08
ANNUAL REPORT
ACN: 112 188 815
Moving forward
contents
Chairman’s report
managing DireCtor’s report
review of operations
emeCo BoarD
Financial report
DireCtors’ report
Company seCretary
DireCtors’ meetings
Corporate governanCe statement
nature of operations anD prinCipal aCtivities
operating anD finanCial review
DiviDenDs paiD or to Be paiD
signifiCant Changes in state of affairs
signifiCant events after BalanCe Date
likely Developments anD expeCteD results
DireCtors interest in shares of the Company
remuneration report (auDiteD)
inDemnifiCation anD insuranCe of DireCtors,
offiCers anD auDitors
non-auDit serviCes
rounDing
leaD auDitor’s inDepenDenCe DeClaration
inCome statements
BalanCe sheets
statements of reCogniseD inCome anD expense
statements of Cash flows
notes to the finanCial statements
DireCtors’ DeClaration
inDepenDent auDitors’ report
shareholDer information
Company DireCtory
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
chairman’s report
Dear shareholder
on behalf of the directors i am pleased to present emeco holdings ltd’s annual
report to shareholders for the 2007/2008 year.
performanCe for the year
the past financial year has presented a series of major challenges for the
Company. adverse weather conditions combined with infrastructure bottlenecks
in Queensland and new south wales resulted in reduced utilisation and earnings
from our rental business in australia. for much of the first half of the year we also
experienced softness in the markets serviced by our rental businesses in north
america and indonesia.
as a result of these difficult trading conditions, earnings before interest, tax and
amortisation (eBita) decreased by 6.4% from $128.5 million in the 2006/2007 year
to $120.3 million in this financial year. net profit after tax (npat) for the year was
$67.5 million.
the one pleasing aspect of this year’s profit result was the significantly improved
earnings performance experienced in the second half of the year across all of our
markets. npat increased 21.3% to $37.0 million for the half year ended 30 June
2008 from $30.5 million in the first half year.
funDing
it is pleasing to report that in recent weeks the emeco group has successfully
finalised the refinancing of its debt facilities. the refinancing, which includes an
increase in the size of the facility will provide us with a secure platform to plan for
and fund our growth aspirations over the medium term. we believe our success
in completing these new funding arrangements in the current challenging capital
markets is recognition of the durability of emeco’s business model and its future
prospects.
DiviDenD
the dividend policy of the board is to distribute to shareholders approximately
35 to 45% of annual npat and to frank dividends to the fullest extent possible.
in line with our policy the directors have declared a final dividend of 2.5 cents per
share, taking the full year fully franked dividend for the 2007/2008 year to 4.5 cents.
the final dividend will be 100% franked.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
chairman’s report
(ContinueD)
our people
a central part of the value emeco provides to its customers is the
skills and talent of its employees. our reputation as a customer-
focused provider of high quality equipment rests largely on the
capabilities of our employees to manage emeco’s assets and
fulfil the needs of our customers. our employees have remained
focused on our customers and the goals of the emeco group
during a challenging year and i would like to record here on behalf
of all my fellow directors our acknowledgment of their efforts.
we seriously accept our responsibility to ensure that our
employees are kept safe while they are at work at emeco. During
this year we have significantly stepped up our safety efforts with a
new safety and environment management system being rolled out
across all of our locations. we will continue to refine and develop
the safety system and will be looking to achieve significant
improvements in our safety performance in the year ahead.
the future
the outlook for the commodities sector in all of our areas of
operation remains strong and we believe the global demand
for commodities will support emeco’s growth prospects for the
medium term, particularly as infrastructure bottlenecks in australia
begin to ease. having experienced a high level of enquiry for
rental equipment in the second half across all of our domestic
and international rental businesses, we expect this demand for
emeco’s equipment and services will continue and will underpin
our performance in the year ahead.
Focussed
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
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whilst we will be focusing on exploiting organic growth opportunities as they arise, we will continue to
evaluate acquisition opportunities in emeco’s existing operational regions. however, we will be applying
rigorous return criteria to all prospective acquisitions and will not proceed with those which are not value
accretive for shareholders.
we think that the prospects for our rental and sales businesses around the world are encouraging and we remain
confident that emeco can deliver steady and sustainable growth for shareholders over the next few years.
Alec BrennAn
Chairman
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
managing
Director’s report
overview
our performance over the year can best be described as a story
of two halves. During the first half of fy08 we experienced a
number of concurrent challenges resulting in a disappointing
level of activity and consequently lower than expected
profitability. these challenges presented themselves in a
number of ways in each of our regional operations.
in australia, continuing infrastructure constraints on mine
output and unprecedented flooding led to reduced levels of
activity in the first half of the year. accordingly, utilisation
of the rental fleet was mixed across australia. however,
as weather conditions eased, utilisation of the rental fleet
increased, supported by a general increase in demand from
the mining sector. the australian sales business performed
strongly, particularly in the second half of the year as sales
inventory purchased at competitive prices in the first half was
subsequently disposed of at favourable margins.
in indonesia, a number of our international mining contractor
customers were stood down from contracts in preference to
indonesian contractors as a result of recent mine ownership
changes. while materially impacting earnings in the first half,
a re-engagement of international contractors, supported by our
new operational facilities in Balikpapan, kalimantan restored
utilisation levels and is expected to continue to drive earnings
over the medium term.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
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in Canada, the low price of gas in the usa during the first
half of fy08 severely depressed activity in the traditional oil
and gas fields in alberta province dampening utilisation of
our civil construction equipment rental fleet. this coincided
with a temporary lull in construction and development
work in the albertan oil sands adding further pressure on
utilisation levels. Despite a slow recovery in Canada, we
have observed a noticeable improvement in demand for our
product in the oil sands region in the last quarter of fy08
with utilisation returning to trend levels of c.70% by value.
emeco’s us operations also delivered a significant
turnaround in the second half recording a small operating
profit before interest and tax despite an impairment charge
of $1.1m for slow moving parts inventory incurred during
the same period. while the effects of the sub-prime
credit crisis on the housing market in the usa has seen a
significant reduction in activity in the civil market and in
equipment sales in the us domestic market, the operating
environment in the appalachian coal (emeco’s predominant
operating region) region remains robust.
Despite the challenges of the first half of fy08, the
substantial improvement in conditions in the second half
of the year resulted in a significant improvement in our
profitability with net profit after tax increasing by 21.3% in
the second half to $37.0m from $30.5m. this performance
highlights the resilience of our business model and
demonstrates how the flexibility of being able to relocate
assets can provide security for all stakeholders.
with respect to the group’s balance sheet, there was a
renewed focus on more efficient capital management. this
was demonstrated by a rationalisation of working capital
which was reduced by $40 million from 31 December 2007
to 30 June 2008. the Company has refinanced its senior
debt facilities for a 3 year term, whilst at the same time
increasing the facilities from $515m to $630m ensuring the
Company can continue to pursue its growth aspirations.
while the overall results for fy08 are slightly behind
fy07’s performance, when one considers the head winds
emeco faced for a good proportion of the year, we believe
the overall performance was creditable, but accept the
responsibility to continue to improve our performance into
the future.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
managing Director’s report
(ContinueD)
basis in 2h08 of 14.7% and indicates the improving trend in
rofe. we expect rofe to revert towards historical levels
as we move forward. further in-depth analysis is provided
in the review of operations section.
BuilDing for the long term
we fully understand and accept the expectations of the
equity markets with respect to short term results, however,
we continue to balance those expectations with our
aspiration to build a truly world class global business which
capitalises on its first mover advantage in our current global
businesses over the longer term. we firmly believe all our
stakeholders will be rewarded by this strategy. During
the year, with this long term vision in mind, we continued
to grow our presence and capability in a commercially
sustainable manner.
i have already referred to the construction of our indonesian
facilities. in addition we also completed construction of new
workshop facilities in london, kentucky and commenced
construction of a similar workshop facility in fort mckay in
alberta province, Canada. these new facilities in indonesia,
the us and Canada will enable us to significantly improve
our operational capabilities in these regions and confirm
our reputation as a global supplier of reliable and high
quality equipment.
summary of finanCial performanCe
A$M
revenue
eBitDa
eBita
npata
npat
FY07 (1)
554.4
207.3
128.5
78.2
74.7
FY08
617.9
213.5
120.3
68.6
67.5
YOY %
11.4
3.0
(6.4)
(12.3)
(9.6)
(1) The financial results set out in this and the following tables and
discussed below have been prepared using pro-forma actual FY07
year results for the Emeco Group. These pro-forma actual FY07
were reported in Emeco’s annual report for the FY07 and were
derived by adjusting reported actual results set out in the statutory
financial information. These adjustments have been made to add
back the non recurring costs of the IPO in July 2006 which were
incurred during FY07, with appropriate tax adjustments.
the group’s revenue for fy08 of $617.9 million was up
11.4% and eBita of $120.3 million was down 6.4% as
compared to fy07. this decrease in eBita was driven
predominantly by lower utilisation across the rental
businesses including adverse impacts in Queensland and
new south wales due to weather related disruptions,
infrastructure constraints on mine output, and 1h08
underperformance from the international businesses.
profit on sale of rental assets (posa) also reduced from
$11.7 million in fy07 to $9.5 million in fy08. npat declined
9.6% from $74.7 million to $67.5 million due to the eBita
factors above and increased borrowing costs arising from
higher indebtedness due to growth in funds employed
in fy08.
the group’s funds employed increased 7.8% or $61
million over fy08. the growth in funds employed was
primarily attributable to an increase in rental assets. whilst
working capital peaked at 31 December 2007, the Company
significantly reduced it to more efficient levels at 30 June
2008 as part of a targeted plan to improve capital efficiency
within the business. going forward management expect
to maintain general working capital at current levels
notwithstanding expected growth in the business through
ongoing working capital initiatives.
the combination of lower utilisation in 1h08 and the
resultant lower earnings and increased funds employed
resulted in rofe declining to 14.0% on a 12 month rolling
basis at 30 June 2008. it is important to note that the
influence of improved earnings, the successful liberation of
working capital and disposal of some fixed assets in 2h08
translated into an improving rofe on a 6 month rolling
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
managing Director’s report (ContinueD)
strategiC initiatives During the year
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our main strategic focus for fy08 was on continued growth
of our australian businesses while further developing our
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international businesses, particularly in Canada, the united
states of america and europe, to ensure they become
consistent and significant earnings contributors.
in order to better co-ordinate the activities of our australian
regional rental businesses while at the same time
accommodating the decentralised structure and decision
making processes of our customers, we reorganised our
australian businesses during fy08 into three geographically
based business units. these units are northern region,
encompassing the northern territory, Queensland and
new south wales; southern region, covering victoria
and tasmania; and western region which covers western
australia, south australia and indonesia. the general
manager of the southern region also has responsibility
for our australian sales and australian parts businesses
which benefit from a national approach to managing their
significant sales inventories.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
will provide parts to our external customers throughout
the usa and importantly, support our own rental and used
equipment businesses in north america.
the strength of the euro necessitated a change in our
european business model, requiring a reorientation of the
business from a domestic procurement and sales business
and exporter of equipment to an importer and domestic and
nearby regional sales provider.
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in recognition of the strength of the oil sands patch in
alberta and the mining opportunities in nearby provinces
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we have been actively undertaking a reorientation of the
Canadian business towards mining and away from the civil
construction market which requires smaller equipment
with lower asset utilisation. Consistent with this strategy, in
fy08 we began acquiring larger equipment for deployment
in mining applications mainly in alberta, and in addition,
disposing of a number of smaller machines and redeploying
a number to indonesia.
in the us we enjoyed considerable success in improving
the financial performance of the us rental business which
delivered on expectations, generating a small operating
profit before interest and tax in the second half of 2008.
we remain committed to building the us although in a
profitable and financially restrained manner. in order to
expand our range of products and services, we purchased
wildcat spares in the usa in January 2008, located in
central kentucky. wildcat supplies spare parts and core
components for large earthmoving equipment and is
similar to our australian parts business. this acquisition
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
managing Director’s report
(ContinueD)
maJor aChievements suBseQuent
to the enD of the year
During June and July 2008, the Company undertook the
refinancing of its existing senior debt facilities. in early
august the Company successfully finalised a 3 year senior
bank facility, increasing the facility from $515 million to
$630 million with a syndicate of 8 large domestic and
international banks.
the success of the group’s capital raising during a time
of significant volatility and uncertainty in global capital
markets is a demonstration of significant support for
emeco’s business model and the future prospects of
the Company.
the recently secured facility now provides emeco a stable
funding platform with significant headroom to pursue the
growth strategy and opportunities arising in our markets.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
acceptable risk profiles. for the time being we will not be
undertaking any major new geographic step outs as we
are confident we can achieve an acceptable level of growth
from our current platform.
the near term outlook remains challenging as there is
still some significant uncertainty as to how the sub prime
mortgage crisis will effect the main stream economy.
however, predictably we are witnessing the counter cyclical
resilience of emeco’s business model with increased
enquiry levels from capital constrained customers who
do not have the capability to meet their equipment needs
through internal funding or do not have the confidence to
acquire such long life assets for their shorter term needs.
notwithstanding these uncertainties, we are encouraged by
the level of utilisation of our asset base as we completed
fy08 and entered the new financial year and feel confident
we can deliver an improvement on last year’s performance.
lAurie FreedMAn
Managing Director
investing in our people
while we have made significant improvements to our
safety and environmental management in the past few
years, we remain committed to continuously improving our
performance and capability in these critical areas. During
the year we engaged ifap, a well known occupational
health and safety consulting organisation, to conduct an
independent audit of our safety, health and environmental
management systems in australia. the results of the
audit provided us with comfort that we are on the right
track, however, we are always looking to improve our
performance and ifap has provided us with a detailed
report on improvement opportunities which we are
currently implementing.
each of our international businesses has their own safety,
health and environmental management strategic plans
which local management is responsible for implementing
and monitoring.
given the significant increase in the number of employees
over the last couple of years, we engaged a senior human
resources professional in february 2008 who has been
charged with the responsibility of building a small human
resource management advisory group to support our
front line personnel. after a few months we are already
witnessing the benefits of this approach.
the future
the over riding strategic and operational focus for the
coming year will be on extracting more from our existing
geographic footprint and installed asset base. we will be
particularly focused on improving both the quantum and
quality of our profitability across all of our businesses and
enhancing the sustainability of our international businesses.
we envisage that the bulk of our growth will come from
organic initiatives based on our existing global presence.
we will, however, be on continual watch for bolt-on
acquisitions which are value accretive, provide additional
critical mass to existing geographies and possess
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
review oF operations
cAnAdA
the emeCo group
a$m
revenue
eBitDa
eBita
npata
npat
fy07 (1)
554.4
207.3
128.5
78.2
74.7
fy08
617.9
213.5
120.3
68.6
67.5
rental machines
sales machines
1,013 units
573 units
1,071 units
672 units
yoy%
11.4
3.0
(6.4)
(12.3)
(9.6)
5.7
17.3
(1) The financial results set out in this and the following tables and discussed below have been prepared using
pro-forma actual FY07 year results for the Emeco Group. These pro-forma actual FY07 were reported in
Emeco’s annual report for the FY07 and were derived by adjusting reported actual results set out in the
statutory financial information. These adjustments have been made to add back the non recurring costs of
the IPO in July 2006 which were incurred during FY07, with appropriate tax adjustments.
uSA
the group’s revenue for fy08 of $617.9 million was up 11.4% and eBita of $120.3 million was
down 6.4% as compared to fy07. this decrease in eBita was driven predominantly by lower
utilisation across the rental businesses including adverse impacts in Queensland and new
south wales due to weather related disruptions, infrastructure constraints on mine output,
and 1h08 underperformance from the international businesses. profit on sale of rental assets
(posa) also reduced from $11.7 million in fy07 to $9.5 million in fy08. npat declined 9.6%
from $74.7 million to $67.5 million due to the eBita factors above and increased borrowing
costs arising from higher indebtedness due to growth in funds employed in fy08.
eBita margins declined to 19.5% for the year ended 30 June 2008 as compared to 23.2% for
the previous corresponding period. the major reason for this decline in margin is the result
of lower utilisation in the various regions whilst costs increased due to business growth. in
addition, underutilised rental fleet due to operational disruptions attracted minimum hour
depreciation charges without associated revenue further impacting margins. the reduction in
posa also had an adverse impact on eBita margins in fy08.
Depreciation increased by 18.3% to $93.2 million for the year ended 30 June 2008 as
compared to the previous corresponding period. the increase in depreciation is primarily
due to the increase in the rental fleet from 1,013 machines as at 30 June 2007 to 1,071
machines as at 30 June 2008.
amortisation expense decreased by 68.6% to $1.1 million for the year ended 30 June 2008.
emeCo operating segments
a$m
revenue
rental
sales
parts & maintenance
eBiTA
rental
sales
parts & maintenance
fy07
554.4
318.9
191.0
44.5
128.5
117.0
8.0
3.5
fy08
617.9
368.9
210.6
38.4
120.3
107.6
8.6
4.1
yoy%
11.4
15.7
10.3
(13.7)
(6.4)
(8.0)
7.5
17.1
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
eurOPe
indOneSiA
AuSTrAliA
geographiC highlights
Australia
a$m
revenue
eBitDa
eBita
fy07
418.9
165.1
106.6
fy08
459.5
168.8
100.4
rental machines
553 units
582 units
sales machines
281 units
324 units
yoy%
9.7
2.2
(5.8)
5.2
15.3
emeco’s australian business delivered a 9.6% increase
in revenue year-on-year through the increased size of
its rental fleet and the strong demand for equipment
purchases experienced in the sales business. Despite
the higher revenue, eBitDa and eBita was flat due to a
range of factors including lower rental fleet utilisation,
higher contribution of lower margin equipment sales and
increasing costs due to emeco’s growth without revenue
from expected higher rental utilisation.
emeco’s australian rental business was adversely impacted
mid year by severe weather conditions and infrastructure
capacity constraints in both major coal producing regions
in Queensland and nsw, however both of these regions
returned to high utilisation in the last quarter of fy08. the
rental business achieved substantial growth in penetration
of the wa iron ore sector and the kalgoorlie gold / nickel
regions during the year.
the australian sales business performed above
expectations for fy08 and experienced a particularly
strong second half as a result of machines acquired at
attractive prices in the first half of fy08 being disposed
of in the second half. in line with this strong second half
performance, sales inventory declined from 292 machines
at 31 December 2007 to 214 machines at 30 June 2008.
the outlook for emeco’s australian rental and sales
businesses remains positive though we continue to monitor
closely the effects of market developments on our installed
client base.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
review oF operations
(ContinueD)
Indonesia
a$m
revenue
eBitDa
eBita
fy07
27.5
21.6
10.6
fy08
23.8
18.5
9.8
rental machines
116 units
129 units
yoy%
(13.5)
(14.4)
(7.5)
11.2
Canada
a$m
revenue
eBitDa
eBita
fy07
39.8
22.5
14.3
fy08
51.7
27.8
15.5
rental machines
281 units
277 units
yoy%
29.9
23.6
8.4
(1.4)
emeco’s indonesian subsidiary, pt prima traktor indonusa
(pti) experienced ongoing softness in the indonesian
rental market during the first half of fy08 with low levels of
utilisation laying the foundation for a 7.5% decline in eBita
from fy07 to fy08. however, in the second half of fy08
pti experienced a strong increase in demand for its rental
offering, due to the combination of increased coal mining
activity from higher coal prices and the re-emergence of
international mining contractors operating in the region.
Based on the second half performance of pti which was
underpinned by strong market fundamentals, positive
earnings performance is expected to continue for this
business into fy09.
the emeco group’s Canadian business grew its revenue
by 30% through a continued focus on the more capital
intensive mining equipment and away from lower utilised
civil gear. whilst the number of units at 30 June 2008
declined marginally from 281 to 277, the value of the rental
fleet increased by 17%. the strong utilisation in mining
equipment was partially impacted by a slow down in the
civil construction and conventional oil and gas markets.
while oil sands remain the engine for emeco’s growth
in the Canadian market place, emeco continues to
diversify its customer base by expanding into the coal
market in western Canada. emeco has further broadened
its geographic footprint by establishing offices in the
province of saskatchewan and in the northwest section of
alberta. the development of its previously announced
facility in the fort mcmurray oil sands region is
progressing as planned. emeco expects to return to higher
utilisation in its civil fleet with the resurgence in the natural
gas markets and the announcement of major infrastructure
projects in northern alberta.
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United States
Europe
a$m
revenue
eBitDa
eBita
fy07
45.2
(1.9)
(2.9)
fy08
43.2
(1.0)
(4.1)(1)
rental machines
57 units
75 units
(4.4)
47.4
(41.4)
31.6
yoy%
a$m
revenue
eBitDa
eBita
fy07
23.0
0.0
(0.1)
fy08
39.6
(0.6)
(1.3) (1)
8 units
yoy%
72.2
-
-
33.3
rental machines
6 units
(1)
Includes one-off impairment charge of $1.1M for slow moving Parts
(1)
inventory.
Includes provision for doubtful debt expense of $1.8M relating to a
specific equipment purchase transaction.
the european business experienced a softening in
trading conditions during the second half of fy08, as the
strength of the euro decreased the attractiveness of export
opportunities outside the eu. inside the eu, tightening of
monetary policy and associated slowing in growth in the
major economies also impacted on revenue.
to mitigate the impact of these factors, emeco developed
its rental capacity further during fy08 and continued to
explore markets for trading opportunities in eastern europe.
we see continued growth of sales opportunities in eastern
european and middle east markets in fy09.
emeco usa is comprised of 3 businesses: rental, used
equipment sales and used parts sales. the parts and
equipment sales businesses have generally been profitable
since emeco usa was incorporated and have remained
so throughout fy08. this has resulted in the expansion of
these businesses since the date of incorporation. in January
2008 emeco usa acquired wildcat tractor Company llC a
parts trading business based in kentucky, contributing solid
earnings to the business since its acquisition. however, as
part of the asset value review, a one-off impairment charge
for slow moving parts inventory was recognised during 2h08.
in the second half of fy08, the rental business gained
significant traction due to increased mining activity in the
appalachian coal region driven by higher coal prices. this
improving earnings performance was also attributable to
establishment of a quality workshop facility in kentucky, the
recruitment of experienced management and operational
personnel, and the ongoing development of emeco’s brand
in the region.
the outlook for emeco usa’s rental and parts businesses is
positive as these are primarily correlated to activity in the
appalachian coal region, however the equipment trading
business will continue to be challenged by the broader
economic issues throughout the usa during fy09.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
review oF operations
(ContinueD)
Capital expenDiture anD funDs employeD
a$m
gross capital expenditure
maintenance
Disposals
net maintenance capex
growth
net working capital movement
funds employed (year end)
rofe eBitDa %
rofe eBita %
fy07
243.2
60.3
(47.3)
13.0
182.9
72.0
782.3
27.8%
17.3%
fy08
228.4
121.6
(43.8)
77.8
106.8
4.2
843.3
24.7%
14.0%
yoy%
(6.1)
101.7
(7.4)
498.5
(41.6)
(94.2)
7.8
-
-
gross capital expenditure for the year ended 30 June 2008 was $228.4 million. of this total,
net maintenance capital expenditure was $77.8 million. as we have stated previously,
net maintenance capital expenditure reflects expenditures on maintaining existing fleet
(including significant rebuilds and purchases) offset by disposals.
growth capital expenditure was $106.8 million and was primarily driven by organic growth
in the australian fleet, the change in Canadian rental fleet from civil to mining equipment
and further build out in the us. the us and Canadian capital expenditures reflected our
efforts to achieve scale in the us business and shift the fleet composition of the Canadian
fleet and were structural in nature. Current utilisation levels by value in the us and Canada
sit at 80% and 70% respectively, up from 43% and 47% in December. on a go forward
basis growth capital expenditures will return to more conservative levels and reflect
management’s focus on significantly improving group rofe.
eBitDa rofe of 24.7% and eBita rofe of 14.0% in the year ended 30 June 2008 are below
historical averages due mainly to short term market events which significantly impacted
fleet utilisation, ramp up of offshore businesses and the growth of funds employed in both
the rental fleet and sales inventory. improved earnings through higher utilisation and the
reduction of working capital in 2h08 which contributed to lower funds employed, translated
into improving rofe in the final quarter of fy08. the firm focus of management remains on
continuing to improve capital efficiency within the business and restoring eBita rofes to
historical levels.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
XXXXXXXXXXXXXXX
xxxxxxxxxxxxxxxxx
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
the emeco boarD
from left to right
Stephen Gobby
Chief financial officer
robin Adair
executive Director, Corporate strategy & Business Development
Greg Minton
independent non-executive Director
Alec Brennan
Chairman and independent non-executive Director
laurie Freedman
managing Director
Paul Mccullagh
independent non-executive Director
Peter Johnston
independent non executive Director
Michael Kirkpatrick
general Counsel & Company secretary
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Financial report
DireCtors’ report
Company seCretary
DireCtors’ meetings
Corporate governanCe statement
nature of operations anD prinCipal aCtivities
operating anD finanCial review
DiviDenDs paiD or to Be paiD
signifiCant Changes in state of affairs
signifiCant events after BalanCe Date
likely Developments anD expeCteD results
DireCtors interest in shares of the Company
remuneration report (auDiteD)
inDemnifiCation anD insuranCe of DireCtors,
offiCers anD auDitors
non-auDit serviCes
rounDing
leaD auDitor’s inDepenDenCe DeClaration
inCome statements
BalanCe sheets
statements of reCogniseD inCome anD expense
statements of Cash flows
notes to the finanCial statements
DireCtors’ DeClaration
inDepenDent auDitors’ report
shareholDer information
Company DireCtory
20
21
21
22
28
28
28
28
28
28
29
29
40
40
40
41
42
43
44
45
46
103
104
106
108
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Directors’ report
for the year enDeD 30 June 2008
the directors of emeco holdings limited (“emeco” or “the Company”) present their report together with the financial
reports of the consolidated entity, being emeco and its controlled entities (“the emeco group” or “the Consolidated
entity”) for the financial year ended 30 June 2008 (“fy08”).
direcTOrS
the directors of the Company during or since the end of the financial year are:
Alec Brennan
(Age 61), Chairman and Independent Non-Executive Director
alec was appointed an independent, non-executive Director in august 2005 and Chairman from 28 november 2006.
alec was Chief executive officer of Csr until march 2007. alec holds an mBa from City university, london and a Bsc
from the university of nsw. he is Chair of tomago aluminium pty ltd and of ppi Corporation pty ltd, a fellow of the
senate of sydney university and a director of garvan research foundation.
Greg Minton
(Age 46), Independent Non-Executive Director
greg was appointed as an independent, non-executive Director and also as Chairman of the Board in December 2004.
greg resigned as Chairman with effect from 28 november 2006.
greg is managing partner of archer Capital and has been since 2000 after having spent six years in senior general
management roles with Csr. prior to his involvement with Csr, greg was a management consultant with mckinsey & Co
in australia, scandinavia and the uk. greg is a Director of BJBall holdings (nZ) ltd, the Chairman of one source group
limited (nZ), leasing solutions limited (nZ) and a former Director of reD paper group, repco pty limited and hirequip
limited (nZ) and former Chairman of inova pharmaceuticals pty ltd. greg holds a master of Business administration from
imD, switzerland, a Bachelor of engineering and a Bachelor of economics from the university of Queensland.
laurie Freedman
(Age 59), Managing Director
laurie was appointed managing Director of emeco holdings limited in January 2005, but has been managing Director of
emeco’s business since 1999.
laurie has over 37 years experience in the building, construction materials and contracting industries both in australia and
overseas, including senior management roles with Csr in hong kong, China and the united states. laurie was a Director
and Chief executive officer of awp Contractors, contract miners, for five years before joining emeco in april 1999. in
his capacity as managing Director of emeco’s business, he has overseen a business development strategy under which
the group grew substantially in the last five years. laurie holds a Bachelor of Civil engineering from Curtin university,
is a member of the institute of engineers australia, a fellow of the institute of Quarrying - australia, an associate of the
australian institute of management and a member of the australian institute of Company Directors.
robin Adair
(Age 47), Executive Director, Corporate Strategy & Business Development
robin was appointed executive Director, Corporate strategy and Business Development on 4 march 2008. robin was Chief
financial officer of the Company from January 2005 until his appointment to his current role.
robin has 15 years commercial experience across a breadth of business units within the Csr group. after spending 12
months as Chief financial officer of Beltreco, he joined emeco’s business as Chief financial officer in october 2000. robin
has been responsible for a number of business evaluations, start-ups, acquisitions, joint ventures, disposals, and business
and system improvements over this period. his international experience includes engagements in taiwan, indonesia,
thailand and the united states. robin holds a Bachelor of Business (accountancy) from university of south australia and
a master of Business administration from Deakin university and is a Certified practising accountant.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Paul Mccullagh
(Age 56), Independent Non-Executive Director
paul was appointed as an independent, non-executive Director in December 2004.
paul is a founding managing Director at pacific equity partners (“pep”) and his current portfolio of board positions include
xtralis group holdings limited and link administration holdings pty limited. prior to founding pep, paul was the managing
director of salomon Brothers australia. paul was also previously head of australasia for prudential securities. he has been
active in australasia since 1986 and has a wide range of transaction experience. paul holds a Bachelor of Commerce and
a master of Business studies from university College, Dublin, and is a fellow of the institute of Chartered accountants in
england, ireland
and wales. paul is also a member of the institute of Chartered accountants in australia.
Peter Johnston
(age 57), independent non executive Director
peter was appointed as an independent, non-executive Director commencing 1 september 2006.
peter is currently managing Director and Ceo of minara resources limited, a position he has occupied since november
2001. peter was employed in various senior roles with wmC ltd from 1993 to 2001. peter holds an arts degree from the
university of western australia. he is a past president and current council member of the western australian Chamber
of minerals and energy, a fellow of the australasian institute of mining and metallurgy, a board member of the minerals
Council of australia and also the australian mines and metals association.
cOMPAnY SecreTArY
michael kirkpatrick was appointed to the position of Company secretary in april 2005. michael has previously worked as
legal counsel and company secretary of westscheme, a large industry superannuation fund, and as a corporate lawyer with
national law firms freehills and Blake Dawson. michael holds bachelors degrees in arts and economics from the university
of western australia and a law degree with merit honours from murdoch university.
direcTOrS’ MeeTinGS
the number of meetings of the directors held during the year and the number of meetings attended by each of the directors
of the board and committees is outlined in the table below.
Table 1 – directors’ attendance
director
Board Meetings
greg minton
paul mcCullagh
laurie freedman
robin adair
alec Brennan
peter Johnston
stuart fitton
a
13
10
13
12
13
13
1
B
13
13
13
13
13
13
1
Audit & risk Management
committee
remuneration & nomination
committee
a
3
3
**
**
2
**
**
B
3
3
**
**
2
**
**
a
1
**
**
**
1
1
**
B
1
**
**
**
1
1
**
a – number of meetings attended
B – number of meetings held during the time the director held office during the year
** not a member of this committee
mr fitton resigned on 17th august 2007
mr Brennan was appointed to the audit & risk Committee on 29th august 2007
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Directors’ report
for the year enDeD 30 June 2008 (ContinueD)
cOrPOrATe GOvernAnce STATeMenT
under asx listing rule 4.10.3, the Company is required to include in its annual report a statement disclosing the extent to which it
has followed the principles of good corporate governance (ASX Principles) and associated best practice recommendations set by
the asx Corporate governance Council (ASX Best Practice recommendations).
emeco has elected to make an early transition to the revised asx principles and asx Best practice recommendations adopted
by the asx Corporate governance Council to take effect from 1 January 2008. accordingly this corporate governance statement
reports on the emeco group’s current corporate governance practices and policies by reference to those revised principles and
recommendations.
PrinciPle 1 lay solid foundations for management and oversight
roles and responsibilities of the Board and management
the Board has adopted a Charter that details its functions and responsibilities.
the Charter sets out the responsibilities of:
•
•
•
the Board;
individual directors; and
the Chairman.
under the Charter the Board is accountable to the shareholders for the overall performance of the Company and the management
of its affairs. key responsibilities of the Board include:
• developing and approving corporate strategy;
• evaluating, approving and monitoring the strategic and financial plans and objectives of the Company;
• determining dividend policy and the amount and timing of all dividends;
• evaluating, approving and monitoring major capital expenditure, capital management and all major acquisitions,
divestitures and other corporate transactions, including the issue of securities;
• evaluating and monitoring annual budgets and business plans;
• approving all accounting policies, financial reports and external communications by the Emeco Group;
• appointing, monitoring and managing the performance of executive directors.
the Charter sets a minimum number of Board meetings and provides for the establishment of the audit and risk Committee
and the remuneration and nomination Committee. the Charter also sets minimum standards of ethical conduct of the directors,
which are further elaborated on in the Company’s Code of Conduct, and specifies the terms on which directors are able to obtain
independent professional advice at the Company’s expense.
a copy of the Board Charter is available on the emeco website.
evaluating the performance of senior executives
the performance of the managing Director is constantly monitored by the non-executive directors.
formal reviews of the performance of each senior executive within the emeco group are conducted by the managing Director
in august/september each year. these performance reviews provide the managing Director and each senior executive with the
opportunity not only to review the executive’s performance against a range of financial and operational benchmarks but also to
review and assess the manager’s personal and professional development objectives. a review of the performance of each senior
executive was undertaken during fy08.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
PrinciPle 2
Structure the Board to add value
Skills, experience and expertise of the directors
the directors consider that collectively they have the relevant skills, experience and expertise to fulfil their obligations to the
Company, its shareholders and other stakeholders.
the directors and a brief description of their skills and experience are set out at pages 20 & 21 of this report.
Status of the directors
the table below sets out details of the status of each of the directors as independent or non-executive directors, their date
of appointment and whether they are seeking re-election at the 2008 agm of the Company.
Table 2 – Status of the directors
Director
Date of appointment
independent
non-executive
seeking re-election at 2008 agm
mr robin adair
mr alec Brennan
21 January 2005
16 august 2005
mr laurie freedman
21 January 2005
mr peter Johnston
1 september 2006
mr paul mcCullagh
23 December 2004
mr greg minton
14 December 2004
no
yes
no
yes
yes
yes
no
yes
no
yes
yes
yes
yes
yes
no
no
no(1)
no
(1) subsequent to the Company providing its annual report to the asx on 26 august 2008, mr mcCullagh advised that he
would not be seeking re-election at the 2008 agm and that he would therefore retire with effect from the conclusion of
the agm.
mr Brennan, mr Johnston, mr mcCullagh and mr minton are independent directors. mr fitton was also an independent
director. the Company therefore complies with asx Best practice recommendation 2.1. mr mcCullagh and mr minton are
considered to be independent directors because, whilst they are associates of certain shareholders of the Company, each of
the shareholder groups with which they are associated holds less than 5% of the Company’s ordinary shares. under clause
3.5(a) of the Board Charter, for the purposes of determining the independence of a director, a substantial shareholder is one
who holds 10% or more of the issued shares of the Company.
mr Brennan is the chairperson of the board and the Company therefore complies with asx Best practice recommendation 2.2.
directors’ retirement and reappointment
under the terms of the Company’s constitution, a director other than the managing director must retire from office or seek
re-election by no later than the third annual general meeting after their appointment or after 3 years, whichever is the longer.
at least one director must retire from office at each annual general meeting, unless determined otherwise by a resolution of
the Company’s shareholders.
messrs adair and Brennan will seek reappointment at the 2008 annual general meeting.
Procedure for taking professional advice
under the Board Charter a director is entitled to seek professional advice at the Company’s expense on any matter
connected with the discharge of their duties in accordance with the procedure set out in the Charter, a copy of which is
available on the emeco website.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Directors’ report
for the year enDeD 30 June 2008 (ContinueD)
PrinciPle 2
Structure the Board to add value (continued)
remuneration and nomination committee
the Company has established a remuneration and nomination Committee, the responsibilities of which include:
•
critically reviewing the performance and effectiveness of the Board and its individual members;
• periodically assessing the skills required to discharge the Board’s duties, having regard to the strategic direction of
the Company; and
•
reviewing the membership and performance of other Board committees and make recommendations to the Board.
members of the remuneration and nomination Committee are mr Brennan (Chair), mr minton and mr Johnston.
the charter of the remuneration and nomination committee is available on the emeco website.
Process for evaluating the board, its committees and directors
a review of the performance of the Board was completed in June 2008 by the Chairman with the assistance of the
remuneration and nomination Committee. the review was undertaken using a comprehensive questionnaire, the
scope of which covered the performance of the board, its committees, the Chairman and individual directors. Directors’
questionnaire responses (other than in relation to the Chairman) were collated and analysed by the Chairman and,
where appropriate, discussed with the board. an analysis of the questionnaire results was presented to the board by the
Chairman. in relation to the Chairman, directors’ questionnaire responses were collated and analysed by the managing
Director and discussed with the Board.
PrinciPle 3
Promote ethical and responsible decision making
the Company considers that confidence in its integrity can only be achieved if its employees and officers conduct
themselves ethically in all of their commercial dealings on the Company’s behalf. the Company has therefore recognised
that it should actively promote ethical conduct amongst its employees, officers and contractors.
the Company has adopted a Code of Conduct and a share trading policy. the Code of Conduct and the share trading
policy apply to all directors, officers, employees, consultants and contractors of the Company and its subsidiaries.
The code of conduct
the objectives of the Code of Conduct are to ensure that:
• high standards of corporate and individual behaviour are observed by all employees in the context of their
employment with the Company or a subsidiary;
• employees are aware of their responsibilities under their contract of employment and always act in an ethical and
professional manner; and
• all persons dealing with Emeco, whether it be employees, shareholders, suppliers, clients or competitors, can be
guided by the stated values and practices of emeco.
under the Code of Conduct, employees of the emeco group must, amongst other things:
• act honestly and in good faith at all times and in a manner which is in the best interests of the Company as a whole;
•
conduct their personal activities in a manner that is lawful and avoids conflicts of interest between the employee’s
personal interests and those of the Company;
• always act in a manner that is in compliance with the laws and regulations of the country in which they work; and
•
report any actual or potential breaches of the law, the Code of Conduct or the Company’s other policies to the
Company secretary.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
the Company actively promotes and encourages ethical behaviour and protection for those who report violations of the
Code or other unlawful or unethical conduct in good faith. the Company ensures that employees are not disadvantaged in
any way for reporting violations of the Code or other unlawful or unethical conduct and that matters are dealt with promptly
and fairly.
The Share Trading Policy
the share trading policy is specifically designed to raise awareness of, and minimise any potential for breach of, the
prohibitions on insider trading contained in the Corporations act 2001. the policy is also designed to minimise the chance
that misunderstandings or suspicions arise regarding employees trading while in possession of non-public price sensitive
information by imposing restrictions on employees and officers in relation to the trading of the Company’s shares.
Copies of the Code of Conduct and the share trading policy are available on the emeco website.
PrinciPle 4
Safeguard integrity in financial reporting
the Board has established an audit & risk Committee to support and advise the Board in fulfilling its responsibilities to
shareholders, employees and other stakeholders of the Company by:
• assisting the Board in fulfilling its oversight responsibilities for the financial reporting process, the system of internal
control relating to all matters affecting the Company’s financial performance, the audit process, and the Company’s
process for monitoring compliance with laws and regulations and the code of conduct; and
•
implementing and supervising the Company’s risk management framework.
members of the audit and risk Committee during the 2007/2008 financial year were mr mcCullagh (Chair), mr minton and
mr Brennan.
the audit & risk Committee Charter sets out the role and responsibilities of the Committee and is available on the
emeco website.
Details regarding membership of the Committee are set out above. During fy08, the Committee comprised three
independent non-executive directors all of whom have financial expertise. Details of the qualifications of the members of
the Committee are set out at pages 20 & 21 of this report. During fy08, the Committee met 3 times. all current members
of the Committee were present for each of these meetings other than mr Brennan who was appointed to the Committee in
august 2007 following the departure of mr fitton, who attended 2 of the 3 meetings.
PrinciPle 5 Make timely and balanced disclosure
the Company is committed to complying with its continuous disclosure obligations under the asx listing rules
and disclosing to investors and other stakeholders all material information about the Company in a timely and
responsive manner.
the Company has adopted a Continuous Disclosure policy which is available on the emeco website.
the Continuous Disclosure policy specifies the processes by which the Company ensures compliance with its continuous
disclosure obligations. the policy sets out the internal notification and decision making procedures in relation to these
obligations, and the roles and responsibilities of the Company’s officers and employees in the context of these obligations.
it emphasises a pro-active approach to continuous disclosure and requires the Company to comply with the spirit as well as
the letter of the asx continuous disclosure requirements.
the policy specifies the Company representatives who are authorised to speak publicly on behalf of the Company and
procedures for dealing with analysts. it also sets out how the Company deals with market rumour and speculation.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Directors’ report
for the year enDeD 30 June 2008 (ContinueD)
PrinciPle 6
respect the rights of shareholders
the Company acknowledges the importance of effective communication with its shareholders and encourages their
effective participation at general meetings.
all public announcements are posted on the emeco website after they have been released to the asx. the Company also
places the full text of notices of meetings and explanatory material on the website.
the Company offers a number of options to shareholders in relation to electronic communications. shareholders can
elect to receive notification by email when payment advices, annual reports and notices of meetings and proxy forms are
available on line. they can also elect to receive email notification of important announcements.
shareholders are given an opportunity to ask questions of the directors at the Company’s general meetings. the Company
provides its auditor with notice of general meetings of the Company, as is required by section 249k of the Corporations Act
2001. the Company also requests its auditor to attend its annual general meetings and be available to answer shareholder
questions about the conduct of the audit and the preparation and content of the auditor’s report.
PrinciPle 7
recognise and manage risk
the Company accepts that risk is an unavoidable part of the emeco group’s activities. however, the Company actively
manages risk in order to optimise outcomes for shareholders and other stakeholders and ensure the integrity of the
group’s financial statements.
the Board of the Company has adopted a risk management policy which describes:
•
•
•
the principal risks for the Emeco Group;
the Group’s risk management framework and controls; and
the role and respective accountabilities of the Board, the Audit and Risk Committee and Emeco Group management
within the risk management framework.
the audit and risk Committee is responsible for reviewing the effectiveness of the overall risk management framework. it
is also required to review the risk management policy on an annual basis.
emeco has established a group corporate assurance unit to assist management to ensure the emeco group’s risk
management and internal control systems are operating effectively. the internal assurance process is undertaken by the
Corporate assurance manager who will provide assurance to the audit and risk Committee and the Board regarding the
effectiveness of the emeco group’s risk management, governance and control frameworks.
for fy08, the Board has received an assurance from the managing Director and the Chief financial officer that the
declaration provided in accordance with s.295a of the Corporations Act 2001 is founded on a sound system of risk
management and internal control and that the system is operating effectively in all material respects in relation to financial
reporting risks. management has also reported to the Board that the emeco group’s risk management and internal
compliance and control system is operating efficiently and effectively in all material respects.
the risk management policy is available on the emeco website.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
PrinciPle 8 remunerate fairly and responsibly
the emeco group remuneration policy is substantially reflected in the objectives of the remuneration and nomination
Committee. the Committee’s remuneration objectives are to endeavour to ensure that:
•
•
•
the Directors and senior management of the Group are remunerated fairly and appropriately;
the remuneration policies and outcomes strike an appropriate balance between the interests of the Company’s
shareholders, and rewarding and motivating the group’s executives and employees in order to secure the long term
benefits of their energy and loyalty; and
the human resources policies and practices are consistent with and complementary to the strategic direction and
human resources objectives of the Company as determined by the Board.
under its Charter, the remuneration and nomination Committee is required to review and make recommendations to the
Board about:
•
•
•
•
•
the general remuneration strategy for the Group so that it motivates the Group’s executives and employees to
pursue the long term growth and success of the group and establishes a fair and transparent relationship between
individual performance and remuneration;
the terms of remuneration for the executive Directors and other senior management of the Group from time to time
including the criteria for assessing performance;
the outcomes of remuneration reviews for executives collectively, and the individual reviews for the executive
Directors, and other senior management of the group;
remuneration reviews for executive and non-executive Directors;
changes in remuneration policy and practices, including superannuation and other benefits;
• employee equity plans and allocations under those plans; and
•
the disclosure of remuneration requirements in the Company’s public materials including ASX filings and the
annual report.
Details regarding membership of the remuneration and nomination Committee are set out above under principle 2. During
fy08, the Committee met once. all members of the Committee were present for the meeting.
emeco clearly distinguishes the structure of non-executive directors’ remuneration from that of executive directors
and senior executives. non-executive directors are remunerated by way of fees in the form of cash benefits and
superannuation contributions. they do not receive options or bonus payments; nor are they provided with retirement
benefits other than superannuation.
a remuneration report detailing the information required by section 300a of the Corporations Act 2001 in relation to fy08 is
included in the Directors’ report.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Directors’ report
for the year enDeD 30 June 2008 (ContinueD)
nATure OF OPerATiOnS And PrinciPAl AcTiviTieS
the principal activities during the financial year of the entities within the emeco group were the rental, sales, parts and
maintenance of heavy earthmoving equipment.
as set out in this report, the nature of the emeco group’s operations and principal activities, have been consistent
throughout the financial year.
OPerATinG And FinAnciAl review
a review of emeco group operations, and the results of those operations for fy08, is set out on pages 4 to 16 and in the
accompanying financial statements.
dividendS PAid Or TO Be PAid
During the 2007/2008 financial year a fully franked interim dividend of 2 cent per share was paid on 4 april 2008 by the
Company.
since the end of the 2007/2008 financial year the directors have declared a fully franked final dividend of 2.5 cents per share
to be paid on 30 september 2008.
SiGniFicAnT chAnGeS in STATe OF AFFAirS
During the financial year under review there were no significant changes in the emeco group’s state of affairs other than
those disclosed in the operating and financial review section above or in the financial statements and the notes thereto.
SiGniFicAnT evenTS AFTer BAlAnce dATe
on 15 august 2008 the Company finalised the refinancing of the emeco group’s senior debt facilities. the group secured
a revolving 3 year $595 million senior secured debt facility provided by a syndicate of eight domestic and international
banks, and a $35 million working capital facility.
these new facilities replace the existing $490 million senior secured debt facility and $25 million working capital facility
which were to mature in July 2009.
liKelY develOPMenTS And eXPecTed reSulTS
likely developments in, and expected results of, the operations of the emeco group are referred to at pages 4 to 16. this
report omits information on likely developments in the emeco group in future financial years and the expected results of
those operations the disclosure of which, in the opinion of the directors, would be likely to result in unreasonable prejudice
to the emeco group.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
direcTOrS inTereST in ShAreS OF The cOMPAnY
the relevant interests of each Director in the shares, debentures, and rights or options over such shares or debentures
issued by the companies within the emeco group and other related bodies corporate, as notified by the directors to the
asx in accordance with s.205g(1) of the Corporations Act 2001, at the date of this report are as follows:
Table 3 – directors’ interests
director
greg minton
laurie freedman
robin adair
alec Brennan
peter Johnston
paul mcCullagh
Ordinary shares
361,267
19,000,000
6,100,000
1,381,420
100,000
216,707
Options over ordinary shares
-
4,800,000*
1,600,000*
-
-
-
* with effect from 26 august 2008, mr freedman forfeited 1,600,000 options and mr adair forfeited 533,333 options.
these forfeitures occurred because, under the terms of the options plan, the Company’s earnings per share target for
fy08 was not achieved. for further details, see pages 32 to 33 of this report.
reMunerATiOn rePOrT (AudiTed)
this report summarises the emeco group’s remuneration practices and outcomes in respect of its directors and senior
executives for the 2008 financial year.
Principles of remuneration
the emeco group remuneration policy is substantially reflected in the objectives of the Board’s remuneration and
nomination Committee. the Committee’s objectives are to endeavour to ensure that:
•
•
•
the Directors of the Company and senior management of the group are remunerated fairly and appropriately;
the remuneration policies and outcomes of the Company strike an appropriate balance between the interests of the
Company’s shareholders, and rewarding and motivating the group’s executives and employees in order to secure
the long term benefits of their energy and loyalty; and
the human resources policies and practices are consistent with and complementary to the strategic direction and
human resources objectives of the Company as determined by the Board.
elements of remuneration
the remuneration structure for emeco’s executives consists of fixed and variable components.
Fixed remuneration
fixed remuneration comprises base salary, employer superannuation contributions and other allowances such as motor
vehicle allowances and non-cash benefits.
each executive’s fixed remuneration is reviewed and benchmarked against appropriate market comparisons annually in
september. the executive’s responsibilities, experience, qualifications, performance and geographic location are also taken
into account.
29
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Directors’ report
for the year enDeD 30 June 2008 (ContinueD)
emeco’s broad objective is to set fixed remuneration at levels which ensure the Company is able to attract and retain the best
available key executives. the policy of the Company is to set fixed remuneration at levels which attract and retain appropriately
qualified and experienced executives capable of:
•
fulfilling their respective roles within the group;
• achieving the group’s strategic objectives; and
• maximising emeco group earnings and the returns to shareholders.
variable remuneration
variable remuneration is performance linked remuneration which consists of short term incentives (STis) and long term
incentives (lTis).
STi remuneration
short term incentives are used to reward the performance of key management personnel over a full financial year. the maximum
achievable sti amount payable to an executive is set as a percentage of fixed remuneration. the actual amount of sti payable is
determined at the end of the financial year in light of the executive’s performance against agreed key performance
indicators (KPis).
these kpis are mainly financial in nature and are aligned to the profitability of the emeco group. however, some of them relate to
non financial performance in areas considered critical to emeco’s operations such as:
• occupational health and safety;
• people development; and
•
successful implementation of strategic initiatives.
the combination of kpi elements varies amongst executives, however, as a fundamental principle, kpis are set for each
executive’s sti plan on the basis they are aligned with the strategic objectives of the emeco group. kpis therefore generally
comprise elements based on the performance of the emeco group or a business unit within the group. in most cases the
measurement of kpis is objectively determined on the basis of financial information or other quantifiable information. for
example, where occupational health and safety performance is a kpi element, an important measure of performance is lost time
injury frequency data.
whilst the maximum percentage sti grant to key executives varies, no executive other than the managing Director and the
executive Director, Corporate strategy and Business Development is entitled to an sti grant which exceeds an amount equal to
50% of the recipient’s annual salary. the majority of key executives are entitled to a maximum sti grant of 40% of annual salary.
in accordance with the terms of their respective sti plans, mr freedman and mr adair did not receive any proportion of their
respective sti bonus entitlements for fy08 because actual earnings per share did not exceed the required earnings per share
target. Details of the sti plans for mr freedman and mr adair are set out in the section of this report headed “service Contracts”.
30
31
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Details of the vesting profile of the short term incentive cash grants awarded to key executives in respect of fy08 are set
out below:
Table 4 – Key executive STi vesting information in respect of FY08
mr l freedman
mr r adair
mr m Bourke
mr a Carr
mr h Christie-Johnston
mr g graham
mr C moseley
mr t sauvarin
mr i testrow
mr D tilbrook
mr m turner
notes:
nature of
STi compensation
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Cash
Grant
date
27 august 2006
27 august 2006
1 october 2007
1 october 2007
1 october 2007
1 october 2007
1 october 2007
1 october 2007
1 october 2007
1 october 2007
1 october 2007
% of
bonus awarded
0%
0%
0%
10%
100%
0%
0%
0%
22.7%
20.8%
16.7%
% of
bonus forfeited
100%
100%
100%
90%
0%
100%
100%
100%
77.3%
79.2%
83.3%
(a)
amounts included in remuneration for fy08 represent the amounts that vested in the year based on the achievement
of kpis. no amounts vest in future financial years in respect of the bonus scheme for fy08.
(B)
amounts forfeited are due to the kpis not being met in relation to fy08.
(C) mr s gobby, having commenced employment in march 2008 with the Company, was not entitled to an sti grant in
respect of fy08.
lTi remuneration
Performance Shares and Performance Rights
emeco has established an lti plan to apply to emeco’s senior managers (which includes key management personnel) in
fy08 and subsequent years. the plan provides emeco’s senior managers with an ongoing incentive to achieve the long
term objectives of the emeco group.
grants under the lti plan, which applies to key executives other than mr freedman and mr adair, have the following key
terms and conditions, none of which have been altered since grants were made under the plan on 15 october 2007:
• Each year Emeco will grant unvested fully paid Emeco performance shares to individual Australian-based
executives, with the number of shares granted being determined by reference to the seniority of the executive and
the value of the share grant as a percentage of the executive’s salary. performance shares are granted at no cost to
the recipient and at a nil exercise price; they vest 3 years after issue if the performance condition described below is
met.
• Emeco participants in the LTI plan who are working outside Australia are issued performance rights on substantially
identical terms as the recipients of performance shares. each performance right provides the recipient with the right
to receive one fully paid emeco share if the relevant performance hurdle is met. performance rights are issued to
emeco’s offshore executives instead of performance shares in order to reduce the complexity of the compliance
issues associated with the issue of emeco shares in the relevant foreign jurisdictions.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Directors’ report
for the year enDeD 30 June 2008 (ContinueD)
lTi remuneration (continued)
Performance Shares and Performance Rights (Continued)
• The performance condition for the vesting of performance shares and the exercise of performance rights is a
performance hurdle based on relative total shareholder return (TSr). emeco’s tsr during the vesting period will be
measured against a peer group consisting of a group of 12 companies that are considered direct peers to emeco
and in addition the s&p/asx small industrials (excluding banks, insurance companies, property trusts/companies
and investment property trusts/companies and other stapled securities). the peer group currently comprises a total
of 97 companies (this number may change as a result of takeovers, mergers etc) (Peer Group). tsr for emeco and
each company in the peer group is calculated by reference to share price growth, dividends and capital returns.
• Three years after the performance shares are granted, TSR for all companies including Emeco will be measured and
ranked. performance shares will only vest and performance rights will only be exercisable if a threshold tsr
performance is achieved in comparison with the peer group tsr. there is a maximum and minimum vesting range
and vesting occurs as follows:
(a)
(b)
(c)
(d)
if emeco’s tsr is less than the tsr of 50% of the companies of the peer group then no performance shares
will vest.
if emeco’s tsr is equal to the tsr of 50.1% of the companies of the peer group then 50% of the performance
shares will vest.
if emeco’s tsr is equal to or greater than the tsr of 75% of the companies of the peer group then 100% of
the performance shares will vest.
if emeco’s tsr is equal to the tsr of between 50% and 75% of the companies of the peer group then an
extra 2% of the performance shares granted vest for each percentile increase in emeco’s tsr above the 50th
percentile.
• Performance shares that have not vested after the end of the performance period will be bought back or transferred
to a nominee of the Company. performance rights which do not become exercisable will lapse.
• Performance shares which have vested must be transferred into the name of the participant within two years of
vesting. performance rights lapse five years after the date of grant.
Options
a separate lti plan (Options Plan) is in place for mr freedman and mr adair. on 4 august 2006, following the successful
completion of emeco’s initial public offering (iPO), 4,800,000 options were issued to mr freedman and 1,600,000 options
were issued to mr adair under the Company’s employee incentive plan.
each option granted to mr freedman and mr adair (Option) was provided at no cost and entitles the holder to subscribe for
an ordinary emeco share at a price of $1.925 (exercise Price), which is 2.5 cents above the ipo issue price. the fair value of
each option at grant date was 19.43 cents. the options issued to mr freedman and mr adair expire 5 years after their date
of issue.
the options plan provides for the vesting of the options in three equal tranches, subject to the following vesting conditions:
•
•
•
for the financial year ending 30 June 2007, 1/3 of the Options were to vest on the date of release of final audited
results for emeco for that year, provided that emeco holdings achieved actual earnings per share equal to or
greater than the prospectus forecast earnings per share for fy07. all of these options vested on the date of release
of emeco’s fy07 results because the actual earnings per share for fy07 of 9.3 cents met the required performance
target. however, neither mr freedman nor mr adair have exercised these vested options because the exercise price
has been greater than the market price of emeco shares since these options vested;
for the financial year ending 30 June 2008, 1/3 of the Options were to vest on the date that final audited results for
emeco that year are released, provided that emeco holdings achieved actual earnings per share equal to or greater
than 110% of the prospectus forecast earnings per share for fy07. none of these options have vested because the
actual earnings per share for fy08 of 10.7 cents did not meet the required performance target; and
for the financial year ending 30 June 2009, 1/3 of the Options will vest on the date that final audited results for
emeco for that year are released, provided that emeco holdings has achieved actual earnings per share equal to or
greater than 121% of the prospectus forecast earnings per share for fy07.
32
33
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
mr freedman’s options vest only if he holds the position of managing Director of the Company at the time of vesting.
mr adair’s options vest only if he is an employee of the Company at the time of vesting or if he is subject to a deemed
termination, ie the Company materially and substantially changes his duties beyond the duties ordinarily performed
by him, other than with his agreement, or the Company is removed from the official list of the asx. on 4 march 2008,
simultaneously with the appointment of mr gobby as emeco’s Chief financial officer, mr adair was appointed to the
position of executive Director, Corporate strategy and Business Development. mr adair’s appointment did not affect his
vested options or the vesting profile of his unvested options.
all of the options granted to mr freedman and mr adair which were subject to a vesting condition in respect of emeco’s fy08
financial performance lapsed as a result of emeco not meeting the earnings per share performance target set out above.
Prohibition of hedging LTI grants
on 25 august 2008, emeco’s board of directors resolved to amend emeco’s share trading policy to prohibit directors and
other officers of the Company from entering into transactions intended to hedge their exposure to emeco securities which
have been issued to the officer as part of the officer’s remuneration.
details of remuneration
Details of the elements comprising the remuneration of the emeco group’s key executives, including each Director and
each of the five named emeco group executives who received the highest remuneration in fy08 are set out in table 5.
table 5 does not include the following components of compensation because they were not provided to key executives
during fy08: short term cash profit-sharing bonuses, payments made to a person before the person started hold a position,
long term incentives distributed in cash, post employment benefits other than superannuation and share based payments
other than shares and units. table 6 provides comparative information in relation to the remuneration of the emeco
group’s key executives for the prior financial year.
Table 5 - directors’ and executive officers’ remuneration FY08 (company and consolidated)
Short-term benefits
Post em-
ployment
benefits
Other
long term
benefits
Termi-
nation
benefits
Share based
payments
Total
Proportion of
remuneration
performance
related
Salary
& Fees
STi cash
bonuses
non-mone-
tary benefits
$
$
$
Super
-annuation
benefits
$
Shares
$
$
$
Options
and
rights
$
$
%
non - executive
directors
alec Brennan
greg minton
paul mcCullagh
stuart fitton (a)
peter Johnston
executive directors
laurie freedman
Managing Director
robin adair
Executive Director
Corporate Strategy
& Business
Development (B)
TOTAl All
direcTOrS
175,494
105,743
101,076
13,288
98,743
925,062
486,538
1,905,944
-
-
-
-
-
-
-
-
-
-
-
-
-
15,795
9,517
9,097
1,196
8,887
19,767
96,508
28,006
48,654
47,773
189,654
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
191,289
115,260
110,173
14,484
107,630
-
-
-
-
-
3,495
1,044,832
0.3%
1,165
564,363
0.2%
4,660
2,148,031
(a) mr fitton resigned on 17 august 2007.
(B) mr adair was appointed to the position of executive Director Corporate strategy & Business Development on
1 november 2007, having previously been Chief financial officer for the emeco group.
33
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Directors’ report
for the year enDeD 30 June 2008 (ContinueD)
Table 5 - directors’ and executive officers’ remuneration FY08 (company and consolidated) (continued)
Short-term benefits
Post em-
ployment
benefits
Other long
term
benefits
Termi-
nation
benefits
Share based payments
Total
Proportion
of remu-
neration
perform-
ance
related
Salary &
Fees
$
STi cash
bonuses
(c)
$
non-
monetary
benefits
$
Superan-
nuation
benefits
$
lTiP
MiSP
$
$
$
$
$
%
executives
m Bourke
President
Emeco Canada (D)
a Carr
General Manager,
Parts, Maintenance
& Plant
h Christie-Johnston
General Manager
Emeco Sales (e)
s gobby
Chief Financial Officer
(f)
g graham
Managing Director
Emeco Europe (g)
C moseley
President
Emeco USA (h)
t sauvarin
General Manager,
Emeco Sales (i)
i testrow
General Manager
Northern Region (J)
D tilbrook
Executive General Man-
ager Western Region (k)
m turner
General Manager,
Global Procurement
299,938
-
142,784
24,119
290,308
10,000
15,434
26,128
192,308
80,000
10,471
17,308
113,538
284,807
236,713
24,000
-
-
-
-
82
10,218
119,734
11,846
12,630
6,699
-
4,800
231,423
20,000
65,446
20,828
412,615
30,000
14,574
37,135
294,615
20,000
9,596
26,515
total all executives
2,380,265
160,000
390,751
185,596
total all
4,286,209
160,000
438,524
375,250
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,750
41,077
529,668
11.9%
21,750
42,585
406,205
18.3%
-
4,219
304,306
27.7%
9,095
-
132,933
6.8%
21,750
16,432
454,569
8.4%
-
-
-
-
256,042
28,800
-
-
21,750
25,551
384,998
17.5%
21,750
21,750
-
-
516,074
10.0%
372,476
11.2%
139,595
129,864 3,386,071
139,595
134,524 5,534,102
(C) The short term incentive bonus is for performance during FY08. The amount awarded to each executive was finally determined on
8 August 2008 after completion of performance reviews.
(D) Mr Bourke’s remuneration has been converted to Australian dollars from Canadian dollars on the basis of an AUD/CAD exchange rate of $0.9045.
(E) Mr Christie Johnston commenced employment with Emeco as General Manager, Emeco Sales on 30 July 2007.
(F) Mr Gobby commenced employment as Emeco’s Chief Financial Officer on 4 March 2008.
(G) Mr Graham was appointed Managing Director of Emeco Europe on 12 August 2007. Mr Graham’s remuneration has been converted to Australian
dollars from Euros on the basis of an AUD/Euro exchange rate of $0.6098.
(H) Mr Moseley acquired executive responsibility for the financial and operational performance of Emeco Equipment (USA) LLC as from 1 July 2007.
Mr Moseley’s remuneration has been converted to Australian dollars on the basis of an AUD/USD exchange rate of $0.8956.
(I) Mr Sauvarin was appointed to a position within the procurement management group as from 30 July 2007 and ceased to be a member of the
Emeco senior leadership team from that date.
(J) Mr Testrow was appointed to the position of General Manager Northern Region with effect from 1 March 2008.
(K) Mr Tilbrook was appointed Executive General Manager Western Region with effect from 1 March 2008. Prior to that time he was General Manager
Australian Rental.
34
35
35
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Table 6 - directors’ and executive officers’ remuneration FY07 (company and consolidated)
Short-term benefits
Post em-
ployment
benefits
Other
long term
benefits
(A)
Termi-
nation
benefits
Share based
payments
Total
Proportion of
remuneration
performance
related
Salary &
Fees
STi cash
bonuses
$
$
non-
monetary
benefits
$
Superan-
nuation
benefits
$
MiSP +
iPO Fee
Options
$
$
$
$
$
%
non - executive
directors
alec Brennan
greg minton
paul mcCullagh
stuart fitton
peter Johnston
executive directors
laurie freedman
Managing Director
robin adair
Chief Financial Officer
-
120,661
95,091
144,827
80,307
-
-
-
-
-
-
-
-
-
-
-
10,709
8,558
13,034
6,751
-
-
-
-
-
832,000
850,000
15,051
94,154
123,068
442,308
225,000
28,597
44,231
221,522
TOTAl All direcTOrS 1,715,194
1,075,000
43,648
177,437
344,590
-
-
-
-
-
-
-
-
101,403
-
-
-
-
-
-
-
-
-
-
-
101,403
131,370
103,649
157,861
87,058
-
-
-
-
-
479,964
2,394,237
60.7%
159,988
1,121,646
54.1%
101,403
639,952
4,097,224
(a) the amounts shown in this column are cash amounts paid to the executives which they were required to use to subscribe for performance
shares on issue prior to, and which were converted into ordinary shares as part of, the ipo.
Short-term benefits
Post em-
ployment
benefits
Other
long term
benefits
(d)
Termi-
nation
benefits
Share based
payments
Total
Proportion of
remuneration
performance
related
Salary &
Fees
$
STi cash
bonuses
(A)
$
non-
monetary
benefits
$
Superan-
nuation
benefits
$
341,044
-
117,801
-
264,000
66,000
8,008
22,846
188,526
-
49,215
7,177
-
-
-
282,676
48,000
-
54,504
123,068
332,500
90,000
14,370
29,925
221,522
272,500
56,000
11,933
24,525
221,522
executives
m Bourke
President
Emeco Canada (C)
a Carr
General Manager,
Parts, Maintenance
& Plant
r parish
General Manager
Indonesia (B)
t sauvarin
General Manager,
Emeco Sales
D tilbrook
General Manager
Rental, Western Region
m turner
General Manager,
Global Procurement
total executives
1,681,246
260,000
201,327
138,977
566,112
Total All
3,396,440
1,335,000
244,975
316,414
910,702
MiSP
Options
$
$
$
$
$
%
-
-
-
-
-
-
-
-
41,209
42,764
26,440
-
-
-
110,413
-
-
-
-
-
-
-
500,054
8.2%
403,618
26.9%
271,358
9.7%
508,248
33.6%
688,317
45.2%
586,480
47.3%
2,958,075
211,816
639,952
7,055,299
(a) the short term incentive bonus was for performance during fy07. the amount awarded to each executive was finally determined on 27 august
2007 after completion of performance reviews.
(B) mr parish’s remuneration was converted to australian dollars from us dollars on the basis of an auD/usD exchange rate of usD $0.75.
(C) mr Bourke’s remuneration was converted to australian dollars from Canadian dollars on the basis of an auD/CaD exchange rate of $0.86.
(D) the amounts shown in this column are cash amounts paid to the executives which they were required to use to subscribe for performance shares
on issue prior to, and which were converted into ordinary shares as part of, the ipo.
35
35
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Directors’ report
for the year enDeD 30 June 2008 (ContinueD)
equity instruments
MiSP
During fy08, the Company made share based payments to mr Bourke, mr Carr and mr Christie-Johnston (MiSP
Participants) under the Company’s management incentive share plan (MiSP). Details of the share issue made to them
under the misp are set out below:
Table 7 – MiSP grants to key executives
number of shares
issued under the misp
issue price of the
misp shares
Date of grant
amount of Company
loan in respect of misp
shares outstanding at
reporting date
highest amount of
indebtedness during
the period
fair value recognised
as remuneration during
the year
Michael Bourke
Anthony carr
600,000
500,000
hamish
christie-Johnston
500,000
300,000
ian Testrow
Greg Graham
$0.92
$1.155
$0.74
$1.155
12 June 2006
12 June 2006
14 march 2008
12 June 2006
200,000 (tranche 1)
100,000 (tranche 2)
$0.61 (tranche 1)
$1.155 (tranche 2)
18 august 2005
(tranche 1)
12 June 2006
(tranche 2)
$519,000
$550,000
$370,000
330,000
221,000
$546,000
$572,500
$370,000
343,500
234,500
$41,077
$42,585
$4,219
25,551
16.432
key terms and conditions of the issue of shares to the misp participants under the misp are as follows:
•
In accordance with the terms of the MISP the Company provided each MISP Participant with an interest-free, limited
recourse loan (loan) to enable him to subscribe for the misp shares.
• The shares vest over a 5 year period with the first 6.25% of the shares vesting 2 years after the issue date. The
shares then vest on an annual basis until all of the shares have vested on the 5th anniversary of their issue.
•
If a MISP Participant’s employment with the Emeco Group is terminated before all of his MISP shares vest, then in
relation to those shares which have not vested, the Company is required to buy them back, cancel them or transfer
them to a nominee at a price equal to the loan amount outstanding in respect of them and to set off the payment
against the loan amount owed to the Company. in relation to those shares which have vested, the Company must
buy them back or transfer them to a nominee of the board and pay to the misp participant a purchase price equal to
their market value, subject to the Company setting off the loan amount outstanding in respect of the vested shares.
• Subject to the approval of the board, the Loan can be repaid at any time but must be repaid by the tenth anniversary
of the commencement date of the misp.
• Any dividends or capital distributions which may become payable in respect of the MISP shares may be applied by
the Company in reducing the amount of the loan.
the share issues under the misp to each misp participant, and the time based vesting conditions in respect of the shares,
are not dependent on the satisfaction of a performance condition because the issue of shares to them and the inclusion
of time based vesting conditions in the terms of issue were intended to provide them with an incentive to remain with the
emeco group. that is, the terms upon which the shares were issued to the misp participants were intended to operate as a
retention incentive arrangement rather than a performance incentive arrangement.
36
37
37
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
lTi
the terms of the lti plan are discussed at pages 32 to 33.
During fy08, the Company granted performance shares to the following key management personnel under the Company’s
lti plan (lTi Plan). no lti grants of performance shares were made to key management personnel in fy07.
Table 8 – lTi Performance Share grants to key executives
number granted
during FY08
Grant
date
Fair value per
Performance Share
number of Performance Shares
vested during FY08 (A)
mr a Carr
mr s gobby
mr i testrow
mr D tilbrook
mr m turner
100,000
150,000
100,000
100,000
100,000
15 october 2007
17 march 2008
15 october 2007
15 october 2007
15 october 2007
$0.87
$0.47
$0.87
$0.87
$0.87
-
-
-
-
-
(a) for performance shares granted in fy08, the earliest vesting date is 15 october 2010.
During fy08, the Company granted performance rights to the following key management personnel under the lti plan. no
lti grants of performance rights were made to key management personnel in fy07.
Table 9 – lTi Performance rights grants to key executives
number granted
during FY08 (A)
Grant
date
Fair value per
Performance right
number of Performance rights
vesting during FY08 (A)
mr m Bourke
mr g graham
100,000
100,000
15 october 2007
15 october 2007
$0.87
$0.87
-
-
(a) for performance rights granted in fy08, the earliest vesting date is 15 october 2010.
Options
the terms of the options plan are discussed at pages 32 to 33.
the percentage of mr adair’s and mr freedman’s remuneration in fy08 that consists of options is 0.2% and 0.3% respectively.
Details of the movement in the number of options held, directly, indirectly or beneficially, by each key management person
during fy08, including their related parties, are set out in the following table:
Table 10 – lTi Options grants to key executives
2008
directors &
executives
l C freedman
r l C adair
2007
directors &
executives
l C freedman
r l C adair
held at
1 July
2007
4,800,000
1,600,000
held at
1 July
2006
-
-
Granted as
compensation
exercised
Other
changes
held at
30 June
2008
vested
during the
year
vested and
exercisable at
30 June 2008
-
-
-
-
-
-
4,800,000*
1,600,000*
-
-
1,600,000
533,333
Granted as
compensation
exercised
Other
changes
held at
30 June
2007
vested
during the
year
vested and
exercisable at
30 June 2007
4,800,000
1,600,000
-
-
-
-
4,800,000
1,600,000
1,600,000
1,600,000
533,333
533,333
* subsequent to 30 June 2008, with effect from 26 august 2008, mr freedman forfeited 1,600,000 options and mr adair
forfeited 533,333 options. these forfeitures occurred because, under the terms of the options plan, the Company’s
earnings per share target for fy08 was not achieved. for further details, see pages 32 to 33 of this report.
37
37
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Directors’ report
for the year enDeD 30 June 2008 (ContinueD)
Service contracts
except as outlined below, each of the key executives named in table 5 are employed pursuant to contracts which provide
for an indefinite term and which are terminable on either party giving 6 months’ notice or on the payment to the executive
of up to 6 months’ salary in lieu of notice. no termination payments other than salary in lieu of notice and accrued statutory
leave entitlements are payable under these contracts.
mr Bourke is employed pursuant to a contract which provides for an indefinite term and which is terminable on either
party giving 3 months’ notice or on the payment to the executive of up to 3 months’ salary in lieu of notice. no termination
payments other than salary in lieu of notice and accrued statutory leave entitlements are payable under mr Bourke’s contract.
mr graham is employed pursuant to a contract which provides for an indefinite term. mr graham may terminate the
contract by giving 3 months’ notice, whilst euro machinery Bv may terminate the contract by giving 6 months’ notice or
paying him 6 months’ salary in lieu of notice. no termination payments other than salary in lieu of notice and accrued
statutory leave entitlements are payable under mr graham’s contract.
mr moseley is employed by emeco equipment (usa) llC pursuant to a contract which provides for successive rolling
12 month terms, subject to either party being able to give 6 months notice of termination or on the payment by emeco
equipment (usa) llC to mr moseley of up to 6 months’ salary in lieu of notice. no termination payments other than salary
in lieu of notice and accrued leave entitlements are payable.
mr freedman’s contract provides that he is to act as managing Director of the group until at least 31 December 2008.
under this contract, mr freedman’s remuneration has been structured so that he receives a base salary (exclusive
of superannuation and other entitlements outlined in his contract), together with the capacity to qualify for an sti
performance bonus each year of up to 100% of the base amount calculated by reference to the earnings per share
performance of emeco. the contract may be terminated by either mr freedman or emeco upon provision of 12 months
notice of termination. emeco may also terminate mr freedman’s employment immediately, by making a payment in lieu of
12 months remuneration package, which would be the total of his base amount, plus superannuation and car allowance.
mr adair’s contract provides that he is to continue his employment with the group until at least 30 June 2009. under his
contract, mr adair’s remuneration has been structured so that he receives a base salary (exclusive of superannuation
and other entitlements outlined in his contract), together with the capacity to qualify for an sti performance bonus each
year of up to 50% of the base amount calculated by reference to the earnings per share performance of emeco. the
contract may be terminated by either mr adair or emeco upon provision of 12 months notice of termination, although mr
adair has agreed that he will not provide such notice until at least 1 January 2009. emeco may also terminate mr adair’s
employment immediately, by making a payment in lieu of 12 months remuneration package, which would be the total of
his base amount, plus superannuation and car allowance. if mr adair’s duties are materially altered during the term of his
employment without his agreement or emeco delists from asx, mr adair may receive payment equal to 12 months of
his base amount plus the maximum performance bonus amount for the relevant financial year. in addition, the options
then granted to mr adair will immediately vest. no material changes were made to mr adair’s contract as a result of his
appointment as executive Director, Corporate strategy and Business Development.
mr gobby’s contract is for an indefinite term and provides that it is terminable on either party giving 6 months’ notice
or on the payment to him of up to 6 months’ salary in lieu of notice. if, however, a change of control of emeco holdings
ltd occurs or his duties are materially changed within certain time periods specified in the contract, then he is entitled
to terminate the contract and to be paid a maximum amount of 12 months base salary and the full amount of his sti
bonus. this maximum amount applies if the relevant event occurs within 1 year of the commencement of his employment
with emeco and declines to an amount of 6 months base salary and the full amount of his sti bonus after the second
anniversary of his employment with emeco.
38
39
39
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
non - executive directors
a maximum amount of $1,200,000 pa is currently prescribed in the Company’s constitution as the total aggregate
remuneration available to non-executive directors.
the remuneration of all of the non-executive directors other than mr Brennan comprises a cash director’s fee of $100,000
pa, inclusive of superannuation contributions. as Chairman, mr Brennan is entitled to a fee of $175,000 pa, inclusive of
superannuation contributions. an additional fee of $7,500 pa is paid to any director who is a member of a board committee;
this fee is increased to $10,000 pa for a director who chairs a committee.
remuneration and the company’s performance (unaudited)
the Company was incorporated as a proprietary company on 14 December 2004. it is therefore not possible to discuss the
relationship between the Company’s remuneration policy and the Company’s performance for the previous 4 financial years.
however, based on the pro forma historical information set out in section 7 of the emeco prospectus dated 3 July 2006,
and the consolidated results set out in the Company’s financial statements for fy06, fy07 and fy08, the emeco group has
achieved a compound annual growth rate in eBita of 31.0% for the period from fy04 to fy08.
the directors consider that the remuneration policies of the emeco group while it was privately held and since the ipo
have been successful in aligning the interests of the senior managers with the interests of the emeco group and its
shareholders. this success is reflected in the earnings growth of the group.
the directors also consider that the remuneration policies and practices adopted and approved by the emeco holdings ltd
remuneration Committee for the emeco group’s directors, secretary and senior managers for fy08 provided them with
appropriate rewards and motivated them to continue to perform in the best interests of the Company and its shareholders.
in fy08, the Company’s share price declined from $1.64 to $1.07 as at close of trading on 30 June 2008. the emeco
group’s eBita decreased in fy08 by 6.4% from the eBita result reported as pro forma eBita for fy07*. however, as noted
above, the emeco group has achieved a compound annual growth rate in eBita of 31.0% for the period from fy04 to
fy08. this long run increase in eBita is in part attributable to the Company’s remuneration policies and the alignment of
management’s interests with those of the Company and its shareholders. the primary means available to the Company
to grow shareholder wealth, whether by way of dividend distributions or increases in the Company’s share price, is to
continue to increase earnings. in this regard, the Company has continued to grow earnings at a rapid rate over the past 5
financial years. the Company will continue to adopt remuneration policies and practices which reward strong
financial performance.
* fy07 pro forma eBita is derived by adjusting reported actual eBita to add back the non recurring costs of the ipo which
were incurred in fy07. it is considered that pro forma eBita for fy07 is a more accurate basis of comparison for the
purposes of discussing eBita growth rates than is statutory eBita, as expenses incurred as a result of the ipo are not
considered to be in the ordinary course of business.
39
39
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Directors’ report
for the year enDeD 30 June 2008 (ContinueD)
indeMniFicATiOn And inSurAnce OF direcTOrS, OFFicerS And AudiTOrS
the Company has entered into a deed of access, indemnity and insurance with each of its current and former Directors,
the Chief financial officer and the Company secretary. under the terms of the deed, the Company indemnifies the officer
or former officer, to the extent permitted by law, for liabilities incurred as an officer of the Company. the deed provides
that the Company must advance the officer reasonable costs incurred by the officer in defending certain proceedings or
appearing before an inquiry or hearing of a government agency.
since the end of the previous financial year, the Company has paid premiums in respect of contracts insuring the current
and former directors and officers of the emeco group, including senior executives, against liabilities incurred by such a
director, officer or executive to the extent permitted by the Corporations Act 2001. the contracts of insurance prohibit
disclosure of the nature of the liability cover and the amount of the premium.
the emeco group has not indemnified its auditors, kpmg.
nOn-AudiT ServiceS
During the year, kpmg, the Company’s auditor, has performed certain other services in addition to their statutory duties.
the Board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision
of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor
independence requirements of the Corporations Act 2001 for the following reasons:
• all non-audit services were subject to the corporate governance procedures adopted by the Company;
•
the non audit services provided do not undermine the general principles relating to auditor independence as set out
in professional statement f1 professional independence, as they did not involve reviewing or auditing the auditors
own work, acting in a management or decision making capacity for the Company, acting as an advocate for the
Company or jointly sharing the risks and rewards.
a copy of the auditor’s independence declaration as required under section 307C of the Corporation Act 2001 is included in
the director’s report.
Details of fees paid to the Company’s auditors for non audit services are found in note 8 of the financial report.
rOundinG
the amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding
is applicable) under the option available to the Company under asiC Class order 98/100 dated 10 July 1998. the Company
is an entity to which the Class order applies.
signed in accordance with a resolution of the directors.
lAurence FreedMAn
Managing Director
Dated at perth, 25th day of august 2008.
40
41
41
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
leaD aUDitor’s inDepenDence Declaration
unDer seCtion 307C of the Corporations aCt 2001
TO: The direcTOrS OF eMecO hOldinGS liMiTed
i declare that, to the best of my knowledge and belief, in relation to the audit for the year ended 30 June 2008 there
have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations act 2001 in relation to
the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
BreTT FullArTOn
Partner
perth, 25th day of august 2008.
kpmg, an australian partnership and a member firm of the kpmg network of independent member firms affiliated with kpmg international, a swiss cooperative.
41
41
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
income statements
for the year enDeD 30 June 2008
revenue from rental income
revenue from the sale of machines and parts
revenue from maintenance services
Changes in machinery and parts inventory
machinery and parts purchases and consumables
repairs and maintenance
employee expenses
hired in equipment and labour
gross profit
other income
other expense
eBitDa(1)
Depreciation expense
amortisation expense
eBit(2)
financial income
financial expenses
profit before income tax expense
income tax (expense)/benefit
profit for the period
attributed to:
equity holders of the parent
minority interests
profit for the period
earnings per share:
Basic earnings per share from continuing operations
Diluted earnings per share from continuing operations
33
33
consolidated
company
note
2008
2007
2008
2007
-
-
-
-
-
-
-
-
-
-
33,600
(1,193)
32,407
-
-
32,407
-
-
32,407
241
32,648
32,648
-
32,648
-
-
-
-
-
-
-
-
-
-
7,500
(1,175)
6,325
-
-
6,325
-
(1,818)
4,507
193
4,700
4,700
-
4,700
320,478
255,481
41,898
617,857
197
(212,782)
(91,440)
(43,014)
(5,798)
265,020
10,169
(61,736)
213,453
(93,113)
(1,117)
119,223
1,624
(25,169)
95,678
285,875
238,590
29,937
554,402
(59,563)
(144,942)
(74,306)
(35,489)
(6,910)
233,192
14,035
(41,292)
205,935
(78,860)
(3,422)
123,653
822
(44,516)
79,959
6
7
7
7
7
9(c)
(28,149)
67,529
(23,865)
56,094
67,529
-
67,529
2008
$
0.107
0.107
54,773
1,321
56,094
2007
$
0.093
0.092
(1) eBitDa - earnings before interest expense, tax, depreciation and amortisation
(2) eBit - earnings before interest expense and tax.
the income statements are to be read in conjunction with the notes to and forming part of the financial statements set out
on pages 46 to 102.
42
43
43
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
balance sheets
as at 30th June 2008
current Assets
Cash assets
trade and other receivables
inventories
prepayments
Current tax asset
total current assets
non-current assets
trade and other receivables
intangible assets
investments
property, plant and equipment
Deferred tax assets
total non-current assets
total assets
current liabilities
trade and other payables
interest bearing liabilities
Current tax liabilities
provisions
total current liabilities
non-current liabilities
interest bearing liabilities
Deferred tax liabilities
provisions
total non-current liabilities
total liabilities
net assets
equity
share capital
reserves
retained earnings/(accumulated loss)
total equity attributable to equity
holders of the parent
total equity
consolidated
company
note
2008
$’000
2007
$’000
2008
$’000
2007
$’000
14
15
17
16
10
15
18
19
20
11
21
22
10
24
22
11
24
25
25
25
16,804
103,212
187,328
7,011
3,036
317,391
576
223,561
-
621,990
3,484
849,611
27,740
88,703
187,131
8,846
2,932
315,352
3,669
223,390
-
544,303
2,369
773,731
4
35,623
-
-
-
35,627
4
45,819
-
-
-
45,823
511,706
-
162,729
-
4,164
678,599
507,412
-
153,859
-
5,492
666,763
1,167,002
1,089,083
714,226
712,586
46,172
6,557
24,289
4,509
81,527
43,621
6,521
12,489
3,636
66,267
3,695
-
24,231
-
27,926
17,782
-
12,141
-
29,923
358,066
24,991
682
383,739
326,323
23,090
524
349,937
-
-
-
-
-
-
-
-
465,266
416,204
27,926
29,923
701,736
672,879
686,300
682,663
608,995
(16,192)
108,933
609,278
(5,997)
69,598
684,882
489
929
685,165
1,023
(3,525)
701,736
701,736
672,879
672,879
686,300
686,300
682,663
682,663
the balance sheets are to be read in conjunction with the notes to and forming part of the financial statements set out on
pages 46 to 102.
43
43
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
statements oF recogniseD income anD eXpense
for the year enDeD 30 June 2008
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
effective portion of cash flow hedge recognised directly
in equity at beginning of the year
effective portion of cash flow hedge recognised directly
in equity at the end of the year
movement for the year
915
1,195
90
915
(825)
(280)
-
-
-
foreign currency translation differences for foreign operations
net income recognised directly in equity
Profit for the year
Total recognised income and expense for the year
(8,836)
(9,661)
67,529
57,868
(8,467)
(8,747)
56,094
47,347
-
-
32,648
32,648
Total recognised income and expense for the year attributed to
equity holders of the parent
minority interest
Total recognised income and expense for the year
57,868
-
57,868
46,911
436
47,347
32,648
-
32,648
-
-
-
-
-
4,700
4,700
4,700
-
4,700
the statements of recognised income and expense is to be read in conjunction with the notes to and forming part of the
financial statements set out on pages 46 to 102.
44
45
45
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
statement oF cash Flows
for the year enDeD 30 June 2008
cash flows from operating activities
Cash receipts from customers
Cash payments to suppliers and employees
Cash generated from operations
Dividends received
interest received
interest paid
income tax paid
net cash provided by/(used in)
operating activities
consolidated
company
note
2008
$’000
2007
$’000
2008
$’000
2007
$’000
599,508
(407,647)
191,861
-
1,624
(25,916)
(13,978)
556,414
(431,279)
125,135
-
822
(32,912)
(8,844)
-
(880)
(880)
33,600
-
-
(12,118)
-
(655)
(655)
7,500
-
-
(5,464)
28(ii)
153,591
84,201
20,602
1,381
cash flows from investing activities
proceeds on disposal of non-current assets
payment for controlled entities (net of cash acquired)
investment in subsidiary
payment for property, plant and equipment
29
43,753
(4,837)
-
(204,020)
47,281
(165,140)
-
(204,278)
-
-
(8,872)
-
-
(117,441)
(36,418)
-
net cash used in investing activities
(165,104)
(322,137)
(8,872)
(153,859)
cash flows from financing activities
proceed from issue of shares
proceed from loans
repayment of exchangeable notes
loan to controlled entity
repurchase own shares
repayment of borrowings
payment for deferred borrowing costs
finance lease payments
Dividends paid
net cash provided by financing activities
net (decrease)/increase in cash held
Cash at the beginning of the period
effects of exchange rate fluctuations on cash held
Cash at the end of the financial period
-
51,628
-
-
(985)
(11,599)
-
(9,019)
(28,194)
1,831
(9,682)
27,740
(1,254)
16,804
438,041
138,927
(54,694)
-
-
(260,000)
(870)
(6,805)
(6,260)
248,339
10,403
19,240
(1,903)
27,740
-
-
-
17,449
(985)
-
-
-
(28,194)
(11,730)
-
4
-
4
438,041
-
-
(279,299)
-
-
-
-
(6,260)
152,482
4
-
-
4
28(i)
the statements of cash flows are to be read in conjunction with the notes to the financial statements set out on
pages 46 to 102.
45
45
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008
1
rePOrTinG enTiTY
emeco holdings limited (the “Company”) is a company domiciled in australia. the address of the Company’s registered
office is ground floor, 10 ord street, west perth wa 6005. the consolidated financial statements of the Company as at
and for the year ended 30 June 2008 comprise of the Company and its subsidiaries (together referred to as the “group”)
and the group’s interest in associates and jointly controlled entities. the group is primarily involved in the rental, sales,
parts and maintenance of heavy earthmoving equipment (see note 13).
2
BASiS OF PrePArATiOn
(a)
Statement of compliance
the financial report is a general purpose financial report which has been prepared in accordance with australian
accounting standards (aasBs) (including australian accounting interpretations) adopted by the australian accounting
standards Board (aasB) and the Corporations act 2001. the consolidated financial report of the group also complies with
the ifrss and interpretations adopted by the international accounting standards Board.
the financial statements were approved by the Board of Directors on 25 august 2008.
(b)
Basis of measurement
the consolidated financial statements have been prepared on the historical cost basis except for the following:
• derivative financial instruments are measured at fair value
• available-for-sale financial assets are measured at fair value
the methods used to measure fair values are discussed further in note 4.
(c)
Functional and presentation currency
these consolidated financial statements are presented in australian dollars, which is the Company’s functional currency
and the functional currency of the majority of the group.
the Company is of a kind referred to in asiC Class order 98/100 dated 10 July 1998 and in accordance with that
Class order, all financial information presented in australian dollars has been rounded to the nearest thousand unless
otherwise stated.
(d) use of estimates and judgements
the preparation of financial statements requires management to make judgements, estimates and assumptions that affect
the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. actual results
may differ from these estimates.
estimates and underlying assumptions are reviewed on an ongoing basis. revisions to accounting estimates are
recognised in the period in which the estimate is revised and in any future periods affected.
in particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting
policies that have the most significant effect on the amount recognised in the financial statements are described in the
following notes:
• Note 5 – valuation of financial instruments
• Note 11 – utilisation of tax losses
• Note 18 – measurement of the recoverable amounts of cash-generating units containing goodwill
• Note 29 – business combinations
• Note 30 – measurement of share based-payments.
46
47
47
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
3
SiGniFicAnT AccOunTinG POlicieS
the accounting policies set out below have been applied consistently to all periods presented in these consolidated
financial statements, and have been applied consistently by group entities.
(a)
Basis of consolidation
(i)
Subsidiaries
subsidiaries are entities controlled by the group. Control exists when the group has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities. in assessing control, potential voting rights that
presently are exercisable are taken into account. the financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control ceases.
in the Company’s financial statements, investments in subsidiaries are carried at cost.
(ii)
Acquisitions from entities under common control
Business combinations arising from transfers of interests in entities that are under the control of the shareholder that
controls the group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period
presented or, if later, at the date that common control was established; for this purpose comparatives are restated. the
assets and liabilities acquired are recognised at the carrying amounts recognised previously in the group’s controlling
shareholder’s consolidated financial statements. the components of equity of the acquired entities are added to the same
components within group equity. any cash paid for the acquisition is recognised directly in equity.
(iii)
Transactions eliminated on consolidation
intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in
preparing the consolidated financial statements. unrealised losses are eliminated in the same way as unrealised gains, but
only to the extent that there is no evidence of impairment.
(b)
Foreign currency
(i)
Foreign currency transactions
transactions in foreign currencies are translated to the respective functional currencies of group entities at exchange rates
at the dates of the transactions. monetary assets and liabilities denominated in foreign currencies at the reporting date
are retranslated to the functional currency at the foreign exchange rate at that date. the foreign currency gain or loss on
monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted
for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange
rate at the end of the period. non-monetary assets and liabilities denominated in foreign currencies that are measured at
fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.
(ii)
Foreign operations
the assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are
translated to australian dollars at exchange rates at the reporting date. the income and expenses of foreign operations are
translated to australian dollars at exchange rates at the dates of the transactions.
foreign currency differences are recognised directly in equity within the foreign currency translation reserve (“fCtr”).
when a foreign operation is disposed of, in part or in full, the relevant amount in the fCtr is transferred to profit or loss.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
3
SiGniFicAnT AccOunTinG POlicieS (cOnTinued)
(c)
Financial instruments
(i)
Non-derivative financial instruments
non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash
and cash equivalents, loans and borrowings, and trade and other payables.
non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through
profit or loss, any directly attributable transaction costs, except as described below. subsequent to initial recognition non-
derivative financial instruments are measured as described below.
a financial instrument is recognised if the group becomes a party to the contractual provisions of the instrument. financial
assets are derecognised if the group’s contractual rights to the cash flows from the financial assets expire or if the group
transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset.
regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the group commits
itself to purchase or sell the asset. financial liabilities are derecognised if the group’s obligations specified in the contract
expire or are discharged or cancelled.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and
form an integral part of the group’s cash management are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
accounting for finance income and expense is discussed in note 3(n).
(ii)
Derivative financial instruments
the group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures.
Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss when
incurred. subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted
for as described below.
Cash flow hedges
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly
in equity to the extent that the hedge is effective. to the extent that the hedge is ineffective, changes in fair value are
recognised in profit or loss.
if the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised,
then hedge accounting is discontinued prospectively. the cumulative gain or loss previously recognised in equity remains
there until the forecast transaction occurs. when the hedged item is a non-financial asset, the amount recognised in equity
is transferred to the carrying amount of the asset when it is recognised. in other cases the amount recognised in equity is
transferred to profit or loss in the same period that the hedged item affects profit or loss.
(iii) Share capital
Ordinary shares
ordinary shares are classified as equity. incremental costs directly attributable to issue of ordinary shares and share
options are recognised as a deduction from equity, net of any related income tax benefit.
Repurchase of share capital (treasury shares)
when share capital recognised as equity is purchased by the employee share plan trust, the amount of the consideration
paid, which includes directly attributable costs, is recognised as a deduction from equity, net of any tax effects. purchased
shares are classified as treasury shares and are presented as a deduction from total equity. when treasury shares are sold
or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on
the transaction is transferred to / from retained earnings.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
in the Company’s financial statements the transactions of the Company sponsored employee share plan trust are treated as
being executed directly by the Company (as the trust acts as the Company’s agent).
Dividends
Dividends are recognised as a liability in the period in which they are declared.
(d)
Property, plant and equipment
(i)
Recognition and measurement
items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses.
the cost of property, plant and equipment at 14 December 2004, the date of incorporation and transition to aasBs, was
determined by reference to its fair value at that date.
Cost includes expenditures that are directly attributable to the acquisition of the asset. the cost of self-constructed
assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a
working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on
which they are located. purchased software that is integral to the functionality of the related equipment is capitalised as
part of that equipment.
when parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate
items (major components) of property, plant and equipment.
(ii)
Subsequent costs
the cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it
is probable that the future economic benefits embodied within the part will flow to the group and its cost can be measured
reliably. expenditure on major overhauls and refurbishments of equipment is capitalised in property, plant and equipment
as it is incurred, where that expenditure is expected to provide future economic benefits. the costs of the day-to-day
servicing of property, plant and equipment are recognised in profit or loss as incurred.
(iii)
Depreciation
items of property, plant and equipment, excluding freehold land, are depreciated over their estimated useful lives and are
charged to the income statement. estimates of remaining useful lives, residual values and the depreciation method are
made on a regular basis, with annual re-assessments for major items.
assets are depreciated from the date of acquisition or, in respect of internally constructed assets, from the time an asset is
completed and held ready for use. where subsequent expenditure is capitalised into the asset, the estimated useful life of
the total new asset is reassessed and depreciation charged accordingly.
Depreciation on buildings, leasehold improvements, furniture, fixture and fittings, office equipment, motor vehicles and
sundry plant is calculated on a straight-line basis. Depreciation on plant and equipment is calculated on machine hours
worked over their estimated useful life. the expected useful lives are as follows:
leasehold improvements
plant and equipment
furniture, fixtures and fittings
office equipment
motor vehicles
sundry plant
15 years
3 – 15 years
10 years
3 – 10 years
5 years
7 – 10 years
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
3
SiGniFicAnT AccOunTinG POlicieS (cOnTinued)
(e)
intangible assets
(i)
Goodwill
goodwill (negative goodwill) arises on the acquisition of subsidiaries, associates and joint ventures.
Acquisitions on or after 1 January 2003
for acquisitions on or after 1 January 2003, goodwill represents the excess of the cost of the acquisition over the group’s
interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. when the excess is
negative (negative goodwill), it is recognised immediately in profit or loss.
Acquisitions of minority interests
goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of the additional
investment over the carrying amount of the net assets acquired at the date of exchange.
Subsequent measurement
goodwill is measured at cost less accumulated impairment losses.
(ii)
Other intangible assets
other intangible assets that are acquired by the group, which have finite useful lives, are measured at cost less
accumulated amortisation and accumulated impairment losses.
(iii)
Subsequent measurement
goodwill and other intangibles are measured at cost less accumulated impairment losses.
(iv)
Amortisation
amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other
than goodwill, from the date that they are available for use. the estimated useful lives for the current and comparative
periods are as follows:
•
•
contract intangibles
software
0 – 2 years
0 – 3 years
(f)
leased assets
leases in terms of which the group assumes substantially all the risks and rewards of ownership are classified as finance
leases. upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the
present value of the minimum lease payments. subsequent to initial recognition, the asset is accounted for in accordance
with the accounting policy applicable to that asset.
other leases are operating leases and are not recognised on the group’s balance sheet.
(g)
inventories
inventories are measured at the lower of cost and net realisable value. the cost of inventories is based on the first-in
first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing
location and condition. in the case of manufactured inventories and work in progress, cost includes an appropriate share
of production overheads based on normal operating capacity. net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and selling expenses.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
(h) work in progress
work in progress consists of unbilled amounts to be collected from customers for work performed to date, and is presented
as part of trade and other receivables in the balance sheet.
progressive capital work to inventory and fixed assets are carried in work in progress accounts within their respective
balance sheet classifications. upon work completion the balance is capitalised.
(i)
impairment
(i)
Financial assets
a financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired.
a financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative
effect on the estimated future cash flows of that asset.
an impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its
carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.
individually significant financial assets are tested for impairment on a individual basis. the remaining financial assets are
assessed collectively in groups that share similar credit risk characteristics.
all impairment losses are recognised in profit or loss.
an impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss
was recognised. for financial assets measured at amortised cost, the reversal is recognised in profit or loss.
(ii)
Non-financial assets
the carrying amounts of the group’s non-financial assets, excluding inventories and deferred tax assets, are reviewed
at each reporting date to determine whether there is any indication of impairment. if any such indication exists then the
asset’s recoverable amount is estimated. for goodwill and intangible assets that have indefinite lives or that are not yet
available for use, the recoverable amount is estimated at each reporting date.
the recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs
to sell. in assessing fair value, the group has assessed the amount it could obtain on disposal, less realisation costs.
fair value has been calculated with regard to the discounted post tax cash flows and comparable transactions for similar
businesses. for the purpose of impairment testing, assets are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups
of assets the (“cash-generating unit”). the goodwill acquired in a business combination, for the purpose of impairment
testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination.
an impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable
amount. impairment losses are recognised in profit or loss. impairment losses recognised in respect of cash-generating
units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying
amount of the other assets in the unit (group of units) on a pro rata basis.
an impairment loss in respect of goodwill is not reversed. in respect of other assets, impairment losses recognised in
prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. an
impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. an
impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
goodwill assets were tested for impairment at 30 June 2008 as part of the group’s process of annually testing goodwill for
impairment. no impairment was recognised.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
3
SiGniFicAnT AccOunTinG POlicieS (cOnTinued)
(j)
employee benefits
(i)
Defined contribution plans
a defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a
separate entity and will have no legal or constructive obligation to pay further amounts. obligations for contributions
to defined contribution plans are recognised as a personnel expense in profit or loss when they are due. prepaid
contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
(ii)
Other long-term employee benefits
the group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees
have earned in return for their service in the current and prior periods plus related on costs: that benefit is discounted
to determine its present value, and the fair value of any related assets is deducted. the discount rate is the yield at the
reporting date on Commonwealth government bonds that have maturity dates approximating the terms of the group’s
obligations.
(iii)
Termination benefits
termination benefits are recognised as an expense when the group is demonstrably committed, without realistic
possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date.
termination benefits for voluntary redundancies are recognised if the group has made an offer encouraging voluntary
redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
(iv) Short-term benefits
liabilities for employee benefits for wages, salaries and annual leave represent present obligations resulting from
employees’ services provided to reporting date and are calculated at undiscounted amounts based on remuneration
wage and salary rates that the group expects to pay as at reporting date including related on-costs, such as workers
compensation insurance and payroll tax. non-accumulating non-monetary benefits, such as medical care, housing, cars
and free or subsidised goods and services, are expensed based on the net marginal cost to the group as the benefits are
taken by the employees.
a liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the
group has a present legal or constructive obligation to pay this amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
(v)
Share based payment transactions
a management incentive share plan (“misp”) allows certain consolidated entity employees to acquire shares of the
Company. the grant date fair value of the shares granted to employees is recognised as an employee expense with
a corresponding increase in equity, over the period during which the employees become unconditionally entitled
to the shares. the fair value of the shares granted is measured using a black scholes pricing model, taking into
account the terms and conditions upon which the shares were granted. the amount recognised as an expense is
adjusted to reflect the actual number of shares that vest except where forfeiture is only due to shares prices not
achieving the threshold for vesting. employees have been granted a limited recourse 10 year interest free loan in
which to acquire the shares. the loan has not been recognised as the Company only has recourse to the value of
the shares.
the share option programme allows certain employees to acquire shares of the Company. the grant date fair value
of options granted to employees is recognised as an employee expense with a corresponding increase in equity,
over the period during which the employees become unconditionally entitled to the options. the fair value of the
options granted is measured using an option-pricing model, taking into account the terms and conditions upon
which the options were granted. the amount recognised as an expense is adjusted to reflect the actual number of
share options that vest except where forfeiture is only due to market conditions not being met, i.e. share prices not
achieving the threshold for vesting.
(a)
(b)
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
(c)
a long term incentive plan (“ltip”) allows certain senior management personnel to receive shares of the Company
upon satisfying performance conditions. under the ltip shares granted to each ltip participant vest to the
employee after 3 years if the prescribed performance condition is met. the performance condition is a performance
hurdle based on relative total shareholder return (“tsr”). the peer group that the Company’s tsr is measured
against consists of 105 Companies and includes 12 Companies that are considered direct peers to emeco, in
addition to the s&p/asx small industrials (excluding banks, insurance companies, property trust companies and
investment property trust/companies and other stapled securities).
During the period the trust acquired 775,000 shares on market at a fair value of $985,000 to be held in trust to satisfy the
potential vesting of shares under the ltip and misp. shares that have been forfeited under the Company’s misp due to
employees under that plan not meeting the service vesting requirement have also been transferred to the trust. at period
end 1.5 million shares were held in the trust.
(k)
Provisions
a provision is recognised if, as a result of a past event, the group has a present legal or constructive obligation that can
be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the liability.
(l)
revenue
(i)
Rental revenue
revenue from rental of machines is recognised in profit and loss based on the number of hours the machines operate each
month. Contracts generally have a minimum hour clause which is triggered should the machine operate under these hours
during each month. Customers are billed monthly.
(ii)
Goods sold
revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns
and allowances, trade discounts and volume rebates. revenue is recognised when the significant risks and rewards of
ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible
return of goods can be estimated reliably, and there is no continuing management involvement with the goods.
(iii) Maintenance services
revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the transaction at
the reporting date.
(m)
lease payments
payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease.
lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of
the outstanding liability. the finance expense is allocated to each period during the lease term so as to produce a constant
periodic rate of interest on the remaining balance of the liability.
(n)
Finance income and expenses
finance income comprises of interest income, dividend income, changes in the fair value of financial assets at fair value
through profit or loss, and foreign currency gains. interest income is recognised as it accrues, using the effective interest
method. Dividend income is recognised on the date that the group’s right to receive payment is established, which in the
case of quoted securities is the ex-dividend date.
finance expenses comprises of interest expense on borrowings, foreign currency losses and impairment losses recognised
on financial assets. all borrowing costs are recognised in profit or loss using the effective interest method.
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53
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
3
SiGniFicAnT AccOunTinG POlicieS (cOnTinued)
(o)
income tax
income tax expense comprises of current and deferred tax. income tax expense is recognised in profit or loss except to the
extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted
at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax
is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets
or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and
differences relating to investments in subsidiaries and jointly controlled entities to the extent that they probably will not
reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the
temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the
reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
liabilities and assets and they relate to income taxes levied by the same tax authority on the same taxable entity, or on
different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities
will be realised simultaneously.
a deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which
temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent
that it is no longer probable that the related tax benefit will be realised.
additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay
the related dividend is recognised.
(i)
Tax consolidation
the Company and its wholly-owned australian resident entities have formed a tax-consolidated group with effect from
16 December 2004 and are therefore taxed as a single entity from that date. the head entity within the tax-consolidated
group is emeco holdings limited.
Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the
members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax -
consolidated group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts of assets
and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation.
any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries are assumed
by the head entity in the tax-consolidated group and are recognised by the company as amounts payable (receivable) to/
(from) other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts (refer below).
any difference between these amounts is recognised by the Company as an equity contribution or distribution.
the Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent
that it is probable that future taxable profits of the tax-consolidated group will be available against which the asset can
be utilised.
any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised
assessments of the probability of recoverability is recognised by the head entity only.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
(ii)
Nature of tax funding arrangements and tax sharing arrangements
the head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding
arrangement which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts.
the tax funding arrangements require payments to/from the head entity equal to the current tax liability/(asset) assumed
by the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity recognising
an inter-entity receivable/(payable) equal in amount to the tax liability/(asset) assumed. the inter-entity receivable/
(payable) are at call.
Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the
head entity’s obligation to make payments for tax liabilities to the relevant tax authorities.
the head entity in conjunction with other members of the tax-consolidated group, has also entered into a tax sharing
agreement. the tax sharing agreement provides for the determination of the allocation of income tax liabilities between
the entities should the head entity default on its tax payment obligations. no amounts have been recognised in the
financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is
considered remote.
(p) Goods and services tax
revenue, expenses and assets are recognised net of the amount of goods and services tax (gst), except where the amount
of gst incurred is not recoverable from the taxation authority. in these circumstances, the gst is recognised as part of the
cost of acquisition of the asset or as part of the expense.
receivables and payables are stated with the amount of gst included. the net amount of gst recoverable from, or
payable to, the ato is included as a current asset or liability in the balance sheet.
Cash flows are included in the statement of cash flows on a gross basis. the gst components of cash flows arising from
investing and financing activities which are recoverable from, or payable to, the ato are classified as operating cash flows.
(q)
earnings per share
the group presents basic and diluted earnings per share (eps) data for its ordinary shares. Basic eps is calculated by
dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of
ordinary shares outstanding during the period. Diluted eps is determined by adjusting the profit or loss attributable to
ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive
potential ordinary shares, which comprise convertible notes, management performance shares, and share options granted
to employees.
(r)
Segment reporting
a segment is a distinguishable component of the group that is engaged either in providing related products or services
(business segment), or in providing products or services within a particular economic environment (geographical
segment), which is subject to risks and rewards that are different from those of other segments. segment information
is presented in respect of the group’s business and geographical segments. the group’s primary format for segment
reporting is based on business segments. the business segments are determined based on the group’s management and
internal reporting structure.
inter-segment pricing is determined on an arm’s length basis.
segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated
on a reasonable basis. unallocated items comprise mainly loans and borrowings and related expenses, corporate assets
(primarily the Company’s headquarters) and head office expenses, and income tax assets and liabilities.
segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and
intangible assets other than goodwill.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
3
SiGniFicAnT AccOunTinG POlicieS (cOnTinued)
(s)
new standards and interpretations not yet adopted
the following standards, amendments to standards and interpretations have been identified as those which may impact
the entity in the period of initial application. they are available for early adoption at 30 June 2008, but have not been
applied in preparing this financial report:
• Revised AASB 3 Business Combinations changes the application of acquisition accounting for business
combinations and the accounting for non-controlling (minority) interests. key changes include: the immediate
expensing of all transaction costs; measurement of contingent consideration at acquisition date with subsequent
changes through the income statement; measurement of non-controlling (minority) interests at full fair value or the
proportionate share of the fair value of the underlying net assets; guidance on issues such as reacquired rights and
vendor indemnities; and the inclusion of combinations by contract alone and those involving mutuals. the revised
standard becomes mandatory for the group’s 30 June 2010 financial statements. the group has not yet determined
the potential effect of the revised standard on the group’s financial report.
• AASB 8 Operating Segments introduces the “management approach” to segment reporting. aasB 8, which
becomes mandatory for the group’s 30 June 2010 financial statements, will require the disclosure of segment
information based on the internal reports regularly reviewed by the group’s Chief operating Decision maker in
order to assess each segment’s performance and to allocate resources to them. Currently the group presents
segment information in respect of its business and geographical segments (see note 13).
• Revised AASB 101 Presentation of Financial Statements introduces as a financial statement (formerly “primary”
statement) the “statement of comprehensive income”. the revised standard does not change the recognition,
measurement or disclosure of transactions and events that are required by other aasBs. the revised aasB 101
will become mandatory for the group’s 30 June 2010 financial statements. the group has not yet determined the
potential effect of the revised standard on the group’s disclosures.
• Revised AASB 127 Consolidated and Separate Financial Statements changes the accounting for investments in
subsidiaries. key changes include: the remeasurement to fair value of any previous/retained investment when
control is obtained/lost, with any resulting gain or loss being recognised in profit or loss; and the treatment of
increases in ownership interest after control is obtained as transactions with equity holders in their capacity as
equity holders. the revised standard will become mandatory for the group’s 30 June 2010 financial statements.
the group has not yet determined the potential effect of the revised standard on the group’s financial report.
• AASB 2008-1 Amendments to Australian Accounting Standard - Share-based Payment: Vesting Conditions and
Cancellations changes the measurement of share-based payments that contain non-vesting conditions. aasB
2008-1 becomes mandatory for the group’s 30 June 2010 financial statements. the group has not yet determined
the potential effect of the amending standard on the group’s financial report.
4
deTerMinATiOn OF FAir vAlueS
a number of the group’s accounting policies and disclosures require the determination of fair value, for both financial and
non-financial assets and liabilities. fair values have been determined for measurement and / or disclosure purposes based
on the following methods. where applicable, further information about the assumptions made in determining fair values is
disclosed in the notes specific to that asset or liability.
(i)
Property, plant and equipment
the fair value of property, plant and equipment recognised as a result of a business combination is based on market
values. the market value of property is the estimated amount for which a property could be exchanged on the date of
valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the
parties had each acted knowledgeably, prudently and without compulsion. the market value of items of plant, equipment,
fixtures and fittings is based on the quoted market prices for similar items.
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EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
(ii)
Intangible assets
the fair value of contract intangibles acquired in a business combination is based on the discounted estimated net future
cash flows that are expected to arise as a result of the contracts that are in place when the business combination was
finalised.
(iii)
Inventory
the fair value of inventory acquired in a business combination is determined based on its estimated selling price in the
ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the
effort required to complete and sell the inventory.
(iv)
Trade and other receivables
the fair value of trade and other receivables, excluding construction work in progress, is estimated as the present value of
future cash flows, discounted at the market rate of interest at the reporting date.
(v)
Derivatives
the fair value of forward exchange contracts is based on the discounted value of the difference between the rate the
forward exchange contract was entered and the year end exchange rate.
the fair value of interest rate swaps is based on broker quotes. those quotes are tested for reasonableness by discounting
estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar
instrument at the measurement date.
(vi)
Non-derivative financial liabilities
fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and
interest cash flows, discounted at the market rate of interest at the reporting date. for finance leases the market rate of
interest is determined by reference to similar lease agreements.
(vii) Share-based payment transactions
the fair value of employee share options management incentive plan shares, and long term incentive plan shares
are measured using an option pricing model. measurement inputs include share price on issue, exercise price of the
instrument, expected volatility, weighted average expected life of the instruments, market performance conditions,
expected dividends, and the risk-free interest rate. service and non-market performance conditions attached to the
transactions are not taken into account in determining fair value.
5
FinAnciAl riSK MAnAGeMenT
Overview
the Company and group have exposure to the following risks from their use of financial instruments:
credit risk
•
liquidity risk
•
• market risk.
this note presents information about the Company’s and group’s exposure to each of the above risks, their objectives,
policies and processes for measuring and managing risk, and the management of capital. further quantitative disclosures
are included throughout this financial report.
the Board of Directors has overall responsibility for the establishment and oversight of the risk management framework.
the Board has established the audit and risk management Committee, which is responsible for developing and
monitoring risk management policies. the Committee reports regularly to the Board of Directors on its activities.
57
57
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
5
FinAnciAl riSK MAnAGeMenT (cOnTinued)
risk management policies are established to identify and analyse the risks faced by the Company and group, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. risk management policies and systems
are reviewed regularly to reflect changes in market conditions and the Company’s and group’s activities. the Company and
group, through their training and management standards and procedures, aim to develop a disciplined and constructive
control environment in which all employees understand their roles and obligations.
the audit and risk Committee is responsible for overseeing how management monitors compliance with the Company’s
and group’s risk management policies and procedures and reviewing the adequacy of the risk management framework in
relation to the risks faced by the Company and group.
credit risk
Credit risk is the risk of financial loss to the group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the group’s receivables from customers and investment securities.
for the Company it arises from receivables due from subsidiaries.
exposure to credit risk
the carrying amount of the group’s financial assets represents the maximum credit exposure. the group’s maximum
exposure to credit risk at the reporting date was:
In thousands of AUD
trade and other receivables
other receivables
Cash and cash equivalents
interest rate swaps used for hedging:
assets
forward exchange contracts used for hedging:
assets
note
15
14
15
consolidated
carrying amount
2008
2007
101,412
7,178
16,804
82,738
8,316
27,740
361
2,907
-
125,755
9
121,710
the Company’s financial assets are all intercompany and does not represent a credit risk.
Trade and other receivables
the Company’s and group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer.
the demographics of the group’s customer base, including the default risk of the industry and country in which customers
operate, has less of an influence on credit risk. the group sets individual counter party limits and also insures the majority
of its rental income within australia, indonesia and Canada, and generally operates a “cash for keys” policy within its
sales business.
the group’s credit policy requires each new customer to be individually analysed for creditworthiness before the group’s
standard payment and delivery terms and conditions are offered. the group’s review includes external ratings, when
available, and in some cases bank references. purchase limits are established for each customer, which represents the
maximum open amount without requiring approval from the responsible general manager. Customers that fail to meet the
group’s benchmark creditworthiness may transact with the group only on a prepayment basis.
58
59
59
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
in monitoring credit risk the group insures the majority of its rental customers at set limits who are not considered either
blue chip customers, subsidiaries of blue chip companies or government. Blue chip customers are determined as those
customers who have a market capitalisation of greater than $1 billion. inventory sales are generally on cash for keys terms.
the Company and group have established an allowance for impairment that represents their estimate of incurred losses in
respect of trade and other receivables. the main components of this allowance are a specific loss component that relates
to individually significant exposures, and a general loss component established for groups of similar assets in respect of
losses that have been incurred but not yet identified. the general loss allowance is determined based on historical data of
payment statistics for similar financial assets. for the purpose of allocating the general loss component to the aging trade
receivable table, the total general loss component has been allocated to the not past due.
the group’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
In thousands of AUD
australia
asia
north america
europe
africa
consolidated
carrying amount
2008
2007
66,469
9,965
17,333
5,209
2,436
101,412
48,860
14,562
7,006
3,422
8,888
82,738
the group’s maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:
In thousands of AUD
insured
Blue Chip (including subsidiaries)
government
uninsured
consolidated
carrying amount
2008
2007
54,202
15,115
358
31,737
101,412
52,519
11,889
263
18,607
83,278
the movement in the allowance for impairment in respect of trade receivables during the year was as follows:
In thousands of AUD
Balance at 1 July
impairment loss recognised
Doubtful debt provision
Balance at 30 June
consolidated
2008
2007
1,598
(571)
4,351
5,378
1,134
(24)
488
1,598
59
59
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
5
FinAnciAl riSK MAnAGeMenT (cOnTinued)
Trade and other receivables (continued)
none of the Company’s receivables are past due (2007: nil). the aging of the group’s trade receivables at the reported
date was:
In thousands of AUD
not past due
past due 0-30 days
past due 31-60 days
past due 61 days
Guarantees
consolidated
consolidated
Gross
2008
impairment
2008
Gross
2007
impairment
2007
52,291
29,943
9,685
9,493
101,412
1,362
1,006
33
2,977
5,378
46,285
24,949
11,496
8
82,738
1,058
-
532
8
1,598
financial guarantees are generally only provided to wholly-owned subsidiaries or in the process of entering into a premise
rental agreement. Details of outstanding guarantees are provided in note 27.
liquidity risk
liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. the group’s
approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage
to the group’s reputation.
the group monitors working capital limits and employs maintenance planning and life cycle costing modules to price
its rental contracts. these processes assist it in monitoring cash flow requirements and optimising cash return in its
operations. typically the group ensures that it has sufficient cash on demand to meet expected operational expenses
for a period of 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme
circumstances that cannot reasonably be predicted, such as natural disasters. in addition, the group maintains working
capital facilities of $25m and has a $490m senior debt facility. at year end it had an aggregate headroom in these facilities
of $167.7m (2007: $189.8m).
subsequent to year end the group refinanced its existing syndicated debt facility. the new facility has a commencement
date of 2 september 2008 and a tenure of 3 years. the facility limit is $595m of senior debt and $35m under the working
capital facility.
60
61
61
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
cOnSOlidATed 30 June 2008
contractual
carrying
amount
cash
flows
6 mths or
less
6-12 mths
1-2 years
2-5 years
More than
5 year
In thousands of AUD
non-derivative
financial liabilities
secured bank loans
347,275
(364,499)
finance lease liabilities
trade and other payables*
Bank overdraft
17,965
45,943
-
(19,481)
(45,943)
-
411,183
(429,923)
(8,612)
(3,735)
(45,943)
-
(58,290)
(8,612)
(3,735)
(347,275)
-
(7,400)
(4,611)
-
-
-
-
-
-
(12,347)
(354,675)
(4,611)
derivative financial
liabilities
interest rate swaps used
for hedging asset/(liability)
361
472
124
124
512
(288)
forward exchange
contracts used for hedging:
outflow
inflow
(229)
-
132
(19,375)
19,145
242
(19,375)
19,145
(106)
-
-
124
-
-
512
-
-
(288)
* excludes derivatives (shown separately)
ConsoliDateD 30 June 2007
-
-
-
-
-
-
-
-
-
Contractual
Carrying
amount
cash
flows
6 mths or
less
6-12 mths
1-2 years
2-5 years
more than
5 year
In thousands of AUD
non-derivative
financial liabilities
secured bank loans
323,731
(366,599)
finance lease liabilities
trade and other payables*
Bank overdraft
8,257
43,621
1,500
(8,822)
(43,621)
(1,500)
377,109
(420,542)
(9,712)
(2,825)
(43,621)
(1,500)
(57,658)
(9,712)
(2,608)
-
-
(19,424)
(327,751)
(3,389)
-
-
-
-
-
(12,320)
(22,813)
(327,751)
derivative financial
liabilities
interest rate swaps used
for hedging asset/(liability)
2,907
3,157
752
679
1,285
441
forward exchange
contracts used for hedging:
outflow
inflow
(1,607)
9
1,309
(26,981)
25,383
1,559
(26,981)
25,383
(846)
-
-
679
-
-
1,285
-
-
441
* excludes derivatives (shown separately)
-
-
-
-
-
-
-
-
-
61
61
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
5
FinAnciAl riSK MAnAGeMenT (cOnTinued)
cOMPAnY
30 June 2008
In thousands of AUD
carrying
amount
contractual
cash
flows
6 mths or
less
6-12 mths
1-2 years
2-5 years
More than
5 year
payables
18,660
(18,660)
(18,660)
-
-
-
-
Company
30 June 2007
In thousands of AUD
payables
17,782
(17,782)
(17,782)
-
-
-
-
the following table indicates the periods in which the consolidated cash flows associated with derivatives that are cash
flow hedges are expected to oocur.
carrying
amount
2008
expected
cash
flows
2008
6 mths or
less
2008
6-12 mths
2008
1-2 years
2008
2-5 years
2008
361
-
472
-
124
-
(229)
-
132
(19,375)
19,145
242
(19,375)
19,145
(106)
Carrying
amount
2007
expected
cash
flows
2007
6 mths or
less
2007
124
-
-
-
124
512
-
-
-
512
(288)
-
-
-
(288)
6-12 mths
2007
1-2 years
2007
2-5 years
2007
2,907
-
3,157
-
752
-
(1,607)
9
1,309
(26,981)
25,383
1,559
(26,981)
25,383
(846)
679
-
-
-
679
1,285
-
-
-
1,285
441
-
-
-
441
More
than
5 year
2008
-
-
-
-
-
more
than
5 year
2007
-
-
-
-
-
In thousands of AUD
interest rate swaps:
assets
liabilities
forward exchange
contracts:
outflows
inflows
In thousands of AUD
interest rate swaps:
assets
liabilities
forward exchange
contracts:
outflows
inflows
62
63
63
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Market risk
market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will
affect the group’s income or the value of its holdings of financial instruments. the objective of market risk management is
to manage and control market risk exposures within acceptable parameters, while optimising the return.
the group enters into derivatives, and also incurs financial liabilities, in order to manage market risks. all such transactions
are carried out within the guidelines set by the group’s hedging policy. generally the group seeks to apply hedge
accounting in order to manage volatility in profit or loss.
currency risk
the group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other
than the respective functional currencies of group entities, primarily the australian dollar (“auD”), but also the united
states Dollars (“usD”), Canadian Dollars (“CaD”), and euro Dollars (“euro”). the currencies in which these transactions
primarily are denominated are auD, usD, CaD, euro and Japanese yen (“Jpy”).
the group hedges all trade receivables and trade payables that is denominated in a currency that is foreign to its functional
currency, and greater than $50,000. the group uses forward exchange contracts to hedge its foreign currency risk. most
of the forward exchange contracts have maturities of less than 6 months.
in respect of other monetary assets and liabilities held in currencies other than the auD, the group ensures that the net
exposure is kept to an acceptable level by matching foreign denominated financial assets with matching financial liabilities
and vice versa.
interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of
the group, primarily auD, but also usD, CaD and euro. this provides an economic hedge and no derivatives are entered
into for these debts.
in respect of other monetary assets and liabilities denominated in foreign currencies, the group ensures that its net
exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address
short-term imbalances.
exposure to currency risk
the group’s exposure to foreign currency risk at balance date was as follows, based on notional amounts:
In thousands of AUD
trade receivables
trade payables #
gross balance sheet exposure
Aud
uSd
usD
30 June 2008
iDr*
30 June 2007
euro
7,800
-
7,800
559
-
559
3,190
-
3,190
-
(106)
(106)
111
-
111
forward exchange contracts
(7,800)
-
(3,190)
-
(111)
net exposure
-
559
-
(106)
-
the Company had no exposure to foreign currency risk (2007: nil)
indonesian rupee (“iDr”)
*
# trade payables does not include future purchase commitments denominated in foreign currencies. the group hedges
these purchases in accordance with its hedging policy. the payable is not recognised until the asset is received. the
fair value of outstanding derivatives are recognised in the balance sheet at period end.
63
63
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
5
FinAnciAl riSK MAnAGeMenT (cOnTinued)
exposure to currency risk (continued)
the following significant exchange rates applied during the year:
AUD
CaD
usD
euro
iDr
Sensitivity analysis
Average rate
reporting date spot rate
2008
2007
2008
2007
0.9045
0.8956
0.6098
8,266
0.8966
0.8414
0.6271
7,116
0.9722
0.9653
0.6107
8,895
0.8965
0.8463
0.6295
7,669
a 10 percent strengthening of the australian dollar against the following currencies at 30 June would have increased
(decreased) equity and profit or loss by the amounts shown below. this analysis assumes that all other variables, in
particular interest rates, remain constant. the analysis is performed on the same basis for 2007.
Effect in thousands of AUD
30 June 2008
usD
euro
yen
30 June 2007
usD
euro
yen
consolidated
equity
Profit or loss
(940)
(18)
(259)
(772)
5
(443)
-
-
-
-
-
-
a 10 percent weakening of the australian dollar against the above currencies at 30 June would have had the equal but
opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
the effect on the Company would be nil (2007: nil).
interest rate risk
the group adopts a policy of ensuring that a minimum of 50% of its exposure to changes in interest rates on borrowings is
on a fixed rate basis. this is achieved by entering into interest rate swaps.
64
65
65
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Profile
at the reporting date the interest rate profile of the Company’s and the group’s interest-bearing financial instruments was:
consolidated
company
note
2008
$’000
2007
$’000
2008
$’000
2007
$’000
Cash at bank
14
16,804
27,740
variable interest bearing liabilities
variable interest bearing finance leases
total interest bearing liabilities
347,275
17,965
365,240
325,231
8,257
333,488
23
interest rate swaps to hedge interest rate risk
australian dollars
Canadian dollars C$80m (2007: C$80m)
united states dollars usD$30.0m (2007: nil)
euro dollars €10.0m (2007: nil)
these interest rate swaps principle
amount expiring over the next 5 years:
no later than one year
later than one year but not later than two
later than two years but not later than three
later than three years but not later than four
later than four years but not later than five
82,500
82,288
31,078
16,375
212,241
12,500
152,288
-
31,078
16,375
212,241
95,000
89,236
-
-
184,236
12,500
12,500
159,236
-
-
184,236
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
the Company does not directly hold any derivative transactions. all derivatives are held by subsidiaries. all trade
receivables and trade payables of the Company are to entities that are part of its tax Consolidated group. no interest is
charged on these balances.
Fair value sensitivity analysis for fixed rate instruments
the group does not account for any fixed rate financial asset and liabilities at fair value through the profit and loss and the
group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting
model. therefore a change in interest rate at reporting date would not affect profit or loss.
cash flow sensitivity analysis for variable rate instruments
a change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit
or loss by the amounts shown below. the analysis assumes that all other variables, in particular foreign currency rates,
remain constant. the analysis is performed on the same basis for 2007.
Effect in thousands of AUD
30 June 2008
Cash flow sensitivity
30 June 2007
Cash flow sensitivity
Profit or loss
equity
100bp
increase
100bp
decrease
100pb
increase
100pb
decrease
(1,806)
1,806
4,532
(4,532)
(1,299)
1,299
2,339
(2,339)
65
65
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
5
FinAnciAl riSK MAnAGeMenT (cOnTinued)
Fair values
Fair values versus carrying amounts
the fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet,
are as follows:
consolidated
In thousands of AUD
receivables
Cash and cash equivalents
interest rate swaps used for hedging:
assets
liabilities
forward exchange contracts used for hedging:
assets
liabilities
secured bank loans
finance lease liabilities
trade and other payables*
Bank overdraft
* excludes derivatives (shown separately)
company
In thousands of AUD
trade and other receivables
Cash and cash equivalents
trade and other payables
30 June 2008
30 June 2007
carrying
Amount
Fair
value
Carrying
amount
fair
value
103,212
16,804
103,212
16,804
89,456
27,740
89,456
27,740
361
-
361
-
2,907
-
2,907
-
-
(229)
(347,275)
(17,965)
(45,943)
-
(291,035)
-
(229)
(346,658)
(17,965)
(45,943)
-
(290,418)
9
(1,607)
(323,087)
(8,257)
(43,621)
(1,500)
(257,960)
9
(1,607)
(323,731)
(8,257)
(43,621)
(1,500)
(258,604)
30 June 2008
30 June 2007
carrying
Amount
Fair
value
Carrying
amount
fair
value
547,329
4
(3,695)
543,638
547,329
4
(3,695)
543,638
553,231
4
(17,782)
535,453
553,231
4
(17,782)
535,453
the basis for determining fair values is disclosed in note 4.
interest rates used for determining fair value
the interest rates used to discount estimated cash flows, where applicable, are based on the government yield curve at the
reporting date plus an adequate credit spread, and were as follows:
Derivatives
loans and borrowings
leases
2008
-
-
-
8.0%
8.0%
10.0%
3.0%
3.0%
4.0%
2007
-
-
-
7.0%
8.0%
10.0%
4.0%
4.0%
6.0%
the group has not identified other price risks that it considers it is material exposed to, other than those identified.
66
67
67
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
capital management
the Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to
sustain future development of the business. the Board of Directors monitors the return on capital, which the group defines
as earnings before interest, tax and amortisation (“eBita”) divided by total closing net tangible assets plus interest bearing
liabilities. the Board of Directors also monitors the level of dividends to ordinary shareholders.
the Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings
and the advantages and security afforded by a sound capital position. the group’s eBita return on funds employed for the
year was 14.0% (2007: 17.3%).
primarily for satisfying potential future obligations under its employee share plans the group purchases its own shares
on the market. the timing of these purchases depends on the number of shares that have been issued under either of its
employee share plans. Buy and sell decisions are made on a specific transaction basis; the group does not have a defined
share buy-back plan.
there were no changes in the group’s approach to capital management during the year.
neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
6
OTher incOMe
net profit on sale of non current assets (1)
ineffective portion of cash flow hedges
Bad debt recovered
sundry income
Dividend received
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
9,476
-
-
693
-
10,169
11,687
454
591
1,303
-
14,035
-
-
-
-
33,600
33,600
-
-
-
-
7,500
7,500
(1) included in net profit on the sale of non current assets is the sale of rental equipment which occurs in the ordinary course
of business.
67
67
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
7
PrOFiT BeFOre incOMe TAX eXPenSe
profit before income tax expense
has been arrived at after charging/
(crediting) the following items:
Cost of sale of machines and parts
212,585
204,505
write-down in value of inventories
8,294
4,951
Depreciation of:
- buildings
- plant and equipment - owned
- plant and equipment - leased
- furniture fittings and fixtures
- office equipment
- motor vehicles
- leasehold improvements
- sundry plant
amortisation of:
- contract intangible
- other intangibles
total depreciation and amortisation
financial expenses:
- interest expense
- exchangeable notes
- amortisation of debt establishment costs
- loss on extinguishment of debt (1)
- other facility costs
financial income:
- interest revenue
net financial expenses
378
86,961
1,204
164
601
1,661
489
1,655
93,113
911
206
1,117
94,230
23,517
-
294
-
1,358
25,169
227
72,827
2,274
161
415
1,544
311
1,101
78,860
3,279
143
3,422
82,282
19,813
4,490
476
18,848
889
44,516
(1,624)
23,545
(822)
43,694
net foreign exchange (gain)/loss
316
423
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16
-
-
1,802
-
1,818
-
1,818
-
(1) Due to the extinguishment of the group’s debt facilities and exchangeable notes, the associated deferred borrowing
costs, and the discount on conversion of notes to shares in the Company were expensed during the prior year.
68
69
69
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
8
AudiTOr’S reMunerATiOn
Audit services
auditors of the Company
KPMG Australia:
- audit and review of financial reports
Overseas KPMG Firms:
- audit and review of financial reports
- other assurance services
Other services
auditors of the Company
KPMG Australia:
- transaction services
- taxation services
Overseas KPMG Firms:
- taxation services
- accounting assistance
- transaction services (1)
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
392,528
357,500
392,528
357,500
249,413
-
641,941
238,700
6,500
602,700
-
-
392,528
-
-
357,500
116,030
108,953
113,013
297,115
-
108,953
48,099
-
115,960
2,081
440,107
783,131
262,917
-
262,000
935,045
-
-
-
108,953
-
-
-
48,099
1,425,072
1,537,745
501,481
405,599
(1) included in these amounts are fees for transaction and assurance services for offshore business combinations.
69
69
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
consolidated
company
note
2008
$’000
2007
$’000
2008
$’000
2007
$’000
9
incOMe TAX eXPenSe
(a) recognised in the income statement
Current tax expense:
Current year
adjustments for prior years
Deferred tax expenses:
origination and reversal of temporary differences
reduction in tax rate
adjustment for prior years
total income tax expense in income statement
11
(b) Deferred tax recognised directly in equity:
Capital raising costs
Cashflow hedges
(c) numercial reconciliation between tax expense
and pre tax net profit:
prima facie income tax expense/(benefit) calculated
at 30% on net profit
increase/(decrease) in income tax expense due to:
effect on tax rate in foreign jurisdictions
Discount on exchangeable notes
share based payments
reduction in tax rate
sundry
Decrease in income tax expense due to:
Dividend from subsidiary
under/(over) provided in prior years
income tax expense/(benefit)
28,856
23
28,879
5,997
(1,024)
(5,703)
(730)
28,149
15,038
10
15,048
9,457
(640)
-
8,817
23,865
(264)
23
(241)
-
-
-
-
(241)
(203)
10
(193)
-
-
-
-
(193)
1,328
(379)
949
(5,492)
(355)
(5,847)
1,328
-
1,328
(5,492)
-
(5,492)
28,703
23,988
9,715
1,352
(124)
-
145
(1,024)
426
110
541
195
(640)
(339)
-
-
101
-
-
-
541
154
-
-
-
23
28,149
-
10
23,865
(10,080)
23
(241)
(2,250)
10
(193)
70
71
71
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
10
currenT TAX ASSeTS And liABiliTieS
the current tax asset for the group of $3,036,000 (2007: $2,932,000) and for the Company of nil (2007: nil) represents
income taxes recoverable in respect of prior periods and that arise from payment of taxes in excess of the amount due
to the relevant tax authority. the current tax liability for the group of $24,289,000 (2007: $12,489,000) and for the
Company of $24,231,000 (2007: $12,141,000) represent the amount of income taxes payable in respect of current and
prior financial periods.
the Company liability includes the income tax payable by all members of the tax consolidated group in australia.
11
deFerred TAX ASSeTS And liABiliTieS
recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
liabilities
net
2008
$’000
2007
$’000
2008
$’000
2007
$’000
2008
$’000
2007
$’000
(474)
-
(3,926)
(51)
(1,130)
(69)
(3,908)
(1,434)
(4,164)
(50)
(294)
(4,904)
(20,404)
16,920
(3,484)
(639)
-
(3,343)
-
(1,039)
-
(1,022)
(1,221)
(5,492)
(254)
(255)
(2,682)
(15,947)
13,578
(2,369)
25,333
90
10
13,650
-
107
2,721
-
-
-
-
-
41,911
(16,920)
24,991
20,999
300
122
12,950
-
417
1,403
-
-
-
477
-
36,668
(13,578)
23,090
24,859
90
(3,916)
13,599
(1,130)
38
(1,187)
(1,434)
(4,164)
(50)
(294)
(4,904)
21,507
-
21,507
20,360
300
(3,221)
12,950
(1,039)
417
381
(1,221)
(5,492)
(254)
222
(2,682)
20,721
-
20,721
consolidated
property, plant and equipment
intangible assets
receivables
inventories
payables
Derivatives
interest-bearing loans and borrowings
employee benefits
equity - capital raising costs
provisions
other items
tax losses carried forward
tax (assets) / liabilities
set off of tax
net tax (assets) / liabilities
The company
equity - capital raising costs
net tax (assets) / liabilities
(4,164)
(4,164)
(5,492)
(5,492)
-
-
-
-
(4,164)
(4,164)
(5,492)
(5,492)
71
71
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
11
deFerred TAX ASSeTS And liABiliTieS (cOnTinued)
Movement in Temporary difference during the year
consolidated
company
Acquired
through
business
combination
Balance
1 July 06
recognised
in income
recognised
in equity
Balance
30 June 07
Balance
1 July 06
recognised
in income
recognised
in equity
Balance
30 June 07
property, plant
and equipment
13,112
intangible
assets
receivables
inventories
payables
Derivatives
interest-bearing
loans and
borrowings
employee
benefits
equity - capital
raising costs
provisions
other items
tax losses
carried forward
830
(718)
4,637
(532)
772
(23)
(872)
-
(229)
143
-
216
420
-
-
-
-
-
7,032
(950)
(2,503)
8,313
(507)
-
-
-
-
-
20,360
300
(3,221)
12,950
(1,039)
-
(355)
417
404
(5)
(344)
-
-
381
(1,221)
-
-
-
-
-
(25)
79
(2,682)
(5,492)
(5,492)
-
-
-
(254)
222
(2,682)
17,120
631
8,817
(5,847)
20,721
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(5,492)
(5,492)
-
-
-
-
-
-
(5,492)
(5,492)
Acquired
through
business
combination
Balance
1 July 07
recognised
in income
recognised
in equity
Balance
30 June 08
Balance
1 July 07
recognised
in income
recognised
in equity
Balance
30 June 08
property, plant
and equipment
intangible assets
receivables
inventories
payables
Derivatives
interest-bearing
loans and
borrowings
employee benefits
equity - capital
raising costs
provisions
other items
tax losses
carried forward
20,360
300
(3,221)
12,950
(1,039)
417
381
(1,221)
(5,492)
(254)
222
(2,682)
20,721
72
38
-
-
529
-
-
-
-
-
-
-
-
567
4,461
(210)
(695)
120
(91)
-
-
-
-
-
-
(379)
24,859
90
(3,916)
13,599
(1,130)
38
(1,568)
(213)
-
-
(1,187)
(1,434)
-
-
-
-
-
-
-
-
-
1,328
(4,164)
(5,492)
204
(516)
(2,222)
(730)
-
-
-
(50)
(294)
(4,904)
-
-
-
949
21,507
(5,492)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,328
(4,164)
-
-
-
-
-
-
1,328
(4,164)
73
73
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
12
dividendS
(i)
dividends recognised in the current year by the Group are:
In thousands of AUD
2008
final 2007 ordinary
interim 2008 ordinary
total amount
cents
per share
Total
amount $
Franked/
unfranked
date of
payment
2.5
2.0
15,781
12,625
28,406
franked
franked
28 september 2007
4 april 2008
franked dividends declared or paid during the year were franked at the tax rate of 30%.
Subsequent to 30 June 2008
after the balance sheet date the following dividends were proposed by the directors. the dividends have not been
provided. the declaration and subsequent payment of dividends has no income tax consequences.
2008
final 2008 ordinary
total amount
cents
per share
Total
amount $
Franked/
unfranked
date of
payment
2.5
15,781
15,781
franked
30 september 2008
the financial effect of these dividends has not been brought to account in the financial statements for the financial year
ended 30 June 2008 and will be recognised in subsequent financial reports.
dividends recognised in the prior year by the Group are:
2007
interim 2007 ordinary
total amount
(ii)
Franking account
cents
per share
Total
amount $
Franked/
unfranked
date of
payment
1.0
6,312
6,312
franked
21 march 2007
Dividend franking account
30% franking credits available to shareholders of emeco holdings limited
for subsequent financial years
The company
2008
$’000
2007
$’000
39,181
16,708
73
73
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
12
dividendS (cOnTinued)
(ii)
Franking account
the above available amounts are based on the balance of the dividend franking account at year-end adjusted for:
(a)
(b)
(c)
franking credits that will arise from the payment of current tax liabilities and recovery of current tax receivables;
franking debits that will arise from the payment of dividends recognised as a liability at the year end;
franking credits that will arise from the receipt of dividends recognised as receivables by the tax consolidated group
at the year-end; and
(d)
franking credits that the entity may be prevented from distributing in subsequent years.
the ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends.
the impact on the dividend franking account of dividends proposed after the balance sheet date but not recognised as a
liability is to reduce it by $6,763,000 (2007: $6,763,000). in accordance with the tax consolidation legislation, the Company
as the head entity in the tax-consolidated group has also assumed the benefit of $39,181,000 (2007: $16,708,000)
franking credits.
13
SeGMenT rePOrTinG
segment information is presented in respect of the group’s business and geographical segments. the primary format,
business segments, is based on the group’s management and internal reporting structure.
inter-segment pricing is determined on an arm’s length basis.
segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated
on a reasonable basis. unallocated items mainly comprise interest earnings assets and revenue, interest-bearing loans,
borrowings, and expenses, and corporate assets.
segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be
used for more than one year.
Business Segments
the group comprises the following main business segments, based on the group’s management reporting system:
rental
sales
parts
maintenance
Geographical segments
provides a wide range of earthmoving equipment to customers.
sells a wide range of earthmoving equipment to customers in the civil
construction and mining industries.
procuring and supplying global sourced used and reconditioned parts to external customers
and internally to the rental and sales division.
maintenance, repair and refurbishment of customer plant and equipment.
in presenting information on the basis of geographical segments, segment revenue is based on the geographical location
of customers. segment assets are based on the geographical location of the assets.
the group’s business segments operate geographically as follows:
australia
asia
north america
europe
rental, sales, parts and maintenance divisions throughout australia
rental division in indonesia
rental, sales and parts divisions throughout north america
rental and sales division in netherlands
74
75
75
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
7
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3
1
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
14
cASh ASSeTS
Cash at bank
15
TrAde And OTher receivABleS
Current
trade receivables
less: impairment of receivables
receivables from subsidiaries - tax balances
other receivables
non-current
other receivables
fair value derivatives
loans to controlled entities
intercompany loans
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
16,804
27,740
101,412
(5,378)
96,034
-
7,178
103,212
82,738
(1,598)
81,140
-
7,563
88,703
4
-
-
-
4
-
-
-
35,623
-
35,623
45,819
-
45,819
215
361
-
576
762
2,907
-
3,669
-
-
511,706
511,706
-
-
507,412
507,412
the group does not charge interest on loans established within the australian group. interest is charged on
intercompany cross boarder loans at arms length interest rates. loans are repayable at call but are not expected to be
repaid within 12 months.
16
PrePAYMenTS
tyre prepayments
other prepayments
17
invenTOrieS
equipment and parts - at cost
work in progress - at cost
Consumables, spare parts - at cost
consolidated
The company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
4,644
2,367
7,011
5,274
3,572
8,846
145,446
5,620
36,262
187,328
142,075
1,935
43,121
187,131
-
-
-
-
-
-
-
-
-
-
-
-
-
-
76
77
77
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
18
inTAnGiBle ASSeTS
goodwill
Carrying amount at the beginning of the year
acquisition through business combination
effects of movement in foreign exchange
Contract intangibles - at cost
less: accumulated amortisation
other intangibles - at cost
less: accumulated depreciation
221,927
3,868
(2,910)
222,885
712
(623)
89
1,388
(801)
587
211,852
13,290
(3,215)
221,927
22,390
(21,390)
1,000
968
(505)
463
total intangible assets
223,561
223,390
movement in contract intangibles
Carrying amount at the beginning of the year
acquisition through business combination
less : accumulated amortisation
Amortisation charge
1,000
-
(911)
89
2,766
1,513
(3,279)
1,000
the amortisation charge is recognised in the following line item in the income statement:
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
amortisation expense
1,117
3,422
-
-
consolidated
The company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
77
77
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
18
inTAnGiBle ASSeTS (cOnTinued)
impairment tests for cash generating units contained goodwill
for the purpose of impairment testing, goodwill is allocated to the group’s geographical operating divisions which
represents the lowest level within the group at which the goodwill is monitored for internal management purposes.
the aggregate carrying amounts of goodwill allocated to each unit are as follows:
australian rental
north american rental
asian rental
total rental
australian sales
european sales
australian parts
north american parts
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
168,591
7,445
17,129
193,165
16,376
6,323
3,729
3,292
222,885
168,029
8,136
19,538
195,703
16,376
6,119
3,729
-
221,927
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
the methodology for determining recoverable amount of cash generating units is based on fair value less cost of sale
(2007 methodology: value in use). the change in methodology is due to management’s assessment that this is a more
accurate methodology to measure the group’s assets, and uses the same principals that the group uses for valuing
potential business acquisitions. the calculation is based on discounted cash flow for five years plus a terminal value.
the terminal value is cross referenced to recent transactions of similar assets. post tax discount rates have been
determined using 10 year bond rates plus an appropriate margin for each functional currency’s cash generating unit.
consolidated
The company
note
2008
$’000
2007
$’000
2008
$’000
2007
$’000
19
inveSTMenTS
investments in subsidiaries
29
-
-
162,729
153,859
the Company’s investment in subsidiaries represent its investment in emeco (uk) limited.
78
79
79
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
20
PrOPerTY, PlAnT And equiPMenT
freehold land and Buildings - at cost
less: accumulated depreciation
leasehold improvements at cost
less: accumulated depreciation
plant and equipment - at cost
Capital work in progress
less : accumulated depreciation
leased plant and equipment - at capitalised cost
less : accumulated depreciation
furniture, fixtures and fittings - at cost
less : accumulated depreciation
office equipment - at cost
less : accumulated depreciation
motor vehicles - at cost
less : accumulated depreciation
sundry plant - at cost
less : accumulated depreciation
23,171
(706)
22,465
4,551
(1,180)
3,371
8,989
(388)
8,601
3,198
(736)
2,462
745,948
6,116
(185,420)
566,644
649,103
-
(141,553)
507,550
19,523
(1,980)
17,543
1,915
(624)
1,291
2,808
(1,639)
1,169
5,970
(1,823)
4,147
9,041
(3,681)
5,360
17,159
(4,500)
12,659
1,533
(425)
1,108
2,565
(1,260)
1,305
9,440
(3,080)
6,360
6,576
(2,318)
4,258
total property, plant and equipment - at net book value
621,990
544,303
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
79
79
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
20
PrOPerTY, PlAnT And equiPMenT
reconciliations
reconciliations of the carrying amounts for each class of property,
freehold land and Buildings
Carrying amount at the beginning of the year
additions
acquisition through entity acquired
Disposal
Depreciation
effects of movements in foreign exchange
Carrying amount at the end of the year
leasehold improvements
Carrying amount at the beginning of the year
additions
acquisition through entity acquired
Disposals
Depreciation
Carrying amount at the end of the year
plant and equipment
Carrying amount at the beginning of the year
additions
Capital work in progress
transfer from leased plant and equipment
acquisition through entity acquired
Disposals
Depreciation
effects of movements in foreign exchange
Carrying amount at the end of the year
furniture, fixtures and fittings
Carrying amount at the beginning of the year
additions
acquisition through entity acquired
Disposals
Depreciation
effects of movement in foreign exchange
Carrying amount at the end of the year
office equipment
Carrying amount at the beginning of the year
additions
acquisition through entity acquired
Disposals
Depreciation
effects of movement in foreign exchange
Carrying amount at the end of the year
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
8,601
15,207
-
(569)
(378)
(396)
22,465
2,462
1,075
323
-
(489)
3,371
507,550
175,391
6,116
9,672
110
(30,366)
(86,961)
(14,868)
566,644
1,108
176
177
(6)
(164)
-
1,291
1,305
605
-
(140)
(601)
-
1,169
8,569
1,657
40
(1,171)
(227)
(267)
8,601
2,151
625
-
(3)
(311)
2,462
402,933
194,803
-
2,926
29,168
(34,137)
(72,827)
(15,316)
507,550
731
509
29
-
(161)
-
1,108
711
923
92
(6)
(415)
-
1,305
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
80
81
81
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
20
PrOPerTY, PlAnT And equiPMenT (cOnTinued)
reconciliations (continued)
reconciliations of the carrying amounts for each class of property,
plant and equipment are set out below:
motor vehicles
Carrying amount at the beginning of the year
additions
acquisition through entity acquired
Disposals
Depreciation
effects of movement in foreign exchange
Carrying amount at the end of the year
sundry plant
Carrying amount at the beginning of the year
additions
acquisition through entity acquired
Disposals
Depreciation
effects of movement in foreign exchange
Carrying amount at the end of the year
leased plant and equipment
Carrying amount at the beginning of the year
additions
transfer to owned plant and equipment
Depreciation
effects of movements in foreign exchange
Carrying amount at the end of the year
Security
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
6,360
2,638
59
(3,180)
(1,661)
(69)
4,147
4,258
2,813
-
(17)
(1,655)
(39)
5,360
12,659
17,208
(9,672)
(1,204)
(1,448)
17,543
4,193
3,641
393
(266)
(1,544)
(57)
6,360
3,211
2,120
53
(11)
(1,101)
(14)
4,258
20,454
-
(2,926)
(2,274)
(2,595)
12,659
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
the group’s assets are subject to a fixed and floating charge under the terms of the syndicated debt facility.
21
TrAde And OTher PAYABleS
trade creditors
other creditors and accruals
payable to subsidiaries - tax balances
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
18,660
27,512
-
46,172
22,404
21,217
-
43,621
-
-
3,695
3,695
-
-
17,782
17,782
81
81
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
22
inTereST BeArinG liABiliTY
Current
working capital facility
lease liabilities - secured
non-Current
Bank loans - secured
lease liabilities - secured
Debt raising costs
Bank loans
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
-
6,557
6,557
1,500
5,021
6,521
347,275
11,408
(617)
358,066
323,731
3,236
(644)
326,323
-
-
-
-
-
-
-
-
-
-
-
-
-
-
under the terms of the group’s syndicated facility the banks hold a fixed and floating charge over the assets and
undertakings of the group. the facility has an expiration date of 21 July 2009. each entity of the consolidated group is a
guarantor. the syndicated facility allows for funds to be drawn in australian, united states, Canadian and euro dollars.
at year end the group had drawn a$110.2m, us$86.6m (a$89.7m), C$114.8m (a$118.1m) and €17.8m (a$29.2m) (2007:
a$120.2m, us$67.5m (a$79.8m), C$95.5m (a$106.5m) and €10.8m (a$17.2m)).
subsequent to year end the group refinanced its syndicated senior debt facility. the facility is a 3 year revolving senior
secured debt facility with a limit of $595.0m. the new facility has a commencement date of 2 september 2008.
working capital facility
the working capital facility is secured under the syndicated facility mentioned above, and has a limit of $25.0m
(2007: $25.0m).
subsequent to year end the working capital facility was renegotiated as part of the refinance of the syndicated debt facility,
and is secured under the new facility with a limit of $35.0m.
lease liabilities
under the terms of the syndicated facility the group is allowed to utilise finance lease facilities totalling $40.0m (2007:
$40.0m). at year end the group has been granted a us$35.0m (2007: us$15.0m) finance facility and has provided a letter
of Comfort to guarantee the terms and conditions of the finance facilities. assets leased under the facility are secured by
the facility.
82
83
83
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Finance lease liabilities
finance lease liabilities of the group are payable as follows:
In thousands of AUD
less than one year
Between one and five years
more than five years
Future
minimum
lease
payments
2008
7,471
12,010
-
19,481
interest
2008
(914)
(602)
-
(1,516)
consolidated
Present
value of
minimum
lease
payments
2008
6,557
11,408
-
17,965
future
minimum
lease
payments
2007
5,433
3,389
-
8,822
present
value of
minimum
lease
payments
2007
5,021
3,236
-
8,257
interest
2007
(412)
(153)
-
(565)
the group leases plant and equipment under finance leases. the group’s lease liabilities are secured by the leased assets
of $17,543,000 (2007: $12,659,000). in the event of default, the leased assets revert to the lessor.
23
FinAncinG ArrAnGeMenTS
the group has the ability to access the following lines of credit:
total facilities available:
Bank loans
finance leases
working capital
facilities utilised at reporting date:
Bank loans
finance leases
working capital
facilities not utilised or established at reporting date:
Bank loans
finance leases
working capital
24
PrOviSiOnS
current
employee benefits:
- annual leave
- long service leave
non-current
employee benefits - long service leave
defined contribution superannuation funds
consolidated
The company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
490,000
36,258
25,000
551,258
490,000
17,724
25,000
532,724
347,275
17,965
-
365,240
323,731
8,257
1,500
333,488
142,725
18,293
25,000
186,018
166,269
9,467
23,500
199,236
4,087
422
4,509
3,319
317
3,636
682
524
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
the group makes contributions to defined contribution superannuation funds. the amount recognised as expense was
$3,099,000 (2007: $2,574,000).
83
83
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
consolidated
company
note
2008
$’000
2007
$’000
2008
$’000
2007
$’000
25
ShAre cAPiTAl And cOnTriBuTed equiTY
share capital
631,237,586 (2007: 631,237,586 ) ordinary shares,
fully paid and unpaid
684,882
685,165
684,882
685,165
acquisition reserve
29(c)(v)
(75,887)
(75,887)
-
-
608,995
609,278
684,882
685,165
Ordinary Shares
2008
2007
on issue at 1 July
631,237,586
53,149,894
issued as part of business combinations (pre ipo)
29(c)(iii)
Conversion of preferred ordinary shares (pre ipo)
Conversion of management performance shares
2:1 split of ordinary shares on issue (pre ipo)
Conversion of emeco limited exchangable notes
to ordinary shares
ipo gift offer
ordinary shares issued through ipo
on issue at 30 June - fully paid
Share options
-
333,333
- 113,251,248
-
18,000,000
- 184,734,475
-
-
37,952,218
140,442
- 223,675,976
631,237,586 631,237,586
on 4 august 2006 the Company issued 6,400,000 options over ordinary shares under an employee incentive plan. these
options had a fair value at grant date of $1.2m and will be recognised over the vesting period of the options.
Terms and conditions
Ordinary shares
holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per
share at shareholders’ meetings.
in the event of winding up of the Company, the ordinary shareholder ranks after all other creditors are fully entitled to any
proceeds of liquidation.
84
85
85
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
25
ShAre cAPiTAl And cOnTriBuTed equiTY (cOnTinued)
reconciliation of movement in capital and reserves attributable to equity holders of the parent
consolidated
$’000
issued
capital
share based
payment
reserve
hedging
reserve
foreign
currency
translation
reserve
reserve
for own
share
retained
earnings
total
minority
interest
2007
total
equity
Balance at 1 July 2006
total recognised
income and expense
Dividend paid during
the year
transfer from
translation reserve
shares issued (net of
expenses)
share based payments
Conversion of exchange-
able notes
acquisition of minority
interest
(see note: 29(c)(v))
acquisition reserve
(see note: 29(c)(v))
173,928
150
1,195
-
-
-
-
439,128
-
-
-
-
-
873
72,109
-
(75,887)
-
-
-
(280)
(7,582)
-
-
-
-
-
-
-
-
(353)
-
-
-
-
-
Balance at 30 June 2007
609,278
1,023
915
(7,935)
-
-
-
-
-
-
-
-
-
-
-
-
20,732
196,005
40,264
236,269
54,773
46,911
436 (1)
47,347
(6,260)
(6,260)
353
-
-
-
(6,260)
-
-
-
-
-
439,128
854
439,982
873
72,109
-
-
873
72,109
-
(41,554)
(41,554)
-
(75,887)
69,598
672,879
-
-
(75,887)
672,879
(1) included in the total recognised income and expense of the minority interest are differences on transactions of foreign
operations of ($885,000).
consolidated
$’000
issued
capital
Share based
payment
reserve
hedging
reserve
Foreign
currency
translation
reserve
reserve
for own
share
retained
earnings
Total
Minority
interest
Balance at 1 July 2007
609,278
1,023
915
(7,935)
total recognised income
and expense
Dividend paid during
the year
shares issued (net
of expenses)*
share based payments
own shares acquired by
employee share plan trust
Balance at 30 June 2008
-
-
(283)
-
-
-
-
-
451
-
(825)
(8,836)
-
-
-
-
-
-
-
-
-
-
-
-
-
(985)
69,598
672,879
67,529
57,868
(28,194)
(28,194)
-
-
-
(283)
451
(985)
608,995
1,474
90
(16,771)
(985)
108,933
701,736
* Costs incurred as a result of the Company’s initial public offering settled during 2008.
-
-
-
-
-
-
-
2008
Total
equity
672,879
57,868
(28,194)
(283)
451
(985)
701,736
85
85
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
25
ShAre cAPiTAl And cOnTriBuTed equiTY (cOnTinued)
reconciliation of movement in capital and reserves attributable to equity holders of the parent (continued)
company
$’000
Balance at 1 July 2006
total recognised income and expense
Dividend paid
share based payments
Conversion of exchangeable notes
shares issued (net of costs)
Balance at 30 June 2007
company
$’000
Share based
reserve
issued
capital
payment
reserve
of own
shares
retained
earnings
173,928
150
-
-
-
72,109
439,128
685,165
-
-
873
-
-
1,023
-
-
-
-
-
-
-
(1,965)
4,700
(6,260)
-
-
-
2007
Total
equity
172,113
4,700
(6,260)
873
72,109
439,128
(3,525)
682,663
Share based
reserve
issued
capital
payment
reserve
of own
shares
retained
earnings
2008
Total
equity
Balance at 1 July 2007
total recognised income and expense
Dividend paid
share based payments
shares issued (net of costs)*
own shares acquired by employee share plan trust
685,165
1,023
-
-
-
(283)
-
-
-
451
-
-
Balance at 30 June 2008
684,882
1,474
* Cost incurred as a result of the Company’s initial public offering settled during 2008.
-
-
-
-
-
(985)
(985)
(3,525)
682,663
32,648
(28,194)
32,648
(28,194)
-
-
-
451
(283)
(985)
929
686,300
Translation reserve
the translation reserve comprises all foreign currency differences arising from the translation of the financial statements of
foreign operations.
hedging reserve
the hedging reserve comprises the effective portion of the cumulative net change in fair value of cash flow hedging
instruments related to hedged transactions that have not yet occurred.
Share based payment reserve
the share based payment reserve comprises the expenses incurred from the issue of the Company’s securities under its
employee share/option plans (refer note 3(j)(v)).
86
87
87
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
26
cOMMiTMenTS
(a)
operating lease Commitments
future non-cancellable operating leases
not provided for in the financial statements
and payable:
within one year
one year or later but not later than five years
later than five years
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
6,208
11,736
924
18,868
4,370
7,305
2,345
14,020
-
-
-
-
-
-
-
-
the group leases the majority of their operating premises. the terms of the tenure are negotiated in conjunction
with the group’s in-house and external advisors and is dependent upon market forces.
During the financial year the group recognised an expense in the income statement in respect to operating leases of
$11,642,000 (2007: $8,268,000).
under the terms of the group’s syndicated loan facility the group is allowed to enter into operating leases up to
$20,000,000 (2007: $20,000,000).
(b)
Capital Commitments
the group has entered into commitments with certain suppliers for purchases of fixed assets, primarily rental fleet
assets, in the amount of $49,108,000 (2007: $43,632,000) payable within one year.
27
cOnTinGenT liABiliTieS
Details of contingent liabilities where the probability of future payments/receipts is not considered remote as set out below,
as well as details of contingent liabilities, which although considered remote, the directors consider should be disclosed.
Guarantees
the group has guaranteed the repayments of $381,250 (2007: $317,000) with varying expiry dates out to 30 June 2013.
87
87
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
28
nOTeS TO The STATeMenTS OF cASh FlOwS
(i)
reconciliation of Cash
for the purposes of the statements of cash flow, cash includes cash on hand and at bank and short term deposits at
call, net of outstanding bank overdrafts. Cash as at the end of the financial year as shown in the statements of cash
flows is reconciled to the related items in the statements of financial position as follows:-
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
note
Cash assets
14
16,804
27,740
4
4
(ii)
reconciliation of net profit to net cash provided by
operating activities
net profit
67,529
56,094
32,648
4,700
add/(less) items classified as
investing/financing activities:
net profit on sale of non-current assets
add/(less) non-cash items:
amortisation
Depreciation
amortisation of borrowing costs
Discount on issue of shares
unrealised foreign exchange (gain)/loss
stock write downs
equity settled share based payments
(Decrease)/increase in income taxes payable
(Decrease)/increase in deferred taxes
net cash provided by operating activities before
change in assets liabilities adjusted for assets
and liabilities acquired
(increase)/decrease in trade and other
receivables
(increase)/decrease in inventories
increase/(decrease) in payables
increase/(decrease) in provisions
net cash provided by operating activities
(iii)
non-cash investing and financing activities
(9,476)
(11,687)
-
-
1,117
93,113
295
-
502
8,294
451
13,571
(1,105)
3,422
78,860
17,522
1,802
394
4,951
873
8,735
8,817
-
-
-
-
-
-
335
6,871
-
-
-
-
1,802
-
-
648
9,427
-
174,291
169,783
39,854
16,577
(14,591)
(2,197)
(4,943)
1,031
153,591
(19,275)
(67,999)
824
868
84,201
(5,166)
-
(14,086)
-
20,602
(12,770)
-
(2,426)
-
1,381
- During the year there were $17.2m acquisitions of plant and equipment by means of finance lease (2007: nil).
finance lease acquisitions are not reflected in the cash flow statements.
- During the prior year the Company acquired control of Bevan’s. part of the consideration was $1.0m of the
Company shares which is not reflected in the statement of cash flow.
- During the prior year, as a result of the Company’s initial public offering exchangeable notes with a face value
of $70.3m were exchanged for $72.1m of shares in the Company. this is not reflected in the comparative
statement of cash flow.
88
89
89
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
29
cOnTrOlled enTiTieS
(a)
Particulars in relation to controlled entities
Parent entity
emeco holdings limited
Controlled entities
emeco pty limited
emeco international pty limited
emeco sales pty ltd
emeco parts pty ltd
emeco (uk) limited
emeco equipment (usa) llC
wildcat tractor Company llC
emeco international mauritius
emeco global
pt prima traktor indonusa (pti)
emeco international europe Bv
emeco europe Bv
euro machinery Bv
emeco Canada ltd
country
of
incorporation
Ownership interest
2008
%
2007
%
note
australia
australia
australia
australia
united kingdom
united states
united states
mauritius
mauritius
indonesia
netherlands
netherlands
netherlands
Canada
(i)
(ii)
(iii)
(iv)
(iv)
(v)
(vi)
(vi)
(vii)
(viii)
100
100
100
100
100
100
100
0
0
100
100
100
100
100
100
100
100
100
100
100
0
100
100
100
100
100
100
100
notes
(i)
emeco (uk) limited was incorporated in and carries on business in the united kingdom. emeco (uk) limited is
the parent entity of emeco equipment (usa) llC, emeco international mauritius, emeco global, pt prima traktor
indonusa (“pti”), emeco international europe Bv and emeco Canada limited. emeco (uk) limited was acquired as
a subsidiary on 4 august 2006 as a result of the Company’s initial public offering. prior to this emeco (uk) limited
was a special purpose entity and was reflected as a minority interest within the group’s results.
(ii)
emeco equipment (usa) llC was incorporated in and carries on business in the united states.
(iii) wildcat tractor Company llC was acquired by emeco equipment (usa) llC on 4 January 2008 and is incorporated
in and carries on business in the united states.
(iv)
emeco international mauritius (“mauritius”) and emeco global (“global”) were incorporated in mauritius and carry
on business in the united kingdom. at 30 June 2007 mauritius and global transferred at cost their total shares held
in pti of 5,149 and 1 shares to emeco (uk) limited and emeco europe Bv respectively. mauritius and global were
wound up during the year.
(v)
pt prima traktor indonusa was incorporated in and carries on business in indonesia.
(vi)
emeco international europe Bv and emeco europe Bv were incorporated in and carries on business in the
netherlands. emeco international europe Bv is the parent entity of emeco europe Bv, and euro machinery Bv.
(vii)
euro machinery Bv was acquired on 4 January 2007 and carries on business in the netherlands.
(viii) emeco Canada ltd was incorporated and carries on business in Canada. on 2 august 2005 emeco Canada ltd
acquired river valley equipment Company ltd, which operates within emeco Canada ltd.
89
89
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
29
cOnTrOlled enTiTieS (cOnTinued)
(b)
Acquisition of entities in the current year
on 4 January 2008, emeco equipment (usa) llC, a subsidiary of the Company acquired the business of wildcat
tractor Company inc, a parts business based in london, kentucky usa. the consideration paid was us$4,500,000
(a$5,111,000). subsequent to acquisition the business changed its name to wildcat tractor Company llC. from
the date of acquisition to 30 June 2008 the subsidiary contributed a net profit after tax of $526,000.
$’000
Cash and cash equivalents
property, plant and equipment
inventories
trade and other receivables
interest bearing loans and borrowings
trade and other creditors
Deferred tax liability
net identifiable assets and liabilities
goodwill on acquisition
total consideration
Consideration paid, satisfied in cash (cash outflow)
Cash (acquired)
net cash outflow
(c)
Acquisition of entities in the prior year
recognised
value
Fair value
adjustment
carrying
amounts
-
-
1,435
-
-
-
(529)
906
274
669
1,543
919
(2,317)
(83)
(38)
967
274
669
2,978
919
(2,317)
(83)
(567)
1,873
3,238
5,111
5,111
(274)
4,837
(i)
on 28 June 2007, emeco international pty ltd, a subsidiary of the Company acquired the business of Jk mining,
an independent contract mining business based in Queensland for a consideration of $12,983,000 cash. upon
acquisition the business was merged into the existing Queensland rental division of emeco, and commenced
generating revenue in July 2007.
effect of acquisitions
the acquisition had the following effect on the consolidated entity’s assets and liabilities.
Acquiree’s net assets at the acquisition date
$’000
property, plant and equipment
inventories
Deferred tax asset
provisions
net identifiable assets and liabilities
goodwill on acquisition
Consideration paid, satisfied in cash
recognised
value
8,441
559
5
(17)
8,988
3,995
12,983
(1) as the acquisition of Jk mining by emeco was the acquisition of a business and not a company, the recognised
values represent their fair values. the carrying amounts in the Jk mining business are not available to the group.
90
91
91
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
(c)
Acquisition of entities in the prior year (continued)
(ii)
on 4 January 2007, emeco international europe Bv, a subsidiary of the Company acquired euro machinery Bv
and euro rental Bv, independent earthmoving equipment rental and sales Companies based in hardenberg,
netherlands. Consideration comprised of a cash component of €4.4m (a$7.3m), and the equivalent of €2.0m
(a$3.3m) of the Company’s shares acquired on market on behalf of the vendors nominee. at acquisition all assets
and liabilities of euro rental Bv were transferred to euro machinery Bv. euro rental Bv is in the process of being
liquidated. from the date of acquisition to 30 June 2007 the subsidiary contributed a net profit after tax of $201,000
for the period.
effect of acquisitions
the acquisition had the following effect on the group’s assets and liabilities.
Acquiree’s net assets at the acquisition date
$’000
Cash and cash equivalents
property, plant and equipment
inventories
trade and other receivables
interest bearing loans and borrowings
trade and other creditors
provisions
Deferred tax liability
net identifiable assets and liabilities
goodwill on acquisition
total consideration (1)
Consideration paid, satisfied in cash (cash outflow)
Consideration paid, satisfied in shares in the Company (cash outflow)
Cash (acquired)
net cash outflow
recognised
value
Fair value
adjustment
carrying
amounts
-
-
-
-
-
-
-
-
-
7
1,163
11,043
2,371
(5,973)
(3,429)
(164)
(216)
4,802
7
1,163
11,043
2,371
(5,973)
(3,429)
(164)
(216)
4,802
5,848
10,650
7,322 (1)
3,328
(7)
10,643
(1) total cash consideration paid is subject to an earn out agreement. under the terms of the agreement the seller
will be entitled to scaled payments upon reaching certain performance hurdles. the value of these contingent
payments have not been reflected in the total consideration paid.
91
91
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
29
cOnTrOlled enTiTieS (cOnTinued)
(c)
Acquisition of entities in the prior year (continued)
(iii)
on 5 July 2006, emeco international pty ltd, a subsidiary of the Company acquired the Bevan’s business,
an independent earthmoving equipment rental and sales business based in orange, new south wales for
consideration comprised of a cash component of $8.7m, and an issue to the vendor of 666,666 shares (on a post
split basis) in the Company. upon acquisition the Bevan’s business was merged into the new south wales division
of emeco international pty ltd.
effect of acquisitions
the acquisition had the following effect on the consolidated entity’s assets and liabilities.
Acquiree’s net assets at the acquisition date
$’000
property, plant and equipment
inventories
Deferred tax asset
Contract intangibles
provisions
Deferred tax liability
net identifiable assets and liabilities
goodwill on acquisition
total consideration
Consideration paid, satisfied in cash (cash outflow)
Consideration paid, satisfied in shares in the Company
total consideration
recognised
value (1)
6,699
528
18
1,400
(61)
(420)
8,164
1,810
9,974
8,974
1,000
9,974
Contract intangibles were recognised in the business combination at the date of acquisition.
(1) as the acquisition of Bevans by emeco international pty limited was the acquisition of a business and not a
company, the recognised values represent their fair values. the carrying amounts in the Bevans business were
not available to the group.
(iv)
on 10 July 2006, emeco equipment (usa) llC (“emeco usa”), a subsidiary of the Company, acquired a package of
machines and business from tsm north america inc. (“tsm”) for a consideration of $15,189,000. included in the
acquisition were machines with a fair value of $13,473,000, goodwill of $1,637,000, contract intangibles of $113,000
and a deferred tax liability of $34,000. these machines joined emeco usa existing fleet within its rental segment.
the contribution of an acquired business on the group’s performance has not been separately disclosed given it has been
merged into an existing business of emeco and the results can not be separately determined.
92
93
93
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
(v)
following completion of the Company’s initial public offering on 4 august 2006 the Company acquired all the shares
in emeco (uk) limited, an entity which had previously been consolidated into the Company’s financial statements
as a minority interest. Consideration paid for emeco (uk) limited was $117.4m. subsequent to the acquisition, the
profits of emeco (uk) limited and its subsidiaries have been attributed to the equity holders of the parent. prior to
this, emeco (uk) limited consolidated results had been recognised as a minority interest for the period 1 July 2006
to 4 august 2006.
in accordance with aasB 127: Consolidated and separate financial statements, the economic entity method has
been adopted for recording the acquisition of emeco (uk) limited. under this method the differences between the
consideration paid and the net assets acquired is recognised as an acquisition reserve in equity.
effect of acquisitions
the acquisition had the following effect on the group’s assets and liabilities.
acquiree’s net assets at the acquisition date
$’000
Cash and cash equivalents
property, plant and equipment
inventories
trade and other receivables
Current tax asset
intangibles
interest-bearing loans and borrowings
trade and other payables
Deferred tax liability
provisions
net identifiable assets and liabilities
acquisition reserve
Consideration paid, satisfied in cash
note
recognised
value
Fair value
carrying
adjustment (2) amounts (1)
5,388
171,715
25,111
34,267
2,692
29,997
(191,130)
(25,949)
(10,412)
(125)
41,554
75,887
117,441
25
-
-
-
-
-
-
-
-
-
-
-
5,388
171,715
25,111
34,267
2,692
29,997
(191,130)
(25,949)
(10,412)
(125)
41,554
(1) the carrying amount of net identifiable assets and liabilities was the amount that emeco (uk) limited and its
subsidiaries were recognised in the group as a minority interest at acquisition.
(2) no fair value adjustments given the assets and liabilities had been previously consolidated by the group.
93
93
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
30
KeY MAnAGeMenT PerSOnnel diSclOSure
the following were key management personnel of the group at any time during the reporting period and unless otherwise
indicated were key management personnel for the entire period.
non-executive directors
a n Brennan (Chairperson)
p B Johnston
p J mcCullagh
g J minton
J s h fitton (resigned 17 august 2007)
executives directors
l C freedman (managing Director)
r l C adair (formerly Chief financial officer.
appointed executive Director Corporate strategy and
Business Development 1 november 2007)
executives
m a turner (general manager global procurement)
m Bourke (president, emeco Canada ltd)
a Carr (general manager emeco parts, maintenance & plant)
C moseley (president emeco usa)
g graham (managing Director europe, appointed
12 august 2007)
D o tilbrook (executive general manager western
region rental)
h Christie-Johnston (general manager southern region rental
& australian sales, appointed 30 July 2007)
i testrow (general manager northern regional rental
appointed 1 march 2008)
s g gobby (Chief financial officer, appointed 4 march 2008)
t t sauvarin (general manager emeco sales transferred to
global procurement 30 July 2007 and was no longer
classified as key management personnel)
During the year r parish and Da Jeffery were not classified as key management personnel. subsequent to year end a Carr
ceased to be classified as key management personnel.
Key management personnel compensation
the key management personnel compensation is as follows:
short-term employee benefits
other long term benefits
post-employment benefits
termination benefits
equity compensation benefits
consolidated
The company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
4,884,734
-
375,250
-
274,119
5,534,103
5,463,152
1,132,224
353,658
-
851,768
7,800,802
-
-
-
-
-
-
-
-
-
-
-
-
remuneration of key management personnel by the Group
the compensation disclosed above represents an allocation of the key management personnel’s compensation from the
group in relation to their services rendered to the Company.
individual directors and executives compensation disclosures
information regarding individual directors and executives compensation and some equity instruments disclosures as
permitted by Corporations regulations 2m.3.03 and 2m.6.04 are provided in the remuneration report section of the
Director’s report on pages 20 to 40.
apart from the details disclosed in this note, no director has entered into a material contract with the Company or the
group since the end of the previous financial year and there were no material contracts involving directors’ interests
existing at year-end.
94
95
95
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
equity instruments
Shares and rights over equity instruments granted as compensation under management incentive share plan
the Company has an ongoing management incentive share plan in which shares have been granted to certain directors
and employees of the Company. the shares vest over a five year period and are accounted for as an option in accordance
with aasB 2 Share Based Payments. the Company has provided a ten year interest free loan to facilitate the purchase of
the shares under the management incentive share plan.
Shares and rights over equity instruments granted as compensation under long term incentive plan
the Company has an ongoing long term incentive plan in which shares have been granted to certain employees of
the Company. the shares vest after 3 years depending upon the Company’s total shareholder return ranking against a peer
group of 105 Companies. the shares have been accounted for as an option in accordance with aasB2 Share
Based Payments.
the movement during the reporting year in the number of shares issued under the management incentive share plan
and the long term incentive plan in the Company held, directly, indirectly or beneficially, by each key management
person, including their related parties, is as follows. Directors or executives with no holdings are not included in the
following tables.
2008
held at
1 July 2007
2:1 share
split (1)
exercised
Granted as
compensa-
tion
held at
30 June
2008
vested
during
the year
vested
at 30 June
2008
directors & executives
alec Brennan
michael Bourke
anthony Carr
hamish Christie-Johnston
stephen gobby
David tilbrook
michael turner
ian testrow
greg graham
2007
directors & executives
alec Brennan
rodney parish
michael Bourke
anthony Carr
500,000
600,000
500,000
-
-
-
-
300,000
300,000
-
-
-
-
-
-
-
-
-
-
100,000
100,000
500,000
150,000
100,000
100,000
100,000
100,000
-
-
-
-
-
-
-
-
-
500,000
700,000
600,000
500,000
150,000
100,000
100,000
400,000
400,000
-
-
-
-
-
-
-
-
-
500,000
-
-
-
-
-
-
-
-
held at
1 July 2006
2:1 share
split (1)
exercised
Granted as
compensa-
tion
held at
30 June
2007
vested
during
the year
vested
at 30 June
2007
250,000
300,000
300,000
250,000
250,000
300,000
300,000
250,000
-
-
-
-
-
-
-
-
500,000
600,000
600,000
500,000
500,000
-
-
-
500,000
-
-
-
no shares held by key management personnel have vested under the management incentive share plan and are therefore
not included in issued capital.
(1) as a result of the Company’s initial public offering there was a 2:1 share split of existing shares on issue immediately
prior to the offering.
95
95
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
30
KeY MAnAGeMenT PerSOnnel diSclOSure (cOnTinued)
Options over equity instruments granted as compensation under a share option programme
During the prior year options were issued to mr l C freedman and mr r l C adair following the successful completion of
the Company’s ipo, the term of which are disclosed in the remuneration report. the movement during the reporting year
in the number of options held, directly, indirectly or beneficially, by each key management person, including their related
parties is as follows:
2008
directors &
executives
held at
Granted as
1 July 2007 compensation
exercised
Other
changes
held at
30 June
2008
vested
during
the year
vested and
exercisable
at 30 June
2008
l C freedman
r l C adair
4,800,000
1,600,000
-
-
-
-
-
-
4,800,000*
1,600,000*
-
-
1,600,000
533,333
2007
directors &
executives
held at
Granted as
1 July 2006 compensation
exercised
Other
changes
held at
30 June
2007
vested
during
the year
vested and
exercisable
at 30 June
2007
l C freedman
r l C adair
-
-
4,800,000
1,600,000
-
-
-
-
4,800,000
1,600,000
1,600,000
533,333
1,600,000
533,333
* subsequent to 30 June 2008, with effect from 26 august 2008, mr freedman forfeited 1,600,000 options and mr adair
forfeited 533,333 options. these forfeitures occurred because, under the terms of the options plan, the Company’s
earnings per share target for fy08 was not achieved. for further details, see page 29 of this report.
equity holdings and transactions
the shares in the Company held, directly, indirectly or beneficially, by each key management person, including their
personally-related entities at year end, is as follows. Directors or executives with no holdings are not included in these tables.
2008
directors
l C freedman
r l C adair
g J minton
p J mcCullagh
a n Brennan
p B Johnston
executives
D o tilbrook
m a turner
s g gobby
i testrow
h Christie-Johnston
held at
1 July 2007
Ordinary
Shares (1)
Purchases
Sales
held at
30 June 2008
Ordinary
Shares
18,000,000
6,000,000
161,267
184,907
1,031,420
20,000
1,000,000
100,000
200,000
31,800
350,000
80,000
-
-
-
-
-
-
19,000,000
6,100,000
361,267
216,707
1,381,420
100,000
5,500,000
5,500,000
-
186,368
-
-
-
50,000
-
150,000
(2,200,000)
-
-
-
-
3,300,000
5,500,000
50,000
186,368
150,000
(1) total does not include shares held under the Company’s share plans.
96
97
97
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
2007
directors
l C freedman
r l C adair
g J minton
p J mcCullagh
a n Brennan
J s h fitton
p B Johnston
executives
D o tilbrook
D a Jeffery
t t sauvarin
m a turner
conversion of
“A” and “B”
class
Management
Performance
Shares (1)
2:1 Share
Split (2)
Purchases
Sold
during iPO
held at
30 June 2007
Ordinary
Shares
1,875,000
2,625,000
-
-
-
-
-
19,327,188
6,753,604
-
-
200,000
108,225
-
-
-
161,267
184,907
131,420
171,578
20,000
(20,654,376)
(7,507,208)
-
-
-
-
-
18,000,000
6,000,000
161,267
184,907
531,420
388,028
20,000
held at
1 July 2006
Ordinary
Shares
17,452,188
4,128,604
-
-
200,000
108,225
-
3,819,804
3,819,804
4,264,204
3,819,804
2,625,000
2,625,000
1,875,000
2,625,000
6,444,804
6,444,804
6,139,204
6,444,804
-
-
215,924
-
(7,389,608)
(7,389,608)
(6,278,408)
(7,389,608)
5,500,000
5,500,000
6,215,924
5,500,000
(1) all a & B class performance shares held from the prior year were converted to ordinary shares immediately prior to the
Company’s initial public offering as a result of performance hurdles being achieved.
(2) as a result of the Company’s initial public offering there was a 2:1 share split of existing shares on issue immediately
prior to the offering.
loans
other than the loan issued under the management incentive share plan no specified director or executive has entered into
any loan arrangements with the group.
Other key management personnel transactions
a number of key management persons, or their related parties, hold positions in other entities that result in them having
control or significant influence over the financial or operating policies of those entities.
a number of these entities transacted with the Company or its subsidiaries in the reporting period. the terms and
conditions of the transactions with management persons and their related parties were no more favourable than those
available, or which might reasonably be expected to be available, on similar transactions to non-director related entities on
an arm’s length basis.
97
97
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
30
KeY MAnAGeMenT PerSOnnel diSclOSure (cOnTinued)
Other key management personnel transactions (continued)
the aggregate amount recognised during the year related to key management personnel and their related parties were
as follows:
Transaction
value
year ended
30 June
2008
$’000
note
Balance
outstanding
as
at 30 June
2008
$’000
2007
$’000
2007
$’000
Key management
person and their
related parties
(i) Key management person
Transaction
nil
-
-
-
-
-
(ii) Other related parties
mr g J minton
mr J D Carnegie
- archer Capital pty limited
mr r i koczkar
mr p J mcCullagh
- pacific equity partners pty limited
mr m a turner
mr D o tilbrook
- ivy street unit trust
Consulting services
(1)
-
937,500
Consulting services
(1)
-
937,500
sale of 510 great
eastern highway
(2)
-
2,950,000
-
-
-
-
-
-
(1) archer Capital pty limited (“archer”), a related party of g J minton and J D Carnegie in the capacity as partners, and
pacific equity partners pty limited (“pep”), a related party of r i koczkar and p J mcCullagh in their capacity as managing
Directors each entered into an investment services agreement with the Company to provide consulting services to the
Company. the agreements terminated as a result of the Companies ipo. archer and pep each received $750,000 for the
completion of the ipo and $187,500 for consulting services up to the date of the ipo.
(2) the group sold its premises at 510 great eastern highway, redcliffe in western australia to Demol investments pty
ltd as trustee of the ivy street unit trust (“trust”) in June 2007 for a consideration of $2.95m. the sale price was
negotiated on an arms length basis and in light of two independent expert valuations of the property. two of the group’s
key management personnel, mr David tilbrook and mr michael turner, hold units in the trust and each of them has a
significant influence over the trust.
98
99
99
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
31
nOn KeY MAnAGeMenT PerSOnnel diSclOSureS
the classes of non key management personnel are: subsidiaries (note 29)
Transactions
the aggregate amounts included in the profit before income tax
expense that resulted from transactions with non director related
parties are:
Dividends
aggregate amount of other transactions with non director
related parties:
loan advances to:
subsidiaries
Subsidiaries
consolidated
company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
-
-
-
-
33,600
7,500
511,706
507,412
loans are made between wholly owned subsidiaries of the group for capital purchases. loans outstanding between the
different wholly owned entities of the Company have no fixed date of repayment. loans made between subsidiaries within
a common taxable jurisdiction are interest free. Cross border subsidiary loans are charged at liBor plus a relevant arms
length mark up.
ultimate parent entity
emeco holdings limited is the ultimate parent entity of the group.
32
SuBSequenT evenTS
subsequent to 30 June 2008 the Company declared a 2.5 cent fully franked dividend payable 30 september 2008.
99
99
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
33
eArninGS Per ShAre
Basic earnings per share
the calculation of basic earnings per share at 30 June 2008 was based on the profit attributable to ordinary shareholders of
$67,529,000 (2007: $56,094,000) and a weighted average number of ordinary shares outstanding for the year ended 30 June
2008 of 631,237,586 (2007: 603,496,000).
weighted average number of ordinary shares
In thousands of shares
issued ordinary shares at 1 July
effect of shares issued during the year
effect of conversion of performance shares
effect of 2:1 share split
weighted average number of ordinary shares at 30 June
diluted earnings per share
consolidated consolidated
2008
2007
631,238
-
-
-
631,238
166,401
237,716
16,323
183,056
603,496
the calculation of diluted earnings per share at 30 June 2008 was based on profit attributable to ordinary shareholders of
$67,529,000 (2007: $56,094,000) and a weighted average number of ordinary shares outstanding during the financial year
ended 30 June 2008 of 631,238,000 (2007: 609,299,000). options are considered potential ordinary shares and have been
included in the dilutive earnings per share.
weighted average number of ordinary shares (diluted)
In thousands of shares
weighted average number of ordinary shares at 30 June
effect of conversion of options
weighted average number of ordinary shares (diluted) at 30 June
earnings per share
Basic earnings per share
In AUD
diluted earnings per share
In AUD
comparative information
consolidated
2008
consolidated
2007
631,238
-
631,238
603,496
5,803
609,299
0.107
0.093
0.107
0.092
the average market value of the Company’s shares for the purpose of calculating the dilutive effect of share options was
based on quoted market prices for the period that options were outstanding.
100
101
101
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
34
deed OF crOSS GuArAnTee
pursuant to asiC Class order 98/1418 (as amended) dated 13 august 1998, the wholly-owned subsidiaries listed below
are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and
directors’ report.
it is a condition of the Class order that the Company and each of the subsidiaries enter into a Deed of Cross guarantee.
the effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding
up of any of the subsidiaries under certain provisions of the Corporations act 2001. if a winding up occurs under other
provisions of the act, the Company will only be liable in the event that after six months any creditor has not been paid in
full. the subsidiaries have also given similar guarantees in the event that the Company is wound up.
the subsidiaries subject to the Deed entered into during the year are:
• Emeco Pty Ltd
• Emeco International Pty Limited
a consolidated income statement and consolidated balance sheet, comprising the controlled entities which are a party
to the Deed, after eliminating all transactions between parties to the Deed of Cross guarantee, at 30 June 2008 is set out
as follows:
Summarised income statement and retained profits
Profit before tax
income tax expense
Profit after tax
retained profits at beginning of year
Dividends paid during the year
Retained profits at end of year
Attributable to:
equity holders of the Company
Profit for the period
consolidated
2008
$’000
consolidated
2007
$’000
87,566
(26,360)
61,206
66,693
(33,600)
94,299
73,902
(22,232)
51,670
22,523
(7,500)
66,693
94,299
61,206
66,693
51,670
101
101
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
notes to the Financial statements
for the year enDeD 30 June 2008 (ContinueD)
34
deed OF crOSS GuArAnTee (cOnTinued)
Balance Sheet
current Assets
Cash assets
trade and other receivables
inventories
total current assets
non-current assets
trade and other receivables
intangible assets
investments accounted for using the
equity method
property, plant and equipment
total non-current assets
total assets
current liabilities
trade and other payables
interest bearing liabilities
provisions
total current liabilities
non-current liabilities
interest bearing liabilities
non interest bearing liabilities
Deferred tax liabilities
provisions
total non-current liabilities
total liabilities
net assets
equity
issued capital
reserves
retained earnings
total equity attributable to equity
holders of the parent
consolidated Consolidated
2008
$’000
2007
$’000
12,067
77,401
134,543
224,011
13,627
69,301
130,227
213,155
60,405
188,965
54,527
189,145
-
398,394
647,764
-
361,120
604,792
871,775
817,947
70,982
2,001
4,038
77,021
169,649
514,717
15,339
660
700,365
49,757
1,500
3,322
54,579
172,792
507,412
15,052
503
695,759
777,386
750,338
94,389
67,609
-
90
94,299
-
916
66,693
94,389
67,609
102
103
103
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Directors’ Declaration
1.
in the opinion of the directors of emeco holdings limited (“the Company”):
(a)
the financial statements and notes as set out on pages 42 to 102, including the remuneration disclosures of the
remuneration report in the Director’s report, set out on pages 29 to 39 are in accordance with the Corporations act
2001, including:
(i)
giving a true and fair view of the financial position of the Company and the group as at 30 June 2008 and
of their performance, as represented by the results of their operations and their cash flows, for the financial
year ended on that date; and
(ii)
complying with accounting standards and the Corporations regulations 2001;
(b)
(c)
2.
3.
the remuneration disclosures that are contained in pages 29 to 39 of the remuneration report in the Directors’
report comply with australian accounting standard aasB 124 related party Disclosure, the Corporations act 2001
and the Corporations regulations 2001; and
there are reasonable grounds to believe that the Company is able to pay its debts as and when they become due
and payable.
there are reasonable grounds to believe that the Company and the group of entities identified in note 34 will be
able to meet any obligation or liabilities to which they are or may become subject to by Deed of Cross guarantee
between the Company and those group of entities pursuant to asiC Class order 98/1418.
the directors have been given the declarations required by section 295a of the Corporations act 2001 by the chief
executive officer and chief financial officer for the financial year ended 30 June 2008.
Dated at perth, 25th day of august 2008.
signed in accordance with a resolution of the directors:
lAurence FreedMAn
Managing Director
rOBin AdAir
Director
103
103
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
inDepenDent aUDitor’s report
indePendend AudiTOr’S rePOrT TO The MeMBerS OF eMecO hOldinG liMiTed
report on the financial report
we have audited the accompanying financial report of emeco holdings limited (the Company), which comprises the
balance sheets as at 30 June 2008, and the income statements, statements of recognised income and expense and cash
flow statements for the year ended on that date, a description of significant accounting policies and other explanatory
notes and the directors’ declaration of the group comprising the company and the entities it controlled at the year’s end or
from time to time during the financial year.
Directors’ responsibility for the financial report
the directors of the company are responsible for the preparation and fair presentation of the financial report in accordance
with australian accounting standards (including the australian accounting interpretations) and the Corporations act 2001.
this responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation
of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility
our responsibility is to express an opinion on the financial report based on our audit. we conducted our audit in
accordance with australian auditing standards. these auditing standards require that we comply with relevant ethical
requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the
financial report is free from material misstatement.
an audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
report. the procedures selected depend on the auditor’s judgement, including the assessment of the risks of material
misstatement of the financial report, whether due to fraud or error. in making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. an audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the
financial report.
we performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with
the Corporations Act 2001 and australian accounting standards (including the australian accounting interpretations), a view
which is consistent with our understanding of the Company’s and the group’s financial position and of their performance
we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
104
105
105
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
Auditor’s opinion
in our opinion:
(a)
the financial report of emeco holdings limited is in accordance with the Corporations act 2001, including:
(i)
(ii)
giving a true and fair view of the Company’s and the group’s financial position as at 30 June 2008 and of
their performance for the year ended on that date; and
complying with australian accounting standards (including the australian accounting interpretations) and
the Corporations regulations 2001.
(b)
the financial report also complies with international financial reporting standards as disclosed in note 2.
report on the remuneration report
we have audited the remuneration report included in pages 29 to 40 of the directors’ report for the year ended 30
June 2008. the directors of the company are responsible for the preparation and presentation of the remuneration
report in accordance with section 300a of the Corporations act 2001. our responsibility is to express an opinion on the
remuneration report, based on our audit conducted in accordance with auditing standards.
Auditor’s opinion
in our opinion, the remuneration report of emeco holdings limited for the year ended 30 June 2008, complies with section
300a of the Corporations act 2001.
KPMG
BreTT FullArTOn
Partner
perth
25 august 2008
kpmg, an australian partnership and a member firm of the kpmg network of independent member firms affiliated with kpmg international, a swiss cooperative.
105
105
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
shareholDer inFormation
AnnuAl GenerAl MeeTinG
the annual general meeting of the Company will be held at the sydney marriott hotel, 36 College street, sydney, at 12
noon on wednesday, 12 november 2008. shareholders who are unable to attend the meeting are encouraged to complete
and return the proxy form that will accompany the notice of meeting.
SuBSTAnTiAl ShArehOlderS
Details regarding substantial holders of the Company’s ordinary shares as at 31 august 2008, as disclosed in the substantial
holding notices, are as follows:
name
the Capital group of Companies
maple-Brown abbott limited
indus Capital partners llC
diSTriBuTiOn OF ShArehOlderS
Shares
73,500,355
52,490,260
32,552,707
%
11.6
8.3
5.2
as at 31 august 2008, there were 8,345 holders of the Company’s ordinary shares. the distribution of shareholders as at 31
august 2008 was as follows:
Size of holding
1-1,000
1,001- 5,000
5,001-10,000
10,001-100,000
100,001 and over
total
no. of holders
number of shares
826
2,746
1,998
2,561
214
8,345
555,833
8,250,788
14,947,610
64,672,380
542,819,975
631,237,586
as at 31 august 2008, the number of shareholders holding less than a marketable parcel of shares is 127.
106
107
107
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
TwenTY lArGeST ShArehOlderS
the names of the twenty largest holders of the Company’s ordinary shares as at 31 august 2008 are:
name
hsBC Custody nominees (australia) limited
J p morgan nominees australia limited
rBC Dexia investor services australia nominees pty limited
national nominees limited
uBs wealth management australia nominees pty limited
Citicorp nominees pty limited
archer Capital 3a pty limited
archer Capital 3B pty limited
anZ nominees limited
suncorp Custodian services pty limited
uBs nominees pty limited
elphinstone holdings pty limited
goldking enterprises pty limited
michael anthony turner
merlin investments BvBa
Cogent nominees pty limited
linda Dorothy sauvarin
David raymond griffin
paradise resources pty limited
g harvey nominees pty limited
Shares
132,794,481
83,271,253
51,842,823
49,391,118
27,648,056
23,424,745
13,154,000
13,154,000
13,130,417
8,212,956
7,706,072
6,610,000
5,500,000
5,500,000
4,942,000
4,335,300
4,145,998
4,000,000
4,000,000
3,661,800
%
21.0
13.2
8.2
7.8
4.3
3.7
2.1
2.1
2.1
1.3
1.2
1.0
0.9
0.9
0.9
0.7
0.7
0.6
0.6
0.6
vOTinG riGhTS OF OrdinArY ShAreS
voting rights of shareholders are governed by the Company’s constitution. the Constitution provides that on a show of
hands every member present in person or by proxy has 1 vote and on a poll every member present in person or by proxy
has 1 vote for each fully paid ordinary share held by the member.
107
107
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
company Directory
direcTOrS
robin adair
alec Brennan
laurence freedman
peter Johnston
paul mcCullagh
greg minton
SecreTArY
michael kirkpatrick
reGiSTered OFFice
ground floor, 10 ord street
west perth wa 6005
telephone: (08) 9420 0222
facsimile: (08) 9321 1366
ShAre reGiSTrY
link market services limited
level 12, 680 george street
sydney nsw 2000
ph: 1300 554 474
www.linkmarketservices.com.au
AudiTOrS
kpmg
152-158 st george’s terrace
perth wa 6000
STOcK eXchAnGe liSTinG
emeco holdings ltd ordinary shares are listed on the australian
stock exchange ltd. asx code: ehl
108
109
EmEco Holdings limitEd ANd iTs CONTROLLEd ENTiTiEs
photography by James sallie
Design and artwork by Design City
109
www.emecoequipment.com