltd) Waste Management Pacific (SA) Pty Ltd 2 Waste Management Pacific Pty Ltd 2 2016 % 100 100 100 100 100 100 100 100 100 100 50 50 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2015 % 100 100 100 100 100 100 100 100 100 100 50 50 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 1 Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. As subsidiaries, the Group has power over the investees through management control and the casting vote of Cleanaway Refiners Pty Ltd, Olmway Pty Ltd and Transpacific Biofuels Pty Ltd. The Group has the capacity to dominate decision making in relation to the relevant activities so as to enable those entities to operate as part of the Group in pursuing its objectives. The Group acquired the non-controlling interest of Cleanaway Refiners Pty Ltd post 30 June 2016. Refer to note 36 for details. These subsidiaries have entered into a deed of cross guarantee with Cleanaway Waste Management Limited on 29 June 2007 pursuant to ASIC Class Order 98/1418 and are relieved from the requirement to prepare and lodge an audited Financial Report. Refer to note 28 for Consolidated Statement of Profit or Loss and Other Comprehensive Income and Consolidated Balance Sheet of the entities who are a party to the Deed of Cross Guarantee. 2 3 All entities were incorporated in Australia. 94 95 95 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 28. Deed of cross guarantee 28. Deed of cross guarantee The Consolidated Statement of Profit or Loss and Other Comprehensive Income and the Consolidated Balance Sheet of the entities who are a party to the Deed of Cross Guarantee are: STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Continuing operations Revenue Other income Share of profits from equity accounted investments Raw materials and inventory Waste disposal and collection Employee expenses Depreciation and amortisation Repairs and maintenance Fuel expenses Leasing charges Freight expenses Impairment of assets Change in fair value of land and buildings Other expenses Profit/(loss) from operations Net finance costs Profit/(loss) before income tax Income tax (expense)/benefit Profit/(loss) from continuing operations after income tax Discontinued operations Profit for the year from discontinued operations Profit/(loss) after income tax Other comprehensive income Revaluation of land and buildings Net comprehensive income recognised directly in equity Total comprehensive income/(loss) for the year Refer to note 27 for details of subsidiaries who are a party to the Deed of Cross Guarantee. 2016 $’M 2015 $’M 1,432.6 2.2 1.3 (50.0) (311.2) (565.5) (156.8) (85.0) (37.1) (26.8) (15.3) – (0.2) (87.9) 100.3 (34.4) 65.9 (18.8) 47.1 – 47.1 3.1 3.1 50.2 1,353.0 1.2 1.2 (52.0) (268.0) (548.4) (132.8) (93.7) (46.0) (30.8) (16.4) (75.7) (0.5) (94.7) (3.6) (35.0) (38.6) 7.2 (31.4) 8.2 (23.2) – – (23.2) 96 96 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 28. Deed of cross guarantee 28. Deed of cross guarantee (continued) 28. Deed of cross guarantee (continued) The Consolidated Statement of Profit or Loss and Other Comprehensive Income and the Consolidated Balance Sheet of the entities who are a party to the Deed of Cross Guarantee are: STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Share of profits from equity accounted investments Continuing operations Revenue Other income Raw materials and inventory Waste disposal and collection Employee expenses Depreciation and amortisation Repairs and maintenance Fuel expenses Leasing charges Freight expenses Impairment of assets Change in fair value of land and buildings Other expenses Profit/(loss) from operations Net finance costs Profit/(loss) before income tax Income tax (expense)/benefit Profit/(loss) from continuing operations after income tax Discontinued operations Profit for the year from discontinued operations Profit/(loss) after income tax Other comprehensive income Revaluation of land and buildings Net comprehensive income recognised directly in equity Total comprehensive income/(loss) for the year Refer to note 27 for details of subsidiaries who are a party to the Deed of Cross Guarantee. 2016 $’M 2015 $’M 1,432.6 1,353.0 2.2 1.3 (50.0) (311.2) (565.5) (156.8) (85.0) (37.1) (26.8) (15.3) – (0.2) (87.9) 100.3 (34.4) 65.9 (18.8) 47.1 – 47.1 3.1 3.1 50.2 1.2 1.2 (52.0) (268.0) (548.4) (132.8) (93.7) (46.0) (30.8) (16.4) (75.7) (0.5) (94.7) (3.6) (35.0) (38.6) 7.2 (31.4) 8.2 (23.2) – – (23.2) BALANCE SHEET Assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Other assets Total current assets Other financial assets Property, plant and equipment Intangible assets Equity accounted investments Deferred tax assets Total non-current assets Total assets Liabilities Trade and other payables Income tax payable Borrowings Employee benefits Provisions Other Total current liabilities Borrowings Employee benefits Provisions Other Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity 2016 $’M 2015 $’M 47.6 223.9 14.4 – 33.6 319.5 89.6 866.5 1,539.7 10.6 133.3 2,639.7 2,959.2 173.2 10.7 0.3 39.6 59.8 22.9 306.5 358.6 8.3 341.5 109.4 817.8 1,124.3 1,834.9 2,076.4 41.7 (283.2) 1,834.9 35.2 222.5 17.8 4.4 19.3 299.2 252.1 836.1 1,558.0 11.6 111.6 2,769.4 3,068.6 215.2 – 0.2 42.9 72.2 0.8 331.3 351.0 8.5 336.1 262.5 958.1 1,289.4 1,779.2 2,071.8 37.7 (330.3) 1,779.2 The effect of the deed is that all subsidiaries that are parties to the deed have guaranteed to pay any deficiency in the event of winding up of any subsidiary or if they do not meet their obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. 96 97 97 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 29. Parent entity 29. Parent entity Current assets Total assets Current liabilities Total liabilities Issued capital Retained earnings Reserves Total Loss for the period Total comprehensive loss for the period The parent entity guarantees the contractual commitments of its subsidiaries as requested. 30. Derivative financial instruments 30. Derivative financial instruments Derivatives – at fair value 2016 $’M 14.2 2,620.9 12.9 465.2 2,076.4 70.9 8.4 2,155.7 (6.7) (6.7) 2015 $’M 21.7 2,625.3 16.0 443.5 2,072.1 102.9 6.8 2,181.8 (61.7) (61.6) 2016 $’M 10.9 10.9 2015 $’M 8.6 8.6 The derivative balance relates to a foreign currency swap held by the Group to hedge against foreign currency movements in the USPP Notes. Refer to note 38(j) for the Group’s accounting policy on derivative financial instruments. 31. Financial risk management 31. Financial risk management The Group is exposed to market risk, credit risk and liquidity risk and its senior management oversees the management of these risks. The Group has in place a Treasury Policy that focuses on managing these risks. The policy is reviewed by the Audit and Risk Committee and approved by the Board. The treasury activities are reported to the Audit and Risk Committee and Board on a regular basis with the ultimate responsibility being borne by the Chief Financial Officer (CFO). The Group’s overall financial risk management focuses on mitigating the potential financial effects to the Group’s financial performance. The Group also enters into derivative transactions to manage the interest rate and currency risks arising from the Group’s operations and its sources of finance. It is the Group’s policy that no speculative trading in financial instruments shall be undertaken. (a) Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk includes foreign currency risk and interest rate risk. Foreign currency risk Foreign currency risk arises as a result of having assets denominated in a currency that is not the Group’s functional currency (balance sheet risk) or from transactions or cash flows denominated in a foreign currency (cash flow risk). Foreign currency risk is not material to the Group. The US Private Placement (USPP) Notes currency risk has been economically hedged by a foreign currency swap for the currency exposure which has been in place since inception and converts to AUD fixed rate debt. Although the Group’s related foreign currency risk has been economically hedged, hedge accounting has not been applied. The foreign currency risk associated with the USPP Notes is fully hedged by the related foreign currency swap arrangement. 98 98 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 29. Parent entity Current assets Total assets Current liabilities Total liabilities Issued capital Retained earnings Reserves Total Loss for the period Derivatives – at fair value Total comprehensive loss for the period The parent entity guarantees the contractual commitments of its subsidiaries as requested. 30. Derivative financial instruments 2016 $’M 14.2 12.9 465.2 70.9 8.4 (6.7) (6.7) 2,620.9 2,625.3 2,076.4 2,072.1 2,155.7 2,181.8 2015 $’M 21.7 16.0 443.5 102.9 6.8 (61.7) (61.6) 2016 $’M 10.9 10.9 2015 $’M 8.6 8.6 The derivative balance relates to a foreign currency swap held by the Group to hedge against foreign currency movements in the USPP Notes. Refer to note 38(j) for the Group’s accounting policy on derivative financial instruments. 31. Financial risk management The Group is exposed to market risk, credit risk and liquidity risk and its senior management oversees the management of these risks. The Group has in place a Treasury Policy that focuses on managing these risks. The policy is reviewed by the Audit and Risk Committee and approved by the Board. The treasury activities are reported to the Audit and Risk Committee and Board on a regular basis with the ultimate responsibility being borne by the Chief Financial Officer (CFO). The Group’s overall financial risk management focuses on mitigating the potential financial effects to the Group’s financial performance. The Group also enters into derivative transactions to manage the interest rate and currency risks arising from the Group’s operations and its sources of finance. It is the Group’s policy that no speculative trading in financial instruments shall be undertaken. (a) Market risk Foreign currency risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk includes foreign currency risk and interest rate risk. Foreign currency risk arises as a result of having assets denominated in a currency that is not the Group’s functional currency (balance sheet risk) or from transactions or cash flows denominated in a foreign currency (cash flow risk). Foreign currency risk is not material to the Group. The US Private Placement (USPP) Notes currency risk has been economically hedged by a foreign currency swap for the currency exposure which has been in place since inception and converts to AUD fixed rate debt. Although the Group’s related foreign currency risk has been economically hedged, hedge accounting has not been applied. The foreign currency risk associated with the USPP Notes is fully hedged by the related foreign currency swap arrangement. 31. Financial risk management (continued) 31. Financial risk management (continued) The value of the USPP Notes at 30 June 2016 and 30 June 2015 is shown in the table below: US PRIVATE PLACEMENT NOTES 30 June 2016 30 June 2015 Interest rate risk USD $’M 48.0 48.0 AUD $’M 64.7 62.5 Interest rate risk is the risk that the fair value of the financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. The Group’s exposure primarily relates to its exposure to variable interest rates on borrowings. At 30 June 2016, there were no interest rate swaps in place. At the reporting date the interest rate profile of the Group’s interest bearing financial instruments was: Fixed rate instruments USPP borrowings (USD) Other Variable rate instruments Borrowings 30 JUNE 2016 30 JUNE 2015 WEIGHTED AVERAGE INTEREST RATE % 10.8 8.0 WEIGHTED AVERAGE INTEREST RATE % 10.8 8.0 BALANCE $’M (64.7) (0.8) (65.5) BALANCE $’M (62.5) (1.0) (63.5) 3.6 (293.9) (293.9) 3.8 (288.2) (288.2) The Group’s fixed rate borrowings are carried at amortised cost and therefore not subject to interest rate risk since neither the carrying amount nor the future cash flows will fluctuate due to a change in market interest rates. An analysis of the interest rates over the 12 month period was performed to determine a reasonable possible change in interest rates on the variable rate borrowings. A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) profit or loss by $3.0 million (2015: $2.9 million). (b) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet contractual obligations, with the maximum exposure being equal to the carrying amount of these instruments. Management has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. The Group does not require collateral in respect of financial assets. For certain export sales the Group requires the vendor to provide a letter of credit. The Group minimises concentrations of credit risk by undertaking transactions with a large number of customers. In addition, receivable balances are monitored on an ongoing basis with the intention that the Group’s exposure to bad debts is minimised. Credit risk on foreign exchange contracts is minimal as counterparties are large Australian and international banks with acceptable credit ratings determined by a recognised ratings agency. Credit risk from balances with banks and financial institutions is managed by the Group’s treasury department in accordance with the Group’s Treasury policy where the Group only deals with large reputable financial institutions. 98 99 99 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 31. Financial risk management (continued) 31. Financial risk management (continued) The Group’s maximum exposure to credit risk at the reporting date was: CARRYING AMOUNT Cash and cash equivalents (excluding bank overdrafts) Trade and other receivables Derivative financial instruments NOTES 11 12 30 2016 $’M 48.3 224.3 10.9 283.5 2015 $’M 37.0 227.1 8.6 272.7 Refer to note 12 for an analysis of credit risk and impairment associated with the Group’s trade receivables balance. Liquidity risk (c) Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s objective is that the Group has access to sufficient cash resources to meet its financial obligations as they fall due, including taxes and dividends, and to provide funds for capital expenditure and investment opportunities as they arise. The Group regularly reviews existing funding arrangements and assesses future funding requirements based upon known and forecast information. The Group’s liquidity position is reported to the Board on a monthly basis. The headroom in the Group’s syndicated facilities at 30 June 2016 is $251.3 million (2015: $233.5 million). The current portion of the Group’s borrowings at 30 June 2016 is $0.8 million (2015: $0.7 million). The Group considers liquidity risk to be low due to the level of headroom available and the maturity profile of existing facilities. The following table discloses the contractual maturities of financial liabilities, including estimated interest payment and excluding the impact of netting agreements: 2016 US Private Placement Notes Loans from related parties Unsecured bank loans Trade and other payables Other liabilities Total 2015 US Private Placement Notes Loans from related parties Unsecured bank loans Trade and other payables Other liabilities Total < 1 YEAR $’M 7.0 0.5 10.6 178.8 21.6 218.5 6.8 0.5 10.1 178.8 29.1 225.3 1 – 2 YEARS $’M 68.2 – 10.6 – 22.4 101.2 6.8 – 10.1 – 8.2 25.1 2 – 5 YEARS $’M – – 311.5 – 30.0 341.5 65.2 – 305.9 – 26.6 397.7 > 5 YEARS $’M – – – – 209.6 209.6 CONTRACTUAL CASH FLOWS $’M 75.2 0.5 332.7 178.8 283.6 870.8 – – – – 214.9 214.9 78.8 0.5 326.1 178.8 278.8 863.0 CARRYING AMOUNT $’M 64.7 0.5 293.9 178.8 128.2 666.1 62.5 0.5 288.2 178.8 119.9 649.9 The Group has bank guarantees and insurance bonds in place in respect of its contractual performance related obligations. These guarantees and indemnities only give rise to a liability where the Group fails to perform its contractual obligations. In the event that the Group does not meet its contractual obligations, these instruments are immediately callable and have a maximum exposure of $128.7 million (2015: $128.0 million) in relation to these bank guarantees and insurance bonds. Refer to note 33(c) for details of the Group’s guarantees. Financial assets and liabilities measured at fair value (d) All assets and liabilities for which fair value is measured or disclosed in the financial statements are classified within the fair value hierarchy on the basis of nature, characteristics and risks and described as follows based on the lower level of input that is significant to the fair value measurement as a whole. Level 1 – the fair value is calculated using prices in active markets. Level 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset of liability, either directly (as prices) or indirectly (derived from prices). Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data. 100 100 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 31. Financial risk management (continued) 31. Financial risk management (continued) 31. Financial risk management (continued) The Group’s maximum exposure to credit risk at the reporting date was: There were no transfers between levels during the year. CARRYING AMOUNT Cash and cash equivalents (excluding bank overdrafts) Trade and other receivables Derivative financial instruments NOTES 11 12 30 2016 $’M 48.3 224.3 10.9 283.5 2015 $’M 37.0 227.1 8.6 272.7 Refer to note 12 for an analysis of credit risk and impairment associated with the Group’s trade receivables balance. (c) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s objective is that the Group has access to sufficient cash resources to meet its financial obligations as they fall due, including taxes and dividends, and to provide funds for capital expenditure and investment opportunities as they arise. The Group regularly reviews existing funding arrangements and assesses future funding requirements based upon known and forecast information. The Group’s liquidity position is reported to the Board on a monthly basis. The headroom in the Group’s syndicated facilities at 30 June 2016 is $251.3 million (2015: $233.5 million). The current portion of the Group’s borrowings at 30 June 2016 is $0.8 million (2015: $0.7 million). The Group considers liquidity risk to be low due to the level of headroom available and the maturity profile of existing facilities. The following table discloses the contractual maturities of financial liabilities, including estimated interest payment and excluding the impact of netting agreements: 2016 US Private Placement Notes Loans from related parties Unsecured bank loans Trade and other payables Other liabilities Total 2015 US Private Placement Notes Loans from related parties Unsecured bank loans Trade and other payables Other liabilities Total < 1 YEAR $’M 7.0 0.5 10.6 178.8 21.6 218.5 6.8 0.5 10.1 178.8 29.1 225.3 1 – 2 YEARS $’M 68.2 10.6 – – 22.4 101.2 6.8 10.1 – – 8.2 25.1 2 – 5 YEARS $’M – – – 311.5 30.0 341.5 65.2 305.9 – – 26.6 397.7 > 5 CONTRACTUAL YEARS CASH FLOWS CARRYING AMOUNT $’M – – – – 209.6 209.6 – – – – 214.9 214.9 $’M 75.2 0.5 332.7 178.8 283.6 870.8 78.8 0.5 326.1 178.8 278.8 863.0 $’M 64.7 0.5 293.9 178.8 128.2 666.1 62.5 0.5 288.2 178.8 119.9 649.9 The Group has bank guarantees and insurance bonds in place in respect of its contractual performance related obligations. These guarantees and indemnities only give rise to a liability where the Group fails to perform its contractual obligations. In the event that the Group does not meet its contractual obligations, these instruments are immediately callable and have a maximum exposure of $128.7 million (2015: $128.0 million) in relation to these bank guarantees and insurance bonds. Refer to note 33(c) for details of the Group’s guarantees. (d) Financial assets and liabilities measured at fair value All assets and liabilities for which fair value is measured or disclosed in the financial statements are classified within the fair value hierarchy on the basis of nature, characteristics and risks and described as follows based on the lower level of input that is significant to the fair value measurement as a whole. Level 1 – the fair value is calculated using prices in active markets. Level 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset of liability, either directly (as prices) or indirectly (derived from prices). Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data. The Group enters into currency rate swaps with financial institutions with investment grade credit ratings. These derivatives are valued using techniques with market observable inputs. The valuation techniques include forward pricing and swap models, using present value calculations. The following table provides the fair value measurement hierarchy of the Group’s derivative financial instruments: 2016 Assets Derivative financial instruments – USD foreign currency swap LEVEL 1 $’M LEVEL 2 $’M LEVEL 3 $’M TOTAL $’M – 10.9 – 10.9 2015 Assets Derivative financial instruments – USD foreign currency swap – 8.6 – 8.6 The carrying value of all financial assets and liabilities other than derivative financial instruments approximate fair value. 32. Contingent liabilities 32. Contingent liabilities Taxation authority reviews The New Zealand Taxation Authority is currently reviewing particular aspects of the Group’s tax position which have arisen during the period of the Group’s ownership of the New Zealand business. While assessments have been issued in respect of some aspects of this review, no amounts of tax are currently payable by the Group, as discussions with Inland Revenue in relation to these matters are still continuing and the tax audit process has not yet concluded. At this time, it is too early to identify the outcomes and related adjustments that may arise, if any. The timing, in respect of the resolution of these matters, will depend on the outcome of the continuing discussions with Inland Revenue, the completion of the tax audit process and the initiation and conclusion of any court proceedings, if deemed necessary. Other claims Certain companies within the Group are party to various legal actions or commercial disputes or negotiations that have arisen in the normal course of business. It is expected that any liabilities or assets arising from these legal actions would not have a material effect on the Group. 33. Commitments 33. Commitments (a) Operating lease commitments The Group leases property, plant and equipment under operating leases expiring over terms generally not exceeding ten years. Leases generally provide the Group with a right of renewal at which time all terms are renegotiated. Future minimum rentals payable under non-cancellable operating lease rentals are payable as follows: Within one year Between one and five years More than five years 2016 $’M 23.3 64.2 48.5 136.0 2015 $’M 15.9 41.2 12.2 69.3 100 101 101 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 33. Commitments (continued) 33. Commitments (continued) Capital expenditure and other commitments (b) Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows: Property, plant and equipment Intangible assets 2016 $’M 48.0 3.4 51.4 2015 $’M 29.1 – 29.1 Guarantees (c) The Group is, in the normal course of business, required to provide guarantees and letters of credit on behalf of subsidiaries and associates in respect of their contractual performance related obligations. These guarantees and indemnities only give rise to a liability where the entity concerned fails to perform its contractual obligations. Bank guarantees outstanding at balance date in respect of financing facilities Bank guarantees outstanding at balance date in respect of contractual performance Insurance bonds outstanding at balance date in respect of contractual performance 2016 $’M – 115.3 13.4 128.7 2015 $’M 0.7 113.7 13.6 128.0 34. Share-based payments 34. Share-based payments Total share-based payment expense included in the Consolidated Income Statement is set out in note 17(b). Performance rights outstanding at the reporting date consist of the following grants: OFFER GRANT DATE END OF PERFORMANCE OR SERVICE PERIOD PERFORMANCE RIGHTS AT 30 JUNE 2015 GRANTED DURING THE PERIOD VESTED DURING THE PERIOD FORFEITED/ EXPIRED DURING THE PERIOD PERFORMANCE RIGHTS AT 30 JUNE 2016 LONG TERM INCENTIVE PLAN 2012 LTI 2013 LTI 2014 LTI 2015 LTI 2016 LTI (A) 2016 LTI (B) 28 Sep 2011 30 Jun 2015 19 Jun 2013 30 Jun 2016 24 Mar 2014 30 Jun 2017 10 Mar 2015 30 Jun 2017 30 Oct 2015 30 Jun 2018 16 Mar 2016 30 Jun 2018 SHORT TERM INCENTIVE PLAN 2013 STI 2014 STI 13 Sep 2013 30 Jun 2015 1 & 29 Oct 2014 30 Jun 2016 OTHER GRANTS EEA One-off A One-off B Total Vested and exercisable at 30 June 2016 1 Jun 2010 30 Jun 2015 20 Aug 2015 3 Aug 2017 1 Jul 2015 23 Jun 2016 1,095,005 1,704,400 3,273,436 4,210,624 – – 105,516 920,850 – – – – 2,838,220 2,808,170 (547,504) – – – – – (547,501) (918,034) (1,792,487) (2,298,236) – – – 786,366 1,480,949 1,912,388 2,838,220 2,808,170 – – (105,516) – – (328,520) – 592,330 2,705,484 – – 14,015,315 – 328,947 1,184,210 7,159,547 – – – (653,020) (2,705,484) – (1,184,210) (9,774,472) – 328,947 – 10,747,370 592,330 The vesting date for LTI offers is on or after the date which is 14 days after the date on which the annual financial results of the Group for the financial year associated with the end of the performance period is released to the ASX. Other offers vest on or after the end of the relevant performance or service period. 102 102 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 33. Commitments (continued) 34. Share-based payments (continued) 34. Share-based payments (continued) Long term incentive (LTI) plan (a) The Cleanaway LTI plan is designed to provide long-term incentives for senior executives to deliver long-term shareholder returns. Under the plan, participants are granted performance rights which only vest if certain performance standards are met. Offers made in previous reporting periods The following table outlines the terms of the outstanding LTI offers made in previous reporting periods which remain on issue: The Group is, in the normal course of business, required to provide guarantees and letters of credit on behalf of subsidiaries and associates in respect of their contractual performance related obligations. These guarantees and indemnities only give rise to a liability where the entity concerned fails to perform its contractual obligations. PERFORMANCE PERIOD Overview 2013 LTI AWARD 4 YEARS: 1 JULY 2012 TO 30 JUNE 2016 2014 LTI AWARD 4 YEARS: 1 JULY 2013 TO 30 JUNE 2017 2015 LTI AWARD UP TO 4 YEARS: 1 JULY 2014 TO 30 JUNE 2018 Performance rights, of which: Performance rights, of which:  Up to 50% vest if a certain relative TSR Measured over 3 years to 30 June 2017 ranking is achieved against the constituents of the S&P/ASX 200 Industrial Sector Index  Up to 50% vest if a certain earnings per share target is achieved  Up to 25% vest if a certain relative TSR ranking is achieved against constituents of the S&P/ASX 200 Industrial Sector Index  Up to 25% vest if a certain Return on Invested Capital target is achieved Measured over 4 years to 30 June 2018  Up to 50% vest if certain strategic initiatives are achieved Offer made in current reporting period – 2016 LTI award During the period, the Group issued performance rights attached to the Group’s LTI plan to the CEO (grant A) and other senior executives (grant B). The performance rights will vest in two equal tranches if the following performance hurdles, tested independently, are met: • Tranche 1 – Up to 50% of the performance rights vest if a certain relative TSR ranking is achieved against constituents of the S&P/ASX 200 Industrial Sector Index. • Tranche 2 – Up to 50% of performance rights vest if a certain Return on Invested Capital (ROIC) target is achieved. Performance rights granted during the period were fair valued by an external party using the Monte Carlo Simulation and Black Scholes model. The following table sets out the assumptions made in determining the fair value of these performance rights: SCHEME Number of rights Grant date Performance period Risk free interest rate (%) Volatility 1 (%) Fair value – Relative TSR tranche Fair value – ROIC tranche 2016 LTI – GRANT A 2,838,220 30 October 2015 1 July 2015 – 30 June 2018 1.82% 32.5% $0.32 $0.63 2016 LTI – GRANT B 2,808,170 16 March 2016 1 July 2015 – 30 June 2018 2.04% 32.5% $0.42 $0.72 1 Expected volatility is based on the historic volatility of Cleanaway shares over a range of periods. 102 103 103 2016 $’M 48.0 3.4 51.4 2015 $’M 29.1 – 29.1 2016 $’M – 115.3 13.4 128.7 2015 $’M 0.7 113.7 13.6 128.0 (b) Capital expenditure and other commitments Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows: Property, plant and equipment Intangible assets (c) Guarantees Bank guarantees outstanding at balance date in respect of financing facilities Bank guarantees outstanding at balance date in respect of contractual performance Insurance bonds outstanding at balance date in respect of contractual performance 34. Share-based payments Total share-based payment expense included in the Consolidated Income Statement is set out in note 17(b). Performance rights outstanding at the reporting date consist of the following grants: END OF OFFER GRANT DATE PERIOD AT 30 JUNE 2015 PERIOD THE PERIOD THE PERIOD AT 30 JUNE 2016 PERFORMANCE PERFORMANCE GRANTED FORFEITED/ PERFORMANCE OR SERVICE RIGHTS DURING THE VESTED DURING EXPIRED DURING RIGHTS LONG TERM INCENTIVE PLAN 2012 LTI 2013 LTI 2014 LTI 2015 LTI 2016 LTI (A) 2016 LTI (B) 28 Sep 2011 30 Jun 2015 19 Jun 2013 30 Jun 2016 24 Mar 2014 30 Jun 2017 10 Mar 2015 30 Jun 2017 30 Oct 2015 30 Jun 2018 16 Mar 2016 30 Jun 2018 SHORT TERM INCENTIVE PLAN 1,095,005 1,704,400 3,273,436 4,210,624 – – 2,838,220 2,808,170 2013 STI 2014 STI 13 Sep 2013 30 Jun 2015 1 & 29 Oct 2014 30 Jun 2016 105,516 920,850 (105,516) OTHER GRANTS EEA One-off A One-off B Total 1 Jun 2010 30 Jun 2015 2,705,484 20 Aug 2015 3 Aug 2017 1 Jul 2015 23 Jun 2016 – – 328,947 1,184,210 7,159,547 Vested and exercisable at 30 June 2016 – – – – – – – (547,504) (547,501) (918,034) (1,792,487) (2,298,236) – – – – – – – – – – 786,366 1,480,949 1,912,388 2,838,220 2,808,170 – – – (328,520) 592,330 (2,705,484) (1,184,210) – 328,947 – – – 592,330 14,015,315 (653,020) (9,774,472) 10,747,370 The vesting date for LTI offers is on or after the date which is 14 days after the date on which the annual financial results of the Group for the financial year associated with the end of the performance period is released to the ASX. Other offers vest on or after the end of the relevant performance or service period. Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 34. Share-based payments (continued) 34. Share-based payments (continued) The performance targets of the 2016 LTI award are set out in the table below. Relative TSR tranche (measured over 3 years: 1 July 2015 to 30 June 2018) ROIC tranche (measured over 3 years: 1 July 2015 to 30 June 2018) TSR Ranking against the constituents of the S&P/ASX200 Industrial Sector Index:  Below 50th percentile – 0% vesting  50th percentile – 50% vesting  50th to 75th percentile – straight line vesting between 50% and 100%  75th percentile and above – 100% vesting Average ROIC to be achieved:  Below 4.6% – 0% vesting  4.6% – 20% vesting  4.6% to 5.6% – straight line vesting between 20% and 50%  5.6% to 7.6% – straight line vesting between 50% and 100%  7.6% and above – 100% vesting Short term incentive (STI) plan (b) The Cleanaway STI plan is an annual plan that is used to motivate and reward senior executives across a range of performance measures over the financial year. Under the plan, participants are granted a combination of cash and rights to deferred shares if certain performance standards are met. The Group uses EBITDA targets as the main performance standard for the STI plan. Vesting of the performance rights granted is deferred for one year. (c) Other grants Executive Engagement Award (EEA) On 1 June 2010, the Group issued performance rights attached to an Executive Engagement Award. These performance rights lapsed on 30 June 2015 as the required hurdles were not met. One-off grant A On joining Cleanaway, the CEO was entitled to a one-off allocation of 328,947 performance rights to the value of $250,000 with vesting subject to a two-year service condition. One-off grant B A one-off allocation of 1,184,210 performance rights was made to a former senior Executive under a retention arrangement. These performance rights were forfeited upon departure. 35. Auditor’s remuneration 35. Auditor’s remuneration Details of the amounts paid or payable to the auditor and its related practices for audit and non-audit services are set out below. Ernst & Young: Audit services Audit related services Non-audit services Due diligence services Other advisory services 2016 $ 2015 $ 1,435,270 9,000 1,547,365 104,467 – – 1,444,270 197,142 165,510 2,014,484 104 104 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 34. Share-based payments (continued) 36. Events occurring after the reporting date 36. Events occurring after the reporting date On 1 July 2016 the Group acquired the assets and business of Waste 2 Resources Group for $8.5 million. The Waste 2 Resources Group provides waste collection and recovery services in South East Queensland. The initial accounting for the business combination is incomplete at the time the Group’s financial statements were authorised for issue, and accordingly details of the financial effect of the business combination have not been disclosed. On 25 July 2016 the Group acquired the non-controlling interest in Cleanaway Refiners Pty Ltd (formerly Transpacific Refiners Pty Ltd) for $2.5 million. Prior to the acquisition the Group held a 50% controlling interest in this entity. Given that the Group already controlled this entity prior to this acquisition, the transaction does not represent a business combination and will be accounted for in equity as a transaction between equity holders. 37. Related party transactions 37. Related party transactions  4.6% to 5.6% – straight line vesting between 20% and 50%  5.6% to 7.6% – straight line vesting between 50% and 100%  7.6% and above – 100% vesting (a) Key management personnel Disclosures relating to key management personnel (KMP) are set out in the Remuneration Report on pages 48 to 62. The KMP compensation included in employee expenses are as follows: (b) Short term incentive (STI) plan The Cleanaway STI plan is an annual plan that is used to motivate and reward senior executives across a range of performance measures over the financial year. Under the plan, participants are granted a combination of cash and rights to deferred shares if certain performance standards are met. The Group uses EBITDA targets as the main performance standard for the STI plan. Vesting of the performance rights granted is deferred for one year. Short-term employee benefits Post-employment benefits Termination benefits Equity compensation benefits 2016 $ 6,236,367 142,099 668,861 447,814 7,495,141 2015 $ 5,810,353 137,152 629,269 642,267 7,219,041 Transactions with Director-related entities do not represent related party transactions where the relationship is limited to a Non-Executive Directorship including any Chairperson roles. Transactions during the year that amounted to related party transaction are limited to transactions with NGT Marketing. Mr Martin Hudson, a Non-Executive Director and Chairman of the Group, holds a beneficial interest in NGT Marketing. During the year the Group provided waste collections services to NGT Marketing for which it earned revenues on normal commercial terms. The value of these services were not material at $2,466 only. (b) Wholly-owned Group transactions The wholly-owned Group consists of Cleanaway Waste Management Limited and its wholly-owned entities listed at note 27. Transactions between Cleanaway Waste Management Limited and other entities in the wholly-owned Group during the years ended 30 June 2016 and 30 June 2015 consisted of: (i) Loans advanced by Cleanaway Waste Management Limited and other wholly-owned entities; (ii) Loans repaid to Cleanaway Waste Management Limited and other wholly-owned entities; (iii) The payment of interest on the above loans; (iv) The payment of dividends to Cleanaway Waste Management Limited and other wholly-owned entities; (v) Management fees charged to wholly-owned entities; and (vi) Sales between wholly-owned entities. The above transactions are all eliminated on consolidation. (c) Other related parties There were no material transactions with, or amounts receivable from or payable to, other related parties during the year ended 30 June 2016 and 30 June 2015. 104 105 105 The performance targets of the 2016 LTI award are set out in the table below. Relative TSR tranche TSR Ranking against the constituents of the S&P/ASX200 Industrial (measured over 3 years: 1 July 2015 to 30 June 2018) Sector Index:  Below 50th percentile – 0% vesting  50th percentile – 50% vesting  50th to 75th percentile – straight line vesting between 50% and 100%  75th percentile and above – 100% vesting ROIC tranche (measured over 3 years: 1 July 2015 to 30 June 2018) Average ROIC to be achieved:  Below 4.6% – 0% vesting  4.6% – 20% vesting (c) Other grants Executive Engagement Award (EEA) One-off grant A One-off grant B On 1 June 2010, the Group issued performance rights attached to an Executive Engagement Award. These performance rights lapsed on 30 June 2015 as the required hurdles were not met. On joining Cleanaway, the CEO was entitled to a one-off allocation of 328,947 performance rights to the value of $250,000 with vesting subject to a two-year service condition. A one-off allocation of 1,184,210 performance rights was made to a former senior Executive under a retention arrangement. These performance rights were forfeited upon departure. 35. Auditor’s remuneration Details of the amounts paid or payable to the auditor and its related practices for audit and non-audit services are set out below. Ernst & Young: Audit services Audit related services Non-audit services Due diligence services Other advisory services 2016 $ 2015 $ 1,435,270 1,547,365 9,000 104,467 – – 197,142 165,510 1,444,270 2,014,484 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 38. Significant accounting policies 38. Significant accounting policies The following significant accounting policies have been adopted in the preparation and presentation of the Consolidated Financial Report. These policies have been consistently applied to all years presented unless otherwise stated. Revenue (a) Amounts disclosed as revenue represent the fair value of consideration received or receivable, including environmental levies but excluding goods and services taxes paid. Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery of goods to customers. Revenue from the rendering of services is recognised upon completion of performing the services. Revenue is recognised for the major business activities as follows: Solids Revenue from collection and disposal of waste is recognised when the service has been performed. In some circumstances, revenue may be earned from the collection of the waste, however costs related to the treatment and disposal of that waste is yet to be incurred. Unprocessed waste may give rise to deferred revenue, where invoices to customers are raised in advance of performance obligations being completed, or require an accrual for the costs of disposing of residual waste to be created once the Group has an obligation for disposal. These amounts are reflected as deferred revenue or accruals in the financial statements as appropriate. Liquids and Industrial Services  Revenue from collection and treatment of liquid waste is recognised when the waste has been collected and treated.  Contract revenue is measured by reference to labour hours incurred to date and actual costs incurred.  Revenue from sale of oil and by-products is recognised on shipment or passing of control of the goods. Interest Interest revenue is recognised on an accruals basis, taking into account the interest rates applicable to the financial assets. Dividends Dividend revenue is recognised when the right to receive a dividend has been established. Dividends received from associates or joint venture entities are accounted for in accordance with the equity method of accounting. Repairs and maintenance (b) Plant and equipment of the Group is required to be overhauled on a regular basis. This is managed as part of an ongoing major cyclical maintenance program. The cost of this maintenance is recognised as an expense as incurred, except where it relates to the replacement of a component of an asset, or where it extends the useful life of the asset, in which case the costs are capitalised and depreciated in accordance with the Group’s policy. Other routine operating maintenance, repair and minor renewal costs are also recognised as expenses as incurred. Finance costs (c) Finance costs are recognised as expenses in the period in which they are incurred. Finance costs include foreign exchange movements of the US Private Placement (USPP) borrowings which are offset by a corresponding foreign currency swap agreement. This foreign currency swap has not been formally designated as a hedge and therefore does not qualify for hedge accounting. The derivative financial instrument is carried at fair value on the Consolidated Balance Sheet with any changes in fair value being recognised in finance costs in the Consolidated Income Statement. 106 106 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 38. Significant accounting policies 38. Significant accounting policies (continued) 38. Significant accounting policies (continued) The following significant accounting policies have been adopted in the preparation and presentation of the Consolidated Financial Report. These policies have been consistently applied to all years presented unless otherwise stated. Amounts disclosed as revenue represent the fair value of consideration received or receivable, including environmental levies but excluding goods and services taxes paid. Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery of goods to customers. Revenue from the rendering of services is recognised upon completion of performing the services. Revenue is recognised for the major business activities as follows: (a) Revenue Solids Revenue from collection and disposal of waste is recognised when the service has been performed. In some circumstances, revenue may be earned from the collection of the waste, however costs related to the treatment and disposal of that waste is yet to be incurred. Unprocessed waste may give rise to deferred revenue, where invoices to customers are raised in advance of performance obligations being completed, or require an accrual for the costs of disposing of residual waste to be created once the Group has an obligation for disposal. These amounts are reflected as deferred revenue or accruals in the financial statements as appropriate. Liquids and Industrial Services  Revenue from collection and treatment of liquid waste is recognised when the waste has been collected and treated.  Contract revenue is measured by reference to labour hours incurred to date and actual costs incurred.  Revenue from sale of oil and by-products is recognised on shipment or passing of control of the goods. Interest revenue is recognised on an accruals basis, taking into account the interest rates applicable to the financial assets. Interest Dividends Dividend revenue is recognised when the right to receive a dividend has been established. Dividends received from associates or joint venture entities are accounted for in accordance with the equity method of accounting. (b) Repairs and maintenance Plant and equipment of the Group is required to be overhauled on a regular basis. This is managed as part of an ongoing major cyclical maintenance program. The cost of this maintenance is recognised as an expense as incurred, except where it relates to the replacement of a component of an asset, or where it extends the useful life of the asset, in which case the costs are capitalised and depreciated in accordance with the Group’s policy. Other routine operating maintenance, repair and minor renewal costs are also recognised as expenses as incurred. (c) Finance costs Finance costs are recognised as expenses in the period in which they are incurred. Finance costs include foreign exchange movements of the US Private Placement (USPP) borrowings which are offset by a corresponding foreign currency swap agreement. This foreign currency swap has not been formally designated as a hedge and therefore does not qualify for hedge accounting. The derivative financial instrument is carried at fair value on the Consolidated Balance Sheet with any changes in fair value being recognised in finance costs in the Consolidated Income Statement. Income tax (d) The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Group’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Consolidated Financial Statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted at the reporting date and are expected to apply when the related deferred income asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and they relate to income taxes levied by the same taxation authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. The Company and all its wholly-owned Australian resident entities are part of a Tax-Consolidated Group under Australian taxation law. Cleanaway Waste Management Limited is the Head Entity in the Tax-Consolidated Group. The Tax-Consolidated Group has entered into a tax sharing and a tax funding agreement. Impairment of assets (e) A financial asset is assessed at each reporting date to determine whether there is objective evidence that it is impaired. Impairment losses on financial assets are directly written off to the Consolidated Income Statement. Impairment of loans and receivables is recognised when it is probable that the carrying amount will not be recovered in full due to significant financial difficulty or other loss event of the debtor. Goodwill and intangible assets that have an indefinite useful life are not amortised but are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that previously suffered an impairment loss are reviewed for possible reversal of the impairment loss at each subsequent reporting date. Foreign currency (f) Foreign currency transactions are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Consolidated Income Statement and are reported on a net basis. 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. 106 107 107 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 38. Significant accounting policies (continued) 38. Significant accounting policies (continued) Cash and cash equivalents (g) Cash and cash equivalents comprise cash at banks, short-term deposits and petty cash balances. Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are at call, and earn interest at the respective short-term deposit rates. Trade and other receivables (h) Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Trade receivables are generally due for settlement within 30 days and therefore are all classified as current. Collectability of trade debtors is reviewed on an ongoing basis. Debts which are known as uncollectable are written off when identified. A provision for impairment is raised when collection of an amount is no longer probable. The Group’s exposure to credit risk related to trade and other receivables is disclosed in note 31(b). Inventories (i) Inventories are valued at the lower of cost and net realisable value. The cost of inventories is based on the method most appropriate to each particular class of inventory and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Derivative financial instruments (j) The Group has a derivative financial instrument in place to manage its exposure to foreign exchange movements in the value of the USPP borrowings which are denominated in USD. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. As noted in note 31(a), this derivative is not designated as a hedge and therefore all fair value movements are recorded in finance costs in the Consolidated Income Statement. (k) Property, plant and equipment Landfill assets The Group owns landfill assets. A landfill site may be either developed or purchased by the Group. Landfill assets comprise the acquisition of landfill land, cell development costs, site infrastructure and landfill site improvement costs and the asset related to future landfill site restoration and aftercare costs (landfill remediation asset). Landfill land will be recognised separately from other landfill related assets when it is considered to have value at the end of the landfill site’s useful life for housing or commercial development. This land is not depreciated; it is carried at its original cost and tested for impairment. Cell development costs include excavation costs, cell lining costs and leachate collection costs. Cell development costs are capitalised as incurred. Closed cells are capped and may return a future revenue stream to the Group, such as from the sale of landfill gas. The landfill remediation assets comprises capping costs and costs to remediate and monitor the site over the life of the landfill including post closure. Capping costs together with cost of aftercare (see Provision for landfill remediation in note 38(o)) are recognised upon commencement of cell development. The depreciation, for cell development costs and the remediation asset, is calculated by the tonnes of airspace consumed during the reporting period divided into the total airspace available at the beginning of the reporting period, such that all costs are fully depreciated upon receiving last waste into the landfill. A landfill is deemed full when its permitted airspace is consumed and it cannot legally accept any more waste. Alternatively, a landfill may be deemed full earlier should other factors exist, for example, if it is not economically viable to continue accepting waste. Site infrastructure and landfill site improvement costs include capital works such as site access roads and other capital costs relating to multiple cells on the landfill site. These costs are capitalised as incurred and depreciated using the useful life of the asset or the life of the landfill up until receiving last waste. 108 108 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 38. Significant accounting policies (continued) 38. Significant accounting policies (continued) 38. Significant accounting policies (continued) Cash and cash equivalents comprise cash at banks, short-term deposits and petty cash balances. Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are at call, and earn interest at the respective A landfill may be disposed of as an operating landfill or it may be retained until post-closure and then sold. The Group’s policy on landfill sales is as follows: Landfill sales • • If the landfill is sold as an operating landfill, recognise the profit on sale of an asset; or If the completed landfill is intended to be sold and meet the relevant requirements, transfer the landfill balance to non-current assets held for sale. Non-landfill land and buildings Non-landfill land and buildings are shown at fair value, based on periodic valuations (at least every three years) by external independent valuers, less subsequent depreciation of buildings. The fair values are recognised in the Consolidated Financial Statements of the Group, and are reviewed at the end of each reporting period to ensure that the carrying value of land and buildings is not materially different to their fair values. Movements in market prices and the level of transactions impact the ability of the Group to estimate fair value. Any revaluation increase arising on the revaluation of land and buildings is credited to the asset revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense in profit or loss, in which case the increase is credited to the Consolidated Income Statement to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of land and buildings is charged as an expense in the Consolidated Income Statement to the extent that it exceeds the balance, if any, held in the asset revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued buildings is charged to the Consolidated Income Statement. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the asset revaluation reserve, net of any related deferred taxes, is transferred directly to retained earnings. Plant and equipment Plant and equipment, and equipment under finance lease are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for its intended use. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment and are recognised net within “other income” in the Consolidated Income Statement. When revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings. Depreciation Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. Depreciation of assets, with the exception of landfill remediation and cell development assets, is calculated on a straight-line basis so as to write off the net cost or revalued amount of each asset over its expected useful life to the Group. Leasehold improvements are depreciated over the period of the lease or estimated useful lives, whichever is the shorter, using the straight-line method. Landfill remediation and cell development assets are depreciated on a usage basis over the individual landfill expected life. Estimates of remaining useful lives are made on a regular basis for all assets, with annual reassessments for major items. The expected useful lives are as follows: Buildings and site improvements Plant and equipment Leasehold improvements Landfill assets 15 to 40 years 2.5 to 20 years 5 to 10 years 1 to 50 years 108 109 109 (g) Cash and cash equivalents short-term deposit rates. (h) Trade and other receivables Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Trade receivables are generally due for settlement within 30 days and therefore are all classified as current. Collectability of trade debtors is reviewed on an ongoing basis. Debts which are known as uncollectable are written off when identified. A provision for impairment is raised when collection of an amount is no longer probable. The Group’s exposure to credit risk related to trade and other receivables is disclosed in note 31(b). (i) Inventories Inventories are valued at the lower of cost and net realisable value. The cost of inventories is based on the method most appropriate to each particular class of inventory and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. (j) Derivative financial instruments The Group has a derivative financial instrument in place to manage its exposure to foreign exchange movements in the value of the USPP borrowings which are denominated in USD. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. As noted in note 31(a), this derivative is not designated as a hedge and therefore all fair value movements are recorded in finance costs in the Consolidated Income Statement. (k) Property, plant and equipment Landfill assets The Group owns landfill assets. A landfill site may be either developed or purchased by the Group. Landfill assets comprise the acquisition of landfill land, cell development costs, site infrastructure and landfill site improvement costs and the asset related to future landfill site restoration and aftercare costs (landfill remediation asset). Landfill land will be recognised separately from other landfill related assets when it is considered to have value at the end of the landfill site’s useful life for housing or commercial development. This land is not depreciated; it is carried at its original cost and tested for impairment. Cell development costs include excavation costs, cell lining costs and leachate collection costs. Cell development costs are capitalised as incurred. Closed cells are capped and may return a future revenue stream to the Group, such as from the sale of landfill gas. The landfill remediation assets comprises capping costs and costs to remediate and monitor the site over the life of the landfill including post closure. Capping costs together with cost of aftercare (see Provision for landfill remediation in note 38(o)) are recognised upon commencement of cell development. The depreciation, for cell development costs and the remediation asset, is calculated by the tonnes of airspace consumed during the reporting period divided into the total airspace available at the beginning of the reporting period, such that all costs are fully depreciated upon receiving last waste into the landfill. A landfill is deemed full when its permitted airspace is consumed and it cannot legally accept any more waste. Alternatively, a landfill may be deemed full earlier should other factors exist, for example, if it is not economically viable to continue accepting waste. Site infrastructure and landfill site improvement costs include capital works such as site access roads and other capital costs relating to multiple cells on the landfill site. These costs are capitalised as incurred and depreciated using the useful life of the asset or the life of the landfill up until receiving last waste. Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 38. Significant accounting policies (continued) 38. Significant accounting policies (continued) (l) Intangible assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired business, subsidiary or associate at the date of acquisition. Goodwill on the acquisition of businesses or subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill is not amortised. Instead goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of a business include the carrying amount of goodwill relating to the business sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Research and development Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, is recognised in the Consolidated Income Statement as an expense as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources to complete development. The expenditure capitalised includes the costs of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Borrowing costs related to the development of qualifying assets are also capitalised. Other development expenditure is recognised in the Consolidated Income Statement as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. Other intangible assets Other intangible assets include customer contracts recognised on business combinations and licences. Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Amortisation Amortisation is charged to the Consolidated Income Statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite (e.g. brand names). Goodwill and intangible assets with an indefinite useful life are systematically tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives of customer contracts are 3 to 10 years. (m) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 45 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. Other payables and accruals includes tipping and disposal costs accruals as well as general accruals. Borrowings (n) Borrowings are initially recognised at fair value of the consideration received net of issue costs incurred. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the Consolidated Income Statement over the period of the borrowings on an effective interest basis. Foreign exchange gains and losses arising on borrowings are reflected in finance costs in the Consolidated Income Statement. Borrowings are derecognised when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or other expenses. 110 110 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 (l) Intangible assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired business, subsidiary or associate at the date of acquisition. Goodwill on the acquisition of businesses or subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill is not amortised. Instead goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of a business include the carrying amount of goodwill relating to the business sold. Research and development Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, is recognised in the Consolidated Income Statement as an expense as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources to complete development. The expenditure capitalised includes the costs of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Borrowing costs related to the development of qualifying assets are also capitalised. Other development expenditure is recognised in the Consolidated Income Statement as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. Other intangible assets include customer contracts recognised on business combinations and licences. Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Other intangible assets Amortisation Amortisation is charged to the Consolidated Income Statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite (e.g. brand names). Goodwill and intangible assets with an indefinite useful life are systematically tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives of customer contracts are 3 to 10 years. (m) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 45 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. Other payables and accruals includes tipping and disposal costs accruals as well as general accruals. (n) Borrowings Borrowings are initially recognised at fair value of the consideration received net of issue costs incurred. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the Consolidated Income Statement over the period of the borrowings on an effective interest basis. Foreign exchange gains and losses arising on borrowings are reflected in finance costs in the Consolidated Income Statement. Borrowings are derecognised when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or other expenses. Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 38. Significant accounting policies (continued) 38. Significant accounting policies (continued) 38. Significant accounting policies (continued) Goodwill is allocated to cash-generating units for the purpose of impairment testing. requirements. Provision for landfill remediation and rectification (o) Landfill sites are constructed to receive waste in accordance with a licence. These licences generally require that once a landfill is full, it is left in a condition as specified by the Environmental Protection Authority (EPA) or other government authorities, and monitored for a defined period of time (usually 30 years). Therefore remediation occurs on an ongoing basis, as the landfill is operating, at the time the landfill closes and through post-closure. Remediation comprises: • the costs associated with capping landfills (covering the waste within the landfill); and • costs associated with remediating and monitoring the landfill in accordance with the licence or environmental The constructive obligation to remediate the landfill sites is triggered upon commencement of cell development. Accordingly landfill remediation costs are provided for when development commences and at the same time a landfill remediation asset is recognised. The provision is stated at the present value of the future cash outflows expected to be incurred, which increases each period due to the passage of time and is recognised in current and non-current provisions in the Consolidated Balance Sheet. The annual change in the net present value of the provision due to the passage of time is recognised in the Consolidated Income Statement as a time value adjustment in finance costs. Due to the long term nature of remediation obligations, changes in estimates occur over time. Any change in the provision for future landfill site restoration and aftercare costs arising from a change in estimate of those costs, and related to landfill sites which are still accepting waste, is recognised as an addition or reduction to the remediation asset in the Consolidated Balance Sheet. Changes to the remediation provision once last customer waste is received, are expensed to the Consolidated Income Statement. Rectification provisions differ to remediation. Rectification costs must be provided for at a reporting period end when there is an obligation to bring an asset back to the normal operating standard required under the licence and EPA or council requirements. Rectification provisions are calculated based on the net present value of all costs expected to rectify the site. All rectification costs are expensed to the Consolidated Income Statement. Provisions (p) A provision is recognised in the Consolidated Balance Sheet when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (q) Employee benefits Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and vesting sick leave expected to be settled within 12 months of the reporting date are recognised in other payables and employee benefits in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Employee benefit on-costs Employee benefit on-costs, including payroll tax, are recognised and included in employee benefit liabilities when the employee benefits to which they relate are recognised as liabilities. 110 111 111 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 38. Significant accounting policies (continued) 38. Significant accounting policies (continued) Long service leave The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in employee benefits and is measured in accordance with the other employee benefits described above. The liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on the corporate bond rate with terms to maturity and currency that match, as closely as possible, the timing of estimated future cash outflows. Short term incentive (STI) compensation plans A liability for employee benefits in the form of STI’s is recognised when it is probable that STI criteria has been achieved and an amount is payable in accordance with the terms of the STI plan. Liabilities for STI’s are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled. Share-based payment transactions Share-based payments are provided to Executives and employees via the Cleanaway Waste Management Limited Annual Incentive Plan and the Long Term Incentive Plan. Share-based compensation payments are measured at fair value at the date of grant and expensed to employee benefit expense with a corresponding increase in the employee benefits reserve over the period in which the service and, where applicable, performance conditions are fulfilled. Fair value is measured by using the Monte Carlo simulation or the Black-Scholes option pricing model, the term of the Performance Right, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the Performance Right. Fair value measurement (r) The Group measures financial instruments, such as derivatives and non-financial assets such as land and buildings, at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • • In the principle market for the asset or liability, or In the absence of a principle market, in the most advantageous market for the asset or liability. The principle or the most advantageous market must be accessible by the Group. The fair value of an asset or liability is measured using the assumptions that the market participants act in their economic best interest. A fair value measurement of non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use. The Group uses the following valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs:  Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities;  Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;  Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. 112 112 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 38. Significant accounting policies (continued) 38. Significant accounting policies (continued) 38. Significant accounting policies (continued) Long service leave The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in employee benefits and is measured in accordance with the other employee benefits described above. The liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on the corporate bond rate with terms to maturity and currency that match, as closely as possible, the timing of estimated future cash outflows. Short term incentive (STI) compensation plans A liability for employee benefits in the form of STI’s is recognised when it is probable that STI criteria has been achieved and an amount is payable in accordance with the terms of the STI plan. Liabilities for STI’s are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled. Share-based payment transactions Incentive Plan and the Long Term Incentive Plan. Share-based payments are provided to Executives and employees via the Cleanaway Waste Management Limited Annual Share-based compensation payments are measured at fair value at the date of grant and expensed to employee benefit expense with a corresponding increase in the employee benefits reserve over the period in which the service and, where applicable, performance conditions are fulfilled. Fair value is measured by using the Monte Carlo simulation or the Black-Scholes option pricing model, the term of the Performance Right, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the Performance Right. (r) Fair value measurement value at each balance sheet date. The Group measures financial instruments, such as derivatives and non-financial assets such as land and buildings, at fair Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principle market for the asset or liability, or In the absence of a principle market, in the most advantageous market for the asset or liability. The principle or the most advantageous market must be accessible by the Group. The fair value of an asset or liability is measured using the assumptions that the market participants act in their economic • • best interest. A fair value measurement of non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use. The Group uses the following valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs:  Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities;  Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement  Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; is unobservable. (s) (i) Basis of consolidation Subsidiaries The Consolidated Financial Report comprises the financial statements of the Group and its subsidiaries as at 30 June 2016. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:  The contractual arrangement with the other vote holders of the investee;  Rights arising from the contractual arrangements; and  The Group’s voting rights and potential voting rights. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the Consolidated Income Statement from the date the Group gains control until the date when the Group ceases to control the subsidiary. All intra-group balances, transactions and unrealised gains and losses resulting from intra-group transactions are eliminated in full. Non-controlling interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the Consolidated Income Statement and within equity in the Consolidated Balance Sheet, separately from parent shareholders’ equity. If the Group loses control over a subsidiary it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in the Consolidated Income Statement. Any investment retained is recognised at fair value. (ii) Equity accounted investments Equity accounted investments are those entities over which the Group has either significant influence (associate entities) or joint control and has rights to the net assets of the entity (joint venture entities). The Group does not have power over these entities either through management control or voting rights. Investments in associates and joint ventures are accounted for using the equity method of accounting and are collectively referred to as “equity accounted investments” in this report. Under the equity method of accounting, the investments in associates and joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses of the associate or joint venture in the Consolidated Income Statement. Dividends received from associates and joint ventures are recognised as a reduction in the carrying amount of the investment. Where the Group’s share of losses in an associate or joint venture equals or exceeds its interest in the associate or joint venture, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture. Unrealised gains on transactions with associates and joint ventures are eliminated to the extent of the Group’s interest in the associates and joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the associates and joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group. Business combinations (t) Business combinations are accounted for using the acquisition method, whereby the identifiable assets, liabilities and contingent liabilities (identifiable net assets) are measured using their fair values at the date of acquisition. Goodwill arises in a business combination when the consideration transferred to the acquiree is greater than the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Acquisition related costs, incurred in a business combination transaction, are expensed as incurred. 112 113 113 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 39. New standards adopted 39. New standards adopted The following new and revised Standards and Interpretations have been adopted in the current year and have had no material impact on the amounts reported in these Consolidated Financial Statements: AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality 40. New standards and interpretations not yet adopted 40. New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 July 2016 and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. EFFECTIVE FOR ANNUAL REPORTING PERIODS BEGINNING ON OR AFTER 1 January 2018 EXPECTED TO BE INITIALLY APPLIED IN THE FINANCIAL YEAR ENDING 30 June 2019 1 January 2018 30 June 2019 1 January 2019 30 June 2020 New standards STANDARD/INTERPRETATION AASB 9 Financial Instruments, and the relevant amending standards AASB 9 replaces AASB 139. This standard includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. AASB 15 Revenue from Contracts with Customers, and the relevant amending standards AASB 15 replaces the existing revenue recognition standards AASB 111 Construction Contracts, AASB 118 Revenue and related Interpretations. AASB 15 specifies the accounting treatment for revenue arising from contracts with customers (except for contracts within the scope of other accounting standards).The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: (a) Step 1: Identify the contract(s) with a customer (b) Step 2: Identify the performance obligations in the contract (c) Step 3: Determine the transaction price (d) Step 4: Allocate the transaction price to the performance obligations (e) Step 5: Recognise revenue when (or as) a performance obligation is satisfied AASB 16 Leases, and the relevant amending standards AASB 16 supersedes AASB 117 Leases. The key features of AASB 16 from a lessee perspective are as follows:  Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.  A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities.  Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. Conclusions relating to the likely impact on the Group of adopting the new standards identified above are pending completion of detailed impact assessments. 114 114 Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 Notes to the Consolidated Financial Statements For the year ended 30 June 2016 39. New standards adopted 40. New standards and interpretations not yet adopted (continued) 40. New standards and interpretations not yet adopted (continued) The following new and revised Standards and Interpretations have been adopted in the current year and have had no Amendments from improvement projects material impact on the amounts reported in these Consolidated Financial Statements: AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality STANDARD/INTERPRETATION AASB 2014-3 Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations This amendment amends AASB 11 Joint Arrangements to provide guidance on the accounting for acquisitions of interests in joint operations in which the activity constitutes a business. AASB 2014-4 Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of Depreciation and Amortisation The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. AASB 2014-9 Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements This amendment amends AASB 127 Separate Financial Statements, and consequentially amends AASB 1 First-time Adoption of Australian Accounting Standards and AASB 128 Investments in Associates and Joint Ventures, to allow entities to use the equity method of accounting for investments in subsidiaries, joint ventures and associates in their separate financial statements. AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments require: (a) A full gain or loss to be recognised when a transaction involves a business (whether it is housed in a subsidiary or not); and (b) A partial gain or loss to be recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 The amendments are designed to further encourage companies to apply professional judgement in determining what information to disclose in the financial statements. EFFECTIVE FOR ANNUAL REPORTING PERIODS BEGINNING ON OR AFTER 1 January 2016 EXPECTED TO BE INITIALLY APPLIED IN THE FINANCIAL YEAR ENDING 30 June 2017 1 January 2016 30 June 2017 1 January 2016 30 June 2017 1 January 2016 30 June 2017 1 January 2016 30 June 2017 The amendments from improvement projects identified above are not expected to have a material impact on the Group. 114 115 115 40. New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 July 2016 and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. EFFECTIVE FOR ANNUAL EXPECTED TO BE REPORTING PERIODS INITIALLY APPLIED IN THE BEGINNING ON OR AFTER FINANCIAL YEAR ENDING 1 January 2018 30 June 2019 AASB 15 Revenue from Contracts with Customers, and the relevant 1 January 2018 30 June 2019 New standards STANDARD/INTERPRETATION AASB 9 Financial Instruments, and the relevant amending standards AASB 9 replaces AASB 139. This standard includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. amending standards AASB 15 replaces the existing revenue recognition standards AASB 111 Construction Contracts, AASB 118 Revenue and related Interpretations. AASB 15 specifies the accounting treatment for revenue arising from contracts with customers (except for contracts within the scope of other accounting standards).The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: (a) Step 1: Identify the contract(s) with a customer (b) Step 2: Identify the performance obligations in the contract (c) Step 3: Determine the transaction price (d) Step 4: Allocate the transaction price to the performance obligations (e) Step 5: Recognise revenue when (or as) a performance obligation is satisfied AASB 16 Leases, and the relevant amending standards AASB 16 supersedes AASB 117 Leases. The key features of AASB 16 from a lessee perspective are as follows:  Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.  A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities.  Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. 1 January 2019 30 June 2020 Conclusions relating to the likely impact on the Group of adopting the new standards identified above are pending completion of detailed impact assessments. Notes to the Consolidated Financial StatementsFor the year ended 30 June 2016Cleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4 Directors’ Declaration In the Directors’ opinion: (a) the financial statements and notes together with the additional disclosures included in the Directors’ Report designated as audited, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2016 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations), and the Corporations Regulations 2001; (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2; (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; (d) this declaration has been made after receiving the declarations required to be made to the Directors in accordance with section s295A of the Corporations Act 2001 for the financial year ended 30 June 2016; and (e) as at the date of this declaration, there are reasonable grounds to believe that the members of the closed Consolidated Group identified in note 27 will be able to meet any obligation or liabilities to which they are or may become subject to, by virtue of the deed of cross guarantee. This declaration is made in accordance with a resolution of the Directors. M M Hudson Non-Executive Director and Chairman V Bansal Chief Executive Officer and Managing Director Melbourne, 19 August 2016 116 116 Directors’ Declaration Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Independent auditor's report to the members of Cleanaway Waste Management Limited (Formerly Transpacific Industries Group Ltd) Report on the financial report We have audited the accompanying financial report of Cleanaway Waste Management Limited, which comprises the consolidated balance sheet as at 30 June 2016, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year. Directors' responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor's responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. A member firm of Ernst & Young Global Limited A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Liability limited by a scheme approved under Professional Standards Legislation 117117 Independent Auditor’s ReportCleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4Cleanaway Waste Management Limited 2016 ANNUAL REPORTOpinion In our opinion: a. the financial report of Cleanaway Waste Management Limited is in accordance with the Corporations Act 2001, including: i ii giving a true and fair view of the consolidated entity's financial position as at 30 June 2016 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2. Report on the remuneration report We have audited the Remuneration Report included in pages 48 to 62 of the directors' report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of Cleanaway Waste Management Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. Ernst & Young Brett Croft Partner Melbourne 19 August 2016 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 118 Independent Auditor’s ReportOther Information Top 20 Shareholders as at 19 August 2016 J P MORGAN NOMINEES AUSTRALIA LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD BNP PARIBAS NOMINEES PTY LTD RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED UBS NOMINEES PTY LTD BNP PARIBAS NOMINEES PTY LTD PETER & LYNDY WHITE FOUNDATION PTY LTD

CITICORP NOMINEES PTY LIMITED BOND STREET CUSTODIANS LIMITED JJ RICHARDS & SONS PTY LTD RANK NAME 1 2 3 4 5 6 7 8 9 10 11 12 13 14 WESTREET INVESTMENTS PTY LTD 15 16 17 18 19 20 Top 20 holders of FULLY PAID ORDINARY SHARES Total Remaining Holders Balance Total Fully Paid Ordinary Shares on Issue RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED BRISPOT NOMINEES PTY LTD CAMROCK (AUSTRALIA) PTY LIMITED RBC INVESTOR SERVICES AUSTRALIA PTY LIMITED UNITS 410,200,691 394,383,956 191,249,348 187,830,977 59,966,648 30,526,978 26,555,272 20,051,993 15,446,000 13,478,814 12,214,021 9,105,218 8,891,724 8,454,000 8,320,000 7,814,037 7,435,190 6,603,425 6,592,171 6,160,792 1,431,281,255 155,655,680 1,586,936,935 % OF UNITS 25.85 24.85 12.05 11.84 3.78 1.92 1.67 1.26 0.97 0.85 0.77 0.57 0.56 0.53 0.52 0.49 0.47 0.42 0.42 0.39 90.19 9.81 100.00 Substantial Shareholders The number of shares held by substantial shareholders as disclosed in the shareholding notices given to the Company as at 19 August 2016 were: Cooper Investors Pty Limited Schroder Investment Management Australia Limited FIL Limited Marathon Asset Management LLP Dimensional Fund Advisors Perpetual Limited and subsidiaries Commonwealth Bank of Australia 140,380,864 133,535,666 103,132,914 95,153,793 94,987,449 79,677,844 79,572,069 8.85% 8.41% 6.50% 6.00% 5.99% 5.02% 5.01% An entity has a substantial shareholding if the total votes attaching to shares in which the entity and their associates have a relevant interest is 5% or more. The list of the 20 largest shareholders is based on the number of shares held in the name of each shareholder on the register of members, even if the shareholder holds the share as a nominee (i.e. no beneficial or relevant interest in the shares). The list of the 20 largest shareholders of the Company and the list of substantial shareholders of the Company differ for this reason. Statement of Quoted Securities The Company's total number of shares on issue as at 19 August 2016 was 1,586,936,935 ordinary fully paid shares. At 19 August 2016 the total number of shareholders owing these shares was 8,319 on the register of members maintained by Computershare Investor Services Pty Ltd. 90.19% of total issued capital is held by or on behalf of the 20 largest shareholders. 119119 119 Other InformationCleanaway Waste Management Limited 2016 ANNUAL REPORTCleanaway Waste Management Limited 2016 ANNUAL REPORTOVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT4OVERVIEWCORPORATE INFORMATIONOTHER INFORMATIONBUSINESSREVIEWFINANCIAL REPORT55OTHERINFORMATION Other Information Voting Rights Under the Company's Constitution, every member is entitled to vote who is present at a general meeting of the Company in person or by proxy or by attorney or, in the case of a corporation, by representative, shall, upon a show of hands, have one vote only. Proxies – Where a member is entitled to cast two or more votes it may appoint not more than two proxies or attorneys. Where a member appoints two proxies, neither proxy is entitle to a vote on a show of hands. Poll – On a poll, every member entitled to vote shall, whether present in person or by proxy or attorney or, in the case of a corporation, by representative, have one vote for every share held by the member. At 19 August 2016, there were 9,873,287 performance rights on issue to 16 executives under the Company’s incentive schemes. Voting rights will be attached to the unissued ordinary shares when the performance rights have been exercised. Distribution Schedule of Shareholders NO. OF SHARES 1-1,000 2,132 1,001-5,000 2,628 5,001-10,000 1,240 10,001-100,000 2,103 100,001 AND OVER 216 TOTAL 8,319 The number of shareholders each holding less than a marketable parcel of the Company's ordinary shares ($500 in value) at 19 August 2016 was 1,156. Securities Exchange Listing The shares of the Company are listed on the Australian Securities Exchange under the code CWY. CWY was delisted from the New Zealand Exchange on 23 June 2016. Company Secretary Dan Last Registered Office and Principal Office Level 4, 441 St Kilda Road, Melbourne, VIC 3004. Telephone: +61 3 8397 5100 Share Registry Computershare Investor Services Pty Limited, 117 Victoria Street, West End, QLD 4101. Telephone: 1300 850 505 (within Australia) and +61 3 9415 4000 (outside Australia) 120120 120 Other Information This Annual Report is printed on ecoStar. ecoStar is an environmentally responsible paper made Carbon Neutral. The greenhouse gas emissions of the manufacturing process including transportation of the finished product to BJ Ball Papers Warehouses has been measured by the Edinburgh Centre for Carbon Neutral Company and the fibre source has been independently certified by the Forest Stewardship Council (FSC®). ecoStar is manufactured from 100% Post Consumer Recycled paper in a Process Chlorine Free environment under the ISO 14001 environmental management system. w w w . c l e a n a w a y . c o m . a u 

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