ANNUAL REPORT2013ABN: 35 111 210 390www.decmilgroup.com.au ANNUAL GENERAL MEETINGShareholders are advised that the Decmil Group Limited 2013 Annual General Meeting (AGM) will be held on 14 November 2013 at Decmil Head Office 20 Parkland Road, Osborne Park, Western Australia, commencing at 10.00 am (AWST).www.decmilgroup.com.au About this ReportThis Annual Report is a summary of Decmil Group Limited’s (DGL) operations, activities and financial position as at 30 June 2013.References in the report to ‘the year’ or ‘the reporting period’ relate to the financial year, which is 1 July 2012 to 30 June 2013,unless otherwise stated. All dollar figures are expressed in Australian currency.Decmil Group Limited (ABN 35 111 210 390) is the parent company of the Decmil Group of companies. In this report, unlessotherwise stated, references to ‘Decmil’, ‘DGL’ and ‘the Company’, and ‘we’, ‘us’ and ‘our’ refer to Decmil Group Limited and its controlled entities.In its efforts to reduce its impact on the environment ,DGL will only post printed copies of this Annual Report to those shareholderswho elect to receive one through the share registry. An electronic copy of this Annual Report will be available on our website at www.decmilgroup.com.auAUSTRALIAN BUSINESS NUMBER 35 111 210 390 ASX CODE DCG REGISTERED ADDRESS20 Parkland Road, Osborne Park, Western Australia 6017 Tel: +61 8 9368 8877 This publication is printed on Monza recycled which is an ISO 14001 certified environmentally accredited paper stock.CORPORATE DIRECTORYDIRECTORSGiles EveristNon-Executive ChairmanScott CriddleManaging DirectorDenis CriddleNon-Executive DirectorTrevor DaviesNon-Executive DirectorWilliam (Bill) HealyNon-Executive DirectorLee VeriosNon-Executive DirectorEXECUTIVE TEAMJustine CampbellChief Financial Officer & Company SecretaryTodd StrathdeeChief Strategy & Operating OfficerAustralian Business Number35 111 210 390Principal Registered Address20 Parkland Road Osborne Park WA 6017 Telephone: 08 9368 8877 Facsimile: 08 9368 8878Postal AddressPO Box 1233 Osborne Park WA 6916Operational OfficesDecmil Australia Pty Ltd 20 Parkland Road Osborne Park WA 6017 Telephone: 08 9368 8877 Facsimile: 08 9386 8878Decmil Australia Pty Ltd Level 5, 60 Edward Street Brisbane QLD 4000 Telephone: 07 3640 4600 Facsimile: 07 3640 4690AuditorRSM Bird Cameron Partners 8 St Georges Terrace Perth WA 6000 Telephone: 08 9261 9100 Facsimile: 08 9261 9111Share RegistryComputershare Investor Services Pty Limited Level 2, 45 St Georges Terrace Perth WA 6000 Telephone: 08 9323 2000 Facsimile: 08 9323 2033 Email: web.queries@computershare.com.au Website: www-au.computershare.comLawyersSteinepreis Paganin Level 4, Next Building 16 Milligan Street Perth WA 6000 Telephone: 08 9321 4000 Facsimile: 08 9321 4333FinanciersNational Australia Bank Limited 100 St Georges Terrace Perth WA 6000 Telephone: 13 10 12Controlled EntitiesDecmil Australia Pty Ltd Eastcoast Development Engineering Pty Ltd Homeground Villages Pty Ltd Homeground Gladstone Pty Ltd ATF Homeground Gladstone Unit Trust Decmil Properties Pty LtdASX Code: DCG Contents 02 2012/13 HigHligHts 06 CHAiRmAn’s RepoRt 08 mAnAging DiReCtoR’s RepoRt 10 About us 11 ouR businesses 15 CuRRent Key pRojeCts 20 ouR people 21 ouR VAlues 22 HeAltH, sAfety & enViRonment 24 DeCmil in tHe Community 27 finAnCiAl RepoRt Decmil Group Limited offers a diversified range of services to the Australian resources and infrastructure industries. Companies within the Decmil Group specialise in design, civil engineering and construction; accommodation services; manufacturing; and maintenance. DeCmil gRoup limiteD | AnnuAl RepoRt 2013 1 consistent stronG PerForMAnce 555 529* 394 329 FY10 FY11 FY13 sales revenue $m FY12 * total revenue of $600m before eliminations 45.2* 39.1 23.6 19.0 FY11 FY13 FY10 net Profit After tax $m FY12 *excludes gain arising from business combination net of tax and amortisation of intangible assets 26.51 26.94* 18.90 15.46 FY10 FY11 FY12 FY13 earnings Per share (cents) *excludes gain arising from business combination net of tax and amortisation of intangible assets 2 2012/13 HIGHLIGHts n major contract wins and extensions totalling $360m, including significant projects for tier 1 clients including shell and Rio tinto. n Group strengthened through significant program of diversification. n sixth consecutive year of record profits, with normalised net profit after tax of $45.2m* - up 16% on the previous year. n Improved margins on revenue of $528.8m** n Acquisition of brisbane- based specialist engineering business eastcoast Development engineering pty ltd. n Completion of Decmil’s build-own-operate accommodation village, Homeground Gladstone. n shareholders share in group’s success with dividends totalling 12 cents per share (fully franked). n Continued strong outlook for 2013 /14 with total order book of approximately $420m. * excludes gain arising from business combination net of tax and amortisation of intangible assets. ** total revenue of $600m before eliminations. Decmil group limiteD | annual report 2013 the Group has been strengthened through a significant program of diversification. DeCmil gRoup limiteD | AnnuAl RepoRt 2013 3 WHere We operAte 4 DeCmil gRoup limiteD | AnnuAl RepoRt 2013 A year of firsts, including contracts with the Commonwealth Government, shell and in the northern territory. DeCmil gRoup limiteD | AnnuAl RepoRt 2013 5 CHAIrMAn’s report it is my pleasure to present decmil Group limited’s 2013 Annual report. The financial year ended 30 June 2013 will be remembered as another stand-out year for DGL. At a time when the Australian resources sector has experienced challenging conditions, the Company has achieved record profits, improved its operating margins and taken significant steps to strengthen the business, most notably through a strategy of diversification. continued Growth Decmil Group now has key three operating divisions: • Decmil Australia, which specialises in providing design, civil engineering and construction services to Australia’s oil & gas, resources and infrastructure sectors Eastcoast Development Engineering, acquired in April 2013, which is a Brisbane-based specialist engineering business Homeground Villages, which operates a high-quality village providing accommodation services to workers in Queensland’s key resources hub • • All three divisions have contributed to the Group’s earnings over the past 12 months. Decmil Australia has secured a number of substantial contracts with leading resources and energy clients including Shell, Rio Tinto and Roy Hill Iron Ore. Subsequent to the end of the financial year, Decmil won a significant contract with the Department of Immigration and Citizenship to build a village on Manus Island in Papua New Guinea. This is the first Commonwealth contract awarded to the Group, and is the first overseas project undertaken by Decmil. While Decmil Australia remains focused on the delivery of major projects, the Group’s two other operating divisions, Eastcoast Development Engineering and Homeground Villages, deliver recurring revenues, effectively providing diversification of the Group’s earnings. net Assets & cAsh Position Decmil Group’s net assets increased by $46 million to $271 million during the financial year. The utilisation of internal cash to acquire the remaining 50% ownership in and completion of the construction of the Homeground Gladstone Village and the acquisition of Eastcoast Development Engineering Pty Ltd during the FY13 financial year has resulted in a reclassification of current assets to non-current assets of $95.1 million. Strong cash flow management continued to be a major feature of the Group with operating cash flow of $32.5million recorded for the year, despite significant capital investment in Homeground Gladstone Village. This has resulted in net cash at 30 June 2013 of $21.0 million, maintaining its low gearing structure. The Company continues to operate with a strong balance sheet, with a year-end cash position of $43.7 million. dividends For the second consecutive year the Company has paid both interim and final dividends. A final dividend of eight cents per share has been declared, and paid on 27 September 2013. Combined with the four cents per share interim dividend (paid on 28 March 2013) fully franked dividends totalling 12 cents per share have been paid to shareholders from profits generated during 2012/13. The full year dividend payout represents a 45% payout ratio which is in line with the Board’s dividend payout policy. This policy will continue to be reviewed in line with trading conditions, requirements for significant cash and investment opportunities. BoArd APPointMent The Board was pleased to welcome Mr Trevor Davies, who was appointed as a Queensland based Non-Executive Director in March 2013. Mr Davies is a civil engineer who has had an extensive career within the construction and mining industries, holding senior roles with Golding Contractors Pty Ltd, Leighton Contractors, Transfield and John Holland. giles everist chairman decmil Group limited “Another stand out year for dGl.” 2013 hiGhliGhts n Record normalised net profit after tax of $45.2* million, up 16% on the previous year. n operating margins enhanced. n normalised earnings per share of 26.94 cents. n Dividends totalling 12 cents per share to be paid to shareholders. n group diversification now tangible and growing. n specialist engineering business eastcoast Development engineering acquired, providing further diversification of service offering. n Contracts secured with several tier 1 clients including shell and Rio tinto. n Decmil’s build-own-operate accommodation village, Homeground gladstone, completed and delivering recurring revenues. n total order book of approximately $420 million provides basis for another positive year for the group in 2013/14. * excludes gain arising from business combination net of tax and amortisation of intangible assets. ** total revenue of $600m before eliminations. 6 heAlth, sAFetY & environMent A focus on health, safety and the environment remains central to every facet of the Group‘s operations, with the aim of ensuring zero harm to our people. I am pleased to report that no serious injuries were reported during the year. However, during 2012/13 the Company recorded a decline in safety performance as measured by the Total Recordable Incident Frequency Rate (TRIFR). The TRIFR increased from 3.47 (2011/12) to 6.75 (2012/13). Two key factors have been identified as impacting on this, being a significant increase in working hours and a change in the method of project delivery. The Company remains committed to achieving continuous improvement to the safety of all staff and contractors, and a range of initiatives have been put in place in response to the TRIFR result. No significant environmental incidents were reported during the year. The Group‘s environmental focus increased through specialised training undertaken by key HSE professionals. workForce cAPAcitY & cAPABilitY Staff numbers have stabilised over the past year, reflecting current demand from our clients. As at July 2013 Decmil Group employed 886 people. In line with our belief that the Company‘s culture and people are integral to our success, we have developed a number of innovative programs to attract, retain and develop the careers of our valued team members. outlook Our FY13 financial result demonstrates the success of the Group’s strategy to diversify its earnings through a broadening of our services and extending our reach into new markets. With our major subsidiaries Decmil Australia, Homeground Villages and Eastcoast Development Engineering all contributing to revenues during FY13, we are starting to see the true strengths of the diversified Group model that has been our focus over the past couple of years. The Company currently has an order book of approximately $420 million. The Board’s view is that this, combined with the recurring revenue from the accommodation and engineering businesses, will provide the basis for another positive year ahead for the Group in 2013/14. While there is no hiding from the fact that market conditions within the mining and oil & gas sectors remain somewhat challenging, the steps the Group has taken over the past two years to diversify and strengthen the business are now paying dividends. Through both acquisitions and our build-own-operate strategy, we have reduced our reliance on securing one-off projects from the resources sector. Our diversification as a Group is now tangible and growing. All of this combines to put Decmil Group in the strongest possible position to continue our growth in the year ahead and beyond. Finally, on behalf of the Board I wish to thank every member of the Decmil team for the contribution they have made over the past 12 months. We are very fortunate as a Group to have a highly committed, talented and hard-working team, and this is the critical factor in our ongoing growth and success as a business. giles everist chairman “our FY13 financial result demonstrates the success of the Group’s strategy to diversify its earnings through a broadening of our services and extending our reach into new markets.” 7 MAnAGInG DIreCtor’s report i am pleased to report that decmil Group has successfully achieved every goal we set at the outset of 2012/13. We have become more profitable as a Company, enhancing our margins to ensure that we drive the most from existing revenues in what has been a challenging environment. As a result we have achieved the Group’s sixth consecutive year of record profits with a reported net profit after tax of $64.4 million. Above all, over the past 12 months we have diversified, broadening the Group’s services and extending our reach into new markets. We have won major contracts from new clients, pushed into new geographic markets and started building solid recurring revenues from new divisions in the Group. Business PerForMAnce Highlights for the Group during 2012 /13 include the acquisition of specialist engineering business Eastcoast Development Engineering, securing the Company’s first contract with Shell, and developing the potential of Decmil’s build-own-operate accommodation village which is located in the resources hub of Gladstone in Queensland. Each of our operating subsidiaries, Decmil Australia, Homeground Villages and Eastcoast Development Engineering, contributed to revenues and earnings in FY13. The strength that this diversification of earnings and growth opportunities provides to the Group is now becoming evident. Over the past year Decmil Group has been awarded approximately $360 million in new contracts and contract extensions. Major wins included two contracts totalling $71 million to design and construct rail and port facilities along with associated infrastructure at the Roy Hill Iron Ore Project; a $25 million contract to design and construct an onshore facility to support the Prelude Floating LNG Facility in Darwin for Shell Development Australia; and contracts totalling $60 million to construct facilities for Rio Tinto’s operations in the Pilbara region of Western Australia. Homeground Villages’ flagship asset in Gladstone is proving to be an excellent investment, delivering recurring revenues. The village has strong occupancy rates, and is now well established as the preferred destination for companies seeking accommodation for their staff in Gladstone. Our recent success in securing a significant contract to build a village on Manus Island in Papua New Guinea is a great opportunity to form a strong relationship with the Department of Immigration and Citizenship and indeed the broader Federal Government. We will look to further leverage our experience in building major projects in remote locations as future opportunities arise. diversiFicAtion strAteGY Diversification is the key to the success we have experienced over the past year, and indeed to the future success of the business. Our strategy has been to broaden the range of services we offer to our clients; to extend our reach into new sectors; and to diversify geographically. On this last point, the map which is featured on page 4 of this report tells much of the story. Twelve months ago our projects were virtually all in Western Australia. Today, the Group’s reach extends across three states and territories of Australia, and beyond to several of our neighbouring countries throughout the Pacific region. investMent in coMPAnY resources As the Group has grown and diversified, Decmil has continued to invest in our management systems and processes to ensure we continue to drive efficiencies from every facet of the business. scott Criddle Managing director & ceo decmil Group limited “over the past 12 months we have diversified, broadening the Group’s services and extending our reach into new markets.” 8 Over the past year this has included system upgrades to improve mobile functionality in remote areas with limited communications; the installation of new IT infrastructure into Eastcoast Development Engineering; and updates to our client relationship management software to better manage opportunities arising from the pipeline of future projects. Staff numbers have stabilised over the past year, reflecting current demand from our clients. As at July 2013 Decmil Group employed 886 people. In line with our belief that the Company‘s culture and people are integral to our success, we have developed a number of innovative programs to attract, retain and develop the careers of our valued team members. A focus on health & safety and the environment remains central to every facet of the Group‘s operations. It is certainly no accident that the first of our Group’s values is “Safety and health are what matters most”. While I am pleased to report that no serious injuries were reported during the year, it is disappointing to see that the Company recorded a slight decline in safety performance as measured by the Total Recordable Incident Frequency Rate (TRIFR) during 2012 /13. Despite this, Decmil’s TRIFR is still well below the industry average, and shareholders can be assured that safety remains a major commitment for the Group. No significant environmental incidents were reported during the year. The Group‘s environmental focus increased through specialised training undertaken by key HSE professionals. MAnAGeMent chAnGes The Group made two significant appointments to the senior management team during 2012/13. Mr Todd Strathdee was appointed to the role of Chief Strategy & Operating Officer (CS0) in January 2013. In this newly-created role, Mr Strathdee has primary responsibility for developing the corporate strategy of the Group, overseeing future acquisitions, optimising the performance of all subsidiaries of the Group and the Company as a whole, and in conjunction with Chief Financial Officer Justine Campbell formulating, implementing and managing the Group’s treasury and capital management. Mr Jonathan Holmes was appointed to the role of Executive General Manager of Decmil Australia, commencing in July 2013. The Executive General Manager position is a newly- created role, with responsibility for winning work and operational delivery for Decmil Australia. The appointment of Mr Holmes has been made as part of a succession plan that has been developed by the Company. Mr Ray Sputore continues as a Director of Decmil Australia, and will support Mr Holmes in his transition to the leadership role. outlook The Company has started FY14 with committed revenues of approximately $420 million, including recurring revenues from the accommodation and engineering businesses. We expect that the combination of this revenue profile as well as higher overall margins and the margin mix will provide the basis for another positive year ahead for the Group in FY14. scott Criddle Managing director & ceo homeground villages’ flagship asset in Gladstone is proving to be an excellent investment, delivering recurring revenues. the village has strong occupancy rates, and is now well established as the preferred destination for companies seeking accommodation for their staff in Gladstone. 9 ABoUt Us Decmil group limited offers a diversified range of services to the resources and infrastructure industries. Companies within the Decmil group specialise in design, civil engineering and construction; accommodation services; manufacturing; and maintenance. the group’s focus is on delivering integrated solutions to its blue-chip clients in the Australian oil & gas, mining and infrastructure sectors. our expertise is in managing major projects – delivering outstanding results on time, on budget and with a high degree of professionalism. listed on the Australian securities exchange (AsX Code: DCg), Decmil’s goal is to maximise returns from our operations to deliver value to our shareholders, clients and other stakeholders. our strong customer focus has been used to build and maintain solid relationships with major oil & gas and mining companies operating in Australia, and our clients include many of the leading companies in the sector. We work to build, maintain and support our clients’ operations through safe, reliable, innovative and cost-effective engineering and construction services. As testament to our sustained approach of maintaining client relationships and demonstrated record of consistently providing high quality work and service to our customers for more than 30 years, our clients continue to award Decmil ‘repeat work’. our reputation is founded on our culture of safety, people, leadership, client relationships, teamwork and community. these principles are embedded in our processes and systems and embodied in all aspects of how we conduct our business. 10 DeCmil gRoup limiteD | AnnuAl RepoRt 2013 oUr BUsInesses For more than 30 years, Decmil Australia has successfully delivered complex, large-scale civil engineering and construction projects for clients in the oil & gas, resources and government infrastructure sectors. We have worked with many of the best-known companies in their fields, delivering cost-effective results whilst maintaining quality and safety. Decmil Australia’s reputation has been built on the construction of major accommodation and infrastructure projects, as well as civil projects. 11 Decmil group limiteD | annual report 2013 oUr BUsInesses Homeground Villages sets the standard in quality workforce accommodation. Decmil Group brings its trademark high levels of client service to village ownership and management. Our flagship property, Homeground Gladstone – located in the fast- growing hub of the Queensland resources industry – offers workers the highest quality accommodation and an exceptional standard of facilities and services. 12 Decmil group limiteD | annual report 2013 oUr BUsInesses Eastcoast Development Engineering (EDE) is a specialist engineering business, based in Brisbane. EDE services the energy, infrastructure and resource industries throughout Australia and the Pacific Islands. The company specialises in the fabrication and installation of high pressure pipes, vessels and tanks which are used for a range of applications in the oil & gas, mining and minerals, heavy industrial, water and power generation industries. EDE was acquired by Decmil Group in April 2013. 13 Decmil group limiteD | annual report 2013 14 DeCmil gRoup limiteD | AnnuAl RepoRt 2013 CUrrent KeY proJeCts Manus island regional Processing centre Client Department of Immigration & Citizenship Value $137 million Details Design and construction of a 600 person accommodation facility, 200 room staff facility, health, welfare, recreational and operational facilities and associated engineering facilities and services. shell Prelude onshore supply Base Client Shell Value $25 million Details Design and construction of the Prelude Onshore Supply Base including detailed engineering, contracting, procurement, fabrication, transportation and all statutory and regulatory approvals. DeCmil gRoup limiteD | AnnuAl RepoRt 2013 15 CUrrent KeY proJeCts roy hill rail terminal Buildings Client Roy Hill Value $56.5 million Details Design and construction of rail terminal, associated facilities and services. roy hill Port Buildings Client Roy Hill Value $14.5 million Details Design and construction of port landside facilities and associated facilities. 16 DeCmil gRoup limiteD | AnnuAl RepoRt 2013 CUrrent KeY proJeCts Gorgon construction village Client Chevron Australia Pty Ltd Value $835 million (Decmil $280 million) Details Design and construction of a 4,006 person accommodation village on Barrow Island. Buffel Park construction village Client BHP Billiton Mitsubishi Alliance (BMA) Value $107 million Details Construction and installation of infrastructure and 1,500 person accommodation facilities for the Caval Ridge Coal Project located in the Bowen Basin. DeCmil gRoup limiteD | AnnuAl RepoRt 2013 17 CUrrent KeY proJeCts western turner infrastructure Hamersley Iron (Rio Tinto) Client Value $30 million Details Design and construction of heavy vehicle / fixed plant workshop and associated facilities, first aid building, security gatehouse and communications facilities. QGc well head installation Client QGC Value $98 million Details Mechanical, pipe spool and installation of QGC Well Heads. 18 DeCmil gRoup limiteD | AnnuAl RepoRt 2013 CUrrent KeY proJeCts Mt webber Client Atlas Iron Value $14.5 million Details Design and construction of a 200 person operations village including 51 modules and associated facilities. DeCmil gRoup limiteD | AnnuAl RepoRt 2013 19 oUr peopLe the people we have are the strength of our business. As articulated in the Group’s values – the people we have are the strength of our business. Decmil’s ability to meet and exceed our clients’ expectations can be attributed directly to the outstanding people we employ. As a business with a large proportion of our workforce involved in contracting, Decmil has to continually adjust staffing levels in order to meet the demands of the projects in which we are involved. During the past 12 months, staff numbers have therefore been adjusted from a peak of 1,623 – the highest on record for the Group – to a sustainable level of 886 as at 30 June 2013. keY Activities Over the past year we have taken steps to boost the talent throughout the business, through ‘right fit’ selection and retention strategies which are aimed at attracting and keeping our top performing staff. Being a company with a strong focus on values, we have continued to drive our brand and culture program in order to harness a competitive advantage in the market. The Group’s values underpin every aspect of our work. During 2012 /13 we commenced a number of leadership initiatives throughout the Group, aimed at developing the talents of our future business leaders. Decmil has a comprehensive range of people strategies aimed at supporting the Company’s ongoing performance and long-term growth. These strategies include offering our employees internal traineeships, such as Certificate II and III in Construction and Occupational Health & Safety. To harness the opportunity to increase Australia’s trade skills, Decmil currently offers plumbing and electrical apprenticeships. As a demonstration of our key value of community, Decmil engages with local Indigenous communities to offer the opportunity to access skills development through traineeship programs. These programs are designed to leave each community with an increased skills capacity, and positive results have already been achieved. 20 DeCmil gRoup limiteD | AnnuAl RepoRt 2013 oUr VALUes our core values are: safety Safety and health are what matters most. People The people we have are the strength of our business. leadership We take ownership and lead by example at all levels. teamwork Working together and supporting each other to achieve success. client relationships We have trusting relationships with our clients. community Respect for the community, Indigenous Australians and the environment. DeCmil gRoup limiteD | AnnuAl RepoRt 2013 21 9.0 6.75 5.29 3.47 FY11 FY12 FY13 FY10 totAl recordABle incident FreQuencY rAte (triFr) HeALtH, sAFetY & enVIronMent The health and safety of every employee is foremost in everything we do. It is a core focus across our business and is underpinned by our values system. Our comprehensive health, safety and environmental (HSE) initiatives have been developed with the key objective of ensuring zero harm to our people, the environment and the communities in which we operate. An over-riding objective for the Group is continuous improvement in our safety performance. PerForMAnce No serious injuries were reported during the past year. However safety performance as measured by the Total Recordable Incident Frequency Rate (TRIFR) declined during 2012/13. The TRIFR increased from 3.47 (2011/12) to 6.75 (2012/13). A significant increase in working hours and a change in the method of project delivery have been identified as the key factors impacting on this, and a range of initiatives have been put in place in response. Our HSE leadership team is driving improvements with a view to reducing the TRIFR result. No significant environmental incidents were reported during the year. AchieveMents During 2012 /13 Decmil Australia achieved accreditation under the Australian Government Building and Construction OHS Accreditation Scheme, as managed by the Office of the Federal Safety Commissioner (OFSC). The Company’s award-winning SHIELD program (standing for Safety and Health In Every Level at Decmil), has been a central facet of the business since its introduction in 2010. The program requires a personal commitment from all individuals at all levels to take ownership for the safety, health and welfare of themselves and their work mates. The objective of the program is to drive the behaviours, attitudes, decisions and actions required of all individuals within the business to achieve a working environment that is free from injury or incident. Over the past 12 months the Group focused on a range of key initiatives to support the safety and well-being of our staff. These included greater subcontractor engagement and alignment; a focus on training for project management personnel; and an increased focus on project start up and mobilisation. environMentAl Focus The Group’s environmental focus increased through specialised training undertaken by key HSE professionals. 22 DeCmil gRoup limiteD | AnnuAl RepoRt 2013 the health and safety of every employee is foremost in everything we do. It is a core focus across our business and is underpinned by our values system. DeCmil gRoup limiteD | AnnuAl RepoRt 2013 23 DeCMIL In tHe CoMMUnItY From its inception as a company through to the present day, Decmil has been committed to being an outstanding corporate citizen in every community in which we operate. This commitment translates to our support for a broad range of community organisations. In particular Decmil seeks to support initiatives that help to create healthy, vibrant and cohesive communities including grass roots activities aimed at building and maintaining the foundations of a community. As an important part of this, Decmil encourages staff to get involved through participation in events and assisting in fundraising activities. As a company, we also make donations to numerous charities and causes. live the dreAM ProGrAM Decmil Australia’s Live the Dream program, run in partnership with the Fremantle Football Club, involves Dockers players and Decmil staff working together to inspire high school students in Western Australia’s Pilbara region. Live the Dream provides a once-in-a-lifetime opportunity for teenagers to be immersed in the culture of the football club and ‘live the life’ of an AFL player for five days. Students have the opportunity to develop the skills and behaviours that can deliver long-term benefits to the individual and their local community. suPPortinG the clontArF FoundAtion in the PilBArA The Group has continued its support of the Clontarf Foundation, which improves the education, discipline, self-esteem, life skills and employment prospects of young Aboriginal men and, by doing so, equips them to participate more meaningfully within their communities. Decmil Australia values its partnership with the Foundation and shares the belief that the long-term investment in capacity building for young Aboriginal men will result in benefits for the individual students as well as the local and broader community. The Foundation currently operates in 53 schools across Western Australia, the Northern Territory, Victoria and New South Wales, and uses Indigenous youth’s passion for football to attract them to attend an academy. At the academy, staff mentor and counsel participants on a range of behavioural and lifestyle issues while the school caters for their specific educational needs. JAcArAndA coMMunitY centre Some 25 volunteers from Decmil Australia joined forces with building subcontractors and suppliers to take part in the Jacaranda Community Centre’s community garden refurbishment project during late 2012. The Centre is a non-profit organisation which provides financial counselling, peer support and resource information to support the Indigenous community within the Perth suburb of Belmont and surrounding areas. The refurbishment works included provision of trade services to complete electrical work, including replacement of switches, security lighting installation, plumbing work, building a garden shed, construction of wheelchair access to the community garden, landscaping and general maintenance. suPPortinG our Future leAders At Decmil we recognise that today’s children will be tomorrow’s leaders within the Australian community. To this end we have continued to support a number of youth and education initiatives. Our project teams are encouraged to look for regional opportunities to support healthy sports activities and build community spirit. Among the initiatives supported over the past year was the Autism West iinet Team Sprint Cup. FreMAntle dockers FootBAll cluB sPonsorshiP Decmil Australia has been a partner of the Fremantle Dockers Football Club since 2006, and was proud to announce a two-year extension as the Official Coaches Sponsor in April 2012. The close working relationship with the club and its coach provides a number of excellent opportunities for the company to engage with the communities in which Decmil operates. GrAss roots suPPort in GlAdstone Homeground Gladstone is very active in the Gladstone community, providing support through sponsorships to a number of community events, a local kindergarten, school and several sporting clubs across a variety of codes including rugby league, hockey and polo cross. The Village also has two sunshades which are lent to local sporting bodies for their use as required. As part of a community safety initiative, Homeground was one of several companies that has contributed funds for extra police to patrol in the Gladstone CBD over a 12 month period. keePinG coMMunities inForMed Decmil provides information to the community in many ways to keep stakeholders informed of its activities. Avenues include the company’s corporate website, media releases, annual report, advertising and careers fairs. Decmil Group launched a new website www.decmilgroup.com.au in August 2013. 24 Decmil group limiteD | annual report 2013 decmil encourages staff to get involved through participation in events and assisting in fundraising activities. Decmil volunteers helping with the jacaranda Community Centre garden refurbishment project. live the Dream participants 25 Decmil group limiteD | annual report 2013 26 DeCmil gRoup limiteD | AnnuAl RepoRt 2013 FInAnCIAL report For the YeAr ended 30 June 2013 ABN 35 111 210 390 contents 29 DiReCtoRs’ RepoRt 40 AuDitoR’s inDepenDenCe DeClARAtion 41 stAtement of CompReHensiVe inCome 42 stAtement of finAnCiAl position 43 stAtement of CHAnges in eQuity 44 stAtement of CAsH floWs 45 notes to tHe finAnCiAl stAtements 92 inDepenDent AuDitoR’s RepoRt 94 CoRpoRAte goVeRnAnCe stAtement 103 ADDitionAl infoRmAtion foR listeD publiC CompAnies IBC CoRpoRAte DiReCtoRy DeCmil gRoup limiteD | AnnuAl RepoRt 2013 27 28 Decmil group limiteD | annual report 2013 DIRECTORS’ REPORT For The Year ended 30 June 2013 1. DIRECTORS Your directors present their report on the Company and its controlled entities for the financial year ended 30 June 2013. The names of directors of the Company at any time during or since the end of the financial year are: Denis Criddle Scott Criddle Trevor Davies Giles Everist non-executive Director managing Director & chief executive officer non-executive Director non-executive chairman William Healy non-executive Director Lee Verios non-executive Director appointed 28 march 2013 Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. 2. PaRTICulaRS Of DIRECTORS anD COmPany SECRETaRy Denis Criddle, Non-Executive Director Qualifications • chartered professional engineer • member of the institute of engineering australia – chartered professional engineer (1989-2012) • Fellow of the australian institute of company Directors Experience Denis was appointed as non-executive chairman in September 2009 and resigned in november 2011. Denis is the founder of Decmil australia pty ltd which was acquired by Decmil group limited in July 2007. a civil engineer with more than 30 years’ experience in the civil construction and maintenance industry in the northwest of Western australia and in Queensland, Denis has been involved in rural investments and local government. He was elected Shire president of the roebourne Shire council during the development years of oil & gas expansion in the Karratha region. Other Directorships: none Former Directorships: none Scott Criddle, Managing Director & Chief Executive Officer Qualifications • Bachelor of applied Science in construction management and economics, curtin university Western australia • member of the australian institute of company Directors • registered Builder – Western australia Experience appointed as chief executive officer in July 2009 and managing Director in april 2010. Scott has more than 15 years’ experience in the civil construction and engineering industry. Other Directorships: none Former Directorships: none 29 Decmil group limiteD | annual report 2013 DIRECTORS’ REPORT (continued) For The Year ended 30 June 2013 2. PaRTICulaRS Of DIRECTORS anD COmPany SECRETaRy (continued) Trevor Davies, Non-Executive Director Qualifications Bachelor of Science (engineering), London university Experience appointed as non-executive Director in april 2013. a civil engineer with extensive experience within the construction and mining industries. until his retirement in 2009, trevor was the chief executive officer of golding contractors and over the course of his career he has held senior roles with leighton contractors, transfield and John Holland. Other Directorships: none Former Directorships: none Giles Everist, Non-Executive Chairman Qualifications Bachelor of Science in Mechanical engineering, university of edinburgh Chartered accountant, Member of the Institute of Chartered accountants in england and Wales Member of the australian Institute of Company directors Experience appointed as non-executive Director in December 2009. Formerly the chief Financial officer and company Secretary of monadelphous group limited between 2003 and 2009. giles has more than 19 years’ experience in the resources and engineering services industry. During his career he has held financial executive roles with rio tinto in the united Kingdom and australia plus major design engineering group Fluor australia. Other Directorships: logicamms ltd, macmahon Holdings limited Former Directorships: none William Healy, Non-Executive Director Qualifications Bachelor of Commerce Experience William Healy was appointed as non-executive Director in april 2009. He was a director and shareholder in Sealcorp Holdings from 1985 which then established and developed the diversified financial services group. He was a director of aSgarD capital management ltd, Securitor Financial group ltd, pact investment group pty ltd and aSSirt pty ltd. Sealcorp was acquired by St george Bank in 1997 and mr Healy remained on the Board until 1999. William was founding director and chairman of Boom logistics ltd and was involved in the development of the company’s business model, early acquisitions and preparation for listing in 2003. Other Directorships: none Former Directorships: none 30 Decmil group limiteD | annual report 2013 DIRECTORS’ REPORT (continued) For The Year ended 30 June 2013 2. PaRTICulaRS Of DIRECTORS anD COmPany SECRETaRy (continued) Lee Verios, Non-Executive Director Qualifications Bachelor of Law, university of Western australia Member of the australian Institute of Company directors Experience appointed as a non-executive Director in april 2010. Formerly a partner in the international law firm norton rose Fullbright, he is an experienced commercial and property lawyer. He also has broad experience as a company director and is a member of the australian institute of company Directors. Other Directorships: Finbar group ltd - Director Former Directorships: port Bouvard ltd - chairman, Vmoto ltd - chairman Justine Campbell, Chief Financial Officer and Company Secretary Qualifications Bachelor of Commerce, edith Cowan university, Western australia Member of the Institute of Chartered accountants, australia Member of the australian Institute of Company directors Experience appointed as cFo and company Secretary in July 2009. previously Justine held this role with Decmil australia from 2007 to July 2009. prior to joining Decmil australia, she was Financial manager of Doric group from July 1997 to June 2007. Todd Strathdee, Chief Strategy & Operating Officer Qualifications Bachelor of Law, university of auckland Master of Finance, London Business School Experience appointed as chief Strategy & operating officer (cSo) in January 2013. mr Strathdee has a law degree with honours from the university of auckland and masters in finance from london Business School. His experience ranges across investment banking, venture capital and private equity, including a number of senior roles with the anZ bank. 31 Decmil group limiteD | annual report 2013 DIRECTORS’ REPORT (continued) For The Year ended 30 June 2013 3. DIRECTORS’ InTERESTS In ThE ShaRES anD OPTIOnS Of ThE COmPany anD RElaTED bODIES as at the date of this report, the interests of the directors in the shares and options of the Company were: Director Denis criddle Scott criddle trevor Davies giles everist William Healy lee Verios Number of ordinary shares 18,773,232 759,717 10,000 513,332 418,190 66,667 Numbers of options to acquire ordinary shares - - - - - - 4. DIRECTORS’ mEETIngS during the financial year, 17 meetings of directors were held. attendances by each director during the year were: Directors’ Meetings Audit & Risk Remuneration Number of meetings eligible to attend Number attended Number of meetings eligible to attend Number attended Number of meetings eligible to attend Number attended 17 17 5 17 17 17 14 15 5 17 17 15 4 - - 4 4 - 3 - - 4 4 - - - - 3 3 3 - - - 2 3 3 Director Denis criddle Scott criddle trevor Davies giles everist William Healy lee Verios 5. REmunERaTIOn REPORT - auDITED This report details the nature and amount of remuneration for each director and specified executives of decmil Group Limited. The following persons acted as directors during or since the end of the financial year: denis Criddle Scott Criddle Trevor davies – appointed 28 March 2013 Giles everist William healy Lee Verios 6. REmunERaTIOn PhIlOSOPhy - auDITED The performance of the Group ultimately depends upon the quality of its directors and senior management teams. In order to maintain performance and create even greater shareholder value, the Group must attract, motivate and retain highly skilled and experienced directors and executives. 32 Decmil group limiteD | annual report 2013 DIRECTORS’ REPORT (continued) For The Year ended 30 June 2013 7. REmunERaTIOn COmmITTEE - auDITED The remuneration Committee of the Board of directors of the company is responsible for determining and reviewing the compensation arrangements for the directors and executive management team. The remuneration Committee assesses the appropriateness of the nature and amount of remuneration of directors and the executive management team on a periodic basis. The assessment is made with reference to the consolidated entity’s performance, executive performance and comparable information from industry sectors and other listed companies in similar industries. The performance of executives is measured against criteria agreed with each executive and is based predominantly on the forecast growth of the consolidated entity’s profits and shareholders’ value. all bonuses and incentives are linked to predetermined performance criteria. The board may, however, exercise its discretion in relation to approving incentives, bonuses and options. any changes must be justified by reference to measurable performance criteria. The policy is designed to attract high calibre executives and reward them for performance that results in long-term growth in shareholder wealth. executives are also entitled to participate in the employee performance right scheme approved by shareholders. Where applicable, executive directors and executives receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not receive any other retirement benefits. Some individuals, however, have chosen to sacrifice all or part of their remuneration to increase payments towards superannuation. all remuneration paid to directors and executives is valued at cost to the company and expensed. Where performance rights are given to directors and executives, they are valued using the Binomial option pricing methodologies. The board’s policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The board or its nominated sub-committee determines payments to the non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders during a general meeting. Fees for non-executive directors are not linked to the performance of the consolidated entity however to align directors’ interests with shareholder interests, the directors are encouraged to hold shares in the company. 8. PERfORmanCE baSED REmunERaTIOn - auDITED each executive director and executive’s remuneration package contains a performance-based component measured against key performance indicators (KPIs). The intention of this program is to facilitate goal congruence between directors/executives with that of the business and shareholders. The KPIs are set annually, with a level of consultation with directors/executives. The measures are specifically tailored to the areas each director/executive is involved in and has a level of control over. The KPIs target areas the board believes hold greater potential for group expansion and profit, covering financial and non-financial as well as short and long-term goals. The level set for each KPI is based on budgeted figures for the consolidated entity and respective industry standards. In determining whether or not a KPI has been achieved, decmil Group Limited bases the assessment on audited figures. Performance Rights Plan as a result of passing of resolution 7 at the 30 november 2009 annual General Meeting, a performance rights plan was put in place. The Board believes that the long term incentive offered to key executives forms a key part of their remuneration and assists to align their interests with the long term interests of Shareholders. The number of Performance rights issued were calculated by dividing up to 100% (as determined by the Board) of the executive’s total annual fixed remuneration by the volume weighted average closing price of Shares, as quoted on aSX, over the 60 days prior to the issue of the notice of Meeting for approval by shareholders. The Performance rights have a varying vesting period, the minimum vesting period which must elapse before Shares may be issued or transferred to the executives is three years from the grant date of the Performance rights and the number of Performance rights which vest is dependent to the extent that the applicable performance hurdle outlined below is satisfied. For each tranche issued, any Performance rights which do not vest at the three year measurement date, further vesting dates exist at five years from the date of grant and seven years from the date of grant. The Performance rights will vest (that is, shares will be issued or become transferable to the executives upon satisfaction of the Performance rights vesting condition) to the extent that the applicable performance hurdle outlined below is satisfied. Subject to achievement of the hurdle, the Performance rights may be converted (on a one-for-one basis) to fully paid ordinary shares in the Company. Performance hurdle The performance hurdle for the vesting of the Performance rights (and allocation of Shares) will be measured by comparing the total shareholder return (TSr) of the Company relative to the TSrs of the companies in the S&P/aSX 300 Index as at the commencement of the Vesting Period. Total Shareholder return (TSr) is a measure that represents the change in capital value of a listed company’s share price over a period, plus reinvested dividends, expressed as a percentage of the opening value. The period over which the TSr of the Company is compared with the TSrs of companies in the S&P/aSX 300 Index commences on the first day of the Vesting Period and is measured at three test dates, namely the third, fifth and seventh anniversary of the first day of the Vesting Period. 33 Decmil group limiteD | annual report 2013 DIRECTORS’ REPORT (continued) For The Year ended 30 June 2013 The percentage of Performance rights that will vest is based on the Company’s relative ranking over the measurement period (unless the Board otherwise determines), as follows: The Company’s TSR rank in the S&P/ASX 300 Index The percentage of Performance Rights which will vest Below the 50th percentile nil at or above the 50th percentile and below the 75th percentile 50%, plus 2% for every one percentile increase above the 50th percentile at or above the 75th percentile 100% If an executive resigns his or her employment, any invested Performance rights will lapse unless the Board determines otherwise. 9. REmunERaTIOn PRaCTICES - auDITED The company’s policy for determining the nature and amount of emoluments of board members and senior executives of the company is as follows: The remuneration structure for executive officers, including executive directors, is based on a number of factors, including length of service, particular experience of the individual concerned, and overall performance of the company. The contracts for service between the company and specified directors and executives are on a continuing basis, the terms of which are not expected to change in the immediate future. upon retirement, specified directors and executives are paid employee benefit entitlements accrued to the date of their retirement. The company may terminate the respective contracts without cause by providing between one and three months written notice or making payment in lieu of notice based on the individual’s annual salary component together with a discretionary redundancy payment. Termination payments are generally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct the company can terminate employment at any time. executives have thirty days from leaving their employment with the company to exercise any vested options after which time the vested options will automatically lapse. any unvested performance rights lapse automatically upon termination. 10. COmPany PERfORmanCE, ShaREhOlDER wEalTh anD DIRECTORS’ & ExECuTIvES’ REmunERaTIOn - auDITED The remuneration policy has been tailored to increase goal congruence between shareholders, directors and executives. There have been two methods applied in achieving this aim, the first being a performance based bonus based on key performance indicators, and the second being the issue of performance rights to executive directors and executives to encourage the alignment of personal and shareholder interests. The company believes this policy to have been effective in increasing shareholder wealth over the past year. 34 Decmil group limiteD | annual report 2013 DIRECTORS’ REPORT (continued) For The Year ended 30 June 2013 11. DETaIlS Of REmunERaTIOn - auDITED Year ended 30 June 2013 Salary and fees $ Super- annuation contribution $ Non- cash benefits $ 73,394 821,088 18,887 120,000 73,395 73,395 1,651 16,470 1,700 - 6,605 6,605 1,180,159 33,031 - - - - - - - Rights $ Bonus $ Total $ - - 75,045 400,106 350,000 1,587,664 - - - - - - - - 20,587 120,000 80,000 80,000 400,106 350,000 1,963,296 Directors denis Criddle Scott criddle trevor Davies giles everist William Healy lee Verios TOTAL Total Perfor- mance Related % - 47.2 - - - - Total Fixed Remu- neration % 100.0 52.8 100.0 100.0 100.0 100.0 Year ended 30 June 2013 Salary and fees $ Super- annuation contribution $ Non- cash benefits $ Rights $ Bonus $ Total $ Total Perfor- mance Related % Total Fixed Remu- neration % Specified Executives Justine campbell Chief Financial officer & Company Secretary todd Strathdee Chief Strategy & operating officer1 ray Sputore Managing director decmil australia 406,504 16,470 342,500 8,235 833,997 16,470 TOTAL 1,583,001 41,175 - - - - 182,906 150,000 755,880 44.0 56.0 - - 350,735 - 100.0 485,843 867,877 2,204,187 61.4 38.6 668,749 1,017,877 3,310,802 1Todd Strathdee was appointed Chief Strategy & operating officer on 1 January 2013 35 Decmil group limiteD | annual report 2013 DIRECTORS’ REPORT (continued) For The Year ended 30 June 2013 11. DETaIlS Of REmunERaTIOn - auDITED (continued) Year ended 30 June 2012 Super- annuation contribution $ Non- cash benefits $ Rights $ Bonus $ Total Perform- ance Related % Total Fixed Remu- neration % - - - - - - - - - 143,385 - - - 143,385 - - - - - - - Total $ 73,333 88,685 - - 840,605 17.1 93,333 80,000 80,000 1,255,956 - - - 100.0 100.0 82.9 100.0 100.0 100.0 Directors geoffrey allen Denis criddle Salary and fees $ 73,333 88,685 - - Scott criddle 681,445 15,775 giles everist William Healy lee Verios TOTAL 93,333 73,395 73,395 - 6,605 6,605 1,083,586 28,985 Year ended 30 June 2012 Salary and fees $ Super- annuation contribution $ Non- cash benefits $ 382,989 15,775 834,800 15,775 377,256 15,775 - - - Rights $ 67,054 69,082 28,321 Specified Executives Justine campbell Chief Financial officer and Company Secretary ray Sputore Managing director decmil australia Brad Kelman Managing director homeground Villages1 TOTAL 1,595,045 47,325 - 164,457 Bonus $ Total $ Total Perform- ance Related % Total Fixed Remu- neration % - - - - 465,818 14.4 85.6 7.5 6.7 92.5 93.3 919,657 421,352 1,806,827 1Brad Kelman resigned from the position of Managing director, homeground Villages Pty Ltd on 31 october 2012. 12. OPTIOnS ISSuED aS PaRT Of REmunERaTIOn fOR ThE yEaR EnDED 30 JunE 2013 - auDITED There were no options granted to directors or executives as part of their remuneration during the financial year. 36 Decmil group limiteD | annual report 2013 DIRECTORS’ REPORT (continued) For The Year ended 30 June 2013 13. EmPlOymEnT COnTRaCTS Of DIRECTORS anD SEnIOR ExECuTIvES - auDITED The employment conditions of the specified executives are formalised in contracts of employment. executives are employees of decmil Group Limited or wholly owned subsidiaries of decmil Group Limited. The employment contracts stipulate a range of one to three months resignation periods. The company may terminate an employment contract without cause by providing between one and three months written notice or making payment in lieu of notice, based on the individual’s annual salary component together with a discretionary redundancy payment. Termination payments are generally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct the company can terminate employment at any time. any unvested performance rights lapse automatically upon termination. 14. PERfORmanCE RIghTS - auDITED during the year ended 30 June 2013, the following performance rights were granted. Grant Date 1 July 2012 Number of Rights Granted Fair Value of Rights Granted 1,068,244 $1,636,375 during the year ended 30 June 2013, the following performance rights met their vesting criteria: Grant Date Vested Date Number of Rights Vested Fair Value of Rights Vested 30 June 2010 30 June 2013 454,575 $399,369 during the year ended 30 June 2013, the following performance rights lapsed due to their vesting criteria not being met: Grant Date 1 July 2011 1 July 2012 Number of Rights Lapsed Fair Value of Rights Lapsed 327,093 366,652 $520,702 $561,651 15. OPTIOnS at the date of this report, there were no unissued ordinary shares of decmil Group Limited under option. during the year ended 30 June 2013, there were 450,000 ordinary shares of decmil Group Limited issued on the exercise of options. 16. InDEmnIfyIng OffICERS OR auDITOR during or since the end of the financial year the Company has given an indemnity or entered an agreement to indemnify, or paid or agreed to pay insurance premiums as follows: Premiums to insure each of the directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director of the company, other than conduct involving a wilful breach of duty in relation to the company. The total amount of the premium was $68,049. 37 Decmil group limiteD | annual report 2013 DIRECTORS’ REPORT (continued) For The Year ended 30 June 2013 17. PRInCIPal aCTIvITIES The Group’s subsidiary companies provide multi-disciplined design, civil engineering and construction works for the oil and gas, resources and infrastructure sectors. Its principal activities are as follows: Construction and Engineering works Large and small scale concrete civil works on brown and greenfield projects in regional and remote areas Large scale implementation of industrial infrastructure, including industrial buildings, processing plants, workshops and storage facilities all aspects of project development from design, site preparation and excavation to bulk earthworks, civil works and construction Government infrastructure projects including office buildings, administration buildings and storage facilities Manufacture and installation of high pressure piping and tanking accommodation design and construct permanent and temporary accommodation, including villages in remote areas Build, own and operate accommodation villages in remote areas There were no significant changes in the nature of the Group’s principal activities during the financial year. 18. OPERaTIng RESulTS The consolidated profit of the Group after providing for income tax expense amounted to $64,367,000 (2012: $39,056,000). 19. DIvIDEnDS PaID OR RECOmmEnDED The company announces a fully franked 8 cent per share final dividend with a record date of 6 September 2013 and pay date of 27 September 2013. 20. REvIEw Of OPERaTIOnS a review of the Group’s activities during the financial year and the results of those operations are set out in the Chairman’s review. 21. SIgnIfICanT ChangES In STaTE Of affaIRS The following significant changes in the state of affairs of the parent entity occurred during the financial year: Changes in controlled entities and divisions: Purchase of remaining 50% interest in homeground Gladstone unit Trust for $15,000,000 and debt forgiveness of $3,594,000 joint venture partner debt on 13 august 2012 Purchase of 100% interest in eastcoast development engineering Pty Ltd for $27,695,000, acquired on 18 april 2013 22. afTER balanCE DaTE EvEnTS on 21 august 2013, the company proposed a fully franked 8 cent per share final dividend with a record date of 6 September 2013 and payment date of 27 September 2013. The total amount of this dividend payment will be $13.456 million. 23. fuTuRE DEvElOPmEnTS, PROSPECTS anD buSInESS STRaTEgIES To further improve the consolidated entity’s profit and maximise shareholder wealth, the directors are focusing on extracting value from its core businesses – decmil australia Pty Ltd, eastcoast development engineering Pty Ltd and homeground Villages Pty Ltd. The directors may also consider acquisition opportunities to complement current business activities focused in the resources, oil & gas and government infrastructure sectors. any acquisitions sought would broaden the company’s asset base and provide a diversified and recurring source of revenue. These developments, together with the current strategy of continuous improvement and an adherence to quality control in existing markets, are expected to assist in the achievement of the consolidated entity’s long term goals and development of new business opportunities in the resources, oil & gas and government infrastructure sectors. 24. EnvIROnmEnTal ISSuES The Group is subject to significant environmental regulation under the laws of the Commonwealth and State. There were no incidents which required reporting during the financial year. The Group aims to continually improve its environmental performance. 38 Decmil group limiteD | annual report 2013 DIRECTORS’ REPORT (continued) For The Year ended 30 June 2013 25. lIkEly DEvElOPmEnTS The Group will continue to maintain its strategy of focusing on activity within the Western australian and Queensland resources, energy and infrastructure sectors, and identify further opportunities for growth and development within these regions. Further information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the Group. 26. PROCEEDIngS On bEhalf Of COmPany during the year homeground Gladstone Pty Ltd (aTF homeground Gladstone unit Trust) commenced an action against evolution Facilities Management (Qld) Pty Ltd for breach of contract in relation to facilities management services provided at homeground Gladstone Village. The matter is currently in process and a provision has been made in the financial report ended 30 June 2013. We anticipate a resolution of this matter. 27. nOn-auDIT SERvICES The Board of directors, in accordance with advice from the audit committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons: all non-audit services are reviewed and approved by the audit committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and the nature of the services provided does not compromise the general principles relating to auditor independence in accordance with aPeS 110: Code of ethics for Professional accountants set by the accounting Professional and ethical Standards Board. The following fees were paid or payable to rSM Bird Cameron for non-audit services provided during the year ended 30 June 2013: taxation services corporate finance services $ 7,734 5,125 Due diligence investigations 209,000 221,859 28. auDITOR’S InDEPEnDEnCE DEClaRaTIOn The lead auditor’s independence declaration for the year ended 30 June 2013 has been received and can be found within this financial report. 29. ROunDIng Of amOunTS The Company is an entity to which aSIC Class order 98/100 applies and, accordingly, amounts in the financial statements and directors’ report have been rounded to the nearest thousand dollars. 30. CORPORaTE gOvERnanCE In recognising the need for the highest standards of corporate behaviour and accountability, the directors of decmil Group Limited support and have adhered to the principles of Corporate Governance. The company’s Corporate Governance Statement is detailed at the end of this report. Signed in accordance with a resolution of the Board of directors. Giles everist Chairman 21 august 2013 39 Decmil group limiteD | annual report 2013 AUDITOR’S INDEPENDENCE DECLARATION For The Year ended 30 June 2013 40 Decmil group limiteD | annual report 2013 STATEMENT OF COMPREHENSIVE INCOME For The Year ended 30 June 2013 revenue from operations cost of sales gross profit administration expenses Borrowing expenses Depreciation and amortisation expense equity based payments Share of profit or (loss) in joint venture gain arising from business combination Profit before income tax expense income tax (expense) Net profit for the year Other Comprehensive Income Total Comprehensive Income for the year Earnings Per Share Basic earnings per share (cents per share) diluted earnings per share (cents per share) The accompanying notes form part of these financial statements. Consolidated Entity Note 2013 $000 528,786 (410,321) 118,465 (45,076) (2,625) (8,132) (550) 372 29,752 92,206 (27,839) 64,367 - 64,367 2012 $000 555,594 (466,613) 88,981 (27,285) (704) (4,271) (326) (432) - 55,963 (16,907) 39,056 - 39,056 38.32 38.32 26.51 26.43 4 5 5 6 9 9 41 Decmil group limiteD | annual report 2013 STATEMENT OF FINANCIAL POSITION For The Year ended 30 June 2013 Note Consolidated Entity 2013 $000 2012 $000 11 12 13 19 17 16 22 18 15 15 15 20 21 23 22 21 24 43,712 62,819 14,975 7,962 129,468 192,923 42,477 5,730 68,613 - - - 309,743 439,211 123,236 5,842 21,661 5,874 156,613 10,313 1,089 11,402 168,015 271,196 163,451 107,745 271,196 141,352 111,320 28,548 8,247 289,467 - 36,773 4,612 48,601 41,710 19,697 3,346 154,739 444,206 183,667 11,953 9,485 7,274 212,379 - 6,366 6,366 218,745 225,461 162,787 62,674 225,461 ASSETS current aSSetS cash and cash equivalents trade and other receivables Work in progress other assets total current aSSetS non-current aSSetS investment property property, plant and equipment Deferred tax assets intangible assets investments accounted for using the equity method loan to joint venture loan to joint venture partner total non-current aSSetS TOTAL ASSETS LIABILITIES current liaBilitieS trade and other payables current tax payable Borrowings provisions total current liaBilitieS non-current liaBilitieS Deferred tax liabilities Borrowings total non-current liaBilitieS TOTAL LIABILITIES NET ASSETS EQUITY issued capital retained earnings TOTAL EQUITY The accompanying notes form part of these financial statements. 42 Decmil group limiteD | annual report 2013 STATEMENT OF CHANGES IN EQUITY For The Year ended 30 June 2013 Issued Capital Retained Earnings Total Note $000 $000 $000 Consolidated Entity Balance at 1 July 2011 net profit for the year total comprehensive income for the year Shares issued during the year transaction costs net of tax benefit equity based payments Dividends recognised for the period 10 Balance at 30 June 2012 78,596 35,236 113,832 - - 86,232 (2,367) 326 - 162,787 39,056 39,056 - - - (11,618) 62,674 39,056 39,056 86,232 (2,367) 326 (11,618) 225,461 Balance at 1 July 2012 162,787 62,674 225,461 net profit for the year total comprehensive income for the year Shares issued during the year transaction costs net of tax benefit equity based payments performance rights converted to shares Dividends recognised for the period 10 Balance at 30 June 2013 The accompanying notes form part of these financial statements. - - 868 (291) 550 (463) - 163,451 64,367 64,367 - - - - (19,296) 107,745 64,367 64,367 868 (291) 550 (463) (19,296) 271,196 43 Decmil group limiteD | annual report 2013 STATEMENT OF CASH FLOWS For The Year ended 30 June 2013 CASH FLOWS FROM OPERATING ACTIVITIES receipts from customers payments to suppliers and employees interest received Finance costs income tax paid net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES purchase of property, plant and equipment purchase of investments, net of cash acquired loan to joint venture - payments made loan to joint venture - proceeds from repayments loan to joint venture partner - payments made proceeds from sale of non-current assets net cash (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES net proceeds from/(repayment of) borrowings proceeds from issue of shares and conversion of options costs of issuing shares Dividends paid by parent entity net cash provided by / (used in) financing activities net increase in cash held cash at beginning of financial year cash at end of financial year The accompanying notes form part of these financial statements. 44 Note 27(a) 27(b) 11 Consolidated Entity 2013 $000 2012 $000 602,986 (546,331) 2,251 (2,625) (23,834) 32,447 (65,620) (26,435) - - - 2,467 (89,588) (21,594) 405 (14) (19,296) (40,499) (97,640) 141,352 43,712 527,369 (437,920) 3,588 (704) (12,309) 80,024 (17,032) (42,486) (45,818) 27,200 (2,979) 367 (80,748) 6,319 86,232 (3,219) (11,618) 77,714 76,990 64,362 141,352 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS For The Year ended 30 June 2013 The financial statements of decmil Group Limited (‘the Company’) for the year ended 30 June 2013 comprise of the Company and its subsidiaries (collectively referred to as ‘the consolidated entity’) and the consolidated entity’s interest in a joint venture. The separate financial statements of the parent entity, decmil Group Limited, have not been presented within this financial report as permitted by the Corporations act 2001. decmil Group Limited is a company limited by shares incorporated in australia whose shares are publicly traded on the australian Securities exchange. The financial statements were authorised for issue in accordance with a resolution of directors dated 21 august 2013. nOTE 1: SummaRy Of SIgnIfICanT aCCOunTIng POlICIES basis of Preparation The financial statements are general purpose financial statements that have been prepared in accordance with australian accounting Standards, australian accounting Interpretations, other authoritative pronouncements of the australian accounting Standards Board and the Corporations act 2001. australian accounting Standards set out accounting policies that the aaSB has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with australian accounting Standards ensures that the financial statements and notes also comply with International Financial reporting Standards. Material accounting policies adopted in the preparation of these financial statements are presented below. They have been consistently applied unless otherwise stated. (a) Principles of Consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by decmil Group Limited at the end of the reporting period. a controlled entity is any entity over which decmil Group Limited has the power to govern the financial and operating policies so as to obtain benefits from the entity’s activities. Control will generally exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. In assessing the power to govern, the existence and effect of holdings of actual and potential voting rights are also considered. Where controlled entities have entered or left the consolidated entity during the year, the financial performance of those entities are included only for the period of the year that they were controlled. In preparing the consolidated financial statements, all inter-group balances and transactions between entities in the consolidated group have been eliminated on consolidation. accounting policies of subsidiaries have been changed where necessary to ensure consistency with those adopted by the parent entity. non-controlling interests, being the equity in a subsidiary not attributable, directly or indirectly, to a parent, are shown separately within the equity section of the consolidated statement of financial position and statement of comprehensive income. The non-controlling interests in the net assets comprise their interests at the date of the original business combination and their share of changes in equity since that date. Business Combinations Business combinations occur where an acquirer obtains control over one or more businesses and results in the consolidation of its assets and liabilities. a business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The acquisition method requires that for each business combination one of the combining entities must be identified as the acquirer (i.e. parent entity). The business combination will be accounted from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities assumed is recognised. In addition, contingent liabilities of the acquiree will be recognised where a present obligation has been incurred and its fair value can be reliably measured. The acquisition may result in the recognition of goodwill or a gain from a bargain purchase. The method adopted for the measurement of goodwill will impact on the measurement of any non-controlling interest to be recognised in the acquiree where less than 100% ownership interest is held in the acquiree. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the separate financial statements. Consideration may comprise the sum of the assets transferred by the acquirer, liabilities incurred by the acquirer to the former owners of the acquiree and the equity interests issued by the acquirer. Fair value uplifts in the value of pre-existing equity holdings are taken to the statement of comprehensive income. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss. 45 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 Included in the measurement of consideration transferred is any asset or liability resulting from a contingent consideration arrangement. any obligation incurred relating to contingent consideration is classified as either a financial liability or equity instrument, depending upon the nature of the arrangement. rights to refunds of consideration previously paid are recognised as a receivable. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or a liability is remeasured each reporting period to fair value through the statement of comprehensive income unless the change in value can be identified as existing at acquisition date. all transaction costs incurred in relation to the business combination are expensed to the statement of comprehensive income. (b) Income Tax The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at the end of the reporting period. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax expense (income) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity. deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. no deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at the end of the reporting period. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. Tax consolidation decmil Group Limited and its wholly-owned australian subsidiaries have formed an income tax consolidated group under tax consolidation legislation. each entity in the consolidated entity recognises its own current and deferred tax assets and liabilities. Such taxes are measured using the ‘stand-alone taxpayer’ approach to allocation. Current tax liabilities (assets) and deferred tax assets arising from unused tax losses and tax credits in the subsidiaries are immediately transferred to the head entity. The tax consolidated entity has entered a tax funding arrangement whereby each company in the consolidated entity contributes to the income tax payable by the consolidated entity in proportion to their contribution to the consolidated entity’s taxable income. differences between the amounts of net tax assets and liabilities derecognised and the net amounts recognised pursuant to the funding arrangement are recognised as either a contribution by, or distribution to the head entity. (c) Construction Contracts and work in Progress Construction work in progress is valued at cost, plus profit recognised to date less any provision for anticipated future losses. Cost includes both variable and fixed costs relating to specific contracts, and those costs that are attributable to the contract activity in general and that can be allocated on a reasonable basis. Construction profits are recognised on the stage of completion basis and measured using the proportion of costs incurred to date as compared to expected actual costs. Where losses are anticipated they are provided for in full. Construction revenue has been recognised on the basis of the terms of the contract adjusted for any variations or claims allowable under the contract. 46 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 1: SummaRy Of SIgnIfICanT aCCOunTIng POlICIES (continued) (d) Interest in Joint ventures The consolidated entity’s share of the assets, liabilities, revenue and expenses of jointly controlled assets has been included in the appropriate line items of the consolidated financial statements. The consolidated entity’s interests in joint venture operation are brought to account using the proportionate consolidation method. The consolidated entity’s interests in joint venture entities are recorded using the equity method of accounting in the consolidated financial statements, whereby the initial investment is recognised at cost and adjusted thereafter for the post-acquisition change in the consolidated entity’s share of net assets of the joint venture entity. In addition, the consolidated entity’s share of the profit or loss of the joint venture entity is included in the consolidated entity’s profit or loss. Where the consolidated entity contributes assets to the joint venture or if the consolidated entity purchases assets from the joint venture, only the portion of the gain or loss that is not attributable to the consolidated entity’s share of the joint venture shall be recognised. (e) Property, Plant and Equipment each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses. The carrying amount of property, plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. Depreciation The depreciable amount of all fixed assets and capitalised lease assets is depreciated on a straight-line basis over their useful lives to the consolidated entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Depreciation rate Plant and equipment Computer equipment Motor vehicles Furniture and fittings Office equipment 20% 33% 20% 20% 20% The assets’ residual values and useful lives are reviewed and adjusted if appropriate at each balance date. an asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income. (f) leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that are transferred to entities in the consolidated entity are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over their estimated useful lives. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. 47 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 (g) Impairment of assets at each reporting date, the consolidated entity reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. any excess of the asset’s carrying value over its recoverable amount is expensed immediately to the statement of comprehensive income. Where it is not possible to estimate the recoverable amount of an individual asset, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. (h) goodwill Goodwill acquired in a business combination is initially measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. It is allocated to the consolidated entity’s cash-generating units or groups of cash generating units, representing the lowest level at which goodwill is monitored not larger than an operating segment. Impairment losses recognised for goodwill are not subsequently reversed. (i) Intangibles Intangible assets acquired separately are capitalised at cost. Following initial recognition, the cost model is applied to each class of intangible assets. Where amortisation is charged on assets with finite lives, this expense is taken to the income statement, through the “amortisation expenses” line item. Intangible assets are tested for impairment where an indicator of impairment exists and in the case of intangible assets with indefinite useful lives, either individually or at the cash generating unit level. useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. (j) Employee benefits Provision is made for the company’s liability for employee benefits arising from services rendered by employees to balance date. employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. Equity-settled compensation The consolidated entity operates an equity-settled share-based payment employee performance rights scheme. The fair value of the equity to which employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. The fair value of performance rights are ascertained using a Binomial option pricing model which incorporates all market vesting conditions. The number of shares and performance rights expected to vest is reviewed and adjusted at the end of each reporting date such that the amount recognised for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. (k) Provisions Provisions are recognised when the consolidated entity has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. (l) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of 3 months or less. (m) Revenue and Other Income Interest revenue is using the effective interest rate method. revenue from the rendering of a service is recognised upon the delivery of the service to the customers. revenue relating to construction activities is detailed at note 1(c). all revenue is stated net of the amount of goods and services tax (GST). 48 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 1: SummaRy Of SIgnIfICanT aCCOunTIng POlICIES (continued) (n) borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. all other borrowing costs are recognised in the statement of comprehensive income in the period in which they are incurred. (o) goods and Services Tax (gST) revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the australian Tax office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (p) financial Instruments Recognition and initial measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the company commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified ‘at fair value through profit or loss’, in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Financial instruments are subsequently measured at either of fair value, amortised cost using the effective interest rate method, or cost. Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted, including recent arm’s length transactions, reference to similar instruments and option pricing models. amortised cost is the amount at which the financial asset or liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any accumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss. The consolidated entity does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments. i. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Loans and receivables are included in current assets, except for those which are not expected to mature within 12 months after the end of the reporting period. (all other loans and receivables are classified as non-current assets.) Financial liabilities non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. Available-for-sale financial assets available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified into other categories of financial assets due to their nature, or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. available-for-sale financial assets are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. (all other financial assets are classified as current assets.) ii iii. Impairment at the end of each reporting period, the consolidated entity assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the statement of comprehensive income 49 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 (q) Trade and Other Payables Trade and other payables represent the liability outstanding at the end of the reporting period for goods and services received by the consolidated entity during the reporting period which remains unpaid. The balance is recognised as a current liability with the amount being normally paid within 30 days of recognition. (r) foreign Currency Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. exchange differences arising on the translation of monetary items are recognised in the profit or loss. (s) Rounding of amounts The parent entity has applied the relief available to it under aSIC Class order 98/100 and accordingly, amounts in the financial report and directors’ report have been rounded off to the nearest $1,000. (t) Comparative figures When required by accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (u) Critical accounting Estimates and Judgments The directors evaluate estimates and judgments incorporated into the financial statements based on historical knowledge and best available current information. estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the consolidated entity. Impairment of goodwill and intangibles The company determines whether goodwill and intangible assets are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with indefinite useful lives are allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of goodwill and intangibles are discussed in note 18. Equity-based payment transactions The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instrument at the date at which they are granted. The fair value of performance rights are determined using a Binomial option pricing model. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amount of assets and liabilities within the next annual reporting period but may impact expenses and equity. Construction contracts When accounting for construction contracts, the contracts are either combined or segmented if this is deemed necessary to reflect the substance of the agreement. revenue arising from fixed price contracts is recognised in accordance with the percentage of completion method. Stage of completion is agreed with the customer on a work certified to date basis, as a percentage of the overall contract. revenue from cost plus contracts is recognised by reference to the recoverable costs incurred plus a percentage of fees earned during the financial year. The percentage of fees earned during the financial year is based on the stage of completion of the contract. Where a loss is expected to occur from a construction contract, the excess of the total expected contract costs over expected contract revenue is recognised as an expense immediately. 50 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 2: nEw aCCOunTIng STanDaRDS fOR aPPlICaTIOn In fuTuRE PERIODS new, revised or amending accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new, revised or amending accounting Standards and Interpretations issued by the australian accounting Standards Board that are mandatory for the current reporting period. The adoption of these accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the consolidated entity. any new, revised or amending accounting Standards or Interpretations that are not yet mandatory have not been early adopted. new accounting Standards and Interpretations not yet mandatory or early adopted australian accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2013. The consolidated entity’s assessment of the impact of these new or amended accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below. aaSb 9 financial Instruments, 2009-11 amendments to australian accounting Standards arising from aaSb 9, 2010-7 amendments to australian accounting Standards arising from aaSb 9 and 2012-6 amendments to australian accounting Standards arising from aaSb 9 This standard and its consequential amendments are applicable to annual reporting periods beginning on or after 1 January 2015 and completes phase 1 of the IaSB’s project to replace IaS 39 (being the international equivalent to aaSB 139 ‘Financial Instruments: recognition and Measurement’). This standard introduces new classification and measurement models for financial assets, using a single approach to determine whether a financial asset is measured at amortised cost or fair value. The accounting for financial liabilities continues to be classified and measured in accordance with aaSB 139, with one exception, being that the portion of a change of fair value relating to the entity’s own credit risk is to be presented in other comprehensive income unless it would create an accounting mismatch. The consolidated entity will adopt this standard from 1 July 2015 but the impact of its adoption is yet to be assessed by the consolidated entity. aaSb 10 Consolidated financial Statements This standard is applicable to annual reporting periods beginning on or after 1 January 2013. The standard has a new definition of ‘control’. Control exists when the reporting entity is exposed, or has the rights, to variable returns from its involvement with another entity and has the ability to affect those returns through its ‘power’ over that other entity. a reporting entity has power when it has rights that give it the current ability to direct the activities that significantly affect the investee’s returns. The consolidated entity will not only have to consider its holdings and rights but also the holdings and rights of other shareholders in order to determine whether it has the necessary power for consolidation purposes. The adoption of this standard from 1 July 2013 may have an impact where the consolidated entity has a holding of less than 50% in an entity, has de facto control, and is not currently consolidating that entity. aaSb 11 Joint arrangements This standard is applicable to annual reporting periods beginning on or after 1 January 2013. The standard defines which entities qualify as joint ventures and removes the option to account for joint ventures using proportional consolidation. Joint ventures, where the parties to the agreement have the rights to the net assets will use equity accounting. Joint operations, where the parties to the agreements have the rights to the assets and obligations for the liabilities will account for the assets, liabilities, revenues and expenses separately, using proportionate consolidation. The adoption of this standard from 1 July 2013 will not have a material impact on the consolidated entity. aaSb 12 Disclosure of Interests in Other Entities This standard is applicable to annual reporting periods beginning on or after 1 January 2013. It contains the entire disclosure requirement associated with other entities, being subsidiaries, associates and joint ventures. The disclosure requirements have been significantly enhanced when compared to the disclosures previously located in aaSB 127 ‘Consolidated and Separate Financial Statements’, aaSB 128 ‘Investments in associates’, aaSB 131 ‘Interests in Joint Ventures’ and Interpretation 112 ‘Consolidation - Special Purpose entities’. The adoption of this standard from 1 July 2013 will significantly increase the amount of disclosures required to be given by the consolidated entity such as significant judgements and assumptions made in determining whether it has a controlling or non-controlling interest in another entity and the type of non-controlling interest and the nature and risks involved. aaSb 13 fair value measurement and aaSb 2011-8 amendments to australian accounting Standards arising from aaSb 13 This standard and its consequential amendments are applicable to annual reporting periods beginning on or after 1 January 2013. The standard provides a single robust measurement framework, with clear measurement objectives, for measuring fair value using the ‘exit price’ and it provides guidance on measuring fair value when a market becomes less active. The ‘highest and best use’ approach would be used to measure assets whereas liabilities would be based on transfer value. as the standard does not introduce any new requirements for the use of fair value, its impact on adoption by the consolidated entity from 1 July 2013 should be minimal, although there will be increased disclosures where fair value is used. 51 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 aaSb 127 Separate financial Statements (Revised) aaSb 128 Investments in associates and Joint ventures (Reissued) These standards are applicable to annual reporting periods beginning on or after 1 January 2013. They have been modified to remove specific guidance that is now contained in aaSB 10, aaSB 11 and aaSB 12. The adoption of these revised standards from 1 July 2013 will not have a material impact on the consolidated entity. aaSb 119 Employee benefits (September 2011) and aaSb 2011-10 amendments to australian accounting Standards arising from aaSb 119 (September 2011) This revised standard and its consequential amendments are applicable to annual reporting periods beginning on or after 1 January 2013. The amendments make changes to the accounting for defined benefit plans and the definition of short-term employee benefits, from ‘due to’ to ‘expected to’ be settled within 12 months. The latter will require annual leave that is not expected to be wholly settled within 12 months to be discounted allowing for expected salary levels in the future period when the leave is expected to be taken. The adoption of the revised standard from 1 July 2013 is not expected to have a material impact on the consolidated entity. aaSb 2011-4 amendments to australian accounting Standards to Remove Individual key management Personnel Disclosure Requirement These amendments are applicable to annual reporting periods beginning on or after 1 July 2013, with early adoption not permitted. They amend aaSB 124 ‘related Party disclosures’ by removing the disclosure requirements for individual key management personnel (‘KMP’). The adoption of these amendments from 1 July 2014 will remove the duplication of information relating to individual KMP in the notes to the financial statements and the directors report. as the aggregate disclosures are still required by aaSB 124 and during the transitional period the requirements may be included in the Corporations act or other legislation, it is expected that the amendments will not have a material impact on the consolidated entity. aaSb 2011-7 amendments to australian accounting Standards arising from the Consolidation and Joint arrangements Standards The amendments are applicable to annual reporting periods beginning on or after 1 January 2013. The amendments make numerous consequential changes to a range of australian accounting Standards and Interpretations, following the issuance of aaSB 10, aaSB 11, aaSB 12 and revised aaSB 127 and aaSB 128. The adoption of these amendments from 1 July 2013 will not have a material impact on the consolidated entity. aaSb 2012-9 amendment to aaSb 1048 arising from the withdrawal of australian Interpretation 1039 This amendment is applicable to annual reporting periods beginning on or after 1 January 2013. The amendment removes reference in aaSB 1048 following the withdrawal of Interpretation 1039. The adoption of this amendment will not have a material impact on the consolidated entity. aaSb 2012-10 amendments to australian accounting Standards – Transition guidance and Other amendments These amendments are applicable to annual reporting periods beginning on or after 1 January 2013. They amend aaSB 10 and related standards for the transition guidance relevant to the initial application of those standards. The amendments clarify the circumstances in which adjustments to an entity’s previous accounting for its involvement with other entities are required and the timing of such adjustments. The adoption of these amendments will not have a material impact on the consolidated entity. 52 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 3: PaREnT EnTITy DISClOSuRES Parent Entity profit for the year total comprehensive income for the year Note ASSETS current assets non-current assets TOTAL ASSETS LIABILITIES current liabilities non-current liabilities TOTAL LIABILITIES EQUITY issued capital retained earnings TOTAL EQUITY a) guarantees 2013 $000 4,895 4,895 50,851 253,934 304,785 12,020 180,945 192,965 163,451 (51,631) 111,820 2012 $000 628 628 53,606 139,175 192,781 1,211 66,014 67,225 162,787 (37,231) 125,556 Cross guarantees have been provided by decmil Group Limited and its controlled entities and are listed in note 14. The fair value of the cross guarantee has been assessed as $nil based on the underlying performance of the entities in the closed group. b) Other Commitments and Contingencies decmil Group Limited has no commitments to acquire property, plant and equipment, and has no contingent liabilities apart from the performance guarantees disclosed in note 31. 53 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 Note 4(a) Consolidated Entity 2013 $000 489,281 37,254 2,251 528,786 370 64 1,817 2,251 2012 $000 550,347 - 5,247 555,594 1,079 367 3,801 5,247 147,821 134,327 2,625 2,625 5,607 506 519 1,500 8,132 1,201 704 704 2,584 1,474 213 - 4,271 900 nOTE 4: REvEnuE construction and engineering revenue accommodation revenue other revenue - interest received total revenue (a) Other revenue interest revenue from: - joint venture - joint venture partner - other persons total interest revenue nOTE 5: ExPEnSES employee benefits costs Borrowing costs: - external total borrowing costs Depreciation and amortisation of non-current assets: - plant and equipment owned - plant and equipment leased - building - amortisation of intangible assets total depreciation rental expense on operating leases 54 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 6: InCOmE Tax ExPEnSE (a) The components of tax expense comprise: current tax Deferred tax over/(under) provision for tax in prior year (b) The prima facie tax (expense)/benefit on profit before income tax is reconciled to the income tax (expense) as follows: prima facie future tax (expense)/benefit on profit/(loss) before income tax at 30% (2012: 30%) adjusted by the tax effect of: - shares and options expensed during year - deductible capital raising costs - non-deductible items - over/(under) provision for tax in prior year Note 22 Consolidated Entity 2013 $000 (17,898) (9,817) (124) (27,839) 2012 $000 (19,457) 2,559 (9) (16,907) (27,662) (16,789) (165) 197 (85) (124) (98) 241 (252) (9) income tax (expense)/benefit attributable to profit before income tax (27,839) (16,907) the applicable weighted average effective tax rates are as follows: 30% 30% 55 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 7: kEy managEmEnT PERSOnnEl (a) names and positions held of directors and specified executives in office at any time during the financial year are: Parent Entity Directors Denis Criddle Scott Criddle Trevor Davies Giles Everist William Healy Lee Verios Specified Executives appointed 28 march 2013 Justine Campbell chief Financial officer and company Secretary Todd Strathdee chief Strategy & operating officer Ray Sputore managing Director, Decmil australia pty ltd (b) Options and Rights holdings at 30 June 2013 there were no options held by directors or specified executives. number of options held by directors and Specified executives Balance 1.7.11 Granted as Remun- eration Exercised/ Cancelled Net Change Other Balance 30.6.12 Total Vested & Exercisable 30.6.12 Total Unexer- cisable 30.6.12 625,000 625,000 - - (625,000) (625,000) - - - - - - - - 30 June 2012 Directors: Denis criddle TOTAL 56 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 7: kEy managEmEnT PERSOnnEl (continued) (b) Options and Rights holdings (continued) number of rights held by directors and specified executives Balance 1.7.12 Granted as Remun- eration Exercised/ Cancelled Net Change Other Balance 30.6.13 Total Vested & Exercisable 30.6.13 Total Unexer- cisable 30.6.13 30 June 2013 Directors: Scott criddle 581,328 261,194 Specified Executives: Justine campbell todd Strathdee ray Sputore Brad Kelman2 - - - 277,987 119,403 - 303,770 168,632 - 317,164 (620,934)1 72,761 - TOTAL 1,331,717 770,522 (620,934) number of rights held by directors and specified executives - - - - - - 842,522 257,073 585,449 397,390 122,930 274,460 - - 241,393 - - - - - 241,393 1,481,305 380,003 1,101,302 Balance 1.7.11 Granted as Remun- eration Exercised/ Cancelled Net Change Other Balance 30.6.12 Total Vested & Exercisable 30.6.12 Total Unexer- cisable 30.6.12 30 June 2012 Directors: Scott criddle 817,766 203,279 Specified Executives: Justine campbell ray Sputore 376,525 97,207 - 303,770 Brad Kelman 109,665 58,967 TOTAL 1,303,956 663,223 - - - - - - - - - - 1,021,045 439,717 581,328 473,732 195,745 277,987 303,770 168,632 - - 303,770 168,632 1,967,179 635,462 1,331,717 1Performance rights cancelled on resignation from Managing director position 30 June 2013. 2Brad Kelman resigned from the position of Managing director, homeground Villages Pty Ltd on 31 october 2012 and is no longer key management personnel from that date. This has no effect on performance rights held. 57 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 (c) Shareholdings The number of ordinary shares in decmil Group Limited held by each director and specified executive of the consolidated entity during the financial year is as follows: Balance 1.7.12 Received as Remun- eration Rights Exercised Options Exercised Net Change Other1 Balance 30.6.13 30 June 2013 Directors: Denis criddle 22,273,232 Scott criddle 320,000 trevor Davies giles everist William Healy lee Verios Specified Executives: Justine campbell todd Strathdee - 513,332 418,190 66,667 - - ray Sputore 17,728 TOTAL 23,609,149 - - - - - - - - - - - 439,717 - - - - 195,745 - - 635,462 - - - - - - - - - - (3,500,000) 18,773,232 - 10,000 - - - - - (17,728) 759,717 10,000 513,332 418,190 66,667 195,745 - - (3,507,728) 20,736,883 Balance 1.7.11 Received as Remun- eration Rights Exercised Options Exercised Net Change Other1 Balance 30.6.12 30 June 2012 Directors: Denis criddle 21,248,232 Scott criddle giles everist William Healy lee Verios Specified Executives: Justine campbell ray Sputore Brad Kelman 240,000 250,000 418,190 50,000 - - - TOTAL 22,206,422 - - - - - - - - - - - - - - - - - - 625,000 400,000 22,273,232 - - - - - - - 80,000 263,332 - 16,667 320,000 513,332 418,190 66,667 - - 17,728 17,728 - - 625,000 777,727 23,609,149 1net Change other refers to shares purchased or sold in the financial year or shares included on appointment or excluded on resignation. 58 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 7: kEy managEmEnT PERSOnnEl (continued) (d) Compensation for key management Personnel The totals of remuneration paid to directors and Specified executives of the company and the consolidated entity during the year are as follows: Short term benefits Share based payments (e) loans to key management Personnel no directors or executives had any loans during the reporting period. (f) Other transactions and balances with key management Personnel There were no other transactions and balances with Key Management Personnel. nOTE 8: auDITORS’ REmunERaTIOn remuneration of the auditor of the parent entity for: - auditing or reviewing the financial report - taxation services - corporate finance services - due diligence investigations 2013 $000 4,205 1,069 5,274 2013 $000 178 8 5 209 400 2012 $000 2,755 308 3,063 2012 $000 130 - - - 130 59 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 9: EaRnIngS PER ShaRE (a) reconciliation of earnings to profit or loss profit earnings used to calculate basic and dilutive epS from overall operations Note Consolidated Entity 2013 $000 64,367 64,367 2012 $000 39,056 39,056 (b) Weighted average number of ordinary shares outstanding during the year used in calculating basic epS Weighted average number of dilutive options outstanding Weighted average number of ordinary shares outstanding during the year used in calculating dilutive epS nOTE 10: DIvIDEnDS Note Distributions paid interim fully franked ordinary dividend of 4.0 cents (2012: 2.5 cents) per share franked at the tax rate of 30% (2012: 30%) Final fully franked ordinary dividend of 7.5 cents (2012: 6.0 cents) per share franked at the tax rate of 30% (2012: 30%) Balance of franking account at year end adjusted for franking credits arising from payment of provision for income tax and dividends recognised as receivables and franking debits arising from payment of proposed dividends No. No. 167,976,326 147,327,069 - 450,000 167,976,326 147,777,069 Consolidated Entity 2013 $000 6,728 12,568 2012 $000 4,162 7,456 19,296 11,618 47,756 24,979 60 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 11: CaSh anD CaSh EquIvalEnT cash at bank and in hand Deposits at call reconciliation of cash Note Consolidated Entity 2013 $000 43,712 - 43,712 2012 $000 61,352 80,000 141,352 cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows: cash and cash equivalents 43,712 141,352 nOTE 12: TRaDE anD OThER RECEIvablES CURRENT trade receivables provision for impairment of receivables provision for impairment of receivables CURRENT trade receivables: - opening balance - charge for the year - bad debts written off 63,125 (306) 62,819 111,854 (534) 111,320 534 - (228) 306 - - 534 534 61 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 The following table details the consolidated entity’s trade receivables exposed to credit risk (prior to collateral and other credit enhancements) with ageing analysis and impairment provided for thereon. amounts are considered as ‘past due’ when the debt has not been settled, with the terms and conditions agreed between the consolidated entity and the customer or counter party to the transaction. receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are provided for where there are specific circumstances indicating that the debt may not be fully repaid to the consolidated entity. The balances of receivables that remain within initial trade terms (as detailed in the table) are considered to be of high credit quality. Gross amount $000 Within initial trade terms $000 Past due but not impaired (days overdue) 31-60 $000 61-90 $000 91-120 $000 > 120 $000 Past due and impaired $000 2013 trade and term receivables Total 2012 trade and term receivables 63,125 57,084 4,153 63,125 57,084 4,153 732 732 111,854 101,311 8,295 1,647 Total 111,854 101,311 8,295 1,647 nOTE 13: wORk In PROgRESS 180 180 14 14 976 976 53 53 306 306 534 534 current construction and engineering contracts cost incurred to date plus profit recognised consideration received and receivables as progress billings retention advanced billings to customers unbilled amounts due from customers Note Consolidated Entity 2013 $000 2012 $000 1,357,444 (1,367,145) - 826,699 (843,927) - (9,701) (17,228) 20 (24,676) 14,975 (9,701) (45,776) 28,548 (17,228) 62 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 14: COnTROllED EnTITIES (a) Controlled Entities Parent Entity: Decmil group limited Subsidiaries of Decmil Group Limited: Decmil australia pty ltd Decmil properties pty ltd eastcoast Development engineering pty ltd# Homeground Villages pty ltd (formerly known as Decmil investments pty ltd) Controlled entity of Homeground Villages Pty Ltd: Homeground gladstone pty ltd atF Homeground gladstone unit trust#* Homeground gladstone unit trust#* Country of Incorporation Percentage Owned (%) 2013 2012 australia australia australia australia australia australia australia 100% 100% 100% 100% 100% 100% 100% 100% - 100% 50% 50% # For details of acquisition during the financial year 30 June 2013, refer to note 27(b). * The homeground Gladstone unit Trust was previously a 50% joint venture. refer to note 15(d). (b) a deed of cross guarantee between decmil Group Limited and the following wholly owned subsidiaries existed during the financial year and relief was obtained from preparing a financial report for decmil Group Limited’s wholly owned subsidiaries under aSIC Class order 98/1418: decmil australia Pty Ltd, eastcoast development engineering Pty Ltd, homeground Villages Pty Ltd and decmil Properties Pty Ltd. under the deed, decmil Group Limited and the above named wholly owned subsidiaries guarantee to support each other’s liabilities and obligations. decmil Group Limited and its above named wholly owned subsidiaries are the only parties to the deed of cross guarantee and are members of the Closed Group. The following are the aggregate totals, for each category, relieved under the deed. 63 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 Financial information in relation to: (i) Statement of comprehensive income: profit before income tax income tax (expense) profit after income tax profit attributable to members of the parent entity (ii) retained earnings: Note Consolidated Entity 2013 $000 2012 $000 78,463 (23,828) 54,635 54,635 43,506 (12,934) 30,572 30,572 retained profits at the beginning of the year 41,749 22,795 retained profits at the beginning of the year for controlled entities included in the closed group for the first time profit after income tax Dividends recognised for the period retained earnings at the end of the year (iii) Statement of Financial position: current aSSetS cash and cash equivalents trade and other receivables Work in progress other assets total current aSSetS non-current aSSetS investment property property, plant and equipment Deferred tax assets intangible assets loan to subsidiary total non-current aSSetS total aSSetS 64 750 54,635 (19,296) 77,838 42,051 62,367 14,975 5,243 124,636 192,894 42,342 5,730 68,613 - 309,579 434,215 - 30,572 (11,618) 41,749 122,803 105,957 28,548 5,755 263,063 - 10,989 4,612 48,601 87,459 151,661 414,724 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 14: COnTROllED EnTITIES (continued) Note Consolidated Entity 2013 $000 2012 $000 current liaBilitieS trade and other payables current tax payable Borrowings provisions total current liaBilitieS non-current liaBilitieS Deferred tax liabilities Borrowings total non-current liaBilitieS total liaBilitieS net aSSetS eQuitY issued capital retained earnings 160,952 197,467 (6,963) 21,661 5,874 2,648 1,688 7,271 181,524 209,074 10,313 1,089 11,402 192,926 241,289 163,451 77,838 241,289 - 1,114 1,114 210,188 204,536 162,787 41,749 204,536 65 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 15: InTERESTS In JOInT vEnTuRES (a) Investments accounted for using the Equity method interests in joint venture entities (b) Joint venture loans current loan to joint venture loan to joint venture partner (c) Interest in Joint venture Operations Note 15(d) 15(d) Consolidated Entity 2013 $000 - - - - 2012 $000 41,710 19,697 3,346 23,043 Chevron australia Pty Ltd awarded decmil, in a joint venture with Thiess Pty Ltd and Kentz Pty Ltd (TdKJV), an aud$830m contract for the Gorgon LnG Project Construction Village on Barrow Island. The accommodation facility accommodates 4,000 construction workers. The joint venture agreement was entered into in 2009. decmil australia Pty Ltd has a 33.33% interest in this unincorporated joint venture, known as Thiess decmil Kentz Joint Venture. The consolidated entity’s interests in the joint venture are included in the consolidated financial statements under the following classifications: current aSSetS cash and cash equivalents receivables other assets total current aSSetS non-current aSSetS property, plant and equipment total non-current aSSetS total aSSetS current liaBilitieS trade and other payables total liaBilitieS revenue expenses profit for the year 66 1,660 452 2,719 4,831 135 135 4,966 13,773 13,773 39,197 (25,827) 13,370 7,561 5,096 2,447 15,104 293 293 15,397 15,583 15,583 68,362 (56,813) 11,549 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 15: InTERESTS In JOInT vETnTuRES (continued) (d) Interest in Joint venture Entities on 23 december 2011, homeground Villages Pty Ltd (formerly known as decmil Investments Pty Ltd) acquired a 50% interest in the MGa Gladstone unit Trust and formed the Maroon decmil Joint Venture. The Joint Venture was involved in the build-own-operation of the Calliope accommodation Village located in Gladstone, Queensland. The consolidated entity’s interest in joint venture entity is accounted for in the consolidated statements using the equity method of accounting. on 13 august 2012, homeground Villages Pty Ltd acquired the remaining 50% interest in the MGa Gladstone unit Trust. The unit trust was subsequently renamed to homeground Gladstone unit Trust. The results and financial position of the unit trust was wholly incorporated into the consolidated entity from august 2012. Share of joint venture entity’s results and financial position: Consolidated Entity current assets non-current assets total aSSetS current liabilities non-current liabilities total liaBilitieS net aSSetS revenue expenses profit before income tax income tax expense profit after income tax Note 2013 $000 - - - - - - - 1,203 (831) 372 - 372 2012 $000 4,726 44,994 49,720 9,191 23,467 32,658 17,062 3,239 (3,671) (432) - (432) 67 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 16: PROPERTy, PlanT anD EquIPmEnT lanD anD BuilDing (Secured)* Freehold land, at cost Building: at cost# accumulated depreciation plant anD eQuipment plant and equipment: at cost# accumulated depreciation leased plant and equipment (Secured)* accumulated depreciation total property, plant and equipment # $438,257 of borrowing costs was capitalised in building for the year ended 30 June 2012. * refer to note 21 for details of the facilities these assets are pledged against. Consolidated Entity 2013 $000 2012 $000 5,002 5,002 20,856 (733) 25,125 24,719 (10,299) 14,420 4,405 (1,473) 2,932 42,477 20,703 (213) 25,492 14,098 (6,555) 7,543 7,336 (3,598) 3,738 36,773 68 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 16: PROPERTy, PlanT anD EquIPmEnT (continued) movements in Carrying amounts Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year: Balance at 1 July 2012 additions transfer between leased and owned Disposals additions through acquisition of controlled entity Depreciation expense Balance at 30 June 2013 Balance at 1 July 2011 additions Transfer between leased and owned disposals depreciation expense Balance at 30 June 2012 nOTE 17: InvESTmEnT PROPERTy Balance at beginning of year additions through acquisition of controlled entity additions Fair value adjustments Balance at end of year Land and Building $000 Owned Plant and Equipment $000 Leased Plant and Equipment $000 25,492 152 - - - (519) 25,125 7,543 5,233 1,972 (809) 6,088 (5,607) 14,420 3,738 1,133 (1,972) (182) 721 (506) 2,932 Land and Building $000 Owned Plant and Equipment $000 Leased Plant and Equipment $000 15,955 9,750 - - (213) 25,492 3,422 5,649 1,251 (195) (2,584) 7,543 6,014 635 (1,251) (186) (1,474) 3,738 Total $000 36,773 6,518 - (991) 6,809 (6,632) 42,477 Total $000 25,391 16,034 - (381) (4,271) 36,773 Consolidated Entity 2013 $000 - 79,809 60,620 52,494 192,923 2012 $000 - - - - - For the year ended 30 June 2013, investment property is stated at fair value based on independent valuation carried out in January 2013 and on directors’ valuation carried out in July 2013. The investment property comprises the build-own-operate homeground Gladstone accommodation Village located in Gladstone, Queensland. 69 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 18: InTangIblE aSSETS Consolidated Entity goodwill at cost accumulated impairment losses customer contracts, at cost accumulated amortisation movements in carrying amounts goodwill Balance at the beginning of year additions Balance at the end of year customer contracts Balance at the beginning of year additions amortisation Balance at the end of year allocation of goodwill to cgus: Decmil australia eastcoast Development engineering pty ltd Balance at the end of year assumptions used in value in use calculation: Decmil australia pty ltd eastcoast Development engineering pty ltd 2013 $000 68,613 - 68,613 1,500 (1,500) - - 48,601 20,012 68,613 1,500 (1,500) - 48,601 20,012 68,613 2012 $000 48,601 - - - - - - - - - - 48,601 48,601 48,601 48,601 48,601 Average Growth Rate Discount Rate 0.9% 22.0% 12.0% 12.0% The recoverable amount of each cash-generating unit is determined based on value-in-use calculations. Value-in-use is calculated based on the present value of cash flow projections over a five year period with the period extending beyond one year extrapolated using an estimated growth rate. The cash flows are discounted using a discount rate which recognises the risk factor applicable to the industry in which the company and its subsidiaries operate. 70 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 18: InTangIblE aSSETS (continued) Management has based the value-in-use calculations on budgets for each cash generating unit. Costs are calculated taking into account historical gross margins as well as estimated weighted average inflation rates over the periods which are consistent with inflation rates applicable to the locations in which the cash generating units operate. discount rates are after tax and are adjusted to incorporate risks associated with a particular industry. Intangible assets in the form of customer contracts valued at $1,500,000 were recognised on the acquisition of eastcoast development engineering Pty Ltd for construction and engineering contracts in progress at the time of acquisition. These were amortised 100% over the period since acquisition to 30 June 2013 as they represent short term contracts with a short period remaining to completion since acquisition. nOTE 19: OThER CuRREnT aSSETS current prepayments others nOTE 20: TRaDE anD OThER PayablES current unsecured liabilities: trade payables advanced billings to customers Sundry payables and accrued expenses Note 13 Consolidated Entity 2013 $000 3,216 4,746 7,962 2012 $000 2,899 5,348 8,247 37,488 24,676 61,072 55,026 45,776 82,865 123,236 183,667 71 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 21: bORROwIngS current Secured liabilities: Hire purchase liability Bank loan premium funding liability non-current Secured liabilities: Hire purchase liability Bank loan total Borrowings Note 25 25 25 Consolidated Entity 2013 $000 2012 $000 1,103 20,305 253 21,661 1,089 - 1,089 22,750 1,593 7,797 95 9,485 1,113 5,253 6,366 15,851 hire purchase agreements have an average term of 3 years. The average interest rate implicit in the hire purchase is 6.47% (2012: 8.2%). The hire purchase liability is secured by a charge over the underlying hire purchase assets. The bank loan facility from the national australia Bank (“naB”) expires in May 2014. The interest rate is fixed at 6.53% on 60% of the loan balance and variable for the remaining 40% of the loan balance. Security for the loan and other naB facilities included in note 27(d) comprises the following: Indemnity and guarantee by decmil Group Limited and its controlled entities; registered mortgage debenture over all assets and undertakings of decmil Group Limited and its controlled entities; Letter of set-off by decmil australia Pty Ltd over funds on deposit; and First registered mortgage over property situated at 20 Parkland road, osborne Park, Western australia. The bank loan facility from the Commonwealth Bank of australia (“CBa”) expires in June 2014. The interest rate is variable and determined by reference to the bank bill of exchange rate plus 3% per annum. Security for the loan comprises the following: Guarantee by decmil Group Limited; Fixed and floating charge by homeground Villages Pty Ltd and homeground Gladstone unit Trust over its assets and undertaking in favour of the CBa; and real property mortgage over property situated at 101 Calliope river road, Stowe, Calliope, Queensland. The above bank loans are expected to be repaid by their facility expiry dates, from operating cash flows in the normal course of business. 72 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 Opening Balance $000 Acquired on acquisition Charged to Income $000 Charged Directly to Equity $000 Closing Balance $000 nOTE 22: Tax 2013 Deferred tax asset on: transaction costs on equity issue provisions – employee benefits restructuring costs trademark costs investment due diligence costs other 863 3,688 15 3 43 - Balance at 30 June 2013 4,612 Deferred tax liabilities on: property plant and equipment: - tax allowance Fair value gain Balance at 30 June 2013 2012 Deferred tax asset on: transaction costs on equity issue provisions – employee benefits restructuring costs trademark costs investment due diligence costs other - - - 12 1,164 22 4 - - Balance at 30 June 2012 1,202 Deferred tax liabilities on: property plant and equipment: - tax allowance Fair value gain Balance at 30 June 2012 - - - - - 489 - - - 504 993 94 - 94 - - - - - - - - - - - - (613) (7) (1) 63 960 402 1,088 9,131 10,219 - 2,524 (7) (1) 43 - (277) - - - - - (277) - - - 851 - - - - - 586 3,564 8 2 106 1,464 5,730 1,182 9,131 10,313 863 3,688 15 3 43 - 2,559 851 4,612 - - - - - - - - - - - - 73 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 23: PROvISIOnS current employee entitlements Balance at beginning of year additional provision additions through acquisition of controlled entity amounts used Balance at end of year Consolidated Entity 2013 $000 5,874 7,274 6,010 1,613 (9,023) 5,874 2012 $000 7,274 3,991 11,313 - (8,030) 7,274 Provision for Employee Entitlements a provision has been recognised for employee entitlements relating to annual, long service and vesting sick leave. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data. nOTE 24: ISSuED CaPITal 168,203,219 (2012: 167,117,757) fully paid ordinary shares 2013 163,451 2012 162,787 (a) Ordinary Shares 2013 No. 2012 $000 No. $000 at the beginning of reporting period 167,117,757 162,787 124,214,568 Shares issued during the year options exercised during the year performance rights converted to shares equity based payments transaction costs of issue - - 41,423,189 450,000 635,462 - - 405 - 550 (291) 1,480,000 - - - at the end of the reporting date 168,203,219 163,451 167,117,757 78,596 84,918 1,314 - 326 (2,367) 162,787 ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. at the shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. 74 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 24: ISSuED CaPITal (continued) (b) Capital management Management controls the capital of the consolidated entity in order to maintain a good debt to equity ratio, provide the shareholders with adequate returns and ensure that the consolidated entity can fund its operations and continue as a going concern. The consolidated entity’s debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. Management effectively manages the consolidated entity’s capital by assessing the consolidated entity’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include management of debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the consolidated entity since the prior year. The strategy is to ensure that the consolidated entity has a positive net cash position. The gearing ratios for the years ended 30 June 2013 and 30 June 2012 are as follows: total borrowings trade and other creditors less cash and cash equivalents net debt/(cash) total equity total capital gearing ratio Note 21 20 11 Consolidated Entity 2013 $000 22,750 123,236 2012 $000 15,851 183,667 (43,712) (141,352) 102,274 163,451 265,725 58,166 162,787 220,953 38% 26% 75 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 25: CaPITal anD hIRE PuRChaSE COmmITmEnTS Consolidated Entity (a) Hire Purchase Commitments payable — minimum Hp payments - not later than 1 year - between 1 and 5 years minimum Hp payments less future finance charges present value of minimum Hp payments (b) Premium Funding Commitments payable — minimum premium funding payments - not later than 1 year - between 1 and 5 years minimum premium funding payments less future finance charges present value of minimum premium funding payments (c) Operating Lease Commitments non-cancellable operating leases contracted for but not capitalised in the financial statements payable — minimum lease payments - not later than 1 year - between 1 and 5 years Note 21 21 2013 $000 1,200 1,142 2,342 (150) 2,192 253 - - 253 253 1,447 5,817 7,264 2012 $000 1,747 1,174 2,921 (215) 2,706 97 - 97 (2) 95 720 1,847 2,567 76 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 26: SEgmEnT REPORTIng The consolidated entity has identified its operating segments based on the internal reports that are reviewed and used by the Board of directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The consolidated entity operates as two segments. 1. Construction & Engineering decmil australia Pty Ltd – multi-discipline design, civil engineering and construction services; and eastcoast development engineering Pty Ltd – fabrication and installation of high pressure pipes, vessels and tanks. 2. accommodation homeground Villages Pty Ltd – build-own-operation of the homeground Gladstone accommodation Village located in Gladstone, Queensland. The consolidated entity is domiciled in australia. all the revenue from external customers is generated from australia. Segment revenues are allocated based on the country in which the customer is located. The consolidated entity derives 18%, 16% and 16% (2012: 30%, 25% and 13%) of its revenues from the top three external customers. all the assets are located in australia. (a) Segment performance 2013 Construction & Engineering $000 Accommodation $000 reVenue external sales interest revenue total segment revenue Segment net profit before tax included in segment performance: - gain arising from business combination Segment performance 2012 reVenue external sales interest revenue total segment revenue Segment net profit before tax 489,281 1,650 490,931 48,241 - 37,254 601 37,855 43,965 29,752 Construction & Engineering $000 Accommodation $000 550,347 3,801 554,148 56,395 - 1,446 1,446 (432) Total $000 526,535 2,251 528,786 92,206 29,752 Total $000 550,347 5,247 555,594 55,963 77 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 (b) (c) Segment assets 2013 current assets non-current assets total segment assets Segment assets 2012 current assets non-current assets total segment assets included in segment assets are: - equity accounted joint ventures Segment liabilities 2013 current liabilities non-current liabilities total segment liabilities Segment liabilities 2012 current liabilities non-current liabilities total segment liabilities Construction & Engineering $000 Accommodation $000 117,163 110,722 227,885 12,305 199,021 211,326 Construction & Engineering $000 Accommodation $000 289,467 89,986 379,453 - - 64,753 64,753 41,710 Construction & Engineering $000 Accommodation $000 118,777 1,065 119,842 37,836 10,337 48,173 Construction & Engineering $000 Accommodation $000 212,379 6,366 218,745 - - - Total $000 129,468 309,743 439,211 Total $000 289,467 154,739 444,206 41,710 Total $000 156,613 11,402 168,015 Total $000 212,379 6,366 218,745 78 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 27: CaSh flOw InfORmaTIOn (a) Reconciliation of Cash flow from Operations with Profit after Income Tax profit after income tax Non-cash flows in profit Depreciation and amortisation equity based payments gain arising from business combination (profit)/loss on sale of non-current assets (profit)/loss in share of joint venture interest income provision for doubtful debts Changes in assets and liabilities trade receivables other assets Work in progress trade payables and accruals current tax liabilities Deferred tax assets Deferred tax liabilities provisions loan to joint venture cash flow from operations Consolidated Entity 2013 $000 64,367 8,132 550 (29,752) (1,489) (372) - - 69,605 (4,043) 12,378 2012 $000 39,056 4,271 326 - 14 432 (1,446) 531 (54,740) (4,242) (21,143) (82,793) 117,092 (5,078) (125) 9,942 (3,029) (5,846) 32,447 - (3,410) 3,283 - - 80,024 79 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 27: CaSh flOw InfORmaTIOn (continued) (b) acquisition of Entities (i) during the year ended 30 June 2013, the Company acquired the remaining 50% ownership interest of the MGa Gladstone unit Trust (now renamed homeground Gladstone unit Trust). In the prior year, the Company acquired an initial 50% ownership of the Trust. details of the transaction are: Consolidated Entity 2013 $000 15,000 3,594 18,594 (7,399) (3,594) 7,601 7,399 4,399 90,952 4,358 (25,654) (6,060) (27,048) 48,346 (29,752) 18,594 2012 $000 42,486 42,486 42,486 - - - - - - - - - - - - 42,486 purchase consideration consisting of: cash consideration loan forgiveness less: cash acquired less: loan forgiveness cash outflow assets and liabilities held at acquisition date cash receivables investment property plant and equipment loan from JV partner payables Borrowings gain arising from business combination purchase consideration 80 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 27: CaSh flOw InfORmaTIOn (continued) (b) acquisition of Entities (continued) (ii) during the year ended 30 June 2013, the Company acquired the 100% ownership interest of eastcoast development engineering Pty Ltd. details of the transaction are: Consolidated Entity purchase consideration consisting of: cash consideration less: cash acquired less: deferred consideration cash outflow assets and liabilities held at acquisition date cash receivables Work in progress plant and equipment payables tax receivable Deferred tax assets (net) provisions Hire purchase liabilities goodwill on consolidation intangible assets on consolidation purchase consideration (c) non-cash financing and Investing activities (i) Finance leases: 2013 $000 27,695 (441) (8,420) 18,834 441 17,761 (1,195) 2,451 (13,266) 1,033 899 (1,629) (312) 6,183 20,012 1,500 27,695 2012 $000 - - - - - - - - - - - - - - - - - Finance leases to acquire plant and equipment 1,265 697 81 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 (d) Credit Standby facilities with banks credit facilities amount utilised Bank and performance guarantees equipment finance Bank loan the credit facilities are summarised as follows: Bank loan equipment finance Bank and performance guarantees Consolidated Entity 2013 $000 2012 $000 255,379 194,500 (88,681) (2,192) (20,305) 144,201 35,879 14,500 205,000 255,379 (86,829) (2,330) (13,050) 92,291 15,000 14,500 165,000 194,500 The majority of credit facilities are provided by national australia Bank Limited and are subject to annual review. This comprises of $21 million bank loan facility, $100 million bank guarantee facility and a $3 million equipment finance facility. Terms of the naB facilities and other equipment finance facilities are detailed in note 21. In addition to the naB facilities, the consolidated entity also has the following facilities: equipment finance of $8 million and $3.5 million with Toyota Finance and Commonwealth Bank Finance respectively; and performance guarantees of $50 million, $40 million and $15 million with asset Insure, QBe and Vero respectively. The consolidated entity also has a bank loan facility of $15 million with the Commonwealth Bank of australia. Terms are also detailed in note 21. 82 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 28: ShaRE-baSED PaymEnTS Performance Rights Plan as a result of passing of resolution 7 at the 30 november 2009 annual General Meeting, a performance rights plan was put in place. The Board believes that the long term incentive offered to key executives forms a key part of their remuneration and assists to align their interests with the long term interests of Shareholders. The number of rights issued were calculated by dividing up to 100% (as determined by the Board) of total fixed annual remuneration for each executive by the volume weighted average closing price of shares, as quoted on the aSX, over the 5 trading days prior to the relevant grant date. In future years as a result of resolution 3 at the 14 november 2012 annual General Meeting, the number of Performance rights issued will be calculated by dividing up to 150% (as determined by the Board) of the executive’s total annual fixed remuneration by the volume weighted average closing price of Shares, as quoted on aSX, over the 60 days prior to the issue of the notice of Meeting for approval by shareholders. The Performance rights have a varying vesting period. The minimum vesting period which must elapse before shares may be issued or transferred to the executives is two years from the grant date of the Performance rights and the number of Performance rights which vest is dependent to the extent that the applicable performance hurdles are satisfied. For each tranche issued, any Performance rights which do not vest at the two year measurement date, a further vesting date exist at four years from the date of grant. The Performance rights will vest (that is, Shares will be issued or become transferable to the executives upon satisfaction of the Performance rights vesting condition) to the extent that the applicable performance hurdle outlined below is satisfied. Subject to achievement of the hurdle, the Performance rights may be converted (on a one-for-one basis) to fully paid ordinary shares in the Company. Performance hurdle The performance hurdle for the vesting of the Performance rights (and allocation of Shares) will be measured by comparing the total shareholder return (TSr) of the Company relative to the TSrs of the companies in the S&P/aSX 300 Index as at the commencement of the Vesting Period. Total Shareholder return (TSr) is a measure that represents the change in capital value of a listed company’s share price over a period, plus reinvested dividends, expressed as a percentage of the opening value. The period over which the TSr of the Company is compared with the TSrs of companies in the S&P/aSX 300 Index commences on the first day of the Vesting Period and is measured at three test dates, namely the third, fifth and seventh anniversary of the first day of the Vesting Period. The percentage of Performance rights that will vest is based on the Company’s relative ranking over the measurement period (unless the Board otherwise determines), as follows: The Company’s TSR rank in the S&P/ ASX 300 Index the percentage of performance rights which will vest Below the 50th percentile nil At or above the 50th percentile and below the 75th percentile 50%, plus 2% for every one percentile increase above the 50th percentile At or above the 75th percentile 100% If an executive resigns his or her employment, any unvested Performance rights will lapse, unless the Board determines otherwise. 83 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 i. a summary of the movements of all company options issued is as follows: Options outstanding as at 30 June 2011 granted Forfeited exercised expired Options outstanding as at 30 June 2012 granted Forfeited exercised expired Options outstanding as at 30 June 2013 options exercisable as at 30 June 2013: options exercisable as at 30 June 2012: Weighted Average Exercise Price $0.89 - - $0.89 - $0.90 - - Number 1,930,000 - - (1,480,000) 450,000 - - - (450,000) $0.90 - - - - - 450,000 The fair value of the options granted to employees is deemed to represent the value of the employee services received over the vesting period. ii. There were no options granted during the year. 84 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 28: ShaRE-baSED PaymEnTS (continued) iii. a summary of the movements of all performance rights issued is as follows: Performance Rights outstanding as at 30 June 2011 granted Forfeited exercised expired Performance Rights outstanding as at 30 June 2012 granted Forfeited exercised expired Performance Rights outstanding as at 30 June 2013 performance rights exercisable as at 30 June 2013: performance rights exercisable as at 30 June 2012: Weighted Average Exercise Price - - - - - - - - - - - Number 1,303,956 775,576 (30,940) - - 2,048,592 1,068,244 (693,745) (635,462) - 1,787,629 454,575 635,462 The fair value of the Performance rights granted during the financial year was $1,636,375. Performance rights granted during the year were valued using a Binomial option pricing model. The expected life used in the model has been based on management’s best estimate for the effects of the vesting conditions and the probability of meeting the vesting conditions. The Fair Value has been discounted by 25% to reflect the probability of not meeting the TSr performance hurdles. The discount factor of 25% was determined through the use of a Binomial option pricing model, probability trees and an analysis of the historic performance, over various periods of time of the aSX 300. The weighted average fair value of performance rights granted during the year was $1.532 (2012: $1.592). These values were calculated using a Binomial option pricing model applying the following inputs: Weighted average exercise price: $nil Expected vesting period for the performance rights to vest: 7 years Expected share price volatility: Risk-free interest rate: Dividend yield: 50% 2.75% 3.77% historical volatility has been the basis for determining expected share price volatility as it is assumed that this is indicative of future movements. The life of the options is based on the historical exercise patterns, which may not eventuate in the future. 85 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 expenses arising from share based payment transactions recognised during the year were as follows: t performance rights - expenses - written back on forfeiture Consolidated Entity 2013 $000 743 (193) 550 nOTE 29: RElaTED PaRTy TRanSaCTIOnS anD balanCES Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Transactions with related parties: t (a) Director related transactions rent of various properties used by Decmil australia pty ltd paid to Broadway pty ltd, an entity in which mr Denis criddle has a beneficial interest (b) Director related Balances amounts owing to the nevern group pty ltd, an entity in which mr giles everist has a beneficial interest, for directors’ fees# # Transactions relating to directors fees are included in the director’s report details of remuneration. Consolidated Entity 2013 $000 286 11 2012 $000 333 (7) 326 2012 $000 291 - 86 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 30: fInanCIal InSTRumEnTS financial Risk management Policies The consolidated entity’s financial instruments consist mainly of deposits with banks, accounts receivable and payable and borrowings. The main purpose of non-derivative financial instruments is to raise finance for operations. no derivatives are used by the consolidated entity and the consolidated entity does not speculate in the trading of derivative instruments. i. Treasury Risk management The chief financial officer and other senior finance executives regularly analyse financial risk exposure and evaluate treasury management strategies in the context of the most recent economic conditions and forecasts. The overall risk management strategy seeks to assist the consolidated entity in meeting its financial targets, whilst minimising potential adverse effects on financial performance. Treasury functions are performed in accordance with policies approved by the board of directors. risk management policies are approved and reviewed by the board on a regular basis. These include credit risk policies and future cash flow requirements. ii. financial Risk Exposures and management The main risks the consolidated entity is exposed to through its financial instruments are interest rate risk, liquidity risk, credit risk and price risk. Interest rate risk exposure to interest rate risk arises on financial assets and liabilities recognised at the end of the reporting period whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The consolidated entity is also exposed to earnings volatility on floating rate instruments. Interest rate risk is managed with a mixture of fixed and floating rate debt. Liquidity risk The consolidated entity manages liquidity risk by monitoring forecast cash flows and ensuring that adequate unutilised borrowing facilities are maintained. Credit risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. There are no material amounts of collateral held as security at 30 June 2013. In respect of the parent entity, credit risk also incorporates the exposure of decmil Group Limited to the liabilities of all members of the closed group under the deed of cross-guarantee. Credit risk is managed on a group basis and reviewed regularly by finance executives and the board. It arises from exposures to customers as well as through deposits with financial institutions. The consolidated entity does not have any material credit risk exposure to any single receivable or group of receivables under financial instruments entered into by the consolidated entity. Price risk The consolidated entity is exposed to price risks associated with labour costs and to a lesser extent, fuel and steel prices. Wherever possible, the consolidated entity contracts out such exposures or allows for the rise and fall for changes in prices or provides sufficient contingencies to cover for such price risks. Foreign exchange risk exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of currencies in which the consolidated entity holds financial instruments which are other than the aud functional currency of the consolidated entity. iii. financial instrument composition and maturity analysis: The tables below reflect the undiscounted contractual settlement terms for financial instruments of a fixed period of maturity, as well as management’s expectations of the settlement period for all other financial instruments. as such, the amounts may not reconcile to the statement of financial position. 87 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 Weighted Average Effective Interest Rate % Non-Interest Bearing $000 Within 1 year $000 1 to 5 years $000 Carrying Amount $000 2013 Financial assets cash and cash equivalents receivables Financial liabilities payables Borrowings 2012 Financial assets cash and cash equivalents receivables Financial liabilities payables Borrowings 3.1 - - 7.0 4.2 - - 6.8 - 62,819 62,819 (123,236) - (123,236) 43,712 - 43,712 - (21,661) (21,661) - 141,352 111,320 111,320 (183,667) - (183,667) - 141,352 - (9,485) (9,485) t trade and other payables are expected to be paid as followed. less than 6 months - - - - (1,089) (1,089) - - - - (6,366) (6,366) 43,712 62,819 106,531 (123,236) (22,750) (145,986) 141,352 111,320 252,672 (183,667) (15,851) (199,518) Consolidated Entity 2013 $000 123,236 123,236 2012 $000 183,667 183,667 88 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 30: fInanCIal InSTRumEnTS (continued) iv. net fair values The net fair values of: other loans and amounts due are determined by discounting the cash flows, at market interest rates of similar borrowings, to their present value. other assets and other liabilities approximate their carrying value. no financial assets and financial liabilities are readily traded on organised markets in standardised form. Financial assets where the carrying amount exceeds net fair values have not been written down as the consolidated entity intends to hold these assets to maturity. aggregate net fair values equal to the respective carrying amounts of financial assets and financial liabilities at balance date. v. Sensitivity analysis Interest Rate Risk and Price Risk The consolidated entity has performed sensitivity analysis relating to its exposure to interest rate risk, and price risk at balance date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks. Interest Rate Sensitivity Analysis The consolidated entity’s cash and cash equivalents and borrowings are subject to interest rate sensitivities. at 30 June 2013, the effect on profit and equity as a result of changes in the interest rate, with all other variables remaining constant is immaterial. Price Risk Sensitivity Analysis at 30 June 2013, the effect on profit and equity as a result of changes in the price risk, with all other variables remaining constant would be as follows: t change in profit Consolidated Entity 2013 $000 2012 $000 - increase in labour costs by 5% (cpi assumption) (7,391) (6,716) change in equity - increase in labour costs by 5% (cpi assumption) (7,391) (6,716) In the opinion of the consolidated entity’s executives, the majority of the above increase in labour costs, had they been incurred, would have been negated by an increase in the price of services offered by the consolidated entity. The above interest rate and price risk sensitivity analysis have been performed on the assumption that all other variables remain unchanged. Foreign Exchange Sensitivity Analysis The effect on profit and equity as a result of changes in foreign exchange rates, with all other variables remaining constant, is immaterial. 89 Decmil group limiteD | annual report 2013 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year ended 30 June 2013 nOTE 31: COnTIngEnT lIabIlITIES t guarantees given to various clients for satisfactory contract performance Consolidated Entity 2013 $000 88,681 88,681 2012 $000 86,829 86,829 nOTE 32: SubSEquEnT EvEnTS on 21 august 2013, the company proposed a fully franked 8 cent per share final dividend with a record date of 6 September 2013 and payment date of 27 September 2013. The total amount of this dividend payment will be $13.456 million. after this dividend payment, the franking account balance will be $47.756 million. except for the matter disclosed above, no matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. 90 Decmil group limiteD | annual report 2013 DIRECTOR’S DECLARATION For The Year ended 30 June 2013 The directors of the company declare that: 1. the financial statements and notes, as set out in the financial report, are in accordance with the Corporations act 2001 and: a. comply with australian accounting Standards, which, as stated in accounting policy note 1 to the financial statements, constitutes compliance with International Financial reporting Standards (IFrS); and give a true and fair view of the financial position as at 30 June 2013 and of the performance for the year ended on that date of the consolidated entity; b. 2. 3. in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. the directors have been given the declarations required by s 295a of the Corporations act 2001 from the Chief executive officer and Chief Financial officer. The company and its controlled entities as disclosed in note 14(b) have entered into a deed of cross guarantee under which the company and its controlled entities guarantee the debts of each other. at the date of this declaration, there are reasonable grounds to believe that the companies which are party to this deed of cross guarantee will be able to meet any obligations or liabilities to which they are, or may become, subject to by virtue of the deed. This declaration is made in accordance with a resolution of the Board of directors. Giles everist Chairman dated this 21st day of august 2013 91 Decmil group limiteD | annual report 2013 INDEPENDENT AUDITOR’S REPORT For The Year ended 30 June 2013 92 Decmil group limiteD | annual report 2013 INDEPENDENT AUDITOR’S REPORT (continued) For The Year ended 30 June 2013 93 Decmil group limiteD | annual report 2013 CORPORATE GOVERNANCE STATEMENT For The Year ended 30 June 2013 The Board of decmil Group Limited is responsible for the corporate governance of decmil Group Limited and its subsidiary companies. The Board determines all matters relating to the strategic direction and governance, policies, practices, management and operations of decmil Group Limited with the aim of protecting the interests of its Shareholders and other stakeholders, including employees, clients and suppliers, and creating value for them. The aSX Corporate Governance Council’s (Council) “Corporate Governance Principles and recommendations” (Principles and recommendations) articulates eight core corporate governance Principles, with commentary about implementation of those Principles in the form of recommendations. under aSX Listing rule 4.10.3 decmil Group Limited is required to provide a statement in its annual report disclosing the extent to which it has followed the recommendations in the reporting period. Where a recommendation has not been followed, the fact must be disclosed, together with reasons for departure from the recommendation. In addition, a number of the recommendations require the disclosure of specific information in the corporate governance statement of the annual report. decmil Group Limited’s corporate governance statement is structured with reference to the Council’s Principles and recommendations, which are as follows: Principle Where To Find Details Of Decmil Group Limited’s Compliance 2012/13 Principle 1 – Lay solid foundations for management and oversight Structure and operation of the Board (page 95) Performance (page 98) Principle 2 – Structure the board to add value Structure and operation of the Board (page 95) nomination Committee (page 96) Principle 3 – Promote ethical and responsible decision-making Code of Conduct (page 100 + refer to the Code of Conduct Policy, provided in the Corporate Governance section of the company’s website) Trading Policy (page 101 + refer to the Securities Trading Policy, provided in the Corporate Governance section of the company’s website) Principle 4 – Safeguard integrity in financial reporting audit and risk Committee (page 97) risk Management (page 98) Principle 5 – Make timely and balanced disclosure refer to the Continuous disclosure Policy, provided in the Corporate Governance section of the company’s website Principle 6 – respect the rights of shareholders refer to the Corporate Governance section of the company’s website Principle 7 – recognise and manage risk risk Management (page 98; page 99) Principle 8 – remunerate fairly and responsibly remuneration Committee (page 96) remuneration (page 100) For further information on the corporate governance policies adopted by decmil Group Limited, please refer to our website: http://www.decmilgroup.com.au 94 Decmil group limiteD | annual report 2013 CORPORATE GOVERNANCE STATEMENT (continued) For The Year ended 30 June 2013 STRuCTuRE anD OPERaTIOn Of ThE bOaRD The Board operates pursuant to a formal board charter, which sets out the functions and responsibilities of the Board and management of decmil Group Limited, and is available in the corporate governance section of the decmil Group Limited website. The skills, experience and expertise relevant to the position of each director who is in office at the date of the annual report and their term of office are detailed in the directors’ report. a director is considered to be independent where they are a non-executive director, are not a member of management and are free of any relationship that could, or could reasonably be perceived to, materially interfere with the independent exercise of their judgment. The existence of the following relationships may affect independent status if the director: is a substantial shareholder of decmil Group Limited or an officer of, or otherwise associated directly with a substantial shareholder of decmil Group Limited (as defined in section 9 of the Corporations act); is employed, or has previously been employed in an executive capacity by the decmil Group Limited Group, and there has not been a period of at least three years between ceasing such employment and serving on the Board; has within the last three years been a principal of a material professional adviser or a material consultant to the decmil Group Limited Group, or an employee materially associated with the services provided; is a material supplier or customer of the decmil Group Limited Group, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; has a material contractual relationship with the decmil Group Limited Group other than as a director. directors are expected to bring independent views and judgement to the Board’s deliberations. The Board Charter requires that at least one half of the directors of decmil Group Limited will be non-executive (preferably independent) directors and that the Chair will be a non- executive director. In the context of director independence, “materiality” is considered from both the Company and individual director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. an item is presumed to be quantitatively immaterial if it is equal to or less than 5% of the appropriate base amount, being the monetary value of the transaction or item in question. It is presumed to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 10% of the appropriate base amount. Qualitative factors considered include whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it. In accordance with the definition of independence above, and the materiality thresholds set, the Board reviewed the positions and associations of each of the 6 directors in office at the date of this statement and considers that 4 of the directors are independent as follows: Name giles everist trevor Davies William Healy lee Verios Position non-executive chairman non-executive Director non-executive Director non-executive Director The Board will assess the independence of new directors upon appointment, and the independence of other directors, as appropriate. To facilitate independent judgement in decision-making, each director has the right to seek independent professional advice at decmil Group Limited’s expense. however, prior approval from the Chair is required, which may not be unreasonably withheld. The term in office held by each director in office at the date of this statement is as follows: Name Denis criddle Scott criddle trevor Davies giles everist William Healy lee Verios Term in office appointed august 2007 appointed april 2010 appointed march 2013 appointed December 2009 appointed april 2009 appointed april 2010 95 Decmil group limiteD | annual report 2013 CORPORATE GOVERNANCE STATEMENT (continued) For The Year ended 30 June 2013 nOmInaTIOn COmmITTEE The board is of the view that due to the nature and size of the company’s operations that the functions normally performed by a nomination committee can adequately be performed by the full board. REmunERaTIOn COmmITTEE The Board established a remuneration Committee in January 2009 that operates under a charter approved by the Board. The purpose of the Committee is to provide the Board of directors of the Company (Board) with advice and recommendations which enable the Board to: set in place remuneration policies which are designed to attract and retain senior managers and directors with the expertise to enhance the performance and growth of the Company; and ensure that the level and composition of remuneration packages are fair, reasonable and adequate and, in the case of executive directors and senior managers, display a clear relationship between the performance of the individual and the performance of the Company The remuneration Committee is responsible for: Executive remuneration policy The Committee is responsible for providing the Board with advice and recommendations regarding the ongoing development of an executive remuneration policy that: is designed to attract, maintain and motivate directors and senior management with the aim of enhancing the performance and long-term growth of the Company; and clearly sets out the relationship between the individual’s performance and remuneration The Committee must review the remuneration policy and other relevant polices on an ongoing basis and recommend any necessary changes to the Board. The Committee is also responsible for providing the Board with advice and recommendations regarding the Company’s polices on recruitment, retention and termination. Executive remuneration packages The Committee is responsible for reviewing and providing recommendations to the Board with respect to the remuneration packages of senior management and executive directors. The Committee must ensure that the remuneration packages of senior management and executive directors: display a balance between fixed and incentive pay which is tailored to the Company’s short and long-term performance objectives provide for a link between rewards and the performance of the Company and individual; and are consistent with the Company’s remuneration policy and any other relevant Company policies The fixed component of each executive remuneration package should be based on the core performance requirements and expectations of the individual. The performance based component of each executive remuneration package must be clearly linked to specified performance targets. The Committee must ensure that, where applicable, any payments of equity-based remuneration are made in accordance with any thresholds set in plans approved by the Company’s shareholders. Committee members must be aware at all times of the limitations of equity-based remuneration. The Committee is also responsible for advising and providing recommendations to the Board with respect to executive superannuation and termination payments (if applicable). 96 Decmil group limiteD | annual report 2013 CORPORATE GOVERNANCE STATEMENT (continued) For The Year ended 30 June 2013 REmunERaTIOn COmmITTEE (continued) Incentive schemes The Committee is responsible for reviewing and providing recommendations to the Board with respect to: the Company’s policies with respect to incentive schemes; and the incentive schemes of senior managers and executive directors The Committee will assist the Board in the development of appropriate benchmarks for use in designing incentive schemes. non-executive remuneration The Committee is responsible for providing advice to the Board with respect to non-executive directors’ remuneration. The remuneration packages of non-executive directors should generally be fee based and the Committee must ensure that: the there is a clear distinction between the structure of non-executive directors’ and executive directors’ remuneration; and the non-executive directors do not: - participate in remuneration schemes designed for executive directors; or - receive options, bonus payments, retirement or termination benefits other than statutory superannuation Termination payments The Committee is responsible for providing advice and recommendations to the Board on the Company’s termination and redundancy polices and the payments made to outgoing directors and senior managers. The Committee should ensure that termination payments: are fair to the individual and the Company; and do not reward failure Where applicable termination payments must be agreed in advanced and must contain clearly defined provisions regarding the consequences of early termination. The termination payments of the Company’s chief executive officer must always be agreed in advance. The remuneration Committee comprised the following members: Lee Verios (Chair) William healy Giles everist For details of directors’ attendance at meetings of the remuneration Committee, please refer to the directors’ report. For additional details regarding the remuneration Committee, including the committee charter, please refer to our website. auDIT anD RISk COmmITTEE The Board established an audit and risk Committee in January 2009 that operates under a charter approved by the Board. The purpose of the Committee with respect to audit is to assist the board of directors of the Company in fulfilling its corporate governance and oversight responsibilities by: monitoring and reviewing the integrity of financial statements the effectiveness of internal financial controls; the independence, objectivity and competency of internal and external auditors; and the policies on risk oversight and management; and Making recommendations to the Board in relation to the appointment of external auditors and approving the remuneration and terms of their engagement. 97 Decmil group limiteD | annual report 2013 CORPORATE GOVERNANCE STATEMENT (continued) For The Year ended 30 June 2013 RISk managEmEnT The primary objective of the Committee is to assist the Board in fulfilling its responsibilities relating to the risk management and compliance practices of the Company. The audit and risk Committee comprised the following members: William healy (Chair) denis Criddle Trevor davies Giles everist details of the skill and experience of the committee members are detailed in the director’s report. For details on the number of meetings of the audit and risk Committee held during the year and the attendees at those meetings, please refer to the directors’ report. PERfORmanCE The performance of the Board and its individual directors are reviewed regularly. during the reporting period the performance of the Board was reviewed internally. The Board has determined that there is insufficient value in an external Board review process, and accordingly proposes that the Board review process is handled internally whereby the performance of the Board is assessed against its objectives and responsibilities as set out in the Board Charter. The process consists of an informal discussion, completion of a standard format questionnaire, one-on-one meetings between the Chairman and individual directors and a final review of completed questionnaires. a timetable for the Board review process has been established. Both performance reviews of the remuneration Committee and audit and risk Committee were conducted during the year. The process for evaluating the performance of the remuneration Committee and the audit and risk Committee involves an internal review by the relevant committee of its performance against its objectives and responsibilities as set out in the relevant committee charter. The performance of key executives is reviewed regularly against appropriate measures. Further, the performance of key executives is reviewed internally on an annual basis pursuant to a decmil Group Limited-wide performance planning and review process. Key performance indicators are agreed on an individual basis for such executives and performance against these indicators is then reviewed by the Chief executive officer. The outcome of the review then provides the basis for a professional development plan for the key executive. as noted above, performance evaluations for individual directors and key executives were conducted during the reporting period in accordance with the above processes. 98 Decmil group limiteD | annual report 2013 CORPORATE GOVERNANCE STATEMENT (continued) For The Year ended 30 June 2013 RISk managEmEnT decmil Group Limited recognises the importance of risk management and as such, has completed the establishment of its formal risk management framework during the reporting period. The decmil Group Limited Board is ultimately responsible for risk management in decmil Group Limited and must satisfy itself that significant risks faced by the decmil Group Limited Group are being managed appropriately and that the system of risk management within the decmil Group Limited Group is robust enough to respond to changes in decmil Group Limited’s business environment. The audit and risk Committee has the following responsibilities in regard to risk management: assess the internal process for determining and managing key risk areas; ensure that the decmil Group Limited Group has an effective risk management system and that macro risks to the decmil Group Limited Group are reported at least twice a year to the Board; evaluate the process decmil Group Limited has in place for assessing and continuously improving internal controls, particularly those related to areas of significant risk; and assess whether management has controls in place for unusual types of transactions and/or any potential transactions that may carry more than an acceptable degree of risk. The Ceo is responsible for the continuous development of risk management in the decmil Group Limited Group and for supervising the implementation of risk management in compliance with the risk management policy and guidelines established. each business unit is responsible for the identification, assessment, control, reporting and on-going monitoring of risks within its own responsibility. Business units are responsible for implanting the requirements of this policy and for providing assurance to the Board of directors that it has done so. The business unit, where deemed appropriate, may enhance its own organisational structure provided that such enhancements further assist the achievement of the objectives of this policy. Management is responsible for identifying and evaluating risks within their area of responsibility, implementing agreed actions to manage risk and for reporting as well as monitoring any activity or circumstance that may give risk to new or changed risks. In summary, the decmil Group Limited risk Management system comprises: a Group risk Management Policy Statement and methodology based on the australian Standard on risk Management, aSnZS 4360. This Policy has been placed on the decmil Group Limited website and is therefore accessible by all decmil Group Limited staff. The Policy outlines decmil Group Limited’s approach to managing risk including a description of responsibilities; a Strategic risk Management Plan for the Group and an operational risk Management Plan for each of the business units, which were developed by management using the decmil Group Limited risk Management methodology, with the endorsement of the audit and risk Committee; a Group risk Co-ordinator, who is responsible for managing and implementing decmil Group Limited’s risk management framework; a designated “risk champion” for each business unit, who liaises with the Group risk Coordinator; The Group Strategic risk Management Plan is reviewed every 6 months by management; a Group Strategic risk register, which records any extreme or high residual risks identified in the Group Strategic risk Management Plan (such risks being equivalent to the Council’s “material business risks”). This central register is managed by the Group risk Co- ordinator and is regularly reviewed by management and the audit and risk Committee. The audit and risk Committee reports every 6 months to the Board on the management of the risks contained in the Strategic risk register; The operational risk Management Plans for the business units are reviewed every 6 months by the designated risk champions, such reviews are facilitated by the Group risk Coordinator; a Group operational risk register, which is maintained for each business unit and records any extreme or high residual risks identified in the operational risk Management Plans. This central register is also managed by the Group risk Co-ordinator and is regularly reviewed by management and the audit and risk Committee. The audit and risk Committee reports every 6 months to the Board on the management of the risks contained in the operational risk register; The audit and risk Committee review the timeliness and effectiveness of action taken to reduce any extreme or high residual risks noted in the risk registers at their meetings. The audit and risk Committee have four meetings a year; a decmil Group Limited Group wide comprehensive insurance program, which is reviewed annually; and regular meetings with Business unit General Managers. 99 Decmil group limiteD | annual report 2013 CORPORATE GOVERNANCE STATEMENT (continued) For The Year ended 30 June 2013 The decmil Group Limited Internal Control system comprises: Management understanding and acceptance of its responsibility to implement appropriate systems of internal control to effectively manage potential risks; ongoing management oversight of strategic matters by management and of operational matters by business unit management; Various policies and procedures covering areas such as Finance, human resources, Information Technology, Safety and delegations of authority, such policies are centrally located via an intranet; Monthly reporting and review of financial and budgetary information; external auditors independently evaluating decmil Group Limited’s compliance with the International Financial reporting Standards on an annual basis; In particular, the audit and risk Committee endorses an annual list of planned audits across the business units, which are set out in an agreed Internal audit Plan, to be undertaken by suitably qualified auditors. In addition, the Board has received a written assurance from the Chief executive officer and the Chief Financial officer that, to the best of their knowledge and belief, the declaration provided by them in accordance with section 295a of the Corporations act is founded on a sound system of risk management and internal control and that the system is operating effectively in relation to financial reporting risks. The Board understands that these assurances regarding the internal control systems provide a reasonable level of assurance only and do not imply a guarantee against adverse events, or losses, or more volatile outcomes arising in the future and that the design and operation of the internal control systems relating to financial reporting has been assessed primarily through the use of declarations by process owners who are responsible for those systems. REmunERaTIOn It is decmil Group Limited’s objective to provide maximum stakeholder benefit from the retention of a high quality Board by remunerating directors fairly and appropriately with reference to relevant market conditions. The remuneration policy, which sets the terms and conditions for the chief executive officer and other senior executives, was reviewed by the remuneration committee which consisted of two independent directors. Professional advice from independent consultants is sought and considered when deemed appropriate. all executives receive a base salary, superannuation, performance incentives and retirement benefits. The remuneration committee reviewed the executive packages by reference to company performance, executive performance, comparable information from industry sectors and other listed companies, and independent advice. The performance of executives is measured against predetermined criteria based on forecast growth of the company’s activities, profits and shareholder value. The policy is designed to attract high calibre executives and reward them for performance which results in long-term growth in shareholder value. executives are also entitled to participate in the employee performance rights plan approved by shareholders. The amount of remuneration for all directors and the specified executives, including all monetary and non-monetary components, are detailed in the notes to the financial report. all remuneration paid to executives is valued at the cost to the company and expensed. Performance rights are valued using a Binomial option pricing model. The board expects that the remuneration structure implemented will result in the company being able to attract and retain the best executives to run the economic entity. It will also provide executives with the necessary incentives to work to grow long-term shareholder value. The payment of bonuses, stock options and other incentive payments are reviewed by the board periodically as part of the review of executive remuneration and a recommendation is put to the board for approval. all bonuses, rights and incentives must be linked to predetermined performance criteria. The board can exercise its discretion in relation to approving incentives, bonuses and rights. There is no scheme to provide retirement benefits, other than statutory superannuation, to non-executive directors. For a full discussion of decmil Group Limited’s remuneration philosophy and framework and the remuneration received by directors in the current period please refer to the remuneration report, which is contained within the director’s report and also the company’s website in the Corporate Governance section. CODE Of COnDuCT decmil Group Limited has established a code of conduct. The code of conduct is located on the company’s website in the Corporate Governance section. 100 Decmil group limiteD | annual report 2013 CORPORATE GOVERNANCE STATEMENT (continued) For The Year ended 30 June 2013 TRaDIng POlICy The company’s policy regarding directors and employees trading in its securities restricts directors and employees from acting on material information until it has been released to the market and adequate time has been given for this to be reflected in the security’s prices. Trading in the company’s securities is permitted during the 30 day period immediately after the company announces its full year and half year results, and also whenever a disclosure document is current. no trading is permitted outside of these time frames without first obtaining the approval of the Chairman. The Securities trading policy is located on the company’s website in the Corporate Governance section. DIvERSITy The Group’s diversity Policy commits all employees to value diversity and equal opportunity in the workplace. our intent, to ensure our commitment to shareholders, is achieved year to year, by ensuring our approach is focussed on attracting a diverse range of skills, values, backgrounds and experience, resulting is attraction and retention of the best talent in the market. Group Subsidiaries align with or have extended further the principles of the Group’s diversity policy, through establishment of their own policies and objectives, to ensure the Group is free from discrimination in the workplace and supports employees with care commitments outside of work and attracts a diverse talent pool to the Group. The measureable objectives adopted by the Board in respect of developing gender diversity for the 2013 financial year are set out below and our achievements. Measure Results Achieved Senior executives to review the career development plans of female middle management employees annually to ensure their appropriateness in developing and retaining Decmil’s female talent 100% retention of Female Senior managers across the group; executive Development program established for Senior managers resulting in 100% readiness for promotion of Decmil australia Female middle management employees. Senior managers to meet or formally contact women on parental leave at least quarterly three maternity leave employees identified across the group with 2 already engaged in return to work programs. Formal annual review of all part-time work arrangements to ensure roles are appropriate to maintain career development Reduce the attrition of female employees identified as high talent, through a formal mentoring program the group harnesses family support through: - - - - Family support seminars delivered as part of our Safety and Health programs; online access to expect-a-Star babysitting services for families moving to new environments with limited support; agreed part-time return to work plans to support transitioning back to work; agreed flexibility arrangements on start and finish times to support individual needs. currently previous part-time roles within the group have, at the employees request, moved to full-time positions with 100% retention. Formal engagement of female indigenous mentors in Department of employment and Workplace relations (DeWr) indigenous mentoring programs on construction projects, where traineeships are established to harness local capacity building and retention. mentoring currently occurring across female middle management roles resulting in 100% readiness for promotion and succession plans in place for next steps. Female participation in senior roles currently greater than 38%. Female participation within administration roles currently at greater than 56% with 17% promoted through internal career and mentoring programs. Continued promotion of career opportunities in the resources sector including presentation at career expositions, schools, universities and wother suitable forums a focus on increasing female attraction to Decmil’s graduate program was targeted this year resulting in 4 out of 5 vacation studies currently female, with remote experience in the resource sector a key component of the period of tenure with the business. 101 Decmil group limiteD | annual report 2013 CORPORATE GOVERNANCE STATEMENT (continued) For The Year ended 30 June 2013 Decmil workforce gender Profile administration Workforce Supervisory/professional middle management executive management total Board Female Female % Male Male % 75 9 11 5 5 105 0 56 2 6 7 38 13 0 58 403 173 69 8 711 5 44 98 94 93 62 87 100 Summary In summary, decmil Group Limited concludes that it substantially complied with all of the recommendations other than as previously disclosed in this statement. 102 Decmil group limiteD | annual report 2013 ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES additional information required by australian Stock exchange Limited and not shown elsewhere in this report is as follows. 1. SubSTanTIal ShaREhOlDERS The names of substantial shareholders listed on the company’s register as at 30 June 2013 are: Shareholder Denis criddle acorn capital ltd commonwealth Bank group thorney investments Franco Family Holdings (retail group) Denver investments The following information is made up as at 31 July 2013. 2. DISTRIbuTIOn Of ShaREhOlDIngS Range of Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Shares 18,773,232 15,526,987 14,478,168 13,000,000 12,275,000 9,213,666 No. of Shareholders No. of Ordinary Shares 1,506 1,656 590 603 62 734,079 4,688,178 4,558,058 14,896,936 143,325,968 85.20 4,417 168,203,219 100.00 % 11.16 9.23 8.61 7.73 7.30 5.48 % 0.44 2.79 2.71 8.86 There are no shareholders with an unmarketable parcel. 3. vOTIng RIghTS all ordinary shares issued by decmil Group Limited carry one vote per share without restriction. 103 Decmil group limiteD | annual report 2013 ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES (continued) For The Year ended 30 June 2013 4. TwEnTy laRgEST ShaREhOlDERS The names of the twenty largest shareholders of ordinary shares in the company are: Name Jp morgan nominees australia ltd national nominees ltd HSBc custody nominees (australia) ltd citicorp nominees pty ltd Broadway pty ltd - the Decmil australia Fund a/c Broadway pty ltd - the Decmil australia a/c l, m & r Franco - lmr Franco unit a/c thorney Holdings pty ltd HSBc custody nominees (australia) ltd - nt-comnwlth Super corp a/c Jp morgan nominees australia ltd - cash income a/c Delauney pty ltd - the Franco Family a/c Fairview pty ltd - ernest Franco Family a/c citicorp nominees pty ltd - colonial First State inv a/c Bnp paribas nominees pty ltd – Drp mrs nola isabel criddle – criddle investment Fund aust executor trustees ltd - charitable Foundation navigator australia ltd - mlc investment Sett a/c mr mario Franco & mrs immacolata Franco - the mario Franco S/F a/c o’neill administration pty ltd – o’neill Super Fund account amp life limited Total No. of Ordinary Fully Paid Shares Held 27,723,013 21,520,202 20,426,370 15,738,052 10,475,000 6,500,000 4,800,000 4,381,370 3,214,573 2,623,012 2,300,000 2,300,000 1,580,048 1,446,754 1,398,232 1,141,604 1,063,789 1,000,000 782,500 732,822 % 16.48 12.79 12.14 9.36 6.23 3.86 2.85 2.60 1.91 1.56 1.37 1.37 0.94 0.86 0.83 0.68 0.63 0.59 0.47 0.44 131,147,341 77.96 104 Decmil group limiteD | annual report 2013 ANNUAL GENERAL MEETINGShareholders are advised that the Decmil Group Limited 2013 Annual General Meeting (AGM) will be held on 14 November 2013 at Decmil Head Office 20 Parkland Road, Osborne Park, Western Australia, commencing at 10.00 am (AWST).www.decmilgroup.com.au About this ReportThis Annual Report is a summary of Decmil Group Limited’s (DGL) operations, activities and financial position as at 30 June 2013.References in the report to ‘the year’ or ‘the reporting period’ relate to the financial year, which is 1 July 2012 to 30 June 2013,unless otherwise stated. All dollar figures are expressed in Australian currency.Decmil Group Limited (ABN 35 111 210 390) is the parent company of the Decmil Group of companies. In this report, unlessotherwise stated, references to ‘Decmil’, ‘DGL’ and ‘the Company’, and ‘we’, ‘us’ and ‘our’ refer to Decmil Group Limited and its controlled entities.In its efforts to reduce its impact on the environment ,DGL will only post printed copies of this Annual Report to those shareholderswho elect to receive one through the share registry. An electronic copy of this Annual Report will be available on our website at www.decmilgroup.com.auAUSTRALIAN BUSINESS NUMBER 35 111 210 390 ASX CODE DCG REGISTERED ADDRESS20 Parkland Road, Osborne Park, Western Australia 6017 Tel: +61 8 9368 8877 This publication is printed on Monza recycled which is an ISO 14001 certified environmentally accredited paper stock.CORPORATE DIRECTORYDIRECTORSGiles EveristNon-Executive ChairmanScott CriddleManaging DirectorDenis CriddleNon-Executive DirectorTrevor DaviesNon-Executive DirectorWilliam (Bill) HealyNon-Executive DirectorLee VeriosNon-Executive DirectorEXECUTIVE TEAMJustine CampbellChief Financial Officer & Company SecretaryTodd StrathdeeChief Strategy & Operating OfficerAustralian Business Number35 111 210 390Principal Registered Address20 Parkland Road Osborne Park WA 6017 Telephone: 08 9368 8877 Facsimile: 08 9368 8878Postal AddressPO Box 1233 Osborne Park WA 6916Operational OfficesDecmil Australia Pty Ltd 20 Parkland Road Osborne Park WA 6017 Telephone: 08 9368 8877 Facsimile: 08 9386 8878Decmil Australia Pty Ltd Level 5, 60 Edward Street Brisbane QLD 4000 Telephone: 07 3640 4600 Facsimile: 07 3640 4690AuditorRSM Bird Cameron Partners 8 St Georges Terrace Perth WA 6000 Telephone: 08 9261 9100 Facsimile: 08 9261 9111Share RegistryComputershare Investor Services Pty Limited Level 2, 45 St Georges Terrace Perth WA 6000 Telephone: 08 9323 2000 Facsimile: 08 9323 2033 Email: web.queries@computershare.com.au Website: www-au.computershare.comLawyersSteinepreis Paganin Level 4, Next Building 16 Milligan Street Perth WA 6000 Telephone: 08 9321 4000 Facsimile: 08 9321 4333FinanciersNational Australia Bank Limited 100 St Georges Terrace Perth WA 6000 Telephone: 13 10 12Controlled EntitiesDecmil Australia Pty Ltd Eastcoast Development Engineering Pty Ltd Homeground Villages Pty Ltd Homeground Gladstone Pty Ltd ATF Homeground Gladstone Unit Trust Decmil Properties Pty LtdASX Code: DCG ANNUAL REPORT2013ABN: 35 111 210 390www.decmilgroup.com.au